UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2008
BADGER METER, INC.
4545 W. Brown Deer Road
Milwaukee, Wisconsin 53223
(414) 355-0400
A Wisconsin Corporation
IRS Employer Identification No. 39-0143280
Commission File No. 1-6706
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
As of October 14, 2008, there were 14,788,413 shares of Common Stock outstanding with a par
value of $1 per share.
BADGER METER, INC.
Quarterly Report on Form 10-Q for Period Ended September 30, 2008
Index
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Page No.
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4
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5
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6
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7
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10
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15
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15
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17
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18
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2
Special Note Regarding Forward Looking Statements
Certain statements contained in this Form 10-Q, as well as other information provided from
time to time by Badger Meter, Inc. (the Company) or its employees, may contain forward looking
statements that involve risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements. The words anticipate, believe,
estimate, expect, think, should and objective or similar expressions are intended to
identify forward looking statements. All such forward looking statements are based on the
Companys then current views and assumptions and involve risks and uncertainties that include,
among other things:
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the continued shift in the Companys business from lower cost, manual read meters toward
more expensive, value-added automatic meter reading (AMR) systems and advanced metering
infrastructure (AMI) systems;
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the success or failure of newer Company products, including the Orion® radio frequency
AMR system, the Galaxy® fixed network AMI system and the low profile Recordall® Model LP
disc series meter;
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changes in competitive pricing and bids in both the domestic and foreign marketplaces,
and particularly in continued intense price competition on government bid contracts for
lower cost, manual read meters;
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the actions (or lack thereof) of the Companys competitors;
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changes in the Companys relationships with its alliance partners, primarily its
alliance partners that provide AMR/AMI connectivity solutions, and particularly those that
sell products that do or may compete with the Companys products;
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changes in the general health of the United States and foreign economies, including, to
some extent, housing starts in the United States and overall industrial activity;
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changes in the cost and/or availability of needed raw materials and parts, including
recent changes in the cost of brass castings as a result of fluctuations in commodity
prices, particularly for copper and scrap metal, at the supplier level and plastic resin as
a result of changes in petroleum and natural gas prices;
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the Companys expanded role as a prime contractor for providing complete AMR/AMI systems
to governmental entities, which brings with it added risks, including but not limited to,
Company responsibility for subcontractor performance; additional costs and expenses if the
Company and its subcontractors fail to meet the agreed-upon timetable with the governmental
entity; and the Companys expanded warranty and performance obligations;
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changes in foreign economic conditions, particularly currency fluctuations between the
United States dollar and the euro;
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the loss of certain single-source suppliers; and
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changes in laws and regulations, particularly laws dealing with the use of lead (which
can be used in the manufacture of certain meters incorporating brass housings) and the U.S.
Federal Communications Commission rules affecting the use and/or licensing of radio
frequencies necessary for AMR/AMI products.
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All of these factors are beyond the Companys control to varying degrees. Shareholders,
potential investors and other readers are urged to consider these factors carefully in evaluating
the forward looking statements and are cautioned not to place undue reliance on such forward
looking statements. The forward looking statements made in this document are made only as of the
date of this document and the Company assumes no obligation, and disclaims any obligation, to
update any such forward looking statements to reflect subsequent events or circumstances.
3
Part I Financial Information
Item 1 Financial Statements
BADGER METER, INC.
Consolidated Condensed Balance Sheets
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September 30,
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December 31,
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2008
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2007
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(Unaudited)
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(In thousands)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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4,944
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$
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8,670
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Receivables
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35,785
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30,638
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Inventories:
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Finished goods
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15,025
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8,225
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Work in process
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12,395
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10,660
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Raw materials
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17,470
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15,209
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Total inventories
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44,890
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34,094
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Prepaid expenses and other current assets
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3,838
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3,450
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Deferred income taxes
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3,088
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3,082
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Total current assets
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92,545
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79,934
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Property, plant and equipment, at cost
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134,063
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125,678
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Less accumulated depreciation
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(73,779
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)
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(71,100
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)
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Net property, plant and equipment
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60,284
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54,578
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Intangible assets, at cost less accumulated amortization
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25,387
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477
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Other assets
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5,526
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4,919
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Deferred income taxes
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3,436
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3,435
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Goodwill
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6,958
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6,958
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Total assets
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$
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194,136
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$
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150,301
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Liabilities and shareholders equity
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Current liabilities:
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Short-term debt
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$
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15,499
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$
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10,844
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Current portion of long-term debt
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9,549
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2,738
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Payables
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16,741
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11,363
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Accrued compensation and employee benefits
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8,099
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5,988
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Warranty and after-sale costs
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1,668
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1,917
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Income and other taxes
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9,982
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8,359
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Total current liabilities
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61,538
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41,209
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Other long-term liabilities
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561
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627
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Deferred income taxes
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229
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244
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Accrued non-pension postretirement benefits
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6,271
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6,083
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Other accrued employee benefits
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7,103
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7,040
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Long-term debt
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7,969
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3,129
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Commitments and contingencies
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Shareholders equity:
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Common stock
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21,061
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20,902
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Capital in excess of par value
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27,040
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24,655
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Reinvested earnings
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103,711
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89,061
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Accumulated other comprehensive loss
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(8,512
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)
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(9,191
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)
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Less:Employee benefit stock
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(658
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)
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(682
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)
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Treasury stock, at cost
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(32,177
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)
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(32,776
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)
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Total shareholders equity
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110,465
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91,969
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Total liabilities and shareholders equity
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$
|
194,136
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$
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150,301
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See accompanying notes to consolidated condensed financial statements.
4
BADGER METER, INC.
Consolidated Condensed Statements of Operations
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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(Unaudited)
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(Unaudited)
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(In thousands except share
and per share amounts)
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2008
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2007
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2008
|
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2007
|
|
Net sales
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|
$
|
68,826
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$
|
62,782
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$
|
211,906
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$
|
177,618
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Cost of sales
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45,418
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40,114
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137,600
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|
|
116,161
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|
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Gross margin
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23,408
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22,668
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74,306
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61,457
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Selling, engineering and
administration
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14,221
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12,904
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43,500
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|
38,007
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Operating earnings
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|
9,187
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|
|
|
9,764
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|
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|
30,806
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23,450
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Interest expense
|
|
|
379
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|
|
|
348
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|
966
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|
|
1,015
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Earnings from continuing operations
before income taxes
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|
|
8,808
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|
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9,416
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29,840
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22,435
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Provision for income taxes
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|
2,980
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|
|
3,400
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|
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|
10,951
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8,230
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|
|
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Earnings from continuing operations
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5,828
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|
|
6,016
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|
18,889
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14,205
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|
|
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Loss from discontinued operations
net of income taxes
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(265
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)
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|
|
|
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(414
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Net earnings
|
|
$
|
5,828
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|
|
$
|
5,751
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$
|
18,889
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|
|
$
|
13,791
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|
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Earnings (loss) per share amounts:
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Basic:
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|
|
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|
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from continuing operations
|
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$
|
0.40
|
|
|
$
|
0.42
|
|
|
$
|
1.30
|
|
|
$
|
1.00
|
|
from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
1.30
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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Diluted:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.41
|
|
|
$
|
1.27
|
|
|
$
|
0.97
|
|
from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
|
$
|
1.27
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
$
|
0.29
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of earnings per share:
|
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|
|
|
|
|
|
|
|
|
|
|
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|
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Basic
|
|
|
14,618,072
|
|
|
|
14,288,860
|
|
|
|
14,517,580
|
|
|
|
14,166,811
|
|
Impact of dilutive securities
|
|
|
259,725
|
|
|
|
372,364
|
|
|
|
309,742
|
|
|
|
417,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
14,877,797
|
|
|
|
14,661,224
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|
|
|
14,827,322
|
|
|
|
14,584,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated condensed financial statements.
5
BADGER METER, INC.
Consolidated Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
|
2008
|
|
|
2007
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
18,889
|
|
|
$
|
13,791
|
|
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,757
|
|
|
|
4,874
|
|
Amortization
|
|
|
740
|
|
|
|
123
|
|
Deferred income taxes
|
|
|
(12
|
)
|
|
|
(6
|
)
|
Noncurrent employee benefits
|
|
|
2,572
|
|
|
|
1,991
|
|
Stock-based compensation expense
|
|
|
839
|
|
|
|
690
|
|
Gain on disposal of long-lived assets
|
|
|
|
|
|
|
(495
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(5,255
|
)
|
|
|
(4,351
|
)
|
Inventories
|
|
|
(10,836
|
)
|
|
|
(1,533
|
)
|
Prepaid expenses and other current assets
|
|
|
(405
|
)
|
|
|
116
|
|
Current liabilities other than debt
|
|
|
3,686
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(3,914
|
)
|
|
|
7,156
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
14,975
|
|
|
|
20,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment additions
|
|
|
(10,467
|
)
|
|
|
(12,659
|
)
|
Proceeds on disposal of long-lived assets
|
|
|
|
|
|
|
3,194
|
|
Acquisition of intangible assets
|
|
|
(25,650
|
)
|
|
|
|
|
Other net
|
|
|
(691
|
)
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(36,808
|
)
|
|
|
(9,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term debt
|
|
|
4,732
|
|
|
|
(8,374
|
)
|
Issuance of long-term debt
|
|
|
15,000
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(3,349
|
)
|
|
|
(1,446
|
)
|
Dividends paid
|
|
|
(4,231
|
)
|
|
|
(3,568
|
)
|
Proceeds from exercise of stock options
|
|
|
2,002
|
|
|
|
1,159
|
|
Tax benefit on stock options
|
|
|
3,971
|
|
|
|
1,467
|
|
Issuance of treasury stock
|
|
|
136
|
|
|
|
132
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
18,261
|
|
|
|
(10,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rates on cash
|
|
|
(154
|
)
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(3,726
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Cash beginning of period from continuing operations
|
|
|
8,670
|
|
|
|
3,002
|
|
Cash beginning of period from discontinued operations
|
|
|
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
Cash beginning of period
|
|
|
8,670
|
|
|
|
5,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period from continuing operations
|
|
|
4,944
|
|
|
|
4,552
|
|
Cash end of period from discontinued operations
|
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
4,944
|
|
|
$
|
5,022
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated condensed financial statements.
6
BADGER METER, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated condensed financial
statements of Badger Meter, Inc. (the Company) contain all adjustments (consisting only of normal
recurring accruals except as otherwise discussed) necessary to present fairly the Companys
consolidated condensed financial position at September 30, 2008, results of operations for the
three- and nine-month periods ended September 30, 2008 and 2007, and cash flows for the nine-month
periods ended September 30, 2008 and 2007. The results of operations for any interim period are
not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles 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.
Note 2 Additional Balance Sheet Information
The consolidated condensed balance sheet at December 31, 2007 was derived from amounts
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007. Refer
to the footnotes to the financial statements included in that report for a description of the
Companys accounting policies and for additional details of the Companys financial condition. The
details in those notes have not changed except as discussed below and as a result of normal
adjustments in the interim.
Warranty and After-Sale Costs
The Company estimates and records provisions for warranties and other after-sale costs in the
period in which the sale is recorded, based on a lag factor and historical warranty claim
experience. After-sale costs represent a variety of activities outside of the written warranty
policy, such as investigation of unanticipated problems after the customer has installed the
product, or analysis of water quality issues. Changes in the Companys warranty and after-sale
costs reserve for the nine-month periods ended September 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Net additions
|
|
|
|
|
|
|
Balance
|
|
|
|
beginning
|
|
|
charged to
|
|
|
Costs
|
|
|
at
|
|
(In thousands)
|
|
of year
|
|
|
earnings
|
|
|
incurred
|
|
|
September 30
|
|
|
2008
|
|
$
|
1,917
|
|
|
$
|
390
|
|
|
$
|
(639
|
)
|
|
$
|
1,668
|
|
2007
|
|
$
|
2,954
|
|
|
$
|
195
|
|
|
$
|
(873
|
)
|
|
$
|
2,276
|
|
Note 3 Employee Benefit Plans
The Company maintains a non-contributory defined benefit pension plan for its domestic
employees and a non-contributory postretirement plan that provides medical benefits for certain
domestic retirees and eligible dependents. The following table sets forth the components of net
periodic benefit cost for the three months ended September 30, 2008 and 2007 based on a September
30 measurement date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement
|
|
|
|
Pension benefits
|
|
|
|
|
|
|
benefits
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
493
|
|
|
$
|
496
|
|
|
$
|
37
|
|
|
$
|
49
|
|
Interest cost
|
|
|
686
|
|
|
|
629
|
|
|
|
101
|
|
|
|
105
|
|
Expected return on plan assets
|
|
|
(864
|
)
|
|
|
(883
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
(36
|
)
|
|
|
(37
|
)
|
|
|
45
|
|
|
|
|
|
Amortization of net loss
|
|
|
290
|
|
|
|
282
|
|
|
|
8
|
|
|
|
28
|
|
|
Net periodic benefit cost
|
|
$
|
569
|
|
|
$
|
487
|
|
|
$
|
191
|
|
|
$
|
182
|
|
|
7
The following table sets forth the components of net periodic benefit cost for the nine
months ended September 30, 2008 and 2007 based on a September 30 measurement date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement
|
|
|
|
Pension benefits
|
|
|
|
|
|
|
benefits
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
1,479
|
|
|
$
|
1,488
|
|
|
$
|
111
|
|
|
$
|
147
|
|
Interest cost
|
|
|
2,058
|
|
|
|
1,887
|
|
|
|
303
|
|
|
|
315
|
|
Expected return on plan assets
|
|
|
(2,592
|
)
|
|
|
(2,649
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
(108
|
)
|
|
|
(111
|
)
|
|
|
135
|
|
|
|
|
|
Amortization of net loss
|
|
|
870
|
|
|
|
846
|
|
|
|
24
|
|
|
|
83
|
|
|
Net periodic benefit cost
|
|
$
|
1,707
|
|
|
$
|
1,461
|
|
|
$
|
573
|
|
|
$
|
545
|
|
|
The Company previously disclosed in its financial statements for the year ended December 31,
2007 that it did not expect to contribute funds to its pension plan in 2008. While the Company
believes that it will not be required to make any such contributions in 2008, such belief is based
upon the estimated return on plan assets as of the annual measurement date.
The Company disclosed in its financial statements for the year ended December 31, 2007 that it
estimated it would pay $0.6 million in other postretirement benefits in 2008 based on actuarial
estimates. As of September 30, 2008, $226,000 of such benefits were paid. The Company now
believes that its estimated payments for the full year may be somewhat less than the full-year
estimate. However, such estimates contain inherent uncertainties because cash payments can vary
significantly depending on the timing of postretirement medical claims and the collection of the
retirees portion of certain costs. Note that the amount of benefits paid in calendar year 2008
will not impact the expense for postretirement benefits for the current year.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). On December 31, 2006, the Company adopted
the required provisions of SFAS 158 by recognizing the funded status of its defined benefit pension
and postretirement benefit plans in the statement of financial position. Additionally, employers
are required to measure the funded status of a plan as of the date of its year-end statement of
financial position and provide additional disclosures. Prior to the adoption of the measurement
date provisions of SFAS 158, the Companys pension plans previously used a September 30 measurement
date. As permitted by the statement, the Company will adopt the measurement provisions of SFAS 158
during the fourth quarter for the 2008 full-year statements, at which time the Company expects to
recognize a reduction of $0.4 million, net of tax, to the 2008 beginning of the year reinvested
earnings. There will be no effect on the Companys results of operations or cash flows.
Note 4 Guarantees
The Company guarantees the outstanding debt of the Badger Meter Employee Savings and Stock
Ownership Plan (ESSOP) that is recorded in long-term debt, offset by a similar amount of unearned
compensation that has been recorded as a reduction of shareholders equity. The loan amount is
collateralized by shares of the Companys Common Stock. A payment of $23,000 was made in the first
quarter of 2008 that reduced the debt and the corresponding employee benefit stock balance included
in shareholders equity.
Note 5 Comprehensive Income (Loss)
Comprehensive income for the three-month periods ended September 30, 2008 and 2007 was $5.7
million and $5.9 million, respectively. Comprehensive income for the nine-month periods ended
September 30, 2008 and 2007 was $19.6 million and $14.3 million, respectively.
Components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
1,768
|
|
|
$
|
1,713
|
|
Unrecognized pension and postretirement benefit
plan liabilities
|
|
|
(10,280
|
)
|
|
|
(10,904
|
)
|
|
Accumulated other comprehensive loss
|
|
$
|
(8,512
|
)
|
|
$
|
(9,191
|
)
|
|
8
Note 6 Discontinued French Operations
During 2006, the Company carefully evaluated strategic alternatives for its subsidiaries in
Nancy, France, including restructuring, sale or shutdown. In the third quarter of 2006, the
Company began the process under French law to obtain the approvals to close the operations. On
October 16, 2006, the decision to discontinue the Companys French operations was finalized, and
all disposal transactions were completed by December 31, 2007. Information about the Companys
discontinued French operations is included in the Notes to Consolidated Financial Statements in the
Companys 2007 Annual Report on Form 10-K under the heading Note 3 Discontinued Operations.
For the three-month period ended September 30, 2007, net sales from the French operations were
zero and net losses were $0.3 million. For the nine-month period ended September 30, 2007, net
sales from the French operations were $1.9 million and net losses were $0.4 million.
Note 7 Acquisition of Intangible Assets
In April 2008, the Company acquired the advanced metering infrastructure (AMI) technology used
in its Galaxy® fixed network system from Miltel Communications Ltd. for a purchase price of
approximately $25.7 million. The technology agreement included the acquisition of the core
technology, including the exclusive right to manufacture the Galaxy® system and distribute it in
certain water and gas utility markets, as well as a non-compete clause. The purchase price was
recorded in the second quarter of 2008 as intangible assets that will be amortized over estimated
lives of 20 and 10 years for the core technology and non-compete arrangement, respectively. This
acquisition was initially funded from commercial paper drawn on the Companys short-term line of
credit, which was amended in April 2008 to increase availability to accommodate this purchase.
Note 8 Restricted Stock
On April 25, 2008, a restricted stock plan was approved which provides for the issuance of
non-vested Common Stock to certain eligible employees. The plan authorizes the issuance of shares
up to an aggregate of 100,000 shares of Common Stock (no individual participant may be granted more
than 20,000 shares in the aggregate), of which 5,100 were issued in May 2008. The restricted stock
issued in May is generally subject to a three-year cliff vesting period contingent on employment.
Compensation expense related to the issuance of restricted stock was $208,000 for the quarter ended
September 30, 2008.
Note 9 Debt and Primary Credit Line
In July 2008, the Company obtained a $15.0 million unsecured two-year loan that bears interest
at 5.04% annually to refinance a portion of the existing short-term debt that funded the above
acquisition of the Galaxy intangible assets.
In October 2008, the Company renewed its principal line of credit ($30.0 million) for one year
with its primary lender effective November 1, 2008. This line of credit supports the issuance of
commercial paper. Short-term borrowings against this line, other than the issuance of commercial
paper, bear interest at one-month Libor plus 125 basis points.
Note 10 Contingencies, Litigation and Commitments
In the normal course of business, the Company is named in legal proceedings from time to time.
There are currently no material legal proceedings pending with respect to the Company. The more
significant legal proceedings are as discussed below.
The Company is subject to contingencies related to environmental laws and regulations.
Currently, the Company is in the process of resolving matters relating to two landfill sites where
it has been named as one of many potentially responsible parties. These sites are impacted by the
Federal Comprehensive Environmental Response, Compensation and Liability Act and other
environmental laws and regulations. At this time, the Company does not believe the ultimate
resolution of these issues will have a material adverse effect on the Companys financial position
or results of operations, either from a cash flow perspective or on the financial statements as a
whole. This belief is based on the Companys assessment of its limited past involvement with
9
these sites as well as the substantial involvement of other named third parties in these matters.
However, due to the inherent uncertainties of such proceedings, the Company cannot predict the
ultimate outcome of these matters. A future change in circumstances with respect to these specific
matters or with respect to sites formerly or currently owned or operated by the Company, or with
respect to off-site disposal locations used by the Company, could result in future costs to the
Company and such amounts could be material.
Like other companies in recent years, the Company has been named as a defendant in numerous
multi-claimant/multi-defendant lawsuits alleging personal injury as a result of exposure to
asbestos, manufactured by third parties, and integrated into or sold with a very limited number of
the Companys products. The Company is vigorously defending itself against these claims. Although
it is not possible to predict the ultimate outcome of these matters, the Company does not believe
the ultimate resolution of these issues will have a material adverse effect on the Companys
financial position or results of operations, either from a cash flow perspective or on the
financial statements as a whole. This belief is based in part on the fact that no claimant has
demonstrated exposure to products manufactured or sold by the Company and that a number of cases
have been voluntarily dismissed.
The Company has evaluated its worldwide operations to determine whether any risks and
uncertainties exist that could severely impact its operations in the near term. Although the
Company relies on single suppliers for certain castings and components in several of its product
lines, alternate sources of supply exist for these items. Loss of certain suppliers could
temporarily disrupt operations in the short term. The Company attempts to mitigate these risks by
working closely with key suppliers, purchasing minimal amounts from alternative suppliers and by
purchasing business interruption insurance where appropriate.
The Company reevaluates its risks on a periodic basis and makes adjustments to reserves as
appropriate.
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Business Description and Overview
The Company is a leading manufacturer and marketer of products incorporating liquid flow
measurement and control technologies, which are developed both internally and in conjunction with
other technology companies. Its products are used to measure and control the flow of liquids in a
wide variety of applications. The Companys product lines fall into two general categories,
utility and industrial flow measurement. The utility category is comprised of two primary product
lines residential and commercial water meters that are used by water utilities as the basis for
generating water and wastewater revenues. The market for these product lines is North America,
primarily the United States, because these meters are designed and manufactured to conform to
standards promulgated by the American Water Works Association. The utility flow measurement
products constitute a majority of the Companys sales.
Industrial product line sales comprise the remainder of the Companys sales and include
precision valves, electromagnetic inductive flow meters, impeller flow meters, and turbine and
positive displacement industrial flow meters. Rounding out the industrial product line are
automotive fluid meters for the measurement of various types of automotive fluids.
Residential and commercial water meters generally have been classified as either manual read
meters or remote read meters via radio technology. A meter that is manually read consists of the
water meter and a register displaying the meter reading. Remotely read meters are equipped with
radio technology and convert the mechanical measurement to a digital format which is then
transmitted via radio frequency to a receiver that collects and formats the data appropriately for
the utilitys billing computer. Drive-by systems are referred to as automatic meter reading (AMR)
systems and have been the primary technology deployed by water utilities over the past decade,
because they provide cost effective and accurate billing data. In a drive-by AMR system, a vehicle
equipped for meter reading purposes collects meter reading data.
Fixed network advanced metering infrastructure (AMI) systems are of growing interest to water
utilities. These systems do not rely on a drive-by data collector, but rather incorporate a
network of data collectors that are always active or listening to the radio transmission from the
utilitys meters. Not only do fixed network systems eliminate the need for meter readers, but they
have the ability to provide the utility with more frequent and diverse data at specified intervals.
The Companys response to the increased interest in AMI systems is further detailed in the
Business Trends section below.
10
The Companys net sales and corresponding net earnings depend on unit volume and mix of
products, with the Company generally earning higher margins on meters equipped with AMR or AMI
technology. In addition to selling its proprietary AMR/AMI products including the Orion® drive-by
AMR technology and the Galaxy® fixed network AMI system, the Company also remarkets the Itron®
drive-by AMR product under a license and distribution agreement. The Companys proprietary AMR/AMI
products generally result in higher margins than the non-proprietary AMR/AMI products that the
Company remarkets.
One distinctive advantage of the Orion® AMR technology over other AMR products is that while
it is fundamentally a drive-by AMR system, the proprietary receiver technology of Orion® has been
licensed to other technology providers, including those providing AMR/AMI products that communicate
over power lines, broadband networks, municipal WiFi and proprietary radio frequency networks.
Utility meter sales, including sales of AMR and AMI products within this category, are
generally derived from the water meter replacement requirements of customers, along with their
plans for adoption and deployment of new technology. To a much lesser extent, housing starts also
contribute to the base of new product sales. Over the last decade there has been a growing trend
in the conversion to AMR/AMI from manually read water meters. This conversion rate is accelerating
and contributing to an increased base of business available to meter and AMR/AMI producers. It is
currently estimated that approximately 25-30% of water meters installed in the United States have
been converted to AMR/AMI systems. The Companys strategy is to solve customers metering needs
with its proprietary meter reading systems or other systems available through its alliance partners
in the marketplace.
The industrial products generally serve a variety of niche flow measurement applications
across a broad range of industries. Some of the flow measurement technologies now used
industrially, such as positive displacement and turbine flow measurement, were derived from utility
meter technologies. Other technologies are very specific to industrial applications. In addition,
a growing requirement for industrial meters is to be equipped with specialized communication
protocols that control the entire flow measurement process. Serving both the utility and
industrial flow measurement market enables the Company to use its wide variety of technology for
specific flow measurement and control applications, as well as to utilize existing capacity and
spread fixed costs over a larger sales base.
Business Trends
AMI is the growing standard of technology deployment in the electric utility industry. AMI
provides an electric utility with two-way communication to monitor and control electrical devices
at the customers site. AMI deployments are always fixed network technologies. Although the
Company does not participate in the electric utility market, the trend toward AMI is now affecting
the water and gas utility AMR market as well. Specifically, in the water industry, fixed network
AMI enables the water utility to capture interval readings from each meter on a daily basis. While
two-way communication is extremely limited in water fixed network AMI, utilities are contemplating
how two-way networks could benefit them. As noted above, the Company markets the Orion® drive-by
AMR product line as well as the Galaxy® fixed network AMI product line. The Company believes it is
well positioned to sell either product as this trend continues. Since both products have
comparable margins, any acceleration or slowdown in this trend is not expected to have a
significant impact on the Company.
Although there is growing interest in fixed network communication by water utilities, the vast
majority of utilities currently installing AMR/AMI are selecting drive-by AMR technologies for
their applications. The Companys Orion® technology has experienced rapid acceptance in the United
States. By the end of 2007, more than 1,000 water utilities had selected Orion® as their AMR
solution of choice. There are approximately 53,000 water utilities in the United States and the
Company estimates that less than 30% of their services have been converted to an AMR technology.
It is anticipated that even with growing interest in fixed network AMI, drive-by AMR will continue
to be the primary product of choice by water utilities for a number of years. Drive-by AMR
technology is simply the lowest cost form of AMR currently available to water utilities.
Prior to the Companys introduction of its own proprietary Orion® products, Itron® water
utility-related products were a significant contributor to the Companys results. The Company
sells Itron® products under an agreement with Itron, Inc. The agreement expires in early 2009 and
the Company is currently discussing an extension of the agreement with Itron. The Companys Orion®
products directly compete with Itron® water AMR products and, in recent years, many of the
Companys customers have selected Orion® products. For the full year of 2007, Orion® sales
increased by 24.8% compared to 2006 while Itron® licensed product sales decreased by 21.7% compared
to 2006. For the first nine months of 2008, Orion® sales were 2.4 times greater than those of the
remarketed Itron® sales. The Company expects this trend to continue, although the Company also
believes that Itron® licensed products will remain a significant component of utility sales. To
date,
11
decreases in
sales of the remarketed Itron® licensed products have been offset by increases in sales of
Orion® products, which produce a higher gross margin than the remarketed Itron® licensed products.
As a result, the Company does not expect this trend to have a material negative impact on the
Companys financial position or results of operations.
Results of Operations Three Months Ended September 30, 2008
Net sales for the three months ended September 30, 2008 increased by $6.0 million, or 9.6%, to
$68.8 million from $62.8 million in the same period in 2007. The increase was driven by higher
sales of the Companys utility products, offset somewhat by lower sales of its industrial products.
Residential and commercial water meter and related automation sales represented 82.7% of total
net sales for the quarter compared to 80.4% in the third quarter of 2007. These sales were $56.9
million, an increase of $6.4 million, or 12.7%, from $50.5 million in the same period in 2007.
This increase was the net result of increased unit volumes utilizing Itron® AMR and Galaxy®
technology and increased sales of commercial meters. Price increases also contributed to the
higher sales amount. Sales of the Companys proprietary AMR product, Orion®, were relatively flat
over the sales amounts for the third quarter of 2007 while the remarketed Itron® product sales
increased by approximately 39%. Despite the decline in its sales, the Orion® products outsold the
Itron® products by a ratio of 2.1 to 1 in the three-month period ended September 30, 2008.
Commercial meter revenues increased by approximately 21% due to both volume and price increases.
Industrial sales represented 17.3% of the total net sales for the quarter ended September 30,
2008 compared to 19.6% for the same period in 2007. Industrial sales were $11.9 million in the
third quarter of 2008, a decrease of 3.3% over sales of $12.3 million in the same period in 2007.
This decrease was due to lower sales in nearly all product lines of this group due to lower volumes
as a result of the weaker economy, mitigated somewhat by price increases. The one exception was
the valve product line where sales increased primarily due to price increases.
The total gross margin percentage declined in the third quarter of 2008 to 34.0% from 36.1%
for the same period in 2007. The decline was primarily due to product mix in the quarter, offset
in part by price increases and favorable warranty experience. The Companys gross margin is
generally higher on its proprietary products than on remarketed products. The third quarter of
2008 had a higher proportion of remarketed products than in the same period in 2007. In addition,
during the third quarter, the Company experienced increased costs of materials and freight-related
charges compared to the same period in 2007, which were largely offset by sales price increases.
Selling, engineering and administration costs increased by $1.3 million, or 10.3%, to $14.2
million for the three months ended September 30, 2008 compared to $12.9 million in the same period
in 2007. This increase was primarily the result of increased costs associated with higher sales
volumes, consulting costs associated with sales process enhancements, increased research and
development costs, and increased intangible amortization due to the acquisition of the Galaxy®
technology in April 2008. In addition, the Company experienced normal inflationary increases,
which were somewhat offset by continuing cost containment efforts.
The provision for income taxes as a percentage of earnings from continuing operations for the
third quarter of 2008 was 33.8% compared to 36.1% for the same period in 2007 and was somewhat
lower primarily due to certain foreign exchange tax effects on the annual tax estimate.
As a result of the above mentioned items, earnings from continuing operations were $5.8
million for the three months ended September 30, 2008 compared to $6.0 million for the three months
ended September 30, 2007. On a diluted basis, earnings per share from continuing operations were
$0.39 for the third quarter of 2008 compared to $0.41 for the same period in 2007.
Results of Operations Nine Months Ended September 30, 2008
Net sales for the nine months ended September 30, 2008 increased nearly by $34.2 million, or
19.2%, to $211.9 million from $177.7 million in the same period in 2007. The increase was driven
by higher sales of the Companys products, especially AMR products, due to higher volumes and
increased prices.
Residential and commercial water meter and related automation net sales represented 82.4% of
total sales for the first nine months of 2008 compared to 79.4% in the same period in 2007. These
sales were $174.6 million, an increase of $33.7 million, or 23.9%, from $140.9 million in the same
period in 2007. This increase
12
was due to increased volumes in units utilizing AMR/AMI technology
as well as increased sales of commercial meters.
Price increases also contributed to the higher sales amount. Sales of the Companys
proprietary AMR product, Orion®, and the remarketed Itron® product increased by 19.6% and 29.5%,
respectively, over the sales amounts for the first nine months of 2007. The ratio of Orion® to
Itron® sales was 2.4 to 1 for the nine months ended September 30, 2008. Commercial meter revenues
increased by 33.5% due to both volume and price increases. The increases were also due in part to
the fact that sales in the first quarter of 2007 were negatively impacted by the timing of orders.
Industrial sales represented 17.6% of the total net sales for the nine months ended September
30, 2008 compared to 20.6% for the same period in 2007. The decline in percentage occurred despite
a very modest increase in industrial sales revenues. Industrial sales were $37.3 million for the
first nine months of 2008, an increase of 1.4% over sales of $36.8 million in the same period in
2007. This increase was due to higher valve sales and price increases, mitigated somewhat by
lower sales in the other product lines of this group and lower volumes as a result of the weaker
economy.
The total gross margin percentage for the first nine months of 2008 was 35.1% compared to
34.6% for the same period in 2007. The increase was the net effect of higher sales volumes that
absorbed fixed manufacturing costs and price increases, offset by higher costs of raw materials.
Selling, engineering and administration costs increased by $5.5 million, or 14.5%, to $43.5
million for the nine months ended September 30, 2008 compared to
$38.0 million in the same period in
2007. This increase was primarily the result of increased selling costs related to efforts to
establish a presence for Orion® in the natural gas industry, increased costs associated with higher
sales volumes, consulting costs associated with sales process enhancements, increased research and
development costs, the effects of foreign exchange, and increased intangible amortization related
to the acquisition of the Galaxy® technology early in the second quarter of 2008. In addition, the
Company experienced normal inflationary increases, which were somewhat offset by continuing cost
containment efforts.
The provision for income taxes as a percentage of earnings from continuing operations for the
nine months ended September 30, 2008 was 36.7%, which was comparable to the same period in 2007.
As a result of the above mentioned items, earnings from continuing operations were $18.9
million for the nine months ended September 30, 2008 compared to $14.2 million for the nine months
ended September 30, 2007. On a diluted basis, earnings per share from continuing operations were
$1.27 and $0.97 for the same periods, respectively.
Liquidity and Capital Resources
The main sources of liquidity for the Company are cash from operations and borrowing capacity.
Cash provided by operations for the first nine months of 2008 was $15.0 million compared to $20.9
million for the same period in 2007. The decrease was primarily the net effect of the increase in
inventories and receivables in 2008, offset somewhat by increased net earnings to date in 2008.
The increase in the receivables balance from $30.6 million at December 31, 2007 to $35.8
million at September 30, 2008 was due primarily to the timing of sales and certain cash
collections. The Company believes that recent financial concerns in the overall economy will not
impact collections of these receivables.
Inventories at September 30, 2008 increased to $44.9 million from $34.1 million at December
31, 2007 due primarily to longer lead times on certain electrical components, a build-up of
inventories for an anticipated plant move, inventories sent to customers awaiting installment that
have not yet been recognized as sales, and higher overall costs of material components to support
increased sales levels.
Prepaid expenses and other current assets increased between December 31, 2007 and September
30, 2008 primarily due to the payment of certain calendar year insurance premiums that are expensed
ratably over the policy period.
Net property, plant and equipment at September 30, 2008 increased by $5.7 million since
December 31, 2007. This was the result of $10.5 million of capital expenditures, which included
$5.6 million associated with the construction of the Companys new plant in Nogales, Mexico, which
is expected to be operational in the fourth quarter of 2008, offset by depreciation expense and
disposals.
13
Intangible assets increased due to the purchase of the Galaxy® proprietary fixed network AMI
technology for $25.7 million early in April 2008, offset by amortization expense.
Short-term debt at September 30, 2008 increased by $4.7 million compared to the balance at
December 31, 2007. During the same period, long-term debt
increased on a net basis due to the Company securing a $15 million two-year term loan in July 2008
that bears interest at a fixed rate of 5.04%, offset by scheduled payments. Both increases are a
result of the purchase of the Galaxy® technology discussed above. All of the Companys debt is
unsecured and does not carry any financial covenants.
Payables increased to $16.7 million at September 30, 2008 from $11.4 million at December 31,
2007 primarily as a result of an increase in inventory and the timing of payments. Accrued
compensation and employee benefits increased since December 31, 2007 from $6.0 million to $8.1
million due to costs accrued for 2008 expenses to date, offset somewhat by the first quarter 2008
payment of amounts accrued at December 31, 2007. During the same period, warranty and after-sale
costs declined to $1.7 million from $1.9 million due to declining claim experience indicating fewer
than expected issues for prior sales.
Income and other taxes increased to $10.0 million at September 30, 2008 from $8.4 million at
December 31, 2007 due to increased earnings and the timing of income tax payments.
Common stock and capital in excess of par value both increased since December 31, 2007 due to
new stock issued in connection with the exercise of stock options. Employee benefit stock
decreased as a result of a payment made on the Employee Savings and Stock Ownership Plan loan
during the first quarter of 2008.
Accumulated other comprehensive loss was $8.5 million at September 30, 2008 compared to a $9.2
million loss at December 31, 2007. The decrease was due primarily to the amortization in the
Statement of Operations of certain pension and postretirement amounts included in accumulated other
comprehensive loss as required under SFAS 158, as well as the effects of foreign exchange
translations.
The Company believes its financial condition remains strong. In October 2008, the Company
renewed its principal line of credit ($30.0 million) for one year with its primary lender. While
interest rates are expected to be higher in the short-term due to market conditions, the Company
believes that its operating cash flows, available borrowing capacity, and its ability to raise
capital provide adequate resources to fund ongoing operating requirements, future capital
expenditures and development of new products. The Company has $35.3 million of unused credit lines
available at September 30, 2008.
Other Matters
There are currently no material legal proceedings pending with respect to the Company. The
more significant legal proceedings are discussed below.
The Company is subject to contingencies related to environmental laws and regulations.
Currently, the Company is in the process of resolving matters relating to two landfill sites where
it has been named as one of many potentially responsible parties. These sites are impacted by the
Federal Comprehensive Environmental Response, Compensation and Liability Act and other
environmental laws and regulations. At this time, the Company does not believe the ultimate
resolution of these issues will have a material adverse effect on the Companys financial position
or results of operations, either from a cash flow perspective or on the financial statements as a
whole. This belief is based on the Companys assessment of its limited past involvement with these
sites as well as the substantial involvement of other named third parties in these matters.
However, due to the inherent uncertainties of such proceedings, the Company cannot predict the
ultimate outcome of these matters. A future change in circumstances with respect to these specific
matters or with respect to sites formerly or currently owned or operated by the Company, or with
respect to off-site disposal locations used by the Company, could result in future costs to the
Company and such amounts could be material.
Like other companies in recent years, the Company has been named as a defendant in numerous
multi-claimant/multi-defendant lawsuits alleging personal injury as a result of exposure to
asbestos, manufactured by third parties, and integrated into or sold with a very limited number of
the Companys products. The Company is vigorously defending itself against these claims. Although
it is not possible to predict the ultimate outcome of these matters, the Company does not believe
the ultimate resolution of these issues will have a material adverse effect on the Companys
financial position or results of operations, either from a cash flow perspective or on the
financial statements as a whole. This belief is based in part on the fact that no claimant has
demonstrated exposure to products manufactured or sold by the Company and that a number of cases
have been voluntarily dismissed.
14
No other risks or uncertainties were identified that could have a material impact on
operations and no long-lived assets have become permanently impaired in value.
Off-Balance Sheet Arrangements and Contractual Obligations
The Companys off-balance sheet arrangements and contractual obligations are discussed in Part
II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
under the headings Off-Balance Sheet Arrangements and Contractual Obligations in the Companys
Annual Report on Form 10-K for the year ended December 31, 2007, and have not materially changed
since that report was filed.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
The Companys quantitative and qualitative disclosures about market risk are included in Part
II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
under the heading Market Risks in the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, and have not materially changed since that report was filed.
Item 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act),
the Companys management evaluated, with the participation of the Companys Chairman, President and
Chief Executive Officer and the Companys Senior Vice President Finance, Chief Financial Officer
and Treasurer, the effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the quarter
ended September 30, 2008. Based upon their evaluation of these disclosure controls and procedures,
the Companys Chairman, President and Chief Executive Officer and the Companys Senior Vice
President Finance, Chief Financial Officer and Treasurer concluded that the Companys disclosure
controls and procedures were effective as of the end of the quarter ended September 30, 2008 to
ensure that information relating to the Company, including its consolidated subsidiaries, was made
known to management by others within those entities as appropriate to allow timely decisions
regarding required disclosure of the information, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.
Changes in Internal Control over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred
during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.
Part II Other Information
Item 6 Exhibits
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Exhibit No.
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Description
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3.1
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Amendment to Restated Articles of Incorporation [Incorporated by reference to Exhibit
3.1 to Badger Meter, Inc.s Current Report on Form 8-K dated August 8, 2008 (as filed on
August 14, 2008) (Commission File No. 1-6706)].
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3.2
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Restated Articles of Incorporation, restated in electronic format to include all
amendments through August 8, 2008.
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3.3
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Amendments to Restated By-laws [Incorporated by reference to Exhibit 3.2 to Badger
Meter, Inc.s Current Report on Form 8-K dated August 8, 2008 (as filed on August 14, 2008)
(Commission File No. 1-6706)].
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3.4
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Restated By-laws, as amended and restated effective as of August 8, 2008.
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15
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Exhibit No.
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Description
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4.1
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Loan Agreement dated November 1, 2008 between Badger Meter, Inc. and the M&I Marshall &
Ilsley Bank relating to Badger Meters revolving credit loan.
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4.2
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Loan Agreement dated October 14, 2008 between Badger Meter, Inc. and the M&I Marshall &
Ilsley Bank relating to Badger Meters euro note.
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31.1
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Certification by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification by the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32
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Certification of Periodic Financial Report by the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BADGER METER, INC.
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Dated: October 22, 2008
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By
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/s/ Richard A. Meeusen
Richard A. Meeusen
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Chairman, President and Chief Executive
Officer
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By
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/s/ Richard E. Johnson
Richard E. Johnson
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Senior Vice President Finance, Chief
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Financial Officer and Treasurer
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By
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/s/ Beverly L. P. Smiley
Beverly L. P. Smiley
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Vice President Controller
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17
BADGER METER, INC.
Quarterly Report on Form 10-Q for Period Ended September 30, 2008
Exhibit Index
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Exhibit No.
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Description
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3.1
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Amendment to Restated Articles of Incorporation [Incorporated by reference to Exhibit
3.1 to Badger Meter, Inc.s Current Report on Form 8-K dated August 8, 2008 (as filed on
August 14, 2008) (Commission File No. 1-6706)].
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3.2
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Restated Articles of Incorporation, restated in electronic format to include all
amendments through August 8, 2008.
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3.3
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Amendments to Restated By-laws [Incorporated by reference to Exhibit 3.2 to Badger
Meter, Inc.s Current Report on Form 8-K dated August 8, 2008 (as filed on August 14, 2008)
(Commission File No. 1-6706)].
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3.4
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Restated By-laws, as amended and restated effective as of August 8, 2008.
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4.1
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Loan Agreement dated November 1, 2008 between Badger Meter, Inc. and the M&I Marshall &
Ilsley Bank relating to Badger Meters revolving credit loan.
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4.2
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Loan Agreement dated October 14, 2008 between Badger Meter, Inc. and the M&I Marshall &
Ilsley Bank relating to Badger Meters euro note.
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31.1
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Certification by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification by the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32
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Certification of Periodic Financial Report by the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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18
Exhibit 3.4
RESTATED BY-LAWS
OF
BADGER METER, INC.
(As Amended and Restated as of August 8, 2008)
ARTICLE I
SHAREHOLDERS
Section 1
.
Annual Meeting
. The annual meeting of the shareholders (the
Annual Meeting) shall be held on the second Saturday in April of each year, or at such other time
and date as may be fixed by resolution of the Board of Directors. In fixing a meeting date for any
Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the
good faith exercise of its business judgment. At each Annual Meeting, the shareholders shall elect
that number of directors equal to the number of directors in the class whose term expires at the
time of such meeting. At any such Annual Meeting, only other business properly brought before the
meeting in accordance with Section 12 of Article I of these By-laws may be transacted. If the
election of directors shall not be held on the date designated herein, or fixed as herein provided,
for any Annual Meeting, or any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of shareholders (a Special Meeting) as soon thereafter as is
practicable.
Section 2
.
Special Meetings
.
(a) A Special Meeting may be called only by (i) the Chairman, (ii) the Chief Executive Officer
or (iii) the Board of Directors and shall be called by the Chief Executive Officer upon the demand,
in accordance with this Section 2, of the holders of record of shares representing at least 10% of
all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting.
(b) In order that the Corporation may determine the shareholders entitled to demand a Special
Meeting, the Board of Directors may fix a record date to determine the shareholders entitled to
make such a demand (the Demand Record Date). The Demand Record Date shall not precede the date
upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and
shall not be more than ten days after the date upon which the resolution fixing the Demand Record
Date is adopted by the Board of Directors. Any shareholder of record seeking to have shareholders
demand a Special Meeting shall, by sending written notice to the Secretary of the Corporation by
hand or by certified or registered mail, return receipt requested, request the Board of Directors
to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten
days after the date on which a valid request to fix a Demand Record Date is received, adopt a
resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record
Date. If no Demand Record Date has been fixed by the Board of Directors within ten days after the
date on which such request is received by the Secretary, the Demand Record Date shall be the 10th
day after the first date on which a valid written request to set a Demand Record Date is received
by the Secretary. To be valid, such written request shall set forth the purpose or purposes for
which the Special Meeting is to be held, shall be signed by one or more shareholders of record (or
their duly authorized proxies or other representatives), shall bear the date of signature of each
such shareholder (or proxy or other representative) and shall set forth all information about each
such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is
made that would be required to be set forth in a shareholders notice described in paragraph (a)
(ii) of Section 12 of Article I of these By-laws.
(c) In order for a shareholder or shareholders to demand a Special Meeting, a written demand
or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares
representing at least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the Special Meeting must be delivered to the Corporation. To be valid, each written
demand by a shareholder for a Special Meeting shall set forth the specific purpose or purposes for
which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose
or purposes set forth in the written request to set a Demand Record Date received by the
Corporation pursuant to paragraph (b) of this Section 2), shall be signed by one or more persons
who as of the Demand Record Date are shareholders of record (or their duly authorized proxies or
other representatives), shall bear the date of signature of each such shareholder (or proxy or
other representative), and shall set forth the name and address, as they appear in the
Corporations books, of each shareholder signing such demand and the class and number of shares of
the Corporation which are owned of record and beneficially by each such shareholder, shall be sent
to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be
received by the Secretary within seventy days after the Demand Record Date.
(d) The Corporation shall not be required to call a Special Meeting upon shareholder demand
unless, in addition to the documents required by paragraph (c) of this Section 2, the Secretary
receives a written agreement signed by each Soliciting Shareholder (as defined below), pursuant to
which each Soliciting Shareholder, jointly and severally, agrees to pay the Corporations costs of
holding the Special Meeting, including the costs of preparing and mailing proxy materials for the
Corporations own solicitation, provided that if each of the resolutions introduced by any
Soliciting Shareholder at such meeting is adopted, and each of the individuals nominated by or on
behalf of any Soliciting Shareholder for election as a director at such meeting is elected, then
the Soliciting Shareholders shall not be required to pay such costs. For purposes of this
paragraph (d), the following terms shall have the meanings set forth below:
(i) Affiliate of any Person (as defined herein) shall mean any Person controlling,
controlled by or under common control with such first Person.
(ii) Participant shall have the meaning assigned to such term in Rule 14a-11
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).
(iii) Person shall mean any individual, firm, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(iv) Proxy shall have the meaning assigned to such term in Rule 14a-1 promulgated
under the Exchange Act.
(v) Solicitation shall have the meaning assigned to such term in Rule 14a-11
promulgated under the Exchange Act.
(vi) Soliciting Shareholder shall mean, with respect to any Special Meeting demanded
by a shareholder or shareholders, any of the following Persons:
(A) if the number of shareholders signing the demand or demands of
meeting delivered to the Corporation pursuant to paragraph (c) of this
Section 2 is ten or fewer, each shareholder signing any such demand;
(B) if the number of shareholders signing the demand or demands of
meeting delivered to the Corporation pursuant to paragraph (c) of this
Section 2 is more than ten, each Person who either (I) was a Participant in
any Solicitation of such demand or demands or (II) at the time of the
delivery to the Corporation of the documents described in paragraph (c) of
this Section 2 had engaged or intended to engage in any Solicitation of
Proxies for use at such Special Meeting (other than a Solicitation of Proxies
on behalf of the Corporation); or
(C) any Affiliate of a Soliciting Shareholder, if a majority of the
directors then in office determine, reasonably and in good faith, that such
Affiliate should be required to sign the written notice described in
paragraph (c) of this Section 2 and/or the written agreement described in
this paragraph (d) in order to prevent the purposes of this Section 2 from
being evaded.
(e) Except as provided in the following sentence, any Special Meeting shall be held at such
hour and day as may be designated by whichever of the Chief Executive Officer, the Secretary or the
Board of Directors shall have called such meeting. In the case of any Special Meeting called by
the Chief Executive
Officer upon the demand of shareholders (a Demand Special Meeting), such meeting shall be held at
such hour and day as may be designated by the Board of Directors;
provided
,
however
, that the date of any Demand Special Meeting shall be not more than seventy days
after the Meeting Record Date (as defined in Section 5 of Article I of these By-laws); and
provided
further
that in the event that the directors then in office fail to
designate an hour and date for a Demand Special Meeting within ten days after the date that valid
written demands for such meeting by the holders
of record as of the Demand Record Date of shares
representing at least 10% of all the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting are delivered to the Corporation (the Delivery Date), then such
meeting shall be held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if such
100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing
a meeting date for any Special Meeting, the Chief Executive Officer, the Secretary or the Board of
Directors may consider such factors as he or it deems relevant within the good faith exercise of
his or its business judgment, including, without limitation, the nature of the action proposed to
be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the
Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related
business.
(f) The Corporation may engage regionally or nationally recognized independent inspectors of
elections to act as an agent of the Corporation for the purpose of promptly performing a
ministerial review of the validity of any purported written demand or demands for a Special Meeting
received by the Secretary. For the purpose of permitting the inspectors to perform such review, no
purported demand shall be deemed to have been delivered to the Corporation until the earlier of (i)
five Business Days following receipt by the Secretary of such purported demand and (ii) such date
as the independent inspectors certify to the Corporation that the valid demands received by the
Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting. Nothing contained in this paragraph (f) shall in any way be
construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled
to contest the validity of any demand, whether during or after such five Business Day period, or to
take any other action (including, without limitation, the commencement, prosecution or defense of
any litigation with respect thereto).
(g) For purposes of these By-laws, Business Day shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated
by law or executive order to close.
Section 3
.
Place of Meeting
. The Chairman, the Chief Executive Officer, the
Board of Directors or the Secretary may designate any place, either within or without the State of
Wisconsin, as the place of meeting for an Annual Meeting or Special Meeting. If no designation is
made, the place of meeting shall be the principal office of the Corporation. Any meeting may be
adjourned to reconvene at any place designated by vote of the Board of Directors or by the Chief
Executive Officer or the Secretary.
Section 4
.
Notice of Meeting
. Written notice stating the date, time and
place of any meeting of shareholders shall be delivered not less than ten days nor more than sixty
days before the date of the meeting (unless a different time period is provided by the Wisconsin
Business Corporation Law (the WBCL) or the Articles of Incorporation), either personally or by
mail, by or at the direction of the Chairman, the President or the Secretary, to each shareholder
of record entitled to vote at such meeting and to such other persons as required by the WBCL. In
the event of any Demand Special Meeting, such notice of meeting shall be sent not more than thirty
days after the Delivery Date. If mailed, notice pursuant to this Section 4 shall be deemed to be
effective when deposited in the United States mail, addressed to the shareholder at his or her
address as it appears on the stock record books of the Corporation, with postage thereon prepaid.
Unless otherwise required by the WBCL or the Articles of Incorporation, a notice of an Annual
Meeting need not include a description of the purpose for which the meeting is called. In the case
of any Special Meeting, (a) the notice of meeting shall describe any business that the Board of
Directors shall have theretofore determined to bring before the meeting and (b) in the case of a
Demand Special Meeting, the notice of meeting (i) shall describe any business set forth in the
statement of purpose of the demands received by the Corporation in accordance with Section 2 of
Article I of these By-laws and (ii) shall contain all of the information required in the notice
received by the Corporation in accordance with Section 12(b) of Article I of these By-laws. If an
Annual Meeting or Special Meeting is adjourned to a different date, time or place, the Corporation
shall not be required to give notice of the new date, time or place if the new date, time or place
is announced at the meeting before adjournment;
provided
,
however
, that if a new
Meeting Record Date for an adjourned meeting is or must be fixed, the Corporation shall give notice
of the adjourned meeting to persons who are shareholders as of the new Meeting Record Date.
Section 5
.
Fixing of Record Date
. The Board of Directors may fix in advance
a date not less than ten days and not more than seventy days prior to the date of an Annual Meeting
or Special Meeting as the record date for the determination of shareholders entitled to notice of,
or to vote at, such meeting (the Meeting
Record Date). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not
later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the
Meeting Record Date within thirty days after the Delivery Date, then the close of business on such
30th day shall be the Meeting Record Date. The shareholders of record on the Meeting Record Date
shall be the shareholders entitled to notice of and to vote at the meeting. Except as provided by
the WBCL for a court-ordered adjournment, a determination of shareholders entitled to notice of and
to vote at an Annual Meeting or Special Meeting is effective for any adjournment of such
meeting
unless the Board of Directors fixes a new Meeting Record Date, which it shall do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original meeting. The Board of
Directors may also fix in advance a date as the record date for the purpose of determining
shareholders entitled to take any other action or determining shareholders for any other purpose.
Such record date shall be not more than seventy days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken. The record date for
determining shareholders entitled to a distribution (other than a distribution involving a
purchase, redemption or other acquisition of the Corporations shares) or a share dividend is the
date on which the Board of Directors authorizes the distribution or share dividend, as the case may
be, unless the Board of Directors fixes a different record date.
Section 6
.
Shareholders List for Meetings
. After a Meeting Record Date has
been fixed, the Corporation shall prepare a list of the names of all of the shareholders entitled
to notice of the meeting. The list shall be arranged by class or series of shares, if any, and
show the address of and number of shares held by each shareholder. Such list shall be available
for inspection by any shareholder, beginning two business days after notice of the meeting is given
for which the list was prepared and continuing to the date of the meeting, at the Corporations
principal office or at a place identified in the meeting notice in the city where the meeting will
be held. A shareholder or his or her agent may, on written demand, inspect and, subject to the
limitations imposed by the WBCL, copy the list, during regular business hours and at his or her
expense, during the period that it is available for inspection pursuant to this Section 6. The
Corporation shall make the shareholders list available at the meeting and any shareholder or his
or her agent or attorney may inspect the list at any time during the meeting or any adjournment
thereof. Refusal or failure to prepare or make available the shareholders list shall not affect
the validity of any action taken at a meeting of shareholders.
Section 7
.
Quorum and Voting Requirements; Postponements; Adjournments
.
(a) Shares entitled to vote as a separate voting group may take action on a matter at any
Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to that
matter. If the Corporation has only one class of stock outstanding, such class shall constitute a
separate voting group for purposes of this Section 7. Except as otherwise provided in the Articles
of Incorporation or the WBCL, a majority of the votes entitled to be cast on the matter shall
constitute a quorum of the voting group for action on that matter. Once a share is represented for
any purpose at any Annual Meeting or Special Meeting, other than for the purpose of objecting to
holding the meeting or transacting business at the meeting, it is considered present for purposes
of determining whether a quorum exists for the remainder of the meeting and for any adjournment of
that meeting unless a new Meeting Record Date is or must be set for the adjourned meeting. If a
quorum exists, except in the case of the election of directors, action on a matter shall be
approved if the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation or the WBCL requires a greater number of
affirmative votes. Unless otherwise provided in the Articles of Incorporation, each director to be
elected shall be elected by a plurality of the votes cast by the shares entitled to vote in the
election of directors at an Annual Meeting or Special Meeting at which a quorum is present.
(b) The Board of Directors acting by resolution may postpone and reschedule any previously
scheduled Annual Meeting or Special Meeting;
provided
,
however
, that a Demand
Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any
Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is a
quorum, (i) at any time, upon a resolution by shareholders if the votes cast in favor of such
resolution by the holders of shares of each voting group entitled to vote on any matter theretofore
properly brought before the meeting exceed the number of votes cast against such resolution by the
holders of shares of each such voting group or (ii) at any time prior to the transaction of any
business at such meeting, by the President or pursuant to a resolution of the Board of Directors.
No notice of the time and place of adjourned meetings need be given except as required by the WBCL.
At any adjourned meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally notified.
Section 8
.
Voting of Shares
. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at an Annual Meeting or Special Meeting, except to the
extent that the voting rights
of the shares of any class or classes are enlarged, limited or denied by the WBCL or the Articles
of Incorporation.
Section 9
.
Proxies
. At any Annual Meeting or Special Meeting, a shareholder
may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or
otherwise act for the shareholder by signing an appointment form, either personally or by his or
her attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or
other officer or agent of the Corporation authorized to tabulate votes. An appointment is valid
for eleven months from the date of its signing unless a different period is expressly provided in
the appointment form. Unless otherwise provided, a proxy may be revoked at any time before it is
voted, either
by written notice filed with the Secretary or the acting secretary of the meeting or
by oral notice given by the shareholder to the presiding officer during the meeting. The presence
of a shareholder who has filed his or her appointment of proxy shall not itself constitute a
revocation. The Board of Directors shall have the power and authority to make rules establishing
presumptions as to the validity and sufficiently of proxies.
Section 10
.
Acceptance of Instruments Showing Shareholder Action
. If the
name signed on a vote, consent, waiver or proxy appointment corresponds to the name of a
shareholder, the Corporation, if acting in good faith, may accept the vote, consent, waiver or
proxy appointment and give it effect as the act of a shareholder. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and
give it effect as the act of the shareholder if any of the following apply:
(a) The shareholder is an entity and the name signed purports to be that of an officer or
agent of the entity.
(b) The name purports to be that of a personal representative, administrator, executor,
guardian or conservator representing the shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation is presented with respect to the vote, consent,
waiver or proxy appointment.
(c) The name signed purports to be that of a receiver or trustee in bankruptcy of the
shareholder and, if the Corporation requests, evidence of this status acceptable to the Corporation
is presented with respect to the vote, consent, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact
of the shareholder and, if the Corporation requests, evidence acceptable to the Corporation of the
signatorys authority to sign for the shareholder is presented with respect to the vote, consent,
waiver or proxy appointment.
(e) Two or more persons are the shareholders as co-tenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing appears to be
acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver or proxy appointment if the Secretary or other
officer or agent of the Corporation who is authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about the signatorys
authority to sign for the shareholder.
Section 11
.
Waiver of Notice
. A shareholder may waive any notice required by
the WBCL, the Articles of Incorporation or these By-laws before or after the date and time stated
in the notice. The waiver shall be in writing and signed by the shareholder entitled to the
notice, contain the same information that would have been required in the notice under applicable
provisions of the WBCL (except that the time and place of meeting need not be stated) and be
delivered to the Corporation for inclusion in the corporate records. A shareholders attendance at
any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the
following: (a) lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting
business at the meeting; and (b) consideration of a particular matter at the meeting that is not
within the purpose described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
Section 12
.
Notice of Shareholder Business and Nomination of Directors
.
(a)
Annual Meetings
.
(i) Nominations of persons for election to the Board of Directors of the Corporation
and the proposal of business to be considered by the shareholders may be made at an Annual
Meeting (A) pursuant to the Corporations notice of meeting, (B) by or at the direction of
the Board of Directors or (C) by any shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided for in this By-law and who is entitled to
vote at the meeting and complies with the notice procedures set forth in this Section 12.
(ii) For nominations or other business to be properly brought before an Annual Meeting
by a shareholder pursuant to clause (C) of paragraph (a)(i) of this Section 12, the
shareholder must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholders notice shall be received by the Secretary of the
Corporation at the principal offices of the Corporation not less than sixty days nor more
than ninety days prior to the second Saturday in the month of
April;
provided
,
however
, that in the event that the date of the Annual Meeting is advanced by more
than thirty days or delayed by more than sixty days from the second Saturday in the month of
April, notice by the shareholder to be timely must be so received not earlier than the 90th
day prior to the date of such Annual Meeting and not later than the close of business on the
later of (x) the 60th day prior to such Annual Meeting and (y) the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
shareholders notice shall be signed by the shareholder of record who intends to make the
nomination or introduce the other business (or his duly authorized proxy or other
representative), shall bear the date of signature of such shareholder (or proxy or other
representative) and shall set forth: (A) the name and address, as they appear on this
corporations books, of such shareholder and the beneficial owner or owners, if any, on
whose behalf the nomination or proposal is made; (B) the class and number of shares of the
Corporation which are beneficially owned by such shareholder or beneficial owner or owners;
(C) a representation that such shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to make the nomination or introduce the other business specified in the notice;
(D) in the case of any proposed nomination for election or re-election as a director, (I)
the name and residence address of the person or persons to be nominated, (II) a description
of all arrangements or understandings between such shareholder or beneficial owner or owners
and each nominee and any other person or persons (naming such person or persons) pursuant to
which the nomination is to be made by such shareholder, (III) such other information
regarding each nominee proposed by such shareholder as would be required to be disclosed in
solicitations of proxies for elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any
information that would be required to be included in a proxy statement filed pursuant to
Regulation 14A had the nominee been nominated by the Board of Directors and (IV) the written
consent of each nominee to be named in a proxy statement and to serve as a director of the
Corporation if so elected; and (E) in the case of any other business that such shareholder
proposes to bring before the meeting, (I) a brief description of the business desired to be
brought before the meeting and, if such business includes a proposal to amend these By-laws,
the language of the proposed amendment, (II) such shareholders and beneficial owners or
owners reasons for conducting such business at the meeting and (III) any material interest
in such business of such shareholder and beneficial owner or owners.
(iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this
Section 12 to the contrary, in the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the increased Board of
Directors made by the Corporation at least seventy days prior to the second Saturday in the
month of April, a shareholders notice required by this Section 12 shall also be considered
timely, but only with respect to nominees for any new positions created by such increase, if
it shall be received by the Secretary at the principal offices of the Corporation not later
than the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(b)
Special Meetings
. Only such business shall be conducted at a Special Meeting as
shall have been described in the notice of meeting sent to shareholders pursuant to Section 4 of
Article I of these By-laws. Nominations of persons for election to the Board of Directors may be
made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting
(i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation
who (A) is a shareholder of record at the time of giving of such notice of meeting, (B) is entitled
to vote at the meeting and (C) complies with the notice procedures set forth in this Section 12.
Any shareholder desiring to nominate persons for election to the Board of Directors at such a
Special Meeting shall cause a written notice to be received by the Secretary of the Corporation at
the principal offices of the Corporation not earlier than ninety days prior to such Special Meeting
and not later than the close
of business on the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day
following the day on which public announcement is first made of the date of such Special Meeting
and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written
notice shall be signed by the shareholder of record who intends to make the nomination (or his duly
authorized proxy or other representative), shall bear the date of signature of such shareholder (or
proxy or other representative) and shall set forth: (A) the name and address, as they appear on the
Corporations books, of such shareholder and the beneficial owner or owners, if any, on whose
behalf the nomination is made; (B) the class and number of shares of the Corporation which are
beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that
such shareholder is a holder of record of shares of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to make the nomination specified
in the notice; (D) the name and residence address of the person or persons to be nominated; (E) a
description of all arrangements or understandings between such shareholder or beneficial owner or
owners and each nominee and any other person or persons (naming such person or persons) pursuant to
which the nomination is to be made by such shareholder; (F) such other information regarding each
nominee proposed by such shareholder as would be required to be disclosed in solicitations of
proxies for elections
of directors, or would be otherwise required to be disclosed, in each case
pursuant to Regulation 14A under the Exchange Act, including any information that would be required
to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated
by the Board of Directors; and (G) the written consent of each nominee to be named in a proxy
statement and to serve as a director of the Corporation if so elected.
(c)
General
.
(i) Only persons who are nominated in accordance with the procedures set forth in this
Section 12 shall be eligible to serve as directors. Only such business shall be conducted
at an Annual Meeting or Special Meeting as shall have been brought before such meeting in
accordance with the procedures set forth in this Section 12. The chairman of the meeting
shall have the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set forth in this
Section 12 and, if any proposed nomination or business is not in compliance with this
Section 12, to declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section 12, public announcement shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 12, a shareholder shall
also comply with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this Section 12. Nothing in
this Section 12 shall be deemed to limit the Corporations obligation to include shareholder
proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the
Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 1
.
General Powers and Number
. All corporate powers of the
Corporation shall be exercised by or under the authority of, and the business and affairs of the
Corporation managed under, the direction of its Board of Directors, which shall consist of eight
(8) directors. The Board of Directors shall elect one of its members as Chairman, who, when
present, shall preside at all meetings of the shareholders and Board of Directors.
Section 2
.
Tenure and Qualifications
. Each director shall hold office until
the annual meeting of shareholders at which his term expires and until his successor shall have
been elected, or until his prior death, resignation or removal. A director shall not be eligible to
stand for re-election at any annual meeting of shareholders following his 72
nd
birthday.
A director may resign at any time by delivering written notice which complies with the Wisconsin
Business Corporation Law to the Board of Directors, to the Chairman of the Board, if any, or to the
Corporation. A directors resignation is effective when such notice is delivered unless the notice
specifies a later date. Directors need not be residents of the State of Wisconsin or shareholders
of the Corporation.
Section 3
.
Regular Meetings
. A regular meeting of the Board of Directors
shall be held without other notice than this By-law immediately after, and at the same place as,
the annual meeting of shareholders, and each adjourned session thereof. The Board of Directors may
provide, by resolution, the time and place, either within or without the State of Wisconsin, for
the holding of additional regular meetings without other notice than such resolution.
Section 4
.
Special Meetings
. Special meetings of the Board of Directors may
be called by or at the request of the Chairman, the Chief Executive Officer, Secretary or any two
directors. The person or persons calling any special meeting of the Board of Directors may fix any
place, either within or without the State of Wisconsin, as the place for holding any special
meeting of the Board of Directors called by them, and if no other place is fixed, the place of
meeting shall be the principal business office of the Corporation in the State of Wisconsin.
Section 5
.
Notice; waiver
. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 4, Article II) shall be given by written
notice delivered personally or given by telegram, teletype, facsimile or other form of wire or
wireless communication not less than twenty-four (24) hours prior to the meeting or mailed or
delivered by private carrier not less than forty-eight (48) hours prior to the meeting to each
director at his business address or at such other address as such director shall have designated in
writing filed with the Secretary. If mailed or delivered by a private carrier, such notice shall
be deemed to be delivered when deposited in the United States mail or delivered to the private
carrier so addressed, with postage or delivery cost thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. If notice be given by teletype, facsimile or other form of wire or wireless
communication, such notice shall be deemed to be delivered when evidence of its transmittal is
received. Whenever any notice whatever is required to be given to any director of the Corporation
under the Articles of Incorporation or By-laws or any provision of law, a waiver thereof in
writing, signed at any time, whether before or after the time of meeting, by the director entitled
to such notice, shall be deemed equivalent to the giving of such notice. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting, except where a director
attends a meeting and objects thereat to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 6
.
Quorum
. A majority of the directors shall constitute a quorum for
the transaction of business; and, except as otherwise provided by law or by the Articles of
Incorporation or these By-laws, a majority of the votes cast at any meeting of the Board of
Directors at which a quorum is present shall be decisive of any action. A majority of the
directors present at a meeting, though less than quorum, may adjourn the meeting from time to time
without further notice.
Section 7
.
Vacancies
. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be filled until the next
succeeding annual election by the affirmative vote of a majority of the directors then in office,
though less than a quorum of the Board of Directors; provided, that in case of a vacancy created by
the removal of a director by vote of the shareholders, the shareholders shall have the right to
fill such vacancy at the same meeting or any adjournment thereof.
Section 8
.
Compensation
. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal interest of any of its
members, may establish reasonable compensation of all directors for services to the Corporation as
directors, officers or otherwise, or may delegate such authority to an appropriate committee. The
Board of Directors also shall have authority to provide for or to delegate authority to an
appropriate committee to provide for reasonable pensions, disability or death benefits, and other
benefits or payments, to directors, officers and employees and to their estates, families,
dependents or beneficiaries on account of prior services rendered by such directors, officers and
employees to the Corporation.
Section 9
.
Presumption of Assent
. A director of the Corporation who is
present at a meeting of the Board of Directors or a committee thereof of which he is a member at
which action on any corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the Secretary of
the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not
apply to a director who voted in favor of such action.
Section 10
.
Committees
. The Board of Directors by resolution adopted by the
affirmative vote of a majority of the number of directors set forth in Section 1 of this Article II
may designate one or more committees, each committee to consist of three or more directors elected
by the Board of Directors, which shall have and may exercise, when the Board of Directors is not in
session, the powers of the Board of Directors in the management of the business and affairs of the
Corporation, in the committees designated area of responsibility, except action in respect to
dividends to shareholders, election of the principal officers or the filling of vacancies on the
Board of Directors or committees created pursuant to this section, with respect to the approval or
proposal of actions that the law requires to be approved by the shareholders, amendment of the
Articles of Incorporation, the adoption, amendment or repeal of the by-laws, the approval of a
plan of merger not requiring shareholder approval, the authorization or approval of the
re-acquisition of shares other than according to a method prescribed by the Board of Directors, and
the authorization for approval of the issuance or sale or contract for sale of shares, or the
determination of the designation and relative rights, preferences and limitations
of a class or
series of shares, unless authorized to do so by the Board of Directors within prescribed limits.
The Board of Directors may elect one or more of its members as alternate members of any such
committee who may take the place of any absent member or members at any meeting of such committee,
upon request by the Chairman or upon request by the chairman of such meeting. Each such committee
shall fix its own rules governing the conduct of its activities and shall make such reports to the
Board of Directors of its activities as the Board of Directors may request.
Section 11
.
Unanimous Consent Without Meeting
. Any action required or
permitted by the Articles of Incorporation or By-laws or any provision of law to be taken by the
Board of Directors at a meeting or by resolution may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the directors then in office.
Section 12
.
Telephonic Meetings
. Notwithstanding any place set forth in the
notice of the meeting or these By-laws, members of the Board of Directors may participate in
regular or special meetings of the Board of Directors and all Committees of the Board of Directors
by or through the use of any means of communication by which all directors participating may
simultaneously hear each other, such as by conference telephone; provided, however, that the
Chairman of the Board or the chairman of the respective Committee and the Board or other person or
persons calling a meeting may determine that the directors cannot participate by such means, in
which case the notice of the meeting, or other notice to directors given prior to the meeting,
shall state that each directors physical presence shall be required. If a meeting is conducted
through the use of such means of communication, then at the commencement of such meeting all
participating directors shall be informed that a meeting is taking place at which official business
may be transacted. A director participating in a meeting by such means shall be deemed present in
person at such meeting.
ARTICLE III
OFFICERS
Section 1
.
General Officers
. The general officers of the Corporation shall
be the Chief Executive Officer, the President, one or more Vice Presidents, a Secretary, a
Treasurer, a Controller, and one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall be elected annually by the Board of Directors and shall hold office
until his or her successor shall have been duly elected and qualified. The Chief Executive Officer
of the Corporation shall exercise general supervision of the business and affairs of the
Corporation subject to the directives of the Board of Directors. Further, each general officer
shall have such powers and duties as generally pertain to his or her respective office; provided,
that such powers and duties may from time to time be modified, enlarged, restricted or augmented by
the Board of Directors.
Section 2
.
Additional Officers
. The Board of Directors may appoint such
additional corporate officers as it may deem necessary, each of whom shall have such powers and
duties as from time to time may be conferred by the Board of Directors, and shall serve for such
terms as the Board may fix.
Section 3
.
Removal of Officers
. Any officer or agent elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in its judgment, the best
interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
Section 4
.
Vacancies
. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for
the unexpired portion of the term. The resignation of an officer by the delivery of written notice
to the Chief Executive Officer or Secretary of the Corporation is effective upon delivery of the
notice, unless the notice specifies a later date and the Corporation accepts the later date.
ARTICLE IV
SPECIAL CORPORATE ACTS
Section 1
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Voting of Securities Owned by This Corporation
. Subject always to
the specific directions of the Board of Directors, (a) any shares or other securities issued by any
other corporation and owned or controlled by this Corporation may be voted at any meeting of
security holders of such other corporation by the Chairman of this Corporation if he be present, or
in his absence by the President or any Vice President of this Corporation who may be present, and
(b) whenever, in the judgment of the Chairman, or in his absence, of the President or any Vice
President, it is desirable for this Corporation to execute a proxy or give a shareholders consent
in respect to any shares or other securities issued by any other corporation and owned by this
Corporation, such proxy or consent shall be executed in the name of this Corporation by the
Chairman, or the President or one of the Vice Presidents of this Corporation without necessity of
any authorization by the Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer. Any person or persons designated in the manner above stated as the
proxy or proxies of this Corporation shall have full right, power and authority to vote the share
or shares of stock issued by such other corporation and owned by this Corporation the same as such
share or shares might be voted by this Corporation.
Section 2
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Contracts
. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any instrument in the
name of and on behalf of the Corporation, and such authorization may be general or confined to
specific instances. In the absence of other designation, all deeds, mortgages, and instruments of
assignment or pledge made by the Corporation shall be executed in the name of the Corporation by
the Chairman or the President or one of the Vice Presidents and by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when
necessary or required, shall affix the corporate seal thereto; and when so executed no other party
to such instrument or any third party shall be required to make any inquiry into the authority of
the signing officer or officers.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1
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Certificates for Shares; Shares Without Certificates
.
Certificates representing shares of the Corporation shall be in such form as shall be determined by
the Board of Directors. Such certificates shall be signed by the Chairman or the President or a
Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall
be consecutively numbered or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and canceled, except as
provided in Section 6 of this Article V. Shares of the Corporation may also be issued, without
certificates to the full extent such issuance is allowed by the Wisconsin Business Corporation Law
and the listing standards of the New York Stock Exchange (or any applicable stock exchange on which
the shares are listed). To the extent required by the Wisconsin Business Corporation Law, within a
reasonable time after the issuance or transfer of shares without a certificate, the Corporation
shall send to the registered owner thereof a written notice that shall set forth (a) the name of
the Corporation; (b) that the Corporation is organized under the laws of the State of Wisconsin;
(c) the name of the shareholder; (d) the number and class (and the designation of the series, if
any) of the shares represented; (e) if applicable, a summary of the designations, relative rights,
preferences and limitations applicable to each class, and, if applicable, the variations in rights,
preferences and limitations determined for each series and the authority of the Board of Directors
to determine variations for future series (or a conspicuous statement that upon written request the
Corporation will furnish the shareholder with this information without charge); and (f) if
applicable, any restrictions on the transfer or registration of such shares of stock imposed by the
Articles of Incorporation of the Corporation, as amended from time to time, these By-laws, any
agreement among shareholders or any agreement between shareholders and the Corporation.
Section 2
.
Facsimile Signatures and Seal
. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the Chairman or President or Vice
President and the Secretary or
Assistant Secretary upon a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the Corporation itself or an employee of
the Corporation.
Section 3
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Signature by Former Officers
. In case any officer, who has signed
or whose facsimile signature has been placed upon any certificate for shares, shall have ceased to
be such officer before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
Section 4
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Transfer of Shares
. Prior to due presentment of shares for
registration of transfer the Corporation may treat the registered owner of such shares as the
person exclusively entitled to vote, to receive notifications and otherwise to exercise all the
rights and powers of an owner. Where shares are presented to the Corporation with a request to
register for transfer, the Corporation shall not be liable to the owner or any other person
suffering loss as a result of such registration of transfer if (a) there were on or with the
certificate the necessary endorsements, or with respect to uncertificated shares, proper transfer
instructions are received, and (b) the Corporation had no duty to inquire into adverse claims or
has discharged any such duty. The Corporation may require reasonable assurance that said
endorsements or transfer instructions are genuine and effective and in compliance with such other
regulations as may be prescribed under the authority of the Board of Directors.
Section 5
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Restrictions on Transfer
. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any restriction imposed by the
Corporation upon the transfer of such shares.
Section 6
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Lost, Destroyed or Stolen Certificates
. Where the owner claims
that his certificate for shares has been lost, destroyed or wrongfully taken, then the Corporation
may issue, in its discretion, a new certificate or certificates of stock or uncertificated shares
in place thereof, if the owner (a) so requests before the Corporation has notice that such shares
have been acquired by a bona fide purchaser, and (b) files with the Corporation a sufficient
indemnity bond, and (c) satisfied such other reasonable requirements as the Board of Directors may
prescribe.
Section 7
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Consideration for Shares
. The shares of the Corporation may be
issued for such consideration as shall be fixed from time to time by the Board of Directors,
provided that any shares having a par value shall not be issued for a consideration less than the
par value thereof. The consideration to be paid for shares may be paid in whole or in part, in
money, in other property, tangible or intangible, or in labor or services actually performed for
the Corporation. When payment of the consideration for which shares are to be issued shall have
been received by the Corporation, such shares shall be deemed to be fully paid and nonassessable by
the Corporation. No share shall be issued until such share is fully paid.
Section 8
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Stock Regulations
. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent with the statutes of
the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of
certificates representing shares of the Corporation.
ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be circular in form and
shall have inscribed thereon the name of the Corporation and the state of incorporation and the
words, Corporate Seal.
ARTICLE VII
AMENDMENTS
Section 1
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By Shareholders
. These By-laws may be altered, amended, repealed,
augmented and new By-laws may be adopted by the shareholders by affirmative vote of not less than a
majority of the votes represented by the shares present or represented at any annual or special
meeting of the shareholders at which a quorum is in attendance.
Section 2
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By Directors
. These By-laws may also be altered, amended,
repealed, augmented and new By-laws may be adopted by the Board of Directors by affirmative vote of
a majority of the number of directors present at any meeting at which a quorum is in attendance;
but no By-law adopted by the shareholders shall be amended or repealed by the Board of Directors if
the By-law so adopted so provides.
Section 3
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Implied Amendments
. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the By-laws then in
effect but is taken or authorized by affirmative vote of not less than the number of shares or the
number of directors required to amend the By-laws so that the By-laws would be consistent with such
action, shall be given the same effect as though the By-laws had been temporarily amended or
suspended so far, but only so far, as is necessary to permit the specific action so taken or
authorized.
ARTICLE VIII
INDEMNIFICATION
Section 1.01
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Certain Definitions
. All capitalized terms used in this
Article VIII and not otherwise hereinafter defined in this Section 1.01 shall have the meaning set
forth in Section 180.0850 of the Statute (as hereinafter defined). The following capitalized terms
(including any plural forms thereof) used in this Article VIII shall be defined as follows:
(a) Affiliate shall include, without limitation, any corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise that directly or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control with, the
Corporation.
(b) Authority shall mean the entity selected by the Director or Officer to determine his or
her right to indemnification pursuant to Section 1.04 of this Article.
(c) Board shall mean the entire then elected and serving board of directors of the
Corporation, including all members thereof who are Parties to the subject Proceeding or any related
Proceeding.
(d) Breach of Duty shall mean the Director or Officer breached or failed to perform his or
her duties to the Corporation and his or her breach of or failure to perform those duties is
determined, in accordance with Section 1.04 of this Article, to constitute misconduct under
Section 180.0851 (2) (a) 1, 2, 3 or 4 of the Statute.
(e) Corporation, as used herein and as defined in the Statute and incorporated by reference
into the definitions of certain capitalized terms used herein, shall mean this Corporation,
including, without limitation, any successor corporation or entity to the Corporation by way of
merger, consolidation or acquisition of all or substantially all of the capital stock or assets of
this Corporation.
(f) Director or Officer shall have the meaning set forth in the Statute; provided, that, for
purposes of this Article, it shall be conclusively presumed that any Director or Officer serving as
a director, officer, partner, trustee, member of any governing or decision-making committee,
employee or agent of an Affiliate shall be so serving at the request of the Corporation.
(g) Disinterested Quorum shall mean a quorum of the Board who are not Parties to the subject
Proceeding or any related Proceeding.
(h) Party shall have the meaning set forth in the Statute; provided, that, for purposes of
this Article, the term Party shall also include any Director, Officer or employee who is or was a
witness in a Proceeding at a time when he or she has not otherwise been formally named a Party
thereto.
(i) Proceeding shall have the meaning set forth in the Statute; provided, that, for purposes
of this Article, Proceeding shall include all Proceedings (i) brought under (in whole or in part)
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, their
respective state counterparts, and/or any rule or regulation promulgated under any of the
foregoing; (ii) brought before an Authority or
otherwise to enforce rights hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding
in which the
Director or Officer is a plaintiff or petitioner because he or she is a Director or
Officer, provided, however, that such Proceeding is authorized by a majority vote of a
Disinterested Quorum.
(j) Statute shall mean Sections 180.0850 through 180.0859, inclusive, of the Wisconsin
Business Corporation Law, Chapter 180 of the Wisconsin Statutes, including any amendments thereto,
but, in the case of any such amendment, only to the extent such amendment permits or requires the
Corporation to provide broader indemnification rights than the Statute permitted or required the
Corporation to provide prior to such amendment.
Section 1.02
.
Mandatory Indemnification
. To the fullest extent permitted or
required by the Statute, the Corporation shall indemnify a Director or Officer against all
Liabilities incurred by or on behalf of such Director or Officer in connection with a Proceeding in
which the Director or Officer is a Party because he or she is a Director or Officer.
Section 1.03
.
Procedural Requirements
.
(a) A Director or Officer who seeks indemnification under Section 1.02 of this Article shall
make a written request therefor to the Corporation. Subject to Section 1.03 (b) of this Article,
within sixty days of the Corporations receipt of such request, the Corporation shall pay or
reimburse the Director or Officer for the entire amount of Liabilities incurred by the Director or
Officer in connection with the subject Proceeding (net of any Expenses previously advanced pursuant
to Section 1.05 of this Article).
(b) No indemnification shall be required to be paid by the Corporation pursuant to Section
1.03 (a) of this Article if, within such sixty-day period: (i) a Disinterested Quorum, by a
majority vote thereof, determines that the Director or Officer requesting indemnification engaged
in misconduct constituting a Breach of Duty; or (ii) a Disinterested Quorum cannot be obtained.
(c) In either case of nonpayment pursuant to Section 1.03 (b) of this Article, the Board shall
immediately authorize by resolution that an Authority, as provided in Section 1.04 of this Article,
determine whether the Directors or Officers conduct constituted a Breach of Duty and, therefore,
whether indemnification should be denied hereunder.
(d) (i) If the Board does not authorize an Authority to determine the Directors or Officers
right to indemnification hereunder within such sixty-day period and/or (ii) if indemnification of
the requested amount of Liabilities is paid by the Corporation, then it shall be conclusively
presumed for all purposes that a Disinterested Quorum has determined that the Director or Officer
did not engage in misconduct constituting a Breach of Duty and, in the case of subsection (i) above
(but not subsection (ii)), indemnification by the Corporation of the requested amount of
Liabilities shall be paid to the Officer or Director immediately.
Section 1.04
.
Determination of Indemnification
.
(a) When the Board authorized an Authority to determine a Directors or Officers right to
indemnification pursuant to Section 1.03 of this Article, then the Director or Officer requesting
indemnification shall have the absolute discretionary authority to select one of the following as
such Authority:
(i) An independent legal counsel; provided, that such counsel shall be mutually selected by
such Director or Officer and by a majority vote of a Disinterested Quorum or, if a Disinterested
Quorum cannot be obtained, then by a majority vote of the Board;
(ii) A panel of three arbitrators selected from the panels of arbitrators of the American
Arbitration Association in Milwaukee, Wisconsin; provided, that (A) one arbitrator shall be
selected by such Director or Officer, the second arbitrator shall be selected by a majority vote of
a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of
the Board, and the third arbitrator shall be selected by the two previously selected arbitrators;
and (B) in all other respects, such panel shall be governed by the American Arbitration
Associations then existing Commercial Arbitration Rules; or
(iii) A court pursuant to and in accordance with Section 180.0854 of the Statute.
(b) In any such determination by the selected Authority there shall exist a rebuttable
presumption that the Directors or Officers conduct did not constitute a Breach of Duty and that
indemnification against the requested amount of Liabilities is required. The burden of rebutting
such a presumption by clear and convincing evidence shall be on the Corporation or such other party
asserting that such indemnification should not be allowed.
(c) The Authority shall make its determination within sixty days of being selected and shall
submit a written opinion of its conclusion simultaneously to both the Corporation and the Director
or Officer.
(d) If the Authority determines that indemnification is required hereunder, the Corporation
shall pay the entire requested amount of Liabilities (net of any Expenses previously advanced
pursuant to Section 1.05 of this Article), including interest thereon at a reasonable rate, as
determined by the Authority, within ten days of receipt of the Authoritys opinion; provided, that,
if it is determined by the Authority that a Director or Officer is entitled to indemnification as
to some claims, issues or matters, but not as to other claims, issues or matters, involved in the
subject Proceeding, the Corporation shall be required to pay (as set forth above) only the amount
of such requested Liabilities as the Authority shall deem appropriate in light of all of the
circumstances of such Proceeding.
(e) The determination by the Authority that indemnification is required hereunder shall be
binding upon the Corporation regardless of any prior determination that the Director or Officer
engaged in a Breach of Duty.
(f) All Expenses incurred in the determination process under this Section 1.04 by either the
Corporation or the Director or Officer, including, without limitation, all Expenses of the selected
Authority, shall be paid by the Corporation.
Section 1.05
.
Mandatory Allowance of Expenses
.
(a) The Corporation shall pay or reimburse, within ten days after the receipt of the
Directors or Officers written request therefor, the reasonable Expenses of the Director or
Officer as such Expenses are incurred, provided the following conditions are satisfied:
(i) The Director or Officer furnishes to the Corporation an executed written certificate
affirming his or her good faith belief that he or she has not engaged in misconduct which
constitutes a Breach of Duty; and
(ii) The Director or Officer furnishes to the Corporation an unsecured executed written
agreement to repay any advances made under this Section 1.05 if it is ultimately determined by an
Authority that he or she is not entitled to be indemnified by the Corporation for such Expenses
pursuant to Section 1.04 of this Article.
(b) If the Director or Officer must repay any previously advanced Expenses pursuant to this
Section 1.05, such Director or Officer shall not be required to pay interest on such amounts.
Section 1.06
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Indemnification and Allowance of Expenses of Certain Others
.
(a) The Corporation shall indemnify a director or officer of an Affiliate (who is not
otherwise serving as a Director or Officer) against all Liabilities, and shall advance the
reasonable Expenses, incurred by such director or officer in a Proceeding to the same extent
hereunder as if such director or officer incurred such Liabilities because he or she was a Director
or Officer, if such director or officer is a Party thereto because he or she is or was a director
or officer of the Affiliate.
(b) Except as hereinafter provided, the Corporation shall indemnify each employee of the
Corporation or an Affiliate of the Corporation acting within the scope of his or her duties as
such, against all Liabilities, and shall advance Reasonable Expenses, incurred by or on behalf of
such employee in connection with a Proceeding in which he or she is a Party by virtue of being an
employee of the Corporation or an Affiliate of the Corporation, to the same extent and in the same
manner as a Director or Officer hereunder. The foregoing provision shall not apply, and the
Corporation shall not indemnify any employee, with respect to any Liability to the extent covered
by insurance maintained by or on behalf of such employee (other than insurance maintained by the
Corporation or an Affiliate of the Corporation).
(c) The Board may, in its sole and absolute discretion as it deems appropriate, pursuant to a
majority vote thereof, indemnify against Liabilities incurred by, and/or provide for the allowance
of reasonable Expenses of, an authorized agent of the Corporation acting within the scope of his or
her duties as such and who is not otherwise a Director or Officer.
Section 1.07
.
Insurance
. The Corporation may purchase and maintain insurance
on behalf of a Director, Officer and/or any individual who is or was an authorized employee or
agent of the Corporation against any Liability asserted against or incurred by such individual in
his or her capacity as such or arising from his or her status as such, regardless of whether the
Corporation is required or permitted to indemnify against any such Liability under this Article.
Section 1.08
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Notice to the Corporation
. A Director, Officer or employee
shall promptly notify the Corporation in writing when he or she has actual knowledge of a
Proceeding which may result in a claim or indemnification against Liabilities or allowance of
Expenses hereunder, but the failure to do so shall not relieve the Corporation of any liability to
the Director, Officer or employee hereunder unless the Corporation shall have been irreparably
prejudiced by such failure (as determined by an Authority).
Section 1.09
.
Report to Shareholders
. In the event that the Corporation
indemnifies or advances expenses to a Director or Officer in connection with a proceeding brought
in the right of the Corporation, the Corporation shall report the indemnification or advance in
writing to shareholders with or before the notice of the next meeting of shareholders. The report
shall be delivered to shareholders who are entitled to receive notice of the next meeting of
shareholders.
Section 1.10
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Severability
. If any provision of this Article shall be deemed
invalid or inoperative, or if a court of competent jurisdiction determines that any of the
provisions of this Article contravene public policy, this Article shall be construed so that the
remaining provisions shall not be affected, but shall remain in full force and effect, and any such
provisions which are invalid or inoperative or which contravene public policy shall be deemed,
without further action or deed by or on behalf of the Corporation, to be modified, amended and/or
limited, but only to the extent necessary to render the same valid and enforceable.
Section 1.11
.
Nonexclusivity of this Article
. The rights of a Director,
Officer or employee (or any other person) granted under this Article shall not be deemed exclusive
of any other rights to indemnification against Liabilities or advancement of Expenses which the
Director, Officer or employee (or such other person) may be entitled to under any written
agreement, Board resolution, vote of shareholders of the Corporation or otherwise, including
without limitation under the Statute. Nothing contained in this Article shall be deemed to limit
the Corporations obligations to indemnify a Director, Officer or employee under the Statute.
Section 1.12
.
Contractual Nature of this Article; Repeal or Limitation of
Rights
. This Article shall be deemed to be a contract between the Corporation and each
Director, Officer and employee and any repeal or other limitation of this Article or any repeal or
limitation of the Statute or any other applicable law shall not limit any rights of indemnification
against Liabilities or allowance of Expenses then existing or arising out of events, acts or
omissions occurring prior to such repeal or limitation, including, without limitation, the right of
indemnification against Liabilities or allowance of Expenses for Proceedings commenced after such
repeal or limitation to enforce this Article with regard to acts, omissions or events arising prior
to such repeal or limitation.
Section 1.13
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Subrogation Rights
. Notwithstanding any provision to the
contrary set forth herein, the Corporations obligations hereunder are not intended to constitute,
and shall not constitute, a waiver of any right to subrogation which the Corporation may have
against any person or entity.
Exhibit 4.1
Loan Agreement dated November 1, 2008 between Badger Meter, Inc. and the M&I Marshall &
Ilsley Bank relating to Badger Meters revolving credit loan.
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M&I MARSHALL & ILSLEY BANK
PROMISSORY NOTE
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Loan
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Call /
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Principal
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Loan Date
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Maturity
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No.
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Coll
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Account
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Officer
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Initials
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$30,000,000.00
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11-01-2008
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10-31-2009
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References in the shaded area are for Lenders use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing *** has been omitted due to text length limitations.
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Borrower:
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Badger Meter, Inc.
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Lender:
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M&I Marshall & Ilsley Bank
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4545 W. Brown Deer Rd.
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SE Wisconsin Region Commercial Lending
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Milwaukee, WI 53223-2413
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770 North Water Street
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Milwaukee, WI 53202
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Principal Amount: $30,000,000.00
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Date of Note: November 1, 2008
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PROMISE TO PAY. Badger Meter, Inc. (Borrower) promises to pay to M&I Marshall & Ilsley Bank
(Lender), or order, in lawful money of the United States of America, the principal amount of
Thirty Million & 00/100 Dollars ($30,000,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated
from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued
unpaid interest on October 31, 2009. In addition, Borrower will pay regular monthly payments of
all accrued unpaid interest due as of each payment date, beginning November 30, 2008, with all
subsequent interest payments to be due on the same day of each month after that. Unless otherwise
agreed or required by applicable law, payments will be applied to Accrued Interest, Principal, Late
Charges, and Escrow. Borrower will pay Lender at Lenders address shown above or at such other
place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time
based on changes in an independent index which is the British Bankers Association (BBA) LIBOR and
reported by a major news service selected by Lender (such as Reuters, Bloomberg or Moneyline
Telerate). If BBA LIBOR for the one month period is not provided or reported on the first day of a
month because, for example, it is a weekend or holiday or for another reason, the One Month Libor
Rate shall be established as of the preceding day on which a BBA LIBOR rate is provided for the one
month period and reported by the selected news service (the Index). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term
of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell
Borrower the current Index rate upon Borrowers request. The interest rate change will not occur
more often than each first day of each calendar month and will become effective without notice to
the Borrower. The index currently is 4.003% per annum. The Index to be applied to the unpaid
principal balance of this Note will be calculated as described in the INTEREST CALCULATION METHOD
paragraph using a rate of 1.250 percentage points over the Index, resulting in an initial rate of
5.253% per annum based on a year of 360 days. NOTICE: Under no circumstances will the interest
rate on this Note be more than the maximum rate allowed by applicable law.
INTEREST CALCULATON METHOD. Interest on this Note is computed on a 365/360 basis; that is, by
applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance is outstanding.
All interest payable under this Note is computed using this method. This calculation method
results in a higher effective interest rate than the numeric interest rate stated in this Note.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it
is due. Early payment will not, unless agreed to by Lender in writing, relieve Borrower of
Borrowers obligation to continue to make payments of accrued unpaid interest. Rather, early
payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked
paid in full, without recourse, or similar language. If Borrower sends such a payment, Lender
may accept it without losing any of Lenders rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications concerning disputed
amounts, including any check or other payment instrument that indicates that the payment
constitutes payment in full of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or delivered to: M&I
Marshall & Ilsley Bank, P.O. Box 3114, Milwaukee, WI 53201-3114.
LATE CHARGE. If a payment is not made on or before the 10
th
day after its due date,
Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest
rate on this Note shall be increased by adding a 3.000 percentage point margin (Default Rate
Margin). The Default Rate Margin shall also apply to each succeeding interest rate
change that
would have applied had there been no default. However, in no event will the interest rate exceed
the maximum rate permitted by applicable law.
DEFAULT. Each of the following shall constitute an event of default (Event of Default) under
this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Note or in any of the related documents or to comply with
or to perform any term, obligation, covenant or condition contained in any other agreement between
Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension
of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrowers property or Borrowers
ability to repay this Note or perform Borrowers obligations under this Note or any of the related
documents.
PROMISSORY NOTE
(Continued)
Loan No: Page 2
False Statements. Any warranty, representation or statement made or furnished to Lender by
Borrower or on Borrowers behalf under this Note or the related documents is false or misleading in
any material respect, either now or at the time made or furnished or becomes false or misleading at
any time thereafter.
Insolvency. The dissolution or termination of Borrowers existence as a going business, the
insolvency of Borrower, the appointment of a receiver for any part of Borrowers property, any
assignment for the benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any creditor of
Borrower or by any government agency against any collateral securing the loan. This includes a
garnishment of any of Borrowers accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor,
endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser,
surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any guaranty of the indebtedness evidenced by this Note.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the
common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrowers financial condition, or Lender
believes the prospect of payment or performance of this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDERS RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note
and all accrued unpaid interest immediately due, and then Borrower will pay that amount.
ATTORNEYS FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits
under applicable law, Lenders attorneys fees and Lenders legal expenses, whether or not there is
a lawsuit, including attorneys fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against the other.
GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent
not preempted by federal law, the laws of the State of Wisconsin without regard to its conflicts of
law provisions. This Note has been accepted by Lender in the State of Wisconsin.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lenders request to submit to the
jurisdiction of the courts of Milwaukee County, State of Wisconsin.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower makes a payment on
Borrowers loan and the check or preauthorized charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in
all Borrowers accounts with Lender (whether checking, savings, or some other account). This
includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open
in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for
which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the debt against any and all such accounts,
and, at Lenders option, to administratively freeze all such accounts to allow Lender to protect
Lenders charge and setoff rights provided in this paragraph.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well
as directions for payment from Borrowers accounts, may be requested orally or in writing by
Borrower or by an authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in
accordance with the instructions of an authorized person, or (B) credited to any of Borrowers
accounts with Lender. The unpaid principal balance owing on this Note at any time
may be evidenced
by endorsements on this Note or by Lenders internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this Note; (B)
Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such guarantors guarantee of this Note or any
other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes
other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrowers
heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender
and its successors and assigns.
GENERAL PROVISIONS. This Note benefits Lender and its successors and assigns, and binds Borrower
and Borrowers heirs, successors, assigns, and representatives. If any part of this Note cannot be
enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any
of its rights or remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand
for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lenders security interest
in the collateral; and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.
PROMISSORY NOTE
(Continued)
Loan No: Page 3
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING
THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
BADGER METER, INC.
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By:
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/s/ Richard E. Johnson
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Senior Vice President Finance, Chief Financial Officer and Treasurer
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By:
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/s/ Ronald H. Dix
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Senior Vice President Administration
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