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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended DECEMBER 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from____________to____________
Commission file number 1-6706
BADGER METER, INC.
(Exact name of registrant as specified in charter)
WISCONSIN 39-0143280
(State of Incorporation) (I.R.S. Employer Identification No.)
4545 W. BROWN DEER ROAD
MILWAUKEE, WISCONSIN 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414 - 355-0400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of class: on which registered:
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 and (2) has been subject to such filing
requirements for the past 90 days. YES _X_ NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $53,619,000 as of February 28, 1997. At February 28, 1997, the
registrant had 1,213,904 shares of Common Stock outstanding and 562,785 shares
of Class B Common Stock outstanding. After the effect of the two-for-one stock
split payable April 18, 1997, the February 28, 1997 shares outstanding would be
2,427,808 of Common Stock and 1,125,570 of Class B Common Stock. All share and
per share data in this Form 10-K and in the company's Annual Report to
Shareholders have been restated for effect of this stock split.
Documents Incorporated by Reference:
Parts I and II incorporate information by reference from the company's
1996 Annual Report to Shareholders.
Part III incorporates information by reference from the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on April 25, 1997
[to be filed with the Securities and Exchange Commission under Regulation 14A
within 120 days after the end of the registrant's fiscal year].
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Part I
Item 1. Business
Badger Meter, Inc. (the company) is a marketer and manufacturer of
products using flow measurement and control technology serving markets
worldwide. The company's markets are within a single business segment. The
company was incorporated in 1905.
Markets and Products
The company serves the flow measurement and control market with
products including water meters and related meter reading technologies,
wastewater meters, industrial meters, small valves and natural gas meters and
related instrumentation. The company's products are assigned to three operating
units: Utility, Industrial and International. The Utility and Industrial
divisions market their products in the U.S. and Canada, while the International
Division markets both utility and industrial products in other countries
throughout the world.
The company's products are sold to water and natural gas utilities,
original equipment manufacturers and various industrial customers primarily
operating in the following markets: energy and petroleum; food and beverage;
pharmaceutical; chemical; water, wastewater and process waters; and concrete.
Principal products include disc meters; turbo and compound meters; automated
and automatic remote meter reading systems; ultrasonic flowmeters; precision
control valves; natural gas meters and related instrumentation; oscillating
piston meters; flow tubes; lube meters; and process controllers.
The company's products are primarily manufactured in the company's
Milwaukee, Wisconsin and Tulsa, Oklahoma facilities. Custom molded plastic
products are also produced in a facility in Rio Rico, Arizona for use as
components in the company's products and for sale to original equipment
manufacturers. Products are also assembled in facilities in Nogales, Mexico and
Stuttgart, Germany.
Badger Meter's products are sold throughout the world through various
selling arrangements including direct sales managers, distributors and
independent sales representatives. There is only a moderate seasonal impact on
sales, primarily relating to slightly higher sales of certain utility products
during the spring and summer months. No single customer accounts for more than
10% of the company's sales.
Competition
There are several competitors in each of the markets in which the
company sells its products, and the competition varies from moderate to
intense. Major competitors include Sensus Technologies, Inc., Schlumberger
Industries, Inc. and ABB-Kent Meters, Inc. A number of the company's
competitors in certain markets have greater financial resources. The company
believes it currently provides the leading technology in certain types of
automated and automatic meter reading systems, high precision valves, energy
instruments and ultrasonic flowmeters. As a result of significant research and
development activities, the company enjoys favorable patent positions for many
of its products.
Backlog
The dollar amount of the company's total backlog of unshipped orders at
December 31, 1996 and 1995 was $21,262,000 and $13,012,000, respectively. The
1996 backlog includes orders related to a large water meter project which is
expected to be completed over several years. As such, it is estimated that
$16,002,000 of the December 31, 1996 backlog will be shipped in 1997, with the
balance shipped in subsequent years.
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Raw Materials
Raw materials used in the manufacture of the company's products include
metal or alloys (such as bronze, aluminum, stainless steel, cast iron, brass
and stellite), plastic resins, glass, microprocessors and other electronic
subassemblies. There are multiple sources for these raw materials, but the
company purchases bronze castings and certain electronic subassemblies from
single suppliers. The company believes these items would be available from
other sources, but that the loss of its current suppliers would result in
higher cost of materials, delivery delays, short-term increases in inventory
and higher quality control costs. Prices may also be affected by world
commodity markets.
Research and Development
Expenditures for research and development activities relating to the
development of new products, the improvement of existing products and
manufacturing process improvements were $3,851,000 during 1996, as compared to
$3,858,000 during 1995 and $3,278,000 during 1994. Research and development
activities are primarily sponsored by the company. The company also engages in
some joint research and development with other companies.
Intangible Assets
The company owns or controls many patents, trademarks, tradenames and
license agreements, in the United States and other countries, related to its
products and technologies. No single patent, trademark, tradename or license is
material to the company's business as a whole.
Environmental Protection
The company is subject to contingencies relative to compliance with
Federal, State and local provisions and regulations relating to the protection
of the environment. Currently the company is in the process of resolving
several cases relative to Superfund sites, as well an action brought under
California's Proposition 65 (see Item 3). Provision has been made for any
known settlement costs. Expenditures during 1996 and 1995 for compliance with
environmental control provisions and regulations were not material and the
company does not anticipate any material future expenditures.
To insure compliance with all environmental regulations at all company
sites, the Board of Directors has a Compliance Committee which monitors the
company's compliance with various regulatory authorities in regard to, among
other things, environmental matters.
Employees
The company and its subsidiaries employed 940 persons at December 31,
1996, of which 238 employees are covered by a collective bargaining agreement
with District 10 of the International Association of Machinists. Effective
November 1, 1996, the company negotiated a new contract with the union covering
a four year period. The company has good relations with the union and all of
its employees.
Foreign Operations and Export Sales
The company has distributors throughout the world. Additionally, the
company has a sales, assembly, and distribution facility in Stuttgart, Germany,
a sales and customer service office in Mexico City and an assembly facility in
Nogales, Sonora, Mexico. The company exports products manufactured in
Milwaukee, WI., Tulsa, OK., and Rio Rico, AZ. In January 1996, a Vice
President - International was hired. His responsibility will be to manage the
company's activities in all countries outside of the United States and Canada.
Information about the company's foreign operations and export sales is
included on page 26 of the company's 1996 Annual Report to Shareholders and
such information is incorporated herein by reference.
Financial Information About Industry Segments
The company operates in one industry segment as a marketer and
manufacturer of various flow measurement products.
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Item 2. Properties
The principal facilities utilized by the company at December 31, 1996,
are listed below. Except as indicated, all of such facilities are owned in fee
simple by the company.
Approximate Area
Location Principal Use (Square Feet)
----------- ----------------------------------- ------------------
Brown Deer,
Wisconsin Manufacturing and offices 287,000
Tulsa,
Oklahoma Manufacturing and offices 89,500(1)
Rio Rico,
Arizona Manufacturing and offices 36,000
Nogales,
Mexico Assembly, manufacturing and offices 41,700(2)
Stuttgart,
Germany Assembly, manufacturing and offices 8,253(3)
(1) Includes 30,000 sq. ft. leased facility. Lease term expires December 31,
1997.
(2) Leased facility. Lease term expires January 31, 1998.
(3) Leased facility. Lease term expires December, 1998.
In addition to the foregoing facilities, the company leases several
sales offices. The company believes that its facilities are generally well
maintained and have sufficient capacity for its current needs.
Item 3. Legal Proceedings
There are currently no material legal proceedings pending with relation
to the company, except as discussed below.
In February, 1997, the company, along with other major manufacturers of
water meters, was named as a defendant in a California lawsuit filed by the
Natural Resources Defense Council. The lawsuit claims that the meter
manufacturers are violating the standards established by California's
Proposition 65 by selling bronze water meters in California that allegedly
leach lead in excess of the Proposition 65 limits.
The company believes that its meters are in compliance with national
standards established by the American Water Works Association and that the
meters fully comply with the Federal Safe Drinking Water Act. The California
standards are unique to California and are set at a level of one one-thousandth
of the point of observable effect. Substantially all of the company's sales of
residential water meters in California are to, and in response to
specifications issued by, water utilities which are exempt from compliance with
the Proposition 65 regulation. Also, since 1972 Badger Meter has been the only
meter manufacturer to continuously offer a plastic meter as an option to
utility customers. The plastic meter fully complies with the Federal Safe
Drinking Water Act, as certified by the National Sanitation Foundation. The
utilities had the opportunity to specify the plastic meter, as many of them
did. As such, the company disputes the claims of the lawsuit and does not
believe the ultimate resolution of the lawsuit will have a material adverse
effect on the results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the company's shareholders
during the quarter ended December 31, 1996.
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Executive Officers of the Company
The following table sets forth certain information regarding the executive
officers of the company.
Age at
Name Position 2/28/97
------------------------ --------------------------------------- -------
James L. Forbes President and Chief 64
Executive Officer
Robert D. Belan Vice President - Utility Division 56
William H. Vander Heyden Vice President - Industrial Division 60
Theodore N. Townsend Vice President - International 52
Ronald H. Dix Vice President - Administration 52
and Human Resources
Deirdre C. Elliott Vice President - Corporate Counsel 40
and Secretary
Richard A. Meeusen Vice President - Finance, Treasurer and 42
Chief Financial Officer
William J. Shinners Vice President - Controller 62
There are no family relationships between any of the executive officers.
All of the officers are elected annually at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. Each officer
holds office until his successor has been elected or until his death,
resignation or removal. There is no arrangement or understanding between any
executive officer and any other person pursuant to which he was elected as an
officer.
Mr. Forbes has served as President and Chief Executive Officer for more
than five years.
Mr. Belan was elected Vice President - Utility Division in March 1992. In
October 1991, he was appointed President of the Utility Division and currently
also serves in that capacity.
Mr. Vander Heyden was elected Vice President - Industrial Division in
April 1983. From April 1989 to April 1993, Mr. Vander Heyden was also
Executive Vice President and Chief Technical Officer. Mr. Vander Heyden was
appointed President of the Industrial Division in 1990 and currently also
serves in that capacity.
Mr. Townsend joined the company and was elected Vice President -
International in February 1996. From 1993 to 1995, Mr. Townsend was Managing
Director of International Gas Measurement, based in London, England for twelve
companies related to Elster/Kromshroder and American Meter Companies. From
1990 to 1992, Mr. Townsend was a Vice President of American Meter Company.
Mr. Dix has served as Vice President of Administration and Human Resources
for more than five years.
Ms. Elliott was elected Vice President - Corporate Counsel and Secretary
in December 1993. From October 1991 to December 1993, she served as Vice
President - Corporate Counsel. Ms. Elliott joined the company in February 1991
as Corporate Counsel.
Mr. Meeusen joined the company and was elected Vice President - Finance
and elected Chief Financial Officer in November 1995 and was elected Treasurer
in January 1996. Prior to joining the company, Mr. Meeusen was Vice President
- - Finance and Treasurer for Zenith Sintered Products for more than five years.
Mr. Shinners was elected Vice President-Controller of the company in April
1989.
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Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The information set forth on page 26 in the company's 1996 Annual
Report to Shareholders is incorporated herein by reference in response
to this Item.
Item 6. Selected Financial Data
The information set forth on pages 1 and 28 in the company's 1996
Annual Report to Shareholders is incorporated herein by reference in
response to this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 14, 15 and 16 in the company's 1996
Annual Report to Shareholders is incorporated herein by reference in
response to this Item.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the company at December 31, 1996
and 1995 and for each of the three years in the period ended December
31, 1996 and the auditor's report thereon and the company's unaudited
quarterly financial data for the two-year period ended December 31,
1996 are incorporated herein by reference from the 1996 Annual Report
to Shareholders, pages 17 through 26.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item with respect to directors is included
under the headings "Nomination and Election of Directors" and "Other
Matters" in the company's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 25, 1997, and is
incorporated herein by reference.
Information concerning the executive officers of the company is
included in Part I of this Form 10-K.
Item 11. Executive Compensation
Information required by this Item is included under the headings
"Nomination and Election of Directors - Director Compensation" and
"Executive Compensation" in the company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 25,
1997, and is incorporated herein by reference; provided, however, that
the subsection entitled "Executive Compensation-Board Management
Review Committee Report on Executive Compensation" shall not be
deemed to be incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item is included under the heading "Stock
Ownership of Management and Others" in the company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on
April 25, 1997, and is incorporated herein by reference.
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Item 13. Certain Relationships and Related Transactions
Information required by this Item is included under the headings
"Management Review Committee Interlocks and Insider Participation" and
"Certain Transactions" in the company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 25,
1997, and is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed
1.and 2. Financial Statements and Financial
Statement Schedule. See index to Financial Statements
and Financial Statement Schedule on page F-0 which is
incorporated herein by reference.
3. Exhibits. See the Exhibit Index included
as the last pages of this report which is incorporated
herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was required to be filed by the Registrant
during the quarter ended December 31, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BADGER METER, INC.
Registrant
By: /s/ Richard A. Meeusen
--------------------------------------
Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
February 14, 1997
By: /s/ William J. Shinners
--------------------------------------
William J. Shinners
Vice President - Controller
Chief Accounting Officer
February 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ James O. Wright /s/ James L. Forbes
- ------------------------- ------------------------
James O. Wright James L. Forbes
Director and Chairman Director, President and
February 14, 1997 Chief Executive Officer
February 14, 1997
/s/ Robert M. Hoffer /s/ Pamela B. Strobel
- ------------------------- ------------------------
Robert M. Hoffer Pamela B. Strobel
Director Director
February 14, 1997 February 14, 1997
/s/ Charles F. James, Jr. /s/ Andrew J. Policano
- ------------------------- ------------------------
Charles F. James, Jr. Andrew J. Policano
Director Director
February 14, 1997 February 14, 1997
/s/ Donald J. Schuenke /s/ Kenneth P. Manning
- ------------------------- ------------------------
Donald J. Schuenke Kenneth P. Manning
Director Director
February 14, 1997 February 14, 1997
/s/ John J. Stollenwerk /s/ James O. Wright, Jr.
- ------------------------- ------------------------
John J. Stollenwerk James O. Wright, Jr.
Director Director
February 14, 1997 February 14, 1997
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BADGER METER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Page References
Annual Report
to
Shareholders Form 10-K
Page Number Page Number
------------- -----------
Item 14(a) 1
------------
Financial statements:
Consolidated balance sheets at
December 31, 1996 and 1995 18
Consolidated statements of operations
for each of the three years in the
period ended December 31, 1996 17
Consolidated statements of cash flows
for each of the three years in the
period ended December 31, 1996 19
Consolidated statements of shareholders'
equity for each of the three years in
the period ended December 31, 1996 20
Notes to consolidated financial
statements 21 - 26
Item 14(a) 2
------------
Financial statement schedules:
Consolidated schedules for each of
the three years in the period ended
December 31, 1996:
II - Valuation and qualifying accounts F-1
All other schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the schedules,
or because the information required is included in the financial statements and
the notes thereto.
F-0
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BADGER METER, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995, and 1994
Balance at Additions Deductions Balance
beginning charged to from at end
of year earnings allowances of year
Allowance for doubtful receivables:
1996 $ 216,000 $ 115,000 $ 89,000(a) $ 242,000
========== =========== ========== ==========
1995 $ 135,000 $ 137,000 $ 56,000(a) $ 216,000
========== =========== ========== ==========
1994 $ 99,000 $ 62,000 $ 26,000(a) $ 135,000
========== =========== ========== ==========
Warranty/after-sale cost reserve:
1996 $ 691,000 $ 2,735,000 $1,497,000 $1,929,000
========== =========== ========== ==========
1995 $ 260,000 $2,154,,000 $1,723,000 $ 691,000
========== =========== ========== ==========
1994 $ 0 $ 1,229,000 $ 969,0000 $ 260,000
========== =========== ========== ==========
Note:
(a) Accounts receivable written off, less recoveries, against the
allowance.
F-1
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EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- ---------
(3.0) Restated Articles of Incorporation effective April 23, 1993. [Incorporated --
by reference from Exhibit (4.3) to the Registrant's Form S-8 Registration
Statement (Registration No. 33-65618)].
(3.1) Restated By-Laws as amended February 14, 1997. Included
(4.0) Loan Agreement, as amended April 30, 1988, between the Registrant and --
the M&I Marshall & Ilsley Bank relating to the Registrant's revolving credit loan.
[Incorporated by reference from Exhibit (4.0) to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1988].
(4.1) Loan Agreement between the Firstar Bank Milwaukee, N.A. and the Badger --
Meter Employee Savings and Stock Ownership Plan and Trust, dated
December 1, 1995. [Incorporated by reference from Exhibit (4.3) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995].
(9.0) Badger Meter, Inc. Voting Trust Agreement dated June 1, 1953 as amended. --
[Incorporated by reference from Exhibit (13) to the Registrant's Form 10 dated
April 28, 1967].
(9.1) Badger Meter Officers' Voting Trust Agreement dated December 18, 1991. --
[Incorporated by reference from Exhibit (9.1) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991].
(10.0) * Badger Meter, Inc. Restricted Stock Plan, as amended. [Incorporated by --
reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-27649)].
(10.1) * Badger Meter, Inc. 1989 Stock Option Plan. [Incorporated by reference from --
Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-27650)].
(10.2) * Badger Meter, Inc. 1993 Stock Option Plan. [Incorporated by reference --
from Exhibit (4.3) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-65618)].
(10.3) * Badger Meter, Inc. Deferred Compensation Plan. [Incorporated by --
reference from Exhibit (10.5) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993].
(10.4) * Badger Meter, Inc. 1995 Stock Option Plan [Incorporated by reference --
from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 033-62239)].
*A management contract or compensatory plan or arrangement.
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EXHIBIT INDEX (CONTINUED)
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- ---------
(10.5) Badger Meter, Inc. Employee Savings and Stock Ownership Plan --
[Incorporated by reference from Exhibit (4.1) to the Registrant's
Form S-8 Registration Statement (Registration No. 033-62241)].
(10.6) * Long-Term Incentive Plan. [Incorporated by reference from Exhibit (10.6) --
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995].
(10.7) * Badger Meter, Inc. Supplemental Non-Qualified Unfunded Pension Plan. --
[Incorporated by reference from Exhibit (10.7) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995].
(11.0) Computation of fully diluted earnings per share. Included
(13.0) Portions of the Annual Report to Shareholders that are incorporated by reference. Included
(21.0) Subsidiaries of the Registrant. Included
(23.0) Consent of Ernst & Young LLP, Independent Auditors. Included
(27.0) Financial Data Schedule. Included
(99.0) Definitive Proxy Statement for the Annual Meeting of Shareholders to be held --
April 25, 1997. [To be filed with the Securities and Exchange
Commission under Regulation 14A within 120 days after the end of the Registrant's
fiscal year. With the exception of the information incorporated by reference
into Items 10, 11, 12 and 13 of this Form 10-K, the definitive Proxy Statement
is not deemed filed as part of this report].
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