United States securities and exchange commission logo
April 20, 2022
Marc Rossiter
Chief Executive Officer
Enerflex Ltd.
1331 Macleod Trail S.E., Suite 904
Calgary, Alberta, Canada, T2G 0K3
Re: Enerflex Ltd.
Registration
Statement on Form F-4
Filed March 18,
2022
File No. 333-263714
Dear Mr. Rossiter:
We have reviewed your registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe our comments apply to your
facts and
circumstances or do not believe an amendment is appropriate, please tell
us why in your
response.
After reviewing any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Registration Statement on Form F-4
Questions and Answers about the Transaction and the Exterran Special
Meeting
How does the Exterran board recommend that I vote at the Exterran
special meeting?, page 23
1. Where you address that
the directors and executive officers of Exterran have interests in
the transaction that
may differ from the interests of Exterran stockholders generally here
and in the "summary"
section, highlight that Exterran's executive officers are party to a
Change in Control
Agreement and that certain executive officers are also entitled to
golden parachute
compensation. Quantify the total amount of compensation that these
executive officers will
receive as a result of the merger.
Marc Rossiter
FirstName LastNameMarc Rossiter
Enerflex Ltd.
Comapany
April NameEnerflex Ltd.
20, 2022
April 220, 2022 Page 2
Page
FirstName LastName
Conditions to the Transaction, page 46
2. For the avoidance of doubt, please clarify which conditions are
waivable and not
waivable.
Risk Factors
Risks Relating to the Transaction
Uncertain geopolitical conditions could adversely affect Enerflex s results
of operations, page 73
3. We note that Enerflex sources natural gas from Russia. Please disclose
whether and how
Enerflex's business segments, products, lines of service, projects, or
operations are
materially impacted by supply chain disruptions in light of the
conflict between Russia
and Ukraine. For example, discuss whether Enerflex has:
had to suspend the production, purchase, sale or maintenance of
certain items;
experienced higher costs due to constrained capacity or increased
commodity prices;
experienced surges or declines in consumer demand for which you
are unable to
adequately adjust your supply; or
been unable to supply products at competitive prices or at all due
to export
restrictions, sanctions, or the ongoing conflict.
4. To the extent material, please disclose any known trends or
uncertainties that have had or
are reasonably likely to have a material impact on your liquidity,
financial position, or
results of operations arising from the conflict between Russia and
Ukraine.
Enerflex relies on suppliers to source raw materials, component parts and
finished products...,
page 75
5. We note your disclosure that "some of the components used in Enerflex
s products are
obtained from a single source or a limited group of suppliers." Please
expand your
disclosure to discuss with more specificity Enerflex's material
sources for components, the
availability of raw materials, and the identity of any principal
suppliers.
Background of the Transaction, page 95
6. We note statements made by Mr. Rossiter to the press following the
announcement of the
proposed transaction indicating that Enerflex has been considering a
deal/combination
with Exterran "literally for years." The discussion on page 96
suggests that March 15,
2021 was the first substantive discussion between Mr. Rossiter and Mr.
Way about a
potential transaction between Enerflex and Exterran. Please revise the
disclosure to state
whether the March 15 call was the first discussion between management
of Enerflex and
management of Exterran. Additionally, revise to disclose, to the
extent applicable,
whether Enerflex had prior internal discussions specifically about a
potential acquistion
or business combination with Exterran.
Marc Rossiter
FirstName LastNameMarc Rossiter
Enerflex Ltd.
Comapany
April NameEnerflex Ltd.
20, 2022
April 320, 2022 Page 3
Page
FirstName LastName
Financial Analyses, page 117
7. Explain why the only companies selected for each of the respective
Selected Public
Companies Analyses are the parties to this business combination.
Additionally, we note
the assertion in the Exterran Financial Analyses that "none of the
selected companies used
in Wells Fargo Securities analyses is identical to Exterran" and a
similar assertion in
the Enerflex Financial Analyses with respect to Enerflex. Please
clarify these statements
given that both Exterran and Enerflex were "selected" companies for
purposes of the
analyses.
Certain Unaudited Prospective Financial Information, page 122
8. Revise to disclose and quantify each material assumption underlying
the projections,
including but not limited to the assumptions and variables used with
respect to general
economic and competitive conditions and prevailing interest rates.
Additionally, given
that the sets of projections for each of Exterran and Enerflex were
prepared using different
assumptions, highlight the materially differing assumptions.
Summary of Exterran Prospective Financial Information, page 124
9. We note that Exterran management prepared a separate sensitivity
analysis that factored in
an assumed equity raise, and that Wells Fargo Securities considered
both the Status Quo
Sensitivity and the Equity Issuance Sensitivity in connection with the
selected public
companies analysis and discounted cash flow analysis, which in turn
were used by Wells
Fargo Securities in formulating its fairness opinion. Accordingly,
please provide
disclosure of the Equity Issuance Sensitivity pursuant to Item
1015(b)(6) of Regulation
M-A.
Certain U.S. Federal Income Tax Consequences, page 134
10. We note that Enerflex and Exterran intend that the transaction will
qualify as a
reorganization within the meaning of Section 368(a) of the U.S.
Internal Revenue
Code. Given the parties' representation that a U.S. holder that
exchanges shares of
Exterran common stock for the merger consideration in the transaction
will generally not
recognize gain or loss other than with respect to any cash received in
lieu of fractional
Enerflex common shares, revise to include counsel's tax opinion as an
exhibit as required
by Item 601(b)(8) of Regulation S-K.
11. We note that your discussion is framed as a "general summary" only and
"is not
a complete description of all tax considerations that may be
relevant." Revise to remove
the implication that the discussion may not address all material
federal tax consequences.
Refer to Section III.C.1 of Staff Legal Bulletin 19.
Marc Rossiter
FirstName LastNameMarc Rossiter
Enerflex Ltd.
Comapany
April NameEnerflex Ltd.
20, 2022
April 420, 2022 Page 4
Page
FirstName LastName
Unaudited Pro Forma Financial Information
6. Pro forma adjustments to the consolidated statement of earnings of Enerflex
(b) Cost of Goods Sold, page 194
12. Please clarify why there is a net decrease in compensation expense of
$8.7 million
resulting from the difference between Exterran s historical
share-based compensation
expense and the estimated share-based compensation expense related to
replacement
awards issued to continuing employees. Clarify how the terms of the
replacement awards
differ from the historical awards and how the fair value was
calculated. Revise your
disclosure accordingly.
(d) Nonrecurring Item, page 195
13. Please clarify how the impairment charge relating to a customer
contract in Latin America
is related to the merger or financing transactions to which your pro
forma financial
statements give effect, and why this is an appropriate pro forma
adjustment. Refer to
Article 11-02(a)(6) of Regulation S-X
(e) Transaction related costs (including financing fees), page 195
14. Please revise your disclosure to clarify the basis for the $19.4
million in severance costs
and $22.6 million in advisory, legal and transaction costs and whether
they are based on
agreements in place or estimates. Also clarify whether these
adjustments represent all of
the expected costs relating to these activities or just some portion.
For any adjustments
that will not recur in the income statement of the registrant beyond
12 months after the
transaction, please identify as such. Refer to Article 11-02(a)(11)(i)
of Regulation S-X.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Engineered Systems Bookings and Backlog, page 203
15. Please revise your disclosure to further clarify the nature of your
bookings and backlog
and the timing of recognition. Clarify the portion represented by
newly manufactured
equipment that will be accounted for as finance leases and will be
fully realized in 2022,
and the portion that will be recognized over time using
percentage-of-completion
accounting. For contracts recognized over time, clarify the period
over which this revenue
will be recognized.
Segmented Results, page 204
16. Revise your disclosure for each of your segment results to quantify
the extent to which
your changes in revenue are attributable to changes in prices, changes
in the volume or
amount of products or services being sold, or the introduction of new
products or
services. Refer to Item 5.A. of Form 20-F.
Marc Rossiter
FirstName LastNameMarc Rossiter
Enerflex Ltd.
Comapany
April NameEnerflex Ltd.
20, 2022
April 520, 2022 Page 5
Page
FirstName LastName
Free Cash Flow, page 218
17. The title of your measure Free Cash Flow suggests that this is a
non-IFRS liquidity
measure. However we note that the measure adjusts cash flow from
operating activities to
exclude working capital changes. As such, it is unclear how this is a
liquidity measure
and why the title Free Cash Flow is appropriate. Please revise
or advise. Ensure that
any non-IFRS liquidity measures you present do not exclude charges
that require or have
required cash settlement. Refer to Item 10(e)(1)(ii)(A) of Regulation
S-K and Question
103.1 of the commission s Non-GAAP Compliance and Disclosure
Interpretations.
Please also ensure that you include the disclosures required by Item
10(e)(1)(i) of
Regulation S-K for all non-IFRS measures presented, including why
management believes
the measure to be useful to investors and the purposes for which
management uses the
measure.
Beneficial Ownership of Securities
Security Ownership of Certain Beneficial Owners and Management of Exterran,
page 305
18. Please revise the beneficial ownership table to identify the natural
person(s) who hold
voting and/or investment power over the shares beneficially owned by
Chai Trust Co LLC
and Dimensional Fund Advisors LP.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 3. Summary of Significant Accounting Policies
(q) Revenue Recognition
Engineered Systems, page F-16
19. Your disclosure indicates that you recognize revenue from Engineered
Systems on a
percentage of completion basis over the construction period. Please
revise your disclosure
to clarify the period of time over which these systems are typically
constructed and
revenue recognized.
20. Please further clarify the nature and terms of your contracts that
have been classified as
finance leases for newly built equipment. Tell us how you considered
the factors in
paragraphs 62 through 65 of IFRS 16 in determining to account for
these arrangements as
finance leases. Revise your disclosures accordingly. Please also
provide the same
information and disclosures for your contracts classified as finance
leases relating to
existing or pre-owned equipment recorded as Energy Infrastructure
revenue.
Note 23. Revenue, page F-37
21. Please disclose the amount of selling profit recognized from your
finance leases and the
amount of lease income recognized from your operating leases for each
period presented.
Refer to paragraph 90 of IFRS 16.
Marc Rossiter
Enerflex Ltd.
April 20, 2022
Page 6
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
You may contact Laura Veator, Senior Staff Accountant, at 202-551-3716
or Stephen
Krikorian, Accounting Branch Chief, at 202-551-3488 if you have questions
regarding
comments on the financial statements and related matters. Please contact Kyle
Wiley, Staff
Attorney, at 202-344-5791 or Josh Shainess, Legal Branch Chief, at 202-551-7951
with any
other questions.
Sincerely,
FirstName LastNameMarc Rossiter
Division of
Corporation Finance
Comapany NameEnerflex Ltd.
Office of Technology
April 20, 2022 Page 6
cc: Lee McIntyre
FirstName LastName