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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950134-03-004321.txt : 20030321
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<ACCEPTANCE-DATETIME>20030321155733
ACCESSION NUMBER: 0000950134-03-004321
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030321
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BADGER METER INC
CENTRAL INDEX KEY: 0000009092
STANDARD INDUSTRIAL CLASSIFICATION: TOTALIZING FLUID METERS & COUNTING DEVICES [3824]
IRS NUMBER: 390143280
STATE OF INCORPORATION: WI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-06706
FILM NUMBER: 03612435
BUSINESS ADDRESS:
STREET 1: 4545 WEST BROWN DEER ROAD
CITY: MILWAUKEE
STATE: WI
ZIP: 53223
BUSINESS PHONE: 4143715702
MAIL ADDRESS:
STREET 1: 4545 W BROWN DEER RD
CITY: MILWAUKEE
STATE: WI
ZIP: 53223
FORMER COMPANY:
FORMER CONFORMED NAME: BADGER METER MANUFACTURING CO
DATE OF NAME CHANGE: 19710729
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c75378e10vk.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
------------------------
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 the following classes of securities registered pursuant to
Section 12(b) of the Act:
<Table>
<S> <C>
Name of each exchange
Title of class: on which registered:
Common Stock American Stock Exchange
Common Share Purchase Rights American Stock Exchange
</Table>
The company does not have any securities registered pursuant to Section
12(g) of the Act.
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 includes a disclosure of delinquent filers pursuant to Item 405
of Regulation S-K in the definitive Proxy Statement incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
The company is an accelerated filer (as defined in Rule 12b-2 of the Act).
The aggregate market value of the Common Stock held by non-affiliates of
the company as of February 28, 2003 was approximately $79,604,415. For purposes
of this calculation only, (i) shares of Common Stock are deemed to have a market
value of $27.50 per share, the closing price of the Common Stock as reported on
the American Stock Exchange on June 28, 2002, and (ii) each of the executive
officers and directors is deemed to be an affiliate.
As of February 28, 2003, there were 3,234,711 shares of Common Stock
outstanding.
Portions of the company's Proxy Statement for the Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
under Regulation 14A within 120 days after the end of the registrant's fiscal
year, are incorporated by reference from the definitive Proxy Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
SPECIAL NOTE REGARDING 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 and acquisitions
- 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.
ITEM 1. BUSINESS
Badger Meter, Inc. (the "company") is a leading marketer and manufacturer
of products, and a provider of services, using flow measurement and control
technologies serving markets worldwide. The company was incorporated in 1905.
AVAILABLE INFORMATION
The company's Internet address is http://www.badgermeter.com. The company
makes available free of charge (other than an investor's own Internet access
charges) through its Internet website its Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports, on the same day they are electronically filed with, or furnished to,
the Securities and Exchange Commission. The company is not including the
information contained on or available through its website as a part of, or
incorporating such information by reference into, this Annual Report on Form
10-K.
MARKETS AND PRODUCTS
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 has five primary worldwide
product lines. Two product lines, residential and commercial water meters (with
various meter reading technology systems), are generally sold to water
utilities. The other three lines are called industrial products and include
automotive fluid meters and systems, small precision valves and industrial
process meters (with related accessories and instrumentation).
Water meters and related systems provide the majority of the company's
sales. A "water meter system" generally consists of a water meter, a register
(some with a digital interface technology for communicating the
1
<PAGE>
reading), packaging and the monitoring or computerized management system used to
collect and relay the reading. 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. In both alternatives, the
company provides the meter that generates a mechanical signal and the device
that converts the signal into a digital form. That signal may then be read by
either a proprietary meter reading system or systems developed by other
technology companies.
The company's products are primarily manufactured and assembled in the
company's Milwaukee, Wisconsin; Tulsa, Oklahoma; Rio Rico, Arizona;
Mattapoisett, Massachusetts and Brno, Czech Republic facilities. Products are
also assembled in the company's Nogales, Mexico; Stuttgart, Germany and Nancy,
France facilities.
The company's products are sold throughout the world through various
distribution channels including direct sales representatives, distributors and
independent sales representatives. There is 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 Invensys, Inc., Neptune Technology Group, Inc. and AMCO
Water Metering Systems (formerly 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 water meter systems and small, high-precision valves.
As a result of significant research and development activities, the company
enjoys favorable patent positions for several of its products.
BACKLOG
The dollar amount of the company's total backlog of unshipped orders at
December 31, 2002 and 2001 was $21,200,000 and $18,100,000, respectively.
Backlog is comprised of firm orders and signed contractual commitments. The
company expects to ship nearly all of the December 31, 2002 backlog in 2003.
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 and components. There are multiple sources for these raw
materials, but the company purchases some 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. The company carries business
interruption insurance on key suppliers. 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 $5,658,000 in 2002, compared to
$5,422,000 during 2001, and $6,562,000 during 2000. Research and development
activities are primarily sponsored by the company. The company also engages in
some joint research and development with other companies.
2
<PAGE>
INTANGIBLE ASSETS
The company owns or controls many patents, trademarks, trade names and
license agreements in the United States and other countries that relate to its
products and technologies. No single patent, trademark, trade name 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 an
issue relative to a landfill site. The company does not believe the ultimate
resolution of this issue 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. Expenditures during 2002 and 2001 for
compliance with environmental control provisions and regulations were not
material and the company does not anticipate any material future expenditures.
To ensure compliance with environmental regulations at company sites, the
Board of Directors has chartered the Audit and Compliance Committee to monitor
the company's compliance with various regulatory authorities with regard to
environmental matters, among other things.
EMPLOYEES
The company and its subsidiaries employed 1,025 persons at December 31,
2002, of which 231 employees are covered by a collective bargaining agreement
with District 10 of the International Association of Machinists. The company is
currently operating under a four-year contract with the union, which expires
October 31, 2004. The company believes it has good relations with the union and
all of its employees.
FOREIGN OPERATIONS AND EXPORT SALES
The company has distributors and sales representatives throughout the
world. Additionally, the company has a sales, assembly and distribution facility
in Stuttgart, Germany, sales and customer service offices in Mexico City and
Singapore, an assembly facility in Nogales, Mexico, a manufacturing facility in
Brno, Czech Republic, and a sales and assembly facility in Nancy, France. The
company exports products from the United States that are manufactured in
Milwaukee, Wisconsin; Tulsa, Oklahoma; Rio Rico, Arizona and Mattapoisett,
Massachusetts.
Information about the company's foreign operations and export sales is
included in Note 10 "Industry Segment and Geographic Areas" in the Notes to
Consolidated Financial Statements in Part II, Item 8 of the company's 2002
Annual Report on Form 10-K.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The company operates in one industry segment as a marketer and manufacturer
of various flow measurement and control products as described in Note 10
"Industry Segment and Geographic Areas" in the Notes to Consolidated Financial
Statements in Part II, Item 8 of the company's 2002 Annual Report on Form 10-K.
ITEM 2. PROPERTIES
The principal facilities utilized by the company at December 31, 2002, are
listed below. Except as indicated, the company owns all of such facilities in
fee simple. The company believes that its facilities are generally well
maintained and have sufficient capacity for its current needs.
3
<PAGE>
<Table>
<Caption>
APPROXIMATE AREA
LOCATION PRINCIPAL USE (SQUARE FEET)
- -------- ------------- ----------------
<S> <C> <C>
Milwaukee, Wisconsin Manufacturing and offices 323,000
Tulsa, Oklahoma Manufacturing and offices 59,500
Rio Rico, Arizona Manufacturing and offices 36,000
Nogales, Mexico Assembly and offices 41,700(1)
Mattapoisett, Massachusetts Manufacturing and offices 23,000(2)
Stuttgart, Germany Assembly and offices 23,000(3)
Brno, Czech Republic Manufacturing and offices 12,900
Nancy, France Assembly and offices 52,500
</Table>
- ---------------
(1) Leased facility. Lease term expires January 31, 2004.
(2) Leased facility. Lease term expires February 28, 2004.
(3) Leased facility. Lease term expires December 31, 2005.
ITEM 3. LEGAL PROCEEDINGS
There are currently no material legal proceedings pending with relation to
the company, except as discussed below.
The company is a defendant in five multi-party asbestos suits as a result
of its membership in certain trade organizations. The cases are pending in state
court in Mississippi. The company does not believe the ultimate resolution of
these claims 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.
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, 2002.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the company.
<Table>
<Caption>
AGE AT
NAME POSITION 2/28/2003
- ---- --------------------------------------------------------------- ---------
<S> <C> <C>
James L. Forbes......... Chairman 70
Richard A. Meeusen...... President and Chief Executive Officer 48
Robert M. Bullis........ Vice President -- Manufacturing 53
Ronald H. Dix........... Vice President -- Administration and Human Resources 58
Deirdre C. Elliott...... Vice President -- Corporate Counsel and Secretary 46
Horst E. Gras........... Vice President -- International Operations 47
Richard E. Johnson...... Vice President -- Finance, Chief Financial Officer and 48
Treasurer
Beverly L.P. Smiley..... Vice President -- Corporate Controller 53
Kenneth E. Smith........ Vice President -- Sales and Marketing 54
Dennis J. Webb.......... Vice President -- Engineering 55
Daniel D. Zandron....... Vice President -- Business Development 54
</Table>
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.
4
<PAGE>
Mr. Forbes was elected Chairman in April 2002. Mr. Forbes served as
Chairman and Chief Executive Officer from November 2001 to April 2002, as
Chairman, President and Chief Executive officer from February 2001 to November
2001, and as Chairman and Chief Executive Officer from April 1999 to February
2001. Prior to that date, Mr. Forbes served as President and Chief Executive
Officer for more than five years.
Mr. Meeusen was elected President and Chief Executive Officer in April
2002. Mr. Meeusen served as President from November 2001 to April 2002, and as
Executive Vice President -- Administration from February 2001 to November 2001.
In addition, Mr. Meeusen served as Vice President -- Finance and Chief Financial
Officer from November 1995 to February 2001, as well as Treasurer from January
1996 to February 2001.
Mr. Bullis was elected Vice President -- Manufacturing in February 2001. He
served as Vice President -- Operations from November 1999 to February 2001.
Prior to that date, Mr. Bullis served as Vice President -- Operations -- Utility
for more than five years.
Mr. Dix was elected Vice President -- Administration and Human Resources in
November 2001. Mr. Dix served as Vice President -- Human Resources from February
2001 to November 2001. Prior to that date, Mr. Dix served as Vice
President -- Administration and Human Resources for more than five years.
Ms. Elliott has served as Vice President -- Corporate Counsel and Secretary
for more than five years.
Mr. Gras was elected Vice President -- International Operations in November
2001. Prior to that date, Mr. Gras served as Vice President -- Badger Meter
Europe for more than five years.
Mr. Johnson joined the company and was elected Vice President -- Finance,
Chief Financial Officer and Treasurer in February 2001. Prior to joining the
company, Mr. Johnson served as Director of Business Support for the Energy
Delivery Business of Wisconsin Electric Power Company from 1999 to December
2000. From 1996 to 1999, Mr. Johnson served as the Director of Business Support
for the Distribution Operations of Wisconsin Electric Power Company.
Ms. Smiley was elected Vice President -- Corporate Controller in November
1999. Ms. Smiley served as Corporate Controller from April 1997 to November
1999.
Mr. Smith was elected Vice President -- Sales and Marketing in November
2001. Mr. Smith served as Vice President -- Industrial Products and
International from November 2000 to November 2001. Mr. Smith served as Vice
President -- Industrial and Commercial Products from January 2000 to November
2000. Prior to joining the company in January 2000, Mr. Smith served as
President of Peek Measurement Group for more than five years.
Mr. Webb was elected Vice President -- Engineering in November 2001. Mr.
Webb served as Vice President -- Customer Solutions from April 2000 to November
2001, and as Vice President -- Engineering and Quality from November 1999 to
April 2000. Prior to that date, Mr. Webb served as Vice President -- Engineering
and Quality -- Utility for more than five years.
Mr. Zandron was elected Vice President -- Business Development in November
2001. Mr. Zandron served as Vice President -- Utility Products from November
2000 to November 2001, and as Vice President -- Commercial and Industrial
Products, and a number of similar capacities, from January 2000 to November
2000. From May 1999 to January 2000, Mr. Zandron served as Vice
President -- Commercial and Industrial Products -- Utility. Prior to that date,
Mr. Zandron served as Vice President -- Commercial and Industrial and Marketing
for more than five years.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information required by this Item is set forth on page 30 in Part II, Item
8 under the heading "Financial Statements and Supplementary Data" of the
company's 2002 Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
<Table>
<Caption>
BADGER METER, INC.
TEN YEAR SUMMARY OF SELECTED DATA
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales............. $167,317 138,537 146,389 150,877 143,813 130,771 116,018 108,644 99,155 84,497
Research and
development......... $ 5,658 5,422 6,562 6,012 6,105 4,397 3,851 3,858 3,278 3,642
Earnings before income
taxes............... $ 11,437 5,010 10,727 15,659 13,364 10,205 8,167 5,911 4,974 3,306
Net earnings.......... $ 7,271 3,364 6,941 9,700 8,247 6,522 5,127 3,719 3,216 2,164
Earnings to sales..... 4.3% 2.4% 4.7% 6.4% 5.7% 5.0% 4.4% 3.4% 3.2% 2.6%
-------- -------- -------- -------- -------- -------- -------- -------- ------- -------
PER COMMON SHARE
Basic earnings........ $ 2.30 1.06 2.10 2.78 2.28 1.83 1.46 1.06 .93 .64
Diluted earnings...... $ 2.20 1.03 2.00 2.60 2.12 1.65 1.39 1.06 .93 .64
Cash dividends
declared:
Common Stock........ $ 1.02 1.00 .86 .72 .60 .48 .43 .39 .35 .32
Class B Common
Stock............. $ 0 0 0 .32 .54 .44 .39 .36 .32 .29
Price range -- high... $ 34.00 33.22 37.38 41.00 40.63 57.50 20.81 13.50 14.00 11.00
Price range -- low.... $ 22.08 19.76 23.00 29.38 25.00 18.13 12.38 11.06 9.50 8.88
Closing price......... $ 32.10 22.43 23.00 30.13 35.63 40.75 19.19 13.25 11.94 9.56
Book value............ $ 14.93 13.52 13.51 12.88 13.13 11.62 10.32 9.16 8.38 7.66
-------- -------- -------- -------- -------- -------- -------- -------- ------- -------
SHARES OUTSTANDING
Common Stock.......... 3,221 3,180 3,207 3,340 2,538 2,444 2,426 2,387 2,377 2,281
Class B Common
Stock............... 0 0 0 0 1,108 1,126 1,126 1,126 1,126 1,126
-------- -------- -------- -------- -------- -------- -------- -------- ------- -------
FINANCIAL POSITION
Working capital....... $ 6,825 23,170 6,822 11,150 10,776 13,870 17,645 16,178 14,569 12,010
Current ratio......... 1.1 to 1 2.0 to 1 1.2 to 1 1.3 to 1 1.3 to 1 1.5 to 1 2.0 to 1 2.1 to 1 1.7 to 1.6 to
1 1
Net cash provided by
operations.......... $ 12,234 8,587 13,251 15,652 15,007 5,178 9,878 12,026 6,342 2,969
Capital
expenditures........ $ 5,914 5,007 6,403 9,981 17,926 8,349 5,382 4,493 3,553 3,121
Total assets.......... $126,463 101,375 98,023 102,186 96,945 82,297 66,133 60,527 61,993 57,627
Short-term and current
portion of long-term
debt................ $ 26,334 8,264 23,017 16,589 14,315 11,245 2,634 5,515 10,437 12,582
Long-term debt........ $ 13,046 20,498 5,944 11,493 2,600 928 1,091 1,000 1,200 1,400
Shareholders'
equity.............. $ 48,095 43,002 43,319 43,009 47,848 41,467 36,638 32,163 29,351 26,074
Debt to total
capitalization...... 45.0% 40.1% 40.1% 39.5% 26.1% 22.7% 9.2% 16.8% 28.4% 34.9%
Return on
shareholders'
equity.............. 15.1% 7.8% 16.0% 22.6% 17.2% 15.7% 14.0% 11.6% 11.0% 8.3%
Price/earnings
ratio............... 14.0 21.2 11.0 10.8 15.6 22.3 13.1 12.5 12.8 15.1
-------- -------- -------- -------- -------- -------- -------- -------- ------- -------
</Table>
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS DESCRIPTION
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 has five primary worldwide
product lines. Two product lines, residential and commercial water meters (with
various meter reading technology systems), are generally sold to water
utilities. The other three lines are called industrial products and include
automotive fluid meters and systems, small precision valves and industrial
process meters (with related accessories and instrumentation).
Water meters and related systems provide the majority of the company's
sales. A "water meter system" generally consists of a water meter, a register
(some with a digital interface technology for communicating the reading),
packaging and the monitoring or computerized management system used to collect
and relay the reading. 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. In both alternatives, the company
provides the meter that generates a mechanical signal and the device that
converts the signal into a digital form. That signal may then be read by either
a proprietary meter reading system or systems developed by other technology
companies.
RESULTS OF OPERATIONS
In the second quarter of 2002, the company completed two acquisitions, Data
Industrial Corporation (DIC) and MecaPlus Equipements SA (MPE). These
acquisitions were accounted for under the purchase accounting method, and as a
result, some of the variances shown since December 31, 2001, were attributable
to the results of operations since the date of acquisition. The acquisitions are
further discussed in Part II, Item 8, in the Notes to Consolidated Financial
Statements under the heading Note 3 B "Acquisitions" in the company's 2002
Annual Report on Form 10-K.
NET SALES
Badger Meter's net sales increased nearly $28.8 million or 20.8% for 2002
compared to 2001. The increase is the net result of the acquisitions, increases
in net sales of residential and commercial water meters and decreases in net
sales of certain industrial products, all further discussed below.
The 2002 net sales amounts include $11.0 million or 6.6% related to the
acquired companies. Without the acquisitions, net sales would have increased
$17.8 million or 14.2% over sales in 2001. In addition, the results for 2001
included approximately $1.4 million of net sales from product lines that were
discontinued. Net sales trends are primarily affected by new product sales,
water meter sales to municipalities and general market conditions. Residential
water meter sales are influenced by both privatizations of water services and a
continued industry movement away from manual-read meters to automated meter
reading technologies.
Residential and commercial water meter net sales increased nearly $20.6
million over 2001. The net sales increase was driven by increased volumes in
both plastic and bronze local-read meters as well as increased sales of
automated meter reading technologies, the latter of which carries a higher
price. A portion of the net sales increase, although not quantifiable, is also
due in part to the reorganization of the sales force. Prior to 2001, sales
representatives were assigned geographic areas. Late in 2001, a change was made
to focus less on geography and more on the type of customer. Customers include
independent distributors, large cities, private water companies and numerous
smaller municipal water utilities. One group of the company's sales
representatives focused on the distributors, another on large accounts (public
and private) and the third group focused on the remaining customers, while the
company maintained approximately the same number of sales employees. As a
result, the third group covers larger geographic areas. Because of the
additional focus on customer groups, there was an increase in sales to
distributors in 2002. Many smaller utilities purchased water meters through
distributors, and
7
<PAGE>
the company believes that the increased attention to the distributor network
caused the distributors to make an increased effort to sell Badger Meter
products.
Industrial net sales declined $1.4 million or 4.9% in 2002 from 2001. The
main cause of this decrease was poor market conditions in the niche market for
automotive fluid meters. Somewhat offsetting the decline was increased volumes
of electromagnetic flow meters.
International net sales are comprised primarily of sales of automotive
fluid meters and small valves in Europe, sales of water meters and related
technologies in Latin America, and sales of valves and other metering products
throughout the world. In Europe, sales are made in both U.S. dollars and euros.
Most other international sales are made in U.S. dollars. The company is able to
partially hedge its euro exposure by holding euro-denominated debt.
International sales, excluding the effects of the MPE acquisition, increased
4.1% over 2001 due to plastic meter sales into the Latin American market.
In 2001, net sales decreased nearly $7.9 million or 5.4% compared to 2000.
A significant factor in the decline was the discontinuance of certain product
lines. Net sales related to those lines were $1.4 million in 2001 compared with
$5.6 million in 2000, which accounts for nearly $4.2 million of the decline. The
remaining $3.7 million was due to a sales decrease in residential and commercial
water meters of approximately $1.8 million, and a decrease in industrial sales
of $1.9 million. The decrease in residential and commercial water meter sales
was primarily due to lower sales of automated meter reading systems, offset
somewhat by volume increases in lower price local (or manual) read systems. The
automotive fluid products, small precision valves and other industrial products
also saw volume decline, offset slightly by higher prices.
GROSS MARGINS
Gross margins were 33.5%, 32.1% and 36.2% for 2002, 2001 and 2000,
respectively. The increase in gross margin between 2002 and 2001 is due to
increased sales volumes, which absorbed factory capacity costs, as well as
continuing efforts to reduce product costs. Margins were also affected by higher
sales of automated meter reading products, which have higher margins than manual
(or local) read meters. Margins declined in 2001 from those levels in 2000 when
actual sales did not meet expected levels to absorb the cost of factory
capacity. Also, the lack of significant price increases in recent years has
reduced margins.
OPERATING EXPENSES
Selling, engineering and administration costs increased 11.4% in 2002 over
2001 levels. Much of this increase is attributable to the newly acquired
companies, as well as increased incentive compensation as a result of meeting
sales and earnings targets. Without the acquisitions and increased incentive
costs, these expenses would have decreased 3.8% due to continuing cost control
efforts and the elimination of costs associated with discontinued product lines.
Selling, engineering and administration costs decreased 8.5% in 2001 compared to
2000 due to lower incentive accruals and cost controls, as well as cost
reductions associated with discontinued product lines, offsetting personnel and
expense increases.
INTEREST EXPENSE
Interest expense increased $468,000 in 2002 compared to 2001. The increase
was due primarily to the increased borrowing needs as a result of the company's
acquisition of two new companies and the payment of $9.4 million into the
company's pension plan in 2002. These factors were offset somewhat by a decrease
in interest rates during the year. The company continues to use commercial paper
at very favorable interest rates to finance its operations.
Interest expense decreased $825,000 in 2001 compared to 2000. This decrease
was a result of significantly lower interest rates and the company's repayment
in 2001 of a term loan that had a higher interest rate than available commercial
paper borrowings.
8
<PAGE>
OTHER INCOME, NET
Other income, net in 2002 and 2001 relates primarily to foreign exchange
gains. Other income, net for 2000 included $2,230,000 of proceeds from business
interruption insurance, which offset lost sales and margins associated with a
fire at the facility of one of the company's principal vendors during 1999.
Without these proceeds, other income, net for 2000 would have been an expense of
$316,000.
INCOME TAXES
Income taxes as a percentage of earnings before income taxes was 36.4%,
32.9% and 35.3% for 2002, 2001 and 2000, respectively. The increase in 2002 from
2001 was due primarily to a higher level of pre-tax earnings compared to 2001
that reduced the percentage effects of certain permanent items on book-tax
differences. The decrease in 2001 from 2000 was due to lower state and foreign
taxes on lower pre-tax income and to the increased percentage effects of certain
permanent items on book-tax differences.
In 2002, the company determined that there were excess reserves for prior
year taxes, and accordingly reduced tax expense by $675,000. At the same time,
the company concluded that it was not certain that net operating loss
carryforwards for foreign subsidiaries would be realized through future profits
and as such a $475,000 valuation reserve was created by increasing the tax
expense.
NET EARNINGS AND EARNINGS PER SHARE
As a result of the above-mentioned items, net earnings were $7,271,000,
$3,364,000 and $6,941,000 in 2002, 2001 and 2000, respectively. On a diluted
basis, earnings per share were $2.20, $1.03 and $2.00, respectively, for the
same periods.
LIQUIDITY AND CAPITAL RESOURCES
The main sources of liquidity for the company are cash from operations and
borrowing capacity. Cash provided by operations increased $3.6 million or 42.4%
for 2002 compared to 2001 primarily as a result of increased earnings, deferral
of income taxes, current liabilities, and lower accounts receivable (net of
acquired companies). Offsetting these items somewhat was a $9.4 million payment
to the company's pension plan to maintain full funding status. Cash provided by
operations decreased 35.2% in 2001 compared to 2000 primarily as a result of
lower earnings, increased inventories and a $4.4 million payment to the
company's pension plan, offset partially by increased payables.
Receivables and inventories increased 18.4% and 17.2%, respectively,
between December 31, 2001 and 2002. Increases in both of these accounts are
primarily due to the receivables and inventories acquired as a result of the
acquisitions. Capital expenditures totaled $5.9 million in 2002, up from $5.0
million in 2001, but lower than $6.4 million in 2000. These amounts vary due to
the timing of capital expenditures. The company believes it will be able to
increase production with minimal additional capital expenditures.
Prepaid pension increased nearly $8.5 million at the end of 2002 compared
to the same date in 2001. This is primarily the result of making a $9.4 million
contribution to the pension plan, offset by pension expenses during 2002.
Payment to the company's pension plan was made to maintain proper funding levels
as of the September 30, 2002 measurement date. Goodwill increased $5.2 million
from 2001 to 2002 due to the acquisitions of MPE and DIC.
The increase in payables between years is primarily the result of the
assumed payables of the acquired companies as well as the timing of purchases.
Short-term debt increased $15.2 million. This increase is due to the use of
short-term debt to finance the two acquisitions and the $9.4 million payment
into the company's pension plan, offset somewhat by increased cash generated
from operations. In addition, the company made a prepayment on a portion of its
long-term debt to take advantage of lower commercial paper interest rates.
Accrued compensation and employee benefits increased nearly $3 million due to
increased incentive costs associated with improved sales and earnings levels.
9
<PAGE>
Income and other taxes increased nearly $1.4 million as a result of
increased earnings during 2002. Net deferred income taxes changed $1.7 million
from 2001 due to increased earnings and the timing of tax payments. The
principal timing difference related to the deductibility of the payment to the
company's pension plan, most of which is shown as a prepaid on the company's
balance sheet.
Total outstanding long-term debt (both the current and long-term portions)
decreased $4.6 million as a result of regular debt payments and the $4 million
prepayment allowed under terms of the loan agreement. Common stock and capital
in excess of par value both increased during 2002 due to stock issued in
connection with the exercise of stock options and ESSOP transactions. Employee
benefit stock decreased by $365,000 due to shares released as a result of
payments made on the ESSOP loan. Treasury stock increased due to shares
repurchased during the year.
Badger Meter's financial condition remains strong. The company believes
that its operating cash flows, available borrowing capacity and ability to raise
capital provide adequate resources to fund ongoing operating requirements and
future capital expenditures related to expansion of capacity and development of
new products.
CONTRACTUAL OBLIGATIONS
The company guarantees the outstanding debt of the Badger Meter Employee
Savings and Stock Ownership Plan (ESSOP) that is recorded in long-term debt,
offset by a similar amount in shareholders' equity. The loan amount is
collateralized by shares of the company's Common Stock. Payments of $365,000 and
$400,000 in 2002 and 2001, respectively, reduced the loan to $1.5 million at
December 31, 2002.
The company also guarantees the present and future debt of the Badger Meter
Officers Voting Trust (BMOVT), from which officers obtained loans from a bank 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 due to restrictions as a result of new legislation. The amount that
the company guaranteed was $2,380,000 and $2,167,000 at December 31, 2002 and
2001, respectively. The current loan expires in April 2003 when it will likely
be renewed. The fair market value of this guarantee at December 31, 2002 was
zero because the collateral value of the shares exceeded the loan amount.
The following table includes the company's contractual obligations. There
are no other undisclosed guarantees or off-balance sheet arrangements.
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
--------------------------------------------
LESS THAN
TOTAL 1 YEAR 1-3 YEARS 4 YEARS
------- --------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current portion and long-term debt................ $17,301 $5,895 $10,231 $1,175
Capital lease obligations......................... 189 84 105 0
ESSOP............................................. 1,535 0 1,535 0
Operating leases.................................. 1,078 616 462 0
------- ------ ------- ------
Total contractual obligations..................... $20,103 $6,595 $12,333 $1,175
======= ====== ======= ======
</Table>
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The company's critical accounting policies
and estimates relate primarily to several judgmental reserves: allowance for
doubtful accounts, allowance for obsolete inventories, warranty and after-sale
costs reserve, and the health care reserve. Each of these judgmental reserves is
evaluated quarterly and is reviewed with the company's Disclosure Committee and
the Audit and Compliance Committee of the Board of Directors. The basis for the
reserve amounts is determined by analyzing the minimum and maximum amount of
anticipated exposure for each account, and then selecting the most appropriate
amount within the range based upon historical experience and on
10
<PAGE>
various other assumptions that are believed to be reasonable under the
circumstances. This method has been used for all years in the presented
financials and has been used consistently throughout each year. Actual results
may differ from these estimates under different assumptions or conditions.
The criteria used for calculating each of the reserve amounts varies by
type of reserve. For the allowance for doubtful accounts reserve, significant
past due and foreign account balances are reviewed in conjunction with applying
historical write-off ratios to the remaining balances. The calculation for the
allowance for obsolete inventories reserve is determined by analyzing the
relationship between the last time items were used with an analysis of estimated
usage to determine if excess quantities exist. The calculation for warranty and
after-sale costs reserve uses criteria that includes known potential problems on
past sales as well as historical claims ratios for current sales. The health
care reserve is determined by using medical cost trend analyses, reviewing
subsequent payments made and estimating unbilled amounts. The changes in the
balances of these judgmental reserves at December 31, 2002, compared to the
prior year were primarily due to the previously mentioned acquisitions.
OTHER MATTERS
The company believes it is in compliance with the various environmental
statutes and regulations to which the company's domestic and international
operations are subject. Currently, the company is in the process of resolving an
issue relative to a landfill site. Provision has been made for all known
settlement costs.
The company is also a defendant in five multi-party asbestos suits as a
result of its membership in certain trade organizations. The cases are pending
in state court in Mississippi. 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.
MARKET RISKS
In the ordinary course of business, the company is exposed to various
market risks, including commodity prices, foreign currency rates and interest
rates. The company typically does not hold or issue derivative instruments and
has a policy specifically prohibiting the use of such instruments for trading
purposes.
Commodity risk is managed by keeping abreast of economic conditions and
locking in purchase prices for quantities that correspond to the company's
forecasted usage.
The company's foreign currency risk relates to the sales of products to
foreign customers, specifically European customers, as most other foreign sales
are made in U.S. dollars. The company uses lines of credit with European banks
to offset currency exposure related to European receivables and other monetary
assets. As of December 31, 2002 and 2001, the company's foreign currency net
monetary assets were substantially offset by comparable debt, resulting in no
material exposure.
The company's short-term debt on December 31, 2002, was floating rate debt
with market values approximating carrying value. Fixed rate debt was principally
a term loan with a 6.73% interest rate. For the floating rate debt, future
annual interest costs will fluctuate based upon short-term interest rates. For
the short-term debt on hand on December 31, 2002, the effect of a 1% change in
interest rates is approximately $204,000 before income tax.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Information required by this Item is set forth on page 11 in Part II, Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading "Market Risk" in the company's 2002 Annual Report
on Form 10-K.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BADGER METER, INC.
REPORT OF INDEPENDENT AUDITORS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Badger Meter, Inc.
We have audited the accompanying consolidated balance sheets of Badger
Meter, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 2002. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Badger Meter,
Inc. at December 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 1 to the Consolidated Financial Statements, effective
January 1, 2002, the company changed its method of accounting for goodwill.
Ernst & Young LLP
Milwaukee, Wisconsin
January 31, 2003
12
<PAGE>
BADGER METER, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
-----------------------
2002 2001
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,779 $ 3,410
Receivables............................................... 22,139 18,700
Inventories:
Finished goods......................................... 7,569 5,260
Work in process........................................ 8,308 8,190
Raw materials.......................................... 9,305 8,037
-------- --------
Total inventories.................................... 25,182 21,487
Prepaid expenses.......................................... 1,219 767
Deferred income tax....................................... 3,061 2,588
-------- --------
Total current assets................................. 55,380 46,952
Property, plant and equipment:
Land and improvements..................................... 2,992 2,550
Buildings and improvements................................ 24,578 20,860
Machinery and equipment................................... 71,226 68,033
-------- --------
98,796 91,443
Less accumulated depreciation............................. (55,328) (50,319)
-------- --------
Net property, plant and equipment...................... 43,468 41,124
Intangible assets, at cost less accumulated amortization.... 1,112 227
Prepaid pension............................................. 17,454 8,965
Other assets................................................ 3,352 3,561
Goodwill.................................................... 5,697 546
-------- --------
Total assets................................................ $126,463 $101,375
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 20,355 $ 5,129
Current portion of long-term debt......................... 5,979 3,135
Payables.................................................. 11,040 8,887
Accrued compensation and employee benefits................ 6,017 2,992
Warranty and after-sale costs............................. 3,597 3,453
Income and other taxes.................................... 1,567 186
-------- --------
Total current liabilities.............................. 48,555 23,782
Deferred income tax......................................... 4,710 2,539
Accrued non-pension postretirement benefits................. 5,512 6,093
Other accrued employee benefits............................. 6,545 5,461
Long-term debt.............................................. 13,046 20,498
Commitments and contingencies (Note 6)
Shareholders' equity:
Common Stock, $1.00 par; authorized 40,000,000 shares;
issued 4,762,398 shares in 2002 and 4,676,840 shares in
2001................................................... 4,762 4,677
Capital in excess of par value............................ 18,169 16,168
Reinvested earnings....................................... 54,776 50,736
Accumulated other comprehensive loss...................... (61) 0
Less: Employee benefit stock.............................. (1,535) (1,900)
Treasury stock, at cost, 1,541,791 shares in 2002
and 1,497,199 shares in 2001........................ (28,016) (26,679)
-------- --------
Total shareholders' equity............................. 48,095 43,002
-------- --------
Total liabilities and shareholders' equity.................. $126,463 $101,375
======== ========
</Table>
See accompanying notes.
13
<PAGE>
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------
2002 2001 2000
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $167,317 $138,537 $146,389
Cost of sales............................................... 111,317 94,042 93,375
-------- -------- --------
Gross margin................................................ 56,000 44,495 53,014
Selling, engineering and administration..................... 42,805 38,430 41,995
-------- -------- --------
Operating earnings.......................................... 13,195 6,065 11,019
Interest expense............................................ 1,849 1,381 2,206
Other income, net........................................... (91) (326) (1,914)
-------- -------- --------
Earnings before income taxes................................ 11,437 5,010 10,727
Provision for income taxes.................................. 4,166 1,646 3,786
-------- -------- --------
Net earnings................................................ $ 7,271 $ 3,364 $ 6,941
======== ======== ========
Earnings per share:
Basic..................................................... $ 2.30 $ 1.06 $ 2.10
Diluted................................................... $ 2.20 $ 1.03 $ 2.00
======== ======== ========
Shares used in computation of:
Basic..................................................... 3,165 3,163 3,308
Impact of dilutive stock options.......................... 139 112 162
-------- -------- --------
Diluted................................................... 3,304 3,275 3,470
======== ======== ========
</Table>
See accompanying notes.
14
<PAGE>
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------------
2002 2001 2000
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net earnings............................................. $ 7,271 $ 3,364 $ 6,941
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation.......................................... 7,882 6,477 5,925
Amortization.......................................... 98 324 148
Tax benefit on stock options.......................... 307 232 387
Deferred income tax................................... 1,986 1,347 817
Noncurrent employee benefits.......................... 1,214 1,118 648
Contributions to pension plan......................... (9,393) (4,441) 0
Changes in:
Receivables......................................... 1,323 306 5,272
Inventories......................................... (344) (1,852) (1,529)
Current liabilities other than debt................. 2,242 1,527 (5,349)
Prepaid expenses and other.......................... (352) 185 (9)
-------- -------- -------
Total adjustments........................................ 4,963 5,223 6,310
-------- -------- -------
Net cash provided by operations............................ 12,234 8,587 13,251
-------- -------- -------
Investing activities:
Property, plant and equipment............................ (5,914) (5,007) (6,403)
Acquisitions, net of cash acquired....................... (8,564) 0 0
Other -- net............................................. (168) 105 76
-------- -------- -------
Net cash used for investing activities..................... (14,646) (4,902) (6,327)
-------- -------- -------
Financing activities:
Net increase (decrease) in short-term debt............... 15,226 (12,640) 6,067
Issuance of long-term debt............................... 0 21,700 0
Repayments of long-term debt............................. (9,656) (9,259) (5,188)
Dividends................................................ (3,231) (3,164) (2,850)
Stock options and ESSOP.................................. 1,624 1,290 1,023
Treasury stock purchases................................. (1,595) (2,439) (5,491)
Issuance of treasury stock............................... 413 0 0
-------- -------- -------
Net cash provided by (used for) financing activities....... 2,781 (4,512) (6,439)
-------- -------- -------
Increase (decrease) in cash................................ 369 (827) 485
Cash -- beginning of year.................................. 3,410 4,237 3,752
-------- -------- -------
Cash -- end of year........................................ $ 3,779 $ 3,410 $ 4,237
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes.......................................... $ 757 $ 624 $ 1,839
Interest.............................................. $ 1,664 $ 1,390 $ 2,255
</Table>
See accompanying notes.
15
<PAGE>
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
------------------------------------------------------------------------------------
OTHER
COMPRE-
CAPITAL IN HENSIVE EMPLOYEE
COMMON EXCESS OF REINVESTED INCOME BENEFIT TREASURY
STOCK PAR VALUE EARNINGS (LOSS) STOCK STOCK TOTAL
---------- ---------- ---------- ------- -------- -------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999............ $ 4,531 $13,382 $46,445 $ 0 $(2,600) $(18,749) $43,009
-------- ------- ------- ----- ------- -------- -------
Net earnings.......................... 6,941 6,941
Cash dividends of $.86 per share...... (2,850) (2,850)
Stock options exercised............... 75 895 970
Tax benefit on stock options and
dividends........................... 387 387
ESSOP transactions.................... 4 5 300 309
Treasury stock purchases.............. (5,491) (5,491)
Other................................. 44 44
-------- ------- ------- ----- ------- -------- -------
Balance, December 31, 2000............ 4,610 14,713 50,536 0 (2,300) (24,240) 43,319
-------- ------- ------- ----- ------- -------- -------
Net earnings.......................... 3,364 3,364
Cash dividends of $1.00 per share..... (3,164) (3,164)
Stock options exercised............... 44 788 832
Tax benefit on stock options and
dividends........................... 232 232
ESSOP transactions.................... 23 435 400 858
Treasury stock purchases.............. (2,439) (2,439)
-------- ------- ------- ----- ------- -------- -------
Balance, December 31, 2001............ 4,677 16,168 50,736 0 (1,900) (26,679) 43,002
-------- ------- ------- ----- ------- -------- -------
Comprehensive income:
Net earnings........................ 7,271 7,271
Other comprehensive income (loss):
Minimum accrued employee benefits
liability (net of $288 tax
effect)......................... (453) (453)
Foreign currency translation...... 392 392
-------
Comprehensive income.................. 7,210
Cash dividends of $1.02 per share..... (3,231) (3,231)
Stock options exercised............... 61 915 976
Tax benefit on stock options and
dividends........................... 307 307
ESSOP transactions.................... 24 624 365 1,013
Treasury stock purchases.............. (1,595) (1,595)
Issuance of treasury stock............ 155 258 413
-------- ------- ------- ----- ------- -------- -------
Balance, December 31, 2002............ $ 4,762 $18,169 $54,776 $ (61) $(1,535) $(28,016) $48,095
======== ======= ======= ===== ======= ======== =======
</Table>
See accompanying notes.
16
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Profile
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 has five primary worldwide
product lines. Two product lines, residential and commercial water meters (with
various meter reading technology systems), are generally sold to water
utilities. The other three lines are called industrial products and include
automotive fluid meters and systems, small precision valves and industrial
process meters (with related accessories and instrumentation).
Consolidation
The consolidated financial statements include the accounts of the company
and its wholly owned subsidiaries.
Accounts Receivable
Accounts receivable consists primarily of trade receivables. The company
estimates and records provisions for an allowance for doubtful receivables. The
balance of this allowance was $1,016,000 and $632,000 at December 31, 2002 and
2001, respectively. In 2002, the allowance increased $191,000 related to the
acquisition of Data Industrial Corporation (DIC) and MecaPlus Equipements SA
(MPE). Refer to Note 3 B "Acquisitions" for a description of the acquisitions.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The company estimates and records provisions for an obsolete inventories
reserve. The balance of this reserve was $1,003,000 and $757,000 at December 31,
2002 and 2001, respectively. In 2002, the reserve increased $324,000 related to
the acquisition of DIC and MPE. Refer to Note 3 B "Acquisitions" for a
description of the acquisitions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the respective assets, principally by the
straight-line method. The estimated useful lives of assets are: for land
improvements, 15 years; for buildings and improvements, 10 - 39 years; and, for
machinery and equipment, 3 - 20 years.
Long-Lived Assets
The company evaluates the recoverability of its long-lived assets in
accordance with Financial Accounting Standards Board Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The company
annually evaluates whether the sum of the estimated undiscounted future cash
flows attributable to assets held and used are less than their carrying amounts.
Intangible Assets
Costs of purchased patents are amortized over the lives of the patents in
accordance with Financial Accounting Standards Board Statement No. 142,
"Goodwill and Other Intangible Assets." Other intangible assets are amortized
over their estimated useful lives. Accumulated amortization at December 31, 2002
and 2001, was $226,000 and $128,000, respectively.
17
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
Goodwill
Financial Accounting Standards Board Statement No. 142, "Goodwill and Other
Intangible Assets," became effective for the company on January 1, 2002. This
statement required companies to stop amortizing goodwill and to test for
impairment. Prior to 2002, goodwill was amortized in a straight-line basis.
Goodwill amortization expense for 2001 and 2000 was $79,000 and $70,000,
respectively. An evaluation performed in December 2002 determined that goodwill
had not become impaired. The amount of net goodwill recorded at December 31,
2002 and 2001, was $5,697,000 and $546,000, respectively. The increase was due
to the acquisitions of DIC and MPE, which are described in Note 3 B
"Acquisitions," as well as the translation effect resulting from changes in the
euro exchange rate.
Revenue Recognition
Revenues are recognized upon shipment of product, which corresponds with
the transfer of title. The costs of shipping are billed to the customer upon
shipment and are included in cost of sales.
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 are as follows:
<Table>
<Caption>
BALANCE AT ADDITIONS CHARGED BALANCE AT
BEGINNING OF YEAR TO EARNINGS CLAIMS PAID RESERVE ACQUIRED END OF YEAR
-------------------- ----------------- ----------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2002................. $3,453 $1,086 $(1,167) $225(a) $3,597
2001................. $3,245 $1,837 $(1,629) $ 0 $3,453
2000................. $3,835 $1,503 $(2,093) $ 0 $3,245
</Table>
- ---------------
(a) In 2002, the reserve increased $30,000 and $195,000 related to the
acquisition of DIC and MPE, respectively. Refer to Note 3 B "Acquisitions"
for a description of the acquisitions.
Research and Development
Research and development costs are charged to expense as incurred and
amounted to $5,658,000, $5,422,000, and $6,562,000 in 2002, 2001 and 2000,
respectively.
Other Income, Net
Included in other income, net was 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 MPE) and MPE, whose functional
currency is the euro. Other income, net for 2000 included $2,230,000 of business
interruption insurance proceeds related to lost sales and margins as a result of
a fire at a vendor's facility in 1999.
Stock Option Plans
The company has five stock option plans which provide for the issuance of
options to key employees and directors of the company. Refer to Note 5 "Stock
Option Plans" for a description of the plans.
18
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
As allowed by Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), and Statement No. 148,
"Accounting for Stock-based Compensation -- Transition and Disclosure" (SFAS
148), the company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), 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. The company has determined the pro forma
information as if the company had accounted for stock options granted since
January 1, 1995, under the fair value method of SFAS 123. The Black-Scholes
option pricing model was used with the following weighted-average assumptions
for options issued in each year:
<Table>
<Caption>
2002 2001 2000
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate.................................. 4.2% 5.0% 6.8%
Dividend yield........................................... 4.3% 4% 3%
Volatility factor........................................ 29% 29% 30%
Weighted-average expected life........................... 6.1 years 5.0 years 6.6 years
</Table>
The weighted-average fair values of options granted in 2002, 2001 and 2000,
were $4.79, $6.28 and $10.12 per share, respectively. The following tables
illustrate the effect on net income 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 income of future years.
<Table>
<Caption>
2002 2001 2000
---- ---- ----
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net income, as reported..................................... $7,271 $3,364 $6,941
Deduct: Total stock-based compensation determined under fair
value based method for all awards since January 1, 1995,
net of related tax effects................................ (285) (385) (368)
------ ------ ------
Pro forma net income........................................ $6,986 $2,979 $6,573
====== ====== ======
Earnings per share:
Basic, as reported........................................ $ 2.30 $ 1.06 $ 2.10
Basic, pro forma.......................................... $ 2.21 $ .95 $ 1.99
Diluted, as reported...................................... $ 2.20 $ 1.03 $ 2.00
Diluted, pro forma........................................ $ 2.12 $ .91 $ 1.90
</Table>
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Reclassifications
Certain reclassifications have been made to the 2001 and 2000 consolidated
financial statements to conform to the 2002 presentation.
19
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
NOTE 2 COMMON STOCK
The company has Common Stock, and also a Shareholder Rights Plan, which
grants certain rights to existing holders of Common Stock. Subject to certain
conditions, the rights are redeemable by the company and are exchangeable for
shares of Common Stock. The rights have no voting power and expire on May 26,
2008.
NOTE 3 AFFILIATED COMPANY AND ACQUISITIONS
A. AFFILIATED COMPANY
The company carries its 15% interest in a Mexican company, Medidores
Azteca, S.A. (Azteca) at cost ($75,000). During 2002, 2001 and 2000, the company
sold $1,201,000, $689,000 and $654,000, respectively, of product to Azteca.
Trade receivables from Azteca at December 31, 2002 and 2001, were $621,000 and
$750,000, respectively.
B. ACQUISITIONS
On May 1, 2002, the company acquired 100% of the outstanding common stock
of Data Industrial Corporation (DIC) of Mattapoisett, Massachusetts, for $5.1
million net of cash acquired. This amount included direct acquisition costs. DIC
manufactures and markets a line of insertion flow meters that are sold to
commercial and industrial markets.
On June 1, 2002, the company acquired 100% of the outstanding common stock
of MecaPlus Equipements SA (MPE) of Nancy, France, for $3.5 million net of cash
acquired. This amount included direct acquisition costs. MPE purchases
lubrication meters, oil tanks, hoses, reels and other equipment for assembly
into lubrication systems for use in measuring and dispensing automotive fluids
such as oil, grease and transmission fluid. The acquisition of MPE brings the
company closer to its European automotive customers by offering a full line of
lubrication systems in addition to the current metering products.
The company has not finalized the allocation of the purchase price of DIC
and MPE as of December 31, 2002. Changes to date from the preliminary purchase
price allocations were primarily attributable to accounts receivable,
inventories and warranty reserves. These amounts were adjusted as additional
information became available. Total adjustments to date were not material. The
following table shows the preliminary purchase price allocation for each
acquisition.
<Table>
<Caption>
DIC MPE
------ -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable......................................... $ 722 $ 4,040
Inventories................................................. 1,092 2,259
Prepaid expenses and other.................................. 100 70
Property, plant and equipment............................... 1,038 3,274
Intangible assets........................................... 250 350
Goodwill.................................................... 2,600 2,280
------ -------
Total purchased assets...................................... $5,802 $12,273
====== =======
Payables.................................................... $ 276 $ 2,765
Accrued liabilities and other............................... 414 541
Accrued compensation........................................ 0 467
Bank debt................................................... 0 5,048
------ -------
Total acquired liabilities.................................. $ 690 $ 8,821
====== =======
Cash paid, net of cash acquired............................. $5,112 $ 3,452
====== =======
</Table>
20
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
The acquisitions of DIC and MPE were accounted for under the purchase
method and the results of both have been included in the company's consolidated
results from the date of acquisition. These acquisitions are part of the
company's strategy to broaden its line of meters for commercial and niche
industrial markets.
The following pro forma information combines historical results, as if DIC
and MPE had been owned by the company for the years ended December 31, 2002 and
2001.
<Table>
<Caption>
2002 2001
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................... $175,553 $159,086
Net earnings................................................ $ 7,268 $ 3,643
Diluted earnings per share.................................. $ 2.21 $ 1.11
</Table>
The pro forma amounts include the results of the stand-alone operations of
DIC and MPE, plus the impact of purchase accounting entries, which include
amortization of acquired intangibles, depreciation of the step up basis of the
fixed assets, and interest expense on debt incurred to finance the purchases.
The pro forma results are not necessarily indicative of what would have occurred
if the acquisitions had been completed as of the beginning of each fiscal period
presented, nor are they necessarily indicative of future consolidated results.
NOTE 4 SHORT-TERM DEBT AND CREDIT LINES
Short-term debt at December 31, 2002 and 2001, consisted of:
<Table>
<Caption>
2002 2001
------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks...................................... $ 2,720 $ 2,213
Commercial paper............................................ 17,635 22,916
------- --------
Subtotal.................................................... 20,355 25,129
Reclassification to long-term debt (Note 9)................. 0 (20,000)
------- --------
Total short-term debt....................................... $20,355 $ 5,129
======= ========
</Table>
The company has $36,344,000 of short-term credit lines with domestic and
foreign banks, which includes a $25,000,000 line of credit that can also support
commercial paper. At December 31, 2002, $20,355,000 was outstanding under these
lines with a weighted-average interest rate on the outstanding balance of 2.12%
and 2.63% at December 31, 2002 and 2001, respectively.
NOTE 5 STOCK OPTION PLANS
As discussed in Note 1 "Summary of Significant Accounting Policies" under
the heading "Stock Option Plans," the company has five 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 200,000 shares of Common Stock, with vesting periods of up to ten
years and maximum option terms of ten years. As of December 31, 2002, options to
purchase 37,663 shares are available for grant.
21
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
The following table summarizes the transactions of the company's stock
option plans for the three-year period ended December 31, 2002:
<Table>
<Caption>
WEIGHTED-AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Options outstanding --
December 31, 1999......................................... 508,720 $19.99
Options granted............................................. 35,200 $32.15
Options exercised........................................... (74,168) $13.07
Options forfeited........................................... (11,500) $25.90
-------
Options outstanding --
December 31, 2000......................................... 458,252 $21.90
Options granted............................................. 91,000 $28.50
Options exercised........................................... (43,504) $12.13
Options forfeited........................................... (12,052) $27.18
-------
Options outstanding --
December 31, 2001......................................... 493,696 $23.85
Options granted............................................. 77,300 $22.99
Options exercised........................................... (61,831) $15.81
Options forfeited........................................... (17,911) $37.13
-------
Options outstanding --
December 31, 2002......................................... 491,254 $24.24
=======
Price range $8.38 - $12.38
(weighted-average contractual life of 1.6 years).......... 106,100 $10.67
Price range $14.81 - $24.13
(weighted-average contractual life of 6.3 years).......... 183,554 $22.28
Price range $28.50 - $40.25
(weighted-average contractual life of 7.3 years).......... 201,600 $33.16
-------
Exercisable options --
December 31, 2000......................................... 251,516 $15.26
December 31, 2001......................................... 288,937 $20.51
December 31, 2002......................................... 258,407 $21.49
</Table>
NOTE 6 COMMITMENTS AND CONTINGENCIES
A. COMMITMENTS
The company leases equipment and facilities under operating leases, some of
which contain renewal options. Total future minimum lease payments consisted of
the following at December 31, 2002:
<Table>
<Caption>
TOTAL
LEASES
--------------
(IN THOUSANDS)
<S> <C>
2003........................................................ $ 616
2004........................................................ 257
2005........................................................ 205
------
Total lease obligations..................................... $1,078
======
</Table>
Total rental expense charged to operations under all operating leases was
$1,318,000, $1,447,000 and $1,586,000 in 2002, 2001 and 2000, respectively.
22
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
B. CONTINGENCIES
In the normal course of business, the company is named in legal
proceedings. There are currently no material legal proceedings pending with
respect to the company, except as discussed below.
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. Provision has been made for all known settlement
costs.
The company is also a defendant in five multi-party asbestos suits as a
result of its membership in certain trade organizations. The cases are pending
in state court in Mississippi. 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 makes commitments in the normal course of business. At December
31, 2002, these commitments were not significant individually or in the
aggregate.
The company has evaluated its worldwide operations to determine if 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. 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.
NOTE 7 EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
The company maintains a non-contributory defined benefit pension plan for
its employees. The following table sets forth the components of net periodic
pension expense for the years ended December 31, 2002, 2001 and 2000, based on a
September 30 measurement date:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $1,797 $1,798 $1,758
Interest cost on projected benefit obligations.............. 2,606 2,799 2,816
Expected return on plan assets.............................. (3,500) (3,593) (3,700)
Net amortization and deferral............................... 0 (88) (522)
------ ------ ------
Net periodic pension cost................................... $ 903 $ 916 $ 352
====== ====== ======
</Table>
23
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
The following table provides a reconciliation of benefit obligations, plan
assets and funded status based on a September 30 measurement date:
<Table>
<Caption>
2002 2001
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $37,001 $37,321
Service cost.............................................. 1,797 1,798
Interest cost............................................. 2,606 2,799
Plan amendments........................................... 0 32
Actuarial gain (loss)..................................... 1,598 (588)
Benefits paid............................................. (3,433) (4,361)
------- -------
Projected benefit obligation at September 30................ $39,569 $37,001
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year............ $31,187 $40,330
Actual return on plan assets.............................. (2,385) (4,782)
Company contribution...................................... 13,834 0
Benefits paid............................................. (3,433) (4,361)
------- -------
Fair value of plan assets at September 30................... $39,203 $31,187
------- -------
Reconciliation:
Funded status at September 30............................. $ (366) $(5,814)
Unrecognized prior service cost........................... (1,357) (1,474)
Unrecognized net actuarial loss........................... 19,177 11,812
Company contribution (October 1 to December 31)........... 0 4,441
------- -------
Prepaid pension asset at September 30 and December 31....... $17,454 $ 8,965
======= =======
</Table>
Actuarial assumptions used in the preparation of the above data:
<Table>
<Caption>
2002 2001
---- ----
<S> <C> <C>
Discount rate............................................... 7.0% 7.5%
Expected return on plan assets.............................. 8.5% 9.0%
Rate of compensation increase............................... 5.0% 5.0%
</Table>
The fair value of the pension plan assets was $38,815,000 at December 31,
2002 and $36,901,000 at December 31, 2001. The variation in the fair value of
the assets between September and December of each year is primarily from the
change in the market value of the underlying investments as well as a company
contribution during the fourth quarter of 2001.
The company also maintains a supplemental non-qualified unfunded pension
plan for officers and other key employees. In 2002, the company recorded an
additional minimum liability to recognize the difference between amounts
originally recorded and the accumulated benefit obligation as of the September
30, 2002 measurement date. A charge was recorded during 2002 in other
comprehensive loss, net of the tax effect, for $453,000. Pension expense for
this plan was $583,000 and $617,000 at December 31, 2002 and 2001, respectively,
and the amount accrued was $2,949,000 and $2,018,000 as of the end of the same
periods.
24
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
B. OTHER POSTRETIREMENT BENEFITS
The company has certain postretirement plans that provide medical benefits
for certain retirees and eligible dependents. The following table sets forth the
components of net periodic postretirement benefit cost for the years ended
December 31, 2002, 2001 and 2000:
<Table>
<Caption>
2002 2001 2000
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost, benefits attributed for service
of active employees for the period........................ $ 95 $ 97 $ 96
Interest cost on the accumulated
postretirement benefit obligation......................... 459 474 491
Unrecognized prior service credit........................... (236) (236) (236)
Unrecognized net loss....................................... 69 61 67
----- ----- -----
Net periodic postretirement benefit cost.................... $ 387 $ 396 $ 418
===== ===== =====
</Table>
The following table provides a reconciliation of benefit obligations. It is
the company's policy to fund health care benefits on a cash basis. Since there
are no plan assets, the plan is unfunded. The following table provides a
reconciliation of the benefit obligation at the company's December 31
measurement date.
<Table>
<Caption>
2002 2001
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 6,446 $ 6,629
Service cost.............................................. 95 97
Interest cost............................................. 459 474
Plan amendments........................................... 589 0
Actuarial loss............................................ 914 217
Benefits paid............................................. (971) (971)
------- -------
Projected benefit obligation and
unfunded status at December 31............................ 7,532 6,446
Unrecognized prior service credit......................... 529 1,354
Unrecognized net actuarial loss........................... (2,549) (1,707)
------- -------
Accrued postretirement benefit cost at
December 31............................................... $ 5,512 $ 6,093
======= =======
</Table>
The discount rate used to measure the accumulated postretirement benefit
obligation was 7.0% for 2002 and 7.5% for 2001. Because the company established
fixed company contribution amounts for retiree health care benefits, future
health care cost trends do not impact the company's accruals or provisions.
C. BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Badger Meter Employee Savings and Stock Ownership Plan (the ESSOP) has
used proceeds from loans, guaranteed by the company, to purchase Common Stock of
the company from shares held in treasury. The company is obligated to contribute
sufficient cash to the ESSOP to enable it to repay the loan principal and
interest. The principal amount of the loan was $1,535,000 as of December 31,
2002, and $1,900,000 as of December 31, 2001. This principal amount has been
recorded as long-term debt and a like amount of unearned
25
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
compensation has been recorded as a reduction of shareholders' equity in the
accompanying Consolidated Balance Sheets.
The company made principal payments of $365,000, $400,000 and $300,000 in
2002, 2001 and 2000, respectively. These payments released shares of Common
Stock (17,749 in 2002, 19,451 in 2001 and 14,591 in 2000) for allocation to
participants in the ESSOP. The ESSOP held unreleased shares of 74,644, 92,393
and 111,844 as of December 31, 2002, 2001 and 2000, respectively. Unreleased
shares are not considered outstanding for purposes of computing earnings per
share.
The ESSOP includes a voluntary 401(k) savings plan which allows certain
employees to defer up to 20% of their income on a pretax basis. The company
matches 25% of each employee's contribution, with the match percentage applying
to a maximum of 7% of the employee's salary. The match is paid using company
stock released through the ESSOP loan payments. For ESSOP shares purchased prior
to 1993, compensation expense is recognized based on the original purchase price
of the shares released and dividends on unreleased shares are charged to
retained earnings. For shares purchased after 1992, expense is based on the
market value of the shares on the date released and dividends on unreleased
shares are accounted for as additional interest expense. At December 31, 2002,
the company committed to contribute $250,000 to the ESSOP in 2003 to be used to
pay down the existing loan. This commitment releases shares to satisfy the
401(k) match for 2002. Compensation expense of $234,000, $268,000 and $289,000
was recognized for the match for 2002, 2001 and 2000, respectively.
NOTE 8 INCOME TAX EXPENSE
Details of earnings before income taxes and the related provision for
income taxes are as follows:
<Table>
<Caption>
2002 2001 2000
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic.................................................. $12,845 $4,656 $10,200
Foreign................................................... (1,408) 354 527
------- ------ -------
Total....................................................... $11,437 $5,010 $10,727
======= ====== =======
Income taxes:
Current:
Federal................................................ $ 1,783 $ 379 $ 2,292
State.................................................. 336 (96) 535
Foreign................................................ 61 16 142
Deferred:
Federal................................................ 1,468 847 653
State.................................................. 499 354 223
Foreign................................................ 19 146 (59)
------- ------ -------
Total....................................................... $ 4,166 $1,646 $ 3,786
======= ====== =======
</Table>
26
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
The components of the net deferred taxes as of December 31, were as follows
(in thousands):
<Table>
<Caption>
2002 2001
------- ------
<S> <C> <C>
Deferred tax assets:
Receivables................................................. $ 316 $ 227
Inventories................................................. 945 272
Accrued compensation........................................ 698 589
Payables.................................................... 1,647 1,711
Non-pension postretirement benefits......................... 2,139 2,456
Accrued employee benefits................................... 2,696 2,265
Net operating loss carryforwards............................ 600 0
Valuation reserve........................................... (475) 0
------- ------
Total deferred tax assets................................. 8,566 7,520
Deferred tax liabilities:
Depreciation................................................ 3,581 3,844
Prepaid pension............................................. 6,325 3,480
Other....................................................... 309 147
------- ------
Total deferred tax liabilities............................ 10,215 7,471
------- ------
Deferred tax asset (liabilities), net....................... $(1,649) $ 49
======= ======
</Table>
The provision for income tax differs from the amount which would be
provided by applying the statutory U.S. corporate income tax rate in each year
due to the following items:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at statutory rate................................. $3,889 $1,703 $3,648
State income taxes, net of federal tax benefit.............. 551 170 500
Foreign income taxes........................................ 83 (11) (97)
Tax benefit of FSC.......................................... (53) (57) (68)
Reversal of prior liabilities............................... (675) (150) (150)
Valuation allowance......................................... 475 0 0
Other....................................................... (104) (9) (47)
------ ------ ------
Actual provision............................................ $4,166 $1,646 $3,786
====== ====== ======
</Table>
The valuation allowance relates primarily to net operating loss
carryforwards in certain foreign entities where there is uncertainty regarding
the realization of the deferred tax benefit through future earnings.
No provision for federal income taxes was made on the earnings of foreign
subsidiaries that are considered permanently invested or that would be offset by
foreign tax credits upon distribution. Such undistributed earnings at December
31, 2002, were $825,000.
27
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
NOTE 9 LONG TERM DEBT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Long-term debt consists of the following:
<Table>
<Caption>
2002 2001
------- -------
(IN THOUSANDS)
<S> <C> <C>
ESSOP debt (Note 7C)........................................ $ 1,535 $ 1,900
Capital lease............................................... 189 33
Bank note................................................... 3,906 1,700
Term loan (Note 4).......................................... 13,395 20,000
------- -------
Total debt.................................................. 19,025 23,633
Less: current maturities.................................... (5,979) (3,135)
------- -------
Long-term debt.............................................. $13,046 $20,498
======= =======
</Table>
Interest on the ESSOP debt may be charged at either prime rate or at LIBOR
plus 1.5%. As of December 31, 2002, the LIBOR-based loan had an interest rate of
3.3%. The terms of the loan allow variable payments of principal with the final
principal and interest payment due December 31, 2005. The interest expense on
the ESSOP debt was $31,000, $76,000 and $125,000, which was net of dividends on
unallocated ESSOP shares of $44,790, $54,000 and $57,000 for 2002, 2001 and
2000, respectively.
In July 2001, the company borrowed $1,700,000 in connection with the
construction of a new manufacturing facility in the Czech Republic, of which
$1,214,000 was outstanding at December 31, 2002. The debt bears interest at
LIBOR plus 1.75% and the rate is set daily. Payments are due in quarterly
installments through April 2005. Principal payments total $486,000 per year for
2003 and 2004, with a final principal payment of $242,000 in 2005.
At December 31, 2002, MPE held term loans totaling $2.7 million bearing
interest of 5.7% with payments extending to 2015. This debt was collateralized
by the MPE building. In the first quarter 2003, this debt was repaid in full.
For financial statement presentation, the entire amount of debt was reclassified
to the current maturities portion of long-term debt.
In January 2002, the company borrowed $20,000,000 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, $20,000,000 of commercial paper
was reclassified to long-term debt at December 31, 2001 for financial statement
presentation. The debt bears interest at 6.73% and is due in quarterly
installments through January 2007. Principal payments are as follows: for 2003,
$2,717,000; for 2004, $2,955,000; for 2005, $3,163,000; for 2006, $3,385,000;
and $1,175,000 thereafter. A voluntary $4 million prepayment was made in
December 2002 per the terms of the loan.
Cash, receivables and payables are reflected in the financial statements at
fair value. Short-term debt is comprised of notes payable drawn against the
company's lines of credit and commercial paper. Because of the short-term nature
of these instruments, the carrying value approximates the fair value. Long-term
debt related to the company's guarantee of the ESSOP debt is offset by a similar
amount in shareholders' equity. The $1,214,000 outstanding bank debt in the
Czech Republic is a term loan with variable interest based upon daily LIBOR
rates; accordingly, carrying value approximates the fair market value. The
remaining long-term debt of $13,395,000 was obtained in January 2002 at 6.73%
and has a fair market value of $11,429,000 as of December 31, 2002.
The company also guarantees the present and future debt of the Badger Meter
Officers Voting Trust (BMOVT), from which officers obtained loans from a bank 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
28
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
the loans' proceeds. There have been no loans made to officers by the BMOVT
since July 2002 due to restrictions as a result of new legislation. The amount
that the company guaranteed was $2,380,000 and $2,167,000 at December 31, 2002
and 2001, respectively. The current loan expires in April 2003 when it will
likely be renewed. The fair market value of this guarantee at December 31, 2002
was zero because the collateral value of the shares exceeded the loan amount.
NOTE 10 INDUSTRY SEGMENT AND GEOGRAPHIC AREAS
The company is a marketer and manufacturer of flow measurement and control
instruments, which comprise one reportable segment. The company manages and
evaluates its operations as one segment primarily due to similarities in the
nature of the products, production processes, customers and methods of
distribution.
Information regarding revenues by geographic area is as follows, with
approximately $7 million of the 2002 to 2001 increase in revenues for Europe
related to the acquisition of MPE. Refer to Note 3 B "Acquisitions" for a
description of the company's acquisitions.
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States.......................................... $142,104 $120,811 $124,402
Foreign:
Europe.............................................. $ 13,974 $ 6,835 $ 7,145
Mexico.............................................. $ 6,495 $ 6,910 $ 9,919
Other............................................... $ 4,744 $ 3,981 $ 4,923
</Table>
Information regarding assets by geographic area is as follows, with the
increases in 2002 from 2001 for Europe related primarily to the acquisition of
MPE. Refer to Note 3 B "Acquisitions" for a description of the company's
acquisitions.
<Table>
<Caption>
2002 2001
------- -------
(IN THOUSANDS)
<S> <C> <C>
Long-Lived Assets (all non-current assets):
United States............................................. $60,642 $50,961
Foreign:
Europe................................................. $10,407 $ 3,447
Mexico................................................. $ 34 $ 15
Net Assets:
United States............................................. $99,356 $91,223
Foreign:
Europe................................................. $26,071 $ 8,943
Mexico................................................. $ 1,036 $ 1,209
</Table>
29
<PAGE>
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
NOTE 11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), COMMON STOCK PRICE AND
DIVIDENDS
<Table>
<Caption>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
2002
Net sales................................... $37,454 $43,586 $45,952 $40,325
Gross margin................................ $12,760 $14,818 $15,667 $12,755
Net earnings................................ $ 1,607 $ 2,320 $ 2,307 $ 1,037
Earnings per share:
Basic..................................... $ .51 $ .73 $ .73 $ .33
Diluted................................... $ .49 $ .70 $ .70 $ .31
Dividends declared.......................... $ .25 $ .25 $ .26 $ .26
Stock price:
High...................................... $ 27.60 $ 33.73 $ 34.00 $ 33.73
Low....................................... $ 22.08 $ 27.29 $ 26.54 $ 27.03
Quarter-end close......................... $ 27.50 $ 27.50 $ 30.50 $ 32.10
2001
Net sales................................... $35,454 $33,949 $35,575 $33,559
Gross margin................................ $12,027 $10,942 $11,368 $10,158
Net earnings................................ $ 934 $ 529 $ 951 $ 950
Earnings per share:
Basic..................................... $ .29 $ .17 $ .30 $ .30
Diluted................................... $ .28 $ .16 $ .29 $ .29
Dividends declared.......................... $ .25 $ .25 $ .25 $ .25
Stock price:
High...................................... $ 29.24 $ 33.22 $ 29.47 $ 25.04
Low....................................... $ 22.80 $ 27.77 $ 23.20 $ 19.76
Quarter-end close......................... $ 28.50 $ 28.75 $ 25.30 $ 22.43
</Table>
Fourth quarter 2002 adjustments, primarily related to the determination of
the functional currency of MPE, resulted in an increase in net income and net
income per common share of $187,000, or $.06 per diluted share. These
adjustments represent reversals of amounts recorded in previous quarters.
Badger Meter, Inc. Common Stock is listed on the American Stock Exchange
under the symbol BMI. Earnings per share is computed independently for each
quarter. As such, the annual per share amount may not equal the sum of the
quarterly amounts due to rounding. Shareholders of record as of December 31,
2002 and 2001, totaled 494 and 509, respectively, for Common Stock. Voting
trusts are counted as single shareholders for this purpose.
30
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 "Section 16(a)
Beneficial Ownership Reporting Compliance" in the company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 2,
2003, 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 May 2, 2003, 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 May 2, 2003, and is
incorporated herein by reference.
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 May 2, 2003, and is incorporated herein by
reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. In accordance with
Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange
Act"), within 90 days prior to the filing date of this Annual Report
on Form 10-K, an evaluation was carried out under the supervision and
with the participation of the company's management, including the
company's President and Chief Executive Officer and the company's
Vice President -- Finance, Chief Financial Officer and Treasurer, of
the effectiveness of the design and operation of the company's
disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Exchange Act). Based upon their evaluation of these
disclosure controls and procedures, the company's President and Chief
Executive Officer and the company's Vice President -- Finance, Chief
Financial Officer and Treasurer concluded that the company's
disclosure controls and procedures were effective as of the date of
such evaluation 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 Annual Report on Form 10-K was being prepared.
(b) Changes in internal controls. There were not any significant changes
in the company's internal controls or other factors that could
significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
31
<PAGE>
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) Documents filed
3. Exhibits. See the Exhibit Index included as the last three pages of
this report which is incorporated herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was filed by the registrant during the quarter
ended December 31, 2002.
32
<PAGE>
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: February 14, 2003
By /s/ RICHARD A. MEEUSEN
------------------------------------
Richard A. Meeusen
President and Chief Executive
Officer
By /s/ RICHARD E. JOHNSON
------------------------------------
Richard E. Johnson
Vice President -- Finance, Chief
Financial Officer and Treasurer
By /s/ BEVERLY L.P. SMILEY
------------------------------------
Beverly L.P. Smiley
Vice President -- Corporate
Controller
CERTIFICATION
I, Richard A. Meeusen, certify that:
1. I have reviewed this annual report on Form 10-K of Badger Meter, Inc. (the
registrant);
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 120 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
33
<PAGE>
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003
By /s/ RICHARD A. MEEUSEN
------------------------------------
Richard A. Meeusen
President and Chief Executive
Officer
CERTIFICATION
I, Richard E. Johnson, certify that:
1. I have reviewed this annual report on Form 10-K of Badger Meter, Inc. (the
registrant);
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 120 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
34
<PAGE>
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003
By /s/ RICHARD E. JOHNSON
------------------------------------
Richard E. Johnson
Vice President -- Finance, and Chief
Financial Officer and Treasurer
35
<PAGE>
SIGNATURE
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:
<Table>
<S> <C>
/S/ JAMES L. FORBES /S/ ULICE PAYNE, JR.
- ------------------------------------ ------------------------------------
James L. Forbes Ulice Payne, Jr.
Chairman Director
February 14, 2003 February 14, 2003
/S/ RICHARD A. MEEUSEN /S/ ANDREW J. POLICANO
- ------------------------------------ ------------------------------------
Richard A. Meeusen Andrew J. Policano
President and Chief Executive Director
Officer and Director February 14, 2003
February 14, 2003
/S/ THOMAS J. FISCHER /S/ STEVEN J. SMITH
- ------------------------------------ ------------------------------------
Thomas J. Fischer Steven J. Smith
Director Director
February 14, 2003 February 14, 2003
/S/ KENNETH P. MANNING /S/ JOHN J. STOLLENWERK
- ------------------------------------ ------------------------------------
Kenneth P. Manning John J. Stollenwerk
Director Director
February 14, 2003 February 14, 2003
</Table>
36
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
(3.0) Restated Articles of Incorporation effective September 30, 1999.
[Incorporated by reference from Exhibit (3.0) (i) to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30,
1999].
(3.1) Restated By-Laws as amended February 14, 2003.
(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 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].
(4.2) Loan Agreement, as amended December 21, 1998, between Firstar Bank
Milwaukee, N.A. and the Badger Meter Employee Savings and Stock
Ownership Plan and Trust. [Incorporated by reference from Exhibit
(4.2) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998].
(4.3) Rights Agreement, dated May 26, 1998, between the Registrant and
Firstar Trust Company. [Incorporated by reference to Exhibit (4.1) to
the Registrant's Registration Statement on Form 8-A (Commission File
No. 1-6706)].
(4.4) Agreement of Substitution and Amendment of Common Shares Rights
Agreement, dated August 16, 2002, between the Registrant and American
Stock Transfer and Trust Company [Incorporated by reference to Exhibit
(4.2) to the Registrant's Registration Statement on Form S-3
(Registration No. 333-102057)].
(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].
(10.1)* 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. 1995 Stock Option Plan. [Incorporated by reference
from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-62239)].
(10.4)* Badger Meter, Inc. 1997 Stock Option Plan. [Incorporated by reference
from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 333-28617)].
</TABLE>
37
<PAGE>
<TABLE>
<S><C>
(10.5)* 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].
(10.6) 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. 33-62241)].
(10.7)* 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].
(10.8)* 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].
(10.9)* Forms of the Key Executive Employment and Severance Agreements between
Badger Meter, Inc. and the applicable executive officers.
[Incorporated by reference from Exhibit (10.0) to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30,
1999].
(10.10)* Badger Meter, Inc. 1999 Stock Option Plan. [Incorporated by reference
from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 333-73228)].
(10.11)* Badger Meter, Inc. Amendment to Deferred Compensation Plan.
[Incorporated by reference from Exhibit (10.11) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2000].
(10.12)* Retirement Agreement between Robert D. Belan and the Registrant, dated
January 28, 2002. [Incorporated by reference from Exhibit (10.12) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001].
(10.13)* Dividend Reinvestment and Stock Purchase Plan. [Incorporated by
reference from the Registrant's Form S-3 Registration Statement
(Registration No. 333-102057)].
(10.14)* Badger Meter, Inc. 2002 Director Stock Grant Plan. [Incorporated by
reference from Exhibit (10.0) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002].
(21.0) Subsidiaries of the Registrant.
(23.0) Consent of Ernst & Young LLP, Independent Auditors.
(99.0) Definitive Proxy Statement for the Annual Meeting of Shareholders to
be held May 2, 2003. [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].
</TABLE>
38
<PAGE>
<TABLE>
<S><C>
(99.1) Written Statement of the Chief Executive Officer
(99.2) Written Statement of the Chief Financial Officer
</TABLE>
__________
* A management contract or compensatory plan or arrangement.
39
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>c75378exv3w1.txt
<DESCRIPTION>RESTATED BY-LAWS AS AMENDED FEBRUARY 14, 2003
<TEXT>
<PAGE>
EXHIBIT (3.1)
RESTATED BY-LAWS
OF
BADGER METER, INC.
(AS AMENDED FEBRUARY 14, 2003)
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders (the
"Annual Meeting") shall be held on the second Saturday in April of each year, or
at such other time and date as may be fixed by resolution of the Board of
Directors. In fixing a meeting date for any Annual Meeting, the Board of
Directors may consider such factors as it deems relevant within the good faith
exercise of its business judgment. At each Annual Meeting, the shareholders
shall elect that number of directors equal to the number of directors in the
class whose term expires at the time of such meeting. At any such Annual
Meeting, only other business properly brought before the meeting in accordance
with Section 12 of Article I of these By-laws may be transacted. If the election
of directors shall not be held on the date designated herein, or fixed as herein
provided, for any Annual Meeting, or any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of
shareholders (a "Special Meeting") as soon thereafter as is practicable.
SECTION 2. SPECIAL MEETINGS.
(a) A Special Meeting may be called only by (i) the Chairman, (ii) the
Chief Executive Officer or (iii) the Board of Directors and shall be called by
the Chief Executive Officer upon the demand, in accordance with this Section 2,
of the holders of record of shares representing at least 10% of all the votes
entitled to be cast on any issue proposed to be considered at the Special
Meeting.
(b) In order that the Corporation may determine the shareholders
entitled to demand a Special Meeting, the Board of Directors may fix a record
date to determine the shareholders entitled to make such a demand (the "Demand
Record Date"). The Demand Record Date shall not precede the date upon which the
resolution fixing the Demand Record Date is adopted by the Board of Directors
and shall not be more than ten days after the date upon which the resolution
fixing the Demand Record Date is adopted by the Board of Directors. Any
shareholder of record seeking to have shareholders demand a Special Meeting
shall, by sending written notice to the Secretary of the Corporation by hand or
by certified or registered mail, return receipt requested, request the Board of
Directors to fix a Demand Record Date. The Board of Directors shall promptly,
but in all events within ten days after the date on which a valid request to fix
a Demand Record Date is received, adopt a resolution fixing the Demand Record
Date and shall make a public announcement of such Demand Record Date. If no
Demand Record Date has been fixed by the Board of Directors within ten days
after the date on which such request is received by the Secretary, the Demand
Record Date shall be the 10th day after the first date on which a valid written
request to set a Demand Record Date is received by the Secretary. To be valid,
such written request shall set forth the purpose or purposes for which the
Special Meeting is to be held, shall be signed by one or more shareholders of
record (or their duly authorized proxies or other representatives), shall bear
the date of signature of each such shareholder (or proxy or other
representative) and shall set forth all information about each such shareholder
and about the beneficial owner or owners, if any, on whose behalf the request is
made that would be required to be set forth in a shareholder's notice described
in paragraph (a) (ii) of Section 12 of Article I of these By-laws.
(c) In order for a shareholder or shareholders to demand a Special
Meeting, a written demand or demands for a Special Meeting by the holders of
record as of the Demand Record Date of shares representing at least 10% of all
the votes entitled to be cast on any issue proposed to be considered at the
Special Meeting must be delivered to the Corporation. To be valid, each written
demand by a shareholder for a Special Meeting shall set forth the specific
purpose or purposes for which the Special Meeting is to be held (which purpose
or purposes shall be limited to the purpose or purposes set forth in the written
request to set a Demand Record Date received by the Corporation pursuant to
paragraph (b) of this Section 2), shall be signed by one or more persons who as
of the Demand Record Date are shareholders of record (or their
40
<PAGE>
duly authorized proxies or other representatives), shall bear the date of
signature of each such shareholder (or proxy or other representative), and shall
set forth the name and address, as they appear in the Corporation's books, of
each shareholder signing such demand and the class and number of shares of the
Corporation which are owned of record and beneficially by each such shareholder,
shall be sent to the Secretary by hand or by certified or registered mail,
return receipt requested, and shall be received by the Secretary within seventy
days after the Demand Record Date.
(d) The Corporation shall not be required to call a Special Meeting
upon shareholder demand unless, in addition to the documents required by
paragraph (c) of this Section 2, the Secretary receives a written agreement
signed by each Soliciting Shareholder (as defined below), pursuant to which each
Soliciting Shareholder, jointly and severally, agrees to pay the Corporation's
costs of holding the Special Meeting, including the costs of preparing and
mailing proxy materials for the Corporation's own solicitation, provided that if
each of the resolutions introduced by any Soliciting Shareholder at such meeting
is adopted, and each of the individuals nominated by or on behalf of any
Soliciting Shareholder for election as a director at such meeting is elected,
then the Soliciting Shareholders shall not be required to pay such costs. For
purposes of this paragraph (d), the following terms shall have the meanings set
forth below:
(i) "Affiliate" of any Person (as defined herein) shall mean
any Person controlling, controlled by or under common control with such
first Person.
(ii) "Participant" shall have the meaning assigned to such term
in Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(iii) "Person" shall mean any individual, firm, corporation,
partnership, joint venture, association, trust, unincorporated organization
or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in
Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such term
in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to any
Special Meeting demanded by a shareholder or shareholders, any of the
following Persons:
(A) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation pursuant to paragraph
(c) of this Section 2 is ten or fewer, each shareholder signing any
such demand;
(B) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation pursuant to paragraph
(c) of this Section 2 is more than ten, each Person who either (I) was
a Participant in any Solicitation of such demand or demands or (II) at
the time of the delivery to the Corporation of the documents described
in paragraph (c) of this Section 2 had engaged or intended to engage
in any Solicitation of Proxies for use at such Special Meeting (other
than a Solicitation of Proxies on behalf of the Corporation); or
(C) any Affiliate of a Soliciting Shareholder, if a majority
of the directors then in office determine, reasonably and in good
faith, that such Affiliate should be required to sign the written
notice described in paragraph (c) of this Section 2 and/or the written
agreement described in this paragraph (d) in order to prevent the
purposes of this Section 2 from being evaded.
(e) Except as provided in the following sentence, any Special Meeting
shall be held at such hour and day as may be designated by whichever of the
Chief Executive Officer, the Secretary or the Board of Directors shall have
called such meeting. In the case of any Special Meeting called by the Chief
Executive Officer upon the demand of shareholders (a "Demand Special Meeting"),
such meeting shall be held at such hour and day as may be designated by the
Board of Directors; provided, however, that the date of any Demand Special
Meeting shall be not more than seventy days after the Meeting Record Date (as
defined in Section 5 of Article I of these By-laws); and provided further that
in the event that the directors then in office fail to designate an hour and
date for a Demand Special Meeting within ten days after the date that valid
written demands for such meeting by the holders of record as of the Demand
Record Date of shares representing at least 10% of all the votes entitled to be
cast on each issue proposed to be considered at the Special Meeting are
delivered to the Corporation (the "Delivery Date"), then such meeting shall be
held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if
such 100th day is not a Business Day (as defined below), on the first preceding
Business Day. In fixing a
41
<PAGE>
meeting date for any Special Meeting, the Chief Executive Officer, the Secretary
or the Board of Directors may consider such factors as he or it deems relevant
within the good faith exercise of his or its business judgment, including,
without limitation, the nature of the action proposed to be taken, the facts and
circumstances surrounding any demand for such meeting, and any plan of the Board
of Directors to call an Annual Meeting or a Special Meeting for the conduct of
related business.
(f) The Corporation may engage regionally or nationally recognized
independent inspectors of elections to act as an agent of the Corporation for
the purpose of promptly performing a ministerial review of the validity of any
purported written demand or demands for a Special Meeting received by the
Secretary. For the purpose of permitting the inspectors to perform such review,
no purported demand shall be deemed to have been delivered to the Corporation
until the earlier of (i) five Business Days following receipt by the Secretary
of such purported demand and (ii) such date as the independent inspectors
certify to the Corporation that the valid demands received by the Secretary
represent at least 10% of all the votes entitled to be cast on each issue
proposed to be considered at the Special Meeting. Nothing contained in this
paragraph (f) shall in any way be construed to suggest or imply that the Board
of Directors or any shareholder shall not be entitled to contest the validity of
any demand, whether during or after such five Business Day period, or to take
any other action (including, without limitation, the commencement, prosecution
or defense of any litigation with respect thereto).
(g) For purposes of these By-laws, "Business Day" shall mean any day
other than a Saturday, a Sunday or a day on which banking institutions in the
State of Wisconsin are authorized or obligated by law or executive order to
close.
SECTION 3. PLACE OF MEETING. The Chairman, the Chief Executive
Officer, the Board of Directors or the Secretary may designate any place, either
within or without the State of Wisconsin, as the place of meeting for an Annual
Meeting or Special Meeting. If no designation is made, the place of meeting
shall be the principal office of the Corporation. Any meeting may be adjourned
to reconvene at any place designated by vote of the Board of Directors or by the
Chief Executive Officer or the Secretary.
SECTION 4. NOTICE OF MEETING. Written notice stating the date, time
and place of any meeting of shareholders shall be delivered not less than ten
days nor more than sixty days before the date of the meeting (unless a different
time period is provided by the Wisconsin Business Corporation Law (the "WBCL")
or the Articles of Incorporation), either personally or by mail, by or at the
direction of the Chairman, the President or the Secretary, to each shareholder
of record entitled to vote at such meeting and to such other persons as required
by the WBCL. In the event of any Demand Special Meeting, such notice of meeting
shall be sent not more than thirty days after the Delivery Date. If mailed,
notice pursuant to this Section 4 shall be deemed to be effective when deposited
in the United States mail, addressed to the shareholder at his or her address as
it appears on the stock record books of the Corporation, with postage thereon
prepaid. Unless otherwise required by the WBCL or the Articles of Incorporation,
a notice of an Annual Meeting need not include a description of the purpose for
which the meeting is called. In the case of any Special Meeting, (a) the notice
of meeting shall describe any business that the Board of Directors shall have
theretofore determined to bring before the meeting and (b) in the case of a
Demand Special Meeting, the notice of meeting (i) shall describe any business
set forth in the statement of purpose of the demands received by the Corporation
in accordance with Section 2 of Article I of these By-laws and (ii) shall
contain all of the information required in the notice received by the
Corporation in accordance with Section 12(b) of Article I of these By-laws. If
an Annual Meeting or Special Meeting is adjourned to a different date, time or
place, the Corporation shall not be required to give notice of the new date,
time or place if the new date, time or place is announced at the meeting before
adjournment; provided, however, that if a new Meeting Record Date for an
adjourned meeting is or must be fixed, the Corporation shall give notice of the
adjourned meeting to persons who are shareholders as of the new Meeting Record
Date.
SECTION 5. FIXING OF RECORD DATE. The Board of Directors may fix in
advance a date not less than ten days and not more than seventy days prior to
the date of an Annual Meeting or Special Meeting as the record date for the
determination of shareholders entitled to notice of, or to vote at, such meeting
(the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the
Meeting Record Date shall be not later than the 30th day after the Delivery Date
and (ii) if the Board of Directors fails to fix the Meeting Record Date within
thirty days after the Delivery Date, then the close of business on such 30th day
shall be the Meeting Record Date. The shareholders of record on the Meeting
Record Date shall be the shareholders entitled to notice of and to vote at the
meeting. Except as provided by the WBCL for a court-ordered adjournment, a
determination of shareholders entitled to notice of and to vote at an Annual
Meeting or Special Meeting is effective for any adjournment of such meeting
unless the Board of Directors fixes a new Meeting Record Date, which it shall do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting. The Board of Directors may also fix in advance a date
as the record date for the purpose of determining shareholders entitled to take
any other action or determining shareholders for any other purpose. Such record
date shall be not more than seventy days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
The record date for determining shareholders entitled to a distribution (other
than a distribution involving a purchase, redemption or other acquisition of the
Corporation's shares) or a share dividend is the date on which the Board of
Directors authorizes the distribution or share dividend, as the case may be,
unless the Board of Directors fixes a different record date.
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SECTION 6. SHAREHOLDERS' LIST FOR MEETINGS. After a Meeting Record
Date has been fixed, the Corporation shall prepare a list of the names of all of
the shareholders entitled to notice of the meeting. The list shall be arranged
by class or series of shares, if any, and show the address of and number of
shares held by each shareholder. Such list shall be available for inspection by
any shareholder, beginning two business days after notice of the meeting is
given for which the list was prepared and continuing to the date of the meeting,
at the Corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held. A shareholder or his or her
agent may, on written demand, inspect and, subject to the limitations imposed by
the WBCL, copy the list, during regular business hours and at his or her
expense, during the period that it is available for inspection pursuant to this
Section 6. The Corporation shall make the shareholders' list available at the
meeting and any shareholder or his or her agent or attorney may inspect the list
at any time during the meeting or any adjournment thereof. Refusal or failure to
prepare or make available the shareholders' list shall not affect the validity
of any action taken at a meeting of shareholders.
SECTION 7. QUORUM AND VOTING REQUIREMENTS; POSTPONEMENTS;
ADJOURNMENTS.
(a) Shares entitled to vote as a separate voting group may take action
on a matter at any Annual Meeting or Special Meeting only if a quorum of those
shares exists with respect to that matter. If the Corporation has only one class
of stock outstanding, such class shall constitute a separate voting group for
purposes of this Section 7. Except as otherwise provided in the Articles of
Incorporation or the WBCL, a majority of the votes entitled to be cast on the
matter shall constitute a quorum of the voting group for action on that matter.
Once a share is represented for any purpose at any Annual Meeting or Special
Meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists for the remainder of the meeting and for any
adjournment of that meeting unless a new Meeting Record Date is or must be set
for the adjourned meeting. If a quorum exists, except in the case of the
election of directors, action on a matter shall be approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing the
action, unless the Articles of Incorporation or the WBCL requires a greater
number of affirmative votes. Unless otherwise provided in the Articles of
Incorporation, each director to be elected shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election of directors at an
Annual Meeting or Special Meeting at which a quorum is present.
(b) The Board of Directors acting by resolution may postpone and
reschedule any previously scheduled Annual Meeting or Special Meeting; provided,
however, that a Demand Special Meeting shall not be postponed beyond
the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting
may be adjourned from time to time, whether or not there is a quorum, (i) at any
time, upon a resolution by shareholders if the votes cast in favor of such
resolution by the holders of shares of each voting group entitled to vote on any
matter theretofore properly brought before the meeting exceed the number of
votes cast against such resolution by the holders of shares of each such voting
group or (ii) at any time prior to the transaction of any business at such
meeting, by the President or pursuant to a resolution of the Board of Directors.
No notice of the time and place of adjourned meetings need be given except as
required by the WBCL. At any adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 8. VOTING OF SHARES. Each outstanding share shall be entitled
to one vote upon each matter submitted to a vote at an Annual Meeting or Special
Meeting, except to the extent that the voting rights of the shares of any class
or classes are enlarged, limited or denied by the WBCL or the Articles of
Incorporation.
SECTION 9. PROXIES. At any Annual Meeting or Special Meeting, a
shareholder may vote his or her shares in person or by proxy. A shareholder may
appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by his or her attorney-in-fact. An
appointment of a proxy is effective when received by the Secretary or other
officer or agent of the Corporation authorized to tabulate votes. An appointment
is valid for eleven months from the date of its signing unless a different
period is expressly provided in the appointment form. Unless otherwise provided,
a proxy may be revoked at any time before it is voted, either by written notice
filed with the Secretary or the acting secretary of the meeting or by oral
notice given by the shareholder to the presiding officer during the meeting. The
presence of a shareholder who has filed his or her appointment of proxy shall
not itself constitute a revocation. The Board of Directors shall have the power
and authority to make rules establishing presumptions as to the validity and
sufficiently of proxies.
SECTION 10. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION. If
the name signed on a vote, consent, waiver or proxy appointment corresponds to
the name of a shareholder, the Corporation, if acting in good faith, may accept
the vote, consent, waiver or proxy appointment and give it effect as the act of
a shareholder. If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
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(a) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the shareholder
and, if the Corporation requests, evidence of fiduciary status acceptable to the
Corporation is presented with respect to the vote, consent, waiver or proxy
appointment.
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests, evidence of this
status acceptable to the Corporation is presented with respect to the vote,
consent, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the Corporation requests,
evidence acceptable to the Corporation of the signatory's authority to sign for
the shareholder is presented with respect to the vote, consent, waiver or proxy
appointment.
(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
The Corporation may reject a vote, consent, waiver or proxy appointment if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
SECTION 11. WAIVER OF NOTICE. A shareholder may waive any notice
required by the WBCL, the Articles of Incorporation or these By-laws before or
after the date and time stated in the notice. The waiver shall be in writing and
signed by the shareholder entitled to the notice, contain the same information
that would have been required in the notice under applicable provisions of the
WBCL (except that the time and place of meeting need not be stated) and be
delivered to the Corporation for inclusion in the corporate records. A
shareholder's attendance at any Annual Meeting or Special Meeting, in person or
by proxy, waives objection to all of the following: (a) lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting or promptly upon arrival objects to holding the meeting or transacting
business at the meeting; and (b) consideration of a particular matter at the
meeting that is not within the purpose described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
SECTION 12. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATION OF
DIRECTORS.
(a) ANNUAL MEETINGS.
(i) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be considered by the
shareholders may be made at an Annual Meeting (A) pursuant to the
Corporation's notice of meeting, (B) by or at the direction of the Board of
Directors or (C) by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in this By-law and
who is entitled to vote at the meeting and complies with the notice
procedures set forth in this Section 12.
(ii) For nominations or other business to be properly brought
before an Annual Meeting by a shareholder pursuant to clause (C) of
paragraph (a)(i) of this Section 12, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be received by the Secretary of the
Corporation at the principal offices of the Corporation not less than sixty
days nor more than ninety days prior to the second Saturday in the month of
April; provided, however, that in the event that the date of the Annual
Meeting is advanced by more than thirty days or delayed by more than sixty
days from the second Saturday in the month of April, notice by the
shareholder to be timely must be so received not earlier than the 90th day
prior to the date of such Annual Meeting and not later than the close of
business on the later of (x) the 60th day prior to such Annual Meeting and
(y) the 10th day following the day on which public announcement of the date
of such meeting is first made. Such shareholder's notice shall be signed by
the shareholder of record who intends to make the nomination or introduce
the other business (or his duly authorized proxy or other representative),
shall bear the date of signature of such shareholder (or proxy or other
representative) and shall set forth: (A) the name and address, as they
appear on this corporation's books, of such shareholder and the beneficial
owner or owners, if any, on whose behalf the nomination or proposal is
made; (B) the class and number of shares of the Corporation which are
beneficially owned by such shareholder or beneficial owner or owners; (C) a
representation that such shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to make the nomination or introduce the
other business specified in the notice; (D) in the case of any proposed
nomination for election or re-election as a director, (I) the name and
residence address of the person or
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persons to be nominated, (II) a description of all arrangements or
understandings between such shareholder or beneficial owner or owners and
each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination is to be made by such
shareholder, (III) such other information regarding each nominee proposed
by such shareholder as would be required to be disclosed in solicitations
of proxies for elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the Exchange Act,
including any information that would be required to be included in a proxy
statement filed pursuant to Regulation 14A had the nominee been nominated
by the Board of Directors and (IV) the written consent of each nominee to
be named in a proxy statement and to serve as a director of the Corporation
if so elected; and (E) in the case of any other business that such
shareholder proposes to bring before the meeting, (I) a brief description
of the business desired to be brought before the meeting and, if such
business includes a proposal to amend these By-laws, the language of the
proposed amendment, (II) such shareholder's and beneficial owner's or
owners' reasons for conducting such business at the meeting and (III) any
material interest in such business of such shareholder and beneficial owner
or owners.
(iii) Notwithstanding anything in the second sentence of
paragraph (a)(ii) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all of
the nominees for director or specifying the size of the increased Board of
Directors made by the Corporation at least seventy days prior to the second
Saturday in the month of April, a shareholder's notice required by this
Section 12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
received by the Secretary at the principal offices of the Corporation not
later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
(b) SPECIAL MEETINGS. Only such business shall be conducted at a
Special Meeting as shall have been described in the notice of meeting sent to
shareholders pursuant to Section 4 of Article I of these By-laws. Nominations of
persons for election to the Board of Directors may be made at a Special Meeting
at which directors are to be elected pursuant to such notice of meeting (i) by
or at the direction of the Board of Directors or (ii) by any shareholder of the
Corporation who (A) is a shareholder of record at the time of giving of such
notice of meeting, (B) is entitled to vote at the meeting and (C) complies with
the notice procedures set forth in this Section 12. Any shareholder desiring to
nominate persons for election to the Board of Directors at such a Special
Meeting shall cause a written notice to be received by the Secretary of the
Corporation at the principal offices of the Corporation not earlier than ninety
days prior to such Special Meeting and not later than the close of business on
the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day
following the day on which public announcement is first made of the date of such
Special Meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. Such written notice shall be signed by the shareholder
of record who intends to make the nomination (or his duly authorized proxy or
other representative), shall bear the date of signature of such shareholder (or
proxy or other representative) and shall set forth: (A) the name and address, as
they appear on the Corporation's books, of such shareholder and the beneficial
owner or owners, if any, on whose behalf the nomination is made; (B) the class
and number of shares of the Corporation which are beneficially owned by such
shareholder or beneficial owner or owners; (C) a representation that such
shareholder is a holder of record of shares of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
make the nomination specified in the notice; (D) the name and residence address
of the person or persons to be nominated; (E) a description of all arrangements
or understandings between such shareholder or beneficial owner or owners and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination is to be made by such shareholder; (F) such
other information regarding each nominee proposed by such shareholder as would
be required to be disclosed in solicitations of proxies for elections of
directors, or would be otherwise required to be disclosed, in each case pursuant
to Regulation 14A under the Exchange Act, including any information that would
be required to be included in a proxy statement filed pursuant to Regulation 14A
had the nominee been nominated by the Board of Directors; and (G) the written
consent of each nominee to be named in a proxy statement and to serve as a
director of the Corporation if so elected.
(c) GENERAL.
(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to serve as
directors. Only such business shall be conducted at an Annual Meeting or
Special Meeting as shall have been brought before such meeting in
accordance with the procedures set forth in this Section 12. The chairman
of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was
made in accordance with the procedures set forth in this Section 12 and, if
any proposed nomination or business is not in compliance with this Section
12, to declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section 12, "public announcement" shall
mean disclosure in a press
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release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
12, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 12. Nothing in this Section 12 shall be
deemed to limit the Corporation's obligation to include shareholder
proposals in its proxy statement if such inclusion is required by Rule
14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS AND NUMBER. All corporate powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation managed under, the direction of its Board of
Directors, which shall consist of eight (8) directors. The Board of Directors
shall elect one of its members as Chairman, who, when present, shall preside at
all meetings of the shareholders and Board of Directors.
SECTION 2. TENURE AND QUALIFICATIONS. Each director shall hold office until
the annual meeting of shareholders at which his term expires and until his
successor shall have been elected, or until his prior death, resignation or
removal. A director shall not be eligible to stand for re-election at any annual
meeting of shareholders following his 70th birthday, except that any directors
who are over 70 years old on or before November 1, 1999, may be appointed as
director emeritus to serve until he resigns or his appointment is terminated by
resolution of the Board of Directors, and shall serve in an advisory capacity to
the Board of Directors, shall be entitled to attend meetings of the Board and
its committees, shall be reimbursed for his expense in attending meetings, and
shall receive the same fees and compensation paid to directors, but shall have
no vote and shall not be considered as a director under the Articles of
Incorporation or By-laws of the Corporation except for purposes of officers' and
directors' liability insurance. A director may resign at any time by delivering
written notice which complies with the Wisconsin Business Corporation Law to the
Board of Directors, to the Chairman of the Board, if any, or to the Corporation.
A director's resignation is effective when such notice is delivered unless the
notice specifies a later date. Directors need not be residents of the State of
Wisconsin or shareholders of the Corporation.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of shareholders, and each adjourned
session thereof. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Wisconsin, for the holding of
additional regular meetings without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman, the Chief Executive Officer,
Secretary or any two directors. The person or persons calling any special
meeting of the Board of Directors may fix any place, either within or without
the State of Wisconsin, as the place for holding any special meeting of the
Board of Directors called by them, and if no other place is fixed, the place of
meeting shall be the principal business office of the Corporation in the State
of Wisconsin.
SECTION 5. NOTICE; WAIVER. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 4, Article II)
shall be given by written notice delivered personally or given by telegram,
teletype, facsimile or other form of wire or wireless communication not less
than twenty-four (24) hours prior to the meeting or mailed or delivered by
private carrier not less than forty-eight (48) hours prior to the meeting to
each director at his business address or at such other address as such director
shall have designated in writing filed with the Secretary. If mailed or
delivered by a private carrier, such notice shall be deemed to be delivered when
deposited in the United States mail or delivered to the private carrier so
addressed, with postage or delivery cost thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. If notice be given by teletype, facsimile or
other form of wire or wireless communication, such notice shall be deemed to be
delivered when evidence of its transmittal is received. Whenever any notice
whatever is required to be given to any director of the Corporation under the
Articles of Incorporation or By-laws or any provision of law, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting, by
the director entitled to such notice, shall be deemed equivalent to the giving
of such notice. The attendance of a director at a meeting shall constitute a
waiver of notice of such
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meeting, except where a director attends a meeting and objects thereat to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the directors shall constitute a quorum
for the transaction of business; and, except as otherwise provided by law or by
the Articles of Incorporation or these By-laws, a majority of the votes cast at
any meeting of the Board of Directors at which a quorum is present shall be
decisive of any action. A majority of the directors present at a meeting, though
less than quorum, may adjourn the meeting from time to time without further
notice.
SECTION 7. VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled until the next succeeding annual election by the affirmative vote of a
majority of the directors then in office, though less than a quorum of the Board
of Directors; provided, that in case of a vacancy created by the removal of a
director by vote of the shareholders, the shareholders shall have the right to
fill such vacancy at the same meeting or any adjournment thereof.
SECTION 8. COMPENSATION. The Board of Directors, by affirmative vote
of a majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the Corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the Corporation.
SECTION 9. PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board of Directors or a committee thereof of
which he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 10. COMMITTEES. The Board of Directors by resolution adopted by the
affirmative vote of a majority of the number of directors set forth in Section 1
of this Article II may designate one or more committees, each committee to
consist of three or more directors elected by the Board of Directors, which
shall have and may exercise, when the Board of Directors is not in session, the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, in the committee's designated area of responsibility, except
action in respect to dividends to shareholders, election of the principal
officers or the filling of vacancies on the Board of Directors or committees
created pursuant to this section, with respect to the approval or proposal of
actions that the law requires to be approved by the shareholders, amendment of
the Articles of Incorporation, the adoption, amendment or repeal of the by-laws,
the approval of a plan of merger not requiring shareholder approval, the
authorization or approval of the re-acquisition of shares other than according
to a method prescribed by the Board of Directors, and the authorization for
approval of the issuance or sale or contract for sale of shares, or the
determination of the designation and relative rights, preferences and
limitations of a class or series of shares, unless authorized to do so by the
Board of Directors within prescribed limits. The Board of Directors may elect
one or more of its members as alternate members of any such committee who may
take the place of any absent member or members at any meeting of such committee,
upon request by the Chairman or upon request by the chairman of such meeting.
Each such committee shall fix its own rules governing the conduct of its
activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request.
SECTION 11. UNANIMOUS CONSENT WITHOUT MEETING. Any action required
or permitted by the Articles of Incorporation or By-laws or any provision of law
to be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.
SECTION 12. TELEPHONIC MEETINGS. Notwithstanding any place set forth in the
notice of the meeting or these By-laws, members of the Board of Directors may
participate in regular or special meetings of the Board of Directors and all
Committees of the Board of Directors by or through the use of any means of
communication by which all directors participating may simultaneously hear each
other, such as by conference telephone; provided, however, that the Chairman of
the Board or the chairman of the respective Committee and the Board or other
person or persons calling a meeting may
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determine that the directors cannot participate by such means, in which case the
notice of the meeting, or other notice to directors given prior to the meeting,
shall state that each director's physical presence shall be required. If a
meeting is conducted through the use of such means of communication, then at the
commencement of such meeting all participating directors shall be informed that
a meeting is taking place at which official business may be transacted. A
director participating in a meeting by such means shall be deemed present in
person at such meeting.
ARTICLE III
OFFICERS
SECTION 1. GENERAL OFFICERS. The general officers of the Corporation shall
be the Chief Executive Officer, the President, one or more Vice Presidents, a
Secretary, a Treasurer, a Controller, and one or more Assistant Secretaries and
one or more Assistant Treasurers, each of whom shall be elected annually by the
Board of Directors and shall hold office until his or her successor shall have
been duly elected and qualified. The Chief Executive Officer of the Corporation
shall exercise general supervision of the business and affairs of the
Corporation subject to the directives of the Board of Directors. Further, each
general officer shall have such powers and duties as generally pertain to his or
her respective office; provided, that such powers and duties may from time to
time be modified, enlarged, restricted or augmented by the Board of Directors.
SECTION 2. ADDITIONAL OFFICERS. The Board of Directors may appoint such
additional corporate officers as it may deem necessary, each of whom shall have
such powers and duties as from time to time may be conferred by the Board of
Directors, and shall serve for such terms as the Board may fix.
SECTION 3. REMOVAL OF OFFICERS. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment, the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 4. VACANCIES. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term. The resignation of an
officer by the delivery of written notice to the Chief Executive Officer or
Secretary of the Corporation is effective upon delivery of the notice, unless
the notice specifies a later date and the Corporation accepts the later date.
ARTICLE IV
SPECIAL CORPORATE ACTS
SECTION 1. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other corporation and owned or controlled by this
Corporation may be voted at any meeting of security holders of such other
corporation by the Chairman of this Corporation if he be present, or in his
absence by the President or any Vice President of this Corporation who may be
present, and (b) whenever, in the judgment of the Chairman, or in his absence,
of the President or any Vice President, it is desirable for this Corporation to
execute a proxy or give a shareholder's consent in respect to any shares or
other securities issued by any other corporation and owned by this Corporation,
such proxy or consent shall be executed in the name of this Corporation by the
Chairman, or the President or one of the Vice Presidents of this Corporation
without necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by another officer. Any person
or persons designated in the manner above stated as the proxy or proxies of this
Corporation shall have full right, power and authority to vote the share or
shares of stock issued by such other corporation and owned by this Corporation
the same as such share or shares might be voted by this Corporation.
SECTION 2. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages, and instruments of assignment or
pledge made by the Corporation shall be executed in the name of the Corporation
by the Chairman or the President or one of the Vice Presidents and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the
Secretary or an Assistant Secretary, when necessary or required, shall affix the
corporate seal
48
<PAGE>
thereto; and when so executed no other party to such instrument or any third
party shall be required to make any inquiry into the authority of the signing
officer or officers.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman or the President or
a Vice President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except as provided in Section 6 of this Article V.
SECTION 2. FACSIMILE SIGNATURES AND SEAL. The seal of the corporation on
any certificates for shares may be a facsimile. The signatures of the Chairman
or President or Vice President and the Secretary or Assistant Secretary upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation.
SECTION 3. SIGNATURE BY FORMER OFFICERS. In case any officer, who
has signed or whose facsimile signature has been placed upon any certificate for
shares, shall have ceased to be such officer before such certificate is issued,
it may be issued by the Corporation with the same effect as if he were such
officer at the date of its issue.
SECTION 4. TRANSFER OF SHARES. Prior to due presentment of a certificate
for shares for registration of transfer the Corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and powers of an owner.
Where a certificate for shares is presented to the Corporation with a request to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b) the
Corporation had no duty to inquire into adverse claims or has discharged any
such duty. The Corporation may require reasonable assurance that said
endorsements are genuine and effective and in compliance with such other
regulations as may be prescribed under the authority of the Board of Directors.
SECTION 5. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
SECTION 6. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims
that his certificate for shares has been lost, destroyed or wrongfully taken,
then a new certificate shall be issued in place thereof if the owner (a) so
requests before the Corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) files with the Corporation a sufficient
indemnity bond, and (c) satisfied such other reasonable requirements as the
Board of Directors may prescribe.
SECTION 7. CONSIDERATION FOR SHARES. The shares of the Corporation
may be issued for such consideration as shall be fixed from time to time by the
Board of Directors, provided that any shares having a par value shall not be
issued for a consideration less than the par value thereof. The consideration to
be paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
Corporation. When payment of the consideration for which shares are to be issued
shall have been received by the Corporation, such shares shall be deemed to be
fully paid and nonassessable by the Corporation. No certificate shall be issued
for any share until such share is fully paid.
SECTION 8. STOCK REGULATIONS. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as it may deem expedient concerning
the
49
<PAGE>
issue, transfer and registration of certificates representing shares of the
Corporation.
ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words, "Corporate Seal".
ARTICLE VII
AMENDMENTS
SECTION 1. BY SHAREHOLDERS. These By-laws may be altered, amended,
repealed, augmented and new By-laws may be adopted by the shareholders by
affirmative vote of not less than a majority of the votes represented by the
shares present or represented at any annual or special meeting of the
shareholders at which a quorum is in attendance.
SECTION 2. BY DIRECTORS. These By-laws may also be altered, amended,
repealed, augmented and new By-laws may be adopted by the Board of Directors by
affirmative vote of a majority of the number of directors present at any meeting
at which a quorum is in attendance; but no By-law adopted by the shareholders
shall be amended or repealed by the Board of Directors if the By-law so adopted
so provides.
SECTION 3. IMPLIED AMENDMENTS. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
By-laws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
By-laws so that the By-laws would be consistent with such action, shall be given
the same effect as though the By-laws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
ARTICLE VIII
INDEMNIFICATION
SECTION 1.01. CERTAIN DEFINITIONS. All capitalized terms used in this
Article VIII and not otherwise hereinafter defined in this Section 1.01 shall
have the meaning set forth in Section 180.0850 of the Statute (as hereinafter
defined). The following capitalized terms (including any plural forms thereof)
used in this Article VIII shall be defined as follows:
(a) "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Corporation.
(b) "Authority" shall mean the entity selected by the Director or
Officer to determine his or her right to indemnification pursuant to Section
1.04 of this Article.
(c) "Board" shall mean the entire then elected and serving board of
directors of the Corporation, including all members thereof who are Parties to
the subject Proceeding or any related Proceeding.
(d) "Breach of Duty" shall mean the Director or Officer breached or
failed to perform his or her duties to the Corporation and his or her breach of
or failure to perform those duties is determined, in accordance with Section
1.04 of this Article, to constitute misconduct under Section 180.0851 (2) (a) 1,
2, 3 or 4 of the Statute.
(e) "Corporation, " as used herein and as defined in the Statute and
incorporated by reference into the definitions of certain capitalized terms used
herein, shall mean this Corporation, including, without limitation, any
successor corporation or entity to the Corporation by way of merger,
consolidation or acquisition of all or substantially all of the capital stock or
assets of this Corporation.
50
<PAGE>
(f) "Director or Officer" shall have the meaning set forth in the
Statute; provided, that, for purposes of this Article, it shall be conclusively
presumed that any Director or Officer serving as a director, officer, partner,
trustee, member of any governing or decision-making committee, employee or agent
of an Affiliate shall be so serving at the request of the Corporation.
(g) "Disinterested Quorum" shall mean a quorum of the Board who are
not Parties to the subject Proceeding or any related Proceeding.
(h) "Party" shall have the meaning set forth in the Statute; provided,
that, for purposes of this Article, the term "Party" shall also include any
Director, Officer or employee who is or was a witness in a Proceeding at a time
when he or she has not otherwise been formally named a Party thereto.
(i) "Proceeding" shall have the meaning set forth in the Statute;
provided, that, for purposes of this Article, "Proceeding" shall include all
Proceedings (i) brought under (in whole or in part) the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, their respective
state counterparts, and/or any rule or regulation promulgated under any of the
foregoing; (ii) brought before an Authority or otherwise to enforce rights
hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in which
the Director or Officer is a plaintiff or petitioner because he or she is a
Director or Officer, provided, however, that such Proceeding is authorized by a
majority vote of a Disinterested Quorum.
(j) "Statute" shall mean Sections 180.0850 through 180.0859,
inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes, including any amendments thereto, but, in the case of any
such amendment, only to the extent such amendment permits or requires the
Corporation to provide broader indemnification rights than the Statute permitted
or required the Corporation to provide prior to such amendment.
SECTION 1.02. MANDATORY INDEMNIFICATION. To the fullest extent permitted or
required by the Statute, the Corporation shall indemnify a Director or Officer
against all Liabilities incurred by or on behalf of such Director or Officer in
connection with a Proceeding in which the Director or Officer is a Party because
he or she is a Director or Officer.
SECTION 1.03. PROCEDURAL REQUIREMENTS.
(a) A Director or Officer who seeks indemnification under Section 1.02 of
this Article shall make a written request therefor to the Corporation. Subject
to Section 1.03 (b) of this Article, within sixty days of the Corporation's
receipt of such request, the Corporation shall pay or reimburse the Director or
Officer for the entire amount of Liabilities incurred by the Director or Officer
in connection with the subject Proceeding (net of any Expenses previously
advanced pursuant to Section 1.05 of this Article).
(b) No indemnification shall be required to be paid by the Corporation
pursuant to Section 1.03 (a) of this Article if, within such sixty-day period:
(i) a Disinterested Quorum, by a majority vote thereof, determines that the
Director or Officer requesting indemnification engaged in misconduct
constituting a Breach of Duty; or (ii) a Disinterested Quorum cannot be
obtained.
(c) In either case of nonpayment pursuant to Section 1.03 (b) of this
Article, the Board shall immediately authorize by resolution that an Authority,
as provided in Section 1.04 of this Article, determine whether the Director's or
Officer's conduct constituted a Breach of Duty and, therefore, whether
indemnification should be denied hereunder.
(d) (i) If the Board does not authorize an Authority to determine the
Director's or Officer's right to indemnification hereunder within such sixty-day
period and/or (ii) if indemnification of the requested amount of Liabilities is
paid by the Corporation, then it shall be conclusively presumed for all purposes
that a Disinterested Quorum has determined that the Director or Officer did not
engage in misconduct constituting a Breach of Duty and, in the case of
subsection (i) above (but not subsection (ii)), indemnification by the
Corporation of the requested amount of Liabilities shall be paid to the Officer
or Director immediately.
51
<PAGE>
SECTION 1.04. DETERMINATION OF INDEMNIFICATION.
(a) When the Board authorized an Authority to determine a Director's
or Officer's right to indemnification pursuant to Section 1.03 of this Article,
then the Director or Officer requesting indemnification shall have the absolute
discretionary authority to select one of the following as such Authority:
(i) An independent legal counsel; provided, that such counsel shall
be mutually selected by such Director or Officer and by a majority vote of a
Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a
majority vote of the Board;
(ii) A panel of three arbitrators selected from the panels of
arbitrators of the American Arbitration Association in Milwaukee, Wisconsin;
provided, that (A) one arbitrator shall be selected by such Director or Officer,
the second arbitrator shall be selected by a majority vote of a Disinterested
Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote
of the Board, and the third arbitrator shall be selected by the two previously
selected arbitrators; and (B) in all other respects, such panel shall be
governed by the American Arbitration Association's then existing Commercial
Arbitration Rules; or
(iii) A court pursuant to and in accordance with Section 180.0854 of
the Statute.
(b) In any such determination by the selected Authority there shall exist a
rebuttable presumption that the Director's or Officer's conduct did not
constitute a Breach of Duty and that indemnification against the requested
amount of Liabilities is required. The burden of rebutting such a presumption by
clear and convincing evidence shall be on the Corporation or such other party
asserting that such indemnification should not be allowed.
(c) The Authority shall make its determination within sixty days of being
selected and shall submit a written opinion of its conclusion simultaneously to
both the Corporation and the Director or Officer.
(d) If the Authority determines that indemnification is required hereunder,
the Corporation shall pay the entire requested amount of Liabilities (net of any
Expenses previously advanced pursuant to Section 1.05 of this Article),
including interest thereon at a reasonable rate, as determined by the Authority,
within ten days of receipt of the Authority's opinion; provided, that, if it is
determined by the Authority that a Director or Officer is entitled to
indemnification as to some claims, issues or matters, but not as to other
claims, issues or matters, involved in the subject Proceeding, the Corporation
shall be required to pay (as set forth above) only the amount of such requested
Liabilities as the Authority shall deem appropriate in light of all of the
circumstances of such Proceeding.
(e) The determination by the Authority that indemnification is required
hereunder shall be binding upon the Corporation regardless of any prior
determination that the Director or Officer engaged in a Breach of Duty.
(f) All Expenses incurred in the determination process under this Section
1.04 by either the Corporation or the Director or Officer, including, without
limitation, all Expenses of the selected Authority, shall be paid by the
Corporation.
SECTION 1.05. MANDATORY ALLOWANCE OF EXPENSES.
(a) The Corporation shall pay or reimburse, within ten days after the
receipt of the Director's or Officer's written request therefor, the reasonable
Expenses of the Director or Officer as such Expenses are incurred, provided the
following conditions are satisfied:
(i) The Director or Officer furnishes to the Corporation an executed
written certificate affirming his or her good faith belief that he or she has
not engaged in misconduct which constitutes a Breach of Duty; and
(ii) The Director or Officer furnishes to the Corporation an unsecured
executed written agreement to repay any advances made under this Section 1.05 if
it is ultimately determined by an Authority that he or she is not entitled to be
indemnified by the Corporation for such Expenses pursuant to Section 1.04 of
this Article.
(b) If the Director or Officer must repay any previously advanced Expenses
pursuant to this Section 1.05, such Director or Officer shall not be required to
pay interest on such amounts.
52
<PAGE>
SECTION 1.06. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF CERTAIN OTHERS.
(a) The Corporation shall indemnify a director or officer of an Affiliate
(who is not otherwise serving as a Director or Officer) against all Liabilities,
and shall advance the reasonable Expenses, incurred by such director or officer
in a Proceeding to the same extent hereunder as if such director or officer
incurred such Liabilities because he or she was a Director or Officer, if such
director or officer is a Party thereto because he or she is or was a director or
officer of the Affiliate.
(b) Except as hereinafter provided, the Corporation shall indemnify each
employee of the Corporation or an Affiliate of the Corporation acting within the
scope of his or her duties as such, against all Liabilities, and shall advance
Reasonable Expenses, incurred by or on behalf of such employee in connection
with a Proceeding in which he or she is a Party by virtue of being an employee
of the Corporation or an Affiliate of the Corporation, to the same extent and in
the same manner as a Director or Officer hereunder. The foregoing provision
shall not apply, and the Corporation shall not indemnify any employee, with
respect to any Liability to the extent covered by insurance maintained by or on
behalf of such employee (other than insurance maintained by the Corporation or
an Affiliate of the Corporation).
(c) The Board may, in its sole and absolute discretion as it deems
appropriate, pursuant to a majority vote thereof, indemnify against Liabilities
incurred by, and/or provide for the allowance of reasonable Expenses of, an
authorized agent of the Corporation acting within the scope of his or her duties
as such and who is not otherwise a Director or Officer.
SECTION 1.07. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of a Director, Officer and/or any individual who is or was
an authorized employee or agent of the Corporation against any Liability
asserted against or incurred by such individual in his or her capacity as such
or arising from his or her status as such, regardless of whether the Corporation
is required or permitted to indemnify against any such Liability under this
Article.
SECTION 1.08. NOTICE TO THE CORPORATION. A Director, Officer or
employee shall promptly notify the Corporation in writing when he or she has
actual knowledge of a Proceeding which may result in a claim or indemnification
against Liabilities or allowance of Expenses hereunder, but the failure to do so
shall not relieve the Corporation of any liability to the Director, Officer or
employee hereunder unless the Corporation shall have been irreparably prejudiced
by such failure (as determined by an Authority).
SECTION 1.09. REPORT TO SHAREHOLDERS. In the event that the Corporation
indemnifies or advances expenses to a Director or Officer in connection with a
proceeding brought in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to shareholders with or before the
notice of the next meeting of shareholders. The report shall be delivered to
shareholders who are entitled to receive notice of the next meeting of
shareholders.
SECTION 1.10. SEVERABILITY. If any provision of this Article shall be
deemed invalid or inoperative, or if a court of competent jurisdiction
determines that any of the provisions of this Article contravene public policy,
this Article shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such provisions
which are invalid or inoperative or which contravene public policy shall be
deemed, without further action or deed by or on behalf of the Corporation, to be
modified, amended and/or limited, but only to the extent necessary to render the
same valid and enforceable.
SECTION 1.11. NONEXCLUSIVITY OF THIS ARTICLE. The rights of a Director,
Officer or employee (or any other person) granted under this Article shall not
be deemed exclusive of any other rights to indemnification against Liabilities
or advancement of Expenses which the Director, Officer or employee (or such
other person) may be entitled to under any written agreement, Board resolution,
vote of shareholders of the Corporation or otherwise, including without
limitation under the Statute. Nothing contained in this Article shall be deemed
to limit the Corporation's obligations to indemnify a Director, Officer or
employee under the Statute.
SECTION 1.12. CONTRACTUAL NATURE OF THIS ARTICLE; REPEAL OR LIMITATION OF
RIGHTS. This Article shall be deemed to be a contract between the Corporation
and each Director, Officer and employee and any repeal or other limitation of
this Article or any repeal or limitation of the Statute or any other applicable
law shall not limit any rights of indemnification against Liabilities or
allowance of Expenses then existing or arising out of events, acts or omissions
occurring prior to such repeal or limitation, including, without limitation, the
right of indemnification against Liabilities or allowance of Expenses for
Proceedings commenced after such repeal or limitation to enforce this Article
with regard to acts, omissions or events
53
<PAGE>
arising prior to such repeal or limitation.
SECTION 1.13. SUBROGATION RIGHTS. Notwithstanding any provision to the
contrary set forth herein, the Corporation's obligations hereunder are not
intended to constitute, and shall not constitute, a waiver of any right to
subrogation which the Corporation may have against any person or entity.
54
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>c75378exv21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
EXHIBIT (21.0)
BADGER METER, INC.
SUBSIDIARIES OF THE REGISTRANT
The company's subsidiaries are listed below. All of the subsidiaries of the
company listed below are included in the company's consolidated financial
statements.
<TABLE>
<CAPTION>
Percentage State or Country
Name of ownership in which organized
- ---- ------------ ------------------
<S> <C> <C>
Badger Meter de Las Americas, S.A. de C.V. 100% Mexico
Badger Meter Canada, Inc. 100% Canada
Badger Meter Czech Republic 100% Czech Republic
(a subsidiary of Badger Meter
International, Inc.)
Badger Meter Europe, GmbH 100% Federal Republic
of Germany
Badger Meter Export, Inc. 100% Virgin Islands
(a large FSC) (U.S.)
Badger Meter France SAS 100% France
(a French holding company)
(Badger Meter France SAS is a subsidiary
of Badger Meter International, Inc.)
MecaPlus Equipements SA 100% France
(a subsidiary of Badger Meter France)
Badger Meter International, Inc. 100% Wisconsin
(an international holding company) (U.S.)
Badger Meter Limited 100% United Kingdom
Badger Meter de Mexico, S.A. de C.V. 100% Mexico
Data Industrial Corporation (1) 100% Massachusetts
(U.S.)
</TABLE>
<FN>
(1) As of January 1, 2003, Data Industrial Corporation ceased to be a subsidiary
and has been completely merged into Badger Meter, Inc.
</FN>
55
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>c75378exv23.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
EXHIBIT (23.0)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (File Nos. 33-27650, 33-65618, 33-62239, 33-62241, 333-28617 and
333-73228) pertaining to the Badger Meter, Inc. 1989 Stock Option Plan, Badger
Meter, Inc. 1993 Stock Option Plan, Badger Meter, Inc. 1995 Stock Option Plan,
Badger Meter, Inc. Employee Savings and Stock Ownership Plan, Badger Meter, Inc.
1997 Stock Option Plan, Badger Meter, Inc. 1999 Stock Option Plan, and to the
incorporation by reference in the Registration Statement on Form S-3 (File No.
333-102057) of Badger Meter, Inc and in the related Prospectus, of our report
dated January 31, 2003, with respect to the consolidated financial statements
included in this Annual Report (Form 10-K) of Badger Meter, Inc. for the year
ended December 31, 2002.
Ernst & Young LLP
Milwaukee, Wisconsin
March 20, 2003
56
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>6
<FILENAME>c75378exv99w1.txt
<DESCRIPTION>WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>
EXHIBIT (99.1)
WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. subsection.1350
Solely for the purpose of complying with 18 U.S.C. subsection.1350, I, the
undersigned Chief Executive Officer of Badger Meter, Inc., (the "Company),
hereby certify, based on my knowledge, that the Annual Report on Form 10-K of
the Company for the year ended December 31, 2002 (the "Report") fully complies
with the requirements of Section 13 (a) of the Securities Exchange Act of 1934
and that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
BADGER METER, INC.
Dated: March 20, 2003 By /S/ Richard A. Meeusen
-------------------------------------
Richard A. Meeusen
President and Chief Executive Officer
57
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>7
<FILENAME>c75378exv99w2.txt
<DESCRIPTION>WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>
EXHIBIT (99.2)
WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. subsection.1350
Solely for the purpose of complying with 18 U.S.C. subsection.1350, I, the
undersigned Chief Financial Officer of Badger Meter, Inc., (the "Company),
hereby certify, based on my knowledge, that the Annual Report on Form 10-K of
the Company for the year ended December 31, 2002 (the "Report") fully complies
with the requirements of Section 13 (a) of the Securities Exchange Act of 1934
and that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
BADGER METER, INC.
Dated: March 20, 2003 By /S/ Richard E. Johnson
---------------------------------------
Richard E. Johnson
Vice President-Finance, Chief Financial
Officer and Treasurer
58
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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