Enerflex Systems Income Fund
TSX : EFX.UN

Enerflex Systems Income Fund

November 06, 2007 00:41 ET

Enerflex Announces Third Quarter 2007 Financial Results

CALGARY, ALBERTA--(Marketwire - Nov. 6, 2007) - Enerflex Systems Income Fund (TSX:EFX.UN), a leading supplier of products and services to the global energy sector, today announced Its financial and operating results for the three and nine months ended September 30, 2007.

"Enerflex continues to build on its strategy of international diversification, as illustrated by the significant increase in international revenues and new orders" said Mr. Blair Goertzen, President and Chief Executive Officer. "International revenue was up 32% over the third quarter of 2006 and International bookings for the third quarter of 2007 were $127.8 million or 167% higher than the $47.9 million in the same period in 2006. Our international expansion strategy continues to pay dividends as the strength of our service and construction presence in Australia has contributed to Enerflex winning orders for $63.6 million of compression equipment to be fabricated in Canada, with more significant orders expected in the next few weeks. In our European region the acquisition of Powertec resulted in $42.3 million of additional revenue for the nine months ended September 30, 2007."

Mr. Goertzen continued, "The weak market conditions that commenced in mid 2006 and that have persisted through the third quarter of 2007 have been a challenge to the service sector in Canada. While we are not immune to these conditions, we are encouraged by the progress we continue to make in foreign markets with our key strategy of geographic diversification."

During the Third Quarter of 2007, Enerflex generated net income of $11.5 million ($0.25 per trust unit) from revenue of $195.6 million compared to net income of $4.7 million ($0.11 per share) in the third quarter of 2006, representing a 145% increase. The 2006 numbers were impacted by $7.1 million (after-tax) of trust conversion costs. After adjusting for these costs, earnings per unit in the third quarter of 2007 were $.01 per unit lower. As a result of the conversion to an income trust in October 2006, Enerflex accrued distributions to unit holders totaling $11.7 million or $0.25 per trust unit, as compared to accrued dividends of $2.8 million or $0.0625 per share in the same period of 2006, an increase of 318%. The adjusted distribution payout ratio (1) was 82% as compared to an adjusted dividend payout ratio (1) of 16% in the third quarter of 2006.

Revenues of $195.6 million in the third quarter represent a modest increase from $194.2 million in the same period of 2006. While the fund did feel the continued effects of reduced activity levels in the Canadian market, this was significantly offset by increased revenue from international operations.



Financial Highlights
Three Months Ended September 30
----------------------------------------------------------------------------
$ millions, except per unit/share %
amounts 2007 2006 change
(Unaudited)
----------------------------------------------------------------------------
Revenue $ 195.6 $ 194.2 1%
Gross margin $ 42.6 $ 44.6 (4%)
Gross margin percent 21.8 23.0
Operating margin(1) $ 11.5 $ 18.1 (36%)
Operating margin percent(1) 5.9 9.3
Net income $ 11.5 $ 4.7 145%
Earnings per unit/share (basic) $ 0.25 $ 0.11
Distributable cash flow per unit -
adjusted(1) (2) $ 0.31 $ 0.39 (20%)
Distribution/dividend per unit $ 0.25 $ 0.0625 300%
Distribution/dividend payout ratio
percent - adjusted(1) 82 16
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Nine Months Ended September 30
----------------------------------------------------------------------------
$ millions, except per unit/share %
amounts 2007 2006 change
(Unaudited)
----------------------------------------------------------------------------
Revenue $ 593.1 $ 601.1 (1%)
Gross margin $ 126.7 $ 136.3 (7%)
Gross margin percent 21.4 22.7
Operating margin(1) $ 36.0 $ 59.7 (40%)
Operating margin percent(1) 6.1 9.9
Net income $ 38.1 $ 30.1 27%
Earnings per unit/share (basic) $ 0.82 $ 0.67 -
Distributable cash flow per unit -
adjusted(1) (2) $ 1.13 $ 0.96 18%
Distribution/dividend per unit $ 0.75 $ 0.1875 300%
Distribution/dividend payout ratio
percent - adjusted(1)(2) 66 20
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(1) Please refer to Note 1 at the end of the quarterly summary table.
(2) For the quarter ended September 30, 2007 the Fund adopted The Canadian
Securities Administrator's (CSA) guidance on calculating distributable
cash flow. This method requires distributable cash flow to be calculated
by including changes to non cash working capital in the computation.


THIRD QUARTER AND YEAR TO DATE HIGHLIGHTS

- In the first nine months of 2007 new orders increased by 35% to $440.3 million resulting in an increase in backlog of 51% to $295.9 million, both as compared to the same period in 2006. This year to date backlog represents an all time record for Enerflex.

- International orders represent 75% of total bookings for the nine month period as compared to 40% in the prior year. As of September 30th, 2007, orders from outside Canada represent 73% of total backlog, up from 47% at the end of the prior year period.

- International revenue increased by 32% to $91.7 million in the third quarter of 2007 as compared to $69.7 million in 2006. International revenue year-to-date is $273.8 million, 36% higher than the same period in 2006, and represents 46% of total revenue year to date.

- The Service business segment increased revenues by 13% from the third quarter of 2006.

- The Production Service segment increased revenues by 4% compared to the third quarter of 2006.

- Achieved 1 million hours without a lost time injury across all business units while the Electrical, Instrumentation and Controls division is approaching 3.5 million hours without a lost time injury.

- The Compression and Power divisions in the Engineered Systems segment experienced revenue growth of 3% or $6.6 million year to date as international demand offset the downturn in the domestic market.

On July 6, 2007,Enerflex signed a letter of intent to purchase a 100% interest in Kentech Group Holdings Ltd. and its subsidiaries ("Kentech Group"), headquartered in the Republic of Ireland. On October 24th, 2007 we entered into a Revised Letter of Intent with Kentech to purchase a 60% interest, with a commitment to purchase the remaining 40% interest at December 31, 2010 or December 31, 2011. Enerflex expects to close this transaction early in the first quarter of 2008.

Kentech Group is a specialized engineering, procurement, construction, commissioning and maintenance organization providing mechanical, electrical, instrumentation and telecommunications services to the global energy sector. Kentech Group currently has operations in the Middle East (Kuwait, Qatar and Dubai and Abu Dhabi in the United Arab Emirates), the Former Soviet Union (Azerbaijan, Kazakhstan and Sakhalin Island, Russia) and Latin America. When this transaction concludes, early in the first quarter of 2008, we will have our third key region outside North America as an important platform for selling our products and services in the Middle East.

Conference Call and Webcast Details

Enerflex Systems Income Fund (TSX:EFX.UN) will host a conference call for analysts and investors on Tuesday, November 6, 2007 at 9:00 a.m. MDT (11:00 a.m. EDT) to discuss the Fund's 2007 third quarter results which will be released on Monday, November 5, 2007. 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, 1.866.542.4236 or 1.416.641.6127. Please call at least ten minutes ahead of time.

Participants who wish to listen to a recording of the conference at a later time may do so by calling 1.800.408.3053 or 1.416.695.5800 (pass code: 3240504#) approximately one hour after the completion of the call. The recording will be available until the end of day Tuesday, November 13, 2007.

A live audio webcast of the conference call will be available on our internet site at www.enerflex.com in the Investor Relations section under Webcasts on November 6, 2007 at 9:00 a.m. MDT (11:00 a.m. EDT). Approximately one hour after the call, a recording of the event will be available on our internet site. Pre-registration for this web cast is available now on the web site.

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 lies between the wellhead and the pipeline. Enerflex provides natural gas compression, power generation and process equipment for sale or lease, hydrocarbon production and processing facilities, electrical, instrumentation and controls services and a comprehensive package of field maintenance and contracting capabilities. Through our ability to provide these products and services in an integrated manner, or as standalone offerings, Enerflex offers its customers a unique value proposition.

Headquartered in Calgary, Canada, Enerflex has approximately 2,600 employees. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, Australia, the Netherlands, the United States, Germany, Pakistan, Egypt, Indonesia and Malaysia. Enerflex's trust units trade on the Toronto Stock Exchange under the symbol "EFX.UN".

Forward-Looking Statements

Certain information contained herein constitutes forward-looking information under applicable securities laws.

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

Enerflex Systems Income Fund

Management's Discussion and Analysis

The Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated financial statements and the accompanying notes to the consolidated financial statements for the three and nine months ended September 30, 2007 and 2006 and in conjunction with the Fund's 2006 annual report and the audited consolidated financial statements and the MD&A for the years ended December 31, 2006 and 2005. The results reported herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and are presented in Canadian dollars unless otherwise stated. The MD&A has been prepared taking into consideration information that is available up to October 29, 2007 and focuses on key statistics from the consolidated financial statements, and pertains to known risks and uncertainties relating to the oil and gas service sector. This discussion should not be considered all-inclusive, as it excludes changes that may occur in general economic, political and environmental conditions. Additionally, other elements may or may not occur which could affect industry conditions and/or Enerflex Systems Income Fund in the future. Additional information relating to the Enerflex Systems Income Fund (the "Fund"), including the Fund's Annual Information Form, is available on SEDAR at www.sedar.com.

Forward-looking Statements

This MD&A contains forward-looking statements. Certain statements containing words such as "anticipate", "could", "expect", "seek", "may", "intend", "will", "believe" and similar expressions, statements that are based on current expectations and estimates about the markets in which the Fund operates and statements of the Fund's belief, intentions and expectations about development, results and events which will or may occur in the future constitute "forward-looking statements" and are based on certain assumptions and analysis made by the Fund and the General Partner derived from their experience and perceptions.

All statements, other than statements of historical fact contained in this MD&A, are forward-looking statements, including, without limitation: statements with respect to anticipated financial performance; future capital expenditures, including the amount and nature thereof; oil and gas prices, supply and demand; other development trends of the oil and gas industry; business prospects and strategy; expansion and growth of the business and operations, including market share and position in the oilfield service markets; the ability to raise capital; non-resident ownership of the Fund; expectations regarding future distributions; expectations and implications of changes in government regulation, laws and income taxes; and other such matters. In addition, other written or oral statements which constitute forward-looking statements may be made from time to time by and on behalf of the Fund and the General Partner. Such forward-looking statements are subject to important risks, uncertainties, and assumptions which are difficult to predict and which may affect the Fund's and the General Partner's operations, including, without limitation: the impact of general economic conditions; industry conditions, including the adoption of new environmental, taxation 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 the ability to generate sufficient cash flow from operations to meet current and future obligations, including future distributions to unit holders of the Fund; increased competition; the lack of availability of qualified personnel or management; labour unrest; fluctuations in foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by the Fund or the General Partner and other factors, many of which are beyond their control. As such, actual results, performance, or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, dividends or distributions the Fund and its unit holders, will derive there-from. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A and other than as required by law, the Fund and the General Partner disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Fund

Enerflex Systems Income Fund is an open-ended mutual fund trust governed by the laws of Alberta pursuant to a Deed of Trust dated August 22, 2006. On October 2, 2006, the Fund, Enerflex Systems Holdings Trust (the "Trust"), Enerflex Holdings Limited Partnership (the "Partnership"), Enerflex Holdings General Partner (the "General Partner"), Enerflex Systems Ltd. (the "Company") and Enerflex Acquisition Ltd. ("AcquisitionCo") completed an Arrangement Agreement (the "Arrangement") dated August 25, 2006, the purpose of which was to convert the Company from a corporate structure into an income trust. Pursuant to the Arrangement, the Company and AcquisitionCo amalgamated and continued as one corporation. Upon completion of the Arrangement, all of the shares of the Company were owned by the Partnership and indirectly by the Fund. As part of the Arrangement, the outstanding units were split on a two for one basis.

The Fund, the Trust, the Partnership, the General Partner and the Company together with its subsidiaries and affiliates are collectively referred to as "Enerflex" or the "Fund".

The beneficiaries of the Fund are the holders of the Fund units and the partners of the Partnership who are the holders of exchangeable limited partnership ("LP") units. The quarterly distributions made by the Fund are determined by the Board of Directors of the General Partner. The Partnership earns interest income from a promissory note. The Partnership pays distributions to holders of exchangeable LP units in amounts equal to the distributions paid to the holders of Fund units. All distributions are made to unit holders of record on the last business day of each quarter.

Enerflex is a leading supplier of products and services to the global oil and natural gas production industry. Its core expertise lies in its ability to provide products and services to the industry segment that operates between the wellhead and the pipeline. Enerflex's primary products and services are: natural gas compression, power generation, combined heat and power systems and process equipment for sale, rent or lease; hydrocarbon production and processing equipment and facilities; electrical, instrumentation and controls services; and a comprehensive range of field maintenance and contracting capabilities. Through its ability to provide these products and services in an integrated manner, or as stand-alone offerings, Enerflex believes it offers its customers a unique value proposition.

Headquartered in Calgary, Canada, Enerflex has approximately 2,600 employees worldwide. The Fund, its subsidiaries, interests in affiliates and joint ventures, operate in Canada, Australia, the Netherlands, the United States, Germany, Pakistan, Egypt, Indonesia and Malaysia. The Fund's trust units trade on the Toronto Stock Exchange under the symbol "EFX.UN".

Industry Overview

The oil and natural gas service sector in Canada has a distinct seasonal trend in activity levels which results from well-site access and drilling pattern adjustments to take advantage of weather conditions. Generally, Enerflex's Engineered Systems segment experiences higher revenues in the fourth quarter of each year, the Service segment experiences stable revenues throughout the year, and the Production Services segment experiences stable revenues throughout the year, impacted by both its customers' and the Fund's capital investment decisions. The international markets are not significantly impacted by seasonal variations. Variations from these trends usually occur when hydrocarbon energy fundamentals are either improving or deteriorating. As Enerflex increases its international presence, the overall impact of seasonal revenue variations will be less significant.

Reduced activity levels in the Canadian market continued to persist in the third quarter of 2007. This downturn began in the third quarter of 2006 and has primarily impacted the Fund's Engineered Systems segment in terms of new orders from Canadian customers and the Fund's Service segments. This has been significantly offset by increased international activity. The Production Services segment continues to perform well in this challenging domestic environment.

Specific accomplishments during the quarter include:

- Increased revenue from international operations and export product sales by 32% over the third quarter of 2006. International bookings from all segments for the third quarter of 2007 were $127.8 million or 167% higher than $47.9 million in the same period in 2006;

- International backlog for the quarter ended September 30, 2007 was $216.4 million, 135% higher than the same period in 2006;

- Achieved 1 million hours without a lost time injury across all business units while the Electrical, Instrumentation and Controls division is approaching 3.5 million hours without a lost time injury;

- During the third quarter of 2007, as a result of the conversion to an income trust in 2006, Enerflex accrued distributions to unit holders totaling $11.7 million or $0.25 per unit, as compared to accrued dividends for the third quarter of 2006 of $2.8 million or $0.0625 per share, an increase of 318%; and

- The Fund added assets to its international rental fleet, with the acquisition of power generation equipment and associated rental contracts in the Netherlands for $1.1 million.



FINANCIAL HIGHLIGHTS:

----------------------------------------------------------------------------
(Unaudited)
($ Thousands except
percent and per unit/
share amounts)

----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30

----------------------------------------------------------------------------
2007 2006 2007 2006

----------------------------------------------------------------------------
Revenue 195,570 194,210 593,079 601,120
Gross margin 42,569 44,600 126,728 136,285
Gross margin (%) 21.8 23.0 21.4 22.7
SG&A 30,569 35,295 91,146 87,293
Operating margin(1) 11,496 18,146 35,983 59,715
Net Income 11,528 4,719 38,093 30,096

Per unit/share
- Basic $0.25 $0.11 $0.82 $0.67
Per unit/share
- Diluted $0.25 $0.11 $0.82 $0.66

Weighted average number
of units/shares 46,684,824 45,456,944 46,680,947 45,384,114


Operating margin Three months ended Nine months ended
(Unaudited)(Thousands) September 30, 2007 September 30, 2007
----------------------------------------------------------------------------
Gross margin $42,569 $126,728
Selling, general and administrative
expenses 30,569 91,146
Foreign currency losses (gains) 548 (135)
Equity earnings (44) (266)
----------------------------------------------------------------------------
Operating margin $11,496 $35,983
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Operating margin percent
Operating margin divided by
revenue (%) 5.9 6.1
----------------------------------------------------------------------------

Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(Unaudited)(Thousands)
----------------------------------------------------------------------------
Earnings before interest and income
taxes $12,431 $37,834
Depreciation and amortization 5,762 16,801
----------------------------------------------------------------------------
EBITDA 18,193 54,635
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EBITDA-adjusted $18,193 $54,635
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----------------------------------------------------------------------------
Distributable cash flow Three months ended Nine months ended
(Unaudited)(Thousands) September 30, 2007 September 30, 2007
----------------------------------------------------------------------------
Cash flow from operations before
changes in non-cash working
capital $16,345 $50,794
Changes in non-cash working capital (1,442) 4,714
Maintenance capital expenditures (599) (2,726)
----------------------------------------------------------------------------
Distributable cash flow 14,304 52,782
Reorganization costs - -
----------------------------------------------------------------------------
Distributable cash flow-adjusted(1) $14,304 $52,782
----------------------------------------------------------------------------
Distribution payout ratio(1)
Distribution divided by
distributable cash flow (%) 82 66
----------------------------------------------------------------------------
Distribution payout
ratio-adjusted(1)
Distribution divided by adjusted
distributable cash flow (%) 82 66
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(1) On September 30(th), 2007, the fund adopted the Canadian Securities
Administrator's (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. As a result of these changes the distribution pay out
ratio for the quarter was 82% versus 74%, under the previous method. The
year to date distribution pay out ratio is 66% as calculated under the
new method, as compared to 73% under the previous method.\

(2) Operating margin, operating margin percent, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), distributable cash flow
and distribution/dividend 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 reorganization 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 unit
holders 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.


For The Three Months Ended September 30, 2007

During the third quarter of 2007 Enerflex generated $195.6 million in revenue, as compared to $194.2 million in the third quarter of 2006. The increase of $1.4 million, or 1%, was a result of increased revenues in the Service and Production Services segment, which was partially offset by decreased revenue in the Engineered Systems segment.

As compared to the three month period ended September 30, 2007:

- Service revenue increased by $9.4 million with the acquisition of Enerflex Energiesystemen in Europe contributing $5.0 million of this increase and continued growth in demand for Mechanical Services in AustralAsia and Canada contributing $4.4 million due to increased revenues for parts and service to existing equipment. These increases were partially off-set by decreased demand in the Electrical Instrumentation & Control (EI&C) division as a result decreased activity in the domestic market;

Production Services revenue increased by $0.3 million as a result of increased revenue from Variable Cost Production ("VCP") contracts, partially offset by lower rental revenue as a result of lower fleet utilization rates in higher horsepower units; and

- Engineered Systems revenue declined by a total of $8.4 million, as a result of decreased revenues of $11.4 million at the Production & Processing (P&P) division. In the third quarter of 2006 P&P was completing work on a turn-key gas processing plant in Egypt, with no comparable project in 2007. This decrease was partially off-set by a $3.0 million increase in revenues at Compression & Power (C&P) as a result of the Enerflex Energiesystemen acquisition and increased export sales.

Gross margin for the three months ended September 30, 2007 was $42.6 million or 21.8% of revenue as compared to $44.6 million or 23.0% of revenue for the three months ended September 30, 2006, a decrease of $2.0 million.

Many factors contributed to this decline and are summarized as follows:

- Service gross margin percentage of 27.6% decreased from 30.4% in 2006 as the segment experienced a decline in revenues and cost adjustments at the EI&C division. These declines were partially offset by strong labour utilization and parts margins in Mechanical Service;

- Production Services' gross margin percentage of 44.8% declined from 55.9% primarily due to the recording of flow-through associated with VCP projects, lower rental fleet utilization rates, increased depreciation charges and increased maintenance costs for portable compression and exhaust gas units. While VCP projects generate profit for other Enerflex segments, Production Services realizes minimal incremental margin on these revenues as it is a conduit for billing customers on VCP projects. The impact of the above accounted for 8.4% of the 11.1% decrease in gross margin; and

- Engineered Systems' gross margin percentage of 15.3% decreased from 15.7% as a result of lower plant utilization rates and downward price pressure in the compression market for shallow gas and coal bed methane (CBM), due to reduced Canadian activity. This was partially offset by increased International activity.

Selling, general and administrative ("SG&A") expenses were $30.6 million or 15.6% of revenue during the three months ended September 30, 2007, compared with $35.3 million or 18.2% of revenue in the same period of 2006. Included in 2006 SG&A is approximately $8.9 million in costs related to the conversion to an Income Trust from a Corporation, which was undertaken during the third quarter of 2006. The $4.2 million increase in SG&A expenses during the quarter, as compared to the same period in 2006 net of conversion costs, is principally attributed to: the Fund's growth initiatives in AustralAsia, the Middle East and Europe; the need to react to increased compensation pressures for skilled and professional employees; compliance initiatives undertaken to conform to regulatory requirements and the amortization of assets acquired through various acquisitions. Notable SG&A increases by region included: $4.4 million in Europe largely attributable to the newly acquired Enerflex Energiesystemen operation and $0.3 million in AustralAsia to respond to the increased activity that commenced in 2006 and to prepare for anticipated future business. These increased expenditures are viewed by Enerflex as investments in the future prospects of the organization. Specific cost increases by category occurred as follows: $2.4 million increase in personnel and compensation expenses; increased travel of $0.6 million; increased insurance costs of $0.5 million; increased legal costs of $0.4 million; and increased depreciation and amortization of $0.1 million.

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, the impact of the Fund's foreign exchange hedging strategy and excluding reorganization costs. For the three months ended September 30, 2007, Enerflex produced an operating margin1 of $11.5 million, or 5.9% of revenue, as compared to an operating margin1 of $18.1 million, or 9.3% of revenue, for the same three month period in 2006. The reduction in operating margin1 for the quarter as compared to 2006 occurred as a result of the same factors contributing to the reduced gross margin and increased SG&A expenses. The foreign exchange loss of $0.5 million during the quarter resulted primarily from changes in the value of the Euro and United States dollar as compared to the Canadian dollar during the period.

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

Income before interest and income taxes totaled $12.4 million for the third quarter of 2007, as compared to $9.8 million for the same period in 2006. Income tax recoveries for the quarter were a recovery of $0.9 million as compared to an expense of $3.2 million in the third quarter of 2006. The recovery was a consequence of the conversion to an income trust.

During the third quarter of 2007, Enerflex generated net income of $11.5 million as compared to $4.7 million in the same period of 2006. Net income for the third quarter of 2006 was impacted by conversion costs totaling $7.1 million after tax. This results in earnings per income trust unit of $0.25 in 2007, as compared to $0.26 in the third quarter of 2006, when adjusted for the above mentioned trust conversion costs.

During the quarter, the Fund declared distributions of $0.25 per unit or $11.7 million. This represented 82% of distributable cash flow.

Segmented Results

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

1. Service

Service is comprised of two divisions:

- Syntech's EI&C business in Canada which provides a range of EI&C services and products to the energy, forestry, petro-chemical and mining industries, and;

- Mechanical Service, with business units operating in Canada, the Netherlands, Australia and Indonesia and a 51% owned joint venture in Germany.

2. Engineered Systems is comprised of two divisions:

- Compression & Power (C&P):

This division provides custom and standard compression packages for reciprocating compressor applications and screw compressor applications from facilities located in Calgary and Stettler, Alberta. In addition, this division provides re-engineering and refurbishing services for legacy compression equipment.

Finally, this division also provides electrical generation equipment in the under 10 mega-watt market, as well as the manufacturing of combined heat and power equipment at facilities in the Netherlands.

- Production & Processing (P&P):

This division designs and manufactures modular natural gas processing equipment, waste gas systems, and environmental solutions to the natural gas and heavy oil segments of the market. In addition, the division has a 46.5% joint venture interest in Presson Descon International (PDIL) and wholly owns EFX Global KL Sdn Bhd, which provides engineering and application services to the Australian operations focusing on natural gas processing.

3. Production Services:

- Provides compression, power generation and natural gas processing equipment rentals, primarily in Canada. This segment also supplies Enerflex's VCP and Flue Gas Compression service offerings.

On January 30, 2007, Enerflex entered into an agreement with the shareholders of the Netherlands based Powertec, whereby Enerflex acquired the business and operating assets of Powertec. This acquisition adds power systems manufacturing and combined heat and power expertise ("CHP"), strong gas engine aftermarket capability and a significant base of long-term service contract revenue to our existing European operations. This acquisition substantially increases Enerflex's critical mass and footprint in the region. The business has a core team of approximately 100 personnel headquartered in a 73,000 square foot manufacturing facility in Rijsenhout, the Netherlands. The service portion of this business is included in the Service segment and the CHP portion of this business is included in the Engineered Systems segment. The operation is doing business as Enerflex Energiesystemen B.V. ("Enerflex Energiesystemen").

Service

The Service business segment provides a complete line of mechanical and electrical, instrumentation and controls services primarily to the oil and gas industry through an extensive branch network in Canada, Germany, the Netherlands, Australia and Indonesia. Service is Enerflex's second largest business segment by revenue. At quarter end, it employed 50% of staff, held 32% of the total assets, and for the quarter, generated 41% of Enerflex's revenue and produced 30% of Enerflex's income before interest and income taxes. Key performance metrics include labour utilization, revenue, gross margin percent and income before interest and income taxes.

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



(Unaudited)(Thousands)
Three Months Ended September 30, 2007 2006
----------------------------------------------------------------------------
Service segment revenue $ 82,419 $ 74,487
Intersegment revenue (2,332) (3,785)
----------------------------------------------------------------------------
Revenue $ 80,087 $ 70,702
------------------------------------
------------------------------------
Gross margin $ 22,123 $ 21,523
------------------------------------
------------------------------------
EBITDA(1) $ 4,924 $ 8,078
------------------------------------
------------------------------------
Income before interest and income taxes $ 3,800 $ 7,007
------------------------------------
------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP (Generally Accepted Accounting Principles)
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 at the end of the quarterly summary table.


Service Revenue was $80.1 million for the three months ended September 30, 2007, compared to $70.7 million for the same period in 2006. The $9.4 million increase in revenue is a result of increased sales in the Mechanical Services Division. The acquisition of Enerflex Energiesystemen in the first quarter of 2007, along with improved results in Gas Drive Systems (in Australia) and strong demand for parts and service in Canada added $11.3 million to revenues in the quarter. This was partially offset by decreased revenues in Electrical Instrumentation and Controls as the downturn in Enerflex's domestic market continued in the third quarter of 2007.

International revenues comprised 25% of total revenues in the third quarter of 2007, compared to 17% in the same period of 2006.

Gross margin for the three months ended September 30, 2007 was 27.6% or $22.1 million, compared to 30.4% or $21.5 million during the same period in 2006. The decrease in gross margin percentage was the result of reduced activity and cost adjustments on a major contract in the Electrical, Instrumentation and Controls Division. In addition, gross margin are generally impacted by service work at Energiesystemen, which has been traditionally sold at lower margins than the remaining mechanical service work due to the long term nature of those contracts. However, margins in this business unit were positively impacted by a recovery from a supplier due to warranty claims.

Income before interest and taxes was $3.8 million in the third quarter of 2007, compared to $7.0 million during the same period in 2006. The decrease of $3.2 million was due to increased administrative costs for Mechanical Service and lower activity levels in the EI&C division as a result of the continued downturn in domestic demand.

Engineered Systems

The Engineered Systems business segment engineers, fabricates and assembles standard and custom-designed compression packages, production and processing equipment and facilities, combined heat and power systems, and power generation systems. The key performance metrics for this business segment are market share, plant utilization, overhead application rates and gross margin as a percentage of revenue. Engineered Systems is Enerflex's largest business segment by revenue. At quarter end, it employed 49% of staff, held 43% of the total assets, and for the quarter, generated 54% of Enerflex's revenue and produced 38% of Enerflex's income before interest and income taxes.

Engineered Systems' business tends to have more volatility in revenue, gross margin and income before interest and income taxes than Enerflex's other business segments. Revenues are derived primarily from the investments made in natural gas infrastructure by producers. Capital spending by Enerflex's customers was high in 2001, dropped sharply in 2002 and early 2003, increased in late 2003 and continued to grow from 2004 through to September 2006. As a result of softening natural gas commodity prices, increases in the cost of finding and developing hydrocarbon reserves and changes in income tax laws pertaining to income trusts, Canadian energy producing entities reduced the amount of capital they invested during the latter half of 2006. This trend has continued in the first nine months of 2007. However, the international market continues to have favourable business conditions particularly in the AustralAsia region, the Middle East and the Indian subcontinent.



(Unaudited) (Thousands)
Three Months Ended September 30, 2007 2006
----------------------------------------------------------------------------
Engineered Systems segment revenue $ 109,448 $ 129,379
Intersegment revenue (3,507) (15,067)
----------------------------------------------------------------------------
Revenue $ 105,941 $ 114,312
------------------------------------
------------------------------------
Gross margin $ 16,170 $ 17,934
------------------------------------
------------------------------------
EBITDA(1) $ 6,545 $ 8,988
------------------------------------
------------------------------------
Income before interest and income
taxes $ 4,683 $ 7,220
------------------------------------
------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP (Generally Accepted Accounting Principles)
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 at the end of the quarterly summary table.


Revenue for the three months ended September 30, 2007 was $105.9 million, compared to $114.3 million for the same period in 2006. The decrease in revenue of $8.4 million was the result of decreased revenue of $11.4 million in Production and Processing as a result of work on a turnkey natural gas processing plant in 2006, with no corresponding revenue on a comparable project in 2007 and decreased sales in the sub 600HP Screw Compression market as a result of lower drilling activity in shallow gas. For the third quarter of 2007, international revenues were $65.8 million compared to $59.3 million in 2006. The decrease in revenue was partially offset by increases in Compression and Power of $3.0 million as a result of increased international demand for compression equipment and the addition of Enerflex Energiesystemen systems.

Gross margin for this segment was 15.3% or $16.2 million compared to 15.7% or $17.9 million in the third quarter of 2006. The decrease in gross margin percentage was related to lower margins realized at Production and Processing on a project in China as a result of a strengthening Canadian dollar and a decrease in utilization at the fabrication facilities of Production & Processing and Compression & Power.

Income before interest and income taxes was $4.7 million in the third quarter of 2007, compared to $7.2 million for the same period in 2006. This was as a result of the above mentioned factors.

Bookings and Backlog

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



2007 2006
Bookings year-to-date September 30,
($ Thousands)
----------------------------------------------------------------------------
Canadian $ 110,336 $ 195,582
International 329,973 129,730
----------------------------------------------------------------------------
Total Bookings $ 440,309 $ 325,312
------------------------------------
------------------------------------
Backlog as at September 30, 2007 2006
($ Thousands)
------------------------------------
------------------------------------
Canadian $ 79,484 $ 104,017
------------------------------------
------------------------------------
International $ 216,440 $ 92,032
------------------------------------
------------------------------------
Total Backlog $ 295,924 $ 196,049
------------------------------------
------------------------------------


Backlog at September 30, 2007 was $295.9 million compared to $196.0 million for the same period in 2006. This represents a 51% increase year over year.

International backlog increased by 135% year over year and represents 73% of total backlog at September 30, 2007, as compared to 47% for the same period in 2006. The company has been impacted from a slowing domestic market, but this downturn has been significantly offset by an expansion of the organization's international strategy and expanding international footprint. International revenue represents 46% of total revenues at September 30, 2007, compared to 33% at September 30th, 2006.

Production Services

The Production Services business segment provides a variety of rental and leasing alternatives for natural gas compression, power generation and processing equipment. As of September 30, 2007, Enerflex's rental fleet was comprised of 356 compression units, representing approximately 115,000 horsepower, and 204 processing units. This compared with 370 compression units, representing approximately 106,000 horsepower, and 155 processing units as at September 30, 2006. The key performance metrics in this business are fleet size, utilization rates and rental rates. At quarter end, the Production Services segment employed 1% of staff, held 21% of the total assets, and for the quarter, generated 5% of Enerflex's revenue and produced 32% of Enerflex's income before interest and income taxes.

Enerflex's rental fleet is located principally in western Canada. Expansion in international markets is being conducted on a selective basis to minimize the risk from these new markets. As of September 30, 2007, Enerflex's compression rental fleet included 13 units located in the United States, 1 unit in Pakistan and 1 unit in Australia.



(Unaudited) (Thousands)
Three Months Ended September 30, 2007 2006
----------------------------------------------------------------------------
Production Services segment revenue $ 9,545 $ 9,199
Intersegment revenue (3) (3)
----------------------------------------------------------------------------
Revenue $ 9,542 $ 9,196
------------------------------------
------------------------------------
Gross margin $ 4,276 $ 5,143
------------------------------------
------------------------------------
EBITDA(1) $ 6,724 $ 6,743
------------------------------------
------------------------------------
Income before interest and income
taxes $ 3,948 $ 4,528
------------------------------------
------------------------------------
Capital expenditures, net of
proceeds on disposal $ 755 $ 12,964
------------------------------------
------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP (Generally Accepted Accounting Principles)
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 at the end of the quarterly summary table.


Revenue for the quarter ended September 30, 2007 was $9.5 million, compared to $9.2 million for the same period in 2006. The $0.3 million increase in revenue was the result of a $1.2 million increase in revenue from variable cost production activities during the quarter. This increase was partially offset by rental revenue decreasing by $0.9 million, as utilization rates for the Rental fleet experienced a 13.0% decline quarter over quarter. The decreased utilization was the result of the division selling 2,500 HP of equipment during the quarter that was previously leased. In addition, utilization rates were impacted by a downturn in domestic natural gas exploration and drilling.

Gross margin was $4.3 million or 44.8% for the quarter, compared to $5.1 million or 55.9% for the same period in 2006. The decrease in margin was the result of a higher capital base for the rental fleet and lower utilization rates, which resulted in higher depreciation charged to a lower revenue base.

Gross margins were also impacted by VCP initiatives, as Production Services charges customers for services and equipment from affiliated Enerflex Divisions with no corresponding margin recorded in Production Services on those services.

Income before interest and income taxes was $3.9 million for the quarter, compared to $4.5 million for the same period in 2006. The $0.6 million decrease was a result of the factors discussed above.

For The Nine Months Ended September 30, 2007

For the nine months ending September 30, 2007 Enerflex generated $593.1 million in revenue, as compared to $601.1 million in the same period of 2006. The decrease of $8.0 million or 1% was a result of declining revenues in the Engineered Systems segment partially offset by increased revenue in both the Service and Production Services segments. As compared to the nine month period ended September 30, 2006:

- Service revenue increased by $28.5 million with the acquisition of Enerflex Energiesystemen in Europe contributing $14.1 million, AustralAsia contributing $3.3 million and the balance attributable to continued growth in demand for Mechanical Services in Canada.

- Production Services revenue increased by $4.8 million as a result of the portable compression rental fleet, VCP and Flue Gas Compression contracts, partially offset by lower rental fleet utilization rates; and

- Engineered Systems revenue declined by $41.4 million with Compression & Power revenue increasing by $6.6 million and Production & Processing revenues declining by $47.9 million. The overall decrease in revenue was due to Production & Processing work on a power plant in Egypt in 2006, with no comparable project in 2007. In addition, 2007 saw the curtailment of Canadian drilling activity and reduced demand for production equipment. These decreases were partially offset by increases in demand for compression internationally.

Gross margin for the nine months ended September 30, 2007 was $126.7 million or 21.4% of revenue as compared to $136.3 million or 22.7% of revenue for the nine months ended September 30, 2006, a decrease of $9.6 million. Each segment experienced a lower gross margin percentage than realized in the same period of 2006. Many factors contributed to this decline and are summarized as follows:

- Service gross margin percentage of 26.1% decreased from 28.9% in 2006 as the segment experienced higher labour costs, increased training costs and modest declines in labour utilization rates and the impact of the service work of Enerflex Energiesystemen, which was sold at lower margins due to the long-term nature of the contracts;

- Production Services gross margin percentage of 49.6% declined from 60.4% primarily due to accounting for flow-through revenue for VCP projects, lower rental fleet utilization rates and increased depreciation charges. While VCP projects generate profit for other Enerflex segments, the inclusion of $3.8 million of VCP installation flow-through revenue with no associated margin accounted for 7.0% of the 10.8% decline; and

- Engineered Systems gross margin percentage of 15.0% decreased from 16.1% as a result of lower utilization rates at the Stettler plant due to reduced Canadian activity in shallow gas drilling, price pressure in the compression market and additional project commissioning costs incurred on the turnkey natural gas processing plant in Egypt.

Selling, general and administrative expenses were $91.1 million or 15.4% of revenue during the nine months ended September 30, 2007, compared with $87.3 million or 14.5% of revenue in the same period of 2006.

SG&A for the nine months ended September 30, 2006 included approximately $8.9 million in trust conversion costs. After adjusting for these one time costs SG&A increased by $12.8 million. This increase can be attributed to the Fund's international growth initiatives; compensation pressures for employees; and governance costs related to compliance with regulatory requirements related around the design, implementation and effective operation of internal controls over financial reporting.

Income before interest and income taxes totaled $37.8 million for the first nine months of 2007, as compared to $53.3 million for the first nine months of 2006. Income taxes for the first nine months of 2007 were reduced by $24.3 million to a recovery of $6.2 million from an expense of $18.1 million in the first nine months of 2006. The decrease in income tax expense is the result of a favorable tax ruling totaling $2.9 million; the application of reduced statutory income tax rates to future income tax assets and liabilities; and as a result of converting to an income trust on October 2, 2006.

During the nine months ended September 30, 2007, Enerflex generated net income of $38.1 million as compared to $30.1 million in the same period of 2006. This results in an earnings per income trust unit of $0.82 in 2007, as compared to $0.67 for the first three quarters of 2006, adjusted for the two for one split which occurred upon conversion to an income trust on October 2, 2006.

The increase in earnings in 2007 can be attributed to lower income taxes during the year as a result of converting to an income trust in October of 2006. In addition, net income for the third quarter of 2006 was impacted by the trust conversion costs discussed above.



Segmented Results
Service

(Unaudited) (Thousands)
Nine Months ended September 30, 2007 2006
----------------------------------------------------------------------------
Service segment revenue $ 254,879 $ 229,023
Intersegment revenue (7,915) (10,591)
----------------------------------------------------------------------------
Revenue $ 246,964 $ 218,432
------------------------------------
------------------------------------
Gross margin $ 64,375 $ 63,213
------------------------------------
------------------------------------
EBITDA(1) $ 14,624 $ 23,956
------------------------------------
------------------------------------
Income before interest and income
taxes $ 11,173 $ 21,214
------------------------------------
------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP (Generally Accepted Accounting Principles)
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 at the end of the quarterly summary table.


Service revenue was $247.0 million for the nine months ended September 30, 2007, as compared to $218.4 million for the same period in 2006. The $28.4 million increase in revenue was due to the acquisition of Enerflex Energiesystemen in 2007, as well as continued growth in the AustralAsia Region, and continued growth in parts demand in Canada. These increases were partially offset by decreases in electrical instrumentation and controls as demand for these services has softened in Canada as a result of decreased drilling activity.

International revenues accounted for 26% of total revenue at September 30, 2007, compared to 18% during the same period in 2006.

Gross margin for the nine months ending September 30, 2007 for the segment totaled $64.4 million, or 26.1%, as compared to $63.2 million or 28.9%. The decrease in gross margin percent was caused by reduced labour utilization in Canada and the impact of Enerflex Energiesystemen's service contracts, which have been sold at lower margins due to the long-term nature of the contracts. Income before interest and income taxes decreased from the first nine months of 2006 by $10.0 million, or 47%, to $11.2 million as a result of these factors. The decline in profitability of the segment was due to decreased gross margins being realized, higher selling expenses associated with new product lines and services and increased administrative expenses resulting from the acquisition of Enerflex Energiesystemen.



Engineered Systems

(Unaudited) (Thousands)
Nine Months ended September 30, 2007 2006
----------------------------------------------------------------------------
Engineered Systems segment revenue $ 333,610 $ 389,364
Intersegment revenue (17,983) (32,352)
----------------------------------------------------------------------------
Revenue $ 315,627 $ 357,012
------------------------------------
------------------------------------
Gross margin $ 47,239 $ 57,563
------------------------------------
------------------------------------
EBITDA(1) $ 18,470 $ 31,708
------------------------------------
------------------------------------
Income before interest and income
taxes $ 13,277 $ 26,540
------------------------------------
------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP (Generally Accepted Accounting Principles)
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 at the end of the quarterly summary table.


Engineered Systems' revenue for the nine months ending September 30, 2007 was $315.6 million, compared to $357.0 million for the same period in 2006. The $41.4 million decrease can be attributed to work on a turnkey gas processing plant by Production & Processing in the first nine months of 2006, without a comparable project for the same period in 2007. In addition, there has been a decrease in domestic demand for compression and processing products in Canada during 2007. These decreases were partially offset by increases in Compression & Power revenue, which were driven by increased international demand for these products and the acquisition of Enerflex Energiesystemen in January 2007.

International revenue accounted for $203.7 million at September 30, 2007, compared to $160.8 million during the same period in 2006.

For the first nine months of 2007, gross margin for the segment was 15.0%, or $47.2 million, as compared to 16.1%, or $57.6 million, in the same period of 2006. The decrease in gross margin of $10.4 million was a result of decreased utilization at the segment's facilities and the impacts of foreign exchange rates on certain projects. Income before interest and income taxes decreased by $13.3 million, or 50%, to $13.3 million as a result of the above-mentioned factors, $2.4 million of general and administrative expenses related to the acquisition of Enerflex Energiesystemen and $2.5 million of increased general and administrative expenses in the AustralAsia operation to respond to the significantly increased business levels that commenced in 2006 and to prepare for anticipated future business.



Production Services

(Unaudited) (Thousands)
Nine Months ended September 30, 2007 2006
----------------------------------------------------------------------------
Production Services segment revenue $ 30,495 $ 25,693
Intersegment revenue (7) (7)
----------------------------------------------------------------------------
Revenue $ 30,488 $ 25,676
------------------------------------
------------------------------------
Gross margin $ 15,114 $ 15,509
------------------------------------
------------------------------------
EBITDA(1) $ 21,541 $ 21,107
------------------------------------
------------------------------------
Income before interest and income
taxes $ 13,384 $ 14,751
------------------------------------
------------------------------------
Capital expenditures, net of proceeds
on disposal $ 8,776 $ 13,395
------------------------------------
------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP (Generally Accepted Accounting Principles)
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 at the end of the quarterly summary table.


Revenue for Production Services was $30.5 million for the period ended September 30, 2007, compared to $25.7 million for the same period in 2006. The $4.8 million increase in revenue is the result of increased variable cost production sales and flue gas services, partially offset by lower utilization rates for the rental fleet. Utilization rates dropped from 75% in 2006 to 66% in 2007 as a result of reduced activity in the market.

Gross margin for the nine months ended September 30, 2007 totaled $15.1 million or 49.6%, compared to $15.5 million or 60.4%.The reduction in gross margin as a percent of revenue was caused by lower equipment utilization rates and $3.8 million of flow-through installation revenue for VCP recorded with no associated margin as previously discussed. As mentioned previously, although the installation work is provided at no further markup, VCP projects provide profits in other segments of Enerflex, as these projects use products and services from both Enerflex's Service and Engineered Systems segments. VCP projects also result in increased utilization of rental assets. In addition to these benefits, the VCP product offering appeals to customers who may not typically be exposed to Enerflex's more traditional product and service offerings, thus allowing Enerflex greater market penetration to a broader base of customers.

During the first nine months of 2007, Production Services sold 35 compression units and 8 power and processing units from its fleet, for gross proceeds of $12.6 million and a gain on sale of $1.7 million. This compares to 29 compression units and 41 power and processing units, for gross proceeds of $15.5 million and a gain on sale of $2.8 million during the same period of 2006. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. To satisfy the demand for new rental equipment, Enerflex added 17 compression units and 45 power and processing units to its fleet for the nine months ending September 30, 2007, for an investment of $20.4 million.

Financial Condition and Liquidity

Liquidity and Capital Resources

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

- Cash generated from continuing operations

- Bank financing and operating lines of credit

- The issuance and sale of debt and equity instruments.



Statement of Cash Flows

----------------------------------------------------------------------------
(Unaudited)(Thousands) Three months ended Nine months ended
September 30 September 30
----------------------------------------------------------------------------
2007 2006 2007 2006
----------------------------------------------------------------------------
Cash, beginning of period 24,475 10,249 22,344 16,350
----------------------------------------------------------------------------
Cash provided from (used) in:
----------------------------------------------------------------------------
Operating Activities 14,903 (14,460) 55,508 3,567
----------------------------------------------------------------------------
Investing Activities (7,919) (26,534) (23,438) (39,019)
----------------------------------------------------------------------------
Financing Activities (12,353) 37,112 (35,308) 25,469
----------------------------------------------------------------------------
Cash, end of period 19,106 6,367 19,106 6,367
----------------------------------------------------------------------------


Operating Activities

For the three months ended September 30, 2007, cash generated from operating activities was $14.9 million, compared to the use of $14.5 million during the same period in 2006. The increase of $29.4 million is the result of improved earnings, due to lower taxes payable, reductions in inventory levels and reductions in other working capital requirements.

For the nine months ended September 30, 2007, cash generated from operating activities was $55.5 million, which is $51.9 million higher than the same period in 2006. The increase is the result of higher net income and significantly lower working capital requirements as inventory and accounts receivable levels were reduced, compared to the same period last year.

Investing Activities

Cash used in investing activities for the three months ended September 30, 2007 was $18.6 million lower than the same period in 2006.

The Fund spent $14.7 million less on the purchase of rental equipment and capital assets in 2007. In addition, the Fund spent $3.0 million less on acquisitions in the third quarter of 2007. Enerflex paid contingent consideration of $4.1 million on the acquisition of the HPS Group Ltd. in the third quarter of 2006, as compared to the $1.1 million acquisition of assets from ABB in the third quarter of 2007.

Cash used in investing activities was $15.6 million lower for the nine months ended September 30, 2007. The Fund spent $15.5 million less on rental equipment and capital assets in 2007. In addition, the Fund received $2.2 million less in proceeds as a result of disposing fewer assets. This was offset by the acquisitions of Powertec and the ABB assets totaling $9.9 million in 2007.

Financing Activities

Cash provided from financing activities was $49.5 million lower for the three month period ended September 30, 2007. The decrease is the result of Enerflex borrowing $29.6 million less during the period, options totaling $13.6 million being exercised in 2006 and the payment of $8.8 million more to unit holders as a result of the Trust Conversion in 2006.

For the nine months ended September 30, 2007, cash provided from financing activities was $60.8 million lower than the same period in 2006. The decrease is the result of $15.4 million less in proceeds received on the exercise of Trust Units and Stock Options, and $27.2 million less in borrowings from the Fund's operating lines, as well as an increase of $27.1 million in distributions to unit holders as a result of converting to a Trust. This was offset by an increase in non-cash working capital and other items of $8.9 million.

On October 29, 2007, the Fund had 44,004,779 income trust units and 2,685,460 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 2006, prior to the conversion, Enerflex declared quarterly dividends equal to $0.0625 for a total of $0.1875 per share for the first three quarters of 2006. Post conversion, the Fund declared a cash distribution of $0.25 per trust unit paid on each of January 15, 2007, April 16, 2007, July 13, 2007, and October 15, 2007.

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

The Notes and Bank Facility share security on a pari passu basis with collateral consisting of a fixed and floating charge on the Fund's Canadian assets and guarantees from various subsidiary companies. These credit facilities require the Fund to meet certain covenants, including a limitation on the debt-to-EBITDA ratio and a limitation on distributions to unit holders in certain circumstances. Enerflex was in full compliance with these covenants at September 30, 2007 and October 29, 2007.

On September 30, 2007, $100.6 million Notes were outstanding and approximately $41.3 million of the $150.0 million Bank Facility was drawn, comprised of $32.9 million in cash borrowings and $8.4 million of uninsured letters of credit or guarantees, leaving approximately $108.7 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.

Subsequent Event

Enerflex entered into a Revised Letter of Intent (RLOI) on October 24 to acquire a 60% interest in Kentech Group Holdings Ltd. and its subsidiaries ("Kentech Group"), headquartered in the Republic of Ireland. The RLOI provides that the parties will proceed in good faith to enter into a definitive purchase and sale agreement. Kentech Group is a specialized engineering, procurement, construction, commissioning and maintenance organization providing mechanical, electrical, instrumentation and telecommunications services to the global energy sector. Kentech Group currently has operations in the Middle East (Kuwait, Qatar and Dubai and Abu Dhabi in the United Arab Emirates), the Former Soviet Union (Azerbaijan, Kazakhstan and Sakhalin Island, Russia) and Latin America. Kentech Group's revenue for the year ended December 31, 2006 was approximately $80 million. Enerflex continues its due diligence review. The transaction is expected to close early in the first quarter of 2008.

Contractual Obligations and Committed Capital Investment

The Fund's contractual obligations are contained in the following table:



Contractual Obligations
(Thousands) Payments due by period
----------------------------------------------------------------------------
Less than 1-3 4-5
Contractual obligations one year years years Thereafter Total
----------------------------------------------------------------------------
Leases $ 3,566 19,153 7,190 523 $ 30,432
Purchase obligations 35,828 45,288 - - 81,116
----------------------------------------------------------------------------
Total $39,394 64,441 7,190 523 $111,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The majority of Enerflex's lease commitments are operating leases for Service vehicles.

The majority of Enerflex's purchase commitments relate to major components for the Engineered Systems segment and to long-term information technology and communications contracts entered into in order to reduce the overall costs of services received.

In addition to the contractual obligations above, Enerflex has budgeted for capital spending investments of $44.7 million in 2007. Of that, $23.7 million relates to the expansion of Enerflex's rental fleet; $10.0 million for VCP opportunities; $2.2 million relates to business application software and information technology investments; and the balance is for normal replacement and expansion needs. As of October 31, 2007, a total of $29.7 million has been committed, which includes the year to date capital expenditures.

Internal Controls

While the Fund makes ongoing enhancements to its internal controls over financial reporting, no material changes were identified in the Fund's internal controls over financial reporting during the three months ended September 30, 2007 that had materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting.

Industry Outlook

International

Despite the reduction of the natural gas activity in western Canada, oil activity in western Canada and oil and natural gas industry activity worldwide continues to be strong. This creates two key potential challenges for the Fund: access to skilled personnel to meet the technical and trade requirements for designing and assembling these products and availability of major components used in the fabrication of the Fund's products. The expansion of Enerflex globally assists Enerflex in managing these issues as it broadens the markets in which personnel can be accessed and it allows Enerflex to manage its inventory levels on a larger scale thus improving its supply chain.

To take advantage of the strong market conditions outside of Canada, Enerflex's international strategy includes:

- regionalization of its business into four key geographic areas of the Americas, AustralAsia, Europe and the Middle East. With established infrastructure and local management teams in three of these regions, and with the proposed acquisition of the Kentech Group, infrastructure will be in place in the Middle East and Former Soviet Union in the first quarter of 2008;

- providing a fully integrated service provider for engineering, fabrication, transportation, construction, commissioning and maintenance, seeking projects in the $5 to $100 million range through Enerflex Global; and

- increased product export from Canada, to support both the Enerflex Global and regionalization strategies.

Canada

While Enerflex continues to build its international presence, the Fund's fortunes are impacted by natural gas capital and operating expenditures in western Canada. Approximately 15,400 natural gas wells were completed in 2006. In 2007, drilling rig utilization exited the quarter at 36%, as compared to approximately 47% in the second quarter of 2007 and 70% one year ago. As a result of the persistent low activity levels, industry analysts have established their 2007 forecasts for well completions at 17,700, down 20% from the 22,186 well completions in 2006. The returns for Canadian gas producers have been limited by higher input costs, high North American gas storage levels, lower gas prices, increasing liquefied natural gas imports into the United States, and the depreciating US dollar.

The reduction in activity has occurred primarily in the coal bed methane ("CBM") and shallow natural gas markets. Many forecasters expect that, in the absence of significant discoveries, North American conventional natural gas production will decrease and that the declines in 2007 drilling activity will adversely affect the deliveries of natural gas. As sustaining or increasing production volumes is progressively more dependent upon development of shallow natural gas and CBM, both of which require more compression than traditional reservoirs, the decline in drilling activity is viewed by many as a temporary reaction to current market dynamics which should improve as production and deliveries of natural gas decline. However, the timing of a recovery is uncertain.

On October 25th, 2007, the Government of Alberta released a report outlining a new royalty framework for the oil and gas industry that will take effect January 1st, 2009. According to the government report, the new framework will increase royalty revenues by approximately 19% in 2010. The potential impact of this new framework on domestic exploration activities is unknown at this time. Furthermore, their potential impact on Enerflex's domestic activities cannot be determined at present.

In Canada, it is management's belief that a significant opportunity exists through the ownership, operation and management of compression facilities presently owned by natural gas producers. Enerflex is well-suited to acquire such assets, reconfigure or replace the compression equipment to the corresponding production profile of the natural gas field and optimize the future compression needs as the future production profile changes through the VCP product offering. As such, the Fund will continue to pursue investment opportunities for VCP in 2007 and future years. Further, Enerflex plans to expand the number of products and services delivered through its existing branch network.



Quarterly Summary
----------------------------------------------------------------------------
2007
----------------------------------------------------------------------------
(Unaudited)
(Thousands except
percent and per unit/
share amounts) Q3 Q2 Q1
----------------------------------------------------------------------------
Revenue 195,570 197,492 200,017
Gross margin 42,569 41,888 42,271
Gross margin (%) 21.8 21.2 21.1
Operating margin(1) 11,496 12,310 12,177
Operating margin (%)(1) 5.9 6.2 6.1
Net income 11,528 12,870 13,695
Per unit/share - basic ($) 0.25 0.28 0.29
Per unit/share - diluted ($) 0.25 0.28 0.29
Net income - adjusted(2) 11,528 12,870 13,695
Per unit/share - diluted adjusted(2) ($) 0.25 0.28 0.29
EBITDA(1) 18,193 18,821 17,621
EBITDA - adjusted(1,2) 18,193 18,821 17,621
Distributable cash flow(1,3) 14,304 15,463 16,859
Distributions/dividends 11,672 11,670 11,669
Distribution/dividend payout ratio (%) 82 75 69
Distributable cash flow - adjusted(1,2,3) 14,304 15,463 16,859
Distribution payout ratio - adjusted(1,2,3) (%) 82 75 69
----------------------------------------------------------------------------



----------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------
(Unaudited)
(Thousands except
percent and per unit/
share amounts) Q4 Q3 Q2 Q1 Q4
----------------------------------------------------------------------------
Revenue 191,210 194,210 200,087 206,823 203,108
Gross margin 38,985 44,600 45,131 46,554 44,674
Gross margin (%) 20.4 23.0 22.6 22.5 22.0
Operating margin(1) 11,427 18,146 19,993 21,576 20,242
Operating margin (%)(1) 6.0 9.3 10.0 10.4 10.0
Net income 10,655 4,719 12,473 12,904 13,714
Per unit/share
- basic ($) 0.23 0.11 0.28 0.29 0.31
Per unit/share
- diluted ($) 0.23 0.11 0.27 0.28 0.30
Net income - adjusted(2) 10,881 11,867 12,680 12,904 13,714
Per unit/share - diluted
adjusted(2) ($) 0.23 0.26 0.28 0.28 0.30
EBITDA(1) 19,178 14,882 25,590 27,065 25,140
EBITDA - adjusted(1,2) 19,657 23,809 25,897 27,065 25,140
Distributable cash
flow(1,3) 14,119 10,526 12,578 12,969 16,561
Distributions/dividends 11,669 2,842 2,839 2,832 2,260
Distribution/dividend
payout ratio (%) 83 27 23 22 14
Distributable cash flow
- adjusted(1,2,3) 14,345 17,674 12,785 12,969 16,561
Distribution payout ratio
adjusted(1,2,3) (%) 81 16 22 22 14
----------------------------------------------------------------------------
(1) Operating margin, operating margin percent, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), distributable cash flow
and distribution/dividend 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 reorganization 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 unit
holders 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) Amounts have been adjusted to reflect the impact of the costs incurred
by Enerflex for the conversion to an income trust which totaled
$9,713,000 pre-tax and $7,581,000 after tax in 2006.

(3) On September 30th, 2007, the fund adopted the Canadian Securities
Administrator's (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. As a result of these changes the distribution pay out
ratio for the quarter was 82% versus 74%, under the previous method.
The year to date distribution pay out ratio is 66% as calculated under
the new method, as compared to 73% under the previous method.


ENERFLEX SYSTEMS INCOME FUND
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(Unaudited) (Thousands) 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restated (Note1)

ASSETS
Current assets
Cash $ 19,106 $ 22,344
Assets held for trading 2,538 -
Accounts receivable 169,110 157,257
Inventory 98,676 112,826
Income taxes receivable 7,749 -
Future income taxes 5,648 4,876
----------------------------------------------------------------------------
Total current assets 302,827 297,303

Rental equipment 106,067 106,108
Property, plant and equipment 65,956 69,967
Assets under construction 5,954 3,743
Investment in affiliates 3,136 2,864
Future income taxes 2,475 5,505
Deferred charges 314 814
Intangible assets 8,962 7,666
Goodwill 125,426 125,204
----------------------------------------------------------------------------
$ 621,117 $ 619,174
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $ 89,213 $ 84,166
Liabilities held for trading 2,083 -
Accrued distributions payable 11,672 11,669
Income taxes payable 1,946 1,459
Future income taxes 172 -
----------------------------------------------------------------------------
Total current liabilities 105,086 97,294

Long-term debt 132,707 133,557
Other long-term liabilities 1,865 1,662
Future income taxes 9,663 13,670
----------------------------------------------------------------------------
249,321 246,183

Unitholders' equity
Unitholder capital 205,541 205,454
Accumulated other comprehensive income /
(loss) (6,398) (1,917)
Contributed surplus 188 71
Retained earnings 172,465 169,383
----------------------------------------------------------------------------
371,796 372,991
----------------------------------------------------------------------------
$ 621,117 $ 619,174
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF INCOME

Three months ended Nine months ended
September 30 September 30
(Unaudited) (Thousands, except ------------------------------------------
unit/ share amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Revenue $ 195,570 $ 194,210 $ 593,079 $ 601,120
Cost of goods sold 153,001 149,610 466,351 464,835
----------------------------------------------------------------------------
Gross margin 42,569 44,600 126,728 136,285
Selling, general and
administrative expenses 30,569 35,295 91,146 87,293
Foreign currency (gains) and
losses 548 (177) (135) (1,502)
Gain on sale of assets (935) (609) (1,851) (2,790)
Equity earnings from affiliates (44) 263 (266) 13
----------------------------------------------------------------------------
Income before interest and
income taxes 12,431 9,828 37,834 53,271
Interest 1,767 1,865 5,914 5,062
----------------------------------------------------------------------------
Income before
income taxes 10,664 7,963 31,920 48,209
Income taxes (864) 3,244 (6,173) 18,113
----------------------------------------------------------------------------
Net income $ 11,528 $ 4,719 $ 38,093 $ 30,096
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per
unit/share - basic $ 0.25 $ 0.11 $ 0.82 $ 0.67
- diluted $ 0.25 $ 0.11 $ 0.82 $ 0.66
Weighted average number of
units/shares 46,684,824 45,456,944 46,680,947 45,384,144
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Three months ended Nine months ended
September 30 September 30
------------------------------------------
(Unaudited) (Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
Retained earnings, beginning
of period $ 172,609 $ 168,763 $ 169,383 $ 149,617
Normal course issuer bid - (243) - (803)
Net income 11,528 4,719 38,093 30,096
Dividends - (2,842) - (8,513)
Distributions (11,672) - (35,011) -
----------------------------------------------------------------------------
Retained earnings, end of
period $ 172,465 $ 170,397 $ 172,465 $ 170,397
----------------------------------------------------------------------------
----------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended Nine months ended
September 30 September 30
------------------------------------------
(Unaudited) (Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
Net Income $ 11,528 $ 4,719 $ 38,093 $ 30,096
Other comprehensive income /
(loss), net of tax
Foreign currency translation of
self-sustaining operations (1,613) (632) (4,481) (1,422)
----------------------------------------------------------------------------
Comprehensive income $ 9,915 $ 4,087 $ 33,612 $ 28,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying Notes to the Consolidated Financial Statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended Nine months ended
September 30 September 30
------------------------------------------
(Unaudited) (Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
Operating Activities
Net income $ 11,528 $ 4,719 $ 38,093 $ 30,096
Depreciation and amortization 5,762 5,054 16,801 14,266
Future income taxes 1 (1,127) (2,100) (2,965)
Gain on sale of assets (935) (609) (1,851) (2,790)
Equity earnings from affiliates (44) 263 (266) 13
Stock option expense - 3,764 - 4,475
Unit option expense 33 - 117 -
----------------------------------------------------------------------------
16,345 12,064 50,794 43,095
Changes in non-cash working
capital and other (1,442) (26,524) 4,714 (39,528)
----------------------------------------------------------------------------
Cash flow produced/(used) in
operations 14,903 (14,460) 55,508 3,567
----------------------------------------------------------------------------

Investing Activities
Acquisition of HPS Group Limited - (4,138) - (4,138)
Acquisition of Powertec Beheer
B.V. (52) - (8,850) -
Acquisition of ABB Rental Assets (1,133) - (1,133) -
Purchase of:
Rental equipment (1,027) (16,241) (20,361) (28,742)
Property, plant and equipment (1,277) (1,862) (3,696) (13,181)
Assets under construction (1,086) - (4,176) (1,807)
Proceeds on disposal of:
Rental equipment 432 2,659 12,623 15,451
Property, plant and equipment 820 89 1,454 826
----------------------------------------------------------------------------
(3,323) (19,493) (24,139) (31,591)
Changes in non-cash working
capital and other (4,596) (7,041) 701 (7,428)
----------------------------------------------------------------------------
Cash flow used in investing (7,919) (26,534) (23,438) (39,019)
----------------------------------------------------------------------------

Financing Activities
Increase (decrease) in operating
bank loans - 14,884 - 13,670
Advance (repayment) of long-term
debt (2,795) 11,911 (6,550) 6,990
Unit/stock options exercised - 13,587 - 15,407
Distribution reinvestment plan 44 - 87 -
Normal course issuer bid - (346) - (1,122)
Dividends - (2,840) - (7,932)
Distributions (11,670) - (35,009) -
----------------------------------------------------------------------------
(14,421) 37,196 (41,472) 27,033
Changes in non-cash working
capital and other 2,068 (84) 6,164 (1,564)
----------------------------------------------------------------------------
Cash flow produced/(used) in
financing (12,353) 37,112 (35,308) 25,469
----------------------------------------------------------------------------
Increase (decrease) in cash (5,369) (3,882) (3,238) (9,983)
Cash, beginning of period 24,475 10,249 22,344 16,350
----------------------------------------------------------------------------
Cash, end of period $ 19,106 $ 6,367 $ 19,106 $ 6,367
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note 1: Change in Accounting Policy:

Effective January 1, 2007, the Fund adopted the provisions of CICA Sections 3855, "Financial Instruments - Recognition and Measurement", 3865, "Hedges", 1530, "Comprehensive Income", 3861, "Financial Instruments - Disclosure and Presentation" and 3251, "Equity". These sections have been adopted prospectively and the comparative interim financial statements have not been restated with one exception as noted below.

With the adoption of sections 1530 and 3251, the Fund has created "Statements of Consolidated Comprehensive Income" and restated its balance sheet to include "Accumulated other comprehensive income" within the Unitholders' Equity section of the balance sheet. No other amounts have been restated.

Note 2: 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 the Electrical, Instrumentation and Controls divisions. The Engineered Systems reportable segment is the aggregation of the Production and Processing, Compression and Power divisions.




(Unaudited) Engineered
(Thousands) Service Systems
----------------------------------------------------------------------------
Three months ended
September 30 2007 2006 2007 2006
----------------------------------------------------------------------------
Segment revenue $ 82,419 $ 74,487 $ 109,448 $ 129,379
Intersegment revenue (2,332) (3,785) (3,507) (15,067)
----------------------------------------------------------------------------
External revenue 80,087 70,702 105,941 114,312
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross margin 22,123 21,523 16,170 17,934
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and
amortization 1,124 1,071 1,862 1,768
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income before interest
and income taxes 3,800 7,007 4,683 7,220

Trust conversion costs
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Capital expenditures 463 297 1,478 1,512

Corporate
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proceeds on disposal $ 38 $ 71 $ 782 $ 18 $
of assets

Corporate
----------------------------------------------------------------------------



(Unaudited) Production
(Thousands) Services Consolidated
----------------------------------------------------------------------------
Three months ended
September 30 2007 2006 2007 2006
----------------------------------------------------------------------------
Segment revenue $ 9,545 $ 9,199 $ 201,412 $ 213,065
Intersegment revenue (3) (3) (5,842) (18,855)
----------------------------------------------------------------------------
External revenue 9,542 9,196 195,570 194,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross margin 4,276 5,143 42,569 44,600
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and
amortization 2,776 2,215 5,762 5,054
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income before interest
and income taxes 3,948 4,528 12,431 18,755

Trust conversion costs - (8,927)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
12,431 9,828
----------------------------------------------------------------------------
Capital expenditures 1,187 15,623 3,128 17,432

Corporate 262 671
----------------------------------------------------------------------------
3,390 18,103
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proceeds on disposal 432 $ 2,659 $ 1,252 $ 2,748
of assets - -
Corporate
----------------------------------------------------------------------------
$ 1,252 $ 2,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------



(Unaudited) Engineered
(Thousands) Service Systems
----------------------------------------------------------------------------
Nine months ended
September 30 2007 2006 2007 2006
----------------------------------------------------------------------------
Segment revenue $ 254,879 $ 229,023 $ 333,610 $ 389,364
Intersegment
revenue (7,915) (10,591) (17,983) (32,352)
----------------------------------------------------------------------------
External revenue 246,964 218,432 315,627 357,012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross margin 64,375 63,213 47,239 57,563
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and
amortization 3,451 2,742 5,193 5,168
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income before
interest and
income taxes 11,173 21,214 13,277 26,540

Trust conversion costs

Segment assets 153,609 146,220 207,950 207,533
Corporate
Goodwill 51,159 50,524 66,911 65,914
----------------------------------------------------------------------------
Total segment assets 204,768 196,744 274,861 273,447
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures 1,337 2,014 4,717 5,189
Corporate

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proceeds on disposal
of assets $ 87 $ 792 $ 1,351 $ 34
Corporate
----------------------------------------------------------------------------



(Unaudited) Production
(Thousands) Services Consolidated
----------------------------------------------------------------------------
Nine months ended
September 30 2007 2006 2007 2006
----------------------------------------------------------------------------
Segment revenue $ 30,495 $ 25,693 $ 618,984 $ 644,080
Intersegment
revenue (7) (17) (25,905) (42,960)
----------------------------------------------------------------------------
External revenue 30,488 25,676 593,079 601,120
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross margin 15,114 15,509 126,728 136,285
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and
amortization 8,157 6,356 16,801 14,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income before 13,384 14,751 37,834 62,505
interest and
income taxes

Trust conversion
costs - (9,234)

----------------------------------------------------------------------------
37,834 53,271
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Segment assets 123,446 110,247 485,005 464,000
Corporate 23,991 34,980
Goodwill 7,356 7,356 125,426 123,794
----------------------------------------------------------------------------
Total segment assets 130,802 117,603 634,422 622,774
Capital expenditures 21,415 28,846 27,469 36,049
Corporate 764 7,681
28,233 43,730
Proceeds on disposal
of assets $ 12,639 $ 15,451 $ 14,077 $ 16,277
Corporate - -
----------------------------------------------------------------------------
$ 14,077 $ 16,277
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenue from foreign countries was:


Three months ended Nine months ended
September 30 September 30
-------------------------------------------
(Unaudited) (Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
Australia $ 49,942 $ 41,996 $ 104,713 $ 105,305
Germany 1,054 949 5,558 3,287
Indonesia 2,479 4,493 7,963 6,550
Netherlands 11,685 4,168 59,772 13,586
Pakistan 194 134 4,963 3,007
Trinidad and Tobago 413 - 6,281 25
United States 12,993 8,865 54,140 20,346
Other 12,906 9,101 30,363 49,163
----------------------------------------------------------------------------
$ 91,666 $ 69,706 $ 273,753 $ 201,269
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Included in these amounts are
gross exports from domestic
operations of: $ 36,643 $ 26,323 $ 105,406 $ 76,829

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

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

Contact Information

  • Enerflex Systems Income Fund
    D. James Harbilas
    Vice-President & Chief Financial Officer
    (403) 236-6857
    (403) 720-4385 (FAX)
    or
    Enerflex Systems Income Fund
    Berk Sumen
    Manager, Investor Relations & Communications
    (403) 720-4308
    (403) 720-4385 (FAX)