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Sono-Tek2021 BADGER METER ANNUAL REPORT 2021 BADGER METER ANNUAL REPORT | 1 OUR COMPANY With more than a century of water technology innovation, Badger Meter (NYSE:BMI) is a global provider of industry leading water solutions encompassing flow measurement, quality and other system parameters. These offerings provide our 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. 2 | 2021 BADGER METER ANNUAL REPORT 2020 2021 % Change PERFORMANCE DATA December 31, Operations (dollars in thousands) Net Sales Operating Earnings Net Earnings Diluted per Common Share Amounts Diluted Earnings Cash Dividends Year-End Financial Position (dollars in thousands) Total Assets Net Cash (Debt)(1) Shareholders’ Equity Other Free Cash Flow(2) Number of Employees $ 425,544 $ 65,156 $ 49,343 $ 1.69 $ 0.70 $ 471,217 $ 72,273 $ 361,259 $ 80,519 1,602 $ 505,198 $ 78,723 $ 60,884 $ 2.08 $ 0.76 $ 530,818 $ 87,174 $ 403,070 $ 80,764 1,837 $600 $500 $400 $300 $200 $100 $0 $70 $505.2 $60 $60.9 $50 $40 $30 $20 $10 $0 '17 '18 '19 '20 '21 Adjusted Net Earnings (2) (in millions) '17 '18 '19 '20 '21 Net Sales (in millions) $2.40 $2.00 $1.60 $1.20 $0.80 $0.40 $0.00 $2.08 '17 '18 '19 '20 '21 $0.80 $0.60 $0.40 $0.20 $0.00 Adjusted Diluted EPS (2) Dividends per Share (1) Net cash (debt) equals cash and cash equivalents less any short and long term debt. (2) See last page for reconciliation of GAAP to non-GAAP measures, including adjusted net earnings, adjusted diluted earnings per share and free cash flow. 2021 BADGER METER ANNUAL REPORT | 3 18.7 20.8 23.4 23.1 8.6 $0.76 '17 '18 '19 '20 '21 OUR SOLUTIONS Badger Meter offers a wide range of smart water solutions that contribute to the sustainable use and protection of the world’s most precious resource. For more than a century, cities and businesses have utilized our innovative and trusted offerings to enhance operational efficiency and conserve water while making it more affordable, clean and resilient. UTILITY WATER SOLUTIONS SMART WATER IS BADGER METER Utilities across the globe are implementing smart water technology to streamline processes, increase operational efficiencies and save water. Our end-to-end smart water solutions provide actionable data and analytics from a connected network of instruments, sensors and devices, empowering users to resourcefully use and conserve water. Utilities are leveraging our highly reliable, infrastructure-free cellular network offerings to make their data communication more efficient, scalable and secure. We offer fully integrated smart water solutions that provide near real-time access to detailed water usage data and leak detection, so utilities can improve efficiency, reduce water loss and enhance event management. Our smart water portfolio also includes real-time water quality monitoring solutions through the combined offerings of Badger Meter’s s::can and Analytical Technology, Inc. (ATi) companies. The combination of optical and electrochemical sensing instruments provides online, inline and reagent-free solutions enabling distributed and real-time water quality monitoring. By monitoring a variety of parameters within the water distribution network, utilities increase water protection and security. CHOICE MATTERS Choice matters when it comes to selecting a smart water solution. Badger Meter offers a comprehensive product line for residential, commercial and fire service applications. Our experts help utilities choose the technology that best fits their needs. One of our leading meter families—E-Series® Ultrasonic meters—continues to evolve with advanced technology and an expanding size range. Because these meters have no moving parts, they provide greater extended low-flow accuracy and are virtually maintenance free. We pride ourselves on having the right product for any application. EMPOWERED INSIGHTS Our ORION® Cellular endpoints utilize existing cellular infrastructure to efficiently and securely deliver data to the utility. This proven, innovative technology eliminates the need for standard utility-owned fixed network infrastructure, allows for rapid and flexible deployment, and decreases ongoing maintenance when paired with our BEACON® Software as a Service (SaaS) solution. 4 | 2021 BADGER METER ANNUAL REPORT BEACON SaaS offers a comprehensive and tailorable digital software solution that combines data, communications and analytics to enable our customers to be more efficient, effective and sustainable throughout the water eco-system. The integrated EyeOnWater® consumer engagement tool gives utility customers the power to manage their water use through easy-to-understand consumption graphs and configurable leak notifications, providing timely, visual access to their water usage behavior. CLIMATE CHANGE RESILIENCY Changing weather patterns are causing extreme weather events throughout the country. In February 2021, Monroe, Louisiana, experienced back- to-back winter storms, which left thousands of customers with frozen pipes and burst lines. Normally, crews would be deployed into the field to find the leak site—but BEACON SaaS allowed the city to find issues remotely and alert customers without delay. In fact, identifying a single leak after the storm saved the city more than 400,000 gallons of water. COMMERCIAL & INDUSTRIAL SOLUTIONS Our flow instrumentation offerings provide application-specific solutions focused on water, wastewater and HVAC/sustainability. These product and software solutions deliver accurate, timely and dependable data essential for product quality, cost management, regulatory compliance and safe, sustainable operations. From real-time industrial effluent monitoring for waste water compliance and source water monitoring for efficient drinking water treatment to ESG-focused water stewardship programs, we build solutions utilizing our AquaCUE® SaaS digital software solutions, leading metering technologies, and low-maintenance water quality monitoring solutions. 2021 BADGER METER ANNUAL REPORT | 5 A MESSAGE TO OUR SHAREHOLDERS I am incredibly pleased with our record performance in 2021 and our progress in enabling customers to preserve and protect the world’s most precious resource. We surpassed a meaningful milestone in 2021, with sales exceeding the $500 million mark for the first time. Kenneth C. Bockhorst Chairman, President and Chief Executive Officer There is no question that the operating environment of the past two years has been the most challenging of my career. The public health and economic crisis brought on by the pandemic persists, while elevated demand has led to raw material volatility, supply chain constraints, transportation complexities and widespread inflation. Amid these varied challenges, we experienced extraordinary demand for our solutions and our team operated with steadiness and agility, adapting to ever-evolving conditions. This effective execution during complicated and uncertain times led to our strong performance. These results clearly demonstrate the resiliency of Badger Meter’s business and the market benefits of our innovative water technology portfolio. The underlying drivers of demand, including technology adoption, continue to strengthen. Many of the secular demand themes have been in place for some time—aging infrastructure and workforce, regulation and compliance, and conservation being among them. Additional dynamics in the current environment include the “great resignation,” accelerating retirements, climate change/ severe weather events and cyber/data security. To address these challenges, extracting value from real-time data will be critical for utility, wastewater and industrial operators alike. Upgrading to analytics-based software like BEACON SaaS, which will interface flow data, along with pressure, temperature and water quality, as well as integrate with other legacy data sources, will streamline how data is consumed and understood. This in turn will empower utilities to find greater levels of efficiency within their operations. BEACON SaaS is a tailorable digital solution, allowing utilities to adopt and evolve based on their readiness, issues, priorities and budgets. We are also expanding the functionality of our EyeOnWater software app that enhances consumer engagement. These digital solutions are enabled by our proven, industry-leading ORION Cellular endpoint with 15-minute interval data, two-way communication, unparalleled coverage and robust battery life. This infrastructure-free solution provides the benefits of flexibility and functionality. We successfully integrated the strategic acquisitions of s::can and ATi in 2021, establishing the foundation for our water quality monitoring portfolio. Incorporating real-time water quality parameters from a low maintenance, reagent-free solution, adds to the benefits of security, resiliency and efficiency we can provide across the entire water cycle—including source water, wastewater treatment plants and drinking water distribution networks. 6 | 2021 BADGER METER ANNUAL REPORT ADVANCING OUR COMMITMENT TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Managing the ESG risks and opportunities facing Badger Meter is fundamental to the resiliency of our business and our ability to adapt and grow. Our strategy is designed to proactively identify and mitigate ESG risks and capture opportunities that benefit our stakeholders. In 2021, we continued to make progress on our ESG journey. In summary: • We advanced ESG initiatives and disclosures throughout our business by incorporating ESG criteria into our annual performance “SMART” goals, emphasizing employee safety, minimizing regrettable turnover and establishing our first greenhouse gas (GHG) emissions reduction target. Goals are cascaded throughout the organization to ensure alignment and accountability. ° ° Safety remains a top ESG priority. Our global Total Case Incident Rate (TCIR) was 0.75 in 2021, compared to 0.65 in 2020 and 0.98 in 2019. Lost time incidents declined in 2021, with an uptick in ergonomic events, which will be a focus area for education and improvement going forward. While we are proud of our performance relative to industry averages, we recognize there is more work to be done, as zero remains our ultimate target. We will continue to work toward enhancing our company-wide environmental, health and safety practices so safety remains paramount for everyone. Consistent with the broader labor market, our regrettable turnover increased to 9.6% in 2021, compared to 4.3% in 2020 and 7.6% in 2019. Increased labor competition in the U.S. was the primary driver of the increase. We implemented a global engagement survey in 2021 as part of our continuous improvement process to enable positive change and increased employee engagement. ° GHG emission intensity declined year-over-year in 2021, the first year of our “15% reduction by 2030” goal. Efficient lighting and equipment projects were the primary drivers of the decrease in intensity. • We made enhancements to our periodic ESG reporting to stakeholders, increasing transparency and comparability of our reporting in alignment with the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) and United Nations Sustainable Development Goals (SDGs). • We issued a Report on Board Diversity, providing greater visibility into our diversity journey. Badger Meter is committed to continuous improvement in fostering diversity and inclusion at the Company and on its Board of Directors. The report outlines our actions and ongoing commitments regarding our diversity approach and the concrete actions we continue to undertake. 2021 BADGER METER ANNUAL REPORT | 7 Embedding material ESG practices and thinking into the business increases accountability and separates good intentions from meaningful actions. Our ESG strategy is shaped by ongoing stakeholder engagement to help determine the critical issues that may affect our business—and where we can make a difference. Maintaining a close understanding of these issues will remain key to ensuring that we deliver on our vision to preserve and protect the world’s most precious resource. RECORD FINANCIAL RESULTS Despite the many and varied macro-economic headwinds of 2021, including supply chain shortages, logistics challenges and inflation, it was our best year ever for sales and earnings, surpassing a sales milestone of $500 million. Strong demand for our innovative smart water solutions, combined with disciplined operating execution, enabled us to differentiate our performance, enhance our competitive position and deliver for our customers. 19% 21.1% 23% 133% Sales Growth EBITDA Margin EPS Growth Free Cash Flow Conversion • • Total sales in 2021 were $505.2 million, an increase of 19% compared to $425.5 million in 2020. Sales into the utility water sector grew 21%. Excluding the sales impact of the s::can and ATi water quality acquisitions, core utility water sales growth was 9%, illustrating the continued market adoption of smart water AMI solutions and BEACON SaaS offerings. Flow instrumentation sales increased 11% over the COVID-impacted 2020. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) of $106.5 million(1) increased 18% year-over-year, despite supply chain disruptions that impacted operations as well as widespread inflation. Favorable product and acquisition mix, higher volumes and pricing actions enabled us to maintain strong EBITDA margins at 21.1%. (1) • Fiscal 2021 EPS was $2.08, a 23% increase from the $1.69 delivered in 2020. • We generated free cash flow of $80.8 million(1), representing 133%(1) conversion of net earnings into cash due to our strong earnings foundation and solid working capital management. 8 | 2021 BADGER METER ANNUAL REPORT (1) See last page for reconciliation of GAAP to Non-GAAP financial metrics. DISCIPLINED CAPITAL ALLOCATION DRIVING LONG-TERM RETURNS Badger Meter maintains a clear and consistent capital allocation framework. In addition to a strong balance sheet, we generate excellent cash flow, which we will continue to deploy in a disciplined manner, driving strong returns for our shareholders. Our priorities include organic growth, dividends and accretive acquisitions. • In 2021, we increased our annual dividend per share by 11%, marking 29 consecutive years of annual dividend per share increases. This use of cash is aligned with our balanced capital allocation objectives. • We deployed $44 million in early January 2021 for ATi, the second of two accretive, strategic acquisitions that extend and augment our offerings in the water sector with real-time water quality monitoring technologies. Moving forward, we will continue to generate and deploy cash efficiently to accelerate growth and create strong returns for shareholders, including actively identifying and pursuing strategic acquisitions. FINAL THOUGHTS Looking ahead to fiscal 2022, I am filled with confidence. We have a proven strategy and playbook, incredible momentum and a winning culture. Badger Meter is staying on offense, looking to extend our leadership position in smart water solutions. I have always been proud of the hard work, focus and commitment of our employees. During this exceptional time in our history, our team will be remembered for nimbleness, agility and commitment to serving customers. We know 2022 will present new challenges, but it will also present great opportunities. Badger Meter is poised to accelerate our market leadership and provide strong shareholder returns while protecting the world’s most precious resource. Sincerely – Ken Bockhorst Chairman, President and Chief Executive Officer 2021 BADGER METER ANNUAL REPORT | 9 CORPORATE INFORMATION BOARD OF DIRECTORS Todd A. Adams2 Chairman, President and Chief Executive Gale E. Klappa (Lead Director)2, 3 Executive Chairman, WEC Energy Group Tessa M. Meyers1,3 Global Vice President – Software and Control, Committees of the Board: 1. Audit and Compliance Officer, Zurn Water Solutions Kenneth C. Bockhorst Chairman, President and Chief Executive Officer, Badger Meter, Inc. Henry F. Brooks1 President – Power and Controls, Collins Aerospace Gail A. Lione2, 3 Senior Counsel, Dentons; Retired Executive, Harley-Davidson, Inc. James W. McGill2 Retired Executive, Eaton Corporation Rockwell Automation James F. Stern1, 3 Executive Vice President, General Counsel and Secretary, A. O. Smith Corporation Glen E. Tellock1 Retired Chief Executive Officer, Lakeside Foods 2. Compensation and Human Resources 3. Corporate Governance and Sustainability EXECUTIVE OFFICERS Kenneth C. Bockhorst Chairman, President and William R.A. Bergum Vice President – General Counsel Chief Executive Officer and Secretary Gregory M. Gomez Vice President – Global Flow Instrumentation, International Water and Business Development Karen M. Bauer Vice President – Investor Relations, Corporate Strategy and Treasurer Fred J. Begale Vice President – Engineering OTHER Badger Meter, Inc. Headquarters 4545 West Brown Deer Road P.O. Box 245036 Milwaukee, Wisconsin 53224-9536 (414) 355-0400 www.badgermeter.com 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 BMI LISTED NYSE Sheryl L. Hopkins Vice President – Human Resources William J. Parisen Vice President – Global Operations Kimberly K. Stoll Vice President – Sales and Marketing Matthew L. Stuyvenberg Vice President – Water Quality Daniel R. Weltzien Vice President – Controller Robert A. Wrocklage Senior Vice President – Chief Financial Officer Form 10-K Report/Shareholder Information The 2021 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. Forward Looking Statements Any forward looking statements contained in this document are subject to various risks and uncertainties, the most important of which are outlined in the Form 10-K. Trademarks Trademarks appearing in this document are the property of their respective entities. Investor Relations Financial analysts and investors should direct inquires to: Karen Bauer Vice President – Investor Relations, Corporate Strategy and Treasurer kbauer@badgermeter.com (414) 371-7276 10 | 2021 BADGER METER ANNUAL REPORT © 2022 Badger Meter, Inc. All rights reserved. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 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 (State or other jurisdiction of incorporation or organization) 4545 W. Brown Deer Road Milwaukee, Wisconsin (Address of principal executive offices) 39-0143280 (I.R.S. Employer Identification No.) 53233 (Zip code) (414) 355-0400 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock (Title of each class) BMI (Trading Symbol) New York Stock Exchange (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ 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 Accelerated filer Non-accelerated filer ☒ ☐ ☐ Smaller reporting company Emerging growth company ☐ ☐ 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: As of June 30, 2021, the aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant was approximately $2.85 billion. For purposes of this calculation only, (i) shares of Common Stock are deemed to have a market value of $98.12 per share, the closing price of the Common Stock as reported on the New York Stock Exchange on June 30, 2021, and (ii) each of the Company's executive officers and directors is deemed to be an affiliate of the Company. As of February 2, 2022, there were 29,249,448 shares of Common Stock outstanding with a par value of $1 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year, are incorporated by reference from the definitive Proxy Statement into Part III of this Annual Report on Form 10-K. 1 Special Note Regarding Forward Looking Statements Certain statements contained in this Annual Report on Form 10-K, as well as other information provided from time to time by Badger Meter, Inc. (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. 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 this Annual Report on Form 10-K for the year ended December 31, 2021. ITEM 1. BUSINESS PART I Badger Meter, Inc. (the “Company”) is a leading innovator, manufacturer and marketer of products incorporating flow measurement, quality, control and other system solutions serving markets worldwide. The Company was incorporated in 1905. Throughout this 2021 Annual Report on Form 10-K, the words “we,” “us” and “our” refer to the Company. Available Information The Company's internet address is http://www.badgermeter.com. The Company makes available free of charge through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, on the same day they are electronically filed with, or furnished to, the Securities and Exchange Commission. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. Market Overview, Products, Systems and Solutions 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, software and related technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing instruments, valves, software and other solutions for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that over 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, enabling operating efficiencies and engaging with their end consumers. 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, static 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, 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. Utility water meters (both residential and commercial) are generally classified as either manually read meters or remotely read meters via radio technology. A manually read meter consists of a water meter and a register that provides a visual totalized meter 2 3 Special Note Regarding Forward Looking Statements Certain statements contained in this Annual Report on Form 10-K, as well as other information provided from time to time by Badger Meter, Inc. (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. 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 this Annual Report on Form 10-K for the year ended December 31, PART I Badger Meter, Inc. (the “Company”) is a leading innovator, manufacturer and marketer of products incorporating flow measurement, quality, control and other system solutions serving markets worldwide. The Company was incorporated in 1905. Throughout this 2021 Annual Report on Form 10-K, the words “we,” “us” and “our” refer to the Company. 2021. ITEM 1. BUSINESS Available Information The Company's internet address is http://www.badgermeter.com. The Company makes available free of charge through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, on the same day they are electronically filed with, or furnished to, the Securities and Exchange Commission. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. Market Overview, Products, Systems and Solutions 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, software and related technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing instruments, valves, software and other solutions for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that over 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, enabling operating efficiencies and engaging with their end consumers. 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, static 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, 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. Utility water meters (both residential and commercial) are generally classified as either manually read meters or remotely read meters via radio technology. A manually read meter consists of a water meter and a register that provides a visual totalized meter reading. Meters equipped with radio technology (endpoints) receive flow measurement data from battery-powered encoder registers attached to the water meter, which is encrypted and transmitted via radio frequency to a receiver that collects and formats the data 3 appropriately for water utility usage and billing systems. These remotely read systems are classified as either automatic meter reading (AMR) systems, where a vehicle equipped for meter reading purposes, including a radio receiver, computer and reading software, collects the data from the utilities’ meters; or advanced metering infrastructure (AMI) systems, where data is gathered utilizing a network (either fixed or cellular) of data collectors or gateway receivers that are able to receive radio data transmission from the utilities’ meters. AMI systems eliminate the need for utility personnel to drive through service territories to collect data from the meters. These systems provide utilities with more frequent and diverse data from their meters at specified intervals. The ORION® branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading. These include ORION (ME) for migratable AMR meter reading, ORION (SE) for traditional fixed network applications, and ORION Cellular for an infrastructure-free meter reading solution. ORION migratable makes the migration to fixed network easier for utilities that prefer to start with mobile reading and later adopt fixed network communications, allowing utilities to choose a solution for their current needs and be positioned for their future operational changes. ORION Cellular eliminates the need for utility-owned fixed network infrastructure, allows for gradual or full deployment, and decreases ongoing maintenance. Information and analytics are critical to the water metering ecosystem. The Company’s BEACON® software suite improves utility visibility to their water and water usage. BEACON is a secure, cloud-hosted software suite that includes a customizable dashboard, and has the ability to establish alerts for specific conditions. It also allows for consumer engagement tools that permit end water users (such as homeowners) to view and manage their water usage activity. Benefits to the utility include improved customer service, increased visibility through faster leak detection, the ability to promote and quantify the effects of its water conservation efforts, and easier compliance reporting. Water meter replacement and the adoption and deployment of new technology comprise the majority of water meter product sales, including radio products. To a much lesser extent, housing starts also contribute to the new product sales base. There continues to be a growing trend in the conversion from manually read water meters to meters with radio technology, and for AMR systems to be upgraded to AMI. The Company estimates that approximately 70% of water meters installed in the United States have been converted to some form of radio solution technology. In addition to our water utility flow measurement solutions, the Company provides various water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure a variety of parameters including turbidity, pH, chlorine, nitrates and approximately 40 others. Utilizing these solutions, water quality can be monitored continually or periodically throughout the network from its original source to the point in which it is recycled and returned. Real-time water quality parameters enhance the scope of actionable data for water utilities to improve operational security, awareness and efficiency. The Company’s net sales and corresponding net earnings depend on unit volume and product mix, with the Company generally earning higher average selling prices and margins on meters equipped with radio technology, and higher margins on ultrasonic compared to mechanical meters. The Company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field. Flow instrumentation products are used in flow measurement and control applications across a broad industrial spectrum, occasionally leveraging the same technologies used in the municipal water category. Specialized communication protocols that control the entire flow measurement process and mandatory certifications drive these markets. The Company provides both standard and customized flow instrumentation solutions. The industries served by the Company’s flow instrumentation products face accelerating demands to contain costs, reduce product variability, and meet ever-changing safety, regulatory and sustainability requirements. To address these challenges, customers must reap more value from every component in their systems. This system-wide scrutiny has heightened the focus on flow instrumentation in industrial process, manufacturing, commercial fluid, building automation and precision engineering applications where flow measurement and control are critical. A leader in both mechanical and static flow metering technologies for industrial markets, the Company offers one of the broadest flow measurement, control and communication portfolios in the market. This portfolio carries respected brand names including Recordall®, Hedland®, Dynasonics®, Blancett®, ModMag®, and Research Control®, and includes eight of the ten major flow meter technologies. Customers rely on the Company for application-specific solutions that deliver accurate, timely and dependable flow data and control essential for product quality, cost control, safer operations, regulatory compliance and more sustainable operations. In addition, the Company provides various water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure a variety of parameters providing industrial customers with both process and discharge water quality monitoring capabilities. 3 4 reading. Meters equipped with radio technology (endpoints) receive flow measurement data from battery-powered encoder registers attached to the water meter, which is encrypted and transmitted via radio frequency to a receiver that collects and formats the data appropriately for water utility usage and billing systems. These remotely read systems are classified as either automatic meter reading (AMR) systems, where a vehicle equipped for meter reading purposes, including a radio receiver, computer and reading software, collects the data from the utilities’ meters; or advanced metering infrastructure (AMI) systems, where data is gathered utilizing a network (either fixed or cellular) of data collectors or gateway receivers that are able to receive radio data transmission from the utilities’ meters. AMI systems eliminate the need for utility personnel to drive through service territories to collect data from the meters. These systems provide utilities with more frequent and diverse data from their meters at specified intervals. The ORION® branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading. These include ORION (ME) for migratable AMR meter reading, ORION (SE) for traditional fixed network applications, and ORION Cellular for an infrastructure-free meter reading solution. ORION migratable makes the migration to fixed network easier for utilities that prefer to start with mobile reading and later adopt fixed network communications, allowing utilities to choose a solution for their current needs and be positioned for their future operational changes. ORION Cellular eliminates the need for utility-owned fixed network infrastructure, allows for gradual or full deployment, and decreases ongoing maintenance. Information and analytics are critical to the water metering ecosystem. The Company’s BEACON® software suite improves utility visibility to their water and water usage. BEACON is a secure, cloud-hosted software suite that includes a customizable dashboard, and has the ability to establish alerts for specific conditions. It also allows for consumer engagement tools that permit end water users (such as homeowners) to view and manage their water usage activity. Benefits to the utility include improved customer service, increased visibility through faster leak detection, the ability to promote and quantify the effects of its water conservation efforts, and easier compliance reporting. Water meter replacement and the adoption and deployment of new technology comprise the majority of water meter product sales, including radio products. To a much lesser extent, housing starts also contribute to the new product sales base. There continues to be a growing trend in the conversion from manually read water meters to meters with radio technology, and for AMR systems to be upgraded to AMI. The Company estimates that approximately 70% of water meters installed in the United States have been converted to some form of radio solution technology. In addition to our water utility flow measurement solutions, the Company provides various water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure a variety of parameters including turbidity, pH, chlorine, nitrates and approximately 40 others. Utilizing these solutions, water quality can be monitored continually or periodically throughout the network from its original source to the point in which it is recycled and returned. Real-time water quality parameters enhance the scope of actionable data for water utilities to improve operational security, awareness and efficiency. The Company’s net sales and corresponding net earnings depend on unit volume and product mix, with the Company generally earning higher average selling prices and margins on meters equipped with radio technology, and higher margins on ultrasonic compared to mechanical meters. The Company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field. Flow instrumentation products are used in flow measurement and control applications across a broad industrial spectrum, occasionally leveraging the same technologies used in the municipal water category. Specialized communication protocols that control the entire flow measurement process and mandatory certifications drive these markets. The Company provides both standard and customized flow instrumentation solutions. The industries served by the Company’s flow instrumentation products face accelerating demands to contain costs, reduce product variability, and meet ever-changing safety, regulatory and sustainability requirements. To address these challenges, customers must reap more value from every component in their systems. This system-wide scrutiny has heightened the focus on flow instrumentation in industrial process, manufacturing, commercial fluid, building automation and precision engineering applications where flow measurement and control are critical. A leader in both mechanical and static flow metering technologies for industrial markets, the Company offers one of the broadest flow measurement, control and communication portfolios in the market. This portfolio carries respected brand names including Recordall®, Hedland®, Dynasonics®, Blancett®, ModMag®, and Research Control®, and includes eight of the ten major flow meter technologies. Customers rely on the Company for application-specific solutions that deliver accurate, timely and dependable flow data and control essential for product quality, cost control, safer operations, regulatory compliance and more sustainable operations. In addition, the Company provides various water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure a variety of parameters providing industrial customers with both process and discharge water quality monitoring capabilities. The Company's products are sold throughout the world through employees, resellers and representatives. Depending on the customer mix, there can be a moderate seasonal impact on sales, primarily relating to higher sales of certain utility water products during the spring and summer months. No single customer accounts for more than 10% of the Company's sales. 4 Competition The Company faces competition for both its utility water and flow instrumentation product lines. The competition varies from moderate to strong depending upon the products involved and the markets served. Major competitors for utility water meters include Xylem, Inc. (“Sensus”) and Roper Technologies, Inc. (“Neptune”). Together with Badger Meter, it is estimated that these companies sell in excess of 85% of the water meters in the North American market. The remaining market share is comprised of competitors such as Master Meter, Inc., Mueller Water Products, Inc., Kamstrup A/S and Diehl Metering GmbH depending on the metering technology. The Company's primary competitors for utility water radio products in North America are Itron, Inc., Hubbel, Inc. (Aclara Technologies), Neptune and Sensus. The Company’s primary competitors for water quality monitoring solutions vary depending on the products and offerings. Traditional water quality monitoring relies on reagents or test kits, along with lab samples with waiting time for results. The number and scale of competition can be extensive. The Company’s online, real-time water quality monitoring capabilities generally compete with smaller, specialized firms. A number of the Company's competitors in certain markets have greater financial resources than the Company. The Company, however, believes it currently provides the leading technologies in water meters and water-dedicated radio solutions and analytics. As a result of significant research and development activities, the Company enjoys favorable patent positions and trade secret protections for several of its technologies, products and processes. There are many competitors in the flow instrumentation markets due to the various end markets and applications served. They include, among others, Emerson Electric Company, Krohne Messtechnik GmbH, Endress+Hauser AG, Yokogawa Electric Corporation and Cameron International. With a broad portfolio consisting of products utilizing eight of the ten major flow meter technologies, the Company is well positioned to compete in niche, specialized applications within these markets, primarily focused on the water/wastewater and HVAC. Raw Materials and Components Raw materials used in the manufacture of the Company's products include purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, glass, microprocessors and other electronic subassemblies, and components. There are multiple sources for these raw materials and components, but the Company relies on single suppliers for certain brass castings, resins and electronic subassemblies. The Company believes these items would be available from other sources, but that the loss of certain suppliers may 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 carries business interruption insurance on key suppliers. The Company's purchases of raw materials are based on production schedules, and as a result, inventory on hand is generally not exposed to price fluctuations. World commodity markets and currency exchange rates may also affect the prices of material purchased in the future. The Company does not hold significant amounts of precious metals. Research and Development Expenditures for research and development activities related to the development of new products, the improvement of existing products and manufacturing process improvements were $14.7 million in 2021, $11.6 million in 2020 and $11.9 million in 2019. Research and development activities are primarily sponsored by the Company. The Company also engages from time to time in joint research and development with other companies and organizations. Intangible Assets The Company owns or controls several trade secrets and many patents, trademarks and trade names in the United States and other countries that relate to its products and technologies. No single patent, trademark, trade name or trade secret is material to the Company's business as a whole. Environmental Protection 4 The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to these 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 future costs to the 5 The Company's products are sold throughout the world through employees, resellers and representatives. Depending on the customer mix, there can be a moderate seasonal impact on sales, primarily relating to higher sales of certain utility water products during the spring and summer months. No single customer accounts for more than 10% of the Company's sales. Competition The Company faces competition for both its utility water and flow instrumentation product lines. The competition varies from moderate to strong depending upon the products involved and the markets served. Major competitors for utility water meters include Xylem, Inc. (“Sensus”) and Roper Technologies, Inc. (“Neptune”). Together with Badger Meter, it is estimated that these companies sell in excess of 85% of the water meters in the North American market. The remaining market share is comprised of competitors such as Master Meter, Inc., Mueller Water Products, Inc., Kamstrup A/S and Diehl Metering GmbH depending on the metering technology. Technologies), Neptune and Sensus. The Company's primary competitors for utility water radio products in North America are Itron, Inc., Hubbel, Inc. (Aclara The Company’s primary competitors for water quality monitoring solutions vary depending on the products and offerings. Traditional water quality monitoring relies on reagents or test kits, along with lab samples with waiting time for results. The number and scale of competition can be extensive. The Company’s online, real-time water quality monitoring capabilities generally compete with smaller, specialized firms. A number of the Company's competitors in certain markets have greater financial resources than the Company. The Company, however, believes it currently provides the leading technologies in water meters and water-dedicated radio solutions and analytics. As a result of significant research and development activities, the Company enjoys favorable patent positions and trade secret protections for several of its technologies, products and processes. There are many competitors in the flow instrumentation markets due to the various end markets and applications served. They include, among others, Emerson Electric Company, Krohne Messtechnik GmbH, Endress+Hauser AG, Yokogawa Electric Corporation and Cameron International. With a broad portfolio consisting of products utilizing eight of the ten major flow meter technologies, the Company is well positioned to compete in niche, specialized applications within these markets, primarily focused on the water/wastewater and HVAC. Raw Materials and Components Raw materials used in the manufacture of the Company's products include purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, glass, microprocessors and other electronic subassemblies, and components. There are multiple sources for these raw materials and components, but the Company relies on single suppliers for certain brass castings, resins and electronic subassemblies. The Company believes these items would be available from other sources, but that the loss of certain suppliers may 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 carries business interruption insurance on key suppliers. The Company's purchases of raw materials are based on production schedules, and as a result, inventory on hand is generally not exposed to price fluctuations. World commodity markets and currency exchange rates may also affect the prices of material purchased in the future. The Company does not hold significant amounts of precious metals. Expenditures for research and development activities related to the development of new products, the improvement of existing products and manufacturing process improvements were $14.7 million in 2021, $11.6 million in 2020 and $11.9 million in 2019. Research and development activities are primarily sponsored by the Company. The Company also engages from time to time in joint research and development with other companies and organizations. Research and Development Intangible Assets The Company owns or controls several trade secrets and many patents, trademarks and trade names in the United States and other countries that relate to its products and technologies. No single patent, trademark, trade name or trade secret is material to the Company's business as a whole. Environmental Protection The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to these 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 future costs to the Company and such amounts could be material. Expenditures for compliance control provisions and regulations during 2021, 2020 and 2019 were not material. Government Regulations 5 The Company’s operations worldwide are subject to various federal, state, local and foreign laws and regulations. Whether at the federal, state, or local level, the intent of these laws and regulations is to protect product safety, public health and the environment. Similar laws and regulations have been adopted by government authorities in other countries in which we manufacture, distribute, and sell our products. The Company believes that its operations, including its manufacturing locations, are in substantial compliance with all applicable government laws and regulations, including those related to environmental, consumer protection, international trade, labor and employment, human rights, tax, anti-bribery and competition matters. Any additional measures to maintain compliance are not expected to materially affect the Company's capital expenditures, competitive position, financial position or results of operations. There are currently no legislative or administrative regulations pending which we anticipate will have a substantial adverse impact on the Company's revenues, earnings or cash flows. However, if new or amended laws or regulations impose significant operational restrictions and compliance requirements upon the Company or its products, the Company's business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted. Refer to Part I, Item 1A. “Risk Factors” of this 2021 Annual Report on Form 10-K for further information. Human Capital Resources Our employees are our greatest strength and are critical to the achievement of our vision and successful execution of our strategies. We are committed to recruiting, developing and retaining top talent, in addition to fostering an inclusive environment where all employees can thrive. The Company and its subsidiaries employed 1,837 persons at December 31, 2021. Approximately 100 of those employees are covered by a collective bargaining agreement with District 10 of the International Association of Machinists. The Company is currently operating under a three-year contract with the union, which expires on October 31, 2022. The Company believes it has good relations with the union and all of its employees. The below information strives to provide further details on our core values, key programs and initiatives that we utilize to attract develop and retain a diverse and engaged workforce: Core Values. Living our core values is at the heart of Badger Meter’s culture. Our culture prioritizes trust, responsibility, collaboration, excellence and a customer focus. The first of these, trust, calls for us to act honestly, ethically and with integrity. We maintain a formal ethics and compliance program that encourages doing the right thing. As part of this program, all ethical and legal concerns brought forth by employees are fully investigated and resolved. Employee training is used to reinforce our values companywide, with participation in trainings related to ethics at nearly 100%. In addition to trust, our values include a focus on diversity, continuous improvement and environmental responsibility. Recruitment, Development and Retention. In addition to market competitive compensation and benefits, we focus on open, two-way communication, training and development and early talent programs, among other activities to attract and retain key talent: • We offer employee assistance and work life benefits to all global employees. Our comprehensive benefits include healthcare, disability and life insurance, paid time off, and leave programs, as well as retirement savings plans. • We offer flexible, remote work and part-time arrangements, as business roles permit. • Consistent with the broader labor market, our regrettable turnover increased to 9.6% in 2021, compared to 4.3% in 2020, and 7.6% in 2019. Increased labor competition in the US was the primary driver of the increase. • We implemented a baseline global engagement survey in 2021 as part of our continuous improvement process to enable positive change and increase employee engagement. We will utilize feedback received from the survey to identify meaningful actions targeted at fostering improvement in employee engagement, including pulse surveys to monitor effectiveness of action plans. Diversity, Equity and Inclusion. We believe that developing a diverse and inclusive business makes us and society stronger, 5 energizes our growth through customer engagement and helps us attract and retain talent: • We maintain a Human Rights policy, Equal Employment Opportunity policy and partner with a variety of recruiting and hiring agencies focused on diverse candidates. • In 2021, 36% of our executive officer group was diverse (three women, one Latino). • We monitor pay equity on an ongoing basis, taking action to make adjustments where warranted. 6 Company and such amounts could be material. Expenditures for compliance control provisions and regulations during 2021, 2020 and 2019 were not material. Government Regulations The Company’s operations worldwide are subject to various federal, state, local and foreign laws and regulations. Whether at the federal, state, or local level, the intent of these laws and regulations is to protect product safety, public health and the environment. Similar laws and regulations have been adopted by government authorities in other countries in which we manufacture, distribute, and sell our products. The Company believes that its operations, including its manufacturing locations, are in substantial compliance with all applicable government laws and regulations, including those related to environmental, consumer protection, international trade, labor and employment, human rights, tax, anti-bribery and competition matters. Any additional measures to maintain compliance are not expected to materially affect the Company's capital expenditures, competitive position, financial position or results of operations. There are currently no legislative or administrative regulations pending which we anticipate will have a substantial adverse impact on the Company's revenues, earnings or cash flows. However, if new or amended laws or regulations impose significant operational restrictions and compliance requirements upon the Company or its products, the Company's business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted. Refer to Part I, Item 1A. “Risk Factors” of this 2021 Annual Report on Form 10-K for further information. Human Capital Resources all employees can thrive. Our employees are our greatest strength and are critical to the achievement of our vision and successful execution of our strategies. We are committed to recruiting, developing and retaining top talent, in addition to fostering an inclusive environment where The Company and its subsidiaries employed 1,837 persons at December 31, 2021. Approximately 100 of those employees are covered by a collective bargaining agreement with District 10 of the International Association of Machinists. The Company is currently operating under a three-year contract with the union, which expires on October 31, 2022. The Company believes it has good relations with the union and all of its employees. The below information strives to provide further details on our core values, key programs and initiatives that we utilize to attract develop and retain a diverse and engaged workforce: Core Values. Living our core values is at the heart of Badger Meter’s culture. Our culture prioritizes trust, responsibility, collaboration, excellence and a customer focus. The first of these, trust, calls for us to act honestly, ethically and with integrity. We maintain a formal ethics and compliance program that encourages doing the right thing. As part of this program, all ethical and legal concerns brought forth by employees are fully investigated and resolved. Employee training is used to reinforce our values companywide, with participation in trainings related to ethics at nearly 100%. In addition to trust, our values include a focus on diversity, continuous improvement and environmental responsibility. Recruitment, Development and Retention. In addition to market competitive compensation and benefits, we focus on open, two-way communication, training and development and early talent programs, among other activities to attract and retain key talent: • We offer employee assistance and work life benefits to all global employees. Our comprehensive benefits include healthcare, disability and life insurance, paid time off, and leave programs, as well as retirement savings plans. • We offer flexible, remote work and part-time arrangements, as business roles permit. • Consistent with the broader labor market, our regrettable turnover increased to 9.6% in 2021, compared to 4.3% in 2020, and 7.6% in 2019. Increased labor competition in the US was the primary driver of the increase. • We implemented a baseline global engagement survey in 2021 as part of our continuous improvement process to enable positive change and increase employee engagement. We will utilize feedback received from the survey to identify meaningful actions targeted at fostering improvement in employee engagement, including pulse surveys to monitor effectiveness of action plans. Diversity, Equity and Inclusion. We believe that developing a diverse and inclusive business makes us and society stronger, energizes our growth through customer engagement and helps us attract and retain talent: • We maintain a Human Rights policy, Equal Employment Opportunity policy and partner with a variety of recruiting and hiring agencies focused on diverse candidates. In 2021, 36% of our executive officer group was diverse (three women, one Latino). • • We monitor pay equity on an ongoing basis, taking action to make adjustments where warranted. • Badger Meter is a signatory to the Equality Act, supporting LGBTQ rights. • We actively participate as part of the Metropolitan Milwaukee Association of Commerce (MMAC) Diversity Pledge, a commitment to increasing diversity representation in the workforce. 6 The following provides certain employee demographic details aligned with the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) reporting frameworks: • Employee Rights, Health and Safety. The safety and health of our employees is a top priority. In addition to on-the-job safety, we take a holistic view of employee health and well-being, including our multifaceted wellness program, B|Well, which aims to provide information, activities and support for smart and healthy choices. Safety, as measured by our global Total Case Incident Rate (TCIR), was 0.75 in 2021, compared to 0.65 in 2020, and 0.98 in 2019. Our goal is zero. Lost time incidents declined in 2021, with an increase in ergonomic events, which will be a focus area for education and improvement going forward. • • We maintain robust COVID-19 health and safety measures including flexible/hybrid work schedules, robust on-site safety protocols, manufacturing modifications to accommodate social distancing. • Badger Meter’s Human Rights Policy outlines our commitment to respecting and supporting internationally recognized human rights and freedoms. • We provide an Employee Assistance Program (EAP) and mental health coverage. Community and Social Activities. Through both financial contributions and volunteer efforts of our employees, Badger Meter supports programs and organizations that address water conservation and quality, education and community concerns which are all vital to community sustainability. Information about the Company’s Executive Officers The following table sets forth certain information regarding the Executive Officers of the Registrant. Name Kenneth C. Bockhorst Robert A. Wrocklage Karen M. Bauer Fred J. Begale William R. A. Bergum Gregory M. Gomez Sheryl L. Hopkins William J. Parisen Kimberly K. Stoll Matthew L. Stuyvenberg Daniel R. Weltzien Position Chairman, President and Chief Executive Officer Senior Vice President — Chief Financial Officer Vice President — Investor Relations, Corporate Strategy and Treasurer Vice President — Engineering Vice President — General Counsel and Secretary Vice President — Global Flow Instrumentation and International Utility Vice President — Human Resources Vice President — Global Operations Vice President — Sales and Marketing Vice President — Water Quality Vice President — Controller Age at 2/28/2022 49 43 54 57 57 57 54 55 55 39 43 There are no family relationships between any of the executive officers. Officers are elected annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. Each officer holds office until his or her successor has been elected or until his or her death, resignation or removal. There is no arrangement or understanding between any executive officer and any other person pursuant to which he or she was elected as an officer. Mr. Bockhorst was elected President in April 2018, Chief Executive Officer in January 2019 and Chairman in January 2020 after serving as Senior Vice President - Chief Operating Officer for the Company from October 2017 to April 2018. Prior to joining the Company, Mr. Bockhorst was Executive Vice President of the Energy segment, preceded by President of Hydratight and Global Vice President Operations of Enerpac, all within Actuant Corporation (now Enerpac Tool Group) from March 2011 to October 2017. Mr. Wrocklage was elected Vice President – Chief Financial Officer and Treasurer in 2019 and Senior Vice President – Chief Financial Officer in January 2020 after serving as Vice President - Finance for the Company from August 2018 to December 2018. Prior to joining the Company, Mr. Wrocklage spent ten years with Actuant Corporation (now Enerpac Tool Group), holding various 6 corporate and business unit financial leadership roles, most recently as Vice President - Corporate Controller and Chief Accounting Officer. Ms. Bauer was elected Vice President - Investor Relations, Corporate Strategy and Treasurer effective June 2019. She joined Badger Meter in July 2018 as Director, Investor Relations and Corporate Strategy. In her role she also oversees the Company’s ESG (Environmental, Social & Governance) initiatives. Prior to joining Badger Meter, she served at Actuant Corporation (now Enerpac Tool Group), most recently as Director, Investor Relations & Communications. 7 • Badger Meter is a signatory to the Equality Act, supporting LGBTQ rights. • We actively participate as part of the Metropolitan Milwaukee Association of Commerce (MMAC) Diversity Pledge, a commitment to increasing diversity representation in the workforce. The following provides certain employee demographic details aligned with the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) reporting frameworks: • Employee Rights, Health and Safety. The safety and health of our employees is a top priority. In addition to on-the-job safety, we take a holistic view of employee health and well-being, including our multifaceted wellness program, B|Well, which aims to provide information, activities and support for smart and healthy choices. • Safety, as measured by our global Total Case Incident Rate (TCIR), was 0.75 in 2021, compared to 0.65 in 2020, and 0.98 in 2019. Our goal is zero. Lost time incidents declined in 2021, with an increase in ergonomic events, which will be a focus area for education and improvement going forward. • We maintain robust COVID-19 health and safety measures including flexible/hybrid work schedules, robust on-site safety protocols, manufacturing modifications to accommodate social distancing. • Badger Meter’s Human Rights Policy outlines our commitment to respecting and supporting internationally recognized human rights and freedoms. • We provide an Employee Assistance Program (EAP) and mental health coverage. Community and Social Activities. Through both financial contributions and volunteer efforts of our employees, Badger Meter supports programs and organizations that address water conservation and quality, education and community concerns which are all vital to community sustainability. Information about the Company’s Executive Officers The following table sets forth certain information regarding the Executive Officers of the Registrant. Name Kenneth C. Bockhorst Robert A. Wrocklage Karen M. Bauer Fred J. Begale William R. A. Bergum Gregory M. Gomez Sheryl L. Hopkins William J. Parisen Kimberly K. Stoll Matthew L. Stuyvenberg Daniel R. Weltzien Chairman, President and Chief Executive Officer Senior Vice President — Chief Financial Officer Position Vice President — Investor Relations, Corporate Strategy and Treasurer Vice President — Engineering Vice President — General Counsel and Secretary Vice President — Global Flow Instrumentation and International Utility Vice President — Human Resources Vice President — Global Operations Vice President — Sales and Marketing Vice President — Water Quality Vice President — Controller Age at 2/28/2022 49 43 54 57 57 57 54 55 55 39 43 There are no family relationships between any of the executive officers. Officers are elected annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. Each officer holds office until his or her successor has been elected or until his or her death, resignation or removal. There is no arrangement or understanding between any executive officer and any other person pursuant to which he or she was elected as an officer. Mr. Bockhorst was elected President in April 2018, Chief Executive Officer in January 2019 and Chairman in January 2020 after serving as Senior Vice President - Chief Operating Officer for the Company from October 2017 to April 2018. Prior to joining the Company, Mr. Bockhorst was Executive Vice President of the Energy segment, preceded by President of Hydratight and Global Vice President Operations of Enerpac, all within Actuant Corporation (now Enerpac Tool Group) from March 2011 to October 2017. Mr. Wrocklage was elected Vice President – Chief Financial Officer and Treasurer in 2019 and Senior Vice President – Chief Financial Officer in January 2020 after serving as Vice President - Finance for the Company from August 2018 to December 2018. Prior to joining the Company, Mr. Wrocklage spent ten years with Actuant Corporation (now Enerpac Tool Group), holding various corporate and business unit financial leadership roles, most recently as Vice President - Corporate Controller and Chief Accounting Officer. Ms. Bauer was elected Vice President - Investor Relations, Corporate Strategy and Treasurer effective June 2019. She joined Badger Meter in July 2018 as Director, Investor Relations and Corporate Strategy. In her role she also oversees the Company’s ESG (Environmental, Social & Governance) initiatives. Prior to joining Badger Meter, she served at Actuant Corporation (now Enerpac Tool Group), most recently as Director, Investor Relations & Communications. Mr. Begale has served as Vice President - Engineering for more than five years. 7 Mr. Bergum has served as Vice President - General Counsel and Secretary for more than five years. Mr. Gomez was elected Vice President – Flow Instrumentation and International Utility in March 2019. Mr. Gomez served as Vice President - Business Development and Flow Instrumentation from April 2017 to March 2019, Vice President - Flow Instrumentation from September 2014 to April 2017. Mr. Gomez has given notice of his plans to retire effective September 30, 2022. Ms. Hopkins was elected Vice President - Human Resources in October 2020. Prior to joining the Company, Ms. Hopkins served as Vice President of Human Resources for ADVENT from April 2019 to October 2020 and Senior Vice President of Human Resources for Runzheimer International from July 2010 to March 2018. Previously, she held roles of increasing responsibility at Eaton Corporation and other multinational public companies. Mr. Parisen was elected Vice President - Global Operations in June 2019. He joined Badger Meter in August 2018 as Senior Director, Global Supply Chain. Prior to joining Badger Meter, he was employed at Actuant Corporation (now Enerpac Tool Group) where he most recently held the position of Vice President - Global Operations for the Industrial and Energy segments. Ms. Stoll has served as Vice President - Sales and Marketing for more than five years. Mr. Stuyvenberg was elected Vice President – Water Quality in January 2022. Mr. Stuyvenberg joined Badger Meter in April 2007 as Mechanical Engineer of Applied Research and has since held roles of increasing responsibility, including Manager of Mechanical Engineering and Director of Utility Engineering. Mr. Weltzien was elected Vice President – Controller in March 2019. Prior to joining the Company, Mr. Weltzien spent eight years with Actuant Corporation (now Enerpac Tool Group), holding various corporate and business unit financial leadership roles, most recently as Senior Director of Finance for its Hydratight business unit. Foreign Operations and Export Sales The Company sells its products through employees, resellers and representatives throughout the world. Additionally, the Company has sales, distribution and manufacturing facilities in Neuffen, Germany and Vienna, Austria; sales and customer service offices in Mexico, United Kingdom, Singapore, China, United Arab Emirates and other similar locations throughout the world; manufacturing facilities in Nogales, Mexico, Brno, Czech Republic and Bern, Switzerland; and a development facility in Luleå, Sweden. The Company exports products from the United States that are manufactured in Milwaukee, Wisconsin, Racine, Wisconsin, Tulsa, Oklahoma and Collegeville, Pennsylvania. Information about the Company's foreign operations and export sales is included in Note 9 “Industry Segment and Geographic Areas” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10-K. Financial Information about Industry Segments The Company operates in one industry segment as an innovator, manufacturer and marketer of products incorporating flow measurement, control and communication solutions. Information about the Company's sales, operating earnings and assets is included in the Consolidated Financial Statements and in Note 9 “Industry Segment and Geographic Areas” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10-K. Risk Management The Company’s Enterprise Risk Management (ERM) process aims to identify and address significant and material risks. The ERM process assesses, manages, and monitors risks consistent with the integrated risk framework in the Enterprise Risk Management- Integrated Framework (2017) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We 7 believe that risk-taking is an inherent aspect of the execution of our strategy. Our goal is to manage risks pragmatically as opposed to avoiding risks altogether. We can mitigate risks and their impact on our Company only to a limited extent. A group of executives prioritizes identified risks and assigns an executive to address each major identified risk area and lead action plans to manage each risk. Our Board of Directors provides oversight of the ERM process and reviews the significant identified risks. The Audit Committee of the Board of Directors also reviews significant financial risk exposures and the steps management has taken to monitor, manage and mitigate them wherever possible. Our other Board committees also play a role in risk management, as detailed in their respective charters. Our goal is to proactively manage risks using a structured approach in combination with strategic planning, with the intent to preserve and enhance shareholder value. However, the risks set forth Item 1A. Risk Factors and elsewhere in this Annual Report on 8 Mr. Begale has served as Vice President - Engineering for more than five years. Mr. Bergum has served as Vice President - General Counsel and Secretary for more than five years. Mr. Gomez was elected Vice President – Flow Instrumentation and International Utility in March 2019. Mr. Gomez served as Vice President - Business Development and Flow Instrumentation from April 2017 to March 2019, Vice President - Flow Instrumentation from September 2014 to April 2017. Mr. Gomez has given notice of his plans to retire effective September 30, 2022. Ms. Hopkins was elected Vice President - Human Resources in October 2020. Prior to joining the Company, Ms. Hopkins served as Vice President of Human Resources for ADVENT from April 2019 to October 2020 and Senior Vice President of Human Resources for Runzheimer International from July 2010 to March 2018. Previously, she held roles of increasing responsibility at Eaton Corporation and other multinational public companies. Mr. Parisen was elected Vice President - Global Operations in June 2019. He joined Badger Meter in August 2018 as Senior Director, Global Supply Chain. Prior to joining Badger Meter, he was employed at Actuant Corporation (now Enerpac Tool Group) where he most recently held the position of Vice President - Global Operations for the Industrial and Energy segments. Ms. Stoll has served as Vice President - Sales and Marketing for more than five years. Mr. Stuyvenberg was elected Vice President – Water Quality in January 2022. Mr. Stuyvenberg joined Badger Meter in April 2007 as Mechanical Engineer of Applied Research and has since held roles of increasing responsibility, including Manager of Mechanical Engineering and Director of Utility Engineering. Mr. Weltzien was elected Vice President – Controller in March 2019. Prior to joining the Company, Mr. Weltzien spent eight years with Actuant Corporation (now Enerpac Tool Group), holding various corporate and business unit financial leadership roles, most recently as Senior Director of Finance for its Hydratight business unit. Foreign Operations and Export Sales The Company sells its products through employees, resellers and representatives throughout the world. Additionally, the Company has sales, distribution and manufacturing facilities in Neuffen, Germany and Vienna, Austria; sales and customer service offices in Mexico, United Kingdom, Singapore, China, United Arab Emirates and other similar locations throughout the world; manufacturing facilities in Nogales, Mexico, Brno, Czech Republic and Bern, Switzerland; and a development facility in Luleå, Sweden. The Company exports products from the United States that are manufactured in Milwaukee, Wisconsin, Racine, Wisconsin, Tulsa, Oklahoma and Collegeville, Pennsylvania. Information about the Company's foreign operations and export sales is included in Note 9 “Industry Segment and Geographic Areas” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10-K. Financial Information about Industry Segments The Company operates in one industry segment as an innovator, manufacturer and marketer of products incorporating flow measurement, control and communication solutions. Information about the Company's sales, operating earnings and assets is included in the Consolidated Financial Statements and in Note 9 “Industry Segment and Geographic Areas” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10-K. Risk Management The Company’s Enterprise Risk Management (ERM) process aims to identify and address significant and material risks. The ERM process assesses, manages, and monitors risks consistent with the integrated risk framework in the Enterprise Risk Management- Integrated Framework (2017) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We believe that risk-taking is an inherent aspect of the execution of our strategy. Our goal is to manage risks pragmatically as opposed to avoiding risks altogether. We can mitigate risks and their impact on our Company only to a limited extent. A group of executives prioritizes identified risks and assigns an executive to address each major identified risk area and lead action plans to manage each risk. Our Board of Directors provides oversight of the ERM process and reviews the significant identified risks. The Audit Committee of the Board of Directors also reviews significant financial risk exposures and the steps management has taken to monitor, manage and mitigate them wherever possible. Our other Board committees also play a role in risk management, as detailed in their respective charters. Our goal is to proactively manage risks using a structured approach in combination with strategic planning, with the intent to preserve and enhance shareholder value. However, the risks set forth Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K and other risks and uncertainties could unfavorably affect us and cause our results to vary materially from recent results or from our anticipated future results. ITEM 1A. RISK FACTORS 8 Shareholders, potential investors and other readers are urged to consider the significant business risks described below in addition to the other information set forth or incorporated by reference in this 2021 Annual Report on Form 10-K, including the “Special Note Regarding Forward Looking Statements” at the front of this 2021 Annual Report on Form 10-K. If any of the events contemplated by the following risks actually occur, our financial condition or results of operations could be materially adversely affected. The following list of risk factors may not be exhaustive. We operate in a continually changing business, economic and geopolitical environment, and new risk factors may emerge from time to time. We can neither predict these new risk factors with certainty nor assess the precise impact, if any, on our business, or the extent to which any factor, or combination of factors, may adversely impact our results of operations. While there is much uncertainty, we do analyze the risks we face, perform a probability assessment of their impacts and attempt to soften their potential impact when and if possible. PRODUCTS, TECHNOLOGY AND SERVICES The inability to develop technologically advanced products could harm our future success. We believe our future success depends, in part, on our ability to develop technologically advanced products that meet or exceed appropriate industry standards. Although we believe that we currently have a competitive advantage in this area, maintaining such advantage will require continued investment in research and development, sales, marketing and manufacturing capabilities. There can be no assurance that we will have sufficient resources to make such investments or that we will be able to make the technological advances necessary to maintain such competitive advantage. If we are unable to maintain our competitive advantage, our future financial performance may be adversely affected. We are not currently aware of any emerging standards, technologies or new products that could render our existing products obsolete in the near term. Our radios operate on networks which are changing as part of the natural evolution of technology. The pace of that change is largely outside of the Company’s control and the sun-setting of a network may have an adverse impact on the Company. The municipal water industry is continuing to see the adoption of static water meters. Static water metering has lower barriers to entry that could affect the competitive landscape in North America. We believe we have a competitive product. If the adoption rate for static meters were to accelerate, we believe competitors lack brand recognition and product breadth and do not have extensive water utility channel distribution to effectively reach the more than 50,000 water utilities in the United States. Failure to manufacture quality products could have a material adverse effect on our business. If we fail to maintain and enforce quality control and testing procedures, our products will not meet required performance standards. Our products have an extended expected life and we offer long warranty coverages. Product quality and performance are a priority for us since our products are used in various applications where precise control of fluids is essential. Although we believe our products are perceived as high quality, any future production and/or sale of substandard products could seriously harm our reputation, resulting in both a loss of current customers to competitors and damage to our ability to attract new customers. In addition, if any of our products prove to be defective, we may be required to participate in a recall involving such products or incur warranty related expenses. A successful claim brought against us with respect to a defective product in excess of available insurance coverage, if any, or a requirement to participate in a major product recall, could have a material adverse effect on our business, results of operations or financial condition. If our software products do not operate as intended, our business could be materially and adversely affected. 8 We sell software products, including some that are provided in “the cloud,” that may contain unexpected design defects or may encounter unexpected complications when used with other technologies utilized by the customer. A failure of our software products to operate as intended and in a seamless fashion with other products or a failure or breach of a cloud network could materially and adversely affect our results of operations, financial position and cash flows. Our expanded role as a prime contractor brings certain risks that could have a material adverse effect to our business. The Company periodically assumes the role of prime contractor for providing complete technology systems, installation and other services and project management to governmental entities, which brings with it added risks, including but not limited to, our responsibility for managing subcontractor performance and project timelines and the potential for expanded warranty and performance obligations. While we routinely manage these types of arrangements, it is possible to encounter a situation where we may not be able to perform to the expectations of the governmental entity, and thus incur additional costs that could affect our profitability or harm our reputation. 9 Form 10-K and other risks and uncertainties could unfavorably affect us and cause our results to vary materially from recent results or from our anticipated future results. ITEM 1A. RISK FACTORS Shareholders, potential investors and other readers are urged to consider the significant business risks described below in addition to the other information set forth or incorporated by reference in this 2021 Annual Report on Form 10-K, including the “Special Note Regarding Forward Looking Statements” at the front of this 2021 Annual Report on Form 10-K. If any of the events contemplated by the following risks actually occur, our financial condition or results of operations could be materially adversely affected. The following list of risk factors may not be exhaustive. We operate in a continually changing business, economic and geopolitical environment, and new risk factors may emerge from time to time. We can neither predict these new risk factors with certainty nor assess the precise impact, if any, on our business, or the extent to which any factor, or combination of factors, may adversely impact our results of operations. While there is much uncertainty, we do analyze the risks we face, perform a probability assessment of their impacts and attempt to soften their potential impact when and if possible. PRODUCTS, TECHNOLOGY AND SERVICES The inability to develop technologically advanced products could harm our future success. We believe our future success depends, in part, on our ability to develop technologically advanced products that meet or exceed appropriate industry standards. Although we believe that we currently have a competitive advantage in this area, maintaining such advantage will require continued investment in research and development, sales, marketing and manufacturing capabilities. There can be no assurance that we will have sufficient resources to make such investments or that we will be able to make the technological advances necessary to maintain such competitive advantage. If we are unable to maintain our competitive advantage, our future financial performance may be adversely affected. We are not currently aware of any emerging standards, technologies or new products that could render our existing products obsolete in the near term. Our radios operate on networks which are changing as part of the natural evolution of technology. The pace of that change is largely outside of the Company’s control and the sun-setting of a network may have an adverse impact on the Company. The municipal water industry is continuing to see the adoption of static water meters. Static water metering has lower barriers to entry that could affect the competitive landscape in North America. We believe we have a competitive product. If the adoption rate for static meters were to accelerate, we believe competitors lack brand recognition and product breadth and do not have extensive water utility channel distribution to effectively reach the more than 50,000 water utilities in the United States. Failure to manufacture quality products could have a material adverse effect on our business. If we fail to maintain and enforce quality control and testing procedures, our products will not meet required performance standards. Our products have an extended expected life and we offer long warranty coverages. Product quality and performance are a priority for us since our products are used in various applications where precise control of fluids is essential. Although we believe our products are perceived as high quality, any future production and/or sale of substandard products could seriously harm our reputation, resulting in both a loss of current customers to competitors and damage to our ability to attract new customers. In addition, if any of our products prove to be defective, we may be required to participate in a recall involving such products or incur warranty related expenses. A successful claim brought against us with respect to a defective product in excess of available insurance coverage, if any, or a requirement to participate in a major product recall, could have a material adverse effect on our business, results of operations or financial condition. If our software products do not operate as intended, our business could be materially and adversely affected. We sell software products, including some that are provided in “the cloud,” that may contain unexpected design defects or may encounter unexpected complications when used with other technologies utilized by the customer. A failure of our software products to operate as intended and in a seamless fashion with other products or a failure or breach of a cloud network could materially and adversely affect our results of operations, financial position and cash flows. Our expanded role as a prime contractor brings certain risks that could have a material adverse effect to our business. The Company periodically assumes the role of prime contractor for providing complete technology systems, installation and other services and project management to governmental entities, which brings with it added risks, including but not limited to, our responsibility for managing subcontractor performance and project timelines and the potential for expanded warranty and performance obligations. While we routinely manage these types of arrangements, it is possible to encounter a situation where we may not be able to perform to the expectations of the governmental entity, and thus incur additional costs that could affect our profitability or harm our reputation. If we are not able to protect our proprietary rights to our software and related products, our ability to market our software products could be hindered and our results of operations, financial position and cash flows could be materially and adversely affected. We rely on our agreements with customers, confidentiality agreements with employees, and our trademarks, trade secrets, 9 copyrights and patents to protect our proprietary rights. These legal protections and precautions may not prevent misappropriation of our proprietary information. In addition, substantial litigation regarding intellectual property rights exists in the software industry, and software products and other components may increasingly be subject to third-party infringement claims. Such litigation and misappropriation of our proprietary information could hinder our ability to market and sell products and services and our results of operations, financial position and cash flows could be materially and adversely affected. BUSINESS CONDITIONS The inability to obtain adequate supplies of raw materials and component parts at favorable prices could decrease our profit margins and negatively impact timely delivery to customers and could have a material adverse effect on our business, results of operations and financial condition. We are affected by the availability and prices for raw materials and component parts, including purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, microprocessors and other electronic subassemblies, and components that are used in the manufacturing process, and we are experiencing supply chain disruptions and related challenges throughout the supply chain. The inability to obtain adequate supplies of raw materials and component parts for our products at favorable prices could have a material adverse effect on our business, financial condition or results of operations by decreasing profit margins and by negatively impacting timely deliveries to customers. In the past, we have been able to offset price increases in raw materials and component parts by increased sales prices, active materials management, product engineering programs and the diversity of materials used in the production processes. However, we cannot be certain that we will be able to accomplish this in the future. Since we do not control the actual production of these raw materials and component parts, there may be continued delays in the production or transportation of these materials for reasons that are beyond our control. World commodity markets and the ongoing inflationary environment are affecting, and may continue to affect, raw material and component part prices. In addition, we rely on single suppliers for microprocessors, castings and components in several of our product lines and the loss of such suppliers could temporarily disrupt operations in the short term. The global coronavirus (COVID-19) pandemic, or other global public health pandemics, could have a material adverse effect on our business, results of operations and financial condition. The COVID-19 pandemic, or other global health pandemics, and virus containment measures taken by federal and state governments have resulted in, and could in the future, result in, business slowdowns or shutdowns, weakened economic conditions, economic uncertainty, and volatility in the financial markets and could interfere with the ability of our employees, suppliers, and customers to perform our and their respective responsibilities and obligations relative to the conduct of our business and operations. The extent to which the COVID-19 or any future pandemic impacts our business operations in future periods will depend on multiple factors that cannot be accurately predicated at this time, such as the duration and scope of any pandemic, future spikes of infections (including the spread of variants or mutant strains, and the degree of transmissibility and severity thereof), the extent and effectiveness of containment actions, the disruption caused by such actions, and the impact of these and other factors on our employees, suppliers and customers. If we are not able to respond to and manage the impact of such events effectively, we could experience a material adverse effect on our business, results of operations and overall financial performance. 9 Economic conditions could cause a material adverse impact on our sales and operating results. As a supplier of products and software, the majority of which are to water utilities, we may be adversely affected by global economic conditions, delays in governmental programs created to stimulate the economy, and the impact of government budget cuts or partial shutdowns of governmental operations that affect our customers, including independent distributors, large city utilities, public and private water companies and numerous smaller water utilities. These customers may delay capital projects, including non-critical maintenance and upgrades, or may not have the ability to authorize and finance purchases during economic downturns or instability in world markets. We also sell products for other applications to reduce our dependency on the municipal water market. A significant downturn in this market could cause a material adverse impact on sales and operating results. Therefore, a downturn in general economic conditions, as well as in the municipal water market, and delays in the timing or amounts of possible annual federal funding and periodic stimulus fund programs, government budget cuts or partial shutdowns of governmental operations, or the availability of funds to municipalities could result in a reduction in demand for our products and services and could harm the business. 10 If we are not able to protect our proprietary rights to our software and related products, our ability to market our software products could be hindered and our results of operations, financial position and cash flows could be materially and adversely affected. We rely on our agreements with customers, confidentiality agreements with employees, and our trademarks, trade secrets, copyrights and patents to protect our proprietary rights. These legal protections and precautions may not prevent misappropriation of our proprietary information. In addition, substantial litigation regarding intellectual property rights exists in the software industry, and software products and other components may increasingly be subject to third-party infringement claims. Such litigation and misappropriation of our proprietary information could hinder our ability to market and sell products and services and our results of operations, financial position and cash flows could be materially and adversely affected. BUSINESS CONDITIONS The inability to obtain adequate supplies of raw materials and component parts at favorable prices could decrease our profit margins and negatively impact timely delivery to customers and could have a material adverse effect on our business, results of operations and financial condition. We are affected by the availability and prices for raw materials and component parts, including purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, microprocessors and other electronic subassemblies, and components that are used in the manufacturing process, and we are experiencing supply chain disruptions and related challenges throughout the supply chain. The inability to obtain adequate supplies of raw materials and component parts for our products at favorable prices could have a material adverse effect on our business, financial condition or results of operations by decreasing profit margins and by negatively impacting timely deliveries to customers. In the past, we have been able to offset price increases in raw materials and component parts by increased sales prices, active materials management, product engineering programs and the diversity of materials used in the production processes. However, we cannot be certain that we will be able to accomplish this in the future. Since we do not control the actual production of these raw materials and component parts, there may be continued delays in the production or transportation of these materials for reasons that are beyond our control. World commodity markets and the ongoing inflationary environment are affecting, and may continue to affect, raw material and component part prices. In addition, we rely on single suppliers for microprocessors, castings and components in several of our product lines and the loss of such suppliers could temporarily disrupt operations in the short term. The global coronavirus (COVID-19) pandemic, or other global public health pandemics, could have a material adverse effect on our business, results of operations and financial condition. The COVID-19 pandemic, or other global health pandemics, and virus containment measures taken by federal and state governments have resulted in, and could in the future, result in, business slowdowns or shutdowns, weakened economic conditions, economic uncertainty, and volatility in the financial markets and could interfere with the ability of our employees, suppliers, and customers to perform our and their respective responsibilities and obligations relative to the conduct of our business and operations. The extent to which the COVID-19 or any future pandemic impacts our business operations in future periods will depend on multiple factors that cannot be accurately predicated at this time, such as the duration and scope of any pandemic, future spikes of infections (including the spread of variants or mutant strains, and the degree of transmissibility and severity thereof), the extent and effectiveness of containment actions, the disruption caused by such actions, and the impact of these and other factors on our employees, suppliers and customers. If we are not able to respond to and manage the impact of such events effectively, we could experience a material adverse effect on our business, results of operations and overall financial performance. Economic conditions could cause a material adverse impact on our sales and operating results. As a supplier of products and software, the majority of which are to water utilities, we may be adversely affected by global economic conditions, delays in governmental programs created to stimulate the economy, and the impact of government budget cuts or partial shutdowns of governmental operations that affect our customers, including independent distributors, large city utilities, public and private water companies and numerous smaller water utilities. These customers may delay capital projects, including non-critical maintenance and upgrades, or may not have the ability to authorize and finance purchases during economic downturns or instability in world markets. We also sell products for other applications to reduce our dependency on the municipal water market. A significant downturn in this market could cause a material adverse impact on sales and operating results. Therefore, a downturn in general economic conditions, as well as in the municipal water market, and delays in the timing or amounts of possible annual federal funding and periodic stimulus fund programs, government budget cuts or partial shutdowns of governmental operations, or the availability of funds to municipalities could result in a reduction in demand for our products and services and could harm the business. Geopolitical crisis, including terrorism or pandemics, could adversely affect our business. Our operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, and widespread outbreak of an illness or other health issue. The occurrence of any of these events could have an adverse effect on our business results and financial condition. See the separate risk factor specific to the global COVID-19 pandemic. 10 Risks related to foreign markets could decrease our profitability. Since we sell products worldwide as well as manufacture products in several countries, we are subject to risks associated with doing business internationally. These risks include such things as changes in foreign currency exchange rates, changes in political or economic conditions of specific countries or regions, potentially negative consequences from changes in tax laws or regulatory requirements, differing labor regulations, and the difficulty of managing widespread operations. An inability to attract and retain skilled employees could negatively impact our growth and decrease our profitability. Our success depends on our continued ability to identify, attract, develop and retain skilled personnel throughout our organization. Current and future compensation arrangements, including benefits, may not be sufficient to attract new employees or retain existing employees, which may hinder our growth. Increased labor competition from accelerated retirements, wage inflation and scarcity of labor may negatively impact costs and negatively impact employee engagement, productivity and efficiency. Competitive pressures in the marketplace could decrease our revenues and profits. Competitive pressures in the marketplace for our products could adversely affect our competitive position, leading to a possible loss of market share or a decrease in prices, either of which could result in decreased revenues and profits. We operate in an environment where competition varies from moderate to strong and a number of our competitors have greater financial resources. Our competitors also include alliance partners that sell products that do or may compete with our products. The principal elements of competition for our most significant product applications, residential and commercial water meters for the municipal water utility market (with various radio technology systems), are price, product technology, quality and service. The competitive environment is also affected by the movement toward radio technologies and away from manually read meters, the demand for replacement units and, to some extent, such things as global economic conditions, the timing and size of governmental programs such as stimulus programs, the ability of municipal water utility customers to authorize and finance purchases of our products, our ability to obtain financing, housing starts in the United States, and overall economic activity. For our flow instrumentation products, the competitive environment is affected by the general economic health of various industrial sectors particularly in the United States and Europe. GOVERNMENT REGULATION Violations or alleged violations of laws that impose requirements for the conduct of the Company’s overseas operations, including the Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws, trade sanctions and sanctioned parties restrictions could adversely affect our business. In foreign countries where we operate, a risk exists that our employees, third party partners or agents could engage in business practices prohibited by applicable laws and regulations, such as the FCPA. Such anti-corruption laws generally prohibit companies from making improper payments to foreign officials, require companies to keep accurate books and records, and maintain appropriate internal controls. Our policies mandate strict compliance with such laws and we devote resources to ensure compliance. However, we operate in some parts of the world that have experienced governmental corruption, and, in certain circumstances, local 10 customs and practice might not be consistent with the requirements of anti-corruption laws. We remain subject to the risk that our employees, third party partners or agents will engage in business practices that are prohibited by our policies and violate such laws and regulations. Violations by us or a third party acting on our behalf could result in significant internal investigation costs and legal fees, civil and criminal penalties, including prohibitions on the conduct of our business and reputational harm. We may also be subject to legal liability and reputational damage if we violate U.S. trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the European Union, the United Nations and trade sanction laws, such as the Iran Threat Reduction and Syria Human Rights Act of 2012. Our policies mandate strict compliance with such laws and we devote resources to ensure compliance. Changes in environmental or regulatory requirements could entail additional expenses that could decrease our profitability. We are subject to a variety of laws in various countries and markets, such as those regulating lead or other material content in certain of our products, the handling, recycling and disposal of certain electronic and other materials, the use and/or licensing of radio frequencies necessary for radio products, data privacy and protection, as well as customs and trade practices. We cannot predict the nature, scope or effect of future environmental or regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted. Currently, the cost of complying with existing laws is included as 11 Geopolitical crisis, including terrorism or pandemics, could adversely affect our business. Our operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, and widespread outbreak of an illness or other health issue. The occurrence of any of these events could have an adverse effect on our business results and financial condition. See the separate risk factor specific to the global COVID-19 pandemic. Risks related to foreign markets could decrease our profitability. Since we sell products worldwide as well as manufacture products in several countries, we are subject to risks associated with doing business internationally. These risks include such things as changes in foreign currency exchange rates, changes in political or economic conditions of specific countries or regions, potentially negative consequences from changes in tax laws or regulatory requirements, differing labor regulations, and the difficulty of managing widespread operations. An inability to attract and retain skilled employees could negatively impact our growth and decrease our profitability. Our success depends on our continued ability to identify, attract, develop and retain skilled personnel throughout our organization. Current and future compensation arrangements, including benefits, may not be sufficient to attract new employees or retain existing employees, which may hinder our growth. Increased labor competition from accelerated retirements, wage inflation and scarcity of labor may negatively impact costs and negatively impact employee engagement, productivity and efficiency. Competitive pressures in the marketplace could decrease our revenues and profits. Competitive pressures in the marketplace for our products could adversely affect our competitive position, leading to a possible loss of market share or a decrease in prices, either of which could result in decreased revenues and profits. We operate in an environment where competition varies from moderate to strong and a number of our competitors have greater financial resources. Our competitors also include alliance partners that sell products that do or may compete with our products. The principal elements of competition for our most significant product applications, residential and commercial water meters for the municipal water utility market (with various radio technology systems), are price, product technology, quality and service. The competitive environment is also affected by the movement toward radio technologies and away from manually read meters, the demand for replacement units and, to some extent, such things as global economic conditions, the timing and size of governmental programs such as stimulus programs, the ability of municipal water utility customers to authorize and finance purchases of our products, our ability to obtain financing, housing starts in the United States, and overall economic activity. For our flow instrumentation products, the competitive environment is affected by the general economic health of various industrial sectors particularly in the United States and Europe. GOVERNMENT REGULATION Violations or alleged violations of laws that impose requirements for the conduct of the Company’s overseas operations, including the Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws, trade sanctions and sanctioned parties restrictions could adversely affect our business. In foreign countries where we operate, a risk exists that our employees, third party partners or agents could engage in business practices prohibited by applicable laws and regulations, such as the FCPA. Such anti-corruption laws generally prohibit companies from making improper payments to foreign officials, require companies to keep accurate books and records, and maintain appropriate internal controls. Our policies mandate strict compliance with such laws and we devote resources to ensure compliance. However, we operate in some parts of the world that have experienced governmental corruption, and, in certain circumstances, local customs and practice might not be consistent with the requirements of anti-corruption laws. We remain subject to the risk that our employees, third party partners or agents will engage in business practices that are prohibited by our policies and violate such laws and regulations. Violations by us or a third party acting on our behalf could result in significant internal investigation costs and legal fees, civil and criminal penalties, including prohibitions on the conduct of our business and reputational harm. We may also be subject to legal liability and reputational damage if we violate U.S. trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the European Union, the United Nations and trade sanction laws, such as the Iran Threat Reduction and Syria Human Rights Act of 2012. Our policies mandate strict compliance with such laws and we devote resources to ensure compliance. Changes in environmental or regulatory requirements could entail additional expenses that could decrease our profitability. We are subject to a variety of laws in various countries and markets, such as those regulating lead or other material content in certain of our products, the handling, recycling and disposal of certain electronic and other materials, the use and/or licensing of radio frequencies necessary for radio products, data privacy and protection, as well as customs and trade practices. We cannot predict the nature, scope or effect of future environmental or regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted. Currently, the cost of complying with existing laws is included as part of our on-going expenses and does not have a material effect on our business or financial position, but a change in the future could adversely affect our profitability. GENERAL 11 Economic impacts due to leadership or policy changes in the countries where we do business could negatively affect our profitability. We may be affected by adjustments to economic and trade policies, such as taxation, changes to or withdrawal from international trade agreements, or the like, when countries where we produce or sell our products change leadership or economic policies. These types of changes, as well as any related regulatory changes, could significantly increase our costs and adversely affect our profitability and financial condition. Climate change, unusual weather and other natural phenomena could adversely affect our business. Climate changes and weather conditions may affect, or cause volatility in, our financial results. Drought conditions could drive higher demand for smart water solutions that advance conservation efforts in residential and commercial applications. Our sales also may be adversely affected by unusual weather, weather patterns or other natural phenomena that could have an impact on the timing of orders in given periods, depending on the particular mix of customers being served by us at the time. The unpredictable nature of weather conditions and climate change therefore may result in volatility for certain portions of our business, as well as the operations of certain of our customers and suppliers. Litigation against us could be costly, time consuming to defend and could adversely affect our profitability. From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of business. For example, we may be subject to workers' compensation claims, employment/labor disputes, customer and supplier disputes, product liability claims, intellectual property disputes and contractual disputes related to warranties arising out of the conduct of our business. Litigation may result in substantial costs and may divert management's attention and resources, which could adversely affect our profitability or financial condition. Disruptions and other damages to our information technology and other networks and operations, and breaches in data security or cybersecurity attacks could have a negative financial impact and damage our reputation. Our ability to serve customers, as well as increase revenues and control costs, depends in part on the reliability of our sophisticated technologies, system networks and cloud-based software. We use information technology and other systems to manage our business in order to maximize our revenue, effectiveness and efficiency. Unauthorized parties gaining access to digital systems and networks for purposes of misappropriating assets or sensitive financial, personal or business information, corrupting data, causing operational disruptions and other cyber-related risks could adversely impact our customer relationships, business plans and our reputation. In some cases, we are dependent on third-party technologies and service providers for which there is no certainty of uninterrupted availability or through which hackers could gain access to sensitive and/or personal information. These potential disruptions and cyber-attacks could negatively affect revenues, costs, customer demand, system availability and our reputation. Further, as the Company pursues its strategy to grow through acquisitions and to pursue newer technologies that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Certain new technologies present new and significant cybersecurity safety risks that must be analyzed and addressed before implementation. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. 11 Failure to successfully identify, complete and integrate acquired businesses or products could adversely affect our operations. As part of our business strategy, we continue to evaluate and may pursue selected business or product acquisition opportunities that we believe may provide us with certain operating and financial benefits. There can be no assurance that we will identify or complete transactions with suitable acquisition candidates in the future. If we complete any such acquisitions, they may require integration into our existing business with respect to administrative, financial, legal, sales, marketing, manufacturing and other functions to realize these anticipated benefits. If we are unable to successfully integrate a business or product acquisition, we may not realize the benefits identified in our due diligence process, and our financial results may be negatively impacted. Additionally, significant unexpected liabilities may arise during or after completion of an acquisition. 12 part of our on-going expenses and does not have a material effect on our business or financial position, but a change in the future could adversely affect our profitability. GENERAL profitability. Economic impacts due to leadership or policy changes in the countries where we do business could negatively affect our We may be affected by adjustments to economic and trade policies, such as taxation, changes to or withdrawal from international trade agreements, or the like, when countries where we produce or sell our products change leadership or economic policies. These types of changes, as well as any related regulatory changes, could significantly increase our costs and adversely affect our profitability and financial condition. Climate change, unusual weather and other natural phenomena could adversely affect our business. Climate changes and weather conditions may affect, or cause volatility in, our financial results. Drought conditions could drive higher demand for smart water solutions that advance conservation efforts in residential and commercial applications. Our sales also may be adversely affected by unusual weather, weather patterns or other natural phenomena that could have an impact on the timing of orders in given periods, depending on the particular mix of customers being served by us at the time. The unpredictable nature of weather conditions and climate change therefore may result in volatility for certain portions of our business, as well as the operations of certain of our customers and suppliers. Litigation against us could be costly, time consuming to defend and could adversely affect our profitability. From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of business. For example, we may be subject to workers' compensation claims, employment/labor disputes, customer and supplier disputes, product liability claims, intellectual property disputes and contractual disputes related to warranties arising out of the conduct of our business. Litigation may result in substantial costs and may divert management's attention and resources, which could adversely affect our profitability or financial condition. Disruptions and other damages to our information technology and other networks and operations, and breaches in data security or cybersecurity attacks could have a negative financial impact and damage our reputation. Our ability to serve customers, as well as increase revenues and control costs, depends in part on the reliability of our sophisticated technologies, system networks and cloud-based software. We use information technology and other systems to manage our business in order to maximize our revenue, effectiveness and efficiency. Unauthorized parties gaining access to digital systems and networks for purposes of misappropriating assets or sensitive financial, personal or business information, corrupting data, causing operational disruptions and other cyber-related risks could adversely impact our customer relationships, business plans and our reputation. In some cases, we are dependent on third-party technologies and service providers for which there is no certainty of uninterrupted availability or through which hackers could gain access to sensitive and/or personal information. These potential disruptions and cyber-attacks could negatively affect revenues, costs, customer demand, system availability and our reputation. Further, as the Company pursues its strategy to grow through acquisitions and to pursue newer technologies that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Certain new technologies present new and significant cybersecurity safety risks that must be analyzed and addressed before implementation. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Failure to successfully identify, complete and integrate acquired businesses or products could adversely affect our operations. As part of our business strategy, we continue to evaluate and may pursue selected business or product acquisition opportunities that we believe may provide us with certain operating and financial benefits. There can be no assurance that we will identify or complete transactions with suitable acquisition candidates in the future. If we complete any such acquisitions, they may require integration into our existing business with respect to administrative, financial, legal, sales, marketing, manufacturing and other functions to realize these anticipated benefits. If we are unable to successfully integrate a business or product acquisition, we may not realize the benefits identified in our due diligence process, and our financial results may be negatively impacted. Additionally, significant unexpected liabilities may arise during or after completion of an acquisition. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES The Company has sales, development, distribution and manufacturing facilities and customer service offices as noted in Part 12 I, Item 1 of this 2021 Annual Report on Form 10-K under the heading “Foreign Operations and Export Sales.” The principal facilities utilized by the Company at December 31, 2021 are listed below. The Company owns all such facilities except as noted. The Company believes that its facilities are generally well maintained and have sufficient capacity for its current needs. Location Milwaukee, Wisconsin, USA Racine, Wisconsin, USA Nogales, Mexico (1) Leased facility. Lease term expires December 31, 2025. ITEM 3. LEGAL PROCEEDINGS Principal use Manufacturing and offices Manufacturing and offices Manufacturing Approximate area (square feet) 324,200 134,300 181,300 (1) In the normal course of business, the Company is named in legal proceedings from time to time. 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. Information about the Company's compliance with environmental regulations is included in Part I, Item 1 of this 2021 Annual Report on Form 10-K under the heading “Environmental Protection.” ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 12 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is traded on the New York Stock Exchange (NYSE Trading Symbol: BMI). At February 2, 2022, there were approximately 553 holders of the Company’s Common Stock. Other information required by this Item is set forth in Note 2 “Common Stock” and Note 10 “Unaudited: Quarterly Results of Operations, Common Stock Price and Dividends” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. The following information in Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates it by reference into such a filing. The following graph compares on a cumulative basis the yearly percentage change since January 1, 2017 in (a) the total shareholder return on the Company’s Common Stock with (b) the total return on the Russell 2000® Index, and (c) the total return of the peer group made up of 19 companies, including the Company, in similar industries, employment markets and with similar market capitalization. The Russell 2000® Index is a trademark of the Frank Russell Company, and is used herein for comparative purposes in accordance with Securities and Exchange Commission regulations. The graph assumes $100 invested on December 31, 2016. It further assumes the reinvestment of dividends. The returns of each component company in the peer groups have been weighted based on such company's relative market capitalization. Badger Meter, Inc. Russell 2000 Index Peer Group December 31 2016 2018 2019 2020 2021 2017 30.94 % Return % 4.10 % 33.45 % 46.39 % 14.12 % Cumulative $ $ 100.00 $ 130.94 $ 136.31 $ 181.90 $ 266.28 $ 303.90 14.65 % -11.01 % 25.52 % 19.96 % 14.82 % Return % Cumulative $ $ 100.00 $ 114.65 $ 102.02 $ 128.06 $ 153.63 $ 176.39 Return % 16.06 % -19.75 % 43.65 % 14.76 % 27.05 % Cumulative $ $ 100.00 $ 116.06 $ 93.15 $ 133.80 $ 153.55 $ 195.09 13 14 The peer group consists of Evoqua Water Technologies Corp. (AQUA), Badger Meter, Inc. (BMI), Brady Corporation (BRC), CIRCOR International, Inc. (CIR), CTS Corporation (CTS), Enerpac Tool Group Corp. (EPAC), ESCO Technologies Inc. (ESE), The Gorman-Rupp Company (GRC), Helios Technologies, Inc. (HLIO), Itron, Inc. (ITRI), Kadant Inc. (KAI), Lindsay Corporation (LNN), Mueller Water Products, Inc. (MWA), Douglas Dynamics, Inc. (PLOW), Strattec Security Corporation (STRT), SPX Flow, Inc. (FLOW), Standex International Corporation (SXI), Watts Water Technologies, Inc. (WTS) and Zurn Water Solutions Corporation (ZWS). In February 2020, the Board of Directors authorized the repurchase of up to an additional 400,000 shares of the Company’s Common Stock through February 2023. The following table provides information about the Company's purchases under this repurchase program during the quarter ended December 31, 2021 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act. October 1, 2021 - October 31, 2021 November 1, 2021 - November 30, 2021 December 1, 2021 - December 31, 2021 Total as of December 31, 2021 Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced program Maximum number of shares that may yet be purchased under the program — $ — — — — — — 54,953 54,953 54,953 54,953 345,047 345,047 345,047 345,047 14 15 ITEM 6. RESERVED ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Current Business Trends – COVID-19 In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On March 11, 2020, the WHO characterized COVID-19 as a pandemic. Beginning in the second quarter of 2020, the Company implemented remote work arrangements for non-production personnel, adopted robust safety, social distancing and temperature screening protocols throughout its manufacturing sites and enacted other measures to be able to deliver products to meet customer orders on a timely basis. While the pandemic has had varying levels of impact to demand trends since its inception, to date it has not materially affected our ability to maintain business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. Throughout 2021, the Company continued to operate under various return-to-work protocols for non-production personnel and our manufacturing operations continued to follow safety and COVID-19 protocols. The introduction of vaccines in the Company’s primary geographic markets have aided its utility water and flow instrumentation customers in returning to more normal operations. On July 6, 2021, all US based non-production employees returned to the office on a hybrid basis following vaccination rollouts across the United States. Customer order rates have improved; however, global electronics and other component shortages, along with logistics constraints, have resulted in manufacturing interruptions which limited the Company’s output throughout 2021. These varied and wide-spread component availability and supply chain issues continue to inhibit the Company’s ability to fully satisfy the increase in demand for certain products. In addition, cost inflation of materials and other expenses has become more pervasive. The Company continues to pursue pricing initiatives to offset inflationary cost pressures where possible. The Company’s primary competitors are also experiencing lead time extensions, inflation, and pricing dynamics, and therefore the Company does not believe its competitive position has been negatively impacted. While the Company is navigating this dynamic and fluid environment through operational agility to support customers, these disruptions increased the Company’s backlog to record levels in 2021 and are likely to increase the unevenness of sales patterns in 2022. It remains difficult to estimate the severity and duration of the impact of the COVID-19 pandemic on the Company’s business, financial position or results of operations. The magnitude of the impact will be determined by the duration and span of the pandemic, subsequent COVID-19 variants and their severity along with operational disruptions including those resulting from government actions, delivery interruptions due to component supply availability or global logistics constraints and the overall impact on the economy. The Company is monitoring the ongoing situation and keeps the Board of Directors informed of developments. Long Term Business Trends Across the globe, increasing regulations and a focus on sustainability are driving companies and utilities to better manage critical resources like water. Some customers measure fluids to identify leaks and/or misappropriation for cost control or add measurement points to help automate manufacturing. Other customers employ measurement to comply with government mandates and laws including those associated with process and discharge water quality monitoring. The Company provides flow measurement technology to primarily measure water, but also other fluids, gases and steams. This technology is critical to provide baseline usage data and to quantify reductions as customers attempt to reduce consumption. For example, once water usage metrics are better understood, a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where it is most viable. With the Company’s technology, customers have found costly leaks, pinpointed equipment in need of repair, and identified areas for process improvements. Increasingly, customers in the utility water market are interested in more frequent and diverse data collection and the use of water metering and quality analytics to evaluate water distribution activity. Specifically, AMI technology enables water utilities to capture readings from each meter at more frequent and variable intervals. There are more than 50,000 water utilities in the United States and the Company estimates that approximately 70% of their respective connections have converted to a radio solution. The Company believes it is well positioned to meet this continuing conversion trend with its comprehensive radio and software solutions. In addition, certain water utilities are converting from mechanical to static meters. Ultrasonic water metering maintains a high level of measurement accuracy over the life of the meter, reducing a utility’s non-revenue water. The Company has over a decade of proven reliability in the market with its ultrasonic meters and has recently launched its next generation of ultrasonic metering with its D-Flow technology, which the Company believes increases its competitive differentiation. For over 117 years, the Company has offered innovative flow metering and control solutions for smart water management, smart buildings and smart industrial processes. The acquisitions of s::can and ATi, leading providers of water quality monitoring 15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ITEM 6. RESERVED OPERATIONS Current Business Trends – COVID-19 In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On March 11, 2020, the WHO characterized COVID-19 as a pandemic. Beginning in the second quarter of 2020, the Company implemented remote work arrangements for non-production personnel, adopted robust safety, social distancing and temperature screening protocols throughout its manufacturing sites and enacted other measures to be able to deliver products to meet customer orders on a timely basis. While the pandemic has had varying levels of impact to demand trends since its inception, to date it has not materially affected our ability to maintain business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. Throughout 2021, the Company continued to operate under various return-to-work protocols for non-production personnel and our manufacturing operations continued to follow safety and COVID-19 protocols. The introduction of vaccines in the Company’s primary geographic markets have aided its utility water and flow instrumentation customers in returning to more normal operations. On July 6, 2021, all US based non-production employees returned to the office on a hybrid basis following vaccination rollouts across the United States. Customer order rates have improved; however, global electronics and other component shortages, along with logistics constraints, have resulted in manufacturing interruptions which limited the Company’s output throughout 2021. These varied and wide-spread component availability and supply chain issues continue to inhibit the Company’s ability to fully satisfy the increase in demand for certain products. In addition, cost inflation of materials and other expenses has become more pervasive. The Company continues to pursue pricing initiatives to offset inflationary cost pressures where possible. The Company’s primary competitors are also experiencing lead time extensions, inflation, and pricing dynamics, and therefore the Company does not believe its competitive position has been negatively impacted. While the Company is navigating this dynamic and fluid environment through operational agility to support customers, these disruptions increased the Company’s backlog to record levels in 2021 and are likely to increase the unevenness of sales patterns in 2022. It remains difficult to estimate the severity and duration of the impact of the COVID-19 pandemic on the Company’s business, financial position or results of operations. The magnitude of the impact will be determined by the duration and span of the pandemic, subsequent COVID-19 variants and their severity along with operational disruptions including those resulting from government actions, delivery interruptions due to component supply availability or global logistics constraints and the overall impact on the economy. The Company is monitoring the ongoing situation and keeps the Board of Directors informed of developments. Long Term Business Trends Across the globe, increasing regulations and a focus on sustainability are driving companies and utilities to better manage critical resources like water. Some customers measure fluids to identify leaks and/or misappropriation for cost control or add measurement points to help automate manufacturing. Other customers employ measurement to comply with government mandates and laws including those associated with process and discharge water quality monitoring. The Company provides flow measurement technology to primarily measure water, but also other fluids, gases and steams. This technology is critical to provide baseline usage data and to quantify reductions as customers attempt to reduce consumption. For example, once water usage metrics are better understood, a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where it is most viable. With the Company’s technology, customers have found costly leaks, pinpointed equipment in need of repair, and identified areas for process improvements. Increasingly, customers in the utility water market are interested in more frequent and diverse data collection and the use of water metering and quality analytics to evaluate water distribution activity. Specifically, AMI technology enables water utilities to capture readings from each meter at more frequent and variable intervals. There are more than 50,000 water utilities in the United States and the Company estimates that approximately 70% of their respective connections have converted to a radio solution. The Company believes it is well positioned to meet this continuing conversion trend with its comprehensive radio and software solutions. In addition, certain water utilities are converting from mechanical to static meters. Ultrasonic water metering maintains a high level of measurement accuracy over the life of the meter, reducing a utility’s non-revenue water. The Company has over a decade of proven reliability in the market with its ultrasonic meters and has recently launched its next generation of ultrasonic metering with its D-Flow technology, which the Company believes increases its competitive differentiation. For over 117 years, the Company has offered innovative flow metering and control solutions for smart water management, smart buildings and smart industrial processes. The acquisitions of s::can and ATi, leading providers of water quality monitoring solutions, add real-time water quality parameters to the Company’s capabilities and enhances the scope of actionable data for its customers to help measure, conserve and protect water. The combined solutions from Badger Meter, s::can and ATi offer technology that measures both the quantity and quality of water. 16 Finally, the concept of “Smart Cities” is one avenue to affect efficient city operations, conserve resources and improve service and delivery. Smart water solutions (“Smart Water”) are those that provide actionable information through data analytics from an interconnected and interoperable network of sensors and devices that help people and organizations efficiently use and conserve water. Badger Meter is well positioned to benefit from the advancement of Smart Water applications. With its strong relationship with AT&T, among others, Badger Meter stays abreast of emerging cellular technology changes which the Company believes is the premier infrastructure-free AMI solution. Revenue and Product Mix As the industry continues to evolve, the Company has been at the forefront of innovation across metering, radio and software technologies in order to meet its customers’ increasing expectations for accurate and actionable data. As technologies such as ORION Cellular and BEACON AMA managed solutions have become more readily adopted, the Company’s revenue from Software as a Service (SaaS) has increased significantly, albeit from a small base, and is margin accretive. In addition, the Company has expanded its smart water offering with the addition of online water quality monitoring solutions, adding real-time water quality parameters to augment the scope of actionable data for water utility and industrial customers to optimize their operations. The Company also seeks opportunities for additional revenue enhancement. For instance, the Company has made inroads into the Middle East market with its ultrasonic meter technology and is pursuing other geographic expansion opportunities. Additionally, the Company is periodically asked to oversee and perform field installation of its products for certain customers. In these cases, the Company assumes the role of general contractor and either performs the installation or hires installation subcontractors and supervises their work. Acquisitions Effective January 1, 2021, the Company acquired 100% of the outstanding stock of ATi, headquartered in Collegeville, Pennsylvania, a provider of water quality monitoring systems. The total purchase consideration for ATi, net of cash acquired, was $44.0 million. The Company's allocation of the purchase price at December 31, 2021 included $3.9 million of receivables, $3.9 million of inventory, $2.5 million of other assets, $21.0 million of intangibles and $16.4 million of goodwill that is deductible for tax purposes. The intangible assets acquired are primarily customer relationships, developed technology and trademarks with estimated average useful lives of 12 to 15 years. The Company also assumed $1.4 million of accounts payable, $0.6 million of deferred tax liabilities and $1.7 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial Statements. Effective November 2, 2020, the Company acquired 100% of the outstanding stock of s::can headquartered in Vienna, Austria. s::can specializes in optical water quality sensing solutions that provide real-time measurement of a variety of parameters in water and wastewater utilizing in-line monitoring systems and other applications. The total purchase consideration for s::can, net of cash acquired, was $30.5 million, inclusive of $1.3 million of working capital adjustments. The Company's allocation of the purchase price at December 31, 2021 included $2.6 million of receivables, $4.3 million of inventory, $1.2 million of other assets, $12.7 million of intangibles and $17.7 million of goodwill that is not deductible for tax purposes. The intangible assets acquired are primarily customer relationships and developed technology with an estimated average useful life of 12 years. The Company also assumed $3.5 million of accounts payable, $3.2 million of deferred tax liabilities and $1.3 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial Statements. 16 17 solutions, add real-time water quality parameters to the Company’s capabilities and enhances the scope of actionable data for its customers to help measure, conserve and protect water. The combined solutions from Badger Meter, s::can and ATi offer technology that measures both the quantity and quality of water. Finally, the concept of “Smart Cities” is one avenue to affect efficient city operations, conserve resources and improve service and delivery. Smart water solutions (“Smart Water”) are those that provide actionable information through data analytics from an interconnected and interoperable network of sensors and devices that help people and organizations efficiently use and conserve water. Badger Meter is well positioned to benefit from the advancement of Smart Water applications. With its strong relationship with AT&T, among others, Badger Meter stays abreast of emerging cellular technology changes which the Company believes is the premier infrastructure-free AMI solution. Revenue and Product Mix As the industry continues to evolve, the Company has been at the forefront of innovation across metering, radio and software technologies in order to meet its customers’ increasing expectations for accurate and actionable data. As technologies such as ORION Cellular and BEACON AMA managed solutions have become more readily adopted, the Company’s revenue from Software as a Service (SaaS) has increased significantly, albeit from a small base, and is margin accretive. In addition, the Company has expanded its smart water offering with the addition of online water quality monitoring solutions, adding real-time water quality parameters to augment the scope of actionable data for water utility and industrial customers to optimize their operations. The Company also seeks opportunities for additional revenue enhancement. For instance, the Company has made inroads into the Middle East market with its ultrasonic meter technology and is pursuing other geographic expansion opportunities. Additionally, the Company is periodically asked to oversee and perform field installation of its products for certain customers. In these cases, the Company assumes the role of general contractor and either performs the installation or hires installation subcontractors and supervises their work. Acquisitions Effective January 1, 2021, the Company acquired 100% of the outstanding stock of ATi, headquartered in Collegeville, Pennsylvania, a provider of water quality monitoring systems. The total purchase consideration for ATi, net of cash acquired, was $44.0 million. The Company's allocation of the purchase price at December 31, 2021 included $3.9 million of receivables, $3.9 million of inventory, $2.5 million of other assets, $21.0 million of intangibles and $16.4 million of goodwill that is deductible for tax purposes. The intangible assets acquired are primarily customer relationships, developed technology and trademarks with estimated average useful lives of 12 to 15 years. The Company also assumed $1.4 million of accounts payable, $0.6 million of deferred tax liabilities and $1.7 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial acquisition. Statements. Effective November 2, 2020, the Company acquired 100% of the outstanding stock of s::can headquartered in Vienna, Austria. s::can specializes in optical water quality sensing solutions that provide real-time measurement of a variety of parameters in water and wastewater utilizing in-line monitoring systems and other applications. The total purchase consideration for s::can, net of cash acquired, was $30.5 million, inclusive of $1.3 million of working capital adjustments. The Company's allocation of the purchase price at December 31, 2021 included $2.6 million of receivables, $4.3 million of inventory, $1.2 million of other assets, $12.7 million of intangibles and $17.7 million of goodwill that is not deductible for tax purposes. The intangible assets acquired are primarily customer relationships and developed technology with an estimated average useful life of 12 years. The Company also assumed $3.5 million of accounts payable, $3.2 million of deferred tax liabilities and $1.3 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 3 “Acquisitions” in the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS Net Sales Net sales in 2021 increased $79.7 million, or 18.7%, to $505.2 million from $425.5 million in 2020. Sales into the utility 17 water market were $415.3 million, an increase of 20.6% over the prior year’s $344.3 million. The acquisitions of s::can and ATi increased sales $40.7 million compared to 2020. The remaining increase of $39.0 million was attributable to higher sales of the Company’s water meter, radio and software products including ORION Cellular endpoints as well as increased BEACON SaaS revenue associated with data collection and software analytics. These favorable trends more than offset the supply chain shortages of certain components which limited sales of certain products throughout 2021 and contributed to the record backlog level throughout 2021. Sales of products into the global flow instrumentation end markets were $89.9 million, 10.7% higher than the prior year’s $81.2 million due to the stabilization of industrial demand globally and across the array of end markets served. Net sales in 2020 increased $0.9 million, or less than 1%, to $425.5 million from $424.6 million in 2019. Sales into the utility water market were $344.3 million, an increase of 4% over the prior year’s $330.7 million. The increase was attributable to higher sales of advanced technology products including ORION Cellular endpoints, E-Series Ultrasonic water meters as well as increased BEACON SaaS revenue associated with data collection and software analytics. It also included approximately $2.5 million of sales related to s::can, acquired on November 2, 2020. These favorable trends more than offset the short term decline in orders that occurred in April and May 2020 from the stay-at-home orders throughout much of the United States in response to COVID-19. Sales of products into the global flow instrumentation end markets were $81.2 million, 13.6% lower than the prior year’s $94.0 million due to significantly reduced activity across the array of industrial end markets served and also the result of widespread COVID-19 shelter- in-place and lockdown restrictions. Operating Earnings Operating earnings in 2021 were $78.7 million, or 15.6% of sales, compared to $65.2 million, or 15.3% of sales, in 2020. Gross margin increased $37.2 million, and as a percent of sales increased from 39.5% in 2020 to 40.7% in 2021. The gross margin improvement was due to higher volumes, improved sales mix as noted above, acquisition mix and strategic pricing actions that offset inflationary cost pressures from material input costs. Selling, engineering and administration (“SEA”) expenses were $126.8 million or 25.1% of sales compared to $103.1 million or 24.2% of sales in the prior year. The acquired businesses added $16.9 million of SEA expenses. The remaining $6.8 million increase was primarily due to higher personnel costs including increased headcount and higher incentive compensation and benefits. Operating earnings in 2020 were $65.2 million, or 15.3% of sales, compared to $62.1 million, or 14.6% of sales, in 2019. Gross margin increased $4.7 million, and as a percent of sales increased from 38.5% in 2019 to 39.5% in 2020. The improvement was due to higher volumes and improved sales mix as noted above, along with favorable pricing actions. These benefits were modestly offset by a net increase in warranty provisions year-over-year, including a $3.5 million cellular network sunset provision recorded in the fourth quarter of 2020. Selling, engineering and administration (“SEA”) expenses were $103.1 million or 24.2% of sales compared to $101.4 million or 23.9% of sales in the comparable prior year period. The increase was primarily due to higher personnel, research and development and business optimization investments, as well as the inclusion of s::can. These increases were partially offset by the net benefit of COVID-19 cost reduction actions and lower pandemic-impacted expenses such as travel and convention costs. Interest (Income) Expense, Net Net interest income was less than $0.1 million in 2021, net interest expense was less than $0.1 million in 2020 and was $0.3 million in 2019. Changes in net interest (income) expense over these periods were due to the repayment of borrowings using cash from operations. Income Taxes There were no significant variations in income taxes as a percentage of earnings before income taxes which were 22.6%, 24.1% and 23.4% for 2021, 2020 and 2019, respectively. Earnings and Diluted Earnings per Share For 2021, the increase in operating earnings resulted in net earnings of $60.9 million compared to $49.3 million in 2020. On a diluted basis, earnings per share were $2.08 in 2021 compared to $1.69 in 2020. 17 For 2020, the increase in operating earnings and lower interest expense, resulted in net earnings of $49.3 million compared to $47.2 million in 2019. On a diluted basis, earnings per share were $1.69 in 2020 compared to $1.61 in 2019. 18 RESULTS OF OPERATIONS Net Sales Net sales in 2021 increased $79.7 million, or 18.7%, to $505.2 million from $425.5 million in 2020. Sales into the utility water market were $415.3 million, an increase of 20.6% over the prior year’s $344.3 million. The acquisitions of s::can and ATi increased sales $40.7 million compared to 2020. The remaining increase of $39.0 million was attributable to higher sales of the Company’s water meter, radio and software products including ORION Cellular endpoints as well as increased BEACON SaaS revenue associated with data collection and software analytics. These favorable trends more than offset the supply chain shortages of certain components which limited sales of certain products throughout 2021 and contributed to the record backlog level throughout 2021. Sales of products into the global flow instrumentation end markets were $89.9 million, 10.7% higher than the prior year’s $81.2 million due to the stabilization of industrial demand globally and across the array of end markets served. Net sales in 2020 increased $0.9 million, or less than 1%, to $425.5 million from $424.6 million in 2019. Sales into the utility water market were $344.3 million, an increase of 4% over the prior year’s $330.7 million. The increase was attributable to higher sales of advanced technology products including ORION Cellular endpoints, E-Series Ultrasonic water meters as well as increased BEACON SaaS revenue associated with data collection and software analytics. It also included approximately $2.5 million of sales related to s::can, acquired on November 2, 2020. These favorable trends more than offset the short term decline in orders that occurred in April and May 2020 from the stay-at-home orders throughout much of the United States in response to COVID-19. Sales of products into the global flow instrumentation end markets were $81.2 million, 13.6% lower than the prior year’s $94.0 million due to significantly reduced activity across the array of industrial end markets served and also the result of widespread COVID-19 shelter- in-place and lockdown restrictions. Operating Earnings Operating earnings in 2021 were $78.7 million, or 15.6% of sales, compared to $65.2 million, or 15.3% of sales, in 2020. Gross margin increased $37.2 million, and as a percent of sales increased from 39.5% in 2020 to 40.7% in 2021. The gross margin improvement was due to higher volumes, improved sales mix as noted above, acquisition mix and strategic pricing actions that offset inflationary cost pressures from material input costs. Selling, engineering and administration (“SEA”) expenses were $126.8 million or 25.1% of sales compared to $103.1 million or 24.2% of sales in the prior year. The acquired businesses added $16.9 million of SEA expenses. The remaining $6.8 million increase was primarily due to higher personnel costs including increased headcount and higher incentive compensation and benefits. Operating earnings in 2020 were $65.2 million, or 15.3% of sales, compared to $62.1 million, or 14.6% of sales, in 2019. Gross margin increased $4.7 million, and as a percent of sales increased from 38.5% in 2019 to 39.5% in 2020. The improvement was due to higher volumes and improved sales mix as noted above, along with favorable pricing actions. These benefits were modestly offset by a net increase in warranty provisions year-over-year, including a $3.5 million cellular network sunset provision recorded in the fourth quarter of 2020. Selling, engineering and administration (“SEA”) expenses were $103.1 million or 24.2% of sales compared to $101.4 million or 23.9% of sales in the comparable prior year period. The increase was primarily due to higher personnel, research and development and business optimization investments, as well as the inclusion of s::can. These increases were partially offset by the net benefit of COVID-19 cost reduction actions and lower pandemic-impacted expenses such as travel and convention costs. Interest (Income) Expense, Net Net interest income was less than $0.1 million in 2021, net interest expense was less than $0.1 million in 2020 and was $0.3 million in 2019. Changes in net interest (income) expense over these periods were due to the repayment of borrowings using cash from operations. Income Taxes There were no significant variations in income taxes as a percentage of earnings before income taxes which were 22.6%, 24.1% and 23.4% for 2021, 2020 and 2019, respectively. Earnings and Diluted Earnings per Share For 2021, the increase in operating earnings resulted in net earnings of $60.9 million compared to $49.3 million in 2020. On a diluted basis, earnings per share were $2.08 in 2021 compared to $1.69 in 2020. For 2020, the increase in operating earnings and lower interest expense, resulted in net earnings of $49.3 million compared to $47.2 million in 2019. On a diluted basis, earnings per share were $1.69 in 2020 compared to $1.61 in 2019. LIQUIDITY AND CAPITAL RESOURCES The main sources of liquidity for the Company are cash from operations and borrowing capacity. In addition, depending on 18 market conditions, the Company may access the capital markets to strengthen its capital position and to provide additional liquidity for general corporate purposes. Primary Working Capital We use primary working capital (PWC) as a percentage of sales as a key metric for working capital efficiency. We define this metric as the sum of receivables and inventories less payables, divided by annual net sales. The following table shows the components of our PWC (in thousands): Receivables Inventories Payables Primary Working Capital 12/31/2021 12/31/2020 $ 65,866 99,611 (41,859 ) 123,618 PWC% 13.1% 19.7% -8.3% 24.5% $ $ $ 61,689 81,586 (34,923 ) 108,352 PWC% 14.5% 19.2% -8.2% 25.5% $ $ Overall, PWC increased $15.3 million compared to the previous year-end and includes the PWC acquired in connection with the ATi acquisition. Receivables at December 31, 2021 were $65.9 million compared to $61.7 million at the end of 2020. Excluding $3.9 million of ATi receivables, an increase of $0.3 million was due to robust collection efforts while growing sales. The Company believes its receivables balance is fully collectible. Inventories at December 31, 2021 were $99.6 million compared to $81.6 million at the end of 2020. Excluding $3.9 million of ATi inventory, inventory increased $14.1 million, due to component cost inflation and higher safety stock levels associated with varied component shortages. Payables at December 31, 2021 were $41.9 million compared to $34.9 million at the end of 2020. Excluding the impact of ATi payables, the remaining increase is attributed to payments timing and the increased inventory levels at year end. Cash Provided by Operations Cash provided by operations in 2021 was $87.5 million compared to $89.6 million in 2020. The decrease from 2020 was driven primarily by increased operating earnings offset by increased working capital requirements as described above. Operating cash flow was more than adequate to fund acquisitions ($45.3 million, net of cash acquired), capital expenditures of $6.7 million and dividends of $22.2 million. Cash provided by operations in 2020 was $89.6 million compared to $80.7 million in 2019. The increase from 2019 was driven primarily by improved working capital management as well as higher operating earnings. Operating cash flow was more than adequate to fund the acquisition of s::can ($29.1 million, net of cash acquired), capital expenditures of $9.1 million and dividends of $20.3 million and $3.1 million in share repurchases to partially offset equity compensation dilution. The remaining cash flow was used to reduce short term borrowings and add to cash balances. Capital expenditures were $6.7 million, $9.1 million and $7.5 million in fiscal 2021, 2020 and 2019, respectively. Capital expenditures for fiscal 2022 are expected to be in the $9.0-11.0 million range, but could vary depending on timing of R&D projects, growth opportunities and the amount of assets purchased. The Company had no short-term borrowings as of the end of 2021 or 2020. At the end of 2021, the Company was in a net cash position of $87.2 million. The Company’s financial condition remains strong. On July 8, 2021, the Company entered into a new credit agreement, replacing its prior facility which was set to expire in September 2021. The credit agreement includes a $150.0 million multi-currency line of credit that supports commercial paper (up to $100.0 million). The facility includes several features that enhance the Company’s financial flexibility including an increase feature, acquisition holiday and favorable financial covenants. The Company was in compliance with all covenants as of December 31, 2021. The Company believes that its operating cash flows, available 18 borrowing capacity, and its ability to raise capital provide adequate resources to fund ongoing operating requirements, future capital expenditures and the development of new products. The Company had $157.1 million of unused credit lines available at December 31, 2021. CONTRACTUAL OBLIGATIONS The Company's significant contractual obligations as of December 31, 2021 are discussed in Note 12 “Leases” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10-K. There are no material undisclosed guarantees. As of December 31, 2021 the Company had no additional material purchase obligations other than those created in the 19 general corporate purposes. Primary Working Capital of our PWC (in thousands): Receivables Inventories Payables Primary Working Capital LIQUIDITY AND CAPITAL RESOURCES The main sources of liquidity for the Company are cash from operations and borrowing capacity. In addition, depending on market conditions, the Company may access the capital markets to strengthen its capital position and to provide additional liquidity for We use primary working capital (PWC) as a percentage of sales as a key metric for working capital efficiency. We define this metric as the sum of receivables and inventories less payables, divided by annual net sales. The following table shows the components 12/31/2021 12/31/2020 $ 65,866 99,611 (41,859 ) 123,618 PWC% 13.1% 19.7% -8.3% 24.5% $ $ $ 61,689 81,586 (34,923 ) 108,352 PWC% 14.5% 19.2% -8.2% 25.5% $ $ Overall, PWC increased $15.3 million compared to the previous year-end and includes the PWC acquired in connection with the ATi acquisition. Receivables at December 31, 2021 were $65.9 million compared to $61.7 million at the end of 2020. Excluding $3.9 million of ATi receivables, an increase of $0.3 million was due to robust collection efforts while growing sales. The Company believes its receivables balance is fully collectible. Inventories at December 31, 2021 were $99.6 million compared to $81.6 million at the end of 2020. Excluding $3.9 million of ATi inventory, inventory increased $14.1 million, due to component cost inflation and higher safety stock levels associated with varied component shortages. Payables at December 31, 2021 were $41.9 million compared to $34.9 million at the end of 2020. Excluding the impact of ATi payables, the remaining increase is attributed to payments timing and the increased inventory levels at year end. Cash Provided by Operations Cash provided by operations in 2021 was $87.5 million compared to $89.6 million in 2020. The decrease from 2020 was driven primarily by increased operating earnings offset by increased working capital requirements as described above. Operating cash flow was more than adequate to fund acquisitions ($45.3 million, net of cash acquired), capital expenditures of $6.7 million and dividends of $22.2 million. Cash provided by operations in 2020 was $89.6 million compared to $80.7 million in 2019. The increase from 2019 was driven primarily by improved working capital management as well as higher operating earnings. Operating cash flow was more than adequate to fund the acquisition of s::can ($29.1 million, net of cash acquired), capital expenditures of $9.1 million and dividends of $20.3 million and $3.1 million in share repurchases to partially offset equity compensation dilution. The remaining cash flow was used to reduce short term borrowings and add to cash balances. Capital expenditures were $6.7 million, $9.1 million and $7.5 million in fiscal 2021, 2020 and 2019, respectively. Capital expenditures for fiscal 2022 are expected to be in the $9.0-11.0 million range, but could vary depending on timing of R&D projects, growth opportunities and the amount of assets purchased. The Company had no short-term borrowings as of the end of 2021 or 2020. At the end of 2021, the Company was in a net cash position of $87.2 million. The Company’s financial condition remains strong. On July 8, 2021, the Company entered into a new credit agreement, replacing its prior facility which was set to expire in September 2021. The credit agreement includes a $150.0 million multi-currency line of credit that supports commercial paper (up to $100.0 million). The facility includes several features that enhance the Company’s financial flexibility including an increase feature, acquisition holiday and favorable financial covenants. The Company was in compliance with all covenants as of December 31, 2021. The Company believes that its operating cash flows, available borrowing capacity, and its ability to raise capital provide adequate resources to fund ongoing operating requirements, future capital expenditures and the development of new products. The Company had $157.1 million of unused credit lines available at December 31, 2021. CONTRACTUAL OBLIGATIONS The Company's significant contractual obligations as of December 31, 2021 are discussed in Note 12 “Leases” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10-K. There are no material undisclosed guarantees. As of December 31, 2021 the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment, which generally have terms of less than 90 days. The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note 7 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10- K. Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.3 million in 2022 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured. 19 APPLICATION OF CRITICAL ACCOUNTING ESTIMATES We believe the following accounting estimates are the most critical to the understanding of our financial statements as they could have the most significant effect on our reported results and require subjective or complex judgments by management. Accounting principles generally accepted in the United States require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Refer to Note 1 in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10- K for information regarding our significant accounting policies. Acquisition – Analytical Technology, Inc. (“ATi”) The accounting for a business combination requires the purchase price for the acquisition to be allocated to the identifiable assets of the acquired entity at fair value. Any unallocated portion is recognized as goodwill. We engaged an independent third-party valuation specialist to assist with the fair value calculation of the intangible assets acquired, including trade names, customer relationships and technologies. This required the use of several assumptions and estimates including the projected financial and cash flow results of ATi, customer attrition rate, forecasted cash flows attributable to existing customers and the discount rate for intangible assets. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates require judgment and are based in part on historical experience and information obtained from management. More information regarding this business combination is contained in Note 3 in the Consolidated Financial Statements. Warranty and After-Sale Costs Our products carry warranties that generally range from one to twenty years and are based on terms that are generally accepted in the market. We provide for the estimated cost of product warranty at the time of sale. The product warranty provision is estimated based upon warranty loss experience using actual historical failure rates and estimated costs of product replacement. The variables used in the calculation of the provision are reviewed at least annually. At times, warranty issues may arise which are beyond the scope of our historical experience. We provide for any such warranty issues as they become known and estimable. The introduction of additional technology, such as our ORION cellular radios, electronic meters and registration, have generally caused our annual warranty claims rates to increase over time. While our warranty costs have historically been within calculated estimates, it is possible that future warranty costs could differ significantly from those estimates. At December 31, 2021 and 2020, our reserve for product warranties was $12.9 million and $11.6 million, respectively. OTHER MATTERS The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to these 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 future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during 2021, 2020 and 2019 were not material. 19 See the “Special Note Regarding Forward Looking Statements” at the front of this Annual Report on Form 10-K and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of risks and uncertainties that could impact the Company's financial performance and results of operations. MARKET RISKS In the ordinary course of business, the Company is exposed to various market risks. The Company operates in an environment where competition varies from moderate to strong. The Company believes it currently provides the leading technology in water meters and radio systems for water utilities. A number of the Company's competitors in certain markets have greater financial resources. Competitors also include alliance partners that sell products that do or may compete with our products. As the global water metering market begins to shift to adopt static metering technology, the number of competitors may increase. We believe new static metering market entrants lack brand recognition and product breadth and do not have the appropriate utility sales channels to meaningfully compete in the North American market. In addition, the market's level of acceptance of the Company's newer product offerings, including the BEACON AMA system, may have a significant effect on the Company's results of operations. As a result of significant research and development activities, the Company enjoys favorable patent positions for several of its products. 20 ordinary course of business related to inventory and property, plant and equipment, which generally have terms of less than 90 days. The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note 7 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10- K. Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.3 million in 2022 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured. APPLICATION OF CRITICAL ACCOUNTING ESTIMATES We believe the following accounting estimates are the most critical to the understanding of our financial statements as they could have the most significant effect on our reported results and require subjective or complex judgments by management. Accounting principles generally accepted in the United States require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Refer to Note 1 in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2021 Annual Report on Form 10- K for information regarding our significant accounting policies. Acquisition – Analytical Technology, Inc. (“ATi”) The accounting for a business combination requires the purchase price for the acquisition to be allocated to the identifiable assets of the acquired entity at fair value. Any unallocated portion is recognized as goodwill. We engaged an independent third-party valuation specialist to assist with the fair value calculation of the intangible assets acquired, including trade names, customer relationships and technologies. This required the use of several assumptions and estimates including the projected financial and cash flow results of ATi, customer attrition rate, forecasted cash flows attributable to existing customers and the discount rate for intangible assets. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates require judgment and are based in part on historical experience and information obtained from management. More information regarding this business combination is contained in Note 3 in the Consolidated Financial Statements. Warranty and After-Sale Costs Our products carry warranties that generally range from one to twenty years and are based on terms that are generally accepted in the market. We provide for the estimated cost of product warranty at the time of sale. The product warranty provision is estimated based upon warranty loss experience using actual historical failure rates and estimated costs of product replacement. The variables used in the calculation of the provision are reviewed at least annually. At times, warranty issues may arise which are beyond the scope of our historical experience. We provide for any such warranty issues as they become known and estimable. The introduction of additional technology, such as our ORION cellular radios, electronic meters and registration, have generally caused our annual warranty claims rates to increase over time. While our warranty costs have historically been within calculated estimates, it is possible that future warranty costs could differ significantly from those estimates. At December 31, 2021 and 2020, our reserve for product warranties was $12.9 million and $11.6 million, respectively. OTHER MATTERS The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to these 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 future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during 2021, 2020 and 2019 were not material. See the “Special Note Regarding Forward Looking Statements” at the front of this Annual Report on Form 10-K and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of risks and uncertainties that could impact the Company's financial performance and results of operations. MARKET RISKS In the ordinary course of business, the Company is exposed to various market risks. The Company operates in an environment where competition varies from moderate to strong. The Company believes it currently provides the leading technology in water meters and radio systems for water utilities. A number of the Company's competitors in certain markets have greater financial resources. Competitors also include alliance partners that sell products that do or may compete with our products. As the global water metering market begins to shift to adopt static metering technology, the number of competitors may increase. We believe new static metering market entrants lack brand recognition and product breadth and do not have the appropriate utility sales channels to meaningfully compete in the North American market. In addition, the market's level of acceptance of the Company's newer product offerings, including the BEACON AMA system, may have a significant effect on the Company's results of operations. As a result of significant research and development activities, the Company enjoys favorable patent positions for several of its products. The Company's ability to generate operating income and to increase profitability depends somewhat on 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; the timing and size of governmental programs such as annual federal funding and periodic stimulus fund programs, as well as the impact of government budget cuts or partial shutdowns of governmental operations; 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. In addition, changes in governmental laws and regulations, particularly laws dealing with the content or handling of materials, customs or trade practices, may impact the results of operations. These factors are largely beyond the Company's control and depend on the economic condition and regulatory environment of the geographic region of the Company's operations. 20 The Company relies on single suppliers for certain castings and components in several of its product lines. Although alternate sources of supply exist for these items, the loss of certain suppliers could temporarily disrupt operations 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. Raw materials used in the manufacture of the Company's products include purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, glass, microprocessors and other electronic subassemblies, and components. The Company does not hold significant amounts of precious metals. The price and availability of raw materials is influenced by economic and industry conditions, including supply and demand factors that are difficult to anticipate and cannot be controlled by the Company. Commodity risk is managed by keeping abreast of economic conditions and locking in purchase prices for quantities that correspond to the Company's forecasted usage. The Company's foreign currency risk relates to the sales of products to foreign customers and purchases of material from foreign vendors. The Company uses lines of credit with U.S. and European banks to offset currency exposure related to European receivables and other monetary assets. The Company believes the effect of a change in foreign currency rates will not have a material adverse effect on the Company's financial position or results of operations, either from a cash flow perspective or on the financial statements as a whole. The Company typically does not hold or issue derivative instruments and has a policy specifically prohibiting the use of such instruments for trading purposes. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item is set forth in Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risks” in this 2021 Annual Report on Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA 20 BADGER METER, INC. Management's Annual Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021 using the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, the Company's management believes that, as of December 31, 2021, the Company's internal control over financial reporting was effective based on those criteria. Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of the Company's internal control over financial reporting. 21 The Company's ability to generate operating income and to increase profitability depends somewhat on 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; the timing and size of governmental programs such as annual federal funding and periodic stimulus fund programs, as well as the impact of government budget cuts or partial shutdowns of governmental operations; 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. In addition, changes in governmental laws and regulations, particularly laws dealing with the content or handling of materials, customs or trade practices, may impact the results of operations. These factors are largely beyond the Company's control and depend on the economic condition and regulatory environment of the geographic region of the Company's operations. The Company relies on single suppliers for certain castings and components in several of its product lines. Although alternate sources of supply exist for these items, the loss of certain suppliers could temporarily disrupt operations 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. Raw materials used in the manufacture of the Company's products include purchased castings made of metal or alloys (such as brass, which uses copper as its main component, aluminum, stainless steel and cast iron), plastic resins, glass, microprocessors and other electronic subassemblies, and components. The Company does not hold significant amounts of precious metals. The price and availability of raw materials is influenced by economic and industry conditions, including supply and demand factors that are difficult to anticipate and cannot be controlled by the Company. Commodity risk is managed by keeping abreast of economic conditions and locking in purchase prices for quantities that correspond to the Company's forecasted usage. The Company's foreign currency risk relates to the sales of products to foreign customers and purchases of material from foreign vendors. The Company uses lines of credit with U.S. and European banks to offset currency exposure related to European receivables and other monetary assets. The Company believes the effect of a change in foreign currency rates will not have a material adverse effect on the Company's financial position or results of operations, either from a cash flow perspective or on the financial statements as a whole. The Company typically does not hold or issue derivative instruments and has a policy specifically prohibiting the use of such instruments for trading purposes. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item is set forth in Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risks” in this 2021 Annual Report on Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA BADGER METER, INC. Management's Annual Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021 using the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, the Company's management believes that, as of December 31, 2021, the Company's internal control over financial reporting was effective based on those criteria. Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of the Company's internal control over financial reporting. 21 21 BADGER METER, INC. Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Badger Meter, Inc. Opinion on Internal Control over Financial Reporting We have audited Badger Meter, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Badger Meter, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 23, 2022, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Milwaukee, Wisconsin February 23, 2022 22 23 BADGER METER, INC. BADGER METER, INC. Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Badger Meter, Inc. To the Shareholders and the Board of Directors of Badger Meter, Inc. Opinion on the Financial Statements Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Badger Meter, Inc. (the Company) as of December 31, We have audited the accompanying consolidated balance sheets of Badger Meter, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2022 expressed an unqualified opinion thereon. framework) and our report dated February 23, 2022 expressed an unqualified opinion thereon. Basis for Opinion Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters do not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by critical audit matters do not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. to which they relate. Description of the Description of the Matter Matter Warranty and After-Sale Costs Reserve Warranty and After-Sale Costs Reserve As described in Note 1 to the consolidated financial statements, the Company estimates and records provisions As described in Note 1 to the consolidated financial statements, the Company estimates and records provisions for warranties and other after-sale costs. Warranty provisions are recorded in the period of sale, using for warranties and other after-sale costs. Warranty provisions are recorded in the period of sale, using historical claims data revised for recent trending and expectations to estimate future warranty costs. After-sale historical claims data revised for recent trending and expectations to estimate future warranty costs. After-sale costs represent costs expected to be incurred related to specifically identified product issues as well as costs represent costs expected to be incurred related to specifically identified product issues as well as activities outside the written warranty policy and are estimated by the Company based on the individual facts activities outside the written warranty policy and are estimated by the Company based on the individual facts and circumstances. The Company’s accrued liability was $12.9 million as of December 31, 2021, representing and circumstances. The Company’s accrued liability was $12.9 million as of December 31, 2021, representing its best estimate of the expected warranty and after-sale costs. its best estimate of the expected warranty and after-sale costs. Auditing management's estimates for warranty and after-sale costs involved significant auditor judgment Auditing management's estimates for warranty and after-sale costs involved significant auditor judgment because the reserve for warranty and after-sale costs requires the Company to estimate future claims. The because the reserve for warranty and after-sale costs requires the Company to estimate future claims. The calculation to estimate future claims includes a number of inputs and assumptions, the most significant of calculation to estimate future claims includes a number of inputs and assumptions, the most significant of which include the number and type of claims, an evaluation of warranty trends, consideration of product which include the number and type of claims, an evaluation of warranty trends, consideration of product developments, and estimates of future costs to replace or repair specifically identified items. developments, and estimates of future costs to replace or repair specifically identified items. 23 24 24 How We Addressed the Matter in Our How We Addressed Audit the Matter in Our Audit We evaluated the design and tested the operating effectiveness of internal controls over the Company's We evaluated the design and tested the operating effectiveness of internal controls over the Company's warranty and after-sale costs reserve process, including management's assessment of the assumptions and data underlying the projection of future warranty and after-sale costs. warranty and after-sale costs reserve process, including management's assessment of the assumptions and data underlying the projection of future warranty and after-sale costs. Our substantive audit procedures included, among others, evaluating the significant assumptions discussed above and the accuracy and completeness of the underlying data used in management's warranty and after- Our substantive audit procedures included, among others, evaluating the significant assumptions discussed sales costs reserve calculation. We evaluated the historical activity used to develop the lag calculation, above and the accuracy and completeness of the underlying data used in management's warranty and after- including reviewing the data for any developing trends in the claims data, considered the impact of product sales costs reserve calculation. We evaluated the historical activity used to develop the lag calculation, developments on the calculation, and evaluated the cost build up for any specific reserve items, including including reviewing the data for any developing trends in the claims data, considered the impact of product procedures to support the completeness of the number and type of products impacted and the estimated future developments on the calculation, and evaluated the cost build up for any specific reserve items, including cost to repair or replace the products. We assessed the historical accuracy of management's estimates by procedures to support the completeness of the number and type of products impacted and the estimated future comparing the warranty and after-sale costs reserve in prior years to the actual claims paid in the subsequent cost to repair or replace the products. We assessed the historical accuracy of management's estimates by years. We assessed management’s methodology and tested the valuation of the warranty and after-sale costs comparing the warranty and after-sale costs reserve in prior years to the actual claims paid in the subsequent reserve by developing an independent expectation for the reserve based on the historical amounts recorded as years. We assessed management’s methodology and tested the valuation of the warranty and after-sale costs a percentage of sales and compared our expectation to the amount recorded by management. We evaluated the reserve by developing an independent expectation for the reserve based on the historical amounts recorded as completeness of the reserve estimate for known warranty claims or product issues based on our review of a percentage of sales and compared our expectation to the amount recorded by management. We evaluated the after-sales costs and through inquiries of operational and executive management and evaluated whether completeness of the reserve estimate for known warranty claims or product issues based on our review of specific product issues were appropriately considered in the determination of the warranty and after-sale costs after-sales costs and through inquiries of operational and executive management and evaluated whether reserve. specific product issues were appropriately considered in the determination of the warranty and after-sale costs reserve. Accounting for Acquisitions – Valuation of Analytical Technology, Inc. Intangible Assets Accounting for Acquisitions – Valuation of Analytical Technology, Inc. Intangible Assets Description of the Matter Description of the Matter As discussed in Note 3 to the financial statements, during 2021, the Company completed its acquisition of Analytical Technology, Inc. (“ATi”) for consideration of $44 million, net of cash acquired. The transaction was As discussed in Note 3 to the financial statements, during 2021, the Company completed its acquisition of accounted for using the guidance under ASC 805, Business Combinations. Analytical Technology, Inc. (“ATi”) for consideration of $44 million, net of cash acquired. The transaction was accounted for using the guidance under ASC 805, Business Combinations. Auditing the Company's accounting for its acquisition of ATi was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of identified intangible assets of $21.0 million, Auditing the Company's accounting for its acquisition of ATi was complex due to the significant estimation which principally consisted of developed technology, customer relationships, and trademarks. The significant uncertainty in the Company’s determination of the fair value of identified intangible assets of $21.0 million, estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying which principally consisted of developed technology, customer relationships, and trademarks. The significant assumptions about the future performance of the acquired business. The significant assumptions used to estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of assumptions about the future performance of the acquired business. The significant assumptions used to the forecasted results (including revenue growth rates, attrition rates and royalty rates). These assumptions are estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of forward looking and could be affected by future economic and market conditions. the forecasted results (including revenue growth rates, attrition rates and royalty rates). These assumptions are forward looking and could be affected by future economic and market conditions. We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company's controls over its accounting for acquisitions. For example, we tested controls over the estimation process We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company's supporting the measurement of developed technology, customer relationships, and trademark intangible assets, controls over its accounting for acquisitions. For example, we tested controls over the estimation process including management’s review of the significant assumptions used in the valuation models. supporting the measurement of developed technology, customer relationships, and trademark intangible assets, including management’s review of the significant assumptions used in the valuation models. To test the estimated fair value of the developed technology, customer relationships, and trademark intangible assets, our audit procedures included, among others, evaluating the Company's valuation methodology, and To test the estimated fair value of the developed technology, customer relationships, and trademark intangible testing the significant assumptions discussed above including the completeness and accuracy of the underlying assets, our audit procedures included, among others, evaluating the Company's valuation methodology, and data supporting the significant assumptions and estimates. We compared the revenue growth rates to third-party testing the significant assumptions discussed above including the completeness and accuracy of the underlying industry projections and to the historical performance of the acquired business. We involved our valuation data supporting the significant assumptions and estimates. We compared the revenue growth rates to third-party specialists to assist with our evaluation of the methodology used by the Company and significant assumptions industry projections and to the historical performance of the acquired business. We involved our valuation included in the fair value estimates. For example, we evaluated the discount rates by comparing them to specialists to assist with our evaluation of the methodology used by the Company and significant assumptions discount rate ranges that were independently developed using publicly available market data for comparable included in the fair value estimates. For example, we evaluated the discount rates by comparing them to peers. We also compared the customer attrition rates to historical customer retention rates and the royalty rate to discount rate ranges that were independently developed using publicly available market data for comparable relevant comparable licensing agreements. peers. We also compared the customer attrition rates to historical customer retention rates and the royalty rate to relevant comparable licensing agreements. How We Addressed the How We Matter in Our Addressed the Audit Matter in Our Audit /s/ Ernst & Young LLP /s/ Ernst & Young LLP We have served as Badger Meter, Inc.’s auditor since 1927. We have served as Badger Meter, Inc.’s auditor since 1927. Milwaukee, Wisconsin February 23, 2022 Milwaukee, Wisconsin February 23, 2022 24 25 25 BADGER METER, INC. Consolidated Balance Sheets December 31, 2021 2020 (In thousands) Assets Current assets: Cash Receivables Inventories: Finished goods Work in process Raw materials Total inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, at cost: Land and improvements Buildings and improvements Machinery and equipment Less accumulated depreciation Net property, plant and equipment Intangible assets, at cost less accumulated amortization Other assets Deferred income taxes Goodwill Total assets Liabilities and Shareholders’ Equity Current liabilities: Payables Accrued compensation and employee benefits Warranty and after-sale costs Other current liabilities Total current liabilities Other long-term liabilities Deferred income taxes Accrued non-pension postretirement benefits Other accrued employee benefits Commitments and contingencies (Note 6) Shareholders’ equity: Common Stock, $1 par; authorized 40,000,000 shares; issued 37,221,098 shares in 2021 and 2020 Capital in excess of par value Reinvested earnings Accumulated other comprehensive income Less: Treasury stock, at cost; 7,971,367 shares in 2021 and 8,075,280 shares in 2020 Total shareholders’ equity Total liabilities and shareholders’ equity $ $ $ $ 87,174 $ 65,866 25,991 24,747 48,873 99,611 8,709 261,360 9,183 71,103 136,510 216,796 (138,746 ) 78,050 64,176 15,390 7,529 104,313 530,818 $ 41,859 $ 20,644 12,868 6,775 82,146 29,804 5,385 5,214 5,199 37,221 49,224 353,535 136 (37,046 ) 403,070 530,818 $ 72,273 61,689 24,881 16,841 39,864 81,586 8,140 223,688 9,156 69,700 138,548 217,404 (134,699 ) 82,705 53,598 17,428 5,090 88,708 471,217 34,923 14,617 11,617 6,879 68,036 26,381 5,696 5,789 4,056 37,221 44,964 314,850 1,313 (37,089 ) 361,259 471,217 See accompanying notes. 25 26 BADGER METER, INC. Consolidated Statements of Operations 2021 Years ended December 31, 2020 (In thousands except per share amounts) 2019 Net sales Cost of sales Gross margin Selling, engineering and administration Operating earnings Interest (income) expense, net Other pension and postretirement costs Earnings before income taxes Provision for income taxes Net earnings Earnings per share: Basic Diluted Shares used in computation of earnings per share: Basic Impact of dilutive securities Diluted $ $ $ $ 505,198 $ 299,714 205,484 126,761 78,723 (20 ) 120 78,623 17,739 60,884 $ 425,544 $ 257,295 168,249 103,093 65,156 30 145 64,981 15,638 49,343 $ 2.09 $ 2.08 $ 1.70 $ 1.69 $ 29,144 194 29,338 29,052 178 29,230 424,625 261,097 163,528 101,380 62,148 253 288 61,607 14,430 47,177 1.63 1.61 29,028 192 29,220 See accompanying notes. BADGER METER, INC. Consolidated Statements of Comprehensive Income Net earnings Other comprehensive income : Foreign currency translation adjustment Pension and postretirement benefits, net of tax Comprehensive income 2021 Years ended December 31, 2020 (In thousands) 2019 $ 60,884 $ 49,343 $ 47,177 (1,516 ) 339 59,707 $ 1,096 (208 ) 50,231 $ (58 ) (97 ) 47,022 $ See accompanying notes. 26 27 28 BADGER METER, INC. Consolidated Statements of Cash Flows Operating activities: Net earnings Adjustments to reconcile net earnings to net cash provided by operations: Depreciation Amortization Deferred income taxes Noncurrent employee benefits Stock-based compensation expense Changes in: Receivables Inventories Payables Prepaid expenses and other current assets Other liabilities Total adjustments Net cash provided by operations Investing activities: Property, plant and equipment additions Proceeds from company owned life insurance plans Acquisitions, net of cash acquired Net cash used for investing activities Financing activities: Net decrease in short-term debt Payment of contingent acquisition consideration Dividends paid Proceeds from exercise of stock options Purchase of common stock for treasury stock Issuance of treasury stock Net cash used for financing activities Effect of foreign exchange rates on cash Increase in cash Cash and cash equivalents — beginning of year Cash and cash equivalents — end of year Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes Interest 2021 Years ended December 31, 2020 (In thousands) 2019 $ 60,884 $ 49,343 $ 47,177 11,291 16,571 (3,055 ) (234 ) 2,330 (1,240 ) (13,633 ) 7,005 (8,281 ) 15,872 26,626 87,510 (6,746 ) 596 (45,273 ) (51,423 ) — — (22,155 ) 2,036 (460 ) 72 (20,507 ) (679 ) 14,901 72,273 87,174 $ 12,253 12,963 (3,082 ) 206 1,415 3,036 5,129 (391 ) (3,522 ) 12,228 40,235 89,578 (9,059 ) — (29,134 ) (38,193 ) (4,600 ) (1,001 ) (20,340 ) 1,058 (3,116 ) 180 (27,819 ) (164 ) 23,402 48,871 72,273 $ 11,569 12,577 (1,524 ) (40 ) 1,214 5,451 (1,220 ) 11,642 (7,732 ) 1,600 33,537 80,714 (7,496 ) — — (7,496 ) (13,500 ) (2,555 ) (18,595 ) 1,961 (5,207 ) 187 (37,709 ) 276 35,785 13,086 48,871 19,981 $ 118 $ 17,995 $ 91 $ 13,066 268 $ $ $ See accompanying notes. 27 29 BADGER METER, INC. Consolidated Statements of Shareholders’ Equity Common Stock at $1 par value* Capital in excess of par value Years ended December 31, Accumulated other comprehensive income Reinvested earnings (loss) (In thousands except per share amounts) Employee benefit stock Treasury stock Total $ 37,198 $ 38,082 $ 257,313 $ — 47,177 — 580 $ — (306 ) $ (29,364 ) $ 303,503 — 47,177 — — — — 2 — — — — — — — — — (18,611 ) — — — — — 37,200 41,956 285,879 — 49,343 1,708 401 1,214 — 551 — — — — 21 — — — — — — — — — (20,372 ) — — — — — 37,221 44,964 314,850 — 60,884 877 280 1,415 — 436 — — — — — — — — — — — — — (22,199 ) — — — — $ 37,221 $ 49,224 $ 353,535 $ 1,622 2,330 — 308 (97 ) (58 ) — — — — — — 425 — (208 ) 1,096 — — — — — — 1,313 — 339 (1,516 ) — — — — — 136 $ — — — — 152 — — — (97 ) — — (58 ) — (18,611 ) 1,961 553 1,214 (5,207 ) 633 (154 ) (34,238 ) 331,068 — 49,343 251 — — (5,207 ) 82 — — — — — 154 (208 ) — — 1,096 — (20,372 ) 1,058 160 434 — 1,415 — (3,116 ) (3,116 ) — — 541 105 — (37,089 ) 361,259 — 60,884 — 339 — — — (1,516 ) — — (22,199 ) — 2,036 — 2,330 — (460 ) — — 397 — $ (37,046 ) $ 403,070 414 — (460 ) 89 Balance, December 31, 2018 Net earnings Pension and postretirement benefits (net of $16 tax effect) Foreign currency translation Cash dividends of $0.64 per share Stock options exercised ESSOP transactions Stock-based compensation Purchase of common stock for treasury stock Issuance of treasury stock (72 shares) Balance, December 31, 2019 Net earnings Pension and postretirement benefits (net of $69 tax effect) Foreign currency translation Cash dividends of $0.70 per share Stock options exercised ESSOP transactions Stock-based compensation Purchase of common stock for treasury stock Issuance of treasury stock (22 shares) Balance, December 31, 2020 Net earnings Pension and postretirement benefits (net of ($112) tax effect) Foreign currency translation Cash dividends of $0.76 per share Stock options exercised Stock-based compensation Purchase of common stock for treasury stock Issuance of treasury stock (19 shares) Balance, December 31, 2021 * 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. 28 30 BADGER METER, INC. BADGER METER, INC. Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Note 1 Basis of Presentation and Accounting Policies Note 1 Basis of Presentation and Accounting Policies Profile Profile With more than a century of water technology innovation, Badger Meter is a global provider of industry leading water 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 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 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, 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 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 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, software and related data parameters. The Company’s product lines fall into two categories: sales of water meters, radios, software and related technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing instruments, valves, software and other solutions for industrial applications in water, wastewater, and other industries (flow instruments, valves, software and other solutions for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that over 90% of its products are used in water related applications. instrumentation). The Company estimates that over 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 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 with the related radio and software technologies and services used by water utilities as the basis for generating their water and wastewater revenues, enabling operating efficiencies and engaging with their end consumers. It further comprises other sensor wastewater revenues, enabling operating efficiencies and engaging with their end consumers. 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 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 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, 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 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, Water Works Association. The majority of water meters sold by the Company continue to be mechanical in nature; however, static meters are an increasing percentage of the water meters sold by the Company and in the industry, due to a variety of static 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 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 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. 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. 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 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, and other liquids and gases. These products are used in a fluids going through a pipe or pipeline including water, air, steam, 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 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 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 equipment manufacturers as the primary flow measurement device within a product or system, as well as through manufacturers’ representatives. manufacturers’ representatives. Consolidation Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform intercompany transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to current year presentation. to current year presentation. Receivables Receivables Receivables consist primarily of trade receivables. The Company does not require collateral or other security and 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 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, 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 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: accounts are as follows: 2021 2021 2020 2020 2019 2019 552 $ 552 $ 224 224 360 360 $ $ 29 31 31 Balance at beginning Balance at of year beginning of year Provision and reserve Provision and adjustments reserve adjustments Write-offs less recoveries Write-offs less recoveries Balance at end of year Balance at end of year (In thousands) (In thousands) 191 $ 191 $ 356 356 (132 ) (132 ) (46 ) $ (46 ) $ (28 ) (28 ) (4 ) (4 ) 697 697 552 552 224 224 Inventories 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: 2021 2020 2019 Property, Plant and Equipment Balance at beginning of year Net additions charged to earnings Disposals Balance at end of year $ 6,400 $ 5,440 4,131 (In thousands) 1,329 $ 2,964 2,663 (1,651 ) $ (2,004 ) (1,354 ) 6,078 6,400 5,440 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 Software and Hardware Capitalized internal use software and hardware included in other assets in the Consolidated Balance Sheets were $5.6 million and $6.0 million at December 31, 2021 and 2020, 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, 2021, 2020 and 2019 was $4.5 million, $3.7 million and $3.1 million, respectively. Long-Lived Assets 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 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 was $10.0 million in 2021 and $7.2 million in 2020 and 2019. Amortization expense expected to be recognized is $8.7 million in 2022 and $8.1 in 2023, $8.0 million in 2024, $7.7 million in 2025, $6.6 million in 2026 and $25.1 million thereafter. The carrying value and accumulated amortization by major class of intangible assets are as follows: Technologies Intellectual property Non-compete agreements Licenses Customer lists Customer relationships Trade names Total intangibles December 31, 2021 December 31, 2020 Gross carrying amount Accumulated amortization Gross carrying amount Accumulated amortization $ $ 58,789 $ 10,169 748 650 8,083 39,202 16,050 133,691 $ (In thousands) 34,254 $ 2,744 506 543 4,501 19,663 7,304 69,515 $ 52,536 $ 10,000 931 650 8,023 28,630 12,136 112,906 $ 30,598 1,833 413 526 3,846 16,146 5,946 59,308 30 32 Goodwill 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 2021, 2020 and 2019. Goodwill was $104.3 million at December 31, 2021, $88.7 million in 2020 and $71.3 million in 2019. The increase from 2020 to 2021 resulted from the acquisition of ATi, headquartered in Collegeville, Pennsylvania in 2021. The increase from 2019 to 2020 resulted from the acquisition of s::can, headquartered in Vienna, Austria in 2020. These acquisitions are further described in Note 3 “Acquisitions”. 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 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: 2021 2020 2019 Research and Development Balance at beginning of year Provision of acquired business Net additions charged to earnings (In thousands) Costs incurred Balance at end of year $ 11,617 $ 5,583 4,206 — $ 500 — 5,856 $ 7,855 6,616 (4,605 ) $ (2,321 ) (5,239 ) 12,868 11,617 5,583 Research and development costs are charged to expense as incurred and amounted to $14.7 million in 2021, $11.6 million in 2020 and $11.9 million in 2019. Healthcare 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. Accumulated Other Comprehensive Income Components of accumulated other comprehensive income at December 31, 2021 are as follows: Pension and postretirement benefits Foreign currency Total Balance at beginning of period Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income, net of tax of ($112) Net current period other comprehensive income (loss), net Accumulated other comprehensive income $ $ (In thousands) 55 $ — 1,258 $ (1,516 ) 339 339 394 $ — (1,516 ) (258 ) $ 1,313 (1,516 ) 339 (1,177 ) 136 Reclassifications out of accumulated other comprehensive income during 2021 are immaterial. 31 33 Components of accumulated other comprehensive income at December 31, 2020 are as follows: Pension and postretirement benefits Foreign currency (In thousands) Total Balance at beginning of period Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income, net of tax of $69 Net current period other comprehensive (loss) income, net Accumulated other comprehensive income $ $ 263 $ — (208 ) (208 ) 55 $ 162 $ 1,096 — 1,096 1,258 $ 425 1,096 (208 ) 888 1,313 Reclassifications out of accumulated other comprehensive income during 2020 were immaterial. Use of Estimates 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. Fair Value Measurements of Financial Instruments 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. 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. 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 the accompanying financial statements were issued. Recently Adopted Accounting Pronouncements 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, the impact of which was not significant to the Company. Note 2 Common Stock Common Stock The authorized common stock of the Company as of December 31, 2021 consisted of 40,000,000 shares of common stock, $1 par value, of which 37,221,098 were issued and outstanding as of December 31, 2021 and 2020, respectively. Stock Options There were no anti-dilutive options in 2021 and 2020. Stock options to purchase 54,139 shares in 2019 were not included in the computation of dilutive securities because their inclusion would have been anti-dilutive. 32 34 Note 3 Acquisitions 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 acquisitions did not have a material impact on the Company's consolidated financial statements or the notes thereto. Effective January 1, 2021, the Company acquired 100% of the outstanding stock of ATi, headquartered in Collegeville, Pennsylvania, a provider of water quality monitoring systems. The total purchase consideration for ATi, net of cash acquired, was $44.0 million. The Company's allocation of the purchase price at December 31, 2021 included $3.9 million of receivables, $3.9 million of inventory, $2.5 million of other assets, $21.0 million of intangibles and $16.4 million of goodwill that is deductible for tax purposes. The intangible assets acquired are primarily customer relationships, developed technology and trademarks with estimated average useful lives of 12 to 15 years. The Company also assumed $1.4 million of accounts payable, $0.6 million of deferred tax liabilities and $1.7 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. Effective November 2, 2020, the Company acquired 100% of the outstanding stock of s::can headquartered in Vienna, Austria. s::can specializes in optical water quality sensing solutions that provide real-time measurement of a variety of parameters in water and wastewater utilizing in-line monitoring systems and other applications. The total purchase consideration for s::can, net of cash acquired, was $30.5 million, inclusive of $1.3 million of working capital adjustments. The Company's allocation of the purchase price at December 31, 2021 included $2.6 million of receivables, $4.3 million of inventory, $1.2 million of other assets, $12.7 million of intangibles and $17.7 million of goodwill that is not deductible for tax purposes. The intangible assets acquired are primarily customer relationships and developed technology with an estimated average useful life of 12 years. The Company also assumed $3.5 million of accounts payable, $3.2 million of deferred tax liabilities and $1.3 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. Note 4 Short-term Debt and Credit Lines The Company did not have short-term debt at December 31, 2021 and 2020. On July 8, 2021, the Company entered into a new credit agreement, replacing its prior facility which was set to expire in September 2021. The credit agreement includes a $150.0 million multi-currency line of credit that supports commercial paper (up to $100.0 million). The facility includes several features that enhance the Company’s financial flexibility including an increase feature, acquisition holiday and favorable financial covenants. The Company was in compliance with all covenants as of December 31, 2021. The Company had $157.1 million of unused credit lines available at December 31, 2021. Note 5 Stock Compensation As of December 31, 2021, the Company has an Omnibus Incentive Plan under which 1,000,000 shares are reserved for restricted stock, performance shares and stock options grants for employees, as well as stock grants for directors. The plan was approved in 2021 and replaced all prior stock-based plans except for shares and options previously issued under those plans. As of December 31, 2021 there were 994,119 shares of the Company’s Common Stock available for grant under the 2021 Omnibus Incentive Plan. The Company recognizes the cost of stock-based awards in net earnings for all of its stock-based compensation plans on a straight-line basis over the service period of the awards. The following sections describe the four types of grants in more detail. Stock Options The Company estimates the fair value of its option awards using the Black-Scholes option-pricing formula, and records compensation expense for stock options ratably over the stock option grant’s vesting period. Stock option compensation expense recognized by the Company for the year ended December 31, 2021 and 2020 was $0.4 million and $0.3 million in 2019. No new stock options were granted in 2021. 33 35 Note 3 Acquisitions 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 acquisitions did not have a material impact on the Company's consolidated financial statements or the notes thereto. Effective January 1, 2021, the Company acquired 100% of the outstanding stock of ATi, headquartered in Collegeville, Pennsylvania, a provider of water quality monitoring systems. The total purchase consideration for ATi, net of cash acquired, was $44.0 million. The Company's allocation of the purchase price at December 31, 2021 included $3.9 million of receivables, $3.9 million of inventory, $2.5 million of other assets, $21.0 million of intangibles and $16.4 million of goodwill that is deductible for tax purposes. The intangible assets acquired are primarily customer relationships, developed technology and trademarks with estimated average useful lives of 12 to 15 years. The Company also assumed $1.4 million of accounts payable, $0.6 million of deferred tax liabilities and $1.7 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. Effective November 2, 2020, the Company acquired 100% of the outstanding stock of s::can headquartered in Vienna, Austria. s::can specializes in optical water quality sensing solutions that provide real-time measurement of a variety of parameters in water and wastewater utilizing in-line monitoring systems and other applications. The total purchase consideration for s::can, net of cash acquired, was $30.5 million, inclusive of $1.3 million of working capital adjustments. The Company's allocation of the purchase price at December 31, 2021 included $2.6 million of receivables, $4.3 million of inventory, $1.2 million of other assets, $12.7 million of intangibles and $17.7 million of goodwill that is not deductible for tax purposes. The intangible assets acquired are primarily customer relationships and developed technology with an estimated average useful life of 12 years. The Company also assumed $3.5 million of accounts payable, $3.2 million of deferred tax liabilities and $1.3 million of other liabilities as part of the acquisition. The allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of December 31, 2021, the Company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. Note 4 Short-term Debt and Credit Lines The Company did not have short-term debt at December 31, 2021 and 2020. On July 8, 2021, the Company entered into a new credit agreement, replacing its prior facility which was set to expire in September 2021. The credit agreement includes a $150.0 million multi-currency line of credit that supports commercial paper (up to $100.0 million). The facility includes several features that enhance the Company’s financial flexibility including an increase feature, acquisition holiday and favorable financial covenants. The Company was in compliance with all covenants as of December 31, 2021. The Company had $157.1 million of unused credit lines available at December 31, 2021. Note 5 Stock Compensation As of December 31, 2021, the Company has an Omnibus Incentive Plan under which 1,000,000 shares are reserved for restricted stock, performance shares and stock options grants for employees, as well as stock grants for directors. The plan was approved in 2021 and replaced all prior stock-based plans except for shares and options previously issued under those plans. As of December 31, 2021 there were 994,119 shares of the Company’s Common Stock available for grant under the 2021 Omnibus Incentive Plan. The Company recognizes the cost of stock-based awards in net earnings for all of its stock-based compensation plans on a straight-line basis over the service period of the awards. The following sections describe the four types of grants in more detail. Stock Options The Company estimates the fair value of its option awards using the Black-Scholes option-pricing formula, and records compensation expense for stock options ratably over the stock option grant’s vesting period. Stock option compensation expense recognized by the Company for the year ended December 31, 2021 and 2020 was $0.4 million and $0.3 million in 2019. No new stock options were granted in 2021. The following table summarizes the transactions of the Company’s stock option plans for the three-year period ended December 31, 2021: 35 Number of shares Weighted- average exercise price Options outstanding - December 31, 2018 Options granted Options exercised Options forfeited Options outstanding - December 31, 2019 Options granted Options exercised Options forfeited Options outstanding - December 31, 2020 Options exercised Options outstanding - December 31, 2021 Exercisable options — December 31, 2019 December 31, 2020 December 31, 2021 376,900 $ 34,926 (66,969 ) (7,525 ) 337,332 $ 41,807 $ (55,716 ) (7,229 ) 316,194 $ (88,932 ) $ 227,262 $ 271,252 $ 235,829 170,484 28.95 59.44 29.29 38.81 31.82 62.76 18.99 50.19 37.75 22.89 43.56 27.17 30.82 38.31 The following assumptions were used for valuing options granted in the year ended December 31, 2020: Per share fair value of options granted during the period Risk-free interest rate Dividend yield Volatility factor Weighted-average expected life in years $ 17.49 0.64 % 1.05 % 30.0 % 7.0 The weighted-average contractual life remaining for options outstanding as of December 31, 2021 was 4.7 years. The expected life is based on historical exercise behavior and the projected exercise of unexercised stock options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected dividend yield is based on the expected annual dividends divided by the grant date market value of the Company’s Common Stock. The expected volatility is based on the historical volatility of the Company’s Common Stock. The following table summarizes the aggregate intrinsic value related to options exercised, outstanding and exercisable as of and for the years ended December 31: Exercised Outstanding Exercisable Director Stock Grant 34 $ 2021 2020 2019 (In thousands) 7,085 $ 14,316 11,635 3,054 $ 17,805 14,913 1,870 11,170 10,243 As of December 31, 2021, the unrecognized compensation cost related to stock options was approximately $0.7 million, which will be recognized over a weighted average period of 2.6 years. Non-employee directors receive an annual award of $60,000 worth of restricted shares of the Company’s Common Stock under the shareholder-approved 2021 Omnibus Incentive Plan. The Company values stock grants for directors at the closing price of the Company’s stock on the day the grant was awarded. The Company records compensation expense for this plan ratably over the annual service period beginning May 1. Director stock compensation expense recognized by the Company for the years ended December 31, 2021 was $0.3 million compared to $0.4 million in 2020 and $0.3 million in 2019. As of December 31, 2021, the unrecognized compensation cost related to the director stock award that is expected to be recognized over the remaining four months is estimated to be approximately $0.1 million. 36 The following table summarizes the transactions of the Company’s stock option plans for the three-year period ended December 31, 2021: Options outstanding - December 31, 2018 Options outstanding - December 31, 2019 Options granted Options exercised Options forfeited Options granted Options exercised Options forfeited Options outstanding - December 31, 2020 Options exercised Options outstanding - December 31, 2021 Exercisable options — December 31, 2019 December 31, 2020 December 31, 2021 Number of shares Weighted- average exercise price 376,900 $ 34,926 (66,969 ) (7,525 ) 337,332 $ 41,807 $ (55,716 ) (7,229 ) 316,194 $ (88,932 ) $ 227,262 $ 271,252 $ 235,829 170,484 28.95 59.44 29.29 38.81 31.82 62.76 18.99 50.19 37.75 22.89 43.56 27.17 30.82 38.31 The following assumptions were used for valuing options granted in the year ended December 31, 2020: Per share fair value of options granted during the period Risk-free interest rate Dividend yield Volatility factor Weighted-average expected life in years $ 17.49 0.64 % 1.05 % 30.0 % 7.0 The weighted-average contractual life remaining for options outstanding as of December 31, 2021 was 4.7 years. The expected life is based on historical exercise behavior and the projected exercise of unexercised stock options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected dividend yield is based on the expected annual dividends divided by the grant date market value of the Company’s Common Stock. The expected volatility is based on the historical volatility of the Company’s Common Stock. The following table summarizes the aggregate intrinsic value related to options exercised, outstanding and exercisable as of and for the years ended December 31: Exercised Outstanding Exercisable $ 2021 2020 2019 (In thousands) 7,085 $ 14,316 11,635 3,054 $ 17,805 14,913 1,870 11,170 10,243 As of December 31, 2021, the unrecognized compensation cost related to stock options was approximately $0.7 million, which will be recognized over a weighted average period of 2.6 years. Director Stock Grant Non-employee directors receive an annual award of $60,000 worth of restricted shares of the Company’s Common Stock under the shareholder-approved 2021 Omnibus Incentive Plan. The Company values stock grants for directors at the closing price of the Company’s stock on the day the grant was awarded. The Company records compensation expense for this plan ratably over the annual service period beginning May 1. Director stock compensation expense recognized by the Company for the years ended December 31, 2021 was $0.3 million compared to $0.4 million in 2020 and $0.3 million in 2019. As of December 31, 2021, the unrecognized compensation cost related to the director stock award that is expected to be recognized over the remaining four months is estimated to be approximately $0.1 million. Restricted Stock The Company periodically issues nonvested shares of the Company's Common Stock to certain eligible 36 employees. The Company values restricted stock on the closing price of the Company's stock on the day the grant was awarded. The Company records compensation expense for this plan ratably over the vesting periods. Restricted stock compensation expense recognized by the Company for the year ended December 31, 2021 was $1.4 million compared to $1.0 million in 2020 and $0.9 million in 2019. The fair value of nonvested shares is determined based on the market price of the shares on the grant date. Nonvested at December 31, 2018 Granted Vested Forfeited Nonvested at December 31, 2019 Granted Vested Forfeited Nonvested at December 31, 2020 Granted Vested Forfeited Nonvested at December 31, 2021 Shares Fair value per share 72,802 $ 16,034 (19,227 ) (5,129 ) 64,480 $ 20,758 (25,044 ) (2,645 ) 57,549 $ 17,430 (16,528 ) (1,384 ) 57,067 $ 42.58 59.42 30.08 41.31 48.21 64.19 39.87 54.35 57.33 99.90 49.31 58.68 72.62 35 As of December 31, 2021, there was $2.0 million of unrecognized compensation cost related to nonvested restricted stock that is expected to be recognized over a weighted average period of 1.8 years. Performance Share Units Beginning in 2021, the Company periodically issues performance share units to certain eligible employees. Recipients of performance share grants are eligible to receive shares of our common stock depending upon the level of our total adjusted free cash flow conversion and adjusted return on invested capital (ROIC) as measured over a three-year performance period. The number of shares earned for awards granted in fiscal 2021 will range from 50% to 200% of the targeted number of performance shares for the three-year performance period ending December 31, 2023 and will vest, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period. Performance share compensation expense recognized by the Company for the year ended December 31, 2021 was $0.6 million. A summary of performance share activity for the year ended December 31, 2021 is as follows: Nonvested at December 31, 2020 Granted Adjustment for expected performance results Nonvested at December 31, 2021 Performance Shares Value Weighted Average Grant Date Fair — $ 14,748 7,374 22,122 $ — 100.37 100.37 100.37 As of December 31, 2021 there was $1.6 million of unrecognized compensation cost related to nonvested performance share units that is expected to be realized over a weighted average period of 2.2 years. 37 Restricted Stock The Company periodically issues nonvested shares of the Company's Common Stock to certain eligible employees. The Company values restricted stock on the closing price of the Company's stock on the day the grant was awarded. The Company records compensation expense for this plan ratably over the vesting periods. Restricted stock compensation expense recognized by the Company for the year ended December 31, 2021 was $1.4 million compared to $1.0 million in 2020 and $0.9 million in 2019. The fair value of nonvested shares is determined based on the market price of the shares on the grant date. Nonvested at December 31, 2018 Granted Vested Forfeited Nonvested at December 31, 2019 Granted Vested Forfeited Nonvested at December 31, 2020 Granted Vested Forfeited Nonvested at December 31, 2021 Shares Fair value per share 72,802 $ 16,034 (19,227 ) (5,129 ) 64,480 $ 20,758 (25,044 ) (2,645 ) 57,549 $ 17,430 (16,528 ) (1,384 ) 57,067 $ 42.58 59.42 30.08 41.31 48.21 64.19 39.87 54.35 57.33 99.90 49.31 58.68 72.62 As of December 31, 2021, there was $2.0 million of unrecognized compensation cost related to nonvested restricted stock that is expected to be recognized over a weighted average period of 1.8 years. Performance Share Units Beginning in 2021, the Company periodically issues performance share units to certain eligible employees. Recipients of performance share grants are eligible to receive shares of our common stock depending upon the level of our total adjusted free cash flow conversion and adjusted return on invested capital (ROIC) as measured over a three-year performance period. The number of shares earned for awards granted in fiscal 2021 will range from 50% to 200% of the targeted number of performance shares for the three-year performance period ending December 31, 2023 and will vest, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period. Performance share compensation expense recognized by the Company for the year ended December 31, 2021 was $0.6 million. A summary of performance share activity for the year ended December 31, 2021 is as follows: Nonvested at December 31, 2020 Granted Adjustment for expected performance results Nonvested at December 31, 2021 Performance Shares Weighted Average Grant Date Fair Value — $ 14,748 7,374 22,122 $ — 100.37 100.37 100.37 As of December 31, 2021 there was $1.6 million of unrecognized compensation cost related to nonvested performance share units that is expected to be realized over a weighted average period of 2.2 years. 37 36 Note 6 Commitments and Contingencies Commitments The Company makes commitments in the normal course of business. The Company rents equipment, vehicles and facilities under operating leases, some of which contain renewal options. Total rental expense charged to operations under all operating leases was $3.1 million in 2021 and 2020 and $3.4 million in 2019. The Company’s lease commitments and future minimum lease payments are discussed in Note 12 “Leases.” Contingencies 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 future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during 2021, 2020 and 2019 were not material. The Company relies on single suppliers for most brass castings and certain resin 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 could 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. 37 38 Note 7 Employee Benefit Plans The Company maintains supplemental non-qualified plans for certain officers and other key employees. The expense for these plans was not material for 2021, 2020 or 2019. The discount rate used to measure the net periodic pension cost was 2.08% for 2021, 2.87% for 2020 and 2.86% for 2019. The amount accrued was $0.6 million and $0.4 million as of December 31, 2021 and 2020, respectively. The Company also maintains an Employee Savings and Stock Ownership Plan (“ESSOP”) for the majority of the U.S. employees. The ESSOP includes a voluntary 401(k) savings plan that allows certain employees to defer up to 50% of their income on a pretax basis subject to limits on maximum amounts. The Company matches 25% of each employee’s contribution, with the match percentage applying to a maximum of 7% of each employee's salary. Compensation expense was $0.9 million in 2021 compared to $0.5 million in 2020 and $0.6 million in 2019. The Company also contributes to a defined contribution feature within the ESSOP plan. Contributions are discretionary and are calculated as a percentage of eligible wages of the employee. Compensation expense under the defined contribution feature was $3.1 million in 2021, $2.0 million in 2020 and $3.1 million in 2019. Other Postretirement Benefits The Company also 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. The following table sets forth the components of net periodic postretirement benefit cost for the years ended December 31, 2021, 2020 and 2019: Service cost, benefits attributed for service of active employees for the period Interest cost on the accumulated postretirement benefit obligation Amortization of actuarial gain Net periodic postretirement benefit cost 2021 2020 (In thousands) 2019 $ $ 104 $ 99 — 203 $ 103 $ 154 (22 ) 235 $ 103 210 (117 ) 196 The discount rate used to measure the net periodic postretirement benefit cost was 2.45% for 2021, 3.19% for 2020 and 4.33% for 2019. It is the Company's policy to fund healthcare benefits on a cash basis. Because the plan is unfunded, there are no plan assets. The following table provides a reconciliation of the projected benefit obligation at the Company's December 31 measurement date: Benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Plan participants' contributions Benefits paid Benefit obligation, end of year 2021 2020 (In thousands) 6,145 $ 104 99 (504 ) 603 (903 ) 5,544 $ 6,075 103 154 202 474 (863 ) 6,145 $ $ The amounts recognized in the Consolidated Balance Sheets at December 31 are: Accrued compensation and employee benefits Accrued non-pension postretirement benefits Amounts recognized at December 31 2021 2020 (In thousands) 331 $ 5,213 5,544 $ 356 5,789 6,145 $ $ for 2020. The Company's discount rate assumptions for its postretirement benefit plan are based on the average yield of a The discount rate used to measure the accumulated postretirement benefit obligation was 2.82% for 2021 and 2.45% 38 39 Note 7 Employee Benefit Plans The Company maintains supplemental non-qualified plans for certain officers and other key employees. The expense for these plans was not material for 2021, 2020 or 2019. The discount rate used to measure the net periodic pension cost was 2.08% for 2021, 2.87% for 2020 and 2.86% for 2019. The amount accrued was $0.6 million and $0.4 million as of December 31, 2021 and 2020, respectively. The Company also maintains an Employee Savings and Stock Ownership Plan (“ESSOP”) for the majority of the U.S. employees. The ESSOP includes a voluntary 401(k) savings plan that allows certain employees to defer up to 50% of their income on a pretax basis subject to limits on maximum amounts. The Company matches 25% of each employee’s contribution, with the match percentage applying to a maximum of 7% of each employee's salary. Compensation expense was $0.9 million in 2021 compared to $0.5 million in 2020 and $0.6 million in 2019. The Company also contributes to a defined contribution feature within the ESSOP plan. Contributions are discretionary and are calculated as a percentage of eligible wages of the employee. Compensation expense under the defined contribution feature was $3.1 million in 2021, $2.0 million in 2020 and $3.1 million in 2019. Other Postretirement Benefits The Company also 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. The following table sets forth the components of net periodic postretirement benefit cost for the years ended December 31, 2021, 2020 and 2019: Service cost, benefits attributed for service of active employees for the period Interest cost on the accumulated postretirement benefit obligation Amortization of actuarial gain Net periodic postretirement benefit cost 2021 2020 (In thousands) 2019 $ $ 104 $ 99 — 203 $ 103 $ 154 (22 ) 235 $ 103 210 (117 ) 196 The discount rate used to measure the net periodic postretirement benefit cost was 2.45% for 2021, 3.19% for 2020 and 4.33% for 2019. It is the Company's policy to fund healthcare benefits on a cash basis. Because the plan is unfunded, there are no plan assets. The following table provides a reconciliation of the projected benefit obligation at the Company's December 31 measurement date: Benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Plan participants' contributions Benefits paid Benefit obligation, end of year 2021 2020 (In thousands) $ $ 6,145 $ 104 99 (504 ) 603 (903 ) 5,544 $ 6,075 103 154 202 474 (863 ) 6,145 The amounts recognized in the Consolidated Balance Sheets at December 31 are: Accrued compensation and employee benefits Accrued non-pension postretirement benefits Amounts recognized at December 31 2021 2020 (In thousands) 331 $ 5,213 5,544 $ 356 5,789 6,145 $ $ The discount rate used to measure the accumulated postretirement benefit obligation was 2.82% for 2021 and 2.45% for 2020. The Company's discount rate assumptions for its postretirement benefit plan are based on the average yield of a hypothetical high quality bond portfolio with maturities that approximately match the estimated cash flow needs of the plan. Because the plan requires the Company to establish fixed Company contribution amounts for retiree healthcare benefits, future 39 healthcare cost trends do not generally impact the Company's accruals or provisions. Estimated future benefit payments of postretirement benefits, assuming increased cost sharing, expected to be paid in each of the next five years beginning with 2022 are $0.4 million through 2026, with an aggregate of $1.9 million for the five years thereafter. These amounts can vary significantly from year to year because the cost sharing estimates can vary from actual expenses as the Company is self-insured. Amounts included in accumulated other comprehensive income, net of tax, at December 31, 2021 that have not yet been recognized in net periodic benefit cost are as follows: Net actuarial loss (gain) Pension plans Other postretirement benefits $ (In thousands) 110 $ (504 ) Amounts included in accumulated other comprehensive income, net of tax, at December 31, 2021 expected to be recognized in net periodic benefit cost during the fiscal year ending December 31, 2022 are not expected to be material. Note 8 Income Taxes The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities. Details of earnings before income taxes are as follows: Domestic Foreign Total The provision (benefit) for income taxes is as follows: Current: Federal State Foreign Deferred: Federal State Foreign Total 2021 2020 (In thousands) 2019 $ $ 74,509 $ 4,114 78,623 $ 65,908 $ (927 ) 64,981 $ 62,639 (1,032 ) 61,607 2021 2020 (In thousands) 2019 $ $ 15,299 $ 3,556 1,939 (1,774 ) (600 ) (681 ) 17,739 $ 14,482 $ 3,419 819 (2,495 ) (644 ) 57 15,638 $ 12,113 2,591 1,250 (1,066 ) 417 (875 ) 14,430 39 40 hypothetical high quality bond portfolio with maturities that approximately match the estimated cash flow needs of the plan. Because the plan requires the Company to establish fixed Company contribution amounts for retiree healthcare benefits, future healthcare cost trends do not generally impact the Company's accruals or provisions. Estimated future benefit payments of postretirement benefits, assuming increased cost sharing, expected to be paid in each of the next five years beginning with 2022 are $0.4 million through 2026, with an aggregate of $1.9 million for the five years thereafter. These amounts can vary significantly from year to year because the cost sharing estimates can vary from actual expenses as the Company is self-insured. been recognized in net periodic benefit cost are as follows: Amounts included in accumulated other comprehensive income, net of tax, at December 31, 2021 that have not yet Net actuarial loss (gain) Pension plans Other postretirement benefits $ (In thousands) 110 $ (504 ) Amounts included in accumulated other comprehensive income, net of tax, at December 31, 2021 expected to be recognized in net periodic benefit cost during the fiscal year ending December 31, 2022 are not expected to be material. Note 8 Income Taxes The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities. Details of earnings before income taxes are as follows: Domestic Foreign Total The provision (benefit) for income taxes is as follows: Current: Federal State Foreign Deferred: Federal State Foreign Total 2021 2020 (In thousands) 2019 $ $ 74,509 $ 4,114 78,623 $ 65,908 $ (927 ) 64,981 $ 62,639 (1,032 ) 61,607 2021 2020 (In thousands) 2019 $ $ 15,299 $ 3,556 1,939 (1,774 ) (600 ) (681 ) 17,739 $ 14,482 $ 3,419 819 (2,495 ) (644 ) 57 15,638 $ 12,113 2,591 1,250 (1,066 ) 417 (875 ) 14,430 The provision for income tax differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate in each year due to the following items: Provision at statutory rate State income taxes, net of federal tax benefit Valuation allowance Foreign - tax rate differential and other Federal tax credits Compensation subject to section 162(m) Stock based compensation Other Actual provision $ 40 $ 2021 2020 (In thousands) 2019 16,511 $ 2,288 168 606 (770 ) 685 (1,510 ) (239 ) 17,739 $ 13,646 $ 2,196 1,302 (267 ) (517 ) 110 (682 ) (150 ) 15,638 $ 12,938 2,080 515 70 (609 ) 66 (253 ) (377 ) 14,430 The components of deferred income taxes as of December 31 are as follows: Deferred tax assets: Reserve for receivables and inventory Accrued compensation Reserves and payables Accrued post-retirement medical benefits Net operating loss and credit carryforwards Deferred compensation Accrued qualified plan benefits Accrued stock-based compensation Deferred revenue Operating lease liabilities Other Total gross deferred tax assets Less: valuation allowance Total net deferred tax assets Deferred tax liabilities: Property, plant and equipment Intangible assets Prepaids Operating lease assets Other Total deferred tax liabilities Net deferred tax assets (liabilities) 2021 2020 (In thousands) $ $ 2,532 $ 2,641 3,101 1,381 2,260 1,041 1,034 1,212 2,530 959 967 19,658 (2,169 ) 17,489 5,056 8,475 413 949 452 15,345 2,144 $ 2,618 1,874 2,741 1,535 2,106 829 511 1,216 2,596 1,708 713 18,447 (2,140 ) 16,307 5,204 8,795 552 1,699 663 16,913 (606 ) 40 41 The provision for income tax differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate in each year due to the following items: Provision at statutory rate State income taxes, net of federal tax benefit Valuation allowance Foreign - tax rate differential and other Federal tax credits Compensation subject to section 162(m) Stock based compensation Other Actual provision 2021 2020 (In thousands) 2019 $ 16,511 $ 13,646 $ 2,288 168 606 (770 ) 685 (1,510 ) (239 ) 17,739 $ 2,196 1,302 (267 ) (517 ) 110 (682 ) (150 ) 15,638 $ $ 12,938 2,080 515 70 (609 ) 66 (253 ) (377 ) 14,430 The components of deferred income taxes as of December 31 are as follows: Deferred tax assets: Reserve for receivables and inventory Accrued compensation Reserves and payables Accrued post-retirement medical benefits Net operating loss and credit carryforwards Deferred compensation Accrued qualified plan benefits Accrued stock-based compensation Deferred revenue Operating lease liabilities Other Total gross deferred tax assets Less: valuation allowance Total net deferred tax assets Deferred tax liabilities: Property, plant and equipment Intangible assets Prepaids Operating lease assets Other Total deferred tax liabilities Net deferred tax assets (liabilities) 2021 2020 (In thousands) $ $ 2,532 $ 2,641 3,101 1,381 2,260 1,041 1,034 1,212 2,530 959 967 19,658 (2,169 ) 17,489 5,056 8,475 413 949 452 15,345 2,144 $ 2,618 1,874 2,741 1,535 2,106 829 511 1,216 2,596 1,708 713 18,447 (2,140 ) 16,307 5,204 8,795 552 1,699 663 16,913 (606 ) As of December 31, 2021, the Company had foreign net operating loss carryforwards of approximately $6.0 million with an unlimited carryforward period. The Company’s tax credit carryforward of $0.5 million relates to state specific tax credits that the Company expects to fully utilize in future tax periods. The Company has recorded a full valuation allowance against certain deferred tax assets which are not likely to be realized. The valuation allowance relates primarily to a foreign net operating loss carryforward. In general, it is the Company's practice and intention to reinvest earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2021, the Company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $15.0 million of such undistributed earnings, $13.4 million of which was previously subject to U.S. tax that is deemed indefinitely reinvested. Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows: 41 Balance at beginning of year Increases in unrecognized tax benefits as a result of positions taken during the prior year Increases in unrecognized tax benefits as a result of positions taken during the current year Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations Balance at end of year 2021 2020 $ (In thousands) 1,123 $ 52 230 (233 ) 1,172 $ $ 1,165 — 209 (251 ) 1,123 The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits during the fiscal year ending December 31, 2021. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2018, and, with few exceptions, state and local income tax examinations by tax authorities for years prior to 2017. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. Accrued interest was approximately $0.1 million at both December 31, 2021 and 2020 and there were no penalties accrued in either year. 41 Note 9 Industry Segment and Geographic Areas The Company is an innovator, manufacturer, marketer and distributor of products incorporating flow measurement, control, quality and communication solutions, which comprise one reportable segment. The Company manages and evaluates its operations as one segment primarily due to similarities in the nature of the products, production processes, customers and methods of distribution. Information regarding revenues by geographic area is as follows: Revenues: United States Foreign: Asia Canada Europe Mexico Middle East Other Total 2021 2020 (In thousands) 2019 $ 432,188 $ 376,426 $ 369,163 16,736 11,867 30,359 5,110 7,176 1,762 6,437 10,406 18,255 4,886 6,114 3,020 9,111 13,568 15,784 5,791 7,868 3,340 $ 505,198 $ 425,544 $ 424,625 42 As of December 31, 2021, the Company had foreign net operating loss carryforwards of approximately $6.0 million with an unlimited carryforward period. The Company’s tax credit carryforward of $0.5 million relates to state specific tax credits that the Company expects to fully utilize in future tax periods. The Company has recorded a full valuation allowance against certain deferred tax assets which are not likely to be realized. The valuation allowance relates primarily to a foreign net operating loss carryforward. In general, it is the Company's practice and intention to reinvest earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2021, the Company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $15.0 million of such undistributed earnings, $13.4 million of which was previously subject to U.S. tax that is deemed indefinitely reinvested. Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows: Balance at beginning of year Increases in unrecognized tax benefits as a result of positions taken during the prior year Increases in unrecognized tax benefits as a result of positions taken during the current year Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations Balance at end of year 2021 2020 $ (In thousands) 1,123 $ 52 230 (233 ) 1,172 $ $ 1,165 — 209 (251 ) 1,123 The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits during the fiscal year ending December 31, 2021. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2018, and, with few exceptions, state and local income tax examinations by tax authorities for years prior to 2017. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. Accrued interest was approximately $0.1 million at both December 31, 2021 and 2020 and there were no penalties accrued in either year. Note 9 Industry Segment and Geographic Areas The Company is an innovator, manufacturer, marketer and distributor of products incorporating flow measurement, control, quality and communication solutions, which comprise one reportable segment. The Company manages and evaluates its operations as one segment primarily due to similarities in the nature of the products, production processes, customers and methods of distribution. Information regarding revenues by geographic area is as follows: Revenues: United States Foreign: Asia Canada Europe Mexico Middle East Other Total 2021 2020 (In thousands) 2019 $ 432,188 $ 376,426 $ 369,163 16,736 11,867 30,359 5,110 7,176 1,762 505,198 $ 6,437 10,406 18,255 4,886 6,114 3,020 425,544 $ 9,111 13,568 15,784 5,791 7,868 3,340 424,625 $ 42 42 As of December 31, 2021, the Company had foreign net operating loss carryforwards of approximately $6.0 million with an unlimited carryforward period. The Company’s tax credit carryforward of $0.5 million relates to state specific tax credits that the Company expects to fully utilize in future tax periods. The Company has recorded a full valuation allowance against certain deferred tax assets which are not likely to be realized. The valuation allowance relates primarily to a foreign net operating loss carryforward. In general, it is the Company's practice and intention to reinvest earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2021, the Company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $15.0 million of such undistributed earnings, $13.4 million of which was previously subject to U.S. tax that is deemed indefinitely reinvested. Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows: Balance at beginning of year Increases in unrecognized tax benefits as a result of positions taken during the Increases in unrecognized tax benefits as a result of positions taken during the Reductions to unrecognized tax benefits as a result of a lapse of the applicable prior year current year statute of limitations Balance at end of year 2021 2020 $ (In thousands) 1,123 $ 52 230 (233 ) 1,172 $ $ 1,165 — 209 (251 ) 1,123 The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits during the fiscal year ending December 31, 2021. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2018, and, with few exceptions, state and local income tax examinations by tax authorities for years prior to 2017. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. Accrued interest was approximately $0.1 million at both December 31, 2021 and 2020 and there were no penalties accrued in either year. Note 9 Industry Segment and Geographic Areas The Company is an innovator, manufacturer, marketer and distributor of products incorporating flow measurement, control, quality and communication solutions, which comprise one reportable segment. The Company manages and evaluates its operations as one segment primarily due to similarities in the nature of the products, production processes, customers and methods of distribution. Information regarding revenues by geographic area is as follows: 2021 2020 (In thousands) 2019 $ 432,188 $ 376,426 $ 369,163 16,736 11,867 30,359 5,110 7,176 1,762 505,198 $ 6,437 10,406 18,255 4,886 6,114 3,020 425,544 $ 9,111 13,568 15,784 5,791 7,868 3,340 424,625 $ 2021 2020 (In thousands) $ 46,092 $ 48,805 13,991 17,967 78,050 $ 15,142 18,758 82,705 $ 2021 2020 (In thousands) $ 391,328 $ 365,748 118,359 21,131 530,818 $ 83,174 22,295 471,217 $ Revenues: United States Foreign: Asia Canada Europe Mexico Middle East Other Total Information regarding assets by geographic area is as follows: Long-lived assets: United States Foreign: Europe Mexico Total Total assets: United States Foreign: Europe Mexico Total 42 43 43 Note 10 Unaudited: Quarterly Results of Operations, Common Stock Price and Dividends The Company's Common Stock is listed on the New York Stock Exchange under the symbol BMI. Earnings per share are computed independently for each quarter. As such, the annual per share amount may not equal the sum of the quarterly amounts due to rounding. The Company currently anticipates continuing to pay cash dividends. Shareholders of record as of December 31, 2021 and 2020 totaled 557 and 656, respectively. Voting trusts and street name shareholders are counted as single shareholders for this purpose. 2021 Net sales Gross margin Net earnings Earnings per share: Basic Diluted Dividends declared Stock price: High Low Quarter-end close 2020 Net sales Gross margin Net earnings Earnings per share: Basic Diluted Dividends declared Stock price: High Low Quarter-end close March 31 June 30 September 30 December 31 (In thousands except per share data) Quarter ended $ $ $ $ $ $ 117,842 $ 49,362 13,781 122,869 $ 50,102 13,972 128,738 $ 51,184 15,855 135,748 54,835 17,276 0.47 $ 0.47 0.18 0.48 $ 0.48 0.18 0.54 $ 0.54 0.20 0.59 0.59 0.20 111.77 $ 88.98 93.07 100.01 $ 89.29 98.12 108.25 $ 93.88 101.14 112.36 99.13 105.64 108,508 $ 43,322 11,854 91,119 $ 35,850 9,534 113,587 $ 45,023 14,861 112,329 44,055 13,094 0.41 $ 0.41 0.17 0.33 $ 0.33 0.17 0.51 $ 0.51 0.18 70.83 $ 41.50 53.60 68.01 $ 47.00 62.92 68.25 $ 59.53 65.37 0.45 0.45 0.18 96.00 64.96 94.06 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 utility water and flow instrumentation products, such as flow meters and radios, quality sensing equipment, 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 1 “Summary of Significant Accounting Policies.” 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 depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. Information regarding revenues disaggregated by geographic area is disclosed in Note 9 “Industry Segment and Geographic Areas.” 44 44 Note 10 Unaudited: Quarterly Results of Operations, Common Stock Price and Dividends The Company's Common Stock is listed on the New York Stock Exchange under the symbol BMI. Earnings per share are computed independently for each quarter. As such, the annual per share amount may not equal the sum of the quarterly amounts due to rounding. The Company currently anticipates continuing to pay cash dividends. Shareholders of record as of December 31, 2021 and 2020 totaled 557 and 656, respectively. Voting trusts and street name shareholders are counted as single shareholders for this purpose. 2021 Net sales Gross margin Net earnings Earnings per share: Dividends declared Stock price: Basic Diluted High Low Quarter-end close 2020 Net sales Gross margin Net earnings Earnings per share: Basic Diluted Dividends declared Stock price: High Low Quarter-end close March 31 June 30 September 30 December 31 (In thousands except per share data) Quarter ended $ 117,842 $ 122,869 $ 128,738 $ 135,748 49,362 13,781 50,102 13,972 51,184 15,855 54,835 17,276 $ 0.47 $ 0.47 0.18 0.48 $ 0.48 0.18 0.54 $ 0.54 0.20 0.59 0.59 0.20 $ 111.77 $ 100.01 $ 88.98 93.07 89.29 98.12 108.25 $ 93.88 101.14 112.36 99.13 105.64 $ 108,508 $ 91,119 $ 113,587 $ 112,329 43,322 11,854 35,850 9,534 45,023 14,861 44,055 13,094 $ $ 0.41 $ 0.41 0.17 0.33 $ 0.33 0.17 0.51 $ 0.51 0.18 70.83 $ 41.50 53.60 68.01 $ 47.00 62.92 68.25 $ 59.53 65.37 0.45 0.45 0.18 96.00 64.96 94.06 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 utility water and flow instrumentation products, such as flow meters and radios, quality sensing equipment, 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 1 “Summary of Significant Accounting Policies.” 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 depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. Information regarding revenues disaggregated by geographic area is disclosed in Note 9 “Industry Segment and Geographic Areas.” Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows for the years ended December 31: Revenue recognized over time Revenue recognized at a point in time Total 2021 2020 (In thousands) $ $ 28,524 5.6 % $ 476,674 94.4 % 505,198 100.0 % $ 21,479 5.0 % 404,065 95.0 % 425,544 100.0 % 44 The Company performs its obligations under a contract by shipping products or performing services in exchange for consideration. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable to the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods or services and the Company has not transferred control of the goods or services. The Company's receivables and contract liabilities are as follows at the years ended December 31 are as follows: Receivables Contract liabilities $ 2021 2020 (In thousands) 65,866 $ 30,194 61,689 24,761 Contract liabilities are included in payables and other-long term liabilities on the Company’s Consolidated Balance Sheet. The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at December 31, 2021 and 2020. A performance obligation in a contract is a promise to transfer a distinct good or service to the customer. At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customer. In order to identify performance obligations, the Company considers all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company's performance obligations are satisfied at a point in time or over time as work progresses. The majority of the Company's revenue recognized at a point in time is for the sale of utility and flow instrumentation products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process. The majority of the Company's revenue that is recognized over time relates to the BEACON software as a service (“SaaS”). The Company records revenue for BEACON SaaS revenue over time as the customer benefits from the use of the Company's software. Control of an asset is therefore transferred to the customer over time and the Company will recognize revenue for BEACON SaaS as service units are used by the customer. Revenue is recorded for various ancillary services, such as project management and training, over time as the customer benefits from the services provided. The majority of this revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. If the service is not provided evenly over the contract period, revenue will be recognized by the associated input/output method that best measures the progress towards contract completion. 45 As of December 31, 2021, the Company had certain contracts with unsatisfied performance obligations. For contracts recorded as long-term liabilities, $30.2 million was the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that revenue recognized from satisfying those performance obligations will be approximately $5.6 million in 2022 and $3.3 million in each year from 2023 through 2026 and $11.4 million thereafter. The Company also has contracts that include both the sale and installation of flow meters as performance obligations. In those cases, the Company records revenue for installed flow meters at the point in time when the flow meters have been accepted by the customer. The customer cannot control the use of and obtain substantially all of the benefits from the equipment until the customer has accepted the installed product. Therefore, for both the flow meter and the related installation, the Company has concluded that control is transferred to the customer upon customer acceptance of the installed flow meter. In addition, the Company has a variety of ancillary revenue streams which are minor. The types and composition of the Company's revenue streams did not materially change during the year ended December 31, 2021. 45 Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows for the years ended December 31: Revenue recognized over time Revenue recognized at a point in time Total 2021 2020 (In thousands) $ 28,524 5.6 % $ 21,479 5.0 % 476,674 94.4 % 404,065 95.0 % $ 505,198 100.0 % $ 425,544 100.0 % The Company performs its obligations under a contract by shipping products or performing services in exchange for consideration. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable to the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods or services and the Company has not transferred control of the goods or services. The Company's receivables and contract liabilities are as follows at the years ended December 31 are as follows: Receivables Contract liabilities $ 2021 2020 (In thousands) 65,866 $ 30,194 61,689 24,761 Contract liabilities are included in payables and other-long term liabilities on the Company’s Consolidated Balance Sheet. The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at December 31, 2021 and 2020. A performance obligation in a contract is a promise to transfer a distinct good or service to the customer. At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customer. In order to identify performance obligations, the Company considers all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company's performance obligations are satisfied at a point in time or over time as work progresses. The majority of the Company's revenue recognized at a point in time is for the sale of utility and flow instrumentation products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process. The majority of the Company's revenue that is recognized over time relates to the BEACON software as a service (“SaaS”). The Company records revenue for BEACON SaaS revenue over time as the customer benefits from the use of the Company's software. Control of an asset is therefore transferred to the customer over time and the Company will recognize revenue for BEACON SaaS as service units are used by the customer. Revenue is recorded for various ancillary services, such as project management and training, over time as the customer benefits from the services provided. The majority of this revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. If the service is not provided evenly over the contract period, revenue will be recognized by the associated input/output method that best measures the progress towards contract completion. As of December 31, 2021, the Company had certain contracts with unsatisfied performance obligations. For contracts recorded as long-term liabilities, $30.2 million was the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that revenue recognized from satisfying those performance obligations will be approximately $5.6 million in 2022 and $3.3 million in each year from 2023 through 2026 and $11.4 million thereafter. The Company also has contracts that include both the sale and installation of flow meters as performance obligations. In those cases, the Company records revenue for installed flow meters at the point in time when the flow meters have been accepted by the customer. The customer cannot control the use of and obtain substantially all of the benefits from the equipment until the customer has accepted the installed product. Therefore, for both the flow meter and the related installation, the Company has concluded that control is transferred to the customer upon customer acceptance of the installed flow meter. In addition, the Company has a variety of ancillary revenue streams which are minor. The types and composition of the Company's revenue streams did not materially change during the year ended December 31, 2021. 45 The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract's transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers. If standalone selling price is not directly observable, it is estimated using either a market adjustment or cost plus margin approach. The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the deferral of sales commissions on the Company's BEACON software arrangements. The Company's costs incurred to obtain or fulfill a contract with a customer are amortized over the period of benefit of the related revenue. The Company expenses any costs incurred immediately when the amortization period would be one year or less. These costs are recorded within selling, engineering and administration expenses. For the year ended December 31, 2021, the Company elected the following practical expedients: In accordance with Subtopic 340-40 “Other Assets and Deferred Costs - Contracts with Customers,” the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, and contracts for which it has the right to invoice for services performed. The Company has made an accounting policy election to exclude all taxes by governmental authorities from the measurement of the transaction price. Note 12 Leases The Company rents facilities, equipment and vehicles under operating leases, some of which contain renewal options. Upon inception of a rent agreement, the Company determines whether the arrangement contains a lease based on the unique conditions present. Leases that have a term over a year are recognized on the balance sheet as right-of-use assets and lease liabilities. Right-of-use assets are included in other assets on the Company’s Consolidated Balance Sheet. Lease liabilities are included in other current liabilities and other long-term liabilities on the Company’s Consolidated Balance Sheet. Information regarding the Company's right-of-use assets and the corresponding lease liabilities at the years ended December 31 is as follows: Right-of-use assets Lease liabilities $ 2021 2020 (In thousands) 5,877 $ 6,177 6,865 7,218 The Company’s operating lease agreements have lease and non-lease components that require payments for common 46 area maintenance, property taxes and insurance. The Company has elected to account for both lease and non-lease components as one lease component. The fixed and in-substance fixed consideration in the Company’s rent agreements constitute operating lease expense that is included in the capitalized right-of-use assets and lease liabilities. The variable and short-term lease expense payments are not included in the present value of the right-of use-assets and lease liabilities on the Consolidated Balance Sheet. The Company’s rent expense for the years ended December 31 is as follows: Operating lease expense Variable and short-term lease expense Rent expense 2021 2019 2020 (In thousands) $ $ 2,995 $ 153 3,148 $ 2,858 $ 203 3,061 $ 3,095 270 3,365 The Company records right-of-use assets and lease liabilities based upon the present value of lease payments over the expected lease term. The Company’s lease agreements typically do not have implicit interest rates that are readily determinable. As a result, the Company utilizes an incremental borrowing rate that would be incurred to borrow on a collateralized basis over a similar term in a comparable economic environment. As of December 31, 2021 and 2020, the remaining lease term on the 46 The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract's transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers. If standalone selling price is not directly observable, it is estimated using either a market adjustment or cost plus margin approach. The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the deferral of sales commissions on the Company's BEACON software arrangements. The Company's costs incurred to obtain or fulfill a contract with a customer are amortized over the period of benefit of the related revenue. The Company expenses any costs incurred immediately when the amortization period would be one year or less. These costs are recorded within selling, engineering and administration expenses. For the year ended December 31, 2021, the Company elected the following practical expedients: In accordance with Subtopic 340-40 “Other Assets and Deferred Costs - Contracts with Customers,” the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, and contracts for which it has the right to invoice for services performed. The Company has made an accounting policy election to exclude all taxes by governmental authorities from the measurement of the transaction price. Note 12 Leases The Company rents facilities, equipment and vehicles under operating leases, some of which contain renewal options. Upon inception of a rent agreement, the Company determines whether the arrangement contains a lease based on the unique conditions present. Leases that have a term over a year are recognized on the balance sheet as right-of-use assets and lease liabilities. Right-of-use assets are included in other assets on the Company’s Consolidated Balance Sheet. Lease liabilities are included in other current liabilities and other long-term liabilities on the Company’s Consolidated Balance Sheet. Information regarding the Company's right-of-use assets and the corresponding lease liabilities at the years ended December 31 is as follows: Right-of-use assets Lease liabilities $ 2021 2020 (In thousands) 5,877 $ 6,177 6,865 7,218 The Company’s operating lease agreements have lease and non-lease components that require payments for common area maintenance, property taxes and insurance. The Company has elected to account for both lease and non-lease components as one lease component. The fixed and in-substance fixed consideration in the Company’s rent agreements constitute operating lease expense that is included in the capitalized right-of-use assets and lease liabilities. The variable and short-term lease expense payments are not included in the present value of the right-of use-assets and lease liabilities on the Consolidated Balance Sheet. The Company’s rent expense for the years ended December 31 is as follows: Operating lease expense Variable and short-term lease expense Rent expense 2021 2020 (In thousands) 2019 $ $ 2,995 $ 153 3,148 $ 2,858 $ 203 3,061 $ 3,095 270 3,365 The Company records right-of-use assets and lease liabilities based upon the present value of lease payments over the expected lease term. The Company’s lease agreements typically do not have implicit interest rates that are readily determinable. As a result, the Company utilizes an incremental borrowing rate that would be incurred to borrow on a collateralized basis over a similar term in a comparable economic environment. As of December 31, 2021 and 2020, the remaining lease term on the Company’s leases was 5.6 years and 6.0 years, respectively. As of December 31, 2021 and 2020, the discount rate was 5.0%. The future minimum lease payments to be paid under operating leases are as follows: 46 December 31, 2021 (In thousands) 2022 2023 2024 2025 2026 Thereafter Total future lease payments (Present value adjustment) Present value of future lease payments $ $ 1,922 1,744 1,362 1,183 130 868 7,209 (1,032 ) 6,177 47 47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, the Company's management evaluated, with the participation of the Company's Chairman, President and Chief Executive Officer and the Company's Senior Vice President - Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the year ended December 31, 2021. Based upon their evaluation of these disclosure controls and procedures, the Company's Chairman, President and Chief Executive Officer and the Company's Senior Vice President - Chief Financial Officer concluded that, as of the date of such evaluation, the Company's disclosure controls and procedures were effective. Changes in Internal Controls over Financial Reporting There was no change in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Management's Annual Report on Internal Control over Financial Reporting The report of management required under this Item 9A is contained in Item 8 of this 2021 Annual Report on Form 10-K under the heading “Management's Annual Report on Internal Control over Financial Reporting.” Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting The attestation report required under this Item 9A is contained in Item 8 of this 2021 Annual Report on Form 10-K under the heading “Report of Independent Registered Public Accounting Firm.” ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 48 48 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by this Item with respect to directors is included under the headings “Nomination and Election of Directors” and in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 29, 2022 and is incorporated herein by reference. Information concerning the executive officers of the Company is included in Part I, Item 1 of this 2021 Annual Report on Form 10-K under the heading “Information about the Company’s Executive Officers.” The Company has adopted the Badger Meter, Inc. Code of Conduct for Financial Executives that applies to the Company's Chairman, President and Chief Executive Officer, the Company's Senior Vice President - Chief Financial Officer and other persons performing similar functions. A copy of the Badger Meter, Inc. Code of Conduct for Financial Executives is posted on the Company's website at www.badgermeter.com. The Badger Meter, Inc. Code of Conduct for Financial Executives is also available in print to any shareholder who requests it in writing from the Secretary of the Company. The Company satisfies the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Badger Meter, Inc. Code of Conduct for Financial Executives by posting such information on the Company's website at www.badgermeter.com. The Company is not including the information contained on its website as part of, or incorporating it by reference into, this 2021 Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is included under the headings “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation” and “CEO Pay Ratio” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 29, 2022, and is incorporated herein by reference; provided, however, that the information under the subsection “Executive Compensation - Compensation Committee Report” is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act or to be the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent it is specifically incorporated by reference into such a filing. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by this Item is included under the headings “Stock Ownership of Beneficial Owners,” “Stock Ownership of Management” and “Equity Compensation Plan Information” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 29, 2022 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information required by this Item is included under the headings “Related Person Transactions” and “Nomination and Election of Directors - Independence, Committees, Meetings and Attendance” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 29, 2022, and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by this Item is included under the heading “Principal Accounting Firm Fees” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 29, 2022, and is incorporated herein by reference. 49 49 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IV Documents filed as part of this Annual Report on Form 10-K: 1. Financial Statements. See the financial statements included in Part II, Item 8 “Financial Statements and Data” in this 2021 Annual Report on Form 10-K, under the headings “Consolidated Balance Sheets,” “Consolidated Statements of Operations,” “Consolidated Statements of Comprehensive Income,” “Consolidated Statements of Cash Flows” and “Consolidated Statements of Shareholders' Equity.” 2. Financial Statement Schedules. Financial statement schedules are omitted because the information required in these schedules is included in the Notes to Consolidated Financial Statements. 3. Exhibits. The exhibits listed in the following Exhibit Index are filed as part of this 2021 Annual Report on Form 10-K that is incorporated herein by reference. ITEM 16. FORM 10-K SUMMARY None. 50 50 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 23, 2022. SIGNATURES BADGER METER, INC. By: /s/ Kenneth C. Bockhorst Kenneth C. Bockhorst Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 23, 2022. Name /s/ Kenneth C. Bockhorst Kenneth C. Bockhorst /s/ Robert A. Wrocklage Robert A. Wrocklage /s/ Daniel R. Weltzien Daniel R. Weltzien /s/ Todd A. Adams Todd A. Adams /s/ Henry F. Brooks Henry F. Brooks /s/ Gale E. Klappa Gale E. Klappa /s/ Gail A. Lione Gail A. Lione /s/ James W. McGill James W. McGill /s/ Tessa M. Myers Tessa M. Myers /s/ James F. Stern James F. Stern /s/ Glen E. Tellock Glen E. Tellock Title Chairman, President and Chief Executive Officer and Director (Principal executive officer) Senior Vice President — Chief Financial Officer (Principal financial officer) Vice President — Controller (Principal accounting officer) Director Director Director Director Director Director Director Director 51 53 BADGER METER, INC. RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES TO GAAP PERFORMANCE MEASURES (in thousands, except share and earnings per share data) BADGER METER, INC. RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES TO GAAP PERFORMANCE MEASURES (in thousands, except share and earnings per share data) 2021 2020 2019 2018 2017 Net earnings (GAAP measure) Executive retirement charges, net of tax Pension termination settlement charge, net of tax Adjusted net earnings Net earnings (GAAP measure) Executive retirement charges, net of tax Pension termination settlement charge, net of tax Net earnings (GAAP measure) Adjusted net earnings Interest (income) expense, net Provision for income taxes Depreciation Amortization Net earnings (GAAP measure) Executive retirement charges Interest (income) expense, net Pension termination settlement charge Adjusted EBITDA Provision for income taxes Depreciation Net Sales Amortization Adjusted EBITDA % Executive retirement charges Pension termination settlement charge Adjusted EBITDA Diluted earnings per share (GAAP measure) Net Sales Executive retirement charges, net of tax Pension termination settlement charge, net of tax Adjusted EBITDA % Adjusted diluted earnings per share $60,884 - - $60,884 $60,884 (20) 17,739 11,291 16,571 - - $106,465 $505,198 21.1% $2.08 - - $2.08 2021 2020 $49,343 - - $49,343 $60,884 - - $49,343 $60,884 30 15,638 12,253 12,963 $60,884 - (20) - $90,227 17,739 11,291 16,571 - - $425,544 21.2% $47,177 - - $47,177 $49,343 - - $47,177 $49,343 253 14,430 11,569 12,577 $49,343 - 30 - $86,006 15,638 12,253 12,963 - - $90,227 $424,625 20.3% $106,465 $505,198 21.1% $1.69 - - $1.69 $1.61 $425,544 - - 21.2% $1.61 Diluted earnings per share (GAAP measure) Cash provided by operations (GAAP measure) Executive retirement charges, net of tax Capital expenditures Free cash flow Pension termination settlement charge, net of tax Adjusted diluted earnings per share $87,510 (6,746) $80,764 $2.08 $89,578 - (9,059) $80,519 - $2.08 $1.69 $80,714 - (7,496) $73,218 - $1.69 Free cash flow Adjusted net earnings Cash provided by operations (GAAP measure) Free cash flow conversion Capital expenditures Free cash flow $80,764 $60,884 133% $80,519 $49,343 163% $87,510 (6,746) $80,764 $73,218 $47,177 155% $89,578 (9,059) $80,519 2019 $27,790 2,357 14,786 $44,933 $47,177 - - $27,790 $47,177 1,157 8,062 11,354 12,961 $47,177 2,575 253 19,900 $83,799 14,430 11,569 $433,732 12,577 19.3% - - $86,006 $0.95 $424,625 0.09 0.50 20.3% $1.54 $1.61 $60,350 - (8,643) $51,707 - $1.61 $51,707 $44,933 $80,714 115% (7,496) $73,218 2018 $34,571 - - $34,571 $27,790 2,357 14,786 $34,571 $44,933 789 20,262 12,056 12,342 $27,790 - 1,157 - $80,020 8,062 11,354 $402,440 12,961 19.9% 2,575 19,900 $83,799 $1.19 $433,732 - - 19.3% $1.19 $0.95 $49,751 0.09 (15,069) $34,682 0.50 $1.54 $34,682 $34,571 $60,350 100% (8,643) $51,707 2017 $34,571 - - $34,571 $34,571 789 20,262 12,056 12,342 - - $80,020 $402,440 19.9% $1.19 - - $1.19 $49,751 (15,069) $34,682 Free cash flow Adjusted net earnings Free cash flow conversion $80,764 $60,884 133% $80,519 $49,343 163% $73,218 $47,177 155% $51,707 $44,933 115% $34,682 $34,571 100% 52 2021 BADGER METER ANNUAL REPORT | 11 4545 West Brown Deer Road P.O. Box 245036 Milwaukee, Wisconsin 53224 www.badgermeter.com 12 | 2021 BADGER METER ANNUAL REPORT
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