Annual Report of an Employee Stock Purchase, Savings or Similar Plan — Form 11-K Filing Table of Contents
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The
Badger Meter Employee Savings and Stock Ownership Plan (“the Plan”) is subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). Attached hereto is a copy of the most recent financial statements and schedules of the Plan prepared in accordance with the financial reporting requirements of ERISA.
Badger Meter Employee Savings and Stock Ownership Plan
Badger Meter Employee Savings and Stock Ownership Plan
Note 1 Description of the Plan
General
The following description of Badger Meter Employee Savings and Stock Ownership Plan (“the Plan”) is for general information purposes only. Participants
should refer to the summary plan description for a more complete description of the Plan. The Plan has three components: a 401(k) savings component, a leveraged employee stock ownership plan (ESOP) component, and a defined contribution component.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The Plan purchased common shares of Badger Meter, Inc. (the “Company”) in the open market using proceeds from borrowings from the Company (Note 5).
Eligibility
Substantially
all domestic employees of the Company are eligible to participate in the Plan.
Contributions
Participants may elect to contribute up to 20% of their eligible compensation to the 401(k) savings component of the Plan, subject to amounts allowable by the Internal Revenue Service (“the IRS”). Participants do not contribute to the ESOP or defined contribution components of the Plan.
The Company may make a discretionary matching contribution to the 401(k) component of the Plan. In order to be eligible to receive a Company match,
a participant must be employed as of the last day of the plan year, retired within the year, or terminated employment during the plan year having attained age 55 with 5 years of service. The Company made a matching contribution to participant accounts in 2014 equal to 25% of the first 7% of participants’ compensation, or 25% of the participant’s contribution, whichever is less.
Contributions of $2,283,147 for 2014 were accrued in 2014 and paid in early 2015 for participants in the defined contribution component, which is equal to 5% of the participants' eligible compensation. Contributions of $2,294,141 for 2013 were accrued in 2013 and paid in early 2014 for participants in the defined contribution component.
The
Company may make additional discretionary contributions to the Plan. Other discretionary contributions, if any, are allocated at the discretion of the Plan Administrator. No other additional discretionary contributions were made by the Company to the Plan in 2014.
Dividends on unallocated shares of the Company’s common stock within the ESOP component are allocated as an additional employer contribution to all participants’ accounts equally on an annual basis.
Fixed principal payments and interest payments are made by the Plan on the note payable to the
Company (see Note 5). The unallocated shares of the Company’s common stock, which serve as collateral on the note payable, are released and allocated to participant accounts on an annual basis. The fair value of the Company’s common stock as of December 31 is used to determine the fair value of the allocated shares. The Company is obligated to contribute sufficient cash to the Plan to enable it to repay its loan principal and interest.
an allocation of the Company’s discretionary contribution, if any,
•
dividends
on the Company’s unallocated common stock shares, if any, and
•
the Plan earnings.
The Company’s discretionary contribution (excluding the matching contribution and dividends on unallocated shares) is based upon eligible participant compensation. Dividends on the Company’s unallocated common stock are allocated equally to all participants’ accounts. The benefit to which a participant is entitled is
the benefit that can be provided from the participant’s account.
Vesting
Participants are immediately fully vested in their contributions and related earnings in the 401(k) and ESOP components. There is a three-year cliff vesting requirement for Company contributions and related earnings in the defined contribution component of the Plan.
Payment of Benefits
Upon retirement, death, disability, or termination of employment, the participant’s account is distributed in a single lump sum. Distributions are generally made within the year following termination of service at the participant’s request. At
the participant’s option in certain circumstances, distributions can be delayed. Final distributions from the ESOP component of the Plan can be made in shares of Company common stock plus cash in lieu of fractional shares or entirely in cash.
Withdrawals
A participant’s contribution may not be withdrawn prior to retirement, death, disability, termination of employment or termination of the Plan, except for financial hardship, a one-time distribution after age 59½ or in the form of loans to the participant. The Plan defines financial hardship as expenses related to secondary education, unreimbursed medical expense, purchase of the participant’s principal residence or other financial need as allowed under the IRS regulations. All withdrawals are subject to approval by the Plan Administrator.
Forfeitures
For
2014, Company contributions made in 2015 were reduced by $61,706 of forfeitures. For 2013, Company contributions made in 2014 were reduced by $65,504 of forfeitures. Unallocated forfeitures were $61,706 and $65,504 as of December 31, 2014 and 2013, respectively.
Investment Options
The Plan provides for various investment options in mutual funds, common collective trusts, Company common stock and a general investment account with an insurance company. Participants can direct up to 50% of their contributions into the Badger Meter Company Stock Fund, which is a unitized fund comprised primarily of the Company’s
common stock and a money market fund. Information about changes in nonparticipant directed investments is presented in the unallocated portion of the Statement of Changes in Net Assets Available for Benefits.
Badger Meter Employee Savings and Stock Ownership Plan
Note 1 Description of the Plan (Continued)
Notes Receivable from
Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance subject to certain criteria. The notes are secured by the balance in the participant’s account and bear interest at rates that range from 3.25% to 4.25%, which are commensurate with local prevailing rates at the time of the loan origination as determined quarterly by the Plan Administrator. Principal and interest is repaid ratably through monthly payroll deductions.
Note maturities cannot exceed 60 months and are secured by the participant’s vested interests in the Plan. Amounts loaned to a participant do not share in Plan earnings (see Participant Accounts above), but are credited with the interest earned on the loan balance.
Note
2 Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. Investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts
because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The Statement of Net Assets Available for Benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.
Investment
Valuation and Income Recognition
The Plan’s investments are stated at fair value, as further defined in Note 3. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net investment income includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Notes Receivable from Participants
Notes
receivable from participants are recorded at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are reclassified as distributions based upon the terms of the Plan document.
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying financial statements in conformity with U.S. generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that directly affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates and are subject to change in the near term.
Badger Meter Employee Savings and Stock Ownership Plan
Note 2 Summary of Significant Accounting Policies (Continued)
Expenses
Expenses related to the administration of the Plan are paid by the Company. Investment expenses are paid by the Plan and reimbursed by the Company at its discretion. Loan fees are charged to the participant’s account requesting the loan. Investment related expenses are included in net appreciation of fair value of investments, as they
are paid through revenue sharing.
Payment of Benefits
Benefits are recorded when paid.
Risk and Uncertainties
The Plan’s investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the value of investments will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits.
Subsequent
Events
Subsequent events have been evaluated through the date the financial statements were available to be issued.
Note 3 Fair Value Measurements
Accounting Standards Codification 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels: Level 1 inputs consist of unadjusted quoted prices in active markets for identical assets and have the highest priority. Level 2 inputs consist of inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs for determining the fair value of assets or liabilities that reflect assumptions that market participants would use in pricing assets or liabilities.
Shares of mutual funds are valued at quoted market prices, which represent the net asset value (“NAV”) of shares. Shares of the Badger Meter, Inc. common stock are valued at quoted market prices. The Badger Meter, Inc. Stock Fund (“Stock Fund”) is a unitized fund. The Stock Fund consists of Badger Meter, Inc. common stock and short-term cash equivalents which provide liquidity for trading. The common stock is valued at the quoted market price from an active market and the short-term cash equivalents are valued at cost, which approximate fair value. Common collective trust funds are valued at NAV as determined by the issuer of the
common collective trust funds based on the fair value of the underlying investments. The fair value of the general investment account is calculated by discounting the related cash flows based on current yields of similar investments with comparable durations.
Fair
value of the general investment account is based on the Barclays market value formula. The fair value factor applied to the Barclays market value formula was 114.137% and 111.849% as of December 31, 2014 and 2013, respectively.
The Plan entered into a fully benefit-responsive investment contract
with Massachusetts Mutual Life Insurance Company (“Mass Mutual”). Mass Mutual maintains the contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The general investment account issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan.
Because the general investment account is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the guaranteed investment contract. Contract
value, as reported to the Plan by Mass Mutual, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. There are no reserves against contract value for credit risk of the contract issuer or otherwise.
This contract is an unallocated insurance contract,
which is credited each January 1 and July 1 for interest earned. The average yields for 2014 and 2013 were 3.00%. The interest rates earned as of December 31, 2014 and 2013 were 3.00%.
Badger Meter Employee Savings and Stock Ownership Plan
Note
4 Investments (Continued)
Certain events limit the ability of the Plan to transact at contract value with the issuer. These events include, but are not limited to, the following: (1) amendments to the Plan documents, (2) bankruptcy of the Plan Administrator or other Plan Administrator events which cause a significant withdrawal from the Plan or (3) the failure of the Plan to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan believes that the occurrence of any event limiting the Plan’s ability to transact at contract value with members is not probable.
Investments
During 2014, the Plan’s investments (including investments purchased, sold or held during the year) appreciated in fair value as follows:
2014
Badger Meter, Inc. common stock fund
$
2,320,110
Badger Meter, Inc.
common stock
(107,813
)
Mutual funds
1,245,003
Net appreciation in fair value of investments
$
3,457,300
Investments that represent 5% or more of the fair value as of December 31, 2014
and 2013 are as follows:
2014
2013
Badger
Meter, Inc. common stock fund
$
24,055,512
$
24,273,039
BMO Balanced Allocation Fund
7,867,465
7,859,875
Massachusetts
Mutual general investment account*
21,231,642
20,921,146
Heartland Value Plus Fund
5,952,096
6,656,687
Total
$
59,106,715
$
59,710,747
*Investments
in fully benefit-responsive contracts are reported at contract value and other investments are reported at fair value.
Badger Meter Employee Savings and Stock Ownership Plan
Note 4 Investments (Continued)
The
following table sets forth additional disclosures of the Plan’s investments whose fair value is provided by the trustee using net asset value per share as of December 31, 2013:
2013
Fair Value
Underfunded
Commitment
Redemption Frequency
Redemption Notice Period
Investment
Common collective trusts:
BMO
Balanced Allocation Fund (a)
$
7,859,875
—
Continuously
N/A
BMO Aggressive Allocation Fund (b)
4,884,040
—
Continuously
N/A
BMO
Growth Allocation Fund (c)
2,780,001
—
Continuously
N/A
BMO Moderate Allocation Fund (d)
142,355
—
Continuously
N/A
Total
$
15,666,271
(a)
The
BMO Balanced Allocation Fund seeks to achieve total investment return from income and capital appreciation. The fund allocates between 50% and 70% of its assets to equity and between 30% and 50% of its assets to fixed income securities.
(b)
The BMO Aggressive Allocation Fund seeks to achieve investment return primarily from capital appreciation and secondarily from income. The portfolio allocates between 90% and 100% of its assets to equity securities and between 0% and 10% of its assets to fixed income securities.
(c)
The
BMO Growth Allocation Fund seeks to achieve total investment return from income and capital appreciation. The portfolio allocates between 70% and 90% of its assets to equity securities and between 10% and 30% of its assets to fixed income securities.
(d)
The BMO Moderate Allocation Fund seeks to achieve total investment return from income and capital appreciation. The portfolio allocates between 30% and 50% of its assets to equity securities and between 50% and 70% of its assets to fixed income securities.
Note 5 Note Payable
– Related Party
At December 31, 2014 and 2013, the outstanding balances on the note payable to the Company were $921,622 and $1,075,226, respectively. The terms on the note payable require the Plan to make annual principal payments of $153,604 through 2020. In January 2014, the Plan made a $140,245 payment that consisted of $60,406 remaining on the 2013 Plan year required payment and a partial prepayment of the 2014 required payment in the amount of $79,839. In December 2014, the Plan paid $73,765 for the remaining payment for the 2014 Plan year. Interest is payable annually and is based on the one-month LIBOR rate plus 1.50% (effective rate of 1.654% at December
31, 2014). The note payable is secured by the unallocated shares of Badger Meter, Inc. common stock held by the Plan. The Company is obligated to contribute sufficient cash to the Plan to enable it to repay the principal and interest.
Badger Meter Employee Savings and Stock Ownership Plan
Note 5 Note Payable – Related Party (Continued)
The
note agreement contains certain restrictions and covenants, including a limitation on additional borrowings.
The pledged unallocated shares of Badger Meter, Inc. common stock are released as principal and interest payments are made on the note payable. The shares released are allocated to the participants’ accounts when authorized by the Company.
At December 31, the Plan’s investment in allocated and unallocated shares of Badger Meter, Inc. common stock was as follows:
2014
Shares
Cost
Fair
Value
Allocated
397,407
$
5,681,349
$
23,586,105
Unallocated
72,362
946,756
4,294,685
Total
469,769
$
6,628,105
$
27,880,790
Per
share
$
59.35
2013
Shares
Cost
Fair
Value
Allocated
438,038
$
5,854,184
$
23,873,071
Unallocated
83,439
1,091,683
4,547,426
Total
521,477
$
6,945,867
$
28,420,497
Per
share
$
54.50
In 2015, 10,157 shares of the Company's common stock with a fair value of $602,818 were released and allocated to satisfy the Company's 2014 matching contribution obligation. In 2014, 11,077 shares of
the Company’s common stock with a fair value of $603,697 were released and allocated to satisfy the Company’s 2013 matching contribution obligation.
Note 6 Income Tax Status
The Plan has received a determination letter from the IRS dated September 13, 2013, stating that the Plan was qualified under Section 401(a) and 401(k) of the Internal Revenue Code (“the Code”) and, therefore, the related trust is exempt from taxation. The Plan Administrator believes the Plan is currently designed and is being operated
in compliance with the applicable requirements of the Code and, therefore, believes the Plan is qualified and the related trust is tax-exempt. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2014, there were no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain income tax positions. The Plan is subject to routine audits by taxing jurisdictions and there are currently no audits in progress. The Plan Administrator believes the Plan is no longer subject to income tax examinations for the years prior to 2011.
Badger Meter Employee Savings and Stock Ownership Plan
Note 7 Related Party Transactions
The Plan holds Badger Meter, Inc. common stock. The Company is the employer and Plan Administrator. Transactions in the Company’s common stock are party-in-interest transactions.
The plan earned dividends of $349,002 on the Company stock in 2014. In 2014, the Plan purchased Company shares with
a cost of $1,374,453, received proceeds from the sale of Company shares of $3,203,622, and realized a gain of $1,413,462 on these sales. The purchases and sales were participant directed transactions in 2014.
Certain Plan investments are units of common collective trust and mutual funds managed by the Plan’s Trustee. These investments, the Company’s common stock and notes receivable from participants are party-in-interest transactions. The Plan Trustee charged $2,400 in participant loan fees in 2014.
Note 8 Voting Rights
Each participant is entitled
to exercise voting rights attributable to the shares allocated to his or her account. Unallocated shares are voted by the Plan Administrator on behalf of the collective best interest of Plan participants and beneficiaries.
Massachusetts Mutual Life Insurance Company Insurance Contract
General Investment Account
**
21,231,642
Heartland
Value Plus Fund
Mutual Fund
**
5,952,096
*
BMO Small Cap Growth Fund
Mutual Fund
**
2,763,545
*
BMO
Conservative Allocation Fund
Mutual Fund
**
2,262,701
Harbor International Fund
Mutual Fund
**
1,925,396
Manning
& Napier Fund, Inc.
Mutual Fund
**
1,224,206
*
BMO Balanced Allocation Fund
Mutual Fund
**
7,867,465
*
BMO
Growth Allocation Fund
Mutual Fund
**
2,973,690
*
BMO Aggressive Allocation Fund
Mutual Fund
**
5,099,233
Artisan
Mid Cap Value Fund
Mutual Fund
**
2,137,658
Wells Fargo Advantage Discovery
Mutual Fund
**
3,707,771
T
Rowe Price Growth
Mutual Fund
**
3,674,747
T Rowe Equity Income
Mutual Fund
**
3,794,043
Vanguard
500 Index Fund
Mutual Fund
**
1,949,432
Fidelity Freedom 2040
Mutual Fund
**
1,070,776
Fidelity
Freedom 2050
Mutual Fund
**
520,482
Fidelity Freedom 2010
Mutual Fund
**
463,707
Fidelity
Freedom 2020
Mutual Fund
**
1,203,717
Fidelity Freedom 2030
Mutual Fund
**
1,451,824
Pimco
Total Return Fund
Mutual Fund
**
2,059,951
*
BMO Moderate Allocation Fund
Mutual Fund
**
198,815
*
Marshall
Prime Money Market
Cash Equivalent
**
53,551
*
Notes Receivable from participants-interest rate range from 3.25% to 4.25%
Participant loans
**
1,284,630
Total
Assets (Held at End of Year)
$
103,221,275
*Party-in-interest
**Cost information not required for participant-directed investments
See report of independent registered public accounting firm.
16
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the Plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
