Registrant’s telephone number, including area code: ~~(513) 458-2600~~(214) 357-6181

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

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

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

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

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

The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: ~~34,911,231~~35,204,911 shares of common stock, par value $0.01 per share, as of ~~August 3, 2018.~~July 31, 2019.


(dollars in thousands, except per share data)	(unaudited) JUNE 30, 2019			DECEMBER 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	28,828		$	43,676
Restricted cash		1,127			762
Accounts receivable, net		60,037			53,225
Costs and estimated earnings in excess of billings on uncompleted contracts		32,205			29,694
Inventories, net		22,376			20,817
Prepaid expenses and other current assets		12,754			10,117
Prepaid income taxes		2,005			1,388
Assets held for sale		1,182			1,186
Total current assets		160,514			160,865
Property, plant and equipment, net		11,858			22,200
Right-of-use assets from operating leases (Note 12)		13,056			—
Goodwill		152,199			152,156
Intangible assets – finite life, net		35,527			35,959
Intangible assets – indefinite life		14,342			18,258
Deferred charges and other assets		4,230			3,144
Total assets	$	391,726		$	392,582
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt	$	2,500		$	—
Accounts payable and accrued expenses		75,084			80,229
Billings in excess of costs and estimated earnings on uncompleted contracts		22,015			20,144
Note payable		—			1,700
Income taxes payable		—			1,813
Total current liabilities		99,599			103,886
Other liabilities		19,343			26,925
Debt, less current portion		72,539			74,456
Deferred income tax liability, net		6,976			8,755
Operating lease liabilities (Note 12)		10,700			—
Total liabilities		209,157			214,022
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value; 10,000 shares authorized, none issued		—			—
Common stock, $.01 par value; 100,000,000 shares authorized, 35,180,060 and 34,953,825 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		352			349
Capital in excess of par value		252,916			251,409
Accumulated loss		(56,668	)		(59,427	)
Accumulated other comprehensive loss		(13,675	)		(13,415	)
		182,925			178,916
Less treasury stock, at cost, 137,920 shares at June 30, 2019 and December 31, 2018		(356	)		(356	)
Total shareholders’ equity		182,569			178,560
Total liabilities and shareholders' equity	$	391,726		$	392,582

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

(unaudited)

(dollars in thousands, except per share data)

June 30, 2018

December 31, 2017

ASSETS

Current assets:

Cash and cash equivalents

$
35,556

$
29,902

Restricted cash

284

591

Accounts receivable, net

67,796

67,990

Costs and estimated earnings in excess of billings on uncompleted contracts

35,188

33,947

Inventories, net

22,450

20,969

Prepaid expenses and other current assets

12,601

10,760

Prepaid income taxes

699

1,930

Assets held for sale

6,708

7,853

Total current assets

181,282

173,942

Property, plant and equipment, net

22,161

23,400

Goodwill

152,371

166,951

Intangible assets – finite life, net

42,444

49,956

Intangible assets – indefinite life

18,300

19,691

Deferred charges and other assets

4,843

4,609

Total assets

$
421,401

$
438,549

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of debt

$
—

$
11,296

Accounts payable and accrued expenses

79,352

70,786

Billings in excess of costs and estimated earnings on uncompleted contracts

23,340

20,469

Note payable

5,300

5,300

Income taxes payable

1,612

—

Total current liabilities

109,604

107,851

Other liabilities

30,407

30,382

Debt, less current portion

80,895

103,537

Deferred income tax liability, net

9,268

10,210

Total liabilities

230,174

251,980

Commitments and contingencies

Shareholders’ equity:

Preferred stock, $.01 par value; 10,000 shares authorized, none issued

—

—

Common stock, $.01 par value; 100,000,000 shares authorized, 34,892,193 and
34,707,924 shares issued and outstanding at June 30, 2018 and December 31, 2017,
respectively

349

347

Capital in excess of par value

249,674

248,170

Accumulated loss

(47,420
)

(52,673
)
Accumulated other comprehensive loss

(11,020
)

(8,919
)

191,583

186,925

Less treasury stock, at cost, 137,920 shares at June 30, 2018 and December 31, 2017

(356
)

(356
)
Total shareholders’ equity

191,227

186,569

Total liabilities and shareholders' equity

$
421,401

$
438,549

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except per share data)	2019			2018			2019			2018
Net sales	$	81,179		$	81,089		$	167,190		$	155,229
Cost of sales		54,333			53,937			111,911			102,143
Gross profit		26,846			27,152			55,279			53,086
Selling and administrative expenses		22,426			21,967			43,740			43,931
Amortization and earnout expenses		2,153			2,493			4,313			5,397
Loss (gain) on divestitures, net of selling costs		—			73			70			(11,104	)
Restructuring expenses		249			38			249			150
Income from operations		2,018			2,581			6,907			14,712
Other income (expense), net		808			(373	)		168			(711	)
Interest expense		(1,460	)		(1,793	)		(3,004	)		(3,713	)
Income before income taxes		1,366			415			4,071			10,288
Income tax (benefit) expense		(4,149	)		1,316			(3,308	)		5,426
Net income (loss)	$	5,515		$	(901	)	$	7,379		$	4,862
Earnings (loss) per share:
Basic	$	0.16		$	(0.03	)	$	0.21		$	0.14
Diluted	$	0.15		$	(0.03	)	$	0.21		$	0.14
Weighted average number of common shares outstanding:
Basic		34,923,587			34,669,810			34,879,811			34,631,519
Diluted		35,582,727			34,669,810			35,471,628			34,715,141

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

CONDENSED CONSOLIDATED STATEMENT ~~STATEMENTS~~S OF ~~OPERATIONS~~COMPREHENSIVE INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands, except per share data)

2018

2017

2018

2017

Net sales

$
81,089

$
93,870

$
155,229

$
186,521

Cost of sales

53,937

65,384

102,143

126,106

Gross profit

27,152

28,486

53,086

60,415

Selling and administrative expenses

21,967

21,476

43,931

44,732

Amortization and earnout expenses (income)

2,493

(2,245
)

5,397

5,078

Loss (gain) on divestitures, net of selling costs

73

—

(11,104
)

—

Restructuring expenses

38

—

150

—

Income from operations

2,581

9,255

14,712

10,605

Other (expense) income, net

(373
)

360

(711
)

251

Interest expense

(1,793
)

(1,645
)

(3,713
)

(3,356
)
Income before income taxes

415

7,970

10,288

7,500

Income tax expense

1,316

2,484

5,426

1,976

Net (loss) income

$
(901
)

$
5,486

$
4,862

$
5,524

(Loss) earnings per share:

Basic

$
(0.03
)

$
0.16

$
0.14

$
0.16

Diluted

$
(0.03
)

$
0.16

$
0.14

$
0.16

Weighted average number of common shares outstanding:

Basic

34,669,810

34,473,688

34,631,519

34,345,317

Diluted

34,669,810

34,806,808

34,715,141

34,685,687

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2019			2018			2019			2018
Net income (loss)	$	5,515		$	(901	)	$	7,379		$	4,862
Other comprehensive (loss) income, net of tax:
Interest rate swap		(293	)		55			(506	)		248
Foreign currency translation		(744	)		(3,292	)		234			(1,282	)
Comprehensive (loss) income	$	4,478		$	(4,138	)	$	7,107		$	3,828

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

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

CONDENSED CONSOLIDATED S~~TATEMENTS~~STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY

Six Months Ended June 30,

(dollars in thousands)

2018

2017

Cash flows from operating activities:

Net income

4,862

$
5,524

Adjustment to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

6,956

8,168

Unrealized foreign currency loss (gain)

746

(1,497
)
Net gain on interest rate swaps

(104
)

(129
)
Fair value adjustments to earnout liabilities

—

(1,755
)
Earnout payments

(2,050
)

(7,797
)
(Gain) / loss on sale of property and equipment

(9
)

83

Gain on divestitures

(11,104
)

—

Debt discount amortization

582

504

Share-based compensation expense

1,488

677

Bad debt expense

646

960

Inventory reserve expense

444

316

Deferred income tax expense

(744
)

(46
)
Changes in operating assets and liabilities, net of divestitures:

Accounts receivable

(6,539
)

17,342

Costs and estimated earnings in excess of billings on uncompleted contracts

(2,911
)

(1,646
)
Inventories

(1,629
)

(407
)
Prepaid expense and other current assets

2,407

1,808

Deferred charges and other assets

(219
)

792

Accounts payable and accrued expenses

12,605

(8,018
)
Billings in excess of costs and estimated earnings on uncompleted contracts

3,110

(11,828
)
Income taxes payable

1,589

(1,367
)
Other liabilities

(267
)

(9
)
Net cash provided by operating activities

9,859

1,675

Cash flows from investing activities:

Acquisitions of property and equipment

(591
)

(641
)
Net cash proceeds from divestitures

30,692

—

Proceeds from sale of property and equipment

112

44

Net cash provided by (used in) investing activities

30,213

(597
)
Cash flows from financing activities:

Net repayments on revolving credit lines

(3,792
)

(1,107
)
Repayments of debt

(30,756
)

(7,656
)
Deferred financing fees paid

—

(171
)
Earnout payments

—

(7,396
)
Proceeds from lease financing transaction

800

—

Payments on capital leases and sale-leaseback transactions

(344
)

(375
)
Proceeds from employee stock purchase plan, exercise of stock options, and dividend reinvestment plan

18

1,246

Dividends paid to common shareholders

(24
)

(5,173
)
Net cash used in financing activities

(34,098
)

(20,632
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash

(793
)

472

Net increase (decrease) in cash, cash equivalents and restricted cash

5,181

(19,082
)
Cash, cash equivalents and restricted cash at beginning of period

30,659

48,006

Cash, cash equivalents and restricted cash at end of period

35,840

$
28,924

Cash paid during the period for:

Interest

2,924

$
2,842

Income taxes

3,318

$
2,704

Non-cash transactions:

Net consideration receivable from divestiture and disposal of asset held for sale

2,685

$
—

	Common Stock				Capital in excess of			Accumulated			Accumulated Other Comprehensive			Treasury Stock						Total Shareholders'
	Shares		Amount		par value			Loss			Loss			Shares			Amount			Equity
Balance December 31, 2017		34,708	$	347	$	248,170		$	(52,673	)	$	(8,919	)		(138	)	$	(356	)	$	186,569
Net income for the six-months ended June 30, 2018									4,862												4,862
Cumulative effect adjustment upon adoption of new accounting standards (ASU 2018-02) and (ASU 2014-09)									415			(1,067	)								(652	)
Exercise of stock options		8		—		33															33
Restricted stock units issued		12		2		(99	)		(24	)											(121	)
Share based compensation earned		19		—		1,570															1,570
Adjustment for interest rate swap												248									248
Translation loss												(1,282	)								(1,282	)
Balance June 30, 2018		34,747	$	349	$	249,674		$	(47,420	)	$	(11,020	)		(138	)	$	(356	)	$	191,227

	Common Stock				Capital in excess of			Accumulated			Accumulated Other Comprehensive			Treasury Stock						Total Shareholders'
	Shares		Amount		par value			Loss			Loss			Shares			Amount			Equity
Balance December 31, 2018		34,954	$	349	$	251,409		$	(59,427	)	$	(13,415	)		(138	)	$	(356	)	$	178,560
Net income for the six-months ended June 30, 2019									7,379												7,379
Cumulative effect adjustment upon adoption of new accounting standards (ASU 2017-12) and (ASU 2016-02)									(4,602	)		12									(4,590	)
Restricted stock units issued		212		3		(322	)		(18	)											(337	)
Share based compensation earned		14		—		1,829															1,829
Adjustment for interest rate swap												(506	)								(506	)
Translation gain												234									234
Balance June 30, 2019		35,180	$	352	$	252,916		$	(56,668	)	$	(13,675	)		(138	)	$	(356	)	$	182,569

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

	Six Months Ended June 30,
(dollars in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	7,379		$	4,862
Adjustment to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		5,520			6,956
Unrealized foreign currency loss		258			746
Net gain on interest rate swaps		(248	)		(104	)
Earnout payments		—			(2,050	)
Gain on sale of property and equipment		—			(9	)
Loss (gain) on divestitures		70			(11,104	)
Debt discount amortization		847			582
Share-based compensation expense		1,756			1,488
Bad debt expense		394			646
Inventory reserve expense		361			444
Deferred income tax benefit		(337	)		(744	)
Changes in operating assets and liabilities, net of divestitures:
Accounts receivable		(7,046	)		(6,539	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(2,416	)		(2,911	)
Inventories		(1,929	)		(1,629	)
Prepaid expense and other current assets		(3,366	)		2,407
Deferred charges and other assets		(1,703	)		(219	)
Accounts payable and accrued expenses		(8,291	)		12,605
Billings in excess of costs and estimated earnings on uncompleted contracts		1,854			3,110
Income taxes payable		(1,656	)		1,589
Other liabilities		(2,744	)		(291	)
Net cash (used in) provided by operating activities		(11,297	)		9,835
Cash flows from investing activities:
Acquisitions of property and equipment		(1,201	)		(591	)
Net cash proceeds from divestitures		—			30,692
Proceeds from sale of property and equipment		—			112
Net cash (used in) provided by investing activities		(1,201	)		30,213
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit lines		853			(3,792	)
Repayments of debt		(1,700	)		(30,756	)
Deferred financing fees paid		(1,117	)		—
Proceeds from lease financing transaction		—			800
Payments on finance leases and financing liability		(232	)		(344	)
Proceeds from employee stock purchase plan and exercise of stock options		75			18
Net cash used in financing activities		(2,121	)		(34,074	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		136			(793	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(14,483	)		5,181
Cash, cash equivalents and restricted cash at beginning of period		44,438			30,659
Cash, cash equivalents and restricted cash at end of period	$	29,955		$	35,840
Cash paid during the period for:
Interest	$	2,300		$	2,924
Income taxes	$	3,582		$	3,318
Non-cash transaction:
Net consideration receivable from divestiture	$	—		$	2,685

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

The accompanying unaudited condensed consolidated financial statements of CECO Environmental Corp. and its subsidiaries (the “Company”, “we”, “us”, or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of June 30, ~~2018~~2019 and the results of operations, ~~and~~ cash flows and shareholders’ equity for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017.~~2018. The results of operations for the three-month and six-month periods ended June 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, ~~2017~~2018 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 as filed with the SEC.

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

These financial statements and accompanying notes should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC.

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

In ~~March 2018,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2018-05, “Income Taxes (Topic 740): Amendments~~ 2016-02, “Leases,” which, together with its related clarifying ASUs, provides revised guidance for lease accounting and related disclosure requirements and establishes a right-of-use (“ROU”) model that requires a lessee to ~~SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The standard relates to the accounting~~record a ROU asset and disclosures around the issuance of the SEC’s Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which the Company has adopted. See Note 12 – Income Taxes for the disclosures related to this amended guidance.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The standard allows for reclassification of stranded tax effects on items resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. Tax effects unrelated to the Tax Act are released from accumulated other comprehensive income baseda lease liability on the ~~nature~~balance sheet for all leases with terms longer than 12 months. Under the guidance, leases are classified as either finance or operating, with classification affecting the pattern of the underlying item. The Company early adopted the ASU in the first quarter of fiscal 2018, under the prospective method. As a result of the adoption, during the first quarter of fiscal 2018, accumulated loss in the Condensed Consolidated Balance Sheets increased by $1.2 million, with a corresponding decrease to accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets due to the reduction in the corporate tax rate from 35% to 21%. See Note 12 — Income Taxes for additional information about the Tax Act.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change.expense recognition. We adopted ASU ~~2017-09 on~~2016-02 effective January 1, ~~2018, under~~2019, using the ~~prospective method.~~modified retrospective method which was applied to leases that existed or were entered into on or after January 1, 2019. The Company elected to utilize the package of practical expedients that allows us to 1) not reassess whether any expired or existing contracts are or contain leases, 2) retain the existing classification of lease contracts as of the date of adoption, and 3) not reassess initial direct costs for any existing leases. We also elected to not separate lease and non-lease components, for all leases. The adoption of this standard had noa material impact on our consolidated ~~financial statements~~balance sheet due to the recognition of ROU assets and liabilities for our operating leases totaling $13.3 million, as ~~there were no events requiring management~~well as an adjustment to ~~evaluate for a potential modification~~beginning equity of $4.6 million, net of tax, related to a ~~share-based payment award.~~

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under existing GAAP, an entity is required to

present all components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as part of an asset where appropriate. ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. We adopted ASU 2017-07 on January 1, 2018, under the retrospective method for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption resulted in reclassification of other components of net periodic pension cost, other than service cost outside of operating income and the impact was not material. See Note 11 – Pension and Employee Benefit Plans for additional disclosures related to the adoption of the standard.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. We adopted ASU 2017-01 on January 1, 2018, under the prospective method.prior sales lease back transaction. The adoption of the standard’s definition of a business was followed for the Company’s two divestitures that occurred in the first quarter of fiscal year 2018. The divestitures would have been considered a business both before and after the adoption of the standard ~~and, therefore, the provisions of ASU 2017-01~~ did not have a material ~~effect~~impact on ~~the Company’s consolidated financial statements.~~

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 will require a change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on theour statement of cash flows. We adopted ASU 2016-18 on January 1, 2018, under the retrospective method. The prior year statement of cash flows has been reclassified to conform with the standard. The impact of the adoption was not materialoperations or liquidity. See Note 12 – Leases for disclosures related to the ~~Company. The adoption resulted in the Company presenting restricted cash activity on the Condensed Consolidated Statements of Cash Flows for each period presented.~~

We consider all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Restricted cash represents cash that is restricted as to withdrawal or usage and consists primarily of 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.

~~The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Statements of Cash Flows.~~

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 on January 1, 2018, under the retrospective method. The adoption will result in the reclassification of $1.0 million in 2016 from financing activity to investing activity within the Condensed Consolidated Statements of Cash Flows on the Company’s Annual Report on Form 10-K for the year ending December 31, 2018.

In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers.” ASU 2014-09 supersedes nearly all existing revenue recognition principles under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration an entity expects to be entitled to for those goods or services using a defined five-step process. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for identifying performance obligations, licenses and determining if a company is the principal or agent in a revenue arrangement.

We adopted ASU 2014-09 on January 1, 2018, under the modified retrospective method where the cumulative effect is recognized through retained earnings as of the date of adoption. Under the new standard, certain contract arrangements that were historically recognized over time under our previous policies will now be recognized at a point in time upon completion of the contracts. However, based on the Company’s evaluation of existing contracts that were not substantially complete as of January 1, 2018, the cumulative effect adjustment to the opening balance of retained earnings was not material.amended guidance.

Within the Energy Solutions and Industrial Solutions Segments, a significant portion of the Company’s revenue is derived from fixed-price contracts. For each contract, we assess the goods and services promised to a customer and identify a performance obligation for each promised good or service that is distinct. 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 recognize revenue over time for the majority of our contracts within the Energy Solutions and Industrial 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.

The revenue streams within the Company are consistent with those disclosed for our reportable segments. For descriptions of our product offerings and segments, see Note 15 - Business Segment Information. For description of our updated revenue recognition policy, see Note 17 – Significant Accounting Policy Updates.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ~~ASU 2017-12~~ This guidance expands an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and ~~allow~~allows for a simplified approach for fair value hedging of interest rate risk. Additionally, this ASU ~~2017-12~~ eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. ~~Additionally,~~The Company adopted this ASU 2017-12 simplifies the hedge documentation and effectiveness assessment under the previous guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. We plan to adopt the standard on January 1, ~~2019. We do not expect~~2019 and applied the modified retrospective approach through a cumulative-effect adjustment from accumulated other comprehensive income (“AOCI”) to retained earnings as of the effective date. The impact of the adoption of this ~~guidance~~ASU was not material.

Accounting Standards Yet to ~~have a material impact on our consolidated financial statements.~~be Adopted

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02, “Leases.~~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 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For public companies, this guidance2018-14 is effective for ~~annual periods beginning after December 15, 2018. We currently expect to adopt ASU 2016-02 as of~~the Company January 1, ~~2019, under~~2021. The Company is evaluating the ~~modified prospective method. Our evaluation~~impact of the adoption of ASU ~~2016-02 is ongoing and not complete. The Company believes that the new standard will have a material impact~~2018-14 on its consolidated balance sheet due to the recognition of ROU assets and liabilities for the Company’s operating leases but it will not have a material impact on its income statement or liquidity. We expect our accounting for capital leases to remain substantially unchanged. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Our leasing activity is primarily related to buildings and we have various sale-leaseback transactions. The Company is continuing to evaluate potential impacts to its consolidated financial statements.

Balances billed but not paid by customers under retainage provisions in contracts within the Condensed Consolidated Balance Sheets amounted to approximately ~~$2.6~~$1.3 million and ~~$2.5~~$0.9 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Retainage receivables on contracts in progress are generally collected within a year after contract completion.

Bad debt expense was ~~$0.5~~$0.3 million and ~~$0.7~~$0.5 million for the three-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$0.6~~$0.4 million and ~~$1.0 million~~$0.6 for the six-month periods ended June 30, 2019 and 2018, ~~and 2017,~~ respectively.

Our contracts have various lengths to completion ranging from a few days to several months. We anticipate that a majority of our current contracts will be completed within the next twelve to eighteen months. A significant amount of our revenue within the Energy Solutions and Industrial Solutions ~~Segments~~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. The assets and liabilities recognized in association with these contracts are as follows:

Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes to job performance, job conditions, and estimated profitability may result in revisions to contract revenue and costs, and are recognized in the period in which the revisions are made. ~~A provision of $0.2 million for estimated losses on uncompleted contracts was recognized as of June 30, 2018.~~No provision for estimated losses on uncompleted contracts was required as of June 30, 2019 or December 31, ~~2017.~~2018.

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to ~~$0.1~~$0.2 million and ~~$0.2~~$0.1 million for the three-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and $0.4 ~~million and $0.3~~ million for the six-month periods ended June 30, ~~2018~~2019 and ~~2017, respectively.~~ 2018.

	As of June 30, 2018						As of December 31, 2017
(Table only in thousands) Intangible assets – finite life	Cost			Accum. Amort.			Cost			Accum. Amort.
(table only in thousands)													As of June 30, 2019							As of December 31, 2018
Intangible assets – finite life													Cost				Accum. Amort.			Cost			Accum. Amort.
Technology	$	14,457		$	8,553		$	15,867		$	8,609		$	14,457		$		9,933		$	14,457		$	9,414
Customer lists		72,978			36,328			77,497			35,024			68,943				41,342			68,943			37,873
Noncompetition agreements		1,118			809			1,118			698			910				835			910			762
Tradename		1,390			510			1,390			440			5,294				845			1,390			579
Foreign currency adjustments		(1,583	)		(284	)		(1,214	)		(69	)		(1,521	)			(399	)		(1,520	)		(407	)
	$	88,360		$	45,916		$	94,658		$	44,702		$	88,083		$		52,556		$	84,180		$	48,221

Activity for the ~~six months~~six-months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:

Amortization expense of finite life intangible assets was ~~$2.4~~$2.2 million and ~~$2.9~~$2.4 million for the three-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively and ~~$5.0~~$4.3 million and ~~$5.8~~$5.0 million for the six-month periods ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. Amortization over the next five years for finite life intangibles is expected to be ~~$4.8~~$4.1 million for the remainder of ~~2018, $8.6 million in~~ 2019, ~~$6.9~~$6.8 million in 2020, $5.7 million in 2021, ~~and $4.7~~$4.8 million in ~~2022.~~2022, and $4.0 million in 2023.

During the six-month period ended June 30, 2019, the Company reassessed the useful lives of certain tradenames and determined that $3.9 million of their tradenames would have useful lives of 10 years now versus indefinite. The Company did not identify any triggering events during the three-month period ended June 30, ~~2018~~2019 that would require an interim impairment assessment of goodwill or ~~indefinite life~~ intangible assets. ~~The Company concluded there was no impairment of goodwill or indefinite life intangible assets during the three-month and six-month periods ended June 30, 2018.~~

~~The activity in the Company’s current portion of earnout liability and long-term portion of earnout liability was as follows for the six months ended June 30, 2018 and 2017:~~

Debt consisted of the following at June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

~~During the six-month period ended~~Scheduled principal payments under our new Credit Facility are $1.2 million in 2019, $2.5 million in 2020, $3.1 million in 2021, $3.8 million in 2022, $4.4 million in 2023, $35.0 million in 2024.

On June ~~30, 2018,~~11, 2019, the Company ~~made prepayments of $29.2 million on~~entered into a Second Amended and Restated Credit Agreement (the “Credit Facility”). The new Credit Facility amends the ~~outstanding balance of~~Company’s existing amended and restated agreement, dated September 3, 2015. Pursuant to the new Credit Facility, the lenders provided a term loan in ~~addition~~the aggregate principal amount of $50.0 million and the lenders increased their senior secured revolving credit commitments to the ~~required payment~~aggregate principal amount of ~~$1.6 million for a total repayment of $30.8 million on~~$140.0 million. This revolving credit commitment allows the ~~outstanding balance of~~Company the ~~term loan. Due~~ability to borrow loans denominated in different currencies. Additionally, the ~~additional prepayments made in 2018, there are no future current~~new Credit Facility extended the maturity ~~payments due until the final scheduled principal payment of $83.1 million, which is due in September 2020.~~

~~United States Debt~~date to June 11, 2024, reduced interest rates, and redefined certain financial covenants.

As of June 30, ~~2018~~2019 and December 31, ~~2017, $21.8~~2018, $15.7 million and ~~$24.4~~$29.3 million of letters of credit were outstanding, respectively. Total unused credit availability under the Company’s senior secured term loan and senior secured ~~U.S. dollar revolving loans~~revolver loan with sub-facilities for letters of credit, ~~and~~ swing-line loans and senior secured multi-currency ~~revolving credit facility for U.S. dollar and specific foreign currency~~ loans ~~(collectively, the “Credit Facility”)~~ was ~~$58.2~~$97.3 million and ~~$54.6~~$50.7 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Revolving loans may be borrowed, repaid and reborrowed until ~~September 3, 2020,~~June 11, 2024, at which time all ~~amounts borrowed pursuant to~~outstanding balances of the new Credit Facility must be repaid.

The weighted average stated interest rate on outstanding borrowings was ~~4.89%~~4.41% and ~~4.08%~~5.27% at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

In ~~accordance~~connection with the new Credit Facility, ~~terms,~~ the Company ~~entered into an~~terminated its existing interest rate swap ~~to hedge against interest rate exposure related to a portion of the outstanding debt indexed to LIBOR market rates.~~agreement. The fair value of the interest rate swap was zero and an asset of ~~$0.7 million and $0.3~~$0.5 million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and is classified within the ~~“Deferred~~“Deferred charges and other assets” on the Condensed Consolidated Balance Sheets. The Company designated the interest rate swap as an effective ~~hedge;~~hedge until the date of termination; therefore, the changes to the fair value of the interest rate swap ~~have been~~were recorded in other comprehensive income, asuntil the ~~hedge is deemed effective.~~

~~The Company amended the Credit Facility as~~date of October 31, 2017. The Credit Facility was amended to, among other things, (a) modify the calculation of Consolidated EBITDA and Consolidated Fixed Charges to exclude certain adjustments related to certain transactions, (b) modify the Consolidated Leverage Ratio covenant and (c) add a covenant restricting the amount of capital expenditures we may make in fiscal years 2018 and 2019. As a resulttermination. Upon termination of the ~~amendment to~~swap agreement, $0.2 million previously recognized in other comprehensive income was recognized into income during the three- and

six-month periods ended June 30, 2019, and is classified within “Other income (expense), net” on the Condensed Consolidated Statements of Operations.

Under the terms of the new Credit Facility, the Company is required to maintain certain financial covenants, including the maintenance of a Consolidated Net Leverage Ratio. Through September 30, 2020, the maximum Consolidated Net Leverage Ratio ~~increased to~~is 3.75, ~~and~~after which time it will ~~remain at this ratio through March 31, 2019, when it is set to~~ decrease to 3.50 through September 30, ~~2019.~~2021. The Consolidated Net Leverage Ratio will then decrease to 3.25 ~~where~~ ~~it will remain~~ until the end of the term of the new Credit Facility.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

In connection with the new Credit Facility, the Company paid $1.1 million in customary closing fees during the three-month period ended June 30, 2019 that were deferred and classified as a debt discount. Additionally, during the three-month period ended June 30, 2019, $0.4 million of the existing debt discount was expensed, and classified as interest expense, as a result of the debt modification.

AThe Company has a number of bank guarantee facilities and bilateral lines in various countries currently supported by cash, letters of credit or pledged assets and collateral under the new Credit Facility. The new Credit Facility allows letters of credit and bank guarantee issuances of up to $50.0 million from the bilateral lines secured by pledged assets and collateral under the new Credit Facility. As of June 30, 2019, $10.5 million in bank guarantees were outstanding. In addition, a subsidiary of the Company located in the Netherlands has a ~~Euro denominated facilities~~Euro-denominated bank guarantee agreement ~~with ING Bank N.V. (“Aarding Facility”) with a total borrowing capacity~~secured by local assets under which $3.1 million in bank guarantees were outstanding as of ~~$15.2 million.~~June 30, 2019. As of June 30, ~~2018,~~2019, the borrowers of these facilities and agreements were in compliance with all related financial and other restrictive covenants. As of December 31, 2017, the borrowers were not in compliance with certain financial covenants under the Aarding Facility. As such, the Company settled the outstanding amount of the overdraft facility in the first quarter of 2018. The Company plans to exit this facility and consolidate it with the Credit Facility. As of June 30, 2018, $8.7 million of the bank guarantee and none of the overdraft facility were being used by the borrowers. As of December 31, 2017, $3.9 million of the bank guarantee and $2.8 million of the overdraft facility were being used by the borrowers. There is no stated expiration date on the Aarding Facility.

The computational components of basic and diluted earnings per share for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 are below.

Options and restricted stock units ~~and warrants~~ included in the computation of diluted earnings per share are calculated using the treasury stock method. For the three-month periods ended June 30, 2019 and 2018, 0.4 million and ~~2017,~~ 0.6 million, respectively, and during the six-month periods ended June 30, 2019 and 2018, ~~and 2017, 0.6~~0.5 million and ~~0.7~~0.6 million, respectively, of outstanding options and ~~warrants~~restricted stock units were excluded from the computation of diluted earnings per share due to their having an anti-dilutive effect.

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

The Company accounts for ~~stock-based~~share-based compensation in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation,” which requires the Company to recognize compensation expense for ~~stock-based~~share-based awards, measured at the fair value of the awards at the grant date. The Company recognized $1.0 million and $0.8 million ~~and $0.7 million~~ of ~~stock~~share compensation related expense during the three-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$1.4~~$1.8 million and ~~$0.7~~$1.4 million during the six-month periods ended June 30, 2019 and 2018, ~~and 2017,~~ respectively. ~~Share based compensation expense was lower in 2017 primarily due to a large amount of forfeitures related to the former Chief Executive Officer’s departure from the Company.~~

The Company granted nozero options during the ~~three~~three-month and six-month periods ended June 30, ~~2018~~2019 and ~~granted 128,000 options during the three and six-month periods ended June 30, 2017,~~2018, respectively.

The Company granted approximately ~~910,000~~64,000 and ~~351,000~~910,000 restricted stock units during the three-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively and approximately ~~930,000~~464,000 and ~~405,000~~930,000 restricted stock units during the six-month periods ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. The weighted-average fair value of restricted stock units was estimated at ~~$5.10~~$7.49 and ~~$9.87~~$5.10 per unit granted during the ~~six months~~six-months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The fair value of the restricted stock units was determined by using the value of stock in the open market on the date of grant.

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

There were approximately ~~8,000~~1,000 and ~~282,000~~8,000 options exercised during the ~~six months~~six-months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company received ~~$28,000~~$7,000 and ~~$1.1 million~~$28,000 in cash from employees ~~and non-employee directors~~ exercising options during the ~~six months~~six-months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. The intrinsic value of options exercised during the ~~six months~~six-months ended June 30, 2019 and 2018 was approximately $1,000 and ~~2017 was $19,860 and $1.8 million,~~$20,000, respectively.

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

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

We present service cost within cost of sales and selling and administrative expenses depending on where the relevant employees compensation costs are recorded, and we present other components of net periodic benefit cost (gain) within ~~other expense, net~~“Other income (expense), net” on the Condensed Consolidated Statements of Operations.

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

(Table only in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			Three Months Ended June 30,						Six Months Ended June 30,
(table only in thousands)													2019			2018			2019			2018
Pension plan:
Service cost	$	—		$	101		$	—		$	214		$	—		$	—		$	—		$	—
Interest cost		298			329			595			657			326			298			652			595
Expected return on plan assets		(378	)		(431	)		(756	)		(861	)		(313	)		(378	)		(627	)		(756	)
Amortization of net actuarial loss		59			57			119			113			65			59			132			119
Net periodic benefit cost (gain)	$	(21	)	$	56		$	(42	)	$	123		$	78		$	(21	)	$	157		$	(42	)
Health care plan:
Interest cost	$	1		$	1		$	1		$	2		$	1		$	1		$	1		$	1
Amortization of loss		2			2			4			4			2			2			4			4
Net periodic benefit cost	$	3		$	3		$	5		$	6		$	3		$	3		$	5		$	5

We made contributions to our defined benefit plans during the ~~six months~~six-months ended June 30, 2019 and 2018 ~~and 2017~~ totaling ~~$0.6~~$0.2 million and ~~$0.3~~$0.6 million, respectively. We anticipate ~~$0.2~~$0.3 million and $24,000 of further contributions to fund the pension plan and the retiree health care plan, respectively, during the remainder of ~~2018.~~2019. The unfunded liability of the plans of ~~$9.1~~$8.7 million and ~~$9.6~~ $8.8

million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, is included in ~~Other liabilities~~“Other liabilities” on our Condensed Consolidated Balance Sheets.

Our leasing activity is primarily related to buildings used for manufacturing, warehousing, sales, and administrative activities. We ~~calculate~~determine if an arrangement is a lease at inception. Many of our ~~provision~~lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for ~~federal, state and international income taxes~~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 ~~current tax law. The Tax Act, which was enacted~~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 right-of-use 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 ~~December 22, 2017, included several key provisions impacting accounting for and reporting~~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 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 ~~income taxes. The most significant provisions, effective for periods beginning after December 31, 2017, are the global intangible low-taxed income (“GILTI”) provision~~assets being leased, and the ~~reduction~~term of the ~~U.S. corporate statutory tax rate from 35%~~leases.

As previously disclosed in our 2018 Annual Report on Form 10-K and under previous lease accounting standards, future minimum lease payments for operating leases having initial or remaining noncancellable lease terms in excess of one year would have been as follows:

We file income tax returns in various federal, state and local jurisdictions. Tax years from 2014 forward remain open for examination by Federal authorities. Tax years from ~~2012~~2014 forward remain open for all significant state and foreign authorities.

We account for uncertain tax positions pursuant to ASC Topic 740, “Income Taxes.” As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the liability for uncertain tax positions totaled approximately ~~$0.9~~$1.0 million, which is included in ~~Other liabilities~~“Other liabilities” on our Condensed Consolidated Balance Sheets. We recognize accrued interest related to uncertain tax positions and penalties, if any, in income tax expense within the Condensed Consolidated Statements of Operations.

Certain of the Company’s undistributed earnings of our foreign subsidiaries are not permanently reinvested. ~~Our cash needs for operating, investing and financing activities have increased in the U.S.~~ Since foreign earnings have already been subject to U.S. income tax in 2017 as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”), we intend to repatriate foreign-held cash as needed. As of June 30, ~~2018,~~2019 and December 31, ~~2017~~2018, we have recorded deferred income taxes of approximately $0.4 and $0.6 million, ~~and zero,~~ respectively, on the undistributed earnings of our foreign subsidiaries. This amount is attributable primarily to the foreign withholding taxes that would become payable should we decide to repatriate cash held in our foreign operations.

~~We recognized the provisional~~Income tax ~~impacts related to the deemed repatriation of foreign earnings and the~~ benefit was $4.2 million for the ~~revaluation~~second quarter of ~~deferred tax assets~~2019 and liabilities during the year ended December 31, 2017. ASU 2018-05 allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting$3.3 million for the ~~change in the~~first six months of 2019, compared with income tax ~~law. We adjusted our provisional accounting~~expense of $1.3 million for the ~~impacts~~second quarter of ~~Tax Reform as they relate to the repatriation of foreign cash. No other adjustments were made to these provisional amounts~~2018 and $5.4 million for the ~~three-month and six-month periods ended June 30,~~first six months of 2018. ~~We continue to review and evaluate the provisions of the Tax Act. This review could result in changes to the amounts we have provisionally recorded. We will complete our accounting~~The effective income tax rate for the ~~tax effects~~second quarter of ~~the Tax Act before the end of the one-year measurement period allowed by ASU 2018-05, which will be in the fourth~~2019 was (303.7%) compared with 317.1% for second quarter of 2018. The ~~amounts recorded in 2018 to account~~effective income tax rate was (81.3%) for the ~~impact~~first six months of 2019, compared with 52.7% for the ~~Tax Act~~first six months of 2018. The effective income tax rates for ~~periods beginning after December 31, 2017 are~~ the ~~Company’s best estimates based on the current data~~three and ~~guidance available. We have not yet determined our accounting policy election with respect~~six months ended June 30, 2019 were negative (i.e. income tax benefits), despite pre-tax income, due primarily to ~~recording deferred taxes for basis differences~~a tax benefit of $4.4 million upon finalization of a tax position related to the ~~GILTI provisions or to continue to record as a period cost.~~2018 divestiture of Zhongli. Our effective tax rate is affected by certain other permanent differences, including state income taxes, non-deductible incentive stock-based compensation, the Global Intangible Low-Taxed Income inclusion and Foreign-Derived Intangible Income deduction, tax credits, return-to-provision adjustments, and differences in tax rates among the jurisdictions in which we operate.

Our financial instruments consist primarily of investments in cash and cash equivalents, receivables and certain other assets, foreign debt and accounts payable, which approximate fair value at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, due to their short-term nature or variable, market-driven interest rates.

The fair value of the debt issued under the Credit Facility was ~~$83.1~~$77.0 million and ~~$114.9~~$76.1 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The fair value of the note payable was ~~$5.3~~$1.7 million at ~~June 30, 2018 and~~ December 31, ~~2017, respectively.~~

In accordance with the terms of the Credit Facility, the Company entered into an interest rate swap on December 30, 2015 to hedge against interest rate exposure related to a portion of the outstanding debt indexed to LIBOR market rates. See Note 8 for further information regarding the interest rate swap.2018.

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had cash and cash equivalents of ~~$35.6~~$28.8 million and ~~$29.9~~$43.7 million, respectively, of which ~~$22.6~~$21.7 million and ~~$19.7~~$23.3 million, respectively, was held outside of the United States, principally in the Netherlands, United Kingdom, China, and Canada.

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

Our subsidiary, Met-Pro Technologies LLC (“Met-Pro”), beginning in 2002, began to be named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that Met-Pro, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs. Counsel has advised that more recent cases typically allege more serious claims of mesothelioma. The Company’s insurers have hired attorneys who, together with the Company, are vigorously defending these cases. Many cases have been dismissed after the plaintiff fails to produce evidence of exposure to Met-Pro’s products. In those cases, where evidence has been produced, the Company’s experience has been that the exposure levels are low and the Company’s position has been that its products were not a cause of death, injury or loss. The Company has been dismissed from or settled a large number of these cases. Cumulative settlement payments from 2002 through June 30, ~~2018~~2019 for cases involving asbestos-related claims were $2.9 million, of which, together with all legal fees other than corporate counsel expenses, $2.8 million has been paid by the Company’s insurers. The average cost per settled claim, excluding legal fees, was approximately ~~$37,000.~~$35,000.

Based upon the most recent information available to the Company regarding such claims, there were a total of ~~203~~198 cases pending against the Company as of June 30, ~~2018~~2019 (with Illinois, New York, Pennsylvania and West Virginia having the largest number of cases), as compared with ~~218~~208 cases that were pending as of December 31, ~~2017.~~2018. During the ~~six months~~six-months ended June 30, ~~2018, 53~~2019, 24 new cases were filed against the Company, and the Company was dismissed from 2928 cases and settled 39six 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.

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

The final outcome and impact of open matters, and related claims and investigations that may be brought in the future, are subject to many variables, and cannot be predicted. In accordance with ASC 450, “Contingencies”, and related guidance, we record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable

and the amount of the loss, or range of loss, can be reasonably estimated. The Company expenses legal costs as they are incurred.

We are not aware of any 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.

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

During the first quarter of ~~2018,~~2019, as a result of further evaluating the ~~Company finalized an overall assessment and recalibration of its strategy. As a part of this assessment and recalibration of this strategy,~~Company’s operating structure, management determined that a minor realignment of the Company’s segments ~~was necessary to better reflect the technologies and~~with current customer solutions we provide and ~~the~~ end markets we ~~serve.~~serve would help maximize growth and improve customer experience. As a result of this minor realignment, ~~the reportable segments of the Company have been renamed utilizing the nomenclature below. Furthermore, we reclassified~~ the operating results of ~~certain business units within~~ the ~~Energy~~reportable segments Fluid Handling Solutions and Industrial Solutions ~~Segments~~have been reclassified to have their results align for the three-month and six-month periods ended June 30, 2019 and 2018.

The Company’s reportable ~~segment more closely align with our strategy.~~segments are organized as groups of similar products and services, as described as follows:

segment: Our Energy Solutions segment ~~formerly known as~~serves the Energy ~~segment,~~ market, where we are a key part of helping meet the global demand for Clean Energy with products and services that support our customers with efficient solutions and technologies to keep the world clean and safe. Our offerings ~~improves~~improve air quality and solves fluid handling needs with market leading, highly engineered, and customized solutions for the power generation, oil & gas, and petrochemical industries. Our offerings in this space include solutions such as natural gas turbine exhaust systems, selective catalytic reduction (“SCR”) and selective non-catalytic reduction (“SNCR”) systems, acoustical components and silencers, silencer and precipitator applications, the design and manufacture of technologies for flue gas dampers, diverters, expansion joints, gas and liquid separation and filtration equipment, secondary separators (nuclear plant reactor vessels), and ~~fluid catalytic cracking (“FCC”) unit cyclones~~ ~~for processing in power generation, refining, oil production and petrochemical plants, as well as a variety of other industries.~~

segment: Our Industrial Solutions segment ~~formerly known as~~serves the ~~Environmental segment, improves~~Industrial 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 improve air quality with a compelling solution set of air pollution control technologies that enable our customers to reduce their carbon footprint, lower energy consumption, minimize waste and meet compliance targets for toxic emissions, fumes, volatile organic compounds, ~~process~~ and industrial odors. With a powerful suite of products and solutions to address air quality needs in the industrial markets, our offerings include chemical and biological scrubbers, fabric filters and cartridge collectors, thermal and catalytic oxidation systems, cyclones, separators, gas absorbers and industrial ventilation systems. This segment also provides component parts for industrial air systems and provides cost effective alternatives to traditional duct components, as well as custom metal engineered fabrication services. These products and services are applicable to a wide variety of industries.

segment: Our Fluid Handling Solutions segment ~~formerly known as~~offers unique pump and filtration solutions that maintain safe and clean operations in some of the ~~Fluid Handling~~most harsh and ~~Filtration segment, provides~~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 ~~and~~& aquaculture plating and metal finishing, and food and beverage. To meet the needs of these markets, we design and manufacture high quality pumps and specialty filtration solutions including centrifugal pumps for corrosive, abrasive and high-temperature liquids, filter products for air and liquid filtration, precious metal recovery systems, carbonate precipitators, and technologically advanced air movement and exhaust systems.

Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measure of segment operating profit reviewed by management. The operating results of the segments are reviewed through to the “Income from operations” line on the Condensed Consolidated Statements of Operations.markets.

	Three Months Ended June 30,					Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
(dollars in thousands)	2018			2017		2018		2017		2019		2018			2019		2018
Net Sales (less intra-, inter-segment sales)
Energy Solutions Segment	$	51,136		$	52,499	$	91,109	$	106,208	$	50,572	$	51,136		$	105,760	$	91,109
Industrial Solutions Segment		18,324			22,796		36,121		46,099		20,083		19,517			38,936		37,965
Fluid Handling Solutions Segment		11,791			18,348		27,999		34,164		10,524		10,598			22,494		26,155
Corporate and Other⁽¹⁾		(162	)		227		—		50		—		(162	)		—		—
Net sales	$	81,089		$	93,870	$	155,229	$	186,521	$	81,179	$	81,089		$	167,190	$	155,229

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Income from Operations
Energy Solutions Segment	$	5,901		$	10,535		$	9,525		$	14,359		$	6,351		$	5,901		$	15,642		$	9,525
Industrial Solutions Segment		1,273			1,935			2,642			4,669			515			1,480			1,117			2,678
Fluid Handling Solutions Segment		2,182			4,148			5,392			7,457			1,481			1,975			3,839			5,356
Corporate and Other⁽²⁾		(6,539	)		(6,935	)		(2,025	)		(14,782	)		(6,329	)		(6,539	)		(13,691	)		(2,025	)
Eliminations		(236	)		(428	)		(822	)		(1,098	)		—			(236	)		—			(822	)
Income from operations	$	2,581		$	9,255		$	14,712		$	10,605		$	2,018		$	2,581		$	6,907		$	14,712

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Property and Equipment Additions
Energy Solutions Segment	$	15	$	116	$	32	$	352	$	111	$	15	$	161	$	32
Industrial Solutions Segment		90		31		165		40		102		90		163		165
Fluid Handling Solutions Segment		11		70		284		219		337		11		489		284
Corporate and Other		10		14		110		30		229		10		388		110
Property and equipment additions	$	126	$	231	$	591	$	641	$	779	$	126	$	1,201	$	591

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Depreciation and Amortization
Energy Solutions Segment	$	2,190	$	2,417	$	4,348	$	4,935	$	1,561	$	2,190	$	3,141	$	4,348
Industrial Solutions Segment		205		391		487		782		337		208		671		494
Fluid Handling Solutions Segment		1,002		1,197		1,996		2,395		734		999		1,472		1,989
Corporate and Other		62		25		125		56		117		62		236		125
Depreciation and amortization	$	3,459	$	4,030	$	6,956	$	8,168	$	2,749	$	3,459	$	5,520	$	6,956

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

	Three Months Ended June 30, 2018																				Three Months Ended June 30, 2019
						Less Inter-Segment Sales																				Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Industrial			Energy			Fluid			Corp and Other			Net Sales to Outside Customers			Total Sales		Intra- Segment Sales			Industrial			Energy			Fluid			Net Sales to Outside Customers
Net Sales
Energy Solutions Segment	$	53,322	$	(1,929	)	$	(252	)	$	—		$	(5	)	$	—		$	51,136		$	51,656	$	(973	)	$	(111	)	$	—		$	—		$	50,572
Industrial Solutions Segment		19,670		(813	)		—			(533	)		—			—			18,324			22,702		(1,800	)		—			(812	)		(7	)		20,083
Fluid Handling Solutions Segment		12,409		(295	)		(323	)		—			—			—			11,791			10,950		(340	)		(86	)		—			—			10,524
Corporate and Other⁽⁴⁾		—		—			—			—			—			(162	)		(162	)		—		—			—			—			—			—
Net Sales	$	85,401	$	(3,037	)	$	(575	)	$	(533	)	$	(5	)	$	(162	)	$	81,089		$	85,308	$	(3,113	)	$	(197	)	$	(812	)	$	(7	)	$	81,179

	Three Months Ended June 30, 2017																		Three Months Ended June 30, 2018
						Less Inter-Segment Sales																		Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Industrial			Energy			Fluid			Corp and Other		Net Sales to Outside Customers		Total Sales		Intra- Segment Sales			Industrial			Energy			Fluid			Net Sales to Outside Customers
Net Sales
Energy Solutions Segment	$	55,338	$	(2,839	)	$	—		$	—		$	—		$	—	$	52,499	$	53,322	$	(1,929	)	$	(252	)	$	—		$	(5	)	$	51,136
Industrial Solutions Segment		23,635		(800	)		—			—			(39	)		—		22,796		20,864		(814	)		—			(533	)		—			19,517
Fluid Handling Solutions Segment		19,160		(539	)		(258	)		(15	)		—			—		18,348		11,215		(294	)		(323	)		—			—			10,598
Corporate and Other⁽⁴⁾		—		—			—			—			—			227		227		—		—			—			—			(162	)		(162	)
Net Sales	$	98,133	$	(4,178	)	$	(258	)	$	(15	)	$	(39	)	$	227	$	93,870	$	85,401	$	(3,037	)	$	(575	)	$	(533	)	$	(167	)	$	81,089

Six Months Ended June 30, 2018

Less Inter-Segment Sales

(dollars in thousands)

Total
Sales

Intra-
Segment
Sales

Environmental

Energy

FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

Engineered Equipment Segment

$
96,450

$
(4,398
)

$
(938
)

—

$
(5
)

—

$
91,109

Air Quality Segment

38,398

(1,604
)

—

(673
)

—

—

$
36,121

Fluid Handling Solutions Segment

29,175

(809
)

(367
)

—

—

—

$
27,999

Corporate and Other⁽⁴⁾

—

—

—

—

—

—

$
—

Net Sales

$
164,023

$
(6,811
)

$
(1,305
)

$
(673
)

$
(5
)

$
—

$
155,229

	Six Months Ended June 30, 2017																		Six Months Ended June 30, 2019
						Less Inter-Segment Sales																		Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF			Corp and Other		Net Sales to Outside Customers		Total Sales		Intra- Segment Sales			Industrial			Energy			Fluid			Net Sales to Outside Customers
Net Sales
Engineered Equipment Segment	$	111,377	$	(5,147	)	$	(22	)		—			—			—	$	106,208
Air Quality Segment		48,557		(1,690	)		—			(729	)		(39	)		—	$	46,099
Energy Solutions Segment																			$	107,806	$	(1,864	)	$	(170	)	$	—		$	(12	)	$	105,760
Industrial Solutions Segment																				44,524		(3,977	)		—			(1,558	)		(53	)		38,936
Fluid Handling Solutions Segment		35,852		(1,157	)		(422	)		(109	)		—			—	$	34,164		23,366		(734	)		(138	)		—			—			22,494
Corporate and Other⁽⁴⁾		—		—			—			—			—			50	$	50		—		—			—			—			—			—
Net Sales	$	195,786	$	(7,994	)	$	(444	)	$	(838	)	$	(39	)	$	50	$	186,521	$	175,696	$	(6,575	)	$	(308	)	$	(1,558	)	$	(65	)	$	167,190

	Six Months Ended June 30, 2018
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Industrial			Energy			Fluid			Net Sales to Outside Customers
Net Sales
Energy Solutions Segment	$	96,450	$	(4,398	)	$	(938	)	$	—		$	(5	)	$	91,109
Industrial Solutions Segment		40,243		(1,605	)		—			(673	)		—		$	37,965
Fluid Handling Solutions Segment		27,331		(809	)		(367	)		—			—		$	26,155
Corporate and Other		—		—			—			—			—		$	—
Net Sales	$	164,024	$	(6,812	)	$	(1,305	)	$	(673	)	$	(5	)	$	155,229

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 ~~an estimated~~a gain of $6.9 million recorded in the first quarter of 2018, comprised of $27.9 million of net proceeds received as consideration after estimated post-closing purchase price adjustments less net assets disposed of $18.8 million and transaction costs of $2.2 million. The net assets disposed ~~are~~were 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. In ~~fiscal year 2017,~~the first quarter of 2018, Strobic reported ~~$17.7~~$4.2 million in net sales and ~~$1.6~~$1.1 million in income from operations. Strobic results through the date of disposition are included within income before income taxes in the Condensed Consolidated ~~Statement~~Statements of Operations and are reported within the Fluid Handling Solutions segment. The sale of Strobic ~~does~~did not constitute a significant strategic shift that will have a material impact on the Company’s ongoing operations and financial results.

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 ~~an estimated~~a gain of $4.3 million recorded in the first quarter of 2018, comprised of $7.2 million of net proceeds received as consideration after estimated post-closing purchase price adjustments less net assets disposed of $2.7 million and transaction costs of $0.2 million. ~~As of June 30, 2018, there is consideration receivable from this divestiture of $1.9 million, which the Company expects to receive within fiscal year 2018.~~ Keystone results are reported within the Fluid Handling Solutions ~~segment.~~

On November 27, 2018, the Company completed the sale of Jiangyin Zhongli Industrial Technology Co. Ltd (“Zhongli”), a business in ~~Note 2 – New Financial Accounting Pronouncements, effective January 1,~~our Energy Solutions segment operating in China for a price of $3.6 million. In the third quarter of 2018, we ~~adopted ASU 2014-09, which changed~~classified the ~~way~~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 ~~recognize revenue for certain contracts. Accounting policies that were significantly affected by the adoption~~recorded a $15.1 million estimated loss. The disposal of ~~ASU 2014-09 are discussed below.~~

~~Within the Energy Solutions and Industrial Solutions segments,~~this business does not constitute a significant ~~portion of our revenue is derived from fixed-price contracts. We account for~~strategic shift that will have 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 promised good or service that is distinct. 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 basedmaterial impact on the ~~consideration we expect to receive for~~Company’s ongoing operations and financial results. During the ~~products or services being provided under the contract.~~

~~We recognize revenue as performance obligations~~three-month and six-month periods ended June 30, 2018, Zhongli reported net sales of $1.2 million and $2.9 million, respectively. Zhongli results are ~~satisfied and the customer obtains control of the products and services. A significant amount of our revenue~~reported within the Energy Solutions ~~and Industrial Solutions segments is recognized over a period~~segment through the date 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.disposition.

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.

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.

Payments vary by customer but are typically due within thirty 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 for contracts where revenue is recognized at a point in time are costs incurred on a contract for which revenue has not been recognized. Contract assets are recorded in inventories in the Condensed Consolidated Balance Sheet. Contract liabilities relate to 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 recorded in accounts payable and accrued expenses in the Condensed Consolidated Balance Sheet. Contract liabilities are reduced when the associated revenue from the contract is recognized.

The Company’s Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 reflect the consolidated operations of the Company and its subsidiaries.

CECO ~~Environmental~~ is a global leader in industrial air quality and fluid handling serving the energy, industrial and other niche ~~markets. Providing~~markets through an attractive asset-light business model. CECO provides innovative technology and application expertise ~~CECO~~that helps companies grow their ~~business~~businesses with safe, clean, and more efficient solutions ~~that~~to help protect our shared environment. ~~In regions around the world,~~

CECO ~~works~~serves diverse industries globally by working to improve air quality, optimize the energy value chain, and provide ~~custom~~customized engineered solutions ~~for applications including~~in our customer’s mission critical applications. The secular growth industries CECO serves include oil ~~and~~& gas, power generation, water and wastewater, battery production, poly silicon fabrication, chemical and petrochemical processing, along with a wide range of ~~others.~~other industries.

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

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

The Company has provided the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin as a result of items that the Company believes are not indicative of its ongoing operations. These include transactions 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 the acquisition and divestitures. ~~Additionally, the Company has incurred additional charges related to its restructuring program that was initiated in the fourth quarter of 2017.~~ While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the financial impact of these transactions as special items in its future presentation of non-GAAP results.

Our Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Net sales	$	81.1		$	93.9		$	155.2		$	186.5		$	81.2		$	81.1		$	167.2		$	155.2
Cost of sales		53.9			65.4			102.1			126.1			54.4			53.9			111.9			102.1
Gross profit	$	27.2		$	28.5		$	53.1		$	60.4		$	26.8		$	27.2		$	55.3		$	53.1
Percent of sales		33.5	%		30.4	%		34.2	%		32.4	%		33.0	%		33.5	%		33.1	%		34.2	%
Selling and administrative expenses	$	22.0		$	21.4		$	43.9		$	44.7			22.4			22.0			43.8			43.9
Percent of sales		27.1	%		22.8	%		28.3	%		24.0	%		27.6	%		27.1	%		26.2	%		28.3	%
Amortization and earnout expenses (income)	$	2.5		$	(2.2	)	$	5.4		$	5.1
Percent of sales		3.1	%		(2.3	)%		3.5	%		2.7	%
Amortization and earnout expenses														2.2			2.5			4.3			5.4
Loss (gain) on divestitures, net of selling costs	$	0.1		$	—		$	(11.1	)	$	—			—			0.1			0.1			(11.1	)
Percent of sales		0.1	%		0.0	%		(7.2	)%		0.0	%
Restructuring expenses	$	—		$	—		$	0.2		$	—			0.2			—			0.2			0.2
Percent of sales		0.0	%		0.0	%		0.1	%		0.0	%
Operating income	$	2.6		$	9.3		$	14.7		$	10.6		$	2.0		$	2.6		$	6.9		$	14.7
Operating margin		3.2	%		9.9	%		9.5	%		5.7	%		2.5	%		3.2	%		4.1	%		9.5	%

To compare operating performance between the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company has adjusted GAAP operating income to exclude (1) loss (gain) on divestitures, net of selling costs necessary to complete the divestiture

such as legal, accounting and compliance, (2) executive transition expenses, including severance for its former Chief Executive Officer, fees incurred in the search for its current Chief Executive Officer, and expenses associated with hiring its current Chief Financial Officer, (3) amortization and contingent acquisition expenses, including amortization of acquisition related intangibles, retention, severance, and earnout expenses, ~~(4) facility exit expenses associated with the closure of certain leased facilities, (5)~~and (3) restructuring expenses primarily relating to severance, (6) legacy design repair expenses related to costs to rectify issues on products that are no longer in production and (7) plant, property and equipment valuation adjustments related to acquisitions.expenses. See “Note Regarding Use of Non-GAAP Financial Measures” above. The following table presents the reconciliation of GAAP operating income and GAAP operating margin to non-GAAP operating income and non-GAAP operating margin:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Operating income as reported in accordance with GAAP	$	2.6		$	9.3		$	14.7		$	10.6		$	2.0		$	2.6		$	6.9		$	14.7
Operating margin in accordance with GAAP		3.2	%		9.9	%		9.5	%		5.7	%		2.5	%		3.2	%		4.1	%		9.5	%
Legacy design repairs		—			1.8			—			2.0
Plant, property and equipment valuation adjustment		—			0.1			—			0.3
Amortization and earnout expenses (income)		2.5	��		(2.2	)		5.4			5.1
Amortization and earnout expenses														2.2			2.5			4.3			5.4
Loss (gain) on divestitures, net of selling costs		0.1			—			(11.1	)		—			—			0.1			0.1			(11.1	)
Restructuring expenses		—			—			0.2			—			0.2			—			0.2			0.2
Executive transition expenses		—			0.4			—			1.3
Facility exit expenses		—			—			—			0.2
Non-GAAP operating income	$	5.2		$	9.4		$	9.2		$	19.5		$	4.4		$	5.2		$	11.5		$	9.2
Non-GAAP operating margin		6.4	%		10.0	%		5.9	%		10.5	%		5.4	%		6.4	%		6.9	%		5.9	%

In 2018, we divested three non-core businesses; Keystone filter brand (“Keystone”) and Strobic Air Corporation (“Strobic”) in the first quarter and Jiangyin Zhongli Industrial Technology Co. Ltd. (“Zhongli”) in the fourth quarter (collectively, the “Divestitures”). The exclusion of the operating results of the Divestitures subsequent to their disposition impacts the comparability of our consolidated and segment operating results.

Consolidated sales for the second quarter of ~~2018 decreased $12.8~~2019 increased $0.1 million, ~~or 13.6%,~~ to ~~$81.1~~$81.2 million compared with ~~$93.9~~$81.1 million in the second quarter of ~~2017.~~2018. The ~~decrease~~increase is primarily attributable to increases in the ~~divestitures~~Company’s products serving clean air and midstream oil & gas markets partially offset by the impact of ~~Keystone and Strobic~~the divested Zhongli business. Excluding the impact of the divested business, sales increased $1.3 million, or 1.6%.

Consolidated sales for the first six months of 2019 increased $12.0 million, or 7.7%, to $167.2 million compared with $155.2 million in the first ~~quarter~~six months of ~~2018, contributing $5.2~~2018. The increase is primarily attributable to volume growth for the Company’s refinery-related products and midstream oil & gas markets, partially offset by the impact of Divestitures. Excluding the impact of Divestitures, sales increased $19.7 million, or 13.4%.

Gross profit decreased $0.4 million, or 1.5%, to $26.8 million in the second quarter of ~~2017~~2019 compared with $27.2 million in the same period of 2018. Gross profit as a percentage of sales decreased to ~~zero~~33.0% in the second quarter of 2019 compared with 33.5% in the second quarter of 2018. The decrease is ~~also~~primarily attributable to ~~a sales volume decline period over period for the Company’s wet scrubbers, mist eliminators and refinery related products.~~product mix.

~~Consolidated sales for the first six months of 2018 decreased $31.3~~Gross profit increased $2.2 million, or ~~16.8%~~4.1%, to ~~$155.2 million compared with $186.5~~$55.3 million in the first six months of ~~2017.~~2019 compared with $53.1 million in the same period of 2018. The ~~decrease~~increase in gross profit is primarily attributable to ~~the divestitures~~sales volume increases period over period. Gross profit as a percentage of ~~Keystone and Strobic in the first quarter of 2018, contributing $9.8 million~~sales decreased to 33.1% in the first six months of ~~2017~~2019 compared ~~to $4.8 million~~with 34.2% in the first six months of 2018. The decrease is ~~also~~primarily attributable to ~~a sales volume decline period over period for the Company’s natural gas turbine exhaust systems, refinery related products, wet scrubbers and mist eliminators.~~product mix.

~~Gross profit decreased $1.3~~Orders booked were $103.0 million ~~or 4.6%, to $27.2 million in~~during the second quarter of ~~2018 compared with $28.5~~2019 and $200.3 million in the same period of 2017. The decrease in gross profit was primarily attributable to a sales volume decline period over period due to the divestitures and other volume declines leading to decreased sales. This decrease was partially offset by $1.8 million in legacy design repairs occurring in the second quarter of 2017 that did not re-occur in the second quarter of 2018 and a decrease of $1.5 million in warranty expense period over period. Gross profit as a percentage of sales was 33.5% in the second quarter of 2018 compared with 30.4% in the second quarter of 2017. The increase in gross profit margin was due to the aforementioned changes in legacy design repairs and warranty expense.

~~Gross profit decreased $7.3 million, or 12.1%, to $53.1 million in~~during the first six months of ~~2018~~2019 as compared with $60.4 million in the same period of 2017. The decrease in gross profit was primarily attributable to a sales volume decline period over period due to the divestitures and other volume declines leading to decreased sales. This decrease was partially offset by $2.0 million in legacy design repairs occurring in the first six months of 2017 that did not re-occur in the first six months of 2018 and a decrease of $2.1 million in warranty expense period over period. Gross profit as a percentage of sales was 34.2% in the first six months of 2018 compared with 32.4% in the first six months of 2017. The increase in gross profit margin was due to the aforementioned changes in legacy design repairs and warranty expense.

~~Orders booked were~~ $100.4 million during the second quarter of 2018 and $195.4 million during the first six months of ~~2018 as compared with $87.2~~2018. Excluding the impact of the Divestitures, bookings increased $3.9 million and $10.9 million during the second quarter of ~~2017~~2019 and ~~$171.2 million during~~ the first six months of 2017. The increase is primarily attributable to an increase in orders for the Company’s refinery related products and NOx air quality emission control systems period over period due to increased capital expenditures by the Company’s end customers. The increase is partially offset due to the divestitures of Keystone and Strobic, which combined for orders of $11.4 million in the second quarter of 2017 compared to zero in the same period of 2018.2019, respectively.

Selling and administrative expenses ~~increased $0.6~~were $22.4 million tofor the second quarter of 2019 compared with $22.0 million for the second quarter of ~~2018 compared with $21.4 million for the second quarter of 2017. Additionally, selling~~2018. The increase in administrative expenses is primarily attributable to investment in sales & marketing personnel and customer focused product innovation. Selling and administrative expenses increased as a percentage of sales ~~from 22.8%~~to 27.6% in the second quarter of ~~2017~~2019 compared with 27.1% in the second quarter of 2018.

Selling and administrative expenses were $43.8 million for the first six months of 2019 compared with $43.9 million for the first six months of 2018. Selling and administrative expenses decreased as a percentage of sales to 26.2% in the first six months of 2019 compared with 28.3% in the first six months of 2018. The ~~increase~~decrease in selling and administrative expenses as a percentage of sales is primarily attributable to ~~a decrease of $12.8 million~~the increase in sales.

~~Selling~~Amortization and ~~administrative expenses decreased $0.8~~earnout expense was $2.2 million for the second quarter of 2019 compared with $2.5 million for the second quarter of 2018. The decrease in expense is attributable to ~~$43.9~~a $0.3 million decrease in definite-lived asset amortization.

Amortization and earnout expense was $4.3 million for the first six months of ~~2018~~2019 compared with $44.7 million for the first six months of 2017. Additionally, selling and administrative expenses increased as a percentage of sales from 24.0% in the first six months of 2017 compared to 28.3% in the first six months of 2018. The increase in selling and administrative expenses as a percentage of sales is primarily attributable to a decrease of $31.3 million in sales.

Amortization and earnout expense (income) was $2.5 million for the second quarter of 2018 compared with $(2.2) million for the second quarter of 2017. The increase in expense is primarily attributable to earnout adjustments resulting in income of $5.7 million in the second quarter of 2017 for the earnout incurred in connection with the acquisition of Jiangyin Zhongli Industrial Technology Co. Ltd. (“Zhongli”) due to lower than expected operational profit in 2017. There was no similar adjustment to the earnout in the second quarter of 2018.

~~Amortization and earnout expense (income) was~~ $5.4 million for the first six months of ~~2018~~2018. The decrease in expense is attributable to a $0.3 million decrease in earn-out expense and $0.8 million decrease in definite-lived asset amortization.

Operating income decreased $0.6 million to $2.0 million in the second quarter of 2019 compared with ~~$5.1~~$2.6 million ~~for~~during the ~~first six months~~second quarter of ~~2017. The increase in expense was primarily attributable~~2018. Operating income decreased $7.8 million to ~~earnout adjustments resulting in income of $1.8~~$6.9 million in the first six months of ~~2017 for the Zhongli acquisition due to lower than expected operational profit in 2017. This increase was partially offset by a decrease of $0.8 million in~~ ~~amortization expense related to the divestitures of Keystone and Strobic.~~

~~Operating income decreased $6.7 million to $2.6 million in the second quarter of 2018~~2019 compared with $9.3 million during the same quarter of 2017. The decrease is primarily attributable to earnout adjustment income of $5.7 million in the second quarter of 2017 that did not recur in the second quarter of 2018. Additionally, the decrease was due to decreased sales during the first six months of 2018 due to the divestitures and other volume declines leading to decreased sales. These decreases were partially offset by a decrease of $1.5 million in warranty expense and a decrease of $1.8 million in legacy design repairs period over period.

~~Operating income increased $4.1 million to~~ $14.7 ~~million in the first six months of 2018 compared with $10.6~~ million during the first six months of ~~2017.~~2018. The ~~increase~~decrease is due primarily ~~due~~ to the gain on ~~divestitures~~divestures, net of selling costs of $11.1 million in the first six months of ~~2018. This increase is partially~~2018, offset by ~~decreased gross profit primarily attributable to~~ the ~~divestitures and decreased sales during the first six months of 2018, and increased amortization and earnout expenses primarily attributable to earnout adjustment income of $1.8 million in 2017.~~factors described above.

Non-GAAP operating income was $4.4 million for the second quarter of 2019 compared with $5.2 million for the second quarter of ~~2018 compared with $9.4 million for the second quarter of 2017.~~2018. The decrease in non-GAAP operating income is primarily attributable to ~~lower sales, which led to a~~the decrease in gross profit. Non-GAAP operating income as a percentage of sales decreased to 5.4% for the second quarter of 2019 from 6.4% for the second quarter of ~~2018 from 10.0% for the second quarter of 2017.~~2018.

Non-GAAP operating income was $11.5 million for the first six months of 2019 compared with $9.2 million for the first six months of ~~2018 compared with $19.5 million for the first six months of 2017.~~2018. The ~~decrease~~increase in non-GAAP operating income is primarily ~~due~~attributable to ~~lower~~higher sales, which led to ~~a decrease~~an increase in gross profit. Non-GAAP operating income as a percentage of sales ~~decreased~~increased to 6.9% for the first six months of 2019 from 5.9% for the first six months of ~~2018 from 10.5%~~2018.

Interest expense decreased to $1.5 million in the second quarter of 2019 and $3.0 million for the first six months of ~~2017.~~

~~Interest expense increased to~~2019 compared with $1.8 million in the second quarter of ~~2018~~2019 and $3.7 million for the first six months of 2018. The decrease is due to a reduced debt balance in 2019 in comparison to 2018, ~~compared with $1.6~~resulting in lower interest expense incurred.

Income tax benefit was $4.2 million infor the second quarter of ~~2017~~2019 and ~~$3.4~~$3.3 million infor the first six months of ~~2017. The increase is due to higher interest rates in 2018 in comparison to 2017.~~

~~Income~~2019, compared with income tax expense ~~was~~of $1.3 million for the second quarter of 2018 and $5.4 million for the first six months of ~~2018, compared with an expense of $2.5 million for the second quarter of 2017 and expense of $2.0 million for the first six months of 2017.~~2018. The effective income tax rate for the second quarter of ~~2018~~2019 was ~~317.1%~~(303.7%) compared with ~~31.2%~~317.1% for second quarter of ~~2017.~~2018. The effective income tax rate was (81.3%) for the first six months of 2019, compared with 52.7% for the first six months of ~~2018, compared with 26.3%~~2018. The effective income tax rates for the ~~first six months of 2017. The U.S. statutory tax rate decreased from 35% in 2017 to 21% in 2018 with the enactment of the Tax Cuts and Jobs Act (the “Tax Act”). The effective tax rate for the~~ three months ended June 30, 2018 was higher than the U.S. statutory rate due primarily to the impact of discrete tax adjustments such as the deferred tax expense of $0.5 million recorded for unremitted foreign earnings and $0.3 million of tax expense related to return-to-provision adjustments. The effective tax rate for the three months and six months ended June 30, ~~2018 was also impacted by permanent book-tax differences~~2019 were negative (i.e. income tax benefits), despite pre-tax income, due primarily to a tax benefit of $4.4 million upon finalization of a tax position related to the ~~first-quarter divesture~~2018 divestiture of ~~a business with goodwill recorded for financial reporting purposes.~~Zhongli. Our effective tax rate is affected by certain other permanent differences, including state income taxes, non-deductible incentive stock-based compensation, ~~earnout expenses,~~the Global Intangible Low-Taxed Income inclusion and Foreign-Derived Intangible Income deduction, tax credits, return-to-provision adjustments, and differences in tax rates among the jurisdictions in which we operate.

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

	Three Months Ended June 30,					Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
(dollars in thousands)	2018			2017		2018		2017		2019		2018			2019		2018
Net Sales (less intra-, inter-segment sales)
Energy Solutions Segment	$	51,136		$	52,499	$	91,109	$	106,208	$	50,572	$	51,136		$	105,760	$	91,109
Industrial Solutions Segment		18,324			22,796		36,121		46,099		20,083		19,517			38,936		37,965
Fluid Handling Solutions Segment		11,791			18,348		27,999		34,164		10,524		10,598			22,494		26,155
Corporate and Other⁽¹⁾		(162	)		227		-		50		—		(162	)		—		—
Net sales	$	81,089		$	93,870	$	155,229	$	186,521	$	81,179	$	81,089		$	167,190	$	155,229

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Income from Operations
Energy Solutions Segment	$	5,901		$	10,535		$	9,525		$	14,359		$	6,351		$	5,901		$	15,642		$	9,525
Industrial Solutions Segment		1,273			1,935			2,642			4,669			515			1,480			1,117			2,678
Fluid Handling Solutions Segment		2,182			4,148			5,392			7,457			1,481			1,975			3,839			5,356
Corporate and Other⁽²⁾		(6,539	)		(6,935	)		(2,025	)		(14,782	)		(6,329	)		(6,539	)		(13,691	)		(2,025	)
Eliminations		(236	)		(428	)		(822	)		(1,098	)		—			(236	)		—			(822	)
Income from operations	$	2,581		$	9,255		$	14,712		$	10,605		$	2,018		$	2,581		$	6,907		$	14,712

Our Energy Solutions segment ~~formerly our Energy segment,~~ net sales decreased ~~$1.4~~$0.5 million to ~~$51.1~~$50.6 million in the second quarter of ~~2018~~2019 compared with ~~$52.5~~$51.1 million in the same period of ~~2017.~~2018. Excluding the divested division Zhongli, net sales increased $0.7 million in the second quarter 2019 from $49.9 million in the same period of 2018. The ~~decrease~~increase is primarily attributable to increases in the Company’s products serving the midstream oil & gas markets.

Our Energy Solutions segment net sales increased $14.7 million to $105.8 million in the first six months of 2019 compared with $91.1 million in the same period of 2018. Excluding the divested division Zhongli, net sales increased $17.6 million in the first six months of 2019 from $88.2 million in the same period of 2018. The increase is due primarily to volume ~~decreases~~increases for the Company’s refinery related products and ~~services period over period.~~separation equipment serving the midstream oil & gas markets.

~~Net sales~~Operating income for the Energy Solutions segment ~~decreased $15.1~~increased $0.5 million to ~~$91.1~~$6.4 million in the ~~first six months~~second quarter of ~~2018~~2019 compared with ~~$106.2~~$5.9 million in the same period of ~~2017.~~2018. The ~~decrease~~increase is primarily attributable to an increase in gross profit due ~~primarily~~ to ~~volume decreases for the Company’s refinery related products and services and the Company’s natural gas turbine exhaust systems related products and services period over period.~~product mix.

Operating income for the Energy Solutions segment ~~decreased $4.6~~increased $6.1 million to $5.9 million in the second quarter of 2018 from $10.5 million in the same period of 2017. The decrease is primarily attributable to the Zhongli earnout adjustment resulting in income of $5.7 million in the second quarter of 2017. The decrease in the second quarter of 2018 was partially offset by realizing benefits related to the restructuring program initiated in the fourth quarter of 2017.

~~Operating income for the Energy Solutions segment decreased $4.8 million to $9.5~~$15.6 million in the first six months of ~~2018~~2019 compared with ~~$14.4~~$9.5 million ~~in operating income~~ in the same period of ~~2017. Operating income~~2018. The increase is primarily attributable to increased sales in the first six months of ~~2018~~2019 and ~~2017 included $0.4 million of expense and $1.8 million of income, respectively, related to earnout adjustments during these periods. The~~ decrease in operating income excluding the earnout adjustment was primarily due to incurring $2.3 million in warranty expense and $2.0 million in legacy design repairs during the first six months of 2017, compared to warrantyamortization expense of ~~$0.1 million during the first six months of 2018. The decrease in operating income was also partially attributable to lower gross profit on decreased sales.~~$0.5 million.

Our Industrial Solutions segment ~~formerly our Environmental segment,~~ net sales ~~decreased $4.5~~increased $0.6 million to ~~$18.3~~$20.1 million in the second quarter of ~~2018~~2019 compared with ~~$22.8~~$19.5 million in the second quarter of ~~2017.~~2018. The ~~decrease~~increase is ~~due~~ primarily attributable to volume ~~decreases~~increases for the Company’s ~~wet scrubbers~~clean air and ~~mist eliminators, which was partially offset by increases in the Company’s air pollution control and product recovery products period over period.~~fume collection technologies.

~~Net sales for the~~Our Industrial Solutions segment ~~decreased $10.0~~net sales increased $0.9 million to ~~$36.1~~$38.9 million in the first six months of ~~2018~~2019 compared with ~~$46.1~~$38.0 million in the same period of 2018. The increase is primarily attributable to volume increases for the Company’s clean air and fume collection technologies.

Operating income for the segment decreased $1.0 million to $0.5 million in the second quarter of 2019 compared with $1.5 million in the second quarter of 2018. The decrease is primarily attributable to a $0.6 million increase in selling expenses related to investment in sales & marketing personnel and customer focused product innovation.

Operating income for the segment decreased $1.6 million to $1.1 million in the first six months of 2017. The decrease is due primarily to volume decreases for the Company’s wet scrubbers, mist eliminators and for the installation and fabrication of duct work and related equipment period over period.

~~Operating income for the Industrial Solutions segment decreased $0.6 million to $1.3 million in the second quarter of 2018~~2019 compared with ~~$1.9 million in the second quarter of 2017. The decrease is primarily attributable to the decrease in sales.~~

~~Operating income for the Industrial Solutions segment decreased $2.1 million to $2.6~~$2.7 million in the first six months of ~~2018 compared with $4.7 million in the first six months of 2017.~~2018. The decrease is ~~primarily~~ attributable to ~~the~~$0.8 million increase in selling expenses related to investment in sales & marketing personnel and customer focused product innovation and a $0.6 million decrease in ~~sales.~~gross profit due to unfavorable product mix.

Our Fluid Handling Solutions segment ~~formerly our Fluid Handling and Filtration segment,~~ net sales decreased ~~$6.5~~$0.1 million to ~~$11.8~~$10.5 million in the second quarter of ~~2018~~2019 compared with ~~$18.3~~$10.6 million in the second quarter of ~~2017. The decrease is primarily attributable to the divestitures of Keystone and Strobic, which combined for sales of $5.2 million in the second quarter of 2017 compared to zero in the same period of~~ 2018. ~~Additionally, the decrease is due to a sales volume decline period over period related to pumps.~~

~~Net sales for the~~Our Fluid Handling Solutions segment net sales decreased ~~$6.2~~$3.7 million to ~~$28.0~~$22.5 million in the first six months of ~~2018~~2019 compared with ~~$34.2~~$26.2 million in the first six months of ~~2017.~~2018. The sales decrease was primarily attributable to $4.8 million of revenue in the same period of 2018 from the Keystone and Strobic divested businesses, which did not recur in the first six months of 2019. Excluding the divested Keystone and Strobic businesses, segment sales increased $1.1 million.

Operating income for the segment decreased $0.5 million to $1.5 million in the second quarter of 2019 compared with $2.0 million in the second quarter of 2018. The decrease is primarily attributable to a decrease in gross profit due to product mix.

Operating income for the ~~divestitures of Keystone and Strobic, which combined for sales of $9.8~~segment decreased $1.6 million to $3.8 million in the first six months of ~~2017~~2019 compared ~~to $4.8 million in the same period of 2018. Additionally, the decrease is due to a sales volume decline period over period related to pumps.~~

~~Operating income for the Fluid Handling Solutions segment decreased $1.9 million to $2.2 million in the second quarter of 2018 compared~~ with ~~$4.1 million in the second quarter of 2017. The decrease is primarily attributable to the decrease in sales and reduced operating income of $1.1 million from the divestitures of Keystone and Strobic.~~

~~Operating income for the Fluid Handling Solutions segment decreased $2.1 million to~~ $5.4 million in the first six months of ~~2018 compared with $7.5 million in the first six months of 2017.~~2018. The decrease is ~~primarily~~ attributable to the decrease in sales and ~~reduced~~ operating income of ~~$0.8~~$1.2 million from the divestitures of Keystone and Strobic. Excluding the divested Keystone and Strobic businesses, segment operating income decreased by $0.4 million.

Operating expense for the Corporate and Other segment decreased $0.2 million to $6.3 million in the second quarter of 2019 compared with $6.5 million in the second quarter of 2018. The decrease is primarily attributable to a decrease in professional services expense.

Operating expense for the Corporate and Other segment was ~~$6.5~~$13.7 million in the ~~second quarter~~first six months of ~~2018~~2019 compared with operating expense of $6.9 million in the second quarter of 2017. The decrease in operating expenses is primarily attributable to $0.4 million of executive transition expenses in the second quarter of 2017 that did not re-occur in the second quarter of 2018.

~~Operating expense for the Corporate and Other segment was~~ $2.0 million in the first six months of ~~2018 compared with operating expense of $14.8 million in the first six months of 2017.~~2018. The ~~decrease~~increase in operating expenses is primarily attributable to the recognition of an $11.1 million gain on the divestitures ~~net~~ of ~~selling costs.~~ Keystone and Strobic recorded in the first six-months of 2018, which did not recur in 2019.

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. Our customers may have the right to cancel a given ~~order, although historically cancellations have been rare.~~order. Our backlog as of June 30, ~~2018~~2019, was ~~$200.0~~$208.8 million compared with ~~$168.9~~$182.1 million as of December 31, ~~2017 .~~2018. During the second quarter of 2019, the Company removed $6.7 million of orders that were previously disclosed as backlog in prior quarters, due to cancellations by customers. Backlog is adjusted on a quarterly basis for adjustments in foreign currency exchange rates. ~~The Company~~

transferred $7.7 million of orders from backlog as of the date of the divestitures as a result of the sale of Keystone and Strobic. There have been no other orders removed from backlog that were previously disclosed as backlog in prior quarters in the first six months of 2018. Backlog is not defined by GAAP and our methodology for calculating backlog may not be consistent with methodologies used by other companies. There can be no assurances that backlog will be replicated, increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors related to our backlog and the orders secured during the subsequent periods. Certain contracts are highly dependent on the work of contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on such project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and subcontractors, changes in the scope of the project, weather, and labor availability also can have an effect on a contract’s ~~profitability.~~profitability.

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

Our principal sources of liquidity are cash flow from operations ~~gain on divestitures, net of selling costs~~ and available borrowings under our Credit Facility (as defined below). Our principal uses of cash are operating costs, payment of principal and interest on our outstanding debt, ~~dividends,~~ working capital and other corporate requirements.

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, utilizing extended payment terms from material suppliers when possible, 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 June 30, ~~2018,~~2019, the Company had working capital of ~~$71.7~~$60.9 million, compared with ~~$66.1~~$57.0 million at December 31, ~~2017.~~2018. The ratio of current assets to current liabilities was ~~1.65~~1.61 to 1 on June 30, ~~2018,~~2019, as compared with a ratio of ~~1.61~~1.55 to 1 at December 31, 2017. The $5.6 million increase in working capital from December 31, 2017 to June 30, 2018, was primarily related to a decrease in current portion of debt ($11.3 million), an increase in cash and cash equivalents ($5.7 million), an increase in prepaid expenses and other current assets ($1.8 million), an increase in inventories ($1.5 million), an increase in costs and estimated earnings in excess of billings on uncompleted contracts ($1.2 million), offset by an increase in accounts payable and accrued expenses ($8.6 million), a decrease in prepaid income taxes payable ($1.2 million), a decrease in assets held for sale ($1.1 million), an increase in billings in excess of costs and estimated earnings on uncompleted contracts ($2.9 million), and an increase in income taxes payable ($1.6 million). During the six months ended June 30, 2018, the Company made prepayments of $29.2 million on the outstanding balance of the term loan, of which $11.3 million was applied to the short-term portion of the debt balance and $17.9 million was applied to the long-term portion of the debt balance. Total repayments of debt during the six months ended June 30, 2018 was $34.5 million. As of June 30, 2018 and December 31, 2017, the Company holds a note payable for $5.3 million dollars, which is expected to become due in fiscal year 2018.

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, cash and cash equivalents totaled ~~$35.6~~$28.8 million and ~~$29.9~~$43.7 million, respectively. As of June 30, ~~2018~~2019 and December 31, ~~2017, $22.6~~2018, $21.7 million and ~~$19.7~~$23.3 million, respectively, of our cash and cash equivalents were held by certain non-U.S. subsidiaries, as well as being denominated in foreign currencies.

Debt consisted of the following at June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

The Company’s outstanding borrowings in the United States consist of senior secured term loan and a senior secured ~~U.S. dollar revolving loans~~revolver loan with sub-facilities for letters of credit, ~~and~~ swing-line loans and ~~senior secured~~ multi-currency ~~revolving credit facility for U.S. dollar and specific foreign currency~~ loans (collectively, the “Credit Facility”). As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

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

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

For the six months ended June 30, ~~2018, $9.9~~2019, $11.3 million of cash was ~~provided by~~used in operating activities compared with ~~$1.7~~$9.8 million provided by operating activities in the prior year ~~period. The $8.2~~period, a $21.1 million ~~increase~~decrease. Net earnings adjusted for non-cash items decreased $12.1 million primarily due to a gain of $11.1 million on divestitures and the cash associated with which was recorded in ~~cash flow from operating~~investing activities ~~was due primarily to favorable net working capital items~~and $2.1 million of earnout payments (both occurred in the first six months of 2018 ~~compared with~~but did not recur in 2019). Cash flow from operating activities in the ~~same period in 2017. The incremental cash provided~~first six months of 2019 was comprised of $20.6 million in accounts payable and accrued expenses, $3.0 million in income taxes payable, $14.9 million in billings in excess of costs and estimated earnings on uncompleted contracts, and $0.6 million in prepaid expense and other current assets, as well asnegative year-over-year primarily due to the increase in ~~cash provided consisting of a $5.7 million decrease in earnout payments. The incremental cash used was comprised of $23.9 million in~~ accounts receivable, ~~$1.2 million~~inventories, and prepaids as reflected in ~~inventories, $1.3 million in costs and estimated earnings in excess~~the Condensed Consolidated Statements of ~~billings on uncompleted contracts, and approximately $1.0 million in deferred charges and other assets.~~Cash Flows.

For the six months ended June 30, ~~2018,~~2019, net cash used in investing activities was $1.2 million compared with net cash provided by investing activities ~~was~~of $30.2 ~~million compared with net cash used in investing activities of $0.6~~ million in the prior year period. In the first six months of ~~2018,~~2019, cash used in investing activities was primarily the result of cash used for the acquisitions of property and equipment totaling $1.2 million. In the prior year period, cash provided by investing activities was primarily the result of cash proceeds from divestitures totaling $30.7 million and cash used for the acquisitions of property and equipment totaling $0.6 million. In

For the ~~prior year period,~~six months ended June 30, 2019, net cash used in ~~investing~~financing activities was ~~primarily~~$2.1 million due principally to note payable repayments of $1.7 million, payment of financing fees related to the ~~result~~new Credit Facility of ~~cash used for~~$1.1 million offset by net borrowings on the ~~acquisitions~~Credit Facility of ~~property and equipment totaling $0.6~~$0.8 million.

For the six months ended June 30, 2018, net cash used in financing activities was $34.1 million due principally to net term loan repayments of $30.8 million and $3.8 million in net revolving credit line ~~repayments. For the six months ended June 30, 2017, net cash used in financing activities was $20.6 million due principally to net~~repayments and term loan repayments of $7.7 million, net payments on revolving credit facilities of $1.1 million, earnout payments classified as financing activities of $7.4 million and $5.2 million in dividends paid to common stockholders, partially offset by $1.2 million received from the employee stock purchase plan, exercise of stock options and dividend reinvestment plan.

Our dividend policy and the payment of cash dividends under that policy are subject to the Board of Directors’ determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s shareholders. On November 6, 2017, the Board of Directors reviewed the Company’s dividend policy and determined that it would be in the best interest of the stockholders to suspend dividend payments. Future dividends and the dividend policy may be changed or cancelled at the Company’s discretion at any time. Payment of dividends is also subject to the continuing compliance with our financial covenants under our Credit Facility.repayments.

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

Management believes there have been no changes during the six-month period ended June 30, ~~2018,~~2019, other than disclosed in Note 17 2 to the condensed consolidated financial statements within Item 1 of this quarterly Report on Form 10-Q, to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects or future results of operations or financial position made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “plan,” “should” and similar expressions to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Potential risks, among others, that could cause actual results to differ materially are discussed under “Part I – Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 and include, but are not limited to: our ability to successfully realize the expected benefits of our restructuring program; our ability to successfully integrate acquired businesses and realize the synergies from acquisitions, as well as a number of factors related to our business, including economic and financial market conditions generally and economic conditions in CECO’s service areas; dependence on fixed price contracts and the risks associated therewith, including actual costs exceeding estimates; fluctuations in operating results from period to period due to cyclicality or seasonality of the business; the effect of growth on CECO’s infrastructure, resources, and existing sales; the ability to expand operations in both new and existing markets; the potential for contract delay or cancellation; liabilities arising from faulty services or products that could result in significant professional or product liability, warranty, or other claims; changes in or developments with respect to any litigation or investigation; failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases, losses on projects; the potential for fluctuations in prices for manufactured components and raw materials, including as a result of tariffs and surcharges; the substantial amount of debt incurred in connection with our acquisitions and our ability to repay or refinance it or incur additional debt in the future; the impact of federal, state or local government regulations; economic and political conditions generally; and the effect of competition in the Industrial Solutions segment, Energy Solutions segment and Fluid Handling Solutions segment industries. Many of these risks are beyond management’s ability to control or predict. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC, we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

We are exposed to certain market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. For the Company, these exposures are primarily related to changes in interest rates. We do not currently hold any derivatives or other financial instruments purely for trading or speculative purposes. ~~However, we do have an interest rate swap in place as of June 30, 2018 to hedge against a portion of our~~

interest rate exposure related to debt indexed to LIBOR market rates. See Note 8 “Senior Debt” to the condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q, for further information on this interest rate swap.

The carrying value of the Company’s long-term debt and current maturities of long-term debt was ~~$80.9~~$77.0 million at June 30, ~~2018.~~2019. 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 June 30, ~~2018.~~2019. Most of the interest on the Company’s debt is indexed to either the LIBOR or EURIBOR market rates. The estimated impact of a hypothetical 10% change in the estimated weighted average borrowing rate ~~excluding the portion of debt which has an interest rate fixed by the interest rate swap described above,~~ at June 30, ~~2018~~2019 is ~~$0.2~~$0.3 million on an annual basis.

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

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, ~~2018.~~2019. Management believes that the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fiscal quarter ended June 30, ~~2018,~~2019, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

Information with respect to legal proceedings can be found in Note 1415 “Commitments and Contingencies – Legal Matters” to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no material changes in the Company’s risk factors that we disclosed in “Part I – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

~~None.~~On June 5, 2019, the Company held its 2019 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, stockholders of the Company considered an advisory vote to recommend the frequency of future advisory votes to approve named executive compensation. The stockholders indicated, on an advisory basis, every year as the preferred frequency of the advisory vote to approve named executive compensation. Based on this recommendation and its consideration of the appropriate voting frequency for the Company at this time, the Company has determined that it will hold an advisory vote on the compensation of the Company’s named executive officers every year.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CECE	The NASDAQ Stock Market LLC

Large Accelerated Filer	☐	Accelerated Filer	☒

Non-Accelerated Filer	☐	Smaller reporting company	☐☒

Emerging growth company	☐

Part I –	Financial Information	2

	Item 1. Financial Statements	2

	Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 and December 31, 20178	2

	Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018	4

	Condensed Consolidated Statements of Shareholders’ Equity for the six-month periods ended June 30, 2019 and 2018	45

	Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018	56

	Notes to Condensed Consolidated Financial Statements	67

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2120

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	2827

	Item 4. Controls and Procedures	2927

Part II –	Other Information	3028

	Item 1. Legal Proceedings	3028

	Item 1A. Risk Factors	3028

	I~~tem~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3028

	Item 3. Defaults Upon Senior Securities	3028

	Item 4. Mine Safety Disclosures	3028

	Item 5. Other Information	3028

	Item 6. Exhibits	3129

Signatures		3230

(Table only in thousands)	June 30, 2018			December 31, 2017
(table only in thousands)							June 30, 2019			December 31, 2018
Contract receivables	$	63,990		$	60,543		$	50,458		$	48,826
Trade receivables		8,040			11,603			12,375			7,296
Allowance for doubtful accounts		(4,234	)		(4,156	)		(2,796	)		(2,897	)
Total accounts receivable	$	67,796		$	67,990		$	60,037		$	53,225

(Table only in thousands)	June 30, 2018			December 31, 2017
(table only in thousands)							June 30, 2019			December 31, 2018
Costs incurred on uncompleted contracts	$	161,184		$	169,665		$	180,241		$	174,168
Estimated earnings		58,988			61,556			72,881			67,427
Total costs and estimated earnings on uncompleted contracts, gross		220,172			231,221			253,122			241,595
Less billings to date		(208,324	)		(217,743	)		(242,932	)		(232,045	)
Total costs and estimated earnings on uncompleted contracts, net	$	11,848		$	13,478		$	10,190		$	9,550
Included in the accompanying condensed consolidated balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	35,188		$	33,947		$	32,205		$	29,694
Billings in excess of costs and estimated earnings on uncompleted contracts		(23,340	)		(20,469	)		(22,015	)		(20,144	)
Total costs and estimated earnings on uncompleted contracts, net	$	11,848		$	13,478		$	10,190		$	9,550

	(unaudited)
(dollars in thousands, except per share data)	June 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	35,556		$	29,902
Restricted cash		284			591
Accounts receivable, net		67,796			67,990
Costs and estimated earnings in excess of billings on uncompleted contracts		35,188			33,947
Inventories, net		22,450			20,969
Prepaid expenses and other current assets		12,601			10,760
Prepaid income taxes		699			1,930
Assets held for sale		6,708			7,853
Total current assets		181,282			173,942
Property, plant and equipment, net		22,161			23,400
Goodwill		152,371			166,951
Intangible assets – finite life, net		42,444			49,956
Intangible assets – indefinite life		18,300			19,691
Deferred charges and other assets		4,843			4,609
Total assets	$	421,401		$	438,549
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt	$	—		$	11,296
Accounts payable and accrued expenses		79,352			70,786
Billings in excess of costs and estimated earnings on uncompleted contracts		23,340			20,469
Note payable		5,300			5,300
Income taxes payable		1,612			—
Total current liabilities		109,604			107,851
Other liabilities		30,407			30,382
Debt, less current portion		80,895			103,537
Deferred income tax liability, net		9,268			10,210
Total liabilities		230,174			251,980
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value; 10,000 shares authorized, none issued		—			—
Common stock, $.01 par value; 100,000,000 shares authorized, 34,892,193 and 34,707,924 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		349			347
Capital in excess of par value		249,674			248,170
Accumulated loss		(47,420	)		(52,673	)
Accumulated other comprehensive loss		(11,020	)		(8,919	)
		191,583			186,925
Less treasury stock, at cost, 137,920 shares at June 30, 2018 and December 31, 2017		(356	)		(356	)
Total shareholders’ equity		191,227			186,569
Total liabilities and shareholders' equity	$	421,401		$	438,549

	June 30, 2018		June 30, 2017
Cash and cash equivalents	$	35,556	$	27,166
Restricted cash		284		1,150
Restricted cash included within deferred charges and other assets		—		608
Total cash, cash equivalents and restricted cash	$	35,840	$	28,924

(Table only in thousands)	For the Six Months Ended June 30, 2018						Year ended December 31, 2017
(table only in thousands)													Six months ended June 30, 2019					Year ended December 31, 2018
Goodwill / Tradename	Goodwill			Tradename			Goodwill			Tradename			Goodwill		Tradename			Goodwill			Tradename
Beginning balance	$	166,951		$	19,691		$	170,153		$	22,042		$	152,156	$	18,258		$	166,951		$	19,691
Transfers to finite life classification														—		(3,904	)		—			—
Divestitures		(14,317	)		(1,340	)		—			—			—		—			(14,317	)		(1,340	)
Impairment		—			—			(4,443	)		(2,725	)
Foreign currency translation		(263	)		(51	)		1,241			374			43		(12	)		(478	)		(93	)
	$	152,371		$	18,300		$	166,951		$	19,691		$	152,199	$	14,342		$	152,156		$	18,258

(Table only in thousands)	Energy Solutions Segment (a)
Earnout accrued at December 31, 2017	$	4,475
Compensation expense adjustment		222
Payment		(2,050	)
Total earnout liability as of June 30, 2018		2,647
Less: current portion of earnout		(1,198	)
Balance of long-term portion of earnout recorded in other liabilities at June 30, 2018	$	1,449

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

(a) The Fluid Handling Solutions and Industrial Solutions segments do not have any earnout arrangements associated with the segments

	For the Three Months Ended June 30, 2018
	Numerator (Loss)			Denominator (Shares)		Per Share Amount
Basic net loss and loss per share	$	(901	)		34,670	$	(0.03	)
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan					—
Diluted loss and loss per share	$	(901	)		34,670	$	(0.03	)

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

	For the Six Months Ended June 30, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net loss and loss per share	$	5,524		34,345	$	0.16
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan				341
Diluted loss and loss per share	$	5,524		34,686	$	0.16

	For the three-month period ended June 30,
	2019		2018
(table only in thousands) Numerator (for basic and diluted earnings (loss) per share)
Net income (loss)	$	5,515	$	(901	)

Denominator
Basic weighted-average shares outstanding		34,924		34,670
Common stock equivalents arising from stock options and restricted stock awards		659		—
Diluted weighted-average shares outstanding		35,583		34,670

	For the six-month period ended June 30,
	2019		2018
(table only in thousands) Numerator (for basic and diluted earnings per share)
Net income	$	7,379	$	4,862

Denominator
Basic weighted-average shares outstanding		34,880		34,632
Common stock equivalents arising from stock options and restricted stock awards		592		83
Diluted weighted-average shares outstanding		35,472		34,715

(table only in thousands)	For the Three Months Ended June 30, 2019		For the Six Months Ended June 30, 2019
Operating lease cost (a)	$	926	$	1,839
Finance lease cost:
Amortization of right-of-use assets		77		154
Interest on lease liability		91		183
Total finance lease cost		168		337
Total lease cost	$	1,094	$	2,176
(a) includes variable lease costs which are immaterial

(table only in thousands)	For the Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,756
Operating cash flows from finance leases	$	183
Financing cash flows from finance leases	$	232
Right of use assets obtained in exchange for lease obligations
Operating leases	$	1,583

Weighted-average remaining lease term
Operating leases		8 years
Finance leases		12 years
Weighted-average discount rate
Operating leases		5.4%
Finance leases		4.5%

	For the Six Months Ended June 30,						For the six months ended June 30,
(dollars in thousands)	2018			2017			2019			2018
Net cash provided by operating activities	$	9,859		$	1,675
Net cash provided by (used in) investing activities		30,213			(597	)
Net cash (used in) provided by operating activities							$	(11,297	)	$	9,835
Net cash (used in) provided by investing activities								(1,201	)		30,213
Net cash used in financing activities		(34,098	)		(20,632	)		(2,121	)		(34,074	)
Effect of exchange rate changes on cash and cash equivalents		(793	)		472			136			(793	)
Net increase (decrease) in cash	$	5,181		$	(19,082	)	$	(14,483	)	$	5,181

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

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

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

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


101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

CECO Environmental Corp.

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