Basis of Presentation and Accounting Policies

12 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Basis of Presentation and Accounting Policies

Note 1 Basis of Presentation and Accounting Policies

Profile

With more than a century of water technology innovation, Badger Meter is a global provider of industry leading water solutions encompassing flow measurement, quality and other system parameters. These offerings provide customers with the data and analytics essential to optimize their operations and contribute to the sustainable use and protection of the world’s most precious resource. The Company’s flow measurement products measure water and other fluids and are known for accuracy, long-lasting durability and for providing valuable and timely measurement data through various methods. The Company’s water quality monitoring solutions include optical sensing and electrochemical instruments that provide real-time, on-demand data parameters. The Company’s product lines fall into two categories: sales of water meters, radios, software and related technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing instruments, valves, software and other solutions for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that over 90% of its products are used in water related applications.

Utility water, the largest sales product line, is comprised of either mechanical or static (ultrasonic) water meters along with the related radio and software technologies and services used by water utilities as the basis for generating their water and wastewater revenues, enabling operating efficiencies and engaging with their end consumers. It further comprises other sensor technology used in the water distribution system to ensure the safe and efficient delivery of clean water. These sensors are used to detect leaks in the distribution piping system and to monitor various water quality parameters throughout the distribution system. The largest geographic market for the Company’s utility water products is North America, primarily the United States, because most of the Company's meters are designed and manufactured to conform to standards promulgated by the American Water Works Association. The majority of water meters sold by the Company continue to be mechanical in nature; however, static meters are an increasing percentage of the water meters sold by the Company and in the industry, due to a variety of factors, including their ability to maintain measurement accuracy over their useful life. Providing ultrasonic water meter technology, combined with advanced radio technology, provides the Company with the opportunity to sell into other geographical markets, for example the Middle East, Europe and Southeast Asia.

The flow instrumentation product line primarily serves water applications throughout the broader industrial markets. This product line includes meters, valves and other sensing instruments sold worldwide to measure and control the quantity of fluids going through a pipe or pipeline including water, air, steam, and other liquids and gases. These products are used in a variety of industries and applications, with the Company’s primary market focus being water/wastewater, heating, ventilating and air conditioning (HVAC) and corporate sustainability. Flow instrumentation products are generally sold to original equipment manufacturers as the primary flow measurement device within a product or system, as well as through manufacturers’ representatives.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents.

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)
2022	$	697	$	515	$	(33	)	$	1,179
2021		552		191		(46	)		697
2020		224		356		(28	)		552

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company estimates and records provisions for obsolete and excess inventories. Changes to the Company's obsolete and excess inventories reserve are as follows:

	Balance at beginning of year		Net additions charged to earnings		Disposals			Balance at end of year
	(In thousands)
2022	$	6,078	$	1,498	$	(895	)	$	6,681
2021		6,400		1,329		(1,651	)		6,078
2020		5,440		2,964		(2,004	)		6,400

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 $4.8 million and $5.6 million at December 31, 2022 and 2021, 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, 2022, 2021 and 2020 was $3.8 million, $4.5 million and $3.7 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 was $8.6 million in 2022, $10.0 million in 2021 and $7.2 million in 2020. Amortization expense expected to be recognized is $8.0 million in 2023,

$7.9 in 2024, $7.5 million in 2025, $6.7 million in 2026, $6.1 million in 2027 and $17.4 million thereafter. The carrying value and accumulated amortization by major class of intangible assets are as follows:

	December 31, 2022				December 31, 2021
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
	(In thousands)
Technologies	$	58,504	$	37,857	$	58,789	$	34,254
Intellectual property		6,857		840		10,169		2,744
Non-compete agreements		691		661		748		506
Licenses		650		560		650		543
Customer lists		8,058		5,097		8,083		4,501
Customer relationships		38,602		22,023		39,202		19,663
Trade names		15,880		8,597		16,050		7,304
Total intangibles	$	129,242	$	75,635	$	133,691	$	69,515

Goodwill

Goodwill is tested for impairment annually during the fourth quarter or more frequently if an event indicates that the goodwill might be impaired. Potential impairment is identified by comparing the fair value of a reporting unit with its carrying value. No adjustments were recorded to goodwill as a result of these tests during 2022, 2021 and 2020. Goodwill was $101.3 million at December 31, 2022, $104.3 million at December 31, 2021, and $88.7 million at December 31, 2020. The increase from 2020 to 2021 resulted from the acquisition of ATi, headquartered in Collegeville, Pennsylvania in 2021. This acquisition is further described in Note 3 “Acquisitions”.

Warranty and After-Sale Costs

The Company estimates and records provisions for warranties and other after-sale costs in the period in which the sale is recorded, based on a lag factor and historical warranty claim experience. After-sale costs represent a variety of activities outside of the written warranty policy, such as investigation of unanticipated issues after the customer has installed the product or analysis of water quality issues. Changes in the Company's warranty and after-sale costs reserve are as follows:

	Balance at beginning of year		Provision of acquired business		Net additions charged to earnings		Costs incurred			Balance at end of year
	(In thousands)
2022	$	12,868	$	-	$	5,624	$	(8,886	)	$	9,606
2021		11,617		-		5,856		(4,605	)		12,868
2020		5,583		500		7,855		(2,321	)		11,617

Research and Development

Research and development costs are charged to expense as incurred and amounted to $15.8 million in 2022, $14.7 million in 2021 and $11.6 million in 2020.

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 loss at December 31, 2022 are as follows:

(In thousands)	Unrecognized pension and postretirement  benefits		Foreign currency			Total
Balance at beginning of period	$	394	$	(258	)	$	136
Other comprehensive loss before reclassifications		-		(6,719	)		(6,719	)
Amounts reclassified from accumulated other comprehensive income, net of tax of ($197)		600		-			600
Net current period other comprehensive loss, net of tax		600		(6,719	)		(6,119	)
Accumulated other comprehensive loss	$	994	$	(6,977	)	$	(5,983	)

Reclassifications out of accumulated other comprehensive income during 2022 are immaterial.

Components of accumulated other comprehensive income at December 31, 2021 are as follows:

(In thousands)	Unrecognized pension and postretirement  benefits		Foreign currency			Total
Balance at beginning of period	$	55	$	1,258		$	1,313
Other comprehensive loss before reclassifications		-		(1,516	)		(1,516	)
Amounts reclassified from accumulated other comprehensive income, net of tax of ($112)		339		-			339
Net current period other comprehensive loss, net of tax		339		(1,516	)		(1,177	)
Accumulated other comprehensive income	$	394	$	(258	)	$	136

Reclassifications out of accumulated other comprehensive income during 2021 were immaterial.

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. Included in other assets are insurance policies on various individuals who were associated with the Company. The carrying amounts of these insurance policies approximate their fair value.

Subsequent Events

The Company evaluates subsequent events at the date of the balance sheet as well as conditions that arise after the balance sheet date but before the financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the financial statements. Events and conditions arising after the balance sheet date but before the financial statements are issued are evaluated to determine if disclosure is required to keep the financial statements from being misleading. To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions. For purposes of preparing the accompanying consolidated financial statements and the notes to these financial statements, the Company evaluated subsequent events through the date the accompanying financial statements were issued.

Effective January 1, 2023, the Company acquired 100% of the outstanding stock of Syrinix Ltd. ("Syrinix"), headquartered in the United Kingdom, a provider of high-frequency pressure monitoring and leak detection solutions. The purchase consideration, net of cash acquired, was approximately $18.0 million. The Syrinix acquisition will be accounted for under the purchase method, and accordingly, the results of operations will be included in the Company's financial statements from the date of acquisition. The acquisition is not expected to have a material impact on the Company's consolidated financial statements and notes thereto.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes” under ASC 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies the existing guidance to enable more consistent application. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year with early adoption being permitted. The Company adopted ASU No. 2019-12 on January 1, 2021, the impact of which was not significant to the Company.

In October 2021, the FASB issued ASU No. 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers." The guidance is effective for fiscal years beginning after December 15, 2022. The Company does not currently expect a material impact to its consolidated financial statements or disclosures from the adoption of this standard.