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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
BADGER METER, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[BADGER METER LOGO]
BADGER METER, INC.
4545 WEST BROWN DEER ROAD
MILWAUKEE, WISCONSIN 53223
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 2004
The Annual Meeting of the Shareholders of Badger Meter, Inc. (the
"Company") will be held at BADGER METER, INC., 4545 West Brown Deer Road,
Milwaukee, Wisconsin 53223, on Friday, April 23, 2004, at 8:30 a.m. local time,
for the following purposes:
1. To elect two directors to three-year terms;
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Holders of record of Common Stock of the Company at the close of business
on February 27, 2004, will be entitled to notice of and to vote at the meeting
and any adjournments or postponements thereof. Shareholders will be entitled to
one vote per share.
Please vote the enclosed proxy form, sign and return it in the envelope
provided. You retain the right to revoke the proxy at any time before it is
actually voted.
By Order of the Board of Directors
Ronald H. Dix, Secretary
March 15, 2004
BADGER METER, INC.
4545 WEST BROWN DEER ROAD
MILWAUKEE, WISCONSIN 53223
PROXY STATEMENT
To the Shareholders of
BADGER METER, INC.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Badger Meter, Inc. (the "Company") to be
used at the Annual Meeting of Shareholders of the Company (the "Meeting"), which
will be held at 8:30 a.m. local time, Friday, April 23, 2004, at BADGER METER,
INC., 4545 West Brown Deer Road, Milwaukee, Wisconsin 53223, and at any
adjournments or postponements thereof.
Shareholders who execute proxies retain the right to revoke them at any
time prior to the voting thereof by giving notice to the Company in writing or
in open meeting. Unless so revoked, the shares represented by such proxies will
be voted at the Meeting and any adjournments or postponements thereof.
The record date for shareholders entitled to notice of and to vote at the
Meeting is the close of business on February 27, 2004. As of the record date,
the Company had 3,300,823 shares of Common Stock (the "Common Stock")
outstanding and entitled to one vote per share.
This Proxy Statement is being furnished to shareholders of the Company
beginning on or about March 16, 2004.
NOMINATION AND ELECTION OF DIRECTORS
At the Meeting, holders of Common Stock shall be entitled to elect two
directors. Directors will be elected by a plurality of votes cast at the Meeting
(assuming a quorum is present). Consequently, any shares not voted at the
Meeting, whether due to abstentions, broker nonvotes or otherwise, will have no
impact on the election of directors.
Proxies received representing one vote per share of Common Stock will,
unless otherwise directed, be voted in favor of the election of each of the two
persons named below to serve as directors for three years, or until their
respective successors have been duly appointed, or until their death,
resignation or removal.
After the Meeting, the Board of Directors will consist of eight members
divided into three classes, with one class elected each year to serve for a term
of three years.
Listed below are the names of the nominees of the Board of Directors for
the office of director together with certain additional information concerning
each such nominee. The nominees are presently directors of the Company. If any
of the nominees should be unable or unwilling to serve, the proxies, pursuant to
the authority granted to them by the Board of Directors, shall have
discretionary authority to select and vote for substitute nominees. The Board of
Directors has no reason to believe that any of the nominees will be unable or
unwilling to serve.
1
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR THREE-YEAR TERMS EXPIRING 2007 ANNUAL MEETING
DIRECTOR
NAME AGE BUSINESS EXPERIENCE DURING LAST FIVE YEARS SINCE
---- --- ------------------------------------------ --------
KENNETH P. MANNING............. 62 Sensient Technologies Corporation (an international 1996
supplier of flavors, colors and inks): Chairman,
President and Chief Executive Officer.
JOHN J. STOLLENWERK............ 64 Allen-Edmonds Shoe Corporation (a manufacturer and 1996
marketer of shoes): Owner and President.
Listed below are the names of the directors who are not up for election
this year together with certain additional information on each director.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING 2006 ANNUAL MEETING
ULICE PAYNE, JR................ 48 Former President and Chief Executive Officer of the 2000
Milwaukee Brewers Baseball Club. Formerly, Foley &
Lardner LLP (a law firm): Managing Partner,
Milwaukee Office.
ANDREW J. POLICANO............. 54 University of Wisconsin: Professor. Formerly, 1997
University of Wisconsin: Dean of the School of
Business.
STEVEN J. SMITH................ 54 Journal Communications, Inc. (a diversified media 2000
and communications company): Chairman and Chief
Executive Officer. Formerly, Journal
Communications, Inc.: President.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING 2005 ANNUAL MEETING
THOMAS J. FISCHER.............. 56 Fischer Financial Consulting LLC: President. 2003
Formerly, Arthur Andersen LLP -- Milwaukee Office:
Retired Managing Partner.
JAMES L. FORBES................ 71 Badger Meter, Inc.: Chairman. Formerly, Badger 1981
Meter, Inc.: Chairman, President and Chief
Executive Officer.
RICHARD A. MEEUSEN............. 49 Badger Meter, Inc.: President and Chief Executive 2001
Officer. Formerly, Badger Meter, Inc.: President;
Executive Vice President -- Administration; and
Vice President -- Finance, CFO and Treasurer.
Certain directors of the Company also serve as directors of other
companies, some of which are publicly held. Mr. Forbes is a director of Journal
Communications, Inc. Mr. Fischer is a director of Actuant Corporation. Mr.
Manning is a director of Sensient Technologies Corporation and Sealed Air
Corporation. Mr. Meeusen is a director of State Financial Services Corporation.
Mr. Payne is a director of Midwest Express Holdings, Inc., Wisconsin Energy
Corporation and State Financial Services Corporation. Mr. Policano is a director
of National Guardian Life Insurance Company and Physicians Insurance Corporation
of Wisconsin, Inc. Mr. Smith is a director of Journal Communications, Inc. Mr.
Stollenwerk is a director of Allen-Edmonds Shoe Corporation, The Northwestern
Mutual Life Insurance Company, U.S. Bancorp, Koss Corporation and Wire Maid,
Inc.
DIRECTOR COMPENSATION
Richard A. Meeusen, an employee of the Company, receives no compensation as
a director. All other directors are compensated as follows: Directors are
compensated at a rate of $1,500 for each Board of
2
Directors meeting attended and are reimbursed for out-of-pocket travel, lodging
and meal expenses. Directors are compensated at the rate of $1,000 for each
committee meeting they attend. In addition, directors are paid a retainer of
$750 per month and committee chairmen receive an annual fee of $2,000. Directors
may elect to defer their compensation, in whole or in part, in a stock or cash
subaccount of the Badger Meter Deferred Compensation Plan for Directors. If a
director elects to defer compensation in a stock subaccount, his subaccount is
credited with a number of units equivalent to the dollar amount of such fees on
the date they would otherwise be payable. Amounts credited to the stock
subaccount are credited with dividends by multiplying the number of units in the
Participant's stock subaccount on each dividend record date, by the amount of
each dividend, to determine the dividend amount. The dividend amount is then
divided by the closing stock price on the last day of the previous quarter to
determine the number of stock units to be added to the stock subaccount. Upon
distribution of any portion or all of a Participant's stock subaccount, the
value of the account will be computed by multiplying the number of units in the
account on the date of distribution by the closing price of the Company's Common
Stock on the last day of the month prior to the distribution.
The non-employee directors of the Company participate in the same long-term
incentive plan ("LTIP") as certain members of the Company's management group.
The LTIP provides annual cash bonuses to the directors with respect to a
four-year performance period beginning in 2002. The awards are based upon annual
attainment of earnings objectives for each year. Effective January 1, 2002, the
maximum amount that a director can earn under the long-term incentive plan is
$16,300 to $22,100 per year, depending on date of award. In addition,
non-employee directors receive a one-time grant of options to purchase up to
8,000 shares of Common Stock and an annual award of 300 shares of Common Stock
granted under the shareholder-approved 2002 Director Stock Grant Plan.
COMMITTEES, MEETINGS AND ATTENDANCE
The Board of Directors of the Company has four standing committees: Audit
and Compliance Committee, Employee Benefit Plans Committee, Corporate Governance
Committee and Finance Committee. The charters for each of the four committees
are available on the Company's website at www.badgermeter.com under the
selection "Company" -- "Corporate Governance" -- "Committees of the Board." A
copy of the Audit and Compliance Committee Charter is attached to this proxy
statement as Appendix A. The Company's Board of Directors has affirmatively
determined that all of the Company's directors (other than Messrs. Forbes and
Meeusen) are "independent" as defined in the listing standards of the American
Stock Exchange.
The Audit and Compliance Committee, which met five times in 2003, consists
of Messrs. Fischer (Chairman), Manning and Payne. The Audit and Compliance
Committee oversees the Company's financial reporting process on behalf of the
Board of Directors and reports the results of their activities to the Board. The
activities of the Audit and Compliance Committee include employing independent
auditors for the Company, discussing with the independent auditors and internal
auditors the scope and results of audits, monitoring the Company's internal
controls and pre-approving and reviewing audit fees and other services performed
by the Company's independent auditing firm. The Committee also monitors the
Company's compliance with the Company's policies governing activities which
include but are not limited to the Company's code of conduct and its
environmental, safety, diversity, product regulation and quality processes. The
Company's Board of Directors has determined that each member of the Committee
qualifies as an "Audit Committee financial expert" as defined by Securities and
Exchange Commission rules.
The Corporate Governance Committee consisting of Messrs. Policano
(Chairman), Payne, Smith and Stollenwerk, met twice in 2003 and in February
2004. The Corporate Governance Committee reviews and establishes all forms of
compensation for the officers and directors of the Company and administers the
Company's compensation plans, including the various stock option plans. The
Committee also reviews the various management development and succession
programs and adopts and maintains the Principles of Corporate Governance. The
Committee also selects nominees for the Company's Board of Directors.
3
The Employee Benefit Plans Committee, which met five times in 2003,
consists of Messrs. Smith (Chairman), Forbes and Policano. The Employee Benefit
Plans Committee oversees the administration of the Company's pension plan,
employee savings and stock ownership plan, health plans and other benefit plans.
The Finance Committee, which met twice in 2003, consists of Messrs. Manning
(Chairman), Fischer, Forbes and Stollenwerk. This Committee reviews the
Company's various financing activities and insurance coverage and recommends
changes in the corporate capitalization structure.
The Board of Directors held four meetings in 2003. Mr. Policano currently
serves as lead outside director of the Board. During 2003, all directors
attended at least 75% of the meetings of the Board of Directors and committees
on which they served during the period that they served. All members of the
Board of Directors attended the 2003 Annual Meeting of Shareholders. It is the
Board's policy that all directors attend the Annual Meeting of Shareholders,
unless unusual circumstances prevent such attendance.
NOMINATION OF DIRECTORS
The Corporate Governance Committee ("the Committee") has responsibility for
selecting nominees for the Company's Board of Directors. All members of the
Committee meet the definition of independence set forth by the American Stock
Exchange. The Board of Directors has adopted a policy by which the Committee
will consider nominees for Board positions, as follows:
- The Committee will review potential new candidates for Board positions.
- The Committee will review each candidate's qualifications in light of the
needs of the Board and the Company, considering the current mix of
director attributes and other pertinent factors.
- The minimum qualifications required of any candidate include the highest
ethical standards and integrity, and sufficient experience and knowledge
commensurate with the Company's needs.
- The specific qualities and skills required of any candidate will vary
depending on the Company's specific needs at any point in time.
- No candidate, including current directors, may stand for reelection after
reaching the age of 70.
- There are no differences in the manner in which the Committee evaluates
candidates recommended by shareholders and candidates identified from
other sources.
- To recommend a candidate, shareholders should write to the Board of
Directors, Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536,
via certified mail. Such recommendation should include the candidate's
name and address, a brief biographical description and statement of
qualifications of the candidate and the candidate's signed consent to be
named in the proxy statement and to serve as a director if elected.
- To be considered by the Committee for nomination and inclusion in the
Company's proxy statement, the Board must receive shareholder
recommendations for director no later than October 15 of the year prior
to the Annual Meeting of Shareholders.
During 2003, and as of the date of this proxy statement, the Committee did
not pay any fees to third parties to assist in identifying or evaluating
potential candidates. Also, the Committee has not received any shareholder
nominees for consideration at the 2004 Annual Meeting of Shareholders.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
The Board of Directors has established a process for shareholders to
communicate with members of the Board. To contact the Board, shareholders should
write to the Board of Directors, c/o Secretary, Badger Meter, Inc., P.O. Box
245036, Milwaukee, WI 53224-9536, via certified mail. The Company's process for
determining how and which communications will be relayed to the Board has been
approved by all of the independent directors of the Company.
4
PRINCIPLES OF CORPORATE GOVERNANCE
The Board of Directors of Badger Meter, Inc. has adopted the following
principles of corporate governance:
- A majority of the Badger Meter board members are independent directors.
- All directors are selected on the basis of their ability to contribute to
positive corporate governance through their values, knowledge and skills.
- The Board of Directors has established a committee of independent
directors who are responsible for nominating directors and assuring
compliance with these corporate governance principles (the "Corporate
Governance Committee").
- The Board of Directors has established the Audit and Compliance
Committee, which is composed entirely of independent directors who are
responsible for overseeing the audit functions and financial reporting
compliance of Badger Meter. Members of the Audit and Compliance Committee
have the skills, experience and financial expertise to fulfill this
function.
- The Board of Directors and committees have authority to directly hire
outside consultants as needed to properly fulfill their responsibilities.
- The independent members of the Board of Directors hold regular "executive
sessions" without the presence of management or non-independent
directors.
- The Board of Directors has designated an independent director as the
"lead outside director" to chair executive sessions and, when necessary,
represent the independent directors.
- The Board of Directors has reviewed and approved Badger Meter's Code of
Business Conduct.
- The Board of Directors has created an environment to promote effective
corporate governance and to represent the interests of the shareholders
in all matters.
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth, as of February 27, 2004, the number of
shares of the Common Stock beneficially owned and the number of options
outstanding by (i) each director of the Company, (ii) each of the executive
officers named in the Summary Compensation Table set forth below, (iii) all
directors and officers of the Company as a group, and (iv) each person known to
the Company to be the beneficial owner of more than 5% of the Common Stock (as
reported to the Securities and Exchange Commission). Beneficial ownership of
shares is reported in the following table and footnotes in accordance with the
beneficial ownership rules promulgated by the Securities and Exchange
Commission. Such rules define "beneficial owner" of a security to include any
person who has or shares voting power or investment power with respect to such
security.
Compliance with these rules results in overlapping beneficial ownership of
shares. Therefore, certain shares set forth in the table below are reported as
being beneficially owned by more than one person.
In the aggregate, 458,557 shares of Common Stock, representing
approximately 13.2% of the shares of Common Stock entitled to vote at the
Meeting, are beneficially held by directors and officers of the Company as a
group.
5
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF
BADGER METER, INC. COMMON STOCK
AGGREGATE
NUMBER OF SHARES
AND PERCENT OF
SOLE SHARED COMMON STOCK
BENEFICIAL BENEFICIAL BENEFICIALLY
NAME OWNERSHIP(1) OWNERSHIP(1) OWNED(4)
---- ------------ ------------ ----------------
JAMES L. FORBES............................ 85,227(3) 122,907
3.7%
THOMAS J. FISCHER.......................... 2,300 9,300
*
KENNETH P. MANNING......................... 9,310 10,810
*
RICHARD A. MEEUSEN......................... 21,017(2)(3) 84,234(2) 107,947
3.3%
ULICE PAYNE, JR............................ 1,600 9,100
*
ANDREW J. POLICANO......................... 2,450 9,950
*
STEVEN J. SMITH............................ 2,300 9,800
*
JOHN J. STOLLENWERK........................ 7,016 2,541 16,557(5)
*
RONALD H. DIX.............................. 17,700(2)(3) 104,986(2) 124,980
3.8%
HORST E. GRAS.............................. 6,730(2)(3) 12,630
*
RICHARD E. JOHNSON......................... 13,895(2)(3) 87,317(2) 97,775
3.0%
KENNETH E. SMITH........................... 7,137(2)(3) 15,937
*
All Directors and Officers as a Group (16
persons, including those named above).... 255,244(2)(3) 110,610(2) 458,557(5)
13.2%
Dimensional Fund Advisors Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401................... 108,100(6) 108,100
3.3%
Heartland Advisors, Inc.
789 N. Water St.
Milwaukee, WI 53202...................... 306,800(7) 306,800
9.3%
JOW Corp.
4545 W. Brown Deer Rd.
Milwaukee, WI 53223...................... 200,000(8) 200,000
6.1%
Marshall & Ilsley Corp.
1000 N. Water St.
Milwaukee, WI 53202...................... 44,624 375,749(3)(9) 420,373
12.7%
6
AGGREGATE
NUMBER OF SHARES
AND PERCENT OF
SOLE SHARED COMMON STOCK
BENEFICIAL BENEFICIAL BENEFICIALLY
NAME OWNERSHIP(1) OWNERSHIP(1) OWNED(4)
---- ------------ ------------ ----------------
T. Rowe Price
100 E. Pratt St.
Baltimore, MD 21203...................... 185,000(10) 185,000
5.6%
---------------
* Less than one percent.
(1) Unless otherwise indicated, the beneficial owner has sole investment and
voting power or shared voting and investment power over the reported
shares.
(2) The Badger Meter Officers' Voting Trust ("Officers' Trust"), of which
Ronald H. Dix, Richard E. Johnson and Richard A. Meeusen are trustees,
holds 84,234 shares of Common Stock. The address of the trustees is 4545
West Brown Deer Road, Milwaukee, WI 53223. The trustees of the Officers'
Trust have the right to vote all shares of Common Stock held therein. The
Officers' Trust will exist for 30 years from December 18, 1992 to December
18, 2022, and thereafter for additional 30-year renewal periods unless
earlier terminated by a vote of beneficiaries holding 75% or more of the
votes in the Officers' Trust or by applicable law.
The Officers' Trust has a $2,500,000 bank credit line that was used to
assist officers in financing the purchase of Company stock prior to July
2002. Loans to the Officers' Trust are guaranteed by the Company and the
stock purchased by the officers using this credit facility is pledged to
the Trust to secure the loans. In compliance with the Sarbanes-Oxley Act of
2002, no loans have been made to officers since July 2002. Each depositor
to the Trust must have sufficient shares deposited to adequately
collateralize the individual officer's loan balance. The Officers' Trust
holds shares with a value more than sufficient to cover the full credit
line. All officers, including the named executive officers, have purchased
Common Stock using this credit facility.
Messrs. Dix, Johnson and Meeusen all share voting power in all of the
shares deposited in the Officers' Trust. Beneficiaries of the Officers'
Trust have sole investment power over only those shares individually
deposited in the Officers' Trust. Mr. Dix has sole investment power over
10,000 shares of Common Stock. Mr. Johnson has sole investment power over
7,837 shares of Common Stock. Mr. Meeusen has sole investment power over
17,456 shares of Common Stock. Mr. Gras has sole investment power (but no
voting power) over 5,030 shares and Mr. Smith has sole investment power
(but no voting power) over 5,000 shares of Common Stock.
(3) In conjunction with the Badger Meter, Inc. Employee Savings and Stock
Ownership Plan, Common Stock included in the preceding table has been
allocated to the following officers and/or directors as follows: James L.
Forbes, 5,585 shares; Ronald H. Dix, 3,200 shares; Richard E. Johnson, 258
shares; Richard A. Meeusen, 705 shares; Kenneth E. Smith, 337 shares; and
all officers and/or directors as a group (including those named), 18,177
shares. Mr. Gras is not a participant in the Plan.
(4) Includes the following shares subject to stock options which are currently
exercisable or exercisable within 60 days of February 27, 2004: Mr.
Meeusen -- 20,152 shares; Mr. Dix -- 12,294 shares; Mr. Gras -- 5,900
shares; Mr. Johnson -- 4,400 shares; Mr. Smith -- 8,800 shares and all
directors and executive officers as a group -- 160,021 shares.
(5) Does not include deferred director fee holdings of 3,204 phantom stock
units held by Mr. Stollenwerk. The value of the phantom stock units is
based upon and fluctuates with the market value of the Common Stock. When a
participant chooses to exit the Director Deferred Stock Compensation Plan,
all compensation accrued is paid out in cash.
(6) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain
7
other commingled group trusts and separate accounts. These investment
companies, trusts and accounts are the Funds, and may be deemed to be the
beneficial owner of the shares of the Issuer held by the Funds. However,
all securities reported in this schedule are owned by the Funds.
Dimensional disclaims beneficial ownership of such securities. In addition,
the filing of this 13G shall not be construed as an admission that the
reporting person or any of its affiliates is the beneficial owner of any
securities covered by this Schedule 13G for any other purposes than Section
13(d) of the Securities Exchange Act of 1934.
(7) These shares may be deemed beneficially owned within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934 by (1) Heartland Advisors,
Inc. by virtue of its investment discretion and voting authority granted by
certain clients, which may be revoked at any time; and (2) William J.
Nasgovitz, as a result of his ownership interest in Heartland Advisors,
Inc. Heartland Advisors, Inc. and Mr. Nasgovitz each specifically disclaim
beneficial ownership of any shares reported on the schedule.
(8) James O. Wright, who is a director emeritus and a retired officer of Badger
Meter, Inc., is the president of JOW Corp.
(9) The number of shares shown includes shares held in an employee benefit
plan, where the Marshall & Ilsley Trust Company, as custodian, may be
viewed as having voting or dispositive authority in certain situations
pursuant to Department of Labor regulations or interpretations of federal
case law. Pursuant to SEC Rule 13d-4, inclusion of such shares in this
statement shall not be construed as an admission that the reporting person
or its subsidiaries are, for purposes of Sections 13(d) or 13(g) of the
Securities Exchange Act of 1934, the beneficial owners of such securities.
(10) These securities are owned by various individual and institutional
investors for which T. Rowe Price Associates, Inc. (Price Associates)
serves as investment adviser with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting requirements of
the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers, based on salary and bonus earned during fiscal
2003.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- ---------------------------
EARNINGS UNDER
OTHER ANNUAL LONG-TERM SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION INCENTIVE PLAN UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($) ($)(1) OPTIONS(#) ($)(2)(4)
------------------ ------ --------- -------- ------------ -------------- ---------- ------------
Richard A. Meeusen...... 2003 306,877 163,895 0 28,917 11,700 3,000
President and Chief 2002 265,457 165,000 0 28,917 10,000 2,750
Executive Officer 2001 202,907 0 0 0 6,000 2,625
Ronald H. Dix........... 2003 204,883 99,330 0 28,067 8,500 3,000
Sr. Vice President -- 2002 193,953 95,000 0 28,067 6,000 2,750
Admin./Human 2001 184,407 0 0 0 5,000 2,625
Resources and
Secretary
Horst E. Gras(3)........ 2003 218,675 80,251 0 30,139 6,800 0
Vice President -- 2002 175,524 72,362 0 26,620 5,000 0
International 2001 148,523 0 0 0 0 0
Operations
Richard E. Johnson...... 2003 183,633 89,397 0 34,628 8,500 3,000
Sr. Vice President -- 2002 158,536 77,500 0 34,628 6,000 2,691
Finance, Chief 2001 132,214 0 0 0 8,600 2,246
Financial Officer
and Treasurer(5)
Kenneth E. Smith........ 2003 188,275 83,979 0 38,576 6,800 3,000
Vice President -- 2002 182,221 89,500 0 38,333 5,000 2,750
Sales and Marketing 2001 175,617 0 0 0 5,000 2,625
---------------
(1) Each of the executive officers named in the table has been designated as a
participant under the Company's Long-Term Incentive Plan ("LTIP"). The LTIP
provides annual cash bonuses to the named officers and other members of the
management group with respect to a four-year performance period that began
in 2002. The awards are based upon annual attainment of earnings objectives
for each year, as established by the Board of Directors.
(2) Amounts shown represent the Company contributions to the Badger Meter, Inc.
Employee Savings and Stock Ownership Plan ("ESSOP"), under its 401(k) Plan.
(3) Mr. Gras is paid primarily in euros. The amounts shown reflect the U.S.
dollar equivalent of that currency as of the dates paid. Year-to-year
comparisons are affected by changes in the exchange rate. Mr. Gras's base
salaries paid in euros were 190,439 for 2003, 174,820 for 2002 and 166,480
for 2001.
(4) Certain personal benefits (including social club dues, automobile and legal
and accounting services) were provided through the Company to the executive
officers named in the table above. The aggregate amount of such benefits for
each of the executive officers named in the table did not exceed 10% of such
officer's cash compensation for any of the years shown.
(5) Mr. Johnson began employment with the Company in February 2001.
9
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENTS (KEESA)
The Company entered into Key Executive Employment and Severance Agreements
(KEESA) with certain key officers, including certain of the above-named
officers, whose expertise has been critical to the Company's success, to remain
with the Company in the event of any merger or transition period. The KEESA
agreements provide for payment of severance to officers whose employment is
terminated under certain circumstances, such as other than for cause, death or
disability, in anticipation of or following a change in control or by the
officer for good reason following such a change, within two years of a change in
control.
There are two forms of the KEESA. The KEESA for the President and Chief
Executive Officer provides for payment of three years of salary and annual
incentive compensation, as well as the actual equivalent of the additional
retirement benefits the officer would have earned if he had remained employed
for three more years, continued medical, dental, and life insurance coverage for
three years, outplacement services, and financial planning counseling. The KEESA
for the remainder of the named officers provides for payment of two years'
salary and annual incentive compensation, along with two years of the other
benefits set forth above.
OPTION GRANTS IN 2003
The following table sets forth certain information concerning options to
purchase Common Stock granted in 2003 to the individuals named in the Summary
Compensation Table.
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR VALUE AT
TYPE OF GRANTED EMPLOYEES BASE PRICE EXPIRATION DATE OF
NAME OPTION (#)(1) IN FISCAL YEAR ($/SH) DATE GRANT($)(1)
---- ------- ---------- -------------- ----------- ---------- ------------
Richard A. Meeusen............. NQ 8,500 8.3 28.00 5/2/13 49,385
ISO 3,200 3.1 28.00 5/2/13 18,976
Ronald H. Dix.................. NQ 6,000 5.9 28.00 5/2/13 34,860
ISO 2,500 2.4 28.00 5/2/13 14,825
Horst E. Gras.................. NQ 5,000 4.9 28.00 5/2/13 29,050
ISO 1,800 1.8 28.00 5/2/13 10,674
Richard E. Johnson............. NQ 6,000 5.9 28.00 5/2/13 34,860
ISO 2,500 2.4 28.00 5/2/13 14,825
Kenneth E. Smith............... NQ 5,000 4.9 28.00 5/2/13 29,050
ISO 1,800 1.8 28.00 5/2/13 10,674
---------------
(1) "NQ" options are non-qualified stock options for purposes of the Internal
Revenue Code of 1986, as amended. "ISO" options are incentive stock options
and are qualified options for purposes of the Internal Revenue Code of 1986,
as amended. The option base price is the fair market value of the stock at
the time of the grant. The NQ Options become fully exercisable five years
after date of grant. ISO's granted in 2003 become fully exercisable in six
years after date of grant. Termination of employment for any reason other
than death, disability or retirement will result in the cancellation of the
unexercisable options. The option term is ten years. The value at date of
grant was computed under the Black-Scholes option pricing model using the
following assumptions: risk-free interest rate of 2.88%; dividend yield of
3.71%; expected market price volatility factor of 29%; and a weighted
average expected life of 6.1 years.
10
AGGREGATED OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning the exercise
in 2003 of options to purchase Common Stock by the individuals named in the
Summary Compensation Table and the unexercised options to purchase Common Stock
held by such individuals at December 31, 2003.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FY-END (#) FY-END ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
Richard A. Meeusen.......... 952 8,615 19,104 / 24,952 341,028 / 289,674
Ronald H. Dix............... 924 8,362 12,248 / 17,924 185,323 / 202,454
Horst E. Gras............... 200 2,702 4,800 / 11,300 17,303 / 129,660
Richard E. Johnson.......... 900 2,745 4,100 / 18,100 46,177 / 205,363
Kenneth E. Smith............ 0 0 8,700 / 16,700 70,940 / 177,170
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN 1)
------------- -------------------------- ----------------------------- ------------------------------
Equity compensation plans
approved by security
holders:
STOCK OPTION PLANS:
1989 Plan................. 13,600 $11.47 0
1993 Plan................. 22,700 $12.96 0
1995 Plan................. 59,980 $25.58 6,648
1997 Plan................. 141,331 $29.26 7,174
1999 Plan................. 178,700 $27.31 13,500
2003 Plan................. 67,500 $28.00 132,500
DIRECTOR STOCK GRANT PLAN: N/A N/A 6,400
Equity compensation plans
not approved by security
holders................... None N/A N/A
Total....................... 483,811 $24.24 166,222
PENSION PLAN TABLE
The Company maintains a defined benefit pension plan (the "Pension Plan")
covering all domestic salaried employees including the above-named executive
officers. Effective January 1, 1997, the Pension Plan was modified to become a
"cash balance" plan. Under this approach, a participant has an account balance
which is credited each year with dollar amounts equal to 5% of compensation,
plus 2% of compensation in excess of the Social Security wage base. Interest is
credited to the account balance each year at a rate of interest based upon
30-year U.S. Treasury securities. A starting balance was established for each
participant based upon December 31, 1996 accrued benefits under the prior
Pension Plan formula.
Additional annual dollar amounts are credited to the accounts of
participants with Pension Plan participation prior to January 1, 1997 based on
their service on January 1, 1997. These additional annual credits are 3% for
those with less than 11 years; 4% for those with 11 to 20 years; and 5% for
those with 21 or more years. The additional credits will apply for years after
1996 for each year of continued employment but limited to the lesser of 15 years
or the number of the participant's years of credited service as of December 31,
1996. At retirement, a participant may elect a cash payment of the account
balance or a life annuity of equivalent value.
11
Mr. Meeusen, Mr. Smith and Mr. Johnson are eligible for benefits under the
cash balance plan but are not eligible for benefits under the prior plan's final
average pay formula. The estimated total annual benefits payable to these
executives under the cash balance plan at age 65 are $128,102 for Mr. Meeusen,
$35,042 for Mr. Smith and $49,611 for Mr. Johnson. These projected benefits were
determined assuming no future increases in pay and interest credited to the cash
balance account at a rate of 7%.
Mr. Dix, because of his age and service, is expected to obtain retirement
benefits according to the prior plan's final average pay formula, which has been
retained under the modified Pension Plan as a minimum benefit for employees who
had attained age 50 and completed 10 or more years of service as of December 31,
1996.
Under the prior formula, the monthly pension at normal retirement (age 65)
for all executive officers is equal to the sum of nine-tenths percent (0.9%) of
the participant's average monthly compensation (based on the highest 60 months
of the last 120 months compensation) multiplied by the participant's years of
service, not to exceed 30; and six-tenths percent (0.6%) of the participant's
average monthly compensation in excess of Covered Compensation, multiplied by
the participant's years of service, not to exceed 30. IRS regulations limit the
amount of compensation to be considered in benefit calculations to $200,000 in
2003, and varying amounts for prior years. Participants whose compensation is in
excess of the IRS limits also participate in a non-qualified unfunded
supplemental retirement plan. Benefits from this plan are calculated to provide
the participant the same pension benefits as if there was no compensation limit.
Based on the assumption that retirement occurs at age 65, the following
table shows the approximate annual retirement benefit payable from both the
funded or unfunded plans to salaried employees retiring in 2003, based on the
benefit formula described above.
YEARS OF SERVICE
AVERAGE ANNUAL ---------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
-------------- -------- -------- -------- -------- -------- --------
$150,000...................... $ 19,862 $ 29,793 $ 39,724 $ 49,655 $ 59,586 $ 59,586
$175,000...................... $ 23,612 $ 35,418 $ 47,224 $ 59,030 $ 70,836 $ 70,836
$200,000...................... $ 27,362 $ 41,043 $ 54,724 $ 68,405 $ 82,086 $ 82,086
$250,000...................... $ 34,862 $ 52,293 $ 69,724 $ 87,155 $104,586 $104,586
$300,000...................... $ 42,362 $ 63,543 $ 84,724 $105,905 $127,086 $127,086
$350,000...................... $ 49,862 $ 74,793 $ 99,724 $124,655 $149,586 $149,586
$400,000...................... $ 57,362 $ 86,043 $114,724 $143,405 $172,086 $172,086
$450,000...................... $ 64,862 $ 97,293 $129,724 $162,155 $194,586 $194,586
$500,000...................... $ 72,362 $108,543 $144,724 $180,905 $217,086 $217,086
$550,000...................... $ 79,862 $119,793 $159,724 $199,655 $239,586 $239,586
$600,000...................... $ 87,362 $131,043 $174,724 $218,405 $262,086 $262,086
$650,000...................... $ 94,862 $142,293 $189,724 $237,155 $284,586 $284,586
$700,000...................... $102,362 $153,543 $204,724 $255,905 $307,086 $307,086
$750,000...................... $109,862 $164,793 $219,724 $274,655 $329,586 $329,586
Compensation covered by the Defined Benefit Plan is a participant's salary
and bonus, as shown in the Summary Compensation Table, whether or not such
compensation has been deferred at the participant's election.
The above table does not reflect limitations imposed by the Internal
Revenue Code of 1986, as amended, on pensions paid under federal income tax
qualified plans. However, an executive officer covered by the Company's unfunded
program will receive the full pension to which he would be entitled in the
absence of such limitations.
Mr. Dix has 22 years of credited service under the Pension Plan. The
current remuneration for Mr. Dix for purposes of the Pension Plan is set forth
in the Summary Compensation Table.
In 1990, Mr. Dix agreed to the cancellation of substantially all of his
post-retirement group term life insurance in exchange for an unfunded
supplemental retirement plan. This plan provides for the payment of
12
20% of the participant's final monthly salary for 120 months after retirement.
Assuming no increase in salary before retirement, Mr. Dix would be paid an
additional annual pension of $40,000.
Mr. Gras, a German resident and citizen, is not covered by the defined
benefit pension plan. The Company, through its European subsidiary, provides Mr.
Gras with an insurance policy that provides benefits similar to those of the
other named executives covered by the cash balance plan.
BOARD CORPORATE GOVERNANCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In addition to its responsibilities relating to corporate governance, the
Corporate Governance Committee of the Board of Directors administers the
Company's executive compensation program. The Committee is composed of four
non-employee directors. Following the Committee's review and approval, all
matters related to its activities are reported to the full Board of Directors
for approval.
The compensation policies that are used as a general guideline for the
Committee as it carries out its powers and duties are as follows:
- The design of executive pay programs should attract and retain qualified
executive officers, motivate and reward performance;
- Achievement of annual incentive compensation levels requires attainment
of performance goals as approved by the Corporate Governance Committee;
- Long-term incentive programs must focus on the enhancement of shareholder
value through the use of stock options and long-term cash incentives; and
- The Committee uses its judgment to achieve a fair and competitive
compensation structure, utilizing both short-term and long-term plans,
with fixed and variable components.
In making its decisions, the Corporate Governance Committee reviews:
- Competitive compensation data for organizations of similar size and
similar business activity, considering both base salary and bonus data
separately, on a combined basis and total cash and non-cash compensation;
- Financial performance for the Company as a whole and for various product
lines, relative to prior year, the budget and other meaningful financial
data; and
- Personal performance, including objectives approved by the Corporate
Governance Committee and on a discretionary basis, where appropriate.
The compensation program for the executive officers of the Company involves
base salaries, short-term annual cash incentive bonuses and a long-term program
using stock options and cash incentives.
Base Salaries. Salary rate ranges are established for each officer
position. The rate ranges are reviewed annually by the Corporate Governance
Committee, using data supplied by an independent consulting firm on
organizations of similar size and similar business activity. The compensation
survey incorporates privately-held as well as publicly-held companies of similar
size, and has a broader definition of similar business activity, thereby
providing the best basis for evaluating compensation relative to the companies
that compete with the Company for executives. The data includes salaries, total
cash compensation and total compensation. This process has been consistently
used by the Corporate Governance Committee for the past 14 years. The Company's
policy is to pay executives at market, so the midpoint of the rate range
reflects compensation for similar positions in organizations of similar size and
similar business. Each of the individual officers' compensation falls within the
appropriate rate range.
In establishing the compensation of each officer, including the President
and Chief Executive Officer, the Corporate Governance Committee is given a
five-year history, including base salary, short-term incentive awards, and
long-term compensation programs. The Committee is also furnished with a schedule
showing the Common Stock ownership of each officer, including options.
13
The base compensation for each officer is established by first determining
the officer's position within the applicable rate range and then considering
various performance factors. Other non-financial objectives examined include any
change in market share, new product development, customer service and the
quality attainment of various products. Because the philosophy of the Company is
one of long-term goals and objectives, greater weight is given to the long-term
factors and lesser weight to the annual financial performance for base
compensation considerations.
Base salary increases approved for 2004 by the Corporate Governance
Committee ranged from 3.5 to 11.1 percent, with the President and Chief
Executive Officer's compensation increasing 5.0 percent, after evaluation of the
factors set forth above relative to each individual's circumstances and
performance.
Short-Term Incentive Plan. Under the 2003 short-term incentive plan, the
maximum bonus payable is 60 percent of base salary for the President and Chief
Executive Officer and 50-55 percent for the other officers. Two factors are used
for the short-term incentive plan -- financial and predetermined performance
objectives. The financial factor is based on the attainment of a certain pretax
earnings for the Company, approved at the beginning of each year by the
Corporate Governance Committee. For 2003, bonuses were paid to the executive
officers.
Long-Term Incentive Plans/Stock Option Plans. A long-term compensation
program, which includes the Company's 1993 - 2003 Stock Option Plans, presents
an opportunity for the officers to gain or increase their equity interests in
the Company. All of the stock options are granted at the market price on the
date of grant and are based on a factor of compensation.
The Company's Long-Term Incentive Plan ("LTIP") provides annual cash
bonuses to the members of the management group with respect to a four-year
performance period. The awards are based upon annual attainment of earnings
objectives for each year, as established by the Board of Directors. The plan in
effect for 2003 was put in place for 2002-2005.
Section 162(m) Limitations. It is anticipated that all 2003 compensation
to executives will be fully deductible under Section 162(m) of the Code and
therefore the Corporate Governance Committee determined that a policy with
respect to qualifying compensation paid to certain executive officers for
deductibility is not necessary.
The foregoing report has been approved by all members of the Committee.
The Corporate Governance Committee
of the Board of Directors
Andrew J. Policano, Chairman
Ulice Payne, Jr.
Steven J. Smith
John J. Stollenwerk
BOARD AUDIT AND COMPLIANCE COMMITTEE REPORT
The Audit and Compliance Committee (the "Committee") is a group of
independent directors whose responsibilities on behalf of the Board of Directors
(the "Board") include the oversight of financial and legal processes and
procedures. Specifically, the Committee oversees the integrity of the Company's
financial statements, the Company's compliance with legal and regulatory
requirements, the independent auditor's qualifications and independence, the
performance of the Company's internal audit function and independent auditors,
and the Company's system of disclosure controls and system of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established. The Committee is required to meet at least quarterly
and report to the Board regularly. It met five times in 2003.
The Committee is vested with all responsibilities and authority required by
Rule 10A-3 under the Securities Exchange Act of 1934. It is comprised of the
three members of the Board of Directors named below, each of whom is independent
as required by the American Stock Exchange and U.S. Securities Exchange
Commission rules currently in effect. The Board evaluates the independence of
the directors on at
14
least an annual basis. All three members of the Committee have been determined
by the Board to be financial experts as defined by Securities and Exchange
Commission rules. The Committee acts under a written charter that is included
herein.
Company management ("management") has the primary responsibility for the
preparation of financial statements and the reporting process, including the
systems of internal controls. In fulfilling its oversight responsibilities, the
Committee reviewed with management the Company's audited financial statements as
of and for the year ended December 31, 2003, including discussion regarding the
propriety of the application of accounting principles by the Company, the
reasonableness of significant judgments and estimates used in the preparation of
the financial statements, and the clarity of disclosures in the financial
statements. Management represented to the Committee that the Company's financial
statements were prepared in accordance with accounting principles generally
accepted in the United States. The Committee also reviewed and discussed the
Company's audited 2003 financial statements with the Company's independent
auditors, Ernst & Young LLP, who are responsible for expressing an opinion on
the conformity of the Company's audited financial statements with accounting
principles generally accepted in the United States.
Ernst & Young LLP provided the Committee the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (regarding
independence discussions with audit committees), and the Committee discussed
with Ernst and Young LLP the firm's independence from management and the
Company, including the matters in those written disclosures.
Prior to the audits, the Committee discussed with Ernst & Young LLP and the
Company's internal auditors the overall scope and plans for their respective
audits. Ernst and Young LLP conducted their independent audit. The Committee met
with Ernst & Young LLP, with and without management present, to discuss the
results of their audit examinations, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting, as well
as the matters required to be discussed by the Statement on Auditing Standards
No. 61 (regarding communication with audit committees), as amended, that were
not otherwise covered and other professional standards and regulatory
requirements as currently in effect.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board that the audited financial statements be included in
the Company's Annual Report on Form 10-K for fiscal 2003 for filing with the
U.S. Securities and Exchange Commission. In addition, the Committee appointed
Ernst & Young LLP as independent auditors for the Company for fiscal 2004.
All members of the Committee have approved the foregoing report.
The Audit and Compliance Committee
of the Board of Directors
Thomas J. Fischer, Chairman
Kenneth P. Manning
Ulice Payne, Jr.
CORPORATE GOVERNANCE COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Corporate Governance Committee during 2003 consisted of Messrs.
Policano, Payne, Smith and Stollenwerk. There were no Corporate Governance
Committee interlocks. During the last fiscal year, Mr. Forbes served as a member
of the compensation committee of Journal Communications, Inc., of which Mr.
Smith is Chairman and Chief Executive Officer.
15
PERFORMANCE GRAPH
The following graph compares on a cumulative basis the yearly percentage
change since January 1, 1999 in (a) the total shareholder return on the Common
Stock with (b) the total return on the American Stock Exchange Corporate Index
and (c) the total return of a peer group made up of 11 companies in similar
industries and with similar market capitalization as selected by an independent
consulting firm. The graph assumes $100.00 invested on December 31, 1998. It
further assumes the reinvestment of dividends. The returns of each component
company in the peer group have also been weighted based on such company's
relative market capitalization.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN OF COMPANY,
PEER GROUP AND BROAD MARKET
[LINE GRAPH]
DECEMBER 31 1999 2000 2001 2002 2003
----------- ------- ------- ------- ------- -------
Badger Meter................................. 86.40 67.99 68.97 102.10 125.32
Peer Group*.................................. 138.46 346.52 179.73 165.23 245.13
Broad Market**............................... 124.67 123.14 117.47 112.78 153.50
---------------
* Peer Group consists of Axcess, Inc., Badger Meter, Inc., Bio/Rad Labs,
Candela Corp., Frequency Electronics, Innovex, Inc., Integral Vision, Inc.,
K-Tron International, Inc., Keithley Instruments, Inc., Newport Corp., and
Research Frontiers, Inc.
** Broad Market consists of the AMEX Market Index.
CERTAIN TRANSACTIONS
During 2003, the Company paid Mr. Forbes $200,000 pursuant to a consulting
contract.
PRINCIPAL ACCOUNTING FIRM FEES
Ernst & Young LLP, the Company's independent auditors for many years, has
been selected to audit the Company and its subsidiaries for 2004.
Representatives of Ernst & Young LLP will be present at the Meeting
16
to respond to appropriate questions and to make a statement if they desire to do
so. Fees for professional services provided by the independent auditors in each
of the last two fiscal years is as follows:
2003 2002
---- ----
Audit(1).................................................... $306,500 $258,200
Audit Related(2)............................................ 6,000 27,100
Tax(3)...................................................... 0 0
All Other Fees(4)........................................... 5,800 10,900
-------- --------
Total Fees................................................ $318,300 $296,200
======== ========
---------------
(1) Includes annual financial statement audit, review of the Company's quarterly
report on Form 10-Q, opening balance sheet procedures for newly acquired
entities in 2002 and statutory audits required internationally.
(2) Includes benefit plan audits in 2002 and accounting consultations in both
years.
(3) There were no tax services provided in 2003 or 2002.
(4) Includes actuarial services related to the Company's postretirement benefit
obligation in 2002. In connection with the SEC's final independence rules
adopted on January 22, 2003, such reviews were not performed by the
independent auditors in 2003.
As part of its duties, the Audit and Compliance Committee pre-approves
services provided by Ernst & Young LLP. In selecting Ernst & Young LLP as the
Company's independent accountants for the fiscal year ending December 31, 2004,
the Audit Committee has determined that the non-audit services provided by Ernst
& Young LLP are compatible with maintaining the independence of Ernst & Young
LLP. No additional non-audit services will be performed without the Committee's
prior approval.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors to file reports concerning the ownership of Company
equity securities with the Securities and Exchange Commission and the Company.
Based solely on a review of the copies of such forms furnished to the Company,
the Company believes that all reports required by Section 16(a) to be filed by
the Company on behalf of the Company's insiders were filed on a timely basis.
OTHER MATTERS
THE COMPANY HAS FILED AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR ITS FISCAL YEAR ENDED DECEMBER 31, 2003. THE FORM 10-K
IS POSTED ON THE COMPANY'S WEB SITE AT WWW.BADGERMETER.COM. THE COMPANY WILL
PROVIDE A COPY OF THIS FORM 10-K WITHOUT EXHIBITS TO EACH PERSON WHO IS A RECORD
OR BENEFICIAL HOLDER OF SHARES OF COMMON STOCK ON THE RECORD DATE FOR THE
MEETING. THE COMPANY WILL PROVIDE A COPY OF THE EXHIBITS WITHOUT CHARGE TO EACH
PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF SHARES OF COMMON STOCK ON THE
RECORD DATE FOR THE MEETING WHO SUBMITS A WRITTEN REQUEST FOR IT. REQUESTS FOR
COPIES OF THE FORM 10-K SHOULD BE ADDRESSED TO SECRETARY, BADGER METER, INC.,
4545 WEST BROWN DEER ROAD, P.O. BOX 245036, MILWAUKEE, WISCONSIN 53224-9536.
Pursuant to the rules of the Securities and Exchange Commission, services
that deliver the Company's communications to shareholders that hold their stock
through a bank, broker or other holder of record may deliver to multiple
shareholders sharing the same address a single copy of the Company's annual
report to shareholders and proxy statement. Upon written or oral request, the
Company will promptly deliver a separate copy of the annual report to
shareholders and/or proxy statement to any shareholder at a shared address to
which a single copy of each document was delivered. Shareholders may notify the
Company of their requests by calling or writing the Secretary, Badger Meter,
Inc., 4545 West Brown Deer Road, P.O. Box 245306, Milwaukee, WI, 53224-9536;
(414) 355-0400.
17
The cost of solicitation of proxies will be borne by the Company. Brokers,
nominees and custodians who hold stock in their names and who solicit proxies
from the beneficial owners will be reimbursed by the Company for out-of-pocket
and reasonable clerical expenses.
The Board of Directors does not intend to present at the Meeting any
matters other than those set forth herein and does not presently know of any
other matters that may be presented at the Meeting by others. However, if any
other matters should properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy to vote said proxy on any such matters
in accordance with their best judgment.
A shareholder wishing to include a proposal in the proxy statement for the
2005 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended ("Rule 14a-8"), must forward the proposal to
the Company by November 16, 2004.
A shareholder who intends to present business, other than a shareholder's
proposal pursuant to Rule 14a-8, at the 2005 Annual Meeting (including
nominating persons for election as directors) must comply with the requirements
set forth in the Company's Restated By-Laws. Among other things, to bring
business before an annual meeting, a shareholder must give written notice
thereof, complying with the Restated By-Laws, to the Secretary of the Company
not less than 60 days and not more than 90 days prior to the second Saturday in
the month of April (subject to certain exceptions if the annual meeting is
advanced or delayed a certain number of days). Accordingly, if the Company does
not receive notice of a shareholder proposal submitted otherwise than pursuant
to Rule 14a-8 prior to February 8, 2005, then the notice will be considered
untimely and the Company will not be required to present such proposal at the
2005 Annual Meeting. If the Board of Directors chooses to present such proposal
at the 2005 Annual Meeting, then the persons named in proxies solicited by the
Board of Directors for the 2005 Annual Meeting may exercise discretionary voting
power with respect to such proposal.
Ronald H. Dix
Secretary
March 15, 2004
18
APPENDIX A
AUDIT AND COMPLIANCE COMMITTEE CHARTER
The Audit and Compliance Committee (the "Committee") of the Board of
Directors (the "Board") of Badger Meter, Inc. (the "Company"), will have the
purpose, responsibilities, authority and specific duties as described below.
I. PURPOSE
The Committee is established by the Board for the primary purpose of
assisting the Board in:
- overseeing the integrity of the Company's financial statements;
- overseeing the Company's compliance with legal and regulatory
requirements;
- overseeing the independent auditor's qualifications and independence;
- overseeing the performance of the company's internal audit function and
independent auditors;
- overseeing the Company's system of disclosure controls and system of
internal controls regarding finance, accounting, legal compliance, and
ethics that management and the Board have established.
The Committee also provides an avenue for communication between internal
audit, the independent auditors, financial management and the Board. The
Committee should have a clear understanding with the independent auditors that
they must maintain an open and transparent relationship with the Committee, and
that the ultimate accountability of the independent auditors is to the Board and
the Committee.
The Committee has the authority to obtain advice and assistance from
outside legal, accounting, or other advisors as deemed appropriate to perform
its duties and responsibilities. The Company shall provide appropriate funding,
as determined by the Committee, for compensation to the independent auditor and
to any advisers that the Committee chooses to engage.
The Committee will report regularly to the Board of Directors regarding the
execution of its duties and responsibilities.
II. COMPOSITION AND MEETINGS
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall meet the independence and other applicable
requirements of the American Stock Exchange ("AMEX") and the SEC. All members of
the Committee shall have sufficient financial experience and ability to enable
them to discharge their responsibilities, and at least one member shall be a
"financial expert" as defined by the rules and regulations of the SEC. The Board
will appoint the members of the Committee, and will select the chair, annually
or as necessary to fill vacancies, on the recommendation of the Company's
Corporate Governance Committee.
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. Each regularly scheduled meeting shall conclude with an
executive session of the Committee absent members of management and on such
terms and conditions as the Committee may elect. As part of its job to foster
open communication, the Committee will meet periodically with management, the
director of the internal auditing function and the independent auditors in
separate executive sessions to discuss any matters that the Committee or each of
these groups believe should be discussed privately.
III. RESPONSIBILITIES AND DUTIES
The Committee is vested with all responsibilities and authority required by
Rule 10A-3 under the Securities Exchange Act of 1934. While the Committee has
the responsibilities and powers set forth in this Charter, it is not the duty of
the Committee to plan or conduct audits or to determine that the Company's
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financial statements are complete and accurate and are in accordance with
accounting principles generally accepted in the United States. This is the
responsibility of management and the independent auditors.
To fulfill its responsibilities and duties, the Committee will address the
following areas:
Procedures for Review of Reports and Accounting Information
1. Review this Charter at least annually and recommend changes to the Board of
Directors.
2. Review and discuss with management and the independent auditors the Company's
annual audited financial statements, related footnotes and financial
information, and the independent auditors' report thereon, including
disclosures made in management's discussion and analysis, contained in the
Company's Form 10-K and annual report to shareholders prior to the filing or
distribution thereof. As part of the review process, the Committee will
recommend to the Board whether the audited financial statements should be
included in the Company's Form 10-K.
3. Review and discuss with management and the independent auditors the Company's
quarterly unaudited financial statements, related footnotes and financial
information, including disclosures made in management's discussion and
analysis, contained in the Company's Form 10-Q prior to filing. Discuss the
independent auditors review of the quarterly financial statements.
4. Discuss with management and the independent auditors significant financial
reporting issues and judgments made in connection with the preparation of the
Company's financial statements and any major issues regarding accounting
principles and financial statement presentation, including any significant
changes in the Company's selection or application of accounting principles,
any major issues as to the adequacy of the Company's internal controls and
any special steps adopted in light of material control deficiencies.
5. Review and discuss with management and the independent auditors the quarterly
and annual earnings press releases as well as financial information and
earnings guidance provided to analysts and rating agencies, if any.
6. Discuss significant financial risk exposures and the steps management has
taken to monitor, control and report such exposures, including the Company's
risk assessment and risk management guidelines and policies. Review
significant findings prepared by the independent auditors and the internal
auditor together with management's responses.
7. Discuss with management and the independent auditors the effect of accounting
and regulatory pronouncements and initiatives as well as off-balance sheet
structures, if any, on the Company's financial statements.
8. Review disclosures made to the Committee by the Company's Chief Executive
Officer and Chief Financial Officer during their certification process for
the Form 10-K and Form 10-Q regarding (i) all significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report financial
information; and (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company's
internal control over financial reporting.
9. At least annually, or more often as determined necessary by the Committee,
meet with representatives of the Company's Disclosure Committee to review the
Company's disclosure controls and procedures.
INDEPENDENT AUDITORS
1. Appoint, compensate, oversee, retain and/or terminate the work performed by
the independent auditors for the purpose of preparing or issuing an audit
report or related work. Review the performance of the independent auditors.
The independent auditors shall report directly to the Committee and the
Committee shall oversee the resolution of disagreements between management
and the independent auditors in the event that they arise.
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2. Review with the independent auditors any problems or difficulties and
management's response and hold timely discussions with the independent
auditors regarding the following:
- all critical accounting policies and practices;
- all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditors;
- other material written communications between the independent auditors
and management including, but not limited to, the management letter and
schedule of unadjusted differences, and determine that they concur with
management's representation concerning audit adjustments and analysis of
the independent auditors' judgment as to the quality, not just the
acceptability, of the Company's accounting principles, setting forth
significant reporting issues and judgments made in connection with the
preparation of the financial statements.
3. Review all communications by the independent auditors to the Company that
are required by various regulatory bodies and authoritative literature
relating to the conduct of the audit.
4. At least annually, obtain and review a report by the independent auditors
describing:
- the firm's internal quality control procedures;
- any material issues raised by the most recent internal quality-control
review, peer review, or by any inquiry or investigation by governmental
or professional authorities;
- all relationships between the independent auditors and the Company,
consistent with Independence Standards Board Standard 1.
5. The Committee will review the experience and qualifications of senior
members of the independent audit team annually and ensure that all partner
rotation requirements, as promulgated by applicable rules and regulations,
are executed.
6. Review and pre-approve both audit and nonaudit services to be provided by
the independent auditor. This duty may be delegated to one or more
designated members of the Committee with any such pre-approval reported to
the Committee at its next regularly scheduled meeting.
7. Set clear hiring policies, compliant with governing laws or regulations, for
employees or former employees of the independent auditors.
8. Review the scope and general extent of the independent auditors' annual
audit. The Committee's review should include an explanation from the
independent auditors of the factors considered by the independent auditors
in determining the audit scope, including the major risk factors.
9. Review with the independent auditors and, as appropriate, management, any
significant changes to the audit plan, if any, and any serious disputes or
difficulties with management encountered during the audit, including
management's response. Discuss any restrictions on the scope of the
independent auditors' activities and the cooperation received by the
independent auditors during their audit, including access to all requested
records, data and information. Inquire of the independent auditors whether
there have been any disagreements with management, which, if not
satisfactorily resolved, would have caused them to issue a nonstandard
report on the Company's financial statements.
10. Obtain assurance that the independent auditors have not discovered or become
aware of information indicating any illegal act by the Company.
11. Actively engage in a dialogue with the independent auditors with respect to
any disclosed relationships or services that may impact the objectivity and
independence of the independent auditors, and take (or recommend that the
full Board take) appropriate action to oversee the independence of the
independent auditors.
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OTHER
1. Obtain an oral report, at least annually, from the Company's general counsel
concerning legal and regulatory matters that may have a material impact on
the financial statements.
2. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls or
auditing matters, and the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing.
3. Review and approve the internal audit staff functions, including: (i)
purpose, authority and organizational reporting lines; (ii) annual audit
plan, budget and staffing; and (iii) the appointment and replacement of the
senior internal audit executive.
4. Review significant reports prepared by the internal audit department together
with management's response and follow-up to those reports.
5. Review with management, internal audit and the independent auditors the
methods used to establish and monitor the Company's policies with respect to
unethical or illegal activities by Company employees that may have a material
impact on the financial statements.
6. Discuss with management and the independent auditors any correspondence with
regulators or governmental agencies and any published reports that raise
material issues regarding the Company's financial statements or accounting
policies.
7. Prepare the report from the Committee that the SEC requires to be included in
the Company's annual proxy statement.
8. On an annual basis, conduct a self-assessment of its performance during the
previous year. In addition, from time to time, the Board may conduct a
similar assessment of the Committee.
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PROXY
2004 ANNUAL MEETING OF SHAREHOLDERS
BADGER METER, INC.
The undersigned does hereby constitute and appoint Richard A. Meeusen,
Ronald H. Dix and William R. Bergum, or any of them, as proxies for the
undersigned at the Annual Meeting of Shareholders of Badger Meter, Inc. to be
held on FRIDAY, April 23, 2004, at Badger Meter, Inc., 4545 West Brown Deer
Road, Milwaukee, Wisconsin, at 8:30 a.m. local time, and any adjournments or
postponements thereof, to vote thereat the shares of stock held by the
undersigned as fully and with the same effect as the undersigned might or could
do if personally present at said Meeting or any adjournments or postponements
thereof hereby revoking any other Proxy heretofore executed by the undersigned
for such Meeting. The undersigned acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the Proxy Statement.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED. THIS PROXY IS BEING SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS.
COMPLETE AND SIGN BELOW. DETACH AND RETURN USING THE ENVELOPE PROVIDED.
BADGER METER, INC. 2004 ANNUAL MEETING
1. ELECTION OF DIRECTORS:
THREE-YEAR TERM: 1 -- KENNETH P. MANNING 2 -- JOHN J. STOLLENWERK
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR A NOMINEE, WRITE THE NOMINEE'S
NAME ON THE SPACE PROVIDED BELOW.)
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournments or
postponements thereof.
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Date ________________
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Please sign exactly as your name appears
on your stock certificate as shown
directly to the left. Joint owners
should each sign personally. A
corporation should sign in full
corporate name by duly authorized
officers. When signing as attorney,
executor, administrator, trustee or
guardian, give full title as such.