UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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or
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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or
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o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this
shell company report
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For the transition period from
to
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Commission file number
001-04192
KHD Humboldt Wedag
International Ltd.
(Exact name of Registrant as
specified in its charter)
Not Applicable
(Translation of
Registrants 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.
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Title of each class
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Name of each exchange on which registered
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Common Shares, Without Par Value
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New York Stock Exchange
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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
issuers 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.
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U.S.
GAAP
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International Financial Reporting Standards as issued by the
International Accounting Standards
Board
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Other
þ
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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
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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 KHDs 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
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD.
Form 20-F
TABLE OF
CONTENTS
PART I
Certain statements in this annual report are forward-looking
statements, which reflect our managements 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 managements current
views and are based on certain assumptions and speak only as of
March 26, 2010. These assumptions, which include
managements 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.
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ITEM 1
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Identity
of Directors, Senior Management and Advisers
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Not applicable.
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ITEM 2
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Offer
Statistics and Expected Timetable
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Not applicable.
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A.
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Selected
Financial Data
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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
companys financial
1
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)
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Fiscal Years Ended December 31
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2009
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2008
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2007
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2006
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2005
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Revenues
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$
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576,408
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$
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638,354
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$
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580,391
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$
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404,324
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$
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316,978
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Operating income
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71,549
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56,385
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53,010
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40,555
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25,551
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Income (loss) from continuing operations
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40,711
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(6,952
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)
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50,980
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34,152
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22,864
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(Loss) income from discontinued operations
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(9,351
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)
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(2,874
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)
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5,361
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Extraordinary gain
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|
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513
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Income (loss) from continuing operations per share
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Basic
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1.34
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(0.23
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)
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1.71
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1.13
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0.84
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Diluted
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1.34
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(0.23
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)
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1.68
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1.12
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0.84
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(Loss) income from discontinued operations per share
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Basic
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(0.31
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)
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(0.10
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)
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0.20
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Diluted
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(0.31
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)
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(0.09
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)
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0.19
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Extraordinary gain per share
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Basic
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0.02
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Diluted
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0.02
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|
|
|
|
|
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Net income (loss)
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40,711
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(6,952
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)
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42,142
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31,278
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28,225
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Net income (loss) per share
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Basic
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1.34
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(0.23
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)
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1.42
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1.03
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1.04
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Diluted
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1.34
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(0.23
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)
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1.39
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1.03
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1.03
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Total assets
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788,903
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765,658
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789,311
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641,920
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523,056
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Net assets
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325,191
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265,623
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313,120
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295,754
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262,347
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Long-term debt,
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11,649
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11,313
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13,920
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10,725
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2,920
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Shareholders equity
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319,788
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261,914
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307,194
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273,288
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244,259
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Capital stock, net of treasury stock
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58,270
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50,033
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44,566
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44,212
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|
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53,574
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Weighted average common stock outstanding, diluted
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30,354
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|
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30,401
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|
|
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30,402
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|
|
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30,415
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|
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27,509
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|
2
Selected
Financial Data
(Stated in United States dollars in accordance with U.S.
GAAP)
(in thousands, other than per share amounts)
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Fiscal Years Ended December 31
|
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|
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2009
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|
|
2008
|
|
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2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
576,408
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|
|
$
|
638,354
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|
|
$
|
580,391
|
|
|
$
|
404,324
|
|
|
$
|
316,978
|
|
Operating income
|
|
|
68,587
|
|
|
|
58,455
|
|
|
|
45,046
|
|
|
|
38,596
|
|
|
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25,551
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|
Income (loss) from continuing
operations
(1)
|
|
|
37,749
|
|
|
|
(4,882
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)
|
|
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43,031
|
|
|
|
32,220
|
|
|
|
22,843
|
|
Loss from discontinued
operations
(1)
|
|
|
|
|
|
|
|
|
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(9,351
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)
|
|
|
(2,874
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)
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|
|
(1,950
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)
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Extraordinary
gain
(1)
|
|
|
|
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
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Income (loss) from continuing operations
per share
(1)
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|
|
|
|
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|
|
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|
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Basic
|
|
|
1.24
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|
|
|
(0.16
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)
|
|
|
1.44
|
|
|
|
1.07
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|
|
|
0.84
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|
Diluted
|
|
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1.24
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|
|
|
(0.16
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)
|
|
|
1.42
|
|
|
|
1.06
|
|
|
|
0.84
|
|
Loss from discontinued operations
per share
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
(0.31
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)
|
|
|
(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.
Certain statements in this annual report are forward-looking
statements, which reflect our managements 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
3
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 companys 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
4
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 operators 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
projects 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
5
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
contractors or suppliers 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.
6
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
7
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.
8
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
9
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.
10
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.
11
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.
12
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.
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ITEM 4
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Information
on the Company
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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.
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
13
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.
14
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.
15
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:
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2009
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2008
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2007
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|
(United States dollars in thousands)
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|
Africa
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$
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6,532
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|
|
$
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7,596
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|
|
$
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21,393
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Americas
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|
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22,297
|
|
|
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60,556
|
|
|
|
118,417
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|
Asia
|
|
|
149,267
|
|
|
|
145,636
|
|
|
|
196,348
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|
Russia & Eastern Europe
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|
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224,885
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|
|
|
213,708
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|
|
|
83,592
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Europe
|
|
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39,983
|
|
|
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57,577
|
|
|
|
35,502
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Middle East
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132,018
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|
|
|
150,856
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|
|
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123,283
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Australia
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|
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1,426
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|
|
|
2,425
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|
|
|
1,856
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|
|
|
|
|
|
|
|
|
|
|
|
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Total
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$
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576,408
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|
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$
|
638,354
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|
|
$
|
580,391
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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 projects 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.
16
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
(CO
2
)
emissions and other gaseous and solid emissions resulting from
the cement production process. These accrue mainly from gaseous
CO
2
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
CO
2
emissions from industrial combustion processes focuses on new
means to utilize waste and, specifically, biomass-derived fuels.
New processes to capture gaseous
CO
2
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.
17
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.
18
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:
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full equipment line suppliers which are companies providing
either a similar, or even broader, range of equipment services
to the cement industry; and
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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
19
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
competitors 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).
The Class B preferred shares of Mass Financial, which were
issued in series, were non-voting and paid an annual dividend of
4.4367% on December 31 of each year, commencing
December 31, 2007. Mass Financial could, at its option and
at any time, redeem all or any number of the outstanding
Class B preferred shares. Beginning
20
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
6
2
/
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)
21
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.
22
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
|
23
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.
24
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.
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.
25
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 contracts
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
26
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.
27
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.
28
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 counterpartys 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
29
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.
30
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 workshops 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.
31
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.
32
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
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.
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.
33
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
34
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 workshops 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.
35
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)
36
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
37
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
38
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.
39
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
40
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;
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2.
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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;
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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
managements best estimate of the losses in our receivables
and judgments about economic conditions.
41
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 investees 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.
42
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:
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the history of the tax loss carry-forwards and their expiry
dates;
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future reversals of temporary differences;
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our projected earnings; and
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tax planning opportunities.
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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
43
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, Canadas 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.
44
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. CICAs 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:
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classifying and disclosing fair value measurements based on a
three-level hierarchy;
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reconciling beginning balances to ending balances for
Level 3 measurements;
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identifying and explaining movements between levels of the fair
value hierarchy;
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providing a maturity analysis for derivative financial
liabilities based on how the entity manages liquidity
risk; and
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disclosing the remaining expected maturities of non-derivative
financial liabilities if liquidity risk is managed on that basis.
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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.
45
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.
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C.
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Research
and Development, Patents and Licenses, Etc.
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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.
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.
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E.
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Off-balance
Sheet Arrangements
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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 $25.0 million has been
collateralized against these credit facilities. The banks charge
0.7% for issuing bonds. We are in compliance with the covenants
stipulated in the credit facilities.
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F.
|
Tabular
Disclosure of Contractual Obligations
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Payments Due by Period
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(United States dollars in thousands)
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Contractual Obligations as
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Less than
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1 - 3
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3 - 5
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More than
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at December 31, 2009
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1 Year
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Years
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Years
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5 Years
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Total
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Long-term debt obligations
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$
|
214
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|
$
|
11,744
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$
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$
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$
|
11,958
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Operating lease obligations
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|
3,079
|
|
|
|
3,473
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|
|
|
1,061
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|
|
|
937
|
|
|
|
8,550
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|
Purchase
obligations
(1)
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153,636
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153,636
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Other long-term liabilities reflected on our balance sheet under
Canadian
GAAP
(2)
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15,607
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|
|
|
|
15,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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$
|
156,929
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|
|
$
|
30,824
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|
|
$
|
1,061
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|
|
$
|
937
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|
|
$
|
189,751
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
(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.
|
46
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.
47
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.
48
Family
Relationships
There are no family relationships between any of our directors,
executive officers and proposed directors or executive officers.
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 $66,638 of long-term deferred compensation.
|
49
Directors
Compensation
The following table provides a summary of compensation paid by
us during the fiscal year ended December 31, 2009 to the
directors of our company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-
|
|
Option-
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
Based
|
|
Incentive Plan
|
|
Pension
|
|
All other
|
|
|
|
|
Fees Earned
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Value
|
|
Compensation
|
|
Total
|
Name
(1)
|
|
($)
(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.
50
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
51
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.
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
companys 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.
52
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.
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.
53
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.
|
54
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 plans 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
|
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 companys 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
55
gives them significant influence over our company, and close
members of any such individuals 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
Officers expenses as part of his short-term employment
arrangement. As a result of an amendment to our former Chief
Executive Officers 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
56
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
57
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.
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.
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ITEM 9
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The
Offer and Listing
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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.
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Exchange
(1)
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High
(U.S.$)
(2)
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Low
(U.S.$)
(2)
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Annual Highs and Lows
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2005
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13.26
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7.75
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2006
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22.10
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10.34
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2007
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45.74
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18.00
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2008
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35.79
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6.50
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2009
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14.20
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6.65
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Quarterly Highs and Lows
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2008
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First Quarter
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32.43
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20.85
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Second Quarter
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35.79
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23.61
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Third Quarter
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31.47
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18.11
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Fourth Quarter
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21.00
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6.50
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2009
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First Quarter
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13.59
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6.65
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Second Quarter
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9.60
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6.81
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Third Quarter
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12.39
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8.12
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Fourth Quarter
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14.20
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8.90
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Monthly Highs and Lows
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2009
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September
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12.39
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9.09
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October
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11.42
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9.10
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November
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12.57
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8.90
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December
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14.20
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11.65
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2010
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January
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16.10
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12.50
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February
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14.28
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11.82
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March (to March 23, 2009)
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14.63
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13.50
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58
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(1)
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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.
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(2)
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All numbers have been adjusted to reflect the two (2) for
one (1) stock split effective September 10, 2007.
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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).
Not applicable.
Our common shares are quoted on the New York Stock Exchange
under the symbol KHD.
Not applicable.
Not applicable.
Not applicable.
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ITEM 10
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Additional
Information
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Not Applicable.
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B.
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Memorandum
and Articles of Association
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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 directors 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
59
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.
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
60
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.
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 Canadas 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
61
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 Ministers prerogative to conduct a national
security review, including:
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(a)
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the acquisition of our common shares by a person in the ordinary
course of that persons business as a trader or dealer in
securities;
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(b)
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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
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(c)
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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.
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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
62
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-arms 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. Holders 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.
63
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. Holders
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. Holders
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 taxpayers
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. Holders United States
income tax liability that the U.S. Holders 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 companys 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. Holders 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. Holders 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.
Not applicable.
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.
64
|
|
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 managements 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 managements 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 managements 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 managements
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
65
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.
|
66
|
|
|
(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 companys 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 Commissions rules
and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in our companys
reports filed under the Securities Exchange Act of 1934 is
accumulated and communicated to management, including our
companys 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 companys 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
67
officer). Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our
companys 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 companys internal control over
financial reporting was effective.
The effectiveness of our companys 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 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.
68
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 companys
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.
69
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
|
|
Programs
|
|
Month #1
(May 1 to May 31)
|
|
|
262,734
|
(1)
|
|
$
|
9.00
(1
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Month #2
(December 1 to December 31)
|
|
|
295,639
|
(2)
|
|
$
|
13.93
|
(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
Total
|
|
|
558,373
|
|
|
$
|
11.61
|
|
|
|
N/A
|
|
|
|
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 Registrants 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 NYSEs Listed Company Manual
requires the non-management directors of a listed company to
meet at regularly scheduled executive sessions without
management.
|
70
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 NYSEs 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
|
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
71
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of KHD Humboldt Wedag International Ltd. (the
Company) is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rule 13a-15(f)
or
15d-15(f)
under the Securities Exchange Act. The Companys internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the financial statements for external
purposes in accordance with generally accepted accounting
principles.
Because of its inherent limitations, no system of internal
control over financial reporting, including those determined to
be effective, may prevent or detect all misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2009. In conducting this assessment,
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 assessment management concluded that, as of
December 31, 2009, the Companys internal control over
financial reporting was effective.
The Companys internal control over financial reporting as
of December 31, 2009 has been audited by
Deloitte & Touche LLP, the Companys Independent
Registered Chartered Accountants, who also audited the
Companys consolidated financial statements for the year
ended December 31, 2009, and they have expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2009.
|
|
|
/s/ Jouni Salo
Jouni Salo
President and Chief Executive Officer
|
|
/s/ Alan Hartslief
Alan Hartslief
Chief Financial Officer
|
Vancouver, British Columbia, Canada
March 26, 2010
72
REPORT OF
INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of
KHD Humboldt Wedag International Ltd.
We have audited the consolidated balance sheets of KHD Humboldt
Wedag International Ltd. and subsidiaries (the
Company) as at December 31, 2009 and 2008 and
the consolidated statements of income (loss), shareholders
equity and comprehensive income (loss) and cash flows for each
of the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of KHD
Humboldt Wedag International Ltd. and subsidiaries as at
December 31, 2009 and 2008 and the results of their
operations and their cash flows for the years then ended in
accordance with Canadian generally accepted accounting
principles.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 26, 2010 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte and Touche LLP
Independent Registered Chartered Accountants
Vancouver, Canada
March 26, 2010
Comments by Independent Registered Chartered Accountants on
Canada United States of America Reporting Difference
The standards of the Public Company Accounting Oversight Board
(United States) require the addition of an explanatory paragraph
(following the opinion paragraph) when there are changes that
have a material effect on the comparability of the
Companys financial statements, such as the changes
described in Note 1 B to the consolidated financial
statements. Although we conducted our audits in accordance with
both Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board
(United States), our report to the Board of Directors and
Shareholders, dated March 26, 2010, is expressed in
accordance with Canadian reporting standards which do not
require a reference to such changes in the auditors report
when the changes are properly accounted for and adequately
disclosed in the financial statements.
/s/ Deloitte and Touche LLP
Independent Registered Chartered Accountants
Vancouver, Canada
March 26, 2010
73
REPORT OF
INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of
KHD Humboldt Wedag International Ltd.
We have audited the internal control over financial reporting of
KHD Humboldt Wedag International Ltd. and subsidiaries (the
Company) as of December 31, 2009, based on the
criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Report of Management on Internal
Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States), the
consolidated financial statements as at and for the year ended
December 31, 2009 of the Company and our report dated
March 26, 2010 expressed an unqualified opinion on those
financial statements and included a separate report titled
Comments by Independent Registered Chartered Accountants on
Canada-United States of America Reporting Difference referring
to changes that have a material effect on the comparability of
the Companys financial statements.
/s/ Deloitte and Touche LLP
Independent Registered Chartered Accountants
Vancouver, Canada
March 26, 2010
74
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(United States Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
420,551
|
|
|
$
|
409,087
|
|
Short-term cash deposits
|
|
|
|
|
|
|
6,916
|
|
|
|
|
|
Securities
|
|
|
5
|
|
|
|
16,432
|
|
|
|
2,987
|
|
Restricted cash
|
|
|
|
|
|
|
24,979
|
|
|
|
32,008
|
|
Accounts receivable, trade
|
|
|
6
|
|
|
|
96,982
|
|
|
|
62,760
|
|
Other receivables
|
|
|
7
|
|
|
|
36,179
|
|
|
|
28,313
|
|
Inventories
|
|
|
8
|
|
|
|
80,815
|
|
|
|
110,161
|
|
Contract deposits, prepaid and other
|
|
|
9
|
|
|
|
53,893
|
|
|
|
58,694
|
|
Future income tax assets
|
|
|
10
|
|
|
|
1,748
|
|
|
|
7,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
738,495
|
|
|
|
711,689
|
|
Non-current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Note receivables
|
|
|
11
|
|
|
|
1,672
|
|
|
|
|
|
Account receivable, trade
|
|
|
6
|
|
|
|
4,660
|
|
|
|
|
|
Property, plant and equipment
|
|
|
12
|
|
|
|
2,257
|
|
|
|
2,489
|
|
Interest in resource property
|
|
|
13
|
|
|
|
27,150
|
|
|
|
24,861
|
|
Equity method investments
|
|
|
|
|
|
|
73
|
|
|
|
325
|
|
Future income tax assets
|
|
|
10
|
|
|
|
13,405
|
|
|
|
6,339
|
|
Investment in preferred shares of former subsidiaries
|
|
|
11
|
|
|
|
|
|
|
|
19,125
|
|
Other non-current assets
|
|
|
|
|
|
|
1,191
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
50,408
|
|
|
|
53,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
788,903
|
|
|
$
|
765,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
14
|
|
|
$
|
191,746
|
|
|
$
|
178,582
|
|
Progress billings above costs and estimated earnings on
uncompleted contracts
|
|
|
8
|
|
|
|
77,841
|
|
|
|
171,843
|
|
Advance payments received from customers
|
|
|
|
|
|
|
26,927
|
|
|
|
11,331
|
|
Income tax liabilities
|
|
|
|
|
|
|
18,092
|
|
|
|
9,112
|
|
Deferred credit, future income tax assets
|
|
|
10
|
|
|
|
1,748
|
|
|
|
4,212
|
|
Accrued pension liabilities, current portion
|
|
|
15
|
|
|
|
2,070
|
|
|
|
2,158
|
|
Provision for warranty costs, current portion
|
|
|
16
|
|
|
|
28,282
|
|
|
|
30,856
|
|
Provision for supplier commitments on terminated customer
contracts
|
|
|
17
|
|
|
|
12,943
|
|
|
|
23,729
|
|
Provision for restructuring costs
|
|
|
18
|
|
|
|
8,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
367,674
|
|
|
|
431,823
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
19
|
|
|
|
11,649
|
|
|
|
11,313
|
|
Accrued pension liabilities, less current portion
|
|
|
15
|
|
|
|
28,861
|
|
|
|
29,209
|
|
Provision for warranty costs, less current portion
|
|
|
16
|
|
|
|
25,711
|
|
|
|
7,524
|
|
Deferred credit, future income tax assets
|
|
|
10
|
|
|
|
|
|
|
|
4,176
|
|
Future income tax liability
|
|
|
10
|
|
|
|
14,210
|
|
|
|
7,646
|
|
Other long-term liabilities
|
|
|
20
|
|
|
|
15,607
|
|
|
|
8,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
|
|
|
|
96,038
|
|
|
|
68,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
463,712
|
|
|
|
500,035
|
|
Minority Interests
|
|
|
|
|
|
|
5,403
|
|
|
|
3,709
|
|
Shareholders Equity
|
|
|
21
|
|
|
|
|
|
|
|
|
|
Common stock, without par value; authorized unlimited number
|
|
|
|
|
|
|
141,604
|
|
|
|
143,826
|
|
Treasury stock
|
|
|
|
|
|
|
(83,334
|
)
|
|
|
(93,793
|
)
|
Contributed surplus
|
|
|
|
|
|
|
7,232
|
|
|
|
7,623
|
|
Retained earnings
|
|
|
|
|
|
|
185,790
|
|
|
|
155,681
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
68,496
|
|
|
|
48,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
|
|
|
319,788
|
|
|
|
261,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
788,903
|
|
|
$
|
765,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
75
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the Years Ended December 31, 2009, 2008 and 2007
(United States Dollars in Thousands, Except Earnings per
Share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
$
|
576,408
|
|
|
$
|
638,354
|
|
|
$
|
580,391
|
|
Cost of revenues
|
|
|
|
|
|
|
(457,847
|
)
|
|
|
(516,631
|
)
|
|
|
(494,432
|
)
|
Recovery of (loss on) terminated customer contracts
|
|
|
17
|
|
|
|
17,829
|
|
|
|
(31,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
136,390
|
|
|
|
89,757
|
|
|
|
85,959
|
|
Income from interest in resource property
|
|
|
|
|
|
|
13,530
|
|
|
|
27,185
|
|
|
|
18,132
|
|
Selling, general and administrative expense
|
|
|
|
|
|
|
(74,796
|
)
|
|
|
(56,156
|
)
|
|
|
(46,700
|
)
|
Stock-based compensation recovery (expense) selling,
general and administrative
|
|
|
22
|
|
|
|
391
|
|
|
|
(4,401
|
)
|
|
|
(4,381
|
)
|
Restructuring costs
|
|
|
18
|
|
|
|
(9,220
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of workshop and related assets
|
|
|
4
|
|
|
|
5,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
71,549
|
|
|
|
56,385
|
|
|
|
53,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
7,043
|
|
|
|
21,449
|
|
|
|
13,155
|
|
Interest expense
|
|
|
|
|
|
|
(2,793
|
)
|
|
|
(2,291
|
)
|
|
|
(2,668
|
)
|
Foreign currency transaction gains (losses), net
|
|
|
|
|
|
|
(2,006
|
)
|
|
|
2,149
|
|
|
|
(2,003
|
)
|
Loss on investments in preferred shares in former subsidiaries
|
|
|
11
|
|
|
|
(9,538
|
)
|
|
|
(55,076
|
)
|
|
|
|
|
Share of profit (loss) of equity method investees
|
|
|
|
|
|
|
(254
|
)
|
|
|
(272
|
)
|
|
|
142
|
|
Other income (expense), net
|
|
|
23
|
|
|
|
3,825
|
|
|
|
(9,912
|
)
|
|
|
4,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests from
continuing operations
|
|
|
|
|
|
|
67,826
|
|
|
|
12,432
|
|
|
|
65,805
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
24
|
|
|
|
(23,026
|
)
|
|
|
(12,800
|
)
|
|
|
(8,278
|
)
|
Resource property revenue taxes
|
|
|
24
|
|
|
|
(3,039
|
)
|
|
|
(5,864
|
)
|
|
|
(4,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,065
|
)
|
|
|
(18,664
|
)
|
|
|
(12,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests from continuing
operations
|
|
|
|
|
|
|
41,761
|
|
|
|
(6,232
|
)
|
|
|
53,366
|
|
Minority interests
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
(720
|
)
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
40,711
|
|
|
|
(6,952
|
)
|
|
|
50,980
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,351
|
)
|
Extraordinary gain, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
40,711
|
|
|
$
|
(6,952
|
)
|
|
$
|
42,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing operations
|
|
|
|
|
|
$
|
1.34
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.71
|
|
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.31
|
)
|
extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.34
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing operations
|
|
|
|
|
|
$
|
1.34
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.68
|
|
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.31
|
)
|
extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.34
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
|
|
|
|
|
30,354,207
|
|
|
|
30,401,018
|
|
|
|
29,895,468
|
|
diluted
|
|
|
|
|
|
|
30,354,207
|
|
|
|
30,401,018
|
|
|
|
30,402,130
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
76
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2009,
2008 and 2007
(United States Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss) for the year
|
|
$
|
40,711
|
|
|
$
|
(6,952
|
)
|
|
$
|
42,142
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on translating financial statements
of self-sustaining foreign operations and adjustments from the
application of U.S. dollar reporting
|
|
|
19,919
|
|
|
|
(47,099
|
)
|
|
|
45,473
|
|
Unrealized losses on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value loss on
available-for-sale
securities
|
|
|
|
|
|
|
(55,076
|
)
|
|
|
|
|
Reclassification adjustment for other than temporary decline in
value
|
|
|
|
|
|
|
55,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
19,919
|
|
|
|
(47,099
|
)
|
|
|
45,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
60,630
|
|
|
$
|
(54,051
|
)
|
|
$
|
87,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
77
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
For the Years Ended December 31, 2009, 2008 and
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Contributed
|
|
|
Retained
|
|
|
Translation
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Adjustment
|
|
|
Total
|
|
|
Balance at December 31, 2006
|
|
|
34,488,136
|
|
|
$
|
108,595
|
|
|
|
(5,021,754
|
)
|
|
$
|
(64,383
|
)
|
|
$
|
2,131
|
|
|
$
|
176,742
|
|
|
$
|
50,203
|
|
|
$
|
273,288
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,142
|
|
|
|
|
|
|
|
42,142
|
|
Distribution of SWA Reit and Investments Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,251
|
)
|
|
|
|
|
|
|
(56,251
|
)
|
Shares issued for increase of equity interest in a non-
wholly-owned subsidiaries
|
|
|
676,766
|
|
|
|
18,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,749
|
|
Exercise of stock options
|
|
|
672,218
|
|
|
|
11,015
|
|
|
|
|
|
|
|
|
|
|
|
(2,193
|
)
|
|
|
|
|
|
|
|
|
|
|
8,822
|
|
Price adjustment for shares received in connection with
disposition of MFC Merchant Bank SA in 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,073
|
)
|
Shares received on settlements of receivables
|
|
|
|
|
|
|
|
|
|
|
(371,921
|
)
|
|
|
(11,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,174
|
)
|
Shares received as consideration for disposition of MFC Merchant
Bank SA
|
|
|
|
|
|
|
|
|
|
|
(219,208
|
)
|
|
|
(8,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,163
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,381
|
|
|
|
|
|
|
|
|
|
|
|
4,381
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,473
|
|
|
|
45,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
35,837,120
|
|
|
|
138,359
|
|
|
|
(5,612,883
|
)
|
|
|
(93,793
|
)
|
|
|
4,319
|
|
|
|
162,633
|
|
|
|
95,676
|
|
|
|
307,194
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,952
|
)
|
|
|
|
|
|
|
(6,952
|
)
|
Exercise of stock options
|
|
|
299,438
|
|
|
|
5,467
|
|
|
|
|
|
|
|
|
|
|
|
(1,097
|
)
|
|
|
|
|
|
|
|
|
|
|
4,370
|
|
Cancellation of shares by transfer agent
|
|
|
(1,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
4,401
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,099
|
)
|
|
|
(47,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
36,135,528
|
|
|
|
143,826
|
|
|
|
(5,612,883
|
)
|
|
|
(93,793
|
)
|
|
|
7,623
|
|
|
|
155,681
|
|
|
|
48,577
|
|
|
|
261,914
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,711
|
|
|
|
|
|
|
|
40,711
|
|
Settlement with an affiliate
|
|
|
|
|
|
|
|
|
|
|
(262,734
|
)
|
|
|
(2,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,365
|
)
|
Cancellation of treasury stock
|
|
|
(558,373
|
)
|
|
|
(2,222
|
)
|
|
|
558,373
|
|
|
|
12,824
|
|
|
|
|
|
|
|
(10,602
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,919
|
|
|
|
19,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
35,577,155
|
|
|
$
|
141,604
|
|
|
|
(5,317,244
|
)
|
|
$
|
(83,334
|
)
|
|
$
|
7,232
|
|
|
$
|
185,790
|
|
|
$
|
68,496
|
|
|
$
|
319,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of retained earnings and accumulated other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
258,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
254,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
78
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2009, 2008 and 2007
(United States Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
40,711
|
|
|
$
|
(6,952
|
)
|
|
$
|
50,980
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
3,452
|
|
|
|
4,295
|
|
|
|
3,279
|
|
Foreign currency transaction losses (gains), net
|
|
|
2,006
|
|
|
|
(2,149
|
)
|
|
|
2,003
|
|
Minority interests
|
|
|
1,050
|
|
|
|
720
|
|
|
|
2,386
|
|
(Gain) loss on short-term securities
|
|
|
(2,812
|
)
|
|
|
11,218
|
|
|
|
110
|
|
Stock-based (recovery) compensation
|
|
|
(391
|
)
|
|
|
4,401
|
|
|
|
4,381
|
|
Loss on investment in preferred shares of former subsidiaries
|
|
|
9,538
|
|
|
|
55,076
|
|
|
|
|
|
Future income taxes
|
|
|
513
|
|
|
|
8,621
|
|
|
|
(2,785
|
)
|
(Recovery of) loss on terminated customer contracts
|
|
|
(17,829
|
)
|
|
|
31,966
|
|
|
|
|
|
Restructuring costs, asset impairment charges
|
|
|
227
|
|
|
|
|
|
|
|
|
|
Gain on sale of workshop and related assets
|
|
|
(5,254
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term cash deposits
|
|
|
(6,699
|
)
|
|
|
|
|
|
|
|
|
Short-term securities
|
|
|
357
|
|
|
|
1,176
|
|
|
|
(2,576
|
)
|
Restricted cash
|
|
|
7,728
|
|
|
|
(9,478
|
)
|
|
|
(5,813
|
)
|
Receivables
|
|
|
(67,860
|
)
|
|
|
(15,317
|
)
|
|
|
11,314
|
|
Inventories
|
|
|
45,866
|
|
|
|
666
|
|
|
|
(28,089
|
)
|
Contract deposits, prepaid and other
|
|
|
3,413
|
|
|
|
(27,931
|
)
|
|
|
(6,652
|
)
|
Accounts payable and accrued expenses
|
|
|
16,135
|
|
|
|
44,024
|
|
|
|
6,652
|
|
Progress billings above costs and estimated earnings on
uncompleted contracts
|
|
|
(93,192
|
)
|
|
|
(4,264
|
)
|
|
|
76,890
|
|
Advance payments received from customers
|
|
|
20,021
|
|
|
|
2,355
|
|
|
|
(595
|
)
|
Income tax liabilities
|
|
|
8,421
|
|
|
|
(11,115
|
)
|
|
|
7,838
|
|
Provision for warranty costs
|
|
|
16,709
|
|
|
|
(3,046
|
)
|
|
|
10,373
|
|
Provision for restructuring costs
|
|
|
7,773
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
269
|
|
|
|
424
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by continuing operating activities
|
|
|
(9,848
|
)
|
|
|
84,690
|
|
|
|
130,103
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(1,801
|
)
|
|
|
(3,037
|
)
|
|
|
(3,471
|
)
|
Sales (purchases) of long-term securities, net
|
|
|
|
|
|
|
|
|
|
|
(456
|
)
|
Purchases of subsidiaries, net of cash acquired
|
|
|
(791
|
)
|
|
|
(1,547
|
)
|
|
|
(7,807
|
)
|
Settlement of investment in preferred shares of former
subsidiaries
|
|
|
6,195
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of workshop and related assets, net of cash
disposed of
|
|
|
3,681
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(1,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) continuing investing activities
|
|
|
7,284
|
|
|
|
(6,204
|
)
|
|
|
(11,734
|
)
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
3,292
|
|
Debt repayments
|
|
|
|
|
|
|
(2,056
|
)
|
|
|
(6,132
|
)
|
Issuance of shares
|
|
|
|
|
|
|
4,370
|
|
|
|
8,822
|
|
Distribution in connection with SWA Reit and Investments
Ltd.
|
|
|
|
|
|
|
|
|
|
|
(5,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by continuing financing activities
|
|
|
|
|
|
|
2,314
|
|
|
|
583
|
|
Cash flows provided by operating activities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
198
|
|
Cash flows provided by investing activities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Cash flows used in financing activities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(245
|
)
|
Exchange rate effect on cash and cash equivalents
|
|
|
14,028
|
|
|
|
(26,110
|
)
|
|
|
30,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
11,464
|
|
|
|
54,690
|
|
|
|
149,719
|
|
Cash and cash equivalents, beginning of year
|
|
|
409,087
|
|
|
|
354,397
|
|
|
|
204,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
420,551
|
|
|
|
409,087
|
|
|
$
|
354,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
406,219
|
|
|
$
|
393,872
|
|
|
$
|
349,435
|
|
Money market funds
|
|
|
14,332
|
|
|
|
15,215
|
|
|
|
4,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
420,551
|
|
|
$
|
409,087
|
|
|
$
|
354,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonmonetary supplemental information (see Note 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
79
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
|
|
Note 1.
|
The
Company and Summary of Significant Accounting Policies
|
KHD Humboldt Wedag International Ltd. (KHD Ltd) is
incorporated under the laws of British Columbia, Canada. KHD
Ltd, through its non-wholly-owned subsidiary KHD Humboldt Wedag
International (Deutschland) AG in Germany (KID) and
direct wholly-owned subsidiary KHD Humboldt Wedag International
Holding GmbH in Austria (KIA) and their
subsidiaries, operates internationally in the industrial plant
technology, equipment and service supply and specializes in the
cement and mining industries. KID and KIA, with their
subsidiaries, are collectively known as KHD in these
consolidated financial statements.
During fiscal year 2009, KHD focused on the industrial plant
technology, equipment and service business for the cement and
mining industries and on maintaining leadership in supplying
technologies, equipment and engineering services for the cement
and mining sectors, as well as designing and building plants
that produce clinker and cement and process coal and other
minerals, such as copper, gold and diamonds. However, in the
fourth quarter of 2009, KHD divested its interest in its coal
and minerals customer group, exclusive of its roller press
technologies and capabilities utilized for mining applications,
such that the business of KHD began to be focused on the cement
industry. (See Note 4.) As a result, the business of KID
will also be focused on the cement industry, although it will
also continue to market its roller press technologies and
capabilities for mining applications. The roller press is a
proprietary technology which was initially developed for
KIDs cement customer group but has been subsequently and
successfully used in the mining sector.
KHD Ltd also holds an indirect interest in the Wabush iron ore
mine in Canada.
The consolidated financial statements and accompanying notes
have been prepared in conformity with generally accepted
accounting principles (GAAP) applicable in Canada.
For a description of the differences between Canadian GAAP and
U.S. GAAP for the Company, see Note 33. The
presentation currency of these consolidated financial statements
is United States dollars ($), as rounded to the nearest thousand
(except per share amounts). The symbol refer
to Euros.
Principles of Consolidation
The consolidated financial statements include the accounts of
KHD Ltd and its subsidiaries, variable interest entity and
jointly controlled enterprises (collectively, the
Company in these consolidated financial statements).
The Company consolidates a variable interest entity when the
Company has a variable interest that absorbs a majority of the
entitys expected losses, receives a majority of the
entitys expected residual returns, or both, in compliance
with Accounting Standards Boards (AcSB)
Accounting Guideline (AcG) 15,
Consolidation of
Variable Interest Entities.
The Company proportionately
consolidates its interest in jointly controlled enterprises,
pursuant to Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3055,
Interests in
Joint Ventures,
whereby the Companys share of each of
the assets, liabilities, income and expenses of a jointly
controlled enterprise is combined line by line with similar
items in the Companys consolidated financial statements.
All significant intercompany accounts and transactions have been
eliminated.
The Company uses the equity method to account for investments
when it has the ability to significantly influence the
investees operating and financial policies. Under the
equity method, the investment is initially recorded at cost,
then reduced by distributions and increased or decreased by the
Companys proportionate share of the investees net
earnings or loss and unrealized currency translation adjustment.
When there is an other than temporary decline in value, the
investment is written down and the unrealized loss is included
in the results of operations.
Foreign
Currency Translation
The Company translates assets and liabilities of its
self-sustaining foreign subsidiaries at the rate of exchange at
the balance sheet date. Revenues and expenses have been
translated at the average rate of exchange throughout the year.
Unrealized gains or losses from these translations, or currency
translation adjustments, are included in the accumulated other
comprehensive income under the equity section of the
consolidated balance sheets.
80
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Transaction gains and losses 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 (loss).
Use
of Estimates and Assumptions and Measurement
Uncertainty
The preparation of financial statements in conformity with
Canadian and U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Key areas of estimation where management has made
difficult, complex or subjective judgments, often as a result of
matters that are inherently uncertain, include those relating to
allowance for credit losses, fair value of financial instruments
in an inactive market, provision for warranty costs, pension
liabilities, other than temporary impairments of securities,
accounting for construction contracts, valuation of property,
plant and equipment, valuation of interest in resource property,
valuation allowance for future income tax, provision for income
taxes, provision for supplier commitments on terminated customer
contracts and provision for restructuring costs, among other
items. Managements best estimates are based on the facts
and circumstances available at the time estimates are made,
historical experience, general economic conditions and trends,
and managements assessment of probable future outcomes of
these matters. Actual results could differ from these estimates,
and such differences could be material.
|
|
B.
|
Accounting
Standards and Amendments Adopted in 2009
|
The Company adopted the following new accounting standards and
amendments in 2009, which did not have a significant impact on
the Companys consolidated financial statements.
Goodwill
and Intangible Assets
Effective January 1, 2009, the Company adopted 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. The
CICAs Emerging Issues Committee (EIC) Abstract
No. 27,
Revenues and Expenditures during the
Pre-operating Period
, is no longer 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 the relevant period.
81
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
, which 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.
|
Significant
Accounting Policies
|
(i) Financial
Instruments
All financial assets and financial liabilities are to be
classified by characteristic
and/or
management intent. Except for certain financial instruments
which are excluded from the scope, all financial assets are
classified into one of four categories: held for trading, held
to maturity, loans and receivables, and available for sale; and
all financial liabilities are classified into one of two
categories: held for trading and other financial liabilities.
Regular way purchases and sales of financial assets are
accounted for at settlement date.
Generally, a financial asset or financial liability held for
trading is a financial asset or financial liability that meets
either of the conditions: (i) it is not a loan or
receivable and is (a) acquired or incurred principally for
the purpose of selling or repurchasing it in the near term;
(b) part of a portfolio of identified financial instruments
that are managed together and for which there is evidence of a
recent actual pattern of short-term profit taking; or (c) a
derivative, except for a derivative that is a designated and
effective hedging instrument; or (ii) it is designated by
the Company upon initial recognition as held for trading. Any
financial instrument may be designated when initially recognized
as held for trading, except for (i) financial instruments
whose fair value cannot be reliably measured and
(ii) financial instruments transferred in a related party
transaction that were not classified as held for trading before
the transaction. Generally, a financial instrument cannot be
reclassified into the held for trading category while it is held
or issued, except that if a financial asset is no longer held
for the purpose of selling it in the near term, the entity may
reclassify that financial asset out of the held for trading
category in rare circumstances. Furthermore, a financial asset
in the held for trading category that would have met the
definition of loans and receivables (if the financial asset had
not been required to be classified as held for trading at
initial recognition) may also be reclassified out of the held
for trading category if the entity has the intention and ability
to hold the financial asset for the foreseeable future or until
maturity.
Available-for-sale
financial assets are those non-derivative financial assets that
are designated as available for sale, or that are not classified
as loans and receivables,
held-to-maturity
investments, or held for trading.
Non-derivative financial liabilities are classified as other
financial liabilities.
When a financial asset or financial liability is recognized
initially, the Company measures it at its fair value (except as
specified for certain related party transactions). The
subsequent measurement of a financial instrument and the
recognition of associated gains and losses are determined by the
financial instrument classification category.
After initial recognition, the Company measures financial
assets, including derivatives that are assets, at their fair
values, without any deduction for transaction costs it may incur
on sale or other disposal, except for the following financial
assets:
(a) held-to-maturity
investments which are measured at amortized cost using the
effective interest method; (b) loans and receivables which
are measured at amortized cost using the effective interest
82
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
method; (c) investments in equity instruments that do not
have a quoted market price in an active market and are measured
at cost (other than such instruments that are classified as held
for trading); and (d) derivatives that are linked to and
must be settled by delivery of equity instruments of another
entity whose fair value cannot be reliably measured and are
measured at cost. All financial assets, except those measured at
fair value with changes in fair value recognized in net income,
are subject to review for impairment. After initial recognition,
the Company measures all financial liabilities at amortized cost
using the effective interest method, except for financial
liabilities that are classified as held for trading (including
derivatives that are liabilities) which are measured at their
fair values (except for derivatives that are linked to and must
be settled by delivery of equity instruments of another entity
whose fair value cannot be reliably measured which should be
measured at cost).
A gain or loss on a financial asset or financial liability
classified as held for trading is recognized in net income for
the period in which it arises. A gain or loss on an
available-for-sale
financial asset is recognized directly in other comprehensive
income, except for impairment losses, until the financial asset
is derecognized, at which time the cumulative gain or loss
previously recognized in accumulated other comprehensive income
is recognized in net income for the period. For financial assets
and financial liabilities carried at amortized cost, a gain or
loss is recognized in net income when the financial asset or
financial liability is derecognized or impaired, and through the
amortization process.
Whenever quoted market prices are available, bid prices are used
for the valuation of financial assets while ask prices are used
for financial liabilities. When the market for a financial
instrument is not active, the Company establishes fair value by
using a valuation technique. Valuation techniques include using
recent arms length market transactions between
knowledgeable, willing parties, if available; reference to the
current fair value of another instrument that is substantially
the same; discounted cash flow analysis; option pricing models
and other valuation techniques commonly used by market
participants to price the instrument.
An entity classifies fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the
following levels:
|
|
|
|
(a)
|
quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
|
|
|
|
|
(b)
|
inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly
(i.e., as prices) or indirectly (i.e., derived from prices)
(Level 2); and
|
|
|
|
|
(c)
|
inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
|
Assessing the significance of a particular input to the fair
value measurement in its entirety requires judgment, considering
factors specific to the asset or liability.
Transaction costs related to the acquisition of held for trading
financial assets and liabilities are expensed as incurred. For
all other financial assets and liabilities, the Company elects
to expense transaction costs immediately. Transaction costs are
incremental costs that are directly attributable to the
acquisition or disposal of a financial asset or liability.
(ii) Cash
and Cash Equivalents
Cash and cash equivalents are classified as held for trading and
include cash on hand, cash at banks and highly liquid
investments (e.g. money market funds) readily convertible to a
known amount of cash and subject to an insignificant risk of
change in value. They have original maturities of three months
or less and are generally interest bearing.
(iii) Restricted
Cash
Restricted cash is classified as held for trading. Restricted
cash at December 31, 2009 and 2008 was provided as security
for the performance of industrial plant technology, equipment
and service contracts.
(iv) Securities
Securities are classified as held for trading and short-term or
long-term
available-for-sale
securities.
83
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Publicly-traded securities (debt and equity) which are acquired
principally for the purpose of selling in the near term are
classified as held for trading. Securities held for trading are
marked to their bid prices on the balance sheet date and
unrealized gains and losses are included in the statement of
income.
Available-for-sale
securities consist of publicly-traded securities (debt and
equity) and unlisted equity securities which are not held for
trading and not held to maturity. Short-term
available-for-sale
securities include unlisted equity securities. Long-term
available-for-sale
securities are purchased with the intention to hold until market
conditions render alternative investments more attractive. The
available-for-sale
securities are stated at bid price whenever quoted market prices
are available. When the market for the
available-for-sale
security is not active, the Company establishes fair value by
using a valuation technique. Unrealized gains and losses are
recorded in other comprehensive income unless there has been an
other than temporary decline in value, at which time the
available-for-sale
security is written down and the write-down is included in the
result of operations.
Gain and loss on sales of securities are recognized on the
average cost basis on the settlement dates.
(v) Receivables
Typically, receivables are financial instruments which are not
classified as held for trading or
available-for-sale.
They are classified as loans and receivables and are measured at
amortized cost without regard to the Companys intention to
hold them to maturity.
Receivables are net of an allowance for credit losses, if any.
The Company performs ongoing credit evaluation of customers and
adjusts the 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.
(vi) Allowance
for Credit Losses
The Companys allowance for credit losses is maintained at
an amount considered adequate to absorb estimated credit-related
losses. Such allowance reflects managements best estimate
of the losses in the Companys receivables and judgments
about economic conditions. Estimates and judgments could change
in the near-term, and could result in a significant change to a
recognized allowance. Credit losses arise primarily from
receivables but may also relate to other credit instruments
issued by or on behalf of the Company, such as guarantees and
letters of credit. An allowance for credit losses may be
increased by provisions which are charged to income and reduced
by write-offs net of any recoveries.
Specific provisions are established on an individual basis. A
country risk provision may be made based on exposures in less
developed countries and on managements overall assessment
of the underlying economic conditions in those countries.
Write-offs are generally recorded after all reasonable
restructuring or collection activities have taken place and
there is no realistic prospect of recovery.
(vii) Derivative
Financial Instruments
Derivative financial instruments are financial contracts whose
value is derived from interest rates, foreign exchange rates or
other financial or commodity indices. These instruments are
either exchange-traded or negotiated. Derivatives are included
on the consolidated balance sheet and are measured at fair
value. Derivatives that qualify as hedging instruments are
accounted for in accordance with CICA Handbook
Section 3865. For derivatives that do not qualify as
hedging instruments, the unrealized gains and losses are
included in the result of operations.
Where the Company has both the legal right and intent to settle
derivative assets and liabilities simultaneously with a
counterparty, the net fair value of the derivative positions is
reported as an asset or liability, as appropriate.
(viii) Inventories
Inventories consist of construction raw materials,
work-in-progress,
contracts-in-progress
and finished goods. Inventories are recorded at the lower of
cost (on a specific item basis) or estimated net realizable
value. Cost, where appropriate, includes an allocation of
manufacturing overheads incurred in bringing inventories to
their present location and condition. Net realizable value
represents the estimated selling price less all estimated costs
of completion and cost to be incurred in marketing, selling and
distribution. The amount of any write-down of inventories to net
realizable value and all losses of inventories are recognized as
an expense in the period the write-down or loss occurs. The
amount of any reversal of any write-down of inventories arising
from an increase in net
84
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
realizable value is recognized as a reduction in the amount of
inventories recognized as an expense in the period in which the
reversal occurs.
The Company recognizes revenues from construction contracts
under the
percentage-of-completion
method. The recognized income is the estimated total income
multiplied by the percentage of incurred costs to date to the
most recently estimated total completion costs. Under the
percentage-of-completion
method, the
contracts-in-progress
includes costs and estimated earnings above billings on
uncompleted contracts. Progress billings above estimated costs
and estimated earnings on uncompleted contracts and advances
received from customers are shown as liabilities.
Prepayments and deposits for inventories on construction
contracts are included in the account of contract deposits,
prepaid and other on the face of consolidated balance sheets.
(ix) Property,
Plant and Equipment
Property, plant and equipment are carried at cost, net of
accumulated depreciation. Property, plant and equipment are
tested for recoverability whenever events or changes in
circumstances indicate that their carrying amounts may not be
recoverable. An impairment loss is recognized when the carrying
amounts exceed the estimated future undiscounted cash flows. Any
resulting impairment loss is measured as excess of carrying
value of the asset over fair value and is charged to the result
of operations. No such losses have been recorded in these
consolidated financial statements.
Property, plant, and equipment are depreciated according to the
following lives and methods:
|
|
|
|
|
|
|
|
|
|
|
Lives
|
|
Method
|
|
Buildings
|
|
|
25 years
|
|
|
|
straight-line
|
|
Manufacturing plant equipment
|
|
|
3 to 20 years
|
|
|
|
straight-line
|
|
Office equipment
|
|
|
3 to 10 years
|
|
|
|
straight-line
|
|
(x) Interest
in Resource Property
Interest in resource property is stated at cost, net of
accumulated amortization, and represents the Companys
royalty interest in a Canadian iron ore mine which will expire
in 2055. The iron ore deposit is currently leased to an
unincorporated joint venture of steel producers and a steel
trader under certain lease agreements which will expire in 2055.
The Company collects the royalty payment directly from the joint
venture based on a pre-determined formula. Amortization is
provided on the straight-line basis over its estimated economic
life to year 2023. The amortization method and estimate of the
useful life of the resource property is reviewed annually. The
resource property is tested for recoverability whenever events
or changes in circumstances indicate that their carrying amounts
may not be recoverable. An impairment loss is recognized when
the carrying amounts exceed the estimated future undiscounted
cash flows. Any resulting impairment loss is measured as excess
of carrying value of the asset over fair value and is included
in the result of operations. No such losses have been recorded
in these consolidated financial statements.
(xi) Asset
Retirement Obligations
The Company accounts for obligations associated with the
retirement of long-lived assets that result from the
acquisition, construction, development and the normal operation
of long-lived assets under CICA Handbook Section 3110,
Asset Retirement Obligations
. Under these rules, a
reasonable estimate of fair value of the liability is initially
recorded and the carrying value of the related asset is
increased by the corresponding amount. In periods subsequent to
initial measurement, the Company recognizes
period-to-period
changes in the liability for an asset retirement obligation
resulting from the passage of time and revisions to either the
timing or the amount of the original estimate of undiscounted
cash flows. The Company does not currently have any material
asset retirement obligations.
(xii) Provisions
Provisions are recognized when the Company has a present
obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be
made of the amount of the obligation. Provisions are measured at
the managements best estimate of
85
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the expenditure required to settle the obligation at the balance
sheet date. Legal costs in connection with a loss contingency
are recognized when incurred.
(xiii) Revenue
Recognition and Cost of Revenues
Revenues are derived from providing industrial plant technology,
equipment and services. The revenue is recognized under the
percentage-of-completion
method, measured by costs incurred to date to the total
estimated cost for the entire contract. Revenues include
revenues from change orders after the change orders are approved
by the customers.
Cost of revenues include all direct material, labour costs,
selling expenses and amortization as well as any other direct
and indirect cost attributable to each individual contract such
as warranty and freight costs. If estimated costs to complete a
contract indicate a loss, provision is made in the current
period for the total anticipated loss. This method is used as
management considers the percentage of incurred costs to date to
the most recently estimated total cost to be the best available
measure of progress on contracts. Cost of revenues for the
period includes the benefit of claims settled on contracts
completed in prior years.
Management conducts periodic reviews of its cost estimates. The
effect of any revision is accounted for by way of a cumulative
catch-up
adjustment to revenues
and/or
cost
of revenues, pursuant to the
percentage-of-completion
method, in the period in which the revision takes place.
Pre-contract costs are expensed as incurred in selling, general
and administrative expenses until it is virtually certain that a
contract will be awarded; from which time further pre-contract
costs are recognized as an asset and charged as an expense over
the period of the contract.
For interest, royalty and dividend income, recognition is
warranted when it is probable that economic benefits will flow
to the Company and the amount of income can be measured
reliably. Interest income is recognized on a time proportion
basis, taking into account the effective yield on the asset.
Royalty income is recognized on an accrual basis, in accordance
with the terms of the underlying agreement. Dividend income is
recognized when the Companys right as a shareholder to
receive payment has been established.
The revenues are reported net of sales taxes.
(xiv) Warranty
Costs
The contracts and services of the Companys industrial
plant technology, equipment and service business are typically
covered by product and service warranty that is typically
ranging from one year to two years (and three or four years in
exceptional cases), starting with commissioning. Many of the
Companys construction contracts guarantee the plants for a
pre-defined term against technical problems. Each contract
defines the conditions under which a customer may make a claim.
The provision is calculated per contract and is based on a
number of factors, including the historical warranty claims and
cost experience, the type and duration of warranty coverage, the
nature of products sold and in service and counter-warranty
coverage available from the Companys suppliers.
Management reviews the provision for warranty costs periodically
and any adjustment is recorded in cost of revenues.
(xv) Research
and Development Costs
Research and development costs are charged to selling, general
and administrative expenses when incurred. The Company incurred
research and development costs of $4,304, $4,320 and $2,855 in
2009, 2008 and 2007, respectively. There are no development
costs which meet the criteria for deferral.
(xvi) Stock-Based
Compensation
The Company has two stock-based compensation plans. The Company
follows CICA Handbook Section 3870,
Stock-based
Compensation and Other Stock-based Payments
, which requires
share-based transactions to be measured on a fair value basis
using an option-pricing model. The stock-based compensation
expenses are classified as selling, general and administrative
expenses. When the options are exercised, the exercise price
proceeds together with the amount initially recorded in the
contributed surplus account are credited to common stock.
86
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(xvii) Employee
Future Benefits
The Company has defined benefit pension plans for employees of
certain KHD companies in Europe. Employees hired after 1996 are
generally not eligible for such benefits. The Company considers
and relies in part on independently prepared actuarial reports
to record pension costs and pension liabilities, using the
projected benefit method prorated on services (also known as the
projected unit credit method). The report is prepared based on
certain demographic and financial assumptions. The variables in
the actuarial computation include demographic assumptions about
the future characteristics of the employees (and their
dependants) who are eligible for benefits, the discount rate
(based on market yields on high quality corporate bonds), and
future salary.
The Company uses a systematic method of recognizing actuarial
gains and losses in income. Adjustments arising from changes in
assumptions and experience gains and losses are amortized over
estimated average remaining service lifetime when the cumulative
unamortized balance exceeds 10% of the greater of accrued
obligations. However, when all, or almost all, of the employees
are no longer active, the Company will base the amortization on
the average remaining life expectancy of the former employees.
(xviii) Taxes
on Income
The Company uses the asset and liability method to provide for
income taxes on all transactions recorded in these consolidated
financial statements. Under this method, future income tax
assets and liabilities are recognized for temporary differences
between the tax and accounting bases of assets and liabilities
as well as for the benefit of losses to be carried forward to
future years for tax purposes that are more likely than not to
be realized using expected tax rates in which the temporary
differences are expected to be recovered or settled. Future
income tax is charged or credited to consolidated statements of
income, except when it relates to items charged or credited
directly to equity, in which case the future income tax is also
dealt with in equity. Changes in future income taxes related to
a change in tax rates are recognized in the period when the tax
rate change is substantively enacted. The consolidated
statements of income include items that are non-taxable or
non-deductible for income tax purposes and, accordingly, cause
the income tax provision to be different than what it would be
if based on statutory rates.
Future income taxes accumulated as a result of temporary
differences and tax loss carry-forwards are included in future
income tax assets and liabilities, as applicable. On a quarterly
basis, management reviews the Companys future tax assets
to determine whether it is more likely than not that the
benefits associated with these assets will be realized. This
review involves evaluating both positive and negative evidence.
A valuation allowance account is established to reduce future
income tax assets to the amount that management believes is more
likely than not to be realized.
Future income tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets
against current tax liabilities, and when they relate to income
tax levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a
net basis.
A future income tax asset or liability is not recognized on
earnings or losses relating to the Companys foreign
operations where repatriation of such amounts is not
contemplated in the foreseeable future.
In acquisitions that are not business combinations, an excess of
the value of income tax assets, which management believes is
more likely than not to be realized, over the consideration paid
for such assets is recorded as a deferred credit and recognized
in the statement of operations in the same period that the
related tax asset is realized.
The operations of the Company are complex, and related tax
interpretations, regulations and legislation are continually
changing. As a result, there are usually some tax matters in
question that result in uncertain tax positions. The Company
only recognises the income tax benefit of an uncertain tax
position when it is more likely than not that the ultimate
determination of the tax treatment of the position will result
in that benefit being realized. The Company includes interest
charges and penalties on current tax liabilities, if any, as a
component of financing costs.
(xix) Earnings
Per Share
Basic earnings per share is determined by dividing net income
applicable to common shares by the average number of common
shares outstanding for the year, net of treasury stock. Diluted
earnings per share is determined using the same method as basic
earnings per share except that the weighted average number of
common shares
87
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding includes the potential dilutive effect of stock
options and warrants granted under the treasury stock method and
convertible debt. The treasury stock method determines the
number of additional common shares by assuming that outstanding
stock warrants and options whose exercise price is less than the
average market price of the Companys common stock during
the period are exercised and then reduced by the number of
common shares assumed to be repurchased with the exercise
proceeds.
The dilutive effect of stock options is computed using the
treasury stock method. If the stock-based payments were granted
during the period, the shares issuable are weighted to reflect
the portion of the period during which the payments were
outstanding. The shares issuable are also weighted to reflect
forfeitures occurring during the period. When options are
exercised during the period, shares issuable are weighted to
reflect the portion of the period prior to the exercise date and
shares issued are included in the weighted average number of
shares outstanding from the exercise date. In applying the
treasury stock method, the assumed proceeds from the exercise of
stock options is the sum of: (a) the amount, if any, the
holder must pay upon exercise; (b) the amount of
compensation cost, if any, attributed to future services and not
yet recognized; and (c) the amount of tax benefits (both
current and future), if any.
|
|
D.
|
Recent
Accounting Standards and Amendments not yet Adopted
|
Business
Combinations and Non-controlling Interests
In January 2009, the AcSB issued Section 1582,
Business
Combinations
, Section 1601,
Consolidations,
and
Section 1602,
Non-controlling Interest.
Section 1582 applies to a transaction in which the acquirer
obtains control of one or more businesses. The term
business is more broadly defined than in the
existing standard. Most assets acquired and liabilities assumed,
including contingent liabilities that are considered to be
improbable, will be measured at fair value. Any interest in the
acquiree owned prior to obtaining control will be remeasured at
fair value at the acquisition date, eliminating the need for
guidance on step acquisitions. A bargain purchase will result in
recognition of a gain. Acquisition-related costs must be
expensed.
The new standards are effective for business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
January 1, 2011. Early adoption is permitted. Management
has decided to adopt these three sections effective
January 1, 2010. The adoption of these new sections will
not have significant impact on the consolidated financial
statements but may in the future.
Equity
In August 2009, the AcSB issued amendments to Section 3251,
Equity
, as a result of issuing Section 1602. The
amendments require non-controlling interests to be recognized as
a separate component of equity.
The amendments apply only to entities that have adopted
Section 1602. Management has decided to adopt these
amendments effective January 1, 2010. The adoption of these
new amendments will change the classification and presentation
of the non-controlling interest on the consolidated financial
statements.
Accounting
Changes
In June 2009, the AcSB issued an amendment to Section 1506,
Accounting Changes
. This section shall be applied in
accounting for changes in accounting policies, changes in
accounting estimates and corrections of prior period errors.
This section shall be applied to a change in individual
accounting policies but not to changes in accounting policies
upon the complete replacement of an entitys primary basis
of accounting. The amendment is effective for fiscal years
beginning on or after July 1, 2009. Management has reviewed
the requirements and concluded that they will not have
significant impact on the Companys consolidated financial
statements.
|
|
Note 2.
|
Capital
Disclosure on the Companys Objective, Policies and
Processes for Managing Its Capital Structure
|
The Companys objectives when managing capital are:
(i) to safeguard the entitys ability to continue as a
going concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders, (ii) to
provide an adequate return to shareholders by pricing products
and services commensurately with the level of risk, and
(iii) to maintain a flexible capital structure which
optimizes the cost of capital at acceptable risk.
88
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company sets the amount of capital in proportion to risk.
The Company manages the capital structure and makes adjustments
to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain
or adjust the capital structure, the Company may adjust the
amount of dividends paid to shareholders, return capital to
shareholders, issue new shares, or sell assets to reduce debt.
Consistently with others in the industry, the Company monitors
capital on the basis of the
debt-to-adjusted
capital ratio and long-term
debt-to-equity
ratio. The
debt-to-adjusted
capital ratio is calculated as net debt divided by adjusted
capital. Net debt is calculated as total debt less cash and cash
equivalents. Adjusted capital comprises all components of equity
and some forms of subordinated debt, if any. The long-term
debt-to-equity
ratio is calculated as long-term debt divided by shareholders
equity.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Total debt
|
|
$
|
11,649
|
|
|
$
|
11,313
|
|
Less: cash and cash equivalents
|
|
|
(420,551
|
)
|
|
|
(409,087
|
)
|
|
|
|
|
|
|
|
|
|
Net debt (net cash and cash equivalents)
|
|
$
|
(408,902
|
)
|
|
$
|
(397,774
|
)
|
Total equity
|
|
$
|
319,788
|
|
|
$
|
261,914
|
|
Debt-to-adjusted
capital ratio
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
There were no amounts in accumulated other comprehensive income
relating to cash flow hedges nor were there any subordinated
debt instruments as at December 31, 2009 and 2008. The
debt-to-adjusted
capital ratio in 2009 and 2008 were not applicable since the
Company had a net cash and cash equivalents balance.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-term debt
|
|
$
|
11,649
|
|
|
$
|
11,313
|
|
Shareholders equity
|
|
$
|
319,788
|
|
|
$
|
261,914
|
|
Long-term
debt-to-equity
ratio
|
|
|
0.04
|
|
|
|
0.04
|
|
During 2009, the Companys strategy, which was unchanged
from 2008, was to maintain the
debt-to-adjusted
capital ratio and the long-term
debt-to-equity
ratio at a low level. The Company had a net cash and cash
equivalent balance after deduction of the total debt. The
Companys long-term
debt-to-equity
ratio was 0.04 and 0.04 as at December 31, 2009 and 2008,
respectively. Such low ratios enable the Company to secure
access to credit facilities at favourable financing terms for
its core business activities. (See Note 8.)
The Company is required to comply with certain financial
covenants under a bank credit facility. The Company was in
compliance with the financial covenants in 2009 and 2008. (See
Notes 8 and 19.)
|
|
Note 3.
|
Acquisitions
of Subsidiaries
|
Years
2009 and 2008
There was no business combination transaction in 2009 or 2008.
Year
2007
In May 2007, the Company increased its common share holding
position in Sasamat Capital Corporation (Sasamat)
from 58.7% to 100%. The Company paid a total consideration of
$18,078 consisting of $13 in cash and $18,065 in 645,188 common
shares of the Company for the acquisition of this 41.3% common
share position in Sasamat through a plan of arrangement. Prior
to completion of the acquisition, Sasamat had been a subsidiary
of the Company and had been consolidated into the Companys
consolidated financial statements since September 2005. Sasamat
is a holding company whose major asset is its 32% equity
position in KID.
In September 2007, the Company acquired 5.17% of the common
shares in a 94.83% owned German subsidiary for $1,561 in cash
from a limited partnership (in which the Company holds a 94.5%
interest and the Company is not the general partner thereof).
This German subsidiary has been consolidated since March 2004.
The Company did not recognize any goodwill or intangible assets
on the acquisition. There was an excess of the fair value of
acquired net assets over cost, which resulted in an
extraordinary gain of $513, net of income taxes and minority
interest.
In December 2007, the Company acquired a 75.06% controlling
interest in HIT International Trading AG (HIT) for
consideration of $6,104 in cash. HIT is a German company
publicly traded on the CDAX stock
89
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exchange. At the acquisition date, HITs major business
activity related to passive investment in marketable securities
and its net assets are comprised almost entirely of cash and
marketable securities. The acquisition was an indirect purchase
of assets and not considered a business combination. No goodwill
or intangible assets were recorded as a result of this
acquisition. HIT was consolidated since its acquisition date.
HIT has tax loss carry-forwards of approximately $74,501. The
future income tax asset related to these losses is reduced by
valuation allowance and offset by a deferred credit for income
taxes.
|
|
Note 4.
|
Disposition
of Subsidiaries
|
Workshop
and Coal and Minerals Customer Groups
Effective September 30, 2009, management, as duly
authorized by the board of directors, committed to a plan to
sell the workshop in Cologne and the Companys coal and
minerals customer group, each in their respective present
conditions, to a third party. The sale was completed and
executed in early October, 2009 and there were no significant
changes to the sale plan prior to closing.
The divestment of the coal and minerals customer group and the
workshop, exclusive of the roller press technologies and
capabilities, is not presented as a discontinued operation as it
cannot be clearly distinguished from the Companys ongoing
operations and the Company will continue to have involvement in
the business, through its retention of its roller press
technologies and capabilities, subsequent to closing. Pursuant
to the sale agreement, the Company received cash of $7,500 and
may receive contingent payments based on unutilized severance
payments for the workshops employees and certain other
contingencies. The Company also agreed to grant the buyer the
right to continue to manufacture the roller press for the
Company 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, the Company will offer the Cologne
workshop contracts to manufacture equipment required for the
Companys 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, including pension
obligations, from the Company. The disposal group has been
reported in the industrial plant technology, equipment and
service business segment.
A gain of $5,254 was recognized on the sale of the workshop and
coal and minerals customer groups in the Companys
consolidated statement of income.
Financial
services operations
In December 2005, the Companys board of directors passed a
resolution to distribute the majority of the Companys
financial services business to its shareholders. In connection
with the distribution, the Company ensured that the Company
preserved its entitlement to Mass Financials exempt
surplus earned in respect of the Company and that
inter-corporate indebtedness between the Company and Mass
Financial was eliminated on a tax-efficient basis. Pursuant to
this resolution, the Company and Mass Financial 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. At the time of the share
exchange, the Companys carrying amount of its investment
in the Mass Financial group was $191,266 (Cdn$218,789)
(including a currency translation adjustments loss of $22,662).
The Companys equity interest in Mass Financial was
exchanged for preferred shares in Mass Financial and one of its
subsidiaries with an exchange value of $168,604 (Cdn$192,866).
The share exchange was accounted for as a related party
transaction pursuant to CICA Handbook Section 3840,
Related Party Transactions
. Accordingly, the difference
of $22,662 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 the Company, except for MFC Corporate
Services AG (former MFC Merchant Bank SA) (MFC Corporate
Services) and the Companys interest in a resource
property, and the Company held all Class B preferred shares
and Class A common shares in the capital of Mass Financial.
On January 31, 2006, the Company distributed all its
Class A common shares in Mass Financial to shareholders of
the Company on a pro rata basis by way of a dividend in kind of
a nominal amount. Included in the assets of Mass Financial on
the distribution date were 3,142,256 common shares of the
Company with a carrying amount of $9,330. In February 2006,
$56,823 (Cdn$65,000) of the Class B preferred shares of
Mass Financial were redeemed and the payment was effected by
setting off $56,823 (Cdn$65,000) owing to Mass Financial by the
Company under the set-off agreement. Upon completion of all
agreements, the Company owned Class B preferred shares of
Mass Financial and preferred shares of MFC Bancorp Ltd.
(MFC, a wholly-owned subsidiary of Mass Financial
until December 2008), which had an aggregate carrying value of
$109,727 (Cdn$127,866).
90
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Class B preferred shares of Mass Financial, which were
issued in series, were non-voting and paid an annual dividend of
4.4367% on December 31 of each year, commencing
December 31, 2007. Mass Financial could, at its option and
at any time, redeem all or any number of the outstanding
Class B preferred shares. Beginning 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 had an aggregate
redemption amount equal to, but not exceeding,
6
2
/
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, an 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 the
holder of the Class B preferred shares. The Mass Financial
preferred shares were classified as a financial liability
instrument by Mass Financial under CICA Handbook
Section 3861, as the preferred shares were retractable by
the holder.
The Companys investment in the preferred shares of Mass
Financial and one of its subsidiaries was classified as
available-for-sale
securities.
Pursuant to the loan agreement and pledge agreement, the Company
had an inter-corporate indebtedness due to Mass Financial of
$31,751 (Cdn$37,000) 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 interest payment to be
made on December 31, 2007. Beginning December 31, 2011
and each year thereafter, the Company was to repay a principal
amount of Cdn$2,467 each year, over a
15-year
period. Under the pledge agreement, the Company deposited in
pledge with Mass Financial the collateral (the Companys
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 the letter agreement, the Company and Mass Financial
agreed that at any time the Company 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.
The two parties also agreed that at any time Mass Financial
redeemed or retracted its Class B preferred shares, the
Company would repay to Mass Financial Cdn$0.2987 of the
promissory note for every Cdn$1 of the Class B preferred
shares redeemed. Since the Company met the criteria outlined in
CICA Handbook Section 3863, the Companys investment
in Mass Financial preferred shares was offset and reduced by the
promissory note owing to Mass Financial and the net amount was
reported in the Companys consolidated balance sheet. As a
result of the offset, the Company had a net financial asset of
Cdn$90,866 in the Mass Financial group at both December 31,
2007 and 2006.
Following the distribution of Class A common shares of Mass
Financial to the shareholders of the Company, Mass Financial
agreed to provide certain management services to the Company.
Firstly, Mass Financial agreed to provide management services in
connection with the investment in MFC Corporate Services in
consideration for the Company paying Mass Financial 15% of the
after tax profits of MFC Corporate Services and granting Mass
Financial 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 the Company; or (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 the Company sold its equity position in MFC
Corporate Services to the Mass Financial group. KHD did not pay
any fees to Mass Financial under this management services
agreement.
Secondly, Mass Financial agreed to provide management services
to the Company in connection with the review, supervision and
monitoring of the royalty earned by the Company in connection
with the Companys interest in a resource property. The
Company 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 the Company 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.
The Company also has 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.
91
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to the terms of the restructuring agreement, the
Company and Mass Financial agreed that all current and
outstanding guarantees issued by the respective parties would
continue to be in force for a reasonable period of time
following the consummation of the distribution. 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 one
outstanding guarantee of $1,056 which had been issued by the
Company on behalf of a 27.8% equity method investee of Mass
Financial. This guarantee expired in March 2007. As at
December 31, 2008 and 2007, there were no guarantees which
were issued by the Company on behalf of Mass Financial.
In November 2006, the Company completed the sale of its entire
equity interest in MFC Corporate Services to a wholly-owned
subsidiary of Mass Financial. The consideration was determined
by reference to the Companys carrying value of its
investment in MFC Corporate Services as of September 30,
2006 of $68,245 (Cdn$77,902) and comprised cash of Cdn$38,792
(Cdn$31,081 paid in November 2006 and Cdn$7,711 to be paid on or
before the Payment Date (which was defined as the day which was
the earlier of 30 calendar days after (i) the date on which
a triggering event (as defined) occurred and
(ii) March 31, 2007)), a short-term promissory note of
Cdn$8,000 due November 2007 bearing interest at 5% per annum and
1,580,000 common shares of the Company valued at an initial
share value of Cdn$31,110. The initial valuation of 1,580,000
common shares of the Company 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, the Companys carrying amount of its
investment in MFC Corporate Services was $67,726 (Cdn$77,309).
The sale was accounted for as a related party transaction
pursuant to CICA Handbook Section 3840. Accordingly, the
difference of $519 between the carrying amount of assets
surrendered and the exchange value of the assets received and
related income taxes of $1,681 were charged to retained
earnings. The wholly-owned subsidiary of Mass Financial had a
put option to sell 9.9% of the common shares in MFC Corporate
Services to the Company on the Payment Date.
The Company and Mass Financial agreed that April 30, 2007
was the Payment Date and the market price was $23.815 per share
on the Payment Date. Accordingly, an adjustment of $10,073
(Cdn$10,892) 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 the Company for Cdn$8,010 on the Payment Date.
In October 2007, the Company sold the 9.9% equity interest in
MFC Corporate Services at its book value of $8,163 (Cdn$8,010)
in exchange for 219,208 common shares of the Company and no gain
or loss was recognized.
At the time of the sale of MFC Corporate Services in November
2006, MFC Corporate Services held an approximately 20% equity
interest in a non-wholly-owned German subsidiary of the Company.
It was the intention of both parties that the economic interest
in the German subsidiary held by MFC Corporate Services be
retained by the Company. To achieve this objective, the Company
subscribed for shares in a subsidiary of Mass Financial that
track the benefits from this 20% equity position in the German
subsidiary. These shares entitle the Company to retain its
commercial and economic interest in and benefits from this 20%
equity position in the German subsidiary, net of related costs
and taxes (the Tracking Stock Participation). The
total consideration for the tracking stock subscription was
$9,357 (which was the carrying value to the Company), of which
$8,492 was paid in November and $865 was unpaid as of
December 31, 2006 (but paid in February 2007). Under the
tracking stock agreement, the Company is the beneficiary, the
stock tracking company is the debtor and Mass Financial is the
guarantor. Furthermore, MFC Corporate Services granted to the
Company the right to acquire common shares in 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 in
the German subsidiary by MFC Corporate Services. The price
payable by the Company 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 the Company to a 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.
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 a result, the Company and Mass
Financial are considered to be related parties.
92
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Real
estate and other interests
The Company entered into an arrangement Agreement in March 2007,
as amended on June 29, 2007, with SWA Reit and Investments
Ltd. (SWA Reit), a corporation governed by the laws
of Barbados. The agreement provided for the Company to complete
an arrangement (the Arrangement) under
Section 288 of the British Columbia Business Corporations
Act, whereby, among other things, the Company would transfer
certain non-core real estate interests and other assets
indirectly held by it to SWA Reit and then distribute all of the
Austrian depositary certificates representing the common shares
of SWA Reit held by it, pro rata, to the Companys
shareholders by way of a reduction of the paid up capital with
respect to the Companys common shares. The Arrangement was
approved by the Companys shareholders at its annual and
special shareholders meeting held on August 6, 2007.
The assets transferred to SWA Reit were not complimentary to the
Companys industrial plant technology, equipment and
service business and the distribution of Austrian depositary
certificates did not significantly change the economic interests
of the Companys shareholders in the assets of the Company.
The record date of the distribution of SWA Reit was
September 25, 2007 and since then, the Company has not held
any real estate interests. On the distribution date, the fair
value of the net assets of SWA Reit amounted to $56,251
(Cdn$56,200), which also equalled their book value. For the
financial statement presentation, the distribution was accounted
for by way of a reduction of retained earnings as a stock
dividend.
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 $1,003 were reported in
discontinued operations. There was no discontinued operation in
2009 and 2008.
Short-term
securities
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
Common shares, at fair value
|
|
$
|
16,432
|
|
|
$
|
2,947
|
|
Available-for-sale
security:
|
|
|
|
|
|
|
|
|
Investment in a private company, at cost
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,432
|
|
|
$
|
2,987
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, investments in publicly-listed common
shares comprised 12 companies (two companies represented
90% and the largest one (which is a former subsidiary) amounted
to $11,194 and represented 68% of total investment amount). At
December 31, 2008, investments in publicly listed common
shares comprised nine companies (three companies represented 80%
and the largest one represented 58% of total investment amount).
The common shares in the former subsidiary were received upon
the conversion of a promissory note receivable due from the
former subsidiary. (See Note 11.)
|
|
Note 6.
|
Accounts
Receivable, Trade
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Trade receivables, gross amount
|
|
$
|
104,045
|
|
|
$
|
65,307
|
|
Less: Allowance for credit losses
|
|
|
(2,403
|
)
|
|
|
(2,547
|
)
|
|
|
|
|
|
|
|
|
|
Trade receivables, net amount
|
|
$
|
101,642
|
|
|
$
|
62,760
|
|
|
|
|
|
|
|
|
|
|
This amount is included in the consolidated balance sheet as
follows:
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
96,982
|
|
|
$
|
62,760
|
|
Long-term portion
|
|
|
4,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,642
|
|
|
$
|
62,760
|
|
|
|
|
|
|
|
|
|
|
The long-term account receivable bears interest rate at 4% per
annum and is due in August 2011.
93
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As at December 31, 2009, trade receivables of $15,705
(2008: $19,338) were past due but not impaired. The aging
analysis of these trade receivables as at December 31, 2009
and 2008 is as follows:
|
|
|
|
|
|
|
|
|
Past-Due
|
|
2009
|
|
|
2008
|
|
|
Below 30 days
|
|
$
|
2,877
|
|
|
$
|
4,851
|
|
Between 31 and 60 days
|
|
|
2,286
|
|
|
|
1,857
|
|
Between 61 and 90 days
|
|
|
601
|
|
|
|
2,448
|
|
Over 90 days
|
|
|
9,941
|
|
|
|
10,182
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,705
|
|
|
$
|
19,338
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009, trade receivables of $2,403 (2008:
$2,547) were impaired and an allowance for credit losses of
$2,403 (2008: $2,547) has been provided. The aging analysis of
these trade receivables as at December 31, 2009 and 2008 is
as follows:
|
|
|
|
|
|
|
|
|
Past-Due
|
|
2009
|
|
|
2008
|
|
|
Below 30 days
|
|
$
|
318
|
|
|
$
|
487
|
|
Between 31 and 60 days
|
|
|
179
|
|
|
|
8
|
|
Between 61 and 90 days
|
|
|
|
|
|
|
|
|
Over 90 days
|
|
|
1,906
|
|
|
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,403
|
|
|
$
|
2,547
|
|
|
|
|
|
|
|
|
|
|
The movement of the allowance for credit losses during the
current period under review is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of the year
|
|
$
|
2,547
|
|
|
$
|
2,932
|
|
Additions
|
|
|
943
|
|
|
|
1,509
|
|
Reversals
|
|
|
(881
|
)
|
|
|
(944
|
)
|
Write-offs
|
|
|
(286
|
)
|
|
|
(821
|
)
|
Cumulative translation adjustment
|
|
|
80
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
2,403
|
|
|
$
|
2,547
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 and 2008, there was no trades
receivable which would otherwise be past due or impaired if the
terms had not been renegotiated.
|
|
Note 7.
|
Other
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Investment income (of which $62 and $21 were due from affiliates
at December 31, 2009 and 2008, respectively)
|
|
$
|
460
|
|
|
$
|
1,235
|
|
Government taxes
|
|
|
28,220
|
|
|
|
8,697
|
|
Due from affiliates (see Note 29)
|
|
|
218
|
|
|
|
1,957
|
|
Income from interest in resource property
|
|
|
4,584
|
|
|
|
3,402
|
|
Income on the preferred shares of former subsidiaries
|
|
|
|
|
|
|
9,265
|
|
Derivative assets
|
|
|
269
|
|
|
|
1,450
|
|
Other
|
|
|
2,428
|
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,179
|
|
|
$
|
28,313
|
|
|
|
|
|
|
|
|
|
|
The receivables generally arise in the normal course of business
and are expected to be collected within one year from the year
end.
As at December 31, 2009 and 2008, there was no other
receivable which would otherwise be past due or impaired if the
terms had not been renegotiated, except for the income on the
preferred shares of former subsidiaries which had been past due
as of December 31, 2008 but was settled during 2009. (See
Note 11.)
94
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
24,956
|
|
|
$
|
12,317
|
|
Work-in-progress
|
|
|
179
|
|
|
|
483
|
|
Contracts-in-progress
|
|
|
55,358
|
|
|
|
96,876
|
|
Finished goods
|
|
|
322
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,815
|
|
|
$
|
110,161
|
|
|
|
|
|
|
|
|
|
|
Information on
contracts-in-progress
at December 31, 2009 and 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Costs incurred to date on uncompleted contracts
|
|
$
|
392,713
|
|
|
$
|
560,581
|
|
Estimated earnings recognized to date on these contracts
|
|
|
87,345
|
|
|
|
99,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,058
|
|
|
|
660,148
|
|
Less: loss contracts (not including loss on the terminated
customer contracts discussed in Note 17)
|
|
|
(2,575
|
)
|
|
|
(1,861
|
)
|
Less: billings to date
|
|
|
(500,280
|
)
|
|
|
(733,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,797
|
)
|
|
|
(75,418
|
)
|
Currency translation adjustments
|
|
|
314
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(22,483
|
)
|
|
$
|
(74,967
|
)
|
|
|
|
|
|
|
|
|
|
This amount is included in the consolidated balance sheet as
follows:
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts (included in inventories
contracts-in-process)
|
|
$
|
55,358
|
|
|
$
|
96,876
|
|
Progress billings above costs and estimated earnings on
uncompleted contracts (included in liabilities)
|
|
|
(77,841
|
)
|
|
|
(171,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(22,483
|
)
|
|
$
|
(74,967
|
)
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 and 2008, the Company did not have
a material amount of progress billings that would not be paid
until the satisfaction of conditions specified in the contract
for the payment of such amounts or until defects had been
rectified.
As at December 31, 2009, KHD has credit facilities of up to
a maximum of $329,666 with banks which issue bonds for the
Companys industrial plant technology, equipment and
service contracts. As of December 31, 2009, $166,715 of the
available credit facilities amount has been committed and there
are no claims outstanding against the credit facilities. As at
December 31, 2009, cash of $24,979 has been collateralized
against these credit facilities. The banks charge 0.7% for
issuing bonds. The Company is in compliance with covenants as
stipulated in the credit facilities.
|
|
Note 9.
|
Contract
Deposits, Prepaid and Other
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Prepayments and deposits for inventories on construction
contracts
|
|
$
|
53,441
|
|
|
$
|
58,171
|
|
Prepaids, deposits and other
|
|
|
452
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,893
|
|
|
$
|
58,694
|
|
|
|
|
|
|
|
|
|
|
95
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10.
|
Future
Income Tax Assets and Liabilities
|
The tax effect of temporary differences and tax loss
carry-forwards that give rise to significant components of
future tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Non-capital tax loss carry-forwards
|
|
$
|
45,657
|
|
|
$
|
46,752
|
|
Uncompleted contracts
|
|
|
(18,366
|
)
|
|
|
(23,420
|
)
|
Other
|
|
|
3,546
|
|
|
|
5,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,837
|
|
|
|
29,250
|
|
Valuation allowance
|
|
|
(29,894
|
)
|
|
|
(22,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
943
|
|
|
$
|
6,372
|
|
|
|
|
|
|
|
|
|
|
Future income tax assets are included in the consolidated
balance sheet as follows:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,748
|
|
|
$
|
7,679
|
|
Non-current
|
|
|
13,405
|
|
|
|
6,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,153
|
|
|
|
14,018
|
|
Future income tax liabilities are included in the consolidated
balance sheet as follows:
|
Non-current
|
|
|
(14,210
|
)
|
|
|
(7,646
|
)
|
|
|
|
|
|
|
|
|
|
Net future income tax assets
|
|
$
|
943
|
|
|
$
|
6,372
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of future tax assets, management
considers whether it is more likely than not that some portion
or all of the future tax assets will be realized. The ultimate
realization of future tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible or before the tax
loss carry-forwards expire. Management considers the future
reversals of existing taxable temporary differences, projected
future taxable income, taxable income in prior years and tax
planning strategies in making this assessment. Management
believes it is more likely than not the Company will realize the
benefits of these future income tax assets, net of the valuation
allowances.
At December 31, 2009, the Company had estimated accumulated
non-capital losses which expire in the following countries as
follows:
|
|
|
|
|
|
|
Country
|
|
Amount
|
|
|
Expiration dates
|
|
Canada
|
|
$
|
57,353
|
|
|
2010-2029
|
Germany
|
|
|
82,220
|
|
|
Indefinite
|
Switzerland
|
|
|
279
|
|
|
2014-2016
|
China
|
|
|
1,900
|
|
|
2010-2012
|
U.S.
|
|
|
5,470
|
|
|
2016-2029
|
The Company has recognized a deferred credit in the amount of
$1,748 and $8,388 ($4,212 under current liabilities and $4,176
under long-term liabilities) as at December 31, 2009 and
2008, respectively, representing the excess of the amounts
assigned to the acquired assets over the consideration paid (and
after the pro rata allocation to reduce the values assigned to
any non-monetary assets acquired). The deferred credit will be
amortized to income tax expense in proportion to the net
reduction in the future income tax asset that gives rise to the
deferred credit.
96
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11.
|
Investments
in Preferred Shares of Former Subsidiaries
|
Investment in preferred shares of former subsidiaries comprised:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Preferred shares of former subsidiaries at gross amount of
Cdn$nil and Cdn$127,866 at December 31, 2009 and 2008
|
|
$
|
|
|
|
$
|
104,415
|
|
Offset of amount owing to a former subsidiary (Cdn$nil and
Cdn$37,000 at December 31, 2009 and 2008) (see Note 4)
|
|
|
|
|
|
|
(30,214
|
)
|
Fair value loss
|
|
|
|
|
|
|
(55,076
|
)
|
|
|
|
|
|
|
|
|
|
Preferred shares of former subsidiaries, net
|
|
$
|
|
|
|
$
|
19,125
|
|
|
|
|
|
|
|
|
|
|
The preferred shares of former subsidiaries were acquired and
held by the Company in connection with the Companys
spin-off of Mass Financial in 2006. (See Note 4). As at
December 31, 2008, the Company held all of the
Series 2 Class B preferred shares in Mass Financial
and preferred shares in one of its former subsidiaries having an
aggregate face value of Cdn$127,866 and a financial liability of
Cdn$37,000 owing to Mass Financial. The Company and Mass
Financial had a legally enforceable right to set off the
recognized amounts and determined to settle on a net basis or
simultaneously. Accordingly, the financial asset and the
financial liability were offset and the net amount was reported
in the consolidated balance sheet. As at December 31, 2008,
the net amount was written down to its estimated fair value of
Cdn$23,420 (or $19,125) using a valuation model. There was no
change in fair value in terms of Canadian dollars between
December 31, 2008 and the settlement date.
On May 12, 2009, the Company 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$12,284, which
represented the gross settlement amount of the preferred shares
of Cdn$49,284 offset by the indebtedness of Cdn$37,000 owed by
the Company to Mass Financial. The payment of the Cdn$12,284 was
settled as follows:
|
|
|
|
(a)
|
Cdn$8,284 being satisfied by Mass Financial agreeing to transfer
to the Company 788,201 of the Companys common shares.
262,734 of the Companys common shares, valued at
Cdn$2,762, were delivered to the Company on May 12, 2009
and the remainder (which was equivalent to Cdn$5,522) would be
delivered no later than July 20, 2009. In July 2009, Mass
Financial, as permitted in the agreement, elected to deliver the
remainder in cash to the Company;
|
|
|
|
|
(b)
|
Cdn$1,710 being satisfied by way of cash payment by Mass
Financial to the Company on May 12, 2009;
|
|
|
|
|
(c)
|
Cdn$1,750 being satisfied by way of issuance by Mass Financial
to the Company of a promissory note having a principal amount of
Cdn$1,750, 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
equaling 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$540 being satisfied by setting-off accrued and unpaid
interest on indebtedness owed by the Company to Mass Financial
pursuant to a loan agreement with Mass Financial dated
January 31, 2006.
|
Mass Financial also settled Cdn$11,346 in respect of the accrued
dividends on the preferred shares of Mass Financial by way of
the issuance of a promissory note having a principal amount of
Cdn$11,346, 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 the issuer by the issuance of common shares of
Mass Financial based on the number of common shares of Mass
Financial equaling 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 and repaid the Cdn$11,346 note
by issuing and delivering 1,203,627 common shares (approximately
5% of the outstanding common shares) of Mass Financial to the
Company. Mass Financial also paid the accrued interest in cash
on the same date.
As a result of the settlement of the preferred shares of Mass
Financial and one of its former subsidiaries, the Company
recognized a loss of $9,538 (Cdn$11,136) in the second quarter
of 2009.
97
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The note receivable due from Mass Financial $1,672 (Cdn$1,750)
is classified under non-current assets in the consolidated
balance sheet.
|
|
Note 12.
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Book Value
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Book Value
|
|
|
Buildings
|
|
$
|
474
|
|
|
$
|
235
|
|
|
$
|
239
|
|
|
$
|
1,335
|
|
|
$
|
853
|
|
|
$
|
482
|
|
Manufacturing plant and equipment
|
|
|
14,726
|
|
|
|
12,812
|
|
|
|
1,914
|
|
|
|
11,722
|
|
|
|
9,850
|
|
|
|
1,872
|
|
Office equipment
|
|
|
257
|
|
|
|
153
|
|
|
|
104
|
|
|
|
240
|
|
|
|
105
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,457
|
|
|
$
|
13,200
|
|
|
$
|
2,257
|
|
|
$
|
13,297
|
|
|
$
|
10,808
|
|
|
$
|
2,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of property, plant and
equipment amounting to $1,675 in 2009, $2,392 in 2008 and $2,011
in 2007, respectively, is included in cost of sales and selling,
general and administrative expenses, as applicable. Repairs and
maintenance are charged to expense as incurred.
In 2009, the manufacturing plant and equipment and office
equipment disposed as a result of dispositions of subsidiaries
aggregated $227 at the time of the dispositions. There was no
disposition of subsidiaries in 2008.
|
|
Note 13.
|
Interest
in Resource Property
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cost
|
|
$
|
32,547
|
|
|
$
|
27,816
|
|
Accumulated Amortization
|
|
|
(5,397
|
)
|
|
|
(2,955
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
27,150
|
|
|
$
|
24,861
|
|
|
|
|
|
|
|
|
|
|
The change in the cost arose from the foreign currency
translation.
Amortization expense was $1,777 in 2009, $1,903 in 2008 and
$1,268 in 2007 and was included in the selling, general and
administrative expenses. During 2008, the Company changed the
estimated economic life resulting in additional amortization
expense of $636 in 2008.
|
|
Note 14.
|
Accounts
Payable and Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable
|
|
$
|
180,567
|
|
|
$
|
162,315
|
|
Value-added and other taxes
|
|
|
2,352
|
|
|
|
3,639
|
|
Affiliates
|
|
|
1,594
|
|
|
|
844
|
|
Compensation
|
|
|
7,192
|
|
|
|
7,106
|
|
Interest
|
|
|
21
|
|
|
|
42
|
|
Interest due to a former subsidiary (see Note 4)
|
|
|
|
|
|
|
2,681
|
|
Derivative liabilities
|
|
|
20
|
|
|
|
285
|
|
Other
|
|
|
|
|
|
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
191,746
|
|
|
$
|
178,582
|
|
|
|
|
|
|
|
|
|
|
Generally, these payable and accrual accounts do not bear
interest and they have a maturity of less than a year. As at
December 31, 2008, the interest due to the former
subsidiary was past due and was paid in cash in January 2009.
|
|
Note 15.
|
Employee
Future Benefits
|
The Company maintains defined benefit plans that provide pension
benefits for the employees of certain KHD companies in Europe.
Employees of KHD hired after 1996 are generally not eligible for
such benefits. The employees are not required to make
contributions to the plan.
98
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The defined benefit plan is unfunded and, therefore, does not
have any plan assets. Also, the plan has no unamortized prior
service costs or gains or losses.
The table below shows the net pension expense and the change in
benefit obligations of the plan:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued benefit obligation, beginning of year
|
|
$
|
31,367
|
|
|
$
|
33,186
|
|
Current service cost
|
|
|
|
|
|
|
48
|
|
Interest cost
|
|
|
1,579
|
|
|
|
1,670
|
|
Deferred compensation
|
|
|
328
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
|
|
1,907
|
|
|
|
1,788
|
|
Cash benefit payments
|
|
|
(1,996
|
)
|
|
|
(2,070
|
)
|
Divestiture of workshop
|
|
|
(1,204
|
)
|
|
|
|
|
Reclassification to account payables
|
|
|
(30
|
)
|
|
|
|
|
Currency translation adjustments
|
|
|
887
|
|
|
|
(1,537
|
)
|
|
|
|
|
|
|
|
|
|
Accrued benefit obligation, end of year
|
|
$
|
30,931
|
|
|
$
|
31,367
|
|
|
|
|
|
|
|
|
|
|
Included in the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
2,070
|
|
|
$
|
2,158
|
|
Long-term portion
|
|
|
28,861
|
|
|
|
29,209
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,931
|
|
|
$
|
31,367
|
|
|
|
|
|
|
|
|
|
|
An actuarial report is completed yearly as at December 31.
Significant actuarial assumptions for the accrued benefit
obligation (which approximates the projected benefit obligation)
and the benefit cost as at December 31, and for the year
then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average discount rate
|
|
|
5.3
|
%
|
|
|
6.0
|
%
|
Rate of increase in future compensation
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
As of December 31, 2009 and 2008, the actuarial report
showed a projected benefit obligation of $32,809 and $31,428,
respectively, and an excess of $1,878 and $61, respectively, has
not yet been recognized as a component of net periodic benefit
cost.
Under the German laws, the pension liability is an unsecured
claim and does not rank in priority to any other unsecured
creditors.
The benefits expected to be paid are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2010
|
|
$
|
2,070
|
|
2011
|
|
|
2,310
|
|
2012
|
|
|
2,275
|
|
2013
|
|
|
2,312
|
|
2014
|
|
|
2,341
|
|
Thereafter
|
|
|
19,623
|
|
|
|
|
|
|
|
|
$
|
30,931
|
|
|
|
|
|
|
99
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 16.
|
Provision
for Warranty Costs
|
Warranty activity consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
38,380
|
|
|
$
|
43,302
|
|
|
$
|
29,115
|
|
Costs incurred
|
|
|
(8,533
|
)
|
|
|
(10,013
|
)
|
|
|
(3,371
|
)
|
Warranty reserves established on completed contracts
|
|
|
30,762
|
|
|
|
16,554
|
|
|
|
19,913
|
|
Reversal of reserves at end of warranty period
|
|
|
(5,074
|
)
|
|
|
(9,630
|
)
|
|
|
(6,292
|
)
|
Derecognition upon sale of coal and minerals customer group
|
|
|
(3,201
|
)
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
1,659
|
|
|
|
(1,833
|
)
|
|
|
3,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
$
|
53,993
|
|
|
$
|
38,380
|
|
|
$
|
43,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
28,282
|
|
|
$
|
30,856
|
|
|
$
|
31,503
|
|
Long-term portion
|
|
|
25,711
|
|
|
|
7,524
|
|
|
|
11,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,993
|
|
|
$
|
38,380
|
|
|
$
|
43,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17.
|
Provision
for Supplier Commitments and Loss on Terminated Customer
Contracts
|
As a result of changes in the market conditions and business
environment due to the 2008 financial crisis and its continuing
impacts in 2009, the Company terminated work on certain customer
contracts and recognized losses on the terminated customer
contracts. Contracts which will not proceed have been officially
cancelled and removed from the Companys project profile.
Provisions and reserves set up for contracts which will proceed
have been released.
Following is a summary of the changes in the provision for
supplier commitments on the terminated customer contracts during
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, at beginning of year
|
|
$
|
23,729
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Costs recognized
|
|
|
8,641
|
|
|
|
23,034
|
|
Reductions through negotiations with suppliers and customers
|
|
|
(15,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,807
|
)
|
|
|
23,034
|
|
Reclassification to inventory reserve
|
|
|
1,518
|
|
|
|
|
|
Paid and payable
|
|
|
(5,953
|
)
|
|
|
|
|
Currency translation adjustments
|
|
|
456
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
$
|
12,943
|
|
|
$
|
23,729
|
|
|
|
|
|
|
|
|
|
|
Following is a summary of the income statement effects recorded
with respect to terminated customer contracts during 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
(Reduction in) provisions:
|
|
|
|
|
|
|
|
|
Supplier commitments
|
|
$
|
(3,406
|
)
|
|
$
|
17,027
|
|
Penalty for cancellation of purchase orders
|
|
|
(3,401
|
)
|
|
|
3,401
|
|
Inventories
(contracts-in-progress)
|
|
|
|
|
|
|
2,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,807
|
)
|
|
|
23,034
|
|
Inventories (raw materials and finished goods), reversal of
write-downs
|
|
|
(2,488
|
)
|
|
|
2,637
|
|
Inventories
(contracts-in-progress),
changes in
percentage-of-completion
estimates
|
|
|
(8,276
|
)
|
|
|
6,037
|
|
Customer receivables
|
|
|
(258
|
)
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
(Recovery of) loss on terminated customer contracts for the year
|
|
$
|
(17,829
|
)
|
|
$
|
31,966
|
|
|
|
|
|
|
|
|
|
|
100
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for supplier commitments is continuously monitored
and adjusted when necessary. The final amount will be settled
based on negotiations with customers and suppliers.
|
|
Note 18.
|
Provision
for Restructuring Costs
|
As a result of the 2008 financial crisis, the Company expects
the dramatic changes in world credit markets and the global
recession will continue to have a negative impact on the
Companys customers future expenditure programs. In
anticipation of a reduction in new order intake in the future,
the Company is fundamentally restructuring its business model.
The Company has initiated a restructuring program to align
capacities to changes in market demands, allocate resources
depending on geographical needs and focus on markets and
equipment that will meet the Companys objective of
offering cost effective solutions to the customers.
On March 24, 2009, the Company announced its intention to
shut down the workshop in Cologne, Germany and had given
official notice of shutdown to the workers council which
represents the employees of the Companys German
subsidiary. The initiatives under the restructuring program were
also to include a reduction in the international headcount and
the intended divestiture of the coal and minerals customer
group. Management estimated that the restructuring program was
likely to cost approximately $30,000 in total which primarily
would relate to employee severance costs, asset impairments and
lease termination costs and the Company expected to recognize
the loss and expenses in 2009 and 2010.
Effective September 30, 2009, management, as duly
authorized by the board of directors, committed to a plan to
sell the workshop in Cologne and the Companys coal and
minerals customer group, each in their respective present
conditions, to a third party subject only to terms usual and
customary for sales of such assets. The sale was completed and
executed in early October, 2009 and there were no significant
changes to the sale plan prior to closing. Accordingly, the
Company revised the estimates and reversed its provisions for
facilities closure and related costs and reduced its provision
for costs associated with involuntary workshop employment
terminations which were recorded upon employee notification
earlier in 2009. Management also revisited the 2009 and 2010
estimates for the total restructuring costs and reduced it to
$12,000.
In September, 2009, the Company 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 the benefit arrangement which
enable the employees to determine the type and amount of
benefits they will receive when their employment is terminated.
Management, duly authorized by the board of directors, has
approved and committed the Company to the plan of termination.
Accordingly, the Company recognized contractual severance and
other benefits under the workers council agreement
aggregating $8,993 in 2009.
The restructuring costs for the year ended December 31,
2009 were as follows:
|
|
|
|
|
Provisions:
|
|
|
|
|
Contractual severance associated with German workers
council agreements
|
|
$
|
7,816
|
|
Other employee related restructuring costs
|
|
|
1,177
|
|
Impairment of fixed assets
|
|
|
227
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
9,220
|
|
|
|
|
|
|
Following is a summary of the changes in the provision for
restructuring costs during the year ended December 31, 2009:
|
|
|
|
|
Balance as at December 31, 2008
|
|
$
|
|
|
Provision during the period, excluding inventory and fixed asset
write-downs
|
|
|
16,684
|
|
Paid and payable
|
|
|
(1,116
|
)
|
Reversal resulting from the sale of the Cologne workshop
|
|
|
(5,722
|
)
|
Reduction of severance benefits due to voluntary exits
|
|
|
(1,969
|
)
|
Currency translation adjustments
|
|
|
148
|
|
|
|
|
|
|
Balance as at December 31, 2009
|
|
$
|
8,025
|
|
|
|
|
|
|
101
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects to pay the provision by December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Note payable to a bank, 8,127 at both December 31,
2009 and 2008, interest at 2.45% per annum due quarterly and the
entire principal balance due February 2011. The Company is in
compliance with financial covenants stipulated by the bank
|
|
$
|
11,649
|
|
|
$
|
11,313
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,649
|
|
|
$
|
11,313
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the maturities of debt are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
2010
|
|
$
|
|
|
|
$
|
214
|
|
|
$
|
214
|
|
2011
|
|
|
11,649
|
|
|
|
95
|
|
|
|
11,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,649
|
|
|
$
|
309
|
|
|
$
|
11,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on long-term debt was $276, $291 and $308 for
the years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
Note 20.
|
Other
Long-term Liabilities
|
Other long-term liabilities represent the trades payable which
are due for payment after one year from the balance sheet date.
All the long-term liabilities are expected to be repaid in 2011.
|
|
Note 21.
|
Share
Capital, Authorized
|
The authorized share capital of the Company consists of an
unlimited number of common shares without par value and without
special rights or restrictions and an unlimited number of
Class A Preference shares without par value and with
special rights and restrictions.
The Class A Preference shares may include one or more
series and the directors may alter the special rights and
restrictions to such series, or alter such rights or
restrictions. Except as may be set out in the rights and
restrictions, the holders of the Class A Preference shares
are not entitled to vote at or attend shareholder meetings.
Holders of Class A Preference shares are entitled to
receive repayment of capital on the liquidation or dissolution
of the Company before distribution is made to holders of common
shares. There was no Class A Preference share issued and
outstanding as at December 31, 2009 and 2008.
|
|
Note 22.
|
Stock-Based
Compensation
|
The Company has a 1997 Stock Option Plan and a 2008 Equity
Incentive Plan.
Pursuant to the stock option plan, the Company recognized
stock-based compensation of $391 (recovery), $4,401 and $4,381
in 2009, 2008 and 2007, respectively.
1997
Stock Option Plan
The Company has a stock option plan which enables certain
employees and directors to acquire common shares and the options
may be granted under the plan exercisable over a period not
exceeding ten years. The Company is authorized to issue up to
5,524,000 shares under this plan, of which 3,766,656 had
been granted and exercised. As at December 31, 2009,
options to purchase 441,664 shares have been granted and
are outstanding and options to purchase 1,315,680 shares
are available for granting in future periods.
102
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Following is a summary of the status of the plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Exercise Price
|
|
|
|
Number of Shares
|
|
|
Per Share
|
|
|
Outstanding at December 31, 2006
|
|
|
1,173,336
|
|
|
$
|
13.17
|
|
Granted
|
|
|
1,029,994
|
|
|
|
24.80
|
|
Exercised
|
|
|
(672,218
|
)
|
|
|
13.06
|
|
Forfeited
|
|
|
(22,224
|
)
|
|
|
13.06
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,508,888
|
|
|
|
21.13
|
|
Granted
|
|
|
425,826
|
|
|
|
31.67
|
|
Exercised
|
|
|
(299,438
|
)
|
|
|
14.60
|
|
Forfeited
|
|
|
(55,556
|
)
|
|
|
28.29
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,579,720
|
|
|
|
24.96
|
|
Cancelled by agreements
|
|
|
(72,500
|
)
|
|
|
31.16
|
|
Forfeited
|
|
|
(1,065,556
|
)
|
|
|
23.74
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
441,664
|
|
|
|
26.89
|
|
|
|
|
|
|
|
|
|
|
No stock options expired in 2009, 2008 and 2007. The weighted
average grant-date fair value of the stock options was $nil,
$11.02 and $6.60 per share for 2009, 2008 and 2007, respectively.
Stock
options granted in 2009
There were no stock options issued in 2009.
Stock
options granted in 2008
On May 15, 2008, the Company granted to two employees stock
options to purchase up to 42,500 common shares of the Company at
$30.89 per share, on or before May 15, 2018, with one third
to be vested on each anniversary date in the next three years.
On the date the stock options were granted, the market value of
the Companys common stock was $30.89 per share. The fair
value of the stock-based compensation is determined by using the
Black-Scholes model, with the following assumptions: a weighted
average expected life of 3.0 years, expected volatility of
47.48% to 48.24%, risk-free interest rates of 3.09% to 3.24% and
expected dividend yield of 0%. The weighted average grant-date
fair value of the stock options was $10.78 per share.
On May 19, 2008, pursuant to the stock option agreements
dated May 17, 2006, the Company granted to certain
employees additional stock options to purchase up to 316,662
common shares of the Company at $31.81 per share, on or before
May 19, 2018, with one third to be vested on each
anniversary date in the next three years. On the date the stock
options were granted, the market value of the Companys
common stock was $31.76 per share. The fair value of the
stock-based compensation is determined by using the
Black-Scholes model, with the following assumptions: a weighted
average expected life of 3.0 years, expected volatility of
47.31% to 48.22%, risk-free interest rates of 3.09% to 3.24% and
expected dividend yield of 0%. The weighted average grant-date
fair value of the stock options was $11.05 per share.
On June 30, 2008, pursuant to the stock option agreements
dated June 28, 2007, the Company granted to two employees
additional stock options to purchase up to 66,664 common shares
of the Company at $31.53 per share, on or before June 30,
2018, with one third to be vested on each anniversary date in
the next three years. On the date the stock options were
granted, the market value of the Companys common stock was
$31.53 per share. The fair value of the stock-based compensation
is determined by using the Black-Scholes model, with the
following assumptions: a weighted average expected life of
3.0 years, expected volatility of 46.85% to 48.88%,
risk-free interest rates of 3.23% to 3.40% and expected dividend
yield of 0%. The weighted average grant-date fair value of the
stock options was $11.01 per share.
103
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
options granted in 2007
On April 11, 2007, the Company granted to a corporation
stock options to purchase up to 500,000 common shares in the
Company at $21.09 per share, on or before April 11, 2017,
with one third vested immediately and one third each to be
vested on the first and second anniversary dates. On the date
the stock options were granted, the market value of the
Companys common stock was $21.09 per share. The fair value
of the stock-based compensation is determined by using the
Black-Scholes model, with the following assumptions: a weighted
average expected life of 3.0 years, expected volatility of
29.74%, risk-free interest rates of 4.11% and expected dividend
yield of 0%. The weighted average grant-date fair value of the
stock options was $5.225 per share. The Companys former
Chief Executive Officer has an ownership interest in such
corporation. (See Note 29.)
On May 17, 2007, pursuant to the stock option agreements
dated May 17, 2006, the Company granted to certain
employees additional stock options to purchase up to 316,666
common shares in the Company at $26.85 per share, on or before
May 17, 2017, with one third to be vested on each
anniversary date in the next three years. On the date the stock
options were granted, the market value of the Companys
common stock was $26.85 per share. The fair value of the
stock-based compensation is determined by using the
Black-Scholes model, with the following assumptions: a weighted
average expected life of 3.0 years, expected volatility of
28.95%, risk-free interest rates of 4.23% and expected dividend
yield of 0%. The weighted average grant-date fair value of the
stock options was $6.67 per share.
On June 28, 2007, the Company granted to two employees
stock options to purchase up to 66,664 common shares in the
Company at $29.25 per share, on or before June 28, 2017,
with one third to be vested on each anniversary date in the next
three years. On the date the stock options were granted, the
market value of the Companys common stock was $29.25 per
share. The fair value of the stock-based compensation is
determined by using the Black-Scholes model, with the following
assumptions: a weighted average expected life of 3.0 years,
expected volatility of 31.94%, risk-free interest rates of 4.64%
and expected dividend yield of 0%. The weighted average
grant-date fair value of the stock options was $7.945 per share.
The Company, at its sole and absolute discretion, may grant
additional stock options up to an aggregate of 66,664 stock
options to these two employees in 2008 with the same vesting
periods.
On December 4, 2007, the Company granted to three employees
stock options to purchase up to 99,998 common shares in the
Company at $31.28 per share, on or before December 4, 2017,
with one third to be vested on each anniversary date in the next
three years. On the date the stock options were granted, the
market value of the Companys common stock was $31.28 per
share. The fair value of the stock-based compensation is
determined by using the Black-Scholes model, with the following
assumptions: a weighted average expected life of 3.0 years,
expected volatility of 48.67%, risk-free interest rates of 3.87%
and expected dividend yield of 0%. The weighted average
grant-date fair value of the stock options was $11.32 per share.
The Company, at its sole and absolute discretion, may grant
additional stock options up to an aggregate of 99,998 stock
options to these three employees in 2008 with the same vesting
periods.
On December 14, 2007, pursuant to the stock option
agreement dated December 14, 2006, the Company granted to
an employee additional stock options to purchase up to 46,666
common shares in the Company at $30.31 per share on or before
December 14, 2017, with one third vested immediately and
the remaining two thirds to be vested over the remaining two
years. On the date the stock options were granted, the market
value of the Companys common stock was $30.31 per share.
The fair value of the stock-based compensation is determined by
using the Black-Scholes model, with the following assumptions: a
weighted average expected life of 2.0 years, expected
volatility of 49.02%, risk-free interest rates of 3.81% and
expected dividend yield of 0%. The weighted average grant-date
fair value of the stock options was $8.84 per share.
2008 Equity Incentive Plan
In August 2008, the shareholders of the Company passed a
resolution to approve the 2008 Equity Incentive Plan. Subject to
the terms of the 2008 Equity Incentive Plan, a committee, as
appointed by the board of directors, may grant awards under the
plan, establish the terms and conditions for those awards,
construe and interpret the plan and establish the rules for the
plans administration. The committee may grant nonqualified
stock options, incentive stock options, stock appreciation
rights, restricted stock awards, stock unit awards, stock
awards, performance stock awards and tax bonus awards under the
plan. The maximum number of common shares of the Company that
are
104
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
issuable under all awards granted under the plan is 1,500,000
common shares. There have been no awards issued under the 2008
Equity Incentive Plan.
The following table summarizes information about stock options
outstanding and exercisable as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Number
|
|
|
Exercise Price
|
|
Exercise Prices per Share
|
|
Outstanding
|
|
|
(In Years)
|
|
|
per Share
|
|
|
Exercisable
|
|
|
per Share
|
|
|
$13.06
|
|
|
75,004
|
|
|
|
6.63
|
|
|
$
|
13.06
|
|
|
|
75,004
|
|
|
$
|
13.06
|
|
$26.85
|
|
|
116,668
|
|
|
|
7.63
|
|
|
$
|
26.85
|
|
|
|
66,664
|
|
|
$
|
26.85
|
|
$29.25
|
|
|
66,664
|
|
|
|
7.50
|
|
|
$
|
29.25
|
|
|
|
44,440
|
|
|
$
|
29.25
|
|
$31.53
|
|
|
66,664
|
|
|
|
8.50
|
|
|
$
|
31.53
|
|
|
|
22,220
|
|
|
$
|
31.53
|
|
$31.81
|
|
|
116,664
|
|
|
|
8.63
|
|
|
$
|
31.81
|
|
|
|
49,998
|
|
|
$
|
31.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,664
|
|
|
|
7.83
|
|
|
$
|
26.89
|
|
|
|
258,326
|
|
|
$
|
24.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock-based compensation cost is not tax deductible under
Canadian income tax act and, therefore, the Company did not
recognise any tax benefit from granting stock options.
|
|
Note 23.
|
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gain (loss) on trading securities, net
|
|
$
|
2,812
|
|
|
$
|
(11,218
|
)
|
|
$
|
(110
|
)
|
Unrealized holding (losses) gains on currency derivative
contracts, net
|
|
|
(430
|
)
|
|
|
1,164
|
|
|
|
(145
|
)
|
Other income
|
|
|
1,520
|
|
|
|
1,982
|
|
|
|
4,666
|
|
Other expenses
|
|
|
(77
|
)
|
|
|
(1,840
|
)
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
3,825
|
|
|
$
|
(9,912
|
)
|
|
$
|
4,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the provision for income taxes calculated at
applicable statutory rates in Canada to the provision in the
consolidated statements of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income before income taxes and minority interests from
continuing operations
|
|
$
|
67,826
|
|
|
$
|
12,432
|
|
|
$
|
65,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed provision for income taxes at statutory rates
|
|
$
|
(19,669
|
)
|
|
$
|
(3,667
|
)
|
|
$
|
(21,136
|
)
|
(Increase) decrease in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign tax rate differences
|
|
|
(1,923
|
)
|
|
|
(758
|
)
|
|
|
(1,082
|
)
|
Non-taxable income
|
|
|
93
|
|
|
|
1,702
|
|
|
|
1,862
|
|
Stock-based compensation
|
|
|
134
|
|
|
|
(1,287
|
)
|
|
|
(1,465
|
)
|
Resource property revenue taxes
|
|
|
(3,039
|
)
|
|
|
(5,864
|
)
|
|
|
(4,161
|
)
|
Permanent differences
|
|
|
(695
|
)
|
|
|
(1,297
|
)
|
|
|
(1,610
|
)
|
Change in valuation allowance
|
|
|
(1,180
|
)
|
|
|
(205
|
)
|
|
|
12,754
|
|
Reduction in future tax rate
|
|
|
(330
|
)
|
|
|
(239
|
)
|
|
|
(3,955
|
)
|
Amortization of deferred credit, future income tax assets
|
|
|
2,913
|
|
|
|
6,298
|
|
|
|
6,062
|
|
Loss on investment in preferred shares of former subsidiaries
|
|
|
(2,828
|
)
|
|
|
(16,248
|
)
|
|
|
|
|
Other, net
|
|
|
459
|
|
|
|
2,901
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
(26,065
|
)
|
|
$
|
(18,664
|
)
|
|
$
|
(12,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consisting of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource property revenue taxes
|
|
$
|
(3,039
|
)
|
|
$
|
(5,864
|
)
|
|
$
|
(4,161
|
)
|
Other income taxes
|
|
|
(23,026
|
)
|
|
|
(12,800
|
)
|
|
|
(8,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(26,065
|
)
|
|
$
|
(18,664
|
)
|
|
$
|
(12,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 25.
|
Earnings
(Loss) Per Share
|
Earnings (loss) per share data for years ended December 31 from
operations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic earnings (loss) from continuing operations available to
common shareholders
|
|
$
|
40,711
|
|
|
$
|
(6,952
|
)
|
|
$
|
50,980
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from operations
|
|
$
|
40,711
|
|
|
$
|
(6,952
|
)
|
|
$
|
50,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
30,354,207
|
|
|
|
30,401,018
|
|
|
|
29,895,468
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
506,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted
|
|
|
30,354,207
|
|
|
|
30,401,018
|
|
|
|
30,402,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 and 2008, there were 441,664 and
1,579,720 stock options, respectively, outstanding that could
potentially dilute basic earnings per share in the future, but
were not included in the calculation of diluted earnings per
share because they were antidilutive for 2009 and 2008.
|
|
Note 26.
|
Commitments
and Contingencies
|
Leases
Future minimum commitments under long-term non-cancellable
leases are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2010
|
|
$
|
3,079
|
|
2011
|
|
|
2,342
|
|
2012
|
|
|
1,131
|
|
2013
|
|
|
548
|
|
2014
|
|
|
513
|
|
Thereafter
|
|
|
937
|
|
|
|
|
|
|
|
|
$
|
8,550
|
|
|
|
|
|
|
Rent expense was $6,149, $5,496 and $1,199 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Litigation
The Company and its subsidiaries are subject to litigation in
the normal course of business. Management considers the
aggregate liability which may result from such litigation not
material at December 31, 2009.
Guarantees
The Company has issued a guarantee to its former subsidiary for
its unsecured bonds up to an amount of $869. This guarantee
expires in 2016.
Purchase
Obligations
In the normal course of its industrial plant technology,
equipment and service business, the Company enters into purchase
orders with its suppliers. The purchase orders aggregated
$153,636 at December 31, 2009 which will be expensed in
2010. Of the total obligations, $100,534 relates to Germany,
$53,102 to India and the balance to other countries.
106
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 27.
|
Business
Segment Information
|
The Company operates in two reportable segments: industrial
plant technology, equipment and services, and resource property.
The business of industrial plant technology, equipment and
service segment consists of supplying technologies, equipment
and engineering services for cement, coal and minerals
processing, as well as designing and building plants that
produce clinker, cement, clean coal and minerals. The resource
property segment consists of a mining
sub-lease
of
the lands upon which the Wabush iron ore mine is situated that
commenced in 1956 and expires in 2055. The segments are managed
separately because each business requires different production
and marketing strategies. The business segments are based on the
Companys management and internal reporting structure.
Intersegment transactions are accounted for under normal
business terms and are determined on an arms length basis.
The results of operations for corporate and other primarily
represent the corporate income less expenses. The corporate and
other assets include the entitys gross assets unrelated to
its reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Industrial Plant
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
|
|
Equipment and
|
|
Resource
|
|
Corporate
|
|
|
|
|
Service
|
|
property
|
|
and other
|
|
Total
|
|
Revenues from external customers
|
|
$
|
576,408
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
576,408
|
|
Income from interest in resource property
|
|
|
|
|
|
|
13,530
|
|
|
|
|
|
|
|
13,530
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
|
2,316
|
|
|
|
|
|
|
|
477
|
|
|
|
2,793
|
|
Internal
|
|
|
|
|
|
|
|
|
|
|
411
|
|
|
|
411
|
|
Income (loss) from continuing operations before income taxes and
minority interests
|
|
|
85,838
|
|
|
|
9,883
|
|
|
|
(27,895
|
)
|
|
|
67,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
Industrial Plant
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
|
|
Equipment and
|
|
Resource
|
|
Corporate
|
|
|
|
|
Service
|
|
Property
|
|
and Other
|
|
Total
|
|
Revenues from external customers
|
|
$
|
638,354
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
638,354
|
|
Income from interest in resource property
|
|
|
|
|
|
|
27,185
|
|
|
|
|
|
|
|
27,185
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
|
2,198
|
|
|
|
|
|
|
|
93
|
|
|
|
2,291
|
|
Internal
|
|
|
|
|
|
|
|
|
|
|
1,474
|
|
|
|
1,474
|
|
Income (loss) from continuing operations before income taxes and
minority interests
|
|
|
57,641
|
|
|
|
22,769
|
|
|
|
(67,978
|
)
|
|
|
12,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
Industrial Plant
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
|
|
Equipment and
|
|
Resource
|
|
Corporate
|
|
|
|
|
Service
|
|
Property
|
|
and Other
|
|
Total
|
|
Revenues from external customers
|
|
$
|
580,391
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
580,391
|
|
Income from interest in resource property
|
|
|
|
|
|
|
18,132
|
|
|
|
|
|
|
|
18,132
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
|
2,094
|
|
|
|
|
|
|
|
574
|
|
|
|
2,668
|
|
Internal
|
|
|
269
|
|
|
|
|
|
|
|
498
|
|
|
|
767
|
|
Income (loss) from continuing operations before income taxes and
minority interests
|
|
|
61,277
|
|
|
|
15,367
|
|
|
|
(10,839
|
)
|
|
|
65,805
|
|
The two major customer groups of industrial plant technology,
equipment and service segment are in cement, and coal and
minerals industries. The coal and minerals business was created
out of the cement technology and know-how. Services to these two
customer groups share the use of the same pool of human and
capital resources with respect to finance, accounting, general
support and risk management. See Note 4 on the disposition
of coal and
107
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
minerals customer groups. The revenues of industrial plant
technology, equipment and service segment can be further broken
down as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cement
|
|
$
|
526,688
|
|
|
$
|
547,368
|
|
|
$
|
518,573
|
|
Coal and minerals
|
|
|
49,720
|
|
|
|
90,986
|
|
|
|
61,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
576,408
|
|
|
$
|
638,354
|
|
|
$
|
580,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009
|
|
|
|
Industrial Plant
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and
|
|
|
Resource
|
|
|
Corporate
|
|
|
|
|
|
|
Service
|
|
|
Property
|
|
|
and Other
|
|
|
Total
|
|
|
Segment assets
|
|
$
|
728,090
|
|
|
$
|
31,935
|
|
|
$
|
76,567
|
|
|
$
|
836,592
|
|
Less: intercorporate investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
788,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Cash expenditures for capital assets
|
|
|
1,795
|
|
|
|
|
|
|
|
6
|
|
|
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
Industrial Plant
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and
|
|
|
Resource
|
|
|
Corporate
|
|
|
|
|
|
|
Service
|
|
|
Property
|
|
|
and Other
|
|
|
Total
|
|
|
Segment assets
|
|
$
|
698,371
|
|
|
$
|
28,605
|
|
|
$
|
89,066
|
|
|
$
|
816,042
|
|
Less: intercorporate investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
765,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
325
|
|
Cash expenditures for capital assets
|
|
|
3,027
|
|
|
|
|
|
|
|
10
|
|
|
|
3,037
|
|
The following table presents revenues from the industrial plant
technology, equipment and service segment by geographic areas
based upon the project location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Canada
|
|
$
|
1,700
|
|
|
$
|
11,720
|
|
|
$
|
512
|
|
Africa
|
|
|
6,532
|
|
|
|
7,596
|
|
|
|
21,393
|
|
Americas
|
|
|
20,597
|
|
|
|
48,836
|
|
|
|
117,905
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
576,408
|
|
|
$
|
638,354
|
|
|
$
|
580,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Except for the geographic concentrations as indicated in the
above table, there were no revenue concentrations in 2009, 2008,
or 2007 in the industrial plant technology, equipment and
service segment.
Income from interest in resource property is earned from an
unincorporated joint venture operating in Canada.
108
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents long-lived assets, which include
property, plant and equipment and interest in resource property,
by geographic area based upon the location of the assets.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Canada
|
|
$
|
27,302
|
|
|
$
|
25,047
|
|
Africa
|
|
|
|
|
|
|
63
|
|
Americas
|
|
|
119
|
|
|
|
200
|
|
Asia
|
|
|
438
|
|
|
|
586
|
|
Russia & Eastern Europe
|
|
|
14
|
|
|
|
21
|
|
Europe
|
|
|
1,525
|
|
|
|
1,411
|
|
Middle East
|
|
|
9
|
|
|
|
14
|
|
Australia
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,407
|
|
|
$
|
27,350
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 28.
|
Financial
Instruments
|
The fair value of financial instruments at December 31 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including short-term cash deposits
and restricted cash)
|
|
$
|
452,446
|
|
|
$
|
452,446
|
|
|
$
|
441,095
|
|
|
$
|
441,095
|
|
Short-term securities
|
|
|
16,432
|
|
|
|
16,432
|
|
|
|
2,947
|
|
|
|
2,947
|
|
Derivative assets
|
|
|
269
|
|
|
|
269
|
|
|
|
1,450
|
|
|
|
1,450
|
|
Loans and receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables*
|
|
|
111,004
|
|
|
|
111,004
|
|
|
|
80,926
|
|
|
|
80,926
|
|
Available-for-sale
instruments that do no have a quoted market price in an active
market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term securities, unlisted
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
40
|
|
Investment in preferred shares of former subsidiaries
|
|
|
|
|
|
|
|
|
|
|
19,125
|
|
|
|
19,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
580,151
|
|
|
$
|
580,151
|
|
|
$
|
545,583
|
|
|
$
|
545,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses*
|
|
$
|
189,374
|
|
|
$
|
189,374
|
|
|
$
|
174,658
|
|
|
$
|
174,658
|
|
Debt
|
|
|
11,649
|
|
|
|
11,649
|
|
|
|
11,313
|
|
|
|
11,313
|
|
Other long-term liabilities
|
|
|
15,607
|
|
|
|
15,607
|
|
|
|
8,344
|
|
|
|
8,344
|
|
Held for trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
20
|
|
|
|
20
|
|
|
|
285
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
216,650
|
|
|
$
|
216,650
|
|
|
$
|
194,600
|
|
|
$
|
194,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
not including derivative financial instruments
|
Fair value of a financial instrument can be characterized as the
amount at which a financial instrument could be bought or sold
in a current transaction between willing parties under no
compulsion to act (that is, other than in a forced transaction,
involuntary liquidation or distressed sale). The best evidence
of fair value is published price quotations in an active market.
When the market for a financial asset or financial liability is
not active, an entity establishes fair value by using a
valuation technique. The chosen valuation technique makes
maximum use of inputs observed from markets, and relies as
little as possible on inputs generated by the entity.
Entity-generated inputs take into account factors that market
participants would consider when pricing the financial
instruments at the balance
109
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sheet, such as liquidity and credit risks. Use of judgment is
significantly involved in estimating fair value of financial
instruments in inactive markets and actual results could
materially differ from the estimates.
The fair value of cash and cash equivalents (including
restricted cash) and term deposits is based on reported market
value. The fair value of short-term trading securities is based
on quoted market prices (Level 1 fair value hierarchy). The
fair value of unlisted securities is based on their estimated
net realizable values. The fair values of short-term receivables
and accounts payable and accrued expenses, due to their
short-term nature and normal trade credit terms, approximate
their carrying value. The fair values of non-current
receivables, long-term debt and other long-term liabilities were
determined using discounted cash flows at prevailing market
rates of interest for a similar instrument with a similar credit
rating. The fair values of the foreign currency derivative
financial instruments are based on the quotes from foreign
exchange dealers and reviewed and confirmed by management of the
Company using readily observable market input, such as forward
exchange rates (Level 2 fair value hierarchy).
The Companys 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 December 31, 2008. The Company
recognized a fair value loss of $55,076 on the preferred shares
as at December 31, 2008 that the Company determined to be
an other than temporary decline in value as, at that point, the
Company expected to negotiate a settlement of the net position
of the investment in the preferred shares.
The fair value of the preferred shares of Mass Financial was
based on certain significant assumptions, including: time value;
yield curve; the issuing counterpartys 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 (Level 3 financial
value hierarchy). The preferred shares were classified as
available-for-sale
securities and quoted market prices were not available. As such,
the Company was 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 the
Companys determination of the fair value of the shares. At
December 31, 2008, the primary assumption used in the
Companys 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.
As a result of the negotiated settlement of the preferred
shares, the Company recognized a subsequent loss of $9,538 in
the second quarter of 2009. There was no change in the fair
value of the shares between December 31, 2008 and the
settlement date. The Company 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 the Company to
meet its objective of liquidating or realizing on the economic
value of the preferred shares, which, due to the limited market
for the preferred shares, the Company might not otherwise be
able to do. In addition, the Company 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 the
Companys 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 the Company
determined the fair market value of the preferred shares as at
December 31, 2008.
110
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the financial instruments measured
at fair value classified by the fair value hierarchy as at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term securities
|
|
|
16,432
|
|
|
|
|
|
|
|
|
|
|
|
16,432
|
|
Derivative assets
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,432
|
|
|
$
|
269
|
|
|
$
|
|
|
|
$
|
16,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no transfer between levels of fair value hierarchy in
2009. For the movement of Level 3 fair value hierarchy,
please refer to the discussion on the Companys investment
in the preferred shares of the former subsidiaries earlier in
this Note since such investment was the only component in the
Level 3 fair value hierarchy.
Generally, management of the Company believes that the current
financial assets and financial liabilities, due to their
short-term nature, do not pose significant financial risks. The
Company uses various financial instruments to manage its
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. The Company has risk managers and internal auditors to
perform audit and checking functions and risk assessment to
ensure that company procedures and policies are complied with.
Many of the Companys strategies, including the use of
derivative instruments and the types of derivative instruments
selected by the Company, are based on historical trading
patterns and correlations and the Companys
managements 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 the Companys risk management strategies during
this time, and unanticipated developments could impact the
Companys risk management strategies in the future. If any
of the variety of instruments and strategies the Company
utilizes are not effective, the Company may incur losses.
The nature of the risk that the Companys financial
instruments are subject to is set out in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risks
|
|
|
|
|
|
|
Market Risks
|
Financial Instrument
|
|
Credit
|
|
Liquidity
|
|
Currency
|
|
Interest Rate
|
|
Other Price
|
|
Cash and cash equivalents (including short-term cash deposits
and restricted cash)
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
Short-term securities
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
Derivative assets and liabilities
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
Investment in preferred shares of
former subsidiaries
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Receivables
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Interest
rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate due to
changes in market interest rates. Short-term financial assets
and financial liabilities are generally not exposed to interest
rate risk, because of their short-term nature. The
Companys long-term debt is not exposed to interest rate
cash flow risk as the interest rate has been fixed, though they
are exposed to interest rate price risk.
111
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sensitivity
analysis:
At December 31, 2009, if benchmark interest rates (such as
LIBOR or prime rates) at that date had been 100 basis
points (1.00%) per annum lower with all other variables held
constant, after-tax net income for the year 2009 would have been
$1,087 lower, arising mainly as a result of lower net interest
income. Conversely, if benchmark interest rates at that date had
been 100 basis points (1.00%) per annum higher with all
other variables held constant, after-tax net income for the year
2009 would have been $1,087 higher, arising mainly as a result
of higher net interest income. There would have been no material
impact on the Companys other comprehensive loss. All of
the Companys long-term debt bears fixed interest rates.
Credit
risk
Credit risk is the risk that one party to a financial instrument
will fail to discharge an obligation and cause the other party
to incur a financial loss. Financial instruments which
potentially subject the Company to concentrations of credit risk
consist of cash and cash equivalents (including restricted
cash), term deposits and derivative and other receivables. The
Company has deposited the cash and cash equivalents (including
restricted cash) and term deposits with reputable financial
institutions with high credit ratings, from which management
believes the risk of loss to be remote. The Company has
receivables from various entities including customers,
governmental agencies and affiliates. Management does not
believe that any single customer or geographic region represents
significant credit risk. Credit risk concentration with respect
to trade receivables is limited due to the Companys large
and diversified customer base. Credit risk from trade accounts
receivable is mitigated since the customers generally have high
credit quality
and/or
provide performance guarantees, advance payments, letters of
credit and other credit enhancements. The performance
guarantees, advance payments and letters of credit are generally
issued by the bankers of the customers. The credit analysis is
performed by the Company internally.
The average contractual credit period for trades receivable is
30 days.
The maximum credit risk exposure as at December 31 is as follows:
|
|
|
|
|
Amounts Recognized on the Consolidated Balance Sheet:
|
|
2009
|
|
|
Cash and cash equivalents (including short-term cash deposits
and restricted cash)
|
|
$
|
452,446
|
|
Derivative assets
|
|
|
269
|
|
Receivables
|
|
|
111,004
|
|
|
|
|
|
|
|
|
|
563,719
|
|
Guarantee (see Note 26)
|
|
|
869
|
|
|
|
|
|
|
Maximum credit risk exposure
|
|
$
|
564,588
|
|
|
|
|
|
|
Currency
risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates. Currency risk does not arise from financial instruments
that are non-monetary items or from financial instruments
denominated in the functional currency. The Company operates
internationally and is exposed to risks from changes in foreign
currency rates, particularly Euros and the United States
(U.S.) dollars. In order to reduce the
Companys exposure to foreign currency risk on material
contracts denominated in foreign currencies (other than the
functional currencies of the subsidiaries), the Company may use
foreign currency forward contracts and options to protect its
financial positions. As at December 31, 2009 and 2008, the
Company had derivative financial instruments (foreign currency
forward contracts and options) with aggregate notional amounts
of $10,487 and $28,937, respectively, and a net unrealized fair
value gain of $249 and $1,165, respectively. As at
December 31, 2009, the Company has not adopted hedge
accounting because these derivative financial instruments do not
meet the conditions of hedge accounting.
Sensitivity
analysis
:
At December 31, 2009, if the U.S. dollar had weakened
10% against the local functional currencies with all other
variables held constant, after-tax net income for the year 2009
would have been $2,947 lower . Conversely, if the
U.S. dollar had strengthened 10% against the local
functional currencies with all other variables held constant,
after-tax net income would have been $2,947 higher. The reason
for such change is mainly due to certain
112
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. dollar-denominated financial assets (net of
liabilities) held by entities whose functional currency is not
U.S. dollars. There would have been no material impact on
other comprehensive income in either case.
At December 31, 2009, if the Euro had weakened 10% against
the local functional currencies with all other variables held
constant, after-tax net income for the year 2009 would have been
$2,020 higher. Conversely, if the Euro had strengthened 10%
against the local functional currencies with all other variables
held constant, after-tax net income would have been $2,020
lower. The reason for such change is primarily due to certain
Euro-denominated financial liabilities (net of financial assets)
held by entities whose functional currency is not Euros. There
would have been no material impact on other comprehensive income
in either case.
Other
price risk
Other price risk is the risk that the value of a financial
instrument will fluctuate as a result of changes in market
prices, whether those changes are caused by factors specific to
the individual instrument or its issuer or factors affecting all
instruments traded in the market. The Companys other price
risk includes only equity price risk whereby the Companys
investments in equities in other entities held for trading or
available-for-sale
securities are subject to market price fluctuation. The Company
did not hold any asset-backed securities.
Sensitivity
analysis:
At December 31, 2009, if the equity price in general had
weakened 10% with all other variables held constant, after-tax
net income for the year 2009 would have been $1,291 lower.
Conversely, if the equity price in general had strengthened 10%
with all other variables held constant, after-tax net income
would have been $1,291 higher. There would have been no material
impact on other comprehensive income in either case.
Liquidity
risk
Liquidity risk is the risk that an entity will encounter
difficulty in raising funds to meet commitments associated with
financial instruments. The Companys approach to managing
liquidity is to ensure, as far as possible, that it always has
sufficient liquidity to meet its liabilities when they fall due,
under normal and stress conditions, without incurring
unacceptable losses. The Company is not subject to material
liquidity risk because of its strong cash position and
relatively insignificant amount of debt. It is the
Companys policy to invest cash in highly liquid,
diversified money market funds or bank deposits for a period of
less than three months. The Company may also invest in cash
deposits with an original maturity date of more than three
months so as to earn a higher interest income.
Generally, trade payables are due within 90 days and other
payables and accrued expenses are due within one year. All
derivative financial liabilities are to be settled within one
year. Please also refer to Note 19 for debt maturity
schedule.
As of December 31, 2009, the Company had $153,636 of
purchase obligations with respect to the normal course of its
cement business. The Company expects to settle these amounts
with cash on hand and cash to be generated from its operating
activities.
Concentration
risk
Management determines the concentration risk threshold amount as
any single financial asset (or liability) exceeding 10% of the
aggregate financial assets (or liabilities) in the
Companys consolidated balance sheet.
The Company regularly maintains cash balances in financial
institutions in excess of insured limits. The Company has
deposited the cash and cash equivalents (including restricted
cash) and term deposits with reputable financial institutions
with a high credit rating, and management believes the risk of
loss to be remote. As at December 31, 2009, the Company, as
a group, had cash and cash equivalents aggregating $289,775 with
a banking group in Austria.
113
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additional
disclosure
In addition to information disclosed elsewhere in these
financial statements, the Company had significant items of
income, expense, and gains and losses resulting from financial
assets and financial liabilities which were included in the
result of operations in 2009, 2008 and 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest income on financial assets not classified as held for
trading*
|
|
$
|
5,545
|
|
|
$
|
17,820
|
|
|
$
|
12,146
|
|
Interest income on financial assets classified as held for
trading
|
|
|
1,498
|
|
|
|
3,629
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
7,043
|
|
|
$
|
21,449
|
|
|
$
|
13,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on financial liabilities not classified as held
for trading
|
|
$
|
(2,789
|
)
|
|
$
|
(2,280
|
)
|
|
$
|
(2,667
|
)
|
Interest expense on financial liabilities classified as held for
trading
|
|
|
(4
|
)
|
|
|
(11
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
(2,793
|
)
|
|
$
|
(2,291
|
)
|
|
$
|
(2,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income on financial assets classified as held for
trading
|
|
$
|
165
|
|
|
$
|
237
|
|
|
$
|
302
|
|
Dividend income on financial assets classified as available for
sale
|
|
|
280
|
|
|
|
|
|
|
|
238
|
|
Net gain (losses) on financial assets classified as held for
trading
|
|
|
2,812
|
|
|
|
(9,765
|
)
|
|
|
(1,714
|
)
|
including change in fair value of the trading
securities
|
|
|
2,622
|
|
|
|
(10,929
|
)
|
|
|
(1,559
|
)
|
Credit losses
|
|
|
(797
|
)
|
|
|
(1,840
|
)
|
|
|
(238
|
)
|
|
|
|
*
|
|
including income of $nil, $3,782 and $3,751 in 2009, 2008 and
2007, respectively, on the preferred shares of former
subsidiaries
|
|
|
Note 29.
|
Related
Party Transactions
|
In the normal course of operations, the Company enters into
transactions with related parties which include affiliates which
the Company has a significant equity interest (10% or more) in
the affiliates or has the ability to influence the
affiliates or the Companys 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 the parties. In addition to
transactions disclosed elsewhere in these financial statements,
the Company had the following transactions with affiliates.
Continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Dividend income on common shares*
|
|
$
|
280
|
|
|
$
|
|
|
|
$
|
238
|
|
Royalty expense paid and payable*
|
|
|
(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
|
)
|
|
|
|
*
|
|
included in income from interest in resource property
|
During 2006, the Company agreed to pay the former Chief
Executive Officers expenses as part of his short-term
employment arrangement. As a result of an amendment to the
former Chief Executive Officers employment arrangement in
January 2007, the former Chief Executive Officer agreed to
reimburse the Company for such expenses and as a result, the
Company had a receivable of $231 (which was included in
receivables due from affiliates) as at December 31, 2006.
The former Chief Executive Officer repaid the amount in full in
February 2007. During 2007, the Company paid expenses amounting
to $19 on behalf of the former Chief Executive Officer. The
amount was outstanding as of December 31, 2007 and was
repaid in full in February 2008. In addition, pursuant to a
management services agreement, the Company paid
114
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
management fee expenses amounting to $166, $1,309 and $1,926
(including a non-refundable deposit of $256) in 2009, 2008 and
2007, respectively, to a corporation in which the former Chief
Executive Officer has an ownership interest.
During 2007, the Company acquired an investment in a private
company from an affiliate for $50.
Discontinued
Operations
The Company did not earn any income nor incur any expenses in
its discontinued operations with related parties in 2009, 2008
and 2007. (See Note 4.)
|
|
Note 30.
|
Interest
in Joint Ventures
|
The Company has certain jointly controlled enterprises in Russia
which commenced business during 2008. The Company accounts for
these jointly controlled enterprises by proportionate
consolidation method, with additional information related to the
Companys interests in the joint ventures for 2009 and 2008
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current assets
|
|
$
|
14,483
|
|
|
$
|
7,979
|
|
Long-term assets
|
|
|
46
|
|
|
|
519
|
|
Current liabilities
|
|
|
13,944
|
|
|
|
7,966
|
|
Long-term liabilities
|
|
|
212
|
|
|
|
|
|
Revenues
|
|
|
5,276
|
|
|
|
6,928
|
|
Cost of revenues
|
|
|
4,397
|
|
|
|
5,606
|
|
Selling, general and administrative expenses
|
|
|
647
|
|
|
|
745
|
|
Interest income
|
|
|
145
|
|
|
|
315
|
|
Other expenses
|
|
|
(379
|
)
|
|
|
69
|
|
Income before taxes
|
|
|
144
|
|
|
|
823
|
|
Net income
|
|
|
42
|
|
|
|
619
|
|
Cash flows resulting from operating activities
|
|
|
817
|
|
|
|
1,023
|
|
Cash flows resulting from financing activities
|
|
|
|
|
|
|
|
|
Cash flows resulting from investing activities
|
|
|
|
|
|
|
(47
|
)
|
Included in the Companys cash and cash equivalents as at
December 31, 2009 was an amount of $5,782 (2008: $3,977)
from joint ventures which are accounted for by proportionate
consolidation. This cash and cash equivalent amount cannot be
distributed to the joint venture partners without the approval
of the respective joint venture steering committee.
|
|
Note 31.
|
Consolidated
Statements of Cash Flows Supplemental
Disclosure
|
Interest paid on a cash basis was $975, $571 and $2,368 in 2009,
2008 and 2007, respectively. Income tax paid on a cash basis was
$30,662, $21,940 and $6,932 in 2009, 2008 and 2007, respectively.
The Company had the following nonmonetary transactions.
Nonmonetary transactions in 2009: (1) the settlement of the
investment in the preferred shares of former subsidiaries and
accrued dividend thereon for promissory notes; and (2) the
conversion of a promissory note of Cdn$11,346 into common shares
of the former subsidiary. (See Note 11.)
Nonmonetary transactions in 2008: none.
Nonmonetary transactions in 2007: (1) the Company sold the
common shares in a public corporation to an affiliate for a
promissory note at the book value of $8,878 (which approximated
fair value) and no gain or loss was recognized; (2) the
affiliate settled the promissory note of $8,878 by delivering
295,490 common shares of the Company to the Company;
(3) the affiliate settled a payable of $2,296 due to the
Company by delivery of 76,431 common shares of the Company to
the Company; and (4) the Company sold 9.9% interest in MFC
Corporate Services to an affiliate at the book value of $8,163
in exchange for 219,208 common shares of the Company and no gain
or loss was recognized.
115
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 32.
|
Subsequent
Events
|
The Company evaluated subsequent events up to and including
March 26, 2010, which was the date that the financial
statements were issued.
Plan of
Arrangement
The Board of Directors of KHD Ltd announced in January 2010 that
it intended to restructure the Company into two distinct legal
entities: (1) a mineral royalty company; and (2) an
industrial plant technology, equipment and service company (the
Arrangement).
A shareholders meeting of KHD Ltd has been called for
March 29, 2010 primarily for the following purpose:
(i) to pass a special resolution authorizing an amendment
to KHD Ltds articles to authorize its directors transfer
the power to direct the voting of the shares of KID held by KHD
Ltd to another shareholder of KID or an independent
party; and
(ii) to pass a special resolution approving an arrangement
pursuant to which, among other things, Shareholders of KHD Ltd
will receive seven new common shares of KHD Ltd and one KID
share (or two KID shares in the event that a proposed
two-for-one
forward split of the shares of KID is effected prior to
completion of the Arrangement) in exchange for each seven common
shares of KHD Ltd currently held.
Upon the completion of the Arrangement and amendment to KHD
Ltds articles, two publicly traded companies will be
created. In connection with the Arrangement, KHD Ltd proposed to
enter into a shareholders agreement (the Shareholders
Agreement) with another corporate shareholder of KID (the
Custodian) whereby KHD Ltd will engage the Custodian
to direct the voting of the KID shares that KHD Ltd will
continue to hold after consummation of the Arrangement.
|
|
Note 33.
|
Differences
between Canadian and United States Generally Accepted Accounting
Principles
|
The Companys consolidated financial statements have been
prepared in accordance with GAAP in Canada, which conform in all
material respects with those in the U.S., except as set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
Reconciliation of Net Income
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income (loss) before minority interest from continuing
operations in accordance with Canadian GAAP
|
|
$
|
41,761
|
|
|
$
|
(6,232
|
)
|
|
$
|
53,366
|
|
Change in fair value of guarantees issued
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Remove reversal of previous inventory write-downs
|
|
|
(2,488
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation (expense) recovery
|
|
|
(474
|
)
|
|
|
2,070
|
|
|
|
(7,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations in accordance with U.S.
GAAP
|
|
|
38,799
|
|
|
|
(4,162
|
)
|
|
|
45,417
|
|
Discontinued operations in accordance with U.S. GAAP, net of tax
|
|
|
|
|
|
|
|
|
|
|
(9,351
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) in accordance with U.S. GAAP
|
|
|
38,799
|
|
|
|
(4,162
|
)
|
|
|
36,579
|
|
Less: net income attributable to the non-controlling interests
|
|
|
(1,050
|
)
|
|
|
(720
|
)
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders of KHD Ltd
|
|
$
|
37,749
|
|
|
$
|
(4,882
|
)
|
|
$
|
34,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share: U.S.
GAAP Continuing operations
|
|
$
|
1.24
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.44
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.31
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.24
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to common
shareholders of KHD Ltd : U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.24
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.42
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.31
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.24
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
Reconciliation of Shareholders Equity
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Shareholders equity in accordance with Canadian GAAP
|
|
$
|
319,788
|
|
|
$
|
261,914
|
|
|
$
|
307,194
|
|
Deferred income taxes
|
|
|
(1,071
|
)
|
|
|
(1,071
|
)
|
|
|
(1,071
|
)
|
Stock-based compensation expense
|
|
|
(1,635
|
)
|
|
|
(1,527
|
)
|
|
|
(4,659
|
)
|
Inventories
|
|
|
(2,488
|
)
|
|
|
|
|
|
|
|
|
Unrecognised pension benefit expense, net of tax
|
|
|
(1,315
|
)
|
|
|
(42
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity in accordance with U.S. GAAP
|
|
$
|
313,279
|
|
|
$
|
259,274
|
|
|
$
|
300,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
Comprehensive Income
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss) in accordance with U.S. GAAP
|
|
$
|
38,799
|
|
|
$
|
(4,162
|
)
|
|
$
|
36,579
|
|
Other comprehensive income (loss) , net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on translating financial statements
of self- sustaining operations and adjustments from the
application of U.S. dollar reporting
|
|
|
20,974
|
|
|
|
(48,478
|
)
|
|
|
48,144
|
|
Unrealized losses on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value loss on
available-for-sale
securities
|
|
|
|
|
|
|
(55,076
|
)
|
|
|
|
|
Reclassification adjustment for other than temporary decline in
value
|
|
|
|
|
|
|
55,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognised pension recovery (expense), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognised actuarial (loss) gain arising during the year
|
|
|
(1,272
|
)
|
|
|
494
|
|
|
|
(536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrecognised pension (expense) recovery
|
|
|
(1,272
|
)
|
|
|
494
|
|
|
|
(536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,702
|
|
|
|
(47,984
|
)
|
|
|
47,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax, in accordance with U.S.
GAAP
|
|
$
|
58,501
|
|
|
$
|
(52,146
|
)
|
|
$
|
84,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders of KHD Ltd
|
|
$
|
56,419
|
|
|
$
|
(51,498
|
)
|
|
$
|
79,141
|
|
Non-controlling interests
|
|
|
2,082
|
|
|
|
(648
|
)
|
|
|
5,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,501
|
|
|
$
|
(52,146
|
)
|
|
$
|
84,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under U.S. GAAP, the total assets were $786,978 and
$765,676 as at December 31, 2009 and 2008, respectively.
Total liabilities were $468,296 and $502,694 as at
December 31, 2009 and 2008, respectively.
Stock-Based
Compensation
The Company has two stock-based compensation plans. (See
Note 22.)
Under Canadian GAAP, all stock options issued are accounted for
as equity instruments. Under U.S. GAAP, stock options
issued to employees of Canadian and foreign operations, with an
exercise price denominated in a currency other than the
Companys functional currency or the local currency of the
foreign operation, are required to be classified and accounted
for as financial liabilities and re-measured under the
Black-Scholes option pricing model at each period end. The net
impact under U.S. GAAP was an increase (decrease) of
consolidated net income by $(474), $2,070 and $(7,964) in 2009,
2008 and 2007, respectively. As of December 31, 2009 and
2008, the liability relating to stock options issued to
employees of the foreign operations totalled $1,635 and $1,527,
respectively, under U.S. GAAP; and the contributed surplus
account was decreased by $527 and $893, respectively, from
Canadian GAAP to U.S GAAP, as a result of the reclassification
of the stock options to liabilities pursuant to U.S. GAAP.
117
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Guarantee
Effective from December 31, 2002, the Company adopted
FASBs Interpretation No. 45,
Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others,
which
requires that a guarantor recognize, at the inception of a
guarantee, a liability for the obligations it has undertaken in
issuing the guarantee, including its ongoing obligation to stand
ready to perform over the term of the guarantee in the event
that the specified triggering events or conditions occur. This
liability is based on the fair value of the guarantee. Prior to
2007, the initial recognition of the fair value of the liability
was inconsistent with Canadian GAAP, specifically those related
to CICA Section 3290,
Contingencies,
whereby a
liability for a contingent loss is only recognized if it is
likely that a future event will confirm that an asset had been
impaired or a liability incurred.
Defined
Benefit Pension
Pursuant to U.S. GAAP, a business entity that sponsors a
defined benefit plan shall (a) recognize the overfunded or
underfunded status of a defined benefit plan as an asset or
liability in its balance sheet and recognize changes in that
funded status in comprehensive income in the year in which the
changes occur; and (b) measure the funded status of a plan
as of the date of its year-end balance sheet, with limited
exceptions.
Under U.S. GAAP, the accumulated other comprehensive income
as of December 31, 2009, 2008 and 2007 was changed by
$1,272 (decrease), $494 (increase) and $536 (decrease),
respectively, representing the net gain and loss amounts that
had not yet been recognized as net periodic benefit cost for the
year then ended. The unrecognized pension cost arises from
actuarial gains and losses. The Company expects that none of the
unrecognized pension costs will be recognized as net periodic
recovery or cost in 2010 as the Company does not expect that the
cumulative unamortized balance will exceed 10% of the greater of
accrued pension liabilities by end of 2010.
The Company does not have pension plan assets and, accordingly,
does not expect to return any pension plan assets to the Company
during the operating cycle that follows December 31, 2010.
Investment
in Jointly Controlled Entities
Under Canadian GAAP, the Company accounts for its investment in
a jointly controlled entity by proportionate consolidation
method. Under U.S. GAAP, such investment is accounted for
by equity method. Paragraphs (c)(2)(vii) of
Form 20-F
as issued by the U.S. Securities and Exchange Commission
allows the issuer to omit differences in classification or
display that result from using proportionate consolidation in
the reconciliation to U.S. GAAP provided that the joint
venture is an operating entity, the significant financial
operating policies of which are, by contractual arrangement,
jointly controlled by all parties having an equity interest in
the entity. The Company is of opinion that the conditions are
met and elects to omit the differences in the U.S. GAAP
reconciliation.
Minority
Interests
Pursuant to the new U.S. GAAP adopted in 2009, minority
interests (non-controlling interests) are included in equity
section on the balance sheet and a parent with
less-than-wholly-owned
subsidiaries shall disclose, separately, the amounts of
consolidated net income and consolidated comprehensive income
and the related amounts of each attributable to the parent and
minority interests on the face of the consolidated financial
statements. The new U.S. GAAP has been applied
retroactively to the U.S. GAAP reconciliation.
Inventory
Write-down
Under Canadian GAAP, the amount of any write-down of inventories
to net realizable value of inventories shall be recognized as an
expense in the period the write-down occurs. The amount of any
reversal of any write-down of inventories, arising from an
increase in net realizable value, shall be recognized as a
reduction in the amount of inventories recognized as an expense
in the period in which the reversal occurs. Under
U.S. GAAP, the entity shall not recognize any reversal of
any previously recognized write-down arising from the subsequent
increase in the net realizable value.
118
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting
Guidance Adopted in 2009
In June 2009, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 168,
FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles a Replacement of FASB
Statement No. 162
(FAS 168 or
Codification), which is effective for the Company
for the year ended December 31, 2009. The new standard
represents the FASBs codification of its accounting
standards into a single source of authoritative nongovernmental
U.S. GAAP. The Companys references to U.S. GAAP
are based on using the new codification topic numbers, with the
previous references in parenthesis. The FASB will no longer
issue new standards in the form of Statements
(SFAS), FASB Interpretations (FINs),
FASB Staff Positions (FSPs), or Emerging Issues Task
Force Abstracts (EITFs). Instead, it will issue
Accounting Standards Updates (ASUs), which will
serve to update the Codification, provide background information
about the guidance and bases for conclusion on changes to the
Codification.
In December 2007, the FASB issued the guidance under Topic 805,
Business Combination
(SFAS No. 141(R),
Business Combinations
), to replace
SFAS No. 141,
Business Combinations.
The new
guidance retains the fundamental requirements in
SFAS No. 141 that the acquisition method of accounting
be used for all business combination. The new guidance defines
the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control.
The Company adopted this new guidance effective January 1,
2009 and there is no material impact on the Companys
consolidated financial statements in 2009.
In April 2009, the FASB issued guidance under Topic
805-20,
Business Combinations Identifiable Assets and
Liabilities and Any Noncontrolling Interest
(FSP
No. 141(R)-1,
Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination that Arise from
Contingencies
). This guidance requires an acquirer to
measure assets acquired and liabilities assumed in a business
combination that arise from contingencies at their
acquisition-date fair value if they can be determined. If fair
value cannot be determined, then the recognition criteria and
guidance of Topic 450,
Contingencies
(FASB Statement
No. 5,
Accounting for Contingencies
) and Topic
450-20,
Contingencies Loss Contingencies
(FIN 14,
Reasonable Estimation of the Amount of a
Loss, an Interpretation of FASB Statement No. 5
) apply.
Following initial recognition, a company develops a systematic
and rational basis for subsequent measurement of liabilities,
depending on their nature. The Company adopted this new guidance
effective January 1, 2009 and there is no material impact
on the Companys consolidated financial statements.
In December 2007, the FASB issued guidance under Topic 810,
Consolidation
(SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of
ARB No. 51
), to amend ARB 51 to establish accounting
and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. A
noncontrolling interest is sometimes called a minority interest.
The Company adopted this new guidance effective January 1,
2009. The new guidance does not have material impact on the
Companys consolidated financial statements, except for the
classification and presentation of minority interests on the
consolidated financial statements. Please refer to the
subsection Minority Interests earlier in this Note.
In March 2008, the FASB issued guidance under Topic 815,
Derivatives and Hedging
(SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an Amendment of FASB Statement No. 133
)
,
to enhance the current disclosure framework in
SFAS No. 133. The new guidance requires that
objectives for using derivative instrument be disclosed in terms
of underlying risk and accounting designation; that the fair
values of derivative instruments and their gains and losses be
disclosed in a tabular format; and that cross-referencing be
presented within the footnotes. The Company adopted this new
guidance effective January 1, 2009 and there is no material
impact on the Companys consolidated financial statements.
In May 2008, the FASB issued guidance under Topic
470-20,
Debt with Conversion and Other Options
(FSP APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial
Settlement)
)
,
to state that convertible debt
instruments that are within its scope are required to be
separated into both a debt component and an equity component. In
addition, any debt discount is to be accreted to interest
expense over the expected life of the debt. The Company adopted
this new guidance effective January 1, 2009 and there is no
material impact on the Companys consolidated financial
statements.
In September 2008, the FASB issued guidance under Topic 815,
Derivatives and Hedging
(FSP
FAS 133-1
and
FIN 45-4,
Disclosures about Credit Derivatives and Certain Guarantees:
An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective
Date of FASB Statement No. 161
)
,
to amend FASB
Statement No. 133,
Accounting for Derivative Instruments
and Hedging Activities,
to require
119
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
disclosures by sellers of credit derivatives, including credit
derivatives embedded in a hybrid instrument. This guidance is
also to amend FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others,
to require an additional disclosure about the
current status of the payment/performance risk of a guarantee.
The Company adopted this new guidance effective January 1,
2009 and there is no material impact on the Companys
consolidated financial statements.
In June 2008, the FASB issued guidance under Topic 260,
Earnings per Share
(FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
)
,
to address whether instruments granted in share-based
payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share under the two-class
method. The Company adopted this new guidance effective
January 1, 2009 and there is no material impact on the
Companys consolidated financial statements.
In February 2008, FASB issued guidance under Topic 860,
Transfers and Servicing
(FSP
FAS 140-3,
Accounting for Transfers of Financial Assets and Repurchase
Financing Transactions
), to provide guidance on accounting
for a transfer of a financial asset and a repurchase financing.
This new guidance presumes that an initial transfer of a
financial asset and a repurchase financing are considered part
of the same arrangement (linked transaction) under Statement
140,
Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities
. However, if
certain criteria are met, the initial transfer and repurchase
financing is not be evaluated as a linked transaction and shall
be evaluated separately under Statement 140. A transferor and
transferee does not separately account for a transfer of a
financial asset and a related repurchase financing unless
(a) the two transactions have a valid and distinct business
or economic purpose for being entered into separately and
(b) the repurchase financing does not result in the initial
transferor regaining control over the financial asset. The
Company adopted this new guidance effective January 1, 2009
and there is no material impact on the Companys
consolidated financial statements.
In June 2008, the FASB issued guidance under Topic 840,
Leases
(EITF Issue 08 3,
Accounting by
Lessees for Nonrefundable Maintenance Deposits
)
,
to
require that all nonrefundable maintenance deposits should be
accounted for as a deposit. When the underlying maintenance is
performed, the deposit is expensed or capitalized in accordance
with the lessees maintenance accounting policy. Once it is
determined that an amount on deposit is not probable of being
used to fund future maintenance expense, it is recognized as
additional expense at the time such determination is made. The
Company adopted this new guidance effective January 1, 2009
and there is no material impact on the Companys
consolidated financial statements.
In November 2008, the FASB issued guidance under Topic 323,
Investments Equity Method and Joint Ventures
(EITF Issue
08-6,
Equity Method Investment Accounting Considerations
). The
guidance clarifies the accounting for certain transactions and
impairment considerations involving equity method investments.
The Company adopted this new guidance effective January 1,
2009 and there is no material impact on the Companys
consolidated financial statements.
In May 2009, the FASB issued guidance under Topic
855-10,
Subsequent Events
(SFAS No. 165,
Subsequent
Events
). The new guidance requires disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date. The Company adopted this new guidance
effective January 1, 2009 and there is no material impact
on the Companys consolidated financial statements.
In April 2009, the FASB issued guidance under Topic 320,
Investments
Debt and Equity Securities
(FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-than-Temporary
Impairments
), which amends the impairment assessment
guidance and recognition principles of
other-than-temporary
impairment for debt securities and enhances the presentation and
disclosure requirements for debt as well as equity securities.
In accordance with this guidance, the unrealized loss of an
available-for-sale
debt security is an
other-than-temporary
impairment when: (i) the entity has the intent to sell the
security; (ii) it is more likely than not that the entity
will be required to sell the security before recovery of the
amortized cost; or (iii) the entity does not expect to
recover the entire amortized cost of the security (credit loss)
even though it will not sell the security. If one of the first
two conditions is met, the full amount of the unrealized loss in
AOCI should be recognized in income. If these two conditions are
not met but the entity has incurred a credit loss on the
security, the credit loss and the non-credit related loss are
recognized in income and OCI, respectively. The Company adopted
this guidance effective January 1, 2009 and there is no
material impact on the Companys consolidated financial
statements.
120
KHD
HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2008, the FASB issued guidance under Topic
820-10-65-1,
Fair Value Measurements and Disclosure
(FSP
FAS 157-2,
Effective Date of FASB Statement No. 157
). This
guidance defers the effective date of the
Financial
Instruments
Topic, for all non-financial assets and
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis.
This guidance defers the effective date to fiscal years
beginning after November 15, 2008, for items within the
scope of ASC
820-10-65-1.
The Company adopted this guidance effective January 1, 2009
and there is no material impact on the Companys
consolidated financial statements.
Recent
Accounting Guidance Not Yet Adopted
In June 2009, the FASB issued guidance under Topic 860,
Transfers and
Servicing (SFAS No. 166,
Accounting for Transfers of Financial Assets, an amendment of
FASB Statement No. 140
), to improve the relevance,
representational faithfulness, and comparability of the
information that a reporting entity provides in its financial
statements about a transfer of financial assets; the effects of
a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement, if
any, in transferred financial assets. Additionally, on and after
the effective date, the concept of a qualifying special-purpose
entity is no longer relevant for accounting purposes. This
guidance must be applied as of the beginning of the first annual
reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and
for interim and annual reporting periods thereafter. Earlier
application is prohibited. This guidance must be applied to
transfers occurring on or after the effective date. Management
believes the adoption of this guidance will not have a material
impact on the Companys consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R
), which
is effective for the Company beginning January 1, 2010.
This Statement amends FIN No. 46(R),
Consolidation
of Variable Interest Entities an interpretation of ARB
No. 51
, to require revised evaluations of whether
entities represent variable interest entities, ongoing
assessments of control over such entities, and additional
disclosures for variable interests. Management believes the
adoption of this guidance will not have a material impact on the
Companys consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update No
2009-05,
Measuring Liabilities at Fair Value
, previously exposed
for comments as proposed Financial Statement Position FASB
No. 157-f,
Measuring Liabilities under FASB Statement No. 157
,
Fair Value Measurements,
to provide guidance on measuring
the fair value of liabilities under ASC 820. This ASU clarifies
that the quoted price for the identical liability, when traded
as an asset in an active market, is also a Level 1
measurement for that liability when no adjustment to the quoted
price is required. In the absence of a Level 1 measurement,
an entity must use one or more of the valuation techniques as
described in the guidance. This guidance is effective for the
first interim or annual reporting period beginning after
August 28, 2009. Management believes the adoption of this
guidance will not have a material impact on the Companys
consolidated financial statements.
In December 2008, the FASB issued guidance under Topic ASC 715
(ASC
715-20),
Defined Benefit Plan
(FSP FAS 132(R)-1,
Employers Disclosures about Pensions and Other
Postretirement Benefits
. This topic provides guidance with
respect to an employers (sponsors) disclosures about
plan assets of a defined benefit pension or other postretirement
plan and also requires disclosures about fair value measurements
of plan assets. This guidance is effective for financial
statements issued for fiscal years ending after
December 15, 2009, and implementation is required to be
prospective. Earlier application of the provisions is permitted.
Management believes the adoption of this guidance will not have
a material impact on the Companys consolidated financial
statements.
121
|
|
ITEM 18
|
Financial
Statements
|
Refer to Item 17 Financial
Statements.
Exhibits Required
by
Form 20-F
Exhibit Number / Description
|
|
|
|
|
|
1
|
.1
|
|
Articles of
Amalgamation.
(1)
|
|
1
|
.2
|
|
By-laws.
(1)
|
|
1
|
.3
|
|
Certificate of
Continuance
(3)
|
|
1
|
.4
|
|
Notice of
Articles
(3)
|
|
1
|
.5
|
|
Articles
(10)
|
|
1
|
.6
|
|
Certificate of Change of
Name
(6)
|
|
1
|
.7
|
|
Vertical Short Form Amalgamation
Application
(7)
|
|
1
|
.8
|
|
Notice of
Articles
(7)
|
|
1
|
.9
|
|
Certificate of
Amalgamation
(7)
|
|
2
|
.1
|
|
Trust Indenture between our company and Computershare Trust
Company of Canada, dated January 7,
2004
(4)
|
|
2
|
.2
|
|
Supplemental Indenture between our company and Computershare
Trust Company of Canada, dated October 27,
2005.
(6)
|
|
4
|
.1
|
|
Memorandum of Agreement between our company and Wabush Iron Co.
Limited, Stelco Inc. and Dofasco Inc. dated November 24,
1987.
(2)
|
|
4
|
.2
|
|
Amendment to Mining Lease between our company and Wabush Iron
Co. Limited, Stelco Inc. and Dofasco Inc. dated January 1,
1987.
(2)
|
|
4
|
.3
|
|
First Amendment to Memorandum of Agreement between our company
and Wabush Iron Co. Limited, Stelco Inc. and Dofasco
Inc.
(2)
|
|
4
|
.4
|
|
Amended 1997 Stock Option Plan of our
company.
(1)
|
|
4
|
.5
|
|
Trust Indenture, dated January 7, 2004, between our company and
Computershare Trust Company of Canada, as Trustee, for the
issuance of 4.4% Convertible Unsecured Subordinated Bonds
due December 31,
2009.
(5)
|
|
4
|
.6
|
|
Variation Agreement dated December 22, 2004 between our company
and Sutton Park International Limited varying our companys
interest obligation to Sutton Park International Limited in
respect of the 4.4% Convertible Unsecured Subordinated Bond
in the principal amount of 6,786,436, maturing December
31,
2009.
(5)
|
|
4
|
.7
|
|
Arrangement Agreement dated September 11, 2006 between our
company and Cade Struktur
Corporation.
(7)
|
|
4
|
.8
|
|
Arrangement Agreement dated March 29, 2007 between our company
and Sasamat Capital Corporation.
|
|
4
|
.9
|
|
Arrangement Agreement dated February 26, 2010 between our
company and KHD Humboldt International (Deutschland)
AG.
(8)
|
|
8
|
.1
|
|
Significant subsidiaries of our company as at March 26, 2010:
|
122
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction of
|
|
|
|
Our
|
|
|
|
Name of
|
|
Incorporation or
|
|
Owner
|
|
Beneficial
|
|
|
|
Non-Wholly-Owned Subsidiary
|
|
Organization
|
|
of Interests
|
|
Shareholding
|
|
|
|
|
KHD Humboldt Wedag International
(Deutschland) AG
|
|
Germany
|
|
KHD Humboldt Wedag
International Ltd.
|
|
98.2%
|
|
|
|
|
KHD Humboldt Wedag GmbH
|
|
Germany
|
|
KHD Humboldt Wedag
International Ltd.
|
|
98.2%
|
|
|
|
|
KHD Humboldt Wedag Industrial
Services AG
|
|
Germany
|
|
Blake International Limited
|
|
88%
|
|
|
|
|
Humboldt Wedag GmbH
|
|
Germany
|
|
KHD Humboldt Wedag
International
(Deutschland) 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%
|
|
|
|
|
|
|
|
|
|
|
11
|
.1
|
|
Code of
Ethics
(9)
|
|
12
|
.1
|
|
Section 302 Certification under Sarbanes-Oxley Act of 2002
for Jouni
Salo
(10)
|
|
12
|
.2
|
|
Section 302 Certification under Sarbanes-Oxley Act of 2002
for Alan
Hartslief
(10)
|
|
13
|
.1
|
|
Section 906 Certification under Sarbanes-Oxley Act of 2002
for Jouni
Salo
(10)
|
|
13
|
.2
|
|
Section 906 Certification under Sarbanes-Oxley Act of 2002
for Alan
Hartslief
(10)
|
|
15
|
.1
|
|
Consent of Deloitte & Touche
LLP.
(10)
|
|
99
|
.1
|
|
Audit Committee
Charter
(6)
|
|
99
|
.2
|
|
Compensation Committee
Charter
(7)
|
|
99
|
.3
|
|
Nominating and Corporate Governance
Charter
(7)
|
|
|
|
(1)
|
|
Incorporated by reference from our
Form 20-Fs
filed in prior years.
|
|
(2)
|
|
Incorporated by reference from our
Form 10-K
for the year ended December 31, 1989.
|
|
(3)
|
|
Incorporated by reference from our
Form 6-K
as filed with the Securities and Exchange Commission on
November 23, 2004.
|
|
(4)
|
|
Incorporated by reference from our
Form 20-F
as filed with the Securities and Exchange Commission on
April 26, 2004.
|
123
|
|
|
(5)
|
|
Incorporated by reference from our
Form 20-F
as filed with the Securities and Exchange Commission on
April 6, 2005.
|
|
(6)
|
|
Incorporated by reference from our
Form 20-F
as filed with the Securities and Exchange Commission on
April 3, 2006.
|
|
(7)
|
|
Incorporated by reference from our
Form 20-F
as filed with the Securities and Exchange Commission on
April 3, 2007.
|
|
(8)
|
|
Incorporated by reference from our
Form 6-K
as filed with the Securities and Exchange Commission on
March 3, 2010.
|
|
(9)
|
|
Incorporated by reference from our
Form 6-K
as filed with the Securities and Exchange Commission on
October 5, 2009.
|
124
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
KHD Humboldt Wedag International Ltd.
Jouni Salo
Chief Executive Officer and President
(Principal Executive Officer)
Date: March 26, 2010
Alan Hartslief
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Date: March 26, 2010
125
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