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

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

Part I – Financial Information

Item 1 Financial Statements

BADGER METER, INC.

Consolidated Condensed Balance Sheets

	March 31,			December 31,
	(Unaudited)
	(In thousands)
	2019			2018
Assets
Current assets:
Cash	$	15,033		$	13,086
Receivables		68,095			66,300
Inventories:
Finished goods		21,811			23,476
Work in process		16,076			17,097
Raw materials		42,667			40,231
Total inventories		80,554			80,804
Prepaid expenses and other current assets		7,541			4,469
Total current assets		171,223			164,659
Property, plant and equipment, at cost		215,098			213,722
Less accumulated depreciation		(125,816	)		(123,401	)
Net property, plant and equipment		89,282			90,321
Intangible assets, at cost less accumulated amortization		53,534			55,418
Other assets		15,810			8,872
Deferred income taxes		2,142			2,163
Goodwill		71,258			71,258
Total assets	$	403,249		$	392,691
Liabilities and shareholders’ equity
Current liabilities:
Short-term debt	$	10,980		$	18,060
Payables		25,983			22,469
Accrued compensation and employee benefits		9,583			13,768
Warranty and after-sale costs		4,318			4,206
Other current liabilities		7,060			1,512
Total current liabilities		57,924			60,015
Other long-term liabilities		21,494			13,972
Deferred income taxes		3,217			3,332
Accrued non-pension postretirement benefits		5,214			5,184
Other accrued employee benefits		6,787			6,685
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock		37,200			37,198
Capital in excess of par value		38,756			38,082
Reinvested earnings		263,777			257,313
Accumulated other comprehensive income		311			580
Less: Employee benefit stock		(306	)		(306	)
Treasury stock, at cost		(31,125	)		(29,364	)
Total shareholders’ equity		308,613			303,503
Total liabilities and shareholders’ equity	$	403,249		$	392,691

June 30, December 31,
(Unaudited)
(In thousands)
Assets 2018 2017
Current assets:
Cash $ 12,125
$ 11,164
Receivables 65,303
58,210
Inventories:
Finished goods 25,199
23,125
Work in process 19,643
22,035
Raw materials 40,814
40,012
Total inventories 85,656
85,172
Prepaid expenses and other current assets 5,070
4,077
Total current assets 168,154
158,623
Property, plant and equipment, at cost 215,513
212,485
Less accumulated depreciation (122,838 ) (118,884 )
Net property, plant and equipment 92,675
93,601
Intangible assets, at cost less accumulated amortization 59,113
59,326
Other assets 9,240
9,897
Deferred income taxes 816
2,856
Goodwill 71,109
67,424
Total assets $ 401,107
$ 391,727

Liabilities and shareholders’ equity
Current liabilities:
Short-term debt $ 42,430
$ 44,550
Payables and other current liabilities 28,092
28,601
Accrued compensation and employee benefits 9,632
15,509
Warranty and after-sale costs 4,110
3,367
Income and other taxes 1,363
1,082
Total current liabilities 85,627
93,109
Other long-term liabilities 13,657
4,073
Deferred income taxes 1,294
3,434
Accrued non-pension postretirement benefits 5,718
5,703
Other accrued employee benefits 6,341
7,956
Commitments and contingencies (Note 6)

Shareholders’ equity:
Common stock 37,177
37,165
Capital in excess of par value 33,681
32,182
Reinvested earnings 250,242
244,224
Accumulated other comprehensive loss (5,508 ) (10,893 )
Less: Employee benefit stock (461 ) (460 )
Treasury stock, at cost (26,661 ) (24,766 )
Total shareholders’ equity 288,470
277,452
Total liabilities and shareholders’ equity $ 401,107
$ 391,727

See accompanying notes to unaudited consolidated condensed financial statements.

Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Operations

	Three Months Ended March 31,
	(Unaudited)
	(In thousands except share and per share amounts)
	2019		2018
Net sales	$	104,881	$	105,041
Cost of sales		64,424		68,293
Gross margin		40,457		36,748
Selling, engineering and administration		26,130		26,774
Operating earnings		14,327		9,974
Interest expense, net		129		290
Other pension and postretirement costs (benefits)		47		(19	)
Earnings before income taxes		14,151		9,703
Provision for income taxes		3,327		2,157
Net earnings	$	10,824	$	7,546

Earnings per share:
Basic	$	0.37	$	0.26
Diluted	$	0.37	$	0.26

Dividends declared per common share	$	0.15	$	0.13

Shares used in computation of earnings per share:
Basic		29,028,964		28,932,787
Impact of dilutive securities		209,660		217,259
Diluted		29,238,624		29,150,046

Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
(In thousands except share and per share amounts)

2018 2017 2018 2017
Net sales $ 113,648
$ 104,176
$ 218,689
$ 205,782
Cost of sales 72,144
63,122
140,437
126,078
Gross margin 41,504
41,054
78,252
79,704
Selling, engineering and administration 25,153
24,214
51,927
49,299
Operating earnings 16,351
16,840
26,325
30,405
Interest expense, net 409
147
699
325
Other pension and postretirement costs 8,031
249
8,012
345
Earnings before income taxes 7,911
16,444
17,614
29,735
Provision for income taxes 1,757
5,830
3,914
10,372
Net earnings $ 6,154
$ 10,614
$ 13,700
$ 19,363

Earnings per share:
Basic $ 0.21
$ 0.37
$ 0.47
$ 0.67
Diluted $ 0.21
$ 0.36
$ 0.47
$ 0.67

Dividends declared per common share $ 0.130
$ 0.115
$ 0.260
$ 0.230

Shares used in computation of earnings per share:
Basic 28,963,373
28,938,451
28,965,735
28,938,851
Impact of dilutive securities 170,070
159,369
193,665
170,824
Diluted 29,133,443
29,097,820
29,159,400
29,109,675

See accompanying notes to unaudited consolidated condensed financial statements.

Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Comprehensive Income

	Three Months Ended March 31,
	(Unaudited)
	(In thousands)
	2019			2018
Net earnings	$	10,824		$	7,546
Other comprehensive income:
Foreign currency translation adjustments		(257	)		421
Pension and postretirement benefits, net of tax		(12	)		61
Comprehensive income	$	10,555		$	8,028

Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
(In thousands)
2018 2017 2018 2017
Net earnings $ 6,154
$ 10,614
$ 13,700
$ 19,363
Other comprehensive income:
Foreign currency translation adjustment (808 ) 1,049
(387 ) 1,340
Pension and postretirement benefits, net of tax 5,711
71
5,772
154
Comprehensive income $ 11,057
$ 11,734
$ 19,085
$ 20,857

See accompanying notes to unaudited consolidated condensed financial statements.

Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Cash Flows

	Three Months Ended March 31,
	(Unaudited) (In thousands)
	2019			2018
Operating activities:
Net earnings	$	10,824		$	7,546
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation		2,978			3,175
Amortization		3,264			3,537
Deferred income taxes		(1	)		1
Noncurrent employee benefits		117			94
Stock-based compensation expense		265			471
Changes in:
Receivables		(1,943	)		(4,919	)
Inventories		166			265
Payables		4,540			(4,479	)
Prepaid expenses and other current assets		(2,101	)		(1,586	)
Other liabilities		(294	)		2,670
Total adjustments		6,991			(771	)
Net cash provided by operations		17,815			6,775
Investing activities:
Property, plant and equipment expenditures		(2,160	)		(3,043	)
Net cash used for investing activities		(2,160	)		(3,043	)
Financing activities:
Net (decrease) increase in short-term debt		(7,000	)		3,500
Payment of contingent acquisition consideration		(1,000	)		-
Dividends paid		(4,357	)		(3,770	)
Proceeds from exercise of stock options		471			231
Repurchase of treasury stock		(1,873	)		(1,619	)
Issuance of treasury stock		52			65
Net cash used for financing activities		(13,707	)		(1,593	)
Effect of foreign exchange rates on cash		(1	)		229
Increase in cash		1,947			2,368
Cash – beginning of period		13,086			11,164
Cash – end of period	$	15,033		$	13,532

Six Months Ended
June 30

(Unaudited)
(In thousands)
2018 2017
Operating activities:
Net earnings $ 13,700
$ 19,363
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation 5,894
5,997
Amortization 6,543
5,994
Deferred income taxes 59
(53 )
Noncurrent employee benefits 84
541
Pension termination settlement charge 8,168
—
Contribution to pension plan (1,600 ) —
Stock-based compensation expense 944
779
Changes in:
Receivables (6,765 ) (3,754 )
Inventories 167
4,759
Prepaid expenses and other assets (3,101 ) (3,734 )
Liabilities other than debt 1,106
7,453
Total adjustments 11,499
17,982
Net cash provided by operations 25,199
37,345

Investing activities:
Property, plant and equipment expenditures (5,242 ) (6,762 )
Acquisitions, net of cash acquired and future payments (8,048 ) (18,376 )
Net cash used for investing activities (13,290 ) (25,138 )

Financing activities:
Net (decrease) increase in short-term debt (2,000 ) 2,161
Dividends paid (7,542 ) (6,673 )
Proceeds from exercise of stock options 231
1,014
Repurchase of treasury stock (1,989 ) (3,288 )
Issuance of treasury stock 431
533
Net cash used for financing activities (10,869 ) (6,253 )

Effect of foreign exchange rates on cash (79 ) 558

Increase in cash 961
6,512
Cash – beginning of period 11,164
7,338
Cash – end of period $ 12,125
$ 13,850

See accompanying notes to unaudited consolidated condensed financial statements.

Table of Contents

BADGER METER, INC.

Consolidated Condensed Statements of Shareholders’ Equity

	Quarters ended March 31,
	Common Stock at $1 par value*		Capital in excess of par value			Reinvested earnings			Accumulated other comprehensive income (loss)			Employee benefit stock			Treasury stock (at cost)			Total
	(Unaudited)
	(In thousands except share and per share amounts)
Balance, December 31, 2017	$	37,165	$	32,182		$	244,224		$	(10,893	)	$	(461	)	$	(24,766	)	$	277,451
Net earnings		—		—			7,546			—			—			—			7,546
ASU 2014-09 adoption impact		—		—			(128	)		—			—			—			(128	)
Pension and postretirement benefits (net of $21 tax effect)		—		—			—			61			—			—			61
Foreign currency translation		—		—			—			421			—			—			421
Cash dividends of $0.13 per share		—		—			(3,777	)		—			—			—			(3,777	)
Stock options exercised		12		219			—			—			—			—			231
Stock-based compensation		—		471			—			—			—			—			471
Purchase of common stock for treasury stock		—		—			—			—			—			(1,619	)		(1,619	)
Issuance of treasury stock (21 shares)		—		(1	)		—			—			—			66			65
Balance, March 31, 2018	$	37,177	$	32,871		$	247,865		$	(10,411	)	$	(461	)	$	(26,319	)	$	280,722

Balance, December 31, 2018	$	37,198	$	38,082		$	257,313		$	580		$	(306	)	$	(29,364	)	$	303,503
Net earnings		—		—			10,824			—			—			—			10,824
Pension and postretirement benefits (net of $4 tax effect)		—		—			—			(12	)		—			—			(12	)
Foreign currency translation		—		—			—			(257	)		—			—			(257	)
Cash dividends of $0.15 per share		—		—			(4,360	)		—			—			—			(4,360	)
Stock options exercised		2		397			—			—			—			72			471
Stock-based compensation		—		265			—			—			—			—			265
Purchase of common stock for treasury stock		—		—			—			—			—			(1,873	)		(1,873	)
Issuance of treasury stock (9 shares)		—		12			—			—			—			40			52
Balance, March 31, 2019	$	37,200	$	38,756		$	263,777		$	311		$	(306	)	$	(31,125	)	$	308,613

* Each common share of stock equals $1 par value; therefore, the number of common shares is the same as the dollar value.

See accompanying notes to unaudited consolidated condensed financial statements.

Table of Contents

BADGER METER, INC.

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1 Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Badger Meter ~~Inc. (the “Company” or “Badger Meter”)~~ contain all adjustments (consisting only of normal recurring accruals except as otherwise discussed) necessary to present fairly the Company’s consolidated condensed financial position at ~~June 30, 2018,~~March 31, 2019, results of operations, comprehensive income, cash flows and statements of shareholders’ equity for the ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017, comprehensive income for the three- and six-month periods ended June 30, 2018 and 2017, and cash flows for the six-month periods ended June 30, 2018 and 2017.~~2018. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 2 Additional Financial Information Disclosures

The consolidated condensed balance sheet at December 31, ~~2017~~2018 was derived from amounts included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Refer to the ~~footnotes~~notes to the financial statements included in that report for a description of the Company’s accounting policies and for additional details of the Company’s financial condition. The details in those notes have not changed except as discussed below and as a result of normal adjustments in the interim.

Warranty and After-Sale Costs

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

	Three months ended March 31,
(In thousands)	2019			2018
Balance at beginning of period	$	4,206		$	3,367
Net additions charged to earnings		465			1,041
Adjustments to pre-existing warranties		-			(53	)
Costs incurred		(353	)		(653	)
Balance at end of period	$	4,318		$	3,702

Three months ended Six months ended
June 30, June 30,
(In thousands) 2018 2017 2018 2017
Balance at beginning of period $ 3,702
$ 2,548
$ 3,367
$ 2,779
Net additions charged to earnings 1,274
1,231
2,315
1,983
Adjustments to pre-existing warranties (48 ) 440
(101 ) 46
Costs incurred (818 ) (1,155 ) (1,471 ) (1,744 )
Balance at end of period $ 4,110
$ 3,064
$ 4,110
$ 3,064

~~Rights Agreement~~

~~The shareholder rights plan that was in effect since February 15, 2008 expired on May 26, 2018 and the Board of Directors decided not to renew the plan.~~

Note 3 Employee Benefit Plans

~~The~~

Historically, the Company ~~maintains~~maintained a non-contributory defined benefit pension plan that ~~covers~~covered substantially all U.S. employees who were employed at December 31, 2011. After that date, no further benefits ~~are being~~were accrued in this plan. For the frozen pension plan, benefits ~~are~~were based primarily on years of service and, for certain ~~plans,~~individuals, levels of compensation. ~~The~~In 2018, the Company ~~has taken steps towards terminating the pension plan and expects~~completed the termination to be finalized in the third quarter of 2018. The ultimate settlement obligation will depend upon the nature and timing of participant settlements at prevailing market conditions. During the three months ended June 30, 2018, in connection with the Company's ongoing activities to terminate the plan, lump-sum distributions to participants of the ~~Plan exceeded the service and interest components of net periodic~~non-contributory defined benefit pension cost. As a result, the company recorded a pre-tax settlement charge of $8.2 million during the second quarter of 2018 due for the most part to the initial transfer of pension funds to individuals who elected to rollover their accounts or transfer them to their plan.

The Company ~~also~~ maintains supplemental non-qualified plans for certain officers and other key employees, and an Employee Savings and Stock ~~Option~~Ownership Plan ~~(“ESSOP”)~~ for the majority of the U.S. employees.

The Company additionally has a postretirement healthcare benefit plan that provides medical benefits for certain U.S. retirees and eligible dependents hired prior to November 1, 2004. Employees are eligible to receive postretirement healthcare benefits upon meeting certain age and service requirements. No employees hired after October 31, 2004 are eligible to receive these benefits. This plan requires employee contributions to offset benefit costs.

~~The following table sets forth the components~~

Table of ~~net periodic benefit (income) cost for the three months ended June 30, 2018 and 2017 based on December 31, 2017 and 2016 actuarial measurement dates, respectively:~~

Defined
pension plan
benefits

Other
postretirement
benefits
(In thousands) 2018 2017 2018 2017
Service cost (income) – benefits earned during the year $ 41
$ (11 ) $ 28
$ 28
Interest cost on projected benefit obligations 222
469
47
66
Expected return on plan assets (591 ) (396 ) —
—
Amortization of prior service cost —
—
—
(7 )
Amortization of net loss (benefit) 201
141
(15 ) (24 )
Settlement expense 8,168
—
—
—
Net periodic benefit cost $ 8,041
$ 203
$ 60
$ 63

Contents

The following table sets forth the components of net periodic benefit cost (income) for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ based on December 31, ~~2017~~2018 and ~~2016~~2017 actuarial measurement dates, respectively:

	Defined pension plan benefits					Other postretirement benefits
(In thousands)	2019		2018			2019			2018
Service cost – benefits earned during the year	$	37	$	29		$	29		$	34
Interest cost on projected benefit obligations		9		95			53			48
Expected return on plan assets		-		(244	)		-			-
Amortization of prior service benefit		-		-			(25	)		(6	)
Amortization of net loss		9		88			-			-
Net periodic benefit cost (income)	$	55	$	(32	)	$	57		$	76

Defined
pension plan
benefits

Other
postretirement
benefits
(In thousands) 2018 2017 2018 2017
Service cost – benefits earned during the year $ 70
$ 13
$ 62
$ 63
Interest cost on projected benefit obligations 317
787
95
117
Expected return on plan assets (835 ) (798 ) —
—
Amortization of prior service cost —
—
(7 ) (13 )
Amortization of net loss (benefit) 289
276
(15 ) (24 )
Settlement expense 8,168
—
—
—
Net periodic benefit cost $ 8,009
$ 278
$ 135
$ 143

The Company disclosed in its financial statements for the year ended December 31, ~~2017 that it was not required to make a minimum contribution to the defined benefit pension plan for the~~ 2018 calendar year. The Company made a $1.6 million payment in June 2018 related to the 2017 plan year. The Company believes that no additional contributions will be required during 2018 as it will be terminated prior to the end of 2018.

~~The Company also disclosed in its financial statements for the year ended December 31, 2017~~ that it estimated it would pay $0.4 million in other postretirement benefits in ~~2018~~2019 based on actuarial estimates. As of ~~June 30, 2018, $142,000~~March 31, 2019, $52,000 of such benefits have been paid. The Company continues to believe that its estimated payments for the full year are reasonable. However, such estimates contain inherent uncertainties because cash payments can vary significantly depending on the timing of postretirement medical claims and the collection of the retirees’ portion of certain costs. ~~Note that the~~The amount of benefits paid in calendar year ~~2018~~2019 will not impact the expense for postretirement benefits for ~~2018.~~

2019.

Note 4 Accumulated Other Comprehensive ~~Loss~~

Income (Loss)

Components of and changes in accumulated other comprehensive ~~loss~~income (loss) at ~~June 30, 2018~~March 31, 2019 are as follows:

(In thousands)	Unrecognized pension and postretirement benefits			Foreign currency			Total
Balance at beginning of period	$	360		$	220		$	580
Other comprehensive income (loss) before reclassifications		-			(257	)		(257	)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $4 thousand		(12	)		-			(12	)
Net current period other comprehensive income (loss), net of tax		(12	)		(257	)		(269	)
Accumulated other comprehensive income (loss)	$	348		$	(37	)	$	311

(In thousands) Unrecognized pension and postretirement benefits Foreign currency Total
Balance at beginning of period $ (11,597 ) $ 704
$ (10,893 )
Other comprehensive loss before reclassifications —
(387 ) (387 )
Amounts reclassified from accumulated other comprehensive loss, net of tax of $(1.9 million) 5,772
—
5,772
Net current period other comprehensive income (loss), net of tax 5,772
(387 ) 5,385
Accumulated other comprehensive (loss) income $ (5,825 ) $ 317
$ (5,508 )

Details of reclassifications out of accumulated other comprehensive ~~loss~~income (loss) during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 are as follows:

(In thousands)	Amount reclassified from accumulated other comprehensive income (loss)
Amortization of pension and postretirement benefits items:
Prior service benefit (1)	$	(25	)
Actuarial loss (1)		9
Total before tax		(16	)
Income tax		4
Amount reclassified out of accumulated other comprehensive loss	$	(12	)

(In thousands) Amount reclassified from accumulated other comprehensive loss
Amortization of pension and postretirement benefits items:
Prior service benefit (1) $ (756 )
Settlement expense (1) 8,168
Amortization of actuarial loss (1) 274
Total before tax 7,686
Income tax benefit (1,914 )
Amount reclassified out of accumulated other comprehensive loss $ 5,772

~~(1) These accumulated other comprehensive loss components are included in the computation of net periodic benefit (income) cost in Note 3 “Employee Benefit Plans.”~~

~~Components of and changes in accumulated other comprehensive loss at June 30, 2017 are as follows:~~

(In thousands) Unrecognized pension and postretirement benefits Foreign currency Total
Balance at beginning of period $ (10,495 ) $ (1,140 ) $ (11,635 )
Other comprehensive income before reclassifications —
1,340
1,340
Amounts reclassified from accumulated other comprehensive loss, net of tax of $(0.1) million 154
—
154
Net current period other comprehensive income, net of tax 154
1,340
1,494
Accumulated other comprehensive (loss) income $ (10,341 ) $ 200
$ (10,141 )

~~Details of reclassifications out of accumulated other comprehensive loss during the six months ended June 30, 2017 are as follows:~~

(In thousands) Amount reclassified from accumulated other comprehensive loss
Amortization of pension and postretirement benefits items:
Prior service benefit (1) $ (13 )
Amortization of actuarial loss (1) 252
Total before tax 239
Income tax benefit (85 )
Amount reclassified out of accumulated other comprehensive loss $ 154

(1)
~~(1)~~	These accumulated other comprehensive ~~loss~~income (loss) components are included in the computation of net periodic benefit cost (income) ~~cost~~ in Note 3 “Employee Benefit Plans.”

Table of Contents

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

(In thousands)	Unrecognized pension and postretirement benefits			Foreign currency		Total
Balance at beginning of period	$	(11,597	)	$	704	$	(10,893	)
Other comprehensive income (loss) before reclassifications		-			421		421
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $21 thousand		61			-		61
Net current period other comprehensive income (loss), net of tax		61			421		482
Accumulated other comprehensive income (loss)	$	(11,536	)	$	1,125	$	(10,411	)

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

(In thousands)	Amount reclassified from accumulated other comprehensive income (loss)
Amortization of pension and postretirement benefits items:
Prior service benefit (1)	$	(6	)
Amortization of actuarial loss (1)		88
Total before tax		82
Income tax		(21	)
Amount reclassified out of accumulated other comprehensive income	$	61

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

Note 5 ~~Acquisitions~~

Acquisition

On April 2, 2018, the Company acquired 100% of the outstanding stock of Innovative Metering Solutions, Inc. ("IMS") of Odessa, Florida, which was one of the Company's distributors serving Florida.

Acquisitions are accounted for under the purchase method, and accordingly, the results of operations were included in the Company's financial statements from the date of acquisition. The IMS acquisition did not have a material impact on the Company's consolidated financial statements or the notes thereto.

The total purchase consideration was approximately $12.0 million, which included $7.7 million in cash, a $0.3 million working capital adjustment, a balance sheet holdback of $0.7 million and settlement of $3.3 million of pre-existing Company receivables. The working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback ~~has been included as a payable~~is recorded in payables on the Company's ~~consolidated balance sheet.~~Consolidated Balance Sheet as it is anticipated to be paid in the next twelve months. The Company's ~~preliminary~~ allocation of the purchase price at ~~June 30, 2018~~March 31, 2019 included $3.8 million of receivables, $0.8 million of inventories, $0.1 million of machinery and equipment, $3.6 million of intangibles and $3.7 million of goodwill. The intangible assets acquired are customer relationships with an estimated average useful life of 10 years. The ~~preliminary~~ allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of ~~June 30, 2018,~~March 31, 2019, the Company had ~~not completed its analysis for estimating the fair value of the assets acquired.~~

The IMS acquisition was 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 acquisition did not have a material impact on the Company's consolidated financial statements or the notes thereto.

On November 1, 2017, the Company acquired certain assets of Utility Metering Services, Inc.'s business Carolina Meter & Supply ("Carolina Meter") of Wilmington, North Carolina, which was one of the Company's distributors serving North Carolina, South Carolina and Virginia.

The total purchase consideration for the Carolina Meter assets was $6.2 million, which included $2.0 million in cash and settlement of $4.2 million of pre-existing Company receivables. The Company's preliminary allocation of the purchase price at December 31, 2017 included $0.6 million of receivables, $0.3 million of inventories, $3.3 million of intangibles and $2.0 million of goodwill. The intangible assets acquired are primarily customer relationships with an estimated average useful life of 12 years. The preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of June 30, 2018, the Company had not completed its analysis for estimating the fair value of the assets acquired.

The Carolina Meter acquisition was 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 acquisition did not have a material impact on the Company's consolidated financial statements or the notes thereto.

On May 1, 2017, the Company acquired 100% of the outstanding common stock of D-Flow Technology AB ("D-Flow") of Luleå, Sweden. The D-Flow acquisition facilitates the continued advancement of the existing E-Series® ultrasonic product line while also adding a technology center for the Company.

The purchase price was approximately $23.2 million in cash, plus a small working capital adjustment. The purchase price included $5.0 million in payments that are anticipated to be made in 2018 which are recorded in payables and other current liabilities on the Consolidated Balance Sheets at June 30, 2018. The Company's preliminary allocation of the purchase price included approximately $0.3 million in receivables, $0.6 million of inventories, $0.2 million in property, plant and equipment, $10.9 million of intangibles and $16.1 million of goodwill. The majority of the intangible assets acquired related to ultrasonic technology. The Company also assumed $4.9 million of liabilities as part of the acquisition. As of March 31, 2018, the Company completed its analysis for estimating the fair value of the assets acquired ~~and liabilities assumed~~ with no additional adjustments.

~~The~~

In the first quarter of 2019, the Company made a contingent payment of $1.0 million related to the May 1, 2017 acquisition of 100% of the outstanding common stock of D-Flow Technology AB (“D-Flow”). There is an additional $2.0 million of contingent payments related to the D-Flow acquisition ~~was accounted for under the purchase method, and accordingly, the results of operations were included~~that is anticipated to be made in ~~the Company's financial statements from the date of acquisition. The acquisition did not have a material impact~~2019 which is recorded in payables on the ~~Company's consolidated condensed financial statements or the notes thereto.~~

Company’s Consolidated Balance Sheet at March 31, 2019.

Note 6 Contingencies, Litigation and Commitments

In the normal course of business, the Company is named in legal proceedings. There are currently no material legal proceedings pending with respect to the Company.

The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to specific matters or with respect to sites formerly or currently owned or operated by the Company, off-site disposal locations used by the Company, and property owned by third parties that is near such sites, could result in

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future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during ~~2017~~2018 and the first ~~half~~quarter of ~~2018~~2019 were not material.

The Company relies on single suppliers for most brass castings, ~~and~~ certain ~~resin~~resins and electronic subassemblies in several of its product lines. The Company believes these items would be available from other sources, but that the loss of certain suppliers would result in a higher cost of materials, delivery delays, short-term increases in inventory and higher quality control costs in the short term. The Company attempts to mitigate these risks by working closely with key suppliers, purchasing minimal amounts from alternative suppliers and by purchasing business interruption insurance where appropriate.

The Company reevaluates its exposures on a periodic basis and makes adjustments to reserves as appropriate.

Note 7 Income Taxes

The Company is subject to income taxes in the United States and numerous foreign jurisdictions. The Company’s income tax positions are based on interpretations of income tax laws and rulings in each of the jurisdictions that the Company operates. Significant judgment is required in determining the worldwide provision for income taxes ~~as a percentage of earnings before~~and recording the related deferred tax assets and liabilities. The Company’s deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income ~~taxes~~ for the ~~second quarter of 2018 was 22.2% compared~~years in which the assets or liabilities are expected to ~~35.5% in the second quarter of 2017. The provision for income taxes as a percentage of earnings before income taxes for the first half of 2018 was 22.2% compared to 34.9% for the first half of 2017.~~be realized or settled. Interim provisions are tied to an estimate of the overall annual rate which can vary due to ~~state taxes and~~ the relationship of foreign and domestic ~~earnings. These items cause variations between periods.~~ earnings, state taxes and available deductions, credits and discrete items.

The ~~decrease between years was due almost entirely to the lower Federal~~Company’s earnings before incomes taxes, income tax expense and effective income tax rate ~~which declined from 35% in 2017 to 21% in 2018~~are as a result of U.S. tax reform that was enacted in December 2017. For the six-months ended June 30, 2018 and 2017, the Company recognized discrete tax benefits related to a pension plan payment (2018 only) and the excess tax benefits from stock-based compensation of $0.5 million and $0.2 million, respectively.follows:

	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
	(In thousands)
Earnings before income taxes	$	14,151		$	9,703
Income tax expense	$	3,327		$	2,157
Effective income tax rate		23.5	%		22.2	%

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. For the three- and six-month periods months ended June 30, 2018, the Company did not update the provisional amount of transition tax recorded as of December 31, 2017, as there was no new information that would materially impact the Company’s consolidated financial statements. The Company will continue to monitor any new guidance and update its transition tax calculation in a later quarter if necessary. Additional work is still needed for a more detailed analysis of the Company's deferred tax assets and liabilities and its historical foreign earnings, as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter that the analysis is completed.

The Company is subject to numerous other provisions of the Act that are effective for tax years starting after December 31, 2017. These provisions include the Global Intangible Low-Taxed Income inclusion, the deduction for Foreign-Derived Intangible Income, the business interest expense deduction limitation under Section 163(j), the executive compensation provision under Section 162(m), and the reduced deduction for certain meals and entertainment related expenses. The Company will continue to refine its computation related to these provisions as additional guidance becomes available. The net impact of these provisions is not expected to have a material impact on the Company’s consolidated financial statements.

Note 8 Fair Value Measurements of Financial Instruments

The Company applies the accounting standards for fair value measurements and disclosures for its financial assets and financial liabilities. The carrying amounts of cash, receivables and payables in the financial statements approximate their fair values due to the short-term nature of these financial instruments. Short-term debt is comprised of notes payable drawn against the Company's lines of credit and commercial paper. Because of its short-term nature, the carrying amount of the short-term debt also approximates fair value. Included in other assets are insurance policies on various individuals who were ~~associated with~~previously employed by the Company. The carrying amounts of these insurance policies approximate their fair value.

Note 9 Subsequent Events

The Company evaluates subsequent events at the date of the balance sheet as well as conditions that arise after the balance sheet date but before the financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the financial statements. Events and conditions arising after the balance sheet date but before the financial statements are issued are evaluated to determine if disclosure is required to keep the financial statements from being misleading. To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions. For purposes of preparing the accompanying consolidated ~~condensed~~ financial statements and the notes to these financial statements, the Company evaluated subsequent events through the date that the accompanying financial statements were issued, and has determined that no material subsequent events exist through the date of this filing.

Note 10 New Pronouncements

In ~~February~~August 2018, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”) ~~2018-02 "Income Statement~~No. 2018-14 “Compensation - ~~Reporting Comprehensive Income (Topic 220)." Under existing U.S. generally accepted accounting principles,~~Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20),” which modifies the ~~effects of changes~~annual disclosure requirements for defined benefit pension and other postretirement benefit plans. This ASU as modified added and deleted specific disclosures in ~~tax rates and laws on deferred tax balances are recorded as a component of income tax expense in~~an effort to improve the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income.usefulness for financial statement users while also reducing unnecessary costs for companies. The ~~amendments in~~ ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is effective for ~~fiscal years~~annual periods beginning after December 15, ~~2018 and interim periods within those fiscal years. Early~~2020 with early adoption being permitted in any interim reporting period ~~is permitted. The Company’s provisional adjustments recorded in 2017 to account for~~within the ~~impact of the Tax Cuts and Jobs Act resulted in stranded tax effects.~~annual reporting period. The Company is currently ~~evaluating~~assessing the ~~timing and~~ impact of adopting ASU ~~2018-02.~~

No. 2018-14.

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In ~~May 2017,~~August 2018, the FASB issued ASU ~~2017-09 “Compensation - Stock Compensation~~No. 2018-13 “Fair Value Measurement (Topic ~~718)~~820),” which ~~clarifies when a change~~is designed to ~~terms or conditions~~improve the effectiveness of ~~a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition,~~disclosures related to fair value ormeasurements. This ASU is effective for annual periods beginning after December 15, 2019 and early adoption is allowed in any interim reporting period within the ~~award classification~~annual reporting period. The Company is ~~not~~currently assessing the ~~same both before and after a change to the terms and conditions~~impact of ~~the award. The new guidance was adopted on a prospective basis on January 1, 2018. The adoption of this standard did not have an impact on the Company's consolidated financial statements.~~

~~In March 2017, the FASB issued~~adopting ASU 2017-07 “Compensation - Retirement Benefits (Topic 715),” which changes the presentation of defined benefit and post-retirement benefit plan expense on the income statement by requiring separation between operating and non-operating expense. Under the ASU, the service cost of net periodic benefit expense is an operating expense that will be reported with similar compensation costs. The non-operating components, which include all other components of net periodic benefit expense, are reported outside of operating income. The ASU also stipulates that only the service cost component of pension and postretirement (benefits) costs is eligible for capitalization. The ASU was adopted by the Company on January 1, 2018. Application was done retrospectively for the presentation of the components of these (benefits) costs. In the Consolidated Statements of Operations, the Company previously recorded service and other (benefits) costs in operating cost and expense accounts along with compensation costs. The adoption of the standard resulted in reclassification of those (benefits) costs to the other pension and postretirement (benefits) costs line in the Consolidated Statements of Operations. Adoption of the standard increased operating earnings for 2018 by $8.0 million in both the three- and six-month periods ending June 30, 2018. Those amounts are established in other pension and postretirement (benefits) costs. In the three- and six-month periods ending June 30,

2017 operating earnings were increased by $0.2 million and $0.3 million, respectively. A corresponding amount was reclassified to other pension and postretirement (benefits) costs. The specific net periodic benefit components are disclosed in Note 3 "Employee Benefit Plans."

No. 2018-13.

In January 2017, the FASB issued ASU No. 2017-04 ~~"Intangibles~~“Intangibles - Goodwill and Other (Topic 350)."” The update requires

a single-step quantitative test to measure potential impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment can still be completed first for an entity to determine if a quantitative impairment test is necessary. The ASU is effective ~~for fiscal year 2021 and is to be adopted~~ on a prospective ~~basis.~~basis for annual periods beginning after December 15, 2019 and interim periods thereafter. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company adopted ASU No. 2017-04 on January 1, 2019. The adoption of this standard did not have any impact on the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326),” which amends the accounting for credit losses on purchased financial assets and available-for-sale debt securities with credit deterioration. This ASU requires the measurement of all expected credit losses for financial assets, including accounts receivables, held at the reporting date based upon current conditions, historical experience and reasonable forecasts. This ASU is effective for annual reporting periods beginning after December 15, 2019, and early adoption is allowed in any interim reporting period within the annual reporting period. The Company is currently assessing the impact of adopting ASU No. 2016-13.

In February 2016, the FASB issued ASU No. 2016-02 ~~"Leases~~“Leases (Topic 842),"” which requires lessees to record most leases on their balance sheets. Lessees initially recognize a lease liability (measured at the present value of the lease payments over the lease term) and a right-of-use ~~("ROU")~~ asset (measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee's initial direct costs). Lessees can make an accounting policy election not to recognize ROU assets and lease liabilities for leases with a lease term of 12 months or less as long as the leases do not include options to purchase the underlying assets that the lessee is reasonably certain to exercise. ~~For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases.~~ The standard ~~requires~~includes the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited.The Company plans to adopt the ASU beginning on the effective date of January 1, 2019. The Company expects that upon adoption the consolidated balance sheet will increase for the recognition of right of use assets and lease liabilities for operating leases. The Company is currently reviewing all of the available practical expedients for transition and is evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and the presentation of its consolidated financial statements.

prohibited. In ~~May 2014,~~July 2018, the FASB issued ASU ~~2014-09 "Revenue from Contracts~~No. 2018-11 “Targeted Improvements (Topic 842).” This ASU provides for an optional method of transition which allows companies to adopt the new leasing standard with ~~Customers (Topic 606)." ASU 2014-09 provides~~ a ~~single principles-based, five-step model~~cumulative effect adjustment to ~~be applied to all contracts with customers.~~reinvested earnings. The ~~five steps are to identify~~Company adopted the ~~contract(s)~~new leasing standard with the customer, to identify the performance obligations in the contract, to determine the transaction price, to allocate the transaction price to the performance obligations in the contract and to recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. In addition, the standard requires disclosureoptional transition methodology as of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. During 2016, the FASB issued additional ASU’s which enhanced the originally issued guidance. These ASU’s encompassed narrow scope improvements and practical expedients along with providing further clarifications. Effective January 1, ~~2018, the Company adopted ASU 2014-09 using the modified retrospective method, which resulted in an immaterial impact.~~2019. For a complete discussion of the adoption of ASU ~~2014-09,~~No. 2016-02 and ASU No. 2018-11, see Note ~~11 "Revenue Recognition."~~

12 “Leases.”

Note 11 Revenue Recognition

~~Adoption of ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)"~~

On January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method applied to those contracts that were not completed or substantially complete as of January 1, 2018. Results for the reporting period beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605. The Company recorded a net reduction to opening retained earnings of $0.1 million as of January 1, 2018 as a result of the cumulative impact of adopting Topic 606. The impact to revenues as a result of applying Topic 606 for the three- and six-month periods ended June 30, 2018 was a decrease of $35,000 and $76,000, respectively.

~~Contracts with Customers~~

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

~~Disaggregation of Revenue~~

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

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Information regarding revenues disaggregated by geographic area is as ~~follows (in millions):~~follows:

	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
	(In thousands)
Revenues:
United States	$	91,499	$	91,153
Foreign:
Asia		1,452		1,700
Canada		3,497		3,260
Europe		5,352		5,047
Mexico		834		623
Middle East		1,584		2,152
Other		663		1,106
Total	$	104,881	$	105,041

Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018

Revenues:
United States $ 97,910
$ 189,063
Foreign:
Asia 3,161
4,861
Canada 3,529
6,789
Europe 5,101
10,148
Mexico 483
1,106
Middle East 3,204
5,356
Other 260
1,366
Total $ 113,648
$ 218,689

Information regarding revenues disaggregated by the timing of when goods and services are transferred is as ~~follows (in millions)~~:follows:

	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
	(In thousands)
Revenue recognized over time	$	3,753		2,687
Revenue recognized at a point in time		101,128		102,354
Total	$	104,881	$	105,041

Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018

Revenue recognized over time $ 3,061
5,748
Revenue recognized at a point in time 110,587
212,941
Total $ 113,648
$ 218,689

~~Contract Balances~~

The Company performs its obligations under a contract ~~with a customer~~ by ~~transferring~~shipping products ~~and/~~or performing services in exchange for ~~consideration from the customer.~~consideration. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable ~~for~~to the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods ~~and/~~or services and the Company has not transferred control of the goods ~~and/~~or services.

The opening and closing balances of the Company's receivables and contract ~~liabilites and receivables~~liabilities are as follows:

	March 31, 2019		December 31, 2018
	(In thousands)
Receivables	$	68,095	$	66,300
Contract liabilities	$	16,686	$	15,793

June 30, 2018 December 31, 2017
Receivables $ 65,303
$ 58,210
Contract liabilities $ 13,460
$ 9,670

The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables ~~in the three- and six-month periods ended June 30, 2018~~at March 31, 2019 and December 31, ~~2017.~~

~~The amount of revenue recognized in the three- and six-month periods ending June 30, 2018 that was included in the opening contract liability balance was $0.3 million and $0.6 million, respectively.~~2018. The difference between the opening and closing balances of the Company's contract liabilities was the result of a timing difference between the Company's performance and the customers' prepayments. ~~The increased receivables balance~~

As of March 31, 2019, the Company had certain contracts where there were unsatisfied performance obligations. For contracts recorded as contract liabilities, $16.7 million was ~~due to higher sales in~~ the ~~first half of 2018 compared to the fourth quarter of 2017. Generally, receivables balances are lower at year-end than at other times~~aggregate amount of the ~~year.~~

~~Performance Obligations~~

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 $3.3 million in 2019, $1.5 million in each year from 2020 through 2024 and $5.9 million thereafter.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of measurement in Topic 606. 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. Revenue from products and services transferred to customers at a single point in time accounted for ~~97.3%~~96.4% and 97.4% of net sales for the ~~three- and six-month~~three-month periods ended ~~June 30,~~March 31, 2019 and 2018, respectively. The majority of the Company's revenue recognized at a

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point in time is for the sale of municipal 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.

Revenue from services transferred to customers over time accounted for ~~2.7%~~3.6% and 2.6% of sales of net sales for the ~~three- and six-month~~three-month periods ended ~~June 30,~~March 31, 2019 and 2018, respectively. The majority of the Company's revenue that is recognized over time relates to the BEACON AMA software as a service.

~~As of June 30, 2018,~~

Note 12 Leases

On January 1, 2019, the Company ~~had entered into contracts where there were unsatisfied performance obligations. For contracts recorded~~adopted ASU No. 2016-02 and ASU No. 2018-11 using the optional transition method. Under this transition method, comparative periods will continue to be reported in accordance with prior lease guidance under ASC 840 Leases. The Company has elected certain practical expedients permitted under the transition guidance, which, among other things, allows the Company to carry forward historical lease classifications.

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 prepaid expenses and other current assets and other assets on the Company’s Consolidated Balance Sheet. Lease liabilities are included in other current liabilities and other long-term liabilities ~~$10.8 million was~~on 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.~~Company’s Consolidated Balance Sheet. The Company ~~estimates~~has elected not to recognize leases that revenue recognized from satisfying those performance obligations will be approximately $1.2 million for the remainder of 2018, $2.5 million in each year from 2019 through 2021 and $2.1 million in 2022.

~~Significant Judgments~~

The Company records revenue for BEACON AMA services over time as the customer benefits from the data that is provided through the Company's software. Control of an asset is therefore transferred to the customer over time, and the Company will recognize revenue for Beacon AMA services 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.

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 meters. 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 three- and six-month periods ended June 30, 2018 from year end 2017.

Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. Variable consideration in contracts for the three- and six-month periods ended June 30, 2018 was ~~insignificant~~.

~~Transaction Price Allocation~~

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.

~~Contract Costs~~

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 AMA 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.

~~Practical Expedients~~

~~For the three- and six-month periods ended June 30, 2018, 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 lengthterms of one year or less on the Consolidated Balance Sheet. Information regarding the Company's right-of-use assets and ~~contracts~~the corresponding lease liabilities are as follows:

	March 31, 2019		January 1, 2019
	(In thousands)
Right-of-use assets	$	10,077	$	10,745
Lease liabilities	$	10,428	$	11,087

The Company’s operating lease agreements have lease and non-lease components that require payments for ~~which we recognize revenue at the amount to which we have the right to invoice for services performed.~~

common area maintenance, property taxes and insurance. The Company has ~~made an accounting policy election~~elected to ~~exclude all taxes by governmental authorities from~~account for both lease and non-lease components as one lease component. The fixed and in-substance fixed consideration in the ~~measurement~~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 ~~transaction price.~~right-of use-assets and lease liabilities on the Consolidated Balance Sheet. The Company’s rent expense is as follows:

	Three Months Ended March 31, 2019
	(In thousands)
Operating lease expense	$	801
Variable and short-term lease expense		72
Rent expense	$	873

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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 rent 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 March 31, 2019 and January 1, 2019, the remaining lease term on the Company’s leases was 5.0 years and 5.3 years, respectively. As of March 31, 2019 and January 1, 2019, the discount rate was 5.00%.The future minimum lease payments to be paid under operating leases are as follows:

	Three Months Ended March 31, 2019
	(In thousands)
2019 (remaining nine months)	$	2,328
2020	$	2,703
2021	$	2,113
2022	$	1,247
2023	$	1,184
Thereafter	$	2,189
Total future lease payments	$	11,764
(Present value adjustment)	$	(1,336	)
Present value of future lease payments	$	10,428

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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Business Description and Overview~~

BUSINESS DESCRIPTION AND OVERVIEW

Badger Meter is an innovator in flow measurement, control and related communication solutions, serving water utilities, municipalities, and commercial and industrial customers worldwide. The Company’s products measure water, oil, chemicals and other fluids, and are known for accuracy, long-lasting durability and for providing ~~and communicating~~ valuable and timely measurement ~~data.~~data through various methods. The Company’s product lines fall into two categories: sales of water meters, radios and related technologies to municipal water utilities (municipal water) and sales of meters, ~~to various industries for water~~valves and other ~~fluids~~products for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that over 85% of its products are used in water ~~applications when both categories are grouped together.~~

related applications.

Municipal water, the largest sales category, ~~by sales volume, includes~~is comprised of either mechanical ~~and ultrasonic (electronic)~~or static (ultrasonic) water meters along with the related radio and ~~related~~software technologies and services used by municipal water utilities as the basis for generating their water and wastewater revenues. The ~~key~~largest geographic market for the Company’s municipal water ~~meter~~ 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. In recent years, the Company has made inroads~~nature; however, ultrasonic meters are gaining in ~~selling~~penetration due to a variety of factors, including their ability to maintain near absolute measurement accuracy over their useful life. Providing ultrasonic water ~~meters. The development of smaller diameter ultrasonic water meters~~meter technology, combined with advanced radio technology, ~~now~~ provides the Company with the opportunity to sell into other geographical markets, for example ~~Europe,~~ the Middle East and South America. In the municipal water category, sales of water meters and related technologies and services are also commonly referred to as residential or commercial water meter sales, the latter referring to larger sizes of water meters.

Europe.

Flow instrumentation includes meters and valves sold worldwide to measure and control ~~materials flowing~~fluids going through a pipe or pipeline including water, air, steam, oil, and other liquids and gases. These products are used in a variety of industries and applications, ~~primarily into~~with the ~~following industries:~~Company’s primary market focus being water/wastewater; heating, ventilating and air conditioning (HVAC); oil and ~~gas;~~gas, and chemical and ~~petrochemical; test and measurement; automotive aftermarket; and the concrete construction process. Furthermore, the Company’s flow~~petrochemical. Flow instrumentation ~~technologies~~products are generally sold to original equipment manufacturers as the primary flow measurement device within a product or ~~system.~~

~~Residential~~system, as well as through manufacturers’ representatives.

Municipal water meters (both residential and ~~commercial water meters~~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 appropriately for water utility usage and billing systems. These remotely read ~~or mobile,~~ 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 utilities’ meters; or ~~fixed network~~ advanced metering infrastructure (AMI) systems, where data is gathered utilizing a network (either fixed or cellular) of ~~permanent~~ data collectors or gateway receivers that are ~~always active or listening for the~~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 the utilities with more frequent and diverse data from their meters at specified intervals.

The ~~ORION®~~ORION branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading. These include ORION Migratable (ME) for ~~mobile~~AMR meter reading, ORION (SE) for traditional fixed network applications, and ORION Cellular for an infrastructure-free ~~fixed network~~ meter ~~reading.~~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 ~~rapid~~gradual or full deployment, and decreases ongoing maintenance.

Critical to the water metering ecosystem is information and analytics. The Company’s BEACON ~~AMA Managed Solution is the latest in metering technology. BEACON AMA combines the BEACON analytical~~Advanced Metering Analytics (AMA) software suite ~~with proven ORION technologies using two-way fixed and cellular networks in a managed solution, improving~~improves the utilities’ visibility of their water ~~consumption~~ and ~~eliminating the need for costly utility-managed infrastructure.~~

~~The~~water usage. BEACON AMA is a secure, cloud-hosted software suite that includes a customizable dashboard, and has the ability to establish alerts for specific ~~conditions, and~~conditions. It also allows for consumer engagement tools that ~~allow~~permit end water ~~customers~~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.

The Company’s net sales and corresponding net earnings depend on unit volume and product mix, with the Company generally earning higher margins on meters equipped with radio technology. The Company’s proprietary radio products generally result in higher margins than the remarketed, non-proprietary technology products. The Company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field.

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. Over the last decade, there has been a growing trend in the conversion from manually read water meters to meters with radio technology. This conversion rate is accelerating, ~~and contributes to an increased water meter and radio solutions base of business. The~~with the Company ~~estimates~~estimating that approximately ~~55% to~~ 60% of water meters installed in the United States have been converted to a radio ~~solutions~~solution technology.

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The Company’s ~~strategy is~~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 ~~fulfill customers’ metering expectations~~mechanical meters. The Company’s proprietary radio products (i.e. ORION) generally result in higher margins than the remarketed, non-proprietary technology products. The Company also sells registers and ~~requirements with its proprietary meter reading systems or other systems available through its alliance partners~~endpoints separately to customers who wish to upgrade their existing meters in the ~~marketplace.~~

field.

Flow instrumentation products ~~serve~~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’s specific flow measurement~~Company provides both standard and ~~control applications and technologies serve the flow measurement market through both~~ customized ~~and standard~~ flow instrumentation solutions.

~~Industries today~~

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.

~~An industry~~

A leader in both mechanical and ~~electrical~~static (ultrasonic) flow metering technologies for industrial markets, the Company offers one of the broadest flow measurement, control and communication portfolios in the market. ~~The~~This portfolio carries respected brand names including Recordall®, ~~E-Series, ORION,~~ Hedland®, Dynasonics®, Blancett®, 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.

~~Business Trends~~

~~Increasingly,~~

The Company's products are sold throughout the ~~electric utility industry relies~~world through employees, resellers and representatives. Depending on ~~AMI technology for two-way communication to monitor and control electrical devices at~~ the customer's site. Although the Company does not sell products for electric market applications, the trend toward AMI affects the markets in which the Company does participate, particularly for those customers in the water utility market that are interested in more frequent and diverse data collection. Specifically, AMI and AMA technologies enable water utilities to capture readings from each meter at more frequent and variable intervals. Similar to the electric utility industry’s conversion to solid-state meters in recent years, the water utility industry is beginning the conversion from mechanical to ultrasonic meters. Ultrasonic water metering has lower barriers to entry, which could affect the competitive landscape for the water meter market in North America.

~~The Company sells its technology solutions to meet~~ customer ~~requirements. Since the technology products have comparable margins, any change in the~~ mix, ~~between AMR, AMI or AMA is not expected to have~~there can be a ~~significant~~moderate seasonal impact on sales, primarily relating to higher sales of certain municipal water products during the spring and summer months. No single customer accounts for more than 10% of the Company's ~~net sales related to meter reading technology.~~

~~There are approximately 52,000 water utilities in~~sales.

Business Trends

Across the United States and the Company estimates that approximately 55% to 60% of them have converted to a radio solutions technology. With the BEACON AMA managed solution and its wide breadth of water meters, the Company believes it is well positioned to meet customers' future needs.

~~In the global market, companies need to comply with~~globe, increasing regulations ~~requiring~~and a focus on sustainability are driving companies and utilities to better manage critical resources like water, monitor their use of hazardous materials and reduce exhaust gases. 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. The Company provides flow measurement technology to measure water, hydrocarbon-based fluids, chemicals, gases and steams.

~~Flow measurements are~~ This technology is critical to provide a baseline usage data and to quantify reductions as ~~customers~~customers’ attempt to reduce consumption. ~~Once~~For example, once water usage ismetrics are better understood, a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where ~~water reduction~~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.

~~Acquisitions~~

Increasingly, customers in the water utility market are interested in more frequent and diverse data collection. Specifically, AMI technology enables water utilities to capture readings from each meter at more frequent and variable intervals. There are approximately 52,000 water utilities in the United States and the Company estimates that approximately 60% of them 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, the water utility industry is beginning the conversion from mechanical to static (ultrasonic) meters. Ultrasonic water metering maintains measurement accuracy over the life of the meter, reducing a utility’s non-revenue water. The Company has nearly a decade of proven reliability in the market with its ultrasonic meters and will be launching its next generation of ultrasonic metering with its D-Flow technology in 2019, which the Company believes will increase its competitive differentiation. While ultrasonic technology migration in North America could affect the competitive landscape, it also opens up further geographic penetration opportunities for the Company as previously described.

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Finally, the concept of “Smart Cities” is beginning to take hold as 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 one of the world’s most precious resources. Badger Meter is well positioned to benefit from the advancement of Smart Water applications within the Smart Cities framework. Cities have a keen interest in Smart Water as it provides both a revenue base and conservation outcome. Badger Meter is one of approximately a dozen firms, and the only water metering company, that participates in the AT&T Smart City Alliance. By leveraging this alliance, the Company expects to be able to gain access and sell its broad smart water solutions to higher level decision makers within a city such as the mayor’s office. In addition, it allows Badger Meter to keep abreast of emerging cellular technology changes which the Company believes is the premier AMI solution.

Acquisition

On April 2, 2018, the Company acquired 100% of the outstanding stock of Innovative Metering Solutions, Inc. ("IMS") of Odessa, Florida, which was one of the Company's distributors serving Florida.

The total purchase consideration was approximately $12.0 million, which included $7.7 million in cash, a $0.3 million working capital adjustment, a balance sheet holdback of $0.7 million and settlement of $3.3 million of pre-existing Company receivables. The working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback ~~has been included as a payable~~is recorded in payables on the Company's ~~consolidated balance sheet.~~Consolidated Balance Sheet as it is anticipated to be paid in the next twelve months. The Company's ~~preliminary~~ allocation of the purchase price at June 30, 2018 included $3.8 million of receivables, $0.8 million of inventories, $0.1 million of machinery and equipment, $3.6 million of intangibles and $3.7 million of goodwill. The intangible assets acquired are customer relationships with an estimated average useful life of 10 years. The preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of June 30, 2018, the Company had not completed its analysis for estimating the fair value of the assets acquired. This acquisition is further described in Note 5 “Acquisitions” in the Notes to Consolidated Condensed Financial Statements.

The total purchase consideration for the Carolina Meter assets was $6.2 million, which included $2.0 million in cash and settlement of $4.2 million of pre-existing Company receivables. The Company's preliminary allocation of the purchase price at December 31, 2017 included $0.6 million of receivables, $0.3 million of inventories, $3.3 million of intangibles and $2.0 million of goodwill. The intangible assets acquired are primarily customer relationships with an estimated average useful life of 12 years. The preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of June 30, 2018, the Company has not completed its analysis for estimating the fair value of the assets acquired. This acquisition is further described in Note 5 “Acquisitions” in the Notes to Consolidated Condensed Financial Statements.

On May 1, 2017, the Company acquired 100% of the outstanding common stock of D-Flow Technology AB ("D-Flow") of Luleå, Sweden. The D-Flow acquisition facilitates the continued advancement of the existing E-Series ultrasonic product line while also adding a technology center for the Company.

The purchase price was approximately $23.2 million in cash, plus a small working capital adjustment. The purchase price included $5.4 million in payments that are anticipated to be made in 2018 which are recorded in payables and other current liabilities on the Consolidated Balance Sheets at March 31, 2018. The Company's preliminary allocation of the purchase price included approximately $0.3 million in receivables, $0.6 million of inventories, $0.2 million in machinery and equipment, $10.9 million of intangibles and $16.1 million of goodwill. The Company also assumed $4.9 million of liabilities as part of the acquisition. As of March 31, ~~2018,~~2019, the Company had completed its analysis for estimating the fair value of the assets acquired ~~and liabilities assumed~~ with no additional adjustments. This acquisition is further described in Note 5 ~~“Acquisitions”~~"Acquisition" in the Unaudited Notes to Consolidated Condensed Financial Statements.

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

Revenue and Product Mix

As the industry continues to evolve, the Company has been ~~vigilant~~at the forefront of innovation across metering, radio and software technologies in ~~anticipating~~order to meet its customers’ increasing expectations for accurate and ~~exceeding customer expectations. In 2011,~~actionable data. As technologies such as ORION Cellular and BEACON AMA managed solutions have become more readily adopted, the ~~Company introduced AMA~~Company’s revenue from Software as a ~~hardware~~Service (SaaS) has increased significantly, albeit from a small base, and software solution for water and gas utilities, and then in early 2014 launched its new BEACON AMA system, as a managed solution, which it believes will help maintain the Company's position as a market leader. Since its inception, sales of BEACON AMA have continued to grow with large cities and private water utilities selecting BEACON AMA and the Company’s industry-leading water meters.

is margin accretive.

The Company ~~continues to seek~~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. The Company is periodically asked to oversee and perform field installation of its products for certain customers. The Company assumes the role of general contractor ~~hiring~~and either performs the installation or hires installation subcontractors and ~~supervising~~supervises their work. The Company also supports its product and technology sales with the sale of extended service programs that provide additional services beyond the standard warranty. In recent years, the Company has sold ORION radio technology to natural gas utilities for installation on their gas meters. Most recently, the introduction of the BEACON AMA system opens the door to “software as a service” revenues. Revenues from such products and services are not yet significant and the Company is uncertain of the potential growth achievable for such products and services in future periods.

Results of Operations - Three Months Ended ~~June 30,~~March 31, 2019 and 2018

Net Sales

The Company’s net sales for the three months ended ~~June 30, 2018 increased $9.4~~March 31, 2019 were $104.9 million, ~~or 9.0%, to $113.6~~level with the prior year comparable quarter of $105.0 million. Sales into the municipal water market were $81.2 million, ~~compared to $104.2 million during~~an increase of approximately 1% over the ~~same period in 2017.~~

prior year’s $80.5 million. Municipal water sales ~~represented 77.5% of~~benefitted from higher commercial sales in the ~~second quarter~~US, partially offset by lower residential volumes in both the US and international markets. The company did benefit from continued positive sales mix reflecting a higher percentage of ~~2018 compared to 76.8% in~~meters with radios, ultrasonic meters and SaaS revenue associated with data collection and software analytics. Sales of products into the ~~second quarter~~global flow instrumentations end markets were $23.7 million, approximately 3% lower than the prior year’s $24.5 million. The majority of ~~2017. These sales increased $7.9 million, or 9.9%, to $88.0 million in~~ the ~~second quarter of 2018 from $80.1 million in the second quarter of 2017. The increase~~decline was due to ~~higher prices and increased domestic volumes sold of newer technologies in meters and related radios as well as higher service revenue. Higher international~~the unfavorable foreign currency exchange rate fluctuations year-over-year. While sales ~~also contributed to the increase, particularly~~ in the ~~Middle East.~~

~~Flow instrumentation products represented 22.5%~~general industrial and water/wastewater market increased year-over-year, this was offset by lower oil & gas and certain other de-emphasized end markets.

Table of ~~sales~~Contents

Earnings

Total operating earnings for the three months ended ~~June 30, 2018~~March 31, 2019 were $14.3 million, or 13.7% of sales, compared to ~~23.2% during the same period in 2017. These sales increased $1.5~~$10.0 million, or ~~6.2%, to $25.6 million from $24.1 million~~9.5% of sales, in the ~~same period last year.~~comparable prior year quarter. Gross profit increased $3.7 million and improved as a percent of sales from 35.0% to 38.6%. The ~~increase~~improvement was ~~due to~~largely the ~~continued rebound in the oil and gas market and other targeted markets served.~~

~~While the gross margin increased as a~~ result of the ~~higher sales, the gross margin as a percentage~~nonrecurrence of ~~sales was 36.5%~~facility relocation charges incurred in the ~~second quarter~~prior year, improved municipal water sales mix and the benefit of ~~2018 compared to 39.4% in the second quarter of 2017. The decline in the percentage was due to higher material~~pricing and lower year-over-year commodity costs, ~~particularly brass expenses, and higher health care costs. In addition, there was a greater mix of lower margin project work accepted based on future anticipated higher margin projects.~~

including brass. Selling, engineering and administration (“SEA”) expenses ~~for the three months ended June 30, 2018 increased $1.0~~decreased $0.6 million ~~or 4.1%, to $25.2 from $24.2 million in the second quarter of 2017. Higher healthcare~~year-over-year with normal salary and sales commission costs, as well as higher research and development expenses contributed to the increase, which also included the additional staffing from recent acquisitions. To some degree, lower overall employee incentiveswage inflation more than offset ~~the higher costs.~~

Operating earnings for the second quarter of 2018 decreased $0.5 million, or 3.0%, to $16.3 million compared to $16.8 million in the same period in 2017. The decrease was due to the impact of the higher selling, engineering and administration expenses, offset somewhat by ~~higher gross margin.~~

Other pension and postretirement costs were $8.0 million compared to $0.2 million in the second quarter of 2017. The second quarter of 2018 includes a settlement charge of $8.2 million made in connection with the first phase of the previously planned termination of the Company’s pension plan. Initial distributions were made from the plan in the second quarter resulting in this non-cash charge. Final distributions are expected to be made in the third quarter of 2018 which will result in an additional settlement charge, currently estimated to be $10.5 million.

spending controls.

The provision for income taxes as a percentage of earnings before income taxes for the ~~second~~first quarter of ~~2018~~2019 was ~~22.2%~~23.5% compared to ~~35.5%~~22.2% in the ~~second~~first quarter of ~~2017.~~2018. Interim provisions are ~~tied to~~based on an estimate of the overall annual rate that can vary due to state taxes, the relationship of foreign and domestic earnings, ~~and~~ other credits ~~available. The decrease between years was due primarily to the lower Federal~~available and tax ~~rate, which declined from 35% in 2017 to 21% in 2018.~~

reform provisions.

As a result of the above-mentioned items, net earnings for the three months ended ~~June 30, 2018~~March 31, 2019 were ~~$6.2~~$10.8 million, or ~~$0.21~~$0.37 per diluted share, compared to ~~$10.6~~$7.5 million, or ~~$0.36~~$0.26 per diluted share, for the same period in ~~2017.~~

~~Results of Operations - Six Months Ended June 30, 2018~~

~~The Company’s net sales for the six months ended June 30, 2018 increased $12.9 million, or 6.3%, to $218.7 million compared to $205.8 million during the same period in 2017.~~

Municipal water sales represented 77.0% of sales for the first six months of 2018, the same as the first six months of 2017. These sales increased $10.2 million, or 6.4%, to $168.5 million from $158.3 million in 2017 and were driven by higher prices and increased domestic volumes sold of newer technologies in meters and related radios as well as higher service revenue. Higher international sales also contributed to the increase, particularly in the Middle East. Offsetting this somewhat were lower volumes of commercial meters sold.

Flow instrumentation products represented 23.0% of sales for the six months ended June 30, 2018, the same as the first six months of 2017. These sales increased $2.7 million, or 5.7%, to $50.2 million for the first six months in 2018 compared to $47.5 million in the same period last year due to higher sales into the oil and gas market as well as other targeted markets.

Gross margin as a percentage of sales was 35.8% for the first six months of 2018 compared to 38.7% in the same period in 2017. The decrease was due to higher brass and health care costs and the negative impact of mix on plant utilization. In addition, there was a greater mix of lower margin project work accepted based on future anticipated higher margin projects.

Selling, engineering and administration expenses for the six months ended June 30, 2018 increased $2.6 million, or 5.3%, to $51.9 million from $49.3 million in the same period in 2017. Higher healthcare, sales commission and research and development expenses contributed to the increase in addition the additional staffing from recent acquisitions and normal inflationary increases.

~~To some degree, lower overall employee incentives offset the higher costs.~~

Operating earnings for the first six months of 2018 decreased $4.1 million, or 13.5%, to $26.3 million compared to $30.4 million in the same period in 2017 as the result of the lower gross margins and higher selling, engineering and administration expenses.

Other pension and postretirement costs were $8.0 million for the first six months of 2018 compared to $0.3 million in the same period in 2017. Included in the amount for 2018 was a settlement charge of $8.2 million made in connection with the first phase of the previously planned termination of the Company’s pension plan. Initial distributions were made from the plan in the second quarter resulting in this non-cash charge. Final distributions are expected to be made in the third quarter of 2018 which will result in an additional settlement charge, currently estimated to be $10.5 million.

The provision for income taxes as a percentage of earnings before income taxes for the first six months of 2018 was 22.2% compared to 34.9% for the same period in 2017. Interim provisions are tied to an estimate of the overall annual rate that can vary due to state taxes, the relationship of foreign and domestic earnings and production credits available. The decrease between years was due almost entirely to the lower Federal tax rate, which declined from 35% in 2017 to 21% in 2018.

As a result of the above-mentioned items, net earnings for the six months ended June 30, 2017 were $13.7 million, or $0.47 per diluted share, compared to $19.4 million, or $0.67 per diluted share, for the same period in 2017.

~~Liquidity and Capital Resources~~

LIQUIDITY AND CAPITAL RESOURCES

The main sources of liquidity for the Company are cash from operations and borrowing capacity. ~~Cash provided~~In addition, depending on 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

The Company uses primary working capital (PWC) as a percentage of sales as a key metric for working capital efficiency. The Company defines this metric as the sum of Receivables and Inventories less Payables, divided by ~~operations was $25.2~~trailing twelve month net sales. The following table shows the components of our PWC (in millions):

	March 31, 2019						December 31, 2018
	$			PWC%			$			PWC%
Receivables	$	68,095			15.7	%	$	66,300			15.3	%
Inventories		80,554			18.6	%		80,804			18.6	%
Payables		(25,983	)		-6.0	%		(22,469	)		-5.2	%
Primary Working Capital	$	122,666			28.3	%	$	124,635			28.7	%

Overall, PWC declined $2.0 million ~~for the first six months of 2018~~ compared to ~~$37.3~~the prior quarter on flat sales activity. Receivables at March 31, 2019 were $68.1 million ~~through~~compared to $66.3 million at the ~~first six months~~end of ~~2017. Last year’s amount~~2018. The increase was ~~favorably impacted by~~due to a ~~decrease~~modest increase in ~~inventory balances which did not recur this year. This, along~~days sales outstanding associated with international receivables due to their regionally higher ~~receivable balances are~~payment terms. Inventories at March 31, 2019 were $80.6 million, in line with the ~~primary reasons for the decline.~~

~~Receivables increased from $58.2~~$80.8 million at December 31, ~~2017 to $65.3~~2018. Payables at March 31, 2019 were $26.0 million, up from $22.5 million at ~~June 30, 2018. Generally, receivable balances are lower at year-end than at other times~~the end of ~~the year due to seasonality in the Company’s business. The Company believes its net receivables balance is fully collectible.~~

~~Inventories at June 30,~~ 2018 ~~were $85.7 million, only a slight change from $85.2 million at December 31, 2017. These balances fluctuate from time to time due to the level of sales and the timing of inventory purchases.~~

Net property, plant and equipment decreased slightly from $93.6 million at December 31, 2017 to $92.7 million at June 30, 2018. This was the net effect of depreciation expense, offset somewhat by $5.2 million of capital expenditures in the first six months of 2018.

Intangible assets decreased to $59.1 million at June 30, 2018 from $59.3 million at December 31, 2017 due to normal amortization expense, offset by an increase of $3.7 million related to the acquisition of IMS. The acquisition was also the main reason for the increase in goodwill from $67.4 million on December 31, 2017 to $71.1 million on June 30, 2018.

~~Short-term debt at June 30, 2018 decreased to $42.4 million from $44.6 million at December 31, 2017~~ due to the timing of ~~cash needs.~~

~~Payables~~payments.

Cash Provided by Operations

Cash provided by operations in the first three months of 2019 was $17.8 million compared to $6.8 million in the same period of 2018. The increase between years is due primarily to higher net earnings and ~~other current liabilities~~PWC changes between years.

Capital expenditures for the first three months of ~~$28.1~~2019 were $2.2 million compared to $3.0 million in the first three months of 2018.

Short-term debt decreased $7.1 million to $11.0 million at ~~June 30, 2018 decreased~~March 31, 2019 from ~~$28.6~~$18.1 million at December 31, ~~2017. These balances were impacted~~2018 due to the strong cash flow from operations, partially offset by the ~~timing~~payment of ~~purchases and payments.~~

~~Accrued compensation and employee benefits decreased to $9.6 million at June 30, 2018 from $15.5 million at December 31, 2017 due to payments made in~~dividends. At the end of the first ~~two quarters~~quarter of ~~2018 related to 2017 earned employee incentives, offset somewhat by provisions made for 2018 employee incentives earned to date.~~

~~Income and other taxes payable increased to $1.4 million at June 30, 2018 from $1.1 million at December 31, 2017. The change was~~2019, the Company is in a net ~~impact~~cash (cash less short-term debt) position of ~~the lower Federal tax rate for 2018 and the timing of actual tax payments.~~

~~Other long-term liabilities increased to $13.7 million compared to~~approximately $4.1 ~~million on December 31, 2017. The increase was due primarily to higher deferred revenue associated with the Beacon AMA offering.~~

The overall increase in total shareholders’ equity from $277.5 million at December 31, 2017 to $288.5 million at June 30, 2018 was the net effect of net earnings and stock options exercised, offset by dividends paid and repurchased stock.

million.

The Company’s financial condition remains strong. In June 2018, the Company amended its May 2012 credit agreement with its primary lender ~~to extend~~and extended its term until September ~~2021 the~~2021. The credit agreement includes a $125.0 million line of credit that supports commercial paper (up to $70.0 million) and includes $5.0 million of a Euro line of credit. While the facility is unsecured, there are a number of financial covenants with which the Company must comply, and the Company was in compliance as of ~~June 30, 2018.~~March 31, 2019. 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 continues to take advantage of its local commercial paper market and carefully monitors the current borrowing market. The Company had ~~$90.7~~$121.8 million of unused credit lines available at ~~June 30, 2018.~~

March 31, 2019.

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Other ~~Matters~~

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 ~~2017~~2018 and the first ~~half~~quarter of ~~2018~~2019 were not material.

See the “Special Note Regarding Forward Looking Statements” at the front of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for a discussion of risks and uncertainties that could impact the Company’s financial performance and results of operations.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company’s off-balance sheet arrangements and contractual obligations are discussed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Off-Balance Sheet Arrangements” and “Contractual Obligations” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and have not materially changed since that report was filed unless otherwise indicated in this Form 10-Q.

~~Item 3Quantitative and Qualitative Disclosures about Market Risk~~

Item 3

Quantitative and Qualitative Disclosures about Market Risk

The Company’s quantitative and qualitative disclosures about market risk are included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risks” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and have not materially changed since that report was filed.

~~Item 4Controls and Procedures~~

Item 4

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”), 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 - Finance, Chief Financial Officer and Treasurer, 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 quarter ended ~~June 30, 2018.~~March 31, 2019. 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 - Finance, Chief Financial Officer and Treasurer concluded that, as of the date of such evaluation, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended ~~June 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

Part II – ~~Other~~Other Information

Item 6 Exhibits

EXHIBIT INDEX

Exhibit No.		Description

~~Exhibit No.~~		~~Description~~
4 10		~~Fourth Amendment to Credit~~Retirement Agreement, dated ~~June 15,~~as of December 28, 2018, ~~related to the Loan Agreement dated May 23, 2012~~by and between Badger Meter, Inc. and ~~BMO Harris Bank NA for Badger Meter, Inc.'s credit agreement.~~Ms. Beverly L.P. Smiley.

31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2018~~March 31, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Condensed Statements of Cash Flows, (v) Consolidated Condensed Statements of Shareholders’ Equity (vi) Notes to Unaudited Consolidated Condensed Financial Statements, tagged as blocks of text and ~~(vi)~~(vii) document and entity information.

~~SIGNATURES~~

Table of Contents

SIGNATURES

Pursuant to the requirements 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.



	BADGER METER, INC.

Dated: ~~July 25, 2018~~April 30, 2019	By	/s/ ~~Richard A. Meeusen~~Kenneth C. Bockhorst
		~~Richard A. Meeusen~~ Kenneth C. Bockhorst
		~~Chairman~~ President and Chief Executive Officer

	By	/s/ ~~Richard E. Johnson~~Robert A. Wrocklage
		~~Richard E. Johnson~~ Robert A. Wrocklage
		~~Senior~~ Vice President – Finance, Chief Financial Officer and Treasurer

	By	/s/ ~~Beverly L. P. Smiley~~Daniel R. Weltzien
		~~Beverly L. P. Smiley~~ Daniel R. Weltzien
		Vice President – Controller

Wisconsin		39-0143280
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4545 W. Brown Deer Road Milwaukee, Wisconsin		53233
(Address of principal executive offices)		(Zip code)


Title of each class	Trading Symbol(s)	Name of each exchange where registered
Common Stock	BMI	New York Stock Exchange



Large accelerated filer	☒	ý	~~Accelerated filer~~	¨

~~Non-accelerated filer~~		o ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨ ☐
Accelerated filer	☐
Emerging growth company	☐
Non‑accelerated filer	o ☐

		Page No.

		~~Page No.~~

Part I. Financial Information:

Item 1	Financial Statements (unaudited):	5

	Consolidated Condensed Balance Sheets - ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	4 5

	Consolidated Condensed Statements of Operations - Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	5 6

	Consolidated Condensed Statements of Comprehensive Income - Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	6 7

	Consolidated Condensed Statements of Cash Flows - ~~Six~~Three Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	7 8

	Consolidated Condensed Statements of Shareholders’ Equity – Three Months Ended March 31, 2019 and 2018	9

	Notes to Unaudited Consolidated Condensed Financial Statements	8 10

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	17 18

Item 3	Quantitative and Qualitative Disclosures about Market Risk	23 22

Item 4	Controls and Procedures	23 22

Part II. Other Information:

Item 6	Exhibits	24 23

Signatures		25 24

	(414) 355-0400
	(Registrant’s telephone number, including area code)



	June 30,			December 31,
	(Unaudited)
	(In thousands)
Assets	2018			2017
Current assets:
Cash	$	12,125		$	11,164
Receivables	65,303			58,210
Inventories:
Finished goods	25,199			23,125
Work in process	19,643			22,035
Raw materials	40,814			40,012
Total inventories	85,656			85,172
Prepaid expenses and other current assets	5,070			4,077
Total current assets	168,154			158,623
Property, plant and equipment, at cost	215,513			212,485
Less accumulated depreciation	(122,838		)	(118,884		)
Net property, plant and equipment	92,675			93,601
Intangible assets, at cost less accumulated amortization	59,113			59,326
Other assets	9,240			9,897
Deferred income taxes	816			2,856
Goodwill	71,109			67,424
Total assets	$	401,107		$	391,727

Liabilities and shareholders’ equity
Current liabilities:
Short-term debt	$	42,430		$	44,550
Payables and other current liabilities	28,092			28,601
Accrued compensation and employee benefits	9,632			15,509
Warranty and after-sale costs	4,110			3,367
Income and other taxes	1,363			1,082
Total current liabilities	85,627			93,109
Other long-term liabilities	13,657			4,073
Deferred income taxes	1,294			3,434
Accrued non-pension postretirement benefits	5,718			5,703
Other accrued employee benefits	6,341			7,956
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock	37,177			37,165
Capital in excess of par value	33,681			32,182
Reinvested earnings	250,242			244,224
Accumulated other comprehensive loss	(5,508		)	(10,893		)
Less: Employee benefit stock	(461		)	(460		)
Treasury stock, at cost	(26,661		)	(24,766		)
Total shareholders’ equity	288,470			277,452
Total liabilities and shareholders’ equity	$	401,107		$	391,727



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	(Unaudited)				(Unaudited)
	(In thousands except share and per share amounts)
	2018		2017		2018		2017
Net sales	$	113,648	$	104,176	$	218,689	$	205,782
Cost of sales	72,144		63,122		140,437		126,078
Gross margin	41,504		41,054		78,252		79,704
Selling, engineering and administration	25,153		24,214		51,927		49,299
Operating earnings	16,351		16,840		26,325		30,405
Interest expense, net	409		147		699		325
Other pension and postretirement costs	8,031		249		8,012		345
Earnings before income taxes	7,911		16,444		17,614		29,735
Provision for income taxes	1,757		5,830		3,914		10,372
Net earnings	$	6,154	$	10,614	$	13,700	$	19,363

Earnings per share:
Basic	$	0.21	$	0.37	$	0.47	$	0.67
Diluted	$	0.21	$	0.36	$	0.47	$	0.67

Dividends declared per common share	$	0.130	$	0.115	$	0.260	$	0.230

Shares used in computation of earnings per share:
Basic	28,963,373		28,938,451		28,965,735		28,938,851
Impact of dilutive securities	170,070		159,369		193,665		170,824
Diluted	29,133,443		29,097,820		29,159,400		29,109,675



	Six Months Ended
	June 30
	(Unaudited) (In thousands)
	2018			2017
Operating activities:
Net earnings	$	13,700		$	19,363
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation	5,894			5,997
Amortization	6,543			5,994
Deferred income taxes	59			(53		)
Noncurrent employee benefits	84			541
Pension termination settlement charge	8,168			—
Contribution to pension plan	(1,600		)	—
Stock-based compensation expense	944			779
Changes in:
Receivables	(6,765		)	(3,754		)
Inventories	167			4,759
Prepaid expenses and other assets	(3,101		)	(3,734		)
Liabilities other than debt	1,106			7,453
Total adjustments	11,499			17,982
Net cash provided by operations	25,199			37,345

Investing activities:
Property, plant and equipment expenditures	(5,242		)	(6,762		)
Acquisitions, net of cash acquired and future payments	(8,048		)	(18,376		)
Net cash used for investing activities	(13,290		)	(25,138		)

Financing activities:
Net (decrease) increase in short-term debt	(2,000		)	2,161
Dividends paid	(7,542		)	(6,673		)
Proceeds from exercise of stock options	231			1,014
Repurchase of treasury stock	(1,989		)	(3,288		)
Issuance of treasury stock	431			533
Net cash used for financing activities	(10,869		)	(6,253		)

Effect of foreign exchange rates on cash	(79		)	558

Increase in cash	961			6,512
Cash – beginning of period	11,164			7,338
Cash – end of period	$	12,125		$	13,850



(In thousands)	Unrecognized pension and postretirement benefits			Foreign currency			Total
Balance at beginning of period	$	(11,597	)	$	704		$	(10,893	)
Other comprehensive loss before reclassifications	—			(387		)	(387		)
Amounts reclassified from accumulated other comprehensive loss, net of tax of $(1.9 million)	5,772			—			5,772
Net current period other comprehensive income (loss), net of tax	5,772			(387		)	5,385
Accumulated other comprehensive (loss) income	$	(5,825	)	$	317		$	(5,508	)



(In thousands)	Amount reclassified from accumulated other comprehensive loss
Amortization of pension and postretirement benefits items:
Prior service benefit (1)	$	(756	)
Settlement expense (1)	8,168
Amortization of actuarial loss (1)	274
Total before tax	7,686
Income tax benefit	(1,914		)
Amount reclassified out of accumulated other comprehensive loss	$	5,772



	Three Months Ended		Six Months Ended
	June 30, 2018		June 30, 2018

Revenues:
United States	$	97,910	$	189,063
Foreign:
Asia	3,161		4,861
Canada	3,529		6,789
Europe	5,101		10,148
Mexico	483		1,106
Middle East	3,204		5,356
Other	260		1,366
Total	$	113,648	$	218,689



	June 30, 2018		December 31, 2017
Receivables	$	65,303	$	58,210
Contract liabilities	$	13,460	$	9,670