THE ROAD
AHEAD
2020 Annual Report
WH O WE ARE
A leading global, environmental solutions provider
serving the Industrial Air Quality and Fluid Handling
markets. CECO is proud to serve diverse, global
industries offering a breadth of expertly engineered
applications to enhance operating environments
while simultaneously protecting the environment.
OUR VISION
Protecting our shared environment
to create a sustainable future for
generations to come.
O UR VALUE S
Outside-in
Curiosity & Candor
Disciplined Execution
OUR MISSION
Decide & Act
Help companies grow their business
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solutions that help protect our
shared environment.
Learning & Environment
Inclusive Teams
CECO Environmental
FINANCIAL
HIG HLIGHTS
Prese rv ing ca pital a nd
maintaining pro fitabi lity
during pandemic times.
Revenue
$316M
8% YOY
SG&A
$77M
$9M YOY,
>$10M annualized
cost actions
Orders
$280M
27% YOY
Gross
Margin
33.3%
Flat YOY
Adjusted
EBITDA
$33M
Flat YOY
Backlog
$183M
15% YOY
Global
Presence
40+
Countries
Orders
Revenue
EBITDA
2020
2019
2018
$280M
$384M
$359M
2020
2019
2018
$316M
$342M
$328M
2020
2019
2018
$33M
$33M
$31M
All measures exclude divestitures
2020 Annual Report (cid:2094) 1
DEAR
SHAREHOLDERS,
CECO steadfastly faced the many challenges brought on by the
global pandemic and enters 2021 a leaner and more forward-
looking organization. 2020 will be remembered as a year that
shook global economies, disrupted industries, and dramatically
compromised the health and safety of people around the world.
Rarely have we encountered such a sudden and impactful series
of events and uncertain environment. That said, I am proud of
how our employees and global partners took appropriate action
to focus on health and safety while continuing to deliver for our
customers and shareholders.
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company. We are a purpose-driven organization committed
to providing expert engineering solutions for a cleaner, safer,
and more sustainable world. We will continue to invest in
and advance solutions that protect our customers’ operating
environments while simultaneously protecting the natural
environment. As clean air, clean water, and climate change
garner more attention and investment, CECO will continue
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applications and enhance our breadth and depth of expertise.
When I joined CECO in mid-2020, we were adapting processes
and customer service models to ensure adherence to new safety
protocols. For a new CEO, the imposed limitations on in-person
meetings with employees, customers, investors, and other
constituents were disappointing. However, it did not limit the
rapid appreciation I gained for CECO’s talent and how important
our solutions and services are to our global customer-base, and
the environment. Approximately 40 percent of CECO’s workforce
are engineers or application engineers – each with a keen focus
on solving some of the most critical air quality, separation
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truly is a unique asset, and our global customers rely on our
team’s expertise every day. I look forward to continuing to
harness the tremendous power of our technical and industry
knowledge to advance the company to new heights.
2020 In Review
Leading companies, like CECO, move quickly and decisively to
control their destiny when markets encounter disruptive forces
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and poised for growth.
As soon as the consequences of the COVID-19 virus became
more fully understood, CECO put processes in place to protect
the health and safety of our employees, their families, and all
our customers and constituents. While there was no playbook
for this type of sudden and dramatic change to our operating
landscape, CECO delivered strong results that exemplify our
customer-focused organization and our well-implemented
health and safety protocols.
CECO has been streamlining operations and reducing
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2 (cid:2094) CECO Environmental
half of 2020, we accelerated actions to adjust to the changing
environment more rapidly. Our teams quickly adapted to working
from home. We utilized new technologies to coordinate and stay
connected internally, enabling our ability to serve our customers
without disruption. These processes are in place for continued
success, and we expect to leverage this nimbler structure to
support future growth.
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declines in new orders as our end markets reeled from
the impacts from COVID-19 and the economic conditions.
Fortunately, we entered 2020 with record backlog. Our ability
to deliver solid project execution during the pandemic helped
to minimize revenue declines in 2020. As we exited the year,
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return to growth. We believe we will steadily rebuild our backlog
throughout 2021.
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full year despite lower volume. It is important we maintain a
competitive cost position as we continue to invest in growth
and rebuild our backlog. This combination will produce very
strong margins as we advance CECO over the coming years.
I would also point out that very few projects were canceled from
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our advanced environmental solutions. While certain customer
projects or capital investments may be discretionary, the
solutions provided by CECO are not. So, while new orders may
have been temporarily impacted by the global pandemic, our
backlog remained largely intact. We will continue to execute for
our customers every day and invest in new solutions to enable
their growth, too.
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the many highlights of incredible projects and partnerships
with our customers. In 2020, for example, CECO eliminated
and controlled hazardous air particulates (HAPs) to help a
leading semiconductor manufacturer with their expansion
of new nanochip innovation. And, in the growing aluminum
beverage can manufacturing arena, CECO Regenerative Thermal
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compounds (VOCs), thus protecting employees and their
community neighbors. The list of environmental solutions could
go on and on. CECO has one of the largest installed bases of
environmental solutions for air quality, separation technologies,
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We look forward to highlighting our impactful customer projects
throughout the year and in future shareholder letters.
I would also like to congratulate CECO’s Dean Pump brand
which celebrated its 150th Anniversary in 2020. CECO Dean
is a leader in industrial markets that require heavy-duty and
high-temperature liquid pump solutions. We continue to invest
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broadening our distribution. I am excited to witness the next
chapter of CECO Dean’s growth and supporting all our leading
CECO brands.
“As clean air, clean water, and
climate change garner more
attention and investment,
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as we maintain and increase our
focus on critical applications
and enhance our breadth and
depth of expertise.”
Advancing CECO – Strategies and ESG
CECO is very well positioned for growth and increased
shareholder value. Over the past few years, we reduced internal
redundant systems, streamlined operating processes, and drove
cost synergies. In 2020, we also completed the acquisition
of UK-based Environmental Integrated Solutions (EIS), which
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better positions CECO in European markets. We also created
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business with Mader’s damper business. This combination
creates new synergies and combines complementary strengths.
As a result of these actions and others, we entered 2021 with
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focus set on growth initiatives. While our 2021 starting backlog
may be lower than 2020, we expect to steadily grow our project
businesses and increase our book-to-bill ratio. CECO’s ability to
execute, and in-turn generate improving margins and free cash
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on delivering both.
We are also working on a bolder enterprise strategy. In mid-
2021, we will articulate the journey CECO will undertake to
transform our portfolio organically and inorganically. We have
yet to fully tap into adjacent markets. The early investments we
have made in water treatment and advanced water solutions
are also very exciting. Additionally, as we already highlighted,
we have a well-respected knowledge base with our strong
application engineering workforce that I know we can leverage
for more innovation and to gain market access. Transformation
is not a short-term endeavor, but with our leading position and
(cid:90)(cid:91)(cid:89)(cid:86)(cid:85)(cid:78)(cid:3)(cid:73)(cid:72)(cid:83)(cid:72)(cid:85)(cid:74)(cid:76)(cid:3)(cid:90)(cid:79)(cid:76)(cid:76)(cid:91)(cid:3)(cid:48)(cid:3)(cid:72)(cid:84)(cid:3)(cid:74)(cid:86)(cid:85)(cid:196)(cid:75)(cid:76)(cid:85)(cid:91)(cid:3)(cid:94)(cid:76)(cid:3)(cid:94)(cid:80)(cid:83)(cid:83)(cid:3)(cid:90)(cid:91)(cid:76)(cid:72)(cid:75)(cid:80)(cid:83)(cid:96)(cid:3)(cid:78)(cid:89)(cid:86)(cid:94)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)
(cid:76)(cid:95)(cid:87)(cid:72)(cid:85)(cid:75)(cid:3)(cid:42)(cid:44)(cid:42)(cid:54)(cid:3)(cid:91)(cid:86)(cid:3)(cid:75)(cid:89)(cid:80)(cid:93)(cid:76)(cid:3)(cid:90)(cid:80)(cid:78)(cid:85)(cid:80)(cid:196)(cid:74)(cid:72)(cid:85)(cid:91)(cid:3)(cid:90)(cid:79)(cid:72)(cid:89)(cid:76)(cid:79)(cid:86)(cid:83)(cid:75)(cid:76)(cid:89)(cid:3)(cid:93)(cid:72)(cid:83)(cid:92)(cid:76)(cid:21)
CECO is also leaning into our commitment to providing a
(cid:83)(cid:76)(cid:72)(cid:75)(cid:76)(cid:89)(cid:90)(cid:79)(cid:80)(cid:87)(cid:3)(cid:93)(cid:86)(cid:80)(cid:74)(cid:76)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:90)(cid:87)(cid:76)(cid:74)(cid:80)(cid:196)(cid:74)(cid:3)(cid:91)(cid:72)(cid:89)(cid:78)(cid:76)(cid:91)(cid:90)(cid:3)(cid:72)(cid:89)(cid:86)(cid:92)(cid:85)(cid:75)(cid:3)(cid:44)(cid:85)(cid:93)(cid:80)(cid:89)(cid:86)(cid:85)(cid:84)(cid:76)(cid:85)(cid:91)(cid:72)(cid:83)(cid:19)(cid:3)
Social and Governance (ESG). We are proud of the many
solutions CECO provides that enable our customers to meet-
or-exceed regulatory or self-appointed environmental targets.
Internally, we have a commitment to ensure we reduce the
footprint we have on the environment. In the coming year, we
are taking appropriate actions to improve disclosure and then
target improvement.
With respect to Social and Governance, CECO has long been
committed to an environment that incorporates diversity,
advancing talent and development, and strong processes
around controls and transparency. We have zero tolerance
for discrimination, unfair business practices or shortcuts that
have no place in the workplace. Our newly revamped Code
of Business Conduct and Ethics is comprehensive, and our
employees are regularly trained on best practices with respect
to business ethics and conduct. These are just some of the
(cid:84)(cid:72)(cid:85)(cid:96)(cid:3)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:94)(cid:76)(cid:3)(cid:94)(cid:80)(cid:83)(cid:83)(cid:3)(cid:79)(cid:80)(cid:78)(cid:79)(cid:83)(cid:80)(cid:78)(cid:79)(cid:91)(cid:3)(cid:94)(cid:79)(cid:76)(cid:85)(cid:3)(cid:94)(cid:76)(cid:3)(cid:87)(cid:92)(cid:73)(cid:83)(cid:80)(cid:90)(cid:79)(cid:3)(cid:42)(cid:44)(cid:42)(cid:54)(cid:187)(cid:90)(cid:3)(cid:196)(cid:89)(cid:90)(cid:91)(cid:3)
Sustainability Report. We currently have a talented team of
cross-functional leaders working to report on our progress in
this upcoming inaugural report.
The Road Ahead
I am honored and proud to represent CECO and lead our
talented and diverse team. We are pleased with our performance
in 2020. We adjusted to the uncertain economic environment,
added to our portfolio of brands, delivered for our customers,
and implemented new health and safety protocols. I thank our
(cid:76)(cid:85)(cid:91)(cid:80)(cid:89)(cid:76)(cid:3)(cid:86)(cid:89)(cid:78)(cid:72)(cid:85)(cid:80)(cid:97)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:3)(cid:77)(cid:86)(cid:89)(cid:3)(cid:91)(cid:79)(cid:76)(cid:80)(cid:89)(cid:3)(cid:91)(cid:80)(cid:89)(cid:76)(cid:83)(cid:76)(cid:90)(cid:90)(cid:3)(cid:76)(cid:584)(cid:86)(cid:89)(cid:91)(cid:90)(cid:21)
We are committed to driving shareholder value. As our end-
markets continue to improve we expect to rebuild our backlog,
grow revenues, and deliver improved margins and free cash
(cid:197)(cid:86)(cid:94)(cid:21)(cid:3)(cid:54)(cid:92)(cid:89)(cid:3)(cid:86)(cid:89)(cid:78)(cid:72)(cid:85)(cid:80)(cid:97)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:72)(cid:83)(cid:3)(cid:84)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:80)(cid:90)(cid:3)(cid:76)(cid:85)(cid:89)(cid:80)(cid:74)(cid:79)(cid:76)(cid:75)(cid:3)(cid:73)(cid:96)(cid:3)(cid:76)(cid:95)(cid:87)(cid:76)(cid:89)(cid:91)(cid:80)(cid:90)(cid:76)(cid:19)(cid:3)(cid:76)(cid:585)(cid:74)(cid:80)(cid:76)(cid:85)(cid:91)(cid:3)
operations, and broad capabilities, which we will leverage as we
invest in growth.
I look forward to sharing our transformational enterprise strategy
in 2021. We have a set of leading business platforms that we
are excited to drive increased growth. Additionally, we have a
healthy balance sheet, and we are aligned that smart capital
deployment will add critical pieces to our portfolio for more
sustainable growth.
In summary, I want to thank each of
our shareholders for your support
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team. We are working hard
to advance our leadership
positions across key
markets and serve
our customers. We
understand the
world remains an
uncertain place, but
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navigating the hurdles
and taking advantage
of the opportunities
could never be higher.
Sincerely,
Todd R. Gleason
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CECO Environmental
2020 Annual Report (cid:2094) 3
OUR ESG
JOURNEY
OUR ESG
JOURNEY
There is no question on the importance of
Environmental, Social, and Governance (ESG)
to our success and to all of our stakeholders.
CECO is embarking on a journey to share
our ESG story and build on it. And while we
are at the start of communicating our story,
ESG principles have been at the center of
our culture as it relates to environmental
protection, social justice, and ethical
management to name a few.
CECO sees increasing focus from investors,
customers, employees and other stakeholders
on how companies manage ESG. We are
proud of the fact that we have many ESG-
related activities that have been in place for
years – from environmental protection, social
justice and inclusion, to our Code of Conduct
that outlines ethical expectations, cyber
security and other important guidelines. In
2020 we created an ESG Management team
and task force that will evaluate a program
and set of metrics and develop our ESG plan
for the road ahead.
4 (cid:2094) CECO Environmental
L Our purpose and mission as a company is to
A
protect our shared environment. The CECO
teams are passionate about helping customers
T
around the world achieve economic growth while
N
eliminating toxic emissions, VOCs (volatile organic
compounds) and other harmful particulates from
E
M
N
O
R
(cid:72)(cid:584)(cid:76)(cid:74)(cid:91)(cid:80)(cid:85)(cid:78)(cid:3)(cid:91)(cid:79)(cid:76)(cid:3)(cid:72)(cid:80)(cid:89)(cid:3)(cid:91)(cid:79)(cid:72)(cid:91)(cid:3)(cid:72)(cid:83)(cid:83)(cid:3)(cid:86)(cid:77)(cid:3)(cid:92)(cid:90)(cid:3)(cid:73)(cid:89)(cid:76)(cid:72)(cid:91)(cid:79)(cid:76)(cid:21)(cid:3)(cid:59)(cid:86)(cid:3)(cid:87)(cid:92)(cid:91)(cid:3)
this contribution into perspective, in just one of
our business areas, CECO’s selective catalytic
reduction (SCR) technology helps power plants
eliminate “stack” emissions and has removed
more than 6 billion tons of toxic NOx emissions
from being emitted into the air.
I
V
N
E
As a company focused on leading engineering
and technologies we are asset light, however in
our own operations, and in our code of conduct,
(cid:94)(cid:76)(cid:3)(cid:76)(cid:85)(cid:74)(cid:86)(cid:92)(cid:89)(cid:72)(cid:78)(cid:76)(cid:3)(cid:76)(cid:585)(cid:74)(cid:80)(cid:76)(cid:85)(cid:91)(cid:3)(cid:92)(cid:90)(cid:76)(cid:3)(cid:86)(cid:77)(cid:3)(cid:85)(cid:72)(cid:91)(cid:92)(cid:89)(cid:72)(cid:83)(cid:3)(cid:89)(cid:76)(cid:90)(cid:86)(cid:92)(cid:89)(cid:74)(cid:76)(cid:90)(cid:21)(cid:3)
Some examples of our current activities include:
(cid:2094)(cid:3) Creation of an ESG Management team
to oversee environmental programming
(cid:2094)(cid:3) Development of an Environmental Policy
(cid:2094)(cid:3) (cid:60)(cid:91)(cid:80)(cid:83)(cid:80)(cid:97)(cid:80)(cid:85)(cid:78)(cid:3)(cid:76)(cid:85)(cid:76)(cid:89)(cid:78)(cid:96)(cid:20)(cid:76)(cid:585)(cid:74)(cid:80)(cid:76)(cid:85)(cid:91)(cid:3)(cid:91)(cid:76)(cid:74)(cid:79)(cid:85)(cid:86)(cid:83)(cid:86)(cid:78)(cid:80)(cid:76)(cid:90)(cid:3)(cid:90)(cid:92)(cid:74)(cid:79)(cid:3)
as motion sensors and LED bulbs for the
(cid:83)(cid:80)(cid:78)(cid:79)(cid:91)(cid:90)(cid:3)(cid:80)(cid:85)(cid:3)(cid:84)(cid:72)(cid:85)(cid:96)(cid:3)(cid:86)(cid:77)(cid:3)(cid:86)(cid:92)(cid:89)(cid:3)(cid:86)(cid:585)(cid:74)(cid:76)(cid:90)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:94)(cid:86)(cid:89)(cid:82)(cid:90)(cid:79)(cid:86)(cid:87)(cid:90)(cid:3)
and programmable thermostats for reducing
heating and cooling energy usage
(cid:2094)(cid:3)
Shifting to a digital and virtual working
(cid:74)(cid:92)(cid:83)(cid:91)(cid:92)(cid:89)(cid:76)(cid:3)(cid:91)(cid:79)(cid:72)(cid:91)(cid:3)(cid:79)(cid:72)(cid:90)(cid:3)(cid:90)(cid:80)(cid:78)(cid:85)(cid:80)(cid:196)(cid:74)(cid:72)(cid:85)(cid:91)(cid:83)(cid:96)(cid:3)(cid:89)(cid:76)(cid:75)(cid:92)(cid:74)(cid:76)(cid:75)
the use of printed materials and
exhaust emissions related to
reduction of employee
commuting time
(cid:2094)(cid:3) Recycling of plant
production scrap
metal into re-
usable materials
E
C
N
A
N
R
E
V
O
G
Governance
at CECO
starts with the
tone set at the top by
our leaders and board of directors for ethical
behavior. To maintain CECO’s standards of ethical
conduct within the company, CECO requires
Code of Business Conduct and Ethics training.
This comprehensive training is not only part of
onboarding new hires but done on an annual basis
for existing employees. All team members must
read the company Code of Business Conduct and
sign an acknowledgement of their commitment
to adhere to all policies and guidelines that cover
topics such as:
(cid:2094)(cid:3) Our diversity within the employee base and
within our Board of Directors
(cid:2094)(cid:3) CECO’s commitment to honoring the highest
standards for human rights
(cid:2094)(cid:3) Data privacy including the Global Data
Protection Regulation
(cid:2094)(cid:3)
Anonymous Ethics Hotline that allows any
employee or external party to report concerns
(cid:2094)(cid:3) Cyber Security guidelines that are paired with
regular training in protecting data, recognizing
phishing attempts and other critical skills to
ensure business continuity
L
A
I
C
O
S
CECO is a multi-
national company,
with locations in eleven
countries supporting a global customer base.
This, by nature, means our workforce is ethnically
and culturally diverse, as is our customer base.
We believe that our people drive our organization’s
success. Not only their knowledge and skills but
also their well-being, safety and professional
growth are crucial to the quality of our solutions
and customer relationships. We maintain a high-
integrity culture and employee health and safety
(EHS) by:
(cid:2094)(cid:3)
Providing the CECO Code of Business
Conduct and Ethics to all employees that
serves as a reference for ethical behavior,
expectations and links to company policies
(cid:2094)(cid:3) Being committed to defending human rights
not only among our employees but all along
our supply chain and development of Human
Rights policy that documents this position
and will be communicated in 2021
(cid:2094)(cid:3)
Providing workplace safety processes and
training for our employees that meets or
exceeds regulatory safety standards
(cid:2094)(cid:3) Concentrating our People Strategy on
attracting and retaining exceptional talent
(cid:2094)(cid:3)
Advancing diversity, equity, and inclusion with
fair compensation and opportunities
(cid:2094)(cid:3) Developing great leaders with our global
Leadership Academy
(cid:2094)(cid:3) Engaging with our local communities
where employees live and work around
where employees live and work around
the world with volunteer service through
the world with volunteer service through
the CECO C.A.R.E.S program
the CECO C.A.R.E.S program
2020 Annual Report (cid:2094) 5
CUSTOMER
HIGHLIGHTS
These projects represent just a few examples
from the CECO portfolio that removed harmful
pollutants, which supports CECO’s mission to
protect our shared environment.
EXPAN DING CAPACITY
F OR T HE PROD UCTION
OF BE VERAGE CANS
PRODUCT: Full system with Regenerative
Thermal Oxidizer (RTO), Concentrator, Filtration,
Heat Recovery and Ductwork
SOLUTION: Eliminates Volatile Organic
Compounds (VOC)
Turnkey solutions from design,
fabrication and install
Provides environmental compliance
& ability to manufacture recyclable
beverage cans
6 (cid:2094) CECO Environmental
PROVIDING SAFE, CLEAN
DRINKING WAT ER FOR A
HOSPITAL IN LIBYA
PRODUCT: CECO Peerless water technology
utilized beyond energy markets
SOLUTION: Provided the customer a
containerized water desalination plant to
reduce the beach well water salinity to desired
(cid:83)(cid:76)(cid:93)(cid:76)(cid:83)(cid:90)(cid:21)(cid:3)(cid:58)(cid:87)(cid:76)(cid:74)(cid:80)(cid:196)(cid:74)(cid:72)(cid:83)(cid:83)(cid:96)(cid:19)(cid:3)(cid:90)(cid:76)(cid:72)(cid:94)(cid:72)(cid:91)(cid:76)(cid:89)(cid:3)(cid:89)(cid:76)(cid:93)(cid:76)(cid:89)(cid:90)(cid:76)(cid:3)(cid:86)(cid:90)(cid:84)(cid:86)(cid:90)(cid:80)(cid:90)(cid:3)
membrane technology was used to remove
unwanted contaminants. Remineralization
chemicals were added to adjust permeate water
pH levels.
Expansion of application beyond
the energy markets
Recycle and reuse of water for
drinking purposes
ENABLING
SEMI-CONDUCTOR
MANUFACTURER
INN OVATION
PRODUCT: HEE-Duall Scrubber for advanced
Lithography Tools (the “new nanochip”)
SOLUTION: Destroys Hazardous Air Particulates
(HAPs) before emissions with lower water
consumption.
Single sourced solution
We purify hundreds of millions
(CFM) of process gases
globally and protect ~65K
manufacturing people
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, 2020
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
Suite 500
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: (214) 357-6181
Securities registered under Section 12(b) of the Act:
Trading Symbol
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CECE
The NASDAQ Stock Market LLC
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 ☒
Securities registered pursuant to Section 12(g) of the Act: None
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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.
Large Accelerated Filer
Non-Accelerated Filer
Emerging growth company
p y
g g g
☐
☐
☐
Accelerated Filer
Smaller reporting company
p y
p
g
☒
☒
If f an emerging growth company, indicate by check k mark k iff the registrantt has elected nott to use the extended transition period forr complying with any new orr revised
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 pursuantt to Section 13(a) of f the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
☒
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 $166.2 million based upon the closing market price and
shares of common stock outstanding as of June 30, 2020, the last business day of our most recently completed second fiscal quarter. 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 February 25, 2021, the registrant had 35,350,727 shares of common stock, par value $0.01 per share, outstanding.
Portions of the definitive Proxy Statement for the 2021 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, 2020, are incorporated by reference into Part III of this Annual Report to the extent described herein.
Documents Incorporated by Reference
CECO Environmental Corp. and Subsidiaries
ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 2020
TABLE OF CONTENTS
Item
PART I.
Description
Item 1.
Business ......................................................................................................................................................................
Item 1A.
Risk Factors.................................................................................................................................................................
Item 1B.
Unresolved Staff Comments .......................................................................................................................................
Item 2.
Item 3.
Item 4.
PART II.
Properties ....................................................................................................................................................................
Legal Proceedings .......................................................................................................................................................
Mine Safety Disclosures .............................................................................................................................................
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ................................................................................................................................................................
Item 6.
Item 7.
Selected Financial Data...............................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .....................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk....................................................................................
Item 8.
Item 9.
Financial Statements and Supplementary Data...........................................................................................................
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..................................................................................................................................................................................
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48
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:
•
•
•
•
•
•
•
•
•
•
the sensitivity of our business to 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 revenue;
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, including as a result of tariffs and
surcharges;
the substantial amount of debt incurred in connection with our strategic transactions 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; our ability to successfully realize the expected benefits of our restructuring
program;
our ability to successfully integrate acquired businesses and realize the synergies from strategic transactions; unpredictability
and severity of catastrophic events, including cyber security threats, acts of terrorism or outbreak of war or hostilities or
public health crises, such as uncertainties regarding the extent and duration of impacts of matters associated with the novel
coronavirus (“COVID-19”), as well as management’s response to any of the aforementioned factors.
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 (the “SEC”), we undertake no
obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.
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Item 1.
Business
General
PART I
CECO Environmental Corp. (“CECO,” “we,” “us,” or the “Company”) 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. We focus on engineering,
designing, building, and installing systems that capture, clean and destroy airborne contaminants from industrial facilities as well as
equipment that controls emissions from such facilities, as well as fluid handling and filtration systems. 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 diverse industries globally by working to improve air quality, optimize the energy value chain, and provide customized
engineered solutions in our customers’ mission critical applications. The industries CECO serves include power generation,
petrochemical processing, general industrial, refining, oil & gas, electric vehicle production, poly silicon fabrication, battery recycling,
and wastewater treatment, along with a wide range of other industries.
CECO has over $6 billion of installed equipment with end users, which we target to expand and grow a higher recurring revenue of
aftermarket products and services.
Our customers include some of the largest natural gas processors, transmission and distribution companies, refineries, power
generators, industrial manufacturing, engineering and construction companies, semiconductor manufacturers, compressor
manufacturers, metals and minerals, and electric vehicle producers in the world.
We believe our value differentiators include, but are not limited to, our product quality, reliability, on-time delivery and safety,
supported by advanced engineering and operational excellence. We believe these are critical in maintaining our competitive position
and have adopted a spirit of continuous improvement to ensure we maintain our market leadership position.
Industry Overview
We serve a growing $5 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, oil & gas and wastewater treatment.
We believe demand for our products and services will continue to be driven by the following factors:
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Global Focus on Environment. Increased demand for efficient solutions and reduced emissions for clean air remains at the
forefront of sustainable production. As our customers and end markets navigate this changing landscape, we are making
production cleaner, more efficient and flexible, and workplaces safer, using the same high manufacturing standards our
customers expect. Increasingly, society, along with government regulation, call for corporations to commit to the
preservation and protection of the environment. We believe that through our air quality and emissions control initiatives,
companies want to work with us to protect people and our planet from the harmful effects of industrial processes.
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
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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.
Power Generation. Power generation encompasses a broad range of activities related to the production of electricity. The
primary types of fossil fuels 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.
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.
Mission and Strategy
Our mission is to help companies grow their business with safe, clean and more efficient solutions that help protect people and our
shared environment.
We seek to fulfill this mission through established global leadership in air quality and fluid handling solutions focused on serving the
energy, industrial, and other niche markets around the world. We will continue to leverage our innovative technology and application
expertise to customers around the world. We work to improve air quality, optimize the energy value chain, and provide custom
engineered solutions for applications including power generation, petrochemical processing, general industrial, refining, oil & gas,
electric vehicle production, poly silicon fabrication, battery recycling, and wastewater treatment along with a wide range of other
applications.
Our strategy to become the global leader in air quality and fluid handling solutions is to drive an operating environment of
performance excellence across the Company with a near term focus on targeted value creation enablers, and growth-oriented business
segment performance.
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 customer base and end
markets and have continued to pursue potential attractive growth opportunities both domestically and internationally. In the past few
years, we have expanded our international presence with new sales & engineering hubs in the United Kingdom, Shanghai, Singapore,
Pune India, and Dubai.
Four Value Creation Enablers Driving Growth
All four of these are inter-connected and critical to achieving our objectives.
• Outside-In Leadership is all about an increased attention on our customers and the trends affecting the world around us as
we make decisions that enable CECO to be responsive and prepared for growth.
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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.
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Simplification involves aligning and streamlining our operational practices and metrics to match our customers’ key
performance indicators (“KPIs”) for success and removing complexity from our systems and structure.
• Active Portfolio Management dictates a regular evaluation of our business units for market attractiveness and profitability
together with scanning the market for attractive potential additions that strengthen the long-term outlook of the Company.
Three Business Segments:
The Company operates and reports in three reportable segments focused on attractive end markets. Each segment is aligned to
generate profitable growth for the Company across a targeted industry with a compelling technology and solution set to benefit
customers.
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Energy Solutions segment: Our Energy Solutions segment serves the Energy market, where we are a key part of helping
meet the global demand for clean energy and lower emissions through our highly engineered and tailored emissions
management, silencers and separation solutions and services. Our offerings improve air quality and solves fluid handling
needs with market leading technologies, efficiently designed, and customized solutions for the power generation, oil & gas,
and petrochemical industries.
Industrial Solutions segment: Our Industrial Solutions segment serves the Air Pollution Control market where 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. Our offerings in clean air pollution control, collection and ventilation technologies improve air
quality with a compelling solution that enable our customers in the semiconductor manufacturing, electric vehicle production,
battery recycling, and wood manufacturing industries to reduce their carbon footprint, lower energy consumption, minimize
waste and meet compliance targets for toxic emissions, fumes, volatile organic compounds, and industrial odors.
Fluid Handling Solutions segment: Our Fluid Handling Solutions segment offers unique pump and filtration solutions that
maintain safe and clean operations in some of the most harsh and toxic environments. In this market, we provide solutions for
mission-critical applications to a wide variety of industries including, but not limited to, plating and metal finishing,
automotive, food and beverage, chemical, petrochemical, pharmaceutical, wastewater treatment, desalination and the
aquarium & aquaculture markets.
Competitive Strengths
Leading market position as a complete solution provider. We believe we are a leading provider of critical solutions in industrial air
quality and fluid handling. 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 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, 2020, we had a diversified customer base of approximately 5,000 active customers across a
range of industries. 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 industrial air quality and
fluid handling solutions. The business experience of our management team enables us to pursue our strategy. Our workforce includes
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approximately 400 engineers, designers, solution experts, 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.
Develop innovative solutions. We 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.
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.
Products and Services
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. Our products primarily compete on the basis of price, performance,
speed of delivery, quality, customer support and single source.
Project Design and Research and Development
We seek to achieve our Outside-In Leadership by understanding our customers’ needs and delivering better outcomes for them by
focusing new product development efforts that help protect our shared environment while working to improve a variety of operational
outcomes including, but not limited to, facility uptime, production quality, employee safety, equipment protection and process
performance. We produce specialized products that are often tailored to the specifications of a customer or application.
We continually collaborate with our customers on their projects 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 can take
from one to more than twelve 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 and
integration of new business units. 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, Europe, Middle East, 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.
We market our offerings to our customers through a variety of channels including, but not limited to, digital, web, social media, email
campaigns, individual customer visits, 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.
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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, this approach 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 2020.
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
traditionally 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. 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 (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and
services for which control has not yet transferred to the customer. Backlog was $183.1 million as of December 31, 2020 as compared
to $216.6 million as of December 31, 2019, $9.8 million of backlog in total was acquired from the Environmental Integrated Solutions
(“EIS”) acquisition and the Mader Holding L.P. (“Mader”) joint venture. In addition, the Company removed $9.2 million of orders in
2020 that were previously disclosed as backlog in prior periods, due to cancellations by industrial customers with exposure to
aerospace end markets. Backlog is adjusted on a quarterly basis for adjustments in foreign currency exchange rates. Substantially all
backlog is expected to be delivered within 12 to 18 months. 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 timeliness of delivery, technology, applications experience, know-how, reputation, product warranties, service and price.
Demand for our product can vary period over period depending on conditions in the markets we serve. We believe our product quality,
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reliability, on-time delivery and safety supported by advanced engineering and operational excellence 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:
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performance track record;
comprehensive portfolio of products with leading technology;
brand recognition;
high design standard;
quality and reliable solutions;
on-time delivery;
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 compliance with applicable environmental laws and regulations. We believe that changes in
environmental laws and regulations create opportunity given the nature of our business.
Our business is subject to numerous laws and regulations. We expect that the change in administration at the federal level will result in
an increase in federal regulations applicable to our business. While there are not currently regulations proposed or pending that we
believe will result in material capital, operating or other costs to the business at this time, such regulations could be proposed and/or
passed into law in 2021 or beyond. Other regulations currently in place could be withdrawn and replaced with more stringent
requirements in 2021 or beyond. New laws and regulations and the costs of compliance with such new laws and regulations can only
be broadly appraised until their implementation becomes more defined through regulatory guidance and enforcement.
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.
Commitment to Values and Ethics
At CECO, we act in accordance with our Code of Business Conduct and Ethics (“Code of Conduct”), which sets forth expectations
and guidance for employees to make appropriate decisions. Our Code of Conduct covers topics such as anti-corruption,
discrimination, harassment, data privacy, appropriate use of company assets, protecting confidential information, and reporting Code
of Conduct violations. The Code of Conduct reflects our commitment to operating in a fair, honest, responsible and ethical manner
and also provides direction for reporting complaints in the event of alleged violations of our policies ,including through an anonymous
helpline. Our executive officers and managers maintain an “open door” policy, and any form of retaliation is strictly prohibited.
Human Capital Management
CECO recognizes that in order to drive innovation and operational excellence, we must identify, attract, retain and motivate world-
class talent. As of December 31, 2020, CECO has approximately 730 employees, across seven countries. One-hundred and fifty of our
US employees are unionized in our Pennsylvania, Tennessee and North Carolina facilities.
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Talent, Leadership and People Development
To support personal and professional development, we have strategically committed resources to leadership and management
development programs, product knowledge, job skills, and compliance training. In 2020, CECO implemented an online learning
platform so our employees could continue to enhance their skill sets and knowledge while working remotely due to COVID-19. Our
learning platform offers over 16,000 courses and certifications ranging from job function to leadership and resource training. As of
December 31, 2020, 72% of CECO’s global workforce registered and engaged with this learning platform. We believe this investment
in our team members results in a more knowledgeable and competent workforce while strengthening the commitment between
employees and our company.
We provide a variety of resources to help our employees grow in their current roles and build new skills to thrive in the workplace of
the future. Strategic talent reviews are conducted annually across all business areas. The Board is updated on the Company’s people
strategy on an annual basis, which is refined based on business drivers, market factors and key initiatives designed to drive the
corporate strategy and business results, and meets to review our succession planning strategy and leadership pipeline for key roles,
taking into account the company’s long-term strategy.
Health and Safety
At CECO, the health and safety of our employees is one of our highest priorities. We believe that all injuries, occupational illnesses
and incidents are preventable, and we are committed to operating with a zero-incident culture. Through our environmental, health and
safety program we implement policies and training programs, as well as perform self-audits to ensure our colleagues leave the
workplace safely every day. To better understand employee safety at the site level, we have implemented safety committees and
developed safety scorecards to share best practices between sites. We currently share scorecard information monthly to foster
visibility, accountability and commitment across our workplace, communicating and celebrating successful results across the
enterprise. In addition to lagging indicators, such as injury performance, the scorecards highlight leading indicators such as safety
observations and near-misses, as well as other proactive actions taken at each site to ensure worker safety. For the year ended
December 31, 2020, CECO’s domestic Total Recordable Incident Rate (“TRIR”) was 1.9% as compared to our benchmark industry
average TRIR of 4.5%.
Our safety focus is also evident in our response to the COVID-19 pandemic around the globe. We implemented all government,
federal and state policies, in addition to the following policies and procedures:
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added work from home flexibility for office job roles;
deployed Microsoft Teams world-wide to enable collaboration while ensuring team safety;
implemented an Emergency Paid Pandemic Leave policy to encourage those who are sick to stay home;
increased cleaning protocols across all locations;
initiated regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and
procedures;
implemented a self-certification health assessment for all employees, partners and vendors at our manufacturing facilities
(where allowed by local law);
established new physical distancing procedures for employees who need to be onsite;
provided additional personal protective equipment and cleaning supplies;
implemented safety protocols to address actual and suspected COVID-19 cases and potential exposure;
prohibited all non-essential domestic and international travel for all employees;
required masks to be worn in all locations where allowed by local law;
required on site visitors complete a health and travel declaration; and
for on site visitors traveling by plane, required a negative Polymerase Chain Reaction test before entering the facility.
CECO manufactures products and performs services deemed essential to critical infrastructure, including manufacturing, and energy,
and, as a result, our facilities have continued operating during the COVID-19 pandemic. Importantly, during 2020, our experience and
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continuing focus on workplace safety have enabled us to preserve business continuity without sacrificing our commitment to keeping
our colleagues and workplace visitors safe during the COVID-19 pandemic.
Diversity, Equity, and an Inclusive Culture
At CECO we believe a diverse and inclusive workforce is critical to inspiring innovative thinking, creative problem-solving,
performance, and results, so we cultivate an environment where team members feel valued, engaged, and inspired to give their best.
The unique characteristics that shape each individual help inform our decisions as a company, and this mindset allows CECO to
realize new opportunities and add value to our customers, partners, and stockholders.
As part of our efforts to expand CECO’s diverse workforce, we are:
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initiating recruitment efforts to attract and build a more diverse workforce, including expanding career opportunity
postings on career websites to diverse job boards, as well as, search engines that aggregate and display job openings by
employers, including those dedicated to diverse candidates;
implementing training to raise awareness of unconscious bias and further promote personal and professional development;
and
launching pulse surveys to foster ongoing feedback around our culture, workplace inclusiveness and communications.
CECO’s commitment to expanding our diverse workforce and enhancing our inclusive culture is driven by our recognition that a
workplace that is reflective of our global customer base establishes a firm foundation to drive creativity and innovation, which lead to
problem solving, development, performance, and business success.
Appointment of Chief Executive Officer
On July 6, 2020, Mr. Todd Gleason started serving as Chief Executive Officer and as a member of the Board of Directors of the
Company, succeeding Dennis Sadlowski. See “Executive Officers of CECO” below for Mr. Gleason’s biography.
Executive Officers of CECO
The following are the executive officers of the Company as of February 28, 2021. The terms of all officers expire at the next annual
meeting of stockholders and upon the election of the successors of such officers.
Todd Gleason (49) most recently served, from April 2015 to July 2020, as President and Chief Executive Officer of Scientific
Analytics Inc., a predictive analytic technologies and services company. Prior to that position, Mr. Gleason served from June 2007 to
March 2015 in a number of senior officer and executive positions for Pentair plc, a water treatment company. During his tenure with
Pentair, Mr. Gleason served as Senior Vice President and Corporate Officer from January 2013 to March 2015, President, Integration
and Standardization from January 2010 to January 2013, and Vice President, Global Growth and Investor Relations from June 2007 to
January 2010. Before joining Pentair, Mr. Gleason served as Vice President, Strategy and Investor Relations for American Standard
Companies Inc. (later renamed to Trane Inc. prior to its acquisition by Ingersoll-Rand Company Limited), a global, diversified
manufacturing company, and in a number of different roles (including as Chief Financial Officer, Honeywell Process Solutions) at
Honeywell International Inc., a diversified technology and manufacturing company. Mr. Gleason’s qualifications to sit on the Board
include his financial and business background, as well as his extensive executive and leadership experience.
Matthew Eckl (40) has served as our Chief Financial Officer 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 in 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. Mr. Eckl earned a Bachelor’s degree in
Management Information Systems from Pennsylvania State University.
Paul Gohr (39) has served as the Chief Accounting Officer since May 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 in 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. Mr. Gohr earned a Bachelor’s degree in Business,
Accountancy and a Masters of Accountancy degree from Miami University.
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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 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.
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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.
Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. 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.
COVID-19 Risks
We face risks related to health epidemics and other outbreaks, including the COVID-19 pandemic, which may adversely affect our
business, results of operations and financial condition.
We face risks related to health epidemics and other outbreaks, including the COVID-19 pandemic. The continued spread of COVID-
19 has reached geographic areas in which we have operations, suppliers, customers and employees. We expect the continued spread of
COVID-19 to continue to have a significant impact on our business, and may affect the demand for our products and disrupt our
supply chain and the manufacturing and distribution of our products. It is unknown how long these disruptions could continue and
such events may affect our business, results of operations and financial condition.
The continuing spread of COVID-19 has caused volatility, severe market dislocations and liquidity constraints in many markets.
Several countries, including the United States, have taken steps to restrict travel, temporarily close businesses and issue quarantine
orders, and it remains unclear how long such measures will remain in place or whether efforts to contain the spread of COVID-19 will
continue to intensify. The foregoing could lead to a significant economic downturn or recession, increased market volatility, a greater
number of market closures, higher default rates and adverse effects on the values and liquidity of securities or other assets. Such
impacts may adversely affect the Company and your investment in the Company.
The ultimate effect that COVID-19 may have on our operating and financial results is not presently known to us or may present
unanticipated risks that cannot be determined at this time.
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:
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the impact that the COVID-19 pandemic may have on global capital markets;
customers 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, while a limited number of projects are currently performed
on a time and materials 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 the costs to complete the project are
below the actual costs that we incur, our margins will decrease, or we may incur a loss. The revenue, cost and gross profit realized on
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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, including those related to the COVID-19 pandemic.
While our fixed-price contracts are typically not individually material to our operating results, 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. Generally, our contracts and projects vary in length, depending on the size and complexity of the project, project owner
demands and other factors. The foregoing risks are exacerbated for projects with longer-term durations 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, including those related to the COVID-19 pandemic, can have compounding effects
by increasing costs of performing other parts of the contract.
Accounting for contract revenue may result in material adjustments that would adversely affect our financial condition and results of
operations.
We derive a significant portion of our revenues from fixed price contracts. We recognize revenue as performance obligations are
satisfied and the customer obtains control of the products and services. A significant amount of our revenue within the Energy
Solutions and Industrial Solutions segments is recognized over a period of time as we perform under the contract because control of
the work in process transfers continuously to the customer. For performance obligations to deliver products with continuous transfer
of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation.
Progress is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation.
For these contracts, the cost-to-cost measure best depicts the continuous transfer of goods or services to the customer.
Contract revenue and total direct cost estimates are reviewed and revised periodically as the work progresses and as change orders are
approved, and adjustments 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, including for reasons related
to the COVID-19 pandemic, 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 $183.0 million at December 31, 2020 and $216.6 million at December 31, 2019. 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 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 expenditures. The COVID-19
pandemic has significantly disrupted demand for and expectations about future prices and price volatility, which are important for
determining our customers 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.
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
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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, including for reasons related to the COVID-19 pandemic. 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 relationship 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 its 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 in primarily mature markets
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. We must also be
responsive to any technological developments and related changing customer requirements. 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 results of
operations.
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 results of
operations could be adversely affected.
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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.
Risks Related to our Business Model and Capital Structure
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. For example, as a result of the outbreak of COVID-19 and government mandated shutdowns, we have
noticed our suppliers are experiencing delays in the production or an inability to perform work. 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, and the global nature of the COVID-19 pandemic could
result in there being fewer alternative suppliers. 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, for any reason, including, without limitation,
disruptions in our suppliers’ due to cybersecurity incidents, terrorist activity, public health crises (such as COVID-19), fires or other
natural disasters 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.
Moreover, the outbreak and preventative or protective actions that governments, corporations, individuals or we may take to contain
COVID-19 have resulted in, and may continue to result in, a period of reduced operations and business disruption for our
subcontractors. The outbreak of COVID-19 and related actions also have prevented, and may continue to prevent, our subcontractors
from meeting their obligations to us, which could also contribute to performance delays on our customer obligations and increase our
costs. Any costs associated with the COVID-19 pandemic may not be fully recoverable or adequately covered by insurance.
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.
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The COVID-19 pandemic has adversely affected the progress of construction projects across the globe and will likely continue to
cause delays and disruptions. If projects are delayed or cancelled it could have a material adverse effect upon our business and
financial condition.
A significant portion of our accounts receivable are related to larger contracts, which increases our exposure to credit risk.
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 or
milestone payments and letters of credit as well as closely monitoring the credit worthiness of our customers. However, the continuing
economic climate and other unanticipated events that affect our customers could have a materially adverse impact on our operating
results. Further, we believe that the outbreak and worsening of the COVID-19 pandemic will continue to adversely impact our sales.
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 35% of our 2020 revenues are outside the United States, we are subject to the impact of fluctuations in
foreign currency exchange rates. Although our financial results are reported in U.S. dollars, a portion of our sales and operating costs
are realized in foreign currencies. Our sales and profitability are impacted by the movement of the U.S. dollar against foreign
currencies in the countries in which we generate sales and conduct operations. Long-term fluctuations in relative currency values
could have an adverse effect on our operations and financial conditions.
If our goodwill or indefinite lived intangibles become impaired, we may be required to recognize charges that would adversely impact
our results of operations.
As of December 31, 2020, goodwill and indefinite lived intangibles were $174.8 million, or 41.7%, 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 estimates for future revenue and expenses associated with the
specific intangible asset or the reporting unit in which the 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 could adversely materially impact our results of
operations.
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 stockholders and respond
to changes in our markets. From time to time, we may 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.
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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, along with numerous other third parties, has been named as a defendant 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. The Company’s insurers have hired attorneys who, together with the Company, are
vigorously defending these cases. 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.
See Note 13 to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K for information
regarding the asbestos-related litigation in which we are involved.
We have $74.0 million of indebtedness as of December 31, 2020, 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.
Our outstanding indebtedness could have important consequences for investors, including the following:
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it may be more difficult for us to satisfy our obligations with respect to the agreement governing our Credit Facility (as
defined herein), 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 Facility, 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 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
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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.
Moreover, we currently expect that the COVID-19 pandemic will continue to negatively impact our cash flow and liquidity. 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, particularly in light of COVID-19’s impact on capital markets.
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.
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Risks related to our pension plan 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 plan contributions in future periods. GAAP requires that we calculate the income or expense of our plan 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 pension
plan 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 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 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 Facility 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.
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.
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Risks Related to Human Capital Management
We may not be able to attract and retain qualified employees.
Our future success depends upon the continued service of our executive officers and other key management and technical personnel,
and on our ability to continue to identify, attract, retain and motivate them. Implementing our business strategy requires specialized
engineering and other talent, as our revenues are highly dependent on technological and product innovations. The market for
employees in our industry is extremely competitive, and competitors for talent, particularly engineering talent, increasingly attempt to
hire, and to varying degrees have been successful in hiring, our employees, including by establishing local offices near our
headquarters. If we are unable to attract and retain qualified employees, our business may be harmed.
Work stoppages or similar difficulties could significantly disrupt our operations.
As of December 31, 2020, approximately 150 of our approximately 730 employees are represented by international or independent
labor unions under various union contracts that expire from June 30, 2021 to May 31, 2023. 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.
Information Technology and Cyber Security Risks
Our dependence on information systems and the failure of such systems, could significantly disrupt our business and negatively affect
our financial condition, results of operations and cash flows.
We are highly dependent on information systems that are increasingly operated by third-parties and as a result we have a limited
ability to ensure their continued operation. We rely on information technology systems, networks and infrastructure in managing our
day-to-day operations. In the event of systems failure or interruption, including those related to the COVID-19 pandemic, we will have
limited ability to affect the timing and success of systems restoration. Any failure or interruption of our systems could cause delays or
other problems in the delivery of our services, which could have a material adverse effect on our operating results.
Increased information technology cyber security threats and more sophisticated and targeted computer crime could pose a risk to our
systems, networks, and products.
Increased global information technology cyber 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. We have cybersecurity insurance related to a breach event covering expenses for
notification, credit monitoring, investigation, crisis management, public relations and legal advice. However, damage and claims
arising from such incidents may not be covered or exceed the amount of any insurance available, or may result in increased
cybersecurity and other insurance premiums. In response to the COVID-19 pandemic and an increased reliance on our information
technology systems, we have taken proactive measures to strengthen our information technology systems, including completing a
National Institute of Standards and Technology (“NIST”) assessment, upgrading of security patches across all servers, development of
best-in-class hack protection service, implemented recurring company wide security training and enablement of advanced security for
our major information systems.
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.
18
Regulatory Compliance and International Operations Risks
Our business can be significantly affected by changes in regulatory standards.
The markets that the Company serves are characterized by 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. Conversely, these changes may present new business opportunities for us. 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 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 and enforcement 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, 2020, approximately 35% 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: (i) local, economic, political and social conditions, including potential hyperinflationary conditions and
political instability in certain countries; (ii) tax-related risks, including the imposition of taxes and the lack of beneficial treaties, that
result in higher effective tax rate for us; (iii) imposition of limitations on the remittance of dividends and payments by foreign
subsidiaries; (iv) difficulties in enforcing agreements and collecting receivables through certain foreign local systems; (v) domestic
and foreign customs, tariffs and quotas or other trade barriers; (vi) risk of nationalization of private enterprises by foreign
governments; (vii) managing and obtaining support and distribution channels for overseas operations; (viii) hiring and retaining
qualified management personnel for our overseas operations; (ix) the results of the United Kingdom’s referendum on European Union
membership, advising for the exit from the European Union; and (x) the effects of COVID-19 and the extent to which the outbreak
may disrupt global capital markets, supply chains, and/or our foreign operations.
We are also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Changes in laws
or policies governing the terms of foreign trade, in particular increased trade restrictions, tariffs or taxes on import from countries
where we procure or manufacture products, such as China, could have a material adverse effect on our business and results of
operations. For instance, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to
certain imported goods. Given the uncertainty regarding the duration of the imposed tariffs, as well as the potential for additional
tariffs by the U.S., China or other countries, as well as other changes in tax policy, trade regulations or trade agreements, and the
Company’s ability to implement strategies to mitigate the impact of changes in tax policy, tariffs or other trade regulations, our
exposure to the risks described above could have a material adverse effect on our business and results of operations.
In addition, compliance with foreign and domestic legal and regulatory requirements, including import, export, defense regulations
and foreign exchange controls and anti-corruption laws, such as the Foreign Corrupt Practices Act, the United Kingdom’s Bribery Act,
the European Union’s General Data Protection Regulations and similar laws of other jurisdictions, could adversely impact our ability
to compete against companies in such jurisdictions. Moreover, the violation of such laws or regulations, by us or our representatives,
could result in severe penalties including monetary fines, criminal proceedings and suspension of export privileges. 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
19
for such 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.
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 or future U.S. presidential administrations materially modifies U.S. laws and regulations and international trade agreements,
our business, financial condition, and results of operations could be adversely affected.
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 2020, the sales price of our common stock on the NASDAQ ranged from $3.53 to $9.00 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 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 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;
health epidemics and other outbreaks, including the COVID-19 pandemic;
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 stockholders 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
20
applicable legal, regulatory constraints, industry practice and other business considerations that our Board of Directors considers
relevant. 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. There can be no assurance that we will pay a dividend in the future. Payment of dividends
is also subject to the continuing compliance with our financial covenants under our Credit Facility.
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 stockholders’ meetings, together with the possible
issuance of our preferred stock without stockholder 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 stockholder might consider to be in such stockholder’s best interest.
General Risk Factors
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 stockholder
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, do 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.
21
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.
Item 1B.
Unresolved Staff Comments
Not Applicable.
Item 2.
Properties
The Company has 25 principal operating facilities across 11 states and seven foreign countries. The Company’s executive offices are
located in Dallas, Texas. We maintain our facilities in good operating condition, and we believe they are suitable and adequate for the
purposes for which they are intended to conduct business. Our current capacity, with limited capital additions, is expected to be
sufficient to meet production requirements for the near future. 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 Facility.
Information on the number and location of principal operating facilities by segment was as follows as of December 31, 2020.
Location of Facilities
Segment
Energy Solutions segment
Owned
—
Leased
12
States
California, Connecticut, New York,
Ohio, Texas
Countries
United States, The Netherlands,
Canada, India United Arab
Emirates, Singapore, United
Kingdom, People's Republic of
China
Industrial Solutions segment
Fluid Handling Solutions segment
Corporate
—
1
—
1
8
2
2
24
California, Illinois, Michigan,
North Carolina, Pennsylvania,
Tennessee
Indiana, Pennsylvania
Ohio, Texas
United States, United Kingdom,
People's Republic of China
United States, The Netherlands
United States
Item 3.
Legal Proceedings
See Note 12 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.
22
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
Market Information
Our common stock is traded on the NASDAQ under the symbol “CECE.”
Performance Graph
The following graph sets forth the cumulative total return to CECO’s stockholders during the five years ended December 31, 2020, 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, 2015, 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 stockholders. On November 6,
2017, the Board of Directors reviewed the Company’s dividend policy and determined that it would be in the best interest of the
stockholders to 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 Facility.
Holders
The approximate number of registered stockholders of record of our common stock as of February 25, 2021 was 295, although there
are a larger number of beneficial owners.
23
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not repurchase any shares of our common stock during 2020.
Recent Sales of Unregistered Securities
Not applicable.
Item 6. Selected Financial Data
Reserved.
24
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 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. We focus on engineering, designing, building, and installing systems that capture, clean and
destroy airborne contaminants from industrial facilities as well as equipment that controls emissions from such facilities, as well as
fluid handling and filtration systems. 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 diverse industries globally by working to improve air quality, optimize the energy value chain, and provide customized
engineered solutions in our customers’ mission critical applications. The industries CECO serves include power generation,
petrochemical processing, general industrial, refining, oil & gas, electric vehicle production, poly silicon fabrication, battery recycling,
and wastewater treatment, along with a wide range of other industries.
COVID-19
On January 30, 2020, the WHO announced a global health emergency because of a new strain of coronavirus (“COVID-19”)
originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. On
March 11, 2020, the WHO characterized COVID-19 as a pandemic. As of March 3, 2021, the virus continues to spread and has had a
significant impact on worldwide economic activity and on macroeconomic conditions and the end markets of our business. Vaccine
administration is underway, however new variants of COVID-19 continue to emerge. There is uncertainty regarding the efficacy of
vaccines and current tests and treatments with regard to the new variants. Several countries, including the United States, have taken
steps to restrict travel, temporarily close businesses and issue quarantine orders, and it remains unclear how long such measures will
remain in place or whether efforts to contain the spread of COVID-19 will continue to intensify.
Within the United States, certain portions of our business have been designated an essential business, and we continue to operate our
business in compliance with applicable state and local laws. This allows us to continue to serve our customers, however, the COVID-
19 pandemic has also disrupted our global operations. Some of our facilities and our suppliers have experienced temporary disruptions
as a result of the COVID-19 pandemic, and we cannot predict whether our facilities will experience more significant disruptions in the
future or the impact on our suppliers.
CECO has undertaken necessary measures in compliance with government directives to remain open across its business and continues
to work closely with its global supply chain to proactively support customers during this critical time. As a key supplier to critical
infrastructure projects, CECO has worked to maintain ongoing essential operations while observing recommended CDC guidelines to
minimize the risk of spreading the COVID-19 virus including implementing, where possible, work-from-home procedures and
additional sanitization efforts where facilities remain open to provide necessary services. Additionally, in 2020, CECO took several
proactive cost reduction measures in response to the economic pressures brought on by the COVID-19 pandemic, including:
headcount reductions, lower discretionary spend, senior management team’s temporary salary reduction, elimination or reduction of
certain corporate-level costs, travel restrictions across all segments, and the Company implemented a number of furloughs which
included, a rolling 2-week furlough of United States-based employees during the 6-week period beginning the week of April 6, 2020.
25
The senior management team meets regularly to review and assess the status of the Company's operations and the health and safety of
its employees. The senior management team continues to monitor and manage the Company’s ability to operate effectively and, to
date, the Company has not experienced any significant disruptions within its supply chain as a result of the COVID-19 pandemic.
Notwithstanding the Company's continued efforts, COVID-19 has had and may have further negative impacts on its operations,
customers and supply chain despite the preventative and precautionary measures being taken. COVID-19 began to impact the
Company during the first quarter of 2020 and the impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore,
we cannot currently predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be
impacted.
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 Solutions segment for our pressure products and SCR systems for natural-gas-fired power plants. Increased
global natural gas production as a percent of total energy consumption, miles of new pipeline being added globally, and an increase in
liquification capacity all stand to drive the need for our products.
We also believe there is a trend in both developed and emerging markets to control and reduce emissions of harsher fuel sources for
which our air pollution control equipment is required. In emerging markets including China, India, and South East Asia our business
is positioned to benefit from tightening of air pollution standards. In developed markets, growth of industrialization will drive greater
output of emissions requiring our equipment as well. In both markets, we expect capital expenditures for our equipment to increase
and the need for our aftermarket services to grow as companies seek to meet new standards.
We continue to focus on increasing revenues and profitability globally while continuing to strengthen and expand our presence
domestically. Our operating strategy has historically involved horizontally expanding our scope of technology, products, and services
through selective acquisitions and the formation of new business units that are then vertically integrated into our growing group of
turnkey system providers. Our continuing focus will be on global growth, market coverage, and expansion of our Asia operations.
Operational excellence, margin expansion, after-market recurring revenue growth, and safety leadership are also critical to our growth
strategy.
Operations Overview
We operate using an “outside-in” customer approach to our business model. We are structured to win in target markets with a core
focus on understanding customer needs. Our business model requires scalable efficiencies enabling us to serve our customers with a
variety of products that we typically classify into three categories: make-to-order, configure-to-order, and engineer-to-order. We use
an asset light model to accomplish this by focusing on application and technical expertise throughout our operations.
The Company’s segments are led by presidents with distinct industry expertise coupled with strong leadership skills resulting in a
customer-first mindset across the business. They manage their teams who are responsible for successfully running the segment
operations. The segment presidents work closely with our Chief Executive Officer on global growth strategies, operational
excellence, and employee development.
Within our segments we have monthly operating reviews to ensure we are both winning in the markets and winning as a business.
These reviews include, but are not limited to, deal reviews, project reviews, and manufacturing reviews. Each of these reviews takes a
customer-first approach where we adopt the metrics that matter most to our customer and to our stockholders. In these reviews we
focus on metrics such as quality, customer satisfaction, on-time-delivery, lead-times, price, position, project margins, backlog, and
above all, safety.
26
The headquarters focuses on enabling the core back-office key functions for scale and efficiency, that is, accounting, payroll, human
resources/benefits, legal, information technology, marketing, 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:
•
•
•
Energy Solutions segment: Our Energy Solutions segment serves the Energy market, where we are a key part of helping
meet the global demand for clean energy and lower emissions through our highly engineered and tailored emissions
management, silencers and separation solutions and services. Our offerings improve air quality and solves fluid handling
needs with market leading technologies, efficiently designed, and customized solutions for the power generation, oil & gas,
and petrochemical industries.
Industrial Solutions segment: Our Industrial Solutions segment serves the Air Pollution Control market where 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. Our offerings in clean air pollution control, collection and ventilation technologies improve air
quality with a compelling solution that enable our customers in the semiconductor manufacturing, electric vehicle production,
battery recycling, and wood manufacturing industries to reduce their carbon footprint, lower energy consumption, minimize
waste and meet compliance targets for toxic emissions, fumes, volatile organic compounds, and industrial odors.
Fluid Handling Solutions segment: Our Fluid Handling Solutions segment offers unique pump and filtration solutions that
maintain safe and clean operations in some of the most harsh and toxic environments. In this market, we provide solutions for
mission-critical applications to a wide variety of industries including, but not limited to, plating and metal finishing,
automotive, food and beverage, chemical, petrochemical, pharmaceutical, wastewater treatment, desalination and the
aquarium & aquaculture markets.
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 stronger
operating results.
Our cost of sales is principally driven by a number of factors, including material and subcontract 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 and engineering 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. With our asset light model, we expect our operations to leverage our fixed cost structure as revenue grows.
27
Note Regarding Use of Non-GAAP Financial Measures
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“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 including non-GAAP operating income, non-GAAP operating margin,
and non-GAAP net income as a result of the adjustment for items that the Company believes are not indicative of its ongoing
operations. These items include charges associated with the Company’s acquisitions, divestitures 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. The Company has incurred substantial expense
and income associated with acquisitions and divestitures. 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, 2020, 2019 and 2018 are as follows:
(dollars in millions)
Net sales
Cost of goods sold
Gross profit
Percent of sales
Selling and administrative expenses
Percent of sales
Amortization and earnout expenses
Restructuring expenses
Acquisition and integration expenses
Executive transition expenses
Loss on divestitures, net of selling costs
Intangible asset impairment
Operating income
Percent of sales
$
$
$
$
2020
Year ended December 31,
2019
2018
$
316.0
210.9
105.1
$
33.3%
76.9
$
24.3%
8.8
2.3
1.4
1.5
—
0.9
13.3
$
4.2%
$
341.9
227.8
114.1
$
33.4%
85.9
$
25.1%
8.5
1.1
0.5
—
0.1
—
18.0
$
5.3%
337.3
225.8
111.5
33.1%
87.4
25.9%
9.7
—
—
—
4.4
—
10.0
3.0%
28
Non-GAAP Measures
To compare operating performance between the years ended December 31, 2020, 2019 and 2018, the Company has adjusted GAAP
operating income to exclude (1) amortization of intangible assets, earnout and retention expenses, (2) restructuring expenses primarily
relating to severance, facility exits, and associated legal expenses, (3) acquisition and integration expenses, which include legal,
accounting, and other expenses, (4) executive transition expenses, including severance for its former Chief Executive Officer, fees and
expenses incurred in the search, for and hiring, of a new Chief Executive Officer, (5) loss on divestitures, net of selling costs necessary
to complete the divestiture such as legal, accounting and compliance and (6) intangible asset impairment. See “Note Regarding Use of
Non-GAAP Financial Measures” above. The following tables present the reconciliation of GAAP operating income and GAAP
operating margin to non-GAAP operating income and non-GAAP operating margin, and GAAP net income (loss) to non-GAAP net
income.
(dollars in millions)
Operating income as reported in accordance with GAAP
Operating margin in accordance with GAAP
Amortization and earnout expenses
Restructuring expenses
Acquisition and integration expenses
Executive transition expenses
Loss on divestitures, net of selling costs
Intangible asset impairment
Non-GAAP operating income
Non-GAAP operating margin
(dollars in millions)
Net income (loss) as reported in accordance with GAAP
Amortization and earnout expenses
Restructuring expenses
Acquisition and integration expenses
Executive transition expenses
Loss on divestitures, net of selling costs
Intangible asset impairment
Deferred financing fee adjustment
Foreign currency remeasurement
Tax (benefit) expense of adjustments
Zhongli tax benefit
Non-GAAP net income
Non-GAAP net income as a percentage of sales
$
$
$
$
2020
Year Ended December 31,
2019
2018
13.3
$
4.2%
8.8
2.3
1.4
1.5
—
0.9
28.2
$
8.9%
18.0
$
5.3%
8.5
1.1
0.5
—
0.1
—
28.2
$
8.2%
2020
Year Ended December 31,
2019
2018
$
8.2
8.8
2.3
1.4
1.5
—
0.9
—
0.3
(3.9)
—
19.5
$
6.2%
$
17.7
8.5
1.1
0.5
—
0.1
—
0.4
(0.5)
(2.5)
(4.4)
20.9
$
6.1%
10.0
3.0%
9.7
—
—
—
4.4
—
24.1
7.1%
(7.1)
9.7
—
—
—
4.4
—
—
0.8
2.4
—
10.2
3.0%
29
In June 2020 the Company acquired Environmental Integrated Solutions (“EIS”), EIS engineers products that clean air through a
variety of technologies including volatile organic compounds (“VOC”) abatement, odor control, regenerative thermal oxidizers, and
other air pollution control solutions, which complements our Industrial Solutions Segment businesses. In July 2020, the Company
entered into joint venture agreement (the “JV agreement”) with Mader Holding L.P. (“Mader”) in which CECO contributed the net
assets of its Effox-Flextor damper business and Mader contributed the net assets of their damper business. During 2020, EIS and the
joint venture accounted for $15.8 million in revenue. In 2018, we divested three non-core businesses; the Keystone Filter brand
(“Keystone”) and Strobic Air Corporation (“Strobic”) in the first quarter and Zhongli in the fourth quarter (collectively, “the
Divestitures”). The exclusion of the operating results subsequent to their disposition impacts the comparability of our consolidated and
segment operating results.
Comparison of the years ended December 31, 2020 and 2019
Consolidated net sales in 2020 were $316.0 million compared with $341.9 million in 2019, a decrease of $25.9 million. The decrease
is primarily attributable to decreases of $24.5 million in our Industrial Solutions air pollution control technologies, $18.2 million in
custom-designed FCC cyclone systems serving the refinery markets, and $4.4 million in volume decreases in the Company’s filtration
and pump solutions sales. These decreases in net sales are offset by increases of $10.1 million in the Company’s custom acoustical
technologies that serve the natural gas power generation markets, $8.1 million in volatile organic compounds (“VOC”) abatement
solutions from the EIS acquisition and $3.3 million in volume increases in our emissions management and water filtration solutions
technologies.
Gross profit decreased by $9.0 million, or 7.9%, to $105.1 million in 2020 compared with $114.1 million in 2019. The decrease in
gross profit is primarily due to the decrease in sales as noted above, partially offset by favorable changes to product mix from previous
period and cost reduction actions including employee furlough. Gross profit as a percentage of sales was 33.3% and 33.4% in 2020
and 2019, respectively.
Orders booked were $279.6 million in 2020 compared with $383.7 million in 2019. The decrease is primarily attributable to decreases
in refinery, oil & gas, and pollution controls end markets due to the COVID-19 pandemic impacting our customers starting in March
2020.
Selling and administrative expenses were $76.9 million in 2020 compared with $85.9 million in 2019. The decrease in administration
expenses is primarily attributable to proactive cost reduction measures noted above taken in response to the COVID-19 pandemic
including: headcount reductions, lower discretionary spend, the senior management team’s temporary salary reduction, elimination of
certain corporate-level costs, a 2-week furlough of United States-based employees, and travel restrictions across all segments. Selling
and administrative expenses as a percentage of sales were 24.3% in 2020 compared with 25.1% in 2019. The decrease in selling and
administrative expenses as a percentage of sales is primarily attributable to the items described above.
Amortization and earnout expense was $8.8 million in 2020 and $8.5 million in 2019. The increase in expense is primarily attributable
to $1.4 million in earnout expenses related to the EIS acquisition. The fair value adjustments to the earnout that were recorded in 2020
were the result of EIS performing above the acquisition operational expectations. The increase was partially offset by $1.1 million
decrease in definite lived intangible asset amortization.
Acquisitions and integration expenses related to the acquisition of EIS and the Mader joint venture were $1.4 million in 2020, which
include legal, accounting and banking expenses, compared to $0.5 million in 2019 related to various merger and acquisition diligence
activities.
In 2020, the Company incurred $1.5 million in executive transition expense related to severance for the Company’s former Chief
Executive Officer, as well as fees and expenses incurred in the search for, and hiring of, a new Chief Executive Officer.
In 2020, after conducting the annual impairment testing for goodwill and indefinite lived intangible assets, the Company recorded an
impairment charge of $0.9 million. The charge of $0.9 million was recorded to impair the carrying value of a tradename intangible
asset in the Company’s Fluid Handling Solutions Segment. The impairment was recorded due to declining revenue related to the
tradename exacerbated by the COVID-19 pandemic.
Operating income for 2020 was $13.3 million, a decrease of $4.7 million from $18.0 million in 2019. Operating income as a
percentage of sales for 2020 was 4.2% compared with 5.3% for 2019. The decrease in operating income is primarily attributable to
$1.5 million in executive transition expenses which did not occur in 2019, $1.2 million increase in restructuring expenses, $0.9 million
increase in acquisition and integration expenses in connection to the EIS acquisition and the Mader joint venture, intangible asset
impairment of $0.9 million, $0.3 million increase in amortization and earnout expenses, and a decrease in net sales as noted above,
30
partially offset by the decrease in selling and administration expenses due to the cost reduction measures taken in response to the
COVID-19 pandemic.
Non-GAAP operating income was $28.2 million in 2020 and 2019. Non-GAAP operating income as a percentage of sales for 2020
was 8.9% compared with 8.2% for 2019. Non-GAAP operating income was equal year over year due to cost reductions described
above offset by the decline in sales.
Other income for 2020 was $2.0 million, an increase of $1.2 million from $0.8 million in 2019. The increase in other income was
primarily attributable to a net periodic gain on pension assets of $0.3 million in 2020 compared to a net periodic expense of $0.3
million on pension assets in 2019 and $0.4 million increase year over year in foreign currency transaction gains.
Interest expense decreased to $3.5 million in 2020 from $5.4 million in 2019. The decrease is due to lower interest rates and lower
average debt balances in 2020 compared to 2019. During the year 2020, the Company had net borrowings of $9.5 million on its
revolving credit facility, which consisted of $10.3 million used to fund the EIS acquisition on June 4, 2020 and $2.6 million used to
pay term debt assumed in connection with the Mader joint venture, and $3.4 million in net repayments on the revolving credit facility.
Income tax expense (benefit) was $3.7 million and $(4.4) million in 2020 and 2019, respectively. The effective tax rate for 2020 was
30.1% compared with (32.7)% in 2019.
Income tax expense and the effective tax rate for 2020 were affected by certain permanent differences, including state income taxes,
non-deductible incentive stock-based compensation, the Global Intangible Low-Taxed Income (“GILTI”) inclusion and Foreign-
Derived Intangible Income (“FDII”) deduction, tax credits, and differences in tax rates among the jurisdictions in which we operate.
Income tax benefit and the effective tax rate for 2019 were significantly impacted by a $4.4 million tax benefit on finalization of a tax
position related to the 2018 divestiture of Zhongli. In addition, the Company recorded $3.5 million tax benefit related to U.S. and
foreign tax incentives.
Comparison of the years ended December 31, 2019 and 2018
See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2019 for
a discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018.
Business Segments
The Company’s operations in are organized and reviewed by management along its product lines or end markets that the segment
serves and are presented in three reportable segments. The results of the segments are reviewed through the “Income 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 from Operations table and corresponding comments regarding operating income (loss) at the reportable segment level include
both intra-segment and inter-segment operating income. The exclusion of the Divestitures’ operating results subsequent to their
disposition impacts the comparability of our segment operating results.
Net Sales (less intra-, inter-segment sales)
(table only in thousands)
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Net sales
2020
2019
2018
$
$
205,494 $
74,697
35,820
316,011 $
210,319 $
91,347
40,203
341,869 $
211,185
80,699
45,455
337,339
31
Income from Operations
(table only in thousands)
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Corporate and Other (1)
Income from operations
2020
2019
2018
$
$
34,170 $
2,183
5,037
(28,044)
13,346 $
33,886 $
5,679
5,558
(27,133)
17,990 $
28,797
6,308
7,730
(32,833)
10,002
(1)
Includes corporate compensation, professional services, information technology, other general and administrative corporate
expenses and loss on divestitures, net of selling costs. This figure excludes earnout expenses / income, which are recorded
in the segment in which the expense / income occurs.
Comparison of the years ended December 31, 2020 and 2019
Energy Solutions segment
Our Energy Solutions segment net sales decreased $4.8 million to $205.5 million in 2020 compared with $210.3 million in 2019, a
decrease of 2.3%. The decrease is primarily attributable to decreases of $18.2 million in custom-designed FCC cyclone systems
serving the refinery markets offset by increases of $10.1 million in the Company’s custom acoustical technologies that serve the
natural gas power generation markets and $3.3 million in volume increases in our emissions management and water filtration solutions
technologies.
Operating income increased $0.3 million to $34.2 million for 2020 compared with $33.9 million in 2019, an increase of 0.8%. The
increase in operating income in 2020 is primarily attributable to the decrease of $2.6 million in selling and administrative expenses
related to the cost reductions as described above and the decrease in amortization expenses of $1.1 million partially offset by a
decrease in gross profit of $3.1 million due to lower net sales and unfavorable product mix and an increase of $0.3 in restructuring
expense.
Industrial Solutions segment
Our Industrial Solutions segment net sales decreased $16.6 million to $74.7 million in 2020 compared with $91.3 million in 2019, a
decrease of 18.2%. The decrease is primarily attributable to decreases of $24.5 million in our air pollution control technologies
partially offset by $8.1 million increase in VOC abatement solutions from the EIS acquisition.
Operating income decreased $3.5 million to $2.2 million for 2020 compared with $5.7 million in 2019. The decrease is primarily
attributable to a $4.6 million decrease in gross profit due to lower net sales, an increase of $0.5 million in restructuring expenses, and
items related to the EIS acquisition including an increase of $1.4 million in earnout expense and $0.4 million in amortization expense.
These decreases were partially offset by $3.2 million decrease in selling and administration related to cost reductions described above.
Fluid Handling Solutions segment
Our Fluid Handling Solutions segment net sales decreased $4.4 million to $35.8 million in 2020 compared with $40.2 million in 2019,
a decrease of 10.9%. The decrease is primarily attributable to volume decreases in the Company’s filtration and pump solutions
product line driven by lower demand from oil & gas and automotive end market customers.
Operating income decreased $0.6 million to $5.0 million for 2020 compared with $5.6 million for 2019, a decrease of 10.7%. The
decrease is primarily attributable to $1.6 million decrease in gross profit due to lower net sales and a $0.9 million intangible asset
impairment expense partially offset by $1.8 million decrease in selling and administration related to cost reductions described above.
Corporate and Other segment
Operating expense for the Corporate and Other segment increased $0.9 million to $28.0 million for 2020 compared with $27.1 million
for 2019. The increase is primarily attributable to a $1.5 million increase in executive transition expenses, $0.9 million increase in
acquisition and integration expenses, partially offset by $1.5 million decrease in selling and administration expenses related to cost
reductions described above.
32
Comparison of the years ended December 31, 2019 and 2018
See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2019 for
a discussion of our results of operations for our business segments and cash flows for the year ended December 31, 2019 compared to
the year ended December 31, 2018.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flow from operations and available borrowings under our Credit Facility (as defined below).
Our principal uses of cash are operating costs, payment of principal and interest on our outstanding debt, working capital and other
corporate requirements. Depending on market conditions, our liquidity requirements, contractual restrictions and other factors, we
may also repurchase some of our outstanding shares of common stock.
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, 2020, the Company had working capital of $74.1 million, compared with $64.3 million at December 31, 2019. The
ratio of current assets to current liabilities was 1.68 to 1.00 at December 31, 2020 as compared with a ratio of 1.56 to 1.00 at
December 31, 2019.
At December 31, 2020 and 2019, cash and cash equivalents totaled $36.0 million and $35.6 million, respectively. As of December 31,
2020 and 2019, $28.0 million and $27.4 million, respectively, of our cash and cash equivalents were held by non-U.S. subsidiaries, as
well as being denominated in foreign currencies.
Debt consisted of the following:
(table only in thousands)
Outstanding borrowings under Credit Facility
Term loan payable in quarterly principal installments of $0.6 million
through June 2021, $0.9 million through June 2023, and $1.3 million
thereafter with balance due upon maturity in June 2024.
– Term loan
– Revolving Credit Loan
– Unamortized debt discount
Total outstanding borrowings under Credit Facility
Less: current portion
Total debt, less current portion
December 31,
2020
2019
$
$
46,250 $
27,700
(1,334)
72,616
(3,125)
69,491 $
48,750
18,500
(1,749)
65,501
(2,500)
63,001
In 2020, the Company made repayments of $2.5 million on the term loan and net borrowings on the revolving credit lines of $9.5
million, consisting of $10.3 million used to fund the EIS acquisition on June 4, 2020 and $2.6 million used to pay term debt assumed
in connection with the Mader joint venture, offset by $3.4 million in net repayments on the revolving credit facility.
Under the terms of the Credit Facility, the Company is required to maintain certain financial covenants, including the maintenance of a
Consolidated Net Leverage Ratio (as defined in the Credit Facility). Through September 30, 2021, the maximum Consolidated Net
Leverage Ratio is 3.50, after which time it will decrease to 3.25 until the end of the term of the Credit Facility.
As of December 31, 2020 and 2019, the Company was in compliance with all related financial and other restrictive covenants under
the Credit Facility.
Foreign Debt
In addition, the Company has a number of bank guarantee facilities and bilateral lines of credit in various foreign countries currently
supported by cash, letters of credit or pledged assets and collateral under the Credit Facility. The Credit Facility allows letters of
credit and bank guarantee issuances of up to $50.0 million from the bilateral lines of credit secured by pledged assets and collateral
under the Credit Facility.
33
See Note 8 to the Consolidated Financial Statements for further information on the Company’s foreign debt.
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, revolving loans
Draw down
Letters of credit open
Total unused credit availability
Amount available based on borrowing limitations
Overview of Cash Flows and Liquidity
December 31,
2020
2019
$
$
$
140.0 $
(27.7)
(7.6)
104.7 $
60.8 $
140.0
(18.5)
(11.0)
110.5
82.3
(dollars in thousands)
Total operating cash flow provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents and restricted cash
$
$
2020
For the year ended December 31,
2019
2018
4,421 $
(9,235)
3,724
1,943
853 $
10,227 $
(5,146)
(12,116)
(445)
(7,480) $
21,952
38,258
(44,900)
(1,531)
13,779
Operating Activities
In 2020, $4.4 million of cash was provided by operating activities compared with $10.2 million in 2019, a decrease of $5.8 million.
Net earnings, adjusted for non-cash items decreased $5.7 million year-over-year. Additionally, working capital change year over year
increased by $0.1 million which negatively affected cash flow from operations.
In 2019, $10.2 million of cash was provided by operating activities compared with $22.0 million provided in 2018, a decrease of $11.8
million. Net earnings, adjusted for non-cash items increased $16.0 million year-over-year. Working capital change year over year
from operating activities in 2019 had a negative year-over-year net impact primarily from increases in accounts receivable and costs in
excess of billings and decreases in other liabilities as reflected in the Consolidated Statement of Cash Flows.
Investing Activities
In 2020, $9.2 million of cash was used in investing activities, which consisted of $5.9 million for acquisitions, $3.9 million of
acquisition of property and equipment, offset by $0.6 million of proceeds from the disposal of assets held for sale.
In 2019, $5.1 million of cash was used in investing activities, which consisted of $5.7 million of acquisition of property and
equipment offset by $0.5 million of proceeds from disposals of assets held for sale.
Financing Activities
Financing activities in 2020 provided cash of $3.7 million, which consisted primarily of $9.2 million in net borrowings from our
revolving credit lines of which $10.3 million was used to fund the EIS acquisition on June 4, 2020. This was offset by $2.5 million of
payments on our term loan, $2.6 million used to pay term debt assumed in connection with the Mader joint venture on July 31, 2020,
and $0.5 million in payments on capital leases.
Financing activities in 2019 used cash of $12.1 million, which consisted primarily of $3.0 million of payments on our term loan, $7.6
million net payments on our revolving credit lines, and $1.1 million payment of financing fees related to the refinancing of our Credit
Facility.
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
34
prevailing economic conditions and to financial, business, regulatory, legislative and other factors, many of which are beyond our
control.
Employee Benefit Obligation
Based on current assumptions, estimated contributions to our pension plan required in 2021 is zero. 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
future years.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of December 31, 2020:
(dollars in thousands)
Term Loan Debt
Revolving Credit Loan
Interest expense (estimated)
Purchase obligations (1)
Pension obligations (2)
Operating lease obligations
Capital lease obligations
Contingent liabilities related to acquisitions (3)
Totals
Total
46,250 $
27,700
7,087
65,005
995
13,831
9,077
2,202
172,147 $
$
$
Payments Due by Period
Less than 1
year
1-3 years
3-5 years
More than
5 years
3,125 $
—
2,129
65,005
—
2,872
872
2,202
76,205 $
8,200 $
—
4,017
—
400
4,257
1,796
—
18,670 $
34,925 $
27,700
941
—
595
3,481
1,868
—
69,510 $
—
—
—
—
—
3,221
4,541
—
7,762
(1)
(2)
(3)
Primarily consists of purchase obligations for costs associated with uncompleted sales contracts.
Future expected obligations under the Company’s pension plan is included in the contractual cash obligations table above, up to,
but not more than five years. The Company’s pension plan policy allows it to fund an amount, which could be in excess of the
pension cost expensed, subject to the limitations imposed by current tax regulations.
Includes expected earnout liability and retention payment.
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, warranties, share based compensation, income
taxes, 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.
35
Revenue Recognition
A substantial portion of our revenue is derived from fixed-price contracts. We account for a contract after it has been approved by all
parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance
and collectability of consideration is probable.
We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. A
significant amount of our revenue within the Energy Solutions and Industrial Solutions segments is recognized over a period of time
as we perform under the contract because control of the work in process transfers continuously to the customer. For performance
obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of
progress towards completion of the performance obligation. Progress is measured based on the ratio of costs incurred to date to the
total estimated costs to complete the performance obligation. For these contracts, the cost-to-cost measure best depicts the continuous
transfer of goods or services to the customer.
The judgments and estimates involved include management’s ability to accurately estimate the contracts’ progress to completion 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.
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, 2020, 2019 and 2018.
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 customers’ 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 valued at the lower of cost or net realizable value using the first-in, first-out inventory costing 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.
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, 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, and 10 years for tradenames.
36
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 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 determined
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 estimated fair value.
During 2020 and 2019, our annual impairment test indicated that one and zero, respectively, of our indefinite-lived tradenames was
impaired. Accordingly, we recognized impairment charges in our financial results of $0.9 million and zero for the years ended
December 31, 2020 and 2019, respectively. For additional information on impairment testing results, see Note 6 to the Consolidated
Financial Statements.
Goodwill
The Company completes an annual (or more often if circumstances require) goodwill impairment assessment on October 1 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.
The Company bases its measurement of the fair value of a reporting unit using a 50/50 weighting of the income method and the
market method. 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 are significant assumptions because they are three primary drivers of the projected cash flows in the
discounted future cash flow approach. Cost of capital is 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 of the reporting
units exceeded their carrying value as of December 31, 2020. For additional information on goodwill impairment testing results, see
Note 7 to the Consolidated Financial Statements.
Income Taxes
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 (“ASC”) Topic 740, “Income Taxes”. Income tax
expense includes federal, state and foreign income taxes.
37
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. Tax credits and other incentives reduce income tax expense in the year the credits are claimed.
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.
Management must assess the realizability of the Company’s deferred tax assets. 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. 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 has made an accounting policy election to record the U.S. income tax effect of future global intangible low-taxed
income (“GILTI”) inclusions in the period in which they arise, rather than establishing deferred taxes with respect to the expected
future tax liabilities associated with future GILTI inclusion.
Certain of the Company’s undistributed earnings of its foreign subsidiaries are not permanently reinvested. A liability has been
recorded for the deferred taxes on such undistributed foreign earnings. The amount is attributable primarily to the foreign withholding
taxes that would become payable should the Company repatriate cash held in its foreign operations.
Pension Benefit Plan Assumptions
We sponsor a pension plan for certain employees. Several statistical and other factors that attempt to anticipate future events are used
in calculating the expense and liability related to the plan. 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 the
liability. 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 expense 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, 2020, 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 $16,000. Additionally, a 25 basis
point change in the expected return on plan assets would change the pension expense by approximately $69,000.
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.
Certain of our awards of restricted share units include performance conditions for achieving designated levels of operating
performance. We must estimate the probability of achieving the performance condition at each reporting period.
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 at each reporting period.
38
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
For information regarding recent accounting pronouncements, see Note 1 to the Consolidated Financial Statements included in this
annual report on Form 10-K.
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.
The carrying value of the Company’s total long-term debt and current maturities of long-term debt at December 31, 2020 was $74.0
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, 2020. Most of the interest on
the Company’s debt is indexed to either the LIBOR or EURIBOR market rates. The estimated annual impact of a hypothetical 10%
change in the estimated weighted average borrowing rate at December 31, 2020 is $0.2 million.
The Company has wholly-owned subsidiaries in several countries, including in the Netherlands, Canada, the People’s Republic of
China, Mexico, United Kingdom, Singapore, Shanghai, Pune India, Dubai 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. Since 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 2021.
39
Item 8.
Financial Statements and Supplementary Data
The Consolidated Financial Statements of CECO Environmental Corp. and subsidiaries for the years ended December 31, 2020, 2019
and 2018 and other data are included in this report following the signature page of this report and incorporated into this Item 8 by
reference:
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 .................................................................................................................
Accumulated Other Comprehensive Loss .............................................................................................................................
Consolidated Statements of Cash Flows ................................................................................................................................
Notes to Consolidated Financial Statements for the Years Ended December 31, 2020, 2019 and 2018...............................
F-1
F-3
F-4
F-5
F-6
F-7
F-8
F-9
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, 2020. 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, 2020.
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 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 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, 2020, 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, 2020, 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.
40
Item 9A includes the audit report of BDO USA, LLP on the Company’s internal control over financial reporting as of December 31,
2020.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the
fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
41
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and our report dated March 3, 2021, 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
Cincinnati, Ohio
March 3, 2021
42
Item 9B.
Other Information
None.
43
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 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Exchange Act within 120 days from December 31, 2020 (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 CECO.”
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 will be incorporated by reference to the Proxy Statement.
Securities Authorized for Issuance Under Equity Compensation Plans
December 31, 2020
(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
2020 Employee Stock Purchase Plan 3
Equity compensation plans not approved by security holders 4
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))
330,346 $
962,708 $
— $
1,309,446 $
2,602,500
11.15
0.25
—
10.26
—
1,151,092
1,300,000
—
2,451,092
1
2
3
4
The 2007 Plan was replaced with the 2017 Equity and Incentive Plan and no further grants will be made under the 2007 Plan.
The 2007 Plan remains in effect solely for the continued administration of the awards currently outstanding under the 2007 Plan.
The 2017 Equity and Incentive Plan was approved by our stockholders on May 16, 2017. We have reserved 1.9 million shares of
our common stock for issuance under our 2017 Equity Incentive Plan. In 2020, 553,000 restricted stock units were awarded to
plan participants under the 2017 Equity and Incentive Plan.
The Employee Stock Purchase Plan was approved by our stockholders on June 11, 2020.
On July 6, 2020, in connection with Mr. Gleason’s appointment as the Company’s Chief Executive Officer, the Company
granted Mr. Gleason 0.1 million restricted stock units (the “RSU Inducement Agreement”), 0.3 million in nonqualified stock
options, (the “Standard Option Inducement Agreement”) granted at market value, and approximately 0.9 million in premium-
priced nonqualified stock options, (the “Premium Option Inducement Agreement”) exercise price equal to two times market
value. Mr. Gleason’s restricted stock units and option grants were approved by the Board of Directors of the Company. See
Note 9 to the Consolidated Financial Statements for additional information on Mr. Gleason’s inducement grants.
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.
44
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
3(i)
3(ii)
4.1
**10.1
**10.2
**10.3
**10.4
**10.5
10.6
**10.7
**10.8
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)
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)
Description of Securities (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2019)
Summary term sheet governing arrangement of consulting services provided by Icarus Investment Corp. (Incorporated by
reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018)
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)
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)
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)
Summary term sheet governing arrangement of consulting services provided by JMP Fam Holdings Inc. to the Company
(Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2018)
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)
Form of Director and Officer Indemnification Agreement (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)
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)
**10.9
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)
**10.10
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)
**10.11
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)
45
Exhibit
Number
**10.12
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)
**10.13
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))
10.14
Second Amended and Restated Credit Agreement, dated as of June 11, 2019, among CECO Environmental Corp. 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 June 12, 2019)
**10.15
CECO Environmental Corp. 2020 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the
Company’s current report on Form 8-K filed with the SEC on June 16, 2020)
**10.16
**10.17
**10.18
**10.19
**10.20
Separation and Consulting Agreement, dated as of July 5, 2020, by and between CECO Environmental Corp. and Dennis
Sadlowski (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q files with the
SEC on November 11, 2020)
Employment Agreement, effective as of July 6, 2020, by and between CECO Environmental Corp. and Todd Gleason
(Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q files with the SEC on
November 11, 2020)
Nonqualified Stock Option Inducement Award Agreement, by and between CECO Environmental Corp. and Todd
Gleason, dated as of July 6, 2020 (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement
on Form S-8 (Commission File No. 333-239707) filed on July 6, 2020)
Nonqualified Premium Stock Option Inducement Award Agreement, by and between CECO Environmental Corp. and
Todd Gleason, dated as of July 6, 2020 (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration
Statement on Form S-8 (Commission File No. 333-239707) filed on July 6, 2020)
Restricted Stock Units Inducement Award Agreement, by and between CECO Environmental Corp. and Todd Gleason,
dated as of July 6, 2020 (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8
(Commission File No. 333-239707) filed on July 6, 2020)
*21
Subsidiaries of the Company
*23.1
Consent of BDO USA, LLP
*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)
46
*101.INS Inline XBRL Instance Document
*101.SCH Inline XBRL Taxonomy Extension Schema Document
*101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
*101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
*104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed or furnished herewith
** Management contracts or compensation plans or arrangement
Item 16.
Form 10-K Summary
Not applicable.
47
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
March 3, 2021
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/ TODD GLEASON
Todd Gleason
Chief Executive Officer and Director
Principal Financial Officer:
/S/ MATTHEW ECKL
Matthew Eckl
Chief Financial Officer
Principal Accounting Officer:
/S/ PAUL GOHR
Paul Gohr
Chief Accounting Officer
Directors:
/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/ MUNISH NANDA
Munish Nanda
Director
/S/ JONATHAN POLLACK
Jonathan Pollack
Director
/S/ VALERIE GENTILE SACHS
Valerie Gentile Sachs
Director
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
48
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
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, 2020 and 2019, 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, 2020, 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 at December 31, 2020 and 2019, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 3, 2021 expressed an unqualified opinion thereon.
Change in Accounting Principle
As discussed in Note 11 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019
due to the adoption of Accounting Standards Codification Topic 842, Leases.
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
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on
the accounts or disclosures to which it relates.
F-1
Over Time Revenue Recognition Using the Cost-to-Cost Input Approach
As described in Note 1 to the Company’s consolidated financial statements, the Company derives a substantial portion of its revenues
from fixed-price contracts within the Energy Solutions and Industrial Solutions segments. The revenue for such contracts is
recognized over a period of time based on the ratio of contract costs incurred to date compared to total estimated costs. Under this
method, the Company must continually assess the total estimated costs and progress toward completion for each contract. Changes in
these estimates can have a material impact on the amount of revenue and gross profit recognized each period.
We identified over time revenue recognition as a critical audit matter. The determination of estimated cost and progress to completion
requires management to make significant estimates and assumptions, which includes an analysis of total estimated labor, material and
subcontract costs, historical experience, current performance to date and the conditions to complete each contract. This analysis
requires significant management judgment, which affects the amount of revenue recognized by the Company. Auditing these complex
judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence available
and effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design and operating effectiveness of internal controls relating to the determination of estimated costs to complete
a project including the monthly review of open over time projects and review of estimated cost calculations to complete open
projects. These controls include the review of the reasonableness of the assumptions used and the appropriateness of
methodologies used to determine costs to complete.
Testing the completeness, existence, and accuracy of estimated project cost calculations for a sample of contracts by
validating the underlying project data and assumptions used as inputs through the inspection of relevant source documents
including project plans or budgets and activity reports, invoices of costs incurred to date, results of recent similar historical
projects, other third-party subcontractor support, inquiry of project managers, and confirmations of estimates to complete
with customers.
Performing a retrospective review on a sample basis of project costs on a project by project basis and investigating variances
outside of predetermined thresholds through the inspection of relevant source documents.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2008.
Cincinnati, Ohio
March 3, 2021
F-2
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
ASSETS
Current 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
Right-of-use assets from operating leases
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
Income taxes payable
$
$
$
Total current liabilities
Other liabilities
Debt, less current portion
Deferred income tax liability, net
Operating lease liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
December 31,
2020
2019
35,992 $
1,819
63,046
45,498
17,343
11,530
7,790
467
183,485
16,228
11,376
161,820
29,637
12,937
3,831
419,314 $
3,125 $
84,997
20,691
543
109,356
20,576
69,491
6,970
9,310
215,703
35,602
1,356
68,434
34,805
20,578
9,899
8,231
593
179,498
15,274
13,607
152,020
31,283
14,291
2,664
408,637
2,500
78,319
34,369
—
115,188
20,372
63,001
5,943
11,116
215,620
Preferred stock, $.01 par value; 10,000 shares authorized, none issued
Common stock, $.01 par value; 100,000,000 shares authorized,
35,504,757 and 35,275,465 shares issued and outstanding at
December 31, 2020 and 2019, respectively
Capital in excess of par value
Accumulated loss
Accumulated other comprehensive loss
Less treasury stock, at cost, 137,920 shares at December 31, 2020 and 2019
Total CECO shareholders’ equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and shareholders’ equity
$
—
—
355
255,296
(38,141)
(14,496)
203,014
(356)
202,658
953
203,611
419,314 $
353
253,869
(46,344)
(14,505)
193,373
(356)
193,017
—
193,017
408,637
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
(dollars in thousands, except share and per share data)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Amortization and earnout expenses
Restructuring expenses
Acquisition and integration expenses
Executive transition expenses
Loss on divestitures, net of selling costs
Intangible asset impairment
Income from operations
Other income (expense), net
Interest expense
Income before income taxes
Income tax expense (benefit)
Net income (loss)
Noncontrolling interest
Net income (loss) attributable to CECO Environmental Corp.
Income (loss) per share:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
2020
Year Ended December 31,
2019
2018
$
$
$
$
316,011 $
210,883
105,128
76,926
8,799
2,331
1,354
1,522
—
850
13,346
2,033
(3,535)
11,844
3,672
8,172
39
8,211 $
341,869 $
227,770
114,099
85,978
8,499
1,097
465
—
70
—
17,990
751
(5,397)
13,344
(4,363)
17,707
—
17,707 $
0.23 $
0.23 $
0.51 $
0.50 $
337,339
225,802
111,537
87,462
9,683
—
—
—
4,390
—
10,002
(365)
(7,140)
2,497
9,618
(7,121)
—
(7,121)
(0.21)
(0.21)
35,289,616
35,520,670
34,987,878
35,484,273
34,714,395
34,714,395
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)
(dollars in thousands)
Net income (loss)
Other comprehensive income (loss), net of tax:
Translation income (loss)
Interest rate swap
Minimum pension liability adjustment
Comprehensive income (loss)
2020
Year Ended December 31,
2019
2018
$
8,172 $
17,707 $
(7,121)
2,256
—
(2,247)
8,181 $
(343)
(574)
(184)
16,606 $
(3,858)
76
(22)
(10,925)
$
The notes to consolidated financial statements are an integral part of the above statements.
F-5
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Capital in
Accumulated
Other
Total
Common Stock excess of Accumulated Comprehensive Treasury Stock Noncontrolling Shareholders'
Shares Amount par value
34,708 $
Shares Amount
(356 ) $
347 $ 248,170 $
(8,919 )
Interest
(138 ) $
Equity
— $
Loss
Loss
(in thousands)
Balance January 1, 2018
Net loss for the year ended December 31, 2018
Cumulative effect adjustment of adopting ASU 2018-02
Cumulative effect adjustment of adopting ASU 2014-09
Cumulative translation adjustment for divestiture
Exercise of stock options and dividend reinvestment
issuances
Restricted stock units issued
Share based compensation earned
Adjustment for minimum pension liability, net of tax of
$17
Adjustment for interest rate swap, net of tax of $111
Translation loss
Balance December 31, 2018
Net income for the year ended December 31, 2019
Cumulative effect adjustment of adopting ASU 2017-12
Cumulative effect adjustment of adopting ASU 2016-02
Exercise of stock options and dividend reinvestment
issuances
Restricted stock units issued
Share based compensation earned
Adjustment for minimum pension liability, net of tax of
$66
Adjustment for interest rate swap, net of tax of $236
Translation loss
Balance December 31, 2019
Net income (loss) for the year ended December 31, 2020
Restricted stock units issued
Share based compensation earned
Adjustment for minimum pension liability, net of tax of
$802
Translation gain
Noncontrolling interest acquired (see Note 15)
Balance December 31, 2020
16
192
38
—
2
—
89
(207 )
3,357
(48 )
31
255
35
—
3
1
—
(427 )
2,887
(52,673 ) $
(7,121 )
1,037
(622 )
(59,427 ) $
17,707
(11 )
(4,590 )
(23 )
(1,067 )
375
(22 )
76
(3,858 )
(13,415 )
11
(184 )
(574 )
(343 )
(14,505 )
(2,247 )
2,256
35,275 $
230
—
353 $ 253,869 $
2
—
(331 )
1,758
(46,344 ) $
8,211
(8 )
(138 ) $
(356 ) $
186,569
(7,121 )
(30 )
(622 )
375
89
(253 )
3,357
(22 )
76
(3,858 )
178,560
17,707
—
(4,590 )
—
(447 )
2,888
(184 )
(574 )
(343 )
193,017
8,172
(337 )
1,758
(2,247 )
2,256
992
203,611
— $
(39 )
992
953 $
34,954 $
349 $ 251,409 $
(138 ) $
(356 ) $
—
35,505 $
355 $ 255,296 $
(38,141 ) $
(14,496 )
(138 ) $
(356 ) $
The notes to consolidated financial statements are an integral part of the above statements.
F-6
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
ACCUMULATED OTHER COMPREHENSIVE LOSS
(dollars in thousands)
January 1, 2018
Cumulative effect adjustment adopting ASU 2018-02
Cumulative translation adjustment for divestiture
2018 activity
Balance December 31, 2018
Cumulative effect adjustment adopting ASU 2017-12
2019 activity
Balance December 31, 2019
2020 activity
Balance December 31, 2020
Translation
loss
Interest rate
swap
adjustment
Minimum pension
liability
adjustment
$
$
(4,250) $
—
375
(3,858)
(7,733)
—
(343)
(8,076)
2,256
(5,820) $
492 $
(5)
—
76
563
11
(574)
—
—
— $
Accumulated other
comprehensive loss
(8,919)
(1,067)
375
(3,804)
(13,415)
11
(1,101)
(14,505)
9
(14,496)
(5,161) $
(1,062)
—
(22)
(6,245)
—
(184)
(6,429)
(2,247)
(8,676) $
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
(dollars in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
2020
Year Ended December 31,
2019
2018
$
8,172 $
17,707 $
(7,121)
Depreciation and amortization
Unrealized foreign currency loss (gain)
Net gain on interest rate swaps
Impairment of property and equipment
Impairment of intangible assets
Fair value adjustments to earnout liabilities
Earnout payments
Loss (gain) on sale of property and equipment
Loss on divestitures
Amortization of debt discount
Share based compensation expense
Bad debt expense
Inventory reserve expense
Deferred income tax expense (benefit)
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable
Cost and estimated earnings 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
Net cash proceeds from divestitures
Net proceeds from sale of assets
Cash paid for acquisitions
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Borrowings on revolving credit lines
Repayments on revolving credit lines.
Repayments of long-term debt
Deferred financing fees paid
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
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Cash paid during the period for:
Interest
Income taxes
9,921
346
—
—
850
1,193
—
63
—
415
1,758
928
494
1,038
8,367
(9,561)
4,366
(962)
(4,095)
336
(17,635)
460
(2,033)
4,421
(3,945)
—
605
(5,895)
(9,235)
96,000
(86,800)
(5,009)
—
—
(467)
10,609
(526)
(248)
—
—
—
—
78
70
1,060
2,668
295
316
(940)
(15,616)
(5,029)
(207)
(7,097)
758
(4,028)
14,274
(1,671)
(2,246)
10,227
(5,655)
—
509
—
(5,146)
45,300
(52,947)
(2,950)
(1,117)
—
(478)
—
3,724
1,943
853
36,958
37,811 $
3,172 $
2,156 $
76
(12,116)
(445)
(7,480)
44,438
36,958 $
3,549 $
5,908 $
$
$
$
The notes to consolidated financial statements are an integral part of the above statements.
F-8
13,272
836
(276)
300
—
(330)
(2,862)
(217)
4,390
1,143
3,187
1,357
519
(42)
(6,084)
(4,557)
(1,704)
773
(416)
21,321
70
1,839
(3,446)
21,952
(3,090)
35,052
6,296
—
38,258
10,500
(14,223)
(41,356)
—
800
(675)
54
(44,900)
(1,531)
13,779
30,659
44,438
5,559
10,205
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020, 2019 and 2018
1.
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 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 power generation, petrochemical processing, general industrial,
refining, oil & gas, electric vehicle production, poly silicon fabrication, battery recycling, and wastewater treatment, along with a wide
range of other industries.
COVID-19
On January 30, 2020, the WHO announced a global health emergency because of a new strain of coronavirus (“COVID-19”)
originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. On
March 11, 2020, the WHO characterized COVID-19 as a pandemic. As of March 3, 2021, the virus continues to spread and has had a
significant impact on worldwide economic activity and on macroeconomic conditions and the end markets of our business. Vaccine
administration is underway, however new variants of COVID-19 continue to emerge. There is uncertainty regarding the efficacy of
vaccines and current tests and treatments with regard to the new variants. The Company has instituted some and may take additional
temporary precautionary measures to comply with government directives and guidelines and minimize business disruption.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into
law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side
social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net
interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES
act did not have a material impact on the Company.
The outbreak and a continued spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and has
caused weakened economic conditions, both in the United States and abroad. COVID-19 has had, and may continue to have, a
negative impact on the Company's ongoing operations and the end markets in which it serves. However, the full impact of the
COVID-19 pandemic continues to evolve as of the date of this filing, and as such, it is uncertain as to the full magnitude that the
pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively
monitoring the impact of the pandemic on its financial condition, liquidity, operations, suppliers, industry, and workforce.
Principles of consolidation—Our consolidated financial statements include the Company and its controlled subsidiaries. All
intercompany balances and transactions have been eliminated.
In 2020, the Company entered into a joint venture agreement (the “JV agreement”) with Mader Holding L.P. (“Mader”). Under the
terms of the JV agreement, CECO holds 70% of the equity in the joint venture. The noncontrolling interest in Mader is reported as a
separate component on the Consolidated Balance Sheets. See Note 15 to the Consolidated Financial Statements for additional
information on the joint venture.
Unless indicated, all balances within tables are in thousands except per share amounts.
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, 2020 and 2019, 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.
F-9
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statements
of Cash Flows.
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
December 31,
2020
2019
$
$
35,992 $
1,819 $
37,811 $
35,602
1,356
36,958
Accounts Receivable—Receivables are generally uncollateralized customer obligations due under normal 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. Accounts are deemed uncollectible
based on past account experience and the current financial condition of the account.
Inventories—The Company’s inventory is valued at the lower of cost or net realizable value, using the first-in, first-out inventory
costing 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 Sheets at the lower of carrying value or estimated fair value less costs to sell and depreciation is no longer
recognized. Assets classified as held for sale at December 31, 2020 include one building.
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, 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, 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, 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 on October 1 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 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
F-10
determined 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 estimated fair value.
During 2020, our annual impairment test indicated that one of our indefinite-lived tradenames was impaired. Accordingly, we
recognized impairment charges in our financial results of $0.9 million for the year ended December 31, 2020. There was no
impairment recorded during the years ended December 31, 2019 and 2018. For additional information on impairment testing results,
see Note 6 to the Consolidated Financial Statements.
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 determined 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.
Deferred charges—Deferred charges include deferred financing costs, which are amortized to interest expense over the life of the
related loan. In fiscal 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Facility”). The
Credit Facility amended the Company’s existing amended and restated agreement. In connection with the Credit Facility, the
Company incurred $1.1 million in customary closing fees in 2019 that were capitalized and classified as a debt discount. Additionally,
in fiscal 2019, $0.4 million of existing debt discount related to the 2017 long-term debt modification was expensed, and classified as
interest expense, as a result of the Credit Facility (see Note 8 for further details on the Credit Facility). Amortization expense was $0.4
million, $1.1 million and $1.1 million for 2020, 2019 and 2018, respectively. As of December 31, 2020, and 2019, remaining
capitalized deferred financing costs of $1.3 million and $1.7 million, respectively, are included as a discount to debt in the
accompanying Consolidated Balance Sheets.
Revenue recognition
Energy Solutions and Industrial Solutions Segments—Within the Energy Solutions and Industrial Solutions segments, a significant
portion of our revenue is derived from fixed-price contracts. We account for a contract after it has been approved by all parties to the
arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and
collectability of consideration is probable.
For each contract, we assess the goods and services promised to a customer and identify a performance obligation for each distinct
promised good or service. The typical life of our contracts is generally less than 12 months and each contract generally contains only
one performance obligation, to provide goods or services to the customer. We determine the transaction price for each contract based
on the consideration we expect to receive for the products or services being provided under the contract.
We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. A
significant amount of our revenue within the Energy Solutions and Industrial Solutions segments is recognized over a period of time
as we perform under the contract because control of the work in process transfers continuously to the customer. For performance
obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of
progress towards completion of the performance obligation. Progress is measured based on the ratio of costs incurred to date to the
total estimated costs to complete the performance obligation. For these contracts, the cost-to-cost measure best depicts the continuous
transfer of goods or services to the customer.
For contracts where the duration is short, total contract revenue is insignificant, or control does not continuously transfer to the
customer, revenues are recognized at the point in time control passes to the customer, which occurs generally upon shipment of
product.
Progress payments are generally made over the duration of the contract. Shipping and handling activities after control of the products
has transferred to the customer are considered fulfillment activities. Sales taxes are recorded on a net basis.
Fluid Handling Solutions Segments—Within the Fluid Handling Solutions segment, a significant portion of our revenue is primarily
derived from sales of inventory product and is recognized at the point in time control passes to the customer, which occurs generally
upon shipment of the product.
F-11
Payments vary by customer but are typically due within 30 days. Shipping and handling activities after control of the products has
transferred to the customer are considered fulfillment activities. Sales taxes are recorded on a net basis.
Contract Assets and Contract Liabilities — Contract assets consist of costs and earnings in excess of billings, costs incurred for
contracts recognized at a point in time, and retainage. Costs and earnings in excess of billings represent the estimated value of
unbilled work for contracts with performance obligations recognized over time and are separately classified as current assets in the
Consolidated Balance Sheets. Costs incurred for contracts recognized at a point in time are classified within inventories as work-in-
process. Retainage represents a portion of the contract billings that have been billed, but for which the contract allows the customer to
retain a portion of the billed amount until final settlement. Retainage is not considered to be a significant financing component
because the intent is to protect the customer. Retainage is classified within accounts receivable and deferred charges and other assets
depending on when it is due. Almost all of the Company’s contract assets are classified as current assets in the Consolidated Balance
Sheets.
Billings in excess of costs and estimated earnings on uncompleted contracts are current liabilities, which relate to fixed-price contracts
recognized over time, and represents payments in advance of performing the related contract work. Billings in excess of costs and
estimated earnings on uncompleted contracts is not considered to be a significant financing component because it is generally used to
meet working capital demands that can be higher in the early stages of a contract. Contract liabilities, classified in accounts payable
and accrued expenses in the Consolidated Balance Sheets, include advance payments received from customers for which revenue has
not been recognized for contracts where revenue is recognized at a point in time. Contract liabilities are reduced when the associated
revenue from the contract is recognized, which is generally within one year.
The revenue streams within the Company are consistent with those disclosed for our reportable segments. See Note 17 to the
Consolidated Financial Statements for additional information on product offerings and segments.
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. There was no provision for estimated losses on uncompleted contracts at December 31, 2020
and 2019.
Cost of sales—Cost of sales amounts include materials, subcontract costs, direct labor and associated benefits, inbound freight
charges, purchasing and receiving, inspection, warehousing, and depreciation.
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 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
over time, 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 and are primarily internal costs. As most of the Company’s contracts are one
year or less, 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.
F-12
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 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, legal, accounting, and other expenses.
Amortization and earnout expenses—Amortization and earnout expenses on the Consolidated Statements of Operations include
amortization of intangible assets, and changes to earnout and contingent compensation amounts related to acquisitions.
Restructuring expenses—Restructuring expenses on the Consolidated Statements of Operations include expenses related to an ongoing
restructuring program 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.
Executive transition expenses—Executive transition expenses on the Consolidated Statements of Operations include expenses related
to the severance for the Company’s former Chief Executive Officer, as well as fees and expenses incurred in the search for, and hiring
of, a new Chief Executive Officer.
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 7.
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.
Income taxes - 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 (“ASC”) Topic 740, “Income Taxes”. Income
tax expense includes federal, state and foreign income taxes.
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. Tax credits and other incentives reduce income tax expense in the year the credits are claimed.
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.
Management must assess the realizability of the Company’s deferred tax assets. 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. 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 has made an accounting policy election to record the U.S. income tax effect of future global intangible low-taxed
income (“GILTI”) inclusions in the period in which they arise, rather than establishing deferred taxes with respect to the expected
future tax liabilities associated with future GILTI inclusion.
Certain of the Company’s undistributed earnings of its foreign subsidiaries are not permanently reinvested. A liability has been
recorded for the deferred taxes on such undistributed foreign earnings. The amount is attributable primarily to the foreign withholding
taxes that would become payable should the Company repatriate cash held in its foreign operations.
F-13
Earnings per share—The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per
share for 2020, 2019 and 2018.
(table only in thousands)
Numerator (for basic and diluted earnings per share)
Net income (loss)
For the Year Ended December 31
2020
2019
2018
$
8,211 $
17,707 $
(7,121)
Denominator
Basic weighted-average shares outstanding
Common stock equivalents arising from stock options and restricted
stock awards
Diluted weighted-average shares outstanding
35,290
34,988
231
35,521
496
35,484
34,714
—
34,714
Options and unvested restricted stock units are included in the computation of diluted earnings per share using the treasury stock
method. For 2020, 2019 and 2018, outstanding options and unvested restricted stock units of 1.0 million, 0.4 million and 0.8 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 foreign subsidiaries are their local currencies and their
books and records are maintained in the local currency. The assets and liabilities of these foreign subsidiaries are translated into
United States Dollars (“USD”) based on the end-of period exchange rates and the resultant translation adjustments are reported in
Accumulated Other Comprehensive Loss in Shareholders’ equity on the Consolidated Balance Sheets.
Income and expenses are translated into USD at average exchange rates in effect during the period.
Transactions denominated in other than the local currency are remeasured into the local currency and the resulting exchange gains or
losses are included in “Other income (expense), net” line of the Consolidated Statements of Operations. Transaction gains were $1.3
million, $0.9 million and $0.7 million in 2020, 2019 and 2018, respectively.
Reclassifications —Certain prior year amounts have been reclassified in order to conform to the current year presentation.
Recently adopted accounting pronouncements
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic
715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” that makes minor changes to
the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The new
guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the
FASB considers pertinent. ASU 2018-14 is effective for us December 15, 2020. The adoption of the standard did not have a material
impact on our statement of operations or liquidity. See Note 10 to the Consolidated Financial Statements for additional details on the
Company’s pension plans.
Recently issued accounting pronouncements not yet adopted
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"
("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
ASU 2019-12 is effective for the Company beginning January 1, 2021. We do not expect ASU 2019-12 to have a material impact on
our financial statements.
F-14
2.
Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, receivables and certain other assets, foreign debt, and
accounts payable, which approximate fair value at December 31, 2020 and 2019, due to their short-term nature or variable, market-
driven interest rates.
The fair value of the debt issued under our Credit Agreement was $74.0 million and $67.3 million at December 31, 2020 and 2019,
respectively. The fair value was determined considering market conditions, our credit worthiness and the current terms of our debt,
which is considered Level 2 on the fair value hierarchy.
At December 31, 2020 and 2019, the Company had cash and cash equivalents of $36.0 million and $35.6 million, respectively, of
which $28.0 million and $27.4 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 cash equivalents, 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.
3.
Accounts Receivable
Accounts receivable consisted of the following:
(table only in thousands)
Contract receivables
Trade receivables
Allowance for doubtful accounts
Total accounts receivable
December 31,
2020
2019
$
$
57,435 $
8,721
(3,110)
63,046 $
58,881
12,135
(2,582)
68,434
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 $1.5 million and $0.9 million at December 31, 2020 and
2019, respectively. Retainage receivables on contracts in progress are generally collected within a year or two subsequent to contract
completion.
Provision for doubtful accounts was $0.9 million, $0.3 million and $1.4 million during 2020, 2019 and 2018, respectively, while
accounts charged to the allowance were $0.4 million, $0.6 million and $0.8 million during 2020, 2019 and 2018, respectively.
4.
Inventories
Inventories consisted of the following:
(table only in thousands)
Raw materials
Work in process
Finished goods
Obsolescence allowance
Total inventories
December 31,
2020
2019
$
$
14,262 $
5,594
496
(3,009)
17,343 $
15,218
7,328
654
(2,622)
20,578
Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $0.5 million, $0.3 million and $0.5
million during 2020, 2019 and 2018, respectively. Items charged to the allowance for inventory write-offs were $0.1 million, $0.1
million and $0.3 million, during 2020, 2019 and 2018, respectively.
F-15
5.
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
December 31,
2020
2019
$
$
— $
7,594
26,939
34,533
(18,305)
16,228 $
147
7,400
26,993
34,540
(19,266)
15,274
Depreciation expense was $2.5 million, $2.1 million and $3.5 million for 2020, 2019 and 2018, respectively.
6.
Goodwill and Intangible Assets
(table only in thousands)
Balance of goodwill at December 31, 2018
Foreign currency translation
Balance of goodwill at December 31, 2019
Acquisitions
Foreign currency translation
Balance of goodwill at December 31, 2020
Energy Solutions
segment
Industrial
Solutions
segment
Fluid Handling
Solutions
segment
$
$
97,143 $
(136)
97,007
2,085
693
99,785 $
23,436 $
—
23,436
7,022
—
30,458 $
31,577 $
—
31,577
—
—
31,577 $
Totals
152,156
(136)
152,020
9,107
693
161,820
As of December 31, 2020 and 2019, the Company has an aggregate amount of goodwill acquired of $222.5 million and $212.8
million, respectively, and an aggregate amount of impairment losses of $60.7 million which was recognized in 2017.
The Company’s indefinite lived intangible assets as of December 31, 2020 and 2019 consisted of the following:
(table only in thousands)
Balance beginning of year
Transfer to finite life classification
Impairment charge
Foreign currency adjustments
Balance end of year
Tradenames
2020
2019
$
$
14,291 $
(700)
(850)
196
12,937 $
18,258
(3,904)
—
(63)
14,291
During 2020 and 2019, the Company reassessed the useful lives of certain tradenames and determined that $0.7 million and $3.9
million, respectively, of tradenames would have useful lives of 10 years versus indefinite.
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.
The Company bases its measurement of the fair value of a reporting unit using a 50/50 weighting of the income method and the
market method. 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 and 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 this analysis, the
estimated fair value of all of our reporting units exceeded their carrying value as of October 1, 2020. There was no goodwill
impairment in 2020, 2019 and 2018.
F-16
In the 2020 impairment analysis for the Fluid Handling Solutions reporting unit, which had a goodwill balance of $31.6 million at the
analysis date, the fair value only exceeded the carrying value by 7%. Management’s projections used to estimate the undiscounted
cash flows included modest increase to 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 2021 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 the projected
average revenue growth rates of approximately 90 basis points or a decrease in the projected average EBITDA rates of approximately
105 basis points would result in fair value of the reporting unit being equal to its carrying value.
The Company also performed an impairment analysis for all indefinite life intangible assets, which consists of tradenames, as of
October 1, 2020. 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 estimated fair value of the indefinite life
intangible assets exceeded their carrying value for all but one tradename within our Fluid Handling Solutions segment as of the testing
date. Accordingly, we recognized impairment charges in our financial results of $0.9 million for the year ended December 31, 2020.
There was no impairment charge in 2019 and 2018.
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
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 consisted of the following:
(table only in thousands)
Intangible assets – finite life
Technology
Customer lists
Tradenames
Foreign currency adjustments
Total finite life intangible assets
December 31,
2020
Accum.
Amort.
Cost
2019
Accum.
Amort.
Cost
$
$
14,457 $
73,199
6,578
(2,826)
91,408 $
13,008 $
48,959
1,758
(1,954)
61,771 $
14,457 $
68,943
5,294
(1,869)
86,825 $
10,686
44,484
1,154
(782)
55,542
Amortization expense of finite life intangible assets was $7.4 million, $8.5 million and $9.6 million for 2020, 2019 and 2018,
respectively. Amortization over the next five years for finite life intangibles is $6.4 million in 2021, $5.5 million in 2022, $4.6 million
in 2023, $3.9 million in 2024, and $2.9 million in 2025.
7.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expense consisted of the following:
(table only in thousands)
Trade accounts payable, including amounts due to subcontractors
Compensation and related benefits
Accrued warranty
Contract liability
Short-term operating lease liability
Other
Total accounts payable and accrued expenses
F-17
December 31,
2020
2019
$
$
55,899 $
5,079
4,090
3,974
2,274
13,681
84,997 $
48,762
5,712
4,664
5,666
2,610
10,905
78,319
The activity in the Company’s current portion of earnout liability which is recorded in Accounts payable and accrued expenses on our
Consolidated Balance Sheets, consisted of the following:
(table only in thousands)
Earnout accrued at beginning of year
Fair value of earnout at acquisition date (see Note 15)
Fair value adjustment
Payments
Earnout accrued at end of year
8.
Senior debt
Debt consisted of the following:
(table only in thousands)
Outstanding borrowings under Credit Facility
Term loan payable in quarterly principal installments of $0.6 million
through June 2021, $0.9 million through June 2023, and $1.3 million
thereafter with balance due upon maturity in June 2024.
– Term loan
– Revolving Credit Loan
– Unamortized debt discount
Total outstanding borrowings under Credit Facility
Less: current portion
Total debt, less current portion
December 31,
2020
2019
— $
553
1,190
—
1,743 $
—
—
—
—
—
December 31,
2020
2019
46,250 $
27,700
(1,334)
72,616
(3,125)
69,491
$
48,750
18,500
(1,749)
65,501
(2,500)
63,001
$
$
$
$
In 2020, the Company made repayments of $2.5 million on the term loan and had net borrowings on the revolving credit lines of $9.2
million. Scheduled principal payments under our Credit Facility are $3.1 million in 2021, $3.7 million in 2022, $4.4 million in 2023,
and $62.8 million in 2024.
Credit Facility
As of December 31, 2020 and 2019, $7.6 million and $11.0 million of letters of credit were outstanding, respectively. Total unused
credit availability under the Company’s senior secured term loan and senior secured revolver loan with sub-facilities for letters of
credit, swing-line loans and senior secured multi-currency loans was $60.8 million and $82.3 million at December 31, 2020 and 2019,
respectively. Revolving loans may be borrowed, repaid and reborrowed until June 11, 2024, at which time all outstanding balances of
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, (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 (d) a Eurocurrency Rate (as defined in the Credit
Agreement) plus 1.0% to 2.0% depending on the Company’s Consolidated Leverage Ratio. Interest on swing line loans is the Base
Rate.
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 stated interest rate on outstanding borrowings was 2.25% and
3.80% at December 31, 2020 and 2019, respectively.
Under the terms of the Credit Facility, the Company is required to maintain certain financial covenants, including the maintenance of a
Consolidated Net Leverage Ratio (as defined in the Credit Facility). Through September 30, 2021, the maximum Consolidated Net
Leverage Ratio is 3.50, after which time it will decrease to 3.25 until the end of the term of the Credit Facility.
The Company has granted a security interest in substantially all of its assets to secure its obligations pursuant to the Credit Facility.
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 the assets of such subsidiaries, including certain real property. The
F-18
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, 2020 and 2019, the Company was in compliance with all related financial and other restrictive covenants under
the Credit Facility.
Foreign Debt
The Company has a number of bank guarantee facilities and bilateral lines of credit in various foreign countries currently supported by
cash, letters of credit or pledged assets and collateral under the Credit Facility. The Credit Facility allows letters of credit and bank
guarantee issuances of up to $50.0 million from the bilateral lines of credit secured by pledged assets and collateral under the Credit
Facility. As of December 31, 2020, $17.2 million in bank guarantees were outstanding. In addition, a subsidiary of the Company
located in the Netherlands has a Euro-denominated bank guarantee agreement secured by local assets under which $3.4 million in
bank guarantees were outstanding as of December 31, 2020. As of December 31, 2020, the borrowers of these facilities and
agreements were in compliance with all related financial and other restrictive covenants.
9.
Shareholders’ Equity
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 which replaced the 2007 Equity Incentive Plan (the “2007 Plan”). No further grants will be made under the 2007 Plan,
but outstanding awards under the 2007 Plan will continue to be unaffected in accordance with their terms. The 2017 Plan permits the
granting of stock options 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,
2020, 1.1 million shares remain available for future issuance. 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.
On July 6, 2020, in connection with the appointment of our Chief Executive Officer, the Company granted our Chief Executive
Officer approximately 94,000 restricted stock units with a fair value of $0.6 million, which are being expensed over the vesting period
of four years. The Company also granted our Chief Executive Officer approximately 1.2 million stock options with a fair value of $2.4
million that are being expensed over the vesting period of four years. These grants of restricted stock units and stock options (“2020
Inducement Awards”) were approved by the Board of Directors of the Company and are not included in 2017 Plan.
Share-based compensation expense for stock options and restricted stock awards under these plans was $1.8 million, $2.7 million and
$3.1 million for 2020, 2019 and 2018, respectively. The tax benefit related to share based compensation expense was $0.3 million,
$0.4 million and $0.5 million in 2020, 2019 and 2018, respectively.
Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (“ESPP”) was approved by shareholders on June 11, 2020. The ESPP is administered by the
Compensation Committee. 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 aggregate maximum number of shares of the Company’s common stock that may be granted under the ESPP is 1.3 million 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, 2020, 1.3 million shares
remain available for future issuance.
The Company recognized employee stock purchase plan expense of $20,000, $60,000 and $90,000 in 2020, 2019 and 2018,
respectively.
F-19
Stock Options
The estimated weighted-average fair value of stock options granted during 2020, was $1.98 per option, 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 2020, the Company utilized weighted-average
volatility factors of 52.5%.
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 2020, the Company utilized weighted-average expected term
factors of 5.0 years.
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 2020, the Company utilized a weighted-average risk-free interest
rate factor of 0.3%.
The fair value of stock options is recorded as compensation expense on a straight-line basis over the vesting periods of the options and
we account for forfeitures when they occur.
Information related to all stock options under the 2017 Plan, 2007 Plan, and the 2020 Inducement Awards for 2020, 2019 and 2018 is
shown in the tables below:
(shares in thousands)
Outstanding at December 31, 2019
Forfeitures
Granted
Outstanding at December 31, 2020
Exercisable at December 31, 2020
(Shares in thousands)
Outstanding at December 31, 2018
Forfeitures
Exercised
Outstanding at December 31, 2019
Exercisable at December 31, 2019
(Shares in thousands)
Outstanding at December 31, 2017
Forfeitures
Exercised
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Weighted
Average
Exercise
Price
11.45
10.86
11.06
11.17
11.66
Shares
410 $
(71)
1,215
1,554
330
Weighted
Average
Exercise
Price
Shares
507 $
(31)
(66)
410
355
10.43
6.84
4.10
11.45
12.08
Weighted
Average
Exercise
Price
10.53
11.53
5.55
10.43
10.52
Shares
655 $
(132)
(16)
507
402
Weighted
Average
Remaining
Contractual
Term
4.7 years
Aggregate
Intrinsic
Value
($000)
5.8 years $
3.0 years $
195
6
Weighted
Average
Remaining
Contractual
Term
5.2 years
Aggregate
Intrinsic
Value
($000)
4.7 years $
4.6 years $
32
29
Weighted
Average
Remaining
Contractual
Term
6.0 years
Aggregate
Intrinsic
Value
($000)
5.2 years $
4.6 years $
186
186
F-20
Restricted Stock Awards
Information related to restricted stock awards under the 2017 Plan, 2007 Plan, and the 2020 Inducement Awards for 2020, 2019 and
2018 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 we account for forfeitures when they occur.
(Shares in thousands)
Nonvested at December 31, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Shares
Weighted
Average
Grant Date
Fair Value
554 $
963
(217)
(49)
1,251
464
(310)
(84)
1,321
648
(284)
(638)
1,047
9.75
5.21
9.50
9.80
6.30
7.50
7.24
6.36
6.80
5.64
7.60
5.91
6.00
The Company received zero, $7,000 and $0.1 million of cash from employees exercising options in 2020, 2019 and 2018,
respectively. The intrinsic value of options exercised during 2020, 2019 and 2018 was zero, $0.3 million and $24,000, respectively.
Unrecognized compensation expense related to nonvested shares of stock options, restricted stock and performance units was $6.0
million at December 31, 2020 and will be recognized over a weighted average vesting period of 2.7 years.
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 stockholders. Future
dividends and the dividend policy may be changed 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.
10. 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.
F-21
The following tables set forth the plan changes in benefit obligations, plan assets and funded status on the measurement dates:
(table only in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Interest cost
Actuarial loss (gain)
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contribution
Benefits paid
$
Fair value of plan assets at end of year
Funded status at end of year
Weighted-average assumptions used to determine benefit obligations
for the year ended December 31:
$
2020
December 31,
2019
2018
$
35,985
1,034
3,323
(2,070)
38,272
27,099
1,629
1,887
(2,070)
28,545
(9,727) $
$
32,998
1,303
3,704
(2,020)
35,985
24,197
4,431
491
(2,020)
27,099
(8,886) $
36,327
1,190
(2,629)
(1,890)
32,998
26,836
(1,388)
639
(1,890)
24,197
(8,801)
Discount rate
2.10%
2.95%
4.05%
The funded status as of December 31, 2020, 2019 and 2018, was $9.7 million, $8.8 million and $8.8 million, respectively and is
recognized in our Consolidated Balance Sheets within other long-term liabilities.
The details of net periodic benefit cost for pension benefits included in the accompanying Consolidated Statements of Operations are
as follows:
(table only in thousands)
Interest cost
Expected return on plan assets
Amortization of net loss
Net periodic benefit (income) cost
2020
December 31,
2019
2018
$
$
1,034 $
(1,594)
266
(294) $
1,303 $
(1,254)
263
312 $
1,190
(1,511)
238
(83)
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
(table only in thousands)
Net loss
Amortization of net actuarial gain
Total recognized in other comprehensive income (loss)
Total recognized in net periodic benefit cost and other comprehensive
income (loss)
$
$
$
2020
December 31,
2019
2018
3,287 $
(266)
3,021 $
527 $
(263)
264 $
2,727 $
576 $
271
(238)
33
(50)
The $3.3 million net loss arising in the year were primarily due to decreases in the discount rate, partially offset by higher actual
returns on plan assets.
Weighted-average assumptions used to determine net periodic benefit costs
Discount Rate
Expected return on assets
2020
2.95%
6.00%
December 31,
2019
4.05%
5.35%
2018
3.35%
5.75%
The basis of the long-term rate of return assumption reflects the current asset mix for the pension plan 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 plan 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
F-22
future long range projections of investment returns for each asset category. The long-term rate of return also considers administrative
expenses of the plan.
Benefits under the plan is not based on wages and, therefore, future wage adjustments have no effect on the projected benefit
obligation.
During 2020, 2019 and 2018, the Company updated the mortality tables (RP-2019 Total Mortality Table, RP-2018 Total Mortality
Table, and RP-2017 Total Mortality Table for each respective year) in the underlying assumptions used to determine the benefit
obligation.
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
2020
0%
70%
30%
100%
Percentage of
Plan Assets
2020
6%
66%
27%
100%
2019
2%
73%
25%
100%
Estimated pension plan cash obligations are $2.2 million, $2.2 million, $2.2 million, $2.2 million, and $2.2 million for 2021 through
2025, respectively, and a total of $10.3 million for the years 2026 through 2030.
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 plan 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 plan 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.
F-23
The levels assigned to the defined benefit plan assets as of December 31, 2020, are summarized in the tables below:
(table only in thousands)
Pension assets, at fair value:
Cash and cash equivalents
Equity securities
Debt securities
Total assets
Level 1
Level 2
Level 3
Total
$
$
1,984 $
18,987
7,574
28,545 $
— $
—
—
— $
— $
—
—
— $
1,984
18,987
7,574
28,545
The levels assigned to the defined benefit plan assets as of December 31, 2019, are summarized in the tables below:
(table only in thousands)
Pension assets, at fair value:
Cash and cash equivalents
Equity securities
Debt securities
Total assets
Level 1
Level 2
Level 3
Total
$
$
578 $
19,702
6,819
27,099 $
— $
—
—
— $
— $
—
—
— $
578
19,702
6,819
27,099
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.
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’s participation in these plans for the year ended December 31, 2020, 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 2020 is for the plan’s year-end at December 31, 2019. 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
Pension
Protection
Act Zone
Status
2012
EIN/Pension
Plan Number
FIF/RP Status Pending/
Implemented
Surcharge
Imposed
Expiration
of Collective
Bargaining
Agreement
Sheet Metal Workers Local 224 Pension Plan
52-6112463/001 Yellow
31-6171353/001 Yellow
Sheet Metal Workers Local No. 177 Pension
Fund
62-6093256/001 Green
Is not subject
No
No
No
Various
May 31, 2022
April 30, 2023
FIF: Yes -
Implemented
RP: Yes -
Implemented
FIF: Yes -
Implemented
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, 2019. The Company was not listed in any of the other plans’ Forms 5500 as
F-24
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, 2020.
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 $1.0 million, $1.7 million and
$1.4 million in 2020, 2019 and 2018, respectively.
We have a 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, $1.7 million, and $1.7 million during 2020, 2019 and 2018, respectively.
11. Leases
On January 1, 2019, we adopted the new lease accounting guidance, ASC 842. The guidance 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. Our leasing activity is primarily related to buildings used for manufacturing, warehousing, sales, and administrative activities.
We determine if an arrangement is a lease at inception. Many of our lease agreements contain renewal options; however, we do not
recognize ROU assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the
lease at inception or when a triggering event occurs. Some of our lease agreements contain rent escalation clauses, free-rent periods, or
other lease concessions. We recognize our minimum rental expense on a straight-line basis based on the fixed components of a lease
arrangement. Variable lease costs represent amounts that are not fixed in nature and are not tied to an index or rate, and are recognized
as incurred. Our variable lease costs are not material.
In determining our ROU assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease
agreement. ASU 2016-02 requires us to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over
a similar term an amount equal to the lease payments in a similar economic environment. When we cannot readily determine the
discount rate implicit in the lease agreement, we utilize our fully collateralized incremental borrowing rate. To estimate our specific
incremental borrowing rates we consider, among other factors, interest rates on our existing credit facilities, risk-free rates, the types
of assets being leased, and the term of the leases.
The components of lease expense were as follows:
(table only in thousands)
Operating lease cost (a)
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liability
Total finance lease cost
Total lease cost
(a) includes variable lease costs which are immaterial
Supplemental cash flow information related to leases was as follows:
(table only in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right of use assets obtained in exchange for lease obligations
Operating leases
F-25
December 31,
2020
2019
$
3,450 $
308
338
646
4,096 $
December 31,
2020
2019
3,338 $
338 $
467 $
545 $
$
$
$
$
$
3,612
309
360
669
4,281
3,453
360
478
3,547
Supplemental balance sheet information related to leases was as follows:
(table only in thousands)
Operating leases
Right-of-use assets from operating leases
Accounts payable and accrued expenses
Operating lease liabilities
Total operating lease liabilities
Finance leases
Property, plant and equipment, net
Accounts payable and accrued expenses
Other liabilities
Total finance lease liabilities
Weighted-average remaining lease term as of December 31, 2020 were as follows:
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
As of December 31, 2020, maturities of lease liabilities were as follows:
(table only in thousands)
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less imputed interest
Lease liability
12. Commitments and Contingencies
Legal Proceedings
Asbestos cases
December 31,
2020
2019
11,376 $
2,274 $
9,310
11,584 $
2,947 $
557 $
6,783
7,340 $
13,607
2,610
11,116
13,726
3,255
516
7,340
7,856
12 years
11 years
5.0%
4.5%
Operating Leases
Finance Leases
2,872
2,222
2,035
1,876
1,605
3,221
13,831
(2,247)
11,584
$
$
872
889
907
925
943
4,541
9,077
(1,737)
7,340
$
$
$
$
$
$
$
$
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 which caused injuries (including death) and loss to the plaintiffs.
Counsel has advised that more recent cases typically allege more serious claims of mesothelioma. The Company’s insurers have hired
attorneys who, together with the Company, are vigorously defending these cases. Many cases have been dismissed after the plaintiff
fails to produce evidence of exposure to Met-Pro’s products. In those cases, where evidence has been produced, the Company’s
experience has been that the exposure levels are low and the Company’s position has been that its products were not a cause of death,
F-26
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, 2020 for cases involving asbestos-related claims were $3.1 million which together with all legal fees
other than corporate counsel expenses; $2.9 million have been paid by the Company’s insurers. The average cost per settled claim,
excluding legal fees, was approximately $34,000.
Based upon the most recent information available to the Company regarding such claims, there were a total of 200 cases pending
against the Company as of December 31, 2020 (with Illinois, New York, Pennsylvania and West Virginia having the largest number
of cases), as compared with 209 cases that were pending as of December 31, 2019. During 2020, 77 new cases were filed against the
Company, and the Company was dismissed from 81 cases and settled 5 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.
Other
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.
13.
Income Taxes
Income (loss) before income taxes was generated in the United States and globally as follows:
(table only in thousands)
Domestic
Foreign
2020
2019
2018
$
$
3,495 $
8,349
11,844 $
11,565 $
1,779
13,344 $
6,230
(3,733)
2,497
Certain of the Company’s undistributed earnings of its foreign subsidiaries are not permanently reinvested, as management intends to
repatriate foreign-held cash as needed to meet domestic cash needs for operating, investing, and financing activities. A liability of $0.9
million has been recorded for the deferred taxes on such undistributed foreign earnings as of December 31, 2020. The deferred taxes
are attributable primarily to the foreign withholding taxes that would become payable should the Company repatriate cash held in its
foreign operations.
F-27
Income tax expense (benefit) consisted of the following for the years ended December 31:
(table only in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2020
2019
2018
$
$
(239) $
241
2,632
2,634
1,638
313
(913)
1,038
3,672 $
(4,526) $
(616)
1,719
(3,423)
(604)
(220)
(116)
(940)
(4,363) $
5,166
1,660
2,834
9,660
1,144
56
(1,242)
(42)
9,618
The income tax expense (benefit) differs from the statutory rate due to the following:
(table only in thousands)
Tax expense at statutory rate
Increase (decrease) in tax resulting from:
State income tax, net of federal benefit
Change in uncertain tax position reserves
Permanent differences related to divestitures
Other permanent differences
Impact of rate differences and adjustments
United States tax credits and incentives
Foreign tax credits and incentives
Change in valuation allowance
Net deemed distribution on repatriation of foreign earnings
Foreign withholding taxes on repatriation of foreign earnings
Earnout expense (income)
Investment in joint venture
Net effect GILTI and FDII
Other
2020
2019
2018
$
2,487 $
2,802 $
524
503
(115)
—
601
101
153
(794)
(218)
—
242
293
(1,341)
1,598
162
3,672 $
(707)
(236)
(4,201)
(842)
884
(2,124)
(1,386)
198
—
646
—
—
399
204
(4,363) $
1,337
73
7,048
693
57
(354)
(1,088)
1,521
(1,713)
666
(69)
—
(172)
1,095
9,618
$
F-28
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. The net
deferred tax liabilities consisted of the following at December 31:
(table only in thousands)
Gross deferred tax assets:
Accrued expenses
Reserves on assets
Share-based compensation awards
Minimum pension
Net operating loss carry-forwards
Tax credit carry-forwards
Investment in joint venture
Other
Depreciation
Leases
Valuation allowances
Gross deferred tax liabilities:
Depreciation
Goodwill and intangibles
Prepaid expenses and inventory
Withholding tax on unremitted foreign earnings
Leases
Revenue recognition
Net deferred tax liabilities
2020
2019
$
$
$
731 $
1,777
334
2,188
3,531
2,518
1,505
645
—
2,556
(5,965)
9,820 $
(1,159)
(11,565)
(438)
(871)
(2,602)
(155)
(16,790)
(6,970) $
1,167
1,566
410
1,946
3,141
2,940
—
371
140
2,999
(5,810)
8,870
—
(9,855)
(554)
(646)
(3,010)
(748)
(14,813)
(5,943)
As of December 31, 2020, the Company has federal net operating loss carry forwards of $0.6 million. Federal net operating losses of
$0.1 million will expire in 2037. The remaining net operating losses can be carried forward indefinitely until the loss is fully
recovered. State and local net operating loss carry forwards total $49.4 million, which expire from 2021 to 2040. 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 foreign jurisdictions totaling $10.3 million. A full valuation allowance has been established
against substantially all of these losses in foreign jurisdictions. As of December 31, 2020 and 2019, the Company has recorded a
valuation reserve in the amount of $6.0 million and $5.8 million, respectively. The changes in the valuation allowance resulted in
additional income tax expense (benefit) of $(0.2) million, $0.2 million, and $1.5 million in 2020, 2019, and 2018, respectively.
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,
2020. 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. 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:
F-29
(table only in thousands)
Balance as of January 1,
Additions for tax positions taken in prior years
Reductions of tax positions taken in prior years
Reductions for settlements on tax positions of prior years
Balance as of December 31,
2020
2019
$
$
254 $
2
(117)
—
139 $
939
4
(240)
(449)
254
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The reserve for uncertain tax
positions includes zero and $0.1 million of interest and penalties as of December 31, 2020 and 2019, respectively. The favorable
settlement of all uncertain tax positions would impact the Company’s effective income tax rate. Tax years going back to 2015 remain
open for all significant state and foreign authorities.
14. Related Party Transactions
During 2020, 2019 and 2018 we paid fees of $0.1 million, $0.2 million and $0.2 million, respectively, for consulting services to
Icarus, through which Jason DeZwirek, our Chairman of our Board, provides services. The services described above are based on a
verbal agreement with the Company. The Board of Directors approves the above services on an annual basis.
15. Acquisitions and Joint Ventures
Environmental Integrated Solutions
On June 4, 2020, the Company acquired 100% of the equity interests of Environmental Integrated Solutions (“EIS”) for $10.3 million
in cash, which was financed with an additional draw on our revolving credit facility. As additional consideration, the former owners
are entitled to earnout payments based upon a multiple of specified financial results through December 31, 2021. Based on projections
at the acquisition date, the Company estimated the fair value of the earnout to be $0.6 million. During 2020, the Company increased
earnout to $1.7 million at December 31, 2020 based on the estimated fair value at that date. Of this change, $1.2 million is recorded as
expense in “Amortization and earnout expenses” on the Consolidated Statement of Operations. The change in fair value was a result
of EIS performing above initial acquisition operational expectations. The earnout liability is recorded in “Accounts payable and
accrued expenses” on the Consolidated Balance Sheets.
EIS engineers products that clean air through a variety of technologies including volatile organic compounds (“VOC”) abatement,
odor control, regenerative thermal oxidizers, and other air pollution control solutions, which complements our Industrial Solutions
Segment businesses. The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the
date of closing.
(table only in thousands)
Current assets (including cash of $4,212)
Property and equipment
Other assets
Goodwill
Intangible - finite life
Total assets acquired
Current liabilities assumed
Deferred income tax liability
Net assets acquired
$
$
6,416
26
44
7,022
4,840
18,348
(6,514)
(920)
10,914
Goodwill recognized represents value the Company expects to be created by combining the various operations of the acquired
businesses with the Company’s operations, including the expansion into markets within existing business segments, access to new
customers and potential cost savings and synergies. Goodwill related to this acquisition is not deductible for tax purposes.
The Company acquired customer lists and tradename intangible assets valued at $4.2 million and $0.6 million, respectively. These
assets were determined to have useful lives of 10 years.
Acquisition and integration expenses on the Consolidated Statements of Operations are related to acquisition activities, which include
retention, legal, accounting, banking, and other expenses. During 2020, EIS accounted for $8.1 million in revenue and $(0.8) million
of pre-tax loss (inclusive of the earnout adjustment noted above).
F-30
Mader
On July 31, 2020, the Company entered into the JV Agreement with Mader in which CECO contributed the net assets of its Effox-
Flextor damper business and Mader contributed the net assets of their damper business. Under the terms of the JV Agreement, CECO
will hold 70% of the equity in the joint venture, and 50% voting interest. We determined CECO was the primary beneficiary of this
variable interest entity and therefore the 30% noncontrolling equity interest is in the Consolidated Balance Sheet. The results of the
joint venture are included in our Energy Segment. The fair value of Mader’s net assets contributed was $1.0 million. As of December
31, 2020 there were $6.4 million in current assets, $8.9 million in long-lived assets, and $7.6 million in total liabilities related to the
Effox-Mader joint venture included in our Consolidated Balance Sheets. Since formation, the joint venture has accounted for $7.7
million in revenue and $(0.2) million of pre-tax loss.
The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the JV agreement date.
(table only in thousands)
Current assets (including cash of $229)
Property and equipment
Goodwill
Deferred income tax asset
Total assets assumed
Current liabilities assumed
Other liabilities
Long term debt
Fair value of 30% noncontrolling equity interest in Mader
$
$
2,040
103
2,085
287
4,515
(515)
(500)
(2,508)
992
Goodwill recognized represents value the Company expects to be created by combining the various operations of the joint venture
with the Company’s operations, including the expansion into markets within existing business segments, access to new customers and
potential cost savings and synergies. Goodwill related to this joint venture is not deductible for tax purposes.
The approximate fair values of the assets acquired and liabilities assumed related to the above acquisition and joint venture are based
on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the
purchase price measurement period as we finalize the valuations of the assets acquired and liabilities assumed. Such changes could
result in material variances between the Company’s future financial results, including variances in the estimated purchase price, fair
values recorded and expenses associated with these items.
The following unaudited pro forma financial information represents the Company’s results of operations as if the EIS acquisition and
the joint venture with Mader had occurred on January 1, 2019:
(table only in thousands, except per share data)
Net sales
Net income attributable to CECO Environmental Corp
Earnings per share:
Basic
Diluted
December 31,
2020
2019
$
$
$
329,801 $
9,728
0.28 $
0.27 $
368,027
26,980
0.77
0.76
The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible
assets with finite life, reflect additional interest expense on debt used to fund the acquisition, and to record the income tax
consequences of the pro forma adjustments. These pro forma results do not purport to be indicative of the results of operations that
would have occurred had the purchase been made as of the beginning of the periods presented or of the results of operations that may
occur in the future.
F-31
16.
Divestitures
Strobic Air Corporation
On March 30, 2018, the Company completed the sale of Strobic Air Corporation (“Strobic”) as part of its strategic decision to exit
brands that do not align with the CECO portfolio to increase focus on better serving the energy and industrial solutions and fluid
handling markets. The sales price was $28.5 million, subject to post-closing purchase price adjustments. The disposition resulted in a
gain of $6.9 million, comprised of $27.9 million of net proceeds received as consideration after post-closing purchase price
adjustments less net assets disposed of $18.8 million and transaction costs of $2.2 million. The net assets disposed of are primarily
comprised of $13.0 million of goodwill, $2.3 million of definite-lived intangible assets and $1.2 million of indefinite-lived intangible
assets allocated to the Strobic business. Strobic results through the date of disposition are included within income before income taxes
in the Consolidated Statement of Operations and are reported within the Fluid Handling Solutions segment. The sale of Strobic did not
constitute a significant strategic shift that will have a material impact on the Company’s ongoing operations and financial results.
Keystone Filter
On February 28, 2018, the Company completed the sale of the Keystone Filter brand (“Keystone”) as part of its strategic decision to
exit brands that do not align with the CECO portfolio to increase focus on better serving energy and industrial solutions and fluid
handling markets. The sales price was $7.5 million, subject to post-closing purchase price adjustments. The disposition resulted in a
gain of $4.3 million, comprised of $7.2 million of net proceeds after post-closing purchase price adjustments less net assets disposed
of $2.7 million and transaction costs of $0.2 million. Keystone results are reported within the Fluid Handling Solutions segment
through the date of disposition.
Zhongli
On November 27, 2018, the Company completed the sale of Jiangyin Zhongli Industrial Technology Co. Ltd (“Zhongli”), a business
in our Energy Solutions segment operating in China, for a price of $3.6 million. In the third quarter of 2018, we classified the assets
and liabilities of Zhongli as held-for-sale. In connection with classifying this business as held-for-sale, GAAP required us to assess
impairment by comparing the estimated selling price, less cost to sell to our carrying value in Zhongli. Based on this analysis, we
recorded a $15.1 million loss. In 2019, the Company finalized a tax position related to the future carryback of the capital loss
recognized in connection with the divestiture, resulting in a $4.4 million income tax benefit. The disposal of this business does not
constitute a significant strategic shift that will have a material impact on the Company’s ongoing operations and financial
results. Zhongli results are reported within the Energy Solutions segment through the date of disposition.
17. Business Segment Information
The Company’s operations are organized and reviewed by management along its product lines or end markets that the segment serves
and are presented in three reportable segments. The results of the segments are reviewed through to the “Income from operations” line
on the 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 organized as groups of similar products and services, as described as follows:
•
•
Energy Solutions segment: Our Energy Solutions segment serves the Energy market, where we are a key part of helping
meet the global demand for clean energy and lower emissions through our highly engineered and tailored emissions
management, silencers and separation solutions and services. Our offerings improve air quality and solves fluid handling
needs with market leading technologies, efficiently designed, and customized solutions for the power generation, oil & gas,
and petrochemical industries.
Industrial Solutions segment: Our Industrial Solutions segment serves the Air Pollution Control market where 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. Our offerings in clean air pollution control, collection and ventilation technologies improve air
quality with a compelling solution that enable our customers in the semiconductor manufacturing, electric vehicle production,
battery recycling, and wood manufacturing industries to reduce their carbon footprint, lower energy consumption, minimize
waste and meet compliance targets for toxic emissions, fumes, volatile organic compounds, and industrial odors.
F-32
•
Fluid Handling Solutions segment: Our Fluid Handling Solutions segment offers unique pump and filtration solutions that
maintain safe and clean operations in some of the most harsh and toxic environments. In this market, we provide solutions for
mission-critical applications to a wide variety of industries including, but not limited to, plating and metal finishing,
automotive, food and beverage, chemical, petrochemical, pharmaceutical, wastewater treatment, desalination and the
aquarium & aquaculture markets.
(table only in thousands)
Net Sales (less intra-, inter-segment sales)
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Net sales
(table only in thousands)
Income from Operations
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Corporate and Other (1)
Income from operations
2020
2019
2018
205,494 $
74,697
35,820
316,011 $
210,319 $
91,347
40,203
341,869 $
211,185
80,699
45,455
337,339
2020
2019
2018
34,170 $
2,183
5,037
(28,044)
13,346 $
33,886 $
5,679
5,558
(27,133)
17,990 $
28,797
6,308
7,730
(32,833)
10,002
$
$
$
$
(1)
Includes corporate compensation, professional services, information technology, acquisition and integration expenses, and other
general, administrative corporate expenses and loss on divestitures.
(table only in thousands)
Property and Equipment Additions
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Corporate and Other
Property and equipment additions
(table only in thousands)
Depreciation and Amortization
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Corporate and Other
Depreciation and amortization
(table only in thousands)
Identifiable Assets
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Corporate and Other (2)
Identifiable assets
$
$
$
$
2020
2019
2018
550 $
371
978
2,046
3,945 $
434 $
402
3,239
1,580
5,655 $
205
756
1,226
903
3,090
2020
2019
2018
4,957 $
1,589
2,610
765
9,921 $
6,084 $
1,320
2,795
410
10,609 $
December 31,
2020
2019
$
$
270,573 $
69,465
65,739
13,537
419,314 $
8,112
1,067
3,517
576
13,272
254,752
64,725
71,572
17,588
408,637
(2) Corporate assets primarily consist of cash and income tax related assets.
F-33
(table only in thousands)
Goodwill
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Goodwill
Intra-segment and Inter-segment Revenues
December 31,
2020
2019
$
$
99,785 $
30,458
31,577
161,820 $
97,007
23,436
31,577
152,020
The Company has divisions that sell to each other within segments (intra-segment sales) and between segments (inter-segment sales)
as indicated in the following tables:
(table only in thousands)
Net Sales
Year Ended December 31, 2020
Less Inter-Segment Sales
Total Sales
Intra -
Segment
Sales
Industrial
Energy
Fluid
Net Sales to
Outside
Customers
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Net Sales
$ 218,290 $
88,694
36,761
$ 343,745 $
(11,333) $
(12,749)
(902)
(24,984) $
(725) $
—
(39)
(764) $
— $
(1,232)
—
(1,232) $
(738) $ 205,494
74,697
(16)
35,820
—
(754) $ 316,011
(table only in thousands)
Net Sales
Year Ended December 31, 2019
Less Inter-Segment Sales
Total Sales
Intra -
Segment
Sales
Industrial
Energy
Fluid
Net Sales to
Outside
Customers
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Net Sales
$ 217,359 $
101,369
41,717
$ 360,445 $
(6,650) $
(8,278)
(1,300)
(16,228) $
(390) $
—
(214)
(604) $
— $
(1,677)
—
(1,677) $
— $ 210,319
91,347
(67)
—
40,203
(67) $ 341,869
(table only in thousands)
Net Sales
Year Ended December 31, 2018
Less Inter-Segment Sales
Total Sales
Intra -
Segment
Sales
Industrial
Energy
Fluid
Net Sales to
Outside
Customers
Energy Solutions segment
Industrial Solutions segment
Fluid Handling Solutions segment
Net Sales
$ 220,334 $
84,424
47,561
$ 352,319 $
(7,912) $
(3,084)
(1,483)
(12,479) $
(1,232) $
—
(616)
(1,848) $
— $
(600)
(7)
(607) $
(5) $ 211,185
80,699
(41)
45,455
—
(46) $ 337,339
No single customer represented greater than 10% of consolidated net sales or accounts receivable for 2020, 2019, or 2018.
For 2020, 2019, and 2018, sales to customers outside the United States, including export sales, accounted for approximately 35%,
30%, and 33%, respectively, of consolidated net sales. The largest portion of export sales in 2020 was destined for Europe (11.7%),
and Asia (11.4%). Of consolidated long-lived assets, $29.0 million and $16.9 million were located outside of the United States as of
December 31, 2020 and 2019, respectively. The largest portion of long-lived assets located outside the United States at December 31,
2020 were in Europe ($25.4 million).
F-34
SUPPLEMENTARY NON-GAAP FINANCIAL MEASURES
(dollars in millions)
Annual 2018 Annual 2019 Annual 2020
Revenue as reported in accordance with GAAP
Less revenue attributable to divestitures
Organic revenue
$ 337.3
$
(9.3)
$ 328.0
$ 341.9
$
$ 341.9
—
$ 316.0
$
$ 316.0
—
(dollars in millions)
Annual 2018 Annual 2019 Annual 2020
Net (loss) income as reported in accordance with GAAP
Amortization
Earnout expenses
Restructuring expenses, net
Acquisition and integration expenses
Executive transition expenses
Loss on divestitures, net of selling costs
Intangible asset impairment
(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:403)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:72)(cid:72)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
Foreign currency remeasurement
(cid:55)(cid:68)(cid:91)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:11)(cid:69)(cid:72)(cid:81)(cid:72)(cid:403)(cid:87)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:61)(cid:75)(cid:82)(cid:81)(cid:74)(cid:79)(cid:76)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:403)(cid:87)(cid:3)
Non-GAAP net income
Depreciation
Non-cash stock compensation
Other (income) expense, net
Interest expense
Income tax expense
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)
Adjusted EBITDA margin
$
$
$
$
$
$
$
$
(cid:7)(cid:3)
$
(cid:7)(cid:3)
(cid:7)(cid:3)
$
$
$
$
$
$
(cid:7)(cid:3)
(7.1)
9.7
—
—
—
—
4.4
—
(cid:331)(cid:3)
0.8
(cid:21)(cid:17)(cid:23)(cid:3)
(cid:331)(cid:3)
10.2
3.5
3.1
(0.4)
7.1
7.2
(cid:22)(cid:19)(cid:17)(cid:26)(cid:3)
$
$
$
$
$
$
$
$
(cid:7)(cid:3)
$
(cid:7)(cid:3)
(cid:7)(cid:3)
$
$
$
$
$
$
(cid:7)(cid:3)
17.7
8.5
—
1.1
0.5
—
0.1
—
(cid:19)(cid:17)(cid:23)(cid:3)
(0.5)
(cid:11)(cid:21)(cid:17)(cid:24)(cid:12)(cid:3)
(cid:11)(cid:23)(cid:17)(cid:23)(cid:12)(cid:3)
20.9
2.1
2.8
(0.3)
5.0
2.5
(cid:22)(cid:22)(cid:17)(cid:19)(cid:3)
$
$
$
$
$
$
$
$
(cid:7)(cid:3)
$
(cid:7)(cid:3)
(cid:7)(cid:3)
$
$
$
$
$
$
(cid:7)(cid:3)
8.2
7.4
1.4
2.3
1.4
1.5
—
0.9
(cid:331)
0.3
(cid:11)(cid:22)(cid:17)(cid:28)(cid:12)
(cid:331)
19.5
2.5
2.0
(2.3)
3.5
7.6
(cid:22)(cid:21)(cid:17)(cid:27)
9.1%
9.7%
10.4%
CORPORATE INFORMATION
(cid:42)(cid:86)(cid:89)(cid:87)(cid:86)(cid:89)(cid:72)(cid:91)(cid:76)(cid:3)(cid:48)(cid:48)(cid:85)(cid:77)(cid:77)(cid:86)(cid:89)(cid:84) (cid:91)(cid:72)(cid:91)(cid:80)(cid:80)(cid:86)(cid:85)
(cid:42)(cid:86)(cid:89)(cid:87)(cid:86)(cid:89)(cid:72)(cid:91)(cid:76)(cid:3)(cid:48)(cid:85)(cid:77)(cid:86)(cid:89)(cid:84)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)
Annual Meeting
Annual Meeting
CECO Environmental Corp.’s Annual Meeting
of Stockholders at 8:00 a.m. Central Time on
Tuesday, May 25, 2021 to be held solely through
virtual participation via webcast at:
www.virtualshareholdermeeting.com/CECE2021
Common Stock
The Common Stock of CECO Environmental
Corp. is traded on the Nasdaq Global Select
Market under the symbol [“CECE”]
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:50)(cid:73)(cid:240)(cid:70)(cid:72)
14651 N. Dallas Parkway, Suite 500
Dallas, Texas 75254
Registered Public Accounting Firm
BDO USA, LLP
Cincinnati, Ohio
Corporate Counsel
Jones Day
New York, New York
Transfer Agent and Registrar
Broadridge Corporate Issuer
Solutions, Inc.
Brentwood, New York
(cid:44)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:54)(cid:77)(cid:196)(cid:74)(cid:76)(cid:89)(cid:90)
(cid:44)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:54)(cid:77)(cid:196)(cid:74)(cid:76)(cid:89)(cid:90)
Todd Gleason
Todd Gleason
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:44)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:54)(cid:585)(cid:74)(cid:76)(cid:89)
Matthew Eckl
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:45)(cid:80)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:54)(cid:585)(cid:74)(cid:76)(cid:89)
Paul Gohr
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:40)(cid:74)(cid:74)(cid:86)(cid:92)(cid:85)(cid:91)(cid:80)(cid:85)(cid:78)(cid:3)(cid:54)(cid:585)(cid:74)(cid:76)(cid:89)
(cid:41)(cid:86)(cid:72)(cid:89)(cid:75)(cid:3)(cid:86)(cid:77)(cid:3)(cid:43)(cid:80)(cid:89)(cid:76)(cid:74)(cid:91)(cid:86)(cid:89)(cid:90)
Jason DeZwirek
Chairman
Todd Gleason
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:44)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:54)(cid:585)(cid:74)(cid:76)(cid:89)
Eric M. Goldberg
Principal
GKK Capital
David B. Liner
Former General Counsel, Corporate
(cid:58)(cid:76)(cid:74)(cid:89)(cid:76)(cid:91)(cid:72)(cid:89)(cid:96)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:42)(cid:86)(cid:84)(cid:87)(cid:83)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:3)(cid:54)(cid:585)(cid:74)(cid:76)(cid:89)
Roper Technologies, Inc.
Claudio A. Mannarino
President
Sette CS Inc.
Munish Nanda
President, Americas & Europe
Watts Water Technologies, Inc.
Jonathan Pollack
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:45)(cid:80)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:54)(cid:585)(cid:74)(cid:76)(cid:89)
AcuityAds Inc.
Valerie Gentile Sachs
Former Vice President, General Counsel
and Corporate Secretary
OM Group, Inc.
2020 Annual Report (cid:2094) 7
2020 Annual Report (cid:2094) 7
14651 N. Dallas Parkway
Suite 500
Dallas, Texas 75254
USA
www.cecoenviro.com