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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For fiscal year ended December 31, 2005                                                     
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to           .                                 

Commission file
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 Registered                                      
|                                                                                              |  |                                                                                
|Common Stock, $.001 par value
    8.625% Senior Notes due 2010
    9.0% Senior Notes due 2014 |  | New York Stock Exchange
    New York Stock Exchange
    New York Stock Exchange

Securities registered pursuant to 12(g) of the Act:


Title of class:     None


þ o


o þ


þ o


S-K 10-K 10-K. þ


12b-2 o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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##### 










HANOVER COMPRESSOR COMPANY


TABLE OF CONTENTS


|                                                           |          |  |                                                                                                                      |      |  |    | 
|---------------------------------------------------------- | -------- |  | -------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                                           |          |  |                                                                                                                      | Page
|                                                           |          |  |                                                                                                                      |     
|PART I                                                    
|                                                           | Item 1.  |  | Business                                                                                                             |      |  | 3  | 
|                                                           | Item 1A. |  | Risk Factors                                                                                                         |      |  | 17 | 
|                                                           | Item 1B. |  | Unresolved Comments                                                                                                  |      |  | 26 | 
|                                                           | Item 2.  |  | Properties                                                                                                           |      |  | 26 | 
|                                                           | Item 3.  |  | Legal Proceedings                                                                                                    |      |  | 27 | 
|                                                           | Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                              |      |  | 27 | 
|                                                          
|PART II                                                   
|                                                           | Item 5.  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |      |  | 28 | 
|                                                           | Item 6.  |  | Selected Financial Data                                                                                              |      |  | 29 | 
|                                                           | Item 7.  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |      |  | 31 | 
|                                                           | Item 7A. |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |      |  | 58 | 
|                                                           | Item 8.  |  | Financial Statements and Supplementary
    Data                                                                      |      |  | 59 | 
|                                                           | Item 9.  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |      |  | 59 | 
|                                                           | Item 9A. |  | Controls and Procedures                                                                                              |      |  | 59 | 
|                                                           | Item 9B. |  | Other Information                                                                                                    |      |  | 60 | 
|                                                          
|PART III                                                  
|                                                           | Item 10. |  | Directors and Executive Officers of the
    Registrant                                                               |      |  | 61 | 
|                                                           | Item 11. |  | Executive Compensation                                                                                               |      |  | 61 | 
|                                                           | Item 12. |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |      |  | 61 | 
|                                                           | Item 13. |  | Certain Relationships and Related
    Transactions                                                                   |      |  | 63 | 
|                                                           | Item 14. |  | Principal Accounting Fees and Services                                                                               |      |  | 63 | 
|                                                          
|PART IV                                                   
|                                                           | Item 15. |  | Exhibits, Financial Statement Schedules                                                                              |      |  | 63 | 
|SIGNATURES                                                 |          |  | 70                                                                                                                   |     
|Credit Agreement dated November 21, 2005                  
|Guarantee and Collateral Agreement dated November 21, 2005
|Computation of ratio of earnings to fixed charges         
|List of Subsidiaries                                      
|Consent of PricewaterhouseCoopers LLP                     
|Certification 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 906              
|Certification of CFO pursuant to Section 906              



1



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PART I


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS


10-K




| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                
|
| |  | our inability to implement certain business objectives, such as:                                                                                                                                                                     



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | international expansion including our ability to timely and
    cost-effectively execute projects in new international operating
    environments,
|
| |  | integrating acquired businesses,                                                                                                                  
|
| |  | generating sufficient cash,                                                                                                                       
|
| |  | accessing the capital markets, and                                                                                                                
|
| |  | refinancing existing or incurring additional indebtedness to
    fund our business;                                                               



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | risks associated with any significant failure or malfunction of
    our enterprise resource planning system;                                       
|
| |  | 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.

10-K 10-K


10-K. 10-K


2



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10-K.







|        |         
|------- | --------
|Item 1. | Business

General










Industry trends




3



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10-K


Notable Events in 2005




10-K.






Industry Overview


Natural Gas Compression








4



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| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | engineering, fabrication and assembly of the compressor unit;                     
|
| |  | installation and testing of the unit;                                             
|
| |  | ongoing performance review to assess the need for a change in
    compression; and
|
| |  | periodic maintenance and replacement parts supply.                                

Production and Processing Equipment




5



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built-to






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.
|
| |  | 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.                                                                             

6



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| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 unique customer specifications.                                                                                                                      
|
| |  | Production and processing  surface equipment
    fabrication. Our production and processing 
    surface equipment fabrication segment designs, fabricates and
    sells equipment used in the production and treating of crude oil
    and natural gas.                                                                                                 
|
| |  | Production and processing  Belleli. Our
    production and processing  Belleli segment provides
    engineering, procurement and construction services primarily
    related to the manufacturing of heavy wall reactors for
    refineries and construction of desalinization 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 needs of customers, from
    installation and normal maintenance and services to full
    operation of a customers owned assets and surface
    equipment as well as sales of used equipment.

10-K 10-K.


Compression Rentals, Maintenance Services and Compressor and
Accessory Fabrication




month-to month-to




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Compressor Rental Fleet




|                             |       |          |       |                |  |            |       |       |  |  |    |     |  
|---------------------------- | ----- | -------- | ----- | -------------- |  | ---------- | ----- | ----- |  |  | -- | --- | -
|                             |       |          |       | Aggregate      |  |           
|                             |       | Number   |       | Horsepower     |  | % of      
|Range of Horsepower Per Unit |       | of Units |       | (In thousands) |  | Horsepower
|                             |       |          |       |                |  |           
|Up to 100                    |       |          | 1,840 |                |  |            | 123   |       |  |  | 4  | %  
|101-200                      |       |          | 1,385 |                |  |            | 210   |       |  |  | 6  | %  
|201-500                      |       |          | 1,132 |                |  |            | 369   |       |  |  | 11 | %  
|501-800                      |       |          | 562   |                |  |            | 358   |       |  |  | 11 | %  
|801-1,100                    |       |          | 480   |                |  |            | 482   |       |  |  | 15 | %  
|1,101-1,500                  |       |          | 876   |                |  |            | 1,201 |       |  |  | 36 | %  
|1,501-2,500                  |       |          | 169   |                |  |            | 309   |       |  |  | 9  | %  
|2,501-4,735                  |       |          | 79    |                |  |            | 268   |       |  |  | 8  | %  
|                             |       |          |       |                |  |            |       |       |  |  |    |    
|                             | Total |          |       | 6,523          |  |            |       | 3,320 |  |  |    | 100 | %
|                             |       |          |       |                |  |            |       |       |  |  |    |    



| |                                                               
| | --------------------------------------------------------------
| | Production and Processing Equipment Fabrication and
    Rental





| |                                  
| | ---------------------------------
| | Parts, Service and Used Equipment





| |                                          
| | -----------------------------------------
| | Sources and Availability of Raw Materials



9



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| |                     
| | --------------------
| | Market and Customers







| |                    
| | -------------------
| | Sales and Marketing







| |            
| | -----------
| | Competition



10



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| |                         
| | ------------------------
| | 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;                                                                                                                                             
|
| |  | 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.                                                       

11



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10-K.




| |                      
| | ---------------------
| | Government Regulation



12



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clean-up








clean-up


13



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clean-up






clean-up




Executive Officers of the Registrant




|                    |  |     |    |          |  |                                                     
|------------------- |  | --- | -- | -------- |  | ----------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|John E. Jackson     |  |     | 47 |          |  | President and Chief Executive Officer; Director     
|Brian A. Matusek    |  |     | 46 |          |  | Senior Vice President  U.S. and Global Services    
|Gary M. Wilson      |  |     | 49 |          |  | Senior Vice President, General Counsel and Secretary
|Lee E. Beckelman    |  |     | 40 |          |  | Vice President and Chief Financial Officer          
|Norman A. McKay     |  |     | 45 |          |  | Vice President  Eastern Hemisphere                 
|Anita H. Colglazier |  |     | 50 |          |  | Vice President  Controller                         
|Peter G. Schreck    |  |     | 41 |          |  | Vice President  Treasury and Planning              
|Stephen P. York     |  |     | 49 |          |  | Vice President  Investor Relations and Technology  
|Steve W. Muck       |  |     | 53 |          |  | Vice President  Latin America                      

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John E. Jackson


Brian A. Matusek


Gary M. Wilson


Lee E. Beckelman


Norman A. Norrie Mckay


Anita H. Colglazier


15



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Peter G. Schreck


Stephen P. York


Steve W. Muck


Employees




Electronic Information


http://www.hanover-co.com. 10-K, 10-Q, 8-K, http://www.sec.gov.


1-800-SEC-0330


http://www.hanover-co.com.


16



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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.









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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.                                    







18



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



|                                                                        |  |         |  |           
|----------------------------------------------------------------------- |  | ------- |  | ----------
|                                                                        |  |         |  | Standard &
|                                                                        |  | Moodys |  | Poors    
|                                                                        |  |         |  |           
|Outlook                                                                 |  | Stable  |  | Stable    
|Senior implied rating                                                   |  | B1      |  | BB-       
|Liquidity Rating                                                        |  | SGL-3   |  |          
|2001A equipment lease notes, interest at 8.5%, due September 2008       |  | B2      |  | B+        
|2001B equipment lease notes, interest at 8.8%, due September 2011       |  | B2      |  | B+        
|4.75% convertible senior notes due 2008                                 |  | B3      |  | B         
|4.75% convertible senior notes due 2014                                 |  | B3      |  | B         
|8.625% senior notes due 2010                                            |  | B3      |  | B         
|9.0% senior notes due 2014                                              |  | B3      |  | B         
|Zero coupon subordinated notes, interest at 11%, due
    March 31, 2007 |  | Caa1    |  | B-        
|7.25% convertible subordinated notes due 2029*                          |  | Caa1    |  | B-        






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Rating is on the Mandatorily Redeemable Convertible Preferred
    Securities issued by Hanover Compressor Capital Trust, a trust
    that we sponsored. Prior to adoption of FIN 46 in 2003,
    these securities were reported on our balance sheet as
    mandatorily redeemable convertible preferred securities. Because
    we only have a limited ability to make decisions about its
    activities and we are not the primary beneficiary of the trust,
    the trust is a variable interest entity (VIE) under
    FIN 46. As such, the Mandatorily Redeemable Convertible
    Preferred Securities issued by the trust are no longer reported
    on our balance sheet. Instead, we now report our subordinated
    notes payable to the trust as a debt. These notes have
    previously been eliminated in our consolidated financial
    statements. The changes related to our Mandatorily Redeemable
    Convertible Preferred Securities for our balance sheet are
    reclassifications and had no impact on our consolidated results
    of operations or cash flow.





| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are still in the process of improving our
    infrastructure capabilities, including our internal controls and
    procedures, which were strained by our rapid growth, to reduce
    the risk of future accounting and financial reporting
    problems.



19



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| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Unforeseen difficulties with the implementation or
    operation of our enterprise resource planning system could
    adversely affect our internal controls and our business.





| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | We require a substantial amount of capital to expand our
    compressor rental fleet and our complementary businesses.





| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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|                                  |       |             |      |               |  |             |       |               |  |                   |       |       |  |  |     |  |  |  |                |  | 
|--------------------------------- | ----- | ----------- | ---- | ------------- |  | ----------- | ----- | ------------- |  | ----------------- | ----- | ----- |  |  | --- |  |  |  | -------------- |  | 
|                                  |       |             |      |               |  |             |       | Substitution  |  |                  
|                                  |       |             |      |               |  |             |       | Limitation as |  |                  
|                                  |       | Value of    |      | Percentage of |  |             |       | Percentage of |  |                  
|                                  |       | Substituted |      | Termination   |  | Termination |       | Termination   |  | Lease Termination
|Lease                             |       | Equipment   |      | Value(1)      |  | Value(1)    |       | Value         |  | Date             
|                                  |       |             |      |               |  |             |       |               |  |                  
|                                  |       |             |      |               |  | (dollars in |       |               |  |                  
|                                  |       |             |      |               |  | millions)   |       |               |  |                  
|2001A compression equipment lease |       | $           | 19.4 |               |  |             | 14.2% |               |  | $                 | 137.1 |       |  |  | 25% |  |  |  | September 2008 | 
|2001B compression equipment lease |       |             | 45.4 |               |  |             | 17.6% |               |  |                   | 257.7 |       |  |  | 25% |  |  |  | September 2011 | 
|                                  |       |             |      |               |  |             |       |               |  |                   |       |       |  |  |     |  |  |  |                | 
|                                  | Total |             | $    | 64.8          |  |             |       |               |  |                   | $     | 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.





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| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | There are many risks associated with conducting operations
    in international markets.





| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in managing international operations;                                                                                                                                                                      
|
| |  | 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;                                                                                                                                                                                   
|
| |  | 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.                                                                                                                 









22



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| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | Fluctuations in currency exchange rates in Italy,
    Argentina and Venezuela could adversely affect our
    business.







|                    |                      |              |         |        |   |   |       |       | 
|------------------- | -------------------- | ------------ | ------- | ------ | - | - | ----- | ----- | 
|                    |                      | Year Ended  
|                    |                      | December 31,
|                    |                      |             
|                    |                      | 2005         |         | 2004  
|                    |                      |              |         |       
|Italy               |                      | $            | (10,388 | )      |   | $ | 4,170 |      
|Argentina           |                      |              | 388     |        |   |   | (624  | )    
|Venezuela           |                      |              | 3,501   |        |   |   | 1,165 |      
|Canada              |                      |              | (1,705  | )      |   |   | 105   |      
|All other countries |                      |              | 314     |        |   |   | 406   |      
|                    |                      |              |         |        |   |   |       |      
|                    | Exchange gain (loss) |              | $       | (7,890 | ) |   | $     | 5,222 | 
|                    |                      |              |         |        |   |   |       |      







| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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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 lose key personnel.







| |                                                                      
| | ---------------------------------------------------------------------
| | Our business is subject to a variety of governmental
    regulations.







24



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| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our business has acquired facilities in the past, which
    could subject us to future environmental liabilities.

clean-up clean-up


25



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| |                                           
| | ------------------------------------------
| | Our stock price may experience volatility.








|         |                    
|-------- | -------------------
|Item 1B. | Unresolved Comments








|        |           
|------- | ----------
|Item 2. | Properties



|                              |  |        |        |        |  |      |         |  |  |                                                       
|----------------------------- |  | ------ | ------ | ------ |  | ---- | ------- |  |  | ------------------------------------------------------
|                              |  |        |        | Square |  |     
|Location                      |  | Status |        | Feet   |  | Uses
|                              |  |        |        |        |  |     
|Broken Arrow, Oklahoma        |  |        | Owned  |        |  |      | 127,505 |  |  | Compressor and accessory fabrication                  
|Houston, Texas                |  |        | Owned  |        |  |      | 190,531 |  |  | Compressor and accessory fabrication; corporate office
|Houston, Texas                |  |        | Leased |        |  |      | 51,941  |  |  | Office                                                
|Anaco, Venezuela              |  |        | Leased |        |  |      | 129,000 |  |  | Compressor rental and service                         
|Barquisimeto, Venezuela       |  |        | Owned  |        |  |      | 72,118  |  |  | Compressor rental and service                         
|Casacara Station, Colombia    |  |        | Owned  |        |  |      | 14,000  |  |  | Compressor rental and service                         
|Casper, Wyoming               |  |        | Owned  |        |  |      | 28,390  |  |  | Compressor rental and service                         
|Comodoro Rivadavia, Argentina |  |        | Leased |        |  |      | 21,000  |  |  | Compressor rental and service                         
|Comodoro Rivadavia, Argentina |  |        | Owned  |        |  |      | 26,000  |  |  | Compressor rental and service                         
|Davis, Oklahoma               |  |        | Owned  |        |  |      | 393,870 |  |  | Compressor rental and service                         
|El Tigre, Venezuela           |  |        | Leased |        |  |      | 18,299  |  |  | Compressor rental and service                         
|Farmington, New Mexico        |  |        | Owned  |        |  |      | 20,361  |  |  | Compressor rental and service                         
|Farmington, New Mexico        |  |        | Leased |        |  |      | 18,691  |  |  | Compressor rental and service                         
|Gillette, Wyoming             |  |        | Leased |        |  |      | 10,200  |  |  | Compressor rental and service                         
|Kilgore, Texas                |  |        | Owned  |        |  |      | 33,039  |  |  | Compressor rental and service                         
|Maturin, Venezuela            |  |        | Owned  |        |  |      | 23,662  |  |  | Compressor rental and service                         
|Midland, Texas                |  |        | Owned  |        |  |      | 53,300  |  |  | Compressor rental and service                         
|Neuquen, Argentina            |  |        | Owned  |        |  |      | 30,000  |  |  | Compressor rental and service                         
|Oklahoma City, Oklahoma       |  |        | Leased |        |  |      | 18,125  |  |  | Compressor rental and service                         
|Pampa, Texas                  |  |        | Leased |        |  |      | 24,000  |  |  | Compressor rental and service                         
|Pocola, Oklahoma              |  |        | Owned  |        |  |      | 18,705  |  |  | Compressor rental and service                         
|Santa Cruz, Bolivia           |  |        | Leased |        |  |      | 57,414  |  |  | Compressor rental and service                         
|Victoria, Texas               |  |        | Owned  |        |  |      | 28,609  |  |  | Compressor rental and service                         
|Walsall, UK  Redhouse        |  |        | Owned  |        |  |      | 15,300  |  |  | Compressor rental and service                         
|Walsall, UK  Westgate        |  |        | Owned  |        |  |      | 44,700  |  |  | Compressor rental and service                         
|Yukon, Oklahoma               |  |        | Owned  |        |  |      | 22,453  |  |  | Compressor rental and service                         
|Bridgeport, Texas             |  |        | Leased |        |  |      | 13,500  |  |  | Parts, service and used equipment                     
|Broken Arrow, Oklahoma        |  |        | Leased |        |  |      | 19,000  |  |  | Parts, service and used equipment                     
|Houston, Texas                |  |        | Leased |        |  |      | 28,750  |  |  | Parts, service and used equipment                     
|Port Harcourt, Nigeria        |  |        | Leased |        |  |      | 32,808  |  |  | Parts, service and used equipment                     
|Broussard, Louisiana          |  |        | Owned  |        |  |      | 74,402  |  |  | Production and processing equipment fabrication       
|Calgary, Alberta, Canada      |  |        | Owned  |        |  |      | 97,250  |  |  | Production and processing equipment fabrication       
|Columbus, Texas               |  |        | Owned  |        |  |      | 219,552 |  |  | Production and processing equipment fabrication       
|Corpus Christi, Texas         |  |        | Owned  |        |  |      | 11,000  |  |  | Production and processing equipment fabrication       
|Dubai, UAE                    |  |        | Owned  |        |  |      | 112,374 |  |  | Production and processing equipment fabrication       
|Hamriyah Free Zone, UAE       |  |        | Owned  |        |  |      | 175,387 |  |  | Production and processing equipment fabrication       
|Mantova, Italy                |  |        | Owned  |        |  |      | 654,397 |  |  | Production and processing equipment fabrication       
|Tulsa, Oklahoma               |  |        | Owned  |        |  |      | 40,100  |  |  | Production and processing equipment fabrication       
|Victoria, Texas               |  |        | Owned  |        |  |      | 50,506  |  |  | Production and processing equipment fabrication       

26



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##### Table of Contents










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



27



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##### Table of Contents






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                             |  |       |       |     |  |   |       | 
|---------------------------- |  | ----- | ----- | --- |  | - | ----- | 
|                             |  | Price
|                             |  |      
|                             |  | High  |       | Low
|Year ended December 31, 2004 |  |       |       |     |  |   |       | 
|First Quarter                |  | $     | 13.25 |     |  | $ | 10.47 | 
|Second Quarter               |  | $     | 12.44 |     |  | $ | 10.26 | 
|Third Quarter                |  | $     | 13.65 |     |  | $ | 10.97 | 
|Fourth Quarter               |  | $     | 14.60 |     |  | $ | 12.43 | 
|Year ended December 31, 2005 |  |       |       |     |  |   |       | 
|First Quarter                |  | $     | 14.72 |     |  | $ | 11.56 | 
|Second Quarter               |  | $     | 12.17 |     |  | $ | 10.24 | 
|Third Quarter                |  | $     | 15.34 |     |  | $ | 11.72 | 
|Fourth Quarter               |  | $     | 14.70 |     |  | $ | 12.64 | 





28



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

10-K 10-K.


|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |   |         |           | 
|----------------------------------------------------------------------- | -------------------------- | ----------------------------------------------- | ---------------------------------- | ---- | ------- | --------- | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | - | ------- | --------- | ------- | - | ------- | --------- | 
|                                                                        |                            | Years Ended December 31,                       
|                                                                        |                            |                                                
|                                                                        |                            | 2005                                            |                                    | 2004 |         | 2003      |           | 2002 |         | 2001(1)  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |          
|                                                                        |                            | (in thousands, except per share data)          
|Income Statement Data:                                                  |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|                                                                        | Revenues and other income: |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |   |        
|                                                                        |                            | U.S. rentals                                    |                                    | $    | 351,128 |           |           | $    | 341,570 |           |           | $ | 324,186 |           |           | $ | 328,600 |           |         | $ | 269,679 |          
|                                                                        |                            | International rentals                           |                                    |      | 232,587 |           |           |      | 214,598 |           |           |   | 191,301 |           |           |   | 175,337 |           |         |   | 116,990 |          
|                                                                        |                            | Parts, service and used equipment               |                                    |      | 225,636 |           |           |      | 180,321 |           |           |   | 164,935 |           |           |   | 223,685 |           |         |   | 214,867 |          
|                                                                        |                            | Compressor and accessory fabrication            |                                    |      | 179,954 |           |           |      | 158,629 |           |           |   | 106,896 |           |           |   | 114,009 |           |         |   | 223,519 |          
|                                                                        |                            | Production and processing equipment fabrication |                                    |      | 360,267 |           |           |      | 270,284 |           |           |   | 260,660 |           |           |   | 149,656 |           |         |   | 184,040 |          
|                                                                        |                            | Equity in income of non-consolidated affiliates |                                    |      | 21,466  |           |           |      | 19,780  |           |           |   | 23,014  |           |           |   | 18,554  |           |         |   | 9,607   |          
|                                                                        |                            | Other                                           |                                    |      | 4,551   |           |           |      | 3,413   |           |           |   | 4,088   |           |           |   | 3,600   |           |         |   | 7,796   |          
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|                                                                        |                            |                                                 | Total revenues and other income(2) |      |         | 1,375,589 |           |      |         | 1,188,595 |           |   |         | 1,075,080 |           |   |         | 1,013,441 |         |   |         | 1,026,498 | 
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|                                                                        | Expenses:                  |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |   |        
|                                                                        |                            | U.S. rentals                                    |                                    |      | 139,465 |           |           |      | 144,580 |           |           |   | 127,425 |           |           |   | 122,172 |           |         |   | 95,203  |          
|                                                                        |                            | International rentals                           |                                    |      | 76,512  |           |           |      | 63,953  |           |           |   | 61,875  |           |           |   | 52,996  |           |         |   | 41,095  |          
|                                                                        |                            | Parts, service and used equipment               |                                    |      | 169,168 |           |           |      | 135,929 |           |           |   | 123,255 |           |           |   | 179,843 |           |         |   | 152,701 |          
|                                                                        |                            | Compressor and accessory fabrication            |                                    |      | 156,414 |           |           |      | 144,832 |           |           |   | 96,922  |           |           |   | 99,446  |           |         |   | 188,122 |          
|                                                                        |                            | Production and processing equipment fabrication |                                    |      | 325,924 |           |           |      | 242,251 |           |           |   | 234,203 |           |           |   | 127,442 |           |         |   | 147,824 |          
|                                                                        |                            | Selling, general and administrative             |                                    |      | 182,198 |           |           |      | 173,066 |           |           |   | 159,870 |           |           |   | 150,863 |           |         |   | 90,214  |          
|                                                                        |                            | Foreign currency translation                    |                                    |      | 7,890   |           |           |      | (5,222  | )         |           |   | 2,548   |           |           |   | 16,727  |           |         |   | 6,658   |          
|                                                                        |                            | Securities related litigation settlement(3)     |                                    |      |        |           |           |      | (4,163  | )         |           |   | 42,991  |           |           |   |        |           |         |   |        |          
|                                                                        |                            | Other                                           |                                    |      | 526     |           |           |      | 407     |           |           |   | 2,906   |           |           |   | 27,607  |           |         |   | 9,727   |          
|                                                                        |                            | Debt extinguishment costs(4)                    |                                    |      | 7,318   |           |           |      |        |           |           |   |        |           |           |   |        |           |         |   |        |          
|                                                                        |                            | Depreciation and amortization(4)(5)(6)          |                                    |      | 182,681 |           |           |      | 175,308 |           |           |   | 169,164 |           |           |   | 148,141 |           |         |   | 85,762  |          
|                                                                        |                            | Goodwill impairment(5)                          |                                    |      |        |           |           |      |        |           |           |   | 35,466  |           |           |   | 52,103  |           |         |   |        |          
|                                                                        |                            | Leasing expense(6)                              |                                    |      |        |           |           |      |        |           |           |   | 43,139  |           |           |   | 90,074  |           |         |   | 78,031  |          
|                                                                        |                            | Interest expense(6)                             |                                    |      | 136,927 |           |           |      | 146,978 |           |           |   | 89,175  |           |           |   | 43,352  |           |         |   | 23,904  |          
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|                                                                        |                            |                                                 | 1,385,023                          |      |         |           | 1,217,919 |      |         |           | 1,188,939 |   |         |           | 1,110,766 |   |         |           | 919,241 |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Income (loss) from continuing operations before income taxes            |                            |                                                 | (9,434                             | )    |         |           | (29,324   | )    |         |           | (113,859  | ) |         |           | (97,325   | ) |         |           | 107,257 |  
|Provision for (benefit from) income taxes                               |                            |                                                 | 27,714                             |      |         |           | 24,767    |      |         |           | 3,629     |   |         |           | (17,114   | ) |         |           | 40,777  |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Income (loss) from continuing operations                                |                            |                                                 | (37,148                            | )    |         |           | (54,091   | )    |         |           | (117,488  | ) |         |           | (80,211   | ) |         |           | 66,480  |  
|Income (loss) from discontinued operations, net of tax(2)               |                            |                                                 | (869                               | )    |         |           | 10,085    |      |         |           | (3,861    | ) |         |           | (35,857   | ) |         |           | 6,097   |  
|Cumulative effect of accounting change, net of tax(6)                   |                            |                                                 |                                   |      |         |           |          |      |         |           | (86,910   | ) |         |           |          |   |         |           | (164    | )
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Net income (loss)                                                       |                            | $                                               | (38,017                            | )    |         | $         | (44,006   | )    |         | $         | (208,259  | ) |         | $         | (116,068  | ) |         | $         | 72,413  |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Earnings (loss) per common share:                                       |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Basic earnings (loss) per common share from continuing operations       |                            | $                                               | (0.41                              | )    |         | $         | (0.64     | )    |         | $         | (1.45     | ) |         | $         | (1.01     | ) |         | $         | 0.92    |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Diluted earnings (loss) per common share from continuing
    operations |                            | $                                               | (0.41                              | )    |         | $         | (0.64     | )    |         | $         | (1.45     | ) |         | $         | (1.01     | ) |         | $         | 0.82    |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Weighted average common and common equivalent shares:                   |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Basic                                                                   |                            |                                                 | 91,556                             |      |         |           | 84,792    |      |         |           | 81,123    |   |         |           | 79,500    |   |         |           | 72,355  |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  
|Diluted                                                                 |                            |                                                 | 91,556                             |      |         |           | 84,792    |      |         |           | 81,123    |   |         |           | 79,500    |   |         |           | 81,175  |  
|                                                                        |                            |                                                 |                                    |      |         |           |           |      |         |           |           |   |         |           |           |   |         |           |         |  

29



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##### Table of Contents



|                                    |                                                                         |                          |   |           |   |      |   |           |   |         |   |           |   |  |   |           |   |  |   |           |  
|----------------------------------- | ----------------------------------------------------------------------- | ------------------------ | - | --------- | - | ---- | - | --------- | - | ------- | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                    |                                                                         | Years Ended December 31,
|                                    |                                                                         |                         
|                                    |                                                                         | 2005                     |   | 2004      |   | 2003 |   | 2002      |   | 2001(1)
|                                    |                                                                         |                          |   |           |   |      |   |           |   |        
|                                    |                                                                         | (in thousands)          
|Cash flows provided by (used in):   |                                                                         |                          |   |           |   |      |   |           |   |         |   |           |   |  |   |           |   |  |   |          
|                                    | Operating activities                                                    |                          | $ | 122,487   |   |      | $ | 131,837   |   |         | $ | 164,735   |   |  | $ | 195,717   |   |  | $ | 152,774   |  
|                                    | Investing activities                                                    |                          |   | (104,027  | ) |      |   | 11,129    |   |         |   | (43,470   | ) |  |   | (193,703  | ) |  |   | (482,277  | )
|                                    | Financing activities                                                    |                          |   | (6,890    | ) |      |   | (162,350  | ) |         |   | (84,457   | ) |  |   | (4,232    | ) |  |   | 307,259   |  
|Balance Sheet Data (end of period): |                                                                         |                          |   |           |   |      |   |           |   |         |   |           |   |  |   |           |   |  |   |          
|                                    | Working capital                                                         |                          | $ | 351,694   |   |      | $ | 301,893   |   |         | $ | 279,050   |   |  | $ | 218,398   |   |  | $ | 284,619   |  
|                                    | Net property, plant and equipment(6)                                    |                          |   | 1,823,100 |   |      |   | 1,876,348 |   |         |   | 2,027,654 |   |  |   | 1,167,675 |   |  |   | 1,151,513 |  
|                                    | Total assets(6)                                                         |                          |   | 2,862,996 |   |      |   | 2,771,229 |   |         |   | 2,942,274 |   |  |   | 2,176,983 |   |  |   | 2,275,321 |  
|                                    | Debt and mandatorily redeemable convertible preferred
    securities(6) |                          |   | 1,478,948 |   |      |   | 1,643,616 |   |         |   | 1,782,823 |   |  |   | 641,194   |   |  |   | 596,063   |  
|                                    | Common stockholders equity                                             |                          |   | 909,782   |   |      |   | 760,055   |   |         |   | 753,488   |   |  |   | 927,626   |   |  |   | 1,039,468 |  






|    |                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During 2002, we announced a series of restatements that
    ultimately reduced our initially reported pre-tax income by
    $0.4 million, or 0.3%, for the year ended December 31,
    2001, although certain restatements resulted in a larger
    percentage adjustment on a quarterly basis. Amounts have been
    adjusted to reflect such restatements.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We have grown as a result of internal growth and acquisitions.
    For a description of significant business acquisitions, see
    Note 2 in Notes to the Consolidated Financial Statements in
    Item 15 of this
    Form 10-K. 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
    statement of 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.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | On October 23, 2003, we entered into a Stipulation of
    Settlement, which became final on March 10, 2004 and
    settled all of the claims underlying the putative securities
    class action, the putative ERISA class action and the
    shareholder derivative actions discussed in
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Year Ended
    December 31, 2004 Compared to Year Ended December 31,
    2003  Provision for Cost of Litigation
    Settlement in Item 7 of this
    Form 10-K.                                                                                                                                                                                                                                                                                                                        
|   
|(4) | 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,
    the Company expensed $7.3 million related to the call
    premium and $2.5 million through depreciation and
    amortization expense related to unamortized debt issuance costs.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(5) | In June 2001, the FASB issued Statement of Financial Accounting
    Standards 142, Goodwill and Other Intangible Assets
    (SFAS 142). Under SFAS 142, amortization
    of goodwill to earnings was discontinued. Instead, goodwill is
    reviewed for impairment annually or whenever events indicate
    impairment may have occurred. SFAS 142 was effective for us
    on January 1, 2002. For financial data relating to our
    goodwill, see Note 9 in Notes to the Consolidated Financial
    Statements in Item 15 of this
    Form 10-K.                                                                                                                                                                                                                                                                                                                            
|   
|(6) | 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.

30



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

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, 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. We
    believe that the greater technical requirements of these larger
    systems enable us to differentiate our compression products and
    to leverage sales of related products and services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

31



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 natural 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, 2005, we had approximately 882,000 horsepower
    of compression deployed internationally, of which approximately
    92% was located in Latin America (primarily in Venezuela,
    Argentina, Mexico and Brazil). 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. In an effort to intensify our focus on our
    core operations, during 2004 and 2005 we substantially completed
    the sale of our discontinued operations. 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 domestic 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 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, where applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | 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. 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 recently implemented enterprise resource
    planning system platform to help us                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

32



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 achieved our objective to
    reduce our debt and compression equipment lease obligations by
    $180 million from 2004 through 2006.



| |                  
| | -----------------
| | Market Conditions







| |                   
| | ------------------
| | Summary of Results

Net losses.


33



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Results by Product Line.


|                           |                                                 |                          |           |         |  |      |           |         |  |   |           |         | 
|-------------------------- | ----------------------------------------------- | ------------------------ | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | ------- | 
|                           |                                                 | Years Ended December 31,
|                           |                                                 |                         
|                           |                                                 | 2005                     |           | 2004    |  | 2003
|                           |                                                 |                          |           |         |  |     
|Revenues and other income: |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|                           | U.S. rentals                                    |                          | $         | 351,128 |  |      | $         | 341,570 |  |   | $         | 324,186 | 
|                           | International rentals                           |                          |           | 232,587 |  |      |           | 214,598 |  |   |           | 191,301 | 
|                           | Parts, service and used equipment               |                          |           | 225,636 |  |      |           | 180,321 |  |   |           | 164,935 | 
|                           | Compressor and accessory fabrication            |                          |           | 179,954 |  |      |           | 158,629 |  |   |           | 106,896 | 
|                           | Production and processing equipment fabrication |                          |           | 360,267 |  |      |           | 270,284 |  |   |           | 260,660 | 
|                           | Equity in income of non-consolidated affiliate  |                          |           | 21,466  |  |      |           | 19,780  |  |   |           | 23,014  | 
|                           | Other                                           |                          |           | 4,551   |  |      |           | 3,413   |  |   |           | 4,088   | 
|                           |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|                           |                                                 | $                        | 1,375,589 |         |  | $    | 1,188,595 |         |  | $ | 1,075,080 |        
|                           |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|Expenses:                  |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|                           | U.S. rentals                                    |                          | $         | 139,465 |  |      | $         | 144,580 |  |   | $         | 127,425 | 
|                           | International rentals                           |                          |           | 76,512  |  |      |           | 63,953  |  |   |           | 61,875  | 
|                           | Parts, service and used equipment               |                          |           | 169,168 |  |      |           | 135,929 |  |   |           | 123,255 | 
|                           | Compressor and accessory fabrication            |                          |           | 156,414 |  |      |           | 144,832 |  |   |           | 96,922  | 
|                           | Production and processing equipment fabrication |                          |           | 325,924 |  |      |           | 242,251 |  |   |           | 234,203 | 
|                           |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|                           |                                                 | $                        | 867,483   |         |  | $    | 731,545   |         |  | $ | 643,680   |        
|                           |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|Gross profit margin:       |                                                 |                          |           |         |  |      |           |         |  |   |           |        
|                           | U.S. rentals                                    |                          |           | 60%     |  |      |           | 58%     |  |   |           | 61%     | 
|                           | International rentals                           |                          |           | 67%     |  |      |           | 70%     |  |   |           | 68%     | 
|                           | Parts, service and used equipment               |                          |           | 25%     |  |      |           | 25%     |  |   |           | 25%     | 
|                           | Compressor and accessory fabrication            |                          |           | 13%     |  |      |           | 9%      |  |   |           | 9%      | 
|                           | Production and processing equipment fabrication |                          |           | 10%     |  |      |           | 10%     |  |   |           | 10%     | 



| |                       
| | ----------------------
| | Facility Consolidation



Critical Accounting Estimates




34



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| |                        
| | -----------------------
| | Allowances and Reserves







| |                                  
| | ---------------------------------
| | Long-Lived Assets and Investments







35



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| |           
| | ----------
| | Tax Assets









| |                                                              
| | -------------------------------------------------------------
| | Revenue Recognition  Percentage of Completion
    Accounting

percentage-of




36



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| |                             
| | ----------------------------
| | Contingencies and Litigation





Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004




| |        
| | -------
| | Summary



|                                                                                                   |       |   |        |       |  
|-------------------------------------------------------------------------------------------------- | ----- | - | ------ | ----- | -
|Included in the net loss for 2005 were the following pre-tax
    charges (in thousands):          
|Debt extinguishment costs                                                                          |       | $ | 7,318  |      
|Write-off of deferred financing costs (in Depreciation and
    amortization)                       |       |   | 2,500  |      
|                                                                                                   |       |   |        |      
|                                                                                                   | Total |   | $      | 9,818 |  
|                                                                                                   |       |   |        |      
|Included in the net loss for 2004 were the following pre-tax
    charges/(benefit) (in thousands):
|Securities-related litigation settlement                                                           |       | $ | (4,163 | )    
|Write-off of deferred financing costs (in Depreciation and
    amortization)                       |       |   | 1,686  |      
|Cancellation of interest rate swap (in Interest expense)                                           |       |   | 2,028  |      
|                                                                                                   |       |   |        |      
|                                                                                                   | Total |   | $      | (449  | )
|                                                                                                   |       |   |        |      

37



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| |                     
| | --------------------
| | Product Line Results

U.S. Rentals




|                  |  |                          |         |          |  |            |         |  |  |  |      | 
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | ---- | 
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2005                     |         | 2004     |  | (Decrease)
|                  |  |                          |         |          |  |           
|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%   | 



International Rentals




|                  |  |                          |         |          |  |            |         |  |  |  |      | 
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | ---- | 
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2005                     |         | 2004     |  | (Decrease)
|                  |  |                          |         |          |  |           
|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, |         |         
|                  |  |                          |         | Increase
|                  |  | 2005                     |         | 2004     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 225,636 |          |  | $          | 180,321 |  |  |  | 25% | 
|Operating expense |  |                          | 169,168 |          |  |            | 135,929 |  |  |  | 24% | 
|                  |  |                          |         |          |  |            |         |  |  |  |     | 
|Gross profit      |  | $                        | 56,468  |          |  | $          | 44,392  |  |  |  | 27% | 
|Gross margin      |  |                          | 25%     |          |  |            | 25%     |  |  |  |    | 



38



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start-up


Compression and Accessory Fabrication




|                  |  |                          |         |          |  |            |         |  |  |  |     | 
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | --- | 
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2005                     |         | 2004     |  | (Decrease)
|                  |  |                          |         |          |  |           
|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, |         |         
|                  |  |                          |         | Increase
|                  |  | 2005                     |         | 2004     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 360,267 |          |  | $          | 270,284 |  |  |  | 33 | %
|Operating expense |  |                          | 325,924 |          |  |            | 242,251 |  |  |  | 35 | %
|                  |  |                          |         |          |  |            |         |  |  |  |    |  
|Gross profit      |  | $                        | 34,343  |          |  | $          | 28,033  |  |  |  | 23 | %
|Gross margin      |  |                          | 10%     |          |  |            | 10%     |  |  |  |   |  





| |              
| | -------------
| | Other Revenue





| |         
| | --------
| | Expenses



39



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|                    |                      |              |         |        |   |   |       |       | 
|------------------- | -------------------- | ------------ | ------- | ------ | - | - | ----- | ----- | 
|                    |                      | Year Ended  
|                    |                      | December 31,
|                    |                      |             
|                    |                      | 2005         |         | 2004  
|                    |                      |              |         |       
|Italy               |                      | $            | (10,388 | )      |   | $ | 4,170 |      
|Argentina           |                      |              | 388     |        |   |   | (624  | )    
|Venezuela           |                      |              | 3,501   |        |   |   | 1,165 |      
|Canada              |                      |              | (1,705  | )      |   |   | 105   |      
|All other countries |                      |              | 314     |        |   |   | 406   |      
|                    |                      |              |         |        |   |   |       |      
|                    | Exchange gain (loss) |              | $       | (7,890 | ) |   | $     | 5,222 | 
|                    |                      |              |         |        |   |   |       |      









40



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| |             
| | ------------
| | Income Taxes







| |                        
| | -----------------------
| | Discontinued Operations







41



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##### Table of Contents



Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003




| |        
| | -------
| | Summary





|                                                                             |       |   |        |      |  
|---------------------------------------------------------------------------- | ----- | - | ------ | ---- | -
|Securities-related litigation settlement                                     |       | $ | (4,163 | )   
|Write-off of deferred financing costs (in Depreciation and
    amortization) |       |   | 1,686  |     
|Cancellation of interest rate swap (in Interest expense)                     |       |   | 2,028  |     
|                                                                             |       |   |        |     
|                                                                             | Total |   | $      | (449 | )
|                                                                             |       |   |        |     



|                                                                             |       |   |         |         | 
|---------------------------------------------------------------------------- | ----- | - | ------- | ------- | 
|Rental fleet asset impairment (in Depreciation and amortization)             |       | $ | 14,334  |        
|Cumulative effect of accounting change-FIN 46                                |       |   | 133,707 |        
|Securities-related litigation settlement                                     |       |   | 42,991  |        
|Belleli goodwill impairment (in Goodwill impairment)                         |       |   | 35,466  |        
|Write-off of deferred financing costs (in Depreciation and
    amortization) |       |   | 2,461   |        
|Loss on sale/write-down of discontinued operations                           |       |   | 21,617  |        
|                                                                             |       |   |         |        
|                                                                             | Total |   | $       | 250,576 | 
|                                                                             |       |   |         |        



| |                     
| | --------------------
| | Product Line Results

U.S. Rentals




|                  |  |                          |         |          |  |            |         |  |  |  |      | 
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | ---- | 
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2004                     |         | 2003     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 341,570 |          |  | $          | 324,186 |  |  |  | 5%   | 
|Operating expense |  |                          | 144,580 |          |  |            | 127,425 |  |  |  | 13%  | 
|                  |  |                          |         |          |  |            |         |  |  |  |      | 
|Gross profit      |  | $                        | 196,990 |          |  | $          | 196,761 |  |  |  |     | 
|Gross margin      |  |                          | 58%     |          |  |            | 61%     |  |  |  | (3)% | 



International Rentals




|                  |  |                          |         |          |  |            |         |  |  |  |     | 
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | --- | 
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2004                     |         | 2003     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 214,598 |          |  | $          | 191,301 |  |  |  | 12% | 
|Operating expense |  |                          | 63,953  |          |  |            | 61,875  |  |  |  | 3%  | 
|                  |  |                          |         |          |  |            |         |  |  |  |     | 
|Gross profit      |  | $                        | 150,645 |          |  | $          | 129,426 |  |  |  | 16% | 
|Gross margin      |  |                          | 70%     |          |  |            | 68%     |  |  |  | 2%  | 



42



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Parts, Service and Used Equipment




|                  |  |                          |         |          |  |            |         |  |  |  |    |  
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | -- | -
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2004                     |         | 2003     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 180,321 |          |  | $          | 164,935 |  |  |  | 9  | %
|Operating expense |  |                          | 135,929 |          |  |            | 123,255 |  |  |  | 10 | %
|                  |  |                          |         |          |  |            |         |  |  |  |    |  
|Gross profit      |  | $                        | 44,392  |          |  | $          | 41,680  |  |  |  | 7  | %
|Gross margin      |  |                          | 25%     |          |  |            | 25%     |  |  |  |   |  

start-up


Compression and Accessory Fabrication




|                  |  |                          |         |          |  |            |         |  |  |  |    |  
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | -- | -
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2004                     |         | 2003     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 158,629 |          |  | $          | 106,896 |  |  |  | 48 | %
|Operating Expense |  |                          | 144,832 |          |  |            | 96,922  |  |  |  | 49 | %
|                  |  |                          |         |          |  |            |         |  |  |  |    |  
|Gross Profit      |  | $                        | 13,797  |          |  | $          | 9,974   |  |  |  | 38 | %
|Gross Margin      |  |                          | 9%      |          |  |            | 9%      |  |  |  |   |  



Production and Processing Equipment Fabrication




|                  |  |                          |         |          |  |            |         |  |  |  |   |  
|----------------- |  | ------------------------ | ------- | -------- |  | ---------- | ------- |  |  |  | - | -
|                  |  | Years Ended December 31, |         |         
|                  |  |                          |         | Increase
|                  |  | 2004                     |         | 2003     |  | (Decrease)
|                  |  |                          |         |          |  |           
|Revenue           |  | $                        | 270,284 |          |  | $          | 260,660 |  |  |  | 4 | %
|Operating expense |  |                          | 242,251 |          |  |            | 234,203 |  |  |  | 3 | %
|                  |  |                          |         |          |  |            |         |  |  |  |   |  
|Gross profit      |  | $                        | 28,033  |          |  | $          | 26,457  |  |  |  | 6 | %
|Gross margin      |  |                          | 10%     |          |  |            | 10%     |  |  |  |  |  



43



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| |              
| | -------------
| | Other Revenue







| |         
| | --------
| | Expenses









44



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|                    |                      |              |       |       |  |   |        |        |  
|------------------- | -------------------- | ------------ | ----- | ----- |  | - | ------ | ------ | -
|                    |                      | Year Ended  
|                    |                      | December 31,
|                    |                      |             
|                    |                      | 2004         |       | 2003 
|                    |                      |              |       |      
|Italy               |                      | $            | 4,170 |       |  | $ | 221    |       
|Argentina           |                      |              | (624  | )     |  |   | 494    |       
|Venezuela           |                      |              | 1,165 |       |  |   | (2,443 | )     
|All other countries |                      |              | 511   |       |  |   | (820   | )     
|                    |                      |              |       |       |  |   |        |       
|                    | Exchange gain (loss) |              | $     | 5,222 |  |   | $      | (2,548 | )
|                    |                      |              |       |       |  |   |        |       









| |                                               
| | ----------------------------------------------
| | Provision for Securities Litigation Settlement





45



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|                                          |  |   |         |  
|----------------------------------------- |  | - | ------- | -
|Cash                                      |  | $ | 30,050  |  
|Estimated fair value of note to be issued |  |   | 3,633   |  
|Common stock to be issued by Hanover      |  |   | 29,800  |  
|Legal fees and administrative costs       |  |   | 6,178   |  
|                                          |  |   |         |  
|Total                                     |  |   | 69,661  |  
|Less: insurance recoveries                |  |   | (26,670 | )
|                                          |  |   |         |  
|Net litigation settlement                 |  | $ | 42,991  |  
|                                          |  |   |         |  



46



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| |             
| | ------------
| | Income Taxes







| |                        
| | -----------------------
| | Discontinued Operations











| |                                       
| | --------------------------------------
| | Cumulative Effect of Accounting Change





47



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Leasing Transactions and Accounting Change for FIN 46












48



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|                                  |  |           |         |                  |  |            |                |  |  |   |        | 
|--------------------------------- |  | --------- | ------- | ---------------- |  | ---------- | -------------- |  |  | - | ------ | 
|                                  |  | Residual  |         |                  |  | Minority  
|                                  |  | Value     |         | Lease            |  | Interest  
|                                  |  | Guarantee |         | Termination Date |  | Obligation
|Lease                             |  |           |         |                  |  |           
|2001A compression equipment lease |  | $         | 102,853 |                  |  |            | September 2008 |  |  | $ | 4,123  | 
|2001B compression equipment lease |  |           | 175,000 |                  |  |            | September 2011 |  |  |   | 7,750  | 
|                                  |  |           |         |                  |  |            |                |  |  |   |        | 
|                                  |  | $         | 277,853 |                  |  |            |                |  |  | $ | 11,873 | 
|                                  |  |           |         |                  |  |            |                |  |  |   |        | 









49



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Liquidity and Capital Resources






|                                                             |  |      |          |      |  |   |          |  
|------------------------------------------------------------ |  | ---- | -------- | ---- |  | - | -------- | -
|For the Year Ended December 31:                              |  | 2005 |          | 2004
|                                                             |  |      |          |     
|Net cash provided by (used in) continuing operations:        |  |      |          |      |  |   |          |  
|Operating activities                                         |  | $    | 122,870  |      |  | $ | 123,722  |  
|Investing activities                                         |  |      | (105,247 | )    |  |   | (61,818  | )
|Financing activities                                         |  |      | (6,890   | )    |  |   | (162,350 | )
|Effect of exchange rate changes on cash and cash equivalents |  |      | (1,413   | )    |  |   | 841      |  
|Net cash provided by discontinued operations                 |  |      | 837      |      |  |   | 81,062   |  
|                                                             |  |      |          |      |  |   |          |  
|Net change in cash and cash equivalents                      |  | $    | 10,157   |      |  | $ | (18,543  | )
|                                                             |  |      |          |      |  |   |          |  













50



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|                                                |                                                    |                      |           |         |           |           |         |           |       |            |         |         |         |   |         |         |         |   |         |         |         | 
|----------------------------------------------- | -------------------------------------------------- | -------------------- | --------- | ------- | --------- | --------- | ------- | --------- | ----- | ---------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                |                                                    | Total                |           | 2006    |           | 2007-2008 |         | 2009-2010 |       | Thereafter
|Cash Contractual Obligations:                   |                                                    |                      |           |         |           |           |         |           |       |           
|                                                |                                                    | (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 |           |           |         |          |       |            |         |        |         |   |         |        |         |   |         | 143,750 |        
|                                                | 7.25% subordinated convertible securities due 2029 |                      |           | 86,250  |           |           |         |          |       |            |         |        |         |   |         |        |         |   |         | 86,250  |        
|                                                | 8.625% senior notes due 2010                       |                      |           | 200,000 |           |           |         |          |       |            |         |        |         |   |         | 200,000 |         |   |         |        |        
|                                                | 9.0% senior notes due 2014                         |                      |           | 200,000 |           |           |         |          |       |            |         |        |         |   |         |        |         |   |         | 200,000 |        
|                                                | 11% zero coupon subordinated notes due 2007(2)     |                      |           | 262,622 |           |           |         |          |       |            |         | 262,622 |         |   |         |        |         |   |         |        |        
|                                                | Bank credit facility due 2010                      |                      |           | 48,000  |           |           |         |          |       |            |         |        |         |   |         | 48,000  |         |   |         |        |        
|                                                | Other long-term debt                               |                      |           | 1,751   |           |           |         | 1,309     |       |            |         | 267     |         |   |         | 103     |         |   |         | 72      |        
|                                                | 2001A equipment lease notes, due 2008              |                      |           | 133,000 |           |           |         |          |       |            |         | 133,000 |         |   |         |        |         |   |         |        |        
|                                                | 2001B equipment lease notes, due 2011              |                      |           | 250,000 |           |           |         |          |       |            |         |        |         |   |         |        |         |   |         | 250,000 |        
|                                                |                                                    |                      |           |         |           |           |         |           |       |            |         |         |         |   |         |         |         |   |         |        
|                                                |                                                    | Total long-term debt |           |         | 1,517,373 |           |         |           | 1,309 |            |         |         | 587,889 |   |         |         | 248,103 |   |         |         | 680,072 | 
|Interest on long-term debt(3)                   |                                                    |                      | 657,243   |         |           |           | 98,737  |           |       |            | 186,639 |         |         |   | 155,721 |         |         |   | 216,146 |        
|Minority interest obligations(1)(4)             |                                                    |                      | 11,873    |         |           |           |        |           |       |            | 4,123   |         |         |   |        |         |         |   | 7,750   |        
|Purchase commitments                            |                                                    |                      | 214,379   |         |           |           | 213,101 |           |       |            | 1,278   |         |         |   |        |         |         |   |        |        
|Facilities and other equipment operating leases |                                                    |                      | 8,556     |         |           |           | 3,834   |           |       |            | 3,796   |         |         |   | 864     |         |         |   | 62      |        
|                                                |                                                    |                      |           |         |           |           |         |           |       |            |         |         |         |   |         |         |         |   |         |        
|Total contractual cash obligations              |                                                    | $                    | 2,409,424 |         |           | $         | 316,981 |           |       | $          | 783,725 |         |         | $ | 404,688 |         |         | $ | 904,030 |        
|                                                |                                                    |                      |           |         |           |           |         |           |       |            |         |         |         |   |         |         |         |   |         |        






|    |                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | Balance payable at December 31, 2005, including 11%
    discount per annum, was $229.8 million.                                                                                                                                                                                                                                              
|   
|(3) | Interest amounts calculated using interest rates in effect as of
    December 31, 2005, including the effect of interest rate
    swaps. The interest amounts do not include original issue
    discount that accretes under our 11% zero coupon subordinated
    notes due 2007.                                                            
|   
|(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.

10-K.


Debt Refinancing/Repayment.


51



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Bank Credit Facility.




52



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53



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Credit Ratings.


|                                                                        |  |         |  |           
|----------------------------------------------------------------------- |  | ------- |  | ----------
|                                                                        |  |         |  | Standard &
|                                                                        |  | Moodys |  | Poors    
|                                                                        |  |         |  |           
|Outlook                                                                 |  | Stable  |  | Stable    
|Senior implied rating                                                   |  | B1      |  | BB-       
|Liquidity Rating                                                        |  | SGL-3   |  |          
|2001A equipment lease notes, interest at 8.5%, due September 2008       |  | B2      |  | B+        
|2001B equipment lease notes, interest at 8.8%, due September 2011       |  | B2      |  | B+        
|4.75% convertible senior notes due 2008                                 |  | B3      |  | B         
|4.75% convertible senior notes due 2014                                 |  | B3      |  | B         
|8.625% senior notes due 2010                                            |  | B3      |  | B         
|9.0% senior notes due 2014                                              |  | B3      |  | B         
|Zero coupon subordinated notes, interest at 11%, due
    March 31, 2007 |  | Caa1    |  | B-        
|7.25% convertible subordinated notes due 2029*                          |  | Caa1    |  | B-        






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Rating is on the Mandatorily Redeemable Convertible Preferred
    Securities issued by Hanover Compressor Capital Trust, a trust
    that we sponsored. Prior to adoption of FIN 46 in 2003,
    these securities were reported on our balance sheet as
    mandatorily redeemable convertible preferred securities. Because
    we only have a limited ability to make decisions about its
    activities and we are not the primary beneficiary of the trust,
    the trust is a VIE under FIN 46. As such, the Mandatorily
    Redeemable Convertible Preferred Securities issued by the trust
    are no longer reported on our balance sheet. Instead, we now
    report our subordinated notes payable to the trust as a debt.
    These notes have previously been eliminated in our consolidated
    financial statements. The changes related to our Mandatorily
    Redeemable Convertible Preferred Securities for our balance
    sheet are reclassifications and had no impact on our
    consolidated results of operations or cash flow.



Derivative Financial Instruments.






54



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|                         |  |               |                   |                  |  |                 |        |                   |  |   |         |  |  |   |        |  
|------------------------ |  | ------------- | ----------------- | ---------------- |  | --------------- | ------ | ----------------- |  | - | ------- |  |  | - | ------ | -
|                         |  |               |                   |                  |  |                 |        | Fair Value of    
|                         |  |               |                   | Fixed Rate to be |  |                 |        | Swap at          
|Floating Rate to be Paid |  | Maturity Date |                   | Received         |  | Notional Amount |        | December 31, 2005
|                         |  |               |                   |                  |  |                 |        |                  
|Six Month LIBOR +4.72%   |  |               | December 15, 2010 |                  |  |                 | 8.625% |                   |  | $ | 100,000 |  |  | $ | (4,975 | )
|Six Month LIBOR +4.64%   |  |               | December 15, 2010 |                  |  |                 | 8.625% |                   |  | $ | 100,000 |  |  | $ | (4,711 | )





|            |  |               |                |                       |  |                 |         |                   |  |   |         |  |  |   |   | 
|----------- |  | ------------- | -------------- | --------------------- |  | --------------- | ------- | ----------------- |  | - | ------- |  |  | - | - | 
|            |  |               |                |                       |  |                 |         | Fair Value of    
|            |  |               |                |                       |  |                 |         | Swap at          
|Lease       |  | Maturity Date |                | Fixed Rate to be Paid |  | Notional Amount |         | December 31, 2005
|            |  |               |                |                       |  |                 |         |                  
|March 2000  |  |               | March 11, 2005 |                       |  |                 | 5.2550% |                   |  | $ | 100,000 |  |  | $ |  | 
|August 2000 |  |               | March 11, 2005 |                       |  |                 | 5.2725% |                   |  | $ | 100,000 |  |  | $ |  | 



mark-to mark-to






Off-Balance Sheet Arrangements




55



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|                        |  |      |      |                   |  |   |        | 
|----------------------- |  | ---- | ---- | ----------------- |  | - | ------ | 
|                        |  |      |      | Maximum Potential
|                        |  |      |      | Undiscounted     
|                        |  |      |      | Payments as of   
|                        |  | Term |      | December 31, 2005
|                        |  |      |      |                  
|Simco/Harwat Consortium |  |      | 2006 |                   |  | $ | 7,476  | 
|El Furrial              |  |      | 2013 |                   |  | $ | 32,017 | 

10-K.


New Accounting Pronouncements






04-10




56



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Accounting
for Stock Issued to Employees,








57



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk





|                         |  |               |                   |            |  |          |       |               |  |   |         |  |  |   |        |  
|------------------------ |  | ------------- | ----------------- | ---------- |  | -------- | ----- | ------------- |  | - | ------- |  |  | - | ------ | -
|                         |  |               |                   |            |  |          |       | Fair Value of
|                         |  |               |                   | Fixed Rate |  |          |       | Swap at      
|                         |  |               |                   | to be      |  | Notional |       | December 31, 
|Floating Rate to be Paid |  | Maturity Date |                   | Received   |  | Amount   |       | 2005         
|                         |  |               |                   |            |  |          |       |              
|Six Month LIBOR +4.72%   |  |               | December 15, 2010 |            |  |          | 8.625 | %             |  | $ | 100,000 |  |  | $ | (4,975 | )
|Six Month LIBOR +4.64%   |  |               | December 15, 2010 |            |  |          | 8.625 | %             |  | $ | 100,000 |  |  | $ | (4,711 | )















58



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|                    |                      |              |         |        |   |   |       |       | 
|------------------- | -------------------- | ------------ | ------- | ------ | - | - | ----- | ----- | 
|                    |                      | Year Ended  
|                    |                      | December 31,
|                    |                      |             
|                    |                      | 2005         |         | 2004  
|                    |                      |              |         |       
|Italy               |                      | $            | (10,388 | )      |   | $ | 4,170 |      
|Argentina           |                      |              | 388     |        |   |   | (624  | )    
|Venezuela           |                      |              | 3,501   |        |   |   | 1,165 |      
|Canada              |                      |              | (1,705  | )      |   |   | 105   |      
|All other countries |                      |              | 314     |        |   |   | 406   |      
|                    |                      |              |         |        |   |   |       |      
|                    | Exchange gain (loss) |              | $       | (7,890 | ) |   | $     | 5,222 | 
|                    |                      |              |         |        |   |   |       |      








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|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

13a-15(e)




| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting

13a-15(f) Internal Control 
Integrated Framework


59



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Internal Control  Integrated Framework






| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control over Financial
    Reporting








|         |                  
|-------- | -----------------
|Item 9B. | Other Information



|                    |  |                                                      |  |             |         |             |  |   |         | 
|------------------- |  | ---------------------------------------------------- |  | ----------- | ------- | ----------- |  | - | ------- | 
|                    |  |                                                      |  |             |         | 2005 Bonus 
|                    |  |                                                      |  |             |         | Approved   
|                    |  |                                                      |  | Current     |         | For Payment
|Name                |  | Position                                             |  | Base Salary |         | in 2006    
|                    |  |                                                      |  |             |         |            
|John E. Jackson     |  | President and Chief Executive Officer; Director      |  | $           | 540,000 |             |  | $ | 600,000 | 
|Brian A. Matusek    |  | Senior Vice President  U.S. and Global Services     |  | $           | 275,000 |             |  | $ | 135,000 | 
|Gary M. Wilson      |  | Senior Vice President, General Counsel and Secretary |  | $           | 295,000 |             |  | $ | 140,000 | 
|Lee E. Beckelman    |  | Vice President and Chief Financial Officer           |  | $           | 250,000 |             |  | $ | 120,000 | 
|Norman A. McKay     |  | Vice President  Eastern Hemisphere                  |  | $           | 275,000 |             |  | $ | 110,000 | 
|Anita H. Colglazier |  | Vice President  Controller                          |  | $           | 175,000 |             |  | $ | 63,000  | 
|Peter G. Schreck    |  | Vice President  Treasury and Planning               |  | $           | 193,000 |             |  | $ | 67,000  | 
|Stephen P. York     |  | Vice President  Investor Relations and Technology   |  | $           | 190,000 |             |  | $ | 69,000  | 
|Steve W. Muck       |  | Vice President  Latin America                       |  | $           | 225,000 |             |  | $ | 110,000 | 

Election of Director




60



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PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

10-K


http://www.hanover-co.com







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



EQUITY COMPENSATION PLAN INFORMATION




61



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|                                                                 |  |                            |           |                   |  |                           |       |  |  |  |           |    
|---------------------------------------------------------------- |  | -------------------------- | --------- | ----------------- |  | ------------------------- | ----- |  |  |  | --------- | ---
|                                                                 |  |                            |           | Weighted-         |  | Number of securities     
|                                                                 |  |                            |           | average exercise  |  | remaining available for  
|                                                                 |  | Number of securities to be |           | price of          |  | future issuance under    
|                                                                 |  | issued upon exercise of    |           | outstanding       |  | equity compensation plans
|                                                                 |  | outstanding options,       |           | options, warrants |  | (excluding securities    
|                                                                 |  | warrants and rights        |           | and rights        |  | reflected in column (a)) 
|Plan category                                                    |  | (a)                        |           | (b)               |  | (c)                      
|                                                                 |  |                            |           |                   |  |                          
|Equity compensation plans approved by security holders(1)        |  |                            | 2,453,906 |                   |  | $                         | 11.78 |  |  |  | 1,167,715 | (3)
|Equity compensation plans not approved by security holders(2)(3) |  |                            | 566,851   |                   |  | $                         | 11.73 |  |  |  |          | (4)
|                                                                 |  |                            |           |                   |  |                           |       |  |  |  |           |    
|Total                                                            |  |                            | 3,020,757 |                   |  | $                         | 11.77 |  |  |  | 1,167,715 |    
|                                                                 |  |                            |           |                   |  |                           |       |  |  |  |           |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Composed of the 2003 Stock Incentive Plan, the 2001 Equity
    Incentive Plan and the 1997 Stock Option Plan. In addition, as
    of December 31, 2005, there are 1,357,202 shares of
    restricted stock outstanding granted under the 2003 Stock
    Incentive Plan and the 2001 Equity Incentive Plan.                                                                                                                                                                                                                                                        
|   
|(2) | Composed of all of the Equity Compensation Plans except the 2003
    Stock Incentive Plan, the 2001 Equity Incentive Plan and the
    1997 Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | Under terms of the 1997 Stock Option Plan, Hanover may grant
    awards of restricted stock in addition to options. Under the
    terms of the 2001 Equity Incentive Plan, Hanover may grant
    awards of restricted stock in addition to options, although no
    more than 1.0 million of the 1.5 million shares
    authorized under such plan may be issued pursuant to awards of
    restricted stock. Under the terms of the 2003 Stock Incentive
    Plan, Hanover may grant awards of restricted stock and
    performance awards in addition to options.
|   
|(4) | The Board of Directors terminated any existing authority to make
    future grants under these plans on May 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                             



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|                                   |  |             |         |                    |  |                       |         |           |  |            |         |  |  |   |       |  |  |  |    | 
|---------------------------------- |  | ----------- | ------- | ------------------ |  | --------------------- | ------- | --------- |  | ---------- | ------- |  |  | - | ----- |  |  |  | -- | 
|                                   |  |             |         |                    |  | Number of Shares      |         |           |  |           
|                                   |  |             |         | Shares Previously  |  | Reserved for Issuance |         | Weighted- |  | Shares    
|                                   |  | Number of   |         | Issued Pursuant to |  | Upon the Exercise of  |         | Average   |  | Available 
|                                   |  | Shares      |         | Stock Option       |  | Outstanding Stock     |         | Exercise  |  | for Future
|Plan or Agreement Name             |  | Issuable(#) |         | Exercises(#)       |  | Options(#)            |         | Price($)  |  | Grants(#) 
|                                   |  |             |         |                    |  |                       |         |           |  |           
|1996 Employee Stock Option Plan    |  |             | 116,920 |                    |  |                       | 66,148  |           |  |            | 47,084  |  |  | $ | 5.70  |  |  |  | *  | 
|Glenn Wind Stock Option Agreement  |  |             | 47,400  |                    |  |                       | 41,472  |           |  |            | 5,928   |  |  | $ | 0.003 |  |  |  | *  | 
|1998 Stock Option Plan             |  |             | 520,000 |                    |  |                       | 45,678  |           |  |            | 224,373 |  |  | $ | 13.37 |  |  |  | ** | 
|December 9, 1998 Stock Option Plan |  |             | 700,000 |                    |  |                       | 436,060 |           |  |            | 172,138 |  |  | $ | 9.75  |  |  |  | ** | 
|1999 Stock Option Plan             |  |             | 600,000 |                    |  |                       | 27,532  |           |  |            | 117,328 |  |  | $ | 14.50 |  |  |  | ** | 






| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| | * | The authority to make future grants under these plans was
    terminated upon our initial public offering in 1997.



|   |                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------
|** | The Board of Directors terminated authority to make future
    grants under these plans on May 15, 2003.






|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services






PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules

Documents filed as a part of this report.




| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | 1. Financial Statements. The following financial
    statements are filed as a part of this report.

|                                                            |  |  |      | 
|----------------------------------------------------------- |  |  | ---- | 
|Report of Independent Registered Public
    Accounting Firm |  |  | F-1  | 
|Consolidated Balance Sheets                                 |  |  | F-3  | 
|Consolidated Statements of Operations                       |  |  | F-4  | 
|Consolidated Statements of Comprehensive
    Income (Loss)  |  |  | F-5  | 
|Consolidated Statements of Cash Flows                       |  |  | F-6  | 
|Consolidated Statements of Common
    Stockholders Equity  |  |  | F-8  | 
|Notes to Consolidated Financial
    Statements              |  |  | F-9  | 
|Selected Quarterly Unaudited Financial
    Data             |  |  | F-49 | 



| |                                
| | -------------------------------
| | 2. Financial Statement Schedule

|                                                                                                         |  |  |     | 
|-------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Schedule II  Valuation and Qualifying Accounts                                                          |  |  | S-1 | 
|All other schedules have been omitted because they are not
    required under the relevant instructions.

63



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| |            
| | -----------
| | 3. Exhibits

|        |   |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | - | ----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 3 | .1          |  |  |  | Certificate of Incorporation of the Hanover Compressor Holding
    Co., incorporated by reference to Exhibit 3.1 to Hanover
    Compressor Companys (the Company) 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          |  |  |  | Third Amended and Restated Registration Rights Agreement, dated
    as of December 5, 1995, by and between the Company, GKH
    Partners, L.P., GKH Investments, L.P., Astra Resources, Inc. and
    other stockholders of the Company party thereto, incorporated by
    reference to Exhibit 4.1 to the Companys Registration
    Statement (File No. 333-24953) on Form S-1, as amended.            
|        | 4 | .2          |  |  |  | Form of Warrant Agreement, dated as of August 7, 1995,
    incorporated by reference to Exhibit 4.10 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                      
|        | 4 | .3          |  |  |  | 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 | .4          |  |  |  | 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 | .5          |  |  |  | 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 | .6          |  |  |  | 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 | .7          |  |  |  | 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 | .8          |  |  |  | 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 | .9          |  |  |  | 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 | .10         |  |  |  | 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 | .11         |  |  |  | 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.

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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .12         |  |  |  | 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  | .13         |  |  |  | Indenture for the Zero Coupon Subordinated Notes due
    March 31, 2007, dated as of May 14, 2003, between the
    Company and Wachovia Bank, National Association, as trustee,
    incorporated by reference to Exhibit 4.1 to the
    Companys Registration Statement (File No. 333-106384)
    on Form S-3, as filed with the SEC on June 23, 2003.                                                                                                                                                                                          
|        | 4  | .14         |  |  |  | Form of Zero Coupon Subordinated Notes due March 31, 2007,
    incorporated by reference to Exhibit 4.14 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2003.                                                                                                                                                                                                                                                                                                                                               
|        | 4  | .15         |  |  |  | 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  | .16         |  |  |  | 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  | .17         |  |  |  | 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  | .18         |  |  |  | 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  | .19         |  |  |  | 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  | .20         |  |  |  | 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  | .21         |  |  |  | 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.                                                                                                                                                                                                                                                                       
|        | 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.*                                                                                                                                                                                                                                                                   
|        | 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.*                                                                                                                                                                                                                                                                                                          

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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .5          |  |  |  | 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 | .6          |  |  |  | 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 | .7          |  |  |  | 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 | .8          |  |  |  | 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 | .9          |  |  |  | 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 | .10         |  |  |  | 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 | .11         |  |  |  | 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 | .12         |  |  |  | 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 | .13         |  |  |  | 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 | .14         |  |  |  | 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 | .15         |  |  |  | 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 | .16         |  |  |  | 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 | .17         |  |  |  | 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 | .18         |  |  |  | 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.                                                                                   

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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -- | ----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .19         |  |  |  | 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 | .20         |  |  |  | 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 | .21         |  |  |  | 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 | .22         |  |  |  | Most Favored Supplier and Alliance Agreement, dated
    August 31, 2001, among Schlumberger Oilfield Holdings
    Limited, Schlumberger Technology Corporation and Hanover
    Compression Limited Partnership, incorporated by reference to
    Exhibit 99.4 to the Companys Current Report on
    Form 8-K filed with the SEC on September 14, 2001.                                                                                                                  
|        | 10 | .23         |  |  |  | Agreement by and among SJMB, L.P., Charles Underbrink,
    John L. Thompson, Belleli Energy S.r.l. and Hanover
    Compressor Company and certain of its subsidiaries dated
    September 20, 2002, incorporated by reference to
    Exhibit 10.62 to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2002.                                                                                                                          
|        | 10 | .24         |  |  |  | Hanover Compressor Company Stock Compensation Plan, incorporated
    by reference to Exhibit 10.63 to the Companys Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2002.                                                                                                                                                                                                                                                                    
|        | 10 | .25         |  |  |  | Hanover Compressor Company Senior Executive Stock Option Plan,
    incorporated by reference to Exhibit 10.4 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                             
|        | 10 | .26         |  |  |  | Hanover Compressor Company 1993 Management Stock Option Plan,
    incorporated by reference to Exhibit 10.5 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                              
|        | 10 | .27         |  |  |  | Hanover Compressor Company Incentive Option Plan, incorporated
    by reference to Exhibit 10.6 to the Companys
    Registration Statement (File No. 333-24953) on
    Form S-1, as amended.                                                                                                                                                                                                                                                                            
|        | 10 | .28         |  |  |  | Amendment and Restatement of the Hanover Compressor Company
    Incentive Option Plan, incorporated by reference to
    Exhibit 10.7 to the Companys Registration Statement
    (File No. 333-24953) on Form S-1, as
    amended.                                                                                                                                                                                                                                     
|        | 10 | .29         |  |  |  | Hanover Compressor Company 1995 Employee Stock Option Plan,
    incorporated by reference to Exhibit 10.8 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                                
|        | 10 | .30         |  |  |  | Hanover Compressor Company 1995 Management Stock Option Plan,
    incorporated by reference to Exhibit 10.9 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                              
|        | 10 | .31         |  |  |  | Form of Stock Option Agreement for DeVille and Mcneil,
    incorporated by reference to Exhibit 10.70 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 2002.                                                                                                                                                                                                                                                                   
|        | 10 | .32         |  |  |  | Form of Stock Option Agreements for Wind Bros, incorporated by
    reference to Exhibit 10.71 to the Companys Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2002.                                                                                                                                                                                                                                                                           
|        | 10 | .33         |  |  |  | Hanover Compressor Company 1996 Employee Stock Option Plan,
    incorporated by reference to Exhibit 10.10 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                               

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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .34         |  |  |  | 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 | .35         |  |  |  | 1997 Stock Purchase Plan, incorporated by reference to
    Exhibit 10.24 to the Companys Registration Statement
    (File No. 333-24953) on Form S-1, as
    amended.                                                                                                                                                                                                                                                                         
|        | 10 | .36         |  |  |  | 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 | .37         |  |  |  | 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 | .38         |  |  |  | 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 | .39         |  |  |  | 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 | .40         |  |  |  | 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 | .41         |  |  |  | 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 | .42         |  |  |  | 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 | .43         |  |  |  | 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 | .44         |  |  |  | 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 | .45         |  |  |  | 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 | .46         |  |  |  | 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 | .47         |  |  |  | Promissory Note and Indenture dated April 21, 2004 relating
    to $6,650,000 payable to Milberg, Weiss, Bershad,
    Hynes & Lerach LLP as Escrow Agent with respect to the
    settlement fund as defined in that certain Stipulation and
    Agreement and 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 March 31, 2004.
|        | 10 | .48         |  |  |  | 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 | .49         |  |  |  | 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.                                                                                                                                                                                                                                     

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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .50         |  |  |  | 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 | .51         |  |  |  | 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 | .52         |  |  |  | Employment Letter with Anita H. Colglazier dated April 4,
    2002 with explanatory note.                                                                                                                                                                                                                                                                                                                       
|        | 10 | .53         |  |  |  | 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 | .54         |  |  |  | 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 | .55         |  |  |  | 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.*                                                                                                                                                                                                                                                   
|        | 99 | .1          |  |  |  | Letter from GKH partners regarding wind-up of GKH Investments,
    L.P. and GKH Private Limited, dated October 15, 2001,
    incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on Form 8-K filed with the
    SEC on October 18, 2001.                                                                                                                                                
|        | 99 | .2          |  |  |  | Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
    President and General Counsel of the Company, dated
    November 12, 2002, incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K filed with the SEC on November 15, 2002.                                                                                                                                 
|        | 99 | .3          |  |  |  | Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
    President and General Counsel of the Company, dated
    March 11, 2004, incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K filed with the SEC on March 12, 2004.                                                                                                                                       






|  |               
|- | --------------
|* | Filed herewith



|   |                                                        
|-- | -------------------------------------------------------
| | Management contract or compensatory plan or arrangement

69



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##### Table of Contents






SIGNATURES






| |                                      
| | -------------------------------------
| | Hanover Compressor Company           
|
| | By:/s/ John E. Jackson               
| |                                      
| | 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) |  | March 1, 2006
|                                          
|/s/ Lee E. BeckelmanLee E. Beckelman       |  | Vice President and
    Chief Financial Officer
    (Principal Financial Officer)      |  | March 1, 2006
|                                          
|/s/ Anita H. ColglazierAnita H. Colglazier |  | Vice President and Controller (Principal Accounting Officer)                          |  | March 1, 2006
|                                          
|/s/ I. Jon BrumleyI. Jon Brumley           |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Ted Collins, Jr.Ted Collins, Jr.       |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Margaret K. DormanMargaret K. Dorman   |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Robert R. FurgasonRobert R. Furgason   |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Victor E. GrijalvaVictor E. Grijalva   |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Gordon HallGordon Hall                 |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Stephen M. PazukStephen M. Pazuk       |  | Director                                                                              |  | March 1, 2006
|                                          
|/s/ Alvin V. ShoemakerAlvin V. Shoemaker   |  | Director                                                                              |  | March 1, 2006

70



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##### 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



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##### Table of Contents







PricewaterhouseCoopers LLP






F-2



---



##### Table of Contents






HANOVER COMPRESSOR COMPANY


CONSOLIDATED BALANCE SHEETS


|                                            |                                                                                                                              |                                                   |           |           |           |  |           |          |           | 
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | --------- | --------- | --------- |  | --------- | -------- | --------- | 
|                                            |                                                                                                                              | December 31,                                     
|                                            |                                                                                                                              |                                                  
|                                            |                                                                                                                              | 2005                                              |           | 2004     
|                                            |                                                                                                                              |                                                   |           |          
|                                            |                                                                                                                              | (in thousands, except par                        
|                                            |                                                                                                                              | value and share amounts)                         
|ASSETS                                     
|Current assets:                             |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            | Cash and cash equivalents                                                                                                    |                                                   | $         | 48,233    |           |  | $         | 38,076   |          
|                                            | Accounts receivable, net of allowance of $4,751 and $7,573                                                                   |                                                   |           | 243,672   |           |  |           | 205,644  |          
|                                            | Inventory, net                                                                                                               |                                                   |           | 251,069   |           |  |           | 184,798  |          
|                                            | Costs and estimated earnings in excess of billings on
    uncompleted contracts                                              |                                                   |           | 99,166    |           |  |           | 70,103   |          
|                                            | Prepaid taxes                                                                                                                |                                                   |           | 8,194     |           |  |           | 6,988    |          
|                                            | Current deferred income taxes                                                                                                |                                                   |           | 13,842    |           |  |           | 12,583   |          
|                                            | Assets held for sale                                                                                                         |                                                   |           | 2,020     |           |  |           | 5,169    |          
|                                            | Other current assets                                                                                                         |                                                   |           | 38,189    |           |  |           | 25,674   |          
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            |                                                                                                                              | Total current assets                              |           |           | 704,385   |  |           |          | 549,035   | 
|Property, plant and equipment, net          |                                                                                                                              |                                                   | 1,823,100 |           |           |  | 1,876,348 |         
|Goodwill, net                               |                                                                                                                              |                                                   | 184,364   |           |           |  | 183,190   |         
|Intangible and other assets                 |                                                                                                                              |                                                   | 60,406    |           |           |  | 65,939    |         
|Investments in non-consolidated affiliates  |                                                                                                                              |                                                   | 90,741    |           |           |  | 90,326    |         
|Assets held for sale, non-current           |                                                                                                                              |                                                   |          |           |           |  | 6,391     |         
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            |                                                                                                                              | Total assets                                      |           | $         | 2,862,996 |  |           | $        | 2,771,229 | 
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                           
|LIABILITIES AND COMMON STOCKHOLDERS EQUITY
|Current liabilities:                        |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            | Short-term debt                                                                                                              |                                                   | $         | 4,080     |           |  | $         | 5,106    |          
|                                            | Current maturities of long-term debt                                                                                         |                                                   |           | 1,309     |           |  |           | 1,430    |          
|                                            | Accounts payable, trade                                                                                                      |                                                   |           | 92,980    |           |  |           | 57,402   |          
|                                            | Accrued liabilities                                                                                                          |                                                   |           | 128,805   |           |  |           | 119,843  |          
|                                            | Advance billings                                                                                                             |                                                   |           | 89,513    |           |  |           | 42,588   |          
|                                            | Liabilities held for sale                                                                                                    |                                                   |           | 878       |           |  |           | 517      |          
|                                            | Billings on uncompleted contracts in excess of costs and
    estimated earnings                                              |                                                   |           | 35,126    |           |  |           | 20,256   |          
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            |                                                                                                                              | Total current liabilities                         |           |           | 352,691   |  |           |          | 247,142   | 
|Long-term debt                              |                                                                                                                              |                                                   | 1,473,559 |           |           |  | 1,637,080 |         
|Other liabilities                           |                                                                                                                              |                                                   | 38,976    |           |           |  | 47,232    |         
|Deferred income taxes                       |                                                                                                                              |                                                   | 76,115    |           |           |  | 60,942    |         
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            |                                                                                                                              | Total liabilities                                 |           |           | 1,941,341 |  |           |          | 1,992,396 | 
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|Commitments and contingencies (Note 19)     |                                                                                                                              |                                                   |           |           |           |  |           |         
|Minority interest                           |                                                                                                                              |                                                   | 11,873    |           |           |  | 18,778    |         
|Common stockholders equity:                |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            | Common stock, $.001 par value; 200,000,000 shares
    authorized; 102,392,918 and 87,653,970 shares issued,
    respectively |                                                   |           | 102       |           |  |           | 88       |          
|                                            | Additional paid-in capital                                                                                                   |                                                   |           | 1,097,766 |           |  |           | 913,007  |          
|                                            | Deferred employee compensationrestricted stock grants                                                                       |                                                   |           | (13,249   | )         |  |           | (15,180  | )        
|                                            | Accumulated other comprehensive income                                                                                       |                                                   |           | 15,214    |           |  |           | 17,518   |          
|                                            | Accumulated deficit                                                                                                          |                                                   |           | (186,088  | )         |  |           | (148,071 | )        
|                                            | Treasury stock366,091 and 661,810 common shares, at cost,
    respectively                                                  |                                                   |           | (3,963    | )         |  |           | (7,307   | )        
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            | Total common stockholders equity                                                                                            |                                                   |           | 909,782   |           |  |           | 760,055  |          
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         
|                                            |                                                                                                                              | Total liabilities and common stockholders equity |           | $         | 2,862,996 |  |           | $        | 2,771,229 | 
|                                            |                                                                                                                              |                                                   |           |           |           |  |           |         



F-3



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##### Table of Contents






HANOVER COMPRESSOR COMPANY


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |         |  
|-------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- | -
|                                                                                 |                                                        | Years Ended December 31,                
|                                                                                 |                                                        |                                         
|                                                                                 |                                                        | 2005                                     |           | 2004    |   | 2003
|                                                                                 |                                                        |                                          |           |         |   |     
|                                                                                 |                                                        | (In thousands, except per share amounts)
|Revenues and other income:                                                       |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 | U.S. rentals                                           |                                          | $         | 351,128 |   |      | $         | 341,570 |   |   | $         | 324,186 |  
|                                                                                 | International rentals                                  |                                          |           | 232,587 |   |      |           | 214,598 |   |   |           | 191,301 |  
|                                                                                 | Parts, service and used equipment                      |                                          |           | 225,636 |   |      |           | 180,321 |   |   |           | 164,935 |  
|                                                                                 | Compressor and accessory fabrication                   |                                          |           | 179,954 |   |      |           | 158,629 |   |   |           | 106,896 |  
|                                                                                 | Production and processing equipment fabrication        |                                          |           | 360,267 |   |      |           | 270,284 |   |   |           | 260,660 |  
|                                                                                 | Equity in income of non-consolidated affiliates        |                                          |           | 21,466  |   |      |           | 19,780  |   |   |           | 23,014  |  
|                                                                                 | Other                                                  |                                          |           | 4,551   |   |      |           | 3,413   |   |   |           | 4,088   |  
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 |                                                        |                                          | 1,375,589 |         |   |      | 1,188,595 |         |   |   | 1,075,080 |        
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Expenses:                                                                        |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 | U.S. rentals                                           |                                          |           | 139,465 |   |      |           | 144,580 |   |   |           | 127,425 |  
|                                                                                 | International rentals                                  |                                          |           | 76,512  |   |      |           | 63,953  |   |   |           | 61,875  |  
|                                                                                 | Parts, service and used equipment                      |                                          |           | 169,168 |   |      |           | 135,929 |   |   |           | 123,255 |  
|                                                                                 | Compressor and accessory fabrication                   |                                          |           | 156,414 |   |      |           | 144,832 |   |   |           | 96,922  |  
|                                                                                 | Production and processing equipment fabrication        |                                          |           | 325,924 |   |      |           | 242,251 |   |   |           | 234,203 |  
|                                                                                 | Selling, general and administrative                    |                                          |           | 182,198 |   |      |           | 173,066 |   |   |           | 159,870 |  
|                                                                                 | Foreign currency translation                           |                                          |           | 7,890   |   |      |           | (5,222  | ) |   |           | 2,548   |  
|                                                                                 | Securities related litigation settlement               |                                          |           |        |   |      |           | (4,163  | ) |   |           | 42,991  |  
|                                                                                 | Other                                                  |                                          |           | 526     |   |      |           | 407     |   |   |           | 2,906   |  
|                                                                                 | Debt extinguishment costs                              |                                          |           | 7,318   |   |      |           |        |   |   |           |        |  
|                                                                                 | Depreciation and amortization                          |                                          |           | 182,681 |   |      |           | 175,308 |   |   |           | 169,164 |  
|                                                                                 | Goodwill impairment                                    |                                          |           |        |   |      |           |        |   |   |           | 35,466  |  
|                                                                                 | Leasing expense                                        |                                          |           |        |   |      |           |        |   |   |           | 43,139  |  
|                                                                                 | Interest expense                                       |                                          |           | 136,927 |   |      |           | 146,978 |   |   |           | 89,175  |  
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 |                                                        |                                          | 1,385,023 |         |   |      | 1,217,919 |         |   |   | 1,188,939 |        
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Loss from continuing operations before income taxes                              |                                                        |                                          | (9,434    | )       |   |      | (29,324   | )       |   |   | (113,859  | )      
|Provision for income taxes                                                       |                                                        |                                          | 27,714    |         |   |      | 24,767    |         |   |   | 3,629     |        
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Loss from continuing operations                                                  |                                                        |                                          | (37,148   | )       |   |      | (54,091   | )       |   |   | (117,488  | )      
|Income (loss) from discontinued operations, net of tax                           |                                                        |                                          | (756      | )       |   |      | 6,314     |         |   |   | 10,190    |        
|Gain (loss) from sales or write-downs of discontinued
    operations, net of tax |                                                        |                                          | (113      | )       |   |      | 3,771     |         |   |   | (14,051   | )      
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Loss before cumulative effect of accounting changes                              |                                                        |                                          | (38,017   | )       |   |      | (44,006   | )       |   |   | (121,349  | )      
|Cumulative effect of accounting changes, net of tax                              |                                                        |                                          |          |         |   |      |          |         |   |   | (86,910   | )      
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Net loss                                                                         |                                                        | $                                        | (38,017   | )       |   | $    | (44,006   | )       |   | $ | (208,259  | )      
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Basic and diluted earnings (loss) per common share:                              |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 | Loss from continuing operations                        |                                          | $         | (0.41   | ) |      | $         | (0.64   | ) |   | $         | (1.45   | )
|                                                                                 | Income (loss) from discontinued operations, net of tax |                                          |           | (0.01   | ) |      |           | 0.12    |   |   |           | (0.05   | )
|                                                                                 | Cumulative effect of accounting changes, net of tax    |                                          |           |        |   |      |           |        |   |   |           | (1.07   | )
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Net loss                                                                         |                                                        | $                                        | (0.42     | )       |   | $    | (0.52     | )       |   | $ | (2.57     | )      
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|Weighted average common and equivalent shares outstanding:                       |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 | Basic                                                  |                                          |           | 91,556  |   |      |           | 84,792  |   |   |           | 81,123  |  
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        
|                                                                                 | Diluted                                                |                                          |           | 91,556  |   |      |           | 84,792  |   |   |           | 81,123  |  
|                                                                                 |                                                        |                                          |           |         |   |      |           |         |   |   |           |        



F-4



---



##### Table of Contents






HANOVER COMPRESSOR COMPANY


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


|                                   |                                                                          |                          |         |        |   |      |         |       |   |   |          |        | 
|---------------------------------- | ------------------------------------------------------------------------ | ------------------------ | ------- | ------ | - | ---- | ------- | ----- | - | - | -------- | ------ | 
|                                   |                                                                          | Years Ended December 31,
|                                   |                                                                          |                         
|                                   |                                                                          | 2005                     |         | 2004   |   | 2003
|                                   |                                                                          |                          |         |        |   |     
|                                   |                                                                          | (in thousands)          
|Net loss                           |                                                                          | $                        | (38,017 | )      |   | $    | (44,006 | )     |   | $ | (208,259 | )     
|Other comprehensive income (loss): |                                                                          |                          |         |        |   |      |         |       |   |   |          |       
|                                   | Change in fair value of derivative financial instruments, net of
    tax |                          |         | 608    |   |      |         | 8,638 |   |   |          | 5,693  | 
|                                   | Foreign currency translation adjustment                                  |                          |         | (2,912 | ) |      |         | (347  | ) |   |          | 17,230 | 
|                                   |                                                                          |                          |         |        |   |      |         |       |   |   |          |       
|Comprehensive loss                 |                                                                          | $                        | (40,321 | )      |   | $    | (35,715 | )     |   | $ | (185,336 | )     
|                                   |                                                                          |                          |         |        |   |      |         |       |   |   |          |       



F-5



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |          |         |         |         |  
|------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ------------------------------------------------------ | ------- | ------- | -------- | -------- | ------- | ------- | -------- | -------- | ------- | ------- | ------- | -
|                                                        |                                                                                     | Years Ended December 31,                                                      
|                                                        |                                                                                     |                                                                               
|                                                        |                                                                                     | 2005                                                                           |                                                                           | 2004                                                   |         | 2003   
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |        
|                                                        |                                                                                     | (In thousands)                                                                
|Cash flows from operating activities:                   |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        | Net loss                                                                            |                                                                                | $                                                                         | (38,017                                                | )       |         | $        | (44,006  | )       |         | $        | (208,259 | )      
|                                                        | Adjustments:                                                                        |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |          |        
|                                                        |                                                                                     | Depreciation and amortization                                                  |                                                                           |                                                        | 182,681 |         |          |          | 175,308 |         |          |          | 169,164 |        
|                                                        |                                                                                     | (Income) loss from discontinued operations, net of tax                         |                                                                           |                                                        | 869     |         |          |          | (10,085 | )       |          |          | 3,861   |        
|                                                        |                                                                                     | Cumulative effect of accounting changes, net of tax                            |                                                                           |                                                        |        |         |          |          |        |         |          |          | 86,910  |        
|                                                        |                                                                                     | Bad debt expense                                                               |                                                                           |                                                        | 1,955   |         |          |          | 2,658   |         |          |          | 4,028   |        
|                                                        |                                                                                     | Gain on sale of property, plant and equipment                                  |                                                                           |                                                        | (13,183 | )       |          |          | (6,076  | )       |          |          | (6,012  | )      
|                                                        |                                                                                     | Equity in income of non-consolidated affiliates, net of
    dividends received |                                                                           |                                                        | (2,783  | )       |          |          | (10,112 | )       |          |          | (4,563  | )      
|                                                        |                                                                                     | (Gain) loss on derivative instruments                                          |                                                                           |                                                        | 416     |         |          |          | 1,886   |         |          |          | (4,606  | )      
|                                                        |                                                                                     | (Gain) loss on remeasurement of intercompany balances                          |                                                                           |                                                        | 12,155  |         |          |          | (5,456  | )       |          |          | (1,607  | )      
|                                                        |                                                                                     | Securities related litigation settlement, in excess of cash paid               |                                                                           |                                                        |        |         |          |          | (6,326  | )       |          |          | 39,494  |        
|                                                        |                                                                                     | Goodwill impairment                                                            |                                                                           |                                                        |        |         |          |          |        |         |          |          | 35,466  |        
|                                                        |                                                                                     | Gain on sale of non-consolidated affiliates                                    |                                                                           |                                                        |        |         |          |          | (300    | )       |          |          |        |        
|                                                        |                                                                                     | Gain on sale of business                                                       |                                                                           |                                                        | (367    | )       |          |          |        |         |          |          |        |        
|                                                        |                                                                                     | Restricted stock compensation expense                                          |                                                                           |                                                        | 5,676   |         |          |          | 2,599   |         |          |          | 1,178   |        
|                                                        |                                                                                     | Pay-in-kind interest on long-term notes payable                                |                                                                           |                                                        | 23,336  |         |          |          | 20,966  |         |          |          | 21,048  |        
|                                                        |                                                                                     | Deferred income taxes                                                          |                                                                           |                                                        | 19,304  |         |          |          | 11,627  |         |          |          | (9,787  | )      
|                                                        |                                                                                     | Changes in assets and liabilities, excluding business
    combinations:        |                                                                           |                                                        |         |         |          |          |         |         |          |          |         |        
|                                                        |                                                                                     |                                                                                | Accounts receivable and notes                                             |                                                        |         | (45,061 | )        |          |         | (4,021  | )        |          |         | 17,537  |        
|                                                        |                                                                                     |                                                                                | Inventory                                                                 |                                                        |         | (73,936 | )        |          |         | (21,966 | )        |          |         | 7,168   |        
|                                                        |                                                                                     |                                                                                | Costs and estimated earnings versus billings on uncompleted
    contracts |                                                        |         | (21,117 | )        |          |         | (5,733  | )        |          |         | 16,455  |        
|                                                        |                                                                                     |                                                                                | Prepaid and other current assets                                          |                                                        |         | (15,840 | )        |          |         | (561    | )        |          |         | 21,026  |        
|                                                        |                                                                                     |                                                                                | Accounts payable and other liabilities                                    |                                                        |         | 41,037  |          |          |         | (3,806  | )        |          |         | (33,259 | )      
|                                                        |                                                                                     |                                                                                | Advance billings                                                          |                                                        |         | 47,549  |          |          |         | 16,130  |          |          |         | (4,213  | )      
|                                                        |                                                                                     |                                                                                | Other                                                                     |                                                        |         | (1,804  | )        |          |         | 10,996  |          |          |         | (965    | )      
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash provided by continuing operations             |         |         | 122,870  |          |         |         | 123,722  |          |         |         | 150,064 |  
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash provided by (used in) discontinued operations |         |         | (383     | )        |         |         | 8,115    |          |         |         | 14,671  |  
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash provided by operating activities              |         |         | 122,487  |          |         |         | 131,837  |          |         |         | 164,735 |  
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|Cash flows from investing activities:                   |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        | Capital expenditures                                                                |                                                                                |                                                                           | (155,146                                               | )       |         |          | (90,496  | )       |         |          | (142,466 | )      
|                                                        | Payments for deferred lease transaction costs                                       |                                                                                |                                                                           |                                                       |         |         |          |         |         |         |          | (1,246   | )      
|                                                        | Proceeds from sale of property, plant and equipment                                 |                                                                                |                                                                           | 51,101                                                 |         |         |          | 24,265   |         |         |          | 23,009   |        
|                                                        | Proceeds from the sale of business                                                  |                                                                                |                                                                           | 2,724                                                  |         |         |          |         |         |         |          |         |        
|                                                        | Proceeds from sale of non-consolidated affiliates                                   |                                                                                |                                                                           |                                                       |         |         |          | 4,663    |         |         |          | 500      |        
|                                                        | Cash used for business acquisitions, net                                            |                                                                                |                                                                           | (3,426                                                 | )       |         |          |         |         |         |          | (15,000  | )      
|                                                        | Cash returned from non-consolidated affiliates                                      |                                                                                |                                                                           |                                                       |         |         |          |         |         |         |          | 64,837   |        
|                                                        | Cash used to acquire investments in and advances to
    non-consolidated affiliates |                                                                                |                                                                           | (500                                                   | )       |         |          | (250     | )       |         |          | (500     | )      
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash used in continuing operations                 |         |         | (105,247 | )        |         |         | (61,818  | )        |         |         | (70,866 | )
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash provided by discontinued operations           |         |         | 1,220    |          |         |         | 72,947   |          |         |         | 27,396  |  
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash provided by (used in) investing activities    |         |         | (104,027 | )        |         |         | 11,129   |          |         |         | (43,470 | )
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|Cash flows from financing activities:                   |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        | Borrowings on revolving credit facilities                                           |                                                                                |                                                                           | 152,000                                                |         |         |          | 52,200   |         |         |          | 145,000  |        
|                                                        | Repayments on revolving credit facilities                                           |                                                                                |                                                                           | (111,000                                               | )       |         |          | (72,200  | )       |         |          | (274,500 | )      
|                                                        | Payments for debt issue costs                                                       |                                                                                |                                                                           | (2,592                                                 | )       |         |          | (253     | )       |         |          | (7,464   | )      
|                                                        | Proceeds from stock options exercised                                               |                                                                                |                                                                           | 4,990                                                  |         |         |          | 9,549    |         |         |          | 6,699    |        
|                                                        | Issuance of convertible senior notes, net                                           |                                                                                |                                                                           |                                                       |         |         |          |         |         |         |          | 138,941  |        
|                                                        | Issuance of senior notes, net                                                       |                                                                                |                                                                           |                                                       |         |         |          | 194,125  |         |         |          | 193,698  |        
|                                                        | Proceeds from equity offering, net of issuance costs                                |                                                                                |                                                                           | 179,100                                                |         |         |          |         |         |         |          |         |        
|                                                        | Payments of 1999 compression equipment lease obligations                            |                                                                                |                                                                           |                                                       |         |         |          |         |         |         |          | (200,000 | )      
|                                                        | 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                                                            |                                                                                |                                                                           | 2,180                                                  |         |         |          |         |         |         |          |         |        
|                                                        | Repayment of other debt                                                             |                                                                                |                                                                           | (1,802                                                 | )       |         |          | (30,771  | )       |         |          | (68,293  | )      
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash used in continuing operations                 |         |         | (6,890   | )        |         |         | (162,350 | )        |         |         | (65,919 | )
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash used in discontinued operations               |         |         |         |          |         |         |         |          |         |         | (18,538 | )
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|                                                        |                                                                                     |                                                                                |                                                                           | Net cash used in financing activities                  |         |         | (6,890   | )        |         |         | (162,350 | )        |         |         | (84,457 | )
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|Effect of exchange rate changes on cash and equivalents |                                                                                     |                                                                                | (1,413                                                                    | )                                                      |         |         | 841      |          |         |         | 800      |         
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|Net increase (decrease) in cash and cash equivalents    |                                                                                     |                                                                                | 10,157                                                                    |                                                        |         |         | (18,543  | )        |         |         | 37,608   |         
|Cash and cash equivalents at beginning of year          |                                                                                     |                                                                                | 38,076                                                                    |                                                        |         |         | 56,619   |          |         |         | 19,011   |         
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         
|Cash and cash equivalents at end of year                |                                                                                     | $                                                                              | 48,233                                                                    |                                                        |         | $       | 38,076   |          |         | $       | 56,619   |         
|                                                        |                                                                                     |                                                                                |                                                                           |                                                        |         |         |          |          |         |         |          |         



F-6



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |        |  
|------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | - | ------- |  | ---- | - | ------- |  |  | - | ------ | -
|                                                  |                                                            | Years Ended December 31,
|                                                  |                                                            |                         
|                                                  |                                                            | 2005                     |   | 2004    |  | 2003
|                                                  |                                                            |                          |   |         |  |     
|                                                  |                                                            | (in thousands)          
|Supplemental disclosure of cash flow information: |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Interest paid, net of capitalized amounts                  |                          | $ | 118,787 |  |      | $ | 125,047 |  |  | $ | 49,011 |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Income taxes paid, net                                     |                          | $ | 18,471  |  |      | $ | 15,830  |  |  | $ | 1,129  |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|Supplemental disclosure of noncash transactions:  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Assets (received) sold in exchange for note receivable     |                          | $ | 1,600   |  |      | $ | 1,314   |  |  | $ | 3,300  |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Common stock issued in exchange for notes receivable       |                          |   |        |  |      |   |        |  |  | $ | 35     |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Conversion of deferred stock option liability              |                          | $ | 282     |  |      | $ | 334     |  |  | $ | 289    |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Common stock issued for securities settlement              |                          | $ |        |  |      | $ | 29,800  |  |  |   |       |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Issuance of restricted stock grants, net of forfeitures    |                          | $ | 3,745   |  |      | $ | 12,327  |  |  | $ | 4,345  |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|Acquisitions of businesses:                       |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Cash                                                       |                          |   |        |  |      |   |        |  |  | $ | 209    |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Property, plant and equipment acquired                     |                          | $ | 359     |  |      |   |        |  |  | $ | 267    |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Other assets acquired, net of cash acquired                |                          | $ | 286     |  |      |   |        |  |  | $ | 3,918  |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Investments in and advances to non-consolidated affiliates |                          |   |        |  |      |   |        |  |  | $ | (4,673 | )
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Goodwill                                                   |                          | $ | 2,781   |  |      |   |        |  |  | $ | 15,558 |  
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       
|                                                  | Liabilities assumed                                        |                          |   |        |  |      |   |        |  |  | $ | (279   | )
|                                                  |                                                            |                          |   |         |  |      |   |         |  |  |   |       



F-7



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY





CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS
EQUITY


|                                                                                         |  |                                   |             |            |  |               |     |                |  |               |           |              |  |              |         |          |  |  |          |   |  |   |        |   |  |   |         |   |  |   |          |  
|---------------------------------------------------------------------------------------- |  | --------------------------------- | ----------- | ---------- |  | ------------- | --- | -------------- |  | ------------- | --------- | ------------ |  | ------------ | ------- | -------- |  |  | -------- | - |  | - | ------ | - |  | - | ------- | - |  | - | -------- | -
|                                                                                         |  |                                   |             |            |  | Accumulated   |     |                |  | Deferred      |           | Retained    
|                                                                                         |  | Common stock                      |             | Additional |  | other         |     | Treasury stock |  | compensation- |           | earnings/   
|                                                                                         |  |                                   |             | paid-in    |  | comprehensive |     |                |  | restricted    |           | (accumulated
|                                                                                         |  | Shares                            |             | Amount     |  | capital       |     | income (loss)  |  | Shares        |           | Amount       |  | stock grants |         | deficit)
|                                                                                         |  |                                   |             |            |  |               |     |                |  |               |           |              |  |              |         |         
|                                                                                         |  | (in thousands, except share data)
|Balance at December 31, 2002                                                             |  |                                   | 80,815,209  |            |  | $             | 81  |                |  | $             | 841,657   |              |  | $            | (13,696 | )        |  |  | (252,815 | ) |  | $ | (2,325 | ) |  | $ | (2,285  | ) |  | $ | 104,194  |  
|Exercise of stock options                                                                |  |                                   | 1,432,636   |            |  |               | 1   |                |  |               | 6,987     |              |  |              |        |          |  |  |         |   |  |   |       |   |  |   |        |   |  |   |         |  
|Cumulative translation adjustment                                                        |  |                                   |            |            |  |               |    |                |  |               |          |              |  |              | 17,230  |          |  |  |         |   |  |   |       |   |  |   |        |   |  |   |         |  
|Change in fair value of derivative financial instrument, net of
    tax                  |  |                                   |            |            |  |               |    |                |  |               |          |              |  |              | 5,693   |          |  |  |         |   |  |   |       |   |  |   |        |   |  |   |         |  
|Issuance of restricted stock grants, net of forfeitures, net of
    amortization expense |  |                                   | 400,384     |            |  |               | 1   |                |  |               | 4,345     |              |  |              |        |          |  |  |         |   |  |   |       |   |  |   | (3,167  | ) |  |   |         |  
|Issuance of common stock to employees                                                    |  |                                   | 1,400       |            |  |               |    |                |  |               | 35        |              |  |              |        |          |  |  |         |   |  |   |       |   |  |   |        |   |  |   |         |  
|Income tax benefit from stock options exercised                                          |  |                                   |            |            |  |               |    |                |  |               | 2,996     |              |  |              |        |          |  |  |         |   |  |   |       |   |  |   |        |   |  |   |         |  
|Net loss                                                                                 |  |                                   |            |            |  |               |    |                |  |               |          |              |  |              |        |          |  |  |         |   |  |   |       |   |  |   |        |   |  |   | (208,259 | )
|                                                                                         |  |                                   |             |            |  |               |     |                |  |               |           |              |  |              |         |          |  |  |          |   |  |   |        |   |  |   |         |   |  |   |          |  
|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 | )
|                                                                                         |  |                                   |             |            |  |               |     |                |  |               |           |              |  |              |         |          |  |  |          |   |  |   |        |   |  |   |         |   |  |   |          |  



F-8



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##### Table of Contents



HANOVER COMPRESSOR COMPANY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2005, 2004 and 2003




|   |                                                          
|-- | ---------------------------------------------------------
|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 percentage-of percentage-of




| |                              
| | -----------------------------
| | Concentrations of Credit Risk







| |          
| | ---------
| | Inventory





| |                              
| | -----------------------------
| | Property, Plant and Equipment



|                                                          |  |  |                | 
|--------------------------------------------------------- |  |  | -------------- | 
|Compression equipment, facilities and other rental assets |  |  | 4 to 30 years  | 
|Buildings                                                 |  |  | 20 to 35 years | 
|Transportation, shop equipment and other                  |  |  | 3 to 12 years  | 

F-10



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                  
| | -----------------
| | Computer software





| |                                          
| | -----------------------------------------
| | Long-Lived Assets, other than Intangibles







| |                               
| | ------------------------------
| | Goodwill and Other Intangibles





| |                 
| | ----------------
| | Advance Billings





| |                            
| | ---------------------------
| | Sale Leaseback Transactions



F-11



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |             
| | ------------
| | Income Taxes





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                          
| | -------------------------
| | Earnings Per Common Share





|                                                                                                                 |                                                              |                          |        |      |  |      |        |    |  |  |        |    | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------ | ------ | ---- |  | ---- | ------ | -- |  |  | ------ | -- | 
|                                                                                                                 |                                                              | Years Ended December 31,
|                                                                                                                 |                                                              |                         
|                                                                                                                 |                                                              | 2005                     |        | 2004 |  | 2003
|                                                                                                                 |                                                              |                          |        |      |  |     
|Weighted average common shares outstanding 
    used in basic loss per common share                             |                                                              |                          | 91,556 |      |  |      | 84,792 |    |  |  | 81,123 |   
|Net dilutive potential common stock issuable:                                                                    |                                                              |                          |        |      |  |      |        |    |  |  |        |   
|                                                                                                                 | On exercise of options and vesting of restricted stock       |                          |        | **   |  |      |        | ** |  |  |        | ** | 
|                                                                                                                 | On exercise of warrants                                      |                          |        | **   |  |      |        | ** |  |  |        | ** | 
|                                                                                                                 | On conversion of convertible subordinated notes
    due 2029 |                          |        | **   |  |      |        | ** |  |  |        | ** | 
|                                                                                                                 | On conversion of convertible senior notes due 2008           |                          |        | **   |  |      |        | ** |  |  |        | ** | 
|                                                                                                                 | On conversion of convertible senior notes due 2014           |                          |        | **   |  |      |        | ** |  |  |        | ** | 
|                                                                                                                 |                                                              |                          |        |      |  |      |        |    |  |  |        |   
|Weighted average common shares and dilutive potential common
    shares  used in dilutive loss per common share |                                                              |                          | 91,556 |      |  |      | 84,792 |    |  |  | 81,123 |   
|                                                                                                                 |                                                              |                          |        |      |  |      |        |    |  |  |        |   






|   |                                                                                             
|-- | --------------------------------------------------------------------------------------------
|** | Excluded from diluted 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,
|                                               |                                                                                              |                         
|                                               |                                                                                              | 2005                     |        | 2004  |  | 2003
|                                               |                                                                                              |                          |        |       |  |     
|Net dilutive potential common shares issuable: |                                                                                              |                          |        |       |  |      |        |       |  |  |        |      
|                                               | On exercise of options and vesting of restricted stock                                       |                          |        | 2,378 |  |      |        | 2,512 |  |  |        | 1,264 | 
|                                               | On exercise of options-exercise price greater than average
    market value at end of period |                          |        | 935   |  |      |        | 995   |  |  |        | 3,929 | 
|                                               | On exercise of warrants                                                                      |                          |        | 2     |  |      |        | 4     |  |  |        | 4     | 
|                                               | On conversion of convertible subordinated notes due 2029                                     |                          |        | 4,825 |  |      |        | 4,825 |  |  |        | 4,825 | 
|                                               | On conversion of convertible senior notes due 2008                                           |                          |        | 4,370 |  |      |        | 4,370 |  |  |        | 4,370 | 
|                                               | On conversion of convertible senior notes due 2014                                           |                          |        | 9,583 |  |      |        | 9,583 |  |  |        | 420   | 
|                                               |                                                                                              |                          |        |       |  |      |        |       |  |  |        |      
|                                               |                                                                                              |                          | 22,093 |       |  |      | 22,289 |       |  |  | 14,812 |      
|                                               |                                                                                              |                          |        |       |  |      |        |       |  |  |        |      



| |                                           
| | ------------------------------------------
| | Stock Options and Stock-Based Compensation



|                     |                                                                                                          |                          |         |        |   |      |         |        |   |   |          |        |  
|-------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------ | ------- | ------ | - | ---- | ------- | ------ | - | - | -------- | ------ | -
|                     |                                                                                                          | Years Ended December 31,
|                     |                                                                                                          |                         
|                     |                                                                                                          | 2005                     |         | 2004   |   | 2003
|                     |                                                                                                          |                          |         |        |   |     
|Net loss as reported |                                                                                                          | $                        | (38,017 | )      |   | $    | (44,006 | )      |   | $ | (208,259 | )     
|                     | Add back: Restricted stock grant expense, net of tax                                                     |                          |         | 5,676  |   |      |         | 2,599  |   |   |          | 766    |  
|                     | Deduct: Stock-based employee compensation expense determined
    under the fair value method, net of tax |                          |         | (8,098 | ) |      |         | (4,817 | ) |   |          | (2,628 | )
|                     |                                                                                                          |                          |         |        |   |      |         |        |   |   |          |       
|Pro forma net loss   |                                                                                                          | $                        | (40,439 | )      |   | $    | (46,224 | )      |   | $ | (210,121 | )     
|                     |                                                                                                          |                          |         |        |   |      |         |        |   |   |          |       
|Loss per share:      |                                                                                                          |                          |         |        |   |      |         |        |   |   |          |       
|                     | Basic, as reported                                                                                       |                          | $       | (0.42  | ) |      | $       | (0.52  | ) |   | $        | (2.57  | )
|                     | Basic, pro forma                                                                                         |                          | $       | (0.44  | ) |      | $       | (0.55  | ) |   | $        | (2.59  | )
|                     | Diluted, as reported                                                                                     |                          | $       | (0.42  | ) |      | $       | (0.52  | ) |   | $        | (2.57  | )
|                     | Diluted, pro forma                                                                                       |                          | $       | (0.44  | ) |      | $       | (0.55  | ) |   | $        | (2.59  | )



F-13



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                     
| | --------------------
| | Comprehensive Income



|                                                           |  |              |        |      |  |   |        |  
|---------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                                           |  | December 31,
|                                                           |  |             
|                                                           |  | 2005         |        | 2004
|                                                           |  |              |        |     
|Fair value of derivative financial instruments, net of tax |  | $            |       |      |  | $ | (608   | )
|Foreign currency translation adjustment                    |  |              | 15,214 |      |  |   | 18,126 |  
|                                                           |  |              |        |      |  |   |        |  
|                                                           |  | $            | 15,214 |      |  | $ | 17,518 |  
|                                                           |  |              |        |      |  |   |        |  





| |                      
| | ---------------------
| | Financial Instruments







F-14



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                  
| | -----------------
| | Reclassifications





|   |                      
|-- | ---------------------
|2. | Business Acquisitions





| |                             
| | ----------------------------
| | Year Ended December 31, 2005





| |                             
| | ----------------------------
| | Year Ended December 31, 2003

Belleli Acquisition.




F-15



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|   |                                                       
|-- | ------------------------------------------------------
|3. | Discontinued Operations and Other Assets Held for Sale











F-16



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |        | 
|-------------------------------------------------------------- | ----------------------------------------------- | ------------------------ | ----- | ---- |  | ---- | ------ | ------ | - | - | ------ | ------ | 
|                                                               |                                                 | Years Ended December 31,
|                                                               |                                                 |                         
|                                                               |                                                 | 2005                     |       | 2004 |  | 2003
|                                                               |                                                 |                          |       |      |  |     
|Revenues and other:                                            |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|                                                               | U.S. rentals                                    |                          | $     | 446  |  |      | $      | 261    |   |   | $      | 4,490  | 
|                                                               | International rentals                           |                          |       |     |  |      |        | 12,930 |   |   |        | 15,103 | 
|                                                               | Parts, service and used equipment               |                          |       |     |  |      |        | 9,663  |   |   |        | 21,311 | 
|                                                               | Equity in income of non-consolidated affiliates |                          |       |     |  |      |        | 123    |   |   |        | 624    | 
|                                                               | Other                                           |                          |       | 79   |  |      |        | 695    |   |   |        | 928    | 
|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|                                                               |                                                 |                          | 525   |      |  |      | 23,672 |        |   |   | 42,456 |       
|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|Expenses:                                                      |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|                                                               | U.S. rentals                                    |                          |       | 855  |  |      |        | 914    |   |   |        | 1,176  | 
|                                                               | International rentals                           |                          |       |     |  |      |        | 5,827  |   |   |        | 5,590  | 
|                                                               | Parts, service and used equipment               |                          |       |     |  |      |        | 7,010  |   |   |        | 14,698 | 
|                                                               | Selling, general and administrative             |                          |       | 321  |  |      |        | 1,657  |   |   |        | 8,297  | 
|                                                               | Foreign currency translation                    |                          |       |     |  |      |        | (1,087 | ) |   |        |       | 
|                                                               | Depreciation and amortization                   |                          |       |     |  |      |        | 2,964  |   |   |        | 3,438  | 
|                                                               | Interest expense                                |                          |       | 105  |  |      |        |       |   |   |        | 796    | 
|                                                               | Other                                           |                          |       |     |  |      |        | 468    |   |   |        | 433    | 
|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|                                                               |                                                 |                          | 1,281 |      |  |      | 17,753 |        |   |   | 34,428 |       
|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|Income (loss) from discontinued operations before income taxes |                                                 |                          | (756  | )    |  |      | 5,919  |        |   |   | 8,028  |       
|Benefit from income taxes                                      |                                                 |                          |      |      |  |      | (395   | )      |   |   | (2,162 | )     
|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |       
|Income (loss) from discontinued operations                     |                                                 | $                        | (756  | )    |  | $    | 6,314  |        |   | $ | 10,190 |       
|                                                               |                                                 |                          |       |      |  |      |        |        |   |   |        |       



|                             |                           |                          |   |            |   |            |       |       |       |   |   |   |   |   |       |       |       | 
|---------------------------- | ------------------------- | ------------------------ | - | ---------- | - | ---------- | ----- | ----- | ----- | - | - | - | - | - | ----- | ----- | ----- | 
|                             |                           |                          |   | Non-       |   |            |       |      
|                             |                           |                          |   | Oilfield   |   |            |       |      
|                             |                           | Used                     |   | Power      |   |            |       |      
|                             |                           | Equipment                |   | Generation |   | Facilities |       | Total
|                             |                           |                          |   |            |   |            |       |      
|Current assets               |                           | $                        |  |            |   | $          | 2,020 |       |       | $ |  |   |   | $ | 2,020 |      
|Property plant and equipment |                           |                          |  |            |   |            |      |       |       |   |  |   |   |   |      |      
|                             |                           |                          |   |            |   |            |       |       |       |   |   |   |   |   |       |      
|                             | Assets held for sale      |                          |   |           |   |            |       | 2,020 |       |   |   |  |   |   |       | 2,020 |      
|Current liabilities          |                           |                          |  |            |   |            | 878   |       |       |   |  |   |   |   | 878   |      
|                             |                           |                          |   |            |   |            |       |       |       |   |   |   |   |   |       |      
|                             | Liabilities held for sale |                          |   |           |   |            |       | 878   |       |   |   |  |   |   |       | 878   |      
|                             |                           |                          |   |            |   |            |       |       |       |   |   |   |   |   |       |      
|                             |                           | Net assets held for sale |   | $          |  |            |       | $     | 1,142 |   |   | $ |  |   |       | $     | 1,142 | 
|                             |                           |                          |   |            |   |            |       |       |       |   |   |   |   |   |       |      

F-17



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                             |                           |                          |       |            |       |            |       |       |       |   |       |       |       |   |       |        |        | 
|---------------------------- | ------------------------- | ------------------------ | ----- | ---------- | ----- | ---------- | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ------ | ------ | 
|                             |                           |                          |       | Non-       |       |            |       |      
|                             |                           |                          |       | Oilfield   |       |            |       |      
|                             |                           | Used                     |       | Power      |       |            |       |      
|                             |                           | Equipment                |       | Generation |       | Facilities |       | Total
|                             |                           |                          |       |            |       |            |       |      
|Current assets               |                           | $                        | 2,455 |            |       | $          | 2,714 |       |       | $ |      |       |       | $ | 5,169 |       
|Property plant and equipment |                           |                          |      |            |       |            | 1,077 |       |       |   | 5,314 |       |       |   | 6,391 |       
|                             |                           |                          |       |            |       |            |       |       |       |   |       |       |       |   |       |       
|                             | Assets held for sale      |                          |       | 2,455      |       |            |       | 3,791 |       |   |       | 5,314 |       |   |       | 11,560 |       
|Current liabilities          |                           |                          |      |            |       |            | 517   |       |       |   |      |       |       |   | 517   |       
|                             |                           |                          |       |            |       |            |       |       |       |   |       |       |       |   |       |       
|                             | Liabilities held for sale |                          |       |           |       |            |       | 517   |       |   |       |      |       |   |       | 517    |       
|                             |                           |                          |       |            |       |            |       |       |       |   |       |       |       |   |       |       
|                             |                           | Net assets held for sale |       | $          | 2,455 |            |       | $     | 3,274 |   |       | $     | 5,314 |   |       | $      | 11,043 | 
|                             |                           |                          |       |            |       |            |       |       |       |   |       |       |       |   |       |       



|   |          
|-- | ---------
|4. | Inventory



|                   |  |              |         |      |  |   |         | 
|------------------ |  | ------------ | ------- | ---- |  | - | ------- | 
|                   |  | December 31,
|                   |  |             
|                   |  | 2005         |         | 2004
|                   |  |              |         |     
|Parts and supplies |  | $            | 135,310 |      |  | $ | 135,751 | 
|Work in progress   |  |              | 105,405 |      |  |   | 42,708  | 
|Finished goods     |  |              | 10,354  |      |  |   | 6,339   | 
|                   |  |              |         |      |  |   |         | 
|                   |  | $            | 251,069 |      |  | $ | 184,798 | 
|                   |  |              |         |      |  |   |         | 





|   |                                                                             
|-- | ----------------------------------------------------------------------------
|5. | Compressor and Production and Processing Equipment
    Fabrication Contracts



|                                        |  |              |          |      |  |   |          |  
|--------------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                        |  | December 31,
|                                        |  |             
|                                        |  | 2005         |          | 2004
|                                        |  |              |          |     
|Costs incurred on uncompleted contracts |  | $            | 372,675  |      |  | $ | 268,088  |  
|Estimated earnings                      |  |              | 42,976   |      |  |   | 31,131   |  
|                                        |  |              |          |      |  |   |          |  
|                                        |  |              | 415,651  |      |  |   | 299,219  |  
|Less  billings to date                 |  |              | (351,611 | )    |  |   | (249,372 | )
|                                        |  |              |          |      |  |   |          |  
|                                        |  | $            | 64,040   |      |  | $ | 49,847   |  
|                                        |  |              |          |      |  |   |          |  



|                                                                                |  |              |         |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                                                |  | December 31,
|                                                                                |  |             
|                                                                                |  | 2005         |         | 2004
|                                                                                |  |              |         |     
|Costs and estimated earnings in excess of billings on
    uncompleted contracts |  | $            | 99,166  |      |  | $ | 70,103  |  
|Billings on uncompleted contracts in excess of costs and
    estimated earnings |  |              | (35,126 | )    |  |   | (20,256 | )
|                                                                                |  |              |         |      |  |   |         |  
|                                                                                |  | $            | 64,040  |      |  | $ | 49,847  |  
|                                                                                |  |              |         |      |  |   |         |  

F-18



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|6. | Property, plant and equipment



|                                                          |  |              |           |      |  |   |           |  
|--------------------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                                                          |  | December 31,
|                                                          |  |             
|                                                          |  | 2005         |           | 2004
|                                                          |  |              |           |     
|Compression equipment, facilities and other rental assets |  | $            | 2,441,119 |      |  | $ | 2,360,799 |  
|Land and buildings                                        |  |              | 87,604    |      |  |   | 89,573    |  
|Transportation and shop equipment                         |  |              | 77,507    |      |  |   | 78,577    |  
|Other                                                     |  |              | 53,824    |      |  |   | 51,054    |  
|                                                          |  |              |           |      |  |   |           |  
|                                                          |  |              | 2,660,054 |      |  |   | 2,580,003 |  
|Accumulated depreciation                                  |  |              | (836,954  | )    |  |   | (703,655  | )
|                                                          |  |              |           |      |  |   |           |  
|                                                          |  | $            | 1,823,100 |      |  | $ | 1,876,348 |  
|                                                          |  |              |           |      |  |   |           |  







F-19



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                            
|-- | ---------------------------
|7. | Intangible and Other Assets



|                                                      |  |              |        |      |  |   |        | 
|----------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                                      |  | December 31,
|                                                      |  |             
|                                                      |  | 2005         |        | 2004
|                                                      |  |              |        |     
|Deferred debt issuance and leasing transactions costs |  | $            | 28,331 |      |  | $ | 35,891 | 
|Notes and other receivables                           |  |              | 13,284 |      |  |   | 7,300  | 
|Intangibles                                           |  |              | 4,682  |      |  |   | 6,070  | 
|Deferred taxes                                        |  |              | 7,999  |      |  |   | 8,869  | 
|Other                                                 |  |              | 6,110  |      |  |   | 7,809  | 
|                                                      |  |              |        |      |  |   |        | 
|                                                      |  | $            | 60,406 |      |  | $ | 65,939 | 
|                                                      |  |              |        |      |  |   |        | 





|                                         |  |                         |        |                         |  |          |         |              |  |   |        |  |  |   |         |  
|---------------------------------------- |  | ----------------------- | ------ | ----------------------- |  | -------- | ------- | ------------ |  | - | ------ |  |  | - | ------- | -
|                                         |  | As of December 31, 2005 |        | As of December 31, 2004
|                                         |  |                         |        |                        
|                                         |  | Gross                   |        |                         |  | Gross    |         |             
|                                         |  | carrying                |        | Accumulated             |  | carrying |         | Accumulated 
|                                         |  | amount                  |        | amortization            |  | amount   |         | amortization
|                                         |  |                         |        |                         |  |          |         |             
|                                         |  | (in thousands)         
|Deferred debt issuance transaction costs |  | $                       | 54,205 |                         |  | $        | (25,874 | )            |  | $ | 52,674 |  |  | $ | (16,783 | )
|Marketing related (3-20 yr life)         |  |                         | 2,063  |                         |  |          | (324    | )            |  |   | 4,581  |  |  |   | (2,435  | )
|Customer related (20 yr life)            |  |                         | 2,724  |                         |  |          | (423    | )            |  |   | 3,684  |  |  |   | (889    | )
|Technology based (5 yr life)             |  |                         | 868    |                         |  |          | (355    | )            |  |   | 1,529  |  |  |   | (567    | )
|Contract based (17 yr life)              |  |                         | 650    |                         |  |          | (521    | )            |  |   | 650    |  |  |   | (483    | )
|                                         |  |                         |        |                         |  |          |         |              |  |   |        |  |  |   |         |  
|                                         |  | $                       | 60,510 |                         |  | $        | (27,497 | )            |  | $ | 63,118 |  |  | $ | (21,157 | )
|                                         |  |                         |        |                         |  |          |         |              |  |   |        |  |  |   |         |  



|           |      |   |        |       | 
|---------- | ---- | - | ------ | ----- | 
|           | 2006 |   | $      | 5,760 | 
|           | 2007 |   |        | 5,746 | 
|           | 2008 |   |        | 4,613 | 
|           | 2009 |   |        | 3,893 | 
|           | 2010 |   |        | 3,691 | 
|Thereafter |      |   | 9,310  |      
|           |      |   |        |      
|           |      | $ | 33,013 |      
|           |      |   |        |      



|   |                                           
|-- | ------------------------------------------
|8. | Investments in Non-Consolidated Affiliates



F-20



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                        |  |           |       |          |  |                  |  |                      
|----------------------- |  | --------- | ----- | -------- |  | ---------------- |  | ---------------------
|                        |  | Ownership |       |          |  |                 
|                        |  | Interest  |       | Location |  | Type of Business
|                        |  |           |       |          |  |                 
|PIGAP II                |  |           | 30.0% |          |  | Venezuela        |  | Gas Compression Plant
|El Furrial              |  |           | 33.3% |          |  | Venezuela        |  | Gas Compression Plant
|Simco/Harwat Consortium |  |           | 35.5% |          |  | Venezuela        |  | Water Injection Plant



|                                    |  |              |         |      |  |   |         | 
|----------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2005         |         | 2004
|                                    |  |              |         |     
|Current assets                      |  | $            | 137,936 |      |  | $ | 148,938 | 
|Non-current assets                  |  |              | 495,071 |      |  |   | 528,669 | 
|Current liabilities, excluding debt |  |              | 37,403  |      |  |   | 35,407  | 
|Debt payable                        |  |              | 301,384 |      |  |   | 349,030 | 
|Other non-current liabilities       |  |              | 51,752  |      |  |   | 41,053  | 
|Owners equity                      |  |              | 242,468 |      |  |   | 252,117 | 



|                 |  |                          |         |      |  |      |         |  |  |   |         | 
|---------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                 |  | Years Ended December 31,
|                 |  |                         
|                 |  | 2005                     |         | 2004 |  | 2003
|                 |  |                          |         |      |  |     
|Revenues         |  | $                        | 193,153 |      |  | $    | 186,457 |  |  | $ | 277,575 | 
|Operating income |  |                          | 134,777 |      |  |      | 127,698 |  |  |   | 136,998 | 
|Net income       |  |                          | 54,473  |      |  |      | 57,775  |  |  |   | 60,526  | 



S-X 10-K






F-21



---



##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|   |         
|-- | --------
|9. | Goodwill







|                                     |       |              |         |                 |  |                |       |              |  |   |      |        |   |   |         |         | 
|------------------------------------ | ----- | ------------ | ------- | --------------- |  | -------------- | ----- | ------------ |  | - | ---- | ------ | - | - | ------- | ------- | 
|                                     |       |              |         |                 |  | Purchase       |       |             
|                                     |       |              |         |                 |  | Adjustment     |       |             
|                                     |       | December 31, |         | Acquisitions/   |  | and Other      |       | December 31,
|                                     |       | 2004         |         | Dispositions(1) |  | Adjustments(3) |       | 2005        
|                                     |       |              |         |                 |  |                |       |             
|U.S. rentals                         |       | $            | 100,456 |                 |  | $              |      |              |  | $ | (247 | )      |   | $ | 100,209 |        
|International rentals                |       |              | 35,085  |                 |  |                | 2,781 |              |  |   | (212 | )      |   |   | 37,654  |        
|Parts, service and used equipment    |       |              | 33,076  |                 |  |                | (562  | )            |  |   | (404 | )      |   |   | 32,110  |        
|Compressor and accessory fabrication |       |              | 14,573  |                 |  |                |      |              |  |   | (182 | )      |   |   | 14,391  |        
|                                     |       |              |         |                 |  |                |       |              |  |   |      |        |   |   |         |        
|                                     | Total |              | $       | 183,190         |  |                | $     | 2,219        |  |   | $    | (1,045 | ) |   | $       | 184,364 | 
|                                     |       |              |         |                 |  |                |       |              |  |   |      |        |   |   |         |        

|                                     |       |              |        |                 |  |                |        |              |   |   |       |       |  |   |         |         | 
|------------------------------------ | ----- | ------------ | ------ | --------------- |  | -------------- | ------ | ------------ | - | - | ----- | ----- |  | - | ------- | ------- | 
|                                     |       |              |        |                 |  | Purchase       |        |             
|                                     |       |              |        |                 |  | Adjustment and |        |             
|                                     |       | December 31, |        | Acquisitions/   |  | Other          |        | December 31,
|                                     |       | 2003         |        | Dispositions(2) |  | Adjustments(3) |        | 2004        
|                                     |       |              |        |                 |  |                |        |             
|U.S. rentals                         |       | $            | 95,597 |                 |  | $              |       |              |   | $ | 4,859 |       |  | $ | 100,456 |        
|International rentals                |       |              | 34,282 |                 |  |                | (2,145 | )            |   |   | 2,948 |       |  |   | 35,085  |        
|Parts, service and used equipment    |       |              | 32,870 |                 |  |                |       |              |   |   | 206   |       |  |   | 33,076  |        
|Compressor and accessory fabrication |       |              | 14,573 |                 |  |                |       |              |   |   |      |       |  |   | 14,573  |        
|                                     |       |              |        |                 |  |                |        |              |   |   |       |       |  |   |         |        
|                                     | Total |              | $      | 177,322         |  |                | $      | (2,145       | ) |   | $     | 8,013 |  |   | $       | 183,190 | 
|                                     |       |              |        |                 |  |                |        |              |   |   |       |       |  |   |         |        

F-22



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)







|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | Additions to goodwill for our international rentals segment in
    2005 relates to our acquisition of PTS.
|   
|(2) | Relates to sale of the compression rental assets of our Canadian
    subsidiary.                          
|   
|(3) | Relates primarily to purchase price adjustments for taxes
    related to acquisitions.                    



|    |                    
|--- | -------------------
|10. | Accrued Liabilities



|                                                      |  |              |         |      |  |   |         | 
|----------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                                      |  | December 31,
|                                                      |  |             
|                                                      |  | 2005         |         | 2004
|                                                      |  |              |         |     
|Accrued salaries, bonuses and other employee benefits |  | $            | 36,823  |      |  | $ | 30,323  | 
|Accrued income and other taxes                        |  |              | 26,868  |      |  |   | 31,182  | 
|Current portion of interest rate swaps                |  |              | 1,849   |      |  |   | 1,061   | 
|Accrued interest                                      |  |              | 19,838  |      |  |   | 25,386  | 
|Accrued other                                         |  |              | 43,427  |      |  |   | 31,891  | 
|                                                      |  |              |         |      |  |   |         | 
|                                                      |  | $            | 128,805 |      |  | $ | 119,843 | 
|                                                      |  |              |         |      |  |   |         | 



|    |     
|--- | ----
|11. | Debt



|                                   |  |              |       |      |  |   |       | 
|---------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                                   |  | December 31,
|                                   |  |             
|                                   |  | 2005         |       | 2004
|                                   |  |              |       |     
|Belleli factored receivables      |  | $            | 1,129 |      |  | $ | 1,011 | 
|Belleli revolving credit facility |  |              | 2,951 |      |  |   | 4,095 | 
|                                   |  |              |       |      |  |   |       | 
|Short-term debt                    |  | $            | 4,080 |      |  | $ | 5,106 | 
|                                   |  |              |       |      |  |   |       | 



F-23



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                                                |  |              |           |      |  |   |           |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                                                                                                                |  | December 31,
|                                                                                                                |  |             
|                                                                                                                |  | 2005         |           | 2004
|                                                                                                                |  |              |           |     
|Bank credit facility due November 2010                                                                          |  | $            | 48,000    |      |  | $ | 7,000     |  
|4.75% convertible senior notes due 2008*                                                                        |  |              | 192,000   |      |  |   | 192,000   |  
|4.75% convertible senior notes due 2014*                                                                        |  |              | 143,750   |      |  |   | 143,750   |  
|8.625% senior notes due 2010**                                                                                  |  |              | 200,000   |      |  |   | 200,000   |  
|9.0% senior notes due 2014**                                                                                    |  |              | 200,000   |      |  |   | 200,000   |  
|2000B compression equipment lease notes, interest at 5.2%, due
    October 2005                                 |  |              |          |      |  |   | 55,861    |  
|2001A compression equipment lease notes, interest at 8.5%, due
    September 2008                               |  |              | 133,000   |      |  |   | 300,000   |  
|2001B compression equipment lease notes, interest at 8.75%, due
    September 2011                              |  |              | 250,000   |      |  |   | 250,000   |  
|Zero coupon subordinated notes, interest at 11%, due March 2007*                                                |  |              | 229,803   |      |  |   | 206,467   |  
|7.25% convertible subordinated notes due 2029*                                                                  |  |              | 86,250    |      |  |   | 86,250    |  
|Fair value adjustment fixed to floating interest rate swaps                                                    |  |              | (9,686    | )    |  |   | (5,996    | )
|Other, interest at various rates, collateralized by equipment
    and other assets, net of unamortized discount |  |              | 1,751     |      |  |   | 3,178     |  
|                                                                                                                |  |              |           |      |  |   |           |  
|                                                                                                                |  |              | 1,474,868 |      |  |   | 1,638,510 |  
|Less current maturities                                                                                        |  |              | (1,309    | )    |  |   | (1,430    | )
|                                                                                                                |  |              |           |      |  |   |           |  
|Long-term debt                                                                                                  |  | $            | 1,473,559 |      |  | $ | 1,637,080 |  
|                                                                                                                |  |              |           |      |  |   |           |  






| |   |                                              
| | - | ---------------------------------------------
| | * | Securities issued by Hanover (parent company)



| |    |                                                                          
| | -- | -------------------------------------------------------------------------
| | ** | Securities issued by Hanover (parent company) and guaranteed by
    HCLP.



|           |  |              |           | 
|---------- |  | ------------ | --------- | 
|           |  | December 31,
|           |  | 2005        
|           |  |             
|2006       |  | $            | 1,309     | 
|2007       |  |              | 230,025   | 
|2008       |  |              | 325,045   | 
|2009       |  |              | 49        | 
|2010       |  |              | 238,368   | 
|Thereafter |  |              | 680,072   | 
|           |  |              |           | 
|           |  | $            | 1,474,868 | 
|           |  |              |           | 



| |                     
| | --------------------
| | Bank Credit Facility



F-24



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)












F-25



---



##### 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-26



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##### 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-27



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






7.25% Convertible Subordinated Notes due 2029








2001 Sale Leaseback Transactions




F-28



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)












F-29



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                  |       |             |      |               |  |             |       |               |  |                   |       |       |  |  |     |  |  |  |                |  | 
|--------------------------------- | ----- | ----------- | ---- | ------------- |  | ----------- | ----- | ------------- |  | ----------------- | ----- | ----- |  |  | --- |  |  |  | -------------- |  | 
|                                  |       |             |      |               |  |             |       | Substitution  |  |                  
|                                  |       |             |      |               |  |             |       | Limitation as |  |                  
|                                  |       | Value of    |      | Percentage of |  |             |       | Percentage of |  |                  
|                                  |       | Substituted |      | Termination   |  | Termination |       | Termination   |  | Lease Termination
|Lease                             |       | Equipment   |      | Value(1)      |  | Value(1)    |       | Value         |  | Date             
|                                  |       |             |      |               |  |             |       |               |  |                  
|                                  |       |             |      |               |  | (dollars in |       |               |  |                  
|                                  |       |             |      |               |  | millions)   |       |               |  |                  
|2001A compression equipment lease |       | $           | 19.4 |               |  |             | 14.2% |               |  | $                 | 137.1 |       |  |  | 25% |  |  |  | September 2008 | 
|2001B compression equipment lease |       |             | 45.4 |               |  |             | 17.6% |               |  |                   | 257.7 |       |  |  | 25% |  |  |  | September 2011 | 
|                                  |       |             |      |               |  |             |       |               |  |                   |       |       |  |  |     |  |  |  |                | 
|                                  | Total |             | $    | 64.8          |  |             |       |               |  |                   | $     | 394.8 |  |  |     |  |  |  |                |  | 
|                                  |       |             |      |               |  |             |       |               |  |                   |       |       |  |  |     |  |  |  |                | 






|    |                                                                         
|--- | ------------------------------------------------------------------------
|(1) | Termination value assumes all accrued rents paid before
    termination.







|    |                                                      
|--- | -----------------------------------------------------
|12. | Leasing Transactions and Accounting Change for FIN 46







F-30



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|            |  |           |         |                  |  |            |                |  |  |   |        | 
|----------- |  | --------- | ------- | ---------------- |  | ---------- | -------------- |  |  | - | ------ | 
|            |  | Residual  |         |                  |  | Minority  
|            |  | Value     |         | Lease            |  | Interest  
|Lease       |  | Guarantee |         | Termination Date |  | Obligation
|            |  |           |         |                  |  |           
|August 2001 |  | $         | 102,853 |                  |  |            | September 2008 |  |  | $ | 4,123  | 
|August 2001 |  |           | 175,000 |                  |  |            | September 2011 |  |  |   | 7,750  | 
|            |  |           |         |                  |  |            |                |  |  |   |        | 
|            |  | $         | 277,853 |                  |  |            |                |  |  | $ | 11,873 | 
|            |  |           |         |                  |  |            |                |  |  |   |        | 





F-31



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |             
|--- | ------------
|13. | Income Taxes



|              |  |                          |         |      |  |      |         |   |  |   |          |  
|------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|              |  | Years Ended December 31,
|              |  |                         
|              |  | 2005                     |         | 2004 |  | 2003
|              |  |                          |         |      |  |     
|U.S.          |  | $                        | (33,146 | )    |  | $    | (69,475 | ) |  | $ | (115,937 | )
|International |  |                          | 23,712  |      |  |      | 40,151  |   |  |   | 2,078    |  
|              |  |                          |         |      |  |      |         |   |  |   |          |  
|              |  | $                        | (9,434  | )    |  | $    | (29,324 | ) |  | $ | (113,859 | )
|              |  |                          |         |      |  |      |         |   |  |   |          |  



|                                  |               |                          |        |        |        |      |        |        |        |   |       |         |        |  
|--------------------------------- | ------------- | ------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ----- | ------- | ------ | -
|                                  |               | Years Ended December 31,
|                                  |               |                         
|                                  |               | 2005                     |        | 2004   |        | 2003
|                                  |               |                          |        |        |        |     
|Current tax provision (benefit):  |               |                          |        |        |        |      |        |        |        |   |       |        
|                                  | Federal       |                          | $      |       |        |      | $      | 168    |        |   | $     |        |       
|                                  | State         |                          |        | 8      |        |      |        | (27    | )      |   |       | 245     |       
|                                  | International |                          |        | 8,402  |        |      |        | 12,999 |        |   |       | 13,171  |       
|                                  |               |                          |        |        |        |      |        |        |        |   |       |        
|                                  |               | Total current            |        |        | 8,410  |      |        |        | 13,140 |   |       |         | 13,416 |  
|                                  |               |                          |        |        |        |      |        |        |        |   |       |        
|Deferred tax provision (benefit): |               |                          |        |        |        |      |        |        |        |   |       |        
|                                  | Federal       |                          |        | 273    |        |      |        | (4,380 | )      |   |       | (18,334 | )     
|                                  | State         |                          |        | 1,477  |        |      |        | 1,959  |        |   |       |        |       
|                                  | International |                          |        | 17,554 |        |      |        | 14,048 |        |   |       | 8,547   |       
|                                  |               |                          |        |        |        |      |        |        |        |   |       |        
|                                  |               | Total deferred           |        |        | 19,304 |      |        |        | 11,627 |   |       |         | (9,787 | )
|                                  |               |                          |        |        |        |      |        |        |        |   |       |        
|Total provision for income taxes  |               | $                        | 27,714 |        |        | $    | 24,767 |        |        | $ | 3,629 |        
|                                  |               |                          |        |        |        |      |        |        |        |   |       |        

F-32



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                                        |  |                          |        |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                        |  | Years Ended December 31,
|                                                                                                        |  |                         
|                                                                                                        |  | 2005                     |        | 2004 |  | 2003
|                                                                                                        |  |                          |        |      |  |     
|Federal income tax at statutory rate                                                                    |  | $                        | (3,302 | )    |  | $    | (10,263 | ) |  | $ | (39,851 | )
|State income taxes, net of federal benefit                                                              |  |                          | 965    |      |  |      | 1,256   |   |  |   | 159     |  
|International effective rate/ U.S. rate differential
    (including international valuation allowances) |  |                          | 12,819 |      |  |      | 8,195   |   |  |   | 13,975  |  
|Release of tax issues based reserve                                                                     |  |                          | (4,254 | )    |  |      | (2,783  | ) |  |   |        |  
|U.S. impact of international operations, net of federal
    benefit                                     |  |                          | 13,201 |      |  |      | 14,877  |   |  |   | 5,270   |  
|U.S. valuation allowances                                                                               |  |                          | 7,596  |      |  |      | 10,880  |   |  |   | 25,746  |  
|Other, net                                                                                              |  |                          | 689    |      |  |      | 2,605   |   |  |   | (1,670  | )
|                                                                                                        |  |                          |        |      |  |      |         |   |  |   |         |  
|                                                                                                        |  | $                        | 27,714 |      |  | $    | 24,767  |   |  | $ | 3,629   |  
|                                                                                                        |  |                          |        |      |  |      |         |   |  |   |         |  



|                               |                                             |              |          |          |   |   |          |          |  
|------------------------------ | ------------------------------------------- | ------------ | -------- | -------- | - | - | -------- | -------- | -
|                               |                                             | December 31,
|                               |                                             |             
|                               |                                             | 2005         |          | 2004    
|                               |                                             |              |          |         
|Deferred tax assets:           |                                             |              |          |          |   |   |          |         
|                               | Net operating losses carryforward           |              | $        | 322,906  |   |   | $        | 303,754  |  
|                               | Investment in joint ventures                |              |          | 737      |   |   |          | 737      |  
|                               | Inventory                                   |              |          | 5,983    |   |   |          | 5,048    |  
|                               | Alternative minimum tax credit carryforward |              |          | 5,345    |   |   |          | 5,337    |  
|                               | Derivative instruments                      |              |          |         |   |   |          | 722      |  
|                               | Accrued liabilities                         |              |          | 5,253    |   |   |          | 3,809    |  
|                               | Intangibles                                 |              |          | 7,727    |   |   |          | 11,209   |  
|                               | Capital loss carryforward                   |              |          | 11,611   |   |   |          | 10,293   |  
|                               | Other                                       |              |          | 19,148   |   |   |          | 22,057   |  
|                               |                                             |              |          |          |   |   |          |         
|Gross deferred tax assets      |                                             |              | 378,710  |          |   |   | 362,966  |         
|                               | Valuation allowance                         |              |          | (75,420  | ) |   |          | (65,441  | )
|                               |                                             |              |          |          |   |   |          |         
|                               |                                             |              | 303,290  |          |   |   | 297,525  |         
|                               |                                             |              |          |          |   |   |          |         
|Deferred tax liabilities:      |                                             |              |          |          |   |   |          |         
|                               | Property, plant and equipment               |              |          | (355,111 | ) |   |          | (332,294 | )
|                               | Other                                       |              |          | (4,901   | ) |   |          | (6,135   | )
|                               |                                             |              |          |          |   |   |          |         
|Gross deferred tax liabilities |                                             |              | (360,012 | )        |   |   | (338,429 | )       
|                               |                                             |              |          |          |   |   |          |         
|                               |                                             | $            | (56,722  | )        |   | $ | (40,904  | )       
|                               |                                             |              |          |          |   |   |          |         



|                              |  |                         |         |      |  |   |         |  
|----------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | -
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2005                    |         | 2004
|                              |  |                         |         |     
|Current deferred income taxes |  | $                       | 13,842  |      |  | $ | 12,583  |  
|Intangibles and other assets  |  |                         | 7,999   |      |  |   | 8,869   |  
|Accrued liabilities           |  |                         | (2,448  | )    |  |   | (1,414  | )
|Deferred income taxes         |  |                         | (76,115 | )    |  |   | (60,942 | )
|                              |  |                         |         |      |  |   |         |  
|Net deferred tax liabilities  |  | $                       | (56,722 | )    |  | $ | (40,904 | )
|                              |  |                         |         |      |  |   |         |  



F-33



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|    |                           
|--- | --------------------------
|14. | Accounting for Derivatives







|                         |  |               |                   |                  |  |                 |       |                   |  |   |         |  |  |   |        |  
|------------------------ |  | ------------- | ----------------- | ---------------- |  | --------------- | ----- | ----------------- |  | - | ------- |  |  | - | ------ | -
|                         |  |               |                   |                  |  |                 |       | Fair Value of    
|                         |  |               |                   | Fixed Rate to be |  |                 |       | Swap at          
|Floating Rate to be Paid |  | Maturity Date |                   | Received         |  | Notional Amount |       | December 31, 2005
|                         |  |               |                   |                  |  |                 |       |                  
|Six Month LIBOR +4.72%   |  |               | December 15, 2010 |                  |  |                 | 8.625 | %                 |  | $ | 100,000 |  |  | $ | (4,975 | )
|Six Month LIBOR +4.64%   |  |               | December 15, 2010 |                  |  |                 | 8.625 | %                 |  | $ | 100,000 |  |  | $ | (4,711 | )



F-34



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|      |             |               |  |                       |                |                 |  |                   |         |  |  |  |          |  |  |   |   | 
|----- | ----------- | ------------- |  | --------------------- | -------------- | --------------- |  | ----------------- | ------- |  |  |  | -------- |  |  | - | - | 
|      |             |               |  |                       |                |                 |  | Fair Value of    
|      |             |               |  |                       |                |                 |  | Swap at          
|Lease |             | Maturity Date |  | Fixed Rate to be Paid |                | Notional Amount |  | December 31, 2005
|      |             |               |  |                       |                |                 |  |                  
|      | March 2000  |               |  |                       | March 11, 2005 |                 |  |                   | 5.2550% |  |  |  | $100,000 |  |  | $ |  | 
|      | August 2000 |               |  |                       | March 11, 2005 |                 |  |                   | 5.2725% |  |  |  | $100,000 |  |  | $ |  | 



mark-to mark-to mark-to








F-35



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                            
|--- | ---------------------------
|15. | Common Stockholders Equity





| |      
| | -----
| | Other









|    |              
|--- | -------------
|16. | Stock Options



F-36



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                       |                    |        |           |                  |   |   |       |       | 
|-------------------------------------- | ------------------ | ------ | --------- | ---------------- | - | - | ----- | ----- | 
|                                       |                    |        |           | Weighted average
|                                       |                    | Shares |           | price per share 
|                                       |                    |        |           |                 
|Options outstanding, December 31, 2002 |                    |        | 7,478,008 |                  |   | $ | 8.21  |      
|                                       | Options granted(1) |        |           | 539,285          |   |   |       | 11.41 | 
|                                       | Options canceled   |        |           | (652,963         | ) |   |       | 11.06 | 
|                                       | Options exercised  |        |           | (1,432,636       | ) |   |       | 4.68  | 
|                                       |                    |        |           |                  |   |   |       |      
|Options outstanding, December 31, 2003 |                    |        | 5,931,694 |                  |   |   | 9.07  |      
|                                       | Options granted(1) |        |           | 77,474           |   |   |       | 11.47 | 
|                                       | Options canceled   |        |           | (624,656         | ) |   |       | 13.19 | 
|                                       | Options exercised  |        |           | (1,140,073       | ) |   |       | 8.38  | 
|                                       |                    |        |           |                  |   |   |       |      
|Options outstanding, December 31, 2004 |                    |        | 4,244,439 |                  |   |   | 8.67  |      
|                                       | Options granted(1) |        |           | 477,940          |   |   |       | 11.98 | 
|                                       | Options canceled   |        |           | (139,354         | ) |   |       | 14.44 | 
|                                       | Options exercised  |        |           | (1,562,268       | ) |   |       | 3.19  | 
|                                       |                    |        |           |                  |   |   |       |      
|Options outstanding, December 31, 2005 |                    |        | 3,020,757 |                  |   |   | 11.77 |      
|                                       |                    |        |           |                  |   |   |       |      






|    |                                                          
|--- | ---------------------------------------------------------
|(1) | Option price equal to fair market value on date of grant.



|                         |  |                     |           |                     |  |          |     |        |  |          |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------- | --- | ------ |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  |          |     |       
|                         |  |                     |           | Average             |  | Weighted |     |        |  | Weighted
|                         |  |                     |           | Remaining           |  | Average  |     |        |  | Average 
|                         |  |                     |           | Life in             |  | Exercise |     |        |  | Exercise
|Range of exercise prices |  | Shares              |           | Years               |  | Price    |     | Shares |  | Price   
|                         |  |                     |           |                     |  |          |     |        |  |         
|$0.00-2.50               |  |                     | 5,928     |                     |  |          | 0.1 |        |  | $        | 0.00  |  |  |  | 5,928     |  |  | $ | 0.00  | 
|$5.01-7.50               |  |                     | 47,084    |                     |  |          | 0.3 |        |  |          | 5.70  |  |  |  | 47,084    |  |  |   | 5.70  | 
|$7.51-10.00              |  |                     | 1,168,472 |                     |  |          | 2.9 |        |  |          | 9.76  |  |  |  | 1,116,762 |  |  |   | 9.76  | 
|$10.01-12.50             |  |                     | 1,050,122 |                     |  |          | 7.9 |        |  |          | 11.75 |  |  |  | 349,476   |  |  |   | 11.72 | 
|$12.51-15.00             |  |                     | 615,451   |                     |  |          | 5.9 |        |  |          | 14.46 |  |  |  | 454,963   |  |  |   | 14.46 | 
|$15.01-17.50             |  |                     | 75,000    |                     |  |          | 6.2 |        |  |          | 17.25 |  |  |  | 75,000    |  |  |   | 17.25 | 
|$17.51-20.00             |  |                     | 21,000    |                     |  |          | 6.1 |        |  |          | 18.95 |  |  |  | 19,400    |  |  |   | 18.95 | 
|$22.51-25.00             |  |                     | 37,700    |                     |  |          | 5.7 |        |  |          | 25.00 |  |  |  | 37,700    |  |  |   | 25.00 | 
|                         |  |                     |           |                     |  |          |     |        |  |          |       |  |  |  |           |  |  |   |       | 
|                         |  |                     | 3,020,757 |                     |  |          |     |        |  |          |       |  |  |  | 2,106,313 |  |  |   |       | 
|                         |  |                     |           |                     |  |          |     |        |  |          |       |  |  |  |           |  |  |   |       | 





F-37



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|               |  |      |          |      |  |      |            |  |  |  |          | 
|-------------- |  | ---- | -------- | ---- |  | ---- | ---------- |  |  |  | -------- | 
|               |  | 2005 |          | 2004 |  | 2003
|               |  |      |          |      |  |     
|Expected life  |  |      | 7  years |      |  |      | 7.5  years |  |  |  | 6  years | 
|Interest rate  |  |      | 4.0%     |      |  |      | 4.2%       |  |  |  | 3.2%     | 
|Volatility     |  |      | 32.0%    |      |  |      | 38.0%      |  |  |  | 40.3%    | 
|Dividend yield |  |      | 0%       |      |  |      | 0%         |  |  |  | 0%       | 





|    |              
|--- | -------------
|17. | Benefit Plans





|    |                                             
|--- | --------------------------------------------
|18. | Related Party and Certain Other Transactions



| |                               
| | ------------------------------
| | Transactions with GKH Entities







| |                                        
| | ---------------------------------------
| | Transactions with Schlumberger Entities





F-38



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
















| |                                 
| | --------------------------------
| | Other Related Party Transactions





F-39



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|    |                              
|--- | -----------------------------
|19. | Commitments and Contingencies



F-40



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                             |                                                     |      |  |                   |  |   |         |         | 
|-------------------------------------------- | --------------------------------------------------- | ---- |  | ----------------- |  | - | ------- | ------- | 
|                                             |                                                     |      |  | Maximum Potential
|                                             |                                                     |      |  | Undiscounted     
|                                             |                                                     |      |  | Payments as of   
|                                             |                                                     | Term |  | December 31, 2005
|                                             |                                                     |      |  |                  
|Indebtedness of non-consolidated affiliates: |                                                     |      |  |                   |  |   |         |        
|                                             | Simco/Harwat Consortium(1)                          |      |  | 2006              |  |   | $       | 7,476   | 
|                                             | El Furrial(1)                                       |      |  | 2013              |  |   |         | 32,017  | 
|Other:                                       |                                                     |      |  |                   |  |   |         |        
|                                             | Performance guarantees through letters of credit(2) |      |  | 2006-2007         |  |   |         | 108,598 | 
|                                             | Standby letters of credit                           |      |  | 2006-2007         |  |   |         | 20,249  | 
|                                             | Commercial letters of credit                        |      |  | 2006              |  |   |         | 2,741   | 
|                                             | Bid bonds and performance bonds(2)                  |      |  | 2006-2011         |  |   |         | 123,569 | 
|                                             |                                                     |      |  |                   |  |   |         |        
|                                             |                                                     |      |  |                   |  | $ | 294,650 |        
|                                             |                                                     |      |  |                   |  |   |         |        






|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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-41



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                                   
|--- | ----------------------------------
|20. | Securities Class Action Settlement









F-42



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                          |  |   |         |  
|----------------------------------------- |  | - | ------- | -
|Cash                                      |  | $ | 30,050  |  
|Estimated fair value of note to be issued |  |   | 3,633   |  
|Common stock to be issued by Hanover      |  |   | 29,800  |  
|Legal fees and administrative costs       |  |   | 6,178   |  
|                                          |  |   |         |  
|Total                                     |  |   | 69,661  |  
|Less: insurance recoveries                |  |   | (26,670 | )
|                                          |  |   |         |  
|Net litigation settlement                 |  | $ | 42,991  |  
|                                          |  |   |         |  







|    |              
|--- | -------------
|21. | Other Expense



F-43



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                            
|--- | -------------------------------------------
|22. | Restructuring, Impairment and Other Charges



|                                                                             |       |   |       |       | 
|---------------------------------------------------------------------------- | ----- | - | ----- | ----- | 
|Debt extinguishment costs                                                    |       | $ | 7,318 |      
|Write-off of deferred financing costs (in Depreciation and
    amortization) |       |   | 2,500 |      
|                                                                             |       |   |       |      
|                                                                             | Total |   | $     | 9,818 | 
|                                                                             |       |   |       |      



|                                                                             |       |   |        |      |  
|---------------------------------------------------------------------------- | ----- | - | ------ | ---- | -
|Securities-related litigation settlement                                     |       | $ | (4,163 | )   
|Write-off of deferred financing costs (in Depreciation and
    amortization) |       |   | 1,686  |     
|Cancellation of interest rate swap (in Interest expense)                     |       |   | 2,028  |     
|                                                                             |       |   |        |     
|                                                                             | Total |   | $      | (449 | )
|                                                                             |       |   |        |     



|                                                                             |       |   |         |         | 
|---------------------------------------------------------------------------- | ----- | - | ------- | ------- | 
|Rental fleet asset impairment (in Depreciation and amortization)             |       | $ | 14,334  |        
|Cumulative effect of accounting change  FIN 46                              |       |   | 133,707 |        
|Securities-related litigation settlement                                     |       |   | 42,991  |        
|Belleli goodwill impairment (in Goodwill impairment)                         |       |   | 35,466  |        
|Write-off of deferred financing costs (in Depreciation and
    amortization) |       |   | 2,461   |        
|Loss on sale/write-down of discontinued operations                           |       |   | 21,617  |        
|                                                                             |       |   |         |        
|                                                                             | Total |   | $       | 250,576 | 
|                                                                             |       |   |         |        





|    |                              
|--- | -----------------------------
|23. | New Accounting Pronouncements







F-44



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


04-10




Accounting
for Stock Issued to Employees,






F-45



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |                                             
|--- | --------------------------------------------
|24. | Industry Segments and Geographic Information







F-46



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                 |  |                           |           |               |  |                |         |             |  |                |         |         |  |          |         |              |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|-------------------------------- |  | ------------------------- | --------- | ------------- |  | -------------- | ------- | ----------- |  | -------------- | ------- | ------- |  | -------- | ------- | ------------ |  | - | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | --------- | 
|                                 |  |                           |           |               |  |                |         |             |  | Production and |         |         |  |         
|                                 |  |                           |           |               |  |                |         |             |  | Processing     |         |         |  |         
|                                 |  |                           |           |               |  |                |         | Compressor  |  |                |         |         |  |         
|                                 |  |                           |           |               |  | Parts, service |         | and         |  | Surface        |         |         |  |          |         |             
|                                 |  |                           |           | International |  | and used       |         | accessory   |  | equipment      |         |         |  |          |         |             
|                                 |  | U.S. rentals              |           | rentals       |  | equipment      |         | fabrication |  | fabrication    |         | Belleli |  | Other(1) |         | Consolidated
|                                 |  |                           |           |               |  |                |         |             |  |                |         |         |  |          |         |             
|                                 |  | (In thousands of dollars)
|2005                             |  |                           |           |               |  |                |         |             |  |                |         |         |  |          |         |              |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|Revenues from external customers |  | $                         | 351,128   |               |  | $              | 232,587 |             |  | $              | 225,636 |         |  | $        | 179,954 |              |  | $ | 179,951 |  |  | $ | 180,316 |  |  | $ | 26,017  |  |  | $ | 1,375,589 | 
|Gross profit                     |  |                           | 211,663   |               |  |                | 156,075 |             |  |                | 56,468  |         |  |          | 23,540  |              |  |   | 21,957  |  |  |   | 12,386  |  |  |   | 26,017  |  |  |   | 508,106   | 
|Total assets                     |  |                           | 1,415,879 |               |  |                | 669,421 |             |  |                | 63,909  |         |  |          | 70,170  |              |  |   | 48,880  |  |  |   | 105,302 |  |  |   | 489,435 |  |  |   | 2,862,996 | 
|Capital expenditures             |  |                           | 61,370    |               |  |                | 87,858  |             |  |                |        |         |  |          |        |              |  |   | 123     |  |  |   | 4,577   |  |  |   | 1,218   |  |  |   | 155,146   | 
|2004                             |  |                           |           |               |  |                |         |             |  |                |         |         |  |          |         |              |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|Revenues from external customers |  | $                         | 341,570   |               |  | $              | 214,598 |             |  | $              | 180,321 |         |  | $        | 158,629 |              |  | $ | 131,195 |  |  | $ | 139,089 |  |  | $ | 23,193  |  |  | $ | 1,188,595 | 
|Gross profit                     |  |                           | 196,990   |               |  |                | 150,645 |             |  |                | 44,392  |         |  |          | 13,797  |              |  |   | 13,099  |  |  |   | 14,934  |  |  |   | 23,193  |  |  |   | 457,050   | 
|Total assets                     |  |                           | 1,468,060 |               |  |                | 616,339 |             |  |                | 61,078  |         |  |          | 56,825  |              |  |   | 45,185  |  |  |   | 99,964  |  |  |   | 423,778 |  |  |   | 2,771,229 | 
|Capital expenditures             |  |                           | 40,271    |               |  |                | 36,713  |             |  |                |        |         |  |          |        |              |  |   | 139     |  |  |   | 7,768   |  |  |   | 5,605   |  |  |   | 90,496    | 
|2003                             |  |                           |           |               |  |                |         |             |  |                |         |         |  |          |         |              |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|Revenues from external customers |  | $                         | 324,186   |               |  | $              | 191,301 |             |  | $              | 164,935 |         |  | $        | 106,896 |              |  | $ | 140,753 |  |  | $ | 119,907 |  |  | $ | 27,102  |  |  | $ | 1,075,080 | 
|Gross profit                     |  |                           | 196,761   |               |  |                | 129,426 |             |  |                | 41,680  |         |  |          | 9,974   |              |  |   | 13,570  |  |  |   | 12,887  |  |  |   | 27,102  |  |  |   | 431,400   | 
|Total assets                     |  |                           | 1,643,375 |               |  |                | 768,397 |             |  |                | 60,843  |         |  |          | 73,897  |              |  |   | 74,246  |  |  |   | 70,857  |  |  |   | 250,659 |  |  |   | 2,942,274 | 
|Capital expenditures             |  |                           | 73,007    |               |  |                | 59,200  |             |  |                | 24      |         |  |          | 2,735   |              |  |   | 1,158   |  |  |   | 6,342   |  |  |   |        |  |  |   | 142,466   | 



| |                
| | ---------------
| | Geographic Data

|                                   |  |                           |           |                  |  |              |         |  |  |   |           | 
|---------------------------------- |  | ------------------------- | --------- | ---------------- |  | ------------ | ------- |  |  | - | --------- | 
|                                   |  | United States             |           | International(2) |  | Consolidated
|                                   |  |                           |           |                  |  |             
|                                   |  | (In thousands of dollars)
|2005                               |  |                           |           |                  |  |              |         |  |  |   |           | 
|Revenues from external customers   |  | $                         | 715,069   |                  |  | $            | 660,520 |  |  | $ | 1,375,589 | 
|Property, plant and equipment, net |  | $                         | 1,255,935 |                  |  | $            | 567,165 |  |  | $ | 1,823,100 | 
|2004                               |  |                           |           |                  |  |              |         |  |  |   |           | 
|Revenues from external customers   |  | $                         | 619,981   |                  |  | $            | 568,614 |  |  | $ | 1,188,595 | 
|Property, plant and equipment, net |  | $                         | 1,315,610 |                  |  | $            | 560,738 |  |  | $ | 1,876,348 | 
|2003                               |  |                           |           |                  |  |              |         |  |  |   |           | 
|Revenues from external customers   |  | $                         | 647,176   |                  |  | $            | 427,904 |  |  | $ | 1,075,080 | 
|Property, plant and equipment, net |  | $                         | 1,408,154 |                  |  | $            | 619,500 |  |  | $ | 2,027,654 | 






|    |                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes equity in income of non-consolidated affiliates and
    other income.                                                                                                                                                                                                                                         
|   
|(2) | International operations include approximately
    $131.7 million, $141.6 million and $124.5 million
    of revenues and $192.9 million, $197.6 million and
    $217.8 million of property, plant and equipment, net for
    2005, 2004 and 2003, respectively, related to operations and
    investments in Venezuela.



|    |                     
|--- | --------------------
|25. | Impact of Hurricanes



F-47



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##### Table of Contents



HANOVER COMPRESSOR COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |                 
|--- | ----------------
|26. | Subsequent Event



F-48



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##### Table of Contents



HANOVER COMPRESSOR COMPANY





SELECTED QUARTERLY UNAUDITED FINANCIAL DATA




|         |                                              |                                          |   |         |       |         |   |         |       |   |   |         |       |   |   |         |       |  
|-------- | -------------------------------------------- | ---------------------------------------- | - | ------- | ----- | ------- | - | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|         |                                              | 1st                                      |   | 2nd     |       | 3rd     |   | 4th    
|         |                                              | Quarter                                  |   | Quarter |       | Quarter |   | Quarter
|         |                                              |                                          |   |         |       |         |   |        
|         |                                              | (In thousands, except per share amounts)
|2005(1): |                                              |                                          |   |         |       |         |   |         |       |   |   |         |       |   |   |        
|         | Revenue                                      |                                          | $ | 301,626 |       |         | $ | 344,782 |       |   | $ | 369,846 |       |   | $ | 359,335 |      
|         | Gross profit                                 |                                          |   | 116,246 |       |         |   | 129,423 |       |   |   | 131,630 |       |   |   | 130,807 |      
|         | Net loss                                     |                                          |   | (12,464 | )     |         |   | (6,416  | )     |   |   | (14,938 | )     |   |   | (4,199  | )    
|         | Loss per common and common equivalent share: |                                          |   |         |       |         |   |         |       |   |   |         |       |   |   |         |      
|         |                                              | Basic                                    |   | $       | (0.15 | )       |   | $       | (0.07 | ) |   | $       | (0.16 | ) |   | $       | (0.04 | )
|         |                                              | Diluted                                  |   | $       | (0.15 | )       |   | $       | (0.07 | ) |   | $       | (0.16 | ) |   | $       | (0.04 | )
|2004(2): |                                              |                                          |   |         |       |         |   |         |       |   |   |         |       |   |   |        
|         | Revenue                                      |                                          | $ | 269,831 |       |         | $ | 292,876 |       |   | $ | 315,811 |       |   | $ | 310,077 |      
|         | Gross profit                                 |                                          |   | 112,941 |       |         |   | 118,254 |       |   |   | 116,588 |       |   |   | 109,267 |      
|         | Net loss                                     |                                          |   | (9,454  | )     |         |   | (9,061  | )     |   |   | (5,274  | )     |   |   | (20,217 | )    
|         | Loss per common and common equivalent share: |                                          |   |         |       |         |   |         |       |   |   |         |       |   |   |         |      
|         |                                              | Basic                                    |   | $       | (0.11 | )       |   | $       | (0.11 | ) |   | $       | (0.06 | ) |   | $       | (0.24 | )
|         |                                              | Diluted                                  |   | $       | (0.11 | )       |   | $       | (0.11 | ) |   | $       | (0.06 | ) |   | $       | (0.24 | )






|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.
|   
|(2) | Amounts reflect reclassifications for discontinued operations.
    (See Note 3.)                                                                                   

F-49



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##### Table of Contents



SCHEDULE II


HANOVER COMPRESSOR COMPANY


VALUATION AND QUALIFYING ACCOUNTS


|                                                                                                    |      |                |   |            |  |            |   |            |  |  |   |        |     |  |   |        | 
|--------------------------------------------------------------------------------------------------- | ---- | -------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | ------ | --- |  | - | ------ | 
|                                                                                                    |      |                |   | Additions  |  |            |   |           
|                                                                                                    |      | Balance at     |   | Charged to |  |            |   | Balance at
|                                                                                                    |      | Beginning      |   | Costs and  |  |            |   | End of    
|Description                                                                                         |      | of Period      |   | Expenses   |  | Deductions |   | Period    
|                                                                                                    |      |                |   |            |  |            |   |           
|                                                                                                    |      | (In thousands)
|Allowance for doubtful accounts deducted from accounts
    receivable in the balance sheet          |      |                |   |            |  |            |   |            |  |  |   |        |     |  |   |       
|                                                                                                    | 2005 |                | $ | 7,573      |  |            | $ | 1,955      |  |  | $ | 4,777  | (1) |  | $ | 4,751  | 
|                                                                                                    | 2004 |                |   | 5,460      |  |            |   | 2,658      |  |  |   | 545    | (1) |  |   | 7,573  | 
|                                                                                                    | 2003 |                |   | 5,162      |  |            |   | 4,028      |  |  |   | 3,730  | (1) |  |   | 5,460  | 
|Allowance for obsolete and slow moving inventory deducted from
    inventories in the balance sheet |      |                |   |            |  |            |   |            |  |  |   |        |     |  |   |       
|                                                                                                    | 2005 |                | $ | 11,699     |  |            | $ | 148        |  |  | $ | 50     | (2) |  | $ | 11,797 | 
|                                                                                                    | 2004 |                |   | 12,729     |  |            |   | 1,062      |  |  |   | 2,092  | (2) |  |   | 11,699 | 
|                                                                                                    | 2003 |                |   | 14,211     |  |            |   | 1,536      |  |  |   | 3,018  | (2) |  |   | 12,729 | 
|Allowance for deferred tax assets not expected to be realized                                       |      |                |   |            |  |            |   |            |  |  |   |        |     |  |   |       
|                                                                                                    | 2005 |                | $ | 65,441     |  |            | $ | 13,015     |  |  | $ | 3,036  | (3) |  | $ | 75,420 | 
|                                                                                                    | 2004 |                |   | 55,015     |  |            |   | 23,429     |  |  |   | 13,003 | (3) |  |   | 65,441 | 
|                                                                                                    | 2003 |                |   | 23,371     |  |            |   | 46,824     |  |  |   | 15,180 | (3) |  |   | 55,015 | 
|Allowance for employee loans                                                                        |      |                |   |            |  |            |   |            |  |  |   |        |     |  |   |       
|                                                                                                    | 2003 |                | $ | 6,021      |  |            | $ |           |  |  | $ | 6,021  | (4) |  | $ |       | 






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(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.                          
|   
|(4) | During 2003, the notes receivable for loans to employees who
    were not executive officers were forgiven.

S-1



---



##### Table of Contents



EXHIBIT INDEX


|        |   |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | - | ----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 3 | .1          |  |  |  | Certificate of Incorporation of the Hanover Compressor Holding
    Co., incorporated by reference to Exhibit 3.1 to Hanover
    Compressor Companys (the Company) 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          |  |  |  | Third Amended and Restated Registration Rights Agreement, dated
    as of December 5, 1995, by and between the Company, GKH
    Partners, L.P., GKH Investments, L.P., Astra Resources, Inc. and
    other stockholders of the Company party thereto, incorporated by
    reference to Exhibit 4.1 to the Companys Registration
    Statement (File No. 333-24953) on Form S-1, as amended.            
|        | 4 | .2          |  |  |  | Form of Warrant Agreement, dated as of August 7, 1995,
    incorporated by reference to Exhibit 4.10 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                      
|        | 4 | .3          |  |  |  | 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 | .4          |  |  |  | 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 | .5          |  |  |  | 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 | .6          |  |  |  | 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 | .7          |  |  |  | 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 | .8          |  |  |  | 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 | .9          |  |  |  | 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 | .10         |  |  |  | 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 | .11         |  |  |  | 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.



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##### Table of Contents



|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .12         |  |  |  | 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  | .13         |  |  |  | Indenture for the Zero Coupon Subordinated Notes due
    March 31, 2007, dated as of May 14, 2003, between the
    Company and Wachovia Bank, National Association, as trustee,
    incorporated by reference to Exhibit 4.1 to the
    Companys Registration Statement (File No. 333-106384)
    on Form S-3, as filed with the SEC on June 23, 2003.                                                                                                                                                                                          
|        | 4  | .14         |  |  |  | Form of Zero Coupon Subordinated Notes due March 31, 2007,
    incorporated by reference to Exhibit 4.14 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2003.                                                                                                                                                                                                                                                                                                                                               
|        | 4  | .15         |  |  |  | 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  | .16         |  |  |  | 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  | .17         |  |  |  | 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  | .18         |  |  |  | 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  | .19         |  |  |  | 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  | .20         |  |  |  | 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  | .21         |  |  |  | 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.                                                                                                                                                                                                                                                                       
|        | 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.*                                                                                                                                                                                                                                                                   
|        | 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.*                                                                                                                                                                                                                                                                                                          
|        | 10 | .5          |  |  |  | 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.                                                                                                                                                                                                                                               



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##### Table of Contents



|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .6          |  |  |  | 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 | .7          |  |  |  | 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 | .8          |  |  |  | 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 | .9          |  |  |  | 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 | .10         |  |  |  | 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 | .11         |  |  |  | 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 | .12         |  |  |  | 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 | .13         |  |  |  | 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 | .14         |  |  |  | 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 | .15         |  |  |  | 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 | .16         |  |  |  | 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 | .17         |  |  |  | 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 | .18         |  |  |  | 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 | .19         |  |  |  | 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.                                                              



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##### Table of Contents



|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -- | ----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .20         |  |  |  | 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 | .21         |  |  |  | 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 | .22         |  |  |  | Most Favored Supplier and Alliance Agreement, dated
    August 31, 2001, among Schlumberger Oilfield Holdings
    Limited, Schlumberger Technology Corporation and Hanover
    Compression Limited Partnership, incorporated by reference to
    Exhibit 99.4 to the Companys Current Report on
    Form 8-K filed with the SEC on September 14, 2001.                                                                                                                  
|        | 10 | .23         |  |  |  | Agreement by and among SJMB, L.P., Charles Underbrink,
    John L. Thompson, Belleli Energy S.r.l. and Hanover
    Compressor Company and certain of its subsidiaries dated
    September 20, 2002, incorporated by reference to
    Exhibit 10.62 to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2002.                                                                                                                          
|        | 10 | .24         |  |  |  | Hanover Compressor Company Stock Compensation Plan, incorporated
    by reference to Exhibit 10.63 to the Companys Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2002.                                                                                                                                                                                                                                                                    
|        | 10 | .25         |  |  |  | Hanover Compressor Company Senior Executive Stock Option Plan,
    incorporated by reference to Exhibit 10.4 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                             
|        | 10 | .26         |  |  |  | Hanover Compressor Company 1993 Management Stock Option Plan,
    incorporated by reference to Exhibit 10.5 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                              
|        | 10 | .27         |  |  |  | Hanover Compressor Company Incentive Option Plan, incorporated
    by reference to Exhibit 10.6 to the Companys
    Registration Statement (File No. 333-24953) on
    Form S-1, as amended.                                                                                                                                                                                                                                                                            
|        | 10 | .28         |  |  |  | Amendment and Restatement of the Hanover Compressor Company
    Incentive Option Plan, incorporated by reference to
    Exhibit 10.7 to the Companys Registration Statement
    (File No. 333-24953) on Form S-1, as
    amended.                                                                                                                                                                                                                                     
|        | 10 | .29         |  |  |  | Hanover Compressor Company 1995 Employee Stock Option Plan,
    incorporated by reference to Exhibit 10.8 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                                
|        | 10 | .30         |  |  |  | Hanover Compressor Company 1995 Management Stock Option Plan,
    incorporated by reference to Exhibit 10.9 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                              
|        | 10 | .31         |  |  |  | Form of Stock Option Agreement for DeVille and Mcneil,
    incorporated by reference to Exhibit 10.70 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 2002.                                                                                                                                                                                                                                                                   
|        | 10 | .32         |  |  |  | Form of Stock Option Agreements for Wind Bros, incorporated by
    reference to Exhibit 10.71 to the Companys Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2002.                                                                                                                                                                                                                                                                           
|        | 10 | .33         |  |  |  | Hanover Compressor Company 1996 Employee Stock Option Plan,
    incorporated by reference to Exhibit 10.10 to the
    Companys Registration Statement (File No. 333-24953)
    on Form S-1, as amended.                                                                                                                                                                                                                                                               
|        | 10 | .34         |  |  |  | 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 | .35         |  |  |  | 1997 Stock Purchase Plan, incorporated by reference to
    Exhibit 10.24 to the Companys Registration Statement
    (File No. 333-24953) on Form S-1, as
    amended.                                                                                                                                                                                                                                                                                                 



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##### Table of Contents



|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .36         |  |  |  | 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 | .37         |  |  |  | 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 | .38         |  |  |  | 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 | .39         |  |  |  | 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 | .40         |  |  |  | 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 | .41         |  |  |  | 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 | .42         |  |  |  | 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 | .43         |  |  |  | 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 | .44         |  |  |  | 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 | .45         |  |  |  | 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 | .46         |  |  |  | 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 | .47         |  |  |  | Promissory Note and Indenture dated April 21, 2004 relating
    to $6,650,000 payable to Milberg, Weiss, Bershad,
    Hynes & Lerach LLP as Escrow Agent with respect to the
    settlement fund as defined in that certain Stipulation and
    Agreement and 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 March 31, 2004.
|        | 10 | .48         |  |  |  | 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 | .49         |  |  |  | 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 | .50         |  |  |  | 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 | .51         |  |  |  | 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 | .52         |  |  |  | Employment Letter with Anita H. Colglazier dated April 4,
    2002 with explanatory note.                                                                                                                                                                                                                                                                                                                                                      



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##### Table of Contents



|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .53         |  |  |  | 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 | .54         |  |  |  | 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 | .55         |  |  |  | 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.*                                                                                                                                                                                                                                                   
|        | 99 | .1          |  |  |  | Letter from GKH partners regarding wind-up of GKH Investments,
    L.P. and GKH Private Limited, dated October 15, 2001,
    incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on Form 8-K filed with the
    SEC on October 18, 2001.                                                                                                                                                
|        | 99 | .2          |  |  |  | Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
    President and General Counsel of the Company, dated
    November 12, 2002, incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K filed with the SEC on November 15, 2002.                                                                                                                                 
|        | 99 | .3          |  |  |  | Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
    President and General Counsel of the Company, dated
    March 11, 2004, incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K filed with the SEC on March 12, 2004.                                                                                                                                       






|  |               
|- | --------------
|* | Filed herewith



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|-- | -------------------------------------------------------
| | Management contract or compensatory plan or arrangement