Enerflex Reports Second Quarter 2011 Financial Results and Announces Quarterly Dividend

Marketwired

CALGARY, ALBERTA--(Marketwire - Aug. 10, 2011) - Enerflex Ltd. (TSX:EFX - News; "Enerflex" or the "Company"), a leading supplier of products and services to the global energy industry, is pleased to report its unaudited interim financial and operating results for the three and six months ended June 30, 2011, which were prepared using International Financial Reporting Standards ("IFRS").Enerflex became an independently operated and publicly listed company on June 1, 2011 as a result of its spin-off from Toromont Industries Ltd. ("Toromont"). The transaction was implemented by way of a plan of arrangement. Toromont shareholders received one common share of Enerflex for each common share of Toromont. Enerflex's shares began trading on the Toronto Stock Exchange ("TSX") on June 3, 2011."Enerflex reported improved second quarter and first-half results, which include an increase of 387% in first-half operating income as well as stronger gross margin in both periods," said J. Blair Goertzen, Enerflex's President and CEO. "These results benefitted significantly from the recognition of approved change orders in MENA totaling $16.5 million in the first six months, increased sales in all segments and by realizing the cost benefits of our operational rationalization, which is ongoing."




Financial Highlights(1)

Three Months Ended June 30
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$ millions, except per share amounts and
percentages (unaudited) 2011 2010 $ change
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Revenue $ 254.7 $ 254.0 $ 0.7
Gross margin $ 47.7 $ 43.8 $ 3.9
Gross margin% 18.7 17.3
Operating income (2) $ 13.5 $ 7.9 $ 5.6
Operating income %(2) 5.3 3.1
EBITDA $ 24.8 $ 18.9 $ 5.9
EBITDA% 9.7 7.4
Net earnings $ 9.4 $ 2.8 $ 6.6
Earnings per share $ 0.12 $ 0.04 $ 0.08
Dividends per share $ 0.06 $ - $ 0.06


Six Months Ended June 30
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$ millions, except per share amounts and
percentages (unaudited) 2011 2010 $ change
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Revenue $ 581.1 $ 466.4 $ 114.7
Gross margin $ 104.0 $ 73.4 $ 30.6
Gross margin% 17.9 15.7
Operating income (2) $ 27.2 $ 5.6 $ 21.6
Operating income %(2) 4.7 1.2
EBITDA - normalized(3) $ 50.3 $ 25.9(2) $ 24.4
EBITDA% 8.7 5.6
Net earnings - normalized(3) $ 19.2 $ (2.0) $ 21.2
Earnings per share $ 0.25 $ 0.18 $ 0.07
Dividends per share $ 0.06 $ - $ 0.06

(1) Results through May 31, 2011 have been prepared on a carve out basis.
(2) Operating margin provides the net margin contributions made from the
Company's core businesses after considering all selling, general and
administrative expenses. Operating margin is a non-GAAP measure that
does not have a standardized meaning prescribed by GAAP and therefore is
unlikely to be comparable to similar measures presented by other
issuers.
(3) Normalized for gain on sale of $18.6 million ($15.6 million net of tax)
related to Toromont's acquisition of Enerflex Systems Income Fund.

Second Quarter and First Half Highlights
In the three and six months ended June 30, 2011, Enerflex:

-- Generated revenue of $254.7 million compared to $254.0 million in the
second quarter of 2010. The increase of $0.7 million was a result of
increased revenue in the International segment as a result of an
approved change order in MENA, partially offset by decreased revenues in
two of the Company's business segments (Canada and Northern U.S., and
Southern U.S. and South America). First half revenues were $581.1
compared to $466.4 during the same period of the prior year;

-- Achieved a gross margin of $47.7 million or 18.7% compared to $43.8
million or 17.3% during the same period last year, an increase of $3.9
million. Gross margin for the first half of the year totalled $104.0
million or 17.9%, an increase of 41.7% over the same period of the prior
year and benefitted from approved change orders in MENA, which
contributed $16.5 million to gross margin;

-- Achieved operating income of $13.5 million or 5.3% of revenue, from $7.9
million or 3.1% in the second quarter of 2010. Operating income for the
first half of the year was $27.2 million or 4.7% of revenue, an increase
of $21.6 million from the first half of 2010;

-- Generated second quarter EBITDA of $24.8 million, an increase of $5.9
million over the second quarter of 2010. Normalized EBITDA for the first
half of 2011 was $50.3 million, an increase of $24.4 million over the
first half of 2010;

-- Increased backlog to $722.3 million at June 30, 2011 compared to $393.1
million at June 30, 2010, an increase of 83.7% over the prior year.
Backlog at June 30, 2011 increased by $76.1 million or 11.8% over
December 31, 2010;

-- Secured access to credit facilities totalling $375 million with a
syndicate of Canadian chartered banks, leaving available credit capacity
of approximately $200 million;

-- Repaid indebtedness to Toromont of $173.3 million incurred as a result
of the spin-off from Toromont;

-- Completed a private placement of $90.5 million in unsecured notes; and

-- Exited the second quarter with net debt of $129.1 million which includes
cash on hand of $54.3 million.


Subsequent to the end of the second quarter of 2011, Enerflex:

-- Sold idle manufacturing facilities in Calgary and Stettler, Alberta
totalling 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 is scheduled to close in
September 2011; and

-- Declared the Company's second dividend of $0.06 per share, payable on
October 4, 2011 to shareholders of record on September 12, 2011.

Financial ResultsEnerflex's $0.7 million or 0.3% period-over-period increase in revenue to $254.7 million in the second quarter of 2011 was a result of decreased overall revenues within the Americas regions. Canada and Northern U.S. revenues decreased by $0.9 million from the same period of last year, while Southern U.S. and South America revenues saw a decrease in revenue of $4.7 million. The International segment increased revenues by $6.2 million to $90.7 million from $84.5 million in 2010.During the first six months of 2011, the Company generated $581.1 million in revenue as compared to $466.4 million in the same period of 2010, a result of increased revenues in all three business segments. Canada and Northern U.S. revenues increased by $64.8 million. Southern U.S. and South America revenues increased by $11.1 million. Revenues in the International segment increased by $38.9 million and benefitted from change orders related to past projects in MENA.Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) from continuing operations totalled $50.3 million in the first half of 2011, an increase of 94.2% over $25.9 million in the prior year's period.Gross margin of $47.7 million represented an increase of 8.9% over the second quarter of 2010 as a result of improved margins on contracts awarded, better than expected performance on certain projects and the recognition of revenue associated with past projects. Gross margin for the six months ended June 30, 2011 was $104.0 million or 17.9% of revenue as compared to $73.4 million or 15.7% of revenue for the six months ended June 30, 2010, an increase of $30.6 million. Gross margins also benefitted from change orders related to past projects in MENA, contributing $16.5 million.Backlog at June 30, 2011 increased to $722.3 million from $393.1 million at June 30, 2010, an 83.7% increase over the comparable quarter's end. Backlog at June 30, 2011 increased by $76.1 million or 11.8% over December 31, 2010 backlog. These increases are a result of increased activity in unconventional natural gas basins, liquids-rich gas basins in the United States and various coal seam gas to liquefied natural gas projects in Australia.During the quarter, Enerflex also took measures that have substantially strengthened its balance sheet. The new $375 million credit facilities are unsecured and have a term of four years, enabling Enerflex to allocate capital in a way best-suited to lever its pursuit of growth opportunities around the world. In addition, Enerflex closed its current negotiations for a private placement of $90.5 million in senior, unsecured notes. These steps complement Enerflex's growing revenue, greater operating efficiency and improved margins, resulting in substantial strengthening of the Company's overall financial position."With our Company's increased backlog and enhanced financial flexibility, Enerflex is well-positioned to deliver improved results through the balance of 2011 and into 2012," said Mr. Goertzen. "In particular, we are continuing to focus on operational rationalization that will further reduce costs and make us more competitive in bidding on and executing projects worldwide."Enerflex's consolidated financial statements as at and for the three and six months ended June 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 DetailsEnerflex will host a conference call for analysts and investors on Thursday, August 11, 2011 at 9:00 a.m. MDT (11:00 a.m. EDT) to discuss the Company's 2011 second quarter results. The call will be hosted by Mr. Goertzen.If you wish to participate in this conference call, please call, 1.877.240.9772 or 1.416.340.8530. Please dial in 10 minutes prior to the start of the call. No passcode is required. A live audio webcast of the conference call will be available on the Enerflex website at www.enerflex.com under the Investor Relations section on August 11, 2011 at 9:00 a.m. MDT (11:00 a.m. EDT). Approximately one hour after the call, a recording of the event will be available on the Company's website.A replay of the teleconference will be available one hour after the conclusion of the call until midnight, August 18, 2011. Please call 1.800.408.3053 or 1.905.694.9451 and enter passcode 6358267.About EnerflexEnerflex Ltd. is the 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 2,800 employees. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, the United States, Argentina, Colombia, Australia, the Netherlands, the United Kingdom, Germany, Pakistan, the United Arab Emirates, Egypt, Oman 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 StatementsTo 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' 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 ANALYSISThe Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements and the accompanying notes to the interim consolidated financial statements for the three and six months ended June 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.The MD&A has been prepared taking into consideration information that is available up to August 9, 2011 and focuses on key statistics from the consolidated financial statements, and pertains to known risks and uncertainties relating to the oil and gas service sector. This discussion should not be considered all-inclusive, as it excludes changes that may occur in general economic, political and environmental conditions. Additionally, other elements may or may not occur which could affect industry conditions and/or Enerflex Ltd. ("Enerflex" or "the Company") in the future. Additional information relating to the Company, including the Information Circular, is available on SEDAR at www.sedar.com.FORWARD-LOOKING STATEMENTSThis 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 analysis 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; 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 COMPANYEnerflex Ltd. was formed after the acquisition of Enerflex Systems Income Fund ("ESIF") by Toromont Industries Ltd. to integrate 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 shareholder approval, satisfactory tax rulings and opinions from the Canada Revenue Agency and approval by the Ontario Superior Court of Justice (Commercial List). The approved Arrangement created 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.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, CO(2) processing plants, refrigeration systems and power generators serving the natural gas production industry.Headquartered in Calgary, Canada, Enerflex has approximately 2,800 employees worldwide. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, the United States, Argentina, Colombia, Australia, the Netherlands, the United Kingdom, Germany, Pakistan, the United Arab Emirates, Egypt, Oman and Indonesia.OVERVIEWThe 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 half of 2011, Enerflex continued to see improved bookings in all regions, including successful bids on large projects in the U.S. and in MENA. Manufacturing and service activity levels have increased in all regions, with the largest increase coming in Canada. North American rental utilization levels were challenged throughout 2010, however, utilization rates have increased slightly through the first half of the year. MENA has also contributed positively to the bottom line through the first half 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, totaling $16.5 million.



----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
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(unaudited)(thousands) 2011 2010 2011 2010(1)
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Revenue
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Canada & Northern U.S. 101,627 102,494 243,925 179,143
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Southern U.S. and South America 62,413 67,050 151,752 140,707
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International 90,698 84,478 185,466 146,585
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Total revenue 254,738 254,022 581,143 466,435
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Gross margin 47,699 43,835 103,963 73,364
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Selling, general & administrative
expenses 34,222 35,926 76,733 67,770
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Operating income 13,477 7,909 27,230 5,594
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Gain on available for sale assets - - - (18,627)
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Gain on sale of assets (619) (795) (1,361) (45)
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Equity (earnings) loss (309) 27 (510) (190)
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Earnings before interest & taxes 14,405 8,677 29,101 24,456
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Finance costs and income 1,603 3,992 3,940 7,047
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Income before taxes 12,802 4,685 25,161 17,409
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Income tax expense 3,442 1,623 7,181 2,199
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Gain on sale of discontinued
operations - - 1,430 -
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Losses from discontinued operations - (298) (164) (1,581)
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Net earnings 9,360 2,764 19,246 13,629
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FINANCIAL HIGHLIGHTS
Key ratios:

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Gross margin as a % of revenues 18.7 17.3 17.9 15.7
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Selling, general & administrative
expenses as a % of revenues 13.4 14.1 13.2 14.5
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Operating income as a % of revenues 5.3 3.1 4.7 1.2
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Income taxes as a % of earnings
before income taxes 26.9 34.6 28.5 12.6
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(1) 2010 amounts include the financial results of ESIF from the date of
acquisition, January 20, 2010.


NON-GAAP MEASURES

----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
(unaudited)(thousands) 2011 2010 2011 2010(1)
----------------------------------------------------------------------------
EBITDA
----------------------------------------------------------------------------
Earnings before interest & income
taxes 14,405 8,677 29,101 24,456
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Depreciation and amortization 10,356 10,231 21,235 20,068
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EBITDA 24,761 18,908 50,336 44,524
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EBITDA(2) - normalized 24,761 18,908 50,336 25,897
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Cash flow
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Cash flow from operations 17,067 9,969 33,878 12,660
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Non-cash working capital and other 28,698 (27,799) 29,127 (535)
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Cash flow 45,765 (17,830) 63,005 12,125
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(1) 2010 amounts include the financial results of ESIF from the date of
acquisition, January 20, 2010.
(2) EBITDA is normalized for the net impact of the gain on available for
sale assets of $18,627. Prior to the acquisition of Enerflex Systems
Income Fund ("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 Generally Accepted Accounting Principles ("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 flowCash 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.Free cash flow may fluctuate on a quarterly basis due to seasonal cash flows, capital expenditures incurred, income taxes paid, and interest costs on outstanding debt.FOR THE THREE MONTHS ENDED JUNE 30, 2011During the second quarter of 2011, the Company generated $ 254.7 million in revenue, as compared to $254.0 million in the second quarter of 2010. The increase of $0.7 million was a result of increased revenue in the International segment partially offset by decreased revenues in Canada and Northern US, and Southern US and South America. As compared to the three month period ended June 30, 2010:



-- Canada and Northern U.S. revenues decreased by $0.9 million as a result
of lower Rental revenue, partially offset by higher Service revenue;

-- Southern U.S. and South America revenues decreased by $4.7 million, as a
result of decreased engineered systems activity levels in 2011, which
was partially offset by increased Service revenues; and

-- International revenues increased by $6.2 million as a result of
increased revenue in Australia, the recognition of revenue on approved
change orders related to a past project in MENA, partially offset by
closing the International C&P manufacturing facility in the third
quarter of 2010 and the transfer of bookings and backlog related to that
facility to Enerflex's other two segments.

Gross margin for the three months ended June 30, 2011 was $47.7 million or 18.7% of revenue as compared to $43.8 million or 17.3% of revenue for the three months ended June 30, 2010, an increase of $3.9 million. Contributing to the gross margin increase over the second quarter of 2010 was strong gross margin performance in Canada and Northern U.S., as a result of improved plant utilization; improved gross margin performance in the International business segment, as a result of revenue recognized on approved change orders related to a past project, which contributed $7.0 million to gross margin, partially offset by lower margins in the Southern U.S. and South America segment as a result of lower revenues.Selling, general and administrative ("SG&A") expenses were $34.2 million or 13.4% of revenue during the three months ended June 30, 2011, compared to $35.9 million or 14.1% of revenue in the same period of 2010. The $1.7 million decrease in SG&A expenses is primarily attributable to reduced costs resulting from integration initiatives and continued cost control efforts.Operating income assists the reader in understanding the net contributions made from the Company's core businesses after considering all SG&A expenses and the impact of the foreign exchange hedging strategy. During the second quarter of 2011, Enerflex produced an operating income of $13.5 million or 5.3% of revenue as compared to operating income of $7.9 million or 3.1% of revenue in 2010. The increase in operating income in the second 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 totaled $1.6 million for the three months ended June 30, 2011, compared with $4.0 million in the same period of 2010, a decrease of $2.4 million. Finance costs in 2011 were lower than those in 2010 primarily as a result of lower interest expense, which is a direct result of lower average borrowings and a lower effective interest rate.Income tax expense totaled $3.4 million for the three months ended June 30, 2011 compared with an expense of $1.6 million in the same period of 2010. The period-over-period increase in income taxes in the second quarter of 2011 compared to 2010 was primarily due to an increase in earnings before taxes from operations.During the second quarter of 2011, Enerflex generated net earnings from continuing operations of $9.4 million as compared to $3.1 million in the same period of 2010.Loss from discontinued operations reflects the results of Enerflex Environmental Pty Ltd. ("Environmental"), and Enerflex Syntech. These items, in addition to the above, contributed to net earnings of $9.4 million and $2.8 million in the second quarter of 2011 and 2010 respectively.SEGMENTED RESULTSEnerflex 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 to the oil & gas industries, focusing in Canada and Northern U.S.; 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 & gas industries focusing on Southern and Eastern U.S. as well as South America3. International is comprised of four divisions:- AustralAsia division provides process construction for gas and power facilities, compression package assembly and mechanical service for the oil & gas industry. This division wholly owns EFX Global KL Sdn Bhd, which provides engineering and estimating services to the AustralAsia operations;- Europe division provides combined heat and power ("CHP") generator products and mechanical service to the oil & gas industry and the CHP product line;- 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 & 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. In addition, the division has a 50% joint venture interest in PDIL in Pakistan.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 generations systems. Combined Heat and Power Systems are predominantly an International region product line. Engineered Systems' product line tends to be more cyclical with respect to revenue, gross margin and income before interest and income taxes than Enerflex's other business segments. Revenues are derived primarily from the investments made in natural gas infrastructure by producers.Service product line includes support services, labour and parts sales, to the oil and gas industry as well as the CHP industry in our International region. Enerflex, through various business units, is an authorized distributor for Waukesha engines and parts in Canada, Alaska, Northern U.S., Australia, Indonesia, Papua New Guinea, the Netherlands, Germany and Spain. 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 June 30,
----------------------------------------------------------------------------
(unaudited)(thousands) 2011 2010
----------------------------------------------------------------------------
Segment revenue 155,355 108,662
Intersegment revenue (53,728) (6,168)
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Revenue 101,627 102,494
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Revenue - Engineered Systems 47,088 47,677
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Revenue - Service 46,574 39,288
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Revenue - Rental 7,965 15,529
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Operating income 9,720 5,020
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Segment revenues as a % of total revenues 39.9 40.3
Service revenues as a % of segment revenues 45.8 38.3
Operating income as a % of segment revenues 9.6 4.9
----------------------------------------------------------------------------

Revenues in this region were $101.6 million for the second quarter of 2011 and comprised 39.9% of consolidated revenue. This compared to $102.5 million and 40.3% of consolidated revenue for the same period of 2010. The decrease of $0.9 million was the result of slightly lower Engineered Systems revenues due to timing of revenue recognition on projects and lower rental revenue, as a result of fewer rental units being sold in the second quarter of 2011. This was partially offset by increased activity in the Service business in Canada and Wyoming.Operating income increased by $4.7 million to $9.7 million in 2011 from $5.0 million in 2010. This increase was the result of the increased gross margin performance as a result of improved plant utilization and higher parts sales in Service. This was partially offset by higher SG&A as a result of the transfer of staff to the Domestic C&P facility resulting from the closure of the International C&P facility in the third quarter of 2010.



SOUTHERN U.S. AND SOUTH AMERICA

Three months ended June 30,
----------------------------------------------------------------------------
(unaudited)(thousands) 2011 2010
----------------------------------------------------------------------------
Segment revenue 62,642 67,129
Intersegment revenue (229) (79)
----------------------------------------------------------------------------
Revenue 62,413 67,050
----------------------------------------------------------------------------
Revenue - Engineered Systems 50,001 58,600
----------------------------------------------------------------------------
Revenue - Service 12,412 8,450
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Operating income 4,252 9,606
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Segment revenues as a % of total revenues 24.5 26.4
Service revenues as a % of segment revenues 19.9 12.6
Operating income as a % of segment revenues 6.8 14.3
----------------------------------------------------------------------------

Southern U.S. and South America revenues totaled $62.4 million in the second quarter of 2011 as compared to $67.1 million in the second quarter of 2010. This decrease of $4.7 million was the result of delayed delivery dates on equipment related to Engineered Systems booking activity in late 2010, deferring revenue to the second half of 2011. This was partially off set by stronger Service revenues, as a result of higher activity levels in the unconventional shale plays in the U.S.Operating income decreased from $9.6 million in the second quarter of 2010 to $4.3 million in the second quarter of 2011, as a result of lower revenues due to timing of revenue recognition, and lower gross margin as a result of under-applied overhead and lower awarded margins compared to 2010.



INTERNATIONAL

Three months ended June 30,
----------------------------------------------------------------------------
(unaudited)(thousands), 2011 2010
----------------------------------------------------------------------------
Segment revenue 91,440 89,396
Intersegment revenue (742) (4,918)
----------------------------------------------------------------------------
Revenue 90,698 84,478
----------------------------------------------------------------------------
Revenue - Engineered Systems 67,283 65,654
----------------------------------------------------------------------------
Revenue - Service 16,151 18,523
----------------------------------------------------------------------------
Revenue - Rental 7,264 301
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Operating loss (495) (6,717)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Segment revenues as a % of total revenues 35.6 33.3
Service revenues as a % of segment revenues 17.8 21.9
Operating loss as a % of segment revenues (0.5) (8.0)
----------------------------------------------------------------------------

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 Enerflex Environmental Australia business, which was sold in the first quarter of 2011 for a gain of $1.4 million net of tax. These two discontinued operations recorded a loss before tax totaling $0.4 million in the second quarter of 2010, $2.1 million for the first six months of 2010 and $0.2 million loss for the first six months of 2011.Revenues for 2011 increased by $6.2 million to $90.7 million from $84.5 million in the second quarter of 2010. The increase was due to higher activity levels in Australia related to Coal Seam Gas ("CSG") projects, the recognition of revenue on approved change orders related to a past project in MENA and the BP Oman project beginning operations in late 2010. This was partially offset by lower Compression and Power ("C&P") revenue as a result of the closure of the International C&P business in late 2010, with its backlog and future opportunities transferred to plants in Casper, Wyoming and Houston, Texas.Operating loss for the second quarter of 2011 was $0.5 million, $6.2 million better than the second quarter of 2010. Operating income improved as a result of increased revenues, improved margin performance in the MENA division, and lower SG&A costs in this segment as a result of the closure of the International C&P facility. This was partially offset by weaker financial performance in the Australian and European operations in the International segment. These operations have not performed as expected during the second quarter of 2011 as a result of macro economic issues in Europe, project delays, cost over-runs and impairment of work in process incurred on specific projects in Australia due to weather related delays in Queensland. These regions have had a material negative impact on the operating results of this segment.BOOKINGS AND BACKLOGThe Company records bookings and backlog when a firm commitment is received from customers for the Engineered Systems product line. Backlog represents unfulfilled orders at period end and is an indicator of future Engineered Systems revenue for the Company.



Bookings Six months ended June 30,
(unaudited)(thousands) 2011 2010(1)
----------------------------------------------------------------------------
Canada and Northern U.S. 153,638 $ 94,127
Southern U.S. and South America 201,499 157,586
International(2) 119,860 239,422
----------------------------------------------------------------------------
Total bookings 474,997 $ 491,135
------------------------------
------------------------------

(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 June 30,
(unaudited)(thousands) 2011 2010
----------------------------------------------------------------------------
Canada and Northern U.S. 151,379 $ 101,943
Southern U.S. and South America 211,225 173,766
International 359,727 117,366
----------------------------------------------------------------------------
Total backlog 722,331 $ 393,075
------------------------------
------------------------------

Backlog at June 30, 2011 was $722.3 million compared to $393.1 million at June 30, 2010, representing an 84% increase over the prior year. As compared to December 31, 2010, backlog at June 30, 2011 increased by $76.1 million or 12%.FOR THE SIX MONTHS ENDED JUNE 30, 2011During the first six months of 2011, the Company generated $ 581.1 million in revenue, as compared to $466.4 million in the same period of 2010. The increase of $114.7 million, or 24.6%, was a result of increased revenues in all three business segments. As compared to the six month period ended June 30, 2010:



-- Canada and Northern U.S. revenues increased by $64.8 million as a result
of increased engineered systems volumes related to the Montney and
Horn Rive unconventional resource basins, and increased parts sales in
our service business;

-- Southern U.S. and South America revenues increased by $11.0 million, a
result of strong bookings in 2010 and increased activity levels in 2011
in the Eagleford and Marcellus resource basins;

-- International revenues increased by $38.9 million as a result of
increased revenues in Australia due to CSG projects, the recognition of
revenue on approved change orders related to past projects in MENA and
the commencement of commercial operations of the BP project in that
region. This was partially offset by lower revenues in our European
region as a result of the macro economic issue being experienced on that
continent.

The first two quarters of 2011 includes six full months of activity, whereas the first two quarters of 2010 includes six full months of activity for the legacy Toromont Compression business and five months and 9 days activity of the legacy ESIF business.Gross margin for the six months ended June 30, 2011 was $104.0 million or 17.9% of revenue as compared to $73.4 million or 15.7% of revenue for the six months ended June 30, 2010, an increase of $30.6 million. Contributing to the gross margin increase over the first six months of 2010 was strong gross margin performance in Canada and Northern U.S as a result of improved plant utilization, improved rental utilization rates, stronger parts sales; and improved gross margin performance in the International business segment, 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. Southern U.S. and South America, gross margin remained flat compared to the same period in 2010.Selling, general and administrative expenses were $76.7 million or 13.2% of revenue during the six months ended June 30, 2011, compared to $67.8 million or 14.5% of revenue in the same period of 2010. The increase of $8.9 million in SG&A expenses is primarily attributable to a full six months of costs in 2011, compared to 2010, which included SG&A costs for the legacy Enerflex business for only five months and 9 days.Operating income for 2011 was $27.2 million or 4.7% of revenue as compared to an operating income of $5.6 million or 1.2% 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 totaled $3.9 million for the six months ended June 30, 2011, compared with $7.0 million in the same period of 2010, a decrease of $3.1 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 $7.2 million for the six months ended June 30, 2011 compared with an expense of $2.2 million in the same period of 2010. The period-over-period increase in income taxes in the first half of 2011 compared to 2010 was primarily due to an increase in earnings before taxes from operations. 2010 earnings included an $18.6 million gain realized on ESIF units, which was taxed at a lower effective rate.During the first half of 2011, Enerflex generated net earnings from continuing operations of $18.0 million as compared to $15.2 million in the same period of 2010, which included the $17.2 million, net of tax gain realized on the ESIF units.Loss on discontinued operations reflect the results of Environmental, including the gain on the sale of Environmental of $1.4 million, net of tax, in the first six months of 2011, and Enerflex Syntech. In the first six months of 2010, Enerflex reported a gain of $18.6 million ($17.2 million net of tax) related to the sale of ESIF units purchased prior to the acquisition. These items, in addition to the above, contributed to net earnings of $19.2 million and $13.6 million in the first half of 2011 and 2010 respectively.CANADA AND NORTHERN U.S.



Six months ended June 30,
----------------------------------------------------------------------------
(unaudited)(thousands) 2011 2010(1)
----------------------------------------------------------------------------
Segment revenue 298,913 190,193
Intersegment revenue (54,988) (11,050)
----------------------------------------------------------------------------
Revenue 243,925 179,143
----------------------------------------------------------------------------
Revenue - Engineered Systems 140,024 79,686
----------------------------------------------------------------------------
Revenue - Service 85,799 73,242
----------------------------------------------------------------------------
Revenue - Rental 18,102 26,215
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Operating income 16,554 2,554
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Segment revenues as a % of total revenues 42.0 38.4
Service revenues as a % of segment revenues 35.2 40.9
Operating income as a % of segment revenues 6.8 1.4
----------------------------------------------------------------------------

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

Revenues in this region were $243.9 million in 2011 and comprised 42.0% of consolidated revenue for the first six months of 2011. This compared to $179.1 million and 38.4% of consolidated revenue for the same period of 2010. The increase of $64.8 million was the result of increased engineered systems revenues due to higher backlog exiting 2010 and 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 fewer unit sales in 2011. 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 $16.6 million in the first half of 2011, an increase of $14.0 million from the first half of 2010. The improved performance was due to increased gross margin resulting from improved plant utilization and higher parts sales, partially off set by higher SG&A as a result of a full six months of expenses in this segment compared to 5 months and 9 days in 2010 and the transfer of staff to the Domestic C&P facility resulting from the closure of the International C&P facility in the third quarter of 2010.



SOUTHERN U.S. AND SOUTH AMERICA

Six months ended June 30,
----------------------------------------------------------------------------
(unaudited)(thousands) 2011 2010
----------------------------------------------------------------------------
Segment revenue 152,117 140,798
Intersegment revenue (365) (91)
----------------------------------------------------------------------------
Revenue 151,752 140,707
----------------------------------------------------------------------------
Revenue - Engineered Systems 130,327 123,731
----------------------------------------------------------------------------
Revenue - Service 21,425 16,976
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Operating income 12,456 13,661
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Segment revenues as a % of total revenues 26.1 30.2
Service revenues as a % of segment revenues 14.1 12.1
Operating income as a % of segment revenues 8.2 9.7
----------------------------------------------------------------------------

Southern U.S. and South America revenues totaled $151.7 million for the first six months of 2011 as compared to $140.7 million in the same period of 2010. This increase of $11.0 million was the result of strong booking activity as the Southern U.S. and South America region continues to add to its backlog for 2011, and stronger service activity levels.Operating income decreased to $12.5 million in the first six months of 2011 from $13.7 million in the same period of 2010, as a result of lower gross margin percentages due to under-applied overhead in the second quarter and lower awarded margins in the six month period.



INTERNATIONAL

Six months ended June 30,
----------------------------------------------------------------------------
(unaudited)(thousands), 2011 2010(1)
----------------------------------------------------------------------------
Segment revenue 188,359 155,383
Intersegment revenue (2,893) (8,798)
----------------------------------------------------------------------------
Revenue 185,466 146,585
----------------------------------------------------------------------------
Revenue - Engineered Systems 140,202 114,053
----------------------------------------------------------------------------
Revenue - Service 35,495 32,231
----------------------------------------------------------------------------
Revenue - Rental 9,769 301
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Operating loss (1,780) (10,621)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Segment revenues as a % of total revenues 31.9 31.4
Service revenues as a % of segment revenues 19.1 22.0
Operating loss as a % of segment revenues (1.0) (7.2)
----------------------------------------------------------------------------

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

Revenues for 2011 increased by $38.9 million to $185.5 million from $146.6 million in the first six months of 2010. The increase was due to higher activity levels in Australia related to CSG projects, the recognition of revenue on approved change orders related to past projects in MENA and the BP Oman project beginning operations in late 2010. This was offset by lower C&P revenue as a result of the closure of the International C&P business in late 2010, with its backlog and future opportunities transferred to plants in Casper, Wyoming and Houston, Texas.Operating loss for the first six months of 2011 was $1.8 million, $8.8 million better than the same period of 2010. Operating income improved as a result of increased revenues, improved margin performance in the MENA division due to factors discussed above, partially offset by higher SG&A costs in this segment from three less weeks of operations in 2010 as a result of the acquisition of ESIF.This was partially offset by weaker financial performance in the Australian and European operations in the International segment. These operations have not performed as expected during the first half of 2011 as a result of macro economic issues in Europe and project delays, cost over-runs and impairment of work in process on specific projects in Australia due to weather related delays in Queensland.



QUARTERLY SUMMARY

----------------------------------------------------------------------------
Quarter ended Net Earnings Earnings per share
(unaudited)(thousands) Revenue earnings per share - diluted
----------------------------------------------------------------------------
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 9,454 0.12 0.12
----------------------------------------------------------------------------
September 30, 2010(2) 277,834 3,216 0.04 0.04
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
September 30, 2009(2),(3) 150,179 10,120 0.16 0.16
----------------------------------------------------------------------------

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



----------------------------------------------------------------------------
Increase /
($millions) (decrease) Explanation
----------------------------------------------------------------------------
Assets:
----------------------------------------------------------------------------
Accounts receivable 25.2 Increase is due to higher revenues in
the Canada & Northern U.S and
International business segments.
----------------------------------------------------------------------------
Inventory 4.9 Increase is primarily related to higher
work in progress and repair and
distribution parts, partially offset by
decreases in finished goods and direct
material inventory.
----------------------------------------------------------------------------
Other current assets (6.3) Decrease is primarily due to lower
prepaid assets
----------------------------------------------------------------------------
Property, plant and (10.7) Decrease is primarily due to
equipment depreciation charges for the quarter, as
well as the sale of non-core land and
buildings. This was partially offset by
additions to property plant & equipment.
----------------------------------------------------------------------------
Rental equipment (4.5) Decrease is primarily related to
depreciation charges and the sale of
equipment during the first quarter,
partially offset by rental asset
additions during the quarter.
----------------------------------------------------------------------------
Intangible assets (5.1) Decrease is attributable to amortization
of intangible assets primarily related
to the ESIF acquisition for the first
half of 2011.
----------------------------------------------------------------------------
Liabilities:
----------------------------------------------------------------------------
Accounts payable and (7.1) Decrease is primarily related to payment
accrued liabilities of year-end performance incentives
----------------------------------------------------------------------------
Deferred revenue 68.4 High activity levels have resulted in
progress billings exceeding revenue
recognized for the first six months.
----------------------------------------------------------------------------
Note payable (215.0) The Note has been repaid to Toromont
during the second quarter.
----------------------------------------------------------------------------
Long-term debt 183.4 New debt facility has been established
by Enerflex during the second quarter
----------------------------------------------------------------------------


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 Six months ended
June 30, June 30,
(unaudited)(thousands) 2011 2010 2011 2010(1)
----------------------------------------------------------------------------
Cash, beginning of period 28,573 15,000 15,000 34,949
Cash provided from (used) in:
Operating activities 45,765 (17,830) 63,005 12,125
Investing activities 3,147 (11,276) 5,314 (310,339)
Financing activities (23,289) 25,555 (28,812) 275,884
Exchange rate changes on foreign
currency cash 59 3,551 (252) 2,381
Cash, end of period 54,255 15,000 54,255 15,000

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

Operating ActivitiesFor the three months ended June 30, 2011, cash provided by operating activities was $45.8 million as compared to cash used in operating activities of $17.8 million in the same period of 2010. Increased operating results and a significant improvement in non-cash working capital resulted in the increase in cash provided by operating activities.For the six months ended June 30, 2011, cash provided by operating activities was $63.0 million as compared to $12.1 million in the same period of 2010. The increase was due to increased operating results, higher depreciation and amortization and a significant improvement in non-cash working capital.Investing ActivitiesInvesting activities provided $3.1 million and $5.3 million of cash for the three and six months ended June 30, 2011 respectively, as compared to cash used in investing activities of $11.3 million and $310.3 million in the same periods of 2010. Expenditures on capital assets for the three months ended June 30, 2011 decreased $9.1 million from the same quarter of 2010 while proceeds from the disposition of capital assets in 2011 increased in the second quarter of 2011 by $3.3 million as a result of the disposition of non core real estate assets. For the six months ended June 30, 2011, additions decreased by $14.2 million while dispositions increased by $3.2 million over the comparable period in 2010 as a result of the disposition of non core real estate and equipment. The disposal of the Environmental business contributed an additional $3.4 million in the first quarter of 2011, while the acquisition of ESIF in the first quarter of 2010 resulted in an investment of $292.5 million.Financing ActivitiesCash used in financing activities for the three and six months ended June 30, 2011 was $23.3 million and $28.8 million respectively, as compared to cash provided in financing of $25.6 million and $275.9 million 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.



Net Capital Spending

----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
(unaudited)(thousands) 2011 2010 2011 2010(1)
----------------------------------------------------------------------------
Net capital spending $ (3,147) $ 11,276 $ (1,925) $ 17,806
----------------------------------------------------------------------------

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

Net capital spending for the second quarter of 2011 was $(3.1) million, as compared to $11.3 million in 2010. The change was primarily the result of the disposal of non-core land and buildings, and lower investments in fixed assets and the rental fleet.RISK MANAGEMENTIn 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 RiskEnerflex 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 loss of $8.8 million at June 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 appreciated by 1% against the U.S. dollar in the second quarter of 2011 versus a depreciation of 4% against the U.S. dollar during the same period of 2010. The Australian dollar appreciated by 3% against the Canadian dollar during the second quarter of 2011, as compared to a 3% depreciation in the same period of 2010. The Euro appreciated by 2% against the Canadian dollar during the second quarter of 2011, as compared to a depreciation of 5% in the same period of 2010.The types of foreign exchange risk and the Company's related risk management strategies are as follows:Transaction exposureThe 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 exposureThe 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 riskThe Company's liabilities include long-term debt that is subject to fluctuations in interest rates. The Company's Private Placement Notes outstanding at June 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 $1.9 million. All interest charges are recorded on the income statement as a separate line item called Finance Costs.Credit riskFinancial 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 riskLiquidity 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 RESOURCESOn August 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 second quarter of 2011, the Company declared a dividend of $0.06 per share.During the second quarter of 2011, the Company negotiated 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 USD million. Drawings on the US Facility are by way of LIBOR loans, US Base Rate Loans and letters of credit. The Company is currently in the process of negotiating an extension 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.At June 30, 2011, the Company had $95.3 million drawn against the Facility. This facility was 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 ARRANGEMENTSThe Company's contractual obligations are contained in the following table.



CONTRACTUAL OBLIGATIONS

(unaudited)(thousands) Payments due by period
----------------------------------------------------------------------------
Contractual Less than one
Obligations year 2-3 years 4-5 years Thereafter Total
----------------------------------------------------------------------------
Leases 7,551 20,485 12,206 11,391 51,633
Purchase obligations 31,183 8,182 - - 39,365
----------------------------------------------------------------------------
Total 38,734 28,667 12,206 11,391 90,998
----------------------------------------------------------------------------

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 PARTIESEnerflex 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:



June 30, December 31,
2011 2010
-------------------------------
Revenue $ 163 $ 20
Management Fees 4,598 7,920
Purchases 760 1,279
Interest expense 1,902 5,484
Accounts receivable - 61
Accounts payable 330(1) 3,692
Note payable - 215,000

(1) Although Toromont ceased to be a related party on June 1, 2011, related
party accounts payable includes $211 of management fees payable to
Toromont at June 30, 2011

ACCOUNTING POLICIESAdoption of International Financial Reporting StandardsAs 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 six months ended June 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 three months ended June 30, 2011, which were prepared on a carve-out basis for the first five months of 2011 and consolidated basis as at June 30, 2011.Deferred Financing CostsCosts associated with the issuance of long-term debt are deferred and amortized by the effective interest method over the term of the debt. The unamortized cost is included in long-term debt in the consolidated statement of financial position. The amortization is included in interest expense.Share-Based PaymentsThe Company's share-based compensation plans are described in Note 19 to the interim consolidated financial statements.Stock Options: Certain employees of the Company participate in the Company's Stock Option Plan. Stock options have a seven-year term, vest 20% cumulatively on each anniversary date of the grant and are exercisable at the designated common share price, which is fixed at prevailing market prices of the common shares at the date the option is granted.The Company uses the fair value method of accounting for stock options issued. The value of options is determined using the Black-Scholes option pricing model and the best estimate of the number of stock options that will ultimately vest. The fair value of each tranche is charged to income over its respective vesting period. Consideration paid by employees on exercise of stock options is credited to shareholder's capital, along with the related value previously expensed.Deferred Share Units: Deferred Share Units ("DSUs") represent indexed liabilities of the Company relative to the Company's share price.During the vesting period, the Company records, as a compensation expense, an allocated portion of the market value of the number of units expected to vest under the plan. DSUs granted vest on a graded basis, subject to the continued employment of the employee and the passage of a predetermined period of time, as set by the Board of Directors. During the vesting period, the compensation expense is recognized based on management's best estimate of the number of DSUs expected to vest based on management's best estimates of whether the criteria will be met. The accrued liability is adjusted to reflect current unit value at each period end, through a charge to compensation expense, and allocated between current and long-term liabilities based on when the amount becomes payable.Phantom Shares: The Company maintains a Phantom Share (Share Appreciation Rights) ("SARs") Plan for certain directors and key employees of affiliates located in Australia, the United Arab Emirates ("UAE") and the Netherlands for whom the Company's Stock Option Plan would have negative personal taxation consequences.SARs represent an indexed liability of the Company relative to the Company's share price.During the vesting period, the Company records as a compensation expense an allocated portion of the difference between the market value of the number of rights expected to vest under the plan and the strike prices of those rights based on management's best estimate of the number of rights expected to ultimately vest. The accrued liability is marked to market at each period end, through a charge to compensation expense.Earnings per Share ("EPS")Basic EPS is calculated by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding during the year, excluding shares purchased by the Company and held as treasury shares.Diluted EPS is calculated using the treasury stock method, which assumes that all outstanding stock option grants are exercised, if dilutive, and the assumed proceeds are used to purchase the Company's common shares at the average market price during the year.SIGNIFICANT ACCOUNTING ESTIMATESThe 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 ContractsThe 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 warrantyProvisions 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 EquipmentFixed 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 AssetsImpairment 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 goodwillThe 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 TaxesUncertainties 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.FUTURE ACCOUNTING PRONOUNCEMENTSThe 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.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.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. IFRS 11 is effective January 1, 2013 and the Company is in the process of assessing the impact of adopting IFRS 11.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.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.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 DIRECTORSManagement 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 REPORTINGThe 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 June 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 EVENTSSubsequent to June 30, 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 is scheduled to close in September 2011.Subsequent to June 30, 2011, the Company declared dividends of $0.06 per share, payable on October 4, 2011, to shareholders of record on September 12, 2011.OUTLOOK FOR MARKETSThe global economy continues its fragile recovery from the recent recession. Enerflex entered 2011 with significantly stronger backlog than the Company had entering 2010.The Canada and Northern U.S. region is experiencing 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 is also experiencing improved bookings and backlog during the first and second quarter 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.The International region continues to hold a lot of opportunity and experienced strong bookings and backlog through the first half 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 see several opportunities for similar projects in Oman for equipment and service work. Domestic demand for gas in this region remains strong and we are well positioned to compete for 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. As a result, the focus has expanded to the Oil & Gas industry and industrial power generation applications for our products. Enerflex's European operations are focusing on CHP and power generation growth opportunities in Russia, Turkey, Italy, Poland and Germany, targeting industrial applications in these countries. Oil & Gas opportunities will be targeted to the U.K. and Netherlands.



ENERFLEX LTD.
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, December 31,
(unaudited)($ thousands) 2011 2010
----------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 54,255 $ 15,000
Accounts receivable (Note 7) 268,391 243,238
Inventories (Note 8) 227,716 222,855
Income taxes receivable 121 1,944
Derivative financial instruments (Note 20) 1,083 448
Other current assets 15,695 22,013
----------------------------------------------------------------------------
Total current assets 567,261 505,498
----------------------------------------------------------------------------
Property, plant and equipment (Note 9) 161,358 172,041
Rental equipment (Note 9) 111,636 116,162
Deferred tax assets 48,150 47,940
Other assets (Note 10) 11,125 13,797
Intangible assets (Note 11) 34,325 39,462
Goodwill 482,656 482,656
----------------------------------------------------------------------------
Total assets $ 1,416,511 $ 1,377,556
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable, accrued liabilities and
provisions (Note 12) $ 157,342 $ 164,422
Income taxes payable 2,755 7,135
Deferred revenues 218,705 150,319
Derivative financial instruments (Note 20) 668 603
Note payable - 215,000
----------------------------------------------------------------------------
Total current liabilities 379,470 537,479
----------------------------------------------------------------------------
Long-term debt (Note 13) 183,391 -
Other long-term liabilities 192 549
----------------------------------------------------------------------------
Total liabilities 563,053 538,028
Guarantees, Commitments and Contingencies (Note 14)
Shareholders' Equity
Owner's net investment - 849,977
Share capital (Note 16) 205,369 -
Contributed surplus (Note 17) 656,565 -
Retained earnings 275 -
Accumulated other comprehensive loss (8,831) (10,845)
----------------------------------------------------------------------------
Total shareholders' equity before non-
controlling interest 853,378 839,132
Non-controlling interest 80 396
----------------------------------------------------------------------------
Total shareholders' equity and non-
controlling interest 853,458 839,528
----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,416,511 $ 1,377,556
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying Notes to the Consolidated Financial Statements



ENERFLEX LTD.
INTERIM CONSOLIDATED INCOME STATEMENT

Three Months Six Months
(Unaudited) ($ thousands, ended June 30, ended June 30,
except share amounts) 2011 2010 2011 2010
----------------------------------------------------------------------------

Revenues $ 254,738 $ 254,022 $ 581,143 $ 466,435
Cost of goods sold 207,039 210,187 477,180 393,071
----------------------------------------------------------------------------
Gross margin 47,699 43,835 103,963 73,364
Selling and administrative
expenses 34,222 35,926 76,733 67,770
----------------------------------------------------------------------------
Operating income 13,477 7,909 27,230 5,594
Gain on disposal of
property, plant & equipment (619) (795) (1,361) (45)
Gain on available-for-sale
financial assets (Note 5) - - - (18,627)
Equity (earnings) loss from
affiliates (309) 27 (510) (190)
----------------------------------------------------------------------------
Earnings before finance
costs and income taxes 14,405 8,677 29,101 24,456
Finance costs 2,072 4,046 4,692 7,149
Finance income (469) (54) (752) (102)
----------------------------------------------------------------------------
Earnings before income taxes 12,802 4,685 25,161 17,409
Income taxes (Note 15) 3,442 1,623 7,181 2,199
----------------------------------------------------------------------------
Net earnings from continuing
operations 9,360 3,062 17,980 15,210
Gain on sale of discontinued
operations (Note 6) - - 1,430 -
Loss from discontinued
operations (Note 6) - (298) (164) (1,581)
----------------------------------------------------------------------------
Net earnings $ 9,360 $ 2,764 $ 19,246 $ 13,629
------------------------------------------------
------------------------------------------------

Earnings attributable to:
Controlling interest $ 9,681 $ 2,679 $ 19,562 $ 13,556
Non-controlling interest $ (321) $ 85 $ (316) $ 73


Earnings per share - basic
(Note 19)
Continuing operations $ 0.12 $ 0.04 $ 0.23 $ 0.20
Discontinued operations $ - $ - $ 0.02 $ (0.02)

Earnings per share - diluted
(Note 19)
Continuing operations $ 0.12 $ 0.04 $ 0.23 $ 0.20
Discontinued operations $ - $ - $ 0.02 $ (0.02)

Weighted average number of
shares 77,214,913 76,881,262 77,214,913 75,381,981

See accompanying Notes to the Consolidated Financial Statements


ENERFLEXLTD.
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited) ($ thousands)

Three months ended Six months ended
June 30 June 30
2011 2010 2011 2010
----------------------------------------------------------------------------

Net earnings $ 9,360 $ 2,764 $19,246 $13,629

Other comprehensive income (loss):
Change in fair value of
derivatives designated as cash
flow hedges, net of income tax
expense (recovery) (2011 - $283;
2010 - ($6)) 139 (583) 728 (16)

Gain on derivatives designated as
cash flow hedges transferred to
net income in the current period,
net of income taxes (2011 - $133;
2010 - $27) (426) (72) (342) (70)

Unrealized gain (loss) on
translation of financial
statements of foreign operations 4,781 6,642 1,628 (2,740)

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

----------------------------------------------------------------------------
Other comprehensive income (loss) 4,494 5,987 2,014 (18,441)
----------------------------------------------------------------------------
Comprehensive income (loss) $ 13,854 $ 8,751 $ 21,260 $ (4,812)
----------------------------------------------------------------------------

See accompanying Notes to Consolidated Financial Statements


ENERFLEX LTD.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

Three months ended Six months ended
June 30 June 30
(unaudited) ($ thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Operating activities
Net earnings $ 9,360 $ 2,764 $ 19,246 $ 13,629
Items not requiring cash and cash
equivalents
Depreciation and amortization 10,356 10,231 21,235 20,068
Equity (earnings) loss from
affiliates (309) 27 (510) (190)
Deferred income taxes (1,787) (2,276) (2,327) (2,193)
Gain on sale of:
Discontinued operations (Note 6) - - (2,471) -
Rental equipment, property, plant
and equipment (619) (777) (1,361) (27)
Available for sale assets on
acquisition of control - - - (18,627)
Stock option expense 66 - 66 -
----------------------------------------------------------------------------
17,067 9,969 33,878 12,660
Net change in non-cash working
capital and other 28,698 (27,799) 29,127 (535)
----------------------------------------------------------------------------
Cash provided (used in) by operating
activities 45,765 (17,830) 63,005 12,125
----------------------------------------------------------------------------
Investing activities
Business acquisition, net of cash
acquired
(Note 5) - - - (292,533)
Additions to:
Rental equipment (4,549) (12,660) (8,561) (16,397)
Property, plant and equipment (5,143) (6,182) (7,539) (13,927)
Proceeds on disposal of:
Rental equipment 1,256 7,410 3,231 9,521
Property, plant and equipment 9,492 - 12,122 2,584
Disposal of discontinued operations,
net of cash (Note 6) - - 3,389 -
Decrease in other assets 2,091 156 2,672 413
----------------------------------------------------------------------------
Cash provided by (used in) investing
activities 3,147 (11,276) 5,314 (310,339)
----------------------------------------------------------------------------
Financing activities
(Repayment of) proceeds from note
payable (206,680) 20,982 (215,000) 227,417
Proceeds from (repayment of) long-
term debt 183,391 - 183,391 (164,811)
Equity from parent - 4,573 2,797 213,278
----------------------------------------------------------------------------
Cash (used in) provided by financing
activities (23,289) 25,555 (28,812) 275,884
----------------------------------------------------------------------------
Effect of exchange rate changes on
cash denominated in foreign
currency 59 3,551 (252) 2,381
Increase (decrease) in cash and cash
equivalents 25,682 - 39,255 (19,949)
Cash and cash equivalents at
beginning of period 28,573 15,000 15,000 34,949
----------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 54,255 $ 15,000 $ 54,255 $ 15,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information (Note 22)

See accompanying Notes to the Consolidated Financial Statements


ENERFLEX LIMITED
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Foreign
Currency
Net Share Contributed Retained Translation
($ thousands) Investment capital Surplus earnings Adjustments
---------------------------------------------------------
At January 1, 2010 297,973 -
---------------------------------------------------------
Net earnings 26,434
Non-controlling
interest on
acquisition -
Other comprehensive
income - (10,901)
Owner's
Investment/
Dividends 525,570
---------------------------------------------------------
At December 31,
2010 849,977 (10,901)
---------------------------------------------------------
Net earnings 14,654
Other comprehensive
income (2,463)
Owner's
Investment/
Dividends (2,794)
---------------------------------------------------------
At May 31, 2011 861,837 - - - (13,364)
---------------------------------------------------------
Bifurcation
transaction (861,837) 205,337 656,500
Net earnings 4,908
Other comprehensive
income (309)
Effect of share
based payment
plans 32 65
Dividends (4,633)
---------------------------------------------------------
At June 30, 2011 - 205,369 656,565 275 (13,673)
---------------------------------------------------------


Total
Available- accumulated
Cash for-sale other Non-
Flow financial comprehensive controlling
($ thousands) Hedges assets income interest Total
---------------------------------------------------------
At January 1, 2010 14 15,615 15,629 - 313,602
---------------------------------------------------------
Net earnings (135) 26,299
Non-controlling
interest on
acquisition 531 531
Other comprehensive
income 42 (15,615) (26,474) (26,474)
Owner's
Investment/
Dividends 525,570
---------------------------------------------------------
At December 31,
2010 56 - (10,845) 396 839,528
---------------------------------------------------------
Net earnings (289) 14,365
Other comprehensive
income 4,892 - 2,429 2,429
Owner's
Investment/
Dividends (2,794)
---------------------------------------------------------
At May 31, 2011 4,948 - (8,416) 107 853,528
---------------------------------------------------------
Bifurcation
transaction -
Net earnings (27) 4,881
Other comprehensive
income (106) (415) (415)
Effect of share
based payment
plans 97
Dividends (4,633)
---------------------------------------------------------
At June 30, 2011 4,842 (8,831) 80 853,458
---------------------------------------------------------

See accompanying Notes to Consolidated Financial Statements


NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited) (Thousands of dollars, except per share amount)

Note 1. Nature and Description of the CompanyEnerflex Ltd. ("Enerflex" or "the Company") was formed subsequent to the acquisition of Enerflex Systems Income Fund ("ESIF") by Toromont Industries Ltd. ("Toromont") to integrate Enerflex's products and services with Toromont's existing Compression and Power, Production and Processing, Revamps and Service divisions. During the first quarter of 2010, the operations of Toromont Energy Systems Inc., a subsidiary of Toromont Industries Ltd., were combined with the operations of Enerflex Systems Income Fund to form Enerflex Ltd.Headquartered in Calgary, the registered office is located at 904, 1331 Macleod Trail SE, Calgary, Canada. Enerflex has approximately 2,800 employees worldwide. Enerflex, its subsidiaries, interests in affiliates and joint-ventures operate in Canada, the United States, Argentina, Colombia, Australia, the Netherlands, the United Kingdom, Germany, Pakistan, the United Arab Emirates, Oman, Egypt and Indonesia.These consolidated financial statements include the legacy natural gas and process compression business (Toromont Energy Systems, subsequently renamed Enerflex Ltd.) as well as the acquired business of ESIF from the date of acquisition, January 20, 2010. Toromont completed its acquisition of ESIF on January 20, 2010 and therefore the 2010 comparatives contain results for the legacy ESIF starting January 20, 2010.Note 2. Background and Basis of PresentationBackgroundOn 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 in each of Enerflex and New Toromont in exchange for each Toromont share held.Enerflex became an independently operated and publicly listed company on June 1, 2011 as a result of its spin-off from Toromont Industries Ltd. Toromont's consolidated financial results for the period ended June 30, 2011 include the financial results of Enerflex as a business segment of Toromont up to May 31, 2011. Enerflex's shares began trading on the TSX on June 3, 2011.In the second quarter of 2011, Enerflex entered into a transitional services 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 transitional services agreement will expire one year from the arrangement date. This 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. However, subsequent to the Arrangement, Toromont is no longer considered a related party.Note 3. Summary of Significant Accounting Policies(a) Statement of complianceThese 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 presentationThese interim consolidated financial statements for the three and six month periods ended June 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 month period ended March 31, 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 six month periods ended June 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 June 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 basis 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 only for the month of June 2011, the current period and historical financial statements 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 Audit Committee of the Board of Directors on August 10, 2011.(c) Basis of consolidationThese 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.Non-controlling interests represent the portion of net earnings and net assets that is not held by the Company and are presented separately within equity in the consolidated statement of financial position.(d) Significant Accounting Estimates and JudgmentsThe 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 contractsThe 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 warrantyProvisions 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 equipmentFixed 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 assetsImpairment 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 goodwillThe 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.Income taxesUncertainties 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.(e) Deferred Financing CostsCosts associated with the issuance of long-term debt are deferred and amortized by the effective interest method over the term of the debt. The unamortized cost is included in long-term debt in the consolidated statement of financial position. The amortization is included in interest expense.(f) Share-Based PaymentsThe Company's share-based compensation plans are described in Note 18.Stock Options: Certain employees of the Company participate in the Company's Stock Option Plan. Stock options have a seven-year term, vest 20% cumulatively on each anniversary date of the grant and are exercisable at the designated common share price, which is fixed at prevailing market prices of the common shares at the date the option is granted.The Company uses the fair value method of accounting for stock options issued. The value of options is determined using the Black-Scholes option pricing model and the best estimate of the number of stock options that will ultimately vest. The fair value of each tranche is charged to income over its respective vesting period. Consideration paid by employees on exercise of stock options is credited to shareholders' capital, along with the related value previously expensed.Deferred Share Units: Deferred Share Units ("DSUs") represent indexed liabilities of the Company relative to the Company's share price.During the vesting period, the Company records, as a compensation expense, an allocated portion of the market value of the number of units expected to vest under the plan. DSUs granted vest on a graded basis, subject to the continued employment of the employee and the passage of a predetermined period of time, as set by the Board of Directors. During the vesting period, the compensation expense is recognized based on management's best estimate of the number of DSUs expected to vest based on management's best estimates of whether the criteria will be met. The accrued liability is adjusted to reflect current unit value at each period end, through a charge to compensation expense, and allocated between current and long-term liabilities based on when the amount becomes payable.Phantom Shares: The Company maintains a Phantom Share (Share Appreciation Rights) ("SARs") Plan for certain directors and key employees of affiliates located in Australia, the United Arab Emirates ("UAE") and the Netherlands for whom the Company's Stock Option Plan would have negative personal taxation consequences.SARs represent an indexed liability of the Company relative to the Company's share price.During the vesting period, the Company records as a compensation expense an allocated portion of the difference between the market value of the number of rights expected to vest under the plan and the strike prices of those rights based on management's best estimate of the number of rights expected to ultimately vest. The accrued liability is marked to market at each period end, through a charge to compensation expense.(g) Earnings per Share ("EPS")Basic EPS is calculated by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding during the year.Diluted EPS is calculated using the treasury stock method, which assumes that all outstanding stock option grants are exercised, if dilutive, and the assumed proceeds are used to purchase the Company's common shares at the average market price during the year.Note 4. Future Accounting ChangesThe 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. IFRS 11 is effective January 1, 2013 and 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. IFRS 12 is effective January 1, 2013 and 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. IFRS 13 is effective January 1, 2013 and the Company is in the process of assessing the impact of adopting IFRS 13, if any.Note 5. Business AcquisitionNo businesses were acquired in the second quarter of 2011.On January 20, 2010, the Company completed its offer for the units of Enerflex Systems Income Fund ("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, Europe 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. Discontinued OperationsEffective 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 Syntech Enerflex, 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 installments, plus interest, commencing January 2011. Net assets disposed, including transaction costs, also totaled $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 six months ended June 30, 2011 and 2010:



Three months Three months
ended June 30, 2011 ended June 30, 2010
-----------------------------------------------------------
Net (Loss)
Net Loss Income Income Income
Revenue Before Tax Tax Revenue Before Tax Tax
-----------------------------------------------------------
Syntech Enerflex $ - $ - $ - $ 17,596 $ (718) $ 182
EEA $ - $ - $ - $ 7,283 $ 342 $ (104)


Six months Six months
ended June 30, 2011 ended June 30, 2010
-----------------------------------------------------------
Net Loss Income Net Loss Income
Revenue Before Tax Tax Revenue Before Tax Tax
-----------------------------------------------------------
Syntech Enerflex $ - $ - $ - $ 31,829 $ (1,870) $ 471
EEA $ 2,653 $ (239) $ 75 $ 8,482 $ (259) $ 77


Note 7. Accounts Receivable

Accounts receivable consisted of the following:

June 30, 2011 December 31, 2010
----------------------------------------------------------------------------

Trade receivables $ 219,720 $ 200,382
Less: allowance for doubtful accounts 4,811 6,217
----------------------------------------------------------------------------
Trade receivables, net 214,909 194,165
Other receivables 53,482 49,073
----------------------------------------------------------------------------
Total accounts receivable $ 268,391 $ 243,238
----------------------------------------------------------------------------


Aging of trade receivables:

June 30, 2011 December 31, 2010
----------------------------------------------------------------------------

Current to 90 days $ 207,846 $ 182,538
Over 90 days 11,874 17,844
----------------------------------------------------------------------------
$ 219,720 $ 200,382
----------------------------------------------------------------------------


Movement in allowance for doubtful accounts:

Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------

Balance, beginning of period $ 6,757 $ 2,709 $ 6,217 $ 2,029
Provisions and revisions, net (1,946) 1,714 (1,406) 2,394
----------------------------------------------------------------------------
Balance, end of period $ 4,811 $ 4,423 $ 4,811 $ 4,423
----------------------------------------------------------------------------


Note 8. Inventories

Inventories consisted of the following:

June 30, 2011 December 31, 2010
----------------------------------------------------------------------------

Equipment $ 14,874 $ 35,171
Repair and distribution parts 58,371 41,611
Direct materials 31,346 53,935
Work in progress 123,125 92,138
----------------------------------------------------------------------------
Total Inventories $ 227,716 $ 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 second quarter of 2011 was $67.0 million (2010 - $80.9 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 second quarter of 2011 was $1.5 million (2010 - $0.8 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 half of 2011 was $135.3 million (2010 - $146.0 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 half of 2011 was $1.6 million (2010 - $1.0 million).



Note 9. Property, Plant and Equipment and Rental Equipment

Land Building Equipment
----------------------------------------------------------------------------

Cost
January 1, 2011 $ 47,384 $107,845 $ 44,222
Additions - 329 1,812
Disposals (3,994) (6,168) (1,501)
Currency translation effects (204) (1,093) 2,401
----------------------------------------------------------------------------
June 30, 2011 $ 43,186 $100,913 $ 46,934


Accumulated Depreciation
January 1, 2011 - (18,308) (24,714)
Depreciation charge - (3,563) (3,360)
Disposals - 523 356
Currency translation effects - 251 (1,909)
----------------------------------------------------------------------------
June 30, 2011 - (21,097) (29,627)
----------------------------------------------------------------------------
Net book value - June 30, 2011 $ 43,186 $ 79,816 $ 17,307
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Property,
Assets Under Plant and Rental
Construction Equipment Equipment
----------------------------------------------------------------------------

Cost
January 1, 2011 $ 15,611 $ 215,062 $ 132,703
Additions 5,398 7,539 8,561
Disposals - (11,663) (4,714)
Currency translation effects 40 1,144 (405)
----------------------------------------------------------------------------
June 30, 2011 $ 21,049 $212,082 $ 136,145


Accumulated Depreciation
January 1, 2011 - (43,022) (16,541)
Depreciation charge - (6,923) (8,700)
Disposals - 879 1,254
Currency translation effects - (1,658) (522)
----------------------------------------------------------------------------
June 30, 2011 - (50,724) (24,509)
----------------------------------------------------------------------------
Net book value - June 30, 2011 $ 21,049 $ 161,358 $ 111,636
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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


Note 10. Other long-term assets

June 30, 2011 December 31, 2010
----------------------------------------------------------------------------

Investment in associates ` $ 4,920 $ 3,146
Net investment in sales type lease 6,205 10,651
----------------------------------------------------------------------------
$ 11,125 $ 13,797
----------------------------------------------------------------------------


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

June 30, 2011 December 31, 2010
----------------------------------------------------------------------------

Minimum future lease payments $ 16,607 $ 23,202
Unearned finance income (1,094) (1,900)
----------------------------------------------------------------------------
15,513 21,302
Less current portion 9,308 10,651
----------------------------------------------------------------------------
$ 6,205 $ 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 11.Intangible assets

June 30, 2011
Accumulated
Acquired value amortization Net book value
----------------------------------------------------------------------------

Customer relationships $ 38,400 $ 10,912 $ 27,488
Software and other 14,463 7,626 6,837
----------------------------------------------------------------------------
$ 52,863 $ 18,538 $ 34,325
----------------------------------------------------------------------------


December 31, 2010
Accumulated
Acquired value amortization Net book 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 12. Accounts payable, accrued liabilities and provisions

June 30, 2011 December 31, 2010
----------------------------------------------------------------------------

Accounts payable and accrued liabilities $ 142,599 $ 149,884
Provisions 14,743 14,538
----------------------------------------------------------------------------
$ 157,342 $ 164,422
----------------------------------------------------------------------------

Note 13. Long-Term DebtThe Company has, by way of private placement, $ 90,500 of Unsecured Notes ("Notes") issued and outstanding. The Notes mature on two separate dates with $50,500, with a coupon of 4.841%, maturing on June 22, 2016 and $40,000, 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 $325,000. The Bank Facilities consist of a committed 4-year $270,000 revolving credit facility (the "Revolver"), a committed 4-year $10,000 operating facility (the "Operator"), a committed 4-year $20,000 Australian operating facility (the "Australian Operator") and a committed 4-year $25,000 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 $50,000 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 $50,000 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 $20,000 USD. Drawings on the US Facility are by way of LIBOR loans, US Base Rate loans and letters of credit. The Company is currently in the process of negotiating an extension of the US Facility.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.At June 30, 2011, the Company had $95,374 drawn 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 June 30, 2011 borrowings on the Bank Facilities and the Notes was as follows:



June 30, 2011

Drawings on bank facility $ 95,374
Notes due June 22, 2016 50,500
Notes due June 22, 2021 40,000
Deferred transaction costs (2,483)
-------------------------
$ 183,391
-------------------------
-------------------------

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



2012 $ 95,374
2013 -
2014 -
2015 -
2016 50,500
Thereafter 40,000
-------------------------
$ 185,874
-------------------------
-------------------------

Note 14. Guarantees, Commitments and ContingenciesAt June 30, 2011, the Company had outstanding letters of credit of $ 65,903 (December 31, 2010 - $ 61,162).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 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 $ 51,633 payable over the next five years and thereafter as follows:



2011 $ 7,551
2012 11,662
2013 8,823
2014 6,900
2015 5,306
Thereafter 11,391
-----------------------------------
Total 51,633
-----------------------------------
-----------------------------------


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

2011 $ 31,183
2012 7,184
2013 998

Note 15. Income TaxesThe 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 ending Six months ending
June 30 June 30
2011 2010 2011 2010
----------------------------------------
Earnings before income taxes $ 12,802 $ 4,685 $ 25,161 $ 17,409
Canadian statutory rate 26.6% 28.1% 26.6% 28.1%
----------------------------------------
Expected income tax provision $ 3,405 $ 1,316 $ 6,693 $ 4,892
Add (deduct)
Income taxed in foreign
jurisdictions 129 849 495 1,309
Non-taxable portion of gain on
available for sale financial
assets - - - (3,938)
Other (92) (542) (7) (64)
----------------------------------------
Income tax provision $ 3,442 $ 1,623 $ 7,181 $ 2,199
----------------------------------------
----------------------------------------


The composition of the income tax provision is as follows:

Three months ended Six months ended
June 30 June 30
2011 2010 2011 2010
----------------------------------------
Current taxes $ 5,229 $ 3,899 $ 9,508 $ 4,392
Deferred taxes (1,787) (2,276) (2,327) (2,193)
----------------------------------------
Income tax provision $ 3,442 $ 1,623 $ 7,181 $ 2,199
----------------------------------------
----------------------------------------

Note 16. Share CapitalAuthorizedThe Company is authorized to issue an unlimited number of ordinary shares.



Issued and Outstanding:

Six months ended June 30, 2011
Number of Common Shares Common 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 InvestmentFor 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 17. Contributed Surplus

As at June 30, 2011:

----------------------------------------------------------------------------
Contributed Surplus, beginning of period $ -
----------------------------------------------------------------------------
Reclassification of net investment on bifurcation 656,500
----------------------------------------------------------------------------
Share-based compensation 65
----------------------------------------------------------------------------
Contributed Surplus, end of period $ 656,565
----------------------------------------------------------------------------

For comparative periods, contributed surplus was included in the balance of Toromont's Net Investment in Enerflex Ltd.Note 18. Share-Based Compensationa) Stock OptionsThe 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 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:



June 30, 2011
Weighted average
Number of Options exercise price
Options outstanding, June 1, 2011 2,030,030 $ 11.35
Granted - -
Exercised (3,000) 10.09
Forfeited (11,210) 11.47
----------------------------------------------------------------------------
Options outstanding, end of period 2,015,820 11.38
-----------------------------------------

Options exercisable, end of period 968,711 11.01
-----------------------------------------


The following table summarizes options outstanding and exercisable at June
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 - $11.40 1,111,720 2.63 $ 10.22 695,009 $ 10.33
$ 11.78 - $12.95 904,100 4.89 12.81 273,702 12.72
----------------------------------------------------------------------------
Total 2,015,820 3.64 $ 11.38 968,711 $ 11.01
----------------------------------------------------------------------------

No stock options were granted in the first six months of 2011. The fair value of the stock options granted by Toromont during the first six months of 2010 was determined at the time of grant using the Black-Scholes option pricing model.b) Deferred Share UnitsThe 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 share 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 six months ended June 30, 2011 directors fees elected to be received in deferred share units totaled $71 (three and six months ended June 30, 2010 - nil).c) Phantom Share RightsThe Company utilizes a Phantom Share Rights Plan (Share Appreciation Right) ("SAR") for certain directors and key employees of affiliates located in Australia, the UAE and the Netherlands 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 PlanThe 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 ExpenseThe share-based compensation expense included in the determination of net income for the three and six months ended June 30, 2011 was:



Stock options $ 65
Deferred share units 71
Phantom share units -
----------------------------------------------
Total $ 136
--------------------------


Note 19. Reconciliation of Earnings per Share Calculations

----------------------------------------------------------------------------
2011 2010
Three months Weighted Weighted
ended Net Average Shares Per Net Average Shares Per
June 30, Earnings Outstanding share Earnings Outstanding share
----------------------------------------------------------------------------
Basic $ 9,360 77,214,913 $ 0.12 $ 2,764 76,881,262 $ 0.04
----------------------------------------------------------------------------
Dilutive effect
of stock
option
conversion 403,928 242,361
----------------------------------------------------------------------------
Diluted $ 9,360 77,618,841 $ 0.12 $ 2,764 77,123,623 $ 0.04
----------------------------------------------------------------------------


----------------------------------------------------------------------------
2011 2010
Six months Weighted Weighted
ended Net Average Shares Per Net Average Shares Per
June 30, Earnings Outstanding share Earnings Outstanding share
----------------------------------------------------------------------------
Basic $ 19,246 77,214,913 $ 0.25 $ 13,629 75,381,981 $ 0.18
----------------------------------------------------------------------------
Dilutive effect
of stock
option
conversion 403,928 288,178
----------------------------------------------------------------------------
Diluted $ 19,246 77,618,841 $ 0.25 $ 13,629 75,670,159 $ 0.18
----------------------------------------------------------------------------

Since Enerflex's shares were issued pursuant to the Arrangement with Toromont to create the Company, the per share amounts disclosed for the comparative period are based on Toromont's common shares.Note 20. Financial InstrumentsDesignation and valuation of financial instrumentsThe Company has designated its financial instruments as follows:



Carrying Estimated
June 30, 2011 Value Fair Value
----------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents(i) $ 54,255 $ 54,255
Derivative instruments designated as
fair value through profit or loss ("FVTPL") 29 29
Derivative instruments in designated
hedge accounting relationships 1,054 1,054
Loans and receivables:
Accounts receivable 268,391 268,391

Financial Liabilities
Derivative instruments designated as FVTPL 18 18
Derivative instruments in designated
hedge accounting relationships 650 650
Other financial liabilities
Accounts payable and accrued liabilities 157,342 157,342
Long-term debt - Bank facility 95,374 95,374
Long-term debt - Notes 88,017 87,612

(i) Includes $1,357 of highly liquid short-term investments with original
maturities of three months or less.


Carrying Estimated
December 31, 2010 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 and accrued liabilities 164,422 164,422
Note payable to Toromont 215,000 215,000
Long-term debt - Bank facility - -
Long-term debt - Notes - -

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



Fair Value
------------------------------
Carrying
Value Level 1 Level 2 Level 3
----------------------------------------------------------------------------
Financial Assets
Derivative financial instruments $ 1,083 $ 1,083

Financial Liabilities
Derivative financial instruments $ 668 $ 668

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 June 30, 2011, as determined on a discounted cash flow basis with a weighted average discount rate of 5.46% was $87,612.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 accountingForeign 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 June 30, 2011:



Notional
Amount Maturity
----------------------------------------------------------------------------
Canadian dollar denominated contracts
Purchase contracts USD 38,544 July 2011 to February 2012
EUR 128 August 2011 to March 2012

Sales contracts USD 59,290 July 2011 to February 2012
EUR 5,504 July 2011

Australian dollar denominated contracts
Purchase contracts USD 3,004 July 2011 to December 2011
EUR 765 July 2011 to August 2011

Sales contracts USD 1,007 July 2011

Management estimates that a gain of $415 would be realized if the contracts were terminated on June 30, 2011. Certain of these forward contracts are designated as cash flow hedges, and accordingly, a gain of $139 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 managementIn 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 RiskIn 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 exposureThe 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 exposureThe 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 June 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 income before tax 1,540 (224) (672)

Sensitivity analysisThe 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 June 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 US 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 3,321 465 2,832
Financial instruments held in Canadian
operations:
Net earnings 1,391 40 1
Other comprehensive income 27 - -

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 riskThe Company's liabilities include long-term debt that is subject to fluctuations in interest rates. The Company's Notes outstanding at June 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 $1.9 million. All interest charges are recorded on the income statement as a separate line item called Finance Costs.Credit riskFinancial 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 riskLiquidity 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 June 30, 2011, the Company had $95,374 committed against the Bank Facilities, leaving $229,626 available for future drawings plus cash and cash equivalents of $54,255 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:



Greater
Less than 3 months than 1
3 months to 1 year year Total
Derivative financial liabilities:
Foreign currency forward
contracts 668 - - 668
Other financial liabilities:
Accounts payable and accrued
liabilities 157,342 - - 157,342
Long-term debt - Bank Facilities - - 95,374 95,374
Long-term debt - Notes - - 88,017 88,017

The Company expects that continued cash flows from operations in 2011 together with cash and cash equivalents on hand and credit facilities that will be available will be more than sufficient to fund its requirements for investments in working capital, and capital assets.DividendsThe Company declared dividends of $4,633, or $0.06 per share, for the three and six months ended June 30, 2011 (June 30, 2010 - no dividend declared).Note 21. Capital DisclosuresThe capital structure of the Company consists of shareholder's 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 ratioThe Company targets a Net debt to equity ratio of less than 1.00:1. At June 30, 2011, the Net debt to equity was 0.15 :1 (December 31, 2010 - 0.24:1), calculated as follows:



June 30, December 31,
2011 2010
--------------------------------------
Note payable $ - $ 215,000
Long-term debt 183,391 -
Cash (54,255) (15,000)
--------------------------------------
Net debt $ 129,136 $ 200,000
--------------------------------------

--------------------------------------
Shareholders'/Owner's equity $ 853,458 $ 839,528
--------------------------------------

--------------------------------------
Net debt to equity ratio 0.15 :1 0.24:1
--------------------------------------


Note 22.Supplemental Cash Flow Information

Three months ended Six months ended
June 30, June 30,
2011 2010 2011 2010
Cash provided by (used in) changes
in non-cash working capital

Accounts receivable (10,889) (58,471) (29,870) (38,209)
Inventory (48,979) 26,892 (4,885) 58,809
Accounts and taxes payable, accrued
liabilities and deferred revenue 92,554 17,708 64,978 6,236
Foreign currency and other (3,988) (13,928) (1,096) (27,371)
----------------------------------------------------------------------------
28,698 (27,799) 29,127 (535)
----------------------------------------

Resulting from operations 35,712 (23,985) 42,737 9,735
Resulting from investing (321) (263) (7,228) (7,889)
Resulting from financing (6,693) (3,551) (6,382) (2,381)
----------------------------------------------------------------------------
28,698 (27,799) 29,127 (535)
----------------------------------------


Three months ended Six months ended
Cash paid during the period: June 30, June 30,
2011 2010 2011 2010

Interest 933 1,000 2,363 1,000
Income taxes 8,517 2,169 11,682 2,338

Note 23. Related PartiesEnerflex 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:



June 30, December 31,
2011 2010
-------------------------------
Revenue $ 163 $ 20
Management Fees 4,598 7,920
Purchases 760 1,279
Interest expense 1,902 5,484
Accounts receivable - 61
Accounts payable 330(1) 3,692
Note payable - 215,000

(1) Although Toromont ceased to be a related party on June 1, 2011, related
party accounts payable includes $211 of management fees payable to
Toromont at June 30, 2011

Note 24. Interest in Joint VentureThe 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:



June 30, December 31,
Statement of Financial Position 2011 2010
----------------------------------------------------------------------------

Current assets $ 2,199 $ 2,477
Long-term assets 483 518
------------------------------
Total Assets $ 2,682 $ 2,995
------------------------------

Current liabilities $ 1,046 $ 894
Long-term liabilities and equity 1,636 2,101
----------------------------------------------------------------------------
Total Liabilities and equity $ 2,682 $ 2,995
------------------------------


Three months ended Six months ended
June 30 June 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Statement of Earnings
Revenue $ 206 $ 510 $ 225 $ 1,094
Expenses 370 726 682 1,377
----------------------------------------------------------------------------
Net loss $ (164) $ (216) $ (457) $ (283)


Three months ended Six months ended
June 30 June 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Cash Flows
From operations $(434) $ (767) $ (663) $ (1,264)
From investing activities (16) 35 (34) (32)
From financing activities (1) (5) (4) (7)

Note 25. Segmented InformationThe 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. No reportable operating segment is reliant on any single external customer.



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

Segment revenue $ 155,355 $ 108,662 $ 62,642 $ 67,129
Intersegment revenue $ (53,728) $ (6,168) $ (229) $ (79)
----------------------------------------------------------------------------
External revenue $ 101,627 $ 102,494 $ 62,413 $ 67,050
------------------------------------------------

Operating income $ 9,720 $ 5,020 $ 4,252 $ 9,606
----------------------------------------------------------------------------

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

Segment revenue $ 91,440 $ 89,396 $ 309,437 $ 265,187
Intersegment revenue $ (742) $ (4,918) $ (54,699) $ (11,165)
----------------------------------------------------------------------------
External revenue $ 90,698 $ 84,478 $ 254,738 $ 254,022
------------------------------------------------

Operating income $ (495) $ (6,717) $ 13,477 $ 7,909
----------------------------------------------------------------------------


Southern US & South
Canada & Northern US America
Six months ended
June 30, 2011 2010 2011 2010
----------------------------------------------------------------------------

Segment revenue $ 298,913 $ 190,193 $ 152,117 $ 140,798
Intersegment revenue $ (54,988) $ (11,050) $ (365) $ (91)
----------------------------------------------------------------------------
External revenue $ 243,925 $ 179,143 $ 151,752 $ 140,707
----------------------------------------------
Operating income $ 16,554 $ 2,554 $ 12,456 $ 13,661
----------------------------------------------------------------------------

International Total
Six months ended
June 30, 2011 2010 2011 2010
----------------------------------------------------------------------------

Segment revenue $ 188,359 $ 155,383 $ 639,389 $ 486,374
Intersegment revenue $ (2,893) $ (8,798) $ (58,246) $ (19,939)
----------------------------------------------------------------------------
External revenue $ 185,466 $ 146,585 $ 581,143 $ 466,435
----------------------------------------------
Operating income $ (1,780) $ (10,621) $ 27,230 $ 5,594
----------------------------------------------------------------------------


June 30 Dec 31 June 30 Dec 31
As at 2011 2010 2011 2010
----------------------------------------------------------------------------
Segment Assets $ 477,794 $ 524,304 $ 184,063 $ 222,980
Corporate
Goodwill $ 270,046 $ 270,046 $ 56,510 $ 56,510
----------------------------------------------------------------------------
Total Segment assets $ 747,840 $ 794,350 $ 240,573 $ 279,490
-----------------------------------------------



June 30 Dec 31 June 30 Dec 31,
As at 2011 2010 2011 2010
----------------------------------------------------------------------------
Segment Assets $ 299,864 $ 280,482 $ 961,721 $ 1,027,766
Corporate (27,866) (132,866)
Goodwill $ 156,100 $ 156,100 $ 482,656 $ 482,656
----------------------------------------------------------------------------
Total Segment assets $ 455,964 $ 436,582 $ 1,416,511 $ 1,377,556
------------------------------------------------


Revenue from foreign countries was:

----------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Australia 50,619 15,063 80,295 30,425
----------------------------------------------------------------------------
Netherlands 6,150 14,192 15,905 18,032
----------------------------------------------------------------------------
United States 80,404 92,246 165,463 191,938
----------------------------------------------------------------------------
Other 27,075 35,541 81,646 50,451
----------------------------------------------------------------------------

Revenue is attributed by destination of sale.Note 26. SeasonalityThe 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 27. Transition to IFRSThese 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"). 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 IFRSThe 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, December 31, 2010, June 30, 2010 and January 1, 2010.Upon adoption of IFRS the Company elected to reset the cumulative translation adjustment balance to zero.



Consolidated Statement
of Equity
As at December 31, 2010

Cumulative
Canadian Estimated
(Unaudited)(Thousands) GAAP Fair Value Reclassification IFRS
----------------------------------------------------------------------------
Net Investment
Owner's net
investment 864,686 (14,709) - 849,977
Accumulated other
comprehensive income (25,554) 14,709 - (10,845)
Non-controlling
interest 396 - - 396
-----------------------------------------------------
Total net investment
and non-controlling
interest 839,528 - - 839,528
-----------------------------------------------------


Consolidated Statement
of Equity
As at June 30, 2010

Cumulative
Canadian Estimated
(Unaudited)(Thousands) GAAP Fair Value Reclassification IFRS
----------------------------------------------------------------------------
Net Investment
Owner's net
investment 864,686 (14,709) - 849,977
Accumulated other
comprehensive income (25,554) 14,709 - (10,845)
Non-controlling
interest 396 - - 396
-----------------------------------------------------
Total net investment
and non-controlling
interest 839,528 - - 839,528
-----------------------------------------------------


Consolidated Statement of
Equity
As at January 1, 2010

Cumulative
Canadian Estimated
(Unaudited)(Thousands) GAAP Fair Value Reclassification IFRS
----------------------------------------------------------------------------
Net Investment
Owner's net investment $ 312,382 (14,709) - $ 297,673
Accumulated other
comprehensive income 920 14,709 - 15,629
Non-controlling
interest - - - -
---------------------------------------------------
Total net investment and
non-controlling interest $ 313,302 - - $ 313,302
---------------------------------------------------

Reconciliation of the Deferred Tax Assets and Liabilities under Canadian GAAP to IFRSThe 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, December 31, 2010, June 30, 2010 and January 1, 2010.Upon transitions to IFRS the Company reclassified all deferred tax assets and liabilities as non-current.



Statement of Financial
Position
As at December 31, 2010

Cumulative
Canadian Estimated
(Unaudited)(Thousands) GAAP Fair Value 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
---------------------------------------------------


Statement of Financial
Position
As at June 30, 2010

Cumulative
Canadian Estimated
(Unaudited)(Thousands) GAAP Fair Value Reclassification IFRS
----------------------------------------------------------------------------
Assets
Current tax assets 30,851 - (30,851) -
Deferred tax assets 9,630 - 28,676 38,306

Liabilities
Current tax liabilities 255 - (255) -
Deferred tax liabilities 1,920 - (1,920) -
---------------------------------------------------
38,306 - - 38,306
---------------------------------------------------


Statement of Financial
Position
As at January 1, 2010

Cumulative
Canadian Estimated
(Unaudited)(Thousands) GAAP Fair Value Reclassification IFRS
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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) -
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19,893 - - 19,893
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Note 28. Subsequent EventsSubsequent to June 30, 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 is scheduled to close in September 2011.Subsequent to June 30, 2011, the Company declared dividends of $0.06 per share, payable on October 4, 2011, to shareholders of record on September 12, 2011.
Contact:
Enerflex Ltd.
For investor and media inquiries, please contact:
J. Blair Goertzen
President & Chief Executive Officer
403.236.6852

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