2003 Annual Report - Enerflex

The majority of the Company’s lease commitments are operating leases for Service vehicles.The majority of the Company’s purchase commitments relate to long term information technology andcommunications contracts entered into in order to reduce the overall costs of services received.In addition to the contractual obligations above, the Company is committed to capital investment of $2.3 million in2004. Of that, $1.0 million relates to the construction of a larger facility in Syntech’s northwestern Albertaoperations; $0.7 million for the expansion of office space at the Company’s Nisku operation, due to increasingbusiness volumes and $0.3 million relates to software investments.Other accounting mattersGoodwillThe Company acquired three businesses in 2001 and 2002, in accordance with its strategic objectives of expandinginternationally and into complementary lines of business. Enerflex allocated the excess of the purchase priceover the value attributed to net tangible and intangible assets to goodwill. The book value of goodwill atDecember 31, 2003 is $112.5 million, of which $104.9 million arose from the EnSource acquisition, and has beenallocated to each of the Company’s three business segments. Goodwill is assessed for impairment at least annually.It has been determined that there is no impairment in the value of goodwill in any of our business segments.Stock OptionsEnerflex has a practice of granting options to management and directors once per year at market prices. Stockoptions are a long-term incentive and employees benefit only if shareholders also realize appreciation in the valueof their investment. Enerflex measures compensation cost based on the intrinsic value of the award on the datethe options are granted. Accordingly, as the exercise price and the market price on the grant date are equal, no stockoption compensation cost has been recognized. In 2004, Enerflex will adopt the fair value method of accountingfor stock options. Had the new accounting policy been in place in 2003, net income would have been reduced by$0.2 million. Adoption of the policy will result in a reduction of retained earnings of $0.7 million on January 1, 2004.The Company estimates that stock option expense will approximate $0.6 million in 2004. Details concerning ouraccounting policy and assumptions are shown in the notes to our financial statements.Asset Retirement ObligationsThe Canadian Institute of Chartered Accountants has issued new recommendations for accounting for AssetRetirement Obligations. The recommendations, which become effective in 2004, are not expected to have asignificant impact on the Company’s financial statements.Enerflex 2003 Annual Report48