Enerflex Reports Third Quarter 2009 Financial Results

CALGARY, Nov. 5 /CNW/ - Enerflex Systems Income Fund (TSX:EFX.UN) today announced its financial and operating results for the three and nine months ended September 30, 2009.

    
    Financial Highlights

                                            Three Months Ended September 30
    -------------------------------------------------------------------------
    $ millions, except per unit amounts         2009        2008    % change
     and percentages (unaudited)
    -------------------------------------------------------------------------
    Revenue                                $   163.6   $   257.1         (36)
    Gross margin                           $    27.1   $    56.4         (52)
    Gross margin percent                        16.6        21.9
    Operating margin(1)                    $     1.5   $    20.3         (93)
    Operating margin percent(1)                  0.9         7.9
    Net income                             $     4.9   $    18.1         (73)
    Earnings per unit (basic)              $    0.10   $    0.39         (74)
    Distributable cash flow per unit(2)    $    0.46   $    0.88         (48)
    Distribution per unit                  $    0.30   $    0.30           -


                                             Nine Months Ended September 30
    -------------------------------------------------------------------------
                                                2009        2008    % change
    -------------------------------------------------------------------------
    Revenue                                $   644.8   $   749.2         (14)
    Gross margin                           $   120.1   $   158.5         (24)
    Gross margin percent                        18.6        21.2
    Operating margin(1)                    $    36.2   $    55.7         (35)
    Operating margin percent(1)                  5.6         7.4
    Net income                             $    36.0   $    49.0         (27)
    Earnings per unit (basic)              $    0.77   $    1.05         (27)
    Distributable cash flow per unit(2)    $    1.05   $    1.85         (43)
    Distribution per unit                  $    0.90   $    0.80          13

    (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.


    Third Quarter Highlights

    -   Earnings were $0.10 per unit representing a 74% decrease from the
        $0.39 per unit achieved in the comparable period last year.

    -   EBITDA decreased by 75% to $7.1 million versus the $28.4 million
        achieved during the same period last year.

    -   Subsequent to the quarter, Enerflex has secured purchase orders for
        domestic contracts totalling approximately $66.0 million. In
        addition, Enerflex has been awarded projects in the AustralAsia
        region amounting to approximately $23.0 million that are subject to
        contract finalization, totalling approximately $89.0 million in
        subsequent contract awards. These contracts once finalized will have
        a significant positive impact on the Fund's backlog.
    

Third quarter revenues of $163.6 million represent a 36% decrease from the comparable quarter of the prior year. Revenues from international sources accounted for 50% of total revenues or $81.6 million. Year-to-date revenues were $644.8 million compared to $749.2 million during the same period last year.

Earnings per unit in the third quarter decreased to $0.10, 74% lower than the $0.39 per unit achieved in the third quarter of 2008. Year-to-date earnings per unit were $0.77, compared to $1.05 in the same period of 2008.

Enerflex generated $7.1 million of EBITDA in the third quarter, a decrease of 75% compared to $28.4 million in the comparable quarter of last year. Year-to-date EBITDA was $54.0 million, compared to $77.0 million during the same period of the prior year.

Gross margin decreased to $27.1 million or 16.6% of revenue in the third quarter as compared to $56.4 million or 21.9% of revenue during the comparable quarter last year. Foreign exchange related to foreign denominated contracts negatively impacted gross margin by $2.4 million (positive impact of $3.0 million in 2008) and negatively impacted EBITDA by $0.4 million (positive impact of $0.1 million in 2008). Also having a negative impact on gross margin during the quarter were lower plant utilization rates and a strengthening Canadian dollar.

Year-to-date gross margin totalled $120.1 million or 18.6% of revenue compared to $158.5 million or 21.2% of revenue during the same period last year. Year-to-date, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $0.1 million (positive impact of $1.7 million in 2008) and positively impacted EBITDA by $7.6 million (negative impact of $2.6 million in 2008).

Industry dynamics remained difficult during the quarter resulting in the decrease of backlog to $187.5 million representing a 53% decrease from the prior year period's backlog of $398.6 million.

"Continued low activity adversely impacted booking levels in the third quarter. As a result, prudent cost management of our current backlog and project margins will continue to be a primary focus for the remainder of the year," commented Blair Goertzen, President and CEO of Enerflex. "On a positive note, the industry has begun to show signs of recovery indicating that the current down cycle may have been at the bottom in the third quarter."

Subsequent to the quarter, the Fund has been awarded domestic and international projects worth approximately $89.0 million. "We are pleased by these awards and the overall level of inquiries we have been receiving and are encouraged by our ability to gain market share in a very tough environment. We are also encouraged by the fact that these project awards do not include a number of prospects for significant additional bookings for our international operations in upcoming months, including a number of large potential contracts in Australia and MENA that we have been working on for quite some time," concluded Goertzen.

The Fund ended the quarter with $40.6 million in cash and $80.8 million in borrowings (net of cash). This results in a conservative net debt-to-equity ratio of 0.21 to 1 and net debt-to-EBITDA of 1.12 times. The Fund has access to a committed Bank Facility totalling $200 million to finance working capital and project requirements. At the end of the third quarter there were $21.4 million in cash borrowings against the Bank Facility. With a large portion of its Bank Facility available for future borrowings and a conservative debt level, Enerflex remains financially sound.

Subsequent Event

On October 16th Toromont Industries Ltd. announced a proposal to enter into a business combination with Enerflex. On October 19th Enerflex announced that a special committee of independent directors was formed to, among other things, consider and respond to a letter from Toromont Industries Ltd. regarding Toromont's desire to negotiate a proposed business combination with Enerflex.

The special committee, which is chaired by Douglas J. Haughey, has retained BofA Merrill Lynch as its independent financial advisors and Stikeman Elliott as its independent legal advisors, and has begun its process of considering and responding to Toromont's proposal and potential alternatives. At this point, the Board has not reached a position regarding Toromont's proposal other than to say that the Board will be diligent in its process and that it will at all times act in a manner consistent with its fiduciary duties.

No formal offer or binding business combination has yet been presented to Enerflex or its unitholders. Unitholders are cautioned that there can be no assurance that an agreement with respect to a business combination or other form of transaction will be reached.

Conference Call and Webcast Details

Enerflex will host a conference call for analysts and investors on Friday, November 6, 2009 at 9:00 a.m. MST (11:00 a.m. EST) to discuss the Fund's 2009 third quarter results. The call will be hosted by Blair Goertzen, President and Chief Executive Officer of Enerflex.

If you wish to participate in this conference call, please call 1.877.974.0445 or 1.416.646.3096. 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 1.877.289.8525 or 1.416.640.1917 (pass code: 4177385 followed by the number sign) approximately one hour after the completion of the call. The recording will be available until the end of day November 13, 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 November 6, 2009 at 9:00 a.m. MST (11:00 a.m. EST). Approximately one hour after the call, a recording of the event will be available on our website.

About Enerflex

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

Headquartered in Calgary, Canada, Enerflex has approximately 2,400 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, Oman, Indonesia and Malaysia. In October 2009 Enerflex was recognized as one of Alberta's Top 50 Employers. 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       Nine months ended
                                   September 30,           September 30,
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
      Canadian                 $  82,000   $ 101,706   $ 278,444   $ 322,990
    -------------------------------------------------------------------------
      International               81,638     155,353     366,366     426,215
    -------------------------------------------------------------------------
    Total revenue                163,638     257,059     644,810     749,205
    -------------------------------------------------------------------------
    Gross margin                  27,146      56,416     120,101     158,491
    -------------------------------------------------------------------------
    Gross margin percent           16.6%       21.9%       18.6%       21.2%
    -------------------------------------------------------------------------
    Selling, general and
     administrative expenses      28,494      33,518      94,461      99,835
    -------------------------------------------------------------------------
    Income before interest
     and taxes                     1,522      22,792      37,535      60,078
    -------------------------------------------------------------------------
    Interest expense               2,214       1,069       5,061       3,961
    -------------------------------------------------------------------------
    (Loss) income before taxes      (692)     21,723      32,474      56,117
    -------------------------------------------------------------------------
    Income tax (recovery)
     expense                      (5,565)      3,637      (3,538)      7,075
    -------------------------------------------------------------------------
    Net income                 $   4,873   $  18,086   $  36,012   $  49,042
    -------------------------------------------------------------------------


    NON-GAAP MEASURES

    -------------------------------------------------------------------------
    (Unaudited)(Thousands)      Three months ended       Nine months ended
                                   September 30,           September 30,
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Operating margin(1)
    -------------------------------------------------------------------------
    Gross margin               $  27,146   $  56,416   $ 120,101   $ 158,491
    -------------------------------------------------------------------------
    Selling, general and
     administrative expenses      28,494      33,518      94,461      99,835
    -------------------------------------------------------------------------
    Foreign currency (gains)
     losses                       (2,875)      2,671     (10,446)      3,234
    -------------------------------------------------------------------------
    Equity losses (earnings)
    from affiliates                   28        (112)       (123)       (234)
    -------------------------------------------------------------------------
    Operating margin           $   1,499   $  20,339   $  36,209   $  55,656
    -------------------------------------------------------------------------
    Operating margin percent        0.9%        7.9%        5.6%        7.4%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    EBITDA(1)
    -------------------------------------------------------------------------
    Earnings before interest
     and taxes                 $   1,522   $  22,792   $  37,535   $  60,078
    -------------------------------------------------------------------------
    Depreciation and
     amortization                  5,562       5,575      16,464      16,931
    -------------------------------------------------------------------------
    EBITDA(1)                  $   7,084   $  28,367   $  53,999   $  77,009
    -------------------------------------------------------------------------
    EBITDA - adjusted(2)       $   7,471   $  28,281   $  46,360   $  79,631
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Distributable cash
     flow(1)(3)
    -------------------------------------------------------------------------
    Cash flow from operations
     before working
     capital adjustments       $   6,263   $  21,795   $  48,470   $  62,359
    -------------------------------------------------------------------------
    Adjustments to working
     capital and other            14,284      20,590       3,421      26,574
    -------------------------------------------------------------------------
    Net maintenance capital
     expenditures                  1,169      (1,225)     (2,464)     (2,626)
    -------------------------------------------------------------------------
    Distributable cash         $  21,716   $  41,160   $  49,427   $  86,307
    -------------------------------------------------------------------------
    (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 third 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 positively impacted distributable cash flow(1) by $14.3 million in the third quarter of 2009 as compared to a positive impact of $20.6 million in the same period of 2008.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009

During the third quarter of 2009, the Fund generated $163.6 million in revenue, as compared to $257.1 million in the third quarter of 2008. The decrease of $93.5 million or 36% was a result of decreased revenues in all three segments. International revenue decreased $73.7 million from the same period in 2008 and represented 50% of revenue as compared to 60% in 2008. As compared to the three month period ended September 30, 2008:

    
    -   Engineered Systems revenue decreased by $72.4 million due to lower
        international sales resulting from the strengthening of the Canadian
        dollar in Canada as well as lower activity levels, and lower awarded
        margins across all businesses in the segment;
    -   Service revenue decreased by $19.5 million, a result of lower parts
        and service revenue in Canada and Europe, primarily driven by tight
        operating budgets and the impact of many customers shutting-in
        production due to low gas prices and was partially offset by
        increased margins in AustralAsia; and
    -   Production Services revenue decreased by $1.5 million as a result of
        lower capital utilization due to continued low levels of domestic
        exploration activities and lower rental rates.
    

Gross margin for the three months ended September 30, 2009 was $27.1 million or 16.6% of revenue as compared to $56.4 million or 21.9% of revenue for the same three month period of 2008, a decrease of $29.3 million. Gross margin percentages decreased in all three segments. The following factors contributed to the decrease and are summarized as follows:

    
    -   Engineered Systems gross margin percentage decreased from 20.0% in
        the third quarter of 2008 to 10.4% in the same period of 2009. The
        strengthening Canadian dollar and lower plant utilization rates in
        the Fund's domestic operations contributed to the lower margins;
    -   Service gross margin percentage of 23.3% decreased from 23.4% in 2008
        as a result of lower margins within the Canadian operations,
        particularly in the EI&C division, that experienced lower labour
        utilization rates, substantially offset by improved margins in Europe
        and AustralAsia; and
    -   Production Services gross margin percentage of 37.5% decreased from
        49.5% due to lower fleet utilization, higher maintenance costs and
        lower rental rates when compared with the same period of 2008.
    

In the third quarter of 2009, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $2.4 million and negatively impacted EBITDA(1) by $0.4 million. During the third quarter of 2008, foreign exchange related to foreign denominated contracts positively impacted gross margin by $3.0 million and positively impacted EBITDA by $0.1 million.

Selling, general and administrative (SG&A) expenses were $28.5 million or 17.4% of revenue during the three months ended September 30, 2009, compared to $33.5 million or 13.0% of revenue in the same period of 2008. The $5.0 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 earlier in 2009, net of severance costs.

Foreign exchange gains totalled $2.9 million in the third quarter of 2009 as compared to a loss of $2.7 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 and increased debt in the form of LIBOR loans.

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 contract 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 third quarter of 2009 and depreciated by 4% against the U.S. dollar during the same period of 2008.

At September 30, 2009, the Fund's bank debt included US$12.0 million of LIBOR loans and $8.5 million of Bankers' Acceptance (BA) notes compared to no LIBOR borrowings or BA's at September 30, 2008. At September 30, 2009, the Fund was party to foreign currency contracts with a total net sales value of US$7.5 million as compared to a net sales value of US$59.2 million, Euro (euro)4.1 million and Australian $4.8 million outstanding as at September 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 loss". The accumulated comprehensive loss at the end of 2008 of $1.4 million adjusted to an accumulated comprehensive loss of $1.2 million at September 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 1% against the Canadian dollar during the third quarter of 2009, as compared to 14% depreciation in the same period of 2008. The Euro depreciated by 4% against the Canadian dollar during the third quarter of 2009, as compared to a depreciation of 7% in the same period of 2008.

Operating margin(1) assists the reader in understanding the net margin contributions made from the Fund's core businesses after considering all SG&A expenses and the impact of the Fund's foreign exchange hedging strategy. For the three months ended September 30, 2009, Enerflex produced an operating margin(1) of $1.5 million, or 0.9% of revenue, as compared to an operating margin(1) of $20.3 million, or 7.9% 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 $2.2 million for the three months ended September 30, 2009, compared with $1.1 million in the same period of 2008, an increase of $1.1 million. Interest costs in 2009 were higher than those in 2008 as a result of higher average borrowings, higher interest rates and lower interest income from investing the Fund's cash balances. Enerflex's borrowings on its Bank Facility averaged $20.7 million in the third quarter of 2009 as compared to an average of $6.9 million for the three months ended September 30, 2008.

Income tax expense totalled a recovery of $5.6 million for the three months ended September 30, 2009 compared to an expense of $3.6 million in the same period of 2008. The decrease in income taxes in the third quarter of 2009 compared to 2008 was primarily due to lower income before taxes.

Net income generated by Enerflex during the third quarter of 2009 was $4.9 million as compared to $18.1 million in the same period of 2008. This resulted in earnings per income trust unit of $0.10 in 2009 as compared to $0.39 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
    -------------------------------------------------------------------------
    September 30, 2009          $163,638      $4,873       $0.10       $0.10
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    

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 September 30,  2009       2008
    -------------------------------------------------------------------------
    Segment revenue                                     $  93,196  $ 164,763
    Intersegment revenue                                   (1,757)      (963)
    -------------------------------------------------------------------------
    Revenue                                             $  91,439  $ 163,800
    -------------------------------------------------------------------------
    Revenue - Canadian                                  $  31,958  $  30,389
    -------------------------------------------------------------------------
    Revenue - International                             $  59,481  $ 133,411
    -------------------------------------------------------------------------
    Gross margin                                        $   9,538  $  32,737
    -------------------------------------------------------------------------
    EBITDA(1)                                           $   1,518  $  19,428
    -------------------------------------------------------------------------
    (Loss) income before interest and income taxes      $    (233) $  17,565

    Plant utilization - Compression and Power                 44%        66%
    Plant utilization - Production and Processing(2)          63%        95%
    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.
    (2) Enerflex has adjusted utilization in 2009 to reflect plant capacity
        versus staff capacity due to the significant staff reductions
        undertaken over the past few months. Prior to these reductions, staff
        capacity was comparable to plant capacity.
    

Engineered Systems' revenue totalled $91.4 million for the three months ended September 30, 2009 as compared to $163.8 million in the same period of 2008. This decrease of $72.4 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 65% of 2009's third quarter revenue, as compared to 81% in the comparative period in 2008.

Gross margin for the segment totalled $9.5 million, or 10.4% compared to $32.7 million or 20.0% of revenue in 2008. The decreased gross margin was the result of a strengthening Canadian dollar in the quarter and lower plant utilization rates in the domestic operations as well as lower awarded margins throughout the segment. 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 third quarter of 2009, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $2.4 million, compared to a positive impact of $3.0 million in the same period in 2008.

Income before interest and income taxes decreased by $17.8 million to a loss of $0.2 million in the three months ended September 30, 2009 from a profit of $17.6 million in the third quarter of 2008. The decrease was due to lower revenues and gross margin, across all businesses in the segment, partially offset by lower general and administrative costs in Canada and Europe and higher foreign exchange gains as a result of the Fund's foreign exchange contracts.

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 September 30,  2009       2008
    -------------------------------------------------------------------------
    Canadian                                            $  67,795  $ 128,838
    International                                         213,297    455,286
    -------------------------------------------------------------------------
    Total bookings                                      $ 281,092  $ 584,124
                                                       ----------------------
                                                       ----------------------

    Backlog

    (unaudited)(thousands) As at September 30,               2009       2008
    -------------------------------------------------------------------------
    Canadian                                            $  40,266  $ 102,863
    International                                         147,255    295,752
    -------------------------------------------------------------------------
    Total backlog                                       $ 187,521  $ 398,615
                                                       ----------------------
                                                       ----------------------
    

Backlog at September 30, 2009 was $187.5 million compared to $398.6 million at September 30, 2008. This represents a 53% decrease from the prior year and a 39% decrease from the backlog at December 31, 2008.

International backlog decreased by 50% from September 30, 2008 and represents 79% of total backlog at September 30, 2009, as compared to 74% 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 in 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 (EI&C) services to the oil and gas industry through an extensive branch network in Canada, the state of Alaska, the Netherlands, Germany, Australia and Indonesia.

    
    (unaudited)(thousands) Three months ended September 30,  2009       2008
    -------------------------------------------------------------------------
    Segment revenue                                     $  69,075  $  88,770
    Intersegment revenue                                   (2,412)    (2,592)
    -------------------------------------------------------------------------
    Revenue                                             $  66,663  $  86,178
    -------------------------------------------------------------------------
    Revenue - Canadian                                  $  44,966  $  64,829
    -------------------------------------------------------------------------
    Revenue - International                             $  21,697  $  21,349
    -------------------------------------------------------------------------
    Gross margin                                        $  15,534  $  20,173
    -------------------------------------------------------------------------
    EBITDA(1)                                           $   1,614  $   2,823
    -------------------------------------------------------------------------
    Income before interest and income taxes             $     456  $   1,699

    (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 $66.7 million in the third quarter of 2009 and comprised 41% of consolidated revenue. This compares to $86.2 million and 34% of consolidated revenue in the same period of 2008. The decrease of $19.5 million was primarily the result of decreased revenues in Service in Canada and Europe, particularly in the EI&C division in Canada, where revenues decreased almost 50%. This was partially offset by increased revenues in service sales in AustralAsia. International revenues of $21.7 million accounted for 33% of the segment's total revenue, compared to 25% of revenue in 2008.

Gross margin for the segment totalled $15.5 million, or 23.3% for the third quarter of 2009 as compared to $20.2 million, or 23.4% in 2008. The decrease in gross margin and gross margin percent resulted from reduced parts margins and lower labour utilization in Mechanical Services and EI&C in Canada, partially offset by strong service margins in AustralAsia.

Income before interest and income taxes decreased by 73% to $0.5 million in the three months ended September 30, 2009 from $1.7 million in the third 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 September 30,  2009       2008
    -------------------------------------------------------------------------
    Segment revenue                                     $   5,536  $   7,081
    Intersegment revenue                                        -          -
    -------------------------------------------------------------------------
    Revenue                                             $   5,536  $   7,081
    -------------------------------------------------------------------------
    Revenue - Canadian                                  $   5,076  $   6,488
    -------------------------------------------------------------------------
    Revenue - International                             $     460  $     593
    -------------------------------------------------------------------------
    Gross margin                                        $   2,074  $   3,506
    -------------------------------------------------------------------------
    EBITDA(1)                                           $   3,952  $   6,116
    -------------------------------------------------------------------------
    Income before interest and income taxes             $   1,299  $   3,528
    -------------------------------------------------------------------------
    Capital expenditures, net of proceeds on disposal   $   1,152  $   1,031
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Capital utilization - Compression                         54%        61%
    -------------------------------------------------------------------------
    Capital utilization - Power and Processing                28%        39%
    -------------------------------------------------------------------------
    (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 third quarter of 2009 decreased $1.6 million to $5.5 million as compared to $7.1 million in 2008. The decrease was the result of lower capital utilization and rental rates and a decline 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 third quarter of 2009 totalled $2.1 million, or 37.5%, as compared to $3.5 million or 49.5% in 2008. The decrease in gross margin was the result of lower utilization rates and lower gross margin percentage resulting from higher maintenance costs and from allocating a fixed depreciation charge over a smaller revenue base. Contributing to this decrease are lower rental rates in response to competitive pressures and low natural gas prices which prompted customers to seek rate reductions.

Income before interest and income taxes of $1.3 million was $2.2 million lower than 2008 as a result of the factors discussed above.

During the three months ended September 30, 2009, Production Services sold 2 compression units and no process equipment units from its fleet, for gross proceeds of $0.3 million and a gain on sale of $0.1 million. This compares to 6 compression units and 3 process units, for gross proceeds of $3.2 million and a gain on sale of $1.1 million in 2008. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. Enerflex added no compression units or process units to its fleet during the third quarter of 2009, resulting in no investment in the fleet.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

During the nine months ended September 30, 2009, the Fund generated $644.8 million in revenue, as compared to $749.2 million in the same period of 2008. The decrease of $104.4 million or 14% was a result of decreased revenues in all three segments. International revenue decreased $59.8 million from the same period in 2008 and represented 57% of revenue, consistent with 2008, while domestic revenues decreased by $44.5 million over the prior year. As compared to the nine month period ended September 30, 2008:

    
    -   Engineered Systems revenue decreased by $73.4 million due to lower
        domestic and international sales;
    -   Service revenue decreased by $27.9 million, with decreased revenue in
        Canada and Europe, partially offset by increased revenue in
        AustralAsia; and
    -   Production Services revenue decreased by $3.1 million as a result of
        lower capital utilization and a reduced rental fleet.
    

Gross margin for the nine months ended September 30, 2009 was $120.1 million or 18.6% of revenue as compared to $158.5 million or 21.2% of revenue for the nine months ended September 30, 2008, a decrease of $38.4 million. Gross margin percentage decreased in all three segments for the first nine 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 13.6% decreased from
        17.1% due to a strengthening Canadian dollar and lower utilization
        rates;
    -   Service gross margin percentage of 25.9% decreased from 26.4% as a
        result of lower labour utilization and parts sales in Canada and
        Europe, offset by increased service margins in AustralAsia; and
    -   Production Services gross margin percentage of 39.9% decreased from
        50.7% due to lower fleet utilization rates when compared with the
        same period of 2008.
    

During the first nine months of 2009, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $0.1 million and positively impacted EBITDA(1) by $7.6 million. During the first nine months of 2008, foreign exchange related to foreign denominated contracts positively impacted gross margin by $1.7 million and negatively impacted EBITDA by $2.6 million.

Selling, general and administrative expenses were $94.5 million or 14.7% of revenue during the nine months ended September 30, 2009, down by $5.3 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 fabrication facility.

Income before interest and income taxes totalled $37.5 million for the nine months ended September 30, 2009 as compared to $60.1 million for the same period in 2008. This decrease of $22.6 million was the result of the factors discussed above.

Interest costs totalled $5.1 million for the nine months ended September 30, 2009, compared with $4.0 million in the same period of 2008, an increase of $1.1 million primarily due to higher average borrowings and lower interest income.

Income tax expense totalled a recovery of $3.5 million for the nine months ended September 30, 2009 compared to an expense of $7.1 million in the same period of 2008. The decrease in income taxes was primarily due to lower income before taxes and increased distributions deductible for tax.

Net Income generated by Enerflex during the first nine months of 2009 was $36.0 million as compared to $49.0 million in the same period of 2008. This results in earnings per income trust unit of $0.77 in 2009, as compared to $1.05 in the same period of 2008.

    
    SEGMENTED RESULTS

    ENGINEERED SYSTEMS

    (unaudited)(thousands) Nine months ended September 30,   2009       2008
    -------------------------------------------------------------------------
    Segment revenue                                     $ 411,539  $ 478,840
    Intersegment revenue                                   (9,208)    (3,118)
    -------------------------------------------------------------------------
    Revenue                                             $ 402,331  $ 475,722
    -------------------------------------------------------------------------
    Revenue - Canadian                                  $ 101,395  $ 118,357
    -------------------------------------------------------------------------
    Revenue - International                             $ 300,936  $ 357,365
    -------------------------------------------------------------------------
    Gross margin                                        $  54,803  $  81,167
    -------------------------------------------------------------------------
    EBITDA(1)                                           $  28,746  $  43,495
    -------------------------------------------------------------------------
    Income before interest and income taxes             $  23,587  $  38,017

    Plant utilization - Compression and Power                 53%        64%
    Plant utilization - Production and Processing(2)          76%        92%
    Plant utilization - AustralAsia                           83%        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.
    (2) Enerflex has adjusted utilization in 2009 to reflect plant capacity
        versus staff capacity due to the significant staff reductions
        undertaken over the past few months. Prior to these reductions, staff
        capacity was comparable to plant capacity.
    

Engineered Systems revenue totalled $402.3 million for the nine months ended September 30, 2009 as compared to $475.7 million in the same period of 2008. This decrease of $73.4 million was the result of decreases in domestic sales within the Compression and Power division and decreased international sales across all segment businesses. Lower revenues were due to the strength of the Canadian dollar compared to the U.S. dollar and lower activity levels across all businesses. International revenue represented 75% of 2009's revenue as compared to 75% in 2008.

Gross margin for the segment totalled $54.8 million or 13.6% compared to $81.2 million or 17.1% of revenue in 2008. Lower awarded margins, the strengthening Canadian dollar and lower utilization rates in domestic operations 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 nine months of 2009, foreign exchange related to foreign denominated contracts negatively impacted gross margin by $0.1 million, compared to a positive impact of $1.7 million in the same period in 2008.

Income before interest and income taxes in 2009 decreased by $14.4 million to $23.6 million, from $38.0 million in 2008. This decrease was a result of the lower revenue and margins which were partially offset by decreased SG&A plus increased foreign exchange gains on foreign exchange contracts.

    
    SERVICE

    (unaudited)(thousands) Nine months ended September 30,   2009       2008
    -------------------------------------------------------------------------
    Segment revenue                                     $ 233,813  $ 261,276
    Intersegment revenue                                   (9,550)    (9,108)
    -------------------------------------------------------------------------
    Revenue                                             $ 224,263  $ 252,168
    -------------------------------------------------------------------------
    Revenue - Canadian                                  $ 160,414  $ 185,161
    -------------------------------------------------------------------------
    Revenue - International                             $  63,849  $  67,007
    -------------------------------------------------------------------------
    Gross margin                                        $  58,039  $  66,511
    -------------------------------------------------------------------------
    EBITDA(1)                                           $  11,425  $  15,387
    -------------------------------------------------------------------------
    Income before interest and income taxes             $   7,946  $  11,679

    (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 $224.3 million for the nine months ended September 30, 2009 and comprised 35% of consolidated revenue. This compares to $252.2 million and 34% of consolidated revenue in the same period of 2008. The decrease of $27.9 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 $63.8 million accounted for 28% of the segment's total revenue as compared to 27% of revenue in 2008.

Gross margin for the segment totalled $58.0 million, or 25.9% as compared to $66.5 million, or 26.4% in 2008. Margins were lower as the gross margin percentage decreased in Mechanical Services in Canada and Europe and was partially offset by strong parts and service margins in AustralAsia.

Income before interest and income taxes decreased by $3.8 million to $7.9 million in the nine months ended September 30, 2009 from $11.7 million in the first nine months of 2008. This decrease was a result of the factors discussed above.

    
    PRODUCTION SERVICES

    (unaudited)(thousands) Nine months ended September 30,   2009       2008
    -------------------------------------------------------------------------
    Segment revenue                                     $  18,219  $  21,317
    Intersegment revenue                                       (3)        (2)
    -------------------------------------------------------------------------
    Revenue                                             $  18,216  $  21,315
    -------------------------------------------------------------------------
    Revenue - Canadian                                  $  16,635  $  19,472
    -------------------------------------------------------------------------
    Revenue - International                             $   1,581  $   1,843
    -------------------------------------------------------------------------
    Gross margin                                        $   7,259  $  10,813
    -------------------------------------------------------------------------
    EBITDA(1)                                           $  13,828  $  18,127
    -------------------------------------------------------------------------
    Income before interest and income taxes             $   6,002  $  10,382
    -------------------------------------------------------------------------
    Capital expenditures, net of proceeds on disposal   $   1,153  $  (6,611)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Capital utilization - Compression                         58%        61%
    -------------------------------------------------------------------------
    Capital utilization - Power and Processing                31%        35%
    -------------------------------------------------------------------------
    (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 nine months of 2009 decreased $3.1 million to $18.2 million as compared to $21.3 million in 2008. The decrease was the result of reductions in rental revenue due to lower utilization rates and reductions 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 $7.3 million, or 39.9%, as compared to $10.8 million or 50.7% in 2008. This decrease was due to lower utilization rates and the allocation of a fixed depreciation charge over a smaller revenue base.

Income before interest and income taxes of $6.0 million was $4.4 million lower than 2008 as a result of the factors discussed above.

During the nine months ended September 30, 2009, Production Services sold 7 compression units and 7 process units from its fleet, for gross proceeds of $5.7 million and a gain on sale of $1.4 million. This compares to 21 compression units and 17 process units, for gross proceeds of $13.2 million and a gain on sale of $2.8 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 $5.4 million.

FINANCIAL POSITION

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

    
    -------------------------------------------------------------------------
                           Increase/
    ($millions)           (decrease)              Explanation
    -------------------------------------------------------------------------
    Assets:
    -------------------------------------------------------------------------
    Accounts receivable     (38.8)   Decreased progress billings due to the
                                     lower activity levels in the Engineered
                                     Systems segment, and enhanced collection
                                     efforts to lower outstanding
                                     receivables.
    -------------------------------------------------------------------------
    Inventory                 5.7    Increased work in progress due to
                                     inter-divisional projects.
    -------------------------------------------------------------------------
    Income taxes receivable   2.2    Increased primarily due to tax
                                     recoverable from prior years resulting
                                     from lower income before taxes.
    -------------------------------------------------------------------------
    Current future income    (3.0)   Decreased primarily as a result of
     taxes                           reduced deductible temporary
                                     differences on financial statement
                                     provisions.
    -------------------------------------------------------------------------
    Rental equipment         (5.5)   The decline is due to continuing
                                     depreciation of existing assets during
                                     the quarter and rental contract
                                     buy-outs, with little new investment in
                                     the fleet due to reduced demand.
    -------------------------------------------------------------------------
    Property, plant and      13.6    Increased assets under construction,
     equipment                       primarily related to the Fund's project
                                     in Oman, partially offset by
                                     depreciation.
    -------------------------------------------------------------------------
    Long-term future income   8.0    Increased primarily as a result of
     taxes                           tax losses available to carry
                                     forward and deduct in future years.
    -------------------------------------------------------------------------
    Liabilities:
    -------------------------------------------------------------------------
    Accounts payable and     (3.2)   The decrease is due to lower activity
     accrued liabilities             levels, resulting in lower outstanding
                                     payables.
    -------------------------------------------------------------------------
    Liabilities held for     (7.7)   The market value of foreign exchange
     trading                         contracts increased due to the
                                     strengthening Canadian dollar.
    -------------------------------------------------------------------------
    Deferred revenue        (14.9)   Revenue recognized on existing jobs
                                     where advanced billings were completed
                                     exceeded advanced billings on new
                                     contracts awarded during the first nine
                                     months of 2009.
    -------------------------------------------------------------------------
    Income taxes payable     (3.9)   Decreased primarily due to payment of
                                     income taxes accrued but unpaid at
                                     December 2008.
    -------------------------------------------------------------------------
    Long-term debt            5.5    Increased long-term debt resulting from
                                     additional borrowings on the Bank
                                     Facility through the first nine months
                                     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
                             ------------------------------------------------
                                Three months ended       Nine months ended
    (unaudited)(thousands)         September 30,           September 30,
                             ------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Cash, beginning of period  $  63,147   $  53,139   $  50,517   $  38,927
    Cash provided from/
     (used in):
    Operating activities          20,547      42,385      51,891      88,933
    Investing activities         (18,192)     (5,513)    (26,126)      2,929
    Financing activities         (24,941)    (24,463)    (35,721)    (65,241)
    -------------------------------------------------------------------------
    Cash, end of period        $  40,561   $  65,548   $  40,561   $  65,548
    -------------------------------------------------------------------------
    

Operating Activities

For the three months ended September 30, 2009, cash generated from operating activities was $20.5 million, a decrease of $21.9 million compared to the same period of 2008. The decrease was the result of lower earnings and $6.3 million less cash generated by non-cash working capital.

For the nine months ended September 30, 2009, cash generated from operating activities was $51.9 million compared to $88.9 million for the same period of 2008. The decrease was the result of lower earnings and $23.2 million less cash generated by non-cash working capital.

Investing Activities

Cash used in investing activities for the three months ended September 30, 2009 was $18.2 million, an increase of $12.7 million as compared to the same period in 2008. The change was the result of a $11.4 million increase in fixed asset and rental expenditures, a decrease in proceeds on disposition of fixed assets and rental equipment of $5.2 million and a decrease in long-term capital lease financing receivables of $2.9 million.

Cash used in investing activities for the nine months ended September 30, 2009 was $26.1 million compared to cash produced in investing activities of $2.9 million in the same period in 2008. The change was the result of a $17.1 million increase in fixed asset and rental expenditures while proceeds on disposition of fixed assets and rental equipment decreased by $10.0 million.

Financing Activities

Cash used in financing activities was $24.9 million for the three months ended September 30, 2009 as compared to cash used of $24.5 million for the same period of 2008. The increase was primarily a result of the Fund increasing distributions paid by $2.3 million as compared to the third quarter of 2008. This was offset by decreased repayments of borrowings on the Fund's credit facility.

Cash used in financing activities was $35.7 million for the nine months ended September 30, 2009 as compared to cash used of $65.2 million for the same period of 2008. The decrease was primarily a result of increased borrowings on the Fund's Bank Facility in 2009, compared to $33.9 million in repayments during 2008. This was offset by $6.1 million in additional distributions paid by the Fund.

    
    Distributable Cash Flow
    -------------------------------------------------------------------------
    (unaudited)(thousands)      Three months ended       Nine months ended
                                   September 30,           September 30,
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Distributable cash
     flow(1)                   $  21,716   $  41,160   $  49,427   $  86,307
    -------------------------------------------------------------------------
    (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 third quarter of 2009 of $21.7 million decreased from $41.2 million in the same period of 2008 primarily due to changes in non-cash working capital and decreased earnings. Distributable cash flow not including the changes in non-cash working capital was $7.4 million for the third quarter of 2009, $13.2 million lower than the $20.6 million during the same period of 2008.

    
    Distribution Payout Ratio
    -------------------------------------------------------------------------
    (unaudited)                 Three months ended       Nine months ended
                                   September 30,           September 30,
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Distribution payout ratio(1)     65%         34%         85%         43%
    -------------------------------------------------------------------------
    (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 third quarter of 2009 represented 65% of distributable cash flow(1) in comparison to 34% 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 third quarter of 2009 was 189% as compared to 68% in the same period of 2008.

    
    Net Capital Spending
    -------------------------------------------------------------------------
    (unaudited)(thousands)      Three months ended       Nine months ended
                                   September 30,           September 30,
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net capital spending       $  16,884   $     323   $  23,168   $  (3,886)
    -------------------------------------------------------------------------
    

Net capital spending for the third quarter of 2009 was $16.9 million, an increase of $16.6 million as compared to $0.3 million in the same period of 2008. The change was the result of higher capital investment in assets under construction for the rental fleet and a gas compression facility related to the Fund's project in Oman during the third quarter of 2009.

CAPITAL RESOURCES

On November 1, 2009, the Fund had 44,281,622 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 three quarters of 2009.

The Fund completed the restructuring of its debt with the closing of a private placement for $100.6 million in Senior Secured Notes (Notes) during 2006 and renegotiated its bank credit facility (Bank Facility) by extending its maturity date by one year and increasing the amount from $150.0 million to $200.0 million during the third quarter of 2009. 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, 2011 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 ratio and a limitation on distributions to unit holders in certain circumstances. Enerflex was in full compliance with these covenants at September 30, 2009 and November 1, 2009.

On September 30, 2009, $100.6 million in Notes were outstanding and approximately $32.8 million of the $200.0 million Bank Facility was drawn, comprised of $21.4 million in cash borrowings and $11.4 million of letters of credit or guarantees, leaving approximately $167.2 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                   September 30,  December 31,
    (Unaudited) (Thousands)                               2009          2008
    -------------------------------------------------------------------------

    ASSETS
    Current assets
      Cash and cash equivalents                     $   40,561    $   50,517
      Assets held for trading                            2,625         1,671
      Accounts receivable                              202,347       241,174
      Inventory                                        141,378       135,685
      Income taxes receivable                            6,675         4,435
      Future income taxes                                5,190         8,238
    -------------------------------------------------------------------------
      Total current assets                             398,776       441,720

    Rental equipment                                    83,176        88,641
    Property, plant and equipment                       83,728        70,130
    Investment in affiliates                             2,833         2,939
    Future income taxes                                 11,759         3,771
    Intangible assets                                    6,172         7,812
    Goodwill                                           127,323       126,146
    -------------------------------------------------------------------------
                                                    $  713,767    $  741,159
                                                  ---------------------------
                                                  ---------------------------
    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities
      Accounts payable and accrued liabilities      $  106,041    $  109,248
      Liabilities held for trading                         389         8,123
      Accrued distributions payable                     14,071        14,028
      Deferred revenue                                  63,840        78,766
      Income taxes payable                                 743         4,628
      Future income taxes                                   28            77
    -------------------------------------------------------------------------
      Total current liabilities                        185,112       214,870

    Long-term debt                                     121,381       115,847
    Other long-term liabilities                          4,677         2,830
    Future income taxes                                  9,201         9,879
    -------------------------------------------------------------------------
                                                       320,371       343,426
    -------------------------------------------------------------------------
    Guarantees, commitments and contingencies
    Unitholders' equity
      Unitholders' capital                             207,665       206,322
      Accumulated other comprehensive loss              (1,187)       (1,363)
      Contributed surplus                                  847           541
      Retained earnings                                186,071       192,233
    -------------------------------------------------------------------------
                                                       393,396       397,733
                                                  ---------------------------
                                                    $  713,767    $  741,159
                                                  ---------------------------
                                                  ---------------------------



    Consolidated Statements of Income

                                Three Months Ended       Nine Months Ended
    (Unaudited) (Thousands,        September 30,           September 30,
     except unit amounts)           2009        2008        2009        2008
    -------------------------------------------------------------------------
    Revenue                   $  163,638  $  257,059  $  644,810  $  749,205
    Cost of goods sold           136,492     200,643     524,709     590,714
    Gross margin                  27,146      56,416     120,101     158,491
    Selling, general and
     administrative expenses      28,494      33,518      94,461      99,835
    Foreign currency (gains)
     losses                       (2,875)      2,671     (10,446)      3,234
    Gain on sale of assets           (23)     (2,453)     (1,326)     (4,422)
    Equity losses (earnings)
     from affiliates                  28        (112)       (123)       (234)
    -------------------------------------------------------------------------
    Income before interest
     and income taxes              1,522      22,792      37,535      60,078
    Interest                       2,214       1,069       5,061       3,961
    -------------------------------------------------------------------------
    (Loss) income before
     income taxes                   (692)     21,723      32,474      56,117
    Income tax (recovery)
     expense                      (5,565)      3,637      (3,538)      7,075
    -------------------------------------------------------------------------
    Net income                $    4,873  $   18,086  $   36,012  $   49,042
                            -------------------------------------------------
    Net income per unit
      - basic                 $     0.10  $     0.39  $     0.77  $     1.05
      - diluted               $     0.10  $     0.39  $     0.77  $     1.05
    Weighted average number
     of units                 46,897,898  46,711,500  46,850,969  46,700,086
                            -------------------------------------------------
                            -------------------------------------------------



    Consolidated Statements of Retained Earnings

                                Three Months Ended       Nine Months Ended
                                   September 30,           September 30,
    (Unaudited) (Thousands)         2009        2008        2009        2008
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of period      $  195,269  $  186,012  $  192,233  $  179,494
    Adjustment to retained
     earnings, opening                 -           -           -      (1,091)
    Net income                     4,873      18,086      36,012      49,042
    Distributions                (14,071)    (14,014)    (42,174)    (37,361)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period            $  186,071  $  190,084  $  186,071  $  190,084



    Consolidated Statements of Comprehensive Income

                                Three Months Ended       Nine Months Ended
                                   September 30,           September 30,
    (Unaudited) (Thousands)         2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net income                $    4,873  $   18,086  $   36,012  $   49,042
    Other comprehensive
     (loss) income, net of tax:
      Foreign currency
       translation of
       self-sustaining
       operations                 (2,200)     (9,335)        176        (558)
    -------------------------------------------------------------------------
    Comprehensive income      $    2,673  $    8,751  $   36,188  $   48,484
                            -------------------------------------------------



    Consolidated Statements of Cash Flows

                                Three Months Ended       Nine Months Ended
                                   September 30,           September 30,
    -------------------------------------------------------------------------
    (Unaudited) (Thousands)         2009        2008        2009        2008
    -------------------------------------------------------------------------

    Operating Activities
      Net income              $    4,873  $   18,086  $   36,012  $   49,042
      Depreciation and
       amortization                5,562       5,575      16,464      16,931
      Future income taxes         (4,283)        646      (2,866)        875
      Gain on sale of assets         (23)     (2,453)     (1,326)     (4,422)
      Equity losses (earnings)
       from affiliates                28        (112)       (123)       (234)
      Unit option expense            106          53         309         167
    -------------------------------------------------------------------------
                                   6,263      21,795      48,470      62,359
      Changes in non-cash
       working capital and
       other                      14,284      20,590       3,421      26,574
    -------------------------------------------------------------------------
      Cash flow produced
       in operations              20,547      42,385      51,891      88,933
    -------------------------------------------------------------------------

    Investing Activities
    Acquisitions                       -           -           -         238
    Purchase of:
      Rental equipment               (78)     (4,191)     (5,531)     (6,320)
      Property, plant and
       equipment                  (1,190)     (1,159)     (3,663)     (4,482)
      Assets under
       construction              (15,902)       (437)    (19,788)     (1,130)
    Proceeds on disposal of:
      Rental equipment               272       3,233       5,708      13,200
      Property, plant and
       equipment                      14       2,231         106       2,618
    -------------------------------------------------------------------------
                                 (16,884)       (323)    (23,168)      4,124
    Changes in non-cash
     working capital and other    (1,308)     (5,190)     (2,958)     (1,195)
    -------------------------------------------------------------------------
    Cash flow (used) produced
     in investing                (18,192)     (5,513)    (26,126)      2,929
    -------------------------------------------------------------------------

    Financing Activities
      (Repayment) advance of
       long-term debt            (13,481)    (15,925)      3,545     (33,867)
      Unit options exercised           -           -          72           -
      Distributions paid         (13,691)    (11,437)    (40,860)    (34,727)
    -------------------------------------------------------------------------
                                 (27,172)    (27,362)    (37,243)    (68,594)
      Changes in non-cash
       working capital and
       other                       2,231       2,899       1,522       3,353
    -------------------------------------------------------------------------
      Cash flow used in
       financing                 (24,941)    (24,463)    (35,721)    (65,241)
    -------------------------------------------------------------------------
      (Decrease) increase
       in cash and cash
       equivalents               (22,586)     12,409      (9,956)     26,621
      Cash and cash
       equivalents,
       beginning of period        63,147      53,139      50,517      38,927
    -------------------------------------------------------------------------
      Cash and cash
       equivalents, end of
       period                 $   40,561  $   65,548  $   40,561  $   65,548
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Cash flows include the
         following elements:
      Interest (received)
       paid                   $     (129) $      196  $    2,849  $      468
    -------------------------------------------------------------------------
      Income taxes paid
       (received)             $    2,128  $   (1,359) $    6,004  $   (2,261)
    -------------------------------------------------------------------------
    

Segmented Information

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

    
                                      Service           Engineered Systems
    -------------------------------------------------------------------------
    Three months ended
     September 30,                  2009        2008        2009        2008
    -------------------------------------------------------------------------

    Segment revenue           $   69,075  $   88,770  $   93,196  $  164,763
      Intersegment revenue        (2,412)     (2,592)     (1,757)       (963)
    -------------------------------------------------------------------------
      External revenue        $   66,663  $   86,178  $   91,439  $  163,800
                             ------------------------------------------------

    Gross Margin              $   15,534  $   20,173  $    9,538  $   32,737
                             ------------------------------------------------

    Depreciation and
     amortization             $    1,158  $    1,124  $    1,751  $    1,863
    -------------------------------------------------------------------------

    Income (loss) before
     interest and income
     taxes                    $      456  $    1,699  $     (233) $   17,565
    -------------------------------------------------------------------------

    Capital expenditures      $      364  $      318  $   14,473  $      618
      Corporate
    -------------------------------------------------------------------------

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

    Proceeds on disposal of
     assets                   $        -  $        -  $       14  $    2,232
    -------------------------------------------------------------------------


                                Production Services        Consolidated
    -------------------------------------------------------------------------
    Three months ended
     September 30,                  2009        2008        2009        2008
    -------------------------------------------------------------------------

    Segment revenue           $    5,536  $    7,081  $  167,807  $  260,614
      Intersegment revenue             -           -      (4,169)     (3,555)
    -------------------------------------------------------------------------
      External revenue        $    5,536  $    7,081  $  163,638  $  257,059
                             ------------------------------------------------

    Gross Margin              $    2,074  $    3,506  $   27,146  $   56,416
                             ------------------------------------------------

    Depreciation and
     amortization             $    2,653  $    2,588  $    5,562  $    5,575
    -------------------------------------------------------------------------

    Income (loss) before
     interest and income
     taxes                    $    1,299  $    3,528  $    1,522  $   22,792
    -------------------------------------------------------------------------

    Capital expenditures      $    1,424  $    4,263  $   16,261  $    5,199
      Corporate                                              909         588
    -------------------------------------------------------------------------
                                                      $   17,170  $    5,787
                             ------------------------------------------------

    Proceeds on disposal of
     assets                   $      272  $    3,232  $      286  $    5,464
    -------------------------------------------------------------------------



                                      Service           Engineered Systems
    -------------------------------------------------------------------------
    Nine months ended
     September 30,                  2009        2008        2009        2008
    -------------------------------------------------------------------------

    Segment revenue           $  233,813  $  261,276  $  411,539  $  478,840
      Intersegment revenue        (9,550)     (9,108)     (9,208)     (3,118)
    -------------------------------------------------------------------------
      External revenue        $  224,263  $  252,168  $  402,331  $  475,722
                             ------------------------------------------------

    Gross Margin              $   58,039  $   66,511  $   54,803  $   81,167
                             ------------------------------------------------

    Depreciation and
     amortization             $    3,479  $    3,708  $    5,159  $    5,478
    -------------------------------------------------------------------------

    Income before interest
     and income taxes         $    7,946  $   11,679  $   23,587  $   38,017
    -------------------------------------------------------------------------

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

    Segment assets            $  174,907  $  167,139  $  338,832  $  340,257
      Corporate
      Goodwill                    51,570      51,364      68,397      66,384
    -------------------------------------------------------------------------
    Total Segment assets      $  226,477  $  218,503  $  407,229  $  406,641
                             ------------------------------------------------

    Capital expenditures      $      780  $      980  $   17,798  $    2,880
      Corporate
    -------------------------------------------------------------------------

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

    Proceeds on disposal of
     assets                   $        -  $       72  $      106  $    2,547
    -------------------------------------------------------------------------


                                Production Services        Consolidated
    -------------------------------------------------------------------------
    Nine months ended
     September 30,                  2009        2008        2009        2008
    -------------------------------------------------------------------------

    Segment revenue           $   18,219  $   21,317  $  663,571  $  761,433
      Intersegment revenue            (3)         (2)    (18,761)    (12,228)
    -------------------------------------------------------------------------
      External revenue        $   18,216  $   21,315  $  644,810  $  749,205
                             ------------------------------------------------

    Gross Margin              $    7,259  $   10,813  $  120,101  $  158,491
                             ------------------------------------------------

    Depreciation and
     amortization             $    7,826  $    7,745  $   16,464  $   16,931
    -------------------------------------------------------------------------

    Income before interest
     and income taxes         $    6,002  $   10,382  $   37,535  $   60,078
    -------------------------------------------------------------------------

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

    Segment assets            $  117,586  $  114,794  $  631,325  $  622,190
      Corporate                                          (44,881)     (7,862)
      Goodwill                     7,356       7,356     127,323     125,104
    -------------------------------------------------------------------------
    Total Segment assets      $  124,942  $  122,150  $  713,767  $  739,432
                             ------------------------------------------------

    Capital expenditures      $    6,861  $    6,588  $   25,439  $   10,448
      Corporate                                            3,543       1,484
    -------------------------------------------------------------------------
                                                      $   28,982  $   11,932
                             ------------------------------------------------

    Proceeds on disposal of
     assets                   $    5,708  $   13,199  $    5,814  $   15,818
    -------------------------------------------------------------------------



    Revenue from foreign countries was:

                                Three months ended       Nine months ended
                                   September 30,           September 30,
                                    2009        2008        2009        2008

    Australia                 $   34,224  $   74,652  $  144,688  $  216,939
    Indonesia                      1,946       9,629      14,322      20,100
    Libya                          1,477       2,034      11,943       2,917
    Mexico                         3,249      (1,051)     12,368         430
    Netherlands                   13,472      23,792      36,586      51,524
    Oman                           4,062         710      14,405       2,477
    Pakistan                       5,849      15,872      27,563      32,232
    Russia                           851         494      36,368         555
    United States                 11,917      15,268      49,545      54,213
    Other                          4,591      13,953      18,578      44,828
    -------------------------------------------------------------------------
                              $   81,638  $  155,353  $  366,366  $  426,215

    Included in these amounts
     are gross exports from
     domestic operations of:  $   27,402  $   76,814  $  165,515  $  208,075
                             ------------------------------------------------


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

    Total assets in foreign countries were as follows:

                       September 30, 2009             December 31, 2008

                   Capital                       Capital
                  Assets &     Other     Total  Assets &     Other     Total
                  Goodwill    Assets    Assets  Goodwill    Assets    Assets

    Australia     $ 52,556  $ 22,378  $ 74,934  $ 23,157  $ 62,491  $ 85,648

    Netherlands      7,355    37,694    45,049     7,664    45,641    53,305

    United States    5,602     5,915    11,517     6,884     6,252    13,136

    Other                               41,571                        35,187

    -------------------------------------------------------------------------
    Total assets                      $173,071                      $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

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