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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

 

        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019                

or

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission File No. 001-06706

 

BADGER METER, INC.

(Exact name of registrant as specified in its charter)

 

Wisconsin

 

39-0143280

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4545 W. Brown Deer Road

Milwaukee, Wisconsin

 

53233

(Address of principal executive offices)

 

(Zip code)

 

 

(414) 355-0400

 

 

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

BMI

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

 

Smaller reporting company

Accelerated filer

 

Emerging growth company

Non‑accelerated filer

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes          No  

As of October 14, 2019, there were 29,111,332 shares of Common stock outstanding with a par value of $1 per share.

 

 

 


Table of Contents

BADGER METER, INC.

Quarterly Report on Form 10-Q for the Period Ended September 30, 2019

Index

 

 

Page No.

 

 

Part I. Financial Information:

 

 

 

 

Item 1

Financial Statements (unaudited):

5

 

 

 

 

Consolidated Condensed Balance Sheets - September 30, 2019 and December 31, 2018

5

 

 

 

 

Consolidated Condensed Statements of Operations - Three and Nine Months Ended September 30, 2019 and 2018

6

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2018

7

 

 

 

 

Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 2019 and 2018

8

 

 

 

 

Consolidated Condensed Statements of Shareholders’ Equity – Three and Nine Months Ended September 30, 2019 and 2018

9

 

 

 

 

Notes to Unaudited Consolidated Condensed Financial Statements

10

 

 

 

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

23

 

 

 

Item 4

Controls and Procedures

23

 

 

Part II. Other Information:

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

Item 6

Exhibits

24

 

 

Signatures

25

 

2


Table of Contents

Special Note Regarding Forward Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, as well as other information provided from time to time by Badger Meter, Inc. (the “Company” or “Badger Meter”) 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,” “could” and “objective” or similar expressions are intended to identify forward looking statements.  All such forward looking statements are based on the Company’s then current views and assumptions and involve risks and uncertainties.  Some risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward looking statements include those described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and include, among other things:

 

 

the continued shift in the Company’s business from lower cost, manually read meters toward more expensive, value-added automatic meter reading (AMR) systems, advanced metering infrastructure (AMI) systems and advanced metering analytics (AMA) systems that offer more comprehensive solutions to customers’ metering needs;

 

the success or failure of newer Company products;

 

changes in competitive pricing and bids in both the domestic and foreign marketplaces, and particularly in continued intense price competition on government bid contracts for lower cost, manually read meters;

 

the actions (or lack thereof) of the Company’s competitors;

 

changes in the general conditions of the United States and foreign economies, including to some extent such things as the length and severity of global economic downturns, international or civil conflicts that affect international trade, the ability of municipal water utility customers to authorize and finance purchases of the Company’s products, the Company’s ability to obtain financing, housing starts in the United States, and overall industrial activity;

 

unusual weather, weather patterns or other natural phenomena, including related economic and other ancillary effects of any such events;

 

economic policy changes, including but not limited to, trade policy and corporate taxation;

 

the timing and impact of government funding programs that stimulate national and global economies, as well as the impact of government budget cuts or partial shutdowns of governmental operations;

 

changes in the cost and/or availability of needed raw materials and parts, such as volatility in the cost of brass castings as a result of fluctuations in commodity prices, particularly for copper and scrap metal at the supplier level, foreign-sourced electronic components as a result of currency exchange fluctuations and/or lead times, and plastic resin as a result of changes in petroleum and natural gas prices;

 

the Company’s ability to successfully integrate acquired businesses or products;

 

changes in foreign economic conditions, particularly currency fluctuations in the United States dollar, the Euro and the Mexican peso;

 

the inability to develop technologically advanced products;

 

the failure of the Company’s products to operate as intended;

 

the inability to protect the Company’s proprietary rights to its products;

 

the Company’s expanded role as a prime contractor for providing complete technology systems to governmental entities, which brings with it added risks, including but not limited to, the Company’s responsibility for subcontractor performance, additional costs and expenses if the Company and its subcontractors fail to meet the timetable agreed to with the governmental entity, and the Company’s expanded warranty and performance obligations;

 

disruptions and other damages to information technology, other networks, operations and property (Company or third party owned) due to breaches in data security or any other cybersecurity attack;

3


Table of Contents

 

transportation delays or interruptions;

 

violations or alleged violations of laws that impose requirements for the conduct of the Company’s operations, including the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws, trade sanctions and sanctioned parties restrictions;

 

the loss of or disruption in certain single-source suppliers; and

 

changes in laws and regulations, particularly laws dealing with the content or handling of materials used in the Company's products.

 

All of these factors are beyond the Company's control to varying degrees.  Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward looking statements contained in this Quarterly Report on Form 10-Q and are cautioned not to place undue reliance on such forward looking statements.  The forward looking statements made in this document are made only as of the date of this document and the Company assumes no obligation, and disclaims any obligation, to update any such forward looking statements to reflect subsequent events or circumstances.

4


Table of Contents

Part I – Financial Information

Item 1  Financial Statements

BADGER METER, INC.

Consolidated Condensed Balance Sheets

 

 

 

September 30,

 

 

December 31,

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

37,728

 

 

$

13,086

 

Receivables

 

 

61,406

 

 

 

66,300

 

Inventories:

 

 

 

 

 

 

 

 

Finished goods

 

 

24,646

 

 

 

23,476

 

Work in process

 

 

18,097

 

 

 

17,097

 

Raw materials

 

 

42,092

 

 

 

40,231

 

Total inventories

 

 

84,835

 

 

 

80,804

 

Prepaid expenses and other current assets

 

 

7,572

 

 

 

4,469

 

Total current assets

 

 

191,541

 

 

 

164,659

 

Property, plant and equipment, at cost

 

 

208,315

 

 

 

213,722

 

Less accumulated depreciation

 

 

(121,658

)

 

 

(123,401

)

Net property, plant and equipment

 

 

86,657

 

 

 

90,321

 

Intangible assets, at cost less accumulated amortization

 

 

49,934

 

 

 

55,418

 

Other assets

 

 

16,126

 

 

 

8,872

 

Deferred income taxes

 

 

1,974

 

 

 

2,163

 

Goodwill

 

 

71,258

 

 

 

71,258

 

Total assets

 

$

417,490

 

 

$

392,691

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term debt

 

$

4,360

 

 

$

18,060

 

Payables

 

 

32,363

 

 

 

22,469

 

Accrued compensation and employee benefits

 

 

12,814

 

 

 

13,768

 

Warranty and after-sale costs

 

 

6,807

 

 

 

4,206

 

Other current liabilities

 

 

2,501

 

 

 

1,512

 

Total current liabilities

 

 

58,845

 

 

 

60,015

 

Other long-term liabilities

 

 

22,863

 

 

 

13,972

 

Deferred income taxes

 

 

3,077

 

 

 

3,332

 

Accrued non-pension postretirement benefits

 

 

5,163

 

 

 

5,184

 

Other accrued employee benefits

 

 

3,903

 

 

 

6,685

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

37,200

 

 

 

37,198

 

Capital in excess of par value

 

 

40,306

 

 

 

38,082

 

Reinvested earnings

 

 

278,551

 

 

 

257,313

 

Accumulated other comprehensive income

 

 

404

 

 

 

580

 

Less: Employee benefit stock

 

 

(306

)

 

 

(306

)

Treasury stock, at cost

 

 

(32,516

)

 

 

(29,364

)

Total shareholders’ equity

 

 

323,639

 

 

 

303,503

 

Total liabilities and shareholders’ equity

 

$

417,490

 

 

$

392,691

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

5


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Operations

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

(In thousands except share and per share amounts)

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

108,646

 

 

$

110,630

 

 

$

317,069

 

 

$

329,319

 

Cost of sales

 

 

66,976

 

 

 

66,684

 

 

 

194,666

 

 

 

207,121

 

Gross margin

 

 

41,670

 

 

 

43,946

 

 

 

122,403

 

 

 

122,198

 

Selling, engineering and administration

 

 

25,225

 

 

 

28,212

 

 

 

76,598

 

 

 

80,139

 

Operating earnings

 

 

16,445

 

 

 

15,734

 

 

 

45,805

 

 

 

42,059

 

Interest expense, net

 

 

66

 

 

 

295

 

 

 

280

 

 

 

994

 

Other pension and postretirement costs

 

 

41

 

 

 

11,787

 

 

 

123

 

 

 

19,799

 

Earnings before income taxes

 

 

16,338

 

 

 

3,652

 

 

 

45,402

 

 

 

21,266

 

Provision for income taxes

 

 

3,617

 

 

 

801

 

 

 

10,499

 

 

 

4,715

 

Net earnings

 

$

12,721

 

 

$

2,851

 

 

$

34,903

 

 

$

16,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.44

 

 

$

0.10

 

 

$

1.20

 

 

$

0.57

 

Diluted

 

$

0.44

 

 

$

0.10

 

 

$

1.19

 

 

$

0.57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.17

 

 

$

0.15

 

 

$

0.47

 

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computation of earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29,013,573

 

 

 

28,989,205

 

 

 

29,022,080

 

 

 

28,983,115

 

Impact of dilutive securities

 

 

179,765

 

 

 

207,955

 

 

 

193,112

 

 

 

198,428

 

Diluted

 

 

29,193,338

 

 

 

29,197,160

 

 

 

29,215,192

 

 

 

29,181,543

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

6


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Comprehensive Income

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

(In thousands)

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings

 

$

12,721

 

 

$

2,851

 

 

$

34,903

 

 

$

16,551

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(646

)

 

 

106

 

 

 

(509

)

 

 

(281

)

Pension and postretirement benefits, net of tax

 

 

(16

)

 

 

7,396

 

 

 

333

 

 

 

13,168

 

Comprehensive income

 

$

12,059

 

 

$

10,353

 

 

$

34,727

 

 

$

29,438

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

7


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Cash Flows

 

 

 

Nine Months Ended

September 30,

 

 

 

(Unaudited)

(In thousands)

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

34,903

 

 

$

16,551

 

Adjustments to reconcile net earnings to net cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation

 

 

8,688

 

 

 

8,796

 

Amortization

 

 

9,323

 

 

 

9,675

 

Deferred income taxes

 

 

18

 

 

 

132

 

Noncurrent employee benefits

 

 

(150

)

 

 

261

 

Pension termination settlement charge

 

 

-

 

 

 

19,900

 

Contribution to pension plan

 

 

-

 

 

 

(2,860

)

Stock-based compensation expense

 

 

882

 

 

 

3,374

 

Changes in:

 

 

 

 

 

 

 

 

Receivables

 

 

4,555

 

 

 

(11,462

)

Inventories

 

 

(4,259

)

 

 

1,409

 

Payables

 

 

10,885

 

 

 

(2,468

)

Prepaid expenses and other current assets

 

 

(5,806

)

 

 

(5,573

)

Other liabilities

 

 

2,100

 

 

 

2,148

 

Total adjustments

 

 

26,236

 

 

 

23,332

 

Net cash provided by operations

 

 

61,139

 

 

 

39,883

 

Investing activities:

 

 

 

 

 

 

 

 

Property, plant and equipment expenditures

 

 

(5,589

)

 

 

(7,219

)

Acquisitions, net of cash acquired and future payments

 

 

-

 

 

 

(8,048

)

Net cash used for investing activities

 

 

(5,589

)

 

 

(15,267

)

Financing activities:

 

 

 

 

 

 

 

 

Net decrease in short-term debt

 

 

(13,500

)

 

 

(8,433

)

Payment of contingent acquisition consideration

 

 

(1,650

)

 

 

(2,034

)

Dividends paid

 

 

(13,652

)

 

 

(11,895

)

Proceeds from exercise of stock options

 

 

963

 

 

 

933

 

Repurchase of treasury stock

 

 

(3,358

)

 

 

(4,451

)

Issuance of treasury stock

 

 

142

 

 

 

529

 

Net cash used for financing activities

 

 

(31,055

)

 

 

(25,351

)

Effect of foreign exchange rates on cash

 

 

147

 

 

 

200

 

Increase (decrease) in cash

 

 

24,642

 

 

 

(535

)

Cash – beginning of period

 

 

13,086

 

 

 

11,164

 

Cash – end of period

 

$

37,728

 

 

$

10,629

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

8


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Shareholders’ Equity

 

 

 

Quarter and year-to-date ended September 30,

 

 

 

Common

Stock at $1

par value*

 

 

Capital in

excess of

par value

 

 

Reinvested

earnings

 

 

Accumulated

other

comprehensive

income

(loss)

 

 

Employee

benefit

stock

 

 

Treasury

stock (at cost)

 

 

Total

 

 

 

(Unaudited)

 

 

 

(In thousands except share and per share amounts)

 

Balance, June 30, 2018

 

$

37,177

 

 

$

33,681

 

 

$

250,242

 

 

$

(5,508

)

 

$

(461

)

 

$

(26,661

)

 

$

288,470

 

Net earnings

 

 

-

 

 

 

-

 

 

 

2,851

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,851

 

Pension and postretirement benefits

   (net of $3,080 tax effect)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,396

 

 

 

-

 

 

 

-

 

 

 

7,396

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

106

 

 

 

-

 

 

 

-

 

 

 

106

 

Cash dividends of $0.15 per share

 

 

-

 

 

 

-

 

 

 

(4,361

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,361

)

Stock options exercised

 

 

21

 

 

 

681

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

702

 

ASU 2018-02 adoption

 

 

-

 

 

 

-

 

 

 

1,700

 

 

 

(1,700

)

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

2,430

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,430

 

Purchase of common stock for treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,462

)

 

 

(2,462

)

Issuance of treasury stock (9 shares)

 

 

-

 

 

 

17

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

81

 

 

 

98

 

Balance, September 30, 2018

 

$

37,198

 

 

$

36,809

 

 

$

250,432

 

 

$

294

 

 

$

(461

)

 

$

(29,042

)

 

$

295,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

$

37,165

 

 

$

32,182

 

 

$

244,224

 

 

$

(10,893

)

 

$

(461

)

 

$

(24,766

)

 

$

277,451

 

Net earnings

 

 

-

 

 

 

-

 

 

 

16,551

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,551

 

ASU 2014-09 adoption impact

 

 

-

 

 

 

-

 

 

 

(128

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128

)

Pension and postretirement benefits

   (net of $4,994 tax effect)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,168

 

 

 

-

 

 

 

-

 

 

 

13,168

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(281

)

 

 

-

 

 

 

-

 

 

 

(281

)

Cash dividends of $0.41 per share

 

 

-

 

 

 

-

 

 

 

(11,915

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,915

)

Stock options exercised

 

 

33

 

 

 

900

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

933

 

ASU 2018-02 adoption

 

 

-

 

 

 

-

 

 

 

1,700

 

 

 

(1,700

)

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

3,374

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,374

 

Purchase of common stock for treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,451

)

 

 

(4,451

)

Issuance of treasury stock (39 shares)

 

 

-

 

 

 

353

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

175

 

 

 

528

 

Balance, September 30, 2018

 

$

37,198

 

 

$

36,809

 

 

$

250,432

 

 

$

294

 

 

$

(461

)

 

$

(29,042

)

 

$

295,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

$

37,200

 

 

$

39,746

 

 

$

270,772

 

 

$

1,066

 

 

$

(306

)

 

$

(32,026

)

 

$

316,452

 

Net earnings

 

 

-

 

 

 

-

 

 

 

12,721

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,721

 

Pension and postretirement benefits

   (net of ($4) tax effect)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16

)

 

 

-

 

 

 

-

 

 

 

(16

)

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(646

)

 

 

-

 

 

 

-

 

 

 

(646

)

Cash dividends of $0.17 per share

 

 

-

 

 

 

-

 

 

 

(4,942

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,942

)

Stock options exercised

 

 

-

 

 

 

192

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23

 

 

 

215

 

Stock-based compensation

 

 

-

 

 

 

328

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

328

 

Purchase of common stock for treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(521

)

 

 

(521

)

Issuance of treasury stock (21 shares)

 

 

-

 

 

 

40

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

48