FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
OR
[] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission file number 1-6706
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Badger Meter, Inc.
4545 W. Brown Deer Road
Milwaukee, WI 53223
1
REQUIRED INFORMATION
The Badger Meter Employee Savings and Stock Ownership Plan (the Plan) is subject
to the requirements of the Employee Retirement Income Security Act of 1974
(ERISA). Attached hereto is a copy of the most recent financial statements and
schedules of the Plan prepared in accordance with the financial reporting
requirements of ERISA.
2
Badger Meter Employee Savings and Stock Ownership Plan
Financial Statements
and Supplemental Schedules
December 31, 2002 and 2001 and year ended December 31, 2002
CONTENTS
Report of Independent Auditors...........................................................................4
Financial Statements
Statements of Net Assets Available for Benefits..........................................................5
Statement of Changes in Net Assets Available for Benefits................................................6
Notes to Financial Statements............................................................................7
Supplemental Schedules
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)..........................................15
Schedule H, Line 4j - Schedule of Reportable Transactions...............................................16
3
Report of Independent Auditors
Employee Benefit Plans of the Board of Directors of Badger Meter, Inc.
Badger Meter Employee Savings and Stock Ownership Plan
We have audited the accompanying statements of net assets available for benefits
of Badger Meter Employee Savings and Stock Ownership Plan as of December 31,
2002 and 2001, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2002. These financial statements are
the responsibility of the Plan'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 audit
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 net assets available for benefits of the Plan at
December 31, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
(held at end of year) as of December 31, 2002, and reportable transactions for
the year then ended, are presented for purposes of additional analysis and are
not a required part of the financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
Milwaukee, Wisconsin /s/ Ernst & Young LLP
May 9, 2003
4
Badger Meter Employee Savings and Stock Ownership Plan
Statements of Net Assets Available for Benefits
DECEMBER 31
2002 2001
------------ ------------
ASSETS
Cash $ -- $ 4,908
Investments 34,578,274 32,988,163
Company contribution receivable 255,625 370,392
Receivable from brokers 58,828 --
Interest receivable 56,577 58,327
------------ ------------
Total assets 34,949,304 33,421,790
LIABILITIES
Notes payable (Note 5) 1,535,000 1,900,000
------------ ------------
Total liabilities 1,535,000 1,900,000
------------ ------------
Net assets available for benefits $ 33,414,304 $ 31,521,790
============ ============
See accompanying notes.
5
Badger Meter Employee Savings and Stock Ownership Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
Additions:
Investment income (loss):
Net realized and unrealized appreciation in fair
value of investments $ 1,971,647
Interest and dividends 1,075,374
Investment expenses (2,814)
Contributions:
Company 261,017
Participants 2,407,074
------------
5,712,298
Deductions:
Benefit payments to participants 3,775,235
Interest expense 44,549
------------
Net increase 1,892,514
Net assets available for benefits at beginning of year 31,521,790
------------
Net assets available for benefits at end of year $ 33,414,304
============
See accompanying notes.
6
Notes to Financial Statements
December 31, 2002
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements of Badger Meter Employee Savings and Stock
Ownership Plan (the Plan) are prepared on the accrual basis.
INVESTMENT VALUATION
The investment in the guaranteed income group annuity insurance contract is
valued at contract value as reported by Massachusetts Mutual Life Insurance
Company (Mass Mutual). Contract value represents contributions made under the
contract, plus interest at the contract rate, less funds used to pay benefits
and the insurance company's administrative expenses. The Mass Mutual contract is
a "fully benefit-responsive" investment contract, as defined in Statement of
Position (SOP) 94-4, "Reporting of Investment Contracts Held by Health and
Welfare Benefit Plans and Defined Contribution Pension Plans." As such, this
contract is stated at contract value as reported by the insurance company.
Crediting interest rates are adjusted annually on January 1.
The investments in mutual funds are valued at the redemption price established
by the fund's trustee based upon the quoted prices of the underlying assets.
Units of common trust funds are valued at quoted redemption price.
The investment in Badger Meter, Inc. (the Company) common stock, which is traded
on the American Stock Exchange, is valued at the last reported sales price on
the last business day of the Plan year.
The money market fund is valued at fair value based on quoted market or
redemption price on the last business day of the Plan year.
Notes receivable from participants are reported at their unpaid principal
balance, which approximates fair value.
7
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
EXPENSES
Expenses related to the administration of the Plan are born by the Company.
Investment expenses are payable by the Plan and reimbursed by the Company at its
discretion.
2. DESCRIPTION OF THE PLAN
GENERAL
The following description of the Plan is for general information purposes only.
Participants should refer to the Summary Plan Description for more complete
information. The Plan is a defined-contribution plan adopted under Section
401(k) of the Internal Revenue Code (the Code). The Plan was established as of
January 1, 1991, to consolidate the Badger Meter Savings Plan, the Badger Meter
Payroll-Based Employee Stock Ownership Plan, and the Badger Meter Employee Stock
Ownership Plan into a single plan.
Substantially all domestic employees of the Company are eligible to participate
in the Plan. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
Participant contributions may be made to a maximum of 20% of their compensation
on a pretax basis, not to exceed the amount allowed by the Code. Company
contributions are made at a rate of 25% of the participant contributions, with
the Company contribution percentage applying to a maximum of 7% of the
participant's compensation for the year. The Company may also contribute
additional amounts over and above the required contribution at the discretion of
the Company's Board of Directors. No such contributions were made in 2002.
8
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
Participant contributions are directed into one, or a combination, of nine
investments, at the participant's discretion. Company contributions are made in
cash and are used by the Plan to repay principal and interest on the note
payable (see Note 5). As principal and interest payments are made on the note
payable, unallocated shares of Badger Meter, Inc. common stock, which serve as
collateral for the note payable, are released to Plan participants and provide
the Company matching contribution at current market values. Participant
contributions may be temporarily invested in a money market common trust fund
before being invested in the aforementioned investments.
All contributions are excluded from the participant's current wages for federal
income tax purposes. No federal income tax is paid for the pretax contributions
and growth thereon until the participant withdraws them from the Plan.
PARTICIPANT'S ACCOUNTS
Each participant's account is credited with the participant's contribution, the
Company's matching contribution, an allocation of the Company's discretionary
contribution, if any, and Plan earnings. The Company's discretionary
contribution is allocated equally to all participants. Plan earnings are
allocated based on the participant's account balances in relation to total
participant account balances. The benefit to which a participant is entitled is
the benefit that can be provided from the participant's account.
VESTING
Participants are fully vested in all amounts in their accounts.
PAYMENT OF BENEFITS
Upon retirement, death, disability, or termination of employment, the
participant's account shall generally be distributed in a single lump sum. Final
distributions will be made either in shares of Company common stock plus cash in
lieu of fractional shares or entirely in cash.
9
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
WITHDRAWALS
A participant's contribution may not be withdrawn prior to retirement, death,
disability, termination of employment, or termination of the Plan, except for
financial hardship, a one-time distribution after age 59 1/2, or in the form of
loans to participants. The Plan defines financial hardship as expenses related
to college education, uninsured major medical expenses, purchase of the
participant's principal residence, or other financial need that cannot be met
from other resources of the participant. All withdrawals are subject to approval
by the plan administrator.
LOANS TO PARTICIPANTS
Participants are allowed to borrow from their separate account balance. The
amount of a loan shall not be less than $1,000 or more than $50,000 and shall
not exceed 50% of the participant's account balance.
Loan maturities cannot exceed 60 months and are secured by the participants'
vested interests in the Plan. Amounts loaned to a participant do not share in
the allocations of Plan earnings (see Participant's Accounts above), but are
credited with the interest earned on the loan balance payable by the participant
charged at a reasonable rate as determined by the plan administrator.
3. INVESTMENTS
GUARANTEED INCOME GROUP ANNUITY CONTRACT NO. IG 4178
This contract is an unallocated insurance contract with Mass Mutual, which is
credited at least annually for interest earned. Interest rates for 2002 and 2001
were 6.25% and 6.60%, respectively. Mass Mutual determines the annual guaranteed
interest rate each January 1. The average yields for 2002 and 2001 were 6.25%
and 6.46%, respectively.
BADGER METER, INC. COMMON STOCK
The Plan's investment in Badger Meter, Inc. stock consists of 392,176 shares and
414,460 shares as of December 31, 2002 and 2001, respectively. At December 31,
2002 and 2001, the fair value of the Plan's investment in Badger Meter, Inc.
common stock, as determined by quoted market price, was $12,589,277 and
$9,296,338, respectively.
10
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
During 2002, the Plan's investments (including investments purchased, sold, as
well as held during the year) appreciated (depreciated) in fair value as
determined by quoted market prices, as follows:
NET REALIZED
AND UNREALIZED APPRECIATION
(DEPRECIATION) IN FAIR VALUE
DURING YEAR
----------------------------
Badger Meter, Inc. common stock $ 3,897,169
Common trust funds (1,502,957)
Mutual funds (422,565)
--------------------
$ 1,971,647
====================
Investments that represent 5% or more of fair value of the Plan's net assets are
as follows:
DECEMBER 31
2002 2001
------------ ------------
Badger Meter, Inc. common stock* $ 12,589,276 $ 9,296,338
M&I Growth Balanced Portfolio 2,665,563 3,372,676
M&I Diversified Stock Portfolio 4,111,569 6,126,134
Massachusetts Mutual Unallocated Insurance Contract 9,045,783 8,683,904
Heartland Value Plus Fund 2,449,526 2,050,753
*Includes nonparticipant-directed.
11
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the investments and the significant components of changes in
investments related to the nonparticipant-directed investments is as follows:
DECEMBER 31
2002 2001
------------ ------------
Investments, at fair value:
Badger Meter, Inc., Common Stock (allocated) $ 10,193,204 $ 7,223,963
Badger Meter, Inc., Common Stock (unallocated) 2,396,072 2,072,375
Marshall Money Market Fund 136,728 74,625
------------ ------------
$ 12,726,004 $ 9,370,963
============ ============
YEAR ENDED DECEMBER 31, 2002
UNALLOCATED ALLOCATED TOTAL
-------------- -------------- --------------
Change in investments:
Net realized and unrealized appreciation in fair
value $ 721,807 $ 3,175,362 $ 3,897,169
Interest and dividends 76,408 329,458 405,866
Investment expenses (14) -- (14)
Benefit payments to participants (In-kind
payments) -- (162,945) (162,945
Interest expense (44,549) -- (44,549)
Transfers between funds -- (740,486) (740,486)
-------------- -------------- --------------
$ 753,652 $ 2,601,389 $ 3,355,041
============== ============== ==============
5. NOTE PAYABLE
At December 31, 2002, the outstanding balance on the loan is $1,535,000. The
terms of the loan allow variable payments of principal with the final principal
and interest payment due December 31, 2005. Interest is payable at the prime
interest rate (prime was 4.25% at December 31, 2002) or at the LIBOR rate plus
1.50% (LIBOR was 1.38% at December 31, 2002). At December 31, 2001, the Plan has
exercised its option to designate the outstanding balance as a LIBOR rate loan.
The note payable is secured by the unallocated shares of Badger Meter, Inc.
common stock held by the Plan (see summary below). In addition, the Company has
guaranteed the note payable and is obligated to contribute sufficient cash to
the Plan to enable it to repay the loan principal and interest in the event the
Plan is unable to settle its obligation.
12
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
5. NOTE PAYABLE (CONTINUED)
The pledged unallocated shares of Badger Meter, Inc. common stock are released
as principal and interest payments are made on the note payable. The shares
released, less any shares that are distributed as benefit payments, are
considered available and are allocated to the participants' accounts as of the
Plan year-end just prior to each annual principal, due date on the note payable.
At December 31, 2002 and 2001, the breakdown between allocated and unallocated
shares was as follows:
Shares
Available
For Benefits Cost Fair Value
------------ ------------ ------------
December 31, 2002:
Allocated 317,532 $ 4,233,902 $ 10,193,205
Unallocated 74,644 1,265,788 2,396,072
------------ ------------ ------------
392,176 $ 5,499,690 $ 12,589,277
============ ============ ============
Per share $ 32.10
============
December 31, 2001:
Allocated 322,067 $ 4,333,982 $ 7,223,963
Unallocated 92,393 1,663,898 2,072,375
------------ ------------ ------------
414,460 $ 5,997,880 $ 9,296,338
============ ============ ============
Per share $ 22.43
============
The loan agreement contains certain restrictions and covenants, including a
limitation on additional borrowings.
The Company contributions are used to make principal and interest payments on
the note payable. The Plan will release unallocated shares with a value in
excess of the principal payments made due to appreciation of the Company's
stock.
6. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right to
discontinue its contributions at any time and to terminate the Plan subject to
the provisions of ERISA.
13
Badger Meter Employee Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
7. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated August 3, 1995, stating that the Plan is qualified under Section 401(a)
and 401(k) of the Code and, therefore, the related trust is exempt from
taxation. Subsequent to the issuance of the determination letter, the Plan was
amended. A new determination letter has been requested in 2002 but not yet
received. Once qualified, the Plan is required to operate in conformity with the
Code to maintain its qualification. The Plan Administrator believes the Plan is
being operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan is qualified and the related trust is
tax-exempt.
8. TRANSACTION WITH RELATED PARTY
During 2002, the Plan received $404,120 in common stock dividends from the
Company.
14
SUPPLEMENTAL SCHEDULES
BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
Employer Identification Number 39-0143280
Plan Number 009
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
Year ended December 31, 2002
DESCRIPTION OF INVESTMENT,
INCLUDING MATURITY DATE, RATE
OF INTEREST, PAR OR MATURITY CURRENT VALUE/
VALUE COST CONTRACT VALUE
----------------------------------------- ------------------------------- -------------- -------------------
*Badger Meter, Inc. Common Stock 392,176 shares $ 5,499,690 $ 12,589,276
Massachusetts Mutual Life Insurance
Company Unallocated Insurance
Contract - 9,045,783
Heartland Value Plus Fund 159,163 shares - 2,449,526
*Marshall Government Income Fund 156,764 shares - 1,530,016
*Marshall International Stock Fund 91,391 shares - 774,995
*M&I Growth Balanced Portfolio 143,637 shares - 2,665,563
*M&I Diversified Stock Portfolio 209,646 shares - 4,111,569
Fidelity Advisor Mid Cap Fund 17,327 shares - 270,126
Managers Special Equity Fund 2,779 shares - 153,069
*Marshall Money Market Fund 136,728 shares 136,728 136,728
Participant loans Interest rates range
between 4.25% and 9.5%
with various maturity dates 851,623
---------------
$ 34,578,274
===============
* Indicates party in interest.
Historical cost information not required for participant-directed investments.
15
Badger Meter Employee Savings and Stock Ownership Plan
Employer Identification Number 39-0143280
Plan Number 009
Schedule H, Line 4j - Schedule of Reportable Transactions
Year ended December 31, 2002
CURRENT VALUE
OF ASSET ON
PURCHASE SELLING COST OF TRANSACTION NET
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE ASSET DATE GAIN (LOSS)
--------------------------- ------------------------------- -------- ------------- ---------- ------------- -----------
Category (iii)--Series of transactions in excess of 5% of net assets
Marshall & Ilsley Bank Marshall Money Market Fund $ 978,426 $ -- $ 978,426 $ 978,426 $ --
Marshall & Ilsley Bank Marshall Money Market Fund -- 948,169 948,169 948,169 --
Marshall & Ilsley Bank Badger Meter, Inc. Common Stock 1,026,251 -- 1,026,251 1,026,251 --
Marshall & Ilsley Bank Badger Meter, Inc. Common Stock -- 1,467,537 1,472,396 1,467,537 (4,859)
There were no category (i), (ii) or (iv) transactions during 2002.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
Badger Meter
Employee Savings and Stock Ownership Plan
Date: June 19, 2003 By: /s/ Richard A. Meeusen
-----------------------------------
Richard A. Meeusen
Trustee
By: /s/ Ronald H. Dix
-----------------------------------
Ronald H. Dix
Trustee
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(23) Consent of Ernst & Young LLP, Independent Auditors
(99) Certification Pursuant to 18 U.S.C. Section 1350
18