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Aug 10, 2011 19:34 ET

Enerflex Reports Second Quarter 2011 Financial Results and Announces Quarterly Dividend

CALGARY, ALBERTA--(Marketwire - Aug. 10, 2011) - Enerflex Ltd. (TSX:EFX) ("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  
----------------------------------------------------------------------------
$ 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
----------------------------------------------------------------------------
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 Results

Enerflex'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 Details

Enerflex 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 Enerflex

Enerflex 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 Statements

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

Forward-looking information involves known and unknown risks and uncertainties and other factors, which may cause or contribute to Enerflex achieving actual results that are materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such risks and uncertainties include, among other things, impact of general economic conditions; industry conditions, including the adoption of new environmental, taxation and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations, including future dividends to shareholders of the Company; increased competition; the lack of availability of qualified personnel or management; labour unrest; fluctuations in foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by the Company, the reliability of Toromont' historical financial information as an indicator of Enerflex's historical or future results; potential tax liabilities if the requirements of the tax-deferred spinoff rules are not met; the effect of Enerflex's rights plan on any potential change of control transaction; obtaining financing; and other factors, many of which are beyond its control.

These factors are not exhaustive. The reader is cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Readers are cautioned that the actual results achieved will vary from the information provided in this press release and that such variations may be material. Consequently, Enerflex does not represent that actual results achieved will be the same in whole or in part as those set out in the forward-looking information.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

The Management's Discussion and Analysis ("MD&A") 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 STATEMENTS

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

Enerflex 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.

OVERVIEW

The oil and natural gas service sector in Canada has a distinct seasonal trend in activity levels which results from well-site access and drilling pattern adjustments to take advantage of weather conditions. Generally, Enerflex's Engineered Systems product line has experienced higher revenues in the fourth quarter of each year while the Service and Rentals product line revenues are more stable throughout the year. Rentals revenues are also impacted by both the Company's and its customers capital investment decisions. The international markets are not significantly impacted by seasonal variations. Variations from these trends usually occur when hydrocarbon energy fundamentals are either improving or deteriorating.

During the first 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, 
----------------------------------------------------------------------------
(unaudited)(thousands)                   2011      2010      2011   2010(1) 
----------------------------------------------------------------------------
Revenue                                                                     
----------------------------------------------------------------------------
  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 
----------------------------------------------------------------------------
Total revenue                         254,738   254,022   581,143   466,435 
----------------------------------------------------------------------------
Gross margin                           47,699    43,835   103,963    73,364 
----------------------------------------------------------------------------
Selling, general & administrative                                           
 expenses                              34,222    35,926    76,733    67,770 
----------------------------------------------------------------------------
Operating income                       13,477     7,909    27,230     5,594 
----------------------------------------------------------------------------
Gain on available for sale assets           -         -         -   (18,627)
----------------------------------------------------------------------------
Gain on sale of assets                   (619)     (795)   (1,361)      (45)
----------------------------------------------------------------------------
Equity (earnings) loss                   (309)       27      (510)     (190)
----------------------------------------------------------------------------
Earnings before interest & taxes       14,405     8,677    29,101    24,456 
----------------------------------------------------------------------------
Finance costs and income                1,603     3,992     3,940     7,047 
----------------------------------------------------------------------------
Income before taxes                    12,802     4,685    25,161    17,409 
----------------------------------------------------------------------------
Income tax expense                      3,442     1,623     7,181     2,199 
----------------------------------------------------------------------------
Gain on sale of discontinued                                                
 operations                                 -         -     1,430         - 
----------------------------------------------------------------------------
Losses from discontinued operations         -      (298)     (164)   (1,581)
----------------------------------------------------------------------------
Net earnings                            9,360     2,764    19,246    13,629 
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FINANCIAL HIGHLIGHTS                                                        
Key ratios:                                                                 

----------------------------------------------------------------------------
Gross margin as a % of revenues          18.7      17.3      17.9      15.7 
----------------------------------------------------------------------------
Selling, general & administrative                                           
 expenses as a % of revenues             13.4      14.1      13.2      14.5 
----------------------------------------------------------------------------
Operating income as a % of revenues       5.3       3.1       4.7       1.2 
----------------------------------------------------------------------------
Income taxes as a % of earnings                                             
 before income taxes                     26.9      34.6      28.5      12.6 
----------------------------------------------------------------------------

(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 
----------------------------------------------------------------------------
Depreciation and amortization            10,356   10,231    21,235   20,068 
----------------------------------------------------------------------------
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                                                                   
----------------------------------------------------------------------------
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)
----------------------------------------------------------------------------
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 flow

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

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, 2011

During 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 RESULTS

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

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

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

- Service provides mechanical services and parts 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 America

3. 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)
----------------------------------------------------------------------------
Revenue                                             101,627         102,494 
----------------------------------------------------------------------------
Revenue - Engineered Systems                         47,088          47,677 
----------------------------------------------------------------------------
Revenue - Service                                    46,574          39,288 
----------------------------------------------------------------------------
Revenue - Rental                                      7,965          15,529 
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Operating income                                      9,720           5,020 
----------------------------------------------------------------------------

----------------------------------------------------------------------------
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 BACKLOG

The 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, 2011

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. 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 POSITION

The 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 Activities

For 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 Activities

Investing 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 Activities

Cash 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 MANAGEMENT

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

Foreign Exchange Risk

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

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

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

Enerflex does not hedge its exposure to investments in foreign subsidiaries. Exchange gains and losses on net investments in foreign subsidiaries are accumulated in accumulated comprehensive income/loss. The accumulated comprehensive loss at the end of 2010 of $10.8 million was adjusted to an accumulated comprehensive 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 exposure

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

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

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

The Company identifies and hedges all significant transactional currency risks.

Translation exposure

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

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

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

Interest rate risk

The Company's liabilities include long-term debt that is subject to fluctuations in interest rates. The Company's 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 risk

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

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

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

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

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

Liquidity risk

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

CAPITAL RESOURCES

On 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 ARRANGEMENTS

The 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 PARTIES

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

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


                                                    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 POLICIES

Adoption of International Financial Reporting Standards

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

The interim consolidated financial statements for the 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 Costs

Costs 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 Payments

The 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 ESTIMATES

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

Revenue Recognition - Long-term Contracts

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

Provisions for warranty

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

Property, Plant and Equipment

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

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

Impairment of Non-financial Assets

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

Impairment of goodwill

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

Income Taxes

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

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

FUTURE ACCOUNTING PRONOUNCEMENTS

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

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

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

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 DIRECTORS

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

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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

There have been no significant changes in the design of the Company's internal controls over financial reporting during the three-month period ended 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 EVENTS

Subsequent 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 MARKETS

The global economy continues its fragile recovery from the recent recession. Enerflex entered 2011 with significantly stronger backlog than the Company had entering 2010.

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 Company

Enerflex 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 Presentation

Background

On May 16th, 2011 Toromont Shareholders approved the Plan of Arrangement ("the Arrangement") that would establish Enerflex as a stand alone publicly traded company listed on the Toronto Stock Exchange ("TSX"). In connection with the Arrangement, Toromont common shareholders received one share 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 compliance

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

(b) Basis of presentation

These interim consolidated financial statements for the three and 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 consolidation

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

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 Judgments

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

Revenue recognition - Long-term contracts

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

Provisions for warranty

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

Property, plant and equipment

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

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

Impairment of non-financial assets

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

Impairment of goodwill

The Company tests whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating unit to which the goodwill is allocated. Estimating the value in use requires the Company to make an estimate of the expected future cash flows from each cash-generating unit and also to determine a suitable discount rate in order to calculate the present value of those cash flows.

Income taxes

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

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

(e) Deferred Financing Costs

Costs 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 Payments

The 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 Changes

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

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

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

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

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

No 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 Operations

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

Effective September 2010, the Company sold certain assets and the operations of 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 Debt

The 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 Contingencies

At 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 Taxes

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


                                    Three months 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 Capital

Authorized

The 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 Investment

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


Note 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 Compensation

a) Stock Options

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

The stock option plan entitles the holder to acquire shares of the Company at the strike price, established at the time of 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 Units

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

The 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 Plan

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

e) Share-Based Compensation Expense

The share-based compensation expense included in the determination of net income for the three and 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 Instruments

Designation and valuation of financial instruments

The 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 Liabilities

The following table presents information about the Company's financial assets and financial liabilities measured at fair value on a recurring basis as at 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 accounting

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

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

Foreign Currency Risk

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

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

Transaction exposure

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

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

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

The Company identifies and hedges all significant transactional currency risks.

Translation exposure

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

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

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

The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign exchange rates on the Company's financial instruments and show the impact on net earnings and comprehensive income. Financial instruments affected by currency risk include cash and cash equivalents, accounts receivable, accounts payable and derivative financial instruments. This sensitivity analysis relates to the position as at 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 risk

The 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 risk

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

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

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

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

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

Liquidity risk

Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. In managing liquidity risk, the Company has access to a significant portion of its Bank Facilities for future drawings to meet the Company's future growth targets. As of 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.

Dividends

The 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 Disclosures

The 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 ratio

The 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 Parties

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

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


                                                    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 Venture

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


                                                     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 Information

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

The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies. 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. Seasonality

The oil and natural gas service sector in Canada has a distinct seasonal trend in activity levels which results from well-site access and drilling pattern adjustments to take advantage of weather conditions. Generally, Enerflex's Engineered Systems product line has experienced higher revenues in the fourth quarter of each year while the Service and Rentals product line revenues are stable throughout the year. Rentals revenues are also impacted by both the Company's and its customers capital investment decisions. The international markets are not significantly impacted by seasonal variations. Variations from these trends usually occur when hydrocarbon energy fundamentals are either improving or deteriorating.

Note 27. Transition to IFRS

These interim Consolidated Financial Statements have been prepared in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards" and with IAS 34, "Interim Financial Reporting", as issued by the 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 IFRS

The following is a reconciliation of the Company's equity reported in accordance with Canadian GAAP to its equity in accordance with IFRS at the transition date, 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 IFRS

The following is a reconciliation of the Company's tax assets and liabilities reported in accordance with Canadian GAAP to its tax assets and liabilities in accordance with IFRS at the transition date, 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
----------------------------------------------------------------------------
Assets                                                                      
Current tax assets            23,194          -          (23,194)          -
Deferred tax assets            1,129          -           18,764      19,893

Liabilities                                                                 
Current tax liabilities            -          -                -           -
Deferred tax liabilities       4,430          -           (4,430)          -
                         ---------------------------------------------------
                              19,893          -                -      19,893
                         ---------------------------------------------------

Note 28. Subsequent Events

Subsequent 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.

 

For investor and media inquiries, please contact:
Enerflex Ltd.
J. Blair Goertzen
President & Chief Executive Officer
403.236.6852

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