<PAGE> 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.
<PAGE> 2
HANOVER COMPRESSOR COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
June 30, 1998 December 31,
(unaudited) 1997
------------- ------------
ASSETS
<S> <C> <C>
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
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, Ended June 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 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):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(unaudited)
<S> <C> <C>
Parts and supplies $ 30,127 $ 20,141
Work in progress 15,864 8,766
Finished goods 5,552 3,953
-------- --------
$ 51,543 $ 32,860
======== ========
</TABLE>
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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:
<TABLE>
<CAPTION>
Matter For Withheld
------ --- --------
<S> <C> <C> <C>
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
</TABLE>
2. Reappointment of Price Waterhouse LLP as Independent Auditors
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
22,274,743 4,220 43,689
</TABLE>
<PAGE> 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.
<PAGE> 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
<PAGE> 15
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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,
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,550
<SECURITIES> 0
<RECEIVABLES> 52,252
<ALLOWANCES> 180
<INVENTORY> 51,543
<CURRENT-ASSETS> 128,533
<PP&E> 568,490
<DEPRECIATION> 94,117
<TOTAL-ASSETS> 626,831
<CURRENT-LIABILITIES> 50,885
<BONDS> 0
0
0
<COMMON> 268,458
<OTHER-SE> 32,953
<TOTAL-LIABILITY-AND-EQUITY> 626,831
<SALES> 24,840
<TOTAL-REVENUES> 68,993
<CGS> 19,170
<TOTAL-COSTS> 53,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,796
<INCOME-PRETAX> 11,442
<INCOME-TAX> 4,470
<INCOME-CONTINUING> 6,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,972
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
