<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C.  20549

                                  FORM 10-Q/A


(MARK ONE)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _________ TO __________


         Commission File Number        1-13071

                           HANOVER COMPRESSOR COMPANY
             (Exact name of registrant as specified in its charter)


          Delaware                                    76-0625124
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                   Identification No.)

                          12001 North Houston Rosslyn
                              Houston, Texas 77086
                    (Address of principal executive offices)

                                 (281) 447-8787
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


Yes  [X]
No   [ ]

As of November 11, 2000 there were 66,307,996 shares of the Company's common
stock, $0.001 par value, outstanding.
<PAGE>

EXPLANATORY NOTE

     Hanover Compressor Company (the "Company") is filing this amendment to its
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 in order
to restate the Consolidated Financial Statements and make conforming revisions
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations." In conjunction with a separate review of the Company's joint
ventures and other transactions conducted by the Board of Directors in early
2002, the Company determined that restatement was appropriate. The net effect of
this restatement for the three months ended September 30, 2000 was as follows:
(i) a decrease in revenues of $13.6 million, from $162.6 million to $149.0
million; (ii) a decrease in income before taxes of $4.8 million, from $25.0
million to $20.2 million; (iii) a decrease in net income of $3.0 million, from
$15.4 million to $12.4 million; and (iv) a decrease in earnings per common share
of $0.05 basic and $0.05 diluted. The net effect of this restatement for the
nine months ended September 30, 2000 was as follows:  (i) a decrease in revenues
of $13.6 million, from $370.2 million to $356.6 million; (ii) a decrease in
income before taxes of $4.8 million, from $62.7 million to $57.9 million; (iii)
a decrease in net income of $3.0 million, from $39.3 million to $36.3 million;
and (iv) a decrease in earnings per common share of $0.05 basic and $0.05
diluted. For additional detail of the transactions involved in the restatement
and their impact on the Condensed Consolidated Financial Statements see Note 9
of the Notes to Condensed Consolidated Financial Statements.
<PAGE>

        HANOVER COMPRESSOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEET
 (unaudited) (in thousands of dollars, except for par value and share amounts)
<TABLE>
<CAPTION>
                                                                                  September 30,     December 31,
                                                                                      2000              1999
                                                                                  -------------     ------------
                                                                                            (Restated)
<S>                                                                               <C>              <C>
      ASSETS
Current assets:
 Cash and cash equivalents                                                           $   13,042        $  5,756
 Accounts receivable trade, net                                                         159,003          93,715
 Inventory                                                                              143,122          66,562
 Costs and estimated earnings in excess of billings on uncompleted contracts             24,495           4,782
 Prepaid taxes                                                                           19,459          16,430
 Other current assets                                                                    13,240           5,287
                                                                                     ----------        --------
    Total current assets                                                                372,361         192,532
                                                                                     ----------        --------
Property, plant and equipment:
 Compression equipment and facilities                                                   719,121         520,403
 Land and buildings                                                                      32,856          19,000
 Transportation and shop equipment                                                       38,335          27,616
 Other                                                                                   13,972          10,029
                                                                                     ----------        --------
                                                                                        804,284         577,048
 Accumulated depreciation                                                              (107,545)        (79,583)
                                                                                     ----------        --------
    Net property, plant and equipment                                                   696,739         497,465
                                                                                     ----------        --------
Intangible and other assets                                                             197,568          66,513
                                                                                     ----------        --------
                                                                                     $1,266,668        $756,510
                                                                                     ==========        ========
     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Current maturities of long-term debt                                                $   27,769        $ 15,967
 Accounts payable, trade                                                                 68,612          32,308
 Accrued liabilities                                                                     38,083          22,065
 Advance billings                                                                        20,140          13,328
 Billings on uncompleted contracts in excess of costs and estimated earnings              6,024             898
                                                                                     ----------        --------
    Total current liabilities                                                           160,628          84,566

Long-term debt                                                                          173,835          69,681
Other liabilities                                                                       143,677          80,549
Deferred income taxes                                                                    86,698          66,307
                                                                                     ----------        --------
    Total liabilities                                                                   564,838         301,103
                                                                                     ----------        --------
Mandatorily redeemable convertible preferred securities                                  86,250          86,250
Commitments and contingencies (Note 6)
Common stockholders' equity:
 Common stock, $.001 par value; 200 million shares authorized;
    66,286,496 and 57,217,102 shares issued and outstanding, respectively                    66              57
  Additional paid-in capital                                                            481,465         272,945
 Notes receivable - employee stockholders                                                (1,738)         (3,387)
 Accumulated other comprehensive loss                                                      (465)           (311)
 Retained earnings                                                                      136,529         101,439
 Treasury stock - 29,227 and 167,394 common shares respectively, at cost                   (277)         (1,586)
                                                                                     ----------        --------
    Total common stockholders' equity                                                   615,580         369,157
                                                                                     ----------        --------
                                                                                     $1,266,668        $756,510
                                                                                     ==========        ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
                                       2
<PAGE>

               HANOVER COMPRESSOR COMPANY CONDENSED CONSOLIDATED
                  STATEMENT OF INCOME AND COMPREHENSIVE INCOME
        (unaudited) (in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>

                                                              Three months              Nine months
                                                          ended September 30,       ended September 30,
                                                         ----------------------   -----------------------
<S>                                                      <C>          <C>         <C>          <C>
                                                              2000        1999         2000         1999
                                                          --------     -------     --------     --------
  Revenues:                                              (Restated)               (Restated)
    Rentals                                               $ 66,309     $50,042     $180,210     $137,749
    Parts, service and used equipment                       28,743      12,402       64,293       27,403
    Compressor fabrication                                  26,428      16,493       55,599       35,441
    Production and processing equipment fabrication         25,634       7,733       46,745       21,177
    Gain(loss) on sale of other assets                        (377)        503        2,223        3,927
    Other                                                    2,223          96        7,531        2,141
                                                          --------     -------     --------     --------
                                                           148,960      87,269      356,601      227,838
                                                          --------     -------     --------     --------
 Expenses:
    Rentals                                                 23,263      16,228       62,104       45,454
    Parts, service and used equipment                       17,951       8,156       42,202       18,617
    Compressor fabrication                                  22,455      13,785       46,329       29,102
    Production and processing equipment fabrication         20,546       5,727       36,964       15,664
    Selling, general and administrative                     14,467       8,851       34,481       24,232
    Depreciation and amortization                           14,179       9,086       36,830       28,536
    Leasing expense                                         11,460       7,143       29,596       14,727
    Interest expense                                         2,831       1,804        5,466        7,841
    Distributions on mandatorily redeemable
     convertible preferred securities                        1,593           0        4,776            0
                                                          --------     -------     --------     --------
                                                           128,745      70,780      298,748      184,173
                                                          --------     -------     --------     --------
  Income before income taxes                                20,215      16,489       57,853       43,665
  Provision for income taxes                                 7,820       6,101       21,520       16,156
                                                          --------     -------     --------     --------
  Net income                                                12,395      10,388       36,333       27,509
                                                          --------     -------     --------     --------
  Other comprehensive income (loss), net of tax:
    Foreign currency translation adjustment                     11        (100)        (154)        (481)
                                                          --------     -------     --------     --------
  Comprehensive income                                    $ 12,406     $10,288     $ 36,179     $ 27,028
                                                          ========     =======     ========     ========

Weighted average common and common equivalent
   shares outstanding:
      Basic                                                 63,966      57,084       60,324       56,966
                                                          --------     -------     --------     --------
      Diluted                                               67,271      61,456       64,619       60,974
                                                          ========     =======     ========     ========
  Earnings per common share:
      Basic                                               $   0.19     $  0.18     $   0.60     $   0.48
                                                          --------     -------     --------     --------
      Diluted                                             $   0.18     $  0.17     $   0.56     $   0.45
                                                          ========     =======     ========     ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       3
<PAGE>

   HANOVER COMPRESSOR COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                     (unaudited) (in thousands of dollars)
<TABLE>
<CAPTION>

                                                                            Nine Months
                                                                        Ended September 30,
                                                                      ---------------------
                                                                         2000       1999
                                                                      ---------    --------
                                                                      (Restated)
<S>                                                                 <C>            <C>
 Cash flows from operating activities:
  Net income                                                          $  36,333    $  27,509
  Adjustments:
    Depreciation and amortization                                        36,830       28,536
    Amortization of debt issuance costs and debt discount                   479          725
    Bad debt expense                                                        840          723
    Gain on sale of ownership interests and property,
     plant and equipment                                                 (8,708)      (4,799)
    Equity in income of nonconsolidated affiliates                       (1,953)        (647)
    Deferred income taxes                                                 5,998       10,248
    Changes in assets and liabilities excluding the impact
     of business acquisitions:
      Accounts receivable                                               (28,014)     (16,995)
      Inventory                                                         (34,814)      (1,434)
      Costs and estimated earnings in excess of billings on
       uncompleted contracts                                            (10,218)         (21)
      Accounts payable and other liabilities                             25,171        2,317
      Other current assets                                               (4,442)       2,826
      Other                                                               2,749       (7,561)
                                                                      ---------    ---------
 Net cash provided by operating activities                               20,251       41,427
                                                                      ---------    ---------
 Cash flows from investing activities:
  Cash used for business acquisitions, net                             (174,827)     (35,312)
  Capital expenditures                                                 (207,827)    (200,752)
  Deferred lease transaction costs                                       (2,660)
   Investment in unconsolidated subsidiaries                             (8,720)      (4,906)
  Cash returned from unconsolidated subsidiaries                              -        8,000
  Proceeds from sale of property, plant and equipment                   218,660      220,584
                                                                      ---------    ---------
 Net cash used in investing activities                                 (175,374)     (12,386)
                                                                      ---------    ---------
Cash flows from financing activities:
  Net borrowings (repayment) on revolving credit facility               102,900      (25,000)
  Repayments of shareholder notes                                         1,669        1,488
  Issuance of common stock, net                                          59,400            -
  Proceeds from warrant conversions and stock option exercises            2,774          330
  Repayment of long-term debt                                            (4,290)      (8,194)
                                                                      ---------    ---------
 Net cash provided by (used in)  financing activities                   162,453      (31,376)
                                                                      ---------    ---------
 Effect of exchange rate changes on cash and equivalents                    (44)         (78)
                                                                      ---------    ---------
 Net increase in cash and cash equivalents                                7,286       (2,413)
 Cash and cash equivalents at beginning of period                         5,756       11,503
                                                                      ---------    ---------
 Cash and cash equivalents at end of period                           $  13,042    $   9,090
                                                                     =========     =========
</TABLE>

                                       4
<PAGE>

<TABLE>
<S>                                                               <C>         <C>
 Supplemental disclosure of cash flow information:
    Common stock issued in exchange for note
     receivable                                                   $                $   753
    Property and ownership interests sold in exchange for
     note receivable                                              $  2,783         $ 3,480
Acquisitions of businesses:
    Property, plant and equipment acquired                        $190,521         $39,105
    Other assets acquired                                         $199,682         $11,311
    Liabilities assumed                                           $ 60,343         $ 1,562
    Deferred taxes                                                $ 15,167         $10,242
    Common and treasury stock issued                              $139,866         $ 3,300
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                       5
<PAGE>

                           HANOVER COMPRESSOR COMPANY
              Notes to Condensed Consolidated Financial Statements


1.  BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements of
Hanover Compressor Company (the "Company") included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules and regulations of the Securities and Exchange
Commission.  Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is the opinion of
management that the information furnished includes all adjustments, consisting
only of normal recurring adjustments, which are necessary to present fairly the
financial position, results of operations, and cash flows of the Company for the
periods indicated.  The financial statement information included herein should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.  These interim results are not necessarily indicative of
results for a full year.

     In December 1999, the Company issued $86,250,000 of unsecured 7.25%
Mandatorily Redeemable Convertible Preferred Securities (the "Preferred
Securities") through Hanover Compressor Capital Trust, a wholly owned finance
subsidiary of the Company.  The Company has fully and unconditionally guaranteed
the Preferred Securities.

STOCK SPLIT

     In June 2000, the Company completed a 2 for 1 stock split effected in the
form of a 100% stock dividend. All common stock, additional paid-in capital and
earnings per common share information has been restated for all periods
presented to reflect this stock split.

STOCK OFFERING

     In May 2000, the Company completed a private placement of 2 million newly
issued shares of restricted common stock to an institutional investor.

EARNINGS PER COMMON SHARE

     Basic earnings per common share is computed using the weighted average
number of shares outstanding for the period. Diluted earnings per common share
is computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options and warrants to
purchase common stock. Included in diluted shares are common stock equivalents
relating to options of 3,927,000 and 3,290,000 and warrants of 368,000 and
718,000 for the nine months ended September 30, 2000 and 1999, respectively. The
mandatorily redeemable convertible preferred securities were excluded from the
diluted shares for all periods presented because they were antidilutive.

RECLASSIFICATIONS

     Certain amounts in the prior periods financial statements have been
reclassified to conform to the 2000 financial statement classification. These
reclassifications have no impact on net income.

2.  BUSINESS COMBINATIONS

     In September 2000, the company purchased the Dresser-Rand Company's
compression services division for $177 million, including approximately $1.2
million of acquisition costs. Under the terms of the agreement, $95 million of
the purchase price was paid in cash with the balance being paid through the
issuance to Ingersoll-Rand of approximately 2,920,000 shares of the Company's
newly issued restricted common stock. The estimated fair value of the stock
issued is $80.8 million, based on the quoted market price for the Company's
common stock reduced by a discount due to the restrictions on the stock's
marketability. The discount applied was based on an appraisal obtained from an
investment bank. The acquisition was accounted for under the purchase method of
accounting and resulted in the recognition of approximately $18 million in
goodwill.

     In July 2000, the Company completed its acquisition of Stewart and
Stevenson Services' natural gas compressor assets for approximately $45 million
in cash and $13 million in notes payable. The acquisition was accounted for
under the purchase method of accounting.

     In June 2000, the Company purchased the stock of Applied Processing
Solutions, Inc. ("APSI") for approximately 2,300,000 restricted shares of
Hanover common stock and assumption of APSI's outstanding debt which was repaid.
The total

                                       6
<PAGE>

value of the stock and debt was approximately $74 million. The acquisition was
accounted for under the purchase method of accounting and resulted in the
recognition of approximately $52.1 million in goodwill.

The results of operations for all acquired businesses have been included in the
statement of income from their respective acquisition dates. The pro forma
information set forth below assumes that the acquisitions completed in 2000 and
1999 are accounted for as if the purchases had occurred at the beginning of
1999. The pro forma information is presented for informational purposes only and
is not necessarily indicative of the results of operations that would have been
achieved had the acquisitions been consummated at that time (in thousands,
except per share amounts):

                                      Nine Months Ended September 30,
                                      -------------------------------
                                           2000          1999
                                          --------     --------
                                         (unaudited)  (unaudited)
                                          (restated)
Revenue                                   $456,288     $415,681
Net Income                                  36,854       34,821
Earnings per common share - basic         $   0.59     $   0.56
Earnings per common share - diluted           0.55         0.53

3.  INVENTORIES

     Inventory consisted of the following amounts (in thousands):

                                September 30,   December 31,
                                    2000           1999
                                   -------        -------
                                 (restated)
     Parts and supplies           $ 92,116        $44,058
     Work in progress               44,206         18,677
     Finished goods                  6,800          3,827
                                   -------        -------
                                  $143,122        $66,562
                                  ========        =======

4.  GAINS ON SALES OF OTHER ASSETS AND OTHER REVENUES

     In June 2000, the Company sold a 25 percent undivided ownership interest in
a power generation plant owned by the Company to a third party for $5 million.
The transaction resulted in a gain on sale of approximately $1.3 million which
was recorded in Gain on Sale of Assets in the condensed consolidated statement
of income and comprehensive income. Also in June 2000, the Company sold 50% of
the common stock of its wholly owned Venezuelan subsidiary, Servicompressores,
to a third party for approximately $3.1 million. The sale price was paid
$350,000 in cash and approximately $2.8 million in a note receivable from the
purchaser. The resulting gain of approximately $2.1 million was recorded in
Other Revenues in the condensed consolidated statement of income and
comprehensive income.

5.  SALES AND LEASE BACK OF EQUIPMENT

     In March 2000, the Company completed a $200 million 5-year sale and lease
back of certain compression equipment (the "Equipment Lease"). Under the
agreement, the Company received $100 million proceeds from the sale of
compression equipment at closing and may sell an additional $100 million of
compression equipment during the next twelve months. In August 2000, the Company
completed the second half of the Equipment Lease and received an additional $100
million for the sale of additional compression equipment. In June 1999 and in
July 1998 the Company completed two other separate $200 million sale and lease
back transactions of certain compression equipment. The Company has substantial
residual value guarantees under all the lease agreements totalling approximatley
$495 million. Total deferred gains on these transactions totaled approximately
$139 million. The lease agreements call for variable quarterly payments that
fluctuate with the London Interbank Borrowing Rate. The following future minimum
lease payments are due under the leasing arrangements exclusive of any guarantee
payments (in thousands): 2000 -- $12,000; 2001 -- $49,300; 2002 -- $50,600;
2003 -- $42,200; 2004 -- $25,300; 2005 -- $4,200.

     In July 1998 and in connection with the 1998 leasing transaction, the
Company entered into two-year swap transactions to manage lease rental exposure
with notional amounts of $75,000,000 and $125,000,000 and strike rates of 5.51%
and 5.56%, respectively. The differential paid or received on the swap
transactions is recognized as an adjustment to leasing expense. The counterparty
to this contractual arrangement is a major financial institution with which the
Company also has other financial relationships. The Company is exposed to credit
loss in the event of nonperformance by this counterparty. However, the

                                       7
<PAGE>

Company does not anticipate nonperformance by this party and no material loss
would be expected from their nonperformance. The fair market value of these
interest rate swaps is based on market quotes and is approximately $2.1 million
at September 30, 2000.

6.  COMMITMENTS AND CONTINGENCIES

     In the ordinary course of business the Company is involved in various
pending or threatened legal actions. While management is unable to predict the
ultimate outcome of these actions, it believes that any ultimate liability
arising from these actions will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.

7.  REPORTABLE SEGMENTS

     The Company manages its business segments primarily on the type of product
or service provided. The Company has four principal reportable segments: Rentals
- Domestic, Rentals - International, Compressor Fabrication and Production and
Processing Equipment Fabrication. The Rental segments provide natural gas
compression rental and maintenance services to meet specific customer
requirements. The Compressor Fabrication segment involves the design,
fabrication and sale of natural gas compression units to meet unique customer
specifications. The Production and Processing Equipment Fabrication segment
designs, fabricates and sells equipment utilized in the production of crude oil
and natural gas.

     The Company evaluates the performance of its segments based on segment
gross profit.  Segment gross profit for each segment includes direct operating
expenses.  Costs excluded from segment gross profit include selling, general and
administrative, depreciation and amortization, leasing, interest and income
taxes.  Amounts defined as "Other" include sales of property, plant and
equipment, results of other insignificant operations, corporate related items
primarily related to cash management activities and parts and service operations
which are not separately managed.  Revenues include sales to external customers
and intersegment sales.  Intersegment sales are accounted for at cost, except
for compression fabrication equipment revenue which is accounted for at arms
length rates, and are eliminated in consolidation.  Identifiable assets are
tangible and intangible assets that are identified with the operations of a
particular reportable segment, or which are allocated when used jointly.

                                       8
<PAGE>

     The following table presents sales and other financial information by
reportable segment for the three months ended September 30, 2000 and 1999 (in
thousands).
<TABLE>
<CAPTION>

                                                                               PRODUCTION
                                 DOMESTIC    INTERNATIONAL      COMPRESSOR      EQUIPMENT
                                 RENTALS       RENTALS          FABRICATION    FABRICATION   OTHER    ELIMINATIONS  CONSOLIDATED
<S>                             <C>          <C>              <C>              <C>           <C>      <C>           <C>
(Restated)
September 30, 2000:
Revenues from
 external customers               $ 45,533      $ 20,776           $ 26,428       $25,634   $ 30,589            -     $  148,960
Intersegment sales                       -           300             21,187                    3,336     $(24,823)             -
                                  --------      --------           --------       -------   ----------   --------     ----------
  Total revenues                    45,533        21,076             47,615        25,634     33,925      (24,823)       148,960

Gross Profit                        29,550        13,496              3,973         5,088     12,638            -         64,745
Identifiable assets                684,936       174,027            278,290        92,336     37,079            -      1,266,668

September 30, 1999:
Revenues from
 external customers               $ 35,777      $ 14,265           $ 16,493       $ 7,733   $ 13,001            -     $   87,269
Intersegment sales                       -           300             14,194           856      1,412     $(16,762)             -
                                  --------      --------           --------       -------   --------   ----------     ----------
  Total revenues                    35,777        14,565             30,687         8,589     14,413      (16,762)        87,269

Gross Profit                        23,665        10,149              2,708         2,006      4,845           -          43,373
</TABLE>

The following table presents sales and other financial information by reportable
segment for the nine months ended September 30, 2000 and 1999 (in thousands).

<TABLE>
<CAPTION>
                                                                               PRODUCTION
                                 DOMESTIC    INTERNATIONAL      COMPRESSOR      EQUIPMENT
                                 RENTALS       RENTALS          FABRICATION    FABRICATION   OTHER    ELIMINATIONS  CONSOLIDATED
<S>                             <C>          <C>              <C>              <C>           <C>      <C>           <C>
(Restated)
September 30, 2000:
Revenues from
 external customers                $122,761     $57,449            $ 55,599       $46,745     $74,047            -     $356,601
Intersegment sales                        -         900              73,490         1,747      24,632    $(100,769)           -
                                   --------     -------            --------       -------     -------    ---------     --------
  Total revenues                    122,761      58,349             129,089        48,492      98,679     (100,769)     356,601

Gross Profit                         80,592      37,514               9,270         9,781      31,845            -      169,002

September 30, 1999:
Revenues from
 external customers                $ 98,514     $39,235            $ 35,441       $21,177     $33,471            -     $227,838
Intersegment sales                        -         900              45,256         2,990      17,955    $ (67,101)           -
                                   --------     -------            --------       -------     -------    ---------     --------
  Total revenues                     98,514      40,135              80,697        24,167      51,426      (67,101)     227,838

Gross Profit                         66,119      26,176               6,339         5,513      14,854            -      119,001
</TABLE>

                                       9
<PAGE>

8.  SUBSEQUENT EVENTS

     In October 2000, the Company completed a $176.5 million sale and lease back
of certain compression equipment. Under the agreement, the Company received
$176.5 million proceeds from the sale of compression equipment. Under the
agreement, the equipment was sold and leased back by the Company for a 5 year
period and will continue to be deployed by the Company under its normal
operating procedures. At any time, the Company has the option to repurchase the
equipment at fair market value.

     In July 2000, the Company and OEC Compression Corporation ("OEC") signed a
definitive merger agreement pursuant to which the Company will acquire OEC in an
all-stock transaction. The transaction is subject to approval by OEC
shareholders and is expected to close in the first quarter of 2001.


9.  RESTATEMENT

     The transactions involved in the restatement, which are detailed further
below are: (i) the Cawthorne Channel project in Nigeria initially conducted
through the Hampton Roads joint venture; and (ii) the Company's acquisition of
two compressors in a non-monetary exchange transaction. The impact of the
restatement is summarized in the table below:

                 For the Three Months Ended September 30, 2000

<TABLE>
<CAPTION>
                                                                                            Cawthorne
                                                                                             Channel       Acquisition
                                                                                           Project in          of
                                                                                            Nigeria /      Compressors
                                                                                             Hampton           In
                                                                                           Roads Joint    Non-Monetary
                                                                               As Filed      Venture        Exchange       Restated
                                                                               --------    -----------    ------------     --------
<S>                                                                            <C>        <C>             <C>              <C>
Revenues:
  Rentals                                                                      $ 66,309                                    $ 66,309
  Parts, service and used equipment                                              28,743                                      28,743
  Compressor fabrication                                                         30,975       $ (4,547)                      26,428
  Production and processing equipment fabrication                                32,759         (7,125)                      25,634
  Gain (loss) on sale of other assets                                             1,572                       $ (1,949)       (377)
  Other                                                                           2,223                                       2,223
                                                                               --------       --------        --------     --------
    Total revenues                                                              162,581        (11,672)       $ (1,949)     148,960
                                                                               --------       --------        --------     --------
 Expenses:
  Rentals                                                                        23,263                                      23,263
  Parts, service and used equipment                                              17,951                                      17,951
  Compressor fabrication                                                         26,208         (3,753)                      22,455
  Production and processing equipment fabrication                                25,520         (4,974)                      20,546
  Selling, general and administrative                                            14,467                                      14,467
  Depreciation and amortization                                                  14,179                                      14,179
  Lease expense                                                                  11,460                                      11,460
  Interest expense                                                                2,925            (94)                       2,831
  Distributions on mandatorily redeemable convertible preferred
   Securities                                                                     1,593                                       1,593
  Other
                                                                               --------       --------         --------    --------
    Total expenses                                                              137,566         (8,821)                     128,745
                                                                               --------       --------         --------    --------
Income before income taxes                                                       25,015         (2,851)         (1,949)      20,215
Provision for income taxes                                                        9,605         (1,061)           (724)       7,820
                                                                               --------       --------         --------    --------
Net income                                                                     $ 15,410       $ (1,790)        $(1,225)    $ 12,395
                                                                               ========       ========         ========    ========
Earnings per common share:
  Basic                                                                           $0.24                                       $0.19
  Diluted                                                                         $0.23                                       $0.18
</TABLE>

                                      10
<PAGE>

                  For the Nine Months Ended September 30, 2000

<TABLE>
<CAPTION>

                                                                                            Cawthorne
                                                                                             Channel       Acquisition
                                                                                           Project in          of
                                                                                            Nigeria /      Compressors
                                                                                             Hampton           In
                                                                                           Roads Joint    Non-Monetary
                                                                               As Filed      Venture        Exchange       Restated
                                                                               --------    -----------    ------------     --------
<S>                                                                            <C>        <C>             <C>              <C>
Revenues:
  Rentals                                                                       $180,210                                   $180,210
  Parts, service and used equipment                                               64,293                                     64,293
  Compressor fabrication                                                          60,146       $ (4,547)                     55,599
  Production and processing equipment fabrication                                 53,870         (7,125)                     46,745
  Gain on sale of other assets                                                     4,172                        $(1,949)      2,223
  Other                                                                            7,531                                      7,531
                                                                                --------       --------         --------   --------
    Total revenues                                                               370,222        (11,672)         (1,949)    356,601
                                                                                --------       --------         --------   --------
 Expenses:
  Rentals                                                                         62,104                                     62,104
  Parts, service and used equipment                                               42,202                                     42,202
  Compressor fabrication                                                          50,082         (3,753)                     46,329
  Production and processing equipment fabrication                                 41,938         (4,974)                     36,964
  Selling, general and administrative                                             34,481                                     34,481
  Depreciation and amortization                                                   36,830                                     36,830
  Lease expense                                                                   29,596                                     29,596
  Interest expense                                                                 5,560            (94)                      5,466
  Distributions on mandatorily redeemable convertible preferred
   Securities                                                                      4,776                                      4,776
  Other
                                                                                --------       --------         --------   --------
    Total expenses                                                               307,569         (8,821)                    298,748
                                                                                --------       --------         --------   --------
Income before income taxes                                                        62,653         (2,851)         (1,949)     57,853
Provision for income taxes                                                        23,305         (1,061)           (724)     21,520
                                                                                --------       --------         --------   --------
Net income                                                                      $ 39,348       $ (1,790)        $(1,225)   $ 36,333
                                                                                ========       ========         ========   ========
Earnings per common share:
  Basic                                                                         $   0.65                                   $   0.60
  Diluted                                                                       $   0.61                                   $   0.56
</TABLE>

Cawthorne Channel Project in Nigeria / Hampton Roads Joint Venture

     Cawthorne Channel is a project to build, own and operate barge-mounted gas
compression and gas processing facilities to be stationed off the coast of
Nigeria in performance of a contract between Global Energy and Refining Ltd
("Global") and Shell Petroleum Development Company of Nigeria Limited, the
Nigerian operating unit of The Royal/Dutch Shell Group ("Shell").  The Company
entered into a contract with Global in June 1999 to fabricate and lease the
facilities to Global to fulfill the Shell contract.  Subsequently, the Company
acquired a 10% interest in Global.

     In September 2000, a joint venture known as Hampton Roads Shipping
Investors II, L.L.C. ("Hampton Roads") was formed to own the gas processing
facilities and lease them to Global. The Company purchased a 25% interest in
Hampton Roads for $1,250,000 and entered into a turn-key construction contract
with Hampton Roads to construct the facilities. The equipment, which had a sale
price of $51 million, was to be used pursuant to a 10-year contract on behalf of
Shell to commence September 30, 2001. In the first quarter of 2001, the scope of
the project was reduced to $43 million and the contract term was extended to 15
years with a projected start date of September 2003. As the project has not yet
started, the Company has recorded no income attributable to its equity ownership
in the venture.

     The Company is constructing the equipment to be used in the gas compression
and processing project with Shell under the turn-key construction contract with
Hampton Roads and had accounted for this activity under the percentage of
completion method of accounting. Based upon the evaluation of new information
related to these transactions, the Company determined that it should not have
recognized revenue for this activity during these periods. The restatement
treats the project as if the Company had owned 100% of the project since
inception and reverses the revenue and related costs recognized under the
percentage of completion method.

    In February 2002, the Company purchased the 75% interest in Hampton Roads
that it did not own. The Company now owns 100% of the venture and will recognize
the rental revenues pursuant to its contract with Global once startup begins.

Acquisition of Compressors In Non-Monetary Exchange

     In the third quarter of 2000, the Company entered into an acquisition of
two compressors in a non-monetary exchange transaction with an independent oil
and gas producer. In the transaction, the Company acquired the two compressors
in exchange

                                      11
<PAGE>

for certain gas reservoir rights that the Company had obtained in settlement of
a payment default by one of its customers. The Company accounted for the
transaction as an exchange of non-monetary assets and recorded $2.2 million in
revenue and pre-tax income in 2000. Based upon the evaluation of new information
related to this transaction, the Company determined that it should not have
recognized a gain on this transaction.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Special note regarding forward-looking statements

     Certain matters discussed in this document are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995.  These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes", "anticipates",
"expects", "estimates" or words of similar import.  Similarly, statements that
describe the Company's future plans, objectives or goals are also forward-
looking statements.  Such forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those anticipated as of the date of this report.  The risks and
uncertainties include (1) the loss of market share through competition, (2) the
introduction of competing technologies by other companies, (3) a prolonged
substantial reduction in oil and gas prices which would cause a decline in the
demand for the Company's compression and oil and gas production equipment, (4)
new governmental safety, health and environmental regulations which could
require significant capital expenditures by the Company, (5) inability to
successfully integrate businesses acquired; and (6) changes in economic or
political conditions in the countries in which the Company operates. The
forward-looking statements included herein are only made as of the date of this
report and the Company undertakes no obligation to publicly update such forward-
looking statements to reflect subsequent events or circumstances.

GENERAL

     The Company is a market leader in full-service natural gas compression and
a leading provider of contract natural gas handling service, fabrication and
equipment. The Company provides this equipment on a rental, contract
compression, maintenance and acquisition leaseback basis. Founded in 1990 and
publicly held since 1997, the Company's customers include premier independent
and major natural gas production, processing and transportation companies
throughout the Western Hemisphere. As of September 30, 2000, the Company
operated a fleet of 4,805 compression rental units with an aggregate capacity of
approximately 2,098,000 horsepower.

     In September 2000, the Company acquired the Dresser-Rand Company's
compression services division for $177 million. In July 2000, the Company
acquired Stewart & Stevenson Services' natural gas compressor assets for
approximately $58 million in cash and notes. In June 2000, the Company acquired
Applied Process Solutions, Inc. ("APSI") for approximately 2,300,000 newly
issued shares of the Company's common stock. These acquisitions were included in
the results of operations from their respective acquisition dates. In addition,
the Company completed a 2 for 1 stock split effected in the form of a 100% stock
dividend in June 2000. Accordingly, common stock, additional paid-in capital and
all earnings per share information have been restated for all periods presented.


RESULTS OF OPERATIONS

The following discussion has been updated to reflect the restated results of
operations, see Note 9 in "Notes to Consolidated Financial Statements" for
details regarding the restatement.

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999

REVENUES

     The Company's total revenues increased by $61.7 million, or 71%, to $149.0
million during the three months ended September 30, 2000 from $87.3 million
during the three months ended September 30, 1999. The increase resulted
primarily from growth of the Company's natural gas compressor rental fleet as
well as due to recent acquisitions.

     Revenues from rentals increased by $16.3 million, or 33%, to $66.3 million
during the three months ended September 30, 2000 from $50.0 million during the
three months ended September 30, 1999. Domestic revenues from rentals increased
by $9.7 million, or 27%, to $45.5 million during the three months ended
September 30, 2000 from $35.8 million during the three months ended September
30, 1999.  International rental revenues increased by $6.6 million, or 46%, to
$20.8 million during the three months ended September 30, 2000 from $14.2
million during the three months ended September 30, 1999.  The increase in both
domestic and international rental revenue resulted from expansion of the
Company's rental fleet.  At September 30, 2000, the compressor rental fleet
consisted of approximately 2,098,000 horsepower, a 56% increase over the
1,345,000 horsepower in the rental fleet at September 30, 1999.  Domestic
horsepower in the rental fleet increased by 55% to 1,714,000 horsepower at

                                      12
<PAGE>

September 30, 2000 from approximately 1,104,000 horsepower at September 30,
1999.  In addition, international horsepower increased by 59% to 384,000
horsepower at September 30, 2000 from approximately 241,000 horsepower at
September 30, 1999.

     Revenue from parts, service and used equipment increased by $16.3 million,
or 132% to $28.7 million during the three months ended September 30, 2000 from
$12.4 million during the three months ended September 30, 1999. This increase is
due primarily to increased marketing focus and partially from expansion of
business activities through recent acquisitions. Revenues from compressor
fabrication increased by $9.9 million, or 60%, to $26.4 million during the three
months ended September 30, 2000 from $16.5 million during the three months ended
September 30, 1999. During the three months ended September 30, 2000, an
aggregate of approximately 81,000 horsepower of compression equipment was
fabricated compared to approximately 89,000 horsepower fabricated during the
three months ended September 30, 1999. During the three months ended September
30, 2000, market conditions provided a premium price per horsepower of
compression equipment compared to the three months ended September 30, 1999.

     Revenues from production and processing equipment fabrication increased by
$17.9 million, or 231%, to $25.6 million during the three months ended September
30, 2000 from $7.7 million during the three months ended September 30, 1999. The
increase is due primarily to the acquisition of APSI during June, 2000.

     Other revenues during the three months ended September 30, 2000 amounted to
$2.2 million compared to $.1 million during the three months ended September 30,
1999, an increase of $2.1 million.

EXPENSES

     Operating expenses of the rental segments increased by $7.1 million, or
43%, to $23.3 million during the three months ended September 30, 2000 from
$16.2 million during the three months ended September 30, 1999. The increase
resulted primarily from the corresponding 33% increase in revenues from rentals
over the corresponding period in 1999. The gross profit percentage from rentals
was 65% during the three months ended September 30, 2000 and 68% during the
three months ended September 30, 1999. Operating expenses of parts, service and
used equipment increased by $9.8 million, or 120% to $18.0 million, which
relates to the 132% increase in parts, service and used equipment revenue. The
gross profit margin from parts, service and used equipment was 38% during the
three months ended September 30, 2000 compared to 34% during the three months
ended September 30, 1999. Operating expenses of compressor fabrication increased
by $8.7 million, or 63%, to $22.5 million during the three months ended
September 30, 2000 from $13.8 million during the three months ended September
30, 1999 commensurate with the corresponding increase in compressor fabrication
revenue. The gross profit margin on compression fabrication was 15% during the
three months ended September 30, 2000 and 16% during the three months ended
September 30, 1999. The operating expenses attributable to production and
processing equipment fabrication increased by $14.8 million, or 259%, to $20.5
million during the three months ended September 30, 2000 from $5.7 million
during the three months ended September 30, 1999. The gross profit margin
attributable to production and processing equipment fabrication was 20% during
the three months ended September 30, 2000 and was 26% during the three months
ended September 30, 1999. The decrease in gross profit margin for production and
processing equipment fabrication was attributable to the acquisition of APSI, in
June 2000, which has lower gross margins than the Company has historically
experienced.

     Selling, general and administrative expenses increased $5.6 million, or
63%, to $14.5 million during the three months ended September 30, 2000 from $8.9
million during the three months ended September 30, 1999.  The increase is
attributable to increased personnel and other administrative and selling
expenses associated with increased activity in the Company's rentals, parts and
service and compressor equipment fabrication business segments as described
above, as well as recent acquisitions.

     The Company believes that earnings before interest, leasing expense,
distributions on mandatorily redeemable convertible preferred securities, income
taxes, depreciation and amortization (EBITDA) is a standard measure of financial
performance used for valuing companies in the compression industry. EBITDA is a
useful common yardstick as it measures the capacity of companies to generate
cash without reference to how they are capitalized, how they account for
significant non-cash charges for depreciation and amortization associated with
assets used in the business (the bulk of which are long-lived assets in the
compression industry), or what their tax attributes may be. Additionally, since
EBITDA is a basic source of funds not only for growth but to service
indebtedness, lenders in both the private and public debt markets use EBITDA as
a primary determinant of borrowing capacity. EBITDA for the three months ended
September 30, 2000 increased 46% to $50.3 million from $34.5 million for the
three months ended September 30, 1999 primarily due to the increase in the
Company's rental revenue for reasons previously discussed. EBITDA should not be
considered in isolation from, or a substitute for, net income, cash flows from
operating activities or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles.

     Depreciation and amortization increased by $5.1 million to $14.2 million
during the three months ended September 30, 2000 compared to $9.1 million during
the three months ended September 30, 1999.  The increase in depreciation was due
to the additions to the rental fleet which were partially offset by the sale of
compressor equipment in the Equipment Leases (As defined

                                      13
<PAGE>

in "LIQUIDITY AND CAPITAL RESOURCES"). The increase in amortization was due to
the goodwill recorded from business acquisitions completed during 2000.

     The Company incurred leasing expense of  $11.5 million during the three
months ended September 30, 2000 compared to $7.1 million during the three months
ended September 30, 1999 resulting from the Equipment Leases entered into in
July 1998, June 1999 and March 2000.

     Interest expense increased by $1.0 million to $2.8 million during the three
months ended September 30, 2000 from $1.8 million for the three months ended
September 30, 1999. The increase in interest expense was due to borrowings from
the Bank Credit Agreement to fund the business acquisitions as discussed above.

INCOME TAXES

     The provision for income taxes increased by $1.7 million, or 28%, to $7.8
million during the three months ended September 30, 2000 from $6.1 million
during the three months ended September 30, 1999.  The increase resulted
primarily from the corresponding increase in income before income taxes.  The
average effective income tax rates during the three months ended September 30,
2000 and 1999 were 38.7% and 37.0%, respectively. The increase in the effective
income tax rate is primarily due to the impact of the Dresser-Rand acquisition
on the Company's worldwide tax position.

NET INCOME

     Net income increased $2.0 million, or 19%, to $12.4 million during the
three months ended September 30, 2000 from $10.4 million during the three months
ended September 30, 1999 for the reasons discussed above.


NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999

REVENUES

     The Company's total revenues increased by $128.8 million, or 57%, to $356.6
million during the nine months ended September 30, 2000 from $227.8 million
during the nine months ended September 30, 1999. The increase resulted primarily
from growth of the Company's natural gas compressor rental fleet as well as due
to recent acquisitions.

     Revenues from rentals increased by $42.5 million, or 31%, to $180.2 million
during the nine months ended September 30, 2000 from $137.7 million during the
nine months ended September 30, 1999.

     Domestic revenues from rentals increased by $24.3 million, or 25%, to
$122.8 million during the nine months ended September 30, 2000 from $98.5
million during the nine months ended September 30, 1999. International rental
revenues increased by $18.2 million, or 46%, to $57.4 million during the nine
months ended September 30, 2000 from $39.2 million during the nine months ended
September 30, 1999. The increase in both domestic and international rental
revenue resulted from expansion of the Company's rental fleet.

     Revenue from parts, service and used equipment increased by $36.9 million,
or 135% to $64.3 million during the nine months ended September 30, 2000 from
$27.4 million during the nine months ended September 30, 1999. The increase is
due in part to increased marketing focus and through expansion of business
through recent acquisitions. Revenues from compressor fabrication increased by
$20.2 million, or 57%, to $55.6 million during the nine months ended September
30, 2000 from $35.4 million during the nine months ended September 30, 1999.
During the nine months ended September 30, 2000, an aggregate of approximately
246,000 horsepower of compression equipment was fabricated compared to
approximately 220,000 horsepower fabricated during the nine months ended
September 30, 1999. The increase in horsepower produced during the nine months
ended September 30, 2000 resulted from an increased demand for compression
equipment due to higher natural gas prices. In addition, during the nine months
ended September 30, 1999 a customer supplied its engines for a project which are
typically provided by the Company, which lowered revenues from third party sales
without reducing the amount of horsepower fabricated during that quarter.

     Revenues from production and processing equipment fabrication increased by
$25.6 million, or 121% to $46.7 million during the nine months ended September
30, 2000 from $21.2 million during the nine months ended September 30, 1999. The
increase is due primarily to the acquisition of APSI during June, 2000.

     The Company recognized gains on sales of other assets of $2.2 million
during the nine months ended September 30, 2000 compared to $3.9 million during
the nine months ended September 30, 1999.

                                      14
<PAGE>

     Other revenues during the nine months ended September 30, 2000 amounted to
$7.5 million compared to $2.1 million during the nine months ended September 30,
1999, an increase of $5.4 million. The increase is due primarily to the sale of
50% of the Company's ownership interest in a consolidated subsidiary for cash
and notes receivable resulting in a gain on disposition of approximately $2.1
million.

EXPENSES

     Operating expenses of the rental segments increased by $16.6 million, or
37%, to $62.1 million during the nine months ended September 30, 2000 from $45.5
million during the nine months ended September 30, 1999. The increase resulted
primarily from the corresponding 31% increase in revenues from rentals over the
corresponding period in 1999. The gross profit percentage from rentals was 66%
during the nine months ended September 30, 2000 and 67% during the nine months
ended September 30, 1999. Operating expenses of parts, service and used
equipment increased by $23.6 million, or 127% to $42.2 million from $18.6
million during the nine months ended September 30, 1999. The increase resulted
from the corresponding 135% increase in parts, service and used equipment
revenue. The gross profit margin from parts, service and used equipment was 34%
during the nine months ended September 30, 2000 and 32% during the nine months
ended September 30, 1999. Operating expenses of compressor fabrication increased
by $17.2 million, or 59%, to $46.3 million during the nine months ended
September 30, 2000 from $29.1 million during the nine months ended September 30,
1999 commensurate with the corresponding increase in compressor fabrication
revenue. The gross profit margin on compression fabrication was 17% during the
nine months ended September 30, 2000 and 18% during the nine months ended
September 30, 1999. The operating expenses attributable to production equipment
fabrication increased by $21.3 million, or 136%, to $37.0 million during the
nine months ended September 30, 2000 from $15.7 million during the nine months
ended September 30, 1999. The gross profit margin attributable to production and
processing equipment fabrication was 21% during the nine months ended September
30, 2000 and was 26% during the nine months ended September 30, 1999. The
decrease in gross profit margin for production and processing equipment
fabrication was attributable to the acquisition of APSI, in June 2000, which has
lower gross margins than the Company has historically experienced.

     Selling, general and administrative expenses increased $10.3 million, or
42%, to $34.5 million during the nine months ended September 30, 2000 from $24.2
million during the nine months ended September 30, 1999.  The increase is
attributable to increased personnel and other administrative and selling
expenses associated with increased activity in the Company's rentals, parts,
service and used equipment, and compressor equipment fabrication business
segments as described above as well as recent acquisitions.

     The Company believes that earnings before interest, leasing expense,
distributions on mandatorily redeemable convertible preferred securities, income
taxes, depreciation and amortization (EBITDA) is a standard measure of financial
performance used for valuing companies in the compression industry. EBITDA is a
useful common yardstick as it measures the capacity of companies to generate
cash without reference to how they are capitalized, how they account for
significant non-cash charges for depreciation and amortization associated with
assets used in the business (the bulk of which are long-lived assets in the
compression industry), or what their tax attributes may be. Additionally, since
EBITDA is a basic source of funds not only for growth but to service
indebtedness, lenders in both the private and public debt markets use EBITDA as
a primary determinant of borrowing capacity. EBITDA for the nine months ended
September 30, 2000 increased 42% to $134.5 million from $94.8 million for the
nine months ended September 30, 1999 primarily due to the increase in the
Company's rental revenue for reasons previously discussed.  EBITDA should not be
considered in isolation from, or a substitute for, net income, cash flows from
operating activities or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles.

     Depreciation and amortization increased by $8.3 million to $36.8 million
during the nine months ended September 30, 2000 compared to $28.5 million during
the nine months ended September 30, 1999.  The increase in depreciation was due
to the additions to the rental fleet which were partially offset by the sale of
compressor equipment in the Equipment Leases (As defined in "LIQUIDITY AND
CAPITAL RESOURCES"). The increase in amortization was due to the goodwill
recorded from business acquisitions completed during 2000.

     The Company incurred leasing expense of $29.6 million during the nine
months ended September 30, 2000 compared to $14.7 million during the nine months
ended September 30, 1999 resulting from the Equipment Leases entered into in
July 1998, June 1999 and March 2000.

     Interest expense decreased by $2.3 million to $5.5 million during the nine
months ended September 30, 2000 from $7.8 million for the nine months ended
September 30, 1999. The decrease in interest expense was due in part to
utilization of proceeds from the Equipment Lease proceeds and from the private
stock offering which were used to reduce indebtedness under the Bank Credit
Agreement.

                                      15
<PAGE>

INCOME TAXES

     The provision for income taxes increased by $5.4 million, or 33%, to $21.5
million during the nine months ended September 30, 2000 from $16.2 million
during the nine months ended September 30, 1999.  The increase resulted
primarily from the corresponding increase in income before income taxes.  The
average effective income tax rates during the nine months ended September 30,
2000 and 1999 were 37.2% and 37.0%, respectively.

NET INCOME

     Net income increased $8.8 million, or 32%, to $36.3 million during the nine
months ended September 30, 2000 from $27.5 million during the nine months ended
September 30, 1999 for the reasons discussed above.


LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash balance amounted to $13.0 million at September 30, 2000
compared to $5.8 million at December 31, 1999. Primary sources of cash during
the nine months ended September 30, 2000 were proceeds of $200 million from the
Equipment Leases, and approximately $102.9 million of borrowings under the
Company's credit facility and proceeds of $59.4 million from a private placement
of 2 million newly-issued shares of restricted common stock to an institutional
investor. Principal uses of cash during the nine months ended September 30, 2000
were capital expenditures and business acquisitions of $382.6 million.

     Working capital increased to $211.7 million at September 30, 2000 from
$108.0 million at December 31, 1999, primarily as a result of increases in
accounts receivable, inventories and costs in excess of billings. The increase
in the balances is due to an increased level of activity in the Company's lines
of business over 1999 as well as from recent acquisitions. These increases were
partially offset by an increase in current liabilities.

     The amounts invested in property, plant and equipment during 2000 was
$207.8 million which resulted in the addition of approximately 753,000
horsepower to the rental fleet. At September 30, 2000, the rental fleet
consisted of 1,714,000 horsepower domestically and 384,000 horsepower in the
international rental fleet. Current plans are to spend approximately $100
million during the remainder of 2000, exclusive of any major acquisition, in
continued expansion of the rental fleet. In addition, the Company has entered
into a definitive agreement to acquire OEC Compression Corporation in an all
stock transaction. This transaction is expected to close in the first quarter of
2001. Historically, the Company has funded capital expenditures with a
combination of internally generated cash flow, borrowings under the revolving
credit facility, lease transactions and raising additional equity. As of
September 30, 2000 the Company has approximately $35 million of credit capacity
remaining on its $200 million Bank Credit Agreement (7.88% rate at September 30,
2000). In October 2000, the Company received $176.5 million proceeds from the
sale of compression equipment under an additional Equipment Lease. In order to
fund the estimated levels of 2000 capital expenditures, the Company anticipates
arranging additional sources of debt and/or equity during 2000.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities.  Subsequently, the FASB delayed
the effective date by one year.  In June 2000, the FASB issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
amending certain provisions of SFAS No. 133.  The statements are effective for
the Company beginning in 2001 with early adoption permitted.  SFAS No. 133, as
amended by SFAS No. 138, requires that all derivative instruments be recorded on
the balance sheet at their fair value.  Changes in fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending upon whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction.  The gains and losses on the
derivative instrument that are reported in other comprehensive income will be
reclassified as earnings in the periods in which earnings are impacted by the
hedged item.  The ineffective portion of all hedges will be recognized in
current-period earnings. Management does not believe the effect of adoption will
have a material effect on the Company's results of operations, cash flows or
financial position.

     In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in the
financial statements. The statement is effective for the Company's fourth
quarter of 2000 with early adoption encouraged. Management is currently
evaluating the effect SAB No. 101 implementation will have on the Company's
financial statements.

                                      16
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to interest rate and foreign currency risk.  The
Company periodically enters into interest rate swaps to manage its exposure to
fluctuations in interest rates.  At September 30, 2000, the fair market value of
these interest rate swaps is approximately $2.1 million.  The Company does not
use derivative financial instruments to mitigate foreign currency risk.


PART II. OTHER INFORMATION

Item 6:  Exhibits and reports on Form 8-K

(a)  Exhibits

10.50  Amendment No. 2 dated as of October 24, 2000, to Agreement and Plan of
       Merger by and among Hanover Compressor Company, APSI Acquisition
       Corporation and Applied Process Solutions, Inc. (1) [10.50]

10.51  Agreement and Plan of Merger dated as of July 13, 2000 by and among
       Hanover Compressor Company, Caddo Acquisition Corporation and OEC
       Compression Corporation. (1) [10.51]

10.52  Voting and Disposition Agreement dated as of July 13, 2000 by and among
       Hanover Compressor Company and the holders of common stock of OEC
       Compression Corporation named therein. (1) [10.52]

       (1)  Such exhibit previously filed as an exhibit to the Company's
            Quarterly Report on Form 10-Q for the third quarter of 2000, under
            the exhibit number indicated in brackets [],and incorporated by
            reference.

(b)   Reports submitted on Form 8-K:

(1)    A report on Form 8-K was filed on September 14, 2000, which reported
under the caption "Item 2--Acquisition or Disposition of Assets" that Hanover
Compressor Company had completed its acquisition of the compression services
division of Dresser-Rand Company. The report also reported under "Item 7--
Financial Statements and Exhibits" that it was impracticable to provide the
audited historical financial statements of the business acquired and that the
required information would be filed no later than 60 days after the date of the
report.

(2)    A report on Form 8-K was filed on November 9, 2000, which reported under
the caption "Item 5--Other Events" Hanover Compressor Company's financial
results for the third quarter of 2000. This report included a consolidated
statement of income for the company for the three- and nine-month periods ended
September 30, 2000 and 1999.

(3)    A report on Form 8-K was filed on November 9, 2000, which reported under
the caption "Item 5--Other Events" that Hanover Compressor Company believes that
the Wall Street consensus estimates of the company's earnings of $.89 per share
for 2000 and $.28 per share for the fourth quarter of 2000 are realizable.

(4)    A report on Form 8-K/A was filed on November 13, 2000, which reported
under the caption "Item 7 - Financial Statements and Exhibits" the audited
historical financial statements of the compression services division of Dresser-
Rand Company acquired by the Company in August 2000 and the pro forma financial
statements for the business acquired.

All other items specified by Part II of this report are inapplicable and have
been omitted.

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

HANOVER COMPRESSOR COMPANY

Date: April 15, 2002

By:

/s/ Michael J. McGhan
----------------------------------------
Michael J. McGhan
President and Chief Executive Officer


Date: April 15, 2002

By:

/s/ John E. Jackson
----------------------------------------
John E. Jackson
Chief Financial Officer

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