<PAGE>
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 MARCH 31, 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 May 8, 2000 there were 28,878,516 shares of the Company's common stock,
$0.001 par value, outstanding.
<PAGE>
HANOVER COMPRESSOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 16,946 $ 5,756
Accounts receivable trade, net 90,066 93,715
Inventory 78,208 66,562
Costs and estimated earnings in excess of billings
on uncompleted contracts 11,270 4,782
Prepaid taxes 17,789 16,430
Other current assets 6,822 5,287
----------- -----------
Total current assets 221,101 192,532
Property, plant and equipment:
Compression equipment and facilities 493,339 520,403
Land and buildings 19,836 19,000
Transportation and shop equipment 29,094 27,616
Other 10,394 10,029
----------- -----------
552,663 577,048
Accumulated depreciation (83,126) (79,583)
----------- -----------
Net property, plant and equipment 469,537 497,465
----------- -----------
Intangible and other assets 81,585 66,513
----------- -----------
$ 772,223 $ 756,510
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 16,081 $ 15,967
Accounts payable, trade 32,616 32,308
Accrued liabilities 19,042 22,065
Advance billings 13,588 13,328
Billings on uncompleted contracts in excess of
costs and estimated earnings 830 898
----------- -----------
Total current liabilities 82,157 84,566
Long-term debt 37,409 69,681
Other liabilities 112,063 80,549
Deferred income taxes 70,360 66,307
----------- -----------
Total liabilities 301,989 301,103
----------- -----------
Mandatorily redeemable convertible preferred securities 86,250 86,250
Commitments and contingencies
Common stockholders' equity:
Common stock, $.001 par value; 100 million shares authorized;
28,878,516 and 28,752,937 shares issued and
outstanding, respectively 29 29
Additional paid-in capital 275,156 272,973
Notes receivable - employee stockholders (2,193) (3,387)
Accumulated other comprehensive income (loss) (467) (311)
Retained earnings 112,604 101,439
Treasury stock - 60,441 and 83,697 common shares, respectively, at cost (1,145) (1,586)
----------- -----------
Total common stockholders' equity 383,984 369,157
----------- -----------
$ 772,223 $ 756,510
=========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
HANOVER COMPRESSOR COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------------------
<S> <C> <C>
2000 1999
------ ------
Revenues:
Rentals $ 56,104 $ 42,434
Parts and service 10,134 4,631
Compressor fabrication 14,185 7,241
Production equipment fabrication 5,925 5,886
Gain on sale of property, plant and equipment 1,286 3,467
Other 2,077 785
---------- ----------
89,711 64,444
---------- ----------
Expenses:
Rentals 18,151 13,974
Parts and service 7,360 3,424
Compressor fabrication 11,391 5,657
Production equipment fabrication 4,483 4,442
Selling, general and administrative 9,115 7,397
Depreciation and amortization 10,359 9,213
Leasing expense 8,076 3,510
Interest expense 1,630 3,114
Distributions on mandatorily redeemable 1,591 0
convertible preferred securities ---------- ----------
72,156 50,731
---------- ----------
Income before income taxes 17,555 13,713
Provision for income taxes 6,390 5,074
---------- ----------
Net income 11,165 8,639
---------- ----------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (156) (309)
---------- ----------
Comprehensive income $ 11,009 $ 8,330
========== ==========
Net income available to common stockholders $ 11,165 $ 8,639
========== ==========
Weighted average common and common
equivalent shares outstanding:
Basic 28,707 28,436
---------- ----------
Diluted 31,095 30,197
---------- ----------
Earnings per common share:
Basic $ 0.39 $ 0.30
---------- ----------
Diluted $ 0.36 $ 0.29
---------- ----------
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
HANOVER COMPRESSOR COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months ended March 31,
------------------------------------
<S> <C> <C>
2000 1999
------- -------
Cash flows from operating activities:
Net income $ 11,165 $ 8,639
Adjustments:
Depreciation and amortization 10,359 9,213
Amortization of debt issuance costs and debt discount 160 181
Bad debt expense 242 154
Gain on sale of property, plant and equipment (1,286) (3,467)
Equity in income of nonconsolidated affiliates (1,022) (475)
Deferred income taxes 4,980 3,218
Changes in assets and liabilities:
Accounts receivable 3,407 (7,982)
Inventory (11,646) (2,503)
Costs and estimated earnings in excess of billings on
uncompleted contracts (6,556) 1,762
Accounts payable and other liabilities (2,715) (536)
Advance billings 260 (601)
Other (7,400) (885)
----------- ----------
Net cash provided by (used in) operating activities (52) 6,718
----------- ----------
Cash flows from investing activities:
Capital expenditures (60,896) (62,905)
Proceeds from sale of fixed assets 103,504 16,294
----------- ----------
Net cash provided by (used in) investing activities 42,608 (46,611)
----------- ----------
Cash flows from financing activities:
Net repayment on revolving credit facility (33,100) 36,120
Repayments of shareholder notes 1,194 34
Proceeds from warrant conversions and stock option exercises 697 51
Repayment of long-term debt (131) (105)
----------- ----------
Net cash provided by (used in) financing activities (31,340) 36,100
----------- ----------
Effect of exchange rate changes on cash and equivalents (26) (16)
----------- ----------
Net increase (decrease) in cash and cash equivalents 11,190 (3,809)
Cash and cash equivalents at beginning of period 5,756 11,503
----------- ----------
Cash and cash equivalents at end of period $ 16,946 $ 7,694
=========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
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.
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 2,045,000 and 1,390,000 and warrants of 344,000 and
370,000 for the three months ended March 31, 2000 and 1999, respectively. The
mandatorily redeemable convertible preferred securities were excluded from
diluted shares because they were antidilutive.
2. INVENTORIES
Inventory consisted of the following amounts (in thousands):
March 31, December 31,
2000 1999
-------- ------------
Parts and supplies $48,689 $44,058
Work in progress 25,222 18,677
Finished goods 4,297 3,827
------- -------
$78,208 $66,562
======= =======
<PAGE>
3. SALES AND LEASE BACK OF EQUIPMENT
In March 2000, the Company completed a $200 million sale and lease back of
certain compression equipment. 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. 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. The lease provides for a substantial residual
value guarantee (approximately $83 million) by the Company, which is due upon
termination of the lease and which may be satisfied by a cash payment or the
exercise of a purchase option by the Company. The equipment sold had a book
value of approximately $68 million and the equipment sale resulted in a gain of
approximately $32 million that is deferred until the end of the lease. If the
Company does not exercise its purchase options under the agreement, the deferred
gain will be recognized to the extent it exceeds required payments by the
Company under the residual value guarantee and other requirements of the
agreement.
Previously, in June 1999 and in July 1998 the Company completed two separate
$200 million sale and lease back transactions of certain compression equipment.
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 -- $28,700; 2001 -- $38,800; 2002 -- $39,400; 2003 -- $31,800;
2004 -- $16,100; 2005 -- $2,000.
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 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 $3.3 million at March 31,
2000.
4. 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.
5. INDUSTRY SEGMENTS
The Company manages its business segments primarily on the type of product or
service provided. The Company has four principal industry segments: Rentals -
Domestic, Rentals - International, Compressor Fabrication and Production
Equipment Fabrication. The Rentals segments provide natural gas compression
rental and maintenance services to meet
<PAGE>
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 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, distributions
on mandatorily redeemable convertible preferred securities 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 and are
eliminated in consolidation. Identifiable assets are tangible and intangible
assets that are identified with the operations of a particular industry segment,
or which are allocated when used jointly.
The following table presents sales and other financial information by
industry segment for the three months ended March 31, 2000 and 1999 (in
thousands).
<TABLE>
<CAPTION>
PRODUCTION
DOMESTIC INTERNATIONAL COMPRESSOR EQUIPMENT
RENTALS RENTALS FABRICATION FABRICATION OTHER ELIMINATIONS CONSOLIDATED
-------- ------------- ----------- ----------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 2000:
Revenues from external
customers $ 38,208 $ 17,896 $14,185 $ 5,925 $13,497 - $ 89,711
Intersegment sales - 300 25,753 620 5,492 $(32,165) -
-------- -------- ------- ------- ------- -------- --------
Total revenues 38,208 18,196 39,938 6,545 18,989 (32,165) 89,711
Gross Profit 25,907 12,046 2,794 1,442 6,137 - 48,326
Identifiable assets 527,660 158,026 45,173 24,418 16,946 - 772,223
March 31,1999:
Revenues from external
customers $ 30,200 $ 12,234 $ 7,241 $ 5,886 $ 8,883 - $ 64,444
Intersegment sales - 300 18,919 598 6,641 $(26,458) -
-------- -------- ------- ------- ------- -------- --------
Total revenues 30,200 12,534 26,160 6,484 15,524 (26,458) 64,444
Gross Profit 20,477 7,983 1,584 1,444 5,459 - 36,947
</TABLE>
6. SUBSEQUENT EVENTS
In May 2000, the Company signed an agreement to acquire Applied Process
Solutions, Inc. (APSI), a supplier of natural gas and oil processing equipment,
in an all-stock transaction. Under the terms of the agreement, the Company will
acquire APSI in a stock transaction for approximately 1,150,000 shares of
Hanover common stock and the transaction will be accounted for as a purchase.
<PAGE>
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; 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 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 March 31, 2000, the Company operated a
fleet of 3,996 compression rental units with an aggregate capacity of
approximately 1,507,000 horsepower.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES
The Company's total revenues increased by $25.3 million, or 39%, to $89.7
million during the three months ended March 31, 2000 from $64.4 million during
the three months ended March 31, 1999. The increase resulted primarily from
growth of the Company's natural gas compressor rental fleet as well as increases
in both parts and service revenue and compressor fabrication revenue.
Revenues from rentals increased by $13.7 million, or 32%, to $56.1 million
during the three months ended March 31, 2000 from $42.4 million during the three
months ended March 31, 1999. Domestic
<PAGE>
revenues from rentals increased by $8.0 million, or 27%, to $38.2 million during
the three months ended March 31, 2000 from $30.2 million during the three months
ended March 31, 1999. International rental revenues increased by $5.7 million,
or 46%, to $17.9 million during the three months ended March 31, 2000 from $12.2
million during the three months ended March 31, 1999. The increase in both
domestic and international rental revenue resulted from expansion of the
Company's rental fleet. At March 31, 2000, the compressor rental fleet consisted
of approximately 1,507,000 horsepower, a 32% increase over the 1,146,000
horsepower in the rental fleet at March 31, 1999. Domestic horsepower in the
rental fleet increased by 26% to 1,223,000 horsepower at March 31, 2000 from
approximately 970,000 horsepower at March 31, 1999. In addition, international
horsepower increased by 61% to 284,000 horsepower at March 31, 2000 from
approximately 176,000 horsepower at March 31, 1999.
Revenue from parts and service increased by $5.5 million, or 119% to $10.1
million during the three months ended March 31, 2000 from $4.6 million during
the three months ended March 31, 1999. Revenues from compressor fabrication
increased by $7.0 million, or 96%, to $14.2 million during the three months
ended March 31, 2000 from $7.2 million during the three months ended March 31,
1999. During the three months ended March 31, 2000, an aggregate of
approximately 66,000 horsepower of compression equipment was fabricated compared
to approximately 54,000 horsepower fabricated during the three months ended
March 31, 1999. The increase in compressor fabrication revenue was due in part
to an increase in horsepower for third party sales during the three months ended
March 31, 2000. In addition, during the three months ended March 31, 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 equipment fabrication was $5.9 million during the
three months ended March 31, 2000 and during the three months ended March 31,
1999.
The Company recognized gains on sales of property, plant and equipment of $1.3
million during the three months ended March 31, 2000 compared to $3.5 million
during the three months ended March 31, 1999. The Company sold approximately
7,200 horsepower during the three months ended March 31, 2000 compared to 17,000
horsepower during the three months ended March 31, 1999. During the three
months ended March 31, 1999, a major international customer exercised its option
to purchase equipment it previously rented.
EXPENSES
Operating expenses of the rental segments increased by $4.2 million, or 30%,
to $18.2 million during the three months ended March 31, 2000 from $14.0 million
during the three months ended March 31, 1999. The increase resulted primarily
from the corresponding 32% increase in revenues from rentals over the
corresponding period in 1999. The gross profit percentage from rentals was 68%
during the three months ended March 31, 2000 and 67% during the three months
ended March 31, 1999. Operating expenses of parts and service increased by $3.9
million, or 115% to $7.4 million, which relates to the
<PAGE>
119% increase in parts and service revenue. The gross profit margin from parts
and service increased to 27% during the three months ended March 31, 2000 from
26% during the three months ended March 31, 1999. Operating expenses of
compressor fabrication increased by $5.7 million, or 101%, to $11.4 million
during the three months ended March 31, 2000 from $5.7 million during the three
months ended March 31, 1999 commensurate with the corresponding increase in
compressor fabrication revenue. The gross profit margin on compression
fabrication was 20% during the three months ended March 31, 2000 and 22% during
the three months ended March 31, 1999. The operating expenses attributable to
production equipment fabrication increased by $0.1 million, or 1%, to $4.5
million during the three months ended March 31, 2000 from $4.4 million during
the three months ended March 31, 1999. The gross profit margin attributable to
production equipment fabrication was 24% during the three months ended March 31,
2000 and was 25% during the three months ended March 31, 1999.
Selling, general and administrative expenses increased $1.7 million, or 23%,
to $9.1 million during the three months ended March 31, 2000 from $7.4 million
during the three months ended March 31, 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.
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
March 31, 2000 increased 33% to $39.2 million from $29.6 million for the three
months ended March 31, 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 $1.2 million to $10.4 million
during the three months ended March 31, 2000 compared to $9.2 million during the
three months ended March 31, 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 Company incurred leasing expense of $8.1 million during the three months
ended March 31, 2000 compared to $3.5 million during the three months ended
March 31, 1999 resulting from the Equipment Leases entered into in July, 1998,
June, 1999 and March 2000.
Interest expense decreased by $1.5 million to $1.6 million during the three
months ended March 31, 2000 from $3.1 million for the three months ended March
31, 1999. The decrease in interest expense
<PAGE>
was due in part to utilization of proceeds from the Equipment Lease which was
used to reduce indebtedness under the Bank Credit Agreement and the
capitalization of interest expense on assets under construction.
In December 1999, the Company issued $86.3 million of 7.25% Mandatorily
Redeemable Convertible Preferred Securities through Hanover Compressor Capital
Trust, a Delaware business trust and subsidiary of the Company, as a result, the
Company incurred distributions on mandatorily redeemable convertible preferred
securities of $1.6 million during the three months ended March 31, 2000.
INCOME TAXES
The provision for income taxes increased by $1.3 million, or 26%, to $6.4
million during the three months ended March 31, 2000 from $5.1 million during
the three months ended March 31, 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 March 31, 2000 and 1999 were
36.4% and 37.0%, respectively. The decrease in average effective income tax
rates is due to expected benefits from a foreign sales corporation established
in 1999.
NET INCOME
Net income increased $2.5 million, or 29%, to $11.2 million during the three
months ended March 31, 2000 from $8.6 million during the three months ended
March 31, 1999 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
In March 2000, the Company completed a $200 million, 5-year lease transaction
(the "Equipment Lease") arranged by Chase Securities Inc. The transaction has
been structured as a sale and lease back of compression equipment to Hanover
Equipment Trust 2000A, a Delaware business trust (the "Trust"). Under the
Equipment Lease, the compression equipment was sold to the Trust for $100
million and leased back by the Company for a 5-year period and the Company may
sell an additional $100 million of equipment to the Trust during the next twelve
months. The compression equipment will continue to be deployed by the Company
under its normal operating procedures. Additionally, the Company has the option
to repurchase the equipment from the Trust at any time. The lease provides for
a residual value guarantee (approximately 83% of the total cost) by the Company,
which is due upon termination of the lease and which may be satisfied by a cash
payment or the exercise of a purchase option by the Company. The equipment sold
had a book value of approximately $68 million and the equipment sale resulted in
a gain of approximately $32 million, which is being deferred until the end of
the lease.
The Company's cash balance amounted to $16.9 million at March 31, 2000
compared to $5.8 million at December 31, 1999. Primary sources of cash during
the three months ended March 31, 2000 were bank borrowings of $66.5 million and
<PAGE>
net proceeds of $100 million from the sale of compression equipment under the
Equipment Lease. Principal uses of cash during the three months ended March 31,
2000 were capital expenditures of $60.9 million and $100 million repayment of
long-term debt.
Total current assets increased to $221.1 million at March 31, 2000 from
$192.5 million at December 31, 1999, primarily as a result of increases in cash
and inventories. Inventories increased by $11.6 million to $78.2 million at
March 31, 2000. The increase in inventories reflects increases in parts and
supplies, work in progress and finished goods as the level of activity in the
Company's domestic and international rental and maintenance increased over 1999.
Working capital at March 31, 2000 was also affected by a $2.4 million decrease
in total current liabilities. Total current liabilities decreased to $82.2
million at March 31, 2000 from $84.6 million at December 31, 1999.
The amounts invested in property, plant and equipment during 2000 was $60.9
million which resulted in the addition of approximately 49,000 horsepower to the
rental fleet. At March 31, 2000, the rental fleet consisted of 1,223,000
horsepower domestically and 284,000 in the international rental fleet. Current
plans are to spend in excess of $250 million during 2000, exclusive of any major
acquisition, in continued expansion of the rental fleet. 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 March 31, 2000 the Company has
approximately $171 million of credit capacity remaining on its $200 million Bank
Credit Agreement (7.4% rate at March 31, 2000) in addition to the Equipment
Lease. The Company feels it has adequate capital resources to fund its estimated
level of capital expenditures for the year 2000.
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 March 31, 2000, the fair market value of
these interest rate swaps is approximately $3.3 million. The Company does not
use derivative financial instruments to mitigate foreign currency risk.
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports submitted on Form 8-K; none.
All other items specified by Part II of this report are inapplicable and have
been omitted.
<PAGE>
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: May 12, 2000
By:
/s/ Michael J. McGhan
_______________________
Michael J. McGhan
President and Chief Executive Officer
Date: May 12, 2000
By:
/s/ William S. Goldberg
_______________________
William S. Goldberg
Executive Vice President,
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<PAGE>
<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 MARCH 31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,946
<SECURITIES> 0
<RECEIVABLES> 92,036
<ALLOWANCES> 1,970
<INVENTORY> 78,208
<CURRENT-ASSETS> 221,101
<PP&E> 552,663
<DEPRECIATION> 83,126
<TOTAL-ASSETS> 772,223
<CURRENT-LIABILITIES> 82,157
<BONDS> 0
0
0
<COMMON> 275,185
<OTHER-SE> 108,799
<TOTAL-LIABILITY-AND-EQUITY> 772,223
<SALES> 20,110
<TOTAL-REVENUES> 89,711
<CGS> 15,874
<TOTAL-COSTS> 68,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,630
<INCOME-PRETAX> 17,555
<INCOME-TAX> 6,390
<INCOME-CONTINUING> 11,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,165
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.36
</TABLE>
