Annual Report (10-k)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-06706

BADGER METER, INC.

(Exact name of registrant as specified in its charter)

Wisconsin		39-0143280
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4545 W. Brown Deer Road Milwaukee, Wisconsin		53233
(Address of principal executive offices)		(Zip code)

(414) 355-0400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock		BMI		New York Stock Exchange
(Title of each class)		(Trading Symbol)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer	☒	Smaller reporting company	☐
Accelerated filer	☐	Emerging growth company	☐
Non‑accelerated filer	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity: As of June 30, 2019, the aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant was approximately $1.72 billion. For purposes of this calculation only, (i) shares of Common Stock are deemed to have a market value of $59.69 per share, the closing price of the Common Stock as reported on the New York Stock Exchange on June 28, 2019, and (ii) each of the Company's executive officers and directors is deemed to be an affiliate of the Company.

As of February 4, 2020, there were 29,113,242 shares of Common Stock outstanding with a par value of $1 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for the 2020 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year, are incorporated by reference from the definitive Proxy Statement into Part III of this Annual Report on Form 10-K.

Table of Contents

		Page
PART I		3
Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Mine Safety Disclosures	11

PART II		12
Item 5.	Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 8.	Financial Statements and Supplemental Data	22
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	51
Item 9A.	Controls and Procedures	51
Item 9B.	Other Information	51

PART III		52
Item 10.	Directors, Executive Officers and Corporate Governance	52
Item 11.	Executive Compensation	52
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	52
Item 13.	Certain Relationships and Related Transactions, and Director Independence	52
Item 14.	Principal Accountant Fees and Services	52

PART IV		53
Item 15.	Exhibits and Financial Statement Schedules	53
Item 16	Form 10-K Summary	53

Exhibit Index		54
Signatures		56

Special Note Regarding Forward Looking Statements

Certain statements contained in this Annual Report on Form 10-K, 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,” “could” and “objective” or similar expressions are intended to identify forward looking statements. All such forward looking statements are based on the Company’s then current views and assumptions and involve risks and uncertainties. Some risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward looking statements include those described in Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2019.

PART I

ITEM 1.

BUSINESS

Badger Meter, Inc. (the “Company”) is a leading innovator, manufacturer and marketer of products incorporating flow measurement, control and communication solutions serving markets worldwide. The Company was incorporated in 1905.

Throughout this 2019 Annual Report on Form 10-K, the words “we,” “us” and “our” refer to the Company.

Available Information

The Company's internet address is http://www.badgermeter.com. The Company makes available free of charge through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, on the same day they are electronically filed with, or furnished to, the Securities and Exchange Commission. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

Market Overview, Products, Systems and Solutions

Badger Meter is an innovator in flow measurement, control and related communication solutions, serving water utilities, municipalities, and commercial and industrial customers worldwide. The Company’s products measure water, oil, chemicals 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 product lines fall into two categories: sales of water meters, radios and related technologies to municipal water utilities (municipal water) and sales of meters, valves and other products for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that nearly 90% of its products are used in water related applications.

Municipal 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 municipal water utilities as the basis for generating their water and wastewater revenues. The largest geographic market for the Company’s municipal 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 and Europe.

The flow instrumentation product line includes meters and valves sold worldwide to measure and control 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); oil and gas; and chemical and petrochemical. 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.

Municipal water meters (both residential and commercial) are generally classified as either manually read meters or remotely read meters via radio technology. A manually read meter consists of a water meter and a register that provides a visual totalized meter reading. Meters equipped with radio technology (endpoints) receive flow measurement data from battery-powered encoder registers attached to the water meter, which is encrypted and transmitted via radio frequency to a receiver that collects and formats the data appropriately for water utility usage and billing systems. These remotely read systems are classified as either automatic meter reading (AMR) systems, where a vehicle equipped for meter reading purposes, including a radio receiver, computer and reading software, collects the data from utilities’ meters; or advanced metering infrastructure (AMI) systems, where data is gathered utilizing a network (either fixed or cellular) of data collectors or gateway receivers that are able to receive radio data transmission from the utilities’ meters. AMI systems eliminate the need for utility personnel to drive through service territories to collect data from the meters. These systems provide utilities with more frequent and diverse data from their meters at specified intervals.

The ORION® branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading. These include ORION Migratable (ME) for AMR meter reading, ORION (SE) for traditional fixed network applications, and ORION Cellular for an infrastructure-free meter reading solution. ORION Migratable makes the migration to fixed network easier for utilities that prefer to start with mobile reading and later adopt fixed network communications, allowing utilities to choose a solution for their current needs and be positioned for their future operational changes. ORION Cellular eliminates the need for utility-owned fixed network infrastructure, allows for gradual or full deployment, and decreases ongoing maintenance.

Critical to the water metering ecosystem is information and analytics. The Company’s BEACON® Advanced Metering Analytics (AMA) software suite improves the utilities’ visibility of their water and water usage. BEACON AMA is a secure, cloud-hosted software suite that includes a customizable dashboard, and has the ability to establish alerts for specific conditions. It also allows for consumer engagement tools that permit end water users (such as homeowners) to view and manage their water usage activity. Benefits to the utility include improved customer service, increased visibility through faster leak detection, the ability to promote and quantify the effects of its water conservation efforts, and easier compliance reporting.

Water meter replacement and the adoption and deployment of new technology comprise the majority of water meter product sales, including radio products. To a much lesser extent, housing starts also contribute to the new product sales base. Over the last decade, there has been a growing trend in the conversion from manually read water meters to meters with radio technology. This conversion rate is accelerating, with the Company estimating that approximately 60% of water meters installed in the United States have been converted to a radio solution technology.

The Company’s net sales and corresponding net earnings depend on unit volume and product mix, with the Company generally earning higher average selling prices and margins on meters equipped with radio technology, and higher margins on ultrasonic compared to mechanical meters. The Company’s proprietary radio products (i.e. ORION) generally result in higher margins than remarketed, non-proprietary technology products. The Company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field.

Flow instrumentation products are used in flow measurement and control applications across a broad industrial spectrum, occasionally leveraging the same technologies used in the municipal water category. Specialized communication protocols that control the entire flow measurement process and mandatory certifications drive these markets. The Company provides both standard and customized flow instrumentation solutions.

The industries served by the Company’s flow instrumentation products face accelerating demands to contain costs, reduce product variability, and meet ever-changing safety, regulatory and sustainability requirements. To address these challenges, customers must reap more value from every component in their systems. This system-wide scrutiny has heightened the focus on flow instrumentation in industrial process, manufacturing, commercial fluid, building automation and precision engineering applications where flow measurement and control are critical.

A leader in both mechanical and static (ultrasonic) flow metering technologies for industrial markets, the Company offers one of the broadest flow measurement, control and communication portfolios in the market. This portfolio carries respected brand names including Recordall®, Hedland®, Dynasonics®, Blancett®, and Research Control®, and includes eight of the ten major flow meter technologies. Customers rely on the Company for application-specific solutions that deliver accurate, timely and dependable flow data and control essential for product quality, cost control, safer operations, regulatory compliance and more sustainable operations.

The Company's products are sold throughout the world through employees, resellers and representatives. Depending on the customer mix, there can be a moderate seasonal impact on sales, primarily relating to higher sales of certain municipal water products during the spring and summer months. No single customer accounts for more than 10% of the Company's sales.

Competition

The Company faces competition for both its municipal water and flow instrumentation product lines. The competition varies from moderate to strong depending upon the products involved and the markets served. Major competitors for municipal water meters include Xylem, Inc. (“Sensus”), Roper Technologies, Inc. (“Neptune”), Master Meter, Inc. and Mueller Water Products, Inc. Together with Badger Meter, it is estimated that these companies sell in excess of 90% of the water meters in the North American market, which has historically been somewhat insulated from penetration by other competitors due to the nature of the mechanical technology used. As static metering technology continues to gain traction in the North American market, additional competitors include firms such as Kamstrup A/S, Diehl Metering GmbH and Itron, Inc., although these competitors lack brand recognition and product breadth and do not have extensive water utility channel distribution to effectively reach the more than 50,000 water utilities in the United States, which impedes their ability to compete. In addition, as previously noted, the technology acceptance overall also provides competitive opportunities for Badger Meter outside North America.

The Company's primary competitors for municipal water radio products in North America are Itron, Inc., Hubbel, Inc. (Aclara Technologies), Neptune and Sensus. The vast majority of the Company’s radio sales are of its own proprietary radio systems (ORION and GALAXY®); however, the Company may also resell other radio products as part of an overall smart meter solution (e.g. Aclara, Itron®).

A number of the Company's competitors in certain markets have greater financial resources than the Company. The Company, however, believes it currently provides the leading technologies in water meters and water-dedicated radio solutions and analytics. As a result of significant research and development activities, the Company enjoys favorable patent positions and trade secret protections for several of its technologies, products and processes.

There are many competitors in the flow instrumentation markets due to the various end markets and applications served. They include, among others, Emerson Electric Company, Krohne Messtechnik GmbH, Endress+Hauser AG, Yokogawa Electric Corporation and Cameron International. With a broad portfolio consisting of products utilizing eight of the ten major flow meter technologies, the Company is well positioned to compete in niche, specialized applications within these markets, primarily focused on the water/wastewater, HVAC, oil & gas and chemical/petrochemical end markets.

Backlog

The Company's total backlog of unshipped orders at December 31, 2019 and 2018 was $27.2 million and $29.9 million, respectively. The backlog is comprised of firm orders and signed contractual commitments, or portions of such commitments that call for shipment within 12 months. Backlog can be significantly affected by the timing of orders for large projects and the amounts can vary due to the timing of work performed.

Raw Materials and Components

Raw materials used in the manufacture of the Company's products include purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, glass, microprocessors and other electronic subassemblies, and components. There are multiple sources for these raw materials and components, but the Company relies on single suppliers for certain brass castings, resins and electronic subassemblies. The Company believes these items would be available from other sources, but that the loss of certain suppliers may 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 carries business interruption insurance on key suppliers. The Company's purchases of raw materials are based on production schedules, and as a result, inventory on hand is generally not exposed to price fluctuations. World commodity markets and currency exchange rates may also affect the prices of material purchased in the future. The Company does not hold significant amounts of precious metals.

Research and Development

Expenditures for research and development activities related to the development of new products, the improvement of existing products and manufacturing process improvements were $11.9 million in 2019, $11.1 million in 2018 and $10.6 million in 2017. Research and development activities are primarily sponsored by the Company. The Company also engages from time to time in joint research and development with other companies and organizations.

Intangible Assets

The Company owns or controls several trade secrets and many patents, trademarks and trade names in the United States and other countries that relate to its products and technologies. No single patent, trademark, trade name or trade secret is material to the Company's business as a whole.

Environmental Protection

The Company is subject to contingencies related to environmental laws and regulations. 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, 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 control provisions and regulations during 2019, 2018 and 2017 were not material.

Employees

The Company and its subsidiaries employed 1,567 persons at December 31, 2019. Approximately 108 of these employees are covered by a collective bargaining agreement with District 10 of the International Association of Machinists. The Company is currently operating under a three-year contract with the union, which expires on October 31, 2022. The Company believes it has good relations with the union and all of its employees.

Information about the Company’s Executive Officers

The following table sets forth certain information regarding the Executive Officers of the Registrant.

Name	Position	Age at 2/28/2020
Kenneth C. Bockhorst	Chairman, President and Chief Executive Officer	47
Robert A. Wrocklage	Senior Vice President — Chief Financial Officer	41
Karen M. Bauer	Vice President — Investor Relations, Corporate Strategy and Treasurer	52
Fred J. Begale	Vice President — Engineering	55
William R. A. Bergum	Vice President — General Counsel and Secretary	55
Gregory M. Gomez	Vice President — Global Flow Instrumentation and International Utility	55
Trina L. Jashinsky	Vice President — Human Resources	57
William J. Parisen	Vice President — Global Operations	53
Kimberly K. Stoll	Vice President — Sales and Marketing	53
Daniel R. Weltzien	Vice President — Controller	41

There are no family relationships between any of the executive officers. Officers are elected annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. Each officer holds office until his or her successor has been elected or until his or her death, resignation or removal. There is no arrangement or understanding between any executive officer and any other person pursuant to which he or she was elected as an officer.

Mr. Bockhorst was elected President in April 2018, Chief Executive Officer in January 2019 and Chairman in January 2020 after serving as Senior Vice President - Chief Operating Officer for the Company from October 2017 to April 2018. Prior to joining the Company, Mr. Bockhorst was Executive Vice President of the Energy segment, preceded by President of Hydratight and Global Vice President Operations of Enerpac, all within Actuant Corporation (now Enerpac Tool Group) from March 2011 to October 2017.

Mr. Wrocklage was elected Vice President – Chief Financial Officer and Treasurer in 2019 and Senior Vice President – Chief Financial Officer in January 2020 after serving as Vice President - Finance for the Company from August 2018 to December 2018. Prior to joining the Company, Mr. Wrocklage spent ten years with Actuant Corporation (now Enerpac Tool Group), holding various corporate and business unit financial leadership roles, most recently as Vice President - Corporate Controller and Chief Accounting Officer.

Ms. Bauer was elected Vice President - Investor Relations, Corporate Strategy and Treasurer effective June 2019. She joined Badger Meter in July 2018 as Director, Investor Relations and Corporate Strategy. In her role she also oversees the Company’s ESG (Environmental, Social & Governance) initiatives. Prior to joining Badger Meter, she served at Actuant Corporation (now Enerpac Tool Group), most recently as Director, Investor Relations & Communications.

Mr. Begale has served as Vice President - Engineering for more than five years.

Mr. Bergum has served as Vice President - General Counsel and Secretary for more than five years.

Mr. Gomez was elected Vice President – Flow Instrumentation and International Utility in March 2019. Mr. Gomez served as Vice President - Business Development and Flow Instrumentation from April 2017 to March 2019, Vice President - Flow Instrumentation from September 2014 to April 2017, and Vice President - Business Development from December 2010 to September 2014.

Ms. Jashinsky was elected Vice President - Human Resources in October 2016. Prior to joining the Company, Ms. Jashinsky was Vice President of Human Resources at Gannett Company, Inc. from February 2015 to July 2016, Senior Vice President Human Resources at Fiserv, Inc. from March 2014 to February 2015, and Vice President - Global Corporate Human Resources at Johnson Controls, Inc. from May 2010 to February 2014.

Mr. Parisen was elected Vice President - Global Operations in June 2019. He joined Badger Meter in August 2018 as Senior Director, Global Supply Chain. Prior to joining Badger Meter, he was employed at Actuant Corporation (now Enerpac Tool Group) where he most recently held the position of Vice President - Global Operations for the Industrial and Energy segments.

Ms. Stoll has served as Vice President - Sales and Marketing for more than five years.

Mr. Weltzien was elected Vice President – Controller in March 2019. Prior to joining the Company, Mr. Weltzien spent eight years with Actuant Corporation (now Enerpac Tool Group), holding various corporate and business unit financial leadership roles, most recently as Senior Director of Finance for its Hydratight business unit.

Foreign Operations and Export Sales

The Company sells its products through employees, resellers and representatives throughout the world. Additionally, the Company has a sales, distribution and manufacturing facility in Neuffen, Germany; sales and customer service offices in Mexico, Singapore, China, United Arab Emirates and Slovakia; manufacturing facilities in Nogales, Mexico, Brno, Czech Republic and Bern, Switzerland; and a development facility in Luleå, Sweden. The Company exports products from the United States that are manufactured in Milwaukee, Wisconsin; Racine, Wisconsin and Tulsa, Oklahoma.

Information about the Company's foreign operations and export sales is included in Note 9 “Industry Segment and Geographic Areas” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2019 Annual Report on Form 10-K.

Financial Information about Industry Segments

The Company operates in one industry segment as an innovator, manufacturer and marketer of products incorporating flow measurement, control and communication solutions. Information about the Company's sales, operating earnings and assets is included in the Consolidated Financial Statements and in Note 9 “Industry Segment and Geographic Areas” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2019 Annual Report on Form 10-K.

ITEM 1A.

RISK FACTORS

Shareholders, potential investors and other readers are urged to consider the significant business risks described below in addition to the other information set forth or incorporated by reference in this 2019 Annual Report on Form 10-K, including the “Special Note Regarding Forward Looking Statements” at the front of this 2019 Annual Report on Form 10-K. If any of the events contemplated by the following risks actually occur, our financial condition or results of operations could be materially adversely affected. The following list of risk factors may not be exhaustive. We operate in a continually changing business, economic and geopolitical environment, and new risk factors may emerge from time to time. We can neither predict these new risk factors with certainty nor assess the precise impact, if any, on our business, or the extent to which any factor, or combination of factors, may adversely impact our results of operations. While there is much uncertainty, we do analyze the risks we face, perform a probability assessment of their impacts and attempt to soften their potential impact when and if possible.

Competitive pressures in the marketplace could decrease our revenues and profits.

Competitive pressures in the marketplace for our products could adversely affect our competitive position, leading to a possible loss of market share or a decrease in prices, either of which could result in decreased revenues and profits. We operate in an environment where competition varies from moderate to strong and a number of our competitors have greater financial resources. Our competitors also include alliance partners that sell products that do or may compete with our products. The principal elements of competition for our most significant product applications, residential and commercial water meters for the municipal water utility market (with various radio technology systems), are price, product technology, quality and service. The competitive environment is also affected by the movement toward radio technologies and away from manually read meters, the demand for replacement units and, to some extent, such things as global economic conditions, the timing and size of governmental programs such as stimulus fund programs, the ability of municipal water utility customers to authorize and finance purchases of our products, our ability to obtain financing, housing starts in the United States, and overall economic activity. For our flow instrumentation products, the competitive environment is affected by the general economic health of various industrial sectors particularly in the United States and Europe.

The inability to develop technologically advanced products could harm our future success.

We believe that our future success depends, in part, on our ability to develop technologically advanced products that meet or exceed appropriate industry standards. Although we believe that we currently have a competitive advantage in this area, maintaining such advantage will require continued investment in research and development, sales, marketing and manufacturing capabilities. There can be no assurance that we will have sufficient resources to make such investments or that we will be able to make the technological advances necessary to maintain such competitive advantage. If we are unable to maintain our competitive advantage, our future financial performance may be adversely affected. We are not currently aware of any emerging standards, technologies or new products that could render our existing products obsolete in the near term. The municipal water industry is continuing to see the adoption of static water meters. Static water metering has lower barriers to entry that could affect the competitive landscape in North America. We believe we have a competitive product, if the adoption rate for static meters were to accelerate, we believe competitors lack brand recognition and product breadth and do not have extensive water utility channel distribution to effectively reach the more than 50,000 water utilities in the United States.

The inability to obtain adequate supplies of raw materials and component parts at favorable prices could decrease our profit margins and negatively impact timely delivery to customers.

We are affected by the availability and prices for raw materials and component parts, including purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, glass, microprocessors and other electronic subassemblies, and components that are used in the manufacturing process. The inability to obtain adequate supplies of raw materials and component parts for our products at favorable prices could have a material adverse effect on our business, financial condition or results of operations by decreasing profit margins and by negatively impacting timely deliveries to customers. In the past, we have been able to offset price increases in raw materials and component parts by increased sales prices, active materials management, product engineering programs and the diversity of materials used in the production processes. However, we cannot be certain that we will be able to accomplish this in the future. Since we do not control the actual production of these raw materials and component parts, there may be delays caused by an interruption in the production or transportation of these materials for reasons that are beyond our control. World commodity markets and inflation may also affect raw material and component part prices.

Economic conditions could cause a material adverse impact on our sales and operating results.

As a supplier of products and software, the majority of which are to water utilities, we may be adversely affected by global economic conditions, delays in governmental programs created to stimulate the economy, and the impact of government budget cuts or partial shutdowns of governmental operations that affect our customers, including independent distributors, large city utilities, public and private water companies and numerous smaller municipal water utilities. These customers may delay capital projects, including non-critical maintenance and upgrades, or may not have the ability to authorize and finance purchases during economic downturns or instability in world markets. We also sell products for other applications to reduce our dependency on the municipal water market. A significant downturn in this market could cause a material adverse impact on sales and operating results. Therefore, a downturn in general economic conditions, as well as in the municipal water market, and delays in the timing or amounts of possible economic stimulus fund programs, government budget cuts or partial shutdowns of governmental operations, or the availability of funds to municipalities could result in a reduction in demand for our products and services and could harm the business.

Economic impacts due to leadership or policy changes in the countries where we do business could negatively affect our profitability.

We may be affected by adjustments to economic and trade policies, such as taxation, changes to or withdrawal from international trade agreements, or the like, when countries where we produce or sell our products change leadership or economic policies. These types of changes, as well as any related regulatory changes, could significantly increase our costs and adversely affect our profitability and financial condition.

Global and regional economic and political conditions could adversely affect our business.

In June 2016, voters in the United Kingdom approved the United Kingdom’s exit from the European Union (“Brexit”), and on January 31, 2020, the United Kingdom withdrew from the European Union. There is now a transition period during which businesses and others prepare for the new post-Brexit rules to take effect on January 1, 2021. The ongoing negotiations of the future trading relationship between the United Kingdom and the European Union during the transition period have yet to provide clarity on what the outcome will be for the United Kingdom or Europe. As a result, Brexit continues to be the source of significant economic uncertainty in the United Kingdom and in Europe, the Middle East, and Asia, which may negatively impact our business results in those regions. In addition, changes related to Brexit could result in disruptions to trade and free movement of goods, services and people to and from the United Kingdom, increased foreign exchange volatility with respect to the British pound and additional legal, political and economic uncertainty, all of which could potentially disrupt the markets we serve, the tax jurisdictions in which we operate, adversely change tax benefits or liabilities in these or other jurisdictions and may cause us to lose customers, suppliers and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. Any of these effects could adversely affect our business and results of operations.

Climate change, unusual weather and other natural phenomena could adversely affect our business.

Climate changes and weather conditions may affect, or cause volatility in, our financial results. Drought conditions could drive higher demand for smart water solutions that advance conservation efforts in residential and commercial applications. Our sales also may be adversely affected by unusual weather, weather patterns or other natural phenomena that could have an impact on the timing of orders in given periods, depending on the particular mix of customers being served by us at the time. The unpredictable nature of weather conditions and climate change therefore may result in volatility for certain portions of our business, as well as the operations of certain of our customers and suppliers.

Geopolitical crisis, including terrorism or pandemics, could adversely affect our business.

Our operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, and widespread outbreak of an illness or other health issue. The occurrence of any of these events could have an adverse effect on our business results and financial condition.

Failure to manufacture quality products could have a material adverse effect on our business.

If we fail to maintain and enforce quality control and testing procedures, our products will not meet required performance standards. Product quality and performance are a priority for us since our products are used in various applications where precise control of fluids is essential. Although we believe our products are perceived as high quality, any future production and/or sale of substandard products could seriously harm our reputation, resulting in both a loss of current customers to competitors and damage to our ability to attract new customers. In addition, if any of our products prove to be defective, we may be required to participate in a recall involving such products or incur warranty related expenses. A successful claim brought against us with respect to a defective product in excess of available insurance coverage, if any, or a requirement to participate in a major product recall, could have a material adverse effect on our business, results of operations or financial condition.

Litigation against us could be costly, time consuming to defend and could adversely affect our profitability.

From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of business. For example, we may be subject to workers' compensation claims, employment/labor disputes, customer and supplier disputes, product liability claims, intellectual property disputes and contractual disputes related to warranties arising out of the conduct of our business. Litigation may result in substantial costs and may divert management's attention and resources, which could adversely affect our profitability or financial condition.

If our technology products do not operate as intended, our business could be materially and adversely affected.

We sell and install software products, including some that are provided in “the cloud,” that may contain unexpected design defects or may encounter unexpected complications during installation or when used with other technologies utilized by the customer. A failure of our technology products to operate as intended and in a seamless fashion with other products or a failure or breach of a cloud network could materially and adversely affect our results of operations, financial position and cash flows.

Our expanded role as a prime contractor brings certain risks that could have a material adverse effect to our business.

The Company periodically assumes the role of prime contractor for providing complete technology systems, installation and project management to governmental entities, which brings with it added risks, including but not limited to, our responsibility for managing subcontractor performance and project timelines and the potential for expanded warranty and performance obligations. While we have managed a number of these types of arrangements, it is possible to encounter a situation where we may not be able to perform to the expectations of the governmental entity, and thus incur additional costs that could affect our profitability or harm our reputation.

Disruptions and other damages to our information technology and other networks and operations, and breaches in data security or cybersecurity attacks could have a negative financial impact and damage our reputation.

Our ability to serve customers, as well as increase revenues and control costs, depends in part on the reliability of our sophisticated technologies, system networks and cloud-based software. We use information technology and other systems to manage our business in order to maximize our revenue, effectiveness and efficiency. Unauthorized parties gaining access to digital systems and networks for purposes of misappropriating assets or sensitive financial, personal or business information, corrupting data, causing operational disruptions and other cyber-related risks could adversely impact our customer relationships, business plans and our reputation. In some cases, we are dependent on third-party technologies and service providers for which there is no certainty of uninterrupted availability or through which hackers could gain access to sensitive and/or personal information. These potential disruptions and cyber-attacks could negatively affect revenues, costs, customer demand, system availability and our reputation.

Further, as the Company pursues its strategy to grow through acquisitions and to pursue newer technologies that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Certain new technologies present new and significant cybersecurity safety risks that must be analyzed and addressed before implementation. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks.

If we are not able to protect our proprietary rights to our software and related products, our ability to market our software products could be hindered and our results of operations, financial position and cash flows could be materially and adversely affected.

We rely on our agreements with customers, confidentiality agreements with employees, and our trademarks, trade secrets, copyrights and patents to protect our proprietary rights. These legal protections and precautions may not prevent misappropriation of our proprietary information. In addition, substantial litigation regarding intellectual property rights exists in the software industry, and software products may increasingly be subject to third-party infringement claims. Such litigation and misappropriation of our proprietary information could hinder our ability to market and sell products and services and our results of operations, financial position and cash flows could be materially and adversely affected.

Changes in environmental or regulatory requirements could entail additional expenses that could decrease our profitability.

We are subject to a variety of laws in various countries and markets, such as those regulating lead or other material content in certain of our products, the handling and disposal of certain electronic materials, the use and/or licensing of radio frequencies necessary for radio products, data privacy and protection, as well as customs and trade practices. We cannot predict the nature, scope or effect of future environmental or regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted. Currently, the cost of complying with existing laws is included as part of our on-going expenses and does not have a material effect on our business or financial position, but a change in the future could adversely affect our profitability.

Risks related to foreign markets could decrease our profitability.

Since we sell products worldwide as well as manufacture products in several countries, we are subject to risks associated with doing business internationally. These risks include such things as changes in foreign currency exchange rates, changes in political or economic conditions of specific countries or regions, potentially negative consequences from changes in tax laws or regulatory requirements, differing labor regulations, and the difficulty of managing widespread operations.

An inability to attract and retain skilled employees could negatively impact our growth and decrease our profitability.

Our success depends on our continued ability to identify, attract, develop and retain skilled personnel throughout our organization. Current and future compensation arrangements, including benefits, may not be sufficient to attract new employees or retain existing employees, which may hinder our growth.

Violations or alleged violations of laws that impose requirements for the conduct of the Company’s overseas operations, including the Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws, trade sanctions and sanctioned parties restrictions could adversely affect our business.

In foreign countries where we operate, a risk exists that our employees, third party partners or agents could engage in business practices prohibited by applicable laws and regulations, such as the FCPA. Such anti-corruption laws generally prohibit companies from making improper payments to foreign officials, require companies to keep accurate books and records, and maintain appropriate internal controls. Our policies mandate strict compliance with such laws and we devote resources to ensure compliance. However, we operate in some parts of the world that have experienced governmental corruption, and, in certain circumstances, local customs and practice might not be consistent with the requirements of anti-corruption laws. We remain subject to the risk that our employees, third party partners or agents will engage in business practices that are prohibited by our policies and violate such laws and regulations. Violations by us or a third party acting on our behalf could result in significant internal investigation costs and legal fees, civil and criminal penalties, including prohibitions on the conduct of our business and reputational harm.

We may also be subject to legal liability and reputational damage if we violate U.S. trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the European Union, the United Nations and trade sanction laws, such as the Iran Threat Reduction and Syria Human Rights Act of 2012. Our policies mandate strict compliance with such laws and we devote resources to ensure compliance.

Failure to successfully identify, complete and integrate acquired businesses or products could adversely affect our operations.

As part of our business strategy, we continue to evaluate and may pursue selected business or product acquisition opportunities that we believe may provide us with certain operating and financial benefits. There can be no assurance that we will identify or complete transactions with suitable acquisition candidates in the future. If we complete any such acquisitions, they may require integration into our existing business with respect to administrative, financial, sales, marketing, manufacturing and other functions to realize these anticipated benefits. If we are unable to successfully integrate a business or product acquisition, we may not realize the benefits identified in our due diligence process, and our financial results may be negatively impacted. Additionally, significant unexpected liabilities may arise during or after completion of an acquisition.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

The principal facilities utilized by the Company at December 31, 2019 are listed below. The Company owns all such facilities except as noted. The Company believes that its facilities are generally well maintained and have sufficient capacity for its current needs.

		Approximate area
Location	Principal use	(square feet)
Los Gatos, California, USA	Software development		3,600	(1)
Centennial, Colorado, USA	Distribution		12,000
Nashville, Tennessee, USA	Distribution		8,400	(2)
West Sacramento, California, USA	Distribution		11,400	(3)
San Marcos, Texas, USA	Distribution		14,800	(4)
Tulsa, Oklahoma, USA	Manufacturing		59,500
Milwaukee, Wisconsin, USA	Manufacturing and offices		324,200
Racine, Wisconsin, USA	Manufacturing and offices		134,300	(5)
Brno, Czech Republic	Manufacturing		27,800
Neuffen, Germany	Manufacturing and offices		24,700
Nogales, Mexico	Manufacturing		181,300
Luleå, Sweden	Electronic development		7,000	(6)
Bern, Switzerland	Manufacturing		16,800	(7)

(1)	Leased facility. Lease term expires November 30, 2021.

(2)	Leased facility. Lease term expires June 30, 2022.

(3)	Leased facility. Lease term expires October 31, 2024.

(4)	Leased facility. Lease term expires November 30, 2021.

(5)	Leased facility. Lease term expires December 31, 2025.

(6)	Leased facility. Lease term expires June 30, 2025.

(7)	Building is owned, but land is leased from the government, as required. Lease term expires October 18, 2021.

ITEM 3.

LEGAL PROCEEDINGS

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 Company is subject to contingencies related to environmental laws and regulations. Information about the Company's compliance with environmental regulations is included in Part I, Item 1 of this 2019 Annual Report on Form 10-K under the heading “Environmental Protection.”

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Common Stock is traded on the New York Stock Exchange (NYSE Trading Symbol: BMI). At February 3, 2020, there were approximately 788 holders of the Company’s Common Stock. Other information required by this Item is set forth in Note 2 “Common Stock” and Note 10 “Unaudited: Quarterly Results of Operations, Common Stock Price and Dividends” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2019 Annual Report on Form 10-K.

The following information in Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates it by reference into such a filing.

The following graph compares on a cumulative basis the yearly percentage change since January 1, 2015 in (a) the total shareholder return on the Company’s Common Stock with (b) the total return on the Russell 2000® Index, and (c) the total return of the peer group made up of 14 companies, including the Company, in similar industries and with similar market capitalization. The Russell 2000® Index is a trademark of the Frank Russell Company, and is used herein for comparative purposes in accordance with Securities and Exchange Commission regulations.

The graph assumes $100 invested on December 31, 2014. It further assumes the reinvestment of dividends. The returns of each component company in the peer groups have been weighted based on such company's relative market capitalization.

December 31		2014		2015			2016			2017			2018			2019
Badger Meter, Inc.	Return %				0.03	%		27.71	%		30.94	%		4.10	%		33.45	%
	Cumulative $	$	100.00	$	100.03		$	127.75		$	167.28		$	174.14		$	232.39
Russell 2000 Index	Return %				-4.41	%		21.31	%		14.65	%		-11.01	%		25.52	%
	Cumulative $	$	100.00	$	95.59		$	115.95		$	132.94		$	118.30		$	148.49
Peer Group	Return %				-7.30	%		33.10	%		20.10	%		-20.18	%		34.49	%
	Cumulative $	$	100.00	$	92.70		$	123.38		$	148.19		$	118.28		$	159.07

The Peer Group consists of A. O. Smith Corp. (AOS), Badger Meter, Inc. (BMI), CIRCOR International, Inc. (CIR), ESCO Technologies Inc. (ESE), Franklin Electric Co, Inc. (FELE), Gorman-Rupp Company (GRC), Itron, Inc. (ITRI), Lindsay Corporation (LNN), Perma-Pipe International Holdings, Inc. (PPIH), Mueller Water Products (MWA), Northwest Pipe Company (NWPX), Rexnord Corporation (RXN), Helios Technologies (SNHY) and Watts Water Technologies, Inc. (WTS).

In February 2017, the Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s Common Stock through February 2020. The following table provides information about the Company's purchases during the quarter ended December 31, 2019 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act.

	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of a publicly announced program		Maximum number of shares that may yet be purchased under the program
October 1, 2019 - October 31, 2019		—	$	—		267,221		132,779
November 1, 2019 - November 30, 2019		—		—		267,221		132,779
December 1, 2019 - December 31, 2019		29,297		63.09		296,518		103,482
Total as of December 31, 2019		29,297				296,518		103,482

On February 14, 2020, the Board of Directors approved a new share repurchase authorization of up to 400,000 shares of the Company’s Common Stock through February 2023.

ITEM 6.

SELECTED FINANCIAL DATA

BADGER METER, INC.

	Years ended December 31,
(In thousands except per share data)	2019			2018			2017			2016			2015			2014			2013			2012			2011			2010
Operating results
Net sales	$	424,625			433,732			402,440			393,761			377,698			364,768			334,122			319,660			262,915			276,634
Research and development	$	11,930			11,095			10,596			10,597			10,645			9,496			10,504			9,567			8,086			7,164
Earnings before income taxes	$	61,607			35,852			54,833			49,844			41,152			44,912			38,009			43,471			27,349			44,438
Net earnings	$	47,177			27,790			34,571			32,295			25,938			29,678			24,617			28,032			19,161			28,662
Net earnings to sales		11.1	%		6.4	%		8.6	%		8.2	%		6.9	%		8.1	%		7.4	%		8.8	%		7.3	%		10.4	%
Per Common share (1)
Basic earnings per share	$	1.63			0.96			1.20			1.12			0.90			1.04			0.86			0.98			0.64			0.96
Diluted earnings per share	$	1.61			0.95			1.19			1.11			0.90			1.03			0.85			0.98			0.64			0.96
Cash dividends declared: Common Stock	$	0.64			0.56			0.49			0.43			0.39			0.37			0.35			0.33			0.30			0.26
Price range - high	$	66.64			57.12			52.10			39.36			32.94			30.46			28.18			24.30			22.74			22.75
Price range - low	$	47.59			41.00			34.40			26.40			25.82			23.24			20.94			14.65			13.43			16.29
Closing price	$	64.93			49.21			47.80			36.95			29.30			29.68			27.25			23.71			14.72			22.11
Book value *	$	11.37			10.42			9.53			8.80			8.00			7.41			6.82			5.98			5.93			5.60
Shares outstanding at year- end (1)
Common Stock		29,119			29,119			29,119			29,119			29,050			28,922			28,824			28,628			30,246			30,096
Financial position
Primary working capital *	$	111,790			124,635			114,781			119,169			116,084			109,682			92,518			91,030			79,239			77,586
Primary working capital as a percent of net sales *		26.4	%		28.7	%		28.5	%		30.3	%		30.7	%		30.1	%		27.7	%		28.5	%		30.1	%		28.0	%
Net cash provided by operations	$	80,714			60,350			49,751			56,185			35,831			35,735			34,818			34,802			31,317			18,396
Capital expenditures	$	7,496			8,643			15,069			10,596			19,766			12,332			14,311			8,202			5,336			9,238
Total assets	$	421,893			392,691			391,727			349,699			355,480			341,158			316,058			290,453			218,910			215,864
Short-term and current portion of long-term debt	$	4,480			18,060			44,550			37,950			71,360			75,927			70,045			66,730			1,790			12,878
Long-term debt	$	n/a		n/a			n/a			n/a			n/a			n/a			n/a			n/a			n/a			n/a
Shareholders' equity	$	331,068			303,503			277,452			256,209			232,275			214,331			196,563			171,247			179,281			168,383
Debt as a percent of total debt and equity *		1.3	%		5.6	%		13.8	%		12.9	%		23.5	%		26.2	%		26.3	%		28.0	%		1.0	%		7.1	%
Return on shareholders' equity *		14.2	%		9.2	%		12.5	%		12.6	%		11.2	%		13.8	%		12.5	%		16.4	%		10.7	%		17.0	%
Price/earnings ratio *		40.3			51.8			40.2			33.3			32.6			28.8			32.1			24.3			23.2			23.2

(1)	All per share amounts and number of shares outstanding have been restated to reflect the 2016 2-for-1 stock split for the periods presented.

*	Description of calculations as of the applicable year end:

Book value per share equals total shareholders' equity at year-end divided by the number of common shares outstanding.

Primary working capital equals receivables plus inventories minus payables.

Primary working capital as a percent of net sales equals receivables plus inventories minus payables, divided by net sales.

Debt as a percent of total debt and equity equals total debt (the sum of short-term debt, current portion of long-term debt and long-term debt) divided by the sum of total debt and total shareholders' equity at year-end.

Return on shareholders' equity equals net earnings divided by total shareholders' equity at year-end.

Price/earnings ratio equals the year-end closing stock price for common stock divided by diluted earnings per share.

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS DESCRIPTION AND OVERVIEW

Municipal 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 municipal water utilities as the basis for generating their water and wastewater revenues. The largest geographic market for the Company’s municipal 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 portion of the water meters sold by the Company and in the industry due to a variety of factors, including their ability to maintain a high level of 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 and Europe.

The flow instrumentation product line includes meters and valves sold worldwide to measure and control 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); oil and gas, and chemical and petrochemical. 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.

Municipal water meters (both residential and commercial) are generally classified as either manually read meters or remotely read meters via radio technology. A manually read meter consists of a water meter and a register that provides a visual totalized meter reading. Meters equipped with radio technology (endpoints) receive flow measurement data from battery-powered encoder registers attached to the water meter, which is encrypted and transmitted via radio frequency to a receiver that collects and formats the data appropriately for water utility usage and billing systems. These remotely read systems are classified as either automatic meter reading (AMR) systems, where a vehicle equipped for meter reading purposes, including a radio receiver, computer and reading software, collects the data from utilities’ meters; or advanced metering infrastructure (AMI) systems, where data is gathered utilizing a network (either fixed or cellular) of data collectors or gateway receivers that are able to receive radio data transmission from the utilities’ meters. AMI systems eliminate the need for utility personnel to drive through service territories to collect data from the meters. These systems provide the utilities with more frequent and diverse data from their meters at specified intervals.

The ORION branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading. These include ORION Migratable (ME) for AMR meter reading, ORION (SE) for traditional fixed network applications, and ORION Cellular for an infrastructure-free meter reading solution. ORION Migratable makes the migration to fixed network easier for utilities that prefer to start with mobile reading and later adopt fixed network communications, allowing utilities to choose a solution for their current needs and be positioned for their future operational changes. ORION Cellular eliminates the need for utility-owned fixed network infrastructure, allows for gradual or full deployment, and decreases ongoing maintenance.

Critical to the water metering ecosystem is information and analytics. The Company’s BEACON Advanced Metering Analytics (AMA) software suite improves the utilities’ visibility of their water and water usage. BEACON AMA is a secure, cloud-hosted software suite that includes a customizable dashboard, and has the ability to establish alerts for specific conditions. It also allows for consumer engagement tools that permit end water users (such as homeowners) to view and manage their water usage activity. Benefits to the utility include improved customer service, increased visibility through faster leak detection, the ability to promote and quantify the effects of its water conservation efforts, and easier compliance reporting.

Water meter replacement and the adoption and deployment of new technology comprise the majority of water meter product sales, including radio products. To a much lesser extent, housing starts also contribute to the new product sales base. Over the last decade, there has been a growing trend in the conversion from manually read water meters to meters with radio technology. This conversion rate is accelerating, with the Company estimating that approximately just over 60% of water meters installed in the United States have been converted to a radio solution technology.

The Company’s net sales and corresponding net earnings depend on unit volume and product mix, with the Company generally earning higher average selling prices and margins on meters equipped with radio technology, and higher margins on ultrasonic compared to mechanical meters. The Company’s proprietary radio products (i.e. ORION), which comprise the majority of its radio sales, generally result in higher margins than remarketed, non-proprietary technology products. The Company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field.

Business Trends

Across the globe, increasing regulations and a focus on sustainability are driving companies and utilities to better manage critical resources like water, monitor their use of hazardous materials and reduce exhaust gases. Some customers measure fluids to identify leaks and/or misappropriation for cost control or add measurement points to help automate manufacturing. Other customers employ measurement to comply with government mandates and laws. The Company provides flow measurement technology to measure water, oil, chemicals and other fluids, gases and steams. This technology is critical to provide baseline usage data and to quantify reductions as customers attempt to reduce consumption. For example, once water usage metrics are better understood, a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where it is most viable. With the Company’s technology, customers have found costly leaks, pinpointed equipment in need of repair, and identified areas for process improvements.

Increasingly, customers in the municipal water market are interested in more frequent and diverse data collection and the use of water metering analytics to evaluate water use. Specifically, AMI technology enables water utilities to capture readings from each meter at more frequent and variable intervals. There are more than 50,000 water utilities in the United States and the Company estimates that approximately 60% of them have converted to a radio solution. The Company believes it is well positioned to meet this continuing conversion trend with its comprehensive radio and software solutions.

In addition, certain water utilities are converting from mechanical to static meters. Ultrasonic water metering maintains a high level of measurement accuracy over the life of the meter, reducing a utility’s non-revenue water. The Company has a decade of proven reliability in the market with its ultrasonic meters and is on a path to launching its next generation of ultrasonic metering with its D-Flow technology, which the Company believes increases its competitive differentiation. While the introduction of ultrasonic technology into North America may increase competition, it also opens up further geographic penetration opportunities for the Company as previously described.

Finally, the concept of “Smart Cities” is beginning to take hold as one avenue to affect efficient city operations, conserve resources and improve service and delivery. Smart water solutions (“Smart Water”) are those that provide actionable information through data analytics from an interconnected and interoperable network of sensors and devices that help people and organizations efficiently use and conserve one of the world’s most precious resources. Badger Meter is well positioned to benefit from the advancement of Smart Water applications within the Smart Cities framework. Cities have a keen interest in Smart Water as it provides both a revenue base and conservation outcome. Badger Meter is one of approximately a dozen firms, and the only water metering company, that participates in the AT&T Smart City Alliance. By leveraging this alliance, the Company has been able to gain access and sell its broad smart water solutions to higher level decision makers within a city such as the mayor’s office. In addition, it allows Badger Meter to keep abreast of emerging cellular technology changes which the Company believes is the premier infrastructure-free AMI solution.

Acquisitions

On April 2, 2018, the Company acquired 100% of the outstanding stock of Innovative Metering Solutions, Inc. (“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. As of March 31, 2019, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial Statements.

On November 1, 2017, the Company acquired certain assets of Utility Metering Services, Inc.'s business Carolina Meter & Supply (“Carolina Meter”) of Wilmington, North Carolina, which was one of the Company's distributors serving North Carolina, South Carolina and Virginia.

The total purchase consideration for the Carolina Meter assets was $6.3 million, which included $2.1 million in cash and settlement of $4.2 million of pre-existing Company receivables. As of December 31, 2018, the Company completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial Statements.

On May 1, 2017, the Company acquired 100% of the outstanding common stock of D-Flow Technology AB (“D-Flow”) of Luleå, Sweden. The D-Flow acquisition facilitates the continued advancement of the existing E-Series® ultrasonic product line while also adding a technology center for the Company.

The purchase price was approximately $23.2 million in cash, plus a small working capital adjustment. The purchase price included $2.0 million in payments that were made in 2018, $2.0 million in payments that were made in 2019 and $1.0 million in payments that are anticipated to be made in 2020 and are recorded in payables on the Consolidated Balance Sheets at December 31, 2019. As of March 31, 2018, the Company completed its analysis for estimating the fair value of the assets acquired and liabilities assumed with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial Statements.

Revenue and Product Mix

As the industry continues to evolve, the Company has been at the forefront of innovation across metering, radio and software technologies in order to meet its customers’ increasing expectations for accurate and actionable data. As technologies such as ORION Cellular and BEACON AMA managed solutions have become more readily adopted, the Company’s revenue from Software as a Service (SaaS) has increased significantly, albeit from a small base, and is margin accretive.

The Company also seeks opportunities for additional revenue enhancement. For instance, the Company has made inroads into the Middle East market with its ultrasonic meter technology and is pursuing other geographic expansion opportunities. Additionally, the Company is periodically asked to oversee and perform field installation of its products for certain customers. In these cases, the Company assumes the role of general contractor and either performs the installation or hires installation subcontractors and supervises their work.

RESULTS OF OPERATIONS

Net Sales

Net sales in 2019 decreased $9.1 million, or -2%, to $424.6 million from $433.7 million in 2018. Sales into the municipal water market were $330.7 million, a decrease of 1% compared to the prior year’s $334.7 million, while sales into the flow instrumentation end markets were $93.9 million, a 5% decrease from 2018 sales of $99.0 million. Municipal water sales benefitted from higher sales of smart water solutions in North America where sales increased 1% year-over-year, however, sales into international markets, primarily the Middle East, declined significantly as a $5.5 million sale from 2018 did not repeat. While the Company continued to benefit from favorable market demand, it experienced a mid-year pause in certain order activity as a result of new product launches, most notably commercial ultrasonic meters and next generation cellular radio offerings. Sales of products into the global flow instrumentation end markets declined due to sluggish global industrial activity across multiple end markets served.

Net sales in 2018 increased $31.3 million, or 8%, to $433.7 million from $402.4 million in 2017. Sales into the municipal water market were $334.7 million, an increase of 9% over the prior year’s $306.9 million, while sales into the flow instrumentation end markets were $99.0 million, a 4% increase from 2017 sales of $95.9 million. Municipal water sales benefitted from higher volumes in both the residential and commercial markets in the U.S. as well as further penetration into international markets, primarily in the Middle East. In addition to the higher volumes, the Company benefitted from favorable sales mix reflecting a higher percentage of meters with radios, ultrasonic metering technology and SaaS revenue associated with the data collection and software analytics deployed by certain water utility customers. Sales of products into the global flow instrumentation end markets increased 4% benefitting from the overall solid global industrial landscape. Sales were particularly strong into the water/wastewater and oil and gas markets, which have been a focus area for the Company. This growth was partially offset by lower sales into de-emphasized end markets such as automotive.

Operating Earnings

Operating earnings in 2019 were $62.1 million or 14.6% of sales, compared to $56.9 million, or 13.1% of sales, in 2018. Gross profit increased $1.2 million, despite lower sales volumes, and increased as a percent of sales from 37.4% in 2018 to 38.5% in 2019. This was largely the result of improved utility sales mix attributed to selling more meters with radios, SaaS revenues, and favorable regional sales mix. In addition, gross margins benefitted from positive price/cost dynamics due primarily to lower commodity costs in 2019, particularly brass. Selling, engineering and administration (“SEA”) expenses declined $4.1 million year-over-year, which included $2.6 million of executive retirement charges incurred in the prior year which did not repeat. The remaining decrease in SEA was associated with tighter discretionary spending controls that more than offset normal inflation for employee salaries and benefits as well as higher engineering expenses to support product innovation and development.

Operating earnings in 2018 were $56.9 million, or 13.1% of sales, compared to $56.6 million, or 14.1% of sales, in 2017. Gross profit increased $6.6 million on higher sales volumes, but declined as a percent of sales from 38.7% in 2017 to 37.4% in 2018. This was largely the result of the higher sales and improved utility sales mix, partially offset by higher commodity cost increases in the first half of the year that were not fully offset by pricing until the latter half. Selling, engineering and administration (“SEA”) expenses increased $6.3 million year-over-year, which included the $2.6 million of executive retirement charges incurred for the vesting of certain equity and cash awards for the retiring chief executive officer, chief financial officer and chief accounting officer. The remaining increase in SEA was associated with normal inflation for employee salaries and benefits, duplicative executive expenses associated with the CEO and CFO transitions, as well as higher engineering expenses to support product innovation and development.

Other Pension and Postretirement Costs

Other pension and postretirement costs were $0.3 million in 2019 compared to $19.9 million in 2018 and $1.0 million in 2017. The significant costs in 2018 were associated with the Company’s termination of its defined benefit pension plan. Following the pension termination charges taken in 2018, the pension termination was complete.

Interest Expense, Net

Net interest expense was $0.3 million in 2019 compared to $1.2 million in 2018 and $0.8 million in 2017. The decrease from 2018 to 2019 was due to the repayment of US commercial paper borrowings using cash from operations. The increase in 2018 from 2017 was due to higher interest rates.

Income Taxes

Income taxes as a percentage of earnings before income taxes were 23.4%, 22.5% and 37.0% for 2019, 2018 and 2017, respectively. The decrease beginning in 2018 was due primarily to the lower U.S. Federal tax rate, which declined from 35% in 2017 to 21% in 2018 and 2019.

Earnings and Diluted Earnings per Share

For 2019, the increase in operating earnings and lower interest expense, along with the non-recurring pension termination charges in 2018, resulted in net earnings of $47.2 million in 2019 compared to $27.8 million in 2018. On a diluted basis, earnings per share were $1.61 in 2019 compared to $0.95 in 2018.

For 2018, the increase in operating earnings and benefit of the lower effective tax rate was more than offset by the pension settlement charges resulting in net earnings of $27.8 million in 2018 compared to $34.6 million in 2017. On a diluted basis, earnings per share were $0.95 in 2018 compared to $1.19 in 2017.

LIQUIDITY AND CAPITAL RESOURCES

The main sources of liquidity for the Company are cash from operations and borrowing capacity. In addition, depending on market conditions, the Company may access the capital markets to strengthen its capital position and to provide additional liquidity for general corporate purposes.

Primary Working Capital

We use primary working capital (PWC) as a percentage of sales as a key metric for working capital efficiency. We define this metric as the sum of receivables and inventories less payables, divided by annual net sales. The following table shows the components of our PWC (in millions):

	12/31/2019						12/31/2018
	$			PWC%			$			PWC%
Receivables	$	61,365			14.5	%	$	66,300			15.3	%
Inventories		81,948			19.3	%		80,804			18.6	%
Payables		(31,523	)		-7.4	%		(22,469	)		-5.2	%
Primary Working Capital	$	111,790			26.4	%	$	124,635			28.7	%

Overall PWC decreased $12.8 million as the Company undertook several working capital improvement actions during the year. Receivables at December 31, 2019 were $61.4 million compared to $66.3 million at the end of 2018. The decrease was due to robust collection efforts and active monitoring processes instituted during the year. The Company believes its receivables balance is fully collectible. Inventories at December 31, 2019 were $81.9 million, a modest increase from $80.8 million at December 31, 2018, primarily to support the backlog of orders and new product launches. Payables at December 31, 2019 were $31.5 million, up from $22.5 million at the end of 2018 due to the negotiation of advantageous payment terms with suppliers.

Cash Provided by Operations

Cash provided by operations in 2019 was $80.7 million compared to $60.4 million in 2018. The increase from 2018 was driven primarily by improved working capital management as well as higher operating earnings (excluding the non-cash pension termination settlement charges). Operating cash flow was more than adequate to fund capital expenditures of $7.5 million along with dividends of $18.6 million and $5.2 million in share repurchases to offset equity compensation dilution. The remaining cash flow was used to reduce short term borrowings and add to cash balances.

Cash provided by operations in 2018 was $60.4 million compared to $49.8 million in 2017. The increase from 2017 was driven primarily by higher operating earnings (excluding the non-cash pension termination settlement charges), partially offset by higher primary working capital. The cash flow was more than adequate to fund capital expenditures of $8.6 million along with dividends of $16.3 million and $10.0 million of acquisitions. The remaining cash flow was used to reduce short term borrowings

Capital expenditures were $7.5 million, $8.6 million and $15.1 million in fiscal 2019, 2018 and 2017, respectively. Capital expenditures for fiscal 2020 are expected to be in the $10-12 million range, but could vary depending on timing of R&D projects, growth opportunities and the amount of assets purchased.

Short-term debt decreased to $4.5 million at December 31, 2019 from $18.1 million at December 31, 2018 due to the strong cash flow from operations, partially offset by the payment of dividends. At the end of 2019, the Company is in a net cash (short-term debt less cash) position of $44.4 million.

The Company’s financial condition remains strong. 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. 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, 2019. 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 the development of new products. The Company had $128.3 million of unused credit lines available at December 31, 2019.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements at December 31, 2019.

CONTRACTUAL OBLIGATIONS

The following table includes the Company's significant contractual obligations as of December 31, 2019. There are no material undisclosed guarantees.

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In thousands)
Short-term debt	$	4,480	$	4,480	$	—	$	—	$	—
Operating leases (undiscounted)		9,810		2,840		3,577		2,450		943
Total contractual obligations	$	14,290	$	7,320	$	3,577	$	2,450	$	943

Other than items included in the preceding table, as of December 31, 2019, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment, which generally have terms of less than 90 days. The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note 7 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2019 Annual Report on Form 10-K. Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.4 million in 2020 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Company's accounting policies are more fully described in Note 1 “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2019 Annual Report on Form 10-K. As discussed in Note 1, 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. The Company's more significant estimates relate primarily to the following judgmental reserves: allowance for doubtful accounts, reserve for obsolete inventories, and warranty and after-sale costs reserve. Each of these reserves is evaluated quarterly and is reviewed with the Company's internal Disclosure Committee and the Audit and Compliance Committee of the Board of Directors. The basis for the reserve amounts is determined by analyzing the anticipated exposure for each account, and then selecting the most likely amount based upon historical experience and various other considerations that are believed to be reasonable under the circumstances. These methods have been used for all years in the presented financials and have been used consistently throughout each year. Actual results may differ from these estimates if actual experiences vary from the Company's assumptions.

The criteria used for calculating each of the reserve amounts vary by type of reserve. For the allowance for doubtful accounts reserve, significant past due balances are individually reviewed for collectability, while the balance of accounts is reviewed in conjunction with applying historical write-off ratios. The calculation for the obsolete and excess inventories reserve is determined by analyzing the relationship between the age and quantity of items on hand versus estimated usage to determine if excess quantities exist. The calculation for warranty and after-sale costs reserve uses criteria that include known potential problems on past sales as well as historical claim experience and current warranty trends. The changes in the balances of these reserves at December 31, 2019 compared to the prior year were due to normal business conditions and are not deemed to be significant. While the Company continually strives to improve its estimates, no significant changes in the underlying processes are expected for 2020.

The Company also uses estimates in three other significant areas: (i) stock-based compensation, (ii) income taxes, and (iii) evaluating goodwill, at least annually, for impairment.

The total cost of the Company's stock-based awards is equal to the grant date fair value per award multiplied by the number of awards granted, adjusted for forfeitures. Forfeitures are initially estimated based on historical Company information and subsequently updated over the life of the awards to ultimately reflect actual forfeitures, which could have an impact on the amount of stock compensation cost recognized from period to period. The grant date fair value of stock options relies on assumptions including the risk-free interest rate, dividend yield, market volatility and expected option life.

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted as appropriate based upon the actual results compared to those forecasted at the beginning of the fiscal year. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The reserve for uncertain income tax positions is a matter of judgment based on an evaluation of the individual facts and circumstances of each tax position in light of all available evidence, including historic data and current trends. A tax benefit is recognized when it is “more likely than not” to be sustained based solely on the technical merits of each tax position. The Company evaluates and updates all of these assumptions quarterly.

Goodwill impairment, if any, is determined by comparing the fair value of the reporting unit with its carrying value and is reviewed at least annually. Actual results may differ from these estimates.

OTHER MATTERS

The Company is subject to contingencies related to environmental laws and regulations. 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, 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 2019, 2018 and 2017 were not material.

See the “Special Note Regarding Forward Looking Statements” at the front of this Annual Report on Form 10-K and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of risks and uncertainties that could impact the Company's financial performance and results of operations.

MARKET RISKS

In the ordinary course of business, the Company is exposed to various market risks. The Company operates in an environment where competition varies from moderate to strong. The Company believes it currently provides the leading technology in water meters and radio systems for water utilities. A number of the Company's competitors in certain markets have greater financial resources. Competitors also include alliance partners that sell products that do or may compete with our products. As the global water metering market begins to shift to adopt static metering technology, the number of competitors may increase. We believe new static metering market entrants lack brand recognition and product breadth and do not have the appropriate utility sales channels to meaningfully compete in the North American market. In addition, the market's level of acceptance of the Company's newer product offerings, including the BEACON AMA system, may have a significant effect on the Company's results of operations. As a result of significant research and development activities, the Company enjoys favorable patent positions for several of its products.

The Company's ability to generate operating income and to increase profitability depends somewhat on the general conditions of the United States and foreign economies, including to some extent such things as the length and severity of global economic downturns; the timing and size of governmental programs such as stimulus fund programs, as well as the impact of government budget cuts or partial shutdowns of governmental operations; international or civil conflicts that affect international trade; the ability of municipal water utility customers to authorize and finance purchases of the Company's products; the Company's ability to obtain financing; housing starts in the United States; and overall industrial activity. In addition, changes in governmental laws and regulations, particularly laws dealing with the content or handling of materials, customs or trade practices, may impact the results of operations. These factors are largely beyond the Company's control and depend on the economic condition and regulatory environment of the geographic region of the Company's operations.

The Company relies on single suppliers for certain castings and components in several of its product lines. Although alternate sources of supply exist for these items, the 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's foreign currency risk relates to the sales of products to foreign customers and purchases of material from foreign vendors. The Company uses lines of credit with U.S. and European banks to offset currency exposure related to European receivables and other monetary assets. As of December 31, 2019 and 2018, the Company's foreign currency net monetary assets were partially offset by comparable debt resulting in no material exposure to the results of operations. The Company believes the effect of a change in foreign currency rates will not have a material adverse effect on the Company's financial position or results of operations, either from a cash flow perspective or on the financial statements as a whole.

The Company typically does not hold or issue derivative instruments and has a policy specifically prohibiting the use of such instruments for trading purposes.

The Company's short-term debt on December 31, 2019 was floating rate debt with market values approximating carrying value. Future annual interest costs for short-term debt fluctuate based upon short-term interest rates. For the short-term debt balance as of December 31, 2019, the effect of a 1% change in interest rates is less than $0.1 million.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is set forth in Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risks” in this 2019 Annual Report on Form 10-K.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

BADGER METER, INC.

Management's Annual Report on Internal Control over Financial Reporting

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, 2019 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, 2019, 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.

BADGER METER, INC.

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	24
Consolidated Financial Statements:
Consolidated Balance Sheets	27
Consolidated Statements of Operations	28
Consolidated Statements of Comprehensive Income	29
Consolidated Statements of Cash Flows	30
Consolidated Statements of Shareholders’ Equity	31
Notes to Consolidated Financial Statements	32

BADGER METER, INC.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Badger Meter, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Badger Meter, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Badger Meter, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated February 21, 2020, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of 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 the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin

February 21, 2020

BADGER METER, INC.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Badger Meter, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Badger Meter, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Warranty and After-Sale Costs Reserve

Description of the Matter

As described in Note 1 to the consolidated financial statements, the Company estimates and records provisions for warranties and other after-sale costs. Warranty provisions are recorded in the period of sale, using historical claims data revised for recent trending and expectations to estimate future warranty costs. After-sale costs represent costs expected to be incurred related to activities outside the written warranty policy and are estimated by the Company based on the individual facts and circumstances. The Company’s accrued liability was $5.6 million as of December 31, 2019, representing its best estimate of the expected warranty and after-sale costs.

Auditing management's estimates for warranty and after-sale costs involved significant auditor judgment because the reserve for warranty and after-sale costs requires the Company to estimate future claims. The calculation to estimate future claims includes a number of inputs and assumptions, the most significant of which include the number and type of claims, an evaluation of warranty trends, consideration of product developments, and estimates of future costs to replace or repair specifically identified items.

How We Addressed the Matter in Our Audit

We evaluated the design and tested the operating effectiveness of internal controls over the Company's warranty and after-sale costs reserve process, including management's assessment of the assumptions and data underlying the projection of future warranty and after-sale costs.

Our substantive audit procedures included, among others, evaluating the significant assumptions discussed above and the accuracy and completeness of the underlying data used in management's warranty and after-sales costs reserve calculation. We evaluated the historical activity used to develop the lag calculation, including reviewing the data for any developing trends in the claims data, considered the impact of product developments on the calculation, and evaluated the cost build up for any specific reserve items, including procedures to support the completeness of the number and type of products impacted and the estimated future cost to repair or replace the products. We assessed the historical accuracy of management's estimates by comparing the warranty and after-sale costs reserve in prior years to the actual claims paid in the subsequent years. We assessed management’s methodology and tested the valuation of the warranty and after-sale costs reserve by developing an independent expectation for the reserve based on the historical amounts recorded as a percentage of sales and compared our expectation to the amount recorded by management. We evaluated the completeness of the reserve estimate for known warranty claims or product issues based on our review of after sales costs and through inquiries of operational and executive management and evaluated whether specific product issues were appropriately considered in the determination of the warranty and after-sale costs reserve.

/s/ Ernst & Young LLP

We have served as Badger Meter, Inc.’s auditor since 1927.

Milwaukee, Wisconsin

February 21, 2020

BADGER METER, INC.

Consolidated Balance Sheets

	December 31,
	2019			2018
	(Dollars in thousands)
Assets
Current assets:
Cash	$	48,871		$	13,086
Receivables		61,365			66,300
Inventories:
Finished goods		22,946			23,476
Work in process		17,728			17,097
Raw materials		41,274			40,231
Total inventories		81,948			80,804
Prepaid expenses and other current assets		7,910			4,469
Total current assets		200,094			164,659
Property, plant and equipment, at cost:
Land and improvements		9,056			9,066
Buildings and improvements		68,443			67,932
Machinery and equipment		132,326			136,724
		209,825			213,722
Less accumulated depreciation		(124,064	)		(123,401	)
Net property, plant and equipment		85,761			90,321
Intangible assets, at cost less accumulated amortization		48,163			55,418
Other assets		15,875			8,872
Deferred income taxes		742			2,163
Goodwill		71,258			71,258
Total assets	$	421,893		$	392,691
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	$	4,480		$	18,060
Payables		31,523			22,469
Accrued compensation and employee benefits		12,754			13,768
Warranty and after-sale costs		5,583			4,206
Other current liabilities		2,907			1,512
Total current liabilities		57,247			60,015
Other long-term liabilities		22,980			13,972
Deferred income taxes		876			3,332
Accrued non-pension postretirement benefits		5,711			5,184
Other accrued employee benefits		4,011			6,685
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common Stock, $1 par; authorized 40,000,000 shares; issued 37,200,698 shares in 2019 and 37,198,298 shares in 2018		37,200			37,198
Capital in excess of par value		41,956			38,082
Reinvested earnings		285,879			257,313
Accumulated other comprehensive income		425			580
Less: Employee benefit stock		(154	)		(306	)
Treasury stock, at cost; 8,082,166 shares in 2019 and 8,079,727 shares in 2018		(34,238	)		(29,364	)
Total shareholders’ equity		331,068			303,503
Total liabilities and shareholders’ equity	$	421,893		$	392,691

See accompanying notes.

BADGER METER, INC.

Consolidated Statements of Operations

	Years ended December 31,
	2019		2018		2017
	(In thousands except per share amounts)
Net sales	$	424,625	$	433,732	$	402,440
Cost of sales		261,097		271,383		246,694
Gross margin		163,528		162,349		155,746
Selling, engineering and administration		101,380		105,480		99,151
Operating earnings		62,148		56,869		56,595
Interest expense, net		253		1,157		789
Other pension and postretirement costs		288		19,860		973
Earnings before income taxes		61,607		35,852		54,833
Provision for income taxes		14,430		8,062		20,262
Net earnings	$	47,177	$	27,790	$	34,571
Earnings per share:
Basic	$	1.63	$	0.96	$	1.20
Diluted	$	1.61	$	0.95	$	1.19
Shares used in computation of earnings per share:
Basic		29,028		28,993		28,927
Impact of dilutive securities		192		196		184
Diluted		29,220		29,189		29,111

See accompanying notes.

BADGER METER, INC.

Consolidated Statements of Comprehensive Income

	Years ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Net earnings	$	47,177		$	27,790		$	34,571
Other comprehensive income :
Foreign currency translation adjustment		(58	)		(484	)		1,844
Pension and postretirement benefits, net of tax		(97	)		13,657			(1,102	)
Comprehensive income	$	47,022		$	40,963		$	35,313

See accompanying notes.

BADGER METER, INC.

Consolidated Statements of Cash Flows

	Years ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Operating activities:
Net earnings	$	47,177		$	27,790		$	34,571
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation		11,569			11,354			12,056
Amortization		12,577			12,961			12,342
Deferred income taxes		(1,524	)		(5,269	)		(4,100	)
Pension termination settlement charges		—			19,900			—
Contributions to pension plan		—			(2,860	)		(825	)
Noncurrent employee benefits		(40	)		464			714
Stock-based compensation expense		1,214			4,174			1,725
Changes in:
Receivables		5,451			(7,999	)		(967	)
Inventories		(1,220	)		4,859			(6,167	)
Payables		11,642			(9,868	)		5,141
Prepaid expenses and other current assets		(7,732	)		(5,062	)		(6,237	)
Other liabilities		1,600			9,906			1,498
Total adjustments		33,537			32,560			15,180
Net cash provided by operations		80,714			60,350			49,751
Investing activities:
Property, plant and equipment additions		(7,496	)		(8,643	)		(15,069	)
Acquisitions, net of cash acquired		—			(8,048	)		(20,376	)
Net cash used for investing activities		(7,496	)		(16,691	)		(35,445	)
Financing activities:
Net (decrease) increase in short-term debt		(13,500	)		(21,012	)		6,376
Payment of contingent acquisition consideration		(2,555	)		(2,034	)		—
Dividends paid		(18,595	)		(16,265	)		(14,215	)
Proceeds from exercise of stock options		1,961			1,443			1,215
Purchase of common stock for treasury stock		(5,207	)		(4,795	)		(4,402	)
Issuance of treasury stock		187			523			600
Net cash used for financing activities		(37,709	)		(42,140	)		(10,426	)
Effect of foreign exchange rates on cash		276			403			(54	)
Increase in cash		35,785			1,922			3,826
Cash — beginning of year		13,086			11,164			7,338
Cash — end of year	$	48,871		$	13,086		$	11,164
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes	$	13,066		$	12,503		$	17,912
Interest	$	268		$	1,175		$	867
Non cash transactions:
Settlement of Innovative Metering Systems payables prior to the acquisition	$	—		$	3,246		$	—
Settlement of Carolina Meter & Supply payables prior to the acquisition	$	—		$	—		$	4,176

See accompanying notes.

BADGER METER, INC.

Consolidated Statements of Shareholders’ Equity

	Years ended December 31,
	Common Stock at $1 par value*		Capital in excess of par value			Reinvested earnings			Accumulated other comprehensive income (loss)			Employee benefit stock			Treasury stock			Total
	(In thousands except per share amounts)
Balance, December 31, 2016	$	37,122	$	28,022		$	223,876		$	(11,635	)	$	(614	)	$	(20,562	)	$	256,209
Net earnings		—		—			34,571			—			—			—			34,571
Pension and postretirement benefits (net of $292 tax effect)		—		—			—			(1,102	)		—			—			(1,102	)
Foreign currency translation		—		—			—			1,844			—			—			1,844
Cash dividends of $0.49 per share		—		—			(14,223	)		—			—			—			(14,223	)
Stock options exercised		43		1,798			—			—			—			30			1,871
ESSOP transactions		—		205			—			—			154			—			359
Stock-based compensation		—		1,725			—			—			—			—			1,725
Purchase of common stock for treasury stock		—		—			—			—			—			(4,402	)		(4,402	)
Issuance of treasury stock (61 shares)		—		432			—			—			—			168			600
Balance, December 31, 2017		37,165		32,182			244,224			(10,893	)		(460	)		(24,766	)		277,452
Net earnings		—		—			27,790			—			—			—			27,790
Pension and postretirement benefits (net of $5,127 tax effect)		—		—			—			13,657			—			—			13,657
Foreign currency translation		—		—			—			(484	)		—			—			(484	)
Cash dividends of $0.56 per share		—		—			(16,273	)		—			—			—			(16,273	)
ASU 2014-09 adoption impact		—		—			(128	)		—			—			—			(128	)
ASU 2018-02 adoption impact		—		—			1,700			(1,700	)		—			—			—
Stock options exercised		33		1,410			—			—			—			68			1,511
ESSOP transactions		—		(78	)		—			—			154			—			76
Stock-based compensation		—		4,174			—			—			—			—			4,174
Purchase of common stock for treasury stock		—		—			—			—			—			(4,795	)		(4,795	)
Issuance of treasury stock (40 shares)		—		394			—			—			—			129			523
Balance, December 31, 2018		37,198		38,082			257,313			580			(306	)		(29,364	)		303,503
Net earnings		—		—			47,177			—			—			—			47,177
Pension and postretirement benefits (net of $16 tax effect)		—		—			—			(97	)		—			—			(97	)
Foreign currency translation		—		—			—			(58	)		—			—			(58	)
Cash dividends of $0.64 per share		—		—			(18,611	)		—			—			—			(18,611	)
Stock options exercised		2		1,708			—			—			—			251			1,961
ESSOP transactions		—		401			—			—			152			—			553
Stock-based compensation		—		1,214			—			—			—			—			1,214
Purchase of common stock for treasury stock		—		—			—			—			—			(5,207	)		(5,207	)
Issuance of treasury stock (72 shares)		—		551			—			—			—			82			633
Balance, December 31, 2019	$	37,200	$	41,956		$	285,879		$	425		$	(154	)	$	(34,238	)	$	331,068

*	Each common share of stock equals $1 par value; therefore, the number of common shares is the same as the dollar value.

See accompanying notes.

BADGER METER, INC.

Notes to Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies

Profile

Badger Meter is an innovator in flow measurement, control and related communication solutions, serving water utilities, municipalities and commercial and industrial customers worldwide. The Company’s products measure water, oil, chemicals 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 product lines fall into two categories: sales of water meters, radios and related technologies to municipal water utilities (municipal water) and sales of meters, valves and other products for industrial applications in water, wastewater and other industries (flow instrumentation). The Company estimates that nearly 90% of its products are used in water and water related applications.

Municipal 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 municipal water utilities as the basis for generating their water and wastewater revenues. The largest geographic market for the Company’s municipal 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 gaining in penetration due to a variety of factors, including their ability to maintain near absolute 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 and Europe.

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)
2019	$	360	$	(132	)	$	(4	)	$	224
2018	$	387	$	—		$	(27	)	$	360
2017	$	425	$	285		$	(323	)	$	387

Inventories

Inventories are valued at the lower of cost or market. 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)
2019	$	4,131	$	2,663	$	(1,354	)	$	5,440
2018	$	3,881	$	2,195	$	(1,945	)	$	4,131
2017	$	3,639	$	1,295	$	(1,053	)	$	3,881

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 $5.7 million and $5.2 million at December 31, 2019 and 2018, 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, 2019, 2018 and 2017 was $3.1 million, $3.2 million and $2.8 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 2019 was $7.2 million compared to $7.5 million in 2018 and $6.8 million in 2017. Amortization expense expected to be recognized is $7.0 million in 2020 and 2021, $5.9 million in 2022, $5.4 million in 2023, $5.3 million in 2024 and $17.6 million thereafter. The carrying value and accumulated amortization by major class of intangible assets are as follows:

	December 31, 2019				December 31, 2018
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
	(In thousands)
Technologies	$	47,608	$	27,650	$	47,647	$	24,785
Intellectual property		10,000		1,333		10,000		833
Non-compete agreements		572		431		2,322		2,076
Licenses		650		509		650		492
Customer lists		8,023		3,234		8,023		2,623
Customer relationships		25,220		14,730		25,220		12,282
Trade names		9,203		5,226		9,595		4,948
Total intangibles	$	101,276	$	53,113	$	103,457	$	48,039

Goodwill

Goodwill is tested for impairment annually during the fourth fiscal 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 2019, 2018 and 2017. Goodwill was $71.3 million at December 31, 2019 and 2018.

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 Company's warranty and after-sale costs reserve are as follows:

	Balance at beginning of year		Net additions charged to earnings		Costs incurred			Balance at end of year
	(In thousands)
2019	$	4,206	$	6,616	$	(5,239	)	$	5,583
2018	$	3,367	$	3,274	$	(2,435	)	$	4,206
2017	$	2,779	$	4,081	$	(3,493	)	$	3,367

Research and Development

Research and development costs are charged to expense as incurred and amounted to $11.9 million in 2019, $11.1 million in 2018 and $10.6 million in 2017.

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 (Loss)

Components of accumulated other comprehensive income at December 31, 2019 are as follows:

	Pension and postretirement benefits			Foreign currency			Total
	(In thousands)
Balance at beginning of period	$	360		$	220		$	580
Other comprehensive loss before reclassifications		—			(58	)		(58	)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $16		(97	)		—			(97	)
Net current period other comprehensive loss, net		(97	)		(58	)		(155	)
Accumulated other comprehensive income	$	263		$	162		$	425

Details of reclassifications out of accumulated other comprehensive income during 2019 are as follows:

	Amount reclassified from accumulated other comprehensive income (loss)
	(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 (loss)	$	(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 resulted from an international pension plan settlement.

Components of accumulated other comprehensive (loss) income at December 31, 2018 are as follows:

	Pension and postretirement benefits			Foreign currency			Total
	(In thousands)
Balance at beginning of period	$	(11,597	)	$	704		$	(10,893	)
Other comprehensive income (loss) before reclassifications		—			(484	)		(484	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $(5.1 million)		13,657			—			13,657
Net current period other comprehensive income (loss), net		13,657			(484	)		13,173
Cumulative impact of adopting ASU 2018-02		(1,700	)		—			(1,700	)
Accumulated other comprehensive income	$	360		$	220		$	580

Details of reclassifications out of accumulated other comprehensive income (loss) during 2018 are as follows:

	Amount reclassified from accumulated other comprehensive income
	(In thousands)
Amortization of employee benefit plan items:
Prior service cost (1)	$	(13	)
Settlement expense (1)		19,900
Actuarial loss (1)		(1,103	)
Total before tax		18,784
Income tax impact		(5,127	)
Amount reclassified out of accumulated other comprehensive income	$	13,657

(1)	These accumulated other comprehensive loss components are included in the computation of benefit plan costs in Note 7 “Employee Benefit Plans.”

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.

New Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-14 “Compensation Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20),” which modifies the annual disclosure requirements for defined benefit pension and other postretirement benefit plans. This ASU, as modified, added and deleted specific disclosures in an effort to improve the usefulness for financial statement users while also reducing unnecessary costs for companies. The ASU is effective for annual periods beginning after December 15, 2020 with early adoption being permitted in any interim reporting period within the annual reporting period. The Company adopted ASU No. 2018-14 on December 31, 2019 and noted no significant changes.

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820),” which is designed to improve the effectiveness of disclosures related to fair value measurements. This ASU is effective for annual periods beginning after December 15, 2019 and early adoption is allowed in any interim reporting period within the annual reporting period. The Company adopted ASU No. 2018-13 on December 31, 2019 and noted no significant changes.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles - Goodwill and Other (Topic 350).” The update requires a single-step quantitative test to measure potential impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment can still be completed first for an entity to determine if a quantitative impairment test is necessary. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2019 and interim periods thereafter. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted ASU No. 2017-04 on January 1, 2019. The adoption of this standard did not have any impact on the Company’s financial statements.

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, and early adoption is allowed in any interim reporting period within the annual reporting period. The Company completed an analysis of ASU No. 2016-13 and concluded that the adoption of the standard effective January 1, 2020, will not have a significant impact on the Company’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842),” which requires lessees to record most leases on their balance sheets. Lessees initially recognize a lease liability (measured at the present value of the lease payments over the lease term) and a right-of-use asset (measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee's initial direct costs). Lessees can make an accounting policy election not to recognize ROU assets and lease liabilities for leases with a lease term of 12 months or less as long as the leases do not include options to purchase the underlying assets that the lessee is reasonably certain to exercise. The standard includes the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. In July 2018, the FASB issued ASU No. 2018-11 “Targeted Improvements (Topic 842).” This ASU provides for an optional method of transition which allows companies to adopt the new leasing standard with a cumulative effect adjustment to reinvested earnings. The Company adopted the new leasing standard with the optional transition methodology as of January 1, 2019. For a complete discussion of the adoption of ASU No. 2016-02 and ASU No. 2018-11, see Note 12 “Leases” in the Notes to Consolidated Financial Statements.

Note 2 Common Stock

Common Stock

The authorized common stock of the Company as of December 31, 2019 consisted of 40,000,000 shares of common stock, $1 par value, of which 37,200,698 and 37,198,298 were issued and outstanding as of December 31, 2019 and 2018, respectively. The Company had a Common Share Purchase Rights plan that was in effect since February 15, 2008, but it expired on May 26, 2018 and the Board of Directors elected not to renew it.

Stock Options

Stock options to purchase 54,139 shares of the Company's Stock in 2019, 21,887 shares in 2018 and 55,223 shares in 2017 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.

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 March 31, 2019, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments.

The total purchase consideration for the Carolina Meter assets was $6.3 million, which included $2.1 million in cash and settlement of $4.2 million of pre-existing Company receivables. The Company's allocation of the purchase price included $0.6 million of receivables, $0.2 million of inventory, $3.3 million of intangibles and $2.2 million of goodwill. The intangible assets acquired are primarily customer relationships with an estimated average useful life of 12 years. The 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, 2018, the Company completed its analysis for estimating the fair value of the assets acquired with no additional adjustments.

The purchase price was approximately $23.2 million in cash, plus a small working capital adjustment. The purchase price included $2.0 million in payments that were made in 2018, $2.0 million in payments that were made in 2019 and $1.0 million in payments that are anticipated to be made in 2020 and is recorded in payables on the Consolidated Balance Sheets at December 31, 2019. The Company's allocation of the purchase price included approximately $0.3 million of receivables, $0.6 million of inventory, $0.2 million of property, plant and equipment, $10.9 million of intangibles and $16.1 million of goodwill. The majority of the intangible assets acquired related to ultrasonic technology. The Company also assumed $4.9 million of liabilities as part of the acquisition. As of March 31, 2018, the Company completed its analysis for estimating the fair value of the assets acquired and liabilities assumed with no additional adjustments.

Note 4 Short-term Debt and Credit Lines

Short-term debt at December 31, 2019 and 2018 consisted of:

	2019		2018
	(In thousands)
Notes payable to banks	$	4,480	$	4,560
Commercial paper	—			13,500
Total short-term debt	$	4,480	$	18,060

Included in notes payable to banks at December 31, 2019 was $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%. Included in notes payable to banks at December 31, 2018 was $4.6 million outstanding under a 4.0 million Euro-based revolving loan facility that does not expire, and which bore interest at 1.14%.

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. Borrowings of commercial paper bore interest at 3.11% in 2018. Under the principal line of credit, the Company had $125.0 million of unused credit lines available out of the total of $128.3 million available short-term credit lines at December 31, 2019. 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, 2019.

Note 5 Stock Compensation

As of December 31, 2019, 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, 2019 and 2018, there were 502,839 shares and 548,653 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, 2019 related to stock options was $0.3 million compared to $2.1 million in 2018 and $0.7 million in 2017.

The following table summarizes the transactions of the Company’s stock option plans for the three-year period ended December 31, 2019:

	Number of shares			Weighted- average exercise price
Options outstanding - December 31, 2016		384,258		$	23.75
Options granted		55,223		$	36.75
Options exercised		(53,198	)	$	22.83
Options forfeited		—		n/a
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
Price range $ 18.08 — $ 19.21
(weighted-average contractual life of 1.7 years)		102,900		$	18.36
Price range $ 25.65 — $ 33.98
(weighted-average contractual life of 4.7 years)		121,093		$	28.76
Price range $ 33.98 — $ 59.85
(weighted-average contractual life of 5.3 years)		113,339		$	46.11
Options outstanding - December 31, 2019		337,332
Exercisable options —
December 31, 2017		239,043		$	21.59
December 31, 2018		321,122		$	27.16
December 31, 2019		271,252		$	27.17

The following assumptions were used for valuing options granted in the years ended December 31:

	2019			2018
Per share fair value of options granted during the period	$	18.20		$	18.50
Risk-free interest rate		2.52	%		2.59	%
Dividend yield		0.97	%		1.05	%
Volatility factor		32.4	%		43.2	%
Weighted-average expected life in years		5.3			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:

	2019		2018
	(In thousands)
Exercised	$	1,870	$	1,590
Outstanding	$	11,170	$	8,390
Exercisable	$	10,243	$	7,722

As of December 31, 2019, the unrecognized compensation cost related to stock options was approximately $0.9 million, which will be recognized over a weighted average period of 2.5 years.

Director Stock Grant

Non-employee directors receive an annual award of $57,000 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, 2019 was $0.3 million compared to $0.5 million in 2018 and 2017. As of December 31, 2019, 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, 2019 was $0.9 million compared to $2.1 million in 2018 and $1.1 million in 2017.

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, 2016		105,316		$	29.41
Granted		50,519		$	40.69
Vested		(40,762	)	$	27.18
Forfeited		(3,600	)	$	33.37
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

As of December 31, 2019, there was $1.7 million of unrecognized compensation cost related to nonvested restricted stock that is expected to be recognized over a weighted average period of 1.7 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 $3.4 million, $3.7 million and $3.6 million in 2019, 2018 and 2017, 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 2019, 2018 and 2017 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 (loss), net of tax, at December 31, 2019 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)

(289

)

Amounts included in accumulated other comprehensive income (loss), net of tax, at December 31, 2019 expected to be recognized in net periodic benefit cost during the fiscal year ending December 31, 2020 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 year ended December 31, 2019.

The following table sets forth the components of net periodic pension cost for the years ended December 31, 2018 and 2017 based on a December 31 measurement date:

	2018			2017
	(In thousands)
Service cost - benefits earned during the year	$	—		$	2
Interest cost on projected benefit obligations		305			1,228
Expected return on plan assets		(835	)		(1,596	)
Amortization of net loss		262			525
Settlement expense		19,900			641
Net periodic pension cost	$	19,632		$	800

Actuarial assumptions used in the determination of the net periodic pension cost are:

	2018			2017
Discount rate		2.00	%		3.90	%
Expected long-term return on plan assets		3.00	%		4.00	%
Rate of compensation increase	n/a			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 following table provides a reconciliation of benefit obligations, plan assets and funded status based on a December 31 measurement date:

		2018
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of plan year		$	42,898
Service cost			—
Interest cost			305
Actuarial loss			(198	)
Benefits paid			(43,005	)
Projected benefit obligation at measurement date		$	—

Change in plan assets:
Fair value of plan assets at beginning of plan year		$	41,517
Actual return on plan assets			(1,375	)
Company contribution			2,860
Benefits paid			(43,002	)
Fair value of plan assets at measurement date		$	—

Funded status of the plan:
Benefit obligation in excess of plan assets		$	—
Benefit plan assets in excess of benefit obligation			—
Pension liability		$	—

The fair value of the qualified pension plan assets was $0 at December 31, 2019 and 2018.

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 2019, 2018 or 2017. The discount rate used to measure the net periodic pension cost was 2.86% for 2019, 2.16% for 2018 and 1.91% for 2017. The amount accrued was $0.5 million and $2.3 million as of December 31, 2019 and 2018, respectively.

	2019			2018			2017
	(In thousands)
Current:
Federal	$	12,113		$	9,223		$	20,553
State		2,591			2,640			2,933
Foreign		1,250			1,468			876
Deferred:
Federal		(1,066	)		(2,890	)		(3,051	)
State		417			(1,765	)		(915	)
Foreign		(875	)		(614	)		(134	)
Total	$	14,430		$	8,062		$	20,262

	2019			2018			2017
	(In thousands)
Provision at statutory rate	$	12,938		$	7,529		$	19,192
State income taxes, net of federal tax benefit		2,080			717			1,292
Valuation allowance		515			—			564
Foreign - tax rate differential and other		70			159			29
Domestic production activities deduction		—			—			(721	)
Federal tax credits		(609	)		(742	)		(542	)
Compensation subject to section 162(m)		66			562			—
Stock based compensation		(253	)		(384	)		—
Tax rate difference on temporary adjustments		—			(460	)		—
Other		(377	)		681			448
Actual provision	$	14,430		$	8,062		$	20,262

	2019			2018
	(In thousands)
Deferred tax assets:
Reserve for receivables and inventories	$	2,108		$	2,210
Accrued compensation		888			929
Payables		1,410			1,090
Non-pension postretirement benefits		1,505			1,110
Net operating loss and credit carryforwards		1,401			308
Accrued pension benefits		933			1,552
Accrued employee benefits		1,747			2,534
Deferred revenue		2,219			1,858
Operating lease liabilities		1,861			—
Other		497			—
Total gross deferred tax assets		14,569			11,591
Less: valuation allowance		(863	)		(366	)
Total net deferred tax assets		13,706			11,225
Deferred tax liabilities:
Depreciation		4,673			4,679
Amortization		6,158			7,146
Prepaids		529			517
Operating lease assets		1,850			—
Other		630			52
Total deferred tax liabilities		13,840			12,394
Net deferred tax liabilities	$	(134	)	$	(1,169	)

	2019			2018
	(In thousands)
Balance at beginning of year	$	1,121		$	998
Increases in unrecognized tax benefits as a result of positions taken during the prior year		88			127
Increases in unrecognized tax benefits as a result of positions taken during the current year		235			190
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(279	)		(194	)
Balance at end of year	$	1,165		$	1,121

	2019		2018		2017
	(In thousands)
Revenues:
United States	$	369,163	$	374,650	$	355,768
Foreign:
Asia		9,111		9,081		9,133
Canada		13,568		11,893		10,407
Europe		15,784		20,147		15,718
Mexico		5,791		3,603		3,601
Middle East		7,868		11,318		4,904
Other		3,340		3,040		2,909
Total	$	424,625	$	433,732	$	402,440

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	Quarter ended
	March 31		June 30		September 30		December 31
	(In thousands except per share data)
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

2018
Net sales	$	105,041	$	113,648	$	110,630	$	104,413
Gross margin	$	36,748	$	41,504	$	43,946	$	40,151
Net earnings	$	7,546	$	6,154	$	2,851	$	11,239
Earnings per share:
Basic	$	0.26	$	0.21	$	0.10	$	0.39
Diluted	$	0.26	$	0.21	$	0.10	$	0.39
Dividends declared	$	0.13	$	0.13	$	0.15	$	0.15
Stock price:
High	$	51.05	$	47.25	$	56.40	$	57.12
Low	$	45.45	$	41.00	$	50.75	$	46.70
Quarter-end close	$	47.15	$	44.70	$	52.95	$	49.21

	December 31, 2019		January 1, 2019
(In thousands)
Right-of-use assets	$	8,411	$	10,745
Lease liabilities		8,792		11,087

	December 31, 2019
(In thousands)
Operating lease expense	$	3,095
Variable and short-term lease expense		270
Rent expense	$	3,364

	December 31, 2019
	(In thousands)
2020	$	2,840
2021		2,279
2022		1,298
2023		1,205
2024		1,245
Thereafter		943
Total future lease payments		9,810
(Present value adjustment)		(1,018	)
Present value of future lease payments	$	8,792

EXHIBIT NO.		EXHIBIT DESCRIPTION

(3)		Restated Articles of Incorporation (as in effect as of August 8, 2008).

		[Incorporated by reference to Exhibit (3.2) to Badger Meter, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2008 (Commission File No. 001-06706)].

(3.1)		Restated By-Laws (as amended and restated as of February 10, 2017).

		[Incorporated by reference from Exhibit (3.1) to Badger Meter, Inc.’s Annual Report on Form 10-K filed for the period ended December 31, 2016 (Commission File No. 001-06706)].

(4)		Loan Agreement dated May 23, 2012 between Badger Meter, Inc. and BMO Harris Bank relating to Badger Meter, Inc.'s revolving credit agreement.

		[Incorporated by reference from Exhibit (4.1) to Badger Meter, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2012 (Commission File No. 001-06706)].

(4.1)		First Amendment to Credit Agreement dated May 21, 2013, related to the Loan Agreement dated May 23, 2012 between Badger Meter, Inc. and BMO Harris Bank NA for Badger Meter, Inc.'s credit agreement.

		[Incorporated by reference from Exhibit (4.1) to Badger Meter, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2013 (Commission File No. 001-06706)].

(4.2)		Second Amendment to Credit Agreement dated May 21, 2014, related to the Loan Agreement dated May 23, 2012 between Badger Meter, Inc. and BMO Harris Bank NA for Badger Meter, Inc.'s credit agreement.

		[Incorporated by reference from Exhibit (4.1) to Badger Meter, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2014 (Commission File No. 001-06706)].

(4.3)		Third Amendment to Credit Agreement dated September 30, 2016, related to the Loan Agreement dated May 23, 2012 between Badger Meter, Inc. and BMO Harris Bank NA for Badger Meter, Inc.'s credit agreement.

		[Incorporated by reference from Exhibit (4.1) to Badger Meter, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2016 (Commission File No. 001-06706)].

(4.4)		Fourth Amendment to Credit Agreement dated June 15, 2018, related to the Loan Agreement dated May 23, 2012 between Badger Meter, Inc. and BMO Harris Bank NA for Badger Meter, Inc.’s credit agreement.

		[Incorporated by reference from Exhibit (4) to Badger Meter, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2018 (Commission File No. 001-06706)].

(4.5)		Description of Securities of the Registrant.

(10)*		Badger Meter, Inc. Employee Savings and Stock Ownership Plan.

(10.1)*		Badger Meter, Inc. 2003 Stock Option Plan.
		[Incorporated by reference from Exhibit (4.1) to Badger Meter, Inc.’s Form S-8 Registration Statement (Registration No. 333-107850)].

(10.2)*		Key Executive Employment and Severance Agreement between Badger Meter, Inc. and Kenneth C. Bockhorst.
		[Incorporated by reference from Exhibit (10.1) to Badger Meter, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-06706)].

(10.3)*		Amended and Restated Badger Meter, Inc. Executive Supplemental Plan.
		[Incorporated by reference from Exhibit (10.13) to Badger Meter, Inc.’s Annual Report on Form 10-K for the period ended December 31, 2008 (Commission File No. 001-06706)].

(10.4)*		Amended and Restated Badger Meter, Inc. Deferred Compensation Plan.
		[Incorporated by reference from Exhibit (10.14) to Badger Meter, Inc.’s Annual Report on Form 10-K for the period ended December 31, 2008 (Commission File No. 001-06706)].

(10.5)*		Amended and Restated Deferred Compensation Plan for Certain Directors.
		[Incorporated by reference from Exhibit (10.15) to Badger Meter, Inc.’s Annual Report on Form 10-K for the period ended December 31, 2008 (Commission File No. 001-06706)].

(10.6)*		Amended and Restated Executive Supplemental Plan II.
		[Incorporated by reference from Exhibit (10.16) to Badger Meter, Inc.’s Annual Report on Form 10-K for the period ended December 31, 2008 (Commission File No. 001-06706)].

EXHIBIT NO.		EXHIBIT DESCRIPTION

(10.7)*		Badger Meter, Inc. 2011 Omnibus Incentive Plan.
		[Incorporated by reference from Exhibit (4.1) to Badger Meter, Inc.’s Form S-8 Registration Statement (Registration No. 333-173966)].

(10.8)*		Form of Nonqualified Stock Option Agreement under Badger Meter, Inc. 2011 Omnibus Incentive Plan.
		[Incorporated by reference from Badger Meter, Inc.’s Form 8-K, dated April 29, 2011 (Commission File No. 001-06760)].

(10.9)*		Form of Restricted Stock Award Agreement under Badger Meter, Inc. 2011 Omnibus Incentive Plan.
		[Incorporated by reference from Badger Meter, Inc.’s Form 8-K, dated April 29, 2011 (Commission File No. 001-06760)].

(10.10)*		Retirement Agreement, dated as of September 24, 2018, by and between Badger Meter, Inc. and Mr. Richard A. Meeusen.
		[Incorporated by reference from Exhibit (10.1) to Badger Meter, Inc.’s Current Report on Form 8-K, filed on September 24, 2018 (Commission File No. 001-06706).]

(10.11)*		Retirement Agreement, dated as of December 28, 2018, by and between Badger Meter, Inc. and Mr. Richard E. Johnson.
		[Incorporated by reference from Exhibit (10.1) to Badger Meter, Inc.’s Current Report on Form 8-K, filed on December 28, 2018 (Commission File No. 001-06706).]

(10.12)*		Retirement Agreement dated as of December 28, 2018, by and between Badger Meter, Inc. and Ms. Beverly L.P. Smiley.
		[Incorporated by reference from Exhibit (10) to Badger Meter, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 (Commission File No. 001-06706).]

(10.13)*		Form of the Key Executive Employment and Severance Agreements between Badger Meter, Inc. and certain other executive officers.
		[Incorporated by reference from Exhibit (10.2) to Badger Meter, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-06706)].

(21)		Subsidiaries of the Registrant.

(23)		Consent of Ernst & Young LLP.

(31)		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.1)		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)		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.

(99)		Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 24, 2020. To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the Registrant’s fiscal year. With the exception of the information incorporated by reference into Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K, the definitive Proxy Statement is not deemed filed as part of this report.

(101)		The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2019 formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity, (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and (vii) document and entity information.

(104)		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

BADGER METER, INC.

By:		/s/ Kenneth C. Bockhorst
		Kenneth C. Bockhorst
		Chairman, President and Chief Executive Officer

Name		Title

/s/ Kenneth C. Bockhorst		Chairman, President and Chief Executive Officer and Director (Principal executive officer)
Kenneth C. Bockhorst

/s/ Robert A. Wrocklage		Senior Vice President — Chief Financial Officer (Principal financial officer)
Robert A. Wrocklage

/s/ Daniel R. Weltzien		Vice President — Controller (Principal accounting officer)
Daniel R. Weltzien		Vice President — Controller (Principal accounting officer)

/s/ Todd A. Adams		Director
Todd A. Adams		Director

/s/ Thomas J. Fischer		Director
Thomas J. Fischer		Director

/s/ Gale E. Klappa		Director
Gale E. Klappa		Director

/s/ Gail A. Lione
Gail A. Lione		Director

/s/ Tessa M. Myers		Director
Tessa M. Myers		Director

/s/ James F. Stern		Director
James F. Stern		Director

/s/ Glen E. Tellock		Director
Glen E. Tellock		Director

/s/ Todd J. Teske		Director
Todd J. Teske		Director