##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
  FORM 20-F
  o

REGISTRATION STATEMENT PURSUANT
    TO SECTION 12(b) OR (g)
    OF THE SECURITIES EXCHANGE ACT OF 1934ORx

ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934ORo

SHELL COMPANY REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934   Commission file number
    001-04192
   
  KHD
    Humboldt Wedag International Ltd.
 (Exact name of Registrant as
    specified in its charter)
  Not
    Applicable
 (Translation of
    Registrants Name into English)
  British
    Columbia, Canada
 (Jurisdiction of incorporation
    or organization)
  Suite 702,
    7th Floor, Ruttonjee House, Ruttonjee Centre, 11 Duddell
    Street, Central, Hong Kong SAR, China
 (Address of principal executive
    offices)
  Securities
    registered or to be registered pursuant to Section 12(b) of
    the Act.
  Title of each class

Name of each exchange on which
    registeredCommon Shares, Without Par Value

The NASDAQ Stock Market LLC   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)
    There were 14,733,191 common shares, without par value,
    issued and outstanding as of December 31, 2006.
  o x
  o x
    x o
  Rule 12b-2 o x o
  x o
  Rule 12b-2 o x
    o o




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(PHOTO OF CEMENT PLANT)Ruedersdorf Cement plant, Germany




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DEAR FELLOW SHAREHOLDERS
  transition, performance, communication




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earnings




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SUMMARY OF ORDER BACKLOG AT DECEMBER 31, 2006PROJECT
    
    PROJECT LOCATION
    
    SUBJECTZaveh Torbat
    
    Middle East
    
    Cement production line 3,500 t/dIllinois
    
    N/S America
    
    Construction and equipmentJ P Himachal
    
    Asia
    
    Kiln line 10,000 t/dGrasim Dadri
    
    Asia
    
    Roller pressJ P Himachal Grinding
    
    Asia
    
    Cement grinding plant with roller press (3 line)CNSAL
    
    Middle East
    
    Capacity increase from 2,000 to 3,800 t/dSterlitamak
    
    Russia
    
    Grinding lineBushan
    
    Asia
    
    Coal washery plantNational Cement
    
    Middle East
    
    Cement production line 3,500 t/dAshakacem
    
    Asia
    
    Heat exchanger and bucket elevatorLonggu
    
    Asia
    
    3 Romjigs and 10 pneuflotsDuro Felguera
    
    N/S America
    
    8x Jones DPBeeshoek  BKM
    
    Africa
    
    4 Batac + 4 bucket conveyorRaysut Cement
    
    Middle East
    
    Cement production line 2,000 / 2,200 t/dHofuf
    
    Asia
    
    Supply of roller press / VSK + SKS separatorEkon/Askale
    
    Europe
    
    Kiln line 3,500 t/d clinker productionÜnye
    
    Europe
    
    Supply of roller press / VSK + SKS separatorCiment Campulung
    
    Europe
    
    Kiln line with mill and clinker siloContinental
    
    N/S America
    
    Kiln feed system, preheater, kiln and clinker coolerShree Cement V
    
    Asia
    
    Preheater, kiln and kiln coolerGrasim New Plant/Kotpuli
    
    Asia
    
    Preheater, kiln and pyrofloorKotpuli
    
    Asia
    
    Cement production line 8,000 t/dPanipat Grasim
    
    Asia
    
    Grinding line with roller pressCemex Balcones
    
    N/S America
    
    Pyro line 3,500 t/d, preheaterKhoy Cement
    
    Middle East
    
    Clinker production lineCemex Broceni Kiln 5
    
    Europe
    
    Engineering, preheater and kilnGrasim Aditya
    
    Asia
    
    Pyro line 8,000 t/d, cement grindingGrasim Tadapatri
    
    Asia
    
    8,000 t/d Cement plant, pyro section, cement grindingMaras
    
    Europe
    
    Kiln line 3,800 t/d clinker productionBuzzi Unicem, River 7000
    
    N/S America
    
    Kiln lineBuzzi Unicem, River Steel
    
    N/S America
    
    Material supply, steelFengjiata
    
    Asia
    
    2 RomjigSuanciguo
    
    Asia
    
    2 RomjigGlobal Mining
    
    Asia
    
    Coal washery engineeringMordow3
    
    Russia
    
    EngineeringNovotroizk
    
    Russia
    
    3,000 t/d Clinker plantOrissa Cement
    
    Asia
    
    4,000 t/d Kiln lineLafarge Askaka
    
    Africa
    
    Coal millBW West
    
    Europe
    
    1 RomjigJamul ACC
    
    Asia
    
    Design, engineering of coal washeryCahibasa ACC
    
    Asia
    
    Design, engineering of coal washeryKymore ACC
    
    Asia
    
    Design, engineering of coal washeryBargarh
    
    Asia
    
    Design, engineering of coal washeryZliten (spares)
    
    Middle East
    
    Rehabilitation of kiln sectionOrient Cement Devapur 2
    
    Asia
    
    Kiln with roller press upgradeHanson Permanente
    
    N/S America
    
    2 Mill shellsShree Cement VI
    
    Asia
    
    Preheater, kiln, coolerUltra Tech Cement
    
    Asia
    
    Kiln lineLafarge Mejia
    
    Asia
    
    Grinding plantMurli Agro Products
    
    Asia
    
    Preheater, kiln, coolerASEC (spares)
    
    Middle East
    
    2 Grinding plantsADM Tyre (spares)
    
    Australia
    
    RefurbishmentShagang 2
    
    Asia
    
    Roller press




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STRATEGY PROGRESS REVIEW
 Transition· Performance· Communication
 TRANSITION
 Divesting Legacy Assets
  ■
    
    Early in the first quarter we distributed the majority of our merchant banking assets to our
shareholders by spinning them off into Mass Financial Corp. and distributing shares of Mass to our shareholders.■
    
    In the fourth quarter we sold our banking subsidiary to Mass at our carrying value and
repurchased 790,000 of our common shares.




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Corporate Strategy for Globalization
and Sustainability
 ■
    
    Improve our cement plant
market position while looking for opportunities
to diversify in coal and minerals as well as
other sectors.■
    
    Transfer certain engineering and production
functions to low-cost locations, or outsource
them, while continuing to maintain Cologne as a
center of expertise.■
    
    Minimize project risks.■
    
    Globalize, as described in more detail below.■
    
    Expand into under-penetrated markets such as
China and Latin America, as well as
complementary product areas, through
partnerships or mergers and acquisitions.■
    
    Minimize fixed assets to allow for growth without capital constraints.




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Restructuring the Parent Company,
KHD Humboldt Wedag International Ltd.
       Establishment of KHD Humboldt Wedag
International GmbH Austria (KIA)
 Treasury Function
  Technology
  Bonding




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(PHOTO OF DALEN CEMENT PLANT)Dalen Cement plant, Norway




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Initiatives
  Profit Improvement Initiative
  Management
  Operations
  Risk Management/Internal Audit
  Innovation Initiative  our Future
 Focus
 ■
    
    Improve grinding technology■
    
    Reduce emissions■
    
    Decrease energy costs
 Rationale
 2
  Funding
  Timeline (three-phase process)
 
 Diversification Initiative
  Background
  Action




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Globalization Initiative
   ■
    
    A data
center to manage information on markets,
acquisition targets, customers and the installed
equipment base.■
    
    A marketing center to coordinate
the global marketing effort, communications
materials and the network of sales forces and
agents.■
    
    A sales center to streamline the bidding
process across all subsidiaries.
 TRANSITION REPORT CARD
 From the standpoint of the transition
effort, I would say 2006 was just a decent year.
 While we divested most of the legacy assets,
I was
disappointed that the real estate was still
with the company at the end of the year; but we
will now divest these assets with the
distribution.
 Regarding our globalization and
sustainability efforts, the high points of 2006
were clearly the appointment of our new CEO, Jim
Busche, and his establishment of an experienced
global executive team. The restructuring efforts
were also high points, with the establishment of
the Austrian entity, centralization of financial
management, the strengthening of our banking
relationships, and establishment of our new,
greatly expanded bonding facility.
 Our diversification initiative has not yet
yielded the desired results. While our Indian
subsidiary was able to establish a few very good
strategic partnerships with several European
suppliers, thereby broadening their scope of
supply from India, we were not able to make
substantive progress on the major acquisition
front. The reason is simple, and it has nothing
to do with a lack of suitable targets. There are
many good targets out there, many good businesses
with strong and effective management  but none
with a sensible purchase price. In 2007 we will
make some adjustments to our expectations and
continue  in fact strengthen  our efforts;
but we will not overpay.




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PERFORMANCE
     CEMENT
  CEMENT ORDER INTAKE
  CEMENT BACKLOG
 COAL AND MINERALS
  COAL AND MINERALS ORDER INTAKE
  COAL AND MINERALS BACKLOG
  PERFORMANCE REPORT CARD
 Evaluating the performance element of our
strategy is much more objective, as it is
primarily numbers. From the standpoint of
performance, I would have to say 2006 was a
pretty good year.
 Revenues increased by 19%; order intake
increased by 55%; backlog increased by 71%; EBT
increased by 47%; and we exceeded our initial
guidance for 2006 EBT by 29%.
 The backlog is fairly diverse from a
geographical perspective, with no one region
accounting for as much as 35% of the total. Our
project scopes are pretty much in line with our
fields of expertise, i.e., engineering and




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equipment supply as opposed to full turnkey
installation. Our CEO has systems and people in
place to focus on margin improvement, risk
management, and making sure we have sufficient
financial resources available to support our
programs.
 As I said in the discussion of our transition efforts, one
 obvious weakness that has yet to be resolved is
the dependence of our performance on the cement
industry. As long as the trends of expanding
demand and capacity requirements continue, the
impact of this vulnerability may not be reflected
in our performance, but we must take steps now to
be prepared for downturns in this market.




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COMMUNICATIONS
 
 COMMUNICATIONS REPORT CARD
 From a communications standpoint, while I
would say 2006 was a breakout year, we recognize
that we need to communicate more, and we need to
improve our communications skills.




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(PHOTO OF COAL MINERAL PROCESSING)Coal and mineral processing  BATAC jig




---



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REVIEW OF PROGRESS IN ENHANCING
SHAREHOLDER VALUE
 
 
     PEER GROUPCompany comparison
    
    Andritz AG
    
    
    FLSmidth & Co.
    
    
    China
Sinoma Intl
    
    
    KHD Humboldt WedagEngineering Co. Ltd.
    
    
    International Ltd.FOR THE YEAR ENDED
    
    
    31.12.2006
    
    
    
    31.12.2006
    
    
    
    30.09.2006
    
    
    
    31.12.2006Shares outstanding
    
    
    13,000,000
    
    
    
    53,200,000
    
    
    
    168,000,000
    
    
    
    14,733,191Shareholders equity (000 US$)
    
    
    546,903
    
    
    
    564,697
    
    
    
    97,789
    
    
    
    274,937Revenues
(000 US$)
    
    
    3,574,889
    
    
    
    2,177,939
    
    
    
    621,635
    
    
    
    393,499Net income
(000 US$)
    
    
    160,101
    
    
    
    200,262
    
    
    
    9,183
    
    
    
    31,832Market
capitalization(1)(000 US$)
    
    
    3,008,730
    
    
    
    3,474,556
    
    
    
    835,019
    
    
    
    567,670Working
capital (000 US$)
    
    
    533,273
    
    
    
    428,122
    
    
    
    49,059
    
    
    
    169,017Book value per share (US$)
    
    
    42.07
    
    
    
    10.61
    
    
    
    0.58
    
    
    
    18.55Price / Book value per share(1)
    
    
    5.50
    
    
    
    6.15
    
    
    
    8.54
    
    
    
    2.08Price /
EPS(1) diluted (ttm)
    
    
    18.67
    
    
    
    17.20
    
    
    
    68.01
    
    
    
    18.35




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THE PLAN FOR 2007




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RUSSIA AND EASTERN EUROPE




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■
    
    KHD Germany will deliver
basic engineering
and key supply.■
    
    The Novosibirsk engineering office will
provide detailed engineering and adjustments
to Russian requirements.■
    
    The Moscow office will be responsible for
sales, procurement, inspection and other
related services.■
    
    Local partner companies will
produce the equipment.
 Chairman of the Board




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIONAL LTD.
 FORM 20-F
 TABLE OF CONTENTS
  Page No.PART 1ITEM 1.

IDENTITY OF
    DIRECTORS, SENIOR MANAGEMENT AND ADVISERS


3ITEM 2.

OFFER STATISTICS
    AND EXPECTED TIMETABLE


3ITEM 3.

KEY
    INFORMATION


3Selected Financial
    Data


3Risk
    Factors


6ITEM 4.

INFORMATION ON THE
    COMPANY


10History and
    Development of the Company


10Overview


10Organizational
    Structure


16Property, Plant and
    Equipment


17ITEM 4A.

UNRESOLVED STAFF
    COMMENTS


18ITEM 5.

OPERATING AND
    FINANCIAL REVIEW AND PROSPECTS


18Operating
    Results


19Liquidity and
    Capital Resources


26Research and
    Development, Patents and Licenses, Etc.


29Trend
    Information


29Off-balance Sheet
    Arrangements


30Tabular Disclosure
    of Contractual Obligations


30ITEM 6.

DIRECTORS, SENIOR
    MANAGEMENT AND EMPLOYEES


31Directors and
    Senior Management


33Compensation


34Board
    Practices


34Employees


34Share
    Ownership


34ITEM 7.

MAJOR SHAREHOLDERS
    AND RELATED PARTY TRANSACTIONS


35Major
    Shareholders


35Related Party
    Transactions


36ITEM 8.

FINANCIAL
    INFORMATION


37Consolidated States
    and Other Financial Information


40Significant
    Changes


40ITEM 9.

THE OFFER AND
    LISTING


39Offer and Listing
    Details


39ITEM 10.

ADDITIONAL
    INFORMATION


40Share
    Capital


40Notice of Articles
    and Articles


40Material
    Contracts


41Exchange
    Controls


44Taxation


44Documents on
    Display


47Subsidiary
    Information


47ITEM 11.

QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


48ITEM 12.

DESCRIPTION OF
    SECURITIES OTHER THAN EQUITY SECURITIES


50PART IIITEM 13.

DEFAULTS, DIVIDEND
    ARREARAGES AND DELINQUENCIES


50




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Page No.ITEM 14.

MATERIAL
    MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
    PROCEEDS


50ITEM 15.

CONTROLS AND
    PROCEDURES


50ITEM 16.

RESERVED


51ITEM 16A.

AUDIT COMMITTEE
    FINANCIAL EXPERT


51ITEM 16B.

CODE OF
    ETHICS


52ITEM 16C.

PRINCIPAL
    ACCOUNTANT FEES AND SERVICES


52ITEM 16D.

EXEMPTIONS FROM THE
    LISTING STANDARDS FOR AUDIT COMMITTEES


53ITEM 16E.

PURCHASES OF EQUITY
    SECURITIES BY OUR COMPANY AND AFFILIATED PURCHASERS


53PART IIIITEM 17.

FINANCIAL
    STATEMENTS


54ITEM 18.

FINANCIAL
    STATEMENTS


54ITEM 19.

EXHIBITS


91SIGNATURES


94Arrangement Agreement dated September 11. 2006Arrangement Agreement dated March 29, 2007Section 302 C.E.O. CertificationSection 302 C.F.O. CertificationSection 906 C.E.O. & C.F.O. CertificationCompensation Committee CharterNominating and Corporate Governance Charter   2




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PART I          ITEM 1
    Identity
    of Directors, Senior Management and Advisers    ITEM 2
    Offer
    Statistics and Expected Timetable    ITEM 3
    Key
    Information  A.
    Selected
    Financial Data   3




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Selected
    Financial Data
    (Stated in Canadian dollars  Calculated in accordance
    with Canadian GAAP)
    (in thousands, other than per share amounts)
  Fiscal Years Ended December 31
  2006


2005(1)


2004(1)


2003(1)


2002(1)Revenues

$
458,544


$
384,050


$
187,438


$



$
Operating income (loss)


42,937



31,158



15,133



(2,069
)


(1,803
)Income (loss) from continuing
    operations


37,093



27,759



12,775



1,723



(1,572
)Income (loss) from discontinued
    operations


(1,620
)


6,438



24,176



47,393



52,327Income (loss) from continuing
    operations per shareBasic


2.46



2.04



0.94



0.13



(0.12
)Diluted


2.44



2.03



0.94
(1)


0.13
(1)


(0.12
)(1)Income (loss) from discontinued
    operations per shareBasic


(0.11
)


0.47



1.79



3.63



4.05Diluted


(0.11
)


0.47



1.79
(1)


3.63
(1)


4.05
(1)Net income


35,473



34,197



36,951



49,116



50,755Net income per shareBasic


2.35



2.51



2.73



3.76



3.93Diluted


2.33



2.50



2.73
(1)


3.76
(1)


3.93
(1)Total assets


748,032



609,831



603,699



404,577



446,574Net assets


344,644



305,872



298,731



223,273



291,041Long-term debt, less current
    portion


16,048



5,968



8,019



16,340



21,509Shareholders equity


318,464



284,783



269,421



218,447



285,290Capital stock, net of treasury
    stock


63,988



72,847



71,512



61,891



70,269Weighted average common stock
    outstanding, diluted (in thousands of shares)


15,208



13,755



13,520



13,055



12,931     (1)
    
    The disposition of our companys financial services segment
    in 2006 resulted in discontinued operations. Accordingly, prior
    period financial statements have been reclassified to reflect
    this change. Please refer to the discussion in Note 3 to
    our consolidated financial statements included in this annual
    report. In 2006, we reported discontinued operations and,
    accordingly, we reclassified all years presented to give effect
    to the comparative presentation of those discontinued
    operations. We use income before discontinued operations as the
    control number in determining whether potential common shares
    are dilutive or anti-dilutive for purposes of computed diluted
    earnings per share for each year presented. Because we are
    reclassifying prior years financial statements for the
    presentation of discontinued operations, diluted earnings per
    share may not be consistent with that which was originally
    presented. 4




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##### Table of Contents



Selected
    Financial Data
    (Stated in Canadian dollars  Calculated in accordance
    with U.S. GAAP)
    (in thousands, other than per share amounts)
  Fiscal Years Ended December 31
  2006


2005(1)


2004(1)


2003(1)


2002(1)Revenues

$
458,544


$
384,050


$
187,438


$



$
Operating income (loss)


42,937



31,158



15,133



(2,069
)


(1,803
)Income (loss) from continuing
    operations


31,593



27,734



12,797



1,723



(1,572
)Income (loss) from discontinued
    operations


(1,620
)


(2,420
)


24,176



47,393



52,327Income (loss) from continuing
    operations per shareBasic


2.10



2.04



0.95



0.13



(0.12
)Diluted


2.08



2.03



0.95
(1)


0.13



(0.12
)(1)Income (loss) from discontinued
    operations per shareBasic


(0.11
)


(0.18
)


1.79



3.63



4.05Diluted


(0.11
)


(0.18
)


1.79
(1)


3.63
(1)


4.05
(1)Net income


29,973



25,314



36,973



49,116



50,755Net income per shareBasic


1.99



1.86



2.74



3.76



3.93Diluted


1.97



1.85



2.74
(1)


3.76
(1)


3.93
(1)Total assets


748,032



610,250



604,243



401,235



445,342Net assets


336,294



295,338



297,581



218,401



289,809Long-term debt, less current
    portion


16,048



6,092



8,143



16,340



21,509Shareholders equity


310,114



274,249



268,271



213,575



284,058Capital stock, net of treasury
    stock


63,941



72,847



71,512



61,891



70,269Weighted average common stock
    outstanding, diluted (in thousands of shares)


15,208



13,755



13,520



13,055



12,931     (1)
    
    The disposition of our companys financial services segment
    in 2006 resulted in discontinued operations. Accordingly, prior
    period financial statements have been reclassified to reflect
    this change. Please refer to the discussion in Note 3 to
    our consolidated financial statements included in this annual
    report. In 2006, we reported discontinued operations and,
    accordingly, we reclassified all years presented to give effect
    to the comparative presentation of those discontinued
    operations. We use income before discontinued operations as the
    control number in determining whether potential common shares
    are dilutive or anti-dilutive for purposes of computed diluted
    earnings per share for each year presented. Because we are
    reclassifying prior years financial statements for the
    presentation of discontinued operations, diluted earnings per
    share may not be consistent with that which was originally
    presented.  Reconciliation
    to United States Generally Accepted Accounting
    Principles
    Disclosure
    of Exchange Rate History
   5




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##### Table of Contents



Years Ended December 31,2006


2005


2004


2003


2002End of period


0.8582



0.8577



0.8310



0.7738



0.6329High for period


0.9100



0.8751



0.8493



0.7738



0.6619Low for period


0.8528



0.7853



0.7177



0.6349



0.6200Average for period


0.8822



0.8254



0.7682



0.7138



0.6368     High


Low2006September


0.9047



0.8871October


0.8965



0.8783November


0.8872



0.8715December


0.8759



0.85812007January


0.8586



0.8457February


0.8631



0.8437March 1 to March 15


0.8557



0.8467     B.
    Capitalization
    and Indebtedness    C.
    Reasons
    for the Offer and Use of Proceeds    D.
    Risk
    Factors         6




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##### Table of Contents



Risk
    Factors Relating to Our Industrial Plant Engineering and
    Equipment Supply Business
  A
    downturn in the economy could reduce the demand for our
    industrial plant engineering and equipment supply business and
    therefore may have a material adverse effect on our financial
    results.
    Any
    significant disruption of our operations may harm our business
    reputation and cause an adverse effect on our financial
    results.
    We are
    exposed to political, economic, legal, operational and other
    risks as a result of our global operations, which may negatively
    effect our business, results of operations, financial condition
    and cash flow.
   7




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The cost
    of raw materials could have a material adverse effect on our
    financial condition and results of operations.
  and/or
  We are
    subject to risks associated with changing technology and
    manufacturing techniques, which could place us at a competitive
    disadvantage.
    Our
    competitors include firms traditionally engaged in the
    industrial plant engineering and equipment supply
    business.
  and/or
  Our risk
    management strategies leave us exposed to unidentified or
    unanticipated risks which could impact our risk management
    strategies in the future and could negatively affect our results
    of operation and financial condition.
    A rise in
    inflation may negatively affect our business, results of
    operations and financial condition.
    We are
    exposed to legal risks in our business which are often difficult
    to assess or quantify. We may incur significant legal expenses
    in defending against any litigation.
   8




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##### Table of Contents



Some of
    our subsidiaries operating in the industrial plant engineering
    and equipment supply business are staffed by a unionized
    workforce, and union disputes and other employee relations
    issues may materially adversely affect our financial
    results.
    We may
    not be able to protect the confidentiality or unique aspects of
    our technology, which would reduce our competitive
    advantage.
    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
    Articles contain indemnification provisions and we have entered
    into agreements indemnifying our officers and directors against
    all costs, charges and expenses incurred by them.
    Certain
    factors may inhibit, delay or prevent a takeover of our company
    which may adversely affect the price of our common
    stock.
   9




---



##### Table of Contents



Fluctuations
    in interest rates and foreign currency exchange rates may affect
    our results of operations and financial condition.
      ITEM 4
    Information
    on the Company  A.
    History
    and Development of the Company  Companies
    Act of 1934 Canada
    Business Corporations Act Business Corporations Act Business Corporations Act
  B.
    Business
    Overview    Form 6-K
   10




---



##### Table of Contents



2006


2005(1)


2004(1)(In thousands)Europe

$
121,846


$
88,539


$
40,297Canada






29



Americas


79,152



27,601



40,628Asia


229,387



243,233



96,503Africa


20,712



10,267



10,010Other


7,447



14,381



Total

$
458,544


$
384,050


$
187,438     (1)
    
    The disposition of our companys financial services segment
    in 2006 resulted in discontinued operations. Accordingly, prior
    period financial statements have been reclassified to reflect
    this change. Please refer to Note 3 to our consolidated
    financial statements included in this annual report.  Description
    Of Our Industrial Plant Engineering And Equipment Supply
    Business
    scale-up
   11




---



##### Table of Contents



Business
    Activities  Cement
            Business
    Activities  Coal and Minerals
        Recent
    Developments
     12




---



##### Table of Contents



Expanding
    Low Cost Platforms
    Global
    Risk Control
    Joint
    Venture in Russia
      Research
    and Development
      2 2 2
    2 2
       13




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##### Table of Contents



Order
    Intake and Backlog
          Industry
    Description
    Competition
      
    complete line competitors which are companies providing either a
    similar, or even broader range of equipment services to the
    cement industry; and
    part line competitors which are companies focusing on a smaller
    range of equipment and technologies.        Sales and
    Distribution Channels
     14




---



##### Table of Contents



Patents
    and Licenses
      Description
    of Our Royalty Interest and Financial Services and Merchant
    Banking Business
      Discontinued
    Operations  Financial Services and Merchant Banking
    Business
       15




---



##### Table of Contents



C.
    Organizational
    Structure    Jurisdiction ofIncorporation orName of Wholly-Owned Subsidiary

OrganizationRobabond Holding AG


SwitzerlandMFC Commodities AG


SwitzerlandKHD Humboldt Wedag International
    Holdings GmbH


AustriaHumboldt Wedag Inc.


USAHumboldt Wedag India Ltd.


IndiaHumboldt Wedag Australia Pty
    Ltd.


AustraliaEKOF Flotation GmbH


GermanyKHD Humboldt Wedag (Shanghai)
    International Industries Limited


ChinaNew Image Investment Company
    Limited


USAInverness Enterprises Ltd.


Canada32565 Yukon Inc.


CanadaKHD Humboldt Wedag (Cyprus) Limited


Cyprus     Jurisdiction of



OurIncorporation or

Owner

BeneficialName of Non-Wholly-Owned Subsidiary

Organization

of Interests

ShareholdingSasamat Capital Corporation


Canada


KHD Humboldt Wedag
    International Ltd.


58.7
%(1)KHD Humboldt Wedag International
    (Deutschland) AG


Germany


KHD Humboldt Wedag 
    International Ltd.


84.2
%(1)KHD Humboldt Wedag GmbH


Germany


KHD Humboldt Wedag 
    International (Deutschland) AG


84.2
%Humboldt Wedag Coal &
    Minerals GmbH


Germany


KHD Humboldt Wedag
    International (Deutschland) AG


84.2
%KHD S.A.


Switzerland


KHD Humboldt Wedag
    International (Deutschland) AG


84.2
%Zementanlagenbau Dessau GmbH


Germany


KHD Humboldt Wedag GmbH


84.2
%(1)Altmark Industriepark AG


Germany


KHD Humboldt Wedag GmbH


79.8
%(1)Humboldt Wedag (S.A.) (Pty)
    Ltd.


South Africa


KHD Humboldt Wedag GmbH


61.9
%ZAB Industrietechnik &
    Service GmbH


Germany


Zementanlagenbau Dessau GmbH


84.2
%(1)Tianjin Humboldt Wedag LiyuanMachinery & Technology
    Ltd.


China


KHD Humboldt Wedag International
    Ltd.


70
%KHD Humboldt Wedag (Shanghai)
    International Industries Limited


China


MFC & KHD International
    Industries Limited


100
%(1)     (1)
    
    Held by our company
    and/or our
    subsidiaries. 16




---



##### Table of Contents



D.
    Property,
    Plant and Equipment  Office
    Space
        Royalty
    Interest  Wabush Iron Ore Mine
  sub-lease
  sub-lease, sub-lease
       17




---



##### Table of Contents



Real
    estate held for sale
        ITEM 4A
    Unresolved
    Staff Comments    ITEM 5
    Operating
    and Financial Review and Prospects     18




---



##### Table of Contents



A.
    Operating
    Results            2 3
  15-year
     19




---



##### Table of Contents



Reclassification
    as a Result of Discontinued Operations
   20




---



##### Table of Contents



Summary
    of Quarterly Results
    December 31,


September 30,


June 30,


March 31,2006


2006(1)


2006(1)


2006(1)(Canadian dollars in thousands, except per share amounts)Revenues

$
187,171


$
108,783


$
91,077


$
71,513Gross profit


30,382



16,805



13,986



10,363Income from continuing operations


14,284



11,499



9,038



2,272Income from continuing operations,
    per shareBasic


0.95



0.75



0.59



0.15Diluted


0.94



0.75



0.59



0.15Net income


12,514



11,520



8,176



3,263Net income per shareBasic


0.83



0.75



0.54



0.22Diluted


0.82



0.75



0.54



0.22     (1)
    
    The disposition of our companys financial services segment
    in 2006 resulted in discontinued operations. Accordingly, prior
    period financial statements have been reclassified to reflect
    this change. Please refer to Note 3 to our consolidated
    financial statements included in this annual report.  December 31,


September 30,


June 30,


March 31,2005(1)


2005(1)


2005(1)


2005(1)(Canadian dollars in thousands, except per share amounts)Revenues

$
124,557


$
110,846


$
86,595


$
62,052Gross profit


19,060



5,707



17,465



9,526Income from continuing operations


12,494



5,397



5,296



4,572Income from continuing operations,
    per shareBasic


0.92



0.40



0.39



0.34Diluted


0.91



0.39



0.39



0.34Net income


5,721



6,008



16,484



5,984Net income per shareBasic


0.42



0.44



1.21



0.44Diluted


0.42



0.44



1.20



0.44     (1)
    
    The disposition of our companys financial services segment
    in 2006 resulted in discontinued operations. Accordingly, prior
    period financial statements have been reclassified to reflect
    this change. Please refer to Note 3 to our consolidated
    financial statements included in this annual report.  Summary
    of Fiscal 2006
  Changes
    in Financing and Capital Structure
    Acquisitions
    and Divestitures
     21




---



##### Table of Contents



2 3
  15-year
             22




---



##### Table of Contents



Overview
    of 2006 Results
      Year Ended December 312006


2005(1)


2004(1)(Canadian dollars in millions, except per share amounts)Revenues

$
458.5


$
384.1


$
187.4Cost of revenues


387.0



332.3



156.8Other operating income


9.0



11.7



10.0General and administrative
    expenses (including stock based compensation)


37.6



32.3



25.5Income from continuing operations


37.1



27.8



12.8Basic earnings per share,
    continuing operations


2.46



2.04



0.94Diluted earnings per share,
    continuing operations


2.44



2.03



0.94     (1)
    
    The disposition of our companys financial services segment
    in 2006 resulted in discontinued operations. Accordingly, prior
    period financial statements have been reclassified to reflect
    this change. Please refer to Note 3 to our consolidated
    financial statements included in this annual report.    Year
    Ended December 31, 2006 Compared to the Year Ended
    December 31, 2005
   23




---



##### Table of Contents



24




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to the Year Ended
    December 31, 2004
                       25




---



##### Table of Contents



B.
    Liquidity
    and Capital Resources    December 31,


December 31,2006


2005


2006


2005(U.S. Dollars in


(Canadian Dollars in thousands)thousands)(for informationpurposes only)Cash and cash equivalents

$
204,678


$
94,667


$
238,511


$
110,372Restricted securities


16,180



21,500



18,855



25,067Total assets


641,920



523,054



748,032



609,831Long-term debt, less current
    portion


13,772



5,119



16,048



5,968Shareholders equity


273,288



244,259



318,464



284,783             Operating
    Activities
   26




---



##### Table of Contents



Investing
    Activities
    Financing
    Activities
      Discontinued
    Operations
    Foreign
    Currency
            Derivative
    Instruments
   27




---



##### Table of Contents



Inflation
    Application
    of Critical Accounting Policies
      Revenue
    Recognition
  percentage-of-completion percentage-of-completion and/or contract-in-progress
  Provisions
    for Assets Held for Sale
    work-in-progress
  work-in-progress,
  hold-and-wait
  Valuation
    of Securities
   28




---



##### Table of Contents



and/or
  Warranty
    Costs
    Pension
    Benefits
      Income
    Taxes
      Changes
    in Accounting Policies including Initial Adoption
    C.
    Research
    and Development, Patents and Licenses, Etc.    D.
    Trend
    Information   29




---



##### Table of Contents



E.
    Off-balance
    Sheet Arrangements    Disclosure of
    Guarantees.
     F.  Tabular
    Disclosure of Contractual Obligations  Payments
    Due by Period
    (Canadian dollars in thousands)
  Contractual Obligations as

Less than

2  3

4  5

More thanat December 31, 2006

1 Year

Years

Years

5 Years

TotalLong-term debt
    obligations(1)

$
5,356


$
3,551


$
12,497


$



$
21,404Operating lease obligations


3,839



3,134



3,084



6



10,063Purchase
    obligations(2)


214,921















214,921Other long-term liabilities
    reflected on the balance sheet under
    GAAP(3)


1,817



727











2,544Total

$
225,933


$
7,412


$
15,581


$
6


$
248,932     (1)
    
    Principal amounts only(2)
    
    Purchases for industrial and engineering contracts(3)
    
    Not including pension obligations  G.
    Safe
    Harbor   30




---



##### Table of Contents



ITEM 6
    Directors,
    Senior Management and Employees  A.
    Directors
    and Senior Management    Date of

Expirationcommencement of

of termoffice with our

of office withName and age

Present position with our company

company

our companyMichael J. Smith (58)


Chairman, Chief Financial Officer
    and Secretary



1986



2008Director



1986



N/AJames Busche (48)


President and Chief Executive
    Officer



2006



N/ADr. Shuming
    Zhao(1)(2)(3) (52)


Director



2004



2007Dr. Kelvin K.
    Yao(1)(2)(3) (54)


Director



2004



2007Silke
    Brossmann(1)(2)(3) (38)


Director



2003



2008Indrajit
    Chatterjee(2)(3)
    (61)


Director



2005



2009     (1)
    
    Member of our audit committee.(2)
    
    Member of our compensation committee.(3)
    
    Member of our nominating and corporate governance committee.  Michael
    J. Smith  President, Secretary and
    Director
      James
    Busche  Chief Executive Officer
    Dr. Shuming
    Zhao  Director
    Dr. Kelvin
    K. Yao  Director
   31




---



##### Table of Contents



Silke
    Brossmann  Director
    Indrajit
    Chatterjee  Director
    B.
    Compensation    Executive
    Compensation
    SUMMARY
    COMPENSATION TABLE
  Long Term CompensationSecurities UnderAnnual
    Compensation(1)

Other Annual

Options/SARs

All otherName and Principal Position

Salary

Bonus

Compensation

Granted

CompensationMichael J.
    Smith(2)

$
268,887



Nil



Nil



55,000
(4)


$130,514Chairman, Chief Financial
    Officer,
    Secretary and DirectorJames
    Busche(3)

$
102,069



Nil



Nil



Nil



NilChief Executive Officer and
    PresidentGeorge Zimmerman

$
281,342



Nil


$
35,593



25,000
(4)


$32,385Senior Vice PresidentHermann Kroger

$
216,607


$
35,593


$
34,169



25,000
(4)


$28,357Vice President, EngineeringRudolf Pich

$
232,746



Nil


$
35,593



25,000
(4)


$29,210Vice President, Sales and
    Marketing     (1)
    
    On a cash basis, unless otherwise stated.(2)
    
    Mr. Smith resigned as our President and Chief Executive
    Officer effective March 7, 2006.(3)
    
    Mr. Busche was appointed our Chief Executive Officer
    effective March 7, 2006.(4)
    
    Represents stock options granted effective May 17, 2006
    with an exercise price of U.S.$26.11 per share until
    May 17, 2016. The options have vesting periods from one to
    three years. 32




---



##### Table of Contents



Directors
    Compensation
    Employment
    Agreements and Termination of Employment or Change of
    Control
        C.
    Board
    Practices  Business Corporations Act.
   33




---



##### Table of Contents



D.
    Employees     E.
    Share
    Ownership    Number ofNumber of



Stock OptionsName

Common Shares



to PurchaseOffice Held

Beneficially Owned

Percentage(1)

Common SharesMichael J. Smith


85,000



*
%

55,000, exercise priceChairman, Chief Financial Officer,









of U.S.$26.11, expirySecretary and Director









date of May 17, 2016James
    Busche(2)


Nil



Nil


NilChief Executive Officer and
    PresidentDr. Shuming Zhao


Nil



Nil


NilDirectorDr. Kelvin K. Yao


Nil



Nil


NilDirectorSilke Brossmann


Nil



Nil


NilDirectorIndrajit Chatterjee


Nil



Nil


NilDirector     *
    
    Less than one percent (1%)(1)
    
    Based on 14,753,191 common shares issued and outstanding as at
    March 15, 2007.(2)
    
    James Busche was appointed our Chief Executive Officer and
    President effective March 7, 2006. 34




---



##### Table of Contents



Stock
    Option Plan
    ITEM 7
    Major
    Shareholders and Related Party Transactions  A.
    Major
    Shareholders    Name

Amount Owned

Percent of
    Class(1)Peter Kellogg


3,141,550
(2)


21.3%FMR Corp.


1,016,285



6.9%Mass Financial Corp.


781,128



5.3%     (1)
    
    Based on 14,753,191 common shares issued and outstanding on
    March 15, 2007.(2)
    
    In his public filings, Mr. Kellogg disclaims beneficial
    ownership of 2,821,550 of the shares, or approximately 18.6% of
    our issued and outstanding common shares.            B.
    Related
    Party Transactions   35




---



##### Table of Contents



and/or
  Continuing
    Operations
                Discontinued
    Operations
   36




---



##### Table of Contents



ITEM 8
    Financial
    Information  A.
    Consolidated
    Statements and Other Financial Information    Financial
    Statements filed as part of the Annual Report:
                    Legal
    Proceedings
   37




---



##### Table of Contents



Dividend
    Distributions
    B.
    Significant
    Changes    Form 6-K
         38




---



##### Table of Contents



ITEM 9
    The
    Offer and Listing  A
    Offer and
    Listing Details    Nasdaq Global SelectHigh (U.S.$)


Low (U.S.$)Annual Highs and Lows2002


11.51



6.452003


18.42



6.812004


27.65



15.252005


26.52



15.502006


44.20



20.68Quarterly Highs and
    Lows2005First Quarter


22.97



17.03Second Quarter


20.02



17.05Third Quarter


26.52



17.59Fourth Quarter


25.90



18.002006First Quarter


26.46



21.29Second Quarter


29.86



23.02Third Quarter


33.01



25.36Fourth Quarter


44.20



30.70Monthly Highs and
    Lows2006September


32.65



29.03October


35.88



30.70November


41.16



33.50December


44.20



37.602007January


41.06



37.61February


40.64



37.71March (to March 15, 2007)


40.32



36.00   201-680-5258; 201-680-4604).
  B.
    Plan of
    Distribution    C.
    Markets   39




---



##### Table of Contents



D.
    Selling
    Shareholders    E.
    Dilution    F.
    Expenses
    of the Issue    ITEM 10
    Additional
    Information  A.
    Share
    Capital    B.
    Notice of
    Articles and Articles            winding-up
    Business
    Corporations Act.
   40




---



##### Table of Contents



Investment Canada Act Investment Canada Act
      C.
    Material
    Contracts                           41




---



##### Table of Contents



42




---



##### Table of Contents



43




---



##### Table of Contents



D.
    Exchange
    Controls    Investment Canada Act Investment Canada
    Act
  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.
  Investment Canada Act Investment
    Canada Act Investment Canada
    Act Investment Canada Act
  Investment Canada
    Act Investment Canada Act
  Investment Canada Act
        E.
    Taxation  Material
    Canadian Federal Income Tax Consequences
  Income
    Tax Act
  Income Tax Act Income Tax Act
 44




---



##### Table of Contents



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
  Income Tax Act
  Income Tax Act
  Capital
    Gains
    Material
    United States Federal Income Tax Consequences
      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
 45




---



##### Table of Contents



U.S. Holders
    Distributions
    Capital
    Gains
    Foreign
    Tax Credit
  dollar-for-dollar year-by-year 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
   46




---



##### Table of Contents



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.    G.
    Statement
    by Experts    H.
    Documents
    on Display  Suite 800-885 West
  I.
    Subsidiary
    Information.    Jurisdiction ofIncorporation orName of Wholly-Owned Subsidiary

OrganizationRobabond Holding AG


SwitzerlandMFC Commodities AG


SwitzerlandKHD Humboldt Wedag International
    Holdings GmbH


AustriaHumboldt Wedag Inc.


USAHumboldt Wedag India Ltd.


IndiaHumboldt Wedag Australia Pty
    Ltd.


AustraliaEKOF Flotation GmbH


GermanyKHD Humboldt Wedag (Shanghai)
    International Industries Limited


ChinaNew Image Investment Company
    Limited


USAInverness Enterprises Ltd.


Canada32565 Yukon Inc.


CanadaKHD Humboldt Wedag (Cyprus) Limited


Cyprus  47




---



##### Table of Contents



Jurisdiction of



OurIncorporation or



BeneficialName of Non-Wholly-Owned Subsidiary

Organization

Owner of Interests

ShareholdingSasamat Capital Corporation

Canada

KHD Humboldt Wedag International
    Ltd.


58.7
%(1)KHD Humboldt Wedag International
    (Deutschland) AG

Germany

KHD Humboldt Wedag International
    Ltd.


84.2
%(1)KHD Humboldt Wedag GmbH

Germany

KHD Humboldt Wedag International
    (Deutschland) AG


84.2
%Humboldt Wedag Coal &
    Minerals GmbH

Germany

KHD Humboldt Wedag International
    (Deutschland) AG


84.2
%KHD S.A.

Switzerland

KHD Humboldt Wedag International
    (Deutschland) AG


84.2
%Zementanlagenbau Dessau GmbH

Germany

KHD Humboldt Wedag GmbH


84.2
%(1)Altmark Industriepark AG

Germany

KHD Humboldt Wedag GmbH


79.8
%(1)Humboldt Wedag (S.A.) (Pty)
    Ltd.

South Africa

KHD Humboldt Wedag GmbH


61.9
%ZAB Industrietechnik &
    Service GmbH

Germany

Zementanlagenbau Dessau GmbH


84.2
%(1)Tianjin Humboldt Wedag Liyuan
    Machinery & Technology Ltd.

China

KHD Humboldt Wedag International
    Ltd.


70
%KHD Humboldt Wedag (Shanghai)
    International Industries Limited

China

MFC & KHD International
    Industries Limited


100
%(1)     (1)
    
    Held by our company
    and/or our
    subsidiaries.  ITEM 11
    Quantitative
    and Qualitative Disclosures About Market Risk      Derivatives
    Interest
    Rate Risk
   48




---



##### Table of Contents



As at December 31, 2006Carrying


Fair


Expected Cash
    Flow(1)Value


Value


2007


2008


2009


2010


2011


Thereafter(in thousands)Investments(2)

$
90,866


$
90,866


$
4,031


$
4,031


$
4,031


$
4,031


$
10,089


$
139,241Note receivable


8,000



8,000



8,376



















Long-term payable


2,545



2,545



1,875



772















Debt obligations


15,246



15,246



1,080



434



2,550



306



12,803



     (1)
    
    Including interest and dividends where applicable.(2)
    
    Investments consist of investment in the preferred shares of a
    former subsidiary, net.  As at December 31, 2005Carrying


Fair


Expected Cash
    Flow(1)Value


Value


2006


2007


2008


2009


2010


Thereafter(in thousands)Investments(2)

$
34,936


$
34,936


$
4,900


$
4,900


$
4,900


$
4,900


$
4,900


$
34,936Loans(3)


6,820



6,820



306



478



478



478



478



10,213Debt obligations


9,708



9,786



4,286



153



460



2,720



307



4,709     (1)
    
    Including interest and dividends where applicable.(2)
    
    Investments consist of debt securities and preferred stock.(3)
    
    Unsecured loans.  Foreign
    Currency Exchange Rate Risk
    As at December 31, 2006Carrying


Fair


Expected Cash
    Flow(1)Value


Value


2007


2008


2009


2010


2011


Thereafter(in thousands)Investments(2)

$
2,285


$
2,285


$
1,713


















$
572Long-term
    receivable(3)


10,346



10,346



215



8,767



1,841











Debt
    obligations(4)


22,036



22,036



6,656



1,881



2,550



306



12,803



     (1)
    
    Including interest and dividends where applicable.(2)
    
    Investments consist of and equity securities, which are
    denominated in U.S. dollars, Euros or Indian rupees.(3)
    
    Long-term receivables are denominated in Euros.(4)
    
    Debt obligations consist of the bonds and other debt, all of
    which are denominated in U.S. dollars or Euros.  49




---



##### Table of Contents



As at December 31, 2005Carrying


Fair


Expected Future Cash
    Flow(1)Value


Value


2006


2007


2008


2009


2010


Thereafter(in thousands)Investments(2)

$
3,047


$
3,047


$
2,499


















$
548Loans(3)


9,311



9,311



2,935



478



478



478



478



10,213Debt
    obligations(4)


9,708



9,786



4,286



153



460



2,720



307



4,709     (1)
    
    Including interest and dividends where applicable.(2)
    
    Investments consist of debt securities and equity securities,
    both of which are denominated in U.S. dollars or Euros.(3)
    
    Loans are denominated in U.S. dollars or Euros.(4)
    
    Debt obligations consist of the bonds and other debt, all of
    which are denominated in U.S. dollars or Euros.  Equity
    Price Risk
    As at December 31, 2006Carrying


Fair


Expected Cash
    Flow(1)Value


Value


2007


2008


2009


2010


2011


Thereafter(in thousands)Investments(2)

$
96,304


$
96,304


$
8,822


$
4,031


$
4,031


$
4,031


$
10,089


$
113,675     (1)
    
    Including interest and dividends where applicable.(2)
    
    Investments consist of equity securities and preferred shares in
    a former subsidiary, net.  As at December 31, 2005Carrying


Fair


Expected Future Cash
    Flow(1)Value


Value


2006


2007


2008


2009


2010


Thereafter(in thousands)Investments(2)

$
37,983


$
37,983


$
7,399


$
4,900


$
4,900


$
4,900


$
4,900


$
35,484     (1)
    
    Including interest and dividends where applicable.(2)
    
    Investments consist of equity securities.  ITEM 12
    Description
    of Securities Other Than Equity Securities   PART II  ITEM 13
    Defaults,
    Dividend Arrearages and Delinquencies    ITEM 14
    Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds    ITEM 15
    Controls
    and Procedures  Rule 13a-15
 50




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##### Table of Contents



Internal Control 
    Integrated Framework.
      ITEM 16
    [Reserved]  ITEM 16A
    Audit
    Committee Financial Expert   51




---



##### Table of Contents



ITEM 16B
    Code
    of Ethics  Code of
    Ethics
                and/or
  Form 20-F
  ITEM 16C
    Principal
    Accountant Fees and Services    Audit
    Fees
   52




---



##### Table of Contents



Audit
    Related Fees
    Tax
    Fees
    All Other
    Fees
    Audit
    Committee Pre-approved Procedures
  Rule 2-01 Regulation S-X.
    ITEM 16D
    Exemptions
    from the Listing Standards for Audit Committees    ITEM 16E
    Purchases
    of Equity Securities by Our Company and Affiliated
    Purchasers    Total Number ofShares Purchased

Maximum Number ofTotal Number

Average Price

as Part of Publicly

Shares that May Yetof Shares

Paid per

Announced Plans

Be Purchased UnderPeriod

Purchased

Share

or Programs

the Plans or ProgramsNovember, 2006


790,000


U.S.$
34.88



Nil



Nil  53




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##### Table of Contents



PART III  ITEM 17
    Financial
    Statements  Financial
    Statements Filed as Part of the Annual Report:
                ITEM 18
    Financial
    Statements   54




---



##### Table of Contents



Report of
    Independent Registered Chartered Accountants
                        Comment
    by Independent Registered Chartered Accountants on
    Canada  United States of America Reporting
    Difference
         55




---



##### Table of Contents



Auditors
    Report
              
     56




---



##### Table of Contents



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            
     57




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 December 31,
    2006 and 2005
  2006


2005(Canadian Dollars in Thousands)ASSETSCurrent AssetsCash and cash equivalents

$
238,511


$
110,372Restricted cash


18,855



25,067Securities


4,791



2,499Loans






2,492Accounts receivable, trade


79,744



40,326Other receivables


39,505



21,334Inventories


102,694



42,638Contract deposits, prepaid and
    other


28,048



12,676Future income tax assets


889



8,117Current assets of discontinued
    operations






196,555Total current assets


513,037



462,076Non-current AssetsSecurities


647



847Loans and receivables


10,346



6,820Real estate held for sale


55,811



31,188Property, plant and equipment


3,488



11,880Investment in resource property


33,837



35,341Equity method investments


583



1,158Future income tax assets


39,417



13,925Investment in preferred shares of
    a former subsidiary


90,866



Non-current assets of discontinued
    operations






46,596Total non-current assets


234,995



147,755$
748,032


$
609,831LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and accrued
    expenses

$
282,671


$
150,001Notes payable


632



3,432Long-term debt, current portion


5,356



1,639Pension liabilities, current
    portion


1,939



1,736Provision for warranty costs,
    current portion


25,483



23,932Future income tax liability






286Current liabilities of
    discontinued operations






68,143Total current liabilities


316,081



249,169Long-term LiabilitiesLong-term debt, less current
    portion


16,048



5,968Pension liabilities, less current
    portion


33,280



29,828Provision for warranty costs, less
    current portion


8,445



5,162Deferred credit, future income tax
    assets


18,108



Future income tax liability


10,698



11,838Other long-term liabilities


728



269Long-term liabilities of
    discontinued operations






1,725Total long-term liabilities


87,307



54,790Total liabilities


403,388



303,959Minority Interests


26,180



21,089Commitments and Contingencies (see
    Note 17)Shareholders EquityCommon stock, without par value;
    authorized unlimited number issued and outstanding 
    2006: 17,244,068 and 2005: 16,146,261


140,617



98,483Treasury Stock 2006 and 2005:
    2,510,877


(76,629
)


(25,636
)Contributed surplus


2,376



Equity component of convertible
    debt






146Retained earnings


252,380



244,158Currency translation adjustments


(280
)


(32,368
)Total shareholders equity


318,464



284,783$
748,032


$
609,831    58




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF INCOME
    For the Years Ended December 31, 2006, 2005 and
    2004
  2006


2005


2004(Canadian Dollars in Thousands, ExceptEarnings Per Share)Revenues

$
458,544


$
384,050


$
187,438Cost of revenues


387,008



332,292



156,757Gross profit


71,536



51,758



30,681Other operating income:Resource property


6,823



5,214



5,395Real estate properties


2,222



6,437



4,5859,045



11,651



9,980General and administrative expense


35,268



32,251



25,528Stock-based
    compensation  general and administrative


2,376







Operating income


42,937



31,158



15,133Interest, net


3,479



(1,352
)


(1,279
)Other income (expense), net


6,513



6,225



1,337Income before income taxes and
    minority interests from continuing operations


52,929



36,031



15,191Recovery of (provision for) income
    taxes


(8,370
)


(2,085
)


3,460Income before minority interests
    from continuing operations


44,559



33,946



18,651Minority interests


(7,466
)


(6,187
)


(5,876
)Income from continuing operations


37,093



27,759



12,775Income (loss) from discontinued
    operations, net of tax


(1,620
)


6,438



24,176Net income

$
35,473


$
34,197


$
36,951Basic earnings (loss) per share from continuing
    operations

$
2.46


$
2.04


$
0.94 from discontinued
    operations

$
(0.11
)

$
0.47


$
1.79$
2.35


$
2.51


$
2.73Diluted earnings (loss) per share from continuing
    operations

$
2.44


$
2.03


$
0.94 from discontinued
    operations

$
(0.11
)

$
0.47


$
1.79$
2.33


$
2.50


$
2.73Weighted average number of common
    shares outstanding basic


15,081,206



13,609,348



13,520,221 diluted


15,207,726



13,754,693



13,520,221    59




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 For the
    Years Ended December 31, 2006, 2005 and 2004
  EquityComponentCommon Stock


Treasury Stock





of





CurrencyNumber of





Number of





Contributed


Convertible


Retained


TranslationShares


Amount


Shares


Amount


Surplus


Debt


Earnings


Adjustments


Total(Canadian Dollars in Thousands)Balance at December 31, 2003


15,529,181


$
92,250



(2,809,749
)

$
(30,359
)

$



$



$
173,674


$
(17,118
)

$
218,447Net income


























36,951







36,951Issuance of convertible debt,
    equity component






















186











186Shares issued for conversion of
    bonds


965,837



16,904















(40
)










16,864Repurchase of shares


(406,000
)


(10,058
)


























(10,058
)Shares re-issued as a result of
    liquidation of a subsidiary






(1,932
)


297,877



4,707



















2,775Translation adjustment






























4,920



4,920Pre-consolidation income of
    purchased subsidiaries


























81







81Adjustment to the recorded value of
    assets distributed


























(745
)






(745
)Balance at December 31, 2004


16,089,018



97,164



(2,511,872
)


(25,652
)






146



209,961



(12,198
)

$
269,421Net income


























34,197







34,197Repurchase of shares


(1,500
)


(34
)


























(34
)Shares issued for increase of
    equity interest in subsidiaries


58,743



1,353



























1,353Shares issued for cash










995



16



















16Translation adjustment






























(20,170
)


(20,170
)Balance at December 31, 2005


16,146,261



98,483



(2,510,877
)


(25,636
)






146



244,158



(32,368
)

$
284,783Net Income


























35,473







35,473Distribution of Mass Financial
    Corp. (See Notes 1 and 3)










1,571,128



10,878











(25,923
)


25,923



10,878Disposition of MFC Merchant Bank
    S.A.


























(1,328
)






(1,328
)Shares received as a partial
    consideration on disposition of MFC Merchant Bank S.A.


781,128



30,761



(1,571,128
)


(61,871
)


















(31,110
)Shares issued for conversion of
    bonds


146,301



4,128















(146
)










3,982Shares issued for increase of
    equity interest in a non-wholly-owned Canadian subsidiary


85,000



3,593



























3,593Shares issued for increase of
    equity interest in an equity method investee


13,105



449



























449Shares issued to extinguish debt


72,273



3,203



























3,203Stock-based compensation


















2,376















2,376Translation adjustment






























6,165



6,165Balance at December 31, 2006


17,244,068


$
140,617



(2,510,877
)

$
(76,629
)

$
2,376


$



$
252,380


$
(280
)

$
318,464    60




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the Years Ended December 31, 2006, 2005 and 2004
    (Canadian Dollars in Thousands)
  2006


2005


2004Cash flows from operating
    activitiesIncome from continuing operations

$
37,093


$
27,759


$
12,775Adjustments for:Amortization and depreciation


2,933



3,234



4,090Minority interests


7,466



6,187



5,876Gain on short-term securities


(1,038
)


(29
)


Gain on debt settlement






(3,021
)


(84
)Loss on real estate held for sale


4,431







Stock-based compensation


2,376







Changes in operating assets and
    liabilities, net of effects of acquisitions and dispositionsShort-term securities


(2,456
)


(1,018
)


Restricted cash


8,394



(14,038
)


(6,036
)Receivables


(36,623
)


(13,439
)


(6,054
)Inventories


(50,743
)


(38,650
)


(571
)Real estate held for sale






2,357



(330
)Accounts payable and accrued
    expenses


100,766



72,363



32,727Provision for warranty costs


1,408



19,575



(1,350
)Future income taxes


(1,919
)


(995
)


(4,409
)Contract deposits, prepaid and
    other


(12,588
)


5,378



(18,754
)Other


(4,057
)


573



(66
)Cash flows provided by operating
    activities


55,443



66,236



17,814Cash flows from investing
    activitiesNet decrease (increase) in loans






6,508



(8,958
)Sales (purchases) of long-term
    securities, net


(77
)


3



(3,722
)Purchases of property, plant and
    equipment


(2,863
)


(2,573
)


(2,189
)Disposition of subsidiaries, net
    of cash disposed


31,081







Purchases of subsidiaries, net of
    cash acquired


(8,959
)


(4,078
)


15,412Other


(1,028
)






Cash flows (used in) provided by
    investing activities


18,154



(140
)


543Cash flows from financing
    activitiesBorrowings


32,883







7,600Debt repayments


(20,632
)


(7,847
)


(5,196
)Issuance (repurchase) of common
    stock, net






(34
)


(10,058
)Issuance of shares by a subsidiary










1,392Other


215



(424
)


Cash flows (used in) provided by
    financing activities


12,466



(8,305
)


(6,262
)Cash flows (used in) provided by
    operating activities of discontinued operations


(12,642
)


1,198



42,396Cash flows (used in) provided by
    investing activities of discontinued operations


(100,083
)


(5,124
)


13,607Cash flows (used in) provided by
    financing activities of discontinued operations


18,241



(18,785
)


6,570Exchange rate effect on cash and
    cash equivalents


20,382



(24,252
)


(4,398
)Increase in cash and cash
    equivalents


11,961



10,828



70,270Cash and cash equivalents,
    beginning of year


226,550



215,722



145,452Cash and cash equivalents, end of
    year

$
238,511


$
226,550


$
215,722Cash and cash equivalents at end
    of year consisted of:Continuing operations

$
238,511


$
110,372


$
70,876Discontinued operations






116,178



144,846$
238,511


$
226,550


$
215,722       61




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 1.
    The
    Company and Summary of Significant Accounting Policies    Nature
    of Operations
              Principles
    of Consolidation
  Consolidation of Variable Interest
    Entities.
     62




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Cash
    and Cash Equivalents
      Securities
        Loans
    and Receivables
         63




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Allowance
    for Credit Losses
    loan-by-loan
  Derivative
    Financial Instruments
    Inventories
  work-in-progress first-in
  2006


2005Raw materials

$
6,318


$
4,812Work in progress


96,086



37,536Finished goods


290



290$
102,694


$
42,638   Real
    Estate Held for Sale
    Property,
    Plant and Equipment
   64




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Lives

MethodBuildings

25 years


straight-lineInvestment property (building
    portion)

25 years


straight-lineManufacturing plant equipment

3 to 20 years


straight-lineOffice equipment

3 to 10 years


straight-line       Resource
    Property
    Asset
    Retirement Obligations
  Asset Retirement Obligations. period-to-period
  Goodwill
   65




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Convertible
    Debt
    Revenue
    Recognition
        Provision
    for Warranty Costs
    Research
    and Development Costs
    Employee
    Future Benefits
    Foreign
    Currency Translation
     66




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Taxes
    on Income
        Stock-Based
    Compensation
  Stock-based Compensation and Other
    Stock-based Payments
  Earnings
    Per Share
      Supplemental
    Disclosure with Respect to Consolidated Statement of
    Income
  2006


2005


2004Foreign currency translation
    gains, net


$2,320


$
1,876


$
1,306Gain on securities, net


1,038



29



Fee income


1,732



374



409Gain on debt settlement






3,020



Other income


3,921



1,316



418Write-off of a receivable


(2,369
)






Other expenses


(129
)


(390
)


(796
)$6,513


$
6,225


$
1,337  67




---



##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Measurement
    Uncertainty
    Supplemental
    Disclosure with Respect to Consolidated Statement of
    Income
  2006


2005


2004Foreign currency translation
    gains, net


$2,320


$
1,876


$
1,306Gain on securities, net


1,038



29



Fee income


1,732



374



409Gain on debt settlement






3,020



Other income


3,921



1,316



418Impairment of other receivable


(2,369
)






Other expenses


(129
)


(390
)


(796
)Other income (expense), net


$6,513


$
6,225


$
1,337   Supplemental
    Disclosure with Respect to Cash Flows
        Reclassifications
   68




---



##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Future
    Changes to Accounting Standards
  Financial
    Instruments
  Financial
    Instruments  Recognition and Measurement
  Financial
    Instruments  Disclosure and Presentation
  Financial
    Instruments  Disclosures, Financial Instrument  Recognition and Measurement, Financial Instruments 
    Presentation, Hedges.
  Financial
    Instruments  Presentation,
    Hedges
  Hedges
  Shareholders
    Equity
  Comprehensive
    Income
  Surplus Equity. Comprehensive Income.
     69




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Accounting
    Changes
    Investments
    Variable
    Interest Entities
  Determining the variability to be considered in
    Applying AcG-15, Consolidation of Variable Interest Entities,
  Note 2.
    Acquisitions
    of Subsidiaries       70




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 3.
    Discontinued
    Operations  Disposition of Financial Services
    Operations  Related Party Transactions,
  2 3 Financial Instruments 
    Disclosure and Presentation .
    15-year
   71




---



##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
              72




---



##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
          Note 4.
    Securities        Note 5.
    Loans and
    Long-Term Receivables  2006


2005Loans, collateralized by traded
    securities, receivables, inventories and other tangible assets,
    due from two companies ($6,820 from one company) at
    December 31, 2005

$



$
9,312Payment-in-kind
    notes


10,346



$
10,346


$
9,312Current

$



$
2,492Long-Term


10,346



6,820$
10,346


$
9,312     payment-in-kind 6-month
 73




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Note 6.
    Other
    Receivables  2006


2005Investment income

$



$
1,285Sale of MFC Bank (See Note 3)


15,711



Government taxes


4,868



4,895Due from affiliates


5,683



10,545Royalties from resource property


5,142



Sale of an investment


1,962



Other


6,139



4,609$
39,505


$
21,334     Note 7.
    Contract
    Deposits, Prepaid and Other  2006


2005Prepayments and deposits for
    inventories on construction contracts

$
23,479


$
10,616Prepaids, deposits and other


4,569



2,060$
28,048


$
12,676   Note 8.
    Property,
    Plant and Equipment  2006


2005Accumulated


Net





Accumulated


NetCost


Depreciation


Book Value


Cost


Depreciation


Book ValueBuildings

$
2,537


$
1,330


$
1,207


$
2,083


$
1,033


$
1,050Investment property














12,713



4,775



7,938Manufacturing plant and equipment


8,047



5,890



2,157



6,106



3,265



2,841Office equipment


156



32



124



58



7



51$
10,740


$
7,252


$
3,488


$
20,960


$
9,080


$
11,880    74




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 9.
    Contracts
    in Progress    2006


2005Costs incurred to date on
    uncompleted contracts

$
271,553


$
160,528Estimated earnings recognized to
    date on these contracts


49,473



33,201321,026



193,729Less billings to date


(334,876
)


(199,848
)(13,850
)


(6,119
)Currency translation adjustments


(844
)


210$
(14,694
)

$
(5,909
)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 
    work-in-process)

$
93,117


$
33,945Billings in excess of costs and
    estimated earnings on uncompleted contracts (included in
    accounts payable and accrued expenses)


(107,811
)


(39,854
)$
(14,694
)

$
(5,909
)     Note 10.
    Accounts
    Payable and Accrued Expenses  2006

2005Accounts payable

$
141,492


$
94,802Billings in excess of costs and
    estimatedearnings on uncompleted contracts


107,811



39,854Government taxes


16,330



4,379Affiliates


4,437



2,761Commissions and compensation


6,795



5,529Interest


35



153Subscription of a trading stock


1,008



Other


4,763



2,523$
282,671


$
150,001  75




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 11.
    Provision
    for Warranty Costs    2006

2005Balance at beginning of year


$29,094


$
13,200Costs incurred


(13,585
)


(6,391
)Warranty reserves established on
    completed contracts


17,036



30,160Reversal of reserves at end of
    warranty period


(2,043
)


(4,195
)Currency translation adjustments


3,426



(3,680
)Balance, at end of year


$33,928


$
29,094Included in the consolidated
    balance sheet as follows:Current portion


$25,483


$
23,932Long-term portion


8,445



5,162$33,928


$
29,094   Note 12.
    Notes Payable    Note 13.
    Long-term
    Debt  2006


2005Bonds payable, nil and
    2,523 at December 31, 2006 and 2005, respectively,
    interest at 4.4% and due annually in December, principal due
    December 2019, unsecured. These bonds are convertible, at
    holders option, into common shares of the Company at
    various contractually fixed prices increasing each year over the
    next 13 years ranging from 19.14 to 22.15 per
    share, until its maturity.

$



$
3,404Note payable to a bank,
    1,376 and 1,857 at December 31, 2006 and 2005,
    interest at 6% due annually and principal due December 2009,
    collateralized by land.


2,116



2,564Note payable to a bank, 933
    and 964 at December 31, 2006 and 2005, respectively,
    interest at 3.45% due annually and principal due March 2008,
    collateralized by land and a building.


1,435



1,331Note payable to a bank,
    11,610 at December 31, 2006, interest at
    4.61%  4.88% due quarterly and principal of
    3,483 and 8,127 due September 2007 and February
    2011, respectively. The Company needs to meet certain financial
    covenants.


17,853



Other






30821,404



7,607Less current portion


5,356



1,639$
16,048


$
5,968  76




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Maturity

Amount2007

$
5,3562008


1,4352009


2,1162010


2011


12,497$
21,404     Note 14.
    Income
    Taxes    2006


2005


2004Income before income taxes and
    minority interests from continuing operations

$
52,929


$
36,031


$
15,191Computed provision for income
    taxes at statutory rates

$
(17,001
)

$
(11,573
)

$
(4,880
)(Increase) decrease in taxes
    resulting from:Foreign statutory tax rate
    differences


(4,125
)


(1,819
)


655Non-taxable income


1,743



1,675



1,733Stock-based compensation


(763
)






Permanent differences


3,378



(1,867
)


(145
)Change in valuation allowance


8,955



13,189



(521
)Benefit of other non-capital loss
    acquired during the period










8,200Other, net


(557
)


(1,690
)


(1,582
)Recovery of (provision for) income
    taxes

$
(8,370
)

$
(2,085
)

$
3,460  77




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    2006


2005Non-capital tax loss carryforwards

$
72,073


$
50,752Uncompleted contracts


(17,707
)


(11,624
)Other


2,729



3,27457,095



42,402Valuation allowance


(27,487
)


(32,484
)$
29,608


$
9,918Future income tax assets are
    included in the consolidated balance sheet as follows:Current

$
889


$
8,117Non-current


39,417



13,92540,306



22,042Future income tax liabilities are
    included in the consolidated balance sheet as follows:Current






(286
)Non-current


(10,698
)


(11,838
)(10,698
)


(12,124
)Net future income tax assets

$
29,608


$
9,918       Country

Amount


Expiration datesGermany

$
122,921



IndefiniteCanada


62,444



2007-2026Switzerland


1,436



2009China


724



2010-2011U.S.


116



2016     Note 15.
    Earnings
    Per Share    2006


2005


2004Basic earnings from continuing
    operations available to common shareholders

$
37,093


$
27,759


$
12,775Effect of dilutive securities:Interest on convertible bonds


61



182



Diluted earnings from operations

$
37,154


$
27,941


$
12,775   78




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Number of Shares2006


2005


2004Basic earnings per share, weighted
    average number of common shares outstanding


15,081,206



13,609,348



13,520,221Effect of dilutive securities:Convertible bonds


65,739



145,345



Options


60,781







Weighted average number of common
    shares outstanding  diluted


15,207,726



13,754,693



13,520,221     Note 16.
    Stock
    Option Plan      Weighted AverageNumber

Exercise Priceof Shares

Per ShareOutstanding at December 31,
    2003, 2004 and 2005





US$
Granted


586,668



26.34Outstanding at December 31,
    2006


586,668


US$
26.34      79




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Options Outstanding

Options ExercisableWeighted-AverageRemainingNumber

Contractual Life

Weighted-Average

Number

Weighted-AverageExercise Prices

Outstanding

(In Years)

Exercise Price

Exercisable

Exercise PriceUS$26.11


563,335



9.63


US $
26.11






US$
US$31.80


23,333



9.96


US $
31.80



7,777


US$
31.80586,668



9.63


US $
26.34



7,777


US$
31.80     Note 17.
    Commitments
    and Contingencies  Leases
    Year

Amount2007

$
3,8392008


1,5932009


1,5412010


1,5422011


1,542Thereafter


6$
10,063     Litigation
    Guarantees
  Disclosure of Guarantees.
    Note 18.
    Employee
    Future Benefits   80




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
       2006


2005Accrued benefit obligation,
    beginning of year

$
31,564


$
36,792Current service cost


127



382Interest cost


1,489



1,598Deferred compensation


300



180Net pension cost


1,916



2,160Cash benefit payments


(1,858
)


(1,735
)Currency translation adjustments


3,597



(5,653
)Accrued benefit obligation, end of
    year

$
35,219


$
31,564     2006


2005Weighted average discount rate


4.8
%


4.8
%Rate of increase in future
    compensation


0.0
%


0.0
%       Year

Amount2007

$
1,9392008


1,9662009


1,9182010


1,8792011


1,842Thereafter


25,675$
35,219   Note 19.
    Business
    Segment Information      81




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Year ended December 31, 2006Industrial plantengineering and


Corporate andequipment supply


other


TotalRevenues from external customers

$
458,544


$



$
458,544Interest expense


2,518



314



2,832External


440



332



772InternalIncome (loss) from continuing
    operations before income taxes and minority interests


50,532



2,397



52,929   Year ended December 31, 2005Industrial plantengineering and


Corporate andequipment supply


other


TotalRevenues from external customers

$
384,050


$



$
384,050Interest expenseExternal


4,132



189



4,321Internal


14



270



284Income (loss) from continuing
    operations before income taxes and minority interests


30,118



5,913



36,031   Year ended December 31, 2004Industrial plantengineering and


Corporate andequipment supply


other


TotalRevenues from external customers

$
187,438


$



$
187,438Interest expenseExternal


3,399



971



4,370Internal


26



120



146Income (loss) from continuing
    operations before income taxes and minority interests


16,890



(1,699
)


15,191     2006


2005


2004Cement

$
386,392


$
343,760


$
165,372Coal and minerals


72,152



40,290



22,066$
458,544


$
384,050


$
187,438   As at December 31, 2006Industrial plantengineering and


Corporate andequipment supply


other


TotalSegment assets

$
517,297


$
227,823


$
745,120Less: intercorporate investment










(13,696
)Consolidated total assets









$
731,424Equity method investments


583







583Cash expenditures for capital
    assets and goodwill


2,835



28



2,863   82




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  As at December 31, 2005Industrial plantengineering and


Corporate andequipment supply


other


TotalSegment assets

$
326,184


$
84,406


$
410,590Add: assets of discontinued
    operations










319,038Less: intercorporate investment










(119,797
)Consolidated total assets










609,831Equity method investments






1,158



1,158Cash expenditures for capital
    assets and goodwill


2,573







2,573     2006


2005


2004Canada

$



$
29


$
Europe


121,846



88,539



40,297Americas


79,152



27,601



40,628Asia


229,387



243,233



96,503Africa


20,712



10,267



10,010Other


7,447



14,381



$
458,544


$
384,050


$
187,438     2006


2005Canada

$
34,057


$
35,344Europe


302



10,241Americas


395



264Asia


2,269



1,029Africa


92



111Other


210



232$
37,325


$
47,221     Note 20.
    Financial
    Instruments    2006


2005Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueCash and cash equivalents
    (including restricted cash)

$
257,366


$
257,366


$
135,439


$
135,439Short-term securities


4,791



4,791



2,499



2,499Loans










9,312



9,312Investment in preferred shares of
    a former subsidiary


90,866



90,866







Receivables, total


129,595



129,595



61,660



61,660Accounts payable and accrued
    expenses


282,250



282,250



150,001



150,001Notes payable and debt


16,680



16,680



11,039



11,118  83




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Credit
    risk
    Currency
    risk
    Note 21.
    Related
    Party Transactions  and/or
  Continuing
    operations
         84




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        Discontinued
    Operations (See Note 3)
        Note 22.
    United
    States Generally Accepted Accounting Principles    Reconciliation of Net Income

2006


2005


2004Income from continuing operations
    in accordance with Canadian GAAP

$
37,093


$
27,759


$
12,775Interest accretion on convertible
    bonds


10



15



22Change in fair value of guarantees
    issued


22



(40
)


Stock-based compensation expense


(5,532
)






Income from continuing operations
    in accordance with U.S. GAAP


31,593



27,734



12,797Discontinued operations in
    accordance with U.S. GAAP, net of tax


(1,620
)


(2,420
)


24,176Net income in accordance with
    U.S. GAAP

$
29,973


$
25,314


$
36,973Basic earnings per common share:
    U.S. GAAPContinuing operations

$
2.10


$
2.04


$
0.95Discontinued operations


(0.11
)


(0.18
)


1.79$
1.99


$
1.86


$
2.74 85




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Reconciliation of Net Income

2006


2005


2004Diluted earnings per common share:
    U.S. GAAPContinuing operations

$
2.08


$
2.03


$
0.95Discontinued operations


(0.11
)


(0.18
)


1.79$
1.97


$
1.85


$
2.74   December 31Reconciliation of Shareholders Equity

2006


2005


2004Shareholders equity in
    accordance with CanadianGAAP

$
318,464


$
284,783


$
269,421Deferred income taxes


(1,530
)


(1,530
)


(1,530
)Equity component of convertible
    debt






(146
)


(146
)Unrealized gains on available for
    sale investments






3



504Fair value of guarantees issued


(18
)


(40
)


Interest accretion on convertible
    bonds






37



22Stock-based compensation expense


(6,802
)






Gain on reduction of interest in a
    subsidiary






(8,858
)


Shareholders equity in
    accordance with U.S. GAAP

$
310,114


$
274,249


$
268,271   December 31Comprehensive Income

2006


2005


2004Net income in accordance with
    U.S. GAAP

$
29,973



$25,314


$
36,973Other comprehensive income, net of
    tax Foreign currency translation adjustment


6,165



(20,170
)


4,920Unrealized gains (losses) on
    securities:Unrealized holding gains (losses)
    arising during the year






(280
)


647Reclassification adjustment for
    shares becoming trading securities










(58
)Reclassification adjustment for
    shares becoming subsidiaries or equity method investments










3,257Reclassification adjustment for
    other than temporary decline in value






(221
)


Reclassification adjustment for
    discontinued operations


(3
)






Net unrealized gains (losses) on
    securities


(3
)


(501
)


3,8466,162



(20,671
)


8,766Comprehensive income, net of tax

$
36,135


$
4,643


$
45,739     Securities
  available-for-sale available-for-sale
  available-for-sale available-for-sale
 86




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Convertible
    Bonds
  Accounting for Derivatives and Hedging Activities No. 00-27, Application of Issue
    No. 98-5
    to Certain Convertible Instruments.
  EITF 96-19, Debtors Accounting for a Modification or Exchange of
    Debt Instruments.
  Stock-Based
    Compensation
    Accounting for
    Stock Issued to Employees, Accounting for Stock-based
    Compensation.
  Share-Based Payment,
    Guarantee
  Guarantors
    Accounting and Disclosure Requirements for Guarantees, Including
    Indirect Guarantees of Indebtedness of Others, Contingencies,
 87




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Gain
    on Reduction of Interest in Subsidiary
    Defined
    Benefit Pension
  Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans,
  Future
    Changes to United States Accounting Standards
  Accounting for Certain Hybrid
    Financial Instruments, an amendment of FASB Statements
    No. 133 and 140 Accounting for Derivative Instruments and Hedging
    Activities Accounting for Transfers
    and Servicing of Financial Assets and Extinguishments of
    Liabilities.
  Accounting for Servicing of Financial
    Assets, an amendment of FASB Statement No. Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of
    Liabilities
  Fair Value Measurements,
 88




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Accounting
    for Uncertainty in Income Taxes, an interpretation of FASB
    Statement No. 109 Accounting for Income Taxes.
  04-13, Accounting for Purchases and Sales of Inventory with the Same
    Counterparty Accounting for Nonmonetary
    Transactions.
  06-1, Accounting for Consideration Given by a Service Provider to
    Manufacturers or Resellers of Equipment Necessary for an
    End-Customer to Receive Service from the Service Provider, EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer
    (Including a Reseller of the Vendors Products). EITF 06-1
  06-3: How
    Taxes Collected from Customers and Remitted to Governmental
    Authorities Should Be Presented in the Income Statement (That
    Is, Gross versus Net Presentation),
  06-6, Debtors Accounting for a Modification (or Exchange) of
    Convertible Debt Instruments, No. 96-19. EITF 96-19
 89




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##### Table of Contents



KHD
    HUMBOLDT WEDAG INTERNATIOANAL LTD. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Note 23.
    Subsequent
    Events       90




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##### Table of Contents



ITEM 19  Exhibits  Exhibits Required
    by
    Form 20-F
  ExhibitNumber

Description1.1

Articles of Amalgamation.(1)1.2

By-laws.(1)1.3

Certificate of Continuance.(6)1.4

Notice of Articles.(6)1.5

Articles.(8)1.6

Certificate of Change of Name.(9)1.7

Vertical Short Form Amalgamation
    Application.(10)1.8

Notice of Articles.(10)1.9

Certificate of Amalgamation.(10)2.1

Master Trust Indenture between our
    company and Norwest Bank Minnesota, National Association, as
    trustee, dated March 31, 1998.(1)2.2

Trust Indenture between our
    company and Computershare Trust Company of Canada, dated
    January 7, 2004.(7)2.3

Supplemental Indenture between our
    company and Computershare Trust Company of Canada, dated
    October 27, 2005.(9)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

Assignment Agreement between our
    company and Prada Holdings Ltd. Dated as of January 1 1992.(1)4.5

Separation Agreement between
    Mercer International Inc. and our company dated for reference
    March 29, 1996.(1)4.6

Purchase Agreement between our
    company and Volendam Securities C.V. dated for reference
    May 17, 1996.(1)4.7

Purchase Agreement between our
    company and Volendam Securities C.V. dated for reference
    May 27, 1996.(1)4.8

Share Purchase Agreement between
    our company and Frederick Wong dated June 6, 1996.(1)4.9

Subscription Agreement between our
    company and Drummond Financial Corporation dated June 20,
    1996.(1)4.10

Share Purchase Agreement between
    our company and Med Net International Ltd. Dated June 20,
    1996.(1)4.11

Share Purchase Agreement among our
    company and various shareholders of Logan International Corp.
    dated June 20, 1996.(1)4.12

Subscription Agreement between
    Drummond Financial Corporation and Logan International Corp.
    dated June 20, 1996. Incorporate by reference to Logan
    International Corp.s
    Form 8-K
    dated June 27, 1996.4.13

Share Purchase Agreement between
    Lehman Brothers Bankhats AG and our company dated
    October 3, 1996.(1)4.14

Purchase Agreement between our
    company and Robabond Holding AG dated June 27, 1997.(1)4.15

Share Purchase Agreement between
    our company and Procom Holding AG dated September 22,
    1997.(1)4.16

Supplementary Agreement to Share
    Purchase Agreement between our company and Procom Holding AG
    dated September 22, 1997.(1)4.17

Agreement between our company and
    the holders of our companys Class A Preferred Shares
    dated December 1, 1996.(1)4.18

Subscription Agreement between our
    company and Logan International Corp. dated December 2,
    1996. Incorporated by reference to our companys Schedule
    13D/A (Amendment No. 1) dated December 16, 1996
    with respect to Logan International Corp. 91




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##### Table of Contents



ExhibitNumber

Description4.19

Shareholder Protection Rights Plan
    Agreement between our company and Montreal Trust Company of
    Canada dated as of May 18, 1993.(1)4.20

Amended 1997 Stock Option Plan of
    our company.(1)4.21

Amended and Restated Employment
    Agreement between our company and Michael J. Smith made
    effective as of November 20, 2000.(1)4.22

Directors Indemnity
    Agreement between our company and Michael J. Smith dated for
    reference November 20, 2000.(1)4.23

Indemnity Agreement between our
    company and Roy Zanatta dated for reference November 20,
    2000.(1)4.24

Investment and Restructuring
    Agreement among Sutton Park International Limited, Garda
    Investments Corp., our company, Glamiox Beteiligungsverwaltunds
    GmbH, Hovis GmbH, Jurriaan J. Hovis, Johannes Hovis and
    Ferdinand Steinbauer dated for reference October 1, 2001.(1)4.25

Owners Agreement among Garda
    Investments Corp., Glamiox Beteiligungsverwaltunds GmbH,
    Jurriaan J. Hovis and Ferdinand Steinbauer dated for reference
    October 1, 2004.(1)4.26

Dividend Trust Settlement
    Agreement between our company and The Dividend Trust Committee
    of the Board of Directors of our company dated for reference
    December 21, 2001.(1)4.27

Share Sale Agreement among Newmont
    Australia Limited, Newmont LaSource S.A.S., and our company
    dated August 7, 2002.(4)4.28

Royalty Deed among our company,
    Newmont Australia Limited and Newmont LaSource S.A.S. dated
    August 7, 2002.(4)4.29

Arrangement Agreement between
    Trimble Resources Corporation Resources Corporation and our
    company dated May 17, 2002.(4)4.30

Stock Purchase Agreement among
    Occidental (East Shabwa) LLC, Intercap Yemen, Inc. and our
    company dated July 23, 2002.(4)4.31

Share Purchase Agreement between
    Mazak Ltd. and Trident Alloys Ltd. dated July 24, 2003.(5)4.32

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.(8)4.33

General Security Agreement made as
    of October 11, 2004 between Med Net International Ltd., as
    Debtor, and our company, MFC Commodities GmbH and Sutton Park
    International Ltd., as Secured Parties, as security for the
    present and future indebtedness of the Debtor and as a
    supplement to the existing demand guarantee.(8)4.34

Share Pledge Agreement made as of
    October 12, 2004 between Med Net International Ltd., as
    Pledgor, and our company, MFC Commodities GmbH and Sutton Park
    International Ltd., as additional security for the Secured
    Liabilities.(8)4.35

General Security Agreement made as
    of October 12, 2004 between Lasernet Limited, as Debtor,
    and our company, MFC Commodities GmbH and Sutton Park
    International Ltd., as Secured Parties, as security for the
    present and future indebtedness of the Debtor and as a
    supplement to the existing demand guarantee.(8)4.36

Share Pledge Agreement made as of
    October 12, 2004 between Lasernet Limited, as Pledgor, and
    our company, MFC Commodities GmbH and Sutton Park International
    Ltd., as additional security for the Secured Liabilities.(8)4.37

Variation Agreement dated
    December 22, 2004 between our company and Sutton Park
    International Limited varying our companys 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.(8)4.38

Restructuring Agreement dated
    December 29, 2005 between our company and Mass Financial
    Corp. for the restructuring of our company.(9)4.39

Share Exchange Agreement dated
    December 29, 2005 between our company and Mass Financial
    Corp. for the restructuring of our company.(9)4.40

Arrangement Agreement dated
    September 11, 2006 between our company and Cade Struktur
    Corporation.(10) 92




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ExhibitNumber

Description4.41

Arrangement Agreement dated
    March 29, 2007 between our company and Sasamat Capital
    Corporation.8.1

Significant subsidiaries of our
    company as at March 15, 2007:Robabond Holding AGMFC Commodities AGKHD Humboldt Wedag
    International Holdings GmbHHumboldt Wedag Inc.Humboldt Wedag India
    Ltd.Humboldt Wedag
    Australia Pty Ltd.EKOF Flotation GmbHKHD Humboldt Wedag
    (Shanghai) International Industries LimitedNew Image Investment
    Company LimitedInverness Enterprises
    Ltd.32565 Yukon Inc.KHD Humboldt Wedag
    (Cyprus) LimitedSasamat Capital
    CorporationKHD Humboldt Wedag
    International (Deutschland) AGKHD Humboldt Wedag GmbHHumboldt Wedag
    Coal & Minerals GmbHKHD S.A.Zementanlagenbau
    Dessau GmbHAltmark Industriepark
    AGHumboldt Wedag (S.A.)
    (Pty) Ltd.ZAB
    Industrietechnik & Service GmbHTianjin Humboldt Wedag
    Liyuan Machinery & Technology Ltd.KHD Humboldt Wedag
    (Shanghai) International Industries Limited11.1

Code of Ethics.(7)12.1

Section 302 Certification
    under Sarbanes-Oxley Act of 2002 for James B. Busche.(10)12.2

Section 302 Certification
    under Sarbanes-Oxley Act of 2002 for Michael J. Smith.(10)13.1

Section 906 Certification
    under Sarbanes-Oxley Act of 2002 for James B. Busche and Michael
    J. Smith.(10)99.1

Audit Committee Charter.(9)99.2

Compensation Committee Charter.(10)99.3

Nominating and Corporate
    Governance Charter.(10)    (1)
    
    Incorporated by reference to our
    Form 20-Fs
    filed in prior years.(2)
    
    Incorporated by reference to our
    Form 10-K
    for the year ended December 31, 1989.(3)
    
    Incorporated by reference to our Schedule 13D dated
    June 27, 1996 with respect to Logan International Corp.(4)
    
    Incorporated by reference to our
    Form 20-F
    filed with the Securities and Exchange Commission on
    April 28, 2003.(5)
    
    Incorporated by reference to our
    Form 6-K
    filed with the Securities and Exchange Commission on
    August 7, 2003.(6)
    
    Incorporated by reference to our
    Form 6-K
    filed with the Securities and Exchange Commission on
    November 23, 2004.(7)
    
    Incorporated by reference to our
    Form 20-F
    filed with the Securities and Exchange Commission on
    April 26, 2004.(8)
    
    Incorporated by reference to our
    Form 20-F
    filed with the Securities and Exchange Commission on
    April 6, 2005.(9)
    
    Incorporated by reference to our
    Form 20-F
    filed with the Securities and Exchange Commission on
    April 3, 2006.(10)
    
    Filed herewith. 93




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SIGNATURES  Form 20-F
  KHD Humboldt Wedag International Ltd.
  James
    B. Busche
       Michael
    J. Smith
      94