The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2020 using the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, the Company's management believes that, as of December 31, 2020, the Company's internal control over financial reporting was effective based on those criteria.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of the Company's internal control over financial reporting.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
Profile
With more than a century of water technology innovation, Badger Meter is a global provider of industry leading water solutions encompassing flow measurement, quality and other system parameters. These offerings provide customers with the data and analytics essential to optimize their operations and contribute to the sustainable use and protection of the world’s most precious resource. The Company’s flow measurement products measure water and other fluids and are known for accuracy, long-lasting durability and for providing valuable and timely measurement data through various methods. The Company’s water quality monitoring solutions include optical sensing and electrochemical instruments that provide real-time, on-demand data parameters. The Company’s product lines fall into two categories: sales of water meters, radios and related technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing instruments, valves and other products for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that approximately 90% of its products are used in water related applications.
Utility water, the largest sales category, is comprised of either mechanical or static (ultrasonic) water meters along with the related radio and software technologies and services used by water utilities as the basis for generating their water and wastewater revenues. It further comprises other sensor technology used in the water distribution system to ensure the safe and efficient delivery of clean water. These sensors are used to detect leaks in the distribution piping system and to monitor various water quality parameters throughout the distribution system. The largest geographic market for the Company’s utility water products is North America, primarily the United States, because most of the Company's meters are designed and manufactured to conform to standards promulgated by the American Water Works Association. The majority of water meters sold by the Company continue to be mechanical in nature; however, ultrasonic meters are an increasing percentage of the water meters sold by the Company and in the industry, due to a variety of factors, including their ability to maintain measurement accuracy over their useful life. Providing ultrasonic water meter technology, combined with advanced radio technology, provides the Company with the opportunity to sell into other geographical markets, for example the Middle East, Europe and Southeast Asia.
The flow instrumentation product line primarily serves water applications throughout the broader industrial markets. This product line includes meters, valves and other sensing instruments sold worldwide to measure and control the quantity of fluids going through a pipe or pipeline including water, air, steam, oil, and other liquids and gases. These products are used in a variety of industries and applications, with the Company’s primary market focus being water/wastewater; heating, ventilating and air conditioning (HVAC) and corporate sustainability. Flow instrumentation products are generally sold to original equipment manufacturers as the primary flow measurement device within a product or system, as well as through manufacturers’ representatives.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Receivables
Receivables consist primarily of trade receivables. The Company does not require collateral or other security and evaluates the collectability of its receivables based on a number of factors. An allowance for doubtful accounts is recorded for significant past due receivable balances based on a review of the past due items and the customer's ability and likelihood to pay, as well as applying a historical write-off ratio to the remaining balances. Changes in the Company's allowance for doubtful accounts are as follows:
|
|
Balance at
beginning
of year
|
|
|
Provision and
reserve
adjustments
|
|
|
Write-offs less
recoveries
|
|
|
Balance at end
of year
|
|
|
|
(In thousands)
|
|
2020
|
|
$
|
224
|
|
|
$
|
356
|
|
|
$
|
(28
|
)
|
|
$
|
552
|
|
2019
|
|
$
|
360
|
|
|
$
|
(132
|
)
|
|
$
|
(4
|
)
|
|
$
|
224
|
|
2018
|
|
$
|
387
|
|
|
$
|
—
|
|
|
$
|
(27
|
)
|
|
$
|
360
|
|
32
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company estimates and records provisions for obsolete and excess inventories. Changes to the Company's obsolete and excess inventories reserve are as follows:
|
|
Balance at
beginning
of year
|
|
|
Net additions
charged to
earnings
|
|
|
Disposals
|
|
|
Balance at end
of year
|
|
|
|
(In thousands)
|
|
2020
|
|
$
|
5,440
|
|
|
$
|
2,964
|
|
|
$
|
(2,004
|
)
|
|
$
|
6,400
|
|
2019
|
|
$
|
4,131
|
|
|
$
|
2,663
|
|
|
$
|
(1,354
|
)
|
|
$
|
5,440
|
|
2018
|
|
$
|
3,881
|
|
|
$
|
2,195
|
|
|
$
|
(1,945
|
)
|
|
$
|
4,131
|
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the respective assets by the straight-line method. The estimated useful lives of assets are: for land improvements, 15 years; for buildings and improvements, 10 to 39 years; and for machinery and equipment, 3 to 20 years.
Capitalized Software and Hardware
Capitalized internal use software and hardware included in other assets in the Consolidated Balance Sheets were $6.0 million and $5.7 million at December 31, 2020 and 2019, respectively. These amounts are amortized on a straight-line basis over the estimated useful lives of the software and/or hardware, ranging from 1 to 5 years. Amortization expense recognized for the years ending December 31, 2020, 2019 and 2018 was $3.7 million, $3.1 million and $3.2 million, respectively.
Long-Lived Assets
Property, plant and equipment and identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.
Intangible Assets
Intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years. The Company does not have any intangible assets deemed to have indefinite lives. Amortization expense recognized for 2020 and 2019 was $7.2 million and $7.5 million in 2018. Amortization expense expected to be recognized is $8.2 million in 2021 and $7.1 in 2022, $6.4 million in 2023, $6.3 million in 2024, $6.0 million in 2025 and $19.6 million thereafter. The carrying value and accumulated amortization by major class of intangible assets are as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
|
(In thousands)
|
|
Technologies
|
|
$
|
52,536
|
|
|
$
|
30,598
|
|
|
$
|
47,608
|
|
|
$
|
27,650
|
|
Intellectual property
|
|
|
10,000
|
|
|
|
1,833
|
|
|
|
10,000
|
|
|
|
1,333
|
|
Non-compete agreements
|
|
|
931
|
|
|
|
413
|
|
|
|
572
|
|
|
|
431
|
|
Licenses
|
|
|
650
|
|
|
|
526
|
|
|
|
650
|
|
|
|
509
|
|
Customer lists
|
|
|
8,023
|
|
|
|
3,846
|
|
|
|
8,023
|
|
|
|
3,234
|
|
Customer relationships
|
|
|
28,630
|
|
|
|
16,146
|
|
|
|
25,220
|
|
|
|
14,730
|
|
Trade names
|
|
|
12,136
|
|
|
|
5,946
|
|
|
|
9,203
|
|
|
|
5,226
|
|
Total intangibles
|
|
$
|
112,906
|
|
|
$
|
59,308
|
|
|
$
|
101,276
|
|
|
$
|
53,113
|
|
33
Goodwill
Goodwill is tested for impairment annually during the fourth quarter or more frequently if an event indicates that the goodwill might be impaired. Potential impairment is identified by comparing the fair value of a reporting unit with its carrying value. No adjustments were recorded to goodwill as a result of these tests during 2020, 2019 and 2018. Goodwill was $88.7 and $71.3 million at December 31, 2020 and 2019, respectively. The increase resulted from the acquisition of s::can, headquartered in Vienna, Austria in 2020. This acquisition is further described in Note 3 “Acquisitions”.
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 issues after the customer has installed the product or analysis of water quality issues. Changes in the Company's warranty and after-sale costs reserve are as follows:
|
|
Balance at
beginning
of year
|
|
|
Provision of acquired business
|
|
|
Net additions
charged to
earnings
|
|
|
Costs incurred
|
|
|
Balance at end
of year
|
|
|
|
(In thousands)
|
|
2020
|
|
$
|
5,583
|
|
|
$
|
500
|
|
|
$
|
7,855
|
|
|
$
|
(2,321
|
)
|
|
$
|
11,617
|
|
2019
|
|
$
|
4,206
|
|
|
$
|
—
|
|
|
$
|
6,616
|
|
|
$
|
(5,239
|
)
|
|
$
|
5,583
|
|
2018
|
|
$
|
3,367
|
|
|
$
|
—
|
|
|
$
|
3,274
|
|
|
$
|
(2,435
|
)
|
|
$
|
4,206
|
|
Research and Development
Research and development costs are charged to expense as incurred and amounted to $11.6 million in 2020, $11.9 million in 2019 and $11.1 million in 2018.
Healthcare
The Company estimates and records provisions for healthcare claims incurred but not reported, based on medical cost trend analysis, reviews of subsequent payments made and estimates of unbilled amounts.
Accumulated Other Comprehensive Income
Components of accumulated other comprehensive income at December 31, 2020 are as follows:
|
|
Pension and
postretirement
benefits
|
|
|
Foreign currency
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
|
$
|
263
|
|
|
$
|
162
|
|
|
$
|
425
|
|
Other comprehensive income before reclassifications
|
|
|
—
|
|
|
|
1,096
|
|
|
|
1,096
|
|
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax of $69
|
|
|
(208
|
)
|
|
|
—
|
|
|
|
(208
|
)
|
|
Net current period other comprehensive (loss) income, net
|
|
|
(208
|
)
|
|
|
1,096
|
|
|
|
888
|
|
Accumulated other comprehensive income
|
|
$
|
55
|
|
|
$
|
1,258
|
|
|
$
|
1,313
|
|
Reclassifications out of accumulated other comprehensive income during 2020 are immaterial.
|
Components of accumulated other comprehensive income at December 31, 2019 are as follows:
|
34
|
|
Pension and
postretirement
benefits
|
|
|
Foreign currency
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
|
$
|
360
|
|
|
$
|
220
|
|
|
$
|
580
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
Amounts reclassified from accumulated other comprehensive income,
net of tax of $16
|
|
|
(97
|
)
|
|
|
—
|
|
|
|
(97
|
)
|
Net current period other comprehensive income (loss), net
|
|
|
(97
|
)
|
|
|
(58
|
)
|
|
|
(155
|
)
|
Accumulated other comprehensive income
|
|
$
|
263
|
|
|
$
|
162
|
|
|
$
|
425
|
|
Reclassifications out of accumulated other comprehensive income during 2019 are as follows:
|
|
Amount
reclassified from
accumulated
other
comprehensive
income
|
|
|
|
(In thousands)
|
|
Amortization of employee benefit plan items:
|
|
|
|
|
Actuarial gains and losses (1)
|
|
$
|
(639
|
)
|
Plan settlement (2)
|
|
|
526
|
|
Total before tax
|
|
|
(113
|
)
|
Income tax impact
|
|
|
16
|
|
Amount reclassified out of accumulated other comprehensive income
|
|
$
|
(97
|
)
|
(1)These accumulated other comprehensive loss components are included in the computation of benefit plan costs in Note 7 “Employee Benefit Plans.” (2) This accumulated other comprehensive income component results from an international pension plan settlement.
Use of Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) 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.
Fair Value Measurements of Financial Instruments
The carrying amounts of cash, receivables and payables in the financial statements approximate their fair values due to the short-term nature of these financial instruments. Short-term debt is comprised of notes payable drawn against the Company's lines of credit. Because of its short-term nature, the carrying amount of the short-term debt also approximates fair value. Included in other assets are insurance policies on various individuals who were associated with the Company. The carrying amounts of these insurance policies approximate their fair value.
Subsequent Events
The Company evaluates subsequent events at the date of the balance sheet as well as conditions that arise after the balance sheet date but before the financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the financial statements. Events and conditions arising after the balance sheet date but before the financial statements are issued are evaluated to determine if disclosure is required to keep the financial statements from being misleading. To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions. For purposes of preparing the accompanying consolidated financial statements and the notes to these financial statements, the Company evaluated subsequent events through the date the accompanying financial statements were issued.
Effective January 1, 2021, the Company acquired 100% of the outstanding stock of Analytical Technology, LLC (“ATi”), headquartered in Collegeville, Pennsylvania, a provider of water quality monitoring systems. The purchase consideration, net of cash acquired, was approximately $44 million. The ATi acquisition will be accounted for under the purchase method, and accordingly, the results of operations will be included in the Company’s financial statements from the
35
date of acquisition. The acquisition is not expected to have a material impact on the Company’s consolidated financial statements and notes thereto.
New Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes” under ASC 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies the existing guidance to enable more consistent application. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year with early adoption being permitted. The Company adopted ASU No. 2019-12 on January 1, 2021 and noted no significant changes to the Company’s financial position or results of operations.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326),” which amends the accounting for credit losses on purchased financial assets and available-for-sale debt securities with credit deterioration. This ASU requires the measurement of all expected credit losses for financial assets, including accounts receivables, held at the reporting date based upon current conditions, historical experience and reasonable forecasts. This ASU is effective for annual reporting periods beginning after December 15, 2019. The Company adopted ASU No. 2016-13 on January 1, 2020 and noted no significant changes to the Company’s financial position or results of operations.
Note 2 Common Stock
Common Stock
The authorized common stock of the Company as of December 31, 2020 consisted of 40,000,000 shares of common stock, $1 par value, of which 37,221,098 and 37,200,698 were issued and outstanding as of December 31, 2020 and 2019, respectively.
Stock Options
There were no anti-dilutive options in 2020. Stock options to purchase 54,139 shares in 2019 and 21,887 shares in 2018 were not included in the computation of dilutive securities because their inclusion would have been anti-dilutive.
Note 3 Acquisitions
Acquisitions are accounted for under the purchase method, and accordingly, the results of operations were included in the Company's financial statements from the date of acquisition. The acquisitions did not have a material impact on the Company's consolidated financial statements or the notes thereto.
On November 2, 2020, the Company acquired 100% of the outstanding stock of s::can, headquartered in Vienna, Austria. s::can specializes in optical water quality sensing solutions that provide real-time measurement of a variety of parameters in water and wastewater utilizing in-line monitoring systems.
The total purchase consideration for s::can was $30.6 million, which included $29.1 million in cash and $1.5 million in payments that are anticipated to be made in the first quarter of 2021, which are recorded in payables on the Consolidated Balance Sheet at December 31, 2020. The Company's preliminary allocation of the purchase price at December 31, 2020 included $3.1 million of receivables, $4.3 million of inventory, $1.2 million of other assets, $12.7 million of intangibles and $17.4 million of goodwill that is not deductible for tax purposes. The intangible assets acquired are primarily customer relationships and developed technology with an estimated average useful life of 12 years. The Company also assumed $3.6 million of accounts payable, $3.2 million of deferred tax liabilities and $1.3 million of other liabilities as part of the acquisition. The preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2020, the Company had not completed its analysis for estimating the fair value of the assets acquired.
On April 2, 2018, the Company acquired 100% of the outstanding stock of IMS of Odessa, Florida, which was one of the Company's distributors serving Florida.
The total purchase consideration was approximately $12.0 million, which included $7.7 million in cash, a $0.3 million working capital adjustment, a balance sheet holdback of $0.7 million and a $3.3 million settlement of pre-existing Company receivables. The working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback was paid in the second quarter of 2019. The Company's allocation of the purchase price at March 31, 2019 included $3.8 million of receivables, $0.8 million of inventories, $0.1 million of machinery and equipment, $3.6 million of intangibles and $3.7 million of goodwill. The intangible assets acquired are customer relationships with an estimated average useful life of 10 years. As of
36
March 31, 2019, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments.
In the first quarter of 2019 and the fourth quarter of 2020, the Company made separate payments of contingent acquisition consideration of $1.0 million each related to the May 1, 2017 acquisition of 100% of the outstanding common stock of D-Flow Technology AB (“D-Flow”) of Lulea, Sweden. These were the final payments associated with the acquisition.
Note 4 Short-term Debt and Credit Lines
The Company did not have short-term debt at December 31, 2020. Short-term debt at December 31, 2019 consisted of notes payable to banks of $4.5 million outstanding under a 4.0 million Euro-based revolving loan facility that does not expire, and which bore interest at 1.50%.
In June 2018, the Company amended its May 2012 credit agreement with its primary lender and extended its term until September 2021. The credit agreement includes a $125.0 million line of credit that supports commercial paper (up to $70.0 million) and includes $5.0 million of a Euro line of credit. Under the principal line of credit, the Company had $125.0 million of unused credit lines available out of the total of $133.5 million available short-term credit lines at December 31, 2020. While the facility is unsecured, there are a number of financial covenants with which the Company must comply, and the Company was in compliance as of December 31, 2020.
Note 5 Stock Compensation
As of December 31, 2020, the Company has an Omnibus Incentive Plan under which 1,400,000 shares are reserved for restricted stock and stock options grants for employees, as well as stock grants for directors. The plan was originally approved in 2011 and replaced all prior stock-based plans except for shares and options previously issued under those plans. As of December 31, 2020 and 2019, there were 443,370 shares and 502,839 shares, respectively, of the Company’s Common Stock available for grant under the 2011 Omnibus Incentive Plan. The Company recognizes the cost of stock-based awards in net earnings for all of its stock-based compensation plans on a straight-line basis over the service period of the awards. The following sections describe the three types of grants in more detail.
Stock Options
The Company estimates the fair value of its option awards using the Black-Scholes option-pricing formula, and records compensation expense for stock options ratably over the stock option grant’s vesting period. Stock option compensation expense recognized by the Company for the year ended December 31, 2020 was $0.4 million compared to $0.3 million in 2019 and $2.1 million in 2018.
37
The following table summarizes the transactions of the Company’s stock option plans for the three-year period ended December 31, 2020:
|
|
Number of shares
|
|
|
Weighted-
average
exercise price
|
|
Options outstanding - December 31, 2017
|
|
|
386,283
|
|
|
$
|
25.74
|
|
Options granted
|
|
|
43,778
|
|
|
$
|
48.20
|
|
Options modified
|
|
|
80,642
|
|
|
$
|
52.44
|
|
Options exercised
|
|
|
(53,161
|
)
|
|
$
|
21.47
|
|
Options canceled
|
|
|
(80,642
|
)
|
|
$
|
37.04
|
|
Options forfeited
|
|
|
—
|
|
|
n/a
|
|
Options outstanding - December 31, 2018
|
|
|
376,900
|
|
|
$
|
28.95
|
|
Options granted
|
|
|
34,926
|
|
|
$
|
59.44
|
|
Options exercised
|
|
|
(66,969
|
)
|
|
$
|
29.29
|
|
Options forfeited
|
|
|
(7,525
|
)
|
|
$
|
38.81
|
|
Options outstanding - December 31, 2019
|
|
|
337,332
|
|
|
$
|
31.82
|
|
Options granted
|
|
|
41,807
|
|
|
$
|
62.76
|
|
Options exercised
|
|
|
(55,716
|
)
|
|
$
|
18.99
|
|
Options forfeited
|
|
|
(7,229
|
)
|
|
$
|
50.19
|
|
Options outstanding - December 31, 2020
|
|
|
316,194
|
|
|
$
|
37.75
|
|
Price range $ 18.08 — $ 27.18
|
|
|
|
|
|
|
|
|
(weighted-average contractual life of 2.1 years)
|
|
|
106,390
|
|
|
$
|
22.53
|
|
Price range $ 28.33 — $ 42.50
|
|
|
|
|
|
|
|
|
(weighted-average contractual life of 5 years)
|
|
|
102,484
|
|
|
$
|
33.30
|
|
Price range $ 48.20 — $ 72.30
|
|
.
|
|
|
|
|
|
(weighted-average contractual life of 8.2 years)
|
|
|
107,320
|
|
|
$
|
57.09
|
|
Options outstanding - December 31, 2020
|
|
|
316,194
|
|
|
|
|
|
Exercisable options —
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
321,122
|
|
|
$
|
27.16
|
|
December 31, 2019
|
|
|
271,252
|
|
|
$
|
27.17
|
|
December 31, 2020
|
|
|
235,829
|
|
|
$
|
30.82
|
|
The following assumptions were used for valuing options granted in the years ended December 31:
|
|
2020
|
|
|
2019
|
|
Per share fair value of options granted during the period
|
|
$
|
17.49
|
|
|
$
|
18.20
|
|
Risk-free interest rate
|
|
|
0.64
|
%
|
|
|
2.52
|
%
|
Dividend yield
|
|
|
1.05
|
%
|
|
|
0.97
|
%
|
Volatility factor
|
|
|
30.0
|
%
|
|
|
32.4
|
%
|
Weighted-average expected life in years
|
|
|
7.0
|
|
|
|
5.3
|
|
The expected life is based on historical exercise behavior and the projected exercise of unexercised stock options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected dividend yield is based on the expected annual dividends divided by the grant date market value of the Company’s Common Stock. The expected volatility is based on the historical volatility of the Company’s Common Stock.
The following table summarizes the aggregate intrinsic value related to options exercised, outstanding and exercisable as of and for the years ended December 31:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Exercised
|
|
$
|
3,054
|
|
|
$
|
1,870
|
|
Outstanding
|
|
$
|
17,805
|
|
|
$
|
11,170
|
|
Exercisable
|
|
$
|
14,913
|
|
|
$
|
10,243
|
|
38
As of December 31, 2020, the unrecognized compensation cost related to stock options was approximately $1.0 million, which will be recognized over a weighted average period of 3.4 years.
Director Stock Grant
Non-employee directors receive an annual award of $58,000 worth of restricted shares of the Company’s Common Stock under the shareholder-approved 2011 Omnibus Incentive Plan. The Company values stock grants for directors at the closing price of the Company’s stock on the day the grant was awarded. The Company records compensation expense for this plan ratably over the annual service period beginning May 1. Director stock compensation expense recognized by the Company for the years ended December 31, 2020 was $0.4 million compared to $0.3 million in 2019 and $0.5 million in 2018. As of December 31, 2020, the unrecognized compensation cost related to the director stock award that is expected to be recognized over the remaining three months is estimated to be approximately $0.1 million.
Restricted Stock
The Company periodically issues nonvested shares of the Company's Common Stock to certain eligible employees. The Company values restricted stock on the closing price of the Company's stock on the day the grant was awarded. The Company records compensation expense for this plan ratably over the vesting periods. Restricted stock compensation expense recognized by the Company for the year ended December 31, 2020 was $1.0 million compared to $0.9 million in 2019 and $2.1 million in 2018.
The fair value of nonvested shares is determined based on the market price of the shares on the grant date.
|
Shares
|
|
|
Fair value
per share
|
|
Nonvested at December 31, 2017
|
|
111,473
|
|
|
$
|
35.21
|
|
Granted
|
|
32,268
|
|
|
$
|
49.10
|
|
Modified
|
|
30,488
|
|
|
$
|
52.47
|
|
Vested
|
|
(68,289
|
)
|
|
$
|
40.16
|
|
Canceled
|
|
(30,488
|
)
|
|
$
|
38.62
|
|
Forfeited
|
|
(2,650
|
)
|
|
$
|
36.83
|
|
Nonvested at December 31, 2018
|
|
72,802
|
|
|
$
|
42.58
|
|
Granted
|
|
16,034
|
|
|
$
|
59.42
|
|
Vested
|
|
(19,227
|
)
|
|
$
|
30.08
|
|
Forfeited
|
|
(5,129
|
)
|
|
$
|
41.31
|
|
Nonvested at December 31, 2019
|
|
64,480
|
|
|
$
|
48.21
|
|
Granted
|
|
20,758
|
|
|
$
|
64.19
|
|
Vested
|
|
(25,044
|
)
|
|
$
|
39.87
|
|
Forfeited
|
|
(2,645
|
)
|
|
$
|
54.35
|
|
Nonvested at December 31, 2020
|
|
57,549
|
|
|
$
|
57.33
|
|
39
As of December 31, 2020, there was $1.8 million of unrecognized compensation cost related to nonvested restricted stock that is expected to be recognized over a weighted average period of 2.1 years.
Note 6 Commitments and Contingencies
Commitments
The Company makes commitments in the normal course of business. The Company rents equipment, vehicles and facilities under operating leases, some of which contain renewal options. Total rental expense charged to operations under all operating leases was $3.1 million, $3.4 million and $3.7 million in 2020, 2019 and 2018, respectively. The Company’s lease commitments and future minimum lease payments are discussed in Note 12 “Leases.”
Contingencies
In the normal course of business, the Company is named in legal proceedings. There are currently no material legal proceedings pending with respect to the Company.
The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to specific matters or with respect to sites formerly or currently owned or operated by the Company, off-site disposal locations used by the Company, and property owned by third parties that is near such sites, could result in future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during 2020, 2019 and 2018 were not material.
The Company relies on single suppliers for most brass castings and certain resin and electronic subassemblies in several of its product lines. The Company believes these items would be available from other sources, but that the loss of certain suppliers could result in a higher cost of materials, delivery delays, short-term increases in inventory and higher quality control costs 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 exposures on a periodic basis and makes adjustments to reserves as appropriate.
Note 7 Employee Benefit Plans
Historically, the Company maintained a non-contributory defined benefit pension plan that covered substantially all U.S. employees who were employed at December 31, 2011. After that date, no further benefits were accrued in the plan. For the frozen pension plan, benefits were based primarily on years of service and, for certain employees, levels of compensation. In 2018, the Company completed the termination of the non-contributory defined benefit pension plan.
The Company maintains supplemental non-qualified plans for certain officers and other key employees, and an Employee Savings and Stock Option Plan (“ESSOP”) for the majority of the U.S. employees.
The Company also has a postretirement healthcare benefit plan that provides medical benefits for certain U.S. retirees and eligible dependents hired prior to November 1, 2004. Employees are eligible to receive postretirement healthcare benefits upon meeting certain age and service requirements. No employees hired after October 31, 2004 are eligible to receive these benefits. This plan requires employee contributions to offset benefit costs.
Amounts included in accumulated other comprehensive income, net of tax, at December 31, 2020 that have not yet been recognized in net periodic benefit cost are as follows:
|
|
Pension
plans
|
|
|
Other
postretirement
benefits
|
|
|
|
(In thousands)
|
|
Net actuarial loss (gain)
|
|
$
|
68
|
|
|
$
|
(123
|
)
|
40
Amounts included in accumulated other comprehensive income, net of tax, at December 31, 2020 expected to be recognized in net periodic benefit cost during the fiscal year ending December 31, 2021 are not expected to be material.
Qualified Pension Plan
The Company completed the termination of the non-contributory defined benefit pension plan in 2018 and therefore the tables below show no activity or actuarial assumptions for the years ended December 31, 2020 and 2019.
The following table sets forth the components of net periodic pension cost for the year ended December 31, 2018 based on a December 31 measurement date:
|
|
2018
|
|
|
|
(In thousands)
|
|
Service cost - benefits earned during the year
|
|
$
|
—
|
|
Interest cost on projected benefit obligations
|
|
|
305
|
|
Expected return on plan assets
|
|
|
(835
|
)
|
Amortization of net loss
|
|
|
262
|
|
Settlement expense
|
|
|
19,900
|
|
Net periodic pension cost
|
|
$
|
19,632
|
|
Actuarial assumptions used in the determination of the net periodic pension cost are:
|
|
2018
|
|
Discount rate
|
|
|
2.00
|
%
|
Expected long-term return on plan assets
|
|
|
3.00
|
%
|
Rate of compensation increase
|
|
n/a
|
|
The Company's discount rate assumptions for the qualified pension plan are based on the average yield of a hypothetical high quality bond portfolio with maturities that approximately match the estimated cash flow needs of the plan. The assumptions for expected long-term rates of return on assets are based on historical experience and estimated future investment returns, taking into consideration anticipated asset allocations, investment strategies and the views of various investment professionals. The use of these assumptions can cause volatility if actual results differ from expected results.
The fair value of the qualified pension plan assets was $0 at December 31, 2020 and 2019. As there were no benefit obligations, plan assets or pension liabilities at December 31, 2020, 2019 & 2018, no reconciliation as of those measurement dates are provided.
Supplemental Non-qualified Unfunded Plans
The Company also maintains supplemental non-qualified unfunded plans for certain officers and other key employees. The expense for these plans was not material for 2020, 2019 or 2018. The discount rate used to measure the net periodic pension cost was 2.87% for 2020, 2.86% for 2019 and 2.16% for 2018. The amount accrued was $0.4 million and $0.5 million as of December 31, 2020 and 2019, respectively.
Other Postretirement Benefits
The Company has a postretirement plan that provides medical benefits for certain U.S. retirees and eligible dependents hired prior to November 1, 2004. The following table sets forth the components of net periodic postretirement benefit cost for the years ended December 31, 2020, 2019 and 2018:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Service cost, benefits attributed for service of active
employees for the period
|
|
$
|
103
|
|
|
$
|
103
|
|
|
$
|
124
|
|
Interest cost on the accumulated postretirement benefit obligation
|
|
|
154
|
|
|
|
210
|
|
|
|
189
|
|
Amortization of actuarial gain
|
|
|
(22
|
)
|
|
|
(117
|
)
|
|
|
(30
|
)
|
Amortization of prior service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
(13
|
)
|
Net periodic postretirement benefit cost
|
|
$
|
235
|
|
|
$
|
196
|
|
|
$
|
270
|
|
41
The discount rate used to measure the net periodic postretirement benefit cost was 3.19% for 2020, 4.33% for 2019 and 3.65% for 2018. It is the Company's policy to fund healthcare benefits on a cash basis. Because the plan is unfunded, there are no plan assets. The following table provides a reconciliation of the projected benefit obligation at the Company's December 31 measurement date:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Benefit obligation at beginning of year
|
|
$
|
6,075
|
|
|
$
|
5,551
|
|
Service cost
|
|
|
103
|
|
|
|
103
|
|
Interest cost
|
|
|
154
|
|
|
|
210
|
|
Actuarial gain
|
|
|
202
|
|
|
|
657
|
|
Plan participants' contributions
|
|
|
474
|
|
|
|
532
|
|
Benefits paid
|
|
|
(863
|
)
|
|
|
(978
|
)
|
Benefit obligation and funded status at end of year
|
|
$
|
6,145
|
|
|
$
|
6,075
|
|
The amounts recognized in the Consolidated Balance Sheets at December 31 are:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Accrued compensation and employee benefits
|
|
$
|
356
|
|
|
$
|
364
|
|
Accrued non-pension postretirement benefits
|
|
|
5,789
|
|
|
|
5,711
|
|
Amounts recognized at December 31
|
|
$
|
6,145
|
|
|
$
|
6,075
|
|
The discount rate used to measure the accumulated postretirement benefit obligation was 2.45% for 2020 and 3.19% for 2019. The Company's discount rate assumptions for its postretirement benefit plan are based on the average yield of a hypothetical high quality bond portfolio with maturities that approximately match the estimated cash flow needs of the plan. Because the plan requires the Company to establish fixed Company contribution amounts for retiree healthcare benefits, future healthcare cost trends do not generally impact the Company's accruals or provisions.
Estimated future benefit payments of postretirement benefits, assuming increased cost sharing, expected to be paid in each of the next five years beginning with 2021 are $0.4 million through 2025, with an aggregate of $2.0 million for the five years thereafter. These amounts can vary significantly from year to year because the cost sharing estimates can vary from actual expenses as the Company is self-insured.
Badger Meter Employee Savings and Stock Ownership Plan (ESSOP)
The ESSOP includes a voluntary 401(k) savings plan that allows certain employees to defer up to 20% of their income on a pretax basis subject to limits on maximum amounts. The Company matches 25% of each employee’s contribution, with the match percentage applying to a maximum of 7% of each employee's salary. The match was paid using the Company's Common Stock released through the ESSOP loan payments. For ESSOP shares purchased prior to 1993, compensation expense is recognized based on the original purchase price of the shares released and dividends on unreleased shares are charged to compensation expense. For shares purchased in or after 1993, expense is based on the market value of the shares on the date released and dividends on unreleased shares are charged to compensation expense. Compensation expense of $ 0.5 million in 2020 compared to $0.6 million in 2019 and $0.5 million in 2018. As the last ESSOP loan payment was made during 2020, the Company will make future ESSOP match payments in cash.
On December 31, 2010, the Company froze the qualified pension plan for its non-union participants and formed a new defined contribution feature within the ESSOP plan in which each employee received a similar benefit. On December 31, 2011, the Company froze the qualified pension plan for its union participants and included them in the same defined contribution feature within the ESSOP. Compensation expense under the defined contribution feature was $2.0 million in 2020 $3.1 million in 2019 and $3.0 in 2018.
42
Note 8 Income Taxes
The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities.
Details of earnings before income taxes are as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Domestic
|
|
$
|
65,908
|
|
|
$
|
62,639
|
|
|
$
|
31,584
|
|
Foreign
|
|
|
(927
|
)
|
|
|
(1,032
|
)
|
|
|
4,268
|
|
Total
|
|
$
|
64,981
|
|
|
$
|
61,607
|
|
|
$
|
35,852
|
|
The provision (benefit) for income taxes is as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14,482
|
|
|
$
|
12,113
|
|
|
$
|
9,223
|
|
State
|
|
|
3,419
|
|
|
|
2,591
|
|
|
|
2,640
|
|
Foreign
|
|
|
819
|
|
|
|
1,250
|
|
|
|
1,468
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,495
|
)
|
|
|
(1,066
|
)
|
|
|
(2,890
|
)
|
State
|
|
|
(644
|
)
|
|
|
417
|
|
|
|
(1,765
|
)
|
Foreign
|
|
|
57
|
|
|
|
(875
|
)
|
|
|
(614
|
)
|
Total
|
|
$
|
15,638
|
|
|
$
|
14,430
|
|
|
$
|
8,062
|
|
The provision for income tax differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate in each year due to the following items:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Provision at statutory rate
|
|
$
|
13,646
|
|
|
$
|
12,938
|
|
|
$
|
7,529
|
|
State income taxes, net of federal tax benefit
|
|
|
2,196
|
|
|
|
2,080
|
|
|
|
717
|
|
Valuation allowance
|
|
|
1,302
|
|
|
|
515
|
|
|
|
—
|
|
Foreign - tax rate differential and other
|
|
|
(267
|
)
|
|
|
70
|
|
|
|
159
|
|
Federal tax credits
|
|
|
(517
|
)
|
|
|
(609
|
)
|
|
|
(742
|
)
|
Compensation subject to section 162(m)
|
|
|
110
|
|
|
|
66
|
|
|
|
562
|
|
Stock based compensation
|
|
|
(682
|
)
|
|
|
(253
|
)
|
|
|
(384
|
)
|
Tax rate difference on temporary adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
(460
|
)
|
Other
|
|
|
(150
|
)
|
|
|
(377
|
)
|
|
|
681
|
|
Actual provision
|
|
$
|
15,638
|
|
|
$
|
14,430
|
|
|
$
|
8,062
|
|
43
The components of deferred income taxes as of December 31 are as follows:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserve for receivables and inventories
|
|
$
|
2,618
|
|
|
$
|
2,108
|
|
Accrued compensation
|
|
|
1,874
|
|
|
|
888
|
|
Reserves & payables
|
|
|
2,741
|
|
|
|
1,410
|
|
Non-pension postretirement benefits
|
|
|
1,535
|
|
|
|
1,505
|
|
Net operating loss and credit carryforwards
|
|
|
2,106
|
|
|
|
1,401
|
|
Accrued pension benefits
|
|
|
982
|
|
|
|
933
|
|
Accrued employee benefits
|
|
|
1,574
|
|
|
|
1,747
|
|
Deferred revenue
|
|
|
2,596
|
|
|
|
2,219
|
|
Operating lease liabilities
|
|
|
1,708
|
|
|
|
1,861
|
|
Other
|
|
|
713
|
|
|
|
497
|
|
Total gross deferred tax assets
|
|
|
18,447
|
|
|
|
14,569
|
|
Less: valuation allowance
|
|
|
(2,140
|
)
|
|
|
(863
|
)
|
Total net deferred tax assets
|
|
|
16,307
|
|
|
|
13,706
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,204
|
|
|
|
4,673
|
|
Amortization
|
|
|
8,795
|
|
|
|
6,158
|
|
Prepaids
|
|
|
552
|
|
|
|
529
|
|
Operating lease assets
|
|
|
1,699
|
|
|
|
1,850
|
|
Other
|
|
|
663
|
|
|
|
630
|
|
Total deferred tax liabilities
|
|
|
16,913
|
|
|
|
13,840
|
|
Net deferred tax liabilities
|
|
$
|
(606
|
)
|
|
$
|
(134
|
)
|
As of December 31, 2020, the Company has foreign net operating loss carryforwards of approximately $6 million with an unlimited carryforward period. The Company’s tax credit carryforward of $0.4 million relates to state specific tax credits that the Company expects to fully utilize in future tax periods. The Company has recorded a full valuation allowance against certain deferred tax assets which are not likely to be realized. The valuation allowance relates primarily to a foreign net operating loss carryforward.
No provision for federal income taxes was made on the earnings of foreign subsidiaries that are considered indefinitely invested or that would be offset by foreign tax credits upon distribution. Such undistributed earnings at December 31, 2020 were $20.6 million, all of which was previously taxed in the U.S. under the transition tax provisions and other provisions of the Internal Revenue Code.
Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
1,165
|
|
|
$
|
1,121
|
|
Increases in unrecognized tax benefits as a result of positions taken during the
prior year
|
|
|
—
|
|
|
|
88
|
|
Increases in unrecognized tax benefits as a result of positions taken during the
current year
|
|
|
209
|
|
|
|
235
|
|
Reductions to unrecognized tax benefits as a result of a lapse of the applicable
statute of limitations
|
|
|
(251
|
)
|
|
|
(279
|
)
|
Balance at end of year
|
|
$
|
1,123
|
|
|
$
|
1,165
|
|
The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits during the fiscal year ending December 31, 2021. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate.
44
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2017, and, with few exceptions, state and local income tax examinations by tax authorities for years prior to 2016. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. Accrued interest was approximately $0.1 million at both December 31, 2020 and 2019 and there were no penalties accrued in either year.
Note 9 Industry Segment and Geographic Areas
The Company is an innovator, manufacturer, marketer and distributor of products incorporating flow measurement, control and communication solutions, which comprise one reportable segment. The Company manages and evaluates its operations as one segment primarily due to similarities in the nature of the products, production processes, customers and methods of distribution.
Information regarding revenues by geographic area is as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
376,426
|
|
|
$
|
369,163
|
|
|
$
|
374,650
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
6,437
|
|
|
|
9,111
|
|
|
|
9,081
|
|
Canada
|
|
|
10,406
|
|
|
|
13,568
|
|
|
|
11,893
|
|
Europe
|
|
|
18,255
|
|
|
|
15,784
|
|
|
|
20,147
|
|
Mexico
|
|
|
4,886
|
|
|
|
5,791
|
|
|
|
3,603
|
|
Middle East
|
|
|
6,114
|
|
|
|
7,868
|
|
|
|
11,318
|
|
Other
|
|
|
3,020
|
|
|
|
3,340
|
|
|
|
3,040
|
|
Total
|
|
$
|
425,544
|
|
|
$
|
424,625
|
|
|
$
|
433,732
|
|
Information regarding assets by geographic area is as follows:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
48,805
|
|
|
$
|
51,539
|
|
Foreign:
|
|
|
|
|
|
|
|
|
Europe
|
|
|
15,142
|
|
|
|
14,768
|
|
Mexico
|
|
|
18,758
|
|
|
|
19,454
|
|
Total
|
|
$
|
82,705
|
|
|
$
|
85,761
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Total assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
365,748
|
|
|
$
|
326,248
|
|
Foreign:
|
|
|
|
|
|
|
|
|
Europe
|
|
|
80,337
|
|
|
|
72,296
|
|
Mexico
|
|
|
22,295
|
|
|
|
23,349
|
|
Total
|
|
$
|
468,380
|
|
|
$
|
421,893
|
|
45
Note 10 Unaudited: Quarterly Results of Operations, Common Stock Price and Dividends
|
|
Quarter ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands except per share data)
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
108,508
|
|
|
$
|
91,119
|
|
|
$
|
113,587
|
|
|
$
|
112,329
|
|
Gross margin
|
|
$
|
43,322
|
|
|
$
|
35,850
|
|
|
$
|
45,023
|
|
|
$
|
44,055
|
|
Net earnings
|
|
$
|
11,854
|
|
|
$
|
9,534
|
|
|
$
|
14,861
|
|
|
$
|
13,094
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.51
|
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.51
|
|
|
$
|
0.45
|
|
Dividends declared
|
|
$
|
0.17
|
|
|
$
|
0.17
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
Stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
70.83
|
|
|
$
|
68.01
|
|
|
$
|
68.25
|
|
|
$
|
96.00
|
|
Low
|
|
$
|
41.50
|
|
|
$
|
47.00
|
|
|
$
|
59.53
|
|
|
$
|
64.96
|
|
Quarter-end close
|
|
$
|
53.60
|
|
|
$
|
62.92
|
|
|
$
|
65.37
|
|
|
$
|
94.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
104,881
|
|
|
$
|
103,542
|
|
|
$
|
108,646
|
|
|
$
|
107,556
|
|
Gross margin
|
|
$
|
40,457
|
|
|
$
|
40,276
|
|
|
$
|
41,670
|
|
|
$
|
41,125
|
|
Net earnings
|
|
$
|
10,824
|
|
|
$
|
11,358
|
|
|
$
|
12,721
|
|
|
$
|
12,274
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.39
|
|
|
$
|
0.44
|
|
|
$
|
0.42
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.39
|
|
|
$
|
0.44
|
|
|
$
|
0.42
|
|
Dividends declared
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.17
|
|
|
$
|
0.17
|
|
Stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
61.57
|
|
|
$
|
60.28
|
|
|
$
|
60.52
|
|
|
$
|
66.64
|
|
Low
|
|
$
|
47.59
|
|
|
$
|
51.56
|
|
|
$
|
49.66
|
|
|
$
|
50.67
|
|
Quarter-end close
|
|
$
|
55.64
|
|
|
$
|
59.69
|
|
|
$
|
53.70
|
|
|
$
|
64.93
|
|
The Company's Common Stock is listed on the New York Stock Exchange under the symbol BMI. Earnings per share are computed independently for each quarter. As such, the annual per share amount may not equal the sum of the quarterly amounts due to rounding. The Company currently anticipates continuing to pay cash dividends. Shareholders of record as of December 31, 2020 and 2019 totaled 656 and 790, respectively. Voting trusts and street name shareholders are counted as single shareholders for this purpose.
Note 11 Revenue Recognition
Revenue for sales of products and services is derived from contracts with customers. The products and services promised in contracts include the sale of utility water and flow instrumentation products, such as flow meters and radios, software access and other ancillary services. Contracts generally state the terms of sale, including the description, quantity and price of each product or service. Since the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the majority of the Company's contracts do not contain variable consideration. The Company establishes a provision for estimated warranty and returns as well as certain after sale costs as discussed in Note 1 “Summary of Significant Accounting Policies.”
In accordance with ASU No. 2016-10 “Revenue from Contracts with Customers” (“Topic 606”), the Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. Information regarding revenues disaggregated by geographic area is disclosed in Note 9 “Industry Segment and Geographic Areas.”
46
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows:
|
|
December 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Revenue recognized over time
|
|
$
|
21,479
|
|
5.0%
|
|
|
$
|
16,146
|
|
3.8%
|
|
Revenue recognized at a point in time
|
|
|
404,065
|
|
95.0%
|
|
|
|
408,479
|
|
96.2%
|
|
Total
|
|
$
|
425,544
|
|
|
100.0%
|
|
|
$
|
424,625
|
|
|
100.0%
|
|
The Company performs its obligations under a contract by shipping products or performing services in exchange for consideration. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable to the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods or services and the Company has not transferred control of the goods or services.
The Company's receivables and contract liabilities are as follows:
|
|
December 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Receivables
|
|
$
|
61,689
|
|
|
$
|
61,365
|
|
Contract liabilities
|
|
|
24,761
|
|
|
|
20,143
|
|
Contract liabilities are included in payables and other-long term liabilities on the Company’s Consolidated Balance Sheet. The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at December 31, 2020 and 2019.
A performance obligation in a contract is a promise to transfer a distinct good or service to the customer, and is the unit of measurement in Topic 606. At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customer. In order to identify performance obligations, the Company considers all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.
The Company's performance obligations are satisfied at a point in time or over time as work progresses. The majority of the Company's revenue recognized at a point in time is for the sale of utility and flow instrumentation products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process. The majority of the Company's revenue that is recognized over time relates to the BEACON AMA software as a service.
The Company records revenue for BEACON AMA SaaS over time as the customer benefits from the use of the Company's software. Control of an asset is therefore transferred to the customer over time and the Company will recognize revenue for BEACON AMA SaaS as service units are used by the customer.
Revenue is recorded for various ancillary services, such as project management and training, over time as the customer benefits from the services provided. The majority of this revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. If the service is not provided evenly over the contract period, revenue will be recognized by the associated input/output method that best measures the progress towards contract completion.
47
As of December 31, 2020, the Company had certain contracts with unsatisfied performance obligations. For contracts recorded as long-term liabilities, $24.8 million was the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that revenue recognized from satisfying those performance obligations will be approximately $5.8 million in 2021 and $2.5 million in each year from 2022 through 2025 and $9.0 million thereafter.
The Company also has contracts that include both the sale and installation of flow meters as performance obligations. In those cases, the Company records revenue for installed flow meters at the point in time when the flow meters have been accepted by the customer. The customer cannot control the use of and obtain substantially all of the benefits from the equipment until the customer has accepted the installed product. Therefore, for both the flow meter and the related installation, the Company has concluded that control is transferred to the customer upon customer acceptance of the installed flow meter. In addition, the Company has a variety of ancillary revenue streams which are minor. The types and composition of the Company's revenue streams did not materially change during the year ended December 31, 2020.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. Variable consideration in contracts for the year ended December 31, 2020 was insignificant.
The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract's transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers. If standalone selling price is not directly observable, it is estimated using either a market adjustment or cost plus margin approach.
The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the deferral of sales commissions on the Company's BEACON AMA software arrangements. The Company's costs incurred to obtain or fulfill a contract with a customer are amortized over the period of benefit of the related revenue. The Company expenses any costs incurred immediately when the amortization period would be one year or less. These costs are recorded within selling, engineering and administration expenses.
For the year ended December 31, 2020, the Company elected the following practical expedients:
In accordance with Subtopic 340-40 “Other Assets and Deferred Costs - Contracts with Customers,” the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, and contracts for which it has the right to invoice for services performed.
The Company has made an accounting policy election to exclude all taxes by governmental authorities from the measurement of the transaction price.
Note 12 Leases
The Company rents facilities, equipment and vehicles under operating leases, some of which contain renewal options. Upon inception of a rent agreement, the Company determines whether the arrangement contains a lease based on the unique conditions present. Leases that have a term over a year are recognized on the balance sheet as right-of-use assets and lease liabilities. Right-of-use assets are included in other assets on the Company’s Consolidated Balance Sheet. Lease liabilities are included in other current liabilities and other long-term liabilities on the Company’s Consolidated Balance Sheet. Information regarding the Company's right-of-use assets and the corresponding lease liabilities are as follows:
|
|
2020
|
|
|
2019
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
6,865
|
|
|
$
|
8,411
|
|
Lease liabilities
|
|
|
7,218
|
|
|
|
8,792
|
|
48
The Company’s operating lease agreements have lease and non-lease components that require payments for common area maintenance, property taxes and insurance. The Company has elected to account for both lease and non-lease components as one lease component. The fixed and in-substance fixed consideration in the Company’s rent agreements constitute operating lease expense that is included in the capitalized right-of-use assets and lease liabilities. The variable and short-term lease expense payments are not included in the present value of the right-of use-assets and lease liabilities on the Consolidated Balance Sheet. The Company’s rent expense is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
2,858
|
|
|
$
|
3,095
|
|
Variable and short-term lease expense
|
|
|
203
|
|
|
|
270
|
|
Rent expense
|
|
$
|
3,061
|
|
|
$
|
3,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company records right-of-use assets and lease liabilities based upon the present value of lease payments over the expected lease term. The Company’s lease agreements typically do not have implicit interest rates that are readily determinable. As a result, the Company utilizes an incremental borrowing rate that would be incurred to borrow on a collateralized basis over a similar term in a comparable economic environment. As of December 31, 2020 and 2019, the remaining lease term on the Company’s leases was 6.0 years and 4.5 years, respectively. As of December 31, 2020 and 2019, the discount rate was 5.0%. The future minimum lease payments to be paid under operating leases are as follows:
|
|
December 31,
2020
|
|
|
|
(In thousands)
|
|
2021
|
|
$
|
2,526
|
|
2022
|
|
|
1,435
|
|
2023
|
|
|
1,318
|
|
2024
|
|
|
1,264
|
|
2025
|
|
|
1,084
|
|
Thereafter
|
|
|
821
|
|
Total future lease payments
|
|
|
8,448
|
|
(Present value adjustment)
|
|
|
(1,230
|
)
|
Present value of future lease payments
|
|
$
|
7,218
|
|
49