2014 a n n u a l r e p o r t at HOME at WORK at PLAY on the GO 87346 BMI Annual Report 2014.indd 1 87346 BMI Annual Report 2014.indd 1 3/9/15 4:47 PM 3/9/15 4:47 PM Many people know us for our water meters – a visible product found in their home that measures water usage so the utility can send a bill. But few people know how many other roles we have in their daily life, from the temperature in their offi ce to the gasoline in their car. In fact, our products perform a variety of functions in a diverse array of markets: at HOME, at WORK, at PLAY and on the GO. 87346 BMI Annual Report 2014.indd 2 87346 BMI Annual Report 2014.indd 2 3/9/15 4:47 PM 3/9/15 4:47 PM MUNICIPAL WATER MARKET SERVED: Water utilities BADGER METER is an innovator in fl ow measurement and control products, serving water utilities, municipalities, and commercial and industrial customers worldwide. FLOW INSTRUMENTATION MARKETS SERVED: Industrial process Water and wastewater Pharmaceutical Test and measurement Power generation MEASURE Our products accurately and reliably measure whatever moves through a pipe or pipeline — including water, air, steam, oil, and other liquids and gases. Building automation / HVAC Food and beverage all Chemical and petrochemical Research and development Oil and gas Mining Aerospace Semiconductor MONITOR Our products and solutions give customers the tools to improve visibility and understanding of what is happening within their systems. CONTROL Optimized operational management starts with the highest quality measurement and monitoring solutions from Badger Meter. 2014 BADGER METER SALES MIX 71.3% 26.1% SPECIALTY PRODUCTS MARKETS SERVED: Gas utilities Construction Municipal Water Industrial Flow Products Specialty Products 2.6% 87346 BMI Annual Report 2014.indd 3 87346 BMI Annual Report 2014.indd 3 1 3/9/15 4:47 PM 3/9/15 4:47 PM dear SHAREHOLDERS I had a bad morning. My house had no water pressure due to fi nancial problems at my local water utility. My dishwasher overfl owed during the night, soaking my kitchen fl oor. My car didn’t start because not enough oil was added at a recent oil change. Then the HVAC system in my offi ce failed to maintain any heat. That’s the bad news. The good news is that none of those things actually happened – thanks to the many fl ow measurement and control products produced by Badger Meter. In reality, my local water utility is effi ciently managed due to our water metering systems. My dishwasher uses a Badger Meter Vision meter to accurately control the water level. My local garage uses a Badger Meter automotive fl uid meter to ensure the proper amount of oil goes into my car. And another Badger Meter product keeps the HVAC system in my offi ce, and millions of other offi ces, running smoothly. Every day, Badger Meter products turn potentially bad days into good days – at home, at work, at play and on the go. Most people never see our products, but have come to rely on them as an integral part of their daily routine. This Annual Report will highlight some of those uses and, hopefully, showcase the importance of our metering systems. We will also highlight our many successes, both fi nancially and in new product development. FINANCIAL RESULTS 2014 was a great year for our company, with both record sales and record earnings from continuing operations. Our 2014 sales reached $364.8 million, a 9.2% increase over 2013. The increase was driven by higher sales of our municipal water products (including our meter reading systems), as well as higher sales of our fl ow instrumentation products. Our gross margins also improved from 35% in 2013 to 36% in 2014, as our operational effi ciency benefi tted from higher volumes, lower material prices and our continuing cost containment efforts. Our strong sales and margins drove higher operating income, and we benefi tted from a lower tax rate in 2014. As a result, our earnings increased 20.6% to a record $29.7 million in 2014, compared to $24.6 million in 2013. Richard A. Meeusen Chairman, President & Chief Executive Offi cer We generated $35.7 million in cash from operations in 2014, while continuing to invest in our ongoing research and development projects. Our balance sheet remains strong, 2 87346 BMI Annual Report 2014.indd 4 87346 BMI Annual Report 2014.indd 4 3/9/15 4:47 PM 3/9/15 4:47 PM S with a debt-to-total capitalization ratio of 26.2% and a debt-to-EBITDA ratio of only 1.26 times as of December 31, 2014. Our steady cash fl ow also enabled us to increase the quarterly cash dividend for the 22nd consecutive year. NEW PRODUCTS “Every day, BADGER METER PRODUCTS turn potentially bad days into good days – at HOME, at WORK, at PLAY and on the GO.” Two major products introduced in recent years were solid contributors to our 2014 National Meter distributes our products for the municipal water utility market, serving performance. We were pleased to see sales of both ORION® SE, our simultaneous customers in Colorado, California, Nevada, Arizona and southern Wyoming. Since drive-by and fi xed network system, and the E-Series® Ultrasonic water meter line National Meter was formed in 2004, it has grown into a strong and highly-respected more than double in 2014 compared to 2013. company. We sell a signifi cant amount of our products through distributors, who have Our latest product, the BEACON® Advanced Metering Analytics (AMA) system, operational support at a local level. The addition of National Meter not only further was introduced in January 2014. This product offers the fi rst cost-effective cellular integrates Badger Meter into this key sales channel, but also benefi ts our other close relationships with our customers and provide important sales, technical and residential radio, along with a strong suite of management systems for our water distributor relationships and our customers. utility customers. In addition, this system permits homeowners to download the free EyeOnWater app, which enables them to monitor their own water usage through Since the acquisition, we have positioned National Meter as a regional distribution mobile devices, encouraging water conservation. During 2014, we not only sold center for Badger Meter. In addition to its primary product line of water meters and “starter kits” to over 250 water utilities, but 30 of those utilities committed to a full meter reading systems, National Meter also provides services including meter testing, roll-out of this advanced technology system. We are very pleased with the strong leak detection, water audits, meter and meter reading system installation and meter market acceptance of this new product. reading. Further, we believe that National Meter can serve as a platform for future acquisitions in the water metering distribution arena. We are also seeing strong demand for our fl ow instrumentation products. Our technologies are a key part of many products that make our lives easier every day. SUMMARY To maintain and grow our market share, we continually develop new features for When I look back on the successes of 2014 and the bright prospects for Badger existing products, as well as entirely new product lines such as our Coriolis mass Meter’s future, I believe it all comes down to our products. Some products are easily meters. During 2014, we reorganized our fl ow instrumentation group to enable recognized, while many others are “hidden” in other processes and systems. But they greater focus on this important portion of our business. all have one thing in common: they help improve our everyday lives. This important role provides many benefi ts to our shareholders, our employees and our customers. ACQUISITIONS We focus our acquisition activity on a small number of select opportunities each Today, I can take a shower, wash my dishes, drive my car and enjoy a climate- year. In 2013, we acquired Aquacue, a Silicon-Valley technology company that controlled offi ce, all thanks to our products. Our technologies and product innovation enabled us to develop BEACON AMA and the EyeOnWater app. In the fi rst quarter have been the hallmark of Badger Meter for 110 years. With this strong foundation, of 2014, we began work on another potential acquisition, but decided not to I believe we are well positioned for continued growth over the long term. proceed due to issues uncovered during the due-diligence process. We believe that we invest the appropriate amount of expense, time and effort during such evaluations to assure ourselves and our shareholders that we are making the right acquisitions for our company. On October 1, 2014, we closed on the acquisition of National Meter and Automation, Inc., our largest distributor with headquarters outside Denver. Ri h d A M Richard A. Meeusen Chairman, President & Chief Executive Offi cer 87346 BMI Annual Report 2014.indd 5 87346 BMI Annual Report 2014.indd 5 3 3/9/15 4:47 PM 3/9/15 4:47 PM at HOME When many people think of Badger Meter, they think of the water meter in their basement or in the pit setting outside their home. Water meters are actually one of the few products we produce that are visible to the end customer. Many more Badger Meter products are at work behind the scenes, helping to make life easier, healthier and safer. APPL IANCES Take dishwashers, for example. Our Vision Turbine meters can be used in a number of different kitchen appliances. These small turbine meters are designed to dispense the right amount of water at the right time. Vision meters help make the dishes spotless or make the perfect cup of coffee, while optimizing the amount of water used. Originally sold only in Europe, we are expanding sales into North America, in a wide variety of applications. MUNICIPAL WATER SYSTE MS That familiar water meter in your home is just the beginning of a Badger Meter end-to-end water metering solution. At its most basic, the meter measures water usage so the utility can send you a bill. But many of today’s municipal water utilities want much more than that. The newest product in our portfolio of meter reading solutions is BEACON® Advanced Metering Analytics (AMA). BEACON AMA takes meter reading to the next level. Its cloud-based software analytics platform provides comprehensive data that enables utility managers to understand, monitor and manage their water operations, and to improve customer service. Built on the success of our mobile and fi xed network ORION® meter reading systems, a BEACON AMA managed solution can include our industry-leading ORION Cellular endpoints, which virtually eliminate the need for costly infrastructure. Other Badger Meter products, such as our ModMag M-Series® electromagnetic meters, also have an important role in delivering the water you rely on every day. These products measure both water and wastewater as part of a utility’s water treatment facilitiies. VISION TURBINE METER 4 RECORDALL® RESIDENTIAL WATER METER MODMAG M-SERIES® ELECTROMAGNETIC METER BEACON® ADVANCED METERING ANALYTICS (AMA) 87346 BMI Annual Report 2014.indd 6 87346 BMI Annual Report 2014.indd 6 3/9/15 4:47 PM 3/9/15 4:47 PM at WORK From buildings and facilities to industrial processes, Badger Meter products have an important role in the world of work. HVA C SYSTEMS When it comes to comfort, our Dynasonics® fl ow and Btu meters perform a variety of functions in commercial heating, ventilating and air conditioning (HVAC) systems. They integrate fl ow and temperature sensors to provide energy monitoring in stand-alone diagnostic equipment and as part of large building automation systems. They measure the energy and water heated or consumed in HVAC systems, as well as in cooling-loop applications such as sensitive computer installations. The information provided by our Dynasonics and other fl ow instrumentation products also helps customers improve effi ciency, which in turn can conserve energy and reduce costs. FIRE SAFETY Safety is a critical concern for owners of large buildings, especially the potential for loss of life and property from a fi re. That’s why building codes require owners of large facilities to install fi re sprinkler systems. Many sprinkler systems rely on our Recordall® fi re series meters and assemblies to provide adequate water to the system and to monitor water usage. Our products can be used in both dedicated fi re protection systems and when fi re systems are used to supply water for other uses, such as drinking fountains and plumbing fi xtures. So the next time you’re nice and warm at work, or you look up and see a fi re sprinkler on the ceiling, you could be benefi ting from Badger Meter products and technology. INDUSTRIAL PROCESSES Our Research Control® valves are used in the manufacturing process for many types of products. An example is the beverage industry, where these small precision valves control the syrup, water and carbon dioxide in soft-drink blending systems. DYNASONICS® ULTRA FLOW BTU METER RECORDALL® FIRE HYDRANT METER RECORDALL® FIRE SERVICE ASSEMBLY 87346 BMI Annual Report 2014.indd 7 87346 BMI Annual Report 2014.indd 7 RESEARCH CONTROL® VALVE 5 3/9/15 4:47 PM 3/9/15 4:47 PM at PLAY Hotels and golf courses are just a few of the settings where Badger Meter has a role in helping to create a fun experience, while measuring and monitoring one of the world’s most precious natural resources – water. LODGING For many, the best part of travel is getting away from home and enjoying a night or two at a hotel. One of the challenges hotel owners face is making GO LF COURSES If you’re a golfer, there’s nothing quite like standing on the tee looking out over a rolling, bright green landscape that’s both beautiful and challenging. But keeping that course healthy and attractive often requires irrigation, and that’s where Badger Meter comes in. Our impeller meters and sensors help golf course managers not only efficiently manage their irrigation system, but also conserve water by determining the efficiency of pumping plants and detecting potential system problems. Our impeller meters are specifically designed for use below grade and in wet locations, making them especially well-suited for golf course irrigation. In addition, our flow sensors enable golf course superintendents to monitor water usage through direct or wireless systems, providing the data they need to ensure maximum performance. sure the guest experience includes a hot shower in the morning or before dinner. These peak water usage times are offset by the nighttime hours when a relatively small amount of water is used throughout the hotel. Standard positive displacement meters accurately measure high flows, but are not as well-suited for extremely low flows. The answer for many building owners is our E-Series® Ultrasonic meters. Because these meters use solid-state, high frequency sound waves to measure flows, they are more accurate in low- flow applications. And since they have no moving parts, they offer improved long-term reliability. The E-Series is available in both stainless steel and polymer versions and can be used outside North America, providing added growth opportunities for Badger Meter. IMPELLER FLOW METER IMPELLER FLOW SENSOR E-SERIES® ULTRASONIC METER ORION® AMR/AMI METER READING SYSTEMS 6 87346 BMI Annual Report 2014.indd 8 87346 BMI Annual Report 2014.indd 8 3/9/15 4:47 PM 3/9/15 4:47 PM on the GO People today are always on the go, juggling work, home, school, and family activities. At the same time, there is a growing interest in conserving our natural resources. Here too, you will find Badger Meter has a role. E Y E O N W AT E R AP P The Internet of Things is a popular phrase used to describe the increased connectivity in the world today – with devices and with each other. That connectivity has extended into the municipal water market through the EyeOnWater consumer mobile app that is the latest enhancement to our BEACON ® Advanced Metering Analytics (AMA) solution. Available for iPhone ® and Android™ smartphones and tablets, and as a web-based portal for desktop applications, this new tool connects utilities and their customers like never before. The easy-to- understand graphics show recent water usage, a comparison against FROM THE G RO UND TO THE PU MP In the oil industry, the flow of liquids must be measured during every phase of exploration, production and transportation. Upstream operations can span offshore and onshore activities, including well testing and enhanced oil recovery, completion and separation to turn crude oil into the gas you put the average, usage trends and historical information. A leak-alert into your car at the pump. function, water conservation tips and access to a savings calculator are also included. For utilities that want to improve their customer service and consumers who want to be better stewards of their water use, EyeOnWater is a win-win. Badger Meter offers one of the broadest portfolios of products used in getting oil from the wellhead to the pipeline, including respected brand names such as Blancett,® Hedland,® Dynasonics® and Research Control® valves. And when it’s time for an oil change, we’re there too with our automotive fluid meters that measure the oil and lubricants going into your car. Accurate measurement helps in conserving natural resources, one of the important drivers behind our long-term performance and future growth. AUTOMOTIVE FLUID METER EYEONWATER APP BLANCETT® TURBINE METER HEDLAND® VARIABLE AREA FLOW METERS 7 87346 BMI Annual Report 2014.indd 9 87346 BMI Annual Report 2014.indd 9 3/9/15 4:48 PM 3/9/15 4:48 PM performance DATA DECEMBER 31, OPERATIONS (DOLLARS IN THOUSANDS) Net sales Net earnings DILUTED PER COMMON SHARE AMOUNTS Diluted earnings Cash dividends Net book value YEAR-END FINANCIAL POSITION (DOLLARS IN THOUSANDS) Total assets Total debt Shareholders’ equity Debt as a percent of total debt and equity Net earnings as a percent of ending equity OTHER Number of employees Number of shareholders: in employee plans of record Shares outstanding at December 31 2014 2013 % CHANGE $ 364,768 $ 29,678 2.06 $ $ 0.74 $ 14.82 $ 341,158 $ 75,927 $ 214,331 26.2% 13.8% 1,431 579 948 14,461,193 $ 334,122 $ 24,617 $ $ $ 1.70 0.70 13.64 $ 316,058 $ 70,045 $ 196,563 26.3% 12.5% 1,360 518 969 14,411,876 9.2 20.6 21.2 5.7 8.7 7.9 8.4 9.0 (0.4) 10.4 5.2 11.8 (2.2) 3.4 SALES EARNINGS EPS DIVIDENDS $400 $350 $300 $250 $200 $150 $100 $50 $0 ) s n o i l l i m n i ( S E L A S T E N 8 8 . 4 6 3 $ $30 $25 $20 $15 $10 $5 $0 ) s n o i l l i m n i ( I S G N N R A E T E N 7 . 9 2 $ $2.50 $2.00 $1.50 $1.00 S P E D E T U L D I $0.50 $0.00 4 7 . 0 $ $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 6 0 . 2 $ E R A H S R E P S D N E D V D I I 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 87346 BMI Annual Report 2014.indd 10 87346 BMI Annual Report 2014.indd 10 3/9/15 4:48 PM 3/9/15 4:48 PM board of DIRECTORS Richard A. Meeusen Chairman, President and Chief Executive Offi cer, Badger Meter, Inc. Ronald H. Dix (3) Retired Senior Vice President - Administration, Badger Meter, Inc. Thomas J. Fischer (1, 3) Consultant in Corporate Financial and Accounting Matters; Retired Partner, Arthur Andersen LLP Gale E. Klappa (1, 2) Chairman and Chief Executive Offi cer, Wisconsin Energy Corporation Gail A. Lione (2, 3) Adjunct Professor, Marquette University School of Law; Retired President, The Harley-Davidson Foundation; and former Executive Vice President, General Counsel and Secretary, Harley-Davidson, Inc. Andrew J. Policano (3) Chaired Professor and Center Director, Paul Merage School of Business, University of California - Irvine Steven J. Smith (1, 2) Chairman and Chief Executive Offi cer, Journal Communications, Inc. Todd J. Teske (1, 2) Chairman, President and Chief Executive Offi cer, Briggs & Stratton Corporation Committees of the Board 1. Audit and Compliance 2. Compensation 3. Corporate Governance corporate INFORMATION Badger Meter, Inc., Headquarters 4545 W. Brown Deer Road P.O. Box 245036 Milwaukee, Wisconsin 53224-9536 (414) 355-0400 www.badgermeter.com Domestic Facilities Milwaukee, Wisconsin Racine, Wisconsin Tulsa, Oklahoma Scottsdale, Arizona Los Gatos, California Centennial, Colorado Foreign Facilities Stuttgart, Germany Nogales, Sonora, Mexico Brno, Czech Republic Bern, Switzerland Independent Registered Public Accounting Firm Ernst & Young LLP, Milwaukee, Wisconsin Transfer Agent American Stock Transfer & Trust Company, LLC New York, New York (877) 248-6415 www.amstock.com Listing of Common Stock New York Stock Exchange; Symbol—BMI Form 10-K Report/Shareholder Information A copy of the company’s fi scal 2014 Form 10-K annual report (without exhibits) as fi led with the Securities and Exchange Commission is included in this report. Shareholder information, including news releases and Form 10-K, are available on the company’s website: www.badgermeter.com. Shareholders who hold their stock in nominee or “street” name can receive shareholder information directly from the company by being placed on our mailing list. Please direct inquiries to: Shareholder Relations, Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536, or call (414) 355-0400. Annual Meeting Shareholders are encouraged to attend the 2015 annual meeting at 8:30 a.m. on Friday, April 24, 2015, at the Wisconsin Club - City Club, 900 W. Wisconsin Avenue, Milwaukee, Wisconsin 53233. executive OFFICERS Richard A. Meeusen Chairman, President and Chief Executive Offi cer Richard E. Johnson Sr. Vice President – Finance, Chief Financial Offi cer and Treasurer Fred J. Begale Vice President – Engineering William R. Bergum Vice President – General Counsel and Secretary Gregory M. Gomez Vice President – Flow Instrumentation Horst Gras Vice President – International Operations Raymond G. Serdynski Vice President – Manufacturing Beverly L. Smiley Vice President – Controller Kimberly K. Stoll Vice President – Sales and Marketing Forward Looking Statements Certain statements contained in this document, as well as other information provided from time to time by the company 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. Please see page one of the enclosed Form 10-K for a list of words or expressions that identify such statements. Automatic Dividend Reinvestment and Stock Purchase Plan Badger Meter’s Dividend Reinvestment and Stock Purchase Plan is a convenient way to acquire shares of company stock. To receive a prospectus describing the plan and an enrollment card, please contact our plan administrator, American Stock Transfer at (877) 248-6415, or visit their Web site at: www.amstock.com. Direct Registration System Shareholders of Badger Meter common stock can hold their shares in uncertifi cated/book entry form at the Transfer Agent. Current shareholders who wish to transfer their existing shares to Direct Registration should mail their stock certifi cates to American Stock Transfer per the instructions on their website at www.amstock.com. For more information, please call American Stock Transfer, (877) 248-6415. Certifi cations The company fi led as exhibits to its fi scal 2014 Form 10-K the certifi cations of the Chief Executive Offi cer and Chief Financial Offi cer required by Section 302 of the Sarbanes-Oxley Act. The company also submitted to the New York Stock Exchange during 2014 the Annual CEO Certifi cation required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. Trademarks Trademarks appearing in this document are the property of their respective entities. ©2015 Badger Meter, Inc. All rights reserved. 87346 BMI Annual Report 2014.indd 11 87346 BMI Annual Report 2014.indd 11 3/9/15 4:48 PM 3/9/15 4:48 PM BADGER METER, INC. 4545 W. Brown Deer Road P.0. Box 245036 Milwaukee, Wisconsin 53224-9536 www.badgermeter.com 87346 BMI Annual Report 2014.indd 12 87346 BMI Annual Report 2014.indd 12 3/9/15 4:48 PM 3/9/15 4:48 PM