Enerflex Reports Record 2008 Year End Financial Results and Announces First
Quarter 2009 Distributions

CALGARY, Feb. 19 /CNW/ - Enerflex Systems Income Fund (TSX:EFX.UN) today reported record financial results for the twelve months ended December 31, 2008. Revenues increased by 26% to $1,046.7 million as compared to $828.2 million in 2007. Net income of $65.2 million or $1.40 per unit represented a 15% increase over 2007.

In the fourth quarter, revenues increased by 27% to a quarterly record of $297.5 million while gross margin increased by 53% to $72.1 million, also a record. Operating margin increased by 15%.

Full year and fourth quarter earnings were impacted by the weakening Canadian dollar and the absence of one-time tax recoveries experienced in 2007. After adjusting for these items in both years, earnings were $72.6 million or $1.55 per unit, 44% higher than $50.5 million or $1.08 per unit in 2007. On this basis, net earnings for the fourth quarter were $19.1 million or $0.41 per unit, 4% lower than the $19.8 million or $0.42 per unit in 2007.

Enerflex generated record EBITDA(1) (Earnings before Interest, Taxes, Depreciation and Amortization) of $101.6 million in 2008, an increase of 33% as compared to $76.3 million in the prior year. EBITDA for the three months ended December 31, 2008 increased by 13% to $24.6 million compared to $21.7 million last year. After adjusting for foreign exchange in both years, EBITDA for 2008 would be $112.1 million versus $75.4 million in 2007, a 49% increase.

Financial Highlights

    
                                             Twelve Months Ended December 31
    -------------------------------------------------------------------------
    $ millions, except per unit
    amounts and percentages
    (Unaudited)                             2008          2007      % change
    -------------------------------------------------------------------------
    Revenue                         $    1,046.7  $      828.2           26%
    Gross margin                    $      230.6  $      173.8           33%
    Gross margin percent                    22.0          21.0
    Operating margin(1)             $       73.5  $       51.4           43%
    Operating margin percent(1)              7.0           6.2
    Net income                      $       65.2  $       56.8           15%
    Earnings per unit (basic)       $       1.40  $       1.22           15%
    Distribution per unit           $       1.10  $       1.00           10%


                                              Three Months Ended December 31
    -------------------------------------------------------------------------
    $ millions, except per unit
    amounts and percentages
    (Unaudited)                             2008          2007      % change
    -------------------------------------------------------------------------
    Revenue                         $      297.5      $  235.1           27%
    Gross margin                    $       72.1      $   47.0           53%
    Gross margin percent                    24.2          20.0
    Operating margin(1)             $       17.8      $   15.5           15%
    Operating margin percent(1)              6.0           6.6
    Net income                      $       16.2      $   18.7         (13)%
    Earnings per unit (basic)       $       0.35      $   0.40         (13)%
    Distribution per unit           $       0.30      $   0.25           20%


    (1) Operating margin provides the net margin contributions made from the
        Fund's core businesses after considering all SG&A expenses and the
        impact of the Fund's foreign exchange hedging strategy. Operating
        margin and EBITDA are non-GAAP measures that do not have a
        standardized meaning prescribed by GAAP and therefore are unlikely to
        be comparable to similar measures presented by other issuers.
    

Achievement Highlights

    
    -   Revenue increased by 26% in 2008 as compared to 2007, surpassing
        $1 billion in annual revenue for the first time in the Fund's
        history.

    -   International revenue increased by 48% over 2007 to $598.2 million,
        representing 57% of total revenue.

    -   Operating margin increased by 43% in 2008 over the prior year and by
        15% in the fourth quarter.

    -   Gross margin in 2008 grew to a record $230.6 million, a 33% increase
        over the prior year.

    -   Gross margin in the fourth quarter represented a 53% increase from
        the prior year period increasing from $47.0 to $72.1 million.

    -   Enerflex achieved record EBITDA of $101.6 million, a 33% increase
        over the previous year.

    -   Total bookings increased by 17% to $681.7 million compared to
        $583.8 million in 2007.

    -   Exited the year with a backlog of $308.8 million, a 6% increase from
        the prior year with an international weighting of 76% versus 68% in
        2007.

    -   Total debt, net of cash declined by 30% to $65.3 million at the end
        of 2008 as compared to $93.5 million at the end of 2007.

    -   Net debt to equity ratio and net debt to 2008 twelve month EBITDA
        were 0.16 to 1 and 0.64 to 1 respectively as of December 31st, 2008.

    -   During 2008, the Fund increased its quarterly distribution by 20% to
        $0.30 per unit.
    

"Enerflex performed very well in 2008 achieving record financial results in terms of revenue, EBITDA, net income and year-end backlog" commented Blair Goertzen, President and Chief Executive Officer of Enerflex. "Throughout the year we continued to expand our global presence through the export of world class products and expertise supported by our strong regional construction and service capabilities."

"Our strategy to diversify internationally has delivered excellent results and will continue to strengthen our organization well into the future. Over the past few years, our approach has been to position ourselves in key regions around the world. This has resulted in a balanced mix of geographical and service line diversification that has provided the organization with overall stability in its activities, backlog and revenue stream" stated Goertzen.

"While 2009 will be a challenging year for our industry, Enerflex has the advantage of a strong balance sheet, a solid backlog and robust bookings for the first two months of 2009, all of which put us in a strong position" concluded Blair Goertzen.

The Board of Directors of the Fund approved a 2009 first quarter cash distribution of $0.30 per unit during the Fund's regularly scheduled Board meeting held on February 19th, 2009 which will be paid on April 15, 2009 to unitholders of record on March 31, 2009.

Conference Call and Webcast Details

Enerflex will host a conference call for analysts and investors on Friday, February 20, 2009 at 9:00 a.m. MST (11:00 a.m. EST) to discuss the Fund's 2008 year end results which will be released on Thursday, February 19, 2009 after market close. The call will be hosted by Blair Goertzen, President and Chief Executive Officer.

If you wish to participate in this conference call, please call, 1.866.225.9256 or 1.416.641.6117. Please call at least ten minutes ahead of time.

Participants who wish to listen to a recording of the conference at a later time may do so by calling 1.800.408.3053 or 1.416.695.5800 (pass code: 3280714 followed by the No. sign) approximately one hour after the completion of the call. The recording will be available until the end of day February 27, 2009.

A live audio webcast of the conference call will be available on our website at www.enerflex.com under the Investor Relations section on February 20, 2009 at 9:00 a.m. MST (11:00 a.m. EST). Approximately one hour after the call, a recording of the event will be available on our website.

About Enerflex

Enerflex Systems Income Fund is a leading supplier of products and services to the global oil and gas production industry. Our core expertise is the supply of products and services between the wellhead and the pipeline. Enerflex provides natural gas compression and process equipment for sale or lease, hydrocarbon production and processing facilities, electrical, instrumentation and controls services and a comprehensive package of field maintenance and contracting capabilities. Through our ability to provide these products and services in an integrated manner, or as standalone offerings, Enerflex offers its customers a unique value proposition.

Headquartered in Calgary, Canada, Enerflex has approximately 2,985 employees. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, Australia, the Netherlands, the United States, Germany, Pakistan, the United Arab Emirates, Egypt, Indonesia and Malaysia. Enerflex's trust units trade on the Toronto Stock Exchange under the symbol "EFX.UN".

Forward-Looking Statements

Certain information contained herein constitutes forward-looking information under applicable securities laws. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate may or will occur in the future, are forward-looking information. Forward-looking information typically contains statements with words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "potential", "targeting", "intend", "could", "might", "should", "believe" or similar words suggesting future outcomes or outlook. The following discussion is intended to identify certain factors, although not necessarily all factors, which could cause future outcomes to differ materially from those set forth in the forward-looking information. The risks and uncertainties that may affect the operations, performance, development and results of Enerflex's businesses include, but are not limited to, the following factors: the impact of general economic conditions; industry conditions, including the adoption of new environmental and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in Enerflex's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or management; labour unrest; fluctuations in the foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by Enerflex and other factors, many of which are beyond the control of Enerflex. The reader is cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate by Enerflex at the time of preparation, may prove to be incorrect or may not occur. Accordingly, readers are cautioned that the actual results achieved will vary from the information provided herein and the variations may be material. Readers are also cautioned that the foregoing list of factors and risks is not exhaustive. Additional information on these and other risks, uncertainties and factors that could affect Enerflex's operations or financial results are included in our filings with the securities commissions or similar authorities in each of the provinces of Canada, as may be updated from time to time. There is no representation by Enerflex that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Enerflex does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by law. Any forward-looking information contained herein is expressly qualified by this cautionary statement.

    
    FINANCIAL HIGHLIGHTS

    -------------------------------------------------------------------------
                                                     Years ended December 31,
    -------------------------------------------------------------------------
                                                          2008          2007
    (thousands)
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
      Canadian                                    $    448,497  $    425,112
    -------------------------------------------------------------------------
      International                                    598,182       403,083
    -------------------------------------------------------------------------
    Total revenue                                    1,046,679       828,195
    -------------------------------------------------------------------------
    Gross margin                                       230,569       173,769
    -------------------------------------------------------------------------
    Gross margin percent                                 22.0%         21.0%
    -------------------------------------------------------------------------
    Selling, general & administrative expenses         141,118       120,227
    -------------------------------------------------------------------------
    Income before interest & taxes                      78,295        54,345
    -------------------------------------------------------------------------
    Interest expense                                     5,044         7,582
    -------------------------------------------------------------------------
    Income before taxes                                 73,251        46,763
    -------------------------------------------------------------------------
    Income tax expense (recovery)                        8,031       (10,032)
    -------------------------------------------------------------------------
    Net income                                    $     65,220  $     56,795
    -------------------------------------------------------------------------


    NON-GAAP MEASURES

    -------------------------------------------------------------------------
                                                     Years ended December 31,
    -------------------------------------------------------------------------
    (unaudited)(thousands)                                2008          2007
    -------------------------------------------------------------------------
    Operating margin(1)
    -------------------------------------------------------------------------
    Gross margin                                  $    230,569  $    173,769
    -------------------------------------------------------------------------
    Selling, general and administrative expenses       141,118       120,227
    -------------------------------------------------------------------------
    Foreign currency loss/(gain)                        16,322         2,103
    -------------------------------------------------------------------------
    Equity earnings                                       (348)            6
    -------------------------------------------------------------------------
    Operating margin                              $     73,477  $     51,433
    -------------------------------------------------------------------------
    Operating margin percent                              7.0%          6.2%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    EBITDA(1)
    -------------------------------------------------------------------------
    Earnings before interest and income taxes     $     78,295  $     54,345
    -------------------------------------------------------------------------
    Depreciation and amortization                       23,315        21,975
    -------------------------------------------------------------------------
    EBITDA                                        $    101,610  $     76,320
    -------------------------------------------------------------------------
    EBITDA - adjusted(2)                          $    112,134  $     75,432
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Distributable cash flow(1),(3)
    -------------------------------------------------------------------------
    Cash flow from operations before working
     capital adjustments                          $     86,383  $     72,686
    -------------------------------------------------------------------------
    Adjustments to working capital and other           (18,810)       16,680
    -------------------------------------------------------------------------
    Net maintenance capital expenditures                (4,202)       (2,987)
    -------------------------------------------------------------------------
    Distributable cash                            $     63,371  $     86,379
    -------------------------------------------------------------------------
    ----------------------------------------

    (1) Operating margin, operating margin percent, earnings before interest,
        taxes, depreciation and amortization ("EBITDA") and distributable
        cash flow are non-GAAP ("Generally Accepted Accounting Principles")
        measures that do not have a standardized meaning prescribed by GAAP
        and therefore are unlikely to be comparable to similar measures
        presented by other issuers. Management believes these measures are
        useful supplemental measures. Operating margin provides the net
        margin contributions made from the Fund's core businesses after
        considering all SG&A expenses, the impact of the Fund's foreign
        exchange hedging strategy and excluding re-organization costs. EBITDA
        provides the results generated by the Fund's primary business
        activities prior to consideration of how those activities are
        financed, assets are amortized or how the results are taxed in
        various jurisdictions. Distributable cash flow provides the amount of
        cash available for distribution to unitholders and will fluctuate on
        a quarterly basis due to seasonal cash flows, maintenance capital
        expenditures incurred, income taxes paid, and interest costs on
        outstanding debt and changes to non-cash working capital. Investors
        should be cautioned that operating margin, operating margin percent,
        EBITDA, distributable cash flow should not be construed as an
        alternative to net income and cash flow from operations determined in
        accordance with GAAP as an indicator of Enerflex's performance.

    (2) EBITDA is adjusted for the net impacts of foreign currency
        fluctuations related to the export of goods in currencies other than
        the Canadian dollar and the instruments used to hedge this foreign
        currency exposure.

    (3) The Fund has adopted the Canadian Securities Administrators' (CSA)
        recommendations on the calculation of distributable cash. The
        recommendations of the CSA require that the calculation of
        distributable cash incorporate changes to non-cash working capital.
        Comparative figures have been adjusted to conform to the CSA
        definition.
    

FOR THE THREE MONTHS ENDED DECEMBER 31, 2008

During the fourth quarter of 2008 the Fund generated $297.5 million in revenue, as compared to $235.1 million in the fourth quarter of 2007. The increase of $62.4 million or 27% was a result of increased revenues in the Engineered Systems and Service segments, partially offset by reductions in Production Services. International revenue increased $42.6 million from the same period in 2007 and represented 58% of revenue as compared to 55% in 2007. As compared to the three month period ended December 31, 2007:

    
    -   Engineered Systems' revenue increased by $38.2 million due to
        continued high levels of product export and activity in the
        Australasia region paired with a weaker Canadian dollar;

    -   Service's revenue increased by $25.5 million, a result of a strong
        demand for products and support in the Mechanical Services division
        and consistent revenue in the Electrical Instrumentation & Controls
        (EI&C) division; and

    -   Production Services' revenue decreased by $1.3 million as a result of
        unit buy-outs without corresponding additions to the rental fleet and
        lower capital utilization.
    

Gross margin for the three months ended December 31, 2008 was $72.1 million or 24.2% of revenue as compared to $47.0 million or 20.0% of revenue for the three months ended December 31, 2007, an increase of $25.1 million. The Production Services segment experienced a lower gross margin percentage in the fourth quarter of 2008 but this was offset by increased gross margin percentages in the Engineered Systems and Service segments. Many factors contributed to these movements and are summarized as follows:

    
    -   Engineered Systems' gross margin percentage of 24.3% increased from
        18.1% as a result of the positive impact of a weakening Canadian
        dollar, higher plant utilization rates and better project execution;

    -   Service's gross margin percentage of 22.5% increased from 19.4% due
        to improved parts volumes and labour utilization in Canada and Europe
        that more than offset lower margins in Australasia; and

    -   Production Services' gross margin percentage of 48.4% decreased from
        61.4% due to a reduction in utilization rates.
    

Selling, general and administrative (SG&A) expenses were $41.3 million or 13.9% of revenue during the three months ended December 31, 2008, compared to $29.1 million or 12.4% of revenue in the same period of 2007. The $12.2 million increase in SG&A expenses is attributable to the expansion of Enerflex's global business including increases in compensation and associated occupancy and technical costs.

Foreign exchange losses totalled $13.1 million in the fourth quarter of 2008 as compared to a loss of $2.2 million in the same period of 2007. The current period's loss was primarily the result of forward exchange contracts used to hedge foreign currency exposure on Engineered Systems fabrication contracts.

Enerflex mitigates the impact of exchange rate fluctuations by matching expected future U.S. dollar denominated cash inflows with U.S. dollar liabilities, principally foreign exchange contracts, bank debt and accounts payable. In 2007, the Fund adopted foreign exchange forward contracts as its primary mitigation strategy to hedge any net foreign currency exposure. Forward contracts are entered into for the amount of the net foreign dollar exposure for a term matching the expected payment terms outlined in the sales contract. Outstanding forward contracts are marked-to-market at the end of each period with any gain or loss on the forward contract included in income.

The result is that any gain or loss in margins resulting from exchange rate fluctuations is offset by gains or losses in U.S. dollar assets and liabilities. However, the timing of recognition of the offsetting gain or loss in margin can vary from the gain or loss on foreign denominated debt or forward contract due to percentage of completion revenue recognition, as these hedges relate to long-term contracts. The Canadian dollar depreciated by 16% against the US dollar in the fourth quarter of 2008 versus its appreciation of 1% against the U.S. dollar during the same period of 2007.

At December 31, 2008, the Fund had US$13.0 million of LIBOR borrowings as compared to US$33.0 million of LIBOR borrowings at December 31, 2007. At December 31, 2008, the Fund was party to foreign currency contracts with a total net sales value of US$45.0 million, (euro)7.0 million and AU$3.9 million as compared to a net sales value of US$86.8 million outstanding at December 31, 2007.

Enerflex does not hedge its exposure to investments in foreign subsidiaries, which are largely self-sustaining. Exchange gains and losses on net investments in foreign subsidiaries are accumulated in unitholders' equity within "Accumulated comprehensive income/loss". The accumulated comprehensive loss at the end of 2007 of $7.8 million was adjusted to an accumulated comprehensive loss of $1.4 million at December 31, 2008. This was the result of the changes in the value of the Canadian dollar against the Euro, Australian dollar and U.S. dollar. The Australian dollar appreciated by 2% against the Canadian dollar during the fourth quarter of 2008, as compared to 2% depreciation in the same period of 2007. The Euro appreciated by 14% against the Canadian dollar during the fourth quarter of 2008, as compared to an appreciation of 2% in the same period of 2007.

Interest costs totalled $1.1 million for the three months ended December 31, 2008, compared with $1.7 million in the same period of 2007, a decrease of $0.6 million. Interest costs in 2008 were lower than those in 2007 as a result of lower average borrowings and increased interest income from investing the Fund's higher cash balances. Enerflex's borrowings on its bank facility averaged US$11.0 million in the fourth quarter of 2008 as compared to an average of US$33.0 million for the three months ended December 31, 2007.

Income tax expense totalled $1.0 million for the three months ended December 31, 2008 compared with a recovery of $3.9 million in the same period of 2007. The period-over-period increase in income taxes in the fourth quarter of 2008 compared to 2007 was primarily due to an increase in international income before taxes as well as domestic earnings in excess of distributions deductible for tax.

During the fourth quarter of 2008, Enerflex generated net income of $16.2 million as compared to $18.7 million in the same period of 2007. This resulted in earnings per income trust unit of $0.35 in 2008, as compared to $0.40 in the fourth quarter of 2007. Net income was significantly impacted by foreign exchange relating to the Fund's hedging program in the fourth quarters of 2008 and 2007. After adjusting for these foreign exchange losses and a one time tax recovery realized in the fourth quarter of 2007, net income was $0.41 per unit in 2008 in line with $0.42 per unit in 2007.

    
    QUARTERLY SUMMARY
    (unaudited)(thousands except per unit amounts)
    -------------------------------------------------------------------------
    Quarter ended         Revenue     Net income  Earnings per  Earnings per
                                                          unit        unit -
                                                                     diluted
    -------------------------------------------------------------------------
    December 31, 2008     $297,474       $16,178         $0.35         $0.35
    -------------------------------------------------------------------------
    September 30, 2008     257,059        18,086          0.39          0.39
    -------------------------------------------------------------------------
    June 30, 2008          259,525        17,464          0.37          0.37
    -------------------------------------------------------------------------
    March 31, 2008         232,621        13,492          0.29          0.29
    -------------------------------------------------------------------------
    December 31, 2007      235,116        18,702          0.40          0.40
    -------------------------------------------------------------------------
    September 30, 2007     195,570        11,528          0.25          0.25
    -------------------------------------------------------------------------
    June 30, 2007          197,492        12,870          0.28          0.28
    -------------------------------------------------------------------------
    March 31, 2007         200,017        13,695          0.29          0.29
    -------------------------------------------------------------------------
    

FOR THE YEAR ENDED DECEMBER 31, 2008

Consolidated revenue for the year ended December 31, 2008 totalled $1,046.7 million as compared to $828.2 million in 2007. The increase of $218.5 million or 26% was a result of increased revenues in the Engineered Systems and Service segments partially offset by declining revenue in the Production Services segment. International revenue increased $195.1 million from 2007 and represented 57% of revenue as compared to 49% in 2007. As compared to the year ended December 31, 2007:

    
    -   Engineered Systems' revenue increased by $198.3 million due to
        increased export sales from the Fund's Canadian facilities and
        increased activity in the Australasia and MENA regions;

    -   Service's revenue increased by $30.7 million, as Mechanical Service
        revenues increased in all regions more than offsetting declines in
        EI&C; and

    -   Production Services' revenue decreased by $10.5 million as a result
        of lower capital utilization across all horsepower categories,
        increased rental unit buy-outs and the absence of new integrated
        services project start-up revenue realized in 2007.
    

Gross margin for the year ended December 31, 2008 was $230.6 million or 22.0% of revenue as compared to $173.8 million or 21.0% of revenue for 2007, an increase of $56.8 million. Gross margin percentages increased in the Engineered Systems and Service segments more than offsetting declines in the Production Services segment. Many factors contributed to these movements and are summarized as follows:

    
    -   Engineered Systems' gross margin percentage increased from 16.0% in
        2007 to 19.1% in 2008. Higher plant utilization rates in the Fund's
        facilities, better project execution and a weakening Canadian dollar
        contributed to the improved margins;

    -   Service's gross margin percentage increased to 25.3% from 24.5% in
        2007 as a result of improved margin percentages in Canada due to
        strong parts volumes and improved labour utilization for Mechanical
        Service, more than offsetting lower margins within the Australasian
        Mechanical Service business; and

    -   Production Services' gross margin percentage decreased to 50.2% from
        52.0% in 2007 as a result of lower fleet utilization rates only
        partially offset by lower flow-through revenue associated with new
        project start-ups in 2007.
    

Selling, general and administrative expenses were $141.1 million in 2008 compared to $120.2 million in 2007. Total SG&A costs increased in 2008 over 2007 as a consequence of the continued growth of Enerflex, the expanding scope of its operations and higher variable costs. In 2008, SG&A amounted to 13.5% of revenue as compared to 14.5% in 2007.

Foreign exchange losses totalled $16.3 million in 2008 as compared to a loss of $2.1 million in 2007. The increased loss was primarily the result of forward exchange contracts related to U.S. dollar denominated sales contracts. The Canadian dollar depreciated by 24% against the U.S. dollar in 2008, largely occurring in the fourth quarter, and appreciated by 15% against the U.S. dollar during 2007.

Operating margin(1) assists the reader in understanding the net margin contributions made from the Fund's core businesses after considering all SG&A expenses and the impact of the foreign exchange hedging strategy discussed above. During 2008, Enerflex produced an operating margin1 of $73.5 million or 7.0% of revenue as compared to $51.4 million or 6.2% of revenue in 2007. The increase in operating margin in 2008 over 2007 was a result of the same factors contributing to the increased gross margin partially offset by the increased foreign exchanges losses and increased SG&A expenses.

Interest costs totalled $5.0 million in 2008, compared to $7.6 million in 2007, a decrease of $2.6 million. Interest costs in 2008 were lower than those in 2007 as a result of lower debt levels held by the Fund throughout 2008, low variable interest rates on the Fund's floating rate debt and interest income from investing the Fund's higher cash balances. Enerflex's borrowings on its bank facility averaged US$17.7 million in 2008 as compared to US$33.5 million in 2007.

Income tax expense was $8.0 million in 2008 compared with a recovery of $10.0 million in 2007. The increase in income tax expense was primarily a result of improved operating results for the Fund and the absence of a favourable ruling issued by the Canada Revenue Agency in 2007. The effective rate of income tax in 2008 was 11.0%, compared to (21.5)% in 2007.

Net income increased to $65.2 million for 2008 from $56.8 million in 2007. This resulted in earnings per unit of $1.40 in 2008 and $1.22 in 2007. After adjusting for the impact of the Fund's foreign exchange hedging program, the Fund's net income for 2008 was $1.55 per unit. This compares with a 2007 net income of $1.08 per unit after adjustments for the impacts of the Fund's hedging program and one time tax recoveries realized in 2007.

    
    (1) Operating margin, operating margin percent, distributable cash flow
        and EBITDA are non-GAAP earnings measures that do not have a
        standardized meaning prescribed by GAAP and therefore are unlikely to
        be comparable to similar measures presented by other issuers. Please
        refer to the complete description of non-GAAP measures after the
        financial highlights table.
    

SEGMENTED RESULTS

Enerflex has three business segments: Service, Engineered Systems and Production Services, which operate as follows:

SERVICE

The Service segment provides mechanical and EI&C services to the oil and gas industry through an extensive branch network in Canada, the Netherlands, the United States, Germany, Australia and Indonesia. Service is the Fund's second largest business segment by revenue. At December 31, 2008, it employed 45% of staff, held 31% of the total assets, generated 34% of the Fund's revenue and produced 22% of Enerflex's income before interest and income taxes. Key performance metrics include labour utilization, revenue, gross margin percent and income before interest and income taxes.

Enerflex, through various business units, is an authorized distributor for Waukesha engines and parts in Canada, Alaska, Australia, Indonesia, Papua New Guinea, the Netherlands, Germany and Spain. Enerflex is also an exclusive authorized distributor for Altronic, a leading manufacturer of electric ignition and control systems, in Canada, Australia, Papua New Guinea and New Zealand. Mechanical Service revenues tend to be fairly stable as ongoing equipment maintenance is generally required to maintain the customer's natural gas production. EI&C services are provided in Canada where revenues are more cyclical as they are generated from both maintenance spending and from infrastructure investment.

    
    (thousands) Years ended December 31,                  2008          2007
    -------------------------------------------------------------------------
    Segment revenue                               $    367,303  $    336,214
    Intersegment revenue                               (11,658)      (11,235)
    -------------------------------------------------------------------------
    Revenue                                       $    355,645  $    324,979
    -------------------------------------------------------------------------
    Revenue - Canadian                            $    248,491  $    243,371
    -------------------------------------------------------------------------
    Revenue - International                       $    107,154  $     81,608
    -------------------------------------------------------------------------
    Gross margin                                  $     89,808  $     79,529
    -------------------------------------------------------------------------
    EBITDA(1)                                     $     22,292  $     18,021
    -------------------------------------------------------------------------
    Income before interest and income taxes       $     17,234  $     12,820

    (1) Earnings before interest, taxes, depreciation and amortization
        ("EBITDA") is a non-GAAP earnings measures that do not have a
        standardized meaning prescribed by GAAP and therefore are unlikely to
        be comparable to similar measures presented by other issuers. Please
        refer to the complete description of non-GAAP measures after the
        financial highlights table.
    

Service revenue was $355.6 million in 2008 and comprised 34% of consolidated revenue. This compared to $325.0 million and 39% of consolidated revenue in 2007. The increase of $30.6 million was the result of increased Mechanical Service revenues due to strong parts sales in Canada, Europe and Australasia partially offset by a reduction in revenues from the EI&C division in Canada. International revenues of $107.2 million accounted for 30% of the segment's total revenue as compared to 25% of revenue in 2007.

Gross margin for the segment totalled $89.8 million, or 25.3% in 2008 as compared to $79.5 million, or 24.5% in 2007. The increase in gross margin percentage resulted from improved parts volumes and labour utilization for the Mechanical Service division in Canada partially offset by reduced margins in Australasia.

Income before interest and income taxes increased by $4.4 million to $17.2 million in 2008 from $12.8 million in 2007. This increase was the result of the increased gross margin percentage partially offset by increased administrative costs associated with the expansion of the Service segment in Europe and the expansion of the Canadian branch network.

ENGINEERED SYSTEMS

The Engineered Systems segment engineers, fabricates and assembles standard and custom-designed compression packages, production and processing equipment and facilities, CHP systems and power generation systems. Engineered Systems is the Fund's largest business segment by revenue. At December 31, 2008, it employed 54% of staff, held 52% of the total assets, generated 63% of the Fund's revenue and produced 62% of Enerflex's income before interest and income taxes. The key performance metrics for this business segment are market share, backlog, plant utilization, overhead rates and gross margin as a percentage of revenue.

Engineered Systems' business tends to have more volatility in revenue, gross margin and income before interest and income taxes than Enerflex's other business segments. Revenues are derived primarily from the investments made in natural gas infrastructure by producers. Revenues have largely shifted to international sources as Canadian capital spending had been focused on oil sands development prior to the commodity price reductions in the fourth quarter of 2008 and away from natural gas infrastructure.

    
    (thousands) Years ended December 31,                  2008          2007
    -------------------------------------------------------------------------
    Segment revenue                               $    668,216  $    484,966
    Intersegment revenue                                (5,035)      (20,121)
    -------------------------------------------------------------------------
    Revenue                                       $    663,181  $    464,845
    -------------------------------------------------------------------------
    Revenue - Canadian                            $    174,626  $    146,179
    -------------------------------------------------------------------------
    Revenue - International                       $    488,555  $    318,666
    -------------------------------------------------------------------------
    Gross margin                                  $    126,785  $     74,286
    -------------------------------------------------------------------------
    EBITDA(1)                                     $     56,499  $     28,721
    -------------------------------------------------------------------------
    Income before interest and income taxes       $     48,660  $     22,498

    Plant utilization - Compression and Power              63%           55%
    Plant utilization - Production and Processing          93%           84%
    Plant utilization - Australasia                        85%           81%
    -------------------------------------------------------------------------
    (1) Earnings before interest, taxes, depreciation and amortization
        ("EBITDA") is a non-GAAP earnings measures that do not have a
        standardized meaning prescribed by GAAP and therefore are unlikely to
        be comparable to similar measures presented by other issuers. Please
        refer to the complete description of non-GAAP measures after the
        financial highlights table.
    

Engineered Systems' revenue totalled $663.2 million in 2008 as compared to $464.8 million in 2007. This increase of $198.4 million was largely the result of a 53% increase in international revenues along with increased domestic revenue from all segments with the exception of the domestic small horsepower market which remained consistent with 2007's low activity levels. International revenue represented 74% of 2008 revenue as compared to 69% in 2007. Increases in exports by all divisions, a weakening Canadian dollar and continuing high activity levels in Australasia and MENA accounted for the increases in revenue.

Gross margin for the segment totalled $126.8 million, or 19.1% compared to $74.3 million or 16.0% of revenue in 2007. The increase in gross margin percentage resulted from a weakening Canadian dollar in 2008 compared to 2007 and stronger utilization rates and project execution in the Fund's facilities. The Fund utilizes foreign currency forward contracts to mitigate the exposure on international contracts, however a timing difference exists between the foreign exchange gains and losses recorded on the forward contracts and the full gross margin impact related to foreign exchange movements.

Income before interest and income taxes increased by 116% to $48.7 million in 2008 from $22.5 million in 2007. This increase was a result of increased revenue and margins and a gain on the sale of a small facility totalling $1.4 million partially offset by higher general and administrative costs for the continued expansion of operations internationally and losses on foreign exchange contracts used to hedge the Fund's foreign currency exposure.

Bookings and Backlog

The Fund records bookings and backlog when the Fund receives a firm commitment from customers for products and services. Backlog is an indicator of future revenue for the Fund.

    
    Bookings
    (thousands) Years ended December 31,                  2008          2007
    -------------------------------------------------------------------------
    Canadian                                      $    156,110  $    161,663
    International                                      525,618       422,153
    -------------------------------------------------------------------------
    Total bookings                                $    681,728  $    583,816
                                                 ----------------------------
                                                 ----------------------------

    Backlog
    (thousands) As at December 31,                        2008          2007
    -------------------------------------------------------------------------
    Canadian                                      $     73,866  $     92,382
    International                                      234,894       197,831
    -------------------------------------------------------------------------
    Total backlog                                 $    308,760  $    290,213
                                                 ----------------------------
                                                 ----------------------------
    

Backlog at December 31, 2008 was $308.8 million compared to $290.2 million at December 31, 2007, representing a 6% increase over the prior year.

International backlog increased by 19% from December 31, 2007 and represented 76% of the total backlog at December 31, 2008, as compared to 68% at the same date in 2007. The Fund has been impacted by a slow domestic market, primarily in the low horsepower compression market segment, but this downturn has been significantly offset by the Fund's execution of its international strategy and an increasing international presence.

PRODUCTION SERVICES

The Production Services segment provides a variety of rental and leasing alternatives for natural gas compression, power generation and processing equipment. At December 31, 2008, Enerflex's rental fleet was comprised of approximately 336 compression units representing 105,000 horsepower, and 186 process units. This compares with 345 compression units representing 109,000 horsepower and 206 process units at the end of 2007. The key performance metrics in this segment are fleet size, utilization rates and rental rates. At December 31, 2008, the Production Services segment employed 1% of staff, held 17% of the total assets, generated 3% of the Fund's revenue and produced 16% of Enerflex's income before interest and income taxes.

Enerflex's rental fleet is deployed predominantly in western Canada. Expansion in international markets is conducted on a selective basis to minimize the risk from these new markets. As of December 31, 2008, Enerflex's compression rental fleet included 10 units located in the U.S. and 2 units in other international locations.

    
    (thousands) Years ended December 31,                  2008          2007
    -------------------------------------------------------------------------
    Segment revenue                               $     27,855  $     38,379
    Intersegment revenue                                    (2)           (8)
    -------------------------------------------------------------------------
    Revenue                                       $     27,853  $     38,371
    -------------------------------------------------------------------------
    Revenue - Canadian                            $     25,380  $     35,562
    -------------------------------------------------------------------------
    Revenue - International                       $      2,473  $      2,809
    -------------------------------------------------------------------------
    Gross margin                                  $     13,976  $     19,954
    -------------------------------------------------------------------------
    EBITDA(1)                                     $     22,819  $     29,578
    -------------------------------------------------------------------------
    Income before interest and income taxes       $     12,401  $     19,027
    -------------------------------------------------------------------------
    Capital expenditures, net of proceeds on
     disposal                                     $     (8,219) $      6,293
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Capital utilization - Compression                      60%           69%
    -------------------------------------------------------------------------
    Capital utilization - Power and Processing             37%           35%
    -------------------------------------------------------------------------
    (1) Earnings before interest, taxes, depreciation and amortization
        ("EBITDA") is a non-GAAP earnings measures that do not have a
        standardized meaning prescribed by GAAP and therefore are unlikely to
        be comparable to similar measures presented by other issuers. Please
        refer to the complete description of non-GAAP measures after the
        financial highlights table.
    

Production Services' revenue for 2008 decreased by $10.5 million to $27.9 million from $38.4 million in 2007. The decrease was the result of reductions in rental revenue due to a decline in utilization rates and in the size of the fleet and the absence of flow-through revenue for new integrated services project start-ups as compared to 2007. The reduced fleet size resulted from a high level of rental contract buy-out activity in the fourth quarter of 2007 and the first quarter of 2008 and little new capital investment by the Fund due to the reduced demand for rental equipment.

Gross margin in 2008 totalled $14.0 million, or 50.2% of revenue, as compared to $20.0 million or 52.0% in 2007. The decrease in gross margin percent was the result of lower overhaul provisions and the absence of flow-through revenue at no margin in 2007 being more than offset by lower fleet utilization, resulting in the allocation of depreciation over a lower revenue base.

Income before interest and income taxes of $12.4 million in 2008 was $6.6 million lower than in 2007 as a result of the factors discussed above.

During 2008, Production Services sold 23 compression units and 23 process units from its fleet, for gross proceeds of $15.0 million and a gain on sale of $2.9 million. This compares to the sale of 54 compression units and 9 process units, for gross proceeds of $15.7 million and a gain on sale of $2.8 million in 2007. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. Enerflex added 15 compression units and 7 process units to its fleet during 2008, for an investment of $6.3 million.

FINANCIAL POSITION

The following table outlines significant changes in the Consolidated Balance Sheets as at December 31, 2008 as compared to December 31, 2007:

    
    -------------------------------------------------------------------------
                          Increase /
    ($millions)           (decrease)               Explanation
    -------------------------------------------------------------------------
    Assets:
    -------------------------------------------------------------------------
    Accounts receivable      68.6     Increased fourth quarter revenues from
                                      the Engineered Systems segment resulted
                                      in increased revenue accrual balances.
    -------------------------------------------------------------------------
    Inventory                10.9     Long lead times and high demand for
                                      Original Equipment Manufacturer (OEM)
                                      parts due to the high activity levels
                                      in the Engineered Systems segment
                                      required advance orders of parts in
                                      order for the Fund to execute on its
                                      existing and future backlog.
    -------------------------------------------------------------------------
    Income taxes receivable  (7.7)    Refunds received from prior period tax
                                      filings during 2008 and improved
                                      operating results for the Fund's
                                      operations have reduced the taxes
                                      receivable position for the Fund and
                                      its subsidiaries.
    -------------------------------------------------------------------------
    Rental equipment        (11.7)    The decline is due to continuing
                                      depreciation of existing assets and
                                      buy-outs of rental units during 2008
                                      exceeding new capital additions.
    -------------------------------------------------------------------------
    Liabilities:
    -------------------------------------------------------------------------
    Accounts payable and     13.0     Increased activity levels in the Fund's
    accrued liabilities               Engineered Systems and Service segments
                                      resulted in an increased need for parts
                                      resulting in a higher payables balance.
    -------------------------------------------------------------------------
    Liabilities held          6.3     The market value of foreign exchange
    for trading                       contracts used by the Fund declined due
                                      to a weaker Canadian dollar.
    -------------------------------------------------------------------------
    Accrued distributions     2.4     The Fund increased its declared
                                      distribution in the third quarter of
                                      2008 to $0.30/unit from $0.25/unit in
                                      the fourth quarter of 2007.
    -------------------------------------------------------------------------
    Deferred revenue         41.8     High activity levels in the Engineered
                                      Systems segment led to increased
                                      progress billings used by the Fund to
                                      maintain a positive cash position and
                                      mitigate collection risk during the
                                      manufacturing process.
    -------------------------------------------------------------------------
    Long term debt          (16.6)    The Fund's increasing cash position due
                                      to progress payments and continued high
                                      activity levels resulted in its ability
                                      to repay borrowings on its bank
                                      facility.
    -------------------------------------------------------------------------
    

LIQUIDITY

The Fund's primary sources of liquidity and capital resources are:

    
    -   Cash generated from continuing operations;
    -   Bank financing and operating lines of credit; and
    -   The issuance and sale of debt and equity instruments.
    

Statement of Cash Flows:

    
    (thousands)                                      Years ended December 31,
                                                 ----------------------------
                                                          2008          2007
    -------------------------------------------------------------------------
    Cash, beginning of period                     $     38,927  $     22,344
    Cash provided from (used) in:
    Operating activities                                67,573        89,366
    Investing activities                                 6,938       (25,458)
    Financing activities                               (62,921)      (47,325)
    -------------------------------------------------------------------------
    Cash, end of period                           $     50,517  $     38,927
    -------------------------------------------------------------------------
    

Operating Activities

For the year ended December 31, 2008, cash generated from operating activities was $67.6 million, $21.8 million lower than 2007. Improved operating results were more than offset by increased working capital requirements due to increases in accounts receivable and inventory.

Investing Activities

The Fund generated $6.9 million of cash from investing activities in 2008 as compared to cash used of $25.5 million in 2007. Proceeds from the disposition of rental equipment and fixed assets exceeded expenditures in 2008 by $3.5 million as compared to net expenditures of $13.0 million in 2007. Acquisition expenditures in 2008 decreased by $10.2 million from 2007.

Financing Activities

Cash used in financing activities for the year ended December 31, 2008 was $62.9 million as compared to $47.3 million in 2007. The change was due an increase of $2.3 million in distributions in 2008 and the repayment of an additional $10.7 million of long-term debt during the year.

Distributable Cash Flow

    
    -------------------------------------------------------------------------
    Years ended December 31,                              2008          2007
    (thousands)
    -------------------------------------------------------------------------
    Distributable cash flow(1)                    $     63,371  $     86,379
    -------------------------------------------------------------------------
    

Distributable cash flow(1) for 2008 of $63.4 million decreased by $23.0 million from $86.4 million for 2007. The decrease was due to increased earnings being more than offset by increased working capital requirements and increased maintenance capital expenditures. Distributable cash flow not including the changes in non-cash working capital was $82.2 million for 2008, $12.5 million higher than $69.7 million for 2007.

Distribution Payout Ratio

    
    -------------------------------------------------------------------------
    Years ended December 31,                              2008          2007
    -------------------------------------------------------------------------
    Payout ratio(1)                                        81%           54%
    -------------------------------------------------------------------------
    

Total distributions declared in 2008 represented 81% of distributable cash flow in comparison to 54% for 2007. The increased ratio was the result of lower distributable cash flow and increased distributions in 2008. Ignoring the impact of changes in non-cash working capital, the payout ratio for 2008 was 63% as compared to 67% in 2007.

    
    (1) Operating margin, operating margin percent, distributable cash flow,
        distribution payout ratio and EBITDA are non-GAAP earnings measures
        that do not have a standardized meaning prescribed by GAAP and
        therefore are unlikely to be comparable to similar measures presented
        by other issuers. Please refer to the complete description of non-
        GAAP measures after the financial highlights table.
    

Net Capital Spending

    
    -------------------------------------------------------------------------
    Years ended December 31,                              2008          2007
    (thousands)
    -------------------------------------------------------------------------
    Net capital spending                          $     (3,471) $     12,951
    -------------------------------------------------------------------------
    

Net capital spending was reduced by $16.5 million from $13.0 million in 2007 to $3.5 million of proceeds in 2008. The change was the result of minimal capital investment in the rental fleet during 2008 as a result of reduced customer demand and the proceeds from the sale of one of the Fund's small domestic facilities in the third quarter of 2008.

CAPITAL RESOURCES

On February 19, 2009, the Fund had 44,142,920 income trust units and 2,667,072 Exchangeable LP units outstanding. Enerflex has not established a formal distribution policy and the Board of Directors of the General Partner anticipates setting the quarterly distributions based on the availability of distributable cash flow and anticipated market conditions, taking into consideration business opportunities and the need for growth capital. Throughout 2007, Enerflex declared quarterly distributions equal to $0.25 per unit for a total of $1.00 per unit. In 2008, the Fund declared a distribution of $0.25 per unit in each of the first and second quarters and of $0.30 per unit in each of the third and fourth quarters.

During 2006, the Fund completed the restructuring of its debt with the closing of a private placement for $100.6 million in Senior Secured Notes ("Notes") and the amendment of its bank credit facility ("Bank Facility") for $150.0 million. The Notes mature as follows: $21.0 million maturing on December 20, 2013 and $79.6 million maturing on December 20, 2016. The Bank Facility matures on June 30, 2010 and is extendable at the banks' option in June of each year.

The Notes and Bank Facility share security on a pari passu basis with collateral consisting of a fixed and floating charge on the Fund's Canadian assets and guarantees from various subsidiary companies. These credit facilities require the Fund to meet certain covenants, including a limitation on the debt-to-EBITDA(1) ratio and a limitation on distributions to unit holders in certain circumstances. Enerflex was in full compliance with these covenants at December 31, 2008 and February 19, 2009. On December 31, 2008, $100.6 million in Notes were outstanding and approximately $40.6 million of the $150 million Bank Facility was drawn, comprised of $15.9 million in cash borrowings and $24.7 million of letters of credit or guarantees, leaving approximately $109.4 million available for future drawings. These credit facilities provide the financing required to support the Fund's operating requirements, as well as the flexibility to pursue growth opportunities.

    
    Consolidated Balance Sheets
                                                   December 31,  December 31,
    (Unaudited) (Thousands)                               2008          2007
    -------------------------------------------------------------------------
    ASSETS
    Current assets
      Cash and cash equivalents                   $     50,517  $     38,927
      Assets held for trading                            1,671         2,330
      Accounts receivable                              241,085       172,507
      Inventory                                        135,685       124,736
      Income taxes receivable                            4,435        12,174
      Future income taxes                                8,238         5,249
    -------------------------------------------------------------------------
      Total current assets                             441,631       355,923

    Rental equipment                                    88,641       100,354
    Property, plant and equipment                       70,130        70,216
    Investment in affiliates                             2,939         2,858
    Future income taxes                                  3,771         2,802
    Deferred charges                                        89           261
    Intangible assets                                    7,812         9,262
    Goodwill                                           126,146       125,241
    -------------------------------------------------------------------------
                                                  $    741,159  $    666,917
                                                 ----------------------------
                                                 ----------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities
      Accounts payable and accrued liabilities    $    109,248  $     96,243
      Liabilities held for trading                       8,123         1,786
      Accrued distributions payable                     14,028        11,673
      Deferred revenue                                  78,766        36,925
      Income taxes payable                               4,628         1,117
      Future income taxes                                   77           144
    -------------------------------------------------------------------------
      Total current liabilities                        214,870       147,888

    Long-term debt                                     115,847       132,450
    Other long-term liabilities                          2,830         1,592
    Future income taxes                                  9,879         7,492
    -------------------------------------------------------------------------
                                                       343,426       289,422
    -------------------------------------------------------------------------

    Unitholders' equity
      Unitholders' capital                             206,322       205,588
      Accumulated other comprehensive loss              (1,363)       (7,822)
      Contributed surplus                                  541           235
      Retained earnings                                192,233       179,494
    -------------------------------------------------------------------------
                                                       397,733       377,495
                                                 ----------------------------
                                                  $    741,159  $    666,917
                                                 ----------------------------
                                                 ----------------------------



    Consolidated Statements of Income

                              Three Months Ended         Twelve Months Ended
    (Unaudited)                      December 31,                December 31,
    (Thousands, except
     unit amounts)            2008          2007          2008          2007
    -------------------------------------------------------------------------
    Revenue           $    297,474  $    235,116  $  1,046,679  $    828,195
    Cost of goods sold     225,396       188,075       816,110       654,426
    -------------------------------------------------------------------------
    Gross margin            72,078        47,041       230,569       173,769
    Selling, general
     and administrative
     expenses               41,283        29,081       141,118       120,227
    Foreign currency
     losses                 13,088         2,238        16,322         2,103
    Gain on sale of
     assets                   (396)       (1,061)       (4,818)       (2,912)
    Equity earnings
     from affiliates          (114)          272          (348)            6
    -------------------------------------------------------------------------
    Income before
     interest and
     income taxes           18,217        16,511        78,295        54,345
    Interest                 1,083         1,668         5,044         7,582
    -------------------------------------------------------------------------
    Income before
     income taxes           17,134        14,843        73,251        46,763
    Income taxes               956        (3,859)        8,031       (10,032)
    -------------------------------------------------------------------------
    Net income        $     16,178  $     18,702  $     65,220  $     56,795
                     --------------------------------------------------------
    Net income per
     unit - basic     $       0.35  $       0.40  $       1.40  $       1.22
          - diluted   $       0.35  $       0.40  $       1.39  $       1.22

    Weighted average
     number of units    46,752,915    46,689,453    46,713,366    46,683,091
                     --------------------------------------------------------



    Consolidated Statements of Retained Earnings

                              Three Months Ended         Twelve Months Ended
    (Unaudited)                      December 31,                December 31,
    (Thousands)               2008          2007          2008          2007
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of
     period           $    190,084  $    172,465  $    179,494  $    169,383
    Adjustment to
     retained earnings,
     opening                     -             -        (1,091)            -
    Net income              16,178        18,702        65,220        56,795
    Distributions          (14,029)      (11,673)      (51,390)      (46,684)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period    $    192,233  $    179,494  $    192,233  $    179,494
                     --------------------------------------------------------



    Consolidated Statements of Comprehensive Income

                              Three Months Ended         Twelve Months Ended
    (Unaudited)                      December 31,                December 31,
    (Thousands)               2008          2007          2008          2007
    -------------------------------------------------------------------------
    Net Income        $     16,178  $     18,702  $     65,220  $     56,795
    Other comprehensive
     income, net of tax
      Foreign currency
       translation of
       self-sustaining
       operations            7,017        (1,424)        6,459        (5,905)
    -------------------------------------------------------------------------
    Comprehensive
     Income           $     23,195  $     17,278  $     71,679  $     50,890
                     --------------------------------------------------------



    Consolidated Statements of Cash Flows

                              Three Months Ended         Twelve Months Ended
    (Unaudited)                      December 31,                December 31,
    (Thousands)               2008          2007          2008          2007
    -------------------------------------------------------------------------
    Operating Activities
      Net income      $     16,178  $     18,702  $     65,220  $     56,795
      Depreciation and
       amortization          6,384         5,174        23,315        21,975
      Future income
       taxes                 1,833        (1,242)        2,708        (3,342)
      Gain on sale of
       assets                 (396)       (1,061)       (4,818)       (2,912)
      Equity earnings
       from affiliates        (114)          272          (348)            6
      Unit option
       expense                 139            47           306           164
    -------------------------------------------------------------------------
                            24,024        21,892        86,383        72,686
      Changes in
       non-cash working
       capital and
       other               (45,384)       11,966       (18,810)       16,680
    -------------------------------------------------------------------------
      Cash flow (used)
       produced in
       operations          (21,360)       33,858        67,573        89,366
    -------------------------------------------------------------------------

    Investing Activities
      Acquisitions               -             -           238        (9,983)
    Purchase of:
      Rental equipment           -        (1,156)       (6,320)      (21,517)
      Property, plant
       and equipment        (2,091)         (742)       (6,573)       (7,551)
      Assets under
       construction           (501)          (22)       (1,631)       (1,085)
    Proceeds on
     disposal of:
      Rental equipment       1,806         3,075        15,006        15,698
      Property, plant
       and equipment           371            50         2,989         1,504
    -------------------------------------------------------------------------
                              (415)        1,205         3,709       (22,934)
      Changes in
       non-cash working
       capital and
       other                 4,424        (3,225)        3,229        (2,524)
    -------------------------------------------------------------------------
      Cash flow
       produced
       (used) in
       investing             4,009        (2,020)        6,938       (25,458)
    -------------------------------------------------------------------------

    Financing Activities
      Advance
       (repayment) of
       long-term debt       16,084          (541)      (17,783)       (7,091)
      Distribution
       reinvestment
       plan                    441            47           734           134
      Distributions
       paid                (14,014)      (11,671)      (49,034)      (46,680)
    -------------------------------------------------------------------------
                             2,511       (12,165)      (66,083)      (53,637)
      Changes in
       non-cash working
       capital and
       other                  (191)          148         3,162         6,312
    -------------------------------------------------------------------------
      Cash flow
       produced (used)
       in financing          2,320       (12,017)      (62,921)      (47,325)
    -------------------------------------------------------------------------
      (Decrease)
       increase in
       cash and cash
       equivalents         (15,031)       19,821        11,590        16,583
      Cash and cash
       equivalents,
       beginning of
       period               65,548        19,106        38,927        22,344
    -------------------------------------------------------------------------
      Cash and cash
       equivalents,
       end of period  $     50,517  $     38,927  $     50,517  $     38,927
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows include
     the following
     elements:
      Interest paid   $      2,226  $      3,039  $      5,972  $      7,570

    -------------------------------------------------------------------------
      Income taxes
       (received)/
       paid           $      (651)  $      4,121  $     (2,912) $      5,900
    -------------------------------------------------------------------------
    

Segmented Information

The Fund has three reportable segments: Service, Engineered Systems and Production Services. The Service reportable segment is the aggregation of the Mechanical Service and Electrical, Instrumentation & Controls divisions. The Engineered Systems reportable segment is the aggregation of the Production and Processing and Compression and Power divisions.

    
                                Service               Engineered Systems
    -------------------------------------------------------------------------
    Three Months Ended
    December 31,              2008          2007          2008          2007
    -------------------------------------------------------------------------

    Segment revenue   $    106,027  $     81,335  $    189,376  $    151,356
      Intersegment
       revenue              (2,550)       (3,320)       (1,917)       (2,138)
    -------------------------------------------------------------------------
      External
       revenue        $    103,477  $     78,015  $    187,459  $    149,218
                     --------------------------------------------------------

    Gross Margin      $     23,297  $     15,154  $     45,618  $     27,047
                     --------------------------------------------------------

    Depreciation and
     amortization     $      1,350  $      1,750  $      2,361  $      1,030
    -------------------------------------------------------------------------

    Income before
     interest and
     income taxes     $      5,555  $      1,647  $     10,643  $      9,221
    -------------------------------------------------------------------------

    Capital
     expenditures     $        643  $        352  $        964  $        886
      Corporate
    -------------------------------------------------------------------------

                     --------------------------------------------------------

    Proceeds on
     disposal of
     assets           $          -  $          6  $        370  $         44
    -------------------------------------------------------------------------


                         Production Services             Consolidated
    -------------------------------------------------------------------------
    Three Months Ended
    December 31,              2008          2007          2008          2007
    -------------------------------------------------------------------------

    Segment revenue   $      6,538  $      7,884  $    301,941  $    240,575
      Intersegment
       revenue                   -            (1)       (4,467)       (5,459)
    -------------------------------------------------------------------------
      External
       revenue        $      6,538  $      7,883  $    297,474  $    235,116
                     --------------------------------------------------------

    Gross Margin      $      3,163  $      4,840  $     72,078  $     47,041
                     --------------------------------------------------------

    Depreciation and
     amortization     $      2,673  $      2,394  $      6,384  $      5,174
    -------------------------------------------------------------------------

    Income before
     interest and
     income taxes     $      2,019  $      5,643  $     18,217  $     16,511
    -------------------------------------------------------------------------

    Capital
     expenditures     $        199  $        592  $      1,806  $      1,830
      Corporate                                            786            90
    -------------------------------------------------------------------------
                                                  $      2,592  $      1,920
                     --------------------------------------------------------

    Proceeds on
     disposal of
     assets           $      1,807  $      3,075  $      2,177  $      3,125
    -------------------------------------------------------------------------


                                Service               Engineered Systems
    -------------------------------------------------------------------------
    Twelve Months Ended
    December 31,              2008          2007          2008          2007
    -------------------------------------------------------------------------

    Segment revenue   $    367,303  $    336,214  $    668,216  $    484,966
      Intersegment
       revenue             (11,658)      (11,235)       (5,035)      (20,121)
    -------------------------------------------------------------------------
      External
       revenue        $    355,645  $    324,979  $    663,181  $    464,845
                     --------------------------------------------------------

    Gross Margin      $     89,808  $     79,529  $    126,785  $     74,286
                     --------------------------------------------------------

    Depreciation and
     amortization     $      5,058  $      5,201  $      7,839  $      6,223
    -------------------------------------------------------------------------

    Income before
     interest and
     income taxes     $     17,234  $     12,820  $     48,660  $     22,498
    -------------------------------------------------------------------------

    Segment assets    $    175,696  $    154,344  $    322,767  $    233,644
       Corporate
       Goodwill             51,938        51,230        66,852        66,655
    -------------------------------------------------------------------------
    Total assets      $    227,634  $    205,574  $    389,619  $    300,299
                     --------------------------------------------------------

    Capital
     expenditures     $      1,623  $      1,689  $      3,844  $      5,603
      Corporate
    -------------------------------------------------------------------------

                     --------------------------------------------------------

    Proceeds on
     disposal of
     assets           $         72  $         93  $      2,917  $      1,395
    -------------------------------------------------------------------------


                           Production Services             Consolidated
    -------------------------------------------------------------------------
    Twelve Months Ended
    December 31,              2008          2007          2008          2007
    -------------------------------------------------------------------------

    Segment revenue   $     27,855  $     38,379  $  1,063,374  $    859,559
      Intersegment
       revenue                  (2)           (8)      (16,695)      (31,364)
    -------------------------------------------------------------------------
      External
       revenue        $     27,853  $     38,371  $  1,046,679  $    828,195
                     --------------------------------------------------------

    Gross Margin      $     13,976  $     19,954  $    230,569  $    173,769
                     --------------------------------------------------------

    Depreciation and
     amortization     $     10,418  $     10,551  $     23,315  $     21,975
    -------------------------------------------------------------------------

    Income before
     interest and
     income taxes     $     12,401  $     19,027  $     78,295  $     54,345
    -------------------------------------------------------------------------

    Segment assets    $    115,920  $    103,510  $    614,383  $    491,498
       Corporate                                           630        50,178
       Goodwill              7,356         7,356       126,146       125,241
    -------------------------------------------------------------------------
    Total assets      $    123,276  $    110,866  $    741,159  $    666,917
                     --------------------------------------------------------

    Capital
     expenditures     $      6,787  $     22,007  $     12,254  $     29,299
      Corporate                                          2,270           854
    -------------------------------------------------------------------------
                                                  $     14,524  $     30,153
                     --------------------------------------------------------

    Proceeds on
     disposal of
     assets           $     15,006  $     15,714  $     17,995  $     17,202
    -------------------------------------------------------------------------
    

Revenue from foreign countries was:

    
                              Three Months Ended         Twelve Months Ended
                                     December 31,                December 31,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------
    Australia          $    66,678  $     50,389  $    283,617  $    155,102
    China                    3,017         5,651        15,583         8,929
    Germany                  2,549         1,085         5,120         6,643
    Indonesia                4,676         3,499        24,776        11,462
    Netherlands             31,150        28,645        82,674        88,417
    Pakistan                23,461         3,673        55,693         8,636
    United States           11,925         2,487        66,138        56,627
    Other                   28,511        33,901        64,581        67,267
    -------------------------------------------------------------------------
                       $   171,967  $    129,330  $    598,182  $    403,083

    Included in these
     amounts are gross
     exports from
     domestic
     operations of:
                       $    64,779  $     60,763  $    272,854  $    166,169
                     --------------------------------------------------------
    

Revenue is attributed to countries by the destination of the sale.

Total assets in foreign countries were as follows:

    
                        December 31, 2008             December 31, 2007
                  ----------------------------- -----------------------------
                   Capital                       Capital
                  Assets &     Other     Total  Assets &     Other     Total
                  Goodwill    Assets    Assets  Goodwill    Assets    Assets

    Australia     $ 23,157  $ 62,491  $ 85,648  $ 21,371  $ 43,107  $ 64,478

    Netherlands      7,664    45,641    53,305     6,657    36,214    42,871

    United States    6,884     6,252    13,136     7,048     2,095     9,143

    Other                               35,187                         8,433

    -------------------------------------------------------------------------
    Total assets                      $187,276                      $124,925
                  -----------------------------------------------------------
                  -----------------------------------------------------------

    Total assets are attributed to countries by the location of the business.
    



For further information: For further information: D. James Harbilas, Vice-President & Chief Financial Officer, Tel: (403) 236-6857, Fax: (403) 720-4385; Berk Sumen, Manager, Investor Relations & Communications, Tel: (403) 720-4308, Fax: (403) 720-4385

Organization Profile

ENERFLEX SYSTEMS INCOME FUND

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