CECO ENVIRONMENTAL CORP (Form: 10-Q, Received: 05/10/2017 07:34:12)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2017

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 0-7099

CECO ENVIRONMENTAL CORP.

(Exact name of registrant as specified in its charter)

Delaware

13-2566064

(State or other jurisdiction of

Incorporation or organization)

(IRS Employer

Identification No.)

4625 Red Bank Road, Cincinnati, Ohio		45227
(Address of principal executive offices)		(Zip Code)

(513) 458-2600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☒

Non-Accelerated Filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: 34,600,799 shares of common stock, par value $0.01 per share, as of May 2, 2017.

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended March 31, 2017

Table of Contents

Part I –	Financial Information	2

	Item 1. Financial Statements	2

	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	2

	Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2017 and 2016	3

	Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2017 and 2016	4

	Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2017 and 2016	5

	Notes to Condensed Consolidated Financial Statements	6

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	28

	Item 4. Controls and Procedures	28

Part II –	Other Information	30

	Item 1. Legal Proceedings	30

	Item 1A. Risk Factors	30

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 3. Defaults Upon Senior Securities	30

	Item 4. Mine Safety Disclosures	30

	Item 5. Other Information	30

	Item 6. Exhibits	31

Signatures		32

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)	(unaudited) MARCH 31, 2017			DECEMBER 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	44,999		$	45,824
Restricted cash		1,272			1,498
Accounts receivable, net		76,726			83,062
Costs and estimated earnings in excess of billings on uncompleted contracts		33,447			38,123
Inventories, net		21,498			21,487
Prepaid expenses and other current assets		12,282			13,560
Prepaid income taxes		2,709			1,590
Assets held for sale		7,826			7,834
Total current assets		200,759			212,978
Property, plant and equipment, net		26,452			27,270
Goodwill		170,293			170,153
Intangible assets-finite life, net		57,906			60,728
Intangible assets-indefinite life		22,085			22,042
Deferred charges and other assets		4,809			5,463
	$	482,304		$	498,634
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt	$	8,852		$	8,827
Accounts payable and accrued expenses		81,796			95,610
Billings in excess of costs and estimated earnings on uncompleted contracts		34,211			35,085
Note payable		5,300			5,300
Income taxes payable		1,793			1,536
Total current liabilities		131,952			146,358
Other liabilities		37,526			34,864
Debt, less current portion		110,565			114,366
Deferred income tax liability, net		12,899			12,964
Total liabilities		292,942			308,552
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value; 10,000 shares authorized, none issued		—			—
Common stock, $.01 par value; 100,000,000 shares authorized, 34,599,179 and 34,300,209 shares issued at March 31, 2017 and December 31, 2016, respectively		346			343
Capital in excess of par value		246,259			244,878
Accumulated loss		(44,394	)		(41,741	)
Accumulated other comprehensive loss		(12,493	)		(13,042	)
		189,718			190,438
Less treasury stock, at cost, 137,920 shares at March 31, 2017 and December 31, 2016		(356	)		(356	)
Total shareholders’ equity		189,362			190,082
	$	482,304		$	498,634

The notes to the condensed consolidated financial statements are an integral part of the above statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	THREE MONTHS ENDED MARCH 31,
(dollars in thousands, except per share data)	2017			2016
Net sales	$	92,651		$	103,175
Cost of sales		60,722			71,589
Gross profit		31,929			31,586
Selling and administrative expenses		23,256			20,945
Acquisition and integration expenses		—			37
Amortization and earn-out expenses		7,323			4,797
Income from operations		1,350			5,807
Other (expense) income, net		(109	)		780
Interest expense		(1,711	)		(2,102	)
(Loss) income before income taxes		(470	)		4,485
Income tax (benefit) expense		(508	)		1,430
Net income	$	38		$	3,055
Less net loss attributable to noncontrolling interest	$	—		$	(45	)
Net income attributable to CECO Environmental Corp.	$	38		$	3,100
Earnings per share:
Basic	$	0.00		$	0.09
Diluted	$	0.00		$	0.09
Weighted average number of common shares outstanding:
Basic		34,215,519			33,928,052
Diluted		34,563,139			34,116,534

The notes to the condensed consolidated financial statements are an integral part of the above statements.

CONDENSED CONSOLIDATED STATEMENT S OF COMPREHENSIVE INCOME

(unaudited)

	THREE MONTHS ENDED MARCH 31,
(dollars in thousands)	2017		2016
Net income	$	38	$	3,055
Other comprehensive income, net of tax:
Interest rate swap		143		(275	)
Foreign currency translation		406		321
Comprehensive income		587		3,101
Net loss attributable to noncontrolling interest		—		(45	)
Comprehensive income attributable to CECO Environmental Corp.	$	587	$	3,056

The notes to the condensed consolidated financial statements are an integral part of the above statements.

CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS

(unaudited)

	THREE MONTHS ENDED MARCH 31,
(dollars in thousands)	2017			2016
Cash flows from operating activities:
Net income	$	38		$	3,055
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,138			5,195
Unrealized foreign currency gain		(313	)		(908	)
Net gain on interest rate swaps		(58	)		—
Fair value adjustments to earnout liabilities		3,897			347
Earnout payments		(2,155	)		—
Loss on sale of property and equipment		77			3
Debt discount amortization		252			270
Share-based compensation expense		9			575
Bad debt expense		217			117
Inventory reserve expense		165			236
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		6,505			12,996
Costs and estimated earnings in excess of billings on uncompleted contracts		4,920			(1,084	)
Inventories		(110	)		1,826
Prepaid expense and other current assets		361			(2,025	)
Deferred charges and other assets		589			1,081
Accounts payable and accrued expenses		(13,428	)		(11,996	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(944	)		(47	)
Income taxes payable		206			30
Other liabilities		287			(283	)
Net cash provided by operating activities		4,653			9,388
Cash flows from investing activities:
Acquisitions of property and equipment		(410	)		(212	)
Proceeds from sale of property and equipment		11			282
Net (used in) provided by investing activities		(399	)		70
Cash flows from financing activities:
Decrease (increase) in restricted cash		342			(111	)
Net repayments on revolving credit lines		—			(3,934	)
Repayments of debt		(4,038	)		(3,215	)
Earnout payments		—			(1,100	)
Payments on capital leases and sale-leaseback transactions		(186	)		—
Proceeds from employee stock purchase plan, exercise of stock options, and dividend reinvestment plan		1,199			115
Dividends paid to common shareholders		(2,580	)		(2,243	)
Net cash used in financing activities		(5,263	)		(10,488	)
Effect of exchange rate changes on cash and cash equivalents		184			226
Net decrease in cash and cash equivalents		(825	)		(804	)
Cash and cash equivalents at beginning of period		45,824			34,194
Cash and cash equivalents at end of period	$	44,999		$	33,390
Cash paid during the period for:
Interest	$	1,445		$	1,816
Income taxes	$	490		$	861

The notes to the condensed consolidated financial statements are an integral part of the above statements.

CECO ENVIRONMENTAL CO RP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	Basis of Reporting for Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements of CECO Environmental Corp. and its subsidiaries (the “Company”, “we”, “us”, or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2017 and the results of operations and cash flows for the three-month periods ended March 31, 2017 and 2016. The results of operations for the three-month period ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2016 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These financial statements and accompanying notes should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.

Unless otherwise indicated, all balances within tables are in thousands, except per share amounts.

The Company’s consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries for all periods presented. All significant inter-company accounts and transactions have been eliminated in consolidation. On July 12, 2016, the Company entered into an agreement with the noncontrolling owner of Peerless Propulsys China Holdings LLC (“Peerless Propulsys”) and acquired 100% ownership in the equity and earnings of Peerless Propulsys of its 40% interest.

2.	New Financial Accounting Pronouncements

Accounting Standards Adopted in Fiscal 2017

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 of the former goodwill impairment test along with amending other parts of the goodwill impairment test. Under this ASU, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company has adopted ASU 2017-04 effective beginning as of January 1, 2017. The provisions of ASU 2017-04 did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for certain aspects of share-based payments to employees. The new guidance requires, among its other provisions, that excess tax benefits (which represent the excess of actual tax benefits received at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) and tax deficiencies (which represent the amount by which actual tax benefits received at the date of vesting or settlement is lower than the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as an increase or decrease in income taxes when the awards vest or are settled. This is in comparison to the prior requirement that these excess tax benefits be recognized in additional paid-in capital and these tax deficiencies be recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. The new guidance also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows rather than, as previously required, a financing activity. The new guidance allows companies to elect a

change to an accounting policy to account for forfeitures as they occur. The new guidance is effective for the first quarter of our fiscal year ending December 31, 2017, with early adoption permitted.

We have adopted ASU 2016-09 effective January 1, 2017 on a prospective basis where permitted by the new standard. As a result of this adoption:



•	We recognized discrete tax benefits of $0.4 million in the income tax expense (benefit) line item of our Condensed Consolidated Statement of Income for the three months ended March 31, 2017 related to excess tax benefits upon vesting or settlement in that period.


•	We elected to adopt the cash flow presentation of the excess tax benefits prospectively, commencing with our Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2017, where these benefits are classified along with other income tax cash flows as an operating activity.

•

We have elected to change our accounting policy to account for forfeitures as they occur. This change was applied on a modified retrospective basis with a cumulative effect adjustment to reduce retained earnings by $0.1 million as of January 1, 2017.

•

We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the three months ended March 31, 2017.

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 amends Topic 815 to clarify that novation of a derivative (replacing one of the parties to a derivative instrument with a new party) designated as the hedging instrument would not, in and of itself, be considered a termination of the derivative instrument or a change in critical terms requiring discontinuation of the designated hedging relationship. ASU 2016-05 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted ASU 2016-05 on a prospective basis. The provisions of ASU 2016-05 had no effect on the Company’s financial condition, results of operations, or cash flows.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 requires inventory within the scope of the ASU (i.e., first-in, first-out (“FIFO”) or average cost) to be measured using the lower of cost and net realizable value. Inventory excluded from the scope of the ASU (i.e., last-in, first-out (“LIFO”) or the retail inventory method) will continue to be measured at the lower of cost or market. The ASU also amends some of the other guidance in Topic 330, “Inventory,” to more clearly articulate the requirements for the measurement and disclosure of inventory. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted ASU 2015-11 on a prospective basis. The provisions of ASU 2015-11 did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements.” The amendments cover a wide range of topics in the Accounting Standards Codification, guidance clarification, reference corrections, simplification, and minor improvements. The adoption of ASU 2016-19 is effective for annual periods, including interim periods, within those annual periods, beginning after December 15, 2016. The Company has adopted ASU 2016-19 on a prospective basis. The provisions of ASU 2016-19 did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

Accounting Standards Yet to be Adopted

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under existing GAAP, an entity is required to present all components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as part of an asset where appropriate. ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The amendments in ASU 2017-07 shall be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the

service cost component of net periodic pension cost and net periodic postretirement benefit in assets. ASU 2017-07 becomes effective for the Company on January 1, 2018. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendment seeks to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The adoption of ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective dates. The Company is evaluating the effect of this standard on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The amendments in ASU 2016-18 will require the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that year. The Company is currently in the process of evaluating the impact of ASU 2016-18 on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-15 will require adoption on a retrospective basis, unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company believes that the new standard will have a material impact on its consolidated balance sheet due to the recognition of ROU assets and liabilities for the Company’s operating leases but it will not have a material impact on its liquidity. The Company is continuing to evaluate potential impacts to our financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers.” ASU 2014-09 supersedes nearly all existing revenue recognition principles under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration an entity expects to be entitled to for those goods or services using a defined five-step process. More judgment and estimates may be required to achieve this principle than under existing GAAP. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for identifying performance obligations, licenses and determining if a company is the principal or agent in a revenue arrangement. ASU 2014-09 and its clarifying amendments are effective for annual periods beginning after December 15, 2017, including interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a modified retrospective approach with the cumulative effect upon initial adoption recognized at the date of adoption, which includes additional footnote disclosures. We currently expect to adopt ASU 2014-09 as of January 1, 2018, under the modified retrospective method where the cumulative effect is recognized at the date of initial application. Our evaluation of ASU 2014-09 is ongoing and not complete. The FASB has issued and may issue in the future, interpretative guidance, which may cause our evaluation to change. The Company will not be able to make a determination about the impact of the standard until the time of adoption based upon outstanding contracts at that time. However, the Company will continue to evaluate our business processes, systems and controls, and potential differences, if any, in the timing and method of revenue recognition.

3.	Accounts Receivable

(Table only in thousands)	March 31, 2017			December 31, 2016
Trade receivables	$	12,259		$	11,976
Contract receivables		66,180			72,835
Allowance for doubtful accounts		(1,713	)		(1,749	)
	$	76,726		$	83,062

Balances billed but not paid by customers under retainage provisions in contracts amounted to approximately $2.8 million and $3.2 million at March 31, 2017 and December 31, 2016, respectively. Retainage receivables on contracts in progress are generally collected within a year after contract completion.

Bad debt expense was $0.2 million and $0.1 million for the three-month periods ended March 31, 2017 and 2016, respectively.

4.	Costs and Estimated Earnings on Uncompleted Contracts

Revenues from contracts are primarily recognized on the percentage of completion method, measured by the percentage of contract costs incurred to date compared with estimated total contract costs for each contract. This method is used because management considers contract costs to be the best available measure of progress on these contracts. For contracts where the duration is short, total contract revenue is insignificant, or reasonably dependable estimates cannot be made, revenues are recognized on a completed contract basis, when risk and title passes to the customer, which is generally upon shipment of product.

Our contracts have various lengths to completion ranging from a few days to several months. We anticipate that a majority of our current contracts will be completed within the next twelve months.

(Table only in thousands)	March 31, 2017			December 31, 2016
Costs incurred on uncompleted contracts	$	193,201		$	186,609
Estimated earnings		77,234			77,709
		270,435			264,318
Less billings to date		(271,199	)		(261,280	)
	$	(764	)	$	3,038
Included in the accompanying condensed consolidated balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	33,447		$	38,123
Billings in excess of costs and estimated earnings on uncompleted contracts		34,211			35,085
	$	(764	)	$	3,038

Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes to job performance, job conditions, and estimated profitability may result in revisions to contract revenue and costs, and are recognized in the period in which the revisions are made. No provision for estimated losses on uncompleted contracts was required at March 31, 2017 or December 31, 2016.

5.	Inventories

(Table only in thousands)	March 31, 2017			December 31, 2016
Raw materials	$	17,866		$	17,889
Work in process		4,142			3,986
Finished goods		1,554			1,508
Obsolescence allowance		(2,064	)		(1,896	)
	$	21,498		$	21,487

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $0.2 million and $0.2 million for the three-month periods ended March 31, 2017 and 2016, respectively.

6.	Goodwill and Intangible Assets

(Table only in thousands)	Three months ended March 31, 2017				Year ended December 31, 2016
Goodwill / Tradename	Goodwill		Tradename		Goodwill			Tradename
Beginning balance	$	170,153	$	22,042	$	220,163		$	26,337
Acquisitions and related adjustments		—		—		4,205			—
Impairment		—		—		(53,762	)		(4,161	)
Foreign currency translation		140		43		(453	)		(134	)
	$	170,293	$	22,085	$	170,153		$	22,042

(Table only in thousands)	As of March 31, 2017						As of December 31, 2016
Intangible assets – finite life	Cost			Accum. Amort.			Cost			Accum. Amort.
Technology	$	15,867		$	6,913		$	15,867		$	6,360
Customer lists		77,497			28,288			77,497			26,041
Noncompetition agreements		1,118			533			1,118			478
Tradename		1,390			336			1,390			301
Foreign currency adjustments		(2,771	)		(875	)		(2,964	)		(1,000	)
	$	93,101		$	35,195		$	92,908		$	32,180

Activity for the three months ended March 31, 2017 and 2016 is as follows:

(Table only in thousands)	2017			2016
Intangible assets – finite life, net at beginning of period	$	60,728		$	74,957
Amortization expense		(2,890	)		(3,935	)
Foreign currency adjustments		68			294
Intangible assets – finite life, net at end of period	$	57,906		$	71,316

Amortization expense of finite life intangible assets was $2.9 million and $3.9 million for the three-month periods ended March 31, 2017 and 2016, respectively. Amortization over the next five years for finite life intangibles is expected to be $8.6 million for the remainder of 2017, $10.0 million in 2018, $8.8 million in 2019, $7.1 million in 2020, and $5.8 million in 2021.

The Company did not identify any triggering events during the three-month period ended March 31, 2017 that would require an interim impairment assessment of goodwill or indefinite life intangible assets, therefore there was no impairment of goodwill or indefinite life intangible assets during the three-month period ended March 31, 2017.

7.	Accounts Payable and Accrued Expenses

	March 31, 2017		December 31, 2016
Trade accounts payable, including due to subcontractors	$	50,454	$	58,985
Compensation and related benefits		5,332		8,232
Current portion of earn-out liability		13,062		13,527
Accrued warranty		3,373		2,684
Other accrued expenses		9,575		12,182
	$	81,796	$	95,610

The activity in the Company’s current portion of earn-out liability and long term portion of earn-out liability was as follows for the three months ended March 31, 2017 and 2016:

(Table only in thousands)	Energy Segment			Environmental Segment		Total
Balance of earn-out at December 31, 2016	$	24,214		$	—	$	24,214
Fair value adjustment		3,897			—		3,897
Compensation expense adjustment		290			—		290
Foreign currency translation adjustment		200			—		200
Payment		(2,155	)		—		(2,155	)
Total earn-out liability as of March 31, 2017	$	26,446		$	—	$	26,446
Less: current portion of earn-out		(13,062	)		—		(13,062	)
Balance of long term portion of earn-out recorded in other liabilities at March 31, 2017	$	13,384		$	—	$	13,384

(Table only in thousands)	Energy Segment			Environmental Segment			Total
Balance of earn-out at December 31, 2015	$	29,304		$	3,367		$	32,671
Fair value adjustment		847			(500	)		347
Compensation expense adjustment		302			—			302
Foreign currency translation adjustment		288			—			288
Payment		—			(1,100	)		(1,100	)
Total earn-out liability as of March 31, 2016	$	30,741		$	1,767		$	32,508
Less: current portion of earn-out		(21,898	)		(667	)		(22,565	)
Balance of long term portion of earn-out recorded in other liabilities at March 31, 2016	$	8,843		$	1,100		$	9,943

8.	Senior debt

Debt consisted of the following at March 31, 2017 and December 31, 2016:

(Table only in thousands)	March 31, 2017			December 31, 2016
Outstanding borrowings under Credit Facility (defined below) Term loan payable in quarterly principal installments of $1.6 million through September 2017, $2.2 million through September 2018, and $2.7 million thereafter with balance due upon maturity in September 2020
- Term loan	$	121,034		$	125,072
- Unamortized debt discount		(2,923	)		(3,175	)
Total outstanding borrowings under Credit Facility		118,111			121,897
Outstanding borrowings under China Facility (defined below)		1,306			1,296
Total outstanding borrowings		119,417			123,193
Less: current portion		8,852			8,827
Total debt, less current portion	$	110,565		$	114,366

During the three-month period ended March 31, 2017, the Company made prepayments of $2.3 million and scheduled payments of $1.7 million for a total payment amount of $4.0 million on the outstanding balance of the term loan. Scheduled principal payments under our debt facilities are $6.7 million for the remainder of 2017, $9.2 million in 2018, $10.8 million in 2019, and $95.7 million in 2020.

United States Debt

As of March 31, 2017 and December 31, 2016, $21.3 million and $18.0 million of letters of credit were outstanding, respectively. Total unused credit availability under the Company’s senior secured term loan, senior secured U.S. dollar revolving loans with sub-facilities for letters of credit and swing-line loans and senior secured multi-currency revolving credit facility for U.S. dollar and specific foreign currency loans (collectively, the “Credit Facility”) was $58.7 million and $62.0 million at March 31, 2017 and December 31, 2016, respectively. Revolving loans may be borrowed, repaid and reborrowed until September 3, 2020, at which time all amounts borrowed pursuant to the Credit Facility must be repaid.

The weighted average stated interest rate on outstanding borrowings was 3.41% and 3.26% at March 31, 2017 and December 31, 2016, respectively.

In accordance with the Credit Facility terms, the Company entered into an interest rate swap to hedge against interest rate exposure related to a portion of the outstanding debt indexed to LIBOR market rates. The fair value of the interest rate swap had no impact on the Condensed Consolidated Balance Sheet as of March 31, 2017. The fair value of the interest rate swap was a liability totaling $0.2 million December 31, 2016, which is recorded in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets. The Company did not designate the interest rate swap as an effective hedge until the first quarter of 2016, and accordingly the change in the fair value until the date of designation of $0.5 million was recorded in earnings in “Other income (expense), net” in the Consolidated Statements of Income for the three-month period ended March 31, 2016. From the date of designation, a significant portion of the changes to the fair value of the interest rate swap have been recorded in other comprehensive income as the hedge is deemed effective.

The credit agreement that outlines the terms of the Credit Facility contains customary affirmative and negative covenants, including the requirement to maintain compliance with a consolidated leverage ratio of less than 3.25 and a consolidated fixed charge coverage ratio of more than 1.25. Per the Credit Agreement, the maximum consolidated leverage ratio decreased to 3.25 on January 1, 2017, and is set to decrease again to 3.00 on October 1, 2017. The consolidated leverage ratio will then remain at 3.00 until the end of the term of the Credit Agreement. The Credit Agreement also includes customary events of default and the occurrence of an event of default could result in an increased interest rate equal to 2.0% above the applicable interest rate for loans, the acceleration of the Company’s obligations pursuant to the Credit Agreement and an obligation of the subsidiary guarantors to repay the full amount of the Company’s borrowings pursuant to the Credit Agreement.

As of March 31, 2017 and December 31, 2016, the Company was in compliance with all related financial and other restrictive covenants under the Credit Agreement.

Foreign Debt

A subsidiary of the Company located in the Netherlands has a Euro denominated facilities agreement with ING Bank N.V. (“Aarding Facility”) with a total borrowing capacity of $13.9 million. As of March 31, 2017 and December 31, 2016, the borrowers were in compliance with all related financial and other restrictive covenants. As of March 31, 2017, $4.4 million of the bank guarantee and none of the overdraft facility are being used by the borrowers. As of December 31, 2016, $5.3 million of the bank guarantee and none of the overdraft facility was being used by the borrowers. There is no stated expiration date on the Aarding Facility.

A subsidiary of the Company located in China has a Chinese Yuan Renminbi denominated short-term loan with Bank of America (“China Facility”) with an amount outstanding of $1.3 million as of March 31, 2017 and December 31, 2016. The China Facility has a stated interest rate of 4.79% and matures in May 2017 .

As a result of the PMFG acquisition, the Company acquired a 60% equity investment in Peerless Propulsys that entitled the Company to 80% of Peerless Propulsys’s earnings. In prior periods, the noncontrolling interest of Peerless Propulsys was reported as a separate component on the Consolidated Balance Sheets. During July of 2016, the Company entered into an agreement with the noncontrolling owner of Peerless Propulsys and issued a promissory note in the amount of $5.3 million due on July 11, 2019 in exchange for the remaining interest in Peerless Propulysys, which increased the Company’s ownership to 100% in the equity and earnings of Peerless Propulsys. The interest rate on the note payable is 1.50%, which approximates the market rate given the short term duration of the note payable. All of the Company’s assets are guaranteed to secure this agreement. As of December 31, 2016 and March 31, 2017, $5.3 million of the note payable was outstanding. The note is payable at the earlier of July 11, 2019 or thirty days subsequent to the sale of building and land that the Company owns in China. As the Company intends to sell this building and land within one year of March 31, 2017, this note payable is currently classified as a current liability in the Consolidated Balance Sheets as of December 31, 2017.

9.	Earnings and Dividends per Share

The computational components of basic and diluted earnings per share for the three-month periods ended March 31, 2017 and 2016 are below.

	For the three-month period ended March 31, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	38		34,216	$	0.00
Effect of dilutive securities and notes:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		347		—
Diluted earnings and earnings per share	$	38		34,563	$	0.00

	For the three-month period ended March 31, 2016
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	3,100		33,928	$	0.09
Effect of dilutive securities and notes:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		189		—
Diluted earnings and earnings per share	$	3,100		34,117	$	0.09

Options, restricted stock units and warrants included in the computation of diluted earnings per share are calculated using the treasury stock method. For the three-month periods ended March 31, 2017 and 2016, 0.8 million and 1.7 million, respectively, outstanding options and warrants were excluded from the computation of diluted earnings per share due to their having an anti-dilutive effect.

Once a restricted stock unit vests, it is included in the computation of weighted average shares outstanding for purposes of basic and diluted earnings per share.

On March 6, 2017, the Company declared and, on March 31, 2017, paid to common stockholders a quarterly dividend of $0.075 per share. The dividend policy and the payment of cash dividends under that policy are subject to the Board of Directors’ continuing determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s stockholders. Future dividends and the dividend policy may be changed or cancelled at the Company’s discretion at any time. Payment of dividends is also subject to the continuing compliance with our financial covenants under our Credit Facility.

10.	Share-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation,” which requires the Company to recognize compensation expense for stock-based awards, measured at the fair value of the awards at the grant date. The Company recognized no stock compensation related expense and $0.6 million of stock compensation related expense during the three-month periods ended March 31, 2017 and 2016, respectively. There was no expense for the three-month period ended March 31, 2017 due to a large amount of forfeitures primarily related to the former Chief Executive Officer’s departure from the Company.

The Company granted no options and approximately 100,000 options during the three-month periods ended March 31, 2017 and 2016, respectively. The weighted-average fair value of stock options granted during the three months ended March 31, 2016 was estimated at $2.07 per option, respectively, using the Black-Scholes option-pricing model based on the following assumptions:

Expected Volatility: The Company utilizes a volatility factor based on the Company’s historical stock prices for a period of time equal to the expected term of the stock option utilizing weekly price observations. For the three months ended March 31, 2016, the Company utilized a weighted-average volatility factor of 39%.

Expected Term: For the three months ended March 31, 2016, the Company utilized a weighted-average expected term factor of 6.5 years.

Risk-Free Interest Rate: The risk-free interest rate factor utilized is based upon the i mplied yields currently available on U.S. Treasury zero-coupon issues over the expected term of the stock options. For the three months ended March 31, 2016, the Company utilized a weighted-average risk-free interest rate factor of 2.1%.

Expected Dividends: The Company utilized a weighted average expected dividend rate of 3.6% to value options granted during the three months ended March 31, 2016.

The Company granted approximately 55,000 and 15,000 restricted stock units during the three-month periods ended March 31, 2017 and 2016, respectively. The weighted-average fair value of restricted stock units was estimated at $14.19 and $6.65 per unit granted during the three months ended March 31, 2017 and 2016, respectively. The fair value of the restricted stock units was determined by using the value of stock in the open market on the date of grant.

The fair value of the stock-based awards granted is recorded as compensation expense on a straight-line basis over the vesting periods of the awards.

The Company received $1.1 million in cash from employees exercising options during the three months ended March 31, 2017. The intrinsic value of options exercised during the three months ended March 31, 2017 was $1.8 million. There were no options exercised during the three months ended March 31, 2016.

11.	Pension and Employee Benefit Plans

We sponsor a non-contributory defined benefit pension plan for certain union employees. The plan is funded in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974.

We also sponsor a postretirement health care plan for office employees retired before January 1, 1990. The plan allowed retirees who attained the age of 65 to elect the type of coverage desired.

Retirement and health care plan expense is based on valuations performed by plan actuaries as of the beginning of each fiscal year. The components of the expense consisted of the following:

(Table only in thousands)	Three Months Ended March 31,
	2017			2016
Pension plan:
Service cost	$	113		$	112
Interest cost		329			356
Expected return on plan assets		(431	)		(457	)
Amortization of net actuarial loss		57			53
Net periodic benefit cost	$	68		$	64
Health care plan:
Interest cost	$	1		$	1
Amortization of loss		2			3
Net periodic benefit cost	$	3		$	4

We made no contributions to our defined benefit plans during the three months ended March 31, 2017. We made contributions to our defined benefit plans during the three months ended March 31, 2016 totaling $29,000. We anticipate $2.0 million and $25,000 of further contributions to fund the pension plan and the retiree health care plan, respectively, during the remainder of 2017. The unfunded liability of the plans of $11.1 million as of March 31, 2017 and December 31, 2016 is included in Other liabilities on our Condensed Consolidated Balance Sheets.

12.	Income Taxes

The Company files income tax returns in various federal, state and local jurisdictions. Tax years from 2014 forward remain open for examination by Federal authorities. Tax years from 2011 forward remain open for all significant state and foreign authorities.

The Company accounts for uncertain tax positions pursuant to ASC Topic 740, “Income Taxes.” As of March 31, 2017 and December 31, 2016, the liability for uncertain tax positions totaled approximately $0.4 million, which is included in Other

l iabilities on our Condensed Consolidated Balance Sheets. The Company recognizes interest accrued related to uncertain tax positions in interest expense and penalties in income tax expense. The Company has not recorded deferred income taxes on the undistributed earnings of its foreign subsidiaries because of management’s intent to indefinitely reinvest such earnings.

13.	Financial Instruments

Our financial instruments consist primarily of investments in cash and cash equivalents, receivables and certain other assets, foreign debt and accounts payable, which approximate fair value at March 31, 2017 and December 31, 2016, due to their short-term nature or variable, market-driven interest rates.

The fair value of the debt issued under the Credit Agreement was $121.0 million and $125.1 million at March 31, 2017 and December 31, 2016, respectively. The fair value of the note payable was $5.3 million at March 31, 2017 and December 31, 2016, respectively.

In accordance with the terms of the Credit Agreement, the Company entered into an interest rate swap on December 30, 2015 to hedge against interest rate exposure related to a portion of the outstanding debt indexed to LIBOR market rates. See note 8 for further information regarding the interest rate swap.

At March 31, 2017 and December 31, 2016, we had cash and cash equivalents of $45.0 million and $45.8 million, respectively, of which $28.9 million and $25.6 million, respectively, was held outside of the United States, principally in the Netherlands, United Kingdom, China, and Canada.

Restricted cash is held by the Company to support letters of credit issued in foreign jurisdictions to support Company operations. The Company occasionally enters into letters of credit with durations in excess of one year.

14.	Commitments and Contingencies – Legal Matters

Asbestos cases

Our subsidiary, Met-Pro Technologies LLC (“Met-Pro”), beginning in 2002, began to be named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that Met-Pro, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs. Counsel has advised that more recent cases typically allege more serious claims of mesothelioma. The Company’s insurers have hired attorneys who, together with the Company, are vigorously defending these cases. Many cases have been dismissed after the plaintiff fails to produce evidence of exposure to Met-Pro’s products. In those cases where evidence has been produced, the Company’s experience has been that the exposure levels are low and the Company’s position has been that its products were not a cause of death, injury or loss. The Company has been dismissed from or settled a large number of these cases. Cumulative settlement payments from 2002 through March 31, 2017 for cases involving asbestos-related claims were $1.2 million, of which together with all legal fees other than corporate counsel expenses; $1.1 million have been paid by the Company’s insurers. The average cost per settled claim, excluding legal fees, was approximately $27,000.

Based upon the most recent information available to the Company regarding such claims, there were a total of 228 cases pending against the Company as of March 31, 2017 (with Connecticut, New York, Pennsylvania and West Virginia having the largest number of cases), as compared with 229 cases that were pending as of December 31, 2016. During the three months ended March 31, 2017, 15 new cases were filed against the Company, and the Company was dismissed from 12 cases and settled four cases. Most of the pending cases have not advanced beyond the early stages of discovery, although a number of cases are on schedules leading to, or are scheduled for trial. The Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts. However, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage. The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

Valero

One of our subsidiaries, Fisher-Klosterman, Inc. (“FKI”), was a defendant in a products liability lawsuit filed in Harris County, Texas on August 23, 2010 by three Valero refining companies (“Valero Suit”). The plaintiffs claimed that FKI (and its co-

Defendants) used an allegedly defective refractory material included in cyclones it supplied to Valero that caused damages to refineries th ey own and operate. Plaintiffs claimed to have suffered property damages, including catalyst loss, regenerator repair costs, replacement part costs, damage to other property and business interruption loss. During 2014, the Company reached a settlement with the plaintiffs for $0.5 million and, accordingly, recorded a corresponding charge to operations. In addition, the Company reached an agreement with a supplier to recover $0.2 million related to this matter. The recovery was also recorded during 2014. The Company’s insurer, Valley Forge Insurance Company (“Valley Forge”), who had paid for the legal defense in this matter, initiated a new case in the Southern District of Ohio against the Company seeking, among other things, recoupment of past legal costs pai d. Valley Forge claims that it did not have an obligation to defend FKI and is entitled to recoup all amounts paid to defend FKI. The Court rejected Valley Forge’s position on the duty to defend as contrary to Ohio law. The Court found that if Valley Fo rge could prove that FKI breached its duty to cooperate in defending the Valero Suit, Valley Forge may be relieved of its duty to defend to some extent. Valley Forge moved for reconsideration of the Court’s opinion in May 2016 , which the court ruled again st. The Court ruled in 2017 that Valley Forge could amend its complaint. The Company is vigorously disputing this claim, and is seeking to pursue counterclaims against the insurer .

Summary

The Company is also a party to routine contract and employment-related litigation matters and routine audits of state and local tax returns arising in the ordinary course of its business.

The final outcome and impact of open matters, and related claims and investigations that may be brought in the future, are subject to many variables, and cannot be predicted. In accordance with ASC 450, Contingencies, and related guidance, we record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. The Company expenses legal costs as they are incurred.

We are not aware of pending claims or assessments, other than as described above, which may have a material adverse impact on our liquidity, financial position, results of operations, or cash flows.

15.	Business Segment Information

The Company’s operations are organized and reviewed by management along its product lines or end market that the segment serves and presented in three reportable segments.

Energy Segment

Our Energy segment provides customized solutions for the power generation and petrochemical industry. This includes gas turbine exhaust systems, dampers and diverters, gas and liquid separation and filtration equipment, selective catalytic reduction (“SCR”) and selective non-catalytic reduction (“SNCR”) systems, acoustical components and silencers, secondary separators (nuclear plant reactor vessels) and expansion joints, the design and manufacture of technologies for flue gas and diverter dampers, non-metallic expansion joints, natural gas turbine exhaust systems, and silencer and precipitator applications, primarily for natural gas and coal-fired power plants, refining, oil production and petrochemical processing, as well as a variety of other industries.

Environmental Segment

Our Environmental segment provides the design and manufacture of product recovery and air pollution control technologies that enable our customers to leave a lower carbon footprint, lower energy consumption, minimize waste and meet compliance targets for toxic emissions, fumes, volatile organic compounds, process and industrial odors. These products and solutions include chemical and biological scrubbers, fabric filters and cartridge collectors, thermal and catalytic oxidation systems, cyclones, separators, gas absorbers and industrial ventilation systems. This segment also provides component parts for industrial air systems and provides cost effective alternatives to traditional duct components, as well as custom metal engineered fabrication services. These products and services are applicable to a wide variety of industries.

Fluid Handling and Filtration Segment

Our Fluid Handling and Filtration segment provides the design and manufacture of high quality pump, filtration and fume exhaust solutions. This includes centrifugal pumps for corrosive, abrasive and high temperature liquids, filter products for air and liquid filtration, precious metal recovery systems, carbonate precipitators, and technologically advanced air movement and exhaust systems. These products are applicable to a wide variety of industries, particularly the aquarium/aquaculture, plating and metal finishing, food and beverage, chemical/petrochemical, wastewater treatment, desalination and pharmaceutical markets.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measure of segment operating profit reviewed by management. The operating results of the segments are reviewed through to the “Income from operations” line on the Condensed Consolidated Statements of Income.

The financial segment information is presented in the following tables:

	Three Months Ended March 31,
(dollars in thousands)	2017			2016
Net Sales (less intra-, inter-segment sales)
Energy Segment	$	41,083		$	47,932
Environmental Segment		35,929			39,122
Fluid Handling and Filtration Segment		15,816			16,595
Corporate and Other ⁽¹⁾		(177	)		(474	)
Net sales	$	92,651		$	103,175

⁽¹⁾	Includes adjustment for revenue on intercompany jobs.

	Three Months Ended March 31,
(dollars in thousands)	2017			2016
Income from Operations
Energy Segment	$	1,613		$	5,196
Environmental Segment		5,109			4,746
Fluid Handling and Filtration Segment		3,309			3,198
Corporate and Other ⁽²⁾		(8,011	)		(6,920	)
Eliminations		(670	)		(413	)
Income from Operations	$	1,350		$	5,807

⁽²⁾

Includes corporate compensation, professional services, information technology, executive transition expenses, acquisition and integration expenses, and other general and administrative corporate expenses. This figure excludes earn-out expenses, which are recorded in the segment in which the expense occurs. See Note 7 for the earn-out expenses by segment.

	Three Months Ended March 31,
(dollars in thousands)	2017		2016
Property and Equipment Additions
Energy Segment	$	236	$	86
Environmental Segment		9		113
Fluid Handling and Filtration Segment		149		9
Corporate and Other		16		4
Property and Equipment Additions	$	410	$	212

	Three Months Ended March 31,
(dollars in thousands)	2017		2016
Depreciation and Amortization
Energy Segment	$	2,064	$	2,802
Environmental Segment		845		967
Fluid Handling and Filtration Segment		1,198		1,394
Corporate and Other		31		32
Depreciation and Amortization	$	4,138	$	5,195

(dollars in thousands)	March 31, 2017		December 31, 2016
Identifiable Assets
Energy Segment	$	240,841	$	257,566
Environmental Segment		119,044		118,680
Fluid Handling and Filtration Segment		104,007		104,294
Corporate and Other ⁽³⁾		18,412		18,094
Identifiable Assets	$	482,304	$	498,634

⁽³⁾	Corporate assets primarily consist of cash and income tax related assets.

(dollars in thousands)	March 31, 2017		December 31, 2016
Goodwill
Energy Segment	$	75,967	$	75,827
Environmental Segment		48,203		48,203
Fluid Handling and Filtration Segment		46,123		46,123
Goodwill	$	170,293	$	170,153

Intra-segment and Inter-segment Revenues

The Company has multiple divisions that sell to each other within segments (intra-segment sales) and between segments (inter-segment sales) as indicated in the following tables:

	Three Months Ended March 31, 2017
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF		Corp and Other			Net Sales to Outside Customers
Net Sales
Energy Segment	$	43,413	$	(2,308	)	$	(22	)	$	—		$	—	$	—		$	41,083
Environmental Segment		37,548		(890	)		—			(729	)		—		—			35,929
Fluid Handling and Filtration Segment		16,692		(618	)		(164	)		(94	)		—		—			15,816
Corporate and Other ⁽⁴⁾		—		—			—			—			—		(177	)		(177	)
Net Sales	$	97,653	$	(3,816	)	$	(186	)	$	(823	)	$	—	$	(177	)	$	92,651

	Three Months Ended March 31, 2016
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF			Corp and Other			Net Sales to Outside Customers
Net Sales
Energy Segment	$	48,581	$	(491	)	$	(158	)	$	—		$	—		$	—		$	47,932
Environmental Segment		42,053		(1,754	)		—			(1,040	)		(137	)		—			39,122
Fluid Handling and Filtration Segment		17,012		(403	)		(14	)		—			—			—			16,595
Corporate and Other ⁽⁴⁾		—		—			—			—			—			(474	)		(474	)
Net Sales	$	107,646	$	(2,648	)	$	(172	)	$	(1,040	)	$	(137	)	$	(474	)	$	103,175

⁽⁴⁾	Includes adjustment for revenue on intercompany jobs.

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

ITEM 2.

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

The Company’s Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2017 and 2016 reflect the consolidated operations of the Company and its subsidiaries.

CECO is a diversified global provider of leading engineered technologies to the energy, environmental and fluid handling and filtration industrial segments, targeting specific niche-focused end markets through an attractive asset-light business model. We provide a wide spectrum of products and services including dampers & diverters, cyclonic technology, thermal oxidizers, separation and filtration systems, selective catalytic reduction (“SCR”) and selective non-catalytic reduction (“SNCR”) systems, scrubbers, dampers and silencers, exhaust systems, fluid handling equipment and plant engineered services and engineered design build fabrication. CECO’s products play a vital role in helping companies achieve exacting production standards, meeting increasing plant needs and stringent emissions control regulations around the globe. The Company serves a broad range of markets and industries, including power, municipalities, chemical, industrial manufacturing, mid-stream pipeline natural gas transmission, refining, petrochemical, metals, minerals & mining companies, as well as hospitals and universities. Therefore, our business is not concentrated in a single industry or customer.

We are a global corporation with worldwide operations. As a global business, our operations are affected by worldwide, regional and industry-specific economic factors, wherever we operate or do business. Our geographic and industry diversity, and the breadth of our product and services portfolios, have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results.

We believe growth for our products and services is driven by the increasing demand for energy consumption and a shift towards cleaner sources such as natural gas, nuclear, and renewable sources. These trends should stimulate investment in new power generation facilities, pipeline expansion and related infrastructure, and in upgrades of existing facilities.

With a shift to cleaner, more environmentally responsible power generation, power providers and industrial power consumers are building new facilities that use cleaner fuels. In developed markets, natural gas is increasingly becoming one of the energy sources of choice. We supply product offerings throughout the entire natural gas infrastructure value chain and believe expansion will drive growth within our Energy segment for our pressure products and SCR systems for natural-gas-fired power plants. Increased global natural gas production as a percent of total energy consumption, miles of new pipeline being added globally, and an increase in liquification capacity all stand to drive the need for our products.

We also believe there is a trend in both developed and emerging markets to control and reduce emissions of harsher fuel sources for which our air pollution control equipment is required. In emerging markets, including China, India, and South East Asia, our business is positioned to benefit from tightening of air pollution standards. In developed markets, growth of industrialization will drive greater output of emissions requiring our equipment as well. In both markets, we expect capital expenditures for our equipment to increase and the need for our aftermarket services to grow as companies seek to meet new standards.

We continue to focus on increasing revenues and profitability globally while continuing to strengthen and expand our presence domestically. Our operating strategy has historically involved horizontally expanding our scope of technology, products, and services through selective acquisitions and the formation of new business units that are then vertically integrated into our growing group of turnkey system providers. Our continuing focus will be on global growth, market coverage, and expansion of our Asia operations. Operational excellence, margin expansion, after-market recurring revenue growth, and safety leadership are also critical to our growth strategy .

Operations Overview

We operate under a “hub and spoke” business model in which executive management, finance, administrative and marketing staff serves as the hub while the sales channels serve as spokes. We use this model throughout our operations. This has provided us with certain efficiencies over a more decentralized model. The Company’s segment presidents manage our division managers who are responsible for successfully running their operations, that is, sales, gross margins, manufacturing, pricing, purchasing, safety, employee development and customer service excellence. The segment presidents work closely with our CEO on global growth strategies, operational excellence, and employee development. The headquarters (hub) focuses on enabling the core back-office key functions for scale and efficiency, that is, accounting, payroll, human resources/benefits, information technology, safety support, internal control over financial reporting, and administration. We have excellent organizational focus from headquarters throughout our divisional businesses with clarity and minimal duplicative work streams. We are structured for growth and plan to do future bolt-on acquisitions.

Our three reportable segments are: the Energy segment, which produces customized solutions for the power and petrochemical industry; the Environmental segment, which produces various types of product recovery and air pollution control technologies; and the Fluid Handling and Filtration segment, which produces high quality pump, filtration and fume exhaust solutions. It is through combining the efforts of some or all of these groups that we are able to offer complete turnkey systems to our customers and leverage operational efficiencies.

Our contracts are obtained either through competitive bidding or as a result of negotiations with our customers. Contract terms offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to complete the project. Our focus is on increasing our operating margins as well as our gross margin percentage, which translates into higher net income.

Our cost of sales is principally driven by a number of factors, including material prices and labor cost and availability. Changes in these factors may have a material impact on our overall gross profit margins.

We break down costs of sales into five categories. They are:

•

Subcontracts—Electrical work, concrete work and other subcontracts necessary to produce our products; and

•

Labor—Our direct labor both in the shop and in the field;

•

Material—Raw material that we buy to build our products;

•

Equipment—Fans, motors, control panels and other equipment necessary for turnkey systems; and

•

Factory overhead—Costs of facilities and supervision wages necessary to produce our products.

In general, subcontracts provide us the most flexibility in margin followed by labor, material, and equipment. Across our various product lines, the relative relationships of these factors change and cause variations in gross margin percentage. Material costs have also increased faster than labor costs, which also reduces gross margin percentage.

Selling and administrative expense principally includes sales payroll and related fringes, advertising and marketing expenditures as well as all corporate and administrative functions and other costs that support our operations. The majority of these expenses are fixed. We expect to leverage our fixed operating structure as we continue to grow our revenue.

Note Regarding Use of Non-GAAP Financial Measures

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These GAAP financial statements include certain charges the Company believes are not indicative of its core ongoing operational performance.

As a result, the Company provides financial information in this MD&A that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides this supplemental non-GAAP financial information because the Company’s management utilizes it to evaluate its ongoing financial performance and the Company believes it provides greater transparency to investors as supplemental information to its GAAP results.

The Company has provided the non-GAAP financial measure of non-GAAP operating income and non-GAAP operating margin as a result of items that the Company believes are not indicative of its ongoing operations. These include charges associated with the Company’s acquisition and integration of acquisitions and the items described below in “Consolidated Results.” The Company

believes that evaluation of its financial performance compared with prior and future periods can be enhanced by a presentation of results that exclude the impact of these items. As a result of the Company’s completed acquisitions, the Company has incurr ed substantial charges associated with the acquisition and integration of these companies. While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat these charges as special items in its future presentation of n on-GAAP results.

Results of Operations

Consolidated Results

Our Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2017 and 2016 are as follows:

	Three Months Ended March 31,
(dollars in millions)	2017			2016
Net sales	$	92.7		$	103.2
Cost of sales		60.7			71.6
Gross profit	$	32.0		$	31.6
Percent of sales		34.5	%		30.6	%
Selling and administrative expenses	$	23.3		$	21.0
Percent of sales		25.1	%		20.3	%
Acquisition and integration expenses	$	—		$	—
Percent of sales		—			—
Amortization and earn-out expenses	$	7.3		$	4.8
Percent of sales		7.9	%		4.7	%
Operating income	$	1.4		$	5.8
Operating margin		1.5	%		5.6	%

To compare operating performance between the three-month periods ended March 31, 2017 and 2016, the Company has adjusted GAAP operating income to exclude (1) executive transition costs, including severance for its former Chief Executive Officer, fees incurred in the search for a new Chief Executive Officer, and expenses associated with hiring a new Chief Financial Officer, (2) amortization and contingent acquisition expenses, including amortization of acquisition related intangibles, retention, severance, and earn-out expenses, (3) facility exit expenses associated with the closure of certain leased facilities, and (4) inventory valuation and plant, property and equipment valuation adjustments related to acquisitions. See “Note Regarding Use of Non-GAAP Financial Measures” above. The following table presents the reconciliation of GAAP operating income and GAAP operating margin to non-GAAP operating income and non-GAAP operating margin:

	Three Months Ended March 31,
(dollars in millions)	2017			2016
Operating income as reported in accordance with GAAP	$	1.4		$	5.8
Operating margin in accordance with GAAP		1.5	%		5.6	%
Inventory valuation adjustment		—			0.1
Plant, property and equipment valuation adjustment		0.2			0.2
Amortization and earn-out expenses		7.3			4.8
Executive transition expenses		0.9			—
Facility exit expenses		0.2			—
Non-GAAP operating income	$	10.0		$	10.9
Non-GAAP operating margin		10.8	%		10.6	%

Consolidated sales for the first quarter of 2017 decreased $10.5 million, or 10.2%, to $92.7 million compared with $103.2 million in the first quarter of 2016. The decrease is primarily attributable to a sales volume decline period over period, which is primarily attributable to a decline in demand for the Company’s solid fuel power generation, natural gas turbine exhaust systems and refinery related products period over period.

Gross profit increased $0.4 million, or 1.3%, to $32.0 million in the first quarter of 2017 compared with $31.6 million in the same period of 2016. Gross profit as a percentage of sales was 34.5% in the first quarter 2017 compared with 30.6% in the first quarter of 2016. The higher gross profit margin in the first quarter of 2017 was primarily due to a more favorable project mix during this period.

Orders booked were $84 . 0 million during the first quar ter of 2017 as compared with $120.1 million during the first quarter of 2016 . The decrease is primarily attributable to a n economic decline in demand for the Company’s solid fuel power generation and refinery related products period over period due to lower utilization of facilities by the Company’s end customers.

Selling and administrative expenses increased $2.3 million to $23.3 million for the first quarter of 2017 compared with $21.0 million for the first quarter of 2016. Additionally, selling and administrative expenses increased as a percentage of sales from 20.3% in the first quarter of 2016 compared with 25.1% in the first quarter of 2017. The increase is primarily attributable to executive transition expenses of $0.9 million, facility exit expenses of $0.2 million, and additional investments in selling and finance personnel incurred in the first quarter of 2017. Selling and administrative expenses incurred during the first quarter of 2017 excluding executive transition expenses and facility exit expenses were $22.2 million.

Amortization and earn-out expense was $7.3 million for the first quarter of 2017 compared with $4.8 million for the first quarter of 2016. The increase is primarily attributable to a fair value adjustment of $3.9 million for the earn-out incurred in connection with the acquisition of Jiangyin Zhongli Industrial Technology Co. Ltd. (“Zhongli”) during the first quarter of 2017 compared with a fair value adjustment of $0.8 million for this earn-out during the first quarter of 2016. The increase to this earn-out was recorded due to higher than expected operational profit at Zhongli after the acquisition. This increase is partially offset by decreased amortization expense of $1.0 million period over period for finite lived intangible assets due to certain intangible assets becoming fully amortized.

Operating income decreased $4.4 million to $1.4 million in the first quarter of 2017 compared with $5.8 million during the same quarter of 2016. The decrease is primarily due to increased selling and administrative expenses and increased amortization and earn-out expenses during the current year.

Non-GAAP operating income was $10.0 million for the first quarter of 2017 compared with $10.9 million for the first quarter of 2016. The decrease is primarily due to the increased selling and administrative expenses as described above as the impact of a lower volume of sales was offset by an increase in gross margins. Non-GAAP operating income as a percentage of sales increased to 10.8% for the first quarter of 2017 from 10.6% for the first quarter of 2016.

Other income/expense, net was $0.1 million of expense in the first quarter of 2017 compared with $0.8 million of income in the first quarter of 2016. During the first quarter of 2017, the net $0.1 million of expense was due to $0.3 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, partially offset by net foreign currency exchange losses from normal business operations of $0.4 million. During the first quarter of 2016, the net $0.8 million of income was due to $0.9 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, and net foreign currency exchange gains from normal business operations of $0.4 million, partially offset by a $0.5 million loss on our interest rate swap prior to being designated as an effective hedge.

Interest expense decreased to $1.7 million in the first quarter of 2017 from $2.1 million in the first quarter of 2016. The decrease is due to debt repayments made throughout 2016 that decreased the amount of outstanding debt in 2017.

Income tax benefit was $0.5 million for the first quarter of 2017 compared with $1.4 million of expense for the same quarter of 2016. The effective income tax rate for the first quarter of 2017 was 108.1% compared with 31.9% for the comparable period of 2016. This rate change for the first quarter of 2017 is due primarily to a loss before income taxes and an increase in permanent differences related to non-deductible earn-out expenses partially offset by a tax benefit related to adopting Accounting Standards Updated (“ASU”) 2016-09, which allowed the Company to recognize discrete tax benefits of $0.4 million in the first quarter of 2017. Our effective tax rate is affected by certain permanent differences, including non-deductible incentive stock-based compensation and earn-out expenses, and decreased tax rates in certain foreign jurisdictions.

Business Segments

The Company’s operations are organized and reviewed by management along its product lines or end market that the segment serves and are presented in three reportable segments. The results of the segments are reviewed through to the “Income from operations” line on the unaudited Condensed Consolidated Statements of Income.

	Three Months Ended March 31,
(dollars in thousands)	2017			2016
Net Sales (less intra-, inter-segment sales)
Energy Segment	$	41,083		$	47,932
Environmental Segment		35,929			39,122
Fluid Handling and Filtration Segment		15,816			16,595
Corporate and Other ⁽¹⁾		(177	)		(474	)
Net sales	$	92,651		$	103,175

⁽¹⁾	Includes adjustment for revenue on intercompany jobs.

	Three Months Ended March 31,
(dollars in thousands)	2017			2016
Income from Operations
Energy Segment ⁽²⁾	$	1,613		$	5,196
Environmental Segment		5,109			4,746
Fluid Handling and Filtration Segment		3,309			3,198
Corporate and Other ⁽³⁾		(8,011	)		(6,920	)
Eliminations		(670	)		(413	)
Income from Operations	$	1,350		$	5,807

⁽²⁾	Includes earn-out expenses of $3.9 million and $0.8 million for the first quarter of 2017 and 2016, respectively.

⁽³ ⁾	Includes corporate compensation, professional services, information technology, executive transition expenses, acquisition and integration expenses, and other general and administrative corporate expenses.

Energy Segment

Our Energy Segment net sales decreased $6.8 million to $41.1 million in the first quarter of 2017 compared with $47.9 million in the same period of 2016. The decrease is due primarily to volume decreases for our products and services within Europe and Asia primarily due to a decline in the Company’s solid fuel power generation and natural gas turbine exhaust systems related products and services period over period.

Operating income for the Energy Segment decreased $3.6 million to $1.6 million in the first quarter of 2017 from $5.2 million in the same period of 2016. The decrease is primarily attributable to a fair value adjustment of $3.9 million for the Zhongli earn-out during the first quarter of 2017 compared with a fair value adjustment of $0.8 million for this earn-out during the first quarter of 2016. The increase to this earn-out was recorded due to higher than expected operational profit at Zhongli after the acquisition.

Environmental Segment

Our Environmental Segment net sales decreased $3.2 million to $35.9 million in the first quarter of 2017 compared with $39.1 million in the first quarter of 2016. The decrease is due primarily to volume decreases for the Company’s refinery related products and services period over period.

Operating income for the Environmental Segment increased $0.4 million to $5.1 million in the first quarter of 2017 compared with $4.7 million in the first quarter of 2016. The increase is primarily attributable to the Environmental Segment achieving higher gross margins on decreased sales due to a more favorable product mix, partially offset by an increase in selling and administrative expenses during the first quarter of 2017.

Fluid Handling and Filtration Segment

Our Fluid Handling and Filtration Segment net sales decreased $0.8 million to $15.8 million in the first quarter of 2017 compared with $16.6 million in the first quarter of 2016. The decrease is due to sales volume decline within the segment, which is primarily attributable to the timing of work performed as backlog for this segment increased in the first quarter of 2017.

Operating income for the Fluid Handling and Filtration Segment was $3.3 million in the first quarter of 2017 compared with $3.2 million in the first quarter of 2016. The increase is primarily attributable to the Fluid Handling and Filtration Segment achieving higher gross margins on decreased sales due to a more favorable product mix.

Corporate and Other Segment

Operating loss for Corporate and Other Segment was $8.0 million in the first quarter of 2017 compared with $6.9 million in the first quarter of 2016. The increase is primarily attributable to executive transition expenses of $0.9 million incurred in the first quarter of 2017.

Backlog

Backlog is a representation of the amount of revenue expected from complete performance of firm fixed-price contracts that have not been completed for products and services we expect to substantially deliver within the next twelve-month to eighteen-month period. Our customers may have the right to cancel a given order. Our backlog as of March 31, 2017, was $184.2 million compared with $197.0 million as of December 31, 2016. During the first quarter of 2017, there were cancellations of $4.1 million of orders that were previously disclosed as acquired backlog in prior quarters. Backlog is not defined by GAAP and our methodology for calculating backlog may not be consistent with methodologies used by other companies. There can be no assurances that backlog will be replicated, increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors related to our backlog and the orders secured during the subsequent periods. Certain contracts are highly dependent on the work of contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on such project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and subcontractors, changes in the scope of the project, weather, and labor availability also can have an effect on a contract’s profitability.

New Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 to the unaudited condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flow from operations and available borrowings under our Credit Facility. Our principal uses of cash are operating costs, payment of principal and interest on our outstanding debt, dividends, working capital and other corporate requirements, including acquisitions and any related earnouts.

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and its historical levels of net cash flows from operating activities to be the most important measures.

At March 31, 2017, the Company had working capital of $68.8 million, compared with $66.6 million at December 31, 2016. The ratio of current assets to current liabilities was 1.52 to 1 on March 31, 2017, as compared with a ratio of 1.46 to 1 at December 31, 2016. The $2.2 million increase in working capital from December 31, 2016 to March 31, 2017, was primarily related to a decrease in accounts payable and accrued expenses ($13.8 million) and a decrease in billings in excess of costs and estimated earnings on uncompleted contracts ($0.9 million), partially offset by a decrease in accounts receivable ($6.3 million), a decrease in costs and estimated earnings in excess of billing on uncompleted contracts ($4.7 million), and a decrease in prepaid expenses and other current assets ($1.3 million). During the three months ended March 31, 2017, the Company made a prepayment of $2.3 million on the outstanding balance of the term loan, of which $1.7 million was applied to the long-term portion of the debt balance. Total repayments of debt during the three months ended March 31, 2017 was $4.0 million. The Company has a strategy of aggressively managing working capital, including a focus on reduction of the accounts receivable days sales outstanding (DSO), and operating at lower inventory levels, without reducing service to its customers.

At March 31, 2017 and December 31, 2016 , cash and cash equivalents totaled $45.0 million and $45.8 million, re spectively. As of March 31, 2017 and December 31, 2016, $28.9 million and $25.6 million, respectively, of our cash and cash equivalents were held by certain non-U.S. subsidiaries, as well as being denominated in foreign currencies.

Debt consisted of the following at March 31, 2017 and December 31, 2016:

(Table only in thousands)	March 31, 2017			December 31, 2016
Outstanding borrowings under Credit Facility (defined below) Term loan payable in quarterly principal installments of $1.6 million through September 2017, $2.2 million through September 2018, and $2.7 million thereafter with balance due upon maturity in September 2020.
- Term loan	$	121,034		$	125,072
- Unamortized debt discount		(2,923	)		(3,175	)
Total outstanding borrowings under Credit Facility		118,111			121,897
Outstanding borrowings (U.S. dollar equivalent) under China Facility		1,306			1,296
Total outstanding borrowings		119,417			123,193
Less: current portion		8,852			8,827
Total debt, less current portion	$	110,565		$	114,366

Credit Facility

The Company’s outstanding borrowings in the United States consist of senior secured term loan, senior secured U.S. dollar revolving loans with sub-facilities for letters of credit and swing-line loans and senior secured multi-currency revolving credit facility for U.S. dollar and specific foreign currency loans (collectively, the “Credit Facility”). As of March 31, 2017 and December 31, 2016, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

See Note 8 to the condensed consolidated financial statements for further information on the Company’s debt facilities.

Total unused credit availability under our existing Credit Facility and other non-U.S. credit facilities and agreements is as follows:

(dollars in millions)	March 31, 2017			December 31, 2016
Credit Facility, U.S. Dollar revolving loans	$	60.5		$	60.5
Draw down		—			—
Letters of credit open		(21.3	)		(18.0	)
Credit Facility, Multi-currency revolving facilities		19.5			19.5
Netherlands facilities (€13.0 million at March 31, 2017 and December 31, 2016 in U.S. Dollar equivalent)		13.9			13.7
Draw down		—			—
Letters of credit open		(4.4	)		(5.3	)
China Facility		4.4			4.3
Draw down		(1.3	)		(1.3	)
Total unused credit availability	$	71.3		$	73.4
Amount available based on borrowing limitations	$	40.2		$	71.1

Overview of Cash Flows and Liquidity

	For the three months ended March 31,
(dollars in thousands)	2017			2016
Net cash provided by operating activities	$	4,653		$	9,388
Net cash (used in) provided by investing activities		(399	)		70
Net cash used in financing activities		(5,263	)		(10,488	)
Effect of exchange rate changes on cash and cash equivalents		184			226
Net decrease in cash	$	(825	)	$	(804	)

For the three months ended March 31, 2017, $4.7 million of cash was provided by operating activities compared with $9.4 million provided by operating activities in the prior year period. The $4.7 million decrease in cash flow from operating activities was due primarily to a decrease in net income of $3.0 million, an increase in earnout payments classified as operating activities of $2.2, partially offset by an increase in non-cash adjustments of $3.6 million in fair value adjustments to earnout liabilities. Additionally, there were a few unfavorable net working capital items in the first quarter of 2017 compared with the same period in 2016. The incremental cash used was comprised of $6.5 million in accounts receivable, $1.9 million in inventories, $1.4 million in accounts payable and accrued expenses and $0.9 million in billings in excess of costs and estimated earnings on uncompleted contracts. The incremental cash provided was comprised of $6.0 million in costs in excess of billings liabilities and $2.4 million in prepaid expenses and other current assets.

For the three months ended March 31, 2017, net cash used in investing activities was $0.4 million compared with net cash provided by investing activities of $0.1 million in the prior year period. In the first three months of 2017, cash used in investing activities was primarily the result of cash used for the acquisitions of property and equipment totaling $0.4 million. In the prior year period, cash provided investing activities was primarily the result of cash provided by the sale of property and equipment of $0.3 million, offset by cash used for the acquisitions of property and equipment totaling $0.2 million.

For the three months ended March 31, 2017, net cash used in financing activities was $5.3 million due principally to net term loan repayments of $4.0 million, and $2.6 million in dividends paid to common stockholders, partially offset by $1.2 million received from the employee stock purchase plan, exercise of stock options, and dividend reinvestment plan. For the three months ended March 31, 2016, net cash used in financing activities was $10.5 million due principally to net term loan repayments of $3.2 million, net payments on revolving credit facilities of $3.9 million, earnout payments classified as financing activities of $1.1 million, and $2.2 million in dividends paid to common stockholders.

Our dividend policy and the payment of cash dividends under that policy are subject to the Board of Directors’ continuing determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s stockholders. Future dividends and the dividend policy may be changed or cancelled at the Company’s discretion at any time. Payment of dividends is also subject to the continuing compliance with our financial covenants under our Credit Facility.

When we undertake large jobs, our working capital objective is to make these projects self-funding. We work to achieve this by obtaining initial down payments, progress billing contracts, when possible, utilizing extended payment terms from material suppliers, and paying sub-contractors after payment from our customers, which is an industry practice. Our investment in net working capital is funded by cash flow from operations and by our revolving line of credit.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s condensed consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, earnout liabilities, guarantee obligations and assumptions used in the calculation of income taxes, assumptions used in business combination accounting and related balances, and pension and post-retirement benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Management believes there have b een no signi ficant changes during the three- m onth period ended March 31, 2017 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 .

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects or future results of operations or financial position made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “plan,” “should” and similar expressions to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Potential risks, among others, that could cause actual results to differ materially are discussed under “Part I – Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and include, but are not limited to: our ability to successfully integrate acquired businesses and realize the synergies from acquisitions, as well as a number of factors related to our business, including economic and financial market conditions generally and economic conditions in CECO’s service areas; dependence on fixed price contracts and the risks associated therewith, including actual costs exceeding estimates and method of accounting for contract revenue; fluctuations in operating results from period to period due to seasonality of the business; the effect of growth on CECO’s infrastructure, resources, and existing sales; the ability to expand operations in both new and existing markets; the potential for contract delay or cancellation; changes in or developments with respect to any litigation or investigation; the potential for fluctuations in prices for manufactured components and raw materials; the substantial amount of debt incurred in connection with our recent acquisitions and our ability to repay or refinance it or incur additional debt in the future; the impact of federal, state or local government regulations; economic and political conditions generally; and the effect of competition in the environmental, energy and fluid handling and filtration industries. Many of these risks are beyond management’s ability to control or predict. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC, we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3.

QUA NTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. For the Company, these exposures are primarily related to changes in interest rates. We do not currently hold any derivatives or other financial instruments purely for trading or speculative purposes. However, we do have an interest rate swap in place as of March 31, 2017 to hedge against a portion of our interest rate exposure related to debt indexed to LIBOR market rates. See Note 8 “Senior Debt” to the condensed consolidated financial statements for further information on this interest rate swap.

The carrying value of the Company’s long-term debt and current maturities of long-term debt was $119.4 million at March 31, 2017. Market risk was estimated as the potential decrease (increase) in future earnings and cash flows resulting from hypothetical 10% increase (decrease) in the Company’s estimated weighted average borrowing rate at March 31, 2017. Most of the interest on the Company’s debt is indexed to either the LIBOR or EURIBOR market rates. The estimated impact of a hypothetical 10% change in the estimated weighted average borrowing rate, excluding the portion of debt which has an interest rate fixed by the interest rate swap described above, at March 31, 2017 is $0.3 million on an annual basis.

The Company has wholly-owned subsidiaries located in the Netherlands, Canada, the People’s Republic of China, Mexico, United Kingdom, Singapore, and Chile. In the past, we have not hedged our foreign currency exposure, and fluctuations in exchange rates have not materially affected our operating results. Future changes in exchange rates may positively or negatively impact our revenues, operating expenses and earnings.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules

and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financ ial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our Interim Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2017. Management believes that the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fiscal quarter ended March 31, 2017, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

PART II – OTHE R INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Information with respect to legal proceedings can be found in Note 14 “Commitments and Contingencies – Legal Matters” to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A.

RISK FACTORS

There have been no material changes in the Company’s risk factors that we disclosed in “Part I – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2.

UN REGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

E XHIBITS

10.1		Executive Employment Agreement, effective as of January 9, 2017, by and between the Company and Matthew Eckl.

10.2		Separation Agreement, effective as of February 1, 2017, by and between the Company and Jeffrey Lang.

10.3		Executive Employment Agreement, effective as of January 26, 2017, by and between the Company and Dennis Sadlowski.

31.1		Rule 13(a)/15d-14(a) Certification by Chief Executive Officer

31.2		Rule 13(a)/15d-14(a) Certification by Chief Financial Officer

32.1		Certification of Chief Executive Officer (18 U.S. Section 1350)

32.2		Certification of Chief Financial Officer (18 U.S. Section 1350)

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNA TURES

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.

CECO Environmental Corp.

By:	/s/ Matthew Eckl
	Matthew Eckl
	Chief Financial Officer and Secretary

Date: May 10, 2017

Exhibit 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT by and between CECO Environmental Corp., a Delaware corporation with its principal place of business located at 4625 Red Bank Road, Cincinnati Ohio 45227 (the “ Company ”) and Matthew Eckl (“ Executive ”), is dated as of the 9 ^th day of January, 2017 (the “ Agreement ”).

The Company wishes to employ Executive on the terms and conditions, and for the consideration, hereinafter set forth, and Executive desires to be employed by the Company on such terms and conditions and for such consideration.

In consideration of the promises provided for in this Agreement, the Company and Executive agree as follows:

1. Employment Period . This Agreement shall become effective as of January 9, 2017 (the “ Effective Date ”). Except as otherwise provided in Section 3 of this Agreement, the Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, on an at-will basis on the terms and conditions set-forth herein for the period commencing on the Effective Date and ending on the Executive’s Date of Termination (“ Employment Period ”).

2. Terms of Employment .

(a) Position and Duties . (i) During the Employment Period, Executive shall (A) serve as Chief Financial Officer of the Company with such duties and responsibilities as are commensurate with such position, (B) report to the Chief Executive Officer of the Company, and (C) perform his services in Dallas, Texas (subject to reasonable global and domestic travel requirements commensurate with Executive’s position).

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote his full business time and attention to the business and affairs of the Company. During the Employment Period, it will not be a violation of this Agreement for Executive to (A) serve on civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities described in clauses (A), (B) and (C) do not significantly interfere with the performance of Executive’s responsibilities as an employee of the Company in accordance with this Agreement.

(b) Compensation (i) Base Salary . During the first year (2017) of the Employment Period, Executive shall receive an annual base salary (“ Annual Base Salary ”) of $300,000 paid in accordance with the normal payroll procedures of the Company. During the second year (2018) of the Employment Period, Executive shall receive an Annual Base Salary of $335,000 paid in accordance with the normal payroll procedures of the Company, after which the Annual Base Salary shall be reviewed by the Company at least annually for any increase.

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(ii) Annual Bonus . In addition to the Annual Base Salary, Executive shall be eligible, for each fiscal year of the Company ending during the Employment Period, for an annual bonus (the “ Annual Bonus ”), in cash with a target Annual Bonus opportunity (“ Target Bonus ”) equal to 50% of Annual Base Salary for the 2017 fiscal year and equal to 55% of Annual Base Salary for the 2018 fiscal year. For fiscal years after fiscal year 2018 that end during the Employment Period, the Compensation Committee of the Board of Directors of the Company (the “ Compensation Committee ”) will review and approve the Executive’s annual bonus target and performance measures. Any Annual Bonus earned with respect to a particular year will be paid no later than March 15 of the following fiscal year. Any Annual Bonus earned with respect to a portion of a fiscal year during the Employment Period will be prorated based on the number of days of such fiscal year that occurred during the Employment Period.

(iii) 2017 Bonus . Executive shall be eligible for a one time bonus (the “ 2017 Bonus ”) to be paid by the Company to Executive in a single lump sum in cash during the Employment Period but no later than February 28, 2017. The 2017 Bonus will be in an amount equal to $65,000 less the annual bonus amount he receives with respect to 2016 from his prior employer. Executive shall inform the Company of the 2016 annual bonus amount he will receive from his prior employer promptly after Executive receives notice of such amount.

(iv) Annual Equity Grant . During the Employment Period, in or about January 2017, subject to approval by the Compensation Committee, Executive shall be granted an award of 15,000 restricted stock units (“ RSUs ”) under the Company’s long term incentive compensation arrangements in accordance with the Company’s policies, the applicable award agreement and incentive compensation plan under which such awards were granted, as in effect from time to time. During the Employment Period, in our about January 2018, subject to approval by the Compensation Committee, Executive shall be granted an award of 20,000 RSUs under the Company’s long term incentive compensation arrangements in accordance with the Company’s policies, the applicable award agreement and incentive compensation plan under which such awards were granted, as in effect from time to time. The RSUs granted pursuant to this Section 2(b)(iv) will vest in five (5) equal installments on each of the first five (5) anniversary dates of the effective dates of each of the awards, subject to Executive’s continued employment with the Company through each anniversary date.

(v) Special Equity Grant . During the Employment Period, in or about January 2017, subject to approval by the Compensation Committee, Executive shall be granted an award of 11,000 RSUs under the Company’s long term incentive compensation arrangement in accordance with the Company’s policies, the applicable award agreement and incentive compensation plan under which such award was granted, as in effect from time to time. The RSUs granted pursuant to this Section 2(b)(v) will vest on the second (2nd) anniversary date of

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the effective date of such award, subject to Executive’s continued employment with the Company through such anniversary date.

(vi) Car Allowance . During the Employment Period, the Company will pay to Executive a monthly car allowance equal to $1,000.

(vii) Employee Benefits . During the Employment Period, Executive shall be eligible to participate in the employee benefit plans, programs, and policies, as may be in effect from time to time, for senior executives of the Company generally.

(viii) Expenses . During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the performance of Executive’s duties under this Agreement and in accordance with the Company’s business expense reimbursement policy.

3. Termination of Employment . (a) Death or Disability . Executive’s employment shall terminate automatically if Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of Executive has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give to Executive written notice in accordance with Section 15(b) of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “ Disability Effective Date ”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. “ Disability ” means the absence of Executive from Executive’s duties with the Company on a full-time basis for 90 consecutive business days, or 90 business days during any period of 120 consecutive business days, as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative (such agreement as to acceptability not to be unreasonably withheld).

(b) By the Company . The Company may terminate Executive’s employment during the Employment Period for any, or no reason, with or without Cause. For purposes of this Agreement, “ Cause ” will be deemed to exist upon:

(i) any use or misappropriation by Executive of the Company’s, its parent’s, an affiliate’s or a subsidiary’s funds, assets or property for any personal or other improper purpose;

(ii) any act of moral turpitude, dishonesty, fraud by or felony conviction of Executive whether or not such acts were committed in connection with the Company’s, an affiliate’s or subsidiary’s business;

(iii) any failure by Executive substantially to perform the lawful instructions of the person(s) to whom Executive reports (other than as a result of total or partial incapacity due to physical or mental illness) following written

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notice by the Company to Executive of such failure and 15 days within which to cure such failure;

(iv) any willful or gross misconduct by Executive in connection with Executive’s duties to the Company which, in the reasonable good faith judgment of the Board of Directors of the Company (the “ Board ”), could reasonably be expected to be materially injurious to the financial condition or business reputation of the Company, its Subsidiaries or affiliates;

(v) any failure by Executive to follow a material Company policy; or

(vi) any material breach by Executive of this Agreement.

The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding Executive, if Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel for Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive has engaged in the conduct described in Section 3(b), and specifying the particulars thereof in detail.

(c) By Executive . Executive’s employment may be terminated during the Employment Period by Executive for Good Reason or by Executive without Good Reason. For purposes of this Agreement, “ Good Reason ” shall mean, in the absence of the prior written consent of Executive,

(i) a material diminution in Executive’s duties, authorities or responsibilities;

(ii) a material reduction of Executive’s Annual Base Salary or Target Bonus;

(iii) relocation of Executive’s primary workplace, as assigned to Executive by the Company in accordance with Section 2(a)(i) beyond a 50 mile radius from such workplace;

(iv) any other material breach by the Company of this Agreement;

provided , however , that Executive’s termination of employment shall not be deemed to be for Good Reason unless (A) Executive has notified the Company in writing describing the occurrence of one or more Good Reason events within 90 days of such occurrence, (B) the Company fails to cure such Good Reason event within 30 days after its receipt of such written notice and (C) the termination of employment occurs within 180 days after the occurrence of the applicable Good Reason event.

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(d) Notice of Termination; Expiration of Employment Period . Any termination of employment by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(b) of this Agreement. “ Notice of Termination ” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s respective rights hereunder.

(e) Date of Termination . “ Date of Termination ” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or such later date specified in the Notice of Termination, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies Executive of such termination, (iii) if Executive resigns without Good Reason, the date on which Executive notifies the Company of such termination, and (iv) if Executive’s employment is terminated by reason of death or Disability, the date of Executive’s death or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, in no event shall the Date of Termination occur until Executive experiences a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the date on which such separation from service takes place shall be the “Date of Termination.” Upon the expiration of the Employment Period and in the event Executive continues employment with the Company, Executive’s employment will be at-will and the terms of this Agreement (other than Section 8) will have no further effect.

4. Obligations of the Company upon Termination . (a) By Executive for Good Reason or by the Company other than for Cause, Death or Disability . If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or Disability or Executive terminates employment for Good Reason:

(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination, subject to Section 11(b), the aggregate of the following amounts: the sum of (A) Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) Executive’s business expenses that are reimbursable pursuant to Section 2(b)(viii) of this Agreement but have not been reimbursed by the Company as of the Date of Termination; (C) Executive’s Annual Bonus for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs, if such bonus has been determined to have been earned but has not been paid as of the Date of Termination; (D) any accrued vacation pay to the extent not theretofore paid (the

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sum of the amounts described in subclauses (A), (B), (C) and (D), the “ Accrued Obligations ”);

(ii) On the 61st day after the Date of Termination, the Company shall, subject to Section 4(d) of this Agreement, pay to Executive a lump sum cash amount equal to the Executive’s Annual Base Salary (without regard to any reduction thereto);

(iii) At such time (and if) the Company pays annual bonuses to senior executives of the Company, the Company shall, subject to Section 4(d) of this Agreement, pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) the full year Annual Bonus that Executive would have earned had Executive remained employed through the end of the fiscal year in which the Date of Termination occurs based on the degree of satisfaction of the applicable performance targets, by (B) a fraction, the numerator of which is the total number of days that have elapsed during the fiscal year through the Date of Termination and the denominator of which is 365;

(iv) On the 61st day after the Date of Termination, subject to Section 4(d), a lump sum in cash in an amount equal to the product of (i) 12 multiplied by (ii) the monthly COBRA premium for health, dental and vision benefits in effect for Executive (and Executive’s spouse and dependents) immediately prior to the Termination Date, with such payments being treated as taxable to Executive; and

(v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.

Other than as set forth in this Section 4(a) of this Agreement, in the event of a termination of Executive’s employment by the Company without Cause (other than due to death or Disability) or by Executive for Good Reason, the Company shall have no further obligation to Executive under this Agreement.

(b) Death or Disability . If Executive’s employment is terminated by reason of Executive’s death or Disability during the Employment Period, the Company shall provide Executive or, in the event of death, Executive’s estate or beneficiaries with the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. The Accrued Obligations shall be paid to Executive or, in the event of death, Executive’s estate or beneficiaries, in a lump sum in cash within 30 days of the Date of Termination.

(c) Cause; Other than for Good Reason . If Executive’s employment is terminated for Cause during the Employment Period, the Company shall provide Executive with Executive’s Annual Base Salary through the Date of Termination, and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. If Executive voluntarily

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terminates employment other than for Good Reason during the Employment Period, the Company shall provide to Executive the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. In such case, all the Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination.

(d) Release . Notwithstanding anything herein to the contrary, the Company shall not be obligated to make any payment under Sections 4(a)(ii )-(v) or Section 13 of this Agreement unless (i) prior to the 60th day following the Date of Termination, Executive executes a release of claims against the Company and its affiliates in a form provided by the Company (the “ Release ”), and (ii) any applicable revocation period has expired during such 60-day period without Executive revoking such Release.

5. Non-Exclusivity of Rights . Amounts that Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company at or subsequent to the Date of Termination (“ Other Benefits ”) shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, Executive shall not be eligible to participate in any other severance plan, program or policy of the Company.

6. Set-off; No Mitigation . The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against Executive to the extent such set-off or other action does not violate Code Section 409A. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement.

7. Limitations on Payments Under Certain Circumstances . Notwithstanding any provision of any other plan, program, arrangement or agreement to the contrary, in the event that it shall be determined that any payment or benefit to be provided by the Company to Executive pursuant to the terms of this Agreement or any other payments or benefits received or to be received by Executive (a “ Payment ”) in connection with or as a result of any event which is deemed by the Internal Revenue Service or any other taxing authority to constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company and subject to the tax (the “ Excise Tax ”) imposed by Section 4999 (or any successor section) of the Code, the Payments, whether under this Agreement or otherwise, shall be reduced so that the Payment, in the aggregate, is reduced to the greatest amount that could be paid to Executive without giving rise to any Excise Tax; provided that in the event that Executive would be placed in a better after-tax position after receiving all Payments and not having any reduction of Payments as provided hereunder, Executive shall, notwithstanding the provisions of any other plan, program, arrangement or agreement to the contrary, receive all Payments and pay any applicable Excise Tax. All determinations under this Section 7 shall be made by a nationally recognized accounting firm selected by the Company (the “ Accounting Firm ”). Without limiting the generality of the foregoing, any determination by the Accounting Firm under this Section 7 shall take into account the value of any reasonable

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compensation for services to be rendered by Executive (or for holding oneself out as available to perform services and refraining from performing services (such as under a covenant not to compete)). If the Payments are to be reduced pursuant to this Section 7, the Payments shall be reduced in the following order: (a) Payments which do not constitute “nonqualified deferred compensation” subject to Code Section 409A shall be reduced first; and (b) all other Payments shall then be reduced, in each case as follows: (i) cash payments shall be reduced before noncash payments and (ii) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date.

8. Restrictive Covenants .

(a) Competitive Activity During Employment . Executive will not compete with the Company anywhere within the United States during Executive’s employment with the Company, including, without limitation, Executive will not:

(i) enter into or engage in any business which competes with the Business of the Company;

(ii) solicit customers, business, patronage or orders for, or sell, any products or services in competition with, or for any business that competes with, the Business of the Company;

(iii) divert, entice or otherwise take away any customers, business, patronage or orders of the Company or attempt to do so; or

(iv) promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Business of the Company.

(b) Following Termination . For a period of 1 year following Executive’s termination of employment with the Company, Executive will not:

(i) enter into or engage in any business which competes with the Company’s Business within the Restricted Territory (as hereinafter defined);

(ii) solicit customers, business, patronage or orders for, or sell, any products or services in competition with, or for any business, wherever located, that competes with, the Company’s Business within the Restricted Territory;

(iii) divert, entice or otherwise take away any customers, business, patronage or orders of the Company within the Restricted Territory, or attempt to do so; or

(iv) promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s Business within the Restricted Territory.

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For the purposes of Sections 8(a) and (b) above, inclusive, but without limitation thereof, Executive will be in violation thereof if Executive engages in any or all of the activities set forth therein directly as an individual on Executive’s own account, or indirectly as a partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a stockholder of any corporation in which Executive or Executive’s spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than 5% of the outstanding stock.

(c) The “Company.” • For the purposes of this Section 8, the “Company” shall include any and all direct and indirect subsidiaries, parents, and affiliated, or related companies of the Company for which Executive worked or had responsibility at the time of termination of Executive’s employment and at any time during the two year period prior to such termination.

(d) The Company’s “Business.” • For the purposes of this Section 8, the Company’s Business is the design, manufacture, and sale of product recovery and air pollution control technologies to meet compliance targets for toxic emissions, fumes, volatile organic compounds, process and industrial odors; the design, manufacture, and sale of technologies for flue gas and diverter dampers, non-metallic expansion joints, natural gas turbine exhaust systems, and silencer and precipitator applications, primarily for coal-fired and natural gas power plants, refining, oil production and petrochemical processing, as well as a variety of other industries; and the design, manufacture, and sale of high quality pump, filtration and fume exhaust solutions. The Company’s Business is further described in any and all manufacturing, marketing and sales manuals and materials of the Company and the same may be altered, amended, supplemented or otherwise changed from time to time, or of any other products or services substantially similar to or readily substitutable for any such described products and services.

(e) “ Restricted Territory.” For the purposes of Section 8, the Restricted Territory shall be defined as and limited to:

(i) the geographic area(s) within a 100 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; and

(ii) all of the specific customer accounts, whether within or outside of the geographic area described in (i) above, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

(f) Extension . If it shall be judicially determined that Executive has violated any of Executive’s obligations under Section 8(b), then the period applicable to each obligation that Executive shall have been determined to have violated shall automatically be extended by a period of time equal in length to the period during which such violation(s) occurred.

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(g) Non-Solicitation . Executive shall not, directly or indirectly, at any time solicit or induce or attempt to solicit or induce any employee(s), sales representative(s), agent(s) or consultant(s) of the Company and/or of its parents, or its other subsidiaries or affiliated or related companies to terminate their employment, representation or other association with the Company and/or its parent or its other subsidiary or affiliated or related companies.

(h) Further Covenants . Executive shall not, directly or indirectly, at any time during or after Executive’s employment with the Company, disclose, furnish, disseminate, make available or, except in the course of performing Executive’s duties of employment, use any trade secrets or confidential business and technical information of the Company or its customers or vendors, including without limitation as to when or how Executive may have acquired such information. Such confidential information shall include, without limitation, the Company’s unique selling, manufacturing and servicing methods and business techniques, training, service and business manuals, promotional materials, training courses and other training and instructional materials, vendor and product information, customer and prospective customer lists, other customer and prospective customer information and other business information. Executive specifically acknowledges that all such confidential information, whether reduced to writing, maintained on any form of electronic media, or maintained in Executive’s mind or memory and whether compiled by the Company, and/or Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by Executive during Executive’s employment with the Company (except in the course of performing Executive’s duties and obligations to the Company) or after the termination of Executive’s employment shall constitute a misappropriation of the Company’s trade secrets. Upon termination of Executive’s employment with the Company, for any reason, Executive shall return to the Company, in good condition, all property of the Company, including without limitation, the originals and all copies of any materials which contain, reflect, summarize, describe, analyze or refer or relate to any items of information listed in this Section 8(h).

(i) Discoveries and Inventions . Executive shall assign to the Company, its successors, assigns or nominees, all of Executive’s rights to any discoveries, inventions and improvements, whether patentable or not, made, conceived or suggested, either solely or jointly with others, by Executive while in the Company’s employ, whether in the course of Executive’s employment with the use of the Company’s time, material or facilities or that is in any way within or related to the existing or contemplated scope of the Company’s business. Any discovery, invention or improvement relating to any subject matter with which the Company was concerned during Executive’s employment and made, conceived or suggested by Executive, either solely or jointly with others, within one year following termination of Executive’s employment under this Agreement or any successor agreements shall be irrebuttably presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s time, materials or facilities. Upon request by the Company with respect to any such discoveries, inventions or improvements, Executive will execute and deliver to the Company, at any time during or after Executive’s employment, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents as the Company may desire,

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and all proper assignments therefor, when so requested, at the expense of the Company, but without further or additional consideration.

(j) Work Made For Hire . Executive acknowledges that, to the extent permitted by law, all work papers, reports, documentation, drawings, photographs, negatives, tapes and masters therefore, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, generated by Executive during Executive’s employment with the Company shall be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items shall belong to the Company. The item will recognize the Company as the copyright owner, will contain all proper copyright notices, e.g., “(creation date) CECO Environmental Corp., All Rights Reserved,” and will be in condition to be registered or otherwise placed in compliance with registration or other statutory requirements throughout the world.

(k) Nondisparagement . During the Employment Period and for 1 year following Executive’s termination of employment with the Company (the “ Restricted Period ”), Executive will not knowingly disparage, criticize, or otherwise make any derogatory statements regarding the Company, its affiliates or their directors or officers. The Company will instruct its and its affiliates’ officers and directors to not knowingly disparage, criticize, or otherwise make any derogatory statements regarding Executive during the Employment Period and Restricted Period. Notwithstanding the foregoing, nothing contained in this agreement will be deemed to restrict Executive, the Company or any of the Company’s or its affiliates current or former officers and/or directors from providing information to any governmental or regulatory agency (or in any way limit the content of any such information) to the extent they are requested or required to provide such information pursuant to applicable law or regulation.

(l) Remedies . The parties acknowledge and agree that any breach by Executive of the terms of this Agreement may cause the Company irreparable harm and injury for which money damages would be inadequate. Accordingly, the Company, in addition to any other remedies available at law or equity, shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction. The parties agree that such injunctive relief may be granted without the necessity of proving actual damages. Nothing in this Agreement shall limit the Company’s remedies under state for federal law or elsewhere.

(m) Additional Acknowledgements . Executive acknowledges and agrees that, in the event that Executive becomes subject to any other contractual arrangements with the Company regarding competition with the Company, the restrictive covenants set forth in this Agreement were executed first and shall be deemed supplemented, and in no event diminished or replaced, by such other contractual arrangements.

9. Successors . (a) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. As used in this Agreement, “Company” shall mean the

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Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10. Indemnification . The Company shall indemnify Executive to the maximum extent permitted under applicable law for acts taken within the scope of his employment and his service as an officer or director of the Company or any of its subsidiaries or affiliates. To the extent that the Company obtains coverage under a director and officer indemnification policy, Executive will be entitled to such coverage on a basis that is no less favorable than the coverage provided to any other officer or director of the Company.

11. Code Section 409A .

(a) The intent of the parties is that payments and benefits under this Agreement comply with, or be exempt from, Code Section 409A and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.

(b) Notwithstanding any provision of this Agreement to the contrary, in the event that Executive is a “specified employee” within the meaning of Code Section 409A (as determined in accordance with the methodology established by the Company as in effect on the Date of Termination) (a “ Specified Employee ”), any payments or benefits that are considered non-qualified deferred compensation under Code Section 409A payable under this Agreement on account of a “separation from service” during the six-month period immediately following the Date of Termination shall, to the extent necessary to comply with Code Section 409A, instead be paid, or provided, as the case may be, on the first business day after the date that is six months following Executive’s “separation from service” within the meaning of Code Section 409A. For purposes of Code Section 409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that is considered nonqualified deferred compensation, subject to Code Section 409A.

(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits that are deferred compensation subject to Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or inkind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.

12. Compensation Recovery Policy . Notwithstanding anything in this Agreement to the contrary, Executive acknowledges and agrees that this Agreement and any compensation described herein are subject to the terms and conditions of the Company’s clawback policy (if any) as may be in effect from time to time specifically to implement Section 10D of the Securities Exchange Act of 1934, as amended, and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities

- 12 -

~~NAI-1502289088v3~~

exchange on which the shares of the Company’s common stock may be traded) (the “ Compensation Recovery Policy ”), and that applicable sections of this Agreement and any related documents shall be deemed superseded by and subject to the terms and conditions of the Compensation Recovery Policy from and after the effective date thereof.

13. Change in Control . In the event of a Change in Control of the Company, if Executive is not offered employment with the successor entity or purchaser as chief financial officer with a compensation package equal to or better than the combination of the Executive’s Annual Base Salary and Annual Bonus opportunity as in effect under this Agreement immediately prior to the Change in Control, then the Executive shall resign as of the date of the Change in Control or agree to resign as of the end of a reasonable transition period after the Change in Control and, subject to Section 4(d), shall be paid in a lump sum on the 61 ^st day after Executive’s Date of Termination an amount equal to the sum of his Annual Base Salary plus his Annual Bonus in an amount equal to the same percentage of his Base Salary as the Annual Bonus, if any, that he received for the most recently ended Fiscal Year. Any amount paid pursuant to the foregoing provisions of this Section 13 will be in lieu of any amount otherwise payable to Executive pursuant to Section 4(a)(ii) hereof. For purposes of this Agreement, the term “Change in Control” shall have the same meaning as set forth in the Second Amended and Restated 2007 Equity Incentive Plan. Immediately prior to the closing of a Change in Control the restricted stock units held by Executive, to the extent such restricted stock units have not already vested, will immediately vest and otherwise be subject to terms consistent with the applicable incentive compensation plan and award agreements, including, to the extent necessary to comply with Code Section 409A, the time for payment of such award.

14. Complete Agreement . This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein.

15. Miscellaneous . (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive :

At the most recent address
on file at the Company.

If to the Company :

4625 Red Bank Road, Suite 200
Cincinnati, Ohio 45227

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~~NAI-1502289088v3~~

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company, its subsidiaries and affiliates may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes or social security charges as shall be required to be withheld pursuant to any applicable law or regulation. None of the Company, its subsidiaries or affiliates guarantees any tax result with respect to payments or benefits provided hereunder. Executive is responsible for all taxes owed with respect to all such payments and benefits.

(e) Subject to any limits on applicability contained therein, Section 8 of this Agreement shall survive and continue in full force in accordance with its terms notwithstanding any termination or expiration of the Employment Period.

(f) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

(g) Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) With respect to any controversy or claim arising out of or relating to or concerning injunctive relief for Executive’s breach or purported breach of Section 8 of this Agreement, the Company shall have the right, in addition to any other remedies it may have, to seek specific performance and injunctive relief with a court of competent jurisdiction, without the need to post a bond or other security.

[Remainder of page intentionally left blank.]

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~~NAI-1502289088v3~~

IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first above written.

EXECUTIVE

/s/ Matthew Eckl
Matthew Eckl

CECO ENVIRONMENTAL CORP.

By: /s/ Jeffrey Lang____________________
Name: Jeff Lang
Title: CEO and President

~~NAI-1502289088v3~~

Exhibit 10.2

SEPARATION AGREEMENT

This Separation Agreement (this “ Separation Agreement ”) between CECO Environmental Corp. (the “ Company ”) and Jeffrey Lang (“ you ” and similar words) sets forth certain terms of your separation from the Company as required under the Executive Employment Agreement, dated February 15, 2010, between the Company and you, as amended (the “ Employment Agreement ”), in order to receive certain separation payments and benefits, as set forth in detail below.

By signing this Separation Agreement, you and the Company agree as follows:

1. Status of Employment

You agree that you will terminate from your position as Chief Executive Officer of the Company effective February 1, 2017 (the “ Separation Date ”) and such termination shall be treated as set forth in Paragraph 2 of this Separation Agreement. You also agree that, as of the Separation Date, you resign from all positions you hold as a director of the Company and as an officer, employee or director of the Company’s subsidiaries and affiliates, and that you will promptly execute any documents and take any actions as may be necessary or reasonably requested by the Company to effectuate or memorialize your termination from all positions with the Company and its subsidiaries and affiliates.

2. Severance Benefits

In consideration for you signing this Separation Agreement and the General Release required under Section 8(c)(ii)(B) of the Employment Agreement (the “ Release ”) no earlier than the Separation Date and no later than 21 days following the Separation Date, and letting the Release become effective as set forth in the Release, for purposes of your Employment Agreement and this Separation Agreement, your separation from the Company will be deemed a termination of your employment without Cause (as defined in the Employment Agreement), and you will receive the payments and benefits as specified on Exhibit A attached hereto, all subject to applicable tax withholding (the “ Severance Benefits ”). The Severance Benefits will be in full satisfaction of any amounts due under the Employment Agreement and other compensation arrangements of the Company. You acknowledge that the Severance Benefits are greater than what you would be legally entitled to receive in the absence of this Separation Agreement.

3. Right of First Refusal

Notwithstanding anything in this Separation Agreement to the contrary, before any shares of the Company’s common stock (“ Shares ”) you acquire upon exercise of a stock option granted by the Company may be sold or otherwise transferred by you (including transfer by gift or operation of law), the Company shall have a right of first refusal to purchase such shares on the terms and conditions set forth in this Paragraph. You shall deliver to the Company a written notice (the “ Notice ”) stating your intention to sell or otherwise transfer such Shares and the number of Shares to be sold or transferred, and you shall offer the Shares to the Company at their then

~~NAI-1502388509v6~~

current fair market value. At any time within one business day after receipt of the Notice, the Company may, by giving written notice to you, elect to purchase all, but not less than all, of the Shares proposed to be sold or transferred, at the then current fair market value of the Shares. If the Company makes such an election, payment of the purchase price for the Shares shall be made by the Company in cash. If the Shares proposed in the Notice to be sold or transferred are not purchased by the Company as provided in this Paragraph, then you may sell or otherwise transfer such Shares, provided that such sale or other transfer is consummated within two (2) business days after the date of the Notice. If the Shares described in the Notice are not sold or transferred within such period, a new Notice shall be given to the Company, and the Company shall again be offered this right of first refusal before any Shares held by you may be sold or otherwise transferred.

By signing this Separation Agreement, you acknowledge that you will comply with any applicable black-out periods or trading restrictions under any applicable Company insider trading policy as in effect from time to time with respect to any Shares you hold.

4. Restrictive Covenants

By signing this Separation Agreement, you reaffirm that you will continue to abide by the covenants set forth in Sections 8, 9 and 10 of the Employment Agreement, which expressly survive the termination of your employment without Cause.

5. Limitations

Nothing in this Separation Agreement, the Employment Agreement or the Release shall be binding upon the parties to the extent it is void or unenforceable for any reason, including, without limitation, as a result of any law regulating competition or proscribing unlawful business practices; provided, however , that to the extent that any provision in this Separation Agreement, the Employment Agreement or the Release could be modified to render it enforceable under applicable law, it shall be deemed so modified and enforced to the fullest extent allowed by law.

6. Other Acknowledgements

You understand that nothing in this Separation Agreement or the Release prevents you from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the EEOC, NLRB, or any other federal, state or local agency charged with the enforcement of any employment laws. By executing this Separation Agreement you represent that, as of the date you sign this Separation Agreement, no claims, lawsuits, or charges have been filed by you or on your behalf against the Company, its affiliates, any of its or their respective subsidiaries or any of its or their respective officers, directors, managers, employees, agents, attorneys, or successors and assigns (the “ Released Parties ”). You acknowledge and agree that you have in a timely manner received or waived all applicable notices required under the Employment Agreement in connection with the termination of your

~~NAI-1502388509v6~~ - 2-

employment with the Company. The Company agrees that this Separation Agreement does not extend to, release or modify any rights to indemnification or advancement of expenses to which you are entitled from the Company or its insurers under the Company’s Certificate of Incorporation, By-Laws, or other corporate governing law or instruments.

7. Certain Claims

To the extent permitted under Section 409A of the Internal Revenue Code, the amounts owing to you under this Separation Agreement shall be subject to set-off, counterclaim or recoupment for amounts owed by you to the Company or its affiliates. You will be entitled to recover actual damages if the Company breaches this Separation Agreement, including any unexcused late or non-payment of any amounts owed under this Separation Agreement, or any unexcused failure to provide any other benefits specified in this Separation Agreement. Failure by either party to enforce any term or condition of this Separation Agreement at any time shall not preclude that party from enforcing that provision, or any other provision, at a later time.

8. No Re-Employment

You understand that your employment with the Company terminated on the Separation Date. You agree that you will not seek or accept employment with the Company, including assignment to or on behalf of the Company as an independent contractor or through any third party, and the Company has no obligation to consider you for any future employment or assignment.

9. Review of Separation Agreement

This Separation Agreement is important. You are advised to review it carefully and consult an attorney before signing it, as well as any other professional whose advice you value, such as an accountant or financial advisor. If you agree to the terms of this Separation Agreement, sign in the space below where your agreement is indicated. The payments and benefits specified in this Separation Agreement are contingent on your signing this Separation Agreement and the Release no earlier than the Separation Date and no later than 21 calendar days following the Separation Date, and not revoking the Release.

10. Return of Property

You affirm that you have, or will within a reasonable time after the date of this Separation Agreement, returned to the Company all Company Property, as described more fully below. “Company Property” includes company-owned motor vehicles, equipment, supplies and documents. Such documents may include but are not limited to customer lists, financial statements, cost data, price lists, invoices, forms, passwords, electronic files and media, mailing lists, contracts, reports, manuals, personnel files, correspondence, business cards, drawings, employee lists or directories, lists of vendors, photographs, maps, surveys, and the like, including

~~NAI-1502388509v6~~ - 3-

copies, notes or compilations made there from, whether such documents are embodied on “hard copies” or contained on computer disk or any other medium. You further agree that you will not retain any copies or duplicates of any such Company Property.

11. Future Cooperation

You agree that you shall, without any additional compensation, respond to reasonable requests for information from the Company regarding matters that may arise in the Company’s business. You further agree to fully and completely cooperate with the Company, its advisors and its legal counsel with respect to any litigation that is pending against the Company and any claim or action that may be filed against the Company in the future. Such cooperation shall include making yourself available at reasonable times and places for interviews, reviewing documents, testifying in a deposition or a legal or administrative proceeding, and providing advice to the Company in preparing defenses to any pending or potential future claims against the Company. The Company agrees to pay/reimburse you for any approved travel expenses reasonably incurred as a result of your cooperation with the Company, with any such payments/reimbursements to be made in accordance with the Company's expense reimbursement policy as in effect from time to time.

12. Non-Disparagement

You agree that you will not make or issue, or procure any person, firm, or entity to make or issue, any statement in any form, including written, oral and electronic communications of any kind, which conveys negative or adverse information concerning the Released Parties, the Company or any past, present or future parents, subsidiaries or affiliates of the Company (the “ CECO Companies ”), their business, their actions or their officers or directors, to any person or entity, regardless of the truth or falsity of such statement. This Paragraph does not apply to truthful testimony compelled by applicable law or legal process. Nothing in this Agreement will prevent or be deemed to prevent you from filing a charge or complaint with, reporting possible violations of law or regulation, making disclosures to, and/or from participating in an investigation or proceeding conducted by, the Securities and Exchange Commission, and/or any federal, state or local agency charged with the enforcement of any laws.

13. Tax Matters

By signing this Separation Agreement, you acknowledge that you will be solely responsible for any taxes which may be imposed on you as a result of the Severance Benefits, all amounts payable to you under this Separation Agreement will be subject to applicable tax withholding by the Company, and the Company has not made any representations or guarantees regarding the tax result for you with respect to any income recognized by you in connection with this Separation Agreement or the Severance Benefits.

~~NAI-1502388509v6~~ - 4-

14. Nature of Agreement

By signing this Separation Agreement, you acknowledge that you are doing so freely, knowingly and voluntarily. You acknowledge that in signing this Separation Agreement you have relied only on the promises written in this Separation Agreement and not on any other promise made by the Company or CECO Companies. This Separation Agreement is not, and will not be considered, an admission of liability or of a violation of any applicable contract, law, rule, regulation, or order of any kind. This Separation Agreement and the Release contains the entire agreement between the Company, other CECO Companies and you regarding your departure from the Company, except that all post-employment covenants contained in the Employment Agreement remain in full force and effect. The Severance Benefits are in full satisfaction of any severance benefits under the Employment Agreement and of any other compensation arrangements between you and the Company. This Separation Agreement may not be altered, modified, waived or amended except by a written document signed by a duly authorized representative of the Company and you. Except as otherwise explicitly provided, this Separation Agreement will be interpreted and enforced in accordance with the laws of the state of Ohio, and the parties hereto, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Ohio. The headings in this document are for reference only, and shall not in any way affect the meaning or interpretation of this Separation Agreement. Nothing in this Separation Agreement shall be binding on the parties to the extent it is void or unenforceable. The provisions of this Separation Agreement are severable. If any provision of this Separation Agreement is ruled unenforceable or invalid, such ruling shall not affect the enforceability or validity of other provisions of this Separation Agreement.

[SIGNATURE PAGE FOLLOWS]

~~NAI-1502388509v6~~ - 5-

IN WITNESS WHEREOF, you and the Company have executed this Separation Agreement as of the dates set forth below.

JEFFREY LANG

_____________ /s/ Jeffrey Lang _________

Date: _____________ February 1, 2017 ______

CECO ENVIRONMENTAL CORP.

By: /s/ Jason DeZwirek ___________________

Name: ____ Jason DeZwirek _____________

Title: __ Chairman of the Board of Directors

Date: ________ February 1, 2017 __________

~~NAI-1502388509v6~~ - 6-

Exhibit A

Severance and Other Benefits ¹

Severance benefits under the Employment Agreement, which severance benefits consist of the following (as further described in, and qualified by reference to, the Employment Agreement):

Your Accrued Rights, which consist of the following:

Base Salary through the Separation Date;

reimbursement, within 30 days following submission by you to the Company of appropriate supporting documentation, for any unreimbursed business expenses properly incurred by you in accordance with Company policy prior to the Separation Date; provided that claims for such reimbursement (accompanied by appropriate supporting documentation) are submitted to the Company within 90 days following the Separation Date;

accrued and unused vacation that the Company is legally obligated to pay to you; and

such Employee Benefits, if any, as to which you may be entitled under the employee benefit plans as described in Section 6 of the Employment Agreement.

Subject to your continued compliance with the provisions of Sections 9 and 10 of the Employment Agreement:

continued payment of Base Salary ($575,000 per annum) in accordance with the Company’s normal payroll practices, as in effect on the Separation Date, for a period of twelve (12) months following the Separation Date;

continuation of medical benefits under the Company’s current medical plans at the same level provided by the Company on the Separation Date, for a period of twelve (12) months; provided that such medical benefits shall end earlier if you become eligible to participate in a medical plan offered by a subsequent employer; and

payment of your Annual Bonus for the Company’s 2016 fiscal year, based upon actual performance results for the full fiscal year, and using as your target Annual Bonus the percentage of Base Salary applicable to your Annual Bonus for the Company’s 2016 fiscal year, which payment shall equal $575,000, payable as soon as practicable following the end of the Company’s 2016 fiscal year, but in all cases within the later of (i) 2.5 months after the end of the 2016

Except as otherwise expressly provided, all benefits are to be paid or provided in the manner and at the time specified in the applicable plan or agreement, or as required under applicable law. Capitalized terms used in this Exhibit A without definitions have the meanings ascribed to such terms in the Employment Agreement.

~~NAI-1502388509v6~~

fiscal year or (ii) 30 days after the completion of an external audit to the satisfaction of the Compensation Committee of the Company’s Board of Directors, but in no event later than 2.5 months after the end of the calendar year in which such Annual Bonus vests.

In addition, the Stock Options held by you to the extent such Stock Options have already vested and become exercisable, will remain exercisable for a period of ninety (90) days from the Separation Date, after which date all Stock Options will expire.

Payment of a lump sum cash transition bonus in an amount equal to $250,000, payable at the same time as the 2016 fiscal year Annual Bonus (as described in item 1 above) is paid.

Except as provided in item 1 above with respect to Stock Options, all outstanding equity awards will be subject to treatment in accordance with the plan and grant agreements pursuant to which such awards were granted.

Any payment under this Exhibit A that is not made during the period following the Separation Date because you have not executed the Release, shall be paid to you in a single lump sum on the first payroll date following the last day of any applicable revocation period after you execute the Release, provided that you execute and do not revoke the Release in accordance with the requirements of the Separation Agreement.

~~NAI-1502388509v6~~

Exhibit 10.3

January 26, 2017

Mr. Dennis Sadlowski

c/o CECO Environmental Corp.

4625 Red Bank Road

Cincinnati, Ohio 45227

Dear Dennis:

On behalf of the Board of Directors (the “ Board ”) of CECO Environmental Corp. (the “ Company ”), I am pleased to offer you the position of interim Chief Executive Officer and President of the Company (“ Interim CEO ”) as further described in this offer letter (“ Letter ”).

Term

The term of your service as Interim CEO will be for an initial period of four months commencing if and when the Effective Date occurs (such four-month period, the “ Initial Term ”) and will continue after the Initial Term on a month-to-month basis, until terminated by the Board (the “ Monthly Term ” and, together with the Initial Term, the “ Term ”). The Initial Term is subject to earlier termination upon at least seven days’ prior written notice by either you or the Board, and the Monthly Term is subject to termination upon at least seven days’ prior written notice by either you or the Board in advance of either the commencement or a monthly renewal of such Monthly Term. For purposes of this Letter, “ Effective Date ” means the date on which you are appointed to succeed Mr. Lang. Notwithstanding anything in this Letter to the contrary, your service as Interim CEO during the Term will be at the pleasure of the Board.

Duties and Transition

As Interim CEO, you will have such duties, responsibilities and authority as are customarily incident to the principal executive officer of a publicly traded corporation, and will also assist the Company with the identification of, hiring of and/or transition of duties, responsibilities and authority (both during and for at least six months after the Term) to the next principal executive officer of the Company (the “ New CEO ”) to the extent reasonably requested by the Board. During your service as Interim CEO, you will report to the Board and will work primarily at the Company’s Dallas office at 14651 North Dallas Parkway in Dallas, Texas. Your appointment as Interim CEO is subject to approval by the Board, and any changes to your current compensation package as outlined in this Letter are subject to approval of the Compensation Committee of the Board (the “ Compensation Committee ”).

Base Salary

As of the Effective Date, your base salary will be $575,000 per year (or $47,917 per month) (“ Base Salary ”), less applicable payroll deductions and tax withholdings, payable on the Company’s normal payroll schedule. Notwithstanding anything in this Letter to the contrary, for your service to the Company beginning on the Effective Date, the Company will pay you under this Letter at least $191,667 in Base Salary, representing the Base Salary you are expected to earn for the Initial Term.

~~NAI-~~ ~~1502401376v4~~ 1

Bonus Award

You are eligible to earn a discretionary cash bonus, with the target amount of such bonus equal to 100% of the base salary earned by you during the Term (“ Bonus ”). You will be eligible to earn from 0% to 100% of the Bonus, as determined by the Compensation Committee after the end of the Term, based on the Compensation Committee’s subjective evaluation of your individual performance during the Term. Notwithstanding anything in this Letter to the contrary, for your service to the Company beginning on the Effective Date, your minimum target opportunity for the Bonus will be equal in value to $191,667 (representing 100% of the target Bonus that could be earned by you for the Initial Term), with the final payout percentage for such minimum target opportunity remaining subject to the Compensation Committee’s subjective determination after the end of the Term. In all events, any earned Bonus will be paid not later than March 15 of the year following the year in which the Bonus is vested. The Bonus will be subject to any applicable Company “clawback” policies that may be in effect from time to time.

Equity-Based Compensation

If you remain the Interim CEO at the time of the Company’s 2017 Annual Meeting of Stockholders (“ 2017 Annual Meeting ”), you will receive an award of service-based restricted stock units (“ RSUs ”), with the number of RSUs (which will be settled in Company shares) subject to such award (the “ Interim CEO RSU Award ”) equal to not less than the number of RSUs received by each of the Company’s non-employee directors under their service-based RSU awards in connection with the 2017 Annual Meeting. The Interim CEO RSU Award generally will vest in four equal annual installments beginning on the first anniversary of the date of grant for the Interim CEO RSU Award, and will otherwise be evidenced by an award agreement that is in substantially the form as approved by the Compensation Committee (the “ RSU Agreement ”), and the Interim CEO RSU Award will be subject to and on such other terms and conditions as required under the Company’s then-effective equity plan or as set forth in the RSU Agreement. The Interim CEO RSU Award will be subject to any applicable Company “clawback” policies that may be in effect from time to time.

Employee Benefits

During the Term, you will be eligible to participate in the health insurance and other employee benefit plans made available to employees of the Company under the terms of such plans, as they are in effect from time to time by the Company. The Company reserves the right to change, alter, or terminate any benefit plan or program in its sole discretion.

Expense Reimbursement

As an employee, you are authorized to incur ordinary and necessary business expenses in the course of your duties. Any reimbursements will be paid to you within 30 days after the date you submit receipts for the expenses, provided you submit those receipts within 60 days after you incur the expense. Solely for clarity of compliance with Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”), if any reimbursements payable to you are subject to the provisions of Section 409A of the Code, any such reimbursements will be paid no later than December 31 of the year following the year in which the expense was incurred, the amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any subsequent year, and the right to reimbursement will not be subject to liquidation or exchange for another benefit.

General

The Company may withhold from any amounts payable to you all federal, state, city or other taxes as the Company is required to withhold. Notwithstanding any other provision of this Letter, the Company is not obligated to guarantee any particular tax result for you with respect to any payment or benefit provided to

~~NAI-~~ ~~1502401376v4~~ 2

you, and you are responsible for any taxes imposed on you with respect to any such payment or benefit. Nothing in this Letter will be construed as a guarantee of continuing employment for any specified period. Your employment with the Company is at-will and is terminable by you or the Company at any time, with or without cause.

This Letter may be modified or terminated only in a writing signed by both you and an authorized representative of the Company.

To the extent applicable, It is intended that all of the benefits and payments under this Letter satisfy, to the greatest extent possible and to the extent applicable, the exemptions from the application of Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this Letter (and any definitions hereunder) will be construed in a manner that complies with Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right (if any) to receive any installment payments under this Letter (whether reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment.

This Letter sets forth the complete and exclusive agreement between you and the Company with regard to your service as Interim CEO with the Company and supersedes any prior representations or agreements about this matter, whether written or verbal. This Letter and all questions arising in connection herewith shall be governed by the laws of the State of Ohio, with venue in any court of competent jurisdiction located in the State of Ohio.

Please review this Letter carefully and let me know if you have any questions. If this Letter is acceptable to you, please sign it below.

Sincerely,

/s/ Jason DeZwirek

Mr. Jason DeZwirek

Chairman of the Board

CECO Environmental Corp.

I accept this offer to serve as Interim CEO if and when the Effective Date occurs and agree to the terms and conditions outlined in this Letter.

_______ /s/ Dennis Sadlowski ____

Mr. Dennis Sadlowski

_______ January 26, 2017 ________

Date

~~NAI-~~ ~~1502401376v4~~ 3

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis Sadlowski, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CECO Environmental Corp.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Dennis Sadlowski

Dennis Sadlowski

Interim Chief Executive Officer

Date: May 10, 2017

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Matthew Eckl, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CECO Environmental Corp.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Matthew Eckl

Matthew Eckl

Chief Financial Officer

Date: May 10, 2017

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CECO Environmental Corp. (the “Company”) on Form 10-Q for the three-month period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis Sadlowski, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge and belief, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ Dennis Sadlowski

Dennis Sadlowski

Interim Chief Executive Officer

Date: May 10, 2017

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CECO Environmental Corp. (the “Company”) on Form 10-Q for the three-month period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Eckl, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge and belief, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

/s/ Matthew Eckl

Matthew Eckl

Chief Financial Officer

Date: May 10, 2017