1 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 June 30, 1996 ------------- 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 July 25, 1996 - - ---------------------------- ---------------------------- Common Stock, $1.00 par value 1,211,017 Class B Common Stock, $.10 par value 562,785
2 BADGER METER, INC. INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I. Financial Information: Item 1 Financial Statements: Consolidated Condensed Balance Sheets - - June 30, 1996 and December 31, 1995 3 Consolidated Condensed Statements of Operations - - Three and Six Months Ended June 30, 1996 and 1995 4 Consolidated Condensed Statements of Cash Flows - - Six Months Ended June 30, 1996 and 1995 5 Notes to Consolidated Condensed Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 4 Submission of Matters to a Vote of Security Holders 8 Item 6(a) Exhibits 8 Item 6(b) Reports on Form 8-K 8 Exhibit Index 10 </TABLE> -2-
3 Part I - Financial Information BADGER METER, INC. Item 1 Financial Statements CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) <TABLE> <CAPTION> June 30, December 31, 1996 1995 ---- ---- Assets (Unaudited) ------ ----------- <S> <C> <C> Current assets: Cash $ 159 $ 1,177 Receivables 16,415 13,661 Inventories: Finished goods 3,814 3,403 Work in process 7,721 6,750 Raw materials and purchased parts 5,558 5,681 -------- --------- Total inventories 17,093 15,834 Prepaid expenses 756 745 -------- --------- Total current assets 34,423 31,417 Property, plant and equipment 54,524 55,101 Less accumulated depreciation (37,065) (37,714) -------- --------- 17,459 17,387 Intangible assets, at cost less accumulated amortization 1,047 1,217 Pension asset 5,993 5,821 Deferred income taxes 1,527 1,536 Deferred charges and other assets 3,300 3,149 -------- --------- Total assets $ 63,749 $ 60,527 ======== ========= Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Short-term debt $ 4,211 $ 5,515 Payables 7,452 4,922 Accrued liabilities 4,343 4,577 Income taxes 386 226 -------- --------- Total current liabilities 16,392 15,240 Accrued non-pension postretirement benefits 8,208 8,396 Other accrued employee benefits 4,094 3,728 Long-term debt 1,000 1,000 Shareholders' equity: Common Stock 1,568 1,552 Less: Treasury stock (358) (358) -------- --------- 1,210 1,194 Class B Common Stock 56 56 Capital in excess of par value 8,114 7,832 Reinvested earnings 26,111 24,552 Less: Employee benefit stock (1,067) (1,102) Pension liability adjustment (369) (369) -------- --------- Total shareholders' equity 34,055 32,163 -------- --------- Total liabilities and shareholders' equity $ 63,749 $ 60,527 ======== ========= </TABLE> See accompanying notes to consolidated condensed financial statements. -3-
4 BADGER METER, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net sales $ 30,542 $ 28,579 $ 57,177 $ 56,508 Operating costs and expenses: Cost of sales 19,739 18,588 36,453 36,779 Marketing and administrative 6,841 6,407 13,640 12,822 Research and engineering 1,568 1,588 3,127 3,173 --------- --------- --------- --------- 28,148 26,583 53,220 52,774 --------- --------- --------- --------- Operating earnings 2,394 1,996 3,957 3,734 Interest expense 103 237 221 486 Other deductions 62 123 116 229 --------- --------- --------- --------- Earnings before income taxes 2,229 1,636 3,620 3,019 Provision for income taxes 840 585 1,343 1,111 --------- --------- --------- --------- Net earnings $ 1,389 $ 1,051 $ 2,277 $ 1,908 ========= ========= ========= ========= Per share amounts: Net earnings * $ .76 $ .60 $ 1.25 $ 1.09 ========= ========= ========= ========= Dividends declared - Common Stock $ .2200 $ .2000 $ .4200 $ .3815 ========= ========= ========= ========= Dividends declared - Class B Common Stock $ .200 $ .182 $ .382 $ .347 ========= ========= ========= ========= Weighted average shares outstanding 1,769,489 1,754,092 1,765,138 1,752,792 ========= ========= ========= ========= </TABLE> *1996 Earnings Per Share include the effect of dilutive stock options. See accompanying notes to consolidated condensed financial statements. -4-
5 BADGER METER, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Dollars in Thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, -------- 1996 1995 ---- ---- <S> <C> <C> Operating activities: Net earnings $ 2,277 $ 1,908 Adjustments to reconcile net earnings to net cash provided by (used for) operations: Depreciation 1,927 1,831 Amortization 425 390 Noncurrent employee benefits 31 55 Deferred income taxes 9 (237) Other 14 10 Changes in: Receivables (2,754) (2,231) Inventory (1,259) (1,130) Current liabilities 2,439 1,205 Prepaid expenses (11) 51 ---------- ------------ Total adjustments 821 (56) ---------- ------------ Net cash provided by operations 3,098 1,852 ---------- ------------ Investing activities: Property, plant and equipment (2,013) (1,836) Other - net (388) (150) ---------- ------------ Net cash used for investing activities (2,401) (1,986) ---------- ------------ Financing activities: Bank borrowings (repayments) (1,304) 520 Treasury stock 5 -- Dividends (718) (649) Exercised stock options 302 57 ---------- ------------ Net cash provided by (used for) financing activities (1,715) (72) ---------- ------------ Increase (decrease) in cash (1,018) (206) Beginning of year 1,177 365 ---------- ------------ End of period $ 159 $ 159 ========== ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 1,174 $ 896 ========== ============ Interest $ 177 $ 477 ========== ============ </TABLE> See accompanying notes to consolidated condensed financial statements. -5-
6 BADGER METER, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated condensed financial position at June 30, 1996 and the results of operations for the three and six-month periods ended June 30, 1996 and 1995 and the cash flows for the six-month periods ended June 30, 1996 and 1995. The results of operations for the six-month period ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. The consolidated condensed balance sheet at December 31, 1995 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, 1995. 2. In October, 1995, the Financial Accounting Standards Board issued Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" (FAS 123), effective for fiscal years beginning after December 15, 1995. As allowed by FAS 123, the company intends to use prior standards (APB 25) for determining annual compensation charges and will disclose the impact of fair value. -6-
7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Record sales caused receivables to increase 20%, or $2,754,000, from the seasonally low December 31, 1995 balance. Inventories increased 8%, or $1,259,000, primarily to support future sales needs. Payables increased 51%, or $2,530,000, due to increased inventory purchases and other trade payables since December 31, 1995. Reduced cash balances of $1,018,000, combined with funds generated by net earnings, were used to pay down short-term debt by $1,304,000 and also to fund the net working capital requirements. As of June 30,1996, the company had approximately $27,000,000 of credit lines with domestic and foreign banks of which $4,211,000 was in use. This compares to $10,957,000 in use at June 30, 1995 and $5,515,000 at December 31, 1995. The company believes that the present lines of credit are adequate to meet operating requirements. Results of Operations Net sales for the second quarter of 1996 of $30,542,000 reflect a 6.9% increase over sales of $28,579,000 for the same period in 1995. The increase was primarily related to pricing and product mix. For the first six months of 1996, sales were $57,177,000, a 1.2% increase over sales of $56,508,000 for the same period in 1995. The gross profit margin improved from 34.9% for the first six months of 1995 to 36.2% for the same period in 1996. This increase was due primarily to increased manufacturing efficiencies and favorable pricing. Marketing and administrative costs increased 6.8% for the quarter and 6.4% for the six months ended June 30, 1996 as compared to the same periods of 1995. The increase was primarily due to the development of an international group and the provision for a new long-term compensation plan. Research and engineering expenses were comparable between the periods. Interest expense decreased $134,000 for the quarter and $265,000 for the six months ended June 30, 1996 as compared to the same periods of 1995, due to lower interest rates and lower debt balances outstanding. Other deductions decreased due primarily to favorable foreign exchange transactions. The effective tax rate for the second quarter of 1996 was estimated to be 37.7%, which is higher than the 35.8% used for the second quarter of 1995, due to changes in estimated deductions and tax credits for 1996. These same factors caused the 1996 year-to-date tax rate of 37.1% to increase over the 36.8% rate used for the same period of 1995. Earnings for the second quarter of 1996 of $1,389,000 have increased 32.2% over second quarter 1995 earnings of $1,051,000, due primarily to the higher sales, improved margins and lower interest costs. The 1996 year-to-date earnings of $2,277,000 increased 19.3% over the same period of 1995 earnings of $1,908,000 due primarily to improved margins and lower interest expense. Earnings per share percentage increases were slightly lower for both periods due to the impact of dilutive options in 1996. No risks or uncertainties were identified that could have a material impact on operations and no long-lived assets have become permanently impaired in value. -7-
8 Part II - Other Information Item 4 Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders was held April 19, 1996. (b) Proxies were solicited for the election of eight directors. There was no solicitation in opposition to management's nominees and all nominees were re-elected. As of the record date, February 29, 1996, the total number of votes represented by shares of Common Stock and Class B Common Stock was 6,827,357 votes. (c) 1. The Badger Meter, Inc. 1995 Stock Option Plan (as amended) ("Option Plan") was approved. The Option Plan provides for the grant of options representing up to an aggregate of 100,000 shares of Common Stock to approximately 250 employees eligible to participate in the Option Plan. The option price will not be less than 50% (100% in the case of Incentive Stock Options) of fair market value on the date of grant. <TABLE> <CAPTION> Votes Votes Votes Broker FOR AGAINST ABSTAIN Non-Votes --- ------- ------- --------- <S> <C> <C> <C> <C> STOCK OPTION PLAN 6,351,608 48,184 8,743 131,941 </TABLE> (c) 2. The following table represents the aggregate votes related to the election of directors: <TABLE> <CAPTION> Votes Votes NAME FOR WITHHELD Not Voted - - ---- --- -------- --------- <S> <C> <C> <C> James L.Forbes 6,531,834 7,642 287,881 Robert M. Hoffer 6,530,634 8,842 287,881 Charles F. James, Jr. 6,530,834 8,642 287,881 Donald J. Schuenke 6,530,634 8,842 287,881 John J. Stollenwerk 6,531,884 7,592 287,881 Pamela B. Strobel 6,530,634 8,842 287,881 James O. Wright 6,531,834 7,642 287,881 James O. Wright, Jr. 6,531,834 7,642 287,881 </TABLE> (d) Not applicable. Item 6 Exhibits and Reports on Form 8-K (a) Exhibits: (10.0) The Badger Meter, Inc. 1995 Stock Option Plan (as amended) (11.0) Computation of fully diluted earnings per share (27.0) Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended June 30, 1996. -8-
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. BADGER METER, INC. ------------------ Dated: July 29, 1996 By /s/ Richard A. Meeusen ---------------------- Richard A. Meeusen Vice President - Finance and Treasurer Chief Financial Officer By /s/ William J. Shinners ----------------------- William J. Shinners Vice President - Controller -9-
10 EXHIBIT INDEX <TABLE> <CAPTION> Page Number <S> <C> <C> (10.0) The Badger Meter, Inc. 1995 Stock Option Plan (as amended) 11 (11.0) Computation of fully diluted earnings per share 15 (27.0) Financial Data Schedule </TABLE> -10-