SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2001
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 NO. 1-3071
THE HANOVER COMPANIES RETIREMENT SAVINGS PLAN
(FULL TITLE OF THE PLAN)
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN, HOUSTON, TEXAS 77086
(NAME OF ISSUER OF THE SECURITIES HELD PURSUANT TO THE PLAN AND THE ADDRESS
OF ITS PRINCIPAL EXECUTIVE OFFICE)
Required Information
Item 4. Financial Statements and Supplemental Schedules for the Plan
The Hanover Companies Retirement Savings Plan (the "Plan") is subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). In
lieu of the requirements of Items 1-3 of this Form, the Plan is filing financial
statements and supplemental schedule prepared in accordance with the financial
reporting requirements of ERISA. The Plan's financial statements and
supplemental schedule has been examined by PricewaterhouseCoopers LLP,
Independent Accountants and their report is included herein beginning on page
F-1.
Exhibit
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 23 Consent of PricewaterhouseCoopers LLP Filed with this Report.
2
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan administrator for the Hanover Companies Retirement Savings Plan has duly
caused this Annual Report to be signed by the undersigned thereunto duly
authorized.
Hanover Companies Retirement Savings Plan
By: /s/ Michael J. McGhan
---------------------------------
Michael J. McGhan,
President/Chief Executive Officer
Date: June 27, 2002
3
The Hanover Companies
Retirement Savings Plan
Financial Statements and Supplemental Schedule
December 31, 2001 and 2000
F-1
Page
Report of Independent Accountants F-3
Financial Statements:
Statement of Net Assets Available for Benefits
at December 31, 2001 and 2000 F-4
Statement of Changes in Net Assets Available for Benefits
for the Year ended December 31, 2001 F-5
Notes to Financial Statements F-6
Supplemental Schedule:*
Schedule of Assets (Held at End of Year) F-14
* 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.
F-2
Report of Independent Accountants
To the Participants and Plan Administrator of
The Hanover Companies Retirement Savings Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Hanover Companies Retirement Savings Plan (the Plan) at December 31, 2001
and 2000, and the changes in net assets available for benefits for the year
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Assets (Held
at End of Year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. The
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/S/ PricewaterhouseCoopers LLP
Houston, Texas
June 21, 2002
F-3
The Hanover Companies Retirement Savings Plan
Statement of Net Assets Available for Benefits
December 31, 2001 and 2000
2001 2000
Investments:
Cash (Note 9) $ 19,819,122 $ 8,379
Hanover Compressor Company common stock, at fair value 7,726,973 7,818,791
Mutual funds, at fair value 9,213,451
Common/collective trusts, at fair value 2,924,160
Participant loans, at cost 1,838,622 978,895
------------ -----------
Total investments 29,384,717 20,943,676
------------ -----------
Employer contributions receivable 227,344 225,615
Employee contributions receivable 193,802
------------ -----------
Total receivables 227,344 419,417
Excess contributions payable (46,081)
------------ -----------
Net assets available for benefits $ 29,612,061 $21,317,012
============ ===========
The accompanying notes are an integral part of these financial statements.
F-4
The Hanover Companies Retirement Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2001
Additions to net assets attributed to:
Investment income (loss):
Net depreciation in fair value of mutual funds $ (1,249,309)
Net depreciation in fair value of common/collective trusts (71,907)
Net depreciation in fair value of Hanover Compressor
Company common stock (3,902,302)
Dividend income 583,018
Interest income 139,753
------------
Total investment income (loss) (4,500,747)
------------
Contributions:
Employer contributions 1,177,493
Employee contributions 5,314,594
Employee rollover contributions 3,308,763
Plan mergers (Note 5) 3,632,196
------------
Total contributions 13,433,046
------------
Total additions to net assets 8,932,299
Deductions from net assets attributed to:
Benefits paid 626,333
Administrative expenses 10,917
------------
Total deductions from net assets 637,250
------------
Net increase in net assets available for benefits 8,295,049
Net assets available for benefits:
Beginning of year 21,317,012
------------
End of year $ 29,612,061
============
The accompanying notes are an integral part of these financial statements.
F-5
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
1. Description of Plan
The Hanover Companies Retirement Savings Plan (the Plan) was adopted
effective January 1, 1994 by Hanover Compressor Company (the Company) and
replaced the Company's former plan, the Hanover Energy Employee's Savings
Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all domestic employees of
the Company. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
Participation
A domestic employee of the Company is generally eligible to become a
participant in the Plan upon attainment of eighteen years of age and six
months of service with the Company.
Contributions
Participants may contribute up to 20% of their pre-tax compensation, as
defined in the Plan document. Participants may also elect to make rollover
contributions to the Plan from other qualified retirement plans. The
Company may make discretionary contributions to the Plan in the form of
matching contributions of 35% of each participant's contributions for the
Plan year, up to an annual maximum of $1,000 per individual. Participants
who were employed on the last day of the Plan year or who died, became
disabled while an employee of the Company or terminated employment after
obtaining normal retirement age, as defined in the Plan document, during
the Plan year are eligible for an allocation of discretionary Company
contributions. The Company made discretionary contributions of $1,177,493
during the Plan year ended December 31, 2001.
Participant contributions may not exceed the maximum statutory limit, which
was $10,500 for the Plan year ended December 31, 2001. Participants may
change their contribution percentage on a quarterly basis.
All Company matching contributions are made in the form of Hanover
Compressor Company common stock. With regards to the Company matching
contributions, participants may not withdraw or reallocate such amounts to
other Plan investment options until the participant terminates
participation in the Plan.
F-6
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
Participant Accounts
Each participant's account is credited with the participant's
contributions, Company contributions and an allocation of Plan earnings and
forfeitures of terminated participants' nonvested accounts. 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 participant's vested account balance.
Vesting
Participants are immediately vested in their voluntary contributions plus
actual earnings thereon. Participants become vested in the Company's
contributions, including reallocated forfeiture accounts, and actual
earnings thereon at the rate of 20% per year after two years of employment
with the Company subject to limitations by the Plan document.
Forfeitures
Forfeited nonvested Company contributions are allocated to current Plan
participants on an annual basis based on the ratio of each individual
participant's total compensation to the total compensation of all eligible
Plan participants for the Plan year as defined by the Plan document. For
the year ended December 31, 2001, forfeited nonvested amounts totaling
$33,947 were allocated to Plan participants. As of December 31, 2001, there
were $49,732 of forfeited nonvested accounts which had not yet been
allocated to Plan participants.
Investment Options
During the year ended December 31, 2001, participants were able to direct
their contributions among 23 different investment options consisting of
Hanover Compressor Company common stock, common/collective trusts and
mutual funds.
As further discussed in Note 9, effective December 31, 2001 all of the
Plan's investments, with the exception of Hanover Compressor Company common
stock, were converted to cash.
Payment of Benefits
A participant may elect to withdraw any part of his or her vested account
upon retirement, termination of employment, death or disability or
attainment of age 59 1/2. Benefits may be paid by either a lump-sum amount
equal to the value of his or her account or periodic installments. A
lump-sum payment is automatically distributed to terminated participants
with vested balances equal to or less than $5,000. Withdrawals of vested
balances due to immediate and heavy financial need are also permitted
subject to the terms of the Plan document.
F-7
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
Participant Loans
Participants may borrow from their accounts a minimum of $500 up to a
maximum of the lesser of $50,000 or 50% of the value of the participant's
vested account balance in the Plan. Loans are secured by the vested balance
in the participant's account and bear interest at a rate determined by the
Plan administrator in accordance with the terms of the Plan document. As of
December 31, 2001 and 2000, the interest rate on outstanding loans ranged
from 5.0% to 11.5% and 7.5% to 11.5%, respectively. Loan repayments are
made through payroll deductions and interest paid on loans is credited to
the applicable participant's 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 accountants and
other such specialists as are deemed necessary for operation of the Plan.
Merrill Lynch served as the trustee, record keeper and investment manager
of the Plan. As discussed in Note 9, effective January 1, 2002, Merrill
Lynch's duties were transferred to INVESCO Retirement, Inc.
Expenses of the Plan
Expenses of 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, 2001 represent the
sum of charges to individual participant accounts for specific transactions
initiated by the applicable participants 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 and in accordance with the provisions of the American
Institute of Certified Public Accountants Statement of Position 99-3,
"Accounting for and Reporting of Certain Defined Contribution Plan
Investments and Other Disclosure Matters." The following is a summary of
the Plan's significant accounting policies:
F-8
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
Use of Estimates
The preparation of the Plan's 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 Plan's investments in mutual funds and Hanover Compressor Company
common stock are stated at fair market value based on period ending quoted
market prices. Common/collective trusts are stated at fair market value of
the applicable trusts' underlying net assets as determined by the quoted
market prices for securities which market quotations are available or with
respect to securities for which no quotations are available, fair values as
determined in good faith by Merrill Lynch. Cash and participant loans are
valued at cost, which approximates fair market value.
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 Plan's investments pay investment advisory fees and/or 12b-1
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 the Company, 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 Plan's investments. It is reasonably possible that
changes in the economic environment will occur in the near term
F-9
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
and that such changes will have a material effect on the market value of
the Plan's investments and/or credit risk relating to such investments.
4. Investments
Plan investments as of December 31, 2001 and 2000 that represent five
percent or more of the Plan's net assets available for benefits are as
follows:
December 31,
------------------
2001 2000
---- ----
Cash (Note 9) $19,819,122
Common stock:
Hanover Compressor Company 7,726,973 $7,818,791
Commom/collective trusts:
Merrill Lynch Retirement
Preservation Trust 2,380,810
Mutual funds:
Merrill Lynch Balanced Capital Fund 1,396,221
Merrill Lynch Global Allocations Fund 1,835,861
Merrill Lynch Growth Fund 1,359,429
Merrill Lynch Focus Value Fund 1,311,699
The Plan's only investment option which is nonparticipant directed is its
investment in Hanover Compressor Company common stock as it relates to
Company contributions. As follows is a summary of the change in the Plan's
investment in Hanover Compressor Company common stock for the year ended
December 31, 2001:
Net depreciation in fair value of common stock $(3,902,302)
Interest income on participant loans 23,644
Employer contributions 1,175,764
Employee contributions 1,158,380
Employee rollover contributions 563,991
Loan repayments 119,831
Transfers (to) from other investment options, net 891,064
Benefits paid (122,190)
-----------
Net decrease (91,818)
Total investment
Beginning of year 7,818,791
-----------
End of year $ 7,726,973
===========
5. Plan Mergers
Effective October 1, 2001, the Company merged the assets of four similar
defined contribution retirement plans into the Plan.
F-10
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
Such plans were sponsored by certain of the Company's operating
subsidiaries prior to the Company's acquisition of these entities. The
participants in these plans became eligible to participate in the Plan in
conjunction with the Company's acquisition of the applicable entity. Such
acquisitions were completed by the Company at various times from 1999 to
2001.
6. 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 Plan's
termination.
7. Tax Status
The Internal Revenue Service has determined and informed the Company by a
letter dated December 6, 1995 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 Plan's tax
counsel believe that the Plan is designed and is currently being operated
in compliance with the applicable requirements of the IRC.
8. Party-In-Interest Transactions
Certain of the Plan's investments are managed by Merrill Lynch, the trustee
and record keeper of the Plan. Transactions involving these investments
occur at quoted market values. Consequently, such transactions are
permitted under the provisions of the Plan and are exempt from prohibition
of party-in-interest transactions under ERISA.
Additionally, the Plan provides for investment in shares of the Company's
common stock. As the Company is the Plan Sponsor, these transactions
qualify as party-in-interest transactions under ERISA.
9. Change of Record Keeper, Investment Manager and Trustee
Effective January 1, 2002, the Plan administrator changed the Plan's
investment manager, record keeper and trustee from Merrill Lynch to INVESCO
Retirement, Inc. (INVESCO). As a result of the change, certain of the
Plan's available investment options were no longer available to
participants. In preparation for the
F-11
The Hanover Companies Retirement Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
transfer, Merrill Lynch converted all investments, with the exception of
Hanover Compressor Company common stock, to cash on December 31, 2001. The
Plan's assets were transferred to INVESCO on January 2, 2002. All
investment options converted to cash prior to the transfer were mapped to
investments with similar investment objectives upon receipt of the funds by
INVESCO.
F-12
Supplemental Schedule
F-13
The Hanover Companies Retirement Savings Plan
Schedule of Assets (Held at End of Year)
December 31,2001
(c) (d) (e)
(a) (b) Description Historical Current
Identity of issuer of asset cost value
------------------ ----------- ------------ ------------
Cash Cash $ 19,819,122 $ 19,819,122
* Hanover Compressor Company Common stock 7,702,171 7,726,973
* Participant loans Interest rates
ranging from
5.0% to 11.5% with
varying maturity dates 1,838,622 1,838,622
------------ ------------
Assets held for investment $ 29,359,915 $ 29,384,717
============ ============
* Denotes party in interest as defined by ERISA.
F-14