SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): August 31, 2001
Hanover Compressor Company
(Exact name of registrant as specified in its charter)
Delaware 1-3071 76-0625124
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
12001 N. Houston Rosslyn
Houston, Texas 77086
(Address of principal executive offices)
Registrant's telephone number, including area code: (281) 447-8787
EXPLANATORY NOTE
Hanover Compressor Company (the "Company") is filing this amendment to its
Report on Form 8-K for in order to update the Historical Financial Statements of
the Company which were included in Item 7 (b) "Pro Forma Financial Information".
Details of the restated items are included in the Company's Form 10-K/A for the
year ended December 31, 2000 and Form 10-Q/A for the period ended June 30, 2001.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
Not changed by restatement
(b) Pro Forma Financial Information
Amended Pro forma financial information of Hanover Compressor Company and POI is
set forth as ATTACHMENT C and is included herein.
(c) Exhibits
23.1 Consent of Independent Accountants
ATTACHMENT C
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF HANOVER COMPRESSOR COMPANY
(UNAUDITED)
On August 31, 2001, Hanover Compressor Company (Hanover) acquired the Production
Operators Corporation natural gas compression business, ownership interests in
certain joint venture projects in South America, and related assets
(collectively, POI and formerly The Gas Compression Business of Schlumberger)
from Schlumberger for $761 million in cash, common stock and indebtedness,
subject to certain post-closing adjustments pursuant to the purchase agreement
(the POI Acquisition). The POI Acquisition was accounted for as a purchase and
will be included in Hanover's financial statements commencing on September 1,
2001.
In September 2000, Hanover acquired the compression services division of
Dresser-Rand Company (CSD-DR ) from Ingersoll-Rand Company for approximately
$177 million of the Company's common stock and cash, subject to certain
post-closing adjustments pursuant to the acquisition agreement which to date
have resulted in an increase in the purchase price to approximately $194 million
due to the increase in net assets acquired (the DR Acquisition ). The DR
Acquisition was accounted for as a purchase and the results of operations for
the acquired business have been included in Hanover's historical financial
statements commencing September 1, 2000. The pro forma financial data is not
adjusted to reflect the pro forma effect of Hanover's acquisitions of Applied
Process Solutions, Inc., completed in June 2000, PAMCO Services International,
completed in July 2000, or OEC Compression Corporation, completed in March 2001,
none of which are significant, either individually or in the aggregate.
In addition, on August 30, 2001, Hanover completed two sale-leaseback
transactions totaling $567 million (the Sale-leaseback Transactions). Under the
terms of the transactions, Hanover Equipment Trust 2001A and Hanover Equipment
Trust 2001B (the Issuers) purchased equipment from Hanover that was then leased
back to Hanover pursuant to two operating leases for a 7-year period and a
10-year period, respectively. The equipment will continue to be deployed in
Hanover's normal operations. Hanover used approximately $305 million of the
proceeds of the sale to fund the cash portion of the POI Acquisition from
Schlumberger and to pay expenses of the acquisition and the sale-leaseback
transaction and $200 million of the proceeds to exercise its equipment purchase
option under an existing operating lease entered into in 1998. Hanover intends
to use the remaining $62 million of the proceeds for general corporate purposes.
The accompanying unaudited pro forma combined condensed balance sheet as of June
30, 2001 has been prepared as if the POI Acquisition, the sale of equipment and
exercise of Hanover's equipment purchase option under the existing operating
lease (collectively, the Transactions) were consummated as of June 30, 2001. The
accompanying unaudited pro forma combined condensed statements of operations for
the six months ended June 30, 2001 and for the year ended December 31, 2000
present the pro forma results of operations of Hanover as if the DR Acquisition
and the Transactions had occurred on January 1, 2000.
The accompanying unaudited pro forma combined condensed balance sheet and
statements of operations should be read in conjunction with Hanover's
Consolidated Financial Statements and related notes thereto for the year ended
December 31, 2000 included in the Hanover's Annual Report on Form 10-K/A for the
year ended December 31, 2001 and Hanover's Quarterly Report on Form 10-Q/A for
the six months ended June 30, 2001; as well as in conjunction with POI's
combined financial statements for the year ended December 31, 2000 and the six
months ended June 30, 2001; and CSD-DR's combined financial statements for the
year ended December 31, 1999 and the six months ended June 30, 2000, included in
Hanover's Current Report on Form 8-K/A dated November 13, 2000.
SIGNATURE
Pursuant to the requirements of Section 12 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.
Dated: April 15, 2002
Hanover Compressor Company
By: /s/ Michael J. McGhan
--------------------------------------
Michael J. McGhan
President and Chief Executive Officer
Unaudited Pro Forma Combined Condensed Balance Sheet
As Of June 30, 2001
(in thousands, except share amounts)
Historical Pro Forma
---------------------- ------------------------------
ASSETS POI Hanover
Hanover POI Adjustments Combined
--------- -------- ----------- ----------
Current assets: (Restated) (Restated)
Cash and cash equivalents $ 33,284 $ 3,237 $ (3,237) (1) $ 111,684
(270,000) (2)
548,400 (3)
(200,000) (4)
Accounts receivable, net 237,299 24,572 261,871
Accounts receivable, affiliate 5,579 (5,579) (5)
Inventory 205,190 18,203 (575) (5) 222,818
Costs and estimated earnings in excess of billings
on uncompleted contracts 60,908 60,908
Prepaid taxes 20,823 7,745 28,568
Other current assets 22,556 8,438 (18) (5) 30,976
---------- -------- --------- ----------
Total current assets 580,060 67,774 68,991 716,825
Property, plant and equipment, net 797,923 334,662 (334,662) (6) 904,603
489,000 (6)
200,000 (4)
(41,978) (4)
(540,342) (3)
Goodwill, net 176,623 31,962 (7) 208,585
Intangible and other assets 67,058 135,983 (500) (5) 243,351
(134,596) (8)
157,300 (8)
18,700 (3)
(594)(10)
---------- -------- --------- ----------
$1,621,664 $538,419 $ (86,719) $2,073,364
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,481 $ 2,481
Accounts payable, trade 78,538 $ 7,588 86,126
Payables to affiliates 210,903 $(210,903) (5)
Accrued liabilities 57,758 22,958 16,500 (9) 97,216
Advance billings 44,723 44,723
Billings on uncompleted contracts in excess of
costs and estimated earnings 14,132 14,132
---------- -------- --------- ----------
Total current liabilities 197,632 241,449 (194,403) 244,678
Long-term debt 268,763 150,000 (2) 476,763
58,000 (2)
Other obligations 140,756 26,758 (3) 125,536
(41,978) (4)
Deferred income taxes 125,897 36,423 (36,423) (5) 125,671
(226)(10)
---------- -------- --------- ----------
Total liabilities 733,048 277,872 (38,272) 972,648
Commitments and contingencies
Mandatorily redeemable convertible preferred securities 86,250 86,250
Stockholders' equity:
Common stock, $.001 par value; 200 million shares authorized;
70,398,974 historical shares issued and outstanding
(79,106,667 pro forma shares issued and outstanding) 70 9 (12) 79
Additional paid-in capital 611,861 261,151 (261,151)(11) 824,320
212,459 (12)
Notes receivable - employee stockholders (1,499) (1,499)
Accumulated other comprehensive income (loss) 288 (604) 604 (11) 288
Retained earnings 192,363 (368)(10) 191,995
Treasury stock 75,739 common shares at cost (717) (717)
---------- -------- --------- ----------
Total stockholders' equity 802,366 260,547 $ (48,447) 1,014,466
---------- -------- --------- ----------
$1,621,664 $538,419 $ (86,719) $2,073,364
========== ======== ========= ==========
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
Unaudited Pro Forma Combined Condensed Statement of Operations Six Months Ended
June 30, 2001 (in thousands, except per share amounts)
Historical Pro Forma
---------------------- ------------------------------
POI Hanover
Hanover POI(a) Adjustments Combined
--------- -------- ----------- ---------
Restated) (Restated)
Revenues and other $475,210 $ 79,486 $554,696
Expenses:
Operating 284,283 41,312 $ (2,166)(d) 323,429
Selling, general and administrative 44,381 6,053 50,434
Depreciation and amortization 36,984 9,104 (9,104)(e) 44,472
4,100 (f)
3,388 (g)
Leasing expense 30,927 13,908 (i) 48,183
11,676 (i)
(8,328)(j)
Interest expense 6,055 6,375 (k) 12,430
Distributions on mandatorily redeemable
convertible preferred securities 3,187 3,187
Other 3,007 3,007
-------- ------- --------- --------
408,824 56,469 19,849 485,142
-------- ------- --------- --------
Income before income taxes 66,386 23,017 (19,849) 69,554
Provision (benefit) for income taxes 25,219 8,737 (7,538)(l) 26,431
-------- ------- --------- --------
Income before cumulative effect of accounting change $ 41,167 $14,280 $(12,311) $ 43,123(o)
======== ======= ========= ========
Weighted average common and common equivalent shares
outanding:
Basic 68,555 8,708 (m) 77,263
Diluted 77,557 8,708 (m) 86,265
Earnings per common share:
Basic $ 0.60 $ 0.56
Diluted(n) $ 0.56 $ 0.52
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
Unaudited Pro Forma Combined Condensed Statement of Operations Year Ended
December 31, 2000 (in thousands, except per share amounts)
Pro Forma
--------------------------------------
Historical POI &
---------------------------- Sale-leaseback CSD-DR Hanover
Hanover POI(a) CSD-DR Adjustments Adjustments Combined
--------- -------- -------- ------------- ------------ ---------
(Restated) (Restated)
Revenues and other $566,081 $147,364 $61,056 $(4,592)(b) $769,909
Expenses:
Operating 316,558 78,129 52,263 $ (4,698)(d) (5,368)(b) 432,338
(3,418)(c)
(1,128)(d)
Selling, general and administrative 54,632 13,445 7,578 (957)(c) 74,698
Depreciation and amortization 52,882 18,555 (18,555)(e) 4,375 (c) 73,617
8,200 (f) (4,375)(e)
6,777 (g) 4,606 (f)
1,152 (h)
Leasing expense 45,484 27,817 (i) 81,359
23,352 (i)
(15,294)(j)
Interest expense 8,685 1,774 12,750 (k) (1,774)(e) 27,013
5,578 (k)
Distributions on mandatorily redeemable
convertible preferred securities 6,369 6,369
-------- -------- ------- -------- -------- --------
484,610 110,129 61,615 40,349 (1,309) 695,394
-------- -------- ------- -------- -------- --------
Income (loss) before income taxes 81,471 37,235 (559) (40,349) (3,283) 74,515
Provision (benefit) for income taxes 30,307 14,166 200 (15,324)(l) (1,629)(l) 27,720
-------- -------- ------- --------- -------- --------
Net income (loss) $ 51,164 $ 23,069 $ (759) $(25,025) $(1,654) $ 46,795
======== ======== ======== ========= ======== ========
Weighted average common and common equivalent shares
outstanding:
Basic 61,831 8,708 (m) 1,947 (m) 72,486
Diluted 66,366 8,708 (m) 1,947 (m) 77,021
Earnings per common share:
Basic $ 0.83 $ 0.65
Diluted (n) $ 0.77 $ 0.61
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
OF HANOVER COMPRESSOR COMPANY
The accompanying unaudited pro forma combined condensed financial statements for
Hanover have been prepared based upon certain pro forma adjustments to the
historical consolidated financial statements of Hanover for the year ended
December 31, 2000 and the historical unaudited consolidated financial statements
for the six months ended June 30, 2001. The historical information for POI has
been obtained from the historical combined financial statements of POI for the
year ended December 31, 2000 and the historical unaudited combined financial
statements of POI for the six months ended June 30, 2001 included in this
Current Report on Form 8-K/A. The historical information for CSD-DR is for the
eight months ended August 31, 2000. Historical financial statements for CSD-DR
as of June 30, 2000 and December 31, 1999 have been included in Hanover's
Current Report on Form 8-K/A dated November 13, 2000.
The POI purchase price allocation is based on preliminary assumptions and
estimates which will change as more information becomes available following the
completion of third party valuations of the acquired assets. Therefore, the Pro
Forma Financial Statements are based on certain assumptions and preliminary
estimates that are subject to change. The Pro Forma Statements of Operations do
not purport to be indicative of the results which would actually have been
obtained had the acquisitions been completed on the date indicated or which may
be obtained in the future.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.142, Goodwill and Other Intangible
Assets. Under SFAS No.142, amortization of goodwill to earnings will be
discontinued. However, goodwill will be reviewed for impairment annually or
whenever events indicate impairment may have occurred. SFAS No.142 is effective
for Hanover on January 1, 2002. However, under the transition provisions of SFAS
142, goodwill acquired in a business combination for which the acquisition date
is after June 30, 2001, will not be amortized. Since the acquisition of POI was
consummated after June 30, 2001, the estimated goodwill recognized in these pro
forma financial statements related to the POI acquisition has not been amortized
in the pro forma combined condensed statements of operations. The goodwill
related to business combinations completed before June 30, 2001 continues to be
amortized in the pro forma combined condensed statements of operations since
Hanover has not adopted SFAS 142.
The pro forma adjustments to the accompanying Pro Forma Combined Condensed
Balance Sheet are described below:
1) Reflects the elimination of POI's cash balance that was retained by
Schlumberger pursuant to the purchase agreement.
2) Total consideration paid by Hanover to acquire POI and related assets
consists of $270 million in cash, common stock with a nominal value of $283
million, a $150 million subordinated acquisition note and a payment of $58
million due upon the completion of a refinancing of a South American joint
venture acquired by Hanover. If the joint venture fails to execute the
refinancing on or before December 31, 2002, Hanover will be obligated to either
put its interest in such joint venture back to Schlumberger or make the joint
venture payment using other funds. The purchase price is subject to certain
post-closing adjustments and a contingent payment by Hanover to Schlumberger
based on the realization of certain tax benefits by Hanover over the next 15
years.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS --(Continued)
3) Estimated proceeds from the $567 million Sale-leaseback Transaction, net of
$18.7 million estimated transaction costs recorded as deferred lease transaction
costs and amortized over the respective lives of the operating lease agreements
between Hanover and the Issuers. The net book value of the equipment sold to the
Issuers is $540 million. An estimated deferred gain of $27 million was recorded
on the sale.
4) Reflects Hanover's exercise of its equipment purchase option under the 1998
operating lease. As a result of the purchase, the deferred gain of $42 million
recorded at the inception of the 1998 operating lease was reversed against
Hanover's cost basis in the equipment.
5) Reflects the elimination of certain assets and liabilities that were retained
by Schlumberger pursuant to the agreement.
6) Reflects the removal of the historical cost of POI's property, plant and
equipment and the recording of Hanover's preliminary estimate of the fair value
of these assets. This estimated value could change upon completion of third
party appraisals of the acquired assets.
7) Represents Hanover's preliminary estimate of the excess of total purchase
price over the allocated fair value of the tangible and identifiable intangible
net assets acquired. This estimated amount of goodwill could differ from the
actual amount recorded upon completion of third party valuations of the acquired
assets and the purchase price adjustment.
8) Reflects the removal of the historical cost of POI's long-term investments
and the recording of Hanover's preliminary estimate of the fair value of these
long-term investments which totals $147 million. The long-term investments
represent certain South American joint venture interests owned by POI. This
entry also reflects the recording of the estimated value of identifiable
intangibles of $10.3 million. These estimated values could change upon
completion of third party valuations of the acquired assets.
9) Reflects the accrual of estimated transaction costs related to the
acquisition of POI.
10) Reflects the write off of unamortized deferred lease transaction costs of
$594,000, net of income taxes of $226,000, relating to the 1998 operating lease.
11) Reflects the elimination of POI's historical equity balance.
12) Reflects the issuance of 8.7 million restricted shares of Hanover common
stock as part of the purchase consideration. The ultimate number of shares
issued under the purchase agreement was determined based on $283 million divided
by the 30 day average closing price of Hanover common stock as defined under the
agreement and subject to a collar of $41.50 and $32.50. The estimated fair value
of the stock to be issued was $212.5 million, based on the market value of the
shares at the time the number of shares to be issued was determined reduced by
an estimated 20% discount due to the restrictions on the stock's marketability.
The total number of shares of Hanover common stock that was issued for the POI
acquisition was 8.7 million shares.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS --(Continued)
The pro forma adjustments to the accompanying Pro Forma Combined Condensed
Statements of Operations are described below:
a) The historical results of operations of POI have been reclassified to conform
with Hanover's presentation. These reclassifications had no impact on net
income.
b) Reflects the adjustment to CSD-DR's historical revenue and operating expenses
to conform to Hanover's accounting policy to recognize revenue from compressor
and equipment fabrication utilizing the percentage-of-completion method. CSD-DR
recognized revenue from compressor and equipment fabrication on the completed
contract method.
c) Reflects the reclassification of CSD-DR's depreciation expense to conform to
Hanover's financial statement presentation.
d) Reflects the reversal of certain POI and CSD-DR historical operating expenses
to conform to Hanover's accounting policies for capitalization of fixed assets.
e) Reflects the elimination of POI and CSD-DR historical depreciation and
amortization expense and interest expense.
f) Reflects the depreciation expense on the fair value of POI and CSD-DR's
property, plant and equipment. The preliminary estimate of the fair value of
POI's property, plant and equipment is $489 million which could change following
the completion of third party valuations of the acquired assets. The
depreciation for POI was based on the estimated value of property, plant and
equipment acquired, net of the sale of $366 million of compression equipment to
the Issuers. The recorded fair value of CSD-DR's property, plant and equipment
was $121 million. For the purposes of this adjustment, Hanover utilized a
fifteen-year average depreciable life and a twenty-percent salvage value for
compression equipment. There estimates are consistent with Hanover's estimate
for similar equipment and facilities for the periods included in these pro forma
combined condensed financial statements.
g) Reflects the amortization of $10.3 million of identifiable intangibles over
the estimated lives of these intangible assets which ranges from two to five
years. The estimated value of and the estimated life of the intangible assets
could change upon completion of third party valuations of the acquired assets.
In addition, this adjustment reflects the amortization of the excess of the
estimated fair value of the joint venture investments acquired from Schlumberger
over Hanover's share of the underlying net assets, which is currently estimated
to be approximately $12 million. This balance will be amortized over a period of
15 years, which reflects the estimated lives of the joint venture agreements.
h) Reflects the amortization of approximately $35 million of goodwill recorded
from the acquisition of CSD-DR. The goodwill is being amortized over a 20-year
period on a straight-line basis.
i) Reflects the operating lease expenses related to the sale and lease back of
equipment from the Issuers, including the amortization of estimated deferred
lease transaction costs of $10.7 million over the seven year lease term and $8.0
million over the ten year lease term with interest rates of 8 1/2% and 8 3/4% on
the 2008 and 2011 notes, respectively.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS --(Continued)
j) Reflects the reversal of the historical leasing expense related to the 1998
operating lease, including the amortization of the related deferred lease
transaction costs.
k) Reflects the interest expense resulting from the $150 million subordinated
acquisition note issued to Schlumberger and approximately $112 million of
borrowings on Hanover's credit facility in connection with the acquisition of
CSD-DR. The interest rate on the subordinated acquisition note is initially set
at 8.5%. The interest rate on Hanover's credit facility at the date of the
CSD-DR acquisition was approximately 7.5%.
l) Reflects the adjustment to the pro forma combined provision for income taxes
related to the foregoing adjustments based on the statutory rate.
m) Reflects the additional weighted average common and common equivalent shares
outstanding as if the common stock issued for the acquisition of POI and the
common stock issued for the acquisition of CSD-DR occurred on January 1, 2000.
The total number of shares of Hanover common stock that were issued for the POI
acquisition was 8.7 million shares.
n) For the purposes of calculating diluted net income per share, the
distributions on mandatorily redeemable convertible preferred securities have
been added back to net income. The after tax impact of this adjustment was $2.1
million and $4.1 million for the six months ended June 30, 2001 and the year
ended December 31, 2000, respectively.
o) Excludes the write off of unamortized deferred lease transaction costs of
$594,000, net of income taxes of $226,000, relating to the 1998 operating lease.