Use these links to rapidly review the documentTable of Contents Report of Independent Registered Public Accounting Firm



SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)

|ý                                                                    | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|-------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended March 31, 2005                            
|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 nos.:

001-15843
333-48279


Universal Compression Holdings, Inc.
Universal Compression, Inc.(Exact name of Registrants as Specified in Their Charters)

|Delaware
Texas(States or Other Jurisdictions of Incorporation or Organization) |  | 13-3989167
74-1282680(I.R.S. Employer Identification Nos.)
|------------------------------------------------------------------------------ |  | ----------------------------------------------------------
|4444 Brittmoore Road, Houston, Texas(Address of Principal Executive Offices)   |  | 77041-8004(Zip Code)                                      
|(713) 335-7000(Registrants' telephone number, including area code)            

---

Securities
of Universal Compression Holdings, Inc. Registered Pursuant to Section 12(b) of the Act:

|Title of Each ClassCommon Stock, $.01 par value |  | Name of Each Exchange on Which RegisteredNew York Stock Exchange, Inc
|----------------------------------------------- |  | ---------------------------------------------------------------------

Securities
of Universal Compression Holdings, Inc. Registered Pursuant to Section 12(g) of the Act:

|Title of Each ClassNone |  | 
|----------------------- |  | 

Securities
of Universal Compression, Inc. Registered Pursuant to Section 12(b) of the Act:

|Title of Each ClassNone |  | Name of Each Exchange on Which RegisteredN/A
|----------------------- |  | --------------------------------------------

Securities
of Universal Compression, Inc. Registered Pursuant to Section 12(g) of the Act:

|Title of Each ClassNone |  | 
|----------------------- |  | 

---

UNIVERSAL
COMPRESSION, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE
REDUCED DISCLOSURE FORMAT.

Indicate
by check mark whether each of the registrants (1) has filed all reports required 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 registrants were required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    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 each 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. o

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).

Yes ý    No o    (Universal
Compression Holdings, Inc.)

Yes o    No ý    (Universal
Compression, Inc.)

The aggregate market value of the Common Stock of Universal Compression Holdings, Inc. held by non-affiliates as of the last business day of the
registrant's most recently completed second fiscal quarter (September 30, 2004) was approximately $696 million. For purposes of the above statements only, all directors, executive
officers and 10% stockholders are assumed to be affiliates. This calculation does not reflect a determination that such persons are affiliates for any other purpose.

The
number of shares of the Common Stock of Universal Compression Holdings, Inc. outstanding as of June 6, 2005: 32,060,399 shares. All 4,910 outstanding shares of common
stock of Universal Compression, Inc., par value $10.00 per share, are owned by Universal Compression Holdings, Inc.

Documents Incorporated by Reference

Portions of Universal Compression Holdings, Inc.'s Proxy Statement for the Annual Meeting of Stockholders to be held on July 26, 2005 are
incorporated by reference into Part III, as indicated herein.

---

The
Index to Exhibits is on page 55.



---





Table of Contents



|         |  |                                                                                                                  |  | Page
|-------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|Part I   |  |                                                                                                                  |  |     
|Item 1.  |  | Business                                                                                                         |  | 3   
|Item 2.  |  | Properties                                                                                                       |  | 14  
|Item 3.  |  | Legal Proceedings                                                                                                |  | 15  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                              |  | 15  
|Part II  |  |                                                                                                                  |  |     
|Item 5.  |  | Market for the Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 16  
|Item 6.  |  | Selected Financial Data                                                                                          |  | 17  
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                            |  | 24  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 51  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                      |  | 52  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 52  
|Item 9A. |  | Controls and Procedures                                                                                          |  | 52  
|Part III |  |                                                                                                                  |  |     
|Item 10. |  | Directors and Executive Officers of the Company                                                                  |  | 54  
|Item 11. |  | Executive Compensation                                                                                           |  | 54  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 54  
|Item 13. |  | Certain Relationships and Related Transactions                                                                   |  | 54  
|Item 14. |  | Principal Accountant Fees and Services                                                                           |  | 54  
|Part IV  |  |                                                                                                                  |  |     
|Item 15. |  | Exhibits and Financial Statement Schedule                                                                        |  | 55  
|         |  | Signatures                                                                                                       |  | II-1

1

---





PART I

The terms "our," "Company," "we," and "us" when used in this report refer to Universal Compression Holdings, Inc. and its subsidiaries, including Universal
Compression, Inc., as a combined entity, including its predecessors, except where it is made clear that such term means only the parent company. The term "Universal" refers to Universal
Compression, Inc. and its subsidiaries, as a combined entity.

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 and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this report are forward-looking statements,
including, without limitation, statements regarding future financial position, business strategy, proposed acquisitions, budgets, litigation, projected costs and plans and objectives of management for
future operations. You can identify many of these statements by looking for words such as "believes," "expects," "will," "intends," "projects," "anticipates," "estimates," "continues" or similar words
or the negative thereof.

Such
forward-looking statements in this report include, without limitation:



Such
forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report.
The risks related to our business described under "Risk Factors" and elsewhere in this report could cause our actual results to differ from those described in, or otherwise projected or implied by,
the forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these
expectations will prove to be correct. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among
other things:



2

---





All
forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

ITEM 1.Business

General

We are the second largest natural gas compression services company in the world in terms of compressor fleet horsepower, with a fleet as of March 31, 2005
of approximately 7,200 compressor units comprising approximately 2.5 million horsepower. We provide a full range of natural gas compression services and products, including sales, operations,
maintenance and fabrication to the natural gas industry, both domestically and internationally. These services and products are essential to the natural gas industry, as gas must be compressed to be
delivered from the wellhead to end-users.

We
operate in four primary business segments: domestic contract compression, international contract compression, fabrication and aftermarket services. Our core business, contract
compression, involves providing compression equipment and service to customers. By outsourcing their compression needs, we believe our contract compression customers generally are able to increase
their revenue by producing a higher volume of natural gas through decreased compressor downtime. In addition, outsourcing allows our customers to reduce their operating and maintenance costs and
capital investments and more efficiently meet their changing compression needs.

In
addition to contract compression, we provide a broad range of compression services and products to customers who own their compression equipment or use equipment provided by our
competitors. Our fabrication business involves the design, engineering and assembly of natural gas compressors for sale to third parties in addition to those that we use in our contract compression
fleet. Our ability to fabricate compressors ranging in size from under 100 horsepower to over 5,000 horsepower enables us to provide compressors that are used in all facets of natural gas production,
transmission, storage and distribution. Our aftermarket services business sells parts and components, and provides maintenance and operations services to customers who own their compression equipment
or use equipment provided by other companies. Our ability to provide a full range of compression services and products broadens our customer relationships and helps us identify potential new customers
and cross-selling opportunities with existing customers. As the compression needs of our customers increase due to the growing demand for natural gas throughout the world, we believe our geographic
scope and broad range of compression services and products will enable us to participate in that growth.

We
maintain 18 field service locations throughout the United States at which we service and overhaul compression equipment. We operate internationally in Argentina, Australia, Bolivia,
Brazil, Canada, China, Colombia, Indonesia, Mexico, Peru, Russia, Thailand, and Venezuela. Financial information about our business segments and the geographic locations in which we operate for each
of the past three years is provided in Note 12 to the financial statements included in Part II, Item 8

3

---



("Financial
Statements and Supplementary Data") of this report. Our principal corporate office is located at 4444 Brittmoore Road, Houston, Texas 77041.

We
are a Delaware corporation and a holding company that conducts operations through our wholly-owned subsidiary, Universal, a Texas corporation incorporated in 1954. We were formed on
December 12, 1997 for the purpose of acquiring Universal's predecessor, Tidewater Compression Service, Inc. ("TCS") from Tidewater, Inc. Upon completion of the acquisition on
February 20, 1998, TCS became our wholly-owned subsidiary and changed its name to Universal Compression, Inc. Through this subsidiary, our gas compression service operations date back to
1954. We completed an initial public offering of shares of our common stock in June 2000.

Since
our initial public offering, we have completed several acquisitions, which have contributed significantly to our growth. Our most significant acquisition, through merger, was that
of Weatherford Global Compression Services, L.P. and certain related entities ("Weatherford Global"), former subsidiaries of Weatherford International Ltd. ("Weatherford"), in
February 2001. This acquisition added approximately 950,000 horsepower to our fleet, more than doubling our size at that time.

We
maintain a website atwww.universalcompression.com. Our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports are available, without charge, on our website, www.universalcompression.com/invest/SECfrX.html, as soon as reasonably
practicable after they are filed electronically with the Securities and Exchange
Commission. Paper copies are also available, without charge, from Universal Compression Holdings, Inc., 4444 Brittmoore Road, Houston, Texas 77041, Attention: Investor Relations. Also, such
information is readily available at the website of the Securities and Exchange Commission, which can be found at www.sec.gov.

Key Operating and Financial Statistics

The following table illustrates our key operating and financial statistics during the last three fiscal years:

Year Ended March 31,2005

2004

2003(Dollars in thousands)Domestic horsepower (end of period)


1,925,189


1,903,614


1,957,015International horsepower (end of period)


543,756


417,271


368,437Total horsepower (end of period)


2,468,945


2,320,885


2,325,452Average horsepower utilization rate


88.8
%

85.8
%

83.3
%Revenue

$
763,070

$
688,786

$
625,218Percentage of revenue from:Domestic contract compression


38.8
%

40.8
%

42.5
%International contract compression


13.4
%

12.0
%

10.6
%Fabrication


28.0
%

26.7
%

26.0
%Aftermarket services


19.8
%

20.5
%

20.9
%Net income

$
33,610

$
30,787

$
33,518EBITDA, as adjusted (a)

$
232,543

$
223,848

$
201,150


---

4

---



Natural Gas Compression Industry Overview

Natural gas compression is a mechanical process whereby a volume of gas at an existing pressure is compressed to a desired higher pressure. We offer both slow and
high speed reciprocating compressors driven either by internal combustion engines or electric motors. We also offer rotary screw compressors for specialized applications. Most natural gas compression
applications involve compressing gas for its delivery from one point to another. Low pressure or aging natural gas wells require compression for delivery of produced gas into higher pressured gas
gathering or pipeline systems. Compression at the wellhead is required because, over the life of an oil or gas well, natural reservoir pressure typically declines 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 naturally flows into the pipeline.
Compression equipment is applied in both field and gathering systems to boost the well's pressure levels allowing gas to be brought to market. Compression is also used to reinject natural gas down
producing oil wells to help lift liquids to the surface, known as gas lift operations. In secondary oil recovery operations, compression is used to inject natural gas into wells to maintain reservoir
pressure. Compression is also used in gas storage projects to inject gas into underground reservoirs during off-peak seasons for withdrawal later during periods of high demand. Compressors
may also be used in combination with oil and gas production equipment to process and refine oil and gas into more marketable energy sources. In addition, compression services are used for compressing
feedstocks in refineries and petrochemical plants, and for refrigeration applications in natural gas processing plants.

Typically,
compression is required several times during the natural gas production cycle: at the wellhead, at the gathering lines, into and out of gas processing facilities, into and out
of storage facilities and through the pipeline. Natural gas compression that is used to transport gas from the
wellhead through the gathering system is considered "field compression." Natural gas compression that is used during the transportation of gas from the gathering systems to storage or the
end-user is considered "pipeline compression." During the production phase, compression is used to boost the pressure of natural gas from the wellhead so that natural gas can flow into the
gathering system or pipeline for transmission to end-users. Typically, these applications require portable, low to mid-range horsepower compression equipment located at or near
the wellhead. The continually dropping pressure levels in natural gas fields require periodic modification and variation of on-site compression equipment.

Compression
equipment is also used to increase the efficiency of a low capacity gas field by providing a central compression point from which the gas can be produced and injected into a
pipeline for transmission to facilities for further processing. In an effort to reduce costs for wellhead operators, operators of gathering systems tend to keep the pressure of the gathering systems
low. As a result, more pressure is often needed to force the gas from the low pressure gathering systems into the higher pressure pipelines. Similarly, as gas is transported through a pipeline,
compressor units are applied all along the pipeline to allow the natural gas to continue to flow through the pipeline to its destination. These applications generally require larger horsepower
compression equipment (1,000 horsepower and higher).

Gas
producers, transporters and processors historically owned and maintained most of the compression equipment used in their operations. However, over the past several years, many
producers, transporters and processors have outsourced their compression equipment. Changing well and pipeline pressures and conditions over the life of a well often require producers to reconfigure
or replace their compressor units to optimize the well production or pipeline efficiency.

We
believe outsourcing contract compression equipment offers customers:



5

---





Customers
that elect to outsource compression equipment may vary their level of service for such equipment. One end of the service spectrum, known commonly as a "bare rental," involves
no services beyond the provision of the equipment itself, which the customer services, maintains and operates. In the middle of the service spectrum, the compression service provider is responsible
for certain operational tasks, such as scheduled preventative maintenance, repair and general up-keep of the equipment, while the customer usually remains responsible for the
day-to-day inspection of the equipment. On the other end of the service spectrum, the compression service provider is responsible for more of the operational tasks, including
daily inspection of the equipment, provision of consumables such as oil and antifreeze and, if necessary, presence at the site for several hours each day.

In
contrast to the domestic compression market, the international compression market is comprised primarily of large horsepower compressors. A significant portion of this market involves
comprehensive installation projects, which include the design, fabrication, delivery, installation, operation and maintenance of compressors and related gas treatment equipment by the contract
compression service provider. In these projects, the customer's only responsibility is to provide fuel gas within specifications. As a result of the full service nature of these projects and because
these compressors generally remain on-site for three to seven years, we are typically able to achieve higher revenue and margins on these projects as compared to average domestic
compression service margins.

Operations

Contract Compression Fleet

As of March 31, 2005, our fleet consisted of 7,181 compressors, as reflected in the following table:

|               |       | Total Horsepower
As of March 31, |           | % of
Horsepower
As of March 31, |           | Number of Units
As of March 31,
|-------------- | ----- | -------------------------------- | --------- | ------------------------------- | --------- | -------------------------------
|
|
|0-99           |       | 175,093                          |           | 177,665                         |           | 7.1                            
|100-299        |       | 442,919                          |           | 442,946                         |           | 17.9                           
|300-599        |       | 368,893                          |           | 359,032                         |           | 15.0                           
|600-999        |       | 428,070                          |           | 403,760                         |           | 17.3                           
|1,000 and over |       | 1,053,970                        |           | 937,482                         |           | 42.7                           
|               |       |                                  |           |                                 |           |                                
|               | Total |                                  | 2,468,945 |                                 | 2,320,885 |                                

For
the year ended March 31, 2005, the average horsepower utilization rate for our fleet was approximately 88.8%. For the quarter ended March 31, 2005, the average
utilization rate was approximately 90.0%.

Over
the last several years, we have undertaken to standardize our compressor fleet around major components and key suppliers. Our standardized fleet:



6

---





Contract Compression

We provide comprehensive contract compression services, which include operation and maintenance services for our domestic and international fleet. When providing
full contract compression service, we work closely with a customer's field service personnel so that the compressor can be adjusted to efficiently match changing characteristics of the gas produced.
We provide maintenance services on substantially all of our fleet units. Maintenance services include the scheduled preventive maintenance, repair and general up-keep of compressor
equipment. As a complement to our maintenance business, we offer supplies and services such as antifreeze and lubricants to the job site. We also may offer installation services, which for our typical
mid-range and smaller horsepower units involve significantly less engineering and cost than the comprehensive service concept prevalent in the international markets. We also routinely
repackage or reconfigure some of our existing fleet to adapt to our customers' needs.

We
generally operate the large horsepower compressors under comprehensive compression services contracts and include the operations fee as part of the contract compression rate. Large
horsepower units are more complex and, by operating the equipment ourselves, we reduce maintenance and overhaul expenses. Generally, we train our customers' personnel in fundamental compressor
operations of smaller horsepower units so that they can assume responsibility for the day-to-day inspection of the equipment and certain operational tasks.

Our
field compression equipment is maintained in accordance with daily, weekly, monthly and annual maintenance schedules. These maintenance procedures are updated as technology changes
and as our operations group develops new techniques and procedures. In addition, because our field technicians provide maintenance on substantially all of our contract compression equipment, they are
familiar with the condition of our equipment and can readily identify potential problems. In our experience, these procedures maximize equipment life and unit availability and minimize avoidable
downtime. Generally, each of our units undergoes a major overhaul once every six to eight years. A major overhaul involves the rebuilding of the unit to materially extend its economic useful life or
to enhance the unit's ability to fulfill broader or different contract compression applications.

We
believe that our fabrication and aftermarket services businesses provide us with opportunities to cross-sell our contract compression services.

We
have standard contracts for rates and terms on the compressors in our fleet. Through negotiations, these rates and contracts may be modified. Optional items such as oil, antifreeze,
freight, insurance and other items may be either itemized or included in the basic monthly contract compression rate. Initial contract compression terms are usually six months, with some projects
committed for as long as five years. At the end of the initial term, contract compression services can continue at the option of the customer on a month-to-month basis or the
compressor may be returned or replaced with a different compressor.

Domestic Operations.As of March 31, 2005, we operated the second largest domestic fleet of compressors in terms of
horsepower with approximately 6,475 units comprising approximately 1.9 million horsepower. We operate sales and service locations in the primary onshore and offshore natural gas producing
regions of the United States. For the year ended March 31, 2005, 38.8% of our total revenue was generated from domestic contract compression operations.

We
maintain 18 field service locations throughout the United States at which we service and overhaul compression equipment.

7

---



International Operations.As of March 31, 2005, we operated approximately 706 units comprising approximately 544,000
horsepower in international markets. We intend to continue to expand our presence in these markets and pursue opportunities in other strategic international areas. For the year ended March 31,
2005, 13.4% of our total revenue was generated from international contract compression operations.

International
compression service projects usually generate higher gross profit margins than domestic projects. Our international operations are focused on large horsepower compressor
markets and frequently involve longer-term and more comprehensive service projects than our domestic projects. International projects generally require us to provide complete engineering
and design. International service agreements can and frequently do differ significantly from domestic service agreements as individual contracts are negotiated for each project.

Financial
information about geographic areas for each of the last three fiscal years is provided in Note 12 to the financial statements, included in Part II, Item 8
("Financial Statements and Supplementary Data").

Fabrication

As a complement to our contract compression service operations, we design, engineer, fabricate and sell natural gas compressors to engineering and construction
firms, exploration and production companies, as well as pipeline and gas transmission companies, both domestically and internationally. We also fabricate compressor units for our own fleet. Our
primary fabrication facilities are located in Houston, Texas and Calgary, Alberta, Canada.

Generally,
compressors sold to third parties are assembled according to each customer's specifications. We purchase components for these compressors from third party suppliers, and we
are original equipment manufacturer representatives for several major engine, compressor, and electric motor manufacturers in the industry. We also sell prepackaged compressor units. For the
year-ended March 31, 2005, 28.0% of our total revenue was generated from fabrication operations.

We
do not incur material research and development expenditures, as these activities are not a significant aspect of our business. All research and development costs are expensed as
incurred.

Aftermarket Services

Our aftermarket services business sells parts and components, and provides operation and maintenance services to customers who own their compression equipment or
use equipment provided by our competitors.

Our
inventory of parts is available either on an over-the-counter basis through our 18 service locations in the United States and 5 in Canada, on a bid basis for
larger orders, or as part of our compressor maintenance service. Our maintenance services are available on an individual call basis, on a contract basis (which may cover a particular unit, an entire
compression project or all of the customer's compression projects) or as part of our comprehensive operation and maintenance service. We also provide offshore maintenance and service. In addition, we
provide overhaul and reconfiguration services for customer-owned compression equipment, either on-site or in our overhaul shops. For the year ended March 31, 2005, 19.8% of our
total revenue was generated from aftermarket services operations.

8

---





Business Strategy

Our business strategy is to meet the evolving needs of our customers by providing consistent and dependable services and products, and to take advantage of our
size and broad geographic scope to expand our customer base. The key elements of our business strategy are described below:



Competitive Strengths

We believe that we have the following key competitive strengths:



9

---





Oil and Gas Industry Cyclicality and Volatility

Our financial performance is generally less affected by the short-term market cycles and oil and gas price volatility than the financial performance
of companies operating in other sectors of the oilfield services industry because:



Adding
to this stability is the fact that, while compressors often must be specifically engineered or reconfigured to meet the unique demands of our customers, the fundamental technology
of compression equipment has not experienced significant technological change.

Seasonal Fluctuations

Our results of operations have not historically reflected any material seasonal tendencies, nor do we currently have reason to believe seasonal fluctuations will
have a material impact in the foreseeable future.

10

---



Customers

Our current customer base consists of over 1,000 domestic and international companies engaged in all aspects of the oil and gas industry, including major
integrated oil and gas companies, international state-owned oil and gas companies, large and small independent producers, natural gas processors, gatherers and pipelines. We have entered into
strategic alliances with some of our customers. These alliances are essentially preferred vendor arrangements and give us preferential consideration for the compression needs of these customers. In
exchange, we provide these customers with enhanced product availability, product support and favorable pricing.

In
the fiscal year ended March 31, 2005, no single customer accounted for as much as 10% of our total revenue. Our top 20 customers accounted for approximately 43.0% of our total
revenue in fiscal year 2005.

Suppliers

Our principal suppliers include Caterpillar and Waukesha for engines, Air Xchangers for coolers, and Ariel for compressors. We also purchase Cooper parts and
compressors in Canada for sale to customers. Although we rely primarily on these suppliers, we believe alternative sources are generally available. We have not experienced any material supply problems
to date, and we believe our relations with our suppliers are good, except as expressed below.

In
December 1999, Weatherford Global sold the assets and properties of its Gemini compressor business in Corpus Christi, Texas to GE Packaged Power, L.P., ("GEPP"). As part of
that sale, Weatherford Global entered into an agreement to purchase from GEPP $38.0 million of compressor components over five years and $3.0 million of parts over three years, and GEPP
agreed to provide compressors to Weatherford Global during that time period at negotiated prices. We assumed this obligation in connection with our acquisition of Weatherford Global in
February 2001. As of March 31, 2005, approximately $26.4 million of components and approximately $16.7 million of parts have been purchased from GEPP. As a result of GEPP
product performance issues, we have been unable to satisfy and have not satisfied in full our purchase commitment in respect of components under this agreement with GEPP. The unsatisfied portion of
the purchase commitment is approximately $11.6 million. GEPP could assert its right to enforce this obligation, but has not indicated any interest to do so at this time. However, if GEPP should
seek to enforce this obligation, we believe we have valid defenses and counter claims and would aggressively defend against such enforcement and pursue such counter claims.

Backlog

As of March 31, 2005, we had a compressor unit fabrication backlog for sale to third parties of approximately $68.7 million, compared to
$88.2 million as of March 31, 2004. As of June 6, 2005, our backlog was $79.2 million. A majority of the backlog is expected to be completed within a 180-day
period.

Insurance

We believe that our insurance coverage is customary for the industry and adequate for our business. As is customary in the natural gas service operations
industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business.

Losses
and liabilities not covered by insurance would increase our costs. The natural gas service operations business can be hazardous, involving unforeseen circumstances such as
uncontrollable flows of gas or well fluids, fires and explosions or environmental damage. To address the hazards inherent in our business, we maintain insurance coverage that includes physical damage
coverage, third party

11

---



general
liability insurance, employer's liability, environmental and pollution and other coverage, although coverage for environmental and pollution-related losses is subject to significant
limitations. In addition, many of our service contracts shift certain risks to our customers, including requirements to maintain insurance coverage.

Competition

The natural gas contract compression, fabrication and aftermarket services businesses are highly competitive. We face competition from large national and
multinational companies with greater financial resources and, on a regional basis, from numerous smaller companies.

Our
main competitors in the contract compression business, based on horsepower, are Hanover Compressor Company, Compressor Systems, Inc. and J-W Operating Company. In
addition, Weatherford and its subsidiaries may continue to compete with us as they are not contractually restricted from doing so. In our fabrication activities, we currently compete primarily with
Hanover Compressor Company, Compressor Systems, Inc., Enerflex Systems, Ltd., Toromont Industries Ltd. and Collicut Energy Services Ltd. Our aftermarket services business
faces competition from manufacturers (including Cooper Energy Services, Dresser-Rand and Hanover Compressor Company), from distributors of Caterpillar and Waukesha engines, from a number
of smaller companies and, in Canada, from Enerflex Systems, Ltd., Toromont Industries Ltd. and Collicut Energy Services Ltd.

We
believe that we compete effectively on the basis of customer service, including the availability of our personnel in remote locations, price, technical expertise, parts service
system, flexibility in meeting customer needs and quality and reliability of our compressors and related services.

Environmental and Other Regulations

We are subject to stringent and complex foreign, federal, state and local laws and regulations governing the discharge of materials into the environment or
otherwise relating to protection of human health and safety and the environment. Compliance with these laws and regulations may affect the costs of
our operations. Moreover, failure to comply with these environmental laws and regulations may result in the assessment of administrative, civil, and criminal penalties, imposition of remedial
obligations, and the issuance of injunctions delaying or prohibiting operations. We believe that our operations are in substantial compliance with applicable environmental requirements. As part of the
regular evaluation of our operations, we update the environmental condition of our existing and acquired properties as necessary. We further believe that the phasing in of more stringent emission
controls and other known regulatory requirements at the rate currently contemplated by environmental laws and regulations will not have a material adverse effect on our business, financial condition
or results of operations.

Primary
federal environmental laws that our operations are subject to include the Clean Air Act and regulations thereunder, which regulate air emissions; the Clean Water Act, and
regulations thereunder, which regulate the discharge of pollutants in industrial wastewater and storm water runoff; and the Resource Conservation and Recovery Act, referred to as "RCRA," and
regulations, thereunder, which regulate the management and disposal of solid and hazardous waste. In addition, we are also subject to regulation under the federal Comprehensive Environmental Response,
Compensation, and Liability Act, and regulations thereunder, known more commonly as "Superfund," which regulates the release of hazardous substances in the environment. Analogous state laws and
regulations may also apply.

The
Clean Air Act and related regulations establish limits on the levels of various substances which may be emitted into the atmosphere during the operation of our fleet of natural gas
compressors. These substances are regulated in permits, which are applied for and obtained through the various regulatory agencies, either state or federal depending on the level of emissions. While
our standard

12

---



contract
typically provides that the customer will assume the permitting responsibilities and environmental risks related to compressor operations, we have in some cases obtained air permits as the
owner and operator of the compressors. Under most of our contract compression service agreements, our customers must indemnify us for certain losses or liabilities we may suffer as a result of the
failure of the compressors to comply with applicable environmental laws, including permit conditions. Increased obligations of operators to reduce air emissions of nitrogen oxides and other pollutants
from internal combustion engines in transmission service are anticipated. Any new regulations requiring the installation of more sophisticated emission control compression equipment potentially could
have a material adverse impact. However, we believe that in most cases, these obligations would be allocated to our clients under the above-referenced contracts. In any event, we expect that such
requirements would not have any more significant effect on our operations or financial condition than on any similarly situated company providing contract compression services.

The
Clean Water Act and related regulations prohibit the discharge of industrial wastewater without a permit and establish limits on the levels of pollutants contained in these
discharges. In addition, the Clean Water Act regulates storm water discharges associated with industrial activities depending on a facility's primary standard industrial classification. Many of our
facilities have applied for and obtained industrial wastewater discharge permits as well as sought coverage under local wastewater ordinances. In addition, many of our facilities have filed notices of
intent for coverage under statewide storm water general permits and developed and implemented storm water pollution prevention plans, as required.

The
RCRA and related regulations, regulate the management and disposal of solid and hazardous waste. These laws and regulations govern the generation, storage, treatment, transfer and
disposal of wastes that we generate. These wastes include, but are not limited to, used oil, antifreeze, filters, sludges, paint, solvents, and sandblast materials. The Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for these types of wastes.

Under
the Comprehensive Environmental Response, Compensation, and Liability Act, referred to as "CERCLA," and comparable state laws and regulations, strict and joint and several
liability can be imposed without regard to fault or the legality of the original conduct on certain classes of persons that contributed to the release of a hazardous substance into the environment.
These persons include the owner and operator of a contaminated site where a hazardous substance release occurred and any company that transported, disposed of, or arranged for the transport or
disposal of hazardous substances released at the site. Under CERCLA, such persons may be liable for the costs of remediating the hazardous substances that have been released into the environment and
for damages to natural resources. In addition, where contamination may be present it is not uncommon for the neighboring landowners and other third parties to file claims for personal injury, property
damage and recovery of response costs.

We
currently own or lease, and have in the past owned or leased, a number of properties that have been used, some for many years and some by third parties over whom we have no control,
in support of natural gas compression services or other industrial operations. We may be subject to remediation costs and liability under CERCLA, RCRA or other environmental laws for hazardous waste,
asbestos or any other toxic or hazardous substance that may exist on or under any of our owned or leased properties, including waste disposed or groundwater contaminated by prior owners or operators.
We have performed in the past, are currently performing, and may perform in the future, certain remediation activities governed by environmental laws. The cost of this remediation has not been
material to date and we currently do not expect it to be material in the future. We are currently undertaking groundwater monitoring at certain of our facilities, which may further define our remedial
obligations. Certain of our acquired properties may also warrant groundwater monitoring and other remedial activities. We believe that former owners and operators of many of these properties may be
wholly or partly responsible under environmental laws and contractual agreements to pay for or

13

---



perform
remediation, or to indemnify us for our remedial costs. These other entities may fail to fulfill their legal or contractual obligations, which could result in imposing response obligations and
material costs on us.

Stricter
standards in environmental legislation or regulations that may affect us may be imposed in the future, such as proposals to make hazardous wastes subject to more stringent and
costly handling, disposal and remediation requirements. Accordingly, new environmental laws or regulations or amendments to existing environmental laws or regulations (including, but not limited to,
regulations concerning ambient air quality standards, waste water and storm water discharges, and global climate changes) could require us to undertake significant capital expenditures and could
otherwise have a material adverse effect on our business, results of operations and financial condition.

Our
international operations are potentially subject to similar governmental controls and restrictions relating to the environment. We believe that we are in substantial compliance with
any such foreign requirements pertaining to the environment.

Since
1992, there have been various proposals to impose taxes with respect to the energy industry, none of which have been enacted and all of which have received significant scrutiny
from various industry lobbyists. At the present time, given the uncertainties regarding the proposed taxes, including the uncertainties regarding the terms which the proposed taxes might ultimately
contain and the industries and persons who may ultimately be the subject of such taxes, it is not possible to determine whether any such tax will have a material adverse effect on us.

Employees and Labor Relations

As of March 31, 2005, we had approximately 2,370 employees worldwide. We believe our relationship with our employees is good. Approximately 116 of our
employees in Argentina, 43 of our employees in Canada and 34 of our employees in Brazil are covered by collective bargaining agreements.

ITEM 2.Properties

The following table describes our material facilities owned or leased as of March 31, 2005:

|Location                 |  | Square
Feet |  | Acreage |  | Status |  | Uses                                                                              
|------------------------ |  | ----------- |  | ------- |  | ------ |  | ----------------------------------------------------------------------------------
|Houston, Texas           |  | 244,000     |  | 35.4    |  | Owned  |  | Corporate headquarters, fabrication, contract compression and aftermarket services
|Calgary, Alberta, Canada |  | 105,760     |  | 9.2     |  | Owned  |  | Fabrication, contract compression and aftermarket services                        
|Yukon, Oklahoma          |  | 72,000      |  | 14.7    |  | Owned  |  | Contract compression and aftermarket services                                     
|Houma, Louisiana         |  | 60,000      |  | 91.0    |  | Owned  |  | Aftermarket services                                                              
|Belle Chase, Louisiana   |  | 35,000      |  | 4.0     |  | Owned  |  | Contract compression and aftermarket services                                     
|Schulenberg, Texas       |  | 23,000      |  | 13.3    |  | Owned  |  | Fabrication, contract compression and aftermarket services                        
|Broussard, Louisiana     |  | 24,700      |  | 10.0    |  | Leased |  | Contract compression and aftermarket services                                     

None
of the above referenced facilities are pledged as collateral, except for our Houston, Texas corporate headquarters, which has been pledged as collateral to secure our
$650 million senior secured credit facility.

14

---



We
believe our facilities are suitable for their intended purposes and are adequate for our current and anticipated level of operations.

ITEM 3.Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We do not believe we are
party to any legal proceedings which, if determined adversely to us, individually or in the aggregate, would have a material adverse effect on our results of operations or financial condition.

ITEM 4.Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2005.

15

---





PART II

ITEM 5.Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange under the symbol "UCO." The following table sets forth the range of high and low sale prices for our
common stock for the periods indicated.

Price RangeHigh

LowQuarter Ended:June 30, 2003

$
22.40

$
16.83September 30, 2003


24.81


18.53December 31, 2003


27.00


21.45March 31, 2004


34.60


25.49June 30, 2004

$
33.16

$
28.80September 30, 2004


34.85


30.68December 31, 2004


37.46


32.24March 31, 2005


39.70


32.90Through June 6, 2005


39.40


33.12


On
June 6, 2005, the closing price of our common stock was $35.10 per share. As of June 6, 2005, there were approximately 516 holders of record of our common stock.

We
have never declared or paid any cash dividends to our stockholders and do not plan to pay any cash dividends in the foreseeable future.

16

---



ITEM 6.Selected Financial Data

SELECTED HISTORICAL FINANCIAL DATA
UNIVERSAL COMPRESSION HOLDINGS, INC.

The following selected historical consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related notes included elsewhere in this report. The selected
historical financial and operating data for each of the five years in the period ended March 31, 2005 have been derived from the respective audited financial statements. The consolidated
financial statements and report thereon, as of March 31, 2005 and 2004 and for the years ended March 31, 2005, 2004 and 2003 are included elsewhere in this report.

|                                             |                      | Year Ended March 31, |        
|-------------------------------------------- | -------------------- | -------------------- | -------
|
|
|Statement of Operations Data:                |                      |                      |        
|Revenue                                      |                      | $                    | 763,070
|Gross profit(1)                              |                      |                      | 310,254
|Selling, general and administrative expenses |                      |                      | 75,756 
|Depreciation and amortization                |                      |                      | 93,797 
|Interest expense, net(2)                     |                      |                      | 64,188 
|Operating lease expense(2)                   |                      |                      |       
|Debt extinguishment costs(3)                 |                      |                      | 26,543 
|Facility consolidation costs                 |                      |                      |       
|Asset impairment expense                     |                      |                      | 3,080  
|Income tax expense                           |                      |                      | 17,213 
|Net income (loss)                            |                      |                      | 33,610 
|Earnings (loss) per share                    |                      |                      |        
|                                             | Basic                |                      |        
|                                             | Diluted              |                      |        
|Weighted average common stock outstanding    |                      |                      |        
|                                             | Basic                |                      |        
|                                             | Diluted              |                      |        
|Other Financial Data:                        |                      |                      |        
|EBITDA, as adjusted(4)                       |                      | $                    | 232,543
|Capital expenditures:                        |                      |                      |        
|                                             | Expansion            |                      | $      
|                                             | Overhauls            |                      |        
|                                             | Other                |                      |        
|Cash flows provided by (used in):            |                      |                      |        
|                                             | Operating activities |                      | $      
|                                             | Investing activities |                      |        
|                                             | Financing activities |                      |        

|                     |  | As of March 31,
|-------------------- |  | ---------------
|
|
|Balance Sheet Data:  |  |                
|Cash                 |  | $              
|Working capital(5)   |  |                
|Total assets         |  |                
|Total debt(6)(7)     |  |                
|Stockholders' equity |  |                

---

17

---



SELECTED HISTORICAL FINANCIAL DATA
UNIVERSAL COMPRESSION, INC.

The following selected historical consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated audited financial statements and related notes included elsewhere in this report. The selected historical financial and operating data for each of the five
years in the period ended March 31, 2005 have been derived from the respective audited financial statements. The consolidated audited
financial statements and report thereon, as of March 31, 2005 and 2004 and for the years ended March 31, 2005, 2004 and 2003 are included elsewhere in this report.

|                                             |                      | Year Ended March 31, |        
|-------------------------------------------- | -------------------- | -------------------- | -------
|
|
|Statement of Operations Data:                |                      |                      |        
|Revenue                                      |                      | $                    | 763,070
|Gross profit(1)                              |                      |                      | 310,254
|Selling, general and administrative expenses |                      |                      | 75,756 
|Depreciation and amortization                |                      |                      | 93,797 
|Interest expense, net(2)                     |                      |                      | 64,188 
|Operating lease expense(2)                   |                      |                      |       
|Debt extinguishment costs(3)                 |                      |                      | 26,543 
|Facility consolidation costs                 |                      |                      |       
|Asset impairment expense                     |                      |                      | 3,080  
|Income tax expense                           |                      |                      | 17,213 
|Net income (loss)                            |                      |                      | 33,610 
|Other Financial Data:                        |                      |                      |        
|EBITDA, as adjusted(4)                       |                      | $                    | 232,543
|Capital expenditures:                        |                      |                      |        
|                                             | Expansion            |                      | $      
|                                             | Overhauls            |                      |        
|                                             | Other                |                      |        
|Cash flows provided by (used in):            |                      |                      |        
|                                             | Operating activities |                      | $      
|                                             | Investing activities |                      |        
|                                             | Financing activities |                      |        

|                     |  | As of March 31,
|-------------------- |  | ---------------
|
|
|Balance Sheet Data:  |  |                
|Cash                 |  | $              
|Working capital(5)   |  |                
|Total assets         |  |                
|Total debt(6)(7)     |  |                
|Stockholder's equity |  |                

---

18

---



THE COMPANY'S DEFINITION, RECONCILIATION
AND USE OF EBITDA, AS ADJUSTED

EBITDA, as adjusted, is defined as net income plus income taxes, interest expense (including debt extinguishment costs and gain on the termination of interest
rate swap agreements), operating lease expense, depreciation and amortization, foreign currency gains or losses, excluding non-recurring items (including facility consolidation costs) and
extraordinary gains or losses.

EBITDA,
as adjusted, represents a measure upon which management assesses performance and, as such, we believe that the generally accepted accounting principle ("GAAP") measure most
directly comparable to it is net income or net loss. The manner in which management uses EBITDA, as adjusted, to evaluate our business follows.

EBITDA, as adjusted, as a supplemental measure to review current period operating performance.Management uses EBITDA, as
adjusted, as a supplemental measure to evaluate the current period operating performance of our business. We believe that EBITDA, as adjusted, when viewed with our GAAP results and the accompanying
reconciliations and other financial and non-financial measures, provides a useful additional perspective on, and a more complete understanding of, our performance than our GAAP results
alone.



EBITDA, as adjusted, as a comparability measure.Management uses EBITDA, as adjusted, to compare the Company's performance
with that of our competitors. Although our competitors may calculate EBITDA differently, the measure will usually present operating performance on a basis that is meaningful for comparative purposes.
We urge the readers of our reports and financial statements, including our disclosure of EBITDA, as adjusted, to review carefully the reconciliation of the non-GAAP measure to net income
or loss set forth in the table below.

19

---





EBITDA, as adjusted, as a performance measure for period to period comparisons.Management uses EBITDA, as adjusted, as a
measure of the performance of our business over time and as a tool in identifying key trends.



EBITDA, as adjusted, as a valuation measure.Just as investors monitor and review a variety of financial and performance
indicators, such as the market stock price to earnings ratio and the enterprise value to EBITDA ratio, management monitors these ratios to better understand the value of the Company and how to
increase that value for our investors. For example, management has routinely utilized an EBITDA measure as a method to value companies when considering potential acquisition targets. This measure is
utilized for the reasons discussed above; it allows for an evaluation of the target independent of its historical capital structure, depreciation estimates, tax position, and incurrence of infrequent
or more uncommon items. Moreover, management believes investors that desire to evaluate the Company as a potential target will also utilize the Company's EBITDA, as adjusted, as part of their
evaluation.

20

---



The
following table reconciles our EBITDA, as adjusted, to net income or (loss):

|                    |                                                      | Year Ended March 31, |        
|------------------- | ---------------------------------------------------- | -------------------- | -------
|
|
|EBITDA, as adjusted |                                                      | $                    | 232,543
|                    | Interest expense, net                                |                      |        
|                    | Income tax expense                                   |                      |        
|                    | Depreciation and amortization                        |                      |        
|                    | Operating lease expense                              |                      |        
|                    | Gain on termination of interest rate swap agreements |                      |        
|                    | Foreign currency gain (loss)                         |                      |        
|                    | Facility consolidation costs                         |                      |        
|                    | Debt extinguishment costs                            |                      |        
|                    | Non-recurring charges                                |                      |        
|                    |                                                      |                      |        
|Net income (loss)   |                                                      | $                    | 33,610 
|                    |                                                      |                      |        

Below
are the items excluded from net income in the calculation of EBITDA, as adjusted, and the reasons for the exclusion:



21

---





We
believe disclosure of this non-GAAP measure provides useful information to investors because, when viewed with our GAAP results and accompanying reconciliations, it
provides a more complete understanding of our performance than GAAP results alone. This is the case because this non-GAAP financial measure excludes from earnings financial and other items
that have less bearing on operating performance. When using this measure to compare to other companies, which we believe can be a

22

---



useful
tool to evaluate the Company, please note that an EBITDA measure may be calculated differently between companies, as it is a non-GAAP measure. We cannot ensure that EBITDA, as
adjusted, is directly comparable to other companies' similarly titled measures. We urge the readers of financial statements to review the reconciliation of the non-GAAP measure to the most
comparable GAAP measure to understand any differences that may exist between companies. Nonetheless, we have shown EBITDA, as adjusted, its definition and its calculation in order to disclose how
management uses it, to present the exclusions made and the limitations of it as a measure.

EBITDA,
as adjusted, has certain material limitations associated with its use as compared to net income. These limitations are primarily due to the exclusion of certain amounts that are
material to the Company's consolidated results of operations, as follows:



Use
of EBITDA, as adjusted, by itself and without consideration of other measures, is not an adequate measure of the Company's performance because this measure excludes certain material
items, as noted above. Further, the measure has a limitation in that many users of financial statements believe that EBITDA is a measure of liquidity or of cash flows. We do not use EBITDA, as
adjusted, in this way because it excludes interest payments and changes in working capital accounts and therefore we urge the readers of our financial statements to not use the measure in this way
either. Management compensates for these limitations by using EBITDA, as adjusted, as a supplemental measure to other GAAP results to provide a more complete understanding of our performance without
considering financial and other items that have less bearing on operating performance. The measure has a limitation, as it does not consider the amount of required reinvestment to maintain similar
going forward results. Management mitigates this limitation by reviewing and disclosing the Company's capital and maintenance capital expenditures on a regular basis as yet another supplemental tool
to evaluate the Company.

EBITDA,
as adjusted, is not a measure of financial performance under GAAP and should not be considered an alternative to operating income or net income as an indicator of our operating
performance or to net cash provided by operating activities as a measure of our liquidity.

23

---





ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
UNIVERSAL COMPRESSION HOLDINGS, INC.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial
statements, and the notes thereto, and the other financial information appearing elsewhere in this report. The following discussion includes forward-looking statements that involve certain risks and
uncertainties. See "Part I. Disclosure Regarding Forward-Looking Statements" and "Risk Factors."

Overview

General

We provide a full range of natural gas compression services, including sales, operations, maintenance and fabrication services and products to the natural gas
industry, both domestically and internationally. Through our core business, contract compression, and our fleet as of March 31, 2005 of approximately 7,200 compressor units comprising
approximately 2.5 million horsepower, we provide natural gas compression to domestic and international customers. Through our equipment fabrication business we design, engineer and assemble
natural gas compressors for sale to third parties and for use in our contract compression fleet. Through our aftermarket services business, we sell parts and components and provide maintenance and
operations services to customers who own their compression equipment or use equipment provided by other companies. These services and products are essential to the natural
gas industry as gas must be compressed to be delivered from the wellhead to end-users and, sometimes in the case of declining reservoir pressure, in order to get to the wellhead itself.
Our customers consist primarily of domestic and international oil and gas companies, international state-owned oil and gas companies, large and small independent producers and natural gas processors,
gatherers and pipelines.

Generally,
our overall business activity and revenue increase as the demand for natural gas increases. In the United States, increases in the demand for compression services and products
are driven by growth in the production of natural gas, by declining reservoir pressure in maturing natural gas producing fields and, more recently, by increased demand for compression equipment for
growing non-conventional natural gas production, from places such as coal bed methane, tight sands and shale gas. In international markets, increases in the demand for compression services
and products are driven by growth in natural gas industry infrastructure, environmental initiatives encouraging the production and consumption of natural gas and the growth in the worldwide
transportation and use of natural gas. The demand for compression services is also driven by general increases in the demand for energy fuel stocks, including natural gas, which is generally driven by
economic growth, and by increases in the outsourcing of compression needs.

Industry Conditions and Trends

Natural Gas Industry.Worldwide consumption of natural gas increased from approximately 53 trillion cubic feet in 1980 to
approximately 90 trillion cubic feet in 2001, although consumption levels in the United States declined in the early 2000s primarily due to an economic slowdown and continue to be relatively flat.
Industry sources expect the long-term growth trend of worldwide gas consumption to continue. We believe the growing demand in electrical power generation is a contributing factor in the
worldwide growth of natural gas consumption as natural gas tends to be the fuel of choice for new power plants.

24

---



The
United States accounted for an estimated annual production of approximately 20 trillion cubic feet of natural gas in calendar year 2001, or 22% of the worldwide total, compared to an
estimated annual production of approximately 71 trillion cubic feet in the rest of the world. Industry sources estimate that the United States' relative natural gas production level will decrease to
approximately 16% of worldwide production by calendar year 2025. As of January 1, 2004, the United States natural gas reserves were estimate at 187 trillion cubic feet, or 3.1% of the worldwide
total.

Natural Gas Compression Services Industry.The natural gas compression services industry experienced a significant increase
in the demand for its products and services from the early 1990s to the early 2000s. The amount of compression horsepower currently operated by contract compression providers, such as the Company, is
estimated to be approximately 5.5 million to 6.0 million horsepower in the United States and approximately 1.5 million horsepower internationally.

A
high level of compression industry capital expenditures and reduced demand due to lackluster economic activity resulted in reduced contract compression fleet utilization beginning in
late calendar 2001 and continued into calendar 2002. Industry utilization stabilized in the second half of calendar 2002 and began to increase during calendar 2003 as a result of reduced capital
expenditures and increasing demand due to improving economic activity. During calendar 2003 the industry did not materially increase the supply of contract compression units in the United States due
to an emphasis on the redeployment of idle units while growth in international markets continued. During calendar 2004, the industry began to increase capital expenditure levels in the United States
as increasing utilization levels caused a shortage in the supply of available, large horsepower units, while international growth continued.

We
believe the outlook for contract compression services, particularly in the United States, will continue to benefit from aging producing natural gas fields which will require more
compression to continue producing the same volume of natural gas, and from increasing production from unconventional sources, which include tight sands, shale and coal bed methane, which generally
require more compression than production from conventional sources to produce the same volume of natural gas.

While
the international gas compression services market is currently smaller than the domestic market, we believe there are growth opportunities in international demand for compression
services and products due to the following factors:



Company Performance Trends and Outlook

During fiscal 2001 and fiscal 2002, we increased our natural gas compression fleet, expanded fabrication capabilities for large horsepower units, added
complementary aftermarket services and broadened our international operations. Capital expenditures in fiscal 2003 and fiscal 2004 were significantly lower than fiscal 2002 levels as we emphasized the
redeployment of idle fleet units. In

25

---



fiscal
2005 we began to increase our compression fleet investment, both through acquisition and fabrication of fleet units, in light of the growing demand for contract compression services and average
fleet utilization rates consistently in the mid- to upper-80% range.

For
fiscal year 2006, we expect continued increased activity in all business segments. We expect continued strong demand in the contract compression segments to support an average
utilization rate in the high 80% to 90% range, as well as a stable price environment. While domestic contract compression margins are expected to stay within its historical range, we expect our
international contract compression gross margin to continue to trend modestly lower toward the mid-70% range. Customer demand is expected to support continued revenue growth in our
aftermarket services segment. We expect aftermarket services gross margins to remain within its historical range. We further expect customer demand to support improved margins in our fabrication
segment, although revenue in fabrication is likely to be lower in fiscal year 2006 than in fiscal year 2005 as we seek to improve our profitability in this segment through a combination of process
improvements and increased pricing to compensate for risks inherent in certain complex jobs. With respect to process improvements, we began instituting our "lean manufacturing" initiative in
March 2005, focusing on keeping inventories low and streamlining how a unit moves through the fabrication plant and how it is tested.

Challenges and Uncertainties

Demand.The demand for and production of natural gas, the price environment and the level of investment by our customers in
their natural gas assets may not remain at their current levels or continue to grow as expected, and a substantial decline in any of those factors would, in all likelihood, result in a decline in the
demand for our compression services and products.

Competition.The natural gas contract compression, fabrication and aftermarket services businesses are highly competitive. We
face several competitors in all business segments. In addition, the barriers to entry are minimal in the fabrication and aftermarket services business, as well as in the lower horsepower ranges in the
contract compression business. We face competition from some of our suppliers and their distributors in the aftermarket services business, as they have alternative distribution channels. We also face
competition, indirectly, from our customers in the contract compression business since our customers retain the ability to purchase their equipment, thus reducing the market for contract compression.
These competitive factors keep constant pressure on our market share, and, therefore, revenue and profit margins. Although we believe that we compete effectively on the basis of customer service,
price, technical expertise, geographic scope, quality and reliability, maintaining our competitiveness will require effective execution of our business strategies.

International Expansion.We intend to continue to pursue growth for our compression services in international markets. While,
currently, approximately 70 percent of our revenues are derived from the United States and 30 percent internationally, we anticipate the percentage of our revenues derived from international
operations will increase in the future. While this planned growth in international operations is anticipated to result in increased gross margins relative to our current domestic gross margins, the
expansion will likely also result in higher selling, general and administrative expenses as we grow our international infrastructure and will increase our exposure to the risks inherent in
international operations, including political and economic instability, foreign exchange rate risks and the other international risk factors described below in the "Risk Factors" section of this
Item 7 of this report.

26

---



Fiscal 2005 Financial Highlights

Some of the more significant financial items for the fiscal year, which are discussed below in "Financial Results of Operations," were as follows:



27

---





Fiscal 2005 Operating Highlights

The following table summarizes total available horsepower, average contracted horsepower, horsepower utilization percentages and fabrication backlog.

For the Year Ended March 31,2005

2004(Horsepower in thousands)Total Available Horsepower (at period end):Domestic contract compression

1,925

1,904International contract compression

544

417Total

2,469

2,321Average Contracted Horsepower:Domestic contract compression

1,675

1,646International contract compression

430

360Total

2,105

2,006Horsepower Utilization:Spot (at period end)

90.4
%
86.1
%Average

88.8
%
85.8
%


As of March 31,2005

2004(In millions)Fabrication Backlog

$
68.7

$
88.2


Domestic
available horsepower remained relatively stable for year ended March 31, 2005 compared to the prior year. The increase in international horsepower was primarily
attributable to horsepower that was added in Latin America in response to higher customer demand and the Canadian acquisition in November 2004, which is discussed below in "Acquisitions."

Domestic
average contracted horsepower increased by 1.8% for the fiscal year ended March 31, 2005 compared to the fiscal year ended March 31, 2004. This increase was
primarily attributable to higher customer demand. International average contracted horsepower increased by 19.4% for the fiscal year ended March 31, 2005 compared to the prior fiscal year. Like
the increase in total available international horsepower, this increase was primarily attributable to the acquisition that was made in Canada and higher customer demand in Latin America.

Fabrication
backlog decreased $19.5 million or 22.1% as of March 31, 2005 compared to March 31, 2004. Fabrication backlog fluctuates period to period due to, among
other things, the timing of receipt of orders placed by customers and the timing of revenue recognition. The backlog of fabrication projects at June 6, 2005 was approximately
$79.2 million. A majority of the backlog is expected to be completed within a 180-day period.

Acquisitions

In November 2004, we purchased the Canadian contract compression fleet of Hanover Compressor Company, for $56.9 million in cash. At the time of the
acquisition, the acquired fleet totaled approximately 83,000 horsepower and was expected to generate annual revenue of approximately $15 million. However, following the subsequent sale of
approximately 7,000 horsepower from the fleet, the expected annual revenue is estimated to be approximately $13.5 million. The acquisition was funded by $50.0 million in borrowings under
our revolving credit facility and $6.9 million in cash. We continue to expect this transaction will be accretive to our earnings per share during the first full year of operations.

28

---



We
further expanded our international sales and service footprint by acquiring two small service companies in Venezuela and Brazil during fiscal year 2005.

Financial Results of Operations

Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004

The following table summarizes revenue, gross profit, gross margin, expenses and the respective percentages for each of our business segments:

|                                                     |              | Year Ended March 31, |        
|---------------------------------------------------- | ------------ | -------------------- | -------
|
|
|Revenue:                                             |              |                      |        
|Domestic contract compression                        |              | $                    | 296,239
|                                                     | % of revenue |                      |        
|International contract compression                   |              | $                    | 102,167
|                                                     | % of revenue |                      |        
|Fabrication                                          |              | $                    | 213,994
|                                                     | % of revenue |                      |        
|Aftermarket services                                 |              | $                    | 150,670
|                                                     | % of revenue |                      |        
|Total revenue                                        |              | $                    | 763,070
|Gross profit:                                        |              |                      |        
|Domestic contract compression                        |              | $                    | 186,865
|International contract compression                   |              |                      | 78,448 
|Fabrication                                          |              |                      | 15,285 
|Aftermarket services                                 |              |                      | 29,656 
|Total gross profit                                   |              | $                    | 310,254
|Gross margin:                                        |              |                      |        
|Domestic contract compression                        |              |                      | 63.1%  
|International contract compression                   |              |                      | 76.8%  
|Fabrication                                          |              |                      | 7.1%   
|Aftermarket services                                 |              |                      | 19.7%  
|Total gross margin                                   |              |                      | 40.7%  
|Expenses:                                            |              |                      |        
|Depreciation and amortization                        |              |                      | 93,797 
|Selling, general and administrative                  |              |                      | 75,756 
|Interest expense, net                                |              |                      | 64,188 
|Debt extinguishment costs                            |              |                      | 26,543 
|Foreign currency (gain)/loss                         |              |                      | 389    
|Other income, net                                    |              |                      | (1,125 
|Gain on termination of interest rate swap agreements |              |                      | (3,197 
|Asset impairment expense                             |              |                      | 3,080  
|Facility consolidation costs                         |              |                      |       
|Income taxes                                         |              |                      | 17,213 
|Net income                                           |              | $                    | 33,610 

Revenue.The higher revenue for the fiscal year ended March 31, 2005, is attributable to increased industry activity
and customer demand, which resulted in higher utilization in both the domestic and international contract compression fleets and increased sales in the fabrication and aftermarket services businesses.
Specifically, domestic contract compression revenue increased due

29

---



primarily
to higher average contract prices and increased contracted horsepower in the fiscal year ended March 31, 2005. International contract compression revenue increased primarily as a
result of additional revenue from the Canadian acquisition discussed above, additional compression business in Argentina and additional revenue from a project in Brazil, which contributed to increases
of $7.2 million, $5.2 million and $4.2 million, respectively. Fabrication revenue increased due to increased customer demand in the United States, Asia Pacific and Latin America
regions, which contributed increases of $23.6 million, $15.5 million and $7.4 million, respectively. This increased revenue contribution was partially offset by a decline in
fabrication revenue in Canada of $16.2 million. Aftermarket services revenue was higher primarily due to increases within Latin America ($4.3 million) and Asia Pacific
($1.6 million) due, in part, to small acquisitions made in these regions. Additionally, aftermarket service revenue in the United States increased $3.1 million due to higher customer
demand.

Gross Profit.The changes in contract compression gross profit (defined as total revenue less direct costs) for the fiscal
year ended March 31, 2005 compared to the prior year were primarily attributable to revenue increases discussed above for domestic contract compression and international contract compression,
which offset the somewhat higher maintenance expenses experienced domestically toward the end of the fiscal year, including lubricant costs, fuel costs and field wages. The decreased gross profit
experienced in fabrication despite the increased revenues was primarily due to warranty costs and cost overruns experienced on certain relatively complex projects. Aftermarket services gross profit
was lower despite increased revenues due to, among other things, some year end pricing adjustments for an alliance customer.

Gross Margin.As a percentage of segment revenue, direct costs for all business segments combined for fiscal year ended
March 31, 2005 remained relatively stable compared to the prior year, although gross margins for our fabrication and aftermarket service segments were lower due to the above-mentioned increases
in direct costs.

Depreciation and Amortization.The increase in depreciation and amortization expense for the fiscal year ended
March 31, 2005 compared to the prior year primarily resulted from the start of operations of a project in Brazil (up $2.6 million) and other capital additions, primarily overhauls, which
resulted in an increase in depreciation of approximately $4.7 million.

Selling, General and Administrative Expenses.The increase in selling, general and administrative expenses for the fiscal
year ended March 31, 2005 relates to the increased expenses, resulting from increased operating activity within Latin America and Asia Pacific, of $4.3 million and $1.9 million,
respectively. Additionally, expenses within the United States increased $3.6 million due primarily to compliance with
Sarbanes-Oxley and on-going implementation of a new ERP system. Selling, general and administrative expenses represented 10% of total revenues for both periods.

Interest Expense, net.The decrease in interest expense for the fiscal year ended March 31, 2005 is primarily related
to the Company's debt refinancing activities during the past two fiscal years. The Company's $80.0 million reduction in the amount outstanding under the asset-backed securitization lease
facility (the "ABS Facility") from June 2004 to February 2005 lowered interest expense by $3.2 million. The lower interest rates resulting from the refinancing of
$400.0 million of long term debt in February 2005 reduced interest expense by $2.9 million. Finally, the refinancing of $175.0 million of long-term debt in
May 2003 lowered interest expense by $2.3 million.

Debt Extinguishment Costs.For the fiscal year ended March 31, 2005, debt extinguishment costs were primarily due to
the early extinguishment of our term loan due 2008 and 87/8% senior notes due 2008. As a result of the early extinguishment of debt, a charge of $26.1 million was recognized in
the fourth quarter of fiscal year 2005 resulting from the call premium of $19.5 million and write-off of unamortized debt issuance costs of $6.5 million. The debt
extinguishment costs of $14.9 million

30

---



included
in the prior year results primarily related to the May 2003 refinancing, and consisted of premium costs of $12.0 million, the write-off of unamortized debt issuance
costs of $1.9 million and $0.5 million in transaction expenses.

Gain on Termination of Interest Rate Swap Agreements.A $3.2 million gain on the termination of interest rate swap agreements was
recognized for the fiscal year ended March 31, 2005. This gain was the result of reducing the notional amount of interest rate swap agreements by $84.8 million on our ABS facility in
connection with a principal reduction of $80.0 million in June 2004.

Asset Impairment.Included within net income for the fiscal year ended March 31, 2005 is a $3.1 million loss on
the impairment of our 136,000 square foot Tulsa, Oklahoma fabrication facility. With the fabrication difficulties experienced over the past couple of quarters, including cost overruns on certain
complex fabrication jobs, we undertook a significant analysis of our fabrication assets and business, and made a decision to permanently discontinue operations and dispose of our Tulsa fabrication
facility. The carrying value of this facility was written down to its estimated market value, which was determined by the Company based upon recent appraisals.

Facility Consolidation Costs.Facility consolidation costs incurred during the fiscal year ended March 31, 2004 were
$1.8 million. These costs related to the transfer of the Tulsa, Oklahoma fabrication operations to the Houston, Texas fabrication facility and were primarily for severance, personnel costs and
relocation costs. The Company does not expect to incur additional facility consolidation costs during the two-year period ending September 30, 2005.

31

---



Fiscal Year Ended March 31, 2004 Compared to Fiscal Year Ended March 31, 2003

The following table summarizes revenue, gross profit, gross margin, expenses and the respective percentages for each of our business segments:

|                                    |              | Year Ended March 31, |        
|----------------------------------- | ------------ | -------------------- | -------
|
|
|Revenue:                            |              |                      |        
|Domestic contract compression       |              | $                    | 280,951
|                                    | % of revenue |                      |        
|International contract compression  |              | $                    | 82,589 
|                                    | % of revenue |                      |        
|Fabrication                         |              | $                    | 183,685
|                                    | % of revenue |                      |        
|Aftermarket services                |              | $                    | 141,561
|                                    | % of revenue |                      |        
|Total revenue                       |              | $                    | 688,786
|Gross profit:                       |              |                      |        
|Domestic contract compression       |              | $                    | 178,543
|International contract compression  |              |                      | 64,159 
|Fabrication                         |              |                      | 15,888 
|Aftermarket services                |              |                      | 30,891 
|Total gross profit                  |              | $                    | 289,481
|Gross margin:                       |              |                      |        
|Domestic contract compression       |              |                      | 63.5   
|International contract compression  |              |                      | 77.7   
|Fabrication                         |              |                      | 8.6    
|Aftermarket services                |              |                      | 21.8   
|Total gross margin                  |              |                      | 42.0   
|Expenses:                           |              |                      |        
|Depreciation and amortization       |              |                      | 85,650 
|Selling, general and administrative |              |                      | 67,516 
|Operating lease expense             |              |                      |       
|Interest expense, net               |              |                      | 73,475 
|Debt extinguishment costs           |              |                      | 14,903 
|Foreign currency (gain)/loss        |              |                      | (529   
|Other income, net                   |              |                      | (1,883 
|Facility consolidation costs        |              |                      | 1,821  
|Income taxes                        |              |                      | 17,741 
|Net income                          |              | $                    | 30,787 

Revenue.Total revenue increases were realized across all business segments for the fiscal year ended March 31, 2004
compared to the prior year. Domestic contract compression revenue increased due to higher average contract rates and improved utilization, both of which contributed equally to the increase.
International contract compression revenue increased primarily as a result of additional compression business in Brazil and Argentina, which contributed increases of $10.3 million and
$3.8 million, respectively. Fabrication revenue increased due to additional projects for customers in our United States and Canadian regions resulting in increases of $24.5 million and
$11.0 million, respectively. These increases were partially offset by declines in the Asia Pacific region of $7.9 million and the Latin American region of $6.6 million.
Aftermarket services revenue was higher due primarily

32

---



to
increased customer demand in the United States ($3.8 million), Canada ($3.2 million) and Asia Pacific ($2.8 million).

Gross Profit.The changes to gross profit (defined as total revenues less direct costs) for the fiscal year ended
March 31, 2004 compared to the prior year were primarily attributable to revenue increases discussed above for domestic contract compression, international contract compression and aftermarket
services. Fabrication gross profit decreased due to higher costs in the first fiscal quarter primarily as a result of cost overruns related to several highly customized fabrication projects for
customers in the Asia Pacific region.

Gross Margin.As a percentage of segment revenue, direct costs for all business segments for fiscal year ended
March 31, 2004 remained relatively stable compared to the prior year, with the exception of fabrication, which experienced lower margins as a result of the cost overruns discussed above.

Depreciation and Amortization.The increase in depreciation and amortization expense for the fiscal year ended
March 31, 2004 compared to the prior year resulted from on-going capital additions which increased depreciation by approximately $14.6 million and the inclusion of additional
compression equipment on the balance sheet as of December 31, 2002 due to the consolidation of the operating lease facilities. Depreciation expense related to this equipment began
January 1, 2003 and was partially offset by the change in estimated useful lives of the compressor fleet discussed below. The combined impact of the consolidation of the compressor equipment in
the operating lease facilities and the extension of the useful lives of the compressor fleet at December 31, 2002 increased depreciation expense by approximately $7.8 million.

In
fiscal 2003, we evaluated the estimated economic useful lives used for book depreciation purposes for our compressor fleet based upon equipment type, key components and industry
experience of the actual economic useful life in the field. The evaluation was finalized in the fourth quarter of fiscal year 2003. Based upon the findings of the evaluation, the estimated useful
lives of the majority of the existing compressor units were extended to 25 years from 15 years. In addition, a portion of the units remained at the previous 15 years or less and a
portion of the units were extended to 30 years. The change in economic useful lives was effective January 1, 2003.

Combined Operating Lease Expense and Interest Expense, net.Taking into account the effect of the consolidation of the lease
facilities on December 31, 2002, the combined operating lease expense and interest expense, net, for the fiscal year ended March 31, 2004 decreased by $9.0 million, or 10.9%
compared to the prior year. This decrease is primarily attributable to May 2003 refinancing activities, which reduced outstanding long-term debt by approximately
$55.0 million and lowered the interest rate on $175.0 million of indebtedness to 71/4% from 97/8%. Interest expense decreased $4.8 million as a
result of the $55.0 million reduction in debt and decreased $4.0 million due to the lower interest rate on the $175.0 million of indebtedness.

Operating Lease Expense.As a result of the consolidation of the lease facilities, there was no operating lease expense
related to the operating lease facilities during the fiscal year ended March 31, 2004. The operating lease expense related to the operating lease facilities has been recognized as interest
expense subsequent to the consolidation of the lease facilities on December 31, 2002.

Interest Expense, net.Interest expense, net, increased for the fiscal year ended March 31, 2004 compared to the prior
year primarily due to the consolidation of the operating lease facilities as of December 31, 2002 which resulted in the classification of operating lease expense subsequent to
December 31, 2002 as interest expense.

Debt Extinguishment Costs.Debt extinguishment costs incurred during the fiscal year ended March 31, 2004 were
primarily due to the early extinguishment of Universal's outstanding

33

---



$229.8 million
97/8% senior discount notes due 2008 in May 2003. The net proceeds from the offering by Universal of new 71/4% senior discount notes due 2010
and available funds were used to pay for the extinguishment of the 97/8% senior discount notes due 2008. As a result of the early extinguishment of debt, a charge of
$14.4 million was recognized resulting from the redemption and tender premiums of $12.0 million, write-off of unamortized debt issuance costs of $1.9 million and
$0.5 million of other costs. Additional debt extinguishment costs of $0.5 million resulted from the buyback of $5.0 million of our 87/8% Senior Notes during the
three months ended March 31, 2004.

Facility Consolidation Costs.Facility consolidation costs related to the transfer of the Tulsa, Oklahoma fabrication
operations to the Houston, Texas fabrication facility were $1.8 million during the year ended March 31, 2004. These costs were primarily for severance, personnel costs and relocation
costs. The Company does not expect to incur additional facility consolidation costs during the two-year period ending September 30, 2005.

Effects of Inflation

In recent years, inflation has been modest and has not had a material impact upon the results of our operations, nor do we currently have reason to believe it
will have a material impact in the foreseeable future.

Liquidity and Capital Resources

Our primary sources of cash are operating activities and financing activities. Our primary uses of cash are operating expenditures, capital expenditures and
long-term debt repayments. The following table summarizes our sources and uses of cash for the fiscal years ended March 31, 2005 and 2004, and our cash and working capital as of the
end of such periods:

Year Ended
March 31,2005

2004(In thousands)Net cash provided by (used in):Operating activities

$
134,056

$
165,248Investing activities

$
(181,476
)
$
(46,850
)Financing activities

$
(35,589
)
$
(69,732
)


As of March 31,2005

2004(In thousands)Cash

$
38,723

$
121,189Working capital, net of cash

$
77,113

$
53,410


Overview.Net cash used in investing and financing activities exceeded net cash provided by operating activities by
$83.0 million for the fiscal year ended March 31, 2005 primarily as a result of $61.9 million paid for acquisitions, $18.2 million in net debt prepayments during the period
and $143.7 million of
capital expenditures, as discussed below. As a result, the cash balance of $121.2 million at March 31, 2004 declined to $38.7 million at March 31, 2005. For the fiscal year
ended March 31, 2004, net cash provided by operating activities exceeded cash used in investing and financing activities by $48.7 million.

Operations.Net cash provided by operating activities decreased $31.2 million, or 18.9%, for the fiscal year ended
March 31, 2005 compared to the prior fiscal year primarily as a result of changes in working capital including higher billing activity for all business segments at the end of the year compared
to fiscal 2004.

34

---



Capital Expenditures.Capital expenditures for the fiscal year ended March 31, 2005 were $143.7 million
consisting of $80.5 million for fleet additions, $41.8 million for compressor overhauls, $8.6 million for service trucks and $12.8 million for machinery, equipment,
information technology equipment and other items. Based on current market conditions, we expect to continue to invest in fleet additions, compressor overhauls and maintenance and other capital
requirements. We expect net capital expenditures (defined as capital expenditure less proceeds from asset sales) of approximately $125 million to $140 million for the fiscal year ending
March 31, 2006, including approximately $40 million for compression fleet maintenance capital.

Long-term Debt.As of March 31, 2005, we had approximately $861.2 million in outstanding debt
obligations consisting primarily of $400.0 million outstanding under the seven-year term loan, $175.0 million outstanding of 71/4% senior notes due
May 2010, $200.0 million outstanding under the ABS Facility and $86.2 million outstanding under the revolving credit facility.

The
maturities of this debt are shown below. We expect to pay these principal payments through cash generated by operations and debt refinancing activity.

(In thousands)2006

$
19,8242007


25,0992008


25,0992009


25,0992010


111,324Thereafter


654,780Total debt

$
861,225


In
January 2005, the Company closed a $650 million senior secured credit facility with a syndicate of lenders and financial institutions consisting of a $250 million
five-year revolving line of credit and a $400 million seven-year term loan. The Company used approximately $508.6 million, under the new credit facility, together
with $100.0 million, under the ABS Facility, to repay and redeem the outstanding $522 million under the Company's High-Yield Operating Lease Facility and repay
$50 million in debt under the Company's now terminated revolving credit facility. We intend to utilize the additional capacity under the new credit facility for working capital needs and
general corporate purposes. In connection with this repayment and redemption, the Company recorded $26.1 million in debt extinguishment costs, including approximately $19.5 million in
redemption premiums and an approximately $6.5 million write-off of unamortized debt issuance costs.

In
January 2005, the Company also entered into forward interest rate swap agreements to hedge $300 million of the new $400 million seven-year term loan.
The interest rate swap agreements convert variable interest payments to fixed interest payments and terminate in March 2010.

Historically,
we have financed capital expenditures with net cash provided by operations and financing activities. Based on current market conditions, we expect that net cash provided by
operating activities will be sufficient to finance our operating expenditures, capital expenditures and scheduled interest and debt repayments through the 2006 fiscal year. To the extent that net cash
provided by operating activities is not sufficient to finance our operating expenditures, capital expenditures and scheduled interest and debt repayments through the 2006 fiscal year, we may borrow
additional funds under our new revolving line of credit or we may obtain additional debt or equity financing.

Debt Covenants and Availability.Covenants in our credit facilities require that we maintain various financial ratios,
including a collateral coverage ratio (market value of domestic compression collateral to amount of indebtedness outstanding under our new credit facility) of greater than or equal to 1.25 to 1, a
total leverage ratio (total debt to earnings before interest, taxes, depreciation and amortization

35

---



expense)
of less than or equal to 5 to 1, and an interest coverage ratio (earnings before interest, taxes, depreciation and amortization expense to interest expense) of greater than or equal to 2.5 to
1. As of March 31, 2005, we and our subsidiaries were in compliance with all of the financial covenants.

As
of March 31, 2005, after giving effect to $18.3 million of outstanding letters of credit under our financing documents, we had an aggregate unused credit availability of
approximately $118.7 million from our revolving credit facility.

Contractual Obligations.The following table summarizes our cash contractual obligations as of March 31, 2005 (in
thousands):

|                                   |  | Payments Due by Period
|---------------------------------- |  | ----------------------
|
|Total debt (1)                     |  | $                     
|Estimated interest payments (2)    |  |                       
|Capital leases (3)                 |  |                       
|Purchase obligations (4)           |  |                       
|                                   |  |                       
|Total contractual cash obligations |  | $                     
|                                   |  |                       

---

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operation is based upon our consolidated financial statements. We prepare these financial
statements in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions
we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates; however, actual results may differ from these estimates under different assumptions or
conditions. The accounting policies we believe require management's most difficult, subjective or complex judgments and are the most critical to our reporting of results of operations and financial
position are as follows:

Allowances and Reserves

Our customers are evaluated for credit worthiness prior to the extension of credit. We maintain an allowance for bad debts based on specific customer collection
issues and historical experience. On an on-going basis, we conduct an evaluation of the financial strength of our customers based on payment history and make adjustments to the allowance
as necessary.

36

---



We
record a reserve against our inventory balance for estimated obsolescence. This reserve is based on specific identification and historical experience.

We
accrue amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known to us.

Depreciation

Property, plant and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using
estimated useful lives. For compression equipment, depreciation begins with the first compression service using a 20% salvage value.

Business Combinations and Goodwill

Goodwill and intangible assets acquired in connection with business combinations represent the excess of consideration over the fair value of tangible net assets
acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed, as well as in determining the allocation of goodwill to the
appropriate reporting unit.

We
perform an impairment test for goodwill assets annually, or earlier if indicators of potential impairment exist. Our goodwill impairment test involves a comparison of the fair value
of each of our reporting units with their carrying value. The fair value is determined using discounted cash flows and other market-related valuation models. Certain estimates and judgments are
required in the application of the fair value models. During the fourth quarter of fiscal year 2005, we performed an impairment analysis in accordance with SFAS No. 142 and determined that no
impairment had occurred; however, if for any reason the fair value of our goodwill or that of any of our reporting units declines below the carrying value in the future, we may incur charges for the
impairment.

Long-Lived Assets

Long-lived assets, which include property, plant and equipment, definite-lived intangibles and other assets comprise a significant amount of our total
assets. In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived
assets to be held and used by us are reviewed to determine whether any events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, we base our evaluation on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate the carrying amount of the asset may
not be recoverable, we determine whether an impairment has occurred through the use of an undiscounted cash flows analysis. If an impairment has occurred, we recognize a loss for the difference
between the carrying amount and the estimated fair value of the asset. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, is based on an
estimate of discounted cash flows.

Self-Insurance

We are self-insured up to certain levels for general liability, vehicle liability, group medical and for workers' compensation claims for certain of
our employees. We record self-insurance accruals based on claims filed and an estimate for significant claims incurred but not reported. We regularly review estimates of reported and
unreported claims and provide for losses through insurance reserves. Although we believe adequate reserves have been provided for expected liabilities arising from our self-insured
obligations, it is reasonably possible our estimates of these liabilities will change over the near term as circumstances develop.

37

---



Income Taxes

We provide a wide range of services to a global market and as such, are subject to taxation not only in the United States but also in numerous foreign
jurisdictions. The determination of our tax liabilities involves the interpretation of local tax laws, tax treaties, and tax authority practices and procedures in each jurisdiction. Changes in the
operating environment including changes in tax law could impact our estimate of tax liabilities in a given year.

The
realizablity of our deferred tax assets or the need for associated valuation allowances is reliant upon our estimates of future taxable income and the reversal of tax advantaged
temporary differences, such as accelerated depreciation. Numerous judgments and assumptions are inherent in the determination of future taxable income, including assumptions on future operating
conditions and asset utilization. The judgments and assumptions used to determine future taxable income are consistent with those used for other financial statement purposes.

Another
item that affects income taxes is the permanent reinvestment of the earnings of our foreign subsidiaries. The assumptions related to this permanent reinvestment are analyzed and
reviewed annually for changes in our international and domestic business outlook.

The
American Jobs Creations Act of 2004 introduced a provision allowing an 85% dividends received deduction for certain foreign earnings repatriated to a United States taxpayer. Based on
our analysis of the existing language in the Act, we do not expect to utilize the deduction by repatriating undistributed earnings.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costsan amendment of ARB 43,
Chapter 4." SFAS No. 151 provides clarification that abnormal amounts of idle facility expense, freight, handling costs and wasted material be recognized as current period charges. In addition,
SFAS No. 151 requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact that SFAS No. 151 will have on its financial statements.

In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This statement is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation" and
supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires that the compensation cost relating to share-based payment transactions be recognized in the
financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This statement will be effective for the Company beginning in fiscal year 2007.
The Company is currently evaluating the impact that SFAS No. 123R will have on its financial statements.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assetsan amendment of APB Opinion No. 29," to address the measurement of
exchanges of nonmonetary assets. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. This statement will be effective for the Company beginning July 1, 2005. The Company is currently evaluating
the impact that SFAS No. 153 will have on its financial statements.

In
December 2004, the FASB issued FASB Staff Position No. 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," which provides guidance on the recently enacted American Jobs Creation Act of 2004 (the "Act"). The
Act provides a tax deduction for income from qualified domestic production activities. FSP 109-1 provides for the treatment of the

38

---



deduction
as a special deduction as described in SFAS No. 109. As such, the deduction will have no effect on existing deferred tax assets and liabilities. Based upon the Company's analysis of
FSP No. 109-1, we do not expect to benefit from this special deduction for several more years.

In
December 2004, the FASB issued FASB Staff Position No. 109-2, "Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American
Jobs Creation Act of 2004," which provides guidance under SFAS No. 109 with respect to recording the potential impact of the repatriation provisions of the Act on a company's income tax expense
and deferred tax liability. FSP 109-2 states that a company is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. We have not yet decided on whether, and to what extent, we might elect to repatriate foreign earnings
under the provisions in the Act. Any such repatriation under the Act must occur by December 31, 2005. Accordingly, our consolidated financial statements do not reflect a provision for taxes
related to this election.

39

---



RISK FACTORS

As described in "Part I. Disclosure Regarding Forward-Looking Statements," this report contains forward-looking statements
regarding us, our business and our industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward-looking
statements. If any of the following risks actually occur, our business, financial condition and operating results could be negatively impacted.

We depend on strong demand for natural gas and a prolonged, substantial reduction in this demand would adversely affect the demand for our services and
products.

Gas contract compression operations are significantly dependent upon the demand for natural gas. Demand may be affected by, among other factors, natural gas
prices, weather, demand for energy and availability of alternative energy sources. Any prolonged, substantial reduction in the demand for natural gas would, in all likelihood, depress the level of
production, exploration and development activity and result in a decline in the demand for our contract compression services and products. Similarly, a decrease in capital spending by our customers
could result in reduced demand for our fabrication and aftermarket services businesses.

Our international operations subject us to risks that are difficult to predict.

For the fiscal year ended March 31, 2005, we derived approximately 30% of our revenues from international operations. We intend to continue to expand our
business in Latin America, Asia Pacific and, ultimately, other international markets. This may make it more difficult for us to manage our business. Reasons for this include, but are not limited to,
the following:



Any
of these factors may cause us to experience economic loss or negatively impact our earnings or net assets.

We face significant competition that may cause us to lose market share and harm our financial performance.

The contract compression, fabrication, and aftermarket services businesses are highly competitive and there are low barriers to entry for individual projects. In
addition, some of our competitors are

40

---



large
national and multinational companies that provide contract compression and fabrication services to third parties, some of these competitors have greater financial and other resources than we do.
If our competitors substantially increase the resources they devote to the development and marketing of competitive products and services, we may not be able to compete effectively.

We are dependent on particular suppliers and are vulnerable to product shortages and price increases.

As a consequence of having a highly standardized contract compression fleet, some of the components used in our products are obtained from a single source or a
limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of
required components in a timely manner. The partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships.
Further, a significant increase in the price of one or more of these components could have a negative impact on our results of operations.

We do not insure against all potential losses and could be seriously harmed by unexpected liabilities.

Natural gas service operations are subject to inherent risks such as equipment defects, malfunction and failures, and natural disasters that can result in
uncontrollable flows of gas or well fluids, fires and explosions. These risks could expose us to substantial liability for personal injury, death, property
damage, pollution and other environmental damages. Although we have obtained insurance against many of these risks, our insurance may be inadequate to cover our liabilities. Further, insurance
covering the risks we face or in the amounts we desire may not be available in the future or, if available, the premiums may not be commercially justifiable. If we were to incur substantial liability
and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results
of operations and financial condition could be negatively impacted.

The sale of stock by Weatherford, which currently owns approximately 21% of our common stock, may depress our stock price.

Weatherford International Ltd. (or Weatherford) may sell up to 6,750,000 of its shares of our common stock pursuant to a registration statement that we
filed with the Securities and Exchange Commission. The sale of substantial amounts of our stock owned by Weatherford in the public market, or the belief that these sales may occur, could reduce the
market price of our stock, making it more difficult for us to raise funds through future offerings of our common stock and to acquire businesses using our stock as consideration.

Weatherford's current stock ownership allows it to designate three directors to our board. The combination of Weatherford's voting power and the number
of appointed directors gives it the ability to exercise substantial control over the outcome of matters submitted to a vote of our stockholders. Weatherford's interests could conflict with our other
stockholders.

Currently, Weatherford owns 6,750,000 shares, or approximately 21%, of our outstanding common stock. In addition to its voting power, Weatherford and its
affiliates are entitled to designate three persons to serve on our board of directors for so long as they own at least 20% of our outstanding common stock. If Weatherford's ownership falls below 20%,
Weatherford may designate only two directors. If Weatherford's ownership falls below 10%, it will no longer have the right to designate directors to our board.

This
significant stock ownership and board representation gives Weatherford the ability to exercise substantial influence over our ownership, policies, management and affairs and
significant control over

41

---



actions
requiring approval of our stockholders. Weatherford's interests could conflict with our other stockholders.

We are highly leveraged. A significant portion of our cash flow must be used to service our obligations, and we are vulnerable to interest rate
increases.

We have now and will continue to have a significant amount of debt. As of March 31, 2005, we had approximately $861.2 million in outstanding debt
obligations consisting primarily of $400.0 million outstanding under our seven year term loan, $175.0 million outstanding of our 71/4% senior notes due 2010,
$200.0 million outstanding under the asset-backed securitization lease facility (the "ABS Facility") and $86.2 million outstanding under our revolving credit facility. This amount
excludes approximately $18.3 million of letters of credit, as of March 31, 2005 issued under our senior secured credit facility.

As
of March 31, 2005, approximately $402.3 million of our outstanding debt bore interest at floating rates. Changes in economic conditions could result in higher interest
rates, thereby increasing our interest expense and reducing our funds available to make payments of interest and principal on the notes and for capital investment, operations or other purposes. Our
significant leverage increases our vulnerability to general adverse economic and industry conditions.

Our credit facilities impose restrictions on us that may affect our ability to successfully operate our business.

Our credit facilities include certain covenants that, among other things, restrict our ability to:



As
of March 31, 2005, we were also required by our credit facilities to maintain various financial ratios, including a collateral coverage ratio (market value of compression
collateral to amount of indebtedness outstanding under our senior secured credit facility) of greater than or equal to 1.25 to 1, a total leverage ratio (total debt to earnings before interest, taxes,
depreciation and amortization expense) of less than or equal to 5 to 1, and an interest coverage ratio (earnings before interest, taxes, depreciation and amortization expense to interest expense) of
greater than or equal to 2.5 to 1. As of June 6, 2005, we were in compliance with all of these financial covenants. These covenants may restrict our ability to expand or to pursue our business
strategies. Our ability to comply with these and other provisions of the credit facilities may be affected by changes in our operating and financial performance, changes in business conditions or
results of operation, adverse regulatory developments or other events beyond our control. The breach of any of these covenants could result in a default under our debt, which could cause those
obligations to become due and payable. If any of our indebtedness were to be accelerated, we may not be able to repay or refinance it.

42

---



We are exposed to exchange rate fluctuations in the foreign markets in which we operate. A decrease in the value of any of these currencies relative to
the U.S. dollar could reduce our profits from foreign operations and the value of our foreign net assets.

Our reporting currency is the U.S. dollar. The majority of the Company's foreign subsidiaries have designated the local currency as their functional currency and,
as such, gains and losses resulting from financial statement translation of foreign operations are included as a separate component of accumulated other comprehensive loss within stockholders' equity.
Gains and losses from balances that are receivable or payable in currency other than functional currency are included in the consolidated statements of operations. As a result, the U.S. dollar value
of our foreign operations has varied, and will continue to vary, with exchange rate fluctuations. In this respect, historically we have been primarily exposed to fluctuations in the exchange rate of
the Brazilian real, Thai baht, Mexican peso, Australian dollar and Canadian dollar against the U.S. dollar.

A
decrease in the value of any of these currencies relative to the U.S. dollar could reduce our profits from foreign operations and the value of the net assets of our foreign operations
when reported in U.S.
dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars.

In
addition, fluctuations in currencies relative to currencies in which the earnings are generated may make it more difficult to perform period-to-period
comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our foreign operations, where the local currency is the functional currency, are translated
using period-end exchange rates, and the revenues and expenses of our foreign operations are translated using average exchange rates during each period.

Although
we attempt to match costs and revenues in local currencies, we anticipate that there may be instances in which costs and revenues will not be matched with respect to currency
denomination. As a result, to the extent we continue our expansion on a global basis, we expect that increasing portions of our revenues, costs, assets and liabilities will be subject to fluctuations
in foreign currency valuations. We may experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets
in which we operate could restrict the removal or conversion of the local or foreign currency, resulting in our inability to hedge against these risks.

Our ability to manage our business effectively will be weakened if we lose key personnel.

We depend on the continuing efforts of our executive officers and senior management. The departure of any of our key personnel could have a significant negative
effect on our business, operating results, financial condition and on our ability to compete effectively in the marketplace. We do not maintain key man life insurance coverage with respect to our
executive officers or key management personnel. We are not aware of the upcoming retirement of any of our executive officers or senior management personnel.

We are subject to substantial environmental regulation, and changes in these regulations could increase our costs or liabilities.

We are subject to stringent and complex foreign, federal, state and local laws and regulatory standards, including laws and regulations regarding the discharge of
materials into the environment, emission controls and other environmental protection and occupational health and safety concerns. Environmental laws and regulations may, in certain circumstances,
impose strict liability for environmental contamination, rendering us liable for remediation costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it
occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where

43

---



contamination
may be present, it is not uncommon for neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation
costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of
new environmental laws and regulations could be substantial and could negatively impact our financial condition or results of operations. Moreover, failure to comply with these environmental laws and
regulations may result in the imposition of administrative, civil and criminal penalties.

We
routinely deal with natural gas, oil and other petroleum products. As a result of our fabrication and aftermarket services operations, we generate, manage and dispose of or recycle
hazardous wastes and substances such as solvents, thinner, waste paint, waste oil, washdown wastes and sandblast material. Although it is our policy to use generally accepted operating and disposal
practices in accordance with applicable environmental laws and regulations, hydrocarbons or other hazardous substances or wastes may have been disposed or released on, under or from properties owned,
leased or operated by us or on or under other locations where such substances or wastes have been taken for disposal. These properties may be subject to investigatory, remediation and monitoring
requirements under foreign, federal, state and local environmental laws and regulations.

We
believe that our operations are in substantial compliance with applicable environmental laws and regulations. Nevertheless, the modification or interpretation of existing
environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil
and natural gas exploration and production companies, which in turn could have a negative impact on us and other similarly situated service companies.

Our charter and bylaws contain provisions that may make it more difficult for a third party to acquire control of us, even if a change in control would
result in the purchase of your shares at a premium to the market price or would otherwise be beneficial to you.

There are provisions in our restated certificate of incorporation and bylaws that may make it more difficult for a third party to acquire control of us, even if a
change in control would result in the purchase of your shares at a premium to the market price or would otherwise be beneficial to you. For example, our restated certificate of incorporation
authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to
acquire us. In addition, provisions of our restated certificate of incorporation, such as a staggered board of directors and limitations on the removal of directors, no stockholder action by written
consent, and on stockholder proposals at meetings of stockholders, could make it more difficult for a third party to acquire control of us. Delaware corporation law may also discourage takeover
attempts that have not been approved by our board of directors.

The new ERP system implementation may encounter problems that would negatively impact our business.

We contracted with a third party vendor to assist us with the design and implementation of a new ERP system, which will support substantially all of our operating
and financial functions, including our business segment operations, fleet management, billing, estimating, customer management, vendor management, accounting and financial reporting systems. We plan
to implement this new ERP system through fiscal year 2006. A significant implementation problem, if encountered, could negatively impact our business by disrupting our operations. Although we
currently have no reason to believe that any such significant implementation problems will occur, there are inherent limitations in our ability to predict and plan for these risks and estimate the
magnitude of their impact. Consequently, it is possible that the occurrence of a significant implementation problem could be material.

44

---



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
UNIVERSAL COMPRESSION, INC.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with Universal's
financial statements, and the notes thereto, and the other financial information appearing elsewhere in this report. The following discussion includes forward-looking statements that involve certain
risks and uncertainties. See "Part I. Disclosure Regarding Forward-Looking Statements" and "Risk Factors."

Financial Results of Operations.

Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004

The following table summarizes revenue, gross profit, gross margin, expenses and the respective percentages for each of our business segments:

|                                                     |  | Year Ended March 31, |        
|---------------------------------------------------- |  | -------------------- | -------
|
|
|Revenue:                                             |  |                      |        
|Domestic contract compression                        |  | $                    | 296,239
|% of revenue                                         |  |                      | 38.8   
|International contract compression                   |  | $                    | 102,167
|% of revenue                                         |  |                      | 13.4   
|Fabrication                                          |  | $                    | 213,994
|% of revenue                                         |  |                      | 28.0   
|Aftermarket services                                 |  | $                    | 150,670
|% of revenue                                         |  |                      | 19.8   
|Total revenue                                        |  | $                    | 763,070
|Gross profit:                                        |  |                      |        
|Domestic contract compression                        |  | $                    | 186,865
|International contract compression                   |  |                      | 78,448 
|Fabrication                                          |  |                      | 15,285 
|Aftermarket services                                 |  |                      | 29,656 
|Total gross profit                                   |  | $                    | 310,254
|Gross margin:                                        |  |                      |        
|Domestic contract compression                        |  |                      | 63.1   
|International contract compression                   |  |                      | 76.8   
|Fabrication                                          |  |                      | 7.1    
|Aftermarket services                                 |  |                      | 19.7   
|Total gross margin                                   |  |                      | 40.7   
|Expenses:                                            |  |                      |        
|Depreciation and amortization                        |  |                      | 93,797 
|Selling, general and administrative                  |  |                      | 75,756 
|Interest expense, net                                |  |                      | 64,188 
|Debt extinguishment costs                            |  |                      | 26,543 
|Foreign currency gain/(loss)                         |  |                      | 389    
|Other income, net                                    |  |                      | (1,125 
|Gain on termination of interest rate swap agreements |  |                      | (3,197 
|Asset impairment expense                             |  |                      | 3,080  
|Facility consolidation costs                         |  |                      |       
|Income taxes                                         |  |                      | 17,213 
|Net income                                           |  | $                    | 33,610 

Revenue.The higher revenue for the fiscal year ended March 31, 2005, is attributable to increased
industry activity and customer demand, which resulted in higher utilization in both the

45

---



domestic
and international contract compression fleets and increased sales in the fabrication and aftermarket services businesses. Specifically, domestic contract compression revenue increased due
primarily to higher average contract prices and increased contracted horsepower in the fiscal year ended March 31, 2005. International contract compression revenue increased primarily as a
result of additional revenue from the Canadian acquisition discussed above, additional compression business in Argentina and additional revenue from a project in Brazil, which contributed to increases
of $7.2 million, $5.2 million and $4.2 million, respectively. Fabrication revenue increased due to increased customer demand in the United States, Asia Pacific and Latin America
regions, which contributed increases of $23.6 million, $15.5 million and $7.4 million, respectively. This increased revenue contribution was partially offset by a decline in
fabrication revenue in Canada of $16.2 million. Aftermarket services revenue was higher primarily due to increases within Latin America ($4.3 million) and Asia Pacific
($1.6 million) due, in part, to small acquisitions made in these regions. Additionally, aftermarket service revenue in the United States increased $3.1 million due to higher customer
demand.

Gross Profit.The changes in contract compression gross profit (defined as total revenue less direct costs) for the fiscal
year ended March 31, 2005 compared to the prior year were primarily attributable to revenue increases discussed above for domestic contract compression and international contract compression,
which offset the somewhat higher maintenance expenses experienced domestically toward the end of the fiscal year, including lubricant costs, fuel costs and field wages. The decreased gross profit
experienced in fabrication despite the increased revenues was primarily due to warranty costs and cost overruns experienced on certain relatively complex projects. Aftermarket services gross profit
was lower despite increased revenues due to, among other things, some year end pricing adjustments for an alliance customer.

Gross Margin.As a percentage of segment revenue, direct costs for all business segments combined for fiscal year ended
March 31, 2005 remained relatively stable compared to the prior year, although gross margins for our fabrication and aftermarket service segments were lower due to the above-mentioned increases
in direct costs.

Depreciation and Amortization.The increase in depreciation and amortization expense for the fiscal year ended
March 31, 2005 compared to the prior year primarily resulted from the start of operations of a project in Brazil (an increase of $2.6 million) and other capital additions, primarily
overhauls, which resulted in an increase in depreciation of approximately $4.7 million.

Selling, General and Administrative Expenses.The increase in selling, general and administrative expenses for the fiscal
year ended March 31, 2005 relates to the increased expenses, resulting from increased operating activity within Latin America and Asia Pacific, of $4.3 million and $1.9 million,
respectively. Additionally, expenses within the United States increased $3.6 million due primarily to compliance with Sarbanes-Oxley and on-going implementation of a new ERP system.
Selling, general and administrative expenses represented 10% of total revenues for both periods.

Interest Expense, net.The decrease in interest expense for the fiscal year ended March 31, 2005 is primarily related
to the Company's debt refinancing activities during the past two fiscal years. The Company's $80.0 million reduction in the amount outstanding under the asset-backed securitization lease
facility (the "ABS Facility") from June 2004 to February 2005 lowered interest expense by $3.2 million. The lower interest rates resulting from the refinancing of
$400.0 million of long term debt in February 2005 reduced interest expense by $2.9 million. Finally, the refinancing of $175.0 million of long-term debt in
May 2003 lowered interest expense by $2.3 million.

Debt Extinguishment Costs.For the fiscal year ended March 31, 2005, debt extinguishment costs were primarily due to
the early extinguishment of our term loan due 2008 and 87/8% senior notes due 2008. As a result of the early extinguishment of debt, a charge of $26.1 was recognized in the fourth

46

---



quarter
of fiscal year 2005 resulting from the call premium of $19.5 million and write-off of unamortized debt issuance costs of $6.5 million. The debt extinguishment costs
of $14.9 million included in the prior year results primarily related to the May 2003 refinancing, and consisted of premium costs of $12.0 million, the write-off of
unamortized debt issuance costs of $1.9 million and $0.5 million in transaction expenses.

Gain on Termination of Interest Rate Swap Agreements.A $3.2 million gain on the termination of interest rate swap
agreements was recognized for the fiscal year ended March 31, 2005. This gain was the result of reducing the notional amount of interest rate swap agreements by $84.8 million on our ABS
lease facility in connection with a principal reduction of $80.0 million in June 2004.

Asset Impairment.Included within net income for the fiscal year ended March 31, 2005 is a $3.1 million loss on
the impairment of our 136,000 square foot Tulsa, Oklahoma fabrication facility. With the fabrication difficulties experienced over the past couple of quarters, including cost overruns on certain
complex fabrication jobs, we undertook a significant analysis of our fabrication assets and business, and made a decision to permanently discontinue operations and dispose of our Tulsa fabrication
facility. The carrying value of this facility was written down to its estimated market value, which was determined by the Company based upon recent appraisals.

Facility Consolidation Costs.Facility consolidation costs incurred during the fiscal year ended March 31, 2004 were
$1.8 million. These costs related to the transfer of the Tulsa, Oklahoma fabrication operations to the Houston, Texas fabrication facility and were primarily for severance, personnel costs and
relocation costs. The Company does not expect to incur additional facility consolidation costs during the two-year period ending September 30, 2005.

47

---



Fiscal Year Ended March 31, 2004 Compared to Fiscal Year Ended March 31, 2003

The following table summarizes revenue, gross profit, gross margin, expenses and the respective percentages for each of our business segments:

|                                    |              | Year Ended March 31, |        
|----------------------------------- | ------------ | -------------------- | -------
|
|
|Revenue:                            |              |                      |        
|Domestic contract compression       |              | $                    | 280,951
|                                    | % of revenue |                      |        
|International contract compression  |              | $                    | 82,589 
|                                    | % of revenue |                      |        
|Fabrication                         |              | $                    | 183,685
|                                    | % of revenue |                      |        
|Aftermarket services                |              | $                    | 141,561
|                                    | % of revenue |                      |        
|Total revenue                       |              | $                    | 688,786
|Gross profit:                       |              |                      |        
|Domestic contract compression       |              | $                    | 178,543
|International contract compression  |              |                      | 64,159 
|Fabrication                         |              |                      | 15,888 
|Aftermarket services                |              |                      | 30,891 
|Total gross profit                  |              | $                    | 289,481
|Gross margin:                       |              |                      |        
|Domestic contract compression       |              |                      | 63.5   
|International contract compression  |              |                      | 77.7   
|Fabrication                         |              |                      | 8.6    
|Aftermarket services                |              |                      | 21.8   
|Total gross margin                  |              |                      | 42.0   
|Expenses:                           |              |                      |        
|Depreciation and amortization       |              |                      | 85,650 
|Selling, general and administrative |              |                      | 67,516 
|Operating lease expense             |              |                      |       
|Interest expense, net               |              |                      | 73,475 
|Debt extinguishment costs           |              |                      | 14,903 
|Foreign currency (gain)/loss        |              |                      | (529   
|Other income, net                   |              |                      | (1,883 
|Facility consolidation costs        |              |                      | 1,821  
|Income taxes                        |              |                      | 17,741 
|Net income                          |              | $                    | 30,787 

Revenue.Total revenue increases were realized across all business segments for the fiscal year ended March 31, 2004
compared to the prior year. Domestic contract compression revenue increased due to higher average contract rates and improved utilization, both of which contributed equally to the increase.
International contract compression revenue increased primarily as a result of additional compression business in Brazil and Argentina, which contributed increases of $10.3 million and
$3.8 million, respectively. Fabrication revenue increased due to additional projects for customers in our United States and Canadian regions resulting in increases of $24.5 million and
$11.0 million, respectively. These increases were partially offset by declines in the Asia Pacific region of $7.9 million and the Latin American region of $6.6 million. Revenue
from fabrication fluctuates quarter to quarter due to the timing of receipt of orders placed by customers and due to the timing of recognition of

48

---



revenue,
which occurs at the time of shipment. Aftermarket services revenue was higher due primarily to increased customer demand in the United States ($3.8 million), Canada
($3.2 million) and Asia Pacific ($2.8 million).

Gross Profit.The changes to gross profit (defined as total revenues less direct costs) for the fiscal year ended
March 31, 2004 compared to the prior year were primarily attributable to revenue increases discussed above for domestic contract compression, international contract compression and aftermarket
services. Fabrication gross profit decreased due to higher costs in the first fiscal quarter primarily as a result of cost overruns related to several highly customized fabrication projects for
customers in the Asia Pacific region.

Gross Margin.As a percentage of segment revenue, direct costs for all business segments for fiscal year ended
March 31, 2004 remained relatively stable compared to the prior year, with the exception of fabrication which experienced lower margins as a result of the cost overruns described above.

Depreciation and Amortization.The increase in depreciation and amortization expense for the fiscal year ended
March 31, 2004 compared to the prior year resulted from on-going capital additions which increased depreciation by approximately $14.6 million and the inclusion of additional
compression equipment on the balance sheet as of December 31, 2002 due to the consolidation of the operating lease facilities. Depreciation expense related to this equipment began
January 1, 2003 and was partially offset by the change in estimated useful lives of the compressor fleet discussed below. The combined impact of the consolidation of the compressor equipment in
the operating lease facilities and the extension of the useful lives of the compressor fleet at December 31, 2002 increased depreciation expense by approximately $7.8 million.

In
fiscal 2003, we evaluated the estimated economic useful lives used for book depreciation purposes for our compressor fleet based upon equipment type, key components and industry
experience of the actual economic useful life in the field. The evaluation was finalized in the fourth quarter of fiscal year 2003. Based upon the findings of the evaluation, the estimated useful
lives of the majority of the existing compressor units were extended to 25 years from 15 years. In addition, a portion of the units
remained at the previous 15 years or less and a portion of the units were extended to 30 years. The change in economic useful lives was effective January 1, 2003.

Combined Operating Lease Expense and Interest Expense, net.Taking into account the effect of the consolidation of the lease
facilities on December 31, 2002, the combined operating lease expense and interest expense, net, for the fiscal year ended March 31, 2004 decreased by $9.0 million, or 10.9%
compared to the prior year. This decrease is primarily attributable to May 2003 refinancing activities, which reduced outstanding long-term debt by approximately
$55.0 million and lowered the interest rate on $175.0 million of indebtedness to 71/4% from 97/8%. Interest expense decreased $4.8 million as a
result of the $55.0 million reduction in debt and decreased $4.0 million due to the lower interest rate on the $175.0 million of indebtedness.

Operating Lease Expense.As a result of the consolidation of the lease facilities, there was no operating lease expense
related to the operating lease facilities during the fiscal year ended March 31, 2004. The operating lease expense related to the operating lease facilities has been recognized as interest
expense subsequent to the consolidation of the lease facilities on December 31, 2002.

Interest Expense, net.Interest expense, net, increased for the fiscal year ended March 31, 2004 compared to the prior
year primarily due to the consolidation of the operating lease facilities as of December 31, 2002 which resulted in the classification of operating lease expense subsequent to
December 31, 2002 as interest expense.

49

---



Debt Extinguishment Costs.Debt extinguishment costs incurred during the fiscal year ended March 31, 2004 were
primarily due to the early extinguishment of Universal's outstanding $229.8 million 97/8% senior discount notes due 2008 in May 2003. The net proceeds from the offering by
Universal of new 71/4% senior discount notes due 2010 and available funds were used to pay for the extinguishment of the 97/8% senior discount notes due 2008. As a result
of the early extinguishment of debt, a charge of $14.4 million was recognized resulting from the redemption and tender premiums of $12.0 million, write-off of unamortized
debt issuance costs of $1.9 million and $0.5 million of other costs. Additional debt extinguishment costs of $0.5 million resulted from the buyback of $5.0 million of our
87/8% Senior Notes during the three months ended March 31, 2004.

Facility Consolidation Costs.Facility consolidation costs related to the transfer of the Tulsa, Oklahoma fabrication
operations to the Houston, Texas fabrication facility were $1.8 million during the year ended March 31, 2004. These costs were primarily for severance, personnel costs and relocation
costs. The Company does not expect to incur additional facility consolidation costs during the two-year period ending September 30, 2005.

50

---





ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk



We
are exposed to some market risk due to variable interest rates under our financing and interest rate swap arrangements.

The
interest rate under our revolving credit facility, which had $86.2 million outstanding as of March 31, 2005, is based upon, at our option, either a base rate plus an
applicable margin, which varies from 0.25% to 1.25% based on our leverage ratio, or one, two, three or six month LIBOR, plus an applicable margin which varies from 1.25% to 2.25% based on our leverage
ratio. At June 6, 2005, the applicable rate was the one month LIBOR, which was 3.17% and the applicable margin was 1.5%.

At
March 31, 2005, $100 million of the $400.0 million term loan under our 2005 senior secured credit facility remained floating. The remaining $300 million is
subject to interest rate swap agreements, which are described below in "Interest Rate Swap Arrangements." This facility provides, at our option, for
interest at a base rate plus an applicable margin of either 0.50% or 0.75% depending on our rating from S&P and Moodys, or one, two, three or six month LIBOR, plus a variable margin of either 1.50% or
1.75% depending on the rating from S&P and Moodys. At June 6, 2005, the applicable rate was the one month LIBOR, which was 3.17%, and the applicable margin was 1.75%.

Also
at March 31, 2005, $116.1 million of our $200 million ABS Facility was subject to a variable interest rate at one month LIBOR, which was 3.17% at June 6,
2005, plus 1.27%. The remaining $83.9 million is subject to an interest rate swap agreement, which is described below in "Interest Rate Swap
Arrangements."

In
addition, $100 million of our $175 million, 71/4% senior notes, due in 2010, are subject to interest rate swap agreements which convert the fixed rate to
a variable rate. The variable rate under these interest rate swap agreements is six month LIBOR, in arrears, plus an average applicable margin of 3.21%. At June 6, 2005, the six month LIBOR was
3.54%.

As
of March 31, 2005, approximately $402.3 million of our outstanding indebtedness and other obligations bore interest at floating rates and a 1.0% increase in interest
rates would result in an approximate $4.0 million annual increase in our interest expense.



We are also a party to interest rate swap agreements which are recorded at fair-market value in our financial statements. A change in the underlying
interest rates may also result in a change in their recorded value.

At
March 31, 2005, the notional amount of the interest rate swap agreement related to our ABS Facility was $83.9 million and the fair market value of this interest rate
swap agreement was a liability of approximately $2.2 million, which was recorded as a noncurrent liability. The interest rate swap agreement terminates in February 2013. The fixed rate
of this swap agreement is 5.21%, for an all-in fixed rate of 6.48% on this portion of the ABS Facility, inclusive of the ABS Facility's applicable margin of 1.27%.

At
March 31, 2005, the notional amount of the interest rate swap agreements related to the $400.0 million term loan under our 2005 Credit Facility was $300 million.
The fair market value of these interest rate swap agreements was an asset of approximately $3.9 million, which was recorded as a noncurrent asset. The interest rate swap agreements terminate in
March 2010. The weighted average fixed rate of these interest rate swap agreements is 4.02%, for an all-in weighted average fixed rate of 5.77% on this portion of the term loan,
inclusive of the term loan's applicable margin of 1.75%.

51

---



As
noted above, the notional amount of the interest rate swap agreements related to our $175 million senor notes was $100 million. The fair market value of these interest
rate swap agreements at March 31, 2005, was approximately $4.1 million. Since this arrangement is accounted for as a fair value hedge, the
fair market value is recorded as an offset to the outstanding amount of the underlying debt. These interest rate swap agreements terminate in May 2010.

ITEM 8.Financial Statements and Supplementary Data

The consolidated statements of the Company and Universal included in this Report beginning on page F-1 are incorporated herein by reference.

ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.Controls and Procedures

Management's Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), Company and
Universal management, including the Chief Executive Officer and Chief Financial Officer, evaluated as of March 31, 2005, the effectiveness of their disclosure controls and procedures as defined
in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company and Universal
concluded that their disclosure controls and procedures, as of March 31, 2005, were effective for the purpose of ensuring that information required to be disclosed by the Company and Universal
in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures.

Management's Report on Internal Control over Financial Reporting

As required by Exchange Act Rule 13a-15(c) and 15d-15(c), Company management, including the Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an evaluation of the effectiveness of internal control over
financial reporting based on the Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on the results of management's evaluation described above,
management concluded that the Company's internal control over financial reporting was effective as of March 31, 2005.

The
assessment of the effectiveness of internal control over financial reporting as of March 31, 2005, was audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report found on the following page of this report.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's or Universal's internal control over financial reporting during the last fiscal quarter that materially affected, or are
reasonably likely to materially affect, their internal control over financial reporting.

52

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Universal Compression Holdings, Inc.
Houston, Texas

We have audited management's assessment, included in the accompanying Management's Report on Internal
Control over Financial Reporting that Universal Compression Holdings, Inc. and subsidiaries (the "Company") maintained effective internal control over financial reporting as of March 31,
2005 based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our
audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision
of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility
of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over
financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on the criteria established inInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of March 31, 2005, based on the criteria established inInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial statement schedule as of and for the year
ended March 31, 2005 of the Company and our reports dated June 6, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas
June 6, 2005

53

---



PART III

ITEM 10.Directors and Executive Officers of the Company

The information included or to be included in our definitive proxy statement for our 2005 Annual Meeting of Stockholders under the caption "Proposal 1: Election
of Directors" is incorporated by reference herein.

We
have submitted to the New York Stock Exchange a certification of our Chairman and Chief Executive Officer that he was not aware of any violation by the Company of the New York Stock
Exchange's corporate governance listing standards as of the date of certification.

ITEM 11.Executive Compensation

The information included or to be included under the caption "Executive Compensation" in our definitive proxy statement for our 2005 Annual Meeting of
Stockholders is incorporated by reference herein.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information included or to be included under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan
Information" in our definitive proxy statement for our 2005 Annual Meeting of Stockholders is incorporated by reference herein.

ITEM 13.Certain Relationships and Related Transactions

The information included or to be included under the caption "Certain Relationships and Related Transactions" in our definitive proxy statement for our 2005
Annual Meeting of Stockholders is incorporated by reference herein.

ITEM 14.Principal Accountant Fees and Services

The information included or to be included under the caption "Proposal 3: Ratification of Appointment of Independent Auditors" in our definitive proxy statement
for our 2005 Annual Meeting of Stockholders is incorporated by reference herein.

54

---





PART IV

ITEM 15.Exhibits and Financial Statement Schedules





EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Merger dated October 23, 2000, by and among Universal Compression Holdings, Inc., Universal Compression, Inc., Weatherford International, Inc., WEUS Holding, Inc. and Enterra Compression Company (incorporated by reference to
Exhibit 10.1 of Universal Compression Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on October 26, 2000).                                                        
|3.1         |  | Restated Certificate of Incorporation of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 3.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).                                                                                                                                                                                                    
|3.2         |  | Restated Bylaws of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 3.2 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).                                                                                                                                                                                                                          
|            |  | ABS Operating Lease Facility                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1         |  | Indenture, dated December 31, 2002, between BRL Universal Compression Funding I 2002, L.P., as Issuer, and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, with respect to the ABS operating lease facility (incorporated by
reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                          
|4.2         |  | Series 2002-1 Supplement, dated December 31, 2002, to Indenture, dated December 31, 2002, between BRL Universal Compression Funding I 2002, L.P. and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, with respect to the ABS
operating lease facility (incorporated by reference to Exhibit 4.2 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).
|4.3         |  | Amendment Number 1 to Indenture, dated December 18, 2003, between BRL Universal Compression Funding I 2002, L.P., as Issuer, and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, with respect to the ABS operating lease facility
(incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          

55

---



|4.4  |  | Amendment Number 2 to Indenture, dated January 14, 2004, between BRL Universal Compression Funding I 2002, L.P., as Issuer, and Wells Fargo Bank, National Association (successor by merger to Wells Fargo Bank Minnesota, National Association), as
Indenture Trustee, with respect to the ABS operating lease facility (incorporated by reference to Exhibit 4.6 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2004).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5  |  | Amendment Number 3 to Indenture, dated as of July 16, 2004, between BRL Universal Compression Funding I 2002, L.P., and Wells Fargo Bank, National Association (successor by merger to Wells Fargo Bank Minnesota, National Association), as Indenture
Trustee with respect to the ABS operating lease facility (incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).           
|     |  | 71/4% Senior Notes due 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.6  |  | Indenture, dated May 27, 2003, by and between Universal Compression, Inc., as Issuer, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal
year ended March 31, 2003).                                                                                                                                                                                             
|4.7  |  | Specimen of Universal Compression, Inc.'s 71/4% Senior Notes due 2010 (incorporated by reference to Exhibit 4.11 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31,
2003).                                                                                                                                                                                                                                                  
|     |  | ABS Lease Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1 |  | Master Equipment Lease Agreement, dated December 31, 2002, between BRL Universal Compression Funding I 2002, L.P., as Head Lessor, and UCO Compression 2002 LLC, as Head Lessee, with respect to the ABS operating lease facility (incorporated by
reference to Exhibit 10.3 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                    
|10.2 |  | Guaranty, dated December 31, 2002, made by Universal Compression Holdings, Inc. for the benefit of UCO Compression 2002 LLC, BRL Universal Compression Funding I 2002, L.P. and Wells Fargo Bank Minnesota, N.A., with respect to the ABS operating lease
facility (incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                   
|10.3 |  | Management Agreement, dated December 31, 2002, among Universal Compression, Inc., UCO Compression 2002 LLC and BRL Universal Compression Funding I 2002, L.P., with respect to the ABS operating lease facility (incorporated by reference to Exhibit 10.5
of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                      
|10.4 |  | Back-up Management Agreement, dated December 31, 2002, among Caterpillar Inc., UCO Compression 2002 LLC, BRL Universal Compression Funding I 2002, L.P. and Universal Compression, Inc., with respect to the ABS operating lease facility (incorporated by
reference to Exhibit 10.6 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                            
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

56

---



|10.5  |  | Head Lessee Security Agreement, dated December 31, 2002, between UCO Compression 2002 LLC, as Grantor, and BRL Universal Compression Funding I 2002, L.P., as Secured Party, with respect to the ABS operating lease facility (incorporated by reference
to Exhibit 10.7 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | Intercreditor and Collateral Agency Agreement, dated December 31, 2002, among Universal Compression, Inc., UCO Compression 2002 LLC and BRL Universal Compression Funding I 2002, L.P., Wells Fargo Bank Minnesota, National Association, Wachovia Bank,
National Association and Bank One, N.A., with respect to the ABS operating lease facility (incorporated by reference to Exhibit 10.8 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31,
2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.7  |  | Insurance and Indemnity Agreement, dated December 31, 2002, by and among Ambac Assurance Corporation, BRL Universal Compression Funding I 2002, L.P., Universal Compression, Inc., UCO Compression 2002 LLC and Wells Fargo Bank Minnesota, N.A., with
respect to the ABS operating lease facility (incorporated by reference to Exhibit 10.9 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.8  |  | Amendment Number 1 to the Head Lessee Security Agreement, dated January 14, 2004, between UCO Compression 2002, as Grantor, and BRL Universal Compression Funding I 2002, L.P., as Secured Party, with respect to the ABS operating lease facility
(incorporated by reference to Exhibit 10.17 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9  |  | Amendment Number 2 to the Head Lessee Security Agreement, dated as of July 16, 2004, between UCO Compression 2002 LLC, as Grantor, and BRL Universal Funding I 2002, L.P., as Secured Party, with respect to the ABS operating lease facility
(incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      |  | Bank Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10 |  | $650,000,000 Senior Secured Credit Agreement, dated as January 14, 2005, among Universal Compression, Inc., as Co-US Borrower and Guarantor, Universal Compression Holdings, Inc., as Co-US Borrower and Guarantor, UC Canadian Partnership Holdings
Company, as Canadian Borrower, Wachovia Bank, National Association, as US Administrative Agent, Congress Financial Corporation (Canada), as Canadian Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, Deutsche Bank Securities Inc.,
The Bank of Nova Scotia and The Royal Bank of Scotland plc as Co-Documentation Agents and the Lenders signatory thereto arranged by Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc. as Joint Lead Arrangers and Joint Book Runners and
Deutsche Bank Securities Inc. as Co-Arranger (incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004).
|10.11 |  | Collateral Agreement, dated as of January 14, 2005, made by Universal Compression, Inc. and Universal Compression Holdings, Inc. in favor of Wachovia Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.2 of
Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

57

---



|10.12   |  | Pledge and Security Agreement (Assignment of Pledged Securities), dated as of January 14, 2005, made by Universal Compression International, Inc., Enterra Compression Investment Company, Universal Compression Services, LLC and Universal Compression
Canadian Holdings, Inc., as Pledgors to Wachovia Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.3 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31,
2004).
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13*  |  | Supplement to Collateral Agreement, dated as of February 15, 2005, made by Universal Compression Holdings, Inc. in favor of Wachovia Bank, National Association, as Administrative Agent                                                                                                                                                                                                                                                                                                                                  
|10.14*  |  | Supplement to Pledge Agreement dated as of February 15, 2005, made by Universal Compression International, Inc. and Universal Compression Services, LLC in favor of Wachovia Bank, National Association, as Administrative Agent                                                                                                                                                                                                                                                                                          
|10.15*  |  | Supplement to Pledge Agreement dated as of February 15, 2005, made by Universal Compression Services, LLC in favor of Wachovia Bank, National Association, as Administrative Agent                                                                                                                                                                                                                                                                                                                                        
|        |  | Executive Compensation Plans and Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.16  |  | Universal Compression Holdings, Inc. Incentive Stock Option Plan (incorporated by reference to Exhibit 10 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 1998).                                                                                                                                                                                                                                                                                               
|10.17  |  | Amendment Number One to Incentive Stock Option Plan, dated April 20, 2000 (incorporated by reference to Exhibit 10.3 of Amendment No. 2, filed with the SEC on May 22, 2000, to Universal Compression Holdings, Inc.'s Registration Statement on Form S-1
(File No. 333-34090)).                                                                                                                                                                                                                                          
|10.18  |  | Amendment Number Two to Incentive Stock Option Plan, dated May 15, 2000 (incorporated by reference to Exhibit 10.4 of Amendment No. 2, filed with the SEC on May 22, 2000, to Universal Compression Holdings, Inc.'s Registration Statement on
Form S-1 (File No. 333-34090)).                                                                                                                                                                                                                                            
|10.19  |  | Amendment Number Three to Incentive Stock Option Plan, dated November 27, 2000 (incorporated by reference to Exhibit 4.7 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on February 9, 2001 (File No.
333-55260)).                                                                                                                                                                                                                                                       
|10.20  |  | Amendment Number Four to Incentive Stock Option Plan, dated August 15, 2002 (incorporated by reference to Exhibit 4.8 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on September 12, 2002 (File No.
333-99473)).                                                                                                                                                                                                                                                        
|10.21  |  | Amendment Number Five to Incentive Stock Plan, dated July 23, 2004 (incorporated by reference to Exhibit 4.9 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on October 29, 2004 (File No. 333-120108)
).                                                                                                                                                                                                                                                                 
|10.22* |  | Form of Non-Qualified Stock Option Agreement under the Incentive Stock Option Plan for outside directors of Universal Compression Holdings, Inc.'s Board of Directors.                                                                                                                                                                                                                                                                                                                                                    
|10.23* |  | Form of Non-Qualified Stock Option Agreement under the Incentive Stock Option Plan for employees.                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.24* |  | Form of Incentive Stock Option Agreement under the Incentive Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

58

---



|10.25 |  | Universal Compression Holdings, Inc. Restricted Stock Plan for Executive Officers (incorporated by reference to Exhibit 4.2 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on August 17, 2001 (File No.
333-67784)).                                                
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 |  | Amendment Number One to Restricted Stock Plan for Executive Officers, dated July 23, 2004 (incorporated by reference to Exhibit 4.11 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on October 29, 2004
(File No. 333-120108)).                                     
|10.27 |  | Form of Restricted Stock Agreement under the Restricted Stock Plan for Executive Officers (incorporated by reference to Exhibit 10.8 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).                                                              
|10.28 |  | Universal Compression Holdings, Inc. Directors' Stock Plan (incorporated by reference to Exhibit 4.3 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on August 17, 2001 (File No. 333-67784)).                                                                       
|10.29 |  | Universal Compression, Inc. Employees' Supplemental Savings Plan (incorporated by reference to Exhibit 10.42 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2001).                                                                                         
|10.30 |  | Amendment Number One to Employees' Supplemental Savings Plan, dated January 1, 2002 (incorporated by reference to Exhibit 10.53 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31,
2002).                                                                      
|10.31 |  | Amendment Number Two to Employees' Supplemental Savings Plan, dated August 15, 2002 (incorporated by reference to Exhibit 4.13 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on September 12, 2002 (File
No. 333-99473)).                                          
|10.32 |  | Amendment Number Three to Employees' Supplemental Savings Plan, dated September 1, 2002 (incorporated by reference to Exhibit 10.35 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31,
2003).                                                                  
|10.33 |  | Universal Compression Holdings, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on August 17, 2001 (File No. 333-67784)
).                                                               
|10.34 |  | Amendment Number One to Employee Stock Purchase Plan, dated December 20, 2001 (incorporated by reference to Exhibit 10.56 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2002).                                                                            
|10.35 |  | Form of Indemnification Agreement for executive officers and directors of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 10.27 of Amendment No. 1, filed with the SEC on May 3, 2000, to Universal Compression Holdings,
Inc.'s Registration Statement on Form S-1 (File No. 333-34090)).
|10.36 |  | Form of Change of Control Agreement for executive officers of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30,
2002).                                                     
|10.37 |  | Letter dated March 15, 2001, with respect to certain retirement benefits to be provided to Stephen A. Snider (incorporated by reference to Exhibit 10.43 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended
March 31, 2001).                                             
|       |  |                                                                                                                                                                                                                                                                                                                      

59

---



|10.38  |  | Summary of Officers' Incentive Plan for Fiscal Year 2005 (incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Form 8-K filed May 27, 2005).                                                                                                                                                                                     
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.39* |  | Summary Compensation Sheet for Executive Officers and Directors                                                                                                                                                                                                                                                                                                 
|        |  | Registration Rights Agreements                                                                                                                                                                                                                                                                                                                                  
|10.40   |  | Registration Rights Agreement, dated February 20, 1998 by and among Universal Compression Holdings, Inc., Castle Harlan Partners III, L.P. and each other party listed as signatory thereto (incorporated by reference to Exhibit 10.14 to Universal
Compression Holdings, Inc.'s Registration Statement on Form S-4 dated March 19, 1998 (File No. 333-48283)).
|10.41   |  | Form of Instruments of Accession to Registration Rights Agreement for each of Richard W. FitzGerald and Valerie L. Banner (incorporated by reference to Exhibit 4.10 to Universal Compression Holdings, Inc.'s Registration Statement on Form S-1 (File
No. 333-34090)).                                                                                        
|10.42   |  | Instrument of Accession to Registration Rights Agreement, dated April 28, 2000, for Energy Spectrum Partners LP (incorporated by reference to Exhibit 10.19 to Amendment No. 2 dated May 22, 2000, to Universal Compression Holdings, Inc.'s Registration
Statement on Form S-1 (File No. 333-34090)).                                                          
|10.43   |  | Amended and Restated Registration Rights Agreement, dated March 23, 2004, by and between Universal Compression Holdings, Inc. and Weatherford International Ltd. (incorporated by reference to Exhibit 10.1 to Universal Compression Holdings, Inc.'s
Registration Statement on Form S-3 (File No. 333-114145).                                                 
|21.1*   |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                           
|23.1 *  |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                               
|24.1*   |  | Powers of attorney (set forth on the signature page hereof).                                                                                                                                                                                                                                                                                                    
|31.1*   |  | Rule 13a-14(a) Certifications of the CEO.                                                                                                                                                                                                                                                                                                                       
|31.2*   |  | Rule 13a-14(a) Certifications of the CFO.                                                                                                                                                                                                                                                                                                                       
|31.3*   |  | Rule 15d-14(a) Certification of the CEO                                                                                                                                                                                                                                                                                                                         
|31.4*   |  | Rule 15d-14(a) Certification of the CFO                                                                                                                                                                                                                                                                                                                         
|32.1*   |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                    
|32.2*   |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                    

---

60

---



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                        |                                                         | Page                                                                    
|------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------------------------
|Universal Compression Holdings, Inc.                    |                                                         |                                                                         
|                                                        | Report of Independent Registered Public Accounting Firm |                                                                         
|                                                        | Consolidated Financial Statements:                      |                                                                         
|                                                        |                                                         | Consolidated Balance Sheets                                             
|                                                        |                                                         | Consolidated Statements of Operations                                   
|                                                        |                                                         | Consolidated Statements of Stockholders' Equity and Comprehensive Income
|                                                        |                                                         | Consolidated Statements of Cash Flows                                   
|                                                        |                                                         | Notes to Consolidated Financial Statements                              
|Universal Compression, Inc.                             |                                                         |                                                                         
|                                                        | Report of Independent Registered Public Accounting Firm |                                                                         
|                                                        | Consolidated Financial Statements:                      |                                                                         
|                                                        |                                                         | Consolidated Balance Sheets                                             
|                                                        |                                                         | Consolidated Statements of Operations                                   
|                                                        |                                                         | Consolidated Statements of Stockholder's Equity and Comprehensive Income
|                                                        |                                                         | Consolidated Statements of Cash Flows                                   
|                                                        |                                                         | Notes to Consolidated Financial Statements                              
|Report of Independent Registered Public Accounting Firm |                                                         | E-1                                                                     
|Schedule IIValuation and Qualifying Accounts           |                                                         | E-2                                                                     

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Universal Compression Holdings, Inc.
Houston, Texas

We
have audited the accompanying consolidated balance sheets of Universal Compression Holdings, Inc. and subsidiaries (the "Company") as of March 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended March 31, 2005. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Universal Compression Holdings, Inc. and subsidiaries at
March 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over
financial reporting as of March 31, 2005, based on criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 6, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of
the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/
DELOITTE & TOUCHE LLP

Houston,
Texas
June 6, 2005

F-2

---





UNIVERSAL COMPRESSION HOLDINGS, INC.  CONSOLIDATED BALANCE SHEETS  (In thousands)

|                                                          |                                                                                                                                                                                        | March 31, 2005 |                                            | March 31, 2004 |  
|--------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------------------------------ | -------------- | -
|ASSETS                                                    |                                                                                                                                                                                       
|Current assets:                                           |                                                                                                                                                                                        |                |                                            |                |  
|                                                          | Cash and cash equivalents                                                                                                                                                              |                | $                                          | 38,723         |  
|                                                          | Accounts receivable, net of allowance for bad debts of $2,747 and $3,189 as of March 31, 2005 and 2004, respectively                                                                   |                |                                            | 116,270        |  
|                                                          | Current portion of notes receivable                                                                                                                                                    |                |                                            | 129            |  
|                                                          | Inventories, net of reserve for obsolescence of $10,981 and $12,041 as of March 31, 2005 and 2004, respectively                                                                        |                |                                            | 95,394         |  
|                                                          | Current deferred tax asset                                                                                                                                                             |                |                                            | 6,138          |  
|                                                          | Other                                                                                                                                                                                  |                |                                            | 13,206         |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Total current assets                       |                |  
|Contract compression equipment                            |                                                                                                                                                                                        |                | 1,485,637                                  |                |  
|Other property                                            |                                                                                                                                                                                        |                | 141,114                                    |                |  
|Accumulated depreciation and amortization                 |                                                                                                                                                                                        |                | (300,968                                   | )              |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Net property, plant and equipment          |                |  
|Goodwill                                                  |                                                                                                                                                                                        |                | 401,278                                    |                |  
|Notes receivable                                          |                                                                                                                                                                                        |                | 1,038                                      |                |  
|Other non-current assets                                  |                                                                                                                                                                                        |                | 24,799                                     |                |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Total assets                               |                | $
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                      |                                                                                                                                                                                       
|Current liabilities:                                      |                                                                                                                                                                                        |                |                                            |                |  
|                                                          | Accounts payable, trade                                                                                                                                                                |                | $                                          | 57,942         |  
|                                                          | Accrued liabilities                                                                                                                                                                    |                |                                            | 37,862         |  
|                                                          | Unearned revenue                                                                                                                                                                       |                |                                            | 32,201         |  
|                                                          | Accrued interest                                                                                                                                                                       |                |                                            | 5,619          |  
|                                                          | Current portion of long-term debt and capital lease obligations                                                                                                                        |                |                                            | 20,400         |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Total current liabilities                  |                |  
|Capital lease obligations                                 |                                                                                                                                                                                        |                | 347                                        |                |  
|Long-term debt                                            |                                                                                                                                                                                        |                | 837,349                                    |                |  
|Non-current deferred tax liability                        |                                                                                                                                                                                        |                | 158,017                                    |                |  
|Derivative financial instrument used for hedging purposes |                                                                                                                                                                                        |                | 6,283                                      |                |  
|Other liabilities                                         |                                                                                                                                                                                        |                | 5,066                                      |                |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Total liabilities                          |                |  
|Commitments and contingencies (Note 11)                   |                                                                                                                                                                                        |                |                                            |                |  
|Stockholders' equity:                                     |                                                                                                                                                                                        |                |                                            |                |  
|                                                          | Common stock, $.01 par value, 200,000 and 200,000 shares authorized, 32,003 and 31,294 shares issued, 32,002 and 31,293 shares outstanding as of March 31, 2005 and 2004, respectively |                |                                            | 320            |  
|                                                          | Treasury stock, 1.0 shares at cost outstanding as of March 31, 2005 and 2004                                                                                                           |                |                                            | (11            | )
|                                                          | Additional paid-in capital                                                                                                                                                             |                |                                            | 751,898        |  
|                                                          | Deferred compensation                                                                                                                                                                  |                |                                            | (7,438         | )
|                                                          | Accumulated other comprehensive loss                                                                                                                                                   |                |                                            | (18,116        | )
|                                                          | Retained earnings                                                                                                                                                                      |                |                                            | 135,019        |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Total stockholders' equity                 |                |  
|                                                          |                                                                                                                                                                                        |                |                                            |                |  
|                                                          |                                                                                                                                                                                        |                | Total liabilities and stockholders' equity |                | $
|                                                          |                                                                                                                                                                                        |                |                                            |                |  

See accompanying notes to consolidated financial statements.

F-3

---





UNIVERSAL COMPRESSION HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share amounts)

|                                                                  |                                                      | For the Year Ended March 31, |       
|----------------------------------------------------------------- | ---------------------------------------------------- | ---------------------------- | ------
|
|Revenue:                                                          |                                                      |                              |       
|                                                                  | Domestic contract compression                        |                              | $     
|                                                                  | International contract compression                   |                              |       
|                                                                  | Fabrication                                          |                              |       
|                                                                  | Aftermarket services                                 |                              |       
|                                                                  |                                                      |                              |       
|                                                                  |                                                      | Total revenue                |       
|                                                                  |                                                      |                              |       
|Costs and expenses:                                               |                                                      |                              |       
|                                                                  | Domestic contract compressiondirect costs           |                              |       
|                                                                  | International contract compressiondirect costs      |                              |       
|                                                                  | Fabricationdirect costs                             |                              |       
|                                                                  | Aftermarket servicesdirect costs                    |                              |       
|                                                                  | Depreciation and amortization                        |                              |       
|                                                                  | Selling, general and administrative                  |                              |       
|                                                                  | Operating lease expense                              |                              |       
|                                                                  | Interest expense, net                                |                              |       
|                                                                  | Debt extinguishment costs                            |                              |       
|                                                                  | Gain on termination of interest rate swap agreements |                              |       
|                                                                  | Asset impairment expense                             |                              |       
|                                                                  | Facility consolidation costs                         |                              |       
|                                                                  | Foreign currency (gain)/loss                         |                              |       
|                                                                  | Other income, net                                    |                              |       
|                                                                  |                                                      |                              |       
|                                                                  |                                                      | Total costs and expenses     |       
|                                                                  |                                                      |                              |       
|Income before income taxes                                        |                                                      |                              | 50,823
|Income tax expense                                                |                                                      |                              | 17,213
|                                                                  |                                                      |                              |       
|                                                                  |                                                      | Net income                   |       
|                                                                  |                                                      |                              |       
|Weighted average common and common equivalent shares outstanding: |                                                      |                              |       
|                                                                  |                                                      | Basic                        |       
|                                                                  |                                                      | Diluted                      |       
|Earnings per shareBasic                                          |                                                      | $                            | 1.07  
|                                                                  |                                                      |                              |       
|Earnings per shareDiluted                                        |                                                      | $                            | 1.04  
|                                                                  |                                                      |                              |       

See
accompanying notes to consolidated financial statements.

F-4

---





UNIVERSAL COMPRESSION HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  AND OTHER COMPREHENSIVE INCOME  For the Years Ended March 31, 2003, 2004 and 2005  (In thousands, except for
share data)

|                                          |  | Common
Stock
Shares |  | Common
Stock
Amount |     | Additional
Paid in
Capital |   | Retained
Earnings |   | Treasury
Stock |         | Deferred
Compensation |   | Accumulated
Other
Comprehensive
Income (Loss) |   | Total |       
|----------------------------------------- |  | ------------------- |  | ------------------- | --- | -------------------------- | - | ----------------- | - | -------------- | ------- | --------------------- | - | --------------------------------------------- | - | ----- | ------
|Balance, March 31, 2002                   |  | 30,602,042          |  | $                   | 306 |                            | $ | 723,831           |   | $              | 37,104  |                       | $ | (934                                          | ) | $     | (2,446
|Common stock issuance                     |  | 10,000              |  |                     |     |                            |   | 181               |   |                |         |                       |   |                                               |   |       |       
|Treasury stock redeemed, at $21 per share |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   | (1,000                                        | ) |       |       
|Option exercises                          |  | 22,841              |  |                     | 1   |                            |   | (52               | ) |                |         |                       |   | 246                                           |   |       |       
|Shares issued in employee benefit plans   |  | 96,495              |  |                     | 1   |                            |   | 832               |   |                |         |                       |   | 1,497                                         |   |       |       
|Restricted stock transactions             |  |                     |  |                     |     |                            |   | (301              | ) |                |         |                       |   | 174                                           |   |       | 127   
|Amortization of deferred compensation     |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       | 310   
|Comprehensive income:                     |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Interest rate swap agreement loss         |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Net income                                |  |                     |  |                     |     |                            |   |                   |   |                | 33,518  |                       |   |                                               |   |       |       
|Foreign currency translation adjustment   |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Total comprehensive income                |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|                                          |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Balance, March 31, 2003                   |  | 30,731,378          |  | $                   | 308 |                            | $ | 724,491           |   | $              | 70,622  |                       | $ | (17                                           | ) | $     | (2,009
|                                          |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Option exercises                          |  | 350,746             |  |                     | 3   |                            |   | 7,558             |   |                |         |                       |   | 6                                             |   |       |       
|Shares issued in employee benefit plans   |  | 116,729             |  |                     | 1   |                            |   | 2,242             |   |                |         |                       |   |                                               |   |       |       
|Restricted stock transactions             |  | 94,147              |  |                     | 1   |                            |   | (167              | ) |                |         |                       |   |                                               |   |       | 167   
|Amortization of deferred compensation     |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       | 586   
|Comprehensive income:                     |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Interest rate swap agreement loss         |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Net income                                |  |                     |  |                     |     |                            |   |                   |   |                | 30,787  |                       |   |                                               |   |       |       
|Foreign currency translation adjustment   |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Total comprehensive income                |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|                                          |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Balance, March 31, 2004                   |  | 31,293,000          |  | $                   | 313 |                            | $ | 734,124           |   | $              | 101,409 |                       | $ | (11                                           | ) | $     | (1,256
|                                          |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Option exercises                          |  | 433,838             |  |                     | 4   |                            |   | 8,420             |   |                |         |                       |   |                                               |   |       |       
|Shares issued in employee benefit plans   |  | 80,591              |  |                     | 1   |                            |   | 2,438             |   |                |         |                       |   |                                               |   |       |       
|Restricted stock transactions             |  | 194,636             |  |                     | 2   |                            |   | 6,916             |   |                |         |                       |   |                                               |   |       | (7,147
|Amortization of deferred compensation     |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       | 965   
|Comprehensive income:                     |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Interest rate swap agreement gain         |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Net income                                |  |                     |  |                     |     |                            |   |                   |   |                | 33,610  |                       |   |                                               |   |       |       
|Foreign currency translation adjustment   |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Total comprehensive income                |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|                                          |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       
|Balance, March 31, 2005                   |  | 32,002,065          |  | $                   | 320 |                            | $ | 751,898           |   | $              | 135,019 |                       | $ | (11                                           | ) | $     | (7,438
|                                          |  |                     |  |                     |     |                            |   |                   |   |                |         |                       |   |                                               |   |       |       

See accompanying notes to consolidated financial statements.

F-5

---





UNIVERSAL COMPRESSION HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)

|                                                                      |                                                                 | For the Year Ended March 31,                                                                                 |                                          
|--------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -----------------------------------------
|
|Cash flows from operating activities:                                 |                                                                 |                                                                                                              |                                          
|                                                                      | Net income                                                      |                                                                                                              | $                                        
|                                                                      |                                                                 | Adjustments to reconcile net income to cash provided by operating activities, net of effect of acquisitions: |                                          
|                                                                      | Depreciation and amortization                                   |                                                                                                              |                                          
|                                                                      | Non-cash gain from interest rate swap agreement settlement      |                                                                                                              |                                          
|                                                                      | Loss on early extinguishment of debt                            |                                                                                                              |                                          
|                                                                      | Loss on asset impairment                                        |                                                                                                              |                                          
|                                                                      | Gain on asset sales                                             |                                                                                                              |                                          
|                                                                      | Amortization of debt issuance costs                             |                                                                                                              |                                          
|                                                                      | Amortization of deferred compensation                           |                                                                                                              |                                          
|                                                                      | Accretion of discount notes                                     |                                                                                                              |                                          
|                                                                      | Increase in deferred taxes                                      |                                                                                                              |                                          
|                                                                      | (Increase) decrease in other assets                             |                                                                                                              |                                          
|                                                                      | (Increase) decrease in receivables                              |                                                                                                              |                                          
|                                                                      | (Increase) decrease in inventories                              |                                                                                                              |                                          
|                                                                      | Increase (decrease) in accounts payable                         |                                                                                                              |                                          
|                                                                      | Increase (decrease) in accrued liabilities                      |                                                                                                              |                                          
|                                                                      | Increase (decrease) in unearned revenue                         |                                                                                                              |                                          
|                                                                      | Increase (decrease) in accrued interest                         |                                                                                                              |                                          
|                                                                      |                                                                 |                                                                                                              |                                          
|                                                                      |                                                                 |                                                                                                              | Net cash provided by operating activities
|                                                                      |                                                                 |                                                                                                              |                                          
|Cash flows from investing activities:                                 |                                                                 |                                                                                                              |                                          
|                                                                      | Additions to property, plant and equipment                      |                                                                                                              |                                          
|                                                                      | Cash paid for acquisitions                                      |                                                                                                              |                                          
|                                                                      | Proceeds from sale of property, plant and equipment             |                                                                                                              |                                          
|                                                                      |                                                                 |                                                                                                              |                                          
|                                                                      |                                                                 |                                                                                                              | Net cash used in investing activities    
|                                                                      |                                                                 |                                                                                                              |                                          
|Cash flows from financing activities:                                 |                                                                 |                                                                                                              |                                          
|                                                                      | Principal repayments of long-term debt                          |                                                                                                              |                                          
|                                                                      | Proceeds from issuance of debt                                  |                                                                                                              |                                          
|                                                                      | Net repayment on sale-leaseback of vehicles                     |                                                                                                              |                                          
|                                                                      | Debt extinguishment premium and cost                            |                                                                                                              |                                          
|                                                                      | Common stock issuance                                           |                                                                                                              |                                          
|                                                                      | Interest rate swap agreement settlement                         |                                                                                                              |                                          
|                                                                      | Debt issuance costs                                             |                                                                                                              |                                          
|                                                                      | Payments on capital lease agreements                            |                                                                                                              |                                          
|                                                                      | Operating lease facilities                                      |                                                                                                              |                                          
|                                                                      |                                                                 |                                                                                                              |                                          
|                                                                      |                                                                 |                                                                                                              | Net cash used in financing activities    
|                                                                      |                                                                 |                                                                                                              |                                          
|Effect of exchange rate changes on cash and cash equivalents          |                                                                 |                                                                                                              | 543                                      
|Net increase (decrease) in cash and cash equivalents                  |                                                                 |                                                                                                              | (83,009                                  
|Cash and cash equivalents at beginning of period                      |                                                                 |                                                                                                              | 121,189                                  
|                                                                      |                                                                 |                                                                                                              |                                          
|Cash and cash equivalents at end of period                            |                                                                 | $                                                                                                            | 38,723                                   
|                                                                      |                                                                 |                                                                                                              |                                          
|Supplemental disclosure of cash flow information:                     |                                                                 |                                                                                                              |                                          
|                                                                      | Cash paid for interest                                          |                                                                                                              | $                                        
|                                                                      |                                                                 |                                                                                                              |                                          
|                                                                      | Cash paid for operating leases                                  |                                                                                                              | $                                        
|                                                                      |                                                                 |                                                                                                              |                                          
|                                                                      | Cash paid for income taxes                                      |                                                                                                              | $                                        
|                                                                      |                                                                 |                                                                                                              |                                          
|Supplemental schedule of non-cash investing and financing activities: |                                                                 |                                                                                                              |                                          
|                                                                      | Changes due to the consolidation of operating lease facilities: |                                                                                                              |                                          
|                                                                      | Additions to property, plant and equipment                      |                                                                                                              |                                          
|                                                                      | Increase in debt                                                |                                                                                                              |                                          
|                                                                      | Noncurrent liability assumed                                    |                                                                                                              |                                          
|                                                                      | Elimination of deferred gain                                    |                                                                                                              |                                          

See accompanying notes to consolidated financial statements.

F-6

---





UNIVERSAL COMPRESSION HOLDINGS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization

Universal Compression Holdings, Inc. (the "Company") is a holding company, which conducts its operations through its wholly-owned subsidiary, Universal
Compression, Inc. ("Universal"). Accordingly, the Company is dependent upon the distribution of earnings from Universal, whether in the form of dividends, advances or payments on account of
intercompany obligations, to service its debt obligations.

Nature of Operations

The Company is the second largest natural gas compression services company in the world in terms of compressor fleet horsepower, with a fleet as of
March 31, 2005 of approximately 7,200 compressor units comprising approximately 2.5 million horsepower. The Company provides a full range of natural gas compression products and
services, including sales, operations, maintenance and fabrication services and products to the natural gas industry, both domestically and internationally. These services and products are essential
to the natural gas industry, as gas must be compressed to be delivered from the wellhead to end-users.

Principles of Consolidation

The accompanying consolidated financial statements include the Company and its wholly-owned subsidiary, Universal. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.

Use of Estimates

In preparing the Company's financial statements, management makes estimates and assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results may differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash flows are computed
using the indirect method.

Revenue Recognition

Revenue is recognized by the Company's four reportable business segments using the following criteria: (a) persuasive evidence of an exchange arrangement
exists; (b) delivery has occurred or services have been rendered; (c) the buyer's price is fixed or determinable and (d) collectibility is reasonably assured.

Revenue
from contract compression service is recorded when earned, which generally occurs monthly at the time the monthly compression service is provided to customers in accordance with
contracts. Aftermarket services revenue is recorded as products are delivered or services are performed for the customer. Fabrication revenue is recognized using the completed-contract method which

F-7

---



recognizes
revenue upon completion of the contract. This method is used because the typical contract is completed within two to three months.

Concentration of Credit Risk

Trade accounts receivable are due from companies of varying size engaged principally in oil and gas activities in the United States and in international locations
including Canada, Latin America and Asia Pacific. The Company reviews the financial condition of customers prior to extending credit and periodically updates customer credit information. Payment terms
are on a short-term basis and in accordance with industry standards. No single customer accounted for 10% or more of the Company's revenue for the years ended March 31, 2005, 2004
and 2003. For the years ended March 31, 2005, 2004 and 2003, the Company wrote off bad debts, net of recoveries totaling $1.8 million, $5.6 million, and $4.3 million,
respectively.

Inventories

Inventories are recorded at the lower of average cost or market (net realizable value). Some items of compression equipment are acquired and placed in inventories
for subsequent sale or to provide compression services to others. Acquisitions of these assets are considered operating activities in the statement of cash flows.

A
reserve is recorded against inventory balances for estimated obsolescence. This reserve is based on specific identification and historical experience.

Properties and Equipment

Property, plant and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using
estimated useful lives. For compression
equipment, depreciation begins with the first compression service using a 20% salvage value. The Company reevaluated the estimated useful lives used for book depreciation purposes for its compressor
fleet based upon equipment type, key components and industry experience of the actual economic useful life in the field. The evaluation was finalized in the fourth quarter of fiscal year 2003. Based
upon the findings of the evaluation, the estimated useful lives of the majority of the existing compressor units were extended to 25 years from 15 years. In addition, a portion of the
units remained at 15 years or less and a portion of the units were extended to 30 years. The change in useful lives was effective January 1, 2003. Concurrent with the revising of
estimated useful lives, the Company recorded on its balance sheet contract compression equipment due to the consolidation of certain operating lease facilities. Had the Company consolidated all assets
and used the revised useful lives for the entire fiscal year 2003, depreciation expense would have been increased by $7.8 million. The estimated useful lives as of March 31, 2005 were as
follows:

Buildings

20-35 yearsCompression equipment

15-30 yearsOther properties and equipment

2-25 years


Maintenance
and repairs are charged to expenses as incurred. Overhauls and major improvements that increase the value or extend the life of contract compressor units are capitalized and
depreciated over the estimated period of up to 6.5 years.

Depreciation
expense for the years ended March 31, 2005, 2004 and 2003 was $92.7 million, $84.5 million and $62.1 million, respectively.

Properties
and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable based upon undiscounted cash
flows. Any

F-8

---



impairment
losses are measured based upon the excess of the carrying value over the fair value. Included within net income for the fiscal year ended March 31, 2005 is a $3.1 million loss
on the impairment of our Tulsa, Oklahoma fabrication facility due to the decision to permanently discontinue operations and dispose of this facility. The carrying value of this facility was written
down to estimated market value, which was determined by the Company based upon recent appraisals.

Goodwill

Goodwill and intangible assets acquired in connection with business combinations represent the excess of consideration over the fair value of tangible net assets
acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed, as well as in determining the allocation of goodwill to the
appropriate reporting unit.

The
Company performs an impairment test for goodwill assets annually, or earlier if indicators of potential impairment exist. Our goodwill impairment test involves a comparison of the
fair value of each of our reporting units with their carrying value. The fair value is determined using discounted cash flows and other market-related valuation models. Certain estimates and judgments
are required in the application of the fair value models. During the fourth quarter of fiscal year 2005, the Company performed an impairment analysis in accordance with SFAS No. 142 and
determined that no impairment had occurred; however, if for any reason the fair value of our goodwill or that of any of our reporting units declines below the carrying value in the future, the Company
may incur charges for the impairment.

Other Non-Current Assets

Included in other non-current assets are debt issuance costs, net of accumulated amortization, totaling approximately $12.4 million and
$20.5 million at March 31, 2005 and 2004, respectively. Such costs are amortized over the period of the respective debt agreements on a straight-line method which
approximates the effective interest method.

Warranty

The Company accrues amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known.

Stock-Based Compensation

Under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company elected to measure compensation cost using the intrinsic value-based method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." As such, the Company is required to make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting defined by SFAS No. 123 had been applied.

F-9

---



The
following table summarizes results as if we had recorded compensation expense under the provisions of SFAS No. 123 for the 2005, 2004 and 2003:

|                                            |             | Year Ended March 31, |       
|------------------------------------------- | ----------- | -------------------- | ------
|
|
|Net income, as reported                     |             | $                    | 33,610
|Additional compensation expense, net of tax |             | $                    | (2,567
|                                            |             |                      |       
|Pro forma net income                        |             | $                    | 31,043
|Basic earnings per share:                   |             |                      |       
|                                            | As reported |                      | $     
|                                            | Pro forma   |                      | $     
|Diluted earnings per share:                 |             |                      |       
|                                            | As reported |                      | $     
|                                            | Pro forma   |                      | $     

Income Taxes

The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, all expected future events are considered other
than enactments of changes in the tax law or rates.

The
Company provides compression services to a global market. As such, the Company is subject to taxation not only in the United States but also in numerous foreign jurisdictions. Having
to consider these different jurisdictions complicates the estimate of future taxable income, which in turn determines the realizability of its deferred tax assets. Numerous judgments and assumptions
are inherent in the determination of future taxable income, including assumptions on future operating conditions and asset utilization. The judgments and assumptions used to determine future taxable
income are consistent with those used for other financial statement purposes.

Additionally,
we must consider any prudent and feasible tax planning strategies that would minimize the amount of deferred tax liabilities recognized or the amount of any valuation
allowance recognized against deferred tax assets. The principal tax planning strategy available to the Company relates to the
permanent reinvestment of the earnings of foreign subsidiaries. The assumptions related to the permanent reinvestment of the foreign earnings are analyzed and reviewed annually for changes in our
international and domestic business outlook.

Foreign Currency Translation

The majority of the Company's foreign subsidiaries have designated the local currency as their functional currency and, as such, gains and losses resulting from
financial statement translation of foreign operations are included as a separate component of accumulated other comprehensive income (loss) within stockholders' equity. Gains and losses from balances
that are receivable or payable in currency other than functional currency are included in the consolidated statements of operations.

Currency
transaction gains and losses are reflected in the Company's consolidated statements of operations during the period incurred.

For
those foreign subsidiaries that have designated the United States dollar as the functional currency, gains and losses resulting from financial statement translation of foreign
operations are included in the consolidated statements of operations as incurred.

F-10

---



Fair Value of Financial Instruments

The Company's financial instruments consist of trade receivables and payables (which have carrying values that approximate fair value) and long-term
debt. The fair value of the Company's revolving credit facility (see Note 4) is representative of its carrying value based upon variable rate terms. The fair value and the carrying amount of
the 71/4% senior notes due 2010 was $170.9 million and $175.7 million at March 31, 2005 and 2004, respectively. The carrying amounts of $200.0 million for
the notes under the ABS operating lease facility and $400.0 million under the seven-year term loan approximate their fair values. The estimated fair value amounts have been
determined by the Company using appropriate valuation methodologies and information available to management as of March 31, 2005 based on the quoted market value.

Hedging and Use of Derivative Instruments

The Company utilizes interest rate swap agreements to minimize interest rate exposure on $83.9 million of the $200.0 million asset-backed
securitization operating lease facility (the "ABS operating lease facility") and $300.0 million of the $400.0 million seven year term loan. The swaps are not used for trading or
speculative purposes. The fair value of the interest rate swap agreement related to the ABS operating lease facility was a noncurrent liability of $2.2 million and $14.4 million as of
March 31, 2005 and March 31, 2004, respectively. The fair value of the interest rate swap agreement related to the seven-year term loan was a noncurrent asset of
$3.9 million as of March 31, 2005. In accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," we record these interest rate swap agreements on
the balance sheet as either assets or liabilities measured at their fair value. These instruments qualify for hedge accounting as they reduce the interest rate risk of the underlying hedged item and
are designated as a cash flow hedge at inception. These swaps result in financial impacts that are inversely correlated to those of the items being hedged. To qualify for hedge accounting treatment,
companies must formally document, designate and assess the effectiveness of the transactions. If the necessary correlation ceases to exist or if physical delivery of the hedged item becomes
improbable, we would discontinue hedge accounting and apply mark-to-market accounting. Amounts paid or received from interest rate swap agreements are charged or credited to
interest expense and matched with the cash flows and interest expense of the debt being hedged, resulting in an adjustment to the effective interest rate.

The
Company has entered into interest rate swap agreements to hedge $100 million of our $175.0 million 71/4% senior notes due 2010. The swaps are used to
hedge the change in fair value of the debt and, in effect, convert the fixed interest payment to a variable interest payment based on the six-month LIBOR rate. The swaps are accounted for
in accordance with SFAS No. 133 and, as such, are recorded at fair value on the balance sheet. The Company's balance sheet at March 31, 2005 includes a $4.1 million noncurrent
liability related to the interest rate swap agreements. The change in the debt's fair value is also recorded with the offset being recorded to income. The swaps, which the Company has designated as
fair value hedging instruments, meet the specific hedge criteria and any changes in their fair values were recognized in income. For the fiscal year ended March 31, 2005, the change in the
debt's fair value and the change in the swaps' fair value exactly offset and did not impact net income. Because the terms of the hedged item and the swaps substantially coincide, the hedge is expected
to exactly offset changes in fair values due to fluctuations in the variable rate and, therefore, the Company currently does not expect any ineffectiveness.

All
of the interest rate instruments utilized are placed with large creditworthy financial institutions. The Company monitors the credit quality of these financial institutions and does
not expect non-performance by them.

F-11

---



Environmental Liabilities

The costs to remediate and monitor environmental matters are accrued when such liabilities are considered probable and a reasonable estimate of such costs is
determinable.

Net Income Per Share

Net income per share, basic and diluted, is calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
share."

The
dilutive effects of stock options outstanding for the fiscal years ended March 31, 2005, 2004 and 2003 were 831,000, 435,000 and 263,000 shares, respectively. For the fiscal
years ended March 31, 2005, 2004 and 2003 outstanding stock options of 47,000, 782,000 and 2,140,000, respectively, were excluded from the computation of diluted earnings per share as the
options' exercise prices were greater than the average market price of the common stock for such periods.

New Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costsan amendment of ARB 43,
Chapter 4." SFAS No. 151 provides clarification that abnormal amounts of idle facility expense, freight, handling costs and wasted material be recognized as current period charges. In addition,
SFAS No. 151 requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact that SFAS No. 151 will have on its financial statements.

In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This statement is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation" and
supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires that the compensation cost relating to share-based payment transactions be recognized in the
financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This statement will be effective for the Company beginning in fiscal year 2007.
The Company is currently evaluating the impact that SFAS No. 123R will have on its financial statements.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assetsan amendment of APB Opinion No. 29," to address the measurement of
exchanges of nonmonetary assets. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. This statement will be effective for the Company beginning July 1, 2005. The Company is currently evaluating
the impact that SFAS No. 153 will have on its financial statements.

In
December 2004, the FASB issued FASB Staff Position No. 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," which provides guidance on the recently enacted American Jobs Creation Act of 2004 (the "Act"). The
Act provides a tax deduction for income from qualified domestic production activities. FSP 109-1 provides for the treatment of the deduction as a special deduction as described in SFAS
No. 109. As such, the deduction will have no effect on existing deferred tax assets and liabilities. Based upon the Company's analysis of FSP No. 109-1, we do not expect to
benefit from this special deduction for several more years.

In
December 2004, the FASB issued FASB Staff Position No. 109-2, "Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American
Jobs Creation Act of 2004," which provides guidance under SFAS No. 109 with respect to recording the potential impact of the repatriation provisions of the Act on a company's income tax expense
and deferred tax liability. FSP

F-12

---



109-2
states that a company is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign
earnings for purposes of applying SFAS No. 109. We have not yet decided on whether, and to what extent, we might elect to repatriate foreign earnings under the provisions in the Act. Any such
repatriation under the Act must occur by December 31, 2005. Accordingly, our consolidated financial statements do not reflect a provision for taxes related to this election.

2. Goodwill

The Company's acquisitions were accounted for as purchases and, accordingly, the results of operations of the acquired businesses are included in the accompanying
financial statements from the dates of acquisition. Goodwill has been recognized for the amount of the excess of the purchase price over the fair value of the net assets acquired and is accounted for
in accordance with SFAS 142.

The
changes in the carrying amount of goodwill from March 31, 2003 to March 31, 2005, are as follows (in thousands):

|                                       |  | Domestic
Contract
Compression |         | International
Contract
Compression |   | Aftermarket
Services |   | Fabrication |        | Total
|-------------------------------------- |  | ----------------------------- | ------- | ---------------------------------- | - | -------------------- | - | ----------- | ------ | -----
|Balance as of March 31, 2003           |  | $                             | 261,752 |                                    | $ | 50,594               |   | $           | 46,323 |      
|Acquisitions                           |  |                               |        |                                    |   |                     |   |             | 358    |      
|Impact of foreign currency translation |  |                               |        |                                    |   | 2,302                |   |             |       |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      
|Balance as of March 31, 2004           |  | $                             | 261,752 |                                    | $ | 52,896               |   | $           | 46,681 |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      
|Acquisitions                           |  |                               |        |                                    |   | 7,550                |   |             | 1,603  |      
|Purchase price adjustments and other   |  |                               |        |                                    |   | (22                  | ) |             | 511    |      
|Impact of foreign currency translation |  |                               |        |                                    |   | 1,265                |   |             |       |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      
|Balance as of March 31, 2005           |  | $                             | 261,752 |                                    | $ | 61,689               |   | $           | 48,795 |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      

During
the fourth quarter of fiscal year 2005, we performed an impairment analysis on our goodwill in accordance with SFAS No. 142 and determined that no impairment had occurred.

In
November 2004, the Company purchased the Canadian contract compression fleet of Hanover Compressor Company for $56.9 million in cash. As a result of the acquisition we
recorded $46.2 million in property, plant and equipment, $3.1 million in identifiable intangible assets and $7.6 million in goodwill. At the time of the acquisition, the acquired
fleet totaled approximately 83,000 horsepower. The acquisition was funded by $50.0 million in borrowings under our revolving credit facility and $6.9 million in cash. The pro forma
information set forth below assumes the acquisition is accounted for as if the purchase occurred at the beginning of the fiscal year. The pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated at that time (in thousands, except per share amounts):

Fiscal Year Ended
March 31, 2005As Reported

Pro Forma
as Adjusted(unaudited)Revenue

$
763,070

$
771,288Net income

$
33,610

$
36,199Earnings per common share-basic

$
1.07

$
1.15Earnings per common share-diluted

$
1.04

$
1.12


F-13

---



At
March 31, 2005, the Company had intangible assets with a gross carrying value of $5.7 million, which relate to acquired customer contracts and non-compete
agreements. The carrying amount net of accumulated amortization at March 31, 2005 was $3.5 million. Intangible assets are amortized on a straight-line basis with useful lives
ranging from 10 months to 15 years. In addition, the Company had an intangible asset with a gross carrying value of $0.4 million at March 31, 2005 related to an acquired
registration certificate. This asset is not being amortized as it has been deemed to have an indefinite life.

3. Inventories, Net

Inventories, net consisted of the following (in thousands):

For the Year Ended
March 31,2005

2004Raw materials

$
62,599

$
60,064Work-in-progress


40,560


37,510Finished goods


3,216


4,435Total inventories


106,375


102,009Reserve for obsolescence


(10,981
)

(12,041
)Inventories, net

$
95,394

$
89,968


F-14

---



4. Long-Term Debt

The Company's debt at March 31 consisted of the following (in thousands):

As of March 31,2005

2004Senior secured notes due February 2008, bore interest at 87/8% per annum, payable semiannually on February 15 and August 15 (see "High-Yield Operating Lease Facility" below)





445,000Term loan of $82.2 million due February 2008, bore interest at a variable rate of LIBOR, plus 3.25% due quarterly (see "High-Yield Operating Lease Facility" below)





82,181Notes due January 2023, bearing interest at a variable rate of LIBOR, plus 1.27% due monthly (see "ABS Facility" below) (1).


200,000


175,000Senior notes, bearing interest at 71/4% per annum, due 2010 (see "Senior 71/4% Notes" below)(2)

$
170,948

$
175,713Seven year term loan of $400.0 million due February 2012, currently bearing interest at a variable rate of LIBOR plus 1.75% due quarterly (see "2005 Credit Facility" below) (3)


400,000


Revolving line of credit due 2010, currently bearing interest at a variable rate of LIBOR, plus 1.5% (see "2005 Credit Facility" below)


86,225


Other





3,387Total debt


857,173


881,281Less current maturities


19,824


12,205Total long-term debt

$
837,349

$
869,076


---

High-Yield Operating Lease Facility

In connection with the Weatherford Global acquisition and merger with the Company in February 2001, the Company raised $427 million under a
seven-year term senior secured notes operating lease facility (the "High-Yield Operating Lease Facility"), consisting of $350 million of senior notes due 2008 and a
$64 million term loan due 2008. The High-Yield Operating Lease Facility was collateralized by a first priority security interest in all of the assets owned by the lessor under that
facility. In October 2001, the Company increased the High-Yield Operating Lease Facility by $122 million. During the fourth quarter of fiscal year 2005, the Company,
terminated the High-Yield Operating Lease Facility and redeemed the then outstanding $440.0 million principal amount of 87/8% senior notes due 2008 and prepaid the
$82.2 million term loan.

F-15

---



ABS Facility

In February 2001, the Company also entered into a $200 million asset-backed securitization operating lease facility (the "ABS Facility"). In
December 2002, the Company increased the outstanding debt under the ABS Facility from $159.5 million to $175 million. The ABS Facility is collateralized by a first priority
security interest in all of the assets owned by the lessor and lessee under that facility. The debt for the facility is currently held by a financial institution. If the facility is not restructured
or modified by June 30, 2005, the interest rate on the facility will increase by 0.5% per annum.

Consolidation of High-Yield Operating Lease and ABS Facilities

In December 2002, the Company purchased all of the equity in the previously unaffiliated special operating entity that was the lessor under the
High-Yield Operating Lease Facility. As a result of this equity investment by the Company, that special purpose entity became a fully consolidated entity of the Company as of
December 31, 2002, and the assets and debt related to the High-Yield Operating Lease Facility have since been included in the consolidated balance sheet.

Also
in December 2002, the equity in the special purpose entity that was the lessor under the ABS Facility was reduced to a level where by the lessor under that facility also
became a fully consolidated entity of the Company as of December 31, 2002.

As
a result of these changes in the High-Yield Operating Lease Facility and the ABS Facility, and consistent with the purchase accounting rules set forth in SFAS
No. 141, "Business Combinations," the Company recorded in its consolidated balance sheet approximately $614.8 million of contract compression equipment, approximately
$707.2 million in long-term debt and a noncurrent liability of approximately $15.2 million related to interest rate swap agreements pertaining to the ABS Facility (see
Note 8 for discussion of interest rate swap agreements) in fiscal year 2003. Additionally, upon consolidation of the lessors of these operating lease facilities, the deferred gain previously
recorded was eliminated. The results of operations through December 31, 2002 includes operating lease expense since prior to this date the lessors under the operating leases were unaffiliated
and nonconsolidated entities of the Company.

Senior 71/4% Notes

In May 2003, Universal issued $175 million of 71/4% senior notes due 2010 (the "Senior 71/4% Notes") in a private
placement. The net proceeds from the sale, together with other available funds, were used to repurchase or redeem the outstanding $229.8 million of 97/8% senior discount notes
due 2008. Universal exchanged the private notes for publicly-traded notes in the second quarter of fiscal 2004. Due to this early extinguishment of debt, the Company recognized expenses of
$14.4 million in the first quarter of fiscal year 2004 resulting primarily from the redemption and tender premiums of $12.0 million, write-off of unamortized debt issuance
costs of $1.9 million and $0.5 million of other costs.

2005 Credit Facility

In January 2005, the Company, Universal and the Company's wholly-owned subsidiary, UC Canadian Partnership Holdings Company, closed a $650 million
senior secured credit facility with a syndicate of lenders and financial institutions consisting of a $250 million, five-year revolving line of credit and a $400 million
seven-year term loan. The 2005 Credit Facility bears interest, if the borrowings are in US dollars, at Universal's option, of a base rate or LIBOR plus, in each case, a variable amount
depending on its debt ratings or, if the borrowings are in Canada dollars, at Universal's option, of Canadian prime rate plus a variable amount depending on its debt ratings or the DCOR rate plus a
specified amount depending on the lender. The 2005 Credit Facility is secured by substantially all of the domestic assets of the Company and Universal (except for the assets pledged to

F-16

---



the
ABS Facility), as well as, all the capital stock of the direct and indirect US subsidiaries of Universal and 65% of the capital stock of Universal's first tier foreign subsidiaries.

The
Company used approximately $508.6 million under the 2005 Credit Facility, together with $100 million under the ABS Facility, to repay and redeem the outstanding
$522 million under the High-Yield Operating Lease Facility and repay $50 million in debt under the Company's now terminated $125 million revolving credit facility. Due
to this early extinguishment of debt, the Company recognized expenses of $26.1 million in the fourth quarter of fiscal year 2005 consisting primarily of redemption premiums of
$19.5 million and the write-off of unamortized debt issuance costs of $6.5 million.

The
Company has pledged property and compression equipment with a carrying value of $838.8 million as of March 31, 2005 as collateral for the 2005 Credit Facility.

Maturities of Long-Term Debt

Maturities of long-term debt as of March 31, 2005 are as follows (in thousands):

2006

$
19,8242007


25,0992008


25,0992009


25,0992010


111,324Thereafter


650,728Total

$
857,173


5. Capital Leases

Properties and equipment at March 31, 2005 and 2004 include the following amounts for capitalized leases (in thousands):

As of March 31,2005

2004Compression equipment

$
898

$
3,398Furniture and fixtures


2,556


2,556Less accumulated depreciation


(1,095
)

(968
)Net assets under capital leases

$
2,359

$
4,986


Compression
equipment with a carrying value of $0.7 million as of March 31, 2005 has been pledged as collateral relating to these capital leases.

F-17

---



Future
minimum lease payments under non-cancelable capital leases as of March 31, 2005 are as follows (in thousands):

2006

$
6892007


1112008


2742009


2010 and thereafter


Total minimum lease payments

$
1,074Less imputed interest costs


(151
)Present value of net minimum lease payments

$
923


6. Income Taxes

Income tax expense for the years ended March 31, 2005, 2004 and 2003 consisted of the following (in thousands):

2005

2004

2003Current:Foreign

$
9,069

$
9,119

$
4,142Deferred:Federal


5,178


6,379


13,624State


888


894


1,551Foreign


2,078


1,349


1,658Total

$
17,213

$
17,741

$
20,975


A
reconciliation of the provision for income taxes and the amount computed by applying the federal statutory income tax rate to income before taxes for the years ended March 31,
2005, 2004 and 2003 is as follows (in thousands):

2005

2004

2003Income tax expense at statutory rate

$
17,790

$
16,985

$
19,071State taxes


671


581


1,008Foreign tax (benefit)


(306
)

600


149Non-deductible expenses (benefit) and other


(942
)

(425
)

747Total

$
17,213

$
17,741

$
20,975


Deferred
income tax balances are the direct effect of taxable temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities at the
enacted tax rates expected to be in effect when the taxes are actually paid or recovered.

The
Company has not provided U.S. deferred taxes on the indefinitely (permanently) reinvested cumulative earnings of approximately $111 million generated by its
non-U.S. affiliate companies. Such earnings are from ongoing operations which will be used to fund growth in the non-US affiliates' countries as well as future international
expansion. Because of the availability of foreign tax credits, it is not practical to determine the US income tax liability that would be payable if such earnings were not indefinitely reinvested.

F-18

---



The
tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at March 31 are (in thousands):

2005

2004Deferred tax assets:Net operating loss carryforwards

$
156,027

$
128,114Accrued reserves


6,138


5,820Foreign tax credit


2,951


1,779Other


9,772


9,179Total


174,888


144,892Valuation allowance


(1,634
)

(1,779
)Total


173,254


143,113Deferred tax liabilities:Depreciation differences on properties and equipment


(324,278
)

(285,738
)Other


(855
)

(1,110
)Total


(325,133
)

(286,848
)Net deferred tax liability

$
(151,879
)
$
(143,735
)


Net
operating loss carryforwards have been adjusted primarily for depreciation allowed or allowable in prior years with a corresponding adjustment to depreciable property and equipment.
With the enactment of the American Jobs Creation Act, the Company has changed its position with respect to foreign taxes and has begun to recognize foreign tax credits instead of deducting foreign
taxes paid. A valuation allowance was established at March 31, 2000 against the Company's deferred tax assets related to foreign tax credits available at that time. Based on the carryover
period, the valuation allowance is still necessary for those taxes; however, evidence exists that indicates it is more likely than not that new or current foreign tax credits will be utilized before
they expire. The Company also believes it is more likely than not that all other deferred tax assets will be realized on future tax returns primarily from the generation of future taxable income
through both profitable operations and future reversals of existing taxable temporary differences and that no other valuation allowance is necessary.

At
March 31, 2005, the Company had federal net operating loss ("NOL") carryforwards of approximately $407.5 million available to offset future taxable
income. The carryforward amounts have been adjusted to reflect depreciation allowed or allowable in previous years that was not taken on the tax returns. Annual utilization of the carryforwards could
be limited by Section 382 of the Internal

F-19

---



Revenue
Code of 1986, as amended. If not utilized, the NOL carryforwards will expire as follows (in thousands):

2007

$
6292008


1,8492009


1,9432010


9532012


22018


5,0752019


38,4902020


63,0032021


65,6172022


96,5882023


66,0712024


37,7492025


29,532Total

$
407,501


7. Stock Options

In order to motivate and retain key employees, the Company established an incentive stock option plan. The incentive stock plan became effective on
February 20, 1998, and on that date certain key employees were granted stock options. The options are exercisable over a ten-year period. Options generally vest over the following
time period:

Year 1

331/3
%Year 2

331/3
%Year 3

331/3
%


The
Company has elected to follow Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its
stock-based compensation and to provide the disclosures required under SFAS No. 123, Accounting for Stock Based Compensation and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123."

APB
No. 25 requires no recognition of compensation expense for the stock-based compensation arrangements provided by the Company, namely option grants where the exercise price is
equal to the market value at the date of grant. However, APB No. 25 requires recognition of compensation expense for variable award plans over the vesting periods of such plans, based upon the
then-current market values of the underlying stock. In contrast, SFAS No. 123 requires recognition of compensation expense for grants of stock, stock options, and other equity
instruments, over the vesting periods of such grants, based on the estimated grant-date fair values of those grants.

Under
the incentive stock option plan, options to purchase common stock may be granted until 2011. Options generally are granted at fair market value at the date of grant, are
exercisable in installments beginning one year from the date of grant, and expire 10 years after the date of grant.

F-20

---



As
of March 31, 2005, 2,492,952 stock options were outstanding under the plan. Transactions are summarized as follows:

Stock
Options

Weighted-Average
Exercise PriceOptions outstanding, March 31, 2002

2,734,246

$
24.52Granted

659,750


17.12Exercised

(22,841
)

7.03Cancelled

(460,789
)

26.93Options outstanding, March 31, 2003

2,910,366

$
22.66Granted

5,000


20.97Exercised

(350,746
)

21.75Cancelled

(125,605
)

26.56Options outstanding, March 31, 2004

2,439,015

$
22.56Granted

607,750


32.62Exercised

(433,838
)

19.20Cancelled

(119,975
)

25.61Options outstanding, March 31, 2005

2,492,952

$
25.46Options exercisable at March 31, 2003

1,310,676

$
22.81Options exercisable at March 31, 2004

1,700,296

$
23.06Options exercisable at March 31, 2005

1,736,076

$
23.83


Exercise
prices for options outstanding as of March 31, 2005 ranged from $6.73 to $38.15. The following table provides certain information with respect to stock options
outstanding at March 31, 2005:

Range of Exercise Prices

Stock Options
Outstanding

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual LifeUnder $7.00

78,201

$
6.73

2.9$7.01-$19.00

436,007


16.86

7.9$19.01-$22.00

756,722


21.25

6.4Over $22.00

1,222,022


32.32

7.62,492,952

$
25.46

7.1


The
following table provides certain information with respect to stock options exercisable at March 31, 2005:

Range of Exercise Prices

Stock Options
Exercisable

Weighted Average
Exercise PriceUnder $7.00

78,201

$
6.73$7.01-$19.00

286,218


16.85$19.01-$22.00

733,885


21.31Over $22.00

637,772


31.961,736,076

$
23.83


In
electing to continue to follow APB No. 25 for expense recognition purposes, the Company is obligated to provide the expanded disclosures required under SFAS No. 123 for
stock-based compensation granted in 1998 and thereafter, including, if materially different from reported results

F-21

---



disclosure
of pro forma net income and earnings per share had compensation expense relating to 2003, 2004, and 2005 grants been measured under the fair value recognition provisions of SFAS
No. 123.

The
weighted-average fair values at date of grant for options granted during 2005, 2004 and 2003 were $15.51, $10.16 and $9.78, respectively, and were estimated using the Black-Scholes
option valuation model with the following weighted-average assumptions:

2005

2004

2003Expected life in years

6

7

8Interest rate

4.16
%
3.56
%
3.50
%Volatility

40.77
%
42.88
%
48.85
%Dividend yield

0.00
%
0.00
%
0.00
%


The
following table summarizes results as if we had recorded compensation expense under the provisions of SFAS No. 123 for the 2005, 2004 and 2003 option grants:

Year Ended March 31,2005

2004

2003(In thousands except per share amounts)Net income, as reported

$
33,610

$
30,787

$
33,518Additional compensation expense, net of tax

$
(2,567
)
$
(3,702
)
$
(3,994
)Pro forma net income

$
31,043

$
27,085

$
29,524Basic earnings per share:As reported

$
1.07

$
1.00

$
1.09Pro forma

$
0.99

$
0.88

$
0.96Diluted earnings per share:As reported

$
1.04

$
0.98

$
1.08Pro forma

$
0.96

$
0.87

$
0.95


F-22

---



8. Accounting for Interest Rate Swap Agreements

In accordance with SFAS No. 133, as amended by SFAS Nos. 137 and 138 (collectively referred to as SFAS No. 133), all derivative instruments must be
recognized on the balance sheet at fair value, and changes in such fair values are recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these
hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

In
June 2004, the Company reduced the notional amount of interest rate swap agreements that convert variable interest payments under the ABS facility to fixed interest payments in
connection with a debt repayment of $80.0 million. In accordance with SFAS No. 133, the Company recorded a gain of $3.2 million to earnings that had previously been recorded in
other comprehensive income as a result of the reduction in the notional amount of such interest rate swap agreements. As of March 31, 2005, the Company had interest rate swap agreements with a
notional amount of $83.9 million related to the $200.0 million outstanding under the ABS facility. The swaps terminate in February 2013 and have a weighted average fixed rate of
5.2%. In accordance with SFAS No. 133, the Company's balance sheet at March 31, 2005 includes a $2.2 million noncurrent liability related to the interest rate swap agreements.

In
January 2005, the Company entered into interest rate swap agreements to convert variable interest payments related to $300 million of the new $400 million
seven-year term loan to fixed interest payments. These swaps terminate in March 2010 and have a weighted average fixed rate of 4.02%, resulting in a net effective fixed interest
rate on this $300 million of debt of 5.77% (4.02% plus the 1.75% margin applicable under the new credit facility). In accordance with SFAS No. 133, the Company's balance sheet at
March 31, 2005 includes a $3.9 million noncurrent asset related to the interest rate swap agreements.

These
swaps, which the Company has designated as cash flow hedging instruments, meet the specific hedge criteria and any changes in their fair values were recognized in other
comprehensive income or loss. Because the terms of the hedged item and the swaps substantially coincide, the hedge is expected to exactly offset changes in expected cash flows due to fluctuations in
the variable rate and, therefore, the Company currently does not expect any ineffectiveness.

The
Company has entered into interest rate swap agreements to hedge $100 million of our $175.0 million 71/4% senior notes due 2010. The swaps are used to
hedge the change in fair value of the debt and, in effect, convert the fixed interest payment to a variable interest payment based on the
six-month LIBOR rate. The swaps are accounted for in accordance with SFAS No. 133 and, as such, are recorded at fair value on the balance sheet. The Company's balance sheet at
March 31, 2005 includes a $4.1 million noncurrent liability related to the interest rate swap agreements. The change in the debt's fair value is also recorded with the offset being
recorded to income. The swaps, which the Company has designated as fair value hedging instruments, meet the specific hedge criteria and any changes in their fair values were recognized in income. For
the fiscal year ended March 31, 2005, the change in the debt's fair value and the change in the swaps' fair value exactly offset and did not impact net income. Because the terms of the hedged
item and the swaps substantially coincide, the hedge is expected to exactly offset changes in fair values due to fluctuations in the variable rate and, therefore, the Company currently does not expect
any ineffectiveness.

The
counterparties to the Company's interest rate swap agreements are major international financial institutions. The Company monitors the credit quality of these financial institutions
and does not expect non-performance by them.

9. Employee Benefits

The Company has a defined contribution 401(k) plan covering substantially all employees. The Company makes matching contributions under this plan in the form of
Company stock equal to 50% of

F-23

---



each
participant's contribution of up to 6%, with a 3% eligible pay limit. For the fiscal years ended 2005, the Company stock contributions of approximately 45,000 shares to the plan were valued at
approximately $1.5 million. For the fiscal year ended 2004, the Company stock contributions of approximately 70,000 shares to plan were valued at approximately $1.6 million.

The
Employee Stock Purchase Plan ("ESPP") is intended to encourage employees to participate in the Company's growth by providing them the opportunity to acquire a proprietary interest in
the Company's long-term performance and success through the purchase of shares of common stock at a price possibly less than fair market value. In 2001, the Company's stockholders approved
the ESPP, under which 250,000 shares of the Company's common stock could be purchased by employees. An employee is eligible to participate after completing 90 days of employment. Each quarter,
an eligible employee may elect to withhold up to 10% of his or her eligible pay limit to purchase shares of the Company's common stock at a price equal to 85% to 100% of the fair market value of the
stock as of the first trading day of the quarter or the last trading day of the quarter, whichever is lower. The ESPP will terminate on the date that all shares of common stock authorized for sale
under the ESPP have been purchased, except as otherwise extended by authorizing additional shares under the ESPP. At March 31, 2005, 124,900 shares remained available for purchase under the
ESPP.

The
Company utilizes grants of restricted stock as long-term compensation for designated employees. The Company's restricted stock plan provides for the award of up to
1,350,000 shares of the Company's common stock to certain officers and designated employees. Unearned compensation was charged for the market value of the restricted shares as these shares were issued
in accordance with the restricted stock plan. The unearned compensation is shown as a reduction to stockholders' equity in the accompanying consolidated balance sheets and is being amortized ratably
over the restricted period of five years. During fiscal years ending March 31, 2005 and 2004, $1.0 million and $0.6 million, respectively, were charged to expense relating to the
restricted stock. The weighted average share price for the approximately 195,000 shares of restricted stock granted during 2005 was $35.46. No restricted shares were granted during 2004. Generally,
common stock subject to restricted stock grants will vest 0% upon the first anniversary of the grant and 25% on each anniversary thereafter through the fifth anniversary.

The
Employees' Supplemental Savings Plan, (the "ESSP") provides executive officers and designated employees the opportunity to defer up to 25% of their eligible compensation that cannot
be deferred under the existing 401(k) plan due to IRS limitations. Participants can also defer up to 100% of their bonuses. The Company matches 50% of the first 6% the participant contributes, up to
3% of eligible pay limit, excluding any bonus deferred. The vesting periods are generally the same as the 401(k) plan. Prior to September 1, 2002, the Company's matching contributions were in
the form of cash. Since September 1, 2002, the Company's matching contributions related to the Employees' Supplemental Savings Plan have been in the form of common stock. During 2005 and 2004,
amounts charged to expense relating to the ESSP were immaterial.

The
Incentive Stock Option Plan (the "ISO Plan") authorizes the Company to grant stock options to its employees, consultants and directors. The Company has granted options to new
employees we have gained through acquisitions, in the ordinary course of providing incentives to current employees and as inducements for the hiring of new employees. In fiscal year 2005, an amendment
to the ISO Plan was approved, increasing by 1,000,000 the number of shares of common stock available for grant under the ISO Plan from 5,012,421 shares to 6,012,421 shares to allow the continuation of
this long-term incentive program.

10. Facility Consolidation Costs

On April 28, 2003, the Company announced the transfer of substantially all of its fabrication activities based in Tulsa, Oklahoma to its existing facility
in Houston, Texas. Engineering, production

F-24

---



and
related support functions were consolidated with Houston-based functions. The Company did not incur additional costs related to this consolidation during the last half of the fiscal year ended
March 31, 2004 and the Company does not expect to incur additional facility consolidation costs during the two-year period ending September 30, 2005. Total costs related to
the facility consolidation were $1.8 million during the fiscal year ended March 31, 2004 and are shown separately as facility consolidation costs in the consolidated statements of
operations. The costs incurred were related to the fabrication segment. See below for further details of the costs incurred (in thousands):

Fiscal Year Ended
March 31, 2004Severance and personnel costs

$
1,131Relocation costs


289Other costs


401Total facility consolidation costs

$
1,821


11. Commitments and Contingencies

In the ordinary course of business, the Company is involved in various pending or threatened legal actions. In the opinion of management, the amount of ultimate
liability, if any, with respect to these actions will not have a materially adverse effect on the Company's financial position, operating results or cash flows.

In
December 1999, Weatherford Global sold the assets and properties of its Gemini compressor business in Corpus Christi, Texas to GE Packaged Power, L.P., ("GEPP"). As part of
that sale, Weatherford Global entered into an agreement to purchase from GEPP $38.0 million of compressor components over five years and $3.0 million of parts over three years, and GEPP
agreed to provide compressors to Weatherford Global during that time period at negotiated prices. We assumed this obligation in connection with our acquisition of Weatherford Global in
February 2001. As of March 31, 2005, approximately $26.4 million of components and approximately $16.7 million of parts have been purchased from GEPP. As a result of GEPP
product performance issues, we have been unable to satisfy and have not satisfied in full our purchase commitment in respect of components under this agreement with GEPP. The unsatisfied portion of
the purchase commitment is approximately $11.6 million. GEPP could assert its right to enforce this obligation, but has not indicated any interest to do so at this time. However, if GEPP should
seek to enforce this obligation, we believe we have valid defenses and counter claims and would aggressively defend against such enforcement and pursue such counter claims.

The
Company has no other commitments or contingent liabilities, which, in the judgment of management, would result in losses that would materially affect the Company's consolidated
financial position, operating results or cash flows.

12. Industry Segments and Geographic Information

The Company has four principal business segments: domestic contract compression, international contract compression, fabrication and aftermarket services. The
domestic contract compression segment provides natural gas compression to customers in the United States. The international contract compression segment provides natural gas compression to
international customers, including Canada. The fabrication segment provides services related to the design, engineering and assembly of natural gas compressors for sale to third parties in addition to
those that the Company uses in its contract compression fleet. The aftermarket services segment sells parts and components and provides maintenance to customers who own compression equipment and
customers who use equipment

F-25

---



provided
by other companies. Fabrication and aftermarket services revenue presented in the table below include only sales to third parties.

The
Company's reportable segments are strategic business units that offer distinct products and services. They are managed separately since each business segment requires different
marketing strategies due to customer specifications. The Company evaluates the performance of its reportable segments based on segment gross profit. Gross profit is defined as total revenue less
direct costs. The segment gross profit measure used by management for evaluation purposes exclude inter-segment transactions and, accordingly, there is no inter-segment revenue to be reported.

The
following table presents revenue, gross profit and identifiable assets by business segment for the fiscal years ended March 31, 2005, 2004 and 2003 (in thousands):

For the Year Ended March 31,2005

2004

2003Revenue:Domestic contract compression

$
296,239

$
280,951

$
265,465International contract compression


102,167


82,589


66,505Fabrication


213,994


183,685


162,678Aftermarket services


150,670


141,561


130,570Total

$
763,070

$
688,786

$
625,218Gross Profit:Domestic contract compression

$
186,865

$
178,543

$
169,868International contract compression


78,448


64,159


53,769Fabrication


15,285


15,888


16,075Aftermarket services


29,656


30,891


28,256Total

$
310,254

$
289,481

$
267,968Identifiable Assets:Domestic contract compression

$
1,423,979

$
1,453,716

$
1,497,231International contract compression


353,880


258,240


209,141Fabrication


99,462


107,605


103,468Aftermarket services


145,437


152,890


144,047Total

$
2,022,758

$
1,972,451

$
1,953,887


No
one customer accounted for more than 10% of net sales for any of the periods presented.

Geographic Area

The following table illustrates revenue, gross profit and identifiable assets by geographic locations for the fiscal years ended March 31, 2005, 2004 and
2003 (in thousands). The basis of attributing

F-26

---



revenue
and gross profit to specific geographic locations is primarily based upon the geographic location of the sale, service or where the assets are utilized.

For the Year Ended March 31,2005

2004

2003Revenue:United States

$
535,258

$
493,262

$
449,480Canada


81,357


90,198


74,293Latin America


94,120


71,320


62,937Asia Pacific


52,335


34,006


38,508Total

$
763,070

$
688,786

$
625,218Gross Profit:United States

$
218,410

$
212,602

$
198,869Canada


19,754


16,238


15,219Latin America


58,573


50,300


41,770Asia Pacific


13,517


10,341


12,110Total

$
310,254

$
289,481

$
267,968Identifiable Assets:United States

$
1,619,113

$
1,667,163

$
1,703,001Canada


140,928


96,116


90,076Latin America


204,838


158,263


121,872Asia Pacific


57,879


50,909


38,938Total

$
2,022,758

$
1,972,451

$
1,953,887


13. Selected Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for the fiscal years ended March 31, 2005 and 2004 is as follows (in thousands, except per share data):

March 31

December 31

September 30

June 302005:Revenue

$
193,636

$
192,676

$
191,884

$
184,874Gross profit


79,152


79,656


77,698


73,748Net income (loss)


(4,490
)

14,125


12,190


11,785Earnings (loss) per common sharebasic

$
(0.14
)
$
0.45

$
0.39

$
0.38Earnings (loss) per common sharediluted

$
(0.14
)
$
0.44

$
0.38

$
0.372004:Revenue

$
190,710

$
170,167

$
175,682

$
152,227Gross profit


76,788


72,580


71,912


68,199Net income (loss)


11,725


11,733


9,303


(1,969
)Earnings (loss) per common sharebasic

$
0.38

$
0.38

$
0.30

$
(0.06
)Earnings (loss) per common sharediluted

$
0.37

$
0.38

$
0.30

$
(0.06
)


F-27

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Universal Compression, Inc.
Houston, Texas

We
have audited the accompanying consolidated balance sheets of Universal Compression, Inc. and subsidiaries (the "Company") as of March 31, 2005 and 2004, and the related
consolidated statements of operations, stockholder's equity and comprehensive income, and cash flows for each of the three years in the period ended March 31, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits 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 consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Universal Compression, Inc. and subsidiaries at
March 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.

/s/
DELOITTE & TOUCHE LLP

Houston,
Texas
June 6, 2005

F-28

---





UNIVERSAL COMPRESSION, INC.  CONSOLIDATED BALANCE SHEETS  (In thousands)

|                                                          |                                                                                                                      | March 31,
2005 |           | March 31,
2004 |  
|--------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -------------- | --------- | -------------- | -
|ASSETS                                                    |                                                                                                                     
|Current assets:                                           |                                                                                                                      |                |           |                |  
|                                                          | Cash and cash equivalents                                                                                            |                | $         | 38,723         |  
|                                                          | Accounts receivable, net of allowance for bad debts of $2,747 and $3,189 as of March 31, 2005 and 2004, respectively |                |           | 116,270        |  
|                                                          | Current portion of notes receivable                                                                                  |                |           | 129            |  
|                                                          | Inventories, net of reserve for obsolescence of $10,981 and $12,041 as of March 31, 2005 and 2004, respectively      |                |           | 95,394         |  
|                                                          | Current deferred tax asset                                                                                           |                |           | 6,138          |  
|                                                          | Other                                                                                                                |                |           | 13,206         |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Total current assets                                                                                                 |                |           | 269,860        |  
|Contract compression equipment                            |                                                                                                                      |                | 1,485,637 |                |  
|Other property                                            |                                                                                                                      |                | 141,114   |                |  
|Accumulated depreciation and amortization                 |                                                                                                                      |                | (300,968  | )              |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Net property, plant and equipment                                                                                    |                |           | 1,325,783      |  
|Goodwill                                                  |                                                                                                                      |                | 401,278   |                |  
|Notes receivable                                          |                                                                                                                      |                | 1,038     |                |  
|Other non-current assets                                  |                                                                                                                      |                | 24,799    |                |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Total assets                                                                                                         |                | $         | 2,022,758      |  
|                                                          |                                                                                                                      |                |           |                |  
|LIABILITIES AND STOCKHOLDER'S EQUITY                      |                                                                                                                     
|Current liabilities:                                      |                                                                                                                      |                |           |                |  
|                                                          | Accounts payable, trade                                                                                              |                | $         | 57,942         |  
|                                                          | Accrued liabilities                                                                                                  |                |           | 37,862         |  
|                                                          | Unearned Revenue                                                                                                     |                |           | 32,201         |  
|                                                          | Accrued interest                                                                                                     |                |           | 5,619          |  
|                                                          | Current portion of long-term debt and capital lease obligations                                                      |                |           | 20,400         |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Total current liabilities                                                                                            |                |           | 154,024        |  
|Capital lease obligations                                 |                                                                                                                      |                | 347       |                |  
|Long-term debt                                            |                                                                                                                      |                | 837,349   |                |  
|Non-current deferred tax liability                        |                                                                                                                      |                | 158,017   |                |  
|Derivative financial instrument used for hedging purposes |                                                                                                                      |                | 6,283     |                |  
|Other liabilities                                         |                                                                                                                      |                | 5,066     |                |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Total liabilities                                                                                                    |                |           | 1,161,086      |  
|Commitments and contingencies (Note 10)                   |                                                                                                                      |                |           |                |  
|Stockholder's equity:                                     |                                                                                                                      |                |           |                |  
|                                                          | Common stock, $10 par value, 5.0 shares authorized, 4.9 issued and outstanding as of March 31, 2005 and 2004         |                |           | 49             |  
|                                                          | Additional paid-in capital                                                                                           |                |           | 737,293        |  
|                                                          | Accumulated other comprehensive loss                                                                                 |                |           | (18,116        | )
|                                                          | Retained earnings                                                                                                    |                |           | 142,446        |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Total stockholder's equity                                                                                           |                |           | 861,672        |  
|                                                          |                                                                                                                      |                |           |                |  
|                                                          | Total liabilities and stockholder's equity                                                                           |                | $         | 2,022,758      |  
|                                                          |                                                                                                                      |                |           |                |  

See
accompanying notes to consolidated financial statements.

F-29

---



UNIVERSAL COMPRESSION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)

|                           |                                                      | For the Year Ended March 31, |       
|-------------------------- | ---------------------------------------------------- | ---------------------------- | ------
|
|Revenue:                   |                                                      |                              |       
|                           | Domestic contract compression                        |                              | $     
|                           | International contract compression                   |                              |       
|                           | Fabrication                                          |                              |       
|                           | Aftermarket services                                 |                              |       
|                           |                                                      |                              |       
|                           |                                                      | Total revenue                |       
|                           |                                                      |                              |       
|Costs and expenses:        |                                                      |                              |       
|                           | Domestic contract compressiondirect costs           |                              |       
|                           | International contract compressiondirect costs      |                              |       
|                           | Fabricationdirect costs                             |                              |       
|                           | Aftermarket servicesdirect costs                    |                              |       
|                           | Depreciation and amortization                        |                              |       
|                           | Selling, general and administrative                  |                              |       
|                           | Operating lease expense                              |                              |       
|                           | Interest expense, net                                |                              |       
|                           | Debt extinguishment costs                            |                              |       
|                           | Gain on termination of interest rate swap agreements |                              |       
|                           | Asset impairment expense                             |                              |       
|                           | Facility consolidation costs                         |                              |       
|                           | Foreign currency (gain)/loss                         |                              |       
|                           | Other income, net                                    |                              |       
|                           |                                                      |                              |       
|                           |                                                      | Total costs and expenses     |       
|                           |                                                      |                              |       
|Income before income taxes |                                                      |                              | 50,823
|Income tax expense         |                                                      |                              | 17,213
|                           |                                                      |                              |       
|                           |                                                      | Net income                   |       
|                           |                                                      |                              |       

See
accompanying notes to consolidated financial statements.

F-30

---



UNIVERSAL COMPRESSION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
AND OTHER COMPREHENSIVE INCOME
For the years ended March 31, 2005, 2004 and 2003
(In thousands)

|                        |                                         | Common
Stock |    | Additional
Paid in
Capital |   | Retained
Earnings |        | Accumulated
Other
Comprehensive
Income (loss) |         | Total 
|----------------------- | --------------------------------------- | ------------ | -- | -------------------------- | - | ----------------- | ------ | --------------------------------------------- | ------- | ------
|Balance, March 31, 2002 |                                         | $            | 49 |                            | $ | 708,333           |        | $                                             | 44,531  |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       
|                        | Investment in subsidiary by parent      |              |    |                           |   |                   | 2,016  |                                               |         |      
|                        | Comprehensive income:                   |              |    |                            |   |                   |        |                                               |         |       
|                        | Net income                              |              |    |                           |   |                   |       |                                               |         | 33,518
|                        | Foreign currency translation adjustment |              |    |                           |   |                   |       |                                               |         |      
|                        | Interest rate swap agreement loss       |              |    |                           |   |                   |       |                                               |         |      
|                        | Total comprehensive income              |              |    |                            |   |                   |        |                                               |         |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       
|Balance, March 31, 2003 |                                         | $            | 49 |                            | $ | 710,349           |        | $                                             | 78,049  |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       
|                        | Investment in subsidiary by parent      |              |    |                           |   |                   | 15,345 |                                               |         |      
|                        | Comprehensive income:                   |              |    |                            |   |                   |        |                                               |         |       
|                        | Net income                              |              |    |                           |   |                   |       |                                               |         | 30,787
|                        | Foreign currency translation adjustment |              |    |                           |   |                   |       |                                               |         |      
|                        | Interest rate swap agreement loss       |              |    |                           |   |                   |       |                                               |         |      
|                        | Total comprehensive income              |              |    |                            |   |                   |        |                                               |         |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       
|Balance, March 31, 2004 |                                         | $            | 49 |                            | $ | 725,694           |        | $                                             | 108,836 |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       
|                        | Investment in subsidiary by parent      |              |    |                           |   |                   | 11,599 |                                               |         |      
|                        | Comprehensive income:                   |              |    |                            |   |                   |        |                                               |         |       
|                        | Net income                              |              |    |                           |   |                   |       |                                               |         | 33,610
|                        | Foreign currency translation adjustment |              |    |                           |   |                   |       |                                               |         |      
|                        | Interest rate swap agreement gain       |              |    |                           |   |                   |       |                                               |         |      
|                        | Total comprehensive income              |              |    |                            |   |                   |        |                                               |         |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       
|Balance, March 31, 2005 |                                         | $            | 49 |                            | $ | 737,293           |        | $                                             | 142,446 |       
|                        |                                         |              |    |                            |   |                   |        |                                               |         |       

See
accompanying notes to consolidated financial statements.

F-31

---



UNIVERSAL COMPRESSION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                                      |                                                                 | For the Year Ended March 31,                                                                                 |        
|--------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------
|
|Cash flows from operating activities:                                 |                                                                 |                                                                                                              |        
|                                                                      | Net income                                                      |                                                                                                              | $      
|                                                                      |                                                                 | Adjustments to reconcile net income to cash provided by operating activities, net of effect of acquisitions: |        
|                                                                      | Depreciation and amortization                                   |                                                                                                              |        
|                                                                      | Non-cash gain from interest rate swap agreement settlement      |                                                                                                              |        
|                                                                      | Loss on early extinguishment of debt                            |                                                                                                              |        
|                                                                      | Loss on asset impairment                                        |                                                                                                              |        
|                                                                      | Gain on asset sales                                             |                                                                                                              |        
|                                                                      | Amortization of debt issuance costs                             |                                                                                                              |        
|                                                                      | Accretion of discount notes                                     |                                                                                                              |        
|                                                                      | Increase in deferred taxes                                      |                                                                                                              |        
|                                                                      | (Increase) decrease in other assets                             |                                                                                                              |        
|                                                                      | (Increase) decrease in receivables                              |                                                                                                              |        
|                                                                      | (Increase) decrease in inventories                              |                                                                                                              |        
|                                                                      | Increase (decrease) in accounts payable                         |                                                                                                              |        
|                                                                      | Increase (decrease) in accrued liabilities                      |                                                                                                              |        
|                                                                      | Increase (decrease) in unearned revenue                         |                                                                                                              |        
|                                                                      | Increase (decrease) in accrued interest                         |                                                                                                              |        
|                                                                      |                                                                 |                                                                                                              |        
|                                                                      | Net cash provided by operating activities                       |                                                                                                              |        
|                                                                      |                                                                 |                                                                                                              |        
|Cash flows from investing activities:                                 |                                                                 |                                                                                                              |        
|                                                                      | Additions to property, plant and equipment                      |                                                                                                              |        
|                                                                      | Cash paid for acquisitions                                      |                                                                                                              |        
|                                                                      | Proceeds from sale of property, plant and equipment             |                                                                                                              |        
|                                                                      |                                                                 |                                                                                                              |        
|                                                                      | Net cash used in investing activities                           |                                                                                                              |        
|                                                                      |                                                                 |                                                                                                              |        
|Cash flows from financing activities:                                 |                                                                 |                                                                                                              |        
|                                                                      | Principal repayments of long-term debt                          |                                                                                                              |        
|                                                                      | Proceeds from issuance of debt                                  |                                                                                                              |        
|                                                                      | Net repayment on sale-leaseback of vehicles                     |                                                                                                              |        
|                                                                      | Debt extinguishment premium and cost                            |                                                                                                              |        
|                                                                      | Investment in subsidiary by parent                              |                                                                                                              |        
|                                                                      | Interest rate swap agreement settlement                         |                                                                                                              |        
|                                                                      | Debt issuance costs                                             |                                                                                                              |        
|                                                                      | Payments on capital lease agreements                            |                                                                                                              |        
|                                                                      | Operating lease facilities                                      |                                                                                                              |        
|                                                                      |                                                                 |                                                                                                              |        
|                                                                      | Net cash used in financing activities                           |                                                                                                              |        
|                                                                      |                                                                 |                                                                                                              |        
|Effect of exchange rate changes on cash and cash equivalents          |                                                                 |                                                                                                              | 543    
|Net increase (decrease) in cash and cash equivalents                  |                                                                 |                                                                                                              | (83,009
|Cash and cash equivalents at beginning of period                      |                                                                 |                                                                                                              | 121,189
|                                                                      |                                                                 |                                                                                                              |        
|Cash and cash equivalents at end of period                            |                                                                 | $                                                                                                            | 38,723 
|                                                                      |                                                                 |                                                                                                              |        
|Supplemental disclosure of cash flow information:                     |                                                                 |                                                                                                              |        
|                                                                      | Cash paid for interest                                          |                                                                                                              | $      
|                                                                      |                                                                 |                                                                                                              |        
|                                                                      | Cash paid for operating leases                                  |                                                                                                              | $      
|                                                                      |                                                                 |                                                                                                              |        
|                                                                      | Cash paid for income taxes                                      |                                                                                                              | $      
|                                                                      |                                                                 |                                                                                                              |        
|Supplemental schedule of non-cash investing and financing activities: |                                                                 |                                                                                                              |        
|                                                                      | Changes due to the consolidation of operating lease facilities: |                                                                                                              |        
|                                                                      | Additions to property, plant and equipment                      |                                                                                                              |        
|                                                                      | Increase in debt                                                |                                                                                                              |        
|                                                                      | Noncurrent liability assumed                                    |                                                                                                              |        
|                                                                      | Elimination of deferred gain                                    |                                                                                                              |        

See accompanying notes to consolidated financial statements.

F-32

---



UNIVERSAL COMPRESSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Nature of Operations

Universal is the second largest natural gas compression services company in the world in terms of compressor fleet horsepower, with a fleet as of March 31,
2005 of approximately 7,200 compressor units comprising approximately 2.5 million horsepower. Universal provides a full range of natural gas compression products and services, including sales,
operations, maintenance and fabrication services and products to the natural gas industry, both domestically and internationally. These services and products are essential to the natural gas industry,
as gas must be compressed to be delivered from the wellhead to end-users.

Principles of Consolidation

The accompanying consolidated financial statements include Universal and its wholly-owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.

Use of Estimates

In preparing Universal's financial statements, management makes estimates and assumptions that affect the amounts reported in the financial statements and related
disclosures. Actual results may differ from these estimates.

Cash and Cash Equivalents

Universal considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash flows are computed
using the indirect method.

Revenue Recognition

Revenue is recognized by Universal's four reportable business segments using the following criteria: (a) persuasive evidence of an exchange arrangement
exists; (b) delivery has occurred or services have been rendered; (c) the buyer's price is fixed or determinable and (d) collectibility is reasonably assured.

Revenue
from contract compression service is recorded when earned, which generally occurs monthly at the time the monthly compression service is provided to customers in accordance with
contracts.Aftermarket services revenue is recorded as products are delivered or services are performed for the customer. Fabrication revenue is
recognized using the completed-contract method which recognizes revenue upon completion of the contract. This method is used because the typical contract is completed within two to three months.

Concentration of Credit Risk

Trade accounts receivable are due from companies of varying size engaged principally in oil and gas activities in the United States and in international locations
including Canada, Latin America and Asia Pacific. Universal reviews the financial condition of customers prior to extending credit and

F-33

---



periodically
updates customer credit information. Payment terms are on a short-term basis and in accordance with industry standards. No single customer accounted for 10% or more of
Universal's revenue for the years ended March 31, 2005, 2004 and 2003. For the years ended March 31, 2005, 2004 and 2003, Universal wrote off bad debts, net of recoveries totaling
$1.8 million, $5.6 million, and $4.3 million, respectively.

Inventories

Inventories are recorded at the lower of average cost or market (net realizable value). Some items of compression equipment are acquired and placed in inventories
for subsequent sale or to provide compression services to others. Acquisitions of these assets are considered operating activities in the statement of cash flows.

A
reserve is recorded against inventory balances for estimated obsolescence. This reserve is based on specific identification and historical experience.

Properties and Equipment

Property, plant and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using
estimated useful lives. For compression equipment, depreciation begins with the first compression service using a 20% salvage value. Universal reevaluated the estimated useful lives used for book
depreciation purposes for its compressor fleet based upon equipment type, key components and industry experience of the actual economic useful life in the field. The evaluation was finalized in the
fourth quarter of fiscal year 2003. Based upon the findings of the evaluation, the estimated useful lives of the majority of the existing compressor units were extended to 25 years from
15 years. In addition, a portion of the units remained at 15 years or less and a portion of the units were extended to 30 years. The change in useful lives was effective
January 1, 2003. Concurrent with the revising of estimated useful lives, the Company recorded on its balance sheet contract compression equipment due to the consolidation of certain operating
lease facilities. Had the
Company consolidated all assets and used the revised useful lives for the entire fiscal year 2003, depreciation expense would have been increased by $7.8 million. The estimated useful lives as
of March 31, 2005 were as follows:

Buildings

20-35 yearsCompression equipment

15-30 yearsOther properties and equipment

2-25 years


Maintenance
and repairs are charged to expenses as incurred. Overhauls and major improvements that increase the value or extend the life of contract compressor units are capitalized and
depreciated over the estimated period of 6.5 years.

Depreciation
expense for the years ended March 31, 2005, 2004 and 2003 was $92.7 million, $84.5 million and $62.1 million, respectively.

Properties
and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable based upon undiscounted cash
flows. Any impairment losses are measured based upon the excess of the carrying value over the fair value. Included within net income for the fiscal year ended March 31, 2005 is a
$3.1 million loss on the impairment of our Tulsa, Oklahoma fabrication facility due to the decision to permanently discontinue operations and dispose of this facility. The carrying value of
this facility was written down to estimated market value, which was determined by Universal based upon recent appraisals.

F-34

---



Goodwill

Goodwill and intangible assets acquired in connection with business combinations represent the excess of consideration over the fair value of tangible net assets
acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed, as well as in determining the allocation of goodwill to the
appropriate reporting unit.

Universal
performs an impairment test for goodwill assets annually, or earlier if indicators of potential impairment exist. Our goodwill impairment test involves a comparison of the fair
value of each of our reporting units with their carrying value. The fair value is determined using discounted cash flows and other market-related valuation models. Certain estimates and judgments are
required in the application of the fair value models. During the fourth quarter of fiscal year 2005, Universal performed an impairment analysis in accordance with SFAS No. 142 and determined
that no impairment had occurred; however, if for any reason the fair value of our goodwill or that of any of our reporting units declines below the carrying value in the future, Universal may incur
charges for the impairment.

Other Non-Current Assets

Included in other non-current assets are debt issuance costs, net of accumulated amortization, totaling approximately $12.4 million and
$20.5 million at March 31, 2005 and 2004, respectively. Such costs are amortized over the period of the respective debt agreements on a straight-line method, which
approximates the effective interest method.

Warranty

Universal accrues amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known.

Stock-Based Compensation

Under SFAS No. 123, "Accounting for Stock-Based Compensation," Universal elected to measure compensation cost using the intrinsic value-based method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." As such, Universal is required to make
pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined by SFAS No. 123 had been applied.

The
following table summarizes results as if Universal had recorded compensation expense under the provisions of SFAS No. 123 for the 2005, 2004 and 2003:

Year Ended March 31,2005

2004

2003(In thousands, except per share amounts)Net income, as reported

$
33,610

$
30,787

$
33,518Additional compensation expense, net of tax

$
(2,567
)
$
(3,702
)
$
(3,994
)Pro forma net income

$
31,043

$
27,085

$
29,524


Income Taxes

Universal accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in Universal's financial statements or tax returns. In estimating future tax consequences, all expected future events are considered other
than enactments of changes in the tax law or rates.

F-35

---



Universal
provides compression services to a global market. As such, Universal is subject to taxation not only in the United States but also in numerous foreign jurisdictions. Having to
consider these different jurisdictions complicates the estimate of future taxable income, which in turn determines the realizability of its deferred tax assets. Numerous judgments and assumptions are
inherent in the determination of future taxable income, including assumptions on future operating conditions and asset utilization. The judgments and assumptions used to determine future taxable
income are consistent with those used for other financial statement purposes.

Additionally,
Universal must consider any prudent and feasible tax planning strategies that would minimize the amount of deferred tax liabilities recognized or the amount of any
valuation allowance recognized against deferred tax assets. The principal tax planning strategy available to Universal relates to the permanent reinvestment of the earnings of foreign subsidiaries.
The assumptions related to the permanent reinvestment of the foreign earnings are analyzed and reviewed annually for changes in Universal's international and domestic business outlook.

Foreign Currency Translation

The majority of Universal's foreign subsidiaries have designated the local currency as their functional currency and, as such, gains and losses resulting from
financial statement translation of foreign operations are included as a separate component of accumulated other comprehensive income (loss) within stockholder's equity. Gains and losses from balances
that are receivable or payable in currency other than functional currency are included in the consolidated statements of operations.

Currency
transaction gains and losses are reflected in Universal's consolidated statements of operations during the period incurred.

For
those foreign subsidiaries that have designated the United States dollar as the functional currency, gains and losses resulting from financial statement translation of foreign
operations are included in the consolidated statements of operations as incurred.

Fair Value of Financial Instruments

Universal's financial instruments consist of trade receivables and payables (which have carrying values that approximate fair value) and long-term
debt. The fair value of Universal's revolving credit facility (see Note 4) is representative of its carrying value based upon variable rate terms. The fair value and the carrying amount of the
71/4% senior notes due 2010 was $170.9 million and $175.7 million at March 31, 2005 and 2004, respectively. The carrying amounts of $200.0 million for the
notes under the ABS operating lease facility and $400.0 million under the seven-year term loan approximate their fair values. The estimated fair value amounts have been determined
by Universal using appropriate valuation methodologies and information available to management as of March 31, 2005 based on the quoted market value.

Hedging and Use of Derivative Instruments

Universal utilizes interest rate swap agreements to minimize interest rate exposure on $83.9 million of the $200.0 million asset-backed
securitization operating lease facility (the "ABS operating lease facility") and $300.0 million of the $400.0 million seven year term loan. The swaps are not used for trading or
speculative purposes. The fair value of the interest rate swap agreement related to the ABS operating lease facility was a noncurrent liability of $2.2 million and $14.4 million as of
March 31, 2005 and March 31, 2004, respectively. The fair value of the interest rate swap agreements related to the seven-year term loan was a noncurrent asset of
$3.9 million as of March 31, 2005. In accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," we record these interest rate swap agreements on
the balance sheet as either assets or liabilities measured at their fair value. These instruments qualify for hedge accounting as they reduce the interest rate risk of the underlying

F-36

---



hedged
item and are designated as a cash flow hedge at inception. These swaps result in financial impacts that are inversely correlated to those of the items being hedged. To qualify for hedge
accounting treatment, companies must formally document, designate and assess the effectiveness of the transactions. If the necessary correlation ceases to exist or if physical delivery of the hedged
item becomes improbable, we would discontinue hedge accounting and apply mark-to-market accounting. Amounts paid or received from interest rate swap agreements are charged or
credited to interest expense and matched with the cash flows and interest expense of the debt being hedged, resulting in an adjustment to the effective interest rate.

Universal
has entered into interest rate swap agreements to hedge $100 million of our $175.0 million 71/4% senior notes due 2010. The swaps are used to hedge
the change in fair value of the debt and, in effect, convert the fixed interest payment to a variable interest payment based on the six-month LIBOR rate. The swaps are accounted for in
accordance with SFAS No. 133 and, as such, are recorded at fair value on the balance sheet. Universal's balance sheet at March 31, 2005 includes a $4.1 million noncurrent
liability related to the interest rate swap agreements. The change in the debt's fair value is also recorded with the offset being recorded to income. The swaps, which Universal has designated as fair
value hedging instruments, meet the specific hedge criteria and any changes in their fair values were recognized in income. For the fiscal year ended March 31, 2005, the change in the debt's
fair value and the change in the swaps' fair value exactly offset and did not impact net income. Because the terms of the hedged item and the swaps substantially coincide, the hedge is expected to
exactly offset changes in fair values due to fluctuations in the variable rate and, therefore, Universal currently does not expect any ineffectiveness.

All
of the interest rate instruments utilized are placed with large creditworthy financial institutions. Universal monitors the credit quality of these financial institutions and does
not expect non-performance by them.

Environmental Liabilities

The costs to remediate and monitor environmental matters are accrued when such liabilities are considered probable and a reasonable estimate of such costs is
determinable.

New Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costsan amendment of ARB 43,
Chapter 4." SFAS No. 151 provides clarification that abnormal amounts of idle facility expense, freight, handling costs and wasted material be recognized as current period charges. In addition,
SFAS No. 151 requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact that SFAS No. 151 will have on its financial statements.

In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This statement is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation" and
supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires that the compensation cost relating to share-based payment transactions be recognized in the
financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This statement will be
effective for the Company beginning in fiscal year 2007. The Company is currently evaluating the impact that SFAS No. 123R will have on its financial statements.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assetsan amendment of APB Opinion No. 29," to address the measurement of
exchanges of nonmonetary assets. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets

F-37

---



that
do not have commercial substance. This statement will be effective for the Company beginning July 1, 2005. The Company is currently evaluating the impact that SFAS No. 151 will have
on its financial statements.

In
December 2004, the FASB issued FASB Staff Position No. 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," which provides guidance on the recently enacted American Jobs Creation Act of 2004 (the "Act"). The
Act provides a tax deduction for income from qualified domestic production activities. FSP 109-1 provides for the treatment of the deduction as a special deduction as described in SFAS
No. 109. As such, the deduction will have no effect on existing deferred tax assets and liabilities. Based upon the Company's analysis of FSP No. 109-1, we do not expect to
benefit from this special deduction for several more years.

In
December 2004, the FASB issued FASB Staff Position No. 109-2, "Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American
Jobs Creation Act of 2004," which provides guidance under SFAS No. 109 with respect to recording the potential impact of the repatriation provisions of the Act on a company's income tax expense
and deferred tax liability. FSP 109-2 states that a company is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. We have not yet decided on whether, and to what extent, we might elect to repatriate foreign earnings
under the provisions in the Act. Any such repatriation under the Act must occur by December 31, 2005. Accordingly, our consolidated financial statements do not reflect a provision for taxes
related to this election.

2. Goodwill

Universal's acquisitions were accounted for as purchases and, accordingly, the results of operations of the acquired businesses are included in the accompanying
financial statements from the dates of
acquisition. Goodwill has been recognized for the amount of the excess of the purchase price over the fair value of the net assets acquired and is accounted for in accordance with SFAS 142.

The
changes in the carrying amount of goodwill from March 31, 2003 to March 31, 2005, are as follows (in thousands):

|                                       |  | Domestic
Contract
Compression |         | International
Contract
Compression |   | Aftermarket
Services |   | Fabrication |        | Total
|-------------------------------------- |  | ----------------------------- | ------- | ---------------------------------- | - | -------------------- | - | ----------- | ------ | -----
|Balance as of March 31, 2003           |  | $                             | 261,521 |                                    | $ | 50,594               |   | $           | 46,323 |      
|Acquisitions                           |  |                               |        |                                    |   |                     |   |             | 358    |      
|Purchase adjustments and other         |  |                               | 231     |                                    |   |                     |   |             |       |      
|Impact of foreign currency translation |  |                               |        |                                    |   | 2,302                |   |             |       |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      
|Balance as of March 31, 2004           |  | $                             | 261,752 |                                    | $ | 52,896               |   | $           | 46,681 |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      
|Acquisitions                           |  |                               |        |                                    |   | 7,550                |   |             | 1,603  |      
|Purchase adjustments and other         |  |                               |        |                                    |   | (22                  | ) |             | 511    |      
|Impact of foreign currency translation |  |                               |        |                                    |   | 1,265                |   |             |       |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      
|Balance as of March 31, 2005           |  | $                             | 261,752 |                                    | $ | 61,689               |   | $           | 48,795 |      
|                                       |  |                               |         |                                    |   |                      |   |             |        |      

During
the fourth quarter of fiscal year 2005, Universal performed an impairment analysis on goodwill in accordance with SFAS No. 142 and determined that no impairment had
occurred.

In
November 2004, Universal purchased the Canadian contract compression fleet of Hanover Compressor Company for $56.9 million in cash. As a result of the acquisition we
recorded $46.2 million in property, plant and equipment, $3.1 million in identifiable intangible assets and $7.6 million in

F-38

---



goodwill.
At the time of the acquisition, the acquired fleet totaled approximately 83,000 horsepower. The acquisition was funded by $50.0 million in borrowings under our revolving credit
facility and $6.9 million in cash. The pro forma information set forth below assumes the acquisition is accounted for as if the purchase occurred at the beginning of the fiscal year. The pro
forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been
consummated at that time (in thousands):

Fiscal Year Ended
March 31, 2005As Reported

Pro Forma
as Adjusted(unaudited)Revenue

$
763,070

$
771,288Net income

$
33,610

$
36,199


At
March 31, 2005, Universal had intangible assets with a gross carrying value of $5.7 million, which relate to acquired customer contracts and non-compete
agreements. The carrying amount net of accumulated amortization at March 31, 2005 was $3.5 million. Intangible assets are amortized on a straight-line basis with useful lives
ranging from 10 months to 15 years. In addition, Universal had an intangible asset with a gross carrying value of $0.4 million at March 31, 2005 related to an acquired
registration certificate. This asset is not being amortized as it has been deemed to have an indefinite life.

3. Inventories, Net

Inventories, net consisted of the following (in thousands):

For the Year Ended
March 31,2005

2004Raw materials

$
62,599

$
60,064Work-in-progress


40,560


37,510Finished goods


3,216


4,435Total inventories


106,375


102,009Reserve for obsolescence


(10,981
)

(12,041
)Inventories, net

$
95,394

$
89,968


F-39

---



4. Long-Term Debt

The Company's debt at March 31 consisted of the following (in thousands):

As of March 31,2005

2004Senior secured notes due February 2008, bore interest at 87/8% per annum, payable semiannually on February 15 and August 15 (see "High-Yield Operating Lease Facility" below)





445,000Term loan of $82.2 million due February 2008, bore interest at a variable rate of LIBOR, plus 3.25% due quarterly (see "High-Yield Operating Lease Facility" below)





82,181Notes due January, 2023, bearing interest at a variable rate of LIBOR, plus 1.27% due monthly (see "ABS Facility" below)(1)


200,000


175,000Senior notes, bearing interest at 71/4% per annum, due 2010 (see "Senior 71/4% Notes" below)(2)

$
170,948

$
175,713Seven year term loan of $400. million due February 2012, currently bearing interest at a variable rate of LIBOR plus 1.75% due quarterly (see "2005 Credit Facility" below)(3)


400,000


Revolving line of credit due 2010, currently bearing interest at a variable rate of LIBOR, plus 1.5% (see "2005 Credit Facility" below)


86,225


Other





3,387Total debt


857,173


881,281Less current maturities


19,824


12,205Total long-term debt

$
837,349

$
869,076


---

High-Yield Operating Lease Facility

In connection with the Weatherford Global acquisition and merger with the Company in February 2001, the Company raised $427 million under a
seven-year term senior secured notes operating lease facility (the "High-Yield Operating Lease Facility"), consisting of $350 million of senior notes due 2008 and a
$64 million term loan due 2008. The High-Yield Operating Lease Facility was collateralized by a first priority security interest in all of the assets owned by the lessor under that
facility. In October 2001, the Company increased the High-Yield Operating Lease Facility by $122 million. During the fourth quarter of fiscal year 2005, the Company,
terminated the High-Yield Operating Lease Facility and redeemed the then outstanding $440.0 million principal amount of 87/8% senior notes due 2008 and prepaid the
$82.2 million term loan.

F-40

---



ABS Facility

In February 2001, the Company also entered into a $200 million asset-backed securitization operating lease facility (the "ABS Facility"). In
December 2002, the Company increased the outstanding debt under the ABS Facility from $159.5 million to $175 million. The ABS Facility is collateralized by a first priority
security interest in all of the assets owned by the lessor and lessee under that facility. The debt for the facility is currently held by a financial institution. If the facility is not restructured
or modified by June 30, 2005, the interest rate on the facility will increase by 0.5% per annum.

Consolidation of High-Yield Operating Lease and ABS Facilities

In December 2002, the Company purchased all of the equity in the previously unaffiliated special operating entity that was the lessor under the
High-Yield Operating Lease Facility. As a result of this equity investment by the Company, that special purpose entity became a fully consolidated entity of the Company as of
December 31, 2002, and the assets and debt related to the High-Yield Operating Lease Facility have since been included in the consolidated balance sheet.

Also
in December 2002, the equity in the special purpose entity that was the lessor under the ABS Facility was reduced to a level where by the lessor under that facility also
became a fully consolidated entity of the Company as of December 31, 2002.

As
a result of these changes in the High-Yield Operating Lease Facility and the ABS Facility, and consistent with the purchase accounting rules set forth in SFAS
No. 141, "Business Combinations," the Company recorded in its consolidated balance sheet approximately $614.8 million of contract compression equipment, approximately
$707.2 million in long-term debt and a noncurrent liability of approximately $15.2 million related to interest rate swap agreements pertaining to the ABS Facility (see
Note 8 for discussion of interest rate swap agreements) in fiscal year 2003. Additionally, upon consolidation of the lessors of these operating lease facilities, the deferred gain previously
recorded was eliminated. The results of operations through December 31, 2002 includes operating lease expense since prior to this date the lessors under the operating leases were unaffiliated
and nonconsolidated entities of the Company.

Senior 71/4% Notes

In May 2003, Universal issued $175 million of 71/4% senior notes due 2010 (the "Senior 71/4% Notes") in a private
placement. The net proceeds from the sale, together with other available funds, were used to repurchase or redeem the outstanding $229.8 million of 97/8% senior discount notes
due 2008. Universal exchanged the private notes for publicly-traded notes in the second quarter of fiscal 2004. Due to this early extinguishment of debt, the Company recognized expenses of
$14.4 million in the first quarter of fiscal year 2004 resulting primarily from the redemption and tender premiums of $12.0 million, write-off of unamortized debt issuance
costs of $1.9 million and $0.5 million of other costs.

2005 Credit Facility

In January 2005, the Company, Universal and the Company's wholly-owned subsidiary, UC Canadian Partnership Holdings Company, closed a $650 million
senior secured credit facility with a syndicate of lenders and financial institutions consisting of a $250 million, five-year revolving line of credit and a $400 million
seven-year term loan. The 2005 Credit Facility bears interest, if the borrowings are in US dollars, at Universal's option, of a base rate or LIBOR plus, in each case, a variable amount
depending on its debt ratings or, if the borrowings are in Canada dollars, at Universal's option, of Canadian prime rate plus a variable amount depending on its debt ratings or the DCOR rate plus a
specified amount depending on the lender. The 2005 Credit Facility is secured by substantially all of the domestic assets of the Company and Universal (except for the assets pledged to

F-41

---



the
ABS Facility), as well as, all the capital stock of the direct and indirect US subsidiaries of Universal and 65% of the capital stock of Universal's first tier foreign subsidiaries.

Universal
used approximately $508.6 million under the 2005 Credit Facility, together with $100 million under the ABS Facility, to repay and redeem the outstanding
$522 million under the High-Yield Operating Lease Facility and repay $50 million in debt under the Company's now terminated $125 million revolving credit facility. Due
to this early extinguishment of debt, the Company recognized expenses of $26.1 million in the fourth quarter of fiscal year 2005 consisting primarily of redemption premiums of
$19.5 million and the write-off of unamortized debt issuance costs of $6.5 million.

Universal
has pledged property and compression equipment with a carrying value of $838.8 million as of March 31, 2005 as collateral for the 2005 Credit Facility.

Maturities of Long-Term Debt

Maturities of long-term debt as of March 31, 2005 are as follows (in thousands):

2006

$
19,8242007


25,0992008


25,0992009


25,0992010


111,324Thereafter


650,728Total

$
857,173


5. Capital Leases

Properties and equipment at March 31, 2005 and 2004 include the following amounts for capitalized leases (in thousands):

As of March 31,2005

2004Compression equipment

$
898

$
3,398Furniture and fixtures


2,556


2,556Less accumulated depreciation


(1,095
)

(968
)Net assets under capital leases

$
2,359

$
4,986


Compression
equipment with a carrying value of $0.7 million as of March 31, 2005 has been pledged as collateral relating to these capital leases.

F-42

---



Future
minimum lease payments under non-cancelable capital leases as of March 31, 2005 are as follows (in thousands):

2006

$
6892007


1112008


2742009


2010 and thereafter


Total minimum lease payments

$
1,074Less imputed interest costs


(151
)Present value of net minimum lease payments

$
923


6. Income Taxes

Income tax expense for the years ended March 31, 2005, 2004 and 2003 consisted of the following (in thousands):

2005

2004

2003Current:Foreign

$
9,069

$
9,119

$
4,142Deferred:Federal


5,178


6,379


13,624State


888


894


1,551Foreign


2,078


1,349


1,658Total

$
17,213

$
17,741

$
20,975


A
reconciliation of the provision for income taxes and the amount computed by applying the federal statutory income tax rate to income before taxes for the years ended March 31,
2005, 2004 and 2003 is as follows (in thousands):

2005

2004

2003Income tax expense at statutory rate

$
17,790

$
16,985

$
19,071State taxes


671


581


1,008Foreign tax (benefit)


(306
)

600


149Non-deductible expenses (benefit) and other


(942
)

(425
)

747Total

$
17,213

$
17,741

$
20,975


Deferred
income tax balances are the direct effect of taxable temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities at the
enacted tax rates expected to be in effect when the taxes are actually paid or recovered.

Universal
has not provided U.S. deferred taxes on the indefinitely (permanently) reinvested cumulative earnings of approximately $111 million generated by its non-U.S.
affiliate companies. Such earnings are from ongoing operations which will be used to fund growth in the non-US affiliates' countries as well as future international expansion. Because of
the availability of foreign tax credits, it is not practical to determine the US income tax liability that would be payable if such earnings were not indefinitely reinvested. Deferred taxes are
provided on earnings of non-US affiliates when we plan to remit those earnings.

F-43

---



The
tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at March 31 are (in thousands):

2005

2004Deferred tax assets:Net operating loss carryforwards

$
156,027

$
128,114Accrued reserves


6,138


5,820Foreign tax credit


2,951


1,779Other


9,772


9,179Total


174,888


144,892Valuation allowance


(1,634
)

(1,779
)Total


173,254


143,113Deferred tax liabilities:Depreciation differences on properties and equipment


(324,278
)

(285,738
)Other


(855
)

(1,110
)Total


(325,133
)

(286,848
)Net deferred tax liability

$
(151,879
)
$
(143,735
)


Net
operating loss carryforwards have been adjusted primarily for depreciation allowed or allowable in prior years with a corresponding adjustment to depreciable property and equipment.
With the enactment of the American Jobs Creation Act, the company has changed its position with respect to foreign taxes and has begun to recognize foreign tax credits instead of deducting foreign
taxes paid. A valuation allowance was established at March 31, 2002 against the Company's deferred tax assets related to foreign tax credits available at that time. Based on the carryover
period, the valuation allowance is still necessary for those taxes; however, evidence exists that indicates it is more likely than not that new or current foreign tax credits will be utilized before
they expire. The Company also believes it is more likely than not that all other deferred tax assets will be realized on future tax returns primarily from the generation of future taxable income
through both profitable operations and future reversals of existing taxable temporary differences and that no other valuation allowance is necessary.

At
March 31, 2005, the Company had federal net operating loss ("NOL") carryforwards of approximately $407.5 million available to offset future taxable
income. The carryforward amounts have been adjusted to reflect depreciation allowed or allowable in previous years that was not taken on the tax returns. Annual utilization of the carryforwards could
be limited by Section 382 of the Internal

F-44

---



Revenue
Code of 1986, as amended. If not utilized, the NOL carryforwards will expire as follows (in thousands):

2007

$
6292008


1,8492009


1,9432010


9532012


22018


5,0752019


38,4902020


63,0032021


65,6172022


96,5882023


66,0712024


37,7492025


29,532Total

$
407,501


7. Stock Options

In order to motivate and retain key employees, Universal established an incentive stock option plan. The incentive stock plan became effective on
February 20, 1998, and on that date certain key employees were granted stock options. The options are exercisable over a ten-year period. Options generally vest over the following
time period:

Year 1

331/3
%Year 2

331/3
%Year 3

331/3
%


Universal
has elected to follow Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its
stock-based compensation and to provide the disclosures required under SFAS No. 123, Accounting for Stock Based Compensation and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123."

APB
No. 25 requires no recognition of compensation expense for the stock-based compensation arrangements provided by the Company, namely option grants where the exercise price is
equal to the market value at the date of grant. However, APB No. 25 requires recognition of compensation expense for variable award plans over the vesting periods of such plans, based upon the
then-current market values of the underlying stock. In contrast, SFAS No. 123 requires recognition of compensation expense for grants of stock, stock options, and other equity
instruments, over the vesting periods of such grants, based on the estimated grant-date fair values of those grants.

Under
the incentive stock option plan, options to purchase common stock may be granted until 2011. Options generally are granted at fair market value at the date of grant, are
exercisable in installments beginning one year from the date of grant, and expire 10 years after the date of grant.

F-45

---



As
of March 31, 2005, 2,492,952 stock options were outstanding under the plan. Transactions are summarized as follows:

Stock
Options

Weighted-Average
Exercise PriceOptions outstanding, March 31, 2002

2,734,246

$
24.52Granted

659,750


17.12Exercised

(22,841
)

7.03Cancelled

(460,789
)

26.93Options outstanding, March 31, 2003

2,910,366

$
22.66Granted

5,000


20.97Exercised

(350,746
)

21.75Cancelled

(125,605
)

26.56Options outstanding, March 31, 2004

2,439,015

$
22.56Granted

607,750


32.62Exercised

(433,838
)

19.20Cancelled

(119,975
)

25.61Options outstanding, March 31, 2005

2,492,952

$
25.46Options exercisable at March 31, 2003

1,310,676

$
22.81Options exercisable at March 31, 2004

1,700,296

$
23.06Options exercisable at March 31, 2005

1,736,076

$
23.83


Exercise
prices for options outstanding as of March 31, 2005 ranged from $6.73 to $38.15. The following table provides certain information with respect to stock options
outstanding at March 31, 2005:

Range of Exercise Prices

Stock Options
Outstanding

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual LifeUnder $7.00

78,201

$
6.73

2.9$7.01-$19.00

436,007


16.86

7.9$19.01-$22.00

756,722


21.25

6.4Over $22.00

1,222,022


32.32

7.62,492,952

$
25.46

7.1


The
following table provides certain information with respect to stock options exercisable at March 31, 2005:

Range of Exercise Prices

Stock Options
Exercisable

Weighted Average
Exercise PriceUnder $7.00

78,201

$
6.73$7.01-$19.00

286,218


16.85$19.01-$22.00

733,885


21.31Over $22.00

637,772


31.961,736,076

$
23.83


In
electing to continue to follow APB No. 25 for expense recognition purposes, Universal is obligated to provide the expanded disclosures required under SFAS No. 123 for
stock-based compensation granted in 1998 and thereafter, including, if materially different from reported results disclosure of pro forma net income and earnings per share had compensation expense
relating to 2003, 2004, and 2005 grants been measured under the fair value recognition provisions of SFAS No. 123.

F-46

---



The weighted-average fair values at date of grant for options granted during 2005, 2004 and 2003 were $15.51, $10.16 and $9.78, respectively, and were estimated using the Black-Scholes
option valuation model with the following weighted-average assumptions:

2005

2004

2003Expected life in years

6

7

8Interest rate

4.16
%
3.56
%
3.50
%Volatility

40.77
%
42.88
%
48.85
%Dividend yield

0.00
%
0.00
%
0.00
%


The
following table summarizes results as if we had recorded compensation expense under the provisions of SFAS No. 123 for the 2005, 2004 and 2003 option grants:

Year Ended March 31,2005

2004

2003(In thousands except per share amounts)Net income, as reported

$
33,610

$
30,787

$
33,518Additional compensation expense, net of tax

$
(2,567
)
$
(3,702
)
$
(3,994
)Pro forma net income

$
31,043

$
27,085

$
29,524


8. Accounting for Interest Rate Swap Agreements

In accordance with SFAS No. 133, as amended by SFAS Nos. 137 and 138 (collectively referred to as SFAS No. 133), all derivative instruments must be
recognized on the balance sheet at fair value, and changes in such fair values are recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these
hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

In
June 2004, Universal reduced the notional amount of interest rate swap agreements that convert variable interest payments under the ABS facility to fixed interest payments in
connection with a debt repayment of $80.0 million. In accordance with SFAS No. 133, Universal recorded a gain of $3.2 million to earnings that had previously been recorded in
other comprehensive income as a result of the reduction in the notional amount of such interest rate swap agreements. As of March 31, 2005, Universal had interest rate swap agreements with a
notional amount of $83.9 million related to the $200.0 million outstanding under the ABS facility. The swaps terminate in February 2013 and have a weighted average fixed rate of
5.2%. In accordance with SFAS No. 133, Universal's balance sheet at March 31, 2005 includes a $2.2 million noncurrent liability related to the interest rate swap agreements.

In
January 2005, Universal entered into interest rate swap agreements to convert variable interest payments related to $300 million of the new $400 million
seven-year term loan to fixed interest payments. These swaps terminate in March 2010 and have a weighted average fixed rate of 4.02%, resulting in a net effective fixed interest
rate on this $300 million of debt of 5.77% (4.02% plus the 1.75% margin applicable under the new credit facility). In accordance with SFAS No. 133, Universal's balance sheet at
March 31, 2005 includes a $3.9 million noncurrent asset related to the interest rate swap agreements.

These
swaps, which Universal has designated as cash flow hedging instruments, meet the specific hedge criteria and any changes in their fair values were recognized in other comprehensive
income or loss. Because the terms of the hedged item and the swaps substantially coincide, the hedge is expected to exactly offset changes in expected cash flows due to fluctuations in the variable
rate and, therefore, Universal currently does not expect any ineffectiveness.

F-47

---



Universal
has entered into interest rate swap agreements to hedge $100 million of our $175.0 million 71/4% senior notes due 2010. The swaps are used to hedge
the change in fair value of the debt and, in effect, convert the fixed interest payment to a variable interest payment based on the six-month LIBOR rate. The swaps are accounted for in
accordance with SFAS No. 133 and, as such, are recorded at fair value on the balance sheet. Universal's balance sheet at March 31, 2005 includes a $4.1 million noncurrent
liability related to the interest rate swap agreements. The change in the debt's fair value is also recorded with the offset being recorded to income. The swaps, which Universal has designated as fair
value hedging instruments, meet the specific hedge criteria and any changes in their fair values were recognized in income. For the fiscal year ended March 31, 2005, the change in the debt's
fair value and the change in the swaps' fair value exactly offset and did not impact net income. Because the terms of the hedged item and the swaps substantially coincide, the hedge is expected to
exactly offset changes in fair values due to fluctuations in the variable rate and, therefore, Universal currently does not expect any ineffectiveness.

The
counterparties to Universal's interest rate swap agreements are major international financial institution. Universal monitors the credit quality of these financial institutions and
does not expect non-performance by them.

9. Employee Benefits

Universal has a defined contribution 401(k) plan covering substantially all employees. Universal makes matching contributions under this plan in the form of
Holdings' stock equal to 50% of each participant's contribution of up to 6%, with a 3% of eligible pay limit. For the fiscal years ended 2005, Holdings' stock contributions of approximately 45,000
shares to the plan were valued at approximately
$1.5 million. For the fiscal year ended 2004, Holdings' stock contributions of approximately 70,000 shares to plan were valued at approximately $1.6 million.

The
Employee Stock Purchase Plan ("ESPP") is intended to encourage employees to participate in Universal's growth by providing them the opportunity to acquire a proprietary interest in
Holdings' long-term performance and success through the purchase of shares of common stock at a price possibly less than fair market value. In 2001, Holdings' stockholders approved the
ESPP, under which 250,000 shares of the Holdings' common stock could be purchased by employees. An employee is eligible to participate after completing 90 days of employment. Each quarter, an
eligible employee may elect to withhold up to 10% of his or her eligible pay to purchase shares of Holdings' stock at a price equal to 85% to 100% of the fair market value of the stock as of the first
trading day of the quarter or the last trading day of the quarter, whichever is lower. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been
purchased, except as otherwise extended by authorizing additional shares under the ESPP. At March 31, 2005, 124,900 shares remained available for sale under the ESPP.

Universal
utilizes grants of restricted stock as long-term compensation for designated employees. Universal's restricted stock plan provides for the award of up to 1,350,000
shares of Holdings' common stock to certain officers and designated employees. Unearned compensation was charged for the market value of the restricted shares as these shares were issued in accordance
with the restricted stock plan. The unearned compensation is shown as a reduction to stockholders' equity in the accompanying consolidated balance sheets and is being amortized ratably over the
restricted period of five years. During fiscal years ending March 31, 2005 and 2004, $1.0 million and $0.6, respectively, were charged to expense relating to the restricted stock plan.
The weighted average share price for approximately 195,000 shares of restricted stock granted during 2005 was $35.46. No restricted shares were granted during 2004. Generally, common stock subject to
restricted stock grants will vest 0% upon the first anniversary of the grant and 25% on each anniversary thereafter through the fifth anniversary.

F-48

---



The
Employees' Supplemental Savings Plan, (the "ESSP") provides executive officers and designated employees the opportunity to defer up to 25% of their eligible compensation that cannot
be deferred under the existing 401(k) plan due to IRS limitations. Participants can also defer up to 100% of their bonuses. Holdings' matches 50% of the first 6% the participant contributes, up to 3%
of eligible pay limit, excluding any bonus deferred. The vesting periods are generally the same as the 401(k) plan. Prior to September 1, 2002, Universal's matching contributions were in the
form of cash. Since September 1, 2002, Universal's matching contributions related to the Employees' Supplemental Savings Plan have been in the form of Holdings' common stock. During 2005 and
2004, amounts charged to expense relating to the ESSP were immaterial.

The
Incentive Stock Option Plan (the "ISO Plan") authorizes Universal to grant stock options to its employees, consultants and directors. Universal has granted options to new employees
we have gained
through acquisitions, in the ordinary course of providing incentives to current employees and as inducements for the hiring of new employees. In fiscal year 2005, an amendment to the ISO Plan was
approved, increasing by 1,000,000 the number of shares of common stock available for grant under the ISO Plan from 5,012,421 shares to 6,012,421 shares to allow the continuation of this
long-term incentive program.

10. Facility Consolidation Costs

On April 28, 2003, Universal announced the transfer of substantially all of its fabrication activities based in Tulsa, Oklahoma to its existing facility in
Houston, Texas. Engineering, production and related support functions were consolidated with Houston-based functions. Universal did not incur additional costs related to this consolidation during the
final half of the fiscal year and Universal does not expect to incur additional facility consolidation costs during the two-year period ending September 30, 2005. Total costs
related to the facility consolidation were $1.8 million during the fiscal year ended March 31, 2004 and are shown separately as facility consolidation costs in the consolidated
statements of operations. The costs incurred were related to the fabrication segment. See below for further details of the costs incurred (in thousands):

Fiscal Year Ended
March 31, 2004Severance and personnel costs

$
1,131Relocation costs


289Other costs


401Total facility consolidation costs

$
1,821


11. Commitments and Contingencies

In the ordinary course of business, Universal is involved in various pending or threatened legal actions. In the opinion of management, the amount of ultimate
liability, if any, with respect to these actions will not have a materially adverse effect on Universal's financial position, operating results or cash flows.

In
December 1999, Weatherford Global sold the assets and properties of its Gemini compressor business in Corpus Christi, Texas to GE Packaged Power, L.P., ("GEPP"). As part of
that sale, Weatherford Global entered into an agreement to purchase from GEPP $38.0 million of compressor components over five years and $3.0 million of parts over three years, and GEPP
agreed to provide compressors to Weatherford Global during that time period at negotiated prices. Universal assumed this obligation in connection with our acquisition of Weatherford Global in
February 2001. As of March 31, 2005, approximately $26.4 million of components and approximately $16.7 million of parts have been purchased from GEPP. As a result of GEPP
product performance issues, we have been

F-49

---



unable
to satisfy and have not satisfied in full our purchase commitment in respect of components under this agreement with GEPP. The unsatisfied portion of the purchase commitment is approximately
$11.6 million. GEPP could assert its right to enforce this obligation, but has not indicated any interest to do so at this time. However, if GEPP should seek to enforce this obligation, we
believe we have valid defenses and counter claims and would aggressively defend against such enforcement and pursue such counter claims.

Universal
has no other commitments or contingent liabilities, which, in the judgment of management, would result in losses that would materially affect Universal's consolidated financial
position, operating results or cash flows.

12. Industry Segments and Geographic Information

Universal has four principal business segments: domestic contract compression, international contract compression, fabrication and aftermarket services. The
domestic contract compression segment provides natural gas compression to customers in the United States. The international contract compression segment provides natural gas compression to
international customers, including Canada. The fabrication segment provides services related to the design, engineering and assembly of natural gas compressors for sale to third parties in addition to
those that Universal uses in its contract compression fleet. The aftermarket services segment sells parts and components and provides maintenance to customers who own compression equipment and
customers who use equipment provided by other companies. Fabrication and aftermarket services revenue presented in the table below include only sales to third parties.

Universal's
reportable segments are strategic business units that offer distinct products and services. They are managed separately since each business segment requires different
marketing strategies due to customer specifications. Universal evaluates the performance of its reportable segments based on segment gross profit. Gross profit is defined as total revenue less direct
costs. The segment gross profit measure used by management for evaluation purposes excludes inter-segment transactions and, accordingly, there is no inter-segment revenue to be reported.

F-50

---



The
following table presents revenue, gross profits and identifiable assets by business segment for the fiscal years ended March 31, 2005, 2004 and 2003 (in thousands):

|                                   |       | For the Year Ended March 31,
|---------------------------------- | ----- | ----------------------------
|
|Revenue:                           |       |                             
|Domestic contract compression      |       | $                           
|International contract compression |       |                             
|Fabrication                        |       |                             
|Aftermarket services               |       |                             
|                                   |       |                             
|                                   | Total |                             
|                                   |       |                             
|Gross Profit:                      |       |                             
|Domestic contract compression      |       | $                           
|International contract compression |       |                             
|Fabrication                        |       |                             
|Aftermarket services               |       |                             
|                                   |       |                             
|                                   | Total |                             
|                                   |       |                             
|Identifiable Assets:               |       |                             
|Domestic contract compression      |       | $                           
|International contract compression |       |                             
|Fabrication                        |       |                             
|Aftermarket services               |       |                             
|                                   |       |                             
|                                   | Total |                             
|                                   |       |                             

No
one customer accounted for more than 10% of net sales for any of the periods presented.

Geographic Area

The following table illustrates revenue, gross profit and identifiable assets by geographic locations for the fiscal years ended March 31, 2005, 2004, and
2003 (in thousands). The basis of attributing

F-51

---



revenue
and gross profit to specific geographic locations is primarily based upon the geographic location of the sale, service or where the assets are utilized.

|                     |               | For the Year Ended March 31,
|-------------------- | ------------- | ----------------------------
|
|Revenue:             |               |                             
|                     | United States |                             
|                     | Canada        |                             
|                     | Latin America |                             
|                     | Asia Pacific  |                             
|                     |               |                             
|                     | Total         |                             
|                     |               |                             
|Gross Profit:        |               |                             
|                     | United States |                             
|                     | Canada        |                             
|                     | Latin America |                             
|                     | Asia Pacific  |                             
|                     |               |                             
|                     | Total         |                             
|                     |               |                             
|Identifiable Assets: |               |                             
|                     | United States |                             
|                     | Canada        |                             
|                     | Latin America |                             
|                     | Asia Pacific  |                             
|                     |               |                             
|                     | Total         |                             
|                     |               |                             

13. Selected Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for the years ended March 31, 2005 and 2004 is as follows (in thousands):

|      |                   | March 31 |   | December 31 |   | September 30 |         | June 30 |  
|----- | ----------------- | -------- | - | ----------- | - | ------------ | ------- | ------- | -
|2005: |                   |          |   |             |   |              |         |         |  
|      | Revenue           |          | $ | 193,636     |   | $            | 192,676 |         | $
|      | Gross profit      |          |   | 79,152      |   |              | 79,656  |         |  
|      | Net income (loss) |          |   | (4,490      | ) |              | 14,125  |         |  
|2004: |                   |          |   |             |   |              |         |         |  
|      | Revenue           |          | $ | 190,710     |   | $            | 170,167 |         | $
|      | Gross profit      |          |   | 76,788      |   |              | 72,580  |         |  
|      | Net income (loss) |          |   | 11,725      |   |              | 11,733  |         |  

F-52

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Universal Compression Holdings, Inc.
Houston, Texas

We
have audited the consolidated financial statements of Universal Compression Holdings, Inc. and subsidiaries (the "Company") as of March 31, 2005 and 2004, and for each of the three
years in the period ended March 31, 2005, management's assessment of the effectiveness of the Company's internal control over financial reporting as of March 31, 2005, and the
effectiveness of the Company's internal control over financial reporting as of March 31, 2005, and have issued our reports thereon dated June 6, 2005; such reports are included elsewhere
in this Form 10-K. Our audits also included the consolidated financial statement schedules of the Company included in Item 15. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/
DELOITTE & TOUCHE LLP

Houston,
Texas
June 6, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Universal Compression, Inc.
Houston, Texas

We
have audited the consolidated financial statements of Universal Compression, Inc. and subsidiaries (the "Company") as of March 31, 2005 and 2004, and for each of the three years in
the period ended March 31, 2005; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company
included in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/
DELOITTE & TOUCHE LLP

Houston,
Texas
June 6, 2005

E-1

---



UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

Item

Balance at
Beginning
of Period

Charged to
Costs and
Expenses(1)

Collections/
Deductions(2)

Balance at
Close of
Period(In thousands)2005 Allowance for doubtful accounts

$
3,189

$
1,335

$
(1,777
)
$
2,7472004 Allowance for doubtful accounts

$
8,146

$
653

$
(5,610
)
$
3,1892003 Allowance for doubtful accounts

$
7,470

$
4,981

$
(4,305
)
$
8,146


---

Item

Balance at
Beginning of
Period

Charged to
Costs and
Expenses(1)

Inventory
Write-offs(2)

Balance at
Close of
Period(In thousands)2005 Reserve for inventory obsolescence

$
12,041

$
1,897

$
(2,957
)
$
10,9812004 Reserve for inventory obsolescence

$
10,468

$
2,313

$
(740
)
$
12,0412003 Reserve for inventory obsolescence

$
10,537

$
3,856

$
(3,925
)
$
10,468


---

|Item                  |  | Balance at
Beginning
of Period |       | Charged to
Costs and
Expenses(1) |   | Deductions(2) |  | Balance at
Close of
Period
|--------------------- |  | ------------------------------ | ----- | -------------------------------- | - | ------------- |  | --------------------------
|
|2005 Warranty accrual |  | $                              | 1,493 |                                  | $ | 3,353         |  | $                         
|2004 Warranty accrual |  | $                              | 524   |                                  | $ | 3,429         |  | $                         
|2003 Warranty accrual |  | $                              | 1,816 |                                  | $ | 2,120         |  | $                         

---

E-2

---





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, on June 9, 2005.

| |  | Universal Compression Holdings, Inc.
| |  | ------------------------------------
| |  |                                     
| |  | By:                                 

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen A. Snider, Ernie L. Danner, J. Michael Anderson
and D. Bradley Childers, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities
and Exchange Commission granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be
done as fully to all said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue thereof.

Pursuant
to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on June 9, 2005.

|Name                                      |  | Title                                                                          
|----------------------------------------- |  | -------------------------------------------------------------------------------
|                                          |  |                                                                                
|/s/STEPHEN A. SNIDERStephen A. Snider     |  | President, Chief Executive Officer and Director
(Principal Executive Officer)  
|/s/J. MICHAEL ANDERSONJ. Michael Anderson |  | Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|/s/DENNIS S. BALDWINDennis S. Baldwin     |  | Controller
(Principal Accounting Officer)                                      
|/s/ERNIE L. DANNERErnie L. Danner         |  | Executive Vice President and Director                                          
|/s/THOMAS C. CASEThomas C. Case           |  | Director                                                                       
|                                          |  |                                                                                

II-1

---



|/s/JANET F. CLARKJanet F. Clark                   |  | Director
|------------------------------------------------- |  | --------
|/s/BERNARD J. DUROC-DANNERBernard J. Duroc-Danner |  | Director
|/s/URIEL E. DUTTONUriel E. Dutton                 |  | Director
|/s/LISA W. RODRIGUEZLisa W. Rodriguez             |  | Director
|/s/WILLIAM M. PRUELLAGEWilliam M. Pruellage       |  | Director
|/s/SAMUEL URCISSamuel Urcis                       |  | Director

II-2

---



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, on June 9, 2005.

| |  | Universal Compression Holdings, Inc.
| |  | ------------------------------------
| |  |                                     
| |  | By:                                 

Pursuant
to the requirements of the Securities Exchange act of 1934, this report has been signed by the following persons in the capacities indicated on June 9, 2005.

|Name                                      |  | Title                                                                          
|----------------------------------------- |  | -------------------------------------------------------------------------------
|                                          |  |                                                                                
|/s/STEPHEN A. SNIDERStephen A. Snider     |  | President, Chief Executive Officer and Director
(Principal Executive Officer)  
|/s/J. MICHAEL ANDERSONJ. Michael Anderson |  | Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|/s/DENNIS S. BALDWINDennis S. Baldwin     |  | Vice President and Controller
(Principal Accounting Officer)                   
|/s/ERNIE L. DANNERErnie L. Danner         |  | Director                                                                       

II-3

---



EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Merger dated October 23, 2000, by and among Universal Compression Holdings, Inc., Universal Compression, Inc., Weatherford International, Inc., WEUS Holding, Inc. and Enterra Compression Company (incorporated by reference
to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on October 26, 2000).                                                                                                  
|3.1         |  | Restated Certificate of Incorporation of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 3.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
2000).                                                                                                                                                                                                                                              
|3.2         |  | Restated Bylaws of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 3.2 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).                                                                                                                                                                                                                                                                    
|            |  | ABS Operating Lease Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.1         |  | Indenture, dated December 31, 2002, between BRL Universal Compression Funding I 2002, L.P., as Issuer, and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, with respect to the ABS operating lease facility
(incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                    
|4.2         |  | Series 2002-1 Supplement, dated December 31, 2002, to Indenture, dated December 31, 2002, between BRL Universal Compression Funding I 2002, L.P. and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, with respect
to the ABS operating lease facility (incorporated by reference to Exhibit 4.2 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                          
|4.3         |  | Amendment Number 1 to Indenture, dated December 18, 2003, between BRL Universal Compression Funding I 2002, L.P., as Issuer, and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, with respect to the ABS operating
lease facility (incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).                                                              
|4.4         |  | Amendment Number 2 to Indenture, dated January 14, 2004, between BRL Universal Compression Funding I 2002, L.P., as Issuer, and Wells Fargo Bank, National Association (successor by merger to Wells Fargo Bank Minnesota, National Association),
 as Indenture Trustee, with respect to the ABS operating lease facility (incorporated by reference to Exhibit 4.6 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2004).
|4.5         |  | Amendment Number 3 to Indenture, dated as of July 16, 2004, between BRL Universal Compression Funding I 2002, L.P., and Wells Fargo Bank, National Association (successor by merger to Wells Fargo Bank Minnesota, National Association), as
Indenture Trustee with respect to the ABS operating lease facility (incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).            
|            |  | 71/4% Senior Notes due 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.6         |  | Indenture, dated May 27, 2003, by and between Universal Compression, Inc., as Issuer, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for
the fiscal year ended March 31, 2003).                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---



|4.7  |  | Specimen of Universal Compression, Inc.'s 71/4% Senior Notes due 2010 (incorporated by reference to Exhibit 4.11 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended
March 31, 2003).                                                                                                                                                                                                                                                                               
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | ABS Lease Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.1 |  | Master Equipment Lease Agreement, dated December 31, 2002, between BRL Universal Compression Funding I 2002, L.P., as Head Lessor, and UCO Compression 2002 LLC, as Head Lessee, with respect to the ABS operating lease facility (incorporated
by reference to Exhibit 10.3 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                                 
|10.2 |  | Guaranty, dated December 31, 2002, made by Universal Compression Holdings, Inc. for the benefit of UCO Compression 2002 LLC, BRL Universal Compression Funding I 2002, L.P. and Wells Fargo Bank Minnesota, N.A., with respect to the ABS
operating lease facility (incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                
|10.3 |  | Management Agreement, dated December 31, 2002, among Universal Compression, Inc., UCO Compression 2002 LLC and BRL Universal Compression Funding I 2002, L.P., with respect to the ABS operating lease facility (incorporated by reference to
Exhibit 10.5 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                                                   
|10.4 |  | Back-up Management Agreement, dated December 31, 2002, among Caterpillar Inc., UCO Compression 2002 LLC, BRL Universal Compression Funding I 2002, L.P. and Universal Compression, Inc., with respect to the ABS operating lease facility
(incorporated by reference to Exhibit 10.6 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                         
|10.5 |  | Head Lessee Security Agreement, dated December 31, 2002, between UCO Compression 2002 LLC, as Grantor, and BRL Universal Compression Funding I 2002, L.P., as Secured Party, with respect to the ABS operating lease facility (incorporated by
reference to Exhibit 10.7 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                                                                                                     
|10.6 |  | Intercreditor and Collateral Agency Agreement, dated December 31, 2002, among Universal Compression, Inc., UCO Compression 2002 LLC and BRL Universal Compression Funding I 2002, L.P., Wells Fargo Bank Minnesota, National Association,
Wachovia Bank, National Association and Bank One, N.A., with respect to the ABS operating lease facility (incorporated by reference to Exhibit 10.8 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2002).
|10.7 |  | Insurance and Indemnity Agreement, dated December 31, 2002, by and among Ambac Assurance Corporation, BRL Universal Compression Funding I 2002, L.P., Universal Compression, Inc., UCO Compression 2002 LLC and Wells Fargo Bank Minnesota, N.A.,
 with respect to the ABS operating lease facility (incorporated by reference to Exhibit 10.9 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002).                                               
|10.8 |  | Amendment Number 1 to the Head Lessee Security Agreement, dated January 14, 2004, between UCO Compression 2002, as Grantor, and BRL Universal Compression Funding I 2002, L.P., as Secured Party, with respect to the ABS operating lease
facility (incorporated by reference to Exhibit 10.17 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2004).                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

---



|10.9   |  | Amendment Number 2 to the Head Lessee Security Agreement, dated as of July 16, 2004, between UCO Compression 2002 LLC, as Grantor, and BRL Universal Funding I 2002, L.P., as Secured Party, with respect to the ABS operating lease facility
(incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | Bank Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10  |  | $650,000,000 Senior Secured Credit Agreement, dated as January 14, 2005, among Universal Compression, Inc., as Co-US Borrower and Guarantor, Universal Compression Holdings, Inc., as Co-US Borrower and Guarantor, UC Canadian Partnership Holdings
Company, as Canadian Borrower, Wachovia Bank, National Association, as US Administrative Agent, Congress Financial Corporation (Canada), as Canadian Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, Deutsche Bank Securities Inc.,
The Bank of Nova Scotia and The Royal Bank of Scotland plc as Co-Documentation Agents and the Lenders signatory thereto arranged by Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc. as Joint Lead Arrangers and Joint Book Runners and
Deutsche Bank Securities Inc. as Co-Arranger (incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004).
|10.11  |  | Collateral Agreement, dated as of January 14, 2005, made by Universal Compression, Inc. and Universal Compression Holdings, Inc. in favor of Wachovia Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.2
of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.12  |  | Pledge and Security Agreement (Assignment of Pledged Securities), dated as of January 14, 2005, made by Universal Compression International, Inc., Enterra Compression Investment Company, Universal Compression Services, LLC and Universal Compression
Canadian Holdings, Inc., as Pledgors to Wachovia Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.3 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
December 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.13* |  | Supplement to Collateral Agreement, dated as of February 15, 2005, made by Universal Compression Holdings, Inc. in favor of Wachovia Bank, National Association, as Administrative Agent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.14* |  | Supplement to Pledge Agreement dated as of February 15, 2005, made by Universal Compression International, Inc. and Universal Compression Services, LLC in favor of Wachovia Bank, National Association, as Administrative Agent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.15* |  | Supplement to Pledge Agreement dated as of February 15, 2005, made by Universal Compression Services, LLC in favor of Wachovia Bank, National Association, as Administrative Agent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |  | Executive Compensation Plans and Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.16 |  | Universal Compression Holdings, Inc. Incentive Stock Option Plan (incorporated by reference to Exhibit 10 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.17 |  | Amendment Number One to Incentive Stock Option Plan, dated April 20, 2000 (incorporated by reference to Exhibit 10.3 of Amendment No. 2, filed with the SEC on May 22, 2000, to Universal Compression Holdings, Inc.'s
Registration Statement on Form S-1 (File No. 333-34090)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---



|10.18  |  | Amendment Number Two to Incentive Stock Option Plan, dated May 15, 2000 (incorporated by reference to Exhibit 10.4 of Amendment No. 2, filed with the SEC on May 22, 2000, to Universal Compression Holdings, Inc.'s Registration
Statement on Form S-1 (File No. 333-34090)).  
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19  |  | Amendment Number Three to Incentive Stock Option Plan, dated November 27, 2000 (incorporated by reference to Exhibit 4.7 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on February 9,
 2001 (File No. 333-55260)).            
|10.20  |  | Amendment Number Four to Incentive Stock Option Plan, dated August 15, 2002 (incorporated by reference to Exhibit 4.8 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on September 12,
2002 (File No. 333-99473)).              
|10.21  |  | Amendment Number Five to Incentive Stock Plan, dated July 23, 2004 (incorporated by reference to Exhibit 4.9 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on October 29, 2004 (File
No. 333-120108)).                        
|10.22* |  | Form of Non-Qualified Stock Option Agreement under the Incentive Stock Option Plan for outside directors of Universal Compression Holdings, Inc.'s Board of Directors.                                                                                                          
|10.23* |  | Form of Non-Qualified Stock Option Agreement under the Incentive Stock Option Plan for employees.                                                                                                                                                                               
|10.24* |  | Form of Incentive Stock Option Agreement under the Incentive Stock Option Plan.                                                                                                                                                                                                 
|10.25  |  | Universal Compression Holdings, Inc. Restricted Stock Plan for Executive Officers (incorporated by reference to Exhibit 4.2 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on August 17, 2001
(File No. 333-67784)).           
|10.26  |  | Amendment Number One to Restricted Stock Plan for Executive Officers, dated July 23, 2004 (incorporated by reference to Exhibit 4.11 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on
October 29, 2004 (File No. 333-120108)).
|10.27  |  | Form of Restricted Stock Agreement under the Restricted Stock Plan for Executive Officers (incorporated by reference to Exhibit 10.8 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).                         
|10.28  |  | Universal Compression Holdings, Inc. Directors' Stock Plan (incorporated by reference to Exhibit 4.3 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on August 17, 2001 (File No. 333-67784)
).                                 
|10.29  |  | Universal Compression, Inc. Employees' Supplemental Savings Plan (incorporated by reference to Exhibit 10.42 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2001).                                                    
|10.30  |  | Amendment Number One to Employees' Supplemental Savings Plan, dated January 1, 2002 (incorporated by reference to Exhibit 10.53 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).                                 
|10.31  |  | Amendment Number Two to Employees' Supplemental Savings Plan, dated August 15, 2002 (incorporated by reference to Exhibit 4.13 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on September
12, 2002 (File No. 333-99473)).     
|        |  |                                                                                                                                                                                                                                                                                 

---



|10.32  |  | Amendment Number Three to Employees' Supplemental Savings Plan, dated September 1, 2002 (incorporated by reference to Exhibit 10.35 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended
March 31, 2003).                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33  |  | Universal Compression Holdings, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 of Universal Compression Holdings, Inc.'s Registration Statement on Form S-8 filed with the SEC on August 17, 2001 (File
No. 333-67784)).                                                                                                           
|10.34  |  | Amendment Number One to Employee Stock Purchase Plan, dated December 20, 2001 (incorporated by reference to Exhibit 10.56 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31,
 2002).                                                                                                                      
|10.35  |  | Form of Indemnification Agreement for executive officers and directors of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 10.27 of Amendment No. 1, filed with the SEC on May 3, 2000, to Universal
Compression Holdings, Inc.'s Registration Statement on Form S-1 (File No. 333-34090)).                                           
|10.36  |  | Form of Change of Control Agreement for executive officers of Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002).                                                                                                
|10.37  |  | Letter dated March 15, 2001, with respect to certain retirement benefits to be provided to Stephen A. Snider (incorporated by reference to Exhibit 10.43 of Universal Compression Holdings, Inc.'s Annual Report on Form 10-K for the
fiscal year ended March 31, 2001).                                                                                        
|10.38  |  | Summary of Officers' Incentive Plan for Fiscal Year 2005 (incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Form 8-K filed May 27, 2005).                                                                                                                                                                                     
|10.39* |  | Summary Compensation Sheet for Executive Officers and Directors                                                                                                                                                                                                                                                                                                 
|        |  | Registration Rights Agreements                                                                                                                                                                                                                                                                                                                                  
|10.40   |  | Registration Rights Agreement, dated February 20, 1998 by and among Universal Compression Holdings, Inc., Castle Harlan Partners III, L.P. and each other party listed as signatory thereto (incorporated by reference to Exhibit 10.14 to
Universal Compression Holdings, Inc.'s Registration Statement on Form S-4 dated March 19, 1998 (File No. 333-48283)).
|10.41   |  | Form of Instruments of Accession to Registration Rights Agreement for each of Richard W. FitzGerald and Valerie L. Banner (incorporated by reference to Exhibit 4.10 to Universal Compression Holdings, Inc.'s Registration Statement
on Form S-1 (File No. 333-34090)).                                                                                        
|10.42   |  | Instrument of Accession to Registration Rights Agreement, dated April 28, 2000, for Energy Spectrum Partners LP (incorporated by reference to Exhibit 10.19 to Amendment No. 2 dated May 22, 2000, to Universal Compression Holdings,
Inc.'s Registration Statement on Form S-1 (File No. 333-34090)).                                                          
|10.43   |  | Amended and Restated Registration Rights Agreement, dated March 23, 2004, by and between Universal Compression Holdings, Inc. and Weatherford International Ltd. (incorporated by reference to Exhibit 10.1 to Universal Compression Holdings,
Inc.'s Registration Statement on Form S-3 (File No. 333-114145).                                                 
|21.1*   |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                           
|23.1*   |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                               
|24.1*   |  | Powers of attorney (set forth on the signature page hereof).                                                                                                                                                                                                                                                                                                    
|31.1*   |  | Rule 13a-14(a) Certifications of the CEO.                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 

---



|31.2* |  | Rule 13a-14(a) Certifications of the CFO.
|----- |  | -----------------------------------------
|31.3* |  | Rule 15d-14(a) Certification of the CEO  
|31.4* |  | Rule 15d-14(a) Certification of the CFO  
|32.1* |  | Section 1350 Certifications.             
|32.2* |  | Section 1350 Certifications.             

---

---