CECO ENVIRONMENTAL CORP (Form: 10-Q, Received: 11/08/2017 07:04:18)

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 September 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)

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: 34,707,649 shares of common stock, par value $0.01 per share, as of November 2, 2017.

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended September 30, 2017

Table of Contents

Part I –	Financial Information	3

	Item 1. Financial Statements	3

	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	3

	Condensed Consolidated Statements of Income for the three-month and nine-month periods ended September 30, 2017 and 2016	4

	Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 2017 and 2016	5

	Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2017 and 2016	6

	Notes to Condensed Consolidated Financial Statements	7

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	33

	Item 4. Controls and Procedures	33

Part II –	Other Information	35

	Item 1. Legal Proceedings	35

	Item 1A. Risk Factors	35

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 3. Defaults Upon Senior Securities	35

	Item 4. Mine Safety Disclosures	35

	Item 5. Other Information	35

	Item 6. Exhibits	36

Signatures		37

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) SEPTEMBER 30, 2017			DECEMBER 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	24,567		$	45,824
Restricted cash		873			1,498
Accounts receivable, net		70,504			83,062
Costs and estimated earnings in excess of billings on uncompleted contracts		39,964			38,123
Inventories, net		21,750			21,487
Prepaid expenses and other current assets		12,984			13,560
Prepaid income taxes		1,300			1,590
Assets held for sale		8,001			7,834
Total current assets		179,943			212,978
Property, plant and equipment, net		24,667			27,270
Goodwill		171,239			170,153
Intangible assets-finite life, net		52,749			60,728
Intangible assets-indefinite life		22,381			22,042
Deferred charges and other assets		4,564			5,463
	$	455,543		$	498,634
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt	$	9,645		$	8,827
Accounts payable and accrued expenses		77,655			95,610
Billings in excess of costs and estimated earnings on uncompleted contracts		21,038			35,085
Note payable		5,300			5,300
Income taxes payable		924			1,536
Total current liabilities		114,562			146,358
Other liabilities		23,873			34,864
Debt, less current portion		107,287			114,366
Deferred income tax liability, net		12,754			12,964
Total liabilities		258,476			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, 34,699,316 and 34,300,209 shares issued at September 30, 2017 and December 31, 2016, respectively		347			343
Capital in excess of par value		247,601			244,878
Accumulated loss		(41,079	)		(41,741	)
Accumulated other comprehensive loss		(9,446	)		(13,042	)
		197,423			190,438
Less treasury stock, at cost, 137,920 shares at September 30, 2017 and December 31, 2016		(356	)		(356	)
Total shareholders’ equity		197,067			190,082
	$	455,543		$	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 SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
(dollars in thousands, except per share data)	2017			2016			2017			2016
Net sales	$	84,987		$	101,596		$	271,508		$	317,029
Cost of sales		57,854			67,920			183,960			217,837
Gross profit		27,133			33,676			87,548			99,192
Selling and administrative expenses		21,958			19,549			66,690			60,625
Acquisition and integration expenses		—			163			—			524
Amortization and earn-out (income) expenses, net		(455	)		3,465			4,623			13,176
Income from operations		5,630			10,499			16,235			24,867
Other (expense) income, net		(110	)		14			141			395
Interest expense		(1,595	)		(1,913	)		(4,951	)		(5,995	)
Income before income taxes		3,925			8,600			11,425			19,267
Income tax expense		889			2,774			2,865			6,349
Net income	$	3,036		$	5,826		$	8,560		$	12,918
Net income (loss) attributable to noncontrolling interest	$	—		$	22		$	—		$	(36	)
Net income attributable to CECO Environmental Corp.	$	3,036		$	5,804		$	8,560		$	12,954
Earnings per share:
Basic	$	0.09		$	0.17		$	0.25		$	0.38
Diluted	$	0.09		$	0.17		$	0.25		$	0.38
Weighted average number of common shares outstanding:
Basic		34,518,622			33,983,708			34,403,720			33,952,768
Diluted		34,621,883			34,354,687			34,665,053			34,211,067

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 SEPTEMBER 30,					NINE MONTHS ENDED SEPTEMBER 30,
(dollars in thousands)	2017		2016			2017		2016
Net income	$	3,036	$	5,826		$	8,560	$	12,918
Other comprehensive income (loss), net of tax:
Interest rate swap		3		201			31		(422	)
Foreign currency translation		1,396		(73	)		3,565		(1,526	)
Comprehensive income		4,435		5,954			12,156		10,970
Net income (loss) attributable to noncontrolling interest		—		22			—		(36	)
Comprehensive income attributable to CECO Environmental Corp.	$	4,435	$	5,976		$	12,156	$	10,934

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

CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS

(unaudited)

	NINE MONTHS ENDED SEPTEMBER 30,
(dollars in thousands)	2017			2016
Cash flows from operating activities:
Net income	$	8,560		$	12,918
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,105			15,017
Unrealized foreign currency gain		(2,030	)		(620	)
Net (gain) loss on interest rate swaps		(186	)		342
Fair value adjustments to earnout liabilities		(5,689	)		460
Earnout payments		(7,797	)		—
Loss on sale of property and equipment		87			199
Debt discount amortization		753			803
Share-based compensation expense		1,179			1,724
Bad debt expense		2,184			324
Inventory reserve expense		829			964
Deferred income taxes		(164	)		(1,111	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		12,718			15,221
Costs and estimated earnings in excess of billings on uncompleted contracts		(183	)		3,449
Inventories		(606	)		7,526
Prepaid expense and other current assets		1,720			(2,907	)
Deferred charges and other assets		1,414			1,068
Accounts payable and accrued expenses		(9,072	)		(10,010	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(14,526	)		6,859
Income taxes payable		(857	)		2,608
Other liabilities		(1,528	)		(1,955	)
Net cash (used in) provided by operating activities		(1,089	)		52,879
Cash flows from investing activities:
Acquisitions of property and equipment		(806	)		(811	)
Proceeds from sale of property and equipment		367			301
Net cash used in investing activities		(439	)		(510	)
Cash flows from financing activities:
Decrease in short-term and long-term restricted cash		878			2,853
Net borrowings (repayments) on revolving credit lines		2,197			(13,142	)
Repayments of debt		(9,161	)		(31,631	)
Deferred financing fees paid		(171	)		—
Payoff of loans on life insurance policies		—			(987	)
Earnout payments		(7,396	)		(9,270	)
Proceeds from sale-leaseback transactions		—			14,244
Payments on capital lease and sale-leaseback financing liability		(542	)		(241	)
Proceeds from employee stock purchase plan, exercise of stock options, and dividend reinvestment plan		1,372			763
Repurchases of common stock		—			(188	)
Dividends paid to common shareholders		(7,787	)		(6,738	)
Net cash used in financing activities		(20,610	)		(44,337	)
Effect of exchange rate changes on cash and cash equivalents		881			(412	)
Net (decrease) increase in cash and cash equivalents		(21,257	)		7,620
Cash and cash equivalents at beginning of period		45,824			34,194
Cash and cash equivalents at end of period	$	24,567		$	41,814
Cash paid during the period for
Interest	$	4,176		$	5,375
Income taxes	$	3,328		$	2,344
Non-cash transactions
Property, plant and equipment acquired under capital leases	$	—		$	4,385
Noncontrolling interest acquired through an issuance of a note payable (See Note 17)	$	—		$	5,300
Earnout settled through an exchange of accounts receivable	$	—		$	3,272

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 September 30, 2017 and the results of operations and cash flows for the three-month and nine-month periods ended September 30, 2017 and 2016. The results of operations for the three-month and nine-month periods ended September 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 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 line item of our Condensed Consolidated Statement of Income for the nine months ended September 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 nine months ended September 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 nine month periods ended September 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 August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 expands an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and allow for a simplified approach for fair value hedging of interest rate risk. ASU 2017-12 eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Additionally, ASU 2017-12 simplifies the hedge documentation and effectiveness assessment under the previous guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. We plan to adopt the standard on January 1, 2019. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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 awa rd’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 mat erial 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 pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The amendments in ASU 2017-07 shall be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. ASU 2017-07 becomes effective for the Company on January 1, 2018. Early adoption is permitted. We plan to adopt this 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 January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies 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.” ASU 2016-18 will require a change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents to 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. ASU 2016-18 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 its consolidated 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 re venue 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 a pproach 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 ado ption, 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.

The Company’s assessment efforts to date have included reviewing current accounting policies, processes, and system requirements, as well as assigning internal resources and engaging third-party consultants to assist in the process. Additionally, the Company has begun to review historical contracts and other arrangements to identify potential differences that could arise from the adoption of ASU 2014-09. Most notably, the Company is evaluating its current conclusions with respect to the timing of revenue recognition for certain contract arrangements where revenue is recognized over time, to determine whether the application of ASU 2014-09 necessitates changes to such reporting whereby revenue would be recognized at a point in time. 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. However, the Company will not be able to make a complete determination about the impact of the standard on its consolidated financial statements until the time of adoption based upon outstanding contracts at that time.

3.	Accounts Receivable

(Table only in thousands)	September 30, 2017			December 31, 2016
Trade receivables	$	13,211		$	11,976
Contract receivables		60,176			72,835
Allowance for doubtful accounts		(2,883	)		(1,749	)
	$	70,504		$	83,062

Balances billed but not paid by customers under retainage provisions in contracts amounted to approximately $2.6 million and $3.2 million at September 30, 2017 and December 31, 2016, respectively. Retainage receivables on contracts in progress are generally collected within a year after contract completion.

The amounts charged to the provision for doubtful accounts were $1.2 million and $30,000 for the three-month periods ended September 30, 2017 and 2016, respectively, and $2.2 million and $0.3 million for the nine-month periods ended September 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 a year . We anticipate that a majority of our current co ntracts will be completed within the next twelve months.

(Table only in thousands)	September 30, 2017			December 31, 2016
Costs incurred on uncompleted contracts	$	187,646		$	186,609
Estimated earnings		67,533			77,709
		255,179			264,318
Less billings to date		(236,253	)		(261,280	)
	$	18,926		$	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	$	39,964		$	38,123
Billings in excess of costs and estimated earnings on uncompleted contracts		21,038			35,085
	$	18,926		$	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 $0.1 million for estimated losses on uncompleted contracts was recognized at September 30, 2017. No provision for estimated losses on uncompleted contracts was required at December 31, 2016.

5.	Inventories

(Table only in thousands)	September 30, 2017			December 31, 2016
Raw materials	$	19,750		$	17,889
Work in process		3,310			3,986
Finished goods		1,261			1,508
Obsolescence allowance		(2,571	)		(1,896	)
	$	21,750		$	21,487

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $0.5 million and $0.1 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $0.8 million and $1.0 million for the nine-month periods ended September 30, 2017 and 2016, respectively.

6.	Goodwill and Intangible Assets

(Table only in thousands)	Nine months ended September 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		1,086		339		(453	)		(134	)
	$	171,239	$	22,381	$	170,153		$	22,042

(Table only in thousands)	As of September 30, 2017						As of December 31, 2016
Intangible assets – finite life	Cost			Accum. Amort.			Cost			Accum. Amort.
Technology	$	15,867		$	8,040		$	15,867		$	6,360
Customer lists		77,497			32,758			77,497			26,041
Noncompetition agreements		1,118			643			1,118			478
Tradename		1,390			405			1,390			301
Foreign currency adjustments		(1,453	)		(176	)		(2,964	)		(1,000	)
	$	94,419		$	41,670		$	92,908		$	32,180

Activity for the nine months ended September 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		(8,666	)		(11,123	)
Foreign currency adjustments		687			142
Intangible assets – finite life, net at end of period	$	52,749		$	63,976

Amortization expense of finite life intangible assets was $2.9 million and $3.5 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $8.7 million and $11.1 million for the nine-month periods ended September 30, 2017 and 2016, respectively.

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

7.	Accounts Payable and Accrued Expenses

(Table only in thousands)	September 30, 2017		December 31, 2016
Trade accounts payable, including due to subcontractors	$	54,091	$	58,985
Compensation and related benefits		4,528		8,232
Current portion of earn-out liability		3,514		13,527
Accrued warranty		4,244		2,684
Other accrued expenses		11,278		12,182
	$	77,655	$	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 nine months ended September 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		(5,689	)		—		(5,689	)
Compensation expense adjustment		918			—		918
Foreign currency translation adjustment		729			—		729
Payment		(15,193	)		—		(15,193	)
Total earn-out liability as of September 30, 2017	$	4,979		$	—	$	4,979
Less: current portion of earn-out		(3,514	)		—		(3,514	)
Balance of long term portion of earn-out recorded in Other liabilities at September 30, 2017	$	1,465		$	—	$	1,465

(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		960			(500	)		460
Compensation expense adjustment		923			—			923
Foreign currency translation adjustment		(539	)		—			(539	)
Settlement through an exchange of accounts receivable		(3,272	)		—			(3,272	)
Payment		(8,170	)		(1,100	)		(9,270	)
Total earn-out liability as of September 30, 2016	$	19,206		$	1,767		$	20,973
Less: current portion of earn-out		(9,991	)		(1,267	)		(11,258	)
Balance of long term portion of earn-out recorded in Other liabilities at September 30, 2016	$	9,215		$	500		$	9,715

(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 September 30, 2017 and December 31, 2016:

(Table only in thousands)	September 30, 2017			December 31, 2016
Outstanding borrowings under the Credit Facility (defined below). Term loan payable in quarterly principal installments of $2.0 million through September 2018, $2.5 million thereafter with balance due upon maturity in September 2020.
- Term loan	$	115,911		$	125,072
- U.S. Dollar revolving loans		2,000			—
- Unamortized debt discount and debt issuance costs		(2,593	)		(3,175	)
Total outstanding borrowings under the Credit Facility		115,318			121,897
Outstanding borrowings (U.S. dollar equivalent) under the China Facility (defined below)		—			1,296
Outstanding borrowings (U.S. dollar equivalent) under the Aarding Facility (defined below)		1,614			—
Total outstanding borrowings		116,932			123,193
Less: current portion		9,645			8,827
Total debt, less current portion	$	107,287		$	114,366

During the nine-month period ended September 30, 2017, the Company made prepayments of $4.3 million 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 are $2.0 million for the remainder of 2017, $8.5 million in 2018, $10.0 million in 2019, and $97.4 million in 2020.

United States Debt

As of September 30, 2017 and December 31, 2016, $20.8 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 $57.2 million and $62.0 million at September 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 3.60% and 3.26% at September 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 September 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 design ate 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 Consolid ated Statements of Income for the nine-month period ended September 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 Facility as of June 9, 2017. The Credit Facility 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.

The Company amended the Credit Facility as of October 31, 2017. The Credit Facility was amended to, among other things, (a) modify the calculation of Consolidated EBITDA and Consolidated Fixed Charges to exclude certain adjustments related to certain transactions (b) modify the Consolidated Leverage Ratio covenant and (c) add a covenant restricting the amount of capital expenditures we may make in fiscal years 2018 and 2019. As a result of the amendment to the Credit Facility , the maximum consolidated leverage ratio increased from 3.25 to 3.75 and will remain constant at this ratio through March 31, 2019, when it is set to decrease to 3.50 through September 30, 2019. The Consolidated Leverage Ratio will then decrease to 3.25 where it will remain until the end of the term of the Credit Facility .

As of September 30, 2017 and December 31, 2016, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility .

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 $15.4 million. As of September 30, 2017 and December 31, 2016, the borrowers were in compliance with all related financial and other restrictive covenants. As of September 30, 2017, $4.6 million of the bank guarantee and $1.6 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 during the nine months ended September 30, 2017. The total amount available for borrowing under the China Facility was $4.5 million and $4.3 million as of September 30, 2017 and December 31, 2016, respectively.

As a result of the PMFG, Inc. (“PMFG”) acquisition in September 2015, 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 September 30, 2017 and December 31, 2016, $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 September 30, 2017, this note payable is currently classified as a current liability in the Consolidated Balance Sheets as of September 30, 2017.

9.	Earnings and Dividends per Share

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

	For the three-month period ended September 30, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	3,036		34,519	$	0.09
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		103		—

Diluted earnings and earnings per share	$	3,036		34,622	$	0.09

	For the three-month period ended September 30, 2016
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	5,804		33,984	$	0.17
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		371		—
Diluted earnings and earnings per share	$	5,804		34,355	$	0.17

	For the nine-month period ended September 30, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	8,560		34,404	$	0.25
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		261		—
Diluted earnings and earnings per share	$	8,560		34,665	$	0.25

	For the nine-month period ended September 30, 2016
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	12,954		33,953	$	0.38
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		258		—
Diluted earnings and earnings per share	$	12,954		34,211	$	0.38

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 September 30, 2017 and 2016, 0.8 million and 1.1 million, respectively, and 0.7 million and 1.4 million during the nine-month periods ended September 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 August 7, 2017, the Company declared and, on September 29, 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. On November 6, 2017, the Board of Directors reviewed the Company’s dividend policy and determined that it would be in the best interest of the stockholders to discontinue dividend paym ents. 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 $0.5 million and $0.6 million during the three-month periods ended September 30, 2017 and 2016, respectively, and $1.2 million and $1.7 million during the nine-month periods ended September 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 no options during the three-month periods ended September 30, 2017 and 2016, respectively. The Company granted approximately 128,000 and 100,000 options during the nine-month periods ended September 30, 2017 and 2016, respectively. The weighted-average fair value of stock options granted during the nine months ended September 30, 2017 and 2016 was determined to be $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 nine months ended September 30, 2017 and 2016, the Company utilized a weighted-average volatility factor of 39%.

Expected Term: For the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2017 and 2016, respectively.

The Company granted no restricted stock units during the three-month period ended September 30, 2017 and approximately 165,000 restricted stock units during the three-month period ended September 30, 2016. The Company granted approximately 405,000 and 270,000 restricted stock units during the nine-month periods ended September 30, 2017 and 2016, respectively. The weighted-average fair value of restricted stock units granted during the nine months ended September 30, 2017 and 2016 was determined to be $9.87 and $9.77 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 287,000 and 74,000 options exercised during the nine months ended September 30, 2017 and 2016, respectively. The Company received $1.1 million and $0.5 million in cash from employees and directors exercising options during the nine months ended September 30, 2017 and 2016, respectively. The intrinsic value of options exercised during the nine months ended September 30, 2017 and 2016 was $1.9 million and $0.2 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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Pension plan:
Service cost	$	101		$	112		$	315		$	335
Interest cost		329			356			986			1,069
Expected return on plan assets		(431	)		(457	)		(1,292	)		(1,371	)
Amortization of net actuarial loss		57			53			170			159
Net periodic benefit cost	$	56		$	64		$	179		$	192
Health care plan:
Interest cost	$	1		$	1		$	2		$	3
Amortization of loss		2			3			6			8
Net periodic benefit cost	$	3		$	4		$	8		$	11

We made contributions to our defined benefit plans during the nine months ended September 30, 2017 and 2016 totaling $1.6 million and $29,000, respectively. We anticipate $0.3 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 $9.6 million and $11.1 million as of September 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 September 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 September 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 Facility was $117.9 million and $125.1 million at September 30, 2017 and December 31, 2016, respectively. The fair value of the note payable was $5.3 million at September 30, 2017 and December 31, 2016, respectively.

In accordance with the terms of the Credit Facility , 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 September 30, 2017 and December 31, 2016 , we had cash and cash equivalents of $ 24 . 6 million and $4 5 . 8 million, respectively, of which $ 17 . 0 million and $ 25 . 6 million, respectively, was held outside of the United States, principally in the Netherlands, U nited 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 September 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 223 cases pending against the Company as of September 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 nine months ended September 30, 2017, 39 new cases were filed against the Company, and the Company was dismissed from 40 cases and settled five cases. Most of the pending cases have not advanced beyond the discovery stage of litigation, although a number of cases are on schedules leading to, or are scheduled for trial. The Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts. However, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage. The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

Valero

One of our subsidiaries, Fisher-Klosterman, Inc. (“FKI”), was a defendant in a products liability lawsuit filed in Harris County, Texas on August 23, 2010 by three Valero refining companies. 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, a re 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 a nd 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 variety of industries.

Fluid Handling and Filtration Segment

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

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

The financial segment information is presented in the following tables:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2017			2016			2017			2016
Net Sales (less intra-, inter-segment sales)
Energy Segment	$	36,182		$	50,259		$	114,681		$	151,058
Environmental Segment		29,735			36,606			103,543			119,939
Fluid Handling and Filtration Segment		20,105			14,866			54,269			46,874
Corporate and Other ⁽¹⁾		(1,035	)		(135	)		(985	)		(842	)
Net sales	$	84,987		$	101,596		$	271,508		$	317,029

⁽¹⁾	Includes adjustment for revenue on intercompany jobs.

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2017			2016			2017			2016
Income from Operations
Energy Segment	$	5,287		$	8,502		$	14,428		$	20,065
Environmental Segment		2,157			5,459			12,043			16,324
Fluid Handling and Filtration Segment		4,299			3,109			11,756			9,507
Corporate and Other ⁽²⁾		(5,404	)		(6,520	)		(20,184	)		(20,058	)
Eliminations		(709	)		(51	)		(1,808	)		(971	)
Income from operations	$	5,630		$	10,499		$	16,235		$	24,867

⁽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 September 30,				Nine Months Ended September 30,
(dollars in thousands)	2017		2016		2017		2016
Property and Equipment Additions
Energy Segment	$	69	$	4	$	419	$	232
Environmental Segment		68		225		110		529
Fluid Handling and Filtration Segment ⁽³⁾		17		1,118		236		4,428
Corporate and Other		11		1		41		7
Property and equipment additions	$	165	$	1,348	$	806	$	5,196

⁽³⁾	Includes non-cash additions of $1,089 and $4,385 for property, plant, and equipment acquired under capital leases during the three months ended September 30, 2016 and nine months ended September 30, 2016, respectively.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2017		2016		2017		2016
Depreciation and Amortization
Energy Segment	$	1,927	$	2,341	$	5,957	$	8,082
Environmental Segment		813		994		2,500		2,868
Fluid Handling and Filtration Segment		1,168		1,321		3,563		3,969
Corporate and Other		29		33		85		98
Depreciation and Amortization	$	3,937	$	4,689	$	12,105	$	15,017

(dollars in thousands)	September 30, 2017		December 31, 2016
Identifiable Assets
Energy Segment	$	234,575	$	257,566
Environmental Segment		106,373		118,680
Fluid Handling and Filtration Segment		102,485		104,294
Corporate and Other ⁽⁴⁾		12,110		18,094
Identifiable Assets	$	455,543	$	498,634

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

(dollars in thousands)	September 30, 2017		December 31, 2016
Goodwill
Energy Segment	$	76,913	$	75,827
Environmental Segment		48,203		48,203
Fluid Handling and Filtration Segment		46,123		46,123
Goodwill	$	171,239	$	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 September 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	$	37,290	$	(1,102	)	$	(6	)	$	—		$	—		$	—		$	36,182
Environmental Segment		30,138		(396	)		—			(1	)		(6	)		—			29,735
Fluid Handling and Filtration Segment		20,768		(570	)		(55	)		(38	)		—			—			20,105
Corporate and Other ⁽⁵⁾		—		—			—			—			—			(1,035	)		(1,035	)
Net Sales	$	88,196	$	(2,068	)	$	(61	)	$	(39	)	$	(6	)	$	(1,035	)	$	84,987

	Three Months Ended September 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	$	51,155	$	(874	)	$	(22	)	$	—		$	—		$	—		$	50,259
Environmental Segment		38,454		(941	)		—			(878	)		(29	)		—			36,606
Fluid Handling and Filtration Segment		15,451		(313	)		(88	)		(184	)		—			—			14,866
Corporate and Other ⁽⁵⁾		—		—			—			—			—			(135	)		(135	)
Net Sales	$	105,060	$	(2,128	)	$	(110	)	$	(1,062	)	$	(29	)	$	(135	)	$	101,596

	Nine Months Ended September 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	$	120,958	$	(6,249	)	$	(28	)	$	—		$	—		$	—		$	114,681
Environmental Segment		106,404		(2,086	)		—			(730	)		(45	)		—			103,543
Fluid Handling and Filtration Segment		56,620		(1,727	)		(477	)		(147	)		—			—			54,269
Corporate and Other ⁽⁵⁾		—		—			—			—			—			(985	)		(985	)
Net Sales	$	283,982	$	(10,062	)	$	(505	)	$	(877	)	$	(45	)	$	(985	)	$	271,508

	Nine Months Ended September 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	$	153,476	$	(2,019	)	$	(399	)	$	—		$	—		$	—		$	151,058
Environmental Segment		126,029		(3,539	)		—			(2,345	)		(206	)		—			119,939
Fluid Handling and Filtration Segment		48,508		(1,168	)		(282	)		(184	)		—			—			46,874
Corporate and Other ⁽⁵⁾		—		—			—			—			—			(842	)		(842	)
Net Sales	$	328,013	$	(6,726	)	$	(681	)	$	(2,529	)	$	(206	)	$	(842	)	$	317,029

⁽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 nine-month periods ended September 30, 2017 and 2016 reflect the consolidated operations of the Company and its subsidiaries.

CECO Environmental is a global leader in industrial air quality and fluid handling serving the energy, industrial and other niche markets through an attractive asset-light business model. CECO provides innovative technology and application expertise that helps companies grow their businesses with safe, clean, and more efficient solutions to help protect our shared environment. CECO serves both established and emerging industries in regions around the world working to improve air quality, optimize the energy value chain, and provide customized engineered solutions in multiple applications that include oil and gas, power generation, water and wastewater, battery production, poly silicon fabrication, chemical and petrochem processing, along with a wide range of others.

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. We believe 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 air pollution control technology and 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

The Company concluded its strategic plan assessment and made several decisions to transform the business to win market share and create value. The Company will implement a restructuring program during the fourth quarter to reduce costs by approximately $5 million to $7 million per annum and refocus the Company’s portfolio including exiting non-core and low critical mass products. The Company recently modified the debt covenants within the debt agreement to allow for covenant flexibility to invest in a tough market cycle. Additionally, the Company’s Board of Directors agreed to suspend the current quarterly dividend so that cash can be used towards investment for growth in people, systems and customer focused product innovation.

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. Th e headquarters (hub) focuses on enabling the core back-office key funct ions for scale and efficiency, that is, accounting, payroll, human resources/benefits, information technology, safety support, internal control over financial reporting, and administrat ion. 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 produces 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 quality pump, filtration and fume exhaust solutions. It is through combining the efforts of some or all of these groups that we are able to offer complete turnkey systems to our customers and leverage operational efficiencies.

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

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

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

•

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

•

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 nine-month periods ended September 30, 2017 and 2016 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2017			2016			2017			2016
Net sales	$	85.0		$	101.6		$	271.5		$	317.0
Cost of sales		57.9			67.9			184.0			217.8
Gross profit	$	27.1		$	33.7		$	87.5		$	99.2
Percent of sales		31.9	%		33.2	%		32.2	%		31.3	%
Selling and administrative expenses	$	22.0		$	19.5		$	66.7		$	60.6
Percent of sales		25.9	%		19.2	%		24.6	%		19.1	%
Acquisition and integration expenses	$	—		$	0.2		$	—		$	0.5
Percent of sales		—			0.2	%		—			0.2	%
Amortization and earn-out (income) expenses, net	$	(0.5	)	$	3.5		$	4.6		$	13.2
Percent of sales		(0.6	)%		3.4	%		1.7	%		4.2	%
Operating income	$	5.6		$	10.5		$	16.2		$	24.9
Operating margin		6.6	%		10.3	%		6.0	%		7.9	%

To compare operating performance between the three-month and nine-month periods ended September 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 September 30,						Nine Months Ended September 30,
(dollars in millions)	2017			2016			2017			2016
Operating income as reported in accordance with GAAP	$	5.6		$	10.5		$	16.2		$	24.9
Operating margin in accordance with GAAP		6.6	%		10.3	%		6.0	%		7.9	%
Legacy design repairs		—			—			2.0			—
Inventory valuation adjustment		—			—			—			0.1
Plant, property and equipment valuation adjustment		0.2			0.2			0.5			0.5
Gain on insurance settlement		—			—			—			(1.0	)
Acquisition and integration expenses		—			0.2			—			0.5
Amortization and earn-out (income) expenses, net		(0.5	)		3.5			4.6			13.2
Executive transition expenses		—			—			1.3			—
Facility exit expenses		—			—			0.2			—
Non-GAAP operating income	$	5.3		$	14.4		$	24.8		$	38.2
Non-GAAP operating margin		6.2	%		14.2	%		9.1	%		12.1	%

Consolidated net sales for the third quarter of 2017 decreased $16.6 million, or 16.3%, to $85.0 million compared with $101.6 million in the third quarter of 2016. The decrease is primarily attributable to a decline in demand for solid fuel power generation and natural gas turbine exhaust systems within the Company’s Energy segment and a decline in demand for ventilation duct work and related equipment, and refinery related products within the Company’s Environmental segment. These declines were partially offset by increased sales in the Company’s Fluid Handling & Filtration segment.

Consolidated net sales for the first nine months of 2017 decreased $45.5 million, or 14.4%, to $271.5 million compared with $317.0 million in the first nine months of 2016. The decrease is primarily attributable to a decline in demand for solid fuel power generation and natural gas turbine exhaust systems within the Company’s Energy segment and a decline in demand for ventilation duct work and

related equipment , and refinery related product s within the Company’s Environmental segment . These declines were partially offset by increased sales in the Company’s Fluid Handling & Filtration segment.

Gross profit decreased $6.6 million, or 19.6%, to $27.1 million in the third quarter of 2017 compared with $33.7 million in the third quarter 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 31.9% in the third quarter of 2017 compared with 33.2% in the third quarter of 2016.

Gross profit decreased $11.7 million, or 11.8%, to $87.5 million in the first nine months of 2017 compared with $99.2 million in the first nine months 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 32.2% in the first nine months of 2017 compared with 31.3% in the first nine months of 2016. The higher gross profit margin in the first nine months of 2017 was primarily due to a more favorable project mix during this period. This increase was partially offset by the Company incurring $2.5 million in warranty expense and $2.0 million in legacy design repairs during the first nine months of 2017, compared with warranty expense of $0.4 million during the first nine 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 pre-acquisition projects.

Orders booked were $71.0 million during the third quarter of 2017 and $242.2 million during the first nine months of 2017 as compared with $96.2 million during the third quarter of 2016 and $325.1 million during the first nine months of 2016. The decrease is primarily attributable to lower bookings by the Energy and Environmental Segment due to lower near term demand for natural gas turbine exhaust systems and solid fuel power generation equipment in China, as well as a reduction in refinery related capital expenditures impacting the Company’s bookings related to cyclone products.

Selling and administrative expenses increased $2.5 million to $22.0 million for the third quarter of 2017 compared with $19.5 million for the third quarter of 2016. Additionally, selling and administrative expenses increased as a percentage of sales from 19.2% in the third quarter of 2016 compared to 25.9% in the third quarter of 2017. The increase is primarily attributable to increases of $1.1 million of bad debt expense and $1.2 million of selling personnel costs during the third quarter of 2017 when compared with the third quarter of 2016. Additionally, the increase is partially attributable to the Company recording a gain of $0.6 million during the third quarter of 2016 related to a warranty settlement received from an external service provider of the Company.

Selling and administrative expenses increased $6.1 million to $66.7 million for the first nine months of 2017 compared with $60.6 for the first nine months of 2016. Additionally, selling and administrative expenses increased as a percentage of sales from 19.1% in the first nine months of 2016 compared to 24.6% in the first nine 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 and expenses associated with the hiring of a new Chief Financial Officer of $1.3 million in the first nine months of 2017, an increase of $1.9 million of bad debt expense during the first nine months of 2017 compared with the first nine months of 2016, and additional investments in selling and finance personnel which occurred in the first nine months of 2017. Other factors leading to the increase in selling and administrative expenses consisted of the Company recording a gain on an insurance settlement of $1.0 million and a gain on a warranty settlement of $0.6 million during the first nine months of 2016, which did not recur in 2017.

Acquisition and integration expenses were zero and $0.2 million during the third quarter of 2017 and 2016, respectively, and zero and $0.5 million during the first nine months of 2017 and 2016, respectively. The acquisition and integration expenses in 2016 were related to the PMFG acquisition, which occurred during the third quarter of 2015.

Amortization and earn-out expense/income was $0.5 million of income for the third quarter of 2017 compared with $3.5 million of expense for the third quarter of 2016. The income was primarily attributable to earn-out adjustments resulting in income of $3.9 million in the third 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. This income was partially offset by amortization expense of $2.9 million in the third quarter of 2017.

Amortization and earn-out expense/income was $4.6 million of expense for the first nine months of 2017 compared with $13.2 million of expense for the first nine months of 2016. The decrease in expense was primarily attributable to earn-out adjustments resulting in income of $5.7 million in the first nine months of 2017 for the Zhongli Acquisition due to lower than expected operational profit in 2017. Included in the first nine months of 2016 expense was $1.0 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 $2.5 million period over period due to certain intangible assets becoming fully amortized.

Operating income decreased $4.9 million to $5.6 million in the third quarter of 2017 compared with $10.5 million of income during the third quarter of 2016. The decrease is primarily attributable to lower gross profit and increased selling and administrative

expenses partially offset by a decrease in acquisition, integration, am ortization and earn-out expense/ i ncome during the third quarter of 2017.

Operating income decreased $8.7 million to $16.2 million in the first nine months of 2017 compared with $24.9 million during the first nine months of 2016. The decrease is primarily attributable to lower gross profit and increased selling and administrative expenses partially offset by a decrease in acquisition, integration, amortization, and earn-out expense/income during the first nine months of 2017.

Non-GAAP operating income was $5.3 million for the third quarter of 2017 compared with $14.4 million for the third quarter of 2016. The decrease is primarily due to a decrease in gross profit and increased selling and administrative expenses as described above. Non-GAAP operating income as a percentage of sales decreased to 6.2% for the third quarter of 2017 from 14.2% for the third quarter of 2016.

Non-GAAP operating income was $24.8 million for the first nine months of 2017 compared with $38.2 million for the first nine months of 2016. The decrease is primarily due to a decrease in gross profit and increased selling and administrative expenses as described above. Non-GAAP operating income as a percentage of sales decreased to 9.1% for the first nine months of 2017 from 12.1% for the first nine months of 2016.

Other income/expense, net was $0.1 million of expense in the third quarter of 2017 compared with less than $0.1 million of income in the third quarter of 2016. During the third quarter of 2017, the net amount was due to $0.5 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 $0.6 million. During the third quarter of 2016, the less than $0.1 million of income was due primarily to $0.2 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, which was offset by net foreign currency exchange losses from normal business operations of $0.2 million.

Other income/expense, net was $0.1 million of income in the first nine months of 2017 compared with $0.4 million of income in the first nine months of 2016. During the first nine months of 2017, the net $0.1 million of income was due to $2.0 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 $1.9 million. During the first nine months of 2016, the net $0.4 million of income was due to $0.6 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 $0.3 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 third quarter of 2017 from $1.9 million in the third quarter of 2016. The decrease is due to debt repayments made throughout 2016 and 2017 that decreased the amount of outstanding debt throughout 2017.

Interest expense decreased to $5.0 million in the first nine months of 2017 from $6.0 million in the first nine months of 2016. The decrease is due to debt repayments made throughout 2016 and 2017 that decreased the amount of outstanding debt throughout 2017.

Income tax expense was $0.9 million for the third quarter of 2017 compared with $2.8 million for the same quarter of 2016. The effective income tax rate for the third quarter of 2017 was 22.6% compared with 32.3% for the comparable period of 2016. Income tax expense was $2.9 million for the first nine months of 2017 compared with $6.3 million for the first nine months of 2016. The effective income tax rate for the first nine months of 2017 was 25.1% compared with 33.0% for the comparable period of 2016. This rate change for the three and nine month periods is due primarily to changes in income before taxes, discrete tax benefits of $0.3 million in the first nine 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 September 30,						Nine Months Ended September 30,
(dollars in thousands)	2017			2016			2017			2016
Net Sales (less intra-, inter-segment sales)
Energy Segment	$	36,182		$	50,259		$	114,681		$	151,058
Environmental Segment		29,735			36,606			103,543			119,939
Fluid Handling and Filtration Segment		20,105			14,866			54,269			46,874
Corporate and Other ⁽¹⁾		(1,035	)		(135	)		(985	)		(842	)
Net sales	$	84,987		$	101,596		$	271,508		$	317,029

⁽¹⁾	Includes adjustment for revenue on intercompany jobs.

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2017			2016			2017			2016
Income from Operations
Energy Segment	$	5,287		$	8,502		$	14,428		$	20,065
Environmental Segment		2,157			5,459			12,043			16,324
Fluid Handling and Filtration Segment		4,299			3,109			11,756			9,507
Corporate and Other ⁽²⁾		(5,404	)		(6,520	)		(20,184	)		(20,058	)
Eliminations		(709	)		(51	)		(1,808	)		(971	)
Income from operations	$	5,630		$	10,499		$	16,235		$	24,867

⁽²⁾

Energy Segment

Our Energy Segment net sales decreased $14.1 million to $36.2 million in the third quarter of 2017 compared with $50.3 million in the third quarter 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, which 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 $36.4 million to $114.7 million in the first nine months of 2017 compared with $151.1 million in the first nine months 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, which 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 decreased $3.2 million to $5.3 million in the third quarter of 2017 compared with $8.5 million of income in the third quarter of 2016. Operating income in the third quarter 2017 included $3.9 million of income related to the fair value adjustment of the Zhongli Acquisition earn-out due to significant 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 achieving lower gross profit on decreased sales as well as increases in selling and administrative expenses during the third quarter of 2017.

Operating income for the Energy Segment decreased $5.7 million to $14.4 million in the first nine months of 2 017 compared with $20.1 million in operating income in the first nine months of 2016. Operating income in the first nine months of 2017 and 2016 included $5.7 million of income and $1.0 million of expense, respectively, related to the fair value adjustment of the Zhongli earn- out . The decrease in operating income excluding the earn-out adjustment was primarily due to the Energy Segment achieving lower gross profit on decreased sales as well as increases in selling and administrative expenses during the third quarter of 2017 . The decrease in operating income was also partially attributable to the Company incurring $2 .4 million in warranty expense and $2.0 million in legacy design repairs duri ng the first nine months of 2017, compared to warranty expense of $ 0.2 million during the first nine months of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The increase in legacy design repai rs is pri marily attributable to specific issues on certain pre-acquisition projects .

Environmental Segment

Our Environmental Segment net sales decreased $6.9 million to $29.7 million in the third quarter of 2017 compared with $36.6 million in the third quarter 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 ventilation duct work and related equipment period over period, which 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 $16.4 million to $103.5 million in the first nine months of 2017 compared with $119.9 million in the first nine months 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 related to the installation and fabrication of ventilation duct work and related equipment period over period, which 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 $3.3 million to $2.2 million in the third quarter of 2017 from $5.5 million in the third quarter 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 third quarter of 2017.

Operating income for the Environmental Segment decreased $4.3 million to $12.0 million in the first nine months of 2017 from $16.3 million in the first nine months 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 nine months of 2017.

Fluid Handling and Filtration Segment

Our FHF Segment net sales increased $5.2 million to $20.1 million in the third quarter of 2017 compared with $14.9 million in the third quarter of 2016. The increase is attributable to increased international demand for the Company’s products and a strengthening of the FHF Segment’s North American Industrial Market in the third quarter of 2017.

Our FHF Segment net sales increased $7.4 million to $54.3 million in the first nine months of 2017 compared with $46.9 million in the first nine months of 2016. The increase is due to increased international demand for the Company’s products and a strengthening of the FHF Segment’s North American Industrial Market in the first nine months of 2017.

Operating income for FHF increased $1.2 million to $4.3 million in the third quarter of 2017 compared with $3.1 million in the third quarter of 2016. The increase is due primarily to higher sales volume.

Operating income for FHF increased $2.3 million to $11.8 million in the first nine months of 2017 compared with $9.5 million in the first nine months of 2016. The increase is due primarily to higher sales volume.

Corporate and Other Segment

Operating expense for Corporate and Other Segment decreased $1.1 million to $5.4 million in the third quarter of 2017 compared with $6.5 million in the third quarter of 2016. The decrease in operating expense is primarily attributable to incentive compensation income of $0.6 million being recorded in the third quarter of 2017 due to lower than anticipated operating performance.

Operating expense for Corporate and Other Segment increased $0.1 million to a $20.2 million loss in the first nine months of 2017 compared with a $20.1 million loss in the first nine months of 2016. The increase in the operating expense period over period is primarily attributable to the increase in executive transition expenses of $1.3 million during the first nine months of 2017 partially offset by the Company recording a gain on an insurance settlement of $1.0 million during the first nine months of 2016, which did not recur in 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 September 30, 2017 was $153.9 million compared with $197.0 million as of December 31, 2016. During 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 September 30, 2017, the Company had working capital of $65.4 million, compared with $66.6 million at December 31, 2016. The ratio of current assets to current liabilities was 1.57 to 1 as compared with a ratio of 1.46 to 1 at December 31, 2016. The $1.2 million decrease in working capital from December 31, 2016 to September 30, 2017 was primarily related to the net effect of decreased cash and cash equivalents ($21.3 million), a decrease in accounts receivable ($12.6 million) and an increase in the current portion of debt ($0.8 million), offset by a decrease in billing in excess of costs and estimated earnings on uncompleted contracts ($14.0 million), a decrease in accounts payable and accrued expenses ($18.0 million), and an increase in costs and estimated earnings in excess of billings on uncompleted contracts ($1.8 million). During the nine months ended September 30, 2017, the Company made prepayments 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 nine months ended September 30, 2017 was $9.2 million.

At September 30, 2017 and December 31, 2016, cash and cash equivalents totaled $24.6 million and $45.8 million, respectively. As of September 30, 2017 and December 31, 2016, $17.0 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 September 30, 2017 and December 31, 2016 :

Credit Facility

(Table only in thousands)	September 30, 2017			December 31, 2016
Outstanding borrowings under the Credit Facility (defined in the paragraph below). Term loan payable in quarterly principal installments of $2.0 million through September 2018, and $2.5 million thereafter with balance due upon maturity in September 2020.
- Term loan	$	115,911		$	125,072
- U.S. Dollar revolving loans		2,000			—
- Unamortized debt discount and debt issuance costs		(2,593	)		(3,175	)
Total outstanding borrowings under the Credit Facility		115,318			121,897
Outstanding borrowings (U.S. dollar equivalent) under the China Facility		—			1,296
Outstanding borrowings (U.S. dollar equivalent) under the Aarding Facility		1,614			—
Total outstanding borrowings		116,932			123,193
Less: current portion		9,645			8,827
Total debt, less current portion	$	107,287		$	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 September 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)	September 30, 2017			December 31, 2016
Credit Facility, U.S. Dollar revolving loans	$	60.5		$	60.5
Draw down		(2.0	)		—
Letters of credit open		(20.8	)		(18.0	)
Credit Facility, Multi-currency revolving facilities		19.5			19.5
Draw down		—			—
Netherlands facilities (€13.0 million at September 30, 2017 and December 31, 2016 in U.S. Dollar equivalent)		15.4			13.7
Draw down		(1.6	)		—
Letters of credit open		(4.6	)		(5.3	)
China facility		4.5			4.3
Draw down		—			(1.3	)
Total unused credit availability	$	70.9		$	73.4
Amount available based on borrowing limitations	$	34.3		$	71.1

Overview of Cash Flows and Liquidity

	For the nine months ended September 30,
(dollars in thousands)	2017			2016
Net cash (used in) provided by operating activities	$	(1,089	)	$	52,879
Net cash used in investing activities		(439	)		(510	)
Net cash used in financing activities		(20,610	)		(44,337	)
Effect of exchange rate changes on cash and cash equivalents		881			(412	)
Net (decrease) increase in cash	$	(21,257	)	$	7,620

For the nine months ended September 30, 2017, $1.1 million of cash was used in operating activities compared with $52.9 million provided by operating activities in the prior-year period. The $54.0 million decrease in cash flow from operating activities was partially due to a decrease in net income of $4.4 million, a decrease in expense of the fair value adjustments to earnout liabilities of $6.1 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 nine months of 2017 compared with the first nine months of 2016. The incremental cash used was comprised of $8.1 million in inventories, $21.4 million in billings in excess of costs and estimated earnings on uncompleted contracts, $3.6 million in costs and estimated earnings in excess of billings on uncompleted contracts, and $2.5 million in accounts receivable. These unfavorable decreases in cash were partially offset by the incremental cash provided from $0.9 million in accounts payable and accrued expenses, and $4.6 million in prepaid expenses and other current assets.

For the nine months ended September 30, 2017, net cash used in investing activities was $0.4 million compared with net cash used in investing activities of $0.5 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 $0.8 million offset by the proceeds from sales of property and equipment, including assets held for sale, totaling $0.4 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 $0.8 million offset by the proceeds from sales of property and equipment, including assets held for sale, totaling $0.3 million.

For the nine months ended September 30, 2017, net cash used in financing activities was $20.6 million due principally to net term loan repayments of $9.2 million, earn-out payments classified as financing activities of $7.4 million, and $7.8 million in dividends paid to common stockholders, which was partially offset by the net borrowings on revolving credit facilities of $2.2 million and proceeds from the employee stock purchase plan, exercise of stock options and dividend reinvestment plan of $1.4 million. In the prior-year period, net cash used in financing activities was $44.3 million due principally to term loan repayments of $31.6 million, net payments on revolving credit facilities of $13.1 million, earnout payments classified as operating activities of $9.3 million and $6.7 million in dividends paid to common stockholders, which was partially offset by proceeds from sale-leaseback transactions of $14.2 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 nine-month periods ended September 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: our ability to successfully realize the expecte d benefits of our restru ct ur ing program; our ability to successfully integrate acquired businesses and realize the synergies from acquisitions, as well as a number of factors related to our business, including economic and financial market conditions generally and economic conditions in CECO’s service areas; dependence on f ixed 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; th e effect of growth on CECO’s infrastructure, resources, and existing sales; the ability to expand operations in both new and existing markets; the potential for contract delay or cancellation; liabilities arising from faulty services or products that could result in significant professional or product liability, warranty, or other claims; 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 refinanc e it or incur additional debt in the future; the impact of federal, state or local government regulations; economic and political conditions generally; and the effect of competition in the environmental, energy and fluid handling and filtration industries. Many of these risks are beyond management’s ability to control or predict. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipa ted. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. Furthermore, forward-looking statements speak only as of the date they are made. Except as req uired under the federal securities laws or the rules and regulations of the SEC, we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3.

QUANTITATIVE AND QU ALITATIVE 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 September 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 $116.9 million at September 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 September 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 September 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 September 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 Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fiscal quarter ended September 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


10.1		Separation Agreement, effective as of July 21, 2017, by and between the Company and Edward J. Prajzner

10.2		Amendment No. 3 to Amended and Restated Credit Agreement

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

Date: November 8, 2017

Exhibit 10.1

Confidential SEPARATION Agreement and Release

THIS SEPARATION AGREEMENT AND RELEASE (this “ Separation Agreement ”) is entered into by and between CECO Environmental Corp. , a Delaware corporation (the “ Company ”), and Edward J. Prajzner (“ Employee ”).

WITNESSETH

WHEREAS , Employee is currently employed by the Company as Executive Vice President, Corporate Development;

WHEREAS , Employee and the Company are currently parties to an Agreement Relating to Inventions, Confidential Information and Post-Employment Restrictions (the “ Restrictive Covenant Agreement ”) (attached hereto as Exhibit A );

WHEREAS , it has been determined that Employee’s employment with the Company will terminate on the Separation Date (as defined below); and

WHEREAS , in conjunction with this separation of employment, the Company and Employee desire to enter into an agreement setting forth the following terms and conditions.

NOW, THEREFORE , in consideration of the mutual promises and covenants set forth herein, the Company and Employee hereby agree as follows:

1. Termination of Employment . Pursuant to this Separation Agreement, the effective date of Employee’s separation of employment will be July 21, 2017 (the “ Separation Date ”). Employee recognizes that Employee will be removed from the Company’s payroll and Employee’s employment relationship with the Company will terminate for all purposes on the Separation Date. Further, Employee hereby resigns, effective as of the Separation Date, from all other positions, committees, including the Company’s 401(k) committee and offices, if any, that Employee holds with the Company or any of its subsidiaries or affiliates.

2. Severance Compensation . In exchange for Employee’s release of claims and other commitments set forth in this Separation Agreement, the Company will (A) pay Employee an amount equal to $150,000 (the “ Salary Continuation ”), less applicable federal, state and local taxes and any other mandatory or employee-authorized payroll deductions, payable in substantially equal installments over a period of six months following the Separation Date in accordance with the Company’s normal payroll practices; and (B) subject to Employee’s timely election of COBRA coverage under the Company’s medical, dental, vision and prescription drug plans in which Employee (and Employee’s eligible dependents, if applicable) participated as of the Separation Date, the Company will pay 100% of the COBRA premiums on behalf of Employee (and Employee’s eligible dependents, if applicable) for up to six months following the Separation Date; provided , that the payment of such COBRA premiums will cease as of the date Employee becomes covered by group health insurance in connection with new employment. The Company’s payment of COBRA premiums will be taxable income for Employee. The first installment of Salary Continuation will be made on the first payroll date to

Page 1 of 16

occur after the thirtieth (30 ^th ) day after the Separation Date (the “ First Payment Date ”), and will include all payments of Salary Continuation that otherwise would have been made prior to the First Payment Date during the thirty-day period following the Separation Date . Employee expressly acknowledges that Employee is not otherwise entitled to the compensation outlined in the first paragraph of this Paragraph 2 and that such compensation serves as adequate consideration for Employee’s release of claims and other commitments set forth in this Separation Agreement. Employee acknowledges that he is not entitled to, nor shall he accrue or be eligible for, compensation of any nature other than that set forth in this Paragraph 2 from the Company, including, without limitation, any salary, pay, benefits or consideration, as of the Separation Date based upon his prior employment with the Company. The Company will not be obligated to pay to Employee the Salary Continuation and the COBRA premiums set forth in this paragraph unless and until Employee executes and does not revoke this Agreement in accordance with Paragraph 14 herein.

Notwithstanding the foregoing, in addition to Employee's final regular payroll disbursement for work performed through the Separation Date, Employee will be paid for any unused accrued vacation days/paid time off as of the Separation Date, in accordance with Company policy. Payment for unused earned vacation days/paid time off is subject to applicable state, federal or any other mandatory or employee-authorized deductions.

Notwithstanding anything in the applicable Restricted Stock Units Agreement to the contrary, the 3,125 Restricted Stock Units that were scheduled to vest on September 4, 2017 shall vest on the Effective Date. Further, nothing herein shall alter Employee's right to be indemnified as an officer or director of the Company (or any of its subsidiaries) pursuant to the Director and Officer Indemnification Agreement, dated as of May 12, 2016 or the constituent documents of the Company and/or its subsidiaries.

3. Restrictive Covenants . In executing this Separation Agreement, Employee hereby reaffirms and agrees to be bound by Employee’s confidentiality, non-competition, non-solicitation and other obligations under the Restrictive Covenant Agreement. Notwithstanding anything in this Separation Agreement or the Restrictive Covenant Agreement to the contrary, nothing herein or therein prevents Employee from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations.

A.) Communication of Contents of Agreement . Notwithstanding Paragraph 8 below, for three years after the Separation Date, Employee shall communicate the contents of the Restrictive Covenant Agreement to any person, firm, association, partnership, corporation or other entity that Employee intends to be employed by, associated with or represent.

B.) Cessation of Payment Obligations . It is expressly understood that the Company’s payment obligations under Paragraph 2 of this Separation Agreement shall immediately cease in the event that Employee breaches any of Employee’s obligations under this Paragraph 3 .

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4. Release in Full of All Claims . In exchange for the consideration set forth herein, Employee, for himself, his agents, attorneys, heirs, administrators, executors, assigns, and other representatives, and anyone acting or claiming on his or their joint or several behalf, hereby releases, waives, and forever discharges the Company and all of its parent entities, subsidiaries, and affiliates, as well as all related companies, partnerships, affiliated entities or joint ventures and, with respect to each of them, their predecessors and successors; and, with respect to each such entity, all of its past, present, and future employees, officers, directors, stockholders, owners, representatives, assigns, attorneys, agents, insurers, employee benefit programs (and the trustees, administrators, fiduciaries, and insurers of such programs), and any other persons acting by, through, under or in concert with any of the persons or entities listed in this paragraph, and their successors (the “ Releasees ”), from any and all known and unknown claims, causes of action, demands, grievances, debts, obligations, injuries, damages, costs, expenses, liabilities, or other losses that in any way arise from, grow out of, or are related to Employee’s employment with the Company or any of its affiliates and subsidiaries or the termination thereof (the “ Claims ”). Employee acknowledges that the Claims released under this paragraph might arise under many different foreign, domestic, national, state, or local laws (including statutes, regulations, other administrative guidance, and common law doctrines), including, but not limited to, the following:

A.) Claims for breach of contract, whether express, implied or implied-in-fact, and for promissory estoppels and/or detrimental reliance;

B.) Claims under or pursuant to the Americans with Disabilities Act (ADA), as amended, the Age Discrimination in Employment Act (ADEA), as amended, the Older Worker Benefit Protection Act (OWBPA), Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Equal Pay Act, the United States Presidential Executive Orders 11246 and 11375, 42 U.S.C. § 1981, as amended, 42 U.S.C. § 1985, the Immigration Reform and Control Act of 1986, as amended, the Employee Retirement Income Security Act of 1974 (ERISA), the Family Medical Leave Act (FMLA), as amended, the Sarbanes-Oxley Act, the Worker Adjustment and Retraining Notification Act (WARN), the Genetic Information Nondiscrimination Act (GINA), the Fair Labor Standards Act (FLSA), as amended, the Fair Credit Reporting Act, the Occupational Safety & Health Act (OSH Act), the Uniformed Services Employment and Reemployment Rights Act (USERRA), as amended, the Employee Polygraph Protection Act (EPPA), as well as any other federal law, statute, ordinance, rule, regulation, or executive order relating to employment and/or discrimination in employment, and/or any Claims to attorneys’ fees or costs thereunder;

C.) Claims under or pursuant to the Pennsylvania minimum wage laws, the Pennsylvania Wage Payment and Collection Act, the Pennsylvania Equal Pay Law, the Pennsylvania Human Rights Act, any state or local family and/or medical leave laws, as well as any other state or local law, statute, ordinance, rule, regulation, or executive order relating to employment and/or discrimination in employment, and/or any Claims to attorneys’ fees or costs thereunder; and

D.) Claims for discrimination, wrongful discharge, retaliatory discharge, negligent or intentional infliction of emotional distress, interference with contractual relations or prospective economic advantage, personal, emotional or physical injury, fraud, defamation or damage to business or personal reputation, libel, slander, negligent or intentional

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misrepresentation, violation of public policy, invasion of privacy, intentional torts, gross negligence, negligent hiring, negligent retention, whistleblowing, breach of implied covenant of good faith or any other statutory or common law theory of recovery.

Notwithstanding the foregoing, the Company acknowledges and agrees that this Separation Agreement in no way alters Employee’s rights to any benefits to which he is entitled under any retirement plan of the Company that is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, or his rights, if any, under Part 6 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended (COBRA). Nothing contained herein shall be construed to prohibit Employee from filing a charge with the United States Department of Labor, the United States Equal Employment Opportunity Commission or the National Labor Relations Board or participating in investigations by these entities. However, Employee acknowledges that the release he executes herein waives his right to seek or accept individual remedies or monetary damages in any such action or lawsuit arising from such charges or investigations, including but not limited to, back pay, front pay, or reinstatement, except with respect to any recovery under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002. Employee further agrees that if any person, organization, or other entity should bring a claim against the Releasees involving any matter covered by this Separation Agreement, Employee will not accept any personal relief in any such action, including damages, attorneys’ fees, costs, and all other legal or equitable relief. Employee agrees that no fact, event, circumstance, evidence or transaction, which could now be asserted or which may hereafter be discovered, shall affect in any manner the final, absolute and unconditional nature of the release set forth above. Nothing herein prevents Employee from instituting any action to enforce the terms of this Separation Agreement. The Company and Employee further agree that the release in this Paragraph 4 shall not apply to any claims which may not, as a matter of law, be released.

5. No Claims Filed . Employee affirms that, as of the date of execution of this Separation Agreement, he has filed no lawsuit, charge, claim or complaint with any governmental agency or in any court against the Company or the Releasees.

6. Employment Reference . For purposes of inquiries from prospective employers, the Company agrees to provide neutral employment information such as Employee’s dates of employment, job title(s) and salary. All inquiries from prospective employers shall be directed to the Chief Human Resources Officer of the Company.

7. Return of Company Property . Employee agrees that, on or before the Separation Date, Employee will return to the Company all property of the Company in Employee’s possession, including, without limitation, all records, paper and electronic files, documents, software programs, and copies thereof, pertaining to the business of the Company, which records, files, documents and programs may constitute trade secrets and proprietary information belonging solely to the Company. Employee may not retain copies of any such records, files, documents or programs, and hereby relinquishes and assigns to the Company any and all rights, if any, that Employee may have in any such records, files, documents or programs.

8. Nondisclosure of Terms . Except as expressly provided otherwise in this Separation Agreement, Employee agrees that the existence, terms and conditions of this

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Separation Agreement, and any and all underlying communications and negotiations in connection with or leading to this Separation Agreement, are and shall remain confidential. Except as set forth in the Restrictive Covenant Agreement, Paragraph 3 of this Separation Agreement or as expressly set forth in this Paragraph 8 , Employee shall not disclose the existence or terms of this Separation Agreement in whole or in part to any individual or entity without prior written consent of the Company.

Employee agrees that Employee will not disclose the existence or terms of this Separation Agreement to any person except (i) to members of Employee’s immediate family and Employee’s professional advisors, who shall be advised of this confidentiality provision, (ii) to the extent required by a final and binding court order or other compulsory process, and (iii) to any federal, state, or local taxing authority. Upon Employee’s receipt of any order, subpoena or other compulsory process demanding production or disclosure of this Separation Agreement, Employee agrees that Employee will promptly notify the Company in writing of the requested disclosure, including the proposed date of the disclosure, the reason for the requested disclosure, and the identity of the individual or entity requesting the disclosure, at least ten (10) business days prior to the date that such disclosure is to be made or immediately upon receipt of the requested disclosure. Employee agrees not to oppose any action that the Company might take with respect to any such requested disclosure. Employee further agrees to instruct Employee’s counsel not to disclose to any person or entity, including potential or existing clients, the existence or terms of this Separation Agreement. If Employee breaches Employee’s promise of confidentiality contained in this Paragraph 8 , Employee agrees to pay the Company as liquidated damages immediately and upon demand, any and all amounts paid to Employee under this Separation Agreement. Employee agrees that this sum represents fair and reasonable liquidated damages, since the amount of actual damages to the Company in the event of such breach is uncertain.

9. Nondisparagement . Employee agrees that Employee shall not talk about or otherwise communicate to any third parties in a malicious, disparaging or defamatory manner regarding the Company or the Releasees or any aspect of Employee’s employment with the Company. Further, Employee shall not make or authorize to be made any written or oral statement that may disparage or damage the reputation of the Company or the Releasees.

10. Future Cooperation . Employee agrees that Employee will fully cooperate with the Company in effecting an orderly transition of Employee’s duties and in ensuring that the business of the Company is conducted in a professional, positive and competent manner. Employee agrees that Employee shall, without any additional compensation, respond to reasonable requests for information from the Company regarding matters that may arise in the Company’s business. Employee further agrees to fully and completely cooperate with the Company, its advisors and its legal counsel with respect to any litigation that is pending against the Company and any claim or action that may be filed against the Company in the future. Such cooperation shall include making Employee available at reasonable times and places for interviews, reviewing documents, testifying in a deposition or a legal or administrative proceeding, and providing advice to the Company in preparing defenses to any pending or potential future claims against the Company. The Company agrees to pay/reimburse Employee for any approved travel expenses incurred as a result of Employee’s cooperation with the Company, provided that Employee submits acceptable documentation of all such expenses.

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11. Assistance to Others . Employee agrees not to assist or cooperate, in any way, directly or indirectly, with any person, entity or group (other than the Equal Employment Opportunity Commission (EEOC) or other governmental agency) involved in any proceeding, inquiry or investigation of any kind or nature against or involving the Company or any of its Releasees, except as required by law, subpoena or other compulsory process.

Moreover, to the maximum extent allowable by law, Employee agrees that to the extent Employee is compelled to cooperate with such third parties, Employee shall disclose to the Company in advance that Employee intends to cooperate and shall disclose the manner in which Employee intends to cooperate. Further, to the maximum extent allowable by law, Employee agrees that within three (3) days after such cooperation, Employee will meet with representatives of the Company and disclose the information that Employee provided to the third party. This subparagraph is to be broadly construed and is to include conversations, informal comments, confirmations, suggestions or advice of any type to third parties, their counsel or their advisors. Further, if Employee is legally required to appear or participate in any proceeding that involves or is brought against the Company or the Releasees, Employee agrees to disclose to the Company in advance what Employee plans to say or produce and otherwise cooperate fully with the Company or the Releasees.

12. Arbitration and Damages in Case of Breach . Any and all disputes arising out of or in any way relating to this Separation Agreement shall be submitted to binding arbitration before a panel mutually agreed to by the parties and conducted in accordance with the Rules of the American Arbitration Association. Any breach of this Separation Agreement by Employee or the Company shall entitle the other party to recover (i) any and all amounts paid pursuant to this Separation Agreement, plus (ii) any actual damages that the Company or Employee can establish resulted or will result from such breach, upon a showing to a binding arbitration panel mutually agreed to by the parties and conducted in accordance with the Rules of the American Arbitration Association. The costs of any such proceeding, including reasonable attorneys’ fees, shall be paid by the non-prevailing party. This Paragraph 12 shall not apply to any claim filed by Employee with the Equal Employment Opportunity Commission (EEOC) or other governmental agency, including an action concerning the enforceability of this Separation Agreement.

13. No Admission of Wrongful Conduct . Employee hereby acknowledges and agrees that, by the Company providing the consideration described above and entering into this Separation Agreement, the Company and the Releasees are not admitting any unlawful or otherwise wrongful conduct or liability to Employee or Employee’s heirs, executors, administrators, assigns, agents, attorneys, or other representatives.

Likewise, the Company hereby acknowledges and agrees that, by Employee providing the consideration described above and entering into this Separation Agreement, Employee is not admitting any unlawful or otherwise wrongful conduct or liability to the Company or the Releasees.

Employee and the Company further understand and agree that this Separation Agreement shall not be admissible as evidence in any court or administrative proceeding, except that either party may submit this Separation Agreement to any appropriate forum in the event of

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an alleged breach of this Separation Agreement or a claim by either party concerning the enforceability or interpretation of this Separation Agreement.

14. ADEA/OWBPA Waiver & Acknowledgment . Insofar as this Separation Agreement pertains to the release of Employee’s Claims, if any, under the Age Discrimination in Employment Act, Employee, pursuant to and in compliance with the rights afforded Employee under the Older Workers Benefit Protection Act: (a) is hereby advised to consult with an attorney before executing this Separation Agreement; (b) is hereby afforded twenty-one (21) days to consider this Separation Agreement; (c) may rescind this Separation Agreement any time within the seven (7) day period following Employee’s execution of the Separation Agreement; (d) is hereby advised that this Separation Agreement shall not become effective or enforceable until the seven (7) day revocation period has expired; and (e) is hereby advised that he is not waiving claims that may arise after the date on which he executes the Separation Agreement. If this Separation Agreement is revoked within the revocation period, the Company shall have no obligation under this Separation Agreement. In order for any revocation to be effective, it must be delivered in a written instrument signed by Employee and received by Stefanie G. Box, General Counsel, CECO Environmental Corp, 14651 N. Dallas Parkway, Suite 500 Dallas Texas, 75254 , by 5:00 p.m. eastern time on the seventh (7th) day following the date on which he signs the Separation Agreement. If this Separation Agreement is not revoked within the revocation period, this Separation Agreement will be effective and enforceable on the date immediately following the last day of the seven (7) day revocation period (the “ Effective Date ”). The offer to enter into this Separation Agreement shall remain open for twenty-one (21) days, after which time it shall be withdrawn.

15. Taxes . The Company may withhold from any amounts payable under this Separation Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any applicable law, regulation or ruling. Notwithstanding any other provision of this Separation Agreement, the Company shall not be obligated to guarantee any particular tax result for Employee with respect to any payment provided to Employee hereunder, and Employee shall be responsible for any taxes imposed on Employee with respect to any such payment.

16. Reemployment or Future Association . Employee hereby agrees that Employee shall not seek reinstatement or apply for future employment with the Company or any of its affiliates and subsidiaries; and should Employee apply for reinstatement or re-employment in violation of this paragraph, neither the Company nor any of its affiliates and subsidiaries shall incur any liability by virtue of its or their refusal to hire Employee or consider Employee for employment.

17. Governing Law . This Separation Agreement shall in all respects be interpreted, construed and governed by and in accordance with the internal substantive laws of the Commonwealth of Pennsylvania.

18. Severability . Should any provision of this Separation Agreement be declared or be determined by any court to be invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said invalid part, term or provision shall be deemed not to be part of this Separation Agreement. The waiver of a breach of any of the provisions of

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this Separation Agreement shall not operate or be construed as a waiver of any other provision of this Separation Agreement or a waiver of any subsequent breach of the same provision.

19. Voluntary Execution . Employee acknowledges that Employee is executing this Separation Agreement voluntarily and of Employee’s own free will and that Employee fully understands and intends to be bound by the terms of this Separation Agreement. Further, Employee acknowledges that Employee received a copy of this Separation Agreement on July 17, 2017 and has had an opportunity to carefully review this Separation Agreement with Employee’s attorney prior to executing it or warrants that Employee chooses not to have Employee’s attorney review this Separation Agreement.

20. No Assignment of Claims . Employee hereby represents and warrants that Employee has not previously assigned or purported to assign or transfer to any person or entity any of the claims or causes of action herein released.

21. Effective Date. This Separation Agreement will not become effective until the eighth (8th) day after Employee executes this Separation Agreement.

22. Fees and Costs. The Company and Employee will each bear their own attorney’s fees and costs in connection with drafting and negotiation of this Separation Agreement. In the event that any party to this Separation Agreement initiates legal action in any court or adjudicative body to enforce any provision of this Separation Agreement, or initiates legal action based upon the breach of any provision of this Separation Agreement by any other party, the prevailing party in any such legal proceeding shall recover, in addition to any legal or equitable relief otherwise available under applicable law, reasonable costs and expenses (including attorneys’ fees) incurred in connection with the prosecution or defense of any such legal action.

23. Entire Agreement . This Separation Agreement, including Exhibit A , constitutes the entire agreement between the Company and Employee with respect to the subject matter of this Separation Agreement, and effective as of its date supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, and there are no other written or oral agreements, understandings or arrangements except as set forth herein. Any amendments, additions or other modifications to this Separation Agreement must be set forth in writing, signed by both parties, and subject to approval by the Company’s Board of Directors in order to be binding.

24. Successors and Assigns . This Separation Agreement shall bind and inure to the benefit of and be enforceable by Employee, the Company and their respective heirs, executors, personal representatives, successors and assigns, except that neither party may assign any rights or delegate any obligations hereunder without the prior written consent of the other party. Employee hereby consents to the assignment by the Company of all of its rights and obligations hereunder to any successor to the Company by merger or consolidation or purchase of all or substantially all of the Company’s assets, provided such transferee or successor assumes the liabilities of the Company hereunder.

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25. Counterparts . This Separation Agreement may be executed in separate counterparts (including facsimile and other electronically transmitted counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

READ THIS AGREEMENT CAREFULLY AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT: IT INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS. IF YOU WISH, YOU SHOULD TAKE ADVANTAGE OF THE FULL CONSIDERATION PERIOD AFFORDED BY PARAGRAPH 14 AND YOU SHOULD CONSULT AN ATTORNEY.

[Signature Page Follows]

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IN WITNESS WHEREOF , Employee and a duly authorized representative of the Company hereby certify that they have read this Separation Agreement in its entirety and voluntarily executed it, as of the date set forth under their respective signatures.


Edward J. Prajzner	CECO Environmental Corp.

	By:/s/ Hilliary Jeffries
/s/ Edward J. Prajzner	Name: Hilliary Jeffries
	Title: Chief Human Resources and Administration Officer

7/21/2017	7/31/2017
Date	Date

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Exhibit A

Agreement Relating to Inventions, Confidential
Information and Post-Employment Restrictions
With Employment At Will Acknowledgment

I, Edward E. Prajzner, the undersigned, hereby enter into this Agreement with Met-Pro Corporation and each of its divisions, affiliates, successors and assigns (hereinafter referred to as the “Company”). In consideration of my employment by Met-Pro Corporation, (hereinafter referred to as the Company), and in consideration of the salary, wages and benefits, as well as the information and training received by me from the Company during my employment, I hereby agree as follows:

1. No Disclosure of Protected Information . I agree to make available to the Company all knowledge possessed by me relative to any processes, methods, developments, inventions and/or improvements, whether patented, patentable or unpatentable, which concern in any way the business of the Company, whether acquired by me before or during the term of this employment, provided, that nothing herein shall be construed as requiring any disclosure where the process, method, development, invention and/or improvement is lawfully protected from disclosure as a trade secret of a third party or by any other lawful bar to such disclosure.

2. Ownership of Developments and Cooperation . Any processes, methods, developments, inventions and/or improvements, whether patentable or unpatentable, which I may conceive of or make solely or jointly with others, relating to the Company’s business or any part thereof, while in its employ and any sales literature, price lists or customer lists received by or compiled by me during my employ hereunder shall be and remain the property of the Company. I agree to promptly communicate and disclose all such processes, methods, developments, inventions and/or improvements to the Company and to execute and deliver to it any instruments deemed necessary by the Company to affect the disclosure and assignment thereof to it. I also agree on request, and at the expense of the Company, to execute patent applications based on such processes, methods, developments, inventions and/or improvements, including any other instruments deemed necessary by the Company for the prosecution of such patent application or the application of Letters of Patent in the United States or any other country and for the assignment to the Company of any patent which may be issued. The Company shall indemnify and hold me harmless from any and all costs, expenses, liabilities or damages sustained by me by reason of having made such application or being granted such patent.

3. Presumption of Ownership. I agree that inventions or improvements which I may disclose to anyone within one (1) year after the termination of employment with the Company, or for which I may file an application for Letters of Patent within one (1) year after

_______/s/ Edward J. Prajzner 4/16/2012__ _____ Initials & Date (Employee)

_______ /s/ Amy Covely _ 4/17/2012 ______ Initials & Date (Company Representative)

Confidentiality Agreement – Revised 2/10/2012

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termination of employment with the Company, shall be presumed to have been made during my period of employment hereunder, except that if I in fact conceive and make such invention or improvement after termination of my employment with the Company, as clearly shown and established by suitable tangible evidence (e.g. dated and witnessed drawings, notes, etc.), then such invention or improvement shall belong to me and shall be my sole property or property of my assignee. I agree to promptly and completely disclose in writing to the Company all developments which I make during the one year immediately following the end of employment with the Company, which relate to my work at the Company or the Company’s Confidential Information, for the purposes of determining the Company’s rights in each such development.

4. Confidential Information . I recognize and acknowledge that by reason of my employment by and service to the Company, I will have access to and will continue to have access to trade secrets and other confidential and proprietary information of the Company and its affiliates including, without limitation, information and knowledge pertaining to developments, inventions, discoveries, improvements, research, designs, innovations, plans, products, services, manufacturing, packaging, advertising, distribution and sales methods and systems, customer information and lists, pricing, suppliers and others who have business dealings with the Company and its affiliates (“Confidential Information”). I acknowledge that such information is a valuable and unique asset of the Company and agree that I will not, either during my employment with the Company, or after my employment has terminated (whether voluntary or not, whether with or without cause) disclose any such Confidential Information to anyone other than an officer, director, employee, attorney or authorized agent of the Company (except as my duties in the employment by the Company require), without prior written authorization by the Company, unless such information is in the public domain through no fault of mine or except as may be required by law.

5. Protection of Confidential Information . All documents, electronic storage devices and other tangible things embodying or containing the Company’s Confidential Information are the Company’s exclusive property. I have access to them solely for performing the duties of my employment by the Company. I will protect the confidentiality of their content and will return all of them and all copies, facsimiles and specimens of them and any other tangible forms of the Company’s Confidential Information in my possession, custody or control to the Company before leaving the employment of the Company.

6. Restrictions on Competition. I acknowledge that my employment by the Company affords me an opportunity to establish favorable relations with the Company’s customers and employees and may provide me with access to records, processes, methods, customer lists, price lists, bids, bidding procedures, sales techniques, customer files, billing files, vendor files, costing information and other Confidential Information. I acknowledge that the

_______/s/ Edward J. Prajzner 4/16/2012__ _____ Initials & Date (Employee)

_______ /s/ Amy Covely _ 4/17/2012 ______ Initials & Date (Company Representative)

Confidentiality Agreement – Revised 2/10/2012

Page 12 of 16

Company has expended considerable amounts of time, money, and other assets in the development of its relationships with its customers and employees and its Confidential Information, all of which is essential to its business. I therefore agree that while I remain in the employ of the Company and for a period of three (3) years after termination of such employment for any reason whatsoever, I will not, either directly or by assisting or encouraging others, and whether on my own behalf or on behalf of any other person or entity, other than the Company:

(a)

solicit business of a type competitive to that solicited or conducted by the Company from any person or entity who was, at the effective date of the termination of my employment with the Company, or within a three (3) year period prior to such termination, a customer of the Company, as disclosed by the Company’s accounts receivable ledger (a “Met-Pro Customer”), or solicit business of a type competitive to that solicited or conducted by the Company from any prospective customer of the Company with whom I had contact during my employment with the Company or regarding whom I learned Confidential Information while employed by the Company (a “Met-Pro Prospective Customer”);

(b)

transact or conduct any business of the type solicited or conducted by the Company with any Met-Pro Customer or Met-Pro Prospective Customer; and

(c) hire away or attempt to hire away, or induce, solicit or attempt to influence, any other employee of the Company who was employed by the Company on a part-time or full-time basis at the time of the termination of my employment with the Company, or two years prior thereto, to violate his or her contractual obligations to the Company or to leave the Company’s employ.

7. Injunctive Relief and Reasonable Restrictions . It is expressly understood, acknowledged and agreed by me that: (a) the restrictions contained in this Agreement represent a reasonable and necessary protection of the legitimate interests of the Company, and that my failure to observe and comply with the covenants and agreements in this Agreement may cause irreparable harm to the Company; (b) it is and will continue to be difficult to ascertain the nature, scope and extent of the harm to the Company; and (c) monetary damages will, in the event of such failure, be inadequate. Accordingly, it is the intention of the parties that, in addition to any other rights and remedies which the Company may have in the event of any breach of this Agreement, the Company shall be entitled, and is expressly and irrevocably authorized by me, to demand and obtain specific performance, including without limitation, temporary and permanent injunctive relief and all other appropriate equitable relief against me in order to enforce against

_______/s/ Edward J. Prajzner 4/16/2012__ _____ Initials & Date (Employee)

_______ /s/ Amy Covely _ 4/17/2012 ______ Initials & Date (Company Representative)

Confidentiality Agreement – Revised 2/10/2012

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me, or in order to prevent any breach or any threatened breach by me, of the covenants and agreements contained in this Agreement.

8. Reimbursement of Attorneys’ Fees and Costs . I agree to reimburse and indemnify the Company for all expenses, including attorneys’ fees and costs, incurred by the Company if it is successful in enforcing any of its rights under this Agreement.

9. Prayer for Reformation . In the event that any of the provisions of Paragraphs 4, 5, and 6 hereof should ever be adjudicated to exceed the time, geographic, scope of activity, or other limitations permitted by applicable law in any jurisdiction, then the Company and myself each knowingly and voluntarily request that any Court or factfinder before whom this Agreement is in controversy, reform the restrictions herein, if such reformation is necessary to make any of them enforceable, to the maximum time, geographic, scope of activity, or other limitations permitted by applicable law.

10. Tolling of Restrictive Covenants During Violation . If I violate the restrictions contained in this Agreement, I agree that the restrictive period of each covenant so violated shall be extended by a period of time equal to the period of such violation. It is the intent of this paragraph that the running of the restrictive period of a restrictive covenant shall be tolled during any violation of such covenant so that the Company shall get the full and reasonable protection for which it contracted and so that I may not profit by my own breach.

11. Notification to Subsequent Employers . Should my employment with the Company terminate for any reason whatsoever I agree for a period of three (3) years after my employment with the Company ends to notify any prospective employers of the existence and terms of this Agreement.

12. No Waiver . The waiver by any party of any breach or default of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

13. Modifications . This Agreement may not be changed orally, but only by an agreement in writing duly executed on behalf of the party against which or whom enforcement of any waiver, change, modification, consent or discharge is sought.

14. Severability . If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction or other factfinder, such term or provisions shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. Any such invalid or unenforceable provision shall be construed to be valid

_______/s/ Edward J. Prajzner 4/16/2012__ _____ Initials & Date (Employee)

_______ /s/ Amy Covely _ 4/17/2012 ______ Initials & Date (Company Representative)

Confidentiality Agreement – Revised 2/10/2012

Page 14 of 16

and enforceable to the extent compatible with and possible under applicable law, and the parties hereto consent that the scope of any such provision may be judicially modified accordingly in any proceeding brought to enforce any of the provisions hereof.

15. Succession and Assignment . All of the terms of this Agreement shall be binding on and inure to the benefit of any successors, assigns or legal representatives of the Company. This Agreement may be assigned by the Company without prior notice to me and without my consent.

16. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to any choice or conflict of law provision or rule (whether of the Commonwealth of Pennsylvania or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Pennsylvania.

17. Employment At Will Relationship . Nothing in this Agreement shall be deemed to create a contract of employment for a specific term. My employment relationship is at-will and may be terminated at any time, at will by either the Company or me. No representation or statement by any Company employee or any document supersedes the foregoing or establishes an employment contract or any term thereof.

18. Headings . The headings of the paragraphs of this Agreement have been inserted for convenience of reference only and shall not restrict or modify any of the terms or provisions hereof.

_______/s/ Edward J. Prajzner 4/16/2012__ _____ Initials & Date (Employee)

_______ /s/ Amy Covely _ 4/17/2012 ______ Initials & Date (Company Representative)

Confidentiality Agreement – Revised 2/10/2012

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19. Entire Understanding . This Agreement constitutes the entire understanding of the parties with respect to its subject matter.

By the Employee: By the Company:

Dated: ______ 4/16/2012 ________________ Dated: _____ 4/17/2012 __________

Signed: ______ /s/ Edward J. Prajzner ___ Signed: ____ /s/ Amy Covely ______

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Exhibit 10.2

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT dated and effective as of October 31, 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 and Amendment No. 2 to Amended and Restated Credit Agreement dated as of June 9, 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 as of August 27, 2013 (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 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 Charge Coverage Ratio”, “Consolidated Fixed Charges”, “Consolidated Funded Indebtedness”, “Defaulting Lender”, “Excess Cash Flow”, “Lending Office” and “L/C Issuer” 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 $5,000,000 with respect to any particular period of four consecutive fiscal quarters, (vii) expenses paid in connection with restructurings (including, but not limited to, severance costs in connection with any restructurings disclosed to the Administrative Agent prior to the Amendment No. 3 Effective Date) ; provided that the aggregate amount permitted to be added back pursuant to this clause (vii) shall not exceed $4,000,000 during the term of this Agreement, (viii) reasonable, out-of-pocket costs and expenses incurred during such period in connection with any Disposition occurring within 24 months following the Amendment No. 3 Effective Date , (ix) costs and expenses resulting from any warranty and repair claims disclosed to the Administrative Agent prior to the Amendment No. 3 Effective Date; provided that the aggregate amount permitted to be added back pursuant to this clause (ix) , when taken together with the aggregate amount added back pursuant to the succeeding clause (x) , shall not exceed $7,000,000 during the term of this Agreement , (x) losses resulting from the write-down of accounts receivable (including unbilled accounts receivable) of any Foreign Subsidiary disclosed to the Administrative Agent prior to the Amendment No. 3 Effective Date ; provided that the aggregate amount permitted to be added back pursuant to this clause ( x ) , when taken together with the aggregate amount added back pursuant to the preceding clause (ix) , shall not exceed $ 7,000,000 during the term of this Agreement and (xi) 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 Charge Coverage Ratio ” means, as of any date of determination, the ratio of (a) the remainder of (i) Consolidated EBITDA for the period of the four fiscal quarters most recently ended minus (ii) Capital Expenditures during such period (excluding (A) Capital Expenditures constituting payments in respect of capital leases and Capital Expenditures financed by Indebtedness permitted hereunder, (B) amounts expended as consideration for Acquisitions permitted hereunder 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) ); provided that for purposes of calculating the Consolidated Fixed Charge Coverage Ratio for any period ending on or after March 31, 2018, the amount of Capital Expenditures for each of the fiscal quarters ended June 30, 2017 through (and

including) December 31, 2019 shall be deemed to be $0 minus (iii) Federal, state, local and foreign income taxes paid by the Company and its Subsidiaries during such period to (b) Consolidated Fixed Charges 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 (it being acknowledged and agreed that, solely for purposes of calculating the foregoing, (i) scheduled principal payments of Consolidated Funded Indebtedness (other than in respect of the Term Loans) shall be those originally scheduled either at the time of incurrence of such Consolidated Funded Indebtedness or as subsequently modified by an agreement expressly modifying such originally scheduled principal payments (without giving effect to any reduction in such originally scheduled principal payments as a result of the application of any principal prepayments) and (ii) scheduled principal payments of the Term Loans shall be those set forth on Schedule 2.07(a) as of the Amendment No. 3 Effective Date, except that, to the extent any prepayment of the Term Loans is made after the Amendment No. 3 Effective Date, such scheduled principal payments shall be reduced by an amount equal to the lesser of (A) the actual reduction to such scheduled principal payments from such prepayment and (B) the amount by which such scheduled principal payment would have been reduced if the prepayment had been applied on a pro rata basis to all remaining scheduled principal payments (including the final payment due at maturity) of the Term Loans (regardless of the actual application of such prepayment) , (c) dividends and distributions paid in cash by the Company to its shareholders during such period; provided that for purposes of calculating the Consolidated Fixed Charges for any period ending on or after December 31, 2017, the amount of dividends and distributions paid in cash by the Company for each of the fiscal quarters ended March 31, 2017 through September 30, 2017 shall be deemed to be $0 (unless any such dividends or distributions are paid in cash on or after October 1, 2017, in which case this proviso shall have no effect), 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, and without duplication, 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, (iii) performance-based surety bonds on which no claims have been asserted and (iv) undrawn letters of credit and undrawn bank guarantees securing customer contracts, 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) .

“ Defaulting Lender ” means, subject to Section 2.17(b) , any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Company in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any L/C Issuer, the Swing Line Lender or any other Lender any other amount required to be paid by it hereunder (including, in the case of any Revolving Credit (USD) Lender, in respect of its participation in Letters of Credit or Swing Line Loans) within two Business Days of the date when due, (b) has notified the Company, the Administrative Agent, any L/C Issuer or the Swing Line Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Company, to confirm in writing to the Administrative Agent and the Company that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Company), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be

a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.17(b) ) as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Company, each L/C Issuer, the Swing Line Lender and each other Lender promptly following such determination.

“ 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, Disposition 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 $5,000,000 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; minus (k) cash charges or expenses added back in determining Consolidated EBITDA for such fiscal year pursuant to clauses (a)(vii) through (a)(x) of the definition of Consolidated EBITDA; and (l) 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.

“ Lending Office ” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Company and the Administrative Agent, which office may include any Affiliate of such Lender or any domestic or foreign branch of such Lender or such Affiliate. Unless the context otherwise requires each reference to a Lender (including in its capacity as an L/C Issuer) shall include its applicable Lending Office.

“ L/C Issuer ” means, individually or collectively as the context may indicate, (a) Bank of America, in its capacity as an issuer of Letters of Credit hereunder or any successor to Bank of America in its capacity as an issuer of Letters of Credit hereunder, (b) Fifth Third Bank, in its capacity as an issuer of Letters of Credit hereunder or any successor to Fifth Third Bank in its capacity as an issuer of Letters of Credit hereunder, (c) Citibank, N.A., in its capacity as an issuer of Letters of Credit hereunder or any successor to Citibank, N.A. in its capacity as an issuer of Letters of Credit hereunder, (d) JPMorgan Chase Bank, N.A., in its capacity as an issuer of Letters of Credit hereunder or any successor to JPMorgan Chase Bank, N.A. in its capacity as an issuer of Letters of Credit hereunder and (e) any other Revolving Credit (USD) Lender selected by the Company and reasonably acceptable to the Administrative Agent, which consents to its appointment by the Company as an issuer of Letters of Credit hereunder and becomes an L/C Issuer hereunder pursuant to a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent, in its capacity as an issuer of Letters of Credit hereunder or any successor to such Lender in its capacity as an issuer of Letters of Credit hereunder.

(b) The definition of “Applicable Rate” in Section 1.1 is amended by replacing the pricing grid set forth therein in its entirety with the pricing grid below:


Pricing Level	Consolidated Leverage Ratio	Commitment Fee	Eurocurrency Rate Loans and Letter of Credit Fee	Base Rate Loans
I	Less than 1.75 to 1.00	0.250%	2.250%	1.250%
II	Greater than or equal to 1.75 to 1.00 but less than 2.25 to 1.00	0.300%	2.500%	1.500%
III	Greater than or equal to 2.25 to 1.00 but less than 2.75 to 1.00	0.350%	2.750%	1.750%
IV	Greater than or equal to 2.75 to 1.00 but less than 3.25 to 1.00	0.450%	3.000%	2.000%
V	Greater than or equal to 3.25 to 1.00	0.500%	3.250%	2.250%

(c) The definition of “Federal Funds Rate” in Section 1.1 is amended by deleting the reference therein to “arranged by Federal funds brokers on such day,”.

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

“ Amendment No. 3 Effective Date ” means October 3 1 , 2017.

“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“ Benefit Plan ” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include “plan assets” (as defined by ERISA Section 3(42)) of any such “employee benefit plan” or “plan”.

“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a Subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“ PTE ” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.

“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

(e) Each of Section 2.05(b)(i) is amended to read as follows:

(i) If the Company or any of its Subsidiaries Disposes of any property (other than any Disposition of any property permitted by Section 7.05(a) , (b) , (c) , (d) or (e) ) which results in the realization by such Person of Net Cash Proceeds, the Company shall prepay Term Loans and, if so provided in the applicable Additional Commitments Amendment, Additional Term Loans then outstanding in an amount

equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by such Person (such prepayment to be applied as set forth in clause (v) below); provided , however , that, with respect to any Net Cash Proceeds realized under a Disposition described in this Section 2.05(b)(i) , at the election of the Company (as notified by the Company to the Administrative Agent on or prior to the date of such Disposition), and so long as no Event of Default shall have occurred and be continuing, the Company or such Subsidiary may reinvest all or any portion of such Net Cash Proceeds in operating assets so long as (A) within 180 days after the receipt of such Net Cash Proceeds, a definitive agreement for the purchase of such assets shall have been entered into and (B) within 270 days after the receipt of such Net Cash Proceeds, such purchase shall have been consummated (as certified by the Company in writing to the Administrative Agent); and provided further , however , that any Net Cash Proceeds not subject to such definitive agreement or so reinvested shall be immediately applied to the prepayment of the Loans as set forth in this Section 2.05(b)(i) . Notwithstanding the foregoing, (x) the optional reinvestment provisions set forth in this Section 2.05(b)(i) shall not apply during the initial 18-month period following the Amendment No. 3 Effective Date and, as a result, the Company shall be required to make the prepayments contemplated in this Section 2.05(b)(i ) as if those provisions did not exist; provided that the Company and its Subsidiaries shall be permitted to reinvest up to $5,000,000 of the Net Cash Proceeds resulting from the Dispositions described above in accordance with such optional reinvestment provisions during such initial 18-month period once the Company has applied at least $25,000,000 in Net Cash Proceeds received after the Amendment No. 3 Effective Date to the prepayment of the Loans as set forth in this Section 2.05(b)(i) and (y) the Company and its Subsidiaries shall be permitted to exclude up to $2,500,000 of the Net Cash Proceeds resulting from the Dispositions described above (other than any Disposition disclosed to the Administrative Agent prior to the Amendment No. 3 Effective Date) and received after the Amendment No. 3 Effective Date from the prepayment requirements contemplated in this Section 2.05(b)(i) .

(f) Article V is amended to add the following new Sections 5.26 and 5.27 to the end thereof:

5.26 EEA Financial Institution. No Loan Party is an EEA Financial Institution.

5.27 Borrower ERISA Status. Each Borrower represents and warrants as of the Amendment No. 3 Effective Date that such Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments.

(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) from the Amendment No. 3 Effective Date through the Facility Termination Date shall not exceed $ 60,000,000 (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 7.06(d) is amended to read as follows:

(d) so long as no Event of Default exists or would result therefrom and after giving effect thereto the Company is in pro forma compliance with the financial covenants set forth in Section 7.11 ( calculated as of the last day of the four fiscal quarter period most recently ended for which financial information is available, but, in the case of the Consolidated Fixed Charge Coverage Ratio, ignoring all cash dividends and distributions made during such period and instead assuming that the particular cash dividend or cash distribution and all other cash dividends and distributions made pursuant to this clause (d) during the trailing 365-day period immediately preceding the day on which such cash distribution or cash dividend is proposed to be made were made on the last day of such four fiscal quarter period), the Company may declare and pay cash dividends and distributions to the holders of its Equity Interests.

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

(b) Consolidated Leverage Ratio . Permit the Consolidated Leverage Ratio as of the last day of any fiscal quarter of the Company during any period set forth below to be greater than the ratio set forth below opposite such period:


Period	Consolidated Leverage Ratio
September 30, 2017 through March 31, 2019	3.75 to 1.00
June 30, 2019 through September 30, 2019	3.50 to 1.00
December 31, 2019 and thereafter	3.25 to 1.00

(j) Article VII is amended to add the following new Section 7.17 to the end thereof:

7.17 Capital Expenditures. With respect to each of the fiscal years ending December 31, 2018 and December 31, 2019, make Capital Expenditures in excess of $7,000,000 in the aggregate for the Company and its Subsidiaries during any such fiscal year.

(k) Article IX is amended to add the following new Section 9.12 to the end thereof:

9.12 Lender ERISA Status.

(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender

party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Company or any other Loan Party, that at least one of the following is and will be true:

(i) such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments,

(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement,

(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or

(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.

(b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arranger and their respective Affiliates, and not,

for the avoidance of doubt, to or for the benefit of the Company or any other Loan Party, that:

(i) none of the Administrative Agent or the Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or thereto),

(ii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),

(iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Obligations),

(iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Letters of Credit, the Commitments and this Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and

(v) no fee or other compensation is being paid directly to the Administrative Agent or the Arranger or any their respective Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Letters of Credit, the Commitments or this Agreement.

(c) The Administrative Agent and the Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or

otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.

(l) Article X is amended to add the following new Section 10.22 to the end thereof:

10.22 Acknowledgment and Consent to Bail-In of EEA Financial Institutions. Solely to the extent any Lender or L/C Issuer that is an EEA Financial Institution is a party to this Agreement and notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender or L/C Issuer that is an EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any Lender or L/C Issuer that is an EEA Financial Institution; and

(b) the effects of any Bail-In Action on any such liability, including, if applicable:

(i) a reduction in full or in part or cancellation of any such liability;

(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or

(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.

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

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. Joinder of Additional L/C Issuers . Each of Citibank, N.A. and JPMorgan Chase, N.A. hereby becomes a n L/C Issuer for all purposes under the Credit Agreement and the other Loan Documents and bound by all the terms, conditions, obligations, liabilities and undertakings of each L/C Issuer or to which each L/C Issuer is subject thereunder, all with the same force and effect as if it had originally sign ed the Credit Agreement as an “L/C Issuer”.

Section 3. Conditions Precedent . The effectiveness of this Amendment and the amendments and other agreements 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 October 16, 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 4. 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 5 . 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 Eckl

Name: Matthew 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 Eckl

Name: Matthew Eckl

Title: Chief Financial Officer

CECO GROUP GLOBAL HOLDINGS LLC

FKI, LLC

By: _________ /s/ Matthew Eckl

Name: Matthew Eckl

Title: Chief Financial Officer

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

H.M. WHITE, INC.

By: _________ /s/ Matthew Eckl

Name: Matthew Eckl

Title: Chief Financial Officer

KBD/TECHNIC, INC.

By: _________ /s/ Matthew Eckl

Name: Matthew 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 Eckl ________________________

Name: Matthew Eckl

Title: Chief Financial Officer

MET-PRO INDUSTRIAL SERVICES, INC.

By:_____ /s/ Matthew Eckl ________________________

Name: Matthew Eckl

Title: Chief Financial Officer

EMTROL LLC

By:_____ /s/ Matthew Eckl _________________________

Name: Matthew Eckl

Title: Chief Financial Officer

AMENDMENT NO. 3 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 Eckl _____________________

Name: __ Matthew Eckl _______________________

Title:__ Chief Financial Officer _________________

SAT TECHNOLOGY, INC.

By: ____ /s/ Matthew Eckl ______________________

Name: ___ Matthew Eckl _______________________

Title:___ Chief Financial Officer ________________

CECO AIR QUALITY SOLUTIONS, INC.

By: ____ /s/ Matthew Eckl _______________________

Name: ___ Matthew Eckl _______________________

Title:___ Chief Financial Officer _________________

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A. ,

as Administrative Agent

By: /s/ Kyle D. Harding

Name: Kyle D. Harding

Title: Assistant Vice President

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

LENDERS:

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

By: /s/ Gregg Bush

Name: Gregg Bush

Title: Senior Vice President

AMENDMENT NO. 3 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. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

JPMORGAN CHASE BANK, N.A. , as a Lender and an L/C Issuer

By: /s/ Joe Carroll

Name: Joe Carroll

Title: Senior Underwriter

AMENDMENT NO. 3 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: Assistant Vice President

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

TD bank, n.a. , as a Lender

By: /s/ Susan Schwartz

Name: Susan Schwartz

Title: Vice President

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

PNC BANK, NATIONAL ASSOCIATION , as a Lender

By: /s/ Alex Parlin

Name: Alex Parlin

Title: Vice President

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

citibank, n.a. , as a Lender and an L/C Issuer

By: /s/ John Torres

Name: John Torres

Title: Senior Vice President

AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT

Signature Page

ASSOCIATED BANK, NATIONAL ASSOCIATION , as a Lender

By: /s/ William W. Carrier

Name: William W. Carrier

Title: Senior Vice President

AMENDMENT NO. 3 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 expenses for Subject Period:$

Amortization expenses 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 $5,000,000 with respect to any Subject Period):$

Expenses in connection with restructurings (not to exceed $4,000,000 during the term of the Credit Agreement):$_______________

10.

Costs and expenses incurred with respect to Dispositions occurring within 24 months following the Amendment No. 3 Effective Date:$_______________

11.

Costs and expenses relating to warranty and repair claims disclosed to the Administrative Agent prior to the Amendment No. 3 Effective Date (not to exceed $7,000,000 during the term of the Credit Agreement, when taken together with all addbacks of the type described in item 12 below):$_______________

12.

Losses from the write-down of certain Foreign Subsidiaries’ accounts receivable (including unbilled accounts receivable) disclosed to the Administrative Agent prior to the Amendment No. 3 Effective Date (not to exceed $7,000,000 during the term of the Credit Agreement, when taken together with all addbacks of the type described in item 11 above):$_______________

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.

D-3

Form of Compliance Certificate

13 .

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

1 4 .

Income tax credits for Subject Period: $

1 5 .

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

1 6 .

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

6 + 7 + 8 + 9 + 10 + 11 + 12 + 13 – 14 – 15):$

Capital Expenditures during Subject Period ² :$

Income taxes paid during Subject Period:$

Consolidated Fixed Charges for Subject Period:

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

2. Scheduled principal payments of Consolidated Funded Indebtedness during Subject Period: ³ $______________

3. Dividends and distributions paid in cash by Company to its shareholders during Subject Period: ⁴ $______________

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

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. Also, note that for purposes of calculating the Consolidated Fixed Charge Coverage Ratio for any period ending on or after March 31, 2018, the amount of Capital Expenditures for each of the fiscal quarters ended June 30, 2017 through December 31, 2019 shall be deemed to be $0.

³	See note in the definition of “Consolidated Fixed Charges” for purposes of calculating the amount of the scheduled principal payments.

⁴

Note that for purposes of calculating the Consolidated Fixed Charge Coverage Ratio for any period ending on or after December 31, 2017, the amount of dividends and distributions paid in cash by the Company for each of the fiscal quarters ended March 31, 2017 through September 30, 2017 shall be deemed to be $0 (unless any such dividends or distributions are paid in cash on or after October 1, 2017, in which case this note shall have no effect) .

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 ⁵ :$______________

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.16 above): $

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

Maximum Permitted:


Period	Consolidated Leverage Ratio
September 30, 2017 through March 31, 2019	3.75 to 1.00
June 30, 2019 through September 30, 2019	3.50 to 1.00
December 31, 2019 and thereafter	3.25 to 1.00

⁵

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 ⁶

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
+ 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)
+ expenses for restructurings (subject to cap)
+ expenses related to Dispositions within 24 months of Amendment No. 3 Effective Date
+ costs and expenses of warranty and repair claims disclosed prior to the Amendment No. 3 Effective Date (subject to cap)

⁶	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


+ losses from write-down of accounts receivable of any Foreign Subsidiary disclosed prior to the Amendment No. 3 Effective Date (subject to cap)
+ Other non-cash expenses
- income tax credits
- non-cash income
= Consolidated EBITDA

D-7

Form of Compliance Certificate

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

SCHEDULE 3 ⁷
to the Compliance Certificate
($ in 000’s)

List of Excluded Subsidiaries ⁸


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

⁷	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.

⁸

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-8

Form of Compliance Certificate

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: November 8, 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: November 8, 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 September 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: November 8, 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 September 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: November 8, 2017