SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 28, 2002
HANOVER COMPRESSOR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 1-13071 76-0625124
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
12001 North Houston Rosslyn 77086
Houston, Texas 77086 (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (281) 447-8787
Item 5. Other Events.
See the following press release:
HANOVER COMPRESSOR DESCRIBES ITS LIMITED RELATIONSHIPS WITH ENRON AND HANOVER'S
INVESTMENTS IN ITS NON-CONTROLLED JOINT VENTURES
HOUSTON, (January 28, 2002) -- Hanover Compressor (NYSE: HC), the leading
provider of outsourced natural gas compression services, today detailed its
limited relationship with Enron. Hanover also further described its investments
and equity earnings in non-controlled joint ventures, including its
participation in a joint venture formed in 2000 to carry out a major natural gas
compression and gas handling contract on behalf of the Shell Petroleum
Development Company of Nigeria Limited, the Nigerian operating unit of The
Royal/Dutch Shell Group ("Shell").
Relationship with Enron
. Hanover's total credit exposure to Enron and its affiliated companies is
less than $300,000.
. Based on Hanover's stock transfer records, confirmed verbally by Enron, in
November 2001 Enron and an affiliated company completed disposition of all of
the shares of Hanover Compressor common stock it owned resulting from an
investment it made in Hanover in 1995 when Hanover was a private company.
. During the six-year period in which Enron owned shares in Hanover, Enron had
a non-voting observer present at Hanover Board of Directors meetings. Enron
never had any role in the management of Hanover. The two companies never had
the same personnel, officers, directors, outside general counsel, or external
auditors.
. Historically, like most energy service companies, Hanover did conduct
business with Enron and its affiliates. The extent of these business dealings
follows:
. During the twelve-month period ended December 31, 2000, Hanover provided
goods and services for Enron and its affiliates that generated revenue of
$35.9 million, comprised of equipment rental revenue of $18.6 million and
fabricated equipment sales of $17.3 million. Revenue generated by
Hanover's business activities with Enron and its affiliates during the
twelve-month period ended December 31, 1999 and December 31, 1998 totaled
$15.1 million and $6.8 million, respectively. In 2001, Enron divested the
principal business units with which Hanover conducted business. Hanover
continues to fabricate equipment and provide equipment rental services to
those companies following their divesture.
. In August 1997 Hanover / Enron Venezuela, Ltd., a corporation owned 60% by
Hanover and 40% by an affiliate of Enron, was formed for the purpose of
constructing and operating a gas compression project in Venezuela for
PDVSA. The project was financed by a $10.4 million non-recourse loan
provided by an Enron affiliate, which has since been repaid. In June 2001,
Hanover purchased Enron's interest in Hanover / Enron Venezuela, Ltd. and
Hanover since then has owned 100% of the company.
. Hanover's only current business relationship with Enron is Enron's 47.5%
owned investment in Hanover Measurement Services LLC ("HMS"), which was
created in 1999 to provide outsourced gas measurement and related services.
Hanover's total investment
in HMS is $4.9 million, and Hanover's share of HMS's pre-tax income was $1.3
million for the 12 months ended December 31, 2000 and $0.8 million for the
nine months ended September 30, 2001.
Investments in Non-Controlled Joint Ventures
. Hanover has made investments in several joint ventures or corporations, which
are not controlled by Hanover. The Company has made these investments in
order to develop its compression and related gas handling business in
international markets, to enter new outsourced energy service markets, and to
aid technological advancements associated with its businesses. Hanover has
conducted these efforts through these non-controlled joint ventures and
corporations in order to reduce the Company's capital risk and to form
strategic relationships with third parties that have been advantageous to the
Company's business.
. At September 30, 2001, these investments were recorded on the Company's
balance sheet at their historical cost of $183 million. Of this amount,
approximately $142 million relates to Hanover's investments in the Wilpro
PIGAP II, Wilpro El Furrial, and Simco Consortium joint ventures, which were
acquired by Hanover in its August 2001 acquisition of Production Operators
Corp. and related assets ("POI") from Schlumberger Ltd. The Company's
partners in these joint ventures are The Williams Companies Inc. and John
Woods Group PLC. At December 31, 2000, the year prior to the POI acquisition
from Schlumberger, Hanover's investment in independent unconsolidated
subsidiaries and joint ventures totaled $27.7 million, compared to $18.9
million at December 31, 1999.
. In each of the last three years, the amount of earnings Hanover has
recognized related to these investments has ranged between 2% and 4% of
Hanover's consolidated pre-tax income. Due primarily to the earnings
contribution of the joint ventures Hanover acquired in the POI transaction,
management expects the net income generated by these investments to grow to
approximately 6% in 2002.
. The joint ventures which have generated income or loss recorded on the
Company's income statement in "Equity in Income of Non-consolidated
Subsidiaries" since January 1, 1999, are listed below:
Investment as of End of Period ($ 000s) Pre-tax Income Recorded by Hanover
($ 000s)
Twelve Mos. Twelve Mos. Nine Mos.
Name Ownership 12/31/1999 12/31/2000 9/30/2001 12/31/1999 12/31/2000 9/30/2001
---- ----- ----------- ----------- --------------- ----------- ----------- ---------
Hanover / Enron Venezuela Ltd. 60.00% $ 2,428 $ 2,946 Purchased 6/01 $ 270 $ 518 $ 362
Belleli Energy, Srl 20.00% - - 1,986 - - (16)
Collicutt Hanover Services Ltd. 24.10% 6,544 8,224 8,711 858 786 517
Hampton Roads Shipping
Investors II, L.L.C. 25.00% - 1,276 1,539 - - -
Meter Acquisition Company L.P. 20.00% 2,200 2,619 Terminated 7/01 - 395 524
Hanover Measurement Services
Company L.P. 52.50% 2,701 4,101 4,882 - 1,256 780
ServiCompressores, C.A. 50.00% 2,000 1,766 1,801 - (99) 35
Simco Consortium 35.50% - - 16,557 - - 135
Wilpro Energy Services
(El Furrial) Limited 33.30% - - 19,493 - - 496
Wilpro Energy Services
(PIGAP II) Limited 30.00% - - 106,171 - - 1,058
Other Various 635 1,841 8,348 60 662 (140)
. Hanover's capital commitments and contingencies related to its investments in
joint ventures and non-consolidated subsidiaries totaled $67.3 million at
September 30, 2001. Of this amount, $58 million relates to the final purchase
consideration payable to Schlumberger Ltd. and is recorded on the Company's
balance sheet in "Other Liabilities." This amount is payable by the Company
with proceeds of a financing of the PIGAP II joint venture acquired by
Hanover in the POI acquisition. If the joint venture does not obtain
financing which is non-recourse to Hanover on or before December 31, 2002,
Hanover will have the right to put its interest in the PIGAP II joint venture
back to Schlumberger in exchange for a return of the amount paid by Hanover
to Schlumberger for the joint venture interest. Hanover's right to exercise
this option expires on January 31, 2003. If the non-recourse financing is not
obtained and Hanover elects not to exercise its put right, Hanover must make
a $58 million payment to Schlumberger.
Hampton Roads Joint Venture
. Hanover owns a 25% interest in Hampton Roads Shipping Investors II, L.L.C.
("Hampton Roads"), formed in 2000 as a joint venture to own barge-mounted gas
compression and gas processing facilities to be stationed off the coast of
Nigeria with an equipment sale price of $51 million. The equipment was to be
used pursuant to a 10-year contract on behalf of Shell to commence September
2001. In the first quarter of 2001, the scope of the project was reduced to
$43 million and the contract term was extended to 15 years with a projected
start date of September 2003. As the project has not yet started, Hanover has
recorded no income attributable to its equity ownership in the venture.
. Hanover is fabricating the equipment to be used in the gas compression and
processing project with Shell under a construction contract with Hampton
Roads and is accounting for this activity under the percentage of completion
method of accounting. Hanover recorded total revenue from the construction
contract of $16 million and net income of $2.6 million in fiscal 2000, and it
recorded total revenue of $3.6 million and net income of $0.6 million for the
nine-month period ended September 30, 2001. These amounts reflect the revenue
related only to the majority owners' 75% interest in Hampton Roads. The
Company and its Board of Directors are reviewing the transactions of this
joint venture and the related accounting.
. To date, the joint venture's majority owner has invested $4.75 million in the
venture, which has been paid to Hanover by the venture in respect of the
construction contract. Hanover has contributed $1.5 million to Hampton Roads,
proportionate to its 25% ownership in the venture.
. In response to a claim for expense reimbursement, the Company initiated
litigation against the former majority owner in the Hampton Roads joint
venture. Hanover's former majority partner in the venture was replaced
entirely in July 2001 by a new, independent investment group and the joint
venture is functioning successfully.
Investor Conference Call
. Hanover plans to hold in the near future an investor conference call to
discuss the matters covered in this news release as well as a presentation of
the Company's cost of capital and return on investment targets, operating
leases and guidance relating to 2002 financial performance, credit
statistics, working capital objectives, capital
expenditure budgets and other matters. Details of the conference call will be
announced when preparations are completed.
Certain matters discussed in this press release 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 of the context of the
statement and will include words such as "believes," "anticipates," "expects,"
"estimates," or words of similar import. Similarly, statements that describe
Hanover'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 press release. The risks and uncertainties include: the
loss of market share through competition, the introduction of competing
technologies by other companies; a prolonged, substantial reduction in oil and
gas prices which would cause a decline in the demand for Hanover's compression
and oil and gas production equipment; new governmental safety, health and
environmental regulations which could require Hanover to make significant
capital expenditures; inability to successfully integrate acquired businesses;
and changes in economic or political conditions in the countries in which
Hanover operates. The forward-looking statements included in this press release
are only made as of the date of this press release, and Hanover undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances. A discussion of these factors is included
in the Company's periodic reports filed with the Securities and Exchange
Commission.
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 hereunto duly authorized.
HANOVER COMPRESSOR COMPANY
Date: January 29, 2002 By: /s/ Michael J. McGhan
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Michael J. McGhan
President and Chief Executive Officer