Badger Meter Earnings 2019-06-30

BMI 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

bmi-10q_20190630.htm

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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 June 30, 2019

☐ 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 where 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 July 12, 2019, there were 29,113,982 shares of Common stock outstanding with a par value of $1 per share.

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BADGER METER, INC.

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

Index

		Page No.

Part I. Financial Information:

Item 1	Financial Statements (unaudited):	5

	Consolidated Condensed Balance Sheets - June 30, 2019 and December 31, 2018	5

	Consolidated Condensed Statements of Operations - Three and Six Months Ended June 30, 2019 and 2018	6

	Consolidated Condensed Statements of Comprehensive Income - Three and Six Months Ended June 30, 2019 and 2018	7

	Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2019 and 2018	8

	Consolidated Condensed Statements of Shareholders’ Equity – Three and Six Months Ended June 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

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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;

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•

transportation delays or interruptions;

•

violations or alleged violations of laws that impose requirements for the conduct of the Company’s overseas 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.

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Part I – Financial Information

Item 1 Financial Statements

BADGER METER, INC.

Consolidated Condensed Balance Sheets

	June 30,			December 31,
	(Unaudited)
	(In thousands)
	2019			2018
Assets
Current assets:
Cash	$	23,894		$	13,086
Receivables		60,294			66,300
Inventories:
Finished goods		23,034			23,476
Work in process		16,643			17,097
Raw materials		43,642			40,231
Total inventories		83,319			80,804
Prepaid expenses and other current assets		8,037			4,469
Total current assets		175,544			164,659
Property, plant and equipment, at cost		213,201			213,722
Less accumulated depreciation		(124,689	)		(123,401	)
Net property, plant and equipment		88,512			90,321
Intangible assets, at cost less accumulated amortization		51,717			55,418
Other assets		15,819			8,872
Deferred income taxes		2,011			2,163
Goodwill		71,258			71,258
Total assets	$	404,861		$	392,691
Liabilities and shareholders’ equity
Current liabilities:
Short-term debt	$	4,560		$	18,060
Payables		29,556			22,469
Accrued compensation and employee benefits		12,256			13,768
Warranty and after-sale costs		5,379			4,206
Other current liabilities		2,556			1,512
Total current liabilities		54,307			60,015
Other long-term liabilities		21,772			13,972
Deferred income taxes		3,233			3,332
Accrued non-pension postretirement benefits		5,191			5,184
Other accrued employee benefits		3,906			6,685
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock		37,200			37,198
Capital in excess of par value		39,746			38,082
Reinvested earnings		270,772			257,313
Accumulated other comprehensive income		1,066			580
Less: Employee benefit stock		(306	)		(306	)
Treasury stock, at cost		(32,026	)		(29,364	)
Total shareholders’ equity		316,452			303,503
Total liabilities and shareholders’ equity	$	404,861		$	392,691

See accompanying notes to unaudited consolidated condensed financial statements.

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BADGER METER, INC.

Consolidated Condensed Statements of Operations

	Three Months Ended June 30,				Six Months Ended June 30,
	(Unaudited)				(Unaudited)
	(In thousands except share and per share amounts)
	2019		2018		2019		2018
Net sales	$	103,542	$	113,648	$	208,423	$	218,689
Cost of sales		63,266		72,144		127,690		140,437
Gross margin		40,276		41,504		80,733		78,252
Selling, engineering and administration		25,243		25,153		51,373		51,927
Operating earnings		15,033		16,351		29,360		26,325
Interest expense, net		85		409		214		699
Other pension and postretirement costs		35		8,031		82		8,012
Earnings before income taxes		14,913		7,911		29,064		17,614
Provision for income taxes		3,555		1,757		6,882		3,914
Net earnings	$	11,358	$	6,154	$	22,182	$	13,700

Earnings per share:
Basic	$	0.39	$	0.21	$	0.76	$	0.47
Diluted	$	0.39	$	0.21	$	0.76	$	0.47

Dividends declared per common share	$	0.15	$	0.13	$	0.30	$	0.26

Shares used in computation of earnings per share:
Basic		29,027,887		28,963,373		29,024,543		28,965,735
Impact of dilutive securities		183,646		170,070		200,009		193,665
Diluted		29,211,533		29,133,443		29,224,552		29,159,400

See accompanying notes to unaudited consolidated condensed financial statements.

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BADGER METER, INC.

Consolidated Condensed Statements of Comprehensive Income

	Three Months Ended June 30,					Six Months Ended June 30,
	(Unaudited)					(Unaudited)
	(In thousands)
	2019		2018			2019		2018
Net earnings	$	11,358	$	6,154		$	22,182	$	13,700
Other comprehensive income:
Foreign currency translation adjustments		395		(808	)		137		(387	)
Pension and postretirement benefits, net of tax		360		5,711			349		5,772
Comprehensive income	$	12,113	$	11,057		$	22,668	$	19,085

See accompanying notes to unaudited consolidated condensed financial statements.

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BADGER METER, INC.

Consolidated Condensed Statements of Cash Flows

	Six Months Ended June 30,
	(Unaudited) (In thousands)
	2019			2018
Operating activities:
Net earnings	$	22,182		$	13,700
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation		6,063			5,894
Amortization		6,297			6,543
Deferred income taxes		(15	)		59
Noncurrent employee benefits		(267	)		84
Pension termination settlement charge		-			8,168
Contribution to pension plan		-			(1,600	)
Stock-based compensation expense		554			944
Changes in:
Receivables		6,028			(6,765	)
Inventories		(2,565	)		167
Payables		9,141			(1,255	)
Prepaid expenses and other current assets		(3,946	)		(3,101	)
Other liabilities		(2,569	)		2,361
Total adjustments		18,721			11,499
Net cash provided by operations		40,903			25,199
Investing activities:
Property, plant and equipment expenditures		(4,466	)		(5,242	)
Acquisitions, net of cash acquired and future payments		-			(8,048	)
Net cash used for investing activities		(4,466	)		(13,290	)
Financing activities:
Net decrease in short-term debt		(13,500	)		(2,000	)
Payment of contingent acquisition consideration		(1,650	)		-
Dividends paid		(8,717	)		(7,542	)
Proceeds from exercise of stock options		748			231
Repurchase of treasury stock		(2,837	)		(1,989	)
Issuance of treasury stock		97			431
Net cash used for financing activities		(25,859	)		(10,869	)
Effect of foreign exchange rates on cash		230			(79	)
Increase in cash		10,808			961
Cash – beginning of period		13,086			11,164
Cash – end of period	$	23,894		$	12,125

See accompanying notes to unaudited consolidated condensed financial statements.

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BADGER METER, INC.

Consolidated Condensed Statements of Shareholders’ Equity

	Quarter and year-to-date ended June 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, March 31, 2018	$	37,177	$	32,871	$	247,865		$	(10,411	)	$	(461	)	$	(26,319	)	$	280,722
Net earnings		-		-		6,154			-			-			-			6,154
Pension and postretirement benefits (net of $1,894 tax effect)		-		-		-			5,711			-			-			5,711
Foreign currency translation		-		-		-			(808	)		-			-			(808	)
Cash dividends of $0.13 per share		-		-		(3,777	)		-			-			-			(3,777	)
Stock-based compensation		-		473		-			-			-			-			473
Purchase of common stock for treasury stock		-		-		-			-			-			(370	)		(370	)
Issuance of treasury stock (9 shares)		-		337		-			-			-			28			365
Balance, June 30, 2018	$	37,177	$	33,681	$	250,242		$	(5,508	)	$	(461	)	$	(26,661	)	$	288,470

Balance, December 31, 2017	$	37,165	$	32,182	$	244,224		$	(10,893	)	$	(461	)	$	(24,766	)	$	277,451
Net earnings		-		-		13,700			-			-			-			13,700
ASU 2014-09 adoption impact		-		-		(128	)		-			-			-			(128	)
Pension and postretirement benefits (net of $1,914 tax effect)		-		-		-			5,772			-			-			5,772
Foreign currency translation		-		-		-			(387	)		-			-			(387	)
Cash dividends of $0.26 per share		-		-		(7,554	)		-			-			-			(7,554	)
Stock options exercised		12		219		-			-			-			-			231
Stock-based compensation		-		944		-			-			-			-			944
Purchase of common stock for treasury stock		-		-		-			-			-			(1,989	)		(1,989	)
Issuance of treasury stock (30 shares)		-		336		-			-			-			94			430
Balance, June 30, 2018	$	37,177	$	33,681	$	250,242		$	(5,508	)	$	(461	)	$	(26,661	)	$	288,470

Balance, March 31, 2019	$	37,200

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$54.24	29	$1,580

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-18	Earnings, Exhibits
8-K	2019-04-30	Shareholder Vote
8-K	2019-04-17	Earnings, Exhibits
8-K	2019-03-08	Officers
8-K	2019-02-05	Earnings, Exhibits
8-K	2018-12-28	Officers, Regulation FD, Other Events, Exhibits
8-K	2018-10-17	Earnings, Exhibits
8-K	2018-09-24	Officers, Regulation FD, Exhibits
8-K	2018-07-18	Earnings, Exhibits
8-K	2018-04-27	Officers, Shareholder Vote, Other Events, Exhibits
8-K	2018-04-17	Earnings, Exhibits
8-K	2018-02-09	Officers
8-K	2018-02-05	Earnings, Exhibits

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EX-31.1	bmi-ex311_7.htm
EX-31.2	bmi-ex312_8.htm
EX-32	bmi-ex32_6.htm