Enerflex Ltd.
TSX : EFX

Enerflex Ltd.

November 09, 2011 17:33 ET

Enerflex Reports Third Quarter 2011 Financial Results and Announces Quarterly Dividend

CALGARY, ALBERTA--(Marketwire - Nov. 9, 2011) - Enerflex Ltd. (TSX:EFX) ("Enerflex" or the "Company"), a leading supplier of products and services to the global energy industry, today reported its financial and operating results for the three and nine months ended September 30, 2011.


Financial Highlights(1)                                                     

                               Three months ended          Nine months ended
(unaudited)                         September 30,              September 30,
($ millions, except                                                         
 per share amounts and                     Change                    Change
 percentages)              2011     2010       ($)    2011     2010      ($)
----------------------------------------------------------------------------
Revenue               $   282.3  $ 270.9  $  11.4 $  843.3 $  720.2 $ 123.1
Gross margin               53.6     48.0      5.6    157.3    119.4    37.9
Gross margin %             19.0%    17.7%             18.6%    16.6%       
Operating income(2)        22.0     11.5     10.5     53.6     19.3    34.3
EBITDA (2, 3)              36.0     23.6     12.4     90.4     51.8    38.6
Net earnings (loss)                                                         
  Continuing               17.0      5.1     11.9     39.0     21.9    17.1
  Discontinued            (54.3)    (1.8)    52.5    (57.1)    (5.1)  (52.0)
Earnings (loss) per                                                       
 share                                                                    
  Continuing               0.22     0.06    (0.16)    0.51     0.29    0.22
  Discontinued            (0.70)   (0.02)   (0.68)   (0.74)   (0.07)  (0.67)

1.  Results through May 31, 2011 have been prepared on a carve-out basis.
    Enerflex became an independently operated and listed company on June 1,
    2011. 
2.  Operating income and EBITDA are non-GAAP 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. 
3.  EBITDA for the nine months of 2010 is normalized for the net impact of
    the gain on available for sale assets of $18.6 million related to
    Toromont's acquisition of Enerflex Systems Income Fund (ESIF). 

Enerflex reported higher results from continuing operations in the third quarter of 2011, compared to the same period last year. Net earnings from continuing operations increased by $11.9 million (233%) as a result of higher revenues and improved gross margins.

"The Enerflex management team is very pleased at our improved third quarter and year-to-date results, including revenue, margin and operating income," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "These strong results were driven by increased sales, efficient project execution and the realization of our operational integration, which is ongoing. This established the foundation for the improvement in our financial results."

The Company recorded bookings of $314.6 million during the quarter as our customers' activity levels have remained stable in Canada and Northern U.S. and International compared to the same period last year. The Southern U.S. and South America has seen increased bookings versus the same period last year, driven predominantly by growth in unconventional resource basins such as the Eagle Ford and the Marcellus. Backlog has grown to $833.2 million, which represents an increase of $321.8 million (62.9%) compared to the same period last year.

During the quarter General Electric's ("GE") Gas Engine Division awarded additional distribution territory and product lines to Gas Drive Global LP and Gas Drive Global (US) Inc. (collectively, "Gas Drive"). Gas Drive is a limited partnership wholly-owned by Enerflex, and will be the authorized distributor for GE's Gas Engines', Waukesha product line of gas-fuelled reciprocating engines in Canada and 20 U.S. states.

The European division, within the International segment, has not performed as expected during 2011. This fact, coupled with General Electric's decision to realign its distribution network in this region has resulted in Enerflex's decision during the third quarter of 2011, to exit the Service and Combined Heat and Power ("CHP") business. This business unit has been reported as a discontinued operation during the quarter and for the nine months ended September 2011. Enerflex has recorded a total impairment of $52.0 million, consisting of non-cash impairments of $47.6 million for goodwill, intangible assets, deferred tax assets and fair value adjustments; and anticipated cash transaction costs totalling $4.4 million.

Third Quarter and First Nine Month Highlights

In the three and nine months ended September 30, 2011, Enerflex:


--  Generated revenue of $282.3 million compared to $270.9 million in the
    third quarter of 2010. The increase of $11.4 million was a result of
    increased revenue in the International segment, which was partially
    offset by decreased revenues in the Southern U.S. and South America
    segment. Revenues for the first nine months of 2011 were $843.3 million
    compared to $720.2 million during the same period of the prior year; 
--  Achieved a gross margin of $53.6 million or 19.0% compared to
    $48.0 million or 17.7% during the third quarter of 2010, an increase of
    $5.6 million. Gross margin for the first nine months of the year
    totalled $157.3 million or 18.6%, an increase of 31.7% over the same
    period of the prior year; 
--  Achieved operating income of $22.0 million or 7.8% of revenue, a strong
    turnaround from $11.5 million or 4.2% in the third quarter of 2010.
    Operating income for the first nine months of the year was $53.6 million
    or 6.4% of revenue, an increase of $34.3 million from the first nine
    months of 2010; 
--  Generated third quarter EBITDA of $36.0 million, an increase of
    $12.4 million over the third quarter of 2010. EBITDA for the first nine
    months of 2011 was $90.4 million, an increase of $38.6 million over the
    first three quarters of 2010; 
--  Achieved net earnings from continuing operations in the third quarter of
    $17.0 million ($0.22 cents per share), an increase of $11.9 million over
    the same period last year. For the nine months ended September 30, 2011
    net earnings from continuing operations were $39.0 million ($0.51 cents
    per share), as compared to $21.9 million or $0.29 cents per share in the
    same period of 2010; 
--  Increased backlog to $833.2 million at September 30, 2011 compared to
    $511.4 million at September 30, 2010, an increase of 62.9% over the
    prior year. Backlog at September 30, 2011 increased by $189.6 million or
    29.5% over December 31, 2010; 
--  Repaid $50.5 million in borrowings during the quarter, exiting the third
    quarter with net debt of $80.2 million which includes cash on hand of
    $52.7 million; and 
--  Sold facilities at 4700 47th Street SE, Calgary, Alberta and 5221 46th
    Street, Stettler, Alberta totalling 406,000 square feet for gross
    proceeds of $42.9 million. 

Subsequent to the end of the third quarter of 2011:


--  Enerflex was awarded a U.S. $228.0 million contract for the engineering,
    procurement, construction and commissioning of a gas processing plant to
    be located in the Sultanate of Oman. The contract includes the supply by
    Enerflex of all associated equipment including; gas processing and
    compression equipment, gas/condensate export facilities, produced water
    treatment, power plant, central control room, electrical substation and
    associated utilities. The expected completion date of this project will
    be in the third to fourth quarter of 2013; 
--  Gas Drive has been notified of GE's Gas Engines interest in extending
    distribution rights for the Jenbacher natural gas engine and parts
    product line for all of Canada. This overall network realignment
    strengthens both Gas Drive's and GE's Gas Engine's ability to meet their
    customers' needs by providing an unprecedented level of service and
    support; 
--  Enerflex announced its plan to file with the Toronto Stock Exchange a
    notice of intention to make a normal course issuer bid for certain of
    its common shares through the facilities of the exchange. Once accepted
    by the Toronto Stock Exchange, this notice will entitle Enerflex to
    purchase up to 6,263,211 common shares, representing 10% of its issued
    and outstanding common shares in the public float over a 12 month
    period, commencing from the date the notice is filed with the Toronto
    Stock Exchange; and 
--  Enerflex declared the Company's third dividend of $0.06 per share,
    payable on January 5, 2012, to shareholders of record on December 14,
    2011. 

Financial Results

Enerflex's $11.4 million or 4.2% period-over-period increase in revenue to $282.3 million in the third quarter of 2011 was a result of increased revenue in the International segment predominantly offset by decreased revenues in the Southern U.S. and South America. Canada and Northern U.S. had relatively stable revenues at $128.5 million as compared to $128.4 million from the same period of last year, while Southern U.S. and South America revenues decreased by $13.3 million. The International segment increased revenues by $24.7 million to $72.9 million from $48.2 million in 2010.

During the first nine months of 2011, the Company generated $843.3 million in revenue as compared to $720.2 million in the same period of 2010, a result of increased revenues in the Canada and Northern U.S. and International business segments. Canada and Northern U.S. revenues increased by $64.8 million while International segment revenues increased by $60.6 million. This was modestly offset by a $2.2 million decrease in Southern U.S. and South America revenues.

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) totalled $90.4 million in the first three quarters of 2011, an increase of 74.5% over $51.8 million compared to the same period of the prior year.

Gross margin of $53.6 million represented an increase of 11.7% over the third quarter of 2010 as a result of strong gross margin performance in Canada and Northern U.S. and improved plant utilization and Rental margins. This was partially offset by lower gross margin performance in the International and Southern U.S. and South America business segments, as a result of additional cost impacts of weather delays in Australia, lower awarded gross margins and deferred delivery dates of projects in backlog. Gross margin for the nine months ended September 30, 2011 was $157.3 million or 18.6% of revenue as compared to $119.4 million or 16.6% of revenue for the nine months ended September 30, 2010, an increase of $37.9 million. Contributing to the gross margin increase over the first nine months of 2010 was the recognition of revenue on approved change orders related to past projects in the Middle East and North Africa ("MENA"), which contributed $16.5 million to gross margin, partially offset by project delays, cost over-runs and impairment of work in process on specific projects in Australia due to weather related delays in Queensland.

Backlog at September 30, 2011 increased to $833.2 million compared to $511.4 million at September 30, 2010, a 62.9% increase over the comparable period. As compared to December 31, 2010, backlog at September 30, 2011 increased by $189.6 million or 29.5%. These increases are a result of increased activity in unconventional natural gas basins, liquids-rich gas basins in the United States and Canada and various liquefied natural gas to coal seam gas projects in Australia.

"We believe that Enerflex is well positioned to see improving results from operations during the fourth quarter of 2011 and into 2012. The Company has a strong balance sheet, an increasing backlog, which is further strengthened by the recent award in Oman and a growing Service business with the new territories and product lines awarded to Enerflex," said Goertzen.

Enerflex's consolidated financial statements as at and for the three and nine months ended September 30, 2011, and the accompanying management's discussion and analysis, will be available on the Enerflex website at www.enerflex.com or on SEDAR at www.sedar.com.

Conference Call and Webcast Details

Enerflex will host a conference call for analysts and investors on Thursday, November 10, 2011 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's 2011 third quarter results. The call will be hosted by Mr.Blair Goertzen, President and Chief Executive Officer of Enerflex Ltd.

If you wish to participate in this conference call, please call, 1.800.952.4972 or 1.416.695.6617. Please dial in 10 minutes prior to the start of the call. No passcode is required. The live audio webcast of the conference call will be available on the Enerflex website at www.enerflex.com under the Investor Relations section on November 10, 2011 at 9:00 a.m. MT (11:00 a.m. ET). Approximately one hour after the call, a recording of the event will be available on the Company's website.

A replay of the teleconference will be available one hour after the conclusion of the call until midnight, November 17, 2011. Please call 1.800.408.3053 or 1.905.694.9451 and enter passcode 4003430.

About Enerflex

Enerflex Ltd. is a single source supplier of products and services to the global oil and gas production industry. Enerflex provides natural gas compression and oil and gas processing equipment for sale or lease, refrigeration systems and power generation equipment and a comprehensive package of field maintenance and contracting capabilities. Through the Company's ability to provide these products and services in an integrated manner, or as stand-alone offerings, Enerflex offers its customers a unique value proposition.

Headquartered in Calgary, Canada, Enerflex has approximately 2,900 employees. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, the United States, Argentina, Colombia, Australia, the United Kingdom, the United Arab Emirates, Egypt, Oman, Bahrain and Indonesia. Enerflex's shares trade on the Toronto Stock Exchange under the symbol "EFX". For more information about Enerflex, go to www.enerflex.com.

Advisory Regarding Forward-Looking Statements

To provide Enerflex shareholders and potential investors with information regarding Enerflex, including management's assessment of future plans, Enerflex has included in this news release certain statements and information that are forward-looking statements or information within the meaning of applicable securities legislation, and which are collectively referred to in this advisory as "forward-looking statements." Information included in this news release that is not a statement of historical fact is forward-looking information. When used in this document, words such as "plans", "expects", "will", "may" and similar expressions are intended to identify statements containing forward-looking information. In developing the forward-looking information in this news release, we have made certain assumptions with respect to general economic and industry growth rates, commodity prices, currency exchange and interest rates, competitive intensity and shareholder, regulatory and TSX approvals. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated in or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur.

Forward-looking information involves known and unknown risks and uncertainties and other factors, which may cause or contribute to Enerflex achieving actual results that are materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such risks and uncertainties include, among other things, 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 dividends to shareholders of the Company; 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 Company, the reliability of Toromont's historical financial information as an indicator of Enerflex's historical or future results; potential tax liabilities if the requirements of the tax-deferred spinoff rules are not met; the effect of Enerflex's rights plan on any potential change of control transaction; obtaining financing; and other factors, many of which are beyond its control.

These factors are not exhaustive. 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 at the time of preparation, may prove to be incorrect. Readers are cautioned that the actual results achieved will vary from the information provided in this press release and that such variations may be material. Consequently, Enerflex does not represent that actual results achieved will be the same in whole or in part as those set out in the forward-looking information.

Furthermore, the statements containing forward-looking information that are included in this news release are made as of the date of this news release, and Enerflex does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking information, whether as a result of new information, future events or otherwise. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The Management's Discussion and Analysis ("MD&A") comments on the operations performance and financial condition of Enerflex Ltd. ("Enerflex" or "the Company") as at and for the three and nine months ended September 30, 2011, compared to the preceding year should be read in conjunction with the unaudited interim consolidated financial statements and related notes for the three and nine months ended September 30, 2011 and 2010 and in conjunction with Toromont Industries Ltd. ("Toromont") Management Information Circular Relating to an Arrangement involving Toromont Industries Ltd., its shareholders, Enerflex Ltd. and 7787014 Canada Inc. ("Information Circular" or "Arrangement") dated April 11, 2011.

The interim consolidated financial statements reported herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are presented in Canadian dollars unless otherwise stated. In accordance with the standard related to the first time adoption of IFRS, our transition date to IFRS was January 1, 2010 and therefore the comparative information for 2010 has been prepared in accordance with our IFRS accounting policies. IFRS has been adopted in Canada as Generally Accepted Accounting Principles ("GAAP"), as a result GAAP and IFRS are used interchangeably within this MD&A.

The MD&A has been prepared taking into consideration information that is available up to November 9, 2011 and focuses on information and key statistics from the unaudited interim 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 possible future 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 Ltd. in the future. Additional information relating to the Company, including the Information Circular, 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 Company operates and statements of the Company'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 analyses made by the Company derived from its 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; bookings and backlog; oil and gas prices 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 energy service markets; the ability to raise capital; expectations regarding future dividends; 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 Company. Such forward-looking statements are subject to important risks, uncertainties, and assumptions which are difficult to predict and which may affect the Company'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 dividends to shareholders of the Company; 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 Company and other factors, many of which are beyond its 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 or dividends the Company and its shareholders, 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 Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

THE COMPANY

Enerflex Ltd. was formed after the acquisition of Enerflex Systems Income Fund ("ESIF") by Toromont and subsequent integration of Enerflex's products and services with Toromont's existing Natural Gas Compression and Process business. In January 2010, the operations of Toromont Energy Systems Inc., a subsidiary of Toromont Industries Ltd., were combined with the operations of ESIF to form Enerflex Ltd. Enerflex began independent operations on June 1, 2011 pursuant to the Arrangement with Toromont which received all necessary regulatory approvals. The transaction was implemented by way of a plan of arrangement whereby Toromont shareholders received one share of Enerflex for each common share of Toromont, creating two independent public companies - Toromont Industries Ltd. and Enerflex Ltd. Enerflex's shares began trading on the Toronto Stock Exchange ("TSX") on June 3, 2011 under the symbol EFX.

Enerflex Ltd. is a single-source supplier for natural gas compression, oil and gas processing, refrigeration systems and power generation equipment - plus in-house engineering and mechanical services expertise. The Company's broad in-house resources give us the capability to engineer, design, manufacture, construct, commission and service hydrocarbon handling systems. Enerflex's expertise encompasses field production facilities, compression and natural gas processing plants, CO2 processing plants, refrigeration systems and power generators serving the natural gas production industry.

Headquartered in Calgary, Canada, Enerflex has approximately 2,900 employees worldwide. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, the United States, Argentina, Colombia, Australia, the United Kingdom, the United Arab Emirates, Oman, Egypt, Bahrain and Indonesia.

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 product line has experienced higher revenues in the fourth quarter of each year while the Service and Rentals product line revenues are more stable throughout the year. Rentals revenues are also impacted by both the Company's and its customers 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.

During the first nine months of 2011, Enerflex continued to see improved bookings in all regions, including successful bids on large projects in Canada and the Southern U.S.. Manufacturing activity levels have increased in Canada & Northern U.S. and International while service activity levels have increased in all regions, with the largest increase coming in Canada as a result of increased parts sales. Manufacturing revenue is slightly lower in the Southern U.S. and South America during the first nine months ended September 30, 2011, compared to the same period the prior year. Booking activity has increased in this region during 2011 driven predominantly by the Eagle Ford and Marcellus shale gas basins. As a result, the decrease in revenues in the first nine months of 2011 is related to timing of project deliveries which are heavily weighted to the fourth quarter of 2011 and into the first quarter of 2012 and not lower activity levels.

North American rental utilization levels were challenged throughout 2010, however, utilization rates have increased slightly through the first nine months of the year. In the International segment, Middle East North Africa ("MENA") has contributed positively to profitability through the first nine months of the year as a result of key projects achieving commercial operation in the region and recognition of approved change orders related to past projects contributing $16.5 million. The European region, within the International segment, has not performed as expected during 2011. This fact coupled with General Electric's decision to realign its distribution network in this region has resulted in Enerflex's decision to exit the Service and Combined Heat and Power ("CHP") business during the third quarter of 2011. This business unit has been reported as a discontinued operation during the quarter and for the nine months ended September 30, 2011 and Enerflex has recorded a total impairment of $52.0 million, consisting of non-cash impairments of $47.6 million for goodwill, intangible assets, deferred tax assets and fair value adjustments; and anticipated cash transaction costs totalling $4.4million.


FINANCIAL HIGHLIGHTS                                                       
                                     Three months ended   Nine months ended
                                           September 30,       September 30,
(unaudited)($ thousands)                 2011    2010(1)     2011    2010(1)
----------------------------------------------------------------------------
Revenue                                                                     
  Canada and Northern U.S.         $  128,466 $ 128,425 $ 372,391 $ 307,568
  Southern U.S. and South America      80,919    94,194   232,671   234,901
  International                        72,950    48,240   238,273   177,698
----------------------------------------------------------------------------
Total revenue                      $  282,335 $ 270,859 $ 843,335 $ 720,167
Gross margin                           53,569    48,027   157,253   119,380
Selling and administrative             31,614    36,562   103,675   100,080
 expenses                                                                  
----------------------------------------------------------------------------
Operating income                   $   21,955 $  11,465 $  53,578 $  19,300
Gain on sale of assets                 (2,315)     (930)   (3,676)     (975)
Gain on available for sale assets           -         -         -   (18,627)
Equity earnings                          (297)     (140)     (807)     (330)
----------------------------------------------------------------------------
Earnings before finance costs and  $   24,567 $  12,535 $  58,061 $  39,232
 taxes                                                                     
Finance costs and income                1,870     3,835     5,810    10,882
----------------------------------------------------------------------------
Earnings before taxes              $   22,697 $   8,700$   52,251 $  28,350
Income tax expense                      5,718     3,638    13,230     6,407
Gain on sale of discontinued                -         -     1,430         -
 operations                                                                 
(Loss) from discontinued              (54,280)   (1,845)  (58,506)   (5,097)
 operations                                                                 
----------------------------------------------------------------------------
Net (loss) earnings                $  (37,301) $  3,217 $ (18,055)$  16,846
                                 -------------------------------------------
                                 -------------------------------------------


Key Ratios:                                                                 
----------------------------------------------------------------------------

Gross margin as a % of revenues          19.0%     17.7%     18.6%     16.6%
Selling and administrative                                                  
 expenses as a % of revenues             11.2%     13.5%     12.3%     13.9%
Operating income as a % of                                                  
 revenues                                 7.8%      4.2%      6.4%      2.7%
Income taxes as a % of earnings                                             
 before income taxes                     25.2%     41.8%     25.3%     22.6%
----------------------------------------------------------------------------

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.


NON-GAAP MEASURES                                                           
                                      Three months ended   Nine months ended
                                           September 30,       September 30,
(unaudited)($ thousands)                  2011   2010(1)      2011   2010(1)
----------------------------------------------------------------------------
EBITDA                                                                      
Earnings before finance costs and   $   24,567 $  12,535 $  58,061 $  39,232
 taxes                                                                      
Depreciation and amortization           11,454    11,079    32,306    31,147
----------------------------------------------------------------------------
EBITDA                              $   36,021 $  23,614 $  90,367 $  70,379
EBITDA - normalized(2)              $   36,021 $  23,614 $  90,367 $  51,752

Cash flow                                                                   
Cash flow from operations           $   24,845 $  12,484 $  58,670 $  25,714
Non-cash working capital and other     (10,281)   25,927    26,126    32,711
----------------------------------------------------------------------------
Cash flow                           $   14,564 $  38,411   $84,796 $  58,425
                                    ----------------------------------------
                                    ----------------------------------------

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.

(2) EBITDA for the nine months of 2010 is normalized for the net impact of the gain on available for sale assets of $18,627. Prior to the acquisition of ESIF, Toromont owned 3,902,100 ESIF Trust Units. On acquisition of ESIF, Toromont recognized a pre-tax gain of $18,627 on this investment which was recorded at the Enerflex Ltd. level.

The success of the Company and business unit strategies is measured using a number of key performance indicators, some of which are outlined below. These measures are also used by management in its assessment of relative investments in operations. These key performance indicators are not measurements in accordance with GAAP. It is possible that these measures will not be comparable to similar measures prescribed by other companies. They should not be considered as an alternative to net income or any other measure of performance under GAAP.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")

EBITDA provides the results generated by the Company'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.

Cash flow

Cash flow provides the amount of cash generated by the business (net of non-cash working capital) and measures the Company's ability to finance capital programs and meet financial obligations.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011

During the third quarter of 2011, the Company generated $282.3 million in revenue, as compared to $270.9 million in the third quarter of 2010. The increase of $11.4 million was a result of increased revenue in the International segment predominantly offset by decreased revenues in Southern U.S. and South America. As compared to the three month period ended September 30, 2010:


--  Canada and Northern U.S. revenues were relatively stable at $128.5
    million as a result of lower Rental and Service revenue, which was
    offset by higher Engineered Systems revenue. Service revenue was
    impacted in 2011 as a result of timing, as producers have deferred
    maintenance work resulting from low natural gas prices. Rental revenue
    was lower as a result of selling low horse power units in the third
    quarter of 2011 yielding less revenue, compared to the sale of higher
    horse power units in the same period of 2010. Engineered Systems revenue
    benefited from improved bookings and backlog as a result of increased
    activities by producers in the Montney and Horn River resource basins; 

--  Southern U.S. and South America revenues decreased by $13.3 million, as
    a result of decreased Engineered Systems revenue in 2011, which was
    partially offset by increased Service revenues. Engineered Systems
    revenue was impacted by project delivery dates being weighted to the
    last quarter of 2011 and first quarter of 2012. Service revenue was
    higher in 2011 resulting from increased activity levels at our new
    branches located near the unconventional resource basins in the U.S.;
    and 

--  International revenues increased by $24.7 million as a result of
    increased revenue in Australia, MENA and International Production and
    Processing ("P&P"), partially offset by lower revenues due to closing
    the International C&P manufacturing facility during the third quarter of
    2010 and the transfer of bookings and backlog related to that facility
    to Enerflex's other two segments. Revenues in Australia benefited from
    increased activity in the development of Coal Seam Gas ("CSG"), while
    revenues in MENA benefited from the commencement of commercial
    operations of the BP facility in the last quarter of 2010. 

Gross margin for the three months ended September 30, 2011 was $53.6 million or 19.0 % of revenue as compared to $48.0 million or 17.7% of revenue for the three months ended September 30, 2010, an increase of $5.6 million. Contributing to the gross margin increase over the third quarter of 2010 was strong gross margin performance in Canada and Northern U.S., as a result of improved plant utilization and rental margins. This was partially offset by lower gross margin performance in the International and Southern U.S. business segments, as a result of additional cost impacts for weather delays in Australia, lower awarded gross margins and timing of revenue recognition related to deferred delivery dates of projects in backlog for the Southern U.S..

Selling, general and administrative ("SG&A") expenses were $31.6 million or 11.2 % of revenue during the three months ended September 30, 2011, compared to $36.6 million or 13.5% of revenue in the same period of 2010. The $5.0 million decrease in SG&A expenses is primarily attributable to reduced compensation and occupancy costs resulting from integration initiatives undertaken during 2010 and continued efforts to control costs in 2011.

Operating income assists the reader in understanding the net contributions made from the Company's core businesses after considering all SG&A expenses. During the third quarter of 2011, Enerflex produced an operating income of $22.0 million or 7.8% of revenue as compared to operating income of $11.5 million or 4.2% of revenue in 2010. The increase in operating income in the third quarter of 2011 over the same period of 2010 was a result of the same factors contributing to the increased gross margin and decreased SG&A expenses.

Finance costs and income totaled $1.9 million for the three months ended September 30, 2011, compared with $3.8 million in the same period of 2010, a decrease of $1.9 million. Finance costs in 2011 were lower than those in 2010 primarily as a result of lower average borrowings, a lower effective interest rate and higher finance income arising from higher cash balances.

Income tax expense totaled $5.7 million for the three months ended September 30, 2011 compared with an expense of $3.6 million in the same period of 2010. The increase over the same period in 2010 was primarily due to an increase in earnings before taxes from operations. The effective tax rate of 25.2% in 2011 was 16.6% lower than the comparable period last year, as a result of increased earnings in lower tax jurisdictions within the MENA segment.

During the third quarter of 2011, Enerflex generated net earnings from continuing operations of $17.0 million or $0.22 cents per share, as compared to $5.1 million or $0.06 cents per share in the same period of 2010.

Loss from discontinued operations reflects the results of Enerflex Environmental Austraila ("EEA"), Enerflex Syntech ("Syntech") and Enerflex Europe. These business units recorded a net loss from discontinued operations, including impairments of $54.3 million ($0.70 cents per share) and $1.8 million ($0.02 cents per share) in the third quarter of 2011 and 2010 respectively.

SEGMENTED RESULTS

Enerflex operates three business segments: Canada and Northern United States, Southern United States and South America, and International, which operate as follows:


1.  Canada and Northern U.S. is comprised of three divisions:

--  Manufacturing, with business units operating in Canada and the Northern
    U.S., focuses on Compression and Power which provides custom and
    standard compression packages for reciprocating and screw compressor
    applications, Production and Processing which designs, manufactures,
    constructs and installs modular natural gas processing equipment and
    Retrofit operating from plants located in Calgary, Alberta and Casper,
    Wyoming; 

--  Service provides mechanical services and parts as the authorized
    Waukesha distributor to the oil and gas industries, focusing in Canada
    and Northern U.S.. Enerflex re-branded its service business during the
    third quarter of 2011 as Gas Drive Global L.P. ("Gas Drive") and was
    awarded new service territories within the U.S.. All future parts sales
    and service revenue will be undertaken by this new wholly owned entity;
    and 

--  Rentals which provides compression and natural gas processing equipment
    rentals in Canada and Northern U.S.. 

2. Southern U.S. and South America is comprised of three divisions:


--  Compression and Power provides custom and standard compression packages
    for reciprocating and screw compressor applications from facilities
    located in Houston, Texas; 

--  Production and Processing designs, manufactures, constructs and installs
    modular natural gas processing equipment; and 

--  Service which provides mechanical services and products to the oil and
    gas industries focusing on Southern and Eastern U.S. as well as South
    America. 

3.  International is comprised of four divisions:

Continuing Operations:


--  AustralAsia division provides process construction for gas and power
    facilities and compression package assembly. This division also provides
    mechanical service and parts, as the authorized Waukesha distributor for
    the oil and gas industry in this region; 

--  Middle East and North Africa division provides engineering, procurement
    and construction services as well as operating and maintenance services
    for gas compression and processing facilities in the region; and 

--  Production and Processing division designs, manufactures, constructs and
    installs modular natural gas processing equipment, and waste gas
    systems, for the natural gas, heavy oil Steam Assisted Gravity Drainage
    ("SAGD") and heavy mining segments of the market. 

Discontinued Operations:


--  Europe division provides CHP generator products and mechanical service
    to the CHP product line. Enerflex has announced its intention to exit
    this business over the next twelve months through a sale, partial sale
    or closure of these operations. As a result of this decision, the Europe
    division is reported as a discontinued operation. 

Each region has three main product lines:

Engineered Systems' product line includes engineering, fabrication and assembly of standard and custom-designed compression packages, production and processing equipment and facilities and power generation systems. Engineered Systems' product line tends to be more cyclical with respect to revenue, gross margin and earnings 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.

Service product line includes support services, labor and parts sales to the oil and gas industry. Enerflex, through various business units, is an authorized distributor for Waukesha engines and parts in Canada, Alaska, Northern U.S., Australia, Indonesia and Papua New Guinea. Enerflex is also an exclusive authorized distributor for Altronic, a leading manufacturer of electric 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 maintain the customer's natural gas production.

Rentals revenue includes a variety of rental and leasing alternatives for natural gas compression, power generation and processing equipment. The rental fleet is primarily deployed in Western Canada and Northern U.S.. Expansion in international markets is conducted on a selective basis to minimize the risk of these newer markets.


CANADA AND NORTHERN U.S.                                                    
                                                         Three months ended
                                                               September 30,
(unaudited) ($ thousands)                                  2011        2010
----------------------------------------------------------------------------
Segment revenue                                   $     151,514   $ 147,178
Intersegment revenue                                    (23,048)    (18,753)
----------------------------------------------------------------------------
Revenue                                           $     128,466   $ 128,425
                                                  --------------------------
                                                  --------------------------
Revenue - Engineered Systems                      $      70,485   $  56,192
Revenue - Service                                 $      43,686   $  48,024
Revenue - Rental                                  $      14,295   $  24,209
Operating income                                  $      10,202   $     295

Segment revenues as a % of total revenues                 45.5 %      47.4 %
Service revenues as a % of segment revenues               34.0 %      37.4 %
Operating income as a % of segment revenues                7.9 %       0.2 %
                                                  --------------------------

Canada and Northern U.S. revenues totaled $128.5 million in the third quarter of 2011 as compared to $128.4 million for the same period of 2010. The increase of $0.1 million was the result of higher Engineered Systems revenues due to increased backlog from higher activity in unconventional resource basins in Canada. This was offset by lower Rental revenue, as a result of selling low horse power units in the third quarter of 2011 yielding less revenue, compared to the sale of higher horse power units in the same period of 2010 and lower activity in the Service business in Canada and Wyoming as a result of lower natural gas prices.

Operating income increased to $10.2 million in 2011 from $0.3 million in 2010. This $9.9 million increase was due to better gross margin performance as a result of improved plant utilization, higher realized margins on the sale and rental of compression equipment from the rental fleet during the quarter and lower SG&A as a result of integration initiatives undertaken during 2010.


SOUTHERN U.S. AND SOUTH AMERICA                                             
                                            Three months ended September 30,
(unaudited) ($ thousands)                                  2011        2010
----------------------------------------------------------------------------
Segment revenue                                   $      81,119    $ 94,254
Intersegment revenue                                      (200)         (60)
----------------------------------------------------------------------------
Revenue                                           $      80,919    $ 94,194
                                                  --------------------------
                                                  --------------------------
Revenue - Engineered Systems                      $      69,802    $ 84,841
Revenue - Service                                 $      11,117    $  9,353
Operating income                                  $       9,830    $ 10,677

Segment revenues as a % of total revenues                 28.7 %      34.8 %
Service revenues as a % of segment revenues               13.7 %       9.9 %
Operating income as a % of segment revenues               12.1 %      11.3 %
                                                  --------------------------

Southern U.S. and South America revenues totaled $80.9 million in the third quarter of 2011 as compared to $94.2 million in the third quarter of 2010. The decrease of $13.3 million was the result of delayed delivery dates on Engineered Systems booking activity in late 2010, deferring revenue to the fourth quarter of 2011 and first quarter of 2012. This was partially offset by stronger Service revenues, as a result of higher activity levels in the unconventional resource basins in the U.S. and as a result of new service branches being opened in this region during 2011.

The Eagle Ford and Marcellus resource basins have been very active in this segment as evidenced by stronger booking levels in 2011. As a result, the lower revenue in 2011 is related to timing of project delivery not lower activity within this region.

Operating income decreased from $10.7 million in the third quarter of 2010 to $9.8 million in the third quarter of 2011, as a result of lower revenues due to timing of revenue recognition, and lower awarded margins compared to the same period in 2010.


INTERNATIONAL                                                               
                                                        Three months ended
                                                              September 30,
(unaudited) ($ thousands)                                 2011        2010
----------------------------------------------------------------------------
Segment revenue                                   $     74,488    $ 60,319
Intersegment revenue                                    (1,538)    (12,079)
----------------------------------------------------------------------------
Revenue                                           $     72,950    $ 48,240
                                                  --------------------------
                                                  --------------------------
Revenue - Engineered Systems                      $     56,746    $ 39,393
Revenue - Service                                 $     13,336    $  8,847
Revenue - Rental                                  $      2,868    $      -
Operating income                                  $      1,923    $    493

Segment revenues as a % of total revenues                 25.8 %      17.8 %
Service revenues as a % of segment revenues               18.3 %      18.3 %
Operating income as a % of segment revenues                2.6 %       1.0 %
                                                  --------------------------

Continuing Operations:

International Revenues totaled $72.9 million in the third quarter of 2011, compared to $48.2 million in the same period of 2010. The increase of $24.7 million was due to higher activity levels in Australia related to CSG projects, the BP project beginning operations in MENA in late 2010 and higher activity levels for the International P&P unit in unconventional resource basins. This was partially offset by lower Compression and Power ("C&P") revenue as a result of the closure of the International C&P business during the third quarter of 2010, with its backlog transferred to plants in Casper, Wyoming and Houston, Texas. These plants will now serve the International markets for compression equipment for Enerflex Ltd.

Operating income for the third quarter of 2011 was $1.9 million, which was $1.4 million higher than the third quarter of 2010. Operating income improved due to lower SG&A costs as a result of the closure of the International C&P facility and improved margin performance in the MENA region as a result of the BP project in Oman. This was offset by lower gross margin performance in the Australia division, resulting from additional cost over-runs on specific projects due to weather related delays in Queensland.

Discontinued Operations:

Operating results for this segment do not include the results for the discontinued operations of the Syntech business, which was sold in the third quarter of 2010 and the EEA business, which was sold in the first quarter of 2011 for a gain of $1.4 million net of tax. During the third quarter of 2011, Enerflex announced its intention to exit the European Service and CHP operations via a sale, partial sale or closure of this business unit. As a result, this business unit will be reported as a discontinued operation beginning in the third quarter and has been excluded from the operating results of this segment.

These three discontinued operations recorded a loss before tax totaling $54.3 million in the third quarter of 2011 compared to a loss of $1.8 million in the same period a year ago.

BOOKINGS AND BACKLOG

The Company records bookings and backlog when a firm commitment is received from customers for the Engineered Systems product line. Bookings represent new orders awarded to Enerflex during the period. Backlog represents unfulfilled orders at period end and is an indicator of future Engineered Systems revenue for the Company.


Bookings                                                  Nine months ended
                                                               September 30,
(unaudited)($ thousands)                                   2011      2010(1)
----------------------------------------------------------------------------
Canada and Northern U.S.                          $     270,091   $ 219,388
Southern U.S. and South America                         361,323     304,714
International(2)                                        158,176     282,592
----------------------------------------------------------------------------
Total bookings                                    $     789,590   $ 806,694
                                                  --------------------------

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.

(2)International bookings includes backlog acquired as part of the ESIF acquisition totaling approximately $140 million on January 20, 2010.


Backlog                                                  As at September 30,
(unaudited)($ thousands)                                    2011        2010
----------------------------------------------------------------------------
Canada and Northern U.S.                               $ 195,243   $ 169,271
Southern U.S. and South America                          307,332     211,575
International                                            330,626     130,521
----------------------------------------------------------------------------
Total backlog                                          $ 833,201   $ 511,367
                                                    ------------------------

Backlog at September 30, 2011 was $833.2 million compared to $511.4 million at September 30, 2010, representing a 62.9% increase over the prior year. As compared to December 31, 2010, backlog at September 30, 2011 increased by $189.6 million or 29.5%.

Subsequent to the end of the third quarter of 2011, Enerflex was awarded a $228.0 million US contract for the engineering, procurement, construction and commissioning of a gas processing plant to be located in the Sultanate of Oman. This will be included in bookings and backlog in the fourth quarter of 2011.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

The first three quarters of 2011 includes nine full months of activity, whereas the first three quarters of 2010 includes nine full months of activity for the legacy Toromont Compression business and eight months and nine days activity of the legacy ESIF business.

During the first nine months of 2011, the Company generated $843.3 million in revenue, as compared to $720.2 million in the same period of 2010. The increase of $123.1 million, or 17.1%, was a result of increased revenues in the Canada and Northern U.S. and International business segments, partially offset by lower revenues in the Southern U.S. and South America business segment.

As compared to the shortened nine month period ended September 30, 2010:


--  Canada and Northern U.S. revenues increased by $64.8 million as a result
    of increased Engineered Systems product sales related to the Montney and
    Horn River unconventional resource basins and increased parts sales in
    our Service business. This was partially offset by lower Rental revenue,
    as a result of selling low horse power units in the first nine months of
    2011 yielding less revenue, compared to the sale of higher horse power
    units in the same period of 2010. The comparable period in 2010
    benefited from integration efforts to rationalize idle units within the
    rental fleet in Canada; 

--  Southern U.S. and South America revenues decreased by $2.2 million, a
    result of delayed delivery dates for Engineered Systems bookings
    recorded in 2010. This has deferred revenue recognition to the fourth
    quarter of 2011 and into 2012. The Eagle Ford and Marcellus resource
    basins have been very active in this segment in 2011 as evidenced by
    strong booking levels in 2011. As a result, the lower revenue in 2011 is
    related to timing of project delivery not lower activity or reduced
    business prospects within this region; and 

--  International revenues increased by $60.6 million as a result of
    increased revenues in Australia due to CSG projects, the recognition of
    $16.5 million of revenue on approved change orders related to past
    projects in MENA, the commencement of commercial operations of the BP
    project in that region and International P&P projects related to
    unconventional resource basins. This was partially offset by lower
    revenues for the first nine months of 2011 resulting from the closure of
    the International C&P facility during the third quarter of 2010. 

Gross margin for the nine months ended September 30, 2011 was $157.3 million or 18.6% of revenue as compared to $119.4 million or 16.6% of revenue for the nine months ended September 30, 2010, an increase of $37.9 million. Contributing to the gross margin increase over the first nine months of 2010 was strong gross margin performance in Canada and Northern U.S. as a result of increased revenues from Engineered Systems, improved plant utilization, improved rental utilization rates, and stronger parts sales. International gross margins were also higher than the same period a year ago, as a result of the recognition of revenue on approved change orders related to past projects in MENA, which contributed $16.5 million to gross margin, partially off-set by project delays, cost over-runs and impairment of work in process on specific projects in Australia due to weather related delays in Queensland. Southern U.S. and South America gross margins were comparable to the same period in 2010 despite lower revenues in that segment.

Selling, general and administrative expenses were $103.7 million or 12.3% of revenue during the nine months ended September 30, 2011, compared to $100.1 million or 13.9% of revenue in the same period of 2010. The increase of $3.6 million in SG&A expenses is primarily attributable to a full nine months of costs in 2011, compared to 2010, which included SG&A costs for the legacy Enerflex business for only eight months and nine days.

Operating income for 2011 was $53.6 million or 6.4% of revenue as compared to an operating income of $19.3 million or 2.7% of revenue in 2010. The increase in operating income in 2011 over 2010 was a result of the same factors contributing to the increased gross margin partially offset by the increased SG&A expenses.

Finance costs and income totaled $5.8 million for the nine months ended September 30, 2011, compared with $10.9 million in the same period of 2010, a decrease of $5.1 million. Finance costs in 2011 were lower than those in 2010 primarily as a result of lower average borrowings, a lower effective interest rate and higher finance income.

Income tax expense totaled $13.2 million for the nine months ended September 30, 2011 compared with $6.4 million during the same period of 2010. The increase in income taxes during the period compared to 2010 was primarily due to an increase in earnings before taxes from operations. Earnings during the first nine months of 2010 included an $18.6 million ($17.2 million net of tax) gain realized on ESIF units, which was taxed at a lower effective rate.

During the first nine months of 2011, Enerflex generated net earnings from continuing operations of $39.0 million or $0.51 cents per share as compared to $21.9 million or $0.29 cents per share in the same period of 2010, which included the $17.2 million (net of tax gain) realized on the ESIF units.

Loss from discontinued operations reflects the results of EEA, Syntech and Enerflex Europe. These business units recorded a net loss from discontinued operations of $57.1 million ($0.74 cents per share) (net of a $1.4 million gain on the sale of EEA) and $5.1 million ($0.07 cents per share) in the first nine months of 2011 and 2010 respectively.


CANADA AND NORTHERN U.S.                                                    
                                                         Nine months ended
                                                              September 30,
(unaudited) ($ thousands)                                  2011     2010(1)
----------------------------------------------------------------------------
  Segment revenue                                 $     450,426  $ 337,371
  Intersegment revenue(2)                               (78,035)    (29,803)
----------------------------------------------------------------------------
  Revenue                                         $     372,391  $ 307,568
                                                  --------------------------
                                                  --------------------------
  Revenue - Engineered Systems                    $     210,509  $ 135,878
  Revenue - Service                               $     129,486  $ 121,266
  Revenue - Rental                                $      32,396  $  50,424
  Operating income                                $      26,756  $   2,849

  Segment revenues as a % of total revenues               44.2 %      42.7 %
  Service revenues as a % of segment revenues             34.8 %      39.4 %
  Operating income as a % of segment revenues              7.2 %       0.9 %
                                                  --------------------------

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.

(2) Intersegment revenue includes revenue on contracts relating to CSG projects.

Revenues in this region were $372.4 million for the first nine months of 2011 compared to $307.6 million for the same period of 2010. The increase of $64.8 million was the result of increased Engineered Systems revenues due to strong activity by Enerflex customers in the Montney and Horn River resource basins, increased service revenues from parts sales in Canada and Northern U.S., partially offset by lower rental revenue as a result of selling low horse power units in the first nine months of 2011 yielding less revenue, compared to the sale of higher horse power units in the same period of 2010. Enerflex focused on rationalizing the rental fleet in 2010 as part of its integration efforts once the acquisition of ESIF was completed.

Operating income was $26.8 million in the first nine months of 2011, an increase of $23.9 million compared to the same period in 2010. The improved performance was due to increased gross margin resulting from improved plant utilization, higher parts sales and higher realized margins on the sale and rental of compression equipment in the rental fleet. This was partially offset by higher SG&A as a result of a full nine months of expenses in this segment compared to eight months and nine days in 2010 and the transfer of staff to the Domestic C&P facility resulting from the closure of the International C&P facility during the third quarter of 2010.


SOUTHERN U.S. AND SOUTH AMERICA                                             
                                                         Nine months ended
                                                              September 30,
(unaudited) ($ thousands)                                  2011       2010
----------------------------------------------------------------------------
Segment revenue                                   $     233,236  $ 235,052
Intersegment revenue                                      (565)       (151)
----------------------------------------------------------------------------
Revenue                                           $     232,671  $ 234,901
                                                  --------------------------
                                                  --------------------------
Revenue - Engineered Systems                      $     200,128  $ 208,572
Revenue - Service                                 $      32,543  $  26,329
Operating income                                  $      22,286  $  24,338

Segment revenues as a % of total revenues                 27.6 %      32.6 %
Service revenues as a % of segment revenues               14.0 %      11.2 %
Operating income as a % of segment revenues                9.6 %      10.4 %
                                                  --------------------------

Southern U.S. and South America revenues totaled $232.7 million for the first nine months of 2011 as compared to $234.9 million in the same period of 2010. This decrease of $2.2 million was due to the timing of revenue recognition. Delivery dates on Engineered Systems projects booked in late 2010 have been delayed, deferring revenue to the fourth quarter of 2011 and into early 2012. Despite the timing impact of certain 2010 bookings, the Eagle Ford and Marcellus resource basins have been very active in this segment in 2011 as evidenced by stronger booking levels in 2011. As a result, the lower revenue in 2011 is related to timing of project delivery not lower activity or business prospects within this region.

Operating income decreased to $22.3 million in the first nine months of 2011 from $24.3 million in the same period of 2010. This was as a result of higher SG&A in the first nine months of 2011.


INTERNATIONAL                                                               
                                                         Nine months ended
                                                              September 30,
(unaudited) ($ thousands)                                  2011     2010(1)
----------------------------------------------------------------------------
Segment revenue                                   $     242,702  $ 198,575
Intersegment revenue                                    (4,429)    (20,877)
----------------------------------------------------------------------------
Revenue                                           $     238,273  $ 177,698
                                                  --------------------------
                                                  --------------------------
Revenue - Engineered Systems                      $     193,668  $ 152,071
Revenue - Service                                 $      31,969  $  25,326
Revenue - Rental                                  $      12,636  $     301
Operating income                                  $       4,536  $  (7,887)

Segment revenues as a % of total revenues                 28.3 %      24.7 %
Service revenues as a % of segment revenues               13.4 %      14.3 %
Operating income as a % of segment revenues                1.9 %      (4.4)%
                                                  --------------------------

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.

Continuing Operations:

International revenues totaled $238.3 million for the first nine months of 2011, compared to $177.7 million during the same period of 2010. The increase of $60.6 million was due to higher activity levels in Australia related to CSG projects, the recognition of revenue on approved change orders totaling $16.5 million related to past projects in MENA, the BP Oman project beginning operations in late 2010 and higher International P&P revenue resulting from gas processing projects in unconventional gas basins. This was partially offset by lower C&P revenue as a result of the closure of the International C&P business in late 2010, with its backlog transferred to plants in Casper, Wyoming and Houston, Texas. These plants will now serve the International markets for compression equipment for Enerflex Ltd.

Operating income for the first nine months of 2011 was $4.5 million, compared to an operating loss of $7.9 million for the same period of 2010. Operating income improved by $12.4 million over the same period last year, as a result of increased revenues and improved margin performance in the MENA division due to factors discussed above. This was partially offset by project delays, cost over-runs and impairment of work in process on specific projects in Australia due to weather related delays in Queensland. Operating income was also impacted by higher SG&A costs in this segment during 2011, resulting from a full nine months of expenses in this segment compared to eight months and nine days in 2010.

Discontinued Operations:

Operating results for this segment do not include the results for the discontinued operations of the Syntech business, which was sold in the third quarter of 2010 and EEA, which was sold in the first quarter of 2011 for a gain of $1.4 million net of tax. During the third quarter of 2011, Enerflex announced its intention to exit the European Service and CHP operations via a sale, partial sale or closure of this business unit. As a result, this business unit has been reported as part of discontinued operations and excluded from the operating results of this segment.

These three discontinued operations recorded a loss before tax totaling $57.1 million (net of a $1.4 million gain on the sale of EEA) in the first nine months of 2011 compared to a loss of $5.1 million in the same period a year ago.


QUARTERLY SUMMARY                                                           
                                                          (Loss)      (Loss)
                                                        earnings    earnings
                                          Net (loss)   per share   per share
                                 Revenue    earnings     - basic   - diluted
September 30, 2011           $   282,335 $  (37,301) $    (0.48) $    (0.48)
June 30, 2011                    254,738       9,360        0.12        0.12
March 31, 2011(2)                326,405       9,886        0.13        0.13
December 31, 2010(2)             362,615       9,453        0.12        0.12
September 30, 2010(2)            277,834       3,217        0.03        0.03
June 30, 2010(2)                 254,022       2,764        0.04        0.04
March 31, 2010(1,2)              212,413      10,865        0.14        0.14
December 31, 2009(2,3)           167,096      15,450        0.24        0.24

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.

(2) Enerflex shares were issued pursuant to the Arrangement on June 1, 2011, as a result, per share amounts for comparative periods are based on Toromont's common shares at the time of initial exchange.

(3) Results for the periods ending 2009 have been prepared using Canadian GAAP and not IFRS.

FINANCIAL POSITION

The following table outlines significant changes in the Consolidated Statement of Financial Position as at September 30, 2011 as compared to December 31, 2010:


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

(unaudited)  Increase /                                                     
($ millions) (decrease)                     Explanation                     
----------------------------------------------------------------------------
Assets:                                                                     
----------------------------------------------------------------------------
Accounts       (15.3)  The decrease is primarily related to lower accrued   
receivable             revenues in the quarter in Canada and Northern U.S.  
                       and a reclassification of receivables to assets held 
                       for sale related to the European operations. This was
                       partially offset by an increase in billed but       
                       uncollected receivables.                             
----------------------------------------------------------------------------
Inventory       23.8   The increase is related to higher work in process    
                       (WIP) in all segments as backlog increases, partially
                       offset by a reclassification of inventory to assets  
                       held for sale related to the European Operations.    
----------------------------------------------------------------------------
Other           (5.0)  The decrease is due to lower finance income          
current                receivable resulting from recognition of finance     
assets                 income on the BP project and lower prepaid expenses. 
----------------------------------------------------------------------------
Property,      (48.2)  The decrease is due to depreciation charges and the  
plant and              sale of non-core real estate assets in Calgary and   
equipment              Stettler, Alberta completed during the quarter.      
----------------------------------------------------------------------------
Rental          (6.8)  The decrease is related to depreciation charges and  
equipment              the sale of rental assets during the quarter,        
                       partially offset by rental asset additions to the    
                       fleet.                                               
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Intangible     (9.3)  The decrease is related to amortization of intangibles
assets                and an impairment of $1.8 million recorded as part of 
                      discontinued operations during the quarter related to 
                      the European Operations.                              
----------------------------------------------------------------------------
Goodwill      (31.2)  The decrease is due to an impairment charge related to
                      the European Operations and recorded as part of       
                      discontinued operations during the quarter.           
----------------------------------------------------------------------------
Liabilities:                                                                
----------------------------------------------------------------------------
Accounts      (27.5)  The decrease is primarily related to the payment of   
payable and           short-term incentives to employees that were accrued  
accrued               at year end and payments to suppliers for raw material
liabilities           purchases allocated to projects in WIP.               
----------------------------------------------------------------------------
Deferred       73.7   The increase is related to higher activity levels and 
revenue               bookings during the year. Advanced billings have      
                      exceeded revenue recognition on key projects in the   
                      first nine months of 2011.                            
----------------------------------------------------------------------------
Note payable  (215.0) The note was repaid to Toromont concurrent with       
                      Enerflex's bifurcation on June 1, 2011.               
----------------------------------------------------------------------------
Long-term      132.9  Enerflex established new bank facilities during 2011  
debt                  to repay indebtedness to Toromont and to fund working 
                      capital requirements.                                 
----------------------------------------------------------------------------

LIQUIDITY

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


--  Cash generated from continuing operations; 
--  Bank financing and operating lines of credit; and 
--  Issuance and sale of debt and equity instruments. 

Statement of Cash Flows:                                                    
                                  Three months ended       Nine months ended
                                        September 30            September 30
(unaudited)($ thousands)            2011        2010        2011     2010(1)
----------------------------------------------------------------------------
Cash, beginning of period    $    54,255  $   15,000  $   15,000  $  34,949
Cash provided by (used in):                                                 
Operating activities              14,564      38,411      84,796     58,425
Investing activities              36,871       8,914      34,958   (309,314)
Financing activities             (55,128)    (43,021)    (83,940)   232,863
Exchange rate changes on                                                    
 foreign currency cash             2,104      (4,304)      1,852     (1,923)
----------------------------------------------------------------------------
Cash, end of period          $    52,666  $   15,000  $   52,666  $  15,000

(1) 2010 amounts include the financial results of ESIF from the date of acquisition, January 20, 2010.

Operating Activities

For the three months ended September 30, 2011, cash provided by operating activities was $14.6 million as compared to $38.4 million in the same period of 2010. The decrease of $23.8 million was a result of increased working capital requirements. This was partially offset by increased operating results in comparison to the same period in 2010.

For the nine months ended September 30, 2011, cash provided by operating activities was $84.8 million as compared to $58.4 million in the same period of 2010. The increase was due to increased operating results which were partially offset by an increase in non-cash working capital resulting from an increase in WIP and a decrease in accounts payable.

Investing Activities

Investing activities provided $36.9 million and $35.0 million of cash for the three and nine months ended September 30, 2011 respectively, as compared to cash provided by and used in investing activities of $8.9 million and $309.3 million respectively in the same periods of 2010. Expenditures on capital assets for the three months ended September 30, 2011 increased $1.9 million from the same quarter of 2010 while proceeds from the disposition of capital assets increased in the third quarter of 2011 by $44.0 million as a result of the disposition of non-core real estate assets. For the nine months ended September 30, 2011, additions decreased by $12.3 million while dispositions increased by $47.2 million over the comparable period in 2010 as a result of the disposition of non-core real estate and equipment. The disposal of manufacturing facilities in Calgary and Stettler, Alberta contributed an additional $42.9 million in the third quarter of 2011, while the acquisition of ESIF in the first quarter of 2010 resulted in an investment of $292.5 million. Dividends paid in the third quarter and nine months ended 2011 were $4.6 million. No dividend payments were made in 2010.

Financing Activities

Cash used in financing activities for the three and nine months ended September 30, 2011 was $55.1 million and $83.9 million respectively, as compared to cash used in and provided by financing of $43.0 million and $232.9 million respectively in the same period of 2010. The change was primarily due to the repayment of the note to Toromont during the second quarter of 2011, and borrowings on the new debt facility during the same quarter as compared to an equity investment by Toromont for the acquisition of ESIF in the first quarter of 2010.

RISK MANAGEMENT

In the normal course of business, the Company is exposed to financial risks that may potentially impact its operating results in any or all of its business segments. The Company employs risk management strategies with a view to mitigating these risks on a cost-effective basis. Derivative financial agreements are used to manage exposure to fluctuations in exchange rates and interest rates. The Company does not enter into derivative financial agreements for speculative purposes.

Foreign Exchange Risk

Enerflex mitigates the impact of exchange rate fluctuations by matching expected future U.S. dollar denominated cash inflows with U.S. dollar liabilities, principally through the use of foreign exchange contracts, bank debt, accounts payable and by manufacturing U.S. dollar denominated contracts at plants located in the U.S.. The Company has adopted U.S. based manufacturing plants and foreign exchange forward contracts as its primary mitigation strategy to hedge any net foreign currency exposure. Forward contracts are entered into for the amount of the net foreign dollar exposure for a term matching the expected payment terms outlined in the sales contract.

The Company elected to apply hedge accounting for foreign exchange forward contracts for firm commitments, which are designated as cash flow hedges. For cash flow hedges, fair value changes of the effective portion of the hedging instrument are recognized in accumulated other comprehensive income, net of taxes. The ineffective portion of the fair value changes is recognized in net income. Amounts charged to accumulated other comprehensive income are reclassified to the income statement when the hedged transaction affects the income statement.

Outstanding forward contracts are marked-to-market at the end of each period with any gain or loss on the forward contract included in accumulated other comprehensive income until such time as the forward contract is settled, when it flows to income.

Enerflex does not hedge its exposure to investments in foreign subsidiaries. Exchange gains and losses on net investments in foreign subsidiaries are accumulated in accumulated comprehensive income/loss. The accumulated comprehensive loss at the end of 2010 of $10.8 million was adjusted to an accumulated comprehensive income of $0.6 million at September 30, 2011. This was primarily the result of the changes in the value of the Canadian dollar against the Euro, Australian dollar and U.S. dollar. The Canadian dollar depreciated by 8% against the U.S. dollar in the third quarter of 2011 versus an appreciation of 3% against the U.S. dollar during the same period of 2010. The Australian dollar depreciated by 2% against the Canadian dollar during the third quarter of 2011, as compared to a 10% appreciation in the same period of 2010. The Euro depreciated against the Canadian dollar by a negligible amount during the third quarter of 2011, as compared to an appreciation of 7% in the same period of 2010.

The types of foreign exchange risk and the Company's related risk management strategies are as follows:

Transaction exposure

The Canadian operations of the Company source the majority of its products and major components from the United States. Consequently, reported costs of inventory and the transaction prices charged to customers for equipment and parts are affected by the relative strength of the Canadian dollar. The Company mitigates exchange rate risk by entering into foreign currency contracts to fix the cost of imported inventory where appropriate.

The Company also sells compression packages in foreign currencies, primarily the U.S. dollar, the Australian dollar and the Euro and enters into foreign currency contracts to reduce these exchange rate risks.

Most of Enerflex's international orders are manufactured in the U.S. operations if the contract is denominated in U.S. dollars. This minimizes the Company's foreign currency exposure on these contracts.

The Company identifies and hedges all significant transactional currency risks.

Translation exposure

The Company's earnings from, and net investment in, foreign subsidiaries are exposed to fluctuations in exchange rates. The currencies with the most significant impact are the U.S. dollar, Australian dollar and the Euro.

Assets and liabilities are translated into Canadian dollars using the exchange rates in effect at the balance sheet dates. Unrealized translation gains and losses are deferred and included in accumulated other comprehensive income. The cumulative currency translation adjustments are recognized in income when there has been a reduction in the net investment in the foreign operations.

Earnings at foreign operations are translated into Canadian dollars each period at average exchange rates for the period. As a result, fluctuations in the value of the Canadian dollar relative to these other currencies will impact reported net income. Such exchange rate fluctuations have historically not been material year-over-year relative to the overall earnings or financial position of the Company.

Interest rate risk

The Company's liabilities include long-term debt that is subject to fluctuations in interest rates. The Company's Notes outstanding at September 30, 2011 include interest rates that are fixed and therefore will not be impacted by fluctuations in market interest rates. The Company's Bank Facilities however, are subject to changes in market interest rates. For each 1.0% change in the rate of interest on the Bank Facilities, the change in interest expense would be approximately $1.4 million. All interest charges are recorded on the income statement as a separate line item called Finance Costs.

Credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, accounts receivable, and derivative financial instruments. The carrying amount of assets included on the balance sheet represents the maximum credit exposure.

Cash equivalents consist mainly of short-term investments, such as money market deposits. The Company has deposited the cash equivalents with highly rated financial institutions, from which management believes the risk of loss to be remote.

The Company has accounts receivable from clients engaged in various industries including natural gas producers, natural gas transportation, agricultural, chemical and petrochemical processing and the generation and sale of electricity. These specific industries may be affected by economic factors that may impact accounts receivable. Enerflex has entered into a number of significant projects through to 2013 with one specific customer however no single operating unit is reliant on any single external customer.

The credit risk associated with net investment in sales-type lease arises from the possibility that the counterparty may default on their obligations. In order to minimize this risk, the Company enters into sales-type lease transactions only in select circumstances. Close contact is maintained with the customer over the duration of the lease to ensure visibility to issues as and if they arise.

The credit risk associated with derivative financial instruments arises from the possibility that the counterparties may default on their obligations. In order to minimize this risk, the Company enters into derivative transactions only with highly-rated financial institutions.

Liquidity risk

Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. Accounts payable are primarily due within 90 days and will be satisfied from current working capital.

CAPITAL RESOURCES

On November 1, 2011, Enerflex had 77,215,396 shares outstanding. Enerflex has not established a formal dividend policy and the Board of Directors anticipates setting the quarterly dividends based on the availability of cash flow and anticipated market conditions, taking into consideration business opportunities and the need for growth capital. In the third quarter of 2011, the Company declared a dividend of $0.06 per share.

The Company has a series of credit facilities with a syndicate of banks ("Bank Facilities") totaling $325.0 million. The Bank Facilities consist of a committed 4-year $270.0 million revolving credit facility (the "Revolver"), a committed 4-year $10.0 million operating facility (the "Operator"), a committed 4-year $20.0 million Australian operating facility (the "Australian Operator") and a committed 4-year $25.0 million bi-lateral letter of credit facility (the "LC Bi-Lateral"). The Revolver, Operator, Australian Operator and LC Bi-Lateral are collectively referred to as the Bank Facilities. The Bank Facilities were funded on June 1, 2011.

The Bank Facilities have a maturity date of June 1, 2015 ("Maturity Date"), but may be extended annually on or before the anniversary date with the consent of the lenders. In addition, the Bank Facilities may be increased by $50.0 million at the request of the Company, subject to the lenders' consent. There is no required or scheduled repayment of principal until the Maturity Date of the Bank Facilities.

Drawings on the Bank Facilities are available by way of Prime Rate loans ("Prime"), U.S. Base Rate loans, LIBOR loans, and Bankers' Acceptance ("BA") notes. The Company may also draw on the Bank Facilities through bank overdrafts in either Canadian or U.S. dollars and issue letters of credit under the Bank Facilities.

The Company also has a committed facility with one of the lenders in the Bank Facilities for the issuance of letters of credit (the "Bi-Lateral"). The amount available under the Bi-Lateral is $50.0 million and has a maturity date of June 1, 2013, which may be extended annually with the consent of the lender. Drawings on the Bi-Lateral are by way of letters of credit.

In addition, the Company has a committed facility with a US lender ("US Facility") in the amount of $20.0 million USD. Drawings on the US Facility are by way of LIBOR loans, US Base Rate loans and letters of credit. During the quarter, the Company negotiated an extension of the US Facility to July 1, 2014. The US Facility may be extended annually at the request of the Company, subject to the lenders consent. There are no required or scheduled repayments of principal until the maturity date of the US Facility.

The Company completed the restructuring of its debt with the closing of a private placement for $90.5 million in Unsecured Private Placement Notes ("Notes") during the second quarter of 2011. The Notes mature on two separate dates with $50.5 million, with a coupon of 4.841%, maturing on June 22, 2016 and $40.0 million, with a coupon of 6.011%, maturing on June 22, 2021.

The Bank Facilities, the Bi-Lateral and the US Facility are unsecured and rank pari passu with the Notes. The Company is required to maintain certain covenants on the Bank Facilities, the Bi-Lateral, the US Facility and the Notes. As at September 30, 2011, the Company was in compliance with these covenants.

At September 30, 2011, the Company had $45.4 million drawn against the Bank Facilities. The Bank Facilities were not available at December 31, 2010, as the Company's borrowings consisted of a Note Payable to its parent company.

CONTRACTUAL OBLIGATIONS, COMMITTED CAPITAL INVESTMENT AND OFF-BALANCE SHEET ARRANGEMENTS

The Company's contractual obligations are contained in the following table.


CONTRACTUAL OBLIGATIONS                                                     
(unaudited)                                                                 
($ thousands)                   Payments due by period                      
Contractual                                                                 
 Obligations                2011  2012-2013  2014-2015 Thereafter      Total
----------------------------------------------------------------------------
Leases                $    3,456 $   16,408 $   10,120 $   10,535 $   40,519
Purchase obligations      29,300     10,330          -          -     39,630
----------------------------------------------------------------------------
Total                 $   32,756 $   26,738 $   10,120 $   10,535 $   80,149
                     -------------------------------------------------------
                     -------------------------------------------------------

The majority of the Company's lease commitments are operating leases for service vehicles.

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

The Company does not believe that it has off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the company's financial condition, results of operations, liquidity or capital expenditures.

RELATED PARTIES

Enerflex transacts with certain related parties as a normal course of business. Related parties include Toromont which owned 100% of Enerflex until June 1, 2011, and Total Production Services Inc. ("Total") which was an influenced investee by virtue of the Company's 40% investment in Total.

All transactions occurring with both parties were in the normal course of business operations under the same terms and conditions as transactions with unrelated companies. A summary of the financial statement impacts of all transactions with all related parties are as follows:


                                                  September 30, December 31,
                                                           2011         2010
----------------------------------------------------------------------------
Revenue                                           $         212   $       20
Management fees                                           4,299        7,920
Purchases                                                   526        1,279
Interest expense                                          1,902        5,484
Accounts receivable                                           -           61
Accounts payable                                             92        3,692
Note payable                                                  -      215,000
----------------------------------------------------------------------------

ACCOUNTING POLICIES

Adoption of International Financial Reporting Standards

As disclosed in Note 3, these interim Consolidated Financial Statements have been prepared in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards" and with IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB"). Previously, the Company prepared its interim and annual financial statements in accordance with pre-changeover Canadian GAAP.

The interim consolidated financial statements for the nine months ended September 30, 2011 include the results for the three months ended March 31, 2011, which were prepared on a carve-out basis, and the results for the nine months ended September 30, 2011, which were prepared on a carve-out basis for the first five months of 2011 and consolidated basis as at September 30, 2011.


Assets held for sale

Non-current assets and groups of assets and liabilities which comprise disposal groups are categorized as assets held for sale where the asset or disposal group is available for sale in its present condition, and the sale is highly probable. For this purpose, a sale is highly probable if management is committed to a plan to achieve the sale; there is an active program to find a buyer; the non-current asset or disposal group is being actively marketed at a reasonable price; the sale is anticipated to be completed within one year from the date of classification, and; it is unlikely there will be changes to the plan. Non-current assets held for sale and disposal groups are carried at the lesser of carrying amount and fair value less costs to sell. The profit or loss arising on reclassification or sale of a disposal group is recognized in discontinued operations on the statement of earnings.

SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of the Company's consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. In the process of applying the Company's accounting policies, management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements:

Revenue Recognition - Long-term Contracts

The Company reflects revenues generated from the assembly and manufacture of projects using the percentage-of-completion approach of accounting for performance of production-type contracts. This approach to revenue recognition requires management to make a number of estimates and assumptions surrounding the expected profitability of the contract, the estimated degree of completion based on cost progression and other detailed factors. Although these factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions could lead to changes in the revenues recognized in a given period.

Provisions for Warranty

Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical experience under contractual warranty obligations or specific provisions created in respect of individual customer issues undergoing commercial resolution and negotiation. Amounts set aside represent management's best estimate of the likely settlement and the timing of any resolution with the relevant customer.

Property, Plant and Equipment

Fixed assets are stated at cost less accumulated depreciation, including asset impairment losses. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of fixed assets are reviewed on an annual basis. Assessing the reasonableness of the estimated useful lives of fixed assets requires judgment and is based on currently available information. Fixed assets are also reviewed for potential impairment on a regular basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Changes in circumstances, such as technological advances and changes to business strategy can result in actual useful lives and future cash flows differing significantly from estimates. The assumptions used, including rates and methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated useful lives of fixed assets or future cash flows constitute a change in accounting estimate and are applied prospectively.

Impairment of Non-financial Assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset's performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

Impairment of Goodwill

The Company tests whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating unit to which the goodwill is allocated. Estimating the value in use requires the Company to make an estimate of the expected future cash flows from each cash-generating unit and also to determine a suitable discount rate in order to calculate the present value of those cash flows. Impairment losses on goodwill are not reversed.

Income Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective company's domicile.

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

Assets Held for Sale and Discontinued Operations

The Company's accounting policy related to assets held for sale are described in Note 3e to the Financial Statements. In applying this policy, judgment is applied in determining whether certain assets should be reclassified to assets held for sale on the consolidated statement of financial position. Judgment is also applied in determining whether the results of operations associated with the assets should be recorded in discontinued operations on the consolidated statements of earnings. The Company will reclassify the results of operations associated with certain assets to discontinued operations where the asset represents part of a disposal group or segment.

FUTURE ACCOUNTING PRONOUNCEMENTS

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Company:

As of January 1, 2013, the Company will be required to adopt IFRS 9 Financial Instruments; IFRS 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; IFRS 12 Disclosure of Interest in Other Entities; and IFRS 13 Fair Value Measurement.

IFRS 9 Financial Instruments is the result of the first phase of the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Company is in the process of assessing the impact of adopting IFRS 9, if any.

IFRS 10 Consolidated Financial Statements replaces the consolidation requirements in SIC-12 Consolidation-Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. The standard identifies the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company and provides additional guidance to assist in the determination of control where this is difficult to assess. The Company is in the process of assessing the impact of adopting IFRS 10, if any.

IFRS 11 Joint Arrangements replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-Monetary Contributions by Venturers. IFRS 11 uses some of the terms that were originally used by IAS 31, but with different meanings. This standard addresses two forms of joint arrangements (joint operations and joint ventures) where there is joint control. The Company is in the process of assessing the impact of adopting IFRS 11, if any.

IFRS 12 Disclosure of Interest in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company is in the process of assessing the impact of adopting IFRS 12, if any.

IFRS 13 Fair Value Measurement provides new guidance on fair value measurement and disclosure requirements for IFRS. The Company is in the process of assessing the impact of adopting IFRS 13, if any.

INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

IFRS replaces Canadian generally accepted accounting principles ("Canadian GAAP") for publicly accountable enterprises for financial periods beginning on or after January 1, 2011. Accordingly, Enerflex has adopted IFRS effective January 1, 2011 and has prepared the interim financial statements, inclusive of comparative information using IFRS accounting policies. Prior to the adoption of IFRS, the Company's financial statements were prepared in accordance with Canadian GAAP. The Company's financial statements for the year ended December 31, 2011 will be the first annual financial statements that comply with IFRS.

RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS

Management is responsible for the information disclosed in this MD&A and the accompanying consolidated financial statements, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, the Company's Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by the Company, and has reviewed and approved this MD&A and the accompanying consolidated financial statements. The Audit Committee is also responsible for determining that management fulfills its responsibilities in the financial control of operations, including disclosure controls and procedures and internal control over financial reporting.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer, together with other members of management, have designed the Company's disclosure controls and procedures ("DC&P") in order to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would have been known to them and by others within those entities.

Additionally, they have designed internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting in accordance with GAAP.

The control framework used in the design of both DC&P and ICFR is the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

There have been no significant changes in the design of the Company's internal controls over financial reporting during the three-month period ended September 30, 2011 that would materially affect, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

While the Officers of the Company have designed the Company's disclosure controls and procedures and internal controls over financial reporting, they expect that these controls and procedures may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

SUBSEQUENT EVENTS

On November 2, 2011, Enerflex was awarded a $228.0 million US contract for the engineering, procurement, construction and commissioning of a gas processing plant to be located in the Sultanate of Oman.

The gas processing plant will produce 90 million standard cubic feet per day of natural gas and 6,000 barrels per day of condensate. The contract includes the supply by Enerflex of all associated equipment including; gas processing and compression equipment, gas/condensate export facilities, produced water treatment, power plant, central control room, electrical substation and associated utilities.

General Electric's ("GE") Gas Engine's Division has recently realigned its channel-to-market strategy and distribution network and as a result, Gas Drive has been notified of GE's Gas Engines interest in extending distribution rights for the Jenbacher natural gas engine and parts product line for all of Canada. This overall network realignment strengthens both Gas Drive's and GE's Gas Engine's ability to meet their customers' needs by providing an unprecedented level of service and support.

Subsequent to September 30, 2011, Enerflex declared the Company's third dividend $0.06 per share, payable on January 5, 2012, to shareholders of record on December 14, 2011.

OUTLOOK FOR MARKETS

The global economy continues its fragile recovery from the recent recession. Enerflex entered 2011 with significantly stronger backlog than the Company had entering 2010. Bookings in the first nine months of 2011, augmented by the large international contract in the Sultanate of Oman received subsequent to the third quarter of 2011 has resulted in backlog for Engineered Systems in excess of $1.0 billion.

The Canada and Northern U.S. region continues to experience improved bookings and backlog as a result of increased activity in Canada's unconventional gas basins in the Montney and the Horn River. These unconventional gas basins require higher horsepower compression and more gas processing equipment in comparison to conventional gas basins. Enerflex is well positioned to take advantage of opportunities in this area for both equipment supply and mechanical services as many of our customers have increased activities in 2011.

The Southern U.S. and South America region also continues to experience improved bookings and backlog during the first nine months of 2011. Increased activity in liquid rich U.S. gas basins has driven new orders for compression equipment for this region. These liquid rich resource basins can achieve superior returns for producers despite low natural gas prices due to the higher value that could be realized for the natural gas liquids ("NGL's"). In addition, the requirement for gas compression and gas processing equipment for liquid rich resource basins like the Eagle Ford and parts of the Marcellus has increased bookings in this region. Project delivery dates have been delayed in this region, resulting in revenue recognition for the Engineered Systems product line to be weighted to the fourth quarter of 2011 and the first quarter of 2012.

The International region continues to hold considerable opportunity and has benefited from strong bookings and backlog through the first nine months of 2011. Activity in these regions is being driven by increased activity in Australia's natural gas industry. There are numerous Liquefied Natural Gas ("LNG") projects in early stages of development. LNG projects of Queensland Gas and Santos have received final investment decisions and orders for equipment have already been placed with Enerflex.

In the Middle East and North Africa, Enerflex has taken a targeted approach to mitigate exposure to political unrest. Our primary areas of focus have been Bahrain, Kuwait, Egypt, Oman and the United Arab Emirates. Enerflex has achieved commercial operations of the on-shore gas compression facility for BP in Oman and subsequent to the end of the third quarter, has received an award for a $228.0 million US gas processing plant in the region. Domestic demand for gas in this region remains strong and we are well positioned to compete for future projects in Oman and Bahrain for compression, processing equipment and after market service support.

In Europe, the traditional customers have been small greenhouse operators, which were significantly impacted by the financial crisis and economic downturn. In addition, they have come under commercial pressure from overseas competitors. This fact coupled with General Electric's decision to realign distribution territories in this region has resulted in Enerflex's decision to exit the CHP and Service business in Europe. Enerflex will continue to pursue opportunities for Compression and Processing equipment in this region through it sales office in the United Kingdom and our joint venture in Russia. Unconventional gas basins are in the early stages of development in Poland, while Russia is home to the largest recoverable natural gas reserves in the world. We are well positioned to compete for these opportunities once some of these projects receive final investment decisions.


INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION                        
                                               September 30,    December 31,
(unaudited) ($ Canadian thousands)                     2011            2010
----------------------------------------------------------------------------
Assets                                                                      
Current Assets                                                              
    Cash and cash equivalents               $        52,666    $     15,000
    Accounts receivable (Note 8)                    227,857         243,238
    Inventories (Note 9)                            246,699         222,855
    Income tax receivable                               539           1,944
    Derivative financial instruments (Note                                  
     21)                                              2,617             448
    Other current assets                             16,989          22,013
----------------------------------------------------------------------------
Total current assets                                547,367         505,498
Property, plant and equipment (Note 10)             123,800         172,041
Rental equipment (Note 10)                          109,400         116,162
Deferred tax assets                                  43,680          47,940
Other assets (Note 11)                               12,554          13,797
Intangible assets (Note 12)                          30,198          39,462
Goodwill                                            451,456         482,656
----------------------------------------------------------------------------
                                                  1,318,455       1,377,556
----------------------------------------------------------------------------
Assets related to assets held for sale                                      
 (Note 6)                                            13,920               -
----------------------------------------------------------------------------
Total assets                                $     1,332,375   $   1,377,556
                                            --------------------------------
                                            --------------------------------
Liabilities                                                                 
Current liabilities                                                         
    Accounts payable, accrued liabilities   $                   $           
     and provisions (Note 13)                       136,894         164,422
    Income taxes payable                              2,307           7,135
    Deferred revenues                               224,037         150,319
    Derivative financial instruments                                       
     (Note 21)                                        3,408             603
    Note payable                                          -         215,000
----------------------------------------------------------------------------
Total current liabilities                           366,646         537,479
  Long-term debt (Note 14)                          132,896               -
  Other liabilities                                     560             549
----------------------------------------------------------------------------
                                                    500,102         538,028
----------------------------------------------------------------------------
Liabilities related to assets held for sale                                 
 (Note 6)                                            10,791               -
----------------------------------------------------------------------------
Total liabilities                                   510,893         538,028
                                            --------------------------------
                                            --------------------------------
Guarantees, commitments and contingencies(Note 15)                          
Shareholders' Equity                                                        
Owner's net investment                                    -         849,977
Share capital (Note 17)                             205,369               -
Contributed surplus (Note 18)                       657,151               -
Retained earnings                                   (41,658)              -
Accumulated other comprehensive income(loss)            620         (10,845)
----------------------------------------------------------------------------
Total shareholders' equity before non-                                      
 controlling interest                               821,482         839,132
Non-controlling interest                                  -             396
----------------------------------------------------------------------------
Total shareholders' equity and non-                                         
 controlling interest                               821,482         839,528
----------------------------------------------------------------------------
Total liabilities and shareholders' equity  $     1,332,375   $   1,377,556
                                            --------------------------------
                                            --------------------------------

See accompanying Notes to the Consolidated Financial Statements.


INTERIM CONSOLIDATED STATEMENT OF EARNINGS (LOSS)                          
(unaudited)                     Three months ended         Nine months ended
                                     September 30,             September 30,
($ Canadian thousands,           2011         2010         2011         2010
 except per share                                                           
 amounts)                                                                   
----------------------------------------------------------------------------
Revenues                $     282,335  $   270,859   $  843,335  $  720,167
Cost of goods sold            228,766      222,832      686,082     600,787
----------------------------------------------------------------------------
Gross margin                   53,569       48,027      157,253     119,380
Selling and                    31,614       36,562      103,675     100,080
 administrative expenses                                                    
----------------------------------------------------------------------------
Operating income               21,955       11,465       53,578      19,300
Gain on disposal of           (2,315)         (930)      (3,676)       (975)
 property, plant                                                            
 and equipment                                                             
Gain on available-for-              -            -            -     (18,627)
 sale financial assets                                                      
Equity earnings from            (297)         (140)        (807)       (330)
 associates                                                                 
----------------------------------------------------------------------------
Earnings before finance        24,567       12,535       58,061      39,232
 costs and income taxes                                                     
Finance costs                   2,498        3,858        7,190      11,007
Finance income                  (628)          (23)      (1,380)       (125)
----------------------------------------------------------------------------
Earnings before income         22,697        8,700       52,251      28,350
 taxes                                                                      
Income taxes (Note 16)          5,718        3,638       13,230       6,407
----------------------------------------------------------------------------
Net earnings from       $      16,979   $    5,062  $    39,021  $   21,943
 continuing operations                                                      
Gain on sale of                     -            -        1,430           -
 discontinued operations                                                    
 (Note 7)                                                                   
Loss from discontinued       (54,280)       (1,845)     (58,506)     (5,097)
 operations (Note 7)                                                        
----------------------------------------------------------------------------
Net (loss) earnings     $    (37,301)   $    3,217  $   (18,055) $   16,846
                        ----------------------------------------------------
                        ----------------------------------------------------




(Loss) earnings                                                             
 attributable to:                                                           
  Controlling interest  $    (37,301)  $     3,518  $   (17,739) $   17,074
  Non-controlling       $           -  $      (301) $      (316) $     (228)
   interest                                                                 

Earnings(loss) per share                                                    
 - basic (Note 20)                                                          
  Continuing operations $        0.22  $      0.06  $      0.51  $     0.29
  Discontinued          $      (0.70)  $     (0.02) $     (0.74) $    (0.07)
   operations                                                               

Earnings(loss) per share                                                    
 - diluted (Note 20)                                                        
  Continuing operations $        0.22  $      0.06  $      0.51  $     0.29
  Discontinued          $       (0.70) $     (0.02) $     (0.74) $    (0.07)
   operations                                                               

Weighted average number    77,215,396   76,896,069   77,215,280  75,895,887
 of shares - basic                                                          

See accompanying Notes to the Consolidated Financial Statements.


INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)               
                                      Three months ended   Nine months ended
                                           September 30,       September 30,
(unaudited)                                                                 
($ Canadian thousands)                   2011      2010      2011      2010
----------------------------------------------------------------------------

Net (loss) earnings                 $ (37,301) $  3,217  $(18,055) $ 16,846

Other comprehensive income (loss):                                          

  Change in fair value of                                                   
   derivatives designated as cash                                           
   flow hedges, net of income tax                                           
   expense (2011: $311; 2010: $4)      (1,529)        6      (801)      (10)

  Gain (loss) on derivatives                                                
   designated as cash flow hedges                                           
   transferred to net income in the                                         
   current period, net of income tax                                        
   (recovery)expense(2011: $(98);                                           
   2010: $6)                              595        54       253       (16)

  Unrealized gain (loss) on                                                 
   translation of financial                                                 
   statements of foreign operations    10,385      (162)   12,013    (2,902)

  Reclassification to net income of                                         
   gain on available for sale                                               
   financial assets as a result of                                          
   business acquisition, net of                                             
   income tax expense (2011: $ nil;                                         
   2010: $3,090)                            -         -         -   (15,615)
----------------------------------------------------------------------------

Other comprehensive income (loss)   $   9,451  $   (102) $ 11,465  $(18,543)

----------------------------------------------------------------------------
Comprehensive(loss) income          $ (27,850) $  3,115  $ (6,590) $ (1,697)
                                    ----------------------------------------
                                    ----------------------------------------

See accompanying Notes to the Consolidated Financial Statements.


INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS                                
                                    Three months ended     Nine months ended
                                         September 30,         September 30,
(unaudited)                                                                 
($ Canadian thousands)                 2011       2010       2011      2010
----------------------------------------------------------------------------
Operating activities                                                        
Net (loss) earnings              $  (37,301) $   3,217 $  (18,055) $ 16,846
Items not requiring cash and                                                
 cash equivalents:                                                          
    Impairment of assets held                                               
     for sale (Note 6)               52,028          -     52,028         -
    Depreciation and                                                        
     amortization                    11,454     11,079     32,306    31,147
    Equity earnings from                                                    
     associates                        (297)      (140)      (807)     (330)
    Deferred income taxes (Note                                             
     16)                                690       (742)    (1,306)   (2,365)
    Stock option expense (Note                                              
     19)                                586          -        651         -
Gain on sale of:                                                            
  Discontinued operations                 -          -     (2,471)        -
  Rental equipment, property,                                               
   plant and equipment               (2,315)      (930)    (3,676)     (957)
  Available for sale assets on                                              
   acquisition of control                 -          -          -   (18,627)
----------------------------------------------------------------------------
                                     24,845     12,484     58,670    25,714
Net change in non-cash working                                              
 capital and other                  (10,281)    25,927     26,126    32,711
----------------------------------------------------------------------------
Cash provided by operating                                                  
 activities                     $    14,564 $   38,411 $   84,796 $  58,425
----------------------------------------------------------------------------
Investing activities                                                        
Business acquisition, net of                                                
 cash acquired                  $         - $        - $        - $(292,533)
(Note 5)                                                                    
Additions to:                                                               
  Rental equipment                     (622)      (928)    (9,183)  (17,325)
  Property, plant and equipment      (8,181)    (5,995)   (15,719)  (19,922)
Proceeds on disposal of:                                                    
  Rental equipment                    2,440      2,345      5,671    11,866
  Property, plant and equipment      44,743        850     56,865     3,434
Disposal of discontinued                                                    
 operations, net of cash (Note            -      3,500      3,389     3,500
 7)                                                                         
Change in other assets               (1,429)     2,160      1,243     2,573
----------------------------------------------------------------------------
                                     36,951      1,932     42,266  (308,407)
Net change in non-cash working            
 capital and other                      (80)     6,982     (7,308)     (907)
----------------------------------------------------------------------------
Cash provided by (used in)                                                  
 investing activities           $    36,871  $   8,914 $   34,958 $(309,314)
----------------------------------------------------------------------------
Financing activities                                                        
(Repayment of) proceeds from                                                
 note payable                   $         - $  (10,013)$ (215,000)$ 217,404
(Repayment of) proceeds from                                                
 long-term debt                     (50,495)         -    132,896  (164,811)
Dividends                            (4,633)         -     (4,633)        -
Equity(to)from parent                     -    (33,008)     2,797   180,270
----------------------------------------------------------------------------
Cash (used in)provided by                                                   
 financing activities           $   (55,128)$  (43,021)$  (83,940)$ 232,863
----------------------------------------------------------------------------
Effect of exchange rate changes                                             
 on cash denominated in foreign       2,104     (4,305)     1,852    (1,923)
 currencies                                                                 
(Decrease)increase in cash and                                              
 cash equivalents                    (1,589)         -     37,666   (19,949)
Cash and cash equivalents,                                                  
 beginning of period            $    54,255 $   15,000$    15,000 $  34,949
----------------------------------------------------------------------------
Cash and cash equivalents, end                                              
 of period                      $    52,666 $   15,000$    52,666 $  15,000
                                --------------------------------------------
                                --------------------------------------------

Supplemental cash flow information (Note 23).

See accompanying Notes to the Consolidated Financial Statements.


INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY                         
                                                                     Foreign
(unaudited)                                  Contri-                currency
($ Canadian              Net       Share       buted    Retained translation
 thousands)       investment     capital     surplus    earnings adjustments
----------------------------------------------------------------------------

At January 1,                                                               
 2010            $   297,973 $         - $         - $         - $        -
Net earnings          17,074           -           -           -          -
Non-                                                                        
 controlling                                                                
 interest on                                                                
 acquisition               -           -           -           -          -
Other                                                                       
 compre-                                                                    
 hensive                                                                    
 income                    -           -           -           -     (2,902)
Owner's                                                                     
 investment/                                                                
 dividends          505,758                                              -
----------------------------------------------------------------------------
At September                                                               
 30, 2010        $   820,805 $         - $         - $         - $   (2,902)
----------------------------------------------------------------------------
Net earnings           9,360           -           -           -          -
Non-                                                                        
 controlling                                                                
 interest on                                                                
 acquisition               -           -           -           -          -
Other                                                                       
 compre-                                                                    
 hensive                                                                    
 income                    -           -           -           -     (7,999)
Owner's                                                                     
 investment/                                                                
 dividends            19,812           -           -           -          - 
----------------------------------------------------------------------------
At December                                                                 
 31, 2010        $   849,977 $         - $         - $         - $  (10,901)
----------------------------------------------------------------------------
Net earnings          14,654           -           -     (32,393)         -
Owner's                                                                     
 investment/                                                                
 equity (to)                                                                
 from parent          (2,794)          -           -           -          -
Bifurcation                                                                 
 transaction        (861,837)    205,337     656,500           -          -
Non-                                                                        
 controlling                                                                
 interest                                                                   
 disposed                  -           -           -           -          -
Other                                                                       
 comprehensive                                                              
 income                    -           -           -           -     12,013
Effect of                                                                   
 stock                                                                      
 option                                                                     
 plans                     -          32         651           -          -
Dividends                  -           -           -      (9,265)         -
----------------------------------------------------------------------------
At September                                                                
 30, 2011        $         -     205,369     657,151     (41,658)     1,112
----------------------------------------------------------------------------
----------------------------------------------------------------------------

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY                         
                                               Total                        
                                         accumulated                        
                               Available       other                        
(unaudited)                     for sale     compre-        Non-            
($ Canadian          Hedging   financial     hensive controlling            
 thousands)          reserve      assets      income    interest      Total
----------------------------------------------------------------------------

At January 1,                                                               
 2010            $        14 $    15,615 $    15,629 $        - $   313,602
Net earnings               -           -           -       (228)     16,846
Non-                                                                        
 controlling                                                                
 interest on                                                                
 acquisition               -           -           -        531         531
Other                                                                       
 compre-                                                                    
 hensive                                                                    
 income                  (26)    (15,615)    (18,543)         -    (18,543)
Owner's                                                                     
 investment/                                                                
 dividends                 -           -           -          -     505,758
----------------------------------------------------------------------------
At September                                                              
 30, 2010        $       (12) $        - $    (2,914) $     303  $  818,194
----------------------------------------------------------------------------
Net earnings               -           -           -         93       9,453
Non-                                                                        
 controlling                                                                
 interest on                                                                
 acquisition               -           -           -          -           -
Other                                                                       
 compre-                                                                    
 hensive                                                                    
 income                   68          -       (7,931)         -      (7,931)
Owner's                                                                     
 investment/                                                                
 dividends                 -          -            -          -      19,812
----------------------------------------------------------------------------
At December                                                                 
 31, 2010        $        56 $        - $    (10,845) $     396 $   839,528
----------------------------------------------------------------------------
Net earnings               -          -            -       (316)    (18,055)
Owner's                                                                     
 investment/                                                                
 equity (to)                                                                
 from parent               -          -            -          -      (2,794)
Bifurcation                                                                 
 transaction               -          -            -          -           -
Non-                                                                        
 controlling                                                                
 interest                                                                   
 disposed                  -          -            -        (80)        (80)
Other                                                                       
 comprehensive                                                              
 income                 (548)          -      11,465          -      11,465
Effect of                                                                   
 stock                                                                      
 option                                                                     
 plans                     -          -            -          -         683
Dividends                  -          -            -          -      (9,265)
----------------------------------------------------------------------------
At September                                                                
 30, 2011               (492)         -          620          -     821,482
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying Notes to the Consolidated Financial Statements.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

(Unaudited) ($ thousands of dollars, except per share amounts)

Note 1. Nature and Description of the Company

Enerflex Ltd. ("Enerflex" or "the Company") was formed subsequent to the acquisition of Enerflex Systems Income Fund ("ESIF") by Toromont Industries Ltd. ("Toromont") and subsequent integration of Enerflex's products and services with Toromont's existing Natural Gas Compression and Processing business. In January 2010, the operations of Toromont Energy Systems Inc., a subsidiary of Toromont, were combined with the operations of ESIF to form Enerflex Ltd.

Headquartered in Calgary, the registered office is located at 904, 1331 Macleod Trail SE, Calgary, Canada. Enerflex has approximately 2,900 employees worldwide. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, the United States, Argentina, Colombia, Australia, the United Kingdom, the United Arab Emirates, Oman, Egypt, Bahrain and Indonesia.

These consolidated financial statements include the legacy natural gas and process compression business (Toromont Energy Systems, subsequently renamed Enerflex Ltd.) and the acquired business of ESIF from the date of acquisition, January 20, 2010.

Note 2. Background and Basis of Presentation

On May 16th, 2011 Toromont Shareholders approved the Plan of Arrangement ("the Arrangement") that would establish Enerflex as a stand-alone publicly traded company listed on the Toronto Stock Exchange ("TSX"). In connection with the Arrangement, Toromont common shareholders received one share of Enerflex for each common share of Toromont, creating two independent public companies - Toromont Industries Ltd. and Enerflex Ltd.

Enerflex began independent operations on June 1, 2011 pursuant to the Arrangement with Toromont. Enerflex's shares began trading on the TSX on June 3, 2011 under the symbol EFX.

In the second quarter of 2011, Enerflex entered into a transitional services agreement (the "Agreement") pursuant to which it is expected that, on an interim basis, Toromont will provide consulting services and other assistance with respect to information technology of Enerflex which, from time to time, are reasonably requested by Enerflex in order to assist in its transition to a public company, independent from Toromont. Unless terminated earlier, the Agreement will expire on June 1, 2012. The Agreement reflects terms negotiated in anticipation of each company being a stand-alone public company, each with independent directors and management teams.

Accordingly, up until the completion of the Arrangement, Toromont and Enerflex were considered related parties due to the parent - subsidiary relationship that existed. Subsequent to June 1, 2011, Toromont is no longer considered a related party.

Note 3. Summary of Significant Accounting Policies

(a) Statement of Compliance

These interim consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies that the Company expects to adopt in its consolidated financial statements for the year ending December 31, 2011. International Financial Reporting Standards ("IFRS") requires an entity to adopt IFRS 1 when it issues its first annual financial statements under IFRS by making an explicit and unreserved statement in those financial statements of compliance with IFRS. The Company will make this statement when it issues its 2011 annual financial statements.

(b) Basis of Presentation

These interim consolidated financial statements for the three and nine month periods ended September 30, 2011 and 2010 were prepared in accordance with IAS 34 Interim Financial Reporting and IFRS 1 First Time Adoption of International Financial Reporting Standards. The same accounting policies and methods of computation were followed in the preparation of these interim consolidated financial statements for the three and six month period ended June 30, 2011. In addition, the interim carve-out financial statements for the three month period ended March 31, 2011 contain certain incremental annual IFRS disclosures not included in the annual carve-out financial statements for the year-ended December 31, 2010 prepared in accordance with previous Canadian GAAP. Accordingly, these interim consolidated financial statements for the three and nine month periods ended September 30, 2011 and 2010 should be read together with the annual carve-out consolidated financial statements for the year ended December 31, 2010 prepared in accordance with previous Canadian GAAP, as well as the interim carve-out financial statements for the three month period ended March 31, 2011.

These interim consolidated financial statements for the period ending September 30, 2011 represent the financial position, results of operations and cash flows of the business transferred to Enerflex on a carve-out basis up to May 31, 2011.

The historical financial statements have been derived from the accounting system of Toromont using the historical results of operations and historical bases of assets and liabilities of the business transferred to Enerflex on a carve-out accounting basis.

As the Company operated as a subsidiary of Toromont up to May 31, 2011 and was a stand-alone entity effective June 1, 2011, certain current period and historical financial information include an allocation of certain Toromont corporate expenses up to the date of the Arrangement.

The carve-out operating results of Enerflex were specifically identified based on Toromont's divisional organization. Certain other expenses presented in the interim consolidated financial statements represent allocations and estimates of services incurred by Toromont.

These financial statements are presented in Canadian dollars rounded to the nearest thousands and are prepared on a going concern basis under the historical cost convention with certain financial assets and financial liabilities at fair value. The accounting policies set out below have been applied consistently in all material respects. Standards and guidelines not effective for the current accounting period are described in Note 4.

These interim consolidated financial statements were authorized for issue by the Board of Directors on November 9, 2011.

(c) Basis of Consolidation

These interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses, and unrealized gains and losses resulting from intra-group transactions are eliminated in full.

(d)Significant Accounting Estimates and Judgments

The preparation of the Company's interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. In the process of applying the Company's accounting policies, management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements:


--  Revenue Recognition - Long-term Contracts
    The Company reflects revenues generated from the assembly and
    manufacture of projects using the percentage-of-completion approach of
    accounting for performance of production-type contracts. This approach
    to revenue recognition requires management to make a number of estimates
    and assumptions surrounding the expected profitability of the contract,
    the estimated degree of completion based on cost progression and other
    detailed factors. Although these factors are routinely reviewed as part
    of the project management process, changes in these estimates or
    assumptions could lead to changes in the revenues recognized in a given
    period. 

--  Provisions for Warranty
    Provisions set aside for warranty exposures either relate to amounts
    provided systematically based on historical experience under contractual
    warranty obligations or specific provisions created in respect of
    individual customer issues undergoing commercial resolution and
    negotiation. Amounts set aside represent management's best estimate of
    the likely settlement and the timing of any resolution with the relevant
    customer. 

--  Property, Plant and Equipment
    Fixed assets are stated at cost less accumulated depreciation, including
    any asset impairment losses. Depreciation is calculated using the
    straight-line method over the estimated useful lives of the assets. The
    estimated useful lives of fixed assets are reviewed on an annual basis.
    Assessing the reasonableness of the estimated useful lives of fixed
    assets requires judgment and is based on currently available
    information. Fixed assets are also reviewed for potential impairment on
    a regular basis or whenever events or changes in circumstances indicate
    that the carrying amount may not be recoverable. 

    Changes in circumstances, such as technological advances and changes to
    business strategy can result in actual useful lives and future cash
    flows differing significantly from estimates. The assumptions used,
    including rates and methodologies, are reviewed on an ongoing basis to
    ensure they continue to be appropriate. Revisions to the estimated
    useful lives of fixed assets or future cash flows constitute a change in
    accounting estimate and are applied prospectively. 

--  Impairment of Non-Financial Assets
    Impairment exists when the carrying value of an asset or cash generating
    unit exceeds its recoverable amount, which is the higher of its fair
    value less costs to sell and its value in use. The fair value less costs
    to sell calculation is based on available data from binding sales
    transactions in an arm's length transaction of similar assets or
    observable market prices less incremental costs for disposing of the
    asset. The value in use calculation is based on a discounted cash flow
    model. The cash flows are derived from the budget for the next five
    years and do not include restructuring activities that the Company is
    not yet committed to or significant future investments that will enhance
    the asset's performance of the cash generating unit being tested. The
    recoverable amount is most sensitive to the discount rate used for the
    discounted cash flow model as well as the expected future cash inflows
    and the growth rate used for extrapolation purposes. 

--  Impairment of Goodwill
    The Company tests whether goodwill is impaired at least on an annual
    basis. This requires an estimation of the value in use of the cash-
    generating unit to which the goodwill is allocated. Estimating the value
    in use requires the Company to make an estimate of the expected future
    cash flows from each cash-generating unit and also to determine a
    suitable discount rate in order to calculate the present value of those
    cash flows. Impairment losses on goodwill are not reversed. 

--  Income Taxes
    Uncertainties exist with respect to the interpretation of complex tax
    regulations and the amount and timing of future taxable income. Given
    the wide range of international business relationships and the long-term
    nature and complexity of existing contractual agreements, differences
    arising between the actual results and the assumptions made, or future
    changes to such assumptions, could necessitate future adjustments to tax
    income and expense already recorded. The Company establishes provisions,
    based on reasonable estimates, for possible consequences of audits by
    the tax authorities of the respective countries in which it operates.
    The amount of such provisions is based on various factors, such as
    experience of previous tax audits and differing interpretations of tax
    regulations by the taxable entity and the responsible tax authority.
    Such differences of interpretation may arise on a wide variety of issues
    depending on the conditions prevailing in the respective company's
    domicile.

    Deferred tax assets are recognized for all unused tax losses to the
    extent that it is probable that taxable profit will be available against
    which the losses can be utilized. Significant management judgment is
    required to determine the amount of deferred tax assets that can be
    recognized, based upon the likely timing and the level of future taxable
    profits together with future tax planning strategies. 

--  Assets Held for Sale and Discontinued Operations
    The Company's accounting policy related to assets held for sale are
    described in Note 3e. In applying this policy, judgment is used in
    determining whether certain assets should be reclassified to assets held
    for sale on the consolidated statement of financial position. Judgment
    is also applied in determining whether the results of operations
    associated with the assets should be recorded in discontinued operations
    on the consolidated statements of earnings. The Company will reclassify
    the results of operations associated with certain assets to discontinued
    operations where the asset represents part of a disposal group or
    segment. 

(e) Assets Held for Sale

Non-current assets and groups of assets and liabilities which comprise disposal groups are categorized as assets held for sale where the asset or disposal group is available for sale in its present condition, and the sale is highly probable. For this purpose, a sale is highly probable if management is committed to a plan to achieve the sale; there is an active program to find a buyer; the non-current asset or disposal group is being actively marketed at a reasonable price; the sale is anticipated to be completed within one year from the date of classification, and; it is unlikely there will be changes to the plan. Non-current assets held for sale and disposal groups are carried at the lesser of carrying amount and fair value less costs to sell. The profit or loss arising on reclassification or sale of a disposal group is recognized in discontinued operations on the statement of earnings.

Note 4. Future Accounting Changes

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Company:

As of January 1, 2013, the Company will be required to adopt IFRS 9 Financial Instruments; IFRS 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; IFRS 12 Disclosure of Interest in Other Entities; and IFRS 13 Fair Value Measurement.

IFRS 9 Financial Instruments is the result of the first phase of the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Company is in the process of assessing the impact of adopting IFRS 9, if any.

IFRS 10 Consolidated Financial Statements replaces the consolidation requirements in SIC-12 Consolidation-Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. The Standard identifies the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company and provides additional guidance to assist in the determination of control where this is difficult to assess. The Company is in the process of assessing the impact of adopting IFRS 10, if any.

IFRS 11 Joint Arrangements replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-Controlled Entities - Non-Monetary Contributions by Venturers. IFRS 11 uses some of the terms that were originally used by IAS 31, but with different meanings. This Standard addresses two forms of joint arrangements (joint operations and joint ventures) where there is joint control. The Company is in the process of assessing the impact of adopting IFRS 11, if any.

IFRS 12 Disclosure of Interest in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company is in the process of assessing the impact of adopting IFRS 12, if any.

IFRS 13 Fair Value Measurement provides new guidance on fair value measurement and disclosure requirements for IFRS. The Company is in the process of assessing the impact of adopting IFRS 13, if any.

Note 5. Business Acquisition

No businesses were acquired in 2011.

On January 20, 2010, Toromont completed its offer for the units of ESIF.

Toromont paid approximately $315.5 million in cash and issued approximately 11.9 million of Toromont common shares to complete the acquisition. For accounting purposes, the cost of Toromont's common shares issued in the Acquisition was calculated based on the average share price traded on the TSX on the relevant dates.

Prior to the acquisition, Toromont owned 3,902,100 Trust Units which were purchased with cash of $37.8 million ($9.69 per unit). Prior to the date of acquisition, Toromont designated its investment in ESIF as available-for-sale and as a result the units were measured at fair value with the changes in fair value recorded in Other Comprehensive Income ("OCI"). On acquisition, the cumulative gain on this investment was reclassified out of OCI and into the income statement. The fair value of this investment was included in the cost of purchase outlined below. The fair value of these units at January 20, 2010 was $56.4 million, resulting in a pre-tax gain of $18.6 million.


Purchase Price:                                                             
Units owned by Toromont prior to Offer                            $  56,424 
Cash consideration                                                  315,539 
Issuance of Toromont common shares                                  328,105 
----------------------------------------------------------------------------
Total                                                             $ 700,068 
                                                             ---------------
                                                             ---------------

The acquisition was accounted for as a business combination using the purchase method of accounting with Enerflex designated as the acquirer of ESIF. Results from ESIF have been consolidated from the acquisition date, January 20, 2010.

Cash used in the investment was determined as follows:


Cash consideration                                                $ 315,539 
Less cash acquired                                                  (23,006)
----------------------------------------------------------------------------
                                                                  $ 292,533 
                                                             ---------------
                                                             ---------------

The purchase cost was allocated to the underlying assets acquired and liabilities assumed based upon their fair value at the date of acquisition. The Company determined the fair values based on discounted cash flows, market information, independent valuations and management's estimates.

The final allocation of the purchase price was as follows:


Purchase price allocation                                                   
 Cash                                                             $  23,006 
 Non-cash working capital                                           125,742 
 Property, plant and equipment                                      135,400 
 Rental equipment                                                    67,587 
 Other long-term assets                                              24,315 
 Intangible assets with a finite life                                       
  Customer relationships                                             38,400 
  Other                                                               5,700 
 Long-term liabilities                                             (181,388)
----------------------------------------------------------------------------
Net identifiable assets                                             238,762 
Residual purchase price allocated to goodwill                       461,306 
----------------------------------------------------------------------------
                                                                  $ 700,068 
                                                             ---------------
                                                             ---------------

Non-cash working capital included accounts receivable of $109 million, representing gross contractual amounts receivable of $115 million less management's best estimate of the contractual cash flows not expected to be collected of $6 million.

Factors that contributed to a purchase price that resulted in the recognition of goodwill include: the existing ESIF business; the acquired workforce; time-to-market benefits of acquiring an established manufacturing and service organization in key international markets such as Australia and the Middle East; and the combined strategic value to the Company's growth plan. The amount assigned to goodwill is not expected to be deductible for tax purposes.

Note 6. Assets and Associated Liabilities Held for Sale

In the third quarter of 2011, the Company reclassified its European operations to assets and associated liabilities held for sale upon receiving third-party offers to purchase. As the Combined Heat & Power ("CHP") and Service business within the European region represents a specific operation that management intends to exit, the assets and liabilities have been reclassified to assets and associated liabilities held for sale on the statement of financial position.

Enerflex will continue to sell compression processing equipment in Europe through its sales office in the United Kingdom.

The following table represents the assets and associated liabilities reclassified as held for sale:


                                                               September 30,
                                                                       2011 
----------------------------------------------------------------------------
Assets                                                                      
Cash and cash equivalents                                         $       - 
Accounts receivable                                                   6,242 
Inventories                                                           6,756 
Other current assets                                                    706 
Property, plant and equipment                                           216 
Rental equipment                                                          - 
                                                             ---------------
Assets held for sale                                              $  13,920 
                                                             ---------------
                                                             ---------------
Liabilities                                                                 
Accounts payable, accrued liabilities and provisions              $   9,984 
Deferred revenue                                                        807 
Other long-term liabilities                                               - 
                                                             ---------------
Liabilities associated with assets held for sale                  $  10,791 
                                                             ---------------
                                                             ---------------

The carrying value of the assets held for sale was established at the lower of the carrying value and the estimated fair value less costs to sell. As a result, for the three and nine months ended September 30, 2011, an impairment loss of $52.0 million was recognized, which consisted of impairment of goodwill and intangible assets of $31.2 million and $1.8 million, respectively; deferred tax assets of $4.5 million; fair value adjustments of $10.0 million; and anticipated cash transaction costs totalling $4.4 million.

Note 7. Discontinued Operations

As disclosed in Note 6, the Company reclassified its European operations to assets held for sale in the third quarter. As the CHP and Service business within the European region represents a specific operation that management intends to exit, the corresponding revenues and expenses have been reclassified to discontinued operations in the statement of earnings.

Effective February 2011, the Company sold the shares of Enerflex Environmental Australia Pty ("EEA") to a third party, as the business was not considered core to the future growth of the Company. Total consideration received was $3.4 million, net of cash, and resulted in a pre-tax gain of $2.5 million, less tax of $1.1 million.

Effective September 2010, the Company sold certain assets and the operations of Enerflex Syntech, an electrical, instrumentation and controls business, as the business was not considered core to the future growth of the Company.

Total consideration received was $7.0 million, comprised of $3.5 million cash and $3.5 million in note receivable due in twelve equal instalments, plus interest, commencing January 2011. Net assets disposed, including transaction costs, also totalled $7.0 million, comprised of $6.0 million of non-cash working capital and $1.0 million of capital assets.

The following tables summarize the revenues, income (loss) before income taxes, and income taxes from discontinued operations for the three and nine months ended September 30, 2011 and 2010:


                           Three months ended            Three months ended 
                           September 30, 2011            September 30, 2010 
                 Enerflex                      Enerflex                  
                   Europe       EEA   Syntech    Europe       EEA   Syntech 
----------------------------------------------------------------------------
Revenue          $ 10,536  $      -  $      -  $  6,975  $  5,631  $ 10,058 
(Loss) earnings                                                             
 from operations $ (2,271) $      -  $      -  $ (1,599) $    254  $   (133)
Impairments      $(47,502) $      -  $      -  $      -  $      -  $      - 
Income tax                                                                  
 expense                                                                    
 (recovery)      $ (4,507) $      -  $      -  $    324  $     77  $    (34)

                            Nine months ended             Nine months ended 
                           September 30, 2011            September 30, 2010 
                 Enerflex                      Enerflex                  
                   Europe       EEA   Syntech    Europe       EEA   Syntech 
----------------------------------------------------------------------------
Revenue          $ 30,680  $  2,653  $      -  $ 24,102  $ 14,113  $ 41,887 
(Loss) earnings                                                             
 from operations $ (6,665) $   (239) $      -  $ (3,840) $     (5) $ (2,003)
Impairments      $(47,502) $      -  $      -  $      -  $      -  $      - 
Income tax                                                                  
 expense                                                                    
 (recovery)      $ (4,175) $    (75) $      -  $   (246) $       -  $  (505)

The following table summarizes cash from discontinued operations for the    
three and nine months ended September 30, 2011 and 2010:                    

                           Three months ended            Three months ended 
                           September 30, 2011            September 30, 2010 
                 Enerflex                      Enerflex                   
                   Europe       EEA   Syntech    Europe       EEA   Syntech 
----------------------------------------------------------------------------
Cash from                                                                   
 operations      $  1,263  $   (152) $      -  $  4,338  $   (693) $  1,446 
Cash from                                                                   
 investing       $     82  $  1,480  $      -  $ (4,610) $    340  $      7 
Cash from                                                                   
 financing       $     (1) $      -  $      -  $    900  $      -  $      - 

                            Nine months ended             Nine months ended 
                           September 30, 2011            September 30, 2010 
                 Enerflex                      Enerflex                   
                   Europe       EEA   Syntech    Europe       EEA   Syntech 
----------------------------------------------------------------------------
Cash from                                                                   
 operations      $  7,354  $   (152) $      -  $ (3,771) $  1,053  $  5,505 
Cash from                                                                   
 investing       $   (424) $  1,480  $      -  $ (7,582) $    142  $ (3,306)
Cash from                                                                   
 financing       $    (26) $      -  $      -  $    900  $      -  $      - 

Note 8. Accounts Receivable                                        

Accounts receivable consisted of the following:                   

                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Trade receivables                                  $ 197,651      $ 200,382 
Less:  allowance for doubtful accounts                 3,988          6,217 
----------------------------------------------------------------------------
Trade receivables, net                               193,663        194,165 
Other receivables                                     34,194         49,073 
----------------------------------------------------------------------------
Total accounts receivable                          $ 227,857      $ 243,238 
                                              ------------------------------
                                              ------------------------------

Aging of trade receivables:                                                 

                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Current to 90 days                                 $ 169,437      $ 182,538 
Over 90 days                                          28,214         17,844 
----------------------------------------------------------------------------
                                                   $ 197,651      $ 200,382 
                                              ------------------------------
                                              ------------------------------

Movement in allowance for doubtful accounts:                                

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Balance, beginning of period         $  4,811  $  4,423  $  6,217  $  2,029 
Provisions and revisions, net            (823)    3,432    (2,229)    5,826 
----------------------------------------------------------------------------
Balance, end of period               $  3,988  $  7,855  $  3,988  $  7,855 
                                    ----------------------------------------
                                    ----------------------------------------

Note 9. Inventories                                                       

Inventories consisted of the following:                                     

                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Equipment                                          $  15,125      $  35,171 
Repair and distribution parts                         30,557         41,611 
Direct materials                                      43,944         53,935 
Work-in-process                                      157,073         92,138 
----------------------------------------------------------------------------
Total inventories                                  $ 246,699      $ 222,855 
                                              ------------------------------
                                              ------------------------------

The amount of inventory and overhead costs recognized as an expense and included in cost of goods sold accounted for other than by the percentage-of-completion method during the third quarter of 2011 was $41.8 million (2010 - $52.9 million). The cost of goods sold includes inventory write-down pertaining to obsolescence and aging together with recoveries of past write-downs upon disposition. The net amount charged to the income statement and included in cost of goods sold during the third quarter of 2011 was $0.6 million (2010 - $4.6 million).

The amount of inventory and overhead costs recognized as an expense and included in cost of goods sold accounted for other than by the percentage-of-completion method during the first nine months of 2011 was $161.0 million (2010 - $186.9 million). The cost of goods sold includes inventory write-down pertaining to obsolescence and aging together with recoveries of past write-downs upon disposition. The net amount charged to the income statement and included in cost of goods sold during the first nine months of 2011 was $2.1 million (2010 - $5.6 million).


Note 10. Property, Plant and Equipment and Rental Equipment              

                                         Land       Building      Equipment 
----------------------------------------------------------------------------
Cost                                                                        
January 1, 2011                      $ 47,384       $107,845       $ 44,222 
 Additions                                  -            351            351 
 Reclassification                       2,422          7,810          4,826 
 Assets held for sale ("AHFS")              -              -           (474)
 Impairment of AHFS                         -           (207)        (1,355)
 Disposals                            (23,519)       (29,816)        (2,966)
 Currency translation effects             300          1,720            (19)
----------------------------------------------------------------------------
September 30, 2011                   $ 26,587       $ 87,703       $ 44,585 
Accumulated depreciation                                                    
January 1, 2011                      $      -       $(18,308)      $(24,713)
 Depreciation charge                        -         (5,185)        (5,538)
 AHFS                                       -              -            258 
 Impairment of AHFS                         -             35            670 
 Disposals                                  -          3,900            586 
 Currency translation effects               -           (456)           716 
----------------------------------------------------------------------------
September 30, 2011                   $      -       $(20,014)      $(28,021)
----------------------------------------------------------------------------
Net book value-September 30,                                                
 2011                                $ 26,587       $ 67,689       $ 16,564 
                               ---------------------------------------------
                               ---------------------------------------------

                                                   Property,                
                                 Assets under      plant and         Rental 
                                 construction      equipment      equipment 
----------------------------------------------------------------------------
Cost                                                                        
January 1, 2011                      $ 15,611       $215,062       $132,703 
 Additions                             15,017         15,719          9,183 
 Reclassification                     (18,320)        (3,262)         3,262 
 Assets held for sale ("AHFS")              -           (474)             - 
 Impairment of AHFS                         -         (1,562)          (322)
 Disposals                                  -        (56,301)        (8,118)
 Currency translation effects             652          2,653          2,022 
----------------------------------------------------------------------------
September 30, 2011                   $ 12,960       $171,835       $138,730 
Accumulated depreciation                                                    
January 1, 2011                      $      -       $(43,021)      $(16,541)
 Depreciation charge                        -        (10,723)       (13,618)
 AHFS                                       -            258              - 
 Impairment of AHFS                         -            705             98 
 Disposals                                  -          4,486          2,217 
 Currency translation effects               -            260         (1,486)
----------------------------------------------------------------------------
September 30, 2011                   $      -       $(48,035)      $(29,330)
----------------------------------------------------------------------------
Net book value-September 30,                                                
 2011                                $ 12,960       $123,800       $109,400 
                               ---------------------------------------------
                               ---------------------------------------------



                                         Land       Building      Equipment 
----------------------------------------------------------------------------
Cost                                                                        
January 1, 2010                      $ 13,287       $ 62,214       $ 33,721 
 Business combinations                 31,906         50,741         16,501 
 Reclassifications                          -              -              - 
 Additions                              6,460          3,633          3,126 
 Disposals                               (377)        (1,852)        (6,318)
 Currency translation effects          (3,892)        (6,891)        (2,808)
----------------------------------------------------------------------------
December 31, 2010                    $ 47,384       $107,845       $ 44,222 
Accumulated depreciation                                                    
January 1, 2010                      $      -       $(16,904)      $(23,034)
 Depreciation charge                        -         (6,589)        (9,785)
 Disposals                                  -            800          4,564 
 Currency translation effects               -          4,385          3,542 
----------------------------------------------------------------------------
December 31, 2010                    $      -       $(18,308)      $(24,713)
----------------------------------------------------------------------------
Net book value-December 31,                                                 
 2010                                $ 47,384       $ 89,537       $ 19,509 
                               ---------------------------------------------
                               ---------------------------------------------


                                                   Property,                
                                 Assets under      plant and         Rental 
                                 construction      equipment      equipment 
----------------------------------------------------------------------------
Cost                                                                        
January 1, 2010                      $    497       $109,719       $ 69,012 
 Business combinations                 36,252        135,400         67,587 
 Reclassifications                    (32,121)       (32,121)        32,121 
 Additions                             10,983         24,202         30,062 
 Disposals                                  -         (8,547)       (63,138)
 Currency translation effects               -        (13,591)        (2,941)
----------------------------------------------------------------------------
December 31, 2010                    $ 15,611       $215,062       $132,703 
Accumulated depreciation                                                    
January 1, 2010                      $      -       $(39,938)      $ (9,870)
 Depreciation charge                        -        (16,374)       (11,765)
 Disposals                                  -          5,364          3,047 
 Currency translation effects               -          7,927          2,047 
----------------------------------------------------------------------------
December 31, 2010                    $      -       $(43,021)      $(16,541)
----------------------------------------------------------------------------
Net book value-December 31,                                                 
 2010                                $ 15,611       $172,041       $116,162 
                               ---------------------------------------------
                               ---------------------------------------------

During the third quarter of 2011, the Company sold idle manufacturing facilities in Calgary and Stettler, Alberta totaling approximately 406,000 square feet for gross proceeds of $42.9 million. The sale of the Stettler facility closed at the end of July and the sale of the Calgary facility closed in September. The gain on sale of these facilities is reflected in the third quarter statement of earnings.


Note 11. Other Assets                                                    
                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Investment in associates                           $   4,776      $   3,146 
Net investment in sales type lease                     7,778         10,651 
----------------------------------------------------------------------------
                                                   $  12,554      $  13,797 
                                              ------------------------------
                                              ------------------------------

The value of the net investment is comprised of the following:              

                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Minimum future lease payments                      $  18,656      $  23,202 
Unearned finance income                                 (850)        (1,900)
----------------------------------------------------------------------------
                                                      17,806      $  21,302 
Less current portion                                  10,028         10,651 
----------------------------------------------------------------------------
                                                   $   7,778      $  10,651 
                                              ------------------------------
                                              ------------------------------

The interest rate inherent in the lease is fixed at the contract date for   
the entire lease term and is approximately 9% per annum.                    

Note 12. Intangible Assets                                                  

                                            September 30, 2011              
                                     Acquired    Accumulated       Net book 
                                        value   amortization          value 
----------------------------------------------------------------------------
Customer relationships              $  36,400      $  12,232      $  24,168 
Software and other                     13,644          7,614          6,030 
----------------------------------------------------------------------------
                                    $  50,044      $  19,846      $  30,198 
                               ---------------------------------------------
                               ---------------------------------------------

                                             December 31, 2010              
                                     Acquired    Accumulated       Net book 
                                        value   amortization          value 
----------------------------------------------------------------------------
Customer relationships              $  38,400      $   7,658      $  30,742 
Software and other                     14,174          5,454          8,720 
----------------------------------------------------------------------------
                                    $  52,574      $  13,112      $  39,462 
                               ---------------------------------------------
                               ---------------------------------------------

Note 13. Accounts Payable, Accrued Liabilities and Provisions               

                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Accounts payable and accrued liabilities           $ 118,479      $ 149,884 
Accrued dividend payable                               4,633              - 
Provisions                                            13,782         14,538 
----------------------------------------------------------------------------
                                                   $ 136,894      $ 164,422 
                                              ------------------------------
                                              ------------------------------

Note 14. Long-Term Debt

The Company has, by way of private placement, $90.5 million of Unsecured Notes ("Notes") issued and outstanding. They have different maturities with $50.5 million, with a coupon of 4.841%, maturing on June 22, 2016 and $40.0 million, with a coupon of 6.011%, maturing on June 22, 2021.

The Company has syndicated revolving credit facilities ("Bank Facilities") with an amount available of $325.0 million. The Bank Facilities consist of a committed 4-year $270.0 million revolving credit facility (the "Revolver"), a committed 4-year $10.0 million operating facility (the "Operator"), a committed 4-year $20.0 million Australian operating facility (the "Australian Operator") and a committed 4-year $25.0 million bi-lateral letter of credit facilities (collectively known as the "LC Bi-Lateral"). The Revolver, Operator, Australian Operator and LC Bi-Lateral are collectively referred to as the Bank Facilities. The Bank Facilities were funded on June 1, 2011.

The Bank Facilities have a maturity date of June 1, 2015 ("Maturity Date"), but may be extended annually on or before the anniversary date with the consent of the lenders. In addition, the Bank Facilities may be increased by $50.0 million at the request of the Company, subject to the lenders' consent. There is no required or scheduled repayment of principal until the Maturity Date of the Bank Facilities.

Drawings on the Bank Facilities are available by way of Prime Rate loans ("Prime"), U.S. Base Rate loans, LIBOR loans, and Bankers' Acceptance ("BA") notes. The Company may also draw on the Bank Facilities through bank overdrafts in either Canadian or U.S. dollars and issue letters of credit under the Bank Facilities.

Pursuant to the terms and conditions of the Bank Facilities, a margin is applied to drawings on the Bank Facilities in addition to the quoted interest rate. The margin is established in basis points and is based on consolidated net debt to earnings before interest, income taxes, depreciation and amortization ("EBITDA") ratio. The margin is adjusted effective the first day of the third month following the end of each fiscal quarter based on the above ratio.

The Company also has a committed facility with one of the lenders in the Bank Facilities for the issuance of letters of credit (the "Bi-Lateral"). The amount available under the Bi-Lateral is $50.0 million and has a maturity date of June 1, 2013, which may be extended annually with the consent of the lender. Drawings on the Bi-Lateral are by way of letters of credit.

In addition, the Company has a committed facility with a U.S. lender ("U.S. Facility") in the amount of $20.0 million USD. Drawings on the U.S. Facility are by way of LIBOR loans, US Base Rate loans and letters of credit. The maturity date of the U.S. Facility is July 1, 2014 and may be extended annually at the request of the Company, subject to the lenders consent. There are no required or scheduled repayments of principal until the maturity date of the U.S. Facility.

The Bank Facilities, the Bi-Lateral and the U.S. Facility are unsecured and rank pari passu with the Notes. The Company is required to maintain certain covenants on the Bank Facilities, the Bi-Lateral, the US Facility and the Notes. As at September 30, 2011, the Company was in compliance with these covenants.

At September 30, 2011, the Company had $45.4 million cash drawings against the Bank Facilities. These Bank Facilities were not available at December 31, 2010, as the Company's borrowings consisted of a Note Payable to its parent company.

The composition of the September 30, 2011 borrowings on the Bank Facilities and the Notes was as follows:


                                                              September 30 ,
                                                                       2011 
----------------------------------------------------------------------------
Drawings of Bank Facilities                                       $  45,443 
Notes due June 22, 2016                                              50,500 
Notes due June 22, 2021                                              40,000 
Deferred transaction costs                                           (3,047)
----------------------------------------------------------------------------
                                                                  $ 132,896 
                                                             ---------------
                                                             ---------------

Canadian dollar equivalent principal payments which are due over the next   
five years, without considering renewal at similar terms, are:              

2012                                                              $       - 
2013                                                                      - 
2014                                                                      - 
2015                                                                 45,443 
2016                                                                 50,500 
Thereafter                                                           40,000 
----------------------------------------------------------------------------
                                                                  $ 135,943 
                                                             ---------------
                                                             ---------------

Note 15. Guarantees, Commitments and Contingencies

At September 30, 2011, the Company had outstanding letters of credit of $ 73.5 million (December 31, 2010 - $ 61.2 million).

The Company is involved in litigation and claims associated with normal operations against which certain provisions have been made in the financial statements. Management is of the opinion that any resulting net settlement arising from the litigation would not materially affect the financial position, results of operations or liquidity of the Company.

Aggregate minimum future required lease payments, primarily for operating leases for equipment, automobiles and premises, are $40.5 million payable over the next five years and thereafter as follows:


2011                                                              $   3,456 
2012                                                                  9,500 
2013                                                                  6,908 
2014                                                                  5,437 
2015                                                                  4,683 
Thereafter                                                           10,535 
----------------------------------------------------------------------------
Total                                                             $  40,519 
                                                             ---------------
                                                             ---------------

In addition, the Company has purchase obligations over the next three years 
as follows:                                                                 

2011                                                              $  29,300 
2012                                                                  9,332 
2013                                                                    998 

Note 16. Income Taxes                                                       

The provision for income taxes differs from that which would be expected by 
applying Canadian statutory rates. A reconciliation of the difference is as 
follows:                                                                    

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Earnings before income taxes         $ 22,697  $  8,700  $ 52,251  $ 28,350 
Canadian statutory rate                  26.6%     28.1%     26.6%     28.1%
----------------------------------------------------------------------------
Expected income tax provision        $  6,037  $  2,444  $ 13,899  $  7,966 
Add (Deduct):                                                               
 Income taxed in foreign                                                    
  jurisdictions                          (357)     (264)   (1,037)      985 
 Non-taxable portion of gain on                                             
  available for sale financial                                              
  assets                                    -         -         -    (3,938)
 Other                                     38     1,458       368     1,394 
----------------------------------------------------------------------------
Income tax provision                 $  5,718  $  3,638  $ 13,230  $  6,407 
                                    ----------------------------------------
                                    ----------------------------------------

The composition of the income tax provision is as follows:                  

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Current taxes                        $  5,028  $  4,380  $ 14,536  $  8,772 
Deferred taxes                            690      (742)   (1,306)   (2,365)
----------------------------------------------------------------------------
Income tax provision                 $  5,718  $  3,638  $ 13,230  $  6,407 
                                    ----------------------------------------
                                    ----------------------------------------

Note 17. Share Capital                                                     

Authorized:                                                                 

The Company is authorized to issue an unlimited number of common shares.    

Issued and Outstanding:                                                     

                                                   Number of         Common 
Nine months ended September 30, 2011           common shares  share capital 
----------------------------------------------------------------------------
Balance, beginning of period                               -      $       - 
Bifurcation transaction                           77,212,396        205,337 
Exercise of stock options                              3,000             32 
----------------------------------------------------------------------------
Balance, end of period                            77,215,396      $ 205,369 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

As part of the Arrangement, Toromont shareholders received one share of Enerflex for each common share of Toromont owned. To determine Enerflex's share capital amount, Toromont's stated capital immediately prior to the Arrangement was bifurcated based on the relative fair market value of the property transferred from Toromont to Enerflex ("Butterfly Proportion") at the time of the Arrangement. The Butterfly Proportion was determined to be 56.4% and 43.6% for Toromont and Enerflex, respectively.

Net Investment

For comparative periods, Toromont's Net Investment in Enerflex Ltd. prior to the arrangement is presented as Owner's Net Investment in these interim consolidated financial statements. Total Net Investment consists of Owner's Net Investment, Retained Earnings and Contributed Surplus.

Note 18. Contributed Surplus

As at September 30, 2011:


Contributed surplus, beginning of period                          $       - 
Reclassification of net investment on bifurcation transaction       656,500 
Share-based compensation                                                651 
----------------------------------------------------------------------------
Contributed surplus, end of period                                $ 657,151 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For comparative periods, contributed surplus was included in the balance of Toromont's Net Investment in Enerflex Ltd.

Note 19. Share-Based Compensation

a) Stock Options

The Company maintains a stock option program for certain employees. Under the plan, up to 7.7 million options may be granted for subsequent exercise in exchange for common shares. It is Company policy that no more than 1% of outstanding shares or approximately 0.8 million share options may be granted in any one year.

The stock option plan entitles the holder to acquire shares of the Company at the strike price, established at the time of the grant, after vesting and before expiry. The strike price of each option equals the weighted average of the market price of the Company's shares on the five days preceding the effective date of the grant. The options have a seven-year term and vest at a rate of one fifth on each of the five anniversaries of the date of the grant.

As part of the Arrangement, Toromont Options were exchanged for new stock options granted by each of Toromont and Enerflex. For each Toromont stock option previously held, option holders received one option in each of Toromont and Enerflex, with the exercise price determined by applying the Butterfly Proportion to the previous exercise price. All other conditions relating to these options, including terms and vesting periods, remained the same and there was no acceleration of option vesting. The Butterfly Proportion was determined to be 56.4% and 43.6% for Toromont and Enerflex, respectively. Stock options outstanding represent options exchanged under the Arrangement and are as follows:


                                                         September 30, 2011 
                                                                   Weighted 
                                                                    average 
                                                   Number of       exercise 
                                                     options          price 
----------------------------------------------------------------------------
Options outstanding, June 1, 2011                  2,030,030      $   11.35 
Granted                                                    -              - 
Exercised                                             (3,000)         10.09 
Forfeited                                            (13,160)         11.35 
----------------------------------------------------------------------------
Options outstanding, end of period                 2,013,870          11.39 
                                              ------------------------------
Options exercisable, end of period                 1,107,590      $   11.01 
                                              ------------------------------

The following table summarizes options outstanding and exercisable at       
September 30, 2011:                                                         

                             Options Outstanding        Options Exercisable 
                                    Weighted                        
                                     average  Weighted             Weighted 
                                   remaining   average              average 
Range of exercise           Number      life  exercise      Number exercise 
 prices                outstanding    (years)    price outstanding    price 
----------------------------------------------------------------------------
$9.52 - $11.31           1,065,970      2.57  $  10.17     761,010 $  10.29 
$11.32 - $12.96            947,900      4.55     12.75     346,580    12.57 
----------------------------------------------------------------------------
Total                    2,013,870      3.50  $  11.39   1,107,590 $  11.01 
----------------------------------------------------------------------------

No stock options were granted in the first nine months of 2011. The fair value of the stock options granted by Toromont during the first nine months of 2010 was determined at the time of the grant using the Black-Scholes option pricing model.

b) Deferred Share Units

The Company offers a deferred share unit ("DSU") plan for executives and non-employee directors, whereby they may elect on an annual basis to receive all or a portion of their management incentive award or fees, respectively, in deferred share units. In addition, the Board may grant discretionary DSUs to executives. A DSU is a notional unit that entitles the holder to receive payment, as described below, from the Company equal to the implied market value calculated as the number of DSUs multiplied by the closing price of Enerflex shares on the entitlement date.

DSUs may be granted to eligible participants on an annual basis and will generally vest on each of the first three anniversaries of the date of the grant. Vested DSUs are to be settled by the end of the year vesting occurs. The Company may, at its sole discretion, satisfy, in whole or in part, its payment obligation through a cash payment to the participant or by instructing an independent broker to acquire a number of fully paid shares in the open market on behalf of the participant.

DSU recipients are entitled to additional units over and above those initially granted based on the notional number of units that could have been purchased using the proceeds of notional dividends, that would have been received had the units then subject to vesting been actual shares of the Company, following each dividend paid to the Shareholders of the Company. The additional units are calculated with each dividend declared by the Company.

DSUs represent an indexed liability of the Company relative to the Company's share price. In 2011 the Board of Directors did not grant any DSUs to employees of the Company. For the three and nine months ended September 30, 2011, directors fees elected to be received in deferred share units totaled $0.01 million and $0.1 million (three and nine months ended September 30, 2010 - nil).

c) Phantom Share Rights

The Company utilizes a Phantom Share Rights Plan (Share Appreciation Right) ("SAR") for certain directors and key employees of affiliates located in Australia, and the UAE, for whom the Company's Stock Option Plan would have negative personal taxation consequences.

The exercise price of each SAR equals the average of the market price of the Company's shares on the five days preceding the date of the grant. The SARs vest at a rate of one third on each of the first three anniversaries of the date of the grant and expire on the fifth anniversary. The award entitlements for increases in the share trading value of the Company are to be paid to the recipient in cash upon exercise.

In 2011, the Board of Directors did not grant any SARs to directors or employees of the Company.

d) Employee Share Ownership Plan

The Company offers an Employee Share Ownership Plan whereby employees who meet the eligibility criteria can purchase shares by way of payroll deductions. There is a Company match of up to $1,000 per employee per annum based on contributions by the Company of $1 for every $3 contributed by the employee. Company contributions vest to the employee immediately. Company contributions are charged to selling, general and administrative expense when paid. The Plan is administered by a third party.

e) Share-Based Compensation Expense

The share-based compensation expense included in the determination of net income for the three and nine months ended September 30, 2011 was:


                                     Three months ended   Nine months ended 
                                     September 30, 2011  September 30, 2011 
----------------------------------------------------------------------------
Stock options                                 $     586           $     651 
Deferred share units                                 62                 133 
Phantom share units                                   -                   - 
----------------------------------------------------------------------------
Total                                         $     648           $     784 
                                     ---------------------------------------
                                     ---------------------------------------

Note 20. Reconciliation of Earnings per Share Calculations                 

                                      Three months ended September 30, 2011 
                                                    Weighted                
                                   Net (loss) average shares                
                                     earnings    outstanding      Per share 
----------------------------------------------------------------------------
Basic                               $ (37,301)    77,215,396      $   (0.48)
 Dilutive effect of stock                                                   
  option conversion                                        -                
----------------------------------------------------------------------------
Diluted                             $ (37,301)    77,215,396      $   (0.48)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


                                      Three months ended September 30, 2010 
                                                    Weighted                
                                              average shares                
                                 Net earnings    outstanding      Per share 
----------------------------------------------------------------------------
Basic                               $   3,217     76,896,069      $    0.04 
 Dilutive effect of stock                                                   
  option conversion                                  200,428                
----------------------------------------------------------------------------
Diluted                             $   3,217     77,096,497      $    0.04 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                       Nine months ended September 30, 2011 
                                                    Weighted                
                                   Net (loss) average shares                
                                     earnings    outstanding      Per share 
----------------------------------------------------------------------------
Basic                               $ (18,055)    77,215,280      $   (0.23)
 Dilutive effect of stock                                                   
  option conversion                                        -                
----------------------------------------------------------------------------
Diluted                             $ (18,055)    77,215,280      $   (0.23)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                       Nine months ended September 30, 2010 
                                                    Weighted                
                                              average shares                
                                 Net earnings    outstanding      Per share 
----------------------------------------------------------------------------
Basic                               $  16,846     75,895,887      $    0.22 
 Dilutive effect of stock                                                   
  option conversion                                  255,849                
----------------------------------------------------------------------------
Diluted                             $  16,846     76,151,736      $    0.22 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Since Enerflex's shares were issued pursuant to the Arrangement with Toromont to create the Company, per share amounts disclosed for the comparative period are based on Toromont's common shares.

Note 21. Financial Instruments

Designation and Valuation of Financial Instruments

The Company has designated its financial instruments as follows:


                                                         September 30, 2011 
                                                    Carrying      Estimated 
                                                       value     fair value 
----------------------------------------------------------------------------
Financial Assets                                                            
Cash and cash equivalents(1)                       $  52,666      $  52,666 
Derivative instruments designated as fair                                   
 value through profit or loss ("FVTPL")                  584            584 
Derivative instruments in designated hedge                                  
 accounting relationships                              2,033          2,033 
Loans and receivables:                                                      
 Accounts receivable                                 227,857        227,857 
Financial Liabilities                                                       
Derivative instruments designated as FVTPL         $     907      $     907 
Derivative instruments in designated hedge                                  
 accounting relationships                              2,501          2,501 
Other financial liabilities:                                                
 Accounts payable, accrued liabilities and                                  
  provisions                                         136,894        136,894 
 Long-term debt - Bank Facilities                     45,443         45,443 
 Long-term debt - Notes                               87,453         89,385 
----------------------------------------------------------------------------
(1) Includes $1.0 million of highly liquid short term investments with
  maturities of three months or less.                                    

                                                          December 31, 2010 
                                                    Carrying      Estimated 
                                                       value     fair value 
----------------------------------------------------------------------------
Financial Assets                                                            
Cash and cash equivalents                          $  15,000      $  15,000 
Derivative instruments designated as FVTPL                 -              - 
Derivative instruments in designated hedge                                  
 accounting relationships                                448            448 
Loans and receivables:                                                      
 Accounts receivable                                 243,328        243,328 
Financial Liabilities                                                       
Derivative instruments designated as FVTPL         $      26      $      26 
Derivative instruments in designated hedge                                  
 accounting relationships                                577            577 
Other financial liabilities:                                                
 Accounts payable, accrued liabilities and                                  
  provisions                                         164,422        164,422 
 Note payable to Toromont                            215,000        215,000 
 Long-term debt - Bank Facilities                          -              - 
 Long-term debt - Notes                                    -              - 
----------------------------------------------------------------------------

Fair Values of Financial Assets and Liabilities

The following table presents information about the Company's financial assets and financial liabilities measured at fair value on a recurring basis as at September 30, 2011 and indicates the fair value hierarchy of the valuation techniques used to determine such fair value. During the three-month period ended September 30, 2011, there were no transfers between Level 1 and Level 2 fair value measurements.


                                                             Fair           
                                     Carrying               Value           
                                        value   Level 1   Level 2   Level 3 
----------------------------------------------------------------------------
Financial assets                                                            
Derivative financial instruments     $  2,617  $      -  $  2,617  $      - 
Financial liabilities                                                       
Derivative financial instruments     $  3,408  $      -  $  3,408  $      - 

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability and may affect placement within.

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, other long term liabilities and the note payable to Toromont are reported at their fair values on the statement of financial position. The fair values equal the carrying values for these instruments due to their short-term nature.

The fair value of derivative financial instruments is measured using the discounted value of the difference between the contract's value at maturity based on the contracted foreign exchange rate and the contract's value at maturity based on prevailing exchange rates. The financial institution's credit risk is also taken into consideration in determining fair value.

Long-term debt associated with the Company's Notes is recorded at amortized cost using the effective interest rate method. The amortized cost of the Notes is equal to the face value as there were no premiums or discounts on the issuance of the debt. Transaction costs associated with the debt were deducted from the debt and are being recognized using the effective interest method over the life of the related debt. The fair value of these Notes at September 30, 2011, as determined on a discounted cash flow basis with a weighted average discount rate of 5.24%, was $89.4 million.

Fair values are determined using inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Fair values determined using inputs including forward market rates and credit spreads that are readily observable and reliable, or for which unobservable inputs are determined not to be significant to the fair value, are categorized as Level 2. Foreign exchange contract fair values falling within the Level 2 of the fair value hierarchy include those determined by using a benchmark index and applying that index to the notional amount outstanding.

Derivative Financial Instruments and Hedge Accounting

Foreign exchange contracts and options are transacted with financial institutions to hedge foreign currency denominated obligations related to purchases of inventory and sales of products. The following table summarizes the Company's commitments to buy and sell foreign currencies as at September 30, 2011:


                                 Notional                                   
                                   amount                          Maturity 
----------------------------------------------------------------------------
Canadian dollar denominated                                                 
 contracts                                                                  
 Purchase contracts  USD           34,185    October 2011 to September 2012 
                     EUR               74       November 2011 to March 2012 
 Sales contracts     USD           57,826    October 2011 to September 2012 
                     EUR            5,504                      October 2011 
Australian dollar denominated                                               
 contracts                                                                  
 Purchase contracts  USD            1,684     October 2011 to December 2011 
                     EUR              585     October 2011 to February 2012 

Management estimates that a gain of $0.8 million would be realized if the contracts were terminated on September 30, 2011. Certain of these forward contracts are designated as cash flow hedges, and accordingly, a loss of $1.5 million has been included in other comprehensive income. These gains are not expected to affect net income as the gains will be reclassified to net income and will offset losses recorded on the underlying hedged items, namely foreign currency denominated accounts payable and accounts receivable.

All hedging relationships are formally documented, including the risk management objective and strategy. On an ongoing basis, an assessment is made as to whether the designated derivative financial instruments continue to be effective in offsetting changes in cash flows of the hedged transactions.

Risks Arising from Financial Instruments and Risk Management

In the normal course of business, the Company is exposed to financial risks that may potentially impact its operating results in any or all of its business segments. The Company employs risk management strategies with a view to mitigating these risks on a cost-effective basis. Derivative financial agreements are used to manage exposure to fluctuations in exchange rates and interest rates. The Company does not enter into derivative financial agreements for speculative purposes.

Foreign Currency Risk

In the normal course of operations, the Company is exposed to movements in the U.S. dollar, the Australian dollar, the Euro, the Pakistani rupee and the Indonesian rupiah. In addition, Enerflex has significant international exposure through export from its Canadian operations as well as a number of foreign subsidiaries, the most significant of which are located in the United States, Australia, the Netherlands and the United Arab Emirates. The Company does not hedge its net investment exposure in foreign subsidiaries.

The types of foreign exchange risk and the Company's related risk management strategies are as follows:

Transaction exposure

The Canadian operations of the Company source the majority of its products and major components from the United States. Consequently, reported costs of inventory and the transaction prices charged to customers for equipment and parts are affected by the relative strength of the Canadian dollar. The Company mitigates exchange rate risk by entering into foreign currency contracts to fix the cost of imported inventory where appropriate.

The Company also sells compression packages in foreign currencies, primarily the U.S. dollar, the Australian dollar and the Euro and enters into foreign currency contracts to reduce these exchange rate risks.

Most of Enerflex's international orders are manufactured in the U.S. operations if the contract is denominated in U.S. dollars. This minimizes the Company's foreign currency exposure on these contracts.

The Company identifies and hedges all significant transactional currency risks.

Translation exposure

The Company's earnings from and net investment in foreign subsidiaries are exposed to fluctuations in exchange rates. The currencies with the most significant impact are the US dollar, Australian dollar and the Euro.

Assets and liabilities are translated into Canadian dollars using the exchange rates in effect at the statement of financial position dates. Unrealized translation gains and losses are deferred and included in accumulated other comprehensive income. The cumulative currency translation adjustments are recognized in income when there has been a reduction in the net investment in the foreign operations.

Earnings from foreign operations are translated into Canadian dollars each period at average exchange rates for the period. As a result, fluctuations in the value of the Canadian dollar relative to these other currencies will impact reported net income. Such exchange rate fluctuations have historically not been material year-over-year relative to the overall earnings or financial position of the Company. The following table shows the effect on net income before tax for the period ended September 30, 2011 of a 5% weakening of the Canadian dollar against the US dollar, Euro and Australian dollar, everything else being equal. A 5% strengthening of the Canadian dollar would have an equal and opposite effect. This sensitivity analysis is provided as an indicative range in a volatile currency environment.


Canadian dollar weakens by 5%             USD           Euro            AUD 
----------------------------------------------------------------------------
Net earnings before tax             $   2,221      $    (361)     $    (748)

Sensitivity Analysis

The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign exchange rates on the Company's financial instruments and show the impact on net earnings and comprehensive income. Financial instruments affected by currency risk include cash and cash equivalents, accounts receivable, accounts payable and derivative financial instruments. This sensitivity analysis relates to the position as at September 30, 2011 and for the period then ended. The following table shows the Company's sensitivity to a 5% weakening of the Canadian dollar against the U.S. dollar, Euro and Australian dollar. A 5% strengthening of the Canadian dollar would have an equal and opposite effect.


Canadian dollar weakens by 5%             USD           Euro            AUD 
----------------------------------------------------------------------------
Financial instruments held in                                               
 foreign operations                                                         
Other comprehensive income          $   5,068      $     525      $     556 
Financial instruments held in                                               
 Canadian operations                                                        
Net earnings                              164             34              - 
Other comprehensive income (loss)         (14)             -              - 

The movement in other comprehensive income in foreign operations reflects the change in the fair value of financial instruments. Gains or losses on translation of foreign subsidiaries are deferred in other comprehensive income. Accumulated currency translation adjustments are recognized in income when there is a reduction in the net investment in the foreign operation.

The movement in net earnings in Canadian operations is a result of a change in the fair values of financial instruments. The majority of these financial instruments are hedged.

The movement in other comprehensive income in Canadian operations reflects the change in the fair value of derivative financial instruments that are designated as cash flow hedges. The gains or losses on these instruments are not expected to affect net income as the gains or losses will offset losses or gains on the underlying hedged items.

Interest Rate Risk

The Company's liabilities include long-term debt that is subject to fluctuations in interest rates. The Company's Notes outstanding at September 30, 2011 include interest rates that are fixed and therefore will not be impacted by fluctuations in interest rates. The Company's Bank Facilities however, are subject to changes in market interest rates. For each 1% change in the rate of interest on the Bank Facilities, the change in interest expense would be approximately $1.4 million. All interest charges are recorded on the income statement as a separate line item called Finance Costs.

Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, accounts receivable, net investment in sales type lease, and derivative financial instruments. The carrying amount of assets included on the statement of financial position represents the maximum credit exposure.

Cash equivalents consist mainly of short-term investments, such as money market deposits. The Company has deposited the cash equivalents with highly-rated financial institutions, from which management believes the risk of loss to be remote.

The Company has accounts receivable from clients engaged in various industries including natural gas producers, natural gas transportation, chemical and petrochemical processing and the generation and sale of electricity. These specific industries may be affected by economic factors that may impact accounts receivable. Management does not believe that any single customer represents significant credit risk.

The credit risk associated with the net investment in sales-type leases arises from the possibility that the counterparty may default on their obligations. In order to minimize this risk, the Company enters into sales-type lease transactions only in select circumstances. Close contact is maintained with the customer over the duration of the lease to ensure visibility to issues as and if they arise.

The credit risk associated with derivative financial instruments arises from the possibility that the counterparties may default on their obligations. In order to minimize this risk, the Company enters into derivative transactions only with highly-rated financial institutions.

Liquidity Risk

Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. In managing liquidity risk, the Company has access to a significant portion of its Bank Facilities for future drawings to meet the Company's future growth targets. As of September 30, 2011, the Company had $45.4 million committed against the Bank Facilities, leaving $279.6 million available for future drawings plus cash and cash equivalents of $52.7 million at that date.

A liquidity analysis of the Company's financial instruments has been completed on a maturity basis. The following table outlines the cash flows associated with the maturity of the Company's financial liabilities:


                                         Less             Greater           
                                       than 3  3 months    than 1           
                                       months to 1 year      year     Total 
----------------------------------------------------------------------------
Derivative financial instruments                                            
 Foreign currency forward contracts  $  3,408  $      -  $      -  $  3,408 
Other financial liabilities                                                 
 Accounts payable and accrued                                               
  liabilities                        $136,894  $      -  $      -  $136,894 
 Long-term debt - Bank Facilities           -         -    45,443    45,443 
 Long-term debt - Notes                     -         -    87,453    87,453 

The Company expects that continued cash flows from operations in 2011 together with cash and cash equivalents on hand and credit facilities will be more than sufficient to fund its requirements for investments in working capital, and capital assets.

Dividends

For the three and nine months ended September 30, 2011, the Company declared dividends of $4.6 million and $9.3 million, or $0.06 per share (September 30, 2010 - no dividend declared).

Note 22. Capital Disclosures

The capital structure of the Company consists of shareholders' equity plus net debt. The Company manages its capital to ensure that entities in the Company will be able to continue to grow while maximizing the return to shareholders through the optimization of the debt and equity balances. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new Company shares, or access debt markets.

The Company formally reviews the capital structure on an annual basis and monitors it on an on-going basis. As part of this review, the Company considers the cost of capital and the risks associated with each class of capital. In order to position itself to execute its long-term plan to become a leading supplier of products and services to the global energy sector, the Company is maintaining a conservative statement of financial position. The Company uses the following measures to monitor its capital structure:

Net debt to equity ratio

The Company targets a Net debt to equity ratio of less than 1.00:1. At September 30, 2011, the Net debt to equity was 0.10:1 (December 31, 2010 - 0.24:1), calculated as follows:


                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Note payable                                       $       -      $ 215,000 
Long-term debt                                       132,896              - 
Cash                                                 (52,666)       (15,000)
----------------------------------------------------------------------------
Net debt                                           $  80,230      $ 200,000 
----------------------------------------------------------------------------
Shareholders'/Owner's equity                       $ 821,482      $ 839,528 
----------------------------------------------------------------------------

Net debt to equity ratio                              0.10:1        0.24: 1 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note 23. Supplemental Cash Flow Information                                 

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Cash provided by (used in)                                                  
changes in non-cash working capital                                         
 Accounts receivable                 $ 40,534  $(24,689) $ 10,664  $(62,898)
 Inventories                          (18,983)   (7,956)  (23,868)   50,853 
 Accounts and taxes payable, accrued                                        
  liabilities and deferred revenue    (15,564)   51,047    49,414    57,283 
 Foreign currency and other           (16,348)   14,507   (17,392)  (13,434)
----------------------------------------------------------------------------
                                     $(10,361) $ 32,909  $ 18,818  $ 31,804 
                                    ----------------------------------------
                                    ----------------------------------------


Cash paid during the period:                                                

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Interest                             $  3,376  $ 10,007  $  5,739  $ 11,007 
Taxes                                $  9,588  $ (2,628) $ 21,270  $   (290)

Note 24. Related Parties

Enerflex transacts with certain related parties as a normal course of business. Related parties include Toromont, which owned 100% of Enerflex until June 1, 2011, and Total Production Services Inc. ("Total"), which was an influenced investee by virtue of the Company's 40% investment in Total.

All transactions occurring with both parties were in the normal course of business operations under the same terms and conditions as transactions with unrelated companies. A summary of the financial statement impacts of all transactions with all related parties are as follows:


                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Revenue                                            $     212      $      20 
Management fee expense                                 4,299          7,920 
Purchases                                                526          1,279 
Interest expense                                       1,902          5,484 
Accounts receivable                                        -             61 
Accounts payable                                          92          3,692 
Note payable                                               -        215,000 

Note 25. Interest in Joint Venture

The Company proportionately consolidates its 50% interest in the assets, liabilities, results of operations and cash flows of its joint venture in Pakistan, Presson-Descon International (Private) Limited. The interest included in the Company's accounts includes:


                                                September 30,   December 31,
                                                        2011           2010 
----------------------------------------------------------------------------
Statement of financial position                                             
Current assets                                     $   3,614      $   2,477 
Long-term assets                                         464            518 
----------------------------------------------------------------------------
Total assets                                       $   4,078      $   2,995 

Current liabilities                                $   2,717      $     894 
Long-term liabilities and equity                       1,361          2,101 
----------------------------------------------------------------------------
Total liabilities and equity                       $   4,078      $   2,995 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Statement of earnings                                                       
Revenue                              $     10  $  1,173  $    235  $  2,267 
Expenses                                  293     1,190       975     2,567 
----------------------------------------------------------------------------
Net loss                             $   (283) $    (17) $   (740) $   (300)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Cash flows                                                                  
Cash from operations                 $  1,443  $     99  $    780  $ (1,165)
Cash from investing                        49      (423)       15      (455)
Cash from financing                         -        (3)       (4)      (10)

Note 26. Segmented Information

The Company has three reportable operating segments as outlined below, each supported by the Corporate office. Corporate overheads are allocated to the business segments based on revenue.

The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies. For the nine months ended September 30, 2011, one customer accounted for 16.4% of the Company's total revenue.


Three months ended                             Canada &        Southern US  
                                            Northern US     & South America 
September 30,                            2011      2010      2011      2010 
----------------------------------------------------------------------------

Segment revenue                      $151,514  $147,178  $ 81,119  $ 94,254 
Intersegment revenue                  (23,048)  (18,753)     (200)      (60)
----------------------------------------------------------------------------
External revenue                     $128,466  $128,425  $ 80,919  $ 94,194 

Operating income                     $ 10,202  $    295  $  9,830  $ 10,677 
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Three months ended                        International         Total       
September 30,                            2011      2010      2011      2010 
----------------------------------------------------------------------------

Segment revenue                      $ 74,488  $ 60,319  $307,121  $301,751 
Intersegment revenue                   (1,538)  (12,079)  (24,786)  (30,892)
----------------------------------------------------------------------------
External revenue                     $ 72,950  $ 48,240  $282,335  $270,859 

Operating income                     $  1,923  $    493  $ 21,955  $ 11,465 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Nine months ended                              Canada &       Southern US & 
                                            Northern US       South America 
September 30,                            2011      2010      2011      2010 
----------------------------------------------------------------------------

Segment revenue                      $450,426  $337,371  $233,236  $235,052 
Intersegment revenue                  (78,035)  (29,803)     (565)     (151)
----------------------------------------------------------------------------
External revenue                     $372,391  $307,568  $232,671  $234,901 

Operating income                     $ 26,756  $  2,849  $ 22,286  $ 24,338 
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Nine months ended                         International         Total       
September 30,                            2011      2010      2011      2010 
----------------------------------------------------------------------------

Segment revenue                      $242,702  $198,575  $926,364  $770,998 
Intersegment revenue                   (4,429)  (20,877)  (83,029)  (50,831)
----------------------------------------------------------------------------
External revenue                     $238,273  $177,698  $843,335  $720,167 

Operating income                     $  4,536  $ (7,887) $ 53,578  $ 19,300 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                               Canada &       Southern US & 
                                            Northern US       South America 
As at                                  Sep 30,   Dec 31,   Sep 30,   Dec 31,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------

Segment assets                       $486,454  $524,304  $206,251  $222,980 
Corporate                                   -         -         -         - 
Goodwill                              270,046   270,046    56,510    56,510 
----------------------------------------------------------------------------
                                     $756,500  $794,350  $262,761  $279,490 
----------------------------------------------------------------------------
Assets held for sale                        -         -         -         - 
----------------------------------------------------------------------------
Total segment assets                                                        
                                     $756,500  $794,350  $262,761  $279,490 
----------------------------------------------------------------------------
----------------------------------------------------------------------------


                                      International            Total 
As at                              Sep 30,   Dec 31,     Sep 30,     Dec 31,
                                     2011      2010        2011        2010 
----------------------------------------------------------------------------

Segment assets                   $248,571  $280,482  $  941,276  $1,027,766 
Corporate                               -         -     (74,277)   (132,866)
Goodwill                          124,900   156,100     451,456     482,656 
----------------------------------------------------------------------------
                                 $373,471  $436,582  $1,318,455  $1,377,556 
----------------------------------------------------------------------------
Assets held for sale               13,920         -      13,920           - 
----------------------------------------------------------------------------
Total segment assets             $387,391  $436,582  $1,332,375  $1,377,556 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenue from foreign countries was:                                         

                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Australia                            $ 47,416  $  7,632  $127,711  $ 38,057 
Netherlands                                 -     6,611       651    24,643 
United States                          99,183   105,826   264,646   297,764 
Other                                  22,100    47,891    98,812    98,342 

Revenue is attributed by destination of sale.

Note 27. Seasonality

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 product line has experienced higher revenues in the fourth quarter of each year while the Service and Rentals product line revenues are stable throughout the year. Rentals revenues are also impacted by both the Company's and its customers 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.

Note 28. Transition to IFRS

These interim Consolidated Financial Statements have been prepared in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards and with IAS 34, Interim Financial Reporting, as issued by the IASB. Prior to January 1, 2011, the Company prepared its interim and annual financial statements in accordance with pre-changeover Canadian GAAP.

IFRS 1 requires the presentation of comparative information as at the January 1, 2010 transition date and subsequent comparative periods as well as the consistent and retrospective application of IFRS accounting policies. To assist with the transition, the provisions of IFRS allow for certain mandatory and elective exemptions for first-time adopters to alleviate the retrospective application of all IFRS. IFRS had no impact on the Consolidated Statements of Earnings and Comprehensive Income and Cash Flows.

Reconciliation of Equity as Reported under Canadian GAAP to IFRS

The following is a reconciliation of the Company's equity reported in accordance with Canadian GAAP to its equity in accordance with IFRS at the transition date, January 1, 2010, September 30, 2010 and December 31, 2010.

Upon adoption of IFRS the Company elected to reset the cumulative translation adjustment balance to zero.


Consolidated Statement of                                                   
 Equity                                                                     
As at January 1, 2010                                                       
                                   Canadian                                 
                                       GAAP   Reclassification         IFRS 
----------------------------------------------------------------------------
Net investment                                                              
 Owner's net investment           $ 312,682          $ (14,709)   $ 297,973 
 Accumulated other                                                          
  comprehensive income                  920             14,709       15,629 
 Non-controlling interest                 -                  -            - 
----------------------------------------------------------------------------
Total net investment and non-                                               
 controlling interest             $ 313,602          $       -    $ 313,602 
                               ---------------------------------------------
                               ---------------------------------------------

Consolidated Statement of                                                   
 Equity                                                                     
As at September 30, 2010                                                    
                                   Canadian                                 
                                       GAAP   Reclassification         IFRS 
----------------------------------------------------------------------------
Net investment                                                              
 Owner's net investment           $ 835,817          $ (14,709)   $ 821,108 
 Accumulated other                                                          
  comprehensive (loss) income       (17,623)            14,709       (2,914)
 Non-controlling interest               303                  -          303 
----------------------------------------------------------------------------
Total net investment and non-                                               
 controlling interest             $ 818,497          $       -    $ 818,497 
                               ---------------------------------------------
                               ---------------------------------------------

Consolidated Statement of                                                   
 Equity                                                                     
As at December 31, 2010                                                     
                                   Canadian                                 
                                       GAAP   Reclassification         IFRS 
----------------------------------------------------------------------------
Net investment                                                              
 Owner's net investment           $ 864,686          $ (14,709)   $ 849,977 
 Accumulated other                                                          
  comprehensive (loss) income       (25,554)            14,709      (10,845)
 Non-controlling interest               396                  -          396 
----------------------------------------------------------------------------
Total net investment and non-                                               
 controlling interest             $ 839,528          $       -    $ 839,528 
                               ---------------------------------------------
                               ---------------------------------------------

Reconciliation of the Deferred Tax Assets and Liabilities under Canadian GAAP to IFRS

The following is a reconciliation of the Company's tax assets and liabilities reported in accordance with Canadian GAAP to its tax assets and liabilities in accordance with IFRS at the transition date, January 1, 2010, September 30, 2010 and December 31, 2010.

Upon transition to IFRS the Company reclassified all deferred tax assets and liabilities as non-current.


Consolidated Statement of                                                   
 Financial Position                                                         
As at January 1, 2010                                                       
                                   Canadian                                 
                                       GAAP   Reclassification         IFRS 
----------------------------------------------------------------------------
Assets                                                                      
 Current tax assets               $  23,194          $ (23,194)   $       - 
 Deferred tax assets                  1,129             18,764       19,893 
Liabilities                                                                 
 Current tax liabilities          $       -          $       -    $       - 
 Deferred tax liabilities             4,430             (4,430)           - 
----------------------------------------------------------------------------
                                  $  19,893          $       -    $  19,893 
                               ---------------------------------------------
                               ---------------------------------------------

Consolidated Statement of                                                   
 Financial Position                                                         
As at September 30, 2010                                                    
                                   Canadian                                 
                                       GAAP   Reclassification         IFRS 
----------------------------------------------------------------------------
Assets                                                                      
 Current tax assets               $  27,352          $ (27,352)   $       - 
 Deferred tax assets                 23,184             27,352       50,536 
Liabilities                                                                 
 Current tax liabilities          $     296          $    (296)   $       - 
 Deferred tax liabilities             1,914                296        2,210 
----------------------------------------------------------------------------
                                  $  48,326          $       -    $  48,326 
                               ---------------------------------------------
                               ---------------------------------------------

Consolidated Statement of                                                   
 Financial Position                                                         
As at December 31, 2010                                                     
                                   Canadian                                 
                                       GAAP   Reclassification         IFRS 
----------------------------------------------------------------------------
Assets                                                                      
 Current tax assets               $  29,204          $ (29,204)   $       - 
 Deferred tax assets                 18,736             29,204       47,940 
Liabilities                                                                 
 Current tax liabilities          $       -          $       -    $       - 
 Deferred tax liabilities                 -                  -            - 
----------------------------------------------------------------------------
                                  $  47,940          $       -    $  47,940 
                               ---------------------------------------------
                               ---------------------------------------------

Note 29. Subsequent Events

On November 2, 2011, Enerflex was awarded a $228.0 million US contract for the engineering, procurement, construction and commissioning of a gas processing plant to be located in the Sultanate of Oman.

The gas processing plant will produce 90 million standard cubic feet per day of natural gas and 6,000 barrels per day of condensate. The contract includes the supply by Enerflex of all associated equipment including; gas processing and compression equipment, gas/condensate export facilities, produced water treatment, power plant, central control room, electrical substation and associated utilities.

General Electric's ("GE") Gas Engine's Division has recently realigned its channel-to-market strategy and distribution network and as a result, Gas Drive has been notified of GE's Gas Engines interest in extending distribution rights for the Jenbacher natural gas engine and parts product line for all of Canada. This overall network realignment strengthens both Gas Drive's and GE's Gas Engine's ability to meet their customers' needs by providing an unprecedented level of service and support.

Subsequent to September 30, 2011, Enerflex declared the Company's third dividend of $0.06 per share, payable on January 5, 2012, to shareholders of record on December 14, 2011.

Contact Information

  • Enerflex Ltd.
    J. Blair Goertzen
    President & Chief Executive Officer
    403.236.6852

    Enerflex Ltd.
    D. James Harbilas
    Vice-President & Chief Financial Officer
    403.236.6857