-----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, K066ZfCW90vuUN+Dy31gMOKps75mTfrW/niaRKskNFuqLbrzMn4N8Fgu3otB/2Jm A7G67Pp9wEs3bBtPQKt4Jg== 0000950129-98-003523.txt : 19980817 0000950129-98-003523.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950129-98-003523 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE 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 SEC ACT: SEC FILE NUMBER: 001-13071 FILM NUMBER: 98690080 BUSINESS ADDRESS: STREET 1: 12001 NORTH 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 10-Q 1 HANOVER COMPRESSOR COMPANY - DATED 6/30/98 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13071 HANOVER COMPRESSOR COMPANY (Exact name of registrant as specified in its charter) Delaware 75-2344249 (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 August 6, 1998 there were 28,528,899 shares of the Company's common stock, $0.001 par value, outstanding. 2 HANOVER COMPRESSOR COMPANY CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS)
June 30, 1998 December 31, (unaudited) 1997 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 5,550 $ 4,561 Accounts receivable, net 52,072 41,041 Inventory 51,543 32,860 Costs and estimated earnings in excess of billings on uncompleted contracts 7,081 6,658 Prepaid taxes 6,965 6,919 Other current assets 5,322 2,750 --------- --------- Total current assets 128,533 94,789 --------- --------- Property, plant and equipment: Compression equipment 529,802 438,351 Land and buildings 12,391 10,544 Transportation and shop equipment 17,940 14,589 Other 8,357 6,824 --------- --------- 568,490 470,308 Accumulated depreciation (94,117) (76,238) --------- --------- Net property, plant and equipment 474,373 394,070 --------- --------- Intangible and other assets 23,925 17,593 --------- --------- $ 626,831 $ 506,452 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 1,732 $ 2,222 Accounts payable, trade 16,840 16,219 Accrued liabilities 21,788 9,088 Advance billings 7,573 6,752 Billings on uncompleted contracts in excess of costs and estimated earnings 2,952 2,481 --------- --------- Total current liabilities 50,885 36,762 Long-term debt 242,654 158,838 Other obligations 895 899 Deferred income taxes 30,986 21,682 --------- --------- Total liabilities 325,420 218,181 --------- --------- Commitments and contingencies Stockholders' equity: Common stock, $.001 par value; 100 million shares authorized; 28,524,317 (unaudited) and 28,367,169 shares issued, Respectively 29 28 Additional paid-in capital 268,429 268,588 Notes receivable - employee stockholders (10,673) (10,748) Retained earnings 43,844 30,621 Treasury stock - 31,347 common shares, at cost (218) (218) --------- --------- Total stockholders' equity 301,411 288,271 --------- --------- $ 626,831 $ 506,452 ========= =========
See accompanying notes to consolidated financial statements. 3 HANOVER COMPRESSOR COMPANY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months Six months ended June 30, Ended June 30, --------------------- --------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Rentals and maintenance $ 42,609 $ 26,256 $ 77,781 $ 50,576 Compressor fabrication 15,691 13,946 31,975 21,473 Production equipment fabrication 9,149 8,690 18,107 17,362 Other 1,484 305 2,519 709 -------- -------- -------- -------- 68,933 49,197 130,382 90,120 -------- -------- -------- -------- Expenses: Rentals and maintenance 17,800 10,206 31,084 19,661 Compressor fabrication 13,245 12,138 26,978 18,497 Production equipment fabrication 5,925 6,236 11,946 12,226 Selling, general and administrative 6,737 4,713 12,785 9,405 Depreciation and amortization 9,988 7,059 19,102 13,305 Interest expense 3,796 3,099 6,881 5,670 -------- -------- -------- -------- 57,491 43,451 108,776 78,764 -------- -------- -------- -------- Income before income taxes 11,442 5,746 21,606 11,356 Provision for income taxes 4,470 2,270 8,383 4,486 -------- -------- -------- -------- Net income $ 6,972 $ 3,476 $ 13,223 $ 6,870 ======== ======== ======== ======== Weighted average common Equivalent shares outstanding: Basic 28,519 22,912 28,490 22,911 -------- -------- -------- -------- Diluted 30,244 24,535 30,124 24,500 -------- -------- -------- -------- Earnings per common share Basic $ 0.24 $ 0.15 $ 0.46 $ 0.30 -------- -------- -------- -------- Diluted $ 0.23 $ 0.14 $ 0.44 $ 0.28 -------- -------- -------- --------
See accompanying notes to consolidated financial statements. 4 HANOVER COMPRESSOR COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF DOLLARS)
Six Months Ended June 30, ---------------------- 1998 1997 -------- -------- Cash flows from operating activities: Net income $ 13,223 $ 6,870 Adjustments: Depreciation and amortization 19,102 13,305 Amortization of debt issuance and debt discount 374 504 Gain on sale of assets (1,822) (158) Deferred income taxes 4,031 3,737 Changes in assets and liabilities: Accounts receivable (10,691) (2,337) Inventory (18,210) (16,139) Costs and estimated earnings versus billings on uncompleted contracts 48 3,812 Accounts payable and other liabilities 12,958 5,020 Advance billings 821 202 Other (4,120) (3,969) -------- -------- Net cash provided by operating activities 15,714 10,847 Cash flows from investing activities: Cash used for business acquisition (17,137) -- Capital expenditures (87,469) (52,991) Proceeds from sale of fixed assets 6,955 888 -------- -------- Net cash used in investing activities (97,651) (52,103) Cash flows from financing activities: Net borrowings on revolving credit facility 83,800 41,000 Repayments of shareholder notes 75 -- Equity issuance costs (162) -- Cash received from exercise of stock options and warrants 5 -- Issuance of common stock -- 75 Debt issuance costs (104) (12) Repayment of long-term debt (688) (1,167) Other -- 1,180 -------- -------- Net cash provided by financing activities 82,926 41,076 -------- -------- Net increase/(decrease) in cash and cash equivalents 989 (180) Cash and cash equivalents at beginning of period 4,561 7,322 -------- -------- Cash and cash equivalents at end of period $ 5,550 $ 7,142 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 6,354 $ 3,960 Income taxes paid $ 1,058 $ 3,418 Supplemental disclosure of noncash transactions: Increase in notes receivable for property, plant and equipment $ 1,500 Acquisitions of businesses: Property, plant and equipment acquired $ 17,156 Other noncash assets acquired $ 5,613 Liabilities assumed $ 359 Deferred taxes $ 5,273
See accompanying notes to consolidated financial statements. 5 HANOVER COMPRESSOR COMPANY Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited 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 in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Company believes, however, the disclosures are adequate to make the information presented not misleading. 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. It is suggested the financial statement information included herein 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, 1997. These interim results are not necessarily indicative of results for a full year. EARNINGS PER COMMON SHARE The Company adopted Statement of Financial Accounting Standard No. 128 (FAS 128), "Earnings Per Share," beginning with the Company's fourth quarter of 1997. All prior period earnings per share data have been restated to conform to the provisions of this statement. 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 1,219,000 and 1,020,000 and warrants of 414,000 and 569,000 for the six months ended June 30, 1998 and 1997, respectively. OTHER COMPREHENSIVE INCOME The Company adopted Statement of Financial Standard No. 130 (FAS 130), "Reporting Comprehensive Income," in the first quarter of 1998. For the six months ended June 30, 1998 and 1997, there were no significant differences between net income and comprehensive income. 2. INVENTORIES Inventory consisted of the following amounts (in thousands):
June 30, December 31, 1998 1997 -------- ------------ (unaudited) Parts and supplies $ 30,127 $ 20,141 Work in progress 15,864 8,766 Finished goods 5,552 3,953 -------- -------- $ 51,543 $ 32,860 ======== ========
6 3. 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 or operating results. 4. SUBSEQUENT EVENTS As of July 22, 1998, the Company completed a $200 million, 5 year lease transaction arranged by Chase Securities Inc. The transaction has been structured as a sale lease back of compression equipment with a newly formed Trust and will be accounted for as an operating lease. Under the agreement, the compression equipment was sold to the Trust and leased back by the Company for a 5 year period and will continue to be deployed by the Company under it's normal operating procedures. The transaction resulted in a gain on sale of approximately $41 million which will be deferred for the lease term duration. The lease also provides a residual guarantee of approximately $167 million. Additionally, the Company has the option to repurchase the equipment from the Trust at any time for approximately $200 million. 7 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 natural 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 and (5) 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 leading provider of a broad array of natural gas compression rental, operations and maintenance services in the United States and select international markets. The Company's operations consist of providing gas compression services through renting, maintaining and operating natural gas compressors and engineering, fabricating and selling gas compression and oil and gas production equipment. As of June 30, 1998, the Company had a fleet of 2,564 compression rental units with an aggregate capacity of approximately 898,000 horsepower. The Company's products and services are essential to the production, transportation, processing and storage of natural gas and are provided primarily to energy producers and processors. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 REVENUES The Company's total revenues increased by $19.7 million, or 40%, to $68.9 million during the three months ended June 30, 1998 from $49.2 million during the three months ended June 30, 1997. The increase resulted both from growth of the Company's natural gas compressor rental fleet as well as increased demand for both compressor equipment and production equipment fabrication. Revenues from rentals and maintenance increased by $16.3 million, or 62%, to $42.6 million during the three months ended June 30, 1998 from $26.3 million during the three months ended June 30, 1997. Domestic revenues from rentals and maintenance increased by $9.5 million, or 46%, to $30.4 million during the three months ended June 30, 1998 from $20.9 million during the three months ended June 30, 1997. International revenues from rentals and maintenance increased by $6.8 million, or 125%, to $12.2 million during the three 8 months ended June 30, 1998 from $5.4 million during the three months ended June 30, 1997. The increase in both domestic and international rental and maintenance revenues resulted primarily from expansion of the Company's rental fleet and increased part sales. Revenues from the fabrication and sale of compressor equipment to third parties increased by $1.7 million, or 13%, to $15.7 million during the three months ended June 30, 1998 from $13.9 million during the three months ended June 30, 1997. During the three months ended June 30, 1998, an aggregate of approximately 60,000 horsepower of compression equipment was fabricated, 47% of which was placed in the rental fleet and 53% of which was sold to third party customers. During the three months ended June 30, 1997, approximately 39,000 horsepower was fabricated, 30% of which was placed in the Company's rental fleet and 70% of which was sold to third party customers. The increase in horsepower produced resulted from increased demand in the overall natural gas compression market. Revenues from the fabrication and sale of production equipment increased by $0.5 million, or 5%, to $9.2 million during the three months ended June 30, 1998 from $8.7 million during the three months ended June 30, 1997. EXPENSES Rentals and maintenance operating expenses increased by $7.6 million, or 74%, to $17.8 million during the three months ended June 30, 1998 from $10.2 million during the three months ended June 30, 1997. The increase resulted primarily from the corresponding 62% increase in revenues from rentals and maintenance which included increased part sales during the three months ended June 30, 1998 over the corresponding period in 1997. Operating expenses of compressor fabrication increased by $1.1 million, or 9%, to $13.2 million during the three months ended June 30, 1998 from $12.1 million during the three months ended June 30, 1997. This expense increase was a result of the corresponding increase in compressor fabrication revenue. The operating expenses attributable to production equipment fabrication decreased by $0.3 million, or -5%, to $5.9 million during the three months ended June 30, 1998 from $6.2 million during the three months ended June 30, 1997. The decrease in these expenses resulted from improved efficiency in production equipment fabrication operations. Selling, general and administrative expenses increased $2.0 million, or 43%, to $6.7 million during the three months ended June 30, 1998 from $4.7 million during the three months ended June 30, 1997. The increase in these expenses resulted from the increased activity in the Company's rental and maintenance and compressor fabrication business segments as described above. Depreciation and amortization increased by $2.9 million, or 42%, to $10.0 million during the three months ended June 30, 1998 from $7.1 million during the three months ended June 30, 1997. The increase resulted from expansion of the rental fleet and other capital expenditures which increased the amount invested in property, plant and equipment from approximately $366 million at June 30, 1997 to approximately $568 million at June 30, 1998. 9 INTEREST EXPENSE Interest expense increased by $.7 million, or 23%, to $3.8 million during the three months ended June 30, 1998 from $3.1 million during the three months ended June 30, 1997. The interest expense increase resulted from new indebtedness incurred to finance the capital expenditures for property, plant and equipment. INCOME TAXES The provision for income taxes increased by $2.2 million, or 97%, to $4.5 million during the three months ended June 30, 1998 from $2.3 million during the three months ended June 30, 1997. The increase resulted primarily from the corresponding increase in income before taxes. The average effective income tax rate during the three months ended June 30, 1998 and 1997 was 39% and 40%, respectively. NET INCOME Net income increased $3.5 million, or 101%, to $7.0 million during the three months ended June 30, 1998 from $3.5 million during the three months ended June 30, 1997 for the reasons discussed above. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 REVENUES The Company's total revenues increased by $40.3 million, or 45%, to $130.4 million during the six months ended June 30, 1998 from $90.1 million during the six months ended June 30, 1997. The increase resulted both from growth of the Company's natural gas compressor rental fleet as well as increased demand for both compressor equipment and production equipment fabrication. Revenues from rentals and maintenance increased by $27.2 million, or 54%, to $77.8 million during the six months ended June 30, 1998 from $50.6 million during the six months ended June 30, 1997. Domestic revenues from rentals and maintenance increased by $16.4 million, or 40%, to $57.3 million during the six months ended June 30, 1998 from $40.9 million during the six months ended June 30, 1997. International revenues from rentals and maintenance increased by $10.8 million, or 111%, to $20.5 million during the six months ended June 30, 1998 from $9.7 million during the six months ended June 30, 1997. The increase in both domestic and international rental and maintenance revenues resulted primarily from expansion of the Company's rental fleet. Revenues from the fabrication and sale of compressor equipment to third parties increased by $10.5 million, or 49%, to $32.0 million during the six months ended June 30, 1998 from $21.5 million during the six months ended June 30, 1997. During the six months ended June 30, 1998, an aggregate of approximately 115,000 horsepower of compression equipment was fabricated, 45% of which was placed in the rental fleet and 55% of which was sold to third party customers. During the six months ended June 30, 1997, approximately 77,000 horsepower was fabricated, 40% of which was placed in the Company's rental fleet and 60% of which was sold to third party customers. The increase in horsepower produced resulted from increased demand in the overall natural gas compression market. Revenues from the fabrication and sale of production equipment increased by $0.7 million, or 4%, to $18.1 million during the six months ended June 30, 1998 from $17.4 million during the six months ended June 30, 1997. 10 EXPENSES Rentals and maintenance operating expenses increased by $11.4 million, or 58%, to $31.1 million during the six months ended June 30, 1998 from $19.7 million during the six months ended June 30, 1997. The increase results primarily from the corresponding 54% increase in revenues from rentals and maintenance during the six months ended June 30, 1998 over the corresponding period in 1997. Operating expenses of compressor fabrication increased by $8.5 million, or 46%, to $27.0 million during the six months ended June 30, 1998 from $18.5 million during the six months ended June 30, 1997. This expense increase was a result of the corresponding increase in compressor fabrication revenue. In addition, the operating expenses attributable to production equipment fabrication decreased by $0.3 million, or -2%, to $11.9 million during the six months ended June 30, 1998 from $12.2 million during the six months ended June 30, 1997. The decrease in these expenses resulted from the improved efficiency in production equipment fabrication operations. Selling, general and administrative expenses increased $3.4 million, or 36%, to $12.8 million during the six months ended June 30, 1998 from $9.4 million during the six months ended June 30, 1997. The increase in these expenses resulted from the increased activity in the Company's rental and maintenance and compressor fabrication business segments as described above. Depreciation and amortization increased by $5.8 million, or 44%, to $19.1 million during the six months ended June 30, 1998 from $13.3 million during the six months ended June 30, 1997. The increase resulted from expansion of the rental fleet and other capital expenditures. INTEREST EXPENSE Interest expense increased by $1.2 million, or 21%, to $6.9 million during the six months ended June 30, 1998 from $5.7 million during the six months ended June 30, 1997. The interest expense increase resulted from new indebtedness incurred to finance the capital expenditures for property, plant and equipment. INCOME TAXES The provision for income taxes increased by $3.9 million, or 87%, to $8.4 million during the six months ended June 30, 1998 from $4.5 million during the six months ended June 30, 1997. The increase resulted primarily from the corresponding increase in income before taxes. The effective income tax rates during the six months ended June 30, 1998 and 1997 were 39%. NET INCOME Net income increased $6.3 million, or 93%, to $13.2 million during the six months ended June 30, 1998 from $6.9 million during the six months ended June 30, 1997 for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company has historically utilized internally generated funds and equity and debt financing to finance the growth of its compressor fleet and maintain sufficient compression and production equipment inventory. Cash flows from operating activities, before changes in assets and liabilities, were $34.9 million for the six months ended June 30, 1998 as compared to $24.3 million for the six months ended June 30, 1997. Capital expenditures for property, plant and equipment were $87.5 million for the six months ended June 30, 1998 as compared to $53.0 million for the six-month period ended June 30, 1997. In addition, the Company utilized $17.1 million to acquire the stock of certain businesses and the related assets and liabilities. Inventory 11 increased $18.7 million during the six months ended June 30, 1998 due to increases in compressor and production equipment fabrication operations and compression rental operations. Bank borrowings were $83.8 million for the six months ended June 30, 1998 as compared to $41.0 million for the six months ended June 30, 1997. The Company has Subordinated Notes outstanding in the aggregate principal amount of $23.5 million, bearing interest at 7%, payable semi-annually, with principal due on December 31, 2000. As of July 22, 1998 the Company has completed a $200 million, 5 year lease transaction arranged by Chase Securities, Inc.(the "Lease Transaction"). The Lease Transaction was structured as a sale lease back of compression equipment with a newly formed Trust and will be accounted for as an operating lease. On June 10, 1998, Chase Manhattan Bank agreed to lend an additional $30 million (the "Additional Credit") to the Company payable upon completion of the Lease Transaction. The Additional Credit was provided in connection with the Company's existing $200 million credit facility (the "Credit Facility") with Chase Manhattan Bank, as agent. The proceeds from the transaction were used to repay the Additional Credit and borrowings under the Company's Credit Facility. As a result of the Lease Transaction, the Company has $180 million of availability under the Credit Facility. The Company believes its available Credit Facility plus available cash and internally generated funds will be sufficient to fund its anticipated level of 1998 capital expenditures. IMPACT OF THE YEAR 2000 The Company plans to install various modifications to existing computer software during 1998 to include, among other things, an accommodation of the problems associated with computer programs reflecting the year 2000. The costs associated with the software modifications are not expected to be material in relation to either future operating results or financial condition. The Company has not initiated formal communications with all of its significant suppliers and vendors to ensure that those parties have appropriate plans to address year 2000 issues where they may otherwise impact the operations of the Company; however, the Company does not have any significant suppliers or vendors that directly interface with the Company's information technology systems. There is no guarantee that the systems of other companies on which the Company relies will be converted timely and will not have an adverse effect on the Company. 12 PART II. OTHER INFORMATION Item 4. At its Annual Meeting of Stockholders held on May 20, 1998, the Company presented the following matters to the stockholders for action and the votes cast are indicated below:
Matter For Withheld ------ --- -------- 1. Re-election of Directors Michael A. O'Connor 22,272,062 50,590 Michael J. McGhan 22,272,062 50,590 William S. Goldberg 22,272,062 50,590 Ted Collins, Jr. 22,272,062 50,590 Melvyn N. Klein 22,272,062 50,590 Alvin V. Shoemaker 22,272,062 50,590 William E. Simon, Jr. 22,272,062 50,590 Robert A. Fergason 22,272,062 50,590 Carl M. Koupal, Jr. 20,848,287 1,474,365
2. Reappointment of Price Waterhouse LLP as Independent Auditors
For Against Abstain --- ------- ------- 22,274,743 4,220 43,689
13 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Letter Agreement, dated as of June 10, 1998, among the Company and Chase Manhattan Bank 10.2 Promissory Note, dated as of June 10, 1998, among the Company and Chase Manhattan Bank. 27 Financial Data Schedule (b) Reports Submitted on Form 8-K August 6, 1998 Item 2. Acquisition or Disposition of assets related to lease transaction arranged by Chase Securities, Inc. All other items specified by Part II of this report are inapplicable and have been omitted. 14 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: August 12, 1998 By: /s/ Michael J. McGhan - ----------------------- Michael J. McGhan President and Chief Executive Officer Date: August 12, 1998 By: /s/ Curtis A. Bedrich - ----------------------- Curtis A. Bedrich Chief Financial Officer 15 Exhibit Index
Exhibit Number Description - ------- ----------- 10.1 Letter Agreement, dated as of June 10, 1998, among the Company and Chase Manhattan Bank 10.2 Promissory Note, dated as of June 10, 1998, among the Company and Chase Manhattan Bank. 27 Financial Data Schedule
EX-10.1 2 LETTER AGREEMENT, DATED 06/10/98 1 EXHIBIT 10.1 CHASE June 10, 1998 Hanover Compressor Company 12001 North Houston-Rosslyn Houston, Texas 77086 Dear Sirs: The Chase Manhattan Bank ("Chase") is pleased to inform you of its agreement, subject to the terms and conditions hereof, to make loans to Hanover Compressor Company ("HCC") from time to time through September 10, 1998, in an aggregate principal amount not to exceed $30,000,000 at any one time outstanding (the "Loans"). The Loans to be made under this letter agreement (the "Letter Agreement") are in addition to loans Chase is committed to make under the Credit Agreement, dated as of December 15, 1997, as amended by the Waiver and First Amendment thereto, dated as of June 10, 1998 (the "Credit Agreement") among HCC, the several Lenders party thereto and The Chase Manhattan Bank, as Administrative Agent. Except as otherwise defined herein, all capitalized terms used in the Credit Agreement are used herein with their defined meanings. The Loans to be made under this Letter Agreement will be governed by the same terms and provisions of the Credit Agreement as if Chase were the sole Lender thereunder, the functions of the Administrative Agent were performed by Chase and the 2 Hanover Compressor Company -2- June 10, 1998 Loans were made under the Credit Agreement. The Applicable Margin for the Loans and Applicable Commitment Fee Rate for the Bank's agreement to make the Loans hereunder will be the rates as provided in the Credit Agreement. The Loans under this Letter Agreement will be evidenced by the promissory note attached hereto as Exhibit A (the "Note"). All Loans shall be paid in fall no later than September 10, 1998 (the "Final Maturity Date'). In addition, HCC shall prepay the Loans in full (together with all interest and any other amounts described in subsection 3.13 of the Credit Agreement with respect to such Loans) on the date that the initial extension of credit is made under the proposed approximate $194,000,000 equipment lease transaction being arranged by Chase Securities Inc. So long as the Loans are available to HCC pursuant to the terms hereof, HCC may borrow, prepay and reborrow the Loans in whole or in part. In furtherance of the foregoing, the provisions of the Credit Agreement (other than subsections 2.1, 3.6, 3.14, Section 4, subsection 6.1, Section 10 and subsections 11.5(a) and 11.7(a)) are hereby incorporated by reference, mutatis mutandis. Notwithstanding anything to the contrary contained herein, no amendment, modification or waiver of any provision of the Credit Agreement after the date hereof shall be effective under this Letter Agreement unless consented to by Chase thereunder. In order to induce Chase to enter into this Letter Agreement and make the Loans provided for herein, HCC hereby confirms that the representations and warranties as incorporated herein from the Credit Agreement are true and correct in all material respects on the date hereof (except for (i) the representations and 3 Hanover Compressor Company -3- June 10, 1998 warranties or parts thereof that, by their terms, expressly relate solely to a specific date, in which case such representations or warranties or parts thereof shall be true and correct in all material respects as of such specific date and (ii) to the extent updated in connection with the Waiver and First Amendment dated as of June 10, 1998). This Letter Agreement and Chase's obligations to make Loans hereunder shall become effective upon Chase's receipt of (i) a copy of this Letter Agreement and the Note executed by a Responsible Officer of HCC and each Subsidiary Guarantor listed below and (ii) a copy of resolutions authorizing HCC's execution, delivery and performance of this Letter Agreement and the Note. This Letter Agreement may be executed in counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Letter Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK HCC agrees to pay or reimburse Chase for all of Chase's reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Letter Agreement, including, without limitation, the reasonable fees and disbursements of counsel to Chase. 4 Hanover Compressor Company -4- June 10, 1998 If you are in agreement with the foregoing, please execute a copy of this letter in the space provided below, whereupon this Letter Agreement shall become an agreement among us as of the day and year first above written. Very truly yours, THE CHASE MANHATTAN BANK By: \S\ Peter M. Ling -------------------------- Title: Peter M. Ling Vice President Agreed to and Accepted: HANOVER COMPRESSOR COMPANY By: \S\ Curtis Bedrich ----------------------- Title: Treasurer Each of the undersigned hereby acknowledges receipt of the foregoing Letter Agreement and hereby, jointly and severally, unconditionally and irrevocably guarantees to Chase the prompt, complete payment and performance by HCC when due (whether at stated maturity, by acceleration or otherwise) of the unpaid principal of and interest on the Loans and all other obligations and liabilities of HCC to Chase (including, without limitation, interest accruing at the then applicable rate provided in the Letter Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Letter Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Hcc, 5 Hanover Compressor Company -5- June 10, 1998 whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Letter Agreement, the Note, or any other document made, delivered or given in connection therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities. costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to Chase that are required to be paid by HCC). The terms and provisions of the foregoing guarantee shall be subject to the same terms and conditions of the Subsidiaries' Guarantee dated as of December 15, 1997 made by each of the undersigned as if such provisions were herein incorporated mutatis mutandis, provided that the term Obligations shall refer specifically and only to the obligations described in the immediately preceding paragraph. 6 Hanover Compressor Company June 10, 1998 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. HANOVER/SMITH, INC. By \S\ Curtis Bedrich Name: Curtis Bedrich Title: Treasurer Address for Notices: 12001 North Houston Rosslyn Houston, Texas 77086 Attn: Chief Financial Officer Fax: 281-447-8781 HANOVER LAND COMPANY By \S\ Curtis Bedrich Name: Curtis Bedrich Title: Treasurer Address for Notices: 12001 North Houston Rosslyn Houston, Texas 77086 Attn: Chief Financial Officer Fax: 281-447-8781 HANOVER MAINTECH, INC. By: \S\ Curtis Bedrich Name: Curtis Bedrich Title: Treasurer Address for Notices: 12001 North Houston Rosslyn Houston, Texas 77086 Attn: Chief Financial Officer Fax: 281-447-8781 EX-10.2 3 PROMISSORY NOTE, DATED 06/10/98 1 EXHIBIT 10.2 PROMISSORY NOTE $30,000,000 New York, New York June 10, 1998 FOR VALUE RECEIVED, the undersigned, Hanover Compressor Company, a Delaware corporation ("HCC") hereby unconditionally promises to pay to the order of The Chase Manhattan Bank (the "Bank") at its office located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, on the Final Maturity Date the principal amount of (a) THIRTY MILLION DOLLARS ($30,000,000), or, if less, (b) the aggregate unpaid principal amount of all Loans made by the Bank to HCC pursuant the Letter Agreement, as hereinafter defined. HCC further agrees to pay interest in like money at such office on the unpaid principal amount at hereof from time to time outstanding at rates and on the dates specified in the Letter Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount of each Loan made pursuant to the Letter Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement shall not affect the obligations of HCC in respect of such Loan. This Note (a) is the Note referred to in the Letter Agreement dated June 10, 1998 (as further amended, supplemented or otherwise modified from time to time, the "Letter Agreement"), between HCC and the Bank, (b) is subject to the provisions of the Letter Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Letter Agreement. This Note is guaranteed as provided in the Letter Agreement. Reference is hereby made to the Letter Agreement for a description of the nature and extent of the guarantees, the term and conditions upon which each guarantee was granted and the rights of the holder of this Note in respect thereof. 2 2 Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Letter Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Letter Agreement and used herein shall have the meanings given to them in the Letter Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK HANOVER COMPRESSOR COMPANY By: \S\ Curtis Bedrich ----------------------------- Name: Curtis Bedrich Title: Treasurer EX-27 4 FINANCIAL DATA SCHEDULE
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HANOVER COMPRESSOR COMPANY FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JUN-30-1998 5,550 0 52,252 180 51,543 128,533 568,490 94,117 626,831 50,885 0 0 0 268,458 32,953 626,831 24,840 68,993 19,170 53,695 0 0 3,796 11,442 4,470 6,972 0 0 0 6,972 0.24 0.23
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