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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

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)
2018	$	387	$	—	$	(27	)	$	360
2017	$	425	$	285	$	(323	)	$	387
2016	$	477	$	2	$	(54	)	$	425

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)
2018	$	3,881	$	2,195	$	(1,945	)	$	4,131
2017	$	3,639	$	1,295	$	(1,053	)	$	3,881
2016	$	3,836	$	1,017	$	(1,214	)	$	3,639

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 $5.2 million and $6.0 million at December 31, 2018 and 2017, 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, 2018, 2017 and 2016 was $3.2 million, $2.8 million and $3.1 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 2018 was $7.5 million compared to $6.8 million in 2017 and $6.1 million in 2016. Amortization expense expected to be recognized is $7.2 million in 2019, $7.0 million in both 2020 and 2021, $5.9 million in 2022, $5.5 million in 2023 and $22.8 million thereafter. The carrying value and accumulated amortization by major class of intangible assets are as follows:

	December 31, 2018				December 31, 2017
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
	(In thousands)
Technologies	$	47,647	$	24,785	$	47,647	$	21,882
Intellectual property		10,000		833		10,000		333
Non-compete agreements		2,322		2,076		2,322		1,923
Licenses		650		492		650		475
Customer lists		8,023		2,623		8,023		2,011
Customer relationships		25,220		12,282		21,620		9,649
Trade names		9,595		4,948		9,595		4,258
Total intangibles	$	103,457	$	48,039	$	99,857	$	40,531

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 reviews during 2018, 2017 and 2016.

Goodwill was $71.3 million and $67.4 million at December 31, 2018 and 2017, respectively. The increase resulted from the acquisition of Innovative Metering Solutions of Odessa, Florida in 2018. 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 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		Adjustments to pre-existing warranties			Costs incurred			Balance at end of year
	(In thousands)
2018	$	3,367	$	3,269	$	5		$	(2,435	)	$	4,206
2017	$	2,779	$	4,520	$	(439	)	$	(3,493	)	$	3,367
2016	$	3,133	$	3,559	$	(554	)	$	(3,359	)	$	2,779

Research and Development

Research and development costs are charged to expense as incurred and amounted to $11.1 million in 2018 and $10.6 million in both 2017 and 2016.

Stock-Based Compensation Plans

As of December 31, 2018, the Company has an Omnibus Incentive Plan under which 1,400,000 shares are reserved for restricted stock and stock option grants for employees as well as stock grants for directors as described in Note 5 “Stock Compensation.” The plan was originally approved in 2011 and replaced all prior stock-based plans except for shares and options previously issued under those plans.

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 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. The Company values restricted stock and stock grants for directors on the closing price of the Company's stock on the day the grant was awarded. Total stock compensation expense recognized by the Company was $4.2 million for 2018, $1.8 million for 2017 and $1.6 million for 2016.

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 (loss) 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 (loss), 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 during 2018 are as follows:

	Amount reclassified from accumulated other comprehensive loss
	(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.”

Components of accumulated other comprehensive (loss) income at December 31, 2017 are as follows:

	Pension and postretirement benefits			Foreign currency			Total
	(In thousands)
Balance at beginning of period	$	(10,495	)	$	(1,140	)	$	(11,635	)
Other comprehensive income before reclassifications		—			1,844			1,844
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0.3 million		(1,102	)		—			(1,102	)
Net current period other comprehensive (loss) income, net		(1,102	)		1,844			742
Accumulated other comprehensive (loss) income	$	(11,597	)	$	704		$	(10,893	)

Details of reclassifications out of accumulated other comprehensive loss during 2017 are as follows:

	Amount reclassified from accumulated other comprehensive loss
	(In thousands)
Amortization of employee benefit plan items:
Prior service cost (1)	$	(25	)
Settlement expense (1)		641
Actuarial loss (1)		(2,010	)
Total before tax		(1,394	)
Income tax impact		292
Amount reclassified out of accumulated other comprehensive loss	$	(1,102	)

(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 and commercial paper. 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 is currently assessing the impact of adopting ASU 2018-14.

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 is currently assessing the impact of adopting ASU 2018-13.

In February 2018, the FASB issued ASU 2018-02 “Income Statement - Reporting Comprehensive Income (Loss) (Topic 220).” Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive (loss) income are adjusted, certain tax effects become stranded in accumulated other comprehensive (loss) income. The Company’s provisional adjustments recorded in 2017 to account for the impact of the Tax Cuts and Jobs Act resulted in such stranded tax effects. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive (loss) income to reinvested earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The guidance is effective for annual years beginning after December 15, 2018 with early adoption permitted in any interim reporting period. The Company elected to early-adopt this standard in the quarter ended September 30, 2018. This election resulted in a reclassification of $1.7 million from accumulated other comprehensive income (loss) to reinvested earnings.

In May 2017, the FASB issued ASU 2017-09 “Compensation - Stock Compensation (Topic 718),” which clarifies when a change to terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition, fair value or the award classification is not the same both before and after a change to the terms and conditions of the award. The new guidance was adopted on a prospective basis on January 1, 2018. The adoption of this standard did not have a significant impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07 “Compensation - Retirement Benefits (Topic 715),” which changes the presentation of defined benefit and post-retirement benefit plan expense on the income statement by requiring separation between operating and non-operating expense. Under the ASU, the service cost of net periodic benefit expense is an operating expense that will be reported with similar compensation costs. The non-operating components, which include all other components of net periodic benefit expense, are reported outside of operating income. The ASU also stipulates that only the service cost component of pension and postretirement (benefits) costs is eligible for capitalization. The ASU was adopted by the Company on January 1, 2018. Application was done retrospectively for the presentation of the components of these (benefits) costs. In the Consolidated Statements of Operations, the Company previously recorded service and other (benefits) costs in operating cost and expense accounts along with compensation costs. The adoption of the standard resulted in reclassification of those (benefits) costs to the other pension and postretirement (benefits) costs line in the Consolidated Statements of Operations. Adoption of the standard increased operating earnings for the year ended December 31, 2018 by $19.9 million and by $1.0 million for the year-ended December 31, 2017. A corresponding amount was reclassified to other pension and postretirement (benefits) costs for each of these years. The specific net periodic benefit components are disclosed in Note 7 “Employee Benefit Plans.”

In January 2017, the FASB issued ASU 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 does not anticipate that the adoption of ASU 2017-04 will have a significant impact on the Company’s financial statements.

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230),” which clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU was effective for annual periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The adoption of this ASU did not have a significant impact on the categorization of operating, investing and financing activities on the Consolidated Statements of Cash Flows.

In February 2016, the FASB issued ASU 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 (“ROU”) 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. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The ASU also provides several optional practical expedients for the ongoing accounting for leases. 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. Under this transition method, comparative periods would continue to be reported in accordance with the existing lease guidance under ASC 840 Leases. The Company plans to adopt the ASU with this optional transition methodology beginning on the effective date of January 1, 2019. The Company also intends to elect the practical expedient which will exclude short-term leases from ROU asset or lease liability recognition on the consolidated balance sheet. In addition, the Company has elected the practical expedient to not separate lease and non-lease components. The Company also plans to elect the package of practical expedients that is permitted under the transition guidance, which, among other things, allows the Company to carry forward historical lease classifications. The Company expects that upon adoption, the consolidated balance sheet will increase by $11 million for the recognition of ROU assets and lease liabilities which will also create corresponding deferred tax assets and liabilities.