e20vf

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

Form 20-F


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2009
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		Date of event requiring this shell company report
		For the transition period from to

Commission file number 001-04192

KHD Humboldt Wedag International Ltd.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s Name into English)

British Columbia, Canada

(Jurisdiction of incorporation or organization)

Suite 1620 — 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6

(Address of principal offices)

Alan Hartslief

Fax: 011-43-1-588-1499

Faulmanngasse 4, 5th Floor

1040 Vienna Austria

with a copy to:

Virgil Z. Hlus

Clark Wilson LLP

800-885 West Georgia Street

Vancouver, British Columbia

Canada V6C 3H1

Facsimile: 604-687-6314

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of each class		Name of each exchange on which registered

Common Shares, Without Par Value		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Not Applicable

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Not Applicable

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

There were 30,259,911 common shares, without par value, issued and outstanding as of December 31, 2009.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o YES þ NO

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o YES þ NO

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.


U.S. GAAP o		International Financial Reporting Standards as issued by the International Accounting Standards Board o		Other þ

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. þ Item 17 o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o YES þ NO

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o YES o NO

Dear shareholders,

OVERVIEW

Looking back on 2009, the year has been another eventful one for KHD. During the year we completed the sale of our coal and minerals operations as well as our workshop in Cologne, Germany and saw gradual improvement in the quarterly new order intake from the second quarter of 2009. We have also continued with our restructuring plan.

Following the end of the year, we announced an intention to split the company into two parts: a mineral royalty company and an industrial plant technology, equipment and service company. The first tranche of this transaction is expected to be completed by the end of the first quarter of 2010. This will result in the creation of two independent entities that will be well placed to create further value for our shareholders.

In overall terms, market conditions were difficult during the year, although there were strong pockets of activity in regions such as India. In India, KHD had a very successful year in terms of new order intake. Asia, as a region, contributed more than half of our total new order intake for the year. We ended the year with 780 employees, a reduction of 490 employees compared with the end of 2008, through a combination of the divestment of the coal and minerals operations and workshop, and our restructuring plan.

We are also pleased to report that one of the contracts that we had previously announced as cancelled recommenced in 2010 and, as a result, we were able to reverse the provisions made against this contract as at December 31, 2009.

FULL YEAR RESULTS

We were pleased to see new order intake improve in the second half of the year. New order intake in 2009 was $321.9 million. This was a decline of 55.5% compared with the prior year. Of the total, $273.6 million was from our cement business and $48.3 million was from our coal and minerals business.

Order backlog at the end of the period was $437.0 million, a decrease of 48.2% year on year. This was due to the reduction in new order intake as a result of the general economic slowdown in 2009, as well as the removal from the order backlog of cancelled contracts amounting to $110.2 million that were previously classified as at risk as at December 31, 2008, and the sale of our coal and minerals business, which had an order backlog of $68.0 million at the time of the sale.

Revenues in 2009 were $576.4 million, a decline of 9.7% compared with 2008. This was only a small decline from the level of revenues achieved in 2007 and reflects continued good order execution and delivery of the order backlog.

Gross profit was $136.4 million, a significant increase from $89.8 million in 2008. This mainly reflects the impact of losses on customer contracts in 2008 and then the subsequent partial reversal of these losses in 2009. Excluding these effects, gross profit margins increased from 19.1% in 2008 to 20.6% in 2009. This improvement was due to continued good project execution and continuing success with finding alternative, more cost effective, equipment procurement opportunities.

Reported operating income for the year was $71.5 million, an increase of 26.9% year on year. This reflected a number of factors, notably the recovery of losses on terminated contracts of $17.8 million and the gain on the sale of the workshop and related assets of $5.3 million, offset by a decline in income from our resource property in Canada compared with 2008, restructuring costs of $9.2 million, and an increase in selling, general and administrative costs.

Diluted earnings per share were $1.34, compared with a loss of $0.23 per share in 2008.

Net cash flow during the year resulted in a cash inflow of $11.5 million. We believe that this was a good performance considering the reduction in new order intake during the year and subsequent working capital outflows. Cash and cash equivalents at the end of the period were $420.6 million compared with $409.1 million at the end of 2008.

FOURTH QUARTER RESULTS

The 2009 fourth quarter results were some of the best that we have seen in the last two years.

New order intake of $96.7 million showed a continued improvement on the third quarter of 2009 and was the highest quarterly new order intake achieved in 2009 for the continuing cement operations. Revenues in the fourth quarter were $210.2 million, an increase of 41.8% compared with the third quarter of 2009. Gross profit, excluding the impact of terminated contracts, was $48.1 million. This was due to good project execution and the completion of several projects in the fourth quarter. Gross profit margin on the same basis was 23.0%, which was a significant improvement compared with the previous quarter, but in line with the second quarter of the year.

OUTLOOK

From a new order intake perspective, we have seen a significant improvement in the second half of the year, which gives us some confidence going into 2010 and 2011. India continues to be a good market for KHD and we intend to continue to strengthen our competitive position in this market. There are also tentative signs of an improvement in the Russian market, which accounts for almost half of our order backlog.

We intend to continue to invest in improving our technology as well as our offering of environmentally friendly products. This is likely to be achieved through a combination of internal research and development as well as through strategic partnerships. We are currently involved in a number of discussions with potential partners to strengthen our market position.

Iron ore prices continue to improve and this bodes well for our mineral royalty from the Wabush iron ore mine in Canada. As previously stated, our intention is to split our existing business into a mineral royalty company and an industrial plant technology, equipment and service company. We believe that this will give both businesses the opportunity to grow further and focus on building further value for our shareholders.

The majority of KHD’s current employees will remain with the industrial plant technology, equipment and service company as we continue with our repositioning of this business. We have announced internally the closure of our office in Vienna, Austria in order to further reduce the cost base of the business and to further simplify the operating structure which will result from the proposed split of KHD into two separate parts.

After a difficult start to 2009, we ended the year with renewed confidence and believe that we have taken a number of significant steps towards helping our customers produce cement and process minerals in a much more energy efficient and environmentally friendly manner. This has been a difficult year for our employees, with many changes over the course of the year, and I would like to thank everyone for their support during this period.

Respectfully Submitted,

Jouni Salo
President and Chief Executive Officer

PART I

Certain statements in this annual report are forward-looking statements, which reflect our management’s expectations regarding our future growth, results of operations, performance, and business prospects and opportunities. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits we will obtain from them. These forward-looking statements reflect management’s current views and are based on certain assumptions and speak only as of March 26, 2010. These assumptions, which include management’s current expectations, estimates and assumptions about certain projects and the markets we operate in, the global economic environment, interest rates, exchange rates and our ability to attract and retain customers and to manage our assets and operating costs, may prove to be incorrect. A number of risks and uncertainties could cause our actual results to differ materially from those expressed or implied by the forward-looking statements, including: (1) a continued downturn in general economic conditions in Asia, Europe, Russia, the Middle East, the United States and otherwise internationally, including as a result of the worldwide economic downturn resulting from the general credit market crises, volatile energy costs, decreased consumer confidence and other factors, (2) continuing decreased demand for our industrial plant technology, equipment and services, including the renegotiation, delay and/or cancellation of projects by our customers and the reduction in the number of project opportunities, (3) a continuing decrease in the demand for cement, minerals and related products, (4) the number of competitors with competitively priced products and services, (5) product development or other initiatives by our competitors, (6) shifts in industry capacity, (7) fluctuations in foreign exchange and interest rates, (8) fluctuations in availability and cost of raw materials or energy, (9) delays in the start of projects included in our forecasts, (10) delays in the implementation of projects included in our forecasts and disputes regarding the performance of our services, (11) the uncertainty of government regulation and politics in Asia, the Middle East and other markets, (12) potential negative financial impact from regulatory investigations, claims, lawsuits and other legal proceedings and challenges, (13) the timing and extent of our restructuring program and the restructuring charges to be incurred in connection therewith, (14) whether our proposed plan of arrangement with our subsidiary, KHD Humboldt Wedag International (Deutschland) AG, is approved by our shareholders, (15) difficulties seeking out and obtaining interests in mineral royalties, and (16) other factors beyond our control.

There is a significant risk that our forecasts and other forward-looking statements will not prove to be accurate. Investors are cautioned not to place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future results. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Additional information about these and other assumptions, risks and uncertainties are set out in the section entitled “Risk Factors” below.

As used in this annual report, the terms “we”, “us” and “our” mean KHD Humboldt Wedag International Ltd. and our subsidiaries, unless otherwise indicated.

Unless otherwise indicated, all dollar amounts referred to herein are in United States dollars and all financial information presented has been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). Cdn$ means Canadian dollars.


ITEM 1	*Identity of Directors, Senior Management and Advisers*

Not applicable.


ITEM 2	*Offer Statistics and Expected Timetable*

Not applicable.


ITEM 3	*Key Information*


A.	Selected Financial Data

The following table summarizes selected consolidated financial data for our company prepared in accordance with Canadian GAAP for the five fiscal years ended December 31, 2009. Additional information is presented to show the differences which would result from the application of U.S. GAAP to our company’s financial

information. For a description of the differences between Canadian GAAP and U.S. GAAP, see Note 33 to our audited consolidated financial statements included in this annual report. The information in the table was extracted from the detailed consolidated financial statements and related notes included elsewhere in this annual report and should be read in conjunction with such financial statements and with the information appearing under the heading “Item 5 — Operating and Financial Review and Prospects”.

Selected Financial Data
(Stated in United States dollars in accordance with Canadian GAAP)
(in thousands, other than per share amounts)


	Fiscal Years Ended December 31
	2009		2008			2007			2006			2005

Revenues	$	576,408	$	638,354		$	580,391		$	404,324		$	316,978
Operating income		71,549		56,385			53,010			40,555			25,551
Income (loss) from continuing operations		40,711		(6,952	)		50,980			34,152			22,864
(Loss) income from discontinued operations		—		—			(9,351	)		(2,874	)		5,361
Extraordinary gain		—		—			513			—			—
Income (loss) from continuing operations per share
Basic		1.34		(0.23	)		1.71			1.13			0.84
Diluted		1.34		(0.23	)		1.68			1.12			0.84
(Loss) income from discontinued operations per share
Basic		—		—			(0.31	)		(0.10	)		0.20
Diluted		—		—			(0.31	)		(0.09	)		0.19
Extraordinary gain per share
Basic		—		—			0.02			—			—
Diluted		—		—			0.02			—			—
Net income (loss)		40,711		(6,952	)		42,142			31,278			28,225
Net income (loss) per share
Basic		1.34		(0.23	)		1.42			1.03			1.04
Diluted		1.34		(0.23	)		1.39			1.03			1.03
Total assets		788,903		765,658			789,311			641,920			523,056
Net assets		325,191		265,623			313,120			295,754			262,347
Long-term debt,		11,649		11,313			13,920			10,725			2,920
Shareholders’ equity		319,788		261,914			307,194			273,288			244,259
Capital stock, net of treasury stock		58,270		50,033			44,566			44,212			53,574
Weighted average common stock outstanding, diluted		30,354		30,401			30,402			30,415			27,509

Selected Financial Data
(Stated in United States dollars in accordance with U.S. GAAP)
(in thousands, other than per share amounts)


	Fiscal Years Ended December 31
	2009		2008			2007			2006			2005

Revenues	$	576,408	$	638,354		$	580,391		$	404,324		$	316,978
Operating income		68,587		58,455			45,046			38,596			25,551
Income (loss) from continuing operations⁽¹⁾		37,749		(4,882	)		43,031			32,220			22,843
Loss from discontinued operations⁽¹⁾		—		—			(9,351	)		(2,874	)		(1,950	)
Extraordinary gain⁽¹⁾		—		—			513			—			—
Income (loss) from continuing operations per share⁽¹⁾
Basic		1.24		(0.16	)		1.44			1.07			0.84
Diluted		1.24		(0.16	)		1.42			1.06			0.84
Loss from discontinued operations per share⁽¹⁾
Basic		—		—			(0.31	)		(0.10	)		(0.07	)
Diluted		—		—			(0.31	)		(0.10	)		(0.07	)
Extraordinary gain per share⁽¹⁾
Basic		—		—			0.02			—			—
Diluted		—		—			0.02			—			—
Net income (loss)⁽¹⁾		37,749		(4,882	)		34,193			29,346			20,893
Net income (loss) per share⁽¹⁾
Basic		1.24		(0.16	)		1.15			0.97			0.77
Diluted		1.24		(0.16	)		1.13			0.96			0.77
Total assets		786,978		765,676			789,541			641,920			523,401
Net assets		318,682		262,982			306,854			291,567			253,843
Long-term debt		11,649		11,313			13,920			10,725			2,920
Shareholders’ equity		313,279		259,274			300,939			269,101			235,755
Capital stock, net of treasury stock		65,451		57,214			50,162			44,174			53,574
Weighted average common stock outstanding, diluted		30,354		30,401			30,402			30,415			27,509


(1)		Attributable to our common shareholders.

Reconciliation to United States GAAP

A reconciliation to U.S. GAAP is included in Note 33 to our audited consolidated financial statements included in this annual report. The primary significant difference between Canadian and U.S. GAAP as they relate to our company is the accounting for stock-based compensation expenses.


B.	Capitalization and Indebtedness

Not applicable.


C.	Reasons for the Offer and Use of Proceeds

Not applicable.


D.	Risk Factors

the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect, actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements.

An investment in our common stock involves a number of risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our company and our business before purchasing shares of our company’s common stock. Our business, operations and financial condition could be harmed due to any of the following risks.

During our year ended December 31, 2009, we operated in two reportable segments consisting of (i) our industrial plant technology, equipment and service business, and (ii) our royalty interest in the Wabush iron ore mine.

Risk Factors Relating to Our Business

The worldwide macroeconomic downturn has reduced, and could continue to reduce, the demand for our industrial plant technology, equipment and service business and the amount of royalty we receive from the Wabush iron ore mine.

The ongoing economic crisis has had a significant negative impact on most segments of the world economy due to many factors, including the effects of the subprime lending and general credit market crises, volatile but generally declining energy costs, slower economic activity, decreased consumer confidence and commodity prices, reduced corporate profits and capital spending, adverse business conditions, increased unemployment and liquidity concerns. The industrial plant technology, equipment and service industry is cyclical in nature. It tends to reflect and be amplified by general economic conditions, both domestically and abroad.

In periods of recession or periods of minimal economic growth, the demand for steel and iron ore usually decreases significantly and results in a drop in the price of iron ore. Such decreases in the demand for iron ore and the resulting decrease in price of iron ore led to a decrease in the royalty we received from the Wabush iron ore mine and could continue to have a material adverse effect on our financial results.

In addition, in such periods, the operations underlying industrial plant technology, equipment and service companies have been adversely affected. Certain end-use markets for clinker and cement experience demand cycles that are highly correlated to the general economic environment, and are sensitive to a number of factors outside of our control. If such end-use markets for clinker and cement significantly deteriorate due to economic effects, our assets, financial condition and results of operations could be materially adversely affected.

Payments by customers under a project agreement are typically made by means of a combination of advance payments and certain milestone payments depending on the progress of the project. As a result, our revenue is generated predominantly from processing orders on hand and the corresponding progress toward the completion of contracts for cement plants entered into in prior periods accounted for according to the percentage-of-completion method. Historically, approximately 70% to 80% of our order backlog has been converted into revenues within a 12-month period. Due to our high historical order backlog, the strong decline of the cement markets in 2009 had not yet impacted our revenues and results of operations in the year ended December 31, 2009. However, as a result of the crisis in the cement markets, our new order intake dropped sharply. In addition, it was necessary to reduce the order backlog on account of the cancellation of orders that that already been booked in 2008. Management believes that, unless our new order intake increases significantly over the level of 2009, the years 2010 and 2011 will be marked by significantly decreasing revenues and results of operations. Pricing pressures, as well as reduced demand for our industrial plant technology, equipment and services, could have a material adverse effect on our assets, financial condition and results of operations.

In addition, economic effects, including the resulting recession in various countries and slowing of the global economy, will likely result in a continued decrease in commercial and industrial demand for our industrial plant technology, equipment and services, which could have a material adverse effect on our financial results. In addition, during recessions or periods of slow growth, the construction industries typically experience major cutbacks in production which may result in decreased demand for our industrial plant technology, equipment and services. Because we generally have high fixed costs, our profitability is significantly affected by decreased output and decreases in the demand for the design and construction of plant systems or equipment that produce or process

clinker and cement. Reduced demand for our industrial plant technology, equipment and services, and pricing pressures, could have a materially adverse effect on our assets, financial condition and results of operations.

The worldwide economic downturn has resulted in the prolonging or cancellation of some of our customers’ projects and may negatively affect our customers’ ability to make timely payment to us.

Any downturn in the industrial plant technology, equipment and service industry or in the demand for cement or other related products may be severe and prolonged, and any failure of the industry or associated markets to fully recover from a downturn could seriously impact our revenue and harm our business, financial condition and results of operations. During a downturn, the timing and implementation of some of our larger customer projects may be affected. Some projects may be prolonged or even discontinued or cancelled. Furthermore, our customers may face deterioration of their business, cash flow shortages and difficulty gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. In certain emerging markets, customers have obtained bank guarantees or credit insurance to support credit extended to them. As these expire, there can be no assurance that such customers will be able to renew or extend the credit support previously made available to them.

A prolongation or cancellation of our customers’ projects, or a deterioration of their business resulting in their inability to meet their payment obligations to us, could have a materially adverse effect on our assets, financial condition and results of operations.

The operation of the Wabush iron ore mine is generally determined by a third party operator and we have limited decision making power as to how the property is operated. The operator’s failure to perform could affect our revenues.

The revenue derived from the Wabush iron ore mine is based on production generated by its third party operator. The operator will generally have the power to determine the manner in which the iron ore is exploited, including decisions to expand, continue or reduce production from the mine, and decisions about the marketing of products extracted from the mine. The interests of the third party operator and our interests may not always be aligned. As an example, it will, in almost all cases, be in our interest to advance production as rapidly as possible in order to maximize near-term cash flow, while the third party operator may, in many cases, take a more cautious approach to development as it is at risk with respect to the cost of development and operations. Our inability to control the operations of the Wabush iron ore mine may result in a material and adverse effect on our profitability, results of operation and financial condition. Similar adverse effects may result from any other royalty interests we may acquire that are primarily operated by a third party operator.

Failure to manage our market, product and service portfolio effectively, and to develop an effective marketing and sales strategy to leverage market position in key geographical regions, may adversely affect our financial condition and results of operations.

We have a global portfolio of our industrial plant technology, equipment and services. Failure to manage this portfolio effectively could have a material impact on our business. We conduct regular reviews of our market, product and service portfolio balance, as appropriate, looking at numerous factors, including market weighting, geographical weighting and political risk. Nevertheless, we may still be exposed to risk factors such as shifts in the demand for our industrial plant technology, equipment and services in certain geographic regions, adverse changes in the business environment, increased taxes and government regulation. Failure to successfully develop or implement a marketing and sales strategy could have an adverse effect on our business. Our marketing strategy includes opportunity identification, identifying key customer requirements and targeting key opportunities and quality projects that fit within our strategy. Inability to leverage our market position in key countries and segments could also have a material adverse effect on our strategy in the long term.

Failure to successfully deliver and implement major projects in line with established project and business plans may adversely affect our results of operations and financial condition.

Our future revenues and profits are, to a significant extent, dependent upon the successful completion of major projects within budget, cost and specifications. The delivery of such projects is subject to health and safety, sub-surface, technical, commercial, legal, contractor and economic risks. During the pre-tender and tender phases, projects are subject to a number of sub-surface, engineering, stakeholder, commercial and regulatory risks. The principal risk prior to tender is failure to accurately assess a project’s schedule and cost, leading to margin erosion or negative returns. Development projects may be delayed or unsuccessful for many reasons, including: cost and time overruns of projects under construction; failure to comply with legal and regulatory requirements; equipment

shortages; availability, competence and capability of human resources and contractors; and mechanical and technical difficulties. Projects may also require the use of new and advanced technologies, which can be expensive to develop, purchase and implement, and which may not function as expected. In the event that we fail to successfully deliver and implement major projects in line with project and business plans, our results of operations and financial condition may be adversely affected.

Our core industrial plant technology and equipment are mainly produced by contract manufacturers in accordance with our requirements and quality standards, and non-core technology and equipment are supplied by other suppliers. Since the production of steel products is capital intensive, both contractors and suppliers require advance payments from us. Our contractors and suppliers may face deterioration of their businesses, experience cash flow shortages, or have difficulty gaining timely access to sufficient credit, which could result in production and supply delays, resulting, in turn, in damage claims by our customers for inability to deliver, or late delivery of, equipment. Further, advance payments made to contract manufacturers or suppliers may not be fully recoverable in case of a contractor’s or supplier’s insolvency. A deterioration of the business of our contract manufacturers or suppliers resulting in production and supply delays, or the inability to produce or supply at all, may have a material adverse effect on our assets, financial condition and results of operations.

The industrial plant equipment, technology and service industry has lengthy sales cycles due to customised technology and products.

The current economic crisis has had a significant negative impact on consumer confidence with reduced corporate profits and capital spending. The industrial plant technology, equipment and service industry is generally subject to lengthy sales cycles which lengthen considerably in a downturn. Customers who continue to spend in a downturn may often engage in intense due diligence, putting additional contractual and scope risks on to the suppliers. With an increasing sales cycle, the power of negotiation may often rest with the customer, who may be considering multiple tenders and options at the same time. The combination of our lengthy sales cycle coupled with challenging economic conditions could have a materially adverse effect on our assets, financial condition and results of operations.

Any significant disruption of our operations may harm our business reputation and cause an adverse effect on our financial results.

Breakdown of equipment or other events, including catastrophic events such as health and safety incidents or natural disasters, leading to interruptions at any of our facilities or at any of the facilities or areas at which we are providing services, could have a material adverse effect on our financial results. Further, because many of our customers are, to varying degrees, dependent on planned deliveries, customers that are forced to reschedule their own production due to such delays could pursue financial claims against us. We may incur costs to correct any of these events, in addition to facing claims from customers or third parties dependent upon the delivery of our industrial plant technology, equipment and services. Further, if any of these events occur and we are forced to delay the delivery of our services, then our reputation among actual and potential customers may be harmed, potentially resulting in a loss of business. While we maintain insurance policies covering, among other things, physical damage, business interruptions and product liability, these policies may not cover all of our losses and we could incur uninsured losses and liabilities arising from such events, including damage to our reputation, loss of customers and substantial losses in operational capacity, any of which could have a material adverse effect on our financial results.

Changes in the prices and cost of raw materials could lead to a decrease in the demand for cement and, in turn, in the demand for cement plants we produce.

We may be significantly affected by changes in the prices of, and demand for, cement and other related products, and the supply of materials necessary to make clinker and cement. The prices and demand for these products and materials can fluctuate widely as a result of various factors beyond our control, such as supply and demand, exchange rates, inflation, changes in global economics, political and social unrest and other factors. Any substantial increases in the cost of such materials, or the transportation and/or availability of such materials, could adversely affect the demand for cement and other related products. If the demand for cement and other related products decreases, then the demand for our industrial plant technology, equipment and service business will decrease, which will in turn adversely impact upon our financial condition and results of operations.

We are subject to risks associated with changing technology and manufacturing techniques, which could place us at a competitive disadvantage.

The successful implementation of our business strategy requires us to continuously evolve our existing our industrial plant technology, equipment and services and introduce new industrial plant technology, equipment and services to meet customers’ needs. Our designs, technology and equipment are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. We believe that our customers rigorously evaluate our services, technology and equipment on the basis of a number of factors, including quality, price competitiveness, technical expertise and development capability, innovation, reliability and timeliness of delivery, product design capability, operational flexibility, customer service, and overall management. Our success depends on our ability to continue to meet our customers’ changing requirements and specifications with respect to these and other criteria. There can be no assurance that we will be able to address technological advances, or introduce new designs, technology or equipment that may be necessary, to remain competitive and meet customers’ requirements within the industrial plant technology, equipment and service sector and, should we fail to do so, this could have a materially adverse effect on our assets, financial condition and results of operations.

Failure to attract, motivate and retain skilled personnel may have a material adverse effect on our business and results of operations.

Our future direction and success depends on the constant review and development of an appropriate business model and strategy that is aligned with the current business environment and the strengths of our company. The development, communication and implementation of the strategy will depend on generating sustainable options for the future and alignment between various factors, including our customer service centers and our regional strategies. This will require the right management skills and leadership to deliver success. Our performance and ability to mitigate these and other significant risks within our control depend on the skills and efforts of our employees and management teams. Future success will depend, to a large extent, on the continued ability to attract, retain, motivate and organize highly skilled and qualified personnel. This in turn will be impacted by competition for human resources. Loss of the services of key people, or an inability to attract and retain employees with the right capabilities and experience, may have a material adverse effect on our business and results of operations.

Our competitors include firms traditionally engaged in the industrial plant technology, equipment and service business and failure to understand the competitive landscape could lead to a decrease of our market share.

We conduct our business in a global environment that is highly competitive and unpredictable. Our primary competitors are international companies with greater resources, capital and access to information than us. Our competition includes other entities who provide industrial and process engineering technology, equipment and/or services related to cement technology, including feasibility studies, raw material testing, basic and detail plant and equipment engineering, financing concepts, construction and commissioning, and personnel training. Increased competition may lead to a decline in the demand for our industrial plant technology, equipment and services and failure to understand the competitive landscape, which includes competitors with greater resources and capital than us, could lead to a decrease of our market share.

We are exposed to political, economic, legal, operational and other risks as a result of our global operations, which may negatively affect our business, results of operations, financial condition and cash flow.

In conducting our business in major markets around the world, we are, and will continue to be, subject to financial, business, political, economic, legal, operational and other risks that are inherent in operating in other countries. We operate on a global basis, in both developed and underdeveloped countries. In addition to the business risks inherent in developing a relationship with a newly emerging market, economic conditions may be more volatile, legal and regulatory systems less developed and predictable, and the possibility of various types of adverse governmental action more pronounced. Other business risks include warranty claims that may be made with respect to warranties that we provide to our customers in connection with the industrial plant technology, equipment and services that we provide. If we receive a significant number of warranty claims, then our resulting warranty costs could be substantial and we could incur significant legal expenses evaluating or disputing such claims. In addition, inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labour problems could affect our revenues, expenses and results of operations. Our operations could also be adversely affected by acts of war, terrorism or the threat of any of these events, as well as government actions such as expropriation, controls on imports, exports and prices, tariffs, new forms of taxation or changes in fiscal regimes and increased government regulation in the countries in which we operate or offer our services. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency

received or held by us in such countries or to take other currencies out of such countries. Unexpected or uncontrollable events or circumstances in any of these markets could have a material adverse effect on our financial results.

Transactions with parties in countries designated by the United States State Department as state sponsors of terrorism may lead some potential customers and investors in the United States and other countries to avoid doing business with us or investing in our shares.

We currently indirectly engage, and may continue to engage, in business with parties in Iran, Sudan, Cuba and Syria, countries that the United States State Department has designated as state sponsors of terrorism, through our indirect subsidiary, Humboldt Wedag GmbH. This business primarily relates to the provision of spare parts. United States law generally prohibits United States persons from doing business with such countries. In the case of these designated countries, there are prohibitions on certain activities and transactions. Penalties for violation of these prohibitions include criminal and civil fines and imprisonment. We are a company incorporated in British Columbia, Canada. To our knowledge, no U.S. persons (as that term is defined in the relevant Parts of Title 31 of the Code of Federal Regulations) have any role in the approval or execution of contracts with entities located in those countries.

We are aware, through press reports and other means, of initiatives by governmental entities in the United States, and by United States institutions such as universities and pension funds, to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with these countries. In addition, our reputation may suffer due to our association with these countries. Such a result may have adverse effects on our business.

We may be exposed to unidentified or unanticipated risks which could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition.

We use a variety of instruments and strategies to manage exposure to various types of risks. For example, we may use derivative foreign exchange contracts to manage our exposure to foreign currency exchange rate risks. If any of the instruments and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses. In addition, unexpected market developments may affect our risk management strategies and unanticipated developments could impact our risk management strategies in the future. The occurrence of any such circumstances could negatively affect our results of operations and financial condition.

Any significant inflation or deflation may negatively affect our business, results of operations and financial condition.

Inflation may result in increases in our expenses related to the provision of industrial plant technology, equipment and services, which may not be readily recoverable in the price of such services provided to our clients. Increases in inflation in overseas countries could result in a reduction in our revenues when reported in United States currency. To the extent that inflation results in rising interest rates and has other adverse effects on capital markets, it may adversely affect our business, results of operations and financial condition.

Deflation is the risk that prices throughout the economy may decline, which may reduce the amount of royalty we receive from our interest in the Wabush iron ore mine. Deflation may also result in a decrease of the price of cement, which may result in our customers delaying or cancelling projects. Any such delays or cancellations could result in reduced demand for our industrial plant technology, equipment and services, which may adversely affect our business, results of operations and financial condition.

Some of our subsidiaries operating in the industrial plant technology, equipment and service business are staffed by a unionized workforce, and union disputes and other employee relations issues may materially and adversely affect our financial results.

Some of the employees of our operating subsidiaries are represented by labour unions under collective bargaining agreements with varying durations and expiration dates. We may not be able to satisfactorily renegotiate our bargaining agreements when such agreements expire. In addition, existing bargaining agreements may not prevent a strike or work stoppage in the future, and any such work stoppage may have a material adverse effect on our financial results.

We are subject to local legislation and regulations in various countries in which we operate. Failure to identify, interpret correctly and comply with local regulations and legislation may impact our reputation and our business.

Our business activities are conducted in many different countries and are therefore subject to a broad range of legislation and regulation. We face value erosion if we do not identify or interpret correctly these regulations, respond to changes in market rules, and ensure compliance with same. Many of the countries in which we conduct, and expect to conduct, business have recently developed, or are in the process of developing, new regulatory and legal structures. These regulatory and legal structures, and their interpretation and application by administrative agencies, may be untested and specific to a given market. Any changes in the regulatory climate in which our company operates may potentially have a material impact on our business. Failure to meet regulatory and legislative requirements may have a material adverse effect on our reputation and may expose our company to financial penalties.

In some countries, our projects and investments may be exposed to risks relating to conduct, ethics, corporate responsibility and anti-competitive practices. Failure to implement our Code of Conduct, Code of Ethics and other internal policies in investment decisions and day to day operations could have a material impact on our business.

Our Code of Conduct and Code of Ethics define our philosophy and underpin corporate responsibility and ethical practice throughout our organisation. In this period of economic downturn, our search for new opportunities will take our company into areas which present new and different challenges to our firm commitment to make our Code of Conduct and Code of Ethics central to how we conduct our business. Our failure to implement our Code of Conduct and Code of Ethics, or any damaging investigations of our activities, could impact our reputation and have a materially adverse effect on our assets, financial condition and results of operations.

Some of our current and historical operations are subject to a wide range of environmental, health and safety regulations.

We are subject to certain environmental, health and safety laws and regulations that affect our project operations and some of the facilities we operate. We believe that we are in compliance with all material environmental, health and safety laws and regulations related to our industrial plant technology, equipment and services, operations and business activities. However, there is a risk that we may have to incur expenditures to cover environmental and health liabilities, to maintain compliance with current or future environmental, health and safety laws and regulations, or to undertake any necessary remediation. It is difficult to reasonably estimate the future impact of environmental matters, including potential liabilities, due to a number of factors, especially the lengthy time intervals often involved in resolving such matters. Should we become subject to additional costs for remediation of the sites we operate or compliance with environment, health and safety laws and regulations which exceed the provisions we have set aside for such risk, our assets, financial condition and results of operations may be materially adversely affected.

If we are unable to protect the confidential or unique aspects of our technology, our competitive advantage may be reduced.

We rely on a combination of patents and patent applications, trade secrets, confidentiality procedures and contractual provisions to protect our technology. Despite our efforts to protect our technology, unauthorized parties may attempt to copy aspects of the technology and equipment we design or build, or to obtain and use information that we regard as proprietary. Policing unauthorized use of our technology and equipment is difficult and expensive. In addition, our competitors may independently develop similar technology or intellectual property. If our technology is copied by unauthorized parties, violates the intellectual property of others, or if our competitors independently develop competing technology, we may lose existing customers and our business may suffer. Moreover, while we have been issued a large number of patents, and other patent applications are pending, there can be no assurance that any of these patents will not be challenged, invalidated or circumvented, or that any rights granted under these patents will in fact provide competitive advantage to us. Should any of these risks materialize, our assets, financial condition and results of operations could be materially adversely affected.

We could infringe third party intellectual property rights.

In the course of our operations, we may infringe third party intellectual property rights. The development of technology and equipment, and introduction of new technology and equipment in the industry, is often done in parallel with other competitors and, despite gaining patent rights in a particular geography, it is possible that our intellectual property may infringe third party patents. If a third party brings a successful infringement claim against us, the financial consequences could be an award of damages to compensate the third party for the unauthorised use of its intellectual property, or an “accounting of profits” which could strip us of the profits we made through the

inadvertent unauthorised use of the intellectual property. There is also the possibility of a court granting an injunction, i.e. an order prohibiting further use of the infringing intellectual property. If infringed intellectual property is part of one of our key systems or core technology or equipment, the business impact on our company could be significant. This could, in turn, have a materially adverse effect on our assets, financial condition and results of operations.

We could become dependent on licences.

Our future product solutions may require us to license technologies from other companies and successfully integrate such technologies into our industrial plant technology, equipment and services. It may be necessary in the future to seek or renew licences relating to various aspects of such industrial plant technology, equipment and services. There can be no assurance that the necessary licences would be available on acceptable terms, or at all. Moreover, the inclusion in our products of software or other intellectual property licensed from third parties on a non-exclusive basis could limit our ability to protect our proprietary rights in our products. Our inability to acquire licences on which we are dependent, the acquisition of licences on unfavourable terms, or a lack of protection of our own proprietary rights, could have a materially adverse effect on our assets, financial condition and results of operations.

We are exposed to risks associated with joint ventures, strategic alliances and third party agreements to offer complementary products and services.

Some business activities conducted by our company are conducted through strategic alliances and with joint venture partners. The joint ventures are often under the day to day management of these partners and may therefore be subject to risks that are outside of our control. In addition, if our partnering arrangements fail to perform as expected, whether as a result of having incorrectly assessed our needs or the capabilities of our strategic partners, our ability to work with these partners or otherwise to develop new technology, equipment and solutions may be constrained, which may harm our competitive position in the market. Additionally, our share of any losses from, or commitments to contribute additional capital to, joint ventures has adversely affected, and may continue to adversely affect, our assets, financial condition and results of operations.

We are exposed to uninsured risks as part of our global business.

We maintain an insurance program to mitigate significant losses, which, as is consistent with good industry practice, includes coverage for physical damage, removal of debris, pollution and employer and third-party liabilities. Nevertheless, some of the major risks involved in the activities of our company cannot, or may not, reasonably and economically be insured. Our insurance program is subject to certain limits, deductibles, and terms and conditions. In addition, insurance premium costs are subject to change based on the overall loss experience of the insurance markets accessed. Should it turn out that we are not sufficiently insured against a certain risk and such risk materializes, our assets, financial condition and results of operations could be materially adversely affected.

We are exposed to various counterparty risks which may adversely impact our financial position, results of operations, cash flows and liquidity.

The challenging credit environment since 2008 has highlighted the importance of governance and management of credit risk. Our exposure to credit risk takes the form of a loss that would be recognized in the event that counterparties failed to, or were unable to, meet their payment obligations. Such risk may arise in certain agreements in relation to amounts owed for physical product sales, the use of derivative instruments, the investment of surplus cash balances and amounts owed to us by one of our former subsidiaries pursuant to a promissory note. The current credit crisis could also lead to the failure of companies in our sector, potentially including partners, contractors and suppliers.

We have exposure to the financial condition of our various lending, investment and derivative counterparties. With respect to derivative counterparties, we are periodically party to derivative instruments to hedge our exposure to foreign currency exchange rate fluctuation. As of December 31, 2009, we were party to foreign currency contracts with a notional value of approximately $10.5 million. The counterparties to these contracts are commercial banks. On the maturity dates of these contracts, the counterparties are potentially obligated to pay us the net settlement value. If any of the counterparties to these derivative instruments were to liquidate, declare bankruptcy or otherwise cease operations, they may not satisfy their obligations under these derivative instruments. In addition, we may not be able to cost effectively replace the derivative position depending on the type of derivative and the current economic environment. If we were not able to replace the derivative position, we would be exposed to a greater level of foreign currency exchange rate risk which could lead to additional losses.

With respect to lending and investment counterparties, current market conditions may increase counterparty risks related to our cash equivalents, restricted cash, short-term cash deposits, receivables and equity securities (including preferred shares). We have deposited our cash and cash equivalents (including restricted cash) and term deposits with reputable financial institutions with high credit ratings. As at December 31, 2009, our company and its subsidiaries had cash and cash equivalents aggregating $289.8 million with a banking group in Austria. If any of the counterparties that make up this banking group are unable to perform their obligations, we may, depending on the type of counterparty arrangement, experience a significant loss of liquidity or a significant economic loss. Changes in the fair value of these items may adversely impact our financial position, results of operations, cash flows and liquidity.

Our bonding facility is provided by a syndicate of five banks. All banks in the syndicate are highly rated, with three located in Austria and two in Germany. The bonding facility is secured for one year and utilization rates are well below available limits. We do not have significant unutilized credit lines. The counterparties to our derivative contracts are highly rated Austrian and Indian banks. The Austrian, German and Indian governments all have announced that resources are available to support their banking systems.

Our ability to utilize financial resources may be restricted because of tightening and/or elimination of unsecured credit availability with counterparties. If we are unable to utilize such financial resources, we may be exposed to greater risk with respect to our ability to manage exposures to fluctuations in foreign currencies, interest rates and lead prices. Should any of the above risks materialize, our assets, financial condition and results of operations could be materially adversely affected.

We may face a lack of suitable acquisition, merger, or other proprietary investment, candidates, which may limit our growth.

In order to grow our business, we may seek to acquire or merge with, or invest or make proprietary investments in, new companies or opportunities. In pursuing acquisition and investment opportunities, we may be in competition with other companies having similar growth and investment strategies. Competition for these acquisitions or investment targets could result in increased acquisition or investment prices and a diminished pool of businesses, services or products available for acquisition or investment. Our failure to make acquisitions or investments may limit our growth.

Royalties and other interests may not be honoured by operators of a project.

Royalties and other interests in natural resource properties are largely contractual in nature. Parties to contracts do not always honour contractual terms and contracts themselves may be subject to interpretation or technical defects. To the extent grantors of royalties and other interests do not abide by their contractual obligations, we may be forced to take legal action to enforce our contractual rights. Such litigation may be time consuming and costly and, as with all litigation, there is no guarantee of success. Should any such decision be determined adversely to us, it may have a material and adverse effect on our profitability, results of operations and financial condition.

Increased competition for royalty interests and resource investments could adversely affect our ability to acquire additional royalties and other investments in resources.

Many companies are engaged in the search for, and the acquisition of, resources, and there is a limited supply of desirable resource interests. The resource businesses are competitive in all phases. Many companies are engaged in the acquisition of royalty interests in resource properties, including large, established companies with substantial financial resources, operational capabilities and long earnings records. We may be at a competitive disadvantage in acquiring royalty interests in these resource properties as many competitors may have greater financial resources and technical staff. Accordingly, there can be no assurance that we will be able to compete successfully against other companies in acquiring royalty interests in additional resource properties. Our inability to acquire additional royalty interests in resource properties may result in a material and adverse effect on our profitability, results of operations and financial condition.

We will be dependent on the payment of royalties by the owners and operators of our royalty interests, and any delay in or failure of such royalty payments will affect the revenues generated by the Wabush iron ore mine or any other royalty interests we may acquire.

We will be dependent to a large extent upon the financial viability and operational effectiveness of owners and operators of our royalty interests. Payments from production generally flow through the operator and there is a risk of delay and additional expense in receiving such revenues. Payments may be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, accidents, recovery by operators of expenses incurred in the operation of any royalty properties, the establishment by operators of reserves for such expenses or the insolvency of an operator. Our rights to payment under the royalties will likely have to be enforced by contract. This may inhibit our ability to collect outstanding royalties upon a default. Failure to receive any payments from the owners and operators of mines in which we have or may acquire a royalty interest may result in a material and adverse effect on our profitability, results of operations and financial condition.

Changes in the market price of the commodities that underlie royalty interests will affect our profitability and the revenue generated therefrom.

The revenue we derive from our interest in the Wabush iron ore mine will be significantly affected by changes in the market price of iron ore. Commodity prices, including the price of iron ore, fluctuate on a daily basis and are affected by numerous factors beyond our control, including levels of supply and demand, industrial development levels, inflation and the level of interest rates, the strength of the United States dollar and geopolitical events. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. Any decline in the price of iron ore may result in a material and adverse effect on our profitability, results of operations and financial condition.

General Risks Faced by Our Company

Investors’ interests will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of common shares and class A preferred shares. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances will also cause a reduction in the proportionate ownership of all other shareholders. Further, any such issuance may result in a change of control of our company.

Our constating documents contain indemnification provisions and we have entered into agreements indemnifying our officers and directors against all costs, charges and expenses incurred by them.

Our constating documents contain indemnification provisions and we have entered into agreements with respect to the indemnification of our officers and directors against all costs, charges and expenses, including amounts payable to settle actions or satisfy judgments, actually and reasonably incurred by them, and amounts payable to settle actions or satisfy judgments in civil, criminal or administrative actions or proceedings to which they are made a party by reason of being or having been a director or officer of our company. Such limitations on liability may reduce the likelihood of litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our company, though such an action, if successful, might otherwise benefit us and our shareholders.

Certain factors may inhibit, delay or prevent a takeover of our company which may adversely affect the price of our common stock.

Certain provisions of our charter documents and the corporate legislation which govern our company may discourage, delay or prevent a change of control or changes in our management that shareholders may consider favourable. Such provisions include authorizing the issuance by our board of directors of preferred stock in series, providing for a classified board of directors with staggered, three-year terms, and limiting the persons who may call special meetings of shareholders. In addition, the Investment Canada Act imposes certain limitations on the rights of non-Canadians to acquire our common shares, although it is highly unlikely that these will apply. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

Fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition.

Fluctuations in interest rates may affect the fair value of our financial instruments sensitive to interest rates. An increase in market interest rates may decrease the fair value of our fixed interest rate financial instrument assets and a decrease in market interest rates may increase the fair value of our fixed interest rate financial instrument liabilities, thereby resulting in a reduction in the fair value of our equity. See “Item 11 — Quantitative and Qualitative Disclosures About Market Risk” in this annual report on Form 20-F for additional information with respect to our exposure to interest rate risk.

Similarly, fluctuations in foreign currency exchange rates may affect the fair value of our financial instruments sensitive to foreign currency exchange rates. Our reporting currency is the United States dollar. A depreciation of other currencies against the United States dollar will decrease the fair value of our financial instrument assets denominated in such currencies and an appreciation of other currencies against the United States dollar will increase the fair value of our financial instrument liabilities denominated in such currencies, thereby resulting in a reduction in our equity. See “Item 11 — Quantitative and Qualitative Disclosures About Market Risk” in this annual report on Form 20-F for additional information with respect to our exposure to foreign currency exchange rate risk.


ITEM 4	*Information on the Company*


A.	History and Development of the Company

We are a corporation organized under the laws of the Province of British Columbia, Canada. We were originally incorporated in June, 1951 by letters patent issued pursuant to the Companies Act of 1934 (Canada). We were continued under the Canada Business Corporations Act in March, 1980, under the Business Corporations Act (Yukon) in August, 1996, and under the Business Corporations Act (British Columbia) in November, 2004. Our name was changed from “MFC Bancorp Ltd.” to “KHD Humboldt Wedag International Ltd.” on October 28, 2005. Our registered office is located at Suite 800 — 885 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3H1 and our principal office is located at Suite 1620 — 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6. The telephone number for our principal office is 604.683.8286.

For a description of our significant dispositions, see “Item 4 — Business Overview — Discontinued Operations — Disposition of Financial Services Operations” and “Item 4 — Business Overview — Discontinued Operations — Real Estate and Other Interests”.


B.	Business Overview

During our year ended December 31, 2009, we operated in two reportable segments consisting of (i) an industrial plant technology, equipment and service business and (ii) our indirect royalty interest in the Wabush iron ore mine. The segments are managed separately because each requires different management skills. The industrial plant technology, equipment and service segment is our active core business, requiring a variety of production and marketing strategies. Our royalty interest in the Wabush iron ore mine requires diligent monitoring to assure the royalties we receive are correct and our interests are protected.

During fiscal year 2009, we primarily focused on the industrial plant technology, equipment and service business for the cement and mining industries. In the fourth quarter of 2009, we divested our interest in our coal and minerals customer group, exclusive of its roller press technologies and capabilities utilized for mining applications, such that our industrial plant technology, equipment and service business became focused on the cement industry.

However, in late 2009, our board of directors considered whether, given developments in the fourth quarter of 2009 with respect to the operation of the Wabush iron ore mine (as described below under the heading “Description of our Mineral Royalty Segment”), the separation of our industrial plant technology, equipment and service business and our mineral royalty business into two separate publicly traded companies would be beneficial to our shareholders. The board considered the feasibility, benefits and considerations of dividing our company along such lines, including implications for our shareholders, potential market reaction, and the financial viability of each entity after giving effect to such a transaction. Upon considering such factors, our board subsequently determined that such a separation would be beneficial to our shareholders.

As a result, on February 26, 2010, we entered into an arrangement agreement with our subsidiary, KHD Humboldt Wedag International AG (“KID”). Through a series of transactions to be undertaken prior to the closing of the arrangement agreement, including the transfer of several of our subsidiaries to KID or one of its subsidiaries, KID will hold all of our industrial plant technology, equipment and service business. Subject to receipt of the approval of shareholders, all necessary court approvals, and the satisfaction or waiver of all other conditions

to the closing of the arrangement agreement, we will distribute to our shareholders, as a first tranche, approximately 26% of the issued shares of KID (the “Arrangement”). Each of our shareholders, other than shareholders who are also subsidiaries of our company, will be entitled to receive two KID shares for each seven of our common shares held. The Arrangement will be the first step towards the division of our company into two independent publicly traded companies, with KID to be focused on the industrial plant technology, equipment and service business, and our company to be focused on the mineral royalty business. In the event that all necessary approvals are received, upon completion of the Arrangement, we will change our name to “Terra Nova Royalty Corporation” to better reflect our focus on the mineral royalty business.

Upon completion of the Arrangement, we will continue to hold approximately 72% of the shares of KID. In connection with the Arrangement, we propose to enter into a shareholders agreement with another shareholder of KID whereby we will engage such shareholder to independently direct the voting of the KID shares that we continue to hold after completion of the Arrangement. Subject to satisfying all necessary requirements and taking the other steps necessary to no longer control KID from an accounting perspective, the entering into of the shareholders agreement may assist us with the objective of deconsolidating the assets and liabilities of KID prior to the time that it is efficient, from a tax perspective, for us to distribute the remainder of the KID shares to our shareholders. A deconsolidated financial presentation will more accurately reflect the ultimate objective of the Arrangement on a going forward basis, as KID would be deconsolidated from our company in its entirety. As the Arrangement only contemplates the first tranche of a distribution of the KID shares, if we take the steps necessary to no longer control KID from an accounting perspective, our resulting accounting presentation on a deconsolidated basis will enable shareholders to achieve a more accurate view of our company.

We will be seeking the approval of our shareholders for the Arrangement and related matters at a special meeting of the shareholders to be held on March 29, 2010. If the Arrangement is approved, we expect that the distribution of the KID Shares will take place on or about March 30, 2010. For a full description of the terms of the Arrangement, please see our Management Information Circular dated March 1, 2010, that was filed on SEDAR, at www.sedar.com, and on EDGAR, at www.sec.gov, on March 3, 2010.

Description of our Mineral Royalty Interest Segment

We participate in a royalty interest which consists of a mining sub-lease of the lands upon which the Wabush iron ore mine is situated, which sub-lease commenced in 1956 and expires in 2055. Royalties are passive (non-operating) interests in mining projects that provide the right to revenue or production from the project after deducting specified costs, if any. The Wabush mine operation includes the Scully iron ore mine near Wabush in the Province of Newfoundland and Labrador, a pellet plant and port facilities at Point Noire, Quebec and integrated rail facilities. The lessor of the land is Knoll Lake Minerals Ltd., which holds a mining lease from the Province of Newfoundland and Labrador. The lease requires the payment of royalties to Knoll Lake Minerals of Cdn$0.22 per ton on shipments of iron ore from the Wabush iron ore mine. Iron ore is shipped from the Wabush iron ore mine to Pointe Noire, Quebec, Canada, where it is pelletized. In 2009, 2008 and 2007, 3.2 million, 3.9 million and 4.8 million tons of pellets of iron ore, respectively, were shipped from the Wabush iron ore mine.

The Wabush iron ore mine was historically operated by an unincorporated joint venture consisting of Dofasco Inc. (now ArcelorMittal Canada), U.S. Steel Canada Inc., and Cliffs Natural Resources, Inc. (“Cliffs”), which paid royalties to the holder of the royalty interest based upon the amount of iron ore shipped from the Wabush iron ore mine. Pursuant to the terms of the mining sub-lease, this royalty payment is not to be less than Cdn$3.25 million per annum until the expiry of the mining sub-lease in 2055. In 1987, the royalty rate specified in the base price was amended to require a base royalty rate of Cdn$1.685 per ton, with escalations as defined by agreement.

On October 12, 2009, Cliffs announced that it planned to exercise its right of first refusal to acquire the interests of ArcelorMittal and U.S. Steel Canada Inc. in the joint venture. On February 1, 2010, Cliffs announced that it had completed the acquisition of its former partners’ interests in the Wabush joint venture for approximately $88 million. With the closing of the acquisition, Cliffs now owns 100% of the operation that it has managed since 1965. Our participation in the royalty interest is not expected to be affected as a result of the change in ownership of the mine.

Iron ore is typically sold either as a concentrate, where the iron ore is in granular form, or as a pellet, where iron ore concentrate has been mixed with a binding agent, formed into a pellet and then fired in a furnace. Iron ore pellets can be charged directly into blast furnaces without further processing and are primarily used to produce pig iron which is subsequently transformed into steel. As such, the demand, and consequently the pricing, of iron ore is dependent upon the raw material requirements of integrated steel producers. Demand for blast furnace steel is, in turn, cyclical in nature and is influenced by, among other things, the level of general economic activity.

Although no assurance as to future production levels can be provided, since the operator of the Wabush iron ore mine is now the sole owner of the Wabush iron ore mine, production from the mine is expected to be maintained at relatively consistent levels.

In December, 2005, we commenced a lawsuit against Wabush Iron Co. Limited, Dofasco Inc., Stelco Inc. and Cliffs, claiming that such parties breached their contractual and fiduciary duties by inaccurately reporting and substantially underpaying the royalties properly due under the lease. We are also claiming reimbursement for the substantial costs that we have incurred in connection with our investigation into such matters. The parties proceeded to arbitration in connection with the outstanding issues related to the substantial underpayment of royalties. The arbitration hearing concluded in early August, 2009 and we anticipate a decision from the arbitration panel in the near future.

We currently hold the indirect royalty interest in the Wabush iron ore mine through our ownership of preferred shares of 0764509 B.C. Ltd. Prior to October, 2006, we held the indirect royalty interest through our ownership of preferred shares of Cade Struktur Corporation. On October 27, 2006, Cade Struktur completed the transactions contemplated by a purchase and sale agreement entered into with 0764509 B.C. Ltd. and another party. Cade Struktur sold to 0764509 B.C. Ltd. all of its beneficial interest in connection with the Wabush iron ore mine, including certain mining leases, the royalty interest payable by Wabush Iron Ore Co. Limited, the equity interest in Knoll Lake Minerals Ltd. and certain amounts that may become payable in connection with the lawsuit brought for underpayment of royalties in connection with past and future shipments from the Wabush mine, for an aggregate purchase price of Cdn$59.8 million. 0764509 B.C. Ltd. paid the purchase price by allotting and issuing 2,023,566 common shares, 59,800 cumulative, retractable non-voting Series A preferred shares and one cumulative, retractable non-voting Series B preferred share. The Series A preferred shares pay an annual dividend at a dividend rate on the redemption amount of the Series A preferred shares, which is adjusted annually based on the aggregate annual net royalties received by 0764509 B.C. Ltd. This dividend was 18.5% in 2009, 34% in 2008 and 21% in 2007. The Series A preferred shares are retractable by the holder at the initial issue price of Cdn$1,000 per share. The Series B preferred shares carry an annual dividend of 6% and are retractable by the holder at the then current redemption price, which is initially set at one dollar and will be increased by the amount of any award that becomes payable in connection with the arbitration proceedings discussed above. In addition, 0764509 B.C. Ltd. granted to Cade Struktur a licence to market and sell certain blood pressure intellectual property in China, India, Russia and Korea. On September 11, 2006, we entered into an arrangement agreement with Cade Struktur pursuant to which, effective October 23, 2006, we acquired all of the issued and outstanding common shares of Cade Struktur in connection with the amalgamation of Cade Struktur and 39858 Yukon Inc. The amalgamated company, known as Cade Struktur Corporation, became a wholly-owned subsidiary. We consolidated 0764509 B.C. Ltd. as a variable interest entity and Cade Struktur as its primary beneficiary. Effective December 28, 2006, we amalgamated with Cade Struktur, with our company as the continuing corporation. As a result, we continue to indirectly participate in the royalty interest in the Wabush iron ore mine.

In the event that the proposed Arrangement is approved and completed, we intend to primarily focus on our mineral royalty business and the acquisition and management of mineral royalties. We expect to engage in a continual review of opportunities to acquire existing royalties, to create new royalties through the financing of mining projects or to acquire companies that hold royalties. We may use both cash and common stock in such acquisitions and may issue substantial additional amounts of common stock as consideration for acquisitions in the future. There can be no assurance that we will be successful in acquiring any mineral royalties in addition to our royalty interest in the Wabush iron ore mine.

Description of our Industrial Plant Technology, Equipment and Service Segment

During 2009, we were primarily engaged in the industrial plant technology, equipment and service business. As a result, this annual report for the fiscal year ended December 31, 2009 is focused on that business segment. However, if the Arrangement is approved by shareholders and completed, our current industrial plant technology, equipment and service business will become the business of KID and we will concentrate primarily on the mineral royalty business. If the Arrangement is completed, our industrial plant technology, equipment and service business will be accounted for as discontinued operations.

We are a leader in supplying technologies, engineering and equipment for cement processing. Our major customer group is businesses in the cement industry. We supply plant systems as well as machinery and equipment worldwide for the manufacture of cement, whether for new plants, redevelopments of existing plants or capacity increases for existing plants. We design and provide equipment that produces clinker and cement and offer basic engineering, detail engineering, plant and equipment for complete plants and plant sections. We have operations in India, Europe, China, Russia, Australia and the United States.

The following is a summary of the revenues we have derived from providing industrial plant technology, equipment and services to the cement, coal and mineral industries, by geographic region of project locations, for the three most recently completed fiscal years:


	2009		2008		2007
	(United States dollars in thousands)

Africa	$	6,532	$	7,596	$	21,393
Americas		22,297		60,556		118,417
Asia		149,267		145,636		196,348
Russia & Eastern Europe		224,885		213,708		83,592
Europe		39,983		57,577		35,502
Middle East		132,018		150,856		123,283
Australia		1,426		2,425		1,856

Total	$	576,408	$	638,354	$	580,391

Business Activities — Cement

We focus on our core strengths of designing, engineering, manufacturing, erection and commissioning of cement plants worldwide. Except for certain specialty machines, we either purchase equipment locally or outsource equipment fabrication to our specifications at facilities in a project’s host country, under terms similar or more stringent than those imposed by our customers.

The primary role of our industrial plant technology, equipment and service business segment is the supply of equipment to customers. The scope of our activities ranges from the examination and analysis of deposits, scale-up tests in our own test centers, technical consulting, design and engineering for plants that produce clinker and cement, plant and equipment for complete plants and plant sections including modernization and capacity increase measures, as well as automation and process control equipment, project planning, raw material testing, research and development, erection and commissioning, personnel training and pre and post sales service. Specific services that we provide include plant design (i.e. arrangement and layout), equipment design and development, engineering services (i.e. process, electrical and mechanical), automation services and project management. We supervise the erection and perform the commissioning of our equipment and train customer personnel on site. The manufacturing of products is outsourced (according to our specifications) to lower cost platforms and, to this end, project host countries.

We provide these services with respect to new cement plants and also assist with the upgrading of existing plants. In certain instances, services are provided against irrevocable letters of credit with prepayment and subsequent payment milestones. We provide these services either directly to the owner, as a member of a team for the provision of a full equipment line that includes equipment specialists in the complementary fields of materials transport, blending, storage and packing, or as part of an overall turn-key team which includes members specializing in civil design and construction management. We strive to be the leading supplier of innovative, environmentally compliant and energy efficient technologies focused on reduced operating and maintenance costs.

Our product range is focused on grinding and pyro-process technologies. The grinding technologies can be utilized in raw material, clinker and finished cement grinding, while the pyro-process equipment includes pre-heaters, kilns, burners and clinker coolers. We have also developed a range of systems automation products, including process control systems and equipment optimization products.

Business Activities — Coal and Minerals

Early in the fourth quarter of 2009, we divested our interest in our coal and minerals customer group, exclusive of its roller press technologies and capabilities utilized for mining applications. As a result, the cement industry is now the primary customer group of our industrial plant technology, equipment and service segment. However, we anticipate that we will continue to market our roller press technologies and capabilities to other industries, including the mineral processing industry. Our roller press is a proprietary technology which was initially developed for our cement customer group but has since been successfully used in mineral processing applications. For more information on the divestment of our interest in our coal and minerals customer group, see “Item 5 — Operating Results — Divestment of Coal and Minerals Customer Group and Workshop in Cologne”.

Recent Developments

See “Item 5 — Operating Results — Restructuring Activity”, “Item 5 — Operating Results — Settlement of Preferred Shares of Mass Financial and its Former Subsidiary” and “Item 5 — Operating Results — Divestment of Coal and Minerals Customer Group and Workshop in Cologne”.

Global Risk Control

In 2005, we developed a new, modern, formal and extensive global risk management program. This program included a comprehensive set of procedures designed to assure the technical, commercial and country risks associated with each of our projects are adequately addressed in the pricing, engineering and negotiations of commercial terms. New procedures were developed and formalized with the assistance of external consultants. In 2008, we initiated an extensive review of our risk management procedures and set the framework for a comprehensive enterprise risk management program.

Joint Ventures with Partners in Russia

In prior periods, we disclosed an intention to form partnerships and/or joint ventures with entities in Russia and the Commonwealth of Independent States to build, own and operate cement plants and, to this end, had formed a design/build/operate division. As a result of the economic slowdown in 2008 and 2009, and the related credit crisis, our potential partners and/or joint venturers decided to delay, and may subsequently decide to cancel, their plans for these projects.

Research and Development

Focused on the industrial plant technology, equipment and service sector, our research and development is orientated to our clients’ requirements. Research is performed by a team of specialized engineers in various disciplines, supported by testing and analysis facilities with wide-ranging capabilities which are organized through the application of efficient project-management. Our research and development activities are focused on producing environmentally friendly, sustainable products, which are energy efficient and technically and economically optimized for the cement process, including crushing, grinding and pyro-processing equipment. Our research and development team works in areas such as product management, product and process development, and in the test laboratory. Also included in this group is our process engineering group, which supports our global sales effort.

Recent research activities include further development of clinker coolers, compact mills and waste fuel combustion chambers. Other current proprietary research activities are addressing grinding surface materials and designs, expert systems, burners and standardization of plant equipment to create packaged, complete solutions for grinding and pyro-processing applications.

The research and development program also focuses on technological options to reduce carbon dioxide (CO₂) emissions and other gaseous and solid emissions resulting from the cement production process. These accrue mainly from gaseous CO₂ and other emissions, as exhaust gas from contributions of the consumption of electrical energy, use of primary fuels and the calcining process of cement manufacturing.

The approach to reduce gaseous CO₂ emissions from industrial combustion processes focuses on new means to utilize waste and, specifically, biomass-derived fuels. New processes to capture gaseous CO₂ from flue gases are being investigated and will eventually be developed.

The approach to reduce the consumption of electrical energy focuses on the application of high pressure comminution technologies as a substitute for the relatively inefficient conventional crushing and grinding processes presently used in the cement and mining industries.

Other technologies are developed and incorporated to minimize the gaseous and solid emissions from cement plants. Among others, such emissions include nitrogen oxide (NOx), sulfur dioxide (SOx), carbon monoxide (CO) and particulate. We continue to develop products and processes required to meet the strict governmental environmental standards throughout the world.

Additionally, new technologies are controlled by efficiency-boosting automation concepts, which we aim to develop. As a result of our past research and development activities, we applied for 27 patent families in the past three years.

New Order Intake and Order Backlog

New order intake is defined as the total of all orders which are received during the respective period, excluding cancelled contracts, while order backlog is defined as the amount of orders received but not yet fulfilled. For easy comparison on the trend without the foreign exchange effect, € amounts in this section related to order backlog have been translated into U.S.$ at 1.4333, being the exchange rate at December 31, 2009. € amounts in this section related to new order intake have been translated into U.S.$ at 1.3883, being the yearly average exchange rate for 2009.

Our new order intake and order backlog have been impacted by the weakening of the global economy and the effect of the global recession on our customers’ capital expenditure programs. Faced with the prospect of lower commodity prices and the risk of surplus capacity, many plans to expand capacity have been put on hold.

Our new order intake for the year ended December 31, 2009 decreased 55.5% from the year ended December 31, 2008. New order intake for the year 2009 was $321.9 million compared to $722.7 million for the fiscal year 2008. Our annual report on Form 20-F for the year ended December 31, 2008 indicated that order intake for that year was $622.5 million, which excluded contracts amounting to $100.2 million that were cancelled during the year. The geographic breakdown of new order intake for the year ended December 31, 2009 consists of 8.5% from the Middle East, 52.8% from Asia, 22.1% from Russia and Eastern Europe and the balance primarily from Europe and the Americas.

During the fourth quarter of 2008, we received requests from a limited number of customers to modify the terms of existing contracts. These included requests for the extension of credit terms, delays, or cancellation of contracts. In addition, one of our customers went into voluntary liquidation. During the fourth quarter of 2008, contracts having a total value of $100.2 million were officially cancelled by customers defaulting on their contracts, and were removed from our order backlog as at December 31, 2008. We also determined that certain revenue contracts included in the remaining order backlog were at risk, meaning we were uncertain as to whether such contracts would be completed, as at December 31, 2008. These at risk contracts amounted to $159.2 million at December 31, 2008. We raised aggregate provisions of $23.7 million with respect to such contracts that were in progress as at December 31, 2008.

Throughout 2009, we continually reviewed the contracts classified as at risk as at December 31, 2008, systematically reclassifying contracts as cancelled, or contracts that we deemed would continue. If we determined a contract should be cancelled, order backlog with respect to such contract was adjusted downwards. As a result of our continued analysis, terminated customer contracts totalling $110.2 million were officially cancelled and removed from the order backlog as at December 31, 2009. We determined that no contracts remaining in our order backlog as at December 31, 2009 were at risk due to customer requests for cancellation or material contract changes.

The order backlog at the end of fiscal year 2009 amounted to $437.0 million, compared to $842.8 million at the end of fiscal year 2008. The decrease in order backlog in 2009 was primarily a result of the general economic slowdown in 2009, the removal from the order backlog of cancelled contracts amounting to $110.2 million that were previously classified as at risk as at December 31, 2008, and the removal from the order backlog of contracts totalling $68.0 million as a result of the sale of our coal and minerals business. The geographic breakdown of order backlog at year end was 47.8% in Russia and Eastern Europe, 17.5% in the Middle East and 27.5% in Asia.

In the fourth quarter of 2009, we successfully entered into new contracts with one of our major customers whose contracts we had previously classified as terminated. Because the conditions necessary for such contracts to be included in new order intake were only met in January, 2010, $54.3 million has been added to the new order intake and order backlog in 2010. For a further discussion of developments with respect to terminated customer contracts in 2009, see “Item 5 — Operating and Financial Review and Prospects — Review of Terminated Customer Contracts”.

Existing Market Conditions

The international market for our equipment and services is effectively linked to demand for cement and the investment plans of cement producers. The significant volume declines that cement producers have experienced in many regions of the world since 2009, particularly in more mature markets such as the United States of America and parts of western Europe, have now started to stabilize and, in some cases, have begun to improve from previously lower levels. However, some regions, most notably India where cement demand remained strong, were less affected by the global economic slowdown in 2009. Major cement producers have also started the process of repairing their balance sheets and some have conducted successful equity raises in recent months. This means that there may be less focus on reducing capital expenditures and fixed costs going forward than there was in 2009, although many major cement producers expect difficult market conditions to continue in 2010.

Overall, this may indicate that we may see gradual improvement in market conditions. While our customers generally remain cautious with respect to capital expenditure plans, there appears to be increased confidence in the industry in recent months. We continue to have good levels of inquiries from emerging regions, such as India, North Africa and the Middle East, and expect an improvement in new order intake in 2010 and 2011, as compared to 2009. However, we do not expect the buoyant market conditions that existed up until the last quarter of 2008 to revive in the short to medium term.

Competition

There are major competitors in the industrial plant technology, equipment and service business. Those competitors include: FLSmidth & Co. A/S, Polysius AG, Sinoma International Engineering Company Ltd., Claudius Peters Group GmbH, Loesche GmbH and Gebrüder Pfeiffer AG. All of these companies are international companies with significant resources, capital and access to information.

Our competitors in the cement industry can be segmented into two different types of companies:


	•	full equipment line suppliers which are companies providing either a similar, or even broader, range of equipment services to the cement industry; and

	•	part line competitors which are companies focusing on a smaller range of equipment and technologies.

The market for cement equipment has three globally active, full equipment line suppliers. These are FLSmidth & Co. A/S, Polysius AG and Sinoma International Engineering Company Ltd. These companies are also able to offer turn-key solutions independently. Our company, by comparison, in providing turn-key solutions, has to cooperate with reputed technology and civil construction partners who can provide the required construction and equipment that is ancillary to our proprietary equipment.

With respect to single machinery equipment for the cement industry, we compete with part-line suppliers, such as Claudius Peters Group GmbH and IKN GmbH, which focus on clinker cooling, and Loesche GmbH and Gebrüder Pfeiffer AG, which focus on raw and finished materials grinding.

We conducted our business in 2009 in a global environment that was highly competitive and unpredictable. For more information, see “Item 3 — Key Information — Risk Factors”.

Sales and Distribution Channels

While we provide services throughout the world through our subsidiaries and representative offices, our sales and marketing efforts are developed and coordinated by our sales and marketing team. In general, decisions by clients to increase production capacities, either through the addition of new lines or through the expansion of existing facilities, are the result of an extensive formal planning process. Consequently, any opportunity is usually well known and anticipated by our company and our competitors. However, opportunities in the after-sales markets are identified by diligent and constant interaction with operating plant managers. As our sales efforts are technical in nature, most of our sales force consists of trained and experienced engineers.

Our sales organization comprises a central structure based in Cologne, Germany, as well as regional organizations in four customer service centres. The sales organization is managed by a head of sales and services, based in Cologne, who reports to the management board. The sales team in Cologne is responsible for providing the strategic direction for sales and marketing as well as global tendering for projects. The purpose of our customer service centres is so that we have locations close to our respective customer bases in order to provide local input necessary to win projects and supply contracts and to maintain positive client relationships after a project is completed.

Our sales organization is structured both regionally and by customer. Sales employees are allocated to a particular region, such as the Americas, Asia Pacific, India, or Russia and the Commonwealth of Independent States, or, as key account managers, are responsible for certain customers. We also utilize sales agents to access markets where we do not have a customer service centre nearby. These agents are paid on a commission basis. Our sales and after-sales department was comprised of more than 50 professionals as at December 31, 2009.

Our sales organization can be divided into two distinct parts: sales and tendering. The sales division is responsible for the initial identification of opportunities and such opportunities are then given to the tendering team, which is responsible for deciding whether or not to proceed with such opportunity.

Proper preparation of a proposal is a major effort, and in the case of a new plant, can represent an investment in excess of $1 million. The customer usually starts by providing a sample of the raw material to be processed, as well as specifications for production capacity, energy requirements, emission limits, product quality, etc. We must then

analyze the sample in our test center, complete preliminary engineering to a sufficient extent to enable the sizing of the major components, prepare arrangement plans, and, in the case of expansions, develop connection details and shutdown requirements. Consequently, the decision to bid is strategic and must be made considering other opportunities available at the time, commitment load by geographic region, country risk, history with the customer (e.g. have they purchased our or competitor’s lines in the past), bonding capacities and the availability of financing. Before a bid is offered to a customer, the key account manager must present it to an executive committee for authorization.

Patents and Licenses

We supply technology, equipment and engineering/design services for the cement, and mining industries, although our dealings with customers in the mining sector are limited to the provision of roller press applications. On an international level, we offer clients engineering services, machinery, plant and processes as well as process automation, installation, commissioning, staff training and after-sales services. In the course of our business, we have, and will continue to develop, intellectual property which is and will be protected using the international patent registering processes. We license our intellectual property and other rights to use certain parts of our technology to our subsidiaries, suppliers and clients. In total, our patent portfolio comprises approximately 94 patent families, consisting of approximately 367 patents or corresponding applications registered internationally. Approximately 147 patent applications are currently pending. We also hold approximately 325 trademarks.

Discontinued Operations

Disposition of Financial Services Operations

In December, 2005, our board of directors passed a resolution to distribute the majority of our financial services business to our shareholders. Our board of directors determined that the separation of our financial services business from our industrial plant technology, equipment and service business would enhance the success of both businesses and maximize shareholder value over the long term by enabling each company to pursue its own focused strategy and enable investors to evaluate the financial performance, strategies and other characteristics of each business in comparison to other companies within their respective industries. In connection with the distribution, we ensured that we preserved our entitlement to Mass Financial Corp.’s exempt surplus earned in respect of our company and that inter-corporate indebtedness between our company and Mass Financial was eliminated in a tax-efficient basis. Pursuant to this resolution, we entered into a restructuring agreement, a share exchange agreement, an amending agreement, a loan agreement, a pledge agreement, a set-off agreement and a letter agreement with Mass Financial. At the time of the share exchange, our carrying amount of our investment in the Mass Financial group was $191.3 million (Cdn$218.8 million) (including a currency translation adjustments loss of $22.7 million). Our equity interest in Mass Financial was exchanged for preferred shares of Mass Financial and one of its former subsidiaries with an exchange value of $168.6 million (Cdn$192.9 million). The share exchange was accounted for as a related party transaction and, accordingly, the difference of $22.7 million between the carrying amount of assets surrendered and the exchange value of the preferred shares received was charged to retained earnings.

Upon the closing of the restructuring and share exchange agreements, Mass Financial held all the financial services business of our company, except for MFC Corporate Services AG and our royalty interest in the Wabush iron ore mine, and our company held all Class B preferred shares and Class A common shares in the capital of Mass Financial.

On January 31, 2006, we completed the distribution of the Class A common shares of Mass Financial to our shareholders by way of a stock dividend of a nominal amount. This resulted in our financial services business being held by Mass Financial as a separate company.

Included in the assets of Mass Financial on the distribution date were 3,142,256 of our common shares with a carrying amount of $9.3 million. In February, 2006, Cdn$65.0 million of the preferred shares of Mass Financial were redeemed and the payment was effected by setting off Cdn$65.0 million owing to Mass Financial by us under a set-off agreement. Upon completion of all agreements related to the restructuring and distribution, we owned Class B preferred shares of Mass Financial and preferred shares of MFC Bancorp Ltd. (a wholly-owned subsidiary of Mass Financial until December 2008) which had an aggregate carrying value of $109.7 million (Cdn$127.9 million).

December 31, 2011 and each year thereafter, the holder of Class B preferred shares was entitled to cause Mass Financial to redeem up to that number of Class B preferred shares which would have an aggregate redemption amount equal to but not exceeding 62/3% of the redemption amount of the Class B preferred shares then outstanding. In the event of liquidation, dissolution or winding up of Mass Financial, the holder of the Class B preferred shares was entitled to receive in preference and priority over the common shares and Class A common shares of Mass Financial, any amount equal to the Class B redemption amount plus any declared and unpaid dividends thereon. No class of shares could be created or issued ranking as to capital or dividend prior to or on parity with the Class B preferred shares without the prior approval of holder(s) of the Class B preferred shares.

Our investment in the preferred shares of Mass Financial and one of its subsidiaries was classified as available-for-sale securities.

Pursuant to a loan agreement and a pledge agreement, we had an inter-corporate indebtedness due to Mass Financial of Cdn$37.0 million as at December 31, 2006, as evidenced by a promissory note. The promissory note bore interest at 4.4367% per annum, with the first annual payment to be made on December 31, 2007. Beginning December 31, 2011 and each year thereafter, we were to repay a principal amount of Cdn$2.5 million each year, over a 15 year period. Under the pledge agreement, we deposited in pledge with Mass Financial the collateral (our investment in Class B preferred shares of Mass Financial) to be held for the benefit of Mass Financial as continuing security for the due payment of the promissory note.

Under a letter agreement, we and Mass Financial agreed that at any time we repaid to Mass Financial any portion of the principal amount of the promissory note, Mass Financial would redeem not less than Cdn$3.34784 Class B preferred shares for every Cdn$1 of the promissory note repaid either in cash or in kind. We also agreed that at any time Mass Financial redeemed or retracted its Class B preferred shares, we would repay to Mass Financial Cdn$0.2987 of the promissory note for every Cdn$1 of the Class B preferred shares redeemed. As a result of the offset, we had a net financial asset of Cdn$90.9 million in the Mass Financial group at both December 31, 2007 and 2006.

Following the distribution of Class A common shares of Mass Financial to our shareholders, Mass Financial agreed to provide certain management services in accordance with the terms of a services agreement entered into by our company and Mass Financial. Under that agreement, Mass Financial agreed to provide management services in connection with the investment in MFC Corporate Services in consideration for us paying Mass Financial 15% of the after tax profits of MFC Corporate Services and a right of first refusal. The right of first refusal granted Mass Financial an option whereby Mass Financial had the right to: (i) purchase MFC Corporate Services on the same terms as any bona fide offer from a third-party purchaser acceptable to us; or to (ii) assist in the sale, if ever, of MFC Corporate Services for an additional service fee of 5% of the purchase price. This agreement was terminated in November 2006 when we disposed of our equity position in MFC Corporate Services to the Mass Financial group. There were no fees paid to Mass Financial under this management services agreement.

Also under that agreement, Mass Financial agreed to provide management services to Cade Struktur (now 0764509 B.C. Ltd.) in connection with the review, supervision and monitoring of the royalty earned by Cade Struktur in connection with our interest in the Wabush iron ore mine. We agreed to pay 8% of the net royalty income (calculated as the royalty income net of any royalty expenses and mining and related taxes) that Cade Struktur (now 0764509 B.C. Ltd.) receives in connection with the royalty in consideration for the management services.

The services agreement provides that the agreement may be terminated at any time if agreed to in writing by both parties. We also have the right to terminate the services agreement at any time upon at least six months prior notice after which Mass Financial is entitled to receive compensation prorated to the end of the notice period.

Pursuant to the terms of the restructuring agreement, we and Mass Financial agreed that all current and outstanding guarantees issued by either of our companies would continue to be in force for a reasonable period of time following the consummation of the distribution of the Class A common shares of Mass Financial. Similarly, both parties agreed to issue guarantees when required for a reasonable period of time following consummation of the distribution. As at December 31, 2006, there was only one outstanding guarantee of $1.1 million which had been issued by us on behalf of a 27.8% equity method investee of Mass Financial and this guarantee expired in March, 2007. Since December 31, 2007, there have been no guarantees issued by our company on behalf of Mass Financial.

In November, 2006, we completed the disposition of our entire equity interest in MFC Corporate Services to a wholly-owned subsidiary of Mass Financial. The consideration was determined by reference to the carrying value of our investment in MFC Corporate Services as of September 30, 2006 of $68.2 million (Cdn$77.9 million) and comprised cash of Cdn$38.8 million (Cdn$31.1 million paid in November, 2006 and Cdn$7.7 million to be paid on or before the day which was the earlier of 30 calendar days after (i) the date on which the triggering event (as defined)

occurred and (ii) March 31, 2007), a short-term promissory note of Cdn$8.0 million due November, 2007 bearing interest at 5% per annum and 1,580,000 of our common shares valued at an initial share value of Cdn$31.1 million. The initial valuation of 1,580,000 of our common shares was subject to an adjustment which equalled to the positive balance, if any, between the initial share value and the market price on the payment date. At the time of the sale, our carrying amount of our investment in MFC Corporate Services was $67.8 million (Cdn$77.3 million). The sale was accounted for as a related party transaction. Accordingly, the difference of $0.5 million between the carrying amount of assets surrendered and the exchange value of the assets received and related income taxes of $1.7 million were charged to retained earnings. The wholly-owned subsidiary of Mass Financial had a put option to sell 9.9% common shares of MFC Corporate Services to us on the payment date.

We agreed with Mass Financial that April 30, 2007 was the payment date and the market price of our common shares was $23.815 per share on the payment date. Accordingly, an adjustment of $10.1 million (Cdn$10.9 million) was recorded as an adjustment to the price of the treasury shares acquired as part of this transaction. The wholly-owned subsidiary of Mass Financial also exercised a put option to sell 9.9% of the common shares of MFC Corporate Services to us for Cdn$8.0 million on the payment date.

In October, 2007, we sold the 9.9% equity interest in MFC Corporate Services at its book value of $8.2 million (Cdn$8.0 million) in exchange for 219,208 of our common shares and no gain or loss was recognized.

At the time of the disposition of MFC Corporate Services, MFC Corporate Services held an approximately 20% equity interest in a non-wholly-owned German subsidiary. It was the intention of both parties that the economic interest in the German subsidiary held by MFC Corporate Services be retained by us. To achieve this objective, we subscribed for shares of a subsidiary of Mass Financial that track the benefits from this 20% equity position in the German subsidiary. These shares entitle us to retain our commercial and economic interest in and benefits from this 20% equity position in the German subsidiary, net of related costs and taxes. The total consideration for the tracking stock subscription was $9.4 millions of which $8.5 million (which was our carrying value) was paid in November 2006 and $0.9 million was unpaid as of December 31, 2006 (but paid in February 2007). Under the tracking stock agreement, we are the beneficiary, the stock tracking company is the debtor and Mass Financial is the guarantor. Furthermore, we were granted by MFC Corporate Services the right to acquire common shares of the German subsidiary at fair market value and a right of first refusal in case of a potential sale or other disposal of common shares of the German subsidiary by MFC Corporate Services. The price payable by us will be offset against the tracking stock participation and therefore will be commercially netted to $nil except for related costs and taxes, if any. In 2007, MFC Corporate Services distributed its entire shareholding of the German subsidiary of our company to the wholly-owned subsidiary of Mass Financial (the immediate parent company of MFC Corporate Services) by way of dividend-in-kind. The tracking stock participation remains in force, however it will be wound up in the event that the Arrangement is approved.

In October, 2006, we received 35,000 common shares of Mass Financial in connection with the asset exchange transaction, of which 16,618 common shares were sold in 2006 with the remaining 18,382 common shares sold in January 2007.

Since January 31, 2006, there has been one common director between our company and Mass Financial, and he is also an officer of Mass Financial.

As at December 31, 2008, we owned all Series 2 Class B preferred shares and no common shares of Mass Financial. In connection with the preparation of our financial statements for the year ended December 31, 2008, we took steps to determine the fair value of the preferred shares of Mass Financial and one of its former subsidiaries. The preferred shares were classified as available-for-sale securities and quoted market prices were not available. Since quoted market prices were not available we determined the fair value of these preferred shares using a discounted cash flow model and considered the quoted market prices of securities with similar characteristics. Our determination of fair value considered various assumptions, including time value, yield curve and other relevant economic measures. As a result, we recognized a fair value loss of $55.1 million on our investment in the preferred shares of the former subsidiaries as at December 31, 2008.

On May 12, 2009, we entered into and completed a negotiated settlement with Mass Financial regarding the realization of the economic value of the preferred shares by way of redemption of the preferred shares by Mass Financial. As a result, we realized a subsequent $9.5 million loss. As of December 31, 2009, we held 1,203,627 common shares of Mass Financial as a result of the conversion by Mass of a promissory note received in connection with the negotiated settlement of the preferred shares. For more information, see “Item 5 — Operating Results — Settlement of Preferred Shares of Mass Financial and its Former Subsidiary”.

Real Estate and Other Interests

In March, 2007, and amended on June 29, 2007, we entered into an arrangement agreement with SWA Reit and Investments Ltd., a corporation governed by the laws of Barbados, contemplating an arrangement under Section 288 of the Business Corporations Act (British Columbia), whereby we agreed to transfer certain non-core real estate interests and other assets indirectly held by us to SWA Reit and then distribute all of the Austrian depositary certificates representing the common shares of SWA Reit held by us to our shareholders in exchange for a reduction of the paid up capital with respect to our common shares. September 25, 2007 was set as the record date for the distribution to our shareholders of the Austrian depository certificates representing the common shares of SWA Reit, at which time we effectively distributed, by way of reduction of capital, our ownership interest in SWA Reit. Since then, we no longer hold any real estate interests. On the distribution date, the fair value of the net assets of SWA Reit amounted to $56.3 million (Cdn$56.2 million), which also equalled their book value. The real estate interests and other assets transferred to SWA Reit were not complimentary to our industrial plant technology, equipment and service business. The distribution of Austrian depositary certificates did not significantly change the economic interests of our shareholders in the assets of our company.

For reporting purposes, the results of operations of SWA Reit have been presented as discontinued operations. For 2007, the revenues of $nil and the pre-tax loss of $1.0 million were reported in discontinued operations. There were no discontinued operations in 2009 or 2008. SWA Reit was dissolved in 2009.


C.	Organizational Structure

As at March 26, 2010, our significant wholly-owned direct and indirect subsidiaries are as follows:


Name of Wholly-Owned Subsidiary		Jurisdiction of Incorporation or Organization

KHD Holding AG		Switzerland
KHD Humboldt Wedag International Holding GmbH		Austria
KHD Humboldt Wedag International GmbH		Austria
Humboldt Wedag Inc.		Delaware
Humboldt Wedag India Private Ltd.		India
Humboldt Wedag Australia Pty Ltd.		Australia
KHD Investments Ltd.		Marshall Islands
New Image Investment Company Limited		Washington
Inverness Enterprises Ltd.		British Columbia
KHD Humboldt Wedag (Cyprus) Limited		Cyprus
MFC & KHD International Industries Limited		Samoa
KHD Humboldt Wedag (Shanghai) International Industries Limited		China
KHD Sales and Marketing Ltd.		Hong Kong
KHD Humboldt Wedag International, FZE		United Arab Emirates
EKOF Flotation GmbH		Germany
KHD Humboldt Wedag Machinery Equipment (Beijing) Co. Ltd.		China
Blake International Limited		British Virgin Islands

As at March 26, 2010, our significant non-wholly-owned subsidiaries are as follows:


	Jurisdiction of		Our
Name of	Incorporation or	Owner	Beneficial
Non-Wholly-Owned Subsidiary	Organization	of Interests	Shareholding

KHD Humboldt Wedag International AG	Germany	KHD Humboldt Wedag International Ltd.	98.2%⁽¹⁾

KHD Humboldt Wedag GmbH	Germany	KHD Humboldt Wedag International Ltd.	98.2%⁽¹⁾
KHD Humboldt Wedag Industrial Services AG	Germany	Blake International Limited	88%
Humboldt Wedag GmbH	Germany	KHD Humboldt Wedag International AG	98.2%
ZAB Zementanlagenbau GmbH Dessau	Germany	KHD Humboldt Wedag GmbH	98.2%
HIT Paper Trading GmbH	Austria	Blake International Limited	88%
Paper Space GmbH	Germany	Blake International Limited	88%


(1)		Held by our company and/or our subsidiaries.


D.	Property, Plant and Equipment

Office Space

Our principal office is located at Suite 1620 — 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6. We also maintain offices in Austria, India, Germany, the United States, Saudi Arabia, the United Arab Emirates, Australia and China.

Our principal business is the provision of industrial plant technology, equipment and services, with a primary focus on the design and engineering of equipment for cement plants around the world. The fabrication of much of this equipment generally takes place in the area as close to a project as possible, in order to generate domestic employment activity and minimize costs.

We believe that our existing facilities are adequate for our needs through the end of the year ending December 31, 2010. Should we require additional space at that time, or prior thereto, we believe that such space can be secured on commercially reasonable terms. We anticipate that we will cancel, transfer or downsize some of our existing leases as part of our restructuring efforts.

Royalty Interest — Wabush Iron Ore Mine

We participate in a royalty interest which consists of a mining sub-lease of the lands upon which the Wabush iron ore mine is situated. For a discussion of the royalty interest, see “Item 4 — Information on the Company — Business Overview — Description of our Mineral Royalty Interest Segment”.


ITEM 4A	*Unresolved Staff Comments*

None.


ITEM 5	*Operating and Financial Review and Prospects*

The following discussion and analysis of our financial condition and results of operations for the three years ended December 31, 2009 should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report. Our financial statements included in this annual report were prepared in accordance with Canadian GAAP. For a reconciliation of our audited consolidated financial statements included in this annual report to U.S. GAAP, see Note 33 to our audited consolidated financial statements included in this annual report.


A.	Operating Results

Our industrial plant technology, equipment and service business focuses on services for the cement and mining industries, although our dealings with customers in the mining sector are limited to the provision of roller press applications. We have operations in India, China, Russia, Germany, the Middle East, Australia and the United States. Revenue from the markets of Asia, the Middle East, the Americas, Russia and Eastern Europe represented approximately 25.9%, 22.9%, 3.9% and 39.0%, respectively, of our total revenues in 2009.

Overview

In our last interim report for the three and nine months ended September 30, 2009, we announced that the effects of the economic crisis on our business had slowed and appeared to be improving. During the fourth quarter of 2009, conditions continued to improve and we experienced some positive developments, particularly with respect to key contracts with certain of our major customers.

Since then, we have continued to assess how best to maximize value for our shareholders and position our company to capitalize on these improving market conditions. The result of this assessment was the decision by our board of directors, late in the fourth quarter of 2009, to propose a separation of our two business segments pursuant to the Arrangement, as described above under the heading “Item 4 — Information on the Company — Business Overview”.

During the year ended December 31, 2009, we implemented and almost completed our restructuring program. We now have a clear direction to ensure that our business segments are sustainable over the long term, whether in their current structure or divided into two separate companies. We have a significant net cash position which will enable us to take advantage of opportunities that emerge as the economy recovers and we intend to invest in the development of technology to differentiate ourselves from our competitors.

During the fourth quarter of 2009, we continued to see improvements in new order intake related to our cement business. In addition, as discussed below, contracts that we had previously determined to treat as terminated again became viable. While our customers generally remain cautious with respect to capital expenditure plans, there appears to be increased confidence in the industry in recent months. We continue to have good levels of inquiries from emerging regions, such as India, North Africa and the Middle East, and expect an improvement in new order intake in 2010 and 2011, as compared to 2009. However, we do not expect the buoyant market conditions that existed up until the last quarter of 2008 to revive in the short to medium term.

As you may recall, in our reports to shareholders during the 2009 fiscal year, we devoted substantial discussion to contracts we determined to be “at risk”. During the fourth quarter of 2008, we received requests from a limited number of customers to modify the terms of existing contracts. These included requests for the extension of credit terms, delays, or cancellation of contracts. In addition, one of our customers went into voluntary liquidation. During the fourth quarter of 2008, contracts having a total value of $100.2 million were officially cancelled by customers defaulting on their contracts, and were removed from our order backlog as at December 31, 2008.

As at December 31, 2008, we had classified $159.2 million of the contracts in our order backlog as “at risk”. We raised aggregate provisions of $23.7 million with respect to such contracts that were in progress as at December 31, 2008. The at risk contracts in our order backlog primarily fell into two categories: (i) projects where the clients were considering changes in the scope of such projects, and (ii) projects where clients required additional financing to continue to completion. Once classified as at risk contracts, we assessed the likelihood of whether such contracts would ultimately be terminated, considering whether it was likely that a customer would continue with a contract in the future or, alternatively, proceed with a different contract or the same contract on a smaller scale. If we determined that a customer was unlikely to proceed with a contract, such at risk contract was designated as a “terminated customer contract”. We then considered whether the customer was likely to pay the cancellation costs due under the contract.

Throughout 2009, we continually reviewed the contracts classified as at risk as at December 31, 2008, systematically reclassifying contracts as cancelled, or contracts that we deemed would continue. If we determined a contract should be cancelled, order backlog with respect to such contract was adjusted downwards. As a result of our continued analysis, terminated customer contracts, totalling $110.2 million, were officially cancelled and removed from the order backlog as at December 31, 2009. We determined that no contracts remaining in our order backlog as at December 31, 2009 were at risk due to customer requests for cancellation or material contract changes.

In the fourth quarter of 2009, we successfully entered into new contracts with one of our major customers whose contracts we had previously classified as terminated. Because the conditions necessary for such contracts to be included in new order intake were only met in January, 2010, $54.3 million has been added to the new order intake and order backlog in 2010. For further information on terminated customer contracts, please see below under the heading “Provisions for Terminated Customer Contracts”.

In 2009, we implemented the restructuring program we formulated in late 2008 to minimize costs, maximize profitability and preserve shareholder value through the period of severe economic slowdown. We evaluated our current structure and made determinations to ensure that we are in a position to capitalize on opportunities that become available as conditions improve.

In early October, 2009, we completed the previously announced sale of our coal and minerals customer group and our workshop in Cologne, Germany. The sale has allowed us to focus on our core competencies as well as to significantly reduce the fixed cost base of our business. In addition, it resulted in our previously estimated restructuring costs of $30.0 million being reduced by approximately $18.0 million. Although we have divested our coal and minerals customer group, we have retained our interest in our proprietary roller press technology, which had its genesis in the cement business but has many successful applications in the mineral processing industry and is a cornerstone of our industrial plant technology, equipment and service business. We also experienced an impact on our new order intake and backlog as a result of the divestment of the coal and minerals customer group. For more information, please see below under the headings “Restructuring Activity” and “Divestment of Coal and Minerals Customer Group and Cologne Workshop”.

In summary, although we anticipate challenging market conditions to persist as we continue through fiscal 2010 due to the fact that demand for new capacity is still limited and customers remain somewhat cautious about investing in new projects, economic conditions appear to be stabilizing at current levels. Our new order intake and order backlog have improved as a result of our entering into new contracts with major customers. In the event that the economic environment again declines or the economic downturn continues, we may experience a renewed reduction in the demand for our products and services. However, we are currently taking the necessary actions to preserve our cash balances and to enable our company to take a strong position as market conditions improve.

Provisions for Terminated Customer Contracts

Our typical business project involves three parties, being our company, the customer and the respective subcontractor(s) and supplier(s). Under our business model, we have contracts with our customers and contracts with the respective subcontractor(s) and/or supplier(s). If a customer defaults on a contract with us, we are still liable to the subcontractor(s) and/or supplier(s) as the result of our contract(s) with the subcontractor(s) and/or supplier(s). However, as our contracts with customers have cancellation clauses in place, in the event that we become liable to a subcontractor or supplier as a result of a customer defaulting on a contract with us, we have the right to pursue the defaulting customer for cancellation costs pursuant to the cancellation clauses.

In the event of the cancellation of a contract, we are typically contractually entitled to pursue the defaulting customer for some or all of: (a) compensation for the actual costs and expenses that we incur or are charged by subcontractor(s) or supplier(s) for work performed and purchase orders placed to the date of the cancellation of the contract; (b) any engineering costs directly attributable to the contract; (c) the costs for removing our equipment from the contract site and the return of equipment to us and/or the subcontractor(s) as well as the cost of the repatriation of our and/or the subcontractor(s) personnel; (d) a percentage of the total amount due under the contract to the extent that such amount has not already been paid to us in sums already invoiced; and (e) a percentage of the total cancellation costs as overhead.

During the fourth quarter of 2008, we received requests from a limited number of customers to modify the terms of existing contracts. These requests included the extension of credit terms, delays, or cancellation of the contracts. In addition, one of our customers went into voluntary liquidation. During the fourth quarter of 2008, contracts having a total value of $100.2 million were officially cancelled by customers defaulting on their contracts, and were removed from our order backlog as at December 31, 2008. We also determined that certain revenue contracts included in the remaining order backlog were at risk, meaning we were uncertain as to whether such contracts would be completed, as at December 31, 2008. These at risk contracts amounted to $159.2 million at December 31, 2008. We raised aggregate provisions of $23.7 million with respect to such contracts that were in progress as at December 31, 2008.

When contracts were classified as terminated, we updated our estimates of amounts recognized at December 31, 2008; recorded our purchase obligations to the contract’s suppliers at the full amount we were contractually committed to pay such suppliers; determined the amounts that we expected to recover from the sale of any inventory

related to such supplier contracts on the basis of the net realizable value of such inventory and recorded this amount as inventory in transit from suppliers; recorded a claim for the amount that we are owed by the customer as a result of not proceeding with the contracts, including cancellation costs due under the contract, less the amounts of any advance payments received; and created a provision for those amounts that we believe we are unlikely to collect from the customer.

Throughout 2009, we critically analyzed the contracts classified as at risk as at December 31, 2008 on an ongoing basis and continued negotiations with the respective customers, systematically reclassifying contracts as cancelled, or contracts that we deemed would continue. If we determined a contract should be cancelled, order backlog with respect to such contract was adjusted downwards. As a result of our continued analysis, terminated customer contracts, totalling $110.2 million, were officially cancelled and removed from the order backlog as at December 31, 2009. We determined that no contracts remaining in our order backlog as at December 31, 2009 were at risk due to customer requests for cancellation or material contract changes.

In the fourth quarter of 2009, we successfully entered into new contracts with one of our major customers whose contracts we had previously classified as terminated. As a result, we recorded a reduction in the provision in the fourth quarter of 2009. In the fourth quarter of 2009, we also reached an agreement with another of our major customers for full and final settlement of amounts outstanding on their cancelled contract. As a result of the foregoing events, we recorded a recovery of $17.8 million in our income statement in the year ended December 31, 2009.

The following is a summary of the changes in the provisions for supplier commitments for terminated customer contracts during the year ended December 31, 2009:


	(United States dollars in thousands)

Balance as at December 31, 2008	$	23,729

Additional costs recognized		8,641
Reductions through negotiations with suppliers and customers		(15,448	)

		(6,807	)
Reclassification to inventory reserve		1,518
Paid and payable		(5,953	)
Currency translation adjustments		456

Balance as at December 31, 2009	$	12,943

The following is a summary of the income statement effects recorded with respect to terminated customer contracts during the year ended December 31, 2009:


	(United States dollars in thousands)

(Reduction in) provisions
Additional costs recognized in 2009, net of reductions through negotiations with suppliers and customers	$	(6,807	)
Inventories (raw materials and finished goods), reversal of write-downs		(2,488	)
Inventories (contracts-in-progress), changes in percentage-of-completion estimates		(8,276	)
Customer receivables		(258	)

(Recovery of) loss on terminated customer contracts for the year ended December 31, 2009	$	(17,829	)

Restructuring Activity

In our annual report on Form 20-F for the year ended December 31, 2008, we announced that we had initiated a restructuring program, aligning capacities to changes in market demands, allocating resources depending on geographical needs and focusing on markets and equipment that will meet our objective of offering cost effective solutions to our customers. As part of the program we have undertaken several initiatives to transform the structural efficiency of our operations worldwide and to create a streamlined organization focused on operational excellence with the goal of establishing an integrated global team offering competitive products and services to both new and existing customers.

As part of our restructuring initiatives, we determined to merge our roller press technologies and capabilities in the minerals market with our cement roller business worldwide and to divest our coal and minerals customer group located in Germany, India, China, South Africa and Russia. We also contemplated the shutdown of our workshop, located in Cologne, Germany, that manufactures equipment for the cement and coal and minerals industries.

In our report on Form 6-K for the three-month period ended March 31, 2009, we stated that we expected the restructuring initiatives to cost approximately $30.0 million. Of this $30.0 million, approximately $17.9 million pertained to the contemplated closing of the Cologne workshop, comprised of: (i) approximately $3.1 million for contractual severance costs associated with workshop employees, (ii) approximately $4.0 million for asset and inventory impairments and other costs associated with the closure of the workshop, and (iii) approximately $10.8 million related to termination payments we expected to pay to employees of the workshop. The remaining $12.4 million was for estimated costs related to involuntary employment terminations, with the majority pertaining to severance payments for employees in our Cologne facilities other than the workshop.

Upon approval of our board of directors of the plan to close the Cologne workshop, we recorded $5.7 million in costs during the six months ended June 30, 2009. However, as a result of the sale of the Cologne workshop, as described below under the heading, “Divestment of Coal and Minerals Customer Group and Workshop in Cologne”, we reversed the provisions that had previously been set up for the workshop closure.

In September, 2009, we also reached an agreement with the German workers’ council as to the target level of reduction in the number of employees, the job classifications or functions, and the specifics of benefit arrangements, which enabled the employees to determine the type and amount of benefits they will receive when their employment is terminated. This agreement with the German workers’ council includes contractual severance and other benefits and as we are committed to a plan of termination, we recognized a charge totalling $9.0 million in 2009.

As a result of the foregoing factors, and an impairment charge of fixed assets of $0.2 million, we recognized restructuring costs of $9.2 million in the year ended December 31, 2009. We may incur additional restructuring charges in the future in connection with the completion of the transactions contemplated by the Arrangement. For a summary of the Arrangement, see “Item 4 — Information on the Company — Business Overview”.

The following is a summary of the changes in the provision for restructuring costs during the year ended December 31, 2009:


				Other Employee
				Restructuring
				Costs and
	Contractual			Contractual
	Severance			Severance Costs
	Costs			Associated with
	Associated			Workers’						Lease
	with the			Council						Termination			Currency
	Workshop			Agreement			Facility			and Other			Translation			Total
	Closure			(Non-Workshop)			Closure			Costs			Adjustment			Provision
				(United States dollars in thousands)

Provisions during the six months ended June 30, 2009	$	3,092		$	824		$	1,302		$	1,328		$	—		$	6,546
Currency translation adjustment during the six months ended June 30, 2009		—			—			—			—			502			502

Provisions as at July 1, 2009		3,092			824			1,302			1,328			502			7,048

Transactions during the quarter ended September 30, 2009:
Reversal resulting from the sale of the Cologne workshop		(3,092	)		—			(1,302	)		(1,328	)		—			(5,722	)
Incremental provision		—			9,785			—			—			—			9,785
Paid and payable		—			(489	)		—			—			—			(489	)
Currency translation adjustment		—			—			—			—			(218	)		(218	)

Provisions as at September 30, 2009		—			10,120			—			—			284			10,404

Transactions during the quarter ended December 31, 2009:
Reduction of severance benefits due to voluntary exit		—			(1,969	)		—			—			—			(1,969	)
Incremental provision		—			353			—			—			—			353
Paid and payable		—			(627	)		—			—			—			(627	)
Currency translation adjustment		—			9			—			—			(145	)		(136	)

Provisions as at December 31, 2009	$	—		$	7,886		$	—		$	—		$	139		$	8,025

Settlement of Preferred Shares of Mass Financial and its Former Subsidiary

Our previous investment in the preferred shares of Mass Financial and one of its former subsidiaries, that was offset by indebtedness owed to Mass Financial, was a legacy asset and was recorded at its estimated fair value of Cdn$23.42 million as at both March 31, 2009 and December 31, 2008. We recognized a fair value loss of $55.1 million on the preferred shares as at December 31, 2008 that we determined to be an other than temporary decline in value as, at that point, we expected to negotiate a settlement of the net position of our investment in the preferred shares.

The fair value of the preferred shares was based on certain significant assumptions, including: time value; yield curve; the issuing counterparty’s ability and/or intent to redeem; and that the preferred shares of Mass Financial and its former subsidiary would be retracted or redeemed in accordance with their terms. The preferred shares were classified as available-for-sale securities and quoted market prices were not available. As such, we were required to consider the lack of a liquid, active market in our determination of the fair value of the shares. The fact that there was no liquid, active market for the shares, there was a limited pool of potential buyers and quoted market prices were not available were of key importance in our determination of the fair value of the shares. We determined the fair value of the preferred shares using a discounted cash flow model and considering the quoted market prices of securities with similar characteristics in conjunction with the assumptions discussed above. At December 31, 2008, the primary assumption used in our discounted cash flow model was a discount rate of 30% based on observable current market transactions in instruments with similar characteristics, with modifications for market liquidity and the features of the preferred shares.

In our annual report on Form 20-F for fiscal year 2008, we discussed how, as part of the continued realignment of our business to focus on the expansion of our industrial plant technology, equipment and service business, we had entered into negotiations with Mass Financial in an effort to come to an agreement regarding the immediate

realization of the economic value of the preferred shares of Mass Financial and one of its former subsidiaries by way of redemption of these shares. For more information, please see “Item 5 — Operating Results — Fair Value Loss on Preferred Shares of Mass Financial and its Former Subsidiary” in our annual report on Form 20-F for the year ended December 31, 2008.

On May 12, 2009, we entered into and completed an agreement with Mass Financial for the settlement of the non-transferable preferred shares of Mass Financial and its former subsidiary for net consideration of Cdn$12.28 million, which represented the gross settlement amount of the preferred shares of Cdn$49.28 million offset by the indebtedness of Cdn$37.00 million owed to Mass Financial. The payment of the Cdn$12.28 million was settled as follows:


	(a)	Cdn$8.28 million being satisfied by Mass Financial agreeing to transfer 788,201 of our common shares to us. The number of shares to be delivered was calculated by dividing Cdn$8.28 million by the book value of our common shares as at December 31, 2008. 262,734 of our common shares, valued at Cdn$2.76 million, were delivered to us on May 12, 2009 and the remainder (having a value equivalent to Cdn$5.52 million) were to be delivered no later than July 20, 2009. In July 2009, Mass Financial did not deliver the remainder of the common shares and, as permitted under the terms of the agreement, made a cash payment of Cdn$5.52 million to us in lieu of delivery of the remainder of the common shares;


	(b)	Cdn$1.71 million being satisfied by way of cash payment by Mass Financial to our company on May 12, 2009;


	(c)	Cdn$1.75 million being satisfied by way of issuance to our company of an assignable promissory note having a principal amount of Cdn$1.75 million, a term of 24 months and an interest rate of 4% per annum payable annually in cash. The note is repayable at the option of the issuer by the issuance of common shares of Mass Financial based on the number of common shares of Mass Financial equalling the amount being repaid divided by the 30-day volume weighted average trading price for the Mass Financial common shares. The promissory note can be repaid or be redeemed at any time in cash at the option of the issuer; and


	(d)	Cdn$539,697 being satisfied by setting-off of accrued and unpaid interest on our indebtedness to Mass Financial pursuant to a loan agreement with Mass Financial dated January 31, 2006.

Mass Financial also settled Cdn$11.35 million in respect of accrued dividends on the preferred shares of Mass Financial by way of the issuance of a promissory note, having a principal amount of Cdn$11.35 million, a term of 24 months, and an interest rate of 4% per annum payable annually in cash. The note was repayable at the option of Mass Financial by the issuance of common shares of Mass Financial, based on the number of common shares of Mass Financial equalling the amount being repaid divided by the 30-day volume weighted average trading price for the Mass Financial common shares. On December 31, 2009, Mass Financial exercised the conversion option of this promissory note and repaid the note by issuing and delivering 1,203,627 common shares of Mass Financial (constituting approximately 5% of the outstanding shares of common stock of Mass Financial) to us. Mass Financial also paid the accrued interest on the promissory note in cash on the same date.

As a result of the negotiated settlement of the preferred shares, we recognized a loss of $9.5 million (Cdn$11.1 million) in the second quarter of 2009. In our report on Form 6-K for the six-month period ended June 30, 2009, we determined that there was no change in the fair value of the shares between December 31, 2008 and the settlement date. We came to this conclusion after determining that there was no significant change in market conditions for similar securities between December 31, 2008 and the settlement date.

The settlement of the preferred shares allowed us to meet our objective of liquidating or realizing on the economic value of the preferred shares, which, due to the limited market for the preferred shares, we might not otherwise be able to do. This was one of the primary reasons why we agreed to settle the preferred shares at an amount less than their fair value. In addition, we considered a variety of entity-specific factors, including material tax consequences, the importance of maximizing cash holdings given the current economic situation, the ability to reduce the number of our outstanding common shares, the impact of the transaction on creditors, lenders, shareholders and other interested parties, the fact that the preferred shares were not core assets and the current economic value of the preferred shares, that were not taken into account when we determined the fair market value of the preferred shares as at December 31, 2008. After considering these factors, our independent directors, as recommended by our audit committee, concluded that the advantages to shareholders of proceeding with the transaction outweighed the disadvantages stemming from the additional $9.5 million loss that we would recognize on the settlement of the preferred shares, which resulted in our decision to proceed with the negotiated settlement and record the additional loss.

Divestment of Coal and Minerals Customer Group and Workshop in Cologne

As previously disclosed, on May 5, 2009, we entered into a memorandum of understanding that contemplated both the divestment of our interests in our coal and minerals customer group and the sale of our Cologne workshop. The sale was completed in early October, 2009. The sale was effected pursuant to the terms of various agreements with McNally Bharat Engineering Ltd. and certain of its subsidiaries whereby we agreed to divest our coal and minerals customer group and our workshop in Cologne, exclusive of our roller press technologies and capabilities, to McNally Bharat. Our new order intake for the nine months ended September 30, 2009 included $44.6 million related to the coal and minerals customer group. Order backlog was reduced by $68.0 million as at October 1, 2009 as a result of the divestment of the coal and minerals customer group.

The coal and minerals customer group, excluding the roller press revenues, accounted for 7.1%, or $26.1 million of our total revenues in the nine months ended September 30, 2009, prior to the divestment in early October, 2009. Pursuant to the sale agreement, we received cash of $7.5 million and may receive contingent payments based on unutilized severance payments for the workshop’s employees and certain other contingencies, to a maximum amount of $4.5 million, based on: (i) a contingent purchase price for the workshop; and (ii) an upward purchase price adjustment related to the divestment of our India coal and minerals operations, covering. We also agreed to grant the buyer the right to continue to manufacture the roller press for us for a period of three years from the closing date, provided this is done on normal commercial terms. Further, for a period of three years, we will offer the Cologne workshop contracts to manufacture equipment required for our cement business that have traditionally been manufactured at the workshop and the buyer has agreed to undertake such orders on a priority basis. The buyer has also agreed to assume certain liabilities from us, including pension obligations. We recognized a gain of $5.3 million in our consolidated statement of income (loss) for the year ended December 31, 2009 as a result of the sale of the coal and minerals customer group and the Cologne workshop. This gain does not include any contingent payments we may receive under the sale agreement.

The following table shows the net assets and liabilities classified as held for sale, on a consolidated basis, as at the time of sale:


	(United States dollars in thousands)

Cash and cash equivalents	$	3,819
Restricted cash		4
Receivables		12,185
Inventories		6,881
Contract deposits, prepaid and other		3,147
Future income tax assets		49

Current assets		26,085
Property, plant and equipment		227
Future income tax assets		75

Non-current assets		302

Total assets		26,387

Accounts payable and accrued expenses		9,820
Progress billings above costs and estimated earnings on uncompleted contracts		2,949
Advance payments received from customers		5,523
Income tax liability		189
Provision for warranty costs		3,093

Current liabilities		21,574
Accrued pension liabilities		1,204
Provision for warranty costs		108
Future income tax liability		808
Other long-term liabilities		284

Long-term liabilities		2,404

Total liabilities		23,978

Minority interest		163

Net assets held for sale	$	2,246

Purchase price	$	7,500
Net assets held for sale		(2,246	)

Gain on sale of workshop and related assets	$	5,254

Discontinued Operations

For a description of discontinued operations, see “Item 4 — Business Overview — Discontinued Operations — Disposition of Financial Services Operations” and “Item 4 — Business Overview — Discontinued Operations — Real Estate and Other Interests”.

Summary of Quarterly Results

The following tables provide selected financial information for the most recent eight quarters.:


	December 31,		September 30,			June 30,			March 31,
	2009		2009			2009			2009
	(United States dollars in thousands, except per share amounts,)

Revenues	$	210,200	$	148,233		$	105,847		$	112,128
Gross profit		65,898		29,148			21,952			19,392
Restructuring recovery (costs), excluding inventory write-down and write-up		1,616		(4,063	)		(17	)		(6,756	)
Operating income (loss)		58,966		11,459			2,461			(1,337	)
Loss on settlement of investment in preferred shares of former subsidiaries		—		—			(9,538	)		—
Income (loss) from continuing operations		39,485		7,475			(7,454	)		1,205
Income (loss) from continuing operations, per share
Basic		1.30		0.25			(0.25	)		0.04
Diluted		1.30		0.25			(0.25	)		0.04
Net income (loss)		39,485		7,475			(7,454	)		1,205
Net income (loss) per share
Basic		1.30		0.25			(0.25	)		0.04
Diluted		1.30		0.25			(0.25	)		0.04


	December 31,			September 30,		June 30,		March 31,
	2008			2008		2008		2008
	(United States dollars in thousands, except per share amounts)

Revenues	$	163,682		$	193,596	$	144,240	$	136,836
Gross profit (loss)		(356	)		36,574		28,332		25,207
Operating (loss) income		(14,582	)		31,923		23,779		15,265
Income from continuing operations		(64,857	)		30,804		19,670		7,431
(Loss) Income from continuing operations, per share
Basic		(2.12	)		1.01		0.65		0.25
Diluted		(2.12	)		1.01		0.64		0.24
Net (loss) income		(64,857	)		30,804		19,670		7,431
Net (loss) income per share
Basic		(2.12	)		1.01		0.65		0.25
Diluted		(2.12	)		1.01		0.64		0.24

Acquisitions and Divestitures

There were no business combination transactions in 2009 or 2008.

On March 29, 2007, we entered into an arrangement agreement with Sasamat Capital Corporation whereby we acquired all of the outstanding common shares of Sasamat. On May 29, 2007, we received the final Order from the Supreme Court of British Columbia approving the arrangement and Sasamat became a wholly-owned subsidiary of our company. Pursuant to the arrangement, we issued a total of 645,188 common shares of our company to the shareholders of Sasamat. We acquired all of the shares of Sasamat in order to increase our equity interest in KID.

Overview of 2009 Results

The following table sets forth, for the periods indicated, certain key operating results and other financial information:


	Year Ended December 31
	2009		2008			2007
	(United States dollars in millions, except per share amounts)

Revenues	$	576.4	$	638.4		$	580.4
Cost of revenues		457.8		516.6			494.4
Other operating income — resource property		13.5		27.2			18.1
Selling, general and administrative expense		74.8		56.2			46.7
Operating income		71.5		56.4			53.0
Income (loss) from continuing operations		40.7		(7.0	)		51.0
Basic earnings (loss) per share, continuing operations		1.34		(0.23	)		1.71
Diluted earnings (loss) per share, continuing operations		1.34		(0.23	)		1.68

As discussed below, revenue for 2009 decreased as compared to 2008. Costs of revenues of our industrial plant technology, equipment and service business decreased to 79.4% of revenue in 2009 from 80.9% of revenue in 2008.

Summary of Three-Month and Twelve-Month Results

The following table provides selected financial information for the three and twelve-month periods ended December 31, 2009 and 2008:


	Three Months Ended					Twelve Months Ended
	December 31,		December 31,			December 31,		December 31,
	2009		2008			2009		2008
	(United States dollars in thousands, except per share amounts)

Revenues	$	210,200	$	163,682		$	576,408	$	638,354
Gross profit (loss)		65,898		(356	)		136,390		89,757
Operating income (loss)		58,966		(14,582	)		71,549		56,385
Income (loss) from continuing operations		39,485		(64,857	)		40,711		(6,952	)
Income (loss) from continuing operations, per share
Basic		1.30		(2.12	)		1.34		(0.23	)
Diluted		1.30		(2.12	)		1.34		(0.23	)
Net income (loss)⁽¹⁾		39,485		(64,857	)		40,711		(6,952	)
Net income (loss) per share⁽¹⁾
Basic		1.30		(2.12	)		1.34		(0.23	)
Diluted		1.30		(2.12	)		1.34		(0.23	)


(1)		Including both continuing and discontinued operations.

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Based upon the yearly average exchange rates for the year ended December 31, 2009, the United States dollar increased by approximately 5.4% in value against the Euro and by approximately 7.1% in value against the Canadian dollar, compared to the yearly average exchange rates in 2008. As at December 31, 2009, the United States dollar had decreased by approximately 2.9% against the Euro and by 14.5% against the Canadian dollar since December 31, 2008.

In 2009, total revenues from our industrial plant technology, equipment and service business decreased by 9.7% to $576.4 million from $638.4 million in 2008, due to the phasing of project completion and a slowdown in business activity, particularly in the first half of 2009. Revenues earned were primarily the result of ongoing progress toward the completion of contracts resulting from the high demand in prior periods for cement plants in emerging markets including Russia and Eastern Europe, Asia and the Middle East driven by GDP growth rates and infrastructure investments. Further, our 2007 order backlog reached a historic high, leading to higher sales in 2008 which we were unable to surpass in 2009 given the global economic slowdown. Our new order intake decreased during 2009 to $321.9 million, compared to $722.7 million in 2008, a decrease of 55.5%. Our annual report on

Form 20-F for the year ended December 31, 2008 indicated that order intake for the year was $622.5 million, which excluded contracts amounting to $100.2 million that were cancelled during the year. The majority of this new order intake is in the cement business and originates from orders for spare parts globally and other orders for capital equipment in the emerging markets, particularly in India. Order backlog, reduced by terminated customer contracts, at the close of 2009 decreased by 48.2% to $437 million (€304.9 million) from $842.8 million (€605.5 million) at the close of 2008. Historically, approximately 70 to 80% of order backlog has been converted into revenues within a 12-month period. Order backlog as per December 31, 2009 was reduced by $68.0 million due to the sale of our coal and minerals customer group in early October, 2009.

In 2009, cost of revenues for our industrial plant technology, equipment and service business decreased by 11.4% to $457.8 million from $516.6 million in 2008. The decrease in expenses primarily reflects the decrease in our revenues. When taking into account only revenues and cost of revenues, without considering the effect from cancelled contracts, our gross profit margin increased from 19.1% in 2008 to 20.6% in 2009. The increase in margin is a consequence of improved project execution and continuing success with finding alternative, more cost effective, equipment procurement opportunities. We will continue to target projects where we judge the returns to be reasonable and the risks to be controllable. Considering the effect from cancelled contracts, gross profit margin increased from 14.1% in 2008 to 23.7% in 2009.

In early October, 2009 we completed the sale of our coal and minerals customer group and workshop in Cologne, exclusive of our roller press technologies and capabilities, pursuant to the terms of various agreements with McNally Bharat Engineering Ltd. and certain of its subsidiaries. Pursuant to the sale agreement, among other things, we received cash of $7.5 million and may receive contingent payments based on unutilized severance payments for the workshop’s employees and certain other contingencies. The maximum contingent purchase payment we may receive under the agreement is $4.5 million. We recognized a gain of $5.3 million in our consolidated statement of income (loss) for the year ended December 31, 2009 as a result of the sale of the coal and minerals customer group and the Cologne workshop. This gain does not include any contingent payments we may receive under the sale agreement. For a further description of the terms of the divestment, see “Divestment of Coal and Minerals Customer Group and Cologne Workshop”.

We also earned income of $13.5 million from our interest in the Wabush iron ore mine in 2009, as compared to $27.2 million in 2008. The decrease in income was primarily due to a decrease in shipments and average price.

Selling, general and administrative expenses, excluding stock based compensation, increased by 33.2% to $74.8 million in 2009 from $56.2 million in 2008. The increase is primarily linked to a decrease in the number of project awards in our industry. While there were still a high number of requests for bids and tenders, the number of projects actually awarded after completion of the tendering process was down due to a combination of financing constraints and market conditions that impacted customers’ decisions as to whether to proceed with projects. This resulted in an increase in our sales, marketing and tendering costs as we continued to invest time in the preparation of proposals and bids for opportunities that were not subsequently awarded (such costs only being chargeable to projects in the event that bids are successful).

We are also experiencing a lower absorption of overhead expenses as a result of the stage of completion of our projects in progress, since the design hours of our engineers, who are highly utilized at the beginning stages of a project, are decreasing as projects move into the procurement, erection and commissioning phases. We are taking measures to align our selling, general and administrative expenses with changes in market demand. For further details, please see “Item 5 — Operating Results — Restructuring Activity”.

Stock-based compensation was $0.4 million recovery in the year ended December 31, 2009 as compared to $4.4 million expense during the year ended December 31, 2008. The $0.4 million recovery in 2009 was due to the forfeiture of 1,065,556 stock options as a result of employee terminations and the fact that we did not grant any stock options in 2009.

In 2009, net interest income decreased to $4.3 million (interest income of $7.0 million less interest expense of $2.8 million) as compared to $19.2 million (interest income of $21.4 million less interest expense of $2.3 million) in 2008. The decrease in net interest income resulted from lower returns earned on cash deposits and on financial instruments, and from the settlement of the preferred shares of Mass Financial and one of its former subsidiaries.

Other income was $3.8 million in 2009, as compared to other expense of $9.9 million in 2008. In 2009, other income included gains on trading securities of $2.8 million. In 2008, other expense included losses on trading securities of $11.2 million. The gains and losses on trading securities were primarily attributable to mark-to-market valuations.

We recognised an income tax expense (other than resource property revenue taxes) of $23.0 million in 2009, compared to an income tax expense of $12.8 million in 2008. The effective tax rate (other than resource property revenue taxes and excluding the loss on the investment in preferred shares of Mass Financial and one of its former subsidiaries) was 36.1% in 2009, compared to 31.7% in 2008. The increase in income tax expense was primarily a result of higher income from operations. We paid $27.6 million cash in income tax (other than resource property revenue tax) in 2009, compared to $15.9 million in 2008. The increase in income tax paid is mainly due to the tax on dividends which is refundable in 2010. As at December 31, 2009, we had non-capital tax losses carry-forwards of $82.2 million in Germany which have an indefinite life and $57.4 million in Canada that begin to expire in 2010.

Minority interests increased in 2009 to $1.1 million negative from $0.7 million negative in 2008.

In 2009, our income from continuing operations was $40.7 million, or $1.34 per share on a basic and diluted basis. In 2008, our loss from continuing operations was $7.0 million, or $0.23 per share on a basic and diluted basis. There were no discontinued operations and no extraordinary gains in 2009 and 2008.

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Based upon the yearly average exchange rates for the year ended December 31, 2008, the United States dollar decreased by approximately 6.6% in value against the Euro and by approximately 0.8% in value against the Canadian dollar, compared to the yearly average exchange rates in 2007. As at December 31, 2008, the United States dollar had increased by approximately 4.9% against the Euro and by 23.9% against the Canadian dollar since December 31, 2007.

In 2008, total revenues from our industrial plant technology, equipment and service business increased by 10.0% to $638.4 million from $580.4 million in 2007, due to an increase in our business activity and favourable currency developments, particularly due to the depreciation of our reporting currency, the United States dollar, against the Euro. This level of activity was the result of completion of contracts resulting from the high demand in prior periods for cement plants in emerging markets including Russia and Eastern Europe, Asia and the Middle East driven by GDP growth rates and infrastructure investments. Further, our 2007 order backlog reached a historic high, leading to higher sales in 2008. Our new order intake decreased during 2008 to $722.7 million, compared to $827.2 million in 2007, a decrease of 12.6%. Our annual report on Form 20-F for the year ended December 31, 2008 indicated that order intake for the year was $622.5 million, which excluded contracts amounting to $100.2 million that were cancelled during the year. The majority of this new order intake was in the cement business and originated from the emerging markets previously noted, particularly Russia, Eastern Europe, the Middle East and Asia. Backlog at the close of 2008 decreased by 8.3% to $842.8 million (€605.5 million) from $919.3 million (€629.6 million) at the close of 2007.

In 2008, cost of revenues for our industrial plant technology, equipment and service business increased by 4.5% to $516.6 million from $494.4 million in 2007. The increase in expenses reflected the increase in our revenues. When taking into account only revenues and cost of revenues, our gross profit margin increased from 14.8% in 2007 to 19.1% in 2008. The increase in margin was a consequence of improved project execution, increased capacity utilization and continuing success with finding alternative, more cost effective, equipment procurement opportunities. However, due to the current economic situation, we were required to take a provision of $32.0 million against certain customer contracts which reduced our profit margin by 5% to 14.1%.

We also earned income of $27.2 million from our interest in the Wabush iron ore mine in 2008, as compared to $18.1 million in 2007. The income increased primarily due to a higher iron ore price and a royalty payment adjustment of Cdn$1.6 million for 2005-2008 which was made as a result of the corrections of errors previously made by the operator of the Wabush mine with respect to the royalty rates.

Selling, general and administrative expenses, excluding stock based compensation, increased by 20.2% to $56.2 million in 2008 from $46.7 million in 2007. A large proportion of our expenses are incurred in currencies other than the United States dollar, and a weakening of the United States dollar during 2008 therefore increased our reported expenses. Selling, general and administrative expenses increased in 2008 by approximately $4.6 million as a consequence of the depreciating United States dollar during the year (as compared to 2007). We also invested in the development of our proprietary technology. As a consequence, research and development expenditures increased to $4.3 million in 2008 from $2.9 million in 2007. The remaining increase was primarily linked to the strengthening of management, administrative and supporting services for the expansion of business activities. Stock-based compensation was $4.4 million in both 2008 and 2007.

In 2008, net interest income increased to $19.2 million (interest income of $21.4 million less interest expense of $2.3 million) as compared to $10.5 million (interest income of $13.2 million less interest expense of $2.7 million)

in 2007. The increase in net interest income was a result of a higher cash position resulting from our profitable operations.

In the fourth quarter of 2008, we recognized a fair value loss on our investment in the preferred shares of Mass Financial and one of its former subsidiaries, which resulted in an expense of $55.1 million. See “Item 5 — Operating Results — Fair Value Loss on Preferred Shares of Mass Financial and its Former Subsidiary”.

Other expense was $9.9 million in 2008, as compared to other income of $4.2 million in 2007. In 2008, other expenses included losses on trading securities of $11.2 million, which were partially offset by $2.0 million of other income and net unrealized gains on currency derivatives of $1.2 million. The losses on trading securities were primarily attributable to reduced mark-to-market valuations resulting from the impact of the economic crisis on global financial markets in the fourth quarter of 2008.

We recognised an income tax expense (other than resource property revenue taxes) of $12.8 million in 2008, compared to $8.3 million in 2007. The effective tax rate (other than resource property revenue taxes and excluding the loss on the investment in preferred shares of Mass Financial and one of its former subsidiaries) was 31.7% in 2008, compared to 17.4% in 2007. The increase in tax expense was primarily a result of the release of valuation allowance related to certain future income tax assets in 2007, but not in 2008. We paid $15.9 million cash in income tax (other than resource property revenue tax) in 2008, compared to $2.7 million in 2007. The increase in income tax paid was mainly due to higher tax prepayments in 2008 compared to 2007 and to the fact that German income tax for the year 2006 was paid in 2008. Furthermore, some of the available tax loss carry-forwards were fully available for offsetting taxes in 2007, but were used up in 2008. As at December 31, 2008, we had non-capital tax losses carry-forward of $122.7 million in Germany which had an indefinite life and $41.3 million in Canada that began to expire in 2009.

Minority interests decreased in 2008 to $0.7 million negative from $2.4 million negative in 2007 as a result of our acquisition of an additional equity interest in KID, through the acquisition of all the shares of Sasamat Capital Corporation in 2007.

In 2008, our loss from continuing operations was $7.0 million, or $0.23 per share on a basic and diluted basis. In 2007, our income from continuing operations was $51.0 million, or $1.71 per share on a basic basis ($1.68 per share on a diluted basis) and loss from discontinued operations was $9.4 million, or $0.31 per share on a basic and diluted basis. There were no discontinued operations in 2008. Discontinued operations in 2007 included the results from real estate interests and included a reduction of future tax assets of $6.3 million and a currency translation loss of $2.5 million.

In 2007, we recognised an extraordinary gain of $0.5 million, or $0.02 per share on a basic and diluted basis, which represented the negative goodwill in excess of assets acquired arising from a buyout of minority interests in a non-wholly-owned subsidiary. There were no extraordinary gains in 2008.


B.	Liquidity and Capital Resources

The following table is a summary of selected financial information concerning our company for the periods indicated:


	December 31,
	2009		2008
	(United States dollars in millions)

Cash and cash equivalents	$	420.6	$	409.1
Total assets		788.9		765.7
Long-term debt		11.6		11.3
Shareholders’ equity		319.8		261.9

We maintain a high level of liquidity, with a substantial amount of our assets held in cash and cash equivalents, cash deposits and securities. The highly liquid nature of these assets provides us with flexibility in managing our business and financing. Our cash and short-term deposits are deposited in highly rated banks located principally in Austria and Germany. The largest portion of the cash is denominated in Euros, the currency of our major operating subsidiaries, and the balance is held in United States dollars, Indian rupees and Canadian dollars.

As at December 31, 2009, our total assets increased to $788.9 million from $765.7 million as at December 31, 2008, primarily as a result of the improved performance of our operations in 2009 and an increase in cash, cash equivalents and short-term contract deposits, as well as an increase in short-term securities. At December 31, 2009, our cash and cash equivalents were $420.6 million, compared to $409.1 million at December 31, 2009. The increase

in our cash position is primarily due to the timing of certain customer payments during the normal course of business. As at December 31, 2009, the market value of our short-term securities amounted to $16.4 million, compared to $3.0 million as at December 31, 2008. Of that amount, $11.2 million is related to common shares of Mass Financial acquired in connection with the terms of our settlement of the preferred shares of Mass Financial. For further information please refer to the section entitled “Settlement of Preferred Shares of Mass Financial and its Former Subsidiary”. The total value of short-term securities as at December 31, 2009 includes an unrealized gain of $2.6 million on the marketable securities that we hold. As at December 31, 2009, our long-term debt was $11.6 million, compared to $11.3 million as at December 31, 2008.

As at December 31, 2009, we had credit facilities of up to a maximum of $329.7 million with banks which issue bonds and bank guarantees for our industrial plant technology, equipment and service contracts. As of December 31, 2009, $166.7 million of the available credit facilities amount had been utilized and there are no claims outstanding against these credit facilities. As at December 31, 2009, cash of $25.0 million has been collateralized against these credit facilities and the banks charge 0.7% per annum on outstanding amounts.

The financial covenants in our credit facilities require us to maintain certain ratios, compliance with which is analyzed on an annual basis. We are expected to remain in compliance with these covenants. If we are not in compliance with one or more of the covenants, the banks have the right to declare that all amounts outstanding under the credit facilities are immediately due and payable. The following table shows a summary of the ratios (as defined in our debt agreement), the minimum value required to be maintained under the credit facilities and the actual value of the ratios as at December 31, 2009:


Ratio		Minimum Value	Actual Value

Adjusted EBIT Total Revenue		3.0	7.9
Adjusted EBIT Interest Expenses		3.5	22.0
Adjusted Equity Adjusted Total Assets	* 100	25	38.1
Billing to Date Contracts in Progress	* 100	75	111.1

As at December 31, 2009, we had debt maturities (including interest payments) of $0.2 million due in 12 months and $11.7 million due in 12 to 24 months. We expect such maturing debt to be satisfied primarily from the industrial plant technology, equipment and service business, cash on hand and cash flow from operations. For more information, see Note 19 to our audited consolidated financial statements included in this annual report.

Management believes that our company has adequate capital resources and liquidity for operations and capital expenditures for the short to long-term.

Changes in Financing and Capital Structure

We finished 2009 with a cash balance of $420.6 million and working capital of $370.8 million. There were no significant share issuances nor long-term debt financings during 2009.

Operating Activities

Operating activities used cash of $9.8 million in 2009, as compared to providing cash of $84.7 million in 2008. This comprises net income of $40.7 million, cash of $9.5 million used for non-operating and non-cash items and $41.0 million resulting from changes in operating assets and liabilities, net of effects of acquisitions and dispositions.

In 2009, we had income from continuing operations of $40.7 million, as compared to a loss from continuing operations of $7.0 in 2008. While non-operating and non-cash items provided cash of $114.1 million in 2008, they used cash of $9.5 million in 2009. The primary non-cash items in 2009 were a recovery of the loss on terminated customer contracts of $17.8 million and a gain of $5.3 million as a result of the sale of our Cologne workshop and related assets. We experienced a loss on the settlement of the preferred shares of Mass Financial and its former subsidiary of $9.5 million in 2009.

Changes in operating assets and liabilities resulted in a use of funds of $41.3 million in 2009 and reflects the higher percentage of projects completed in 2009 and the lower percentage of new projects due to lower new order intake in 2009. During 2009, increases in receivables and decreases in progress billings above costs and estimated earnings on uncompleted contracts and short-term cash deposits were the principal uses of cash. Decreases in

inventories, and increases in advance payments received from customers, accounts payable and accrued expenses, and provisions for warranty costs were the primary providers of cash during the year. Specifically, during 2009, we invested $67.9 million in trade and other receivables. This is reflective of the stage of completion of our customer contracts. Income tax liabilities increased by $8.4 million, giving rise to a source of funds. An increase in advance payments received from customers provided cash of $20.0 million, a reduction in inventories provided cash of $45.9 million, and provisions for warranty and restructuring costs provided, in aggregate, cash of $24.5 million in 2009.

Changes in operating assets and liabilities used funds of $22.9 million in 2008 and reflects business development and the stage of completion of many of our projects. During 2008, we invested $15.3 million in trade and other receivables and increased our investment in contract deposits, prepaids and other by $27.9 million, which is reflective of the stage of completion of our customer contracts. Income tax liabilities declined by $11.1 million giving rise to a use of funds. Our primary sources of funds from operating assets and liabilities in 2008 arose from an increase in accounts payable that provided cash of $44.0 million.

We expect to satisfy our working capital and other requirements in the next twelve months through cash flow from operations and the utilization of a portion of our cash reserves.

Investing Activities

During the year ended December 31, 2009, investing activities provided cash of $7.3 million, as compared to using cash of $6.2 million in 2008. We did not have significant investing activities in either period.

We used $0.8 million in acquiring increased shareholdings in subsidiaries in 2009, compared to $1.5 million in 2008. Capital expenditures were $1.8 million and $3.0 million in 2009 and 2008, respectively. During the year ended December 31, 2009, the settlement of our investment in the preferred shares of Mass Financial and its former subsidiary provided cash of $6.2 million and the proceeds of sale from our workshop in Cologne and related assets provided cash of $3.7 million (net of cash disposed of).

Financing Activities

In 2009, financing activities provided cash of $nil, as compared to $2.3 million in 2008. We received $nil from the exercise of stock options in 2009, as compared to receiving cash of $4.4 million from the exercise of stock options in 2008. Net debt repayment used cash of $nil in 2009, compared to $2.1 million in 2008.

We had no material commitments to acquire assets or operating businesses at December 31, 2009. We anticipate that there will be acquisitions of businesses or commitments to projects in the future.

Discontinued Operations

There were no discontinued operations in 2009 and 2008.

Foreign Currency

Substantially all of our operations are conducted in international markets and our consolidated financial results are subject to foreign currency exchange rate fluctuations.

We translate assets and liabilities of our foreign subsidiaries whose functional currencies are other than United States dollars into United States dollars at the rate of exchange on the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the period. Unrealized gains or losses from these translations, or currency translation adjustments, are recorded under the shareholders’ equity section on the balance sheet and do not affect the net earnings as reported in our consolidated statements of income. Foreign currency translation losses or gains that arise from exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the consolidated statements of income. As our revenues are also received in Euros, Indian rupees and Canadian dollars, our financial position for any given period, when reported in United States dollars, can be significantly affected by the fluctuation of the exchange rates for Euros and Canadian dollars during that period.

In the year ended December 31, 2009, we reported a net $19.9 million currency translation adjustment gain, compared to a $47.1 million currency translation adjustment loss in 2008, and, as a result, our accumulated other comprehensive income at December 31, 2009 was $68.5 million, compared to $48.6 million at December 31, 2008. The currency translation adjustment loss did not have an impact on our consolidated income statement.

We periodically use derivative foreign exchange contracts to manage our exposure to certain foreign currency exchange rate risks. For more information, see “Item 11 — Quantitative and Qualitative Disclosures About Market Risk — Derivative Instruments.”

Derivative Instruments

Derivatives are financial instruments, the payments of which are linked to the prices, or relationships between prices, of securities or commodities, interest rates, currency exchange rates or other financial measures. Derivatives are designed to enable parties to manage their exposure to interest rates and currency exchange rates, and security and other price and cash flow risks. We use derivatives to manage certain foreign currency exchange exposure for our own account. Currently, all of our foreign currency derivative contracts are classified as held for trading. We had foreign currency derivative contracts with notional amounts totalling $10.5 million as of December 31, 2009 and the net unrealized gains of $0.2 million on the foreign currency derivatives were included in our other expense during the year ended December 31, 2009. For more information, see “Item 11 — Quantitative and Qualitative Disclosures About Market Risk — Derivative Instruments.”

Inflation

We do not believe that inflation has had a material impact on our revenues or income over the past three fiscal years. However, increases in inflation could result in increases in our expenses, which may not be readily recoverable in the price of services provided to our clients. To the extent that inflation results in rising interest rates and has other adverse effects on capital markets, it could adversely affect our financial position and profitability.

Transactions with Entities in Countries Designated by the U.S. State Department as State Sponsors of Terrorism

An immaterial amount of our operations are conducted with companies in Iran, Sudan, Cuba and Syria. Such operations are not conducted by our company directly, rather, all are facilitated solely through our subsidiary, Humboldt Wedag GmbH, Cologne (“HWG”), a company organized and registered under the rules and regulations of Germany, which is indirectly held by us through our majority shareholding in KID. These operations generally comprise the provision of spare parts to existing customers in such countries and are immaterial from both a qualitative and quantitative perspective. To our knowledge, no U.S. persons (as that term is defined in the relevant Parts of Title 31 of the Code of Federal Regulations) have any role in the approval or execution of contracts with entities located in those countries.

Going forward, HWG expects to have continuing operations involving the provision of spare parts to entities in Iran, Cuba, Syria and Sudan. In addition, HWG may enter into contracts with entities in those countries for new projects in the future. Given the nature of the economies in Iran, Cuba, Syria and Sudan, HWG may indirectly have contacts with governments of such countries through contractual relationships with companies that have both public and private ownership components or with entities controlled by those governments. However, to our knowledge, neither we nor any of our subsidiaries, including HWG, have had commercial dealings with the governments of Iran, Cuba, Syria or Sudan or entities controlled by such governments.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires our 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 periods.

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified certain accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to our audited consolidated financial statements included in this annual report.

Revenue Recognition

The majority of the contracts and services in our industrial plant technology, equipment and service business are long-term and we use the percentage-of-completion method as required by Canadian Institute of Chartered Accountants’ (“CICA”) Handbook Section 3400, Revenue, which requires the percentage-of-completion method be

used when performance consists of the execution of more than one act, and revenue be recognized proportionately by reference to the performance of each act. The percentage-of-completion method is also permitted under Accounting Research Bulletin 45, Long-Term Construction Type Contracts (“ARB 45”), to measure and recognize revenue and related costs. ARB 45 and American Institute of Certified Public Accountants’ Statement of Position 81-1 (“SOP 81-1”) indicate that the percentage-of-completion method may be used in lieu of the completed contract method when all of the following are present:

1. reasonably reliable estimates can be made of revenue and costs;


2.	the construction contract specifies the parties’ rights as to the goods, consideration to be paid and received, and the resulting terms of payment or settlement;

3. the contract purchaser has the ability and expectation to perform all contractual duties; and

4. the contract contractor has the same ability and expectation to perform.

We derive our revenues from providing industrial plant technology, equipment and services and specifically designed equipment to build cement processing facilities. Typically, our project contract is a construction-type contract which takes more than one year to complete. The contracts for such projects specify the work to be performed by us; the timing; the amount and the method of the interim and final billings for the projects; and the other legal rights and obligations of our company and our customers.

We have a reliable management information system in place to reasonably estimate the costs to complete a contract and the extent of progress made towards completion of each contract. Prior to executing a contract, we usually perform a credit check on the customer and in certain cases take payment security from the customer. We follow internal compliance review and monitoring procedures prior to executing contracts and during project execution to ensure that we and our customers have the ability and expectation to perform all contractual duties. Accordingly, we are of the opinion that the criteria of both Canadian and U.S. GAAP are met for the application of the percentage-of-completion method.

Revenues from change orders are recognized only after the change orders are approved by our customers, which results in our company having a legal and enforceable right to payment for the work performed on contracts that have been modified.

The major challenges in using the percentage-of-completion method of accounting are to accurately measure the extent to which the contracts are being finished, and to assess collectibility of the revenue and/or the recoverability of the costs incurred. Generally, we rely on our in-house technical specialists to estimate the progress of the contract, our finance and engineering departments to work out the cost analysis and the budget, particularly with respect to costs incurred to date and total estimated costs of completion, and our credit department to assess the credit of the customers. All these analyses involve estimates and value judgments. The accurate profit amount is not known until the contract is completed and the bill is collected.

If a loss is expected on a contract-in-progress from our teamwork analysis, such loss will be recognized in the income statement immediately.

Inventories

Our inventories consist of construction raw materials, work-in-progress and finished goods. Our management must make estimates about their pricing when establishing the appropriate provisions for inventories.

For the construction raw materials, work-in-progress and contracts-in-progress, we make estimates and assess their pricing on an individual contract basis using the teamwork approach. Please refer to “Revenue Recognition” under “Application of Critical Accounting Policies”. For the finished goods, the estimated net selling price is the most important determining factor. However, our management also considers whether there are any alternatives to enhance the value of the finished goods, for example, by using the finished goods in another product or contract so as to increase the value of such other product or contract.

Receivables

Typically, receivables are financial instruments which are not classified as held for trading or available for sale. They are net of an allowance for credit losses, if any. We perform ongoing credit evaluations of customers and adjust our allowance accounts for specific customer risks and credit factors. Receivables are considered past due on an individual basis based on the terms of the contracts. Our allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects management’s best estimate of the losses in our receivables and judgments about economic conditions.

As of December 31, 2009, we determined that the gross amount of our trade receivables was $104.0 million and we provided an allowance for credit losses of $2.4 million. We may be required to record further allowances in the future should the global economy continue to deteriorate. See Note 6 to our audited consolidated financial statements included in this annual report.

Valuation of Securities

Securities held for trading are carried at current market value. Any unrealized gains or losses on securities held for trading are included in the results of operations.

Available-for-sale securities are also carried at current market value when current market value is available. Any unrealized gains or losses are included in other comprehensive income. When there has been a loss in value of an available-for-sale security that is other than a temporary decline, the security will be written down to recognize the loss in the determination of income. In determining whether the decline in value is other than temporary, quoted market price is not the only deciding factor, particularly for thinly traded securities, large block holdings and restricted shares. We consider, but such consideration is not limited to, the following factors: trend of the quoted market price and trading volume; financial position and results for a period of years; liquidity or going concern problems of the investee; changes in or reorganization of the investee and/or its future business plan; outlook of the investee’s industry; the current fair value of the investment (based upon an appraisal thereof) relative to its carrying value; and our business plan and strategy to divest the security or to restructure the investee.

Our previous investment in the preferred shares of Mass Financial and one of its former subsidiaries was created in January, 2006 as a result of the spin-off of our financial services business. The preferred shares were classified as available-for-sale securities and quoted market prices were not available. Since quoted market prices were not available, we determined the fair value of these preferred shares using a discounted cash flow model and considered the quoted market prices of securities with similar characteristics. Our determination of fair value considered various assumptions, including time value, yield curve and other relevant economic measures. At December 31, 2008, we used a discount rate of 30% in our financial valuation model, based on observable current market transactions in instruments with similar characteristics, with modifications for market liquidity and the features of the preferred shares. As a result of this process, we recognized a fair value loss of $55.1 million on our investment in the preferred shares in 2008.

The unrealized fair value loss of $55.1 million on our investment in the preferred shares of Mass Financial and one of its former subsidiaries reflects the significant weakness in the global credit and equity markets experienced in the fourth quarter of 2008. We considered the fair value loss to be an other than temporary decline in value as we expected to negotiate a settlement of the net position of our investment in the preferred shares.

On May 12, 2009, we entered into and completed an agreement with Mass Financial for the redemption of the preferred shares of Mass Financial and its former subsidiary and the payment of accrued dividends on the preferred shares of Mass Financial. As a result of the settlement of the preferred shares, we recognized a subsequent loss of $9.5 million in the second quarter of 2009. However, we concluded that there was no change in the fair value of the shares between December 31, 2008 and the settlement date as there was no significant change in market conditions for similar securities between December 31, 2008 and the settlement date. For more information, please see “Item 5 — Operating Results — Fair Value Loss on Preferred Shares of Mass Financial and its Former Subsidiary”.

Recent market volatility has made it extremely difficult to value certain securities. Subsequent valuations, in light of factors prevailing at such time, may result in significant changes in the values of these securities in future periods. Any of these factors could require us to recognize further impairments in the value of our securities portfolio, which may have an adverse effect on our results of operations in future periods.

Warranty Costs

We provide a warranty to our customers for the contracts and services in our industrial plant technology, equipment and service business. The amount of the warranty liability reflects the estimate of the expected future costs of our obligations under the warranty, which is based on the historical material replacement costs and the labour costs, the past history of similar work, the opinion of our legal counsel and technical specialists and their interpretation of the contracts. If any of these factors change, revision to the estimated warranty liability may be required. Certain warranty costs are included in long-term portion as the warranty is for a period longer than 12 months.

Pension Benefits

Our industrial plant technology, equipment and service business in Europe maintains defined benefits plans for its employees who were employed prior to 1997. Employees hired after 1996 are generally not entitled to such benefits. The employees are not required to make contribution to the plans. We rely on an actuarial report to record the pension costs and pension liabilities. The actuarial reports are prepared every year as at December 31. The reports are compiled and prepared, based on certain assumptions, namely, demographic assumptions and financial assumptions. The variables in the actuarial computation include, but are not limited to, the following: demographic assumptions about the future characteristics of the employees (and their dependants) who are eligible for benefits, the discount rate and future salary. Certain variables are beyond our control and any change in one of these variables may have a significant impact on the estimate of the pension liability.

Under German law, the pension liability is an unsecured claim and does not rank in priority to any other unsecured creditors. The pension liability is non-recourse to our company.

As a consequence of the sale of our coal and minerals customer group and our Cologne workshop, we reduced our total pension liabilities by approximately $1.2 million.

Income Taxes

Management believes that it has adequately provided for income taxes based on all of the information that is currently available. The calculation of income taxes in many cases, however, requires significant judgment in interpreting tax rules and regulations, which are constantly changing.

Our tax filings are also subject to audits, which could materially change the amount of current and future income tax assets and liabilities. Any change would be recorded as a charge or a credit to income tax expense. Any cash payment or receipt would be included in cash from operating activities.

We currently have deferred tax assets which are comprised primarily of tax loss carry-forwards and deductible temporary differences, both of which will reduce taxable income in the future. The amounts recorded for deferred tax are based upon various judgments, assumptions and estimates. We assess the realization of these deferred tax assets on a periodic basis to determine whether a valuation allowance is required. We determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized, based on currently available information, including, but not limited to, the following:


	•	the history of the tax loss carry-forwards and their expiry dates;

	•	future reversals of temporary differences;

	•	our projected earnings; and

	•	tax planning opportunities.

If we believe that it is more likely than not that some of these deferred tax assets will not be realized, based on currently available information, an income tax valuation allowance is recorded against these deferred tax assets.

If market conditions improve or tax planning opportunities arise in the future, we will reduce our valuation allowances, resulting in future tax benefits. If market conditions deteriorate in the future, we will increase our valuation allowances, resulting in future tax expenses. Any change in tax laws, particularly in Germany, will change the valuation allowances in future periods.

Provisions for Supplier Commitments on Terminated Customer Contracts

Throughout the economic downturn we maintained ongoing discussions with our customers with respect to the status of their contracts. We continue to evaluate our legal and commercial positions with respect to each potentially affected contract. As discussed above, as at December 31, 2008, we classified $159.2 million of the contracts in our order backlog as at risk. The at risk contracts in our order backlog primarily fell into two categories: (i) projects where the clients were considering changes in the scope of such projects, and (ii) projects where clients required additional financing to continue to completion. During 2009, we continued to assess the likelihood of whether such at risk contracts would ultimately be terminated. We considered whether it was likely that a customer would continue with a contract in the future or, alternatively, proceed with a different contract or the same contract on a smaller scale. These assessments considered, among other factors, whether the customer had financing in place to support its payment obligations, and whether such financing was, or will be, affected by the global economic crisis. If we determined that a customer was unlikely to proceed with a contract, such at risk contract was designated as a

“terminated customer contract”. We then considered whether the customer was likely to pay the cancellation costs due under the contract.

At December 31, 2008, we raised aggregate provisions of $23.7 million for commitments to suppliers of at risk contracts that were in progress at such time. In the year ended December 31, 2009, we performed further critical analysis and continued negotiations relating to such at risk contracts and, as a result, determined that more at risk contracts should be terminated. As of December 31, 2009, these terminated customer contracts, aggregating $110.2 million, were officially cancelled and removed from the order backlog. There were no contracts classified at risk at December 31, 2009.

When contracts were classified as terminated, we: (i) updated our estimates of amounts recognized at December 31, 2008; (ii) recorded our purchase obligations to suppliers at the full amounts we are contractually committed to pay such suppliers; (iii) determined the amounts that we expect to recover from the sale of any inventory related to such contracts on the basis of the net realizable value of such inventory and recorded this amount as inventory in transit from suppliers; (iv) recorded claims for the amounts that we are owed by customers as a result of not proceeding with their contracts, including cancellation costs due under the contract, less the amounts of any advance payments received; and (v) created a provision for those amounts that we believe we are unlikely to collect from the customer.

However, as discussed above, although we had determined to treat these contracts as terminated, and thus removed them from our order backlog, we continued discussions and negotiations with the affected customers in the hope of coming to a mutually beneficial resolution. In the fourth quarter of 2009, we successfully entered into new contracts with one of our major customers whose contracts we had previously classified as terminated. We also reached an agreement with another one of our major customers for full and final settlement of amounts outstanding on their cancelled contract. As a result, at December 31, 2009, we recorded a recovery of $17.8 million in our consolidated statement of income (loss). For more information, please see “Item 5 — Operating Results — Provisions for Terminated Customer Contracts”.

Provisions for Restructuring Costs

As a result of the 2008 financial crisis, we expect the dramatic changes in world credit markets and the global recession will continue to have a negative impact on our customers’ future expenditure programs. In anticipation of expected lower new order intake, we have fundamentally restructured our business model.

Our restructuring program will align capacities to changes in market demands, allocate resources depending on geographical needs and focus on markets and equipment that will meet our objective of offering cost effective solutions to our customers. In connection with our restructuring program, on October 7, 2009, we completed the divestment of our coal and minerals customer group, exclusive of our roller press technologies and capabilities, and our workshop in Cologne, Germany. In the first half of 2009, a provision was set up for restructuring costs related to the shut-down of the workshop in Cologne. As a result of the divestment transaction, certain of the provisions set up in the first quarter of 2009 for restructuring costs related to the closure of the Cologne workshop were reversed as at September 30, 2009. For more information, please see “Item 5 — Operating Results — Restructuring Activity”.

Changes in Accounting Policies including Initial Adoption

For the new Canadian and United States accounting standards, please refer to Notes 1 and 33, respectively, to our audited consolidated financial statements included in this annual report.

International Financial Reporting Standards

In 2006, Canada’s Accounting Standards Board (“AcSB”) ratified a strategic plan that will result in Canadian GAAP, as used by publicly accountable enterprises, being fully converged with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board over a transitional period to be completed by 2011. We will be required to report using the converged standards effective for interim and annual financial statements relating to fiscal years beginning no later than on or after January 1, 2011.

Canadian GAAP will be fully converged with IFRS through a combination of two methods: as current joint-convergence projects of the United States’ Financial Accounting Standards Board and the International Accounting Standards Board are agreed upon, they will be adopted by the AcSB and may be introduced in Canada before the publicly accountable enterprises’ transition date to IFRS; and standards not subject to a joint-convergence project will be exposed in an omnibus manner for introduction at the time of the publicly accountable enterprises’ transition date to IFRS.

The International Accounting Standards Board currently, and expectedly, has projects underway that are expected to result in new pronouncements that continue to evolve IFRS, and, as a result, IFRS as at the transition date is expected to differ from its current form.

In June 2008, the Canadian Securities Administrators issued a staff notice which states that staff recognize that some issuers might want to prepare their financial statements in accordance with IFRS for periods beginning prior to January 1, 2011, the mandatory date for changeover to IFRS for Canadian publicly accountable enterprises, and staff are prepared to recommend exemptive relief on a case by case basis to permit a domestic issuer to prepare its financial statements in accordance with IFRS for financial periods beginning before January 1, 2011.

The eventual changeover to IFRS represents changes due to new accounting standards. The transition from current Canadian GAAP to IFRS is a significant undertaking that may materially affect our reported financial position and results of operations.

We have not completed development of our IFRS changeover plan, which will include project structure and governance, resourcing and training, analysis of key GAAP differences and a phased plan to assess accounting policies under IFRS as well as potential IFRS 1 exemptions. We are working on our IFRS conversion program and accounting policies in accordance with IFRS have been prepared. We expect to complete our project scoping, which will include a timetable for assessing the impact on data systems, internal controls over financial reporting, and business activities, such as financing and compensation arrangements, by May 31, 2010.

We are required to qualitatively disclose the implementation impacts in conjunction with our 2009 financial reporting. As activities progress, disclosure on pre- and post-IFRS implementation accounting policy differences is expected to increase. We are continuing to assess the financial reporting impacts of the adoption of IFRS and, at this time, the impact on our future financial position and results of operations is not reasonably determinable or estimable. Further, we anticipate a significant increase in disclosure resulting from the adoption of IFRS and are continuing to assess the level of this disclosure required and any necessary systems changes to gather and process the information.

Adoption of New Accounting Standards and Amendments in 2009

Effective January 1, 2009, we adopted Canadian Institute of Chartered Accountants’ (“CICA”) Handbook Section 3064, Goodwill and Intangible Assets. Section 3064, which replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs, provides clarifying guidance on the criteria that must be satisfied in order for an intangible asset to be recognized, including internally developed intangible assets. CICA’s Emerging Issues Committee (“EIC”) Abstract No. 27, Revenues and Expenditures during the Pre-operating Period, will no longer be applicable once Section 3064 has been adopted.

Financial Instruments — Disclosures

In June 2009, the AcSB published amendments to Section 3862, Financial Instruments — Disclosures, to require improved and consistent disclosures about fair value measurements of financial instruments and liquidity risk.

The amendments are in response to market concerns about credit and liquidity risks. The enhanced disclosure requirements include:


	•	classifying and disclosing fair value measurements based on a three-level hierarchy;

	•	reconciling beginning balances to ending balances for Level 3 measurements;

	•	identifying and explaining movements between levels of the fair value hierarchy;

	•	providing a maturity analysis for derivative financial liabilities based on how the entity manages liquidity risk; and

	•	disclosing the remaining expected maturities of non-derivative financial liabilities if liquidity risk is managed on that basis.

Financial Instruments — Recognition and Measurement

In June 2009, the CICA clarified Section 3855, Financial Instruments — Recognition and Measurement, with respect to the effective interest method, which is a method of calculating the amortized cost of financial assets and financial liabilities and of allocating the interest income or interest expense over a period.

In June 2009, the CICA clarified Section 3855 with respect to the reclassification of financial instruments with embedded derivatives. A financial instrument classified as held for trading may not be reclassified when the embedded derivative that would have to be separated on reclassification of the combined contract cannot be measured separately.

In July 2009, the AcSB issued a typescript of amendments to Section 3855. Entities that have classified financial assets as held-to-maturity investments are now required to assess those financial assets using the impairment requirements of Section 3025, Impaired Loans. Section 3025 was consequentially amended to accommodate the changes to Section 3855. The amendments allow more debt instruments to be classified as loans and receivables. This allows those instruments to be evaluated for impairment using Section 3025. In addition, the amendments require the reversal of previously recognized impairment losses on available-for-sale financial assets in specified circumstances and require that loans and receivables that an entity intends to sell immediately or in the near term be classified as held for trading.

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the EIC issued Abstract No. 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities (“EIC-173”). EIC-173 requires an entity to take into account its own credit risk and that of the relevant counterparty(s) when determining the fair value of financial assets and financial liabilities, including derivative instruments.


C.	Research and Development, Patents and Licenses, Etc.

We incurred research and development costs of $4.3 million, $4.3 million and $2.9 million in 2009, 2008 and 2007, respectively. Our research focuses on improving grinding technologies and producing equipment that uses less energy and therefore produces lower emissions, all of which are being demanded by our customers.


D.	Trend Information

For a discussion of trends related to our new order intake and order backlog, see “Item 4 — Information on the Company — Business Overview — Description of our Industrial Plant Technology, Equipment and Service Segment — New Order Intake and Order Backlog”.


E.	Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

We have issued a guarantee to a former subsidiary for its unsecured bonds up to the amount of $0.9 million. This guarantee expires in 2016.

We have credit facilities of up to a maximum of $329.7 million with banks which issue bonds for our industrial plant technology, equipment and service contracts. As of December 31, 2009, $166.7 million of the available credit facilities amount has been committed and there are no bonding claims outstanding against such credit facilities. As at December 31, 2009, cash of $25.0 million has been collateralized against these credit facilities. The banks charge 0.7% for issuing bonds. We are in compliance with the covenants stipulated in the credit facilities.


F.	Tabular Disclosure of Contractual Obligations


	Payments Due by Period
	(United States dollars in thousands)
Contractual Obligations as	Less than		1 - 3		3 - 5		More than
at December 31, 2009	1 Year		Years		Years		5 Years		Total

Long-term debt obligations	$	214	$	11,744	$	—	$	—	$	11,958
Operating lease obligations		3,079		3,473		1,061		937		8,550
Purchase obligations⁽¹⁾		153,636		—		—		—		153,636
Other long-term liabilities reflected on our balance sheet under Canadian GAAP⁽²⁾		—		15,607		—		—		15,607

Total	$	156,929	$	30,824	$	1,061	$	937	$	189,751


(1)		Purchases to complete our industrial plant technology, equipment and service contracts which are accounted for by the percentage-of-completion accounting method.

(2)		Not including pension obligations.


G.	Safe Harbor

Not Applicable.


ITEM 6	*Directors, Senior Management and Employees*


A.	Directors and Senior Management

We have no arrangement or understanding with major shareholders, customer, suppliers or others pursuant to which any of our directors or officers was selected as a director or officer. The following table sets forth the names of each of our directors and officers, as at March 26, 2010:


		Date of
		Commencement of		Expiration of Term
		Office with our		of Office with our
Name and age	Present Position with our Company	Company		Company

Michael J. Smith(61)	Non-Executive Chairman and Director		1986		2011
Jouni Salo(51)	President and Chief Executive Officer		2009		N/A
Alan Hartslief(51)	Chief Financial Officer and Secretary		2007		N/A
James Purkis(46)	Chief Operating Officer		2008		N/A
Dr. Shuming Zhao^(1)(2)(3)(55)	Director		2004		2010
Gerhard Rolf (70)⁽¹⁾	Director		2009		2010
Silke Stenger^(1)(2)(3)(41)	Director		2003		2011
Indrajit Chatterjee^(1)(2)(3)(64)	Director		2005		2012


(1)		Member of our audit committee.

(2)		Member of our compensation committee.

(3)		Member of our nominating and corporate governance committee.

Michael J. Smith — Non-Executive Chairman and Director

Mr. Smith has been our Non-Executive Chairman since 2003 and a director of our company since 1986. He was our Chief Financial Officer from 2003 until October 16, 2007 and was our Secretary until March 1, 2008. Mr. Smith was our President and Chief Executive Officer between 1996 and 2006. Mr. Smith is the President, Secretary and a director of Blue Earth Refineries Inc., a public company with its common shares registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Mr. Smith is the President and a director of Mass Financial Corp., our formerly wholly-owned subsidiary.

Mr. Smith has extensive experience in advisory services, corporate finance, restructuring and international taxation planning. Until November 2006, he led our investing and merchant banking activities.

Jouni Salo — President and Chief Executive Officer

Mr. Salo was appointed as the President and Chief Executive Officer of our company on April 13, 2009 and as the President of our Cement Division effective May 1, 2008. He was our Chief Operating Officer from November 1, 2008 until April 13, 2009. Mr. Salo has more than 25 years of international business experience in the industrial equipment market and broad based marketing and operational understanding at the senior executive level. Mr. Salo has served in a variety of senior positions with Metso Minerals Inc. and related operations. Most recently, he was President of the Construction Materials Business Line of Metso Minerals Inc. In this position he was responsible for the profitability and reorganization of one of the largest business divisions, having manufacturing plants in numerous parts of the world and with a strong focus on development of emerging markets. Previously, he played a pivotal role in the acquisition and integration of companies around the world. He holds a Bachelor of Science degree in Mechanical Engineering from the Technical College of Hameenlinna.

Alan Hartslief — Chief Financial Officer and Secretary

Mr. Hartslief has been our Chief Financial Officer since October 16, 2007 and our Secretary since March 1, 2008. Mr. Hartslief is an international member of the New York Society of CPAs and a Chartered Accountant in Canada and South Africa. Mr. Hartslief has more than 20 years experience in the finance and accounting areas. He has served in a variety of senior finance positions with Ciba-Geigy (now Novartis) and Ciba Specialty Chemicals. He has worked in South Africa, Canada, Switzerland and the United States. In his previous roles, he led programs for an initial public offering on the New York Stock Exchange and the establishment of global shared financial services centers. He also successfully managed the financial integration and separation of major acquisitions and divestments.

James Purkis — Chief Operating Officer

Mr. Purkis joined our company on June 1, 2008 as the President of the Construction Division, was named as our Executive Senior Vice President effective November 1, 2008, and was named our Chief Operating Officer effective August 12, 2009. He has more than 20 years of international business experience with broad-based marketing, operational and management expertise. Mr. Purkis has extensive experience in developing world class operations, management, project, tendering and sales teams in complex international multidisciplinary construction projects. Before joining our company, he held the position of General Manager and Project Director for Alstom Transport Singapore. In this role, Mr. Purkis was responsible for managing a major project on the Singapore Metro and had similar responsibilities for a major project in Taiwan. Mr. Purkis earned his Masters Degree in Business Administration from Lancaster University and his Bachelor Degree in Mechanical Engineering from Liverpool University. He is a Chartered Engineer in the United Kingdom. Mr. Purkis has provided us with notice that he intends to resign as Chief Operating Officer effective May 31, 2010.

Dr. Shuming Zhao — Director

Dr. Zhao has been a director of our company since 2004. Dr. Zhao is a professor and the Dean of the School of Business, Nanjing University and the Dean of the School of Graduate Studies, Macau University of Science and Technology. Dr. Zhao is President of Jiangsu Provincial Association of Human Resource Management and Vice President of Jiangsu Provincial Association of Business Management and Entrepreneurs. Dr. Zhao organized and held four international symposia on multinational business management in 1992, 1996, 1999 and 2002. Since 1994, Dr. Zhao has also acted as a management consultant for several Chinese and international firms. Since 1997, Dr. Zhao has been a visiting professor at the Marshall School of Business at the University of Southern California and he has lectured in countries including the United States, Canada, Japan, the United Kingdom, Germany, Australia, the Netherlands and Singapore. Since 2004, Dr. Zhao has been an independent director on the board of directors of Suning Electronic Co. Ltd.

Gerhard Rolf — Director

Mr. Rolf has been a director of our company since 2008. Mr. Rolf was the European Vice President of Haworth Inc. Prior to that, he held several positions with Black & Decker in increasing levels of responsibility, first as Managing Director for Germany, Eastern Europe and Russia. He was relocated to London to serve as Vice President-Total Quality Europe, and was a member of the European Board of Black & Decker. Later he became European President of Security Hardware in Bruehl, Germany. Mr. Rolf also was with NYSE listed Steelcase Group, as well as holding positions as Head of Finance and Treasury and Managing Director with several European companies. Mr. Rolf began his distinguished career with PricewaterhouseCoopers.

Silke Stenger — Director

Ms. Stenger has been a director of our company since 2003. She has been the Chief Financial Officer of Management One Human Capital Consultants since 2006. Previously, she was the Head of Investor Relations of Koidl & Cie. Holding AG from 1999 to 2002 and acted as an independent management consultant from 2002 to 2006.

Indrajit Chatterjee — Director

Mr. Chatterjee has been a director of our company since 2005. Mr. Chatterjee is a retired businessman who was formerly responsible for marketing with the Transportation Systems Division of General Electric for India. Mr. Chatterjee is experienced in dealing with Indian governmental issues.

Family Relationships

There are no family relationships between any of our directors, executive officers and proposed directors or executive officers.


B.	Compensation

During the fiscal year ended December 31, 2009, we paid an aggregate of approximately $3.2 million in cash compensation to our directors and officers, excluding directors’ fees. No other funds were set aside or accrued by our company during the fiscal year ended December 31, 2009 to provide pension, retirement or similar benefits for our directors or officers pursuant to any existing plan provided or contributed to by us.

Executive Compensation

The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2009 to the senior management of our company:

SUMMARY COMPENSATION TABLE


									Non-equity Incentive
									Compensation Plan
									Compensation
									($)
					Share-		Option-				Long-				All other			Total
					Based		Based		Annual		Term		Pension		Compen-			Compen-
			Salary		Awards		Awards		Incentive		Incentive		Value		sation			sation
Name and Principal Position	Year		($)		($)		($)		Plans		Plans		($)		($)			($)

Michael J. Smith⁽¹⁾		2009		222,250		—		—		—		—		—		164,398			386,648
Non-Executive Chairman and Director
Jouni Salo⁽²⁾		2009		490,952		—		—		314,594		—		—		16,504			822,050
President, Chief Executive Officer and former Chief Operating Officer
James Busche⁽³⁾		2009		30,000		—		—		—		—		—		202,680	⁽⁶⁾		232,680	⁽⁶⁾
Former Chief Executive Officer and President
Alan Hartslief⁽⁴⁾		2009		297,901		—		—		322,015		—		43,524		186,200			849,640
Chief Financial Officer and Secretary
James Purkis⁽⁵⁾		2009		331,020		—		—		211,444		—		—		64,128			606,592
Chief Operating Officer
George Zimmerman		2009		254,892		—		—		—		—		—		76,500	⁽⁷⁾		331,392
Senior Vice President


(1)		Mr. Smith resigned as our President and Chief Executive Officer effective March 7, 2006, our Chief Financial Officer effective October 16, 2007 and our Secretary effective March 1, 2008.

(2)		Mr. Salo was appointed as our Chief Operating Officer effective November 1, 2008 and, effective April 13, 2009, he was appointed as our President and Chief Executive Officer. He resigned as Chief Operating Officer effective August 12, 2009.

(3)		Mr. Busche ceased to hold the position of President and Chief Executive Officer effective April 13, 2009.

(4)		Mr. Hartslief was appointed our Chief Financial Officer effective October 16, 2007 and our Secretary effective March 1, 2008.

(5)		Mr. Purkis was appointed the President of our Construction Division effective June 1, 2008, Executive Vice-President effective November 1, 2008, and Chief Operating Officer effective August 12, 2009. Mr. Purkis has notified us that he intends to resign as our Chief Operating Officer effective May 31, 2010.

(6)		Includes $165,600 paid to Montgomery Partners Limited.

(7)		Includes $66,638 of long-term deferred compensation.

Directors’ Compensation

The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2009 to the directors of our company.


			Share-		Option-		Non-Equity
			Based		Based		Incentive Plan		Pension		All other
	Fees Earned		Awards		Awards		Compensation		Value		Compensation		Total
Name⁽¹⁾	($)⁽²⁾		($)		($)		($)		($)		($)		($)

Silke Stenger		189,000		—		—		—		—		—		189,000
Indrajit Chatterjee		148,950		—		—		—		—		—		148,950
Dr. Shuming Zhao		38,200		—		—		—		—		—		38,200
Gerhard Rolf⁽³⁾		60,208		—		—		—		—		—		60,208
Dr. Kelvin K. Yao⁽⁴⁾		15,000		—		—		—		—		—		15,000


(1)		Compensation provided to our director and Chairman, Michael Smith, is disclosed in the table above under the heading “Executive Compensation”.

(2)		Our directors are each paid an annual fee of $30,000 and $750 for each directors’ meeting attended as well as additional fees, as applicable, for their respective participation on our Audit and Compensation Committees.

(3)		Mr. Rolf was appointed a director of our company effective May 1, 2009.

(4)		Mr. Yao resigned as a director of our company effective May 1, 2009.

We also reimburse our directors and officers for expenses incurred in connection with their services as our directors and officers.

Employment Agreements and Termination of Employment or Change of Control

Effective March 1, 2008, we entered into an independent consulting agreement with Michael Smith, our Chairman, pursuant to which he will provide consulting services to our company. The agreement is for an indefinite term. Mr. Smith will be paid a consulting fee and other compensation as is mutually agreed to by him and our Compensation Committee, which fee is to be reviewed annually. His current monthly fee is $20,000. Mr. Smith will also be entitled to earn a bonus in the amount agreed to by him and our Compensation Committee upon the achievement of certain performance targets. In the event that the agreement is terminated by us or in the event of a change of control, Mr. Smith is entitled to receive a termination payment equal to the sum of three times the aggregate consulting fee paid to Mr. Smith in the previous twelve months plus the higher of his current bonus or the highest bonus received by him in the previous five years prior to such termination. In addition, all unvested rights in any stock options or other equity awards made to Mr. Smith will vest in full in the event of a change of control. Mr. Smith will also be entitled, for a period of 365 days following the earlier of the date of the termination of the agreement and the date of the change of control, to require us to purchase all or any part of our common shares held by Mr. Smith on the date of termination or date of change of control, at a price equal to the average closing market price of our common shares on the NYSE for the ten preceding trading days.

In 2009, our compensation committee made the decision to change our executive incentive program from an equity-based program to a cash-based program. The new executive incentive program offers cash incentive payouts in return for our executive officers achieving certain short-term, operational and strategic targets, established by the compensation committee. The intention of the program is to align and motivate our executive team during our current restructuring program and through the next three to five years.

The incentive plan has defined three sets of incentive targets: short-term, operational and strategic. The operational and strategic targets are longer term targets to be based on a business and strategic plan to be developed by management and approved by our directors. Incentive payments against the short-term targets are to be paid each year whereas incentive payments against the operational and strategic targets are to be earned annually but will accrue for distribution after three years. Due to the economic conditions in 2009, the strategic targets were not finalized.

The short-term targets included four elements: operating income; operational cash flow; receivables; and individual performance generally. If an executive achieves all four elements, then the executive will receive a bonus of 86% of their annual base salary. If the executive achieves the maximum (defined as 15% above the approved performance target), then the executive will receive a bonus of 150% of their annual base salary. If the executive achieves the minimum (defined as no more than 15% below the approved performance target), then the executive will receive a bonus of 50% of their annual base salary.

The operational targets included elements similar to the short-term targets. If the executive achieves the maximum (defined as 15% above the approved performance target), then the executive will accrue a bonus of 100% of their annual base salary. If the executive achieves the minimum (defined as no more than 15% below the approved performance target), then the executive will accrue a bonus of 50% of their annual base salary. This operational incentive would be paid upon approval by our directors of the audited financial statements for the year ended December 31, 2011.

In 2009, we also entered into new employment arrangements with each of Jouni Salo, Alan Hartslief and James Purkis. In connection with the implementation of the new incentive program and the entry into the new employment arrangements, each of Messrs. Salo, Hartslief and Purkis agreed to cancel the stock options held by or to be granted to them at that time in consideration for being eligible to receive incentive compensation under the new incentive program.

Effective April 13, 2009, we entered into a new employment arrangement with Jouni Salo whereby we employ him as our President and Chief Executive Officer and as an executive of one of our subsidiaries. The arrangement is for an indefinite term. Under the arrangement, Mr. Salo receives an annual base salary of €375,000. As discussed above, Mr. Salo is also eligible to participate in our incentive program, which consists of short term, operational and strategic incentive plans. His incentive compensation will be based on actual results as of June 30 and December 31 of each year, compared to short, medium and long term targets established by us from time to time, and will be earned by Mr. Salo provided that he was employed by us on June 30 and/or December 31 of each year. We have agreed that any incentive compensation payable to Mr. Salo will be at least 125% of the average of the compensation earned by our Chief Financial Officer and our Chief Operating Officer. In addition, we have agreed to provide certain other benefits to Mr. Salo, including among others, medical and dental insurance, extended health insurance, long term disability insurance, payment of school tuition expenses for his children and provision of a car. We also agreed to purchase life insurance for Mr. Salo in an amount equal to three times his base salary, payable to his beneficiary in the event of his death during employment with us. This policy will automatically terminate upon termination of his employment for any reason. In the event that Mr. Salo terminates his employment for good reason or we terminate his employment other than for just cause, Mr. Salo will be entitled to a severance payment of €750,000, payable in equal instalments over 24 months, and any incentive compensation earned by him as of the date of termination. Mr. Salo may terminate his employment other than for good reason upon giving us three months’ written notice, in which case he will not be entitled to any additional payments or benefits other than amounts due and owing to him as of the date of termination. We have also agreed to pay for all expenses to repatriate Mr. Salo to the United States if we terminate his employment other than for just cause. Mr. Salo has agreed not to disclose, use, copy, transfer or destroy any confidential information obtained during his employment. In addition, Mr. Salo has agreed for a period of two years from the termination of his employment not to solicit any of our clients on behalf of a competing business or solicit any of our employees to work for a competing business. We have agreed to indemnify Mr. Salo against any claims or legal actions of any nature whatsoever in connection with his role as a director, officer or employee of our company.

Effective January 1, 2009, we entered into a new employment arrangement with Alan Hartslief whereby we employ him as our Chief Financial Officer and as an executive of one of our subsidiaries. The arrangement is for an indefinite term. Under the arrangement, Mr. Hartslief receives an annual base salary of €291,000, which includes a housing allowance. As discussed above, Mr. Hartslief is also eligible to participate in our incentive program, which consists of short term, operational and strategic incentive plans. His incentive compensation will be based on actual results as of June 30 and December 31 of each year, compared to short, medium and long term targets established by us from time to time, and will be earned by Mr. Hartslief provided that he was employed by us on June 30 and/or December 31 of each year. In addition, we have agreed to provide certain other benefits to Mr. Hartslief, including among others, medical and dental insurance, extended health insurance, long term disability insurance, payment of school tuition expenses for his children, provision of a car and payment of relocation expenses. We also agreed to purchase life insurance for Mr. Hartslief in an amount equal to three times his base salary, payable to his beneficiary in the event of his death during employment with us. This policy will automatically terminate upon termination of his employment for any reason. In the event that Mr. Hartslief terminates his employment for good reason or we terminate his employment other than for just cause, Mr. Hartslief will be entitled to a severance payment of €582,000, payable in equal instalments over 24 months, and any incentive compensation earned by him as of the date of termination. Mr. Hartslief may terminate his employment other than for good reason upon giving us three months’ written notice, in which case he will not be entitled to any additional payments or benefits other than amounts due and owing to him as of the date of termination. We have also agreed to pay for all expenses to repatriate Mr. Hartslief to the United States if we terminate his employment other than for just cause. Mr. Hartslief has agreed not to disclose, use, copy, transfer or destroy any confidential information obtained during his employment. In addition, Mr. Hartslief has agreed for a period of two years from the termination of his employment not to solicit any

of our clients on behalf of a competing business or solicit any of our employees to work for a competing business. We have agreed to indemnify Mr. Hartslief against any claims or legal actions of any nature whatsoever in connection with his role as a director, officer or employee of our company.

Effective January 1, 2009, we entered into a new employment arrangement with James Purkis whereby we employ him as our Chief Operating Officer and as an executive of one of our subsidiaries. The arrangement is for an indefinite term. Under the arrangement, Mr. Purkis receives an annual base salary of €240,000. As discussed above, Mr. Purkis is also eligible to participate in our incentive program, which consists of short term, operational and strategic incentive plans. His incentive compensation will be based on actual results as of June 30 and December 31 of each year, compared to short, medium and long term targets established by us from time to time, and will be earned by Mr. Purkis provided that he was employed by us on June 30 and/or December 31 of each year. In addition, we have agreed to provide certain other benefits to Mr. Purkis, including among others, medical and dental insurance, extended health insurance, long term disability insurance, payment of school tuition expenses for his children, provision of a car, and payment of relocation expenses. We also agreed to purchase life insurance for Mr. Purkis in the amount equal to three times his base salary, payable to his beneficiary in the event of his death during employment with us. This policy will automatically terminate upon termination of his employment for any reason. In the event that Mr. Purkis terminates his employment for good reason or we terminate his employment other than for just cause, Mr. Purkis will be entitled to a severance payment of €480,000, payable in equal instalments over 24 months, and any incentive compensation earned by him as of the date of termination. Mr. Purkis may terminate his employment other than for good reason upon giving us three months’ written notice, in which case he will not be entitled to any additional payments or benefits other than amounts due and owing to him as of the date of termination. Mr. Purkis has agreed not to disclose, use, copy, transfer or destroy any confidential information obtained during his employment. In addition, Mr. Purkis has agreed for a period of two years from the termination of his employment not to solicit any of our clients on behalf of a competing business or solicit any of our employees to work for a competing business. We have agreed to indemnify Mr. Purkis against any claims or legal actions of any nature whatsoever in connection with his role as a director, officer or employee of our company. Mr. Purkis has given us notice of his intention to resign as of May 31, 2010.


C.	Board Practices

Our Articles provide for three classes of directors with staggered terms. Each director holds office until the expiry of his or her term or until his or her successor is elected or appointed, unless such office is earlier vacated in accordance with our Articles or with the provisions of the British Columbia Business Corporations Act. At each annual meeting of our company, a class of directors is elected to hold office for a three-year term. Successors to the class of directors whose terms expire are identified as being of the same class as the directors they succeed and are elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of his predecessor. The following table sets forth the date of expiration of the current term of office of each of our directors, as well as the period during which that person has served as a director:


			Expiration of
Name of Director	Director Since		Current Term

Indrajit Chatterjee		2005		2012
Michael J. Smith		1986		2011
Silke Stenger		2003		2011
Dr. Shuming Zhao		2004		2010
Gerhard Rolf		2009		2010

Other than as discussed above, there are no service contracts between our company and any of our directors providing for benefits upon termination of employment.

Our board of directors has established an audit committee. Our audit committee currently consists of Dr. Shuming Zhao, Silke Stenger, Gerhard Rolf and Indrajit Chatterjee. The audit committee operates pursuant to a charter adopted by the board of directors. A copy of our audit committee charter is attached as Exhibit 99.1 to our annual report filed with the Securities and Exchange Commission on April 3, 2006. The audit committee is appointed and generally acts on behalf of the board of directors. The audit committee is responsible primarily for monitoring: (i) the integrity of our financial statements; (ii) compliance with legal and regulatory requirements; and (iii) the independence and performance of our internal and external auditors. The audit committee also oversees our company’s financial reporting process and internal controls and consults with management and our independent auditors on matters related to our annual audit and internal controls, published financial statements, accounting principles and auditing procedures being applied.

Our board of directors has established a compensation committee. Our compensation committee currently consists of Dr. Shuming Zhao, Silke Stenger and Indrajit Chatterjee. The compensation committee operates pursuant to a compensation committee charter adopted by the board of directors. A copy of our compensation committee charter is attached as exhibit 99.2 to our annual report filed with the Securities and Exchange Commission on April 3, 2007. The compensation committee is appointed and generally acts on behalf of the board of directors. The compensation committee is responsible for reviewing and approving annual salaries, bonuses and other forms and items of compensation for the senior officers and employees of our company. Except for plans that are, in accordance with their terms or as required by law, administered by our board of directors or another particularly designated group, the compensation committee also administers and implements all of our stock option and other stock-based and equity-based benefit plans (including performance-based plans), recommends changes or additions to those plans and reports to our board of directors on compensation matters. Our Chief Executive Officer does not vote upon or participate in the deliberations regarding his compensation.

Effective July 15, 2005, we formed a nominating and corporate governance committee. The nominating and corporate governance committee currently consists of Silke Stenger, Dr. Shuming Zhao and Indrajit Chatterjee. The nominating and corporate governance committee operates pursuant to a charter adopted by our board of directors. A copy of our nominating and corporate governance charter is attached as Exhibit 99.3 to our annual report filed with the Securities and Exchange Commission on April 3, 2007. The primary function of the nominating and corporate governance committee is to assist our board of directors in developing our approach to corporate governance issues and monitoring performance against the defined approach. The nominating and corporate governance committee is also responsible for the nomination of directors by identifying and reporting on candidates to be nominated to our board of directors.


D.	Employees

At December 31, 2009, 2008 and 2007, we employed approximately 780, 1,270 and 1,224 people, respectively. In connection with the reorganization of our company, we have reduced our employee headcount to 772 people as of March 26, 2010.


E.	Share Ownership

There were 30,259,911 common shares, 441,664 stock options and no share purchase warrants issued and outstanding as of March 26, 2010. Of the shares issued and outstanding on that date, our directors and officers owned the following common shares:


	Number of		Number of
Name	Common Shares		Stock Options to Purchase
Office Held	Beneficially Owned	Percentage	Common Shares

Michael J. Smith⁽¹⁾ Non-Executive Chairman and Director	Nil	Nil	Nil
Jouni Salo⁽²⁾Chief Executive Officer and President	Nil	Nil	Nil
James Busche⁽³⁾Former Chief Executive Officer and President	Nil	Nil	Nil
Alan Hartslief⁽⁴⁾Chief Financial Officer and Secretary	Nil	Nil	Nil
James Purkis⁽⁵⁾Chief Operating Officer	Nil	Nil	Nil
George Zimmerman Senior Vice President	Nil	Nil	16,668, exercise price of $13.06 per share, expiry date of May 17, 2016;
			33,334, exercise price of $26.85 per share, expiry date of May 17, 2017
			33,332, exercise price of $31.81 per share, expiry date of May 19, 2018
Dr. Shuming Zhao Director	Nil	Nil	Nil
Gerhard Rolf⁽⁶⁾Director	Nil	Nil	Nil
Dr. Kelvin K. Yao⁽⁷⁾Director	Nil	Nil	Nil
Silke Stenger Director	Nil	Nil	Nil
Indrajit Chatterjee Director	Nil	Nil	Nil


(1)		Mr. Smith resigned as our President and Chief Executive Officer effective March 7, 2006, our Chief Financial Officer effective October 16, 2007 and our Secretary effective March 1, 2008.

(2)		Mr. Salo was appointed as the President of our company effective April 13, 2009 and as President of our Cement Division effective May 1, 2008. Mr. Salo was our Chief Operating Officer from November 1, 2008 until August 12, 2009.

(3)		Mr. Busche ceased to hold the position of President and Chief Executive Officer effective April 13, 2009.

(4)		Mr. Hartslief was appointed our Chief Financial Officer effective October 16, 2007 and our Secretary effective March 1, 2008.

(5)		Mr. Purkis was appointed the President of our Construction Division effective June 1, 2008, Executive Vice-President effective November 1, 2008, and Chief Operating Officer effective August 12, 2009. Mr. Purkis has notified us that he intends to resign as our Chief Operating Officer effective May 31, 2010.

(6)		Mr. Rolf was appointed as a director of our company effective May 1, 2009.

(7)		Dr. Yao resigned as a director of our company effective May 1, 2009.

Stock Option Plan

We have an incentive stock option plan that provides for the grant of incentive stock options to purchase our common shares to our directors, officers and key employees and other persons providing ongoing services to us. Our stock option plan is administered by our board of directors. The maximum number of our common shares which may be reserved and set aside for issuance under our stock option plan is 5,524,000. Each option upon its exercise entitles the grantee to purchase one common share. The exercise price of an option may not be less than the closing market price of our common shares on the New York Stock Exchange, on the day prior to the date of grant of the option. In the event our common shares are not traded on such day, the exercise price may not be less than the average of the closing bid and ask prices of our common shares on the New York Stock Exchange, for the ten trading days immediately prior to the date the option is granted. Options may be granted under our stock option plan for an exercise period of up to ten years from the date of grant of the option. We did not grant any options during the year ended December 31, 2009. There were 441,664 options outstanding as at December 31, 2009. There were 1,315,680 options available for grant under the stock option plan as at March 26, 2010.

Equity Incentive Plan

In August, 2008, our shareholders passed a resolution adopting an equity incentive plan to further align the interests of employees and directors with those of our shareholders by providing incentive compensation opportunities tied to the performance of our common stock and by promoting increased ownership of our common stock by such individuals. The equity incentive plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock awards, stock awards, stock unit awards, performance stock awards and tax bonus awards to eligible employees, officers, directors and consultants to acquire up to an aggregate of 1,500,000 shares of our common stock. Subject to the terms of the plan, a committee, as appointed by our board of directors, may grant awards under the plan, establish the terms and conditions for those awards, construe and interpret the plan and establish rules for the plan’s administration. During the year ended December 31, 2009, no awards were granted under the equity incentive plan. There are 1,500,000 shares of our common stock available to be issued pursuant to an award under the plan as at March 26, 2010.


ITEM 7	*Major Shareholders and Related Party Transactions*


A.	Major Shareholders

There were 30,259,911 common shares issued and outstanding as of March 26, 2010. The following table sets forth, as of March 26, 2010, persons known to us to be the beneficial owner of more than five percent (5%) of our common shares:


Name	Amount Owned			Percent of Class⁽¹⁾

Peter Kellogg		6,283,100	⁽²⁾		20.8	%


(1)		Based on 30,259,911 common shares issued and outstanding on March 26, 2010.

(2)		In his public filings, Mr. Kellogg disclaims beneficial ownership of 5,643,100 of the shares, or approximately 18.6% of our issued and outstanding common shares.

The voting rights of our major shareholders do not differ from the voting rights of holders of our company’s shares who are not major shareholders.

As of March 26, 2010, there were 30,259,911 common shares issued and outstanding held by 563 registered holders. Of those common shares issued and outstanding, 168,256 common shares were registered in Canada (56 registered shareholders), 30,041,187 common shares were registered in the United States (494 registered shareholders) and 50,468 common shares were registered in other foreign countries (13 registered shareholders).

To the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.

There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our company.


B.	Related Party Transactions

Other than as disclosed herein, to the best of our knowledge, there have been no material transactions or loans, between January 1, 2009 and March 26, 2010, between our company and (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that

gives them significant influence over our company, and close members of any such individual’s family; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.

In the normal course of operations, we enter into transactions with related parties which include, among others, affiliates whereby we have a significant equity interest (10% or more) in the affiliates or have the ability to influence the affiliates’ or our operating and financing policies through significant shareholding, representation on the board of directors, corporate charter and/or bylaws. These related party transactions are measured at the exchange value, which represents the amount of consideration established and agreed to by all the parties.

Continuing Operations

1. Transactions with related parties during the years:


	2009			2008			2007

Dividend income on common shares⁽¹⁾	$	280		$	—		$	238
Royalty expense paid and payable⁽¹⁾		(614	)		(815	)		(1,025	)
Fee income		494			94			—
Fee expense for managing resource property		(839	)		(1,707	)		(1,118	)
Fee expense for management services, including expense reimbursements		(4,059	)		(4,303	)		(1,308	)
Interest income — net investment income on preferred shares of former subsidiaries		—			3,782			3,751
Interest income — other		309			—			(48	)
Interest expense		(447	)		(21	)		(530	)
Impairment charge on a receivable		—			—			(238	)


(1)		Included in income from royalty interest in resource property.

2. Balance with related parties at December 31:


		2009		2008

Other receivables	Investment income	$	62	$	21
Other receivables	Due from affiliates		218		1,957
Other receivables	Income on the preferred shares of former subsidiaries		—		9,265
Equity method investments			73		325
Investment in preferred shares of former subsidiaries			—		19,125
Accounts payable and accrued expenses	Due to affiliates		1,594		844
Accounts payable and accrued expenses	Interest due to a former subsidiary		—		2,681

3. Other:

During 2006, we agreed to pay our former Chief Executive Officer’s expenses as part of his short-term employment arrangement. As a result of an amendment to our former Chief Executive Officer’s employment arrangement in January, 2007, the former Chief Executive Officer agreed to reimburse us for such expenses. During 2007, we paid expenses amounting to $19,000 on behalf of the Chief Executive Officer. The amount was outstanding as of December 31, 2007 and was repaid in full in February, 2008. In addition, we paid management fee expenses amounting to $0.2 million, $1.3 million and $1.9 million in 2009, 2008 and 2007, respectively, to a corporation in which our former Chief Executive Officer has an ownership interest.

During 2007, we acquired an investment in a private company from an affiliate for $50,000.

Discontinued Operations

There were no discontinued operations in 2009. We did not earn any income nor incur any expenses in our discontinued operations with related parties in 2008.

In November, 2006, we completed the disposition of our equity interest in MFC Corporate Services to a wholly-owned subsidiary of Mass Financial. The consideration was determined by reference to the carrying value

of our investment in MFC Corporate Services as of September 30, 2006 of $68.2 million (Cdn$77.9 million) and comprised cash of Cdn$38.8 million (Cdn$31.1 million paid in November 2006 and Cdn$7.7 million to be paid on or before the day which is the earlier of 30 calendar days after (i) the date on which the triggering event (as defined) has occurred and (ii) March 31, 2007), a short-term promissory note of Cdn$8.0 million due November 2007 bearing interest at 5% per annum and 1,580,000 of our common shares valued at initial share value of Cdn$31.1 million. The initial valuation of 1,580,000 shares of our common stock was subject to an adjustment which equals to the positive balance, if any, between the initial share value and the market price on the payment date. The wholly-owned subsidiary of Mass Financial had a put option to sell 9.9% common shares of MFC Corporate Services to us on the Payment Date.

We agreed with Mass Financial that April 30, 2007 was the Payment Date and the market price of our common shares was $23.815 per share on the Payment Date. Accordingly, an adjustment of $10.1 million (Cdn$10.9 million) was recorded as an adjustment to the price of the treasury shares acquired as part of this transaction. The wholly-owned subsidiary of Mass Financial also exercised a put option to sell 9.9% common shares of MFC Corporate Services to us for Cdn$8.0 million on the Payment Date.

In March, 2007, and amended on June 29, 2007, we entered into an arrangement agreement with SWA Reit Ltd., a corporation governed by the laws of Barbados, contemplating an arrangement under Section 288 of the British Columbia Business Corporations Act, whereby, we agreed to transfer certain real estate interests and other assets indirectly held by us to SWA Reit and then distribute all of the Austrian depositary certificates representing the common shares of SWA Reit held by us to our shareholders in exchange for a reduction of the paid up capital with respect to our common shares. The arrangement was approved by our shareholders at our annual and special shareholders’ meeting held on July 27, 2007, and adjourned to August 3, 2007. September 25, 2007 was set as the record date for the distribution to our shareholders of the Austrian depository certificates representing the common shares of SWA Reit, at which time we effectively distributed, by way of reduction of capital, our ownership interest in SWA Reit. On the distribution date, the fair value of the net assets of SWA Reit amounted to $56.3 million. The real estate interests and other assets transferred to SWA Reit were not complimentary to our industrial plant technology, equipment and services business. The distribution of Austrian depositary certificates (or common shares of SWA Reit) did not significantly change the economic interests of our shareholders in the assets of our company. SWA Reit was liquidated and dissolved in 2009.


C.	Interests of Experts and Counsel

Not applicable.


ITEM 8	*Financial Information*


A.	Consolidated Statements and Other Financial Information

Our financial statements are stated in United States dollars and are prepared in accordance with Canadian GAAP. In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars.

Financial Statements Filed as Part of the Annual Report:

Report of Independent Registered Chartered Accountants, Deloitte & Touche LLP, dated March 26, 2010 on the Consolidated Financial Statements of our company as at December 31, 2009 and 2008

Comments by Independent Registered Chartered Accountants, Deloitte & Touche LLP dated March 26, 2010, on Canada — United States of America Reporting Difference

Report of Independent Registered Chartered Accountants, Deloitte & Touche LLP dated March 26, 2010, on the effectiveness of internal controls over financial reporting as of December 31, 2009

Consolidated Balance Sheets as at December 31, 2009 and 2008

Consolidated Statements of Income (Loss) for the years ended December 31, 2009, 2008 and 2007

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2009, 2008 and 2007

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2009, 2008 and 2007

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007

Notes to Consolidated Financial Statements

The Audited Consolidated Financial Statements for the Years Ended December 31, 2009, 2008 and 2007 can be found under “Item 17 — Financial Statements”.

Legal Proceedings

We are subject to routine litigation incidental to our business and are named from time to time as a defendant in various legal actions arising in connection with our activities, certain of which may include large claims for punitive damages.

Dividend Distributions

The actual timing, payment and amount of dividends paid on our common shares is determined by our board of directors, based upon things such as our cash flow, results of operations and financial condition, the need for funds to finance ongoing operations and such other business consideration as our board of directors considers relevant.


B.	Significant Changes

See “Item 5 — Operating Results — Restructuring Activity” and “Item 5 — Operating Results — Fair Value Loss on Preferred Shares of Mass Financial and its Former Subsidiary”.


ITEM 9	*The Offer and Listing*

A Offer and Listing Details

Since June 18, 2007, our common shares have been quoted on the New York Stock Exchange under the symbol “KHD”. Previously, our common shares were traded on the Nasdaq Global Select Market under the symbol “KHDH”. We voluntarily terminated our listing on the Nasdaq Global Select Market and the last day of trading of our common shares on the Nasdaq Global Select Market was June 15, 2007. The following table sets forth the high and low sales of prices of our common shares on the New York Stock Exchange and the Nasdaq Global Select Market for the periods indicated.


	Exchange⁽¹⁾
	High (U.S.$)⁽²⁾		Low (U.S.$)⁽²⁾

Annual Highs and Lows
2005		13.26		7.75
2006		22.10		10.34
2007		45.74		18.00
2008		35.79		6.50
2009		14.20		6.65
Quarterly Highs and Lows
2008
First Quarter		32.43		20.85
Second Quarter		35.79		23.61
Third Quarter		31.47		18.11
Fourth Quarter		21.00		6.50
2009
First Quarter		13.59		6.65
Second Quarter		9.60		6.81
Third Quarter		12.39		8.12
Fourth Quarter		14.20		8.90
Monthly Highs and Lows
2009
September		12.39		9.09
October		11.42		9.10
November		12.57		8.90
December		14.20		11.65
2010
January		16.10		12.50
February		14.28		11.82
March (to March 23, 2009)		14.63		13.50


(1)		Shares were traded on the Nasdaq Global Select Market up to and including June 15, 2007 and then on the NYSE on and after June 18, 2007.

(2)		All numbers have been adjusted to reflect the two (2) for one (1) stock split effective September 10, 2007.

The transfer of our common shares is managed by our transfer agent, BNY Mellon Shareowner Services, 480 Washington Boulevard, Jersey City, NJ 07310 (Tel: 201-680-5258; Fax: 201-680-4604).


B.	Plan of Distribution

Not applicable.


C.	Markets

Our common shares are quoted on the New York Stock Exchange under the symbol “KHD”.


D.	Selling Shareholders

Not applicable.


E.	Dilution

Not applicable.


F.	Expenses of the Issue

Not applicable.


ITEM 10	*Additional Information*


A.	Share Capital

Not Applicable.


B.	Memorandum and Articles of Association

We are organized under the laws of the Province of British Columbia, Canada and have been assigned the number C0707841.

Our Articles do not contain a description of our objects and purposes.

Our Articles do not restrict a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested, vote compensation to themselves or any other members of their body in the absence of an independent quorum or exercise borrowing powers. There is no mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve as directors.

Our authorized capital consists of an unlimited number of common shares without par value and an unlimited number of Class A preferred shares without par value. Our Class A preferred shares may be issued in one or more series and our directors may fix the number of shares which is to comprise each series and designate the rights, privileges, restrictions and conditions attaching to each series.

Holders of our common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, receive any dividend declared by us and, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares, receive the remaining property of our company upon dissolution.

Our Class A preferred shares of each series rank on a parity with our Class A preferred shares of any other series and are entitled to a preference over our common shares with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of our company.

The provisions in our Articles attaching to our common shares and Class A preferred shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the common shares and two-thirds of the Class A preferred shares, respectively, present in person or by proxy at any such meeting of holders.

Our Articles provide for three classes of directors with staggered terms. Each director holds office until the expiry of his term or until his successor is elected or appointed, unless his office is earlier vacated in accordance with our Articles or with the provisions of the British Columbia Business Corporations Act. At each annual meeting of

our company, a class of directors is elected to hold office for a three year term. Successors to the class of directors whose terms expire are identified as being of the same class as the directors they succeed and are elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of his predecessor.

An annual meeting of shareholders must be held at such time in each year that is not later than fifteen months after the last preceding annual meeting and at such place as our board of directors, or failing it, our Chairman, Managing Director or President, may from time to time determine. The holders of not less than five percent of our issued shares that carry the right to vote at a meeting may requisition our directors to call a meeting of shareholders for the purposes stated in the requisition. The quorum for the transaction of business at any meeting of shareholders is two persons who are entitled to vote at the meeting in person or by proxy. Only persons entitled to vote, our directors and auditors and others who, although not entitled to vote, are otherwise entitled or required to be present, are entitled to be present at a meeting of shareholders.

Except as provided in the Investment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia, or in our charter documents. See “Exchange Controls” below for a discussion of the principal features of the Investment Canada Act for non-Canadian residents proposing to acquire our common shares.

As set forth above, our Articles contain certain provisions that would have an effect of delaying, deferring or preventing a change in control of our company, including authorizing the issuance by our board of directors of preferred stock in series, providing for a classified board of directors with staggered, three-year terms and limiting the persons who may call special meetings of shareholders. Our Articles do not contain any provisions that would operate only with respect to a merger, acquisition or corporate restructuring of our company.

Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.


C.	Material Contracts

The following summary of certain material provisions of the agreements referenced below is not complete and these provisions are qualified in their entirety by reference to the full text of such agreements.

In February, 2010, we entered into an Arrangement Agreement with our subsidiary, KHD Humboldt Wedag International (Deutschland) AG (“KID”), whereby we have agreed, subject to receipt of shareholder approval and the satisfaction of other conditions as set forth in the agreement, to distribute to our shareholders, as a first tranche, two shares of KID for each seven shares of our common stock held. In the event that the Arrangement is approved, we also intend to enter into a shareholders agreement with an independent, third-party custodian, whereby we will engage the custodian to direct the voting of the shares of KID we continue to hold upon completion of the distribution of the first tranche of the KID shares to our shareholders.

In October, 2009, we entered into an Amendment Agreement to an uncommitted revolving guarantee dated October 9, 2007 (as previously amended on March 6, 2009) whereby our subsidiary, KHD Humboldt Wedag Machinery Equipment (Beijing) Co. Ltd. (“KHD China”), and our former subsidiary, KHD Humboldt Wedag (Shanghai) International Industries Ltd. (“KHD Shanghai”), can borrow up to RMB 20 million from Raiffeisenbank Zentralbank Österreich AG (“RZB”) for the issuance of advance payment guarantees, performance bonds, bid bonds and warranty guarantees until December 31, 2011. It was agreed that no further security instruments will be issued to KHD Shanghai. On March 6, 2009, we issued a payment guarantee to RZB under the facility that is valid until January 15, 2013. In the event that the Arrangement is approved, the uncommitted revolving guarantee facility will be transferred to KHD China in its entirety and the guarantee will be terminated.

In August, 2009, effective October 7, 2009, in order to dispose of (i) our coal and minerals business; and (ii) our workshop in Cologne, Germany, we entered into corresponding share purchase and asset purchase agreements, respectively, with MBE Holding Pte. Limited (“MBE-PTE”) and Cologne Engineering Gmbh (“CEG”). Both MBE-PTE and CEG are ultimately controlled by McNally Bharat Engineering Company Ltd. With respect to the sale of the coal and minerals business, three share purchase agreements were entered into, with MBE-PTE as purchaser and KHD Humboldt Wedag International GmbH (“KIA”) and Humboldt Wedag India Private Ltd. (“HW India”) as sellers. Under these agreements: (i) KIA sold its shareholdings in Humboldt Wedag South Africa for the purchase price of $137,000; (ii) KID sold its shareholdings in Humboldt Wedag Coal & Minerals Technology GmbH for a purchase price of $4.3 million; and (iii) HW India demerged its entire coal and minerals operations into the Indian company, Humboldt Wedag Minerals India Pvt Ltd., in return for 339,323 shares of that company. HW India then sold those shares to MBE-PTE in consideration for the payment of $3.02 million. To dispose of the Cologne workshop, Humboldt Wedag GmbH sold certain assets and liabilities pertaining to the workshop to CEG

under an asset purchase agreement for the base purchase price of $33,000, which was paid immediately, and a contingent purchase price which will be paid later. The contingent purchase price will be finally determined within one month of October 7, 2013 and will be 50% of €5.7 million, less adjustments for possible severance payments to employees and investments in the production facilities. To secure the payment of this contingent purchase price, Commerzbank AG, Dusseldorf, has issued a first demand payment guarantee, in the amount of €4.5 million, for the benefit of Humboldt Wedag GmbH, which is valid until April 1, 2014. Pursuant to the terms of the agreement, we have generally reserved the right to continue to have construction contracts performed in the Cologne workshop.

Effective January 1, 2009, we entered into employment agreements with each of Jouni Salo, Alan Hartslief and James Purkis. For a description of the terms of these agreements, see “Item 6 — Directors, Senior Management and Employees — Executive Compensation”.

In November, 2009, we entered into an Amendment Agreement to the Revolving Letter of Guarantee Agreement dated November 30, 2006 (as previously amended on June 10, 2008 and October 27, 2008), whereby we agreed to guarantee to secure the due and punctual payment by KIA and its subsidiaries of all principal, interest, commission and all other monies due and payable under a bonding facility made available by RZB. The amending agreement reduced the amount of the bonding facility from €300,000,000 to €195,000,000. The bonding facility will expire on November 25, 2010, unless extended by another term of one year. Under the bonding facility, security instruments, such as sureties, stand-by letters of credit and guarantees, may be granted to the customers of certain of our subsidiaries. Our subsidiaries have each issued deficiency guarantees in favour of RZB as collateral for security instruments that may be granted to them under the bonding facility. It is paired with an assignment of all receivable and all present and future claims relating to the relevant underlying security instruments against customers of the subsidiaries in whose favour a security instrument is issued by RZB. Assuming completion of the Arrangement, our subsidiary, KHD Humboldt Wedag GmbH, will accede to the bonding facility as an additional guarantor until KID accedes as borrower to the bonding facility. The bonding facility shall be continued until the expiration of its term on November 25, 2010. It is expected that immediately upon the completion of the Arrangement, we will use best efforts to transfer the bonding facility to KID, resulting in KID replacing KIA as the borrower under the bonding facility.

In March, 2008, we entered into an Independent Consultant Agreement with Michael Smith, our Chairman, pursuant to which he provides consulting services to our company.


D.	Exchange Controls

There are presently no governmental laws, decrees or regulations in Canada which restrict the export or import of capital, or which impose foreign exchange controls or affect the remittance of interest, dividends or other payments to non-resident holders of our common shares. However, any remittances of dividends to shareholders not resident in Canada are subject to withholding tax in Canada. See “Item 10 — Additional Information — Taxation”.

Except as provided in the Investment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia or in our charter documents. The following summarizes the principal features of the Investment Canada Act for non-Canadian residents proposing to acquire our common shares.

This summary is of a general nature only and is not intended to be, and should not be construed to be, legal advice to any holder or prospective holder of our common shares, and no opinion or representation to any holder or prospective holder of our common shares is hereby made. Accordingly, holders and prospective holders of our common shares should consult with their own legal advisors with respect to the consequences of purchasing and owning our common shares.

The Investment Canada Act governs the acquisition of Canadian businesses by non-Canadians. Under the Investment Canada Act, non-Canadian persons or entities acquiring “control” (as defined in the Investment Canada Act) of a corporation carrying on business in Canada are required to either notify, or file an application for review with, Industry Canada, unless a specific exemption, as set out in the Investment Canada Act, applies. Industry Canada may review any transaction which results in the direct or indirect acquisition of control of a Canadian business, where the gross value of corporate assets exceeds certain threshold levels (which are higher for investors from members of the World Trade Organization, including United States residents, or World Trade Organization member-controlled companies) or where the activity of the business is related to Canada’s cultural heritage or national identity. No change of voting control will be deemed to have occurred, for purposes of the Investment Canada Act, if less than one-third of the voting control of a Canadian corporation is acquired by an investor. In addition, recent amendments to the Investment Canada Act permit the Canadian government to review any investment where the responsible Minister has reasonable grounds to believe that an investment by a non-Canadian

could be injurious to national security. No financial threshold applies to a national security review. The Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. Review can occur before or after closing and may apply to corporate re-organizations where there is no change in ultimate control.

If an investment is reviewable under the Investment Canada Act, an application for review in the form prescribed is normally required to be filed with Industry Canada prior to the investment taking place, and the investment may not be implemented until the review has been completed and the Minister responsible for the Investment Canada Act is satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian applicant must not implement the investment, or if the investment has been implemented, may be required to divest itself of control of the Canadian business that is the subject of the investment. The Minister is required to provide reasons for a decision that an investment is not of net benefit to Canada.

Certain transactions relating to our common shares will generally be exempt from the Investment Canada Act, subject to the Minister’s prerogative to conduct a national security review, including:


	(a)	the acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;


	(b)	the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act; and


	(c)	the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of our company, through ownership of our common shares, remains unchanged.


E.	Taxation

Material Canadian Federal Income Tax Consequences

We consider that the following general summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, who is not, will not be and will not be deemed to be, a resident of Canada for purposes of the Income Tax Act (Canada) and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his common shares in the capital of our company in connection with carrying on a business in Canada (a “non-resident holder”).

This summary is based upon the current provisions of the Income Tax Act, the regulations thereunder (the “Regulations”), the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Canada-United States Tax Convention (1980), as amended (the “Treaty”). This summary also takes into account the amendments to the Income Tax Act and the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax consequences described herein.

This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.

Dividends

Dividends paid on our common shares to a non-resident holder will be subject under the Income Tax Act to withholding tax which tax is deducted at source by our company. The withholding tax rate for dividends prescribed by the Income Tax Act is 25% but this rate may be reduced under the provisions of an applicable tax treaty. Under the Treaty, the withholding tax rate is reduced to 15% on dividends paid by our company to residents of the United

States and is further reduced to 5% where the beneficial owner of the dividends is a corporation resident in the United States that owns at least 10% of the voting shares of our company.

Capital Gains

A non-resident holder is not subject to tax under the Income Tax Act in respect of a capital gain realized upon the disposition of a common share of our company unless such share is “taxable Canadian property” (as defined in the Income Tax Act) of the non-resident holder. Our common shares generally will not be taxable Canadian property of a non-resident holder unless the non-resident holder alone or together with non-arm’s length persons owned, or had an interest in an option in respect of, not less than 25% of the issued shares of any class of our capital stock at any time during the 60 month period immediately preceding the disposition of the shares. In the case of a non-resident holder resident in the United States for whom shares of our company are taxable Canadian property, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada.

Material United States Federal Income Tax Consequences

The following is a general discussion of certain possible United States Federal foreign income tax matters under current law, generally applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all aspects of United States Federal income tax matters and does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. See “Certain Canadian Federal Income Tax Consequences” above.

The following discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. No assurance can be given that the IRS will agree with such statements and conclusions, or will not take, or a court will not adopt, a position contrary to any position taken herein.

The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal, business or tax advice to any holder or prospective holder of our common shares, and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares are urged to consult their own tax advisors with respect to Federal, state, local, and foreign tax consequences of purchasing, owning and disposing of our common shares.

U.S. Holders

As used herein, a “U.S. Holder” includes a holder of less than 10% of our common shares who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity which is taxable as a corporation for United States tax purposes and any other person or entity whose ownership of our common shares is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.

Distributions

The gross amount of a distribution paid to a U.S. Holder will generally be taxable as dividend income to the U.S. Holder for United States federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions which are taxable dividends and which meet certain requirements will be “qualified dividend income” and taxed to U.S. Holders at a maximum United States federal rate of 15%. Distributions in excess of our current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent the U.S. Holder’s tax basis in the common shares and, to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such shares.

Capital Gains

In general, upon a sale, exchange or other disposition of common shares, a U.S. Holder will generally recognize a capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other distribution and the U.S. Holder’s adjusted tax basis in such shares. Such gain or loss will be a United States source gain or loss and will be treated as a long-term capital gain or loss if the U.S. Holder’s holding period of the shares exceeds one year. If the U.S. Holder is an individual, any capital gain will generally be subject to United States federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.

Foreign Tax Credit

A U.S. Holder who pays (or has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the tax credit, among which is an ownership period requirement and the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. The availability of the foreign tax credit and the application of these complex limitations on the tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.

Passive Foreign Investment Corporation

We do not believe that we are a passive foreign investment corporation (a “PFIC”). However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets and shares from time to time, there is no assurance that we will not be considered a PFIC for any taxable year. If we were treated as a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse tax consequences could apply to the U.S. Holder.

If we are treated as a PFIC for any taxable year, gains recognized by such U.S. Holder on a sale or other disposition of shares would be allocated ratably over the U.S. Holder’s holding period for the shares. The amount allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in respect of shares in excess of 125% of the average of the annual distributions on shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available to U.S. Holders that may mitigate some of the adverse consequences resulting from PFIC status. However, regardless of whether such elections are made, dividends paid by a PFIC will not be “qualified dividend income” and will generally be taxed at the higher rates applicable to other items of ordinary income.

U.S. Holders and prospective holders should consult their own tax advisors regarding the potential application of the PFIC rules to their ownership of our common shares.


F.	Dividends and Paying Agents

Not applicable.


G.	Statement by Experts

Not applicable.


H.	Documents on Display

Documents and agreements concerning our company may be inspected at the offices of Clark Wilson LLP, Suite 800-885 West Georgia Street, Vancouver, British Columbia, Canada.


I.	Subsidiary Information

For a list of our significant wholly-owned direct and indirect subsidiaries and significant non-wholly-owned subsidiaries, see “Item 4 — Information on the Company — Organizational Structure”.


ITEM 11	*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to market risks from changes in interest rates, foreign currency exchange rates and equity prices which may affect our results of operations and financial condition and, consequently, our fair value. Generally, our management believes that our current financial assets and financial liabilities, due to their short-term nature, do not pose significant financial risks. We use various financial instruments to manage our exposure to various financial risks. The policies for controlling the risks associated with financial instruments include, but are not limited to, standardized company procedures and policies on matters such as hedging of risk exposures, avoidance of undue concentration of risk and requirements for collateral (including letters of credit) to mitigate credit risk. We have risk managers and internal auditors to perform audits and checking functions to ensure that company procedures and policies are complied with.

We use derivative instruments to manage certain exposures to currency exchange rate risks. The use of derivative instruments depends on our management’s perception of future economic events and developments. These types of derivative instruments are generally highly speculative in nature. They are also very volatile as they are highly leveraged given that margin requirements are relatively low in proportion to notional amounts.

Many of our strategies, including the use of derivative instruments and the types of derivative instruments selected by us, are based on historical trading patterns and correlations and our management’s expectations of future events. However, these strategies may not be fully effective in all market environments or against all types of risks. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future. If any of the variety of instruments and strategies we utilize are not effective, we may incur losses.

The following tabular disclosures include fair values of our market risk sensitive instruments and the amount of expected future cash flows from the instruments for each of the five years following the balance sheet date, and for the remaining years in aggregate. Fair value estimates are made at a specific point in time and are based on relevant market information about such instruments. However, for financial instruments in an inactive market, the fair value estimates are based on financial valuation models which are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The estimates of the expected future cash flows are based on certain assumptions, including management’s intentions, business strategies and interpretation of contractual terms of the financial instruments. Changes in assumptions could significantly affect the estimates of both fair value and the expected future cash flows. Accordingly, the following tables may fail to depict the effect on the risk positions and assumptions caused by any significant changes in the economy, changes in management’s expectations or intentions, or unilateral changes in contractual terms by counterparties.

Derivatives

As of December 31, 2009 and 2008, we had foreign currency forward contracts and options with aggregate notional amounts of $10.5 million and $28.9 million, respectively, for the purpose of covering our payment obligations to trade suppliers and our export trades receivable. We recognized net fair value gains of $0.2 million and $1.1 million in 2009 and 2008, respectively.

Interest Rate Risk

Fluctuations in interest rates may affect the fair value of fixed interest rate financial instruments sensitive to interest rates. An increase in market interest rates may decrease the fair value of our financial instrument assets and increase the fair value of our financial instrument liabilities. A decrease in market interest rates may increase the fair value of our financial instrument assets and decrease the fair value of our financial instrument liabilities. Our financial instruments which may be sensitive to interest rate fluctuations are long-term receivables and debt obligations. The following tables provide information about our exposure to interest rate fluctuations for the

carrying amounts of financial instruments that may be sensitive to such fluctuations as at December 31, 2009 and 2008, respectively, and expected cash flows from these instruments.


As at December 31, 2009
(In thousands)
					Expected Cash Flow⁽¹⁾
	Carrying Value		Fair Value		2010		2011		2012		2013		2014		Thereafter

Long-term receivables	$	6,332	$	6,332	$	253	$	6,481		—		—		—		—
Debt obligations	$	11,649	$	11,649	$	214	$	11,744		—		—		—		—


(1)		Including interest and dividends where applicable.


As at December 31, 2008
(In thousands)
					Expected Cash Flow⁽¹⁾
	Carrying Value		Fair Value		2009		2010		2011		2012		2013		Thereafter

Debt obligations	$	11,313	$	11,313	$	277	$	277	$	11,451		—		—		—


(1)		Including interest and dividends where applicable.

Our investment in the preferred shares of Mass Financial and one of its former subsidiaries, with a carrying amount (which approximates estimated fair value) of $nil and $19.1 million, respectively, as at December 31, 2009 and 2008. The preferred shares were subject to interest rate risk. Since quoted prices for the preferred shares were not available, we determined the fair value of the preferred shares using a discounted cash flow model. As a result, we recognized a fair value loss of $55.1 million on the preferred shares in the year ended December 31, 2008. In 2009, we settled our interest in the preferred shares with Mass Financial. For more information, see the section entitled “Settlement of Preferred Shares of Mass Financial and its Former Subsidiary” and Notes 4 and 11 to our audited consolidated financial statements included in this annual report.

Foreign Currency Exchange Rate Risk

Our reporting currency is the U.S. dollar. We hold financial instruments primarily denominated in United States dollars and Euros and we have a Canadian dollar denominated investment in the preferred shares of former subsidiaries. A depreciation of such currencies against the U.S. dollar will decrease the fair value of our financial instrument assets and liabilities. An appreciation of such currencies against the United States dollar will increase the fair value of our financial instrument assets and liabilities. Our financial instruments which may be sensitive to foreign currency exchange rate fluctuations are long-term receivables, investments and debt obligations. The following tables provide information about our exposure to foreign currency exchange rate fluctuations for the carrying amount of financial instruments that may be sensitive to such fluctuations as at December 31, 2009 and 2008, respectively, and expected cash flows from these instruments:


As at December 31, 2009
(In thousands)
			Fair		Expected Cash Flow⁽¹⁾
	Carrying Value		Value		2010		2011		2012		2013		2014		Thereafter

Investments⁽²⁾	$	16,432	$	16,432	$	16,432	$	—		—		—		—		—
Long-term receivables⁽³⁾		6,332		6,332		253		6,481		—		—		—		—
Debt obligations⁽⁴⁾		11,649		11,649		214		4,744		—		—		—		—


(1)		Including interest and dividends where applicable.

(2)		Investments consist of equity securities which are denominated in either Canadian dollars or Euros.

(3)		Long-term receivables are denominated in either Canadian dollars or Euros.

(4)		Debt obligations are denominated in Euros.


As at December 31, 2008
(In thousands)
			Fair		Expected Cash Flow⁽¹⁾
	Carrying Value		Value		2009		2010		2011		2012		2013		Thereafter

Investments⁽²⁾	$	2,777	$	2,777	$	2,777	$	—	$	—		—		—		—
Debt obligations⁽³⁾		11,313		11,313		277		277		11,451		—		—		—


(1)		Including interest and dividends where applicable.


(2)		Investments consist of equity securities which are denominated in either Canadian dollars or Euros.

(3)		Debt obligations are denominated in Euros.

Equity Price Risk

Changes in trading prices of equity securities may affect the fair value of equity securities or the fair value of other securities convertible into equity securities. An increase in trading prices will increase the fair value and a decrease in trading prices will decrease the fair value of equity securities or instruments convertible into equity securities. Our financial instruments which may be sensitive to fluctuations in equity prices are investments. The following tables provide information about our exposure to fluctuations in equity prices for the carrying amounts of financial instruments sensitive to such fluctuations as at December 31, 2009 and 2008, respectively, and expected cash flows from these instruments:


As at December 31, 2009
(In thousands)
					Expected Cash Flow⁽¹⁾
	Carrying Value		Fair Value		2010		2011		2012		2013		2014		Thereafter

Investments⁽²⁾	$	16,432	$	16,432	$	16,432		—		—		—		—		—


(1)		Including interest and dividends where applicable.

(2)		Investments consist of equity securities.


As at December 31, 2008
(In thousands)
					Expected Cash Flow⁽¹⁾
	Carrying Value		Fair Value		2009		2010		2011		2012		2013		Thereafter

Investments⁽²⁾	$	2,987	$	2,987	$	2,987		—		—		—		—		—


(1)		Including interest and dividends where applicable.

(2)		Investments consist of equity securities.


ITEM 12	*Description of Securities Other than Equity Securities*

Not applicable.

PART II


ITEM 13	*Defaults, Dividend Arrearages and Delinquencies*

Not applicable.


ITEM 14	*Material Modifications to the Rights of Security Holders and Use of Proceeds*

Not applicable.


ITEM 15	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2009. This evaluation was carried out by our Chief Executive Officer (being our principal executive officer) and Chief Financial Officer (being our principal financial

officer). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our company’s disclosure controls and procedures are effective.

Report of Management on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 13d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:


	1.	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets and our consolidated entities;

	2.	provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and our directors; and

	3.	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009. In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.

Based on this evaluation, management concluded that, as of December 31, 2009, our company’s internal control over financial reporting was effective.

The effectiveness of our company’s internal control over financial reporting as of December 31, 2009 has been audited by our independent registered chartered accountants, Deloitte & Touche LLP, who also audited our consolidated financial statements for the year ended December 31, 2009. Deloitte & Touche LLP have expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2009. Their report is included on page 74 of this annual report on Form 20-F.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.


ITEM 16	*[Reserved]*


ITEM 16A	*Audit Committee Financial Expert*

Our board of directors has determined that Silke Stenger, a member of our audit committee, qualifies as an “audit committee financial expert” and is “independent” as the term is used in Section 303A.02 of the New York Stock Exchange Listed Company Manual. Ms. Stenger has a designation of Controller, IHK (that is, Certified Controller) granted by the German Chamber of Commerce and has completed international accounting standards courses at Steuerfachscheule Dr. Endriss GmbH & Co. KG, a tax and accounting college in Cologne, Germany. She has experience in corporate planning, project control, supervision of financial accounting, reporting analysis, and co-ordination with auditors.


ITEM 16B	*Code of Ethics*

Code of Ethics and Code of Conduct

Our board of directors encourages and promotes a culture of ethical business conduct through the adoption and monitoring of our codes of ethics and conduct, the insider trading policy and such other policies as may be adopted from time to time.

Our Audit Committee adopted a Code of Ethics for the Senior Executive Officers and Senior Financial Officers on November 9, 2006. Since that date, our board of directors has conducted an assessment of its performance, including the extent to which the board and each director comply with the Code of Ethics. It is intended that such assessment will be conducted annually. The Code of Ethics applies to our Chief Executive Officer, President, Chief Financial Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller, persons performing similar functions, and other officers or employees of our company with prominent positions with respect to the filing of reports with securities regulators.

The purpose of the Code of Ethics is to promote: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate and timely disclosure in all reports and documents filed with securities regulators; compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the Code of Ethics; and accountability for adherence to the Code.

There has been no conduct of any director or officer that would constitute a departure from the Code of Ethics, and therefore, no material change reports have been filed in this regard.

In addition, our Audit Committee has adopted a written Code of Conduct, which sets out the standards of ethical behavior required for all employees and officers of our company and our subsidiaries. Our board of directors conducts regular reviews with management for compliance with such policies. The basic principles of the Code of Conduct include: providing customers with the best quality products and services at competitive prices; providing employees with a fair, polite and respectful work environment; keeping company information confidential; keeping client and business partner information confidential; being fair and honest to all parties having business relationships with our company; not doing business with any third parties who are likely to harm our company’s reputation; refraining from any form of discrimination or harassment; and being mindful of the interest of the public and the environment. The Code of Conduct emphasizes that all employees of our company, regardless of their position or status, are accountable for complying with all applicable legal requirements, the general provisions stipulated by the Code of Conduct, and our other business policies.

We will provide a copy of the Code of Ethics or the Code of Conduct to any person without charge, upon request. Requests can be sent by mail to: KHD Humboldt Wedag International Ltd., Suite 1620 — 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6.


ITEM 16C	*Principal Accountant Fees and Services*

Audit Fees

The aggregate fees billed by Deloitte & Touche LLP for audit services rendered for the audit of our annual financial statements for the fiscal years ended December 31, 2009 and 2008 were Cdn$1,802,425 and Cdn$1,723,972, respectively (including all fees related to the audit of our annual financial statements for the fiscal years ended December 31, 2009 and 2008).

Audit Related Fees

For the fiscal years ended December 31, 2009 and 2008, Deloitte & Touche LLP performed assurance or related services relating to the performance of the audit or review of our financial statements which are not reported under the caption “Audit Fees” above, for aggregate fees totalling Cdn$56,858 and Cdn$359,774, respectively.

Tax Fees

For the fiscal years ended December 31, 2009 and 2008, the aggregate fees billed for tax compliance, tax advice and tax planning by Deloitte & Touche LLP were $72,407 and Cdn$168,954, respectively.

All Other Fees

For the fiscal years ended December 31, 2009 and 2008, Deloitte & Touche LLP did not perform any non-audit professional services, other than those services listed above.

Audit Committee Pre-approval Policies and Procedures

The audit committee pre-approves all services provided by our independent auditors. All of the services and fees described under the categories of “Audit Fees”, “Audit Related Fees”, “Tax Fees” and “All Other Fees” were reviewed and approved by the audit committee before the respective services were rendered and none of such services were approved by the audit committee pursuant to paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X.

The audit committee has considered the nature and amount of the fees billed by Deloitte & Touche LLP, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Deloitte & Touche LLP.


ITEM 16D	*Exemptions from the Listing Standards for Audit Committees*

Not applicable.


ITEM 16E	*Purchases of Equity Securities by the Issuer and Affiliated Purchasers*

The following table sets out information with respect to repurchases of our common shares by us or on our behalf, or by an “affiliated purchaser” as defined in § 240.10b-18(a)(3) of the Exchange Act, in the year ended December 31, 2009:

Issuer Purchases of Equity Securities

Maximum Number

(or Approximate

Total Number of

Dollar Value) of

Shares Purchased as

Shares that May Yet

Part of Publicly

be Purchased Under

Total Number of

Average Price Paid

Announced Plans or

the Plans or

Period

Shares Purchased

per Share

Programs

Month #1 (May 1 to May 31)

262,734

⁽¹⁾

9.00⁽¹

⁾

N/A

Month #2 (December 1 to December 31)

295,639

⁽²⁾

13.93

⁽²⁾

N/A

Total

558,373

11.61

N/A


(1)		On May 12, 2009, our former subsidiary, Mass Financial Corp., transferred 262,734 of our common shares to us as partial consideration for the redemption of certain of the preferred shares of Mass Financial that we held. The shares were valued at the book value as at December 31, 2008, being Cdn$10.50 per share. For more information, see the section entitled “Settlement of Preferred Shares of Mass Financial and its Former Subsidiary”.

(2)		On December 21, 2009, our wholly-owned subsidiary, 0850541 B.C. Ltd., purchased 295,639 of our common shares from our subsidiary KHD Investments Ltd., for a purchase price per share equal to the price of our common shares as quoted by the New York Stock Exchange at the close of business on the date of closing of the Agreement, being $13.93 per share. As consideration for the purchase of the common shares, 0850541 B.C. Ltd. delivered to KHD Investments a Canadian-dollar denominated, non-interest bearing demand promissory note in the principal amount of Cdn$4.4 million, being the purchase price (in Canadian dollars) of the common shares. We agreed to contribute Cdn$4.4 million to the capital of 0850541 B.C. Ltd. and agreed to assume the obligation to repay the principal amount of the promissory note to KHD Investments Ltd. On December 31, 2009, we entered into a liquidation agreement with 0850541 B.C. Ltd. whereby we approved the winding up and liquidation of the 0850541 B.C. Ltd. and 0850541 B.C. Ltd. agreed to return to us the aggregate 558,373 shares of our common stock it held, which included the shares acquired from Mass Financial Corp. described in footnote (1) above, for no consideration, all of which common shares we agreed to cancel, and did cancel, prior to December 31, 2009.


ITEM 16F	*Change in Registrant’s Certifying Accountant*

Not applicable.


ITEM 16G	*Corporate Governance*

Shares of our common stock are listed on the New York Stock Exchange. Summarized below are the significant differences between our corporate governance rules and the corporate governance rules applicable to U.S. domestic issuers under the listing standards of the NYSE:


	•	Section 303A.03 of the NYSE’s Listed Company Manual requires the non-management directors of a listed company to meet at regularly scheduled executive sessions without management.

Since January 1, 2006, our independent directors (all of whom are non-management directors) have not held any meetings at which non-independent directors and members of management were not in attendance.


	•	Section 303A.08 of the NYSE’s Listed Company Manual requires shareholder approval of all equity compensation plans and material revisions to such plans.

Our current stock option plan requires shareholder approval of the plan, but not shareholder approval of material revisions to the plan.


ITEM 17	*Financial Statements*