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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
 (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission file
    no. 1-13071
 Hanover Compressor
    Company
 (Exact name of registrant as
    specified in its charter)
  Delaware

76-0625124(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)12001 North Houston Rosslyn,
    Houston, Texas 77086(Address of principal
    executive offices, zip code)   Registrants telephone number, including area code:
 (281) 447-8787
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange in Which RegisteredCommon Stock, $.001 par value

New York Stock Exchange8.625% Senior Notes due 2010

New York Stock Exchange9.0% Senior Notes due 2014

New York Stock Exchange7.5% Senior Notes due 2013

New York Stock Exchange   Securities registered pursuant to 12(g) of the Act:
 Title of class: None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2 þ o  o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



HANOVER
    COMPRESSOR COMPANY
  TABLE OF
    CONTENTS
  PagePART IItem 1.

Business

3Item 1A.

Risk
    Factors

18Item 1B.

Unresolved Staff
    Comments

26Item 2.

Properties

27Item 3.

Legal
    Proceedings

28Item 4.

Submission of
    Matters to a Vote of Security Holders

28PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities

28Item 6.

Selected Financial
    Data

29Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations

31Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk

54Item 8.

Financial
    Statements and Supplementary Data

55Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure

56Item 9A.

Controls and
    Procedures

56Item 9B.

Other
    Information

56PART IIIItem 10.

Directors,
    Executive Officers and Corporate Governance

57Item 11.

Executive
    Compensation

59Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters

59Item 13.

Certain
    Relationships and Related Transactions, and Director
    Independence

60Item 14.

Principal
    Accounting Fees and Services

60PART IVItem 15.

Exhibits, Financial
    Statement Schedules

61SIGNATURES

67Letter to Executive Relating to Employment BenefitsLetter to Executive Relating to Employment BenefitsComputation of Ratio of Earnings to Fixed ChargesList of SubsidiariesConsent of PricewaterhouseCoopers LLPCertification of CEO Pursuant to Rule 13a-14(a)/15d-14(a)Certification of CFO Pursuant to Rule 13a-14(a)/15d-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906   1




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PART ISPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS





Certain matters discussed in this Annual Report on
    Form 10-K
    are 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. These
    forward-looking statements can generally be identified as such
    because the context of the statement will include words such as
    we believe, anticipate,
    expect, estimate or words of similar
    import. Similarly, statements that describe our future plans,
    objectives or goals or future revenues or other financial
    metrics are also forward-looking statements. Such
    forward-looking statements are subject to certain risks and
    uncertainties that could cause our actual results to differ
    materially from those anticipated as of the date of this report.
    These risks and uncertainties include: 
    our inability to renew our short-term leases of equipment with
    our customers so as to fully recoup our cost of the equipment;
    a prolonged substantial reduction in oil and natural gas prices,
    which could cause a decline in the demand for our compression
    and oil and natural gas production and processing equipment;
    reduced profit margins or the loss of market share resulting
    from competition or the introduction of competing technologies
    by other companies;
    changes in economic or political conditions in the countries in
    which we do business, including civil uprisings, riots,
    terrorism, kidnappings, the taking of property without fair
    compensation and legislative changes;
    changes in currency exchange rates;
    the inherent risks associated with our operations, such as
    equipment defects, malfunctions and natural disasters;
    ability to obtain components used to fabricate our products;
    our inability to implement certain business objectives, such as:  
    international expansion,
    ability to timely and cost-effectively execute integrated
    projects,
    integrating acquired businesses,
    generating sufficient cash,
    accessing the capital markets, and
    refinancing existing or incurring additional indebtedness to
    fund our business;  
    our inability to consummate the proposed merger with Universal
    Compression Holdings, Inc.;
    changes in governmental safety, health, environmental and other
    regulations, which could require us to make significant
    expenditures; and
    our inability to comply with covenants in our debt agreements
    and the decreased financial flexibility associated with our
    substantial debt.  Form 10-K Form 10-K
  Form 10-K. Form 10-K
 2




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Form 10-K.
  Item 1.
    Business  General
          Proposed
    Merger
     3




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Form 10-K
  Form 10-K.
  Industry
    Trends
     4




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Form 10-K Form 10-K.
  Notable
    Events in 2006
  Form 10-K.
  Form 10-K.
  Form 10-K.
     5




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##### Table of Contents



Industry
    Overview
  Natural
    Gas Compression
              
    engineering, fabrication and assembly of the compressor package;
    installation and testing of the package;
    ongoing performance review to assess the need for a change in
    compression; and
    periodic maintenance and replacement parts supply.  Production
    and Processing Equipment
   6




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built-to-specification
      Market
    Conditions
          Business
    Segments
    
    U.S. rentals.  Our U.S. rental
    segment primarily provides natural gas compression and
    production and processing equipment rental and maintenance
    services to meet specific customer requirements on Hanover-owned
    assets located within the United States. 7




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
    International rentals.  Our international
    rentals segment provides substantially the same services as our
    U.S. rental segment except it services locations outside
    the United States.
    Compressor and accessory fabrication.  Our
    compressor and accessory fabrication segment involves the
    design, fabrication and sale of natural gas compression units
    and accessories to meet standard or unique customer
    specifications.
    Production and processing fabrication  surface
    equipment.  Our production and processing
    fabrication  surface equipment segment designs,
    fabricates and sells equipment used in the production, treating
    and processing of crude oil and natural gas.
    Production and processing fabrication 
    Belleli.  Our production and processing
    fabrication  Belleli segment provides engineering,
    procurement and construction services primarily related to the
    manufacturing of critical process equipment for refinery and
    petrochemical facilities and construction of evaporators and
    brine heaters for desalination plants and tank farms.
    Parts, service and used equipment.  Our parts,
    service and used equipment segment provides a full range of
    services to support the surface production and processing needs
    of customers, from installation and normal maintenance services
    to full operation of a customers owned assets as well as
    sales of used equipment.  Form 10-K Form 10-K.
  Compression
    Rentals, Maintenance Services and Compressor and Accessory
    Fabrication
    month-to-month month-to-month
   8




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9




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##### Table of Contents



Compressor
    Rental Fleet
    Number


Aggregate


% ofRange of Horsepower Per Unit

of Units


Horsepower


Horsepower(In thousands)Up to 100


1,743



119,965



4
%101-200


1,357



207,906



6
%201-500


1,114



362,460



11
%501-800


555



353,459



11
%801-1,100


486



487,193



14
%1,101-1,500


885



1,213,085



36
%1,501-2,500


183



334,297



10
%2,501-4,735


76



260,052



8
%Total


6,399



3,338,417



100
%   Production
    and Processing Equipment Fabrication and Rental
    Parts,
    Service and Used Equipment
    Sources
    and Availability of Raw Materials
   10




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Market
    and Customers
      Sales
    and Marketing
      Competition
   11




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##### Table of Contents



International
    Operations
    
    difficulties in managing international operations;
    unexpected changes in regulatory requirements;
    tariffs and other trade barriers which may restrict our ability
    to enter into new markets;
    governmental actions that result in the deprivation of contract
    rights, including possible law changes;
    changes in political and economic conditions in the countries in
    which we operate, including civil uprisings, riots, kidnappings
    and terrorist acts, particularly with respect to our operations
    in Nigeria;
    potentially adverse tax consequences;
    restrictions on repatriation of earnings or expropriation of
    property without fair compensation;
    difficulties in establishing new international offices and risks
    inherent in establishing new relationships in foreign countries;
    the burden of complying with the various laws and regulations in
    the countries in which we operate; and
    fluctuations in currency exchange rates and the value of the
    U.S. dollar, particularly with respect to our operations in
    Argentina, Venezuela and Europe. 12




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Form 10-K.
  Cawthorne
    Channel Project
           13




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Government
    Regulation
  clean-up
     14




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sub-contracted and/or clean-up clean-up
      clean-up
   15




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##### Table of Contents



Executive
    Officers of the Registrant
    Name

Age

PositionJohn E. Jackson


48


President and Chief Executive
    Officer; DirectorLee E. Beckelman


41


Senior Vice President and Chief
    Financial OfficerBrian A. Matusek


47


Senior Vice President 
    Western HemisphereNorman A. Mckay


47


Senior Vice President 
    Eastern HemisphereGary M. Wilson


50


Senior Vice President, General
    Counsel and SecretaryAnita H. Colglazier


51


Vice President 
    ControllerPeter G. Schreck


42


Vice President 
    TreasurerStephen P. York


50


Vice President 
    Investor Relations and TechnologySteven W. Muck


54


Vice President  Global
    Human Resources and Health, Safety and Environment     John E. Jackson
  Lee E. Beckelman
  Brian A. Matusek
  Norman A. Norrie Mckay
 16




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Gary M. Wilson
  Anita H. Colglazier
  Peter G. Schreck
  Stephen P. York
  Steven W. Muck
  Employees
    Electronic
    Information
  http://www.hanover-co.com. Form 10-K, Form 10-Q, Form 8-K, http://www.sec.gov.
  Form 10-K, (281) 405-5175.
 17




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1-800-SEC-0330
  http://www.hanover-co.com. and/or
  Item 1A.
    Risk
    Factors  We
    have a substantial amount of debt, including our compression
    equipment lease obligations, that could limit our ability to
    fund future growth and operations and increase our exposure
    during adverse economic conditions.
      
    make it more difficult for us to satisfy our contractual
    obligations;
    increase our vulnerability to general adverse economic and
    industry conditions;
    limit our ability to fund future working capital, capital
    expenditures, acquisitions or other general corporate
    requirements;
    increase our vulnerability to interest rate fluctuations because
    the interest payments on a portion of our debt are at, and a
    portion of our compression equipment leasing expense is based
    upon, variable interest rates;
    limit our flexibility in planning for, or reacting to, changes
    in our business and our industry;
    place us at a disadvantage compared to our competitors that have
    less debt or fewer operating lease commitments; and
    limit our ability to borrow additional funds.  We
    will need to generate a significant amount of cash to service
    our debt, to fund working capital and to pay our debts as they
    come due.
   18




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The
    documents governing our outstanding debt, including our
    compression equipment lease obligations, contain financial and
    other restrictive covenants. Failing to comply with those
    covenants could result in an event of default which, if not
    cured or waived, could have a material adverse effect on
    us.
    
    incur additional debt or issue guarantees;
    create liens on our assets;
    engage in mergers, consolidations and dispositions of assets;
    enter into additional operating leases;
    pay dividends on or redeem capital stock;
    enter into derivative transactions;
    make certain investments or restricted payments;
    make investments, loans or advancements to certain of our
    subsidiaries;
    prepay or modify our debt facilities;
    enter into transactions with affiliates; or
    enter into sale leaseback transactions.       19




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We
    have significant leverage relative to our total capitalization,
    which could result in a downgrade in our credit rating or other
    adverse consequences if we do not reduce our
    leverage.
    StandardMoodys

& PoorsOutlook


Positive



PositiveSenior implied rating


B1



BB−Liquidity Rating


SGL-3



2001A equipment lease notes,
    interest at 8.5%, due September 2008


Ba3, LGD 3



B+2001B equipment lease notes,
    interest at 8.8%, due September 2011


Ba3, LGD 3



B+4.75% convertible senior
    notes due 2008


B3, LGD 5



B4.75% convertible senior
    notes due 2014


B3, LGD 5



B8.625% senior notes due 2010


B2, LGD 4



B9.0% senior notes due 2014


B2, LGD 4



B7.5% senior notes due 2013


B2, LGD 4



B7.25% convertible junior
    subordinated notes due 2029*


B3, LGD 6



B−     *
    
    Rating is on the TIDES Preferred Securities issued by Hanover
    Compressor Capital Trust, a trust that we sponsored.    Our
    ability to substitute compression equipment under our
    compression equipment leases is limited and there are risks
    associated with reaching that limit prior to the expiration of
    the lease term.
   20




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SubstitutionLimitation asValue of


Percentage of





Percentage ofSubstituted


Termination


Termination


Termination


Lease TerminationLease

Equipment


Value(1)


Value(1)


Value


Date(Dollars in millions)2001A compression equipment lease

$
20.2



14.7
%

$
137.1



25
%


September 20082001B compression equipment lease


54.0



21.0
%


257.7



25
%


September 2011Total

$
74.2






$
394.8     (1)
    
    Termination value assumes all accrued rents paid before
    termination.    A
    prolonged, substantial reduction in oil or gas prices, or
    prolonged instability in U.S. or global energy markets,
    could adversely affect our business.
      There
    are many risks associated with conducting operations in
    international markets.
    
    difficulties in managing international operations, including our
    ability to timely and cost effectively execute projects;
    unexpected changes in regulatory requirements;
    tariffs and other trade barriers that may restrict our ability
    to enter into new markets;
    governmental actions that result in the deprivation of contract
    rights;
    changes in political and economic conditions in the countries in
    which we operate, including civil uprisings, riots, kidnappings
    and terrorist acts, particularly with respect to our operations
    in Nigeria;
    potentially adverse tax consequences; 21




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
    restrictions on repatriation of earnings or expropriation of
    property without fair compensation;
    difficulties in establishing new international offices and risks
    inherent in establishing new relationships in foreign
    countries; and
    the burden of complying with the various laws and regulations in
    the countries in which we operate.    Local
    unrest and violence in Nigeria has adversely affected our
    financial results and could result in possible impairment and
    write-downs of our assets in Nigeria if the political situation
    in Nigeria does not improve.
        Further
    changes to the laws and regulations of Venezuela could adversely
    impact our results of operations and require us to write-down
    our investments in Venezuela.
    Fluctuations
    in currency exchange rates in international jurisdictions could
    adversely affect our business.
   22




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Our
    proposed merger with Universal is subject to the receipt of
    consents and approvals from various government entities that may
    impose conditions on, jeopardize or delay completion of the
    mergers or reduce the anticipated benefits of the
    merger.  Hart-Scott-Rodino non-U.S.
    While
    the merger is pending, we will be subject to business
    uncertainties and contractual restrictions that could adversely
    affect our business.    Failure
    to complete the merger could negatively impact our stock price
    and our future business and financial results because of, among
    other things, the disruption that would occur as a result of
    uncertainties relating to a failure to complete the
    merger.   23




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
    being required to pay Universal a termination fee of up to
    $70 million in certain circumstances, as described further
    in the next risk factor; and
    having had the focus of our management directed toward the
    merger and integration planning instead of on our core business
    and other opportunities that could have been beneficial to us.      The
    merger agreement limits our ability to pursue an alternative
    acquisition proposal and may require us to pay a termination fee
    of up to $70 million if we do.      Many
    of our compressor leases with customers have short initial
    terms, and we cannot be sure that the leases for these rental
    compressors will be renewed after the end of the initial lease
    term.
    We
    operate in a highly competitive industry.
   24




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Natural
    gas operations entail inherent risks that may result in
    substantial liability to us.
    Our
    ability to manage our business effectively will be weakened if
    we are unable to attract and retain qualified
    personnel.
    Our
    business is subject to a variety of governmental
    regulations.
       25




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Our
    stock price may experience volatility.
    We are
    dependent on particular suppliers and are vulnerable to product
    shortages and price increases.
    Item 1B.
    Unresolved
    Staff Comments   26




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##### Table of Contents



Item 2.
    Properties    SquareLocation

Status


Feet


UsesBroken Arrow, Oklahoma


Owned



141,549



Compressor and accessory fabricationHouston, Texas


Owned



307,944



Compressor and accessory fabrication; corporate officeHouston, Texas


Leased



67,937



OfficeAnaco, Venezuela


Leased



129,000



Compressor rental and serviceBarquisimeto, Venezuela


Owned



12,917



Compressor rental and serviceCasacara Station, Colombia


Owned



14,000



Compressor rental and serviceCasper, Wyoming


Owned



28,390



Compressor rental and serviceComodoro Rivadavia, Argentina


Owned



26,000



Compressor rental and serviceDavis, Oklahoma


Owned



393,870



Compressor rental and serviceEl Tigre, Venezuela


Leased



18,299



Compressor rental and serviceFarmington, New Mexico


Owned



20,361



Compressor rental and serviceFarmington, New Mexico


Leased



18,691



Compressor rental and serviceGillette, Wyoming


Leased



10,200



Compressor rental and serviceKilgore, Texas


Owned



33,039



Compressor rental and serviceMaturin, Venezuela


Owned



14,747



Compressor rental and serviceMidland, Texas


Owned



53,300



Compressor rental and serviceNeuquen, Argentina


Owned



30,000



Compressor rental and serviceOklahoma City, Oklahoma


Leased



37,485



Compressor rental and servicePampa, Texas


Leased



24,000



Compressor rental and servicePocola, Oklahoma


Owned



18,705



Compressor rental and serviceSanta Cruz, Bolivia


Leased



21,119



Compressor rental and serviceVictoria, Texas


Owned



59,852



Compressor rental and serviceWalsall, UK  Westgate


Owned



44,700



Compressor rental and serviceYukon, Oklahoma


Owned



22,453



Compressor rental and serviceBridgeport, Texas


Leased



13,500



Parts, service and used equipmentBroken Arrow, Oklahoma


Leased



19,000



Parts, service and used equipmentHouston, Texas


Leased



28,750



Parts, service and used equipmentPort Harcourt, Nigeria


Leased



32,808



Parts, service and used equipmentBroussard, Louisiana


Owned



74,402



Production and processing equipment fabricationColumbus, Texas


Owned



219,552



Production and processing equipment fabricationCorpus Christi, Texas


Owned



11,000



Production and processing equipment fabricationJebel Ali Free Zone, UAE


Owned



113,211



Production and processing equipment fabricationHamriyah Free Zone, UAE


Owned



140,946



Production and processing equipment fabricationMantova, Italy


Owned



654,397



Production and processing equipment fabricationTulsa, Oklahoma


Owned



40,100



Production and processing equipment fabricationVictoria, Texas


Owned



50,506



Production and processing equipment fabrication   (281) 447-8787.
 27




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Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    PriceHigh


LowYear ended December 31,
    2005First Quarter

$
14.87


$
11.35Second Quarter

$
12.32


$
10.13Third Quarter

$
15.68


$
11.45Fourth Quarter

$
14.80


$
12.47Year ended December 31,
    2006First Quarter

$
18.81


$
14.20Second Quarter

$
21.10


$
15.57Third Quarter

$
19.75


$
16.07Fourth Quarter

$
20.64


$
17.04       Form 10-K
 28




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Item 6.
    Selected
    Financial Data  Form 10-K Form 10-K.
  Years Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Income Statement Data:Revenues and other income:U.S. rentals

$
384,292


$
351,128


$
341,570


$
324,186


$
328,600International rentals


263,228



232,587



214,598



191,301



175,337Parts, service and used equipment


224,810



225,636



180,321



164,935



223,685Compressor and accessory fabrication


303,205



179,954



158,629



106,896



114,009Production and processing equipment
    fabrication


429,697



360,267



270,284



260,660



149,656Equity in income of
    non-consolidated affiliates


19,430



21,466



19,780



23,014



18,554Gain on sale of business and other
    income(1)


46,001



4,551



3,413



4,088



3,600Total revenues and other income(2)


1,670,663



1,375,589



1,188,595



1,075,080



1,013,441Expenses:U.S. rentals


152,605



139,465



144,580



127,425



122,172International rentals


96,631



76,512



63,953



61,875



52,996Parts, service and used equipment


183,965



169,168



135,929



123,255



179,843Compressor and accessory fabrication


249,910



156,414



144,832



96,922



99,446Production and processing equipment
    fabrication


366,590



325,924



242,251



234,203



127,442Selling, general and administrative


204,247



182,198



173,066



159,870



150,863Depreciation and amortization(4)(5)


181,416



182,681



175,308



169,164



148,141Interest expense(5)(7)


118,006



136,927



146,978



89,175



43,352Foreign currency translation


(4,317
)


7,890



(5,222
)


2,548



16,727Securities related litigation
    settlement(3)










(4,163
)


42,991



Other


1,204



526



407



2,906



27,607Debt extinguishment costs(4)


5,902



7,318











Goodwill impairment














35,466



52,103Leasing expense(5)














43,139



90,0741,556,159



1,385,023



1,217,919



1,188,939



1,110,766Income (loss) from continuing
    operations before income taxes


114,504



(9,434
)


(29,324
)


(113,859
)


(97,325
)Provision for (benefit from) income
    taxes(6)


28,782



27,714



24,767



3,629



(17,114
)Income (loss) from continuing
    operations


85,722



(37,148
)


(54,091
)


(117,488
)


(80,211
)Income (loss) from discontinued
    operations, net of tax(2)


431



(869
)


10,085



(3,861
)


(35,857
)Cumulative effect of accounting
    change, net of tax(5)


370











(86,910
)


Net income (loss)

$
86,523


$
(38,017
)

$
(44,006
)

$
(208,259
)

$
(116,068
)Basic earnings (loss) per common
    share from continuing operations

$
0.85


$
(0.41
)

$
(0.64
)

$
(1.45
)

$
(1.01
)Diluted earnings (loss) per common
    share from continuing operations

$
0.80


$
(0.41
)

$
(0.64
)

$
(1.45
)

$
(1.01
)Weighted average common and common
    equivalent shares:Basic


101,178



91,556



84,792



81,123



79,500Diluted


112,035



91,556



84,792



81,123



79,500 29




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##### Table of Contents



Years Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Cash flows provided by (used in):Operating activities

$
209,089


$
122,487


$
131,837


$
164,735


$
195,717Investing activities


(168,168
)


(104,027
)


11,129



(43,470
)


(193,703
)Financing activities


(18,134
)


(6,890
)


(162,350
)


(84,457
)


(4,232
)Balance Sheet Data (end of period):Working capital

$
326,565


$
351,694


$
301,893


$
279,050


$
218,398Net property, plant and equipment(5)


1,863,452



1,823,100



1,876,348



2,027,654



1,167,675Total assets(5)


3,070,889



2,862,996



2,771,229



2,942,274



2,176,983Debt and convertible preferred
    securities(5)(7)


1,369,931



1,478,948



1,643,616



1,782,823



641,194Common stockholders equity(7)


1,014,282



909,782



760,055



753,488



927,626     (1)
    
    In February 2006, we sold our U.S. amine treating rental
    assets to Crosstex Energy Services L.P. (Crosstex)
    for approximately $51.5 million which resulted in a
    $28.4 million pre-tax gain reported in gain on sale of
    business and other income. In addition, in May 2006 we sold the
    assets used in our fabrication facility in Canada, which was
    part of our Production and processing fabrication- surface
    equipment segment, as part of managements plan to improve
    overall operating efficiency in this line of business. The sale
    resulted in an $8.0 million pre-tax gain reported in gain
    on sale of business and other income. The disposal of these
    assets did not meet the criteria established for recognition as
    discontinued operations. For a description of discontinued
    operations, see Note 3 in Notes to the Consolidated
    Financial Statements in Item 15 of this Form
    10-K.(2)
    
    We have grown as a result of internal growth and acquisitions.
    In August 2003, we exercised our option to acquire the remaining
    49% interest in Belleli in order to gain complete control of
    Belleli. In the fourth quarter of 2002, we decided to
    discontinue certain businesses. In November 2004, we sold the
    compression rental assets of our Canadian subsidiary for
    approximately $56.9 million. Additionally, in December 2004
    we sold our ownership interest in Collicutt Energy Services Ltd.
    (CES) for approximately $2.6 million to an
    entity owned by Steven Collicutt. Hanover owned approximately
    2.6 million shares in CES, which represented approximately
    24.1% of the ownership interest of CES. These businesses are
    reflected as discontinued operations in our consolidated
    statements of operations.(3)
    
    In May 2003, Hanover reached an agreement that was subject to
    court approval, to settle securities class actions, ERISA class
    actions and the shareholder derivative actions. The terms of the
    settlement became final in March 2004 and required Hanover to:
    (a) make a cash payment of approximately $30 million
    to the securities settlement fund (of which $26.7 million
    was funded by payments from Hanovers directors and
    officers insurance carriers), (b) issue 2.5 million
    shares of Hanover common stock to the securities settlement
    fund, and (c) issue a contingent note with a principal
    amount of $6.7 million to the securities settlement fund.In April 2004, we issued the $6.7 million contingent note
    related to the securities settlement. The note was payable,
    together with accrued interest, on March 31, 2007 but was
    extinguished (with no money paid under it) under the terms of
    the note since our common stock traded above the average price
    of $12.25 per share for 15 consecutive trading days during
    the third quarter of 2004. As a result of the cancellation of
    the note in the third quarter of 2004, we reversed the note and
    the embedded derivative, which resulted in a $4.0 million
    reduction to the cost of the securities-related litigation.(4)
    
    In March 2006, we completed a public offering of
    $150 million aggregate principal amount of 7.5% Senior
    Notes due 2013. We used the net proceeds from the offering of
    $146.6 million, together with borrowings under our bank
    credit facility, to redeem our 11% Zero Coupon Subordinated
    Notes due March 31, 2007. In connection with the
    redemption, we expensed $5.9 million related to the call
    premium.During September 2005, we redeemed $167.0 million in
    indebtedness and repaid $5.2 million in minority interest
    obligations under our 2001A compression equipment lease
    obligations. In connection with the redemption and repayment, we
    expensed $7.3 million related to the call premium and
    $2.5 million through depreciation and amortization expense
    related to unamortized debt issuance costs. 30




---



##### Table of Contents



(5)
    
    In accordance with FASB Interpretation No. 46,
    Consolidation of Variable Interest Entities, an
    interpretation of ARB 51 as revised in December 2003
    (FIN 46), for periods ending after
    June 30, 2003, we have included in our consolidated
    financial statements the special purpose entities that lease
    compression equipment to us. As a result, on July 1, 2003,
    we added approximately $897 million of compression
    equipment assets, net of accumulated depreciation, and
    approximately $1,139.6 million of our compression equipment
    lease obligations (including approximately $1,105.0 million
    in debt) to our balance sheet. See Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Leasing Transactions and Accounting
    Change for FIN 46 in Item 7 of this Form
    10-K.(6)
    
    During 2006, we recorded pre-tax income in the U.S. and
    therefore were able to realize the benefit from net operating
    loss carryforwards and capital loss carryforwards that
    previously we had provided a valuation allowance against. In
    addition, during the fourth quarter of 2006, we recorded a
    benefit for the reversal of $10.2 million of the valuation
    allowance on our net deferred tax assets in the U.S., which is
    recorded as a reduction to our provision for income taxes. This
    reversal is the result of our conclusion in the fourth quarter
    of 2006 that it is more likely than not that we will realize the
    benefit from the associated net deferred tax assets. As a
    result, our 2006 tax provision benefited from approximately
    $36.2 million in valuation allowances that were reversed.(7)
    
    On August 15, 2005, we completed a public offering of
    13,154,385 shares of common stock under our shelf registration
    that resulted in approximately $179.1 million of net
    proceeds for Hanover. The net proceeds from this offering were
    used to redeem $167.0 million in indebtedness and repay
    $5.2 million in minority interest obligations under our
    2001A compression equipment lease obligations during September
    2005.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K.
  Overview
    Competitive
    Strengths
    
    Total solutions provider:  We believe that we
    are the only company in our industry that offers both outsourced
    rental of, as well as the sale of, compression and oil and gas
    production and processing equipment and related services. Our
    services include complete operation and maintenance services,
    including run-time guarantees, for both customer-owned equipment
    and our fleet of rental equipment, 31




---



##### Table of Contents



as well as engineering and product design, fabrication,
    installation, customer service and after-market support. Our
    global customer base consists of U.S. and international
    companies engaged in all aspects of the oil and gas industry,
    including large integrated oil and gas companies, national oil
    and gas companies, independent producers and natural gas
    processors, gatherers and pipelines. By offering a broad range
    of services that complement our historic strengths, we believe
    that we can provide comprehensive integrated global solutions to
    meet our customers oil and gas production and processing
    equipment and compression needs. We believe the breadth and
    quality of our services and rental fleet, the depth of our
    customer relationships and our presence in many major
    gas-producing regions place us in a position to capture
    additional outsourced business on a global basis.  
    Leading position in high horsepower
    compression:  High horsepower compression,
    composed of units with greater than 500 horsepower, is the
    largest portion of our rental fleet, based on horsepower. We
    believe we are a leading provider of these units, which are
    typically installed on larger wells, gathering systems and
    processing and treating facilities. The scale and more
    attractive unit economics of these facilities generally insulate
    them from declining commodity prices. As a result, compressors
    in this segment tend to realize higher utilization rates.
    Provider of superior customer service:  To
    facilitate our total solutions approach, we have adopted a
    geographical business unit concept and utilize a decentralized
    management and operating structure to provide superior customer
    service in a relationship-driven, service-intensive industry. We
    believe that our regionally-based network, local presence,
    experience and in-depth knowledge of customers operating
    needs and growth plans enable us to effectively meet their
    evolving demands on a more timely basis. Our salespeople pursue
    the rental and sales market for our products and services in
    their respective territories. Our efforts concentrate on
    demonstrating our commitment to enhancing the customers
    cash flow through superior product design, fabrication,
    installation, customer service and after-market support.
    International experience:  We believe we are a
    leader in natural gas compression as well as service and
    fabrication of equipment for oil and gas processing and
    transportation services in Latin America, with an expanding
    presence in West Africa, the Middle and Far East and Russia. As
    of December 31, 2006, we had approximately 891,000
    horsepower of compression deployed internationally, of which
    approximately 93% was located in Latin America (primarily in
    Venezuela, Argentina, Mexico and Brazil). We opened offices in
    Oman and Egypt during 2006 and Pakistan during 2005. During
    2004, we opened offices in Nigeria, the Middle and Far East and
    Russia. We believe our experience in managing our international
    operations and our efforts to develop and expand our
    international sales force have created a global platform from
    which we can continue to grow in international markets.  Business
    Strategy
    
    Focus on core operations.  We have built our
    leading market position through our strengths in compression
    rentals, compressor fabrication, production and processing
    equipment rental and fabrication and parts and service. We are
    focusing our efforts on these businesses and on streamlining
    operations in our core markets. We believe this focused approach
    will enable us to enhance our growth prospects and returns. In
    addition, we are actively pursuing improvements in our
    U.S. fleet utilization by prudently employing additional
    units, moving idle U.S. units into service in international
    markets and retiring less profitable units in order to improve
    our utilization and enhance the returns for our business. We
    have also converted one of our facilities to refurbish
    approximately 200,000 horsepower of idle U.S. compression
    assets so we can deploy these units in both our U.S. and
    international rental businesses.
    Expand international presence.  International
    markets continue to represent the greatest growth opportunity
    for our business. We believe that these markets are underserved
    in the area of the products and services we offer. In addition,
    we typically see higher returns in international markets
    relative to the 32




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##### Table of Contents



United States. We intend to allocate additional resources toward
    international markets, to open offices abroad, where
    appropriate, and to move idle U.S. units into service in
    international markets.  
    Continuing development of product lines.  We
    intend to continue to develop and deliver products and services
    beyond the rental and sale of compression equipment, including
    production
    and/or
    processing equipment, engineering, installation, and operating
    services. As we move forward, we are seeing new opportunities
    driven more by our ability to deliver a total solution rather
    than just a single product. A total solution will typically
    incorporate multiple Hanover product offerings. We believe that
    this will enable us to capitalize on and expand our existing
    client relationships and enhance our revenue and returns from
    each individual project.
    Focus on process improvement.  We plan to focus
    on process improvements by consistently reviewing and
    rationalizing our existing business lines. We have developed a
    more disciplined and systematic approach to evaluating return on
    capital, exercising cost controls and operating and managing our
    business. Through our Service Excellence Program, we will
    continue to take the best practices from across our organization
    and formalize these practices into common company-wide standards
    that we expect will bring improved operating and financial
    performance. In addition, we intend to take advantage of our
    enterprise resource planning system platform to help us better
    evaluate our markets and business opportunities, operate and
    maintain our assets and make more informed and timely decisions.
    Disciplined use of capital.  We intend to
    continue to focus on our capital discipline, as we believe it
    will better position us for growth and enhanced returns. During
    2005, we used proceeds from our equity offering to decrease our
    outstanding debt and compression equipment lease obligations by
    approximately $170 million. During 2004, we used cash flows
    from operations and asset sales to reduce our outstanding debt
    and compression equipment lease obligations by approximately
    $149 million. As a result, we surpassed our objective to
    reduce our debt and compression equipment lease obligations by
    $180 million from 2004 through 2007.  Market
    Conditions
      Summary
    of Results
  Net income (losses).
 33




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##### Table of Contents



Results by Product Line.
  Years Ended December 31,2006


2005


2004Revenues and other income:U.S. rentals

$
384,292


$
351,128


$
341,570International rentals


263,228



232,587



214,598Parts, service and used equipment


224,810



225,636



180,321Compressor and accessory
    fabrication


303,205



179,954



158,629Production and processing
    equipment fabrication


429,697



360,267



270,284Equity in income of
    non-consolidated affiliates


19,430



21,466



19,780Gain on sale of business and other
    income


46,001



4,551



3,413$
1,670,663


$
1,375,589


$
1,188,595Expenses:U.S. rentals

$
152,605


$
139,465


$
144,580International rentals


96,631



76,512



63,953Parts, service and used equipment


183,965



169,168



135,929Compressor and accessory
    fabrication


249,910



156,414



144,832Production and processing
    equipment fabrication


366,590



325,924



242,251$
1,049,701


$
867,483


$
731,545Gross profit margin:U.S. rentals


60
%


60
%


58
%International rentals


63
%


67
%


70
%Parts, service and used equipment


18
%


25
%


25
%Compressor and accessory
    fabrication


18
%


13
%


9
%Production and processing
    equipment fabrication


15
%


10
%


10
%   Critical
    Accounting Estimates
   34




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##### Table of Contents



Allowances
    and Reserves
      Long-Lived
    Assets and Investments
        Tax
    Assets
   35




---



##### Table of Contents



Revenue
    Recognition  Percentage of Completion
    Accounting
  percentage-of-completion
  percentage-of-completion percentage-of-completion
    Contingencies
    and Litigation
   36




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##### Table of Contents



Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Summary
    Summary
    of Business Line Results
  U.S. Rentals
  Years Ended December 31,


Increase2006


2005


(Decrease)(In thousands)Revenue

$
384,292


$
351,128



9
%Operating expense


152,605



139,465



9
%Gross profit

$
231,687


$
211,663



9
%Gross margin


60
%


60
%


    37




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##### Table of Contents



International
    Rentals
  Years Ended December 31,


Increase2006


2005


(Decrease)(In thousands)Revenue

$
263,228


$
232,587



13
%Operating expense


96,631



76,512



26
%Gross profit

$
166,597


$
156,075



7
%Gross margin


63
%


67
%


(4
)%     Parts,
    Service and Used Equipment
  Years Ended December 31,


Increase2006


2005


(Decrease)(In thousands)Revenue

$
224,810


$
225,636



Operating expense


183,965



169,168



9
%Gross profit

$
40,845


$
56,468



(28
)%Gross margin


18
%


25
%


(7
)%   start-up
 38




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##### Table of Contents



Compression
    and Accessory Fabrication
  Years Ended December 31,


Increase2006


2005


(Decrease)(In thousands)Revenue

$
303,205


$
179,954



68
%Operating Expense


249,910



156,414



60
%Gross Profit

$
53,295


$
23,540



126
%Gross Margin


18
%


13
%


5
%     Production
    and Processing Equipment Fabrication
  Years Ended December 31,


Increase2006


2005


(Decrease)(In thousands)Revenue

$
429,697


$
360,267



19
%Operating expense


366,590



325,924



12
%Gross profit

$
63,107


$
34,343



84
%Gross margin


15
%


10
%


5
%       Equity
    in Income of Non-Consolidated Affiliates
    Gain
    on sale of business and other income
   39




---



##### Table of Contents



Expenses
            Year EndedDecember 31,2006


2005Italy

$
5,102


$
(10,388
)Argentina


(1,050
)


388Venezuela


587



3,501Canada


(1,074
)


(1,705
)All other countries


752



314Exchange gain (loss)

$
4,317


$
(7,890
)      40




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##### Table of Contents



Income
    Taxes
      Cumulative
    Effect of Accounting Changes, Net of Tax
    Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Summary
    Summary
    of Business Line Results
  U.S. Rentals
  Years Ended December 31,


Increase2005


2004


(Decrease)(In thousands)Revenue

$
351,128


$
341,570



3
%Operating expense


139,465



144,580



(4
)%Gross profit

$
211,663


$
196,990



7
%Gross margin


60
%


58
%


2
%    41




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##### Table of Contents



International
    Rentals
  Years Ended December 31,


Increase2005


2004


(Decrease)(In thousands)Revenue

$
232,587


$
214,598



8
%Operating expense


76,512



63,953



20
%Gross profit

$
156,075


$
150,645



4
%Gross margin


67
%


70
%


(3
)%     Parts,
    Service and Used Equipment
  Years Ended December 31,


Increase2005


2004


(Decrease)(In thousands)Revenue

$
225,636


$
180,321



25
%Operating expense


169,168



135,929



24
%Gross profit

$
56,468


$
44,392



27
%Gross margin


25
%


25
%


   start-up
 42




---



##### Table of Contents



Compression
    and Accessory Fabrication
  Years Ended December 31,


Increase2005


2004


(Decrease)(In thousands)Revenue

$
179,954


$
158,629



13
%Operating Expense


156,414



144,832



8
%Gross Profit

$
23,540


$
13,797



71
%Gross Margin


13
%


9
%


4
%     Production
    and Processing Equipment Fabrication
  Years Ended December 31,


Increase2005


2004


(Decrease)(In thousands)Revenue

$
360,267


$
270,284



33
%Operating expense


325,924



242,251



35
%Gross profit

$
34,343


$
28,033



23
%Gross margin


10
%


10
%


     Equity
    in Income of Non-Consolidated Affiliates
    Expenses
     43




---



##### Table of Contents



Year EndedDecember 31,2005


2004Italy

$
(10,388
)

$
4,170Argentina


388



(624
)Venezuela


3,501



1,165Canada


(1,705
)


105All other countries


314



406Exchange gain (loss)

$
(7,890
)

$
5,222          44




---



##### Table of Contents



Income
    Taxes
      Discontinued
    Operations
        Leasing
    Transactions and Accounting Change for FIN 46
     45




---



##### Table of Contents



Residual





MinorityValue


Lease


InterestLease

Guarantee


Termination Date


Obligation2001A compression equipment lease

$
102,853



September 2008


$
4,1232001B compression equipment lease


175,000



September 2011



7,750$
277,853






$
11,873       Liquidity
    and Capital Resources
   46




---



##### Table of Contents



For the Year Ended December 31:

2006


2005Net cash provided by (used in)
    continuing operations:Operating activities

$
209,535


$
122,870Investing activities


(168,168
)


(105,247
)Financing activities


(18,134
)


(6,890
)Effect of exchange rate changes on
    cash and cash equivalents


2,266



(1,413
)Discontinued operations


(446
)


837Net change in cash and cash
    equivalents

$
25,053


$
10,157              47




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##### Table of Contents



Cash Contractual Obligations:

Total


2007


2008-2009


2010-2011


Thereafter(In thousands)Long term Debt(1)4.75% convertible senior
    notes due 2008

$
192,000


$



$
192,000


$



$
4.75% convertible senior
    notes due 2014


143,750















143,7507.25% convertible junior
    subordinated notes due 2029(2)


84,803



18,803











66,0008.625% senior notes due 2010


200,000











200,000



7.5% senior notes due 2013


150,000















150,0009.0% senior notes due 2014


200,000















200,000Bank credit facility due 2010


20,000











20,000



Other long-term debt


677



455



94



112



162001A equipment lease notes, due
    2008


133,000







133,000







2001B equipment lease notes, due
    2011


250,000











250,000



Total long-term debt


1,374,230



19,258



325,094



470,112



559,766Interest on long-term debt(3)


594,016



108,246



184,391



142,538



158,841Minority interest obligations(1)(4)


11,873







4,123



7,750



Purchase commitments


385,274



384,103



1,171







Facilities and other equipment
    operating leases


6,370



3,463



2,420



487



Total contractual cash obligations

$
2,371,763


$
515,070


$
517,199


$
620,887


$
718,607     (1)
    
    For more information on our long-term debt and minority interest
    obligations, see Notes 11 and 12 to the Notes to
    Consolidated Financial Statements in Item 15 of this
    Form 10-K.(2)
    
    In December 2006, we announced an irrevocable call for
    redemption in the first quarter of 2007 of a portion of our
    7.25% Convertible Junior Subordinated Notes. These notes are
    owned by Hanover Compressor Capital Trust which issued a call to
    redeem its TIDES Preferred Securities and its TIDES Common
    Securities.(3)
    
    Interest amounts calculated using interest rates in effect as of
    December 31, 2006, including the effect of interest rate
    swaps.(4)
    
    Represents third party equity interest of lease equipment trusts
    that was required to be consolidated into our financial
    statements. See Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Leasing Transactions and Accounting Change for FIN 46
    in Item 7 of this
    Form 10-K.  Form 10-K.
  Debt Refinancing/Repayment.
 48




---



##### Table of Contents



Form S-3
   49




---



##### Table of Contents



Bank Credit Facility.
         50




---



##### Table of Contents



Credit Ratings.
  Standard &Moodys

PoorsOutlook

Positive

PositiveSenior implied rating

B1

BB−Liquidity Rating

SGL-3

2001A equipment lease notes,
    interest at 8.5%, due September 2008

Ba3, LGD 3

B+2001B equipment lease notes,
    interest at 8.8%, due September 2011

Ba3, LGD 3

B+4.75% convertible senior
    notes due 2008

B3, LGD 5

B4.75% convertible senior
    notes due 2014

B3, LGD 5

B8.625% senior notes due 2010

B2, LGD 4

B9.0% senior notes due 2014

B2, LGD 4

B7.5% senior notes due 2013

B2, LGD 4

B7.25% convertible junior
    subordinated notes due 2029*

B3, LGD 6

B−     *
    
    Rating is on the TIDES Preferred Securities issued by Hanover
    Compressor Capital Trust, a trust that we sponsored.    Derivative Financial Instruments. and/or
   51




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##### Table of Contents



Fair Value ofFixed Rate





Swap atto be


Notional


December 31,Floating Rate to be Paid

Maturity Date

Received


Amount


2006Six Month LIBOR + 4.72%

December 15, 2010


8.625
%

$
100,000


$
(4,495
)Six Month LIBOR + 4.64%

December 15, 2010


8.625
%

$
100,000


$
(4,237
)       Off-Balance
    Sheet Arrangements
    Maximum PotentialUndiscountedPayments as ofDecember 31,Term


2006Simco/Harwat Consortium


2009


$
3,728El Furrial


2013


$
28,015   Form 10-K.
  New
    Accounting Pronouncements
  150-3
 52




---



##### Table of Contents



Accounting for
    Stock Issued to Employees,
       53




---



##### Table of Contents



Accounting
    for Income Taxes
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk      Fair Value ofFixed Rate





Swap atto be


Notional


December 31,Floating Rate to be Paid

Maturity Date


Received


Amount


2006Six Month LIBOR + 4.72%


December 15, 2010



8.625
%

$
100,000


$
(4,495
)Six Month LIBOR + 4.64%


December 15, 2010



8.625
%

$
100,000


$
(4,237
)      54




---



##### Table of Contents



Year EndedDecember 31,2006


2005Italy

$
5,102


$
(10,388
)Argentina


(1,050
)


388Venezuela


587



3,501Canada


(1,074
)


(1,705
)All other countries


752



314Exchange gain (loss)

$
4,317


$
(7,890
)     Item 8.
    Financial
    Statements and Supplementary Data   55




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure     Item 9A
    Controls
    and Procedures  Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rule 13a-15(e)
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f) Internal Control 
    Integrated Framework
  Internal Control  Integrated Framework
    Changes
    in Internal Control over Financial Reporting
     Item 9B.
    Other
    Information   56




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##### Table of Contents



2006 BonusApprovedFor PaymentName

Position


in 2007John E. Jackson


President and Chief Executive Officer; Director


$
800,000Lee E. Beckelman


Senior Vice President and Chief Financial Officer


$
200,000Brian A. Matusek


Senior Vice President  Western Hemisphere


$
215,000Norman A. Mckay


Senior Vice President  Eastern Hemisphere


$
215,000Steven W. Muck


Vice President  Global Human Resources & HSE


$
170,000Gary M. Wilson


Senior Vice President, General Counsel and Secretary


$
215,000   PART III   Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K
  http://www.hanover-co.com. and/or
    I. Jon Brumley,
  Ted Collins, Jr.,
  Margaret K. Dorman,
 57




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##### Table of Contents



Robert R. Furgason,
  Victor E. Grijalva,
  Gordon T. Hall,
  John E. Jackson,
  Peter H. Kamin, co-founder
  William C. Pate,
  Stephen M. Pazuk,
 58




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##### Table of Contents



L. Ali Sheikh,
   Item 11.
    Executive
    Compensation     Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    EQUITY
    COMPENSATION PLAN INFORMATION
   Weighted-


Number of securitiesaverage exercise


remaining available forNumber of securities to be


price of


future issuance underissued upon exercise of


outstanding


equity compensation plansoutstanding options,


options, warrants


(excluding securitieswarrants and rights


and rights


reflected in column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved
    by security holders(1)(2)


1,964,368


$
11.93



4,952,224Equity compensation plans not
    approved by Stockholders(3)


396,288


$
12.41



Total


2,360,656


$
12.01



4,952,224     (1)
    
    Composed of the 1997 Stock Option Plan, the 2001 Equity
    Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock
    Incentive Plan. In addition to the outstanding options, as of
    December 31, 2006, there were 1,899,024 shares of
    unvested restricted stock
    and/or stock
    settled restricted stock units outstanding (including
    performance shares at maximum potential payout) which were
    granted under the 2003 and 2006 Stock Incentive Plans. 59




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##### Table of Contents



(2)
    
    Under the terms of the 2006 Stock Incentive Plan, in addition to
    incentive and non-qualified options, Hanover may grant
    restricted stock, restricted stock units, stock appreciation
    rights and performance-based awards. The following Equity
    Compensation Plans, although terminated as to future grants,
    provided for the following awards in addition to options: the
    1997 Stock Option Plan (restricted stock); the 2001 Equity
    Incentive Plan (restricted stock, although no more than
    1.0 million of the 1.5 million shares authorized under
    such plan could be issued pursuant to restricted stock awards);
    and the 2003 Stock Incentive Plan (restricted stock and
    performance awards).(3)
    
    Composed of the 1998 Stock Option Plan, the December 9,
    1998 Stock Option Plan and the 1999 Stock Option Plan.        Number of SharesReserved forOriginal


Shares Previously


Issuance


Weighted-


SharesNumber of


Issued Pursuant to


Upon the Exercise of


Average


AvailableShares


Stock Option


Outstanding Stock


Exercise


for FuturePlan or Agreement Name

Issuable(#)


Exercises(#)


Options(#)


Price($)


Grants(#)1998 Stock Option Plan


520,000



98,048



167,476


$
13.47



*December 9, 1998 Stock Option
    Plan


700,000



469,664



138,534


$
9.75



*1999 Stock Option Plan


600,000



50,428



90,278


$
14.50



*     *
    
    The Board of Directors terminated authority to make future
    grants under these plans on May 15, 2003.  Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   60




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Documents filed as a part of this report.
  Financial Statements.
  Report of Independent Registered
    Public Accounting Firm


F-1Consolidated Balance Sheets


F-3Consolidated Statements of
    Operations


F-4Consolidated Statements of
    Comprehensive Income (Loss)


F-5Consolidated Statements of Cash
    Flows


F-6Consolidated Statements of Common
    Stockholders Equity


F-8Notes to Consolidated Financial
    Statements


F-9Selected Quarterly Unaudited
    Financial Data


F-55   Financial Statement Schedule
  Schedule II 
    Valuation and Qualifying Accounts


S-1     Exhibits
  ExhibitNumber

Description2
.1

Agreement and Plan of Merger,
    dated February 5, 2007, by and among Hanover Compressor Company,
    Universal Compression Holdings, Inc., Iliad Holdings, Inc.,
    Hector Sub, Inc., and Ulysses Sub, Inc. incorporated by
    reference to Exhibit 10.1 to the Companys Current Report
    on Form 8-K filed with the SEC on February 5, 2007.3
.1

Certificate of Incorporation of
    the Hanover Compressor Holding Co., incorporated by reference to
    Exhibit 3.1 to the Companys Current Report on
    Form 8-K
    filed with the SEC on February 5, 2001.3
.2

Certificate of Amendment of
    Certificate of Incorporation of Hanover Compressor Holding Co.,
    dated December 8, 1999, incorporated by reference to
    Exhibit 3.2 to the Companys Current Report on
    Form 8-K
    filed with the SEC on February 5, 2001.3
.3

Certificate of Amendment of
    Certificate of Incorporation of Hanover Compressor Company,
    dated July 11, 2000, incorporated by reference to
    Exhibit 3.3 to the Companys Current Report on
    Form 8-K
    filed with the SEC on February 5, 2001.3
.4

Amended and Restated Bylaws of the
    Company, dated March 10, 2004, incorporated by reference to
    Exhibit 3.4 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.1

Specimen Stock Certificate,
    incorporated by reference to Exhibit 4.11 to the
    Companys Registration Statement (File
    No. 333-24953)
    on
    Form S-1,
    as amended.4
.2

Form of Hanover Compressor Capital
    Trust 71/4% Convertible
    Preferred Securities, incorporated by reference to
    Exhibit 4.8 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.4
.3

Indenture for the Convertible
    Junior Subordinated Debentures due 2029, dated as of
    December 15, 1999, among the Company, as issuer, and
    Wilmington Trust Company, as trustee, incorporated by reference
    to Exhibit 4.6 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    filed with the SEC on February 14, 2000.4
.4

Form of Hanover Compressor Company
    Convertible Subordinated Junior Debentures due 2029,
    incorporated by reference to Exhibit 4.9 to the
    Companys Registration Statement (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.4
.5

Indenture for the
    4.75% Convertible Senior Notes due 2008, dated as of
    March 15, 2001, between the Company and Wilmington Trust
    Company, as trustee, incorporated by reference to
    Exhibit 4.7 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003. 61




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##### Table of Contents



ExhibitNumber

Description4
.6

Form of 4.75% Convertible
    Senior Notes due 2008, incorporated by reference to
    Exhibit 4.8 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.7

Indenture for the
    8.50% Senior Secured Notes due 2008, dated as of
    August 30, 2001, among the 2001A Trust, as issuer, Hanover
    Compression Limited Partnership and certain subsidiaries, as
    guarantors, and Wilmington Trust FSB, as Trustee,
    incorporated by reference to Exhibit 10.69 to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.4
.8

Form of 8.50% Senior Secured
    Notes due 2008, incorporated by reference to Exhibit 4.10
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.9

Indenture for the
    8.75% Senior Secured Notes due 2011, dated as of
    August 30, 2001, among the 2001B Trust, as issuer, Hanover
    Compression Limited Partnership and certain subsidiaries, as
    guarantors, and Wilmington Trust FSB, as Trustee,
    incorporated by reference to Exhibit 10.75 to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.4
.10

Form of 8.75% Senior Secured
    Notes due 2011, incorporated by reference to Exhibit 4.12
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.11

Senior Indenture, dated as of
    December 15, 2003, among the Company, Subsidiary Guarantors
    named therein and Wachovia Bank, National Association, as
    trustee, incorporated by reference to Exhibit 4.1 to the
    Companys Registration Statement on
    Form 8-A,
    as filed with the SEC on December 15, 2003.4
.12

First Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 8.625% Senior Notes due 2010, dated as of
    December 15, 2003, among Hanover Compressor Company,
    Hanover Compression Limited Partnership and Wachovia Bank,
    National Association, as trustee, incorporated by reference to
    Exhibit 4.2 to the Companys Registration Statement on
    Form 8-A,
    as filed with the SEC on December 15, 2003.4
.13

Form of 8.625% Senior Notes
    due 2010, incorporated by reference to Exhibit 4.17 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.14

Second Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 4.75% Convertible Senior Notes due 2014,
    dated as of December 15, 2003, between the Company and
    Wachovia Bank, National Association, as trustee, incorporated by
    reference to Exhibit 4.4 to the Companys Current
    Report on
    Form 8-K,
    as filed with the SEC on December 16, 2003.4
.15

Form of 4.75% Convertible
    Senior Notes due 2014, incorporated by reference to
    Exhibit 4.19 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.16

Third Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 9.0% Senior Notes due 2014, dated as of
    June 1, 2004, among Hanover Compressor Company, Hanover
    Compression Limited Partnership and Wachovia Bank, National
    Association, as trustee, incorporated by reference to
    Exhibit 4.2 to the Registration Statement of Hanover
    Compressor Company and Hanover Compression Limited Partnership
    on
    Form 8-A
    under the Securities Act of 1934, as filed on June 2, 2004.4
.17

Form of 9% Senior Notes due
    2014, incorporated by reference to Exhibit 4.3 to the
    Registration Statement of Hanover Compressor Company and Hanover
    Compression Limited Partnership on
    Form 8-A
    under the Securities Act of 1934, as filed on June 2, 2004.4
.18

Fourth Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 7
    1/2
    % Senior Notes due 2013, dated as of March 31, 2006, among
    Hanover Compressor Company, Hanover Compression Limited
    Partnership and Wachovia Bank, National Association, as trustee,
    incorporated by reference to Exhibit 4.1 to the
    Companys Current Report on
    Form 8-K,
    as filed with the SEC on March 31, 2006.4
.19

Form of Note for the 7
    1/2
    % Senior Notes due 2013, incorporated by reference to
    Exhibit 4.2 to the Companys Current Report on
    Form 8-K,
    as filed with the SEC on March 31, 2006.10
.1

Stipulation and Agreement of
    Settlement, dated as of October 23, 2003, incorporated by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003.10
.2

PIGAP Settlement Agreement, dated
    as of May 14, 2003, by and among Schlumberger Technology
    Corporation, Schlumberger Oilfield Holdings Limited,
    Schlumberger Surenco S.A., the Company and Hanover Compression
    Limited Partnership, incorporated by reference to
    Exhibit 10.2 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003. 62




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##### Table of Contents



ExhibitNumber

Description10
.3

Credit Agreement, dated as of
    November 21, 2005, among the Company, Hanover Compression
    Limited Partnership, The Royal Bank of Scotland plc as
    Syndication Agent, JPMorgan Chase Bank, N.A. as Administrative
    Agent, and the several lenders parties thereto, incorporated by
    reference to Exhibit 10.3 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.4

Guarantee and Collateral
    Agreement, dated as of November 21, 2005, among the
    Company, Hanover Compression Limited Partnership and certain of
    their subsidiaries in favor of JPMorgan Chase Bank, N.A. as
    Collateral Agent, incorporated by reference to Exhibit 10.4
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10
.5

First Amendment and Consent, dated
    as of June 27, 2006 with respect to the Hanover Compressor
    Company and Hanover Compression Limited Partnership Credit
    Agreement dated November 21, 2005, incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
    for the     quarter ended June 30, 2006.10
.6

Lease, dated as of August 31,
    2001, between Hanover Equipment Trust 2001A (the
    2001A Trust) and Hanover Compression Limited
    Partnership, incorporated by reference to Exhibit 10.64 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.7

Guarantee, dated as of
    August 31, 2001, made by the Company, Hanover Compression
    Limited Partnership, and certain subsidiaries, incorporated by
    reference to Exhibit 10.65 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.8

Participation Agreement, dated as
    of August 31, 2001, among Hanover Compression Limited
    Partnership, the 2001A Trust, and General Electric Capital
    Corporation, incorporated by reference to Exhibit 10.66 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.9

Security Agreement, dated as of
    August 31, 2001, made by the 2001A Trust in favor of
    Wilmington Trust FSB as collateral agent, incorporated by
    reference to Exhibit 10.67 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.10

Assignment of Leases, Rents and
    Guarantee from the 2001A Trust to Wilmington Trust FSB,
    dated as of August 31, 2001, incorporated by reference to
    Exhibit 10.68 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.11

Lease, dated as of August 31,
    2001, between Hanover Equipment Trust 2001B (the
    2001B Trust) and Hanover Compression Limited
    Partnership, incorporated by reference to Exhibit 10.70 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.12

Guarantee, dated as of
    August 31, 2001, made by the Company, Hanover Compression
    Limited Partnership, and certain subsidiaries, incorporated by
    reference to Exhibit 10.71 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.13

Participation Agreement, dated as
    of August 31, 2001, among Hanover Compression Limited
    Partnership, the 2001B Trust, and General Electric Capital
    Corporation, incorporated by reference to Exhibit 10.72 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.14

Security Agreement, dated as of
    August 31, 2001, made by the 2001B Trust in favor of
    Wilmington Trust FSB as collateral agent, incorporated by
    reference to Exhibit 10.73 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.15

Assignment of Leases, Rents and
    Guarantee from the 2001B Trust to Wilmington Trust FSB,
    dated as of August 31, 2001, incorporated by reference to
    Exhibit 10.74 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.16

Amended and Restated Declaration
    of Trust of Hanover Compressor Capital Trust, dated as of
    December 15, 1999, among the Company, as sponsor,
    Wilmington Trust Company, as property trustee, and Richard S.
    Meller, William S. Goldberg and Curtis A. Bedrich, as
    administrative trustees, incorporated by reference to
    Exhibit 4.5 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    filed with the SEC on February 14, 2000. 63




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ExhibitNumber

Description10
.17

Preferred Securities Guarantee
    Agreement, dated as of December 15, 1999, between the
    Company, as guarantor, and Wilmington Trust Company, as
    guarantee trustee, incorporated by reference to
    Exhibit 4.10 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.10
.18

Common Securities Guarantee
    Agreement, dated as of December 15, 1999, by the Company,
    as guarantor, for the benefit of the holders of common
    securities of Hanover Compressor Capital Trust, incorporated by
    reference to Exhibit 4.11 to the Companys
    Registration Statement (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.10
.19

Purchase Agreement, dated
    June 28, 2001, among Schlumberger Technology Corporation,
    Schlumberger Oilfield Holdings Ltd., Schlumberger Surenco S.A.,
    Camco International Inc., the Company and Hanover Compression
    Limited Partnership, incorporated by reference to
    Exhibit 10.63 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001.10
.20

Schedule 1.2(c) to Purchase
    Agreement, dated June 28, 2001, among Schlumberger
    Technology Corporation, Schlumberger Oilfield Holdings Limited,
    Schlumberger Surenco S.A., Camco International Inc., the Company
    and Hanover Compression Limited Partnership, incorporated by
    reference to Exhibit 99.1 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on February 6, 2003.10
.21

Amendment No. 1, dated as of
    August 31, 2001, to Purchase Agreement among Schlumberger
    Technology Corporation, Schlumberger Oilfield Holdings Ltd.,
    Schlumberger Surenco S.A., Camco International Inc., the Company
    and Hanover Compression Limited Partnership, incorporated by
    reference to Exhibit 99.3 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on September 14, 2001.10
.22

Amendment No. 2, dated as of
    July 8, 2005 to Purchase Agreement by and among the
    Company, Hanover Compression Limited Partnership and
    Schlumberger Technology Corporation, for itself and as successor
    in interest to Camco International Inc., Schlumberger Surenco
    S.A. and Schlumberger Oilfield Holdings Ltd., incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.23

Hanover Compressor Company 1997
    Stock Option Plan, as amended, incorporated by reference to
    Exhibit 10.23 to the Companys Registration Statement
    (File
    No. 333-24953)
    on
    Form S-1,
    as amended.10
.24

Hanover Compressor Company 1998
    Stock Option Plan, incorporated by reference to
    Exhibit 10.7 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 1998.10
.25

First Amendment to the Hanover
    Compressor Company 1998 Stock Option Plan, incorporated by
    reference to Exhibit 10.2 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.26

Hanover Compressor Company
    December 9, 1998 Stock Option Plan, incorporated by
    reference to Exhibit 10.33 to the Companys Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 1998.10
.27

Hanover Compressor Company 1999
    Stock Option Plan, incorporated by reference to Exhibit 4.1
    to the Companys Registration Statement (File
    No. 333-32092)
    on
    Form S-8
    filed with the SEC on March 10, 2000.10
.28

First Amendment to the Hanover
    Compressor Company 1999 Stock Option Plan, incorporated by
    reference to Exhibit 10.3 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.29

Hanover Compressor Company 2001
    Equity Incentive Plan, incorporated by reference to
    Exhibit 4.1 to the Companys Registration Statement
    (File
    No. 333-73904)
    on
    Form S-8
    filed with the SEC on November 21, 2001.10
.30

First Amendment to the Hanover
    Compressor Company 2001 Equity Incentive Plan, incorporated by
    reference to Exhibit 10.4 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.31

Hanover Compressor Company 2003
    Stock Incentive Plan, incorporated by reference to the
    Companys Definitive Proxy Statement on Schedule 14A,
    as filed with the SEC on April 15, 2003. 64




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##### Table of Contents



ExhibitNumber

Description10
.32

First Amendment to the Hanover
    Compressor Company 2003 Stock Incentive Plan, incorporated by
    reference to Exhibit 10.5 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.33

Hanover Compressor Company 2006
    Stock Incentive Plan, incorporated by reference to the
    Companys Definitive Proxy Statement on Schedule 14A, as
    filed with the SEC on  March 24, 2006.10
.34

First Amendment to be effective
    February 3, 2007 to the Hanover Compressor Company 2006 Stock
    Incentive Plan incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on Form 8-K, as filed with the SEC
    on February 5, 2007. 10
.35

Hanover Compressor Company 2006
    Long-Term Cash Incentive Plan, incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on Form 8-K
    filed with the SEC on July 27, 2006. 10
.36

Employment Letter with Peter
    Schreck, dated August 22, 2000, incorporated by reference
    to Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2003.10
.37

Employment Letter with Stephen
    York, dated March 6, 2002, incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2003.10
.38

Employment Letter with Gary M.
    Wilson dated April 9, 2004, incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004.10
.39

Gary M. Wilson letter dated July
    29, 2005 relating to employment benefits.  *10
.40

Gary M. Wilson letter dated
    October 10, 2006 relating to employment benefits.  *10
.41

Employment Letter with John E.
    Jackson dated October 5, 2004, incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    as filed with the SEC on October 6, 2004.10
.42

Change of Control and Severance
    Agreement dated July 29, 2005 between John E. Jackson and
    the Company, incorporated by reference to Exhibit 10.1 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005.10
.43

Employment Letter with Lee E.
    Beckelman dated January 31, 2005, incorporated by reference
    to Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    as filed with the SEC on February 1, 2005.10
.44

Employment Letter with Anita H.
    Colglazier dated April 4, 2002 with explanatory note,
    incorporated by reference to Exhibit 10.61 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004. 10
.45

Letter to Brian Matusek regarding
    employment terms, incorporated by reference to Exhibit 10.1
    to the Companys Current Report on
    Form 8-K
    filed with the SEC on April 18, 2005. 10
.46

Employment Letter with Norrie
    Mckay effective as of May 16, 2005, incorporated by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2005.10
.47

Form of Change of Control
    Agreement dated July 29, 2005 between the Company and each
    of Messrs. Lee E. Beckelman, Brian A. Matusek, Gary M.
    Wilson, Steven W. Muck, Norman A. Mckay, Stephen P. York and
    Peter G. Schreck and Ms. Anita H. Colglazier, incorporated
    by reference to Exhibit 10.2 to the Companys
    Quarterly Report on
    Form 10-Q
    For the quarter ended June 30, 2005.12
.1

Computation of ratio of earnings
    to fixed charges.*14
.1

P.R.I.D.E. in
    Performance  Hanovers Guide to Ethical Business
    Conduct (the Code of Ethics), incorporated by
    reference to Exhibit 14.1 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2003.14
.2

Amendment to the Code of Ethics,
    incorporated by reference to Exhibit 14.1 to the
    Companys Current Report on
    Form 8-K,
    as filed with the SEC on January 20, 2005.21
.1

List of Subsidiaries.*23
.1

Consent of PricewaterhouseCoopers
    LLP.*31
.1

Certification of the Chief
    Executive Officer pursuant to
    Rule 13a-14(a)/15d-14(a)
    of the Securities Exchange Act of 1934.*31
.2

Certification of the Chief
    Financial Officer pursuant to
    Rule 13a-14(a)/15d-14(a)
    of the Securities Exchange Act of 1934.*32
.1

Certification of the Chief
    Executive Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.* 65




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ExhibitNumber

Description32
.2

Certification of the Chief
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.*     *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement 66




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##### Table of Contents



SIGNATURES      By:
    /s/  JOHN
    E. JACKSON   President and Chief Executive Officer
      Signature

Title

Date/s/  JOHN
    E. JACKSONJohn
    E. Jackson

President, Chief Executive Officer
    and Director (Principal Executive Officer)

February 28, 2007/s/  LEE
    E. BECKELMANLee
    E. Beckelman

Senior Vice President and Chief
    Financial Officer 
    (Principal Financial Officer)

February 28, 2007/s/  ANITA
    H.
    COLGLAZIERAnita
    H. Colglazier

Vice President and Controller
    (Principal Accounting Officer)

February 28, 2007/s/  I.
    JON BRUMLEYI.
    Jon Brumley

Director

February 28, 2007/s/  TED
    COLLINS, JR.Ted
    Collins, Jr.

Director

February 28, 2007/s/  MARGARET
    K. DORMANMargaret
    K. Dorman

Director

February 28, 2007/s/  ROBERT
    R. FURGASONRobert
    R. Furgason

Director

February 28, 2007/s/  VICTOR
    E. GRIJALVAVictor
    E. Grijalva

Director

February 28, 2007/s/  GORDON
    T. HALLGordon
    T. Hall

Director

February 28, 2007/s/  PETER
    H. KAMINPeter
    H. Kamin

Director

February 28, 2007/s/  WILLIAM
    C. PATEWilliam
    C. Pate

Director

February 28, 2007/s/  STEPHEN
    M. PAZUKStephen
    M. Pazuk

Director

February 28, 2007/s/  L.
    ALI SHEIKHL.
    Ali Sheikh

Director

February 28, 2007  67




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
       Consolidated
    financial statements and financial statement schedule
      Internal
    control over financial reporting
  Internal Control - Integrated Framework Internal Control 
    Integrated Framework
   F-1




---



##### Table of Contents



F-2




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands, except par value and share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
73,286


$
48,233Accounts receivable, net of
    allowance of $4,938 and $4,751


283,073



243,672Inventory, net


308,093



251,069Costs and estimated earnings in
    excess of billings on uncompleted contracts


109,732



99,166Current deferred income taxes


20,129



13,842Other current assets


86,350



48,403Total current assets


880,663



704,385Property, plant and equipment, net


1,863,452



1,823,100Goodwill, net


181,098



184,364Intangible and other assets


55,702



60,406Investments in non-consolidated
    affiliates


89,974



90,741Total assets

$
3,070,889


$
2,862,996LIABILITIES AND COMMON
    STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt

$
4,433


$
4,080Current maturities of long-term
    debt


455



1,309Accounts payable, trade


136,908



92,980Accrued liabilities


147,320



129,683Advance billings


170,859



89,513Billings on uncompleted contracts
    in excess of costs and estimated earnings


94,123



35,126Total current liabilities


554,098



352,691Long-term debt


1,365,043



1,473,559Other liabilities


48,953



38,976Deferred income taxes


76,522



76,115Total liabilities


2,044,616



1,941,341Commitments and contingencies
    (Note 19)Minority interest


11,991



11,873Common stockholders equity:Common stock, $.001 par
    value; 200,000,000 shares authorized; 103,825,732 and
    102,392,918 shares issued, respectively


104



102Additional paid-in capital


1,104,730



1,097,766Deferred employee
    compensation  restricted stock grants






(13,249
)Accumulated other comprehensive
    income


12,983



15,214Accumulated deficit


(99,565
)


(186,088
)Treasury stock  449,763
    and 366,091 common shares, at cost, respectively


(3,970
)


(3,963
)Total common stockholders
    equity


1,014,282



909,782Total liabilities and common
    stockholders equity

$
3,070,889


$
2,862,996    F-3




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(In thousands, except per share amounts)Revenues and other income:U.S. rentals

$
384,292


$
351,128


$
341,570International rentals


263,228



232,587



214,598Parts, service and used equipment


224,810



225,636



180,321Compressor and accessory fabrication


303,205



179,954



158,629Production and processing equipment
    fabrication


429,697



360,267



270,284Equity in income of
    non-consolidated affiliates


19,430



21,466



19,780Gain on sale of business and other
    income


46,001



4,551



3,4131,670,663



1,375,589



1,188,595Expenses:U.S. rentals


152,605



139,465



144,580International rentals


96,631



76,512



63,953Parts, service and used equipment


183,965



169,168



135,929Compressor and accessory fabrication


249,910



156,414



144,832Production and processing equipment
    fabrication


366,590



325,924



242,251Selling, general and administrative


204,247



182,198



173,066Depreciation and amortization


181,416



182,681



175,308Interest expense


118,006



136,927



146,978Foreign currency translation


(4,317
)


7,890



(5,222
)Securities related litigation
    settlement










(4,163
)Other


1,204



526



407Debt extinguishment costs


5,902



7,318



1,556,159



1,385,023



1,217,919Income (loss) from continuing
    operations before income taxes


114,504



(9,434
)


(29,324
)Provision for income taxes


28,782



27,714



24,767Income (loss) from continuing
    operations


85,722



(37,148
)


(54,091
)Income (loss) from discontinued
    operations, net of tax


368



(756
)


6,314Gain (loss) from sales of
    discontinued operations, net of tax


63



(113
)


3,771Income (loss) before cumulative
    effect of accounting changes


86,153



(38,017
)


(44,006
)Cumulative effect of accounting
    changes, net of tax


370







Net income (loss)

$
86,523


$
(38,017
)

$
(44,006
)Basic income (loss) per common
    share:Income (loss) from continuing
    operations

$
0.85


$
(0.41
)

$
(0.64
)Income (loss) from discontinued
    operations, net of tax


0.01



(0.01
)


0.12Cumulative effect of accounting
    changes, net of tax










Net income (loss)

$
0.86


$
(0.42
)

$
(0.52
)Diluted income (loss) per common
    share:Income (loss) from continuing
    operations

$
0.80


$
(0.41
)

$
(0.64
)Income (loss) from discontinued
    operations, net of tax


0.01



(0.01
)


0.12Cumulative effect of accounting
    changes, net of tax










Net income (loss)

$
0.81


$
(0.42
)

$
(0.52
)Weighted average common and
    equivalent shares outstanding:Basic


101,178



91,556



84,792Diluted


112,035



91,556



84,792    F-4




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
  Years Ended December 31,2006


2005


2004(In thousands)Net income (loss)

$
86,523


$
(38,017
)

$
(44,006
)Other comprehensive income (loss):Change in fair value of derivative
    financial instruments, net of tax






608



8,638Foreign currency translation
    adjustment


(2,231
)


(2,912
)


(347
)Comprehensive income (loss)

$
84,292


$
(40,321
)

$
(35,715
)    F-5




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##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(In thousands)Cash flows from operating
    activities:Net income (loss)

$
86,523


$
(38,017
)

$
(44,006
)Adjustments:Depreciation and amortization


181,416



182,681



175,308(Income) loss from discontinued
    operations, net of tax


(431
)


869



(10,085
)Cumulative effect of accounting
    changes, net of tax


(370
)






Bad debt expense


2,465



1,955



2,658Gain on sale of property, plant and
    equipment


(11,798
)


(13,183
)


(6,076
)Equity in income of
    non-consolidated affiliates, net of dividends received


(1,831
)


(2,783
)


(10,112
)Loss on derivative instruments






416



1,886(Gain) loss on remeasurement of
    intercompany balances


(2,061
)


12,155



(5,456
)Securities related litigation
    settlement, in excess of cash paid










(6,326
)Net realized gain on trading
    securities


(4,873
)






Zero coupon subordinated notes
    accreted interest paid by refinancing


(86,084
)






Gain on sale of non-consolidated
    affiliates










(300
)Gain on sale of business


(28,476
)


(367
)


Stock compensation expense


9,773



5,676



2,599Pay-in-kind
    interest on zero coupon subordinated notes


6,282



23,336



20,966Sales of trading securities


23,344







Purchases of trading securities


(18,471
)






Deferred income taxes


140



19,304



11,627Changes in assets and liabilities,
    excluding business combinations:Accounts receivable and notes


(31,539
)


(45,061
)


(4,021
)Inventory


(59,944
)


(73,936
)


(21,966
)Costs and estimated earnings versus
    billings on uncompleted contracts


51,298



(21,117
)


(5,733
)Prepaid and other current assets


(35,058
)


(15,840
)


(561
)Accounts payable and other
    liabilities


51,268



41,037



(3,806
)Advance billings


81,885



47,549



16,130Other


(3,923
)


(1,804
)


10,996Net cash provided by continuing
    operations


209,535



122,870



123,722Net cash provided by (used in)
    discontinued operations


(446
)


(383
)


8,115Net cash provided by operating
    activities


209,089



122,487



131,837Cash flows from investing
    activities:Capital expenditures


(246,583
)


(155,146
)


(90,496
)Proceeds from sale of property,
    plant and equipment


26,290



51,101



24,265Proceeds from the sale of business


52,125



2,724



Proceeds from sale of
    non-consolidated affiliates










4,663Cash used for business
    acquisitions, net






(3,426
)


Cash used to acquire investments in
    and advances to non-consolidated affiliates






(500
)


(250
)Net cash used in continuing
    operations


(168,168
)


(105,247
)


(61,818
)Net cash provided by discontinued
    operations






1,220



72,947Net cash provided by (used in)
    investing activities


(168,168
)


(104,027
)


11,129Cash flows from financing
    activities:Borrowings on revolving credit
    facilities


196,500



152,000



52,200Repayments on revolving credit
    facilities


(224,500
)


(111,000
)


(72,200
)Proceeds from issuance of senior
    notes


150,000







Payments for debt issue costs


(3,832
)


(2,592
)


(253
)Proceeds from warrant conversions
    and stock options exercised


5,675



4,990



9,549Issuance of senior notes, net










194,125Proceeds from equity offering, net
    of issuance costs






179,100



Repayment of zero coupon
    subordinated notes principal


(150,000
)






Stock-based compensation excess tax
    benefit


1,516







    F-6




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##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Years Ended December 31,2006


2005


2004(In thousands)Payments of 2000A compression
    equipment lease obligations










(200,000
)Payments of 2000B compression
    equipment lease obligations






(57,589
)


(115,000
)Payments of 2001A compression
    equipment lease obligations






(172,177
)


Borrowings of other debt


7,673



2,180



Repayments of other debt


(1,166
)


(1,802
)


(30,771
)Net cash used in continuing
    operations


(18,134
)


(6,890
)


(162,350
)Net cash used in discontinued
    operations










Net cash used in financing
    activities


(18,134
)


(6,890
)


(162,350
)Effect of exchange rate changes on
    cash and equivalents


2,266



(1,413
)


841Net increase (decrease) in cash and
    cash equivalents


25,053



10,157



(18,543
)Cash and cash equivalents at
    beginning of year


48,233



38,076



56,619Cash and cash equivalents at end of
    year

$
73,286


$
48,233


$
38,076Supplemental disclosure of cash
    flow information:Interest paid, net of capitalized
    amounts

$
196,745


$
118,787


$
125,047Income taxes paid, net

$
20,722


$
18,471


$
15,830Supplemental disclosure of non-cash
    transactions:Assets sold in exchange for note
    receivable





$
1,600


$
1,314Conversion of deferred stock option
    liability

$
35


$
282


$
334Conversion of debt to common stock

$
1,447







Common stock issued for securities
    settlement









$
29,800Acquisitions of businesses:Property, plant and equipment
    acquired





$
359



Other assets acquired, net of cash
    acquired





$
286



Goodwill





$
2,781



    F-7




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##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  CONSOLIDATED
    STATEMENTS OF COMMON STOCKHOLDERS EQUITY
  Accumulated








Deferred


RetainedAdditional


Other








Compensation-


Earnings/Common Stock


Paid-in


Comprehensive


Treasury Stock


Restricted


(AccumulatedShares


Amount


Capital


Income (loss)


Shares


Amount


Stock Grants


Deficit)(In thousands, except share data)Balance at December 31, 2003


82,649,629


$
83


$
856,020


$
9,227



(252,815
)

$
(2,325
)

$
(5,452
)

$
(104,065
)Exercise of stock options


1,140,073



1



9,882



















Cumulative translation adjustment














(347
)














Change in fair value of derivative
    financial instrument, net of tax














8,638















Issuance of restricted stock
    grants, net of forfeitures, net of amortization expense


1,364,268



1



17,308







(408,995
)


(4,982
)


(9,728
)


Issuance of common stock for
    shareholder litigation


2,500,000



3



29,797



















Net loss






























(44,006
)Balance at December 31, 2004


87,653,970


$
88


$
913,007


$
17,518



(661,810
)

$
(7,307
)

$
(15,180
)

$
(148,071
)Exercise of stock options


1,564,363



1



5,271



















Cumulative translation adjustment














(2,912
)














Change in fair value of derivative
    financial instrument, net of tax














608















Issuance of restricted stock
    grants, net of forfeitures, net of amortization expense


20,200







401







295,719



3,344



1,931



Equity offering, net of issuance
    costs


13,154,385



13



179,087















Net loss






























(38,017
)Balance at December 31, 2005


102,392,918


$
102


$
1,097,766


$
15,214



(366,091
)

$
(3,963
)

$
(13,249
)

$
(186,088
)Exercise of stock options


538,775



1



5,709



















Stock options expense










1,734



















Cumulative translation adjustment














(2,231
)














Issuance of restricted stock
    grants, net of forfeitures and cancellations


813,072



1



8,046







(83,672
)


(7
)






Convertible debentures converted to
    common stock


80,967







1,447



















Cumulative effect of in accounting
    change related to FASB 123(R) adoption










(370
)


















Income tax benefit from stock
    compensation expense










3,647



















Reversal of deferred compensation
    due to adoption of FASB 123(R)










(13,249
)














13,249



Net income






























86,523Balance at December 31, 2006


103,825,732


$
104


$
1,104,730


$
12,983



(449,763
)

$
(3,970
)

$



$
(99,565
)    F-8




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2006, 2005 and 2004
  1.
    The
    Company, Business and Significant Accounting Policies      Principles
    of Consolidation
    Use of
    Estimates in the Financial Statements
      Cash
    and Cash Equivalents
   F-9




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Revenue
    Recognition
    percentage-of-completion percentage-of-completion percentage-of-completion
  Concentrations
    of Credit Risk
      Inventory
    Trading
    Securities
    F-10




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Property,
    Plant and Equipment
    Compression equipment, facilities
    and other rental assets

4 to 30 yearsBuildings

20 to 35 yearsTransportation, shop equipment and
    other

3 to 12 years     Computer
    software
    Long-Lived
    Assets, other than Intangibles
      Goodwill
    and Other Intangibles
    Advance
    Billings
  percentage-of-completion
  Income
    Taxes
   F-11




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreign
    Currency Translation
    Earnings
    Per Common Share
      Years Ended December 31,2006


2005


2004Weighted average common shares
    outstanding  used in basic income (loss) per common
    share


101,178



91,556



84,792Net dilutive potential common
    stock issuable:On exercise of options and vesting
    of restricted stock


1,274



**



**On exercise of warrants






**



**On conversion of convertible
    junior subordinated notes due 2029


**



**



**On conversion of convertible
    senior notes due 2008


**



**



**On conversion of convertible
    senior notes due 2014


9,583



**



**Weighted average common shares and
    dilutive potential common shares  used in dilutive
    income (loss) per common share


112,035



91,556



84,792     **
    
    Excluded from diluted income (loss) per common share as the
    effect would have been anti-dilutive.   F-12




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2006


2005


2004Net dilutive potential common
    shares issuable:On exercise of options and vesting
    of restricted stock






2,378



2,512On exercise of options-exercise
    price greater than average market value at end of period


52



935



995On exercise of warrants






2



4On conversion of convertible
    junior subordinated notes due 2029


4,825



4,825



4,825On conversion of convertible
    senior notes due 2008


4,370



4,370



4,370On conversion of convertible
    senior notes due 2014






9,583



9,5839,247



22,093



22,289   Stock
    Options and Stock-Based Compensation
          paid-in-capital.
 F-13




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Years Ended December 31,2005


2004Net loss, before stock-based
    compensation for employees

$
(38,017
)

$
(44,006
)Add back: Stock-based compensation
    expense for employees previously determined under intrinsic
    value method, net of tax effect


5,676



2,599Deduct: Stock-based employee
    compensation expense for employees determined under the fair
    value method, net of tax


(8,098
)


(4,817
)Net loss, after effect of
    stock-based compensation for employees

$
(40,439
)

$
(46,224
)Net loss per share:Basic, as reported for prior
    periods

$
(0.42
)

$
(0.52
)Basic after effect of stock-based
    compensation for employees

$
(0.44
)

$
(0.55
)Diluted as reported for prior
    periods

$
(0.42
)

$
(0.52
)Diluted after effect of
    stock-based compensation for employees

$
(0.44
)

$
(0.55
)   Comprehensive
    Income (Loss)
    Financial
    Instruments
     F-14




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
  Reclassifications
    2.
    Business
    Acquisitions    Year
    Ended December 31, 2005
    3.
    Dispositions     F-15




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           4.
    Inventory    December 31,2006


2005Parts and supplies

$
135,632


$
135,310Work in progress


162,096



105,405Finished goods


10,365



10,354$
308,093


$
251,069    F-16




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    Compressor
    and Production and Processing Equipment Fabrication
    Contracts    December 31,2006


2005Costs incurred on uncompleted
    contracts

$
558,607


$
372,675Estimated earnings


85,938



42,976644,545



415,651Less  billings to date


(628,936
)


(351,611
)$
15,609


$
64,040     December 31,2006


2005Costs and estimated earnings in
    excess of billings on uncompleted contracts

$
109,732


$
99,166Billings on uncompleted contracts
    in excess of costs and estimated earnings


(94,123
)


(35,126
)$
15,609


$
64,040   6.
    Property,
    plant and equipment    December 31,2006


2005Compression equipment, facilities
    and other rental assets

$
2,587,377


$
2,441,119Land and buildings


107,444



87,604Transportation and shop equipment


89,673



77,507Other


58,788



53,8242,843,282



2,660,054Accumulated depreciation


(979,830
)


(836,954
)$
1,863,452


$
1,823,100      F-17




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    Intangible
    and Other Assets    December 31,2006


2005Deferred debt issuance and leasing
    transactions costs

$
26,553


$
28,331Notes and other receivables


9,714



13,284Intangibles


5,524



4,682Deferred taxes


7,085



7,999Other


6,826



6,110$
55,702


$
60,406       As of December 31, 2006


As of December 31, 2005Gross





GrossCarrying


Accumulated


Carrying


AccumulatedAmount


Amortization


Amount


Amortization(In thousands)Deferred debt issuance transaction
    costs

$
58,037


$
(31,484
)

$
54,205


$
(25,874
)Marketing related (3-20 yr life)


2,256



(524
)


2,063



(324
)Customer related (20 yr life)


3,022



(621
)


2,724



(423
)Technology based (5 yr life)


1,259



(497
)


868



(355
)Contract based (17 yr life)


1,326



(697
)


650



(521
)$
65,900


$
(33,823
)

$
60,510


$
(27,497
)     2007

$
6,7992008


5,5472009


4,6422010


4,2662011


2,505Thereafter


8,318$
32,077   8.
    Investments
    in Non-Consolidated Affiliates   F-18




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     OwnershipInterest


Location


Type of BusinessPIGAP II


30.0
%


Venezuela


Gas Compression PlantEl Furrial


33.3
%


Venezuela


Gas Compression PlantSimco/Harwat Consortium


35.5
%


Venezuela


Water Injection Plant     December 31,2006


2005Current assets

$
135,845


$
137,936Non-current assets


463,661



495,071Current liabilities, excluding debt


77,618



37,403Debt payable


256,648



301,384Other non-current liabilities


59,515



51,752Owners equity


205,725



242,468     Years Ended December 31,2006


2005


2004Revenues

$
199,029


$
198,906


$
191,804Operating income


86,421



100,441



93,871Net income


20,003



54,473



45,275     Rule 3-09 Regulation S-X Form 10-K
       F-19




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Goodwill        PurchaseAdjustmentDecember 31,


Acquisitions/


and Other


December 31,2005


Dispositions(1)


Adjustments


2006U.S. rentals

$
100,209


$
(3,138
)

$



$
97,071International rentals


37,654











37,654Parts, service and used equipment


32,110



(128
)






31,982Compressor and accessory
    fabrication


14,391











14,391Total

$
184,364


$
(3,266
)

$



$
181,098   PurchaseAdjustmentDecember 31,


Acquisitions/


and Other


December 31,2004


Dispositions(2)


Adjustments(3)


2005U.S. rentals

$
100,456


$



$
(247
)

$
100,209International rentals


35,085



2,781



(212
)


37,654Parts, service and used equipment


33,076



(562
)


(404
)


32,110Compressor and accessory
    fabrication


14,573







(182
)


14,391Total

$
183,190


$
2,219


$
(1,045
)

$
184,364     (1)
    
    Reductions to goodwill for the sale of a pipeline business in
    Argentina and our U.S. amine rental treating assets in 2006.(2)
    
    Additions to goodwill for our international rentals segment in
    2005 relates to our acquisition of PTS.(3)
    
    Relates primarily to purchase price adjustments for taxes
    related to acquisitions. F-20




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   10.
    Accrued
    Liabilities    December 31,2006


2005Accrued salaries, bonuses and
    other employee benefits

$
51,299


$
36,823Accrued income and other taxes


36,188



26,868Current portion of interest rate
    swaps


2,276



1,849Accrued interest


22,744



19,838Accrued other


34,813



44,305$
147,320


$
129,683   11.
    Long-term
    Debt    December 31,2006


2005Bank credit facility due November
    2010

$
20,000


$
48,0004.75% convertible senior
    notes due 2008*


192,000



192,0004.75% convertible senior
    notes due 2014*


143,750



143,7508.625% senior notes due 2010**


200,000



200,0007.5% senior notes due 2013**


150,000



9.0% senior notes due 2014**


200,000



200,0002001A compression equipment lease
    notes, interest at 8.5%, due September 2008


133,000



133,0002001B compression equipment lease
    notes, interest at 8.75%, due September 2011


250,000



250,000Zero coupon subordinated notes,
    interest at 11%*






229,8037.25% convertible junior
    subordinated notes due 2029*


84,803



86,250Fair value adjustment 
    fixed to floating interest rate swaps


(8,732
)


(9,686
)Other, interest at various rates,
    collateralized by equipment and other assets, net of unamortized
    discount


677



1,7511,365,498



1,474,868Less  current maturities


(455
)


(1,309
)Long-term debt

$
1,365,043


$
1,473,559     *
    
    Securities issued by Hanover (parent company)**
    
    Securities issued by Hanover (parent company) and guaranteed by
    HCLP. F-21




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,20062007

$
4552008


325,0452009


492010


211,3222011


250,058Thereafter


578,569$
1,365,498   Bank
    Credit Facility
         F-22




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      7.5% Senior
    Notes due 2013
  Form S-3
   F-23




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.0% Senior
    Notes due 2014
      8.625% Senior
    Notes due 2010
      4.75% Convertible
    Senior Notes due 2014
   F-24




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       4.75% Convertible
    Senior Notes due 2008
        Zero
    Coupon Subordinated Notes due March 31, 2007
     F-25




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.25% Convertible
    Junior Subordinated Notes due 2029
          2001
    Sale Leaseback Transactions
     F-26




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          SubstitutionLimitation asValue of


Percentage of





Percentage ofSubstituted


Termination


Termination


Termination


LeaseLease

Equipment


Value(1)


Value(1)


Value


Termination Date(Dollars in millions)2001A compression equipment lease

$
20.2



14.7
%

$
137.1



25
%


September 20082001B compression equipment lease


54.0



21.0
%


257.7



25
%


September 2011Total

$
74.2






$
394.8     (1)
    
    Termination value assumes all accrued rents paid before
    termination.   F-27




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    Leasing
    Transactions and Accounting Change for FIN 46         F-28




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Residual





MinorityValue


Lease


InterestLease

Guarantee


Termination Date


ObligationAugust 2001

$
102,853



September 2008


$
4,123August 2001


175,000



September 2011



7,750$
277,853






$
11,873       13.
    Income
    Taxes    Years Ended December 31,2006


2005


2004U.S.

$
60,230


$
(33,146
)

$
(69,475
)International


54,274



23,712



40,151$
114,504


$
(9,434
)

$
(29,324
)  F-29




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2006


2005


2004Current tax provision (benefit):Federal

$
468


$



$
168State


1



8



(27
)International


26,657



8,402



12,999Total current


27,126



8,410



13,140Deferred tax provision (benefit):Federal


(9,135
)


273



(4,380
)State


(1,158
)


1,477



1,959International


11,949



17,554



14,048Total deferred


1,656



19,304



11,627Total provision for income taxes

$
28,782


$
27,714


$
24,767     Years Ended December 31,2006


2005


2004Federal income tax at statutory
    rate

$
40,076


$
(3,302
)

$
(10,263
)State income taxes, net of federal
    benefit


(752
)


965



1,256International effective rate/ U.S.
    rate differential (including international valuation allowances)


10,643



12,819



8,195Resolution of certain tax positions


10



(4,254
)


(2,783
)U.S. impact of international
    operations, net of federal benefit


13,480



13,201



14,877U.S. valuation allowances


(36,217
)


7,596



10,880Other, net


1,542



689



2,605$
28,782


$
27,714


$
24,767  F-30




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005Deferred tax assets:Net operating losses carryforward

$
303,243


$
322,906Inventory


5,105



5,983Alternative minimum tax credit
    carryforward


5,834



5,345Accrued liabilities


8,597



5,253Intangibles


4,140



7,727Capital loss carryforward


3,126



11,611Other


18,605



19,885Gross deferred tax assets


348,650



378,710Valuation allowance


(46,996
)


(75,420
)301,654



303,290Deferred tax liabilities:Property, plant and equipment


(351,769
)


(355,111
)Other


(4,338
)


(4,901
)Gross deferred tax liabilities


(356,107
)


(360,012
)$
(54,453
)

$
(56,722
)     Year EndedDecember 31,2006


2005Current deferred income tax assets

$
20,129


$
13,842Intangibles and other asset


7,085



7,999Accrued liabilities


(5,145
)


(2,448
)Deferred income tax liabilities


(76,522
)


(76,115
)Net deferred tax liabilities

$
(54,453
)

$
(56,722
)      F-31




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            14.
    Accounting
    for Derivatives  and/or
      Fair Value ofFixed Rate





Swap atto be


Notional


December 31,Floating Rate to be Paid

Maturity Date


Received


Amount


2006Six Month LIBOR +4.72%


December 15, 2010



8.625
%

$
100,000


$
(4,495
)Six Month LIBOR +4.64%


December 15, 2010



8.625
%

$
100,000


$
(4,237
)  F-32




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair Value ofSwap atFixed Rate


Notional


December 31,Lease

Maturity Date


to be Paid


Amount


2006March 2000


March 11, 2005



5.2550
%

$
100,000


$
August 2000


March 11, 2005



5.2725
%

$
100,000


$
     mark-to-market mark-to-market mark-to-market
        15.
    Common
    Stockholders Equity   F-33




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Other
      16.
    Stock
    Options and Stock-Based Compensation  Incentive
    Plans
      Stock
    Options
       F-34




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     WeightedAverageWeighted


RemainingAverage Exercise


Contractual


AggregateShares


Price per Share


Life (in Years)


Intrinsic ValueOutstanding at December 31,
    2003


5,932


$
9.07Granted(1)


77


$
11.47Exercised


(1,140
)

$
8.38Forfeited


(625
)

$
13.19Outstanding at December 31,
    2004


4,244


$
8.67Granted(1)


478


$
11.98Exercised


(1,562
)

$
3.19Forfeited


(139
)

$
14.44Outstanding at December 31,
    2005


3,021


$
11.77Granted





$
Exercised


(539
)

$
10.53Forfeited


(121
)

$
12.39Outstanding at December 31,
    2006


2,361


$
12.01



4.7


$
16,442Exercisable at December 31,
    2006


1,971


$
12.05



4.0


$
13,687     (1)
    
    Option price equal to fair market value on date of grant.    Options OutstandingWeighted





Options ExercisableAverage


Weighted





WeightedRemaining


Average





AverageContractual


Exercise





ExerciseRange of Exercise Prices

Shares


Life (in Years)


Price


Shares


Price$7.51-10.00


842



2.0


$
9.76



840


$
9.76$10.01-12.50


901



6.9



11.74



519



11.69$12.51-15.00


491



5.0



14.44



485



14.46$15.01-17.50


75



5.2



17.25



75



17.25$17.51-20.00


21



5.1



18.95



21



18.95$25.00


31



4.8



25.00



31



25.002,361











1,971      F-35




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Expected life






7 years



7.5 yearsInterest rate






4.0
%


4.2
%Volatility






32.0
%


38.0
%Dividend yield






0
%


0
%       Weighted-AverageGrant DateShares


Fair ValueUnvested stock options:Unvested at December 31, 2005


914


$
5.31Granted





$
Vested


(456
)

$
5.47Forfeited


(68
)

$
5.23Unvested at December 31, 2006


390


$
5.10     Restricted
    Stock Awards
     F-36




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-AverageGrant DateShares


Fair ValueUnvested restricted stock awards:Unvested at December 31, 2005


1,280


$
11.80Granted


911


$
16.31Vested


(383
)

$
12.08Forfeited


(137
)

$
11.85Change in expected vesting of
    performance awards


82


$
11.39Unvested at December 31, 2006


1,753


$
14.06     17.
    Benefit
    Plans    18.
    Related
    Party and Certain Other Transactions  Transactions
    with GKH Entities
      Transactions
    with Schlumberger Entities
   F-37




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Other
    Related Party Transactions
       F-38




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     19.
    Commitments
    and Contingencies  Cawthorne
    Channel Project
           F-39




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Commitments
    and Other Contingencies
      Maximum PotentialUndiscountedPayments as ofDecember 31,Term


2006Indebtedness of non-consolidated
    affiliates:Simco/Harwat Consortium(1)


2009


$
3,728El Furrial(1)


2013



28,015Other:Performance guarantees through
    letters of credit(2)


2007-2010



207,332Standby letters of credit


2007



13,759Commercial letters of credit


2007



9,558Bid bonds and performance bonds(2)


2007-2012



112,369$
374,761     (1)
    
    We have guaranteed the amount included above, which is a
    percentage of the total debt of this
    non-consolidated
    affiliate equal to our ownership percentage in such affiliate.
    (See Note 8.)(2)
    
    We have issued guarantees to third parties to ensure performance
    of our obligations, some of which may be fulfilled by third
    parties.     F-40




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    20.
    Securities
    Class Action Settlement           F-41




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    21.
    New
    Accounting Pronouncements  150-3
      Accounting for
    Stock Issued to Employees,
 F-42




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Accounting
    for Income Taxes
   F-43




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   22.
    Industry
    Segments and Geographic Information       F-44




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Compressor


Production andParts, Service


and


Processing Fabrication


ReportableInternational


and Used


Accessory


Surface





SegmentsU.S. Rentals


Rentals


Equipment


Fabrication


Equipment


Belleli


Total


Other(1)


Consolidated(In thousands of dollars)2006Revenues from external customers

$
384,292


$
263,228


$
224,810


$
303,205


$
174,770


$
254,927


$
1,605,232


$



$
1,605,232Gross profit


231,687



166,597



40,845



53,295



35,252



27,855



555,531







555,531Total assets


1,358,018



637,723



162,688



134,336



62,772



126,967



2,482,504



588,385



3,070,889Capital expenditures


138,686



87,641











247



17,282



243,856



2,727



246,5832005Revenues from external customers

$
351,128


$
232,587


$
225,636


$
179,954


$
181,574


$
178,693


$
1,349,572


$



$
1,349,572Gross profit


211,663



156,075



56,468



23,540



23,581



10,762



482,089







482,089Total assets


1,415,879



669,421



63,909



70,170



48,880



105,302



2,373,561



489,435



2,862,996Capital expenditures


61,370



87,858











123



4,577



153,928



1,218



155,1462004Revenues from external customers

$
341,570


$
214,598


$
180,321


$
158,629


$
132,684


$
137,600


$
1,165,402


$



$
1,165,402Gross profit


196,990



150,645



44,392



13,797



14,588



13,445



433,857







433,857Total assets


1,468,060



616,339



61,078



56,825



45,185



99,964



2,347,451



423,778



2,771,229Capital expenditures


40,271



36,713











139



7,768



84,891



5,605



90,496   Years Ended December 31,2006


2005


2004(In thousands)Total revenue for reportable
    segments.

$
1,605,232


$
1,349,572


$
1,165,402Gain on sale of business and other
    income(2)


65,431



26,017



23,193Total consolidated revenues and
    other income

$
1,670,663


$
1,375,589


$
1,188,595   Geographic
    Data
  United States


International(3)


Consolidated(In thousands of dollars)2006Revenues from external customers

$
888,290


$
716,942


$
1,605,232Property, plant and equipment, net

$
1,250,656


$
612,796


$
1,863,4522005Revenues from external customers

$
713,563


$
636,009


$
1,349,572Property, plant and equipment, net

$
1,255,935


$
567,165


$
1,823,1002004Revenues from external customers

$
618,792


$
546,610


$
1,165,402Property, plant and equipment, net

$
1,315,610


$
560,738


$
1,876,348     (1)
    
    Includes investments in non-consolidated affiliates and other
    corporate related items.(2)
    
    Includes equity in income of non-consolidated affiliates and
    gain on sale of business and other income. F-45




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (3)
    
    International operations include approximately
    $113.2 million, $109.9 million and $121.2 million
    of revenues and $190.5 million, $192.9 million and
    $197.6 million of property, plant and equipment, net, for
    2006, 2005 and 2004, respectively, related to operations in
    Venezuela.  23.
    Impact of
    Hurricanes      24.
    Subsequent
    Events           F-46




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       25.
    Guarantor
    Subsidiary  Rule 3-10 Regulation S-X.
 F-47




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheet
  December 31,
    2006
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)ASSETSTotal current assets

$



$
443,759


$
444,561


$
(7,657
)

$
880,663Property, plant and equipment, net






1,027,123



836,329







1,863,452Investments in non-consolidated
    affiliates










89,974







89,974Investments in affiliates


1,227,369



216,536



1,227,369



(2,671,274
)


Intercompany receivables


725,804



378,344



698,891



(1,803,039
)


Other assets


53,649



220,921



12,038



(49,808
)


236,800Total Long-term Assets


2,006,822



1,842,924



2,864,601



(4,524,121
)


2,190,226Total Assets

$
2,006,822


$
2,286,683


$
3,309,162


$
(4,531,778
)

$
3,070,889LIABILITIES AND
    STOCKHOLDERS EQUITYTotal current liabilities

$
10,719


$
270,413


$
280,769


$
(7,803
)

$
554,098Long-term debt


981,821



20,222



383,000



(20,000
)


1,365,043Intercompany payables






666,250



1,116,789



(1,783,039
)


Other long-term liabilities






102,429



72,708



(49,662
)


125,475Total liabilities


992,540



1,059,314



1,853,266



(1,860,504
)


2,044,616Minority interest










11,991







11,991Stockholders equity


1,014,282



1,227,369



1,443,905



(2,671,274
)


1,014,282Total Liabilities and
    Stockholders Equity

$
2,006,822


$
2,286,683


$
3,309,162


$
(4,531,778
)

$
3,070,889  F-48




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheet
  December 31,
    2005
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)ASSETSTotal current assets

$



$
351,617


$
366,843


$
(14,075
)

$
704,385Property, plant and equipment, net






1,011,550



811,550







1,823,100Investments in non-consolidated
    affiliates










90,741







90,741Investments in affiliates


1,173,864



277,103



1,173,864



(2,624,831
)


Intercompany receivables


832,512



372,603



773,553



(1,978,668
)


Other assets


9,264



174,629



64,865



(3,988
)


244,770Total Long-term Assets


2,015,640



1,835,885



2,914,573



(4,607,487
)


2,158,611Total Assets

$
2,015,640


$
2,187,502


$
3,281,416


$
(4,621,562
)

$
2,862,996LIABILITIES AND
    STOCKHOLDERS EQUITYTotal current liabilities

$
15,741


$
168,882


$
180,888


$
(12,820
)

$
352,691Long-term debt


1,090,117



48,442



383,000



(48,000
)


1,473,559Intercompany payables






736,745



1,193,923



(1,930,668
)


Other long-term liabilities






59,569



60,765



(5,243
)


115,091Total liabilities


1,105,858



1,013,638



1,818,576



(1,996,731
)


1,941,341Minority interest










11,873







11,873Stockholders equity


909,782



1,173,864



1,450,967



(2,624,831
)


909,782Total Liabilities and
    Stockholders Equity

$
2,015,640


$
2,187,502


$
3,281,416


$
(4,621,562
)

$
2,862,996  F-49




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations
  Year
    Ended December 31, 2006
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)Revenues

$



$
1,053,020


$
552,212


$



$
1,605,232Equity in income of
    non-consolidating affiliates










19,430







19,430Gain on sale of business and other
    income






31,012



14,989







46,001Revenues and other income






1,084,032



586,631







1,670,663Costs and expenses


932



889,917



544,515







1,435,364Other (income) expense:Interest expense, net


75,510



7,290



35,206







118,006Debt extinguishment costs






5,902











5,902Intercompany charges, net


(59,981
)


109,032



(49,051
)






Equity in (income) loss of
    affiliates


(69,426
)


(32,895
)


(69,426
)


171,747



Other, net






(168
)


(2,945
)






(3,113
)Income (loss) from continuing
    operations before income taxes


52,965



104,954



128,332



(171,747
)


114,504Provision for (benefit from) income
    taxes


(33,558
)


35,745



26,595







28,782Income (loss) from continuing
    operations


86,523



69,209



101,737



(171,747
)


85,722Income (loss) from discontinued
    operations






(153
)


584







431Cumulative effect of accounting
    change






370











370Net income (loss)

$
86,523


$
69,426


$
102,321


$
(171,747
)

$
86,523  F-50




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations
  Year
    Ended December 31, 2005
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)Revenues

$



$
850,299


$
499,273


$



$
1,349,572Equity in income of
    non-consolidating affiliates










21,466







21,466Gain on sale of business and other
    income






1,651



2,900







4,551Revenues and other income






851,950



523,639







1,375,589Costs and expenses


932



742,805



488,625







1,232,362Other (income) expense:Interest expense, net


81,689



9,529



45,709







136,927Debt extinguishment costs






7,318











7,318Intercompany charges, net


(66,156
)


127,182



(61,026
)






Equity in (income) loss of
    affiliates


25,005



(18,063
)


25,005



(31,947
)


Other, net






205



8,211







8,416Income (loss) from continuing
    operations before income taxes


(41,470
)


(17,026
)


17,115



31,947



(9,434
)Provision for (benefit from) income
    taxes


(3,453
)


8,316



22,851







27,714Income (loss) from continuing
    operations


(38,017
)


(25,342
)


(5,736
)


31,947



(37,148
)Income (loss) from discontinued
    operations






337



(1,206
)






(869
)Net income (loss)

$
(38,017
)

$
(25,005
)

$
(6,942
)

$
31,947


$
(38,017
)   Condensed
    Consolidating Statement of Operations
    Year Ended December 31, 2004
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)Revenues

$



$
753,038


$
412,364


$



$
1,165,402Equity in income of
    non-consolidating affiliates






(666
)


20,446







19,780Gain on sale of business and other
    income






2,165



1,248







3,413Revenues and other income






754,537



434,058







1,188,595Costs and expenses


932



688,535



390,452







1,079,919Other (income) expense:Interest expense, net


69,168



27,687



50,123







146,978Intercompany charges, net


(53,195
)


102,031



(48,836
)






Equity in (income) loss of
    affiliates


35,413



(25,802
)


35,413



(45,024
)


Other, net


(4,163
)


(530
)


(4,285
)






(8,978
)Income (loss) from continuing
    operations before income taxes


(48,155
)


(37,384
)


11,191



45,024



(29,324
)Provision for (benefit from) income
    taxes


(4,149
)


(1,486
)


30,402







24,767Income (loss) from continuing
    operations


(44,006
)


(35,898
)


(19,211
)


45,024



(54,091
)Income from discontinued operations






485



9,600







10,085Net income (loss)

$
(44,006
)

$
(35,413
)

$
(9,611
)

$
45,024


$
(44,006
)  F-51




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Year Ended December 31, 2006
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)Cash flows from operating
    activities:Net cash provided by (used in)
    continuing operations

$
(15,409
)

$
111,632


$
113,312


$



$
209,535Net cash used in discontinued
    operations






(446
)










(446
)Net cash provided by (used in)
    operating activities


(15,409
)


111,186



113,312







209,089Cash flows from investing
    activities:Capital expenditures






(130,656
)


(115,927
)






(246,583
)Proceeds from sale of property,
    plant and equipment






15,160



11,130







26,290Proceeds from sale of business






51,500



625







52,125Net cash used in investing
    activities






(63,996
)


(104,172
)






(168,168
)Cash flows from financing
    activities:Borrowings (repayments) on
    revolving credit facilities, net






(28,000
)










(28,000
)Proceeds from the issuance of
    senior notes


150,000















150,000Payments for debt issue costs






(3,832
)










(3,832
)Proceeds from warrant conversions
    and stock options exercised


5,675















5,675Repayment of zero coupon
    subordinated notes principal


(150,000
)














(150,000
)Stock-based compensation excess tax
    benefit






1,516











1,516Capital contribution
    (distribution), net


9,734



(9,734
)










Borrowings (repayments) between
    subsidiaries, net






(11,557
)


11,557







Borrowings (repayments) on other
    debt, net






7,046



(539
)






6,507Net cash provided by (used in)
    financing activities


15,409



(44,561
)


11,018







(18,134
)Effect of exchange rate changes on
    in cash and cash equivalents










2,266







2,266Net increase in cash and cash
    equivalents






2,629



22,424







25,053Cash and cash equivalents at
    beginning of year






10,724



37,509







48,233Cash and cash equivalents at end of
    year

$



$
13,353


$
59,933


$



$
73,286  F-52




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Year Ended December 31, 2005
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)Cash flows from operating
    activities:Net cash provided by (used in)
    continuing operations

$
(15,643
)

$
144,908


$
(6,395
)

$



$
122,870Net cash used in discontinued
    operations






(383
)










(383
)Net cash provided by (used in)
    operating activities


(15,643
)


144,525



(6,395
)






122,487Cash flows from investing
    activities:Capital expenditures






(229,390
)


(97,933
)


172,177



(155,146
)Proceeds from sale of property,
    plant and equipment






44,070



179,208



(172,177
)


51,101Proceeds from sale of business






2,724











2,724Cash used for business
    acquisitions, net










(3,426
)






(3,426
)Cash used to acquire investments in
    and advances to non-consolidated affiliates










(500
)






(500
)Net cash provided by (used in)
    continuing operations






(182,596
)


77,349







(105,247
)Net cash provided by discontinued
    operations






1,220











1,220Net cash provided by (used in)
    investing activities






(181,376
)


77,349







(104,027
)Cash flows from financing
    activities:Borrowings (repayments) on
    revolving credit facilities, net






41,000











41,000Borrowings (repayments) between
    subsidiaries, net






(163,908
)


163,908







Payments for debt issue costs






(2,592
)










(2,592
)Proceeds from warrant conversions
    and stock options exercised


4,990















4,990Capital contribution
    (distribution), net


(168,447
)


168,447











Proceeds from equity offering, net
    of issuance costs


179,100















179,100Payments on compression equipment
    lease obligations










(229,766
)






(229,766
)Borrowings (repayments) on other
    debt, net






1,404



(1,026
)






378Net cash provided by (used in)
    financing activities


15,643



44,351



(66,884
)






(6,890
)Effect of exchange rate changes on
    in cash and cash equivalents










(1,413
)






(1,413
)Net increase in cash and cash
    equivalents






7,500



2,657







10,157Cash and cash equivalents at
    beginning of year






3,224



34,852







38,076Cash and cash equivalents at end of
    year

$



$
10,724


$
37,509


$



$
48,233   F-53




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Year Ended December 31, 2004
  Guarantor


OtherParent


Subsidiary


Subsidiaries


Eliminations


Consolidation(In thousands)Cash flows from operating
    activities:Net cash provided by (used in)
    continuing operations

$
(18,090
)

$
100,308


$
41,504


$



$
123,722Net cash provided by discontinued
    operations






8,115











8,115Net cash provided by (used in)
    operating activities


(18,090
)


108,423



41,504







131,837Cash flows from investing
    activities:Capital expenditures






(33,216
)


(57,280
)






(90,496
)Proceeds from sale of property,
    plant and equipment






19,093



5,172







24,265Proceeds from sale of
    non-consolidated affiliates






4,663











4,663Cash used to acquire investments in
    and advances to non-consolidated affiliates






(250
)










(250
)Net cash used in continuing
    operations






(9,710
)


(52,108
)






(61,818
)Net cash provided by discontinued
    operations






13,314



59,633







72,947Net cash provided by investing
    activities






3,604



7,525







11,129Cash flows from financing
    activities:Borrowings (repayments) on
    revolving credit facilities, net






(20,000
)










(20,000
)Borrowings (repayments) between
    subsidiaries, net






15,938



(15,938
)






Payments for debt issue costs






(253
)










(253
)Proceeds from warrant conversions
    and stock options exercised


9,549















9,549Issuance of senior notes, net


194,125















194,125Capital contribution
    (distribution), net


(185,584
)


185,584











Payments on compression equipment
    lease obligations






(315,000
)










(315,000
)Repayments on other debt






(3,358
)


(27,413
)






(30,771
)Net cash provided by (used in)
    financing activities


18,090



(137,089
)


(43,351
)






(162,350
)Effect of exchange rate changes on
    in cash and cash equivalents










841







841Net increase (decrease) in cash and
    cash equivalents






(25,062
)


6,519







(18,543
)Cash and cash equivalents at
    beginning of year






28,286



28,333







56,619Cash and cash equivalents at end of
    year

$



$
3,224


$
34,852


$



$
38,076   F-54




---



##### Table of Contents



HANOVER
    COMPRESSOR COMPANY
  SELECTED
    QUARTERLY UNAUDITED FINANCIAL DATA
    1st


2nd


3rd


4thQuarter


Quarter


Quarter


Quarter(In thousands, except per share amounts)2006(1):Revenues from external customers

$
336,730


$
390,111


$
415,804


$
462,587Gross profit


120,589



136,945



140,779



157,218Income before cumulative effect of
    accounting changes


22,049



21,704



12,279



30,121Net income


22,419



21,704



12,279



30,121Income per common share and income
    per common share before cumulative effect of accounting changes:Basic

$
0.22


$
0.21


$
0.12


$
0.30Diluted

$
0.22


$
0.21


$
0.12


$
0.282005(2):Revenues from external customers

$
296,601


$
339,132


$
362,048


$
351,791Gross profit


111,221



123,773



123,832



123,263Net loss


(12,464
)


(6,416
)


(14,938
)


(4,199
)Loss per common share:Basic

$
(0.15
)

$
(0.07
)

$
(0.16
)

$
(0.04
)Diluted

$
(0.15
)

$
(0.07
)

$
(0.16
)

$
(0.04
)     (1)
    
    In the first quarter of 2006, we recorded a $5.9 million
    charge for debt extinguishment costs and a $28.4 million
    pre-tax gain on the sale of our U.S. amine treating
    business. In the second quarter of 2006, we recorded an
    $8.0 million pre-tax gain on the sale of our fabrication
    facilities in Canada. In the fourth quarter of 2006, we recorded
    a benefit for the reversal of $10.2 million of the
    valuation allowance on our net deferred tax assets in
    the U.S.(2)
    
    During the third quarter of 2005, we recorded a
    $7.3 million charge for debt extinguishment costs and a
    $2.5 million write-off of deferred financing costs. F-55




---



##### Table of Contents



SCHEDULE II
  HANOVER
    COMPRESSOR COMPANY
 VALUATION
    AND QUALIFYING ACCOUNTS
  AdditionsBalance at


Charged to





Balance atBeginning


Costs and





End ofDescription

of Period


Expenses


Deductions


Period(In thousands)Allowance for doubtful accounts
    deducted from accounts receivable in the balance sheet2006

$
4,751


$
2,465


$
2,278
(1)

$
4,9382005


7,573



1,955



4,777
(1)


4,7512004


5,460



2,658



545
(1)


7,573Allowance for obsolete and slow
    moving inventory deducted from inventories in the balance sheet2006

$
11,797


$
2,293


$
2,178
(2)

$
11,9122005


11,699



148



50
(2)


11,7972004


12,729



1,062



2,092
(2)


11,699Allowance for deferred tax assets
    not expected to be realized2006

$
75,420


$
13,061


$
41,485
(3)

$
46,9962005


65,441



13,015



3,036
(3)


75,4202004


55,015



23,429



13,003
(3)


65,441Allowance for employee loans2004

$
6,021


$



$
6,021


$
     (1)
    
    Uncollectible accounts written off, net of recoveries.(2)
    
    Obsolete inventory written off at cost, net of value received.(3)
    
    Reflects utilization of tax assets that previously had a
    valuation allowance. S-1




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description2
.1

Agreement and Plan of Merger,
    dated February 5, 2007, by and among Hanover Compressor Company,
    Universal Compression Holdings, Inc., Iliad Holdings, Inc.,
    Hector Sub, Inc., and Ulysses Sub, Inc. incorporated by
    reference to Exhibit 10.1 to the Companys Current Report
    on Form 8-K filed with the SEC on February 5, 2007.3
.1

Certificate of Incorporation of
    the Hanover Compressor Holding Co., incorporated by reference to
    Exhibit 3.1 to the Companys Current Report on
    Form 8-K
    filed with the SEC on February 5, 2001.3
.2

Certificate of Amendment of
    Certificate of Incorporation of Hanover Compressor Holding Co.,
    dated December 8, 1999, incorporated by reference to
    Exhibit 3.2 to the Companys Current Report on
    Form 8-K
    filed with the SEC on February 5, 2001.3
.3

Certificate of Amendment of
    Certificate of Incorporation of Hanover Compressor Company,
    dated July 11, 2000, incorporated by reference to
    Exhibit 3.3 to the Companys Current Report on
    Form 8-K
    filed with the SEC on February 5, 2001.3
.4

Amended and Restated Bylaws of the
    Company, dated March 10, 2004, incorporated by reference to
    Exhibit 3.4 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.1

Specimen Stock Certificate,
    incorporated by reference to Exhibit 4.11 to the
    Companys Registration Statement (File
    No. 333-24953)
    on
    Form S-1,
    as amended.4
.2

Form of Hanover Compressor Capital
    Trust 71/4% Convertible
    Preferred Securities, incorporated by reference to
    Exhibit 4.8 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.4
.3

Indenture for the Convertible
    Junior Subordinated Debentures due 2029, dated as of
    December 15, 1999, among the Company, as issuer, and
    Wilmington Trust Company, as trustee, incorporated by reference
    to Exhibit 4.6 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    filed with the SEC on February 14, 2000.4
.4

Form of Hanover Compressor Company
    Convertible Subordinated Junior Debentures due 2029,
    incorporated by reference to Exhibit 4.9 to the
    Companys Registration Statement (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.4
.5

Indenture for the
    4.75% Convertible Senior Notes due 2008, dated as of
    March 15, 2001, between the Company and Wilmington Trust
    Company, as trustee, incorporated by reference to
    Exhibit 4.7 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.6

Form of 4.75% Convertible
    Senior Notes due 2008, incorporated by reference to
    Exhibit 4.8 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.7

Indenture for the
    8.50% Senior Secured Notes due 2008, dated as of
    August 30, 2001, among the 2001A Trust, as issuer, Hanover
    Compression Limited Partnership and certain subsidiaries, as
    guarantors, and Wilmington Trust FSB, as Trustee,
    incorporated by reference to Exhibit 10.69 to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.4
.8

Form of 8.50% Senior Secured
    Notes due 2008, incorporated by reference to Exhibit 4.10
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.9

Indenture for the
    8.75% Senior Secured Notes due 2011, dated as of
    August 30, 2001, among the 2001B Trust, as issuer, Hanover
    Compression Limited Partnership and certain subsidiaries, as
    guarantors, and Wilmington Trust FSB, as Trustee,
    incorporated by reference to Exhibit 10.75 to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.4
.10

Form of 8.75% Senior Secured
    Notes due 2011, incorporated by reference to Exhibit 4.12
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.11

Senior Indenture, dated as of
    December 15, 2003, among the Company, Subsidiary Guarantors
    named therein and Wachovia Bank, National Association, as
    trustee, incorporated by reference to Exhibit 4.1 to the
    Companys Registration Statement on
    Form 8-A,
    as filed with the SEC on December 15, 2003.4
.12

First Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 8.625% Senior Notes due 2010, dated as of
    December 15, 2003, among Hanover Compressor Company,
    Hanover Compression Limited Partnership and Wachovia Bank,
    National Association, as trustee, incorporated by reference to
    Exhibit 4.2 to the Companys Registration Statement on
    Form 8-A,
    as filed with the SEC on December 15, 2003.




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##### Table of Contents



ExhibitNumber

Description4
.13

Form of 8.625% Senior Notes
    due 2010, incorporated by reference to Exhibit 4.17 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.14

Second Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 4.75% Convertible Senior Notes due 2014,
    dated as of December 15, 2003, between the Company and
    Wachovia Bank, National Association, as trustee, incorporated by
    reference to Exhibit 4.4 to the Companys Current
    Report on
    Form 8-K,
    as filed with the SEC on December 16, 2003.4
.15

Form of 4.75% Convertible
    Senior Notes due 2014, incorporated by reference to
    Exhibit 4.19 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.4
.16

Third Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 9.0% Senior Notes due 2014, dated as of
    June 1, 2004, among Hanover Compressor Company, Hanover
    Compression Limited Partnership and Wachovia Bank, National
    Association, as trustee, incorporated by reference to
    Exhibit 4.2 to the Registration Statement of Hanover
    Compressor Company and Hanover Compression Limited Partnership
    on
    Form 8-A
    under the Securities Act of 1934, as filed on June 2, 2004.4
.17

Form of 9% Senior Notes due
    2014, incorporated by reference to Exhibit 4.3 to the
    Registration Statement of Hanover Compressor Company and Hanover
    Compression Limited Partnership on
    Form 8-A
    under the Securities Act of 1934, as filed on June 2, 2004.4
.18

Fourth Supplemental Indenture to
    the Senior Indenture dated as of December 15, 2003,
    relating to the 7
    1/2
    % Senior Notes due 2013, dated as of March 31, 2006, among
    Hanover Compressor Company, Hanover Compression Limited
    Partnership and Wachovia Bank, National Association, as trustee,
    incorporated by reference to Exhibit 4.1 to the
    Companys Current Report on
    Form 8-K,
    as filed with the SEC on March 31, 2006.4
.19

Form of Note for the 7
    1/2
    % Senior Notes due 2013, incorporated by reference to
    Exhibit 4.2 to the Companys Current Report on
    Form 8-K,
    as filed with the SEC on March 31, 2006.10
.1

Stipulation and Agreement of
    Settlement, dated as of October 23, 2003, incorporated by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003.10
.2

PIGAP Settlement Agreement, dated
    as of May 14, 2003, by and among Schlumberger Technology
    Corporation, Schlumberger Oilfield Holdings Limited,
    Schlumberger Surenco S.A., the Company and Hanover Compression
    Limited Partnership, incorporated by reference to
    Exhibit 10.2 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003.10
.3

Credit Agreement, dated as of
    November 21, 2005, among the Company, Hanover Compression
    Limited Partnership, The Royal Bank of Scotland plc as
    Syndication Agent, JPMorgan Chase Bank, N.A. as Administrative
    Agent, and the several lenders parties thereto, incorporated by
    reference to Exhibit 10.3 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.4

Guarantee and Collateral
    Agreement, dated as of November 21, 2005, among the
    Company, Hanover Compression Limited Partnership and certain of
    their subsidiaries in favor of JPMorgan Chase Bank, N.A. as
    Collateral Agent, incorporated by reference to Exhibit 10.4
    to the Companys Annual Report on Form 10-K for the
    year ended December 31, 2005.10
.5

First Amendment and Consent, dated
    as of June 27, 2006 with respect to the Hanover Compressor
    Company and Hanover Compression Limited Partnership Credit
    Agreement dated November 21, 2005, incorporated by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2006.10
.6

Lease, dated as of August 31,
    2001, between Hanover Equipment Trust 2001A (the
    2001A Trust) and Hanover Compression Limited
    Partnership, incorporated by reference to Exhibit 10.64 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.7

Guarantee, dated as of
    August 31, 2001, made by the Company, Hanover Compression
    Limited Partnership, and certain subsidiaries, incorporated by
    reference to Exhibit 10.65 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.8

Participation Agreement, dated as
    of August 31, 2001, among Hanover Compression Limited
    Partnership, the 2001A Trust, and General Electric Capital
    Corporation, incorporated by reference to Exhibit 10.66 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.9

Security Agreement, dated as of
    August 31, 2001, made by the 2001A Trust in favor of
    Wilmington Trust FSB as collateral agent, incorporated by
    reference to Exhibit 10.67 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.




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##### Table of Contents



ExhibitNumber

Description10
.10

Assignment of Leases, Rents and
    Guarantee from the 2001A Trust to Wilmington Trust FSB,
    dated as of August 31, 2001, incorporated by reference to
    Exhibit 10.68 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.11

Lease, dated as of August 31,
    2001, between Hanover Equipment Trust 2001B (the
    2001B Trust) and Hanover Compression Limited
    Partnership, incorporated by reference to Exhibit 10.70 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.12

Guarantee, dated as of
    August 31, 2001, made by the Company, Hanover Compression
    Limited Partnership, and certain subsidiaries, incorporated by
    reference to Exhibit 10.71 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.13

Participation Agreement, dated as
    of August 31, 2001, among Hanover Compression Limited
    Partnership, the 2001B Trust, and General Electric Capital
    Corporation, incorporated by reference to Exhibit 10.72 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.14

Security Agreement, dated as of
    August 31, 2001, made by the 2001B Trust in favor of
    Wilmington Trust FSB as collateral agent, incorporated by
    reference to Exhibit 10.73 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.15

Assignment of Leases, Rents and
    Guarantee from the 2001B Trust to Wilmington Trust FSB,
    dated as of August 31, 2001, incorporated by reference to
    Exhibit 10.74 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.10
.16

Amended and Restated Declaration
    of Trust of Hanover Compressor Capital Trust, dated as of
    December 15, 1999, among the Company, as sponsor,
    Wilmington Trust Company, as property trustee, and Richard S.
    Meller, William S. Goldberg and Curtis A. Bedrich, as
    administrative trustees, incorporated by reference to
    Exhibit 4.5 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    filed with the SEC on February 14, 2000.10
.17

Preferred Securities Guarantee
    Agreement, dated as of December 15, 1999, between the
    Company, as guarantor, and Wilmington Trust Company, as
    guarantee trustee, incorporated by reference to
    Exhibit 4.10 to the Companys Registration Statement
    (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.10
.18

Common Securities Guarantee
    Agreement, dated as of December 15, 1999, by the Company,
    as guarantor, for the benefit of the holders of common
    securities of Hanover Compressor Capital Trust, incorporated by
    reference to Exhibit 4.11 to the Companys
    Registration Statement (File
    No. 333-30344)
    on
    Form S-3
    as filed with the SEC on February 14, 2000.10
.19

Purchase Agreement, dated
    June 28, 2001, among Schlumberger Technology Corporation,
    Schlumberger Oilfield Holdings Ltd., Schlumberger Surenco S.A.,
    Camco International Inc., the Company and Hanover Compression
    Limited Partnership, incorporated by reference to
    Exhibit 10.63 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001.10
.20

Schedule 1.2(c) to Purchase
    Agreement, dated June 28, 2001, among Schlumberger
    Technology Corporation, Schlumberger Oilfield Holdings Limited,
    Schlumberger Surenco S.A., Camco International Inc., the Company
    and Hanover Compression Limited Partnership, incorporated by
    reference to Exhibit 99.1 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on February 6, 2003.10
.21

Amendment No. 1, dated as of
    August 31, 2001, to Purchase Agreement among Schlumberger
    Technology Corporation, Schlumberger Oilfield Holdings Ltd.,
    Schlumberger Surenco S.A., Camco International Inc., the Company
    and Hanover Compression Limited Partnership, incorporated by
    reference to Exhibit 99.3 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on September 14, 2001.10
.22

Amendment No. 2, dated as of
    July 8, 2005 to Purchase Agreement by and among the
    Company, Hanover Compression Limited Partnership and
    Schlumberger Technology Corporation, for itself and as successor
    in interest to Camco International Inc., Schlumberger Surenco
    S.A. and Schlumberger Oilfield Holdings Ltd., incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.23

Hanover Compressor Company 1997
    Stock Option Plan, as amended, incorporated by reference to
    Exhibit 10.23 to the Companys Registration Statement
    (File
    No. 333-24953)
    on
    Form S-1,
    as amended.10
.24

Hanover Compressor Company 1998
    Stock Option Plan, incorporated by reference to
    Exhibit 10.7 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 1998.




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##### Table of Contents



ExhibitNumber

Description10
.25

First Amendment to the Hanover
    Compressor Company 1998 Stock Option Plan, incorporated by
    reference to Exhibit 10.2 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.26

Hanover Compressor Company
    December 9, 1998 Stock Option Plan, incorporated by
    reference to Exhibit 10.33 to the Companys Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 1998.10
.27

Hanover Compressor Company 1999
    Stock Option Plan, incorporated by reference to Exhibit 4.1
    to the Companys Registration Statement (File
    No. 333-32092)
    on
    Form S-8
    filed with the SEC on March 10, 2000.10
.28

First Amendment to the Hanover
    Compressor Company 1999 Stock Option Plan, incorporated by
    reference to Exhibit 10.3 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.29

Hanover Compressor Company 2001
    Equity Incentive Plan, incorporated by reference to
    Exhibit 4.1 to the Companys Registration Statement
    (File
    No. 333-73904)
    on
    Form S-8
    filed with the SEC on November 21, 2001.10
.30

First Amendment to the Hanover
    Compressor Company 2001 Equity Incentive Plan, incorporated by
    reference to Exhibit 10.4 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.31

Hanover Compressor Company 2003
    Stock Incentive Plan, incorporated by reference to the
    Companys Definitive Proxy Statement on Schedule 14A,
    as filed with the SEC on April 15, 2003.10
.32

First Amendment to the Hanover
    Compressor Company 2003 Stock Incentive Plan, incorporated by
    reference to Exhibit 10.5 to the Companys Current
    Report on
    Form 8-K
    filed with the SEC on July 13, 2005.10
.33

Hanover Compressor Company 2006
    Stock Incentive Plan, incorporated by reference to the
    Companys Definitive Proxy Statement on Schedule 14A, as
    filed with the SEC on  March 24, 2006.10
.34

First Amendment to be effective
    February 3, 2007 to the Hanover Compressor Company 2006 Stock
    Incentive Plan incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on Form 8-K, as filed with the SEC
    on February 5, 2007. 10
.35

Hanover Compressor Company 2006
    Long-Term Cash Incentive Plan, incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on Form 8-K
    filed with the SEC on July 27, 2006. 10
.36

Employment Letter with Peter
    Schreck, dated August 22, 2000, incorporated by reference
    to Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2003.10
.37

Employment Letter with Stephen
    York, dated March 6, 2002, incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2003.10
.38

Employment Letter with Gary M.
    Wilson dated April 9, 2004, incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004.10
.39

Gary M. Wilson letter dated July
    29, 2005 relating to employment benefits.  *10
.40

Gary M. Wilson letter dated
    October 10, 2006 relating to employment benefits.  *10
.41

Employment Letter with John E.
    Jackson dated October 5, 2004, incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    as filed with the SEC on October 6, 2004.10
.42

Change of Control and Severance
    Agreement dated July 29, 2005 between John E. Jackson and
    the Company, incorporated by reference to Exhibit 10.1 to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005.10
.43

Employment Letter with Lee E.
    Beckelman dated January 31, 2005, incorporated by reference
    to Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    as filed with the SEC on February 1, 2005.10
.44

Employment Letter with Anita H.
    Colglazier dated April 4, 2002 with explanatory note,
    incorporated by reference to Exhibit 10.61 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004.10
.45

Letter to Brian Matusek regarding
    employment terms, incorporated by reference to Exhibit 10.1
    to the Companys Current Report on
    Form 8-K
    filed with the SEC on April 18, 2005. 10
.46

Employment Letter with Norrie
    Mckay effective as of May 16, 2005, incorporated by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2005.




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##### Table of Contents



ExhibitNumber

Description10
.47

Form of Change of Control
    Agreement dated July 29, 2005 between the Company and each
    of Messrs. Lee E. Beckelman, Brian A. Matusek, Gary M.
    Wilson, Steven W. Muck, Norman A. Mckay, Stephen P. York and
    Peter G. Schreck and Ms. Anita H. Colglazier, incorporated
    by reference to Exhibit 10.2 to the Companys
    Quarterly Report on
    Form 10-Q
    For the quarter ended June 30, 2005.12
.1

Computation of ratio of earnings
    to fixed charges.*14
.1

P.R.I.D.E. in
    Performance  Hanovers Guide to Ethical Business
    Conduct (the Code of Ethics), incorporated by
    reference to Exhibit 14.1 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2003.14
.2

Amendment to the Code of Ethics,
    incorporated by reference to Exhibit 14.1 to the
    Companys Current Report on
    Form 8-K,
    as filed with the SEC on January 20, 2005.21
.1

List of Subsidiaries.*23
.1

Consent of PricewaterhouseCoopers
    LLP.*31
.1

Certification of the Chief
    Executive Officer pursuant to
    Rule 13a-14(a)/15d-14(a)
    of the Securities Exchange Act of 1934.*31
.2

Certification of the Chief
    Financial Officer pursuant to
    Rule 13a-14(a)/15d-14(a)
    of the Securities Exchange Act of 1934.*32
.1

Certification of the Chief
    Executive Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.*32
.2

Certification of the Chief
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.*     *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement