• TSX Exchange: EFX
  • (CAD) $ 15.4
  • -0.5 (-3.14%)
  • Volume: 157357

S&P/TSX Composite Index

Last: 6910.67

TSX: quotes delayed at least 20 minutes

Investors

Feb 16, 2012 18:38 ET

Enerflex Reports Fourth Quarter and Year End 2011 Financial Results and Announces Quarterly Dividend

CALGARY, ALBERTA--(Marketwire - Feb. 16, 2012) - Enerflex Ltd. (TSX:EFX) ("Enerflex" or the "Company"), a leading supplier of products and services to the global energy industry, today reported its financial and operating results for the three and twelve months ended December 31, 2011.


Financial Highlights(1)
                     Three months ended           Twelve months ended
                        December 31,                  December 31,
(unaudited)
($ millions,
 except per share
 amounts and                         Change                          Change
 percentages)        2011     2010      ($)       2011        2010      ($)
----------------------------------------------------------------------------
  Revenue         $ 383.8  $ 347.6  $  36.2  $ 1,227.1  $  1,067.8  $ 159.3
  Gross margin       68.6     64.5      4.1      225.9       183.9     42.0
  Gross margin %     17.9%    18.6%               18.4%       17.2%
  Operating
   income(2)         26.5     21.7      4.8       80.1        41.0     39.1
  EBITDA (2), (3)    36.6     28.9      7.7      127.0        80.6     46.4
  Net earnings
   (loss)
    Continuing       17.7      8.3      9.4       56.7     30.3 (4)    26.4
    Discontinued     (7.0)     1.1      8.1      (64.0)       (4.0)   (60.0)
  Earnings (loss)
   per share
    Continuing       0.22     0.11     0.11       0.73        0.40     0.33

    Discontinued    (0.09)    0.01    (0.10)     (0.83)      (0.05)   (0.78)


(1) Results through May 31, 2011 have been prepared on a carve-out basis.
Enerflex became an independently operated and listed company on June 1,
2011.

(2) Operating income and EBITDA are non-GAAP measures that do not have a
standardized meaning prescribed by GAAP and therefore are unlikely to be
comparable to similar measures presented by other issuers.

(3) EBITDA for the twelve months of 2010 is normalized for the net impact of
the gain on available for sale assets of $18.6 million related to Toromont's
acquisition of Enerflex Systems Income Fund ("ESIF").

(4) 2010 net earnings and earnings per share from continuing operations
include $17.2 million after tax related to Toromont's acquisition of ESIF.

Enerflex reported higher results from continuing operations in the fourth quarter of 2011, compared to the same period last year. Net earnings from continuing operations increased by $9.4 million (113.3%) as a result of higher revenues and higher gross margins.

The Company recorded bookings of $453.3 million during the quarter on increased activity levels in all regions compared to the same period last year, driven predominantly by growth in unconventional natural gas basins, liquids-rich gas basins and gas production in the Middle East and North Africa ("MENA"). Backlog has grown to $986.1 million, which represents an increase of $342.5 million (53.2%) compared to the same period last year. This backlog provides strong visibility for revenue growth in 2012.

"The Enerflex management team is very pleased with our strong fourth quarter and year-end financial results," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "We have significantly outperformed 2010. We saw strong growth in bookings during 2011, which increased our backlog levels throughout the year. This positions the Company well and provides strong revenue visibility for 2012."

GE's Gas Engines business has recently realigned its channel-to-market strategy and distribution network and as a result, the Company has benefitted in the following ways. First, in addition to our current distribution territory for Waukesha parts in Canada, Alaska, Wyoming, Utah and Colorado, GE's Gas Engines has increased our territory to include an additional 16 U.S. states. Second, the distribution agreement for GE's Gas Engines in the existing and expanded territory will also now include the right for Gas Drive to sell new engines. Third, Gas Drive has been notified of GE's Gas Engines interest in extending distribution rights for the Jenbacher natural gas engine and parts product line for all of Canada. Lastly, our current distribution rights for the Waukesha product will continue in the territories of Australia and Indonesia. This overall network realignment strengthens both Gas Drive's and GE's Gas Engine's ability to meet their customers' needs by providing an unprecedented level of service and support.

Enerflex was awarded a US $228 million contract for the engineering, procurement, construction and commissioning of a gas processing plant to be located in the Sultanate of Oman. The contract includes the supply by Enerflex of all associated equipment including; gas processing and compression equipment, gas/condensate export facilities, produced water treatment, power plant, central control room, electrical substation and associated utilities. The expected completion date of this project will be in the third to fourth quarter of 2013.


Fourth Quarter and Twelve Month Highlights
In the three and twelve months ended December 31, 2011, Enerflex:

--  Generated revenue of $383.8 million compared to $347.6 million in the
    fourth quarter of 2010. The increase of $36.2 million was a result of
    increased revenue in the Canada and Northern U.S. and International
    segments, which was predominantly offset by decreased revenues in the
    Southern U.S. and South America segment. Revenues for the twelve months
    of 2011 were $1,227.1 million compared to $1,067.8 million during the
    same period of the prior year;

--  Achieved a gross margin of $68.6 million or 17.9% compared to $64.5
    million or 18.6% during the fourth quarter of 2010, an increase of $4.1
    million. Gross margin for the twelve months ended December 31, 2011 was
    $225.9 million or 18.4%, an increase of 22.8% over the same period of
    the prior year;

--  Achieved operating income of $26.5 million or 6.9% of revenue compared
    to $21.7 million or 6.2% during the fourth quarter of 2010. Operating
    income for 2011 was $80.1 million or 6.5% of revenue, an increase of
    $39.1 million from 2010;

--  Generated fourth quarter EBITDA of $36.6 million, an increase of $7.7
    million over the fourth quarter of 2010. EBITDA for 2011 was $127.0
    million, an increase of $46.4 million over normalized EBITDA for the
    same period of the prior year;

--  Achieved net earnings from continuing operations in the fourth quarter
    of $17.7 million ($0.22 cents per share), an increase of $9.4 million
    over the same period last year. For the twelve months ended December 31,
    2011, net earnings from continuing operations were $56.7 million ($0.73
    cents per share), as compared to $30.3 million or $0.40 cents per share
    in the same period of 2010;

--  Increased backlog to $986.1 million at December 31, 2011 compared to
    $643.6 million at December 31, 2010, an increase of 53.2% over the prior
    year;

--  Repaid $13.9 million in borrowings during the quarter, exiting the
    fourth quarter with net debt of $37.8 million which includes cash on
    hand of $81.2 million;

--  Exited the Service and Combined Heat and Power ("CHP") business in
    Europe as it was not considered to be core to the Company's ongoing
    business operations;

--  Sold facilities at 4700 47th Street SE, Calgary, Alberta and 5221 46th
    Street, Stettler, Alberta totalling 406,000 square feet for gross
    proceeds of $42.9 million;

--  Expanded the Houston facility, which will double manufacturing
    capacity for projects in the Southern U.S. and International markets;

--  Secured access to credit facilities totalling $375 million with a
    syndicate of Canadian chartered banks, leaving available credit capacity
    of nearly $150 million; and

--  On June 1, 2011, Enerflex repaid indebtedness to Toromont totalling
    $173.3 million incurred as a result of Toromont's acquisition of ESIF.

Subsequent to the end of the fourth quarter of 2011:


--  Enerflex declared the Company's fourth dividend of $0.06 per share,
    payable on April 4, 2012, to shareholders of record on March 12, 2012.

Financial Results

Enerflex's $36.2 million or 10.4% period-over-period increase in revenue to $383.8 million in the fourth quarter of 2011 was a result of increased revenue in the Canada and Northern U.S. and International segments predominantly offset by decreased revenues in the Southern U.S. and South America. Canada and Northern U.S. revenues increased $5.6 million compared to the same period of last year, while Southern U.S. and South America revenues decreased by $19.7 million. The International segment increased revenues by $50.2 million to $122.3 million from $72.1 million in 2010.

During the twelve month period ending December 31, 2011, the Company generated $1,227.1 million in revenue as compared to $1,067.8 million in the same period of 2010, a result of increased revenues in the Canada and Northern U.S. and International business segments. Canada and Northern U.S. revenues increased by $70.5 million while International segment revenues increased by $110.8 million. This was offset by a $22.0 million decrease in Southern U.S. and South America revenues.

Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") totalled $127.0 million in the twelve months of 2011, an increase of 57.6% compared to the same period of the prior year.

Gross margin of $68.6 million represented an increase of 6.4% over the fourth quarter of 2010 primarily due to strong gross margin performance in Canada and Northern U.S. and International, resulting from improved plant utilization, improved rental margins and increased activity in Australasia related to coal seam gas projects. This was partially offset by lower gross margin performance in the Southern U.S. and South America business segments, as a result of lower awarded gross margins and timing of revenue recognition of projects in backlog. Gross margin for the twelve months ended December 31, 2011 was $225.9 million or 18.4% of revenue as compared to $183.9 million or 17.2% of revenue for the twelve months ended December 31, 2010, an increase of $42.0 million. The increase in gross margin compared to the same period in 2010 resulted from the recognition of revenue on approved change orders related to past projects in MENA, improved plant utilization in our North American operations and stronger rental margins. This was partially offset by project cost over-runs, impairment of work in process on specific projects in Australia due to weather related delays in Queensland and lower realized margins in the Southern U.S. and South America.

Backlog at December 31, 2011 increased to $986.1 million compared to $643.6 million at December 31, 2010, a 53.2% increase over the comparable period. These increases are a result of increased activity in unconventional natural gas basins, liquids-rich gas basins in the United States and Canada, increased gas production in MENA and various liquefied natural gas to coal seam gas projects in Australia.

"Our operating and financial performance has further strengthened our balance sheet. Our low net debt gives us the flexibility we need to continue to expand our footprint and grow our business", said Mr. Goertzen. "As we execute on our current backlog we expect the financial performance of the organization to continue to improve."

Enerflex's consolidated financial statements as at and for the three and twelve months ended December 31, 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 Friday, February 17, 2012 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the Company's 2011 fourth quarter and year end results. The call will be hosted by Mr. J. Blair Goertzen, President and Chief Executive Officer and Mr. D. James Harbilas, Vice President and Chief Financial Officer of Enerflex Ltd.

If you wish to participate in this conference call, please call, 1.800.952.4972 or 1.416.695.6617. Please dial in 10 minutes prior to the start of the call. No passcode is required. The live audio webcast of the conference call will be available on the Enerflex website at www.enerflex.com under the Investor Relations section on February 17, 2012 at 8:00 a.m. MST (10:00 a.m. EST). 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, February 24, 2012. Please call 1.800.408.3053 or 1.905.694.9451 and enter passcode 1085506.

About Enerflex

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

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

Advisory Regarding Forward-Looking Statements

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

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

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

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

The Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated financial statements for the years ended December 31, 2011 and 2010 and the accompanying notes to the consolidated financial statements contained in this report. They should also be read in combination 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 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, the Company's transition date to IFRS was January 1, 2010 and therefore the comparative information for 2010 has been prepared in accordance with IFRS accounting policies. IFRS has been adopted in Canada as Generally Accepted Accounting Principles ("GAAP") as a result GAAP and IFRS are used interchangeably within this MD&A.

The MD&A has been prepared taking into consideration information that is available up to February 16, 2012 and focuses on information and key statistics from the unaudited consolidated financial statements, and pertains to known risks and uncertainties relating to the oil and gas service sector. This discussion should not be considered all-inclusive, as it excludes possible future changes that may occur in general economic, political and environmental conditions. Additionally, other elements may or may not occur which could affect industry conditions and/or Enerflex Ltd. in the future. Additional information relating to the Company, including the Information Circular, is available on SEDAR at www.sedar.com.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements. Certain statements containing words such as "anticipate", "could", "expect", "seek", "may", "intend", "will", "believe" and similar expressions, statements that are based on current expectations and estimates about the markets in which the Company operates and statements of the Company's belief, intentions and expectations about development, results and events which will or may occur in the future constitute "forward-looking statements" and are based on certain assumptions and analyses made by the Company derived from its experience and perceptions. All statements, other than statements of historical fact contained in this MD&A are forward-looking statements, including, without limitation: statements with respect to anticipated financial performance; future capital expenditures, including the amount and nature thereof; bookings and backlog; oil and gas prices and demand; other development trends of the oil and gas industry; business prospects and strategy; expansion and growth of the business and operations, including market share and position in the energy service markets; the ability to raise capital; expectations regarding future dividends; expectations and implications of changes in government regulation, laws and income taxes; and other such matters. In addition, other written or oral statements which constitute forward-looking statements may be made from time to time by and on behalf of the Company.

Such forward-looking statements are subject to important risks, uncertainties, and assumptions which are difficult to predict and which may affect the Company's operations, including, without limitation: the impact of general economic conditions; industry conditions, including the adoption of new environmental, taxation and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations, including future dividends to shareholders of the Company; increased competition; the lack of availability of qualified personnel or management; labour unrest; fluctuations in foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by the Company and other factors, many of which are beyond its control. As such, actual results, performance, or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds or dividends the Company and its shareholders, will derive there-from. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A and other than as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

THE COMPANY

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

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

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

OVERVIEW

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

During the twelve months of 2011, Enerflex continued to see improved bookings in all regions, including successful bids on large projects in Canada, the Southern U.S. and the International segments. Manufacturing activity levels have increased in Canada and Northern U.S. and International while service activity levels have increased in all regions as we continue to expand Enerflex's branch network and field operations in all three segments. Manufacturing revenue was lower in the Southern U.S. and South America during the twelve months ended December 31, 2011, compared to the same period the prior year. Booking activity has increased in this region during 2011 driven predominantly by the Eagle Ford and Marcellus shale gas basins. As a result, the decrease in revenues in the twelve months of 2011 is related to timing of project deliveries which have been deferred into the first quarter of 2012 and not lower activity levels.

North American rental utilization levels were challenged throughout 2010, however, utilization rates have increased slightly throughout 2011. In the International segment, Middle East North Africa ("MENA") has contributed positively to profitability through the twelve months of the year as a result of key projects achieving commercial operation in the region and recognition of approved change orders related to past projects. The European region, within the International segment, has not performed as expected during 2011. This fact coupled with General Electric's decision to realign its distribution network in this region has resulted in Enerflex's decision to exit the Service and Combined Heat and Power ("CHP") business during the third quarter of 2011. This business unit has been reported as a discontinued operation beginning the third quarter of 2011 and for the twelve months ended December 31, 2011 and Enerflex has recorded a total impairment of $54.0 million, consisting of non-cash impairments of $46.0 million for goodwill, intangible assets, deferred tax assets and fair value adjustments; and anticipated cash transaction costs totalling $8.0 million.


FINANCIAL HIGHLIGHTS
                        Three months ended          Twelve months ended
(unaudited)                    December 31,                December 31,
($ Canadian thousands)       2011          2010          2011       2010(1)
----------------------------------------------------------------------------
Revenue
Canada and Northern
 U.S.                $    151,844  $    146,189  $    524,235  $    453,757
Southern U.S. and
 South America            109,664       129,372       342,335       364,273
International             122,294        72,055       360,567       249,753
----------------------------------------------------------------------------
Total revenue        $    383,802  $    347,616  $  1,227,137  $  1,067,783
Gross margin               68,622        64,518       225,876       183,898
Selling and
 administrative
 expenses                  42,113        42,863       145,790       142,943
----------------------------------------------------------------------------
Operating income     $     26,509  $     21,655  $     80,086  $     40,955
Loss(gain) on sale of
 assets                        82           907        (3,594)          (68)
(Gain) on available
 for sale assets                -             -             -       (18,627)
Equity earnings              (354)         (138)       (1,161)         (468)
----------------------------------------------------------------------------
Earnings before
 finance costs and
 taxes               $     26,781  $     20,886  $     84,841  $     60,118
Finance costs and
 income                     1,201         4,589         7,011        15,471
----------------------------------------------------------------------------
Earnings before
 taxes               $     25,580  $     16,297  $     77,830  $     44,647
Income tax expense          7,860         7,978        21,089        14,385
Gain on sale of
 discontinued
 operations                     -             -         1,430             -
(Loss) from
 discontinued
 operations                (6,963)        1,133       (65,470)       (3,963)
----------------------------------------------------------------------------
Net (loss) earnings  $     10,757  $      9,452  $     (7,299) $     26,299
                    --------------------------------------------------------
                    --------------------------------------------------------

Key Ratios:
--------------------------------------------------------------------------
Gross margin as a % of
 revenues                           17.9%      18.6%      18.4%      17.2%
Selling and administrative
 expenses as a % of revenues        11.0%      12.3%      11.9%      13.4%
Operating income as a % of
 revenues                            6.9%       6.2%       6.5%       3.8%
Income taxes as a % of
 earnings before income taxes       30.7%      49.0%      27.1%      32.2%
--------------------------------------------------------------------------

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

NON-GAAP MEASURES

                            Three months ended      Twelve months ended
(unaudited)                       December 31,           December 31,
($ Canadian thousands)           2011        2010        2011     2010(1)
-------------------------------------------------------------------------
EBITDA
Earnings before finance
 costs and taxes          $    26,781 $    20,885 $    84,841 $    60,118
Depreciation and
 amortization                   9,865       7,966      42,171      39,113
-------------------------------------------------------------------------
EBITDA                    $    36,646 $    28,851 $   127,012 $    99,231
EBITDA - normalized(2)    $    36,646 $    28,851 $   127,012 $    80,604

Cash flow
Cash flow from operations $    27,659 $    17,294 $    86,329 $    43,008
Non-cash working capital
 and other                     22,340      18,073      48,466      50,784
-------------------------------------------------------------------------
Cash flow                 $    49,999 $    35,367 $   134,795 $    93,792
                         ------------------------------------------------
                         ------------------------------------------------

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

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

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

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

EBITDA provides the results generated by the Company's primary business activities prior to consideration of how those activities are financed, assets are amortized or how the results are taxed in various jurisdictions.

Cash flow

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

Operating Income and Operating Margin

Each operating segment assumes responsibility for its operating results as measured by, amongst other factors, operating income, which is defined as income before income taxes, interest income, interest expense, equity income or loss and gain or loss on sale of assets. Financing and related charges cannot be attributed to business segments on a meaningful basis that is comparable to other companies. Business segments and income tax jurisdictions are not synonymous, and it is believed that the allocation of income taxes distorts the historical comparability of the performance of business segments.

Bookings and Backlog

Bookings and backlog are monitored by Enerflex as an indicator of future revenue and business activity levels for Enerflex's Engineered Systems product line. Bookings are recorded in a period when a firm commitment or order has been received from Enerflex's customers. Bookings increase backlog in the period that they are received. Revenue recognized on Engineered Systems products decrease backlog in the period that this revenue is recognized. As a result backlog is an indication of revenue to be recognized in future periods using percentage of completion accounting.

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011

During the fourth quarter of 2011, the Company generated $383.8 million in revenue, as compared to $347.6 million in the fourth quarter of 2010. The increase of $36.2 million was a result of increased revenue in the Canada and Northern U.S. and International segment predominantly offset by decreased revenues in Southern U.S. and South America. As compared to the three month period ended December 31, 2010:


--  Canada and Northern U.S. revenues increased by $5.7 million as a result
    of higher Rental revenue, which was partially offset by lower Engineered
    Systems and Service revenue. Engineered Systems revenue was impacted by
    timing of revenue recognition, while Service revenue was impacted during
    the fourth quarter of 2011 as a result of producers deferring
    maintenance due to low natural gas prices. Rental revenue was higher in
    the quarter as a result of an increase in utilization rates and
    increased unit sales compared to the same period in 2010;

--  Southern U.S. and South America revenues decreased by $19.7 million, as
    a result of decreased Engineered Systems and Service revenue in the
    fourth quarter of 2011. Engineered Systems revenue continued to be
    impacted by project delivery dates being deferred to 2012. Activity
    levels in this region remain robust with respect to booking and backlogs
    and are being driven by liquid rich resource basins in the Eagle Ford
    and the Marcellus; and

--  International revenues increased by $50.2 million as a result of
    increased revenue in Australia, and Production and
    Processing ("P&P"), partially offset by lower revenues in MENA and
    International Compression and Power ("C&P") as a result of closing the
    manufacturing facility in this segment during the fourth quarter of 2010
    and the transfer of bookings and backlog related to that facility to
    Enerflex's other two segments. Revenues in Australia during the fourth
    quarter of 2011 benefited from increased activity in the development of
    Coal Seam Gas ("CSG"), while revenues during the comparable quarter in
    2010 in MENA included $40.0 million for the construction of a gas
    processing facility which was accounted for as a finance lease.

Gross margin for the three months ended December 31, 2011 was $68.6 million or 17.9% of revenue as compared to $64.5 million or 18.6% of revenue for the three months ended December 31, 2010. The increase in gross margin of $4.1 million was primarily due to strong gross margin performance in Canada and Northern U.S. and International, as a result of improved plant utilization, improved rental margins and increased activity in Australasia related to CSG projects. This was partially offset by lower gross margin performance in the Southern U.S., as a result of lower awarded gross margins and timing of revenue recognition related to deferred delivery dates of projects in backlog.

Selling, general and administrative ("SG&A") expenses were $42.1 million or 11.0% of revenue during the three months ended December 31, 2011, compared to $42.9 million or 12.3% of revenue in the same period of 2010. The decrease in SG&A expenses during the quarter is primarily attributable to lower occupancy costs and lower depreciation and amortization, partially offset by higher severance costs and incentive costs resulting from improved profitability.

Operating income assists the reader in understanding the net contributions made from the Company's core businesses after considering all SG&A expenses. During the fourth quarter of 2011, Enerflex produced an operating income of $26.5 million or 6.9% of revenue as compared to operating income of $21.7 million or 6.2% of revenue in 2010. The increase in operating income in the fourth quarter of 2011 over the comparable period of 2010 was a result of the same factors contributing to the increased revenue, gross margin and lower SG&A expenses.

Finance costs and income totaled $1.2 million for the three months ended December 31, 2011, compared with $4.6 million in the same period of 2010, a decrease of $3.4 million. Finance costs in 2011 were lower than those in 2010 primarily as a result of lower average borrowings, a lower effective interest rate and higher finance income arising from higher cash balances.

Income tax expense totaled $7.9 million or 30.7% for the three months ended December 31, 2011 compared with an expense of $8.0 million or 49.0% in the same period of 2010. The decrease in expense and the effective tax rate compared to the same period in 2010 was primarily due to increased earnings in lower tax jurisdictions within Canada and Northern U.S. and the International segment and lower earnings in higher tax jurisdictions within the Southern U.S. and South America segment in 2011 as compared to 2010.

During the fourth quarter of 2011, Enerflex generated net earnings from continuing operations of $17.7 million or $0.22 cents per share, as compared to $8.3 million or $0.11 cents per share in the same period of 2010.

Loss from discontinued operations reflects the results of Enerflex Environmental Australia ("EEA"), Enerflex Syntech ("Syntech") and Enerflex Europe ("EE"). These business units recorded a net loss from discontinued operations, including impairments of $7.0 million ($0.09 cents per share) and net income of $1.1 million ($0.01 cents per share) in the fourth 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 which operates from plants located in Calgary, Alberta and
    Casper,Wyoming;

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

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

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


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

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

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

3.  International is comprised of four divisions:

Continuing Operations:


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

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

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

Discontinued Operations:


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

Each region has three main product lines:

Engineered Systems' product line includes engineering, fabrication and assembly of standard and custom-designed compression packages, production and processing equipment and facilities and power generation systems. Engineered Systems' product line tends to be more cyclical with respect to revenue, gross margin and earnings before interest and income taxes than Enerflex's other business segments. Revenues are derived primarily from the investments made in natural gas infrastructure by producers.

Service product line includes support services, labor and parts sales to the oil and gas industry. Enerflex, through various business units, is an authorized distributor for Waukesha engines and parts in Canada, Alaska, Northern U.S., Australia, Indonesia and Papua New Guinea. Enerflex is also an exclusive authorized distributor for Altronic, a leading manufacturer of electric ignition and control systems in Canada, Australia, Papua New Guinea and New Zealand. Mechanical Service revenues tend to be fairly stable as ongoing equipment maintenance is generally required to maintain the customer's natural gas production.

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


CANADA AND NORTHERN U.S.

(unaudited)                              Three months ended December 31,
($ Canadian thousands)                        2011                     2010
----------------------------------------------------------------------------
Segment revenue                        $   191,032              $   154,200
Intersegment revenue                       (39,188)                  (8,011)
----------------------------------------------------------------------------
Revenue                                $   151,844              $   146,189
                              ----------------------------------------------
                              ----------------------------------------------
Revenue - Engineered Systems           $    96,943              $    98,033
Revenue - Service                      $    42,067              $    42,837
Revenue - Rental                       $    12,834              $     5,319
Operating income                       $    12,093              $     7,007

Segment revenues as a % of
 total revenues                     39.6%                    42.1%
Service revenues as a % of
 segment revenues                   27.7%                    29.3%
Operating income as a % of
 segment revenues                    8.0%                     4.8%
                              ----------------------------------------------

Canada and Northern U.S. revenues totaled $151.8 million in the fourth quarter of 2011 as compared to $146.2 million for the same period of 2010. The increase of $5.6 million was the result of higher Rental revenues due to higher utilization rates and higher sales of rental units compared to the same quarter of the prior period. This was partially off-set by lower Engineered Systems revenues and lower activity in the Service business in Canada and Wyoming as a result of lower natural gas prices. Engineered Systems revenue was slightly lower in the fourth quarter of 2011 due to timing of revenue recognition on certain projects. This region has recorded higher backlog and bookings in 2011 compared to 2010, as a result of higher activity in unconventional resource basins in Canada.

Operating income increased to $12.1 million in 2011 from $7.0 million in 2010. This $5.1 million increase was due to better gross margin performance as a result of improved plant utilization and higher realized margins on the sale and rental of compression equipment from the rental fleet during the quarter.


SOUTHERN U.S. AND SOUTH AMERICA

(unaudited)                             Three months ended December 31,
($ Canadian thousands)                        2011                     2010
---------------------------------------------------------------------------
Segment revenue                        $   110,359              $   129,548
Intersegment revenue                          (695)                    (176)
---------------------------------------------------------------------------
Revenue                                $   109,664              $   129,372
                              ---------------------------------------------
                              ---------------------------------------------
Revenue Engineered Systems             $    99,342              $   118,733
Revenue - Service                      $    10,322              $    10,639
Operating income                       $    10,906              $    22,034

Segment revenues as a % of
 total revenues                     28.6%                    37.2%
Service revenues as a % of
 segment revenues                    9.4%                     8.2%
Operating income as a % of
 segment revenues                    9.9%                    17.0%
                              ---------------------------------------------

Southern U.S. and South America revenues totaled $109.7 million in the fourth quarter of 2011 as compared to $129.4 million in the fourth quarter of 2010. The decrease of $19.7 million was the result of deferred delivery dates on Engineered Systems projects to the first half of 2012. In addition, revenues in the fourth quarter of 2010 include $32.0 million for the completion of a large pipeline project that did not reoccur in 2011. Service revenues were comparable to the fourth quarter of the prior year, as a result of higher activity levels in the unconventional resource basins in the U.S. and as a result of new service branches being opened in this region during 2011.

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

Operating income decreased from $22.0 million in the fourth quarter of 2010 to $10.9 million in the fourth quarter of 2011, as a result of lower revenues due to timing of revenue recognition and lower realized margins, partially offset by lower SG&A compared to the same period in 2010.


INTERNATIONAL

(unaudited)                             Three months ended December 31,
($ Canadian thousands)                        2011                     2010
---------------------------------------------------------------------------
Segment revenue                        $   122,496              $    91,916
Intersegment revenue                          (202)                 (19,861)
---------------------------------------------------------------------------
Revenue                                $   122,294              $    72,055
                              ---------------------------------------------
                              ---------------------------------------------
Revenue - Engineered Systems           $   105,504              $    59,520
Revenue - Service                      $    15,830              $    12,203
Revenue - Rental                       $       960              $       332
Operating income                       $     3,510              $    (7,386)

Segment revenues as a % of
 total revenues                     31.9%                    20.7%
Service revenues as a % of
 segment revenues                   12.9%                    16.9%
Operating income as a % of
 segment revenues                    2.9%                   (10.3)%
                              ---------------------------------------------

Continuing Operations:

International revenues totaled $122.3 million in the fourth quarter of 2011, compared to $72.1 million in the same period of 2010. The increase of $50.2 million was due to higher activity levels in Australia related to CSG projects and higher activity levels for P&P in unconventional resource basins and in Africa. This was partially offset by lower revenue in MENA and lower C&P revenue as a result of the closure of the International C&P business during the fourth quarter of 2010, with its backlog transferred to plants in Casper, Wyoming and Houston, Texas. Revenue in the fourth quarter of 2010 included $40.0 million for the construction of a gas processing facility in MENA which was accounted for as a finance lease.

Operating income for the fourth quarter of 2011 was $3.5 million, which was $10.9 million higher than the fourth quarter of 2010. Operating income improved due to lower SG&A costs as a result of the closure of the International C&P facility and improved margin performance in the MENA region resulting from a project in Oman and International P&P, as a result of improved plant utilization and higher awarded margins.

Discontinued Operations:

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

These three discontinued operations recorded a loss before tax totaling $7.0 million in the fourth quarter of 2011 compared to a gain of $1.1 million in the same period a year ago.

BOOKINGS AND BACKLOG

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


Bookings
($ Canadian thousands) Years ended December 31,          2011        2010(1)
----------------------------------------------------------------------------
Canada and Northern U.S.                          $   348,849    $  283,811
Southern U.S. and South America                       437,953       358,010
International(2)                                      456,048       553,013
----------------------------------------------------------------------------
Total bookings                                    $ 1,242,850    $1,194,834
                                         -----------------------------------

(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 $140.0 million on January 20, 2010.

Backlog
($ Canadian thousands)
 December 31,                            2011                     2010
----------------------------------------------------------------------
Canada and Northern
 U.S.                   $             177,056    $             135,661
Southern U.S. and
 South America                        284,622                  146,138
International                         524,427                  361,843
----------------------------------------------------------------------
Total backlog           $             986,105    $             643,642
                         ---------------------------------------------

Backlog at December 31, 2011 was $986.1 million compared to $643.6 million at December 31, 2010, representing a 53.2% increase over the prior year.

Backlog in Canada and Northern U.S. was $41.4 million higher in 2011 as a result of increased activity in unconventional resource basins such as the Montney and Horn River. The Southern U.S. and South America backlog was $138.5 million higher during 2011 as a result of increased activity in the liquid rich shale resources in the Eagle Ford, Marcellus and Woodford resource basins. The International backlog was $162.6 million higher in 2011, compared to the same period in 2010, as a result of increased activity in Australia related to CSG exploration and increased activity in MENA related to gas production for domestic consumption. During the fourth quarter of 2011, Enerflex was awarded a USD $228.0 million contract for the engineering, procurement, construction and commissioning of a gas processing plant to be located in the Sultanate of Oman.

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2011

The four quarters of 2011 includes twelve full months of activity, whereas the four quarters of 2010 includes twelve full months of activity for the legacy Toromont Compression business and eleven months and nine days activity for the legacy ESIF business.

During the twelve months of 2011, the Company generated $1,227.1 million in revenue, as compared to $1,067.8 million during the same period of 2010. The increase of $159.3 million, or 14.9%, was a result of increased revenues in the Canada and Northern U.S. and International business segments, partially offset by lower revenues in the Southern U.S. and South America business segment.

As compared to the shortened twelve month period ended December 31, 2010:


--  Canada and Northern U.S. revenues increased by $70.5 million as a result
    of increased Engineered Systems product sales related to the Montney and
    Horn River unconventional resource basins and increased parts sales in
    the Service business. This was partially offset by lower Rental revenue,
    as a result of selling low horse power units in the first twelve months
    of 2011 yielding less revenue, compared to the sale of higher horse
    power units in the same period of 2010. The comparable period in 2010
    benefited from increased sales that resulted from efforts to rationalize
    idle units within the rental fleet in Canada as part of the integration
    of the two businesses.

--  Southern U.S. and South America revenues decreased by $22.0 million, as
    a result of a lower average foreign exchange rate in 2011 and delayed
    delivery dates for Engineered Systems bookings recorded in 2010 and
    2011. This has deferred revenue recognition on these projects into 2012.
    The Eagle Ford, Woodford and Marcellus resource basins have been very
    active in this segment during the year as evidenced by strong booking
    levels and higher backlog during 2011, when compared to the same period
    in 2010. As a result, the lower revenue in 2011 is related to deferred
    project deliveries, not lower activity or reduced business prospects
    within this region; and

--  International revenues increased by $110.8 million as a result of
    increased revenues in Australia due to CSG projects and 
    P&P projects related to unconventional resource basins and gas
    production in Africa. This was partially offset by lower revenues in
    MENA and International C&P for the twelve months of 2011 resulting from
    the closure of the International C&P facility during the fourth quarter
    of 2010. Revenues for 2010 included $40.0 million for the construction
    of a gas processing facility in MENA which was accounted for as a
    sales-type lease.

Gross margin for the twelve months ended December 31, 2011 was $225.9 million or 18.4% of revenue as compared to $183.9 million or 17.2% of revenue for the twelve months ended December 31, 2010, an increase of $42.0 million. Contributing to the gross margin increase over the first twelve months of 2010 was strong gross margin performance in Canada and Northern U.S. as a result of increased revenues from Engineered Systems, improved plant utilization, improved rental utilization rates and stronger parts sales. International gross margins were also higher than the same period a year ago, as a result of the recognition of approved change orders related to past projects in MENA, which contributed $16.5 million to gross margin, partially off-set by under applied overhead, project cost over-runs and impairment of work in process on specific projects in Australia due to weather related delays in Queensland. Southern U.S. and South America gross margins were lower compared to the same period in 2010.

Selling, general and administrative expenses were $145.8 million or 11.9% of revenue during the twelve months ended December 31, 2011, compared to $142.9 million or 13.4% of revenue in the same period of 2010. The increase of $2.9 million in SG&A expenses is primarily attributable to a full twelve months of costs in 2011, compared to 2010, which included SG&A costs for the legacy Enerflex business for only eleven months and nine days.

Operating income for 2011 was $80.1 million or 6.5% of revenue as compared to an operating income of $41.0 million or 3.8% of revenue in 2010. The increase in operating income in 2011 over 2010 was a result of the same factors contributing to the increased gross margin partially offset by the increased SG&A expenses.

Finance costs and income totaled $7.0 million for the twelve months ended December 31, 2011, compared with $15.5 million in the same period of 2010, a decrease of $8.5 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, resulting from higher invested cash balances.

Income tax expense totaled $21.1 million or 27.1% of pre-tax income for the twelve months ended December 31, 2011 compared with $14.4 million or 32.2% of pre-tax income during the same period of 2010. The increase in income taxes during the period compared to 2010 was primarily due to an increase in earnings before taxes from operations. Enerflex recorded a lower effective tax rate in 2011, compared to the same period in 2010, as earnings increased in lower tax jurisdictions within the International segment and the Canada and Northern U.S. segment. Earnings during the twelve months of 2010 included an $18.6 million ($17.2 million net of tax) gain realized on ESIF units, which was taxed at a lower effective rate.

During the twelve months of 2011, Enerflex generated net earnings from continuing operations of $56.7 million or $0.73 cents per share as compared to $30.3 million or $0.40 cents per share in the same period of 2010, which included the $17.2 million (net of tax gain) realized on the ESIF units.

Loss from discontinued operations reflects the results of EEA, Syntech and Enerflex Europe. These business units recorded a net loss of $64.0 million ($0.83 cents per share) (net of a $1.4 million gain on the sale of EEA) and $4.0 million ($0.05 cents per share) in the first twelve months of 2011 and 2010 respectively.


CANADA AND NORTHERN U.S.
(unaudited)                              Twelve months ended December 31,
($ Canadian thousands)                         2011                  2010(1)
----------------------------------------------------------------------------
Segment revenue                         $   641,459              $  491,571
Intersegment revenue(2)                    (117,224)                (37,814)
----------------------------------------------------------------------------
Revenue                                 $   524,235              $  453,757
                               ---------------------------------------------
                               ---------------------------------------------
Revenue - Engineered Systems            $   307,452              $  233,911
Revenue - Service                       $   171,553              $  164,103
Revenue - Rental                        $    45,230              $   55,743
Operating income                        $    38,849              $    9,855

Segment revenues as a % of
 total revenues                      42.7%                    42.5%
Service revenues as a % of
 segment revenues                    32.7%                    36.2%
Operating income as a % of
 segment revenues                     7.4%                     2.2%
                               ---------------------------------------------

(1) 2010 amounts include the financial results of ESIF from the date of
acquisition, January 20, 2010.
(2) Intersegment revenue includes revenue on contracts relating to CSG
projects in Queensland.

Revenues in this region were $524.2 million for the twelve months of 2011 compared to $453.8 million for the same period of 2010. The increase of $70.4 million was the result of increased Engineered Systems revenues due to strong activity by Enerflex customers in the Montney and Horn River resource basins, increased Service revenues from parts sales in Canada and Northern U.S., partially offset by lower Rental revenue as a result of selling low horse power units in the twelve months of 2011 yielding less revenue, compared to the sale of higher horse power units in the same period of 2010. Enerflex focused on rationalizing the rental fleet in 2010 as part of its integration efforts once the acquisition of ESIF was completed.

Operating income was $38.8 million in 2011, an increase of $29.0 million compared to the same period in 2010. The improved performance was due to increased gross margin resulting from improved plant utilization, higher parts sales and higher realized margins on the sale and rental of compression equipment in the rental fleet. This was partially offset by higher SG&A as a result of a full twelve months of expenses in this segment compared to eleven months and nine days in 2010 and the transfer of staff to the Domestic C&P facility resulting from reorganization costs and the closure of the International C&P facility during the fourth quarter of 2010.


SOUTHERN U.S. AND SOUTH AMERICA

(unaudited)                              Twelve months ended December 31,
($ Canadian thousands)                       2011                     2010
---------------------------------------------------------------------------
Segment revenue                        $   343,596              $   364,600
Intersegment revenue                        (1,261)                    (327)
---------------------------------------------------------------------------
Revenue                                $   342,335              $   364,273
                              ---------------------------------------------
                              ---------------------------------------------
Revenue - Engineered Systems           $   299,470              $   327,305
Revenue - Service                      $    42,865              $    36,968
Operating income                       $    33,191              $    46,373

Segment revenues as a % of
 total revenues                     27.9%                    34.1%
Service revenues as a % of
 segment revenues                   12.5%                    10.1%
Operating income as a % of
 segment revenues                    9.7%                    12.7%
                              ---------------------------------------------

Southern U.S. and South America revenues totaled $342.3 million for the twelve months of 2011 as compared to $364.3 million in the same period of 2010. This decrease of $22.0 million was due to foreign exchange rates and the timing of revenue recognition. Delivery dates on Engineered Systems projects booked during the first half of 2011 have been delayed, deferring revenue to early 2012. Despite the timing impact of certain projects, the Eagle Ford and Marcellus resource basins have been very active in this segment in 2011 as evidenced by stronger bookings and backlog levels throughout 2011. As a result, the lower revenue in 2011 is related to lower average foreign exchange rates and the timing of project delivery, not lower activity or business prospects within this region.

Operating income decreased to $33.2 million for the twelve months ended 2011 from $46.4 million in the same period of 2010. This was as a result of lower revenue, lower realized gross margins and higher SG&A in 2011. Revenue during 2010, included $85.0 million related to large pipeline compression projects that did not reoccur in 2011.

INTERNATIONAL


(unaudited)                                Twelve months ended December 31,
($ Canadian thousands)                             2011              2010(1)
----------------------------------------------------------------------------
Segment revenue                             $   365,198          $  290,491
Intersegment revenue                             (4,631)            (40,738)
----------------------------------------------------------------------------
Revenue                                     $   360,567          $  249,753
                                   -----------------------------------------
                                   -----------------------------------------
Revenue - Engineered Systems                $   299,171          $  211,590
Revenue - Service                           $    47,799          $   37,529
Revenue - Rental                            $    13,597          $      634
Operating income                            $     8,047          $  (15,273)

Segment revenues as a % of total
 revenues                                29.4%                23.4%
Service revenues as a % of segment
 revenues                                13.3%                15.0%
Operating income as a % of segment
 revenues                                 2.2%                (6.1)%
                                   -----------------------------------------

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

Continuing Operations:

International revenues totaled $360.6 million for the twelve months ended 2011, compared to $249.8 million during the same period of 2010. The increase of $110.8 million was due to higher activity levels in Australia related to CSG projects and higher P&P revenue resulting from gas processing projects in unconventional gas basins and gas production projects in Africa. This was partially offset by lower revenues in MENA and International C&P for the twelve months ended 2011 resulting from the closure of the International C&P facility during the fourth quarter of 2010. Revenues for 2010 included $40.0 million for the construction of a gas processing facility in MENA which was accounted for as a finance lease.

Operating income for the twelve months of 2011 was $8.0 million, compared to an operating loss of $15.3 million for the same period of 2010. Operating income improved by $23.3 million over the same period last year, as a result of increased revenues and improved margin performance in P&P resulting from improved plant utilization and the MENA division resulting from recognition of approved change orders related to past projects. This was partially offset by project delays, cost over-runs and impairment of work in process on specific projects in Australia due to weather related delays in Queensland. Operating income was also impacted by higher SG&A costs in this segment during 2011, resulting from a full twelve months of expenses in this segment compared to eleven months and nine days in 2010.

Discontinued Operations:

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

These three discontinued operations recorded a loss before tax totaling $64.0 million (net of a $1.4 million gain on the sale of EEA), including $54.0 million of impairments in the first twelve months of 2011 compared to a loss of $4.0 million in the same period a year ago.


QUARTERLY SUMMARY
(unaudited)
($ Canadian thousands)                           Earnings per   Earnings per
                                           Net        share -        share -
                        Revenue    earnings(3)       basic(3)     diluted(3)
December 31,
 2011           $       383,802 $       17,719 $         0.22 $         0.22
September 30,
 2011                   282,335         16,979           0.22           0.22
June 30, 2011           246,491         10,456           0.14           0.14
March 31,
 2011(2)                314,509         11,587           0.15           0.15
December 31,
 2010(2)                347,616          8,319           0.11           0.11
September 30,
 2010(2)                270,859          5,062           0.06           0.06
June 30, 2010(2)        244,502          3,686           0.05           0.05
March 31,
 2010(1,2)              204,806         13,195           0.18           0.18
(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) Amounts presented are from continuing operations.

FINANCIAL POSITION

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


----------------------------------------------------------------------------
(unaudited)   Increase /
($ millions) (Decrease)                      Explanation
----------------------------------------------------------------------------
Assets:
----------------------------------------------------------------------------
                        The increase is primarily related to higher accrued
                        revenues and billings during the quarter in all
                        regions, partially off-set by a reclassification of
Accounts                receivables to assets held for sale related to the
 receivable     11.2    European operations.
----------------------------------------------------------------------------
                        The increase is related to higher work in process
                        (WIP) in all segments as backlog increases,
                        partially offset by a reclassification of inventory
                        to assets held for sale related to the European
Inventory       17.6    Operations.
----------------------------------------------------------------------------
Other                   The decrease is due to lower finance income
 current                receivable resulting from recognition of finance
 assets         (6.8)   income on the BP project and lower prepaid expenses.
----------------------------------------------------------------------------
Property,               The decrease is due to depreciation charges and the
 plant and              sale of non-core real estate assets in Calgary and
 equipment     (48.9)   Stettler, Alberta completed during the year.
----------------------------------------------------------------------------
                        The decrease is related to depreciation charges and
                        the sale of rental assets during the year, partially
Rental                  offset by rental asset additions to the rental
 equipment     (14.3)   fleet.
----------------------------------------------------------------------------
                        The decrease in deferred tax assets is due to a
                        write off of the tax assets related to the European
                        operations, as a result of Enerflex's decision to
                        exit that business. In addition, the Canada and
Deferred tax            Northern U.S. region returned to profitability and
 assets         (8.4)   utilized its non-capital loss pools.
----------------------------------------------------------------------------
                        The decrease is due to lower finance income
Other long              receivable resulting from recognition of finance
 term assets    (5.6)   income on a project in Oman.
----------------------------------------------------------------------------
                        The decrease is related to amortization of
                        intangibles and an impairment of $1.8 million
Intangible              recorded as part of discontinued operations during
 assets         (7.9)   the quarter related to the European Operations.
----------------------------------------------------------------------------
                        The decrease is due to an impairment charge related
                        to the European Operations and recorded as part of
                        discontinued operations during the quarter. This was
                        partially off-set by a foreign currency revaluation
                        of goodwill allocated to the International and
Goodwill       (22.7)   Southern U.S. and South America segment.
----------------------------------------------------------------------------
Liabilities:
----------------------------------------------------------------------------
Accounts
 payable and            The increase is primarily related to purchases of
 accrued                raw materials allocated to projects in WIP and
 liabilities     4.1    accruals for year-end incentives.
----------------------------------------------------------------------------
                        The increase is related to higher activity levels
                        and bookings during the year. Advanced billings have
Deferred                exceeded revenue recognition on key projects in the
 revenue        84.4    first twelve months of 2011.
----------------------------------------------------------------------------
                        The note was repaid to Toromont concurrent with
Note payable   (215.0)  Enerflex's bifurcation on June 1, 2011.
----------------------------------------------------------------------------
                        Enerflex established new bank facilities during 2011
                        and issued $90.5 million in 5 and 10 year term debt
Long-term               to repay indebtedness to Toromont and to fund
 debt           119.0   working capital requirements.
----------------------------------------------------------------------------

LIQUIDITY

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


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

Statement of Cash Flows:
(unaudited)
($ Canadian thousands) Years ended
 December 31,                                  2011                 2010(1)
----------------------------------------------------------------------------
Cash, beginning of period      $             15,000     $            34,949
Cash provided by (used in):
Operating activities                        134,795                  93,792
Investing activities                         32,177                (288,173)
Financing activities                       (101,438)                176,307
Exchange rate changes on
 foreign currency cash                          666                  (1,875)
----------------------------------------------------------------------------

Cash, end of period            $             81,200     $            15,000

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

Operating Activities

For the twelve months ended December 31, 2011, cash provided by operating activities was $134.8 million as compared to $93.8 million in the same period of 2010. The increase of $41.0 million was a result of improved profitability from continuing operations.

Investing Activities

Investing activities provided $32.2 million for the twelve months ended December 31, 2011, as compared to cash used in investing activities of $288.2 million during the same period of 2010. Expenditures on capital assets for the twelve months ended December 31, 2011 decreased by $19.6 million from the same period in 2010, while proceeds from the disposition of capital assets increased by $5.9 million as a result of the disposition of non-core real estate assets. For the twelve months ended December 31, 2011, Enerflex completed the sale of manufacturing facilities in Calgary and Stettler, Alberta which generated $42.9 million in 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 twelve months ended December 31, 2011 was $101.4 million, as compared to cash provided by financing activities of $176.3 million in the same period of 2010. The year-over-year difference was primarily due to the repayment of the note to Toromont during the second quarter of 2011, partially offset by borrowings on the new debt facility and the issuance of $90.5 million in term debt during the same period, as compared to an equity investment by Toromont for the acquisition of ESIF in the first quarter of 2010.

RISK MANAGEMENT

In the normal course of business, the Company is exposed to financial and operating 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.

Personnel

Enerflex's Engineered Systems product line requires skilled engineering and design professionals in order to maintain customer satisfaction and engage in product innovation. Enerflex competes for these professionals, not only with other companies in the same industry, but with oil and gas producers and other industries. In periods of high energy activity, demand for the skills and expertise of these professionals increases, making the hiring and retention of these individuals more difficult.

Enerflex's Service product line relies on the skills and availability of trained and experienced tradesmen and technicians to provide efficient and appropriate services to Enerflex and its customers. Hiring and retaining such individuals is critical to the success of Enerflex's businesses. Demographic trends are reducing the number of individuals entering the trades, making Enerflex's access to skilled individuals more difficult. There are few barriers to entry in a number of Enerflex's businesses, so retention of staff is essential in order to differentiate Enerflex's businesses and compete in its various markets.

Additionally, in increasing measures, Enerflex is dependent upon the skills and availability of various professional and administrative personnel to meet the increasing demands of the requirements and regulations of various professional and governmental bodies.

Energy Prices and Industry Conditions

The oil and gas service industry is highly reliant on the levels of capital expenditures made by oil and gas producers and explorers. The majority of Enerflex's customers generate cash flow from crude oil and natural gas production. They in-turn base their capital expenditure decisions on various factors, including, but not limited to, hydrocarbon prices, exploration and development prospects in various jurisdictions, production levels of their reserves and access to capital - none of which can be accurately predicted. Periods of prolonged or substantial reductions in commodity prices may lead to reduced levels of exploration and production activities, which may negatively impact the demand for the products and services that Enerflex offers, which may have a material adverse effect on the Enerflex results of operations and financial condition, including Enerflex's ability to pay dividends to its shareholders.

Inflationary Pressures

Strong economic conditions and competition for available personnel, materials and major components may result in significant increases in the cost of obtaining such resources. To the greatest extent possible, Enerflex passes such cost increases on to its customers and it attempts to reduce these pressures through proactive procurement and human resource practices. Should these efforts not be successful, the gross margin and profitability of Enerflex could be adversely affected.

The Cyclical Nature of the Energy Industry

Changing political, economic or military circumstances throughout the energy producing regions of the world can impact the market price of oil for extended periods of time, which in turn impacts the price of natural gas, as industrial users often have the ability to choose to use the lower priced energy source.

Climatic Factors and Seasonal Demand

Demand for natural gas fluctuates largely with the heating and electrical generation requirements caused by the changing seasons in North America. Cold winters typically increase demand for, and the price of, natural gas. This increases customers' cash flow which can then have a positive impact on Enerflex. At the same time, access to many western Canadian oil and gas properties is limited to the period when the ground is frozen so that heavy equipment can be transported. As a result, the first quarter of the year is generally accompanied by increased winter deliveries of equipment. Warm winters in western Canada, however, can both reduce demand for natural gas and make it difficult for producers to reach well locations. This restricts drilling and development operations, reduces the ability to supply gas production in the short term and can negatively impact the demand for Enerflex's products and services.

Hedging Activities

Enerflex reports its financial results to the public in Canadian dollars, however a significant percentage of its revenues and expenses are denominated in currencies other than Canadian dollars. As a result, Enerflex has implemented a hedging policy, applicable primarily to the Canadian domiciled business units, with the objective of securing the margins earned on awarded contracts denominated in currencies other than Canadian dollars. In addition, Enerflex may hedge input costs that are paid in a currency other than the home currency of the subsidiary executing the contract. Enerflex utilizes a combination of foreign denominated debt and currency forward contracts to meet its hedging objective. Under GAAP, derivative instruments that do not qualify for hedge accounting are subject to marked-to-market at the end of each period with the changes in fair value recognized in current period net earnings. Enerflex does apply hedge accounting to the majority of its forward contracts, as such, the gains or losses on the forward contracts are deferred to the balance sheet. However, there can be no assurance that Enerflex will choose to or qualify for hedge accounting in the future, as such, the use of currency forwards may introduce significant volatility into Enerflex's reported earnings.

Foreign Operations

Enerflex sells products and services throughout the world. This diversification exposes Enerflex to risks related to cultural, political and economic factors of foreign jurisdictions which are beyond the control of Enerflex. Other issues, such as the quality of receivables, may also arise.

Distribution Agreements

One of Enerflex's strategic assets is its distribution and original equipment manufacturer agreements with leading manufacturers, notably the Waukesha Engine division of General Electric for engines and parts. Enerflex is also the international distributor for Altronic, a leading manufacturer of electric ignition and control systems in Australia, New Zealand, Papua New Guinea and Canada. Enerflex also has relationships and agreements with other key equipment manufacturers including Finning (Caterpillar) and Ariel Corporation.

In the event that one or more of these agreements were to be terminated, Enerflex may lose a competitive advantage. While Enerflex and its people make it a priority to maintain and enhance these strategic relationships, there can be no assurance that these relationships will continue.

Competition

Enerflex has a number of competitors in all aspects of its business, both domestically and abroad. Some of these competitors, particularly in the Engineered Systems product line, are large, multi-national companies with potentially greater access to resources and more experience in international operations than Enerflex. Within Canada, particularly in the Service product line, Enerflex has a number of small to medium-sized competitors, who may not have access to the capital and resources that Enerflex has, but may also incur lower overhead costs than Enerflex.

Availability of Raw Materials, Component Parts or Finished Products

Enerflex purchases a broad range of materials and components in connection with its manufacturing and service activities. Enerflex purchases most of its natural gas engines and parts either through a distributor or an original equipment manufacturer agreement with Waukesha Engine, a division of General Electric, and through an original equipment manufacturer agreement with Finning (Caterpillar). Enerflex purchases most of its compressors and related parts through a distributor agreement with Ariel Corporation. Enerflex has had long standing relationships with these companies. Additionally, Enerflex has relationships with a number of other suppliers including Kobelco Compressors (America) Inc. and Mycom Group Inc. The availability of the component parts and the delivery schedules provided by these suppliers affect the assembly schedules of Enerflex's production and services.

Enerflex purchases coolers for its compression packages from a limited number of suppliers. The production schedules and delivery time tables from these suppliers affects the assembly schedule of Enerflex's products.

Though Enerflex is generally not dependent on any single source of supply, the ability of suppliers to meet performance, quality specifications and delivery schedules is important to the maintenance of customer satisfaction.

A challenge to achieving improved profitability will be the timely availability of certain original equipment manufacturer components and repair parts, which will generally be in steady demand.

Information Technology

As Enerflex continues to expand internationally, access to engineering and other technical skills in foreign locations, develop web-based applications and monitoring products, and improve its business software applications, information technology assets and protocols will become increasingly important to Enerflex. Enerflex has attempted to reduce this exposure by improving its information technology general controls, updating or implementing new business applications and hiring or training specific employees with respect to the protection and use of information technology assets.

Environmental Considerations

Demand for the Company's products and services could be adversely affected by changes to Canadian, U.S. or other countries' laws or regulations pertaining to the emission of CO2 and other Green House Gases ("GHGs") into the atmosphere. Although the Company is not a large producer of GHGs, the products and services of the Company are primarily related to the production of hydrocarbons including crude oil and natural gas, whose ultimate consumption are generally considered major sources of GHG emissions. Changes in the regulations concerning the release of GHG into the atmosphere, including the introduction of so-called "carbon taxes" or limitations over the emissions of GHGs, may adversely impact the demand for hydrocarbons and ultimately, the demand for the Company's products and services.

Insurance

Enerflex carries insurance to protect the Company in the event of destruction or damage to its property and equipment, subject to appropriate deductibles and the availability of coverage. Liability and executive insurance coverage is also maintained at prudent levels to limit exposure to unforeseen incidents. An annual review of insurance coverage is completed to assess the risk of loss and risk mitigation alternatives. Extreme weather conditions, natural occurrences and terrorist activity have strained insurance markets leading to substantial increases in insurance costs and limitations on coverage.

It is anticipated that insurance coverage will be maintained in the future, but there can be no assurance that such insurance coverage will be available in the future on commercially reasonable terms or be available on terms as favourable as Enerflex's current arrangements. The occurrence of a significant event outside of the coverage of Enerflex's insurance policies could have a material adverse effect on the results of the organization.

Credit Facility and Senior Notes

Enerflex relies on the Credit Facility and Senior Notes to meet its funding and liquidity requirements. The Senior Notes are due on two separate dates with $50.5 million, at a fixed interest rate of 4.841%, due on June 20, 2016 and $40.0 million, at a fixed interest rate of 6.011%, due on June 20, 2021. The Credit Facility is due on June 1, 2015 and may be renewed annually with the consent of the lenders. If the Company cannot successfully re-negotiate all or part of the Credit Facility prior to its due date, the cash available for dividends to shareholders and to fund ongoing operations could be adversely affected.

The Credit Agreement and Note Purchase Agreement also contain a number of covenants. Failure to meet any of these covenants, financial ratios or financial tests could result in events of default under each agreement. While Enerflex is currently in compliance with all covenants, financial ratios and financial tests, there can be no assurance that it will be able to comply with these covenants, financial ratios and financial tests in future periods. These events could restrict the Company's and other guarantors' ability to declare and pay dividends.

Government Regulation

The Company is subject to health, safety and environmental laws and regulations that expose it to potential financial liability. The Company's operations are regulated under a number of federal, provincial, state, local, and foreign environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage, and disposal of hazardous materials. Compliance with these environmental laws is a major consideration in the manufacturing of the Company's products, as the Company uses, generates, stores and disposes of hazardous substances and wastes in its operations. The Company may be subject to material financial liability for any investigation and clean-up of such hazardous materials. In addition, many of the Company's current and former properties are, or have been, used for industrial purposes. Accordingly, the Company also may be subject to financial liabilities relating to the investigation and remediation of hazardous materials resulting from the actions of previous owners or operators of industrial facilities on those sites. Liability in certain instances may be imposed on the Company regardless of the legality of the original actions relating to the hazardous or toxic substances or whether or not the Company knew of, or was responsible for, the presence of those substances. The Company is also subject to various Canadian and U.S. federal, provincial, state and local laws and regulations, as well as foreign laws and regulations relating to safety and health conditions in its manufacturing facilities. Those laws and regulations may also subject the Company to material financial penalties or liabilities for any noncompliance, as well as potential business disruption if any of its facilities or a portion of any facility is required to be temporarily closed as a result of any violation of those laws and regulations. Any such financial liability or business disruption could have a material adverse effect on the Company's projections, business, results of operations and financial condition.

Liability Claims

The Company could be subject to substantial liability claims, which could adversely affect its projections, business, results of operations and financial condition. Some of the Company's products are used in hazardous applications where an accident or a failure of a product could cause personal injury, loss of life, damage to property, equipment, or the environment, as well as the suspension of the end-user's operations. If the Company's products were to be involved in any of these difficulties, the Company could face litigation and may be held liable for those losses. The Company's insurance coverage may not be adequate in risk coverage or policy limits to cover all losses or liabilities that it may incur. Moreover, the Company may not be able in the future to maintain insurance at levels of risk coverage or policy limits that management deems adequate. Any claims made under the Company's policies likely will cause its premiums to increase. Any future damages deemed to be caused by the Company's products or services that are not covered by insurance, or that are in excess of policy limits or subject to substantial deductibles, could have a material adverse effect on the Company's projections, business, results of operations and financial condition.

Tax Indemnity Agreement

The Company could be exposed to substantial tax liabilities if certain requirements of the "butterfly" rules in section 55 of the Income Tax Act are not complied with. Failure to comply with these requirements could also cause the spinoff to be taxable to Toromont in circumstances where the Company would be required to indemnify Toromont for the resulting tax.

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 $0.6 million at December 31, 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 2% against the U.S. dollar in the fourth quarter of 2011 versus an appreciation 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 fourth quarter of 2011, consistent with a 3% appreciation in the same period of 2010. The Euro depreciated against the Canadian dollar by 6% during the fourth quarter of 2011, as compared to an appreciation 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 Notes outstanding at December 31, 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 $1.2 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 February 1, 2012, Enerflex had 77,412,981 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 fourth quarter of 2011, the Company declared a dividend of $0.06 per share.

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

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

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

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

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

In addition, the Company has a committed facility with a U.S. lender ("U.S. Facility") in the amount of $20.0 million USD. Drawings on the U.S. Facility are by way of LIBOR loans, U.S. Base Rate Loans and letters of credit. During the year, the Company negotiated an extension of the U.S. Facility to July 1, 2014. The U.S. Facility may be extended annually at the request of the Company, subject to the lenders consent. There are no required or scheduled repayments of principal until the maturity date of the U.S. 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 U.S. Facility are unsecured and rank pari passu with the Notes. The Company is required to maintain certain covenants on the Bank Facilities, the Bi-Lateral, the U.S. Facility and the Notes. As at December 31, 2011, the Company was in compliance with these covenants.

At December 31, 2011, the Company had $31.3 million drawn against the Bank Facilities. The Bank Facilities were not available at December 31, 2010, as the Company's borrowings consisted of a Note Payable to its parent company.

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

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


CONTRACTUAL OBLIGATIONS

($ Canadian thousands)               Payments due by period
Contractual
 Obligations           2012   2013-2014   2015-2016  Thereafter        Total
----------------------------------------------------------------------------
Leases         $     11,095 $    14,898 $     8,620 $     5,934  $    40,547
Purchase
 obligations         24,122       1,312           -           -       25,434
----------------------------------------------------------------------------
Total          $     35,217 $    16,210 $     8,620 $     5,934  $    65,981
               -------------------------------------------------------------
               -------------------------------------------------------------

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. As described in the financial statements, the Company has two joint ventures, PDIL and Enerflex-ES. Due to the fact that Enerflex-ES was incorporated in Q4 2011, there are no related party transactions or balances to report.

All transactions occurring with related 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:


Years ended December 31,                                  2011          2010
----------------------------------------------------------------------------
Revenue                                             $      212    $       20
Management fees                                          4,299         7,920
Purchases                                                  526         1,279
Interest expense                                         1,902         5,484
Accounts receivable                                         44            61
Accounts payable                                             -         3,692
Note payable                                                 -       215,000
----------------------------------------------------------------------------

The above noted management fee expense and interest expense have all been paid to Toromont; there are no related party payables from Toromont as at December 31, 2011. The note payable to Toromont was non-interest bearing and did not have fixed terms of repayment.

Revenues recognized and purchases identified above for 2011 and 2010 were from Total and PDIL. The accounts receivable balances outstanding at December 31, 2011 and 2010 were from the joint venture.

All related party transactions are settled in cash.

ACCOUNTING POLICIES

Adoption of International Financial Reporting Standards

As disclosed in Note 4, these Consolidated Financial Statements have been prepared in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards", 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 consolidated financial statements for the twelve months ended December 31, 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 twelve months ended December 31, 2011, which were prepared on a carve-out basis for the first five months of 2011 and consolidated basis as at December 31, 2011.

Assets held for sale

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

SIGNIFICANT ACCOUNTING ESTIMATES

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

Revenue Recognition - Long-Term Contracts

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

Provisions for Warranty

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

Property, Plant and Equipment

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

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

Allowance for Doubtful Accounts

An estimate for doubtful accounts is made when there is objective evidence that the collection of the full amount is no longer probable under the terms of the original invoice. Impaired receivables are derecognized when they are assessed as uncollectible. Amounts estimated represent management's best estimate of probability of collection of amounts from customers.

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.

Impairment of Goodwill

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

Income Taxes

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

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

Assets Held for Sale and Discontinued Operations

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

FUTURE ACCOUNTING PRONOUNCEMENTS

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

As of January 1, 2013, the Company will be required to adopt IFRS 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; IFRS 12 Disclosure of Interest in Other Entities; IFRS 13 Fair Value Measurement; and IAS 1 Presentation of Items of Other Comprehensive Income. Starting January 1, 2015, the Company will be required to adopt IFRS 9 Financial Instruments.

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

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

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

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

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

IAS 1 Presentation of Items of Other Comprehensive Income has been amended to require entities to split items of other comprehensive income (OCI) between those that are reclassed to income and those that are not. The Company is in the process of assessing the impact of IAS 1 amendment, if any.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

IFRS 1 replaced 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 and annual 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 are the first annual financial statements that comply with IFRS.

Transitional Impacts

IFRS 1 First-Time Adoption of International Financial Reporting Standards provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective adoption of IFRS. Most adjustments required on transition to IFRS are made retrospectively against opening retained earnings as of the date of the first comparative statement of financial position presented, which is January 1, 2010.

The following are the key transitional provisions which have been adopted on January 1, 2010 and which had an impact on the Company's financial position on transition.



----------------------------------------------------------------------------
Area of IFRS   Summary of Exemption Available Policy Elected
----------------------------------------------------------------------------
Business       The Company may elect on       The Company has applied the
 combinations  transition to IFRS to either   elective exemption such that
               restate all past business      business combinations entered
               combinations in accordance     into prior to transition date
               with IFRS 3 Business            have not been restated.
               Combinations or to apply an
               elective exemption from                                      
               applying IFRS to past business
               combinations.
                                              Transitional impact: None.
----------------------------------------------------------------------------
Property,      The Company may elect on       The Company did not elect to
 plant and     transition to IFRS to report   report any items of property,
 equipment     items of property, plant and   plant and equipment in its
               equipment in its opening       opening statement of financial
               statement of financial         position at a deemed cost
               position at a deemed cost      instead of the actual cost
               instead of the actual cost     that would be determined under
               that would be determined under IFRS.
               IFRS. The deemed cost of an
               item may be either its fair
               value at the date of
               transition to IFRS or an
               amount determined by a
               previous revaluation under
               pre-changeover Canadian GAAP
               (as long as that amount was
               close to either its fair
               value, cost or adjusted cost).
               The exemption can be applied
               on an asset-by-asset basis.
                                              Transitional impact: None.
----------------------------------------------------------------------------
Foreign        On transition, cumulative      The Company elected to
 exchange      translation gains or losses in reclassify all cumulative
               accumulated other              translation gains and losses
               comprehensive income can be    at the date of transition to
               reclassified to retained       retained earnings.
               earnings. If not elected, all
               cumulative translation
               differences must be
               recalculated under IFRS from
               inception.
                                              Transitional impact: See Note
                                              33 of the financial
                                              statements.
----------------------------------------------------------------------------
Borrowing      On transition, the Company     The Company elected to
 costs         must select a commencement     capitalize borrowing costs on
               date for capitalization of     all qualifying assets
               borrowing costs relating to    commencing January 1, 2010.
               all qualifying assets which is
               on or before January 1, 2010.
                                              Transitional impact: None.
----------------------------------------------------------------------------
Deferred taxes On transition, the Company     The Company has reclassified
               must reclassify all deferred   all deferred tax assets and
               tax assets and liabilities as  liabilities as non-current.
               non-current.
                                              Transitional impact: See Note
                                              33 of the financial
                                              statements.
----------------------------------------------------------------------------

The following are key IFRS 1 mandatory exceptions from full retrospective application of IFRS:



---------------------------------------------------------------------------
Area of     Mandatory Exception Applied
 IFRS
---------------------------------------------------------------------------
Hedge       Only hedging relationships that satisfied the hedge accounting
 accounting criteria as of January 1, 2010 are reflected as hedges in the
            Company's financial statements under IFRS.

            Transitional Impact: None.
---------------------------------------------------------------------------
Estimates   Hindsight was not used to create or revise estimates. The
            estimates previously made by the Company under former Canadian
            GAAP are consistent with their application under IFRS.

            Transitional Impact: None.
---------------------------------------------------------------------------

In addition to the one-time transitional impacts described above, several accounting policy differences will impact the Company on a go forward basis. The significant accounting policy differences are presented below.


---------------------------------------------------------------------------
Area of IFRS  Policy Difference              Status
---------------------------------------------------------------------------
Share-based   The valuation of stock options The impact of these changes is
 payments     under IFRS requires individual not significant.
              "tranche based" valuations for
              those option plans with graded
              vesting, while former Canadian
              GAAP allowed a single
              valuation for all tranches.
---------------------------------------------------------------------------
Impairment of IFRS requires impairment       The identification of
 assets       testing be done at the         additional cash generating
              smallest identifiable group of units did not have an impact
              assets that generate cash      on transition to IFRS as no
              inflows largely independent    impairments were identified.
              from other groups of assets
              ("cash generating unit"),
              which in some cases is
              different from the grouping
              required by former Canadian
              GAAP.

              IFRS requires the assessment
              of asset impairment to be
              based on recoverable amounts,
              which is the higher of the
              fair value less costs to sell
              and value-in-use.

              IFRS allows for reversal of
              impairment losses other than
              for goodwill and indefinite
              life intangible assets, while
              former Canadian GAAP did not.
---------------------------------------------------------------------------
Borrowing     Under IFRS, borrowing costs    The Company did not identify
 costs        will be capitalized to assets  any qualifying assets in the
              which take a substantial time  period and therefore there was
              to develop or construct using  no impact on adoption of this
              a capitalization rate based on policy.
              the Company's weighted average
              cost of borrowing.
---------------------------------------------------------------------------
Financial                                    Financial statement
 statement    IFRS requires significantly    disclosures for the years
 presentation more disclosure than former    ended December 31, 2011 and
 and          Canadian GAAP for certain      2010 have been updated to
 disclosure   standards.                     reflect IFRS requirements.
---------------------------------------------------------------------------

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 ("DC&P") and internal control over financial reporting ("ICFR").

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 evaluated the effectiveness of the Company's disclosure controls and procedures and internal controls over financial reporting as at December 31, 2011, using the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management has concluded that the design and operation of the Company's disclosure controls and procedures were adequate and effective as at December 31, 2011, to provide reasonable assurance that a) material information relating to the Company and its consolidated subsidiaries would have been known to them and by others within those entities, and b) information required to be disclosed is recorded, processed, summarized and reported within required time periods. They have also concluded that the design and operation of internal controls over financial reporting were adequate and effective as at December 31, 2011, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting in accordance with GAAP.

There have been no significant changes in the design of the Company's internal controls over financial reporting during the fourth quarter ended December 31, 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 December 31, 2011, the Company declared a dividend of $0.06 per share, payable on April 4, 2012, to shareholders of record on March 12, 2012.

OUTLOOK FOR MARKETS

The global economy continues its fragile recovery from the recent recession. Enerflex entered 2011 with significantly stronger backlog than the prior year. Bookings during the twelve months of 2011, including the large International contract in the Sultanate of Oman received during the fourth quarter of 2011, has resulted in backlog for Engineered Systems of approximately $1.0 billion.

The Canada and Northern U.S. region benefited from improved bookings and backlog during 2011 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 increased activities in 2011. Natural gas prices have fallen below $3.00/ mcf to begin 2012 and North America has experienced a very mild winter, which has increased storage levels above the five year average. This has created uncertainty for producers and capital spending could be reduced for natural gas exploration in this region during 2012.

The Southern U.S. and South America region also experienced improved bookings and backlog during the twelve months of 2011. Increased activity in liquid rich U.S. gas basins has driven new orders for compression equipment for this region. These liquid rich resource basins can achieve superior returns for producers despite low natural gas prices due to the higher value that could be realized for the natural gas liquids. 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. It is highly probable that the low natural gas price will impact dry gas production in the U.S. during 2012, with some producers already announcing reduced production resulting from shutting in gas wells. Enerflex's U.S. business is heavily weighted to activity in liquid rich resource basins and as long as frac spread ratios (the differential between oil prices and natural gas prices) remain high, the Company expects activity levels to remain strong in this region. However, there is still uncertainty in this market resulting from historically high storage levels and the potential impact on capital spending and activity levels for our customers during 2012 remains uncertain.

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

In the Middle East and North Africa, Enerflex has taken a targeted approach to mitigate exposure to political unrest. The Company's 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 during the fourth quarter of 2011, has received an award for a USD $228.0 million gas processing plant in the region. Domestic demand for gas in this region remains strong and we are well positioned to compete for future projects in Oman and Bahrain for compression, processing equipment and after market service support.

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




CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


(unaudited)                                December    December   January 1,
($ Canadian thousands)                     31, 2011    31, 2010         2010
----------------------------------------------------------------------------
Assets
Current assets
  Cash and cash equivalents             $    81,200 $    15,000 $     34,949
  Accounts receivable (Note 8)              254,482     243,238       78,011
  Inventories (Note 9)                      240,419     222,855      167,275
  Income tax receivable (Note 18)             2,800       1,944        5,776
  Derivative financial instruments (Note
   26)                                        2,136         448           13
  Other current assets                       15,220      22,013        3,104
----------------------------------------------------------------------------
Total current assets                        596,257     505,498      289,128
Property, plant and equipment (Note 10)     123,130     172,041       69,781
Rental equipment (Note 10)                  101,908     116,162       59,142
Deferred tax assets (Note 18)                39,581      47,940       19,893
Other assets (Note 11)                        8,167      13,797       56,502
Intangible assets (Note 12)                  31,528      39,462            -
Goodwill (Note 13)                          459,935     482,656       21,350
----------------------------------------------------------------------------
                                          1,360,506   1,377,556      515,796
----------------------------------------------------------------------------
Assets held for sale (Note 6)                10,054           -            -
----------------------------------------------------------------------------
Total assets                            $ 1,370,560 $ 1,377,556 $    515,796
                                        ------------------------------------
                                        ------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
  Accounts payable and accrued
   liabilities (Note 14)                $   153,980 $   149,884 $     57,584
  Provisions (Note 15)                       12,953      14,538       11,289
  Income taxes payable (Note 18)              2,410       7,135            -
  Deferred revenues                         234,756     150,319       59,751
  Derivative financial instruments (Note
   26)                                          455         603            -
  Note payable (Note 29)                          -     215,000            -
----------------------------------------------------------------------------
Total current liabilities                   404,554     537,479      128,624
  Note payable (Note 29)                          -           -       73,570
  Long-term debt (Note 16)                  118,963           -            -
Other liabilities                               590         549            -
----------------------------------------------------------------------------
                                            524,107     538,028      202,194
----------------------------------------------------------------------------
Liabilities related to assets held for
 sale (Note 6)                               10,191           -            -
----------------------------------------------------------------------------
Total liabilities                           534,298     538,028      202,194
                                        ------------------------------------
                                        ------------------------------------
Guarantees, commitments and contingencies (Note 17)
Shareholders' Equity
Owner's net investment                            -     849,977      297,973
Share capital (Note 19)                     207,409           -            -
Contributed surplus (Note 20)               656,536           -            -
Retained deficit                            (35,540)          -            -
Accumulated other comprehensive (loss)
 income                                       7,857     (10,845)      15,629
----------------------------------------------------------------------------
Total shareholders' equity before non-
 controlling interest                       836,262     839,132      313,602
Non-controlling interest                          -         396            -
----------------------------------------------------------------------------
Total shareholders' equity and non-
 controlling interest                       836,262     839,528      313,602
----------------------------------------------------------------------------
Total liabilities and shareholders'
 equity                                 $ 1,370,560 $ 1,377,556 $    515,796
                                        ------------------------------------
                                        ------------------------------------


See accompanying Notes to the Consolidated Financial Statements.



CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(unaudited)
($ Canadian thousands, except per share amounts)
Years ended December 31,                               2011            2010
----------------------------------------------------------------------------
Revenues (Note 21)                            $   1,227,137   $   1,067,783
Cost of goods sold                                1,001,261         883,885
----------------------------------------------------------------------------
Gross margin                                        225,876         183,898
Selling and administrative expenses                 145,790         142,943
----------------------------------------------------------------------------
Operating income                                     80,086          40,955
Gain on disposal of property, plant and
 equipment                                           (3,594)            (68)
Gain on available-for-sale financial assets               -         (18,627)
Equity earnings from associates                      (1,161)           (468)
----------------------------------------------------------------------------
Earnings before finance costs and income
 taxes                                               84,841          60,118
Finance costs (Note 24)                               8,954          16,195
Finance income (Note 24)                             (1,943)           (724)
----------------------------------------------------------------------------
Earnings before income taxes                         77,830          44,647
Income taxes (Note 18)                               21,089          14,385
----------------------------------------------------------------------------
Net earnings from continuing operations       $      56,741   $      30,262
Gain on sale of discontinued operations
 (Note 7)                                             1,430               -
Loss from discontinued operations (Note 7)          (65,470)         (3,963)
----------------------------------------------------------------------------
Net (loss) earnings                           $      (7,299)  $      26,299
                                            --------------------------------
                                            --------------------------------




Net (loss) earnings attributable to:
Controlling interest                          $      (6,983)  $      26,434
Non-controlling interest                      $        (316)  $        (135)

Earnings (loss) per share - basic (Note 25)
Continuing operations                         $        0.73   $        0.40
Discontinued operations                       $       (0.83)  $       (0.05)

Earnings (loss) per share - diluted (Note
 25)
Continuing operations                         $        0.73   $        0.40
Discontinued operations                       $       (0.83)  $       (0.05)

Weighted average number of shares - basic        77,221,440      76,170,972
Weighted average number of shares - diluted      77,335,232      76,361,949

See accompanying Notes to the Consolidated Financial Statements.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
($ Canadian thousands) Years ended December 31,            2011        2010
----------------------------------------------------------------------------

Net (loss) earnings                                   $  (7,299)  $  26,299

Other comprehensive income (loss):

Change in fair value of derivatives designated as
 cash flow hedges, net of income tax expense (2011:
 $14; 2010: $81)                                            721         210 

Gain (loss) on derivatives designated as cash flow
 hedges transferred to net income in the current
 year, net of income tax (recovery) expense (2011:
 $(77); 2010: $65)                                         199        (168)

Unrealized gain (loss) on translation of financial
 statements of foreign operations                        17,782     (10,901)

Reclassification to net income of gain on available
 for sale financial assets as a result of business
 acquisition, net of income tax expense (2011: $nil;
 2010: $3,090)                                                -     (15,615)
----------------------------------------------------------------------------
Other comprehensive income (loss)                     $  18,702   $ (26,474)
----------------------------------------------------------------------------
Total comprehensive income (loss)                     $  11,403   $    (175)
                                                    ------------------------
                                                    ------------------------

See accompanying Notes to the Consolidated Financial Statements.



CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
($ Canadian thousands) Years ended December 31,            2011        2010
----------------------------------------------------------------------------
Operating activities
Net (loss) earnings                                  $   (7,299) $   26,299
Items not requiring cash and cash equivalents:
  Impairment of assets held for sale (Note 6)            54,030           -
  Depreciation and amortization                          42,171      39,113
  Equity earnings from associates                        (1,161)       (468)
  Deferred income taxes (Note 18)                         3,796      (3,386)
  Stock option expense (Note 22)                            858           -
(Gain) loss on sale of:
   Discontinued operations                               (2,471)          -
   Property, plant and equipment                         (3,595)         77
   Available for sale financial assets                        -     (18,627)
----------------------------------------------------------------------------
                                                         86,329      43,008
Net change in non-cash working capital and other         48,466      50,784
----------------------------------------------------------------------------
Cash provided by operating activities                $  134,795  $   93,792
----------------------------------------------------------------------------
Investing activities
Business acquisition, net of cash acquired (Note 5)  $        -  $ (292,533)
Additions to:
Rental equipment (Note 10)                              (12,634)    (30,062)
Property, plant and equipment (Note 10)                 (22,040)    (24,202)
Proceeds on disposal of:
Rental equipment                                         11,802      58,379
Property, plant and equipment                            56,865       4,391
Disposal of discontinued operations, net of cash
 (Note 7)                                                 3,389       3,500
Change in other assets                                    2,103      (7,510)
----------------------------------------------------------------------------
                                                         39,485    (288,037)
Net change in non-cash working capital and other         (7,308)       (136)
----------------------------------------------------------------------------
Cash provided by (used in) investing activities      $   32,177  $ (288,173)
----------------------------------------------------------------------------
Financing activities
(Repayment of) proceeds from note payable            $ (215,000) $  141,431
Proceeds from (repayment of) long-term debt             118,781    (164,811)
Dividends                                                (9,266)          -
Stock option exercises                                    1,250           -
Equity from parent                                        2,797     199,687
----------------------------------------------------------------------------
Cash (used in) provided by financing activities      $ (101,438) $  176,307
----------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
 equivalents denominated in foreign currencies       $      666      (1,875)
Increase (decrease) in cash and cash equivalents         66,200     (19,949)
Cash and cash equivalents, beginning of year         $   15,000  $   34,949
----------------------------------------------------------------------------
Cash and cash equivalents, end of year               $   81,200  $   15,000
                                                    ------------------------
                                                    ------------------------

Supplemental cash flow information (Note 28).
See accompanying Notes to the Consolidated Financial Statements.



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

                                                                    Foreign
                                                                   currency
                              Net    Share Contributed Retained translation
                       investment  capital     surplus  deficit adjustments
(unaudited)
($ Canadian thousands)
----------------------------------------------------------------------------

At January 1, 2010        297,973        -           -        -           -
Net earnings (loss)        26,434        -           -        -           -
Non-controlling
 interest on
 acquisition                    -        -           -        -           -
Other comprehensive
 (loss) income                  -        -           -        -     (10,901)
Owner's
 investment/dividends     525,570        -           -        -           -
----------------------------------------------------------------------------
At December 31, 2010      849,977        -           -        -     (10,901)
----------------------------------------------------------------------------
Net earnings (loss)        14,654        -           -  (21,637)          -
Owner's
 investment/equity to
 parent                    (2,794)       -           -        -           -
Bifurcation
 transaction             (861,837) 205,337     656,500        -           -
Non-controlling
 interest disposed              -        -           -        -           -
Other comprehensive
 income                         -        -           -        -      17,782
Effect of stock option
 plans                          -    2,072          36        -           -
Dividends                       -        -           -  (13,903)          -
----------------------------------------------------------------------------
At December 31, 2011            -  207,409     656,536  (35,540)      6,881
----------------------------------------------------------------------------
----------------------------------------------------------------------------


                                                 Total
                                           accumulated
                               Available         other
                                for sale comprehensive        Non-
                       Hedging financial       income/ controlling
                       reserve    assets        (loss)    interest    Total
(unaudited)
($ Canadian thousands)
----------------------------------------------------------------------------

At January 1, 2010          14    15,615        15,629           -  313,602
Net earnings (loss)          -         -             -        (135)  26,299
Non-controlling
 interest on
 acquisition                 -         -             -         531      531
Other comprehensive
 (loss) 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 (loss)          -         -             -        (316)  (7,299)
Owner's
 investment/equity to
 parent                      -         -             -           -   (2,794)
Bifurcation
 transaction                 -         -             -           -        -
Non-controlling
 interest disposed           -         -             -         (80)     (80)
Other comprehensive
 income                    920         -        18,702           -   18,702
Effect of stock option
 plans                       -         -             -           -    2,108
Dividends                    -         -                         -  (13,903)
----------------------------------------------------------------------------
At December 31, 2011       976         -         7,857           -  836,262
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying Notes to the Consolidated Financial Statement



(unaudited)($ thousands of Canadian dollars, except per share amounts)

Note 1. Nature and Description of the Company

Enerflex Ltd. ("Enerflex" or "the Company") was formed subsequent to the acquisition of Enerflex Systems Income Fund ("ESIF") by Toromont Industries Ltd. ("Toromont") and subsequent integration of Enerflex's products and services with Toromont's existing Natural Gas Compression and Processing business. In January 2010, the operations of Toromont Energy Systems Inc., a subsidiary of Toromont, were combined with the operations of ESIF to form Enerflex Ltd. The common shares are listed on the Toronto Stock Exchange ("TSX") under the symbol "EFX".

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

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

Note 2. Background and Basis of Presentation

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

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

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

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

Note 3. Summary of Significant Accounting Policies

(a) Statement of Compliance

These consolidated financial statements represent the first annual financial statements of the Company prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The Company adopted IFRS in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards".

(b) Basis of Presentation

These consolidated financial statements for the year ending December 31, 2011 represent the financial position, results of operations and cash flows of the Business transferred to Enerflex on a carve-out basis up to May 31, 2011.

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

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

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

These financial statements are presented in Canadian dollars rounded to the nearest thousand 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 consolidated financial statements were authorized for issue by the Board of Directors on February 16, 2012.

(c) Basis of Consolidation

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

(d) Significant Accounting Estimates and Judgments

The preparation of the Company's 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.


--  Allowance for Doubtful Accounts

An estimate for doubtful accounts is made when there is objective evidence that the collection of the full amount is no longer probable under the terms of the original invoice. Impaired receivables are derecognized when they are assessed as uncollectible. Amounts estimated represent management's best estimate of probability of collection of amounts from customers.


--  Impairment of Non-Financial Assets

Impairment exists when the carrying value of an asset or cash generating unit ("CGU") 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.


--  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 groups of cash-generating units 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 group of cash-generating units and also to determine a suitable discount rate in order to calculate the present value of those cash flows. Impairment losses on goodwill are not reversed.


--  Income Taxes

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

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


--  Assets Held for Sale and Discontinued Operations

The Company's accounting policy related to assets held for sale is described in Note (i). In applying this policy, judgment is used in determining whether certain assets should be reclassified to assets held for sale on the consolidated statements of financial position. Judgment is also applied in determining whether the results of operations associated with the assets should be recorded in discontinued operations on the consolidated statements of earnings.

(e) Business Combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Company elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed and included in selling and administrative expenses.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the group of cash generating units that are expected to benefit from the synergies of the combination.

(f) Investment in Associates

The Company uses the equity method to account for its 40% investment in Total Production Services Inc., an investment subject to significant influence.

Under the equity method, the investment in the associate is carried on the statement of financial position at cost plus post acquisition changes in the Company's share of net assets of the associate.

The statement of earnings (loss) reflects the Company's share of the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate.

The Company's share of profit of an associate is shown on the face of the statement of earnings (loss). This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate.

After application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss on its investment in its associate. The Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the 'share of profit of an associate' in the statement of earnings (loss).

(g) Interests in Joint Ventures

The Company proportionately consolidates its 50% interest in the Presson-Descon International (Private) Limited ("PDIL") joint venture and its 51% interest in the Enerflex-ES joint venture. This involves recognizing its proportionate share of the joint venture's assets, liabilities, income and expenses with similar items in the consolidated financial statements on a line-by-line basis.

(h) Foreign Currency Translation

The Company's functional and presentation currency is the Canadian dollar. In the accounts of individual subsidiaries, transactions in currencies other than the Company's functional currency are recorded at the prevailing rate of exchange at the date of the transaction. At year end, monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the period end date. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the rates of exchange at the date the fair value was determined. All foreign exchange gains and losses are taken to the statement of earnings (loss) with the exception of exchange differences arising on monetary assets and liabilities that form part of the Company's net investment in subsidiaries. These are taken directly to other comprehensive income until the disposal of the foreign subsidiary at which time the unrealized gain or loss is recognized in the statement of earnings (loss).

The statements of financial position of foreign subsidiaries and joint ventures are translated into Canadian dollars using the closing rate method, whereby assets and liabilities are translated at the rates of exchange prevailing at the period end date. The statements of earnings (loss) of foreign subsidiaries and joint ventures are translated at average exchange rates for the reporting period. Exchange differences arising on the translation of net assets are taken to accumulated other comprehensive income (loss).

On the disposal of a foreign entity, accumulated exchange differences are recognized in the statement of earnings as a component of the gain or loss on disposal.

(i) Assets Held for Sale

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

(j) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Cost comprises the purchase price or construction cost and any costs directly attributable to making the asset capable of operating as intended. Depreciation is provided using the straight-line method over the estimated useful lives of the various classes of assets:


Asset Class                   Estimated useful life range
----------------------------------------------------------------------------
Buildings                     5 to 20 years
Equipment                     3 to 20 years

Major renewals and improvements are capitalized when they are expected to provide future economic benefit. When significant components of property, plant and equipment are required to be replaced at intervals, the Company derecognizes the replaced part, and recognizes the new part with its own associated useful life and depreciation. No depreciation is charged on land or assets under construction. Repairs and maintenance costs are charged to operations as incurred.

The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from derecognition of property, plant and equipment is included in profit or loss when the item is derecognized.

Each asset's estimated useful life, residual value and method of depreciation are reviewed and adjusted if appropriate at each financial year end.

(k) Rental Equipment

Rental equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are generally between 5 and 15 years.

When, under the terms of a rental contract, the Company is responsible for maintenance and overhauls, the actual overhaul cost is capitalized and depreciated over the estimated useful life of the overhaul, generally between 2 and 5 years.

Major renewals and improvements are capitalized when they are expected to provide future economic benefit. No depreciation is provided on assets under construction. Repairs and maintenance costs are charged to operations as incurred.

Each asset's estimated useful life, residual value and method of depreciation are reviewed and adjusted if appropriate at each financial year end.

(l) Goodwill

Goodwill acquired in a business combination is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized to non-controlling interest ("NCI") over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the acquiree, the difference is recognized directly in the statement of earnings (loss). Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually, or when there is an indication that a related group of cash generating units may be impaired.

For the purposes of impairment testing, goodwill acquired is allocated to the groups of cash-generating units that are expected to benefit from the synergies of the combination. Each group to which the goodwill is allocated represents the lowest level within the Company at which the goodwill is monitored for internal management purposes and is not larger than an operating segment, determined in accordance with IFRS 8 Operating Segments.

Impairment is determined by assessing the recoverable amount of the group of cash-generating units to which the goodwill relates. Where the recoverable amount of the group of cash-generating units is less than the carrying amount of the cash-generating units and related goodwill, an impairment loss is recognized in the consolidated statement of earnings (loss). Impairment losses on goodwill are not reversed.

(m) Intangible Assets

Intangible assets are initially measured at cost being their fair value at the date of acquisition and are recognized separately from goodwill if the asset is separable or arises from a contractual or other legal right and its fair value can be measured reliably. After initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Intangible assets with a finite life are amortized over management's best estimate of their expected useful life. The amortization charge in respect of intangible assets is included in selling, general and administrative expense line in the statement of earnings. The expected useful lives are reviewed on an annual basis. Any change in the useful life or pattern of consumption of the intangible asset is treated as a change in accounting estimate and is accounted for prospectively by changing the amortization period or method. Intangible assets are tested for impairment whenever there is an indication that the asset may be impaired.

Acquired identifiable intangible assets with finite lives are amortized on a straight-line basis over the estimated useful lives as follows:


Asset                            Estimated useful life range
----------------------------------------------------------------------------
Customer relationships           5 years
Software and other               less than 1 year - 5 years

(n) Impairment of Assets (excluding goodwill)

At each statement of financial position date, the Company reviews the carrying amounts of its tangible and intangible assets with finite lives to assess whether there is an indication that those assets may be impaired. If any such indication exists, the Company makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's fair value less costs to sell and its value-in-use. In assessing its value-in-use, the estimated future cash flows attributable to the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of earnings (loss).

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the original carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately in the statement of earnings (loss).

(o) Inventories

Inventories are valued at the lower of cost and net realizable value.

Cost of equipment, repair and distribution parts and direct materials include purchase cost and costs incurred in bringing each product to its present location and condition. Serialized inventory is determined on a specific item basis. Non-serialized inventory is determined based on a weighted average cost.

Cost of work-in-process includes cost of direct materials, labour and an allocation of manufacturing overheads, excluding borrowing costs, based on normal operating capacity.

Cost of inventories include the transfer from accumulated other comprehensive income (loss) of gains and losses on qualifying cash flow hedges in respect of the purchase of inventory.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining selling prices. Inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. When circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in selling prices, the amount of the write down previously recorded is reversed.

(p) Construction work in progress

Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in contract activities based on normal operating capacity.

Construction work in progress is presented as part of trade and other receivables in the statement of financial position for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as deferred revenue in the statement of financial position.

(q) Trade and Other Receivables

Trade receivables are recognized and carried at original invoice amount less an allowance for any amounts estimated to be uncollectible. An estimate for doubtful debts is made when there is objective evidence that the collection of the full amount is no longer probable under the terms of the original invoice. Impaired debts are derecognized when they are assessed as uncollectible.

(r) Cash

Cash includes cash and cash equivalents, which are defined as highly liquid investments with original maturities of three months or less.

(s) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized in the statement of earnings as a finance cost.

(t) Onerous contracts

A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.

(u) Employee Future Benefits

The Company sponsors various defined contribution pension plans, which cover substantially all employees and are funded in accordance with applicable plan and regulatory requirements. Regular contributions are made by the Company to the employees' individual accounts, which are administered by a plan trustee, in accordance with the plan document. The actual cost of providing benefits through defined contribution pension plans is charged to income in the period in respect of which contributions become payable.

(v) Share-Based Payments

The Company issued share-based awards to certain employees and non-employee directors. The cost of equity-settled share-based transactions is determined as the fair value of the options on grant date using a fair value based model. Stock options have a seven-year expiry, vest 20% cumulatively on each anniversary date of the grant and are exercisable at the designated common share price, which is determined by the average of the market price of the Company's shares on the five days preceding the date of the grant. The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the relevant employees become fully entitled to the award. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest.

The Company also 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 annual bonus, or retainer and fees, respectively, in deferred share units. The holder of the DSUs receives a payment from the Company equal to the implied market value calculated as the number of DSUs multiplied by the closing price of Enerflex shares on the entitlement date. The DSUs vest upon being credited to the executive or non-employee director's account.

For certain directors and key employees of affiliates located in Australia and the United Arab Emirates ("UAE"), the Company utilizes a Phantom Share Rights Plan (Share Appreciation Right) ("SAR"). 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 fifth on each of the first five 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.

(w) Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date. Leases which transfer substantially all of the benefits and risk of ownership of the asset to the lessee are classified as finance leases; all other leases are classified as operating leases. Classification is re-assessed if the terms of the lease are changed.

The Company has entered into various operating leases, the payments for which are recognized as an expense in the statement of earnings on a straight-line basis over the lease terms.


--  Company as a Lessor:

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

Amounts due from leases under finance leases are recorded as receivables at the amount of the Company's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company's net investment outstanding in respect of leases.


--  Company as a Lessee:

Assets held under finance lease are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance charges and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company's general policy on borrowing costs. Contingent rentals are recognized as expenses in the period in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of the rental expense on a straight-line basis over the term of the lease.

(x) Revenue Recognition

Revenue is recognized to the extent that it is probable economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, net of discounts, rebates, sales taxes and duties. In addition to this general policy, the following describes the specific revenue recognition policies for each major category of revenue:


--  Revenues from the supply of equipment systems involving design,
    manufacture, installation and start-up are recorded based on the stage
    of completion, where the stage of completion measured by reference to
    costs incurred to date as a percentage of total estimated costs of the
    project. Any foreseeable losses on such projects are charged to
    operations when determined.
--  Revenues from equipment rentals are recognized in accordance with the
    terms of the relevant agreement with the customer on a straight-line
    basis over the term of the agreement. Certain rental contracts contain
    an option for the customer to purchase the equipment at the end of the
    rental period. Should the customer exercise this option to purchase,
    revenue from the sale of the equipment is recognized directly to the
    statement of earnings (loss).
--  Product support services include sales of parts and servicing of
    equipment. For the sale of parts, revenues are recognized when the part
    is shipped to the customer. For servicing of equipment, revenues are
    recognized on a straight-line basis determined based on performance of
    the contracted upon service.
--  Revenues from long-term service contracts are recognized on a stage of
    completion basis proportionate to the service work that has been
    performed based on parts and labour service provided. At the completion
    of the contract, any remaining profit on the contract is recognized as
    revenue. Any foreseeable losses on such projects are charged to
    operations when determined.

(y) Financial Instruments

The Company classifies all financial instruments into one of the following categories: financial assets at 'fair value through profit or loss' ("FVTPL"), loans and receivables, held to maturity investments, assets available for sale, financial liabilities at FVTPL, other financial liabilities or assets/liabilities held for trading. Financial instruments are measured at fair value on initial recognition. The subsequent measurement of financial assets and liabilities depends on their classification as described below:

Financial Assets at FVTPL

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in the hedge relationship as defined by IAS 39. Financial assets at FVTPL are carried in the statement of financial position at fair value with changes in fair value being recognized in finance income or finance costs in the statement of earnings (loss).

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment.

Available-for-sale ("AFS") financial investments

Available-for-sale financial assets are non-derivatives that are either designated as AFS or not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

Financial liabilities at FVTPL

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in the statement of earnings (loss).

The Company primarily applies the market approach for recurring fair value measurements. Three levels of inputs may be used to measure fair value:


--  Level 1: Fair value measurements are those derived from quoted prices
    (unadjusted) in active markets for identical assets or liabilities.
    Active markets are those in which transactions occur in sufficient
    frequency and volume to provide pricing information on an ongoing basis.

--  Level 2: Fair value measurements are those derived from inputs, other
    than quoted prices included in Level 1, that are observable for the
    asset or liability, either directly (i.e. as prices) or indirectly (i.e.
    derived from prices).

--  Level 3: Fair value measurements are those derived from inputs for the
    asset or liability that are not based on observable market data
    (unobservable inputs). In these instances, internally developed
    methodologies are used to determine fair value.

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.

The Company has made the following classifications:


--  Cash and cash equivalents are classified as assets held for trading and
    are measured at fair value. Gains and losses resulting from the periodic
    revaluation are recorded in net income.
--  Accounts receivable is classified as loans and receivables and is
    recorded at amortized cost using the effective interest rate method.
--  Accounts payable, accrued liabilities, long-term debt and note payable
    to Toromont are classified as other financial liabilities. Subsequent
    measurements are recorded at amortized cost using the effective interest
    rate method.

Transaction costs are expensed as incurred for financial instruments classified or designated as fair value through profit or loss. Transaction costs for financial assets classified as available for sale are added to the value of the instrument at acquisition. Transaction costs related to other financial liabilities are added to the value of the instrument at acquisition and taken into net income using the effective interest rate method.

(z) Derivative Financial Instruments and Hedge Accounting

Derivative financial agreements are used to manage exposure to fluctuations in exchange rates. The Company does not enter into derivative financial agreements for speculative purposes.

Derivative financial instruments, including certain embedded derivatives, are measured at their fair value upon initial recognition and on each subsequent reporting date. The fair value of quoted derivatives is equal to their positive or negative market value. If a market value is not available, the fair value is calculated using standard financial valuation models, such as discounted cash flow or option pricing models. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The Company elected to apply hedge accounting for foreign exchange forward contracts for anticipated transactions. These are also 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 statement of earnings when the hedged transaction affects the statement of earnings.

All hedging relationships are formally documented, including the risk management objective and strategy. On an on-going 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.

(aa) Income Taxes

Income tax expense represents the sum of current income tax and deferred tax.

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to the taxation authorities. Taxable profit differs from profit as reported in the statement of earnings because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the statement of financial position date.

Deferred income tax is recognized on all temporary differences at the statement of financial position date between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with the following exceptions:


--  Where the temporary difference arises from the initial recognition of
    goodwill or of an asset or liability in a transaction that is not a
    business combination that at the time of the transaction affects neither
    accounting nor taxable profit or loss;
--  In respect of taxable temporary differences associated with investments
    in subsidiaries, associates and joint ventures, where the timing of the
    reversal of the temporary difference can be controlled and it is
    probable that the temporary difference will not reverse in the
    foreseeable future; and
--  Deferred income tax assets are recognized only to the extent that it is
    probable that a taxable profit will be available against which the
    deductible temporary differences, carried forward tax credits or tax
    losses can be utilized.

The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred income tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the asset is realized or the liability is settled, based on tax rates and tax laws enacted or substantively enacted at the statement of financial position date.

Current and deferred income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity in the same period. Otherwise, income tax is recognized in the statement of earnings except in some circumstances related to business combinations.

(bb) Discontinued Operations

The results of discontinued operations are presented net of tax on a one-line basis in the statement of earnings. Direct corporate overheads and income taxes are allocated to discontinued operations. Interest expense (income) and general corporate overheads are not allocated to discontinued operations.

(cc) Earnings Per Share

Basic earnings per share amounts are calculated by dividing net earnings for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net earnings attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

(dd) Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(ee) Finance Income and Expenses

Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

Note 4. Changes in Accounting Policies

(a) First-Time Adoption of IFRS

These are the Company's first annual financial statements prepared under IFRS. IFRS 1 First-Time Adoption of International Financial Reporting Standards provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective adoption of IFRS. Most adjustments required on transition to IFRS are made retrospectively against opening retained earnings as of the date of the first comparative statement of financial position presented, which is January 1, 2010.

The following is a summary of the key transitional provisions that were adopted on January 1, 2010. The impact of transition to IFRS is presented in Note 33.


----------------------------------------------------------------------------
Area of IFRS     Summary of Exemption           Policy Elected
                 Available
----------------------------------------------------------------------------
Business         The Company may elect on       The Company has applied the
 combinations    transition to IFRS to either   elective exemption such that
                 restate all past business      business combinations
                 combinations in accordance     entered into prior to
                 with IFRS 3 Business           transition date have not
                 Combinations or to apply an    been restated.
                 elective exemption from
                 applying IFRS to past          Transitional impact: None.
                 business combinations.
----------------------------------------------------------------------------
Property, plant  The Company may elect on       The Company did not elect to
 and equipment   transition to IFRS to report   report any items of
                 items of property, plant and   property, plant and
                 equipment in its opening       equipment in its opening
                 statement of financial         statement of financial
                 position at a deemed cost      position at a deemed cost
                 instead of the actual cost     instead of the actual cost
                 that would be determined       that would be determined
                 under IFRS. The deemed cost    under IFRS.
                 of an item may be either its
                 fair value at the date of      Transitional impact: None.
                 transition to IFRS or an
                 amount determined by a
                 previous revaluation under
                 pre-changeover Canadian GAAP
                 (as long as that amount was
                 close to either its fair
                 value, cost or adjusted
                 cost). The exemption can be
                 applied on an asset-by-asset
                 basis.
----------------------------------------------------------------------------
Foreign          On transition, cumulative      The Company elected to
 Exchange        translation gains or losses    reclassify all cumulative
                 in accumulated other           translation gains and losses
                 comprehensive income ("OCI")   at the date of transition to
                 can be reclassified to         retained earnings.
                 retained earnings. If not
                 elected, all cumulative        Transitional impact: See
                 translation differences must   Note 33.
                 be recalculated under IFRS
                 from inception.
----------------------------------------------------------------------------
Borrowing Costs  On transition, the Company     The Company elected to
                 must select a commencement     capitalize borrowing costs
                 date for capitalization of     on all qualifying assets
                 borrowing costs relating to    commencing January 1, 2010.
                 all qualifying assets which
                 is on or before January 1,     Transitional impact: None.
                 2010.
----------------------------------------------------------------------------
Deferred Taxes   On transition, the Company     The Company has reclassified
                 must reclassify all deferred   all deferred tax assets and
                 tax assets and liabilities     liabilities as non-current.
                 as non-current.
                                                Transitional impact: See
                                                Note 33.
----------------------------------------------------------------------------

The following are key IFRS 1 mandatory exceptions from full retrospective application of IFRS:


----------------------------------------------------------------------------
Area of IFRS     Mandatory exception applied
----------------------------------------------------------------------------
Hedge            Only hedging relationships that satisfied the hedge
 Accounting      accounting criteria as of January 1, 2010 are reflected as
                 hedges in the Company's financial statements under IFRS.
----------------------------------------------------------------------------
Estimates        Hindsight was not used to create or revise estimates. The
                 estimates previously made by the Company under former
                 Canadian GAAP are consistent with their application under
                 IFRS.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Area of IFRS      Policy Difference             Status
----------------------------------------------------------------------------
Share-based       The valuation of stock        The impact of these changes
 Payments         options under IFRS requires   is not significant.
                  individual "tranche_based"
                  valuations for those option
                  plans with graded vesting,
                  while former Canadian GAAP
                  allowed a single valuation
                  for all tranches.
----------------------------------------------------------------------------
Impairment of     IFRS requires impairment      The identification of
 assets           testing be done at the        additional cash generating
                  smallest identifiable group   units did not have an impact
                  of assets that generate cash  on transition to IFRS as no
                  inflows largely independent   impairments were identified.
                  from other groups of assets
                  ("cash generating unit"),
                  which in some cases is
                  different from the grouping
                  required by former Canadian
                  GAAP.

                  IFRS requires the assessment
                  of asset impairment to be
                  based on recoverable
                  amounts, which is the higher
                  of the fair value less costs
                  to sell and value-in-use.

                  IFRS allows for reversal of
                  impairment losses other than
                  for goodwill and indefinite
                  life intangible assets,
                  while former Canadian GAAP
                  did not.
----------------------------------------------------------------------------
Borrowing costs   Under IFRS, borrowing costs   The Company did not identify
                  will be capitalized to        any qualifying assets in the
                  assets which take a           period and therefore there
                  substantial time to develop   was no impact on adoption of
                  or construct using a          this policy.
                  capitalization rate based on
                  the Company's weighted
                  average cost of borrowing.
----------------------------------------------------------------------------
Financial         IFRS requires significantly   Financial statement
 Statement        more disclosure than former   disclosures for the years
 Presentation &   Canadian GAAP for certain     ended December 31, 2011 and
 Disclosure       standards.                    2010 have been updated to
                                                reflect IFRS requirements.
----------------------------------------------------------------------------

(b) 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 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; IFRS 12 Disclosure of Interest in Other Entities; IFRS 13 Fair Value Measurement; and IAS 1 Presentation of Items of Other Comprehensive Income. Starting January 1, 2015, the Company will be required to adopt IFRS 9 Financial Instruments.

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

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

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

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

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

IAS 1 Presentation of Items of Other Comprehensive Income has been amended to require entities to split items of other comprehensive income ("OCI") between those that are reclassed to income and those that are not. The Company is in the process of assessing the impact of this amendment, if any.

Note 5. Business Acquisition

No businesses were acquired in 2011.

On January 20, 2010, Toromont completed its offer for the units of ESIF ("the Offer").

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 the Offer                        $   56,424
Cash consideration                                                   315,539
Issuance of Toromont common shares                                   328,105
----------------------------------------------------------------------------
Total                                                             $  700,068
                                                                  ----------
                                                                  ----------

The transaction was accounted for using the acquisition 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 acquisition was determined as follows:


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

The assets acquired and liabilities assumed were recorded 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 acquired                                    238,762
Residual purchase price allocated to goodwill                       461,306
----------------------------------------------------------------------------
                                                                 $  700,068
                                                                 -----------
                                                                 -----------

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

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

The combined revenues and pre-tax earnings for the year ended December 31, 2010 as though the acquisition date had been January 1, 2010, excluding purchase accounting adjustments and one-time costs related to change of control, are estimated at $1,155 million and $26 million respectively.

The Company recorded a gain of $4.9 million on equipment sold from June 1, 2011 to December 31, 2011.

Note 6. Assets and Associated Liabilities Held for Sale

During 2011, the Company reclassified its European operations to assets and associated liabilities held for sale as a result of management's decision to exit the business. As the Combined Heat & Power ("CHP") and Service business within the European region represents a specific line of business that management intends to exit, the assets and liabilities have been reclassified to assets and associated liabilities held for sale on the statement of financial position.

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

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


                                                           December 31, 2011
----------------------------------------------------------------------------
Assets
Cash and cash equivalents                                         $        -
Accounts receivable                                                    5,474
Inventories                                                            3,621
Other current assets                                                     901
Property, plant and equipment                                             58
                                                                  ----------
Assets held for sale                                              $   10,054
                                                                  ----------
                                                                  ----------
Liabilities
Accounts payable, accrued liabilities and provisions              $    9,428
Deferred revenue                                                         763
                                                                  ----------
Liabilities associated with assets held for sale                  $   10,191
                                                                  ----------
                                                                  ----------

The carrying value of the assets held for sale was established at the lower of the carrying value and the estimated fair value less costs to sell. As a result, for the year ended December 31, 2011, an impairment loss of $54.0 million was recognized, which consisted of impairment of goodwill and intangible assets of $31.2 million and $1.8 million, respectively; deferred tax assets of $3.0 million; fair value adjustments of $10.0 million; and anticipated cash transaction costs, including termination benefits total $8.0 million.

Note 7. Discontinued Operations

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

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

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

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

The following tables summarize the revenues, income (loss) before income taxes, and income taxes from discontinued operations for the years ended December 31, 2011 and 2010. The operations presented below had all been part of the international reporting segment.


December 31,                 2011                         2010
                  Enerflex                     Enerflex
                    Europe     EEA   Syntech     Europe      EEA   Syntech
---------------------------------------------------------------------------
Revenue          $  39,532  $2,653  $      -  $  39,101  $18,336  $ 41,887
(Loss) earnings
 from operations $ (11,276) $ (239) $      -  $  (2,315) $  (111) $ (2,003)
Impairments      $ (51,012) $    -  $      -  $       -  $     -  $      -
Income tax       $  (3,018) $   75  $      -  $    (542) $   503  $    505

The following table summarizes cash provided by (used in) discontinued operations for the years ended December 31, 2011 and 2010:


Years ended
 December 31,               2011                          2010
                 Enerflex                      Enerflex
                   Europe      EEA   Syntech     Europe      EEA   Syntech
---------------------------------------------------------------------------
Cash from
 operating      $    (442) $(1,407) $      -  $   4,846  $ 2,724  $ 28,280
Cash from
 investing      $    (562) $   (67) $      -  $     191  $   (52) $    (17)
Cash from
 financing      $       -  $     -  $      -  $       -  $     -  $      -

Note 8. Accounts Receivable

Accounts receivable consisted of the following:


                      December 31, 2011  December 31, 2010  January 1, 2010
---------------------------------------------------------------------------
Trade receivables       $       198,165    $       200,382    $      70,874
Less: allowance for
 doubtful accounts                3,761              6,217            2,029
---------------------------------------------------------------------------
Trade receivables,                                                         
 net                            194,404            194,165           68,845
Other receivables(1)             60,078             49,073            9,166
---------------------------------------------------------------------------
Total accounts
 receivable             $       254,482    $       243,238    $      78,011
                    -------------------------------------------------------
                    -------------------------------------------------------

Aging of trade receivables:


                      December 31, 2011  December 31, 2010  January 1, 2010
---------------------------------------------------------------------------
Current to 90 days      $       186,046    $       182,538    $      67,199
Over 90 days                     12,119             17,844            3,675
---------------------------------------------------------------------------
                        $       198,165    $       200,382    $      70,874
                    -------------------------------------------------------
                    -------------------------------------------------------

(1) Included in Other receivables at December 31, 2011 is $43.1 million relating to amounts due from customers under construction contracts. (December 31, 2010 - $39.0 million; January 1, 2010 - $7.0 million)

Movement in allowance for doubtful accounts:


                                                          2011        2010
---------------------------------------------------------------------------
Balance, beginning of period                         $   6,217  $    2,029
Impairment provision recognized on receivables          18,327      17,492
Adjustment due to AHFS revaluation (Note 6)             (1,283)          -
Amounts written off during year as uncollectible        (1,657)       (762)
Impairment provision reversed                          (17,837)    (12,480)
Foreign exchange movement                                   (6)        (62)
---------------------------------------------------------------------------
Balance, end of period                               $   3,761  $    6,217
                                                     ----------------------
                                                     ----------------------

Note 9. Inventories

Inventories consisted of the following:


                      December 31, 2011  December 31, 2010  January 1, 2010
---------------------------------------------------------------------------
Equipment               $        13,153    $        35,171    $      33,896
Repair and
 distribution parts              32,985             41,611           18,620
Direct materials                 33,918             53,935           73,534
Work-in-process                 160,363             92,138           41,225
---------------------------------------------------------------------------
Total inventories       $       240,419    $       222,855    $     167,275
                    -------------------------------------------------------
                    -------------------------------------------------------

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 was $223.5 million (2010 - $253.9 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 statement of earnings (loss) and included in cost of goods sold was $1.1 million (2010 - $0.8 million).

Note 10. Property, Plant and Equipment and Rental Equipment


                                            Land     Building     Equipment
----------------------------------------------------------------------------
Cost
January 1, 2011                        $  47,384    $ 107,845    $   44,222
Additions                                     61          802         1,987
Reclassification                           2,422        8,118         3,311
Assets held for sale ("AHFS")                  -            -           (72)
Impairment of AHFS                             -         (207)       (1,355)
Disposals                                (23,519)     (29,833)       (3,251)
Currency translation effects                 151        1,169         2,397
----------------------------------------------------------------------------
December 31, 2011                      $  26,499    $  87,894    $   47,239
                                    ----------------------------------------
Accumulated depreciation
January 1, 2011                        $       -    $ (18,308)   $  (24,713)
Depreciation charge                            -       (6,597)       (8,013)
Reclassification                               -            -         2,746
Impairment of AHFS                             -           35           670
Disposals                                      -        3,914           796
Currency translation effects                   -         (291)       (1,709)
----------------------------------------------------------------------------
December 31, 2011                      $       -    $ (21,247)   $  (30,223)
                                    ----------------------------------------
Net book value - December 31, 2011     $  26,499    $  66,647    $   17,016
                                    ----------------------------------------
                                    ----------------------------------------

                                          Assets    Property,
                                           under    plant and       Rental
                                    construction    equipment    equipment
---------------------------------------------------------------------------
Cost
January 1, 2011                        $  15,611    $ 215,062    $ 132,703
Additions                                 19,190       22,040       12,634
Reclassification                         (22,434)      (8,583)       3,262
Assets held for sale ("AHFS")                  -          (72)          14
Impairment of AHFS                             -       (1,562)        (322)
Disposals                                      -      (56,603)     (16,622)
Currency translation effects                 601        4,318        1,084
---------------------------------------------------------------------------
December 31, 2011                      $  12,968    $ 174,600    $ 132,753
                                    ---------------------------------------
Accumulated depreciation
January 1, 2011                        $       -    $ (43,021)   $ (16,541)
Depreciation charge                            -      (14,610)     (18,124)
Reclassification                                        2,746            -
Impairment of AHFS                             -          705           98
Disposals                                      -        4,710        4,589
Currency translation effects                   -       (2,000)        (867)
---------------------------------------------------------------------------
December 31, 2011                      $       -    $ (51,470)   $ (30,845)
                                    ---------------------------------------
Net book value - December 31, 2011     $  12,968    $ 123,130    $ 101,908
                                    ---------------------------------------
                                    ---------------------------------------
                                           Land      Building     Equipment
----------------------------------------------------------------------------
Cost
January 1, 2010                      $   13,287    $   62,214    $   33,721
Business combinations                    31,906        50,741        16,501
Additions                                 6,460         3,633         3,126
Reclassifications                             -             -             -
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
                                  ------------------------------------------
                                  ------------------------------------------

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

During 2011, the Company 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 2011 and the sale of the Calgary facility closed in September 2011. The gain on sale of these facilities is reflected in the statement of earnings.

Depreciation of property, plant and equipment and rental equipment included in income for year ended December 31, 2011 was $32.7 million (December 31, 2010 - $28.1 million) of which $23.6 million was included in cost of goods sold and $9.1 million was included in selling and administrative expenses (December 31, 2010 - $19.5 million and $8.6 million respectively).

Note 11. Other Assets


                                  December 31,   December 31,    January 1,
                                          2011           2010          2010
---------------------------------------------------------------------------
Investment in associates            $    3,317     $    3,146    $        -
Net investment in finance lease          4,850         10,651             -
Investments in units of ESIF                 -              -        56,502
---------------------------------------------------------------------------
                                    $    8,167     $   13,797    $   56,502
                                -------------------------------------------
                                -------------------------------------------

(a) Net investment in finance lease

The Company entered into finance lease arrangements for certain of its rental assets. Leases are denominated in Canadian or U.S. dollars. The term of the leases entered into ranges from 2 to 5 years.

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


                                     Minimum lease         Present value of
                                          payments   minimum lease payments
December 31,                      2011        2010          2011       2010
---------------------------------------------------------------------------
Not later than one year       $ 10,717   $  10,076      $ 10,271  $   9,167
Later than one year and not
 later than five years           4,850      10,651         3,983      9,660
Later than five years                -           -             -          -
---------------------------------------------------------------------------
                              $ 15,567   $  20,727      $ 14,254  $  18,827
Less: unearned finance
 income                         (1,313)     (1,900)            -          -
---------------------------------------------------------------------------
                              $ 14,254   $  18,827      $ 14,254  $  18,827
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The average interest rates inherent in the leases are fixed at the contract date for the entire lease term and is approximately 9% per annum (December 31, 2010- 9%). The finance lease receivables at the end of the reporting period are neither past due nor impaired.

Note 12. Intangible Assets


                                              Accumulated
                                Acquired   amortization &
December 31, 2011                  value       impairment    Net book value
---------------------------------------------------------------------------
Customer relationships       $    36,400      $    14,820       $    21,580
Software and other                17,775            7,827             9,948
---------------------------------------------------------------------------
                             $    54,175      $    22,647       $    31,528
                         --------------------------------------------------
                         --------------------------------------------------
                                                 Accumulated
                                   Acquired   amortization &       Net book
December 31, 2010                     value       impairment          value
---------------------------------------------------------------------------
Customer relationships          $    38,400      $     7,658    $    30,742
Software and other                   14,174            5,454          8,720
---------------------------------------------------------------------------
                                $    52,574      $    13,112    $    39,462
                            -----------------------------------------------
                            -----------------------------------------------

Note 13. Goodwill & Impairment Review of Goodwill


                                               December 31,    December 31,
                                                       2011            2010
---------------------------------------------------------------------------
Balance, beginning of year                      $   482,656     $    21,350
Acquisitions during the year (Note 5)                     -         461,306
Impairment recognized on assets held for
 sale (Note 6)                                      (31,200)              -
Foreign currency translation adjustment               8,479               -
---------------------------------------------------------------------------
Balance, end of year                            $   459,935     $   482,656
                                            -------------------------------
                                            -------------------------------

Goodwill acquired through business combinations has been allocated to the Canada & Northern U.S., Southern U.S. and South America and International regions. The allocation of goodwill is to groups of cash-generating units which represent the lowest level within the entity at which the goodwill is monitored for internal management purposes.

In assessing whether goodwill has been impaired, the carrying amount of the segment (including goodwill) is compared with its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and value-in-use. In the absence of any information about the fair value of a segment, the recoverable amount is deemed to be the value-in-use.

The recoverable amounts for the regions have been determined based on value-in-use calculations, using the discounted pre-tax cash flow projections. Management has adopted a four year projection period to assess each region's value-in-use, as it is confident based on past experience of the accuracy of long-term cash flow forecasts that these projections are reliable. The cash flow projections are based on financial budgets approved by senior management covering a three year period, extrapolated thereafter at a growth rate of 2.0% per annum. Management considers this a conservative long-term growth rate relative to both the economic outlook for the units in their respective markets within the oil and gas industry and the long term growth rates experienced in the recent past by each region.

Key assumptions used in value-in-use calculations:

The calculation of value-in-use for the Company's groups of cash-generating units is most sensitive to the following assumptions:


--  Growth rate: estimates are based on management's assessment of market
    share having regard to macro-economic factors and the growth rates
    experienced in the recent past of each region. A growth rate of 2.0% per
    annum has been applied for the remaining years of the four year
    projection.
--  Discount rate: management has used a post-tax discount rate of 8.41% per
    annum which is derived from the estimated weighted average cost of
    capital of the Company. This discount rate has been calculated using an
    estimated risk-free rate of return adjusted for the Company's estimated
    equity market risk premium, Company's cost of debt, and the tax rate in
    the local jurisdiction.

Sensitivity Analysis                                                    2011
----------------------------------------------------------------------------
Sensitivity of value in use to a change in the discount rate of 1%
 ($ million)                                                           235.6
Sensitivity of value in use to a change in the growth rate of 1%
 ($ million)                                                           136.5
----------------------------------------------------------------------------

Note 14. Accounts Payable and Accrued Liabilities


                                 December 31,    December 31,    January 1,
                                         2011            2010          2010
---------------------------------------------------------------------------
Accounts payable and accrued
 liabilities                     $    149,119    $    149,884    $   57,584
Accrued dividend payable                4,638               -             -
Cash-settled share-based
 payments                                 223               -             -
---------------------------------------------------------------------------
                                 $    153,980    $    149,884    $   57,584
                             ----------------------------------------------
                             ----------------------------------------------

Note 15. Provisions


                                   December 31,   December 31,   January 1,
                                           2011           2010         2010
---------------------------------------------------------------------------
Warranty provision                    $  12,345      $  13,402    $  11,289
Legal provision                             608          1,136            -
---------------------------------------------------------------------------
                                      $  12,953      $  14,538    $  11,289
                                  -----------------------------------------
                                  -----------------------------------------
                                          Warranty       Legal
December 31, 2011                      provision(1)  provision       Total
---------------------------------------------------------------------------
Balance, beginning of year             $    13,402   $   1,136   $  14,538
Additions during the year                   14,975         231      15,206
Unused amounts paid in the year            (11,810)       (347)    (12,157)
Unused amounts reversed during the year     (4,222)       (412)     (4,634)
---------------------------------------------------------------------------
Balance, end of year                   $    12,345   $     608   $  12,953
                                       ------------------------------------
                                       ------------------------------------

(1) Warranty Provision-The provision for warranty claims represents the present value of management's best estimate of the future outflow of economic benefits that will be required under the Company's obligations for warranties under local sale of goods legislation. The estimate has been made on the basis of historical warranty trends and may vary as a result of new materials, altered manufacturing processes or other events affecting product quality.

Note 16. Long-Term Debt

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

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

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

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

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

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

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

The Bank Facilities, the Bi-Lateral and the U.S. Facility are unsecured and rank pari passu with the Notes. The Company is required to maintain certain covenants on the Bank Facilities, the Bi-Lateral, the U.S. Facility and the Notes. As at December 31, 2011, the Company was in compliance with these covenants.

At December 31, 2011, the Company had $31.3 million cash drawings against the Bank Facilities. These Bank Facilities were not available at December 31, 2010, as the Company's borrowings consisted of a Note Payable to its parent company.

The composition of the December 31, 2011 borrowings on the Bank Facilities and the Notes was as follows:


                                                          December 31, 2011
----------------------------------------------------------------------------
Drawings of Bank Facilities                                     $    31,348
Notes due June 22, 2016                                              50,500
Notes due June 22, 2021                                              40,000
Deferred transaction costs                                           (2,885)
----------------------------------------------------------------------------
                                                                $   118,963
                                                         -------------------
                                                         -------------------

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


2012                                                              $        -
2013                                                                       -
2014                                                                       -
2015                                                                  31,348
2016                                                                  50,500
Thereafter                                                            40,000
----------------------------------------------------------------------------
Total                                                             $  121,848
                                                                  ----------
                                                                  ----------

Note 17. Guarantees, Commitments and Contingencies

At December 31, 2011, the Company had outstanding letters of credit of $102.2 million (December 31, 2010 - $61.2 million).

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

Operating leases relate to leases of equipment, automobiles and premises with lease terms between 1 to 10 years. The material lease arrangements generally include the existence of renewal and escalation clauses.

The aggregate minimum future required lease payments over the next five years and thereafter is as follows:


2012                                                               $  11,095
2013                                                                   8,228
2014                                                                   6,670
2015                                                                   5,144
2016                                                                   3,476
Thereafter                                                             5,934
----------------------------------------------------------------------------
Total                                                              $  40,547
                                                                   ---------
                                                                   ---------

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


2012                                                                $ 24,122
2013                                                                     998
2014                                                                     314

Note 18. Income Taxes

(a) Income tax recognized in profit or loss


Years ended December 31,                                    2011       2010
----------------------------------------------------------------------------
Total income tax expense is attributable to:
 Continuing operations                                 $  21,089  $  14,385
 Discontinued operations (Note 7)                          3,937       (466)
----------------------------------------------------------------------------
                                                       $  25,026  $  13,919
                                                       ---------------------
                                                       ---------------------

The components of income tax expense attributable to continuing operations are as follows:


Current Tax                                            $  17,293  $  17,771
Deferred income tax                                        3,796     (3,386)
----------------------------------------------------------------------------
                                                       $  21,089  $  14,385
                                                       ---------------------
                                                       ---------------------

(b) Reconciliation of tax expense

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


Years ended December 31,                                   2011        2010
----------------------------------------------------------------------------
Earnings before income taxes from continuing
 operations                                            $ 77,830   $  44,647 
Canadian statutory rate                                   26.60%      28.10%
                                                       ---------------------
Expected income tax provision                            20,703      12,546
Add (deduct)
 Income taxed in foreign jurisdictions                     (535)      1,651
 Expenses not deductible for tax purposes                   656       2,040
 Impact of future income tax rate adjustments               606       2,038
 Non-taxable portion of gain on available-for-sale
  financial asset                                             -      (3,938)
 Other                                                     (341)         48
----------------------------------------------------------------------------
Income tax expense from continuing operations         $  21,089   $  14,385
                                                       ---------------------
                                                       ---------------------

The applicable tax rate is the aggregate of the Canadian Federal income tax rate of 16.5% (2010- 18.0%) and the Provincial income tax rate of 10.1% (2010 - 10.1%).

(c) Income tax recognized in other comprehensive income


Years ended December 31,                                     2011       2010
----------------------------------------------------------------------------
Deferred Tax
Arising on income and expenses recognized in other
 comprehensive income:
 Fair value remeasurement of hedging instruments
  entered into for cash flow hedges                      $     14   $     81
----------------------------------------------------------------------------


Arising on income and expenses reclassified from equity
 to profit or loss:
 Relating to cash flow hedges                            $    (77)  $     65
----------------------------------------------------------------------------
Total income tax recognized in other comprehensive
 income                                                  $    (63)  $    146
                                                       ---------------------
                                                       ---------------------

(d) Deferred tax assets/ (liabilities) arise from the following:


                                                            Charged to other
                                 Opening     Charged to        comprehensive
2011                             balance         income               income
----------------------------------------------------------------------------

Accounting provisions and
 accruals                      $  25,259      $  (4,850)          $        -
Tax losses                        36,964         (9,797)                   -
Capital assets                   (17,469)         7,563                    -
Other                              3,394           (649)                   -
Cash flow hedges                    (208)             -                   63

                            ------------------------------------------------
                               $  47,940      $  (7,733)          $       63
                            ------------------------------------------------

                            Charged to
                               Owner's  Acquisition     Exchange    Closing
2011                        investment   /disposals  differences    balance
----------------------------------------------------------------------------

Accounting provisions and
 accruals                      $     -      $     -    $    (277) $  20,132
Tax losses                           -            -         (515)    26,652
Capital assets                       -            -           59     (9,847)
Other                                -            -            -      2,745
Cash flow hedges                     -            -           44       (101)

                            ------------------------------------------------
                               $     -      $     -    $    (689) $  39,581
                            ------------------------------------------------
                                                           Charged to other
                                 Opening     Charged to       comprehensive
2010                             balance         income              income
----------------------------------------------------------------------------

Accounting provisions and
 accruals                      $  19,192     $   (2,871)    $             -
Tax losses                             -            788                   -
Capital assets                     2,539          3,309                   -
Other                              1,252           (464)                  -
Available for sale
 financial asset                  (3,090)         3,090                   -
Cash flow hedges                       -              -                (146)

                           -------------------------------------------------
                               $  19,893     $    3,852     $          (146)
                           -------------------------------------------------

                           Charged to
                              Owner's  Acquisition     Exchange     Closing
2010                       investment   /disposals  differences     balance
----------------------------------------------------------------------------

Accounting provisions and
 accruals                  $        -     $  9,070    $    (132)  $  25,259
Tax losses                          -       35,556          620      36,964
Capital assets                      -      (23,359)          42     (17,469)
Other                          (1,129)       3,735            -       3,394
Available for sale                  -            -            -       -
 financial asset                                                          -
Cash flow hedges                    -            -          (62)       (208)

                           -------------------------------------------------
                           $   (1,129)    $ 25,002    $     468   $  47,940
                           -------------------------------------------------

(e) Unrecognized deferred tax assets


                                    December 31,   December 31,  January 1,
                                            2011           2010        2010
---------------------------------------------------------------------------
The following deferred tax assets
 have not been recognized at the
 date of the statement of
 financial position:
 Tax losses on European
  discontinued operations              $   9,118      $     879   $       -
---------------------------------------------------------------------------
                                       $   9,118      $     879   $       -
                                  -----------------------------------------
                                  -----------------------------------------

Note 19. Share Capital

Authorized:

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

Issued and Outstanding:


                                                 Number of           Common
December 31, 2011                             common shares    share capital
----------------------------------------------------------------------------
Balance, beginning of year                                -   $            -
Bifurcation transaction                          77,212,396          205,337
Exercise of stock options                           127,385            2,072
----------------------------------------------------------------------------
Balance, end of year                             77,339,781   $      207,409
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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.

The share capital comprises only one class of ordinary shares. The ordinary shares carry a voting right and a right to a dividend.

Total dividends declared in the year were $13.9 million, or $0.06 per share (December 31, 2010 - no dividend declared).

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 consolidated financial statements. Total Net Investment consists of Owner's Net Investment, Retained Earnings and Contributed Surplus.

Normal Course Issuer Bid ("NCIB")

On December 15, 2011, Enerflex received acceptance from the TSX of the Company's intention to make a NCIB to purchase up to 6.3 million of the public float of its common shares, representing approximately 10% of common shares then outstanding. Purchases made under the bid can be executed on the Exchange in the 12 months following commencement of the bid on December 19, 2011. During the year ended December 31, 2011, Enerflex did not purchase any of its common shares (December 31, 2010 - nil).

Note 20. Contributed Surplus


As at December 31, 2011:
 Contributed surplus, beginning of year                         $         -
 Reclassification of net investment on bifurcation transaction      656,500
 Share-based compensation                                               858
 Exercise of stock options                                             (822)
----------------------------------------------------------------------------
 Contributed surplus, end of year                               $   656,536
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Note 21. Revenue


Years ended December 31,                                  2011          2010
----------------------------------------------------------------------------
Engineered Systems                                $    906,093  $    772,807
Service                                                262,217       238,600
Rentals                                                 58,827        56,376
----------------------------------------------------------------------------
                                                  $  1,227,137   $ 1,067,783
                                                  --------------------------
                                                  --------------------------

Proceeds received and receivable from the sale of rental equipment included in revenue for the year ended December 31, 2011 were $ 16.4 million (2010- $24.4 million).

Note 22. Share-Based Compensation

a) Stock Options

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

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

As part of the Arrangement, Toromont Options were exchanged for new stock options granted by each of Toromont and Enerflex. For each Toromont stock option previously held, option holders received one option in each of Toromont and Enerflex, with the exercise price determined by applying the Butterfly Proportion to the previous exercise price. All other conditions relating to these options, including terms and vesting periods, remained the same and there was no acceleration of option vesting. The Butterfly Proportion was determined to be 56.4% and 43.6% for Toromont and Enerflex, respectively. Stock options outstanding at June 1, 2011 represent options exchanged under the Arrangement.


                                                           Weighted average
December 31, 2011                      Number of options     exercise price
---------------------------------------------------------------------------
Options outstanding, June 1, 2011              2,030,030        $     11.39
Granted                                          674,500              11.66
Exercised                                       (127,385)              9.82
Forfeited                                        (13,160)             11.52
---------------------------------------------------------------------------
Options outstanding, end of year               2,563,985              11.53
                                       ------------------------------------
Options exercisable, end of year                 983,205        $     11.16
                                       ------------------------------------

The Company granted 674,500 stock options during 2011. The weighted average fair value of stock options granted from the stock option plan during year ended December 31, 2011 was $3.58 per option at the grant date using the Black-Scholes option pricing model.

The assumptions used in the calculation were:


Year ended December 31, 2011
----------------------------------------------------------------------------
Expected life (in years)                                                 5.0
Volatility(1)                                                         48.19%
Dividend Yield                                                         1.99%
Risk-free rate                                                   1.01%-1.45%
Estimated forfeiture rate                                               0.0%
----------------------------------------------------------------------------

(1) Expected volatility factor is based on Enerflex's peers over a five-year period, consistent with the expected life of the option

The following table summarizes options outstanding and exercisable at December 31, 2011:


                        Options Outstanding           Options Exercisable
---------------------------------------------------------------------------
                               Weighted
                                average   Weighted                 Weighted
Range of                      remaining    average                  average
 exercise             Number       life   exercise        Number   exercise
 prices          outstanding    (years)      price   outstanding      price
---------------------------------------------------------------------------
$9.53 - $11.54       986,585       2.52    $ 10.27       672,625    $ 10.44
$11.55 - $12.96    1,577,400       5.46      12.32       310,580      12.71
---------------------------------------------------------------------------
Total              2,563,985       4.33    $ 11.53       983,205    $ 11.16
---------------------------------------------------------------------------

The fair value of the stock options granted by Toromont during the year ended December 31, 2010 was determined at the time of the grant using the Black-Scholes option pricing model.

b) Deferred Share Units

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

DSUs may be granted to eligible participants on an annual basis and will vest upon being credited to the executive or non-employee director's account. 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 year ended December 31, 2011, directors fees elected to be received in deferred share units totalled $0.2 million (December 31, 2010 - nil).


                                                                    Weighted
                                                               average grant
                                  Number of      In lieu of        date fair
December 31, 2011                      DSUs   distributions   value per unit
----------------------------------------------------------------------------
DSUs outstanding, June 1, 2011            -               -       $        -
Granted                              18,703              40            11.30
Exercised                                 -               -                -
Forfeited                                 -               -                -
----------------------------------------------------------------------------
DSUs outstanding, end of period      18,703              40       $    11.30
                                 -------------------------------------------

c) Phantom Share Rights

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

The exercise price of each SAR equals the average of the market price of the Company's shares on the five days preceding the date of the grant. The SARs vest at a rate of one fifth on each of the first five 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 granted 59,000 SARS and recognized a nominal expense for the year ended December 31, 2011 (December 31, 2010- nil). No SARs had vested at December 31, 2011 and 2010.

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 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 year ended December 31, 2011 was:


Year ended December 31,                                                 2011
----------------------------------------------------------------------------
Stock options                                                      $     858
Deferred share units                                                     210
Phantom share units                                                       13
----------------------------------------------------------------------------
Total                                                              $   1,081
                                                                   ---------
                                                                   ---------

Note 23. Retirement Benefit Plans

The Company sponsors pension arrangements for substantially all of its employees through defined contribution plans in Canada, Europe and Australia, and a 401(k) matched savings plan in the United States. In the case of the defined contribution plans, regular contributions are made to the employees' individual accounts, which are administered by a plan trustee, in accordance with the plan document. Both in the case of the defined contribution plans and the 401(k) matched savings plan, the pension expenses recorded in earnings are the amounts of actual contributions the Company is required to make in accordance with the terms of the plans.


Years ended December 31,                                    2011        2010
----------------------------------------------------------------------------
Defined contribution plans                             $   8,067   $   7,125
401(k) matched savings plan                                  764         672
                                                       ---------------------
Net pension expense                                    $   8,831   $   7,797
                                                       ---------------------
                                                       ---------------------

The amount expensed in 2011 under the Company's defined contribution plans was $8.8 million (2010- $7.8 million).

Note 24. Finance Costs and Income


Years ended December 31,                                    2011        2010
----------------------------------------------------------------------------
Finance Costs
Long-term borrowings                                   $   7,243   $  16,195
Other interest, including short-term loans                 1,711           -
----------------------------------------------------------------------------
Total finance costs                                    $   8,954   $  16,195

Finance Income
Bank interest income                                   $     418   $     427
Income from finance leases                                 1,525         297
----------------------------------------------------------------------------
Total finance income                                   $   1,943   $     724

Note 25. Reconciliation of Earnings per Share Calculations


Years ended
 December 31,               2011                            2010
                             Weighted                       Weighted
                     Net      average                        average
                  (loss)       shares     Per       Net       shares     Per
                earnings  outstanding   share  earnings  outstanding   share
----------------------------------------------------------------------------
Basic          $  (7,299)  77,221,440  $(0.10) $ 26,299   76,170,972  $ 0.35
Dilutive effect
 of stock
 option                                                                     
 conversion                   113,792       -                190,977       -
----------------------------------------------------------------------------
Diluted        $  (7,299)  77,335,232  $(0.10) $ 26,299   76,361,949  $ 0.35
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Note 26. Financial Instruments

Designation and Valuation of Financial Instruments

The Company has designated its financial instruments as follows:


                                                                    December
                                                                    31, 2011
                                                      Carrying     Estimated
                                                         value    fair value
----------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents(1)                         $  81,200     $  81,200
Derivative instruments designated as fair value
 through profit or loss ("FVTPL")                           68            68
Derivative instruments in designated hedge
 accounting relationships                                2,068         2,068
Loans and receivables:
 Accounts receivable                                   254,482       254,482
Financial Liabilities
Derivative instruments designated as FVTPL           $      16     $      16
Derivative instruments in designated hedge
 accounting relationships                                  439           439
Other financial liabilities:
 Accounts payable and accrued liabilities              153,980       153,980
 Long-term debt - Bank Facilities                       31,348        31,348
 Long-term debt - Notes                                 87,615        91,095
 Other Long-term liabilities                               590           590
----------------------------------------------------------------------------

(1) Includes $ 1.6 million of highly liquid short term investments with maturities of three months or less.


                                                                    December
                                                                    31, 2010
                                                        Carrying   Estimated
                                                           value        fair
                                                                       value
----------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents                              $  15,000  $   15,000
Derivative instruments 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                149,884     149,884
 Note payable to Toromont                                215,000     215,000
 Other Long-term liabilities                                 549         549


                                                             January 1, 2010
                                                   Carrying        Estimated
                                                       Value      fair value
----------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents                       $     34,949    $     34,949
Derivative instruments in designated hedge
 accounting relationships                                 13              13
 Loans and receivables:
  Accounts receivable                                 78,011          78,011
Financial Liabilities
Other financial liabilities
 Accounts payable and accrued liabilities             57,584          57,584
 Note payable                                         73,570          73,570

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 December 31, 2011 and indicates the fair value hierarchy of the valuation techniques used to determine such fair value. During the year ended December 31, 2011, there were no transfers between Level 1 and Level 2 fair value measurements.


                                  Carrying             Fair Value
                                     value    Level 1     Level 2    Level 3
----------------------------------------------------------------------------
Financial assets
Derivative financial instruments  $  2,136   $      -    $  2,136   $      -
Financial liabilities
Derivative financial instruments  $    455   $      -    $    455   $      -

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, other long-term liabilities and the note payable to Toromont are reported at amounts approximating their fair values on the statement of financial position. The fair values approximate 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 rate method over the life of the related debt. The fair value of these Notes at December 31, 2011, as determined on a discounted cash flow basis with a weighted average discount rate of 4.77%, was $91.1 million.

Fair values are determined using inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Fair values determined using inputs including forward market rates and credit spreads that are readily observable and reliable, or for which unobservable inputs are determined not to be significant to the fair value, are categorized as Level 2. If there is no active market, fair value is established using valuation techniques, including discounted cash flow models. The inputs to these models are taken from observable market data where possible, including recent arm's-length market transactions, and comparisons to the current fair value of similar instruments; but where this is not feasible, inputs such as liquidity risk, credit risk and volatility are used.

Derivative Financial Instruments and Hedge Accounting

Foreign exchange contracts 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 December 31, 2011:


                                  Notional
                                    amount                          Maturity
----------------------------------------------------------------------------
Canadian dollar denominated contracts
Purchase contracts          USD     18,462    January 2012 to September 2012
                            EUR         64        January 2012 to March 2012
Sales contracts             USD     43,518    January 2012 to September 2012
                            EUR        700                     February 2012
                            AUD      4,800                      January 2012
Australian dollar denominated
 contracts
Purchase contracts          EUR        315     January 2012 to February 2012
Sales contracts             USD     35,720     January 2012 to February 2014

Management estimates that a gain of $1.7 million would be realized if the contracts were terminated on December 31, 2011. Certain of these forward contracts are designated as cash flow hedges, and accordingly, a loss of less than $0.1 million has been included in other comprehensive income for the year ended December 31, 2011. These gains or losses 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. The amount removed from other comprehensive income during the year and included in the carrying amount of the hedging items as a basis adjustment was immaterial for both 2011 and 2010.

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 U.S. 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 December 31, 2011 of a 5% weakening of the Canadian dollar against the U.S. dollar, Euro and Australian dollar, everything else being equal. A 5% strengthening of the Canadian dollar would have an equal and opposite effect. This sensitivity analysis is provided as an indicative range in a volatile currency environment.


Canadian dollar weakens by 5%                     USD       Euro        AUD
----------------------------------------------------------------------------
Net earnings before tax                       $ 2,505    $    32    $  (675)

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

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 December 31, 2011 and for the period then ended. The following table shows the Company's sensitivity to a 5% weakening of the Canadian dollar against the U.S. dollar, Euro and Australian dollar. A 5% strengthening of the Canadian dollar would have an equal and opposite effect.


Canadian dollar weakens by 5%                           USD     Euro     AUD
----------------------------------------------------------------------------
Financial instruments held in foreign operations
Other comprehensive income                          $ 3,476  $   271 $   829
Financial instruments held in Canadian operations
Net earnings                                            927        2       -
Other comprehensive loss                                 (5)       -       -

The movement in accumulated other comprehensive income is mainly a result of the changes in fair value of derivative instruments designated as hedging instruments in cash flow hedges.

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 December 31, 2011 include interest rates that are fixed and therefore the related interest expense 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 $1.2 million. All interest charges are recorded on the statement of earnings 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 finance 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. These specific industries may be affected by economic factors that may impact accounts receivable. Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Credit is extended based on an evaluation of the customer's financial condition and, generally, advance payment is not required. For the year ended December 31, 2011, the Company has no individual customers which account for more than 10% of its revenues. Outstanding customer receivables are regularly monitored and an allowance for doubtful debts is established based upon specific situations.

The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in this note. The Company does not hold collateral as security.

The credit risk associated with the net investment in finance leases arises from the possibility that the counterparty may default on their obligations. In order to minimize this risk, the Company enters into finance 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.

The Company does not hold any collateral or other credit enhancements to cover its credit risks associated with its financial assets, except that the credit risk associated with the finance lease receivable is mitigated because the lease receivables are secured over the leased equipment.

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 December 31, 2011, the Company had $31.3 million committed against the Bank Facilities, leaving $293.7 million available for future drawings plus cash and cash equivalents of $81.2 million at that date.

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


                              Less than    3 months      Greater
                               3 months   to 1 year  than 1 year       Total
----------------------------------------------------------------------------
Derivative financial
 instruments
Foreign currency forward      $     455   $       -    $       -   $     455
 contracts
Other financial liabilities
Accounts payable and accrued  $ 153,980   $       -    $       -   $ 153,980
 liabilities
Long-term debt - Bank                 -           -       31,348      31,348
 Facilities
Long-term debt - Notes                -           -       87,615      87,615
Other Long-term Liabilities           -           -          590         590

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

The amounts included above for variable interest rates instruments for both non-derivative financial assets and liabilities is subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period.

Note 27. Capital Disclosures

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

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

Net debt to equity ratio

The Company targets a Net debt to equity ratio of less than 1.00:1. At December 31, 2011, the Net debt to equity was 0.05:1 (December 31, 2010 - 0.24:1), calculated as follows:


December 31,                                              2011         2010
----------------------------------------------------------------------------
Note payable                                        $        -   $  215,000
Long-term debt                                         118,963            -
Cash                                                   (81,200)     (15,000)
----------------------------------------------------------------------------
Net debt                                            $   37,763   $  200,000
----------------------------------------------------------------------------
Shareholders'/Owner's equity                        $  836,263   $  839,528
----------------------------------------------------------------------------

Net debt to equity ratio                                0.05:1       0.24:1
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note 28. Supplemental Cash Flow Information


Years ended December 31,                                  2011         2010
----------------------------------------------------------------------------
Cash provided by (used in)
 changes in non-cash working capital
Accounts receivable                                 $  (11,407)  $  (56,003)
Inventories                                            (34,753)      75,586
Accounts and taxes payable, accrued liabilities and
 deferred revenue                                       86,565       47,840
Foreign currency and other                                 753      (16,774)
----------------------------------------------------------------------------
                                                    $   41,158   $   50,649
                                                   -------------------------
                                                   -------------------------

Cash paid/received during the period:


Years ended December 31,                                   2011        2010
----------------------------------------------------------------------------
Interest paid                                         $   8,864   $  16,195
Interest received                                          (339)       (390)

Taxes paid                                               27,134      10,989
Taxes received                                           (1,492)     (6,657)

Note 29. 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. As described in Note 30 the Company has two joint ventures, PDIL and Enerflex-ES. Due to the fact that Enerflex-ES was incorporated in Q4 2011, there are no related party transactions or balances to report.

All transactions occurring with related 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:


                                  December 31,    December 31,    January 1,
                                          2011            2010          2010
----------------------------------------------------------------------------
Revenue                            $       212     $        20   $         -
Management fee expense                   4,299           7,920             -
Purchases                                  526           1,279             -
Interest expense                         1,902           5,484             -
Accounts receivable                         44              61             3
Accounts payable                             -           3,692           524
Note Payable                                 -         215,000        73,570

The above noted management fee expense and interest expense have all been paid to Toromont; there are no related party payables from Toromont as at December 31, 2011. The note payable to Toromont was non-interest bearing and did not have fixed terms of repayment.

Revenues recognized and purchases identified above for 2011 and 2010 were from Total and PDIL. The accounts receivable balances outstanding at December 31, 2011 and 2010 were from the joint venture.

All related party transactions are settled in cash.

The remuneration of directors and other key management personnel during the years ended December 31, 2011 and 2010 was as follows:


                                                            2011        2010
----------------------------------------------------------------------------
Short-term employee benefits                            $  4,876    $  2,741
Post-employment benefits                                     431          88
Other long-term benefits                                   1,269       1,538
Share-based payments                                         673         159
Termination benefits                                          72           -

The remuneration of directors and key executives is determined by the HR & Compensation committee of the Board of Directors having regard to the performance of individuals and market trends.

Note 30. 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 and their 51% interest in Enerflex-ES located in Russia. The Presson-Descon joint venture began on January 20, 2010 as part of the acquisition of ESIF. The Enerflex-ES joint venture began in Q4 2011. The interest included in the Company's accounts includes:


                                          December     December   January 1,
                                          31, 2011     31, 2010         2010
----------------------------------------------------------------------------
Statement of financial position
Current assets                           $   2,535    $   2,477    $       -
Long-term assets                               415          518            -
----------------------------------------------------------------------------
Total assets                             $   2,950    $   2,995    $       -

Current liabilities                      $   1,688    $     894    $       -
Long-term liabilities and equity             1,262        2,101            -
----------------------------------------------------------------------------
Total liabilities and equity             $   2,950    $   2,995    $       -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Years ended December 31,                                  2011         2010
----------------------------------------------------------------------------
Statement of earnings
Revenue                                               $    467     $  2,192
Expenses                                                 1,281        2,939
----------------------------------------------------------------------------
Net loss                                              $   (814)    $   (747)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows                                                2011         2010
----------------------------------------------------------------------------
 Cash from operations                                 $   (684)    $ (1,738)
 Cash from investing                                       (21)        (501)
 Cash from financing                                        77          (12)

Note 31. 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. For each of the operating segments, the Company's CEO reviews internal management reports on at least a quarterly basis.

The following summary describes the operations of each of the Company's reportable segments:


--  Canada & Northern U.S. generates revenue from manufacturing (primarily
    compression equipment), service and rentals.
--  Southern U.S. generates revenue from the manufacture of natural gas
    compression equipment and process equipment in addition to generating
    revenue from product support services.
--  International generates revenue from manufacturing primarily process
    equipment, service and rentals including a finance lease in Oman.

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


                                                      Southern U.S. & South
Years ended                  Canada & Northern U.S.           America
December 31,                       2011        2010        2011        2010
----------------------------------------------------------------------------

 Segment revenue            $   641,459   $ 491,571   $ 343,596   $ 364,600
 Intersegment revenue
                               (117,224)    (37,814)     (1,261)       (327)
----------------------------------------------------------------------------
 External revenue           $   524,235   $ 453,757   $ 342,335   $ 364,273

 Operating income           $    38,849   $   9,855   $  33,191   $  46,373
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Years ended                    International                Total
December 31,                    2011         2010         2011         2010
----------------------------------------------------------------------------

 Segment revenue          $  365,198   $  290,491  $ 1,350,253  $ 1,146,662
 Intersegment revenue
                              (4,631)     (40,738)    (123,116)     (78,879)
----------------------------------------------------------------------------
 External revenue         $  360,567   $  249,753  $ 1,227,137  $ 1,067,783

 Operating income         $    8,046   $  (15,273) $    80,086  $    40,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                                      Southern U.S. & South
                             Canada & Northern U.S.           America
December 31,                       2011        2010        2011         2010
----------------------------------------------------------------------------

Segment assets              $   516,135   $ 524,304   $ 219,931   $  222,980
Corporate                             -           -           -            -
Goodwill                        198,891     199,666      54,402       56,510
----------------------------------------------------------------------------
                            $   715,026   $ 723,970   $ 274,333   $  279,490
----------------------------------------------------------------------------
Assets held for sale                  -           -           -            -
----------------------------------------------------------------------------
Total segment assets        $   715,026   $ 723,970   $ 274,333   $  279,490
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                International                Total
December 31,                    2011         2010         2011         2010
----------------------------------------------------------------------------

Segment assets            $  274,615   $  280,482  $ 1,010,681  $ 1,027,766
Corporate                          -            -     (110,110)    (132,866)
Goodwill                     206,642      226,480      459,935      482,656
----------------------------------------------------------------------------
                          $  481,257   $  506,962  $ 1,360,506  $ 1,377,556
----------------------------------------------------------------------------
Assets held for sale          10,054            -       10,054            -
----------------------------------------------------------------------------
Total segment assets      $  491,311   $  506,962  $ 1,370,560  $ 1,377,556
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                    Southern U.S.
                         Canada &       & South
January 1, 2010       Northern U.S.       America  International      Total
----------------------------------------------------------------------------

Segment assets          $ 297,265     $ 204,831     $    1,049    $ 503,145
Corporate                       -             -              -       (8,699)
Goodwill                   21,350             -              -       21,350
----------------------------------------------------------------------------
Total segment assets    $ 318,615     $ 204,831     $    1,049    $ 515,796
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenue from foreign countries was:


Years ended December 31,                                     2011       2010
----------------------------------------------------------------------------
Australia                                               $ 201,163  $  48,715
Netherlands                                                   746      9,312
United States                                             368,458    431,116
Other                                                     161,768    176,990

Revenue is attributed by destination of sale.

Note 32. 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 33. Transition to IFRS

As disclosed in Note 2, these Consolidated Financial Statements represent Enerflex's initial presentation of the financial results of operations and financial position under IFRS for the year ended December 31, 2011. As a result, these Consolidated Financial Statements have been prepared in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, 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.

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 exceptions and elective exemptions for first-time adopters to alleviate the retrospective application of all IFRSs.

Opening Consolidated Statements of Financial Position

The following reconciliations present the adjustments made to the Company's previous GAAP financial results of operations and financial position to comply with IFRS 1. Reconciliations include the Company's Consolidated Statement of Financial Position as at January 1, 2010 and December 31, 2010, and Consolidated Statements of Changes in Owner's Equity for the twelve months ended December 31, 2010. IFRS had no impact on the Consolidated Statements of Earnings (loss), Comprehensive Income (loss) and Cash Flows.

IFRS policies have been retrospectively and consistently applied except where specific IFRS 1 exemptions are permitted to first-time adopters.

Significant differences upon transition to IFRS:

(A) Cumulative Translation Adjustment - the Company elected to reset the cumulative translation adjustment balance to zero as at January 1, 2010.

(B) Reclassification - the Company reclassified all deferred tax assets and liabilities as non-current.


Opening Consolidated Statement of Financial Position
As at January 1, 2010
                                            (A)                (B)
                                    Cumulative
                         Canadian  Translation
($ Canadian thousands)       GAAP   Adjustment   Reclassification      IFRS
----------------------------------------------------------------------------
ASSETS
Current assets
 Cash and cash
  equivalents            $ 34,949            -                  -  $ 34,949
 Accounts receivable       78,011            -                  -    78,011
 Inventory                167,275            -                  -   167,275
 Income taxes
  receivable                5,776            -                  -     5,776
 Current tax assets        23,194            -            (23,194)        -
 Derivative financial
  instruments                  13            -                  -        13
 Other current assets       3,104            -                  -     3,104
----------------------------------------------------------------------------
 Total current assets     312,322            -            (23,194)  289,128

Property, plant and
 equipment                 69,781            -                  -    69,781
Rental Equipment           59,142            -                  -    59,142
Deferred tax assets         1,129            -             18,764    19,893
Other assets               56,502            -                  -    56,502
Intangible assets               -            -                  -         -
Goodwill                   21,350            -                  -    21,350
----------------------------------------------------------------------------
Total Assets            $ 520,226            -             (4,430) $515,796
                       -----------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable and
 accrued liabilities
 and provisions          $ 68,873            -                  -  $ 68,873
Income taxes payable            -            -                  -         -
Deferred revenue           59,751            -                  -    59,751
Current tax liability           -            -                  -         -
Derivative financial
 instruments                    -            -                  -         -
----------------------------------------------------------------------------
Total current
 liabilities              128,624            -                  -   128,624

Note payable               73,570            -                  -    73,570
Other long-term
 liabilities                    -            -                  -         -
Deferred tax liability      4,430            -             (4,430)        -
----------------------------------------------------------------------------
Total liabilities         206,624            -             (4,430)  202,194
----------------------------------------------------------------------------

NET INVESTMENT
 Owner's net investment   312,682      (14,709)                 -   297,973
 Accumulated other
  comprehensive income        920       14,709                  -    15,629
 Non-controlling
  interest                      -            -                  -         -
----------------------------------------------------------------------------
Total net investment
 and non-controlling
 interest                 313,602            -                  -   313,602
----------------------------------------------------------------------------
Total liabilities and
 net investment         $ 520,226            -             (4,430) $515,796
                       -----------------------------------------------------
Consolidated Statement
 of Financial Position
As at December 31,                        (A)
 2010                              Cumulative                 (B)
                        Canadian  Translation
($ Canadian thousands)      GAAP   Adjustment   Reclassification       IFRS
----------------------------------------------------------------------------
ASSETS
Current assets
 Cash and cash
  equivalents           $ 15,000            -                  -   $ 15,000
 Accounts receivable     243,238            -                  -    243,238
 Inventory               222,855            -                  -    222,855
 Income taxes
  receivable               1,944            -                  -      1,944
 Current tax assets       29,204            -            (29,204)         -
 Derivative financial
  instruments                448            -                  -        448
 Other current assets     22,013            -                  -     22,013
----------------------------------------------------------------------------
Total current assets     534,702            -            (29,204)   505,498

Property, plant and
 equipment               172,041                                    172,041
Rental equipment         116,162            -                  -    116,162
Deferred tax assets       18,736            -             29,204     47,940
Other assets              13,797            -                  -     13,797
Intangible assets         39,462            -                  -     39,462
Goodwill                 482,656            -                  -    482,656
----------------------------------------------------------------------------
Total assets        $  1,377,556            -                  - $1,377,556
                      ------------------------------------------------------
LIABILITIES
Current liabilities
 Accounts payable and
  accrued liabilities
  and provisions       $ 164,422            -                  - $  164,422
 Income taxes payable      7,135            -                  -      7,135
 Deferred revenue        150,319            -                  -    150,319
 Derivative financial
  instruments                603            -                  -        603
Note payable             215,000            -                  -    215,000
----------------------------------------------------------------------------
Total Current
 liabilities             537,479            -                  -    537,479

Other long-term
 liabilities                 549            -                  -        549
----------------------------------------------------------------------------
 Total liabilities       538,028            -                       538,028
----------------------------------------------------------------------------

NET INVESTMENT
Owner's net investment   864,686      (14,709)                 -    849,977
Accumulated other
 comprehensive (loss)
 income                  (25,554)      14,709                  -    (10,845)
Non-controlling
 interest                    396                               -        396
----------------------------------------------------------------------------
Total net investment
 and non-controlling
 interest                839,528            -                  -    839,528
----------------------------------------------------------------------------
Total liabilities and
 net investment       $1,377,556            -                  - $1,377,556
                      ------------------------------------------------------


CONSOLIDATED STATEMENT OF CHANGES IN                       (A)
 EQUITY                                             Cumulative
As at December 31, 2010                 Canadian   Translation
($ Canadian thousands)                      GAAP    Adjustment         IFRS
----------------------------------------------------------------------------
Owner's Net Investment
Balance, beginning of year             $ 312,682       (14,709)   $ 297,973
Net income                                25,024                     25,024
Owner's investment/dividend               526,980                   526,980
----------------------------------------------------------------------------
Balance, end of year                   $ 864,686       (14,709)   $ 849,977
----------------------------------------------------------------------------

Accumulated Other Comprehensive Income
 (Loss)
Balance, beginning of year             $     920        14,709    $  15,629
Exchange differences on translation of
 foreign operations                      (10,901)                   (10,901)
Reclassification of gain on available-
 for-sale assets                         (15,615)                   (15,615)
Gain on cash flow hedges                      42                         42
----------------------------------------------------------------------------
Balance, end of year                   $ (25,554)       14,709    $ (10,845)
----------------------------------------------------------------------------

Non-Controlling Interest
Balance, beginning of year             $       -                  $       -
Net income                                   396                        396
----------------------------------------------------------------------------
Balance, end of year                   $     396                  $     396
----------------------------------------------------------------------------
Total                                  $ 839,528                  $ 839,528
----------------------------------------------------------------------------

Note 34. Subsequent Events

Subsequent to December 31, 2011, the Company declared its fourth dividend per share of $0.06 per share, payable on April 4, 2012, to shareholders of record on March 12, 2012.

 

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