Enerflex Reports Second Quarter 2009 Financial Results and Announces Third
Quarter 2009 Distributions
Financial Highlights
Three Months Ended June 30
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$ millions, except per unit amounts and
percentages (unaudited) 2009 2008 % change
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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
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2009 2008 % change
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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
Earnings per unit in the second quarter decreased to
Enerflex generated
Gross margin decreased to
Gross margin for the first half of the year totalled
Due to the continuing low levels of activity during the second quarter, backlog has decreased to
"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
The Fund ended the quarter with
The Board of Directors of the Fund approved a third quarter cash distribution of
Conference Call and Webcast Details
Enerflex will host a conference call for analysts and investors
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
A live audio webcast of the conference call will be available on our website at www.enerflex.com under the Investor Relations section on
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
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
FINANCIAL HIGHLIGHTS
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(Unaudited)(Thousands) Three months ended Six months ended
June 30, June 30,
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2009 2008 2009 2008
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Revenue
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Canadian $ 88,483 $ 98,862 $ 196,444 $ 221,284
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International 139,685 160,663 284,728 270,862
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Total revenue 228,168 259,525 481,172 492,146
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Gross margin 39,840 55,331 92,955 102,075
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Gross margin percent 17.5% 21.3% 19.3% 20.7%
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Selling, general &
administrative
expenses 32,066 34,332 65,967 66,317
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Income before interest
& taxes 17,144 22,071 36,013 37,286
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Interest expense 1,552 1,364 2,847 2,892
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Income before taxes 15,592 20,707 33,166 34,394
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Income tax expense 655 3,243 2,027 3,438
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Net income $ 14,937 $ 17,464 $ 31,139 $ 30,956
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NON-GAAP MEASURES
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(Unaudited)(Thousands) Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
Operating margin(1)
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Gross margin $ 39,840 $ 55,331 $ 92,955 $ 102,075
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Selling, general &
administrative
expenses 32,066 34,332 65,967 66,317
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Foreign currency
(gains)/losses (8,902) (425) (7,571) 563
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Equity earnings 16 (3) (151) (122)
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Operating margin $ 16,660 $ 21,427 $ 34,710 $ 35,317
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Operating margin
percent 7.3% 8.3% 7.2% 7.2%
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EBITDA(1)
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Earnings before
interest & taxes $ 17,144 $ 22,071 $ 36,013 $ 37,286
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Depreciation and
amortization 5,267 5,566 10,902 11,356
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EBITDA(1) $ 22,411 $ 27,637 $ 46,915 $ 48,642
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EBITDA - adjusted(2) $ 16,045 $ 28,250 $ 38,890 $ 51,349
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Distributable cash
flow(1),(3)
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Cash flow from
operations before
working capital
adjustments $ 21,466 $ 23,161 $ 42,207 $ 40,564
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Adjustments to working
capital and other (341) 19,808 (10,863) 5,984
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Net maintenance
capital expenditures (2,406) (671) (3,633) (1,401)
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Distributable cash $ 18,719 $ 42,298 $ 27,711 $ 45,147
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Distributions accrued
and paid $ 14,060 $ 11,674 $ 28,103 $ 23,347
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(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
FOR THE THREE MONTHS ENDED
During the second quarter of 2009, the Fund generated
- 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
Selling, general and administrative (SG&A) expenses were
Foreign exchange gains totalled
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
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
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
Interest costs totalled
Income tax expense totalled
Net income generated by Enerflex during the second quarter of 2009 was
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
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March 31, 2009 253,004 16,202 0.35 0.35
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December 31, 2008 297,474 16,178 0.35 0.35
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September 30, 2008 257,059 18,086 0.39 0.39
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June 30, 2008 259,525 17,464 0.37 0.37
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March 31, 2008 232,621 13,492 0.29 0.29
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December 31, 2007 235,116 18,702 0.40 0.40
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September 30, 2007 195,570 11,528 0.25 0.25
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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)
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Revenue $ 146,567 $ 165,942
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Revenue - Canadian $ 28,494 $ 30,941
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Revenue - International $ 118,073 $ 135,001
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Gross margin $ 16,953 $ 26,266
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EBITDA(1) $ 13,251 $ 13,438
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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
Gross margin for the segment totalled
Income before interest and income taxes increased by
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
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
International backlog decreased by 49% from
SERVICE
The Service segment provides Mechanical and Electrical Instrumentation and Controls services to the oil and gas industry through an extensive branch network in
(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
Gross margin for the segment totalled
Income before interest and income taxes decreased by 50% to
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
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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
Gross margin in the second quarter of 2009 totalled
Income before interest and income taxes of
During the three months ended
FOR THE SIX MONTHS ENDED
During the six months ended
- 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
Selling, general and administrative expenses were
Income before interest and income taxes totalled
Interest costs totalled
Income tax expense totalled
Net Income generated by Enerflex during the first half of 2009 was
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
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Gross margin $ 45,265 $ 48,430
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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
Gross margin for the segment totalled
Income before interest and income taxes in 2009 increased by
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
Gross margin for the segment totalled
Income before interest and income taxes decreased by
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
Gross margin in 2009 totalled
Income before interest and income taxes of
During the six months ended
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.
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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
For the six months ended
Investing Activities
Cash used in investing activities for the three months ended
Cash used in investing activities for the six months ended
Financing Activities
Cash produced from financing activities was
Cash used in financing activities was
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
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
CAPITAL RESOURCES
On
During 2006, the Fund completed the restructuring of its debt with the closing of a private placement for
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
On
On
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 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
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