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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended MARCH 31, 2005
BADGER METER, INC.
4545 W. BROWN DEER ROAD
MILWAUKEE, WISCONSIN 53223
(414) 355-0400
A Wisconsin Corporation
IRS Employer Identification No. 39-0143280
Commission File No. 1-6706
The company 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, and
has been subject to such filing requirements for the past 90 days.
The company is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
As of April 13, 2005, there were 6,758,773 shares of Common Stock
outstanding with a par value of $1.00 per share.
BADGER METER, INC.
QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED MARCH 31, 2005
INDEX
Page No.
--------
Part I. Financial Information:
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets - - March 31, 2005 and
December 31, 2004 4
Consolidated Condensed Statements of Operations - - Three
Months Ended March 31, 2005 and 2004 5
Consolidated Condensed Statements of Cash Flows - - Three
Months Ended March 31, 2005 and 2004 6
Notes to Unaudited Consolidated Condensed Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 12
Item 4 Controls and Procedures 12
Part II. Other Information:
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 6 Exhibits 13
Signatures 14
Exhibit Index 15
2
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q, 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. All such forward looking statements are
based on the Company's then current views and assumptions and involve risks and
uncertainties that include, among other things:
- the continued shift in the Company's business from lower cost, local-read
meters toward more expensive, value-added automatic meter reading (AMR)
systems;
- the success or failure of newer Company products, including the Orion(R)
radio frequency mobile AMR system, the absolute digital encoder (ADE(TM))
and the Galaxy(TM) fixed network AMR system;
- changes in competitive pricing and bids in both the domestic and foreign
marketplaces, and particularly in continued intense price competition on
government bid contracts for lower cost, local read meters;
- the actions (or lack thereof) of the Company's competitors;
- the Company's relationships with its alliance partners, particularly its
alliance partners that provide AMR connectivity solutions;
- the general health of the United States and foreign economies, including
housing starts in the United States and overall industrial activity;
- increases in the cost and/or availability of needed raw materials and
parts, including recent increases in the cost of brass housings as a
result of increases in the commodity prices for copper and zinc at the
supplier level;
- changes in foreign economic conditions, including currency fluctuations
such as the increase in the euro versus the United States dollar; and
- changes in laws and regulations, particularly laws dealing with the use of
lead (which can be used in the manufacture of certain meters incorporating
brass housings) and Federal Communications Commission rules affecting the
use and/or licensing of radio frequencies necessary for AMR products.
All of these factors are beyond the Company's control to varying degrees.
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 in this document are made only as of the date of this
document and the Company assumes no obligation, and disclaims any obligation, to
update any such forward looking statements to reflect subsequent events or
circumstances.
3
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BADGER METER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
2005 2004
----------- ------------
(Unaudited)
(In thousands except
share amounts)
ASSETS
Current assets:
Cash $ 2,375 $ 2,834
Receivables 32,142 26,879
Inventories:
Finished goods 13,559 14,121
Work in process 9,408 9,054
Raw materials 11,919 12,471
----------- -----------
Total inventories 34,886 35,646
Prepaid expenses 2,999 2,016
Deferred income taxes 3,994 4,007
----------- -----------
Total current assets 76,396 71,382
Property, plant and equipment, at cost 107,394 107,295
Less accumulated depreciation (66,327) (65,279)
----------- -----------
Net property, plant and equipment 41,067 42,016
Intangible assets, at cost less accumulated amortization 1,201 1,160
Prepaid pension 16,902 17,290
Other assets 4,100 4,009
Goodwill 6,929 7,104
----------- -----------
Total assets $ 146,595 $ 142,961
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 18,412 $ 17,539
Current portion of long-term debt 5,395 5,348
Payables 15,501 11,395
Accrued compensation and employee benefits 4,620 6,166
Warranty and after-sale costs 3,730 3,817
Income and other taxes 2,563 982
----------- -----------
Total current liabilities 50,221 45,247
Deferred income taxes 7,415 7,437
Accrued non-pension postretirement benefits 4,467 4,490
Other accrued employee benefits 6,575 6,902
Long-term debt 11,634 14,819
Commitments and contingencies
Shareholders' equity:
Common Stock 9,922 9,872
Capital in excess of par value 19,023 18,313
Reinvested earnings 67,546 64,928
Accumulated other comprehensive income 1,266 2,024
Less: Employee benefit stock (915) (1,065)
Treasury stock, at cost (30,559) (30,006)
----------- -----------
Total shareholders' equity 66,283 64,066
----------- -----------
Total liabilities and shareholders' equity $ 146,595 $ 142,961
=========== ===========
See accompanying notes to consolidated condensed financial statements.
4
BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------
(Unaudited)
2005 2004
---- ----
(In thousands except share and per
share amounts)
Net sales $ 54,432 $ 49,602
Cost of sales 35,470 32,976
----------- -----------
Gross margin 18,962 16,626
Selling, engineering and administration 12,820 12,028
----------- -----------
Operating earnings 6,142 4,598
Interest expense 458 428
Other expense (income), net (344) 127
----------- -----------
Earnings before income taxes 6,028 4,043
Provision for income taxes 2,472 1,593
----------- -----------
Net earnings $ 3,556 $ 2,450
=========== ===========
Per share amounts:
Earnings per share:
Basic $ .53 $ .37
Diluted $ .51 $ .36
Dividends declared: $ .14 $ .13
Shares used in computation of
earnings per share:
Basic 6,701,667 6,549,386
Impact of dilutive stock options 239,009 167,828
----------- -----------
Diluted 6,940,676 6,717,214
=========== ===========
See accompanying notes to consolidated condensed financial statements.
5
BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
---------
(Unaudited)
(In thousands)
2005 2004
---- ----
Operating activities:
Net earnings $ 3,556 $ 2,450
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 1,738 1,780
Amortization 53 37
Tax benefit on stock options 239 56
Deferred income taxes (9) 47
Noncurrent employee benefits 188 237
Changes in:
Receivables (5,190) (1,966)
Inventories 430 (1,699)
Prepaid expenses (978) (514)
Current liabilities other than debt 3,887 (3,389)
----------- -----------
Total adjustments 358 (5,411)
----------- -----------
Net cash provided by (used for) operations 3,914 (2,961)
----------- -----------
Investing activities:
Property, plant and equipment (1,169) (1,373)
Other - net (208) 5
----------- -----------
Net cash used for investing activities (1,377) (1,368)
----------- -----------
Financing activities:
Net increase in short-term debt 873 5,717
Repayments of long-term debt (3,138) (1,894)
Dividends paid (938) (885)
Proceeds from exercise of stock options 607 382
Treasury stock purchases (632) (458)
Issuance of treasury stock 232 153
----------- -----------
Net cash provided by (used for)
financing activities (2,996) 3,015
----------- -----------
Increase (decrease) in cash (459) (1,314)
Cash - beginning of period 2,834 2,089
----------- -----------
Cash - end of period $ 2,375 $ 775
=========== ===========
See accompanying notes to consolidated condensed financial statements.
6
BADGER METER, INC.
NOTES TO UNAUDITED 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 Company's consolidated condensed financial
position at March 31, 2005, results of operations for the three-month
periods ended March 31, 2005 and 2004, and cash flows for the three-month
periods ended March 31, 2005 and 2004. The results of operations for any
interim period are not necessarily indicative of the results to be
expected for the full year.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
Certain reclassifications have been made to the 2004 consolidated
condensed financial statements to conform to the 2005 presentation.
2. The consolidated condensed balance sheet at December 31, 2004 was derived
from amounts included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2004. Refer to the footnotes to the financial
statements included in that report for a description of the Company's
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 adjustments in the interim.
GOODWILL Goodwill decreased from $7,104,000 at December 31, 2004 to
$6,929,000 at March 31, 2005 as a result of translation adjustments for
goodwill denominated in foreign currencies.
WARRANTY AND AFTER-SALE COSTS The Company estimates and records provisions
for warranties and other after-sale costs in the period the sale is
reported. After-sale costs represent a variety of activities outside of
the written warranty policy, such as investigation of unanticipated
problems after the customer has installed the product, or analysis of
water quality issues. Changes in the Company's warranty and after-sale
costs reserve for the three-month periods ended March 31, 2005 and 2004
are as follows:
Balance at Additions Balance
beginning charged to Costs at
(In thousands) of year earnings incurred March 31
- -------------- ---------- ---------- --------- --------
2005 $ 3,817 $ 386 $ (473) $ 3,730
2004 $ 3,767 $ 207 $ (205) $ 3,769
STOCK OPTION PLANS The Company has six 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 400,000 shares of Common Stock, with vesting periods of up to
ten years and maximum option terms of ten years. As of March 31, 2005,
options to purchase 299,924 shares remain available for grant under these
plans.
As allowed by Financial Accounting Standards Board (FASB) Statement No.
123 (SFAS 123), "Accounting for Stock-Based Compensation," and Statement
No. 148 (SFAS 148), "Accounting for Stock-Based Compensation - Transition
and Disclosure," the Company has elected to follow Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees,"
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.
7
The following table illustrates the effect on net earnings and earnings
per share if the Company had applied the fair value recognition provisions
of SFAS 123 to stock-based employee compensation. 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 earnings of future years.
Three months
ended March 31,
-----------------------
(In thousands except per share amounts) 2005 2004
- ------------------------------------------ ---------- ----------
Net earnings, as reported $ 3,556 $ 2,450
Deduct: Total stock-based compensation
determined under fair value based method
for all awards since January 1, 1995,
net of related tax effects (76) (103)
--------- ---------
Pro forma net earnings $ 3,480 $ 2,347
========= =========
Earnings per share:
Basic, as reported $ .53 $ .37
Basic, pro forma $ .52 $ .36
Diluted, as reported $ .51 $ .36
Diluted, pro forma $ .50 $ .35
In December 2004, the FASB issued Statement No. 123(R) (SFAS 123(R),
"Share-Based Payment," which changed the accounting rules relating to
equity compensation programs. On April 15, 2005, the Security and Exchange
Commission provided a phased-in implementation process for SFAS 123(R),
which will now be effective for the Company on January 1, 2006. Refer to
the Notes to Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for additional information regarding SFAS
123(R) and the anticipated impact of adoption.
3. Included in other expense (income), net are 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, with the
exception of Badger Meter France (the French parent holding company of
MecaPlus Equipments SA (MPE)), MPE and Badger Meter Czech Republic, whose
functional currency is the euro. A foreign currency gain of $286,000 and a
$(61,000) loss was reported at March 31, 2005 and 2004, respectively,
primarily related to the recent strengthening of the U.S. dollar versus
the euro.
4. The Company maintains a non-contributory defined benefit pension plan for
its domestic employees and a non-contributory postretirement plan that
provides medical benefits for certain domestic retirees and eligible
dependents. The following table sets forth the components of net periodic
benefit cost for the three months ended March 31, 2005 and 2004 based on a
September 30 measurement date:
Other
postretirement
Pension benefits benefits
---------------------- -----------------
(In thousands) 2005 2004 2005 2004
- ---------------------------------- ---------- ---------- ------- --------
Service cost $ 457 $ 407 $ 44 $ 32
Interest cost 625 627 125 120
Expected return on plan assets (910) (927) - -
Amortization of prior service cost (29) (34) (45) (43)
Amortization of net loss 248 164 40 39
--------- --------- ------ -------
Net periodic benefit cost $ 391 $ 237 $ 164 $ 148
========= ========= ====== =======
The Company previously disclosed in its financial statements for the year
ended December 31, 2004 that it did not expect to contribute funds to its
pension plan in 2005. While the Company believes that it will not be
required to make a contribution in 2005, such belief is based upon the
expected return on assets as of the annual measurement date of September
30, 2005.
The Company also disclosed in its financial statements for the year ended
December 31, 2004 that it estimated it would pay $688,000 in other
postretirement benefits in 2005. As of March 31, 2005, $172,000 of such
benefits were paid, which was less than anticipated due to the timing of
payments and lower than expected benefit payment obligations. The Company
continues to believe that its estimated payments for the full year are
reasonable. Note that the amount of benefits paid in calendar year 2005
will not impact the expense for postretirement benefits for the current
year.
8
5. The Company guarantees the debt of the Badger Meter Officers' Voting Trust
(BMOVT), from which the trust obtained loans from a bank on behalf of the
officers of the Company in order to purchase shares of the Company's
Common Stock. The officers' loan amounts are collateralized by the
Company's shares that were purchased with the loans' proceeds. There have
been no loans made to officers by the BMOVT since July 2002. The Company
has guaranteed debt of $1,428,000 and $1,593,000 of the trust's debt at
March 31, 2005 and December 31, 2004, respectively. The current loan
matures in April 2005, at which time it is expected to be renewed. The
fair market value of this guarantee at March 31, 2004 continues to be
insignificant because the collateral value of the shares exceeds the loan
amount.
The Company guarantees the outstanding debt of the Badger Meter Employee
Savings and Stock Ownership Plan that is recorded in long-term debt,
offset by a similar amount of unearned compensation that has been recorded
as a reduction of shareholders' equity. The loan amount is collateralized
by shares of the Company's Common Stock. A payment of $150,000 in the
first quarter of 2005 reduced the loan from $1,065,000 at December 31,
2004 to $915,000 at March 31, 2005.
6. Total comprehensive income was $2,798,000 and $2,336,000 for the
three-month periods ended March 31, 2005 and 2004, respectively. Included
in the three months ended March 31, 2005 and 2004 was $758,000 and
$114,000, respectively, of other comprehensive loss related to foreign
currency translation adjustments.
7. In the normal course of business, the Company is named in legal
proceedings from time to time. There are currently no material legal
proceedings pending with respect to the Company. The more significant
legal proceedings are discussed below.
The Company is subject to contingencies relating to environmental laws and
regulations. Currently, the Company is in the process of resolving issues
relating to two landfill sites. Provision has been made for all known
settlement costs, which are not material.
The Company is also a defendant in several multi-party asbestos lawsuits
pending in various state courts. These lawsuits assert claims alleging
that certain industrial products were manufactured by the defendants and
were the cause of injury and harm. The Company is vigorously defending
itself against these alleged claims. Although it is not possible to
predict the ultimate outcome of these matters, the Company does not
believe the ultimate resolution of these issues will have a material
adverse effect on the Company's financial position or results of
operations, either from a cash flow perspective or on the financial
statements as a whole.
The Company has evaluated its worldwide operations to determine whether
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 in the short term.
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.
9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS DESCRIPTION AND OVERVIEW
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's product lines fall into two
general categories, utility and industrial. Two product lines, residential and
commercial water meters (with various meter reading technology systems), are
generally sold to water utilities and constitute a majority of the Company's
sales. Industrial product line sales comprise the remainder of the Company's
sales and include automotive fluid meters and systems, small precision valves,
electromagnetic meters, impeller flow meters and industrial process meters (all
with related accessories and instrumentation).
Residential and commercial water meters and related systems are classified
as local (or manual) read meters or automatic meter reading (AMR) products.
Local read meters consist of a water meter and a register. With AMR meters, the
register digitally encodes the mechanical reading and its radio frequency
transmitter communicates the data to a computerized system that collects the
data and sends it to specific utility computerized programs. Net sales and the
corresponding net earnings depend on unit volume and mix of products, with the
Company generally earning higher margins on AMR products. There is a base level
of annual business for these products driven by replacement units and, to a
lesser extent, housing starts. Sales above the base level depend on conversions
to AMR. The Company believes that conversion from local read meters to AMR
products can accelerate replacements of meters and result in growth, because it
is estimated that only 15% of the water meter market has been converted to AMR.
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.
The industrial products generally serve niche markets and have in the past
utilized technology derived from utility products to serve industrial uses. As
these markets evolve, these products are becoming more specialized to meet
industrial flow measurement and communication protocol requirements. Serving
these markets allows the Company to expand its technologies into other areas of
flow measurement and control, as well as utilizing existing capacity and
spreading fixed costs over a larger sales base.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31
Net sales for the three-month period ended March 31, 2005 increased $4.8
million, or 9.7%, over the same period in 2004. Residential and commercial water
meter sales represented 73.2% of total sales in the first quarter of 2005
compared to 71.2% in the first quarter of 2004. These sales increased $4.5
million to $39.8 million compared to $35.3 million in the same period in 2004.
These increases were in both local (or manual) read water meter units as well as
units utilizing AMR technologies, which carry higher prices and contributed to
the majority of the increase in net sales for the quarter. Most notable in the
increase of AMR technologies was the increase in sales of the Company's
proprietary AMR product, Orion, which increased three-fold over the amount sold
in the first quarter of 2004. This was mitigated somewhat by sales decreases in
other AMR technologies.
Industrial sales are affected by economic conditions, domestically and
internationally, in each of the markets served by the various product lines. In
total, industrial products represented 26.8% of total sales for the three months
ended March 31, 2005 compared to 28.8% for the same period in 2004. The change
was due to a higher percentage increase in water meter sales compared to
industrial product sales. Industrial sales increased $0.3 million to $14.6
million in the first quarter of 2005 compared to $14.3 million in the first
quarter of 2004. This was the net effect of increases in sales of small
precision valves, electromagnetic meters and impeller flow meters offset
somewhat by slight declines in sales of other industrial products.
Gross margins for the first quarter of 2005 were 34.8% compared to 33.5%
in the first quarter of 2004. The increase was due to the higher mix of AMR
products, particularly the Orion product, which carry higher margins, and price
increases instituted on select products offset somewhat by continuing price
pressures due to competition and the higher costs of metal alloys.
Selling, engineering and administration costs in the first quarter of 2005
were $0.8 million, or 6.6%, higher than the same period in 2004 due to higher
research and development costs, increased costs associated with increased sales
and normal inflationary pressures offset somewhat by continuing cost control
efforts.
10
Interest expense for the first quarter of 2005 was $30,000 lower than the
same period in the prior year primarily due to lower debt balances offset
somewhat by higher interest rates.
Other expense (income), net for the first quarter of 2005 was $0.5 million
lower than the same period in 2004 due primarily to foreign exchange gains as a
result of the recent strengthening of the US dollar versus the euro.
The effective tax rate for the first quarter of 2005 was 41.0% compared to
39.4% due principally to higher Federal and state rates.
As a result of the above-mentioned items, net earnings for the first
quarter of 2005 were $3.6 million compared to net earnings in the first quarter
of 2004 of $2.5 million. On a diluted earnings per share basis, this equated to
$0.51 per share for the first quarter of 2005 compared to $0.36 for the same
period in 2004.
LIQUIDITY AND CAPITAL RESOURCES
The main sources of liquidity for the Company typically are cash from
operations and borrowing capacity. For the first three months of 2005, $3.9
million of cash was provided by operations, primarily as the net result of
increased earnings adjusted for depreciation and amortization and increased
payables offset by increases in receivables due to increased sales.
The change in the receivables balance from $26.9 million at December 31,
2004 to $32.1 million at March 31, 2005 was primarily due to increased sales and
the timing of certain customer payments.
Inventories at March 31, 2005 have declined nearly $0.8 million from the
December 31, 2004 balance of $35.6 million due primarily to the higher sales in
the first quarter.
Capital expenditures of $1.2 million were less than the depreciation
expense of $1.7 million for the first three months of 2005 resulting in a
decrease in net property, plant and equipment balances from December 31, 2004.
Short-term debt and the current portion of long-term debt at March 31,
2005 increased $0.9 million to a combined $23.8 million versus a balance at the
end of 2004 of $22.9 million. This increase was primarily due to the cash
required for increased receivables, repayments of long-term debt and dividends
not covered by the increase in earnings and accounts payable. The long-term debt
amounts declined as a result of regularly scheduled payments.
Payables increased to $15.5 million at March 31, 2005 from $11.4 million
at December 31, 2004 primarily as a result of the timing of payments. Income and
other taxes increased to $2.6 million from $1.0 million at December 31, 2004 as
a result of the timing of tax payments.
Common stock and capital in excess of par value have increased from
December 31, 2004 due to new shares issued in connection with the exercise of
stock options and purchases by the Employee Savings and Stock Ownership Plan
(ESSOP). Treasury stock increased due to shares repurchased during the period.
Employee benefit stock decreased $150,000 due to shares released as a result of
a payment made on the ESSOP loan during the first quarter of 2005.
Badger Meter's financial condition remains strong. The Company believes
that its operating cash flows, available borrowing capacity, including $23.9
million of unused credit lines, and its ability to raise additional capital
provide adequate resources to fund ongoing operating requirements, future
capital requirements and the development of new products.
OTHER MATTERS
There are currently no material legal proceedings pending with respect to
the Company. The more significant legal proceedings are discussed below.
The Company is subject to contingencies relative to environmental laws and
regulations. Currently, the Company is in the process of resolving issues
relative to two landfill sites. Provision has been made for all known settlement
costs, which are not material.
11
The Company is also a defendant in a number of multi-party asbestos
lawsuits pending in various state courts. These lawsuits assert claims alleging
that certain industrial products were manufactured by the defendants and were
the cause of injury and harm. The Company is vigorously defending itself against
these alleged claims. Although it is not possible to predict the ultimate
outcome of these matters, the Company does not believe the ultimate resolution
of these issues will have a material adverse effect on the Company's financial
position or results of operations, either from a cash flow perspective or on the
financial statements as a whole.
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.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
The Company's off-balance sheet arrangements and contractual obligations
are discussed in Part II Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under the headings "Off-Balance
Sheet Arrangements" and "Contractual Obligations" in the Company's Annual Report
on Form 10-K for the year ended December 31, 2004, and have not materially
changed since that report was filed.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's quantitative and qualitative disclosures about market risk
are included in Part II Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under the heading "Market Risks"
in the Company's Annual Report on Form 10-K for the year ended December 31,
2004, and have not materially changed since that report was filed.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934
(the "Exchange Act"), the Company's management evaluated, with the participation
of the Company's Chairman, President and Chief Executive Officer and the
Company's Senior Vice President - Finance, Chief Financial Officer and
Treasurer, the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) as of the end of the quarter ended March 31, 2005. Based upon
their evaluation of these disclosure controls and procedures, the Company's
Chairman, President and Chief Executive Officer and the Company's Senior Vice
President - Finance, Chief Financial Officer and Treasurer concluded that the
Company's disclosure controls and procedures were effective as of the end of the
quarter ended March 31, 2005 to ensure that material information relating to the
Company, including its consolidated subsidiaries, was made known to them by
others within those entities, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.
Changes in Internal Control over Financial Reporting
There was no change in the Company's internal control over financial
reporting that occurred during the quarter ended March 31, 2005 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
12
PART II - OTHER INFORMATION
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company has undertaken stock repurchases from time to time to offset
dilution created by shares issued for stock options and other corporate
purposes, as well as to repurchase shares when market conditions are favorable.
For the quarter ended March 31, 2005, the Company repurchased 22,175 shares of
Common Stock for $632,000. As of the end of the first quarter of 2005, the
Company has remaining availability to repurchase up to an additional 449,380
shares of Common Stock (which were valued at $11.9 million at the March 31, 2005
closing price of $26.50 per share) pursuant to the Board of Directors'
authorizations. The purchase of Common Stock is at the Company's discretion,
subject to prevailing financial and market conditions.
The following chart discloses information regarding the shares of the
Company's Common Stock repurchased during the quarter ended March 31, 2005, all
of which were purchased pursuant to the Board of Directors' authorizations:
TOTAL NUMBER OF MAXIMUM NUMBER
SHARES PURCHASED AS OF SHARES THAT MAY
PART OF PUBLICLY YET BE PURCHASED
TOTAL NUMBER OF AVERAGE PRICE PAID ANNOUNCED PLANS OR UNDER THE PLANS OR
PERIOD SHARES PURCHASED PER SHARE PROGRAMS (1) PROGRAMS (1)
- ------------------------- ---------------- ------------------ ------------------- ------------------
January 1 to January 31 8,691 $ 28.54 8,691 462,864
February 1 to February 28 8,148 $ 28.97 8,148 454,716
March 1 to March 31 5,336 $ 27.88 5,336 449,380
------ -------- ------ -------
Total/Average 22,175 $ 28.54 22,175 449,380
====== ======== ====== =======
(1) On December 4, 2000, the Board of Directors authorized the repurchase by
the Company of up to 1,200,000 shares of Badger Meter, Inc. Common Stock
over a three-year period. The Company publicly announced the stock
repurchase plan in a press release issued on December 4, 2000. At November
14, 2003, the Company had repurchased a total of 641,890 shares. The Board
authorized a two-year extension of the repurchase plan, effective December
1, 2003, allowing the Company to repurchase up to the remaining 558,110
shares prior to December 1, 2005. The Company publicly announced the
extension of the stock repurchase plan in a press release issued on
November 14, 2003.
ITEM 6 EXHIBITS
Exhibit No. Description
31.1 Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Periodic Financial Report by the Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13
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 thereunto duly authorized.
BADGER METER, INC.
Dated: April 26, 2005 By /s/ Richard A. Meeusen
---------------------------------------
Richard A. Meeusen
Chairman, President and Chief Executive
Officer
By /s/ Richard E. Johnson
---------------------------------------
Richard E. Johnson
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
By /s/ Beverly L.P. Smiley
---------------------------------------
Beverly L.P. Smiley
Vice President - Controller
14
BADGER METER, INC.
QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED MARCH 31, 2005
EXHIBIT INDEX
Exhibit No. Description
31.1 Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Periodic Financial Report by the Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
15