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

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

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

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)
2020	$	224	$	356		$	(28	)	$	552
2019	$	360	$	(132	)	$	(4	)	$	224
2018	$	387	$	—		$	(27	)	$	360

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

	Balance at beginning of year		Net additions charged to earnings		Disposals			Balance at end of year
	(In thousands)
2020	$	5,440	$	2,964	$	(2,004	)	$	6,400
2019	$	4,131	$	2,663	$	(1,354	)	$	5,440
2018	$	3,881	$	2,195	$	(1,945	)	$	4,131

Property, plant and equipment 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 $6.0 million and $5.7 million at December 31, 2020 and 2019, respectively. These amounts are amortized on a straight-line basis over the estimated useful lives of the software and/or hardware, ranging from 1 to 5 years. Amortization expense recognized for the years ending December 31, 2020, 2019 and 2018 was $3.7 million, $3.1 million and $3.2 million, respectively.

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 2020 and 2019 was $7.2 million and $7.5 million in 2018. Amortization expense expected to be recognized is $8.2 million in 2021 and $7.1 in 2022, $6.4 million in 2023, $6.3 million in 2024, $6.0 million in 2025 and $19.6 million thereafter. The carrying value and accumulated amortization by major class of intangible assets are as follows:

	December 31, 2020				December 31, 2019
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
	(In thousands)
Technologies	$	52,536	$	30,598	$	47,608	$	27,650
Intellectual property		10,000		1,833		10,000		1,333
Non-compete agreements		931		413		572		431
Licenses		650		526		650		509
Customer lists		8,023		3,846		8,023		3,234
Customer relationships		28,630		16,146		25,220		14,730
Trade names		12,136		5,946		9,203		5,226
Total intangibles	$	112,906	$	59,308	$	101,276	$	53,113

Goodwill is tested for impairment annually during the fourth quarter or more frequently if an event indicates that the goodwill might be impaired. Potential impairment is identified by comparing the fair value of a reporting unit with its carrying value. No adjustments were recorded to goodwill as a result of these tests during 2020, 2019 and 2018. Goodwill was $88.7 and $71.3 million at December 31, 2020 and 2019, respectively. The increase resulted from the acquisition of s::can, headquartered in Vienna, Austria in 2020. This acquisition is further described in Note 3 “Acquisitions”.

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

	Balance at beginning of year		Provision of acquired business		Net additions charged to earnings		Costs incurred			Balance at end of year
	(In thousands)
2020	$	5,583	$	500	$	7,855	$	(2,321	)	$	11,617
2019	$	4,206	$	—	$	6,616	$	(5,239	)	$	5,583
2018	$	3,367	$	—	$	3,274	$	(2,435	)	$	4,206

Research and development costs are charged to expense as incurred and amounted to $11.6 million in 2020, $11.9 million in 2019 and $11.1 million in 2018.

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, 2020 are as follows:

	Pension and postretirement benefits			Foreign currency		Total
	(In thousands)
Balance at beginning of period	$	263		$	162	$	425
Other comprehensive income before reclassifications		—			1,096		1,096
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $69		(208	)		—		(208	)
Net current period other comprehensive (loss) income, net		(208	)		1,096		888
Accumulated other comprehensive income	$	55		$	1,258	$	1,313

Reclassifications out of accumulated other comprehensive income during 2020 are immaterial.

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

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

	Amount reclassified from accumulated other comprehensive income
	(In thousands)
Amortization of employee benefit plan items:
Actuarial gains and losses (1)	$	(639	)
Plan settlement (2)		526
Total before tax		(113	)
Income tax impact		16
Amount reclassified out of accumulated other comprehensive income	$	(97	)

(1)These accumulated other comprehensive loss components are included in the computation of benefit plan costs in Note 7 “Employee Benefit Plans.” (2) This accumulated other comprehensive income component results from an international pension plan settlement.

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.

Effective January 1, 2021, the Company acquired 100% of the outstanding stock of Analytical Technology, LLC (“ATi”), headquartered in Collegeville, Pennsylvania, a provider of water quality monitoring systems. The purchase consideration, net of cash acquired, was approximately $44 million. The ATi acquisition will be accounted for under the purchase method, and accordingly, the results of operations will be included in the Company’s financial statements from the

date of acquisition. The acquisition is not expected to have a material impact on the Company’s consolidated financial statements and notes thereto.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes” under ASC 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies the existing guidance to enable more consistent application. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year with early adoption being permitted. The Company adopted ASU No. 2019-12 on January 1, 2021 and noted no significant changes to the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326),” which amends the accounting for credit losses on purchased financial assets and available-for-sale debt securities with credit deterioration. This ASU requires the measurement of all expected credit losses for financial assets, including accounts receivables, held at the reporting date based upon current conditions, historical experience and reasonable forecasts. This ASU is effective for annual reporting periods beginning after December 15, 2019. The Company adopted ASU No. 2016-13 on January 1, 2020 and noted no significant changes to the Company’s financial position or results of operations.