BADGER METER INC Income Taxes Disclosure
Note 8 Income Taxes
The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities.
Details of earnings before income taxes are as follows:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In thousands) |
|
|||||||||
Domestic |
|
$ |
186,739 |
|
|
$ |
169,608 |
|
|
$ |
120,384 |
|
Foreign |
|
|
1,918 |
|
|
|
(3,108 |
) |
|
|
1,582 |
|
Total |
|
$ |
188,657 |
|
|
$ |
166,500 |
|
|
$ |
121,966 |
|
The provision (benefit) for income taxes is as follows:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In thousands) |
|
|||||||||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
36,176 |
|
|
$ |
41,201 |
|
|
$ |
29,629 |
|
State |
|
|
9,627 |
|
|
|
9,955 |
|
|
|
8,147 |
|
Foreign |
|
|
2,074 |
|
|
|
1,476 |
|
|
|
1,242 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
941 |
|
|
|
(8,001 |
) |
|
|
(7,376 |
) |
State |
|
|
(788 |
) |
|
|
(1,719 |
) |
|
|
(1,332 |
) |
Foreign |
|
|
(1,007 |
) |
|
|
(1,354 |
) |
|
|
(942 |
) |
Total |
|
$ |
47,023 |
|
|
$ |
41,558 |
|
|
$ |
29,368 |
|
The provision for income tax differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate in each year due to the following items, which includes adjusted presentation for the years ended December 31, 2024 and 2023 in accordance with ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures:
|
|
2025 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
||||||
|
|
(In thousands) |
|
|
|
||||||||||||||
Provision at statutory rate |
|
$ |
39,618 |
|
|
21.0 |
% |
$ |
34,967 |
|
|
21.0 |
% |
$ |
25,613 |
|
|
21.0 |
% |
State income taxes, net of federal tax benefit (1) |
|
|
7,740 |
|
|
4.1 |
% |
|
6,383 |
|
|
3.8 |
% |
|
5,236 |
|
|
4.3 |
% |
Foreign tax effects |
|
|
664 |
|
|
0.4 |
% |
|
774 |
|
|
0.5 |
% |
|
(33 |
) |
|
0.0 |
% |
Effects of cross-border tax laws |
|
|
(888 |
) |
|
-0.5 |
% |
|
(638 |
) |
|
-0.4 |
% |
|
(736 |
) |
|
-0.6 |
% |
Tax credits |
|
|
(332 |
) |
|
-0.2 |
% |
|
(48 |
) |
|
0.0 |
% |
|
(1,181 |
) |
|
-1.0 |
% |
Nontaxable or nondeductible items |
|
|
121 |
|
|
0.1 |
% |
|
295 |
|
|
0.2 |
% |
|
114 |
|
|
0.1 |
% |
Changes in unrecognized tax benefits |
|
|
100 |
|
|
0.1 |
% |
|
(175 |
) |
|
-0.1 |
% |
|
355 |
|
|
0.3 |
% |
Actual provision |
|
$ |
47,023 |
|
|
24.9 |
% |
$ |
41,558 |
|
|
25.0 |
% |
$ |
29,368 |
|
|
24.1 |
% |
(1) The states that contribute to the majority (greater than 50%) of the tax effect of this category include California, Florida, Illinois, Tennessee, Georgia and Texas.
The amount of cash taxes paid is as follows:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In thousands) |
|
|||||||||
Federal |
|
$ |
36,595 |
|
|
$ |
43,200 |
|
|
$ |
30,325 |
|
State |
|
|
10,495 |
|
|
|
11,272 |
|
|
|
6,674 |
|
Foreign |
|
|
1,663 |
|
|
|
1,571 |
|
|
|
1,935 |
|
Cash paid for income taxes (net of refunds) |
|
$ |
48,753 |
|
|
$ |
56,043 |
|
|
$ |
38,934 |
|
Income taxes paid (net of refunds) exceed 5% of total income taxes paid (net of refunds) in the following jurisdictions:
|
|
2025 |
|
|
2024 |
|
2023 |
|
State |
|
(In thousands) |
||||||
California |
|
$ |
3,083 |
|
|
* |
|
* |
* Jurisdiction below the threshold for the period presented.
The components of deferred income taxes as of December 31 are as follows:
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
Reserve for receivables and inventory |
|
$ |
4,051 |
|
|
$ |
3,396 |
|
Accrued compensation |
|
|
4,502 |
|
|
|
3,791 |
|
Reserves and payables |
|
|
5,126 |
|
|
|
3,826 |
|
Accrued post-retirement medical benefits |
|
|
597 |
|
|
|
825 |
|
Net operating loss and credit carryforwards |
|
|
6,789 |
|
|
|
6,089 |
|
Deferred compensation |
|
|
1,736 |
|
|
|
1,739 |
|
Accrued qualified plan benefits |
|
|
1,260 |
|
|
|
1,178 |
|
Accrued stock-based compensation |
|
|
1,590 |
|
|
|
1,263 |
|
Deferred revenue |
|
|
15,860 |
|
|
|
12,201 |
|
Operating lease liabilities |
|
|
1,880 |
|
|
|
735 |
|
Research and development costs |
|
|
1,412 |
|
|
|
8,007 |
|
Other |
|
|
2,087 |
|
|
|
2,489 |
|
Total gross deferred tax assets |
|
|
46,890 |
|
|
|
45,539 |
|
Less: valuation allowance |
|
|
(3,245 |
) |
|
|
(3,297 |
) |
Total net deferred tax assets |
|
|
43,645 |
|
|
|
42,242 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property, plant and equipment |
|
|
3,516 |
|
|
|
3,743 |
|
Intangible assets |
|
|
26,523 |
|
|
|
7,527 |
|
Prepaids |
|
|
- |
|
|
|
825 |
|
Operating lease assets |
|
|
1,808 |
|
|
|
297 |
|
Other |
|
|
1,135 |
|
|
|
977 |
|
Total deferred tax liabilities |
|
|
32,982 |
|
|
|
13,369 |
|
Net deferred tax assets |
|
$ |
10,663 |
|
|
$ |
28,873 |
|
As of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $4.3 million, U.S. state net operating loss carryforwards of approximately $1.4 million, and foreign net operating loss carryforwards of approximately $32.6 million, of which $32.4 million have an unlimited carryforward period. The Company's tax credit carryforward of $0.6 million relates to state specific tax credits that the Company expects to fully utilize in future tax periods. The Company has recorded a full valuation allowance against certain deferred tax assets which are not likely to be realized. The valuation allowance relates primarily to foreign net operating loss carryforwards.
In 2021, the Organization for Economic Cooperation and Development (OECD) released Pillar Two Global Anti-Base Erosion model rules, designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. The OECD continues to release guidance and countries are implementing legislation to adopt these rules, which are expected to be effective for accounting periods beginning on or after December 31, 2023. The United States has not yet enacted legislation implementing Pillar Two. The Company is continuing to evaluate the Pillar Two rules and their potential impact on future periods. Based on existing proposed rules, the Company does not meet the revenue requirements for the Pillar Two rules to apply. As a result, the Company does not expect the rules to have a material impact on its effective tax rate.
In general, it is the Company's practice and intention to reinvest earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2025, the Company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $11.9 million of such undistributed earnings, $15.5 million of which was previously subject to U.S. tax that is deemed indefinitely reinvested.
Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Balance at beginning of year |
|
$ |
1,220 |
|
|
$ |
1,395 |
|
Reductions in unrecognized tax benefits as a result of positions taken |
|
|
(20 |
) |
|
|
(172 |
) |
Increases in unrecognized tax benefits as a result of positions taken during the |
|
|
314 |
|
|
|
342 |
|
Reductions to unrecognized tax benefits as a result of a lapse of the applicable |
|
|
(194 |
) |
|
|
(345 |
) |
Balance at end of year |
|
$ |
1,320 |
|
|
$ |
1,220 |
|
The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits during the next twelve months. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2022, and, with few exceptions, state and local income tax examinations by tax authorities for years prior to 2021. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. Accrued interest was approximately $0.2 million and $0.1 million as of December 31, 2025 and 2024, respectively, and there were no penalties accrued in either year.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.