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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  FORM 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
 For the fiscal year ended December 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period
fromto
. Commission File No. 333-75818 Hanover Equipment
Trust 2001B
 (Exact name of registrant as specified in its charter)
 Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    51-6523442
(I.R.S. Employer
Identification No.)
 c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware
(Address of Principal Executive Offices)
    
    19890
(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 12(g) of the Act: None   Indicate by check mark whether the registrant: (1) has filed all reports to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No 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 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 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 As of June 30, 2004, 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. Documents Incorporated by Reference: NONE




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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, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesITEM 6. Selected Financial DataITEM 7. Managements Discussion and Analysis of Financial Condition and Results of OperationITEM 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 ProceduresITEM 9B. Other InformationPART IIIITEM 10. Directors and Executive Officers of Hanover Equipment Trust 2001BITEM 11. Executive CompensationITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersITEM 13. Certain Relationships and Related TransactionsITEM 14. Principal Accounting Fees and ServicesPART IVITEM
15. Exhibits and Financial Statement SchedulesSIGNATURESReport of Independent Registered Public Accounting FirmBALANCE SHEETSTATEMENT OF OPERATIONSSTATEMENT OF CASH FLOWSSTATEMENT OF CERTIFICATE HOLDERS EQUITYNOTES TO FINANCIAL STATEMENTSEXHIBIT INDEXCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 2




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Part I SPECIAL NOTE 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 of the context of the
statement or because 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, 2004, and HCLPs Annual Report on Form 10-K for the year ended December
31, 2004, 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 businesses;
    the introduction of competing technologies by other companies;
    the inability to meet the new or modified covenants of
HCLPs 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, including civil uprisings, riots, terrorism, the taking of property without fair
compensation and legislative changes;
    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 or incurring additional indebtedness
to fund Hanovers and HCLPs business; 3




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
    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;
    adverse changes in Hanovers credit rating;
    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 implement international expansion, generate sufficient cash,
access capital markets or to refinance existing or incur additional 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 laws, 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. 
 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 4




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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:  
    issuing the old notes and the new notes; 5




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
    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. 6




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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
   (1)
    
    As of December 31, 2004, based upon the certificate holder yield rate of 10.6%, the
Trust would make payments to the equity certificate holder of approximately $207,000 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 and processing 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 7




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the most economic manner. These
requirements, however, have typically proven to be an extremely inefficient use of capital and
manpower for independent oil and natural gas producers and have caused producers, as well as oil
and 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 over forty years ago made it possible for oil
and natural gas producers, natural gas 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,
HCLP believes certain large U.S. oil and natural gas companies are seeking to streamline their
operations and reduce their capital expenditures and other costs. To this end, they have sold
certain U.S. energy reserves to independent energy producers and are outsourcing facets of their
operations. 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. 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 938 units representing approximately
498,000 of horsepower. Customers In the fiscal years ended December 31, 2004, 2003 and 2002, 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 8




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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 December 31, 2004. Employees and Labor Relations As of December 31, 2004, 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, Related Stockholder Matters and Issuer Purchases of Equity Securities There is currently no established market for the equity certificate. 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 any exchange or
registration rights. In March 2003, the exchange offer was completed. 9




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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, 2004, 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 thePeriod FromAugust 16, 2001(Inception)Year Ended December 31,
    
    
    to December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001Rental revenue
    
    $
    22,766
    
    
    $
    23,226
    
    
    $
    25,603
    
    
    $
    7,911Interest expense on rental equipment
    
    21,875
    
    
    22,307
    
    
    24,186
    
    
    7,352Excess rental revenue over
interest expense on rental
equipment
    
    
    891
    
    
    
    919
    
    
    
    1,417
    
    
    
    559Operating expense
    
    119
    
    
    165
    
    
    623
    
    
    269Net income
    
    $
    772
    
    
    $
    754
    
    
    $
    794
    
    
    $
    290Balance Sheet Data (End of Period):Rental equipment
    
    $
    257,750
    
    
    $
    257,750
    
    
    $
    257,750
    
    
    $
    257,750Total assets
    
    
    265,171
    
    
    
    265,147
    
    
    
    266,346
    
    
    
    265,6028.75% senior secured notes due 2011
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000Certificate holders equity
    
    
    7,750
    
    
    
    7,750
    
    
    
    7,750
    
    
    
    7,750
 
 ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operation 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 Trust issued
$250 million of 8.75% senior secured notes and raised $7.8 million in equity
from the Trusts equity certificate holder to finance the purchase of the gas compression
equipment. 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 10




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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. 11




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RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003 Revenues The Trusts rental revenues decreased by $460,000, or approximately 2%, to $22,766,000 during
the year ended December 31, 2004 from $23,226,000 during the year ended December 31, 2003. 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 years ended December 31, 2004 and 2003.
The yield to the equity certificate holder was $772,000 for the year ended December 31, 2004 and
$754,000 for the year ended December 31, 2003. The yield payable on the equity certificates will
vary depending upon the certificate holder yield rate (10.6% as of December 31, 2004 and 9.5% as of
December 31, 2003). 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. 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 $119,000 for the year ended December 31, 2004 and $165,000 for the year ended December
31, 2003. Expenses Interest expense decreased by $432,000, or approximately 2%, to $21,875,000 during the year
ended December 31, 2004 from $22,307,000 during the year ended December 31, 2003. 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 $46,000, or approximately 28%, to $119,000 during the year
ended December 31, 2004 from $165,000 during the year ended December 31, 2003. 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, 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. 12




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##### Table of Contents



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 years ended December 31, 2003 and 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. 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, 2004 and 2003 was $0. Operating
activities for the year ended December 31, 2004 provided $765,000 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 13




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##### Table of Contents



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 $271 million and $265 million at December 31, 2004 and 2003, 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. 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: 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. Total
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    ThereafterCash Contractual Obligations:(In thousands)2001B equipment lease notes, due 2011
    
    $
    250,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    250,000Interest on long-term debt
    
    
    152,134
    
    
    
    22,820
    
    
    
    45,640
    
    
    
    45,640
    
    
    
    38,034Total contractual cash obligations
    
    $
    402,134
    
    
    $
    22,820
    
    
    $
    45,640
    
    
    $
    45,640
    
    
    $
    288,034
 RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FIN 46. The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved by means other than
through voting rights and the determination of when and which business enterprise should
consolidate the variable interest entity (VIE) in its financial statements. FIN 46 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. As revised, FIN 46 was effective immediately for
VIEs created after January 31, 2003. For special- 14




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##### Table of Contents



purposes entities created prior to February 1, 2003, FIN 46 was effective at the first interim or annual reporting period ending after December
15, 2003, or December 31, 2003 for us. For entities, other than special purpose entities, created
prior to February 1, 2003, FIN 46 was effective for us as of March 31, 2004. In addition, FIN 46
allows companies to elect to adopt early the provisions of FIN 46 for some, but not all, of the
variable interest entities they own. The adoption of FIN 46 did not have a material effect on the
Trusts 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,
2004. 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. 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, 2004
that have materially affected, or are reasonably likely to materially affect, the Trusts internal
control over financial reporting. 
 ITEM 9B. Other Information NONE 
 PART III 
 ITEM 10. Directors and Executive Officers of Hanover Equipment Trust 2001B 15




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##### Table of Contents



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, executive officers or employees of the Trust.
The Trust has not adopted a code of ethics that applies to officers because it has no such
officers. 
 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 and Related Stockholder
Matters 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
Accounting Fees and Services The aggregate fees PricewaterhouseCoopers LLP billed for professional services in 2004 and
2003 were: Type of Fees
    
    2004
    
    
    2003(dollars in thousands)Audit Fees
    
    $
    27
    
    
    $
    25Audit-Related Services
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    Total
    
    $
    27
    
    
    $
    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. The Trust does not have an audit committee. 
 PART IV 16




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##### Table of Contents



ITEM 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: 1. Financial Statements 
    
    Report of Independent Registered Public
Accounting Firm
    
    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).
 17




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##### Table of Contents



ExhibitNumber
    
    Description4.5
    
    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).4.9
    
    Instrument of Resignation of Trustee, Appointment and Acceptance of
Successor Trustee dated as of September 29, 2004, incorporated by
reference to Exhibit 4.9 to Hanover Equipment Trust 2001Bs Current
Report on Form 8-K filed with the SEC on October 4, 2004.31.1
    
    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**
    
    Furnished herewith SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS 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 soliciting material with respect
to any annual or special meeting of security holders. 18




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Hanover Equipment Trust 2001BBy: Wilmington Trust Company, not in itsindividual capacity but solely as Trusteefor the Hanover Equipment Trust 2001B/s/ DAVID A. VANASKEY, JR.Name:
    
    David A. Vanaskey, Jr.Title:
    
    Vice President
 Date: March 30, 2005 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 above. 19




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##### Table of Contents



Report of Independent Registered Public Accounting Firm 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) on page 17 present fairly, in all material respects, the financial position of Hanover Equipment
Trust 2001B at December 31, 2004 and 2003, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2004 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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 30, 2005 F-1




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##### Table of Contents



HANOVER EQUIPMENT TRUST 2001B 
 BALANCE SHEET (in thousands) December 31,
    
    
    December 31,2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivablerents
    
    7,421
    
    
    7,397Total current assets
    
    
    7,421
    
    
    
    7,397Rental equipment
    
    257,750
    
    
    257,750Total assets
    
    $
    265,171
    
    
    $
    265,147LIABILITIES AND CERTIFICATE HOLDERS EQUITYCurrent liabilities:Accrued liabilities
    
    $
    58
    
    
    $
    42Interest payable
    
    
    7,292
    
    
    
    7,291Equity certificate yield payable
    
    71
    
    
    64Total current liabilities
    
    
    7,421
    
    
    
    7,397Notes payable
    
    250,000
    
    
    250,000Total liabilities
    
    
    257,421
    
    
    
    257,397Commitments 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
    
    $
    265,171
    
    
    $
    265,147
 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 (in thousands) Year Ended December 31,2004
    
    
    2003
    
    
    2002Rental revenue
    
    $
    22,766
    
    
    $
    23,226
    
    
    $
    25,603Interest expense on rental equipment
    
    
    21,875
    
    
    
    22,307
    
    
    
    24,186Excess rental revenue over
interest expense on rental
equipment
    
    
    891
    
    
    
    919
    
    
    
    1,417Operating expense
    
    
    119
    
    
    
    165
    
    
    
    623Net income
    
    $
    772
    
    
    $
    754
    
    
    $
    794
 The accompanying notes are an integral part of these financial statements. F-3




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##### Table of Contents



HANOVER EQUIPMENT TRUST 2001B 
 STATEMENT OF CASH FLOWS (in thousands) Year Ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    772
    
    
    $
    754
    
    
    $
    794Changes in assets and liabilitiesAccounts receivablerents
    
    
    (24
    )
    
    
    1,199
    
    
    
    (744
    )Interest payable
    
    
    1
    
    
    
    (885
    )
    
    
    824Accrued liabilities
    
    
    16
    
    
    
    (115
    )
    
    
    (53
    )Net cash provided by operating activities
    
    
    765
    
    
    
    953
    
    
    
    821Cash flows from investing activities:Purchase of rental equipment
    
    
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activities:Equity certificates yield paid
    
    
    (765
    )
    
    
    (953
    )
    
    
    (821
    )Net cash used in financing activities
    
    
    (765
    )
    
    
    (953
    )
    
    
    (821
    )Net 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
    
    $
    21,874
    
    
    $
    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 (in thousands) Equity certificates:Balance at inception
    
    $
    Issuance of equity certificates
    
    
    7,750Balance at December 31, 2004 and 2003
    
    $
    7,750Balance 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
    
    
    Net income
    
    
    772Equity certificates yield
    
    
    (772
    )Balance at December 31, 2004
    
    $
    
 The accompanying notes are an integral part of these financial statements. F-5




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HANOVER EQUIPMENT TRUST 2001B 
 NOTES TO 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 F-6




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##### Table of Contents



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 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, 2004 and 2003 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 $271 million and $265 million at December 31, 2004 and 2003,
respectively. F-7




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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. 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: 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 years 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 (10.6% and 9.5% as of December 31,
2004 and 2003, respectively) multiplied by the aggregate outstanding certificate holder
contributions. As of December 31, 2004 and 2003, approximately $71,000 and $64,000, 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.) F-8




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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, 2004, as follows (in
thousands): Period ending December 31:2005
    
    $
    22,8202006
    
    
    22,8202007
    
    
    22,8202008
    
    
    22,8202009
    
    
    22,820Thereafter
    
    
    38,034$
    152,134
 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
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. F-9




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6. New Accounting Standards In January 2003, the FASB issued FIN 46. The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved by means other than
through voting rights and the determination of when and which business enterprise should
consolidate the variable interest entity (VIE) in its financial statements. FIN 46 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. As revised, FIN 46 was effective immediately for
VIEs created after January 31, 2003. For special-purposes entities created prior to February 1,
2003, FIN 46 was effective at the first interim or annual reporting period ending after December
15, 2003, or December 31, 2003 for us. For entities, other than special purpose entities, created
prior to February 1, 2003, FIN 46 was effective for us as of March 31, 2004. In addition, FIN 46
allows companies to elect to adopt early the provisions of FIN 46 for some, but not all, of the
variable interest entities they own. The adoption of FIN 46 did not have a material effect on the
Trusts 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)2004:Rental revenue
    
    $
    5,681
    
    
    $
    5,681
    
    
    $
    5,702
    
    
    $
    5,702Gross profit
    
    
    212
    
    
    
    212
    
    
    
    234
    
    
    
    233Net income
    
    
    185
    
    
    
    186
    
    
    
    196
    
    
    
    2052003:Rental revenue
    
    $
    6,199
    
    
    $
    5,712
    
    
    $
    5,631
    
    
    $
    5,684Gross profit
    
    
    230
    
    
    
    243
    
    
    
    231
    
    
    
    215Net income
    
    
    187
    
    
    
    187
    
    
    
    192
    
    
    
    188
 F-11




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##### Table of Contents



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




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##### Table of Contents



ExhibitNumber
    
    DescriptionNovember 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).4.9
    
    Instrument of Resignation of Trustee, Appointment and Acceptance of
Successor Trustee dated as of September 29, 2004, incorporated by
reference to Exhibit 4.9 to Hanover Equipment Trust 2001Bs Current
Report on Form 8-K filed with the SEC on October 4, 2004.31.1
    
    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 **Furnished herewith