CECO ENVIRONMENTAL CORP (Form: 10-Q, Received: 08/09/2017 07:19:20)

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 June 30, 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.)

14651 North Dallas Parkway, Dallas, Texas		75254
(Address of principal executive offices)		(Zip Code)

(513) 458-2600

(Registrant’s telephone number, including area code)

4625 Red Bank Road, Cincinnati, Ohio, 45227

Former Address

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: 34,640,189 shares of common stock, par value $0.01 per share, as of August 2, 2017

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended June 30, 2017

Table of Contents

Part I –	Financial Information	2

	Item 1. Financial Statements	2

	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	2

	Condensed Consolidated Statements of Income for the three-month and six-month periods ended June 30, 2017 and 2016	3

	Condensed Consolidated Statements of Comprehensive Income for the three-month and six-month periods ended June 30, 2017 and 2016	4

	Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 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	21

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	31

	Item 4. Controls and Procedures	31

Part II –	Other Information	33

	Item 1. Legal Proceedings	33

	Item 1A. Risk Factors	33

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33

	Item 3. Defaults Upon Senior Securities	33

	Item 4. Mine Safety Disclosures	33

	Item 5. Other Information	33

	Item 6. Exhibits	34

Signatures		35

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) JUNE 30, 2017			DECEMBER 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	27,166		$	45,824
Restricted cash		1,150			1,498
Accounts receivable, net		66,131			83,062
Costs and estimated earnings in excess of billings on uncompleted contracts		40,774			38,123
Inventories, net		21,931			21,487
Prepaid expenses and other current assets		12,791			13,560
Prepaid income taxes		1,064			1,590
Assets held for sale		8,108			7,834
Total current assets		179,115			212,978
Property, plant and equipment, net		25,532			27,270
Goodwill		170,847			170,153
Intangible assets-finite life, net		55,449			60,728
Intangible assets-indefinite life		22,268			22,042
Deferred charges and other assets		5,149			5,463
	$	458,360		$	498,634
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt	$	7,742		$	8,827
Accounts payable and accrued expenses		81,592			95,610
Billings in excess of costs and estimated earnings on uncompleted contracts		23,545			35,085
Note payable		5,300			5,300
Income taxes payable		322			1,536
Total current liabilities		118,501			146,358
Other liabilities		25,326			34,864
Debt, less current portion		107,045			114,366
Deferred income tax liability, net		12,870			12,964
Total liabilities		263,742			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, 34,626,715 and 34,300,209 shares issued at June 30, 2017 and December 31, 2016, respectively		346			343
Capital in excess of par value		246,974			244,878
Accumulated loss		(41,501	)		(41,741	)
Accumulated other comprehensive loss		(10,845	)		(13,042	)
		194,974			190,438
Less treasury stock, at cost, 137,920 shares at June 30, 2017 and December 31, 2016		(356	)		(356	)
Total shareholders’ equity		194,618			190,082
	$	458,360		$	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 JUNE 30,						SIX MONTHS ENDED JUNE 30,
(dollars in thousands, except per share data)	2017			2016			2017			2016
Net sales	$	93,870		$	112,258		$	186,521		$	215,433
Cost of sales		65,384			78,328			126,106			149,917
Gross profit		28,486			33,930			60,415			65,516
Selling and administrative expenses		21,476			20,131			44,732			41,076
Acquisition and integration expenses		—			324			—			361
Amortization and earn-out (income) expenses, net		(2,245	)		4,914			5,078			9,711
Income from operations		9,255			8,561			10,605			14,368
Other income (expense), net		360			(399	)		251			381
Interest expense		(1,645	)		(1,980	)		(3,356	)		(4,082	)
Income before income taxes		7,970			6,182			7,500			10,667
Income tax expense		2,484			2,145			1,976			3,575
Net income	$	5,486		$	4,037		$	5,524		$	7,092
Net loss attributable to noncontrolling interest	$	—		$	(13	)	$	—		$	(58	)
Net income attributable to CECO Environmental Corp.	$	5,486		$	4,050		$	5,524		$	7,150
Earnings per share:
Basic	$	0.16		$	0.12		$	0.16		$	0.21
Diluted	$	0.16		$	0.12		$	0.16		$	0.21
Weighted average number of common shares outstanding:
Basic		34,473,688			33,946,117			34,345,317			33,937,128
Diluted		34,806,808			34,161,543			34,685,687			34,139,087

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 JUNE 30,						SIX MONTHS ENDED JUNE 30,
(dollars in thousands)	2017			2016			2017		2016
Net income	$	5,486		$	4,037		$	5,524	$	7,092
Other comprehensive income (loss), net of tax:
Interest rate swap		(115	)		(349	)		28		(624	)
Foreign currency translation		1,763			(1,773	)		2,169		(1,452	)
Comprehensive income		7,134			1,915			7,721		5,016
Net loss attributable to noncontrolling interest		—			(13	)		—		(58	)
Comprehensive income attributable to CECO Environmental Corp.	$	7,134		$	1,902		$	7,721	$	4,958

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

CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS

(unaudited)

	SIX MONTHS ENDED JUNE 30,
(dollars in thousands)	2017			2016
Cash flows from operating activities:
Net income	$	5,524		$	7,092
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,168			10,328
Unrealized foreign currency gain		(1,497	)		(414	)
Net (gain) loss on interest rate swaps		(129	)		404
Fair value adjustments to earnout liabilities		(1,755	)		1,033
Earnout payments		(7,797	)		—
Loss on sale of property and equipment		83			189
Debt discount amortization		504			539
Share-based compensation expense		677			1,149
Bad debt expense		960			294
Inventory reserve expense		316			838
Deferred income taxes		(46	)		(644	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		17,342			14,612
Costs and estimated earnings in excess of billings on uncompleted contracts		(1,646	)		1,248
Inventories		(407	)		4,443
Prepaid expense and other current assets		1,808			(3,755	)
Deferred charges and other assets		792			1,119
Accounts payable and accrued expenses		(8,018	)		(3,613	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(11,828	)		11,160
Income taxes payable		(1,367	)		(1,081	)
Other liabilities		(9	)		(871	)
Net cash provided by operating activities		1,675			44,070
Cash flows from investing activities:
Acquisitions of property and equipment		(641	)		(552	)
Proceeds from sale of property and equipment		44			291
Net cash used in investing activities		(597	)		(261	)
Cash flows from financing activities:
Decrease in short-term and long-term restricted cash		424			319
Net repayments on revolving credit lines		(1,107	)		(9,202	)
Repayments of debt		(7,656	)		(16,207	)
Deferred financing fees paid		(171	)		—
Earnout payments		(7,396	)		(2,341	)
Proceeds from sale-leaseback transactions		—			11,000
Payments on capital lease and sale-leaseback financing liability		(375	)		(33	)
Proceeds from employee stock purchase plan, exercise of stock options, and dividend reinvestment plan		1,246			471
Repurchases of common stock		—			(188	)
Dividends paid to common shareholders		(5,173	)		(4,486	)
Net cash used in financing activities		(20,208	)		(20,667	)
Effect of exchange rate changes on cash and cash equivalents		472			(730	)
Net (decrease) increase in cash and cash equivalents		(18,658	)		22,412
Cash and cash equivalents at beginning of period		45,824			34,194
Cash and cash equivalents at end of period	$	27,166		$	56,606
Cash paid during the period for
Interest	$	2,842		$	3,523
Income taxes	$	2,704		$	1,747
Non-cash transactions
Property, plant and equipment acquired under capital leases	$	—		$	3,296
Earnout settled through an exchange of accounts receivable	$	—		$	3,190

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 June 30, 2017 and the results of operations and cash flows for the three-month and six-month periods ended June 30, 2017 and 2016. The results of operations for the three-month and six-month periods ended June 30, 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 by acquiring the remaining 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 six months ended June 30, 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 six months ended June 30, 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 and six month periods ended June 30, 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 May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We plan to adopt the standard on January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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 per tinent 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 inc ome 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 t he 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 plan to adopt this standard on January 1, 2018. We do not expect the adoption of this guidance to have a mat erial 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. We plan to adopt this standard on January 1, 2018. 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 complete 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)	June 30, 2017			December 31, 2016
Trade receivables	$	13,204		$	11,976
Contract receivables		55,108			72,835
Allowance for doubtful accounts		(2,181	)		(1,749	)
	$	66,131		$	83,062

Balances billed but not paid by customers under retainage provisions in contracts amounted to approximately $3.0 million and $3.2 million at June 30, 2017 and December 31, 2016, respectively. Retainage receivables on contracts in progress are generally collected within a year after contract completion.

The provision for doubtful accounts was $0.7 million and $0.2 million for the three-month periods ended June 30, 2017 and 2016, respectively, and $1.0 million and $0.3 million for the six-month periods ended June 30, 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)	June 30, 2017			December 31, 2016
Costs incurred on uncompleted contracts	$	187,190		$	186,609
Estimated earnings		72,553			77,709
		259,743			264,318
Less billings to date		(242,514	)		(261,280	)
	$	17,229		$	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	$	40,774		$	38,123
Billings in excess of costs and estimated earnings on uncompleted contracts		23,545			35,085
	$	17,229		$	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. A provision of $0.3 million for estimated losses on uncompleted contracts was recognized at June 30, 2017. No provision for estimated losses on uncompleted contracts was required at December 31, 2016.

5.	Inventories

(Table only in thousands)	June 30, 2017			December 31, 2016
Raw materials	$	19,871		$	17,889
Work in process		2,886			3,986
Finished goods		1,269			1,508
Obsolescence allowance		(2,095	)		(1,896	)
	$	21,931		$	21,487

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $0.2 million and $0.6 million for the three-month periods ended June 30, 2017 and 2016, respectively, and $0.3 million and $0.8 million for the six-month periods ended June 30, 2017 and 2016, respectively.

6.	Goodwill and Intangible Assets

(Table only in thousands)	Six months ended June 30, 2017				Year ended December 31, 2016
Goodwill / Indefinite Life Tradenames	Goodwill		Tradenames		Goodwill			Tradenames
Beginning balance	$	170,153	$	22,042	$	220,163		$	26,337
Acquisitions and related adjustments		—		—		4,205			—
Impairment		—		—		(53,762	)		(4,161	)
Foreign currency translation		694		226		(453	)		(134	)
	$	170,847	$	22,268	$	170,153		$	22,042

(Table only in thousands)	As of June 30, 2017						As of December 31, 2016
Intangible assets – finite life	Cost			Accum. Amort.			Cost			Accum. Amort.
Technology	$	15,867		$	7,472		$	15,867		$	6,360
Customer lists		77,497			30,524			77,497			26,041
Noncompetition agreements		1,118			588			1,118			478
Tradename		1,390			371			1,390			301
Foreign currency adjustments		(1,900	)		(432	)		(2,964	)		(1,000	)
	$	93,972		$	38,523		$	92,908		$	32,180

Activity for the six months ended June 30, 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		(5,772	)		(7,645	)
Foreign currency adjustments		493			76
Intangible assets – finite life, net at end of period	$	55,449		$	67,388

Amortization expense of finite life intangible assets was $2.9 million and $3.7 million for the three-month periods ended June 30, 2017 and 2016, respectively, and $5.8 million and $7.6 million for the six-month periods ended June 30, 2017 and 2016, respectively.

The Company did not identify any triggering events during the three-month and six-month periods ended June 30, 2017 that would require an interim impairment assessment of goodwill or indefinite life intangible assets. There was no impairment of goodwill or indefinite life intangible assets during the three-month and six-month periods ended June 30, 2017.

7.	Accounts Payable an d Accrued Expenses

(Table only in thousands)	June 30, 2017		December 31, 2016
Trade accounts payable, including due to subcontractors	$	54,375	$	58,985
Compensation and related benefits		5,747		8,232
Current portion of earn-out liability		6,970		13,527
Accrued warranty		4,482		2,684
Other accrued expenses		10,018		12,182
	$	81,592	$	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 six months ended June 30, 2017 and 2016:

(Table only in thousands)	Energy Segment			Environmental Segment		Total ⁽¹⁾
Balance of earn-out at December 31, 2016	$	24,214		$	—	$	24,214
Fair value adjustment		(1,755	)		—		(1,755	)
Compensation expense adjustment		597			—		597
Foreign currency translation adjustment		523			—		523
Payment		(15,193	)		—		(15,193	)
Total earn-out liability as of June 30, 2017	$	8,386		$	—	$	8,386
Less: current portion of earn-out		(6,970	)		—		(6,970	)
Balance of long term portion of earn-out recorded in Other liabilities at June 30, 2017	$	1,416		$	—	$	1,416

(Table only in thousands)	Energy Segment			Environmental Segment			Total ⁽¹⁾
Balance of earn-out at December 31, 2015	$	29,304		$	3,367		$	32,671
Fair value adjustment		1,533			(500	)		1,033
Compensation expense adjustment		610			—			610
Foreign currency translation adjustment		(529	)		—			(529	)
Settlement through an exchange of accounts receivable		(3,190	)		—			(3,190	)
Payment		(1,241	)		(1,100	)		(2,341	)
Total earn-out liability as of June 30, 2016	$	26,487		$	1,767		$	28,254
Less: current portion of earn-out		(17,580	)		(667	)		(18,247	)
Balance of long term portion of earn-out recorded in Other liabilities at June 30, 2016	$	8,907		$	1,100		$	10,007

(1)

The Fluid Handling and Filtration segment does not have any earn-out arrangements associated with the segment.

8.	Senior debt

Debt consisted of the following at June 30, 2017 and December 31, 2016:

(Table only in thousands)	June 30, 2017			December 31, 2016
Outstanding borrowings under Credit Facility (defined below). Term loan payable in quarterly principal installments of $1.5 million through September 2017, $2.0 million through September 2018, and $2.5 million thereafter with balance due upon maturity in September 2020.
- Term loan	$	117,415		$	125,072
- Unamortized debt discount and debt issuance costs		(2,841	)		(3,175	)
Total outstanding borrowings under Credit Facility		114,574			121,897
Outstanding borrowings (U.S. dollar equivalent) under China Facility (defined below)		—			1,296
Outstanding borrowings (U.S. dollar equivalent) under Aarding Facility (defined below)		213			—
Total outstanding borrowings		114,787			123,193
Less: current portion		7,742			8,827
Total debt, less current portion	$	107,045		$	114,366

During the three-month and six-month periods ended June 30, 2017, the Company made prepayments of $2.0 million and $4.3 million, respectively, on the outstanding balance of the term loan. These prepayments were applied to future principal payments due under the term loan. Scheduled principal payments under our Credit Facility is $3.5 million for the remainder of 2017, $8.5 million in 2018, $10.0 million in 2019, and $95.3 million in 2020.

United States Debt

As of June 30, 2017 and December 31, 2016, $20.7 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 $59.3 million and $62.0 million at June 30, 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 interest rate on outstanding borrowings was 3.47% and 3.26% at June 30, 2017 and December 31, 2016, respectively.

In accordance with the Credit Facility terms, the Company entered into an interest rate swap on December 30, 2015 to hedge against interest rate exposure related to approximately one-third 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 June 30, 2017. The fair value of the interest rate swap was a liability totaling $0.2 million at December 31, 2016, which is recorded in “Accounts payable and accrued expenses” on the Condensed 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 Condensed Consolidated Statements of Income for the six-month period ended June 30, 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 (loss) as the hedge is deemed effective.

The Company amended the Credit Agreement as of June 9, 2017. The Credit Agreement was amended to, among other things, (a) modify the calculation of Consolidated EBITDA and Consolidated Fixed Charges to exclude certain pro forma adjustments related to certain acquisitions and other transactions and (b) modify the Consolidated Leverage Ratio covenant. As a result of the amendment to the Credit Agreement, the maximum consolidated leverage ratio remains consistent at 3.25 until March 31, 2019, when it is set to decrease to 3.00 until the end of the term of the Credit Agreement.

As of June 30, 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 $14.9 million. As of June 30, 2017 and December 31, 2016, the borrowers were in compliance with all related financial and other restrictive covenants. As of June 30, 2017, $4.7 million of the bank guarantee and $0.2 million of the overdraft facility are being used by the Company. As of December 31, 2016, $5.3 million of the bank guarantee and none of the overdraft facility was being used by the Company. 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 December 31, 2016 at an interest rate of 4.79% . This loan was paid down in full in the second quarter of 2017. The total amount of available for borrowing under the China Facility was $4.4 million and $4.3 million as of June 30, 2017 and December 31, 2016, respectively.

As a result of the PMFG, Inc. (“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 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. The note payable is guaranteed by the Company. As of December 31, 2016 and June 30, 2017, $5.3 million of the principal amount of the note payable was outstanding. The note is payable at the earlier of July 11, 2019 or 30 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 June 30, 2017, this note payable is currently classified as a current liability in the Consolidated Balance Sheets as of June 30, 2017.

9.	Earnings and Dividends per Share

The computational components of basic and diluted earnings per share for the three-month and six-month periods ended June 30, 2017 and 2016 are below.

	For the three-month period ended June 30, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	5,486		34,474	$	0.16
Effect of dilutive securities and notes:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		333		—
Diluted earnings and earnings per share	$	5,486		34,807	$	0.16

	For the three-month period ended June 30, 2016
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	4,050		33,946	$	0.12
Effect of dilutive securities and notes:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		216		—
Diluted earnings and earnings per share	$	4,050		34,162	$	0.12

	For the six-month period ended June 30, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	5,524		34,345	$	0.16
Effect of dilutive securities and notes:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		341		—
Diluted earnings and earnings per share	$	5,524		34,686	$	0.16

	For the six-month period ended June 30, 2016
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	7,150		33,937	$	0.21
Effect of dilutive securities and notes:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		202		—
Diluted earnings and earnings per share	$	7,150		34,139	$	0.21

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 June 30, 2017 and 2016, 0.6 million and 1.5 million, respectively, and 0.7 million and 1.6 million during the six-month periods ended June 30, 2017 and 2016, respectively, of 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 May 10, 2017, the Company declared and, on June 30, 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’s 2017 Equity and Incentive Compensation Plan (the “2017 Plan”) was approved by the Company’s stockholders on May 16, 2017. The 2017 Plan permits the granting of stock options, which are granted with an exercise price equal to or greater than the fair market value of the Company’s common stock at the date of the grant, and other stock-based awards, including appreciation rights, restricted stock, restricted stock unit, performance shares and dividend equivalents. As of May 16, 2017, no further grants will be made under the Company’s 2007 Equity Incentive Plan (the “2007 Plan”), but outstanding awards under the 2007 Plan prior to such date will continue to be unaffected in accordance with their terms.

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 expense of $0.7 million and $0.6 million during the three-month periods ended June 30, 2017 and 2016, respectively, and $0.7 million and $1.1 million during the six-month periods ended June 30, 2017 and 2016, respectively. Share based compensation expense was lower in 2017 primarily due to a large amount of forfeitures related to the former Chief Executive Officer’s departure from the Company.

The Company granted approximately 128,000 options during the three-month period ended June 30, 2017 and no options during the three-month period ended June 30, 2016. The Company granted approximately 128,000 and 100,000 options during the six-month periods ended June 30, 2017 and 2016, respectively. The weighted-average fair value of stock options granted during the six months ended June 30, 2017 and 2016 was estimated at $2.68 and $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 six months ended June 30, 2017 and 2016, the Company utilized a weighted-average volatility factor of 39%.

Expected Term: For the six months ended June 30, 2017, and 2016, the Company utilized a weighted-average expected term factor of 6.3 years and 6.5 years, respectively.

Risk-Free Interest Rate: The risk-free interest rate factor utilized is based upon the implied yields currently available on U.S. Treasury zero-coupon issues over the expected term of the stock options. For the six months ended June 30, 2017 and 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 3.3% and 3.6% to value options granted during the six months ended June 30, 2017 and 2016, respectively.

The Company granted approximately 351,000 and 90,000 restricted stock units during the three-month periods ended June 30, 2017 and 2016, respectively, and approximately 405,000 and 100,000 restricted stock units during the six-month periods ended June 30, 2017 and 2016, respectively. The weighted-average fair value of restricted stock units granted during the six months ended June 30, 2017 and 2016 was estimated at $9.87 and $7.77 per unit, respectively, using the value of stock in the open market on the date of grant.

On June 10, 2017, the Company granted 700,000 performance units to our Chief Executive Officer whose total value was determined to be $175,000 and will be expensed over the vesting period. The maximum shares of common stock that the participant could receive upon his performance units vesting is 77,778 shares. The performance units are earned based upon the Company’s stock price during 30 consecutive trading days within a specified date range of approximately two years. The performance units are settled in the Company’s common stock subsequent to this specified date range and vest approximately three years from the date of the grant. The estimated grant date fair value and compensation expense of each performance share is determined on the date of grant by using the Monte Carlo valuation model.

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

There were approximately 282,000 and 51,000 options exercised during the six months ended June 30, 2017 and 2016, respectively. The Company received $1.1 million and $0.3 million in cash from employees and directors exercising options during the six months ended June 30, 2017 and 2016, respectively. The intrinsic value of options exercised during the six months ended June 30, 2017 and 2016 was $1.8 million and $0.1 million, respectively.

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Pension plan:
Service cost	$	101		$	112		$	214		$	223
Interest cost		329			356			657			713
Expected return on plan assets		(431	)		(457	)		(861	)		(914	)
Amortization of net actuarial loss		57			53			113			106
Net periodic benefit cost	$	56		$	64		$	123		$	128
Health care plan:
Interest cost	$	1		$	1		$	2		$	2
Amortization of loss		2			3			4			5
Net periodic benefit cost	$	3		$	4		$	6		$	7

We made contributions to our defined benefit plans during the six months ended June 30, 2017 and 2016 totaling $0.3 million and $29,000, respectively. We anticipate $1.7 million and $25,000 of further contributions to fund the pension plans and the retiree health care plan, respectively, during the remainder of 2017. The unfunded liability of the plans of $10.9 million and

$11.1 million as of June 30, 2017 and December 31, 2016, respectively, is included in Other liabilities on our unaudited Condensed Consolidated Balance Sheets.

12.	Income Taxes

The Company files income tax returns in various federal, state and local jurisdictions. Tax years from 2014 and onward remain open for examination by federal authorities. Tax years from 2012 and onward 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 June 30, 2017 and December 31, 2016, the liability for uncertain tax positions totaled approximately $0.4 million, which is included in Other liabilities on our unaudited 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.

1 3 .

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 June 30, 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 $117.4 million and $125.1 million at June 30, 2017 and December 31, 2016, respectively. The fair value of the note payable was $5.3 million at June 30, 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 June 30, 2017 and December 31, 2016, we had cash and cash equivalents of $27.2 million and $45.8 million, respectively, of which $15.0 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 collateralize 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.

1 4 .

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 June 30, 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 221 cases pending against the Company as of June 30, 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 six months ended June 30, 2017, 27 new cases were filed against the Company, and the Company was dismissed from 30 cases and settled five

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 futu re, 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 a s 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. 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 they 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 in October 2014 seeking, among other things, recoupment of past legal costs paid. 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 Forge 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 against. 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 reserves 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 natural 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, 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 air pollution control technologies that enable our customers to reduce their 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. In addition, this segment designs and manufactures fluid catalytic cracking unit cyclones used in the petroleum and

petrochemical refining process. 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 var iety 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 June 30,					Six Months Ended June 30,
(dollars in thousands)	2017		2016			2017		2016
Net Sales (less intra-, inter-segment sales)
Energy Segment	$	37,416	$	52,867		$	78,499	$	100,799
Environmental Segment		37,879		44,211			73,808		83,333
Fluid Handling and Filtration Segment		18,348		15,413			34,164		32,008
Corporate and Other ⁽¹⁾		227		(233	)		50		(707	)
Net sales	$	93,870	$	112,258		$	186,521	$	215,433

⁽¹⁾	Includes adjustment for revenue on intercompany jobs.

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016
Income from Operations
Energy Segment	$	7,528		$	6,367		$	9,141		$	11,563
Environmental Segment		4,777			6,119			9,886			10,865
Fluid Handling and Filtration Segment		4,148			3,200			7,457			6,398
Corporate and Other ⁽²⁾		(6,769	)		(6,618	)		(14,780	)		(13,537	)
Eliminations		(429	)		(507	)		(1,099	)		(921	)
Income from operations	$	9,255		$	8,561		$	10,605		$	14,368

⁽²⁾

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

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2017		2016		2017		2016
Property and Equipment Additions
Energy Segment	$	114	$	220	$	350	$	304
Environmental Segment		31		115		40		228
Fluid Handling and Filtration Segment ⁽³⁾		72		3,301		221		3,310
Corporate and Other		14		2		30		6
Property and equipment additions	$	231	$	3,638	$	641	$	3,848

⁽³⁾	Includes non-cash additions of $3,296 for property, plant, and equipment acquired under capital leases during the second quarter of 2016.

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2017		2016		2017		2016
Depreciation and Amortization
Energy Segment	$	1,966	$	2,939	$	4,030	$	5,741
Environmental Segment		842		907		1,687		1,874
Fluid Handling and Filtration Segment		1,197		1,254		2,395		2,648
Corporate and Other		25		32		56		65
Depreciation and Amortization	$	4,030	$	5,132	$	8,168	$	10,328

(dollars in thousands)	June 30, 2017		December 31, 2016
Identifiable Assets
Energy Segment	$	229,918	$	257,566
Environmental Segment		109,215		118,680
Fluid Handling and Filtration Segment		104,924		104,294
Corporate and Other ⁽⁴⁾		14,303		18,094
Identifiable Assets	$	458,360	$	498,634

⁽⁴⁾	Corporate assets primarily consist of cash and income tax related assets.

(dollars in thousands)	June 30, 2017		December 31, 2016
Goodwill
Energy Segment	$	76,521	$	75,827
Environmental Segment		48,203		48,203
Fluid Handling and Filtration Segment		46,123		46,123
Goodwill	$	170,847	$	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 June 30, 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	$	40,255	$	(2,839	)	$	—		$	—		$	—		$	—	$	37,416
Environmental Segment		38,718		(800	)		—			—			(39	)		—		37,879
Fluid Handling and Filtration Segment		19,160		(539	)		(258	)		(15	)		—			—		18,348
Corporate and Other ⁽⁵⁾		—		—			—			—			—			227		227
Net Sales	$	98,133	$	(4,178	)	$	(258	)	$	(15	)	$	(39	)	$	227	$	93,870

	Three Months Ended June 30, 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	$	53,740	$	(654	)	$	(219	)	$	—		$	—		$	—		$	52,867
Environmental Segment		45,522		(844	)		—			(427	)		(40	)		—			44,211
Fluid Handling and Filtration Segment		16,045		(452	)		(180	)		—			—			—			15,413
Corporate and Other ⁽⁵⁾		—		—			—			—			—			(233	)		(233	)
Net Sales	$	115,307	$	(1,950	)	$	(399	)	$	(427	)	$	(40	)	$	(233	)	$	112,258

	Six Months Ended June 30, 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	$	83,668	$	(5,147	)	$	(22	)	$	—		$	—		$	—	$	78,499
Environmental Segment		76,266		(1,690	)		—			(729	)		(39	)		—		73,808
Fluid Handling and Filtration Segment		35,852		(1,157	)		(422	)		(109	)		—			—		34,164
Corporate and Other ⁽⁵⁾		—		—			—			—			—			50		50
Net Sales	$	195,786	$	(7,994	)	$	(444	)	$	(838	)	$	(39	)	$	50	$	186,521

	Six Months Ended June 30, 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	$	102,321	$	(1,145	)	$	(377	)	$	—		$	—		$	—		$	100,799
Environmental Segment		87,575		(2,598	)		—			(1,467	)		(177	)		—			83,333
Fluid Handling and Filtration Segment		33,057		(855	)		(194	)		—			—			—			32,008
Corporate and Other ⁽⁵⁾		—		—			—			—			—			(707	)		(707	)
Net Sales	$	222,953	$	(4,598	)	$	(571	)	$	(1,467	)	$	(177	)	$	(707	)	$	215,433

⁽⁵⁾	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 and six-month periods ended June 30, 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 within a single industry or with a single 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 upgrading 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 Chief Executive Officer 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.

Our three reportable segments are: the Energy segment, which produc es customized solutions for the power and petrochemical industry; the Environmental segment, which provides a variety of air pollution control and catalytic product recovery technologies ; and the Fluid Handling and Filtration segment, which produces high q uality 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;

•

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. As material cost inflation occurs, the Company seeks to pass this cost onto our customers as price increases.

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 incurred 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 non-GAAP results.

Results of Operations

Consolidated Results

Our Condensed Consolidated Statements of Income for the three-month and six-month periods ended June 30, 2017 and 2016 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2017			2016			2017			2016
Net sales	$	93.9		$	112.3		$	186.5		$	215.4
Cost of sales		65.4			78.4			126.1			149.9
Gross profit	$	28.5		$	33.9		$	60.4		$	65.5
Percent of sales		30.4	%		30.2	%		32.4	%		30.4	%
Selling and administrative expenses	$	21.4		$	20.0		$	44.7		$	41.1
Percent of sales		22.8	%		17.8	%		24.0	%		19.1	%
Acquisition and integration expenses	$	—		$	0.4		$	—		$	0.4
Percent of sales		—			0.4	%		—			0.2	%
Amortization and earn-out (income) expenses, net	$	(2.2	)	$	4.9		$	5.1		$	9.7
Percent of sales		(2.3	)%		4.4	%		2.7	%		4.5	%
Operating income	$	9.3		$	8.6		$	10.6		$	14.4
Operating margin		9.9	%		7.7	%		5.7	%		6.7	%

To compare operating performance between the three-month and six-month periods ended June 30, 2017 and 2016, the Company has adjusted GAAP operating income to exclude (1) executive transition expenses, 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) acquisition and integration related expenses, including legal, accounting, and banking expenses, (3) amortization and contingent acquisition expenses, including amortization of acquisition related intangibles, retention, severance, and earn-out expenses, (4) gain on insurance settlement, (5) facility exit expenses associated with the closure of certain leased facilities, (6) legacy design repair expenses related to costs to rectify issues on products that are no longer in production and (7) 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 June 30,						Six Months Ended June 30,
(dollars in millions)	2017			2016			2017			2016
Operating income as reported in accordance with GAAP	$	9.3		$	8.6		$	10.6		$	14.4
Operating margin in accordance with GAAP		9.9	%		7.7	%		5.7	%		6.7	%
Legacy design repairs		1.8			—			2.0			—
Inventory valuation adjustment		—			—			—			0.1
Plant, property and equipment valuation adjustment		0.1			0.1			0.3			0.3
Gain on insurance settlement		—			(1.0	)		—			(1.0	)
Acquisition and integration expenses		—			0.4			—			0.4
Amortization and earn-out (income) expenses, net		(2.2	)		4.9			5.1			9.7
Executive transition expenses		0.4			—			1.3			—
Facility exit expenses		—			—			0.2			—
Non-GAAP operating income	$	9.4		$	13.0		$	19.5		$	23.9
Non-GAAP operating margin		10.0	%		11.6	%		10.5	%		11.1	%

Consolidated net sales for the second quarter of 2017 decreased $18.4 million, or 16.4%, to $93.9 million compared with $112.3 million in the second quarter of 2016. The decrease is primarily attributable to a sales volume decline period over period attributable to a decline in demand for the Company’s solid fuel power generation and natural gas turbine exhaust systems within the Company’s Energy segment and a decline in demand for the Company’s duct work and related equipment, and refinery related products within the Company’s Environmental segment. These declines were offset by increased sales in the Company’s Fluid Handling & Filtration segment.

Consolidated net sales for the first six months of 2017 decreased $28.9, or 13.4%, to $186.5 million compared with $215.4 million in the first six months of 2016. The decrease is primarily attributable to a sales volume decline period over period attributable to a decline in demand for the Company’s solid fuel power generation, natural gas turbine exhaust systems within the Company’s Energy segment and a decline in demand for the Company’s regenerative thermal oxidizers, and refinery related products within the

Company’s Environmental segment . These declines were offset by in creased sales in the Company’s Fluid Handling & Filtration segment.

Gross profit decreased $5.4 million, or 15.9%, to $28.5 million in the second quarter of 2017 compared with $33.9 million in the same period of 2016. The lower gross profit was primarily attributable to a sales volume decline period over period. Gross profit as a percentage of sales was 30.4% in the second quarter of 2017 compared with 30.2% in the second quarter of 2016. The higher gross profit margin in the second quarter of 2017 was primarily due to a more favorable project mix during this period. This increase was partially offset by the Company incurring $1.6 million in warranty expense and $1.8 million in legacy design repairs during the second quarter of 2017, compared to warranty expense of $0.2 million in the second quarter of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The Company believes that all corrections related to this issue have been satisfactorily addressed. The increase in legacy design repairs is primarily attributable to specific issues on certain past projects. With respect to the legacy design repairs, the Company believes that we have expensed and accrued for our expectation of total costs. Until the Company has satisfactorily assessed all repairs, the possibility of future risk exists.

Gross profit decreased $5.1 million, or 7.8%, to $60.4 million in the first six months of 2017 compared with $65.5 million in the same period of 2016. The lower gross profit was primarily attributable to a sales volume decline period over period. Gross profit as a percentage of sales was 32.4% in the first six months of 2017 compared with 30.4% in the first six months of 2016. The higher gross profit margin in the first six months of 2017 was primarily due to a more favorable project mix during this period. This increase was partially offset by the Company incurring $2.4 million in warranty expense and $2.0 million in legacy design repairs during the first six months of 2017, compared to warranty expense of $0.3 million during the first six months of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The increase in legacy design repairs is primarily attributable to specific issues on certain past projects.

Orders booked were $87.2 million during the second quarter of 2017 and $171.2 million during the first six months of 2017 as compared with $108.8 million during the second quarter of 2016 and $228.9 million during the first six months of 2016. The decrease is primarily attributable to lower bookings by the Energy and Environmental Segment that is partially attributable to lower near term demand for natural gas turbine exhaust systems and solid fuel power generation equipment, as well as a reduction in refinery related capital expenditures impacting the Company’s bookings related to cyclone products.

Selling and administrative expenses increased $1.4 million to $21.4 million for the second quarter of 2017 compared with $20.0 million for the second quarter of 2016. Additionally, selling and administrative expenses increased as a percentage of sales from 17.8% in the second quarter of 2016 compared to 22.8% in the second quarter of 2017. The increase is primarily attributable to the Company recording a gain of $1.0 million during the second quarter of 2016 related to a life insurance settlement and the Company recording $0.4 million of executive transition expenses during the second quarter of 2017.

Selling and administrative expenses increased $3.6 million to $44.7 million for the first six months of 2017 compared with $41.1 for the first six months of 2016. Additionally, Selling and administrative expenses increased as a percentage of sales from 19.1% in the first six months of 2016 compared to 24.0% in the first six months of 2017. The increase is primarily attributable to executive transition expenses related to the Company’s transition and search for a new Chief Executive Officer which occurred during the first and second quarters of 2017 of $1.3 million, facility exit expenses of $0.2 million, additional investments in selling and finance personnel incurred in 2017 and the Company recording a gain on a life insurance settlement of $1.0 million during the first six months of 2016.

Acquisition and integration expenses were zero and $0.4 million during the second quarter of 2017 and 2016, respectively, and zero and $0.4 million during the first six months of 2017 and 2016, respectively. The acquisition and integration expenses in 2016 were related to the PMFG, Inc. (“PMFG”) acquisition which occurred during the third quarter of 2015.

Amortization and earn-out expense (income) was $(2.2) million for the second quarter of 2017 compared with $4.9 million for the second quarter of 2016. The decrease in expense was primarily attributable to earn-out adjustments resulting in income of $5.7 million in the second quarter of 2017 related to the acquisition of Zhongli Industrial Technology Co. Ltd. (“Zhongli Acquisition”) in the fourth quarter of 2014 due to lower than expected operational profit in 2017. Included in the second quarter of 2016 expense was $0.7 million of expense related to the fair value adjustment of the Zhongli Acquisition earn-out during the period due to higher than expected operational profit at Zhongli after the acquisition.

Amortization and earn-out expense (income) was $5.1 million for the first six months of 2017 compared with $9.7 million for the first six months of 2016. The decrease in expense was primarily attributable to earn-out adjustments resulting in income of $1.8 million in the first six months of 2017 for the Zhongli Acquisition due to lower than expected operational profit in 2017. Included in the first six months of 2016 expense was $1.5 million related to the fair value adjustment of the Zhongli Acquisition earn-out during this period due to higher than expected operational profit at Zhongli after the acquisition. The decrease was also partially attributable to decreased amortization expense of $1.9 million period over period due to certain intangible assets becoming fully amortized.

Operating income increased $0.7 mill ion to $9.3 million in the second quarter of 2017 compared with $8.6 million of income during the second quarter of 2016 . The increase is primarily attributable to higher gross profit margins, lower acquisition and integration expenses, and lower amortiza tion and earn-out expenses offset by a decrease in gross profit due to decreased sales during the second quarter of 2017 .

Operating income decreased $3.8 million to $10.6 million in the first six months of 2017 compared with $14.4 million during the first six months of 2016. The decrease is primarily due to increased selling and administrative expenses and decreased gross profit primarily attributable to decreased sales during the first six months of 2017 offset by decreased amortization and earn-out expenses and lower acquisition and integration expenses.

Non-GAAP operating income was $9.4 million for the second quarter of 2017 compared with $13.0 million for the second quarter of 2016. The decrease is primarily due to increased selling and administrative expenses as described above and the impact of a lower volume of sales, which led to a decrease in gross profit. Non-GAAP operating income as a percentage of sales decreased to 10.0% for the second quarter of 2017 from 11.6% for the second quarter of 2016.

Non-GAAP operating income was $19.5 million for the first six months of 2017 compared with $23.9 million for the first six months of 2016. The decrease is primarily due to increased selling and administrative expenses as described above and the impact of a lower volume of sales, which led to a decrease in gross profit. Non-GAAP operating income as a percentage of sales decreased to 10.5% for the first six months of 2017 from 11.1% for the first six months of 2016.

Other income/expense, net was $0.4 million of income in the second quarter of 2017 compared with $0.4 million of expense in the second quarter of 2016. During the second quarter of 2017, the net amount was due to $1.2 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, offset by net foreign currency exchange losses from normal business operations of $0.8 million. During the second quarter of 2016, the net $0.4 million of expense was due primarily to $0.5 million of expense from the impact of the weakening of the Euro on an intercompany loan with a foreign subsidiary, which was offset by net foreign currency exchange gains from normal business operations of $0.1 million.

Other income/expense, net was $0.3 million of income in the first six months of 2017 compared with $0.4 million of income in the first six months of 2016. During the first six months of 2017, the net $0.3 million of income was due to $1.5 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, offset by net foreign currency exchange losses from normal business operations of $1.2 million. During the first six months of 2016, the net $0.4 million of income was due to $0.4 million of income from the effect 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 $0.5 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 $1.6 million in the second quarter of 2017 from $2.0 million in the second quarter of 2016. The decrease is due to debt repayments made throughout 2016 that decreased the amount of outstanding debt in 2017.

Interest expense decreased to $3.4 million in the first six months of 2017 from $4.1 million in the first six months of 2016. The decrease is due to debt repayments made throughout 2016 that decreased the amount of outstanding debt in 2017.

Income tax expense was $2.5 million for the second quarter of 2017 compared with $2.1 million for the same quarter of 2016. The effective income tax rate for the second quarter of 2017 was 31.2% compared with 34.7% for the comparable period of 2016. Income tax expense was $2.0 million for the first six months of 2017 compared with $3.6 million for the same period of 2016. The effective income tax rate for the first six months of 2017 was 26.3% compared with 33.5% for the comparable period of 2016. This rate change for the three and six month periods is due primarily to changes in income before taxes, discrete tax benefits of $0.4 million in the first six months of 2017 related to stock compensation, and a decrease in permanent differences related to non-deductible acquisition and earn-out expenses. 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 Operations.

	Three Months Ended June 30,					Six Months Ended June 30,
(dollars in thousands)	2017		2016			2017		2016
Net Sales (less intra-, inter-segment sales)
Energy Segment	$	37,416	$	52,867		$	78,499	$	100,799
Environmental Segment		37,879		44,211			73,808		83,333
Fluid Handling and Filtration Segment		18,348		15,413			34,164		32,008
Corporate and Other ⁽¹⁾		227		(233	)		50		(707	)
Net sales	$	93,870	$	112,258		$	186,521	$	215,433

⁽¹⁾	Includes adjustment for revenue on intercompany jobs.

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016
Income from Operations
Energy Segment	$	7,528		$	6,367		$	9,141		$	11,563
Environmental Segment		4,777			6,119			9,886			10,865
Fluid Handling and Filtration Segment		4,148			3,200			7,457			6,398
Corporate and Other ⁽²⁾		(6,769	)		(6,618	)		(14,780	)		(13,537	)
Eliminations		(429	)		(507	)		(1,099	)		(921	)
Income from operations	$	9,255		$	8,561		$	10,605		$	14,368

⁽²⁾

Energy Segment

Our Energy Segment net sales decreased $15.5 million to $37.4 million in the second quarter of 2017 compared with $52.9 million in the same period of 2016. The decrease is due primarily to sales volume decreases for our products and services within Europe and Asia primarily due to a decline in the Company’s natural gas turbine exhaust systems related products and services and solid fuel power generation period over period. The decrease is primarily attributable to a temporary weakening of the solid fuel power generation market in China and a temporary weakening in the gas turbine powered market due to over capacity.

Our Energy Segment net sales decreased $22.3 million to $78.5 million in the first six months of 2017 compared with $100.8 million in the same period of 2016. The decrease is due primarily to sales volume decreases for our products and services within Europe and Asia primarily due to a decline in the Company’s natural gas turbine exhaust systems related products and services and solid fuel power generation period over period. The decrease is primarily attributable to a temporary weakening of the solid fuel power generation market in China and a temporary weakening in the gas turbine powered market due to over-capacity.

Operating income for the Energy Segment increased $1.1 million to $7.5 million in the second quarter of 2017 compared with $6.4 million of income in the second quarter of 2016. Operating income in the second quarter 2017 and 2016 included $5.7 million of income and $0.7 million of expense, respectively, related to the fair value adjustment of the Zhongli Acquisition earn-out during these periods due to changes in operational profit from amounts previously forecasted. The decrease in operating income excluding the earn-out adjustment was primarily due to the Energy Segment incurring $1.5 million in warranty expense and $1.8 million in legacy design repairs during the second quarter of 2017, compared to warranty expense of $0.2 million in the second quarter of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The increase in legacy design repairs is primarily attributable to specific issues on certain past projects. The decrease in operating income was also partially attributable to lower gross profit on decreased sales.

Operating income for the Energy Segment decreased $2.4 million to $9.1 million in the first six months of 2017 compared with $11.6 million in operating income in the same period of 2016. Operating income in the first six months of 2017 and 201 6 income included $1.8 million of income and $1.5 million of expense, respectively, related to the fair value adjustment of the Zhongli earn- out during the s e period s . The decrease in operating income excluding the earn-out adjustment was primarily due to the Energy Segment incurring $2 .3 million in warranty expense and $2.0 million in legacy design repairs duri ng the first six months of 2017, compared to warranty expense of $0.2 million during the first six months of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The increase in legacy design repairs is pri marily attributable to specific issues on certain past projects . The decrease in operating income was also partially attributable to lower gross profit on decreased sales.

Environmental Segment

Our Environmental Segment net sales decreased $6.3 million to $37.9 million in the second quarter of 2017 compared with $44.2 million in the same period of 2016. The decrease is due primarily to volume decreases for the Company’s refinery related products and services as well as decreases in volume related to the installation and fabrication of duct work and related equipment period over period. The decrease is primarily attributable to a cyclical deferral of maintenance and capital expenditures by the Company’s customers in refinery related end markets.

Our Environmental Segment net sales decreased $9.5 million to $73.8 million in the first six months of 2017 compared with $83.3 million in the same period of 2016. The decrease is due primarily to volume decreases for the Company’s refinery related products and services as well as decreases in the volume of the Company’s regenerative thermal oxidizers sold period over period. The decrease is primarily attributable to a cyclical deferral of maintenance and capital expenditures by the Company’s customers in refinery related end markets.

Operating income for the Environmental Segment decreased $1.3 million to $4.8 million in the second quarter of 2017 from $6.1 million in the same period of 2016. This decrease was primarily due to the Environmental Segment achieving lower gross profit on decreased sales volumes as well as increases in selling and administrative expenses during the second quarter of 2017.

Operating income for the Environmental Segment decreased $1.0 million to $9.9 million in the first six months of 2017 from $10.9 million in the same period of 2016. This decrease was primarily due to the Environmental Segment achieving lower gross profit on decreased sales volumes as well as increases in selling and administrative expenses during the first six months of 2017.

Fluid Handling and Filtration Segment

Our FHF Segment net sales increased $2.9 million to $18.3 million in the second quarter of 2017 compared with $15.4 million in the same period of 2016. The increase is due to a sales volume increase within the segment period over period, which is primarily attributable to increased international sales and a strengthening of the FHF Segment’s North American Industrial Market in the second quarter of 2017.

Our FHF Segment net sales increased $2.2 million to $34.2 million in the first six months of 2017 compared with $32.0 million in the first six months of 2016. The increase is due to a sales volume increase within the segment period over period, which is primarily attributable to increased international sales and a strengthening of the FHF Segment’s North American Industrial Market in the first six months of 2017.

Operating income for FHF increased $0.9 million to $4.1 million in the second quarter of 2017 compared with $3.2 million in the second quarter of 2016. The increase is due primarily to the sales volume increase described above.

Operating income for FHF increased $1.1 million to $7.5 million in the first six months of 2017 compared with $6.4 million in the same period of 2016. The increase is due primarily to the sales volume increase described above.

Corporate and Other Segment

Operating expense for Corporate and Other Segment increased $0.2 million to $6.8 million in the second quarter of 2017 compared with $6.6 million in the same period of 2016. The increase in the loss period over period is primarily attributable to the recording of a gain of $1.0 million during the second quarter of 2016 related to a life insurance settlement, which decreased the operating loss in the second quarter of 2016. This increase in the loss is offset by decreased incentive compensation expenses of $0.4 million primarily attributable to decreased operating performance and decreased professional services expenses of $0.4 million during the second quarter of 2017.

Operating expense for Corporate and Other Segment increased $1.3 million to $14.8 million in the first s ix months of 2017 compared with a $13.5 million loss in the same period of 2016 . The increase in the loss period over period is primarily attributable to the increase in executive transition expenses of $1.3 million during the first six months 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 June 30, 2017, was $167.9 million compared with $197.0 million as of December 31, 2016. During the second quarter of 2017, the Company removed $9.7 million of orders that were previously disclosed as backlog in prior quarters, which were idle due to inactivity by the customer. 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 (as defined below). 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 June 30, 2017, the Company had working capital of $60.6 million, compared with $66.6 million at December 31, 2016. The ratio of current assets to current liabilities was 1.51 to 1 as compared with a ratio of 1.46 to 1 at December 31, 2016. The $6.0 million decrease in working capital from December 31, 2016 to June 30, 2017 was primarily related to the net effect of decreased cash and cash equivalents ($18.7 million) and a decrease in accounts receivable ($16.9 million), offset by a decrease in billing in excess of costs and estimated earnings on uncompleted contracts ($11.5 million), a decrease in accounts payable and accrued expenses ($14.0 million), an increase in costs and estimated earnings in excess of billings on uncompleted contracts ($2.7 million), and a decrease in the current portion of debt ($1.1 million). During the six months ended June 30, 2017, the Company made a prepayment of $4.3 million on the outstanding balance of the term loan, of which $3.0 million was applied to the long-term portion of the debt balance, which caused a reduction in working capital. Total repayments of term loan debt during the six months ended June 30, 2017 was $7.7 million. The Company has a strategy of aggressively managing working capital, including reduction of the accounts receivable days sales outstanding (DSO), and reduction of inventory levels, without reducing service to its customers.

At June 30, 2017 and December 31, 2016, cash and cash equivalents totaled $27.2 million and $45.8 million, respectively. As of June 30, 2017 and December 31, 2016, $15.0 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 June 30, 2017 and December 31, 2016 :

Credit Agreement

(Table only in thousands)	June 30, 2017			December 31, 2016
Outstanding borrowings under Credit Facility (defined in the paragraph below). Term loan payable in quarterly principal installments of $1.5 million through September 2017, $2.0 million through September 2018, and $2.5 million thereafter with balance due upon maturity in September 2020.
- Term loan	$	117,415		$	125,072
- Unamortized debt discount and debt issuance costs		(2,841	)		(3,175	)
Total outstanding borrowings under Credit Facility		114,574			121,897
Outstanding borrowings (U.S. dollar equivalent) under China Facility		—			1,296
Outstanding borrowings (U.S. dollar equivalent) under Aarding Facility		213			—
Total outstanding borrowings		114,787			123,193
Less: current portion		7,742			8,827
Total debt, less current portion	$	107,045		$	114,366

The Company’s outstanding borrowings in the United States consist of senior secured term loan, senior secured US. 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 June 30, 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 regarding the Company’s outstanding debt.

Total unused credit availability under our existing Credit Facility and other non-U.S. credit facilities and agreements, exclusive of any potential asset base limitations, is as follows:

(dollars in millions)	June 30, 2017			December 31, 2016
Credit Facility, U.S. Dollar revolving loans	$	60.5		$	60.5
Draw down		—			—
Letters of credit open		(20.7	)		(18.0	)
Credit Facility, Multi-currency revolving facilities		19.5			19.5
Draw down		—			—
Netherlands facilities (€13.0 million at June 30, 2017 and December 31, 2016 in U.S. Dollar equivalent)		14.9			13.7
Draw down		(0.2	)		—
Letters of credit open		(4.7	)		(5.3	)
China facility		4.4			4.3
Draw down		—			(1.3	)
Total unused credit availability	$	73.7		$	73.4
Amount available based on borrowing limitations	$	53.7		$	71.1

Overview of Cash Flows and Liquidity

	For the six months ended June 30,
(dollars in thousands)	2017			2016
Net cash provided by operating activities	$	1,675		$	44,070
Net cash used in investing activities		(597	)		(261	)
Net cash used in financing activities		(20,208	)		(20,667	)
Effect of exchange rate changes on cash and cash equivalents		472			(730	)
Net (decrease) increase in cash	$	(18,658	)	$	22,412

For the six months ended June 30, 2017, $1.7 million of cash was provided by operating activities compared with $44.1 million provided by operating activities in the prior-year period. The $42.4 million decrease in cash flow from operating activities was partially due to a decrease in net income of $1.6 million, a decrease in expense of the fair value adjustments to earnout liabilities of $2.8 million, and a decrease in cash flow due to payments of earnouts classified as operating activities of $7.8 million. Additionally, there were unfavorable net working capital items in the first six months of 2017 compared with the same period in 2016. The incremental cash used was comprised of $4.9 million in inventories, $23.0 million in billings in excess of costs and estimated earnings on uncompleted contracts, $2.9 million in costs and estimated earnings in excess of billings on uncompleted contracts, and $4.4 million in accounts payable and accrued expenses. These unfavorable decreases in cash were partially offset by the incremental cash provided from $2.7 million in accounts receivable, and $5.6 million in prepaid expenses and other current assets.

For the six months ended June 30, 2017, net cash used in investing activities was $0.6 million compared with net cash used in investing activities of $0.3 million in the prior-year period. In the current year period, cash used in investing activities was primarily the result of cash used for the acquisitions of property and equipment totaling $0.6 million. In the prior-year period, cash used in investing activities was primarily the result of cash used for additions to property and equipment of $0.6 million offset by the proceeds from sales of property and equipment, including assets held for sale, totaling $0.3 million.

For the six months ended June 30, 2017, net cash used in financing activities was $20.2 million due principally to net term loan repayments of $7.7 million, net payments on revolving credit facilities of $1.1 million, earn-out payments classified as financing activities of $7.4 million, and $5.2 million in dividends paid to common stockholders, which was partially offset by proceeds from the employee stock purchase plan, exercise of stock options and dividend reinvestment plan of $1.2 million. In the prior-year period, net cash used in financing activities was $20.7 million due principally to term loan repayments of $16.2 million, net payments on revolving credit facilities of $9.2 million, earnout payments classified as operating activities of $2.3 million and $4.5 million in dividends paid to common stockholders, which was partially offset by proceeds from sale-leaseback transactions of $11.0 million.

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 the 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 been no significant changes during the three-month and six-month periods ended June 30, 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 fis cal year ended December 31, 2016 and include, but are not limited to: liabilities arising from faulty services or products that could result in significa nt professional or product liability, warranty, or other claims; 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 financia l 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 cyclicality or 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 c ontract delay or cancellation; changes in or developments with respect to any litigation or investigation; failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases, losses on projects ; the potential for fluctuations in prices for manufactured components and raw materials; the substantial amount of debt i ncurred in connection with our acquisitions and our ability to repay or refinance it or incur additional debt in the future; the impac t 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 t o 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 relian ce 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 a nd 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.

QUANTITATIVE 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 June 30, 2017 to hedge against a portion of our interest rate exposure related to debt indexed to LIBOR market rates. See Note 8 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 $114.8 million at June 30, 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 June 30, 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 June 30, 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 financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s 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 Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, 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 Co ntrol 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 June 30, 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.

UNREGISTERED 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

3.1		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on June 12, 2017 (File No. 000-07099)).

10.1		Amendment No. 2 to Amended and Restated Credit Agreement

10.2		Form of Incentive Stock Option Agreement

10.3		Form of Nonqualified Stock Option Agreement

10.4		Form of Restricted Stock Units Agreement for Directors

10.5		Form of Restricted Stock Units Agreement for Employees

10.6		Executive Employment Agreement, dated as of June 10, 2017, between the Company and Dennis Sadlowski (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 12, 2017 (File No. 000-07099)).

10.7		CECO Environmental Corp. 2017 Equity and Incentive Compensation Plan (incorporated herein by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8 filed on May 16, 2017 (Registration No. 333-218030)).

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: August 9, 2017

Exhibit 10.1

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT dated and effective as of June 9, 2017 (this “ Amendment ”), is among CECO ENVIRONMENTAL CORP., a Delaware corporation (the “ Company ”), BANK OF AMERICA, N.A., in its capacity as the administrative agent (in such capacity, the “ Administrative Agent ”), each of the Subsidiary Guarantors party hereto and each of the Lenders party hereto.

Recitals:

A. The Company, the lenders party thereto (the “ Lenders ”) and the Administrative Agent have entered into an Amended and Restated Credit Agreement dated as of September 3, 2015 (as amended by Amendment No. 1 to Amended and Restated Credit Agreement dated as of March 6, 2017, the “ Credit Agreement ”). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

B. The Subsidiary Guarantors and the Administrative Agent have entered into a Subsidiary Guaranty Agreement dated of even date with the Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Subsidiary Guaranty ”).

C. The Company has advised the Administrative Agent and the Lenders that it desires to amend the Credit Agreement, in each case as set forth herein.

D. Subject to the terms and conditions set forth below, the Administrative Agent and the Lenders have agreed to so amend the Credit Agreement.

In furtherance of the foregoing, the parties agree as follows:

Section 1. Amendments to Credit Agreement . Subject to the terms and conditions set forth herein and in reliance upon the representations and warranties set forth herein, the Credit Agreement is hereby amended as follows:

(a) The definitions of “Consolidated EBITDA”, “Consolidated Fixed Charges”, “Consolidated Funded Indebtedness” and “Excess Cash Flow” in Section 1.01 are amended and restated in their entirety to read as follows:

“ Consolidated EBITDA ” means, for any period, for the Company and its Subsidiaries on a consolidated basis, subject to Section 1.07 , an amount equal to Consolidated Net Income for such period plus (a) the following to the extent deducted in calculating such Consolidated Net Income (without duplication): (i) Consolidated Interest Charges for such period, (ii) the provision for Federal, state, local and foreign income taxes by the Company and its Subsidiaries for such period, (iii) depreciation and amortization expense for such period, (iv) ATA Beheer Earn-Outs and any other “earn-out” and similar

expenses in connection with Acquisitions permitted hereby that reduced Consolidated Net Income for such period, (v) any reduction to Consolidated Net Income for such period arising from the retention portion of the purchase price for the acquisition by the Company of ATA Beheer and its subsidiaries; provided that the aggregate amount permitted to be added back pursuant to this clause (v) shall not exceed $300,000 with respect to any particular fiscal quarter, (vi) non-recurring cash expenses; provided that the aggregate amount permitted to be added back pursuant to this clause (vi) shall not exceed $3,000,000 with respect to any particular period of four consecutive fiscal quarters and (vii) other items reducing Consolidated Net Income that do not constitute a cash charge or cash expense in such period or in any future period, including, without limitation, goodwill impairment charges, stock compensation or other stock related charges (excluding amortization of a prepaid cash item that was paid in a prior period), and minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits of the Company and its Subsidiaries for such period and (ii) all non-cash items increasing Consolidated Net Income for such period.

“ Consolidated Fixed Charges ” means, for any period, for the Company and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Interest Charges paid in cash during such period, (b) scheduled principal payments of Consolidated Funded Indebtedness during such period, (c) dividends and distributions paid in cash by the Company to its shareholders during such period, and (d) ATA Beheer Earn-Outs and any other “earn-out” and similar payments in connection with Acquisitions (excluding the Zhongli Earn-Outs) that are paid in cash during such period.

“ Consolidated Funded Indebtedness ” means, as of any date of determination, for the Company and its Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments (excluding from such calculation direct obligations with respect to (i) undrawn performance standby letters of credit, (ii) undrawn performance-based bank guarantees and (iii) performance-based surety bonds on which no claims have been asserted, but in all cases including (x) any payment and reimbursement obligations due in respect of the foregoing and (y) all obligations with respect to financial standby letters of credit and bank guarantees or bonds providing assurance with respect to financial obligations), (d) all obligations in respect of the deferred purchase price of property or services (other than (x) trade accounts payable in the ordinary course of business and (y) “earn-out” and similar payments in connection with Acquisitions permitted hereby), (e) Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations (for the purpose of calculating the Consolidated Leverage Ratio only, excluding any Attributable Indebtedness from capital leases arising from any sale-leaseback transaction permitted hereunder the Net Cash Proceeds of which are used substantially contemporaneously with the receipt thereof to prepay Term Loans hereunder pursuant to Section 2.05(b)(i) ), (f) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above

of Persons other than the Company or any Subsidiary, and (g) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which the Company or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to the Company or such Subsidiary (it being understood that any Indebtedness owed by the Company to any Subsidiary, by any Subsidiary to the Company or by any Subsidiary to another Subsidiary will be netted out for purposes of calculating Consolidated Funded Indebtedness to the extent such netting would be made when making calculations on “a consolidated basis” in accordance with GAAP).

“ Excess Cash Flow ” means, for any fiscal year and without duplication of any of the following to the extent already accounted for in determining Consolidated EBITDA or otherwise deducted in any other item subtracted below, the positive remainder (if any) of (a) Consolidated EBITDA for such fiscal year; minus (b) Consolidated Interest Charges paid in cash during such fiscal year; minus (c) federal, state, local and foreign income taxes (including franchise and similar taxes in the nature of income taxes) paid and payable in cash by the Company and its Subsidiaries for such fiscal year; minus (d) Capital Expenditures of the Company and its Subsidiaries during such fiscal year (excluding the portion thereof financed with the proceeds of debt or equity issuances or other proceeds that would not be included in Consolidated EBITDA); minus (e) the aggregate amount of all scheduled payments of Consolidated Funded Indebtedness made during such fiscal year; minus (f) “earnout” and similar payments paid in cash by Company and its Subsidiaries for such fiscal year in connection with Acquisitions permitted hereby (excluding the portion thereof financed with the proceeds of debt or equity issuances); minus (g) any reasonable, out-of-pocket cash expense of Company and its Subsidiaries incurred in connection with any merger, acquisition, investment or financing permitted by this Agreement, paid during such fiscal year (excluding the portion thereof financed with the proceeds of debt or equity issuances); minus (h) fees and expenses paid or payable in cash to unaffiliated third parties in connection with the transactions contemplated hereby and with any other issuances of debt or equity permitted hereby, whether or not such issuances are successful (excluding the portion thereof financed with the proceeds of debt or equity issuances); minus (i) dividends and distributions paid by the Company during such fiscal year to the extent permitted by Section 7.06(d) ; minus (j) up to $3,000,000 in the aggregate of non-recurring cash expenses added back in determining Consolidated EBITDA for such fiscal year pursuant to clause (a)(vi) of the definition of Consolidated EBITDA and (k) plus or minus , as the case may be, changes in Working Capital for such fiscal year; provided , that, notwithstanding the foregoing, the calculation of Excess Cash Flow during any fiscal year that includes a Permitted Acquisition shall exclude the results of operations of the Person or assets subject to such Permitted Acquisition prior to the date such Permitted Acquisition is consummated.

(b) Section 1.01 is amended by adding the following new definitions in the appropriate alphabetical locations therein:

“ Zhongli Earn-Outs ” means the earn-out payments made pursuant to Sections 4 and 6 of the Framework Agreement of Equity Transfer dated as of November 4, 2014 between: Jiangyin Zhongli Machinery Industrial Co., Ltd., Mr. Juan Shen, Mr. Guoxiang Shen and

Ms. Meijuan Tao, as “Sellers”, and Met-Pro (Hong Kong) Company Limited, as “Purchaser”, as amended, related to the acquisition of all equity interests in Jiangyin Zhongli Industrial Technology Co.

(c) Each of Section 2.05(b)(i) , (ii) and (iii) is amended to replace the reference therein to “clause (iv)” with “clause (v)”.

(d) Section 2.05(b)(v) is amended to read as follows:

(v) Each prepayment of Term Loans pursuant to the foregoing provisions of this Section 2.05(b) shall be applied to the principal repayment installments of the Term Loans on a pro-rata basis (excluding from such calculation, except with respect to prepayments with respect to property Disposed of in sale-leaseback transactions pursuant to Section 7.05(g) , the final payment due at maturity). Subject to Section 2.17 , such prepayments in respect of the Term Loan Facility shall be paid to the Lenders in accordance with their respective Applicable Percentages in respect of the Term Loan Facility. Each prepayment of Additional Term Loans pursuant to the foregoing provisions of this Section 2.05(b) shall be applied to the principal repayment installments of the Additional Term Loans as set forth in the applicable Additional Commitments Amendment (or if not specified therein in the same manner as the Term Loans).

(e) Section 7.01(k) is amended to read as follows:

(k) other Liens securing obligations, which when taken together with the outstanding Indebtedness permitted under Section 7.03(e) and Section 7.03(f) do not exceed $10,000,000 at any time outstanding (excluding from such combined $10,000,000 limitation any obligations in respect of Attributable Indebtedness of the type described in the second proviso to Section 7.03(e) ).

(f) Sections 7.03(e) and (f) are amended to read as follows:

(e) Indebtedness in respect of capital leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i) ; provided , however , that the aggregate amount of all such Indebtedness, at any one time outstanding, when added to the aggregate amount of all outstanding Indebtedness permitted under Section 7.03(f) below, shall not exceed $10,000,000; provided , further , that up to $15,000,000 in the aggregate of Attributable Indebtedness from additional capital leases arising from sale-leaseback transactions may be incurred and carved out of the preceding combined $10,0000,000 limitation to the extent the Net Cash Proceeds therefrom are used substantially contemporaneously with the receipt thereof to prepay Term Loans outstanding hereunder pursuant to Section 2.05(b)(i) ;

(f) Indebtedness incurred in connection with Permitted Acquisitions (including existing Indebtedness of a Person acquired in connection with a Permitted Acquisition provided such Indebtedness was not incurred in anticipation of such Acquisition); provided , however , that the aggregate amount of all such Indebtedness, at any one time outstanding, when added to the aggregate amount of all outstanding Indebtedness permitted

under Section 7.03(e) above (excluding Attributable Indebtedness of the type described in the second proviso of Section 7.03(e) above), shall not exceed $10,000,000;

(g) Section 7.05(g) is amended to read as follows:

(g) Dispositions by the Company and its Subsidiaries not otherwise permitted under this Section 7.05 ; provided that (i) at the time of such Disposition, no Event of Default shall exist or would result from such Disposition and (ii) the aggregate book value of all property Disposed of in reliance on this clause (g) while this Agreement is in effect shall not exceed $35,000,000 (excluding from such limitation the book value of any property that is Disposed of in sale-leaseback transactions to the extent the Net Cash Proceeds therefrom are used substantially contemporaneously with the receipt thereof to prepay Term Loans outstanding hereunder pursuant to Section 2.05(b)(i) );

(h) Section 7.11(b) is amended to read as follows:

(b) Consolidated Leverage Ratio . Permit the Consolidated Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period:


Period	Consolidated Leverage Ratio
Closing Date through June 29, 2016	3.75 to 1.00
June 30, 2016 through December 31, 2016	3.50 to 1.00
January 1, 2017 through March 30, 2019	3.25 to 1.00
March 31, 2019 and thereafter	3.00 to 1.00

(i)

Exhibit D is amended in its entirety such that it reads as Exhibit D attached hereto.

(j) Schedule 1.01C is deleted in its entirety.

The amendments to the Credit Agreement are limited to the extent specifically set forth above and no other terms, covenants or provisions of the Loan Documents are intended to be effected hereby.

Section 2. Conditions Precedent . The effectiveness of this Amendment and the amendments contemplated hereby is subject to the satisfaction of the following conditions precedent:

(a) Documentation . The Administrative Agent shall have received counterparts of this Amendment, duly executed and delivered by the Company, the Subsidiary Guarantors, the Administrative Agent and Lenders constituting Required Lenders.

(b) Fees . Any fees required to be paid on or before the effective date of this Amendment pursuant to the Engagement Letter dated as of May 25, 2017, between the Company and the Arranger (the “ Engagement Letter ”) shall have been paid.

(c) Legal Fees and Expenses . The Company shall have paid all reasonable and documented out-of-pocket fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced at least two days prior to the date hereof.

Upon satisfaction of the conditions set forth in this Section 2 and the effectiveness of this Amendment, the Administrative Agent shall provide notice of such effectiveness to the Company and the Lenders.

Section 3. Representations and Warranties .

(a) In order to induce the Administrative Agent and the Lenders to enter into this Amendment, the Company represents and warrants to the Administrative Agent and the Lenders as follows:

(i) After giving effect to this Amendment, the representations and warranties of the Company and each other Loan Party contained in Article V of the Credit Agreement and in each other Loan Document are true and correct in all material respects on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date, and except that for purposes of this Amendment, the representations and warranties contained in Sections 5.05(a) and (b) of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b) , respectively, of the Credit Agreement.

(ii) Since December 31, 2014, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

(iii) No Default or Event of Default has occurred and is continuing or will exist after giving effect to this Amendment.

(b) In order to induce the Administrative Agent and the Lenders to enter into this Amendment, each of the Company and each Subsidiary Guarantor represents and warrants to the Administrative Agent and the Lenders that this Amendment has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

Section 4. Miscellaneous .

(a) Ratification and Confirmation of Loan Documents . Each of the Company and each Subsidiary Guarantor hereby consents, acknowledges and agrees to the amendments set forth herein and hereby confirms and ratifies in all respects the Loan Documents to which such Person

is a party (including without limitation, with respect to each Subsidiary Guarantor, the continuation of its payment and performance obligations under the Subsidiary Guaranty and, with respect to both the Company and each Subsidiary Guarantor, the continuation and extension of the liens granted under the Collateral Documents to secure the Secured Obligations), in each case after giving effect to the amendments contemplated hereby.

(b) Fees and Expenses . The Company shall pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, negotiation, execution, and delivery of this Amendment and any other documents prepared in connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent, in each case, as set forth in Section 10.04(a) of the Credit Agreement.

(c) Headings . Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

(d) Governing Law; Jurisdiction; Waiver of Jury Trial; Etc . This Amendment shall be governed by and construed in accordance with the laws of the State of New York, and shall be further subject to the provisions of Sections 10.14 and 10.15 of the Credit Agreement.

(e) Counterparts . This Amendment may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or electronic transmission (including .pdf file) shall be effective as delivery of a manually executed counterpart hereof.

(f) Entire Agreement . This Amendment, together with the Engagement Letter and the other Loan Documents (collectively, the “ Relevant Documents ”), sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relating to such subject matter. No promise, condition, representation or warranty, express or implied, not set forth in the Relevant Documents shall bind any party hereto, and no such party has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as otherwise expressly stated in the Relevant Documents, no representations, warranties or commitments, express or implied, have been made by any party to the other in relation to the subject matter hereof or thereof. None of the terms or conditions of this Amendment may be changed, modified, waived or canceled orally or otherwise except in writing in accordance with Section 10.01 of the Credit Agreement.

(g) Enforceability . Should any one or more of the provisions of this Amendment be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto.

(h) Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (subject to Section 10.06 of the Credit Agreement).

[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

The following parties have caused this Amendment to be executed as of the date first written above.

COMPANY:

CECO ENVIRONMENTAL CORP.

By: /s/ Matthew Kurt Eckl

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

SUBSIDIARY GUARANTORS:

AARDING THERMAL ACOUSTICS USA INC.

ADWEST TECHNOLOGIES, INC.

AVC, INC.

CECO ABATEMENT SYSTEMS, INC.

CECO FILTERS, INC.

CECO GROUP, INC.

CECO MEXICO HOLDINGS LLC

CECOAIRE, INC.

EFFOX INC.

FISHER-KLOSTERMAN, INC.

GMD ENVIRONMENTAL TECHNOLOGIES, INC.

MET-PRO TECHNOLOGIES LLC (f/k/a Mustang

Acquisition II, LLC)

NEW BUSCH CO., INC.

THE KIRK & BLUM MANUFACTURING

COMPANY

By: /s/ Matthew Kurt Eckl

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

CECO GROUP GLOBAL HOLDINGS LLC

FKI, LLC

By: /s/ Matthew Kurt Eckl

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

H.M. WHITE, INC.

By: /s/ Matthew Kurt Eckl

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

KBD/TECHNIC, INC.

By: /s/ Matthew Kurt Eckl

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

BIO-REACTION INDUSTRIES INC.

MET-PRO HOLDINGS LLC

MPC INC.

MET-PRO CHEMICAL, INC. (f/k/a Pristine Water Solutions Inc.)

STROBIC AIR CORPORATION

By :_/s/ Matthew Kurt Eckl_________________

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

MET-PRO INDUSTRIAL SERVICES, INC.

By:_ /s/ Matthew Kurt Eckl________________

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

EMTROL LLC

By:_ /s/ Matthew Kurt Eckl ____________

Name: Matthew Kurt Eckl

Title: Chief Financial Officer

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

PEERLESS MFG. CO.

NITRAM ENERGY, INC.

PMC ACQUISITION, INC.

BURGESS-MANNING, INC.

BURMAN MANAGEMENT, INC.

BOS-HATTEN, INC.

By: __/s/ Matthew K. Eckl __________________

Name: _ Matthew K. Eckl ________________

Title:_ Chief Financial Officer____________

SAT TECHNOLOGY, INC.

By: _/s/ Matthew K. Eckl____________________

Name: __ Matthew K. Eckl ____________________

Title:__ Chief Financial Officer _______________

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A. ,

as Administrative Agent

By: /s/ Darleen R DiGrazia

Name: Darleen R DiGrazia

Title: Vice President

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

LENDERS:

BANK OF AMERICA, N.A. , as a Lender

By: /s/ Lauren Bryan

Name: Lauren Bryan

Title: Officer

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

CITIZENS BANK of pennsylvania , as a Lender

By: /s/ Dale R. Carr

Name: Dale R. Carr

Title: Senior Vice President

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

JPMORGAN CHASE BANK, N.A. , as a Lender

By: /s/ Joe Carroll

Name: Joe Carroll

Title: Senior Underwriter

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

FIFTH THIRD BANK, n.a. , as a Lender

By: /s/ John R. Gray

Name: John R. Gray

Title: AVP

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

TD bank, n.a. , as a Lender

By: /s/ Susan Heyward

Name: Susan Heyward

Title: VP

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

PNC BANK, NATIONAL ASSOCIATION , as a Lender

By: /s/ Alex T. Parlin

Name: Alex T. Parlin

Title: Vice President

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

citibank, n.a. , as a Lender

By: /s/ John Torres

Name: John Torres

Title: Senior Vice President

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

ASSOCIATED BANK, NATIONAL ASSOCIATION , as a Lender

By: /s/ William W. Carroll

Name: William W. Carroll

Title: Senior Vice President

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date: __________, _____

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Amended and Restated Credit Agreement, dated as of September 3, 2015 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “ Credit Agreement ”; the terms defined therein being used herein as therein defined), among CECO Environmental Corp., a Delaware corporation (the “ Company ”), certain Subsidiaries of the Company party thereto (each a “ Designated Borrower ” and, together with the Company, the “ Borrowers ” and, each a “ Borrower ”), each Lender from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.

The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the of the Company, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on the behalf of the Company, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

1. The Company has delivered the audited financial statements required by Section 6.01(a) of the Credit Agreement for the fiscal year of the Company ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

1. The Company has delivered the unaudited financial statements required by Section 6.01(b) of the Credit Agreement for the fiscal quarter of the Company ended as of the above date. Such financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

2. The undersigned has reviewed and is familiar with the terms of the Credit Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Company during the accounting period covered by such financial statements.

3. A review of the activities of the Company during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Company performed and observed all its Obligations under the Loan Documents, and

D-1

Form of Compliance Certificate

[select one:]

[to the best knowledge of the undersigned, no Default has occurred and is continuing.]

--or--

[to the best knowledge of the undersigned, the following is a list of each Default that has occurred and is continuing and its nature and status:]

4. The financial covenant analyses and information set forth on Schedules 1 and 2 attached hereto are true and accurate on and as of the date of this Compliance Certificate.

5. Attached on Schedule 3 hereto is a list of all Excluded Subsidiaries as of the date of this certificate and calculations showing compliance with the definition of “Material Subsidiary” and Section 6.12 of the Credit Agreement.

IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of _______________, _____.

COMPANY:

CECO ENVIRONMENTAL CORP.

By:

Name:

Title:

D-2

Form of Compliance Certificate

For the Quarter/Year ended ___________________(“ Statement Date ”)

SCHEDULE 1 ¹
to the Compliance Certificate
($ in 000’s)

I.	Section 7.11(a) – Consolidated Fixed Charge Coverage Ratio.

Consolidated EBITDA for four consecutive fiscal quarters ending on above date (“ Subject Period ”):

Consolidated Net Income for Subject Period:$

Consolidated Interest Charges for Subject Period:$

Provision for income taxes for Subject Period:$

Depreciation and amortization expenses for Subject Period:$

Amortization expenses for Subject Period:$

Other non-cash reductions of Consolidated Net Income for Subject Period:$

ATA Beheer Earn-Outs and any other “earn-out” and similar expenses:$

Retention portion of the purchase price for the acquisition by the Company of ATA Beheer and its subsidiaries (not to exceed $300,000 with respect to any fiscal quarter)$

Other non-recurring cash expenses (not to exceed $3,000,000 with respect to any Subject Period):$

10.

Income tax credits for Subject Period: $

11.

Non-cash additions to Consolidated Net Income for Subject Period:$

12.

Consolidated EBITDA (Lines I.A.1 + 2 + 3 + 4 + 5 +

6 + 7 + 8 + 9 – 10 – 11):$

Capital Expenditures during Subject Period ² :$

Income taxes paid during Subject Period:$

Consolidated Fixed Charges for Subject Period:

¹	The following is a summary of the Credit Agreement and to the extent any conflict exists between the following and the Credit Agreement, the Credit Agreement shall control.

Excluding (A) Capital Expenditures constituting payments in respect of capital leases and Capital Expenditures financed by Indebtedness permitted under the Credit Agreement, (B) amounts expended as consideration for Acquisitions permitted under the Credit Agreement to the extent such amounts would otherwise be included as Capital Expenditures and (C) Capital Expenditures paid for with proceeds of casualty insurance as evidenced in writing and submitted to the Administrative Agent together with any Compliance Certificate delivered pursuant to Section 6.02(a) of the Credit Agreement.

D-3

Form of Compliance Certificate

1. Consolidated Interest Charges paid in cash during Subject Period: $______________

2. Scheduled principal payments of Consolidated Funded Indebtedness during Subject Period:$______________

3. Dividends and distributions paid in cash by Company to its shareholders during Subject Period:$______________

4.ATA Beheer Earn-Outs and any other “earn-out” and similar payments (excluding the Zhongli Earn-Outs) during Subject Period:$______________

5. Consolidated Fixed Charges for Subject Period

(Lines I.D.1 + 2 + 3 + 4):$______________

Consolidated Fixed Charge Coverage Ratio ((Line I.A.12 – Line I.B – Line I.C) ÷ Line I.D.5): to 1.00


Minimum permitted:	1.25 to 1.00

D-4

Form of Compliance Certificate

II.	Section 7.11 (b) – Consolidated Leverage Ratio.

Consolidated Funded Indebtedness at Statement Date:

1. Outstanding principal amount of all obligations for borrowed money:$______________

2.Purchase money Indebtedness:$______________

3.Direct obligations arising under letters of credit, bankers’ acceptances, bank guaranties, surety bonds and similar instruments:$______________

4.Obligations in respect of the deferred purchase price of property or services:$______________

5.Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations ³ :$______________

6.Guarantees with respect to outstanding Indebtedness of the types specified in Lines II.A.1 through II.A.5 above of Persons other than the Company or any Subsidiary:$______________

7.Indebtedness of the types referred to in Lines II.A.1 through II.A.6 above of any partnership or joint venture in which the Company or a Subsidiary is a general partner or joint venturer (unless non-recourse):$______________

8.Consolidated Funded Indebtedness (Lines II.A.1 + 2 + 3 + 4 + 5 + 6 + 7):$______________

Consolidated EBITDA for Subject Period (enter Line I.A.12 above): $

Consolidated Leverage Ratio (Line II.A.8 ÷ Line II.B): to 1.00

Maximum Permitted:


Period	Consolidated Leverage Ratio
Closing Date through June 29, 2016	3.75 to 1.00
June 30, 2016 through December 31, 2016	3.50 to 1.00
January 1, 2017 through March 30, 2019	3.25 to 1.00
March 31, 2019 and thereafter	3.00 to 1.00

For the purpose of calculating this covenant only, may exclude any Attributable Indebtedness from capital leases arising from any sale-leaseback transaction permitted under the Credit Agreement the Net Cash Proceeds of which were used substantially contemporaneously with the receipt thereof to prepay Term Loans hereunder pursuant to Section 2.05(b)(i) of the Credit Agreement).

D-5

Form of Compliance Certificate

For the Quarter/Year ended ___________________(“ Statement Date ”)

SCHEDULE 2 ⁴

to the Compliance Certificate

($ in 000’s)

Consolidated EBITDA

(in accordance with the definition of Consolidated EBITDA

as set forth in the Credit Agreement)


Consolidated EBITDA	Quarter Ended __________	Quarter Ended __________	Quarter Ended __________	Quarter Ended __________	Twelve Months Ended __________
Consolidated Net Income
+ Consolidated Interest Charges
+ income taxes
+ depreciation and amortization expense
+ Other non-cash expenses
+ ATA Beheer Earn-Outs and any other “earn-out” and similar payments
+ retention portion of purchase price for acquisition by the Company of ATA Beheer and its subsidiaries (subject to cap)
+ Other nonrecurring cash expenses (subject to cap)
- income tax credits
- non-cash income
= Consolidated EBITDA

⁴	The following is a summary of the Credit Agreement and to the extent any conflict exists between the following and the Credit Agreement, the Credit Agreement shall control.

D-6

Form of Compliance Certificate

For the Quarter/Year ended ___________________ (“ Statement Date ”)

SCHEDULE 3 ⁵
to the Compliance Certificate
($ in 000’s)

List of Excluded Subsidiaries ⁶


Subsidiary	Assets of Subsidiary	Consolidated Total Assets of Company and its Subsidiaries	% of Consolidated Assets	Revenue of Subsidiary	Consolidated Total Revenue of the Company and its Subsidiaries	% of Consolidated Revenue

⁵	The following is a summary of the Credit Agreement and to the extent any conflict exists between the following and the Credit Agreement, the Credit Agreement shall control.

⁶

For the calculations of assets and revenues, (a) revenues shall be calculated giving effect to any pro forma adjustments with respect to any Specified Transaction in a manner consistent with the adjustments described in Section 1.07 of the Credit Agreement and (b) the assets and revenues of a Subsidiary shall be deemed to include the assets and revenues of its Subsidiaries.

D-7

Form of Compliance Certificate

Exhibit 10.2

CECO ENVIRONMENTAL CORP.

Incentive Stock Option Agreement

THIS INCENTIVE STOCK OPTION AGREEMENT (this “ Agreement ”) is made as of _________, 201_ by and between CECO Environmental Corp., a Delaware corporation (the “ Company ”), and ___________ (“ Optionee ”).

1. Certain Definitions . Capitalized terms used, but not otherwise defined, in this Agreement shall have the meanings given to such terms in the CECO Environmental Corp. 2017 Equity and Incentive Compensation Plan (the “ Plan ”).

2. Grant of Option . Subject to and upon the terms, conditions and restrictions set forth in this Agreement and in the Plan, pursuant to authorization under resolutions of the Committee, the Company has granted to Optionee as of _________, 20__ (the “ Date of Grant ”) an Option Right to purchase ________ shares of Common Stock (the “ Option ”) at an Option Price of $____ per share of Common Stock, which represents at least the Market Value per Share on the Date of Grant. Except to the extent of the $100,000 limitation set forth in Section 422(d) of the Code, the Option is an Incentive Stock Option.

3. Duration and Exercisability .

a. Vesting/Exercise Period . The Option shall become exercisable in substantially equal installments on each of the first ____ anniversaries of the Date of Grant if Optionee remains in the continuous employment of the Company or a Subsidiary until each such date (the period from the Date of Grant until the last such anniversary of the Date of Grant, the “ Vesting Period ”). Subject to the terms of the Plan, any portion of the Option that does not so become exercisable will be forfeited, including if Optionee ceases to be continuously employed by the Company or a Subsidiary prior to the end of the Vesting Period. For purposes of this Agreement, “continuously employed” (or substantially similar terms) means the absence of any interruption or termination of Optionee’s employment with the Company or a Subsidiary. Continuous employment shall not be considered interrupted or terminated in the case of transfers between locations of the Company and its Subsidiaries.

b. Expiration . The Option shall expire on the tenth anniversary of the Date of Grant (“ Expiration Date ”) and must be exercised, if at all, before the earlier of the Expiration Date and any date on which the Option terminates in accordance with the provisions of Section 4 .

c. Lapse Upon Expiration . To the extent that this Option is not exercised prior to the applicable expiration date set forth in Section 3(b) or Section 4 of this Agreement, all rights of Optionee under this Option shall thereupon be forfeited.

4. Termination of the Option .

a. Termination for Any Reason Other than Death or Disability . If Optionee is Terminated for any reason other than Optionee’s death or Disability (as defined below), the Option shall be exercisable only to the extent the Option was exercisable on the date of Termination, but

had not previously been exercised, and shall expire on the earlier of (i) the close of business three months after the Termination Date (as hereafter defined) and (ii) the Expiration Date. Notwithstanding the foregoing, if Optionee has a Termination for Misconduct, then the Option shall terminate immediately on Optionee’s Termination Date.

b. Termination Because of Death or Disability . If Optionee is Terminated because of Optionee’s death or Disability, then this Option shall be exercisable by Optionee, or the person or persons to whom Optionee’s rights under this Option shall have passed by Optionee’s will or by the laws of descent and distribution, only to the extent the Option was exercisable on the date of Optionee’s Termination, but had not previously been exercised, and shall expire on the earlier of: (i) the close of business six months after Optionee’s Termination Date and (ii) the Expiration Date.

c. Definitions .

“ Disability ” (or similar terms) means a circumstance in which Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

“ Termination ” or “ Terminated ” means that Optionee has for any reason ceased to provide services as an employee of the Company or Subsidiary, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether Optionee has ceased to provide services and the effective date on which Optionee ceased to provide services (the “ Termination Date ”).

“ Termination for Misconduct ” means the termination of Optionee’s employment with the Company or a Subsidiary for gross negligence, commission of a felony or material violation of any established Company policies.

5. Manner of Exercise .

a. General . The Option may be exercised only by Optionee (or other proper party in the event of death or Disability), subject to the conditions of the Plan and this Agreement, and subject to such other administrative rules as the Committee deems advisable, by delivering written notice of exercise to the Company at its principal office. The notice shall state the portion of the Option exercised and shall be accompanied by payment in full of the Option Price for the portion of the Option exercised pursuant to the notice. Any exercise of the Option shall be effective upon receipt of such notice by the Company together with payment that complies with the terms of the Plan and this Agreement. The Option may be exercised with respect to any number or all of the shares as to which it can then be exercised and, if partially exercised, may be so exercised as to the unexercised shares at any time and from time to time prior to expiration of the Option as provided in this Agreement.

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b. Form of Payment . Payment of the Option Price by Optionee shall be (i) in the form of cash, personal check or certified check, (ii) through a net exercise method as described in the Plan, or (iii) where permitted by law and provided that a public market for the Company’s stock exists: (A) through a “same day sale” commitment from Optionee and a broker-dealer that is a member of the Financial Industry Regulatory Authority (a “ FINRA Dealer ”) whereby Optionee irrevocably elects to exercise the Option and to sell a portion of the Common Stock so purchased to pay for the exercise price and whereby the FINRA Dealer irrevocably commits upon receipt of such Common Stock to forward the exercise price directly to the Company; or (B) through a “margin” commitment from Optionee and a FINRA Dealer whereby Optionee irrevocably elects to exercise the Option and to pledge the Common Stock so purchased to the FINRA Dealer in a margin account as security for a loan from the FINRA Dealer in the amount of the exercise price, and whereby the FINRA Dealer irrevocably commits upon receipt of such Common Stock to forward the exercise price directly to the Company. Optionee shall be solely responsible for any income or other tax consequences from any payment for Common Stock with Optionee’s Common Stock.

c. Stock Transfer Records . Provided that the notice of exercise and payment are in form and substance satisfactory to counsel for the Company, as soon as practicable after the effective exercise of all or any part of the Option, Optionee shall be recorded on the stock transfer books of the Company as the owner of the Common Stock purchased, and the Company shall deliver to Optionee, or to the FINRA Dealer, as the case may be, book entry ownership or one or more duly issued stock certificates evidencing such ownership. All requisite original issue or transfer documentary stamp taxes shall be paid by the Company. Optionee shall pay all other costs of the Company incurred to issue such Common Stock to such FINRA Dealer.

Shares of Common Stock purchased pursuant to exercise hereunder: (i) may be deposited with a FINRA Dealer designated by Optionee, in street name, if so provided in such exercise notice accompanied by all applications and forms reasonably required by the Committee to effect such deposit, or (ii) may be issued to Optionee and such other person, as joint owners with the right of survivorship, as is specifically described in such exercise notice. Optionee shall be solely responsible for any income or other tax consequences of such a designation of ownership hereunder (or the severance thereof).

6. Miscellaneous .

a. Employment Rights as Shareholder . This Agreement shall not confer on Optionee any right with respect to continuance of employment by the Company or any Subsidiary, nor shall it affect the right of the Company to Terminate such employment. Optionee shall have no rights as a shareholder with respect to the shares of Common Stock subject to this Option until such shares of Common Stock are issued to Optionee upon the exercise of this Option. No adjustment shall be made for dividends (ordinary or extra-ordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date the applicable shares of Common Stock are issued, except as provided in Section 11 of the Plan.

b. Securities Law Compliance . The exercise of the Option and the issuance and transfer of shares of Common Stock shall be subject to compliance by the Company and

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Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Stock may be listed at the time of such issuance or transfer. The Company shall not be required to sell or issue any shares of Common Stock if such issuance would constitute a violation of any provision of any law or regulation of any governmental authority.

c. Adjustments . The number of shares of Common Stock issuable subject to the Option and the other terms and conditions of the grant evidenced by this Agreement are subject to adjustment as provided in Section 11 of the Plan.

d. Withholding Taxes . In the event of a disqualifying disposition of the Common Stock acquired through the exercise of this Option, Optionee hereby agrees to promptly provide the Company written notice of such disposition, which notice shall be deemed delivered when received by the Company. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made to or benefit realized by Optionee or other person under the Option, Optionee agrees that the Company will withhold any taxes required to be withheld by the Company under federal, state, local or foreign law as a result of such payment or benefit in an amount sufficient to satisfy the minimum statutory withholding amount permissible. To the extent that the amounts available to the Company for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that Optionee or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld. The shares so retained shall be credited against any such withholding requirement at the market value of such Common Stock on the date of such delivery. In no event will the market value of the Common Stock to be withheld and/or delivered pursuant to this Section 6(d) to satisfy applicable withholding taxes or other amounts exceed the maximum amount of taxes or other amounts that could be required to be withheld. For the purpose of this Section 6(d) , a “ disqualifying disposition ” means a sale or other transfer of any shares of Common Stock on or before the later of (i) the date two (2) years after the Date of Grant and (ii) the date one (1) year after transfer of such shares of Common Stock to Optionee upon exercise of the Option, as more particularly set forth in Section 422(a)(1) of the Code

e. Nontransferability . The Option may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Option shall be binding upon the executors, administrators, successors and assigns of Optionee.

f. Section 422(d) Limitation . Pursuant to Section 422(d) of the Code, the aggregate fair market value (determined as of the Date of Grant) of shares of Common Stock with respect to which the Option (as an Incentive Stock Option) first becomes exercisable by Optionee in any calendar year under the Plan or any other plan of the Company (and its parent and subsidiary corporations, within the meaning of Sections 424(e) and (f) of the Code, as may exist from time to time) may not exceed $100,000 or such other amount as may be permitted from time to time under Section 422 of the Code. To the extent that such aggregate fair market value exceeds $100,000 or other applicable amount in any calendar year, such Option will be treated as a nonstatutory stock option with respect to the amount of aggregate fair market value thereof that exceeds the limit

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under Section 422(d) of the Code. For this purpose, the Incentive Stock Options will be taken into account in the order in which they were granted. In such case, the Company may designate the shares of Common Stock that are to be treated as stock acquired pursuant to the exercise of the Option and the shares of Common Stock that are to be treated as stock acquired pursuant to nonstatutory stock options by issuing separate certificates for such shares and identifying the certificates as such in the stock transfer records of the Company.

g. Significant Stockholders . Notwithstanding anything in this Agreement to the contrary, if Optionee owns, directly or indirectly through attribution, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its subsidiaries (within the meaning of Section 424(f) of the Code) on the Date of Grant, then the Option Price is the greater of (a) the Option Price set forth in Section 2 or (b) 110% of the Market Value per Share of the Common Stock on the Date of Grant, and the Expiration Date is the last business day prior to the fifth anniversary of the Date of Grant.

h. Relation to Plan . The Option evidenced by this Agreement is granted pursuant to the Plan, a copy of which Plan has been made available to Optionee and is hereby incorporated into this Agreement. This Agreement shall be subject to and in all respects limited and conditioned as provided in the Plan. The Plan governs this Option and, in the event of any questions as to the construction of this Agreement or in the event of a conflict between the Plan and this Agreement, the Plan shall govern, except as the Plan otherwise provides. Notwithstanding anything in this Agreement to the contrary, Optionee acknowledges and agrees that this Agreement and the award 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 Exchange Act and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the Common Stock may be traded).

i. Stock Legend . The Committee may require that the certificates for any Common Stock purchased by Optionee (or, in the case of death, Optionee’s successors) bear an appropriate legend to reflect the restrictions of applicable law.

j. Interpretation . The Committee shall have the sole discretion to interpret and administer the Plan and this Agreement. Any determination made by the Committee with respect to the Option shall be final and binding on the Company and on all persons having an interest in the Option granted under this Agreement and the Plan.

k. Entire Agreement . The Plan, as amended, is incorporated herein by reference. This Agreement and the Plan constitute the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior understandings and agreements with respect to such subject matter.

l. Successors and Assigns . The Company may assign any of its rights under the Option. The Option shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, the Option shall be binding

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upon Optionee and Optionee’s heirs, executors, administrators, legal representatives, successors and assigns.

m. Governing Law . The Option shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to that body of law pertaining to choice of law or conflict of law.

n. No Right to Future Awards . The Option award is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a commitment to make any future awards. The Option award and any related payments made to Optionee will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law.

o. Relation to Other Benefits . Any economic or other benefit to Optionee under this Agreement or the Plan shall not be taken into account in determining any benefits to which Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its Subsidiaries.

p. Amendments . Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided , however , that no amendment shall adversely affect Optionee’s rights with respect to the Option without Optionee’s consent, and Optionee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with Section 10D of the Exchange Act.

q. Severability . In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

r. Electronic Delivery . The Company may, in its sole discretion, deliver any documents related to the Option and Optionee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request Optionee’s consent to participate in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

s. Acknowledgement . Optionee acknowledges that Optionee (i) has had an opportunity to review the terms of this Agreement and the Plan, (ii) understands the terms and conditions of this Agreement and the Plan and (iii) agrees to such terms and conditions.

t. Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.

CECO Environmental Corp. OPTIONEE

______________________________ ______________________________

By: [Signature]

Its: Option Date:

Options Granted:

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Exhibit 10.3

CECO ENVIRONMENTAL CORP.

Nonqualified Stock Option Agreement

This NONQUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) is made as of __________, 201_, by and between CECO Environmental Corp., a Delaware corporation (the “ Company ”), and _________________ (“ Optionee ”).

1. Certain Definitions . Capitalized terms used, but not otherwise defined, in this Agreement will have the meanings given to such terms in the CECO Environmental Corp. 2017 Equity and Incentive Compensation Plan (the “ Plan ”).

2. Grant of Option . Subject to and upon the terms, conditions and restrictions set forth in this Agreement and in the Plan, pursuant to authorization under resolutions of the Committee, the Company has granted to Optionee as of __________, 20__ (the “ Date of Grant ”) an Option Right to purchase __________ shares of Common Stock (the “ Option ”) at an Option Price of $_____ per share of Common Stock, which represents at least the Market Value per Share on the Date of Grant (the “ Option Exercise Price ”). The Option is not an Incentive Stock Option.

3. Vesting of Option . The Option (unless terminated as hereinafter provided) shall be exercisable in substantially equal installments on each of the first _______ anniversaries of the Date of Grant if Optionee remains in the continuous employment of the Company or a Subsidiary until each such date (the period from the Date of Grant until the last such anniversary of the Date of Grant, the “ Vesting Period ”). For purposes of this Agreement, “continuously employed” (or substantially similar terms) means the absence of any interruption or termination of Optionee’s employment with the Company or a Subsidiary. Continuous employment shall not be considered interrupted or terminated in the case of transfers between locations of the Company and its Subsidiaries.

4. Termination of the Option . The Option shall terminate on the earliest of the following dates:

(a) Three months after Optionee’s termination of employment, unless such termination of employment (i) is a result of Optionee’s death or Disability as described in Section 4(b) or 4(c) or (ii) is a result of a Termination for Misconduct;

(b) Six months after Optionee’s death if such death occurs while Optionee is employed by the Company or any Subsidiary;

(d) The date of Optionee’s termination of employment by the Company or any Subsidiary as a result of a Termination for Misconduct; or

(e) Ten (10) years from the Date of Grant.

5. Exercise and Payment of Option .

(a) General . To the extent exercisable, the Option may be exercised in whole or in part from time to time and will be settled in Common Stock by Optionee giving written notice to the Company at its principal office specifying the number of shares of Common Stock for which the Option is to be exercised and paying the aggregate Option Exercise Price for such Common Stock.

(b) Form of Payment . Payment of the Option Exercise Price by Optionee shall be (i) in the form of cash, personal check or certified check, (ii) through a net exercise method as described in the Plan, or (iii) where permitted by law and provided that a public market for the Company’s stock exists: (A) through a “same day sale” commitment from Optionee and a broker-dealer that is a member of the Financial Industry Regulatory Authority, Inc. (a “ FINRA Dealer ”) whereby Optionee irrevocably elects to exercise the Option and to sell a portion of the shares of Common Stock so purchased to pay for the exercise price, and whereby the FINRA Dealer irrevocably commits upon receipt of such shares of Common Stock to forward the exercise price directly to the Company; or (B) through a “margin” commitment from Optionee and a FINRA Dealer whereby Optionee irrevocably elects to exercise the Option and to pledge the shares of Common Stock so purchased to the FINRA Dealer in a margin account as security for a loan from the FINRA Dealer in the amount of the exercise price, and whereby the FINRA Dealer irrevocably commits upon receipt of such shares of Common Stock to forward the exercise price directly to the Company. Optionee shall be solely responsible for any income or other tax consequences from any payment for shares of Common Stock with Optionee’s Common Stock.

(c) Stock Transfer Records . Provided that the notice of exercise and payment are in form and substance satisfactory to counsel for the Company, as soon as practicable after the effective exercise of all or any part of the Option, Optionee shall be recorded on the stock transfer books of the Company as the owner of the Common Stock purchased, and the Company shall deliver to Optionee, or to the FINRA Dealer, as the case may be, book entry ownership or one or more duly issued stock certificates evidencing such ownership. All requisite original issue or transfer documentary stamp taxes shall be paid by the Company. Optionee shall pay all other costs of the Company incurred to issue such Common Stock to such FINRA Dealer. Shares of Common Stock purchased pursuant to exercise hereunder: (i) may be deposited with a FINRA Dealer designated by Optionee, in street name, if so provided in such exercise notice accompanied by all applications and forms reasonably required by the Committee to effect such deposit, or (ii) may be issued to Optionee and such other person, as joint owners with the right of survivorship, as is specifically described in such exercise notice. Optionee shall be solely responsible for any income or other tax consequences of such a designation of ownership hereunder (or the severance thereof).

6. Transferability, Binding Effect . Subject to Section 15 of the Plan, the Option is not transferable by Optionee otherwise than by will or the laws of descent and distribution, and in no event shall this award be transferred for value.

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7. Definitions .

(a) “ Disability ” (or similar terms) shall mean a circumstance in which Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

(b) “ Termination for Misconduct ” shall mean the termination of Optionee’s employment with the Company or a Subsidiary for gross negligence, commission of a felony or material violation of any established Company policies.

8. No Dividend Equivalents . Optionee shall not be entitled to dividend equivalents with respect to the Option or the Common Stock underlying the Option.

9. Adjustments . The number of shares of Common Stock issuable subject to the Option and the other terms and conditions of the grant evidenced by this Agreement are subject to mandatory adjustment, including as provided in Section 11 of the Plan.

10. Withholding Taxes . To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made to or benefit realized by Optionee or other person under the Option, Optionee agrees that the Company will withhold any taxes required to be withheld by the Company under federal, state, local or foreign law as a result of such payment or benefit in an amount sufficient to satisfy the minimum statutory withholding amount permissible. To the extent that the amounts available to the Company for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that Optionee or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld. The shares so retained shall be credited against any such withholding requirement at the market value of such Common Stock on the date of such delivery. In no event will the market value of the Common Stock to be withheld and/or delivered pursuant to this Section 10 to satisfy applicable withholding taxes or other amounts exceed the maximum amount of taxes that could be required to be withheld.

11. Compliance with Law . The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided , however , notwithstanding any other provision of the Plan and this Agreement, the Company shall not be obligated to issue any Common Stock pursuant to this Agreement if the issuance thereof would result in a violation of any such law. The Option shall not be exercisable if such exercise would involve a violation of any law.

12. No Right to Future Awards or Employment . The Option award is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a commitment to make any future awards. The Option award and any related payments made to Optionee will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing contained herein will confer upon Optionee any right with respect to continuance of employment or other service with the

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Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate Optionee’s employment or other service at any time.

13. Relation to Other Benefits . Any economic or other benefit to Optionee under this Agreement or the Plan shall not be taken into account in determining any benefits to which Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its Subsidiaries.

14. Amendments . Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided , however , that no amendment shall adversely affect Optionee’s rights with respect to the options without Optionee’s consent and Optionee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with Section 10D of the Exchange Act.

15. Severability . In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

16. Relation to Plan . The Option granted under this Agreement and all of the terms and conditions hereof are subject to all of the terms and conditions of the Plan. In the event of any inconsistency between this Agreement and the Plan, the terms of the Plan will govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to determine any questions which arise in connection with this Agreement. Notwithstanding anything in this Agreement to the contrary, Optionee acknowledges and agrees that this Agreement and the award 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 Exchange Act and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the Common Stock may be traded).

17. Electronic Delivery . The Company may, in its sole discretion, deliver any documents related to the Option and Optionee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request Optionee’s consent to participate in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

18. Governing Law . This Agreement shall be governed by and construed with the internal substantive laws of the State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.

19. Successors and Assigns . Without limiting Section 6 hereof, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators,

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heirs, legal representatives and assigns of Optionee, and the successors and assigns of the Company.

20. Acknowledgement . Optionee acknowledges that Optionee (a) has received a copy of the Plan, (b) has had an opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and the Plan and (d) agrees to such terms and conditions.

21. Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement.

[SIGNATURES ON FOLLOWING PAGE]

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CECO ENVIRONMENTAL CORP.

By:

Name:
Title:

Optionee Acknowledgment and Acceptance

By:

Name:

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Exhibit 10.4

CECO ENVIRONMENTAL CORP.

Restricted Stock Units Agreement

This RESTRICTED STOCK UNITS AGREEMENT (this “ Agreement ”) is made as of _________, 201_, by and between CECO Environmental Corp., a Delaware corporation (the “ Company ”), and ___________ (the “ Grantee ”).

2. Grant of RSUs . Subject to and upon the terms, conditions and restrictions set forth in this Agreement and in the Plan, pursuant to authorization under resolutions of the Committee, the Company has granted to the Grantee as of _________, 201_ (the “ Date of Grant ”) ______ Restricted Stock Units (“ RSUs ”). Each RSU shall represent the right of the Grantee to receive one share of Common Stock subject to and upon the terms and conditions of this Agreement.

3. Restrictions on Transfer of RSUs . Subject to Section 15 of the Plan, neither the RSUs evidenced hereby nor any interest therein or in the Common Stock underlying such RSUs shall be transferable prior to payment to the Grantee pursuant to Section 5 hereof other than by will or pursuant to the laws of descent and distribution.

4. Vesting of RSUs . The RSUs covered by this Agreement shall become nonforfeitable and payable to the Grantee pursuant to Section 5 hereof on the first anniversary of the Date of Grant if the Grantee remains a member of the Board until such date (the period from the Date of Grant until the first anniversary of the Date of Grant, the “ Vesting Period ”). Subject to the terms of the Plan, any RSUs that do not so become nonforfeitable will be forfeited, including if the Grantee ceases to serve on the Board prior to the end of the Vesting Period.

5. Form and Time of Payment of RSUs .

(a)

Payment for the RSUs, after and to the extent they have become nonforfeitable, shall be made in the form of Common Stock. Payment shall be made as soon as administratively practicable following (but no later than thirty (30) days following) the date that the RSUs become nonforfeitable pursuant to Section 4 hereof.

(b)

The Company’s obligations to the Grantee with respect to the RSUs will be satisfied in full upon the issuance of Common Stock corresponding to such RSUs.

6. Dividend Equivalents; Voting and Other Rights .

(a)

The Grantee shall have no rights of ownership in the Common Stock underlying the RSUs and no right to vote the Common Stock underlying the RSUs until the date on which the Common Stock underlying the RSUs is issued or transferred to the Grantee pursuant to Section 5 above.

(b)

From and after the Date of Grant and until the earlier of (i) the time when the RSUs become nonforfeitable and are paid in accordance with Section 5 hereof or (ii) the time when the Grantee’s right to receive Common Stock in payment of the RSUs is forfeited in accordance with Section 4 hereof, on the date that the Company pays a cash dividend (if any) to holders of Common Stock generally, the Grantee shall be credited with cash per RSU equal to the amount of such dividend. Any amounts credited pursuant to the immediately preceding sentence shall be subject to the same applicable terms and conditions (including vesting, payment and forfeitability) as apply to the RSUs based on which the dividend equivalents were credited, and such amounts shall be paid in cash at the same time as the RSUs to which they relate.

(c)

The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured promise of the Company to deliver Common Stock in the future, and the rights of the Grantee will be no greater than that of an unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under this Agreement.

7. Adjustments . The RSUs and the number of shares of Common Stock issuable for each RSU, and the other terms and conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in Section 11 of the Plan.

8. Taxes . The Grantee will be solely responsible for the payment of all taxes that arise with respect to the granting and payment of the RSUs, including the payment of any shares of Common Stock.

9. Compliance With Law . The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided , however , notwithstanding any other provision of the Plan and this Agreement, the Company shall not be obligated to issue any Common Stock pursuant to this Agreement if the issuance thereof would result in a violation of any such law.

10. Compliance With or Exemption From Section 409A of the Code . To the extent applicable, it is intended that this Agreement and the Plan comply with or be exempt from the provisions of Section 409A of the Code. This Agreement and the Plan shall be administered in a manner consistent with this intent, and any provision that would cause this Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force or effect until amended to comply with or be exempt from Section 409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by the Company without the consent of the Grantee).

11. Interpretation . Any reference in this Agreement to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

12. No Right to Future Awards or Board Membership . The grant of the RSUs under this Agreement to the Grantee is a voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards. Nothing contained in this Agreement shall confer upon the Grantee any right to continued service as a member of the Board.

13. Amendments . Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided , however , that (a) no amendment shall adversely affect the rights of the Grantee under this Agreement without the Grantee’s written consent, and (b) the Grantee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with Section 409A of the Code.

14. Severability . In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

15. Relation to Plan . This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to determine any questions which arise in connection with this Agreement.

16. Electronic Delivery . The Company may, in its sole discretion, deliver any documents related to the RSUs and the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

17. Governing Law . This Agreement shall be governed by and construed with the internal substantive laws of the State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.

18. Successors and Assigns . Without limiting Section 3 hereof, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors and assigns of the Company.

19. Acknowledgement . The Grantee acknowledges that the Grantee (a) has received a copy of the Plan, (b) has had an opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and the Plan and (d) agrees to such terms and conditions.

20. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement.

[SIGNATURES ON FOLLOWING PAGE]

CECO ENVIRONMENTAL CORP.

By:

Name:
Title:

Grantee Acknowledgment and Acceptance

By:

Name:

~~NAI-~~ ~~1502692821v3~~ 5

Exhibit 10.5

CECO ENVIRONMENTAL CORP.

Restricted Stock Units Agreement

2. Grant of RSUs . Subject to and upon the terms, conditions and restrictions set forth in this Agreement, including any additional terms and conditions for the Grantee’s country (for Grantees outside the United States only) set forth in any attached Appendix that would form part of this Agreement, and in the Plan, pursuant to authorization under resolutions of the Committee, the Company has granted to the Grantee as of _________, 201_ (the “ Date of Grant ”) ______ Restricted Stock Units (“ RSUs ”). Each RSU shall represent the right of the Grantee to receive one share of Common Stock subject to and upon the terms and conditions of this Agreement.

4. Vesting of RSUs . The RSUs covered by this Agreement shall become nonforfeitable and payable to the Grantee pursuant to Section 5 hereof in substantially equal installments on each of the first ______ anniversaries of the Date of Grant if the Grantee remains in the continuous employment of the Company or a Subsidiary until each such date (the period from the Date of Grant until the last such anniversary of the Date of Grant, the “ Vesting Period ”). Subject to the terms of the Plan, any RSUs that do not so become nonforfeitable will be forfeited, including if the Grantee ceases to be continuously employed by the Company or a Subsidiary prior to the end of the Vesting Period. For purposes of this Agreement, “continuously employed” (or substantially similar terms) means the absence of any interruption or termination of the Grantee’s employment with the Company or a Subsidiary. Continuous employment shall not be considered interrupted or terminated in the case of transfers between locations of the Company and its Subsidiaries.

5. Form and Time of Payment of RSUs .

(a)

(b)

The Company’s obligations to the Grantee with respect to the RSUs will be satisfied in full upon the issuance of Common Stock corresponding to such RSUs.

6. Dividend Equivalents; Voting and Other Rights .

(a)

(b)

(c)

8. Withholding Taxes . To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with the delivery to the Grantee of Common Stock or any other payment to the Grantee or any other payment or vesting event under this Agreement, the Grantee agrees that the Company will withhold any taxes required to be withheld by the Company under federal, state, local or foreign law as a result of the settlement of the RSUs in an amount sufficient to satisfy the minimum statutory withholding amount permissible. To the extent that the amounts available to the Company for such withholding are insufficient, it shall be a condition to the obligation of the Company to make any such delivery or payment that the Grantee make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld. The shares so retained shall be credited against any such withholding requirement at the market value of such Common Stock on the date of such delivery. In no event will the market value of the Common Shares to be withheld and/or delivered pursuant to this Section 8 to satisfy applicable withholding taxes exceed the maximum amount of taxes or other amounts that could be required to be withheld.

12. No Right to Future Awards or Employment . The grant of the RSUs under this Agreement to the Grantee is a voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards. The grant of the RSUs and any payments made hereunder will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing contained in this Agreement shall confer upon the Grantee any right to be employed or remain employed by the Company or any of its Subsidiaries, nor limit or affect in any manner the right of the Company or any of its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.

13. Relation to Other Benefits . Any economic or other benefit to the Grantee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its Subsidiaries.

14. Amendments . Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided , however , that (a) no amendment shall adversely affect the rights of the Grantee under this Agreement without the Grantee’s written consent, and (b) the Grantee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with Section 409A of the Code or Section 10D of the Exchange Act.

15. Severability . In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so

invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

16. Relation to Plan . This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to determine any questions which arise in connection with this Agreement. Notwithstanding anything in this Agreement to the contrary, Grantee acknowledges and agrees that this Agreement and the award 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 Exchange Act and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the Common Stock may be traded).

17. Electronic Delivery . The Company may, in its sole discretion, deliver any documents related to the RSUs and the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

19. Successors and Assigns . Without limiting Section 3 hereof, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors and assigns of the Company.

20. Acknowledgement . The Grantee acknowledges that the Grantee (a) has received a copy of the Plan, (b) has had an opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and the Plan and (d) agrees to such terms and conditions.

21. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement.

[SIGNATURES ON FOLLOWING PAGE]

CECO ENVIRONMENTAL CORP.

By:

Name:
Title:

Grantee Acknowledgment and Acceptance

By:

Name:

~~NAI-~~ ~~1502692515v2~~ 5

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

Chief Executive Officer

Date: August 9, 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: August 9, 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 June 30, 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

Chief Executive Officer

Date: August 9, 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 June 30, 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: August 9, 2017