Enerflex Reports Second Quarter 2009 Financial Results and Announces Third
Quarter 2009 Distributions

CALGARY, Aug. 11 /CNW/ - Enerflex Systems Income Fund (TSX:EFX.UN) is pleased to announce its financial and operating results for the three and six months ended June 30, 2009.

    
    Financial Highlights

                                                 Three Months Ended June 30
    -------------------------------------------------------------------------
    $ millions, except per unit amounts and
     percentages (unaudited)                        2009      2008  % change
    -------------------------------------------------------------------------
    Revenue                                     $  228.2  $  259.5      (12)%
    Gross margin                                $   39.8  $   55.3      (28)%
    Gross margin percent                            17.5      21.3
    Operating margin(1)                         $   16.7  $   21.4      (22)%
    Operating margin percent(1)                      7.3       8.3
    Net income                                  $   14.9  $   17.5      (15)%
    Earnings per unit (basic)                   $   0.32  $   0.37      (14)%
    Distributable cash flow per unit(2)         $   0.40  $   0.91      (56)%
    Distribution per unit                       $   0.30  $   0.25        20%


                                                   Six Months Ended June 30
    -------------------------------------------------------------------------
                                                    2009      2008  % change
    -------------------------------------------------------------------------
    Revenue                                     $  481.2  $  492.1       (2)%
    Gross margin                                $   93.0  $  102.1       (9)%
    Gross margin percent                            19.3      20.7
    Operating margin(1)                         $   34.7  $   35.3       (2)%
    Operating margin percent(1)                      7.2       7.2
    Net income                                  $   31.1  $   31.0         -%
    Earnings per unit (basic)                   $   0.67  $   0.66         2%
    Distributable cash flow per unit(2)         $   0.59  $   0.97      (39)%
    Distribution per unit                       $   0.60  $   0.50        20%

    (1) 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. Operating margin is a non-GAAP measure that
        does not have a standardized meaning prescribed by GAAP and therefore
        is unlikely to be comparable to similar measures presented by other
        issuers.
    (2) 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. Distributable cash flow is a
        non-GAAP measure that does not have a standardized meaning prescribed
        by GAAP and therefore is unlikely to be comparable to similar
        measures presented by other issuers.

    Second Quarter and First Half Highlights

    -   Second quarter earnings were $0.32 per unit, a 14% decrease from the
        $0.37 per unit achieved in 2008. Earnings in the first half were
        $0.67 per unit, 2% higher than the first half of 2008.

    -   Second quarter EBITDA (Earnings before Interest, Taxes, Depreciation
        and Amortization) decreased to $22.4 million or 19% from
        $27.6 million in the prior year. First half EBITDA was $46.9 million
        compared to $48.6 million achieved during the same period last year.

    -   The build, own, operate and maintain project for BP in Oman started
        reporting revenues in the second quarter.
    

Second quarter revenues of $228.2 million represent a 12% decrease from the comparable quarter of the prior year. Revenues from international sources accounted for 61% of total revenues or $139.7 million. First half revenues were $481.2 million compared to $492.1 million during the same period of the prior year.

Earnings per unit in the second quarter decreased to $0.32, 14% lower than the $0.37 per unit achieved in the second quarter of 2008. First half earnings per unit were $0.67, compared to $0.66 in the same period of 2008.

Enerflex generated $22.4 million of EBITDA in the second quarter, a decrease of 19% compared to $27.6 million in the comparable quarter of last year. EBITDA for the first half was $46.9 million, comparable to $48.6 million during the first half of 2008.

Gross margin decreased to $39.8 million or 17.5% of revenue in the second quarter as compared to $55.3 million or 21.3% of revenue during the comparable quarter last year. In the second quarter, foreign exchange related to foreign denominated contracts negatively impacted gross margins by $2.0 million ($1.0 million in 2008) and positively impacted EBITDA by $6.4 million (negative impact of $0.6 million in 2008). Gross margin was also negatively impacted by $3.9 million during the quarter as a result of re-structuring charges and cost overruns on various projects.

Gross margin for the first half of the year totalled $93.0 million or 19.3% of revenue compared to $102.1 million or 20.7% of revenue during the first half of 2008. In the first half, foreign exchange related to foreign denominated contracts positively impacted gross margins by $2.2 million (negative impact of $1.3 million in 2008) and positively impacted EBITDA by $8.0 million (negative impact of $2.7 million in 2008). Gross margin was also negatively impacted by re-structuring charges and cost overruns on various projects by $6.8 million during the first half.

Due to the continuing low levels of activity during the second quarter, backlog has decreased to $216.0 million and represents a 50% decrease from the prior year periods' backlog of $428.4 million. Internationally, many projects that Enerflex is actively pursuing have been delayed until the second half of the year. The Fund will continue to pursue these projects aiming to secure these bids, particularly in the Middle East/North Africa (MENA) region as the year progresses.

"The combination of low natural gas prices, depressed activity levels and the continuing impact of the deterioration of the equity and credit markets have brought about one of the weakest springs for the industry," commented Blair Goertzen, President and CEO of Enerflex. "The declining backlog has resulted in cost reduction initiatives which we will monitor closely for the remainder of the year. Internationally, we remain optimistic about the long-term growth potential of both AustralAsia and MENA. In AustralAsia, the positive outlook for the proposed CBM to LNG projects continues which will bode well for our market leading products and services in the region. In MENA, we are targeting a comprehensive list of projects some of which are expected to come to fruition in the second half of the year. Though the business environment continues to be a challenge, Enerflex is in solid position to endure this downturn as our balance sheet remains amongst the best in our industry enabling us to pursue our growth strategy as we come out of this trough," concluded Goertzen.

The Fund ended the quarter with $63.1 million in cash and $69.4 million in borrowings (net of cash). This results in a conservative net debt-to-equity ratio of 0.17 to 1 and net debt-to-EBITDA of 0.74 times. The Fund has access to a committed Bank Facility which has been expanded to $200 million to finance working capital and project requirements. At the end of the second quarter there were $32.6 million in cash borrowings against the Bank Facility. With a large portion of its Bank Facility available for future borrowings, cash flows generated from operations and a conservative debt level, Enerflex is well positioned to pursue strategic growth opportunities.

The Board of Directors of the Fund approved a third quarter cash distribution of $0.30 per unit which will be paid on October 15, 2009 to unitholders of record on September 30, 2009.

Conference Call and Webcast Details

Enerflex will host a conference call for analysts and investors Wednesday, August 12, 2009 at 9:00 a.m. MDT (11:00 a.m. EDT) to discuss the Fund's 2009 second quarter results. The call will be hosted by Blair Goertzen, President and CEO of Enerflex Systems Income Fund.

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: 4843353 followed by the number sign) approximately one hour after the completion of the call. The recording will be available until the end of day August 19, 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 August 12, 2009 at 9:00 a.m. MDT (11:00 a.m. EDT). 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 2,600 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; labor 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

    -------------------------------------------------------------------------
    (Unaudited)(Thousands)      Three months ended          Six months ended
                                           June 30,                  June 30,
    -------------------------------------------------------------------------
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
    Canadian              $    88,483  $    98,862  $   196,444  $   221,284
    -------------------------------------------------------------------------
    International             139,685      160,663      284,728      270,862
    -------------------------------------------------------------------------
    Total revenue             228,168      259,525      481,172      492,146
    -------------------------------------------------------------------------
    Gross margin               39,840       55,331       92,955      102,075
    -------------------------------------------------------------------------
    Gross margin percent         17.5%        21.3%        19.3%        20.7%
    -------------------------------------------------------------------------
    Selling, general &
     administrative
     expenses                  32,066       34,332       65,967       66,317
    -------------------------------------------------------------------------
    Income before interest
     & taxes                   17,144       22,071       36,013       37,286
    -------------------------------------------------------------------------
    Interest expense            1,552        1,364        2,847        2,892
    -------------------------------------------------------------------------
    Income before taxes        15,592       20,707       33,166       34,394
    -------------------------------------------------------------------------
    Income tax expense            655        3,243        2,027        3,438
    -------------------------------------------------------------------------
    Net income            $    14,937  $    17,464  $    31,139  $    30,956
    -------------------------------------------------------------------------



    NON-GAAP MEASURES

    -------------------------------------------------------------------------
    (Unaudited)(Thousands)      Three months ended          Six months ended
                                           June 30,                  June 30,
    -------------------------------------------------------------------------
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Operating margin(1)
    -------------------------------------------------------------------------
    Gross margin          $    39,840  $    55,331  $    92,955  $   102,075
    -------------------------------------------------------------------------
    Selling, general &
     administrative
     expenses                  32,066       34,332       65,967       66,317
    -------------------------------------------------------------------------
    Foreign currency
     (gains)/losses            (8,902)        (425)      (7,571)         563
    -------------------------------------------------------------------------
    Equity earnings                16           (3)        (151)        (122)
    -------------------------------------------------------------------------
    Operating margin      $    16,660  $    21,427  $    34,710  $    35,317
    -------------------------------------------------------------------------
    Operating margin
     percent                      7.3%         8.3%         7.2%         7.2%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    EBITDA(1)
    -------------------------------------------------------------------------
    Earnings before
     interest & taxes     $    17,144  $    22,071  $    36,013  $    37,286
    -------------------------------------------------------------------------
    Depreciation and
     amortization               5,267        5,566       10,902       11,356
    -------------------------------------------------------------------------
    EBITDA(1)             $    22,411  $    27,637  $    46,915  $    48,642
    -------------------------------------------------------------------------
    EBITDA - adjusted(2)  $    16,045  $    28,250  $    38,890  $    51,349
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Distributable cash
     flow(1),(3)
    -------------------------------------------------------------------------
    Cash flow from
     operations before
     working capital
     adjustments          $    21,466  $    23,161  $    42,207  $    40,564
    -------------------------------------------------------------------------
    Adjustments to working
     capital and other           (341)      19,808      (10,863)       5,984
    -------------------------------------------------------------------------
    Net maintenance
     capital expenditures      (2,406)        (671)      (3,633)      (1,401)
    -------------------------------------------------------------------------
    Distributable cash    $    18,719  $    42,298  $    27,711  $    45,147
    -------------------------------------------------------------------------
    Distributions accrued
     and paid             $    14,060  $    11,674  $    28,103  $    23,347
    -------------------------------------------------------------------------

    (1) Operating margin, operating margin percent, earnings before interest,
        taxes, depreciation and amortization (EBITDA), distributable cash
        flow and distribution payout ratio 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 and
        distribution payout ratio 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
        Canadian dollar and the instruments used to hedge this foreign
        currency exposure.
    (3) The Fund has adopted the Canadian Security 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 the CSA definition.
    

During the second quarter of 2009, the Fund declared distributions of $0.30 per unit or $14.1 million. Under the Canadian Securities Administrators' (CSA) definition of distributable cash flow(1), changes in non-cash working capital are incorporated into the calculation of distributable cash flow(1). This definition negatively impacted distributable cash flow1 by $0.3 million in the second quarter of 2009 as compared to a positive impact of $19.8 million in the same period of 2008.

FOR THE THREE MONTHS ENDED JUNE 30, 2009

During the second quarter of 2009, the Fund generated $228.2 million in revenue, as compared to $259.5 million in the second quarter of 2008. The decrease of $31.3 million or 12% was a result of decreased revenues in all three segments. International revenue decreased $21.0 million from the same period in 2008 and represented 61% of revenue as compared to 62% in 2008. As compared to the three month period ended June 30, 2008:

    
    -   Engineered Systems' revenue decreased by $19.4 million due to
        decreased domestic and international sales due to the devalued
        US dollar and lower activity levels;
    -   Service revenue decreased by $10.8 million, a result of lower parts
        and service revenue in the Canadian and European businesses,
        partially offset by increases in AustralAsia; and
    -   Production Services' revenue decreased by $1.2 million as a result of
        lower capital utilization and lower rental rates across all
        horsepower categories due to continued low levels of domestic
        compression investment and a reduction in the size of the rental
        fleet as compared to 2008.

    Gross margin for the three months ended June 30, 2009 was $39.8 million or
17.5% of revenue as compared to $55.3 million or 21.3% of revenue for the same
three month period of 2008, a decrease of $15.5 million. Gross margin
percentages decreased in all three segments. Many factors contributed to the
decrease and are summarized as follows:

    -   Engineered Systems' gross margin percentage decreased from 15.8% in
        the second quarter of 2008 to 11.6% in the same period of 2009. The
        strengthening Canadian dollar, lower plant utilization rates in the
        Fund's Compression & Power facility and cost overruns on certain
        projects contributed to the lower margins;
    -   Service gross margin percentage of 27.4% decreased from 29.7% in 2008
        as a result of lower margins within the European and Canadian
        operations that experienced lower utilization rates, partially offset
        by improved margin percentages in AustralAsia due to strong parts and
        service sales; and
    -   Production Services' gross margin percentage of 36.9% decreased from
        47.0% due to lower fleet utilization and rental rates in addition to
        higher maintenance costs when compared with the same period of 2008.
    

In the second quarter of 2009, foreign exchange (FX) related to foreign denominated contracts negatively impacted gross margin by $2.0 million and positively impacted EBITDA1 by $6.4 million. During the second quarter of 2008, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $1.0 million and negatively impacted EBITDA by $0.6 million. Gross margin was also negatively impacted by $3.9 million during the quarter as a result of re-structuring charges and cost overruns on various projects. No comparable costs were incurred in 2008.

Selling, general and administrative (SG&A) expenses were $32.1 million or 14.1% of revenue during the three months ended June 30, 2009, compared to $34.3 million or 13.2% of revenue in the same period of 2008. The $2.2 million decrease in SG&A expenses during the quarter, as compared to the same period in 2008, is attributed to lower travel and employee costs as a result of cost reduction efforts initiated in the second quarter of 2009, net of severance costs and lower bad debt.

Foreign exchange gains totalled $8.9 million in the second quarter of 2009 as compared to a gain of $0.4 million in the same period of 2008. The gain was primarily the result of the use of forward exchange contracts 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 the use of foreign exchange contracts as its primary mitigation strategy to hedge any net foreign currency exposure. Forward contracts are entered into in the amount of the net foreign dollar exposure for a term matching to 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 contracts due to percentage of completion revenue recognition, as these hedges relate to long-term contracts. The Canadian dollar appreciated 8% against the U.S. dollar in the second quarter of 2009 and appreciated by 1% against the U.S. dollar during the same period of 2008.

At June 30, 2009, the Fund's bank debt included US $28.0 million of LIBOR loans compared to US $15.0 million of LIBOR borrowings at June 30, 2008. At June 30, 2009, the Fund was party to foreign currency contracts with a total net sales value of US $35.4 million as compared to a net sales value of US $99.5 million, Euro (euro)7.3 million and Australian $9.2 million outstanding as at June 30, 2008.

Enerflex does not hedge its exposure to investments in foreign subsidiaries, which are largely self-sustaining. Exchange gains or 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 2008 of $1.4 million adjusted to an accumulated comprehensive gain of $1.0 million at June 30, 2009. 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 7% against the Canadian dollar during the second quarter of 2009, as compared to a 4% appreciation in the same period of 2008. The Euro depreciated by 2% against the Canadian dollar during the second quarter of 2009, as compared to a depreciation of 1% in the same period of 2008.

Operating margin(2) 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 Fund's foreign exchange hedging strategy. For the three months ended June 30, 2009, Enerflex produced an operating margin(1) of $16.7 million, or 7.3% of revenue, as compared to an operating margin(1) of $21.4 million, or 8.3% of revenue, for the same period in 2008. The decrease in operating margin(1) for the quarter as compared to 2008 resulted from the same factors that contributed to the decreased revenue and gross margin offset by the decreased SG&A expenses.

Interest costs totalled $1.6 million for the three months ended June 30, 2009, compared with $1.4 million in the same period of 2008, an increase of $0.2 million. Interest costs in 2009 were higher than those in 2008 as a result of higher average borrowings and lower interest income from investing the Fund's cash balances. Enerflex's borrowings on its Bank Facility averaged US$23.2 million in the second quarter of 2009 as compared to an average of US$20.0 million for the three months ended June 30, 2008.

Income tax expense totalled $0.7 million for the three months ended June 30, 2009 compared to $3.2 million in the same period of 2008. The decrease in income taxes in the second quarter of 2009 compared to 2008 was primarily due to lower income before taxes and higher distributions deductible for tax.

Net income generated by Enerflex during the second quarter of 2009 was $14.9 million as compared to $17.5 million in the same period of 2008. This resulted in earnings per income trust unit of $0.32 in 2009 as compared to $0.37 for the same period of 2008.

    
    QUARTERLY SUMMARY
    (Unaudited)(Thousands except per unit amounts)
    -------------------------------------------------------------------------
    Quarter ended             Revenue   Net income     Earnings     Earnings
                                                       per unit   per unit -
                                                                     diluted
    -------------------------------------------------------------------------
    June 30, 2009            $228,168      $14,937        $0.32        $0.32
    -------------------------------------------------------------------------
    March 31, 2009            253,004       16,202         0.35         0.35
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    

SEGMENTED RESULTS

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

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.

    
    (unaudited)(thousands) Three months ended June 30,     2009         2008
    -------------------------------------------------------------------------
    Segment revenue                                 $   148,655  $   166,924
    Intersegment revenue                                 (2,088)        (982)
    -------------------------------------------------------------------------
    Revenue                                         $   146,567  $   165,942
    -------------------------------------------------------------------------
    Revenue - Canadian                              $    28,494  $    30,941
    -------------------------------------------------------------------------
    Revenue - International                         $   118,073  $   135,001
    -------------------------------------------------------------------------
    Gross margin                                    $    16,953  $    26,266
    -------------------------------------------------------------------------
    EBITDA(1)                                       $    13,251  $    13,438
    -------------------------------------------------------------------------
    Income before interest and income taxes         $    11,542  $    11,303

    Plant utilization - Compression and Power                49%          60%
    Plant utilization - Production and Processing            94%          94%
    Plant utilization - AustralAsia                          82%          80%
    -------------------------------------------------------------------------

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a non-GAAP earnings measure that does not have a
        standardized meaning prescribed by GAAP and therefore is 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 $146.6 million for the three months ended June 30, 2009 as compared to $165.9 million in the same period of 2008. This decrease of $19.3 million was largely the result of decreased international sales from lower product exports from Canada and reduced activity levels in the Fund's operations in AustralAsia. International revenue represented 81% of 2009's second quarter revenue, consistent with the comparative period in 2008.

Gross margin for the segment totalled $17.0 million, or 11.6% compared to $26.3 million or 15.8% of revenue in 2008. The decreased gross margin was the result of a strengthening Canadian dollar in the quarter, cost overruns on certain projects and lower utilization rates in the Compression & Power division. 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 as a result of percentage completion revenue recognition. During the second quarter of 2009, FX related to foreign denominated contracts negatively impacted gross margin by $2.0 million, compared to a negative impact of $1.0 million in the same period in 2008.

Income before interest and income taxes increased by $0.2 million to $11.5 million in the three months ended June 30, 2009 from $11.3 million in the second quarter of 2008. The increase was due to lower general and administrative costs in Canada and Europe, tempered by higher costs in expanding operations in the AustralAsia and MENA regions, and higher foreign exchange gains as a result of the Fund's foreign exchange contracts, partially offset by decreased revenue and margins.

With the low horsepower compression market steadily declining over the past year, the Fund closed the low horsepower compression manufacturing facility in Stettler, Alberta during the second quarter as part of its restructuring initiatives. The Fund has incorporated the design and manufacturing capability for low horsepower compression equipment into its main Compression & Power manufacturing facility in Calgary.

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

    (unaudited)(thousands) Year-to-date as of June 30,     2009         2008
    -------------------------------------------------------------------------
    Canadian                                        $    33,326  $    73,475
    International                                       184,835      376,659
    -------------------------------------------------------------------------
    Total bookings                                  $   218,161  $   450,134
                                                   --------------------------

    Backlog

    (unaudited)(thousands) As at June 30,                  2009         2008
    -------------------------------------------------------------------------
    Canadian                                        $    37,755  $    77,889
    International                                       178,274      350,536
    -------------------------------------------------------------------------
    Total backlog                                   $   216,029  $   428,425
                                                   --------------------------
    

Backlog at June 30, 2009 was $216.0 million compared to $428.4 million at June 30, 2008. This represents a 50% decrease from the prior year and a 30% decrease from the backlog at December 31, 2008. FX on international backlog at June 30, 2009 resulted in a negative impact of $9.7 million compared to a negative impact of $0.7 million for the same period in 2008.

International backlog decreased by 49% from June 30, 2008 and represents 83% of total backlog at June 30, 2009, as compared to 82% for the same period in 2008. The Fund has been impacted by a slowing global economy, with the domestic market impacted in all segments, but particularly in the low horsepower compression market as well as a slowdown on the international market, despite expansion and execution of the Fund's international strategy and increasing international presence.

SERVICE

The Service segment provides Mechanical and Electrical Instrumentation and Controls services to the oil and gas industry through an extensive branch network in Canada, the Netherlands, the state of Alaska, Germany, Australia and Indonesia.

    
    (unaudited)(thousands) Three months ended June 30,     2009         2008
    -------------------------------------------------------------------------
    Segment revenue                                 $    79,671  $    89,378
    Intersegment revenue                                 (4,126)      (3,049)
    -------------------------------------------------------------------------
    Revenue                                         $    75,545  $    86,329
    -------------------------------------------------------------------------
    Revenue - Canadian                              $    54,471  $    61,306
    -------------------------------------------------------------------------
    Revenue - international                         $    21,074  $    25,023
    -------------------------------------------------------------------------
    Gross margin                                    $    20,653  $    25,654
    -------------------------------------------------------------------------
    EBITDA(1)                                       $     4,993  $     8,645
    -------------------------------------------------------------------------
    Income before interest and income taxes         $     3,874  $     7,835
    -------------------------------------------------------------------------

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a non-GAAP earnings measure that does not have a
        standardized meaning prescribed by GAAP and therefore is 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 $75.5 million in the second quarter of 2009 and comprised 33% of consolidated revenue. This compares to $86.3 million and 33% of consolidated revenue in the same period of 2008. The decrease of $10.8 million was the result of decreased revenues for Mechanical Service and EI&C in Canada and Mechanical Service in Europe, partially offset by increased revenues from both parts and service sales in AustralAsia. International revenues of $21.1 million accounted for 28% of the segment's total revenue, compared to 29% of revenue in 2008.

Gross margin for the segment totalled $20.7 million, or 27.4% for the second quarter of 2009 as compared to $25.7 million, or 29.7% in 2008. The decrease in gross margin and gross margin percent resulted from reduced parts margins and lower labour utilization in Mechanical Services in Canada and lower parts margins in Europe partially offset by strong parts and service margins and lower utilization in AustralAsia.

Income before interest and income taxes decreased by 50% to $3.9 million in the three months ended June 30, 2009 from $7.8 million in the second quarter of 2008. This decrease was largely the result of decreased gross margins partially offset by lower administrative costs in Canada initiated earlier in the year, as compared to 2008.

PRODUCTION SERVICES

The Production Services segment provides a variety of rental and leasing alternatives for natural gas compression, power generation and processing equipment.

    
    (unaudited)(thousands) Three months ended June 30,     2009         2008
    -------------------------------------------------------------------------
    Segment revenue                                 $     6,056  $     7,254
    Intersegment revenue                                      -            -
    -------------------------------------------------------------------------
    Revenue                                         $     6,056  $     7,254
    -------------------------------------------------------------------------
    Revenue - Canadian                              $     5,518  $     6,615
    -------------------------------------------------------------------------
    Revenue - International                         $       538  $       639
    -------------------------------------------------------------------------
    Gross margin                                    $     2,234  $     3,411
    -------------------------------------------------------------------------
    EBITDA(1)                                       $     4,167  $     5,554
    -------------------------------------------------------------------------
    Income before interest and income taxes         $     1,728  $     2,933
    -------------------------------------------------------------------------
    Capital expenditures, net of proceeds on
     disposal                                       $    (2,490) $       (72)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Capital utilization - Compression                        59%          61%
    -------------------------------------------------------------------------
    Capital utilization - Power and Processing               28%          33%
    -------------------------------------------------------------------------

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a non-GAAP earnings measure that does not have a
        standardized meaning prescribed by GAAP and therefore is 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 the second quarter of 2009 decreased $1.2 million to $6.1 million as compared to $7.3 million in 2008. The decrease was the result of a decline in utilization and rental rates and in the size of the fleet with little new capital investment by the Fund. The reduced fleet size resulted from a high level of rental contract buy-out activity in the fourth quarter of 2008 and little new capital investment by the Fund due to the reduced demand for rental equipment.

Gross margin in the second quarter of 2009 totalled $2.2 million, or 36.9%, as compared to $3.4 million or 47.0% in 2008. The decrease in gross margin was the result of lower utilization and rental rates and lower gross margin percentage resulting from the allocation of a fixed depreciation charge over a smaller revenue base.

Income before interest and income taxes of $1.7 million was $1.2 million lower than 2008 as a result of the factors discussed above.

During the three months ended June 30, 2009, Production Services sold 2 compression units and 4 process equipment units from its fleet, for gross proceeds of $3.8 million and a gain on sale of $0.5 million. This compares to 4 compression units and 5 process units, for gross proceeds of $1.5 million and a gain on sale of $0.7 million in 2008. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. Enerflex added 3 compression units and 1 process unit to its fleet during the second quarter of 2009, for an investment of $2.1 million.

FOR THE SIX MONTHS ENDED JUNE 30, 2009

During the six months ended June 30, 2009, the Fund generated $481.2 million in revenue, as compared to $492.1 million in the same period of 2008. The decrease of $10.9 million or 2% was a result of decreased revenues in all three segments. International revenue increased $13.9 million from the same period in 2008 and represented 59% of revenue as compared to 55% in 2008, while domestic revenues decreased by $24.8 million over the prior year. As compared to the six month period ended June 30, 2008:

    
    -   Engineered Systems' revenue decreased by $1.0 million due to lower
        domestic sales partially offset by higher international revenues;
    -   Service revenue decreased by $8.4 million, with decreased revenue in
        Canada and Europe, partially offset by increased revenue in
        AustralAsia; and
    -   Production Services' revenue decreased by $1.5 million as a result of
        lower rental rates, lower capital utilization and a reduced rental
        fleet.

    Gross margin for the six months ended June 30, 2009 was $93.0 million or
19.3% of revenue as compared to $102.1 million or 20.7% of revenue for the six
months ended June 30, 2008, a decrease of $9.1 million. Gross margin
percentage decreased in all three segments for the first six months of 2009
compared to the same period in 2008. Many factors contributed to these
movements and are summarized as follows:

    -   Engineered Systems gross margin percentage of 14.6% decreased from
        15.5% due to a strengthening Canadian dollar, cost overruns on
        certain projects and lower utilization rates in Compression & Power;
    -   Service gross margin percentage of 27.0% decreased from 27.9%
        as a result of lower labour utilization and parts sales in Canada and
        Europe, offset by increased margins in AustralAsia; and
    -   Production Services gross margin percentage of 40.9% decreased from
        51.3% due to lower fleet utilization and rental rates when compared
        with the same period of 2008.
    

In the first half of 2009, foreign exchange (FX) related to foreign denominated contracts positively impacted gross margin by $2.2 million and positively impacted EBITDA1 by $8.0 million. During the first half of 2008, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $1.3 million and negatively impacting EBITDA by $2.7 million. Gross margin was also negatively impacted by $6.8 million during the first half as a result of re-structuring charges and cost overruns on various projects. No comparable costs were incurred in 2008.

Selling, general and administrative expenses were $66.0 million or 13.7% of revenue during the six months ended June 30, 2009, down by $0.3 million compared to the same period of 2008. Higher compensation costs carried forward from 2008 were required to react to increased compensation pressures for skilled and professional employees and the Fund's growth initiatives in AustralAsia, MENA and Europe were more than offset by cost reductions including lower travel, consulting and employee costs in addition to the closing of the Stettler facility.

Income before interest and income taxes totalled $36.0 million for the six months ended June 30, 2009 as compared to $37.3 million for the same period in 2008. This decrease of $1.3 million was the result of the factors discussed above.

Interest costs totalled $2.8 million for the six months ended June 30, 2009, compared with $2.9 million in the same period of 2008, a decrease of $0.1 million primarily due to lower interest charges.

Income tax expense totalled $2.0 million for the six months ended June 30, 2009 compared to $3.4 million in the same period of 2008. The decrease in income taxes was primarily due to increased distributions deductible for tax.

Net Income generated by Enerflex during the first half of 2009 was $31.1 million as compared to $31.0 million in the same period of 2008. This results in earnings per income trust unit of $0.67 in 2009, as compared to $0.66 in the same period of 2008.

    
    SEGMENTED RESULTS

    ENGINEERED SYSTEMS

    (unaudited)(thousands) Six months ended June 30,       2009         2008
    -------------------------------------------------------------------------
    Segment revenue                                 $   318,343  $   314,077
    Intersegment revenue                                 (7,451)      (2,155)
    -------------------------------------------------------------------------
    Revenue                                         $   310,892  $   311,922
    -------------------------------------------------------------------------
    Revenue - Canadian                              $    69,437  $    87,968
    -------------------------------------------------------------------------
    Revenue - International                         $   241,455  $   223,954
    -------------------------------------------------------------------------
    Gross margin                                    $    45,265  $    48,430
    -------------------------------------------------------------------------
    EBITDA(1)                                       $    27,228  $    24,067
    -------------------------------------------------------------------------
    Income before interest and income taxes         $    23,820  $    20,452

    Plant utilization - Compression and Power                53%          62%
    Plant utilization - Production and Processing            93%          91%
    Plant utilization - AustralAsia                          82%          81%
    -------------------------------------------------------------------------

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a non-GAAP earnings measure that does not have a
        standardized meaning prescribed by GAAP and therefore is 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 $310.9 million for the six months ended June 30, 2009 as compared to $311.9 million in the same period of 2008. This decrease of $1.0 million was the result of decreases in domestic sales within the Compression & Power division partially offset by increased domestic sales in the Production & Processing division. The decrease in domestic sales was due in part to the devaluation of the U.S. dollar relative to the Canadian dollar and was partially offset by an increase in international sales in the segment. Increased international revenues were due to increased exports from Canada while AustralAsia revenues were consistent with 2008 levels. International revenue represented 78% of 2009's revenue as compared to 72% in 2008.

Gross margin for the segment totalled $45.3 million or 14.6% compared to $48.4 million or 15.5% of revenue in 2008. The decreased gross margin was the result of the slower economy and a declining compression and process marketplace. In Canada, a strengthening Canadian dollar, lower utilization rates in Compression & Power, cost overruns on international projects and lower quoted margins contributed to the decline. 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. During the first half of 2009, FX related to foreign denominated contracts positively impacted gross margin by $2.2 million, compared to a negative impact of $1.3 million in the same period in 2008.

Income before interest and income taxes in 2009 increased by $3.3 million to $23.8 million, from $20.5 million in 2008. This increase was a result of the decreased revenue and margins which were more than offset by decreased SG&A plus increased foreign exchange gains on foreign exchange contracts.

    
    SERVICE

    (unaudited)(thousands) Six months ended June 30,       2009         2008
    -------------------------------------------------------------------------
    Segment revenue                                 $   164,738  $   172,506
    Intersegment revenue                                 (7,138)      (6,516)
    -------------------------------------------------------------------------
    Revenue                                         $   157,600  $   165,990
    -------------------------------------------------------------------------
    Revenue - Canadian                              $   115,448  $   120,331
    -------------------------------------------------------------------------
    Revenue - International                         $    42,152  $    45,659
    -------------------------------------------------------------------------
    Gross margin                                    $    42,505  $    46,338
    -------------------------------------------------------------------------
    EBITDA(1)                                       $     9,811  $    12,564
    -------------------------------------------------------------------------
    Income before interest and income taxes         $     7,490  $     9,980

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a non-GAAP earnings measure that does not have a
        standardized meaning prescribed by GAAP and therefore is 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 $157.6 million for the six months ended June 30, 2009 and comprised 33% of consolidated revenue. This compares to $166.0 million and 34% of consolidated revenue in the same period of 2008. The decrease of $8.4 million was the result of decreased revenues for Mechanical Service and EI&C in Canada and Mechanical Service in Europe, partially offset by increased revenues in AustralAsia. International revenues of $42.2 million accounted for 27% of the segment's total revenue as compared to 28% of revenue in 2008.

Gross margin for the segment totalled $42.5 million, or 27.0% as compared to $46.3 million, or 27.9% in 2008. Margins were lower as the gross margin percentage decreased predominantly in Europe and was mitigated by an increased percentage in EI&C in Canada due to higher labour utilization and in AustralAsia with strong parts margins.

Income before interest and income taxes decreased by $2.5 million to $7.5 million in the six months ended June 30, 2009 from $10.0 million in the first six months of 2008. This decrease was a result of the factors discussed above.

    
    PRODUCTION SERVICES

    (unaudited)(thousands) Six months ended June 30,       2009         2008
    -------------------------------------------------------------------------
    Segment revenue                                 $    12,683  $    14,236
    Intersegment revenue                                     (3)          (2)
    -------------------------------------------------------------------------
    Revenue                                         $    12,680  $    14,234
    -------------------------------------------------------------------------
    Revenue - Canadian                              $    11,559  $    12,984
    -------------------------------------------------------------------------
    Revenue - International                         $     1,121  $     1,250
    -------------------------------------------------------------------------
    Gross margin                                    $     5,185  $     7,307
    -------------------------------------------------------------------------
    EBITDA(1)                                       $     9,876  $    12,011
    -------------------------------------------------------------------------
    Income before interest and income taxes         $     4,703  $     6,854
    -------------------------------------------------------------------------
    Capital expenditures, net of proceeds
     on disposal                                    $         1  $    (7,642)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Capital utilization - Compression                        59%          61%
    -------------------------------------------------------------------------
    Capital utilization - Power and Processing               28%          34%
    -------------------------------------------------------------------------

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a non-GAAP earnings measure that does not have a
        standardized meaning prescribed by GAAP and therefore is 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 the first six months of 2009 decreased $1.5 million to $12.7 million as compared to $14.2 million in 2008. The decrease was the result of reductions in rental revenue due to a decline in utilization and rental rates and in the size of the fleet. The reduced fleet size resulted from a high level of rental contract buy-out activity in the fourth quarter of 2008, combined with little capital investment by the Fund in 2009.

Gross margin in 2009 totalled $5.2 million, or 40.9%, as compared to $7.3 million or 51.3% in 2008. This decrease was due to lower utilization rates, lower rental rates on the compression fleet partially offset by slightly higher process rates, and the allocation of a fixed depreciation charge over a smaller revenue base.

Income before interest and income taxes of $4.7 million was $2.2 million lower than 2008 as a result of the factors discussed above.

During the six months ended June 30, 2009, Production Services sold 5 compression units and 7 process units from its fleet, for gross proceeds of $5.4 million and a gain on sale of $1.3 million. This compares to 15 compression units and 14 process units, for gross proceeds of $10.0 million and a gain on sale of $1.7 million in 2008. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. Enerflex added 4 compression units and 4 process units to its fleet during 2009, for an investment of $5.1 million.

    
    FINANCIAL POSITION

    The following table outlines significant changes in the Consolidated
Balance Sheets as at June 30, 2009 as compared to December 31, 2008:

    -------------------------------------------------------------------------
    ($millions)              Increase/
                            (decrease)               Explanation
    -------------------------------------------------------------------------
    Assets:
    -------------------------------------------------------------------------
    Accounts receivable          (3.1)  Decreased progress billings due to
                                        the lower activity levels in the
                                        Engineered Systems segment and
                                        decreased prepaid expenses and
                                        project costs, partially offset by
                                        higher revenue accrual balances in
                                        2009.
    -------------------------------------------------------------------------
    Assets held for trading       1.9   The Fund had an embedded derivative
                                        on an international contract
                                        resulting in a mark-to-market gain.
    -------------------------------------------------------------------------
    Income taxes receivable       2.5   Increased primarily due to tax
                                        recoveries recorded on increased
                                        distributions deductible for Canadian
                                        tax purposes.
    -------------------------------------------------------------------------
    Current future income taxes  (2.5)  Decreased primarily as a result of
                                        reduced deductible temporary
                                        differences on financial statement
                                        provisions.
    -------------------------------------------------------------------------
    Rental equipment             (2.2)  The decline is due to continuing
                                        depreciation of existing assets
                                        during the quarter and rental
                                        contract buy-outs.
    -------------------------------------------------------------------------
    Liabilities:
    -------------------------------------------------------------------------
    Liabilities held for trading (6.7)  The market value of foreign exchange
                                        contracts increased due to the
                                        strengthening Canadian dollar.
    -------------------------------------------------------------------------
    Deferred revenue             (3.6)  Revenue recognized on existing jobs
                                        where advanced billings were
                                        completed exceeded advanced billings
                                        on new contracts awarded during the
                                        first half of 2009.
    -------------------------------------------------------------------------
    Income taxes payable         (2.8)  Decreased primarily due to payment of
                                        income taxes accrued but unpaid at
                                        December 2008.
    -------------------------------------------------------------------------
    Long term debt               16.7   Increased long term debt resulting
                                        from additional borrowings on the
                                        Bank Facility through the first half
                                        of 2009.
    -------------------------------------------------------------------------

    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:

                          ---------------------------------------------------
    (unaudited)(thousands)      Three months ended          Six months ended
                                           June 30,                  June 30,
                          ---------------------------------------------------
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Cash, beginning of
     period               $    40,963  $    41,312  $    50,517  $    38,927
    Cash provided from
     (used in):
    Operating activities       21,125       42,969       31,344       46,548
    Investing activities       (4,064)        (766)      (7,934)       8,442
    Financing activities        5,123      (30,376)     (10,780)     (40,778)
    Cash, end of period   $    63,147  $    53,139  $    63,147  $    53,139
    

Operating Activities

For the three months ended June 30, 2009, cash generated from operating activities was $21.1 million, a decrease of $21.9 million compared to the same period of 2008. The decrease was the result of lower earnings and increased working capital needs primarily due to decreased accounts payable and deferred revenue.

For the six months ended June 30, 2009, cash generated from operating activities was $31.3 million compared to $46.5 million for the same period of 2008. The decrease was the result of increased working capital needs as decreased accounts payable were partially offset by decreased accounts receivable and inventories as well as increased deferred revenue.

Investing Activities

Cash used in investing activities for the three months ended June 30, 2009 was $4.1 million, an increase of $3.3 million as compared to the same period in 2008. The change was the result of a $1.3 million increase in fixed asset and rental expenditures, an increase in proceeds on disposition of fixed assets and rental equipment of $2.0 million and an increase in long-term capital lease financing receivables of $2.9 million.

Cash used in investing activities for the six months ended June 30, 2009 was $7.9 million compared to cash produced in investing activities of $8.4 million in the same period in 2008. The change was the result of a $5.7 million increase in fixed asset and rental expenditures while proceeds on disposition of fixed assets and rental equipment decreased by $4.8 million.

Financing Activities

Cash produced from financing activities was $5.1 million for the three months ended June 30, 2009 as compared to cash used of $30.4 million for the same period of 2008. The increase was primarily a result of the Fund increasing borrowings on its Bank Facility in the second quarter of 2009, as well as increasing distributions paid by $2.4 million as compared to the second quarter of 2008.

Cash used in financing activities was $10.8 million for the first half ended June 30, 2009 as compared to cash used of $40.8 million for the same period of 2008. The change was due to the same factors as the quarter, increased borrowings on the Fund's Bank Facility and increased distributions.

    
    Distributable Cash Flow
    -------------------------------------------------------------------------
    (unaudited)(thousands)      Three months ended          Six months ended
                                           June 30,                  June 30,
    -------------------------------------------------------------------------
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Distributable cash
     flow(1)              $    18,719  $    42,298  $    27,711  $    45,147
    -------------------------------------------------------------------------

    (1) Distributable cash flow and distribution payout ratio 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.
    

Distributable cash flow(1) for the second quarter of 2009 of $18.7 million decreased from $42.3 million in the same period of 2008 primarily due to the changes in non-cash working capital and decreased earnings. Distributable cash flow not including the changes in non-cash working capital was $19.1 million for the second quarter of 2009, $3.4 million lower than the $22.5 million during the same period of 2008.

    
    Distribution Payout Ratio
    -------------------------------------------------------------------------
    (unaudited)                 Three months ended          Six months ended
                                           June 30,                  June 30,
    -------------------------------------------------------------------------
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Distribution payout
     ratio(1)                      75%          28%         101%          52%
    -------------------------------------------------------------------------

    (1) Distributable cash flow and distribution payout ratio 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.
    

Distributions declared in the second quarter of 2009 represented 75% of distributable cash flow1 in comparison to 28% for the same period of 2008. The higher payout ratio was the result of the same factors contributing to the lower distributable cash flow and increased distribution. Ignoring the impact of changes in non-cash working capital, the payout ratio for the second quarter of 2009 was 74% as compared to 52% in the same period of 2008.

    
    Net Capital Spending
    -------------------------------------------------------------------------
    (unaudited)(thousands)      Three months ended          Six months ended
                                           June 30,                  June 30,
    -------------------------------------------------------------------------
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Net capital spending       $1,062       $1,709       $6,284      $(4,209)
    -------------------------------------------------------------------------
    

Net capital spending for the second quarter of 2009 was $1.1 million, a decline of $0.6 million as compared to $1.7 million in the same period of 2008. The change was the result of higher capital investment in the rental fleet, more than offset by higher proceeds on disposal of rental assets during the second quarter of 2009 as a result of continued reduced customer demand and increased proceeds from the sale of rental equipment in the second quarter of 2009.

CAPITAL RESOURCES

On August 1, 2009, the Fund had 44,240,503 income trust units and 2,663,422 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. 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. The Fund declared a distribution of $0.30 per unit in each of the first two quarters of 2009.

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 unitholders in certain circumstances. Enerflex was in full compliance with these covenants at June 30, 2009 and August 1, 2009.

On July 31, 2009, the Fund successfully amended its Bank Facility by extending its maturity date by one year to June 30, 2011 and increasing the amount from $150.0 million to $200.0 million.

On June 30, 2009, $100.6 million in Notes were outstanding and approximately $44.4 million of the $150.0 million Bank Facility was drawn, comprised of $32.6 million in cash borrowings and $11.8 million of letters of credit or guarantees, leaving approximately $105.6 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                         June 30, December 31,
    (Unaudited) (Thousands)                                2009         2008
    -------------------------------------------------------------------------
    ASSETS
    Current assets
      Cash and cash equivalents                     $    63,147  $    50,517
      Assets held for trading                             3,566        1,671
      Accounts receivable                               238,096      241,174
      Inventory                                         137,079      135,685
      Income taxes receivable                             6,971        4,435
      Future income taxes                                 5,776        8,238
    -------------------------------------------------------------------------
      Total current assets                              454,635      441,720

    Rental equipment                                     86,428       88,641
    Property, plant and equipment                        70,069       70,130
    Investment in affiliates                              3,096        2,939
    Future income taxes                                   3,556        3,771
    Intangible assets                                     6,830        7,812
    Goodwill                                            127,356      126,146
    -------------------------------------------------------------------------
                                                    $   751,970  $   741,159
                                                   --------------------------
                                                   --------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities
      Accounts payable and accrued liabilities      $   109,368  $   109,248
      Liabilities held for trading                        1,390        8,123
      Accrued distributions payable                      14,060       14,028
      Deferred revenue                                   75,131       78,766
      Income taxes payable                                1,875        4,628
      Future income taxes                                    43           77
    -------------------------------------------------------------------------
      Total current liabilities                         201,867      214,870

    Long-term debt                                      132,535      115,847
    Other long-term liabilities                           4,052        2,830
    Future income taxes                                   9,197        9,879
    -------------------------------------------------------------------------
                                                        347,651      343,426
    -------------------------------------------------------------------------
    Guarantees, Commitments and Contingencies
    Unitholders' equity
      Unitholders' capital                              207,296      206,322
      Accumulated other comprehensive income (loss)       1,013       (1,363)
      Contributed surplus                                   741          541
      Retained earnings                                 195,269      192,233
    -------------------------------------------------------------------------
                                                        404,319      397,733
                                                   --------------------------
                                                    $   751,970  $   741,159
                                                   --------------------------
                                                   --------------------------



    Consolidated Statements of Income

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
    (Unaudited) (Thousands,
     except unit amounts)        2009         2008         2009         2008
    -------------------------------------------------------------------------
    Revenue               $   228,168  $   259,525  $   481,172  $   492,146
    Cost of goods sold        188,328      204,194      388,217      390,071
    -------------------------------------------------------------------------
    Gross margin               39,840       55,331       92,955      102,075
    Selling, general and
     administrative expenses   32,066       34,332       65,967       66,317
    Foreign currency
     (gains) losses            (8,902)        (425)      (7,571)         563
    Gain on sale of assets       (484)        (644)      (1,303)      (1,969)
    Equity earnings from
     affiliates                    16           (3)        (151)        (122)
    -------------------------------------------------------------------------
    Income before interest
     and income taxes          17,144       22,071       36,013       37,286
    Interest                    1,552        1,364        2,847        2,892
    -------------------------------------------------------------------------
    Income before income
     taxes                     15,592       20,707       33,166       34,394
    Income tax expense            655        3,243        2,027        3,438
    -------------------------------------------------------------------------
    Net Income            $    14,937  $    17,464  $    31,139  $    30,956
                         ----------------------------------------------------

    Net Income per unit
     - basic              $      0.32  $      0.37  $      0.67  $      0.66
     - diluted            $      0.32  $      0.37  $      0.67  $      0.66
    Weighted average
     number of units       46,852,225   46,695,601   46,827,115   46,694,317
                         ----------------------------------------------------


    Consolidated Statements of Retained Earnings

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
    (Unaudited) (Thousands)      2009         2008         2009         2008
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of period  $   194,392  $   180,222  $   192,233  $   179,494
    Adjustment to retained
     earnings, opening              -            -            -       (1,091)
    Net Income                 14,937       17,464       31,139       30,956
    Distributions             (14,060)     (11,674)     (28,103)     (23,347)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period        $   195,269  $   186,012  $   195,269  $   186,012


    Consolidated Statements of Comprehensive Income

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
    (Unaudited) (Thousands)      2009         2008         2009         2008
    -------------------------------------------------------------------------
    Net Income            $    14,937  $    17,464  $    31,139  $    30,956
    Other comprehensive
     income, net of tax:
      Foreign currency
       translation of
       self-sustaining
       operations (Note 9)      1,326        1,542        2,376        8,777
    -------------------------------------------------------------------------
    Comprehensive Income  $    16,263  $    19,006  $    33,515  $    39,733



    Consolidated Statements of Cash Flows

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
    -------------------------------------------------------------------------
    (Unaudited) (Thousands)      2009         2008         2009         2008
    -------------------------------------------------------------------------
    Operating Activities
      Net income          $    14,937  $    17,464  $    31,139  $    30,956
      Depreciation and
       amortization             5,267        5,566       10,902       11,356
      Future income taxes       1,628          734        1,417          229
      Gain on sale of assets     (484)        (644)      (1,303)      (1,969)
      Equity earnings from
       affiliates                  16           (3)        (151)        (122)
      Unit option expense         102           44          203          114
    -------------------------------------------------------------------------
                               21,466       23,161       42,207       40,564
      Changes in non-cash
       working capital and
       other                     (341)      19,808      (10,863)       5,984
    -------------------------------------------------------------------------
      Cash flow produced
       in operations           21,125       42,969       31,344       46,548
    -------------------------------------------------------------------------

    Investing Activities
    Acquisitions                    -          238            -          238
    Purchase of:
      Rental equipment         (2,123)      (1,359)      (5,453)      (2,129)
      Property, plant
       and equipment             (956)      (1,940)      (2,473)      (3,323)
      Assets under
       construction            (1,837)        (255)      (3,886)        (693)
    Proceeds on disposal of:
      Rental equipment          3,781        1,481        5,436        9,967
      Property, plant
       and equipment               73          364           92          387
    -------------------------------------------------------------------------
                               (1,062)      (1,471)      (6,284)       4,447
      Changes in non-cash
       working capital and
       other                   (3,002)         705       (1,650)       3,995
    -------------------------------------------------------------------------
      Cash flow (used)
       produced in investing   (4,064)        (766)      (7,934)       8,442
    -------------------------------------------------------------------------

    Financing Activities
      Advance (repayment)
       of long-term debt       18,497      (17,942)      17,026      (17,942)
      Unit options exercised       72            -           72            -
      Distributions paid      (13,565)     (11,646)     (27,169)     (23,290)
    -------------------------------------------------------------------------
                                5,004      (29,588)     (10,071)     (41,232)
      Changes in non-cash
       working capital and
       other                      119         (788)        (709)         454
    -------------------------------------------------------------------------
      Cash flow produced
       (used) in financing      5,123      (30,376)     (10,780)     (40,778)
    -------------------------------------------------------------------------
      Increase in cash and
       cash equivalents        22,184       11,827       12,630       14,212
      Cash and cash
       equivalents,
       beginning of
       period                  40,963       41,312       50,517       38,927
    -------------------------------------------------------------------------
      Cash and cash
       equivalents, end
       of period          $    63,147  $    53,139  $    63,147  $    53,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows include
     the following
     elements:
      Interest paid       $     2,872  $     1,412  $     2,978  $     1,567
    -------------------------------------------------------------------------
      Income taxes paid
       (received)         $    3,088   $      (817) $     3,876  $      (902)
    -------------------------------------------------------------------------


    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.

                                                             Engineered
                                         Service               Systems
    -------------------------------------------------------------------------
    Three months ended June 30,        2009       2008       2009       2008
    -------------------------------------------------------------------------
    Segment revenue                $ 79,671   $ 89,378   $148,655   $166,924
      Intersegment revenue           (4,126)    (3,049)    (2,088)      (982)
    -------------------------------------------------------------------------
      External revenue             $ 75,545   $ 86,329   $146,567   $165,942
                                  -------------------------------------------

    Gross margin                   $ 20,653   $ 25,654   $ 16,953   $ 26,266
                                  -------------------------------------------

    Depreciation and amortization  $  1,119   $    810   $  1,709   $  2,135
    -------------------------------------------------------------------------

    Income before interest and
     income taxes                  $  3,874   $  7,835   $ 11,542   $ 11,303
    -------------------------------------------------------------------------

    Capital expenditures           $    234   $    250   $  2,047   $  1,249
      Corporate
    -------------------------------------------------------------------------

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

    Proceeds on disposal of assets $      -   $     65   $     73   $    299
    -------------------------------------------------------------------------


                                        Production
                                         Services            Consolidated
    -------------------------------------------------------------------------
    Three months ended June 30,        2009       2008       2009       2008
    -------------------------------------------------------------------------
    Segment revenue                $  6,056   $  7,254   $234,382   $263,556
      Intersegment revenue                -          -     (6,214)    (4,031)
    -------------------------------------------------------------------------
      External revenue             $  6,056   $  7,254   $228,168   $259,525
    -------------------------------------------------------------------------

    Gross margin                   $  2,234   $  3,411   $ 39,840   $ 55,331
    -------------------------------------------------------------------------

    Depreciation and amortization  $  2,439   $  2,621   $  5,267   $  5,566
    -------------------------------------------------------------------------

    Income before interest and
     income taxes                  $  1,728   $  2,933   $ 17,144   $ 22,071
    -------------------------------------------------------------------------

    Capital expenditures           $  1,291   $  1,409   $  3,572   $  2,908
      Corporate                                             1,344        646
    -------------------------------------------------------------------------
                                                         $  4,916   $  3,554
    -------------------------------------------------------------------------

    Proceeds on disposal of assets $  3,781   $  1,481   $  3,854   $  1,845
    -------------------------------------------------------------------------


                                                             Engineered
                                         Service               Systems
    -------------------------------------------------------------------------
    Six months ended June 30,          2009       2008       2009       2008
    -------------------------------------------------------------------------
    Segment revenue                $164,738   $172,506   $318,343   $314,077
      Intersegment revenue           (7,138)    (6,516)    (7,451)    (2,155)
    -------------------------------------------------------------------------
      External revenue             $157,600   $165,990   $310,892   $311,922
                                  -------------------------------------------

    Gross Margin                   $ 42,505   $ 46,338   $ 45,265   $ 48,430
                                  -------------------------------------------

    Depreciation and amortization  $  2,321   $  2,584   $  3,408   $  3,615
    -------------------------------------------------------------------------

    Income before interest and
     income taxes                  $  7,490   $  9,980   $ 23,820   $ 20,452
    -------------------------------------------------------------------------

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

    Segment assets                 $174,763   $170,419   $343,510   $316,389
      Corporate
      Goodwill                       51,735     51,666     68,265     68,926
    -------------------------------------------------------------------------
    Total Segment assets           $226,498   $222,085   $411,775   $385,315
                                  -------------------------------------------

    Capital expenditures           $    416   $    662   $  3,325   $  2,262
      Corporate
    -------------------------------------------------------------------------

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

    Proceeds on disposal of assets $      -   $     72   $     92   $    315


                                        Production
                                         Services            Consolidated
    -------------------------------------------------------------------------
    Six months ended June 30,          2009       2008       2009       2008
    -------------------------------------------------------------------------
    Segment revenue                $ 12,683   $ 14,236   $495,764   $500,819
      Intersegment revenue               (3)        (2)   (14,592)    (8,673)
    -------------------------------------------------------------------------
      External revenue             $ 12,680   $ 14,234   $481,172   $492,146
    -------------------------------------------------------------------------

    Gross Margin                   $  5,185   $  7,307   $ 92,955   $102,075
    -------------------------------------------------------------------------

    Depreciation and amortization  $  5,173   $  5,157   $ 10,902   $ 11,356
    -------------------------------------------------------------------------

    Income before interest and
     income taxes                  $  4,703   $  6,854   $ 36,013   $ 37,286
    -------------------------------------------------------------------------

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

    Segment assets                 $117,609   $112,215   $635,882   $599,023
      Corporate                                           (11,268)    (2,541)
      Goodwill                        7,356      7,356    127,356    127,948
    -------------------------------------------------------------------------
    Total Segment assets           $124,965   $119,571   $751,970   $724,430
    -------------------------------------------------------------------------

    Capital expenditures           $  5,437   $  2,325   $  9,178   $  5,249
      Corporate                                             2,634        896
    -------------------------------------------------------------------------
                                                         $ 11,812   $  6,145
    -------------------------------------------------------------------------

    Proceeds on disposal of assets $  5,436   $  9,967   $  5,528   $ 10,354



    Revenue from foreign countries was:

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Australia             $    57,841  $    86,223  $   110,464  $   142,287
    Indonesia                   5,202        2,333       12,376       10,471
    Libya                       4,589          694       10,466          883
    Mexico                      5,498        1,306        9,119        1,481
    Netherlands                11,195       13,899       23,114       27,732
    Oman                        4,510        1,406       10,343        1,767
    Pakistan                   10,273       11,136       21,714       16,360
    Russia                      8,993            4       35,517           61
    United States              27,045       24,347       37,628       38,945
    Other                       4,539       19,315       13,987       30,875
    -------------------------------------------------------------------------
                          $   139,685  $   160,663  $   284,728  $   270,862

    Included in these
     amounts are gross
     exports from
     domestic operations
     of:                  $    69,105  $    80,580  $   138,113  $   131,261
                         ----------------------------------------------------



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

    Total assets in foreign countries were as follows:

                          June 30, 2009               December 31, 2008
                  ----------------------------- -----------------------------
                   Capital                       Capital
                  Assets &     Other     Total  Assets &     Other     Total
                  Goodwill    Assets    Assets  Goodwill    Assets    Assets

    Australia     $ 33,779  $ 45,397  $ 79,176  $ 23,157  $ 62,491  $ 85,648

    Netherlands     10,849    39,540    50,389     7,664    45,641    53,305

    United States    6,228     6,214    12,442     6,884     6,252    13,136

    Other                               25,271                        35,187

    -------------------------------------------------------------------------
    Total assets                      $167,278                      $187,276
                  -----------------------------------------------------------
                  -----------------------------------------------------------

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

For further information: For further information: For investor and media inquiries, please contact: 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

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890