-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RgmEuY+iEHpN7TlytGWUvWhMpkUDSRALqmCWA15JTeIF+Qu4VkNOmfZINZ6Te/4M ITh0uzCweBMQZKux7ooTAA== 0000899243-02-001133.txt : 20020416 0000899243-02-001133.hdr.sgml : 20020416 ACCESSION NUMBER: 0000899243-02-001133 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20020416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER COMPRESSOR CO / CENTRAL INDEX KEY: 0000909413 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 752344249 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13071 FILM NUMBER: 02612578 BUSINESS ADDRESS: STREET 1: 12001 N HOUSTON ROSSLYN CITY: HOUSTON STATE: TX ZIP: 77086 BUSINESS PHONE: 2814478787 MAIL ADDRESS: STREET 1: 12001 NORTH HOUSTON ROSSLYN CITY: HOUSTON STATE: TX ZIP: 77086 FORMER COMPANY: FORMER CONFORMED NAME: HANOVER COMPRESSOR CO DATE OF NAME CHANGE: 19960716 10-Q/A 1 d10qa.txt FORM 10-Q/A FOR 09/30/2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________ Commission File Number 1-13071 HANOVER COMPRESSOR COMPANY (Exact name of registrant as specified in its charter) Delaware 76-0625124 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12001 North Houston Rosslyn Houston, Texas 77086 (Address of principal executive offices) (281) 447-8787 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 11, 2000 there were 66,307,996 shares of the Company's common stock, $0.001 par value, outstanding. EXPLANATORY NOTE Hanover Compressor Company (the "Company") is filing this amendment to its Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 in order to restate the Consolidated Financial Statements and make conforming revisions to "Management's Discussion and Analysis of Financial Condition and Results of Operations." In conjunction with a separate review of the Company's joint ventures and other transactions conducted by the Board of Directors in early 2002, the Company determined that restatement was appropriate. The net effect of this restatement for the three months ended September 30, 2000 was as follows: (i) a decrease in revenues of $13.6 million, from $162.6 million to $149.0 million; (ii) a decrease in income before taxes of $4.8 million, from $25.0 million to $20.2 million; (iii) a decrease in net income of $3.0 million, from $15.4 million to $12.4 million; and (iv) a decrease in earnings per common share of $0.05 basic and $0.05 diluted. The net effect of this restatement for the nine months ended September 30, 2000 was as follows: (i) a decrease in revenues of $13.6 million, from $370.2 million to $356.6 million; (ii) a decrease in income before taxes of $4.8 million, from $62.7 million to $57.9 million; (iii) a decrease in net income of $3.0 million, from $39.3 million to $36.3 million; and (iv) a decrease in earnings per common share of $0.05 basic and $0.05 diluted. For additional detail of the transactions involved in the restatement and their impact on the Condensed Consolidated Financial Statements see Note 9 of the Notes to Condensed Consolidated Financial Statements. HANOVER COMPRESSOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) (in thousands of dollars, except for par value and share amounts)
September 30, December 31, 2000 1999 ------------- ------------ (Restated) ASSETS Current assets: Cash and cash equivalents $ 13,042 $ 5,756 Accounts receivable trade, net 159,003 93,715 Inventory 143,122 66,562 Costs and estimated earnings in excess of billings on uncompleted contracts 24,495 4,782 Prepaid taxes 19,459 16,430 Other current assets 13,240 5,287 ---------- -------- Total current assets 372,361 192,532 ---------- -------- Property, plant and equipment: Compression equipment and facilities 719,121 520,403 Land and buildings 32,856 19,000 Transportation and shop equipment 38,335 27,616 Other 13,972 10,029 ---------- -------- 804,284 577,048 Accumulated depreciation (107,545) (79,583) ---------- -------- Net property, plant and equipment 696,739 497,465 ---------- -------- Intangible and other assets 197,568 66,513 ---------- -------- $1,266,668 $756,510 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 27,769 $ 15,967 Accounts payable, trade 68,612 32,308 Accrued liabilities 38,083 22,065 Advance billings 20,140 13,328 Billings on uncompleted contracts in excess of costs and estimated earnings 6,024 898 ---------- -------- Total current liabilities 160,628 84,566 Long-term debt 173,835 69,681 Other liabilities 143,677 80,549 Deferred income taxes 86,698 66,307 ---------- -------- Total liabilities 564,838 301,103 ---------- -------- Mandatorily redeemable convertible preferred securities 86,250 86,250 Commitments and contingencies (Note 6) Common stockholders' equity: Common stock, $.001 par value; 200 million shares authorized; 66,286,496 and 57,217,102 shares issued and outstanding, respectively 66 57 Additional paid-in capital 481,465 272,945 Notes receivable - employee stockholders (1,738) (3,387) Accumulated other comprehensive loss (465) (311) Retained earnings 136,529 101,439 Treasury stock - 29,227 and 167,394 common shares respectively, at cost (277) (1,586) ---------- -------- Total common stockholders' equity 615,580 369,157 ---------- -------- $1,266,668 $756,510 ========== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 HANOVER COMPRESSOR COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited) (in thousands of dollars, except per share amounts)
Three months Nine months ended September 30, ended September 30, ---------------------- ----------------------- 2000 1999 2000 1999 -------- ------- -------- -------- Revenues: (Restated) (Restated) Rentals $ 66,309 $50,042 $180,210 $137,749 Parts, service and used equipment 28,743 12,402 64,293 27,403 Compressor fabrication 26,428 16,493 55,599 35,441 Production and processing equipment fabrication 25,634 7,733 46,745 21,177 Gain(loss) on sale of other assets (377) 503 2,223 3,927 Other 2,223 96 7,531 2,141 -------- ------- -------- -------- 148,960 87,269 356,601 227,838 -------- ------- -------- -------- Expenses: Rentals 23,263 16,228 62,104 45,454 Parts, service and used equipment 17,951 8,156 42,202 18,617 Compressor fabrication 22,455 13,785 46,329 29,102 Production and processing equipment fabrication 20,546 5,727 36,964 15,664 Selling, general and administrative 14,467 8,851 34,481 24,232 Depreciation and amortization 14,179 9,086 36,830 28,536 Leasing expense 11,460 7,143 29,596 14,727 Interest expense 2,831 1,804 5,466 7,841 Distributions on mandatorily redeemable convertible preferred securities 1,593 0 4,776 0 -------- ------- -------- -------- 128,745 70,780 298,748 184,173 -------- ------- -------- -------- Income before income taxes 20,215 16,489 57,853 43,665 Provision for income taxes 7,820 6,101 21,520 16,156 -------- ------- -------- -------- Net income 12,395 10,388 36,333 27,509 -------- ------- -------- -------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 11 (100) (154) (481) -------- ------- -------- -------- Comprehensive income $ 12,406 $10,288 $ 36,179 $ 27,028 ======== ======= ======== ======== Weighted average common and common equivalent shares outstanding: Basic 63,966 57,084 60,324 56,966 -------- ------- -------- -------- Diluted 67,271 61,456 64,619 60,974 ======== ======= ======== ======== Earnings per common share: Basic $ 0.19 $ 0.18 $ 0.60 $ 0.48 -------- ------- -------- -------- Diluted $ 0.18 $ 0.17 $ 0.56 $ 0.45 ======== ======= ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 HANOVER COMPRESSOR COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (in thousands of dollars)
Nine Months Ended September 30, --------------------- 2000 1999 --------- -------- (Restated) Cash flows from operating activities: Net income $ 36,333 $ 27,509 Adjustments: Depreciation and amortization 36,830 28,536 Amortization of debt issuance costs and debt discount 479 725 Bad debt expense 840 723 Gain on sale of ownership interests and property, plant and equipment (8,708) (4,799) Equity in income of nonconsolidated affiliates (1,953) (647) Deferred income taxes 5,998 10,248 Changes in assets and liabilities excluding the impact of business acquisitions: Accounts receivable (28,014) (16,995) Inventory (34,814) (1,434) Costs and estimated earnings in excess of billings on uncompleted contracts (10,218) (21) Accounts payable and other liabilities 25,171 2,317 Other current assets (4,442) 2,826 Other 2,749 (7,561) --------- --------- Net cash provided by operating activities 20,251 41,427 --------- --------- Cash flows from investing activities: Cash used for business acquisitions, net (174,827) (35,312) Capital expenditures (207,827) (200,752) Deferred lease transaction costs (2,660) Investment in unconsolidated subsidiaries (8,720) (4,906) Cash returned from unconsolidated subsidiaries - 8,000 Proceeds from sale of property, plant and equipment 218,660 220,584 --------- --------- Net cash used in investing activities (175,374) (12,386) --------- --------- Cash flows from financing activities: Net borrowings (repayment) on revolving credit facility 102,900 (25,000) Repayments of shareholder notes 1,669 1,488 Issuance of common stock, net 59,400 - Proceeds from warrant conversions and stock option exercises 2,774 330 Repayment of long-term debt (4,290) (8,194) --------- --------- Net cash provided by (used in) financing activities 162,453 (31,376) --------- --------- Effect of exchange rate changes on cash and equivalents (44) (78) --------- --------- Net increase in cash and cash equivalents 7,286 (2,413) Cash and cash equivalents at beginning of period 5,756 11,503 --------- --------- Cash and cash equivalents at end of period $ 13,042 $ 9,090 ========= =========
4 Supplemental disclosure of cash flow information: Common stock issued in exchange for note receivable $ $ 753 Property and ownership interests sold in exchange for note receivable $ 2,783 $ 3,480 Acquisitions of businesses: Property, plant and equipment acquired $190,521 $39,105 Other assets acquired $199,682 $11,311 Liabilities assumed $ 60,343 $ 1,562 Deferred taxes $ 15,167 $10,242 Common and treasury stock issued $139,866 $ 3,300
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 HANOVER COMPRESSOR COMPANY Notes to Condensed Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Hanover Compressor Company (the "Company") included herein have been prepared in accordance with generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is the opinion of management that the information furnished includes all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods indicated. The financial statement information included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. These interim results are not necessarily indicative of results for a full year. In December 1999, the Company issued $86,250,000 of unsecured 7.25% Mandatorily Redeemable Convertible Preferred Securities (the "Preferred Securities") through Hanover Compressor Capital Trust, a wholly owned finance subsidiary of the Company. The Company has fully and unconditionally guaranteed the Preferred Securities. STOCK SPLIT In June 2000, the Company completed a 2 for 1 stock split effected in the form of a 100% stock dividend. All common stock, additional paid-in capital and earnings per common share information has been restated for all periods presented to reflect this stock split. STOCK OFFERING In May 2000, the Company completed a private placement of 2 million newly issued shares of restricted common stock to an institutional investor. EARNINGS PER COMMON SHARE Basic earnings per common share is computed using the weighted average number of shares outstanding for the period. Diluted earnings per common share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options and warrants to purchase common stock. Included in diluted shares are common stock equivalents relating to options of 3,927,000 and 3,290,000 and warrants of 368,000 and 718,000 for the nine months ended September 30, 2000 and 1999, respectively. The mandatorily redeemable convertible preferred securities were excluded from the diluted shares for all periods presented because they were antidilutive. RECLASSIFICATIONS Certain amounts in the prior periods financial statements have been reclassified to conform to the 2000 financial statement classification. These reclassifications have no impact on net income. 2. BUSINESS COMBINATIONS In September 2000, the company purchased the Dresser-Rand Company's compression services division for $177 million, including approximately $1.2 million of acquisition costs. Under the terms of the agreement, $95 million of the purchase price was paid in cash with the balance being paid through the issuance to Ingersoll-Rand of approximately 2,920,000 shares of the Company's newly issued restricted common stock. The estimated fair value of the stock issued is $80.8 million, based on the quoted market price for the Company's common stock reduced by a discount due to the restrictions on the stock's marketability. The discount applied was based on an appraisal obtained from an investment bank. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $18 million in goodwill. In July 2000, the Company completed its acquisition of Stewart and Stevenson Services' natural gas compressor assets for approximately $45 million in cash and $13 million in notes payable. The acquisition was accounted for under the purchase method of accounting. In June 2000, the Company purchased the stock of Applied Processing Solutions, Inc. ("APSI") for approximately 2,300,000 restricted shares of Hanover common stock and assumption of APSI's outstanding debt which was repaid. The total 6 value of the stock and debt was approximately $74 million. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $52.1 million in goodwill. The results of operations for all acquired businesses have been included in the statement of income from their respective acquisition dates. The pro forma information set forth below assumes that the acquisitions completed in 2000 and 1999 are accounted for as if the purchases had occurred at the beginning of 1999. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisitions been consummated at that time (in thousands, except per share amounts): Nine Months Ended September 30, ------------------------------- 2000 1999 -------- -------- (unaudited) (unaudited) (restated) Revenue $456,288 $415,681 Net Income 36,854 34,821 Earnings per common share - basic $ 0.59 $ 0.56 Earnings per common share - diluted 0.55 0.53 3. INVENTORIES Inventory consisted of the following amounts (in thousands): September 30, December 31, 2000 1999 ------- ------- (restated) Parts and supplies $ 92,116 $44,058 Work in progress 44,206 18,677 Finished goods 6,800 3,827 ------- ------- $143,122 $66,562 ======== ======= 4. GAINS ON SALES OF OTHER ASSETS AND OTHER REVENUES In June 2000, the Company sold a 25 percent undivided ownership interest in a power generation plant owned by the Company to a third party for $5 million. The transaction resulted in a gain on sale of approximately $1.3 million which was recorded in Gain on Sale of Assets in the condensed consolidated statement of income and comprehensive income. Also in June 2000, the Company sold 50% of the common stock of its wholly owned Venezuelan subsidiary, Servicompressores, to a third party for approximately $3.1 million. The sale price was paid $350,000 in cash and approximately $2.8 million in a note receivable from the purchaser. The resulting gain of approximately $2.1 million was recorded in Other Revenues in the condensed consolidated statement of income and comprehensive income. 5. SALES AND LEASE BACK OF EQUIPMENT In March 2000, the Company completed a $200 million 5-year sale and lease back of certain compression equipment (the "Equipment Lease"). Under the agreement, the Company received $100 million proceeds from the sale of compression equipment at closing and may sell an additional $100 million of compression equipment during the next twelve months. In August 2000, the Company completed the second half of the Equipment Lease and received an additional $100 million for the sale of additional compression equipment. In June 1999 and in July 1998 the Company completed two other separate $200 million sale and lease back transactions of certain compression equipment. The Company has substantial residual value guarantees under all the lease agreements totalling approximatley $495 million. Total deferred gains on these transactions totaled approximately $139 million. The lease agreements call for variable quarterly payments that fluctuate with the London Interbank Borrowing Rate. The following future minimum lease payments are due under the leasing arrangements exclusive of any guarantee payments (in thousands): 2000 -- $12,000; 2001 -- $49,300; 2002 -- $50,600; 2003 -- $42,200; 2004 -- $25,300; 2005 -- $4,200. In July 1998 and in connection with the 1998 leasing transaction, the Company entered into two-year swap transactions to manage lease rental exposure with notional amounts of $75,000,000 and $125,000,000 and strike rates of 5.51% and 5.56%, respectively. The differential paid or received on the swap transactions is recognized as an adjustment to leasing expense. The counterparty to this contractual arrangement is a major financial institution with which the Company also has other financial relationships. The Company is exposed to credit loss in the event of nonperformance by this counterparty. However, the 7 Company does not anticipate nonperformance by this party and no material loss would be expected from their nonperformance. The fair market value of these interest rate swaps is based on market quotes and is approximately $2.1 million at September 30, 2000. 6. COMMITMENTS AND CONTINGENCIES In the ordinary course of business the Company is involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 7. REPORTABLE SEGMENTS The Company manages its business segments primarily on the type of product or service provided. The Company has four principal reportable segments: Rentals - - Domestic, Rentals - International, Compressor Fabrication and Production and Processing Equipment Fabrication. The Rental segments provide natural gas compression rental and maintenance services to meet specific customer requirements. The Compressor Fabrication segment involves the design, fabrication and sale of natural gas compression units to meet unique customer specifications. The Production and Processing Equipment Fabrication segment designs, fabricates and sells equipment utilized in the production of crude oil and natural gas. The Company evaluates the performance of its segments based on segment gross profit. Segment gross profit for each segment includes direct operating expenses. Costs excluded from segment gross profit include selling, general and administrative, depreciation and amortization, leasing, interest and income taxes. Amounts defined as "Other" include sales of property, plant and equipment, results of other insignificant operations, corporate related items primarily related to cash management activities and parts and service operations which are not separately managed. Revenues include sales to external customers and intersegment sales. Intersegment sales are accounted for at cost, except for compression fabrication equipment revenue which is accounted for at arms length rates, and are eliminated in consolidation. Identifiable assets are tangible and intangible assets that are identified with the operations of a particular reportable segment, or which are allocated when used jointly. 8 The following table presents sales and other financial information by reportable segment for the three months ended September 30, 2000 and 1999 (in thousands).
PRODUCTION DOMESTIC INTERNATIONAL COMPRESSOR EQUIPMENT RENTALS RENTALS FABRICATION FABRICATION OTHER ELIMINATIONS CONSOLIDATED (Restated) September 30, 2000: Revenues from external customers $ 45,533 $ 20,776 $ 26,428 $25,634 $ 30,589 - $ 148,960 Intersegment sales - 300 21,187 3,336 $(24,823) - -------- -------- -------- ------- ---------- -------- ---------- Total revenues 45,533 21,076 47,615 25,634 33,925 (24,823) 148,960 Gross Profit 29,550 13,496 3,973 5,088 12,638 - 64,745 Identifiable assets 684,936 174,027 278,290 92,336 37,079 - 1,266,668 September 30, 1999: Revenues from external customers $ 35,777 $ 14,265 $ 16,493 $ 7,733 $ 13,001 - $ 87,269 Intersegment sales - 300 14,194 856 1,412 $(16,762) - -------- -------- -------- ------- -------- ---------- ---------- Total revenues 35,777 14,565 30,687 8,589 14,413 (16,762) 87,269 Gross Profit 23,665 10,149 2,708 2,006 4,845 - 43,373
The following table presents sales and other financial information by reportable segment for the nine months ended September 30, 2000 and 1999 (in thousands).
PRODUCTION DOMESTIC INTERNATIONAL COMPRESSOR EQUIPMENT RENTALS RENTALS FABRICATION FABRICATION OTHER ELIMINATIONS CONSOLIDATED (Restated) September 30, 2000: Revenues from external customers $122,761 $57,449 $ 55,599 $46,745 $74,047 - $356,601 Intersegment sales - 900 73,490 1,747 24,632 $(100,769) - -------- ------- -------- ------- ------- --------- -------- Total revenues 122,761 58,349 129,089 48,492 98,679 (100,769) 356,601 Gross Profit 80,592 37,514 9,270 9,781 31,845 - 169,002 September 30, 1999: Revenues from external customers $ 98,514 $39,235 $ 35,441 $21,177 $33,471 - $227,838 Intersegment sales - 900 45,256 2,990 17,955 $ (67,101) - -------- ------- -------- ------- ------- --------- -------- Total revenues 98,514 40,135 80,697 24,167 51,426 (67,101) 227,838 Gross Profit 66,119 26,176 6,339 5,513 14,854 - 119,001
9 8. SUBSEQUENT EVENTS In October 2000, the Company completed a $176.5 million sale and lease back of certain compression equipment. Under the agreement, the Company received $176.5 million proceeds from the sale of compression equipment. Under the agreement, the equipment was sold and leased back by the Company for a 5 year period and will continue to be deployed by the Company under its normal operating procedures. At any time, the Company has the option to repurchase the equipment at fair market value. In July 2000, the Company and OEC Compression Corporation ("OEC") signed a definitive merger agreement pursuant to which the Company will acquire OEC in an all-stock transaction. The transaction is subject to approval by OEC shareholders and is expected to close in the first quarter of 2001. 9. RESTATEMENT The transactions involved in the restatement, which are detailed further below are: (i) the Cawthorne Channel project in Nigeria initially conducted through the Hampton Roads joint venture; and (ii) the Company's acquisition of two compressors in a non-monetary exchange transaction. The impact of the restatement is summarized in the table below: For the Three Months Ended September 30, 2000
Cawthorne Channel Acquisition Project in of Nigeria / Compressors Hampton In Roads Joint Non-Monetary As Filed Venture Exchange Restated -------- ----------- ------------ -------- Revenues: Rentals $ 66,309 $ 66,309 Parts, service and used equipment 28,743 28,743 Compressor fabrication 30,975 $ (4,547) 26,428 Production and processing equipment fabrication 32,759 (7,125) 25,634 Gain (loss) on sale of other assets 1,572 $ (1,949) (377) Other 2,223 2,223 -------- -------- -------- -------- Total revenues 162,581 (11,672) $ (1,949) 148,960 -------- -------- -------- -------- Expenses: Rentals 23,263 23,263 Parts, service and used equipment 17,951 17,951 Compressor fabrication 26,208 (3,753) 22,455 Production and processing equipment fabrication 25,520 (4,974) 20,546 Selling, general and administrative 14,467 14,467 Depreciation and amortization 14,179 14,179 Lease expense 11,460 11,460 Interest expense 2,925 (94) 2,831 Distributions on mandatorily redeemable convertible preferred Securities 1,593 1,593 Other -------- -------- -------- -------- Total expenses 137,566 (8,821) 128,745 -------- -------- -------- -------- Income before income taxes 25,015 (2,851) (1,949) 20,215 Provision for income taxes 9,605 (1,061) (724) 7,820 -------- -------- -------- -------- Net income $ 15,410 $ (1,790) $(1,225) $ 12,395 ======== ======== ======== ======== Earnings per common share: Basic $0.24 $0.19 Diluted $0.23 $0.18
10 For the Nine Months Ended September 30, 2000
Cawthorne Channel Acquisition Project in of Nigeria / Compressors Hampton In Roads Joint Non-Monetary As Filed Venture Exchange Restated -------- ----------- ------------ -------- Revenues: Rentals $180,210 $180,210 Parts, service and used equipment 64,293 64,293 Compressor fabrication 60,146 $ (4,547) 55,599 Production and processing equipment fabrication 53,870 (7,125) 46,745 Gain on sale of other assets 4,172 $(1,949) 2,223 Other 7,531 7,531 -------- -------- -------- -------- Total revenues 370,222 (11,672) (1,949) 356,601 -------- -------- -------- -------- Expenses: Rentals 62,104 62,104 Parts, service and used equipment 42,202 42,202 Compressor fabrication 50,082 (3,753) 46,329 Production and processing equipment fabrication 41,938 (4,974) 36,964 Selling, general and administrative 34,481 34,481 Depreciation and amortization 36,830 36,830 Lease expense 29,596 29,596 Interest expense 5,560 (94) 5,466 Distributions on mandatorily redeemable convertible preferred Securities 4,776 4,776 Other -------- -------- -------- -------- Total expenses 307,569 (8,821) 298,748 -------- -------- -------- -------- Income before income taxes 62,653 (2,851) (1,949) 57,853 Provision for income taxes 23,305 (1,061) (724) 21,520 -------- -------- -------- -------- Net income $ 39,348 $ (1,790) $(1,225) $ 36,333 ======== ======== ======== ======== Earnings per common share: Basic $ 0.65 $ 0.60 Diluted $ 0.61 $ 0.56
Cawthorne Channel Project in Nigeria / Hampton Roads Joint Venture Cawthorne Channel is a project to build, own and operate barge-mounted gas compression and gas processing facilities to be stationed off the coast of Nigeria in performance of a contract between Global Energy and Refining Ltd ("Global") and Shell Petroleum Development Company of Nigeria Limited, the Nigerian operating unit of The Royal/Dutch Shell Group ("Shell"). The Company entered into a contract with Global in June 1999 to fabricate and lease the facilities to Global to fulfill the Shell contract. Subsequently, the Company acquired a 10% interest in Global. In September 2000, a joint venture known as Hampton Roads Shipping Investors II, L.L.C. ("Hampton Roads") was formed to own the gas processing facilities and lease them to Global. The Company purchased a 25% interest in Hampton Roads for $1,250,000 and entered into a turn-key construction contract with Hampton Roads to construct the facilities. The equipment, which had a sale price of $51 million, was to be used pursuant to a 10-year contract on behalf of Shell to commence September 30, 2001. In the first quarter of 2001, the scope of the project was reduced to $43 million and the contract term was extended to 15 years with a projected start date of September 2003. As the project has not yet started, the Company has recorded no income attributable to its equity ownership in the venture. The Company is constructing the equipment to be used in the gas compression and processing project with Shell under the turn-key construction contract with Hampton Roads and had accounted for this activity under the percentage of completion method of accounting. Based upon the evaluation of new information related to these transactions, the Company determined that it should not have recognized revenue for this activity during these periods. The restatement treats the project as if the Company had owned 100% of the project since inception and reverses the revenue and related costs recognized under the percentage of completion method. In February 2002, the Company purchased the 75% interest in Hampton Roads that it did not own. The Company now owns 100% of the venture and will recognize the rental revenues pursuant to its contract with Global once startup begins. Acquisition of Compressors In Non-Monetary Exchange In the third quarter of 2000, the Company entered into an acquisition of two compressors in a non-monetary exchange transaction with an independent oil and gas producer. In the transaction, the Company acquired the two compressors in exchange 11 for certain gas reservoir rights that the Company had obtained in settlement of a payment default by one of its customers. The Company accounted for the transaction as an exchange of non-monetary assets and recorded $2.2 million in revenue and pre-tax income in 2000. Based upon the evaluation of new information related to this transaction, the Company determined that it should not have recognized a gain on this transaction. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special note regarding forward-looking statements Certain matters discussed in this document are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward- looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those anticipated as of the date of this report. The risks and uncertainties include (1) the loss of market share through competition, (2) the introduction of competing technologies by other companies, (3) a prolonged substantial reduction in oil and gas prices which would cause a decline in the demand for the Company's compression and oil and gas production equipment, (4) new governmental safety, health and environmental regulations which could require significant capital expenditures by the Company, (5) inability to successfully integrate businesses acquired; and (6) changes in economic or political conditions in the countries in which the Company operates. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward- looking statements to reflect subsequent events or circumstances. GENERAL The Company is a market leader in full-service natural gas compression and a leading provider of contract natural gas handling service, fabrication and equipment. The Company provides this equipment on a rental, contract compression, maintenance and acquisition leaseback basis. Founded in 1990 and publicly held since 1997, the Company's customers include premier independent and major natural gas production, processing and transportation companies throughout the Western Hemisphere. As of September 30, 2000, the Company operated a fleet of 4,805 compression rental units with an aggregate capacity of approximately 2,098,000 horsepower. In September 2000, the Company acquired the Dresser-Rand Company's compression services division for $177 million. In July 2000, the Company acquired Stewart & Stevenson Services' natural gas compressor assets for approximately $58 million in cash and notes. In June 2000, the Company acquired Applied Process Solutions, Inc. ("APSI") for approximately 2,300,000 newly issued shares of the Company's common stock. These acquisitions were included in the results of operations from their respective acquisition dates. In addition, the Company completed a 2 for 1 stock split effected in the form of a 100% stock dividend in June 2000. Accordingly, common stock, additional paid-in capital and all earnings per share information have been restated for all periods presented. RESULTS OF OPERATIONS The following discussion has been updated to reflect the restated results of operations, see Note 9 in "Notes to Consolidated Financial Statements" for details regarding the restatement. THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999 REVENUES The Company's total revenues increased by $61.7 million, or 71%, to $149.0 million during the three months ended September 30, 2000 from $87.3 million during the three months ended September 30, 1999. The increase resulted primarily from growth of the Company's natural gas compressor rental fleet as well as due to recent acquisitions. Revenues from rentals increased by $16.3 million, or 33%, to $66.3 million during the three months ended September 30, 2000 from $50.0 million during the three months ended September 30, 1999. Domestic revenues from rentals increased by $9.7 million, or 27%, to $45.5 million during the three months ended September 30, 2000 from $35.8 million during the three months ended September 30, 1999. International rental revenues increased by $6.6 million, or 46%, to $20.8 million during the three months ended September 30, 2000 from $14.2 million during the three months ended September 30, 1999. The increase in both domestic and international rental revenue resulted from expansion of the Company's rental fleet. At September 30, 2000, the compressor rental fleet consisted of approximately 2,098,000 horsepower, a 56% increase over the 1,345,000 horsepower in the rental fleet at September 30, 1999. Domestic horsepower in the rental fleet increased by 55% to 1,714,000 horsepower at 12 September 30, 2000 from approximately 1,104,000 horsepower at September 30, 1999. In addition, international horsepower increased by 59% to 384,000 horsepower at September 30, 2000 from approximately 241,000 horsepower at September 30, 1999. Revenue from parts, service and used equipment increased by $16.3 million, or 132% to $28.7 million during the three months ended September 30, 2000 from $12.4 million during the three months ended September 30, 1999. This increase is due primarily to increased marketing focus and partially from expansion of business activities through recent acquisitions. Revenues from compressor fabrication increased by $9.9 million, or 60%, to $26.4 million during the three months ended September 30, 2000 from $16.5 million during the three months ended September 30, 1999. During the three months ended September 30, 2000, an aggregate of approximately 81,000 horsepower of compression equipment was fabricated compared to approximately 89,000 horsepower fabricated during the three months ended September 30, 1999. During the three months ended September 30, 2000, market conditions provided a premium price per horsepower of compression equipment compared to the three months ended September 30, 1999. Revenues from production and processing equipment fabrication increased by $17.9 million, or 231%, to $25.6 million during the three months ended September 30, 2000 from $7.7 million during the three months ended September 30, 1999. The increase is due primarily to the acquisition of APSI during June, 2000. Other revenues during the three months ended September 30, 2000 amounted to $2.2 million compared to $.1 million during the three months ended September 30, 1999, an increase of $2.1 million. EXPENSES Operating expenses of the rental segments increased by $7.1 million, or 43%, to $23.3 million during the three months ended September 30, 2000 from $16.2 million during the three months ended September 30, 1999. The increase resulted primarily from the corresponding 33% increase in revenues from rentals over the corresponding period in 1999. The gross profit percentage from rentals was 65% during the three months ended September 30, 2000 and 68% during the three months ended September 30, 1999. Operating expenses of parts, service and used equipment increased by $9.8 million, or 120% to $18.0 million, which relates to the 132% increase in parts, service and used equipment revenue. The gross profit margin from parts, service and used equipment was 38% during the three months ended September 30, 2000 compared to 34% during the three months ended September 30, 1999. Operating expenses of compressor fabrication increased by $8.7 million, or 63%, to $22.5 million during the three months ended September 30, 2000 from $13.8 million during the three months ended September 30, 1999 commensurate with the corresponding increase in compressor fabrication revenue. The gross profit margin on compression fabrication was 15% during the three months ended September 30, 2000 and 16% during the three months ended September 30, 1999. The operating expenses attributable to production and processing equipment fabrication increased by $14.8 million, or 259%, to $20.5 million during the three months ended September 30, 2000 from $5.7 million during the three months ended September 30, 1999. The gross profit margin attributable to production and processing equipment fabrication was 20% during the three months ended September 30, 2000 and was 26% during the three months ended September 30, 1999. The decrease in gross profit margin for production and processing equipment fabrication was attributable to the acquisition of APSI, in June 2000, which has lower gross margins than the Company has historically experienced. Selling, general and administrative expenses increased $5.6 million, or 63%, to $14.5 million during the three months ended September 30, 2000 from $8.9 million during the three months ended September 30, 1999. The increase is attributable to increased personnel and other administrative and selling expenses associated with increased activity in the Company's rentals, parts and service and compressor equipment fabrication business segments as described above, as well as recent acquisitions. The Company believes that earnings before interest, leasing expense, distributions on mandatorily redeemable convertible preferred securities, income taxes, depreciation and amortization (EBITDA) is a standard measure of financial performance used for valuing companies in the compression industry. EBITDA is a useful common yardstick as it measures the capacity of companies to generate cash without reference to how they are capitalized, how they account for significant non-cash charges for depreciation and amortization associated with assets used in the business (the bulk of which are long-lived assets in the compression industry), or what their tax attributes may be. Additionally, since EBITDA is a basic source of funds not only for growth but to service indebtedness, lenders in both the private and public debt markets use EBITDA as a primary determinant of borrowing capacity. EBITDA for the three months ended September 30, 2000 increased 46% to $50.3 million from $34.5 million for the three months ended September 30, 1999 primarily due to the increase in the Company's rental revenue for reasons previously discussed. EBITDA should not be considered in isolation from, or a substitute for, net income, cash flows from operating activities or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles. Depreciation and amortization increased by $5.1 million to $14.2 million during the three months ended September 30, 2000 compared to $9.1 million during the three months ended September 30, 1999. The increase in depreciation was due to the additions to the rental fleet which were partially offset by the sale of compressor equipment in the Equipment Leases (As defined 13 in "LIQUIDITY AND CAPITAL RESOURCES"). The increase in amortization was due to the goodwill recorded from business acquisitions completed during 2000. The Company incurred leasing expense of $11.5 million during the three months ended September 30, 2000 compared to $7.1 million during the three months ended September 30, 1999 resulting from the Equipment Leases entered into in July 1998, June 1999 and March 2000. Interest expense increased by $1.0 million to $2.8 million during the three months ended September 30, 2000 from $1.8 million for the three months ended September 30, 1999. The increase in interest expense was due to borrowings from the Bank Credit Agreement to fund the business acquisitions as discussed above. INCOME TAXES The provision for income taxes increased by $1.7 million, or 28%, to $7.8 million during the three months ended September 30, 2000 from $6.1 million during the three months ended September 30, 1999. The increase resulted primarily from the corresponding increase in income before income taxes. The average effective income tax rates during the three months ended September 30, 2000 and 1999 were 38.7% and 37.0%, respectively. The increase in the effective income tax rate is primarily due to the impact of the Dresser-Rand acquisition on the Company's worldwide tax position. NET INCOME Net income increased $2.0 million, or 19%, to $12.4 million during the three months ended September 30, 2000 from $10.4 million during the three months ended September 30, 1999 for the reasons discussed above. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 REVENUES The Company's total revenues increased by $128.8 million, or 57%, to $356.6 million during the nine months ended September 30, 2000 from $227.8 million during the nine months ended September 30, 1999. The increase resulted primarily from growth of the Company's natural gas compressor rental fleet as well as due to recent acquisitions. Revenues from rentals increased by $42.5 million, or 31%, to $180.2 million during the nine months ended September 30, 2000 from $137.7 million during the nine months ended September 30, 1999. Domestic revenues from rentals increased by $24.3 million, or 25%, to $122.8 million during the nine months ended September 30, 2000 from $98.5 million during the nine months ended September 30, 1999. International rental revenues increased by $18.2 million, or 46%, to $57.4 million during the nine months ended September 30, 2000 from $39.2 million during the nine months ended September 30, 1999. The increase in both domestic and international rental revenue resulted from expansion of the Company's rental fleet. Revenue from parts, service and used equipment increased by $36.9 million, or 135% to $64.3 million during the nine months ended September 30, 2000 from $27.4 million during the nine months ended September 30, 1999. The increase is due in part to increased marketing focus and through expansion of business through recent acquisitions. Revenues from compressor fabrication increased by $20.2 million, or 57%, to $55.6 million during the nine months ended September 30, 2000 from $35.4 million during the nine months ended September 30, 1999. During the nine months ended September 30, 2000, an aggregate of approximately 246,000 horsepower of compression equipment was fabricated compared to approximately 220,000 horsepower fabricated during the nine months ended September 30, 1999. The increase in horsepower produced during the nine months ended September 30, 2000 resulted from an increased demand for compression equipment due to higher natural gas prices. In addition, during the nine months ended September 30, 1999 a customer supplied its engines for a project which are typically provided by the Company, which lowered revenues from third party sales without reducing the amount of horsepower fabricated during that quarter. Revenues from production and processing equipment fabrication increased by $25.6 million, or 121% to $46.7 million during the nine months ended September 30, 2000 from $21.2 million during the nine months ended September 30, 1999. The increase is due primarily to the acquisition of APSI during June, 2000. The Company recognized gains on sales of other assets of $2.2 million during the nine months ended September 30, 2000 compared to $3.9 million during the nine months ended September 30, 1999. 14 Other revenues during the nine months ended September 30, 2000 amounted to $7.5 million compared to $2.1 million during the nine months ended September 30, 1999, an increase of $5.4 million. The increase is due primarily to the sale of 50% of the Company's ownership interest in a consolidated subsidiary for cash and notes receivable resulting in a gain on disposition of approximately $2.1 million. EXPENSES Operating expenses of the rental segments increased by $16.6 million, or 37%, to $62.1 million during the nine months ended September 30, 2000 from $45.5 million during the nine months ended September 30, 1999. The increase resulted primarily from the corresponding 31% increase in revenues from rentals over the corresponding period in 1999. The gross profit percentage from rentals was 66% during the nine months ended September 30, 2000 and 67% during the nine months ended September 30, 1999. Operating expenses of parts, service and used equipment increased by $23.6 million, or 127% to $42.2 million from $18.6 million during the nine months ended September 30, 1999. The increase resulted from the corresponding 135% increase in parts, service and used equipment revenue. The gross profit margin from parts, service and used equipment was 34% during the nine months ended September 30, 2000 and 32% during the nine months ended September 30, 1999. Operating expenses of compressor fabrication increased by $17.2 million, or 59%, to $46.3 million during the nine months ended September 30, 2000 from $29.1 million during the nine months ended September 30, 1999 commensurate with the corresponding increase in compressor fabrication revenue. The gross profit margin on compression fabrication was 17% during the nine months ended September 30, 2000 and 18% during the nine months ended September 30, 1999. The operating expenses attributable to production equipment fabrication increased by $21.3 million, or 136%, to $37.0 million during the nine months ended September 30, 2000 from $15.7 million during the nine months ended September 30, 1999. The gross profit margin attributable to production and processing equipment fabrication was 21% during the nine months ended September 30, 2000 and was 26% during the nine months ended September 30, 1999. The decrease in gross profit margin for production and processing equipment fabrication was attributable to the acquisition of APSI, in June 2000, which has lower gross margins than the Company has historically experienced. Selling, general and administrative expenses increased $10.3 million, or 42%, to $34.5 million during the nine months ended September 30, 2000 from $24.2 million during the nine months ended September 30, 1999. The increase is attributable to increased personnel and other administrative and selling expenses associated with increased activity in the Company's rentals, parts, service and used equipment, and compressor equipment fabrication business segments as described above as well as recent acquisitions. The Company believes that earnings before interest, leasing expense, distributions on mandatorily redeemable convertible preferred securities, income taxes, depreciation and amortization (EBITDA) is a standard measure of financial performance used for valuing companies in the compression industry. EBITDA is a useful common yardstick as it measures the capacity of companies to generate cash without reference to how they are capitalized, how they account for significant non-cash charges for depreciation and amortization associated with assets used in the business (the bulk of which are long-lived assets in the compression industry), or what their tax attributes may be. Additionally, since EBITDA is a basic source of funds not only for growth but to service indebtedness, lenders in both the private and public debt markets use EBITDA as a primary determinant of borrowing capacity. EBITDA for the nine months ended September 30, 2000 increased 42% to $134.5 million from $94.8 million for the nine months ended September 30, 1999 primarily due to the increase in the Company's rental revenue for reasons previously discussed. EBITDA should not be considered in isolation from, or a substitute for, net income, cash flows from operating activities or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles. Depreciation and amortization increased by $8.3 million to $36.8 million during the nine months ended September 30, 2000 compared to $28.5 million during the nine months ended September 30, 1999. The increase in depreciation was due to the additions to the rental fleet which were partially offset by the sale of compressor equipment in the Equipment Leases (As defined in "LIQUIDITY AND CAPITAL RESOURCES"). The increase in amortization was due to the goodwill recorded from business acquisitions completed during 2000. The Company incurred leasing expense of $29.6 million during the nine months ended September 30, 2000 compared to $14.7 million during the nine months ended September 30, 1999 resulting from the Equipment Leases entered into in July 1998, June 1999 and March 2000. Interest expense decreased by $2.3 million to $5.5 million during the nine months ended September 30, 2000 from $7.8 million for the nine months ended September 30, 1999. The decrease in interest expense was due in part to utilization of proceeds from the Equipment Lease proceeds and from the private stock offering which were used to reduce indebtedness under the Bank Credit Agreement. 15 INCOME TAXES The provision for income taxes increased by $5.4 million, or 33%, to $21.5 million during the nine months ended September 30, 2000 from $16.2 million during the nine months ended September 30, 1999. The increase resulted primarily from the corresponding increase in income before income taxes. The average effective income tax rates during the nine months ended September 30, 2000 and 1999 were 37.2% and 37.0%, respectively. NET INCOME Net income increased $8.8 million, or 32%, to $36.3 million during the nine months ended September 30, 2000 from $27.5 million during the nine months ended September 30, 1999 for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's cash balance amounted to $13.0 million at September 30, 2000 compared to $5.8 million at December 31, 1999. Primary sources of cash during the nine months ended September 30, 2000 were proceeds of $200 million from the Equipment Leases, and approximately $102.9 million of borrowings under the Company's credit facility and proceeds of $59.4 million from a private placement of 2 million newly-issued shares of restricted common stock to an institutional investor. Principal uses of cash during the nine months ended September 30, 2000 were capital expenditures and business acquisitions of $382.6 million. Working capital increased to $211.7 million at September 30, 2000 from $108.0 million at December 31, 1999, primarily as a result of increases in accounts receivable, inventories and costs in excess of billings. The increase in the balances is due to an increased level of activity in the Company's lines of business over 1999 as well as from recent acquisitions. These increases were partially offset by an increase in current liabilities. The amounts invested in property, plant and equipment during 2000 was $207.8 million which resulted in the addition of approximately 753,000 horsepower to the rental fleet. At September 30, 2000, the rental fleet consisted of 1,714,000 horsepower domestically and 384,000 horsepower in the international rental fleet. Current plans are to spend approximately $100 million during the remainder of 2000, exclusive of any major acquisition, in continued expansion of the rental fleet. In addition, the Company has entered into a definitive agreement to acquire OEC Compression Corporation in an all stock transaction. This transaction is expected to close in the first quarter of 2001. Historically, the Company has funded capital expenditures with a combination of internally generated cash flow, borrowings under the revolving credit facility, lease transactions and raising additional equity. As of September 30, 2000 the Company has approximately $35 million of credit capacity remaining on its $200 million Bank Credit Agreement (7.88% rate at September 30, 2000). In October 2000, the Company received $176.5 million proceeds from the sale of compression equipment under an additional Equipment Lease. In order to fund the estimated levels of 2000 capital expenditures, the Company anticipates arranging additional sources of debt and/or equity during 2000. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. Subsequently, the FASB delayed the effective date by one year. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, amending certain provisions of SFAS No. 133. The statements are effective for the Company beginning in 2001 with early adoption permitted. SFAS No. 133, as amended by SFAS No. 138, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending upon whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. Management does not believe the effect of adoption will have a material effect on the Company's results of operations, cash flows or financial position. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB No. 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. The statement is effective for the Company's fourth quarter of 2000 with early adoption encouraged. Management is currently evaluating the effect SAB No. 101 implementation will have on the Company's financial statements. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate and foreign currency risk. The Company periodically enters into interest rate swaps to manage its exposure to fluctuations in interest rates. At September 30, 2000, the fair market value of these interest rate swaps is approximately $2.1 million. The Company does not use derivative financial instruments to mitigate foreign currency risk. PART II. OTHER INFORMATION Item 6: Exhibits and reports on Form 8-K (a) Exhibits 10.50 Amendment No. 2 dated as of October 24, 2000, to Agreement and Plan of Merger by and among Hanover Compressor Company, APSI Acquisition Corporation and Applied Process Solutions, Inc. (1) [10.50] 10.51 Agreement and Plan of Merger dated as of July 13, 2000 by and among Hanover Compressor Company, Caddo Acquisition Corporation and OEC Compression Corporation. (1) [10.51] 10.52 Voting and Disposition Agreement dated as of July 13, 2000 by and among Hanover Compressor Company and the holders of common stock of OEC Compression Corporation named therein. (1) [10.52] (1) Such exhibit previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the third quarter of 2000, under the exhibit number indicated in brackets [],and incorporated by reference. (b) Reports submitted on Form 8-K: (1) A report on Form 8-K was filed on September 14, 2000, which reported under the caption "Item 2--Acquisition or Disposition of Assets" that Hanover Compressor Company had completed its acquisition of the compression services division of Dresser-Rand Company. The report also reported under "Item 7-- Financial Statements and Exhibits" that it was impracticable to provide the audited historical financial statements of the business acquired and that the required information would be filed no later than 60 days after the date of the report. (2) A report on Form 8-K was filed on November 9, 2000, which reported under the caption "Item 5--Other Events" Hanover Compressor Company's financial results for the third quarter of 2000. This report included a consolidated statement of income for the company for the three- and nine-month periods ended September 30, 2000 and 1999. (3) A report on Form 8-K was filed on November 9, 2000, which reported under the caption "Item 5--Other Events" that Hanover Compressor Company believes that the Wall Street consensus estimates of the company's earnings of $.89 per share for 2000 and $.28 per share for the fourth quarter of 2000 are realizable. (4) A report on Form 8-K/A was filed on November 13, 2000, which reported under the caption "Item 7 - Financial Statements and Exhibits" the audited historical financial statements of the compression services division of Dresser- Rand Company acquired by the Company in August 2000 and the pro forma financial statements for the business acquired. All other items specified by Part II of this report are inapplicable and have been omitted. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HANOVER COMPRESSOR COMPANY Date: April 15, 2002 By: /s/ Michael J. McGhan - ---------------------------------------- Michael J. McGhan President and Chief Executive Officer Date: April 15, 2002 By: /s/ John E. Jackson - ---------------------------------------- John E. Jackson Chief Financial Officer 18 -----END PRIVACY-ENHANCED MESSAGE-----