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.

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.

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

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 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 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 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.

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 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 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.

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 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.

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.

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	)

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

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.

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.

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.

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.