Company Quick10K Filing
Quick10K
Badger Meter
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$54.24 29 $1,580
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-30 Shareholder Vote
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-03-08 Officers
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-12-28 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-10-17 Earnings, Exhibits
8-K 2018-09-24 Officers, Regulation FD, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-04-27 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-04-17 Earnings, Exhibits
8-K 2018-02-09 Officers
8-K 2018-02-05 Earnings, Exhibits
ITW Illinois Tool Works 49,370
ACC American Campus Communities 6,300
ANGO Angiodynamics 738
TRC Tejon Ranch 460
FCCY 1st Constitution Bancorp 163
DOGZ Dogness 87
EPIX ESSA Pharma 17
CAW CCA Industries 0
MPACU Matlin & Partners Acquisition 0
AHNR Athena Silver 0
BMI 2019-03-31
Part I - Financial Information
Item 1 Financial Statements
Note 1 Basis of Presentation
Note 2 Additional Financial Information Disclosures
Note 3 Employee Benefit Plans
Note 4 Accumulated Other Comprehensive Income (Loss)
Note 5 Acquisition
Note 6 Contingencies, Litigation and Commitments
Note 7 Income Taxes
Note 8 Fair Value Measurements of Financial Instruments
Note 9 Subsequent Events
Note 10 New Pronouncements
Note 11 Revenue Recognition
Note 12 Leases
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
Part II - Other Information
Item 6 Exhibits
EX-10 bmi-ex10_285.htm
EX-31.1 bmi-ex311_6.htm
EX-31.2 bmi-ex312_7.htm
EX-32 bmi-ex32_8.htm

Badger Meter Earnings 2019-03-31

BMI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 bmi-10q_20190331.htm 10-Q bmi-10q_20190331.htm

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 2019                

or

        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:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange where registered

Common Stock

BMI

New York Stock Exchange

 

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  

As of April 11, 2019, there were 29,114,760 shares of Common stock outstanding with a par value of $1 per share.

 

 

 


Table of Contents

BADGER METER, INC.

Quarterly Report on Form 10-Q for the Period Ended March 31, 2019

Index

 

 

Page No.

 

 

Part I. Financial Information:

 

 

 

 

Item 1

Financial Statements (unaudited):

5

 

 

 

 

Consolidated Condensed Balance Sheets - March 31, 2019 and December 31, 2018

5

 

 

 

 

Consolidated Condensed Statements of Operations - Three Months Ended March 31, 2019 and 2018

6

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income - Three Months Ended March 31, 2019 and 2018

7

 

 

 

 

Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018

8

 

 

 

 

Consolidated Condensed Statements of Shareholders’ Equity – Three Months Ended March 31, 2019 and 2018

9

 

 

 

 

Notes to Unaudited Consolidated Condensed Financial Statements

10

 

 

 

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

22

 

 

 

Item 4

Controls and Procedures

22

 

 

Part II. Other Information:

 

 

 

 

Item 6

Exhibits

23

 

 

Signatures

24

 

2


Table of Contents

Special Note Regarding Forward Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, as well as other information provided from time to time by Badger Meter, Inc. (the “Company” or “Badger Meter”) 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and include, among other things:

 

 

the continued shift in the Company’s business from lower cost, manually read meters toward more expensive, value-added automatic meter reading (AMR) systems, advanced metering infrastructure (AMI) systems and advanced metering analytics (AMA) systems that offer more comprehensive solutions to customers’ metering needs;

 

the success or failure of newer Company products;

 

changes in competitive pricing and bids in both the domestic and foreign marketplaces, and particularly in continued intense price competition on government bid contracts for lower cost, manually read meters;

 

the actions (or lack thereof) of the Company’s competitors;

 

changes in 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, 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;

 

unusual weather, weather patterns or other natural phenomena, including related economic and other ancillary effects of any such events;

 

economic policy changes, including but not limited to, trade policy and corporate taxation;

 

the timing and impact of government funding programs that stimulate national and global economies, as well as the impact of government budget cuts or partial shutdowns of governmental operations;

 

changes in the cost and/or availability of needed raw materials and parts, such as volatility in the cost of brass castings as a result of fluctuations in commodity prices, particularly for copper and scrap metal at the supplier level, foreign-sourced electronic components as a result of currency exchange fluctuations and/or lead times, and plastic resin as a result of changes in petroleum and natural gas prices;

 

the Company’s ability to successfully integrate acquired businesses or products;

 

changes in foreign economic conditions, particularly currency fluctuations in the United States dollar, the Euro and the Mexican peso;

 

the inability to develop technologically advanced products;

 

the failure of the Company’s products to operate as intended;

 

the inability to protect the Company’s proprietary rights to its products;

 

the Company’s expanded role as a prime contractor for providing complete technology systems to governmental entities, which brings with it added risks, including but not limited to, the Company’s responsibility for subcontractor performance, additional costs and expenses if the Company and its subcontractors fail to meet the timetable agreed to with the governmental entity, and the Company’s expanded warranty and performance obligations;

 

disruptions and other damages to information technology, other networks, operations and property (Company or third party owned) due to breaches in data security or any other cybersecurity attack;

3


Table of Contents

 

transportation delays or interruptions;

 

violations or alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws;

 

the loss of or disruption in certain single-source suppliers; and

 

changes in laws and regulations, particularly laws dealing with the content or handling of materials used in the Company's products.

 

All of these factors are beyond the Company's control to varying degrees.  Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward looking statements contained in this Quarterly Report on Form 10-Q and are cautioned not to place undue reliance on such forward looking statements.  The forward looking statements made in this document are made only as of the date of this document and the Company assumes no obligation, and disclaims any obligation, to update any such forward looking statements to reflect subsequent events or circumstances.

4


Table of Contents

Part I – Financial Information

Item 1  Financial Statements

BADGER METER, INC.

Consolidated Condensed Balance Sheets

 

 

 

March 31,

 

 

December 31,

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

15,033

 

 

$

13,086

 

Receivables

 

 

68,095

 

 

 

66,300

 

Inventories:

 

 

 

 

 

 

 

 

Finished goods

 

 

21,811

 

 

 

23,476

 

Work in process

 

 

16,076

 

 

 

17,097

 

Raw materials

 

 

42,667

 

 

 

40,231

 

Total inventories

 

 

80,554

 

 

 

80,804

 

Prepaid expenses and other current assets

 

 

7,541

 

 

 

4,469

 

Total current assets

 

 

171,223

 

 

 

164,659

 

Property, plant and equipment, at cost

 

 

215,098

 

 

 

213,722

 

Less accumulated depreciation

 

 

(125,816

)

 

 

(123,401

)

Net property, plant and equipment

 

 

89,282

 

 

 

90,321

 

Intangible assets, at cost less accumulated amortization

 

 

53,534

 

 

 

55,418

 

Other assets

 

 

15,810

 

 

 

8,872

 

Deferred income taxes

 

 

2,142

 

 

 

2,163

 

Goodwill

 

 

71,258

 

 

 

71,258

 

Total assets

 

$

403,249

 

 

$

392,691

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term debt

 

$

10,980

 

 

$

18,060

 

Payables

 

 

25,983

 

 

 

22,469

 

Accrued compensation and employee benefits

 

 

9,583

 

 

 

13,768

 

Warranty and after-sale costs

 

 

4,318

 

 

 

4,206

 

Other current liabilities

 

 

7,060

 

 

 

1,512

 

Total current liabilities

 

 

57,924

 

 

 

60,015

 

Other long-term liabilities

 

 

21,494

 

 

 

13,972

 

Deferred income taxes

 

 

3,217

 

 

 

3,332

 

Accrued non-pension postretirement benefits

 

 

5,214

 

 

 

5,184

 

Other accrued employee benefits

 

 

6,787

 

 

 

6,685

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

37,200

 

 

 

37,198

 

Capital in excess of par value

 

 

38,756

 

 

 

38,082

 

Reinvested earnings

 

 

263,777

 

 

 

257,313

 

Accumulated other comprehensive income

 

 

311

 

 

 

580

 

Less: Employee benefit stock

 

 

(306

)

 

 

(306

)

Treasury stock, at cost

 

 

(31,125

)

 

 

(29,364

)

Total shareholders’ equity

 

 

308,613

 

 

 

303,503

 

Total liabilities and shareholders’ equity

 

$

403,249

 

 

$

392,691

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

5


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Operations

 

 

 

Three Months Ended

March 31,

 

 

 

(Unaudited)

 

 

 

(In thousands except share and per share amounts)

 

 

 

2019

 

 

2018

 

Net sales

 

$

104,881

 

 

$

105,041

 

Cost of sales

 

 

64,424

 

 

 

68,293

 

Gross margin

 

 

40,457

 

 

 

36,748

 

Selling, engineering and administration

 

 

26,130

 

 

 

26,774

 

Operating earnings

 

 

14,327

 

 

 

9,974

 

Interest expense, net

 

 

129

 

 

 

290

 

Other pension and postretirement costs (benefits)

 

 

47

 

 

 

(19

)

Earnings before income taxes

 

 

14,151

 

 

 

9,703

 

Provision for income taxes

 

 

3,327

 

 

 

2,157

 

Net earnings

 

$

10,824

 

 

$

7,546

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.37

 

 

$

0.26

 

Diluted

 

$

0.37

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.15

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 

Shares used in computation of earnings per share:

 

 

 

 

 

 

 

 

Basic

 

 

29,028,964

 

 

 

28,932,787

 

Impact of dilutive securities

 

 

209,660

 

 

 

217,259

 

Diluted

 

 

29,238,624

 

 

 

29,150,046

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

6


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Comprehensive Income

 

 

 

Three Months Ended

March 31,

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

 

 

2019

 

 

2018

 

Net earnings

 

$

10,824

 

 

$

7,546

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(257

)

 

 

421

 

Pension and postretirement benefits, net of tax

 

 

(12

)

 

 

61

 

Comprehensive income

 

$

10,555

 

 

$

8,028

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

7


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Cash Flows

 

 

 

Three Months Ended

March 31,

 

 

 

(Unaudited)

(In thousands)

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

10,824

 

 

$

7,546

 

Adjustments to reconcile net earnings to net cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,978

 

 

 

3,175

 

Amortization

 

 

3,264

 

 

 

3,537

 

Deferred income taxes

 

 

(1

)

 

 

1

 

Noncurrent employee benefits

 

 

117

 

 

 

94

 

Stock-based compensation expense

 

 

265

 

 

 

471

 

Changes in:

 

 

 

 

 

 

 

 

Receivables

 

 

(1,943

)

 

 

(4,919

)

Inventories

 

 

166

 

 

 

265

 

Payables

 

 

4,540

 

 

 

(4,479

)

Prepaid expenses and other current assets

 

 

(2,101

)

 

 

(1,586

)

Other liabilities

 

 

(294

)

 

 

2,670

 

Total adjustments

 

 

6,991

 

 

 

(771

)

Net cash provided by operations

 

 

17,815

 

 

 

6,775

 

Investing activities:

 

 

 

 

 

 

 

 

Property, plant and equipment expenditures

 

 

(2,160

)

 

 

(3,043

)

Net cash used for investing activities

 

 

(2,160

)

 

 

(3,043

)

Financing activities:

 

 

 

 

 

 

 

 

Net (decrease) increase in short-term debt

 

 

(7,000

)

 

 

3,500

 

Payment of contingent acquisition consideration

 

 

(1,000

)

 

 

-

 

Dividends paid

 

 

(4,357

)

 

 

(3,770

)

Proceeds from exercise of stock options

 

 

471

 

 

 

231

 

Repurchase of treasury stock

 

 

(1,873

)

 

 

(1,619

)

Issuance of treasury stock

 

 

52

 

 

 

65

 

Net cash used for financing activities

 

 

(13,707

)

 

 

(1,593

)

Effect of foreign exchange rates on cash

 

 

(1

)

 

 

229

 

Increase in cash

 

 

1,947

 

 

 

2,368

 

Cash – beginning of period

 

 

13,086

 

 

 

11,164

 

Cash – end of period

 

$

15,033

 

 

$

13,532

 

 

See accompanying notes to unaudited consolidated condensed financial statements.

8


Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Shareholders’ Equity

 

 

 

Quarters ended March 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 (at cost)

 

 

Total

 

 

 

(Unaudited)

 

 

 

(In thousands except share and per share amounts)

 

Balance, December 31, 2017

 

$

37,165

 

 

$

32,182

 

 

$

244,224

 

 

$

(10,893

)

 

$

(461

)

 

$

(24,766

)

 

$

277,451

 

Net earnings

 

 

 

 

 

 

 

 

7,546

 

 

 

 

 

 

 

 

 

 

 

 

7,546

 

ASU 2014-09 adoption impact

 

 

 

 

 

 

 

 

(128

)

 

 

 

 

 

 

 

 

 

 

 

(128

)

Pension and postretirement benefits

   (net of $21 tax effect)

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

 

 

 

61

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

421

 

 

 

 

 

 

 

 

 

421

 

Cash dividends of $0.13 per share

 

 

 

 

 

 

 

 

(3,777

)

 

 

 

 

 

 

 

 

 

 

 

(3,777

)

Stock options exercised

 

 

12

 

 

 

219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

231

 

Stock-based compensation

 

 

 

 

 

471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

471

 

Purchase of common stock for treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,619

)

 

 

(1,619

)

Issuance of treasury stock (21 shares)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

65

 

Balance, March 31, 2018

 

$

37,177

 

 

$

32,871

 

 

$

247,865

 

 

$

(10,411

)

 

$

(461

)

 

$

(26,319

)

 

$

280,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

37,198

 

 

$

38,082

 

 

$

257,313

 

 

$

580

 

 

$

(306

)

 

$

(29,364

)

 

$

303,503

 

Net earnings

 

 

 

 

 

 

 

 

10,824

 

 

 

 

 

 

 

 

 

 

 

 

10,824

 

Pension and postretirement benefits

   (net of $4 tax effect)

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

(12

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(257

)

 

 

 

 

 

 

 

 

(257

)

Cash dividends of $0.15 per share

 

 

 

 

 

 

 

 

(4,360

)

 

 

 

 

 

 

 

 

 

 

 

(4,360

)

Stock options exercised

 

 

2

 

 

 

397

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

471

 

Stock-based compensation

 

 

 

 

 

265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

265

 

Purchase of common stock for treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,873

)

 

 

(1,873

)

Issuance of treasury stock (9 shares)

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

40

 

 

 

52

 

Balance, March 31, 2019

 

$

37,200

 

 

$

38,756

 

 

$

263,777

 

 

$

311

 

 

$

(306

)

 

$

(31,125

)

 

$

308,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* 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 to unaudited consolidated condensed financial statements.

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BADGER METER, INC.

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1   Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Badger Meter contain all adjustments (consisting only of normal recurring accruals except as otherwise discussed) necessary to present fairly the Company’s consolidated condensed financial position at March 31, 2019, results of operations, comprehensive income, cash flows and statements of shareholders’ equity for the three-month periods ended March 31, 2019 and 2018.  The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with United States 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.

Note 2   Additional Financial Information Disclosures

The consolidated condensed balance sheet at December 31, 2018 was derived from amounts included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  Refer to the notes to the financial statements included in that report for a description of the Company’s accounting policies and for additional details of the Company’s financial condition.  The details in those notes have not changed except as discussed below and as a result of normal adjustments in the interim.

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:

 

 

 

Three months ended

March 31,

 

(In thousands)

 

2019

 

 

2018

 

Balance at beginning of period

 

$

4,206

 

 

$

3,367

 

Net additions charged to earnings

 

 

465

 

 

 

1,041

 

Adjustments to pre-existing warranties

 

 

-

 

 

 

(53

)

Costs incurred

 

 

(353

)

 

 

(653

)

Balance at end of period

 

$

4,318

 

 

$

3,702

 

 

Note 3   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 this plan.  For the frozen pension plan, benefits were based primarily on years of service and, for certain individuals, 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 Ownership Plan for the majority of the U.S. employees.

The Company additionally 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.

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The following table sets forth the components of net periodic benefit cost (income) for the three months ended March 31, 2019 and 2018 based on December 31, 2018 and 2017 actuarial measurement dates, respectively:

 

 

 

Defined

pension plan

benefits

 

 

Other

postretirement

benefits

 

(In thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Service cost – benefits earned during the year

 

$

37

 

 

$

29

 

 

$

29

 

 

$

34

 

Interest cost on projected benefit obligations

 

 

9

 

 

 

95

 

 

 

53

 

 

 

48

 

Expected return on plan assets

 

 

-

 

 

 

(244

)

 

 

-

 

 

 

-

 

Amortization of prior service benefit

 

 

-

 

 

 

-

 

 

 

(25

)

 

 

(6

)

Amortization of net loss

 

 

9

 

 

 

88

 

 

 

-

 

 

 

-

 

Net periodic benefit cost (income)

 

$

55

 

 

$

(32

)

 

$

57

 

 

$

76

 

 

The Company disclosed in its financial statements for the year ended December 31, 2018 that it estimated it would pay $0.4 million in other postretirement benefits in 2019 based on actuarial estimates.  As of March 31, 2019, $52,000 of such benefits have been paid.  The Company continues to believe that its estimated payments for the full year are reasonable.  However, such estimates contain inherent uncertainties because cash payments can vary significantly depending on the timing of postretirement medical claims and the collection of the retirees’ portion of certain costs.  The amount of benefits paid in calendar year 2019 will not impact the expense for postretirement benefits for 2019.

Note 4   Accumulated Other Comprehensive Income (Loss)

Components of and changes in accumulated other comprehensive income (loss) at March 31, 2019 are as follows:

 

(In thousands)

 

Unrecognized

pension and

postretirement

benefits

 

 

Foreign currency

 

 

Total

 

Balance at beginning of period

 

$

360

 

 

$

220

 

 

$

580

 

Other comprehensive income (loss) before reclassifications

 

 

-

 

 

 

(257

)

 

 

(257

)

Amounts reclassified from accumulated other comprehensive income

   (loss), net of tax of $4 thousand

 

 

(12

)

 

 

-

 

 

 

(12

)

Net current period other comprehensive income (loss), net of tax

 

 

(12

)

 

 

(257

)

 

 

(269

)

Accumulated other comprehensive income (loss)

 

$

348

 

 

$

(37

)

 

$

311

 

 

Details of reclassifications out of accumulated other comprehensive income (loss) during the three months ended March 31, 2019 are as follows:

 

(In thousands)

 

Amount

reclassified from

accumulated

other

comprehensive

income (loss)

 

Amortization of pension and postretirement benefits items:

 

 

 

 

Prior service benefit (1)

 

$

(25

)

Actuarial loss (1)

 

 

9

 

Total before tax

 

 

(16

)

Income tax

 

 

4

 

Amount reclassified out of accumulated other comprehensive loss

 

$

(12

)

 

(1)

These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost (income) in Note 3 “Employee Benefit Plans.”

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Components of and changes in accumulated other comprehensive income (loss) at March 31, 2018 are as follows:

 

(In thousands)

 

Unrecognized

pension and

postretirement

benefits

 

 

Foreign currency

 

 

Total

 

Balance at beginning of period

 

$

(11,597

)

 

$

704

 

 

$

(10,893

)

Other comprehensive income (loss) before reclassifications

 

 

-

 

 

 

421

 

 

 

421

 

Amounts reclassified from accumulated other comprehensive income

   (loss), net of tax of $21 thousand

 

 

61

 

 

 

-

 

 

 

61

 

Net current period other comprehensive income (loss), net of tax

 

 

61

 

 

 

421

 

 

 

482

 

Accumulated other comprehensive income (loss)

 

$

(11,536

)

 

$

1,125

 

 

$

(10,411

)

 

Details of reclassifications out of accumulated other comprehensive income (loss) during the three months ended March 31, 2018 are as follows:

 

(In thousands)

 

Amount

reclassified from

accumulated

other

comprehensive

income (loss)

 

Amortization of pension and postretirement benefits items:

 

 

 

 

Prior service benefit (1)

 

$

(6

)

Amortization of actuarial loss (1)

 

 

88

 

Total before tax

 

 

82

 

Income tax

 

 

(21

)

Amount reclassified out of accumulated other comprehensive income

 

$

61

 

 

(1)

These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost (income) in Note 3 “Employee Benefit Plans.”

Note 5   Acquisition

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.  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 IMS acquisition 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 settlement of $3.3 million of pre-existing Company receivables.  The working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback is recorded in payables on the Company's Consolidated Balance Sheet as it is anticipated to be paid in the next twelve months.  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. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition.  As of March 31, 2019, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. 

In the first quarter of 2019, the Company made a contingent payment of $1.0 million related to the May 1, 2017 acquisition of 100% of the outstanding common stock of D-Flow Technology AB (“D-Flow”).  There is an additional $2.0 million of contingent payments related to the D-Flow acquisition that is anticipated to be made in 2019 which is recorded in payables on the Company’s Consolidated Balance Sheet at March 31, 2019.

Note 6   Contingencies, Litigation and Commitments

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

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future costs to the Company and such amounts could be material.  Expenditures for compliance with environmental control provisions and regulations during 2018 and the first quarter of 2019 were not material.

The Company relies on single suppliers for most brass castings, certain resins 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 would 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   Income Taxes

The Company is subject to income taxes in the United States and numerous foreign jurisdictions. The Company’s income tax positions are based on interpretations of income tax laws and rulings in each of the jurisdictions that the Company operates.  Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities. The Company’s deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income for the years in which the assets or liabilities are expected to be realized or settled. Interim provisions are tied to an estimate of the overall annual rate which can vary due to the relationship of foreign and domestic earnings, state taxes and available deductions, credits and discrete items.

The Company’s earnings before incomes taxes, income tax expense and effective income tax rate are as follows:

 

 

 

Three Months

Ended

March 31,

2019

 

 

Three Months

Ended

March 31,

2018

 

 

 

 

(In thousands)

 

 

Earnings  before income taxes

 

$

14,151

 

 

$

9,703

 

 

Income tax expense

 

$

3,327

 

 

$

2,157

 

 

Effective income tax rate

 

 

23.5

%

 

 

22.2

%

 

 

 

Note 8   Fair Value Measurements of Financial Instruments

The Company applies the accounting standards for fair value measurements and disclosures for its financial assets and financial liabilities.  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 previously employed by the Company.  The carrying amounts of these insurance policies approximate their fair value.

Note 9   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 that the accompanying financial statements were issued, and has determined that no material subsequent events exist through the date of this filing.

Note 10   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 No. 2018-14.

 

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Table of Contents

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 No. 2018-13.

 

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 is currently assessing the impact of adopting ASU No. 2016-13.

 

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.”

Note 11   Revenue Recognition

Revenue for sales of products and services is derived from contracts with customers.  The products and services promised in contracts include the sale of municipal water and flow instrumentation products, such as flow meters and radios, software access and other ancillary services.  Contracts generally state the terms of sale, including the description, quantity and price of each product or service.  Since the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the majority of the Company's contracts do not contain variable consideration.  The Company establishes a provision for estimated warranty and returns as well as certain after sale costs as discussed in Note 2 "Additional Financial Information Disclosures."

In accordance with ASU No. 2016-10 “Revenue from Contracts with Customers” (“Topic 606”), the Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred.  The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

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Table of Contents

Information regarding revenues disaggregated by geographic area is as follows:

 

 

 

Three Months

Ended

March 31,

2019

 

 

Three Months

Ended

March 31,

2018

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

United States

 

$

91,499

 

 

$

91,153

 

Foreign:

 

 

 

 

 

 

 

 

Asia

 

 

1,452

 

 

 

1,700

 

Canada

 

 

3,497

 

 

 

3,260

 

Europe

 

 

5,352

 

 

 

5,047

 

Mexico

 

 

834

 

 

 

623

 

Middle East

 

 

1,584

 

 

 

2,152

 

Other

 

 

663

 

 

 

1,106

 

Total