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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K
 (Mark One) x
    
    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES ACT OF 1934
 For the year ended December 31, 2003 OR o
    
    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. 333-75818  Hanover Equipment Trust 2001B
 (Exact name of registrant as specified in its charter)
 Delaware
    
    51-6523442(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)c/o Wilmington Trust CompanyRodney Square North1100 North Market StreetWilmington, Delaware
    
    19890(Address of Principal Executive Offices)
    
    (Zip Code)
 (302) 651-1000
(Registrants telephone number, including area code) Securities registered
pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act: None  þ o
 Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes þ  No o As of June 30, 2003, no common equity securities of Hanover Equipment
Trust 2001B (the Registrant) were held by non-affiliates of the Registrant.
The Registrant is a special purpose Delaware business trust and its sole equity
certificate holder is General Electric Capital Corporation. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes
o  No
þ Documents Incorporated by Reference: NONE The Index to Exhibits begins on page 14.




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TABLE OF CONTENTS  PART IITEM 1. BusinessITEM 2. PropertiesITEM 3. Legal ProceedingsITEM 4. Submission of Matters to a Vote of Security HoldersPART IIITEM 5. Market for Registrants Common Equity and Related Stockholder MattersITEM 6. Selected financial DataITEM 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 7A. Quantitative and Qualitative Disclosures about Market RiskITEM 8. Financial Statements and Supplementary DataITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureITEM 9A. Controls and ProceduresPART IIIITEM 10. Directors and Executive Officers of Hanover Equipment Trust 2001BITEM 11. Executive CompensationITEM 12. Security Ownership of Certain Beneficial Owners and ManagementITEM 13. Certain Relationships and Related TransactionsITEM 14. Principal Accountant Fees and ServicesPART IVITEM 15. Exhibits, Financial Statement Schedules and Reports of Form 8-KSIGNATURESReport of Independent AuditorsBALANCE SHEETSTATEMENT OF OPERATIONSSTATEMENT OF CASH FLOWSSTATEMENT OF CERTIFICATE HOLDERS EQUITYNOTES TO CONDENSED FINANCIAL STATEMENTSEXHIBIT INDEXCertification of Pursuant to Section 302Certification of Pursuant to Section 906    Table of Contents  PART I DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements intended to qualify for the
safe harbors from liability established by the Private Securities Litigation
Reform Act of 1995. All statements other than statements of historical fact
contained in this report are forward-looking statements. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as believes, anticipates, expects,
estimates, or words of similar import, although some forward-looking
statements are expressed differently. Statements that describe future plans,
objectives or goals of Hanover Equipment Trust 2001B (the Registrant,
Trust, we, us or our) are also forward looking statements. You should
consider these statements carefully because they describe our expectations and
beliefs concerning future business conditions, our results of operations,
financial position, and our business outlook or state other forward-looking
information based on currently available information. These forward-looking
statements are subject to certain risks and uncertainties applicable to the
Trust. These forwardlooking statements are also subject to certain risks and
uncertainties applicable to Hanover Compression Limited Partnership (HCLP),
to which we lease all of the equipment owned by the Trust, and Hanover
Compressor Company (Hanover), the ultimate parent company of HCLP to which
(along with HCLP) we look for all of the Trusts revenue. All of these risks
and uncertainties could cause actual results to differ materially from those
anticipated as of the date of this report. The risks and uncertainties related
to Hanovers and HCLPs businesses, as may be described in more detail in
Hanovers Annual Report on Form 10-K for the year ended December 31, 2003, and
HCLPs Annual Report on Form 10-K for the year ended December 31, 2003, and in
subsequent filings by Hanover and HCLP with the SEC, could cause our actual
results to differ from those described in, or otherwise projected or implied
by, the forward-looking statements set forth herein. The risks and
uncertainties include:  
    
    competition among the various providers of contract compression services;
    
    reduced profit margins or the loss of market share resulting from competition, including pricing
pressure in Hanovers and HCLPs business;
    
    the introduction of competing technologies by other companies;
    
    the inability to meet the new or modified covenants of the new bank credit facility;
    
    a prolonged substantial reduction in oil and natural gas prices, which would cause a decline in
the demand for HCLPs compression and oil and natural gas production equipment;
    
    governmental safety, health and environmental regulations which could require Hanover and HCLP to
make significant expenditures;
    
    currency fluctuations and changes in interest rates;
    
    changes in economic or political conditions in the countries in which Hanover and HCLP do business;
    
    adverse results in litigation or regulatory proceedings to which Hanover and/or HCLP is a party;
    
    inability of Hanover or HCLP to comply with covenants in or defaults under, their debt agreements
and the agreements related to their compression equipment lease obligations and the decreased
financial flexibility associated with Hanovers and HCLPs substantial debt;
    
    Hanovers or HCLPs future ability to refinance existing debt that is maturing or incurring
additional indebtedness to fund Hanovers and HCLPs business;
    
    increases in Hanovers and HCLPs senior indebtedness, and increases in any indebtedness and other
liabilities of Hanovers and HCLPs respective subsidiaries, which in each such case are senior to
the obligations of Hanover and HCLP under the guarantees; 1




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
    
    adverse changes in Hanovers credit rating;
    
    legislative changes in the various countries in which Hanover and/or HCLP do business;
    
    the current or future value of the equipment may be less than the appraised value, and the
proceeds realized upon the exercise of remedies may not be sufficient to satisfy in full
amounts owing on the notes;
    
    Hanovers or HCLPs inability to renew its short-term leases of equipment with its
customers so as to fully recoup the cost of the equipment;
    
    Hanovers or HCLPs inability to generate sufficient cash, access capital markets or to
incur indebtedness to fund their business;
    
    Losses incurred by Hanover and HCLP due to inherent risks associated with their operations,
including equipment defects, malfunctions and failures and natural disasters;
    
    War, social unrest, terrorist attacks, and/or the responses thereto;
    
    Hanovers and/or HCLPs inability to successfully integrate acquired businesses;
    
    Hanovers and/or HCLPs inability to execute their exit and sale strategy with respect to
assets classified on their balance sheet as discontinued operations and held for sale;
    
    Hanovers and/or HCLPs inability to properly implement new enterprise resource planning
systems used for integration of their accounting, operations and information systems;
    
    Hanovers and/or HCLPs inability to reduce debt relative to their total capitalization; and
    
    Changes in federal bankruptcy or tax law, comparable state laws or accounting principles. All subsequent written and oral forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. The
forward-looking statements included herein are only made as of the date of this
report, and we undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances. 2




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ITEM 1. Business Hanover Equipment Trust 2001B (the Trust) is a Delaware special purpose
business trust which was formed in August 2001. The Trust was formed solely to:
(i) issue the 8.75% senior secured notes due 2011 (the Notes), (ii) execute,
deliver and perform the operating agreements to which it is a party, and (iii)
use the proceeds of the Notes and the related equity certificates to purchase
approximately $257.8 million of natural gas compression equipment from Hanover
Compression Limited Partnership (HCLP) and certain of its subsidiaries. The
equity funding, issuance of the Notes and equipment purchase occurred on August
30, 2001. The Trust leased its natural gas compression equipment back to HCLP
under a ten-year operating lease (the Lease). In addition to rental payments,
HCLP is obligated to pay supplemental rent, costs, taxes, indemnities, and
other amounts owing under the Lease. In addition, HCLP is obligated to pay the
underwriting, legal, accounting and other costs of the transactions for the
Trust. General Electric Capital Corporation (GE Capital) holds the Trusts
equity certificate. The equity certificate represents a common undivided
beneficial interest in the assets of the Trust with an aggregate liquidation
amount equal to at least 3% of the total capital of the Trust. Because it is
the sole equity certificate holder of the Trust, GE Capital is the owner of the
Trust. However, GE Capital has no obligation to pay the principal or interest
on the Notes. Although Hanover and its affiliates have had arms-length business
dealings with GE Capital and its affiliates in the past and may do so in the
future, none of these transactions have resulted in and are not expected to
result in any material conflict of interest between GE Capital and the Trust. Under the Lease, the Trust receives lease payments that are sufficient in
amount to pay interest on the Notes, and to provide a yield to the equity
certificate holder. On or after September 1, 2006, HCLP has an option to
purchase the leased equipment from the Trust for an amount sufficient to repay
the Notes in full. If HCLP does not exercise its option to purchase all the
leased equipment, HCLP is required to use its best efforts to sell the
equipment on the Trusts behalf. In such event, at the end of the lease term,
HCLP is required to make a final rent payment equal to approximately $175
million, plus the proceeds from the sale of the leased equipment. All of these
amounts will be applied to repay the Notes. If the final rent payment and the
proceeds from the sale of the leased equipment are insufficient to pay the
Notes in full, HCLP will be liable for an assessment of additional rent with
respect to actual excess wear and tear of the leased equipment, as determined
by an independent appraisal procedure. If the sale option is exercised, the
final rent payment, sale proceeds and the assessment of additional rent may not
be sufficient for the Trust to repay the Notes in full. To the extent the final
rent payment and the proceeds from the sale of leased equipment exceed the
amounts required to pay the Notes, the excess will be used first to repay
contributed capital to the equity certificate holder and the balance, if any,
will thereafter be returned to HCLP. Hanover has guaranteed the obligations
under the Lease. The Trusts obligations under the Notes are jointly and severally
guaranteed, unconditionally and on a senior subordinated basis, by Hanover and
HCLP for an amount up to 70.0% of the aggregate principal balance of Notes
outstanding, which is equal to the final rent payment under the Lease. If there
is no event of default under the operating lease and HCLP does not purchase the
leased equipment, neither Hanover nor HCLP has any obligation to pay the other
30.0% of the aggregate principal balance of Notes outstanding, and the holders
of Notes will be dependent upon the final rent payment, the proceeds of the
sale of leased equipment and the assessment of additional rent, if any, to
repay the outstanding principal balance of the Notes in full. The value of the
leased equipment may decline prior to the end of the lease term due to market
and economic conditions, the supply of similar types of equipment, the
availability of buyers and the condition of the leased equipment, among other
factors. If there is an event of default under the Lease, Hanover and HCLP
guarantee, jointly and severally, on a senior subordinated basis, all of the
Trusts obligations under the Notes. In February 2003, the Trust completed a registered offering pursuant to a
registration statement on Form S-4 to exchange its 8.75% senior secured notes
due 2011 (the new notes) for all of its outstanding 8.75% senior secured
notes due 2011 (the old notes). The exchange offer provided that holders of
the old notes would receive $1,000 principal amount of new notes for each $1,000 principal amount of old notes exchanged. The terms of the new notes
are identical to the terms of the old notes except that the new
notes are freely transferable under the Securities Act of 1933 and do not have
any exchange or registration rights. In March 2003, the exchange offer was
completed and all of the old notes were exchanged for new notes. Because the
dates of these financial statements relate to periods prior to and after the
exchange, when we refer to the Notes in the notes to financial statements, we
are referring collectively to the old notes and the new notes, unless otherwise
indicated. The Trust conducts its business pursuant to the terms of its trust
agreement. The Trust exists for the exclusive purposes of: 3




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.
    
    issuing the old notes and the new notes;.
    
    issuing the equity certificates to the equity certificate holder;.
    
    investing the gross proceeds of the old notes and the equity
certificates in the leased equipment;.
    
    entering into the Lease, a participation agreement and other ancillary
agreements relating to the financing of the leased equipment (collectively, the
Operative Agreements);.
    
    distributing payments received under the Lease to the holders of the
old notes or the new notes, as the case may be, and the equity certificates;
and.
    
    engaging in only those other activities necessary or incidental to such
purposes. Pursuant to the trust agreement, the equity certificate holder authorized
the trustee of the Trust to execute and deliver each of the Operative
Agreements to which the Trust is a party and to take such other actions as
required by each of such Operative Agreements. The Trust holds all legal right
and title in and to the leased equipment, the equity certificate holder
contributions, the proceeds of the old notes, the Operative Agreements and any
other property or payment of any kind (collectively, the Trust Estate) for
the use and benefit of the equity certificate holder. The Trust does not have officers or directors. The trustee of the Trust
has a duty to protect and conserve the Trust Estate for the use and benefit of
the equity certificate holder, subject to the provisions of the Operative
Agreements. Subject to the terms of the trust agreement, the Operative
Agreements and applicable law, the trustee of the Trust acts on behalf of the
Trust solely as authorized and directed by the equity certificate holder. The
trustee may not otherwise manage or control the Trust Estate. The trustee is
indemnified by the equity certificate holder for any liabilities or expenses
that may be imposed on it arising out of or relating to the Trust Estate, the
administration of the Trust Estate, the Operative Agreements or the leased
equipment. The equity certificate holder has the right to appoint, remove or
replace the trustee. Amendments to the trust agreement must be approved in
writing by a party (including, if applicable, the indenture trustee) who would
be adversely affected thereby. The trust agreement and the Trust will terminate
and the Trust Estate will be distributed, subject to the provisions of the
Operative Agreements, to the equity certificate holder upon the sale of all
property constituting the Trust Estate or after thirty years. In addition, at
any time after six months from the date on which the Lease is no longer in
effect, the trustee of the Trust may terminate the trust agreement and the
Trust at its option and convey the Trust Estate to the equity certificate
holder. Financing To fund the purchase of the leased equipment from HCLP, the Trust issued
$250 million aggregate principal amount of Notes and raised $7.75 million
in equity from the Trusts equity certificate holder. Interest accrues on the
Notes at the rate of 8.75% per year, payable semi-annually in arrears on March
1 and September 1 of each year. The Notes mature on September 1, 2011. Return
on the equity certificate accrues at the Eurodollar rate or the prime rate,
plus a spread in each case of 8.375% per year, payable quarterly on March 1,
June 1, September 1 and December 1 of each year. A schedule reflecting the dates and amounts payable on the Notes and the
equity certificate is set forth below. All amounts under the Notes are payable
to the Wilmington Trust Company, the indenture trustee. All amounts under the
equity certificate are payable to the equity certificate holder. Obligation
    
    Amount Due
    
    Date Due8.75% Senior SecuredNotes due 2011
    
    $
    10,937,500
    
    
    Each March 1 and September 1
to maturityEquity Certificate
    
    Accrued return on approximately
$7.8 million, based on the floating
certificate holder yield rate of the
Eurodollar rate or the prime rate,
plus a spread in each case of 8.375%
(1)
    
    March 1, June 1, September 1
and December 1 to maturity
 4




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(1) As of December 31, 2003, based upon the certificate holder yield rate
of 9.5%, the Trust would make payments to the equity certificate holder of
approximately $185,000 per quarter. Industry Natural Gas Compression Overview Typically, compression is required at several intervals of the natural gas
production cycle: at the wellhead, at the gathering lines, into and out of gas
processing facilities, into and out of storage and throughout the
transportation systems. Over the life of an oil or gas well, natural reservoir pressure and
deliverability typically decline as reserves are produced. As the natural
reservoir pressure of the well declines below the line pressure of the gas
gathering or pipeline system used to transport the gas to market, gas no longer
flows naturally into the pipeline. It is at this time that compression
equipment is applied to economically boost the wells production levels and
allow gas to be brought to market. In addition to such wellhead and gas field gathering activities, natural
gas compressors are used in a number of other applications, most of which are
intended to enhance the productivity of oil and gas wells, gas transportation
lines and processing plants. Compressors are used to increase the efficiency of
a low capacity gas field by providing a central compression point from which
the gas can be removed and injected into a pipeline for transmission to
facilities for further processing. As gas is transported through a pipeline,
compression equipment is applied to allow the gas to continue to flow in the
pipeline to its destination. Additionally, compressors are used to re-inject
associated gas to lift liquid hydrocarbons and thereby increase the rate of
crude oil production from oil and gas wells. Furthermore, compression enables
gas to be stored in underground storage reservoirs for subsequent extraction
during periods of peak demand. Finally, compressors are often used in
combination with oil and gas production equipment to process and refine oil and
gas into higher value added and more marketable energy sources, as well as used
in connection with compressed natural gas vehicle fueling facilities providing
an alternative to gasoline. Changing well and pipeline pressures and conditions over the life of a
well often require producers to reconfigure or change their compressor units to
optimize the well production or pipeline efficiency. Due to the technical
nature of the equipment, a dedicated local parts inventory, a diversified fleet
of natural gas compressors and a highly trained staff of field service
personnel are necessary to perform such functions in the most economic manner.
These requirements, however, have typically proven to be an extremely
inefficient use of capital and manpower for independent natural gas producers
and have caused producers, as well as natural gas transporters and processors,
to increasingly outsource their non-core compression activities to specialists
such as HCLP. The advent of rental and contract compression roughly 40 years ago made it
possible for natural gas producers, transporters and processors to improve the
efficiency and financial performance of their operations. HCLP believes
compressors leased from specialists generally have a higher rate of mechanical
reliability and typically generate greater productivity than those owned by oil
and gas operators. Furthermore, because compression needs of a well change over
time, outsourcing of compression equipment enables an oil and gas producer to
better match variable compression requirements to the production needs
throughout the life of the well. Also, certain major domestic oil companies are
seeking to streamline their operations and reduce their capital expenditures
and other costs. To this end, they have sold certain domestic energy reserves
to independent energy producers and are outsourcing facets of their operations.
HCLP believes that such initiatives are likely to contribute to increased
rentals of compression equipment. Natural gas compressor fabrication involves the design, fabrication and
sale of compressors to meet the unique specifications dictated by the well
pressure, production characteristics and the particular applications for which
compression is sought. Compressor fabrication is essentially an assembly
operation in which an engine, compressor, control panel, cooler and necessary
piping are attached to a frame called a skid. A fabricator typically
purchases the various compressor components from third-party manufacturers, but
employs its own engineers and design and labor force. 5




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In order to meet customers needs, gas compressor fabricators typically
offer a variety of services to their customers, including:  
    
    engineering, fabrication and assembly of the compressor unit;
    
    installation and testing of the unit;
    
    ongoing performance review to assess the need for a change in
compression; and
    
    periodic maintenance and replacement parts supply. Our Equipment The Trusts compression equipment includes approximately 926 units representing
approximately 498,000 of horsepower. Customers In the fiscal year ended December 31, 2003, our single customer, HCLP,
accounted for 100% of our total rental revenues. HCLPs customer base consists
of U.S. and international companies engaged in all aspects of the oil and gas
industry, including major integrated oil and gas companies, large and small
independent producers, natural gas processors, gatherers and pipelines. Environmental and Other Regulations Under the operating lease, HCLP indemnifies the Trust for all losses or
liabilities it may suffer as a result of the failure to comply with applicable
environmental laws, including requirements pertaining to necessary permits such
as air permits. The Trust has no environmental losses or liabilities as of
March 2004. Employees and Labor Relations As of December 31, 2003, the Trust had no employees, officers or directors. 
 ITEM 2. Properties NONE 
 ITEM 3. Legal Proceedings From time to time, the Trust may be involved in litigation relating to claims
arising out of its operations or in the normal course of business. The Trust is
not currently involved in any material litigation or proceeding and is not
aware of any such litigation or proceeding threatened against it. 
 ITEM 4. Submission of Matters to a Vote of Security Holders NONE 
 PART II 
 ITEM 5. Market for Registrants Common Equity and Related Stockholder Matters There is currently no established market for the equity certificates.
Hanover Equipment Trust 2001B is a trust with one equity certificate holder. We
pay a return to our equity certificate holder each quarter as described under
Business. In February 2003, the Trust filed a registration statement on Form S-4 offering
to exchange its registered 8.75% senior secured notes due 2011 for all of its
outstanding 8.75% senior secured notes due 2011. The exchange offer provides
that holders of the old notes will receive $1,000 principal amount of
applicable new notes for each $1,000 principal amount of old notes exchanged.
The terms of the new notes are identical to the terms of the applicable old
notes except that the new notes are freely transferable under the Securities
Act of 1933 and do not have 6




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any exchange or registration rights. In March 2003,
the exchange offer was completed. 
 ITEM 6. Selected financial Data SELECTED HISTORICAL FINANCIAL DATA OF HANOVER EQUIPMENT TRUST 2001B In the table below, we have provided you with selected historical
financial data for the Trust. The historical financial data was derived from
the Trusts audited financial statements as of and for the years ended December
31, 2003 and 2002 and as of December 31, 2001 and for the period from August
16, 2001 (inception) to December 31, 2001. The Trust was organized under the
laws of the State of Delaware and commenced business on August 16, 2001 solely
for the purpose of (1) issuing the old notes and the new notes, (2) executing,
delivering and performing the Operative Agreements to which it is a party and
(3) using the proceeds from the issuance of the old notes and the other
financing transactions to purchase the leased equipment. The information in this section should be read along with the Trusts
financial statements, accompanying notes and other financial information
included elsewhere in this report (in thousands). For the Period FromAugust 16, 2001(Inception)Year Ended December 31,
    
    to December 31,2003
    
    2002
    
    2001Rental revenue
    
    $
    23,226
    
    
    $
    25,603
    
    
    $
    7,911Interest expense on rental equipment
    
    
    22,307
    
    
    
    24,186
    
    
    
    7,352Excess rental revenue over
interest expense on rental
equipment
    
    
    919
    
    
    
    1,417
    
    
    
    559Operating expense
    
    
    165
    
    
    
    623
    
    
    
    269Net income
    
    $
    754
    
    
    $
    794
    
    
    $
    290Balance Sheet Data (End of Period):Rental equipment
    
    $
    257,750
    
    
    $
    257,750
    
    
    $
    257,750Total assets
    
    
    265,147
    
    
    
    266,346
    
    
    
    265,6028.75% senior secured notes due 2011
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000Certificate holders equity
    
    
    7,750
    
    
    
    7,750
    
    
    
    7,750
 7




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ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations General The Trust was formed in August 2001 for the purpose of purchasing natural
gas compression equipment and leasing that equipment to HCLP under the Lease.
The Trust funded the equipment purchase through the issuance of its 8.75%
senior secured notes due 2011 and an equity investment from the equity
certificate holder. In August 2001, the Trust purchased approximately $258 million of gas
compression equipment to be leased to HCLP in connection with the Lease. The
purchase was financed by the issuance of $250 million of 8.75% senior secured
notes and raised $7.8 million in equity investment from the Trusts equity
certificate holder. In February 2003, the Trust filed a registration statement on Form S-4
offering to exchange its registered new notes for all of its outstanding old
notes. The exchange offer provided that holders of the old notes would receive
$1,000 principal amount of new notes for each $1,000 principal
amount of old notes exchanged. The terms of the new notes are identical to the
terms of the old notes except that the new notes are freely
transferable under the Securities Act of 1933 and do not have any exchange or
registration rights. The exchange offer was completed in March 2003. Critical Accounting Policies and Estimates The financial statements of the Trust are significantly affected by its
basis of accounting and estimates related to its equipment that are summarized
below. Revenue Recognition Revenue from compression equipment rentals is recorded when earned over
the period of the ten-year operating lease that began on August 30, 2001.
Rental revenues are based on the current rental rates and estimated
supplemental rent payable by HCLP under the Lease. (See Note 4 to the Financial
Statements). Concentrations of Credit Risk Financial instruments that potentially subject the Trust to concentrations
of credit risk consist of cash, cash equivalents and accounts receivable. The
Trusts management believes that the credit risk in temporary cash investments
that it has with financial institutions is minimal. Trade accounts receivable
are due from HCLP and are due on a short-term basis. The Trust does not obtain
collateral for receivables. The recorded assets, obligations and operations of
the Trust could be adversely affected if the Trusts relationship with and/or
the financial position of Hanover and/or HCLP is adversely affected. Rental Equipment Rental equipment consists of domestic gas compression equipment and is
recorded at cost. Due to the terms of the Lease (see Note 4 to the Financial
Statements) and the expected residual value of the equipment at the end of the
Lease, the management of the Trust believes that the Trust will recover the
original cost of the equipment at the end of the Lease. As such, the Trust is
not depreciating the rental equipment. If this estimate were to change, the
Trust would be required to record depreciation expense. Long-Lived Assets The Trust reviews for the impairment of long-lived assets, including
rental equipment and the Trusts interest in the residual value of the
equipment, whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss exists
when estimated undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying amount. The
impairment loss recognized represents the excess of the assets carrying value
as compared to its estimated fair market value. Adverse changes in market
conditions could result in the inability to recover the carrying value of the
Trusts equipment, thereby possibly requiring an impairment charge in the
future. 8




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RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 Revenues The Trusts rental revenues decreased by $2,377,000, or approximately 9%,
to $23,226,000 during the year ended December 31, 2003 from $25,603,000 during
the year ended December 31, 2002. The decrease resulted primarily from a
decrease in additional rents received from HCLP to reimburse the Trust for
penalty interest and a decrease in rents received from HCLP to reimburse the
Trust for its operating expenses as required under the Lease. The Trusts rental revenue is based primarily on the interest accrued on
the Notes and the yield payable to the equity certificate holder. The interest
rate on the Notes is fixed at 8.75% and the amount of interest accrued was
$21,875,000 for the year ended December 31, 2003 and for the year ended
December 31, 2002. The yield to the equity certificate holder was $754,000 for
the year ended December 31, 2003 and $794,000 for the year ended December 31,
2002. The yield payable on the equity certificates will vary depending upon the
certificate holder yield rate (9.5% as of December 31, 2003 and 9.7% as of
December 31, 2002). The certificate holder yield rate is calculated using the
Eurodollar rate or, in certain circumstances, the prime rate, plus a spread in
each case of 8.375% per year. In February 2003, the Trust completed a registered offering to exchange
its registered 8.75% senior secured notes for all of its outstanding old notes.
Because the exchange offer was not completed timely, the Trust received
additional rent as reimbursement of penalty interest for the period January 28,
2002 through March 13, 2003. This rent was $432,000 for the year ended December
31, 2003 and $2,311,000 for the year ended December 31, 2002. On March 13,
2003, the exchange offer was completed and HCLPs obligation to pay this
penalty interest ceased. In addition, the Trust received additional rents to reimburse it, as
required under the Lease, for its operating expenses and for the costs of the
securities registration. These additional rents amounted to $165,000 for the
year ended December 31, 2003 and $623,000 for the year ended December 31, 2002. Expenses Interest expense decreased by $1,879,000, or approximately 8%, to
$22,307,000 during the year ended December 31, 2003 from $24,186,000 during the
year ended December 31, 2002. The decrease resulted from the decrease in
penalty interest during the year ended December 31, 2003, due to the completion
of the exchange offer relating to the Notes on March 13, 2003. Operating expenses decreased by $458,000, or approximately 74%, to
$165,000 during the year ended December 31, 2003 from $623,000 during the year
ended December 31, 2002. The decrease resulted from reduced exchange offering
expenses as a result of the completion of the exchange offer relating to the
Notes on March 13, 2003. YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE PERIOD FROM AUGUST 16, 2001
(INCEPTION) TO DECEMBER 31, 2001 Revenues Total revenue increased by $17,692,000 during the year ended December 31,
2002 to $25,603,000 from $7,911,000 for 2001. The increase resulted primarily
because in 2002, the equipment lease was in effect for the entire year as
compared to only four months in 2001. The Trusts rental revenue is based
primarily on the interest accrued on the Notes and the yield payable to the
equity certificate holder. The interest rate on the Notes is fixed at 8.75%
and amounted to $21,875,000 in 2002 as compared to $7,352,000 in 2001; and, the
yield to the equity certificate 9




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##### Table of Contents



holder was $794,000 in 2002 as compared to
$290,000 in 2001. The yield payable on the equity certificates will vary
depending upon the certificate holder yield rate (9.7% as of December 31,2002). In February 2002, the Trust filed a registration statement offering to
exchange its registered 8.75% senior secured notes for all of its outstanding
old notes. Because the exchange offer was not completed, the Trust received
additional rent in the amount of $2,311,000 in 2002 and was required to pay
this amount as additional interest to the holders of the Notes. In addition, the Trust received rents to reimburse it, as required under
the Lease, for its operating expenses and for the costs of the securities
registration. These additional rents amounted to $623,000 in 2002 and $269,000
in 2001. Expenses Interest expense increased by $16,834,000 to $24,186,000 during the year
ended December 31, 2002 from $7,352,000 during the period ended December 31,
2001. The increase resulted primarily because in 2002, the equipment lease was
in effect for the entire year as compared to only four months in 2001. Operating expenses increased by $354,000, or approximately 132%, to
$623,000 during the year ended December 31, 2002 from $269,000 during the
period ended December 31, 2001. The increase resulted from expenses incurred in
connection with the exchange offering. LIQUIDITY AND CAPITAL RESOURCES Under the triple net lease terms on the leased equipment, all of the costs
of maintaining and financing the leased equipment are borne by HCLP, as the
lessee. The Trust believes that it has adequate capital resources for the
nature of its business and that the funds provided by operations will be
sufficient to satisfy its obligations. Because the Trust is limiting activities
to the ownership, financing and leasing of equipment under the Lease, the Trust
does not believe it will have any need to obtain additional debt or equity
financing for its current operations. The Trusts cash and cash equivalents balance at December 31, 2003 and
2002 was $0. Operating activities for the year ended December 31, 2003 provided
$953,000 of cash, which was used for the payment of the yield due on the equity
certificates. The Notes are obligations of the Trust and are collateralized by all of
the equipment, rents and supplemental rents covered by the Lease. In addition,
the Trusts obligations under the Notes are jointly and severally guaranteed,
unconditionally and on a senior subordinated basis, by Hanover, the ultimate
parent company of HCLP, and HCLP for an amount up to 70.0% of the aggregate
principal balance of Notes outstanding, which is equal to the final rent
payment under the Lease. If there is an event of default under the Lease,
Hanover and HCLP guarantee, jointly and severally, on a senior subordinated
basis, all of the Trusts obligations under the Notes. Hanover unconditionally
guarantees on a senior subordinated basis all of HCLPs obligations under the
Lease. The obligations of HCLP under the Lease are subordinated in right of
payment to all existing and future senior indebtedness of HCLP. The obligations
of Hanover and HCLP under the guarantee are subordinated in right of payment to
all existing and future senior indebtedness of such guarantor. Each guarantee
ranks equally in right of payment with all senior subordinated debt and senior
to all subordinated debt of such guarantor. The estimated fair market value of
the Notes was approximately $265 million and $241 million at December 31, 2003
and 2002, respectively. All payments that are received by the Trust under the Lease or guarantee
will be applied first to the amounts due under the Notes. The payment of
principal, premium, if any, and interest on the Notes are senior in right of
payment to the payment in full of amounts due under the equity certificates. Prior to September 1, 2004, if Hanover raises proceeds from one or more
bona fide underwritten sales to the public of Hanovers common stock and
Hanover causes HCLP to repurchase equipment from the Trust, the Trust is
required to apply the proceeds it receives to redeem up to 35% of the Notes at
a redemption price of 108.75% of the principal amount thereof. Otherwise, the
Trust does not have the right to redeem the Notes until September 1, 2006. On
and after September 1, 2006, the Trust may redeem the Notes, in whole or in
part, if the Trust pays the redemption prices indicated below: 10




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Redemption PriceAfter Sept 1, 2006
    
    
    104.375
    %After Sept 1, 2007
    
    
    102.917
    %After Sept 1, 2008
    
    
    101.458
    %After Sept 1, 2009
    
    
    100.000
    %
 The Trust is not affiliated with Hanover or HCLP. The indenture and
participation agreement governing the Notes contain covenants that restrict the
Trusts ability to, among other things: incur liens, incur additional
indebtedness, enter into any other transactions, make investments, liquidate,
and engage in non-related lines of business. In addition, the indenture and
participation agreement governing the Notes contain covenants that limit
Hanovers and HCLPs ability to engage in certain activities and transactions. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) 143, Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. SFAS 143
establishes the accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. This
statement was effective for the Trust beginning January 1, 2003. The adoption
of SFAS 143 did not have a material effect on the Trusts financial statements. In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. The Statement updates, clarifies and simplifies existing
accounting pronouncements. Provisions of SFAS 145 related to the rescission of
Statement 4 are effective for the Trust on January 1, 2003. The provisions of
SFAS 145 related to SFAS 13 are effective for transactions occurring after May
15, 2002. The Trust has adopted the provisions of SFAS 145, which did not have
a material effect on its financial statements. In November 2002, the FASB issued Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which clarifies disclosure and
recognition/measurement requirements related to certain guarantees. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition/measurement requirements are effective on
a prospective basis for guarantees issued or modified after December 31, 2002.
The Trust has adopted FIN 45, which did not have a material effect on its
financial statements. In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, an interpretation of ARB 51. The primary objectives of FIN
46 are to provide guidance on the identification of entities for which control
is achieved through means other than through voting rights (variable interest
entities or VIEs) and how to determine when and which business enterprise
should consolidate the VIE (the primary beneficiary). This new model for
consolidation applies to an entity in which either (1) the equity investors (if
any) do not have a controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entitys activities without receiving
additional subordinated financial support from other parties. In addition, FIN
46 requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. For
special-purposes entities created prior to February 1, 2003, FIN 46 is
effective at the first interim or annual reporting period ending after December
15, 2003, or December 31, 2003 for the Trust. For entities, other than special
purpose entities, created prior to February 1, 2003, FIN 46 is effective
for us as of March 31, 2004. In addition, the deferral allowed companies to
elect to adopt early the provisions of FIN 46 for some but not all of the
variable interest they hold. The Trust does not believe the adoption of FIN 46
will have a material effect on its financial statements. In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. All provisions of this Statement will be applied prospectively.
The Trust has adopted the provisions of SFAS 149, which did not have a material
effect on its financial statements. 11




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##### Table of Contents



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The Statement
changes the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The new Statement requires that
those instruments be classified as liabilities in statements of financial
position. This Statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the interim period
beginning after June 15, 2003. The Trust has adopted the provisions of SFAS
150, which did not have a material effect on its financial statements. Seasonal Fluctuations The Trusts results of operations have not reflected any material seasonal
tendencies since inception. 
 ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Not Applicable 
 ITEM 8. Financial Statements and Supplementary Data The financial statements and supplementary data specified by this Item are
presented in Item 15 of this report. 
 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE 
 ITEM 9A. Controls and Procedures The Trustee has carried out an evaluation of the effectiveness of the
design and operation of the Trusts disclosure controls and procedures as of
the end of the fiscal year ended December 31, 2003. Based upon that evaluation,
the Trustee concluded that the Trusts disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Trust in
the reports it files or submits under the Securities and Exchange Act of 1934
as amended (the Exchange Act) is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions
rules and forms and that the Trusts disclosure controls and procedures are
effective to ensure that information is accumulated and communicated to the
Trustee to allow timely decisions regarding required disclosure. The Trustee,
in making these determinations, has relied to the extent reasonable on
information provided by Hanover and HCLP. In connection with the evaluation, no
changes in the Trusts internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the quarter ended December 31, 2003 that have materially affected, or
are reasonably likely to materially affect, the Trusts internal control over
financial reporting. 
 PART III 
 ITEM 10. Directors and Executive Officers of Hanover Equipment Trust 2001B Hanover Equipment Trust 2001B is a Delaware special purpose business trust
formed in August 2001 and is governed by the terms of its Trust Agreement and
managed by its Trustee, Wilmington Trust Company. As such, there are no
directors or executive officers of the Trust. 
 ITEM 11. Executive Compensation Hanover Equipment Trust 2001B is a business trust, has no employees and is
managed by its Trustee, Wilmington Trust Company. The Trustee receives an
annual fee of $25,000 for its services as such. 
 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 12




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##### Table of Contents



The sole equity certificate holder of Hanover Equipment Trust 2001B is
General Electric Capital Corporation (GE Capital). The Trust does not maintain any equity-based compensation plans. 
 ITEM 13. Certain Relationships and Related Transactions NONE 
 ITEM 14. Principal Accountant Fees and Services The aggregate fees PricewaterhouseCoopers LLP billed for professional
services in 2003 and 2002 were: Type of Fees
    
    2003
    
    2002(dollars in thousands)Audit Fees
    
    $
    25
    
    
    $
    25Audit-Related Services
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total
    
    $
    25
    
    
    $
    25
 Audit Fees are fees billed by PricewaterhouseCoopers LLP for professional
services for the audit of the Trusts financial statements included in this
Annual Report on Form 10-K and review of the Trusts financial statements
included in Quarterly Reports on Form 10-Q. The Trustee approved all services
provided to the Trust by PricewaterhouseCoopers LLP. The Trustee has no
pre-approval policy. 13




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##### Table of Contents



PART IV 
 ITEM 15. Exhibits, Financial Statement Schedules and Reports of Form 8-K  (a)
    
    The following documents are filed as part of this report:  1.
    
    Financial Statements 
    
    Report of Independent Auditor
    
    
    F-1
    
    Balance Sheet
    
    
    F-2
    
    Statement of Operations
    
    
    F-3
    
    Statement of Cash Flows
    
    
    F-4
    
    Statement of Certificate Holders Equity
    
    
    F-5
    
    Notes to Financial Statements
    
    
    F-6
  2.
    
    Financial Statement Schedules All schedules have been omitted because they are not required under the
relevant instructions.  3.
    
    Exhibits: ExhibitNumber
    
    Description3.1
    
    Certificate of Trust of Hanover Equipment Trust 2001B (incorporated by
reference to Exhibit 3.1 to the Trusts Form S-4, filed with the
Commission on December 21, 2001).3.2
    
    Amended and Restated Trust Agreement of Hanover Equipment Trust 2001B,
dated as of August 30, 2001, between General Electric Capital
Corporation, as Certificate Holder, and Wilmington Trust Company, as
Trustee (incorporated by reference to Exhibit 3.2 to the Trusts Form
S-4 filed with the Commission on December 21, 2001).4.1
    
    Indenture, dated as of August 30, 2001, between Hanover Equipment Trust
2001B, the Hanover Guarantors parties thereto, and Wilmington Trust FSB,
as Trustee and Collateral Agent, with respect to the 8.75% Senior
Secured Notes due 2011 (incorporated by reference to Exhibit 10.69 to
Quarterly Report of Hanover Compressor Company on Form 10-Q, filed with
the Commission on November 15, 2001).4.2
    
    Exchange and Registration Rights Agreement with respect to the 8.75%
Senior Secured Notes due 2011, dated as of August 30, 2001, among
Hanover Equipment Trust 2001B, Hanover Compressor Company, certain
Guarantors party thereto, Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Salomon Smith Barney, Inc. and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 4.2 to the Trusts
Form S-4 filed with the Commission on December 21, 2001).4.3
    
    Participation Agreement, dated as of August 31, 2001, among Hanover
Compression Limited Partnership, as Lessee, Hanover Equipment Trust
2001B, as Lessor, General Electric Capital Corporation, as Certificate
Holders, certain Guarantors party thereto, Wilmington Trust FSB, as
Indenture Trustee, Collateral Agent under the Indenture, and in its
individual capacity, only to the extent expressly set forth therein,
and Wilmington Trust Company, in its individual capacity, only to the
extent expressly set forth therein (incorporated by reference to Exhibit
10.66 to Quarterly Report of Hanover Compressor Company on Form 10-Q,
filed with the Commission on November 15, 2001).4.4
    
    Annex A to Participation Agreement and other Operative Agreements,
containing certain Rules of Usage and Definitions (incorporated by
reference to Exhibit 4.4 to the Trusts Form S-4 filed
with the Commission on December 21, 2001).4.5
    
    Lease, dated as of August 31, 2001, between Hanover Equipment Trust
2001B, as Lessor, and Hanover Compression Limited Partnership, as Lessee
(incorporated by reference to Exhibit 10.64 to Quarterly Report of
Hanover Compressor Company on Form 10-Q, filed with the
 14




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##### Table of Contents



ExhibitNumber
    
    DescriptionCommission on November 15, 2001).4.6
    
    Guarantee, dated as of August 31, 2001, made by Hanover Compression
Limited Partnership, Hanover Compressor Company, certain Guarantors
party thereto, and certain Beneficiaries party thereto (incorporated by
reference to Exhibit 10.65 to Quarterly Report of Hanover Compressor
Company on Form 10-Q, filed with the Commission on November 15, 2001).4.7
    
    Security Agreement, dated as of August 31, 2001, made by Hanover
Equipment Trust 2001B in favor of Wilmington Trust FSB, as Collateral
Agent (incorporated by reference to Exhibit 10.67 to Quarterly Report of
Hanover Compressor Company on Form 10-Q, filed with the Commission on
November 15, 2001).4.8
    
    Assignment of Lease, Rents and Guarantee, dated as of August 31, 2001,
from Hanover Equipment Trust 2001B to Wilmington Trust FSB, as
Collateral Agent (incorporated by reference to Exhibit 10.68 to
Quarterly Report of Hanover Compressor Company on Form 10-Q, filed with
the Commission on November 15, 2001).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the SarbanesOxley Act of 2002*
  *
    
    Filed herewith.  (b)
    
    Reports on Form 8-K: None SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORT FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT The Registrant has not sent to security holders any annual report covering the
Registrants last fiscal year or any proxy statements, form of proxy or other
proxy material with respect to any annual or special meeting of security
holders. 15




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##### Table of Contents



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. Date: March 29, 2004 Hanover Equipment Trust 2001B
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
for the Hanover Equipment Trust 2001B/s/ DAVID A. VANASKEY, JR.Name:
    
    David A. Vanaskey, Jr.Title:
    
    Vice President
 Note: Because the Registrant is a trust without officers, directors or
employees, only the signature of an officer of the trustee of the registrant is
available and has been provided. 16




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##### Table of Contents



Report of Independent Auditors To Management and the Equity Certificate Holder of
Hanover Equipment Trust 2001B: In our opinion, the financial statements listed in the index appearing
under Item 15(a)(1), present fairly, in all material respects, the
financial position of Hanover Equipment Trust 2001B at December 31, 2003 and
2002, and the results of its operations and its cash flows for the years ended
December 31, 2003 and 2002 and the period from August 16, 2001 (inception) to
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Trust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. PricewaterhouseCoopers LLP Houston, Texas
March 26, 2004 F-1




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##### Table of Contents



HANOVER EQUIPMENT TRUST 2001B 
 BALANCE SHEET  December 31,
    
    December 31,2003
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivablerents
    
    
    7,397
    
    
    
    8,596Total current assets
    
    
    7,397
    
    
    
    8,596Rental equipment
    
    
    257,750
    
    
    
    257,750Total assets
    
    $
    265,147
    
    
    $
    266,346LIABILITIES AND CERTIFICATE HOLDERS EQUITYCurrent liabilities:Accrued liabilities
    
    $
    42
    
    
    $
    157Interest payable
    
    
    7,291
    
    
    
    8,176Equity certificate yield payable
    
    
    64
    
    
    
    263Total current liabilities
    
    
    7,397
    
    
    
    8,596Notes payable
    
    
    250,000
    
    
    
    250,000Total liabilities
    
    
    257,397
    
    
    
    258,596Commitments and contingencies (Note 5)Certificate holders equity:Equity certificates
    
    
    7,750
    
    
    
    7,750Trust earnings
    
    
    
    
    
    
    Certificate holders equity
    
    
    7,750
    
    
    
    7,750Total liabilities and certificate holders equity
    
    $
    265,147
    
    
    $
    266,346
 The accompanying notes are an integral part of these financial statements. F-2




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##### Table of Contents



HANOVER EQUIPMENT TRUST 2001B 
 STATEMENT OF OPERATIONS  For the Period FromAugust 16, 2001(Inception)Year Ended December 31,
    
    to December 31,2003
    
    2002
    
    2001Rental revenue
    
    $
    23,226
    
    
    $
    25,603
    
    
    $
    7,911Interest expense on rental equipment
    
    
    22,307
    
    
    
    24,186
    
    
    
    7,352Excess rental revenue over
interest expense on rental
equipment
    
    
    919
    
    
    
    1,417
    
    
    
    559Operating expense
    
    
    165
    
    
    
    623
    
    
    
    269Net income
    
    $
    754
    
    
    $
    794
    
    
    $
    290
 The accompanying notes are an integral part of these financial statements. F-3




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HANOVER EQUIPMENT TRUST 2001B 
 STATEMENT OF CASH FLOWS  For the Period FromAugust 16, 2001Year Ended
    
    (Inception)December 31, 2003
    
    to December 31,2003
    
    2002
    
    2001Cash flows from operating activities:Net income
    
    $
    754
    
    
    $
    794
    
    
    $
    290Changes in assets and liabilitiesAccounts receivablerents
    
    
    1,199
    
    
    
    (744
    )
    
    
    (7,852
    )Interest payable
    
    
    (885
    )
    
    
    824
    
    
    
    7,352Accrued liabilities
    
    
    (115
    )
    
    
    (53
    )
    
    
    210Net cash provided by operating
activities
    
    
    953
    
    
    
    821
    
    
    
    Cash flows from investing activities:Purchase of rental equipment
    
    
    
    
    
    
    
    
    
    
    (257,750
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    (257,750
    )Cash flows from financing activities:Issuance of senior secured notes
    
    
    
    
    
    
    
    
    
    
    250,000Issuance of equity certificates
    
    
    
    
    
    
    
    
    
    
    7,750Equity certificates yield paid
    
    
    (953
    )
    
    
    (821
    )
    
    
    Net cash used in financing activities
    
    
    (953
    )
    
    
    (821
    )
    
    
    257,750Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental disclosure of cash flow information:Interest paid
    
    $
    23,192
    
    
    $
    23,362
    
    
    $
    
 The accompanying notes are an integral part of these financial statements. F-4




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HANOVER EQUIPMENT TRUST 2001B 
 STATEMENT OF CERTIFICATE HOLDERS EQUITY  Equity certificates:Balance at inception
    
    $
    Issuance of equity certificates
    
    
    7,750Balance at December 31, 2002 and 2003
    
    $
    7,750Trust earnings:Balance at inception
    
    $
    Net income
    
    
    290Equity certificates yield
    
    
    (290
    )Balance at December 31, 2001
    
    
    Net income
    
    
    794Equity certificates yield
    
    
    (794
    )Balance at December 31, 2002
    
    
    Net income
    
    
    754Equity certificates yield
    
    
    (754
    )Balance at December 31, 2003
    
    $
    
 The accompanying notes are an integral part of these financial statements. F-5




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HANOVER EQUIPMENT TRUST 2001B 
 NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation Hanover Equipment Trust 2001B (the Registrant, Trust, we, us or
our) is a Delaware special purpose business trust which was formed in August
2001. The Trust was formed solely to: (i) issue the 8.75% senior secured notes
due 2011 (the Notes) (see Note 2), (ii) execute, deliver and perform the
operating agreements to which it is a party, and (iii) use the proceeds of the
Notes and the related equity certificates to purchase approximately $258
million of natural gas compression equipment from Hanover Compression Limited
Partnership (HCLP) and certain of its subsidiaries. The equity funding,
issuance of the Notes and equipment purchase occurred on August 30, 2001. The
Trust leased its natural gas compression equipment back to HCLP under a
seven-year operating lease (the Lease). In addition to rental payments, HCLP
is obligated to pay supplemental rent, costs, taxes, indemnities, and other
amounts owing under the Lease. In addition, HCLP is obligated to pay the
underwriting, legal, accounting and other costs of the transactions for the
Trust. In February 2003, the Trust completed a registered offering pursuant to
a registration statement on Form S-4 to exchange its 8.75% senior secured notes
due 2011 (the new notes) for all of its outstanding 8.75% senior secured
notes due 2011 (the old notes). The exchange offer provided that holders of
the old notes would receive $1,000 principal amount of new notes for
each $1,000 principal amount of old notes exchanged. The terms of the new notes
are identical to the terms of the old notes except that the new
notes are freely transferable under the Securities Act of 1933 and do not have
any exchange or registration rights. In March 2003, the exchange offer was
completed and all of the old notes were exchanged for new notes. Because the
dates of these financial statements relate to periods prior to and after the
exchange, when we refer to the Notes in these notes to financial statements,
we are referring collectively to the old notes and the new notes, unless
otherwise indicated. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses, as well as the disclosures of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date. Management believes
that its estimates are reasonable. Cash and Cash Equivalents The Trust considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Revenue Recognition Revenue from compression equipment rentals is recorded when earned over
the period of the seven-year Lease that began on August 30, 2001. Rental
revenues are based on the current rental rates and estimated supplemental rent
payable by HCLP under the Lease (see Note 4). Concentrations of Credit Risk Financial instruments that potentially subject the Trust to concentrations
of credit risk consist of cash, cash equivalents and accounts receivable. The
Trusts management believes that the credit risk in temporary cash investments
that it has with financial institutions is minimal. Trade accounts receivable
are due from HCLP, are due on a short-term basis and are guaranteed by Hanover
Compressor Company. The Trust does not obtain collateral for receivables. The
recorded assets, obligations and operations of the Trust could be adversely
affected if the Trusts relationship with and/or the financial position of HCLP
is adversely affected. Rental Equipment Rental equipment consists of domestic gas compression equipment and is
recorded at cost. At the time of the initial sale of the old notes, an
independent appraisal firm prepared an appraisal of the rental equipment as of F-6




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August 16, 2001 and as of the end of the Lease term. Due to the terms of the
Lease (see Note 4) and based solely on the above-described appraisal,
management of the Trust believes that the Trust will recover the original cost
of the equipment at the end of the Lease. As such, the Trust is not
depreciating the rental equipment. Long-Lived Assets The Trust reviews for the impairment of long-lived assets, including
rental equipment and the Trusts interest in the residual value of the
equipment, whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss exists
when estimated undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying amount. The
impairment loss recognized represents the excess of the assets carrying value
as compared to its estimated fair market value. Income Taxes No provision has been made for federal or state income taxes because the
parties will treat the Trust as a financing vehicle for income tax purposes.
The Trust is not a business trust for tax purposes. To the extent the Trust is
not considered a mere financing vehicle, then solely for income and franchise
tax purposes, the Trust would be treated as a grantor trust. Each certificate
holder will include in its gross income such certificate holders share of the
Trusts net income. 2. Notes Payable Notes payable at December 31, 2003 and 2002 consisted of the following (in
thousands): Senior Secured Notesfixed rate of 8.75% due September 1, 2011,
interest payable semi-annually on March 1 and September 1
    
    $
    250,000
 The Notes are obligations of the Trust and are collateralized by all of
the equipment, rents and supplemental rents covered by the Lease. In addition,
the Trusts obligations under the Notes are jointly and severally guaranteed,
unconditionally and on a senior subordinated basis, by Hanover Compressor
Company (Hanover), the ultimate parent company of HCLP, and HCLP for an
amount up to 70.0% of the aggregate principal balance of Notes outstanding,
which is equal to the final rent payment under the Lease. If there is an event
of default under the Lease, Hanover and HCLP guarantee, jointly and severally,
on a senior subordinated basis, all of the Trusts obligations under the Notes.
Hanover unconditionally guarantees on a senior subordinated basis all of HCLPs
obligations under the Lease. The obligations of HCLP under the Lease are
subordinated in right of payment to all existing and future senior indebtedness
of HCLP. The obligations of Hanover and HCLP under the guarantee are
subordinated in right of payment to all existing and future senior indebtedness
of such guarantor. Each guarantee ranks equally in right of payment with all
senior subordinated debt and senior to all subordinated debt of such guarantor.
The estimated fair market value of the Notes was approximately $265 million and
$241 million at December 31, 2003 and 2002, respectively. All payments that are received by the Trust under the Lease or guarantee
will be applied first to the amounts due under the Notes. The payment of
principal, premium, if any, and interest on the Notes are senior in right of
payment to the payment in full of amounts due under the equity certificates. Prior to September 1, 2004, if Hanover raises proceeds from one or more
bona fide underwritten sales to the public of Hanovers common stock and
Hanover causes HCLP to repurchase equipment from the Trust, the Trust is
required to apply the proceeds it receives to redeem up to 35% of the Notes at
a redemption price of 108.75% of the principal amount thereof. Otherwise, the
Trust does not have the right to redeem the Notes until September 1, 2006. On
and after September 1, 2006, the Trust may redeem the Notes, in whole or in
part, if the Trust pays the redemption prices indicated below: F-7




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Redemption priceAfter Sept 1, 2006
    
    
    104.375
    %After Sept 1, 2007
    
    
    102.917
    %After Sept 1, 2008
    
    
    101.458
    %After Sept 1, 2009
    
    
    100.000
    %
 The Trust is not affiliated with Hanover or HCLP. The indenture and
participation agreement governing the Notes contain covenants that restrict the
Trusts ability to, among other things: incur liens, incur additional
indebtedness, enter into any other transactions, make investments, liquidate,
and engage in non-related lines of business. In addition, the indenture and
participation agreement governing the Notes contain covenants that limit
Hanovers and HCLPs ability to engage in certain activities and transactions. In February 2003, the Trust completed a registered offering pursuant to a
registration statement on Form S-4 to exchange its 8.75% senior secured notes
due 2011 for all of its outstanding old notes. The terms of the new notes are
identical to the terms of the old notes except that the new notes are freely
transferable under the Securities Act and do not have any exchange or
registration rights. Because the exchange offer was not completed within the
specified time frame, the Trust received additional rent in the amount of
approximately $48,000 per week and was required to pay this amount as
additional interest to the holders of the Notes. The additional rental income
and interest expense began accruing on January 28, 2002 and ended on March 13,
2003 when the exchange offer was completed. For the year ended December 31,
2003 and 2002, the Trust recognized approximately $432,000 and $2,311,000,
respectively, in additional rental income and interest expense. 3. Equity Certificates The Trust raised approximately $7.75 million from equity certificates
issued during the period from August 16, 2001 (inception) through December 31,
2001. The Trusts equity certificates were issued to General Electric Capital
Corporation (GE Capital). The original certificate holder assigned its
interest to GE Capital and was repaid its capital contribution of $1 in August
2001. The equity certificate holder may receive a return of capital payments
for its equity investment in the Trust after full payment of the Notes. The
Trust will make a quarterly payment (on the first day of March, June,
September, and December; the first payment was made on March 1, 2002) to equity
certificate holders equal to the certificate holder yield rate (9.5% and 9.7%
as of December 31, 2003 and 2002, respectively) multiplied by the aggregate
outstanding certificate holder contributions. As of December 31, 2003 and 2002,
approximately $64,000 and $263,000, respectively, was payable to the
certificate holder. Equity certificate capital repayment may be made using
proceeds from sale of equipment to HCLP or, on the expiration date or earlier
termination of the Lease, from the proceeds from the final rent payment and the
sale of equipment (see Note 4). 4. Lease Transaction The Trusts equipment is rented to HCLP under a ten-year Lease with the
basic rent payments equal to the interest payable on the Notes and the yield
payable to the equity certificate holder. In addition, HCLP will also pay
supplemental rent in respect of all amounts which HCLP is obligated to pay,
other than basic rent, under the Lease and participation agreement, including,
but not limited to, operating costs of the Trust such as audit fees, legal
fees, general administrative fees, certain taxes and indemnities. The minimum rental payments to be received by the Trust under the Lease
are estimated using interest rates and rental equipment balances applicable as
of December 31, 2003, as follows (in thousands): Period ending December 31:2004
    
    $
    22,6152005
    
    
    22,6152006
    
    
    22,6152007
    
    
    22,6152008
    
    
    22,615Thereafter
    
    
    60,305$
    173,380
 Prior to the stated maturity, HCLP may be required to purchase or shall
have the option to purchase the equipment and terminate the Lease under certain
conditions and after making the required payments as detailed in the Lease.
Twelve months prior to the end of the Lease term, HCLP may (a) elect to
purchase all of the equipment on the maturity date of the Notes, for an amount
sufficient to repay the Notes, equity certificates and any other amounts owed
under the Lease in full or (b) begin selling the equipment on behalf of the
Trust. Upon the expiration of the F-8




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Lease term, if HCLP has elected to sell the
equipment on behalf of the Trust, HCLP is required to pay the Trust a final
rent payment (the Final Rent Payment) of approximately $175 million as
determined by and subject to limitations and adjustments as detailed in the
Lease. The proceeds from the sale of equipment together with the Final Rent
Payment will be applied to repay all amounts payable under the Notes. Any
remaining proceeds will first be used to repay the unrecovered amount of the
equity certificates and any excess will then be returned to HCLP. If the sale
proceeds from the equipment together with the Final Rent Payment are less than
the amount necessary to repay the Notes, HCLP will be liable for an assessment
of additional rent with respect to excess wear and tear of such equipment as
determined by an independent appraisal process and subject to limitations
detailed in the Lease. The future minimum rental schedule above includes the
future amounts HCLP is required to pay under the Lease exclusive of any Final
Rent Payment or purchase option payment. 5. Commitments and Contingencies In the ordinary course of business the Trust may be involved in various
pending or threatened legal actions. The Trust is not currently involved in any
material litigation or proceeding and is not aware of any such litigation or
proceeding threatened against it. The Trust has no other commitments or
contingent liabilities which, in the judgment of the Trustee, would result in
losses that would materially affect the Trusts financial position, operating
results or cash flows. 6. New Accounting Standards In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) 143, Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. SFAS 143
establishes the accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. This
statement was effective for the Trust beginning January 1, 2003. The adoption
of SFAS 143 did not have a material effect on the Trusts financial statements. In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. The Statement updates, clarifies and simplifies existing
accounting pronouncements. Provisions of SFAS 145 related to the rescission of
Statement 4 are effective for the Trust on January 1, 2003. The provisions of
SFAS 145 related to SFAS 13 are effective for transactions occurring after May
15, 2002. The Trust has adopted the provisions of SFAS 145, which did not have
a material effect on its financial statements. In November 2002, the FASB issued Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which clarifies disclosure and
recognition/measurement requirements related to certain guarantees. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition/measurement requirements are effective on
a prospective basis for guarantees issued or modified after December 31, 2002.
The Trust has adopted FIN 45, which did not have a material effect on its
financial statements. In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, an interpretation of ARB 51. The primary objectives of FIN
46 are to provide guidance on the identification of entities for which control
is achieved through means other than through voting rights (variable interest
entities or VIEs) and how to determine when and which business enterprise
should consolidate the VIE (the primary beneficiary). This new model for
consolidation applies to an entity in which either (1) the equity investors (if
any) do not have a controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entitys activities without receiving
additional subordinated financial support from other parties. In addition, FIN
46 requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. For
special-purposes entities created prior to February 1, 2003, FIN 46 is
effective at the first interim or annual reporting period ending after December
15, 2003, or December 31, 2003 for the Trust. For entities, other than special
purpose entities, created prior to February 1, 2003, FIN 46 is effective
for us as of March 31, 2004. In addition, the deferral allowed companies to
elect to adopt early the provisions of FIN 46 for some but not all of the
variable interest they hold. The Trust does not believe the adoption of FIN 46
will have a material effect on its financial statements. F-9




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In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. All provisions of this Statement will be applied prospectively.
The Trust has adopted the provisions of SFAS 149, which did not have a material
effect on its financial statements. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The Statement
changes the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The new Statement requires that
those instruments be classified as liabilities in statements of financial
position. This Statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the interim period
beginning after June 15, 2003. The Trust has adopted the provisions of SFAS
150, which did not have material effect on its financial statements. F-10




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HANOVER EQUIPMENT TRUST 2001B SELECTED QUARTERLY UNAUDITED FINANCIAL DATA The table below sets forth selected unaudited financial information for each quarter of the two years: 1st
    
    2nd
    
    3rd
    
    4thquarter
    
    quarter
    
    quarter
    
    quarter(in thousands)2003:Rental revenue
    
    $
    6,199
    
    
    $
    5,712
    
    
    $
    5,631
    
    
    $
    5,684Gross profit
    
    
    230
    
    
    
    243
    
    
    
    231
    
    
    
    215Net income
    
    
    187
    
    
    
    187
    
    
    
    192
    
    
    
    1882002:Rental revenue
    
    $
    6,390
    
    
    $
    6,566
    
    
    $
    6,278
    
    
    $
    6,369Gross profit
    
    
    489
    
    
    
    474
    
    
    
    226
    
    
    
    228Net income
    
    
    196
    
    
    
    200
    
    
    
    200
    
    
    
    198
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EXHIBIT INDEX ExhibitNumber
    
    Description3.1
    
    Certificate of Trust of Hanover Equipment Trust 2001B (incorporated by
reference to Exhibit 3.1 to the Trusts Form S-4, filed with the
Commission on December 21, 2001).3.2
    
    Amended and Restated Trust Agreement of Hanover Equipment Trust 2001B,
dated as of August 30, 2001, between General Electric Capital
Corporation, as Certificate Holder, and Wilmington Trust Company, as
Trustee (incorporated by reference to Exhibit 3.2 to the Trusts Form
S-4 filed with the Commission on December 21, 2001).4.1
    
    Indenture, dated as of August 30, 2001, between Hanover Equipment Trust
2001B, the Hanover Guarantors parties thereto, and Wilmington Trust FSB,
as Trustee and Collateral Agent, with respect to the 8.75% Senior
Secured Notes due 2011 (incorporated by reference to Exhibit 10.69 to
Quarterly Report of Hanover Compressor Company on Form 10-Q, filed with
the Commission on November 15, 2001).4.2
    
    Exchange and Registration Rights Agreement with respect to the 8.75%
Senior Secured Notes due 2011, dated as of August 30, 2001, among
Hanover Equipment Trust 2001B, Hanover Compressor Company, certain
Guarantors party thereto, Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Salomon Smith Barney, Inc. and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 4.2 to the Trusts
Form S-4 filed with the Commission on December 21, 2001).4.3
    
    Participation Agreement, dated as of August 31, 2001, among Hanover
Compression Limited Partnership, as Lessee, Hanover Equipment Trust
2001B, as Lessor, General Electric Capital Corporation, as Certificate
Holders, certain Guarantors party thereto, Wilmington Trust FSB, as
Indenture Trustee, Collateral Agent under the Indenture, and in its
individual capacity, only to the extent expressly set forth therein,
and Wilmington Trust Company, in its individual capacity, only to the
extent expressly set forth therein (incorporated by reference to Exhibit
10.66 to Quarterly Report of Hanover Compressor Company on Form 10-Q,
filed with the Commission on November 15, 2001).4.4
    
    Annex A to Participation Agreement and other Operative Agreements,
containing certain Rules of Usage and Definitions (incorporated by
reference to Exhibit 4.4 to the Trusts Form S-4 filed with the
Commission on December 21, 2001).4.5
    
    Lease, dated as of August 31, 2001, between Hanover Equipment Trust
2001B, as Lessor, and Hanover Compression Limited Partnership, as Lessee
(incorporated by reference to Exhibit 10.64 to Quarterly Report of
Hanover Compressor Company on Form 10-Q, filed with the Commission on
November 15, 2001).4.6
    
    Guarantee, dated as of August 31, 2001, made by Hanover Compression
Limited Partnership, Hanover Compressor Company, certain Guarantors
party thereto, and certain Beneficiaries party thereto (incorporated by
reference to Exhibit 10.65 to Quarterly Report of Hanover Compressor
Company on Form 10-Q, filed with the Commission on November 15, 2001).4.7
    
    Security Agreement, dated as of August 31, 2001, made by Hanover
Equipment Trust 2001B in favor of Wilmington Trust FSB, as Collateral
Agent (incorporated by reference to Exhibit 10.67 to Quarterly Report of
Hanover Compressor Company on Form 10-Q, filed with the Commission on
November 15, 2001).4.8
    
    Assignment of Lease, Rents and Guarantee, dated as of August 31, 2001,
from Hanover Equipment Trust 2001B to Wilmington Trust FSB, as
Collateral Agent (incorporated by reference to Exhibit 10.68 to
Quarterly Report of Hanover Compressor Company on Form 10-Q, filed with
the Commission on November 15, 2001).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the
     SarbanesOxley Act of 2002*
  *
    
    Filed herewith.