Enerflex Systems Income Fund
TSX : EFX.UN

Enerflex Systems Income Fund

November 13, 2008 16:51 ET

Enerflex Reports Record Third Quarter 2008 Financial Results and Announces Fourth Quarter 2008 Distributions

CALGARY, ALBERTA--(Marketwire - Nov. 13, 2008) - Enerflex Systems Income Fund (TSX:EFX.UN) is pleased to announce record financial and operating results for the three and nine months ended September 30, 2008.



Financial Highlights

Three Months Ended September 30
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$ millions, except per
unit amounts and
percentages (Unaudited) 2008 2007 % change
----------------------------------------------------------------------------
Revenue $ 257.1 $ 195.6 31%
Gross margin $ 56.4 $ 42.6 33%
Gross margin percent 21.9 21.8
Operating margin(1) $ 20.3 $ 11.5 77%
Operating margin percent(1) 7.9 5.9
Net income $ 18.1 $ 11.5 57%
Earnings per unit (basic) $ 0.39 $ 0.25 56%
Distributable cash flow per unit(2)(3) $ 0.88 $ 0.31 184%
Distribution per unit $ 0.30 $ 0.25 20%

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

(2) Distributable cash flow provides the amount of cash available for
distribution to unitholders and will fluctuate on a quarterly basis due
to seasonal cash flows, maintenance capital expenditures incurred,
income taxes paid, and interest costs on outstanding debt and changes
to non-cash working capital. Distributable cash flow is a non-GAAP
measure that does not have a standardized meaning prescribed by GAAP
and therefore is unlikely to be comparable to similar measures presented
by other issuers.

(3) In 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.


Achievement Highlights

- Enerflex delivered record EBITDA and gross margin for the quarter ending September 30th, 2008.

- Total bookings in the first nine months of 2008 increased by 33% compared to the prior year period.

- Backlog increased to $398.6 million or by 35% over September 30th, 2007. This was 7% lower than the all time record of $428.4 million achieved during the second quarter of 2008.

- Total debt, net of cash declined to $34.4 million at the end of the third quarter, the lowest level since Enerflex converted to an income trust in October of 2006.

- Distributions to unit holders in the third quarter were 34% of distributable cash flow while distributions in the first nine months represent 43% of distributable cash.

Third quarter revenues of 257.1 million are comparable to the all time record set during the second quarter of 2008 and represent a 31% increase over the prior year period. Growth in international revenues continued at a record pace with a 69% increase over the same period last year. International revenues of $155.4 million represent 60% of total revenues for the quarter.

Earnings per unit increased to $0.39 from $0.25 or by 56% compared to the prior year period.

Enerflex generated $28.4 million of EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) in the third quarter of 2008 representing an all time record and an increase of 56% when compared to $18.2 million in the prior year period. EBITDA for the first nine months increased by 41% to $77.0 million compared to $54.6 million for the same period last year.

Gross margin increased to a quarterly record of $56.4 million or 21.9% of revenue as compared to $42.6 million or 21.8% of revenue during the third quarter of last year.

Backlog increased to $398.6 million or by 35% over September 30th, 2007. Adding to the Backlog during the third quarter was a $45 million contract secured by our AustralAsia region to provide design, installation, construction and commissioning of compression stations for a pipeline project in Eastern Australia. In addition, Enerflex was awarded contracts in the third quarter related to heavy oil activities in Canada and for compression equipment for gas production in the unconventional Montney and Horn River developments.

"Enerflex achieved another strong quarter adding to the record results achieved so far this year" commented Blair Goertzen, President and CEO of Enerflex. "2008 is shaping up to be a record year for Enerflex as we continue to benefit from our diversified revenue, robust backlog and strong balance sheet. The Fund ended the quarter with $65.5 million in cash and $34.4 million in borrowings (net of cash). This results in a conservative net debt to equity ratio of 0.09 to 1.00 and net debt to EBITDA of 0.33 times. The Fund has access to a committed facility totalling $150 million to finance working capital requirements. There were no cash borrowings against this line at the end of the third quarter. With our facility remaining available for future borrowings, strong cash flows generated from operations and a very conservative pay-out ratio, Enerflex has the flexibility to pursue future growth opportunities" commented Goertzen.

The Board of Directors of the Fund approved a fourth quarter cash distribution of $0.30 per unit during the Fund's regularly scheduled Board meeting held on November 13th, 2008 which will be paid on January 15, 2009 to unitholders of record on December 31, 2008.

Conference Call and Webcast Details

Enerflex Systems Income Fund (TSX:EFX.UN) will host a conference call for analysts and investors on Friday, November 14, 2008 at 9:00 a.m. MDT (11:00 a.m. EDT) to discuss the Fund's 2008 third quarter results which will be released on Thursday, November 13, 2008 after market close. The call will be hosted by Blair Goertzen, President and Chief Executive Officer of Enerflex Systems Income Fund.

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

Participants who wish to listen to a recording of the conference at a later time may do so by calling 1.800.408.3053 or 1.416.695.5800 (pass code: 3273101#) approximately one hour after the completion of the call. The recording will be available until the end of day November 21, 2008.

A live audio webcast of the conference call will be available on our website at www.enerflex.com under the Investor Relations section on November 14, 2008 at 9:00 a.m. MDT (11:00 a.m. EDT). Approximately one hour after the call, a recording of the event will be available on our website. Pre-registration for this webcast is available now on the website.

About Enerflex

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

Headquartered in Calgary, Canada, Enerflex has approximately 2,750 employees. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, Australia, the Netherlands, the United States, Germany, Pakistan, the United Arab Emirates, Egypt, Indonesia and Malaysia. Enerflex's trust units trade on the Toronto Stock Exchange under the symbol "EFX.UN".

Forward-Looking Statements

Certain information contained herein constitutes forward-looking information under applicable securities laws. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate may or will occur in the future, are forward-looking information. Forward-looking information typically contains statements with words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "potential", "targeting", "intend", "could", "might", "should", "believe" or similar words suggesting future outcomes or outlook. The following discussion is intended to identify certain factors, although not necessarily all factors, which could cause future outcomes to differ materially from those set forth in the forward-looking information. The risks and uncertainties that may affect the operations, performance, development and results of Enerflex's businesses include, but are not limited to, the following factors: the impact of general economic conditions; industry conditions, including the adoption of new environmental and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in Enerflex's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or management; labour unrest; fluctuations in the foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by Enerflex and other factors, many of which are beyond the control of Enerflex.

The reader is cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate by Enerflex at the time of preparation, may prove to be incorrect or may not occur. Accordingly, readers are cautioned that the actual results achieved will vary from the information provided herein and the variations may be material. Readers are also cautioned that the foregoing list of factors and risks is not exhaustive. Additional information on these and other risks, uncertainties and factors that could affect Enerflex's operations or financial results are included in our filings with the securities commissions or similar authorities in each of the provinces of Canada, as may be updated from time to time. There is no representation by Enerflex that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Enerflex does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by law. Any forward-looking information contained herein is expressly qualified by this cautionary statement.



FINANCIAL HIGHLIGHTS

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(Unaudited) Three months ended Nine months ended
(Thousands) September 30, September 30,
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue
----------------------------------------------------------------------------
Canadian $101,706 $103,904 $322,990 $319,326
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International 155,353 91,666 426,215 273,753
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Total revenue 257,059 195,570 749,205 593,079
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Gross margin 56,416 42,569 158,491 126,728
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Gross margin % 21.9% 21.8% 21.2% 21.4%
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Selling, general &
administrative expenses 33,518 30,569 99,835 91,146
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Income before interest & taxes 22,792 12,431 60,078 37,834
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Interest expense 1,069 1,767 3,961 5,914
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Income before taxes 21,723 10,664 56,117 31,920
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Income tax expense (recovery) 3,637 (864) 7,075 (6,173)
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Net income $ 18,086 $ 11,528 $ 49,042 $ 38,093
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NON-GAAP MEASURES

----------------------------------------------------------------------------
(Unaudited) Three months ended Nine months ended
(Thousands) September 30, September 30,
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Operating margin(1)
----------------------------------------------------------------------------
Gross margin $ 56,416 $ 42,569 $158,491 $126,728
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Selling, general &
administrative expenses 33,518 30,569 99,835 91,146
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Foreign currency (gains) / losses 2,671 548 3,234 (135)
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Equity earnings (112) (44) (234) (266)
----------------------------------------------------------------------------
Operating margin $ 20,339 $ 11,496 $ 55,656 $ 35,983
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Operating margin percent 7.9% 5.9% 7.4% 6.1%
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EBITDA(1)
----------------------------------------------------------------------------
Earnings before interest & taxes $ 22,792 $ 12,431 $ 60,078 $ 37,834
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Depreciation and amortization 5,575 5,762 16,931 16,801
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EBITDA $ 28,367 $ 18,193 $ 77,009 $ 54,635
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Distributable cash flow(1)
----------------------------------------------------------------------------
Cash flow from operations before
working capital adjustments $ 21,795 $ 16,345 $ 62,359 $ 50,794
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Adjustments to working capital
and other 20,590 (1,442) 26,574 4,714
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Net maintenance capital
expenditures (1,225) (599) (2,626) (2,726)
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Distributable cash $ 41,160 $ 14,304 $ 86,307 $ 52,782
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Distribution payout ratio 34% 82% 43% 66%
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(1) Operating margin, operating margin percent, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), distributable cash
flow and distribution payout ratio are non-GAAP ("Generally Accepted
Accounting Principles") measures that do not have a standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable
to similar measures presented by other issuers. Management believes
these measures are useful supplemental measures. Operating margin
provides the net margin contributions made from the Fund's core
businesses after considering all SG&A expenses, the impact of the
Fund's foreign exchange hedging strategy and excluding re-organization
costs. EBITDA provides the results generated by the Fund's primary
business activities prior to consideration of how those activities are
financed, assets are amortized or how the results are taxed in various
jurisdictions. Distributable cash flow provides the amount of cash
available for distribution to unitholders and will fluctuate on a
quarterly basis due to seasonal cash flows, maintenance capital
expenditures incurred, income taxes paid, and interest costs on
outstanding debt and changes to non-cash working capital. Investors
should be cautioned that operating margin, operating margin percent,
EBITDA, distributable cash flow and distribution payout ratio should
not be construed as an alternative to net income and cash flow from
operations determined in accordance with GAAP as an indicator of
Enerflex's performance.


During the third quarter of 2008, the Fund declared distributions of $0.30 per unit or $14.0 million. This declaration totalled 34% of distributable cash flow(1) as compared to 82% of distributable cash flow(1) in the same period of 2007. Under the Canadian Securities Administrator's ("CSA") definition of distributable cash flow(1), changes in non-cash working capital are incorporated into the calculation of distributable cash flow(1). This definition positively impacted distributable cash flow(1) by $20.6 million in the third quarter of 2008 as compared to a negative impact of $1.4 million in the same period of 2007.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008

During the third quarter of 2008 the Fund generated $257.1 million in revenue, as compared to $195.6 million in the third quarter of 2007. The increase of $61.5 million or 31% was a result of increased revenues in the Engineered Systems and Service segments partially offset by declining revenue in the Production Services segment. International revenue increased $63.7 million from the same period in 2007 and represented 60% of revenue as compared to 47% in 2007. As compared to the three month period ended September 30, 2007:

- Engineered Systems revenue increased by $57.9 million due to increased export sales from the Fund's Canadian facilities and increased activity in the AustralAsia and MENA regions;

- Service revenue increased by $6.1 million, a result of strong demand for product support within the Mechanical Service division and project work within the Electrical Instrumentation and Controls ("EI&C") division more than offsetting revenue declines in Europe; and

- Production Services revenue decreased by $2.5 million as a result of lower capital utilization across all horsepower categories due to continued low levels of domestic compression investment and a reduction in the size of the rental fleet as compared to 2007.

Gross margin for the three months ended September 30, 2008 was $56.4 million or 21.9% of revenue as compared to $42.6 million or 21.8% of revenue for the same three month period of 2007, an increase of $13.8 million. Gross margin percentages increased in the Engineered Systems and Production Services segments partially offset by declines in Service margins. Many factors contributed to these movements and are summarized as follows:

- Engineered Systems gross margin percentage increased from 15.3% in the third quarter of 2007 to 20.0% in the same period of 2008. Higher plant utilization rates in the Fund's facilities, better project execution and a weakening Canadian dollar contributed to the improved margins;

- Service gross margin percentage of 23.4% decreased from 27.6% in 2007 as a result of lower margins within the European and AustralAsian Mechanical Service businesses being partially offset by improved margin percentages in Canada due to strong parts sales and improved labour utilization for both Mechanical Service and EI&C; and

- Production Services gross margin percentage of 49.5% increased from 44.8% as a result of lower flow-through revenue associated with new project start-ups in 2007. This was partially offset by lower fleet utilization rates when compared with the same period of 2007.

Selling, general and administrative ("SG&A") expenses were $33.5 million or 13.0% of revenue during the three months ended September 30, 2008, compared to $30.6 million or 15.6% of revenue in the same period of 2007. The $2.9 million increase in SG&A expenses during the quarter, as compared to the same period in 2007, is attributed to the expansion of Enerflex's global business including increases in compensation and associated occupancy and technical costs.

Foreign exchange losses totalled $2.7 million in the third quarter of 2008 as compared to a loss of $0.5 million in the same period of 2007. The primary reason for the loss was the result of forward exchange contracts used to hedge foreign currency exposure on Engineered Systems fabrication contracts.

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

The result is that any gain or loss in margins resulting from exchange rate fluctuations is offset by gains or losses in U.S. dollar assets and liabilities. However, the timing of recognition of the offsetting gain or loss in margin can vary from the gain or loss on foreign denominated debt or forward contract due to percentage of completion revenue recognition, as these hedges relate to long-term contracts. The Canadian dollar has depreciated 4% against the US dollar in the third quarter of 2008 and appreciated by 6% against the U.S. dollar during the same period of 2007.

At September 30, 2008, the Fund had no bank debt as compared to U.S. $33.0 million of LIBOR borrowings at September 30, 2007. At September 30, 2008, the Fund was party to foreign currency contracts with a total net sales value of U.S. $59.2 million, Euro EUR 4.1 million and Australian $4.8 million as compared a net sales value of U.S. $2.1 million outstanding as at September 30, 2007.

Enerflex does not hedge its exposure to investments in foreign subsidiaries, which are largely self-sustaining. Exchange gains/losses on net investments in foreign subsidiaries are accumulated in unitholders' equity within "Accumulated comprehensive income/loss". Accumulated comprehensive loss at the end of 2007 of $7.8 million adjusted to an accumulated comprehensive loss of $8.4 million at September 30, 2008. This was the result of the changes in the value of the Canadian dollar against the Euro, Australian dollar and U.S. dollar. The Australian dollar depreciated by 14% against the Canadian dollar during the third quarter of 2008, as compared to a 2% depreciation in the same period of 2007. The Euro depreciated by 7% against the Canadian dollar during the third quarter of 2008, as compared to a depreciation of 1% in the same period of 2007.

Operating margin(1) assists the reader in understanding the net margin contributions made from the Fund's core businesses after considering all SG&A expenses and the impact of the Fund's foreign exchange hedging strategy. For the three months ended September 30, 2008, Enerflex produced an operating margin(1) of $20.3 million, or 7.9% of revenue, as compared to an operating margin(1) of $11.5 million, or 5.9% of revenue, for the same period in 2007. The increase in operating margin(1) for the quarter as compared to 2007 resulted from the same factors that contributed to the increased revenue and gross margin offset by the increased SG&A expenses.

Interest costs totalled $1.1 million for the three months ended September 30, 2008, compared with $1.8 million in the same period of 2007, a decrease of $0.7 million. Interest costs in 2008 were lower than those in 2007 as a result of lower average borrowings and increased interest income from investing the Fund's higher cash balances. Enerflex's borrowings on its Bank Facility averaged $6.9 million in the third quarter of 2008 as compared to an average of $35.2 million for the three months ended September 30, 2007.

Income tax expense totalled $3.6 million for the three months ended September 30, 2008 compared with a recovery of $0.9 million in the same period of 2007. The increase in income taxes in the third quarter of 2008 compared to 2007 was primarily due to an increase in international income before taxes as well as domestic earnings in excess of distributions deductible for tax.

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

During the third quarter of 2008, Enerflex generated net income of $18.1 million as compared to $11.5 million in the same period of 2007. This resulted in earnings per income trust unit of $0.39 in 2008 as compared to $0.25 for the same period of 2007.

SERVICE

The Service segment provides mechanical and EI&C services to the oil and gas industry through an extensive branch network in Canada, the Netherlands, Germany, Australia and Indonesia.



(unaudited)(thousands) Three months ended September 30, 2008 2007

----------------------------------------------------------------------------
Segment revenue $ 88,770 $ 82,419
Intersegment revenue (2,592) (2,332)
----------------------------------------------------------------------------
Revenue $ 86,178 $ 80,087
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Revenue - Canadian $ 64,829 $ 59,902
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Revenue - international $ 21,349 $ 20,185
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Gross margin $ 20,173 $ 22,123
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EBITDA(1) $ 2,823 $ 4,924
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Income before interest and income taxes $ 1,699 $ 3,800


Service revenue was $86.2 million in the third quarter of 2008 and comprised 34% of consolidated revenue. This compares to $80.1 million and 41% of consolidated revenue in the same period of 2007. The increase of $6.1 million was the result of increased revenues from operations in Canada and AustralAsia being largely offset by decreased revenues from Mechanical Services operations in Europe. International revenues of $21.3 million accounted for 25% of the segment's total revenue, the same percentage of revenue as 2007.

Gross margin for the segment totalled $20.2 million, or 23.4% as compared to $22.1 million, or 27.6% in 2007. The decrease in gross margin percent resulted from reduced margins in Europe and AustralAsia partially offset by strong parts margins and improved Mechanical Service and EI&C labour utilization in Canada. European margins largely declined due to the absence of positive recoveries from a supplier recognized in the third quarter of 2007. Margins in AustralAsia were negatively impacted by lower parts margins and labour utilization than the same period in 2007.

Income before interest and income taxes decreased by $2.1 million to $1.7 million in the three months ended September 30, 2008 from $3.8 million in the third quarter of 2007. This decrease was largely the result of decreased gross margins as administrative costs were consistent with 2007.

ENGINEERED SYSTEMS

The Engineered Systems segment engineers, fabricates and assembles standard and custom-designed compression packages, production and processing equipment and facilities, CHP systems and power generation systems.



(unaudited)(thousands) Three month ended September 30, 2008 2007
----------------------------------------------------------------------------
Segment revenue $164,763 $ 109,448
Intersegment revenue (963) (3,507)
----------------------------------------------------------------------------
Revenue $163,800 $ 105,941
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Revenue - Canadian $ 30,389 $ 35,150
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Revenue - international $133,411 $ 70,791
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Gross margin $ 32,737 $ 16,170
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EBITDA(1) $ 19,428 $ 6,545
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Income before interest and income taxes $ 17,565 $ 4,683

Plant utilization - Compression and Power 66% 49%
Plant utilization - Production and Processing 95% 84%
Plant utilization - AustralAsia 81% 85%
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Engineered Systems' revenue totalled $163.8 million for the three months ended September 30, 2008 as compared to $105.9 million in the same period of 2007. This increase of $57.9 million was largely the result of a substantial increase in international sales from both product export and the Fund's operations in AustralAsia. The domestic small horsepower market remained consistent with 2007's low activity levels. International revenue represented 81% of 2008's third quarter revenue as compared to 67% in 2007. Increases in exports by both the Compression & Power and Production & Processing divisions and continuing high levels of activity in AustralAsia and MENA accounted for the increase in international revenue.

Gross margin for the segment totalled $32.7 million, or 20.0% compared to $16.2 million or 15.3% of revenue in 2007. The increased gross margin was the result of a weaker Canadian dollar in the quarter, reversing the negative impact on international contracts created by a strengthening Canadian dollar experienced in the third quarter of 2007 and stronger utilization rates in the Fund's Canadian facilities that offset lower margins on the CHP product line in Europe. The Fund utilizes foreign currency forward contracts to mitigate the exposure on international contracts however a timing difference exists between the foreign exchange gains and losses recorded on the forward contracts and the full gross margin impact related to foreign exchange movements as a result of percentage completion revenue recognition.

Income before interest and income taxes increased by 275% to $17.6 million in 2008 from $4.7 million in 2007 as a result of the increased revenue and margins partially offset by higher general and administrative costs for the continued expansion of operations in the AustralAsia and MENA regions. Also included in income before interest and taxes in 2008 was a $1.4 million gain from the sale of the Fund's manufacturing facility in Red Deer, Alberta. Upon the sale, operations associated with this facility were transitioned to the Fund's existing Production and Processing facility in Canada.

Bookings and Backlog

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



Bookings
(unaudited)(thousands) Year-to-date as of September 30, 2008 2007

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Canadian $128,838 $ 110,335
International 455,286 329,972
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Total bookings $584,124 $ 440,307
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Backlog

(unaudited)(thousands) As at September 30, 2008 2007
----------------------------------------------------------------------------
Canadian $102,863 $ 79,483
International 295,752 216,439
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Total backlog $398,615 $ 295,922
---------------------


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

Backlog at September 30, 2008 was $398.6 million compared to $295.9 million at September 30, 2007. This represents a 35% increase over the prior year and a 37% increase over the backlog at December 31, 2007.

International backlog increased by 37% from September 30, 2007 and represents 74% of total backlog at September 30, 2008, as compared to 73% for the same period in 2007. The Fund has been impacted by a slow domestic market, primarily in the low horsepower compression market segment, but this downturn has been significantly offset by an expansion of the Fund's international strategy and increasing international presence.

PRODUCTION SERVICES

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



(unaudited)(thousands) Three months ended September 30, 2008 2007
----------------------------------------------------------------------------
Segment revenue $ 7,081 $ 9,545
Intersegment revenue - (3)
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Revenue $ 7,081 $ 9,542
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Revenue - Canadian $ 6,488 $ 8,852
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Revenue - international $ 593 $ 690
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Gross margin $ 3,506 $ 4,276
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EBITDA(1) $ 6,116 $ 6,724
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Income before interest and income taxes $ 3,528 $ 3,948
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Capital expenditures, net of proceeds on disposal $ 1,031 $ 755
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Capital utilization - Compression 61% 66%
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Capital utilization - Power and Processing 39% 29%
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Production Services' revenue for the third quarter of 2008 decreased $2.4 million to $7.1 million as compared to $9.5 million in 2007. The decrease was the result of reductions in rental revenue due to a decline in utilization rates and in the size of the fleet due to unit buy-outs and the absence of flow-through revenue for new project start-ups that occurred in 2007. The reduced fleet size resulted from a high level of rental contract buy-out activity in the fourth quarter of 2007 and first quarter of 2008 and little new capital investment by the Fund due to the reduced demand for rental equipment and a focus on the deployment of existing rental assets.

Gross margin in the third quarter of 2008 totalled $3.5 million, or 49.5%, as compared to $4.3 million or 44.8% in 2007. The increase in gross margin percent was the result of the absence of flow-through revenue recorded in 2007 offset by lower fleet utilization when compared to the same period of 2007.

Income before interest and income taxes of $3.5 million was $0.4 million lower than 2007 as a result of the factors discussed above.

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

During the three months ended September 30, 2008, Production Services sold 6 compression units and 3 process equipment units from its fleet, for gross proceeds of $3.2 million and a gain on sale of $1.1 million. This compares to 7 compression units and 5 process units, for gross proceeds of $0.4 million and a gain on sale of $0.8 million in 2007. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. Enerflex added 11 compression units and 3 process units to its fleet during the third quarter of 2008, for an investment of $4.2 million.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

During the nine months ended September 30, 2008 the Fund generated $749.2 million in revenue, as compared to $593.1 million in the same period of 2007. The increase of $156.1 million or 26% was a result of increased revenues in the Engineered Systems and Service segments partially offset by reductions in Production Services revenue. International revenue increased $152.5 million from the same period in 2007 and represented 57% of revenue as compared to 46% in 2007. As compared to the nine month period ended September 30, 2007:

- Engineered Systems revenue increased by $160.1 million due to a higher level of product export and higher activity levels in AustralAsia;

- Service revenue increased by $5.2 million, as increases in domestic and AustralAsian revenue were partially offset by decreased revenues in Europe; and

- Production Services revenue decreased by $9.2 million as a result of lower capital utilization primarily related to the high horsepower compression units as well as an increase in the number of unit buy-outs and the absence of new project start-up revenue as compared to the same period of 2007.

Gross margin for the nine months ended September 30, 2008 was $158.5 million or 21.2% of revenue as compared to $126.7 million or 21.4% of revenue for the nine months ended September 30, 2007, an increase of $31.8 million. Gross margin percentage increased in the Engineered Systems segment and remained stable in the Service and Production Services segments. Consolidated margin percentages declined due to the increased percent of total revenue sourced within the Engineered Systems segment as compared to the same period of 2007. Many factors contributed to these movements and are summarized as follows:

- Engineered Systems gross margin percentage of 17.1% increased from 15.0% as a result of improved utilization in the Fund's Canadian facilities, improved project execution and a weakening Canadian dollar;

- Service gross margin percentage of 26.4% increased from 26.1% in 2007 as a result of higher Mechanical Service labour utilization and parts sales accounting for a greater portion of the segment revenues offsetting declines in Europe service margins; and

- Production Services gross margin percentage of 50.7% increased from 49.6% due to the absence of flow-through project revenue recognized in 2007 partially offset by lower utilization rates.

Selling, general and administrative ("SG&A") expenses were $99.8 million or 13.3% of revenue during the nine months ended September 30, 2008, compared with $91.1 million or 15.4% of revenue in the same period of 2007. The $8.7 million increase in SG&A expenses during the year, as compared to the same period in 2007, is attributed to the need to react to increased compensation pressures for skilled and professional employees and the Fund's growth initiatives in AustralAsia, MENA and Europe. Cost increases included unit-based and personnel compensation and increased office and technology costs.

Income before interest and income taxes totalled $60.1 million for the nine months ended September 30, 2008 as compared to $37.8 million for the same period in 2007. Income taxes for the period were an expense of $7.1 million compared to a recovery of $6.2 million in the first nine months of 2007.

During 2008, Enerflex has generated net income of $49.0 million as compared to $38.1 million in the same period of 2007. This results in earnings per income trust unit of $1.05 in 2008, as compared to $0.82 in the same period of 2007.



SEGMENTED RESULTS

SERVICE

(unaudited)(thousands) Nine months ended September 30, 2008 2007
----------------------------------------------------------------------------
Segment revenue $ 261,276 $254,879
Intersegment revenue (9,108) (7,915)
----------------------------------------------------------------------------
Revenue $ 252,168 $ 246,964
----------------------------------------------------------------------------
Revenue - Canadian $ 185,161 $ 183,265
----------------------------------------------------------------------------
Revenue - international $ 67,007 $ 63,699
----------------------------------------------------------------------------
Gross margin $ 66,511 $ 64,375
----------------------------------------------------------------------------
EBITDA(1) $ 15,387 $ 14,624
----------------------------------------------------------------------------
Income before interest and income taxes $ 11,679 $ 11,173


Service revenue was $252.2 million for the nine months ended September 30, 2008 and comprised 34% of consolidated revenue. This compares to $247.0 million and 42% of consolidated revenue in the same period of 2007. The increase of $5.2 million was the result of increased revenues for Mechanical Service in Canada and AustralAsia partially offset by decreased revenues from the EI&C division in Canada and by the Mechanical Services operations in Europe. International revenues of $67.0 million accounted for 27% of the segment's total revenue as compared to 26% of revenue in 2007.

Gross margin for the segment totalled $66.5 million, or 26.4% as compared to $64.4 million, or 26.1% in 2007. Margins were stable as the gross margin percentage increased with strong parts margins, both internationally and in Canada, were largely offset by reduced margin percentages in Europe.

Income before interest and income taxes increased by $0.5 million to $11.7 million in the nine months ended September 30, 2008 from $11.2 million in the first nine months of 2007. This increase was the result of the increased margins being partially offset by increased expenditures internationally and for the maintenance of the Canadian branch network.



ENGINEERED SYSTEMS

(unaudited)(thousands) Nine months ended September 30, 2008 2007
----------------------------------------------------------------------------
Segment revenue $ 478,840 $ 333,610
Intersegment revenue (3,118) (17,983)
----------------------------------------------------------------------------
Revenue $ 475,722 $ 315,627
----------------------------------------------------------------------------
Revenue - Canadian $ 118,357 $ 107,750
----------------------------------------------------------------------------
Revenue - international $ 357,365 $ 207,877
----------------------------------------------------------------------------
Gross margin $ 81,167 $ 47,239
----------------------------------------------------------------------------
EBITDA(1) $ 43,495 $ 18,470
----------------------------------------------------------------------------
Income before interest and income taxes $ 38,017 $ 13,277

Plant utilization - Compression and Power 64% 52%
Plant utilization - Production and Processing 92% 83%
Plant utilization - AustralAsia 81% 83%
----------------------------------------------------------------------------


Engineered Systems' revenue totalled $475.7 million for the nine months ended September 30, 2008 as compared to $315.6 million in the same period of 2007. This increase of $160.1 million was the result of increases in both international and domestic sales from all of the segment's businesses with the exception of the domestic small horsepower market which remained consistent with 2007's low activity levels. International revenue represented 75% of 2008's revenue as compared to 66% in 2007. Increases in exports by both the Compression & Power and Production & Processing divisions and continuing high levels of activity in AustralAsia and MENA accounted for the increase in international revenue.

Gross margin for the segment totalled $81.2 million, or 17.1% compared to $47.2 million or 15.0% of revenue in 2007. The increased gross margin was the result of a weakening Canadian dollar in 2008 as compared to the strengthening during 2007 and stronger utilization rates in the Fund's Canadian facilities offsetting lower margins on the CHP product line in Europe. The Fund utilizes foreign currency forward contracts to mitigate the exposure on international contracts however a timing difference exists between the foreign exchange gains and losses recorded on the forward contracts and the full gross margin impact related to foreign exchange movements.

Income before interest and income taxes in 2008 increased by 186% to $38.0 million from $13.3 million in 2007. This increase was a result of the increased revenue and margins and a gain on the sale of a facility partially offset by higher general and administrative costs for the continued expansion of operations internationally.



PRODUCTION SERVICES

(unaudited)(thousands) Nine months ended September 30, 2008 2007
----------------------------------------------------------------------------
Segment revenue $ 21,317 $ 30,495
Intersegment revenue (2) (7)
----------------------------------------------------------------------------
Revenue $ 21,315 $ 30,488
----------------------------------------------------------------------------
Revenue - Canadian $ 19,472 $ 28,311
----------------------------------------------------------------------------
Revenue - international $ 1,843 $ 2,177
----------------------------------------------------------------------------
Gross margin $ 10,813 $ 15,114
----------------------------------------------------------------------------
EBITDA(1) $ 18,127 $ 21,541
----------------------------------------------------------------------------
Income before interest and income taxes $ 10,382 $ 13,384
----------------------------------------------------------------------------
Capital expenditures, net of proceeds on disposal $ (6,611) $ 8,776
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Capital utilization - Compression 61% 70%
----------------------------------------------------------------------------
Capital utilization - Power and Processing 35% 35%
----------------------------------------------------------------------------


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

Production Services' revenue for the first nine months of 2008 decreased $9.2 million to $21.3 million as compared to $30.5 million in 2007. The decrease was the result of reductions in rental revenue due to a decline in utilization rates and in the size of the fleet and the absence of flow-through revenue for new project start-ups as compared to 2007. The reduced fleet size resulted from a high level of rental contract buy-out activity in the fourth quarter of 2007 and first quarter of 2008 and little new capital investment by the Fund due to the reduced demand for rental equipment.

Gross margin in 2008 totalled $10.8 million, or 50.7%, as compared to $15.1 million or 49.6% in 2007. The increase in gross margin percent was the result of lower overhaul provisions and the absence of flow-through revenue at no margin in 2007 partially offset by lower fleet utilization, resulting in the allocation of depreciation over a lower revenue base.

Income before interest and income taxes of $10.4 million was $3.0 million lower than 2007 as a result of the factors discussed above.

During the nine months ended September 30, 2008, Production Services sold 21 compression units and 17 process units from its fleet, for gross proceeds of $13.2 million and a gain on sale of $2.8 million. This compares to 35 compression units and 8 process units, for gross proceeds of $12.6 million and a gain on sale of $1.7 million in 2007. The sale of units generally occurs when customers exercise their contractual option to purchase equipment. Enerflex added 15 compression units and 7 process units to its fleet during 2008, for an investment of $6.3 million.



FINANCIAL POSITION

The following table outlines significant changes in the Consolidated Balance
Sheets as at September 30, 2008 as compared to December 31, 2007:

----------------------------------------------------------------------------
($millions) Increase /
(decrease) Explanation
----------------------------------------------------------------------------
Assets:
----------------------------------------------------------------------------
Assets held
for trading (1.4) The market value of foreign exchange contracts
used by the Fund declined in 2008 as a result
of weakening in the Canadian dollar.
----------------------------------------------------------------------------
Accounts receivable 57.4 Increased progress billings due to the
continuing high activity levels in the
Engineered Systems segment and higher revenue
accrual balances in 2008.
----------------------------------------------------------------------------
Inventory 6.8 Long lead times and high demand for parts due
to the high activity levels within the
Engineered Systems segment required advance
orders of parts in order for the Fund to
execute on its existing and future backlog.
----------------------------------------------------------------------------
Income taxes
receivable (6.6) Refunds received from prior period tax filings
during 2008 and improved operating results for
the Fund's operations have reduced the taxes
receivable positions for the Fund and its
subsidiaries.
----------------------------------------------------------------------------
Rental equipment (8.9) The decline is due to continuing depreciation
of existing assets and buy-outs of rental
units during 2008 resulting in disposals
exceeding new capital additions for the
current year.
----------------------------------------------------------------------------
Liabilities:
----------------------------------------------------------------------------
Accounts payable and
accrued liabilities 19.3 Increased activity levels in the Fund's
Engineered Systems and Service segments has
resulted in an increased need for parts
resulting in higher payable balances as
compared to 2007.
----------------------------------------------------------------------------
Accrued distributions 2.3 The Fund increased its declared distribution
in the third quarter of 2008 to $0.30/unit
from $0.25/unit in the fourth quarter of 2007.
----------------------------------------------------------------------------
Liabilities held for
trading 1.5 The market value of foreign exchange contracts
used by the Fund declined in 2008 as a result
of weakening in the Canadian dollar.
----------------------------------------------------------------------------
Deferred revenue 65.4 High activity levels in the Engineered Systems
segment has led to increased progress billings
used by the Fund to maintain a positive cash
position and mitigate collection risk during
the manufacturing process.
----------------------------------------------------------------------------
Long term debt (32.6) Increased cash positions for the Fund due to
progress payments on projects and continued
high activity levels resulted in the ability
for the Fund to repay all borrowings on its
Bank Facility throughout 2008.
----------------------------------------------------------------------------


LIQUIDITY

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

- Cash generated from continuing operations;

- Bank financing and operating lines of credit; and

- The issuance and sale of debt and equity instruments.



Statement of Cash Flows:
----------------------------------------------------
(unaudited) Three months ended Nine months ended
(thousands) September 30, September 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Cash, beginning of period $ 53,139 $ 24,475 $ 38,927 $ 22,344
Cash provided from / (used) in:
Operating activities 42,385 14,903 88,933 55,508
Investing activities (5,513) (7,919) 2,929 (23,438)
Financing activities (24,463) (12,353) (65,241) (35,308)
----------------------------------------------------------------------------
Cash, end of period $ 65,548 $ 19,106 $ 65,548 $ 19,106
----------------------------------------------------------------------------


Operating Activities

For the three months ended September 30, 2008, cash generated from operating activities was $42.4 million, compared to $14.9 million during the same period of 2007. The increase of $27.5 million was the result of increased earnings and decreased working capital needs as increased accounts receivable were offset by increased accounts payable and deferred revenue as the high activity levels for the Engineered Systems segment have generated progress payments.

Investing Activities

Cash used for investing activities for the three months ended September 30, 2008 was $5.5 million as compared to cash used of $7.9 million for the same period in 2007. The change was the result of a $1.8 million reduction in net fixed asset and rental expenditures as a result of increased buy-out activity in the rental business and a $1.2 million reduction in acquisition expenditures as compared to the third quarter of 2007.

Financing Activities

Cash used in financing activities was $24.5 million for the three months ended September 30, 2008 as compared to cash used of $12.4 million for the same period of 2007. The increase was primarily a result of the Fund repaying borrowings on its Bank Facility in the third quarter of 2008. Distributions paid for the period were comparable to those in the third quarter of 2007.



Distributable Cash Flow
----------------------------------------------------------------------------
(unaudited) Three months ended Nine months ended
(thousands) September 30, September 30,
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Distributable cash flow(1) $ 41,160 $ 14,304 $ 86,307 $ 52,782
----------------------------------------------------------------------------


Distributable cash flow(1) for the third quarter of 2008 of $41.2 million increased by $26.9 million from distributable cash flow(1) of $14.3 million in the same period of 2007 primarily due to the changes in non-cash working capital and improved earnings. Distributable cash flow not including the changes in non-cash working capital was $20.6 million for the third quarter of 2008, $4.9 million higher than the $15.7 million during the same period of 2007.



Distribution Payout Ratio
----------------------------------------------------------------------------
(unaudited) Three months ended Nine months ended
(thousands) September 30, September 30,
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Distribution payout ratio(1) 34% 82% 43% 66%
----------------------------------------------------------------------------


Distributions declared in the third quarter of 2008 represented 34% of distributable cash flow(1) in comparison to 82% for the same period of 2007. The lower payout ratio was the result of the same factors contributing to the higher distributable cash flow partially offset by an increased distribution. Ignoring the impact of changes in non-cash working capital, the payout ratio for the third quarter of 2008 was 68% as compared to 74% in the same period of 2007.



Net Capital Spending
----------------------------------------------------------------------------
(unaudited) Three months ended Nine months ended
(thousands) September 30, September 30,
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Net capital spending $ 323 $ 2,138 $(3,886) $ 14,156
----------------------------------------------------------------------------


Net capital spending for the third quarter of 2008 declined to $0.3 million as compared to $2.1 million in the same period of 2007. The change was the result of minimal capital investment in the rental fleet during 2008 as a result of reduced customer demand and the proceeds from the sale of one of the Fund's small domestic facilities in the third quarter of 2008.

CAPITAL RESOURCES

On October 31, 2008, the Fund had 44,089,285 income trust units and 2,671,110 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 2007, Enerflex declared quarterly distributions equal to $0.25 for a total of $1.00 per unit. In the third quarter of 2008, the Fund declared a distribution of $0.30 per unit as compared to $0.25 per unit in each of the first two quarters of 2008.

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

During 2006, the Fund completed the restructuring of its debt with the closing of a private placement for $100.6 million of 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(1) ratio and a limitation on distributions to unit holders in certain circumstances. Enerflex was in full compliance with these covenants at September 30, 2008 and October 31, 2008.

On September 30, 2008, $100.6 million Notes were outstanding and approximately $20.7 million of the $150.0 million Bank Facility was drawn in the form of letters of credit or guarantees, leaving approximately $129.3 million available for future drawings. The Fund had no cash drawings on the Bank Facility at September 30, 2008. These credit facilities provide the financing required to support the Fund's operating requirements, as well as the flexibility to pursue growth opportunities.

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




September 30, December 31,
Consolidated Balance Sheets
2008 2007
(Unaudited) (Thousands)
----------------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents $ 65,548 $ 38,927
Assets held for trading 941 2,330
Accounts receivable 229,892 172,507
Inventory 131,505 124,736
Income taxes receivable 5,558 12,174
Future income taxes 6,587 5,249
----------------------------------------------------------------------------
Total current assets 440,031 355,923

Rental equipment 91,492 100,354
Property, plant and equipment 67,510 70,216
Investment in affiliates 2,849 2,858
Future income taxes 2,963 2,802
Deferred charges 142 261
Intangible assets 8,123 9,262
Goodwill 125,104 125,241
----------------------------------------------------------------------------
$ 738,214 $ 666,917
---------------------------------
---------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 115,527 $ 96,243
Liabilities held for trading 3,320 1,786
Accrued distributions payable 14,014 11,673
Deferred revenue 102,280 36,925
Income taxes payable 2,285 1,117
Future income taxes 94 144
----------------------------------------------------------------------------
Total current liabilities 237,520 147,888

Long-term debt 99,898 132,450
Other long-term liabilities 3,113 1,592
Future income taxes 9,696 7,492
----------------------------------------------------------------------------
350,227 289,422
----------------------------------------------------------------------------


Unitholders' equity
Unitholders' capital 205,881 205,588
Accumulated other comprehensive loss (8,380) (7,822)
Contributed surplus 402 235
Retained earnings 190,084 179,494
----------------------------------------------------------------------------
387,987 377,495
---------------------------------
$ 738,214 $ 666,917
---------------------------------
---------------------------------


Three Months Ended Nine Months Ended
Consolidated September 30, September 30,
Statements of Income

(Unaudited)
(Thousands,
except unit amounts) 2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue $ 257,059 $ 195,570 $ 749,205 $ 593,079
Cost of goods sold 200,643 153,001 590,714 466,351
----------------------------------------------------------------------------
Gross margin 56,416 42,569 158,491 126,728
Selling, general and
administrative expenses 33,518 30,569 99,835 91,146
Foreign currency (gains)/losses 2,671 548 3,234 (135)
Gain on sale of assets (2,453) (935) (4,422) (1,851)
Equity earnings from
affiliates (112) (44) (234) (266)
----------------------------------------------------------------------------
Income before
interest and income taxes 22,792 12,431 60,078 37,834
Interest 1,069 1,767 3,961 5,914
----------------------------------------------------------------------------
Income before income taxes 21,723 10,664 56,117 31,920
Income taxes 3,637 (864) 7,075 (6,173)
----------------------------------------------------------------------------
Net income $ 18,086 $ 11,528 $ 49,042 $ 38,093
---------------------------------------------

Net income per unit
- basic $ 0.39 $ 0.25 $ 1.05 $ 0.82
- diluted $ 0.39 $ 0.25 $ 1.05 $ 0.82
Weighted average number
of units 46,711,500 46,684,824 46,700,086 46,680,947
---------------------------------------------


Consolidated Statements Three Months Ended Nine Months Ended
of Retained Earnings September 30, September 30,
(Unaudited) (Thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Retained earnings,
beginning of period $ 186,012 $ 172,609 $ 179,494 $ 169,383
Adjustment to retained
earnings, opening - - (1,091) -
Net income 18,086 11,528 49,042 38,093
Distributions (14,014) (11,672) (37,361) (35,011)
----------------------------------------------------------------------------
Retained earnings,
end of period $ 190,084 $ 172,465 $ 190,084 $ 172,465
---------------------------------------------


Consolidated Statements Three Months Ended Nine Months Ended
of Comprehensive Income September 30, September 30,
(Unaudited) (Thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------

Net Income $ 18,086 $ 11,528 $ 49,042 $ 38,093
Other comprehensive
income, net of tax
Foreign currency
translation of self-sustaining
operations (9,335) (1,613) (558) (4,481)
----------------------------------------------------------------------------
Comprehensive Income $ 8,751 $ 9,915 $ 48,484 $ 33,612
---------------------------------------------


Consolidated Statements of Cash Three Months Ended Nine Months Ended
Flows
September 30, September 30,
----------------------------------------------------------------------------
(Unaudited) (Thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------

Operating Activities
Net income $ 18,086 $ 11,528 $ 49,042 $ 38,093
Depreciation and amortization 5,575 5,762 16,931 16,801
Future income taxes 646 1 875 (2,100)
Gain on sale of assets (2,453) (935) (4,422) (1,851)
Equity earnings from affiliates (112) (44) (234) (266)
Unit option expense 53 33 167 117
----------------------------------------------------------------------------
21,795 16,345 62,359 50,794
Changes in non-cash working
capital and other 20,590 (1,442) 26,574 4,714
----------------------------------------------------------------------------
Cash flow produced in operations 42,385 14,903 88,933 55,508
----------------------------------------------------------------------------

Investing Activities
Acquisitions - (1,185) 238 (9,983)
Purchase of:
Rental equipment (4,191) (1,027) (6,320) (20,361)
Property, plant and equipment (1,159) (1,277) (4,482) (3,696)
Assets under construction (437) (1,086) (1,130) (4,176)
Proceeds on disposal of:
Rental equipment 3,233 432 13,200 12,623
Property, plant and equipment 2,231 820 2,618 1,454
----------------------------------------------------------------------------
(323) (3,323) 4,124 (24,139)
Changes in non-cash working
capital and other (5,190) (4,596) (1,195) 701
----------------------------------------------------------------------------
Cash flow (used)/produced in
investing (5,513) (7,919) 2,929 (23,438)
----------------------------------------------------------------------------

Financing Activities
Repayment of long-term debt (15,925) (2,795) (33,867) (6,550)
Distribution reinvestment plan 237 44 293 87
Distributions paid (11,674) (11,670) (35,020) (35,009)
----------------------------------------------------------------------------
(27,362) (14,421) (68,594) (41,472)
Changes in non-cash working
capital and other 2,899 2,068 3,353 6,164
----------------------------------------------------------------------------
Cash flow used in financing (24,463) (12,353) (65,241) (35,308)
----------------------------------------------------------------------------
Increase/(decrease) in cash and
cash equivalents 12,409 (5,369) 26,621 (3,238)
Cash and cash equivalents,
beginning of period 53,139 24,475 38,927 22,344
----------------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 65,548 $ 19,106 $ 65,548 $ 19,106
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash flows include the following
elements:

Interest paid $ 196 $ 440 $ 468 $ 4,531
----------------------------------------------------------------------------
Income taxes (received)/paid $ (1,359) $ (101) $ (2,261) $ 1,779
----------------------------------------------------------------------------


Segmented Information

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




Service Engineered Systems
Three Months ended
September 30, 2008 2007 2008 2007
----------------------------------------------------------------------------

Segment revenue $ 88,770 $ 82,419 $ 164,763 $ 109,448
Intersegment revenue (2,592) (2,332) (963) (3,507)
----------------------------------------------------------------------------
External revenue $ 86,178 $ 80,087 $ 163,800 $ 105,941
-------------------------------------------

Gross Margin $ 20,173 $ 22,123 $ 32,737 $ 16,170
-------------------------------------------

Depreciation and amortization $ 1,124 $ 1,124 $ 1,863 $ 1,862
----------------------------------------------------------------------------

Income before interest and income
taxes $ 1,699 $ 3,800 $ 17,565 $ 4,683
----------------------------------------------------------------------------
Capital expenditures $ 318 $ 463 $ 618 $ 1,478
Corporate
----------------------------------------------------------------------------

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

Proceeds on disposal of assets $ - $ 38 $ 2,232 $ 782
----------------------------------------------------------------------------

Production
Services Consolidated
Three Months ended
September 30, 2008 2007 2008 2007
----------------------------------------------------------------------------

Segment revenue $ 7,081 $ 9,545 $ 260,614 $ 201,412
Intersegment revenue - (3) (3,555) (5,842)
----------------------------------------------------------------------------
External revenue $ 7,081 $ 9,542 $ 257,059 $ 195,570
-------------------------------------------
Gross Margin $ 3,506 $ 4,276 $ 56,416 $ 42,569
-------------------------------------------

Depreciation and amortization $ 2,588 $ 2,776 $ 5,575 $ 5,762
----------------------------------------------------------------------------

Income before interest and income
taxes $ 3,528 $ 3,948 $ 22,792 $ 12,431
----------------------------------------------------------------------------


Capital expenditures $ 4,263 $ 1,187 $ 5,199 $ 3,128
Corporate 588 262
----------------------------------------------------------------------------
$ 5,787 $ 3,390
-------------------------------------------

Proceeds on disposal of
assets $ 3,232 $ 432 $ 5,464 $ 1,252
----------------------------------------------------------------------------


Service Engineered Systems
Nine Months ended
September 30, 2008 2007 2008 2007
----------------------------------------------------------------------------

Segment revenue $ 261,276 $ 254,879 $ 478,840 $ 333,610
Intersegment revenue (9,108) (7,915) (3,118) (17,983)
----------------------------------------------------------------------------
External revenue $ 252,168 $ 246,964 $ 475,722 $ 315,627
-------------------------------------------

Gross Margin $ 66,511 $ 64,375 $ 81,167 $ 47,239
-------------------------------------------

Depreciation and amortization $ 3,708 $ 3,451 $ 5,478 $ 5,193
----------------------------------------------------------------------------

Income before interest and
income taxes $ 11,679 $ 11,173 $ 38,017 $ 13,277
----------------------------------------------------------------------------

Segment assets $ 167,139 $ 153,609 $ 340,257 $ 207,950
Corporate
Goodwill 51,364 51,159 66,384 66,911
----------------------------------------------------------------------------
Total Segment assets $ 218,503 $ 204,768 $ 406,641 $ 274,861
-------------------------------------------

Capital expenditures $ 980 $ 1,337 $ 2,880 $ 4,717
Corporate
----------------------------------------------------------------------------

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

Proceeds on disposal of assets $ 72 $ 87 $ 2,547 $ 1,351
----------------------------------------------------------------------------

Production Services Consolidated
Nine Months ended
September 30, 2008 2007 2008 2007
----------------------------------------------------------------------------

Segment revenue $ 21,317 $ 30,495 $ 761,433 $ 618,984
Intersegment revenue (2) (7) (12,228) (25,905)
----------------------------------------------------------------------------
External revenue $ 21,315 $ 30,488 $ 749,205 $ 593,079
-------------------------------------------

Gross Margin $ 10,813 $ 15,114 $ 158,491 $ 126,728
-------------------------------------------

Depreciation and
amortization $ 7,745 $ 8,157 $ 16,931 $ 16,801
----------------------------------------------------------------------------

Income before interest and
income taxes $ 10,382 $ 13,384 $ 60,078 $ 37,834
----------------------------------------------------------------------------

Segment assets $ 114,794 $ 123,446 $ 622,190 $ 485,005
Corporate (7,862) 23,991
Goodwill 7,356 7,356 125,104 125,426
----------------------------------------------------------------------------
Total Segment assets $ 122,150 $ 130,802 $ 739,432 $ 634,422
-------------------------------------------

Capital expenditures $ 6,588 $ 21,415 $ 10,448 $ 27,469
Corporate 1,484 764
----------------------------------------------------------------------------
$ 11,932 $ 28,233
-------------------------------------------

Proceeds on disposal of assets $ 13,199 $ 12,639 $ 15,818 $ 14,077
----------------------------------------------------------------------------


Revenue from foreign countries was:

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
Australia $ 74,652 $ 49,942 $ 216,939 $ 104,713
China 3,721 2,737 12,566 3,278
Germany 887 1,054 2,571 5,558
Indonesia 9,629 2,479 20,100 7,963
Netherlands 23,792 11,685 51,524 59,772
Pakistan 15,872 194 32,232 4,963
United States 15,268 12,993 54,213 54,140
Other 11,532 10,582 36,070 33,366
----------------------------------------------------------------------------
$ 155,353 $ 91,666 $ 426,215 $ 273,753

Included in these amounts are
gross exports from domestic
operations of: $ 76,814 $ 36,643 $ 208,075 $ 105,406
-----------------------------------------

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

Total assets in foreign countries were as follows:

September 30, 2008 December 31, 2007
---------------------------------------------------------------

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

Australia $ 22,013 $ 55,544 $ 77,557 $ 21,371 $ 43,107 $ 64,478

Netherlands 6,702 42,949 49,651 6,657 36,214 42,871

United States 6,185 6,044 12,229 7,048 2,095 9,143

Other 22,504 8,433

----------------------------------------------------------------------------
Total assets $161,941 $124,925
---------------------------------------------------------------
---------------------------------------------------------------

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

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)