þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Exhibit Number | Description | |
23.1
|
Consent of Melton & Melton, L.L.P. | |
23.2
|
Consent of PricewaterhouseCoopers LLP |
2
The Hanover Companies Retirement Savings Plan | ||||
Date: June 27, 2006 | ||||
By:
|
/s/ ANITA H. COLGLAZIER
|
|||
Vice President, Controller |
3
F-1
Page(s) | ||||
F-3 | ||||
Financial Statements |
F-5 | |||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Supplemental Schedules* |
F-15 | |||
F-15 | ||||
F-16 |
* | Other schedules required by Section 2520.103-10 of the Department of Labor Rules and Regulations for Reporting and Disclosure under ERISA have been omitted because they are not applicable. | |||||||
Consent of Melton & Melton, L.L.P. | ||||||||
Consent of PricewaterhouseCoopers LLP |
F-2
F-3
F-4
December 31 | ||||||||
2005 | 2004 | |||||||
Assets |
||||||||
Investments |
||||||||
Investments at fair value |
$ | 84,576,663 | $ | 79,518,971 | ||||
Participant loans, at cost |
2,548,147 | 2,352,975 | ||||||
Total investments |
87,124,810 | 81,871,946 | ||||||
Receivables |
||||||||
Employer contribution |
542,223 | 534,354 | ||||||
Participant contribution and catch-up |
242,495 | | ||||||
Participant Loan |
36,668 | | ||||||
ERISA and Securities Settlement Fund |
1,370,010 | | ||||||
Total assets |
$ | 89,316,206 | $ | 82,406,300 | ||||
Liabilities |
||||||||
Corrective distributions payable |
$ | 160,876 | $ | 1,033,177 | ||||
Net assets available for benefits |
$ | 89,155,330 | $ | 81,373,123 | ||||
F-5
Additions to net assets attributed to |
||||
Investment income |
||||
Net appreciation in fair value of mutual funds |
$ | 1,376,190 | ||
Net appreciation in fair value of common collective trusts |
465,923 | |||
Net appreciation in fair value of Hanover Compressor
Company common stock |
124,022 | |||
Net appreciation in fair value of other common stock |
1,332,098 | |||
Dividend income |
2,833,602 | |||
Interest income |
124,659 | |||
Total investment income |
6,256,494 | |||
Gain on ERISA and Securities Settlement |
1,731,710 | |||
Contributions |
||||
Employer contributions |
2,282,818 | |||
Participant contributions |
6,358,079 | |||
Participant rollover contributions |
159,054 | |||
Total contributions |
8,799,951 | |||
Total additions to net assets |
16,788,155 | |||
Deductions from net assets attributed to |
||||
Benefits paid |
8,628,118 | |||
Corrective distributions payable |
160,876 | |||
Administrative expenses |
216,954 | |||
Total deductions from net assets |
9,005,948 | |||
Net increase in net assets available for benefits |
7,782,207 | |||
Net assets available for benefits |
||||
Beginning of year |
81,373,123 | |||
End of year |
$ | 89,155,330 | ||
F-6
1. | Description of Plan | |
The Hanover Companies Retirement Savings Plan (the Plan) was adopted effective January 1, 1994, by Hanover Compressor Company (Hanover) and replaced Hanovers former plan, The Hanover Energy Employees Savings Plan. On December 29, 1999, the sponsor of the Plan became Hanover Compression Limited Partnership (the Company or the Plan Sponsor), an indirect wholly owned subsidiary of Hanover. | ||
The following description of the Plan provides only general information. Participants should refer to the plan document for a more complete description of the Plans provisions. | ||
General | ||
The Plan is a defined contribution plan covering all employees of the Company and of its participating affiliates. It is subject to the provisions of the Employee Retirement Income Security Act of l974 (ERISA). | ||
Participation | ||
An employee of the Company or one of its participating affiliates is generally eligible to become a participant in the Plan on the first day of the month upon attainment of eighteen years of age and six months of service with the Company. Participants may elect to discontinue participation in the Plan at any time. | ||
Contributions | ||
Participants may contribute on a pretax basis up to 25% of their compensation, as defined in the plan document. Participants may also elect to make rollover contributions to the Plan from other qualified retirement plans. Participant contributions may not exceed the maximum statutory limit, which was $14,000 for the plan year ended December 31, 2005, except that participants age 50 or older during the plan year may elect to make an additional contribution which could not exceed $4,000 during the year ended December 31, 2005. Participants may change their contribution percentage at any time during the plan year. | ||
Company matching contributions, which are discretionary and subject to change at the election of the Company at any time, are determined based on each participants eligible compensation (as defined in the plan document) and contributed to the Plan in cash and invested in each individual participants account in accordance with their investment allocation elections on a quarterly basis. For the year ended December 31, 2005, Company matching contributions were made to each participants account at a rate of 50% of each participants contributions up to 6% of eligible compensation. | ||
Participant Accounts | ||
Each participants account is credited with the participants contributions, Company matching contributions and an allocation of Plan earnings. All Plan assets are allocated to individual participant account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participants vested account balance. |
F-7
F-8
made through payroll deductions and interest paid on loans is credited to the applicable participants account. Participant loans are generally repaid over a period not to exceed five years. | ||
Administration | ||
The Plan is sponsored by the Company and certain officers and employees of the Company serve as the plan administrator. The plan administrator has the power and duty to take all actions and make all decisions necessary to properly carry out the provisions of the Plan subject to the terms of the plan document. These powers and duties include, among other things, the interpretation of Plan provisions and the engagement of a trustee, record keeper, investment manager, legal counsel, independent registered public accounting firm and other such specialists as are deemed necessary for operation of the Plan. AMVESCAP National Trust Company (ANTC) is the trustee of the Plan and AMVESCAP Retirement Inc. (ARI) was the Plans recordkeeper until Merrill Lynch acquired ARI in 2005 and ARI became part of The Princeton Retirement Group, Inc. (PRG), a subsidiary of Merrill Lynch. | ||
Expenses of the Plan | ||
Expenses associated with sponsoring and maintaining the Plan are generally paid for by the Company. Administrative expenses reflected on the accompanying statement of changes in net assets available for benefits for the year ended December 31, 2005, represent the sum of charges to individual participant accounts for participant specific transactions and certain administrative expenses of the Plan which are allocated to participant accounts on a per capita basis in accordance with the plan document. | ||
2. | Summary of Significant Accounting Policies | |
The financial statements of the Plan are prepared on an accrual basis in accordance with accounting principles generally accepted in the United States of America. The following is a summary of the Plans significant accounting policies: | ||
Use of Estimates | ||
The preparation of the Plans financial statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator to make estimates and assumptions that affect the reported amounts of net assets available for benefits at the date of the financial statements and changes in net assets available for benefits during the reporting period and, when applicable, disclosures of contingent assets and liabilities at the date of the preparation of the financial statements. Actual results could differ from those estimates. | ||
Payment of Benefits | ||
Benefits are recorded when paid. | ||
Valuation of Investments | ||
The Plans investments in mutual funds, participant directed brokerage account and common stocks are stated at fair value based on period ending quoted market prices. Common collective trusts are stated at fair value of the applicable trusts underlying net assets. Participant loans are valued at cost, which approximates fair value. |
F-9
Investment Income Recognition | ||
The net appreciation (depreciation) in fair value of investments includes the realized gain or loss on investments bought and sold during the year as well as the unrealized change in fair value of such investments during the year. Purchases and sales of securities are reflected on a trade-date basis. Dividend income is recorded on the ex-dividend date and interest income is recorded as earned. | ||
Certain of the Plans investments pay investment advisory fees and/or 12b-l fees and administrative expenses. These fees are reflected in the valuation of these investments. | ||
3. | Concentrations of Credit and Market Risk | |
Certain investments, including the common stock of Hanover, potentially subject the Plan to concentrations of credit and market risk. The Plan does not obtain or require collateral for these investments. Changes in the domestic and international economic environment and other factors outside the control of the Plan have a direct impact on the market value and/or credit risk of the Plans investments. It is reasonably possible that changes in the economic environment will occur in the near term and that such changes will have a material effect on the market value of the Plans investments, or credit risk relating to such investments and therefore could materially affect participants account balances and the amounts reported in the statements of net assets available for benefits. | ||
4. | Investments | |
Plan investments as of December 31, 2005 and 2004, that represent 5% or more of the Plans net assets available for benefits are as follows: |
2005 | 2004 | |||||||
Common stock |
||||||||
*
Hanover Compressor Company |
$ | 9,314,919 | $ | 9,120,511 | ||||
Common/collective trusts |
||||||||
INVESCO Core Fixed Income |
5,856,527 | 5,356,943 | ||||||
INVESCO Stable Value |
18,570,025 | 18,860,518 | ||||||
Mutual funds |
||||||||
Van Kampen Equity Income Fund |
10,898,195 | | ||||||
American Growth Fund of America |
8,800,999 | 7,006,408 | ||||||
Hotchkis & Wiley Large Cap Value Fund |
6,735,189 | | ||||||
AIM Balanced Fund A Shares |
| 12,525,476 | ||||||
AIM Basic Value Fund A Shares |
| 7,403,096 |
* | Includes $409,190 and $409,770 for 2005 and 2004, respectively, of Hanover Compressor Company common stock included in the participant directed brokerage account. |
F-10
5. | Plan Termination | |
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contribution at any time and to terminate the Plan subject to the provisions of ERISA. If the Plan were to be terminated in the future, all participants would immediately become fully vested in their entire account balance at the time of the Plans termination. | ||
6. | Tax Status | |
The Internal Revenue Service has determined and informed ARI by a letter dated August 30, 2001, that the Plan is designed in accordance with applicable sections of the Internal Revenue Code (IRC). As a result, it is believed that the Plan is exempt from taxation under the applicable sections of the IRC. The Plan has been amended since receiving the determination letter. However, the plan administrator and the plans tax counsel believe the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. | ||
7. | Party-In-Interest Transactions | |
Certain Plan investments are shares of mutual funds managed by ANTC. ANTC is the trustee as defined by the Plan, and therefore, these transactions qualify as party-in-interest. | ||
The Plan also provides for investment in shares of Hanover common stock. As the Company is an indirect wholly owned subsidiary of Hanover, these transactions qualify as party-in-interest transactions under ERISA. Additionally, participant loans also qualify as party-in-interest transactions under ERISA. These transactions are covered by an exemption from the prohibited transaction provisions of ERISA and the IRC. | ||
8. | Legal Proceedings | |
Hanover and certain of its past and present officers and directors were named as defendants in a consolidated federal court action that included a putative securities class action, arising under the Employee Retirement Income Security Act (ERISA) and shareholder derivative actions. The litigation related principally to the matters involved in the transactions underlying the restatements of Hanovers financial statements in 2002. The plaintiffs alleged, among other things, that Hanover and the other defendants acted unlawfully and fraudulently in connection with those transactions and Hanovers original disclosures related to those transactions and thereby violated the antifraud provisions of the federal securities laws and the other defendants fiduciary duties to Hanover. | ||
On October 23, 2003, Hanover entered into a Stipulation of Settlement, which settled claims underlying the putative securities class action, the putative ERISA class action and the shareholder derivative actions described above. The terms of the settlement provided for Hanover to: (1) make a cash payment of approximately $30,000,000 (of which $26,700,000 was funded by payments from Hanovers directors and officers insurance carriers), (2) issue 2,500,000 shares of its common stock, and (3) issue a contingent note with a principal amount of approximately $6,700,000. In April 2004, Hanover issued the $6,700,000 contingent note related to the securities settlement. The note was payable, together with accrued interest, on March 31, 2007, but was extinguished (with no money owing under it) during the third quarter of 2004 under the terms of the note since Hanovers common stock traded above the average price of $12.25 per share for 15 consecutive trading days. In addition, upon the occurrence of a change of control that involves Hanover, if a change of control or shareholder approval of a change of control occurred before February 9, 2005, which is twelve months after final court approval of the settlement, Hanover would have been obligated to contribute an additional $3,000,000 to the settlement fund. As part of the settlement, Hanover agreed to implement corporate governance enhancements, including allowing shareholders owning more than 1% but less than 10% of |
F-11
F-12
In addition to being members of the ERISA class, Plan participants may also be members of the securities class, and thus may be entitled to participate in the distribution of the Securities Settlement Fund. If a Plan participant had a net loss after all profits from transactions in Hanover securities during the class period are subtracted from all losses, then they are eligible to receive a distribution from the Securities Settlement Fund. The value of the Securities Settlement Fund at the time the Stipulation of Settlement was executed was more than $80,000,000 consisting of cash, Hanover Common Stock, and a note with a face amount of approximately $6,700,000. However, the note was subsequently extinguished pursuant to its terms. After deducting a portion of the Securities Settlement Fund to pay certain taxes, fees, and expenses associated with the maintenance of the Fund and the settlement of the securities actions, the balance will be distributed to the securities class members according to the plan of allocation approved by the court and the amount of other claims made against the Securities Settlement Fund. | ||
The Plan participants received 19,994 shares of Hanover common stock and $84,583 from the Securities Settlement and ERISA Fund in August and November 2005, respectively. The final settlement amount of $1,370,010 was distributed to the Plan participants in February 2006. Included in this amount are funds that were distributed to terminated employees that are no longer actively participating in the Plan and who may subsequently roll out or cash out their Settlement distributions. This amount was recorded as a receivable at December 31, 2005 in the accompanying statement of net assets available for benefits and a gain from ERISA and Securities Settlement Fund in the accompanying statement of changes in net assets available for benefits for the year ended December 31, 2005. | ||
9. | Corrective Distributions Payable | |
The amount contributed to the Plan from highly compensated employees in excess of the limits permitted under the non-discrimination compliance testing requirements of the Internal Revenue Service was $160,876 and $249,331 in 2005 and 2004, respectively. These amounts are included in corrective distributions payable on the accompanying statements of net assets available for benefits. All such amounts were refunded to the participants on February 24, 2006 and March 14, 2005, respectively. | ||
During 2004, a determination was made that several of the Companys employees who were participating in the Plan either: 1) were employed by an affiliate that had not adopted the Plan and therefore were not eligible for participation in the plan and/or 2) did not have compensation within the meaning of IRC Section 3401(a) or their Section 3401(a) compensation was less than the compensation considered for them by the Plan in operation. | ||
The Plan filed a request with the IRS pursuant to its Voluntary Correction Procedures under the IRS EPCRS Program. Upon review of the request, the IRS advised the Plan that it would not permit a retroactive adoption of the Plan by the affiliate and to maintain the qualified status of the Plan, the IRS required that the contributions made by the affiliates participants (adjusted for investment gains and losses) be returned to them and that employer matching amounts made on their behalf (again adjusted for investment gains and losses) to be forfeited. The 2004 statement of net assets available for benefits includes approximately $784,000 as corrective distributions payable related to these distributions. In addition, the 2004 statement of net assets available for benefits includes approximately $187,000 of employer matching contributions that were forfeited. The actual distribution of $630,652 was made in September 2005. |
F-13
Effective April 1, 2005, the Plan was formally adopted by the affiliate on a prospective basis and was amended to provide that compensation means compensation for IRC Section 415 purposes to avoid the issue raised by the prior reference to Section 3401 (a). | ||
10. | Subsequent Events | |
Effective January 1, 2006, an employee of the Company or one of its participating affiliates is eligible to participate in the Plan on the first day of the month following the date of hire coinciding with when the employee is eighteen years of age. | ||
In February, 2006, the Company approved the selection of Prudential Retirement to serve as the Plans administrator, Trustee and record keeper. The transition to Prudential Retirement is expected to begin in October 2006. |
F-14
(d) | (e) | |||||||||||
(b) | (c) | Historical | Current | |||||||||
(a) | Identity of Issuer | Description of Asset | Cost | Value | ||||||||
* |
Hanover Compressor Company | Common stock | * | * | $ | 8,905,729 | ||||||
American Europacific Growth | Mutual Fund | * | * | 2,572,761 | ||||||||
American Growth Fund of America | Mutual Fund | * | * | 8,800,999 | ||||||||
Excelsior Value & Restructuring | Mutual Fund | * | * | 4,055,603 | ||||||||
Fidelity Advisor Mid Cap | Mutual Fund | * | * | 2,953,209 | ||||||||
Fidelity Advisor Small Cap | Mutual Fund | * | * | 2,018,358 | ||||||||
Franklin Balance Sheet Investment | Mutual Fund | * | * | 2,430,918 | ||||||||
Hotchkis & Wiley Large Cap Value Fund | Mutual Fund | * | * | 6,735,189 | ||||||||
SSGA Money Market | Mutual Fund | * | * | 903,415 | ||||||||
Van Kampen Equity Income Fund | Mutual Fund | * | * | 10,898,195 | ||||||||
* |
INVESCO 500 Index Trust | Common collective trust | * | * | 1,638,254 | |||||||
* |
INVESCO Structured Small Cap Value Equity | Common collective trust | * | * | 1,718,492 | |||||||
* |
INVESCO Core Fixed Income | Common collective trust | * | * | 5,856,527 | |||||||
* |
INVESCO Stable Value | Common collective trust | * | * | 18,570,025 | |||||||
*** |
Participant Directed Brokerage Account | Common stock and Mutual Fund | * | * | 6,518,989 | |||||||
* |
Participant Loans | Interest rates ranging from 5.00% to 11. 50% with varying maturity dates | 0 | 2,548,147 | ||||||||
$ | 87,124,810 | |||||||||||
* | Denotes party in interest as defined by ERISA. | |
** | All investments are participant directed therefore cost information is not required. |
|
*** | Includes $409,190 invested in Hanover Compressor Company common stock, which qualifies as a party-in-interest |
F-15
Participant contributions transferred | Total that constitutes nonexempt | |
late to plan | prohibited transactions | |
$16,946 |
$17,097 |
F-16
Exhibit | ||
Number | Description | |
23.1
|
Consent of Melton & Melton, L.L.P. | |
23.2
|
Consent of PricewaterhouseCoppers LLP |