<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-Q/A

(Mark One)

    [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 12, 2001 there were 79,084,551 shares of the Company's common
stock $0.001 par value, outstanding.
<PAGE>

EXPLANATORY NOTE

     Hanover Compressor Company (the "Company") is filing this amendment to its
Quarterly Report on Form 10-Q for the quarter ended September 30, 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 September 30, 2001 was as follows:
(i) a decrease in revenues of $17.5 million, from $298.8 million to $281.3
million; (ii) a decrease in income before taxes of $4.2 million, from $36.2
million to $32.0 million; (iii) a decrease in net income of $2.7 million, from
$22.5 million to $19.8 million; and (iv) a decrease in earnings per common share
of $0.04 basic and $0.03 diluted. The net effect of this restatement for the
nine months ended September 30, 2001 was as follows:  (i) a decrease in revenues
of $25.1 million, from $781.6 million to $756.5 million; (ii) a decrease in
income before taxes of $5.9 million, from $104.3 million to $98.4 million; (iii)
a decrease in net income of $3.6 million, from $64.5 million to $60.9 million;
and (iv) a decrease in earnings per common share of $0.05 basic and $0.05
diluted.

The net effect of this restatement for the three months ended September 30, 2000
was as follows: (i) a decrease in revenues of $13.6 million, from $162.6 million
to $149.0 million; (ii) a decrease in income before taxes of $4.8 million, from
$25.0 million to $20.2 million; (iii) a decrease in net income of $3.0 million,
from $15.4 million to $12.4 million; and (iv) a decrease in earnings per common
share of $0.05 basic and $0.05 diluted. The net effect of this restatement for
the nine months ended September 30, 2000 was as follows:  (i) a decrease in
revenues of $13.6 million, from $370.2 million to $356.6 million; (ii) a
decrease in income before taxes of $4.8 million, from $62.7 million to $57.9
million; (iii) a decrease in net income of $3.0 million, from $39.3 million to
$36.3 million; and (iv) a decrease in earnings per common share of $0.05 basic
and $0.05 diluted. For additional detail of the transactions involved in the
restatement and their impact on the Condensed Consolidated Financial
Statements see Note 14 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>
                                                                   September 30,   December 31,
                                                                       2001            2000
                                                                   ------------    ------------
                                                                     (Restated)     (Restated)
<S>                                                                  <C>            <C>
  ASSETS
Current assets:
 Cash and cash equivalents                                           $   22,306     $   45,484
 Accounts receivable trade, net                                         301,373        223,022
 Inventory                                                              249,321        145,442
 Costs and estimated earnings in excess of billings
  on uncompleted contracts                                               64,397         24,976
 Prepaid taxes                                                           32,066         19,948
 Other current assets                                                    27,356         12,384
                                                                     ----------     ----------
  Total current assets                                                  696,819        471,256
Property, plant and equipment, net                                    1,009,269        573,596
Goodwill, net                                                           199,683        141,973
Intangible and other assets                                              64,228         38,479
Investment in nonconsolidated affiliates                                181,635         26,452
                                                                     ----------     ----------
  Total assets                                                       $2,151,634     $1,251,756
                                                                     ==========     ==========


  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Current maturities of long-term debt                                $    5,607     $    2,423
 Short-term notes payable                                                               10,073
 Accounts payable, trade                                                108,717         88,651
 Accrued liabilities                                                     97,137         46,705
 Advance billings                                                        48,386         32,292
 Billings on uncompleted contracts in excess of
   costs and estimated earnings                                          11,805          5,669
                                                                     ----------     ----------
  Total current liabilities                                             271,652        185,813
Long-term debt                                                          434,709        110,935
Other liabilities                                                       203,636        132,895
Deferred income taxes                                                   128,533        103,405
                                                                     ----------     ----------
  Total liabilities                                                   1,038,530        533,048

Commitments and contingencies (Note 12)
Mandatorily redeemable convertible preferred securities                  86,250         86,250

Common stockholders' equity:
 Common stock, $.001 par value; 200,000,000 shares authorized;
  79,155,497 and 66,454,703 shares issued and
  outstanding, respectively                                                  79             66
 Additional paid-in capital                                             825,173        483,737
 Notes receivable - employee stockholders                                (1,499)        (1,531)
 Accumulated other comprehensive loss                                    (8,393)          (457)
 Retained earnings                                                      212,211        151,360
 Treasury stock - 75,739 common shares at cost                             (717)          (717)
                                                                     ----------     ----------
  Total common stockholders' equity                                   1,026,854        632,458
                                                                     ----------     ----------
  Total liabilities and common stockholders' equity                  $2,151,634     $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               Nine Months
                                                                     Ended September 30,        Ended September 30,
                                                                     -------------------        -------------------
                                                                       2001        2000          2001          2000
                                                                       ----        ----          ----          ----
                                                                    (Restated)   (Restated)    (Restated)   (Restated)
<S>                                                                 <C>         <C>            <C>          <C>
Revenues and other:
 Rentals                                                              $104,995     $ 66,309    $275,120     $180,210
 Parts, service and used equipment                                      67,658       28,743     168,017       64,293
 Compressor fabrication                                                 55,571       26,428     168,061       55,599
 Production and processing equipment fabrication                        50,363       25,634     135,760       46,745
 Equity in income of non-consolidated affiliates                         1,688          455       3,751        1,953
 Other                                                                   1,035        1,391       5,811        7,801
                                                                      --------     --------    --------     --------
                                                                       281,310      148,960     756,520      356,601
                                                                      --------     --------    --------     --------

Expenses:
 Rentals                                                                35,390       23,263      92,663       62,104
 Parts, service and used equipment                                      47,835       17,951     111,878       42,202
 Compressor fabrication                                                 45,655       22,455     140,644       46,329
 Production and processing equipment fabrication                        39,831       20,546     107,809       36,964
 Selling, general and administrative                                    24,212       14,467      68,593       34,481
 Depreciation and amortization                                          25,498       14,179      62,482       36,830
 Leasing expense                                                        16,614       11,460      47,541       29,596
 Interest expense                                                        4,200        2,831      10,255        5,466
 Distributions on mandatorily redeemable
   convertible preferred securities                                      1,593        1,593       4,780        4,776
 Other                                                                   8,466                   11,473
                                                                      --------     --------    --------     --------
                                                                       249,294      128,745     658,118      298,748
                                                                      --------     --------    --------     --------

Income before income taxes                                              32,016       20,215      98,402       57,853
Provision for income taxes                                              12,168        7,820      37,387       21,520
                                                                      --------     --------    --------     --------
Net income before cumulative effect of accounting change                19,848       12,395      61,015       36,333
  Cumulative effect of accounting change for
    derivative instruments, net of income tax                                                      (164)
                                                                      --------     --------    --------     --------
Net Income                                                              19,848       12,395      60,851       36,333

Other comprehensive income (loss), net of tax:
 Adjustment to record changes in fair value of derivative
  financial instruments                                                 (8,675)                  (7,914)
 Foreign currency translation adjustment                                    (6)          11         (22)        (154)
                                                                      --------     --------    --------     --------
Comprehensive income                                                  $ 11,167     $ 12,406    $ 52,915     $ 36,179
                                                                      ========     ========    ========     ========

Diluted net income per share:
 Net income before cumulative effect in accounting change             $ 19,848     $ 12,395    $ 61,015     $ 36,333
 Distributions on mandatorily redeemable
    convertible preferred securities, net of income tax                  1,036                    3,108
 Cummulative effect of accounting change, net of income tax                                        (164)
                                                                      --------     --------    --------     --------
Net income for purposes of computing diluted net income per share     $ 20,884     $ 12,395    $ 63,959     $ 36,333
                                                                      ========     ========    ========     ========
Weighted average common and common
 equivalent shares outstanding:
     Basic                                                              73,194       63,966      70,098       60,324
                                                                      --------     --------    --------     ---------
     Diluted                                                            81,890       67,271      78,997       64,619
                                                                      --------     --------    --------     ---------

Earnings per common share:
     Basic                                                            $   0.27     $   0.19    $   0.87     $   0.60
                                                                      --------     --------    --------     ---------
     Diluted                                                          $   0.26     $   0.18    $   0.81     $   0.56
                                                                      --------     --------    --------     ---------
</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>
                                                                        Nine Months Ended September 30,
                                                                        -------------------------------
                                                                         2001                      2000
                                                                         ----                      ----
                                                                      (Restated)                (Restated)
<S>                                                                   <C>                      <C>
Cash flows from operating activities:
 Net income                                                           $  60,851                 $  36,333
 Adjustments:
   Depreciation and amortization                                         62,482                    36,830
   Amortization of debt issuance costs and debt discount                  1,475                       479
   Bad debt expense                                                       1,608                       840
   Gain on sale of property, plant and equipment                         (4,157)                   (8,708)
   Equity in income of nonconsolidated affiliates                        (3,751)                   (1,953)
   Loss on derivative instruments                                         8,976
   Deferred income taxes                                                 22,746                     5,998
   Changes in assets and liabilities, excluding impact of business
    combinations:
     Accounts receivable                                                (21,018)                  (28,014)
     Inventory                                                          (77,783)                  (34,814)
     Costs and estimated earnings in excess of billings on
        uncompleted contracts                                           (33,284)                  (10,218)
     Accounts payable and other liabilities                               9,822                    25,171
     Advance billings                                                    16,094                     2,749
     Other                                                               (2,109)                   (4,442)
                                                                      ---------                 ---------
Net cash provided by operating activities                                41,952                    20,251
                                                                      ---------                 ---------

Cash flows from investing activities:
 Capital expenditures                                                  (484,830)                 (207,827)
 Deferred leasing transaction costs                                     (17,738)                   (2,660)
 Proceeds from sale of property, plant and equipment                    582,557                   218,660
 Cash used for business combinations, net of cash acquired             (377,537)                 (174,827)
 Cash used to acquire investments in
  nonconsolidated affiliates                                             (6,514)                   (8,720)
                                                                      ---------                 ---------
Net cash used in investing activities                                  (304,062)                 (175,374)
                                                                      ---------                 ---------

Cash flows from financing activities:
 Net borrowing (repayment) on revolving credit facility                 (17,500)                  102,900
 Repayment of long-term debt and short-term notes                       (14,920)                   (4,290)
 Issuance of convertible senior notes, net                              185,332                         -
 Issuance of common stock, net                                           83,850                    59,400
 Proceeds from warrant conversions and stock option exercises             2,174                     2,774
 Repayment of shareholder notes                                              32                     1,669
                                                                      ---------                 ---------
Net cash provided by financing activities                               238,968                   162,453
                                                                      ---------                 ---------

Effect of exchange rate changes on cash and cash equivalents                (36)                      (44)
                                                                      ---------                 ---------
Net increase (decrease) in cash and cash equivalents                    (23,178)                    7,286
Cash and cash equivalents at beginning of period                         45,484                     5,756
                                                                      ---------                 ---------
Cash and cash equivalents at end of period                            $  22,306                 $  13,042
                                                                      =========                 =========


Acquisitions of businesses:
 Property, plant and equipment acquired                               $ 605,581                 $ 190,521
 Other assets acquired, net of cash acquired                          $ 247,510                 $  92,905
 Goodwill                                                             $  64,742                 $ 106,777
 Liabilities                                                          $ (64,264)                $ (60,343)
 Debt issued                                                          $(215,305)                $
 Deferred taxes                                                       $  (6,802)                $ (15,167)
 Common stock issued                                                  $(253,925)                $(139,866)
</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 condensed 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.

Property, Plant and Equipment

     Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over their estimated useful lives as follows:

       Compression equipment and facilities.................    4 to 30 years
       Buildings............................................         30 years
       Transportation, shop equipment and other.............    3 to 12 years

     Major improvements that extend the useful life of an asset are capitalized.
Repairs and maintenance are expensed as incurred. When property, plant and
equipment is sold, retired or otherwise disposed of, the cost, net of
accumulated depreciation is recorded in parts, service and used equipment
expenses. Sales proceeds are recorded in parts, service and used equipment
revenues. Interest is capitalized in connection with the compression equipment
and facilities that are constructed for the Company's use in its rental
operations. The capitalized interest is recorded as part of the assets to which
it relates and is amortized over the asset's estimated useful life.

Prior to July 1, 2001, compression equipment in the rental fleet was depreciated
using the straight-line method over an estimated useful life that ranged from 4
to 25 years. Effective July 1, 2001, the Company changed its estimate of the
useful life of certain compression equipment to range from 15 to 30 years. The
effect of this change in estimate on the quarter ended September 30, 2001 was a
decrease in depreciation expense of approximately $1.5 million and an increase
in net income of approximately $0.9 million ($0.01 per share). The Company
anticipates this change in estimated useful life will reduce future depreciation
expense, based on the Company's current depreciable assets, by approximately $3
million per quarter.

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.

     For the three months ended September 30, 2001 and 2000, common stock
equivalents relating to options of 3,867,000 and 3,302,000, respectively, are
included in diluted shares. For each of the three month periods, 4,000 warrants
are included in diluted shares. For each of the three month ended September 30,
2001 4,825,000 mandatorily redeemable convertible preferred securities are
included in diluted shares. Convertible senior notes were excluded from the
diluted shares for the three-month periods presented as their effect would be
anti-dilutive.

     Included in diluted shares are common stock equivalents relating to options
of 4,071,000 and 3,927,000, and warrants of 4,000 and 368,000, for the nine
months ended September 30, 2001 and 2000, respectively, and mandatorily
redeemable convertible preferred securities of 4,825,000 for the nine months
ended September 30, 2001. The mandatorily redeemable convertible preferred
securities were excluded from the diluted shares for the nine months ended
September 30, 2000 and the convertible senior notes were excluded from the
diluted shares for all periods presented as their effects would be anti-
dilutive.

                                       6
<PAGE>

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 and is included in Hanover's financial statements commencing in
April 2001.

In August 2001, the Company acquired 100% of the issued and outstanding shares
of the Production Operators Corporation natural gas compression business,
ownership interests in certain joint venture projects in South America, and
related assets ("POI") from Schlumberger for $761 million in cash, common stock
and indebtedness, subject to certain post-closing adjustments pursuant to the
purchase agreement (the "POI Acquisition"). Under the terms of the definitive
agreement, Schlumberger received approximately $270 million in cash, $150
million in a long-term subordinated note and approximately 8,708,000 shares, or
approximately 10% of the outstanding shares, of Hanover common stock which are
required to be held by Schlumberger for at least three years following the
closing date. The ultimate number of shares issued under the purchase agreement
was determined based on the nominal value of $283 million divided by the 30 day
average closing price of Hanover common stock as defined under the agreement and
subject to a collar of $41.50 and $32.50. The estimated fair value of the stock
issued was $212.5 million, based on the market value of the shares at the time
the number of shares issued was determined reduced by an estimated 20% discount
due to the restrictions on the stock's marketability. Additionally, under the
terms of the agreement, the Company is required to pay $58 million upon the
occurrence of certain events (see Note 12) relating to one of the joint ventures
acquired by Hanover in the transaction. The purchase price was a negotiated
amount between the Company and Schlumberger and the Company expects the
acquisition to be accretive to earnings in future periods. The Company believes
the purchase price represents the fair value of the POI business acquired based
upon its assets, customer base, reputation, market position (domestic and
international) and potential for long-term growth. The POI Acquisition was
accounted for as a purchase and is included in Hanover's financial statements
commencing on September 1, 2001.

     The Company recorded approximately $36 million in goodwill related to the
acquisition which will not be amortized in accordance with the transition
provisions of SFAS 142 (See Note 10). In addition, the Company recorded $18.3
million in estimated value of identifiable intangible assets. The purchase price
is subject to certain post-closing adjustments and a contingent payment by
Hanover to Schlumberger based on the realization of certain tax benefits by
Hanover over the next 15 years. This final amount of goodwill and identifiable
intangible assets could differ from the amount recorded upon completion of third
party valuations of the acquired assets and any required purchase price
adjustment under the agreement.

     The pro forma information set forth below assumes the acquisitions of OEC
and POI 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>

                                                              Three Months Ended September 30,       Nine Months Ended September 30,
                                                              --------------------------------       -------------------------------
                                                                  2001                2000               2001               2000
                                                                  ----                ----               ----               ----
                                                               (Restated)          (Restated)         (Restated)         (Restated)
<S>                                                            <C>                 <C>               <C>               <C>

Revenue                                                           $307,477         $203,874           $865,933          $581,298
Net income before cumulative effect of accounting change *        $ 17,579         $ 12,108           $ 58,929          $ 33,734
Earnings per common share--basic                                  $   0.22         $   0.16           $   0.75          $   0.45
Earnings per common share--diluted                                $   0.21         $   0.15           $   0.71          $   0.43
</TABLE>

*  Net income (and per share amounts) include other expense of $2.8 million for
the three and nine months ended September 30, 2001, respectively (see note 6).

                                       7
<PAGE>

3.  INVENTORIES

Inventory consisted of the following amounts (in thousands):


                                                September 30,   December 31,
                                                    2001           2000
                                                    ----           ----
                                                 (Restated)      (Restated)
Parts and supplies..............................  $188,109        $93,308
Work in progress................................    54,356         47,193
Finished goods..................................     6,856          4,941
                                                  --------       --------
                                                  $249,321       $145,442
                                                  ========       ========

4.  PROPERTY, PLANT AND EQUIPMENT

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

                                         September 30,    December 31,
                                              2001            2000
                                              ----            ----
                                           (Restated)      (Restated)
Compression equipment and facilities...     $1,016,844       $576,328
Land and buildings.....................         50,367         35,233
Transportation and shop equipment......         60,114         44,202
Other..................................         21,138         15,279
                                            ----------       --------
                                             1,148,463        671,042
Accumulated depreciation...............       (139,194)       (97,446)
                                            ----------       --------
                                            $1,009,269       $573,596
                                            ==========       ========

     In August 2001, the Company exercised its purchase option under the 1998
operating lease for $200 million. The depreciable basis of the compressors
purchased has been reduced by the deferred gain of approximately $42 million
which was recorded at inception of the lease and previously included as an other
liability on the Company's balance sheet (see note 8).

5. INVESTMENTS IN NONCONSOLIDATED AFFILIATES

     In connection with the POI Acquisition in August 2001, the Company acquired
ownership interests in certain joint venture projects in South America. The
investments in joint ventures are accounted for using the equity method of
accounting as the Company has ability to exercise significant influence over
each joint venture. The Company's preliminary estimate of the fair value of
these long-term investments totals $147 million but could change subject to
completion of the third party appraisal of the joint ventures. The Company's
ownership interest and the location of each joint venture is as follows:

                              Ownership
                              Interest      Location
                              --------      --------

      Wilpro - Pigap II           30.0%     Venezuela
      Wilpro - El Furrial         33.3%     Venezuela
      Simco                       35.5%     Venezuela

                                       8
<PAGE>

6. LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                       September 30,   December 31,
                                                                                      --------------  -------------
                                                                                           2001           2000
                                                                                           ----           ----
  <S>                                                                                 <C>             <C>
   Revolving credit facility                                                               $ 85,000       $102,500
   4.75% convertible senior notes due 2008                                                  192,000
   Schlumberger note, interest at 8.5%                                                      150,000
   Real estate mortgage, interest at 7.5%, collateralized by certain land and
     buildings, payable through 2002.                                                         3,667          4,000
   Other, interest at various rates, collateralized by equipment and other assets,
     net of unamortized discount                                                              9,649          6,858
                                                                                            -------       --------

                                                                                            440,316        113,358
   Less--current maturities                                                                  (5,607)        (2,423)
                                                                                           --------       --------

                                                                                           $434,709       $110,935
                                                                                           ========       ========
</TABLE>

The Company's credit agreement provides for a $200 million revolving credit
facility that matures on December 17, 2002. Advances bear interest at the bank's
prime or a negotiated rate (4.60% and 7.5% at September 30, 2001 and December
31, 2000, respectively). A commitment fee of 0.35% per annum on the average
available commitment is payable quarterly. The credit agreement contains certain
financial covenants and limitations on, among other things, indebtedness, liens,
leases and sales of assets. The credit agreement also limits the payment of cash
dividends on the Company's common stock to 25% of net income for the respective
period. In March 2001, the Company issued $192 million principal amount of 4.75%
convertible senior notes due 2008 (see note 7).

In connection with the POI Acquisition on August 31, 2001, the Company issued a
$150 million subordinated acquisition note to Schlumberger, which matures
December 15, 2005. Interest on the subordinated acquisition note accrues and is
payable-in-kind at the rate of 8.5% annually for the first six months after
issuance and periodically increases in increments of 1% to 2% per annum to a
maximum interest rate 42 months after issuance of 15.5%. In the event of an
event of default under the subordinated acquisition note, interest will accrue
at a rate of 2% above the then applicable rate. The subordinated acquisition
note is subordinated to all of the Company's indebtedness other than
indebtedness to fund future acquisitions. In the event that the Company
completes an offering of equity securities, the Company is required to apply the
proceeds of the offering to repay amounts outstanding under the subordinated
acquisition note as long as no default exists or would exist under our other
indebtedness as a result of such payment. In August of 2001, the Company
recorded in other expense a $2.8 million charge related to a bridge loan
commitment fee associated with Hanover's recent acquisition of POI.

     Maturities of long-term debt at September 30, 2001 are (in thousands of
dollars): 2001--$613; 2002--$90,423; 2003--1,364; 2004--$1,053; 2005--$150,871;
2006--$546 and $195,446 thereafter.

7.  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 mature on March 15, 2008 and are
first subject to call on March 15, 2004. The notes are convertible into shares
of the Company's common stock at a conversion price of approximately $43.94 per
share. The Company received approximately $185.3 million 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.

8.  LEASING TRANSACTION

     In August 2001 and in connection with the POI Acquisition, the Company
completed two sale and lease back transactions involving certain compression
equipment. Concurrent with the transactions, the Company exercised its purchase
option under its 1998 operating lease for $200,000,000. Under one transaction,
the Company received $309,300,000 proceeds from the sale of compression
equipment. Under the second transaction, the Company received $257,750,000 for
the sale of additional compression equipment. Both transactions are recorded as
a sale and lease back of the equipment and are recorded as operating leases.
Under the $309,300,000 transaction, the equipment was sold and leased back by
the Company for a 7 year period and will continue to be deployed by the Company
under its normal operating procedures. The agreement calls for semi-annual
rental payments of approximately $12,750,000 in addition to quarterly rental
payments of approximately $245,000. Under

                                       9
<PAGE>

the $257,750,000 transaction, the equipment was sold and leased back by the
Company for a 10 year period and will continue to be deployed by the Company
under its normal operating procedures. The agreement calls for semi-annual
rental payments of approximately $10,938,000 in addition to quarterly rental
payments of approximately $213,000. The Company has options to repurchase the
equipment under certain conditions as defined by the lease agreement. The
Company incurred transaction costs of approximately $17,700,000 related to the
transactions. These costs are included in intangible and other assets and are
being amortized over the respective lease terms.

     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. Under the 2000 and
1999 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 under the 2000 and 1999 leases at fair market value. The 2000 and 1999
lease agreements call for variable quarterly payments that fluctuate with the
London Interbank Offering Rate. The following table summarizes the proceeds, net
book value of equipment sold, deferred gain on equipment sale and the residual
value guarantee for each equipment lease (in thousands of dollars):


                                   SALE    NET BOOK  DEFERRED      RESIDUAL
LEASES                           PROCEEDS   VALUE      GAIN    VALUE GUARANTEE
------                           --------   -----      ----    ---------------

June 1999.....................   $200,000  $166,356   $33,644      $166,000
March and August 2000.........    200,000   166,922    33,078       166,000
October 2000..................    172,589   155,692    16,897       142,299
August 2001...................    567,050   541,911    25,139       407,000

     All transactions are recorded as a sale and lease back of the equipment and
the leases are treated as operating leases. 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 under the terms of the lease agreements. 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. Upon exercise of the purchase option under the 1998 operating
lease, the Company reduced its depreciable basis by the gain of approximately
$42 million previously deferred. The following future minimum lease payments are
due under the leasing arrangements exclusive of any guarantee payments (in
thousands): 2001 -- $21,458; 2002 -- $85,833; 2003 -- $85,833; 2004 -- $80,248;
2005 -- $63,474; 2006 -- $49,375.

9.  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 which are outstanding at September 30, 2001
with notional amounts of $75,000,000 and $125,000,000 and strike rates of 5.51%
and 5.56%, respectively. 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 interest rate swaps 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 nine months ended
September 30, 2001, the Company recognized additional unrealized loss of $5.7
million and $8.7 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 September 30, 2001 the Company recorded a liability of $9
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.

                                       10
<PAGE>

     During the second quarter of 2001, the Company entered into three
additional interest rate swaps to convert variable lease payments under certain
operating 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. During the three
months and nine months ended September 30, 2001, the Company recorded a $8.7
million and $7.9 million loss, net of tax in other comprehensive income and
recorded a liability related to these swaps of $13 million in other liabilities.

     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

10. 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. Under SFAS No.142, amortization of goodwill to earnings will be
discontinued. However, goodwill will be reviewed for impairment annually or
whenever events indicate impairment may have occurred. SFAS No.142 is effective
for Hanover on January 1, 2002. However, under the transition provisions of SFAS
142, goodwill acquired in a business combination for which the acquisition date
is after June 30, 2001, shall not be amortized. Since the acquisition of POI was
consummated after June 30, 2001, the goodwill related to the POI acquisition
will not be amortized. The goodwill related to business combinations completed
before June 30, 2001 continues to be amortized since Hanover has not adopted
SFAS 142.

     At September 30, 2001, Hanover has recorded approximately $222.3 million of
goodwill, of which $181.3 million is required to be amortized, at an annual rate
of approximately $9.6 million, under generally accepted accounting principles.
The Company is currently evaluating the effect the implementation of SFAS No.
142 will have on its financial statements.

     In June 2001, the FASB issued SFAS No. 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets. SFAS 143 establishes the
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. This statement is effective
for Hanover effective January 1, 2003. The Company is presently evaluating the
impact that the implementation of SFAS 143 will have on its financial
statements.

     In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144
addresses significant issues relating to the implementation of SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and to develop a single accounting model, based on the framework
established in FAS 121, for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired. This statement is effective for
Hanover effective January 1, 2002. The Company is presently evaluating the
impact that the implementation of SFAS 144 will have on its financial
statements.

11. 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.


     In August 2001, the Company paid $4.7 million to GKH Partners, L.P., a
major stockholder of the Company, as payment for services rendered in connection
with the POI Acquisition.

     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.

                                       11
<PAGE>

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


12. COMMITMENTS AND CONTINGENCIES

     As part of the POI Acquisition, the Company is required to make a payment
of $58 million due upon the completion of a refinancing of a South American
joint venture acquired by Hanover. If the joint venture fails to execute the
refinancing on or before December 31, 2002, Hanover will be obligated to either
put its interest in such joint venture back to Schlumberger or make the joint
venture payment using other funds. This obligation is recorded in other
liabilities in the accompanying balance sheet. The purchase price is also
subject to certain post-closing adjustments and a contingent payment by Hanover
to Schlumberger based on the realization of certain tax benefits by Hanover over
the next 15 years.

     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 must
present each project to the Company which must be approved at the Company's sole
discretion. At September 30, 2001, no amounts were outstanding under the
facilitation agreement.

     Under a separate agreement with Bellili, the Company has guaranteed
performance bonds on Bellili's behalf totaling approximately $9.3 million at
September 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.

13. 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. Inter-segment sales are accounted
for at cost, except for compression fabrication equipment revenue 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.

                                       12
<PAGE>

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

<TABLE>
<CAPTION>
                 (Restated)                  Three Months Ended September 30, 2001         Three Months Ended September 30, 2000
                                          ------------------------------------------     ------------------------------------------
                                            Sales to                                        Sales to
                                            External      Intersegment      Total           External    Intersegment       Total
              Business Segment              Customers         Sales        Revenues         Customers       Sales        Revenues
              ----------------            ------------------------------------------     ------------------------------------------
     <S>                                    <C>           <C>             <C>               <C>         <C>              <C>
     Domestic rentals                          $ 72,033                     $ 72,033          $ 45,533                     $ 45,533

     International rentals                       32,962       $    711        33,673            20,776      $    300         21,076

     Parts service & used equipment              67,658         13,460        81,118            28,743         2,452         31,195

     Compressor fabrication                      55,571         12,991        68,562            26,428        21,187         47,615

     Production equipment fabrication            50,363          2,531        52,894            25,634                       25,634

     Other                                        2,723          1,261         3,984             1,846           884          2,730

     Eliminations                                              (30,954)      (30,954)                        (24,823)       (24,823)
                                          ------------------------------------------     ------------------------------------------
     Total consolidated revenues               $281,310                     $281,310          $148,960                     $148,960
                                          ==========================================     ==========================================
</TABLE>

<TABLE>
<CAPTION>
                 (Restated)                  Nine Months Ended September 30, 2001           Nine Months Ended September 30, 2000
                                          ------------------------------------------     ------------------------------------------
                                            Sales to                                        Sales to
                                            External      Intersegment      Total           External    Intersegment       Total
              Business Segment              Customers         Sales        Revenues         Customers       Sales        Revenues
              ----------------            ------------------------------------------     ------------------------------------------
     <S>                                    <C>           <C>             <C>               <C>         <C>              <C>
     Domestic rentals                          $185,822                     $185,822          $122,761                    $ 122,761

     International rentals                       89,298       $  2,845        92,143            57,449      $    900         58,349

     Parts service & used equipment             168,017         37,428       205,445            64,293        22,155         86,448

     Compressor fabrication                     168,061         49,713       217,774            55,599        73,490        129,089

     Production equipment fabrication           135,760          4,763       140,523            46,745         1,747         48,492

     Other                                        9,562          3,507        13,069             9,754         2,477         12,231

     Eliminations                                              (98,256)      (98,256)                       (100,769)      (100,769)
                                          ------------------------------------------     ------------------------------------------
     Total consolidated revenues               $756,520                     $756,520          $356,601                    $ 356,601
                                          ==========================================     ==========================================
</TABLE>

<TABLE>
<CAPTION>
        (Restated)                                          Gross Profit
                                  ----------------------------------------------------------------
                                          Three Months Ended               Nine Months Ended               Identifiable Assets
                                          ------------------               -----------------         -------------------------------
                                    September 30,    September 30,   September 30,   September 30,    September 30,    September 30,
     Business Segment                   2001             2000            2001            2000             2001             2000
     ----------------             --------------------------------   -----------------------------   -------------------------------
<S>                                 <C>               <C>            <C>             <C>             <C>               <C>
Domestic rentals                        $ 46,144          $29,550        $122,485        $ 80,592       $1,205,951       $  684,936

International rentals                     23,461           13,496          59,972          37,514          481,946          174,027

Parts service & used equipment            19,823           10,792          56,139          22,091           79,110           24,037

Compressor fabrication                     9,916            3,973          27,417           9,270          249,098          278,290

Production equipment fabrication          10,532            5,088          27,951           9,781          113,221           92,336

Other                                      2,723            1,846           9,562           9,754           22,308           13,042
                                  --------------------------------   -----------------------------   -------------------------------
Total                                   $112,599          $64,745        $303,526        $169,002       $2,151,634       $1,266,668
                                  ================================   =============================   ===============================
</TABLE>

                                       13
<PAGE>

14.  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 September 30, 2001
                 ---------------------------------------------

<TABLE>
<CAPTION>
                                                                             Cawthorne
                                                                              Channel       Acquisition
                                                                             Project in         of
                                                                             Nigeria /      Compressors
                                                                              Hampton           In           Sale of
                                                                            Roads Joint    Non-Monetary      Turbine
                                                               As Filed       Venture        Exchange         Engine
Revenues:                                                      ---------      -------        --------        -------
<S>                                                            <C>          <C>            <C>               <C>
  Rentals.................................................      $104,995
  Parts, service and used equipment.......................        84,608                                      ($16,950)
  Compressor fabrication..................................        55,678        ($107)
  Production and processing equipment fabrication.........        50,363
  Equity in income of non-consolidated affiliates.........         1,688
  Other...................................................         1,467                                          (432)
                                                                --------      -------        --------        ---------
        Total revenues....................................       298,799         (107)                         (17,382)
                                                                --------      -------        --------        ---------
Expenses:
  Rentals................................................         35,390
  Parts, service and used equipment......................         61,716                                       (13,881)
 Compressor fabrication..................................         45,897         (242)
  Production and processing equipment fabrication........         39,831
  Selling, general and administrative....................         23,706
  Depreciation and amortization..........................         24,998                       ($20)
  Lease expense..........................................         16,614
  Interest expense.......................................          4,355         (155)
  Distributions on mandatorily redeemable convertible
     preferred Securities................................          1,593
  Other..................................................          8,466
                                                                --------      -------        -------         ---------
        Total expenses...................................        262,566         (397)          (20)           (13,881)
                                                                --------      -------        -------         ---------
Income before income taxes...............................         36,233          290            20             (3,501)
Provision for income taxes...............................         13,769          110             8             (1,330)
                                                                --------      -------        -------         ---------
Net income...............................................       $ 22,464        $ 180        $   12            ($2,171)
                                                                ========      =======        =======         =========
Earnings per common share
    Basic                                                       $   0.31
    Diluted                                                     $   0.29

<CAPTION>
                                                                                Additional
                                                                                 Selling,
                                                                                General and
                                                                              Administrative,
                                                                               Depreciation
                                                                                   and
                                                                               Amortization
                                                                                 Expenses         Restated
                                                                                 --------         --------
<S>                                                                            <C>               <C>
Revenues:
  Rentals...............................................................                          $104,995
  Parts, service and used equipment.....................................                            67,658
  Compressor fabrication................................................                            55,571
  Production and processing equipment fabrication.......................                            50,363
  Equity in income of non-consolidated affiliates.......................                             1,688
  Other.................................................................                             1,035
                                                                                  -------         --------
        Total revenues..................................................                           281,310
                                                                                  -------         --------
Expenses:
  Rentals...............................................................                            35,390
  Parts, service and used equipment.....................................                            47,835
 Compressor fabrication................................................                             45,655
  Production and processing equipment fabrication.......................                            39,831
  Selling, general and administrative...................................          $   506           24,212
  Depreciation and amortization.........................................              520           25,498
  Lease expense.........................................................                            16,614
  Interest expense......................................................                             4,200
  Distributions on mandatorily redeemable convertible preferred
     Securities.........................................................                             1,593
  Other.................................................................                             8,466
                                                                                  -------         --------
        Total expenses..................................................            1,026          249,294
                                                                                  -------         --------
Income before income taxes..............................................           (1,026)          32,016
Provision for income taxes..............................................             (389)          12,168
                                                                                  -------         --------
Net income..............................................................            ($637)        $ 19,848
                                                                                  =======         ========
Earnings per common share
    Basic                                                                                         $   0.27
    Diluted                                                                                       $   0.26
</TABLE>

                                       14
<PAGE>

                  For the Three Months Ended September 30, 2000
                  ---------------------------------------------


<TABLE>
<CAPTION>
                                                                                             Cawthorne
                                                                                              Channel      Acquisition
                                                                                            Project in         of
                                                                                             Nigeria /     Compressors
                                                                                              Hampton          In
                                                                                            Roads Joint   Non-Monetary
                                                                                As Filed      Venture        Exchange    Restated
                                                                                --------      -------        --------    --------
<S>                                                                             <C>          <C>          <C>            <C>
Revenues:
  Rentals ................................................................      $ 66,309                                  66,309
  Parts, service and used equipment ......................................        28,743                                  28,743
  Compressor fabrication .................................................        30,975       ($4,547)                   26,428
  Production and processing equipment fabrication ........................        32,759        (7,125)                   25,634
  Equity in income of non-consolidated affiliates ........................           455                                     455
  Other ..................................................................         3,340                      ($1,949)     1,391
                                                                                --------      --------       --------   --------
    Total revenues .......................................................       162,581       (11,672)        (1,949)   148,960
                                                                                --------      --------       --------   --------
 Expenses:
  Rentals ................................................................        23,263                                  23,263
  Parts, service and used equipment ......................................        17,951                                  17,951
  Compressor fabrication .................................................        26,208        (3,753)                   22,455
  Production and processing equipment fabrication ........................        25,520        (4,974)                   20,546
  Selling, general and administrative ....................................        14,467                                  14,467
  Depreciation and amortization ..........................................        14,179                                  14,179
  Lease expense ..........................................................        11,460                                  11,460
  Interest expense .......................................................         2,925           (94)                    2,831
  Distributions on mandatorily redeemable convertible preferred
   Securities ............................................................         1,593                                   1,593
  Other ..................................................................
                                                                                --------      --------       --------   --------
    Total expenses .......................................................       137,566        (8,821)                  128,745
                                                                                --------      --------       --------   --------
Income before income taxes ...............................................        25,015        (2,851)        (1,949)    20,215
Provision for income taxes ...............................................         9,605        (1,061)          (724)     7,820
                                                                                --------      --------       --------   --------
Net income ...............................................................      $ 15,410      $ (1,790)      ($ 1,225)  $ 12,395
                                                                                -=======      ========       ========   ========
Earnings per common share
       Basic                                                                    $   0.24                                $   0.19
       Diluted                                                                  $   0.23                                $   0.18
</TABLE>

                                       15
<PAGE>

                  For the Nine Months Ended September 30, 2001
                  --------------------------------------------

<TABLE>
<CAPTION>
                                                                               Cawthorne      Acquisition
                                                                                Channel           of
                                                                               Project in     Compressors
                                                                                Nigeria /         In        Compressor   Sale of
                                                                              Hampton Roads   Non-Monetary     Sale      Turbine
                                                                   As Filed   Joint Venture     Exchange   Transaction   Engine
                                                                  ----------  -------------     --------   -----------   ------
<S>                                                               <C>         <C>             <C>          <C>          <C>
Revenues:
  Rentals.................................................        $ 275,120
  Parts, service and used equipment.......................          189,063                                $    12,004  ($33,050)
  Compressor fabrication..................................          168,168         ($107)
  Production and processing equipment fabrication.........          139,296        (3,536)
  Gain on change in interest in non-consolidated
    affiliate.............................................            3,751
  Other...................................................            6,243                                                 (432)
                                                                  ---------    ----------       ---------- -----------  --------
    Total revenues........................................          781,641        (3,643)                      12,004   (33,482)
                                                                  ---------    ----------       ---------- -----------  --------
 Expenses:
  Rentals.................................................           92,663
  Parts, service and used equipment.......................          132,126                                      7,954   (28,202)
  Compressor fabrication..................................          140,915          (271)
  Production and processing equipment fabrication.........          110,277        (2,468)
  Selling, general and administrative.....................           66,341           263
  Depreciation and amortization...........................           60,926                           ($60)
  Lease expense...........................................           47,541
  Interest expense........................................           10,318           (63)
  Distributions on mandatorily redeemable convertible
preferred
   Securities.............................................            4,780
  Other...................................................           11,473
                                                                  ---------    ----------       ---------- -----------  --------
    Total expenses........................................          677,360        (2,539)             (60)      7,954   (28,202)
                                                                  ---------    ----------       ---------- -----------  --------
Income before income taxes................................          104,281        (1,104)              60       4,050    (5,280)
Provision for income taxes................................           39,620          (420)              23       1,539    (2,006)
                                                                  ---------    ----------       ---------- -----------  --------
Net income before cumulative effect of accounting
   change.................................................           64,661          (684)              37       2,511    (3,274)
   Cumulative effect of accounting change, net
     income tax...........................................             (164)
                                                                  ---------    ----------       ---------- -----------  --------
Net income................................................        $  64,497         ($684)      $       37 $     2,511   ($3,274)
                                                                  =========    ==========       ========== ===========  ========
Earnings per common share
       Basic                                                      $    0.92
       Diluted                                                    $    0.86

<CAPTION>
                                                          Additional
                                                            Selling,
                                                          General and
                                                        Administrative,
                                                         Depreciation
                                                             and
                                                          Amortization
                                                           Expenses          Restated
                                                          ----------        ----------
<S>                                                     <C>                 <C>
Revenues:
  Rentals................................................                   $  275,120
  Parts, service and used equipment......................                      168,017
  Compressor fabrication.................................                      168,061
  Production and processing equipment fabrication........                      135,760
  Gain on change in interest in non-consolidated
    affiliate............................................                        3,751
  Other..................................................                        5,811
                                                            --------        ----------
    Total revenues.......................................                      756,520
                                                            --------        ----------
 Expenses:
  Rentals................................................                       92,663
  Parts, service and used equipment......................                      111,878
  Compressor fabrication.................................                      140,644
  Production and processing equipment fabrication........                      107,809
  Selling, general and administrative....................      1,989            68,593
  Depreciation and amortization..........................      1,616            62,482
  Lease expense..........................................                       47,541
  Interest expense.......................................                       10,255
  Distributions on mandatorily redeemable convertible
preferred
   Securities............................................                        4,780
  Other..................................................                       11,473
                                                            --------        ----------
    Total expenses.......................................     (3,605)          658,118
                                                                            ----------
Income before income taxes...............................     (3,605)           98,402
Provision for income taxes...............................     (1,369)           37,387
                                                            --------        ----------
Net income before cumulative effect of accounting
   change................................................     (2,236)           61,015
   Cumulative effect of accounting change, net
     income tax..........................................                         (164)
                                                            --------        ----------
Net income...............................................    ($2,236)       $   60,851
                                                            ========        ==========
Earnings per common share
       Basic                                                                $     0.87
       Diluted                                                              $     0.81
</TABLE>

                                       16
<PAGE>

                 For the Nine Months Ended September 30, 2000
                 --------------------------------------------

<TABLE>
<CAPTION>
                                                                                           Cawthorne
                                                                                            Channel      Acquisition
                                                                                          Project in         of
                                                                                           Nigeria /     Compressors
                                                                                            Hampton          In
                                                                                          Roads Joint   Non-Monetary
                                                                              As Filed      Venture       Exchange      Restated
                                                                              --------      -------       --------      --------
<S>                                                                           <C>         <C>           <C>             <C>
Revenues:
  Rentals..................................................................    $180,210                                  $180,210
  Parts, service and used equipment........................................      64,293                                    64,293
  Compressor fabrication...................................................      60,146       ($4,547)                     55,599
  Production and processing equipment fabrication..........................      53,870        (7,125)                     46,745
  Equity in income of non-consolidated affiliates..........................       1,953                                     1,953
  Other....................................................................       9,750                     ($1,949)        7,801
                                                                               --------      --------     ---------      --------
    Total revenues.........................................................     370,222       (11,672)       (1,949)      356,601
                                                                               --------      --------     ---------      --------
 Expenses:
  Rentals..................................................................      62,104                                    62,104
  Parts, service and used equipment........................................      42,202                                    42,202
  Compressor fabrication...................................................      50,082        (3,753)                     46,329
  Production and processing equipment fabrication..........................      41,938        (4,974)                     36,964
  Selling, general and administrative......................................      34,481                                    34,481
  Depreciation and amortization............................................      36,830                                    36,830
  Lease expense............................................................      29,596                                    29,596
  Interest expense.........................................................       5,560           (94)                      5,466
  Distributions on mandatorily redeemable convertible preferred
   Securities..............................................................       4,776                                     4,776
  Other
                                                                               --------      --------     ----------     --------
    Total expenses.........................................................     307,569        (8,821)                    298,748
                                                                               --------      --------     ----------     --------
Income before income taxes.................................................      62,653        (2,851)        (1,949)      57,853
Provision for income taxes.................................................      23,305        (1,061)          (724)      21,520
                                                                               --------      --------     ----------     --------
Net income.................................................................    $ 39,348      $ (1,790)       ($1,225)    $ 36,333
                                                                               ========      ========     ==========     ========
Earnings per common share
       Basic...............................................................    $   0.65                                  $   0.60
       Diluted.............................................................    $   0.61                                  $   0.56
</TABLE>

Cawthorne Channel Project in Nigeria / Hampton Roads Joint Venture
------------------------------------------------------------------

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

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

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

  In February 2002, the Company purchased the 75% interest in Hampton Roads that
it did not own. The Company now owns 100% of the venture and will recognize the
rental revenues pursuant to its contract with Global once startup begins.
                               17
<PAGE>

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 has determined that it
should not have recognized a gain on this transaction. The impact for the 2001
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 has determined that it should
have recognized the gain on this transaction when it issued the bill of sale in
January 2001 rather then 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 and recorded $3.1 million of pre-tax
income on a $16.9 million turbine sale in the third quarter of 2001. Upon
further evaluation of the transactions, 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 $506,000 and $1,989,000 for the three
and nine  month periods ended September 30, 2001, respectively.  Additionally,
the Company understated depreciation and amortization expenses for the
corresponding periods by $520,000 and 1,616,000, respectively.


                                       18
<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 the global market leader in full service natural gas
compression and a leading provider of service, financing, fabrication and
equipment for contract natural gas handling applications. The Company provides
this equipment on a rental, contract compression, maintenance and acquisition
leaseback basis to natural gas production, processing and transportation
companies that are increasingly seeking outsourcing solutions. Founded in 1990
and a public company since 1997, its customers include premier independent and
major producers and distributors throughout the Western Hemisphere. 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 September 30, 2001, the Company
operated a fleet of 6,939 compression rental units with an aggregate capacity of
approximately 3,487,000 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.

     In August 2001, the Company acquired the Production Operators Corporation
natural gas compression business, ownership interests in certain joint venture
projects in South America, and related assets ("POI") from Schlumberger for $761
million in cash, common stock and indebtedness, subject to certain post-closing
adjustments pursuant to the purchase agreement (the "POI Acquisition"). The POI
Acquisition was accounted for as a purchase and is included in Hanover's
financial statements commencing on September 1, 2001.


RESULTS OF OPERATIONS

The following discussion has been updated to reflect the restated results of
operations, see Note 14 in "Notes to Consolidated Financial Statements" for
details regarding the restatement.

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

REVENUES

     The Company's total revenues increased by $132.3 million, or 89%, to $281.3
million during the three months ended September 30, 2001 from $149.0 million
during the three months ended September 30, 2000. The increase in revenues
resulted from growth in revenues and horsepower from the Company's natural gas
compressor rental fleet, organic growth in the

                                       19
<PAGE>

Company's outsourcing businesses, which now include compression, gas treating,
process measurement and power generation as well as growth due to business
acquisitions completed in 2001 and 2000.

     Revenues from rentals increased by $38.7 million, or 58%, to $105.0 million
during the three months ended September 30, 2001 from $66.3 million during the
three months ended September 30, 2000. Domestic revenues from rentals increased
by $26.5 million, or 58%, to $72.0 million during the three months ended
September 30, 2001 from $45.5 million during the three months ended September
30, 2000. International rental revenues increased by $12.2 million, or 59%, to
$33.0 million during the three months ended September 30, 2001 from $20.8
million during the three months ended September 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.
Subsequent to the acquisition of POI on August 31, 2001, rental revenues related
to the POI business of $11.7 million were included in the Company's revenues for
the period ended September 30, 2001. At September 30, 2001, the compressor
rental fleet consisted of approximately 3,487,000 horsepower, a 66% increase
over the 2,098,000 horsepower in the rental fleet at September 30, 2000.
Domestic horsepower in the rental fleet increased by 60% to 2,740,000 horsepower
at September 30, 2001 from approximately 1,714,000 horsepower at September 30,
2000. International horsepower increased by 95% to 747,000 horsepower at
September 30, 2001 from approximately 384,000 horsepower at September 30, 2000.

     Revenue from parts, service and used equipment increased by $39.0 million,
or 135% to $67.7 million during the three months ended September 30, 2001 from
$28.7 million during the three months ended September 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 $29.1 million, or 110%, to $55.6 million
during the three months ended September 30, 2001 from $26.4 million during the
three months ended September 30, 2000. This increase is due to the continued
development of this product line and the acquisition of Dresser-Rand Company's
compression service division beginning in September 2000. During the three
months ended September 30, 2001, an aggregate of approximately 152,000
horsepower of compression equipment was fabricated compared to approximately
81,000 horsepower fabricated during the three months ended September 30, 2000.

     Revenues from production and processing equipment fabrication increased by
$24.8 million, or 96%, to $50.4 million during the three months ended September
30, 2001 from $25.6 million during the three months ended September 30, 2000.
The increase is due primarily to an improvement in market conditions in the
process equipment business.

     Equity in earnings in subsidiaries increased $1.2 million, or 271%, to $1.7
million during the three months ended September 30, 2001, from $.5 million
during the three months ended September 30, 2000. This increase is primarily due
to the acquisition of POI which included interests in certain joint venture
projects in South America.

EXPENSES

     Operating expenses of the rental segments increased by $12.1 million, or
52%, to $35.4 million during the three months ended September 30, 2001 from
$23.3 million during the three months ended September 30, 2000. The increase
resulted primarily from the corresponding 58% increase in revenues from rentals
over the corresponding period in 2000. The gross profit percentage from rentals
was 66% during the three months ended September 30, 2001 and 65% during the
three months ended September 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 $29.9 million, or 166% to $47.8 million,
which relates to the 135% increase in parts, service and used equipment revenue.
The gross profit margin from parts, service and used equipment was 29% during
the three months ended September 30, 2001 from 38% during the three months ended
September 30, 2000. The gross margin in parts, service and used equipment was
decreased by approximately 3% by a low margin installation project in Venezuela,
which should be completed in the fourth quarter. Operating expenses of
compressor fabrication increased by $23.2 million, or 103%, to $45.7 million
during the three months ended September 30, 2001 from $22.5 million during the
three months ended September 30, 2000 commensurate with the corresponding
increase in compressor fabrication revenue. The gross profit margin on
compression fabrication was 18% during the three months ended September 30, 2001
and 15% during the three months ended September 30, 2000. The increase in gross
profit margin for compression fabrication was attributable to operating
efficiencies realized on certain projects completed during the quarter which may
not be achievable in future periods. The operating expenses attributable to
production and processing equipment fabrication increased by $19.3 million, or
94%, to $39.8 million during the three months ended September 30, 2001 from
$20.5 million during the three months ended September 30, 2000. The gross profit
margin attributable to production and processing equipment fabrication was 21%
during the three months ended September 30, 2001 and was 20% during the three
months ended September 30, 2000.

     Selling, general and administrative expenses increased $9.7 million, or
67%, to $24.2 million during the three months ended September 30, 2001 from
$14.5 million during the three months ended September 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.

                                       20
<PAGE>

     The Company believes that earnings before interest, leasing expense,
distributions on mandatorily redeemable convertible preferred securities, income
taxes, depreciation and amortization (EBITDA) is a standard measure of financial
performance used for valuing companies in the compression industry. EBITDA is a
useful common yardstick as it measures the capacity of companies to generate
cash without reference to how they are capitalized, how they account for
significant non-cash charges for depreciation and amortization associated with
assets used in the business (the bulk of which are long-lived assets in the
compression industry), or what their tax attributes may be. Additionally, since
EBITDA is a basic source of funds not only for growth but to service
indebtedness, lenders in both the private and public debt markets use EBITDA as
a primary determinant of borrowing capacity. EBITDA for the three months ended
September 30, 2001 increased 59% to $79.9 million from $50.3 million for the
three months ended September 30, 2000. This increase was primarily due to the
increase in the Company's revenues and gross profit which were explained above.
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 $11.3 million to $25.5 million
during the three months ended September 30, 2001 compared to $14.2 million
during the three months ended September 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 August 2000 and in
August of 2001. In addition, the increase in depreciation expense was partially
offset by the change in the depreciable lives of certain types of compression
equipment. Prior to July 1, 2001, compression equipment in the rental fleet was
depreciated using the straight-line method over an estimated useful life that
ranged from 4 to 25 years. Effective July 1, 2001, the Company changed its
estimate of the useful life of certain compression equipment from 15 to 30
years. The effect of this change in estimate on the quarter ended September 30,
2001 was a decrease in depreciation expense of approximately $1.5 million and an
increase in net income of approximately $0.9 million ($0.01 per share). The
Company anticipates this change in estimated useful life will reduce future
depreciation expense, based on the Company's current depreciable assets, by
approximately $3 million per quarter. The increase in amortization was due to
the goodwill recorded from business acquisitions completed during 2001 and 2000.

     The Company incurred leasing expense of $16.6 million, during the three
months ended September 30, 2001 compared to $11.5 million during the three
months ended September 30, 2000. The increase of $5.1 million resulted from the
additional equipment leases entered into in 2001 and 2000.

     Interest expense increased by $1.4 million to $4.2 million during the three
months ended September 30, 2001 from $2.8 million for the three months ended
September 30, 2000. The increase in interest expense is due to higher levels of
outstanding debt which was partially offset by lower interest rates.

Other expense during the three months ended September 30, 2001 was $8.5 million,
which included a $2.8 million bridge loan commitment fee associated with
Hanover's recent acquisition of POI and a $5.7 million non-cash charge 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 9 to Condensed
Consolidated Financial Statements).

INCOME TAXES

     The provision for income taxes increased by $4.4 million, or 56%, to $12.2
million during the three months ended September 30, 2001 from $7.8 million
during the three months ended September 30, 2000. The increase resulted
primarily from the corresponding increase in income before income taxes. The
average effective income tax rate during the three months ended September 30,
2001 and 2000 was 38%.

NET INCOME

     Net income increased $7.4 million, or 60%, to $19.8 million during the
three months ended September 30, 2001 from $12.4 million during the three months
ended September 30, 2000 due to the increase in revenues and gross profits
discussed above.


NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000

REVENUES

     The Company's total revenues increased by $399.9 million, or 112%, to
$756.5 million during the nine months ended September 30, 2001 from $356.6
million during the nine months ended September 30, 2000. The increase in
revenues resulted

                                       21
<PAGE>

from growth in revenues and horsepower from the Company's natural gas compressor
rental fleet, organic growth in the Company's outsourcing businesses, which now
include compression, gas treating, process measurement and power generation as
well as growth due to business acquisitions completed in 2001 and 2000.

     Revenues from rentals increased by $94.9 million, or 53%, to $275.1 million
during the nine months ended September 30, 2001 from $180.2 million during the
nine months ended September 30, 2000. Domestic revenues from rentals increased
by $63.0 million, or 51%, to $185.8 million during the nine months ended
September 30, 2001 from $122.8 million during the nine months ended September
30, 2000. International rental revenues increased by $31.9 million, or 55%, to
$89.3 million during the nine months ended September 30, 2001 from $57.4 million
during the nine months ended September 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 $103.7 million, or
161% to $168.0 million during the nine months ended September 30, 2001 from
$64.3 million during the nine months ended September 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 $112.5 million, or 202%, to $168.1 million
during the nine months ended September 30, 2001 from $55.6 million during the
nine months ended September 30, 2000. This increase is due to the acquisition of
Dresser-Rand Company's compression service division beginning September 2000.
During the nine months ended September 30, 2001, an aggregate of approximately
424,000 horsepower of compression equipment was fabricated compared to
approximately 246,000 horsepower fabricated during the nine months ended
September 30, 2000.

     Revenues from production and processing equipment fabrication increased by
$89.1 million, or 190%, to $135.8 million during the nine months ended September
30, 2001 from $46.7 million during the nine months ended September 30, 2000. The
increase is due primarily to the acquisition of APSI during June 2000 and an
improvement in market conditions in the process equipment business compared to
conditions which existed in the prior year.

     Equity in earnings in subsidiaries increased $1.8 million, or 92.1%, to
$3.8 million during the nine months ended September 30, 2001, from $2.0 million
during the nine months ended September 30, 2000. This increase is primarily due
to acquisition of POI which included interests in certain joint venture projects
in South America.

EXPENSES

     Operating expenses of the rental segments increased by $30.6 million, or
49%, to $92.7 million during the nine months ended September 30, 2001 from $62.1
million during the nine months ended September 30, 2000. The increase resulted
primarily from the corresponding 53% increase in revenues from rentals over the
corresponding period in 2000. The gross profit percentage from rentals was 66%
during the nine months ended September 30, 2001 and 2000.

Operating expenses of parts, service and used equipment increased by $69.7
million, or 165% to $111.9 million, which relates to the 161% increase in parts,
service and used equipment revenue. The gross profit margin from parts, service
and used equipment was 33% during the nine months ended September 30, 2001
compared to 34% during the nine months ended September 30, 2000. The gross
margin in parts, service and used equipment was decreased by approximately 1% by
a low margin installation project in Venezuela which should be completed in the
fourth quarter. Operating expenses of compressor fabrication increased by $94.3
million, or 204%, to $140.6 million during the nine months ended September 30,
2001 from $46.3 million during the nine months ended September 30, 2000
commensurate with the corresponding increase in compressor fabrication revenue.
The gross profit margin on compression fabrication was 16% during the nine
months ended September 30, 2001 and 17% during the nine months ended September
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 and processing
equipment fabrication increased by $70.8 million, or 192%, to $107.8 million
during the nine months ended September 30, 2001 from $37.0 million during the
nine months ended September 30, 2000. The gross profit margin attributable to
production and processing equipment fabrication was 21% during the nine months
ended September 30, 2001 and 21% during the nine months ended September 30,
2000.

     Selling, general and administrative expenses increased $34.1 million, or
99%, to $68.6 million during the nine months ended September 30, 2001 from $34.5
million during the nine months ended September 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

                                       22
<PAGE>

capacity of companies to generate cash without reference to how they are
capitalized, how they account for significant non-cash charges for depreciation
and amortization associated with assets used in the business (the bulk of which
are long-lived assets in the compression industry), or what their tax attributes
may be. Additionally, since EBITDA is a basic source of funds not only for
growth but to service indebtedness, lenders in both the private and public debt
markets use EBITDA as a primary determinant of borrowing capacity. EBITDA for
the nine months ended September 30, 2001 increased 66% to $223.5 million from
$134.5 million for the nine months ended September 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 $25.7 million to $62.5 million during
the nine months ended September 30, 2001 compared to $36.8 million during the
nine months ended September 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
and in August 2001. The increase in amortization was due to the goodwill
recorded from business acquisitions completed during 2001 and 2000. Effective
July 1, 2001, the Company changed its estimate of the useful life of certain
compression equipment from 15 to 30 years. The effect of this change in estimate
on the nine months ended September 30, 2001 was a decrease in depreciation
expense of approximately $1.5 million and an increase in net income of
approximately $0.9 million ($0.01 per share). The Company anticipates this
change in estimated useful life will reduce future depreciation expense, based
on the Company's current depreciable assets, by approximately $3 million per
quarter.

     The Company incurred leasing expense of $47.5 million during the nine
months ended September 30, 2001 compared to $29.6 million during the nine months
ended September 30, 2000. The increase of $17.9 million resulted from the
additional equipment leases entered into in 2000 and 2001.

     Interest expense increased by $4.8 million to $10.3 million during the nine
months ended September 30, 2001 from $5.5 million for the nine months ended
September 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 nine months ended September 30, 2001 was $11.5
million, which included a $2.8 million bridge loan commitment fee associated
with Hanover's recent acquisition of POI and $8.7 million 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 9 to Consolidated Financial
Statements).

INCOME TAXES

     The provision for income taxes increased by $15.9 million, or 74%, to $37.4
million during the nine months ended September 30, 2001 from $21.5 million
during the nine months ended September 30, 2000. The increase resulted primarily
from the corresponding increase in income before income taxes. The average
effective income tax rates during the nine months ended September 30, 2001 and
2000 were 38% and 37%, respectively. The increase in the average effective
income tax rate is due primarily to increased income in foreign tax
jurisdictions.

NET INCOME

     Net income increased $24.6 million, or 67%, to $60.9 million during the
nine months ended September 30, 2001 from $36.3 million during the nine months
ended September 30, 2000 due to the increase in revenues and gross profits
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash balance amounted to $22.3 million at September 30, 2001
compared to $45.5 million at December 31, 2000. Primary sources of cash during
the nine months ended September 30, 2001 were net proceeds of $185.3 million
from the issuance of 4.75% Convertible Senior Notes due 2008, $83.9 million
through a public offering of 2,500,000 shares of common stock by the Company,
$550 million from two sale-leaseback transactions and operating cash flows of
$42.0 million. Principal uses of cash during the nine months ended September 30,
2001 were capital expenditures and business acquisitions of $662.4 million, the
net repayment of the revolving credit facility of $17.5 million and $200.0
million to exercise an equipment purchase option under an existing operating
lease.

     Working capital increased to $425.2 million at September 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

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<PAGE>

increases were partially offset by an increase in current liabilities.

The amounts invested in property, plant and equipment during 2001 was $484.8
million which resulted in the addition of approximately 1,336,000 horsepower to
the rental fleet. At September 30, 2001, the rental fleet consisted of 2,740,000
horsepower domestically and 747,000 in the international rental fleet. Current
plans are to spend approximately $75 to $90 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, sale lease-back transactions and raising additional equity and
issuing long term debt. As of September 30, 2001 the Company has approximately
$94.5 million of credit capacity remaining on its $200 million Revolving credit
facility (4.6% rate at September 30, 2001).

     The Company believes that cash flow from operations and borrowings under
its existing $200 million Revolving credit facility will provide the Company
with adequate capital resources to fund its estimated level of capital
expenditures for the remainder of 2001. However, the Company is in the process
of evaluating alternatives to replace its $200 million Revolving credit facility
and to replace the note payable to Schlumberger.

NEW ACCOUNTING PRONOUNCEMENTS

     In September 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. Under SFAS No.142, amortization of goodwill to earnings will be
discontinued. However, goodwill will be reviewed for impairment annually or
whenever events indicate impairment may have occurred. SFAS No.142 is effective
for Hanover on January 1, 2002. However, under the transition provisions of SFAS
142, goodwill acquired in a business combination for which the acquisition date
is after June 30, 2001, shall not be amortized. Since the acquisition of POI was
consummated after June 30, 2001, the goodwill related to the POI acquisition
will not be amortized. The goodwill related to business combinations completed
before June 30, 2001 continues to be amortized in the pro forma combined
condensed statements of operations since Hanover has not adopted SFAS 142.

     At September 30, 2001, Hanover has recorded approximately $222.3 million of
goodwill, of which $181.3 million is required to be amortized, at an annual rate
of approximately $9.6 million, under generally accepted accounting principles.
The Company is current evaluating the effect the implementation of SFAS No. 142
will have on its financial statements.

     In June 2001, the FASB issued SFAS No. 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets. SFAS 143 establishes the
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. This statement is effective
for Hanover effective January 1, 2003. The Company is presently evaluating the
impact that the implementation of SFAS 143 will have on its financial
statements.

     In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144
addresses significant issues relating to the implementation of SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and to develop a single accounting model, based on the framework
established in SFAS 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This statement is effective
for Hanover effective January 1, 2002. The Company is presently evaluating the
impact that the implementation of SFAS 144 will have on its financial
statements.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to interest rate and foreign currency risk. The
Company periodically enters into interest rate swaps to manage its exposure to
fluctuations in interest rates. At September 30, 2001, the fair market value of
these interest rate swaps is approximately $22 million and this amount was
recorded in other liabilities.

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<PAGE>

     The Company is a party to five interest rate swaps to convert variable
lease payments under certain lease arrangements to fixed payments as follows (in
thousands):

                      Company Pays                    Fair Value of the Swap
   Maturity Date       Fixed Rate    Notional Amount   at September 30, 2001
   -------------       ----------    ---------------   ---------------------
       7/20/2003          5.5100%        $ 75,000              $(3,320)
       7/20/2003          5.5600%        $125,000              $(5,657)
       3/11/2005          5.2550%        $100,000              $(4,078)
       3/11/2005          5.2725%        $100,000              $(4,120)
      10/26/2005          5.3975%        $100,000              $(4,894)

     The Company is exposed to interest rate risk on borrowings under its
floating rate revolving credit facility. At September 30, 2001, $85 million was
outstanding bearing interest at a weighted average effective rate of 4.60% per
annum. Assuming a hypothetical 10% increase in interest rates from those in
effect at September 30, 2001, the increase in annual interest expense for
advances under this facility would be approximately $391 thousand.

     At September 30, 2001, the Company is exposed to variable rental rates on
the equipment leases it entered into in September 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 $1.5 million. The Company does not currently use
derivative financial instruments to mitigate foreign currency risk.

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<PAGE>

Part II.  Other Information

Item 6:  Exhibits and reports on Form 8-K

(a)   Exhibits

Exhibit
-------

  Number                            Description
  ------                            -----------

10.64     Lease dated as of August 31, 2001 between Hanover Equipment Trust
          2001A and the Hanover Compression Limited Partnership (2)[10.64]

10.65     Guarantee dated as of August 31, 2001 and made by Hanover Compressor
          Company, Hanover Compression Limited Partnership and certain
          subsidiaries (2)[10.65]

10.66     Participation Agreement dated as of August 31, 2001 among the Hanover
          Compression Limited Partnership, the Hanover Equipment Trust 2001A and
          General Electric Capital Corporation (2)[10.66]

10.67     Security Agreement dated as of August 31, 2001 made by the Hanover
          Equipment Trust 2001A in favor Wilmington Trust FSB as agent
          (2)[10.67]

10.68     Assignment of Leases, Rents and Guarantee from Hanover Equipment Trust
          2001A to Wilmington Trust FSB dated as of August 31, 2001 (2)[10.68]

10.69     Indenture for the 8.50% Senior Secured Notes due 2008, dated as of
          August 30, 2001, among Hanover Equipment Trust 2001A, as issuer,
          Hanover Compression Limited Partnership and certain subsidiaries, as
          guarantors, and Wilmington Trust FSB, as Trustee (2)[10.69]

10.70     Lease dated as of August 31, 2001 between Hanover Equipment Trust
          2001B and the Hanover Compression Limited Partnership (2)[10.70]

10.71     Guarantee dated as of August 31, 2001 and made by Hanover Compressor
          Company, Hanover Compression Limited Partnership. and certain
          subsidiaries (2)[10.71]

10.72     Participation Agreement dated as of August 31, 2001 among the Hanover
          Compression Limited Partnership, the Hanover Equipment Trust 2001B and
          General Electric Capital Corporation (2)[10.72]

10.73     Security Agreement dated as of August 31, 2001 made by the Hanover
          Equipment Trust 2001B in favor Wilmington Trust FSB as agent
          (2)[10.73]

10.74     Assignment of Leases, Rents and Guarantee from Hanover Equipment Trust
          2001B to Wilmington Trust FSB dated as of August 31, 2001 (2)[10.74]

10.75     Indenture for the 8.75% Senior Secured Notes due 2011, dated as of
          August 30, 2001, among Hanover Equipment Trust 2001B, as issuer,
          Hanover Compression Limited Partnership and certain subsidiaries, as
          guarantors, and Wilmington Trust FSB, as Trustee (2)[10.75]

10.76     Amendment dated as of August 31, 2001 to Purchase Agreement among
          Schlumberger Oilfield Holdings Limited, Schlumberger Surenco S.A.,
          Camco International Inc., Hanover Compressor Company and Hanover
          Compression Limited Partnership (1) [99.3]

10.77     Most Favored Supplier and Alliance Agreement dated August 31, 2001
          among Schlumberger Oilfield Holdings Limited, Schlumberger Technology
          Corporation and Hanover Compression Limited Partnership (1) [99.4]

10.78     Lock-Up, Standstill and Registration Rights Agreement dated as of
          August 31, 2001 by and among Schlumberger Technology Corporation,
          Camco International, Inc., Schlumberger Oilfield Holdings Ltd.,
          Schlumberger Surenco S.A. Operational Services, Inc. and Hanover
          Compressor Company (1) [99.5]


(1)  Such exhibit previously filed as an exhibit to the Company's Current Report
on Form 8-K dated September 14, 2001, under the exhibit number indicated in
brackets [_], and is incorporated by reference.

*  Filed herewith.

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

                                      26
<PAGE>

(b)  Reports submitted on Form 8-K:

          1.   A report on Form 8-K was filed on August 8, 2001, which reported
               under the caption "Item 5 - Other Events" that the Company had
               announced a private offering by Hanover Equipment Trust 2001A of
               $300 million of senior secured notes.

          2.   A report on Form 8-K was filed on August 9, 2001, which reported
               under the caption "Item 5 - Other Events" that on June 27, 2001,
               Hanover had signed a definitive agreement to acquire Production
               Operators Corporation and related assets and in connection with
               the acquisition, the following financial statements were attached
               to the report: (a) The audited historical combined balance sheet
               of the Gas Compression Business of Schlumberger Limited at
               December 31, 2001 and 1999 and combined statements of operations,
               cash flows and owner's net investment for the years then ended
               and (b) Pro forma combined condensed financial statements for
               Hanover Compressor Company (unaudited).

          3.   A report on Form 8-K was filed on August 9, 2001, which reported
               under the caption "Item 5 - Other Events" Hanover Compressor
               Company's financial results for the second quarter of 2001. This
               report included a consolidated statement of income for the
               Company for the three and six-month periods ended June 30, 2001
               and 2000.

          4.   A report on Form 8-K was filed on August 17, 2001, which reported
               under the caption "Item 5 - Other Events" that the Company had
               announced terms of the private offerings by Hanover Equipment
               Trust 2001A and Hanover Equipment Trust 2001B of senior secured
               notes totaling $550 million.

          5.   A report on Form 8-K was filed on September 4, 2001, which
               reported under the caption "Item 5 - Other Events" that the
               Company had completed two sale-leaseback transactions totaling
               $550 million.

          6.   A report on Form 8-K was filed on September 4, 2001, which
               reported under the caption "Item 5 - Other Events" that the
               Company had completed its previously announced acquisition from
               Schlumberger Limited of the Production Operators Corporation
               natural gas compression business, ownership interests in certain
               joint venture projects in South America, and related assets for
               $761 million.

          7.   A report on Form 8-K was filed on September 14, 2001, which
               reported under the caption "Item 2 -Acquisition Or Disposition Of
               Assets" that on August 31, 2001, the Company had completed its
               acquisition from Schlumberger Ltd. of the Production Operators
               Corporation natural gas compression business, ownership interests
               in certain joint ventures and related assets. The report also
               reported under "Item 7--Financial Statements and Exhibits" that
               it was impracticable to provide the audited historical financial
               statements of the business acquired or to provide the required
               pro forma financial information of Hanover Compressor Company for
               the acquisition and that the required information would be filed
               no later than 60 days after the date of the report.

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

                                       27
<PAGE>

SIGNATURES

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

HANOVER COMPRESSOR COMPANY
Date: April 15, 2002
By:

/s/ Michael J. McGhan
---------------------

Michael J. McGhan
President and Chief Executive Officer

Date: April 15, 2002
By:

/s/ John E. Jackson
-------------------

John E. Jackson
Chief Financial Officer

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