®
Eye on
2017 ANNUAL REPORT
Eye onInnovation
Eye onInnovation
Badger Meter
is an innovator in flow measurement, control and communications
solutions serving water utilities, municipalities, and commercial and
industrial customers worldwide.
Municipal Water Market Served:
Water utilities
2017
Badger Meter Sales Mix
76%
Municipal Water
24%
Flow Instrumentation
Flow Instrumentation Markets Served:
Chemical and petrochemical
Oil and gas
Building automation / HVAC
Water and wastewater
Test and measurement
Industrial process
Research and development
Food and beverage
Pharmaceutical
Power generation
Mining
Aerospace
Semiconductor
MeasureOur products accurately and reliably measure whatever moves through a pipe or pipeline — including water, air, steam, oil, and other liquids and gases.MonitorOur products and solutions give customers the tools to improve visibility and understanding of what is happening within their systems.ControlOptimized operational management starts with the highest quality measurement and monitoring solutions from Badger Meter.Ahead of the curve. First to market. Focused on the future. Dedicated to our customers. That’s the mindset Badger Meter (NYSE: BMI) has cultivated throughout its history. While we are proud to be the oldest independent water meter manufacturer in the country, we’re not content to rest on our laurels. Instead, we’re working every single day to shape the future of water conservation, consumption and process control. At Badger Meter, our eye is always on innovation as we continue to serve our customers around the globe. Badger Meter
is an innovator in flow measurement, control and communications
solutions serving water utilities, municipalities, and commercial and
industrial customers worldwide.
Municipal Water Market Served:
Water utilities
2017
Badger Meter Sales Mix
76%
Municipal Water
24%
Flow Instrumentation
Flow Instrumentation Markets Served:
Chemical and petrochemical
Oil and gas
Building automation / HVAC
Water and wastewater
Test and measurement
Industrial process
Research and development
Food and beverage
Pharmaceutical
Power generation
Mining
Aerospace
Semiconductor
Executive
Officers
(from left to right)
Gregory M. Gomez
Vice President – Business Development and
Flow Instrumentation
Kimberly K. Stoll
Vice President – Sales and Marketing
William R. Bergum
Vice President – General Counsel and Secretary
Richard E. Johnson
Senior Vice President – Finance, Chief Financial Officer
and Treasurer
Horst E. Gras
Vice President – International Operations
Richard A. Meeusen
Chairman, President and Chief Executive Officer
Trina L. Jashinsky
Vice President – Human Resources
Raymond G. Serdynski
Vice President – Manufacturing
Kenneth C. Bockhorst
Senior Vice President – Chief Operating Officer
Fred J. Begale
Vice President – Engineering
Beverly L.P. Smiley
Vice President – Controller
MeasureOur products accurately and reliably measure whatever moves through a pipe or pipeline — including water, air, steam, oil, and other liquids and gases.MonitorOur products and solutions give customers the tools to improve visibility and understanding of what is happening within their systems.ControlOptimized operational management starts with the highest quality measurement and monitoring solutions from Badger Meter. Dear
Shareholders
Richard A. Meeusen
Chairman, President and Chief Executive Officer
The ancient Romans were experts at innovation, particularly in warfare and engineering. They also invented Janus, a god with two faces – one looking to the past and the other keeping an eye on the future. While the Romans copied all of their gods from the Greeks, Janus was the exception: he was a purely Roman invention. The Romans looked to Janus for guidance, as he was also their god of time and transitions.Although we don’t look to mythical gods for guidance, we too must keep an eye on our past successes and our future innovations. Let me share a few comments on both.Keeping an Eye on the PastLooking back on 2017, we are very proud to have generated another record year for our shareholders. Net sales exceeded $400 million for the first time in our 113-year history. In addition, our operating earnings increased 9.6% and our net earnings were up 7%. Our growth and financial results continue to be driven by our strategy to innovate leading-edge technologies. Our strong margins in 2017 were driven by increased sales of our newest products, including the ORION® Cellular radio, the E-Series® Ultrasonic water meter and our BEACON® software systems. These products provide our utility customers with the latest technology, best quality and fullest features in the industry. In 2017, flow instrumentation sales saw the long-anticipated rebound with a 7% increase over 2016. As oil prices stabilized, well operators and refineries have begun upgrading their operations with our newer oil and gas meters. In addition, valve and magnetic meter sales also saw significant increases in 2017, as global economies continue to expand. Our sales force reorganization and restructuring efforts of the past few years have helped position us to take advantage of these growth opportunities.The year also had some tax adjustments that raised our effective rate to 37% for the year. However, going forward, the Tax Cut and Jobs Act of 2017 will reduce the U.S. federal corporate tax rate and should provide a significant benefit to Badger Meter due to our higher percentage of sales in the United States. We estimate that our future effective tax rate, starting in 2018, will decrease from over 35% to around 24%. This reduction will generate additional operating income for future capital investments, to fund strategic acquisitions and to support strong dividend returns for our shareholders.Speaking of dividends, 2017 marked our 25th year of consecutive dividend increases. We are proud of this track record, along with our continued strong financial performance. We have a solid balance sheet, with a debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of 0.6 to 1.0, and a debt to total capitalization ratio below 14%.Keeping an Eye on InnovationAs the market technology leaders, we never take our eye off product innovation. We acquired D-Flow Technologies, a Swedish company with patented technologies for use in ultrasonic metering, in the first half of 2017. We immediately began to develop our next generation E-Series meters, incorporating the D-Flow technology. Not only will this development improve the capabilities of our ultrasonic meters, but we also anticipate a cost reduction driven by the use of D-Flow’s transducers and integrated circuits. We expect this project to be completed in the second half of 2018.We also introduced the new LTE version of our ORION Cellular radio in early 2017, allowing our customers to transition from the previous 3G cellular networks to the latest LTE networks. This development keeps our ORION Cellular technology on the leading edge of cellular radio offerings. Strong customer demand has supported our strategy to minimize customer-owned infrastructure through the use of cellular technology and existing networks. We are continually upgrading our BEACON Advanced Metering Analytics solution with new features that permit our utility customers to better manage their water service territories. Our EyeOnWater® consumer portal continues to be upgraded with new features. These systems are an essential part of our utility product offerings.On the flow instrumentation side of our business, we have continued to upgrade our products, optimize our production operations and focus our sales channels. With the rebound in the oil and gas markets, as well as increased strength in other markets we serve, these improvements have positioned us well to take advantage of growth opportunities.We completed our third utility distributor acquisition during the fourth quarter. Carolina Meter & Supply is now part of the Badger Meter family, along with their skilled sales team and professional support personnel. This move continued our strategy, started three years ago, of making key acquisitions to expand our owned distributor channel in order to provide a higher level of service and support for our utility customers.Looking to the FutureAs we plan for the future, we will continue to invest in new product development to help our customers better manage their precious resources, such as water, chemicals, oil and gas. And we will continue to evaluate strategic acquisition opportunities that can enhance our value proposition for our customers and shareholders.We were excited to have Ken Bockhorst, our new senior vice president and chief operating officer, join the Badger Meter team last fall. Ken brings a wealth of experience, having managed global operations for other leading companies. In the short time Ken has been with us, he has already made significant contributions to our organization and will certainly be a key part of our management team in the coming years.Lastly, my thanks to Ronald Dix and Steve Smith, who concluded their tenure on our Board of Directors in 2017. Our team remains grateful for their years of service and expertise.Like ancient Janus, we are proud to look back on our 113-year history of success, while keeping a second eye on our future. We firmly believe that the combined strength of our people, our brand, our markets and our innovative products will continue to drive growth in shareholder value for many years.Net sales exceeded $400 million for the first time in our 113-year history. In addition, our operating earnings increased 9.6% and our net earnings were up 7%. Eye on
Technology
The needs of our customers continue to be a top priority and drive our technological innovations in
water and flow metering – both through R&D and strategic acquisitions. The advantages of ultrasonic
technology, for example, led to the 2017 strategic acquisition of D-Flow Technology. This acquisition
helps ensure our market leadership for years to come, brings further enhancements to our already
successful E-Series® Ultrasonic product line and will extend our family of ultrasonic meters into larger
sizes for our customers’ commercial applications.
Anticipating our customers’ needs, we were also the first to market with our ORION® Cellular endpoint,
which uses existing secure cellular networks to deliver meter reading data to the utility, providing the
first truly viable infrastructure-free fixed network solution. Another “first” is our EyeOnWater® consumer
application, available exclusively through our BEACON® Advanced Metering Analytics (AMA) software
suite. The EyeOnWater app allows utility customers to view and understand their water usage, leading
to improved customer service and greater water conservation.
With our eye on serving an ever-wider range of customer needs, we are also continuously developing
solutions for flow instrumentation applications, including a new ultrasonic flow meter for open channel
flow measurement and a digital-signal flow monitor used in harsh surroundings.
Eye on
Culture
We believe that innovations spring from our highly skilled, engaged and collaborative team of flow
measurement professionals. Innovation requires hiring the best and brightest individuals from all over
the world, and retaining the best and brightest through new opportunities and continuous professional
development. Our employees come from different backgrounds, roles and geographic locations to
make up a team that we believe is second to none.
We are engineers who creatively problem solve, and can take a process or design that is already
working well and make it better. We are customer service representatives who always put the customer
first. We are technicians and manufacturing experts who put quality above all else. We are leaders who
push the team to think strategically and take smart risks.
Meet
Ken Bockhorst
Senior Vice President and Chief Operating Officer
In September 2017, Kenneth C. Bockhorst was
appointed to the newly created position of senior vice
president and chief operating officer. Ken brings more
than 20 years of global experience to Badger Meter.
As chief operating officer, Ken oversees our municipal
water and flow instrumentation manufacturing,
engineering, sales, marketing and acquisition activities.
He has also assumed responsibility for continuous
improvement initiatives and new product development.
Ken is a key part of the next generation of Badger Meter
leaders, and is expected to play a vital role in developing
strategies for our continued growth and innovation,
both domestically and internationally.
Eye on
Customer Experience
We are focused on making sure the “voice of the customer” is reflected in everything we do. We
regularly collect feedback from our customers through a variety of channels, including one-on-one
discussions, surveys, customer advisory councils and feedback cards shipped with our products.
Badger Meter uses those customer insights to enhance our products and services to provide the very
best – and continuously improving – experience possible. We continue to execute on our strategy of
acquiring utility distributors throughout the country. Through our owned utility distributor network and
independent distribution partners, we provide improved delivery times, expanded customer support
services and increased customer touchpoints in key geographic areas. Aligning our industry-leading
products with locally delivered, high-touch service is a winning combination for customers, making us
much more nimble in addressing their needs.
Eye on
Performance
When you stay ahead of the curve, you can better weather a year when your major market softens.
Despite the more challenging municipal water market in 2017, sales crossed the $400 million threshold
for the first time, capping off another record year at Badger Meter that also achieved increases in earnings
and earnings per share. For the 25th consecutive year, shareholders received increased dividend payments,
and over the past five years, we delivered an annualized total return to shareholders of 16.4%.
We manage for the long term. Building on our history of creating industry disruption, we remain
committed to investing in R&D and strategic acquisitions that bring us new technologies and
innovative products to improve how our customers measure and use data to drive their operations. And
we remain committed to expanding our market share both domestically and internationally, where
opportunities abound.
Badger Meter is helping to shape the future of water, which we believe is a solid long-term investment
for our shareholders.
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
2017
2016
% Change
$ 402,440
$ 34,571
$
$
$
1.19
0.49
9.53
$ 391,727
$ 44,550
$ 277,452
13.8%
12.5%
$ 393,761
$ 32,295
$
$
$
1.11
0.43
8.80
$ 349,669
$ 37,950
$ 256,209
12.9%
12.6%
1,51,632
1,562
607 586
922 909
29,118,532
607
922
29,118,532
2.2
7.0
7.2
14.0
8.3
12.0
17.4
8.3
7.0
(0.8)
4.5
(3.5)
(2(1.4)
00.0
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
$402.4
$35
$30
$25
$20
$15
$10
$5
$0
$34.6
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
$1.19
$0.50
$0.49
$0.40
$0.30
$0.20
$0.10
$0.00
13
14
15
16
17
13
14
15
16
17
13
14
15
16
17
13
14
15
16
17
Net Sales (in millions)
Net Earnings (in millions)
Diluted EPS
Dividends per Share
Board of
Directors
Richard A. Meeusen
Chairman, President and Chief Executive Officer, Badger Meter, Inc.
Andrew J. Policano 3
Former Dean, Paul Merage School of Business,
Todd A. Adams 1
President and Chief Executive Officer, Rexnord Corporation
Thomas J. Fischer 1, 3
President, Fischer Financial Consulting LLC and Retired Managing
Partner, Arthur Andersen LLP (Milwaukee office)
Gale E. Klappa 2, 3
Chairman and Chief Executive Officer, WEC Energy Group
Gail A. Lione 2, 3
Senior Counsel, Dentons; Adjunct Professor, Georgetown University
University of California – Irvine
James F. Stern 1, 2
Executive Vice President, General Counsel and Secretary,
A.O. Smith Corporation
Glen E. Tellock 1
President and Chief Executive Officer, Lakeside Foods
Todd J. Teske (Lead Director) 2, 3
Chairman, President and Chief Executive Officer,
Briggs & Stratton Corporation
School of Law; Retired President, The Harley-Davidson Foundation;
Committees of the Board
and former Executive Vice President, General Counsel and Secretary,
1. Audit and Compliance
Harley-Davison, Inc.
2. Compensation
3. Corporate Governance
Corporate
Information
Badger Meter, Inc. Headquarters
4545 West 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
Los Gatos, California
Centennial, Colorado
Foreign Facilities
Stuttgart, Germany
Nogales, Sonora, Mexico
Brno, Czech Republic
Bern, Switzerland
Luleå, Sweden
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 fiscal 2017 Form 10-K annual report (without
exhibits) as filed 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. 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 2018 annual meeting at
8:30 a.m. on Friday, April 27, 2018, at Badger Meter, Inc., 4545 West
Brown Deer Road, Milwaukee, Wisconsin 53224.
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 website at www.amstock.com.
Direct Registration System
Shareholders of Badger Meter common stock can hold their shares
in uncertificated/book entry form at the transfer agent. Current
shareholders who wish to transfer their existing shares to Direct
Registration should mail their stock certifications 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.
Certifications
The company filed as exhibits to its fiscal 2017 Form 10-K the
certifications of the Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act. The company also
submitted to the New York Stock Exchange during 2017 the Annual
CEO Certification 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.
© 2018 Badger Meter, Inc. All rights reserved.
®
Badger Meter, Inc.
4545 West Brown Deer Road
P.O. Box 245036
Milwaukee, Wisconsin 53224-9536
www.badgermeter.com