CECO Environmental Annual Report 2012

FY2012 Annual Report · CECO Environmental

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SECURITIES & EXCHANGE COMMISSION EDGAR FILING

Form: 10-K

Date Filed: 2013-03-15

Corporate Issuer CIK: 3197

© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.

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

FORM 10-K

(Mark one)
x

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2012

❑ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 0-7099

CECO ENVIRONMENTAL CORP.

4625 Red Bank Road, Cincinnati, Ohio 45227
Telephone (513) 458-2600
IRS Employer Identification No. 13-2566064
State of Incorporation: Delaware

Securities registered under Section 12(b) of the Act:

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ❑ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ❑ No x

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 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 x 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 during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes x No ❑

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will

not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ❑

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the exchange act. (check one)

Large Accelerated Filer ❑ Accelerated Filer ❑ Non-Accelerated Filer ❑ Smaller reporting company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes ❑ No x

The aggregate market value of voting stock held by non-affiliates of the registrant was $69.6 million based upon the closing

market price and common shares outstanding as of June 30, 2012. For the purpose of the foregoing calculation only, all directors and
executive officers of the registrant and owners of more than 10% of the registrant’s common stock are assumed to be affiliates of the
registrant. This determination of affiliate status is not necessarily conclusive for any other purpose.

The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: 17,722,296

shares of common stock, par value $0.01 per share, as of March 1, 2013.

Portions of the definitive Proxy Statement for the 2013 Annual Meeting of Shareholders, which is to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2012, are incorporated by reference into Part III of
this Annual Report to the extent described herein.

Documents Incorporated by Reference

CECO Corporation and Subsidiaries
ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 2012

TABLE OF CONTENTS

Table of Contents

Description

Item
PART I.

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART II.

Item 5.

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

Securities

Item 6.

Selected Financial Data

Item 7.

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

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV.

Item 15. Exhibits and Financial Statement Schedules

SIGNATURES

Page

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the 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 Annual Report on Form 10-K are forward-looking. We use words such as
believe, expect, anticipate, intends, estimate, forecast, project, should, and similar expressions to identify forward-looking statements.
Forward-looking statements are based on management’s current expectations of our near-term results, based on current information
available pertaining to us and are inherently uncertain. We wish to caution investors that any forward-looking statements made by or
on our behalf are subject to uncertainties and other factors that could cause actual results to differ materially from such statements.
These uncertainties and other risk factors include, but are not limited to: the affect of the unfavorable global, national and local
economic conditions on our customers and our businesses; the changing political conditions in the United States and other countries;
governmental laws and regulations surrounding various matters such as environmental remediation; contract pricing; changes in or
developments with respect to any litigation or investigations relating to the Company; international trading restrictions; customer
product acceptance; continued access to capital markets; and foreign currency risks. These risks and uncertainties, as well as other
risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in
greater detail in Item 1A, “Risk Factors,” which describes some, but not all, of the factors that could cause actual results to differ
significantly from management’s expectations. New factors emerge from time to time and it is not possible for management to predict
all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We assume no
obligation to update or revise any forward-looking statements made herein or any other forward-looking statements we make,
whether as a result of new information, future events, or otherwise.

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Item 1.

Business

General

PART I

CECO Environmental Corp. and its consolidated subsidiaries (“CECO,” “Company,” “we,” “us,” or “our”) is a leading provider of
global, air pollution control technology. CECO Environmental Corp. was incorporated in New York State in 1966 and reincorporated
in Delaware in January 2002. We operate as a provider of air pollution control technology, products and services through three
principal product groups: our Engineered Equipment Technology and Parts Group, which produces various types of air pollution
control technology and equipment, our Contracting/Services Group, which produces air pollution control and engineered industrial
ventilation systems, and our Component Parts Group, which manufactures products used by us and other air pollution control
companies and air system contractors. It is through combining the efforts of certain or all of these groups which enables us to offer
complete full systems to our customers and leverage the operational efficiencies between our family of technology companies. In
November 2011, we sold kbd/Technic, which comprised our small Engineering Group. kbd/Technic provided industrial ventilation
engineering and source emission testing services.

Our business is characterized by the breadth and diversity of our product and service offerings, customer base, and end market

applications. We market our products and services under multiple brands, including “Effox,” “Flextor,” “Kirk & Blum,” “KB Duct,”
“Fisher-Klosterman,” “FKI,” “Buell,” “A.V.C.,” “Busch International,” “CECO Filters,” “CECO Abatement Systems,” “Adwest,” and
“Aarding” to multiple end markets, a broad group of customers and for a wide range of applications.

We have created a family of companies, each playing a specialized role in the creation of clean air solutions. In December 1999,

we acquired Kirk & Blum, one of the largest sheet metal fabricators in the country. This major acquisition significantly changed our
focus and capabilities by transforming the Company from a manufacturing operation to a full-service product, engineering and design
service provider of air pollution control solutions. We have built upon this end-to-end platform strategy by broadening our offerings
through both acquisitions and the creation of new service offerings. Other important organizational developments include the
following:

•

Acquired the assets of Effox, Inc. (“Effox”), a leading producer of dampers and expansion joints, in February 2007 to

continue the execution of our “horizontal integration” strategy, broadening our exposure to the multibillion-dollar energy,
power and utility markets.

•

Acquired in February 2008, the assets of Fisher-Klosterman, Inc. (“FKI”), which produces air pollution and particulate

recovery products in the fields of petroleum refinery, power production, petrochemicals, and manufacturing. Included in the
acquisition of FKI was their 30,000 square foot manufacturing facility in Shanghai, China, which is increasingly playing a
significant role in our organization.

•

Acquired in August 2008, Flextor, Inc. (“Flextor”), of Montreal, Canada. Flextor, like Effox, is a producer of dampers and

expansion joints. The addition of Flextor gives us a greater international presence in that market, especially in Latin
America.

•

Acquired in August 2008, the assets of A.V.C. Specialists (“A.V.C.”). A.V.C. produces replacement parts for electrostatic
precipitators. Their primary markets are the refining and power industries. A.V.C.’s operations fit well as a division of FKI.

Consolidated management of Effox and Flextor to strengthen the marketing of their technology, products, and services to

the energy, power, and utility markets.

Acquired in December 2012, Adwest Technologies, Inc. (“Adwest”). Adwest is a designer and manufacturer of regenerative

thermal oxidizers (“RTOs”). Adwest joins our CECO Abatement division and offers an increased selection of RTO
technology to fully meet the air pollution control requirements of our global customer base.

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Recent Company Developments

In addition to the Adwest acquisition in December 2012, on February 28, 2013, the Company acquired Aarding Thermal
Acoustics B.V., a Netherlands company (“Aarding”), pursuant to the terms of a Share Purchase Agreement, (the “SPA”) dated
February 28, 2013 among the Company, CECO Environmental Netherlands B.V., N.F.J.A. Pieterse Beheer B.V., and W.M. Pranger
Beheer B.V. Aarding is a global provider of natural gas turbine exhaust systems and silencer applications. We acquired Aarding to
lead CECO’s expanding global natural gas business including the Flextor division, which provides complimentary and integrated
engineered solutions to those of Aarding. The purchase price was approximately $31.8 million, consisting of net cash paid of
approximately $24.0 million, and restricted common stock worth approximately $7.8 million based on the February 28, 2013 closing
price of the Company’s common stock. Additionally, the former owners of Aarding are entitled to earn-out payments of up to $7.2
million upon the attainment of specified financial targets through December 31, 2017.

During 2012 and 2011, our operational efficiency and profitability continued to improve due to streamlining, price management,

consolidation of our facilities, and reduced overhead expenses across all business units. Our Contracting/Services Group locations at
Louisville, Kentucky, Columbia, Tennessee and Greensboro, North Carolina, continue to be more fully utilized and are operating at
an increased level of performance. We additionally implemented a strategy in early 2011 to prune lower margin customer backlog in
this group.

We sold two small divisions, Buell-APC and kbd/Technic, in December 2012 and November 2011, respectively, in strategic
moves to strengthen our focus on the continued development and resources in our core capabilities of being a global provider of air
pollution control technology, products and services.

Industry Overview

We serve a large industry that has grown steadily over the last several years. The market for air pollution control and industrial
ventilation products is a multi-billion dollar market that has grown rapidly and is highly fragmented. Today, more so than ever, people
demand to live in a world of clean air and water and an environment that is free of industrial pollutants.

We believe demand for air pollution control and industrial ventilation products in the U.S. and globally has recently and will

continue to be driven by these factors:

•

Favorable Regulatory Environment. The adoption of increasingly stringent environmental regulations in the U.S. and

globally forces businesses to pay strict attention to environmental protection. Businesses and industries of all types—from
aerospace, brick, cement, ceramics, and metalworking to ethanol, automobile, food, foundries, power plants, woodworking,
printing, tobacco and pharmaceuticals—must comply with these various international, federal, state and local government
environmental regulations or potentially face substantial fines or be forced to suspend production or alter their production
processes. Regulations range from the air quality standards promulgated by the Environmental Protection Agency (“EPA”)
to Occupational Safety and Health Administrative Agency (“OSHA”) standards regulating allowable contaminants in
workplace environments.

Increasingly stringent air quality standards and the need for improved industrial workplace environments are the principal
factors that drive our business. Some of the underlying federal legislation that affects air quality standards is the Clean Air
Act of 1970 and the Occupational Safety and Health Act of 1970. The EPA and OSHA, as well as other state and local
agencies, administer air quality standards. Industrial air quality has been improving through EPA mandated Maximum
Achievable Control Technology standards and OSHA established Threshold Limit Values for more than 1,000 industrial
contaminants. Any of these factors, individually or collectively, tend to cause increases in industrial capital spending that is
not directly impacted by general economic conditions, expansion, or capacity increases. Favorable conditions in the
economy generally lead to plant

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expansions and the construction of new industrial sites. However, in a weak economy, customers tend to lengthen the time
from their initial inquiry to the purchase order, or defer purchases.

•

Worldwide Industrialization. Global trade has increased significantly over the last couple of years driven by growth in

emerging markets, including China and India, as well as other developing nations in Asia and Latin America. Furthermore,
as a result of globalization, manufacturing that was historically performed domestically continues to migrate to lower cost
countries. This movement of the manufacture of goods throughout the world increases demand for industrial ventilation
products as new construction continues, and we expect more rigorous environmental regulations will be introduced to
create a cleaner and safer working environment and reduce environmental emissions as these economies evolve.

Strategy and Vision

Our goal is to become the world-class leader in air pollution control technology by focusing on the following key elements:

1. Profitable Growth

2. Product, Service and Project Excellence
3. Operational Excellence
4. Employee Development
5. Global Market Coverage

6. Safety Leadership

Implementing profitable organic and inorganic strategies to
grow globally with premier air pollution technology and
solutions

- Creating customer successes and building customer loyalty
- Running smart, lean, best-in-class, innovative processes
-
-

Investing in the training and development of our employees
Improving sales and manufacturing resources to expand our
customer base, grow and uncover new opportunities
Increasing employee safety with preventative safety practices
so no one gets hurt

Our strategy utilizes all of our resource capabilities to help customers improve efficiencies and meet specific regulatory
requirements within their business processes through optimal design and integration of full contaminant and pollution control
systems. Our engineering and design expertise in air quality management combined with our comprehensive suite of product and
service offerings allow us to provide customers with a one-stop cost-effective solution to meet their integrated abatement needs.

Competitive Strengths

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

air pollution control and industrial ventilation industry and one of the largest and most diversified solution providers globally. The
multibillion-dollar global air pollution control market is highly fragmented with numerous small and regional contracting firms
separately supplying engineering services, fabrication, installation, testing and monitoring, products and spare parts. Through the
vertical integration of our family of companies, we offer our customers a complete end-to-end solution from engineering and project
management services, to procurement and fabrication, to construction and installation, to aftermarket support and sale of
consumables, which allows our customers to avoid dealing with multiple vendors when managing projects.

Long standing experience and customer relationships in growing industry. We have serviced the environmental needs of the
industrial workplace for over 100 years. Our extensive experience and expertise in providing full solutions for the air pollution control
and industrial ventilation industry enhances our overall

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customer relationships, and provides us a competitive advantage in our markets relative to other companies in the industry. We
believe this is evidenced by strong relationships with many of our world class customers. We believe no single competitor has the
resources to offer a similar portfolio of product and service capabilities. Our family of companies offers the depth of a large
organization, while our lean organizational structure keeps us close to our customers and markets allowing us to offer fast complete
solutions to each unique situation.

Global Diversification and Broad Customer Base. The global diversity of our operations and customer base provides us with
multiple growth opportunities. As of December 31, 2012, we had a diversified customer base of more than 3,500 active customers
across a range of industries. Our customers represent some of the largest aerospace, automotive, refining, chemical, foundry,
ethanol, power and metals companies, including General Motors Corporation, The Procter & Gamble Company, Nissan Motor Co.,
Ltd., Houston Refining, Ecopetrol, Toyota North America, Inc., The Babcock & Wilcox Company, Alcoa, Inc., Valero, Alstom,
Matheson Tri-Gas, Exxon, Allegheny Steel, and Vale. In addition, we believe that the diversity of our customers and end markets
mitigates our risk of a potential fluctuation or downturn in demand from any individual industry or particular customer. We believe we
have the resources and capabilities to meet the operating needs of our customers as they upgrade and expand domestically as well
as into new international markets. Once systems have been installed and a relationship has been established with the customer, we
often win repetitive service and maintenance business as the customers’ processes change and modifications or additions to systems
become necessary.

Experienced Management and Engineering Team. Our senior management team has an average of 25 years of experience in

the air pollution control and industrial ventilation industry. Our Chief Executive Officer, Jeff Lang, has more than 30 years of executive
operating management experience in manufacturing. The business experience of our management team creates a strong skill set for
the successful execution of our strategy. Our senior management team is supported by a strong operating management team, which
possesses extensive operational and managerial experience, averaging over 20 years of industry experience, most of which has
been with CECO Environmental and our family of companies. Our workforce includes approximately 130 engineers, designers, and
project managers whose significant specialized industry experience and technical expertise enables them to have a deep
understanding of the solutions that will best suit the needs of our customers. The experience and stability of our management,
operating and engineering team has been crucial to our growth, developing and maintaining customer relationships, and increasing
our market share.

Disciplined Acquisition Program with Successful Integration. We believe that we have demonstrated an ability to successfully
acquire and integrate air pollution control and industrial ventilation companies with complementary product or service offerings into
our family of companies. In February 2007, we acquired Effox, which gave us access to the multi-billion dollar energy, power and
utility markets. In February 2008, we acquired FKI, which we believe has given us expanded access to the petroleum and power
industries and gives us a manufacturing presence in China. In August 2008, we acquired Flextor which added an international scope
to Effox’s business. In that same month we also acquired A.V.C., which added additional replacement parts capability to FKI. In
December 2012, we acquired Adwest, a designer and manufacturer of RTOs, which will enhance our abilities to fully meet the air
pollution control requirements of our global customer base. In February 2013, we acquired Aarding, a global provider of natural gas
turbine exhaust systems and silencer applications, to lead our expanding global natural gas business including the Flextor division
which provides complimentary and integrated engineered solutions to those of Aarding. We believe that the breadth and diversity of
our products and services and our ability to deliver full solutions to various end markets provides us with multiple sources of stable
growth and a competitive advantage relative to other players in the industry.

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

penetrate new customers, geographic locations, and end markets with existing products and services or acquired new product or
service opportunities. For example, we have successfully expanded our sales to new customers and entered new end markets
through the strategic acquisitions of Effox in February 2007, Flextor in August 2008, and A.V.C. in August 2008. Our acquisition of
Effox has allowed us to access the

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multibillion-dollar energy, power and utilities markets. The acquisition of Flextor in August 2008 further expanded Effox’s business
internationally. Our acquisition of FKI expanded our access to the petroleum and power markets. The FKI acquisition also provides us
with a manufacturing facility in China, which continues to increase in significance to the Company. The acquisition of A.V.C. added
additional replacement parts sales to FKI’s business. Recently acquired Adwest expands our abilities to design and RTOs. We intend
to continue to expand our sales force, customer base, and end markets, and have identified a number of potential attractive growth
opportunities both domestically and globally, including international projects in China, India, Latin America, Europe and the Middle
East.

Develop Innovative Solutions. We intend to continue to leverage our engineering and manufacturing expertise and strong

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

Maintain Strong Customer Focus. We enjoy a diversified customer base of more than 3,500 active customers as of

December 31, 2012, across a broad base of industries, including aerospace, brick, cement, steel, ceramics, metalworking, ethanol,
printing, paper, food, foundries, power plants, metal plating, refineries, wood working, chemicals, tobacco, glass, automotive, and
pharmaceuticals. We believe that there are multiple opportunities for us to expand our penetration of existing markets and customers.

Products and Services

We believe that we are recognized as a leading provider in the air pollution control technology industry. We focus on

engineering, designing, building, and installing systems that capture, clean and destroy airborne contaminants from industrial facilities
as well as equipment that control emissions from such facilities. We now market these full pollution control services through all our
companies. With a diversified base of more than 3,500 active customers, we provide services to numerous industries including
aerospace, brick, cement, steel, ceramics, metalworking, printing, paper, food, foundries, utilities, metal plating, woodworking,
chemicals, glass, automotive, ethanol, pharmaceuticals, and refining. The table below illustrates how our family of companies are
spread over this diversified customer base, providing a broad range of applications.

Divisions

Capabilities
(products and services)

Typical Industries

Typical Applications

Engineered Equipment Technology and Parts Group

• Regenerative Thermal

Oxidation

• Catalytic and Thermal

Oxidation
• Selective and

Regenerative Catalytic
Reduction

• Chemical Processing
• Ethanol
• Paint Booth Emissions
• Wastewater Treatment
• Wood Products
• Asphalt

• High Efficiency
Destruction:
- Volatile Organic
Compounds

- Fumes
- Industrial Odors

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Divisions

Typical Industries

Typical Applications

• Coal-Fired and Natural
Gas Power Plants

• Steam Heat Recovery
• Flue Gas

• Petro-chemical
• Chemical Processing
• Refining
• Metals
• Wood Products

Asphalt
• Chemical
• Fertilizer
• Metals
• Semiconductors

• Aluminum
• Chemical
• Paper
• Power
• Steel

• Refineries
• Utilities
• Bio Fuels
• Petrochemicals
• Pharmaceutical
• Forest Products
• Manufacturing
• Food

Desulphurization

• Catalytic (NOx) Reduction
• Gas Turbine Exhaust

Acid/Caustic Mist
• Storage Tank Emissions
• Lubricant Emissions
• Nitric Acid
• Platinum Recovery
• Wet Bench Acid Mist

• Rolling Mill Oil Mist

Collection

• Heavy Gauge Strip and

Coil:
- Coolers
- Dryers

• General Ventilation

• Air Pollution Control
• Product Recovery and

Capture

• Petroleum Refining
• Catalyst Recovery
• Manufactured Sand
• Protection of Downstream
Process and Pollution
Control Equipment
• Flyash Beneficiation

Capabilities
(products and services)

• Design and manufacture:

- Dampers
- Expansion Joints
- Gas Turbine Exhaust
Systems & Silencer
Applications
• Aftermarket Service

Fiber-Bed Filter Mist
Collectors
• Catenary Grid and Narrow
Gap Venturi Scrubbers

• Replacement Filters
• Repack Services

• Heavy Duty Air Handling

and Conditioning

• Fume Exhaust Systems
• Air-Curtain Hoods
• JET*STAR Strip/ Coil
Coolers and Dryers

• Design, Manufacture

and/or Install:
- Industrial Cyclones
- FCC Cyclones
- Scrubbers
- Venturi
- Packed Bed
- Multiple Purpose

• Medial Filtration:

- Baghouse Fabric Filters
- Cartridge Collectors

Pneumatic Conveying
and Industrial
Ventilation

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Divisions

Contracting / Services Group

Components Parts Group

Capabilities
(products and services)

Typical Industries

Typical Applications

• Full Design, Build, Install:

- Dust Collectors
- Oil Mist Collectors
- Chip Conveyance

Systems

• Custom Sheet Metal

Fabrication

• Aerospace
• Automotive
• Food
• Foundry
• Glass
• Primary Metals
• Printing

• Collection:
- Dust
- Oil Mist
- Fume Exhaust
• Exhaust/Make-up Air
• Paint/Finishing Booths
• Pneumatic Conveying

• Component Parts for
Industrial Air Systems

• Industrial Sheet Metal

• Industrial Ventilation

Contractors

Systems

• Clamp-Together

• Industrial Sheet Metal

Componentized Ducting
Systems

Contractors

• Chemical
• Food
• Furniture
• Metals
• Pharmaceuticals

• Capture in Moderately
Abrasive Environments
- Dust Particles
- Fumes
- Oil Mist

Engineered Equipment Technology and Parts Group

Our Engineered Equipment Technology and Parts Group, located in the United States as well as the Netherlands, Canada,

Brazil, China, and India, is comprised of CECO Filters, Busch International, Adwest, CECO Abatement, Effox-Flextor, Aarding, FKI,
and A.V.C. We enable our customers to meet BACT requirements and compliance targets for fumes, volatile organic compounds,
process, and industrial odors. Our services eliminate toxic emission fumes and volatile organic compounds from large-scale industrial
processes. We have a presence in the chemical processing, ethanol, paint booth emissions, wastewater treatment, and wood
products industries.

In February 2007, we acquired the assets of Effox in Cincinnati, Ohio, to continue the execution of our horizontal integration
strategy. The acquisition of Effox increases our exposure to the multibillion dollar electric power generation market, coal and gas, and
the ethanol, metals and mineral products markets. We provide dampers and expansion joints for flue gas and process air systems
with emphasis on steam heat recovery, flue gas desulphurization, and catalytic (NOx) reduction. For existing systems, Effox provides
rebuilding and repair services, including basic design modification. Flextor, which was acquired in 2008, is similar to Effox but its
business is more international with an emphasis on Latin America. The management of Effox and Flextor was consolidated to
strengthen the marketing of their technology, products, and services to the energy, power, and utility markets.

In February 2008, we acquired the assets of FKI, to further expand our access to the petrochemical, petroleum, and power
markets. FKI produces cyclones, electrostatic precipitator parts and service, air filtration equipment and scrubbers. A.V.C., acquired in
August 2008, added to FKI’s replacement parts business. Recently in December 2012, we acquired Adwest Technologies, Inc., a
designer and manufacturer of RTOs, which will add to our abilities to fully meet the air pollution control requirements of our global
customer base.

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Our fiber bed filter technology is marketed under the CECO Filters trade name directly to customers. The principal functions of

the filters are: (a) the removal of damaging mists and particles (e.g., in process operations that could cause downstream corrosion
and damage to equipment), (b) the removal of pollutants, and (c) the recovery of valuable materials for reuse. The filters are also
used to collect fine insoluble particulates. Major users are chemical and electronics industries, manufacturers of various acids,
vegetable and animal based cooking oils, textile products, alkalies, chlorine, papers, asphalt, and pharmaceutical products. In
February 2004, we established CECO Environmental India Pvt. Ltd. in Pune, India to market filtering equipment under the CECO
Filters trade name to extend our penetration into the Asia market. We manufacture fiber beds in Philadelphia and in China.

We design and build air handling equipment and systems for filtering, cooling, heating, and capture of emissions in the metal

industries under the Busch International name. Our fume exhaust systems with industry recognized hood designs provide high
efficiency control of oil mist and fumes, removing liquid particles and vapor phase emissions from rolling mill, machining, and other oil
mist generating processes. We also provide systems for corrosion protection, fugitive emissions control, evaporative cooling, and
other ventilation and air handling applications. We also market a strip cooler under the JET*STAR name that is designed to cool metal
strip coatings even at high strip speeds. This engineered equipment is globally marketed to the steel and aluminum industries.

Contracting/Services Group

Our Contracting/Services Group is comprised of the contracting/services operations of our Kirk & Blum divisions located in the

United States. We provide custom metal engineered fabrication services at our Kirk & Blum Columbia, Tennessee and Louisville,
Kentucky locations. These facilities fabricate parts, engineered subassemblies, and customized products for air pollution and non-air
pollution systems from sheet, plate, and structurals. In addition, these facilities perform engineered fabrication for CECO Filters,
Busch International and CECO Abatement. These systems, primarily sold on a turnkey basis; include oil mist collection, dust
collection, industrial exhaust, chip collection, make-up air, as well as automotive spray booth systems, industrial and process piping,
and other industrial sheet metal work. We provide a cost effective engineered solution to in-plant process problems in order to control
airborne pollutants. Representative customers include General Electric Company, General Motors Corporation, The Procter &
Gamble Company, Nissan Motor Co., Ltd., Honda Motor Co., Inc., Toyota Motor North America, Inc., The Boeing Company, Lafarge,
Corning Incorporated, RR Donnelley, and Alcoa Inc. North America is the principal market served, though, we supply equipment and
engineering services globally. Mexico and China are two markets we supply on a global basis.

We have developed significant expertise in custom industrial air sheet metal fabrication. As a result, these facilities give us
flexible production capacity to meet project schedules and cost targets in air pollution control projects while generating additional
fabrication revenue in support of non-air pollution control industries. Kirk & Blum is the custom fabricator of product components for
many companies located in the Midwest choosing to outsource their manufacturing. Occasionally, we will market custom fabrication
services under a long-term sales agreement.

Component Parts Group

We market component parts for industrial air systems to contractors, distributors and dealers throughout the United States under

the Kirk & Blum Parts division. In 2001, we started the KB Duct product line to provide a cost effective alternative to traditional duct.
Primary users for this product line are those that generate dry particulate such as furniture manufacturers, metal fabricators, and any
other users desiring flexibility in a duct system. Customers include end users, contractors, and dealers.

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Project Design and Research and Development

We focus our development efforts on designing and introducing new and improved approaches and methodologies which for our

customers produce better system performance, and often improve customer process performance. For example, the patented
JET*STAR strip cooler produced by Busch International routinely allows customers to increase the speed of galvanizing lines, thus
enhancing productivity, while at the same time increasing product quality by, through the use of the cooling air, holding the strip more
stable as the zinc coating cools. We produce specialized products that are often tailored to the specifications of a customer or
application. We continually collaborate with our customers to develop the proper solution and ensure customer satisfaction. During
2012 and 2011, costs expended on research and development were not significant. Such costs are generally included as factors in
determining pricing.

We also specialize in the design, fabrication and installation of full ventilation systems and processes. The project development

cycle may follow many different paths depending on the specifics of the job and end market. The process normally takes between one
and six months from concept and design to production, which may vary significantly depending on developments that occur during
the process, including among others, the emergence of new environmental demands, changes in design specifications and ability to
obtain necessary approvals.

Sales, Marketing and Support

Our global selling strategy is to provide a solutions-based approach for controlling industrial airborne contaminants by being a

single source provider of industrial ventilation and air-pollution control technology products and services. The strategy involves
horizontally expanding our scope of products and services through selective acquisitions and the formation of new business units that
are then vertically integrated into our growing family of technology and system providers. We believe this strategy provides a
discernible competitive advantage. We execute this strategy by utilizing our portfolio of in-house technologies and those of third party
equipment suppliers. Many of these have been long standing relationships, which have evolved from pure supplier roles to value-
added business partnerships. This enables us to leverage existing business with selective alliances of suppliers and application
specific engineering expertise. Our products primarily compete on the basis of price, performance, speed of delivery, quality,
customer support, and single source responsibility. Our value proposition to customers is to provide competitively priced, customized
full solutions. Our combined industry-specific knowledge base, accompanied by our product and service offerings, provides valuable
synergies for design innovation.

We sell and market our products and services with our own direct workforce, including employees in the Netherlands, Canada,

India, Mexico, China, Singapore, and South America, in conjunction with outside sales representatives in North America, Latin
America, Europe, Middle East & Africa, Asia, and India. We will continue expanding our sales and support capabilities and our
network of outside sales representatives in key regions domestically and internationally.

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

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

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

information as well as other key information regarding their purchase. We also actively provide our customers with access to key
information regarding changes in environment regulations and potentially pending changes as well as new product or service
developments. We believe that maintaining a close relationship with our customers and providing them with the support they request
improves their level of satisfaction and enables

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us to foresee their potential future product needs or service demands. Moreover, it leads to sales of annual service and support
contracts as well as consumables. Our website (www.cecoenviro.com) also provides our customers with online tools and technical
resources.

Quality Assurance

In engineered systems, quality is defined as system performance. We review with our customers, before the contract is signed,
the level of pollutants capture required and the efficiency of the equipment that will remove the contaminant from the air stream prior
to it being exhausted to the atmosphere. We then review these same parameters internally to assure that warranties will be met.
Standard project management and production management tools are used to help ensure that all work is done to specification, that
project schedules are met, and that the system is started up in the proper manner. Equipment is tested at the site to ensure it is
functioning properly. Every fiber bed filter we build is tested at the factory, whether built in China, India or the United States.
Historically, warranty expense is very low.

Customers

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

2012 or 2011. We do not believe the loss of any one of our customers would have a material adverse effect on us and our
subsidiaries taken as a whole.

Suppliers and Subcontractors

We purchase our angle iron and sheet plate products from a variety of global sources. When possible, we directly secure these
materials from steel mills. Other materials are purchased from a variety of steel service centers. Steel prices have been volatile, but
we typically mitigate the risk of higher prices by including a “surcharge” on our standard products. On contract work, we mitigate the
risk of higher prices by including the current price in our estimate, and generally including when possible in our terms and conditions
price inflation clauses for protection.

We have a good relationship with our suppliers and do not anticipate any difficulty in continuing to receive such items on terms

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

Typically on turnkey projects, we subcontract such things as electrical work, concrete work, controls, conveyors, insulation, etc.

We use subcontractors with whom we have good working relationships and review each project, both at the beginning and on an
ongoing basis, to help ensure that all work is being done according to our specifications. Subcontractors are generally paid when we
are paid by our customers according to the terms of our contract with the customer.

Backlog

Backlog is a representation of the amount of revenue expected from complete performance of signed firm fixed-price contracts
that have not been completed for products and services we expect to substantially deliver within the next 12 months. Our customers
may have the right to cancel a given order, although historically cancellations have been rare. Backlog was approximately $59.5
million and $54.9 million at the end of the fiscal years 2012 and 2011, respectively. Substantially all 2011 backlog was completed in
2012. Approximately 90% of the 2012 backlog is expected to be completed in 2013. Backlog is not defined by generally accepted
accounting principles and our methodology for calculating backlog may not be consistent with methodologies used by other
companies.

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Competition

We believe that there are no singly dominant companies in the industrial ventilation and air pollution control technology markets
in which we participate. These markets are fragmented with numerous smaller and regional participants. Due to the size and shipping
weight of many of our projects, localized manufacturing/fabrication capabilities is very important to our customers. As a result,
competition varies widely by region and industry. The market for our engineered products is reasonably competitive and is
characterized by technological change, continuously changing environment regulations, and evolving customer requirements. CECO
offerings are engineered and differentiated. We believe that the principle competitive factors in our markets include:

•

Performance track record in difficult plant applications;

Breadth and diversity of product offerings;

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

Ability to provide reliable solution in a timely manner;

Quality customer service and support; and

Financial and operational stability, including reputation.

We believe we compete favorably with respect to these factors.

Seasonality

Our business is subject to seasonal fluctuations. The fourth quarter of our fiscal year, which ends December 31, is typically our

strongest quarter. This is due to a combination of factors. First, many of our customers attempt to complete major capital
improvement projects before the end of the calendar year. Also, many customers shut down over the December holidays to perform
maintenance services on their facilities. These factors create increased demand for our products and services during this period.

Conversely, the first quarter of our calendar fiscal year is typically our weakest quarter. This is caused to some extent by winter
weather constraints on outside construction activity but also by the seasonality of capital improvement projects as discussed relating
to the fourth quarter.

Government Regulations

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

changes in environmental laws and regulations will not have a material adverse effect on our operations. Given the nature of our
business, such changes create opportunity.

We are also subject to the requirements of OSHA and comparable state statutes. We believe we are in material compliance with

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

Intellectual Property

Our business has historically relied on technical know-how and experience rather than patented technology. We hold a few

patents at our Busch International, CECO Filters, and Fisher-Klosterman subsidiaries. We do not view our patents to be material to
our business.

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Financial Information about Geographic Areas

For 2012 and 2011, sales to customers outside the United States, including export sales, accounted for approximately 14% and

23%, respectively, of consolidated net sales. Sales were made in 31 countries in 2012. The largest portion of these sales was
destined for Canada. Generally, sales are denominated in U.S. dollars.

In March 2008, we acquired FKI which leases a 40,000 square foot facility in Shanghai, China, and in August 2008, we acquired

Flextor which at that time leased a 15,000 square foot facility in Montreal, Canada. That production facility was closed in April 2011
and a smaller sales and technical services office is being leased. The management of Effox and Flextor was consolidated to
strengthen the marketing of their technology, products, and services to the energy, power, and utility markets. In February 2013, we
acquired Aarding which leases a 58,125 square foot facility in Nunspeet, the Netherlands.

With the February 2013 acquisition of Aarding in the Netherlands and anticipated growth of our China operations, foreign results

will increase in significance to the operational results of the Company.

Employees

We had 450 full-time and 2 part-time employees as of December 31, 2012. The facilities of Kirk & Blum are unionized except for

selling, engineering, design, administrative and operating management personnel. None of our other employees are subject to a
collective bargaining agreement. We consider our relationship with our employees to be satisfactory. In total, as of December 31,
2012, approximately 190 employees are represented by international or independent labor unions under various union contracts that
expire at various intervals.

Executive Officers of the Registrant

The following are the executive officers of the Company as of March 1, 2013. The terms of all officers expire at the next annual
meeting of the board of directors and upon the election of the successors of such officers. The ages given are as of March 1, 2013.

Name
Phillip DeZwirek
Jeff Lang
Benton Cook
Jason DeZwirek

Age
75
56
50
42

Position with
CECO
Chairman of the Board of Directors
Chief Executive Officer and Chief Operating Officer, Director
Interim Chief Financial Officer and Controller
Secretary, Director

Phillip DeZwirek became a director and the Chairman of the Board in August 1979. Mr. DeZwirek also served as Chief Executive

Officer from August 1979 through February 15, 2010. Mr. DeZwirek also serves as a member of the boards of directors of the
Company’s subsidiaries. In addition to serving as our Chairman, Mr. DeZwirek’s principal occupations during the past five years have
been serving as President of Icarus Investment Corp. (“Icarus”) (since 1990) and a director and Chairman (November 2006 through
January 2011) and Chief Executive Officer (November 2006 through April 2008 and September 2010 through January 2011), of API
Technologies Corp., a publicly traded company (NASDAQ:ATNY) that is a prime contractor in electronics, highly engineered systems,
secure communications and electronic components and sub-systems for the defense and aerospace industries. Mr. DeZwirek is also
involved in private investment activities. Mr. DeZwirek is the father of Mr. Jason DeZwirek.

Jeff Lang has served as our Chief Executive Officer since February 15, 2010 and as a director and our Chief Operating Officer

since May 20, 2010. Prior to joining the Company, Mr. Lang was the Executive Vice President, Operating Officer of McJunkin Red
Man Corporation, a Goldman Sachs Capital Partners portfolio company, from 2007 to 2009, a $4.5 billion provider of pipe, valves and
fittings, and related services serving the petrochemical, petroleum refining, pulp and paper, oil, gas industry and utilities. He was the
Senior Vice

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President and Operating Officer of Red Man Pipe and Supply Company from 2006 to 2007, a $1.8 billion pipe, valve, fitting company,
which merged with McJunkin Corporation to form McJunkin Red Man Corporation. Mr. Lang was employed by Ingersoll Rand
Company, a global industrial company, for twenty-five years from 1980 to 2005. He started out as a sales engineer in 1980, became a
Sales and Service Branch Manager in 1985, the Southeast U. S. Area Manager, Air Solutions in 1995, and by 1999 was the Director
and General Manager, North American Distributor Division and from 2002 to 2005 served as the Director and General Manager,
North American industrial Air Solutions Technology, reporting directly to the President of the Air Solutions Group.

Benton Cook became the Interim Chief Financial Officer as of September 28, 2011. Mr. Cook joined CECO in 2004 in the role of

Project Manager – Sarbanes-Oxley and has served as CECO’s Controller since 2008, which position he continues to hold. From
2001 to 2004, Mr. Cook served as location Controller for TAC Americas, Inc. a subsidiary of TAC AB, Malmo, Sweden which was
purchased in 2003 by Schneider Electric SA. Mr. Cook reported directly to the TAC Chief Financial Officer in Carrollton, Texas. From
1998 to 2001, Mr. Cook served as Corporate Controller for Control Solutions Ltd, LLC, a subsidiary of DQE Energy, Pittsburgh, PA,
reporting directly to the Chief Financial Officer. From 1990 to 1998, Mr. Cook served as Corporate Controller for the privately held
companies Rich Housh Services, Inc. and ControlSolutions, Inc. in Lebanon, Ohio reporting directly to the Chief Executive officer and
owner. Mr. Cook is a Certified Public Accountant.

Jason DeZwirek became a director of the Company in February 1994. He became Secretary of the Company on February 20,
1998. He also serves as a member of the boards of directors of the Company’s subsidiaries. He was the founder (1999), Chairman
and CEO of Kaboose, Inc., which was listed on the Toronto Stock Exchange and was the largest independent family focused online
media company in the world. Kaboose Inc. was sold to Disney and Barclays Private Equity in 2009. Mr. DeZwirek also previously
served as a director and the Secretary of API Technologies Corp., a publicly traded company engaged in the manufacture of
electronic components and systems for the defense and communications industries from November 2006 through January 2011.
Mr. DeZwirek is and has also been involved in private investments activities.

Where to Find More Information

CECO Environmental Corp. is subject to the reporting and other information requirements of the Securities Exchange Act of

1934, as amended (the “Exchange Act”). Reports and other information filed with the Securities and Exchange Commission (“SEC”)
pursuant to the Exchange Act may be inspected and copied at the public reference facility maintained by the SEC in Washington,
D.C. The SEC maintains a website at www.sec.gov containing our reports, proxy materials and other items. We also maintain a
website at www.cecoenviro.com on which we provide a link to access CECO’s SEC reports free of charge. The content of our
website is available for information purposes only and is not incorporated by reference.

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Item 1A.Risk Factors

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

Risks Related to Our Business and Industry

Changes in current environmental legislation could have an adverse impact on the sale of our environmental control systems and
products and on our operating results.

Our environmental systems business is primarily driven by capital spending, clean air rules, plant upgrades by our customers to
comply with laws and regulations governing the discharge of pollutants into the environment or otherwise relating to the protection of
the environment or human health. These laws include U.S. federal statutes such as the Resource Conservation and Recovery Act of
1976, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Clean Water Act, the Clean Air Act,
the Clean Air Interstate Rule, and the regulations implementing these statutes, as well as similar laws and regulations at state and
local levels and in other countries. These U.S. laws and regulations may change and other countries may not adopt similar laws and
regulations. Our business may be adversely impacted to the extent that environmental regulations are repealed, amended,
implementation dates delayed, or to the extent that regulatory authorities reduce enforcement.

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

The majority of our projects are currently performed on a fixed-price basis. Under a fixed-price contract, we agree on the price

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

If actual costs for our projects with fixed-price contracts exceed our original estimates, our profits will be reduced or we may suffer
losses.

The majority of our contracts are fixed-priced contracts. Although we benefit from cost savings, we have limited ability to recover
cost overruns. Because of the large scale and long-term nature of certain of our contracts, unanticipated cost increases may occur as
a result of several factors, including:

•

Increases in cost or shortages of components, materials or labor;

Unanticipated technical problems;

Required project modifications not initiated by the customer; and

Suppliers’ or subcontractors’ failure to perform.

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Any of these factors could delay delivery of our products. Our contracts often provide for liquidated damages in the case of late

delivery. Unanticipated costs that we cannot pass on to our customers, for example the increases in steel prices or the payment of
liquidated damages under fixed contracts, would negatively impact our profits.

Percentage-of-completion method of accounting for contract revenue may result in material adjustments that would adversely
affect our operating results.

We recognize contract revenue using the percentage-of-completion method on fixed price contracts over $50,000. Under this

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

We have recently made and may make future acquisitions, which involve numerous risks that could impact our business and
results of operations.

Our operating strategy involves horizontally expanding our scope of products and services through selective acquisitions and the

formation of new business units that are then vertically integrated into our growing family of turnkey system providers. We have
acquired, and may selectively acquire, other businesses, product or service lines, assets or technologies that are complementary to
our business. We may be unable to find or consummate future acquisitions at acceptable prices and terms. We continually evaluate
potential acquisition opportunities in the ordinary course of business, including those that could be material in size and scope.
Acquisitions involve numerous risks, including:

•

difficulties in integrating the acquired businesses, product or service lines, assets or technologies;

diverting management’s attention from normal daily operations of the business;

entering markets in which we have no or limited direct prior experience and where competitors in such markets have

stronger market positions;

unanticipated costs and exposure to undisclosed or unforeseen liabilities;

potential loss of key employees and customers of the acquired businesses, product or service lines, assets or technologies;

our ability to properly establish and maintain effective internal controls over an acquired company; and

increasing demands on our operational and information technology systems.

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

In addition, acquisitions of businesses may require additional debt or equity financing, resulting in additional leverage or dilution

of ownership. Our credit facility with Fifth Third Bank (the “Bank Facility”)

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contains certain covenants that limit, or which may have the effect of limiting, among other things acquisitions, capital expenditures,
the sale of assets and the incurrence of additional indebtedness.

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

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

that the use of our products results, or is alleged to result, in bodily injury and/or property damage or our products actually or
allegedly fail to perform as expected. While we maintain insurance coverage with respect to certain product liability and other claims,
we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide
adequate coverage against product liability and other claims. Any future damages that are not covered by insurance or are in excess
of policy limits could have a material adverse effect on our financial condition and results of operations. In addition, product liability
and other claims can be expensive to defend and can divert the attention of management and other personnel for significant periods
of time, regardless of the ultimate outcome.

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

Our business may be adversely affected by global economic conditions.

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

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

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

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

Our backlog has increased to $59.5 million at December 31, 2012 from $54.9 million at December 31, 2011. Our ability to meet

customer delivery schedules for our backlog is dependent on a number of factors including, but not limited to, access to the raw
materials required for production, an adequately trained and capable workforce, project engineering expertise for certain large
projects, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources. Our failure to
deliver in accordance with customer expectations may result in damage to existing customer relationships and result in the loss of
future business. Failure to deliver backlog in accordance with expectations could negatively impact our financial performance and
cause adverse changes in the market price of our common stock.

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Since our financial performance is seasonal, current results are not necessarily indicative of future results.

Our operating results may fluctuate significantly due to the seasonality of our business and these fluctuations make it more
difficult for us to predict accurately in a timely manner factors that may have a negative impact on our business. The fourth quarter of
our fiscal year, which ends December 31, is typically our strongest quarter. For example, many of our customers attempt to complete
major capital improvement projects before the end of the calendar year. In addition, many customers shut down over the Christmas
holidays to perform maintenance services on their facilities. These factors create increased demand for our products and services
during this period.

Conversely, the first quarter of our fiscal year is typically our weakest quarter. This is caused to some extent by winter weather

constraints on outside construction activity but also by the seasonality of capital improvement projects as discussed relating to the
fourth quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or
for any year.

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

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

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

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

We closely monitor the credit worthiness of our customers. Significant portions of our sales are to customers who place large
orders for custom products and whose activities are related to the power and oil/gas industries. As a result, our exposure to credit risk
is affected to some degree by conditions within these industries and governmental and/or political conditions. If any of these
customers enter bankruptcy or liquidation it may have a material adverse effect on our revenues and accounts receivable. We
frequently attempt to reduce our exposure to credit risk by requiring progress payments and letters of credit. However, the continuing
economic climate and other unanticipated events that affect our customers could have a materially adverse impact on our operating
results.

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

In 2012, approximately 14% of our total revenue was derived from products or services ultimately delivered or provided to end-
users outside the United States. As part of our operating strategy, we intend to expand our international operations through internal
growth and selected acquisitions. Our aspirations in the future are to balance revenues 50/50 between the U.S. and global market.
Operations outside of the United States, particularly in emerging markets, are subject to a variety of normal risks which are different
from or additional to the risks we face within the United States. Among others, these risks include:

•

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

certain countries;

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

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

tax-related risks, including the imposition of taxes and the lack of beneficial treaties, that result in a higher effective tax rate

for us;

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•

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

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

increased costs for transportation and shipping;

difficulties in protecting intellectual property;

risk of nationalization of private enterprises by foreign governments;

managing and obtaining support and distribution channels for overseas operations;

hiring and retaining qualified management personnel for our overseas operations;

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

imposition or increase of restrictions on investment; and

required compliance with a variety of local laws and regulations which may be materially different than those to which we

are subject in the United States.

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

upon the financial condition and results of operations.

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

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

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

Customers may cancel or delay projects for reasons beyond our control, including due to current economic conditions. Our

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

An SEC investigation involving us may result in future costs to us, and could adversely affect us.

As previously disclosed, we are currently the subject of a non-public formal investigation by the SEC. We have been cooperating
with and intend to continue to cooperate with the SEC. However, there can be no assurance that the SEC will not take any action that
could adversely affect us as a result of the matters it is reviewing. We have incurred legal fees and other expenses in connection with
the informal SEC inquiry and could incur significant legal fees, penalties and other expenses in connection with the ongoing SEC
investigation.

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In addition, members of our management have devoted in the past, and may need to devote in the future, a significant amount of time
to these matters, which would reduce the amount of time they can devote to our business and therefore have an adverse effect on
our business.

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

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

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

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

As of December 31, 2012, goodwill and indefinite lived intangibles represented approximately $23.1 million, or 24.5% of our total

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

We face significant competition in the markets we serve.

The industries in which we compete are all highly competitive and highly fragmented. We compete against a number of local,
regional and national contractors and manufacturers in each of our product or service lines, many of which have been in existence
longer than us and some of which have substantially greater financial resources than we do. Our products primarily compete on the
basis of price, performance, speed of delivery, quality, customer support and single source responsibility. We believe new entrants
that are large corporations may be able to compete with us on the basis of price and as a result may have a material adverse affect
on the results of our operations. In addition, we cannot state that other companies will not develop new or enhanced products that are
either more effective than ours or would render our products non-competitive or obsolete. Any failure by us to compete effectively in
the markets we serve could have a material adverse effect on our business, results of operations and financial condition.

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

We use a broad range of manufactured components and raw materials in our products, including raw steel, steel-related

components, filtration media, and equipment such as fans, motors, etc. Materials and subcontracting costs comprise the largest
component of our costs, representing approximately 52% of our net sales in 2012. Further increases in the price of these items could
further materially increase our operating costs and materially adversely affect our profit margins. Similarly, transportation and health
care costs have risen steadily over the

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past few years and represent an increasingly important burden for us. Although we try to contain these costs wherever possible, and
although we try to pass along increased costs in the form of price increases to our customers, we may be unsuccessful in doing so
for competitive reasons, and even when successful, the timing of such price increases may lag significantly behind our incurrence of
higher costs.

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

We are highly dependent on the experience of our management in the continuing development of our operations. The loss of

the services of certain of these individuals would have a material adverse effect on our business. Although we have employment and
non-competition agreements with certain of our key employees, as a practical matter, those agreements will not assure the retention
of our employees, and we may not be able to enforce all of the provisions in any employment or non-competition agreement. Our
future success will depend in part on our ability to attract and retain qualified personnel to manage our development and future
growth. We cannot state that we will be successful in attracting and retaining such personnel. Our failure to recruit additional key
personnel could have a material adverse effect on our business, financial condition and results of operations.

Any incurrence of indebtedness could adversely affect our ability to operate our business, remain in compliance with debt
covenants, make payments on the debt and limit our growth.

Outstanding indebtedness could have important consequences for investors, including the following:

•

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

the covenants contained in our debt agreements limit our ability to borrow money in the future for acquisitions, capital

expenditures or to meet our operating expenses or other general corporate obligations;

the amount of our interest expense may increase because certain of our borrowings are at variable rates of interest, which,

if interest rates increase, could result in higher interest expense;

we may need to use a portion of our cash flows to pay principal and interest on our debt, which will reduce the amount of

money we have for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other
business activities;

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

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

and

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

operate.

Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial,

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

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Our manufacturing operations are dependent on third-party suppliers.

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

raw materials, as well as certain specific component parts. We purchase our entire chemical grade fiberglass from one domestic
supplier, which we believe is the only domestic supplier of such fiberglass, and certain specialty items from only two domestic
suppliers. These items also can be purchased from foreign suppliers. Failure by our third-party suppliers to meet our requirements
could have a material adverse effect on us. We cannot assure you that our third-party suppliers will dedicate sufficient resources to
meet our scheduled delivery requirements or that our suppliers will have sufficient resources to satisfy our requirements during any
period of sustained demand. Failure of manufacturers or suppliers to supply, or delays in supplying, our raw materials or certain
components, or allocations in the supply of certain high demand raw components could materially adversely affect our operations
and ability to meet our own delivery schedules on a timely and competitive basis.

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

Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in each of our annual reports on Form 10-K, a

report containing our management’s assessment of the effectiveness of our internal control over financial reporting. The Company
believes based on the requirements of Section 404 that management’s assessment of internal controls will need to include an
attestation report of our independent auditors for 2013. These laws, rules and regulations continue to evolve and could become
increasingly stringent in the future. We have undertaken actions to enhance our ability to comply with the requirements of the
Sarbanes-Oxley Act of 2002, including, but not limited to, the engagement of consultants, the documentation of existing controls and
the implementation of new controls or modification of existing controls as deemed appropriate.

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

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

There are inherent limitations in all internal control systems over financial reporting, and misstatements due to error or fraud

may occur and not be detected.

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

Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the Securities and Exchange Commission, or SEC,
implementing these requirements, there are inherent limitations in our ability to control all circumstances. Our management, including
our Chief Executive Officer and Interim Chief Financial Officer, does not expect that our internal controls and disclosure controls will
prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact
that there are resource constraints and the benefit of controls must be evaluated in relation to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual
acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because
of changes in conditions or the degree of compliance with the policies or procedures

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may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

If we do not develop improved products and new products in a timely manner in response to industry demands, our business

and revenues will be adversely affected.

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

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

The air pollution control and filtration industry is characterized by changing technology, competitively imposed process

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

Work stoppages or similar difficulties could significantly disrupt our operations.

As of March 1, 2013, 143 of our 495 employees are represented by international or independent labor unions under various

union contracts that expire from May 31, 2013 to May 31, 2014. It is possible that our workforce will become more unionized in the
future. Although we consider our employee relations to generally be good, our existing labor agreements may not prevent a strike or
work stoppage at one or more of our facilities in the future and we may be affected by other labor disputes. A work stoppage at one or
more of our facilities may have a material adverse effect on our business. Unionization activities could also increase our costs, which
could have an adverse effect on our profitability.

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

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

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

earnings.

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

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

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

Occasionally we act as a prime contractor in some of the engineered projects we undertake. In our capacity as lead provider
and when acting as a subcontractor, we perform most of the work on our projects with our own resources and typically subcontract
only such specialized activities as electrical work, concrete work, insulation,

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conveyors, controls, etc. In our industry, the lead contractor is normally responsible for the performance of the entire contract,
including subcontract work. Thus, when acting as a prime contractor, we are subject to the risk associated with the failure of one or
more subcontractors to perform as anticipated. We are strategically selecting only certain profile type projects to become the lead
contractor going forward.

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

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

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

financial results.

With the acquisition of Aarding, an increasing portion of our consolidated revenues will be generated outside the United States.

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

Our business is subject to risks of terrorist acts, acts of war and natural disasters.

Terrorist acts, acts of war, or national disasters may disrupt our operations and information and distribution systems, as well as

those of our customers. These types of acts have created, and continue to create, economic and political uncertainties and have
contributed to global economic instability. Future terrorist activities, military or security operations, or natural disasters could weaken
the domestic/global economies and create additional uncertainties, thus forcing our customers to reduce their capital spending, or
cancel or delay already planned construction projects, which could have a material adverse impact on our business, operating results
and financial condition.

We might be unable to protect our intellectual property rights and our products could infringe the intellectual property rights of

others, which could expose us to costly disputes.

Although we believe that our products do not infringe patents or violate the proprietary rights of others, it is possible that our

existing patent rights may not be valid or that infringement of existing or future patents or proprietary rights may occur. In the event
our products infringe patents or proprietary rights of others, we may be required to modify the design of our products or obtain a
license for certain technology. We cannot state that we will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. Failure to do any of the foregoing could have a material adverse effect upon our business. In addition, we state
that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violations
action which may be brought against us. Moreover, if our products infringe patents or proprietary rights of others, we could, under
certain circumstances, become liable for damages, which also could have a material adverse effect on our business.

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Risks Related to Our Common Stock

Our executive officers and directors are able to exercise significant influence over CECO, and their interests may conflict with

those of our other stockholders.

As of March 1, 2013, our executive officers and directors beneficially own approximately 30% of our outstanding common stock,

assuming the exercise of currently exercisable warrants and options beneficially held by them. The interests of management with
respect to matters potentially or actually involving or affecting us, such as future acquisitions, financings and other corporate
opportunities and attempts to acquire us, may conflict with the interests of our other stockholders. Management’s continued
concentrated ownership may have the effect of delaying or preventing a change of control of us, including transactions in which
stockholders might otherwise receive a premium for their shares over then current market prices.

We have engaged in the past, and continue to engage, in related party transactions and such transactions present possible

conflicts of interest.

We have engaged in the past, and continue to engage, in several related party transactions, including management consulting

services and office space and other expenses related to our Toronto office. All such transactions were approved by the Audit
Committee of our Board of Directors, which believed that the transactions were in our best interest. Transactions of this nature
present the possibility of a conflict of interest whereby the other party may advance its economic or business interests or objectives
that may conflict with or be contrary to our best interests. Any such conflict could have a material adverse effect on our financial
conditions and results of operations.

The limited liquidity for our common stock could affect your ability to sell your shares at a satisfactory price.

Our common stock is relatively illiquid. As of March 1, 2013, we had 17,722,296 shares of common stock outstanding. The
average daily trading volume in our common stock during the 60 calendar days ended March 1, 2013 was approximately 24,013
shares. A more active public market for our common stock, however, may not develop, which would continue to adversely affect the
trading price and liquidity of our common stock. Moreover, a thin trading market for our stock causes the market price for our common
stock to fluctuate significantly more than the stock market as a whole. Without a large float, our common stock is less liquid than the
stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In
addition, in the absence of an active public trading market, liquidation of a holding of our stock at a satisfactory price might not be
possible.

The market price of our common stock may be volatile or may decline regardless of our operating performance and investors

may not be able to resell shares they purchase at their purchase price.

The stock market has experienced and may in the future experience volatility that has often been unrelated to the operating
performance of particular companies. The market price of our common stock has experienced, and may continue to experience,
substantial volatility. During the twelve-month period ended March 1, 2013, the sale prices of our common stock on The NASDAQ
Global Market have ranged from a low of $6.81 to a high of $11.24 per share. We expect our common stock to continue to be subject
to fluctuations. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual
operating performance. Factors that could cause fluctuation in the stock price may include, among other things:

•

actual or anticipated variations in quarterly operating results;

the relatively low float of our common stock caused, among other reasons, by the holdings of our principal shareholders;

adverse general economic conditions, such as those currently being experienced, including withdrawals of investments in
the stock markets generally and a tightening of credit available to potential acquirers of businesses, that result in a lower
average prices being paid for public company shares and lower valuations being placed on businesses;

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•

other domestic and international macroeconomic factors unrelated to our performance;

our failure to meet the expectations of the investment community;

industry trends and the business success of our customers;

loss of key customers;

announcements of technological advances by us or our competitors;

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

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

governmental regulations;

litigation or other proceedings involving or affecting us; and

additions or departures of our key personnel.

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

decline significantly.

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

We have reserved 2.0 million shares of our common stock for issuance under our 2007 Equity Incentive Plan (“2007 Plan”),
which may include option grants, stock grants and restricted stock grants. As of December 31, 2012, approximately 1.2 million options
or shares of restricted stock have been issued under the 2007 Plan. Icarus, an affiliate of Phillip DeZwirek and Jason DeZwirek, also
owns warrants to purchase 250,000 shares of common stock that have piggy-back rights granting it the right to require that we
register such shares in the event we file any registration statements in the future.

We had outstanding options to purchase approximately 187,500 shares of our common stock as of December 31, 2012 under
our 1997 Stock Option Plan and outstanding options to purchase approximately 1,056,151 shares under our 2007 plan. The shares
under both plans are registered for resale on currently effective registration statements.

We may issue additional restricted securities or register additional shares of common stock under the Securities Act of 1933, as

amended (the “Securities Act”) in the future. The issuance of a significant number of shares of common stock upon the exercise of
stock options or warrants, or the availability for sale, or resale, of a substantial number of the shares of common stock under
registration statements, under Rule 144 or otherwise, could adversely affect the market price of the common stock.

Issuance of shares under our stock incentive plan or under warrants, or in connection with financing transactions will dilute

current stockholders.

Pursuant to our stock incentive plan, our management is authorized to grant stock awards to our employees, directors and
consultants. Dilution will occur upon exercise of any outstanding stock awards. If we raise additional funds by issuing additional
common stock, or securities convertible into or exchangeable or exercisable for common stock, further dilution to our existing
stockholders will result, and new investors could have rights superior to existing stockholders. In addition, we have historically issued
warrants to purchase common shares in conjunction with business acquisitions, debt issuances and employment contracts, of which
250,000 warrants are currently outstanding, which may cause dilution when exercised.

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

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

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

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

Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or preventing a
change in control of us. Such provisions, including those limiting who may call special stockholders’ meetings, together with the
possible issuance of our preferred stock without stockholder approval, may make it more difficult for other persons, without the
approval of our board of directors, to make a tender offer or otherwise acquire substantial amounts of our common stock or to launch
other takeover attempts that a stockholder might consider to be in such stockholder’s best interest.

Item 1B. Unresolved Staff Comments Not Applicable

Not Applicable

Item 2.

Properties

Our corporate headquarters and the Contracting/Services Group management offices are located in Cincinnati, Ohio at a 7,000

square foot facility that we lease. We also have an executive office in Toronto, Canada, at facilities maintained by an affiliate of our
Chairman of the Board and our Secretary, who work at the Toronto office. We reimburse such affiliate $10,000 per month for the use
of the space and other office expenses. The Engineered Equipment Technology and Parts Group has management offices in
Cincinnati, Ohio as well as in Louisville, Kentucky, and our Component Parts Group management office is located in Greensboro,
North Carolina. The Contracting/Services Group owns a 35,000 square foot manufacturing facility in Louisville, Kentucky.

Leased Locations
Engineered Equipment Technology and Parts

Group:

Type

Square Footage

Annual Rent

Expiration

Anaheim, California
Moorpark, California
Ventura, California
Louisville, Kentucky
Cincinnati, Ohio
Conshohocken, Pennsylvania
Lebanon, Pennsylvania
Pittsburgh, Pennsylvania
Montreal, Canada
Shanghai, China
Pune, India
Nunspeet, the Netherlands
Singapore

Contracting / Services Group:
Indianapolis, Indiana
Canton, Mississippi
Columbia, Tennessee

Component Parts Group:

Greensboro, North Carolina
Cincinnati, Ohio (a)
Salt Lake City, Utah

Corporate segment:

Cincinnati, Ohio (b)

Mfg.
Mfg.
Sales
Mfg.
Mfg.
Mfg.
Sales
Sales
Sales
Mfg.
Sales
Office/Mfg.
Sales

Sales
Mfg.
Mfg.

Mfg.
Mfg.
Mfg.

17,200
4,300
1,281
61,095
96,400
30,000
6,800
4,000
3,514
40,000
255
58,125
161

$ 228,672
$ 51,528
$ 15,372
$ 108,617
$ 313,300
$ 220,626
$ 88,614
$ 61,000
$ 34,332
$ 151,177
$
3,477
$ 400,000
$ 12,000

December 2016
April 2014
April 2013
March 2018
November 2016
April 2014
September 2014
May 2013
October 2017
March 2013
December 2014
December 2016
September 2013

5,000
20,100
34,800

$ 24,482
$ 35,900
$ 127,000

September 2014
July 2013
August 2013

30,000
53,210
13,600

$ 100,113
$ 193,152
$ 44,880

August 2018
April 2018
April 2013

Admin.

7,000

$ 95,677

June 2016

(a)
(b)

Location is also used by the Contracting / Services Group as a Sales office.
Location is also used by the Contracting / Services Group as a management office.

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It is anticipated that all leases coming due in the near future will be renewed at expiration.

The property we own is subject to collateral mortgages to secure the amounts owed under the Bank Facility.

Our current capacity, with limited capital additions, is expected to be sufficient to meet production requirements for the near

future. We believe our production facilities are suitable and can meet our future production needs.

Item 3.

Legal Proceedings

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

Part II, Item 8 of this report for information regarding legal proceedings in which we are involved.

Item 4.

Mine Safety Disclosures

Not applicable.

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PART II

Item 5.

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

Market Information

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

and low common stock sales prices as reported by the NASDAQ Global Market during the periods indicated.

4
Qtr.
$10.10
8.75

2012

3
Qtr.
$10.20
7.45

2011

2
Qtr.
$8.37
6.81

1
Qtr.
$8.65
5.46

4
Qtr.
$6.65
4.98

3
Qtr.
$8.05
5.13

2
Qtr.
$7.19
5.43

1
Qtr.
$6.53
5.32

High
Low

Dividends

Prior to fiscal year 2011, we had not paid any cash dividends on our common stock. In August 2011, our Board of Directors
determined to initiate a quarterly cash dividend program, subject to the Board’s continuing determination that the dividend policy and
the declaration of dividends are in the best interest of CECO’s shareholders. The declaration and payment of dividends is also subject
to continued consent by our lender, as our credit agreement contains provisions that prevent us from paying any dividends to our
stockholders without such consent. Future dividends and the dividend policy may be changed or cancelled at the Company’s
discretion at any time. In fiscal years 2012 and 2011, our Board declared the following dividends:

Dividend
Per share

$ 0.025
$ 0.025
$ 0.035
$ 0.035
$ 0.045
$ 0.045

Record Date

Payment Date

September 15, 2011
December 15, 2011
March 20, 2012
June 15, 2012
September 14, 2012
December 14, 2012

September 30, 2011
December 30, 2011
March 30, 2012
June 29, 2012
September 28, 2012
December 28, 2012

On March 7, 2013, CECO’s Board of Directors announced a quarterly dividend of $0.05 per share. The dividend will be paid on

March 28, 2013 to all shareholders of record at the close of business on March 18, 2013.

Holders

The approximate number of registered shareholders of record of our common stock as of March 1, 2013 was 146, although

there are a larger number of beneficial owners.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

We did not repurchase any shares of our common stock during the fourth quarter of 2012.

Securities Authorized for Issuance Under Equity Compensation Plans

Information about securities authorized for issuance under our equity compensation plans is contained in Item 12—Security

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

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Recent Sales of Unregistered Securities

On December 31, 2012, we acquired all of the capital stock of Adwest, pursuant to the terms of a Stock Purchase Agreement

(“SPA”) among CECO and all of the shareholders of Adwest (the “Sellers”). The consideration paid by the Company to the Sellers in
the transaction at closing was $4.0 million in cash and 52,632 shares of the Company’s common stock worth approximately $0.5
million based on the December 31, 2012 closing market price of the Company’s common stock. The Company issued the 52,632
shares of the Company’s common stock to the eight former shareholders of Adwest in reliance on an exemption from the registration
requirements of the Securities Act of 1933, as amended, provided by Section 4(2) of the Securities Act as a private offering. Such
issuance did not involve a public offering, and was made without general solicitation or advertising.

Item 6.

Selected Financial Data

A smaller reporting company is not required to provide the information in this Item.

Item 7.

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

Management’s discussion and analysis should be read in conjunction with the consolidated financial statements and

accompanying notes included in Item 8 of this report, which include additional information about our accounting policies, practices
and the transactions underlying our financial results. The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires us to make estimates and
assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including various
claims and contingencies related to lawsuits, taxes, environmental and other matters arising during the normal course of business.
We apply our best judgment, our knowledge of existing facts and circumstances and actions that we may undertake in the future in
determining the estimates that affect our consolidated financial statements. We evaluate our estimates on an ongoing basis using our
historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions,
and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision,
actual results may differ from these estimates. CECO Environmental Corp. and its subsidiaries are referred to collectively as “CECO,”
“the company,” “us,” “we,” or “our” in the following discussion and analysis.

Overview

Business Overview

We are one of the leading providers of air-pollution control technology products and services. These products, technology, and

services are marketed under the “Effox,” “Flextor,” “Kirk & Blum,” “KB Duct,” “Fisher-Klosterman,” “FKI,” “Buell,” “A.V.C.,” “Busch
International,” “CECO Filters,” “CECO Abatement Systems,” and “Adwest,” trade names. Our revenues are generated by our services
of engineering and designing as well as building equipment, and installing systems that capture, clean and destroy airborne
contaminants from industrial facilities and equipment that controls emissions from such facilities. We have a diversified base of more
than 3,500 active customers among a myriad of industries including aerospace, brick, cement, steel, ceramics, metal working,
ethanol, printing, paper, food, foundry, power, refining, mining, metal plating, woodworking, chemicals, tobacco, glass, automotive,
and pharmaceuticals. Therefore, our business is not concentrated in a single industry or customer. Demand for our products and
services is created by increasingly strict EPA mandated industry Maximum Achievable Control Technology standards and OSHA
established Threshold Limit Values, as well as existing pollution control and energy legislation.

Industry Trends and Corporate Strategy

We believe that as economic conditions continue to improve, there will be an increase in the level of pollution control capital
expenditures driven by an elevated focus on environmental issues such as global warming and energy saving alternatives as well as
a U.S. Government supported effort to reduce our dependence

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on foreign oil through the use of bio-fuels like ethanol and electrical energy generated by our abundant domestic supply of coal. We
also feel that similar opportunities will continue to develop outside the United States. Much of our business is driven by various
regulatory standards and guidelines governing air quality in and outside factories. Our Chinese operation is positioned to benefit from
the tightening of air pollution standards by China’s Ministry of Environmental Protection.

We continue to focus on increasing revenues and profitability globally while continuing to strengthen and expand our presence
domestically. Our operating strategy has historically involved horizontally expanding our scope of technology, products, and services
through selective acquisitions and the formation of new business units that are then vertically integrated into our growing group of
turnkey system providers. By employing this strategy, we have expanded our business by adding Aarding, Adwest, CECO Abatement
Systems, KB Duct, CECO Environmental India, Effox, Fisher-Klosterman, Flextor and A.V.C. Our continuing focus will be on global
growth, market coverage, and specifically expansion of our China and India operations. Operational excellence, margin expansion,
after-market growth, and safety leadership are also critical to our growth strategy.

Beginning in 2011, we expanded our sales market coverage in India through a strategic partnership with Empire Industrial
Equipment, which is a large equipment sales, installation, and after-sales service supplier to industrial manufacturers across India.
We continue to increase our focus on China which has resulted in the hiring of sales engineers dedicated to serving global industrial
markets benefiting our Busch, Effox/Flextor, CECO Abatement and CECO Filters companies.

During 2012 and 2011, our operational efficiency and profitability continued to improve due to streamlining, price management,

Recent Developments

On February 28, 2013, the Company acquired Aarding Thermal Acoustics B.V., a Netherlands company (“Aarding”), pursuant to

the terms of a Share Purchase Agreement, (the “SPA”) dated February 28, among the Company, CECO Environmental Netherlands
B.V., N.F.J.A. Pieterse Beheer B.V., and W.M. Pranger Beheer B.V. Aarding is a global provider of natural gas turbine exhaust
systems and silencer applications. We acquired Aarding to lead CECO’s expanding global natural gas business including the Flextor
division, which provides complimentary and integrated engineered solutions to those of Aarding. The purchase price included cash of
$24.0 million at closing and 763,673 shares of restricted common stock. Additionally, the former owners of Aarding are entitled to
earn-out payments of up to $7.2 million upon the attainment of specified financial targets through December 31, 2017.

Operations Overview

We operate under a “hub and spoke” business model in which executive management, finance, administrative and marketing
staff serves as the hub while the sales channels serve as spokes. We use this model throughout our operations. This has provided
us with certain efficiencies over a more decentralized model. The Company’s division presidents and general managers are
responsible for successfully running their operations, that is, sales, gross margins, manufacturing, pricing, safety, employee
development, and customer service excellence. The presidents work closely with the CEO on global growth strategies, operational
excellence, and employee development. The headquarters (hub) focuses on enabling the core back-office key functions for scale and
efficiency, that is, accounting, payroll, human resources/benefits, IT, safety support, audit controls, and administration. We have
excellent organizational focus from headquarters through-out our divisional businesses with clarity and minimal duplicative work
streams. We are structured for growth and will do smart future bolt-on acquisitions with a full integration strategy.

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Our three operating segments are: the Engineered Equipment Technology and Parts Group (the “EET&P Group”), which

produces various types of air pollution control equipment, the Contracting/Services Group (the “C/S Group”), which produces air
pollution control and industrial ventilation systems and the Component Parts Group (the “CP Group”), which manufactures products
used by us and other air pollution control companies and contractors. It is through combining the efforts of some or all of these groups
that we are able to offer complete turnkey systems to our customers and leverage the operational efficiencies between our family of
companies. Due to the relative size of our former Engineering Group, our reportable segment disclosures in our financial statements
include this group’s results with our corporate and other disclosures. The Engineering Group was sold in November 2011.

Our contracts are obtained either through competitive bidding or as a result of negotiations with our customers. Contract terms

offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to
complete the project. For example, a contract that can be performed primarily by subcontractors and that does not require us to use
our fabrication and assembly facilities can be quoted at a lower gross margin than a more typical contract that will require additional
factory overhead and administrative expenses. Our focus is on increasing our operating margins as well as our gross margin
percentage which translates into higher net income. Our sales typically peak in the fourth quarter due to a tendency of customers to
want to fully utilize annual capital budgets and due to the fact that many industrial facilities shut down for the holiday season and that
creates demand for maintenance and renovation work that can be done at no other time.

CECO Filters secures international sales through the efforts of CECO’s operation in India and also through a network or sales

representatives around the globe. System sales, such as those secured by Busch and Kirk & Blum, are secured through relationships
built up over the years in various industries. Some of these relationships are at American companies building plants overseas and
some are through the global reputation of Busch. Kirk & Blum has long done business in Mexico. In March 2008, we acquired Fisher-
Klosterman/Buell, a Louisville, Kentucky based company which has, among other locations, a facility in Shanghai, China which gives
us a platform for developing business in this vast market. In August of 2008, we acquired Flextor, a Montreal based maker of
dampers and expansion joints that has significant international sales experience in South America. In February 2013, the Company
acquired Aarding, a Netherlands company providing natural gas turbine exhaust systems and silencer applications globally.

Cost of sales as a percent of 2012 revenue is approximately 52% material, equipment, and subcontracting expenses, and 17%
labor and factory overhead. Our cost of sales is principally driven by a number of factors including material prices and labor cost and
availability. Changes in these factors may have a material impact on our overall gross profit margins. For example, in larger
contracts, we may incur sub-contract work or direct equipment purchases, which may only be marked-up to a limited extent and
consequently, the gross margins of the Company are affected. However, profitability is enhanced through the absorption of fixed
operating costs, including Selling, General & Administrative and factory overhead.

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

•

Labor- Our direct labor both in the shop and in the field;

Material- Raw material, mostly steel, that we buy to build our products;

Equipment- Fans, motors, control panels, etc. necessary for turnkey systems;

Subcontracts- Electrical work, concrete work, etc. necessary for turnkey systems;

Factory overhead – Costs of facilities and supervision wages necessary to produce our products.

In general, labor provides us the most flexibility in margin followed by material and equipment and subcontracts. Across our
various product lines, the relative relationships of these factors change thus causing variations in gross margin percentage. Material
costs have also increased faster than labor costs, which also reduces gross margin percentage.

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Selling and administrative expense principally includes advertising and marketing expenditures and all corporate and

administrative functions and other costs that support our operations. The majority of these expenses are fixed. We expect to leverage
our fixed operating structure as we continue to grow our revenue.

Results of Operations

Consolidated Results

Our consolidated statements of operations for the years ended December 31, 2012 and 2011 are as follows:

($ in millions)
Net sales
Cost of goods sold

Gross profit

Percent of sales
Selling and administrative
Percent of sales

Operating income

Percent of sales

For the year ended
December 31,

2012
$135.1
92.7

$ 42.4
31.4%
$ 25.4
18.8%
$ 16.7
12.4%

2011
$139.2
101.0

$ 38.2
27.5%
$ 25.4
18.2%
$ 12.4

8.9%

Consolidated sales in 2012 were $135.1 million compared to $139.2 million in 2011. The decrease in sales was primarily due to
decreases of $3.8 million and $1.4 million in the EET&P Group and the C/S Group, respectively, offset by an increase of $2.0 million
in the CP Group. The sales decrease of 4.1% in our EET&P Group is primarily due to project delays requested by customers, while
the decrease of 5.0% in the C/S Group is primarily due to the continued targeting of higher margin projects. The increased demand
for our products and services created by certain industrial sectors, such as small independent contractors that purchase component
parts, created the 10.7% increase in our CP Group sales.

Gross profit increased by $4.2 million, or 11.3%, to $42.4 million in 2012 compared with $38.2 million in 2011. Gross profit as a

percentage of sales was 31.4% in 2012 compared to 27.5% in 2011. The net increase in gross profit was primarily due to a shift to
higher margin work in both the EET&P Group and the C/S Group.

Orders booked in 2012 were $139.7 million compared to $139.8 million in 2011. We continue to experience an active level of

customer inquiry and quoting activities and have realized increased bookings at our Effox and Flextor divisions.

Selling and administrative expenses remained flat between 2012 and 2011 at $25.4 million.

Amortization expense was $0.3 million in 2012 and $0.4 million in 2011. The decrease in amortization expense was the result of

certain definite life intangibles related to earlier acquisitions becoming fully amortized.

Operating income for 2012 was $16.7 million, an increase of $4.3 million from $12.4 million in 2011. Operating income as a
percent of sales for 2012 was 12.4% compared to 8.9% for 2011. Improved margins, changes in product mix, and manufacturing
improvements were the primary factors for the increases in operating income and operating margin percentages.

Other (expense) income for 2012 was $(152,000) compared to $452,000 in 2011. The foreign currency transaction losses were

$(152,000) in 2012 as compared with foreign currency gains of approximately $115,000 in 2011. The income in 2011 primarily
consists of a $359,000 payment of short swing trading profits that was returned to the Company by a director and an affiliated
shareholder.

Interest expense increased slightly to $1.2 million in 2012 from $1.1 million in 2011. A charge of $141,000 to interest expense

was recorded in the fourth quarter of 2012 to expense the remaining balance of unamortized

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deferred financing fees related to origination of the Company’s subordinated convertible promissory notes (the “Investor Notes”). The
remaining balance of the Investor Notes was converted to equity in November 2012. The expense of the deferred financing fees was
offset by the decrease in interest expense during 2012 due to previous Investor Notes converted by the holders.

Federal and state income tax expense was $4.5 million in 2012 compared to $3.4 million in 2011. The effective tax rate for 2012

was 29.3% compared to 29.0% in 2011. Included in the income tax provision calculation for 2012 is a $1.1 million tax benefit, net of
related uncertain tax position reserves, for research and development income tax credits earned during 2009 through 2011. This
credit was not contemplated in the 2011 tax provision because it was not identified or quantified until 2012. The Company is in the
process of substantiating this credit related to the additional open years of 2009 and 2011, which is expected to be completed in the
first quarter of 2013 and may result in additional tax benefit to be recorded in the first quarter of 2013. Along with the tax benefit of
research and development income tax credits, our effective tax rate is additionally affected by certain permanent differences including
non-deductible incentive stock based compensation, reversals of certain income tax reserves/deferrals, and tax holidays in foreign
jurisdictions.

Business Segments

The Company’s operations are organized and reviewed by management along its product lines and presented in three
reportable segments. The results of the segments are reviewed through to the “Income from operations” line on the Consolidated
Statements of Income. The amounts presented in the Net Sales table below and in the following comments regarding our net sales at
the reportable business segment level exclude both intra-segment and inter-segment net sales. The Income (loss) from Operations
table and corresponding comments regarding operating income at the reportable segment level include both intra-segment and inter-
segment operating income.

$ in thousands
Net Sales by Segment (less intra-, inter-segment sales)
Engineered Equipment Technology and Parts Group

United States
Canada
China
Brazil
India

Subtotal
Contracting / Services Group
Component Parts Group
Corporate and other

Net sales

$ in thousands
Income (loss) from Operations

Engineered Equipment Technology and Parts Group
Contracting / Services Group
Component Parts Group
Corporate and other (a)
Eliminations

Income from operations

2012

2011

$ 75,824
7,611
4,905
121
218

88,679
25,527
20,771
75

$ 76,416
7,492
6,147
2,214
229

92,498
26,879
18,771
1,044

$135,052

$139,192

2012

2011

$15,562
3,461
4,198
(6,474)
(64)

$12,381
3,145
3,372
(6,418)
(112)

$16,683

$12,368

(a)

Includes corporate compensation, professional services, information technology, and other general and administrative corporate
expenses.

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Engineered Equipment Technology and Parts Group

Our EET&P Group net sales were $88.7 million in 2012 compared to $92.5 million in 2011, a decrease of $3.8 million. The
increased revenues of $5.3 million, or 16.1%, at our Effox/Flextor division was more than offset by decreased revenues due to project
delays requested by customers. The increased revenues at our Effox/Flextor division were driven by increased demand, principally in
the utility sector, for their product line of dampers and expansion joints.

Operating income from the EET&P Group totaled $15.6 million in 2012 compared to $12.4 million in 2011, an increase of $3.2
million. The increase in 2012 was primarily due to an increase of $5.3 million at our Effox/Flextor division offset by decreases at our
Fisher-Klosterman and CECO Abatement divisions.

Contracting/Services Group

C/S Group net sales for 2012 decreased to $25.5 million compared to $26.9 million in 2011. The C/S Group is continuing to

target higher margin design and build end-user customer segments, which resulted in the net sales decrease.

Operating income for the C/S Group was $3.5 million in 2012 compared to $3.1 million in 2011. This increase is primarily due to

a strategic shift in customer segments and reduced operating costs from facility consolidations, effective project management, and
improved pricing strategies.

Component Parts Group

CP Group net sales were $20.8 million in 2011 compared to $18.8 million in 2011. This increase is primarily due to increased

demand for our component parts and clamp together duct products, which is the result of many smaller contractors buying these
products instead of making them in-house.

Operating income for the CP Group was $4.2 million in 2012 compared to $3.4 million in 2011. This increase is primarily due to

increased revenues as described above and better pricing strategies.

Liquidity and Capital Resources

Financing

Our principal sources of liquidity are cash flow from operations and available borrowings under our revolving credit facility. At

December 31, 2012 and December 31, 2011, cash and cash equivalents totaled $23.0 million and $12.7 million, respectively.

We have no outstanding borrowings under our line of credit as of December 31, 2012 or 2011, and $2.2 million as of the
February 28, 2013 acquisition of Aarding (see Note 19 to the Consolidated Financial Statements contained in Part II, Item 8 of this
report). As of December 31, 2012, the Company has $1.9 million in outstanding trade letters of credit.

We entered into our current credit facility with Fifth Third Bank (the “Bank Facility”) on December 29, 2005. The Bank Facility
was amended on various dates and fees paid for these amendments were deferred and are being amortized over the remaining term
of the Bank Facility. The Bank Facility, as amended, includes a revolving line of credit of up to $20.0 million, with a limit on letters of
credit of $10 million. The credit available is limited to a borrowing base amount computed as 70% of eligible accounts receivable, 50%
of unbilled revenues up to $1.0 million, plus 50% of eligible inventories up to $7.5 million. The borrowing base amount is decreased
by the Company’s outstanding letters of credit. Our property and equipment, accounts receivable, investments and inventory serve as
collateral for our bank debt. Our debt agreements contain customary covenants and events of default.

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Unused credit availability under the Bank Facility at December 31, 2012 was $14.6 million, as summarized below. Interest on

the outstanding borrowings is charged at the daily LIBOR rate plus 3.5% or the tranche LIBOR rate plus 3.0% for the revolver.
Availability is limited as determined by a borrowing base formula contained in the credit agreement as follows:

$ in millions
Eligible accounts receivable at 70%
Net unbilled revenues at 50% up to $1.0 million
Eligible inventory at 50% up to $7.5 million

Borrowing base
Letters of credit open

Loan availability

12/31/12
$ 14.9
—
1.6

$ 16.5
(1.9)

$ 14.6

12/31/11
$ 11.8
0.1
1.7

$ 13.6
(2.9)

$ 10.7

On November 26, 2009, the Company issued $10.8 million principal amount of subordinated convertible promissory notes to a

group of investors (the “Investor Notes”) which included related parties: Icarus Investment Corp., which is controlled by Phillip
DeZwirek, our Chairman and former Chief Executive Officer, and Jason DeZwirek, a director and Secretary, ($2,200,000), JMP Fam
Holdings, Inc., which is controlled by Jonathan Pollack, a Company director, ($150,000), Jason DeZwirek ($800,000), and Harvey
Sandler Revocable Trust ($800,000), which trust owns over 10% of our outstanding common stock. Interest accrued under the
Investor Notes at the annual rate of 6% and was payable as of the end of each calendar quarter. Interest paid on the Investor Notes
for 2012 and 2011 was $505,000 and $625,000, respectively. We used the proceeds of the Investor Notes to repay all of our
previously existing subordinated debt in the amount of approximately $4.5 million, which debt was accruing interest at rates between
11-12%. The balance of the proceeds was available to be used for general working capital. Fees of $320,000 were paid for the
issuance of this debt and were being amortized over the term of the Investor Notes.

The Investor Notes were due on November 26, 2014 and were not repayable prior to maturity except upon a change of control,

or upon the consent of the holder. The remaining outstanding $8.8 million balance of the Investor Notes was converted to common
stock at the conversion price of $4.00 per share during the fourth quarter of 2012 in accordance with the terms of the Investor Notes.
The quarterly conversion during 2012 of the Investor Notes were $200,000, $240,000, $400,000, and $8,760,000 resulting in the
issuance of 50,000, 60,000, 100,000, and 2,190,000 shares of our common stock, respectively.

Overview of Cash Flows and Liquidity

($’s in thousands)
Total operating cash flow provided by operating activities

Acquisitions of property and equipment
Net cash paid for acquisition
Net proceeds from sale of equipment

Net cash used in investing activities from operating activities

Proceeds from exercise of stock options
Cash paid for repurchase of common shares
Dividends paid to common shareholders

Net cash used in financing activities

Net increase in cash and cash equivalents

For the year ended
December 31,

2012
$16,829

(273)
(4,000)
382

(3,891)

248
(456)
(2,460)

2011
$ 8,738

(913)
—
714

(199)

112
(991)
(728)

(2,668)

(1,607)

$10,270

$ 6,932

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In 2012, $16.8 million of cash was provided by operating activities as compared to $8.7 million provided by operating activities in

2011. The $8.1 million increase in cash flow from operating activities was primarily due to a $2.5 million increase in net income from
operations, the incremental cash provided of $4.0 million in Accounts Payable and Accrued Expenses, and incremental cash provided
of $1.7 million in Accrued Income Taxes. In addition, the incremental cash used of $8.4 million in Accounts Receivable was offset by
the incremental cash provided of $7.1 million in Costs in Excess of Billings. The cash provided by Accounts Payable and Accrued
Expenses is due to efforts to better align our vendor payment terms to our customers payment terms, recording of the first year of the
Adwest earn-out, and Accrued Income Taxes. Accrued Income Taxes was benefited by the research and development tax credits
discussed in Note 14 accompanying the consolidated financial statements within Item 8 of this annual report.

Depreciation and amortization amounted to $1.3 million in 2012 compared to $1.4 million in 2011. This decrease is from lower

depreciation on property plant and equipment due to facility closures. Our net investment in working capital (current assets less
current liabilities, excluding cash and cash equivalents) at December 31, 2012 was $14.3 million as compared to $17.1 million at
December 31, 2011. The decrease in working capital is due primarily to Costs in Excess of Billings discussed above. We believe that
our working capital needs will remain constant unless we experience a significant increase or decrease in sales and operating
income.

During 2012, net cash used in investing activities related to capital expenditures for property and equipment of $0.3 million

compared to $0.9 million for 2011, and proceeds from sale of equipment of $0.4 million compared to $0.7 million for 2011. The
proceeds of sale of equipment during 2012 is primarily from the sale of our Fisher-Klosterman’s Buell-APC division, and in 2011 is
primarily from the sale of our Kirk & Blum Indianapolis, Indiana facility. We manage our capital expenditures to balance the necessary
investment in our businesses to our ongoing level of sales. Additionally, we used $4.0 million in 2012 in our acquisition of Adwest.

Financing activities in 2012 used cash of $2.7 million which consisted primarily of cash used to repurchase common stock of
$456,000 and dividends paid to our common stockholders totaling $2.5 million, offset by $248,000 provided by stock option exercises.
This compares to financing activities in 2011 which used cash of $1.6 million which consisted primarily of cash used to repurchase
common stock of $991,000 and to pay dividends to our common stockholders totaling $728,000, offset by $112,000 provided by stock
option exercises.

The Company’s share repurchases totaled $456,000 in 2012 compared to $991,000 in 2011. The repurchases were completed

using cash on hand, and included purchases under our share repurchase program that was announced in August 2011 and
purchases of CECO stock held by a retiring executive in 2011. Additional details about our share repurchase activities are provided in
Note 11 accompanying the consolidated financial statements within Item 8 of this annual report.

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Prior to fiscal year 2011, we had not paid any cash dividends on our common stock. In August 2011, our Board of Directors

approved a quarterly cash dividend program, subject to the Board’s continuing determination that the dividend policy and the
declaration of dividends are in the best interest of our shareholders. The declaration and payment of dividends is also subject to
continued consent by our lender, as our credit agreement contains provisions that prevent us from paying any dividends to our
shareholders without such consent. Future dividends and the dividend policy may be changed or cancelled at the Company’s
discretion at any time. In fiscal year 2012 and 2011, our Board has declared the following cash dividends on our common stock:

Dividend
Per share
$0.025
$0.025
$0.035
$0.035
$0.045
$0.045

Record Date

September 15, 2011
December 15, 2011
March 20, 2012
June 15, 2012
September 14, 2012
December 14, 2012

Payment Date

September 30, 2011
December 30, 2011
March 30, 2012
June 29, 2012
September 28, 2012
December 28, 2012

Payments
(dollars in thousands)
363
$
365
$
512
$
512
$
664
$
772
$

Effective August 13, 2012, the Company implemented a Dividend Reinvestment Plan (the “Plan”), under which the Company

may issue up to 750,000 shares of common stock. The Plan provides a way for interested shareholders to increase their holdings in
our common stock. Participation in the Plan is strictly voluntary and is open only to existing shareholders. The Company may
periodically issue new common shares to satisfy the Plan. New issuances related to the Plan added additional liquidity of $2,000 in
2012.

When we undertake large jobs, our working capital objective is to make these projects self-funding. We work to achieve this by
obtaining initial down payments, progress billing contracts, when possible, utilizing extended payment terms from material suppliers,
and paying sub-contractors after payment from our customers, which is an industry practice. Our investment in net working capital is
funded by cash flow from operations and by our revolving line of credit. Inventory remains relatively constant from year to year.
Accordingly, changes in inventory do not constitute a significant part of our investment in working capital.

After the use of $24 million of the Company’s cash reserves in the Aarding acquisition on February 28, 2013, the Company’s

cash balance on that date was $7.7 million and $2.2 million was outstanding under the current Bank Facility. Based on our historical
results, management’s experience, our current business strategy, current cash flows, and anticipated availability under our Bank
Facility, we believe that our existing cash resources will be sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the next 12 months. We are in active discussions to amend the Bank Facility to extend the maturity date of
our revolving credit line from April 1, 2013. Nevertheless, if we generate insufficient cash flows from operations or are unable to
amend and draw the amounts needed from our Bank Facility to meet our short-term liquidity needs, we may borrow additional funds.
Although management believes that we will be able to fund our operations from current resources, there is no guarantee that we will
be able to do so, however, alternative sources of funding are potentially available in the form of additional term debt to be provided by
our lender, as well as subordinated debt to be provided by a related party. However, we cannot provide any assurances that such
financing will be available to us on favorable terms or at all. In addition, if we are unable to amend the Bank Facility to extend the
maturity date of our revolving credit line and our cash is utilized to repay outstanding debt, we could experience an immediate
reduction in working capital available to operate our business.

Debt Covenants

The Bank Facility was amended throughout 2009 and again in February and June 2010. Terms of the Bank Facility, as
amended, include financial covenants that require compliance at each quarter through March 31, 2013. The covenants include a
maximum capital expenditures financial covenant during the term of the Bank Facility of $2.5 million per year. The minimum Fixed
Charge Coverage Ratio is 1.25:1.0 and the maximum funded debt to EBITDA covenant is 3.0 to 1. Our Bank Facility also contains
cross-default provisions with

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respect to our subordinated debt. Also, if we fail to pay (after grace periods) any other debt or lease that, individually or in the
aggregate involves indebtedness in excess of $100,000, and such default gives any creditor or lessor the right to accelerate the
maturity of any such indebtedness or lease payments, then absent a waiver from the lender, it would result in a default under our
Bank Facility and the acceleration of the maturity of outstanding debt under our Bank Facility.

As of December 31, 2012, we were in compliance with all related financial and other restrictive covenants, and expect continued

compliance.

In the future, if we cannot comply with the terms of the Bank Facility agreements it will be necessary for us to obtain a waiver or
renegotiate our loan covenants, and there can be no assurance that such negotiations would be successful. In the event that we are
not successful in obtaining a waiver or an amendment, we would be declared in default, which could cause all amounts owed to be
immediately due and payable.

Employee Benefit Obligations

Based on the assumptions used to value other postretirement obligations, life insurance benefits and retiree healthcare benefits,
in the fourth quarter of 2012, cash payments for these benefits are expected to be in the range of $403,000 to $450,000 in each of the
next 5 years. Based on current assumptions, estimated contributions of $207,000 may be required in 2012 for the pension plan and
$15,000 for the retiree healthcare plan. The amount and timing of required contributions to the pension trust depends on future
investment performance of the pension funds and interest rate movements, among other things and, accordingly, we cannot
reasonably estimate actual required payments. Currently, our pension plan is under-funded. As a result, absent major increases in
long-term interest rates, above average returns on pension assets and/or changes in legislated funding requirements, we will be
required to make contributions to our pension trust of varying amounts in the long-term.

Off Balance Sheet Arrangements

None

Critical Accounting Policies and Estimates

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

Use of Estimates

Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United

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

Revenue Recognition

A substantial portion of our revenue is derived from contracts, which are accounted for under the percentage of completion

method of accounting. Percentage completion is measured by the percentage of contract costs

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incurred to date compared to estimated total contract costs to be the best available measure of progress on these contracts. Contract
costs include direct material and labor costs related to contract performance. This method requires a higher degree of management
judgment and use of estimates than other revenue recognition methods. The judgments and estimates involved include
management’s ability to accurately estimate the contracts’ percentage of completion and the reasonableness of the estimated costs to
complete, among other factors, at each financial reporting period. In addition, certain contracts are highly dependent on the work of
contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on
such project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and
subcontractors, changes in the scope of the project, weather, and labor availability also can have an effect on a contract’s
profitability. For contracts that are less than 50% complete, a maximum of 18% to 25% of gross profit will be recognized until the
contract reaches 50% complete depending on the division and the type of contract.

Selling and administrative expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes to job performance, job conditions, and estimated
profitability may result in revisions to contract revenue and costs and are recognized in the period in which the revisions are made.
No provision for estimated losses on uncompleted contracts was needed at December 31, 2012 and 2011.

Property, plant and equipment—Property, plant and equipment are carried at the cost of acquisition or construction and

depreciated over the estimated useful lives of the assets. Depreciation and amortization are provided using the straight-line method in
amounts sufficient to amortize the cost of the assets over their estimated useful lives (buildings and improvements – generally 10 to
40 years; machinery and equipment – 2 to 15 years).

Intangible assets—Indefinite life intangible assets are comprised of tradenames, while finite life intangible assets are comprised

of patents, technology, customer lists, and employment contracts. Finite life intangible assets are amortized on a straight line basis
over their estimated useful lives of 17 years for patents, 7 years for technology, 5 years for customer lists, and 3 years for
employment contracts.

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

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

Additionally, we also evaluate the remaining useful life each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long lived asset’s remaining useful life is
changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.

We complete an annual (or more often if circumstances require) impairment assessment of its indefinite life intangible assets. As

of December 31, 2012, we elected to early adopt the provisions of Financial Accounting Standards Board (“FASB”) Accounting
Standards Update No. 2012-02, Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment (Topic
350) (“ASU 2012-02”). ASU 2012-02 provides an option to first qualitatively assess whether current events or changes in
circumstances lead to a determination

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that it is more likely than not (defined as a likelihood of more than 50 percent) that the fair value of an asset is less than its carrying
amount. Absent a qualitative determination that the fair value of a particular asset is more likely than not to be less than its carrying
value, we do not need to proceed to the traditional estimated fair value test for that asset. If this qualitative assessment indicates a
more likely than not potential that the asset may be impaired, the estimated fair value is calculated by the discounted cash flow
method. If the estimated fair value of an asset is less than its carrying value, an impairment charge is recorded for the amount by
which the carrying value of the asset exceeds its calculated implied fair value.

Goodwill—We complete an annual (or more often if circumstances require) impairment assessment of its goodwill on a reporting
unit level. For management purposes, the Company is organized into three reportable segments, Engineered Equipment Technology
and Parts, Contracting/Services, and Component Parts. Each operating segment is also a reporting unit as each either has only a
single component business or has more than one component business that appropriately aggregate into a single reporting unit.

As of December 31, 2011, we elected to early adopt the provisions of Financial Accounting Standards Board (“FASB”)

Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350) (“ASU 2011-08”). ASU 2011-08 provides an
option to first qualitatively assess whether current events or changes in circumstances lead to a determination that it is more likely
than not (defined as a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount.
Absent a qualitative determination that the fair value of a particular reporting unit is more likely than not to be less than its carrying
value, we do not need to proceed to the traditional two-step goodwill test for that reporting unit. If this qualitative assessment
indicates a more likely than not potential that the asset may be impaired, the estimated fair value is calculated by the discounted cash
flow method. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recorded for the
amount by which the carrying value of the goodwill exceeds its calculated implied fair value.

Income Taxes

Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible

temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would
ultimately be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the
resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or
aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The
portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a
liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would
be payable to the taxing authorities upon examination. We recognize penalties and interest related to unrecognized tax benefits in
income tax expense.

Pension and Postretirement Benefit Plan Assumptions

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

office employees retiring before January 1, 1990. Several statistical and other factors that attempt

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to anticipate future events are used in calculating the expense and liability related to these plans. These factors include key
assumptions, such as a discount rate and expected return on plan assets. In addition, our actuarial consultants use subjective factors
such as withdrawal and mortality rates to estimate these liabilities. The actuarial assumptions we use may differ materially from
actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant impact to the amount of pension or postretirement healthcare benefit
expenses we have recorded or may record in the future. An analysis for the expense associated with our pension plan is difficult due
to the variety of assumptions utilized. For example, one of the significant assumptions used to determine projected benefit obligation
is the discount rate. At December 31, 2012, a 25 basis point change in the discount rate would change the projected benefit
obligation by approximately $262,000 and the annual pension expense by $22,300. Additionally, a 25 basis point change in the
expected return on plan assets would change the pension expense by approximately $13,600.

Stock Based Compensation

We measure the cost of employee services received in exchange for an award of equity instruments and recognizes this cost
over the period during which an employee is required to provide the services, based on the fair value of the award at the date of the
grant as determined by the Black-Scholes valuation method.

Other significant accounting policies

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

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

Backlog

Our backlog consists of orders we have received under signed firm fixed-price contracts that have not been completed for
products and services we expect to substantially deliver within the next 12 months. Our backlog from continuing operations was $59.5
million at December 31, 2012 and $54.9 at December 31, 2011. 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 period(s). Certain contracts are highly dependent on the work of
contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on
such project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and
subcontractors, changes in the scope of the project, weather, and labor availability also can have an effect on a contract’s
profitability.

New Accounting Pronouncements

New Financial Accounting Pronouncements Adopted

ASC 220—In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2011-05, “Presentation of Comprehensive Income” which requires an entity to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each
component of net income along with total net income, each component of other comprehensive income along with a total for other
comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of
other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not
change the items that must be reported in other comprehensive income or when an item of other

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comprehensive income must be reclassified to net income. The ASU became effective for the Company during the quarter ended
March 31, 2012. Although the adoption of this ASU impacts the way the Company reports comprehensive income, the adoption of
this guidance did not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards ASU No. 2011-05”. In order to defer only those changes in ASU 2011-05 that relate to the presentation of reclassification
adjustments, the paragraphs in this ASU supersede certain pending paragraphs in ASU 2011-05. Entities should continue to report
reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU
2011-05. All other requirements in ASU 2011-05 are not affected by this ASU.

ASC 820—In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and

Disclosure Requirements in U.S. GAAP and IFRSs” which generally represents clarifications of Topic 820, “Fair Value
Measurements”, but also includes certain instances where a particular principle or requirement for measuring fair value or disclosing
information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair
value and for disclosing information about fair value measurements in accordance with U.S. GAAP and the International Financial
Reporting Standards. The ASU became effective for the Company during the quarter ended March 31, 2012 and must be applied
prospectively. The adoption of this guidance did not have a material effect on the Company’s consolidated results of operations,
financial position or cash flows.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other

Comprehensive Income”. This ASU requires entities to disclose, in one place, information about the amounts reclassified out of
accumulated other comprehensive income by component. ASU 2013-02 is effective for reporting periods beginning after
December 15, 2012. The adoption of this standard is not expected to have a significant impact on the Company’s financial
statements, other than disclosure.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

A smaller reporting company is not required to provide the information in this Item.

Item 8.

Financial Statements and Supplementary Data

The consolidated financial statements of CECO Environmental Corp. and subsidiaries for the years ended December 31, 2012

and 2011 and other data are included in this report following the signature page of this report:

Cover Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements for the Years Ended December 31, 2012 and 2011

F-1
F-2
F-3
F-4
F-5
F-6
F-7 to F-8
F-9 to F-39

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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Securities Exchange Act Rule 13a- 15(e). Our

management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated our disclosure
controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended, as of December 31, 2012.
Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that these disclosure controls and
procedures were effective as of December 31, 2012.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting,

as such term is defined under Securities Exchange Act Rule 13a-15(f).

With the participation of the Company’s Chief Executive Officer and Interim Chief Financial Officer, management conducted an
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012, based on the framework and
criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was
effective as of December 31, 2012.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public
accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report on
Form 10-K.

Scope of Management’s Evaluation and Report on Internal Control over Financial Reporting

For purposes of evaluating internal controls over financial reporting, management determined that the internal controls over
financial reporting of Adwest Technologies, Inc., which was acquired on December 31, 2012, would be excluded from the internal
control assessment as of December 31, 2012, as permitted by the rules and regulations of the SEC. Adwest accounted for
approximately $8.1 million and $6.2 million of total and net assets, respectively, as of December 31, 2012 and $0 and $0 of revenues
and net income, respectively, for the year then ended.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2012

that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information called for by this Item 10 of Part III of Form 10-K is incorporated by reference to the information set forth in our

definitive proxy statement relating to our 2013 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed pursuant to
Regulation 14-A under the Exchange Act within 120 days from 2012 fiscal year end. Reference is also made to the information
appearing in Item 1 of Part I of this Annual Report on Form 10-K under the caption “Business— Executive Officers of the Registrant.”

Code of Ethics

We have adopted a Code of Ethics that applies to our directors and employees (including our principal executive officer,
principal financial officer, principal accounting officer and controller and persons performing similar functions). The Code of Ethics is
posted on our website at www.cecoenviro.com on the Investor Information section. We will post on our website any amendments to
or waivers of the Code of Ethics for executive officers or directors in accordance with applicable laws and regulations.

Item 11.

Executive Compensation

The information called for by this Item 11 of Part III of Form 10-K is incorporated by reference to our Proxy Statement, which will

be filed with the Securities and Exchange Commission within 120 days from 2012 fiscal year end.

Item 12.

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

The information called for by this Item 12 of Part III of Form 10-K is incorporated by reference to our Proxy Statement, which will

be filed with the Securities and Exchange Commission within 120 days from 2012 fiscal year end.

Securities Authorized for Issuance Under Equity Compensation Plans

EQUITY COMPENSATION PLAN INFORMATION

December 31, 2012

(a)

(b)

Plan Category
Equity compensation plans approved by

security holders

1997 Stock Option Plan
1
2007 Equity Incentive Plan
2
Employee Stock Purchase Plan
3
Equity compensation plans not approved by

security holders

TOTAL

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

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

187,500
1,056,151
8,558

None
1,252,209

$
$
$

8.64
4.57
5.78

None
5.18

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

—
574,792
1,453,000

None
2,027,792

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The 1997 Stock Option Plan (the “1997 Plan”) was replaced with the 2007 Equity Incentive Plan. The 1997 Plan remains in
effect solely for the purpose of the continued administration of the options currently outstanding under the 1997 Plan.
The 2007 Equity Incentive Plan was approved by the shareholders on May 23, 2007. In 2012, 163,000 options were awarded to
plan participants under the 2007 Equity Incentive Plan.
The Employee Stock Purchase Plan was approved by the shareholders on May 21, 2009.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information called for by this Item 13 of Part III of Form 10-K is incorporated by reference to our Proxy Statement, which will

be filed with the Securities and Exchange Commission within 120 days from 2012 fiscal year end.

Item 14.

Principal Accountant Fees and Services

The information called for by this Item 14 of Part III of Form 10-K is incorporated by reference to our Proxy Statement, which will

be filed with the Securities and Exchange Commission within 120 days from 2012 fiscal year end.

PART IV

Item 15.

Exhibits and Financial Statement Schedules

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

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

in the financial statements or in the notes thereto.

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

Item 601 of Regulation S-K of the Securities and Exchange Commission.

Exhibit
Number

2.1

2.2

3(i)

3(ii)

**10.1

Stock Purchase Agreement dated December 31, 2012 (Schedules, exhibits and similar attachments to the Stock
Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish
supplementally a copy of any omitted schedule, exhibit or similar attachment to the SEC upon request)
(Incorporated by reference to Exhibit 2.1 from the Company’s Current Report on Form 8-K filed with the SEC on
January 7, 2013)

Share Purchase Agreement dated February 28, 2013 (Schedules, exhibits and similar attachments to the Share
Purchase Agreement that are not material have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The
Company will furnish supplementally a copy of any omitted schedule, exhibit or similar attachment to the SEC upon
request) (Incorporated by reference to Exhibit 2.1 from the Company’s Current Report on Form 8-K filed with the
SEC on March 4, 2013

Certificate of Incorporation (Incorporated by reference to Exhibit 3.I from Form 10-K dated December 31, 2001)

Bylaws (Incorporated by reference to Exhibit 3.II from Form 10-K dated December 31, 2001)

CECO Filters, Inc. Savings and Retirement Plan (Incorporated by reference to CECO’s Annual Report on Form 10-
K for the fiscal year ended December 31, 1990)

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Exhibit
Number

**10.2

**10.3

*;**10.4

10.5

**10.6

**10.7

**10.8

**10.9

**10.10

**10.11

**10.12

10.13

10.14

10.15

**10.16

CECO Environmental Corp. 1997 Stock Option Plan and Amendment (Incorporated by reference to Exhibit 4 from
the Company’s Form S-8 filed with the SEC on March 24, 2000)

Amended and Restated 2006 Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.38
from the Company’s Annual Report on Form 10-K dated December 31, 2006)

Summary term sheet of arrangement governing consulting services provided by Icarus Investment Corp.

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

CECO Environmental Corp. 2007 Equity Incentive Plan (Incorporated by reference to Exhibit B to CECO
Environmental Corp.’s definitive proxy statement on Schedule 14A filed with the SEC on April 20, 2007)

Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.41 from the Company’s
Annual Report on Form 10-K for the year ended December 31, 2008)

Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.12 from the Company’s Annual
Report on Form 10-K for the year ended December 31, 2010)

Form of Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.13 from the Company’s
Annual Report on Form 10-K for the year ended December 31, 2010)

CECO Environmental Corp. Employee Stock Purchase Plan (Incorporated by reference to Exhibit A to CECO
Environmental Corp.’s definitive proxy statement on Schedule 14A filed with the SEC on April 13, 2009)

First Amendment to CECO Environmental Corp. 2007 Equity Incentive Plan (Incorporated by reference to Exhibit B
to CECO Environmental Corp.’s definitive proxy statement on Schedule 14A filed with the SEC on April 13, 2009)

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

Amended and Restated Credit Agreement between CECO and its US corporate affiliates and Fifth Third Bank
entered into August 17, 2010, effective date June 30, 2010 (Incorporated by reference to Exhibit 10.24 from the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010)

Sixth Amended and Restated Revolving Credit Promissory Note, effective date June 30, 2010 (Incorporated by
reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2010)

Amended and Restated Term Promissory Note, effective date June 30, 2010 (Incorporated by reference from
Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2010)

Summary term sheet of arrangement governing consulting services provided by JMP Fam Holdings to the
Company (Incorporated by reference to Exhibit 10, 22 from the Company’s Annual Report on From 10-K for the
year ended December 31, 2011)

*21

Subsidiaries of the Company

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Exhibit
Number

*23.1

Consent of BDO USA, LLP

31.1

31.2

32.1

32.2

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

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

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

Certification of Interim 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

Filed herewith

*
** Management contracts or compensation plans or arrangement

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly

caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CECO ENVIRONMENTAL CORP.

By:

/S/ JEFFREY LANG
Jeffrey Lang
Chief Executive Officer
March 15, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:

Principal Executive Officer:

/S / JEFFREY LANG
Jeffrey Lang
Chief Executive Officer and Director

March 15, 2013

Principal Financial and Accounting Officer:

/S/ BENTON L. COOK
Benton L. Cook
Interim Chief Financial Officer and Controller

/S/ PHILLIP DEZWIREK
Phillip DeZwirek
Chairman of the Board and Director

/S/ JASON DEZWIREK
Jason DeZwirek
Director

/S/ THOMAS J. FLAHERTY
Thomas J. Flaherty
Director

/S/ RONALD E. KRIEG
Ronald E. Krieg
Director

/S/ JASON D. MERETSKY
Jason D. Meretsky
Director

/S/ DONALD WRIGHT
Donald A. Wright
Director

/S/ JONATHAN POLLACK
Jonathan Pollack
Director

/S/ ARTHUR CAPE
Arthur Cape
Director

March 15, 2013

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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of CECO Environmental Corp. as of December 31, 2012 and
2011 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of CECO Environmental Corp. as of December 31, 2012 and 2011, and the consolidated results of its operations
and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.

/s/ BDO USA, LLP

Chicago, Illinois
March 15, 2013

F-2

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CECO ENVIRONMENTAL CORP.

CONSOLIDATED BALANCE SHEETS

($ in thousands, except per share data)

Current assets:

ASSETS

Cash and cash equivalents
Accounts receivable, net
Costs and estimated earnings in excess of billings on uncompleted contracts
Inventories, net
Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net
Goodwill
Intangible assets—finite life, net
Intangible assets—indefinite life
Deferred income tax asset, net
Deferred charges and other assets

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

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

Total current liabilities

Other liabilities
Deferred income tax liability, net
Convertible subordinated notes (including related parties notes of $3,950 in 2011)

Total liabilities

Commitments and contingencies
Shareholders’ equity:

Preferred stock, $.01 par value; 10,000 shares authorized, none issued
Common stock, $.01 par value; 100,000,000 shares authorized, 17,096,543 and 14,654,262 shares

issued in 2012 and 2011, respectively

Capital in excess of par value
Accumulated earnings
Accumulated other comprehensive loss

Less treasury stock, at cost, 137,920 shares in 2012 and 2011

Total shareholders’ equity

December 31,

2012

2011

$22,994
29,499
5,747
3,898
2,183

64,321
4,885
19,548
1,283
3,526
—
541

$12,724
23,109
10,643
4,344
2,650

53,470
5,651
14,661
526
3,218
848
971

$94,104

$79,345

$15,093
11,368
1,079

27,540
4,442
128
—

$13,569
9,647
393

23,609
3,146
—
9,600

32,110

36,355

—

171
54,800
9,691
(2,312)

62,350
(356)

146
44,249
1,301
(2,350)

43,346
(356)

61,994

42,990

$94,104

$79,345

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

F-3

CECO ENVIRONMENTAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

Table of Contents

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

Gross profit

Selling and administrative
Amortization

Income from operations
Other (expense) income, net
Interest expense (including related parties interest of $217 and $237, respectively)

Income from operations before income taxes

Income tax expense

Net income

Per share data:
Basic net income
Diluted net income
Weighted average number of common shares outstanding:

Basic

Diluted

Year Ended December 31,

2012
135,052
92,609

2011
139,192
101,024

42,443
25,429
331

16,683
(152)
(1,168)

15,363
4,513

10,850

0.73
0.65

$
$

38,168
25,359
441

12,368
452
(1,137)

11,683
3,411

8,272

0.58
0.51

$
$

14,813,186

14,386,410

17,246,058

17,115,284

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

F-4

Table of Contents

CECO ENVIRONMENTAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands, except per share data)
Net income

Other comprehensive income (loss), net of tax:

Foreign currency
Postretirement benefit plans

Other comprehensive income (loss)

Comprehensive income

Year Ended
December 31,

2012
$10,850

2011
$8,272

59
(21)

(141)
(601)

(742)

$10,888

$7,530

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

F-5

Table of Contents

CECO ENVIRONMENTAL CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
( in thousands)

Balance January 1, 2011
Net income for the year ended December 31, 2011
Common stock dividends
Exercise of stock options
Share based compensation earned
Conversion of debt to equity
Stock repurchase and retirement
Adjustment for minimum pension/post retirement liability, net of tax of

$(401)
Translation loss

Balance December 31, 2011
Net income for the year ended December 31, 2012
Common stock dividends
Exercise of stock options and dividend reinvestment issuances
Share based compensation earned
Conversion of debt to equity
Stock repurchase and retirement
Stock issued for acquisition
Adjustment for minimum pension/post retirement liability, net of tax of

$(14)

Translation gain

Common Stock Capital in

Shares Amount
144

14,455

excess
of
par value
$ 43,237

Accum.
Other
Comp.
Loss
$ (1,608)

Accum.
(Deficit)
Earnings
$ (6,243)
8,272
(728)

Treasury Stock

Shares Amount
(356)

(138)

48
16
300
(165)

112
693
1,197
(990)

3
(1)

14,654

146

44,249

1,301
10,850
(2,460)

41
9
2,400
(63)
55

249
662
9,576
(456)
520

(601)
(141)

(2,350)

(138)

(356)

(21)
59

Total
$35,174
8,272
(728)
112
693
1,200
(991)

(601)
(141)

42,990
10,850
(2,460)
249
662
9,600
(456)
521

(21)
59

Balance December 31, 2012

17,096

171

$ 54,800

9,691

$ (2,312)

(138)

(356)

$61,994

Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss in shareholders’ equity:

($ in thousands)
January 1, 2011
2011 activity

Balance December 31, 2011
2012 activity

Balance December 31, 2012

Transaction
(loss) gain
(42)
$
(141)

(183)
59

(124)

Minimum pension/
post retirement
liability
adjustment

(1,566)
(601)

(2,167)
(21)

(2,188)

Accumulated other
comprehensive loss
(1,608)
$
(742)

(2,350)
38

(2,312)

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

F-6

Table of Contents

CECO ENVIRONMENTAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)
Cash flows from operating activities:

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

Depreciation and amortization
Non cash interest expense included in net income
Gain on sale of operating plant and equipment
Share based compensation expense
Bad debt expense
Inventory reserve expense
Deferred income tax expense

Changes in operating assets and liabilities, net of acquisition:

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

Net cash provided by operating activities

Cash flows from investing activities:

Acquisitions of property and equipment
Net cash paid for acquisition
Net proceeds from sale of equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from exercise of stock options
Cash paid for repurchase of common shares
Dividends paid to common shareholders

Net cash used in financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental Schedule of Non-Cash Investing and Financing Activities:

Conversion of subordinated debt to common stock

Common stock issued in business acquisition

Year Ended
December 31,

2012

2011

$10,850

$ 8,272

1,250
227
(70)
662
176
102
454

(5,089)
458
4,823
527
203
319
1,303
465
169

1,399
91
—
693
402
269
513

3,261
(181)
(2,298)
(330)
(109)
(3,676)
1,837
(1,253)
(152)

16,829

8,738

(273)
(4,000)
382

(3,891)

(913)
—
714

(199)

248
(456)
(2,460)

112
(991)
(728)

(2,668)

(1,607)

10,270
12,724

6,932
5,792

$22,994

$12,724

$ 9,600

$ 1,200

521

$ —

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

F-7

Table of Contents

CECO ENVIRONMENTAL CORP.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

($ in thousands)
Cash paid (received) during the year for:

Interest

Income taxes

Year Ended
December 31,

2012

2011

$ 946

$1,047

$2,637

$4,793

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

F-8

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 2012 and 2011

Nature of Business and Summary of Significant Accounting Policies

Nature of business— CECO Environmental Corp. and its subsidiaries (the “Company,” “we,” or “our”) is a global air pollution
company with global operations and revenues. The Company provides a wide spectrum of air quality products and services including
engineered equipment, cyclones, scrubbers, dampers, diverters, regenerative thermal oxidizers (“RTOs”), component parts, and
monitoring and management services. Industries served include refining, petrochemical, power, natural gas, aluminum, steel,
automotive, chemical, and large industrial processes.

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

CECO Group, Inc.
CECO Filters, Inc. and Subsidiaries (“CFI”)
The Kirk & Blum Manufacturing Company
CECO Abatement Systems, Inc.
CECOaire, Inc.
EFFOX, Inc. (“Effox”)
Fisher-Klosterman, Inc. (“FKI”)
Flextor, Inc. (“Flextor”)
Adwest Technologies, Inc. (“Adwest”)

% Owned As Of
December 31, 2012

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

CFI includes two wholly owned subsidiaries, New Busch Co., Inc. (“Busch”) and CECO Environmental India Private Limited

(f/k/a. CECO Filter India Private Limited). The non-controlling interest in CFI is not material. FKI includes the wholly owned
subsidiary, AVC, Inc. (“A.V.C.”).

Adwest, a designer and manufacturer of RTOs, was acquired in December 2012.

All intercompany balances and transactions have been eliminated.

Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the

United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash equivalents—We consider all highly liquid investments with original maturities of three months or less to be cash
equivalents. Included in Cash and Cash Equivalents is $0.6 million of cash restricted in support of letters of credit issued by the
Company’s China subsidiary related to warranty periods expiring in the future.

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

requiring payment generally within 30 days from the invoice date unless otherwise determined by specific contract, generally due to
retainage provisions. The Company’s estimate of the allowance for doubtful accounts for trade receivables is primarily determined
based upon the length of time that the receivables are past due. In addition, management estimates are used to determine probable
losses based upon an analysis of prior collection experience, specific account risks and economic conditions. The Company has a

F-9

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

series of actions that occur based upon the aging of past due trade receivables, including letters, statements, direct customer contact
and liens. Accounts are deemed uncollectible based on past account experience and current account financial condition.

Inventories—The Company’s inventories are valued at the lower of cost or market using the first-in, first-out inventory costing

method. Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on
the Company’s forecast of future demand and market conditions. Significant unanticipated changes to the Company’s forecasts could
require a change in the provision for excess or obsolete inventory.

Property, plant and equipment—Property, plant and equipment are carried at the cost of acquisition or construction and

Intangible assets—Indefinite life intangible assets are comprised of tradenames, while finite life intangible assets are comprised

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

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

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

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

intangible assets. As of December 31, 2012, we elected to early adopt the provisions of Financial Accounting Standards Board
(“FASB”) Accounting Standards Update No. 2012-02, Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for
Impairment (Topic 350) (“ASU 2012-02”). ASU 2012-02 provides an option to first qualitatively assess whether current events or
changes in circumstances lead to a determination that it is more likely than not (defined as a likelihood of more than 50 percent) that
the fair value of an asset is less than its carrying amount. Absent a qualitative determination that the fair value of an asset is more
likely than not to be less than its carrying value, we do not need to proceed to the traditional estimated fair value test for that asset. If
this qualitative assessment indicates a more likely than not potential that the asset may

F-10

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

be impaired, the estimated fair value is calculated by the discounted cash flow method. If the estimated fair value of an asset is less
than its carrying value, an impairment charge is recorded for the amount by which the carrying value of the asset exceeds its
calculated implied fair value.

Goodwill—The Company completes an annual (or more often if circumstances require) impairment assessment of its goodwill

on a reporting unit level. For management purposes, the Company is organized into three reportable segments, Engineered
Equipment Technology and Parts, Contracting/Services, and Component Parts. Each operating segment is also a reporting unit as
each either has only a single component business or has more than one component business that appropriately aggregate into a
single reporting unit.

In performing the goodwill impairment assessment, the carrying values of the Company’s reporting units are compared to their

estimated fair values, as calculated by the discounted cash flow method. As of December 31, 2011, we elected to early adopt the
provisions of FASB Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350) (“ASU 2011-08”). ASU
2011-08 provides an option to first qualitatively assess whether current events or changes in circumstances lead to a determination
that it is more likely than not (defined as a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its
carrying amount. Absent a qualitative determination that the fair value of a particular reporting unit is more likely than not to be less
than its carrying value, the Company does not need to proceed to the traditional two-step goodwill test for that reporting unit. If this
qualitative assessment indicates a more likely than not potential that the asset may be impaired, the estimated fair value is calculated
by the discounted cash flow method. If the estimated fair value of a reporting unit is less than its carrying value, an impairment
charge is recorded for the amount by which the carrying value of the goodwill exceeds its calculated implied fair value.

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

the related loan. Amortization expense was $227,000 and $91,000 for 2012 and 2011, respectively, and is classified as interest
expense. The remaining deferred financing charges on the Company’s subordinated debt of $141,000 were charged to interest
expense during the fourth quarter of 2012 upon the conversion of the debt to equity.

Revenue recognition—Revenues from contracts, representing the majority of our revenues, are recognized on the percentage of

completion method, measured by the percentage of contract costs incurred to date compared to estimated total contract costs for
each contract. This method is used because management considers contract costs to be the best available measure of progress on
these contracts. Our remaining revenues are recognized when risk and title passes to the customer, which is generally upon shipment
of product.

The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in

excess of amounts billed. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents
billings in excess of revenues recognized. Provisions for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes to job performance, job conditions, and estimated profitability may result in revisions to contract
revenue and costs and are recognized in the period in which the revisions are made. No provision for estimated losses on
uncompleted contracts was required at December 31, 2012 or 2011.

Cost of sales—Cost of sales amounts include materials, direct labor and associated benefits, inbound freight charges,
purchasing and receiving, inspection, warehousing, and depreciation. Customer freight charges are included in sales and actual
freight expenses are included in cost of sales.

F-11

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

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

Claims are amounts in excess of the agreed contract price that the Company seeks to collect from customers or others for

customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to
both scope and price. Costs attributable to claims are treated as contract costs as incurred.

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

additional contract revenue and when the amount of the claim can be reliably estimated. In such circumstances revenues are
recognized only to the extent of the cost with no increase in the estimated profit margin and no additional profit is recognized until
such time as the customer or other parties agree in writing to the amount of the claim to be recovered by the Company. At that point,
the amount of the claim becomes contractual and is accounted for as an increase in the contract’s total estimated revenue and
estimated cost. As actual costs are incurred and revenues are recognized under percentage-of-completion accounting, a
corresponding percentage of the revised total estimated profit will therefore be recognized.

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

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

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

Selling and administrative expenses—Selling and administrative expenses include sales and administrative wages and

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

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

the Consolidated Statements of Income.

F-12

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Product Warranties—The Company’s warranty reserve is to cover the products sold and is principally at our Effox subsidiary.
The warranty accrual is based on historical claims information. The warranty reserve is reviewed and adjusted as necessary on a
quarterly basis. Warranty accrual is not significant at the Company’s other operations due to the nature of the work which includes
installation and testing. The change in accrued warranty expense is summarized in the following table:

$ in thousands
Beginning balance
Provision
Payments

Ending balance

2012
$ 431
285
(185)

$ 531

2011
$ 455
277
(301)

$ 431

Advertising costs—Advertising costs are charged to operations in the year incurred and totaled $189,000 and $205,000 in 2012

and 2011, respectively.

Research and Development—Expenditures for research and development of new products or services during the last two years
were not significant. Although not technically defined as research and development, a significant amount of time, effort and expense
is devoted to (a) custom engineering which qualifies products for specific customer applications, (b) developing proprietary process
technology and (c) partnering with customers to develop new products.

Income taxes—Deferred income taxes are provided using the asset and liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and
liabilities and their tax bases, and are measured using enacted tax rates expected to apply to taxable income in the year in which
those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.

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

F-13

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Earnings per share— The computational components of basic and diluted earnings per share for 2012 and 2011 are below

(shares and dollars in thousands, except per share amounts).

Basic net income and earnings per share
Effect of dilutive securities and notes:

Common stock equivalents arising from stock options and

employee stock purchase plan

Subordinated convertible promissory notes

Diluted earnings and earnings per share

Basic net income and earnings per share
Effect of dilutive securities and notes:

Common stock equivalents arising from stock options and

employee stock purchase plan

Subordinated convertible promissory notes

Diluted earnings and earnings per share

For the Year Ended December 31, 2012
Denominator
(Shares)

Per Share
Amount
$ 0.73

14,813

327
2,106

(0.08)

17,246

$ 0.65

Numerator
(Income)
$ 10,850

—
303

$ 11,153

For the Year Ended December 31, 2011
Denominator
(Shares)

14,386

Numerator
(Income)
$ 8,272

Per Share
Amount
$ 0.58

—
375

$ 8,647

124
2,605

(0.07)

17,115

$ 0.51

Options and warrants included in the computation of diluted earnings per share are so included on the treasury stock method.

Options and warrants to purchase 0.1 million and 0.4 million shares as of December 31, 2012 and 2011, respectively, were not
included in the computation of diluted earnings per share due to their having an anti-dilutive effect. Pursuant to the if-converted
method, diluted earnings per share for 2012 includes a $303,000 after tax addback of interest expense to earnings and 2.1 million
additional shares related to the assumed conversion of the convertible Investor Notes described in Note 10. Diluted earnings per
share for 2011 includes a $375,000 after tax addback of interest expense to earnings and 2.6 million additional shares related to the
assumed conversion of the convertible Investor Notes.

Holders of restricted stock awards participate in nonforfeitable dividend rights on a one-for-one basis with holders of common
stock. Holders of these awards are not obligated to share in losses of the Company. Therefore, these share awards are included in
the computation of basic earnings per share during periods of net income using the two-class method, but are excluded from such
computation in periods of net loss. Should the Company declare a dividend on its common stock, the related dividend on shares of
unvested restricted stock that are not expected to vest would be recorded as additional compensation expense and therefore
excluded from the two-class method computations; however, there are no unvested restricted stock awards outstanding.
Undistributed earnings included in the two-class method computations are allocated equally to each share of common stock
outstanding, including all shares of unvested restricted common shares.

Once a restricted stock award vests, it is included in the computation of weighted average shares outstanding for purposes of

basic and diluted earnings per share.

F-14

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Foreign Currency Translation—The functional currencies of the Company’s Brazil, Canada, China, and India subsidiaries are

the Real, Canadian Dollar, Renminbi, and Rupee, respectively, and their books and records are maintained in the local currency.
Translation adjustments, which are based upon the exchange rate at the balance sheet date for assets and liabilities and weighted-
average rate for the statement of income, are recorded in Accumulated Other Comprehensive Income (Loss) in Shareholders’ equity
on the Consolidated Balance Sheets.

Transaction (loss) gain of $(149,000) and $115,000 were recognized by the Company in 2012 and 2011, respectively. The

transaction (loss)/gain is recorded on the “Other (expense) income” line of the Consolidated Statements of Income.

Reclassifications—Certain prior year amounts have been reclassified in order to conform to the current year presentation.

New Financial Accounting Pronouncements Adopted

ASC 220 – In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05, “Presentation of Comprehensive

Income” which requires an entity to present the total of comprehensive income, the components of net income, and the components
of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component of net income along with total net income, each
component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive
income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of
changes in stockholders’ equity. The amendments in this ASU do not change the items that must be reported in other comprehensive
income or when an item of other comprehensive income must be reclassified to net income. The ASU became effective for the
Company during the quarter ended March 31, 2012. Although the adoption of this ASU impacts the way the Company reports
comprehensive income, the adoption of this guidance did not have a material effect on the Company’s consolidated results of
operations, financial position or cash flows.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards ASU No. 2011-05.” In order to defer only those changes in ASU 2011-05 that relate to the presentation of reclassification
adjustments, the paragraphs in this ASU supersede certain pending paragraphs in ASU 2011-05. Entities should continue to report
reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU
2011-05. All other requirements in ASU 2011-05 are not affected by this ASU.

ASC 820 – In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and

Disclosure Requirements in U.S. GAAP and IFRSs” which generally represents clarifications of Topic 820, “Fair Value
Measurements,” but also includes certain instances where a particular principle or requirement for measuring fair value or disclosing
information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair
value and for disclosing information about fair value measurements in accordance with U.S. GAAP and the International Financial
Reporting Standards. The ASU became effective for the Company during the quarter ended March 31, 2012 and must be applied
prospectively. The adoption of this guidance did not have a material effect on the Company’s consolidated results of operations,
financial position or cash flows.

F-15

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other

Comprehensive Income.” This ASU requires entities to disclose, in one place, information about the amounts reclassified out of
accumulated other comprehensive income by component. ASU 2013-02 is effective for reporting periods beginning after
December 15, 2012. The adoption of this standard is not expected to have a significant impact on the Company’s financial
statements, other than disclosure.

Financial Instruments

Our financial instruments consist primarily of investments in cash and cash equivalents, receivables and certain other assets,

and accounts payable, which approximate fair value at December 31, 2012, due to their short term nature.

Concentrations of credit risk:

Financial instruments that potentially subject us to credit risk consist principally of cash and accounts receivable. We maintain

cash and cash equivalents with various major financial institutions. We perform periodic evaluations of the financial institutions in
which our cash is invested. Concentrations of credit risk with respect to trade and contract receivables are limited due to the large
number of customers and various geographic areas. Additionally, we perform ongoing credit evaluations of our customers’ financial
condition. The Company as of December 31, 2012 has $5.6 million of cash held internationally, principally in China.

Accounts Receivable

$ in thousands
Trade receivables
Contract receivables
Allowance for doubtful accounts

2012
$ 3,893
26,171
(565)

2011
$ 3,389
20,274
(554)

$29,499

$23,109

Balances billed, but not paid by customers under retainage provisions in contracts, amounted to approximately $351,000 and

$504,000 at December 31, 2012 and 2011, respectively. Retainage receivables on contracts in progress are generally collected
within a year after contract completion.

Provision for doubtful accounts was approximately $176,000 and $402,000 during 2012 and 2011, respectively, while accounts

charged to the allowance were $165,000 and $269,000 during 2012 and 2011, respectively.

F-16

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Costs and Estimated Earnings on Uncompleted Contracts

$ in thousands
Costs incurred on uncompleted contracts
Estimated earnings

Less billings to date

Included in the accompanying consolidated balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts
Billings in excess of costs and estimated earnings on uncompleted contracts

Inventories

$ in thousands
Raw materials and subassemblies
Finished goods
Parts for resale
Obsolescence allowance

2012
$ 51,035
16,644

67,679
(73,300)

2011
$ 57,345
17,512

74,857
(73,861)

$ (5,621)

996

$ 5,747
(11,368)

$ 10,643
(9,647)

$ (5,621)

996

2012
$2,508
1,133
684
(427)

$3,898

2011
$3,017
1,147
580
(400)

$4,344

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $102,000 and $269,000
during 2012 and 2011, respectively. Items charged to the allowance for inventory write-offs were $75,000 and $116,000 during 2012
and 2011, respectively.

Property, Plant and Equipment

$ in thousands
Land
Building and improvements
Machinery and equipment

Less accumulated depreciation

Depreciation expense was $919,000 and $958,000 for 2012 and 2011, respectively.

F-17

2012

75
2,350
12,771
15,196
(10,311)

$ 4,885

2011

$
75
2,326
13,211
15,612
(9,961)

$ 5,651

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

7. Goodwill and Intangible Assets

in thousands

Beginning balance
Acquisition
Foreign currency adjustments

2012

2011

Goodwill
$14,661
4,806
81

Tradename
$ 3,218
300
8

Goodwill
$14,713
—
(52)

Tradename
$ 3,225
—
(7)

$19,548

$ 3,526

$14,661

$ 3,218

As of December 31, 2012, the Company has an aggregate amount of Goodwill acquired of $36.6 million and an aggregate

amount of impairment losses recognized in 2009 of $17.1 million.

In performing its goodwill assessment for 2012, the Company evaluated the following factors that affect future business
performance: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-
specific events, reporting unit factors and company stock price. As a result of the assessment of these qualitative factors, the
Company has concluded that it is more likely than not that the fair values of three of the four reporting units with goodwill as of
December 31, 2012 exceed the carrying values of these units. Accordingly, the first and second steps of the goodwill impairment test
as described in FASB ASC 350-20-35, which includes estimating the fair values of each reporting unit, are not considered necessary
for these three reporting units and no goodwill impairment charges were recorded in 2012.

The analysis of these qualitative factors for the fourth reporting unit led to the conclusion that is was not more likely than not that
the fair value for this reporting unit exceeded the carrying value. Accordingly, the first step of the two step goodwill impairment test as
described in FASB ASC 350-20-35 was performed. The resultant estimated fair value of the reporting unit exceeded its carrying value
by approximately 12% as of December 31, 2012 and no goodwill impairment charges were recorded.

The fair value measurement method used in the Company’s impairment analysis utilizes a number of significant unobservable
inputs or Level 3 assumptions. These assumptions include, among others, projections of our future operating results, the implied fair
value of these assets using an income approach by preparing a discounted cash flow analysis and other subjective assumptions.

In performing its assessment of indefinite life intangible assets for 2012, the Company evaluated the following factors that affect

future business performance: macroeconomic conditions, industry and market considerations, cost factors, overall financial
performance, entity-specific events, reporting unit factors and company stock price. As a result of the assessment of these qualitative
factors, the Company has concluded that it is more likely than not that the fair values of the indefinite life intangible assets at three of
the four reporting units as of December 31, 2012 exceed the carrying values at these units. Accordingly, estimating the fair values of
these assets, is not considered necessary for these three reporting units and no indefinite life intangible asset impairment charges
were recorded in 2012.

The analysis of these qualitative factors for the fourth reporting unit led to the conclusion that is was not more likely than not that

the fair value of the indefinite life intangible assets for this reporting unit exceeded the carrying value. Accordingly, the estimation of
fair value was performed. The resultant estimated fair value exceeded its carrying value by approximately 19% as of December 31,
2012 and no impairment charge was recorded.

F-18

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Similarly, no goodwill or indefinite life intangible asset charges were recorded in 2011.

$ in thousands
Intangible assets—finite life
Patents
Employment agreements
Technology
Customer lists

2012

2011

Cost
$1,414
170
230
2,343

Accum.
Amort.
$1,281
0
0
1,593

Cost
$1,414
0
0
1,653

Accum.
Amort
$1,193
0
0
1,348

$4,157

$2,874

$3,067

$2,541

Amortization expense of finite life intangible assets was $331,000 and $441,000 for 2012 and 2011, respectively. Amortization

over the next five years for finite life intangibles is $371,000 in 2013, $274,000 in 2014, $230,000 in 2015, $171,000 in 2016, and
$171,000 in 2017.

Accounts Payable and Accrued Expenses

$ in thousands
Trade accounts payable, including due to subcontractors
Compensation and related benefits
Accrued interest
Other accrued expenses

2012
$11,098
1,211
219
2,565

2011
$ 8,215
2,468
224
2,662

$15,093

$13,569

Senior debt

We entered into our current Bank Facility on December 29, 2005 with Fifth Third Bank. The Bank Facility was amended on
various dates and fees paid for these amendments were deferred and are being amortized over the remaining term of the Bank
Facility.

On August 6, 2010, the Company entered into an amended and restated credit agreement effective as of June 30, 2010, which

amends and restates in its entirety the Bank Facility and extends the termination date of the line of credit to April 1, 2013 and the term
loan to April 1, 2014. The amendment and restatement also increases the limit on letters of credit from $5.0 million to $10.0 million,
resets the pricing grid, which temporarily increased our interest rates by 0.5% until the next pricing grid determination date of
December 31, 2010, at which time the pricing level was re-determined based on the Company’s trailing twelve month fixed charge
ratio which resulted in a reduction to our interest rates by 0.5%. The most recent repricing as of December 31, 2012 did not result in
any change to our interest rates. The maximum commitment under the Line of Credit remained at $20.0 million. Fees of $23,000 were
paid for this amendment.

F-19

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Terms of the Bank Facility, as amended, include financial covenants which require compliance at each quarter through

March 31, 2013. The maximum capital expenditures financial covenant is $2.5 million per year. The minimum Fixed Charge Coverage
Ratio is 2.5:1.0 for each quarter through the quarter ended June 30, 2010 and 1.25:1.0 thereafter. The maximum funded debt to
EBITDA covenant is 3.0 to 1. Also, if we fail to pay (after grace periods) any other debt or lease that, individually or in the aggregate
involves indebtedness in excess of $100,000, and such default gives any creditor or lessor the right to accelerate the maturity of any
such indebtedness or lease payments, then absent a waiver from the lender, it would result in a default under our Bank Facility and
the acceleration of the maturity of outstanding debt under our Bank Facility. As of December 31, 2012, we were in compliance with all
related financial and other restrictive covenants, and expect continued compliance. In the future, if we cannot comply with the terms of
the Bank Facility covenants it will be necessary for us to obtain a waiver or renegotiate our loan covenants, and there can be no
assurance that such negotiations would be successful. In the event that we are not successful in obtaining a waiver or an
amendment, we would be declared in default, which could cause all amounts owed to be immediately due and payable. We paid the
term loan off in 2010 and have no outstanding borrowings under the line of credit as of December 31, 2012 or 2011. Borrowings are
subject to a borrowing base limitation, including reducing the borrowing base by the amount of outstanding letters of credit and at
December 31, 2012, $14.6 million could be borrowed. As of December 31, 2012, the Company has $1.9 million in outstanding trade
letters of credit. Our property and equipment, accounts receivable, investments and inventory serve as collateral for our bank debt.
Our debt agreements contain customary covenants and events of default. We are in active discussions to amend the Bank Facility to
extend the maturity date of our revolving credit line from April 1, 2013. If we are unable to amend the Bank Facility to extend the
maturity date of April 1, 2013, and our cash is utilized to repay outstanding debt, we could experience an immediate reduction in
working capital available to operate our business.

10. Subordinated Notes

On November 26, 2009, the Company issued $10.8 million principal amount of subordinated convertible promissory notes to a

group of investors (the “Investor Notes”) which at December 31, 2011 included related parties: Icarus Investment Corp. (“Icarus”),
which is controlled by Phillip DeZwirek, our Chairman and former Chief Executive Officer, and Jason DeZwirek, a director and
Secretary, ($2,200,000), JMP Fam Holdings, Inc., which is controlled by Jonathan Pollack, a Company Director, ($150,000), Jason
DeZwirek ($800,000), and Harvey Sandler Revocable Trust ($800,000), which trust owns over 10% of our outstanding common
stock. Interest accrued under the Investor Notes at the annual rate of 6% and was payable as of the end of each calendar quarter.
Interest paid on the Investor Notes for 2012 and 2011 was $505,000 and $625,000, respectively. We used the proceeds of the
Investor Notes to repay all of our previously existing subordinated debt in the amount of approximately $4.5 million, which debt was
accruing interest at rates between 11-12%. The balance of the proceeds was available to be used for general working capital. Fees of
$320,000 were paid for the issuance of this debt and are fully amortized over the term of the Investor Notes.

The Investor Notes were due on November 26, 2014 and were not repayable prior to maturity except upon a change of control,
or upon the consent of the holder. The outstanding principal amount of the Investor Notes or any portion thereof, but not the interest,
was convertible at the holder’s option, at any time after the issuance of the Investor Notes at a conversion price of $4.00 per share,
such price being greater than the Company’s share price at the date of issuance of the Investor Notes. Following three years from the
date of the Investor Notes, if the closing price of the common stock of the Company was greater than $8.00 for five consecutive days,
the Company could also cause conversion of the Investor Notes. The remaining outstanding $8.8 million balance of the Investor
Notes was converted to common stock during the fourth quarter of 2012. The amount of Investor Notes converted in 2012 was $9.6
million resulting in the issuance of 2.4 million shares of common stock. During 2011, $1.2 million of Investor Notes were converted
into 300,000 shares of common stock.

F-20

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

11. Shareholders’ Equity

On August 11, 2011, the Board of Directors of the Company approved a share buyback program authorizing the purchase of up
to 0.5 million shares of CECO common stock over an eighteen month period. During 2012 the Company repurchased 62,519 shares
of common stock for an aggregate amount of $455,000 and the shares were immediately retired. During 2011, the Company
repurchased under the program 91,790 shares of common stock for an aggregate amount of $560,000 and the shares were
immediately retired. Also in 2011, the Company purchased 73,741 shares of CECO stock held by a retiring executive. The shares
were purchased at the current market price of $5.84 for a total transaction value of $431,000 and the shares were immediately retired.
All repurchases of the Company’s common stock were completed using cash on hand.

Dividends

Prior to fiscal year 2011, we had not paid any cash dividends on our common stock. In August 2011, our Board of Directors

approved a quarterly cash dividend program, subject to the Board’s continuing determination that the dividend policy and the
declaration of dividends are in the best interest of our shareholders. The declaration and payment of dividends is also subject to
continued consent by our lender, as our Bank Facility contains provisions that prevent us from paying any dividends to our
shareholders without such consent. Future dividends and the dividend policy may be changed or cancelled at the Company’s
discretion at any time. In fiscal year 2012 and 2011, our Board has declared the following cash dividends on our common stock:

Dividend
Per share
$0.025
$0.025
$0.035
$0.035
$0.045
$0.045

Record Date

September 15, 2011
December 15, 2011
March 20, 2012
June 15, 2012
September 14, 2012
December 14, 2012

Payment Date

September 30, 2011
December 30, 2011
March 30, 2012
June 29, 2012
September 28, 2012
December 28, 2012

Payments
(dollars in thousands)
363
$
365
$
512
$
512
$
664
$
772
$

Effective August 13, 2012, the Company implemented a Dividend Reinvestment Plan (the “Plan”), under which the Company

may issue up to 750,000 shares of common stock. The Plan provides a way for interested shareholders to increase their holdings in
our common stock. Participation in the Plan is strictly voluntary and is open only to existing shareholders. The Plan has limited
participation through its second dividend payment in December 2012.

Share-Based Compensation

The 2007 Equity Incentive Plan (the “2007 Plan”) was approved by shareholders on May 23, 2007 and replaced the 1997 Stock

Option Plan (the “1997 Plan”). The 1997 Plan remains in effect solely for the purpose of the continued administration of the options
outstanding under the 1997 Plan. The plans are administered by the Compensation Committee (the “Committee”) of the Board of
Directors. The 2007 Plan permits the granting of stock options and stock awards which are granted at a price equal to or greater than
the fair market value of the Company’s common stock at the date of grant. Generally, stock options or stock awards granted to non-
employee directors vest in periods of one to three years from the date of grant. Stock options granted to employees generally vest
equally over a period of 3 to 5 years from the date of grant. Stock awards granted to employees generally vest equally over a period
of up to 3 years from the date of grant for awards subject to service requirements. Stock awards may be granted and vest based on
the achievement of certain performance

F-21

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

requirements as established by the Committee. Stock awards also may be granted without service or performance requirements, as
determined by the Committee. The Committee, at its discretion, may establish other vesting periods and performance requirements
when appropriate. During 2012, 161,000 stock options were granted to plan participants under the 2007 Plan. No stock awards were
granted in 2012 or 2011. Also, there are no performance-based awards outstanding at either December 31, 2012 or 2011. The
number of shares reserved for issuance under the 2007 Plan is 2.0 million, of which 574,792 shares were available for future grant as
of December 31, 2012. The number of shares reserved under the 1997 Plan for issuance was 1.5 million, of which 1,036,300 shares
were left unused as of December 31, 2012.

Share-based compensation expense for stock options under these plans of $0.7 million was recorded in each of the years

ended December 31, 2012 and 2011. No equity compensation expense has been capitalized in inventory or fixed assets.

Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (“ESPP”) was approved by shareholders on May 21, 2009.

The ESPP is administered by the Committee. The aggregate maximum number of shares of the Company’s common stock that
may be granted under the ESPP is 1.5 million shares over the ten year term of the ESPP, subject to adjustment in the event there is
a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, or similar transaction with respect to the
common stock.

The ESPP allows employees to purchase shares of common stock at a 15% discount from market price and pay for the shares

through payroll deductions. Eligible employees can enter the plan at specific “offering dates” which occur in six month intervals.

The Company recognized employee stock purchase plan expense of $16,000 and $40,000 during the years ended

December 31, 2012 and 2011, respectively.

In addition to the Company’s share-based compensation plans, certain other warrants have been issued that are not

compensatory in nature. See further discussion in the “Warrants to Purchase Common Stock” section below.

Stock Options

The weighted-average fair value of stock options granted during 2012 and 2011 was estimated at $3.81 and $3.40 per option,

respectively, using the Black-Scholes option-pricing model based on the following assumptions:

Expected Volatility: The Company utilizes a volatility factor based on the Company’s historical stock prices for a period of

time equal to the expected term of the stock option utilizing weekly price observations. For 2012 and 2011, the Company utilized
weighted-average volatility factors of 60% and 62.0%, respectively.

Expected Term: Due to limited historical exercise data, the Company utilizes the simplified method of determining the

expected term based on the vesting schedules and terms of the stock options. For 2012 and 2011, the Company utilized
weighted-average expected term factors of 6.2 years and 6.8 years, respectively.

F-22

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Risk-Free Interest Rate: The risk-free interest rate factor utilized is based upon the implied yields currently available on
U.S. Treasury zero-coupon issues over the expected term of the stock options. For 2012 and 2011, the Company utilized a
weighted-average risk-free interest rate factors of 1.2% and 2.3%-3.0% , respectively.

Expected Dividends: The Company utilized an expected dividend rate of 1.9% to value options granted during 2012. The

expected dividends rate of zero was used to value 2011 options as the Company had not historically paid dividends.

The fair value of the stock options granted is recorded as compensation expense on a straight-line basis over the vesting
periods of the options adjusted for the Company’s estimate of pre-vesting forfeitures. The pre-vesting forfeiture estimate is based on
historical activity and is reviewed periodically and updated as necessary.

Information related to all stock options under the 2007 Plan and 1997 Plan for the year ended December 31, 2012 is shown in

the table below:

(Shares in thousands)
Outstanding at December 31, 2011
Granted
Forfeitures
Exercised

Outstanding at December 31, 2012

Exercisable at December 31, 2012

(Shares in thousands)
Outstanding at December 31, 2010
Granted
Forfeitures
Exercised

Outstanding at December 31, 2011

Exercisable at December 31, 2011

Weighted
Average
Exercise

Price
$ 4.74
7.96
5.87
5.95

Shares
1,174
163
(52)
(41)

1,244

5.18

614

5.36

Weighted
Average
Exercise

Price
$ 4.64
5.48
5.86
2.51

Shares
1,183
95
(56)
(48)

1,174

4.74

480

5.73

Weighted
Average
Remaining
Contractual

Term
7.3 years

Aggregate
Intrinsic
Value
($000)

6.8
years

5.9
years

Weighted
Average
Remaining
Contractual

Term
7.9 years

$6,198

$ 3,086

Aggregate
Intrinsic
Value
($000)

7.3
years

6.0
years

$ 1,710

658

The Company received $248,000 in cash from employees exercising options during the year ended December 31, 2012 and

$112,000 from employees exercising options during the year ended December 31, 2011. The intrinsic value of options exercised
during the years ended December 31, 2012 and December 31, 2011 was $109,000 and $166,000, respectively.

F-23

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Warrants to Purchase Common Stock

The Company has historically issued warrants to purchase common shares in conjunction with business acquisitions, debt

issuances and employment contracts. The estimated fair value of warrants granted in conjunction with employment agreements is
reflected as compensation expense over their related vesting periods, none of which extended into 2012 or 2011. Fair value of
warrants is determined using a Black-Sholes valuation model with assumptions similar to the ones we used to value stock option
awards.

On December 28, 2006, the Company issued warrants to purchase 250,000 shares to Icarus, a related party, at an exercise

price of $9.07 and an expiration date of December 26, 2016. These warrants represent the only outstanding warrants as of
December 31, 2012 and 2011.

12. Pension and Employee Benefit Plans

We sponsor a non-contributory defined benefit pension plan for certain union employees. The plan is funded in accordance with

the funding requirements of the Employee Retirement Income Security Act of 1974.

We also sponsor a postretirement health care plan for office employees retired before January 1, 1990. The plan allows retirees

who have attained the age of 65 to elect the type of coverage desired.

F-24

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

The following tables set forth the plans’ changes in benefit obligations, plan assets and funded status on the measurement

dates, December 31, 2012 and 2011, and amounts recognized in our consolidated balance sheets as of those dates.

$ in thousands
Change in projected benefit obligation:

Projected benefit obligation at beginning of year
Accumulated post retirement benefit obligation
Service cost
Interest cost
Actuarial (gain)/loss
Benefits paid

Projected benefit obligation at end of year

Change in plan assets:

Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contribution
Benefits paid

Fair value of plan assets at end of year

Funded status

Defined benefit liabilities included in accounts payable and accrued expenses
Defined benefit liabilities included in other liabilities
Deferred tax benefit/ (expense) associated with AOCL
AOCL, net of tax

Net amount recognized

Other comprehensive income (loss):

Net loss (gain)
Amortization of prior service cost
Amortization of net actuarial loss

Total recognized in other comprehensive income

Accumulated other comprehensive income (loss):

Net loss (gain)
Prior service cost

Amount recognized in accumulated other comprehensive income (loss)

Weighted-average assumptions used to determine benefit obligations for the

year ended December 31:

Discount rate
Compensation increase rate

Pension Benefits

Other Benefits

2012

2011

2012

2011

$ 7,886
n/a
58
328
629
(366)

8,535

5,020
603
292
(366)

5,549

$(2,986)

$ —
(2,986)
1,505
2,257

776

404
(1)
(332)

$ 3,756
5

$ 3,761

$ 7,157
n/a
41
367
631
(310)

7,886

5,144
(212)
398
(310)

5,020

$(2,866)

$ —
(2,866)
1,476
2,215

825

$ 1,231
(1)
(251)

979

$ 3,685
6

$ 3,691

n/a
$ 146
—
6
(43)
(20)

—
—
20
(20)

—

$ (89)

$ (15)
(74)
(45)
(67)

$(201)

$ (43)
—
8

$ (35)

$(112)
—

$(112)

n/a
$ 156
—
7
12
(29)

146

—
—
29
(29)

—

$(146)

$ (25)
(121)
(31)
(46)

$(223)

$ 12
—
10

$ 22

$ (77)
—

$ (77)

3.75%
N/A

4.25%
N/A

3.75%
N/A

4.25%
N/A

Benefits under the plans are not based on wages and, therefore, future wage adjustments have no effect on the projected

benefit obligations.

Included in other comprehensive income for our defined benefit plans, net of related tax effect, were an increase in the minimum

liability of $21,000 in 2012 and an increase of $601,000 in 2011.

F-25

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

The details of net periodic benefit cost for pension benefits included in the accompanying Consolidated Statements of Income for

the years ended December 31, 2012 and 2011 are as follows:

$ in thousands
Service cost
Interest cost
Expected return on plan assets
Net amortization and deferral

Net periodic benefit cost

Weighted-average assumptions used to determine net periodic benefit costs for the years

ended December 31:

Discount rate
Expected return on assets
Compensation increase rate

2012
$ 58
328
(377)
333

$ 342

2011
$ 41
367
(388)
252

$ 272

4.25%
7.50%
N/A

5.25%
7.50%
N/A

The basis of the long-term rate of return assumption reflects the current asset mix for the pension plan of approximately 30%
debt securities and 70% equity securities with assumed average annual returns of approximately 4% to 6% for debt securities and 8%
for equity securities. The investment portfolio for the pension plan will be adjusted periodically to maintain the current ratios of debt
securities and equity securities. Additional consideration is given to the historical returns for the pension plan as well as future long
range projections of investment returns for each asset category.

The net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other

comprehensive loss into net periodic benefit cost during 2013 are $370,000 and $1,000, respectively. The net gain for the healthcare
plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2013 is $(14,000).

The net periodic benefit cost (representing interest cost and amortization of net actuarial loss only) for the healthcare plan
included in the accompanying consolidated statements of income was $(3,000) for each of the years ended December 31, 2012 and
2011. The weighted average discount rate to determine the net periodic benefit cost for 2012 and 2011 was 4.25% and 5.25%,
respectively.

Changes in health care costs have no effect on the plan as future increases are assumed by the retirees.

Pension plan assets are invested in trusts comprised primarily of investments in various debt and equity funds. A fiduciary
committee establishes the target asset mix and monitors asset performance. The expected rate of return on assets includes the
determination of a real rate of return for equity and fixed income investment applied to the portfolio based on their relative weighting,
increased by an underlying inflation rate. Our defined benefit pension plan asset allocation by asset category is as follows:

Asset Category:
Equity securities
Debt securities

Total

Target
Allocation
2013

Percentage of
Plan Assets

2012

2011

70%
30%

100%

69%
31%

61%
39%

100%

F-26

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Estimated pension plan cash obligations are $388,000, $409,000, $413,000, $425,000, and $440,000 for 2013 – 2017,
respectively, and a total of $2,521,000 for the years 2018 through 2022. Estimated healthcare plan cash obligations are $15,000,
$14,000, $12,000, $11,000, and $10,000 for 2013–2017, respectively, and a total of $30,000 for the years 2018 through 2022.

Fair Value Measurements of Pension Plan Assets

Following is a description of the valuation methodologies used for pension assets measured at fair value:

•

Cash and cash equivalents: Cash and cash equivalents consist of cash on deposit in a money market fund. Cash and cash

equivalents are stated at cost, which approximates fair value.

U.S. government and agency securities: Valued at closing price reported in the active market in which the individual

security is traded.

Corporate bonds and notes: Valued using market inputs including benchmark yields, reported trades, broker/dealer quotes,

issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research
publications. Inputs may be prioritized differently at certain times based on market conditions.

•

Mutual funds: Valued at the net asset value (NAV) of shares held by the plans at year end. The NAV is calculated based on

the underlying shares and investments held by the fund.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may

affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The levels assigned to the defined benefit plan assets as of December 31, 2012, are summarized in the tables below:

$ in thousands
Pension assets, at fair value:

Cash in money market fund
U.S. government and agency securities
Mutual funds

Total assets

Level 1

Level 2

Level 3

Total

$ 156
169
5,224

$5,549

$ —
—
—

$ —

$ —
—
—

$ —

$ 156
169
5,224

$5,549

F-27

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

The levels assigned to the defined benefit plan assets as of December 31, 2011, are summarized in the tables below:

$ in thousands
Pension assets, at fair value:

Cash in money market fund
U.S. government and agency securities
Corporate bonds and notes
Mutual funds

Total assets

Level 1

Level 2

Level 3

Total

$ 323
172
—
4,177

$4,672

$ —
—
348
—

$ 348

$ —
—
—
—

$ —

$ 323
172
348
4,177

$5,020

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining

agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from
single-employer plans in the following aspects:

•

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other

participating employers.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the

remaining participating employers.

If the Company chooses to stop participating in some of its multiemployer plans, CECO may be required to pay those

plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company participation in these plans for the annual period ended December 31, 2012, is outlined in the table below. The

“EIN/Pension Plan Number” column provides the Employee Identification Number and the three-digit plan number, if applicable.
Unless otherwise noted, the most recent Pension Protection Act zone status available in 2012 and 2011 is for the plan’s year-end at
December 31, 2011, and December 31, 2010, respectively. The zone status is based on information that the Company received from
the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded,
plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP
Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is
either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to
which the plans are subject.

F-28

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Pension Fund
Sheet Metal Workers’ National Pension

EIN/Pension
Plan Number

Fund

52-6112463/001

Red

FIF/RP Status Pending/
Implemented
FIF: did not disclose
RP: Yes - Implemented

Pension
Protection
Act Zone
Status
2012

Surcharge
Imposed

Expiration
of Collective
Bargaining
Agreement

various

Sheet Metal Workers Local 224 Pension

Plan

31-6171353/001

Red

FIF: Yes - Implemented
RP: Yes - Implemented

May 31, 2013

Sheet Metal Workers Local No. 20,
Indianapolis Area Pension fund

Sheet Metal Workers Local No. 177

51-0168516/001 Green

Is not subject

No May 31, 2014

Pension Fund

62-6093256/001 Green

Is not subject

not available

The Company was not listed in any of the plans’ Forms 5500 as providing more than 5 percent of the total contributions for the

plans and plan years. At the date the financial statements were issued, Forms 5500 were not available for the plan years ended
December 31, 2012.

We have no current intention of withdrawing from any plan and, therefore, no liability has been provided in the accompanying

consolidated financial statements.

Amounts charged to pension expense under the above plans including the multi-employer plans totaled $1.8 million and $1.3

million for 2012 and 2011, respectively.

We have a profit sharing and 401(k) savings retirement plan for non-union employees of certain of our subsidiaries. The plan

covers substantially all employees who have 6 months of service, completed 1,000 hours of service and who have attained 18 years
of age. The plan allows us to make discretionary contributions and provides for employee salary deferrals of up to 100%. We
increased, effective January 1, 2008, the matching contributions to 100% of the first 1% and 50% of the next 5% of the employee
deferral for a maximum match of 3.5%. We made aggregate matching contributions and discretionary contributions of $402,000 and
$381,000 during 2012 and 2011, respectively.

F-29

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

13. Commitments and Contingencies

Rent

We lease certain facilities on a year-to-year basis. We also have future annual minimum rental commitments under

noncancellable operating leases as follows:

December 31,

2013
2014
2015
2016
2017
2018 and thereafter

Commitment
$ in thousands
2,081
$
1,698
1,518
1,482
464
162

7,405

Total rent expense under all operating leases for 2012 and 2011 was $1.8 million and $1.7 million, respectively.

Employment Agreement / Accrued Severance

Employment Agreement

The Company has an employment agreement with an executive officer as of December 31, 2012, which term is through
February 15, 2015. The agreement generally provides for an annual salary, an annual bonus based on an incentive compensation
plan tied to financial performance and attainment of goals, and a severance provision.

Accrued Severance

Effective September 27, 2011, Dennis W. Blazer resigned as Chief Financial Officer. In connection with the severance payment

to be made under the transition agreement with Mr. Blazer, the Company recorded a $170,000 charge to income in 2011. All
amounts under this agreement have been paid as of December 31, 2012.

Legal Proceedings

On January 13, 2011, the Securities and Exchange Commission (“SEC”) initiated a non-public formal investigation of the

Company. We have been cooperating with and intend to continue to cooperate with the SEC. The Company has been informed by its
Chairman of the Board that he has received multiple subpoenas in connection with such inquiry. Another director has received two
subpoenas as well. In accordance with the terms of the Company’s bylaws and the General Corporation Law of Delaware, the
Company is advancing expenses incurred by its Chairman and other director in this matter. Because the matter is ongoing, we cannot
predict the outcome of this formal inquiry at this time, and, as a result, no conclusion can be reached as to what impact, if any, this
inquiry may have on us, our operations, or financial condition.

Other income for the second quarter of 2011 includes a payment to the Company of $359,000 related to short swing trading

profits that were returned to the Company by a director and an affiliated shareholder.

F-30

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

The Company was involved in an arbitration proceeding initiated in April 2011 by William L. Heumann, Gerald J. Plappert, and

Paul S. Brannick, related to the 2008 acquisition of Fisher-Klosterman Inc., in which the plaintiffs were claiming amounts owed
pursuant to an earn-out provision in the purchase agreement. The arbitrator ruled on February 15, 2012 favorably to the Company
resulting in a payment of the Company’s stock worth $20,500 and half of the plaintiffs’ legal and arbitrator costs of $106,000.

On October 12, 2012 the Company received a letter from the Sheet Metal Workers’ Local Union No. 80 (“the Union”) alleging
that the Company had completely withdrawn from the Union’s Pension Trust Fund (“the Fund”) and may be liable for an amount up to
$5.3 million plus interest. The Company is disputing the allegation in its entirety. The Company has obtained legal counsel and plans
to vigorously defend itself. Based on currently available information, as of December 31, 2012, we have not recorded any reserves
related to this matter.

One of our subsidiaries, Fisher-Klosterman, Inc. (“FKI”), is a defendant party in a products liability lawsuit filed in Harris County,
Texas on August 23, 2010 by four Valero refining companies. The plaintiffs claim that FKI (and its co-Defendants) used an allegedly
defective refractory material included in cyclones it supplied to Valero that caused damages to refineries they own and operate.
Plaintiffs claim to have suffered property damages including catalyst loss, regenerator repair costs, replacement part costs, damage
to other property and business interruption loss of up to $75 million. The case is still in early stages, as it had been dormant until
recently. The Company intends to vigorously defend the matter. Based on currently available information, as of December 31, 2012,
we have not recorded any reserve with respect to this matter.

The Company is also a party to routine contract and employment-related litigation matters and routine audits of state and local

tax returns arising in the ordinary course of its business.

The final outcome and impact of open matters, and related claims and investigations that may be brought in the future, are
subject to many variables, and cannot be predicted. In accordance with ASC 450, “Contingencies,” and related guidance, we record
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. Accordingly, we have not accrued any amount as of December 31,
2012. While it is currently not possible to reasonably estimate the aggregate amount of costs which we may incur in connection with
these matters, such costs could have a material adverse effect on our financial position, liquidity, or results of operations. The
Company expenses legal costs as they are incurred.

We are not aware of pending claims or assessments, other than as described above, which may have a material adverse impact

on our liquidity, financial position, or results of operations.

14.

Income Taxes

Income before income taxes was generated in the United States and globally as follows:

($ in thousands)
Domestic
Foreign

2012
$13,745
1,618

2011
$ 8,770
2,913

$15,363

$11,683

F-31

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

The Company has not recorded deferred income taxes on the undistributed earnings of its foreign subsidiaries because of
management’s intent to indefinitely reinvest such earnings. At December 31, 2012, the aggregate undistributed earnings of the
foreign subsidiaries amounted to $4.0 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company
may be subject to U.S. income taxes and foreign withholding taxes. Determination of the amount of any unrecognized deferred
income tax liability on this temporary difference is not practicable.

Income tax provision consisted of the following for the years ended December 31:

($ in thousands)
Current:

Federal
State
Foreign

Deferred:

Federal
State
Foreign

The income tax provision differs from the statutory rate due to the following:

($ in thousands)
Tax expense at statutory rate
Increase (decrease) in tax resulting from:

State income tax, net of federal benefit
Domestic Production Activities deduction
Change in uncertain tax position reserves
Permanent differences
Intangible tax basis valuation adjustment
Impact of foreign rate differences and adjustments
Foreign permanent differences
Prior year R&D tax credits

2012

2011

$2,765
805
489

$2,280
391
227

4,059

2,898

377
110
(33)
454

213
129
171
513

$4,513

$3,411

2012
$ 5,223

2011
$3,975

694
(415)
110
95
0
(94)
—
(1,100)

$ 4,513

460
(134)
(34)
285
(546)
(665)
70
—

$3,411

The Company is completing a study to identify research and development expenditures over the last three years that qualify for
the Federal R&D tax credit. As of March 14, 2013, that study is not yet complete; however, preliminary information indicates that $1.1
million of credit will be available upon filing amendments to income tax returns for 2009-2011. Additional credits may be identified as
the study progresses. Additional credit may also be identified for 2012; however, the Federal tax credit had not been available until a
January 3, 2013 retrospective reinstatement of the credit back into 2012. As such, any available credits for 2012 will not be recorded
until at least the first quarter of 2013. The cost of the study is included in selling and administrative expenses.

F-32

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Deferred income taxes reflect the future tax consequences of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes and tax credit carryforwards. The net
deferred tax assets consisted of the following at December 31:

($ in thousands)
Gross deferred tax assets:

Accrued expenses
Reserves on assets
Inventory
Stock-based compensation awards
Minimum pension/post retirement
Goodwill and intangibles
State and local net operating loss carry-forwards
Deferred state taxes
Valuation allowances

Gross deferred tax liabilities:

Deferred state taxes
Foreign deferral on assets
Depreciation
Goodwill and intangibles
Prepaid expenses

Net deferred tax assets

2012

2011

105
634
19
256
1,491
—
151
68
(120)

2,604

—
(138)
(1,084)
(612)
(561)

(2,395)

209

143
709
19
211
1,497
538
184
—
(141)

3,160

(8)
(171)
(1,145)
19
(642)

(1,966)

$ 1,194

Reconciliation to amounts reported in the balance sheet follows:

($ in thousands)

Net current deferred tax assets included in other current assets
Net non-current deferred tax assets
Net current deferred tax liabilities included in accounts payable and accrued expenses
Net non-current deferred tax liabilities

Net deferred tax asset

2012
$ 475
—
(138)
(128)

$ 209

2011
$ 517
848
(171)
—

$1,194

As of December 31, 2012, the Company has state and local net operating loss carry forwards of $2.3 million which expire from

2017 to 2030. The Company has recorded a valuation allowance on $1.7 million of these state and local net operating loss carry
forwards to reflect expected realization.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry forward periods), projected future
taxable income, and

F-33

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

tax-planning strategies in making this assessment. Based on this assessment, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2012. The
amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.

The Company accounts for uncertain tax positions pursuant to FASB Accounting Standards Codification Topic 740. The

Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. A reconciliation of the beginning and ending amount
of uncertain tax position reserves is as follows:

($ in thousands)
Balance as of January 1, 2012
Additions for tax positions current year
Reductions for expirations on tax positions of prior years

Balance as of December 31, 2012

2012
$ 49
134
(21)

$162

2011
$ 83
19
(53)

$ 49

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years
ended December 31, 2012 and 2011, the Company recognized approximately $6,000 and $2,000 respectively, in interest, resulting in
additions to other liabilities of $6,000 and $2,000 after expirations, as of December 31, 2012 and 2011, respectively. The favorable
settlement of all uncertain tax positions would impact the Company’s effective income tax rate. Tax years going back to 2009 remain
open for examination by Federal and all significant state authorities.

15. Related Party Transactions

During 2012 and 2011, we paid Icarus $120,000 per year for our use of its space and other office expenses in its Toronto office.

During 2012 and 2011, we paid fees of $360,000 per year to Icarus for management consulting services. These services were
provided by Phillip DeZwirek, our Chairman of our Board, through Icarus. In addition, in 2012 and 2011 we paid fees of $120,000 and
$50,000, respectively, for consulting services to JMP Fam Holdings Inc., through which Jonathan Pollack, a member of the Board of
Directors, provides services.

As described in Note 10, on November 26, 2009, the Company issued the Investor Notes to a group of investors which, as of

December 31, 2011, included Icarus ($2,200,000), JMP Fam Holdings, Inc. ($150,000), which is controlled by Jonathan Pollack,
Jason DeZwirek ($800,000), and Harvey Sandler Revocable Trust ($800,000), which trust owns over 10% of our outstanding
common stock. All such Investor Notes were converted by November 2012.

16. Major Customers and Foreign Sales

No single customer represented greater than 10% of consolidated net sales or accounts receivable for 2012 or 2011.

F-34

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

For 2012 and 2011, sales to customers outside the United States, including export sales, accounted for approximately 14% and
23%, respectively, of consolidated net sales. The largest portion of export sales was destined for Canada and China. Generally, sales
are denominated in U.S. dollars. Of consolidated long lived assets, $3.3 million and $3.4 million were located outside of the United
States as of December 31, 2012 and 2011, respectively.

17. Acquisition

On December 31, 2012 for $4.0 million in cash and 52,632 shares of the Company’s common stock, computed by reference to

the average closing price of the Company’s common stock on the Nasdaq Global Market for the thirty trading days immediately
preceding the date of the SPA, worth approximately $0.5 million based on the December 31, 2012 closing market price of the
Company’s common stock, the Company, through a subsidiary, acquired all of the stock of Adwest Technologies, Inc. a California
company (“Adwest”), pursuant to the terms of a Stock Purchase Agreement dated December 31, 2012, among the Company, Craig
Bayer, Maryann Erickson, Brian Cannon, Therese Siefert, Alex Goodbody, Greg Hoino, Richard Whitford, and William James.
Additionally, the former owners are entitled to earn-out payments of up to $1.65 million upon the attainment of specified financial
targets through December 31, 2015. Based on current projections, the Company expects the full contingent payment to be earned.
The first year of the contingent payable is recorded in “Accounts payable and accrued expenses” and the balance is recorded in
“Other liabilities” on the Consolidated Balance Sheets.

Adwest is a designer and manufacturer of regenerative thermal oxidizers. The following table summarizes the approximate fair

values of the assets acquired and liabilities assumed at the date of closing.

$ in thousands
Current assets
Property and equipment
Goodwill
Intangible – finite life, net
Intangible – indefinite life

Total assets acquired

Current liabilities assumed

Net assets acquired

$ 1,916
23
4,806
1,090
300

8,135
(1,985)

$ 6,150

This acquisition, which is not considered a significant subsidiary, was financed primarily with the Company’s cash on hand.

18. Business Segment Information

F-35

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Engineered Equipment Technology and Parts Group (“EET&P Group”)

Our EET&P Group, located in the United States, Canada, Brazil, China, and India, is comprised of CECO Filters, Busch

International, Adwest, CECO Abatement, Effox, Fisher-Klosterman, Flextor, and A.V.C. We enable our customers to meet Best
Available Control Technology requirements and compliance targets for fumes, volatile organic compounds, process, and industrial
odors. Our services eliminate toxic emission fumes and volatile organic compounds from large-scale industrial processes. We have a
presence in the chemical processing, ethanol, paint booth emissions, wastewater treatment, and wood products industries.

Contracting/Services Group (“C/S Group”)

Our C/S Group is comprised of the contracting/services operations of our Kirk & Blum divisions. We provide custom metal
fabrication services at our Kirk & Blum Columbia, Tennessee and Louisville, Kentucky locations. These facilities are used to fabricate
parts, subassemblies, and customized products for air pollution and non-air pollution applications from sheet, plate, and structurals.

Component Parts Group (“CP Group”)

Our CP Group markets component parts for industrial air systems to contractors, distributors and dealers throughout the United

States of America.

$ in thousands
Net Sales (less intra-, inter-segment sales)

Engineered Equipment Technology and Parts Group

United States
Canada
China
Brazil
India

Subtotal

Contracting / Services Group
Component Parts Group
Corporate and other

Net sales

$ in thousands
Income (loss) from Operations

Engineered Equipment Technology and Parts Group (a)
Contracting / Services Group (a)
Component Parts Group (a)
Corporate and other (a) (b)
Eliminations

Income from operations

2012

2011

$ 75,824
7,611
4,905
121
218

88,679
25,527
20,771
75

$ 76,416
7,492
6,147
2,214
229

92,498
26,879
18,771
1,044

$135,052

$139,192

2012

2011

$15,562
3,461
4,198
(6,474)
(64)

$12,381
3,145
3,372
(6,418)
(112)

$16,683

$12,368

(a) The amounts presented above at the reportable business segment level include both external and intersegment net sales and

operating income (loss), as applicable. See following tables in this Note 18 under “Intra-segment and Inter-segment Revenues.”

F-36

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

(b)

Includes corporate compensation, professional services, information technology, and other general and administrative corporate
expenses. Also included are the operations of our Engineering Group, which are not significant to the overall operations of the
Company and were sold in November 2011.

$ in thousands
Property and Equipment Additions

Engineered Equipment Technology and Parts Group
Contracting / Services Group
Component Parts Group
Corporate and other (c)

Property and equipment additions

December 31,

2012

2011

$113
61
77
22

$183
115
449
166

$273

$913

(c)

Includes Corporate and Engineering Group property and equipment additions. The Engineering Group was sold in November
2011.

$ in thousands
Depreciation and Amortization

Engineered Equipment Technology and Parts Group
Contracting / Services Group
Component Parts Group
Corporate and other (d)

Depreciation and amortization

2012

2011

$ 623
221
193
213

$ 766
232
185
216

$1,250

$1,399

(d)

Includes Corporate and Engineering Group depreciation and amortization. The Engineering Group was sold in November 2011.

$ in thousands
Identifiable Assets

Engineered Equipment Technology and Parts Group
Contracting / Services Group
Component Parts Group
Corporate and other (e)
Eliminations (f)

Identifiable assets (g)

December 31,

2012

2011

$60,516
25,636
5,573
7,599
(5,220)

$51,480
18,588
5,577
9,705
(6,005)

$94,104

$79,345

(e)

Includes Corporate and Engineering Group identifiable assets. The Engineering Group was sold in November 2011. Corporate
assets primarily consists of cash, income tax related assets, and intercompany note receivable.
Includes eliminations for intercompany trade accounts receivable, intercompany job revenue, and intercompany note receivable.

(f)
(g) The Company has revised its business segment reporting primarily to exclude nontrade accounts receivable in order to better

reflect the manner in which such assets are reviewed by management.

F-37

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

Goodwill

Engineered Equipment Technology and Parts Group

$19,548

$14,661

December 31,

2012

2011

Intra-segment and Inter-segment Revenues

The Company has multiple divisions that sell to each other within segments and between segments as indicated in the following

tables:

$ in thousands
Net Sales
Engineered Equipment Technology and Parts Group

total sales

less
intra-
segment
sales

Year Ended December 31, 2012

less inter-segment sales

EET&P

C/S

CP Corp. (a)

net sales to
outside
customers

United States
Canada
China
Brazil
India

Subtotal

Contracting / Services Group
Component Parts Group
Corporate and other (a)

$ 77,447 $ (829) $ — $ (794) $— $ — $ 75,824
7,611
4,905
121
218

63
(2,062)
—
—

—
—
—
—

7,548
6,967
121
218

—
—
—
—

92,301
27,852
22,084
19

(2,828)
(83)
(366)
—

—
(2,242)
(27)

(794)
—
(920)
(10)

—
—
—
—

—

—
66

88,679
25,527
20,771
75

Net sales

$142,256 $(3,277) $(2,269) $(1,724) $— $

66 $135,052

(a)

Includes adjustment for revenue on intercompany jobs.

F-38

Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Years Ended December 2012 and 2011

$ in thousands
Net Sales
Engineered Equipment Technology and Parts Group

total sales

less
intra-
segment
sales

Year Ended December 31, 2011

less inter-segment sales

EET&P

C/S

CP Corp. (a)

net sales to
outside
customers

United States
Canada
China
Brazil
India

subtotal

Contracting / Services Group
Component Parts Group
Corporate and other (a)

$ 82,946 $(3,733) $ — $(2,797) $— $ — $ 76,416
7,492
6,147
2,214
229

—
(2,854)
—
—

—
—
—
—

7,492
9.001
2,214
229

—
—
—
—

101,882
29,466
20,230
1,079

(6,587)
(120)
(449)
—

—
(2,355)
(139)

(2,797)
—
(871)
(47)

—
(50)
—
—

—
(62)
—
12

92,498
26,879
18,771
1,044

Net sales

$152,657 $(7,156) $(2,494) $(3,715) $ (50) $

(50) $139,192

(a)

Includes the operations of our Engineering Group, which is not significant to the overall operations of the Company, and
adjustment for revenue on intercompany jobs. The Engineering Group was sold in November 2011.

19. Subsequent Events

On February 28, 2013, the Company acquired Aarding Thermal Acoustics B.V., a Netherlands company (“Aarding”), pursuant to

the terms of a Share Purchase Agreement, (the “SPA”) dated February 28, 2013, among the Company, CECO Environmental
Netherland B.V., N.F.J.A. Pieterse Beheer B.V., and W.M. Pranger Beheer B.V. Aarding is a global provider of natural gas turbine
exhaust systems and silencer applications and will part of our EET&P Group. We acquired Aarding to lead CECO’s expanding global
natural gas business including the Flextor division which provides complimentary and integrated engineered solutions to those of
Aarding. The purchase price included cash of $24.0 million at closing and 763,673 shares of restricted common stock. The cash paid
was funded by the Company’s cash reserves. Additionally, the former owners of Aarding are entitled to earn-out payments of up to
$7.2 million upon the attainment of specified financial targets through December 31, 2017.

Quarterly Dividend

On March 6, 2013, CECO’s Board of Directors approved raising its quarterly dividend 11% to $0.05 per share from the previous

quarterly dividend of $0.045 per share. The dividend will be paid on March 28, 2013 to all shareholders of record at the close of
business on March 18, 2013.

F-39

Exhibit 10.4

Summary term sheet governing arrangement of consulting services Icarus Investment Corp. performs pursuant to oral agreement

Icarus Investment Corp. is paid $30,000 per month for consulting services. Icarus Investment Corp. performs for CECO consulting
services regarding the Company’s corporate policies, marketing, strategic and financial planning, including long and short-term goals,
mergers and acquisitions and other business combinations, financing, growth plans and other related matters.

Icarus Investment Corp. is engaged as an independent contractor, and is not an employee of the Company for any purpose
whatsoever, including without limitation, for purposes relating to taxes, workers’ compensation or workplace safety insurance,
payments required by statute or any other withholdings or remittances to any governmental agency or authority. No course of dealing
between the parties is intended to create, or shall create, an employment relationship, a joint venture, partnership or any similar
relationship. CECO is interested only in the results obtained by Icarus Investment Corp. and Icarus Investment Corp. shall have sole
control of the manner and means of performing its services to CECO consistent with the policies and practices of CECO and with
CECO’s interests and in accordance with all applicable laws, rules and regulations.

Exhibit 21

SUBSIDIARIES OF THE COMPANY

Direct subsidiaries of CECO Environmental Corp.
CECO Group, Inc., a Delaware corporation
Flextor Inc., a Quebec company
CECO Group Global Holdings LLC, a Delaware limited liability company

Direct subsidiaries of CECO Group, Inc.
Adwest Technologies, Inc., a California corporation
CECO Filters, Inc., a Delaware corporation
CECO Abatement Systems, Inc., a Delaware corporation
H.M. White, Inc. (f/k/a CECO Energy, Inc.), a Delaware corporation
CECOaire, Inc., a Delaware corporation
The Kirk & Blum Manufacturing Company, an Ohio corporation
Effox, Inc., a Delaware corporation
GMD Environmental Technologies, Inc., a Delaware corporation (f/k/a GMD Acquisition Corp.)
Fisher-Klosterman, Inc., a Delaware corporation (f/k/a FKI Acquisition Corp.)
CECO Mexico Holdings LLC, a Delaware limited liability company

Direct subsidiaries of CECO Filters, Inc.
CECO India Pvt. Ltd., an Indian company (f/k/a CECO Filters India Pvt. Ltd.)
New Busch Co., Inc., a Delaware corporation

Direct subsidiaries of Fisher-Klosterman, Inc.
FKI, LLC, a Delaware limited liability company
Fisher-Klosterman-Buell Shanghai Co., Ltd., a China company (f/k/a Kentucky Fabrication (Shanghai Co., Ltd.))
AVC, Inc., a Delaware corporation

Direct subsidiaries of H.M. White, Inc.
CECO Environmental Mexico S. de R.L. de C.V., a Monterrey, Mexico company
CECO Environmental Services S. de R.L. de C.V., a Monterrey, Mexico company

Direct subsidiaries of Flextor Inc.
Flextor Chile S.A., a Chile company
Flextor do Brasil Importacao e Exportacao Ltda., a Brazil company

Direct subsidiaries of CECO Group Global Holdings LLC
CECO Environmental Netherlands B.V., a Netherlands company

Direct subsidiaries of CECO Environmental Netherlands B.V.
ATA Beheer B.V., a Netherlands company

Direct subsidiaries of ATA Beheer B.V.
Aarding Thermal Acoustics B.V., a Netherlands company
Aarding Thermal Acoustics USA, Inc., a Delaware company

Direct subsidiaries of ATA Beheer B.V. and Aarding Thermal Acoustics B.V.
Aarding do Brasil Fornecimento de Produtos Termo-Acusticos Equipamentos Ltda., a Brasil company

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23.1

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

We hereby consent to the incorporation by reference in Registration Statement Nos. 333-130294 and 333-183275 on Form S-3 and
Registration Statements Nos. 333-33270, 333-143527, and 333-159948 on Forms S-8 of our report dated March 15, 2013, relating to
the consolidated financial statements of CECO Environmental Corp., which appears in this Form 10-K.

/s/ BDO USA, LLP

Chicago, Illinois
March 15, 2013

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION BY CHIEF EXECUTIVE OFFICER

I, Jeffrey Lang, certify that:

I have reviewed this report on Form 10-K for the year ended December 31, 2012, of CECO Environmental Corp.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons
performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial
information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.

/s/ JEFFREY LANG
Jeffrey Lang
Chief Executive Officer
March 15, 2013

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Benton L. Cook, certify that:

I have reviewed this report on Form 10-K for the year ended December 31, 2012, of CECO Environmental Corp.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.

/s/ BENTON L. COOK
Benton L. Cook
Interim Chief Financial Officer and Controller
March 15, 2013

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

In connection with the Annual Report of CECO Environmental Corp. (the “Company”) on Form 10-K for the period ending
December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey Lang, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of

operations of the Company.

/s/ JEFFREY LANG

Jeffrey Lang
Chief Executive Officer
March 15, 2013

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.2

In connection with the Annual Report of CECO Environmental Corp. (the “Company”) on Form 10-K for the period ending

December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Benton L. Cook,
Interim Chief Financial Officer and Corporate Controller of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of

operations of the Company.

/s/ BENTON L. COOK
Benton L. Cook
Interim Chief Financial Officer and Controller
March 15, 2013