CECO Environmental Annual Report 2017

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FY2017 Annual Report · CECO Environmental

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2017 Annual Report

Clean, safe,

efficient technologies

that help protect

our shared

environment

Dear Shareholders,

As I stepped into the CEO role in early 2017, I saw a great business that is focused on providing long-
term benefits in the world we live in by enabling our customers to grow with clean, safe, efficient solutions
to help protect our shared environment. CECO Environmental is a business that solves real problems
and helps industrial businesses provide a better place to work and live for their employees, customers,
and communities.

I believe CECO has significant potential to have a much larger influence on our customers and the world
in which we live. However, in order to realize this opportunity, it was clear at the outset that there was a
need to recalibrate our strategy and strengthen the foundation of the company to enable future growth.

At CECO Environmental, we believe industrial expansion doesn’t have to result in increased pollution.
Across a broad range of industries, our offerings significantly improve air quality by reducing toxins from
being emitted into the air, reduce noise related to industrial operations and keep people safe in their
workplace from potentially harmful materials. Our fluid handling technologies help ensure the safe and
efficient operation of high-temperature and often corrosive fluids in mission-critical industrial applications.

While there is tremendous long-term potential, in 2017 the company experienced a significant downturn in
a number of our end markets which accelerated the need for transformational change. Headwinds were
particularly challenging with thermal power generation experiencing a temporary over-supply and
refineries deferring large projects and planned down-time repairs. These challenges impacted our results
with lower than desired bookings, sales, and income.

The market headwinds and transitional change made 2017 a challenging year for CECO, and increased
the need to strengthen the organization and reset a vision that will allow for sustainable organic growth
and a clear path to shareholder value creation.

Building a Strategy to Win Share and Deliver Organic Growth
One of the most important accomplishments in 2017 was an overall assessment and recalibration of our
strategy. We made important decisions regarding lucrative and winnable end markets, portfolio
adjustments and capital reallocation, including an amended credit facility that provides flexibility to invest
in targeted growth platforms.

We completed our planning and rolled out our operational strategy that defines our focus and investment
priorities going forward.

Four Value Enablers Driving Organizational Strength:

 Outside-In Leadership

Innovation
 Simplification
 Portfolio Management

All four of these are inter-connected and critical to achieving our objectives.

Outside-In Leadership is all about an increased focus on listening to our customers and the world
around us as we make decisions to drive a positive cultural shift throughout the company, invest in sales
enablement and brand building, and organize the company to exploit high potential markets.

Innovation is about us finding better ways to help our customers get their jobs done – whether that is a
new product and technology or the way we serve and work with them. It requires prioritization and will be
supported with consistent investment to turn ideas into valuable customer solutions and efficient ways to
serve the markets.

Simplification involves aligning and streamlining our operational practices and metrics to match our
customers’ KPIs for success as well as the reduction of multiple ERPs and legal entities.

Active Portfolio Management dictates a regular evaluation of business units for market attractiveness
versus market share together with strict capital budgeting.

Organizational Realignment: Industrial Solutions, Energy Solutions, Fluid Handling Solutions

As part of the assessment and recalibration of our strategy we determined that a realignment of our
segments was necessary to better reflect the technologies and solutions provided. Moving forward we will
be reporting the three following segments:

Industrial Solutions Segment

Our Industrial Solutions segment improves air quality with a compelling solution set of 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.

Energy Solutions Segment

Our Energy Solutions segment improves air quality and solves fluid handling needs with market
leading, highly engineered, and customized solutions for the power generation, oil & gas, and
petrochemical industries.

Fluid Handling Solutions Segment

Our Fluid Handling Solutions segment provides solutions for mission‐critical applications to a wide
variety of industries including, but not limited to, plating and metal finishing, food and beverage,
chemical, petrochemical, pharmaceutical, wastewater treatment, desalination and the aquarium &
aquaculture markets.

Three Targeted Growth Markets: Industrial Pollution Control, Clean Energy, and Fluid Handling.
Our three reporting segments provide products and solutions for three defined and attractive target
markets.

In Industrial Pollution Control, our aim is to address the growing need to protect the air we breathe and
help our customers’ desires for sustainability upgrades beyond carbon footprint issues. In the energy
market, we are a key part of helping meet the global demand for Clean Energy with products and services
that support our customers with efficient solutions and technologies to keep the world clean and safe. In
the Fluid Handling markets, we have unique pump and filtration solutions that maintain safe and clean
operations in even the most harsh and toxic environments.

Across the board we will continue our emphasis on aftermarket opportunities that protect and deepen our
end user relationships with long-term high-margin service contracts.

Leveraging Leading Technologies and Brand Status
While we maintain a leadership position in niche areas of air quality and fluid handling we still have
significant untapped potential to expand our market position by leveraging strengths within the company.
For example, Peerless, long recognized as a global leader for delivering customized solutions in gas
turbine exhaust systems, offers solutions such as Selective Catalytic Reduction (SCR) for the reduction of
ozone depleting NOx.

Our leading brand position enabled CECO to win several significant SCR projects awarded in 2017 and
remains positioned for growth. During the final quarter of 2017, we won the entire exhaust train for what
will be the largest single-cycle natural-gas fired power plant in the U.S. Our flagship CECO Peerless
team offered a full solution that included several other portfolio brands and products such as Effox
expansion joints, and Aarding stack silencers, into an integrated solution on this historic project.

Increasing Focus on Expanding Customer Relationships within Key Accounts
In 2017, we also made important changes to increase support for key account customers in both original
equipment and aftermarket sales. As relationships deepen in these large major accounts, we expect to
see an increased share of spend from existing and new contacts within our top accounts.

2018 Outlook
In 2018, we are investing in targeted growth opportunities and major account relationships with key
industrials and other companies around the world. We are proud that our customers continue to
demonstrate a preference for CECO’s leading technologies and brands and for working with our
employees who are some of the most respected experts in their fields. We will continue to focus on
driving preference for our leading brands by strengthening sales and marketing tools, providing essential
resources and training, and optimizing operations to ensure the company is best-positioned as markets
begin to rebound.

While there is still much work to be done, I believe the strategic direction, organizational realignment and
our targeted growth opportunities position CECO to be more competitive in 2018 and beyond.

In closing, I want to call out the positive influence CECO employees continue to make around the world.
So, as we turn the calendar on a difficult 2017, it is important to acknowledge the work of the nearly 1,000
dedicated CECO Environmental team members around the globe who strive each day to reduce
pollutants, improve air quality and help protect our shared environment that we all live and work in. On
behalf of the senior leadership team and the Board of Directors, I extend our sincere thanks for their
efforts.

And finally, I want to thank our shareholders for their continued confidence as we work to make the
strategic changes necessary to drive long-term sustainable growth and value.

Sincerely,
Dennis Sadlowski,
CEO
CECO Environmental

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)
 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2017
or

 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.

Delaware
(State or other jurisdiction of
incorporation or organization)
14651 North Dallas Parkway
Dallas, Texas
(Address of principal executive offices)

13-2566064
(I.R.S. Employer
Identification No.)

75254
(Zip Code)

Registrant’s telephone number, including area code: (513) 458-2600
Securities registered under Section 12(b) of the Act:

Title of Each Class
Common Stock, $0.01 par value per share

Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC

Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 

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 website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (check one)

Large Accelerated Filer
Non-Accelerated Filer
Emerging growth company





Accelerated Filer
Smaller reporting 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 aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was $277.5 million based upon the closing market

price and shares of common stock outstanding as of June 30, 2017. For the purpose of the foregoing calculation only, all directors and executive officers of the
registrant and owners of more than 10% of the registrant’s common stock are assumed to be affiliates of the registrant. This determination of affiliate status is not
necessarily conclusive for any other purpose.

As of March 2, 2018, the registrant had 34,736,834 shares of common stock, par value $0.01 per share, outstanding.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which is to be filed with the Securities and Exchange Commission

within 120 days of the fiscal year ended December 31, 2017, are incorporated by reference into Part III of this Annual Report to the extent described herein.

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CECO Corporation and Subsidiaries
ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 2017

TABLE OF CONTENTS

Item
PART I.

Description

Item 1.

Business ....................................................................................................................................................................

Item 1A.

Risk Factors ..............................................................................................................................................................

Item 1B.

Unresolved Staff Comments .....................................................................................................................................

Item 2.

Properties ..................................................................................................................................................................

Item 3.

Legal Proceedings .....................................................................................................................................................

Item 4.

Mine Safety Disclosures ...........................................................................................................................................

PART II.

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities ..............................................................................................................................................................

Item 6.

Selected Financial Data .............................................................................................................................................

Item 7.

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

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk ..................................................................................

Item 8.

Financial Statements and Supplementary Data.........................................................................................................

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................

Item 9A.

Controls and Procedures ...........................................................................................................................................

Item 9B.

Other Information .....................................................................................................................................................

PART III.

Item 10.

Directors, Executive Officers and Corporate Governance........................................................................................

Item 11.

Executive Compensation...........................................................................................................................................

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................

Item 13.

Certain Relationships and Related Transactions, and Director Independence..........................................................

Item 14.

Principal Accounting Fees and Services ...................................................................................................................

PART IV.

Item 15.

Exhibits and Financial Statement Schedules.............................................................................................................

Item 16.

Form 10-K Summary ................................................................................................................................................

SIGNATURES ................................................................................................................................................................................

Page

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Securities Act of 1933 (the

“Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) which are intended to be covered by the safe harbor
for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Any statements contained in this
Annual Report on Form 10-K, other than statements of historical fact, including statements about management’s beliefs and
expectations, are forward-looking statements and should be evaluated as such. These statements are made on the basis of
management’s views and assumptions regarding future events and business performance. 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 and uncertainties, among others,
that could cause actual results to differ materially are discussed under “Part I – Item 1A. Risk Factors” of this Annual Report on Form
10-K and include, but are not limited to: our ability to successfully realize the expected benefits of our restructuring 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 fixed price contracts and the risks associated therewith, including actual costs exceeding estimates and method of
accounting for contract revenue; fluctuations in operating results from period to period due to cyclicality or seasonality of the
business; the effect of growth on CECO’s infrastructure, resources, and existing sales; the ability to expand operations in both new and
existing markets; the potential for 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 incurred in connection with our acquisitions and our ability to repay or refinance it or incur additional debt in the
future; the impact of federal, state or local government regulations; economic and political conditions generally; and the effect of
competition in the environmental, energy and fluid handling and filtration industries. Many of these risks are beyond management’s
ability to control or predict. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect,
actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on
such forward-looking statements as they speak only to our views as of the date the statement is made. Furthermore, forward-looking
statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of
the Securities and Exchange Commission, we undertake no obligation to update or review any forward-looking statements, whether as
a result of new information, future events or otherwise.

Item 1.

Business

General

PART I

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 petrochemical processing, along with a wide range of other
industries.

To achieve our mission of being a world-class global leader in the markets we serve and to maximize the availability, reliability

and efficiency of our customers’ operating assets, we continue to focus on increasing our recurring revenue stream from aftermarket
parts and services, as well as continuously improving the efficiencies and capabilities of our technologies. CECO has over $5 billion
of installed equipment base with end users, which we target to expand and grow a higher recurring revenue of aftermarket products
and services. We also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash
flows.

We believe we succeed in winning customer orders because of the relationships we have developed, the long history of
performance and reliability of our systems and products, our ability to deliver products in compliance with our customers’ needs and
our advanced technical engineering capabilities on complex projects. We work closely with our customers to design, custom-engineer
and fabricate our systems and products to meet their specific needs. Our customers include some of the largest natural gas processors,
transmission and distribution companies, refineries, power generators, boiler manufacturers, compressor manufacturers, metals and
minerals, industrial manufacturing, engineering and construction companies in the world. Reliable product performance, timely
delivery, customer satisfaction and advanced engineering are critical in maintaining our competitive position.

CECO was incorporated in the State of New York in 1966 and reincorporated in the State of Delaware in January 2002. The

Company has been publicly traded since January 1, 1978 and its common stock trades on the NASDAQ Stock Market under the
symbol “CECE.”

We operate through three reportable segments, as follows:

Energy Segment (“Energy”)

Our Energy segment provides customized solutions for the power generation and petrochemical industry. This includes gas

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

Environmental Segment (“Environmental”)

Our Environmental segment provides the design and manufacture of product recovery and air pollution control technologies that
enable our customers to meet compliance targets for toxic emissions, fumes, volatile organic compounds, process and industrial odors.
These products and solutions include high efficiency and fluid catalytic cracking cyclone systems, scrubbers, regenerative thermal and
catalytic oxidizers, dust collectors and baghouses, standard and engineered industrial ducting, fabric filters and cartridge collectors,
ventilation and exhaust systems for emissions and contaminants, and process cooling systems for steel in rolling mills. 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 (“FHF”)

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.

Industry Overview

We serve a multi-billion dollar global market that is highly fragmented and serves various end markets including power
generation, natural gas power plants, petrochemical processing, general industrial, refining, aquaculture and wastewater treatment.

We believe demand for our products and services will continue to be driven by the following factors:



Global Economic Conditions. The Company’s businesses are impacted by economic conditions around the globe. Higher
economic growth and other factors that would increase industrial gross domestic product and capital expenditures are
projected to impact the markets the Company serves and could affect the Company’s businesses by increasing demand for
the Company’s products and services.

Worldwide Industrialization. Global trade has increased significantly over the last decade and is driven by growth in
emerging markets, including China and India, as well as other developing nations in Asia and the Europe, Middle East,
and Africa (“EMEA”) region. As a result of globalization, manufacturing that was historically performed domestically
continues to migrate to lower cost countries. This movement of the manufacture of goods throughout the world increases
demand for industrial ventilation products as new construction continues. We expect that more rigorous environmental
regulations will be introduced to create a cleaner working environment and reduce environmental emissions as these
economies evolve.

Natural Gas Infrastructure. The natural gas industry consists of the exploration, production, processing, transportation,
storage and distribution of natural gas. The International Energy Association (“IEA”) projects a pronounced shift in
Organization for Economic Cooperation and Development (“OECD”) countries away from oil and coal towards natural
gas and renewables. Natural gas continues to be the fuel of choice for the electrical power and industrial sectors in many
of the world’s regions, in part because of its lower carbon intensity compared with coal and oil, which makes it an
attractive fuel source in countries where governments are implementing policies to reduce greenhouse gas emissions.

Natural gas delivery is a complex process that refines raw natural gas for industrial, commercial or residential uses.
Initially, raw natural gas is extracted from the earth and cleansed of contaminants such as dirt and water at the well site.
The natural gas is then transported through a gathering facility to a processing facility, where it is processed to meet
quality standards set by pipeline and distribution companies, such as specified levels of solids, liquids and other
gases. After processing, the natural gas is transmitted for storage or through an extensive network of pipelines to
consumers.

Power Generation. Power generation encompasses a broad range of activities related to the production of electricity. The
primary types of fuel used to generate electricity are coal, natural gas and nuclear. In the United States, concerns about
potential environmental regulations enhance the attractiveness of natural gas-fired power plants compared with coal-fired
power plants, which generally have higher pollutant emission rates than natural gas-powered plants. Natural gas-fired
power plants have lower initial capital needs and are more flexible in terms of operating times than coal plants.

Refining, Oil Production and Petrochemical Processing. Refining, oil production and petrochemical processing involves
the producing, refining and processing of fuels and chemicals for use in a variety of applications, such as gasoline,
fertilizers and plastics. In response to increasing international demand for petrochemicals and refined products, companies
are producing more products from new sources, constructing new refineries and petrochemical processing facilities as
well as expanding existing facilities. In many cases, these new and expanded facilities must comply with stricter
environmental regulations, which influence both choice of fuel and demand for systems to control exhaust emissions.
These facilities use a broad range of our products and systems, including our SCR pollution reduction systems, oily water
treatment systems and separation and filtration products and our fluid catalytic cracking cyclone technology.

Stringent Regulatory Environment. The adoption of increasingly stringent environmental regulations globally requires
businesses to pay strict attention to environmental protection. Businesses and industries of all types from refineries,
power, chemical processes, metals and minerals, energy market and industrial manufacturing must comply with these
various international, federal, state and local government regulations or potentially face substantial fines or be forced to
suspend production or alter their production processes. These increasingly stringent environmental regulations are a
principal factor that drives our business.

These factors, individually or collectively, tend to cause increases in industrial capital spending that are not directly
impacted by general economic conditions, expansion, or capacity increases. In contrast, favorable conditions in the
economy generally lead to plant expansions and the construction of new industrial sites. However, in a weak economy,
customers tend to lengthen the time from their initial inquiry to the purchase order, or defer purchases.

Strategy

Our goal is to become the global leader in environmental, energy, fluid handling and filtration products and services by

delivering exceptional value for our customers, shareholders, and employees. Our core focus is:

• Sustainable Profitable Growth

- Implement profitable ways to grow globally, both organically and inorganically,

with premier technology and solutions in diverse end markets.

• Higher-Margin, Recurring Aftermarket

- Leverage $5 billion installed equipment base to develop greater customer

Revenue Growth

connectivity. Lead with services and establish a lifecycle relationship in order to
maximize availability, reliability and efficiency of customers’ operating assets.
Will lower customers’ total cost of ownership and improve value proposition
resulting in pull-through opportunities.

• Expanding share in core markets

- Leverage leading edge technology and create innovative integrated solutions for

• Product, Service and Project Excellence
• Operational Excellence

• Employee Development

• Global Market Coverage

• Safety Leadership

customers.

- Create customer successes and build customer loyalty.
- Run smart, asset-light, and best-in-class with innovative operating processes in

all that we do.

- Invest in employee training and development of our employees and build

world-class general management and leadership.

- Improve sales and manufacturing (internal and external) resources to expand
customer base and increase revenues. Uncover new customer opportunities in
diverse industries.

- Ensure employee safety through preventative safety practices.

Our strategy utilizes our resource capabilities to help customers meet specific regulatory requirements within their business

processes through optimal design and integration, improvement of efficiencies, reduction in maintenance and extension of the life of
our customer’s infrastructure. Our engineering and design expertise in environmental, energy, and fluid handling and filtration,
combined with our comprehensive suite of product and service offerings allow us to provide customers with a one-stop, cost-effective
solution to meet their integrated abatement needs.

Competitive Strengths

Leading Market Position as a Complete Solution Provider. We believe we are a leading provider of critical solutions in the

environmental, energy, and fluid handling and filtration industries. The multi-billion dollar global market is highly fragmented with
numerous small and regional contracting firms separately supplying engineering services, fabrication, installation, testing and
monitoring, products and spare parts. We offer our customers a complete end-to-end solution, including engineering and project
management services, procurement and fabrication, construction and installation, aftermarket support, and sale of consumables, which
allows our customers to avoid dealing with multiple vendors when managing projects.

Long-standing experience and customer relationships in growing industry. We have serviced the needs of our target markets for

well over 50 years. Our extensive experience and expertise in providing diversified solutions enhances our overall customer
relationships, and provides us with a competitive advantage in our markets relative to other companies in the industry. We believe this
is evidenced by strong relationships with many of our world-class customers. We believe no single competitor has the resources to
offer a similar portfolio of product and service capabilities. We offer the depth of a large organization, while our lean organizational
structure keeps us close to our customers and markets, allowing us to offer rapid and complete solutions in each unique situation.

Global Diversification and Broad Customer Base. The global diversity of our operations and customer base provides us with

multiple growth opportunities. As of December 31, 2017, we had a diversified customer base of approximately 4,839 active customers
across a range of industries. Our customers represent some of the largest refineries, power, chemical processes, metals and minerals,
energy market and industrial manufacturing companies. We believe that the diversity of our customers and end markets mitigates our
risk of a potential fluctuation or downturn in demand from any individual industry or particular customer. We believe we have the
resources and capabilities to meet the needs of our customers as they upgrade and expand domestically as well as into new
international markets. Once systems have been installed and a relationship has been established with the customer, we are often
awarded repetitive service and maintenance business as the customers’ processes change and modifications or additions to their
systems become necessary.

Experienced Management and Engineering Team. Our senior management team has substantial experience in the

environmental, energy, and fluid handling and filtration segments. The business experience of our management team enables us to
pursue our strategy. Our senior management team is supported by a strong operating management team, which possesses extensive

operational and managerial experience. Our workforce includes approximately 231 engineers, designers, and project managers whose
significant specialized industry experience and technical expertise enables them to have a deep understanding of the solutions that will
best suit the needs of our customers. The experience and stability of our management, operating and engineering teams have been
crucial to our growth, developing and maintaining customer relationships, and increasing our market share.

Disciplined Acquisition Program with Successful Integration. We believe that we have demonstrated an ability to successfully

acquire and integrate companies with complementary product or service offerings. We will continue to seek and execute additional
strategic acquisitions and focus on expanding our product service and breadth, as well as entering into new adjacent markets. We
believe that the breadth and diversity of our products and services and our ability to deliver full solutions to various end markets
provides us with multiple sources of stable growth and a competitive advantage relative to other players in the industry.

Expand Customer Base and Penetrate End Markets through Global Market Coverage. We constantly look for opportunities to

gain new customers and penetrate geographic locations and end markets with existing products and services or acquire new product or
service opportunities.

We intend to continue to expand our sales force, customer base, and end markets, and have continued to pursue potential
attractive growth opportunities both domestically and globally, including international projects in Asia, South America, and EMEA.

Develop Innovative Solutions. We intend to continue to leverage our engineering and manufacturing expertise and strong
customer relationships to develop new customized products to address the identified needs of our customers or a particular end
market. We thoroughly analyze new product opportunities by considering projected demand for the product or service, price point,
and expected operating costs, and only pursue those opportunities that we believe will contribute to earnings growth in the near-term.
In addition, we continually improve our traditional technologies and adapt them to new industries and processes.

Maintain Strong Customer Focus. We enjoy a diversified customer base of approximately 4,839 active customers across a broad

base of industries, including power, municipalities, chemical, industrial manufacturing, refining, petrochemical, metals, minerals and
mining, hospitals and universities. We believe that there are multiple opportunities for us to expand our penetration of existing
markets and customers.

Products and Services

We believe we are a leading provider of critical solutions to the environmental, energy, and fluid handling and filtration
industries. We focus on engineering, designing, building, and installing systems that capture, clean and destroy airborne contaminants
from industrial facilities as well as equipment that control emissions from such facilities, as well as fluid handling and filtration
systems. We provide a wide spectrum of products and services including dampers and diverters, selective catalytic reduction and
selective non-catalytic reduction systems, cyclonic technology, thermal oxidizers, filtration systems, scrubbers, fluid handling
equipment and plant engineering services and engineered design build fabrication.

Project Design and Research and Development

We focus our development efforts on designing and introducing new and improved approaches and methodologies that produce
better system performance for our customers, and often improve customer process performance. We produce specialized products that
are often tailored to the specifications of a customer or application. We continually collaborate with our customers to develop the
proper solution and ensure customer satisfaction.

The project development cycle may follow many different paths depending on the specifics of the job and end-market. The

cycle normally takes between one and six months from concept and design to production, but may vary significantly depending on
developments that occur during the process, including among others, the emergence of new environmental demands, changes in
design specifications and ability to obtain necessary approvals.

Sales, Marketing and Support

Our global selling strategy is to provide a solutions-based approach by being a single source provider of technology products

and services. The strategy involves expanding our scope of products and services through selective acquisitions and the formation of
new business units that are then integrated. We believe this strategy provides a discernible competitive advantage. We execute this
strategy by utilizing our portfolio of in-house technologies and those of third-party equipment suppliers. Many of these have been long
standing relationships, which have evolved from pure supplier roles to value-added business partnerships. This enables us to leverage
existing business with selective alliances of suppliers and application specific engineering expertise. Our products primarily compete
on the basis of price, performance, speed of delivery, quality, customer support, and single source. Our value proposition to customers

is to provide competitively priced, customized solutions. Our industry-specific knowledge, accompanied by our product and service
offerings, provides valuable synergies for design innovation.

We sell and market our products and services with our own direct sales force, including employees in the United States, the
Netherlands, United Kingdom, Canada, United Arab Emirates, India, Mexico, China, and Singapore, in conjunction with outside sales
representatives in North America, South America, EMEA, Asia, and India. We expect to continue expanding our sales and support
capabilities and our network of outside sales representatives in key regions domestically and internationally.

Much of our marketing effort consists of individual visits to customers, dissemination of sales and advertising materials, such as

product announcements, brochures, magazine articles, advertisements and cover or article features in trade journals and other
publications. We also participate in public relations and promotional events, including industry tradeshows and technical conferences.
We have an internal marketing organization that is responsible for these initiatives.

Our customer service organization or sales force provides our customers with technical assistance, use and maintenance

information as well as other key information regarding their purchase. We also actively provide our customers with access to key
information regarding changes and pending changes in environmental regulations as well as new product or service developments. We
believe that maintaining a close relationship with our customers and providing them with the support they request improves their level
of satisfaction and enables us to foresee their potential future product needs or service demands. Moreover, they can lead to sales of
annual service and support contracts as well as consumables. Our website also provides our customers with online tools and technical
resources.

Quality Assurance

In engineered systems, quality is defined as system performance. We review with our customers, before the contract is signed,

the technical specification and the efficiency of the equipment that will be customized to meet their specific needs. We then review
these same parameters internally to assure that warranties will be met. Standard project management and production management
tools are used to help ensure that all work is done to specification and that project schedules are met. Equipment is tested at the site to
ensure it is functioning properly.

Customers

We are not dependent upon any single customer, and no customer comprised 10% or more of our consolidated revenues for

2017, 2016 or 2015. We do not believe the loss of any one of our customers would have a material adverse effect on us.

Suppliers and Subcontractors

We purchase our raw materials and supplies from a variety of global sources. When possible, we directly secure angle iron and

sheet plate products from steel mills, whereas other materials are purchased from a variety of steel service centers. Steel prices have
been volatile, but we typically mitigate the risk of higher prices by including a “surcharge” on our standard products. On contract
work, we mitigate the risk of higher prices by including the current price in our estimate and generally include price inflation clauses
for protection.

We believe we have a good relationship with our suppliers and do not anticipate any difficulty in continuing to purchase such

items on terms acceptable to us. We have not experienced difficulty in procuring a sufficient supply of materials in the past. We
typically agree to billing terms with our suppliers ranging from net 30 to 45 days. To the extent that our current suppliers are unable or
unwilling to continue to supply us with materials, we believe that we would be able to obtain such materials from other suppliers on
acceptable terms.

Typically, on turnkey projects, we subcontract manufacturing, electrical work, concrete work, controls, conveyors and

insulation. We use subcontractors with whom we have good working relationships and review each project at the beginning and on an
ongoing basis to help ensure that all work is being done according to our specifications. Subcontractors are generally paid when we
are paid by our customers according to the terms of our contract with the customer. The Company’s asset-light business model
focuses on effective management of subcontractors, which allows the Company to achieve targeted working capital levels through
reduction in certain assets and reduced capital expenditures.

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 12 to 18 months. Our customers

may have the right to cancel a given order, although historically cancellations have been rare. Backlog was $168.9 million and $197.0
million as of December 31, 2017 and 2016, respectively. Substantially all 2016 backlog was completed in 2017. Most of the 2017
backlog is expected to be completed in 2018. Backlog is not defined by United States generally accepted accounting principles
(“GAAP”) and our methodology for calculating backlog may not be consistent with methodologies used by other companies.

Competition

The markets we serve are highly fragmented with numerous small and regional participants. We believe no single company
competes with us across the full range of our systems and products. Competition in the markets we serve is based on a number of
considerations, including price, timeliness of delivery, technology, applications experience, know-how, reputation, product warranties
and service. Demand for our product can vary period over period depending on conditions in the markets we serve. Revenue
recognized during the period is correlated with the orders booked in prior periods. We believe our reputation, technical engineering
capabilities and service differentiate us from many of our competitors, including those competitors who often offer products at a lower
price.

Due to the size and shipping weight of many of our projects, localized manufacturing/fabrication capabilities are very important
to our customers. As a result, competition varies widely by region and industry. The market for our engineered products is reasonably
competitive and is characterized by technological change, continuously changing environmental regulations, and evolving customer
requirements. We believe that the additional competitive factors in our markets include:



performance track record in difficult plant applications;

comprehensive portfolio of products with leading technology;

solid brand recognition in the fluid handling market;

ability to design standard and custom products that meet customers’ needs;

ability to provide reliable solutions in a timely manner;

quality customer service and support; and

financial and operational stability, including reputation.

We believe we compete favorably with respect to these factors.

Government Regulations

We believe our operations are in material compliance with applicable environmental laws and regulations. We believe that

changes in environmental laws and regulations create opportunity given the nature of our business.

We are subject to the requirements of the Occupational Safety and Health Administration (“OSHA”) and comparable state

statutes. We believe we are in material compliance with OSHA and state requirements, including general industry standards, record
keeping requirements and monitoring of occupational exposures. In general, we expect to increase our expenditures to comply with
stricter industry and regulatory safety standards when needed. Although such expenditures cannot be accurately estimated at this time,
we do not believe that they will have a material adverse effect on our financial position, results of operations or cash flows.

Intellectual Property

We rely on a combination of patent, trademark, copyright and trade secret laws, employee and third-party

nondisclosure/confidentiality agreements and license agreements to protect our intellectual property. We sell most of our products
under a number of registered trade names, brand names and registered trademarks, which we believe are widely recognized in the
industry. While we hold patents within a number of our businesses, we do not view our patents to be material to our business.

Financial Information about Geographic Areas

For 2017, 2016 and 2015, sales to customers outside the United States, including export sales, accounted for approximately
32%, 37% and 38%, respectively, of consolidated net sales. The largest portion of these sales were to Asian and European customers.
Of consolidated long-lived assets, $39.0 million and $34.8 million were located outside of the United States as of December 31, 2017
and 2016, respectively. Our operations outside of the United States are subject to additional risks, which are fully described in “Item
1A. Risk Factors.” See Note 16 in the “Notes to Consolidated Financial Statements.”

Employees

We had approximately 880 full-time and 20 part-time employees as of December 31, 2017. The facilities in Greensboro, North

Carolina, Louisville, Kentucky, Columbia, Tennessee, and Telford, Pennsylvania are unionized except for selling, engineering, design,
administrative and operating management personnel. None of our other employees are subject to any collective bargaining
agreements. We consider our relationship with our employees to be satisfactory. In total, as of December 31, 2017, approximately 160
employees were represented by international or independent labor unions under various union contracts that expire at various
intervals.

Executive Officers of the Registrant

The following are the executive officers of the Company as of March 2, 2018. The terms of all officers expire at the next annual

meeting of the board of directors and upon the election of the successors of such officers.

Name
Dennis Sadlowski .................................................................
Matthew Eckl ........................................................................
Paul Gohr ..............................................................................

Age
57
37
36

Position with CECO

Chief Executive Officer, President and Director

Chief Financial Officer and Secretary

Chief Accounting Officer

Dennis Sadlowski has served as our Chief Executive Officer since June 2017 and as a director since May 2016. Mr. Sadlowski
served as Interim Chief Executive Officer and President from January 2017 until his appointment as Chief Executive Officer in June
2017. Previously, he was the Chief Operating Officer of LSG Sky Chefs North America, a provider of food and food-related services
for transportation providers, from April 2013 until March 2015. As Chief Operating Officer, Mr. Sadlowski oversaw operations
across over 40 locations in North America and managed over 8,000 employees. Previously, Mr. Sadlowski served as the Chief
Executive Officer of International Battery, an early stage green tech company focused on large format lithium ion batteries for the grid
storage markets, from September 2011 until April 2012. Mr. Sadlowski worked at Siemens from July 2000 to March 2010, serving as
the President & Chief Executive Officer of Siemens Energy & Automation, Inc. from July 2007 until October 2009, an operating
subsidiary of the global manufacturer Siemens AG, where he had executive accountability for the company’s global strategic
direction, operating performance and marketplace success. His responsibilities at Siemens Energy & Automation included overseeing
six operating divisions along with a combined sales organization, a number of wholly-owned subsidiaries and over 12,000 employees.
Mr. Sadlowski has also previously worked at General Electric and Thomas & Betts. Mr. Sadlowski serves on the board of directors
and audit committee of Trojan Battery, a privately-held global leader in deep cycle lead-acid batteries. Mr. Sadlowski earned a
Bachelor’s degree in Chemical and Nuclear Engineering from the University of California at Berkeley, and his Master’s Degree in
Business Administration from Seattle University.

Matthew Eckl has served as our Chief Financial Officer and Secretary since January 2017. Prior to joining the Company,

Mr. Eckl served as Vice President, Finance – Energy Group at Gardner Denver, Inc. from 2012 until January 2017. In this role, he
oversaw a $1 billion revenue business group that designs, manufactures, markets and services pumps, fluid transfer equipment and
engineered systems for oil & gas and petrochemical industries. Prior to joining Gardner Denver, Mr. Eckl served at various roles of
increasing responsibility within General Electric Company, a global digital industrial company, from 2002 until 2012, where he
worked with various business groups to integrate new acquisitions and streamline financial reporting processes.

Paul Gohr was appointed as the Chief Accounting Officer on May 16, 2017. Mr. Gohr previously served as our Vice President

of Financial Reporting since joining the Company in September 2014. From 2004 to 2014, Mr. Gohr served at various roles of
increasing responsibility within Grant Thornton LLP, a global public accounting firm, most recently as a Senior Manager of Audit
Services. While at Grant Thornton LLP, Mr. Gohr served a broad base of both public and private companies with international
operations, many of which were acquisitive in nature. Mr. Gohr is a Certified Public Accountant.

Available Information

We use the Investor Relations section of our website, www.cecoenviro.com, as a channel for routine distribution of important

information, including news releases, investor presentations and financial information. We post filings as soon as reasonably
practicable after they are electronically filed with, or furnished to, the United States Securities and Exchange Commission, or SEC,
including our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; proxy statements; and any amendments to those
reports or statements. All such postings and filings are available on our website free of charge. The SEC also maintains a website,
www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically
with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this
Annual Report on Form 10-K unless expressly noted.

Item 1A.

Risk Factors

An investment in our securities involves a high degree of risk. You should carefully consider the risk factors described below,
together with the other information included in this Annual Report on Form 10-K, before you decide to invest in our securities. The
risks described below are the material risks of which we are currently aware; however, they may not be the only risks that we may
face. Additional risks and uncertainties not currently known to us or that we currently view as immaterial may also impair our
business. If any of these risks develop into actual events, it could materially and adversely affect our business, financial condition,
results of operations and cash flows, and the trading price of your shares could decline and you may lose all or part of your
investment.

Risks Related to Our Business and Industry

Our business may be adversely affected by global economic conditions.

A national or global economic downturn or credit crisis may have a significant negative impact on our financial condition,

future results of operations and cash flows. Specific risk factors related to these overall economic and credit conditions include the
following: customer or potential customers may reduce or delay their procurement or new product development; key suppliers may
become insolvent resulting in delays for our material purchases; vendors and other third parties may fail to perform their contractual
obligations; customers may be unable to obtain credit to finance purchases of our products and services; and certain customers may
become insolvent. These risk factors could reduce our product sales, increase our operating costs, impact our ability to collect
customer receivables, lengthen our cash conversion cycle and increase our need for cash, which would ultimately decrease our
profitability and negatively impact our financial condition. They could also limit our ability to expand through acquisitions due to the
tightening of the credit markets.

Our dependence upon fixed-price contracts could adversely affect our operating results.

The majority of our projects are currently performed on a fixed-price basis. Under a fixed-price contract, we agree on the price
that we will receive for the entire project, based upon a defined scope, which includes specific assumptions and project criteria. If our
estimates of our own costs to complete the project are below the actual costs that we incur, our margins will decrease, and we may
incur a loss. The revenue, cost and gross profit realized on a fixed-price contract will often vary from the estimated amounts because
of unforeseen conditions or changes in job conditions and variations in labor and equipment productivity over the term of the contract.
If we are unsuccessful in mitigating these risks, we may realize gross profits that are different from those originally estimated and
incur reduced profitability or losses on projects. Depending on the size of a project, these variations from estimated contract
performance could have a significant effect on our operating results. In general, turnkey contracts to be performed on a fixed-price
basis involve an increased risk of significant variations. This is a result of the long-term nature of these contracts and the inherent
difficulties in estimating costs and of the interrelationship of the integrated services to be provided under these contracts whereby
unanticipated costs or delays in performing part of the contract can have compounding effects by increasing costs of performing other
parts of the contract.

Percentage-of-completion method of accounting for contract revenue may result in material adjustments that would adversely
affect our financial condition, results of operations and cash flows.

We recognize contract revenue for a substantial component of our business using the percentage-of-completion method on fixed

price contracts. Under this method, for each contract, estimated contract revenue is calculated based generally on the percentage that
actual direct costs to date are to total estimated direct costs. Estimated contract losses are recognized in full when determined.
Accordingly, contract revenue and total direct cost estimates are reviewed and revised periodically as the work progresses and as
change orders are approved, and adjustments based upon the percentage-of-completion are reflected in contract revenue in the period
when these estimates are revised. These estimates are based on management’s reasonable assumptions and our historical experience,
and are only estimates. Variation of actual results from these assumptions, which are outside the control of management and can differ
from our historical experience, could be material. To the extent that these adjustments result in an increase, a reduction or the
elimination of previously reported contract revenue, we would recognize a credit or a charge against current earnings, which could be
material.

Our inability to deliver our backlog on time could affect our future sales and profitability, and our relationships with our
customers.

Our backlog was $168.9 million at December 31, 2017 from $197.0 million at December 31, 2016. Our ability to meet customer

delivery schedules for our backlog is dependent on a number of factors including, but not limited to, access to the raw materials
required for production, an adequately trained and capable workforce, project engineering expertise for certain large projects,

sufficient internal manufacturing plant capacity, available subcontractors and appropriate planning and scheduling of manufacturing
resources. Our failure to deliver in accordance with customer expectations may result in damage to existing customer relationships and
result in the loss of future business. Failure to deliver backlog in accordance with expectations could negatively impact our financial
performance and cause adverse changes in the market price of our common stock.

Volatility of oil and natural gas prices can adversely affect demand for our products and services

Volatility in oil and natural gas prices can also impact our customers’ activity levels and spending for our products and services.
Current energy prices are important contributors to cash flow for our customers and their ability to fund capital expenditure activities.
Expectations about future prices and price volatility are important for determining future spending levels. Lower oil and natural gas
prices generally lead to decreased spending by our customers. While higher oil and natural gas prices generally lead to increased
spending by our customers, sustained high energy prices can be an impediment to economic growth, and can therefore negatively
impact spending by our customers. Our customers also take into account the volatility of energy prices and other risk factors by
requiring higher returns for individual projects if there is a higher perceived risk. Any of these factors could affect the demand for oil
and natural gas and could have a material effect on our results of operations.

Our financial performance may vary significantly from period to period, making it difficult to estimate future revenue.

Our annual revenues and earnings have varied in the past and are likely to vary in the future. Our contracts generally stipulate

customer specific delivery terms and may have contract cycles of a year or more, which subjects these contracts to many factors
beyond our control. In addition, contracts that are significantly larger in size than our typical contracts tend to intensify their impact on
our annual operating results. Furthermore, as a significant portion of our operating costs are fixed, an unanticipated decrease in our
revenues, a delay or cancellation of orders in backlog, or a decrease in the demand for our products, may have a significant impact on
our annual operating results. Therefore, our annual operating results may be subject to significant variations and our operating
performance in one period may not be indicative of our future performance.

Customers may cancel or delay projects. As a result, our backlog may not be indicative of our future revenue.

Customers may cancel or delay projects for reasons beyond our control. Our orders normally contain cancellation provisions

that permit us to recover our costs, and, for most contracts, a portion of our anticipated profit in the event a customer cancels an order.
If a customer elects to cancel an order, we may not realize the full amount of revenues included in our backlog. If projects are delayed,
the timing of our revenues could be affected and projects may remain in our backlog for extended periods of time. Revenue
recognition occurs over long periods of time and is subject to unanticipated delays. If we receive relatively large orders in any given
quarter, fluctuations in the levels of our quarterly backlog can result because the backlog in that quarter may reach levels that may not
be sustained in subsequent quarters. As a result, our backlog may not be indicative of our future revenues. With rare exceptions, we
are not issued contracts until a customer is ready to start work on a project. Thus, it is our experience that the only relation between the
length of a project and the possibility that a project may be cancelled is simply the fact that there is more time involved. In a year-long
project as opposed to a three-month project more time is available for the customer to experience a softening in their business, which
may cause the customer to cancel a project.

We face significant competition in the markets we serve.

All of the industries in which we compete are highly competitive and highly fragmented. We compete against a number of local,

regional and national contractors and manufacturers in each of our product or service lines, many of which have been in existence
longer than us and some of which have substantially greater financial resources than we do. Our products primarily compete on the
basis of price, performance, speed of delivery, quality, customer support and single source. Any failure by us to compete effectively in
the markets we serve could have a material adverse effect on our financial condition, results of operations and cash flows.

We may incur material costs as a result of existing or future product liability claims, or other claims and litigation that could
adversely affect our financial condition, results of operations and cash flows; and our insurance coverage may not cover all claims
or may be insufficient to cover the claims.

Despite our quality assurance measures, we may be exposed to product liability claims, other claims and litigation in the event

that the use of our products results, or is alleged to result, in bodily injury and/or property damage or our products actually or allegedly
fail to perform as expected. Such claims may also be accompanied by fraud and deceptive trade practices claims. While we maintain
insurance coverage with respect to certain product liability and other claims, we may not be able to obtain such insurance on
acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability and other
claims. Furthermore, our insurance may not cover damages from breach of contract by us or based on alleged fraud or deceptive trade
practices. Any future damages that are not covered by insurance or are in excess of policy limits could have a material adverse effect

on our financial condition, results of operations and cash flows. In addition, product liability and other claims can be expensive to
defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate
outcome.

An unsuccessful defense of a product liability or other claim could have an adverse effect on our financial condition, results of
operations and cash flows. Even if we are successful in defending against a claim relating to our products, claims of this nature could
cause our customers to lose confidence in our products and us.

Liability to customers under warranties may adversely affect our reputation, our ability to obtain future business and our earnings.

We provide certain warranties as to the proper operation and conformance to specifications of the products we manufacture or

produce. Failure of our products to operate properly or to meet specifications may increase our costs by requiring additional
engineering resources and services, replacement of parts and equipment or monetary reimbursement to customers. We have in the past
received warranty claims, are currently subject to warranty claims, and we expect to continue to receive claims in the future. To the
extent that we incur substantial warranty claims in any period, our reputation, our ability to obtain future business and our earnings
could be adversely affected.

If we do not develop improved products and new products in a timely manner in response to industry demands, our business and
revenues will be adversely affected.

Our industry is characterized by ongoing technological developments and changing customer requirements. As a result, our

success and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully
introduce into the marketplace, enhancements of existing products and new products that incorporate technological advances, meet
customer requirements and respond to products developed by our competition. We cannot assure you that we will be successful in
developing or acquiring such rights to products on a timely basis or that such products will adequately address the changing needs of
the marketplace.

Our business can be significantly affected by changes in technology and regulatory standards.

The markets that the Company serves are characterized by changing technology, competitively imposed process standards and

regulatory requirements, each of which influences the demand for our products and services. Changes in legislative, regulatory or
industrial requirements may render certain of our products and processes obsolete. Acceptance of new products and services may also
be affected by the adoption of new government regulations requiring stricter standards. Our ability to anticipate changes in technology
and regulatory standards and to respond with new and enhanced products on a timely basis will be a significant factor in our ability to
grow and to remain competitive. We cannot guarantee that we will be able to achieve the technological advances that may be
necessary for us to remain competitive or that certain of our products or services will not become obsolete.

Changes in current environmental legislation could have an adverse impact on the sale of our environmental control systems and
products and on our financial condition, results of operations and cash flows.

Our business is primarily driven by capital spending, clean air rules, plant upgrades by our customers to comply with laws and

regulations governing the discharge of pollutants into the environment or otherwise relating to the protection of the environment or
human health. These laws include, but are not limited to, United States federal statues such as Resource Conservation and Recovery
Act of 1976, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Clean Water Act, the Clean
Air Act, the Clean Air Interstate Rule, and the regulations implementing these statutes, as well as similar laws and regulations at state
and local levels and in other countries. These United States laws and regulations may change and other countries may not adopt
similar laws and regulations. Our business may be adversely impacted to the extent that environmental regulations are repealed,
amended, implementation dates are delayed, or to the extent that regulatory authorities reduce enforcement.

Our operations outside of the United States are subject to political, investment and local business risks.

For the year ended December 31, 2017, approximately 32% of our total revenue was derived from products or services
ultimately delivered or provided to end-users outside the United States. As part of our operating strategy, we intend to expand our
international operations through internal growth and selected acquisitions. Operations outside of the United States, particularly in
emerging markets, are subject to a variety of risks that are different from or are in addition to the risks we face within the United
States. Among others, these risks include:



local, economic, political and social conditions, including potential hyperinflationary conditions and political instability in
certain countries;

imposition of limitations on the remittance of dividends and payments by foreign subsidiaries;

adverse currency exchange rate fluctuations, including significant devaluations of currencies;

tax-related risks, including the imposition of taxes and the lack of beneficial treaties, that result in higher effective tax
rates for us;

difficulties in enforcing agreements and collecting receivables through certain foreign local systems;

domestic and foreign customs, tariffs and quotas or other trade barriers;

increased costs for transportation and shipping;

difficulties in protecting intellectual property;

risk of nationalization of private enterprises by foreign governments;

managing and obtaining support and distribution channels for overseas operations;

hiring and retaining qualified management personnel for our overseas operations;

legal and regulatory requirements, including import, export, defense regulations and foreign exchange controls;

imposition or increase of restrictions on investment;

disadvantages of competing against companies from countries that are not subject to United States laws and regulations,
including the Foreign Corrupt Practice Act (“FCPA”);

required compliance with a variety of local laws and regulations, which may differ materially from those to which we are
subject in the United States; and

increasingly complex laws and regulations concerning privacy and data security, including the European Union’s General
Data Protection Regulations.

In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well as export
controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and
their intermediaries from making improper payments to non-United States officials for the purposes of obtaining or retaining business.
Our policies mandate compliance with these laws. We operate in many parts of the world that have experienced governmental
corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and
practices. We cannot assure you that our internal controls and procedures will always protect us from reckless or criminal acts
committed by our employees or agents. If we are found to be liable for FCPA, export control or sanction violations, we could suffer
from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our
international business, which could have a material adverse effect on our business.

The occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations or

upon our financial condition, results of operations and cash flows.

Increasing costs for manufactured components, raw materials, transportation, health care and energy prices may adversely affect
our profitability.

We use a broad range of manufactured components and raw materials in our products, including raw steel, steel-related
components, filtration media, and equipment such as fans and motors. Materials and subcontracting costs comprise the largest
components of our total costs. Further increases in the price of these items could further materially increase our operating costs and
materially adversely affect our profit margins. Similarly, transportation, steel and health care costs have risen steadily over the past
few years and represent an increasing burden for us. Although we try to contain these costs whenever possible, and although we try to
pass along increased costs in the form of price increases to our customers, we may be unsuccessful in doing so, and even when
successful, the timing of such price increases may lag significantly behind our incurrence of higher costs.

Our gross margins are affected by shifts in our product mix.

Certain of our products have higher gross profit margins than others. Consequently, changes in the product mix of our sales

from quarter-to-quarter or from year-to-year can have a significant impact on our reported gross profit margins. Certain of our
products also have a much higher internally manufactured cost component. Therefore, changes from quarter-to-quarter or from year-
to-year can have a significant impact on our reported gross margins. In addition, contracts with a higher percentage of subcontracted
work or equipment purchases may result in lower gross profit margins.

Our manufacturing operations are dependent on third-party suppliers.

Although we are not dependent on any one supplier, we are dependent on the ability of our third-party suppliers to supply our

raw materials, as well as certain specific component parts. The third-party suppliers upon which we depend may default on their
obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud, loss of key
personnel, or other reasons. We cannot assure you that our third-party suppliers will dedicate sufficient resources to meet our
scheduled delivery requirements or that our suppliers will have sufficient resources to satisfy our requirements during any period of
sustained demand. Failure of suppliers to supply, or delays in supplying, our raw materials or certain components, or allocations in the
supply of certain high demand raw components could materially adversely affect our operations and ability to meet our own delivery
schedules on a timely and competitive basis. Additionally, our third-party suppliers may provide us with raw materials or component
parts that fail to meet our expectations or the expectations of our customers, which could subject us to product liability claims, other
claims and litigation.

Our use of subcontractors could potentially harm our profitability and business reputation.

Occasionally we act as a prime contractor in some of the engineered projects we undertake. In our capacity as lead provider and
when acting as a prime contractor, we perform a portion of the work on our projects with our own resources and typically subcontract
activities such as manufacturing, electrical work, concrete work, insulation, conveyors and controls. In our industry, the lead
contractor is normally responsible for the performance of the entire contract, including subcontract work. Thus, when acting as a
prime contractor, we are subject to risk associated with the failure of one or more subcontractors to perform as anticipated.

We employ subcontractors at various locations around the world to meet our customers’ needs in a timely manner, meet local

content requirements and reduce costs. Subcontractors generally perform the majority of our manufacturing for international
customers. We also utilize subcontractors in North America. The use of subcontractors decreases our control over the performance of
these functions and could result in project delays, escalated costs and substandard quality. These risks could adversely affect our
profitability and business reputation. In addition, many of our competitors, who have greater financial resources and greater
bargaining power than we have, use the same subcontractors that we use and could potentially influence our ability to hire these
subcontractors. If we were to lose relationships with key subcontractors, our business could be adversely impacted.

A significant portion of our accounts receivable are related to larger contracts, which increases our exposure to credit risk.

We closely monitor the credit worthiness of our customers. Significant portions of our sales are to customers who place large

orders for custom products and whose activities are related to the power and oil/gas industries. As a result, our exposure to credit risk
is affected to some degree by conditions within these industries and governmental and/or political conditions. We frequently attempt
to reduce our exposure to credit risk by requiring progress payments and letters of credit. However, the continuing economic climate
and other unanticipated events that affect our customers could have a materially adverse impact on our operating results.

Changes in billing terms can increase our exposure to working capital and credit risk.

Our products are generally sold under contracts that allow us to bill upon the completion of certain agreed upon milestones or

upon actual shipment of the product, and certain contracts include a retention provision. We attempt to negotiate progress-billing
milestones on all large contracts to help us manage the working capital and credit risk associated with these large contracts.
Consequently, shifts in the billing terms of the contracts in our backlog from period to period can increase our requirement for
working capital and can increase our exposure to credit risk.

Currency fluctuations may reduce profits on our foreign sales or increase our costs, either of which could adversely affect our
financial results.

Given that approximately 32% of our revenues are outside the United States, we are subject to fluctuations in foreign currency

exchange rates. Translation losses resulting from currency fluctuations may adversely affect the profits from our operations and have a
negative impact on our financial results. Foreign currency fluctuations may also make our systems and products more expensive for
our customers, which could have a negative impact on our sales. In addition, we purchase some foreign-made products directly from
and through our subcontractors. Due to the multiple currencies involved in our business, foreign currency positions partially offset and
are netted against one another to reduce exposure. We cannot assure that fluctuations in foreign currency exchange rates will not make
these products more expensive to purchase. Increases in our direct or indirect cost of purchasing these products could negatively
impact our financial results if we are not able to pass those increased costs on to our customers.

If our goodwill or intangibles become impaired, we may be required to recognize charges that would reduce our net income or
increase our net loss.

As of December 31, 2017, goodwill and indefinite lived intangibles represented $186.6 million, or 42.6%, of our total assets.
Goodwill and indefinite lived intangible assets are not amortized, but instead are subject to annual impairment evaluations (or more
frequently if circumstances require). Major factors that influence our evaluations are our estimates for future revenue and expenses
associated with the specific intangible asset or the reporting unit in which our goodwill resides. This is the most sensitive of our
estimates related to our evaluations. Other factors considered in our evaluations include assumptions as to the business climate,
industry and economic conditions. These assumptions are subjective and different estimates could have a significant impact on the
results of our analyses. While management, based on current forecasts and outlooks, believes that the assumptions and estimates are
reasonable, we can make no assurances that future actual operating results will be realized as planned and that there will not be
material impairment charges as a result. In particular, an economic downturn could have a material adverse impact on our customers
thereby forcing them to reduce or curtail doing business with us and such a result may materially affect the amount of cash flow
generated by our future operations. Any write-down of goodwill or intangible assets resulting from future periodic evaluations would,
as applicable, either decrease our net income or increase our net loss and those decreases or increases could be material.

We may incur costs as a result of certain restructuring activities, which may negatively impact our financial results, and we may not

achieve some or all of the expected benefits of our restructuring plans.

We are continuously seeking the most cost-effective means and structure to serve our customers, protect our shareholders and respond
to changes in our markets. Beginning in the fourth quarter of 2017, as part of our ongoing effort to drive efficiencies throughout our
organization, we engaged in restructuring activities as part of an ongoing and comprehensive review of our organizational structure,
primarily within our Energy segment due to end market dynamics. In connection with these restructuring activities, our business will
occasionally incur restructuring costs. From time to time, we may continue to engage in restructuring activities in an effort to improve
cost competitiveness and profitability. We may not achieve the desired or anticipated benefits from these restructuring activities. As a
result, restructuring costs may vary significantly from year to year depending on the scope of such activities. Such restructuring costs
and expenses could adversely impact our financial results.

Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial

performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could
increase our cost of doing business and restrict our ability to operate our business or execute our strategies. In particular, there may be
significant changes in U.S. laws and regulations and existing international trade agreements by the current U.S. presidential
administration that could affect a wide variety of industries and businesses, including those businesses we own and operate. If the current
U.S. presidential administration materially modifies U.S. laws and regulations and international trade agreements, our business, financial
condition, and results of operations could be adversely affected.

On December 22, 2017, U.S. tax reform legislation informally known as the Tax Cuts and Jobs Act (the "Tax Act”) was signed into
law. The Tax Act makes substantial changes to U.S. tax law, including a reduction in the corporate tax rate, a limitation on deductibility
of interest expense, a limitation on the use of net operating losses to offset future taxable income, the allowance of immediate expensing
of capital expenditures, deemed repatriation of foreign earnings and significant changes to the taxation of foreign earnings going forward.
We expect the Tax Act to have significant effects on us, some of which may be adverse. For example, we would expect impacts on the
amount of tax expense and deferred tax assets and liabilities recognized in the financial statements. The extent of the impact remains
uncertain at this time and is subject to any other regulatory or administrative developments including any regulations or other guidance
promulgated by the U.S. Internal Revenue Service. The Tax Act contains numerous, complex provisions impacting U.S. multinational
companies, and we continue to review and assess the legislative language and its potential impact on us.

We are party to asbestos-containing product litigation that could adversely affect our financial condition, results of operations and
cash flows.

Our subsidiary, 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 that 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 of all legal fees other than corporate counsel expenses from 2002 through December 31, 2017 for cases involving asbestos-
related claims were $1.3 million, of which $1.2 million has been paid by the Company’s insurers. The average cost per settled claim,
excluding legal fees, was approximately $28,000.

Based upon the most recent information available to the Company regarding such claims, there were a total of 218 cases
pending against the Company as of December 31, 2017 (with Connecticut, New York, Pennsylvania and West Virginia having the
largest number of cases), as compared with 229 cases that were pending as of December 31, 2016. During 2017, 51 new cases were
filed against the Company, and the Company was dismissed from 56 cases and settled six cases. Most of the pending cases have not
advanced beyond the early stages of discovery, although a number of cases are on schedules leading to, or are scheduled for trial. The
Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable
future, assuming a continuation of the current volume, nature of cases and settlement amounts. However, the Company has no control
over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to
coverage. The Company also presently believes that none of the pending cases will have a material adverse impact upon the
Company’s results of operations, liquidity or financial condition.

Our ability to obtain financing for future growth opportunities may be limited.

Our ability to execute our growth strategies may be limited by our ability to secure and retain additional financing on terms
reasonably acceptable to us or at all. Certain of our competitors are larger companies that may have greater access to capital, and
therefore, may have a competitive advantage over us should our access to capital be limited.

We have a substantial amount of indebtedness, and incurrence of additional indebtedness could adversely affect our ability to
operate our business, remain in compliance with debt covenants, make payments on our debt and limit our growth.

As of December 31, 2017, we had outstanding indebtedness of $120.1 million. Our outstanding indebtedness could have

important consequences for investors, including the following:



it may be more difficult for us to satisfy our obligations with respect to our Credit Agreement, and any failure to comply
with the obligations of any of the agreements governing any additional indebtedness, including financial and other
restrictive covenants, could result in an event of default under such agreements;

the covenants contained in our debt agreements, including our Credit Agreement, limit our ability to borrow money in the
future for acquisitions, capital expenditures or to meet our operating expenses or other general corporate obligations;

the amount of our interest expense may increase because a substantial portion of our borrowings are at variable rates of
interest, which, if interest rates increase, could result in higher interest expense;



we may need to use a portion of our cash flows to pay principal and interest on our debt, which will reduce the amount of
money we have for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other
business activities;

we may have a higher level of debt than some of our competitors, which could put us at a competitive disadvantage;

we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general;
and

our debt level could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate.

Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by
financial, business, economic, regulatory and other factors. We will not be able to control many of these factors. We cannot be certain
that our earnings will be sufficient to allow us to pay the principal and interest on our existing or future debt and meet our other
obligations. If we do not have enough money to service our existing or future debt, we may be required to refinance all or part of our
existing or future debt, sell assets, borrow more money or raise equity. We may not be able to refinance our existing or future debt,
sell assets, borrow more money or raise equity on terms acceptable to us, if at all.

We might be unable to protect our intellectual property rights and our products could infringe the intellectual property rights of
others, which could expose us to costly disputes.

Although we believe that our products do not infringe patents or violate the proprietary rights of others, it is possible that our
existing patent rights may not be valid or that infringement of existing or future patents or proprietary rights may occur. In the event
our products infringe patents or proprietary rights of others, we may be required to modify the design of our products or obtain a
license for certain technology. We cannot guarantee that we will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. Failure to do any of the foregoing could have a material adverse effect upon our business. Moreover, if our
products infringe patents or proprietary rights of others, we could, under certain circumstances, become liable for damages, which also
could have a material adverse effect on our business.

Risks related to our pension and other post-retirement plans may adversely impact our results of operations and cash flow.

Significant changes in actual investment return on pension assets, discount rates, and other factors may adversely affect our
results of operations and pension contributions in future periods. GAAP requires that we calculate income or expense for the plans
using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates. We establish the discount
rate used to determine the present value of the projected and accumulated benefit obligation at the end of each year based upon the
available market rates for high quality, fixed-income investments. An increase in the discount rate would increase future pension
expense and, conversely, a decrease in the discount rate would decrease future pension expense. Funding requirements for our United
States pension plans may become more significant. The ultimate amounts to be contributed are dependent upon, among other things,
interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding obligations. For a
discussion regarding the significant assumptions used to estimate pension expense, including discount rate and the expected long-term
rate of return on plan assets, and how our financial statements can be affected by pension plan accounting policies, see “Critical
Accounting Policies” included in this Annual Report on Form 10-K in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”

We may be subject to substantial withdrawal liability assessments in the future related to multiemployer pension plans to which
certain of our subsidiaries make contributions pursuant to collective bargaining agreements.

Under applicable federal law, any employer contributing to a multiemployer pension plan that completely ceases participating in

the plan while the plan is underfunded is subject to payment of such employer’s assessed share of the aggregate unfunded vested
benefits of the plan. In certain circumstances, an employer can be assessed a withdrawal liability for a partial withdrawal from a
multiemployer pension plan. If any of these adverse events were to occur in the future, it could result in a substantial withdrawal
liability assessment that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We rely on several key employees whose absence or loss could disrupt our operations or be adverse to our business.

We are highly dependent on the experience of our management in the continuing development of our operations. The loss of the
services of certain of these individuals would have a material adverse effect on our business. Although we have employment and non-
competition agreements with certain of our key employees, as a practical matter, those agreements will not assure the retention of our
employees, and we may not be able to enforce all of the provisions in any employment or non-competition agreement. Our future

success will depend in part on our ability to attract and retain qualified personnel to manage our development and future growth. We
cannot guarantee that we will be successful in attracting and retaining such personnel. Our failure to recruit additional key personnel
could have a material adverse effect on our financial condition, results of operations and cash flows.

Work stoppages or similar difficulties could significantly disrupt our operations.

As of December 31, 2017, approximately 160 of our approximately 900 employees are represented by international or

independent labor unions under various union contracts that expire from May 31, 2018 to May 31, 2020. It is possible that our
workforce will become more unionized in the future. Although we consider our employee relations to generally be good, our existing
labor agreements may not prevent a strike or work stoppage at one or more of our facilities in the future and we may be affected by
other labor disputes. A work stoppage at one or more of our facilities may have a material adverse effect on our business. Unionization
activities could also increase our costs, which could have an adverse effect on our profitability.

Additionally, a work stoppage at one of our suppliers could adversely affect our operations if an alternative source of supply

were not readily available. Work stoppages by employees of our customers also could result in reduced demand for our products.

Failure to maintain adequate internal controls could adversely affect our business.

Under Section 404 of Sarbanes-Oxley, we are required to include in each of our Annual Reports on Form 10-K, a report
containing our management’s assessment of the effectiveness of our internal control over financial reporting and an attestation report
of our independent auditor. These laws, rules and regulations continue to evolve and could become increasingly stringent in the future.
We have undertaken actions to enhance our ability to comply with the requirements of Sarbanes-Oxley, including, but not limited to,
the engagement of consultants, the documentation of existing controls and the implementation of new controls or modification of
existing controls as deemed appropriate.

We continue to devote substantial time and resources to the documentation and testing of our controls, and to plan for and the

implementation of remedial efforts in those instances where remediation is indicated. If we fail to maintain the adequacy of our
internal controls, including remediating any material weaknesses or deficiencies in our internal controls, as such standards are
modified, supplemented or amended in the future, we could be subject to regulatory actions, civil or criminal penalties or shareholder
litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect
our financial condition, results of operations and cash flows. We believe that the out-of-pocket costs, the diversion of management’s
attention from running our day-to-day operations and operational changes caused by the need to comply with the requirements of
Section 404 will continue to be significant.

There are inherent limitations in all internal control systems over financial reporting, and misstatements due to error or fraud may
occur and not be detected.

While we continue to take action to ensure compliance with the internal control, disclosure control and other requirements of

Sarbanes-Oxley and the rules and regulations promulgated thereunder by the SEC, there are inherent limitations in our ability to
control all circumstances. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that
our internal controls and disclosure controls can prevent all errors and all frauds. A control system, no matter how well conceived and
operated, can provide only reasonable assurance that the objectives of the control system are met. In addition, the design of a control
system must reflect the fact that there are resource constraints and the benefit of controls must be evaluated in relation 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, have been detected. These inherent limitations include the realities that judgments in decision-
making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by
individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any
system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate
because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

If we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement

required new or improved controls, or if we experience difficulties in their implementation, our business, financial condition and
operating results could be harmed. We can give no assurances that any additional material weaknesses will not arise in the future due
to our failure to implement and maintain adequate internal control over financial reporting.

We have made and may make future acquisitions or divestitures, which involve numerous risks that could impact our financial
condition, results of operations and cash flows.

Our operating strategy has involved expanding or contracting our scope of products and services through selective acquisitions
or divestitures and the formation or elimination of new business units that are then integrated or separated into or out of our growing
family of turnkey system providers. We have acquired other businesses, product or service lines, assets or technologies that are
complementary to our business. We may be unable to find or consummate future acquisitions at acceptable prices and terms. We
continually evaluate potential acquisition opportunities in the ordinary course of business.

Although we conduct what we believe to be a prudent level of investigation regarding the operating and financial condition of

the businesses, product or service lines, assets or technologies we purchase, an unavoidable level of risk remains regarding their actual
operating and financial condition. Until we actually assume operating control of these businesses, product or service lines, assets or
technologies, we may not be able to ascertain their actual value or understand potential liabilities. This is particularly true with respect
to acquisitions outside the United States.

In addition, acquisitions of businesses may require additional debt or equity financing, resulting in additional leverage or
dilution of ownership. Our Credit Agreement (“Credit Agreement”) contains certain covenants that limit, or which may have the effect
of limiting, among other things, acquisitions, capital expenditures, the sale of assets and the incurrence of additional indebtedness.

Increased information technology security threats and more sophisticated and targeted computer crime could pose a risk to our
systems, networks, and products.

Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the

security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we
attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our
networks and systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially
vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the
compromising of confidential information and communications, improper use of our systems and networks, manipulation and
destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our
reputation, competitiveness and results of operations.

In addition, we could be subject to legal claims or proceedings, liability under laws that protect the privacy of personal

information and regulatory penalties if confidential information relating to our employees or other parties is misappropriated from our
systems and networks.

Risks Related to Our Common Stock

The market price of our common stock may be volatile or may decline regardless of our operating performance and investors may
not be able to resell shares they purchase at their purchase price.

The stock market has experienced and may in the future experience volatility that has often been unrelated to the operating

performance of particular companies. The market price of our common stock has experienced, and may continue to experience,
substantial volatility. During the year ended December 31, 2017, the sales price of our common stock on the NASDAQ ranged from
$4.68 to $14.46 per share. We expect our common stock to continue to be subject to fluctuations. Broad market and industry factors
may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause
fluctuation in the common stock price may include, among other things:



actual or anticipated variations in quarterly operating results;

adverse general economic conditions, including, but not limited to, withdrawals of investments in the stock markets
generally or a tightening of credit available to potential acquirers of businesses, that result in a lower average prices being
paid for public company shares and lower valuations being placed on businesses;

other domestic and international macroeconomic factors unrelated to our performance;

our failure to meet the expectations of the investment community;

industry trends and the business success of our customers;

loss of key customers;

announcements of technological advances by us or our competitors;



current events affecting the political and economic environment in the United States;

conditions or trends in our industry, including demand for our products and services, technological advances and
governmental regulations;

litigation or other proceedings involving or affecting us; and

additions or departures of our key personnel.

The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to

decline significantly.

We are not currently paying dividends and cannot make assurances that we will pay dividends on our common stock and our
indebtedness could limit our ability to pay dividends.

The timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of

Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as
applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers
relevant. There can be no assurance that we will pay a dividend in the future.

Additionally, if we cannot generate sufficient cash flow from operations to meet our debt payment obligations, then our ability

to pay dividends, if so determined by the Board of Directors will be impaired and we may be required to attempt to restructure or
refinance our debt, raise additional capital or take other actions such as selling assets, or reducing or delaying capital expenditures.
There can be no assurance, however, that any such actions could be undertaken on satisfactory terms, if at all, or would be permitted
by the terms of our debt or our other credit and contractual arrangements.

The number of shares of our common stock eligible for future sale could adversely affect the market price of our stock.

We have reserved 1.9 million shares of our common stock for issuance under our 2017 Equity Incentive Plan (the “2017 Plan”),

which may include option grants, stock grants, performance unit grants and restricted stock grants. We had outstanding options to
purchase approximately 589,000 shares of our common stock and 263,000 outstanding restricted stock units under our 2007 Equity
Incentive Plan (the “2007 Plan”), and outstanding options to purchase approximately 67,000 shares of our common stock and 291,000
outstanding restricted stock units under our 2017 Plan as of December 31, 2017. The shares under both plans are registered for resale
on currently effective registration statements.

We may issue additional restricted securities or register additional shares of common stock under the Securities Act in the

future. The issuance of a significant number of shares of common stock upon the exercise of stock options or warrants, vesting of
restricted stock units, or the availability for sale, or resale, of a substantial number of the shares of common stock under registration
statements, under Rule 144 or otherwise, could adversely affect the market price of our common stock.

One or more issuances of shares of our common stock under our stock incentive plan or securities in connection with financing
transactions or the conversion of warrants will dilute current shareholders.

Pursuant to our stock incentive plan, we may grant stock awards to our employees, directors and consultants. Dilution will occur

upon exercise of any outstanding stock awards convertible into or exchangeable or exercisable for common stock. Moreover, if we
raise additional funds by issuing additional common stock, or securities, further dilution to our existing shareholders will result. In
addition, we have historically issued warrants to purchase common shares in conjunction with business acquisitions, debt issuances
and employment contracts, which may cause dilution when exercised.

Our ability to issue preferred stock could adversely affect the rights of holders of our common stock.

Our certificate of incorporation authorizes us to issue up to 10,000 shares of preferred stock in one or more series on terms that

may be determined at the time of issuance by our board of directors. Accordingly, we may issue shares of any series of preferred stock
that would rank senior to our common stock as to voting or dividend rights or rights upon our liquidation, dissolution or winding up.

Certain provisions in our charter documents have anti-takeover effects.

Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or preventing a
change in control of us. Such provisions, including those limiting who may call special shareholders’ meetings, together with the
possible issuance of our preferred stock without shareholder approval, may make it more difficult for other persons, without the

approval of our board of directors, to make a tender offer or otherwise acquire substantial amounts of our common stock or to launch
other takeover attempts that a shareholder might consider to be in such shareholder’s best interest.

Item 1B.

Unresolved Staff Comments

Not Applicable.

Item 2.

Properties

The following facilities were owned or leased by the Company as of December 31, 2017.

Owned and Leased Locations
Energy Segment:

Moorpark, California
Cincinnati, Ohio
Nunspeet, the Netherlands
Nunspeet, the Netherlands
JiangYin City, People’s Republic of China
Montreal, Canada
Orchard Park, New York
Denton, Texas
Monroe, Connecticut
Alberta, Canada
Dubai, United Arab Emirates
Dubai, United Arab Emirates
Singapore
Essex, United Kingdom
Zhenjiang, People’s Republic of China
Wichita Falls, Texas
Michigan City, Indiana

Environmental Segment:
Anaheim, California
Wood Dale, Illinois
Lennon, Michigan
Louisville, Kentucky
Louisville, Kentucky
Lebanon, Pennsylvania
Pittsburgh, Pennsylvania
Columbia, Tennessee
Shanghai, People's Republic of China
Pune, India
Islandia, New York
Cambridgeshire, United Kingdom
Shanghai, People’s Republic of China
Cincinnati, Ohio
Greensboro, North Carolina

Fluid Handling and Filtration Segment:

Telford, Pennsylvania
Indianapolis, Indiana
Pottstown, Pennsylvania
Heerenveen, the Netherlands
Guangzhou, People’s Republic of China

Corporate offices:

Cincinnati, Ohio
Toronto, Canada
Wayne, Pennsylvania
Dallas, Texas (a)

Type

Square Footage

Leased or Owned

Sales
Manufacturing
Manufacturing
Sales
Manufacturing
Sales
Sales
Manufacturing
Sales
Sales
Sales
Sales
Sales
Sales
Held for Sale
Held for Sale
Held for Sale

Sales
Sales/Warehouse
Sales/Warehouse
Manufacturing
Sales
Sales
Sales
Manufacturing
Sales
Sales
Sales
Sales
Sales
Sales/Warehouse
Manufacturing

Manufacturing
Manufacturing
Sales/Warehouse
Manufacturing
Manufacturing

Administrative
Administrative
Administrative
Administrative

4,300
96,400
58,125
6,545
181,447
3,514
17,900
80,000
8,825
1,100
2,463
906
4,643
120
175,000
128,000
5,000

7,000
16,000
8,000
35,000
5,450
4,221
4,000
34,800
270
678
8,178
1,600
5,608
53,210
30,000

93,500
66,000
11,800
34,000
17,168

7,000
4,000
2,600
18,267

Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned

Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased

Leased
Leased
Leased
Owned
Leased

Leased
Leased
Leased
Leased

(a) Location is also used by the Company’s Energy Segment as a management office.

It is anticipated that most leases coming due in the near future will be renewed at expiration. The property we own is subject to
collateral mortgages to secure the amounts owed under the Credit Agreement. Our current capacity, with limited capital additions, is
expected to be sufficient to meet production requirements for the near future. We believe our production facilities are suitable and can
meet our future production needs.

Item 3.

Legal Proceedings

See Note 13 “Commitments and Contingencies – Legal Proceedings” to the Consolidated Financial Statements contained in Part

II, Item 8 of this Annual Report on Form 10-K for information regarding legal proceedings in which we are involved.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information

Our common stock is traded on the NASDAQ under the symbol “CECE.” The following table sets forth the high and low sales

prices of our common stock as reported by the NASDAQ during the periods indicated.

High ............................................................... $ 9.41
4.68
Low ................................................................

Performance Graph

4th
Qtr.

2017

3rd
Qtr.
$ 10.69
6.94

2nd
Qtr.
$ 12.03
8.94

1st
Qtr.
$ 14.46
9.84

4th
Qtr.

2016

3rd
Qtr.

2nd
Qtr.

1st
Qtr.

$ 14.88 $ 11.75 $
8.50

9.53

8.87
5.92

7.85
5.60

The following graph sets forth the cumulative total return to CECO’s shareholders during the five years ended December 31,

2017, as well as the following indices: Russell 2000 Index, Standard and Poor’s (“S&P”) 600 Small Cap Industrial Machinery Index,
and S&P 500 Index. Assumes $100 was invested on December 31, 2012, including the reinvestment of dividends, in each category.

Dividends

Our dividend policy and the payment of cash dividends under that policy are subject to the Board of Director’s continuing

determination that the dividend policy and the declaration of dividends are in the best interest of our shareholders. 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 suspend dividend payments. Future dividends and the dividend policy may be changed at the Board of Director’s
discretion at any time. Payment of dividends is also subject to the continuing compliance with our financial covenants under our

Credit Agreement. During 2017 and 2016, our Board of Directors declared the following quarterly cash dividends on our common
stock:

Dividend
Per Share
$0.075
$0.075
$0.075
$0.066
$0.066
$0.066
$0.066

Record Date

Payment Date

June 16, 2017
March 17, 2017

September 15, 2017 September 29, 2017
June 30, 2017
March 31, 2017
December 16, 2016 December 30, 2016
September 16, 2016 September 30, 2016
June 30, 2016
March 31, 2016

June 18, 2016
March 18, 2016

Holders

The approximate number of registered shareholders of record of our common stock as of March 2, 2018 was 328, although there

are a larger number of beneficial owners.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not repurchase any shares of our common stock during 2017.

Recent Sales of Unregistered Securities

Not applicable.

Item 6. Selected Financial Data

(In thousands, except share and per share data)

Net sales
Gross profit
Amortization and earnout expenses
Intangible asset and goodwill impairment
Restructuring expenses
Income (loss) from operations
Net (loss) income
Net (loss) income attributable to CECO Environmental
Corp.
Basic (loss) earnings per common share
Diluted (loss) earnings per common share
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
Dividends declared per common share
Dividends paid
Total assets
Short-term debt
Long-term debt
Short-term capital lease and sale-leaseback financing
liability
Long-term capital lease and sale-leaseback financing
liability
Shareholders’ equity

$
$

$
$
$

2017
345,051 $
113,194
7,132
7,168
1,895
8,024
(3,029)

Year Ended December 31,
2015
367,422 $
109,171
25,613
3,340
—
4,949
(5,734 )

2016
417,011 $
134,859
20,231
57,923
—
(25,562)
(38,254)

2014
263,217 $
84,823
10,151
—
—
21,663
13,077

2013
197,317
61,555
6,761
—
—
6,972
6,557

(3,029)
(0.09) $
(0.09) $

(38,218)

(1.12) $
(1.12) $

(5,602 )
(0.19 ) $
(0.19 ) $

13,077

0.51 $
0.50 $

34,445,256
34,445,256

33,979,549
33,979,549

28,791,662 25,750,972
28,791,662 26,196,901

0.225 $
7,792 $
438,549 $
11,296
103,537

0.264 $
8,995 $
498,634 $
8,827
114,366

0.264 $
7,977 $
598,819 $
19,494
157,834

0.230 $
5,937 $
412,107 $
8,887
102,969

6,557
0.33
0.32
20,116,991
20,719,951
0.200
4,337
349,210
9,922
79,160

703

764

—

11,880
186,569 $

12,533
190,082 $

—
245,021 $

—
181,224 $

—
170,406

Results of operations from acquired businesses are included from the date of acquisition forward. The fair value of assets and
liabilities, inclusive of changes resulting from operating the businesses, are included in the first period ended after the date of each
acquisition, and all periods thereafter. Acquisitions consist of the following: (i) Aarding Thermal Acoustics B.V. (“Aarding”) in
March 2013, (ii) Met-Pro in August 2013, (iii) HEE Environmental Engineering (“HEE”) in August 2014, (iv) SAT Technology, Inc.
(“SAT”) in September 2014, (v) Emtrol LLC (“Emtrol”) in November 2014, (vi) Jiangyin Zhongli Industrial Technology Co. Ltd.
(“Zhongli”) in December 2014, and (vii) PMFG in September 2015.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (“MD&A”) should be read in conjunction with the consolidated financial statements

and accompanying notes included in Item 8 of this Annual Report on Form 10-K, which include additional information about our
accounting policies, practices and the transactions underlying our financial results. The preparation of our consolidated financial
statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in our
consolidated financial statements and the accompanying notes including various claims and contingencies related to lawsuits, taxes,
environmental and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing
facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated
financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we
believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as
circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these
estimates.

Overview

Business Overview

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 petrochemical processing, along with a wide range of other
industries.

Industry Trends and Corporate Strategy

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

We believe growth for our products and services is driven by the increasing demand for energy consumption and a shift towards

cleaner sources such as natural gas, nuclear, and renewable sources. These trends should stimulate investment in new power
generation facilities, pipeline expansion and related infrastructure, and in upgrading of existing facilities.

With a shift to cleaner, more environmentally responsible power generation, power providers and industrial power consumers

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

We also believe there is a trend in both developed and emerging markets to control and reduce emissions of harsher fuel sources

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

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

Operations Overview

During 2017, the Company concluded its strategic plan assessment and made several decisions to transform the business to win
market share and create value. The Company implemented a restructuring program during the second half of 2017 to reduce costs by
approximately $7 million per annum and refocus the Company’s portfolio including exiting non-core and low critical mass products.
As a result of implementing the restructuring program, the Company incurred restructuring expenses of $1.9 million in 2017. The
Company also modified the debt covenants in 2017 within the Credit Agreement to allow for covenant flexibility to invest in a tough
market cycle. Additionally, the Company’s Board of Directors suspended 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. The headquarters (hub) focuses on enabling the core
back-office key functions for scale and efficiency, that is, accounting, payroll, human resources/benefits, information technology,
safety support, internal control over financial reporting, and administration. We have excellent organizational focus from headquarters
throughout our divisional businesses with clarity and minimal duplicative work streams.

Our three reportable segments are: the Energy segment, which 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, subcomponents 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 consolidated financial statements are prepared in accordance with GAAP. These GAAP financial statements

include certain charges the Company believes are not indicative of its 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, which the Company’s management utilizes to evaluate its ongoing financial
performance, and which the Company believes provides greater transparency to investors as supplemental information to its GAAP
results.

The Company has provided the non-GAAP financial measures of non-GAAP gross profit and non-GAAP gross profit margin,

non-GAAP operating income, non-GAAP operating margin, and non-GAAP net income attributable to CECO Environmental Corp. as
a result of items that the Company believes are not indicative of its ongoing operations. These items 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
substantial charges associated with the acquisition and integration. See Note 17 to the consolidated financial statements for further
information. The Company has incurred additional charges related to its restructuring program that occurred in the fourth quarter of
2017. 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 consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017

Year ended
December 31,
2016

2015

345.1
231.9
113.2
32.8%
89.0
25.8%

— $
—
7.1
2.1%
7.2
2.1%
1.9
0.6%
8.0
2.3%

417.0
282.1
134.9
32.4 %
81.9
19.6 %
0.5
0.1 %
20.2
4.8 %
57.9
13.9 %
—
—
(25.6 )
(6.1 )%

367.4
258.2
109.2
29.7%
67.5
18.4%
7.9
2.2%

25.6

7.0%
3.3
0.9%
—
—
4.9
1.3%

(dollars in millions)
Net sales
Cost of goods sold
Gross profit

Percent of sales

Selling and administrative expenses

Percent of sales

Acquisition and integration expenses

Percent of sales

Amortization and earnout expenses

Percent of sales

Intangible asset and goodwill impairment

Percent of sales
Restructuring expenses
Percent of sales
Operating (loss) income
Percent of sales

To compare operating performance between the years ended December 31, 2017, 2016 and 2015, 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 earnout 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, (7) restructuring expenses primarily relating to severance,
facility exit, legal and property, plant and equipment impairment, (8) intangible asset and goodwill impairment, and (9) inventory
valuation and plant, property and equipment valuation adjustments related to acquisitions. See “Note Regarding Use of Non-GAAP
Financial Measures” above. The following tables present the reconciliation of GAAP gross profit and GAAP gross profit margin to
non-GAAP gross profit and non-GAAP gross profit margin, GAAP operating (loss) income and GAAP operating margin to non-
GAAP operating income and non-GAAP operating margin, and GAAP net (loss) income attributable to CECO Environmental Corp.
to non-GAAP net income attributable to CECO Environmental Corp.:

(dollars in millions)
Gross profit as reported in accordance with GAAP
Gross profit margin in accordance with GAAP

Legacy design repairs
Inventory valuation adjustment
Plant, property and equipment valuation adjustment

Non-GAAP gross profit

Non-GAAP gross profit margin

(dollars in millions)
Operating (loss) income as reported in accordance with GAAP

Operating margin in accordance with GAAP

Legacy design repairs
Inventory valuation adjustment
Plant, property and equipment valuation adjustment
Gain on insurance settlement
Acquisition and integration expenses
Amortization and earnout expenses
Intangible asset and goodwill impairment
Restructuring expenses
Executive transition expenses
Facility exit expenses

Non-GAAP operating income

Non-GAAP operating margin

2017

Year Ended December 31,
2016

2015

113.2
$
32.8%

2.0
—
0.6
115.8
$
33.6%

134.9
32.4 %
—
0.1
0.6
135.6
32.5 %

109.2
29.7%
—
0.5
0.6
110.3
30.0%

2017

Year Ended December 31,
2016

2015

8.0
2.3%
2.0
—
0.6
—
—
7.1
7.2
1.9
1.3
0.2
28.3

8.2%

(25.6 )
(6.1 )%
—
0.1
0.6
(1.0 )
0.5
20.2
57.9
—
—
—
52.7
12.6 %

4.9
1.3%
—
0.5
0.6
—
7.9
25.6
3.3
—
—
—
42.8
11.6%

(dollars in millions)
Net loss attributable to CECO Environmental Corp. as reported in
accordance with GAAP

Non-GAAP net income attributable to CECO Environmental Corp.

Non-GAAP net income as a percentage of sales

Comparison of the years ended December 31, 2017 and 2016

2017

Year Ended December 31,
2016

2015

(3.0)
2.0
—
0.6
—
—
7.1
7.2
1.9
1.3
0.2
—
(2.1)
(5.7)
9.5
2.7%

(38.2 ) $
—
0.1
0.6
(1.0 )
0.5
20.2
57.9
—
—
—
—
0.8
(7.4 )
33.5
8.0 %

(5.6)
—
0.5
0.6
—
7.9
25.6
3.3
—
—
—
0.3
2.5
(7.1)
28.0

7.6%

Consolidated sales in 2017 were $345.1 million compared with $417.0 million in 2016, a decrease of $71.9 million. 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.

Gross profit decreased by $21.7 million, or 16.1%, to $113.2 million in 2017 compared with $134.9 million in 2016. Gross

profit as a percentage of sales increased to 32.8% in 2017 compared with 32.4% in 2016. The decrease in gross profit was primarily
attributable to a sales volume decline period over period. On an as adjusted basis, non-GAAP gross profit was $115.8 million, or
33.6% as a percentage of sales for 2017, a decrease of $19.8 million on a dollar basis compared with non-GAAP gross profit of $135.6
million, or 32.5% as a percentage of sales in 2016. The higher gross profit margin in 2017 was primarily due to favorable project mix
and was partially offset by the Company incurring $3.0 million in warranty expense and $2.0 million in legacy design repairs in 2017,
compared with warranty expense of $0.5 million during in 2016. The increase in warranty expense is primarily attributable to a
legacy product design issue. The increase in legacy design repairs is primarily attributable to specific issues on certain pre-acquisition
projects.

Selling and administrative expenses were $89.0 million in 2017 compared with $81.9 million in 2016. Selling and
administrative expenses as a percentage of sales were 25.8% in 2017 compared with 19.6% in 2016. 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 2017, an increase of $3.0 million of allowance
for bad debt expense during 2017 compared with 2016 and additional investments in selling and finance personnel in 2017. Other
factors leading to the increase are related to the Company recording gains of $1.6 million during 2016, which consisted of $1.0 million
related to a life insurance settlement and $0.6 million related to a warranty settlement received from an external service provider of the
Company.

Acquisition and integration expenses were zero in 2017 and $0.5 million in 2016. The acquisition and integration expenses in

2016 were related to the PMFG acquisition, which occurred during 2015.

Amortization and earnout expense was $7.1 million in 2017 and $20.2 million in 2016. The adjustment recorded to the fair

value of the earnout from the Zhongli acquisition was $6.6 million of income in 2017 and $6.5 million of expense in 2016,
respectively. The fair value adjustments to the earnout that were recorded in 2017 were the result of Zhongli performing below
operational expectations set for 2017. The fair value adjustments to the earnout that were recorded in 2016 were the result of Zhongli
performing above initial acquisition date operational expectations. Payments of the Zhongli earnout are based upon a multiple of
specified financial results through December 31, 2017. Amortization expense was $11.6 million and $14.0 million in 2017 and 2016,
respectively.

In 2017, after conducting the annual impairment testing for goodwill and indefinite lived intangible assets in 2017, the Company

recorded a total impairment charge of $7.2 million. A charge of $4.5 million was recorded to fully impair the carrying value of the
goodwill at the Company’s Zhongli reporting unit in China. This impairment was recorded due to lower operating performance at this
reporting unit due to the declining coal market in China. An additional charge of $2.7 million was recorded to reduce the carrying
value of four tradenames within the Energy segment to their fair value.

In 2016, after conducting the annual impairment testing for goodwill and indefinite lived intangible assets, the Company

recorded a total impairment charge of $57.9 million. A charge of $53.8 million was recorded to reduce the carrying value of the
goodwill at three reporting units to their fair value. The first step of the impairment test indicated potential impairment for one of the
reporting units due to lower operating performance as a result of increased competition caused by market and pricing pressures. This
impairment was measured in the second step. The first step of the impairment test indicated potential impairment for the remaining
two reporting units due to changes in sales forecasts for future years in the fourth quarter of fiscal 2016. These changes were
influenced by weaker market conditions, partially due to depressed oil prices. This impairment was measured in the second step. An
additional charge of $4.2 million was recorded to reduce the carrying value of four tradenames to their fair value.

The Company concluded its strategic plan assessment in the third quarter of fiscal 2017 and made several decisions to transform
the business to win market share and create value. The Company also implemented a restructuring program during the fourth quarter
of 2017 to reduce costs by approximately $7 million per annum and refocus the Company’s portfolio including exiting non-core and
low critical mass products. The Company incurred restructuring expenses of $1.9 million in 2017, as a result of implementing the
restructuring program.

Operating income for 2017 was $8.0 million, an increase of $33.6 million from a (loss) of $(25.6) million in 2016. Operating

income as a percentage of sales for 2017 was 2.3% compared with a negative (6.1)% for 2016. The increase in operating income was
attributable to the prior year intangible asset and goodwill impairment of $57.9 million, compared to intangible asset and goodwill
impairment recorded in the current year of $7.2 million. The increase in operating income was partially offset by decreased gross
profit of $21.7 million, primarily due to a sales volume decline period over period. On an as adjusted basis, non-GAAP operating
income was $28.3 million for 2017, a decrease of $24.4 million from $52.7 million in 2016. Non-GAAP operating income as a
percentage of sales for 2017 was 8.2% compared with 12.6% for 2016. The decrease in non-GAAP operating income was due to
decreased gross profit, which is the result of a sales volume decline period over period.

Other income for 2017 was $0.1 million of income compared with $0.3 million of income in 2016, and was comprised primarily

of foreign currency transaction gains and losses.

Interest expense decreased to $6.7 million in 2017 from $7.7 million in 2016. The decrease is attributable to debt repayments

made throughout 2016 and 2017 that decreased the amount of outstanding debt throughout 2017.

Income tax expense was $4.4 million and $5.3 million in 2017 and 2016, respectively. The effective tax rate for 2017 was
315.0% compared with (16.0)% in 2016. Income tax expense and the effective tax rate for 2017 were significantly impacted by
certain aspects of the Tax Cuts and Jobs Act (“Tax Act”), which was enacted on December 22, 2017. As a result of the Tax Act, the
effective tax rate was adversely impacted in 2017 by a $6.4 million charge related to the deemed, one-time repatriation of foreign
earnings, but it was favorably impacted by a $4.8 million benefit related to the revaluation of net deferred tax assets and liabilities as a
result of the reduction in the U.S. corporate income tax rate from 35% to 21%. Other significant impacts to the 2017 effective tax rate
include the adverse effect of nondeductible $1.8 million of intangible asset and goodwill impairment charges, as well as a benefit of
nondeductible $1.8 million related to an adjustment to estimated earnout expenses. The amounts reported related to changes brought
about by the Tax Act are provisional amounts, subject to change within the measurement period ending one year from the December
22, 2017 effective date of the Tax Act.

Comparison of the years ended December 31, 2016 and 2015

Consolidated sales in 2016 were $417.0 million compared with $367.4 million in 2015, an increase of $49.6 million. The
increase in sales was due primarily to the acquisition of PMFG at the beginning of September 2015. This acquisition contributed an
incremental $60.9 million of sales in 2016. This increase is partially offset by a decreased volume of sales of the Company’s air
pollution control equipment.

Gross profit increased by $25.7 million, or 23.5%, to $134.9 million in 2016 compared with $109.2 million in 2015. Gross profit
as a percentage of sales was 32.4% in 2016 compared with 29.7% in 2015. The increase in gross profit on a dollar basis was the result
of the aforementioned acquisition, which contributed an incremental $25.0 million. On an as adjusted basis, non-GAAP gross profit
was $135.6 million or 32.5% as a percentage of sales for 2016, an increase of $25.3 million on a dollar basis compared with non-
GAAP gross profit of $110.3 million or 30.0% as a percentage of sales in 2015. The higher gross profit margin in 2016 was primarily
due to higher than average margins earned throughout the year by PMFG.

Selling and administrative expenses were $81.9 million in 2016 compared with $67.5 million in 2015. The increase in selling

and administrative expenses is primarily attributable to incremental selling and administrative expenses from the PMFG acquisition.
The increase is partially offset by the Company recording gains of $1.6 million during 2016, which consisted of $1.0 million related to
a life insurance settlement and $0.6 million related to a warranty settlement received from an external service provider of the
Company. Selling and administrative expenses as a percentage of sales were 19.6% in 2016 compared with 18.4% in 2015.

Acquisition and integration expenses of $0.5 million in 2016 and $7.9 million in 2015 relate to acquisition activities, which
include legal, accounting, and banking expenses. The decrease in acquisition and integration expenses was primarily due to costs
incurred as a result of the PMFG acquisition, which occurred during 2015.

Amortization and earnout expense was $20.2 million in 2016 and $25.6 million in 2015. The adjustment recorded to the fair
value of the earnout from the Zhongli acquisition was $6.5 million and $11.2 million in 2016 and 2015, respectively. The fair value
adjustments to the earnout were the result of Zhongli performing above initial acquisition date operational expectations. Fair value
adjustments that resulted in income of $1.3 million and $1.0 million were recorded in 2016 related to the HEE and SAT earnouts,
respectively. The fair value of the adjustments to the earnout were the result of HEE and SAT performing below initial acquisition
date operational expectations. Payments of the Zhongli earnout are based upon a multiple of specified financial results through
December 31, 2017.

In 2016, after conducting the annual impairment testing for goodwill and indefinite lived intangible assets, the Company

Operating (loss) income for 2016 was $(25.6) million, a decrease of $30.5 million from income of $4.9 million in 2015.
Operating income as a percentage of sales for 2016 was (6.1)% compared with 1.3% for 2015. The decrease in operating income was
attributable to the aforementioned intangible asset and goodwill impairment, which was partially offset by increased gross profit and
decreased acquisition and integration expenses. PMFG contributed an incremental $10.0 million in operating profit in 2016. On an as
adjusted basis, non-GAAP operating income was $52.7 million for 2016, an increase of $9.9 million from 2015. Non-GAAP operating
income as a percentage of sales for 2016 was 12.6% compared with 11.6% for 2015, up slightly year over year. The increase in non-
GAAP operating income was primarily due to higher gross margins, which were partially offset by increased selling and
administrative expenses.

Other income / expense for 2016 was $0.3 million of income compared with $2.1 million of expense in 2015, and was
comprised primarily of foreign currency transaction gains of $0.8 million in 2016 and foreign currency transaction losses of $1.7
million in 2015. The expense in 2015 is primarily attributable to a translation remeasurement on U.S. Dollar denominated
intercompany debt at our subsidiary in the Netherlands.

Interest expense increased to $7.7 million in 2016 from $6.0 million in 2015, related to higher debt levels outstanding for a

longer period of time in 2016 in connection with the PMFG acquisition.

Income tax expense was $5.3 million and $2.6 million in 2016 and 2015, respectively. The effective tax rate for 2016 was

(16.0)% compared with (85.2)% in 2015. The effective tax rate was adversely impacted in 2016 by $2.6 million of nondeductible
earnout expenses and $17.9 million of nondeductible intangible asset and goodwill impairment charges, which more than offset the
benefits of $1.7 million from foreign rate differences, $0.6 million of the domestic production activities deduction, $1.0 million related
to United States and Foreign tax incentives and deferred tax asset movement, and $0.6 million of changes in uncertain tax position
reserves.

Business Segments

The Company’s operations in 2017, 2016 and 2015 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 (loss) from operations” line on the Consolidated Statements of Operations. The amounts presented in the Net Sales table
below and in the following comments regarding our net sales at the reportable business segment level exclude both intra-segment and
inter-segment net sales. The Income (loss) from Operations table and corresponding comments regarding operating income (loss) at
the reportable segment level include both intra-segment and inter-segment operating income.

Net Sales (less intra-, inter-segment sales)

(Table only in thousands)
Energy Segment
Environmental Segment
Fluid Handling and Filtration Segment
Corporate and Other (1)

Net sales

(1)

Includes adjustment for revenue on intercompany jobs.

Income (loss) from Operations

(Table only in thousands)
Energy Segment
Environmental Segment
Fluid Handling and Filtration Segment
Corporate and Other (2)
Eliminations

Income (loss) from operations

2017

2016

2015

149,514
127,279
69,159
(901)
345,051

203,376 $
153,344
61,783
(1,492 )
417,011 $

142,150
158,371
67,610
(709)
367,422

2017

2016

2015

8,987 $
13,703
14,734
(26,649)
(2,751)
8,024 $

23,575 $
15,652
(36,209 )
(26,981 )
(1,599 )
(25,562 ) $

3,488
17,021
11,741
(26,592)
(709)
4,949

(2)

Includes corporate compensation, professional services, information technology, acquisition and integration expenses, and other
general and administrative corporate expenses. This figure excludes earnout expenses / income, which are recorded in the
segment in which the expense / income occurs. See Note 7 to the consolidated financial statements for further information.

Comparison of the years ended December 31, 2017 and 2016

Energy Segment

Our Energy segment net sales decreased $53.9 million to $149.5 million in the year ended December 31, 2017 compared with
$203.4 million in the year ended December 31, 2016, a decrease of 26.5%. The decrease is due primarily to decreased sales volume
for the Company’s natural gas turbine exhaust systems related products and services and solid fuel power generation because of a
weakening of this market in Europe and China and a temporary weakening in the gas turbine powered market due to over-capacity.

Operating income from the Energy segment decreased $14.6 million to $9.0 million for the year ended December 31, 2017

compared with $23.6 million in the year ended December 31, 2016, a decrease of 61.9%. The decrease in operating income in 2017
was due to a decrease in revenues, which resulted in a decrease in gross profit of $16.9 million. The decrease in operating income was
also attributable to a non-cash impairment charge of $7.2 million in 2017 to reduce the carrying value of goodwill at one reporting unit
and tradename intangible assets at four reporting units within the Energy segment to their fair value. The decrease in operating income
was partially offset by adjustments recorded to the fair value of the earnout from the Zhongli acquisition, which resulted in $6.6
million of income in 2017 and $6.5 million of expense in 2016, respectively. The fair value adjustments to the earnout that were
recorded in 2017 were the result of Zhongli performing below operational expectations set for 2017. The fair value adjustments to the
earnout that were recorded in 2016 were the result of Zhongli performing above initial acquisition date operational expectations. The
earnout period for the Zhongli acquisition ended as of December 31, 2017.

Environmental Segment

Our Environmental segment net sales decreased $26.0 million to $127.3 million in the year ended December 31, 2017 compared

with $153.3 million in the year ended December 31, 2016, a decrease of 17.0%. The decrease is primarily due to decreased sales
volume for the Company’s refinery related products and services as well as decreased sales volume related to the installation and
fabrication of ventilation duct work and related equipment, 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 from the Environmental segment decreased $2.0 million to $13.7 million for the year ended December 31,

2017 compared with $15.7 million in the year ended December 31, 2016, a decrease of 12.7%. The decrease in operating income was
primarily due to a decrease in revenues, which resulted in a decrease in gross profit of $7.7 million. Additionally, operating income in
2016 was higher due to $2.3 million of income recorded in 2016 as a result of adjustments to the fair value of the earnouts of two
subsidiaries within the Environmental Segment, which was lower partially offset by a non-cash impairment charge of $6.8 million
recorded in 2016 to reduce the carrying value of the goodwill at two reporting units within the Environmental Segment to their fair
value.

Fluid Handling and Filtration (“FHF”) Segment

Our FHF segment net sales increased $7.4 million to $69.2 million in the year ended December 31, 2017 compared with $61.8

million in the year ended December 31, 2016, an increase of 12.0%. The increase is due to increased international demand for the FHF
Segment’s products and a strengthening of the FHF Segment’s North American Industrial Market in 2017.

Operating income from the FHF segment increased $50.9 million to $14.7 million for the year ended December 31, 2017
compared with an operating loss of $(36.2) million for the year ended December 31, 2016, an increase of 140.6%. The increase was
primarily due to a non-cash impairment charge of $46.9 million in 2016, which was recorded to reduce the carrying value of the
goodwill at a reporting unit within the FHF Segment to its fair value and an additional non-cash intangible asset impairment charge of
$1.8 million in 2016 related to a tradename intangible asset within the segment. In addition to this, the increase in operating income
was primarily due to an increase in revenue, which resulted in an increase in gross profit of $2.7 million.

Comparison of the years ended December 31, 2016 and 2015

Energy Segment

Our Energy segment net sales increased $61.2 million to $203.4 million in the year ended December 31, 2016 compared with
$142.2 million in the year ended December 31, 2015, an increase of 43.1%. The increase is primarily due to the PMFG acquisition,
which contributed an incremental $60.9 million in net sales, for the year ended December 31, 2016.

Operating income from the Energy segment increased $20.1 million to $23.6 million for the year ended December 31, 2016

compared with $3.5 million in the year ended December 31, 2015, an increase of 575.9%. PMFG contributed an incremental $10.0
million in operating profit in 2016. The increase is additionally attributable to a more favorable project mix in 2016 as well as a
reduction of the adjustment recorded to the fair value of the earnout from the Zhongli acquisition. The adjustment recorded was $6.5
million of expense in 2016 compared with $11.2 million of expense in 2015.

Environmental Segment

Our Environmental segment net sales decreased $5.0 million to $153.3 million in the year ended December 31, 2016 compared
with $158.4 million in the year ended December 31, 2015, a decrease of 3.2%. The decrease is due primarily to a decreased volume
of the Company’s scrubbers and mist eliminators product lines.

Operating income from the Environmental segment decreased $1.4 million to $15.7 million for the year ended December 31,
2016 compared with $17.0 million in the year ended December 31, 2015, a decrease of 8.0%. The decrease was due in part to a non-
cash $0.8 million intangible asset impairment charge recorded in 2016 related to two tradenames. An additional non-cash charge of
$6.8 million was recorded in 2016 to reduce the carrying value of the goodwill at two reporting units within the Environmental
Segment to their fair value. These charges were partially offset by higher gross margins on decreased sales and a reduction in selling
and administrative expenses attributable to a more favorable project mix. In addition, the decrease in operating income was partially
offset by $2.3 million of income as a result of an adjustment to the fair value of the earnouts from two subsidiaries within the
Environmental Segment.

Fluid Handling and Filtration Segment

Our FHF segment net sales decreased $5.8 million to $61.8 million in the year ended December 31, 2016 compared with $67.6

million in the year ended December 31, 2015, a decrease of 8.6%. The decrease is due to sales volume decline within the segment
period over period related to pumps, which is primarily attributable to a temporary weakness in the North American industrial market.

Operating income (loss) from the FHF segment decreased $48.0 million to a $36.2 million operating loss for the year ended

December 31, 2016 compared with $11.7 million in operating income for the year ended December 31, 2015, a decrease of 208.4%.
The decrease was due primarily to a non-cash charge of $46.9 million, which was recorded to reduce the carrying value of the
goodwill at a reporting unit within the Fluid Handling and Filtration Segment to its fair value. There was also an additional non-cash
intangible asset impairment charge of $1.8 million in 2016 related to a tradename intangible asset within the segment.

Non-GAAP Measures for the Three Months Ended December 31

The following tables present the reconciliation of GAAP gross profit and GAAP gross margin to non-GAAP gross profit and

non-GAAP gross profit margin, GAAP operating (loss) income and GAAP operating margin to non-GAAP operating income and non-
GAAP operating margin:

(dollars in millions)
Net sales as reported in accordance with GAAP
Gross profit as reported in accordance with GAAP
Gross profit margin in accordance with GAAP

Inventory valuation adjustment
Plant, property and equipment valuation adjustment

Non-GAAP gross profit

Non-GAAP gross profit margin

(dollars in millions)
Operating loss as reported in accordance with GAAP
Operating margin in accordance with GAAP

Inventory valuation adjustment
Plant, property and equipment valuation adjustment
Acquisition and integration expenses
Amortization and earnout expenses
Intangible asset and goodwill impairment
Restructuring expense
Non-GAAP operating income

Non-GAAP operating margin

$
$

Three Months Ended December 31,
2016

2015

2017

$
73.5
25.6
$
34.8%
—
0.1
25.7
$
35.0%

100.0
35.7
35.7 %
—
0.1
35.8
35.8 %

$
$

101.2
30.8
30.4%
0.5
0.1
31.4
31.0%

Three Months Ended December 31,
2016

2015

2017

(8.2)
(11.2)%
—
0.1
—
2.5
7.2
1.9
3.5
4.8%

(50.4 )
$
(50.4 )%
—
0.1
—
7.1
57.9
—
$
14.7
14.7 %

(0.3)
(0.3)%
0.5
0.1
0.9
5.6
3.3
—
10.1
10.0%

Gross profit was $25.6 million or 34.8% as a percentage of sales for the three months ended December 31, 2017, a decrease of

$10.1 million compared to gross profit of $35.7 million or 35.7% as a percentage of sales for the three months ended December 31,
2016. The lower gross profit was primarily attributable to a sales volume decline period over period. Operating loss was $(8.2)
million or (11.2)% as a percentage of sales for the three months ended December 31, 2017, an increase of $42.2 million compared
with $(50.4) million loss or (50.4)% as a percentage of sales for the three months ended December 31, 2016. The increase in
operating income was primarily due to an intangible asset and goodwill impairment charge of $57.9 million recorded in the fourth
quarter of 2016 as compared to a $7.2 million intangible asset and goodwill impairment charge in 2017.

Gross profit was $35.7 million or 35.7% as a percentage of sales for the three months ended December 31, 2016, an increase of

$4.9 million compared to gross margin of $30.8 million or 30.4% as a percentage of sales for the three months ended December 31,
2015. The higher gross profit margin and gross profit in 2016 was primarily due to higher than average margins earned throughout the
quarter by PMFG and a more favorable project mix in 2016. Operating loss was $(50.4) million or (50.4%) as a percentage of sales
for the three months ended December 31, 2016, a decrease of $50.1 million compared with $(0.3) million loss or (0.3%) as a

percentage of sales for the three months ended December 31, 2015. The decrease in operating income was primarily due to an
intangible asset and goodwill impairment charge of $57.9 million recorded in the fourth quarter of 2016.

On an adjusted basis, non-GAAP gross profit was $25.7 million or 35.0% as a percentage of sales for the three months ended

December 31, 2017, a decrease of $10.1 million compared with non-GAAP gross margin of $35.8 million or 35.8% as a percentage of
sales for the three months ended December 31, 2016. On an as adjusted basis, non-GAAP operating income was $3.5 million or 4.8%
as a percentage of sales for the three months ended December 31, 2017, a decrease of $11.2 million compared with $14.7 million or
14.7% as a percentage of sales for the three months ended December 31, 2016. The lower gross profit is primarily attributable to a
sales volume decline period over period. The lower operating income is primarily attributable to decreased gross profit.

On an as adjusted basis, non-GAAP gross profit was $35.8 million or 35.8% as a percentage of sales for the three months ended
December 31, 2016, an increase of $4.4 million compared with non-GAAP gross margin of $31.4 million or 31.0% as a percentage of
sales for the three months ended December 31, 2015. On an as adjusted basis, non-GAAP operating income was $14.7 million or
14.7% as a percentage of sales for the three months ended December 31, 2016, an increase of $4.6 million compared with $10.1
million or 10.0% as a percentage of sales for the three months ended December 31, 2015. The higher gross profit margin, gross profit
and operating income in 2016 was primarily due to higher than average margins earned throughout the quarter by PMFG and a more
favorable project mix in 2016.

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 December 31, 2017 was $168.9 million
compared with $197.0 million as of December 31, 2016. During 2017, the Company removed $12.6 million of orders that were
previously disclosed as backlog in prior quarters, which were idle due to inactivity by the customer.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flow from operations and available borrowings under our Credit Facility (defined

below). Our principal uses of cash are operating costs, payment of principal and interest on our outstanding debt, working capital and
other corporate requirements.

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.

At December 31, 2017, the Company had working capital of $66.1 million, compared with $66.6 million at December 31, 2016.

The ratio of current assets to current liabilities was 1.61 to 1 as compared with a ratio of 1.46 to 1 at December 31, 2016. The $0.5
million decrease in working capital from December 31, 2016 to December 31, 2017 was primarily related to a decrease in cash and
cash equivalents ($15.9 million), a decrease in accounts receivable ($15.1 million), a decrease in costs and estimated earnings on
uncompleted contracts ($4.2 million), a decrease in the prepaid expenses and other current assets ($2.8 million), an increase in the
current portion of long-term debt ($2.5 million), and a decrease in restricted cash ($0.9 million) partially offset by a decrease in
accounts payable and accrued expenses ($24.8 million) and a decrease in billings in excess of costs and estimated earnings on
uncompleted contracts ($14.6 million). During the year ended December 31, 2017, the Company made prepayments of $4.3 million
on the outstanding balance of the term loan, of which $3 million was applied to the long-term portion of the debt balance, which
caused a reduction in working capital. The Company entered into a note payable agreement for $5.3 million during the year ended
December 31, 2016, which becomes due subsequent to the sale of building and land that the Company owns in China, which is
classified as held for sale within the Consolidated Balance Sheets as of December 31, 2017 and 2016. As the Company entered into an
agreement to sell the building and related assets classified within assets held for sale on our Consolidated Balance Sheets subsequent
to the year ended December 31, 2017, the note payable for $5.3 million will become due in fiscal year 2018.

At December 31, 2017 and 2016, cash and cash equivalents totaled $29.9 million and $45.8 million, respectively. As of
December 31, 2017 and 2016, $19.7 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 December 31, 2017 and 2016:

(Table only in thousands)
Outstanding borrowings under Credit Facility.
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
– U.S. Dollar revolving loans
– Unamortized debt discount

Total outstanding borrowings under Credit Facility
Outstanding borrowings (U.S. dollar equivalent) under
China Facility
Outstanding borrowings (U.S. dollar equivalent) under
Aarding Facility
Total outstanding borrowings
Less: current portion
Total debt, less current portion

December 31,
2017

December 31,
2016

113,903 $
1,000
(2,834 )
112,069

125,072
—
(3,175)
121,897

—

1,296

2,764
114,833 $
11,296
103,537 $

—
123,193
8,827
114,366

The Company entered into a credit agreement (the “Credit Agreement”) with various lenders and letter of credit issuers
providing for various senior secured credit facilities (collectively, the “Credit Facility”). The Credit Agreement contains customary
affirmative and negative covenants, including the requirement to maintain compliance with a consolidated leverage ratio of less than
3.75 and a consolidated fixed charge coverage ratio of more than 1.25. Per the Credit Agreement, the maximum consolidated leverage
ratio of 3.75 will remain constant at this ratio through March 31, 2019, when it will 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 Credit Agreement. As of December 31,
2017 and 2016, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

A subsidiary of the Company located in the Netherlands has a Euro denominated facilities agreement with ING Bank N.V. as

the lender (“Aarding Facility”). All of the borrowers’ assets are pledged for this facility, and the borrowers’ solvency ratio must be at
least 30% and net debt/last twelve months EBITDA less than 3.0. As of December 31, 2016 the borrowers were in compliance with all
related financial and other restrictive covenants. As of December 31, 2017, the borrowers were not in compliance with certain
financial covenants under the Aarding Facility. As such, in March 2018, the Company settled the outstanding amount of $2.8 million
of the overdraft facility, which is classified as current portion of debt in the Consolidated Balance Sheets. The Company plans to exit
this facility and consolidate it with the existing Credit Facility.

See Note 9 to the consolidated financial statements for further information on the Company’s debt facilities.

Total unused credit availability under our Credit Facility and other non-U.S. credit facilities and agreements, exclusive of any

potential asset base limitations, is as follows:

(dollars in millions)
Credit Facility, U.S. Dollar revolving loans

Draw down
Letters of credit open

Credit Facility, Multi-currency revolving facilities
Netherlands facilities (€13.0 million at December 31, 2017
and €13.0 million at December 31, 2016 in U.S. Dollar
equivalent)

Draw down
Letters of credit open

China Facility
Draw down

Total unused credit availability
Amount available based on borrowing limitations

December 31,

2017

2016

60.5 $
(1.0 )
(24.4 )
19.5

15.6
(2.8 )
(3.9 )
4.6
—
68.1 $

60.5
—
(18.0)
19.5

13.7
—
(5.3)
4.3
(1.3)
73.4

18.7 $

71.1

Overview of Cash Flows and Liquidity

(dollars in thousands)
Total operating cash flow provided by operating
activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents

For the year ended December 31,
2016

2015

2017

6,570 $
(660)
(22,713)

69,599 $
(419 )
(55,838 )

12,637
(35,039)
38,920

881
(15,922) $

(1,712 )
11,630 $

(486)
16,032

In 2017, $6.6 million of cash was provided by operating activities as compared with $69.6 million provided in 2016. The
$63.0 million decrease in cash flow from operating activities was due to several factors. First, non-cash items relating to goodwill and
intangible asset impairments, depreciation and amortization, fair value adjustments to the earnout liability and foreign currency had a
significant impact on the 2017 and 2016 net loss, resulting in an additional loss of $18.3 million. Additionally, Zhongli earnout
payments, classified as operating activities, were $7.8 million in 2017 with no corresponding charge in 2016. Further, payments on
accounts payable and accrued expenses increased $9.2 million in 2017 compared to 2016 and billings in excess of costs decreased by
$22.6 million in 2017 compared to 2016. Overall, these factors primarily contributed to the $63.0 million decrease in cash flow from
operating activities.

In 2016, $69.6 million of cash was provided by operating activities as compared with $12.6 million provided in 2015. The

$57.0 million increase in cash flow from operating activities was due primarily to the net loss in 2016 being attributable to non-cash
charges of impairment of intangible assets and goodwill of $57.9 million, depreciation and amortization of $18.9 million, and fair
value adjustments of earnout liabilities of $4.2 million that was partially offset by a net loss of $38.3 million. Cash provided by
operating activities was positively impacted by favorable net working capital items in 2016 compared with 2015. The incremental
cash provided was comprised of $13.3 million in accounts receivable, $9.4 million in inventories, $2.5 million in costs and estimated
earnings in excess of billings on uncompleted contracts, and $7.4 million in billings in excess of costs and estimated earnings on
uncompleted contracts.

In 2017, $0.7 million of cash was used in investing activities as compared with $0.4 million in 2016. Investing activities in 2017

were comprised of $1.0 million for capital expenditures for property and equipment and offset by $0.4 million proceeds from sale of
property and equipment, as compared with $1.1 million paid for capital expenditures for property and equipment partially offset by
$0.7 million in proceeds from sale of property and equipment in 2016. In 2015, $37.5 million in cash was paid for acquisitions and
$0.8 million was paid for capital expenditures for property and equipment, which was partially offset by $3.2 million in proceeds from
sale of property and equipment

Financing activities in 2017 used net cash of $22.7 million, which consisted primarily of net repayments on debt instruments of

$8.9 million, earnout payments of $7.4 million, and dividends paid to our shareholders of $7.8 million, less cash received from net
borrowings on revolving credit lines of $2.3 million, decreases in restricted cash of $1.4 million and proceeds from stock option
exercises and employee stock purchases of $1.4 million.

Financing activities in 2016 used net cash of $55.8 million, which consisted primarily of net repayments on debt instruments of
$55.2 million, earnout payments of $9.3 million, and dividends paid to our shareholders of $9.0 million, less cash received from sale-
leaseback transactions of $14.2 million, decreases in restricted cash of $3.1 million and proceeds from stock option exercises and
employee stock purchases of $1.7 million.

Financing activities in 2015 provided net cash of $38.9 million, which consisted primarily of net borrowings of $51.6 million

and proceeds from employee stock purchase plan and exercise of stock options of $0.2 million, less dividends paid to our shareholders
of $8.0 million, cash used to pay deferred financing fees of $2.9 million, and earnout payments of $2.5 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 shareholders. 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 suspend dividend payments. 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. During 2017 and 2016, our Board declared the following quarterly cash dividends on our common stock:

Dividend
Per Share
$0.075
$0.075
$0.075
$0.066
$0.066
$0.066
$0.066

Record Date

Payment Date

September 15, 2017
June 16, 2017
March 17, 2017
December 16, 2016
September 16, 2016
June 18, 2016
March 18, 2016

September 29, 2017
June 30, 2017
March 31, 2017
December 30, 2016
September 30, 2016
June 30, 2016
March 31, 2016

The Company maintained a Dividend Reinvestment Plan (the “Plan”), under which the Company may issue up to 750,000

shares of common stock. The Plan provided a way for interested shareholders to increase their holdings in our common stock.
Participation in the Plan was strictly voluntary and was open only to existing shareholders. If the dividend is reinstated, the Company
may periodically issue new shares of common stock under the Plan.

We believe that cash flows from operating activities, together with our existing cash and borrowings available under our Credit

Facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash. After that, our ability to fund
these expected uses of cash and to comply with the financial covenants under our debt agreements will depend on the results of future
operations, performance and cash flow. Our ability to fund these expected uses from the results of future operations will be subject to
prevailing economic conditions and to financial, business, regulatory, legislative and other factors, many of which are beyond our
control.

Employee Benefit Obligations

Based on current assumptions, estimated contributions of $0.8 million may be required in 2018 for the pension plan and $24,000

for the retiree healthcare plan. The amount and timing of required contributions to the pension trust depends on future investment
performance of the pension funds and interest rate movements, among other things and, accordingly, we cannot reasonably estimate
actual required payments. Currently, our pension plan is under-funded. As a result, absent major increases in long-term interest rates,
above average returns on pension assets and/or changes in legislated funding requirements, we will be required to make contributions
to our pension trust of varying amounts in the long-term.

Off Balance Sheet Arrangements

None.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of December 31, 2017 (in thousands):

Payments Due by Period

Less than 1
year

1-3 years

3-5 years

More than
5 years

Long-term debt
Revolver
Note payable (1)
Interest expense (estimated)
Unconditional purchase obligations (2)
Pension and post retirement obligations (3)
Operating lease obligations
Capital lease & sale leaseback financing obligations
Contingent liabilities related to acquisitions
Totals
(1) The note above is payable at the earlier of July 11, 2019, or thirty days subsequent to the sale of the building and land that the

105,370 $
1,000
—
6,518
2,839
1,568
5,674
2,400
1,486
126,855 $

— $
—
—
—
—
1,632
3,992
2,497
—
8,121

8,533
—
5,300
4,918
89,146
847
4,470
1,165
2,988
117,367

—
—
—
—
—
—
3,128
9,863
—
12,991

Total
113,903
1,000
5,300
11,436
91,985
4,047
17,264
15,925
4,474
265,334

Company owns in China. As the Company intends to sell the building and land within one year of December 31, 2017, this note
payable is currently classified as a current liability in the Consolidated Balance Sheets as of December 31, 2017. As the related
asset held for sale was agreed to be sold subsequent to the year ended December 31, 2017, the note payable for $5.3 million will
become due in fiscal year 2018.

(2) Primarily consists of purchase obligations for various costs associated with uncompleted sales contracts.
(3) Future expected obligations under the Company’s pension and post retirement plans are included in the contractual cash

obligations table above, up to, but not more than five years. The Company’s pension and post retirement plan policy allows it to
fund an amount, which could be in excess of the pension and post retirement cost expensed, subject to the limitations imposed
by current tax regulations. The Company projects that it will contribute $0.8 million to its pension and post-retirement plans
during the fiscal year ended December 31, 2018.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with GAAP. The preparation of these financial statements
requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the periods presented. We believe that, of our
significant accounting policies, the following accounting policies involve a higher degree of judgments, estimates, and complexity.

Use of Estimates

Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and related contingent liabilities. On an on-
going basis, we evaluate our estimates, including those related to revenues, bad debts, share based compensation, income taxes,
earnouts, goodwill and intangible asset valuation, and contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions.

Revenue Recognition

A substantial portion of our revenue is derived from contracts, which are primarily accounted for under the percentage of
completion method of accounting. Percentage completion is measured by the percentage of contract costs incurred to date compared
with estimated total contract costs to be the best available measure of progress on these contracts. Contract costs include direct
material and labor costs related to contract performance. This method requires a higher degree of management judgment and use of
estimates than other revenue recognition methods. The judgments and estimates involved include management’s ability to accurately
estimate the contracts’ percentage of completion and the reasonableness of the estimated costs to complete, among other factors, at
each financial reporting period. In addition, 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. 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. 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.

Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. No

provision for estimated losses on uncompleted contracts was needed at December 31, 2017, 2016 and 2015.

Credit and Collections

The Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either
customer disputes or the inability of its customers to make required payments. If the financial condition of the Company’s customers
were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional
allowances or charges against income. The Company determines its allowance for doubtful accounts by considering all known
collectability problems of customer’ accounts and reviewing the aging of the outstanding receivables. The resulting allowance for
doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business and customer base, and historical
trends. The amount ultimately not collected may differ from the reserve established.

Inventories

The Company’s inventories are primarily valued at the lower of cost or net realizable value using the first-in, first-out inventory
costing method as well as the last-in, first-out method. As of December 31, 2017 and 2016, approximately 14% and 8%, respectively,
of our inventory is valued on the last-in, first-out method. Inventory quantities are regularly reviewed and provisions for excess or
obsolete inventory are recorded primarily based on the Company’s forecast of future demand and market conditions. Significant
unanticipated changes to the Company’s forecasts could require a change in the provision for excess or obsolete inventory.

Assets Held for Sale

The Company classifies properties as held for sale when certain criteria are met. At such time, the properties, including
significant assets that are expected to be transferred as part of a sale transaction, are presented separately on the consolidated balance
sheet at the lower of carrying value or estimated fair value less costs to sell and depreciation is no longer recognized. As of December
31, 2017, the Company had three buildings, two tracts of land and equipment classified as held for sale. As of December 31, 2016, the
Company had two buildings and two tracts of land classified as held for sale.

Property, plant and equipment

Property, plant and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful
lives of the assets. Depreciation and amortization are provided using the straight-line method in amounts sufficient to amortize the cost
of the assets over their estimated useful lives (buildings and improvements—generally five to 40 years; machinery and equipment—
generally two to 15 years).

Intangible assets

Indefinite life intangible assets are comprised of tradenames, while finite life intangible assets are comprised of technology,
customer lists, noncompetition agreements, and tradenames. Finite life intangible assets are amortized on a straight line or accelerated
basis over their estimated useful lives of seven to 10 years for technology, five to 20 years for customer lists, five years for
noncompetition agreements, and 10 years for tradenames.

Long-lived assets

Property, plant and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur

that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment, our impairment
review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely
independent of other groups of our assets and liabilities. This analysis requires management judgment with respect to changes in
technology, the continued success of product lines, and future volume, revenue and expense growth rates. We conduct annual reviews
for idle and underutilized equipment, and review business plans for possible impairment. Impairment occurs when the carrying value
of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset or asset group. When
impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset
group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value.

Additionally, we also evaluate the remaining useful life each reporting period to determine whether events and circumstances

warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long lived asset’s remaining useful life
is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.

The Company completes an annual (or more often if circumstances require) impairment assessment of its indefinite life

intangible assets. As a part of its annual assessment, typically, the Company first qualitatively assesses whether current events or
changes in circumstances lead to a determination that it is more likely than not (defined as a likelihood of more than 50 percent) that
the fair value of an asset is less than its carrying amount. If there is a qualitative determination that the fair value of a particular asset is
more likely than not greater than its carrying value, we do not need to proceed to the traditional quantitative estimated fair value test
for that asset. If this qualitative assessment indicates a more likely than not potential that the asset may be impaired, the estimated fair
value is calculated by the relief from royalty method. If the estimated fair value of an asset is less than its carrying value, an
impairment charge is recorded for the amount by which the carrying value of the asset exceeds its calculated implied fair value. For
the 2017 and 2016 annual assessments, given the lower than expected results for certain reporting units, we determined that a
quantitative assessment of fair value for all indefinite life intangible assets using the relief from royalty method was appropriate.

During 2017 and 2016, our annual impairment test indicated that four of our indefinite-lived tradenames were impaired during
each respective year. Accordingly, we recognized impairment charges in our financial results of $2.7 million and $4.2 million for the
years ended December 31, 2017 and 2016, respectively. See Note 7 to the consolidated financial statements for further information
regarding goodwill and intangible assets.

Goodwill

The Company completes an annual (or more often if circumstances require) impairment assessment on October 1 of its goodwill

on a reporting unit level, at or below the operating segment level. As a part of its annual assessment, the Company first qualitatively
assesses whether current events or changes in circumstances lead to a determination that it is more likely than not (defined as a
likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If there is a qualitative
determination that the fair value of a particular reporting unit is more likely than not greater than its carrying value, the Company does
not need to quantitatively test for goodwill impairment for that reporting unit. If this qualitative assessment indicates a more likely
than not potential that the asset may be impaired, the estimated fair value is calculated using a weighting of the income method and the
market method. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recorded. In
2016, the Company recognized an impairment charge for the amount by which the carrying value of the goodwill exceeds its
calculated implied fair value (formerly known as “Step 2”). In fiscal year 2017, the Company prospectively adopted ASU 2017-04,
which eliminates Step 2 and instead, an impairment charge was recorded based on the excess of the reporting unit’s carrying amount
over its fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit.

The Company bases its measurement of the fair value of a reporting unit using a weighting of the income method and the market
method on a 50/50 basis. The income method is based on a discounted future cash flow approach that uses the significant assumptions
of projected revenue, projected operational profit, terminal growth rates, and the cost of capital. Projected revenue, projected
operational profit and terminal growth rates were determined to be significant assumptions because they are three primary drivers of
the projected cash flows in the discounted future cash flow approach. Cost of capital was also determined to be a significant
assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. The market method is based
on financial multiples of comparable companies and applies a control premium. Significant estimates in the market approach include
identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and
assessing comparable revenue and operating income multiples in estimating the fair value of a reporting unit. Based on the analysis,
the resultant estimated fair value of all but one reporting unit exceeded their carrying value as of December 31, 2017. The impairment
test indicated full goodwill impairment for the Zhongli reporting unit of $4.4 million, which was recorded in the fourth quarter of
fiscal 2017. In the 2017 impairment analysis for reporting unit one, two and three, which carry goodwill of $32.4 million, $59.9
million and $5.7 million, respectively, the fair value only exceeded the carrying value by 6%, 3% and 2%. For additional information
on goodwill impairment testing results, see Note 7 to the consolidated financial statements.

Income Taxes

On December 22, 2017, Tax Act was signed into law making significant changes to the U.S. tax code. Changes affecting the

Company’s consolidated 2017 financial statements include, but are not limited to, a U.S. federal corporate tax rate decrease from 35%
to 21% effective for tax years beginning after December 31, 2017 and a one-time transition tax, payable over eight years, on the
mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. Several other provisions of the Tax Act take
effect beginning January 1, 2018.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on

accounting for the tax effects of the Tax Act when a registrant does not have the necessary information available, prepared, or
analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In
accordance with SAB 118, the Company has recognized provisional amounts related to the tax effects of the Tax Act for which the
company was able to make reasonable estimates. We have not completed our accounting for the income tax effect of all elements of
the Tax Act. For the provisions of the Tax Act for which the Company was unable to determine a provisional amount, the Company
has continued to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of
the Tax Act.

Tax effects of the Tax Act will be recognized or adjusted as additional implementation guidance is released and analyses are

finalized, but no later than the end of the measurement period prescribed by SAB 118, which is one year from the enactment date of
the Tax Act.

Income taxes are determined using the asset and liability method of accounting for income taxes in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, “Income Taxes”. Under ASC Topic 740, tax
expense includes U.S. and international income taxes. The Company’s 2017 results include a one-time “transition tax” on the deemed
repatriation of previously undistributed foreign earnings. For distributions of such earnings after December 31, 2017, no U.S. taxes
will be imposed. However, certain foreign jurisdictions may still apply withholding taxes to such distributions; certain states may also
impose income taxes on such distributions.

Tax credits and other incentives reduce tax expense in the year the credits are claimed. Deferred income taxes are provided
using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss
and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and their tax bases, and are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of December 31,
2017, ending deferred tax assets and liabilities have been provisionally revalued to reflect the estimated effect of the change in the
U.S. federal income tax rate from 35% to 21%.

In addition, from time to time, management must assess the need to accrue or disclose uncertain tax positions for proposed
potential adjustments from various federal, state and foreign tax authorities who regularly audit the Company in the normal course of
business. In making these assessments, management must often analyze complex tax laws of multiple jurisdictions, including many
foreign jurisdictions. The accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company records the related interest
expense and penalties, if any, as tax expense in the tax provision.

Another change brought about by the Tax Act is a provision designed to currently tax global intangible low-taxed income
(“GILTI”). Although the provision is one of the many that will take effect for the Company’s 2018 consolidated financial statements,
an accounting policy election with respect to GILTI could have an impact on deferred tax balances as of December 31, 2017. The
company may either elect to record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish
deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions. The Company has not yet
made a policy election and no provisional amounts for the GILTI provisions were recorded as of December 31, 2017.

The Company has not historically recorded deferred income taxes on the undistributed earnings of its foreign subsidiaries
because of management’s intent to indefinitely reinvest such earnings. Management intends to continue to indefinitely reinvest such
earnings, but the provisions of the Tax Act could cause management to reevaluate this position.

Pension and Postretirement Benefit Plan Assumptions

We sponsor a pension plan for certain employees. We also sponsor a postretirement healthcare benefit plan for certain office

employees retiring before January 1, 1990. Several statistical and other factors that attempt to anticipate future events are used in
calculating the expense and liability related to these plans. These factors include key assumptions, such as a discount rate and expected
return on plan assets. In addition, our actuarial consultants use subjective factors such as withdrawal and mortality rates to estimate
these liabilities. The actuarial assumptions we use may differ materially from actual results due to changing market and economic
conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant
impact to the amount of pension or postretirement healthcare benefit expenses we have recorded or may record in the future. An
analysis for the expense associated with our pension plan is difficult due to the variety of assumptions utilized. For example, one of
the significant assumptions used to determine projected benefit obligation is the discount rate. At December 31, 2017, a 25 basis point
change in the discount rate would change the projected benefit obligation by approximately $1.1 million and the annual pension

expense by approximately $9,000. Additionally, a 25 basis point change in the expected return on plan assets would change the
pension expense by approximately $66,000.

Share-Based Compensation

We measure the cost of employee services received in exchange for an award of equity instruments and recognize this cost over
the period during which an employee is required to provide the services, based on the fair value of the award at the date of the grant as
determined by the Black-Scholes valuation method for stock options, or current publicly traded market price on the grant date for
restricted stock units.

Product Warranties

The Company’s warranty reserve is to cover the products sold. The warranty accrual is based on historical claims information.

The warranty reserve is reviewed and adjusted as necessary on a quarterly basis and is presented within Note 8 of the consolidated
financial statements.

Other significant accounting policies

Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless

important to an understanding of our financial statements. See Note 1 to the consolidated financial statements, Summary of Significant
Accounting Policies, which discusses accounting policies that must be selected by us when there are acceptable alternatives.

New Accounting Pronouncements

Accounting Standards Adopted in Fiscal 2017

In January 2017, the 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 ended 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 Consolidated Statement of
Operations for the year ended December 31, 2017 related to excess tax benefits upon vesting or settlement in that period.

 We elected to adopt the cash flow presentation of the excess tax benefits prospectively, commencing with our Consolidated
Statements of Cash Flows for the year ended December 31, 2017, where these benefits are classified along with other
income tax cash flows as an operating activity.

 We have elected to change our accounting policy to account for forfeitures as they occur. This change was applied on a

modified retrospective basis with a cumulative effect adjustment to reduce retained earnings by $0.1 million as of January
1, 2017.

 We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our

diluted earnings per share for the year ended December 31, 2017.

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

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

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 award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and
after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective
for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.
We plan to adopt the standard on January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our
consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under existing GAAP, an entity is required to present all
components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement,
and this net amount may be capitalized as part of an asset where appropriate. ASU 2017-07 requires that an employer report the service
cost component in the same line item or items as other compensation costs arising from services rendered by the 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. We plan to adopt the standard on January 1, 2018. We do not expect the adoption of this
guidance to have a material impact on our consolidated financial statements.

In 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 plans to adopt the provisions of this standard on January 1, 2018, and
will begin presenting segregated cash and restricted cash activity on the consolidated statements of cash flows using a retrospective
transition method for each period presented.

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. For
public companies, this guidance is effective for annual periods beginning after December 15, 2018. We currently expect to adopt ASU
2016-02 as of January 1, 2019, under the modified prospective method. Our evaluation of ASU 2016-02 is ongoing and not complete.
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 income statement or liquidity.
We expect our accounting for capital leases to remain substantially unchanged. The ASU also will require disclosures to help investors
and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. These
disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the
financial statements. Our leasing activity is primarily related to buildings and we have various sale-leaseback transactions. The
Company is continuing to evaluate potential impacts to our financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers.” ASU 2014-09 supersedes nearly all
existing revenue recognition principles under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods
or services are transferred to customers in an amount that reflects the consideration an entity expects to be entitled to for those goods or
services using a defined five-step process. More judgment and estimates may be required to achieve this principle than under existing
GAAP. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for
identifying performance obligations, licenses and determining if a company is the principal or agent in a revenue arrangement. ASU
2014-09 and its clarifying amendments are effective for annual periods beginning after December 15, 2017, including interim periods
therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in
each prior reporting period with the option to elect certain practical expedients or (ii) a modified retrospective approach with the
cumulative effect upon initial adoption recognized at the date of adoption, which includes additional footnote disclosures.

We adopted ASU 2014-09 on January 1, 2018, under the modified retrospective method where the cumulative effect is recognized
through retained earnings as of the date of adoption. Historically, we have recognized revenue related to contracts predominantly under
the percentage of completion method of accounting for revenue recognition. Given our diverse customer base and product lines, there
are varying fact patterns that must be evaluated within each of our contracts to determine the appropriate pattern of revenue recognition
upon the adoption of ASU 2014-09. Certain contract arrangements that were historically recognized over time under our previous
policies will now be recognized at a point in time upon completion of the contracts under the new standard. However, based on the
Company’s evaluation of existing contracts that were not substantially complete as of January 1, 2018, the Company has estimated that
the cumulative adjustment to beginning retained earnings will not be material. Additionally, the Company’s future disclosures will be
expanded to comply with the standard.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse

changes in market rates and prices, such as foreign currency exchange and interest rates. For the Company, these exposures are
primarily related to changes in interest rates. We do not currently hold any derivatives or other financial instruments purely for trading
or speculative purposes. However, we do have an interest rate swap in place as of December 31, 2017 to hedge against a portion of our

interest rate exposure related to debt indexed to LIBOR market rates. See Note 9 to the consolidated financial statements for further
information on this interest rate swap.

The carrying value of the Company’s total long-term debt and current maturities of long-term debt at December 31, 2017 was

$114.8 million. Market risk was estimated as the potential decrease (increase) in future earnings and cash flows resulting from a
hypothetical 10% increase (decrease) in the Company’s estimated weighted average borrowing rate at December 31, 2017. Most of the
interest on the Company’s debt is indexed to either the LIBOR or EURIBOR market rates. The estimated impact of a hypothetical
10% change in the estimated weighted average borrowing rate, excluding the portion of debt which has an interest rate fixed by the
interest rate swap described above, at December 31, 2017 is $0.3 million on an annual basis.

The Company has wholly-owned subsidiaries located in the Netherlands, Canada, the People’s Republic of China, Mexico,

United Kingdom, Singapore, and Chile. In the past, we have not hedged our foreign currency exposure, and fluctuations in exchange
rates have not materially affected our operating results. Future changes in exchange rates may positively or negatively impact our
revenues, operating expenses and earnings. Due to the fact that most of our foreign sales are denominated in the local currency, we do
not anticipate that exposure to foreign currency rate fluctuations will be material in the year ending December 31, 2018.

Item 8.

Financial Statements and Supplementary Data

The consolidated financial statements of CECO Environmental Corp. and subsidiaries for the years ended December 31, 2017,
2016 and 2015 and other data are included in this report following the signature page of this report and incorporated into this Item 8
by reference:

Cover Page ..............................................................................................................................................
Report of Independent Registered Public Accounting Firm ...................................................................

Consolidated Balance Sheets ..................................................................................................................
Consolidated Statements of Operations ..................................................................................................
Consolidated Statements of Comprehensive Income (Loss) ...................................................................
Consolidated Statements of Shareholders’ Equity ..................................................................................
Consolidated Statements of Cash Flows .................................................................................................
Notes to Consolidated Financial Statements for the Years Ended December 31, 2017, 2016 and 2015

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F-4
F-5
F-6 to F-7
F-8 to F-9
F-10 to F-44

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and other

procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or
submit 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 made known to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Annual Report on Form 10-K, our management, with the participation of our Chief

Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2017. 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 December
31, 2017.

The management of the Company does not expect that its disclosure controls and procedures will prevent all errors and all
fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
control system’s objectives will be 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 instance of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to simple
errors or mistakes. The design of any system of controls is based in part upon certain assumptions regarding the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for the preparation and accuracy of the financial statements and other

information included in this report. Under the supervision and with the participation of management, including the Company’s Chief
Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over
financial reporting as of December 31, 2017, based on the criteria set forth in Internal Control – Integrated Framework (2013) (the
“Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this
assessment, management concluded that, as of December 31, 2017, its internal control over financial reporting was effective based on
the Framework.

There are inherent limitations on the effectiveness of any system of internal controls and procedures, including the possibility of

human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective internal controls and
procedures can only provide reasonable assurance of achieving their control objectives.

Item 9A includes the audit report of BDO USA, LLP on the Company’s internal control over financial reporting as of

December 31, 2017.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During fiscal year 2017,
we implemented internal controls to ensure we have adequately evaluated our contracts and properly assessed the impact of the new
accounting standards related to revenue recognition on our financial statements to facilitate the adoption on January 1, 2018. We do
not expect significant changes to our internal control over financial reporting due to the adoption of the new standards.

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
CECO Environmental Corp. and Subsidiaries
Cincinnati, Ohio

Opinion on Internal Control over Financial Reporting

We have audited CECO Environmental Corp. and Subsidiaries’ (the “Company’s”) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations
and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31,
2017, and the related notes and our report dated March 9, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Chicago, Illinois

March 9, 2018

Item 9B.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information called for by this Item 10 of Part III of Form 10-K is incorporated by reference to the information set forth in
our definitive proxy statement relating to our 2018 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Exchange Act within 120 days from December 31, 2017 (the “Proxy Statement”). Reference is also made to the information appearing
in Item 1 of Part I of this Annual Report on Form 10-K under the caption “Business— Executive Officers of the Registrant.”

Item 11.

Executive Compensation

The information called for by this Item 11 of Part III of Form 10-K is incorporated by reference to the Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by this Item 12 of Part III of Form 10-K is incorporated by reference to the Proxy Statement.

Securities Authorized for Issuance Under Equity Compensation Plans

December 31, 2017

(a)

(b)

EQUITY COMPENSATION PLAN INFORMATION

Plan Category
Equity compensation plans approved by security
holders ......................................................................................

2007 Equity Incentive Plan 1
2017 Equity and Incentive Plan 2
Employee Stock Purchase Plan 3 ...........................................

Equity compensation plans not approved by
security holders ........................................................................
TOTAL .......................................................................................

Number of securities
to be issued upon
exercise of outstanding
options and
rights

Weighted-average
exercise price of
outstanding options and
rights,
compensation plans

(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

852,255
435,749
22,368

$
$
$

— $
$

1,310,372

7.39
1.41
4.36

—
7.68

—
2,048,355
1,353,879

—
3,402,234

The 1997 Plan was replaced with the 2007 Plan. The 2007 Plan was replaced with the 2017 Equity and Incentive Plan. In 2017,
54,000 restricted stock units were awarded to plan participants. As of May 16, 2017 no further grants will be made under the
2007 Plan. The 1997 Plan and 2007 Plan remain in effect solely for the purpose of the continued administration of the options
currently outstanding under the 1997 Plan and 2007 Plan.
The 2017 Equity and Incentive Plan was approved by our shareholders on May 16, 2017. We have reserved 1.9 million shares of
our common stock for issuance under our 2017 Equity Incentive Plan. In 2017, 128,000 options, 351,000 restricted stock units
and 700,000 performance units were awarded to plan participants under the 2017 Equity and Incentive Plan.
The Employee Stock Purchase Plan was approved by our shareholders on May 21, 2009.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information called for by this Item 13 of Part III of Form 10-K is incorporated by reference to the Proxy Statement.

Item 14.

Principal Accounting Fees and Services

The information called for by this Item 14 of Part III of Form 10-K is incorporated by reference to the Proxy Statement.

Item 15.

Exhibits and Financial Statement Schedules

1. Financial statements are set forth in this report following the signature page of this report.

PART IV

2. Financial statement schedules are omitted because they are not applicable or because the required information is shown in

the financial statements or in the notes thereto.

3. Exhibit Index. The exhibits listed below, as part of Form 10-K, are numbered in conformity with the numbering used in

Item 601 of Regulation S-K and relate to SEC File No. 0-07099, unless otherwise indicated.

Exhibit
Number

¥2.1

Agreement and Plan of Merger, by and among PMFG, Inc. the Company, Top Gear Acquisition Inc. and Top Gear
Acquisition II LLC, dated as of May 3, 2015 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K filed with the SEC on May 4, 2015)

3(i)

Certificate of Incorporation (Incorporated by reference to Exhibit 3(i) to the Company’s Annual Report on Form 10-K for

the fiscal year ended December 31, 2001)

3(ii)

Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K

filed with the SEC on December 13, 2017)

**10.1

CECO Environmental Corp. 1997 Stock Option Plan and Amendment (Incorporated by reference to Exhibit 4 to the

Company’s Form S-8 filed with the SEC on March 24, 2000)

**10.2

Summary term sheet of arrangement governing consulting services provided by Icarus Investment Corp. (Incorporated by
reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)

10.3

Warrant Agreement, dated as of December 28, 2006, by and between the Company and Icarus Investment Corp.
(Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on
December 28, 2006)

10.4

Amendment No. 1 to Warrant Agreement, dated as of December 7, 2016, by and between the Company and Icarus

Investment Corp. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on December 9, 2016)

**10.5

Second Amended and Restated CECO Environmental Corp. 2007 Equity Incentive Plan (Incorporated by reference to
Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on September 3, 2015)

**10.6

Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.41 to the Company’s Annual Report

on Form 10-K for the fiscal year ended December 31, 2008)

**10.7

Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report

on Form 10-K for the fiscal year ended December 31, 2010)

**10.8

Form of Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.13 to the Company’s Annual

Report on Form 10-K for the fiscal year ended December 31, 2010)

**10.9

CECO Environmental Corp. Employee Stock Purchase Plan (Incorporated by reference to Exhibit A to the Company’s

definitive proxy statement on Schedule 14A filed with the SEC on April 13, 2009)

**10.10

Executive Employment Agreement, effective as of February 15, 2010, by and between the Company and Jeffrey Lang.
(Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on
May 14, 2010)

**10.11

First Amendment to Executive Employment Agreement, effective as of September 4, 2013, by and between the Company
and Jeffrey Lang (Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with
the SEC on November 8, 2013)

Exhibit
Number
**10.12

10.13

10.14

10.15

Summary term sheet of arrangement governing consulting services provided by JMP Fam Holdings Inc. to the Company
(Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2011)

Amended and Restated Credit Agreement, dated as of September 3, 2015, among the Company and certain of its
subsidiaries, the Lenders party thereto, and Bank of America, N.A. (Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on September 3, 2015)

Securities Pledge Agreement, dated August 27, 2013, by and among the Company, the Subsidiaries named therein and
Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K filed with the SEC on September 3, 2015)

Director and Officer Indemnification Agreement, dated as of May 12, 2016, by and between the Company and the
Directors and Officers of the Company (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the SEC on May 16, 2016)

**10.16

Executive Employment Agreement, effective as of January 9, 2017, by and between the Company and Matthew Eckl
(Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May
10, 2017)

**10.17

Separation Agreement, effective as of February 1, 2017, by and between the Company and Jeff Lang (Incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2017)

**10.18

Executive Employment Agreement, effective as of January 26, 2017, by and between the Company and Dennis Sadlowski
(Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May
10, 2017)

**10.19

Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report
on Form 10-Q filed with the SEC on August 9, 2017)

**10.20

Form of Nonqualified Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q filed with the SEC on August 9, 2017)

**10.21

Form of Restricted Stock Units Agreement for Directors (Incorporated by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q filed with the SEC on August 9, 2017)

**10.22

Form of Restricted Stock Units Agreement for Employees (Incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q filed with the SEC on August 9, 2017)

**10.23

Executive Employment Agreement, dated as of June 10, 2017, between the Company and Dennis Sadlowski (Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2017)

**10.24

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

**10.25

Separation Agreement, effective as of July 21, 2017, by and between the Company and Edward J. Prajzner (Incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2017)

*10.26

Amendment No. 1 to Amended and Restated Credit Agreement

10.27

10.28

Amendment No. 2 to Amended and Restated Credit Agreement (Incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2017)

Amendment No. 3 to Amended and Restated Credit Agreement (Incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2017)

*21

Subsidiaries of the Company

*23.1

Consent of BDO USA, LLP

Exhibit
Number
*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

Schedules, exhibits and similar attachments to the agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
The Company will furnish supplementally a copy of any omitted schedule, exhibit or similar attachment to the SEC upon
request.
Filed or furnished herewith

*
** Management contracts or compensation plans or arrangement

Item 16.

Form 10-K Summary

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) 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.

SIGNATURES

CECO ENVIRONMENTAL CORP.

By:

/S/ MATTHEW ECKL
Matthew Eckl

Chief Financial Officer and Secretary

March 9, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated:

Principal Executive Officer:

/S/ DENNIS SADLOWSKI
Dennis Sadlowski
Chief Executive Officer and Director

Principal Financial Officer:

/S/ MATTHEW ECKL
Matthew Eckl
Chief Financial Officer and Secretary

Principal Accounting Officer:

/S/ PAUL GOHR
Paul Gohr
Chief Accounting Officer

/S/ JASON DEZWIREK
Jason DeZwirek
Chairman of the Board and Director

/S/ ERIC M. GOLDBERG
Eric M. Goldberg
Director

/S/ DAVID B. LINER
David B. Liner
Director

/S/ CLAUDIO A. MANNARINO
Claudio A. Mannarino
Director

/S/ JONATHAN POLLACK
Jonathan Pollack
Director

/S/ SETH RUDIN
Seth Rudin
Director

/S/ VALERIE GENTILE SACHS
Valerie Gentile Sachs
Director

/S/ DONALD A. WRIGHT
Donald A. Wright
Director

March 9, 2018

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

F-1

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
CECO Environmental Corp. and Subsidiaries
Cincinnati, Ohio

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CECO Environmental Corp. and Subsidiaries (the “Company”) as
of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income (loss), shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted
in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our
report dated March 9, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2008.

Chicago, Illinois
March 9, 2018

F-2

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share data)

Current assets:

ASSETS

Cash and cash equivalents
Restricted cash
Accounts receivable, net
Costs and estimated earnings in excess of billings on uncompleted contracts
Inventories, net
Prepaid expenses and other current assets
Prepaid income taxes
Assets held for sale

Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets – finite life, net
Intangible assets – indefinite life
Deferred charges and other assets
Total assets

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of debt
Accounts payable and accrued expenses
Billings in excess of costs and estimated earnings on uncompleted contracts
Note payable
Income taxes payable

Total current liabilities

Other liabilities
Debt, less current portion
Deferred income tax liability, net

Total liabilities

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, 34,707,924 and
34,300,209 shares issued and outstanding at December 31, 2017
and 2016, respectively
Capital in excess of par value
Accumulated loss
Accumulated other comprehensive loss

Less treasury stock, at cost, 137,920 shares at December 31, 2017 and 2016

Total shareholders’ equity

Total liabilities and shareholders' equity

December 31,

2017

2016

29,902 $
591
67,990
33,947
20,969
10,760
1,930
7,853
173,942
23,400
166,951
49,956
19,691
4,609
438,549 $

11,296 $
70,786
20,469
5,300
—
107,851
30,382
103,537
10,210
251,980

45,824
1,498
83,062
38,123
21,487
13,560
1,590
7,834
212,978
27,270
170,153
60,728
22,042
5,463
498,634

8,827
95,610
35,085
5,300
1,536
146,358
34,864
114,366
12,964
308,552

—

347
248,170
(52,673 )
(8,919 )
186,925
(356 )
186,569
438,549 $

343
244,878
(41,741)
(13,042)
190,438
(356)
190,082
498,634

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

F-3

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except share and per share data)
Net sales
Cost of sales

Gross profit

Selling and administrative expenses
Acquisition and integration expenses
Amortization and earnout expenses
Intangible asset and goodwill impairment
Restructuring expenses

Income (loss) from operations

Other income (expense), net
Interest expense

Income (loss) before income taxes

Income tax expense

Net loss

Net loss attributable to noncontrolling interest

Net loss attributable to CECO Environmental Corp.

Loss per share:

Basic
Diluted

Weighted average number of common shares outstanding:

Basic
Diluted

$
$
$

$
$

2017

Year Ended December 31,
2016

2015

345,051
231,857
113,194
88,975

—

7,132
7,168
1,895
8,024
106
(6,721)
1,409
4,438
(3,029) $
— $
(3,029) $

417,011
282,152
134,859
81,743
524
20,231
57,923
—
(25,562)
310
(7,712)
(32,964)
5,290

(38,254) $
(36) $
(38,218) $

367,422
258,251
109,171
67,329
7,940
25,613
3,340
—
4,949
(2,081)
(5,964)
(3,096)
2,638
(5,734)
(132)
(5,602)

(0.09) $
(0.09) $

(1.12) $
(1.12) $

(0.19)
(0.19)

34,445,256
34,445,256

33,979,549
33,979,549

28,791,662
28,791,662

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

F-4

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($ in thousands)
Net loss
Other comprehensive income (loss), net of tax:

Translation income (loss)
Interest rate swap
Minimum pension/postretirement liability adjustment

Comprehensive income (loss)

Net loss attributable to noncontrolling interest
Comprehensive income (loss) attributable to CECO
Environmental Corp.

2017

Year Ended December 31,
2016
(38,254 ) $

(3,029) $

4,021
180
(78)
1,094
—

(3,864 )
312
87
(41,719 )
(36 )

2015

(5,734)

(2,664)
—
(292)
(8,690)
(132)

1,094

(41,683 ) $

(8,558)

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

F-5

Balance January 1, 2015

Net loss for the year ended
December 31, 2015
Common stock dividends
Exercise of stock options and
dividend reinvestment
issuances
Excess tax benefit from stock
options exercised
Share based compensation earned
Stock issued for acquisition
Fair value of noncontrolling interest
acquired
Adjustment for minimum
pension/post retirement
liability, net of tax of $(178)
Translation loss
Balance December 31, 2015

Net loss for the year ended
December 31, 2016
Common stock dividends
Exercise of stock options and
dividend reinvestment
issuances
Excess tax benefit from stock
options exercised
Restricted stock units issued
Share based compensation earned
Issuance of shares for cashless
warrant exercise (See Note 10)
Stock repurchase and retirement
Noncontrolling interest acquisitions
(See Note 17)
Adjustment for minimum
pension/post retirement
liability, net of tax of $53
Adjustment for interest rate swap
liability, net of tax of $181
Translation loss
Balance December 31, 2016

Net loss for the year ended
December 31, 2017
Cumulative effect adjustment
adopting ASU 2016-09 (See Note 1)
Common stock dividends
Exercise of stock options and
dividend reinvestment
issuances
Restricted stock units issued
Share based compensation earned
Adjustment for minimum
pension/post retirement
liability, net of tax of $(48)
Adjustment for interest rate swap
liability, net of tax of $103
Translation income
Balance December 31, 2017

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

Accum.
Capital in Accum. Other

Total
CECO

Total

Common Stock excess of Earnings Comp. Treasury Stock Shareholders' Noncontrolling Shareholders'
Shares Amount par value
26,405 $

264 $ 168,886 $ 19,051 $ (6,621)

Shares Amount

(Loss) Loss

181,224 $

Interest

(138) $

181,224

Equity

(356) $

— $

(5,602)
(7,977)

—

205

13
7,602

—
—
76

44
2,070
72,069

(5,602 )
(7,977 )

205

44
2,070
72,145

(132)

(5,734)
(7,977)

34,056 $

340 $ 243,274 $

(292)
(2,664)
5,472 $ (9,577)

(138) $

(356) $

(38,218)
(8,995)

215

1,513

17
27

—
—
1

137
(9 )
2,457

90
(105)

1
(1 )

(1 )
(1,237)

—

6,000

5,868 $

(36)

(292 )
(2,664 )
239,153 $

(38,218 )
(8,995 )

1,515

137
(9 )
2,458

—
(1,238 )

205

44
2,070
72,145

6,000

(292)
(2,664)
245,021

(38,254)
(8,995)

1,515

137
(9 )
2,458

—
(1,238)

(1,256)

(1,256 )

(5,832)

(7,088)

312
(3,864)
343 $ 244,878 $ (41,741) $ (13,042)

34,300 $

(138) $

(356) $

(3,029)

(111)
(7,792)

177

291
92
25

3
1
—

1,292
(136)
1,959

312
(3,864 )
190,082 $

(3,029 )

66
(7,792 )

1,295
(135 )
1,959

(78 )

180
4,021
186,569 $

- $

312
(3,864)
190,082

(3,029)

66
(7,792)

1,295
(135)
1,959

(78 )

180
4,021
186,569

- $

(78)

180
4,021
347 $ 248,170 $ (52,673) $ (8,919)

(138) $

(356) $

34,708 $

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

F-6

Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss in shareholders’ equity:

($ in thousands)
January 1, 2015
2015 activity
Balance December 31, 2015
2016 activity
Balance December 31, 2016
2017 activity
Balance December 31, 2017

Translation
loss

Interest
rate swap
liability
adjustment

Minimum pension/
post retirement
liability
adjustment

(1,743)
(2,664)
(4,407)
(3,864)
(8,271)
4,021
(4,250) $

— $
—
— $
312
312 $
180
492 $

Accumulated other
comprehensive loss
(6,621)
(2,956)
(9,577)
(3,465)
(13,042)
4,123
(8,919)

(4,878) $
(292)
(5,170) $
87
(5,083) $
(78)
(5,161) $

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

F-7

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

2017

Year Ended December 31,
2016

2015

(3,029)

(38,254)

(5,734)

($ in thousands)
Cash flows from operating activities:

Net loss
Adjustments to reconcile net loss to net cash provided by
operating activities:

Depreciation and amortization
Unrealized foreign currency (gain) loss
Net (gain) loss on interest rate swaps
Impairment of property and equipment
Impairment of intangible assets and goodwill
Fair value adjustments to earnout liabilities
Earnout payments
Loss on sale of property and equipment
Amortization of debt discount
Share based compensation expense
Bad debt expense
Inventory reserve expense
Excess tax benefit from stock options exercised
Deferred income tax benefit

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable
Costs and estimated earnings in excess of billings on uncompleted
contracts
Inventories
Prepaid expenses and other current assets
Deferred charges and other assets
Accounts payable and accrued expenses
Billings in excess of costs and estimated earnings on uncompleted
contracts
Income taxes payable
Other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Acquisitions of property and equipment
Cash paid for acquisitions, net of cash acquired
Net proceeds from sale of assets

Net cash used in investing activities

Cash flows from financing activities:

Decrease in restricted cash
Net borrowings (repayments) on revolving credit lines
Borrowings of long-term debt
Repayments of long-term debt
Deferred financing fees paid
Payoff of loans on life insurance policies
Earnout payments
Proceeds from sale-leaseback transactions
Payments on capital leases and sale-leaseback financing liability
Proceeds from employee stock purchase plan, exercise of stock options,
and dividend reinvestment plan
Cash paid for repurchase of common shares
Excess tax benefit from stock options exercised
Dividends paid to common shareholders

16,088
(2,103)
(327)
695
7,168
(6,610)
(7,797)
130
1,033
1,768
3,895
240
—

(3,123)

14,107

6,232
887
3,530
1,585
(15,847)

(15,186)
(1,827)
5,061
6,570

(1,028)

—
368
(660)

1,425
2,269

—

(11,168)
(692)

—

(7,396)

—

(711)

1,352

—
—

(7,792)
(22,713)
881
(15,922)
45,824
29,902

18,903
777
95
—
57,923
4,218
—
217
1,054
2,280
848
1,167
(137)
(3,750)

13,294

2,537
9,449
(2,218)
(73)
(6,593)

7,440
143
279
69,599

(1,076)
—
657
(419)

3,137
(13,407)
—
(41,768)
—
(987)
(9,270)
14,244
(426)

1,685
(188)
137
(8,995)
(55,838)
(1,712)
11,630
34,194
45,824

16,520
2,364
—
—
3,340
11,222
—
397
1,062
2,070
702
680
(44)
(3,488)

(15,605)

4,447
(3,477)
3,132
(191)
(8,582)

4,324
1,166
(1,668)
12,637

(763)
(37,481)
3,205
(35,039)

481
(10,727)
170,000
(107,695)
(2,923)
—
(2,488)
—
—

205
—
44
(7,977)
38,920
(486)
16,032
18,162
34,194

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

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

F-8

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

($ in thousands)
Non-cash transactions

Common stock issued in business acquisitions
Property, plant and equipment acquired under capital leases
Noncontrolling interest acquired through an issuance of a note payable
(See Note 17)
Earnout settled through an exchange of accounts receivable
Accrual of share repurchase
Cash paid during the year for:

Interest
Income taxes

2017

Year Ended December 31,
2016

2015

$
$

$
$
$

$
$

— $
— $

— $
— $
— $

5,686
3,048

$
$

— $
$

4,385

72,145
—

5,300
3,272
1,050

6,923
6,415

$
$
$

$
$

—
—
—

4,742
5,080

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

F-9

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2017, 2016 and 2015

Nature of Business and Summary of Significant Accounting Policies

Nature of business— CECO Environmental Corp. and its consolidated subsidiaries (“CECO,” the “Company,” “we,” “us,” or

“our”) is a diversified global provider of leading highly engineered technologies to the environmental, energy, and fluid handling and
filtration industrial segments, targeting specific niche-focused end markets through an attractive asset-light business model,
strategically balanced across the world. CECO has over $5 billion of installed equipment base with end users, which we target to
expand and grow a higher recurring revenue of aftermarket products and services. CECO’s well-respected brands, technologies and
solutions have been evolving for well over 50 years to become leading-edge technologies in specific niche global end markets.

Principles of consolidation—Our consolidated financial statements include the accounts of the following subsidiaries:

CECO Group, Inc.
CECO Group Global Holdings LLC
CECO Filters, Inc. and Subsidiaries (“CFI”)
The Kirk & Blum Manufacturing Company
CECO Air Quality Solutions, Inc.
EFFOX, Inc. (“Effox”)
Fisher-Klosterman, Inc. (“FKI”)
Flextor, Inc. (“Flextor”)
Adwest Technologies, Inc. (“Adwest”)
Aarding Thermal Acoustics B.V. (“Aarding”)
Met-Pro Technologies LLC (“Met-Pro”)
Peerless Mfg. Co. (“PMFG”)

% Owned As Of
December 31, 2017

100 %
100 %
99 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %

In fiscal 2017, a new subsidiary, CECO Air Quality Solutions, Inc., was formed and merged with former subsidiary CECO
Abatement Systems, Inc. Additionally, New Busch Co., Inc. (“Busch”) merged with CFI. Further, Met-Pro wholly owned subsidiaries
MPC Inc., Met-Pro Industrial Services and Bio-Reaction Industries merged with Met-Pro. The Company will continue to optimize its
legal entity structure through consolidation and mergers of subsidiaries in the future.

CFI includes one wholly owned subsidiary, CECO Environmental India Private Limited (f/k/a. CECO Filter India Private

Limited). The noncontrolling interest in CFI is not material.

FKI includes three wholly owned subsidiaries, AVC, Inc. (“AVC.”), Emtrol LLC (“Emtrol”) and SAT Technology, Inc. (“SAT”).

Met-Pro includes eight wholly owned subsidiaries, Mefiag B. V., Met-Pro Recovery/Pollution Control Technologies, Inc.,
Strobic Air Corporation, Mefiag (Guangzhou) Filter Systems Ltd., Met-Pro (Hong Kong) Company Limited, Met-Pro Holding LLC,
Jiangyin Zhongli Industrial Technology Co., Ltd. (“Zhongli’) and Met-Pro Chile Limitada.

CECO Group, Inc. has two wholly owned subsidiaries in Mexico, CECO Environmental Mexico S de RL de CV and CECO

Environmental Services Mexico S de RL de CV.

PMFG has five wholly owned subsidiaries, Nitram Energy, Inc., PMC Acquisition, Inc., Peerless Europe, Ltd., Peerless
Manufacturing Canada, Ltd., and Peerless Asia-Pacific Pte. Ltd. Additionally, PMFG was the majority owner of Peerless Propulsys
China Holdings LLC (“Peerless Propulsys”). The Company’s former 60% equity investment in Peerless Propulsys entitled it to 80%
of the earnings. Peerless Propulsys was the sole owner of Peerless China Manufacturing Co. Ltd. (“PCMC”). On July 12, 2016, the
Company entered into an agreement with the noncontrolling owner of Peerless Propulsys and acquired 100% ownership in the equity
and earnings of Peerless Propulsys of their interest (40%). For a more complete discussion of the transaction, refer to Note 17.

PMFG is a global provider of engineered equipment for the abatement of air pollution, the separation and filtration of

contaminants from gases and liquids, and industrial noise control equipment, and was acquired in September 2015.

F-10

Unless indicated, all balances within tables are in thousands except per share amounts. All intercompany balances and

transactions have been eliminated.

Use of estimates—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.

Cash equivalents—We consider all highly liquid investments with original maturities of three months or less to be cash

equivalents. At December 31, 2017 and 2016, included in Restricted Cash is cash in support of letters of credit issued by various
foreign subsidiaries of the Company. The Company occasionally enters into letters of credit with durations in excess of one year.

Accounts Receivable—Trade receivables are generally uncollateralized customer obligations due under normal trade terms

requiring payment generally within 30 days from the invoice date unless otherwise determined by specific contract terms, generally
due to retainage provisions. The Company’s estimate of the allowance for doubtful accounts for trade receivables is primarily
determined based upon the length of time that the receivables are past due. In addition, management estimates are used to determine
probable losses based upon an analysis of prior collection experience, specific account risks and economic conditions. The Company
has a series of actions that occur based upon the aging of past due trade receivables, including letters, statements, direct customer
contact and liens. Accounts are deemed uncollectible based on past account experience and the current financial condition of the
account.

Inventories—As a result of prospectively adopting ASU 2015-11, in fiscal year 2017 the Company’s inventory is primarily
valued at the lower of cost or net realizable value. In fiscal year 2016, the Company’s inventories are primarily valued at the lower of
cost or market. The impact of the adoption was not material. The Company uses the first-in, first-out inventory costing method as
well as the last-in, first-out method as of December 31, 2016 and 2017, respectively. As of December 31, 2017 and 2016,
approximately 14% and 8%, respectively, of our inventory is valued on the last-in, first-out method. Inventory quantities are regularly
reviewed and provisions for excess or obsolete inventory are recorded based on the Company’s forecast of future demand and market
conditions. Significant unanticipated changes to the Company’s forecasts could require a change in the provision for excess or
obsolete inventory.

Assets Held for Sale—The Company classifies properties as held for sale when certain criteria are met. At such time, the
properties, including significant assets that are expected to be transferred as part of a sale transaction, are presented separately on the
consolidated balance sheet at the lower of carrying value or estimated fair value less costs to sell and depreciation is no longer
recognized. At December 31, 2017, the Company had three buildings, two tracts of land and equipment classified as held for sale. As
of December 31, 2016, the Company had two buildings, two tracts of land and equipment classified as held for sale.

Property, plant and equipment—Property, plant and equipment are carried at the cost of acquisition or construction and
depreciated over the estimated useful lives of the assets. Depreciation and amortization are provided using the straight-line method in
amounts sufficient to amortize the cost of the assets over their estimated useful lives (buildings and improvements—generally five to
40 years; machinery and equipment—generally two to 15 years). Upon sale or disposal of property, plant and equipment, the
applicable amounts of asset cost and accumulated depreciation are removed from the accounts, and the net amount, less any proceeds
from sale, is recorded in income.

Intangible assets— Indefinite life intangible assets are comprised of tradenames, while finite life intangible assets are comprised
of technology, customer lists, noncompetition agreements and tradenames. Finite life intangible assets are amortized on a straight line
or accelerated basis over their estimated useful lives of seven to 10 years for technology, five to 20 years for customer lists, five years
for noncompetition agreements and 10 years for tradenames.

Long-lived assets—Property, plant and equipment and finite life intangible assets are reviewed whenever events or changes in

circumstances occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment,
our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets
are largely independent of other groups of our assets and liabilities. This analysis requires management judgment with respect to
changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. We conduct
annual reviews for idle and underutilized equipment, and review business plans for possible impairment. Impairment occurs when the
carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset or asset group.
When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or
asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value.

F-11

Additionally, the Company evaluates the remaining useful life each reporting period to determine whether events and

circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long lived asset’s
remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining
useful life.

The Company completes an annual (or more often if circumstances require) impairment assessment of its indefinite life

intangible assets. As a part of its annual assessment, typically, the Company first qualitatively assesses whether current events or
changes in circumstances lead to a determination that it is more likely than not (defined as a likelihood of more than 50 percent) that
the fair value of an asset is less than its carrying amount. If there is a qualitative determination that the fair value of a particular asset is
more likely than not greater than its carrying value, we do not need to proceed to the traditional quantitative estimated fair value test
for that asset. If this qualitative assessment indicates a more likely than not potential that the asset may be impaired, the estimated fair
value is calculated by the relief from royalty method. If the estimated fair value of an asset is less than its carrying value, an
impairment charge is recorded for the amount by which the carrying value of the asset exceeds its calculated implied fair value. For
the 2017 annual assessment, given the lower than expected results for certain reporting units, we determined that a quantitative
assessment of fair value for all indefinite life intangible assets using the relief from royalty method was appropriate. Refer to Note 7
for the results of this quantitative analysis.

Goodwill—The Company completes an annual (or more often if circumstances require) impairment assessment on October 1 of

its goodwill on a reporting unit level, at or below the operating segment level. As a part of its annual assessment, the Company first
qualitatively assesses whether current events or changes in circumstances lead to a determination that it is more likely than not
(defined as a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If there is a
qualitative determination that the fair value of a particular reporting unit is more likely than not greater than its carrying value, the
Company does not need to quantitatively test for goodwill impairment for that reporting unit. If this qualitative assessment indicates a
more likely than not potential that the asset may be impaired, the estimated fair value is calculated using a weighting of the income
method and the market method. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is
recorded. In fiscal year 2017, the Company prospectively adopted ASU 2017-04, which eliminates Step 2 and recognizes 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. In 2016, the Company recognized an impairment charge for the amount by
which the carrying value of the goodwill exceeds its calculated implied fair value (formerly known as “Step 2”). For the 2017 annual
assessment, given the lower than expected results for certain reporting units, we determined that a quantitative assessment of fair value
for all reporting units with goodwill was appropriate. Refer to Note 7 for the results of this quantitative analysis.

Deferred charges—Deferred charges include deferred financing costs, which are amortized to interest expense over the life of

the related loan. The Company incurred and capitalized $0.7 million of deferred financing fees in 2017 related to long-term debt
modifications. The Company did not incur or capitalize deferred financing fees in 2016. During 2015, the Company capitalized
deferred financing fees of $2.9 million related to the issuance of new debt. Amortization expense was $1.0 million, $1.1 million and
$0.8 million for 2017, 2016 and 2015, respectively, and is classified as interest expense. Also, during 2015, an additional $0.3 million
of existing fees were expensed, and classified as interest expense, as a result of the modification of the Credit Agreement (refer to
Note 9 for further details of the modification). As of December 31, 2017 and 2016, remaining capitalized deferred financing costs of
$2.8 million and $3.2 million, respectively, are included as a discount to debt in the accompanying Consolidated Balance Sheets.

Revenue recognition—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.

During 2016, the Company’s Zhongli division within the Energy segment has recognized revenue on a percentage of completion

method compared with the completed contracts method that was utilized in 2015 (as the division did not meet the criteria to use
percentage of completion). This change was made after determining that the Company had designed and implemented appropriate
controls to track project costs and estimates to complete. During the year ended December 31, 2016, this division recognized $7.9
million in percentage of completion revenue related to open projects as of December 31, 2016.

The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in
excess of amounts billed. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents
billings in excess of revenues recognized. Provisions for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes to job performance, job conditions, and estimated profitability may result in revisions to contract
revenue and costs and are recognized in the period in which the revisions are made. No provision for estimated losses on uncompleted
contracts was required at December 31, 2017, and 2016.

F-12

Cost of sales—Cost of sales amounts include materials, direct labor and associated benefits, inbound freight charges, purchasing

and receiving, inspection, warehousing, and depreciation. Generally, customer freight charges are included in sales and actual freight
expenses are included in cost of sales.

Claims—Change orders arise when the scope of the original project is modified for any of a variety of reasons. The Company
will negotiate the extent of the modifications, its expected costs and recovery with the customer. Costs related to change orders are
recognized in the period they are incurred and added to the expected total cost of the project. In cases where contract revenues are
assured beyond a reasonable doubt to be increased in excess of the expected costs of the change order, incremental profit also is
recognized on the contract. Such assurance is generally only achieved when the customer approves in writing the scope and pricing of
the change order. Change orders that are in dispute are effectively handled as claims.

Claims are amounts in excess of the agreed contract price that the Company seeks to collect from customers or others for
customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both
scope and price. Costs attributable to claims are treated as contract costs as incurred.

The Company recognizes certain significant claims for recovery of incurred costs when it is probable that the claim will result in

additional contract revenue and when the amount of the claim can be reliably estimated. When the customer or other parties agree in
writing to the amount of the claim to be recovered by the Company, the amount of the claim becomes contractual and is accounted for
as an increase in the contract’s total estimated revenue and estimated cost. As actual costs are incurred and revenues are recognized
under percentage-of-completion accounting, a corresponding percentage of the revised total estimated profit will therefore be
recognized.

Should it become probable that the claim will not result in additional contract revenue, the Company removes the related
contract revenues from its previous estimate of total revenues, which effectively reduces the estimated profit margin on the job and
negatively impacts profit for the period.

Pre-contract costs—Pre-contract costs are not significant. The Company expenses all pre-contract costs as incurred regardless

of whether or not the bids are successful. A majority of our business is obtained through a bidding process and this activity is on-going
with multiple bids in process at any one time. These costs consist primarily of engineering, sales and project manager wages, fringes
and general corporate overhead and it is deemed impractical to track activities related to any one specific contract.

Selling and administrative expenses—Selling and administrative expenses on the Consolidated Statements of Operations include

sales and administrative wages and associated benefits, selling and office expenses, professional fees, bad debt expense, changes in
life insurance cash surrender value and depreciation. Selling and administrative expenses are charged to expense as incurred.

Acquisition and integration expenses—Acquisition and integration expenses on the Consolidated Statements of Operations are

related to acquisition activities, which include retention, legal, accounting, banking, and other expenses.

Amortization and earnout expenses—Amortization and earn out expenses on the Consolidated Statements of Operations include

amortization of intangible assets, and changes to earnout and contingent compensation amounts related to acquisitions as more fully
presented and described in Notes 7 and 8.

Restructuring expenses—Restructuring expense on the Consolidated Statements of Operations include expenses related to a

restructuring program implemented during the fourth quarter of fiscal 2017 to reduce operating costs in the future. Within
restructuring expenses are charges related to severance, facility exit, legal and property, plant and equipment impairment. The
Company’s policy is to recognize restructuring expenses in accordance with the accounting rules related to exit or disposal activities.

Indirect Taxes—The Company records taxes collected from customers and remitted to governmental authorities on a net basis in

the Consolidated Statements of Operations.

Product Warranties—The Company’s warranty reserve is to cover the products sold. The warranty accrual is based on historical

claims information. The warranty reserve is reviewed and adjusted as necessary on a quarterly basis and is presented within Note 8.

Advertising costs—Advertising costs are charged to operations in the year incurred and totaled $0.9 million, $0.9 million and

$1.0 million in 2017, 2016 and 2015, respectively.

Research and Development—Although not technically defined as research and development, a significant amount of time, effort

and expense is devoted to (a) custom engineering which qualifies products for specific customer applications, (b) developing
proprietary process technology and (c) partnering with customers to develop new products.

F-13

Income taxes— On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making
significant changes to the U.S. tax code. Changes affecting the Company’s consolidated 2017 financial statements include, but are not
limited to, a U.S federal corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and a
one-time transition tax, payable over eight years, on the mandatory deemed repatriation of cumulative foreign earnings as of
December 31, 2017. Several other provisions of the Tax Act take effect beginning with the Company’s 2018 consolidated financial
statements.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on

Tax effects of the Tax Act will be recognized or adjusted as additional implementation guidance is released and analyses are

finalized, but no later than the end of the measurement period prescribed by SAB 118, which is one year from the enactment date of
the Tax Act.

Income taxes are determined using the asset and liability method of accounting for income taxes in accordance with FASB ASC
Topic 740, “Income Taxes”. Under ASC Topic 740, tax expense includes U.S. and international income taxes. Until the December 22,
2017 enactment of the Tax Act, tax expense also included the provision for U.S. taxes on undistributed earnings of international
subsidiaries not deemed to be indefinitely reinvested. The Company’s 2017 results include a one-time “transition tax” on the deemed
repatriation of previously undistributed foreign earnings. For distributions of such earnings after December 31, 2017, no U.S. taxes
will be imposed. However, certain foreign jurisdictions may still apply withholding taxes to such distributions; certain states may also
impose income taxes on such distributions.

F-14

Earnings per share—The computational components of basic and diluted earnings per share for 2017, 2016 and 2015 are below.

For the Year Ended December 31, 2017
Denominator
(Shares)

Numerator
(Loss)

Per Share
Amount

Basic net loss and loss per share
Effect of dilutive securities:

Common stock equivalents arising from stock options,
restricted stock awards, and employee stock purchase
plan

Diluted net loss and loss per share

(3,029)

34,445 $

(0.09)

—
(3,029)

—
34,445 $

—
(0.09)

For the Year Ended December 31, 2016
Denominator
(Shares)

Numerator
(Loss)

Per Share
Amount

Basic net loss and loss per share
Effect of dilutive securities:

Common stock equivalents arising from stock options,
restricted stock awards, and employee stock purchase
plan

Diluted net loss and loss per share

(38,218)

33,980 $

(1.12)

—
(38,218)

—
33,980 $

—
(1.12)

For the Year Ended December 31, 2015
Denominator
(Shares)

Numerator
(Loss)

Per Share
Amount

Basic net loss and loss per share
Effect of dilutive securities:

Common stock equivalents arising from stock options,
restricted stock awards, and employee stock purchase
plan

Diluted net loss and loss per share

(5,602)

28,792 $

(0.19)

—
(5,602)

—
28,792 $

—
(0.19)

Options and warrants included in the computation of diluted earnings per share are so included on the treasury stock method.
For the year ended December 31, 2017, 2016 and 2015, outstanding options and warrants and unvested restricted stock units of 0.7
million, 1.6 million and 1.5 million, respectively, were excluded from the computation of diluted earnings per share due to their
having an anti-dilutive effect.

Once a restricted stock award vests, it is included in the computation of weighted average shares outstanding for purposes of

basic and diluted earnings per share.

Foreign Currency Translation—The functional currencies of the Company’s subsidiaries in the Netherlands, United Kingdom,

Brazil, Canada, China, Mexico, Chile, and India are the Euro, Pound, Real, Canadian Dollar, Renminbi, Peso, Chilean Peso, and
Rupee, respectively, and their books and records are maintained in the local currency. Translation adjustments, which are based upon
the exchange rate at the balance sheet date for assets and liabilities and weighted-average rate for the Consolidated Statements of
Operations, are recorded in Accumulated Other Comprehensive Loss in Shareholders’ equity on the Consolidated Balance Sheets.

Transaction gain/(loss) of $0.1 million, $0.7 million and $(1.7) million were recognized by the Company in 2017, 2016 and
2015, respectively. The transaction gain/(loss) is recorded on the “Other income (expense), net” line of the Consolidated Statements of
Operations.

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

F-15

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 ended 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 Consolidated Statement of

Operations for the year ended December 31, 2017 related to excess tax benefits upon vesting or settlement in that period.

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

• We have elected to change our accounting policy to account for forfeitures as they occur. This change was applied on a

modified retrospective basis with a cumulative effect adjustment to reduce retained earnings by $0.1 million as of January 1, 2017.

• We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our

diluted earnings per share for the year ended December 31, 2017.

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging: Effect of Derivative Contract Novations on Existing

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

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 requires inventory

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

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

F-16

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 award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately
before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The
guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted. We plan to adopt the standard on January 1, 2018. We do not expect the adoption of this guidance to have a
material impact on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under existing GAAP, an entity is required to present all
components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income
statement, and this net amount may be capitalized as part of an asset where appropriate. ASU 2017-07 requires that an employer report
the service cost component in the same line item or items as other compensation costs arising from services rendered by the 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. We plan to adopt the standard on January 1, 2018. We do not expect the
adoption of this guidance to have a material impact on our consolidated financial statements.

In 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 plans to adopt the provisions of this standard on January 1, 2018,
and will begin presenting segregated cash and restricted cash activity on the consolidated statements of cash flows using a
retrospective transition method for each period presented.

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.

F-17

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
income statement or liquidity. The ASU also will require disclosures to help investors and other financial statement users better
understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative
requirements, providing additional information about the amounts recorded in the financial statements. Our leasing activity is
primarily related to buildings and we have various sale-leaseback transactions. The Company is continuing to evaluate potential
impacts to our financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers.” ASU 2014-09 supersedes nearly all

existing revenue recognition principles under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised
goods or services are transferred to customers in an amount that reflects the consideration an entity expects to be entitled to for those
goods or services using a defined five-step process. More judgment and estimates may be required to achieve this principle than under
existing GAAP. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance
for identifying performance obligations, licenses and determining if a company is the principal or agent in a revenue arrangement.
ASU 2014-09 and its clarifying amendments are effective for annual periods beginning after December 15, 2017, including interim
periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the
standard in each prior reporting period with the option to elect certain practical expedients or (ii) a modified retrospective approach
with the cumulative effect upon initial adoption recognized at the date of adoption, which includes additional footnote disclosures.

We adopted ASU 2014-09 on January 1, 2018, under the modified retrospective method where the cumulative effect is
recognized through retained earnings as of the date of adoption. Historically, we have recognized revenue related to contracts
predominantly under the percentage of completion method of accounting for revenue recognition. Given our diverse customer base
and product lines, there are varying fact patterns that must be evaluated within each of our contracts to determine the appropriate
pattern of revenue recognition upon the adoption of ASU 2014-09. Certain contract arrangements that were historically recognized
over time under our previous policies will now be recognized at a point in time upon completion of the contracts under the new
standard. However, based on the Company’s evaluation of existing contracts that were not substantially complete as of January 1,
2018, the Company has estimated that the cumulative adjustment to beginning retained earnings will not be material. Additionally, the
Company’s future disclosures will be expanded to comply with the standard.

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 December 31, 2017 and 2016, due to their short-term nature or
variable, market-driven interest rates.

The fair value of the debt issued under the Credit Agreement was $114.9 million and $125.1 million at December 31, 2017 and

2016, respectively. The fair value of the note payable was $5.3 million at December 31, 2017 and 2016.

In accordance with the terms of the Credit Agreement, the Company entered into an interest rate swap on December 30, 2015 to
hedge against interest rate exposure related to a portion of the outstanding debt indexed to LIBOR market rates. See Note 9 for further
information regarding the interest rate swap.

At December 31, 2017 and 2016, the Company had cash and cash equivalents of $29.9 million and $45.8 million,

respectively, of which $19.7 million and $25.6 million, respectively, was held outside of the United States, principally in the
Netherlands, United Kingdom, China, and Canada.

Concentrations of credit risk:

Financial instruments that potentially subject us to credit risk consist principally of cash and accounts receivable. We maintain

cash and cash equivalents with various major financial institutions. We perform periodic evaluations of the financial institutions in
which our cash is invested. Concentrations of credit risk with respect to trade and contract receivables are limited due to the large
number of customers and various geographic areas. Additionally, we perform ongoing credit evaluations of our customers’ financial
condition.

F-18

Accounts Receivable

(Table only in thousands)
Trade receivables
Contract receivables
Allowance for doubtful accounts
Total accounts receivable

2017

2016

11,603 $
60,543
(4,156 )
67,990 $

11,976
72,835
(1,749)
83,062

Balances billed, but not paid by customers under retainage provisions in contracts that are recorded in deferred charges and
other assets within the Consolidated Balance Sheets, amounted to approximately $2.5 million and $3.2 million at December 31, 2017
and 2016, respectively. Retainage receivables on contracts in progress are generally collected within a year or two subsequent to
contract completion.

Provision for doubtful accounts was approximately $3.9 million, $0.8 million and $0.7 million during 2017, 2016 and 2015,

respectively, while accounts charged to the allowance were $1.5 million, $0.3 million and $0.2 million during 2017, 2016 and 2015,
respectively.

Costs and Estimated Earnings on Uncompleted Contracts

(Table only in thousands)
Costs incurred on uncompleted contracts ................................. $
Estimated earnings ....................................................................

2017
169,665 $
61,556

2016
186,609
77,709

Total costs and estimated earnings on uncompleted
contracts, gross

Less billings to date ..................................................................

Total costs and estimated earnings on uncompleted
contracts, net

231,221
(217,743)

264,318
(261,280 )

13,478 $

3,038

Included in the accompanying consolidated balance sheets
under the following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts ........................................................... $
Billings in excess of costs and estimated earnings on
uncompleted contracts ...........................................................

33,947 $

38,123

(20,469)

(35,085 )

Total costs and estimated earnings on uncompleted
contracts, net

13,478 $

3,038

The Company’s contracts have various lengths to completion ranging from a few days to several months. The Company

anticipates that a majority of our current contracts will be completed within the next 12 months.

Inventories

Inventories consisted of the following:

(Table only in thousands)
Raw materials ............................................................................ $
Work in process .........................................................................
Finished goods ...........................................................................
Obsolescence allowance ............................................................

Total inventories

2017

2016

18,444 $
3,182
940
(1,597)
20,969 $

17,889
3,986
1,508
(1,896 )
21,487

F-19

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $(0.2) million, $(1.2) million

and $(0.7) million during 2017, 2016 and 2015, respectively. Items charged to the allowance for inventory write-offs were $0.6
million, $0.2 million and $0.2 million, during 2017, 2016 and 2015, respectively.

Property, Plant and Equipment

(Table only in thousands)
Land ........................................................................................... $
Building and improvements .......................................................
Machinery and equipment .........................................................

Property, plant and equipment, gross

Less accumulated depreciation ..................................................

Property, plant and equipment, net

2017

2016

1,627 $
18,063
25,068
44,758
(21,358)
23,400 $

1,617
19,887
22,219
43,723
(16,453 )
27,270

Depreciation expense was $4.5 million, $5.0 million and $4.2 million for 2017, 2016 and 2015, respectively.

7. Goodwill and Intangible Assets

(Table only in thousands)
Balance of goodwill at December 31, 2015
2016 acquisition related adjustments
Impairment charge
Foreign currency translation
Balance of goodwill at December 31, 2016
Impairment charge
Foreign currency translation
Balance of goodwill at December 31, 2017

Energy
Segment

Environmental
Segment

Fluid Handling
and Filtration
Segment

72,075
4,205
—
(453)
75,827
(4,443)
1,241
72,625

55,031 $
—
(6,828 )
—
48,203
—
—
48,203 $

93,057
—
(46,934)
—
46,123
—
—
46,123

Totals

220,163
4,205
(53,762)
(453)
170,153
(4,443)
1,241
166,951

As of December 31, 2017 and 2016, the Company has an aggregate amount of goodwill acquired of $242.3 million and $241.1

million, respectively, and an aggregate amount of impairment losses of $75.3 million and $70.9 million, respectively.

2016 acquisition related adjustments consisted of the finalization of the purchase accounting for PMFG. These adjustments

included decreases of $5.5 million to property and equipment and $1.7 million to current assets partially offset by decreases of $1.1
million to the deferred income tax liability and $1.8 million to the noncontrolling interest.

The Company’s indefinite lived intangible assets as of December 31, 2017 and 2016 consisted of the following:

(Table only in thousands)
Beginning balance
Impairment charge
Foreign currency adjustments

Total indefinite lived intangible assets

Tradenames

2017

2016

22,042 $
(2,725)
374
19,691 $

26,337
(4,161 )
(134 )
22,042

The Company completes an annual (or more often if circumstances require) impairment assessment of its goodwill and

indefinite life intangible assets on October 1 at the reporting unit level. Effective January 1, 2017, the Company prospectively adopted
accounting guidance that simplifies goodwill impairment testing by eliminating the requirement to calculate the implied fair value of
goodwill (formerly “Step 2”) in the event that an impairment is identified. Instead, an impairment charge is recorded based on the
excess of the reporting unit’s carrying amount over its fair value. Prior to 2017, a goodwill impairment test as described in FASB
ASC 350-20-35 was performed for all reporting units.

F-20

operational profit and terminal growth rates were determined to be significant assumptions because they are three primary drivers of
the projected cash flows in the discounted future cash flow approach. Cost of capital was also determined to be a significant
assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. The market method is based
on financial multiples of comparable companies and applies a control premium. Significant estimates in the market approach include
identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and
assessing comparable revenue and operating income multiples in estimating the fair value of a reporting unit.

Based on the analysis, the resultant estimated fair value of the reporting units for all but the Zhongli reporting unit exceeded
their carrying value as of October 1, 2017. The impairment test indicated full goodwill impairment for one reporting unit of $4.4
million, which was recorded in the fourth quarter of fiscal 2017. The impairment was due to lower projected operating performance
due primarily to the declining coal market in China. This reporting unit is included in the Energy segment.

In the 2017 impairment analysis for reporting unit one, two and three, which as of December 31, 2017, carry goodwill of $32.4

million, $59.9 million and $5.7 million, and the fair value only exceeded the carrying value by 6%, 3% and 2%, respectively. The
reporting units were acquired in 2014, 2015 and 2007, respectively, reporting unit one is reported within the Environmental segment
while reporting unit two and three are reported within the Energy segment. Management’s projections used to estimate the
undiscounted cash flows included increasing sales volumes and operational improvements designed to reduce costs. Changes in any of
the significant assumptions used, including if the Company does not successfully achieve its 2018 operating plan, can materially affect
the expected cash flows, and such impacts can result in a potentially material non-cash impairment charge. Therefore, the key
assumptions most susceptible to change are projected revenue and projected operational profit. We determined that with other
assumptions held constant under our weighted income and market method for measuring fair value, a decrease in projected revenue
growth rates of approximately 11 basis points, 4 basis points and 1 basis point or a decrease in projected operational profit growth
rates of approximately 65 basis points, 16 basis points and 20 basis points for reporting unit one, two and three would result in fair
value of the reporting unit being equal to its carrying value.

The Company also performed an impairment analysis for all reporting units with indefinite life intangible assets. The Company
based its measurement of the fair value of the indefinite life intangible assets utilizing the relief from royalty method. The significant
assumptions used under the relief from royalty method are projected revenue, royalty rates, terminal growth rates, and the cost of
capital. Projected revenue, royalty rates and terminal growth rates were determined to be significant assumptions because they are
three primary drivers of the projected royalty cash flows in the relief from royalty method. Cost of capital was also determined to be a
significant assumption as it is the discount rate used to calculate the current fair value of those projected royalty cash flows. Changes
in any of the significant assumptions used can materially affect the expected cash flows, and such impacts can result in material non-
cash impairment charges. Under this approach, the resultant estimated fair value of the indefinite life intangible assets exceeded their
carrying value for all but four reporting units as of December 31, 2017. For four of the reporting units, which carried combined
indefinite life intangible assets of $13.1 million, our fair value measurement resulted in the aggregate fair value being 20.7% lower
than the aggregate carrying value. Accordingly, we recorded an impairment charge of $2.7 million during the year ended December
31, 2017. The Zhongli reporting unit with indefinite life intangible asset impairment of $0.9 million, respectively, was acquired in
the second half of fiscal 2014. Reporting unit two with indefinite life intangible asset impairment of $1.0 million was acquired in the
second half of 2015. Reporting unit three with indefinite life intangible asset impairment of $0.3 million was acquired in 2007.
Reporting unit four with indefinite life intangible asset impairment of $0.5 million was acquired in the second half of 2013. The
Zhongli and reporting units two, three and four are reported within the Energy Segment. Management’s projections used to estimate
the fair values at the date of acquisition primarily included increasing sales volumes; however, the units have experienced lower sales
than originally projected.

As a result of the impairments noted above, the Company concluded there was a triggering event that required an impairment
test to be performed to support the definite lived intangible assets and other long-lived assets carrying value. An undiscounted cash
flow analysis was performed at the lowest level of cash flows for each asset group and the sum of the undiscounted cash flows
exceeded the long-lived assets’ carrying values. As a result of this analysis, no impairment related to these assets was recorded in
2017.

During the annual impairment test of indefinite life intangible assets in 2016 and 2015, the carrying values of four and three,
respectively, reporting units’ indefinite life intangible assets exceeded their fair values. The Company recorded a $4.2 million and
$3.3 million impairment charge during the years ended December 31, 2016 and 2015, respectively. There was goodwill impairment of
$53.8 million in the year ended December 31, 2016 and no goodwill impairment in the year ended December 31, 2015.

As described above, the fair value measurement methods used in the Company’s goodwill and indefinite life intangible assets

impairment analyses utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among

F-21

others, projections of our future operating results, the implied fair value of these assets using an income approach by preparing a
discounted cash flow analysis and other subjective assumptions.

The Company’s finite lived intangible assets as of December 31, 2017 and 2016 consisted of the following:

(Table only in thousands)
Intangible assets – finite life
Technology
Customer lists
Noncompetition agreements
Tradename
Foreign currency adjustments

Total finite life intangible assets

2017

Cost

Accum.
Amort.

2016

Accum.
Amort.

Cost

15,867
77,497
1,118
1,390
(1,214)
94,658

8,609 $
35,024
698
440
(69 )
44,702 $

15,867
77,497
1,118
1,390
(2,964)
92,908

6,360
26,041
478
301
(1,000)
32,180

Amortization expense of finite life intangible assets was $11.5 million, $13.9 million and $12.3 million for 2017, 2016 and
2015, respectively. Amortization over the next five years for finite life intangibles is $10.1 million in 2018, $8.9 million in 2019, $7.2
million in 2020, $5.9 million in 2021, and $4.9 million in 2022.

The weighted average amortization period for the finite lived intangible assets acquired in fiscal 2015 is 8.7 years.

Accounts Payable and Accrued Expenses

(Table only in thousands)
Trade accounts payable, including amounts due to subcontractors
Compensation and related benefits

Current portion of earnout liability
Accrued warranty

Other

Total accounts payable and accrued expenses

2017

2016

45,409 $

5,246

2,989

4,464

12,678
70,786 $

58,985

8,232

13,527

2,684

12,182
95,610

The activity in the Company’s current portion of earnout liability and long term portion of earnout liability was as follows for

the twelve months ended December 31, 2017 and 2016:

Energy Segment
$

Environmental
Segment

24,213 $
(6,610 )
1,240
825
(15,193 )
4,475 $
(2,989 )

Total (1)
— $ 24,213
(6,610)
—
1,240
—
—
825
(15,193)
—
— $ 4,475
(2,989)
—

1,486 $

— $ 1,486

(Table only in thousands)
Earnout accrued at December 31, 2016
Fair value adjustment
Compensation expense adjustment
Foreign currency translation adjustment
Payment
Total earnout liability as of December 31, 2017
Less: current portion of earnout
Balance of long term portion of earnout recorded in other liabilities at December
31, 2017

F-22

(Table only in thousands)
Earnout accrued at December 31, 2015
Fair value adjustment
Compensation expense adjustment
Foreign currency translation adjustment
Exchange of earnout for accounts receivable
Payment
Total earnout liability as of December 31, 2016
Less: current portion of earnout
Balance of long term portion of earnout recorded in other liabilities at December
31, 2016

Energy Segment
$

Environmental
Segment

Total (1)
2,267
$ 32,670
(2,267)
4,218
—
1,213
—
(1,346)
—
(3,272)
(9,270)
—
— $ 24,213
(13,527)
—

30,403 $
6,485
1,213
(1,346 )
(3,272 )
(9,270 )
24,213 $
(13,527 )

10,686 $

— $ 10,686

(1)

The Fluid Handling and Filtration segment does not have any earnout arrangements associated with the segment.

Senior debt

Debt consisted of the following at December 31, 2017 and 2016:
(Table only in thousands)
Outstanding borrowings under 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
– U.S. Dollar revolving loans
– Unamortized debt discount

Total outstanding borrowings under Credit Facility
Outstanding borrowings (U.S. dollar equivalent) under
China Facility (defined below)
Outstanding borrowings (U.S. dollar equivalent) under
Aarding Facility (defined below)
Total outstanding borrowings
Less: current portion
Total debt, less current portion

2017

2016

113,903 $
1,000
(2,834 )
112,069

125,072
—
(3,175)
121,897

—

1,296

2,764
114,833 $
11,296
103,537 $

—
123,193
8,827
114,366

During the year ended December 31, 2017, the Company made prepayments of $4.3 million on the outstanding balance of the

term loan. Scheduled principal payments under our Credit Facility are $8.5 million in 2018, $10.0 million in 2019, and $96.4 million
in 2020.

United States Debt

The Company entered into a credit agreement (the “Credit Agreement”) with various lenders (the “Lenders”) and letter of credit

issuers (each, an “L/C Issuer”), and Bank of America, N.A., as Administrative Agent (the “Agent”), swing line lender and an L/C
Issuer, providing for various senior secured credit facilities (collectively, the “Credit Facility”).

On September 3, 2015, concurrent with the closing of the PMFG acquisition, the Company amended and restated the Credit

Agreement. Pursuant to the amended and restated Credit Agreement, the Lenders provided a term loan in an aggregate principal
amount of $170.0 million and the Lenders decreased their senior secured U.S. dollar revolving credit commitments to the aggregate
principal amount of $60.5 million. All other provisions of the agreement remained substantially unchanged, including the $19.5
million senior secured multi-currency revolving credit facility for U.S. dollar and specific foreign currency loans. The proceeds from
the increased term loan were used primarily to (i) finance the cash portion of the PMFG purchase price, (ii) pay off certain outstanding
indebtedness of the Company and its subsidiaries (including certain indebtedness of PMFG and its subsidiaries), and (iii) pay certain
fees and expenses incurred in connection with the amendment to the Credit Agreement and the PMFG acquisition.

F-23

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 December 31, 2017 and 2016, $24.4 million and $18.0 million of letters of credit were outstanding, respectively. Total

unused credit availability under the Credit Facility was $54.6 million and $62.0 million at December 31, 2017 and 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.

At the Company’s option, revolving loans and the term loans accrue interest at a per annum rate based on either the highest of

(a) the federal funds rate plus 0.5%, (b) the Agent’s prime lending rate, and (c) one-month LIBOR plus 1.00%, plus a margin ranging
from 1.0% to 2.0% depending on the Company’s consolidated leverage ratio (“Base Rate”), or a Eurocurrency Rate (as defined in the
Credit Agreement) plus 2.0% to 3.0% depending on the Company’s consolidated leverage ratio. Interest on swing line loans is the
Base Rate.

Accrued interest on Base Rate loans is payable quarterly in arrears on the last day of each calendar quarter and at maturity.
Interest on Eurocurrency Rate loans is payable on the last date of each applicable Interest Period (as defined in the agreement), but in
no event less than once every three months and at maturity. The weighted average interest rate on outstanding borrowings was 4.08%
and 3.26% at December 31, 2017 and 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 as of the date of the agreement indexed to
LIBOR market rates. The fair value of the interest rate swap was a $0.3 million asset and a $0.2 million liability at December 31,
2017, and 2016, respectively, which is recorded in “Deferred charges and other assets” on the Consolidated Balance Sheets. The
Company did not designate the interest rate swap as an effective hedge until the first quarter of 2016. The change in the fair value of
the hedge prior to being designated as an effective hedge during the year ended December 31, 2016 of $0.5 million, was recorded in
earnings in “Other income (expense), net” in the Consolidated Statements of Operations. From the date of designation, all changes to
the fair value of the interest rate swap are recorded in other comprehensive income (loss) as long as the hedge is deemed effective.

The Company has granted a security interest in substantially all of its assets to secure its obligations pursuant to the Credit

Agreement. The Company’s obligations under the Credit Agreement are guaranteed by the Company’s U.S. subsidiaries and such
guaranty obligations are secured by a security interest on substantially all of the assets of such subsidiaries, including certain real
property. The Company’s obligations under the Credit Agreement may also be guaranteed by the Company’s material foreign
subsidiaries to the extent no adverse tax consequences would result to the Company.

As of December 31, 2017 and 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. as
the lender (“Aarding Facility”) with a total borrowing capacity of $15.5 million. The facilities agreement consists of a $8.3 million
bank guarantee facility and a $7.2 million overdraft facility. The bank guarantee interest rate is the three months Euribor plus 265
basis points (2.65% as of December 31, 2017 and 2016) and the overdraft interest rate is three months Euribor plus 195 basis points
(1.95% as of December 31, 2017 and 2016). All of the borrowers’ assets are pledged for this facility, and the borrowers’ solvency
ratio must be at least 30% and net debt/last twelve months EBITDA less than 3.0. The subsidiary of the Company located in the
Netherlands has a Euro denominated debenture facility used to facilitate issuances of letters of credit and bank guarantees of
December 31, 2017. As of December 31, 2017, $3.9 million of the bank guarantees and $2.8 million of the overdraft facility are being

F-24

used by the borrowers. As of December 31, 2016, $5.3 million of the bank guarantee and zero of the overdraft facility are being used
by the borrowers. There is no stated expiration date on the facilities agreement. As of December 31, 2016 the borrowers were in
compliance with all related financial and other restrictive covenants. As of December 31, 2017, the borrowers were not in compliance
with certain financial covenants under the Aarding Facility. As such, in March 2018, the Company settled the outstanding amount of
$2.8 million of the overdraft facility, which is classified as current portion of debt in the Consolidated Balance Sheets. The Company
plans to exit this facility and consolidate it with the existing Credit 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 amounts outstanding of zero and $1.3 million as of December 31, 2017 and 2016, respectively. The
short term loan has a total borrowing capacity of $4.6 million and $4.3 million as of December 31, 2017 and 2016, respectively. The
short term loan has an interest rate of 4.79%, and will expire on April 12, 2018 and will not be renewed.

A subsidiary of the Company located in the U.K. has a debenture agreement used to facilitate issuances of letters of credit and

bank guarantees of $8.0 million and $9.0 million at December 31, 2017 and 2016. This agreement is currently denominated in US
Dollars. This facility was secured by a protective letter of credit issued by the Company to HSBC Bank at December 31,
2017. At December 31, 2017 and 2016, there was $7.0 million and $6.2 million, respectively, of outstanding stand-by letters of credit
and bank guarantees under this debenture agreement.

A subsidiary of the Company located in Germany has a Euro denominated debenture agreement used to facilitate issuances of

letters of credit and bank guarantees of $0.2 million and $0.9 million at December 31, 2017 and 2016, respectively. This facility is
secured by cash deposits of $0.2 million and $0.9 million at December 31, 2017 and 2016, respectively. There were $0.2 million and
$0.9 million of outstanding stand-by letters of credit and bank guarantees under this debenture agreement as of December 31, 2017
and 2016, respectively.

A subsidiary of the Company located in Singapore had bank guarantees of $1.0 million and $1.7 million at December 31, 2017

and December 31, 2016, respectively. These guarantees are secured with cash deposits of $0.1 million and $0.3 million as of
December 31, 2017 and December 31, 2016, respectively, and a protective letter of credit issued by the Company to Citibank.

As of December 31, 2017 and 2016, $3.9 million and $5.3 million of letters of credit were outstanding under the Netherlands

and China facilities, respectively. Total unused credit availability under the Netherlands and China facilities was $13.5 million and
$11.4 million at December 31, 2017 and 2016, respectively.

10. Shareholders’ Equity

Dividends

Our dividend policy and the payment of cash dividends under that policy are subject to the Board of Director’s continuing
determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s shareholders. 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. 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 suspend
dividend payments.

During 2017, 2016 and 2015, our Board declared the following quarterly cash dividends on our common stock:

Dividend
Per Share
$0.075
$0.075
$0.075
$0.066
$0.066
$0.066
$0.066
$0.066
$0.066
$0.066
$0.066

Record Date

August 7, 2017
May 10, 2017
March 6, 2017
December 16, 2016
September 16, 2016
June 18, 2016
March 18, 2016
December 16, 2015
September 18, 2015
June 12, 2015
March 19, 2015

Payment Date
September 29, 2017
June 30, 2017
March 31, 2017
December 30, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 30, 2015
September 30, 2015
June 26, 2015
March 31, 2015

F-25

Effective August 13, 2012, the Company implemented a Dividend Reinvestment Plan (the “Plan”), under which the Company

may issue up to 750,000 shares of common stock. The Plan provides a way for interested shareholders to increase their holdings in our
common stock. Participation in the Plan is strictly voluntary and is open only to existing shareholders. The Plan has had limited
participation.

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 and replaced the 2007 Equity Incentive Plan. 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 units, performance shares and dividend equivalents.
A total of 1.9 million shares of common stock were authorized for issuance. As of December 31, 2017 a total of 2.0 million shares
remain available for future issuance due to forfeitures under the 2007 Equity Incentive Plan. Stock options granted to employees
generally vest equally over a period of four years from the date of the grant. Stock awards granted to employees generally vest over a
period of three to four years from the date of the grant. During 2017, approximately 128,000 stock options and 351,000 restricted
stock awards were granted to plan participants under the 2017 plan.

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 of three years. 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 2007 Equity Incentive Plan (the “2007 Plan”) was approved by shareholders on May 23, 2007. As of May 16, 2017, no
further grants will be made under 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 2007 Plan permits the granting of stock options and stock awards which are granted at
a price equal to or greater than the fair market value of the Company’s common stock at the date of the grant. Stock options granted
to employees generally vest equally over a period of three to five years from the date of the grant. Stock awards granted to employees
generally vest equally over a period of four to five years from the date of the grant. During 2017, no stock options and approximately
54,000 restricted stock awards were granted to plan participants under the 2007 Plan. During 2016, approximately 105,000 stock
options and 267,000 restricted stock awards were granted to plan participants under the 2007 Plan. The awards outstanding are
service based awards that vest over a service period. The number of shares reserved for issuance under the 2007 Plan is 3,300,000, of
which approximately 414,000 shares were available for future grant as of December 31, 2016.

There were approximately 53,000 performance-based awards outstanding at December 31, 2016, which were forfeited in 2017.

Share-based compensation expense for stock options and restricted stock awards under these plans of $1.7 million, $2.2 million

and $1.9 million was recorded in the years ended December 31, 2017, 2016 and 2015, respectively. The tax benefit related to share
based compensation expense was zero, $0.2 million and zero in 2017, 2016 and 2015, respectively.

Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (“ESPP”) was approved by shareholders on May 21, 2009.

The ESPP is administered by the Compensation Committee. The aggregate maximum number of shares of the Company’s

common stock that may be granted under the ESPP is 1,500,000 shares over the ten-year term of the ESPP, subject to adjustment in
the event there is a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, or similar transaction with
respect to the common stock. As of December 31, 2017 a total of 1.4 million shares remain available for future issuance.

The ESPP allows employees to purchase shares of common stock at a 15% discount from market price and pay for the shares

through payroll deductions. Eligible employees can enter the plan at specific “offering dates” that occur in six month intervals.

The Company recognized employee stock purchase plan expense of $83,000, $71,000 and $54,000 during the years ended

December 31, 2017, 2016 and 2015, respectively.

F-26

Stock Options and Restricted Awards

The weighted-average fair value of stock options granted during 2017, 2016, and 2015 was estimated at $2.68, $2.07 and $4.35

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 2017, 2016, and 2015, the
Company utilized weighted-average volatility factors of 39%, 39% and 44%, respectively.

Expected Term: Due to limited historical exercise data, the Company utilizes the simplified method of determining the
expected term based on the vesting schedules and terms of the stock options. For 2017, 2016 and 2015, the Company utilized
weighted-average expected term factors of 6.3 years, 6.5 years and 6.3 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 2017, 2016 and 2015, the Company utilized a
weighted-average risk-free interest rate factor of 2.2%, 2.1% and 1.9%, respectively.

Expected Dividends: The Company utilized a weighted average expected dividend rate of 3.3%, 3.6% and 2.4% to value

options granted during 2017, 2016 and 2015, respectively.

Information related to all stock options under the 2017 Plan, 2007 Plan and 1997 Plan for the years ended December 31, 2017,

2016 and 2015 is shown in the tables below:

(Shares in thousands)
Outstanding at December 31, 2016
Granted ...................................................................................
Forfeitures ..............................................................................
Exercised ................................................................................
Outstanding at December 31, 2017
Exercisable at December 31, 2017

1,519
128
(700)
(292)
655
463

(Shares in thousands)
Outstanding at December 31, 2015
Granted ...................................................................................
Forfeitures ..............................................................................
Exercised ................................................................................
Outstanding at December 31, 2016
Exercisable at December 31, 2016

1,877
105
(268)
(195)
1,519
959

(Shares in thousands)
Outstanding at December 31, 2014
Granted ...................................................................................
Forfeitures ..............................................................................
Exercised ................................................................................
Outstanding at December 31, 2015
Exercisable at December 31, 2015

1,727
286
(106)
(30)
1,877
977

Weighted
Average
Exercise
Price

10.25
9.24
12.44
3.92
10.53
10.49

Weighted
Average
Exercise
Price

10.30
7.36
11.91
6.90
10.25
9.23

Weighted
Average
Exercise
Price

10.12
11.55
12.31
4.47
10.30
8.48

Weighted
Average
Remaining
Contractual
Term
6.1 years

Aggregate
Intrinsic
Value
($000)

6.0 years $
5.2 years $

78
78

Weighted
Average
Remaining
Contractual
Term
6.8 years

Aggregate
Intrinsic
Value
($000)

6.1 years $
5.3 years $

5,816
4,608

Weighted
Average
Remaining
Contractual
Term
7.3 years

Aggregate
Intrinsic
Value
($000)

6.8 years $
5.4 years $

1,769
1,765

F-27

Information related to all restricted stock awards under the 2017 Plan and 2007 Plan for the year ended December 31, 2017 is

shown in the table below. The fair value of restricted stock awards is based on the price of the stock in the open market on the date of
the grant. The fair value of the restricted stock awards is recorded as compensation expense on a straight-line basis over the vesting
periods of the awards and account for forfeitures when they occur.

(Shares in thousands)
Nonvested at December 31, 2016
Granted
Vested
Forfeited
Nonvested at December 31, 2017

Weighted
Average
Grant Date
Fair Value

509 $
405
(92)
(268)
554

9.64
9.88
9.78
9.70
9.75

The weighted average grant date fair value of restricted stock awards granted was $9.88, $9.76 and $9.48 per share in fiscal

years 2017, 2016 and 2015.

The Company received $1.1 million in cash from employees exercising options during the year ended December 31, 2017, $1.3

million in cash from employees exercising options during the year ended December 31, 2016 and $0.1 million from employees
exercising options during the year ended December 31, 2015. The intrinsic value of options exercised during the years ended
December 31, 2017, 2016 and 2015 was $2.6 million, $1.0 million and $0.2 million, respectively. Unrecognized compensation
expense related to nonvested shares of stock options, restricted stock and performance units was $5.0 million at December 31, 2017
and will be recognized over a weighted average vesting period of 2.7 years.

Warrants to Purchase Common Stock

The Company has previously issued warrants to purchase common shares in conjunction with business acquisitions, debt

issuances and employment contracts.

On December 28, 2006, the Company issued warrants to purchase 250,000 shares to Icarus Investment Corp. (“Icarus”), a

related party, at an exercise price of $9.07 and an expiration date of December 26, 2016. On December 7, 2016, the Company and
Icarus entered into an amendment of the warrant agreement pursuant to which the warrants were issued to provide for the cashless
exercise of the warrants. During the year ended December 31, 2016, all of the Company’s previously outstanding warrants were
exercised and the Company issued 89,640 shares of common stock through a cashless exercise pursuant to such amendment at an
effective price of $9.07 per share. As of December 31, 2017 and 2016, there were zero warrants outstanding.

Stock Purchase

During 2016, the Company repurchased 30,000 shares of common stock from a former owner of a subsidiary acquired by the

Company in 2014 for a total cost of $0.2 million. In December 2016, the Company entered into an agreement to repurchase 75,000
shares of common stock from a current segment president, who is a former owner of a subsidiary acquired by the Company in 2013,
for a total cost of $1.1 million, which was paid in January 2017. This transaction is reflected in the accounts payable and accrued
expenses line in the Consolidated Balance Sheets as of December 31, 2016. The shares were immediately retired subsequent to their
repurchase. There were no stock repurchases during 2017 or 2015.

11. Pension and Employee Benefit Plans

We sponsor a non-contributory defined benefit pension plan for certain union employees. The accrual of future benefits for all

participants who are non-union employees was frozen effective December 31, 2008. 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 allows retirees

who have attained the age of 65 to elect the type of coverage desired.

F-28

n/a
131 $
—
4
—
3
—
(26 )
112

—
—
26
—
(26 )
—
(112 ) $

n/a
159
—
4
—
(8)
—
(24)
131

—
—
24
—
(24)
—
(131) $

n/a
155
—
5
9
18
—
(28)
159

—
—
28
—
(28)
—
(159)

The following tables set forth the plans’ changes in benefit obligations, plan assets and funded status on the measurement dates,
December 31, 2017, 2016 and 2015, and amounts recognized in our Consolidated Balance Sheets within other long-term liabilities as
of those dates.

(Table only in thousands)
Change in projected benefit obligation:

2017

Pension Benefits
2016

2015

2017

Other Benefits
2016

2015

Projected benefit obligation at beginning of year $ 35,012
n/a
Accumulated postretirement benefit obligation
415
Service cost
1,314
Interest cost
—
Amendments
1,787
Actuarial loss/(gain)
(402)
Administrative expenses
(1,799)
Benefits paid
36,327

Projected benefit obligation at end of year
Change in plan assets:

$ 36,140
n/a
447
1,426
—
301
(606)
(2,696)
35,012

$ 38,208
n/a
233
1,412
—
(1,744)
(214)
(1,755)
36,140

Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contribution
Administrative expenses
Benefits paid

Fair value of plan assets at end of year
Unfunded status
Defined benefit liabilities included in accounts
payable and accrued expenses
Defined benefit liabilities included in other
liabilities
Deferred tax benefit associated with accumulated
other comprehensive loss
Accumulated other comprehensive loss, net of tax
Net amount recognized
Other comprehensive income (loss):

Net loss (gain)
Prior service cost
Amortization of prior service cost
Amortization of net actuarial (gain)/loss
Total recognized in other comprehensive income
(loss)
Accumulated other comprehensive income:

Net loss (gain)
Prior service cost

Amount recognized in accumulated other
comprehensive income
Weighted-average assumptions used to determine
benefit obligations for the year ended
December 31:
Discount rate
Compensation increase rate

24,063
3,152
1,822
(402)
(1,799)
26,836

25,296
2,040
29
(606)
(2,696)
24,063
$ (9,491) $ (10,949) $ (10,844) $

27,302
(443)
406
(214)
(1,755)
25,296

— $

(24 ) $

(25) $

(26)

(9,491)

(10,949)

(10,844)

(88 )

(106)

3,153
5,154

3,107
5,074

$ (1,184) $ (2,768) $

3,154
5,144
(2,546) $

12
7
(93 ) $

15
9
(107) $

358
—
—
(227)

131

8,307
—

8,307

90
—
—
(212)

708
—
—
(258)

(122) $

450

8,181
—

8,181

8,298
—

8,298

3 $
—
(11 )
3

(9) $
—
(10)
1

(5 ) $

(18) $

(22 ) $
41

(28) $
52

(20)
62

19 $

(133)

15
27
(117)

17
9
(9)
3

3.35%
n/a

3.85%
n/a

4.00%
n/a

2.65 %
n/a

2.75%
n/a

3.00%
n/a

Benefits under the plans are not based on wages and, therefore, future wage adjustments have no effect on the projected benefit

obligations.

During 2017, 2016 and 2015, the Company updated the mortality tables (RP-2017 Total Mortality Table, RP-2016 Total
Mortality Table, and RP-2015 Total Mortality Table for each respective year) in the underlying assumptions used to determine benefit
obligations.

F-29

Included in other comprehensive income for our defined benefit plans, net of related tax effect, were an increase in the minimum

liability of $0.1 million in 2017, a decrease of $0.1 million in 2016 and an increase of $0.3 million in 2015.

The details of net periodic benefit cost for pension benefits included in the accompanying Consolidated Statements of

Operations for the years ended December 31, 2017, 2016 and 2015 are as follows:

(Table only in thousands)
Service cost
Interest cost
Expected return on plan assets
Net amortization and deferral
Net periodic benefit cost (income)

Weighted-average assumptions used to determine net
periodic benefit costs for the years ended December 31:
Discount rate
Expected return on assets
Compensation increase rate

2017

2016

2015

415
1,314
(1,723)
227
233

447 $
1,426
(1,829 )
212
256 $

233
1,412
(2,009)
258
(106)

3.85%
7.25%
n/a

4.00 %
7.50 %
n/a

3.75%
7.50%
n/a

The basis of the long-term rate of return assumption reflects the current asset mix for the pension plans of approximately 30% to

40% debt securities and 60% to 70% equity securities with assumed average annual returns of approximately 4% to 6% for debt
securities and 8% to 12% for equity securities. The investment portfolio for the pension plans will be adjusted periodically to maintain
the current ratios of debt securities and equity securities. Additional consideration is given to the historical returns for the pension plan
as well as future long range projections of investment returns for each asset category.

The net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost during 2018 are $0.2 million and zero, respectively. The net gain and prior service
cost for the healthcare plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during
2018 is $2,000 and $11,000, respectively.

At December 31, 2017, a 25 basis point change in the discount rate would change the projected benefit obligation by

approximately $1.1 million in the Projected Benefit Obligation and would change Net Periodic Pension Cost by approximately $9,000.
Additionally, a 25 basis point change in the assumed long-term rate of return on assets would impact Net Periodic Pension Cost by
approximately $66,000.

The net periodic benefit cost (representing interest cost and amortization of net actuarial loss only) for the healthcare plan

included in the accompanying Consolidated Statements of Operations was $11,000, $15,000 and $12,000 for the years ended
December 31, 2017, 2016 and 2015, respectively. The weighted average discount rate to determine the net periodic benefit cost for
2017, 2016 and 2015 was 2.75%, 3.00% and 3.75%, respectively.

Changes in health care costs have no effect on the plan as future increases are assumed by the retirees.

Pension plan assets are invested in trusts comprised primarily of investments in various debt and equity funds. A fiduciary

committee establishes the target asset mix and monitors asset performance. The expected rate of return on assets includes the
determination of a real rate of return for equity and fixed income investment applied to the portfolio based on their relative weighting,
increased by an underlying inflation rate. Our defined benefit pension plan asset allocation by asset category is as follows:

Asset Category:
Cash and cash equivalents
Equity securities
Debt securities
Total

Target

Allocation

2017

Percentage of
Plan Assets

2017

2016

0%
70%
30%
100%

4 %
70 %
26 %
100 %

4%
67%
29%
100%

F-30

Estimated pension plan cash obligations are $1.9 million, $2.1 million, $2.2 million, $2.1 million, and $2.2 million for 2018

through 2022, respectively, and a total of $10.7 million for the years 2023 through 2026. Estimated healthcare plan cash obligations
are $24,000, $20,000, $17,000, $14,000, and $11,000 for 2018 through 2022, respectively, and a total of $30,000 for the years 2023
through 2027.

Fair Value Measurements of Pension Plan Assets

Following is a description of the valuation methodologies used for pension assets measured at fair value:



Cash and cash equivalents: Cash and cash equivalents consist primarily of cash on deposit in money market funds. Cash
and cash equivalents are stated at cost, which approximates fair value.

Equity securities: Equity securities consist of various managed funds that invest primarily in common stocks. These
securities are valued at the net asset value of shares held by the plans at year-end. The net asset value is calculated based
on the underlying shares and investments held by the funds.

Debt securities: Debt securities consist of U.S. government and agency securities, corporate bonds and notes, and
managed funds that invest in fixed income securities. U.S governmental and agency securities are valued at closing prices
reported in the active market in which the individual securities are traded. Corporate bonds and notes are valued using
market inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets,
benchmark securities, bids, offers and reference data including market research publications. Inputs may be prioritized
differently at certain times based on market conditions. Managed funds are valued at the net asset value of shares held by
the plans at year end. The net asset value is calculated based on the underlying investments held by the fund.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may

affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The levels assigned to the defined benefit plan assets as of December 31, 2017, are summarized in the tables below:

(Table only in thousands)
Pension assets, at fair value:

Level 1

Level 2

Level 3

Total

Cash and cash equivalents ................................................ $
Equity securities................................................................
Debt securities ..................................................................

Total assets .................................................................. $

1,147
18,723
6,967
26,836

— $
—
—
— $

1,147
18,723
6,967
26,836

The levels assigned to the defined benefit plan assets as of December 31, 2016, are summarized in the tables below:

(Table only in thousands)
Pension assets, at fair value:

Level 1

Level 2

Level 3

Total

Total assets .................................................................. $

894
16,153
7,016
24,063

— $
—
—
— $

894
16,153
7,016
24,063

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining

agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from
single-employer plans in the following aspects:



Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.

F-31



If the Company chooses to stop participating in some of its multiemployer plans, CECO may be required to pay those
plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company participation in these plans for the annual period ended December 31, 2017, is outlined in the table below. The

“EIN/Pension Plan Number” column provides the Employer Identification Number and the three-digit plan number, if applicable.
Unless otherwise noted, the most recent Pension Protection Act zone status available in 2017, 2016 and 2015 is for the plan’s year-end
at December 31, 2016, December 31, 2015 and December 31, 2014, respectively. The zone status is based on information that the
Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less
than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The
“FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan
(RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s)
to which the plans are subject.

Pension Fund
Sheet Metal Workers’ National

Pension Fund

Sheet Metal Workers Local 224

EIN/Pension
Plan Number

Pension
Protection
Act Zone
Status

FIP/RP Status Pending/
Implemented

Surcharge
Imposed

Expiration
of Collective
Bargaining
Agreement

52-6112463/001 Yellow

FIP: Yes - Implemented RP: Yes -
Implemented

Pension Plan

31-6171353/001 Yellow FIP: Yes - Implemented

Sheet Metal Workers Local No.

20, Indianapolis Area Pension
fund

Sheet Metal Workers Local No.

51-0168516/001

Green

Is not subject

177 Pension Fund

62-6093256/001

Green

Is not subject

various
May 31,
2018

May 31,
2020
May 1,
2018

Kirk and Blum was listed in the Sheet Metal Workers Local No. 177 Pension Fund’s Form 5500 as providing more than five
percent of total contributions for the year ended December 31, 2016. The Company was not listed in any of the other plans’ Forms
5500 as providing more than five percent of the total contributions for the plans and plan years. At the date the financial statements
were issued, Forms 5500 were not available for the plan years ended December 31, 2017.

We have no current intention of withdrawing from any plan and, therefore, no liability has been provided in the accompanying

consolidated financial statements.

Amounts charged to pension expense under the above plans including the multi-employer plans totaled $2.0 million, $2.1

million and $1.3 million in 2017, 2016 and 2015, respectively.

We have a profit sharing and 401(k) savings retirement plan for employees of certain of our subsidiaries. The plan covers

substantially all employees who have 30 days of service, and who have attained 18 years of age. The plan allows us to make
discretionary contributions and provides for employee salary deferrals of up to 100%. We made aggregate matching contributions and
discretionary contributions of $1.6 million, $1.5 million, and $1.2 million during 2017, 2016 and 2015, respectively.

As a result of the PMFG acquisition, the Company acquired a defined contribution pension plan under Section 401(k) of the

Internal Revenue Code for eligible employees who have completed at least 90 days of service (“PMFG Plan”). Company
contributions are voluntary and at the discretion of the board of directors. For the year ended December 31, 2015, matching
contributions of $0.1 million were made by the Company after the acquisition. The PMFG Plan was merged with the CECO 401(k)
savings retirement plan in January 2016. The contributions made to these participants for the years ended December 31, 2017 and
December 31, 2016 were included in the profit-sharing and 401(k) savings retirement plan contributions noted above.

12. Leases

Sale-leaseback Transactions

Denton Facility

F-32

On June 2, 2016, the Company entered into an agreement to sell its manufacturing facility in Denton, Texas for gross proceeds
of $5.0 million, less costs associated with the transaction of $0.3 million, or net proceeds of $4.7 million. As a part of the transaction,
the Company entered into a lease for the property from the purchaser for an initial period of 13 years.

Prior to the consummation of the above transaction, the Company entered into a sublease agreement with a supplier of the
Company at this facility for a period of five years. Due to the Company’s continuing involvement through the sublease agreement, the
Company has accounted for the sale-leaseback as a financing liability. Payments made by the Company are allocated between interest
expense and a reduction to the sale-leaseback financing liability. The weighted-average effective interest rate of the initial sale-
leaseback financing liability is 2.22%.

In June 2017, the Company amended the lease agreement. The amendment extended the lease through June of 2031 and

changed the effective weighted average interest rate from the 2.22% to the 4.53%.

As of December 31, 2017, future payments on the sale-leaseback financing liability are as follows (in thousands):

Fiscal Years
2018
2019
2020
2021
2022
Thereafter
Total payments
Less amount representing interest
Total sale-leaseback financing liability
Less current portion of sale-leaseback financing liability included in accounts payable
and accrued expenses
Long-term portion of sale-leaseback financing liability included in other liabilities

Payments

406
414
422
431
439
4,106
6,218
(1,635)
4,583

(202)
4,381

As of December 31, 2017 and 2016, the net carrying value of the Denton facility assets that are included in property, plant,

and equipment on our Consolidated Balance Sheets amounted to $11.0 million and $12.3 million, respectively. The useful life of
these assets was modified to the remainder of the lease’s duration.

Telford Facility

On June 2, 2016, the Company entered into an agreement to sell its manufacturing facility in Telford, Pennsylvania for gross

proceeds of $6.0 million, less costs associated with the transaction of $0.4 million, or net proceeds of $5.6 million. As a part of the
transaction, the Company entered into a lease for the property from the purchaser for a period of 13 years.

The Company recorded a deferred gain on the sale of this facility in the amount of $2.4 million recorded in the Consolidated

Balance Sheets as an offset to property, plant, and equipment, which will be recognized over the 13-year lease term. As a result of this
transaction, the Company initially recorded a capital lease obligation of $5.7 million for the facilities leased. The weighted-average
effective interest rate of the capital lease was 3.43%.

Indianapolis Facility

On August 16, 2016, the Company entered into an agreement to sell its manufacturing facility in Indianapolis, Indiana for

gross proceeds of $3.3 million, less costs associated with the transaction of $0.1 million, or net proceeds of $3.2 million. As a part of
the transaction, the Company entered into a lease for the property from the purchaser for a period of 13 years.

The Company recorded a deferred gain on the sale of this facility in the amount of $2.0 million recorded in the Consolidated
Balance Sheets as an offset to property, plant, and equipment, which will be recognized over the 13-year lease term. As a result of this
transaction, the Company initially recorded a capital lease obligation of $3.0 million for the facilities leased. The weighted-average
effective interest rate of the capital lease was 3.25%.

The future minimum payments for the Indianapolis and Telford capital leases that the Company entered into as of December 31,

2017, are as follows (in thousands):

F-33

Fiscal Years
2018
2019
2020
2021
2022
Thereafter
Total payments
Less amount representing interest
Present value of future minimum lease payments
Less current portion of capital lease obligation included in accounts payable and
accrued expenses
Long-term portion of capital lease obligation included in other liabilities

Payments

759
774
790
805
821
5,756
9,705
(1,705)
8,000

(501)
7,499

Prior to the execution of these transactions, the Company did not have any assets held under capital leases. Capital lease

assets included in the Consolidated Balance Sheets as part of property, plant, and equipment as of December 31, 2017, are as follows
(in thousands):

December 31,
2017

December 31,
2016

Depreciable Life
(Years)

Building and improvements, net of deferred gain
Less: Accumulated depreciation
Total

4,385
(534)
3,851 $

4,385
(197 )
4,188

Rent

We lease certain facilities on a year-to-year basis. We also have future annual minimum rental commitments under

noncancelable operating leases as follows:

(Table only in thousands)
December 31,
2018
2019
2020
2021
2022
2023 and thereafter

Commitment

4,470
3,197
2,477
2,228
1,764
3,128
17,264

Total rent expense under all operating leases for 2017, 2016 and 2015 was $4.2 million, $4.5 million and $4.0 million,

respectively.

13. Commitments and Contingencies

Legal Proceedings

Asbestos cases

Our subsidiary, Met-Pro, beginning in 2002 began to be named in asbestos-related lawsuits filed against a large number of

F-34

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 December 31, 2017 for cases involving asbestos-related claims were $1.3 million which together with all
legal fees other than corporate counsel expenses; $1.2 million have been paid by the Company’s insurers. The average cost per settled
claim, excluding legal fees, was approximately $28,000.

Valero

One of our subsidiaries, Fisher-Klosterman, Inc. (“FKI”), was a defendant in a products liability lawsuit filed in Harris County,

Texas on August 23, 2010 by three Valero refining companies (“Valero Suit”). The plaintiffs claimed that FKI (and its co-Defendants)
used an allegedly defective refractory material included in cyclones it supplied to Valero that caused damages to refineries 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 (“Coverage
Suit”). Valley Forge claimed that it did not have an obligation to defend FKI and was 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 and Valley Forge executed an agreement in December of
2017 to settle the matter for a nominal amount. As a result of this settlement, Valley Forge and FKI agreed to dismiss their claims
against one another.

Viron

On October 3, 2014, Viron International (“Viron”) filed a complaint against us and our subsidiary, the Kirk and Blum

Manufacturing Company (“Kirk & Blum”), in the United States District Court for the Western District of Texas (the “Court”) seeking
damages against us for alleged breach of contract. After a trial in 2015, the Court issued Findings of Fact and Conclusions of Law that
provide that we breached our contract with Viron and that Viron is entitled to damages in the amount of approximately $0.6 million
plus attorneys’ fees. Additionally, the Court concluded that we are not entitled to an offset for the invoiced amounts of $0.2 million
not paid by Viron under the contract. In 2015, we settled with Viron for $0.5 million, $0.3 million was previously accrued in 2014,
and the remaining $0.2 million was recorded as expense and paid in 2015.

Summary

The Company is also a party to routine contract and employment-related litigation matters and routine audits of state and local

tax returns arising in the ordinary course of its business.

The final outcome and impact of open matters, and related claims and investigations that may be brought in the future, are

subject to many variables, and cannot be predicted. In accordance with ASC 450, “Contingencies,” and related guidance, we record
reserves for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and the
amount of the loss, or range of loss, can be reasonably estimated. The Company expenses legal costs as they are incurred.

We are not aware of pending claims or assessments, other than as described above, which may have a material adverse impact

on our liquidity, financial position, results of operations, or cash flows.

F-35

14.

Income Taxes

On December 22, 2017, the Tax Act was signed into law making significant changes to the U.S. tax code. Changes affecting the
Company’s consolidated 2017 financial statements include, but are not limited to, a U.S. federal corporate tax rate decrease from 35%
to 21% effective for tax years beginning after December 31, 2017 and a one-time transition tax, payable over eight years, on the
mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On December 22, 2017, the SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax
Act when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable
detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company has
recognized provisional amounts related to the tax effects of the Tax Act for which the Company was able to make reasonable
estimates. For the provisions of the Tax Act for which the Company was unable to determine a provisional amount, the Company has
continued to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the
Tax Act. Tax effects of the Tax Act will be recognized or adjusted as additional implementation guidance is released and analyses are
finalized, but no later than the end of the measurement period prescribed by SAB 118, which is one year from the enactment date of
the Tax Act.

The provisional amount recorded related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at
which they are expected to reverse in the future, was a net benefit of $4.8 million. The provisional amount recorded related to the one-
time transition tax on the mandatory deemed repatriation of foreign earnings was a charge of $6.4 million. The Company has not
historically claimed significant Foreign Tax Credits. An estimate of potential Foreign Tax Credits available to offset the one-time
transition tax has not been made and no provisional amount is provided.

The Company has not historically recorded deferred income taxes on the undistributed earnings of its foreign subsidiaries

because of management’s intent to indefinitely reinvest such earnings. As of December 31, 2017, Management has not changed its
intent to indefinitely reinvest such earnings, but the Tax Act could cause management to reevaluate this position in the future. The Tax
Act subjected all previously untaxed earnings and profits of our controlled foreign corporations to a one-time mandatory repatriation
tax. Future distributions of these earnings in the form of dividends or otherwise would no longer be subject to U.S. income taxes. State
taxes, as well as foreign withholding taxes, could apply to distributions of earnings from foreign jurisdictions. Since the foreign
earnings remain permanently reinvested in the Company’s foreign operations, no liability has been established for potential
withholding taxes or other costs that would be incurred if the earnings were repatriated. As of December 31, 2017, aggregate
undistributed earnings of foreign subsidiaries totaled approximately $15.4M. The unrecognized deferred income tax liability on this
temporary difference is estimated to be approximately $1.0 million.

Income (loss) before income taxes was generated in the United States and globally as follows:

(Table only in thousands)
Domestic .................................................................................. $
Foreign ....................................................................................

2017

3,891
(2,482)
1,409

2016
(39,623 ) $
6,659
(32,964 ) $

2015

997
(4,093)
(3,096)

Income tax provision consisted of the following for the years ended December 31:

(Table only in thousands)
Current:

Federal ............................................................................... $
State ...................................................................................
Foreign ...............................................................................

Deferred:

Federal ...............................................................................
State ...................................................................................
Foreign ...............................................................................

F-36

2017

2016

2015

6,234
388
939
7,561

(2,479)
114
(758)
(3,123)
4,438

4,957 $
892
3,191
9,040

(2,794 )
(409 )
(547 )
(3,750 )
5,290 $

3,429
753
1,944
6,126

(3,012)
(563)
87
(3,488)
2,638

The income tax provision differs from the statutory rate due to the following:

(Table only in thousands)
Tax expense (benefit) at statutory rate
Increase (decrease) in tax resulting from:
State income tax, net of federal benefit
Domestic production activities deduction
Intangible asset and goodwill impairment
Change in uncertain tax position reserves
Permanent differences
Impact of rate differences and adjustments
United States and foreign tax incentives
Non-deductible transaction costs
Earnout (income) expense
Change in valuation allowance
Audit settlements
Provision-to-return adjustments
Revaluation of deferred tax assets and liabilities
Net deemed dividend on repatriation of foreign earnings
Other

2017

2016

2015

494

(11,525) $

(1,083)

367
(235)
1,789
465
1,026
(20)
(240)

—

(1,779)
1,044

—

(495)
(4,819)
6,426
415
4,438

174
(561)
17,859
(624)
(31)
(1,655)
(1,035)
7
2,573
222
—
108
—
—
(222)
5,290

34
(211)
—
(1,281)
1,162
(1,489)
(883)
1,356
3,928
483
65
808
—
—
(251)
2,638

Deferred income taxes reflect the future tax consequences of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes and tax credit carry forwards. As a result of
the Tax Act, net deferred tax liabilities were remeasured as of December 31, 2017 based on a reasonable estimate of the effect of the
change in the federal tax rate. The net deferred tax liabilities consisted of the following at December 31:

(Table only in thousands)
Gross deferred tax assets:

Accrued expenses and other
Reserves on assets
Share-based compensation awards
Minimum pension / post retirement
Net operating loss carry-forwards
Tax credit carry-forwards
Valuation allowances

Gross deferred tax liabilities:

Depreciation
Goodwill and intangibles
Prepaid expenses and inventory
Revenue recognition

Net deferred tax liabilities

2017

2016

286 $
2,000
436
2,318
3,471
1,634
(3,873)
6,272

3
3,078
1,340
4,197
5,932
1,634
(3,135 )
13,049

(448)
(13,588)
(585)
(1,861)
(16,482)
(10,210) $

(614 )
(23,060 )
(785 )
(1,554 )
(26,013 )
(12,964 )

As of December 31, 2017, the Company has federal net operating loss carry forwards of $4.9 million, and state and local net

operating loss carry forwards of $23.4 million, which expire from 2018 to 2037. The Company has recorded a valuation allowance on
certain of these net operating loss carry forwards to reflect expected realization. The Company also has net operating loss carry
forwards in international jurisdictions totaling $8.8 million. A full valuation allowance has been established against substantially all of
these losses in international jurisdictions. As of December 31, 2017 and 2016, the Company has recorded a valuation reserve in the
amount of $3.9 million and $3.1 million, respectively. The changes in the valuation allowance resulted in additional income tax
expense of $1.0 million, $0.2 million, and $0.6 million in 2017, 2016, and 2015, respectively.

F-37

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or

all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry forward periods), projected future
taxable income, and tax-planning strategies in making this assessment. Based on this assessment, management believes it is more
likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at
December 31, 2017. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.

The Company accounts for uncertain tax positions pursuant to FASB ASC Topic 740. The Company recognizes the effect of

income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are
measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected
in the period in which the change in judgment occurs. The Company estimates that it may settle one or more foreign and domestic
audits in the next twelve months that may result in a decrease in the amount of accrual for uncertain tax positions of up to $0.5
million. A reconciliation of the beginning and ending amount of uncertain tax position reserves included in other liabilities on the
Consolidated Balance Sheets is as follows:

(Table only in thousands)
Balance as of January 1,
Additions for tax positions taken in prior years
Statute expirations
Reductions of tax positions taken in prior years
Balance as of December 31,

2017

2016

401 $
465
—
—
866 $

1,024
—
(576)
(47)
401

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During 2017, 2016, and

2015, there was no such expense for interest and penalties. The favorable settlement of all uncertain tax positions would impact the
Company’s effective income tax rate. Tax years going back to 2014 remain open for examination by Federal authorities, and back to
2012 remain open for all significant state and foreign authorities.

15. Related Party Transactions

During 2017, 2016 and 2015 we paid fees of $0.3 million, $0.4 million and $0.4 million, respectively, for consulting services to

Icarus, through which Jason DeZwirek, our Chairman of our Board, provides services. During 2017, 2016 and 2015, we paid fees of
$0.1 million, $0.1 million and $0.3 million, respectively, for consulting services to JMP Fam Holdings Inc., through which Jonathan
Pollack, a member of the Board of Directors, provides services. All services described above are based on verbal agreements with the
Company. The Board of Directors approves the above services on an annual basis.

During the year ended December 31, 2016, the Company issued 89,640 shares of common stock to Icarus in connection with a
cashless exercise of a warrant. In 2016, the Company entered into an agreement to repurchase 75,000 shares of common stock from a
current employee. See Note 10 for further detail related to these transactions.

During 2017, 2016, and 2015, we incurred rent expense of $0.6 million, $1.1 million, and $1.1 million, respectively, to lease
facilities owned by the subsidiaries’ former owners at Adwest, Zhongli and Emtrol. Effective January 1, 2017 Adwest moved facilities
and ended their lease with the former owner of the subsidiary, resulting in zero rent expense paid to the former owner.

During 2017, 2016, and 2015, we purchased $0.8 million, $0.8 million and $0.3 million in inventory from companies owned by
the former owner of the Zhongli subsidiary. During 2017, 2016, and 2015, we sold $0.1 million, zero and $0.4 million of inventory to
the same companies. The Company employed the former owner in a managerial role at this subsidiary through December 31, 2017.

16. Major Customers and Foreign Sales

No single customer represented greater than 10% of consolidated net sales or accounts receivable for 2017, 2016, or 2015.

For 2017, 2016, and 2015, sales to customers outside the United States, including export sales, accounted for approximately
32%, 37%, and 38%, respectively, of consolidated net sales. The largest portion of export sales in 2017 was destined for Asia (12% of
the total sales) and Europe (6% of total sales). Of consolidated long lived assets, $35.4 million and $34.8 million were located outside
of the United States as of December 31, 2017 and 2016, respectively. The largest portion of long-lived assets located outside the
United States at December 31, 2017 were in Europe ($19.6 million of the total long-lived assets), and Asia, ($13.6 million of the total
long-lived assets).

F-38

17. Acquisitions

PMFG

On September 3, 2015, the Company completed its acquisition of 100% of PMFG’s outstanding common stock for a purchase

price of $136.7 million. PMFG’s shareholders had the option to elect to exchange each share of PMFG common stock for either
(i) $6.85 in cash, without interest, or (ii) shares of the Company’s common stock valued at $6.85, based on the volume weighted
average trading price of the Company’s common stock for the 15-trading day period ending on September 2, 2015, the last trading day
before the closing of the acquisition, subject to a collar so that there was a maximum exchange ratio of 0.6456 shares of the
Company’s common stock for each share of PMFG common stock and a minimum exchange ratio of 0.5282 shares of the Company’s
common stock for each share of PMFG common stock, subject to certain exceptions and with overall elections subject to proration.

Approximately 44.5% of the shares of PMFG common stock converted into the right to receive the $6.85 cash consideration, for

an approximate total of $64.6 million. The Company’s common stock trading price for the 15 day period was $9.6655. As a result,
each of the remaining shares of PMFG common stock converted into the right to receive 0.6456 shares of Company common stock, or
an approximate total of 7,602,166 shares of Company common stock in aggregate.

In accordance with the proration and reallocation provisions of the merger agreement, because the $6.85 per share cash
consideration was oversubscribed by PMFG shareholders prior to the election deadline, (a) each PMFG share for which a valid stock
election was made or for which no valid cash or stock election was made was automatically cancelled and converted into the right to
receive the stock consideration and (b) each PMFG shareholder of record that made a valid cash election by the deadline received
(i) the cash consideration for approximately 58.05% of such holder’s PMFG shares for which a valid cash election was made and
(ii) the stock consideration for approximately 41.95% of such holder’s PMFG Shares for which a valid cash election was made. The
value of stock recorded for purchase accounting was $72.1 million, which equates to approximately $9.49 per share.

PMFG is a global provider of engineered equipment for the abatement of air pollution, the separation and filtration of
containments from gases and liquids, and industrial noise control equipment, which complements our Energy segment businesses.

As a result of the PMFG acquisition, the Company acquired a 60% equity investment in Peerless Propulsys that entitled the

Company to 80% of Peerless Propulsys’s earnings. In prior periods, the noncontrolling interest of Peerless Propulsys was reported as
a separate component on the Consolidated Balance Sheets. During 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 100% ownership in the equity and earnings of Peerless Propulsys. The minority interest had a carrying value of $4.1
million on July 11, 2016, compared to the purchase price of $5.3 million. Since the Company already had control over the equity
investment, the excess paid of $1.2 million was recorded as a debit to additional paid in capital. The interest rate on the note payable
is 1.50%, which approximates the market rate given the short term duration of the note payable. All of the borrowers’ assets are
pledged to secure this agreement. As of December 31, 2017, $5.3 million of the note payable was outstanding and is payable at the
earlier of July 11, 2019 or thirty days subsequent to the sale of building and land that the Company owns in China. The note payable is
currently classified as a current liability in the Consolidated Balance Sheets as of December 31, 2017. In conjunction with entering
into the agreement to acquire the noncontrolling interest of Peerless Propulsys, the Company listed the land and building as assets held
for sale with a carrying value of $5.4 million in the Consolidated Balance Sheets as of December 31, 2017.

F-39

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing after the

Company finalized purchase accounting during 2016.

(Table only in thousands)
Current assets (including cash of $27,100)
Property and equipment
Other assets
Assets held for sale (a)
Deferred income tax asset
Goodwill
Intangible – finite life
Intangible – indefinite life
Total assets acquired
Current liabilities assumed
Deferred income tax liability
Long term liabilities assumed
Noncontrolling interest
Net assets acquired

92,293
24,787
953
950
—
59,860
29,940
10,280
219,063
(73,364)
(800)
(3,961)
(4,212)
136,726

(a) The assets held for sale consists primarily of real property, and are valued at the estimated proceeds less cost to sell. The

Company has not recorded a gain or loss on the classification of the subject assets to held for sale.

During 2017, 2016, and 2015, PMFG accounted for $89.4 million, $101.7 million, and $40.8 million of revenue, respectively,

and $6.7, $13.1 million, and $2.2 million of pre-tax income, respectively, included in the Company’s results.

Goodwill related to the PMFG acquisition is not deductible for tax purposes.

The following unaudited pro forma information represents the Company’s results of operations as if PMFG acquisition had

occurred as of January 1, 2014:

(Table only in thousands, except per share data)
Net sales
Net loss
Earnings per share:
Basic
Diluted

Year Ended December
31, 2015

460,726
(29,568)

(0.87)
(0.87)

The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired
intangible assets with finite life, reflect foregone interest income on cash paid for the acquisitions, reflect additional interest expense
on debt used to fund the acquisitions, and to record the income tax consequences of the pro forma adjustments. Included in the pro
forma results are acquisition related expenses of $17.7 million, and certain nonrecurring expenses, such as goodwill impairment, of
$3.7 million, for the year ended December 31, 2015. Shares used to calculate the basic and diluted earnings per share were adjusted to
reflect the additional shares of common stock issued to fund a portion of the acquisition price. These pro forma results do not purport
to be indicative of the results of operations that would have occurred had the purchases been made as of the beginning of the periods
presented or of the results of operations that may occur in the future.

Goodwill recognized on the PMFG acquisition represents value the Company expects to be created by combining the operations

of the acquired business with the Company’s operations, including the expansion into markets within existing business segments,
access to new customers and potential cost savings and synergies. See Note 7 for further discussion related to the Company’s
goodwill.

Acquisition and integration expenses on the Consolidated Statements of Operations are related to acquisition activities, which

include retention, legal, accounting, banking, and other expenses.

F-40

18. 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 are presented in three reportable segments. The results of the segments are reviewed through to the “Income (loss) from
operations” line on the Consolidated Statements of Operations. The accounting policies of the segments are the same as those in the
consolidated financial statements. Except for the information reported on a segment basis, the Company does not accumulate net sales
information by product or service and therefore, the Company does not disclose net sales by product or service because to do so would
be impractical. The Company’s reportable segments are however organized as groups of similar products and services, defined as
follows:

Energy Segment

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

Environmental Segment

Fluid Handling and Filtration Segment

Our Fluid Handling and Filtration segment provides the design and manufacture of high quality pump, filtration and fume

2017

2016

2015

Net Sales (less intra-, inter-segment sales)

(Table only in thousands)
Energy Segment ................................................................. $
Environmental Segment .....................................................
Fluid Handling and Filtration Segment..............................
Corporate and Other (1) .....................................................

Net sales ....................................................................... $

149,514
127,279
69,159
(901)
345,051

203,376 $
153,344
61,783
(1,492 )
417,011 $

142,150
158,371
67,610
(709)
367,422

(1)

Includes adjustment for revenue on intercompany jobs.

2017

2016

2015

Income (loss) from Operations

(Table only in thousands)
Energy Segment ................................................................. $
Environmental Segment .....................................................
Fluid Handling and Filtration Segment..............................
Corporate and Other (2) .....................................................
Eliminations .......................................................................

Income (loss) from operations

8,987
13,703
14,734
(26,649)
(2,751)
8,024

23,575 $
15,652
(36,209 )
(26,981 )
(1,599 )
(25,562 ) $

3,488
17,021
11,741
(26,592)
(709)
4,949

F-41

(2)

Includes corporate compensation, professional services, information technology, acquisition and integration expenses, and other
general and administrative corporate expenses.

Property and Equipment Additions
(Table only in thousands)
Energy Segment
Environmental Segment
Fluid Handling and Filtration Segment (3)
Corporate and Other

Property and equipment additions

2017

2016

2015

438
166
382
42
1,028

569 $
404
4,481
7
5,461 $

429
166
150
18
763

(3)
December 31, 2016. See Note 12 for further detail.

Includes non-cash additions of $4,385 for property, plant, and equipment acquired under capital leases for the year ended

2017

2016

2015

Depreciation and Amortization

(Table only in thousands)
Energy Segment ................................................................. $
Environmental Segment .....................................................
Fluid Handling and Filtration Segment..............................
Corporate and Other ...........................................................

Depreciation and amortization.................................. $

7,866
3,297
4,754
171
16,088

9,555 $
3,816
5,406
126
18,903 $

5,293
4,443
6,331
453
16,520

December 31,

2017

2016

Identifiable Assets

(Table only in thousands)
Energy Segment ...................................................................
Environmental Segment .......................................................
Fluid Handling and Filtration Segment................................
Corporate and Other (4) .......................................................
Identifiable assets ..........................................................

217,033 $
107,910
100,916
12,690
438,549 $

257,566
118,680
104,294
18,094
498,634

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

Goodwill

(Table only in thousands)
Energy Segment
Environmental Segment
Fluid Handling and Filtration Segment

Goodwill

December 31,

2017

2016

72,625
48,203
46,123
166,951

75,827
48,203
46,123
170,153

F-42

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:

Year Ended December 31, 2017

Less Inter-Segment Sales

Total Sales

Intra - Segment
Sales

Environmental Energy FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

(Table only in thousands)
Energy Segment ....................................... $ 158,456 $
Environmental Segment .......................... 131,356
Fluid Handling and Filtration Segment ... 73,652
—
Corporate and Other (5)

Net Sales .......................................... $ 363,464 $

(8,834) $
(3,235)
(3,169)
—
(15,238) $

(108) $ — $ — $ — $

—
(493)
—

(787)
(55 )
(832) —
— —
(55 ) $

—
—
(901)
(901) $

(601) $ (1,619) $

149,514
127,279
69,159
(901)
345,051

Year Ended December 31, 2016

Less Inter-Segment Sales

Total Sales

Intra - Segment
Sales

Environmental Energy FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

(Table only in thousands)
Energy Segment ....................................... $ 207,280 $
Environmental Segment .......................... 160,959
Fluid Handling and Filtration Segment ... 64,327
—
Corporate and Other (5)

Net Sales .......................................... $ 432,566 $

(3,506) $
(4,256)
(1,714)
—
(9,476) $

(398) $ — $ — $ — $

— (3,153)

(206 )
(513) —

—
—
— — (1,492)

(317)
—

(715) $ (3,666) $

(206 ) $ (1,492) $

Year Ended December 31, 2015

Less Inter-Segment Sales

203,376
153,344
61,783
(1,492)
417,011

Total Sales

Intra - Segment
Sales

Environmental Energy FHF

Corp
and
Other

Net Sales to
Outside
Customers

(635) $ — $ — $ — $

— (1,937)

(195 )
— —
— —
(195 ) $

—
—
(709)
(709) $

(832) $ (1,937) $

(197)
—

142,150
158,371
67,610
(709)
367,422

Net Sales

(Table only in thousands)
Energy Segment ....................................... $ 147,661 $
Environmental Segment .......................... 167,247
Fluid Handling and Filtration Segment ... 70,084
—
Corporate and Other (5)

Net Sales .......................................... $ 384,992 $

(4,876) $
(6,744)
(2,277)
—
(13,897) $

(5)

Includes adjustment for revenue on intercompany jobs.

F-43

19. Quarterly Data (Unaudited)

Earnings per share amounts are computed independently each quarter. Accordingly, the sum of each quarter’s per share amount

may not equal the total per share amount for the respective year.

(Table only in thousands, except per share data)
Year ended December 31, 2017

Net sales
Gross profit
Net income (loss)
Net income (loss) attributable to CECO Environmental
Corp.
Basic earnings (loss) per share
Diluted earnings (loss) per share

Year ended December 31, 2016

Net sales
Gross profit
Net income (loss)
Net income (loss) attributable to CECO Environmental
Corp.
Basic earnings (loss) per share
Diluted earnings (loss) per share

First

Second

Third

Fourth

Quarter

$
$

92,651
31,929
38

38
0.00
0.00

103,175
31,586
3,055

3,100
0.09
0.09

$
$

93,870
28,486
5,486

5,486
0.16
0.16

112,258
33,930
4,037

4,050
0.12
0.12

$
$

84,987 $
27,133
3,036

73,543
25,646
(11,589)

3,036
0.09 $
0.09 $

(11,589)
(0.34)
(0.34)

101,596 $
33,676
5,826

99,982
35,667
(51,172)

5,804
0.17 $
0.17 $

(51,172)
(1.49)
(1.49)

F-44

Executive Officers

Chairman
Jason DeZwirek

Chief Financial Officer
Matthew Eckl

Board of Directors

Jason DeZwirek
Chairman

Eric M. Goldberg
Principal
GKK Capital

Claudio A. Mannarino
President
Sette CS Inc.

Seth Rudin
President
Muskoka Rock Company Ltd.

Donald A. Wright
Vice President
SD Homes

Corporate Information

Chief Executive Officer
Dennis Sadlowski

Chief Accounting Officer
Paul Gohr

Dennis Sadlowski
Chief Executive Officer

David. B. Liner
Former General Counsel, Corporate Secretary
and Chief Compliance Officer
Roper Technologies, Inc.

Jonathan Pollack
President
The JMP Group

Valerie Gentile Sachs
Former Vice President, General Counsel
And Corporate Secretary
OM Group, Inc.

Annual Meeting of CECO Environmental Corp.
Will be held at 8:30 a.m. (CDT) on Tuesday
June 12, 2018 at 14651 N. Dallas Parkway
Suite 118, Dallas, Texas 75254

Corporate Office
14651 N. Dallas Parkway
Suite 500, Dallas, Texas 75254

Legal Counsel
Jones Day
Cleveland, Ohio

Common Stock
The Common Stock of CECO Environmental
Corp. is traded on the Nasdaq Global Select
Market under the symbol “CECE”

Registered Public Accounting Firm
BDO USA, LLP
Chicago, Illinois

Transfer Agent and Registrar
American Stock Transfer & Trust Company
New York, New York

CECO Environmental
14651 N. Dallas Parkway
Suite 500
Dallas, TX 75254
USA
investor.relations@OneCECO.com