<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 JUNE 30, 2001

    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 August 13, 2001 there were 70,418,974 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 June 30, 2001 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 June 30, 2001 was as follows: (i) a
decrease in revenues of $17.7 million, from $263.1 million to $245.4 million;
(ii) a decrease in income before taxes of $3.5 million, from $37.7 million to
$34.2 million; (iii) a decrease in net income of $2.2 million, from $23.4
million to $21.2 million; and (iv) a decrease in earnings per common share of
$0.03 basic and $0.03 diluted. The net effect of this restatement for the six
months ended June 30, 2001 was as follows: (i) a decrease in revenues of $7.6
million, from $482.8 million to $475.2 million; (ii) a decrease in income before
taxes of $1.6 million, from $68.0 million to $66.4 million; (iii) a decrease in
net income of $1.0 million, from $42.0 million to $41.0 million; and (iv) a
decrease in earnings per common share of $0.01 basic and $0.01 diluted. For
additional detail of the transactions involved in the restatement and their
impact on the Consolidated Financial Statements see Note 13 of the Notes to
Condensed Consolidated Financial Statements.

                                       2
<PAGE>

                          HANOVER COMPRESSOR COMPANY
                     CONDENSED CONSOLIDATED BALANCE SHEET
                                  (UNAUDITED)
       (IN THOUSANDS OF DOLLARS, EXCEPT FOR PAR VALUE AND SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                 June 30,      December 31,
                                                                                                   2001            2000
                                                                                               -------------  -------------
                                            ASSETS                                               (Restated)       (Restated)
<S>                                                                                            <C>            <C>
Current assets:
     Cash and cash equivalents...............................................................  $      33,284  $      45,484
     Accounts receivable trade, net..........................................................        237,299        223,022
     Inventory...............................................................................        205,190        145,442
     Costs and estimated earnings in excess of billings on uncompleted contracts.............         60,908         24,976
     Prepaid taxes...........................................................................         20,823         19,948
     Other current assets....................................................................         22,556         12,384
                                                                                               -------------  -------------
           Total current assets..............................................................        580,060        471,256

Property, plant and equipment, net...........................................................        797,923        573,596
Goodwill, net................................................................................        176,623        141,973
Intangible and other assets..................................................................         67,058         64,931
                                                                                               -------------  -------------
           Total assets......................................................................  $   1,621,664  $   1,251,756
                                                                                               =============  =============

                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current maturities of long-term debt....................................................  $       2,481  $       2,423
     Short-term notes payable................................................................                        10,073
     Accounts payable, trade.................................................................         78,538         88,651
     Accrued liabilities.....................................................................         57,758         46,705
     Advance billings........................................................................         44,723         32,292
     Billings on uncompleted contracts in excess of costs and estimated earnings.............         14,132          5,669
                                                                                               -------------  -------------
       Total current liabilities.............................................................        197,632        185,813

Long-term debt...............................................................................        268,763        110,935
Other liabilities............................................................................        140,756        132,895
Deferred income taxes........................................................................        125,897        103,405
                                                                                               -------------  -------------
           Total liabilities.................................................................        733,048        533,048
                                                                                               -------------  -------------

Commitments and contingencies (note 10)
Mandatorily redeemable convertible preferred securities......................................         86,250         86,250
Common stockholders' equity:
     Common stock, $.001 par value; 200,000,000 shares authorized; 70,398,974 and
       66,454,703 shares issued and outstanding, respectively................................             70             66
     Additional paid-in capital..............................................................        611,861        483,737
     Notes receivable - employee stockholders................................................         (1,499)        (1,531)
     Accumulated other comprehensive income (loss)...........................................            288           (457)
     Retained earnings.......................................................................        192,363        151,360
     Treasury stock - 75,739 common shares at cost...........................................           (717)          (717)
                                                                                               -------------  -------------
       Total common stockholders' equity.....................................................        802,366        632,458
                                                                                               -------------  -------------
           Total liabilities and common stockholders' equity.................................  $   1,621,664  $   1,251,756
                                                                                               =============  =============
</TABLE>

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

                                       3
<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               Six months
                                                                              ended June 30,            ended June 30,
                                                                         ------------------------  ------------------------
                                                                            2001          2000         2001         2000
                                                                         -----------  -----------  -----------  -----------
                                                                         (Restated)                (Restated)
<S>                                                                      <C>          <C>          <C>          <C>
Revenues and other:
       Rentals.........................................................  $    90,068  $    57,797  $   170,125  $   113,901
       Parts, service and used equipment...............................       50,025       24,234      100,359       35,550
       Compressor fabrication..........................................       57,839       14,986      112,490       29,171
       Production and processing equipment fabrication.................       43,785       15,186       85,397       21,111
       Equity in income of non-consolidated affiliates.................        1,313          476        2,063        1,498
       Other...........................................................        2,391        4,405        4,776        6,410
                                                                         -----------  -----------  -----------  -----------
                                                                             245,421      117,084      475,210      207,641
                                                                         -----------  -----------  -----------  -----------

Expenses:
       Rentals.........................................................       30,561       20,690       57,273       38,841
       Parts, service and used equipment...............................       34,203       16,045       64,043       24,251
       Compressor fabrication..........................................       48,733       12,483       94,989       23,874
       Production and processing equipment fabrication.................       34,210       11,935       67,978       16,418
       Selling, general and administrative.............................       23,645       10,899       44,381       20,014
       Depreciation and amortization...................................       19,581       12,292       36,984       22,651
       Leasing expense.................................................       15,639       10,060       30,927       18,136
       Interest expense................................................        3,069        1,005        6,055        2,635
       Distributions on mandatorily redeemable
         convertible preferred securities..............................        1,594        1,592        3,187        3,183

       Other...........................................................           15                     3,007
                                                                         -----------  -----------  -----------  -----------
                                                                             211,250       97,001      408,824      170,003
                                                                         -----------  -----------  -----------  -----------
Income before income taxes.............................................       34,171       20,083       66,386       37,638
Provision for income taxes.............................................       12,977        7,310       25,219       13,700
                                                                         -----------  -----------  -----------  -----------

Income before cumulative effect of accounting change...................       21,194       12,773       41,167       23,938
       Cumulative effect of accounting change for
         derivative instruments, net of income tax.....................                                   (164)
                                                                         -----------  -----------  -----------  -----------
       Net Income......................................................       21,194       12,773       41,003       23,938
                                                                         -----------  -----------  -----------  -----------

Other comprehensive income (loss), net of tax:
       Adjustment to record changes in fair value
         of hedging financial instruments..............................          761                       761
       Foreign currency translation adjustment.........................           10           (9)         (16)        (165)
                                                                         -----------  -----------  -----------  -----------
Comprehensive income...................................................  $    21,965  $    12,764  $    41,748  $    23,773
                                                                         ===========  ===========  ===========  ===========

Diluted net income per share:
       Income before cumulative effect of accounting change............  $    21,194  $    12,773  $    41,167  $    23,938
       Distributions on mandatorily redeemable convertible
         preferred securities, net of income tax.......................        1,036                     2,072
       Cumulative effect of accounting change, net of income tax.......                                   (164)
                                                                         -----------  -----------  -----------  -----------
Net income for purposes of computing diluted net income per share......  $    22,230  $    12,773  $    43,075  $    23,938
                                                                         ===========  ===========  ===========  ===========

Weighted average common and common equivalent shares outstanding:
       Basic...........................................................       70,243       59,594       68,555       58,504
                                                                         -----------  -----------  -----------  -----------
       Diluted.........................................................       79,205       64,396       77,557       63,689
                                                                         -----------  -----------  -----------  -----------

Earnings per common share:
       Basic...........................................................  $      0.30  $      0.21  $      0.60  $      0.41
                                                                         -----------  -----------  -----------  -----------
       Diluted.........................................................  $      0.28  $      0.20  $      0.56  $      0.38
                                                                         -----------  -----------  -----------  -----------
</TABLE>

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

                                       4
<PAGE>

                          HANOVER COMPRESSOR COMPANY
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
                           (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                                    Six Months ended June 30,
                                                                                                    -------------------------
                                                                                                        2001         2000
                                                                                                    -----------  -----------
                                                                                                    (Restated)
<S>                                                                                                 <C>          <C>
Cash flows from operating activities:
     Net income   ...............................................................................  $    41,003  $    23,938
     Adjustments:
         Depreciation and amortization...........................................................       36,984       22,651
         Amortization of debt issuance costs and debt discount...................................        1,024          320
         Bad debt expense........................................................................        1,038          495
         Loss (gain) on sale of property, plant and equipment....................................       (4,023)      (6,831)
         Equity in income of nonconsolidated affiliates..........................................       (2,063)      (1,498)
         Loss on derivative instruments..........................................................        3,260
         Deferred income taxes...................................................................       15,689        8,610
         Changes in assets and liabilities, excluding impact of  business combinations:
                Accounts receivable..............................................................       (1,935)     (12,524)
                Inventory........................................................................      (52,430)     (26,356)
                Costs and estimated earnings in excess of billings on
                  uncompleted contracts..........................................................      (27,468)     (10,731)
                Accounts payable and other liabilities...........................................        2,366       (3,203)
                Advance billings.................................................................       12,431       (5,196)
                Other............................................................................       (3,700)      (1,167)
                                                                                                   -----------  -----------
Net cash provided by (used in) operating activities..............................................       22,176      (11,492)
                                                                                                   -----------  -----------

Cash flows from investing activities:
     Capital expenditures........................................................................     (187,041)    (129,864)
     Proceeds from sale of property, plant and equipment.........................................       10,373      116,808
     Cash used for business combinations, net....................................................      (76,686)     (25,438)
     Cash used to acquire investments in nonconsolidated subsidiaries............................       (2,483)      (4,580)
                                                                                                   -----------  -----------
Net cash used in investing activities............................................................     (255,837)     (43,074)
                                                                                                   -----------  -----------

Cash flows from financing activities:
     Net borrowing (repayment) on revolving credit facility......................................      (37,500)         900
     Repayment of long-term debt and short-term notes............................................      (11,832)        (393)
     Issuance of convertible senior notes, net...................................................      185,590
     Issuance of common stock, net...............................................................       83,850       59,400
     Proceeds from warrant conversions and stock option exercises................................        1,310        1,047
     Repayment of shareholder notes..............................................................           32        1,669
                                                                                                   -----------  -----------
Net cash provided by financing activities........................................................      221,450       62,623
                                                                                                   -----------  -----------
Effect of exchange rate changes on cash and equivalents..........................................           11          (67)
                                                                                                   -----------  -----------
Net increase (decrease) in cash and cash equivalents.............................................      (12,200)       7,990
Cash and cash equivalents at beginning of period.................................................       45,484        5,756
                                                                                                   -----------  -----------
Cash and cash equivalents at end of period.......................................................  $    33,284  $    13,746
                                                                                                   ===========  ===========

Acquisitions of businesses:
     Property, plant and equipment acquired......................................................  $    87,324  $     8,274
     Other assets acquired, net of cash acquired.................................................  $    10,247  $    36,061
     Goodwill     ...............................................................................  $    32,369  $    61,963
     Liabilities  ...............................................................................  $    (1,047) $   (21,270)
     Debt issued  ...............................................................................  $    (3,716) $
     Deferred taxes..............................................................................  $    (6,802) $    (1,815)
     Common stock issued.........................................................................  $   (41,689) $   (57,775)
</TABLE>

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

                                       5
<PAGE>

                          HANOVER COMPRESSOR COMPANY
             Notes to Condensed Consolidated Financial Statements

1.  BASIS OF PRESENTATION

   The accompanying unaudited consolidated financial statements of Hanover
Compressor Company (the "Company") included herein have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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 accounting principles generally accepted in the United States of
America 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, 2000. These interim results are not necessarily indicative of results for a
full year.

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 and convertible securities.

   Included in diluted shares are common stock equivalents relating to options
of 4,133,000 and 4,635,000, and warrants of 4,000 and 551,000, for the six
months ended June 30, 2001 and 2000, respectively, and mandatorily redeemable
convertible preferred securities of 4,825,000 for the six months ended June 30,
2001. The mandatorily redeemable convertible preferred securities were excluded
from the diluted shares for the six months ended June 30, 2000 and the
convertible senior notes were excluded from the diluted shares for all periods
presented as their effects would be anti-dilutive.

RECLASSIFICATIONS

   Certain amounts in the prior years' financial statements have been
reclassified to conform to the 2001 financial statement classification. These
reclassifications have no impact on net income.

2.  BUSINESS COMBINATIONS

   In March 2001, the company purchased the OEC Compression Corporation ("OEC")
in an all-stock transaction for approximately $100.7 million, including the
payment of approximately $63.0 million of OEC indebtedness. The Company issued
an aggregate of approximately 1,145,000 shares of common stock to stockholders
of OEC. The acquisition was accounted for under the purchase method of
accounting.

   The pro forma information set forth below assumes the acquisition of OEC
completed in 2001, and the acquisitions of the Dresser-Rand Company's
compression services division and Applied Process Solutions, Inc. ("APSI")
completed in 2000 are accounted for as if the purchases had occurred at the
beginning of 2000. The pro forma information is presented for informational
purposed 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):

<TABLE>
<CAPTION>
                                                                                                 SIX MONTHS ENDED
                                                                                             ------------------------
                                                                                                     JUNE 30,
                                                                                             ------------------------
                                                                                                2001         2000
                                                                                             -----------  -----------
                                                                                              (Restated)
     <S>                                                                                     <C>          <C>
     Revenue..............................................................................   $   478,970  $   302,472
     Income before cumulative effect of accounting change.................................        39,387       22,764
     Earnings per common share--basic.....................................................         0.57          0.35
     Earnings per common share--diluted...................................................         0.53          0.33
</TABLE>

                                       6
<PAGE>

3.  INVENTORIES


   Inventory consisted of the following amounts (in thousands):

<TABLE>
<CAPTION>
                                                                                            JUNE 30,     DECEMBER 31,
                                                                                              2001           2000
                                                                                          -----------   ---------------
                                                                                           (Restated)     (Restated)
     <S>                                                                                  <C>           <C>
     Parts and supplies.................................................................  $   159,433      $   93,308
     Work in progress...................................................................       40,325          47,193
     Finished goods.....................................................................        5,432           4,941
                                                                                          -----------      ----------
                                                                                          $   205,190      $  145,442
                                                                                          ===========      ==========
</TABLE>

4.  PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                            JUNE 30,     DECEMBER 31,
                                                                                              2001           2000
                                                                                          -----------   ---------------
                                                                                           (Restated)     (Restated)
     <S>                                                                                  <C>           <C>
     Compression equipment and facilities...............................................  $   809,777      $  576,328
     Land and buildings.................................................................       43,282          35,233
     Transportation and shop equipment..................................................       54,845          44,202
     Other..............................................................................       18,300          15,279
                                                                                          -----------      ----------
                                                                                              926,204         671,042
     Accumulated depreciation...........................................................     (128,281)        (97,446)
                                                                                          -----------      ----------
                                                                                          $   797,923      $  573,596
                                                                                          ===========      ==========
</TABLE>

5.  STOCK AND CONVERTIBLE SENIOR NOTES OFFERING

   In March 2001, the Company issued $192,000,000 principal amount of 4.75%
convertible senior notes due 2008. The notes will mature on March 15, 2008 and
are first subject to call on March 15, 2004. The notes will be convertible into
shares of the Company's common stock at a conversion price of approximately
$43.94 per share. The Company received approximately $185,590,000 of proceeds
from the sale, net of underwriting and offering costs.

   In March 2001, the Company completed a public offering of 2,500,000 newly
issued shares of the Company's common stock. The Company realized approximately
$83,850,000 of proceeds from the offering net of underwriting and offering
costs.

6.  LEASING TRANSACTION

   In October 2000, the Company completed a $172,589,000 sale and lease back of
certain compression equipment. In March 2000, the Company entered into a
separate $200,000,000 sale and lease back of certain compression equipment.
Under the March agreement, the Company received $100,000,000 proceeds from the
sale of compression equipment at closing and in August 2000, the Company
completed the second half of the equipment lease and received an additional
$100,000,000 for the sale of additional compression equipment. In June 1999 and
in July 1998 the Company completed two other separate $200,000,000 sale and
lease back transactions of certain compression equipment. All transactions are
recorded as a sale and lease back of the equipment with the leases are treated
as operating leases. Under all the lease agreements, 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 options to repurchase the equipment at fair market value. The Company has
substantial residual value guarantees under the lease agreements that are due
upon termination of the leases and which may be satisfied by a cash payment or
the exercise of the Company's purchase options. Any gains on the sale of the
equipment are deferred until the end of the respective lease terms. Should the
Company not exercise its purchase options under the lease agreements, the
deferred gains will be recognized to the extent they exceed any residual value
guarantee payments and any other payments required under the lease agreements.
The lease agreements call for variable quarterly payments that fluctuate with
the London Interbank Offering Rate. The following future minimum lease payments
are due under the leasing arrangements exclusive of any guarantee payments (in
thousands): 2001 -- $26,900; 2002 -- $53,800; 2003 -- $46,800; 2004 -- $32,600;
2005 - $14,100.

                                       7
<PAGE>

7.  ACCOUNTING FOR DERIVATIVES

   The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
as amended by SFAS 137 and SFAS 138, effective January 1, 2001. SFAS 133
requires that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged item pending recognition in earnings. Prior to 2001, the Company
entered into two interest rate swaps with notional amounts of $75,000,000 and
$125,000,000 and strike rates of 5.51% and 5.56%, respectively. These swaps were
entered into to convert the variable lease payments under the Company's 1998
lease agreement to fixed payments. These swap transactions were to expire in
July 2001, however, they were extended for an additional two years at the option
of the counterparty. The difference paid or received on the swap transactions is
recognized in leasing expense. These swap transactions expire in July 2003. On
January 1, 2001, in accordance with the transition provisions of SFAS 133, the
Company recorded an unrealized loss resulting from the cumulative effect of an
accounting change in the statement of income of approximately $164,000 ($.00 per
share), net of tax benefit of $89,000. During the three and six months ended
June 30, 2001, the Company recognized additional unrealized losses of $15,000
and $3.0 million, respectively, related to the change in the fair value of these
interest rate swaps in other expense in the statement of income because they did
not meet the specific hedge criteria as a result of the counterparty option to
extend the interest rate swaps. Further, management decided not to designate the
interest rate swaps as hedges at the time they were extended by the
counterparty. At June 30, 2001 the Company recorded a liability of $3.2 million
related to these interest rate swaps in other liabilities. The fair value of
these interest rate swaps will fluctuate with changes in interest rates over
their remaining terms and these changes in fair value will be recorded in the
statement of income. During the second quarter of 2001, the Company entered in
three additional interest rate swaps to convert variable lease payments under
certain lease arrangements to fixed payments as follows:

          Lease           Maturity Date      Strike Rate    Notional Amount
          -----           -------------      -----------    ---------------
       March 2000            3/11/2005         5.2550%        $100,000,000
       August 2000           3/11/2005         5.2725%        $100,000,000
       October 2000         10/26/2005         5.3975%        $100,000,000

   These three swaps, which the Company has designated as cash flow hedging
instruments, meet the specific hedge criteria and any changes in their fair
values have been recognized in other comprehensive income. The Company recorded
a $761,000 gain, net of tax in other comprehensive income at June 30, 2001.


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

8.  ACCOUNTING STANDARDS

   In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations. The Statement is effective for all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001,
or later. All business combinations in the scope of this statement are to be
accounted for using one method, the purchase method.

   In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. The statement is effective for January 1, 2002. Under SFAS No. 142,
amortization of goodwill to earnings will be discontinued. However, goodwill
will be reviewed for impairment annually or whenever events indicate an
impairment may have occurred. A benchmark assessment of potential impairment
also must be completed within six months of adopting SFAS No. 142. At June 30,
2001, the Company has $195,463,000 of goodwill on its balance sheet, which is
amortized at an annual rate of $10,200,000. The Company is current evaluating
the effect the implementation of SFAS No. 142 will have on its financial
statements.

9.  RELATED PARTY TRANSACTIONS

   During the three months ended June 30, 2001, the Company sold approximately
$16.1 million of inventory recorded in parts, service and used equipment revenue
to a related party. At June 30, 2001, $14.5 million was recorded in accounts
receivable-trade from this related party. The $16.1 million turbine was
ultimately sold to a project that is utilizing the turbine in a contract with
the California Department of Water and Resources. The Company received payment
in full on the turbine in December 2001. However, since the Company is a
participant in the project financing, it will not record a profit related to the
sale of that turbine. See Note 13.

                                       8
<PAGE>

    In March 2001, the Company advanced cash to Michael J. McGhan, the Company's
Chief Executive Officer, in return for two promissory notes. The notes
receivable totaled $2,200,000, bear interest at 4.88% per annum, and mature in
April 2006. The notes are secured with full recourse, by a deed of trust and
security agreement on two parcels of land and all improvements and personal
property located on the land.

    During the six months ending June 30, 2001, the Company sold equipment
totaling approximately $12,004,000 to an affiliate of Enron Capital and Trade
Resources Corp ("Enron").

10. COMMITMENTS AND CONTINGENCIES

    In June 2001, the Company signed a definitive agreement to acquire the
Production Operators Corporation's ("POI") natural gas compression business,
ownership interests in certain natural gas compression and gas handling joint
venture projects in South America and related assets of Schlumberger Limited
("Schlumberger") for $761 million. Under the agreement, Hanover has committed to
pay Schlumberger: $270 million in cash, $150 million in a long-term subordinated
note, a number of newly issued Hanover shares having a nominal value of $283
million estimated to total between 6.82 million and 8.71 million shares and $58
million with proceeds of a refinancing of a South American joint venture to be
acquired by Hanover in the POI acquisition. The Company expects the transaction
to close in August 2001.

    In January 2001, the Company entered into a facilitation agreement with
Bellili Energy SRL ("Bellili"), a fabrication company based in Italy. In
connection with the agreement, the Company agreed to provide Bellili with
project financing including necessary guarantees, bonding capacity and other
collateral on an individual project basis. Under the agreement, Bellili is
required to present each project to the Company which must be approved at the
Company's sole discretion. At June 30, 2001, approximately $4.3 million were
outstanding under the facilitation agreement.

   Under a separate agreement with Bellili, the Company has guaranteed
performance bonds on Bellili's behalf totaling approximately $4.7 million at
June 30, 2001.

   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.

11. SUBSEQUENT EVENT

   In August 2001, the Company announced a private offering by Hanover Equipment
Trust 2001A, a special purpose entity, (the "Trust") of $300 million of senior
secured notes due 2008. The Trust will use the proceeds from this offering to
purchase equipment from the Company in a sale and leaseback transaction. The
Company would lease the equipment under a seven-year agreement and will continue
to deploy the equipment in its normal operations. The lease will be recorded by
the Company as an operating lease. This transaction is expected to be completed
in August 2001 and Hanover intends to use the proceeds from the sale of the
equipment to fund the cash portion of its acquisition of POI.

12. REPORTABLE SEGMENTS

   The Company manages its business segments primarily on the type of product or
service provided. The Company has five principal industry segments:
Rentals--Domestic; Rentals--International; Parts, Service and Used Equipment;
Compressor Fabrication; and Production and Processing Equipment Fabrication. The
Rentals segments provide natural gas compression rental and maintenance services
to meet specific customer requirements. Parts, Service and Used Equipment
segment provides used equipment, both new and used parts directly to customers,
as well as complete maintenance services for customer owned packages. 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. Prior
periods have been restated to reflect the expansion in 2000 of the Parts,
Service and Used Equipment segment.

   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, distributions
on mandatorily redeemable convertible preferred securities and income taxes.
Amounts defined as "Other" include equity in income of non-consolidated
affiliates, results of other insignificant operations and corporate related
items primarily related to cash management activities. Revenues include sales to
external customers and inter-segment sales. Intersegment sales are accounted for
at cost except for compressor

                                       9
<PAGE>

fabrication equipment sales which are accounted for on an arms length basis, and
the sales and resulting profits are eliminated in consolidation. Identifiable
assets are tangible and intangible assets that are identified with the
operations of a particular segment or geographic region, or which are allocated
when used jointly. Capital expenditures include fixed asset purchases.

   The following table presents sales and other financial information by
industry segment for the three months ended June 30, 2001 and 2000 (in
thousands).

<TABLE>
<CAPTION>
                            DOMESTIC  INTERNATIONAL PARTS, SERVICE  COMPRESSOR   PRODUCTION   OTHER    ELIMINATIONS    CONSOLIDATED
(RESTATED)                  RENTALS     RENTALS       AND USED     FABRICATION   EQUIPMENT
                                                      EQUIPMENT                 FABRICATION
<S>                        <C>       <C>           <C>             <C>          <C>          <C>      <C>            <C>
June 30, 2001:
Revenues from External
Customers                  $ 60,060    $ 30,008       $50,025       $ 57,839     $ 43,785    $ 3,704   $      -         245,421
Intersegment Sales                -         300        16,785         17,194        1,447      1,112    (36,838)              -
Total revenues               60,060      30,308        66,810         75,033       45,232      4,816    (36,838)        245,421
Gross Profit                 39,959      19,548        15,822          9,106        9,575      3,704          -          97,714
Identifiable Assets         734,026     356,876        73,702        324,638       99,137     33,285          -       1,621,664
June 30, 2000:
Revenues from External
Customers                  $ 39,020    $ 18,777       $24,234       $ 14,986     $ 15,186    $ 4,881   $      -      $  117,084
Intersegment Sales                -         300        14,211         26,550        1,127      1,593    (43,781)              -
Total revenues               39,020      19,077        38,445         41,536       16,313      6,474    (43,781)        117,084
Gross Profit                 25,135      11,972         8,189          2,503        3,251      4,881          -          55,931
</TABLE>

   The following table presents sales and other financial information by
industry segment for the six months ended June 30, 2001 and 2000 (in thousands).

<TABLE>
<CAPTION>
                        DOMESTIC  INTERNATIONAL  PARTS, SERVICE AND   COMPRESSOR    PRODUCTION   OTHER  ELIMINATIONS  CONSOLIDATED
(RESTATED)              RENTALS      RENTALS       USED EQUIPMENT     FABRICATION   EQUIPMENT
                                                                                   FABRICATION
<S>                     <C>       <C>            <C>                  <C>          <C>          <C>     <C>           <C>
June 30, 2001:
Revenues from external  $113,789      $56,336        $100,359          $112,490      $85,397    $6,839   $      -       $475,210
customers
Intersegment sales             -        2,134          23,968            36,722        2,232     2,246    (67,302)             -
Total revenues           113,789       58,470         124,327           149,212       87,629     9,085    (67,302)       475,210
Gross Profit              76,341       36,511          36,316            17,501       17,419     6,839          -        190,927
June 30, 2000:
Revenues from external  $ 77,228      $36,673        $ 35,550          $ 29,171      $21,111    $7,908   $      -       $207,641
customers
Intersegment sales             -          600          19,703            52,303        1,747     1,593    (75,946)             -
Total revenues            77,228       37,273          55,253            81,474       22,858     9,501    (75,946)       207,641
Gross Profit              51,042       24,018          11,299             5,297        4,693     7,908          -        104,257
</TABLE>

                                      10
<PAGE>

13.  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; (ii) the Company's acquisition of two
compressors in a non-monetary exchange transaction; (iii) a compressor sale
transaction; (iv) a sale of a turbine engine; and (v) an increase in certain
selling, general and administrative expenses as well as an increase in
depreciation and amortization expense. The impact of the restatement is
summarized in the table below:


                   For the Three Months Ended June 30, 2001
                   ----------------------------------------
<TABLE>
<CAPTION>
                                                                        Cawthorne
                                                                         Channel     Acquisation          Additional Selling,
                                                                        Project in       of                   General and
                                                                         Nigeria /   Compressors           Administrative, &
                                                                          Hampton      In Non-    Sale of  Depreciation and
                                                                        Roads Joint   Monetary    Turbine    Amortization
                                                               As Filed   Venture     Exchange     Engine      Expenses     Restated
                                                               --------   -------     --------     ------      --------     --------
<S>                                                            <C>      <C>          <C>          <C>      <C>              <C>
  Revenues:
    Rentals.................................................   $ 90,068                                                     $ 90,068
    Parts, service and used equipment.......................     66,125                           ($16,100)                   50,025
    Compressor fabrication..................................     57,839                                                       57,839
    Production and processing equipment fabrication.........     45,342  ($1,557)                                             43,785
    Equity in income of non-consolidated affiliates.........      1,313                                                        1,313
                                                                  2,391                                                        2,391
                                                               --------  -------    -------       --------    --------      --------
        Total revenues......................................    263,078    1,557                    16,100                   245,421
                                                               --------  -------    -------       --------    --------      --------
  Expenses:
    Rentals.................................................     30,561                                                       30,561
    Parts, service and used equipment.......................     48,524                            (14,321)                   34,203
    Compressor fabrication..................................     48,734       (1)                                             48,733
    Production and processing equipment fabrication.........     35,297   (1,087)                                             34,210
    Selling, general and administrative.....................     22,658                                         $  987        23,645
    Depreciation and amortization...........................     19,061                ($30)                       550        19,581
    Lease expense...........................................     15,639                                                       15,639
    Interest expense........................................      3,259     (190)                                              3,069
    Distributions on mandatorily redeemable convertible
    preferred Securities....................................      1,594                                                        1,594
    Other                                                            15                                                           15
                                                               --------  -------    -------       --------    --------      --------
        Total expenses......................................    225,342   (1,278)       (30)       (14,321)     1,537        211,250
                                                               --------  -------    -------       --------    --------      --------
Income before income taxes..................................     37,736     (279)        30         (1,779)    (1,537)        34,171
Provision for income taxes..................................     14,332     (106)        11           (676)      (584)        12,977
                                                               --------  -------    -------       --------    --------      --------
Net income                                                     $ 23,404    ($173)       $19        ($1,103)     ($953)      $ 21,194
                                                               ========  =======    =======       ========    ========      ========

Earnings per common share
       Basic                                                   $   0.33                                                     $   0.30
       Diluted                                                 $   0.31                                                     $   0.28
</TABLE>

                                      11
<PAGE>

                    For the Six Months Ended June 30, 2001
                    --------------------------------------

<TABLE>
<CAPTION>
                                                                                                             Additional
                                                               Cawthorne                                      Selling,
                                                                Channel   Acquisition                       General and
                                                              Project in       of                         Administrative &
                                                               Nigeria /  Compressors                       Depreciation
                                                                Hampton     In Non-    Compressor  Sale of      and
                                                              Roads Joint   Monetary      Sale     Turbine  Amortization
                                                     As Filed   Venture     Exchange  Transaction   Engine    Expenses    Restated
                                                     --------   -------     --------  -----------   ------    --------    --------
<S>                                                  <C>       <C>         <C>        <C>           <C>     <C>           <C>
Revenues:
  Rentals.........................................   $170,125                                                             $170,125
  Parts, service and used equipment...............    104,455                            $12,004  ($16,100)                100,359
  Compressor fabrication..........................    112,490                                                              112,490
  Production and processing equipment
   fabrication....................................     88,933       ($3,536)                                                85,397
  Equity in income of non-consolidated
    affiliates....................................      2,063                                                                2,063
  Other...........................................      4,776                                                                4,776
                                                     --------     ---------    -------   -------  --------    --------    --------
        Total revenues............................    482,842        (3,536)              12,004   (16,100)                475,210
                                                     --------     ---------    -------   -------  --------    --------    --------
Expenses:
  Rentals.........................................     57,273                                                               57,273
  Parts, service and used equipment...............     70,410                              7,954   (14,321)                 64,043
  Compressor fabrication..........................     95,018           (29)                                                94,989
  Production and processing equipment
   fabrication....................................     70,446        (2,468)                                                67,978
  Selling, general and administrative.............     42,635           263                                   $  1,483      44,381
  Depreciation and amortization...................     35,928                     ($40)                          1,096      36,984
  Lease expense...................................     30,927                                                               30,927
  Interest expense................................      5,963            92                                                  6,055
  Distributions on mandatorily redeemable
   convertible preferred Securities...............      3,187                                                                3,187
    Other.........................................      3,007                                                                3,007
                                                     --------     ---------    -------   -------  --------    --------    --------
        Total expenses............................    414,794        (2,142)       (40)    7,954   (14,321)      2,579     408,824
                                                     --------     ---------    -------   -------  --------    --------    --------
Income before income taxes........................     68,048        (1,394)        40     4,050    (1,779)     (2,579)     66,386
Provision for income taxes........................     25,851          (530)        15     1,539      (676)       (980)     25,219
                                                     --------     ---------    -------   -------  --------    --------    --------
Net income before cumulative effect of accounting
 change                                                42,197          (864)        25     2,511    (1,103)     (1,599)     41,167
  Cumulative effect of accounting change, net of
   income tax                                            (164)                                                                (164
                                                     --------     ---------    -------   -------  --------    --------    --------
Net income                                           $ 42,033         ($864)   $    25   $ 2,511   ($1,103)    ($1,599)   $ 41,003
                                                     ========     =========    =======   =======  ========    ========    ========
Earnings per common share
      Basic                                          $   0.61                                                             $   0.60
      Diluted                                        $   0.57                                                             $   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 by reversing the revenue and related costs recognized under the
percentage of completion of accounting.

                                      12
<PAGE>


     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 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. The impact for the periods above
is a reduction of depreciation expense.

Compressor Sale Transaction
---------------------------

     The Company sold 33 gas compressors to a gas pipeline system then
controlled by Enron for $12.0 million pursuant to invoices issued in December
2000. The Company recorded $4.1 million of pre-tax income from the transaction
in the fourth quarter of 2000. In January 2001, the Company entered into an
agreement with its customer to provide transition services and settle claims
between the parties arising from the operation of the compressors prior to their
sale. The agreement also provided for the issuance of a bill of sale. Upon
further evaluation of the transaction, the Company determined that it should
have recognized the gain on this transaction when it issued the bill of sale in
January 2001 rather than in December 2000.

Sale of Turbine Engine
----------------------

     In the fourth quarter of 2000, the Company entered the non-oil field power
generation market to take advantage of rising electricity demand and purchased
used turbines to carry out this effort. Subsequently, the Company agreed to sell
certain turbines on extended credit and recognized revenues and the related
profits at the time of such transactions.

     The Company recorded $1.8 million of pre-tax income on a $16.1 million
turbine sale in the second quarter of 2001. Upon further evaluation of the
transaction, the Company determined that revenue should have been recognized on
these transactions at the time that collectibility of the sales price was
reasonably assured. The $16.1 million turbine was ultimately sold to a project
that is utilizing the turbine in a contract with the California Department of
Water and Resources. The Company received payment in full on the turbine in
December 2001. However, since the Company is a participant in the project
financing, it will not record a profit related to the sale of that turbine.

Selling, general and administrative expenses and depreciation and amortization
------------------------------------------------------------------------------
expense
-------

     After reviewing its selling, general and administrative expenses for 2001,
the Company determined that certain expenses had been understated. As a result,
the Company increased these expenses by $987,000 and $1,483,000 for the three
and six month periods ended June 30, 2001, respectively. Additionally, the
Company understated depreciation and amortization expense for the corresponding
periods by $550,000 and $1,096,000, respectively.

                                      13
<PAGE>

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 acquired businesses, including Production Operators Corporation
("POI") 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 leading provider of a broad array of natural gas
compression, gas handling and related services in the United States and select
international markets. Founded in 1990 and publicly held since 1997, the Company
operates the largest compressor rental fleet, in terms of horsepower, in the gas
compression industry and provides its services on a rental, contract
compression, maintenance and acquisition leaseback basis. In conjunction with
the Company's maintenance business, the Company has developed its parts and
service business to provide solutions to customers that own their own
compression equipment but want to outsource their operations. The Company's
compression services are complemented by its compressor and oil and gas
production equipment fabrication operations and gas processing and treating, gas
measurement and power generation services, which broaden the Company's customer
relationships both domestically and internationally. The Company's products and
services are essential to the production, gathering, processing, transportation
and storage of natural gas and are provided primarily to independent and major
producers and distributors of natural gas. As of June 30, 2001, the Company
operated a fleet of 5,839 compression rental units with an aggregate capacity of
approximately 2,533,000 horsepower.

     In March 2001, the Company purchased the OEC Compression Corporation("OEC")
in an all-stock transaction for approximately $100.7 million, including the
assumption of approximately $63.0 million of indebtedness of OEC. The
acquisition was accounted for under the purchase method of accounting.


RESULTS OF OPERATIONS

The following discussion has been updated to reflect the restatement of
operations, see Note 13 in "Notes to Condensed Consolidated Financial
Statements" for details regarding the restatement.

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000

REVENUES

     The Company's total revenues increased by $128.3 million, or 110%, to
$245.4 million during the three months ended June 30, 2001 from $117.1 million
during the three months ended June 30, 2000. The increase resulted primarily
from growth of the Company's natural gas compressor rental fleet as well as due
to business acquisitions completed in 2001 and 2000.

     Revenues from rentals increased by $32.3 million, or 56%, to $90.1 million
during the three months ended June 30, 2001 from $57.8 million during the three
months ended June 30, 2000. Domestic revenues from rentals increased by $21.1
million, or 54%, to $60.1 million during the three months ended June 30, 2001
from $39.0 million during the three months ended June 30, 2000. International
rental revenues increased by $11.2 million, or 60%, to $30.0 million during the
three months ended

                                       14
<PAGE>

June 30, 2001 from $18.8 million during the three months ended June 30, 2000.
The increase in both domestic and international rental revenue resulted from
expansion of the Company's rental fleet and business acquisitions completed in
2001 and 2000. At June 30, 2001, the compressor rental fleet consisted of
approximately 2,533,000 horsepower, a 60% increase over the 1,585,000 horsepower
in the rental fleet at June 30, 2000. Domestic horsepower in the rental fleet
increased by 61% to 2,060,000 horsepower at June 30, 2001 from approximately
1,269,000 horsepower at June 30, 2000. International horsepower increased by 55%
to 473,000 horsepower at June 30, 2001 from approximately 316,000 horsepower at
June 30, 2000.

     Revenue from parts, service and used equipment increased by $25.8 million,
or 106% to $50.0 million during the three months ended June 30, 2001 from $24.2
million during the three months ended June 30, 2000. This increase is due in
part to an increase in our marketing focus for this business segment, as well as
expansion of business activities through acquisitions. Revenues from compressor
fabrication increased by $42.8 million, or 286%, to $57.8 million during the
three months ended June 30, 2001 from $15.0 million during the three months
ended June 30, 2000. This increase is due to the acquisition of Dresser-Rand
Company's compression service division during September 2000. During the three
months ended June 30, 2001, an aggregate of approximately 136,000 horsepower of
compression equipment was fabricated compared to approximately 85,000 horsepower
fabricated during the three months ended June 30, 2000.

     Revenues from production and processing equipment fabrication increased by
$28.6 million, or 188%, to $43.8 million during the three months ended June 30,
2001 from $15.2 million during the three months ended June 30, 2000. The
increase is due primarily to the acquisition of APSI during June, 2000.

     Equity in earnings in subsidiaries increased $.8 million, or 176%, to $1.3
million during the three months ended June 30, 2001, from $.5 million during the
three months ended June 30, 2000.

     Other income during the three months ended June 30, 2001 amounted to $2.4
million compared to $4.4 million during the three months ended June 30, 2000, a
decrease of $2.0 million. Included in other income was $.7 million which was
related to fees earned under the Bellili agreements.

EXPENSES

     Operating expenses of the rental segments increased by $9.9 million, or
48%, to $30.6 million during the three months ended June 30, 2001 from $20.7
million during the three months ended June 30, 2000. The increase resulted
primarily from the corresponding 56% increase in revenues from rentals over the
corresponding period in 2000. The gross profit percentage from rentals was 66%
during the three months ended June 30, 2001 and 64% during the three months
ended June 30, 2000. The rentals gross profit percentage increase is primarily
due to improved rental rates resulting from the increase in market demand for
natural gas compression. Operating expenses of parts, service and used equipment
increased by $18.2 million, or 113% to $34.2 million, which relates to the 106%
increase in parts, service and used equipment revenue. The gross profit margin
from parts, service and used equipment was 32% during the three months ended
June 30, 2001 from 34% during the three months ended June 30, 2000. Operating
expenses of compressor fabrication increased by $36.2 million, or 290%, to $48.7
million during the three months ended June 30, 2001 from $12.5 million during
the three months ended June 30, 2000 commensurate with the corresponding
increase in compressor fabrication revenue. The gross profit margin on
compression fabrication was 16% during the three months ended June 30, 2001 and
17% during the three months ended June 30, 2000. The decrease in gross profit
margin for compression fabrication was attributable to the acquisition of the
compression services division of Dresser-Rand Company, which has lower gross
margins than the Company has previously experienced. The operating expenses
attributable to production and processing equipment fabrication increased by
$22.3 million, or 187%, to $34.2 million during the three months ended June 30,
2001 from $11.9 million during the three months ended June 30, 2000. The gross
profit margin attributable to production and processing equipment fabrication
was 22% during the three months ended June 30, 2001 and was 21% during the three
months ended June 30, 2000.

     Selling, general and administrative expenses increased $12.7 million, or
117%, to $23.6 million during the three months ended June 30, 2001 from $10.9
million during the three months ended June 30, 2000. The increase is
attributable to increased personnel and other administrative and selling
expenses associated with increased activity in the Company's business segments
as described above, as well as acquisitions during 2001 and 2000.

     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
June 30, 2001 increased 64% to $74.1 million from $45.0 million

                                       15
<PAGE>

for the three months ended June 30, 2000 primarily due to the increase in the
Company's revenues and gross profit 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 $7.3 million to $19.6 million
during the three months ended June 30, 2001 compared to $12.3 million during the
three months ended June 30, 2000. 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 in March, August and October 2000.
The increase in amortization was due to the goodwill recorded from business
acquisitions completed during 2001 and 2000.

     The Company incurred leasing expense of $15.6 million during the three
months ended June 30, 2001 compared to $10.1 million during the three months
ended June 30, 2000 resulting from the equipment leases entered into in 2000.

     Interest expense increased by $2.1 million to $3.1 million during the three
months ended June 30, 2001 from $1.0 million for the three months ended June 30,
2000. The increase in interest expense is due to higher levels of outstanding
debt which was partially offset by lower interest rates.

INCOME TAXES

     The provision for income taxes increased by $5.7 million, or 78%, to $13.0
million during the three months ended June 30, 2001 from $7.3 million during the
three months ended June 30, 2000. The increase resulted primarily from the
corresponding increase in income before income taxes. The average effective
income tax rates during the three months ended June 30, 2001 and 2000 were 38%
and 36.4%, respectively. The increase in average effective income tax rates is
due primarily to increased income in foreign tax jurisdictions.

NET INCOME

     Net income increased $8.4 million, or 66%, to $21.2 million during the
three months ended June 30, 2001 from $12.8 million during the three months
ended June 30, 2000 for the reasons discussed above.

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

REVENUES

     The Company's total revenues increased by $267.6 million, or 129%, to
$475.2 million during the six months ended June 30, 2001 from $207.6 million
during the six months ended June 30, 2000. The increase resulted primarily from
growth of the Company's natural gas compressor rental fleet as well as due to
business acquisitions completed in 2001 and 2000.

     Revenues from rentals increased by $56.2 million, or 49%, to $170.1 million
during the six months ended June 30, 2001 from $113.9 million during the six
months ended June 30, 2000. Domestic revenues from rentals increased by $36.6
million, or 47%, to $113.8 million during the six months ended June 30, 2001
from $77.2 million during the six months ended June 30, 2000. International
rental revenues increased by $19.6 million, or 54%, to $56.3 million during the
six months ended June 30, 2001 from $36.7 million during the six months ended
June 30, 2000. The increase in both domestic and international rental revenue
resulted from expansion of the Company's rental fleet and business acquisitions
in 2001 and 2000.

     Revenue from parts, service and used equipment increased by $64.8 million,
or 182% to $100.4 million during the six months ended June 30, 2001 from $35.6
million during the six months ended June 30, 2000. This increase is due in part
to an increase in our marketing focus for this business segment, as well as
expansion of business activities through acquisitions. Revenues from compressor
fabrication increased by $83.3 million, or 286%, to $112.5 million during the
six months ended June 30, 2001 from $29.2 million during the six months ended
June 30, 2000. This increase is due to the acquisition of Dresser-Rand Company's
compression service division during September 2000. During the six months ended
June 30, 2001, an aggregate of approximately 272,000 horsepower of compression
equipment was fabricated compared to approximately 165,000 horsepower fabricated
during the six months ended June 30, 2000.

     Revenues from production and processing equipment fabrication increased by
$64.3 million, or 305%, to $85.4 million during the six months ended June 30,
2001 from $21.1 million during the six months ended June 30, 2000. The increase
is due primarily to the acquisition of APSI during June, 2000.

     Equity in earnings in subsidiaries increased $.6 million, or 38%, to $2.1
million during the six months ended June 30, 2001, from $1.5 million during the
six months ended June 30, 2000.

                                       16
<PAGE>

   Other income during the six months ended June 30, 2001 amounted to $4.8
million compared to $6.4 million during the six months ended June 30, 2000, a
decrease of $1.6 million. Included in other income in 2001 was $1.4 million
which was related to fees earned under the Bellili agreements.

EXPENSES

   Operating expenses of the rental segments increased by $18.5 million, or 47%,
to $57.3 million during the six months ended June 30, 2001 from $38.8 million
during the six months ended June 30, 2000. The increase resulted primarily from
the corresponding 49% increase in revenues from rentals over the corresponding
period in 2000. The gross profit percentage from rentals was 66% during the six
months ended June 30, 2001 and 2000.

   Operating expenses of parts, service and used equipment increased by $39.8
million, or 164% to $64.0 million, which relates to the 182% increase in parts,
service and used equipment revenue. The gross profit margin from parts, service
and used equipment was 36% during the six months ended June 30, 2001 compared to
32% during the six months ended June 30, 2000. Operating expenses of compressor
fabrication increased by $71.1 million, or 298%, to $95.0 million during the six
months ended June 30, 2001 from $23.9 million during the six months ended June
30, 2000 commensurate with the corresponding increase in compressor fabrication
revenue. The gross profit margin on compression fabrication was 16% during the
six months ended June 30, 2001 and 18% during the six months ended June 30,
2000. The decrease in gross profit margin for compression fabrication was
attributable to the acquisition of the compression services division of
Dresser-Rand Company, which has lower gross margins than the Company has
historically experienced. The operating expenses attributable to production
equipment fabrication increased by $51.6 million, or 314%, to $68.0 million
during the six months ended June 30, 2001 from $16.4 million during the six
months ended June 30, 2000. The gross profit margin attributable to production
and processing equipment fabrication was 20% during the six months ended June
30, 2001 and 22% during the six months ended June 30, 2000.

   Selling, general and administrative expenses increased $24.4 million, or
122%, to $44.4 million during the six months ended June 30, 2001 from $20.0
million during the six months ended June 30, 2000. The increase is attributable
to increased personnel and other administrative and selling expenses associated
with increased activity in the Company's business segments as described above as
well as acquisitions during 2001 and 2000.

   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 six months ended
June 30, 2001 increased 70% to $143.4 million from $84.2 million for the six
months ended June 30, 2000 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 $14.3 million to $37.0 million
during the six months ended June 30, 2001 compared to $22.7 million during the
six months ended June 30, 2000. 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 in March, August and October 2000.
The increase in amortization was due to the goodwill recorded from business
acquisitions completed during 2001 and 2000.

   The Company incurred leasing expense of $30.9 million during the six months
ended June 30, 2001 compared to $18.1 million during the six months ended June
30, 2000 resulting from the equipment leases entered into in 2000.

   Interest expense increased by $3.5 million to $6.1 million during the six
months ended June 30, 2001 from $2.6 million for the six months ended June 30,
2000. The increase in interest expense is due to higher levels of outstanding
debt which was partially offset by lower interest rate.

   Other expenses during the six months ended June 30, 2001 was $3.0 million,
which resulted from the recognition of an unrealized loss related to the change
in fair value of the interest rate swaps as required under SFAS 133 (see note 7
to Consolidated Financial Statements).

                                       17
<PAGE>

INCOME TAXES

   The provision for income taxes increased by $11.5 million, or 84%, to $25.2
million during the six months ended June 30, 2001 from $13.7 million during the
six months ended June 30, 2000. The increase resulted primarily from the
corresponding increase in income before income taxes. The average effective
income tax rates during the six months ended June 30, 2001 and 2000 were 38.0%
and 36.4%, respectively. The increase in average effective income tax rates is
due primarily to increased income in foreign tax jurisdictions.

NET INCOME

   Net income increased $17.1 million, or 71%, to $41.0 million during the six
months ended June 30, 2001 from $23.9 million during the six months ended June
30, 2000 for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

   The Company's cash balance amounted to $33.3 million at June 30, 2001
compared to $45.5 million at December 31, 2000. Primary sources of cash during
the six months ended June 30, 2001 were net proceeds of $185.6 million from the
issuance of 4.75% Convertible Senior Notes due 2008 and $83.9 million through a
public offering of 2,500,000 shares of common stock by the Company and operating
cash flows of $22.2 million. Principal uses of cash during the six months ended
June 30, 2001 were capital expenditures and business acquisitions of $263.7
million and the net repayment of the revolving credit facility for $37.5
million.

   Working capital increased to $382.4 million at June 30, 2001 from $285.4
million at December 31, 2000, primarily as a result of increases in accounts
receivables, inventories, costs in excess of billings and other current assets.
The increase in the balances is due to an increased level of activity in the
Company's lines of business over 2000 as well as from acquisitions. These
increases were partially offset by an increase in current liabilities.

   The amounts invested in property, plant and equipment during 2001 was $187.0
million which resulted in the addition of approximately 381,000 horsepower to
the rental fleet. At June 30, 2001, the rental fleet consisted of 2,060,000
horsepower domestically and 473,000 in the international rental fleet. Current
plans are to spend approximately $170 million during the remainder of 2001,
exclusive of any major acquisition, in continued expansion of the rental fleet.
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 and long term debt. As of June
30, 2001 the Company has approximately $112 million of credit capacity remaining
on its $200 million Bank Credit Agreement (5.06% rate at June 30, 2001).

   On June 27, 2001, the Company signed a definitive agreement to acquire POI,
and other assets from Schlumberger Ltd. in exchange for total consideration of
$761 million in cash, common stock and indebtedness. To fund the acquisition,
the Company will use $270 million of proceeds from the sale of equipment to a
special purpose entity (see note 11 to Consolidated Financial Statements) in
combination with the $150 million subordinated acquisition note and $283 million
of common stock. The Company believes that cash flow from operations, borrowing
under its existing $200 million bank credit agreement and the proceeds of the
sale of equipment and the related financing associated with the POI acquisition
will provide the Company with adequate capital resources to fund its estimated
level of capital expenditure for the year 2001.


NEW ACCOUNTING PRONOUNCEMENTS

   In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations. The Statement is effective for all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001,
or later. All business combinations in the scope of this statement are to be
accounted for using one method, the purchase method.

   In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. The statement is effective for January 1, 2002. Under SFAS No. 142,
amortization of goodwill to earnings will be discontinued. However, goodwill
will be reviewed for impairment annually or whenever events indicate an
impairment may have occurred. A benchmark assessment of potential impairment
also must be completed within six months of adopting SFAS No. 142. At June 30,
2001, Hanover has $195,463,000 of goodwill on its balance sheet, which, going
forward, will be amortized at an annual rate of approximately $10,200,000 under
current generally accepted accounting principles. The Company is current
evaluating the effect the implementation of SFAS No. 142 will have on its
financial statements.

                                       18
<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 June 30, 2001, the fair market value of these
interest rate swaps is approximately $2.0 million and this amount was recorded
in other liabilities. At June 30, 2001, the Company is exposed to variable
rental rates on the equipment leases it entered into in June 1999 and October
2000. Assuming a hypothetical 10% increase in interest rates from those in
effect at quarter end; the increase in annual leasing expense on these equipment
leases would be approximately $1.9 million. The Company does not currently use
derivative financial instruments to mitigate foreign currency risk.

                                       19
<PAGE>

PART II. OTHER INFORMATION

Item 4. At its Annual Meeting of Stockholders held on May 17, 2001, the Company
presented the following matters to the stockholders for action and the votes
cast are indicated below:

               Matter                  For           Withheld
               ------                  ---           --------
1.   Re-election of Directors.
     Michael A. O'Connor            58,753,251       1,034,740
     Michael J. McGhan              57,609,777       2,178,214
     William S. Goldberg            57,541,312       2,246,679
     Ted Collins, Jr.               58,752,156       1,035,835
     Melvin N. Klein                53,202,683       6,585,308
     Alvin V. Shoemaker             58,753,324       1,034,667
     Robert A. Fergason             53,094,683       6,693,308

2.   Approval of the 2001 Equity Incentive Plan.

            For            Against            Abstain
        49,426,541       10,265,108           96,421

3    Reappointment of PricewaterhouseCoopers LLP as Independent Accountants

            For            Against            Abstain
        59,166,113         588,064            33,894

Item 6: Exhibits and reports on Form 8-K

(a)     Exhibits

10.63 Purchase Agreement dated June 28, 2001 among Schlumberger Technology
Corporation, Schlumberger Oilfield Holdings Limited, Schlumberger Sarevco S.A.,
Camco International Inc., Hanover Compressor Company and Hanover Compression
Limited Partnership. (1) [10.63]

        (1)  Such exhibit previously filed as an exhibit to the Company's
             Quarterly Report on Form 10-Q for the second quarter of 2001, under
             the exhibit number indicated in brackets [], and is incorporated
             by reference.

(b)     Reports submitted on Form 8-K:

        (1)      A report on Form 8-K was filed on June 29, 2001, which filed
             as an exhibit under the caption "Item 5- Other Events" a press
             release reporting that the Company had signed a definitive
             agreement to acquire the Production Operators Corporation natural
             gas compression business, ownership interests in certain natural
             gas compression and gas handling joint venture projects in South
             America and related assets of Schlumberger for $761 million.

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

                                       20
<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
----------------------------------------
Chief Financial Officer

                                       21