##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For fiscal year ended December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to          .
 Commission file no. 333-75814-1
 Hanover Compression Limited Partnership
 (Exact name of registrant as specified in its charter)
 Delaware(State or Other Jurisdiction of
Incorporation or Organization)
    
    75-2344249(I.R.S. Employer
Identification No.)
 12001 North Houston Rosslyn, Houston, Texas 77086  (Address of principal executive offices, zip code)
 Registrants telephone number, including area code:
(281) 447-8787
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to 12(g) of the Act:
Title of class: None
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



HANOVER COMPRESSION LIMITED PARTNERSHIP
 TABLE OF CONTENTS
 PagePART IItem 1.
    Business

    4Item 1A.
    Risk Factors

        5Item 1B.
    Unresolved Comments

    13Item 2.
    Properties

    13Item 3.
    Legal Proceedings

    14PART IIItem 5.
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

    14Item 7.
    Managements Discussion and Analysis of Financial Condition and Results of Operations

    14Item 7A.
    Quantitative and Qualitative Disclosures About Market Risk

    36Item 8.
    Financial Statements and Supplementary Data

    37Item 9.
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    37Item 9A.
    Controls and Procedures

    37Item 9B.
    Other Information

    37PART
IIIItem 14.
    Principal Accountant Fees and Services

    38PART IVItem 15.
    Exhibits, and Financial Statement Schedules

    39SIGNATURES

    45Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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PART I
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our inability to renew our short-term leases of equipment with our customers so as to
fully recoup our cost of the equipment;
    
    a prolonged substantial reduction in oil and natural gas prices, which could cause a
decline in the demand for our compression and oil and natural gas production and processing
equipment;
    
    reduced profit margins or the loss of market share resulting from competition or the
introduction of competing technologies by other companies;
    
    changes in economic or political conditions in the countries in which we do business,
including civil uprisings, riots, terrorism, kidnappings, the taking of property without
fair compensation and legislative changes;
    
    changes in currency exchange rates;
    
    the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters;
    
    our inability to implement certain business objectives, such as:
 
    
    international expansion including our ability to timely and cost-effectively
execute projects in new international operating environments,
    
    integrating acquired businesses,
    
    generating sufficient cash,
    
    accessing the capital markets, and
    
    refinancing existing or incurring additional indebtedness to fund our business;
 
    
    risks associated with any significant failure or malfunction of our enterprise resource planning system;
    
    governmental safety, health, environmental and other regulations, which could require us
to make significant expenditures; and
    
    our inability to comply with covenants in our debt agreements and the decreased financial
flexibility associated with our substantial debt.
   3




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Item 1. Business
 General
     Business Segments
  
    
    U.S. rentals.Our U.S. rental segment primarily provides natural gas compression and
production and processing equipment rental and maintenance services to meet specific
customer requirements on HCLP-owned assets located within the United States.
    
    International rentals.Our international rentals segment provides substantially the same
services as our U.S. rental segment except it services locations outside the United States.
    
    Compressor and accessory fabrication.Our compressor and accessory fabrication segment
involves the design, fabrication and sale of natural gas compression units and accessories
to meet unique customer specifications.
    
    Production and processing  surface equipment fabrication.Our production and processing
 surface equipment fabrication segment designs, fabricates and sells equipment used in the
production and treating of crude oil and natural gas.
    
    Production and processing  Belleli.Our production and processing  Belleli segment
provides engineering, procurement and construction services primarily related to the
manufacturing of heavy wall reactors for refineries and construction of desalinization
plants and tank farms.
    
    Parts, service and used equipment.Our parts, service and used equipment segment
provides a full range of services to support the surface production needs of customers, from
installation and normal maintenance and services to full operation of a customers owned
assets and surface equipment as well as sales of used equipment.
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Employees
  Electronic Information
 http://www.sec.gov. http://www.hanover-co.com.
  http://www.hanover-co.com.
 
 Item 1A. Risk Factors
 We have a substantial amount of debt, including our compression equipment lease obligations, that
could limit our ability to fund future growth and operations and increase our exposure during
adverse economic conditions.
   
    
    make it more difficult for us to satisfy our contractual obligations;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
    
    increase our vulnerability to interest rate fluctuations because the interest payments on
a portion of our debt are at, and a portion of our compression equipment leasing expense is
based upon, variable interest rates;
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
    
    limit our flexibility in planning for, or reacting to, changes in our business and our industry;
    
    place us at a disadvantage compared to our competitors that have less debt or fewer operating lease commitments; and
    
    limit our ability to borrow additional funds.
 We will need to generate a significant amount of cash to service our debt, to fund working capital
and to pay our debts as they come due.
     The documents governing our outstanding debt, including our compression equipment lease
obligations, contain financial and other restrictive covenants. Failing to comply with those
covenants could result in an event of default which, if not cured or waived, could have a material
adverse effect on us.
  
    
    incur additional debt or issue guarantees;
    
    create liens on our assets;
    
    engage in mergers, consolidations and dispositions of assets;
    
    enter into additional operating leases;
    
    enter into derivative transactions;
    
    make certain investments or restricted payments;
    
    make investments, loans or advancements to certain of our subsidiaries;
    
    prepay or modify our debt facilities;
    
    enter into transactions with affiliates; or
    
    enter into sale leaseback transactions.
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We have significant leverage relative to our total capitalization, which could result in a downgrade
in our credit rating or other adverse consequences if we do not reduce our leverage.
  Standard &Moodys
    
    PoorsOutlook
    
    Stable
    
    StableSenior implied rating
    
    B1
    
    BBLiquidity Rating
    
    SGL-3
    
    2001A equipment lease notes, interest at 8.5%, due September 2008
    
    B2
    
    B+2001B equipment lease notes, interest at 8.8%, due September 2011
    
    B2
    
    B+4.75% convertible senior notes due 2008
    
    B3
    
    B4.75% convertible senior notes due 2014
    
    B3
    
    B8.625% senior notes due 2010
    
    B3
    
    B9.0% senior notes due 2014
    
    B3
    
    BZero coupon subordinated notes, interest at 11%, due March 31, 2007
    
    Caa1
    
    B7.25% convertible subordinated notes due 2029*
    
    Caa1
    
    B
 
 *
    
    Rating is on the Mandatorily Redeemable Convertible Preferred Securities issued by Hanover
Compressor Capital Trust, a trust sponsored by Hanover.  We are still in the process of improving our infrastructure capabilities, including our internal
controls and procedures, which were strained by our rapid growth, to reduce the risk of future
accounting and financial reporting problems.
  7




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Unforeseen difficulties with the implementation or operation of our enterprise resource planning
system could adversely affect our internal controls and our business.
  We require a substantial amount of capital to expand our compressor rental fleet and our
complementary businesses.
  Our ability to substitute compression equipment under our compression equipment leases is limited
and there are risks associated with reaching that limit prior to the expiration of the lease term.
  8




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SubstitutionLimitation asValue of
    
    
    Percentage of
    
    
    
    
    
    
    Percentage ofSubstituted
    
    
    Termination
    
    
    Termination
    
    
    Termination
    
    
    Lease TerminationLease
    
    Equipment
    
    
    Value(1)
    
    
    Value(1)
    
    
    Value
    
    
    Date(dollars inmillions)2001A compression equipment lease
    
    $
    19.4
    
    
    
    14.2
    %
    
    $
    137.1
    
    
    
    25
    %
    
    September 20082001B compression equipment lease
    
    
    45.4
    
    
    
    17.6
    %
    
    
    257.7
    
    
    
    25
    %
    
    September 2011Total
    
    $
    64.8
    
    
    
    
    
    
    $
    394.8
 
 (1)
    
    Termination value assumes all accrued rents paid before termination.  A prolonged, substantial reduction in oil or gas prices, or prolonged instability in U.S. or
global energy markets, could adversely affect our business.
   There are many risks associated with conducting operations in international markets.
  
    
    difficulties in managing international operations;
    
    unexpected changes in regulatory requirements;
    
    tariffs and other trade barriers that may restrict our ability to enter into new markets;
    
    governmental actions that result in the deprivation of contract rights;
    
    changes in political and economic conditions in the countries in which we operate,
including civil uprisings, riots, kidnappings and terrorist acts, particularly with respect
to our operations in Nigeria;
    
    potentially adverse tax consequences;
    
    restrictions on repatriation of earnings or expropriation of property without fair compensation;
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
    
    difficulties in establishing new international offices and risks inherent in establishing
new relationships in foreign countries; and
    
    the burden of complying with the various laws and regulations in the countries in which
we operate.
        Fluctuations in currency exchange rates in Italy, Argentina and Venezuela could adversely affect
our business.
    Year EndedDecember 31,2005
    
    
    2004Italy
    
    $
    (10,388
    )
    
    $
    4,170Argentina
    
    
    388
    
    
    
    (624
    )Venezuela
    
    
    3,501
    
    
    
    1,165Canada
    
    
    (1,705
    )
    
    
    105All other countries
    
    
    314
    
    
    
    406Exchange gain (loss)
    
    $
    (7,890
    )
    
    $
    5,222
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Many of our compressor leases with customers have short initial terms, and we cannot be sure that
the leases for these rental compressors will be renewed after the end of the initial lease term.
  We operate in a highly competitive industry.
  Natural gas operations entail inherent risks that may result in substantial liability to us.
  Our ability to manage our business effectively will be weakened if we lose key personnel.
   Our business is subject to a variety of governmental regulations.
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Our business has acquired facilities in the past, which could subject us to future environmental
liabilities.
  12




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Item 1B. Unresolved Comments
  
 Item 2. Properties
  SquareLocation
    
    Status
    
    Feet
    
    UsesBroken Arrow, Oklahoma
    
    Owned
    
    
    127,505
    
    
    Compressor and accessory fabricationHouston, Texas
    
    Owned
    
    
    190,531
    
    
    Compressor and accessory fabrication; corporate officeHouston, Texas
    
    Leased
    
    
    51,941
    
    
    OfficeAnaco, Venezuela
    
    Leased
    
    
    129,000
    
    
    Compressor rental and serviceBarquisimeto, Venezuela
    
    Owned
    
    
    72,118
    
    
    Compressor rental and serviceCasacara Station, Colombia
    
    Owned
    
    
    14,000
    
    
    Compressor rental and serviceCasper, Wyoming
    
    Owned
    
    
    28,390
    
    
    Compressor rental and serviceComodoro Rivadavia, Argentina
    
    Leased
    
    
    21,000
    
    
    Compressor rental and serviceComodoro Rivadavia, Argentina
    
    Owned
    
    
    26,000
    
    
    Compressor rental and serviceDavis, Oklahoma
    
    Owned
    
    
    393,870
    
    
    Compressor rental and serviceEl Tigre, Venezuela
    
    Leased
    
    
    18,299
    
    
    Compressor rental and serviceFarmington, New Mexico
    
    Owned
    
    
    20,361
    
    
    Compressor rental and serviceFarmington, New Mexico
    
    Leased
    
    
    18,691
    
    
    Compressor rental and serviceGillette, Wyoming
    
    Leased
    
    
    10,200
    
    
    Compressor rental and serviceKilgore, Texas
    
    Owned
    
    
    33,039
    
    
    Compressor rental and serviceMaturin, Venezuela
    
    Owned
    
    
    23,662
    
    
    Compressor rental and serviceMidland, Texas
    
    Owned
    
    
    53,300
    
    
    Compressor rental and serviceNeuquen, Argentina
    
    Owned
    
    
    30,000
    
    
    Compressor rental and serviceOklahoma City, Oklahoma
    
    Leased
    
    
    18,125
    
    
    Compressor rental and servicePampa, Texas
    
    Leased
    
    
    24,000
    
    
    Compressor rental and servicePocola, Oklahoma
    
    Owned
    
    
    18,705
    
    
    Compressor rental and serviceSanta Cruz, Bolivia
    
    Leased
    
    
    57,414
    
    
    Compressor rental and serviceVictoria, Texas
    
    Owned
    
    
    28,609
    
    
    Compressor rental and serviceWalsall, UK  Redhouse
    
    Owned
    
    
    15,300
    
    
    Compressor rental and serviceWalsall, UK  Westgate
    
    Owned
    
    
    44,700
    
    
    Compressor rental and serviceYukon, Oklahoma
    
    Owned
    
    
    22,453
    
    
    Compressor rental and serviceBridgeport, Texas
    
    Leased
    
    
    13,500
    
    
    Parts, service and used equipmentBroken Arrow, Oklahoma
    
    Leased
    
    
    19,000
    
    
    Parts, service and used equipmentHouston, Texas
    
    Leased
    
    
    28,750
    
    
    Parts, service and used equipmentPort Harcourt, Nigeria
    
    Leased
    
    
    32,808
    
    
    Parts, service and used equipmentBroussard, Louisiana
    
    Owned
    
    
    74,402
    
    
    Production and processing equipment fabricationCalgary, Alberta, Canada
    
    Owned
    
    
    97,250
    
    
    Production and processing equipment fabricationColumbus, Texas
    
    Owned
    
    
    219,552
    
    
    Production and processing equipment fabricationCorpus Christi, Texas
    
    Owned
    
    
    11,000
    
    
    Production and processing equipment fabricationDubai, UAE
    
    Owned
    
    
    112,374
    
    
    Production and processing equipment fabricationHamriyah Free Zone, UAE
    
    Owned
    
    
    175,387
    
    
    Production and processing equipment fabricationMantova, Italy
    
    Owned
    
    
    654,397
    
    
    Production and processing equipment fabricationTulsa, Oklahoma
    
    Owned
    
    
    40,100
    
    
    Production and processing equipment fabricationVictoria, Texas
    
    Owned
    
    
    50,506
    
    
    Production and processing equipment fabrication
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Item 3. Legal Proceedings
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Securities Authorized for Issuance Under Equity Compensation Plans
   
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   Competitive Strengths
  
    
    Total solutions provider:We believe that we are the only company in our industry that
offers both outsourced rental of, as well as the sale of, compression and oil and gas
production and processing equipment and related services. Our services include complete
operation and maintenance services, including run-time guarantees, for both customer-owned
equipment and our fleet of rental equipment, as well as engineering and product design,
fabrication, installation, customer service and after-market support. Our global customer
base consists of U.S. and international companies engaged in all aspects of the oil and gas
industry, including large integrated oil and gas companies, national oil and gas companies,
independent producers and natural
 14




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gas processors, gatherers and pipelines. By offering a broad range of services that complement
our historic strengths, we believe that we can provide comprehensive integrated global
solutions to meet our customers oil and gas production and processing equipment and
compression needs. We believe the breadth and quality of our services and rental fleet, the
depth of our customer relationships and our presence in many major gas-producing regions place
us in a position to capture additional outsourced business on a global basis.
    
    Leading position in high horsepower compression:High horsepower compression, composed
of units with greater than 500 horsepower, is the largest portion of our rental fleet, based
on horsepower. We believe we are a leading provider of these units, which are typically
installed on larger wells, gathering systems and processing and treating facilities. The
scale and more attractive unit economics of these facilities generally insulate them from
declining commodity prices. As a result, compressors in this segment tend to realize higher
utilization rates. We believe that the greater technical requirements of these larger
systems enable us to differentiate our compression products and to leverage sales of related
products and services.
    
    Provider of superior customer service:To facilitate our total solutions approach, we
have adopted a geographical business unit concept and utilize a decentralized management and
operating structure to provide superior customer service in a relationship-driven,
service-intensive industry. We believe that our regionally-based network, local presence,
experience and in-depth knowledge of customers operating needs and growth plans enable us
to effectively meet their evolving demands on a more timely basis. Our salespeople pursue
the rental and sales market for our products and services in their respective territories.
Our efforts concentrate on demonstrating our commitment to enhancing the customers cash
flow through superior product design, fabrication, installation, customer service and
after-market support.
    
    International experience:We believe we are a leader in natural gas compression as well
as service and fabrication of equipment for oil and natural gas processing and
transportation services in Latin America, with an expanding presence in West Africa, the
Middle East and Far East and Russia. As of December 31, 2005, we had approximately 882,000
horsepower of compression deployed internationally, of which approximately 92% was located
in Latin America (primarily in Venezuela, Argentina, Mexico and Brazil). During 2004, we
opened offices in Nigeria, the Middle and Far East and Russia. We believe our experience in
managing our international operations and our efforts to develop and expand our
international sales force have created a global platform from which we can continue to grow
in international markets.
 Business Strategy
  
    
    Focus on core operations.We have built our leading market position through our
strengths in compression rentals, compressor fabrication, production and processing
equipment rental and fabrication and parts and service. We are focusing our efforts on these
businesses and on streamlining operations in our core markets. In an effort to intensify our
focus on our core operations, during 2004 and 2005 we substantially completed the sale of
our discontinued operations. We believe this focused approach will enable us to enhance our
growth prospects and returns. In addition, we are actively pursuing improvements in our U.S.
fleet utilization by prudently employing additional units, moving idle U.S. units into
service in international markets and retiring less profitable units in order to improve our
utilization and enhance the returns for our business. We have also converted one of our
facilities to refurbish approximately 200,000 horsepower of idle U.S. compression assets so
we can deploy these units in both our domestic and international rental businesses.
    
    Expand international presence.International markets continue to represent the greatest
growth opportunity for our business. We believe that these markets are underserved in the
area of the products and services we offer. In addition, we typically see higher returns in
international markets relative to the United States. We intend to allocate additional
resources toward international markets, to open offices abroad, where appropriate, and to
move idle U.S. units into service in international markets, where applicable.
    
    Continuing development of product lines.We intend to continue to develop and deliver
products and services beyond the rental and sale of compression equipment, including
production and/or processing equipment, engineering, installation, and operating services.
As we move forward, we are seeing new opportunities driven more by our ability to deliver a
total solution rather than just a single product. A total solution will typically
incorporate multiple product offerings. We believe that this will enable us to capitalize on
and expand our existing client relationships and enhance our revenue and returns from each
individual project.
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
    
    Focus on process improvement.We plan to focus on process improvements by consistently
reviewing and rationalizing our existing business lines. We have developed a more
disciplined and systematic approach to evaluating return on capital, exercising cost
controls and operating and managing our business. We will continue to take the best
practices from across our organization and formalize these practices into common
company-wide standards that we expect will bring improved operating and financial
performance. In addition, we intend to take advantage of our recently implemented enterprise
resource planning system platform to help us better evaluate our markets and business
opportunities, operate and maintain our assets and make more informed and timely decisions.
    
    Disciplined use of capital.We intend to continue to focus on our capital discipline, as
we believe it will better position us for growth and enhanced returns. During 2005, we used
capital contributions from Hanovers equity offering to decrease Hanover and HCLPs
outstanding debt and compression equipment lease obligations by approximately $170 million.
During 2004, we used cash flows from operations and asset sales to reduce Hanover and HCLPs
outstanding debt and compression equipment lease obligations by approximately $149 million.
As a result, we achieved our objective to reduce our debt and compression equipment lease
obligations by $180 million from 2004 through 2006.
 Market Conditions
   Summary of Results
 Net
losses.
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Results by Product Line.
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Revenues and other income:U.S. rentals
    
    $
    351,128
    
    
    $
    341,570
    
    
    $
    324,186International rentals
    
    
    232,587
    
    
    
    214,598
    
    
    
    191,301Parts, service and used equipment
    
    
    225,636
    
    
    
    180,321
    
    
    
    164,935Compressor and accessory fabrication
    
    
    179,954
    
    
    
    158,629
    
    
    
    106,896Production and processing equipment fabrication
    
    
    360,267
    
    
    
    270,284
    
    
    
    260,660Equity in income of non-consolidated affiliate
    
    
    21,466
    
    
    
    19,780
    
    
    
    23,014Other
    
    
    4,591
    
    
    
    3,623
    
    
    
    4,088$
    1,375,629
    
    
    $
    1,188,805
    
    
    $
    1,075,080Expenses:U.S. rentals
    
    $
    139,465
    
    
    $
    144,580
    
    
    $
    127,425International rentals
    
    
    76,512
    
    
    
    63,953
    
    
    
    61,875Parts, service and used equipment
    
    
    169,168
    
    
    
    135,929
    
    
    
    123,255Compressor and accessory fabrication
    
    
    156,414
    
    
    
    144,832
    
    
    
    96,922Production and processing equipment fabrication
    
    
    325,924
    
    
    
    242,251
    
    
    
    234,203$
    867,483
    
    
    $
    731,545
    
    
    $
    643,680Gross profit margin:U.S. rentals
    
    
    60
    %
    
    
    58
    %
    
    
    61
    %International rentals
    
    
    67
    %
    
    
    70
    %
    
    
    68
    %Parts, service and used equipment
    
    
    25
    %
    
    
    25
    %
    
    
    25
    %Compressor and accessory fabrication
    
    
    13
    %
    
    
    9
    %
    
    
    9
    %Production and processing equipment fabrication
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
 Facility Consolidation
  Critical Accounting Estimates
  17




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Allowances and Reserves
   Long-Lived Assets and Investments
    18




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Tax Assets
    Revenue Recognition  Percentage of Completion Accounting
    Contingencies and Litigation
  19




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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Summary
  Included in the net loss for 2005 were the following pre-tax charges (in thousands):Debt extinguishment costs
    
    $
    7,318Write-off of deferred financing costs (in Depreciation and amortization)
    
    
    2,500Total
    
    $
    9,818Included in the net loss for 2004 were the following pre-tax charges (in thousands):Write-off of deferred financing costs (in Depreciation and amortization)
    
    $
    1,686Cancellation of interest rate swap (in Interest expense)
    
    
    2,028Total
    
    $
    3,714
 Product Line Results
 U.S. Rentals
 Years Ended December 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenue
    
    $
    351,128
    
    
    $
    341,570
    
    
    
    3
    %Operating expense
    
    
    139,465
    
    
    
    144,580
    
    
    
    (4
    )%Gross profit
    
    $
    211,663
    
    
    $
    196,990
    
    
    
    7
    %Gross margin
    
    
    60
    %
    
    
    58
    %
    
    
    2
    %
  International Rentals
 Years Ended December 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenue
    
    $
    232,587
    
    
    $
    214,598
    
    
    
    8
    %Operating expense
    
    
    76,512
    
    
    
    63,953
    
    
    
    20
    %Gross profit
    
    $
    156,075
    
    
    $
    150,645
    
    
    
    4
    %Gross margin
    
    
    67
    %
    
    
    70
    %
    
    
    (3
    )%
  20




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Parts, Service and Used Equipment
 Years Ended December 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenue
    
    $
    225,636
    
    
    $
    180,321
    
    
    
    25
    %Operating expense
    
    
    169,168
    
    
    
    135,929
    
    
    
    24
    %Gross profit
    
    $
    56,468
    
    
    $
    44,392
    
    
    
    27
    %Gross margin
    
    
    25
    %
    
    
    25
    %
    
    
    
  Compression and Accessory Fabrication
 Years Ended December 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenue
    
    $
    179,954
    
    
    $
    158,629
    
    
    
    13
    %Operating Expense
    
    
    156,414
    
    
    
    144,832
    
    
    
    8
    %Gross Profit
    
    $
    23,540
    
    
    $
    13,797
    
    
    
    71
    %Gross Margin
    
    
    13
    %
    
    
    9
    %
    
    
    4
    %
  Production and Processing Equipment Fabrication
 Years Ended December 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenue
    
    $
    360,267
    
    
    $
    270,284
    
    
    
    33
    %Operating expense
    
    
    325,924
    
    
    
    242,251
    
    
    
    35
    %Gross profit
    
    $
    34,343
    
    
    $
    28,033
    
    
    
    23
    %Gross margin
    
    
    10
    %
    
    
    10
    %
    
    
    
  21




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##### Table of Contents



Other Revenue
  Expenses
     Year EndedDecember 31,2005
    
    
    2004Italy
    
    $
    (10,388
    )
    
    $
    4,170Argentina
    
    
    388
    
    
    
    (624
    )Venezuela
    
    
    3,501
    
    
    
    1,165Canada
    
    
    (1,705
    )
    
    
    105All other countries
    
    
    314
    
    
    
    406Exchange gain (loss)
    
    $
    (7,890
    )
    
    $
    5,222
    22




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##### Table of Contents



Income Taxes
   Discontinued Operations
    Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Summary
   Write-off of deferred financing costs (in Depreciation and amortization)
    
    
    1,686Cancellation of interest rate swap (in Interest expense)
    
    
    2,028Total
    
    $
    3,714
 23




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##### Table of Contents



Rental fleet asset impairment (in Depreciation and amortization)
    
    $
    14,334Cumulative effect of accounting change-FIN 46
    
    
    133,707Belleli goodwill impairment (in Goodwill impairment)
    
    
    35,466Write-off of deferred financing costs (in Depreciation and amortization)
    
    
    2,461Loss on sale/write-down of discontinued operations
    
    
    21,617Total
    
    $
    207,585
 Product Line Results
 U.S. Rentals
 Years Ended December 31,
    
    
    Increase2004
    
    
    2003
    
    
    (Decrease)Revenue
    
    $
    341,570
    
    
    $
    324,186
    
    
    
    5
    %Operating expense
    
    
    144,580
    
    
    
    127,425
    
    
    
    13
    %Gross profit
    
    $
    196,990
    
    
    $
    196,761
    
    
    
    Gross margin
    
    
    58
    %
    
    
    61
    %
    
    
    (3
    )%
  International Rentals
 Years Ended December 31,
    
    
    Increase2004
    
    
    2003
    
    
    (Decrease)Revenue
    
    $
    214,598
    
    
    $
    191,301
    
    
    
    12
    %Operating expense
    
    
    63,953
    
    
    
    61,875
    
    
    
    3
    %Gross profit
    
    $
    150,645
    
    
    $
    129,426
    
    
    
    16
    %Gross margin
    
    
    70
    %
    
    
    68
    %
    
    
    2
    %
  Parts, Service and Used Equipment
 Years Ended December 31,
    
    
    Increase2004
    
    
    2003
    
    
    (Decrease)Revenue
    
    $
    180,321
    
    
    $
    164,935
    
    
    
    9
    %Operating expense
    
    
    135,929
    
    
    
    123,255
    
    
    
    10
    %Gross profit
    
    $
    44,392
    
    
    $
    41,680
    
    
    
    7
    %Gross margin
    
    
    25
    %
    
    
    25
    %
    
    
    
  24




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##### Table of Contents



Compression and Accessory Fabrication
 Years Ended December 31,
    
    
    Increase2004
    
    
    2003
    
    
    (Decrease)Revenue
    
    $
    158,629
    
    
    $
    106,896
    
    
    
    48
    %Operating Expense
    
    
    144,832
    
    
    
    96,922
    
    
    
    49
    %Gross Profit
    
    $
    13,797
    
    
    $
    9,974
    
    
    
    38
    %Gross Margin
    
    
    9
    %
    
    
    9
    %
    
    
    
  Production and Processing Equipment Fabrication
 Years Ended December 31,
    
    
    Increase2004
    
    
    2003
    
    
    (Decrease)Revenue
    
    $
    270,284
    
    
    $
    260,660
    
    
    
    4
    %Operating expense
    
    
    242,251
    
    
    
    234,203
    
    
    
    3
    %Gross profit
    
    $
    28,033
    
    
    $
    26,457
    
    
    
    6
    %Gross margin
    
    
    10
    %
    
    
    10
    %
    
    
    
  Other Revenue
   Expenses
  25




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##### Table of Contents



Year EndedDecember 31,2004
    
    
    2003Italy
    
    $
    4,170
    
    
    $
    221Argentina
    
    
    (624
    )
    
    
    494Venezuela
    
    
    1,165
    
    
    
    (2,443
    )All other countries
    
    
    511
    
    
    
    (820
    )Exchange gain (loss)
    
    $
    5,222
    
    
    $
    (2,548
    )
    Income Taxes
  26




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##### Table of Contents



Discontinued Operations
     Cumulative Effect of Accounting Change
   Leasing Transactions and Accounting Change for FIN 46
   27




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##### Table of Contents



Residual
    
    
    
    
    
    
    MinorityValue
    
    
    Lease
    
    
    InterestLease
    
    Guarantee
    
    
    Termination Date
    
    
    Obligation2001A compression equipment lease
    
    $
    102,853
    
    
    September 2008
    
    $
    4,1232001B compression equipment lease
    
    
    175,000
    
    
    September 2011
    
    
    7,750$
    277,853
    
    
    
    
    
    
    $
    11,873
   28




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##### Table of Contents



Liquidity and Capital Resources
   For the Year Ended December 31:
    
    2005
    
    
    2004Net cash provided by (used in) continuing operations:Operating activities
    
    $
    138,513
    
    
    $
    141,812Investing activities
    
    
    (105,247
    )
    
    
    (61,818
    )Financing activities
    
    
    (22,533
    )
    
    
    (180,440
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,413
    )
    
    
    841Net cash provided by discontinued operations
    
    
    837
    
    
    
    81,062Net change in cash and cash equivalents
    
    $
    10,157
    
    
    $
    (18,543
    )
     29




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##### Table of Contents



Total
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    ThereafterCash Contractual Obligations:
    
    (In thousands)Due to General Partner4.75% convertible senior notes due 2014
    
    $
    143,750
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    143,7508.625% senior notes due 2010
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    9.0% senior notes due 2014
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,00011% zero coupon subordinated notes due 2007(2)
    
    
    262,622
    
    
    
    
    
    
    
    262,622
    
    
    
    
    
    
    
    Long term Debt(1)Bank credit facility due 2010
    
    
    48,000
    
    
    
    
    
    
    
    
    
    
    
    48,000
    
    
    
    Other long-term debt
    
    
    1,751
    
    
    
    1,309
    
    
    
    267
    
    
    
    103
    
    
    
    722001A equipment lease notes, due 2008
    
    
    133,000
    
    
    
    
    
    
    
    133,000
    
    
    
    
    
    
    
    2001B equipment lease notes, due 2011
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Total long-term debt
    
    
    1,239,123
    
    
    
    1,309
    
    
    
    395,889
    
    
    
    248,103
    
    
    
    593,822Interest on long-term debt and due to general partner(3)
    
    
    486,908
    
    
    
    83,363
    
    
    
    162,733
    
    
    
    143,214
    
    
    
    97,598Minority interest obligations(1)(4)
    
    
    11,873
    
    
    
    
    
    
    
    4,123
    
    
    
    
    
    
    
    7,750Purchase commitments
    
    
    214,379
    
    
    
    213,101
    
    
    
    1,278
    
    
    
    
    
    
    
    Facilities and other equipment operating leases
    
    
    8,556
    
    
    
    3,834
    
    
    
    3,796
    
    
    
    864
    
    
    
    62Total contractual cash obligations
    
    $
    1,960,839
    
    
    $
    301,607
    
    
    $
    567,819
    
    
    $
    392,181
    
    
    $
    699,232
 
 (1)
    
    For more information on our long-term debt and minority interest obligations, see Notes 11,
12 and 13 to the Notes to Consolidated Financial Statements in Item 15 of this Form 10-K.(2)
    
    Balance payable at December 31, 2005, including 11% discount per annum, was $229.8 million.(3)
    
    Interest amounts calculated using interest rates in effect as of December 31, 2005, including
the effect of interest rate swaps. The interest amounts do not include original issue discount
that accretes under our 11% zero coupon subordinated notes due 2007.(4)
    
    Represents third party equity interest of lease equipment trusts that was required to be
consolidated into our financial statements. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Leasing Transactions and Accounting Change for
FIN 46 in Item 7 of this Form 10-K.  Debt Refinancing/Repayment.
 30




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##### Table of Contents



Bank Credit Facility.
   31




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##### Table of Contents



Credit Ratings.
 Standard &Moodys
    
    PoorsOutlook
    
    Stable
    
    StableSenior implied rating
    
    B1
    
    BBLiquidity Rating
    
    SGL-3
    
    2001A equipment lease notes, interest at 8.5%, due September 2008
    
    B2
    
    B+2001B equipment lease notes, interest at 8.8%, due September 2011
    
    B2
    
    B+4.75% convertible senior notes due 2008
    
    B3
    
    B4.75% convertible senior notes due 2014
    
    B3
    
    B8.625% senior notes due 2010
    
    B3
    
    B9.0% senior notes due 2014
    
    B3
    
    BZero coupon subordinated notes, interest at 11%, due March 31, 2007
    
    Caa1
    
    B7.25% convertible subordinated notes due 2029*
    
    Caa1
    
    B
 
 *
    
    Rating is on the Mandatorily Redeemable Convertible Preferred Securities issued by Hanover
Compressor Capital Trust, a trust sponsored by Hanover.  Derivative Financial Instruments.
 32




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##### Table of Contents



Fair Value ofFixed Rate to be
    
    
    
    
    
    Swap atFloating Rate to be Paid
    
    Maturity Date
    
    Received
    
    Notional Amount
    
    December 31, 2005Six Month LIBOR +4.72%
    
    December 15, 2010
    
    
    8.625
    %
    
    $
    100,000
    
    
    $
    (4,975
    )Six Month LIBOR +4.64%
    
    December 15, 2010
    
    
    8.625
    %
    
    $
    100,000
    
    
    $
    (4,711
    )
   Fair Value ofSwap atLease
    
    Maturity Date
    
    Fixed Rate to be Paid
    
    Notional Amount
    
    December 31, 2005March 2000
    
    March 11, 2005
    
    
    5.2550
    %
    
    $
    100,000
    
    
    $ August 2000
    
    March 11, 2005
    
    
    5.2725
    %
    
    $
    100,000
    
    
    $ 
     33




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##### Table of Contents



Off-Balance Sheet Arrangements
  Maximum PotentialUndiscountedPayments as ofTerm
    
    December 31, 2005Simco/Harwat Consortium
    
    
    2006
    
    
    $
    7,476El Furrial
    
    
    2013
    
    
    $
    32,017
  New Accounting Pronouncements
     34




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##### Table of Contents



Accounting for Stock Issued to Employees,
    35




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   Fair Value ofFixed Rate
    
    
    
    
    
    Swap atto be
    
    Notional
    
    December 31,Floating Rate to be Paid
    
    Maturity Date
    
    Received
    
    Amount
    
    2005Six Month LIBOR +4.72%
    
    December 15, 2010
    
    
    8.625
    %
    
    $
    100,000
    
    
    $
    (4,975
    )Six Month LIBOR +4.64%
    
    December 15, 2010
    
    
    8.625
    %
    
    $
    100,000
    
    
    $
    (4,711
    )
         36




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##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004Italy
    
    $
    (10,388
    )
    
    $
    4,170Argentina
    
    
    388
    
    
    
    (624
    )Venezuela
    
    
    3,501
    
    
    
    1,165Canada
    
    
    (1,705
    )
    
    
    105All other countries
    
    
    314
    
    
    
    406Exchange gain (loss)
    
    $
    (7,890
    )
    
    $
    5,222
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information
  37




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##### Table of Contents



PART
III
 Item 14. Principal Accountant Fees and Services
  Types of Fees
    
    FY 2005
    
    
    FY 2004(In thousands)Audit fees (a)
    
    $
    3,724
    
    
    $
    5,265Audit-related fees (b)
    
    
    47
    
    
    
    46Tax fees (c)
    
    
    147
    
    
    
    498All other fees (d)
    
    
    2
    
    
    
    2Total fees
    
    $
    3,920
    
    
    $
    5,811
 
 (a)
    
    Audit fees include fees billed by PwC related to audits and reviews of financial statements
that the Company is required to file with the SEC, audit of internal control over financial
reporting for Hanover, statutory audits of certain of the Companys subsidiaries financial statements as
required under local regulations and other services which PwC provides as the Companys
principal auditor including issuance of comfort letters and assistance with and review of
documents filed with SEC.
 (b)
    
    Audit related fees include fees billed by PwC related to employee benefit plan audits and
consultations concerning financial accounting and reporting standards.
 (c)
    
    Tax fees include fees billed by PwC primarily related to tax compliance and consulting
services.(d)
    
    All other fees include fees billed by PwC related to software licensing agreement.
 de minimus
 38




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, and  Financial Statement Schedules
 Documents filed as a part of this report.
 Financial Statements.
 Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets
    
    F-2Consolidated Statements of Operations
    
    F-3Consolidated Statements of Comprehensive Income (Loss)
    
    F-4Consolidated Statements of Cash Flows
    
    F-5Consolidated Statements of Partners Equity
    
    F-7Notes to Consolidated Financial Statements
    
    F-8Selected Quarterly Unaudited Financial Data
    
    F-37
 Financial Statement Schedule
 Schedule II  Valuation and Qualifying Accounts
    
    S-1
  Exhibits
 ExhibitNumber
    
    Description3.1
    
    Certificate of Limited Partnership of Hanover Compression
Limited Partnership, incorporated by reference to Exhibit
3.3 to the Registration Statement on Form S-4 (Registration
No. 333-75814).3.2
    
    Certificate of Amendment to Certificate of Limited
Partnership of Hanover Compression Limited Partnership,
dated as of January 2, 2001, incorporated by reference to
Exhibit 3.4 to the Registration Statement on Form S-4
(Registration No. 333-75814).3.3
    
    Certificate of Amendment to Certificate of Limited
Partnership of Hanover Compression Limited Partnership,
dated as of August 20, 2001, incorporated by reference to
Exhibit 3.5 to the Registration Statement on Form S-4
(Registration No. 333-75814).3.4
    
    Limited Partnership Agreement of Hanover Compression Limited
Partnership, dated December 8, 2000, by and among Hanover
LLC 3, LLC, a Delaware limited liability company, as general
partner, and Hanover Compression Limited Holdings, LLC, a
Delaware limited liability company, as limited partner,
incorporated by reference to Exhibit 3.1 to the Companys
Annual Report on Form 10-K for the year ended December 31,
2003.3.5
    
    Amendment to the Limited Partnership Agreement of Hanover
Compression Limited Partnership, dated December 29, 2000, by
and among Hanover Compression General Holdings, LLC, a
Delaware limited liability company, as general partner, and
Hanover Compression Limited Holdings, LLC, a Delaware
limited liability company, as limited partner, incorporated
by reference to Exhibit 3.2 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2003.3.6
    
    Amendment to the Limited Partnership Agreement of Hanover
Compression Limited Partnership, dated December 30, 2002, by
and among Hanover Compression General Holdings, LLC, a
Delaware limited liability company, as general partner, and
Hanover HL, LLC, a Delaware limited liability company, as
limited partner, incorporated by reference to Exhibit 3.3 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2003.4.1
    
    Form of Hanover Compressor Capital Trust 7 1/4% Convertible
Preferred Securities, incorporated by reference to Exhibit
4.8 to Hanovers Registration Statement (File No. 333-30344)
on Form S-3 as filed with the SEC on February 14, 2000.4.2
    
    Indenture for the Convertible Junior Subordinated Debentures
due 2029, dated as of December 15, 1999, among Hanover, as
issuer, and Wilmington Trust Company, as trustee,
incorporated by reference to Exhibit 4.6 to Hanovers
Registration Statement (File No. 333-30344) on Form S-3
filed with the SEC on February 14, 2000.
 39




---



##### Table of Contents



ExhibitNumber
    
    Description4.3
    
    Form of Hanover Compressor Company Convertible Subordinated
Junior Debentures due 2029, incorporated by reference to
Exhibit 4.9 to Hanovers Registration Statement (File No.
333-30344) on Form S-3 as filed with the SEC on February 14,
2000.4.4
    
    Indenture for the 4.75% Convertible Senior Notes due 2008,
dated as of March 15, 2001, between Hanover and Wilmington
Trust Company, as trustee, incorporated by reference to
Exhibit 4.7 to Hanovers Annual Report on Form 10-K for the
year ended December 31, 2003.4.5
    
    Form of 4.75% Convertible Senior Notes due 2008,
incorporated by reference to Exhibit 4.8 to Hanovers Annual
Report on Form 10-K for the year ended December 31, 2003.4.6
    
    Indenture for the 8.50% Senior Secured Notes due 2008, dated
as of August 30, 2001, among the 2001A Trust, as issuer,
Hanover Compression Limited Partnership and certain
subsidiaries, as guarantors, and Wilmington Trust FSB, as
Trustee, incorporated by reference to Exhibit 10.69 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.4.7
    
    Form of 8.50% Senior Secured Notes due 2008, incorporated by
reference to Exhibit 4.10 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.4.8
    
    Indenture for the 8.75% Senior Secured Notes due 2011, dated
as of August 30, 2001, among the 2001B Trust, as issuer,
Hanover Compression Limited Partnership and certain
subsidiaries, as guarantors, and Wilmington Trust FSB, as
Trustee, incorporated by reference to Exhibit 10.75 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.4.9
    
    Form of 8.75% Senior Secured Notes due 2011, incorporated by
reference to Exhibit 4.12 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.4.10
    
    Indenture for the Zero Coupon Subordinated Notes due March
31, 2007, dated as of May 14, 2003, between Hanover and
Wachovia Bank, National Association, as trustee,
incorporated by reference to Exhibit 4.1 to Hanovers
Registration Statement (File No. 333-106384) on Form S-3, as
filed with the SEC on June 23, 2003.4.11
    
    Form of Zero Coupon Subordinated Notes due March 31, 2007,
incorporated by reference to Exhibit 4.14 to Hanovers
Annual Report on Form 10-K for the year ended December 31,
2003.4.12
    
    Senior Indenture, dated as of December 15, 2003, among
Hanover, Subsidiary Guarantors named therein and Wachovia
Bank, National Association, as trustee, incorporated by
reference to Exhibit 4.1 to Hanovers Registration Statement
on Form 8-A, as filed with the SEC on December 15, 2003.4.13
    
    First Supplemental Indenture to the Senior Indenture dated
as of December 15, 2003, relating to the 8.625% Senior Notes
due 2010, dated as of December 15, 2003, among Hanover
Compressor Company, Hanover Compression Limited Partnership
and Wachovia Bank, National Association, as trustee,
incorporated by reference to Exhibit 4.2 to Hanovers
Registration Statement on Form 8-A, as filed with the SEC on
December 15, 2003.4.14
    
    Form of 8.625% Senior Notes due 2010, incorporated by
reference to Exhibit 4.17 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.4.15
    
    Second Supplemental Indenture to the Senior Indenture dated
as of December 15, 2003, relating to the 4.75% Convertible
Senior Notes due 2014, dated as of December 15, 2003,
between Hanover and Wachovia Bank, National Association, as
trustee, incorporated by reference to Exhibit 4.4 to
Hanovers Current Report on Form 8-K, as filed with the SEC
on December 16, 2003.4.16
    
    Form of 4.75% Convertible Senior Notes due 2014,
incorporated by reference to Exhibit 4.19 to Hanovers
Annual Report on Form 10-K for the year ended December 31,
2003.4.17
    
    Third Supplemental Indenture to the Senior Indenture dated
as of December 15, 2003, relating to the 9.0% Senior Notes
due 2014, dated as of June 1, 2004, among Hanover Compressor
Company, Hanover Compression Limited Partnership and
Wachovia Bank, National Association, as trustee,
incorporated by reference to Exhibit 4.2 to the Registration
Statement of Hanover Compressor Company and Hanover
Compression Limited Partnership on Form 8-A under the
Securities Act of 1934, as filed on June 2, 2004.
 40




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##### Table of Contents



ExhibitNumber
    
    Description4.18
    
    Form of 9% Senior Notes due 2014, incorporated by reference
to Exhibit 4.3 to the Registration Statement of Hanover
Compressor Company and Hanover Compression Limited
Partnership on Form 8-A under the Securities Act of 1934, as
filed on June 2, 2004.10.1
    
    Stipulation and Agreement of Settlement, dated as of October
23, 2003, incorporated by reference to Exhibit 10.1 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003.10.2
    
    PIGAP Settlement Agreement, dated as of May 14, 2003, by and
among Schlumberger Technology Corporation, Schlumberger
Oilfield Holdings Limited, Schlumberger Surenco S.A.,
Hanover and Hanover Compression Limited Partnership,
incorporated by reference to Exhibit 10.2 to Hanovers
Annual Report on Form 10-K for the year ended December 31,
2003.10.3
    
    Credit Agreement, dated as of November 21, 2005, among
Hanover, Hanover Compression Limited Partnership, The Royal
Bank of Scotland plc as Syndication Agent, JPMorgan Chase
Bank, N.A. as Administrative Agent, and the several lenders
parties thereto, incorporated by reference to Exhibit 10.3 to
Hanovers Annual Report on Form 10-K for the year ended
December 31, 2005.10.4
    
    Guarantee and Collateral Agreement, dated as of November 21,
2005, among Hanover, Hanover Compression Limited Partnership
and certain of their subsidiaries in favor of JPMorgan Chase
Bank, N.A. as Collateral Agent, incorporated by reference to
Exhibit 10.4 to Hanovers Annual Report on Form 10-K for the
year ended December 31, 2005.10.5
    
    Lease, dated as of August 31, 2001, between Hanover
Equipment Trust 2001A (the 2001A Trust) and Hanover
Compression Limited Partnership, incorporated by reference
to Exhibit 10.64 to Hanovers Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001.10.6
    
    Guarantee, dated as of August 31, 2001, made by Hanover,
Hanover Compression Limited Partnership, and certain
subsidiaries, incorporated by reference to Exhibit 10.65 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.7
    
    Participation Agreement, dated as of August 31, 2001, among
Hanover Compression Limited Partnership, the 2001A Trust,
and General Electric Capital Corporation, incorporated by
reference to Exhibit 10.66 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001.10.8
    
    Security Agreement, dated as of August 31, 2001, made by the
2001A Trust in favor of Wilmington Trust FSB as collateral
agent, incorporated by reference to Exhibit 10.67 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.9
    
    Assignment of Leases, Rents and Guarantee from the 2001A
Trust to Wilmington Trust FSB, dated as of August 31, 2001,
incorporated by reference to Exhibit 10.68 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.10.10
    
    Lease, dated as of August 31, 2001, between Hanover
Equipment Trust 2001B (the 2001B Trust) and Hanover
Compression Limited Partnership, incorporated by reference
to Exhibit 10.70 to Hanovers Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001.10.11
    
    Guarantee, dated as of August 31, 2001, made by Hanover,
Hanover Compression Limited Partnership, and certain
subsidiaries, incorporated by reference to Exhibit 10.71 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.12
    
    Participation Agreement, dated as of August 31, 2001, among
Hanover Compression Limited Partnership, the 2001B Trust,
and General Electric Capital Corporation, incorporated by
reference to Exhibit 10.72 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001.10.13
    
    Security Agreement, dated as of August 31, 2001, made by the
2001B Trust in favor of Wilmington Trust FSB as collateral
agent, incorporated by reference to Exhibit 10.73 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.14
    
    Assignment of Leases, Rents and Guarantee from the 2001B
Trust to Wilmington Trust FSB, dated as of August 31, 2001,
incorporated by reference to Exhibit 10.74 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.
 41




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##### Table of Contents



ExhibitNumber
    
    Description10.15
    
    Amended and Restated Declaration of Trust of Hanover
Compressor Capital Trust, dated as of December 15, 1999,
among Hanover, as sponsor, Wilmington Trust Company, as
property trustee, and Richard S. Meller, William S. Goldberg
and Curtis A. Bedrich, as administrative trustees,
incorporated by reference to Exhibit 4.5 to Hanovers
Registration Statement (File No. 333-30344) on Form S-3
filed with the SEC on February 14, 2000.10.16
    
    Preferred Securities Guarantee Agreement, dated as of
December 15, 1999, between Hanover, as guarantor, and
Wilmington Trust Company, as guarantee trustee, incorporated
by reference to Exhibit 4.10 to Hanovers Registration
Statement (File No. 333-30344) on Form S-3 as filed with the
SEC on February 14, 2000.10.17
    
    Common Securities Guarantee Agreement, dated as of December
15, 1999, by Hanover, as guarantor, for the benefit of the
holders of common securities of Hanover Compressor Capital
Trust, incorporated by reference to Exhibit 4.11 to
Hanovers Registration Statement (File No. 333-30344) on
Form S-3 as filed with the SEC on February 14, 2000.10.18
    
    Purchase Agreement, dated June 28, 2001, among Schlumberger
Technology Corporation, Schlumberger Oilfield Holdings Ltd.,
Schlumberger Surenco S.A., Camco International Inc., Hanover
and Hanover Compression Limited Partnership, incorporated by
reference to Exhibit 10.63 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001.10.19
    
    Schedule 1.2(c) to Purchase Agreement, dated June 28, 2001,
among Schlumberger Technology Corporation, Schlumberger
Oilfield Holdings Limited, Schlumberger Surenco S.A., Camco
International Inc., Hanover and Hanover Compression Limited
Partnership, incorporated by reference to Exhibit 99.1 to
Hanovers Current Report on Form 8-K filed with the SEC on
February 6, 2003.10.20
    
    Amendment No. 1, dated as of August 31, 2001, to Purchase
Agreement among Schlumberger Technology Corporation,
Schlumberger Oilfield Holdings Ltd., Schlumberger Surenco
S.A., Camco International Inc., Hanover and Hanover
Compression Limited Partnership, incorporated by reference
to Exhibit 99.3 to Hanovers Current Report on Form 8-K
filed with the SEC on September 14, 2001.10.21
    
    Amendment No. 2, dated as of July 8, 2005 to Purchase
Agreement by and among Hanover, Hanover Compression Limited
Partnership and Schlumberger Technology Corporation, for
itself and as successor in interest to Camco International
Inc., Schlumberger Surenco S.A. and Schlumberger Oilfield
Holdings Ltd., incorporated by reference to Exhibit 10.1 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.22
    
    Most Favored Supplier and Alliance Agreement, dated August
31, 2001, among Schlumberger Oilfield Holdings Limited,
Schlumberger Technology Corporation and Hanover Compression
Limited Partnership, incorporated by reference to Exhibit
99.4 to Hanovers Current Report on Form 8-K filed with the
SEC on September 14, 2001.10.23
    
    Agreement by and among SJMB, L.P., Charles Underbrink, John
L. Thompson, Belleli Energy S.r.l. and Hanover Compressor
Company and certain of its subsidiaries dated September 20,
2002, incorporated by reference to Exhibit 10.62 to
Hanovers Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.10.24
    
    Hanover Compressor Company Stock Compensation Plan,
incorporated by reference to Exhibit 10.63 to Hanovers
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.10.25
    
    Hanover Compressor Company Senior Executive Stock Option
Plan, incorporated by reference to Exhibit 10.4 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.26
    
    Hanover Compressor Company 1993 Management Stock Option
Plan, incorporated by reference to Exhibit 10.5 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.27
    
    Hanover Compressor Company Incentive Option Plan,
incorporated by reference to Exhibit 10.6 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.28
    
    Amendment and Restatement of the Hanover Compressor Company
Incentive Option Plan, incorporated by reference to Exhibit
10.7 to Hanovers Registration Statement (File No.
333-24953) on Form S-1, as amended.10.29
    
    Hanover Compressor Company 1995 Employee Stock Option Plan,
incorporated by reference to Exhibit 10.8 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.30
    
    Hanover Compressor Company 1995 Management Stock Option
Plan, incorporated by reference to Exhibit 10.9 to
 42




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##### Table of Contents



ExhibitNumber
    
    DescriptionHanovers Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.31
    
    Form of Stock Option Agreement for DeVille and Mcneil,
incorporated by reference to Exhibit 10.70 to Hanovers
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.10.32
    
    Form of Stock Option Agreements for Wind Bros, incorporated
by reference to Exhibit 10.71 to Hanovers Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.10.33
    
    Hanover Compressor Company 1996 Employee Stock Option Plan,
incorporated by reference to Exhibit 10.10 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.34
    
    Hanover Compressor Company 1997 Stock Option Plan, as
amended, incorporated by reference to Exhibit 10.23 to
Hanovers Registration Statement (File No. 333-24953) on
Form S-1, as amended.10.35
    
    1997 Stock Purchase Plan, incorporated by reference to
Exhibit 10.24 to Hanovers Registration Statement (File No.
333-24953) on Form S-1, as amended.10.36
    
    Hanover Compressor Company 1998 Stock Option Plan,
incorporated by reference to Exhibit 10.7 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.10.37
    
    First Amendment to the Hanover Compressor Company 1998 Stock
Option Plan, incorporated by reference to Exhibit 10.2 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.38
    
    Hanover Compressor Company December 9, 1998 Stock Option
Plan, incorporated by reference to Exhibit 10.33 to
Hanovers Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.10.39
    
    Hanover Compressor Company 1999 Stock Option Plan,
incorporated by reference to Exhibit 4.1 to Hanovers
Registration Statement (File No. 333-32092) on Form S-8
filed with the SEC on March 10, 2000.10.40
    
    First Amendment to the Hanover Compressor Company 1999 Stock
Option Plan, incorporated by reference to Exhibit 10.3 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.41
    
    Hanover Compressor Company 2001 Equity Incentive Plan,
incorporated by reference to Exhibit 4.1 to Hanovers
Registration Statement (File No. 333-73904) on Form S-8
filed with the SEC on November 21, 2001.10.42
    
    First Amendment to the Hanover Compressor Company 2001
Equity Incentive Plan, incorporated by reference to Exhibit
10.4 to Hanovers Current Report on Form 8-K filed with the
SEC on July 13, 2005.10.43
    
    Hanover Compressor Company 2003 Stock Incentive Plan,
incorporated by reference to Hanovers Definitive Proxy
Statement on Schedule 14A, as filed with the SEC on April
15, 2003.10.44
    
    First Amendment to the Hanover Compressor Company 2003 Stock
Incentive Plan, incorporated by reference to Exhibit 10.5 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.45
    
    Employment Letter with Peter Schreck, dated August 22, 2000,
incorporated by reference to Exhibit 10.1 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended March
31, 2003.10.46
    
    Employment Letter with Stephen York, dated March 6, 2002,
incorporated by reference to Exhibit 10.2 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended March
31, 2003.10.47
    
    Promissory Note and Indenture dated April 21, 2004 relating
to $6,650,000 payable to Milberg, Weiss, Bershad, Hynes &
Lerach LLP as Escrow Agent with respect to the settlement
fund as defined in that certain Stipulation and Agreement
and Settlement dated as of October 23, 2003, incorporated by
reference to Exhibit 10.1 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004.10.48
    
    Employment Letter with Gary M. Wilson dated April 9, 2004,
incorporated by reference to Exhibit 10.1 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004.10.49
    
    Employment Letter with John E. Jackson dated October 5,
2004, incorporated by reference to Exhibit 10.1 to Hanovers
Current Report on Form 8-K, as filed with the SEC on October
6, 2004.10.50
    
    Change of Control and Severance Agreement dated July 29,
2005 between John E. Jackson and Hanover,
 43




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##### Table of Contents



ExhibitNumber
    
    Descriptionincorporated by
reference to Exhibit 10.1 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended June 30, 2005.10.51
    
    Employment Letter with Lee E. Beckelman dated January 31,
2005, incorporated by reference to Exhibit 10.1 to Hanovers
Current Report on Form 8-K, as filed with the SEC on
February 1, 2005.10.52
    
    Employment Letter with Anita H. Colglazier dated April 4,
2002 with explanatory note, incorporated by reference to
Exhibit 10.61 to Hanovers Annual Report on Form 10-K for
the year ended December 31, 2005. 10.53
    
    Letter to Brian Matusek regarding employment terms,
incorporated by reference to Exhibit 10.1 to Hanovers
Current Report on Form 8-K filed with the SEC on April 18,
2005. 10.54
    
    Employment Letter with Norrie Mckay effective as of May 16,
2005, incorporated by reference to Exhibit 10.1 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended March
31, 2005.10.55
    
    Form of Change of Control Agreement dated July 29, 2005
between Hanover and each of Messrs. Lee E. Beckelman, Brian
A. Matusek, Gary M. Wilson, Steven W. Muck, Norman A. Mckay,
Stephen P. York and Peter G. Schreck and Ms. Anita H.
Colglazier, incorporated by reference to Exhibit 10.2 to
Hanovers Quarterly Report on Form 10-Q For the quarter
ended June 30, 2005.14.1
    
    P.R.I.D.E. in Performance  Hanovers Guide to Ethical
Business Conduct (the Code of Ethics), incorporated by
reference to Exhibit 14.1 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.14.2
    
    Amendment to the Code of Ethics, incorporated by reference
to Exhibit 14.1 to Hanovers Current Report on Form 8-K, as
filed with the SEC on January 20, 2005.31.1
    
    Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.*31.2
    
    Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.*32.1
    
    Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*99.1
    
    Letter from GKH partners regarding wind-up of GKH
Investments, L.P. and GKH Private Limited, dated October 15,
2001, incorporated by reference to Exhibit 99.1 to Hanovers
Current Report on Form 8-K filed with the SEC on October 18,
2001.99.2
    
    Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
President and General Counsel of Hanover, dated November 12,
2002, incorporated by reference to Exhibit 99.1 to Hanovers
Current Report on Form 8-K filed with the SEC on November
15, 2002.99.3
    
    Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
President and General Counsel of Hanover, dated March 11,
2004, incorporated by reference to Exhibit 99.1 to Hanovers
Current Report on Form 8-K filed with the SEC on March 12,
2004.
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement 44




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##### Table of Contents



SIGNATURES
  HANOVER COMPRESSION LIMITED PARTNERSHIPBy:
    
    /s/ JOHN E. JACKSONJohn E. JacksonPresident and Chief Executive Officer
   Signature
    
    
    
    Title
    
    Date/s/ JOHN E. JACKSON
    
    
    
    President, Chief Executive Officer and
    
    March 15, 2006John E. Jackson
    
    
    
    Manager of the General Partnership (PrincipalExecutive Officer)/s/ LEE E. BECKELMAN
    
    
    
    Vice President and Chief Financial Officer and
    
    March 15, 2006Lee E. Beckelman
    
    
    
    Manager of the General Partnership (PrincipalFinancial Officer)/s/ ANITA H. COLGLAZIER
    
    
    
    Vice President and Controller
    
    March 15, 2006Anita H. Colglazier
    
    
    
    (Principal Accounting Officer)/s/ GARY M. WILSON
    
    
    
    Senior Vice President, General Counsel,
    
    March 15, 2006Gary M. Wilson
    
    
    
    Secretary and Manager of the GeneralPartnership
 45




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
 F-1




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##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    48,233
    
    
    $
    38,076Accounts receivable, net of allowance of $4,751 and $7,573
    
    
    243,672
    
    
    
    205,644Inventory, net
    
    
    251,069
    
    
    
    184,798Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    99,166
    
    
    
    70,103Prepaid taxes
    
    
    8,194
    
    
    
    6,988Current deferred income taxes
    
    
    15,097
    
    
    
    14,028Assets held for sale
    
    
    2,020
    
    
    
    5,169Other current assets
    
    
    45,578
    
    
    
    30,869Total current assets
    
    
    713,029
    
    
    
    555,675Property, plant and equipment, net
    
    
    1,823,100
    
    
    
    1,876,348Goodwill, net
    
    
    184,364
    
    
    
    183,190Intangible and other assets
    
    
    55,130
    
    
    
    69,978Investments in non-consolidated affiliates
    
    
    90,741
    
    
    
    90,326Assets held for sale, non-current
    
    
    
    
    
    
    6,391Total assets
    
    $
    2,866,364
    
    
    $
    2,781,908LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Short-term debt
    
    $
    4,080
    
    
    $
    5,106Current maturities of long-term debt
    
    
    1,309
    
    
    
    1,430Accounts payable, trade
    
    
    92,980
    
    
    
    57,402Accrued liabilities
    
    
    125,884
    
    
    
    116,693Advance billings
    
    
    89,513
    
    
    
    42,588Liabilities held for sale
    
    
    878
    
    
    
    517Billings on uncompleted contracts in excess of costs and estimated earnings
    
    
    35,126
    
    
    
    20,256Total current liabilities
    
    
    349,770
    
    
    
    243,992Long-term debt
    
    
    431,442
    
    
    
    614,609Due to general partner
    
    
    763,867
    
    
    
    744,221Other liabilities
    
    
    38,976
    
    
    
    47,232Deferred income taxes
    
    
    81,358
    
    
    
    75,183Total liabilities
    
    
    1,665,413
    
    
    
    1,725,237Commitments and contingencies (Note 20)Minority interest
    
    
    11,873
    
    
    
    18,778Partners equity:Partners capital
    
    
    1,173,864
    
    
    
    1,020,375Accumulated other comprehensive income
    
    
    15,214
    
    
    
    17,518Total partners equity
    
    
    1,189,078
    
    
    
    1,037,893Total liabilities and partners equity
    
    $
    2,866,364
    
    
    $
    2,781,908
  F-2




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##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Revenues and other income:U.S. rentals
    
    $
    351,128
    
    
    $
    341,570
    
    
    $
    324,186International rentals
    
    
    232,587
    
    
    
    214,598
    
    
    
    191,301Parts, service and used equipment
    
    
    225,636
    
    
    
    180,321
    
    
    
    164,935Compressor and accessory fabrication
    
    
    179,954
    
    
    
    158,629
    
    
    
    106,896Production and processing equipment fabrication
    
    
    360,267
    
    
    
    270,284
    
    
    
    260,660Equity in income of non-consolidated affiliates
    
    
    21,466
    
    
    
    19,780
    
    
    
    23,014Other
    
    
    4,591
    
    
    
    3,623
    
    
    
    4,0881,375,629
    
    
    
    1,188,805
    
    
    
    1,075,080Expenses:U.S. rentals
    
    
    139,465
    
    
    
    144,580
    
    
    
    127,425International rentals
    
    
    76,512
    
    
    
    63,953
    
    
    
    61,875Parts, service and used equipment
    
    
    169,168
    
    
    
    135,929
    
    
    
    123,255Compressor and accessory fabrication
    
    
    156,414
    
    
    
    144,832
    
    
    
    96,922Production and processing equipment fabrication
    
    
    325,924
    
    
    
    242,251
    
    
    
    234,203Selling, general and administrative
    
    
    182,198
    
    
    
    173,066
    
    
    
    159,870Foreign currency translation
    
    
    7,890
    
    
    
    (5,222
    )
    
    
    2,548Other
    
    
    526
    
    
    
    407
    
    
    
    2,905Debt extinguishment costs
    
    
    7,318
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    181,749
    
    
    
    174,376
    
    
    
    168,232Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    35,466Leasing expense
    
    
    
    
    
    
    
    
    
    
    43,139Interest expense
    
    
    121,434
    
    
    
    131,215
    
    
    
    73,7071,368,598
    
    
    
    1,205,387
    
    
    
    1,129,547Income (loss) from continuing operations before income taxes
    
    
    7,031
    
    
    
    (16,582
    )
    
    
    (54,467
    )Provision for (benefit from) income taxes
    
    
    31,167
    
    
    
    28,916
    
    
    
    (1,330
    )Loss from continuing operations
    
    
    (24,136
    )
    
    
    (45,498
    )
    
    
    (53,137
    )Income (loss) from discontinued operations, net of tax
    
    
    (756
    )
    
    
    6,314
    
    
    
    10,190Gain (loss) from sales or write-downs of discontinued operations, net of tax
    
    
    (113
    )
    
    
    3,771
    
    
    
    (14,051
    )Loss before cumulative effect of accounting changes
    
    
    (25,005
    )
    
    
    (35,413
    )
    
    
    (56,998
    )Cumulative effect of accounting changes, net of tax
    
    
    
    
    
    
    
    
    
    
    (86,910
    )Net loss
    
    $
    (25,005
    )
    
    $
    (35,413
    )
    
    $
    (143,908
    )
  F-3




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##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Net loss
    
    $
    (25,005
    )
    
    $
    (35,413
    )
    
    $
    (143,908
    )Other comprehensive income (loss):Change in fair value of derivative financial instruments, net of tax
    
    
    608
    
    
    
    8,638
    
    
    
    5,693Foreign currency translation adjustment
    
    
    (2,912
    )
    
    
    (347
    )
    
    
    17,230Comprehensive loss
    
    $
    (27,309
    )
    
    $
    (27,122
    )
    
    $
    (120,985
    )
  F-4




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##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Cash flows from operating activities:Net loss
    
    $
    (25,005
    )
    
    $
    (35,413
    )
    
    $
    (143,908
    )Adjustments:Depreciation and amortization
    
    
    181,749
    
    
    
    174,376
    
    
    
    168,232(Income) loss from discontinued operations, net of tax
    
    
    869
    
    
    
    (10,085
    )
    
    
    3,861Cumulative effect of accounting changes, net of tax
    
    
    
    
    
    
    
    
    
    
    86,910Bad debt expense
    
    
    1,955
    
    
    
    2,658
    
    
    
    4,028Gain on sale of property, plant and equipment
    
    
    (13,183
    )
    
    
    (6,076
    )
    
    
    (6,012
    )Equity in income of non-consolidated affiliates, net of dividends received
    
    
    (2,783
    )
    
    
    (10,112
    )
    
    
    (4,563
    )(Gain) loss on derivative instruments
    
    
    416
    
    
    
    1,886
    
    
    
    (4,606
    )(Gain) loss on remeasurement of intercompany balances
    
    
    12,155
    
    
    
    (5,456
    )
    
    
    (1,607
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    35,466Gain on sale of non-consolidated affiliates
    
    
    
    
    
    
    (300
    )
    
    
    Gain on sale of business
    
    
    (367
    )
    
    
    
    
    
    
    Restricted stock compensation expense
    
    
    5,676
    
    
    
    2,599
    
    
    
    1,178Pay-in-kind interest on long-term notes payable
    
    
    23,336
    
    
    
    20,966
    
    
    
    21,048Deferred income taxes
    
    
    22,757
    
    
    
    15,776
    
    
    
    (14,746
    )Changes in assets and liabilities, excluding business combinations:Accounts receivable and notes
    
    
    (45,061
    )
    
    
    (4,021
    )
    
    
    17,537Inventory
    
    
    (73,936
    )
    
    
    (21,966
    )
    
    
    7,168Costs and estimated earnings versus billings on uncompleted contracts
    
    
    (21,117
    )
    
    
    (5,733
    )
    
    
    16,455Prepaid and other current assets
    
    
    (15,840
    )
    
    
    (561
    )
    
    
    21,026Accounts payable and other liabilities
    
    
    41,267
    
    
    
    (3,806
    )
    
    
    (30,343
    )Advance billings
    
    
    47,549
    
    
    
    16,130
    
    
    
    (4,213
    )Other
    
    
    (1,924
    )
    
    
    10,950
    
    
    
    (1,086
    )Net cash provided by continuing operations
    
    
    138,513
    
    
    
    141,812
    
    
    
    171,825Net cash provided by (used in) discontinued operations
    
    
    (383
    )
    
    
    8,115
    
    
    
    14,671Net cash provided by operating activities
    
    
    138,130
    
    
    
    149,927
    
    
    
    186,496Cash flows from investing activities:Capital expenditures
    
    
    (155,146
    )
    
    
    (90,496
    )
    
    
    (142,466
    )Payments for deferred lease transaction costs
    
    
    
    
    
    
    
    
    
    
    (1,246
    )Proceeds from sale of property, plant and equipment
    
    
    51,101
    
    
    
    24,265
    
    
    
    23,009Proceeds from the sale of business
    
    
    2,724
    
    
    
    
    
    
    
    Proceeds from sale of non-consolidated affiliates
    
    
    
    
    
    
    4,663
    
    
    
    500Cash used for business acquisitions, net
    
    
    (3,426
    )
    
    
    
    
    
    
    (15,000
    )Cash returned from non-consolidated affiliates
    
    
    
    
    
    
    
    
    
    
    64,837Cash used to acquire investments in and advances to non-consolidated affiliates
    
    
    (500
    )
    
    
    (250
    )
    
    
    (500
    )Net cash used in continuing operations
    
    
    (105,247
    )
    
    
    (61,818
    )
    
    
    (70,866
    )Net cash provided by discontinued operations
    
    
    1,220
    
    
    
    72,947
    
    
    
    27,396Net cash provided by (used in) investing activities
    
    
    (104,027
    )
    
    
    11,129
    
    
    
    (43,470
    )Cash flows from financing activities:Borrowings on revolving credit facilities
    
    
    152,000
    
    
    
    52,200
    
    
    
    145,000Repayments on revolving credit facilities
    
    
    (111,000
    )
    
    
    (72,200
    )
    
    
    (274,500
    )Payments for debt issue costs
    
    
    (2,592
    )
    
    
    (253
    )
    
    
    (7,464
    )Partners contribution (distribution), net
    
    
    168,447
    
    
    
    (8,541
    )
    
    
    (15,062
    )Borrowings from general partner, senior notes due 2014
    
    
    
    
    
    
    194,125
    
    
    
    Borrowings from general partner, senior notes due 2010
    
    
    
    
    
    
    
    
    
    
    193,698Borrowings from general partner, convertible senior notes due 2014
    
    
    
    
    
    
    
    
    
    
    138,941Payments of 1999 compression equipment lease obligations
    
    
    
    
    
    
    
    
    
    
    (200,000
    )Payments of 2000A compression equipment lease obligations
    
    
    
    
    
    
    (200,000
    )
    
    
    Payments of 2000B compression equipment lease obligations
    
    
    (57,589
    )
    
    
    (115,000
    )
    
    
    Payments of 2001A compression equipment lease obligations
    
    
    (172,177
    )
    
    
    
    
    
    
    Borrowings of other debt
    
    
    2,180
    
    
    
    
    
    
    
    
 F-5




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##### Table of Contents



Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Repayment of other debt
    
    
    (1,802
    )
    
    
    (30,771
    )
    
    
    (68,293
    )Net cash used in continuing operations
    
    
    (22,533
    )
    
    
    (180,440
    )
    
    
    (87,680
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (18,538
    )Net cash used in financing activities
    
    
    (22,533
    )
    
    
    (180,440
    )
    
    
    (106,218
    )Effect of exchange rate changes on cash and equivalents
    
    
    (1,413
    )
    
    
    841
    
    
    
    800Net increase (decrease) in cash and cash equivalents
    
    
    10,157
    
    
    
    (18,543
    )
    
    
    37,608Cash and cash equivalents at beginning of year
    
    
    38,076
    
    
    
    56,619
    
    
    
    19,011Cash and cash equivalents at end of year
    
    $
    48,233
    
    
    $
    38,076
    
    
    $
    56,619Supplemental disclosure of cash flow information:Interest paid, net of capitalized amounts
    
    $
    103,414
    
    
    $
    109,674
    
    
    $
    33,765Income taxes paid, net
    
    $
    18,471
    
    
    $
    15,830
    
    
    $
    1,129Supplemental disclosure of noncash transactions:Assets sold in exchange for note receivable
    
    $
    1,600
    
    
    $
    1,314
    
    
    $
    3,300Partners non-cash capital contributions
    
    $
    4,028
    
    
    $
    12,662
    
    
    $
    4,669Income tax
benefit from Hanover stock options exercised
    
    $
    6,019
    
    
    
    
    
    
    $
    2,996Acquisitions of businesses:Cash
    
    
    
    
    
    
    
    
    
    $
    209Property, plant and equipment acquired
    
    $
    359
    
    
    
    
    
    
    $
    267Other assets acquired, net of cash acquired
    
    $
    286
    
    
    
    
    
    
    $
    3,918Investments in and advances to non-consolidated affiliates
    
    
    
    
    
    
    
    
    
    $
    (4,673
    )Goodwill
    
    $
    2,781
    
    
    
    
    
    
    $
    15,558Liabilities assumed
    
    
    
    
    
    
    
    
    
    $
    (279
    )
  F-6




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##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
 Year Ended December 31, 2005, 2004 and 2003
 AccumulatedotherPartners
    
    
    comprehensivecapital
    
    
    income (loss)(in thousands)Balance at December 31, 2002
    
    $
    1,202,972
    
    
    $
    (13,696
    )Partners distributions, net
    
    
    (10,393
    )
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    17,230Change in fair value of derivative financial instrument, net of tax
    
    
    
    
    
    
    5,693Income tax benefit from Hanover stock options exercised
    
    
    2,996
    
    
    
    Net loss
    
    
    (143,908
    )
    
    
    Balance at December 31, 2003
    
    
    1,051,667
    
    
    
    9,227Partners contributions, net
    
    
    4,121
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    (347
    )Change in fair value of derivative financial instrument, net of tax
    
    
    
    
    
    
    8,638Net loss
    
    
    (35,413
    )
    
    
    Balance at December 31, 2004
    
    
    1,020,375
    
    
    
    17,518Partners contributions, net
    
    
    172,475
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    (2,912
    )Change in fair value of derivative financial instrument, net of tax
    
    
    
    
    
    
    608Income tax benefit from Hanover stock options exercised
    
    
    6,019
    
    
    
    Net loss
    
    
    (25,005
    )
    
    
    Balance at December 31, 2005
    
    $
    1,173,864
    
    
    $
    15,214
  F-7




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##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and 2003
 1. The Company, Business and Significant Accounting Policies
    Principles of Consolidation
  Use of Estimates in the Financial Statements
   Cash and Cash Equivalents
  F-8




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##### Table of Contents



Revenue Recognition
   Concentrations of Credit Risk
   Inventory
  Property, Plant and Equipment
  Compression equipment, facilities and other rental assets
    
    4 to 30 yearsBuildings
    
    20 to 35 yearsTransportation, shop equipment and other
    
    3 to 12 years
  Computer software
  F-9




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##### Table of Contents



Long-Lived Assets, other than Intangibles
   Goodwill and Other Intangibles
  Advance Billings
  Sale Leaseback Transactions
  Income Taxes
  Foreign Currency Translation
  Stock Options and Stock-Based Compensation
  F-10




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##### Table of Contents



Years Ended December 31,2005
    
    
    2004
    
    
    2003Net loss as reported
    
    $
    (25,005
    )
    
    $
    (35,413
    )
    
    $
    (143,908
    )Add back: Restricted stock grant expense, net of tax
    
    
    5,676
    
    
    
    2,599
    
    
    
    766Deduct: Stock-based employee compensation expense
determined under the fair value method, net of tax
    
    
    (8,098
    )
    
    
    (4,817
    )
    
    
    (2,628
    )Pro forma net loss
    
    $
    (27,427
    )
    
    $
    (37,631
    )
    
    $
    (145,770
    )
   Comprehensive Income
  December 31,2005
    
    
    2004Fair value of derivative financial instruments, net of tax
    
    $
    
    
    
    $
    (608
    )Foreign currency translation adjustment
    
    
    15,214
    
    
    
    18,126$
    15,214
    
    
    $
    17,518
  Financial Instruments
   F-11




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##### Table of Contents



Reclassifications
  2. Business Acquisitions
  Year Ended December 31, 2005
  Year Ended December 31, 2003
 Belleli Acquisition.
   3. Discontinued Operations and Other Assets Held for Sale
  F-12




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##### Table of Contents



F-13




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##### Table of Contents



Years Ended December 31,2005
    
    
    2004
    
    
    2003Revenues and other:U.S. rentals
    
    $
    446
    
    
    $
    261
    
    
    $
    4,490International rentals
    
    
    
    
    
    
    12,930
    
    
    
    15,103Parts, service and used equipment
    
    
    
    
    
    
    9,663
    
    
    
    21,311Equity in income of non-consolidated affiliates
    
    
    
    
    
    
    123
    
    
    
    624Other
    
    
    79
    
    
    
    695
    
    
    
    928525
    
    
    
    23,672
    
    
    
    42,456Expenses:U.S. rentals
    
    
    855
    
    
    
    914
    
    
    
    1,176International rentals
    
    
    
    
    
    
    5,827
    
    
    
    5,590Parts, service and used equipment
    
    
    
    
    
    
    7,010
    
    
    
    14,698Selling, general and administrative
    
    
    321
    
    
    
    1,657
    
    
    
    8,297Foreign currency translation
    
    
    
    
    
    
    (1,087
    )
    
    
    Depreciation and amortization
    
    
    
    
    
    
    2,964
    
    
    
    3,438Interest expense
    
    
    105
    
    
    
    
    
    
    
    796Other
    
    
    
    
    
    
    468
    
    
    
    4331,281
    
    
    
    17,753
    
    
    
    34,428Income (loss) from discontinued operations before income taxes
    
    
    (756
    )
    
    
    5,919
    
    
    
    8,028Benefit from income taxes
    
    
    
    
    
    
    (395
    )
    
    
    (2,162
    )Income (loss) from discontinued operations
    
    $
    (756
    )
    
    $
    6,314
    
    
    $
    10,190
  Non-OilfieldUsed
    
    
    PowerEquipment
    
    
    Generation
    
    
    Facilities
    
    
    TotalCurrent assets
    
    $
    
    
    
    $
    2,020
    
    
    $
    
    
    
    $
    2,020Property plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assets held for sale
    
    
    
    
    
    
    2,020
    
    
    
    
    
    
    
    2,020Current liabilities
    
    
    
    
    
    
    878
    
    
    
    
    
    
    
    878Liabilities held for sale
    
    
    
    
    
    
    878
    
    
    
    
    
    
    
    878Net assets held for sale
    
    $
    
    
    
    $
    1,142
    
    
    $
    
    
    
    $
    1,142
  Non-OilfieldUsed
    
    
    PowerEquipment
    
    
    Generation
    
    
    Facilities
    
    
    TotalCurrent assets
    
    $
    2,455
    
    
    $
    2,714
    
    
    $
    
    
    
    $
    5,169Property plant and equipment
    
    
    
    
    
    
    1,077
    
    
    
    5,314
    
    
    
    6,391Assets held for sale
    
    
    2,455
    
    
    
    3,791
    
    
    
    5,314
    
    
    
    11,560Current liabilities
    
    
    
    
    
    
    517
    
    
    
    
    
    
    
    517Liabilities held for sale
    
    
    
    
    
    
    517
    
    
    
    
    
    
    
    517Net assets held for sale
    
    $
    2,455
    
    
    $
    3,274
    
    
    $
    5,314
    
    
    $
    11,043
 F-14




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##### Table of Contents



4. Inventory
  December 31,2005
    
    
    2004Parts and supplies
    
    $
    135,310
    
    
    $
    135,751Work in progress
    
    
    105,405
    
    
    
    42,708Finished goods
    
    
    10,354
    
    
    
    6,339$
    251,069
    
    
    $
    184,798
  5. Compressor and Production and Processing Equipment Fabrication Contracts
  December 31,2005
    
    
    2004Costs incurred on uncompleted contracts
    
    $
    372,675
    
    
    $
    268,088Estimated earnings
    
    
    42,976
    
    
    
    31,131415,651
    
    
    
    299,219Less  billings to date
    
    
    (351,611
    )
    
    
    (249,372
    )$
    64,040
    
    
    $
    49,847
  December 31,2005
    
    
    2004Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    99,166
    
    
    $
    70,103Billings on uncompleted contracts in excess of costs and estimated earnings
    
    
    (35,126
    )
    
    
    (20,256
    )$
    64,040
    
    
    $
    49,847
 6. Property, plant and equipment
  December 31,2005
    
    
    2004Compression equipment, facilities and other rental assets
    
    $
    2,441,119
    
    
    $
    2,360,799Land and buildings
    
    
    87,604
    
    
    
    89,573Transportation and shop equipment
    
    
    77,507
    
    
    
    78,577Other
    
    
    53,824
    
    
    
    51,0542,660,054
    
    
    
    2,580,003Accumulated depreciation
    
    
    (836,954
    )
    
    
    (703,655
    )$
    1,823,100
    
    
    $
    1,876,348
   F-15




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##### Table of Contents



7. Intangible and Other Assets
  December 31,2005
    
    
    2004Deferred debt issuance and leasing transactions costs
    
    $
    23,438
    
    
    $
    29,946Notes and other receivables
    
    
    13,284
    
    
    
    7,300Intangibles
    
    
    4,682
    
    
    
    6,070Deferred taxes
    
    
    1,756
    
    
    
    8,869Other
    
    
    11,970
    
    
    
    17,793$
    55,130
    
    
    $
    69,978
   As of December 31, 2005
    
    
    As of December 31, 2004Gross
    
    
    
    
    
    
    Grosscarrying
    
    
    Accumulated
    
    
    carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    amount
    
    
    amortization(in thousands)Deferred debt issuance transaction costs
    
    $
    44,154
    
    
    $
    (20,716
    )
    
    $
    42,623
    
    
    $
    (12,677
    )Marketing related (3-20 yr life)
    
    
    2,063
    
    
    
    (324
    )
    
    
    4,581
    
    
    
    (2,435
    )Customer related (20 yr life)
    
    
    2,724
    
    
    
    (423
    )
    
    
    3,684
    
    
    
    (889
    )Technology based (5 yr life)
    
    
    868
    
    
    
    (355
    )
    
    
    1,529
    
    
    
    (567
    )Contract based (17 yr life)
    
    
    650
    
    
    
    (521
    )
    
    
    650
    
    
    
    (483
    )$
    50,459
    
    
    $
    (22,339
    )
    
    $
    53,067
    
    
    $
    (17,051
    )
  2006
    
    $
    4,7072007
    
    
    4,6932008
    
    
    4,3352009
    
    
    3,7722010
    
    
    3,570Thereafter
    
    
    7,043$
    28,120
 F-16




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##### Table of Contents



8. Investments in Non-Consolidated Affiliates
   OwnershipInterest
    
    Location
    
    Type of BusinessPIGAP II
    
    
    30.0
    %
    
    Venezuela
    
    Gas Compression PlantEl Furrial
    
    
    33.3
    %
    
    Venezuela
    
    Gas Compression PlantSimco/Harwat Consortium
    
    
    35.5
    %
    
    Venezuela
    
    Water Injection Plant
  December 31,2005
    
    2004Current assets
    
    $
    137,936
    
    
    $
    148,938Non-current assets
    
    
    495,071
    
    
    
    528,669Current liabilities, excluding debt
    
    
    37,403
    
    
    
    35,407Debt payable
    
    
    301,384
    
    
    
    349,030Other non-current liabilities
    
    
    51,752
    
    
    
    41,053Owners equity
    
    
    242,468
    
    
    
    252,117
  Years Ended December 31,2005
    
    2004
    
    2003Revenues
    
    $
    193,153
    
    
    $
    186,457
    
    
    $
    277,575Operating income
    
    
    134,777
    
    
    
    127,698
    
    
    
    136,998Net income
    
    
    54,473
    
    
    
    57,775
    
    
    
    60,526
     F-17




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##### Table of Contents



9. Goodwill
    PurchaseAdjustmentDecember 31,
    
    
    Acquisitions/
    
    
    and Other
    
    
    December 31,2004
    
    
    Dispositions(1)
    
    
    Adjustments(3)
    
    
    2005U.S. rentals
    
    $
    100,456
    
    
    $
    
    
    
    $
    (247
    )
    
    $
    100,209International rentals
    
    
    35,085
    
    
    
    2,781
    
    
    
    (212
    )
    
    
    37,654Parts, service and used equipment
    
    
    33,076
    
    
    
    (562
    )
    
    
    (404
    )
    
    
    32,110Compressor and accessory fabrication
    
    
    14,573
    
    
    
    
    
    
    
    (182
    )
    
    
    14,391Total
    
    $
    183,190
    
    
    $
    2,219
    
    
    $
    (1,045
    )
    
    $
    184,364
 PurchaseAdjustment andDecember 31,
    
    
    Acquisitions/
    
    
    Other
    
    
    December 31,2003
    
    
    Dispositions(2)
    
    
    Adjustments(3)
    
    
    2004U.S. rentals
    
    $
    95,597
    
    
    $
    
    
    
    $
    4,859
    
    
    $
    100,456International rentals
    
    
    34,282
    
    
    
    (2,145
    )
    
    
    2,948
    
    
    
    35,085Parts, service and used equipment
    
    
    32,870
    
    
    
    
    
    
    
    206
    
    
    
    33,076Compressor and accessory fabrication
    
    
    14,573
    
    
    
    
    
    
    
    
    
    
    
    14,573Total
    
    $
    177,322
    
    
    $
    (2,145
    )
    
    $
    8,013
    
    
    $
    183,190
 
 (1)
    
    Additions to goodwill for our international rentals segment in 2005 relates to our
acquisition of PTS.(2)
    
    Relates to sale of the compression rental assets of our Canadian subsidiary.(3)
    
    Relates primarily to purchase price adjustments for taxes related to acquisitions. F-18




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##### Table of Contents



10. Accrued Liabilities
  December 31,2005
    
    
    2004Accrued salaries, bonuses and other employee benefits
    
    $
    36,823
    
    
    $
    30,323Accrued income and other taxes
    
    
    26,868
    
    
    
    31,182Current portion of interest rate swaps
    
    
    1,849
    
    
    
    1,061Accrued interest
    
    
    11,747
    
    
    
    17,428Accrued interest  due to general partner
    
    
    5,431
    
    
    
    5,298Accrued other
    
    
    43,166
    
    
    
    31,401$
    125,884
    
    
    $
    116,693
 11. Debt
  December 31,2005
    
    
    2004Bellelifactored receivables
    
    $
    1,129
    
    
    $
    1,011Bellelirevolving credit facility
    
    
    2,951
    
    
    
    4,095Short-term debt
    
    $
    4,080
    
    
    $
    5,106
   December 31,2005
    
    
    2004Bank credit facility due November 2010
    
    $
    48,000
    
    
    $
    7,0002000B compression equipment lease notes, interest at 5.2%, due October 2005
    
    
    
    
    
    
    55,8612001A compression equipment lease notes, interest at 8.5%, due September 2008
    
    
    133,000
    
    
    
    300,0002001B compression equipment lease notes, interest at 8.75%, due September 2011
    
    
    250,000
    
    
    
    250,000Other, interest at various rates, collateralized by equipment and other
assets, net of unamortized discount
    
    
    1,751
    
    
    
    3,178432,751
    
    
    
    616,039Lesscurrent maturities
    
    
    (1,309
    )
    
    
    (1,430
    )Long-term debt
    
    $
    431,442
    
    
    $
    614,609
  December 31,20052006
    
    $
    1,3092007
    
    
    2222008
    
    
    133,0452009
    
    
    492010
    
    
    48,054Thereafter
    
    
    250,072$
    432,751
 Bank Credit Facility
  F-19




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##### Table of Contents



2001 Sale Leaseback Transactions
   F-20




---



##### Table of Contents



12. Due to General Partner
   December 31,
    
    
    December 31,2005
    
    
    20044.75% senior notes due 2014
    
    $
    143,750
    
    
    $
    143,7508.625% senior notes due 2010
    
    
    200,000
    
    
    
    200,0009.0% senior notes due 2014
    
    
    200,000
    
    
    
    200,00011% zero coupon subordinated notes due March 2007
    
    
    229,803
    
    
    
    206,467Fair value adjustment  fixed to floating interest rate swaps
    
    
    (9,686
    )
    
    
    (5,996
    )$
    763,867
    
    
    $
    744,221
 F-21




---



##### Table of Contents



4.75% Convertible Senior Notes due 2014
    8.625% Senior Notes due 2010
   9.0% Senior Notes due 2014
   F-22




---



##### Table of Contents



Zero Coupon Subordinated Notes due March 31, 2007
   13. Leasing Transactions and Accounting Change for FIN 46
   F-23




---



##### Table of Contents



Residual
    
    
    
    
    
    
    MinorityValue
    
    
    Lease
    
    
    InterestLease
    
    Guarantee
    
    
    Termination Date
    
    
    ObligationAugust 2001
    
    $
    102,853
    
    
    September 2008
    
    $
    4,123August 2001
    
    
    175,000
    
    
    September 2011
    
    
    7,750$
    277,853
    
    
    
    
    
    
    $
    11,873
     F-24




---



##### Table of Contents



SubstitutionLimitation asValue of
    
    
    Percentage of
    
    
    
    
    
    
    Percentage ofSubstituted
    
    
    Termination
    
    
    Termination
    
    
    Termination
    
    
    Lease TerminationLease
    
    Equipment
    
    
    Value(1)
    
    
    Value(1)
    
    
    Value
    
    
    Date(dollars inmillions)2001A compression equipment lease
    
    $
    19.4
    
    
    
    14.2
    %
    
    $
    137.1
    
    
    
    25
    %
    
    September 20082001B compression equipment lease
    
    
    45.4
    
    
    
    17.6
    %
    
    
    257.7
    
    
    
    25
    %
    
    September 2011Total
    
    $
    64.8
    
    
    
    
    
    
    $
    394.8
 
 (1)
    
    Termination value assumes all accrued rents paid before termination. 14. Income Taxes
  Years Ended December 31,2005
    
    
    2004
    
    
    2003U.S.
    
    $
    (16,681
    )
    
    $
    (56,733
    )
    
    $
    (56,545
    )International
    
    
    23,712
    
    
    
    40,151
    
    
    
    2,078$
    7,031
    
    
    $
    (16,582
    )
    
    $
    (54,467
    )
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Current tax provision (benefit):Federal
    
    $
    
    
    
    $
    168
    
    
    $
    State
    
    
    8
    
    
    
    (27
    )
    
    
    245International
    
    
    8,402
    
    
    
    12,999
    
    
    
    13,171Total current
    
    
    8,410
    
    
    
    13,140
    
    
    
    13,416Deferred tax provision (benefit):Federal
    
    
    3,726
    
    
    
    (231
    )
    
    
    (23,293
    )State
    
    
    1,477
    
    
    
    1,959
    
    
    
    International
    
    
    17,554
    
    
    
    14,048
    
    
    
    8,547Total deferred
    
    
    22,757
    
    
    
    15,776
    
    
    
    (14,746
    )Total provision for (benefit from) income taxes
    
    $
    31,167
    
    
    $
    28,916
    
    
    $
    (1,330
    )
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Federal income tax at statutory rate
    
    $
    2,461
    
    
    $
    (5,803
    )
    
    $
    (19,064
    )State income taxes, net of federal benefit
    
    
    965
    
    
    
    1,256
    
    
    
    159International effective rate/ U.S. rate differential
(including international valuation allowances)
    
    
    12,819
    
    
    
    8,195
    
    
    
    13,975Release of tax issues based reserve
    
    
    (4,254
    )
    
    
    (2,783
    )
    
    
    U.S. impact of international operations, net of federal benefit
    
    
    13,201
    
    
    
    14,877
    
    
    
    5,270U.S. valuation allowances
    
    
    880
    
    
    
    10,294
    
    
    
    622Change in
U.S. estimates for prior
year items
    
    
    4,348
    
    
    
    3,576
    
    
    
    (2,413
    )Other, net
    
    
    747
    
    
    
    (696
    )
    
    
    121$
    31,167
    
    
    $
    28,916
    
    
    $
    (1,330
    )
 F-25




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##### Table of Contents



December 31,2005
    
    
    2004Deferred tax assets:Net operating losses carryforward
    
    $
    278,858
    
    
    $
    265,469Investment in joint ventures
    
    
    737
    
    
    
    737Inventory
    
    
    5,983
    
    
    
    5,048Alternative minimum tax credit carryforward
    
    
    5,345
    
    
    
    5,337Derivative instruments
    
    
    
    
    
    
    722Accrued liabilities
    
    
    5,253
    
    
    
    3,634Intangibles
    
    
    7,724
    
    
    
    11,093Capital loss carryforward
    
    
    11,611
    
    
    
    10,293Other
    
    
    19,148
    
    
    
    22,057Gross deferred tax assets
    
    
    334,659
    
    
    
    324,390Valuation allowance
    
    
    (41,600
    )
    
    
    (39,662
    )293,059
    
    
    
    284,728Deferred tax liabilities:Property, plant and equipment
    
    
    (355,111
    )
    
    
    (332,294
    )Other
    
    
    (4,901
    )
    
    
    (6,135
    )Gross deferred tax liabilities
    
    
    (360,012
    )
    
    
    (338,429
    )$
    (66,953
    )
    
    $
    (53,701
    )
  Year Ended December 31,2005
    
    
    2004Current deferred income taxes
    
    $
    15,097
    
    
    $
    14,028Intangibles and other assets
    
    
    1,756
    
    
    
    8,868Accrued liabilities
    
    
    (2,448
    )
    
    
    (1,414
    )Deferred income taxes
    
    
    (81,358
    )
    
    
    (75,183
    )Net deferred tax liabilities
    
    $
    (66,953
    )
    
    $
    (53,701
    )
    15. Accounting for Derivatives
    F-26




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##### Table of Contents



Fair Value ofFixed Rate to be
    
    
    
    
    
    Swap atFloating Rate to be Paid
    
    Maturity Date
    
    Received
    
    Notional Amount
    
    December 31, 2005Six Month LIBOR +4.72%
    
    December 15, 2010
    
    
    8.625
    %
    
    $
    100,000
    
    
    $
    (4,975
    )Six Month LIBOR +4.64%
    
    December 15, 2010
    
    
    8.625
    %
    
    $
    100,000
    
    
    $
    (4,711
    )
   Fair Value ofSwap atLease
    
    Maturity Date
    
    Fixed Rate to be Paid
    
    Notional Amount
    
    December 31, 2005March 2000
    
    March 11, 2005
    
    
    5.2550
    %
    
    $
    100,000
    
    
    $ August 2000
    
    March 11, 2005
    
    
    5.2725
    %
    
    $
    100,000
    
    
    $ 
      F-27




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##### Table of Contents



16. Partners Equity
  17. Stock Options
   Weighted averageShares
    
    price per shareOptions outstanding, December 31, 2002
    
    
    7,478,008
    
    
    $
    8.21Options granted(1)
    
    
    539,285
    
    
    
    11.41Options canceled
    
    
    (652,963
    )
    
    
    11.06Options exercised
    
    
    (1,432,636
    )
    
    
    4.68Options outstanding, December 31, 2003
    
    
    5,931,694
    
    
    
    9.07Options granted(1)
    
    
    77,474
    
    
    
    11.47Options canceled
    
    
    (624,656
    )
    
    
    13.19Options exercised
    
    
    (1,140,073
    )
    
    
    8.38Options outstanding, December 31, 2004
    
    
    4,244,439
    
    
    
    8.67Options granted(1)
    
    
    477,940
    
    
    
    11.98Options canceled
    
    
    (139,354
    )
    
    
    14.44Options exercised
    
    
    (1,562,268
    )
    
    
    3.19Options outstanding, December 31, 2005
    
    
    3,020,757
    
    
    
    11.77
 
 (1)
    
    Option price equal to fair market value on date of grant. F-28




---



##### Table of Contents



Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageLife in
    
    Exercise
    
    
    
    
    
    ExerciseRange of exercise prices
    
    Shares
    
    Years
    
    Price
    
    Shares
    
    Price$0.00-2.50
    
    
    5,928
    
    
    
    0.1
    
    
    $
    0.00
    
    
    
    5,928
    
    
    $
    0.00$5.01-7.50
    
    
    47,084
    
    
    
    0.3
    
    
    
    5.70
    
    
    
    47,084
    
    
    
    5.70$7.51-10.00
    
    
    1,168,472
    
    
    
    2.9
    
    
    
    9.76
    
    
    
    1,116,762
    
    
    
    9.76$10.01-12.50
    
    
    1,050,122
    
    
    
    7.9
    
    
    
    11.75
    
    
    
    349,476
    
    
    
    11.72$12.51-15.00
    
    
    615,451
    
    
    
    5.9
    
    
    
    14.46
    
    
    
    454,963
    
    
    
    14.46$15.01-17.50
    
    
    75,000
    
    
    
    6.2
    
    
    
    17.25
    
    
    
    75,000
    
    
    
    17.25$17.51-20.00
    
    
    21,000
    
    
    
    6.1
    
    
    
    18.95
    
    
    
    19,400
    
    
    
    18.95$22.51-25.00
    
    
    37,700
    
    
    
    5.7
    
    
    
    25.00
    
    
    
    37,700
    
    
    
    25.003,020,757
    
    
    
    
    
    
    
    
    
    
    
    2,106,313
   2005
    
    2004
    
    2003Expected life
    
    7 years
    
    7.5 years
    
    6 yearsInterest rate
    
    
    4.0
    %
    
    
    4.2
    %
    
    
    3.2
    %Volatility
    
    
    32.0
    %
    
    
    38.0
    %
    
    
    40.3
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  18. Benefit Plans
  19. Related Party and Certain Other Transactions
 Transactions with GKH Entities
   F-29




---



##### Table of Contents



Transactions with Schlumberger Entities
        Transactions with General Partner and Hanover
  F-30




---



##### Table of Contents



Other Related Party Transactions
     20. Commitments and Contingencies
   Maximum PotentialUndiscountedPayments as ofTerm
    
    
    December 31, 2005Performance guarantees through letters of credit
    
    
    2006-2007
    
    
    $
    108,598Standby letters of credit
    
    
    2006-2007
    
    
    
    20,249Commercial letters of credit
    
    
    2006
    
    
    
    2,741Bid bonds and performance bonds
    
    
    2006-2011
    
    
    
    123,569$
    255,157
  F-31




---



##### Table of Contents



Maximum PotentialUndiscountedPayments as ofTerm
    
    December 31, 2005Indebtedness of non-consolidated affiliates:Simco/Harwat Consortium
    
    
    2006
    
    
    $
    7,476El Furrial
    
    
    2013
    
    
    
    32,017
      21. Other Expense
  F-32




---



##### Table of Contents



22. Restructuring, Impairment and Other Charges
  Debt extinguishment costs
    
    $
    7,318Write-off of deferred financing costs (in Depreciation and amortization)
    
    
    2,500Total
    
    $
    9,818
  Write-off of deferred financing costs (in Depreciation and amortization)
    
    
    1,686Cancellation of interest rate swap (in Interest expense)
    
    
    2,028Total
    
    $
    3,714
  Rental fleet asset impairment (in Depreciation and amortization)
    
    $
    14,334Cumulative effect of accounting change  FIN 46
    
    
    133,707Belleli goodwill impairment (in Goodwill impairment)
    
    
    35,466Write-off of deferred financing costs (in Depreciation and amortization)
    
    
    2,461Loss on sale/write-down of discontinued operations
    
    
    21,617Total
    
    $
    207,585
  23. New Accounting Pronouncements
     F-33




---



##### Table of Contents



Accounting for Stock Issued to Employees,
    24. Industry Segments and Geographic Information
  F-34




---



##### Table of Contents



Production andCompressor
    
    ProcessingParts, service
    
    and
    
    SurfaceInternational
    
    and used
    
    accessory
    
    equipmentU.S. rentals
    
    rentals
    
    equipment
    
    fabrication
    
    fabrication
    
    Belleli
    
    Other(1)
    
    Consolidated(In thousands of dollars)2005Revenues from
external customers
    
    $
    351,128
    
    
    $
    232,587
    
    
    $
    225,636
    
    
    $
    179,954
    
    
    $
    179,951
    
    
    $
    180,316
    
    
    $
    26,057
    
    
    $
    1,375,629Gross profit
    
    
    211,663
    
    
    
    156,075
    
    
    
    56,468
    
    
    
    23,540
    
    
    
    21,957
    
    
    
    12,386
    
    
    
    26,057
    
    
    
    508,146Total assets
    
    
    1,423,867
    
    
    
    669,421
    
    
    
    63,909
    
    
    
    70,170
    
    
    
    48,880
    
    
    
    105,302
    
    
    
    484,815
    
    
    
    2,866,364Capital expenditures
    
    
    61,370
    
    
    
    87,858
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    4,577
    
    
    
    1,218
    
    
    
    155,1462004Revenues from
external customers
    
    $
    341,570
    
    
    $
    214,598
    
    
    $
    180,321
    
    
    $
    158,629
    
    
    $
    131,195
    
    
    $
    139,089
    
    
    $
    23,403
    
    
    $
    1,188,805Gross profit
    
    
    196,990
    
    
    
    150,645
    
    
    
    44,392
    
    
    
    13,797
    
    
    
    13,099
    
    
    
    14,934
    
    
    
    23,403
    
    
    
    457,260Total assets
    
    
    1,484,684
    
    
    
    616,339
    
    
    
    61,078
    
    
    
    56,825
    
    
    
    45,185
    
    
    
    99,964
    
    
    
    417,833
    
    
    
    2,781,908Capital expenditures
    
    
    40,271
    
    
    
    36,713
    
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    7,768
    
    
    
    5,605
    
    
    
    90,4962003Revenues from
external customers
    
    $
    324,186
    
    
    $
    191,301
    
    
    $
    164,935
    
    
    $
    106,896
    
    
    $
    140,753
    
    
    $
    119,907
    
    
    $
    27,102
    
    
    $
    1,075,080Gross profit
    
    
    196,761
    
    
    
    129,426
    
    
    
    41,680
    
    
    
    9,974
    
    
    
    13,570
    
    
    
    12,887
    
    
    
    27,102
    
    
    
    431,400Total assets
    
    
    1,651,222
    
    
    
    768,397
    
    
    
    60,843
    
    
    
    73,897
    
    
    
    74,246
    
    
    
    70,857
    
    
    
    214,015
    
    
    
    2,913,477Capital expenditures
    
    
    73,007
    
    
    
    59,200
    
    
    
    24
    
    
    
    2,735
    
    
    
    1,158
    
    
    
    6,342
    
    
    
    
    
    
    
    142,466
 Geographic Data
 United States
    
    International(2)
    
    Consolidated(In thousands of dollars)2005Revenues from external customers
    
    $
    715,109
    
    
    $
    660,520
    
    
    $
    1,375,629Property, plant and equipment, net
    
    $
    1,255,935
    
    
    $
    567,165
    
    
    $
    1,823,1002004Revenues from external customers
    
    $
    620,191
    
    
    $
    568,614
    
    
    $
    1,188,805Property, plant and equipment, net
    
    $
    1,315,610
    
    
    $
    560,738
    
    
    $
    1,876,3482003Revenues from external customers
    
    $
    647,176
    
    
    $
    427,904
    
    
    $
    1,075,080Property, plant and equipment, net
    
    $
    1,408,154
    
    
    $
    619,500
    
    
    $
    2,027,654
 
 (1)
    
    Includes equity in income of non-consolidated affiliates and other income. F-35




---



##### Table of Contents



(2)
    
    International operations include approximately $131.7 million, $141.6 million and $124.5
million of revenues and $192.9 million, $197.6 million and $217.8 million of property, plant
and equipment, net for 2005, 2004 and 2003, respectively, related to operations and
investments in Venezuela. 25. Impact of Hurricanes
   26. Subsequent Event
  F-36




---



##### Table of Contents



HANOVER COMPRESSION LIMITED PARTNERSHIP
 SELECTED QUARTERLY UNAUDITED FINANCIAL DATA
  1st
    
    2nd
    
    3rd
    
    4thQuarter
    
    Quarter
    
    Quarter
    
    Quarter(In thousands)2005(1):Revenue
    
    $
    301,636
    
    
    $
    344,792
    
    
    $
    369,856
    
    
    $
    359,345Gross profit
    
    
    116,256
    
    
    
    129,433
    
    
    
    131,640
    
    
    
    130,817Net income (loss)
    
    
    376
    
    
    
    (4,284
    )
    
    
    2,802
    
    
    
    (23,899
    )2004(2):Revenue
    
    $
    269,831
    
    
    $
    292,876
    
    
    $
    315,811
    
    
    $
    310,287Gross profit
    
    
    112,941
    
    
    
    118,254
    
    
    
    116,588
    
    
    
    109,477Net loss
    
    
    (5,801
    )
    
    
    (4,066
    )
    
    
    (35
    )
    
    
    (25,511
    )
 
 (1)
    
    During the third quarter of 2005, we recorded a $7.3 million charge for debt extinguishment
costs and a $2.5 million write-off of deferred financing costs.(2)
    
    Amounts reflect reclassifications for discontinued operations. (See Note 3.) F-37




---



##### Table of Contents



SCHEDULE II
 HANOVER COMPRESSION LIMITED PARTNERSHIP
VALUATION AND QUALIFYING ACCOUNTS
 AdditionsBalance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Costs and
    
    
    
    
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Deductions
    
    Period(In thousands)Allowance for doubtful accounts deducted from accounts
receivable in the balance sheet2005
    
    $
    7,573
    
    
    $
    1,955
    
    
    $
    4,777
    (1)
    
    $
    4,7512004
    
    
    5,460
    
    
    
    2,658
    
    
    
    545
    (1)
    
    
    7,5732003
    
    
    5,162
    
    
    
    4,028
    
    
    
    3,730
    (1)
    
    
    5,460Allowance for obsolete and slow moving inventory deducted
from inventories in the balance sheet2005
    
    $
    11,699
    
    
    $
    148
    
    
    $
    50
    (2)
    
    $
    11,7972004
    
    
    12,729
    
    
    
    1,062
    
    
    
    2,092
    (2)
    
    
    11,6992003
    
    
    14,211
    
    
    
    1,536
    
    
    
    3,018
    (2)
    
    
    12,729Allowance for deferred tax assets not expected to be realized2005
    
    $
    39,662
    
    
    $
    4,974
    
    
    $
    3,036
    (3)
    
    $
    41,6002004
    
    
    29,269
    
    
    
    23,396
    
    
    
    13,003
    (3)
    
    
    39,6622003
    
    
    23,371
    
    
    
    20,409
    
    
    
    14,511
    (3)
    
    
    29,269Allowance for employee loans2003
    
    $
    6,021
    
    
    $
    
    
    
    $
    6,021
    (4)
    
    $
    
 
 (1)
    
    Uncollectible accounts written off, net of recoveries.(2)
    
    Obsolete inventory written off at cost, net of value received.(3)
    
    Reflects utilization of tax assets that previously had a valuation allowance.(4)
    
    During 2003, the notes receivable for loans to employees who were not executive officers were
forgiven. S-1




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Certificate of Limited Partnership of Hanover Compression
Limited Partnership, incorporated by reference to Exhibit
3.3 to the Registration Statement on Form S-4 (Registration
No. 333-75814).3.2
    
    Certificate of Amendment to Certificate of Limited
Partnership of Hanover Compression Limited Partnership,
dated as of January 2, 2001, incorporated by reference to
Exhibit 3.4 to the Registration Statement on Form S-4
(Registration No. 333-75814).3.3
    
    Certificate of Amendment to Certificate of Limited
Partnership of Hanover Compression Limited Partnership,
dated as of August 20, 2001, incorporated by reference to
Exhibit 3.5 to the Registration Statement on Form S-4
(Registration No. 333-75814).3.4
    
    Limited Partnership Agreement of Hanover Compression Limited
Partnership, dated December 8, 2000, by and among Hanover
LLC 3, LLC, a Delaware limited liability company, as general
partner, and Hanover Compression Limited Holdings, LLC, a
Delaware limited liability company, as limited partner,
incorporated by reference to Exhibit 3.1 to the Companys
Annual Report on Form 10-K for the year ended December 31,
2003.3.5
    
    Amendment to the Limited Partnership Agreement of Hanover
Compression Limited Partnership, dated December 29, 2000, by
and among Hanover Compression General Holdings, LLC, a
Delaware limited liability company, as general partner, and
Hanover Compression Limited Holdings, LLC, a Delaware
limited liability company, as limited partner, incorporated
by reference to Exhibit 3.2 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2003.3.6
    
    Amendment to the Limited Partnership Agreement of Hanover
Compression Limited Partnership, dated December 30, 2002, by
and among Hanover Compression General Holdings, LLC, a
Delaware limited liability company, as general partner, and
Hanover HL, LLC, a Delaware limited liability company, as
limited partner, incorporated by reference to Exhibit 3.3 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2003.4.1
    
    Form of Hanover Compressor Capital Trust 7 1/4% Convertible
Preferred Securities, incorporated by reference to Exhibit
4.8 to Hanovers Registration Statement (File No. 333-30344)
on Form S-3 as filed with the SEC on February 14, 2000.4.2
    
    Indenture for the Convertible Junior Subordinated Debentures
due 2029, dated as of December 15, 1999, among Hanover, as
issuer, and Wilmington Trust Company, as trustee,
incorporated by reference to Exhibit 4.6 to Hanovers
Registration Statement (File No. 333-30344) on Form S-3
filed with the SEC on February 14, 2000.4.3
    
    Form of Hanover Compressor Company Convertible Subordinated
Junior Debentures due 2029, incorporated by reference to
Exhibit 4.9 to Hanovers Registration Statement (File No.
333-30344) on Form S-3 as filed with the SEC on February 14,
2000.4.4
    
    Indenture for the 4.75% Convertible Senior Notes due 2008,
dated as of March 15, 2001, between Hanover and Wilmington
Trust Company, as trustee, incorporated by reference to
Exhibit 4.7 to Hanovers Annual Report on Form 10-K for the
year ended December 31, 2003.4.5
    
    Form of 4.75% Convertible Senior Notes due 2008,
incorporated by reference to Exhibit 4.8 to Hanovers Annual
Report on Form 10-K for the year ended December 31, 2003.4.6
    
    Indenture for the 8.50% Senior Secured Notes due 2008, dated
as of August 30, 2001, among the 2001A Trust, as issuer,
Hanover Compression Limited Partnership and certain
subsidiaries, as guarantors, and Wilmington Trust FSB, as
Trustee, incorporated by reference to Exhibit 10.69 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.4.7
    
    Form of 8.50% Senior Secured Notes due 2008, incorporated by
reference to Exhibit 4.10 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.4.8
    
    Indenture for the 8.75% Senior Secured Notes due 2011, dated
as of August 30, 2001, among the 2001B Trust, as issuer,
Hanover Compression Limited Partnership and certain
subsidiaries, as guarantors, and Wilmington Trust FSB, as
Trustee, incorporated by reference to Exhibit 10.75 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended




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##### Table of Contents



ExhibitNumber
    
    DescriptionSeptember 30, 2001.4.9
    
    Form of 8.75% Senior Secured Notes due 2011, incorporated by
reference to Exhibit 4.12 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.4.10
    
    Indenture for the Zero Coupon Subordinated Notes due March
31, 2007, dated as of May 14, 2003, between Hanover and
Wachovia Bank, National Association, as trustee,
incorporated by reference to Exhibit 4.1 to Hanovers
Registration Statement (File No. 333-106384) on Form S-3, as
filed with the SEC on June 23, 2003.4.11
    
    Form of Zero Coupon Subordinated Notes due March 31, 2007,
incorporated by reference to Exhibit 4.14 to Hanovers
Annual Report on Form 10-K for the year ended December 31,
2003.4.12
    
    Senior Indenture, dated as of December 15, 2003, among
Hanover, Subsidiary Guarantors named therein and Wachovia
Bank, National Association, as trustee, incorporated by
reference to Exhibit 4.1 to Hanovers Registration Statement
on Form 8-A, as filed with the SEC on December 15, 2003.4.13
    
    First Supplemental Indenture to the Senior Indenture dated
as of December 15, 2003, relating to the 8.625% Senior Notes
due 2010, dated as of December 15, 2003, among Hanover
Compressor Company, Hanover Compression Limited Partnership
and Wachovia Bank, National Association, as trustee,
incorporated by reference to Exhibit 4.2 to Hanovers
Registration Statement on Form 8-A, as filed with the SEC on
December 15, 2003.4.14
    
    Form of 8.625% Senior Notes due 2010, incorporated by
reference to Exhibit 4.17 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.4.15
    
    Second Supplemental Indenture to the Senior Indenture dated
as of December 15, 2003, relating to the 4.75% Convertible
Senior Notes due 2014, dated as of December 15, 2003,
between Hanover and Wachovia Bank, National Association, as
trustee, incorporated by reference to Exhibit 4.4 to
Hanovers Current Report on Form 8-K, as filed with the SEC
on December 16, 2003.4.16
    
    Form of 4.75% Convertible Senior Notes due 2014,
incorporated by reference to Exhibit 4.19 to Hanovers
Annual Report on Form 10-K for the year ended December 31,
2003.4.17
    
    Third Supplemental Indenture to the Senior Indenture dated
as of December 15, 2003, relating to the 9.0% Senior Notes
due 2014, dated as of June 1, 2004, among Hanover Compressor
Company, Hanover Compression Limited Partnership and
Wachovia Bank, National Association, as trustee,
incorporated by reference to Exhibit 4.2 to the Registration
Statement of Hanover Compressor Company and Hanover
Compression Limited Partnership on Form 8-A under the
Securities Act of 1934, as filed on June 2, 2004.4.18
    
    Form of 9% Senior Notes due 2014, incorporated by reference
to Exhibit 4.3 to the Registration Statement of Hanover
Compressor Company and Hanover Compression Limited
Partnership on Form 8-A under the Securities Act of 1934, as
filed on June 2, 2004.10.1
    
    Stipulation and Agreement of Settlement, dated as of October
23, 2003, incorporated by reference to Exhibit 10.1 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003.10.2
    
    PIGAP Settlement Agreement, dated as of May 14, 2003, by and
among Schlumberger Technology Corporation, Schlumberger
Oilfield Holdings Limited, Schlumberger Surenco S.A.,
Hanover and Hanover Compression Limited Partnership,
incorporated by reference to Exhibit 10.2 to Hanovers
Annual Report on Form 10-K for the year ended December 31,
2003.10.3
    
    Credit Agreement, dated as of November 21, 2005, among
Hanover, Hanover Compression Limited Partnership, The Royal
Bank of Scotland plc as Syndication Agent, JPMorgan Chase
Bank, N.A. as Administrative Agent, and the several lenders
parties thereto, incorporated by reference to Exhibit 10.3 to
Hanovers Annual Report on Form 10-K for the year ended
December 31, 2005.10.4
    
    Guarantee and Collateral Agreement, dated as of November 21,
2005, among Hanover, Hanover Compression Limited Partnership
and certain of their subsidiaries in favor of JPMorgan Chase
Bank, N.A. as Collateral Agent, incorporated by reference to
Exhibit 10.4 to Hanovers Annual Report on Form 10-K for the
year ended December 31, 2005.10.5
    
    Lease, dated as of August 31, 2001, between Hanover
Equipment Trust 2001A (the 2001A Trust) and Hanover
Compression Limited Partnership, incorporated by reference
to Exhibit 10.64 to Hanovers Quarterly Report on Form




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##### Table of Contents



ExhibitNumber
    
    Description10-Q for the quarter ended September 30, 2001.10.6
    
    Guarantee, dated as of August 31, 2001, made by Hanover,
Hanover Compression Limited Partnership, and certain
subsidiaries, incorporated by reference to Exhibit 10.65 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.7
    
    Participation Agreement, dated as of August 31, 2001, among
Hanover Compression Limited Partnership, the 2001A Trust,
and General Electric Capital Corporation, incorporated by
reference to Exhibit 10.66 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001.10.8
    
    Security Agreement, dated as of August 31, 2001, made by the
2001A Trust in favor of Wilmington Trust FSB as collateral
agent, incorporated by reference to Exhibit 10.67 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.9
    
    Assignment of Leases, Rents and Guarantee from the 2001A
Trust to Wilmington Trust FSB, dated as of August 31, 2001,
incorporated by reference to Exhibit 10.68 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.10.10
    
    Lease, dated as of August 31, 2001, between Hanover
Equipment Trust 2001B (the 2001B Trust) and Hanover
Compression Limited Partnership, incorporated by reference
to Exhibit 10.70 to Hanovers Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001.10.11
    
    Guarantee, dated as of August 31, 2001, made by Hanover,
Hanover Compression Limited Partnership, and certain
subsidiaries, incorporated by reference to Exhibit 10.71 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.12
    
    Participation Agreement, dated as of August 31, 2001, among
Hanover Compression Limited Partnership, the 2001B Trust,
and General Electric Capital Corporation, incorporated by
reference to Exhibit 10.72 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001.10.13
    
    Security Agreement, dated as of August 31, 2001, made by the
2001B Trust in favor of Wilmington Trust FSB as collateral
agent, incorporated by reference to Exhibit 10.73 to
Hanovers Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.10.14
    
    Assignment of Leases, Rents and Guarantee from the 2001B
Trust to Wilmington Trust FSB, dated as of August 31, 2001,
incorporated by reference to Exhibit 10.74 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.10.15
    
    Amended and Restated Declaration of Trust of Hanover
Compressor Capital Trust, dated as of December 15, 1999,
among Hanover, as sponsor, Wilmington Trust Company, as
property trustee, and Richard S. Meller, William S. Goldberg
and Curtis A. Bedrich, as administrative trustees,
incorporated by reference to Exhibit 4.5 to Hanovers
Registration Statement (File No. 333-30344) on Form S-3
filed with the SEC on February 14, 2000.10.16
    
    Preferred Securities Guarantee Agreement, dated as of
December 15, 1999, between Hanover, as guarantor, and
Wilmington Trust Company, as guarantee trustee, incorporated
by reference to Exhibit 4.10 to Hanovers Registration
Statement (File No. 333-30344) on Form S-3 as filed with the
SEC on February 14, 2000.10.17
    
    Common Securities Guarantee Agreement, dated as of December
15, 1999, by Hanover, as guarantor, for the benefit of the
holders of common securities of Hanover Compressor Capital
Trust, incorporated by reference to Exhibit 4.11 to
Hanovers Registration Statement (File No. 333-30344) on
Form S-3 as filed with the SEC on February 14, 2000.10.18
    
    Purchase Agreement, dated June 28, 2001, among Schlumberger
Technology Corporation, Schlumberger Oilfield Holdings Ltd.,
Schlumberger Surenco S.A., Camco International Inc., Hanover
and Hanover Compression Limited Partnership, incorporated by
reference to Exhibit 10.63 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001.10.19
    
    Schedule 1.2(c) to Purchase Agreement, dated June 28, 2001,
among Schlumberger Technology Corporation, Schlumberger
Oilfield Holdings Limited, Schlumberger Surenco S.A., Camco
International Inc., Hanover and Hanover Compression Limited
Partnership, incorporated by reference to Exhibit 99.1 to
Hanovers Current Report on Form 8-K filed with the SEC on
February 6, 2003.




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##### Table of Contents



ExhibitNumber
    
    Description10.20
    
    Amendment No. 1, dated as of August 31, 2001, to Purchase
Agreement among Schlumberger Technology Corporation,
Schlumberger Oilfield Holdings Ltd., Schlumberger Surenco
S.A., Camco International Inc., Hanover and Hanover
Compression Limited Partnership, incorporated by reference
to Exhibit 99.3 to Hanovers Current Report on Form 8-K
filed with the SEC on September 14, 2001.10.21
    
    Amendment No. 2, dated as of July 8, 2005 to Purchase
Agreement by and among Hanover, Hanover Compression Limited
Partnership and Schlumberger Technology Corporation, for
itself and as successor in interest to Camco International
Inc., Schlumberger Surenco S.A. and Schlumberger Oilfield
Holdings Ltd., incorporated by reference to Exhibit 10.1 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.22
    
    Most Favored Supplier and Alliance Agreement, dated August
31, 2001, among Schlumberger Oilfield Holdings Limited,
Schlumberger Technology Corporation and Hanover Compression
Limited Partnership, incorporated by reference to Exhibit
99.4 to Hanovers Current Report on Form 8-K filed with the
SEC on September 14, 2001.10.23
    
    Agreement by and among SJMB, L.P., Charles Underbrink, John
L. Thompson, Belleli Energy S.r.l. and Hanover Compressor
Company and certain of its subsidiaries dated September 20,
2002, incorporated by reference to Exhibit 10.62 to
Hanovers Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.10.24
    
    Hanover Compressor Company Stock Compensation Plan,
incorporated by reference to Exhibit 10.63 to Hanovers
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.10.25
    
    Hanover Compressor Company Senior Executive Stock Option
Plan, incorporated by reference to Exhibit 10.4 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.26
    
    Hanover Compressor Company 1993 Management Stock Option
Plan, incorporated by reference to Exhibit 10.5 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.27
    
    Hanover Compressor Company Incentive Option Plan,
incorporated by reference to Exhibit 10.6 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.28
    
    Amendment and Restatement of the Hanover Compressor Company
Incentive Option Plan, incorporated by reference to Exhibit
10.7 to Hanovers Registration Statement (File No.
333-24953) on Form S-1, as amended.10.29
    
    Hanover Compressor Company 1995 Employee Stock Option Plan,
incorporated by reference to Exhibit 10.8 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.30
    
    Hanover Compressor Company 1995 Management Stock Option
Plan, incorporated by reference to Exhibit 10.9 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.31
    
    Form of Stock Option Agreement for DeVille and Mcneil,
incorporated by reference to Exhibit 10.70 to Hanovers
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.10.32
    
    Form of Stock Option Agreements for Wind Bros, incorporated
by reference to Exhibit 10.71 to Hanovers Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.10.33
    
    Hanover Compressor Company 1996 Employee Stock Option Plan,
incorporated by reference to Exhibit 10.10 to Hanovers
Registration Statement (File No. 333-24953) on Form S-1, as
amended.10.34
    
    Hanover Compressor Company 1997 Stock Option Plan, as
amended, incorporated by reference to Exhibit 10.23 to
Hanovers Registration Statement (File No. 333-24953) on
Form S-1, as amended.10.35
    
    1997 Stock Purchase Plan, incorporated by reference to
Exhibit 10.24 to Hanovers Registration Statement (File No.
333-24953) on Form S-1, as amended.10.36
    
    Hanover Compressor Company 1998 Stock Option Plan,
incorporated by reference to Exhibit 10.7 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.10.37
    
    First Amendment to the Hanover Compressor Company 1998 Stock
Option Plan, incorporated by reference to Exhibit 10.2 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.38
    
    Hanover Compressor Company December 9, 1998 Stock Option
Plan, incorporated by reference to Exhibit 10.33 to




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##### Table of Contents



ExhibitNumber
    
    DescriptionHanovers Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.10.39
    
    Hanover Compressor Company 1999 Stock Option Plan,
incorporated by reference to Exhibit 4.1 to Hanovers
Registration Statement (File No. 333-32092) on Form S-8
filed with the SEC on March 10, 2000.10.40
    
    First Amendment to the Hanover Compressor Company 1999 Stock
Option Plan, incorporated by reference to Exhibit 10.3 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.41
    
    Hanover Compressor Company 2001 Equity Incentive Plan,
incorporated by reference to Exhibit 4.1 to Hanovers
Registration Statement (File No. 333-73904) on Form S-8
filed with the SEC on November 21, 2001.10.42
    
    First Amendment to the Hanover Compressor Company 2001
Equity Incentive Plan, incorporated by reference to Exhibit
10.4 to Hanovers Current Report on Form 8-K filed with the
SEC on July 13, 2005.10.43
    
    Hanover Compressor Company 2003 Stock Incentive Plan,
incorporated by reference to Hanovers Definitive Proxy
Statement on Schedule 14A, as filed with the SEC on April
15, 2003.10.44
    
    First Amendment to the Hanover Compressor Company 2003 Stock
Incentive Plan, incorporated by reference to Exhibit 10.5 to
Hanovers Current Report on Form 8-K filed with the SEC on
July 13, 2005.10.45
    
    Employment Letter with Peter Schreck, dated August 22, 2000,
incorporated by reference to Exhibit 10.1 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended March
31, 2003.10.46
    
    Employment Letter with Stephen York, dated March 6, 2002,
incorporated by reference to Exhibit 10.2 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended March
31, 2003.10.47
    
    Promissory Note and Indenture dated April 21, 2004 relating
to $6,650,000 payable to Milberg, Weiss, Bershad, Hynes &
Lerach LLP as Escrow Agent with respect to the settlement
fund as defined in that certain Stipulation and Agreement
and Settlement dated as of October 23, 2003, incorporated by
reference to Exhibit 10.1 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004.10.48
    
    Employment Letter with Gary M. Wilson dated April 9, 2004,
incorporated by reference to Exhibit 10.1 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004.10.49
    
    Employment Letter with John E. Jackson dated October 5,
2004, incorporated by reference to Exhibit 10.1 to Hanovers
Current Report on Form 8-K, as filed with the SEC on October
6, 2004.10.50
    
    Change of Control and Severance Agreement dated July 29,
2005 between John E. Jackson and Hanover, incorporated by
reference to Exhibit 10.1 to Hanovers Quarterly Report on
Form 10-Q for the quarter ended June 30, 2005.10.51
    
    Employment Letter with Lee E. Beckelman dated January 31,
2005, incorporated by reference to Exhibit 10.1 to Hanovers
Current Report on Form 8-K, as filed with the SEC on
February 1, 2005.10.52
    
    Employment Letter with Anita H. Colglazier dated April 4,
2002 with explanatory note, incorporated by reference to
Exhibit 10.61 to Hanovers Annual Report on Form 10-K for
the year ended December 31, 2005. 10.53
    
    Letter to Brian Matusek regarding employment terms,
incorporated by reference to Exhibit 10.1 to Hanovers
Current Report on Form 8-K filed with the SEC on April 18,
2005. 10.54
    
    Employment Letter with Norrie Mckay effective as of May 16,
2005, incorporated by reference to Exhibit 10.1 to Hanovers
Quarterly Report on Form 10-Q for the quarter ended March
31, 2005.10.55
    
    Form of Change of Control Agreement dated July 29, 2005
between Hanover and each of Messrs. Lee E. Beckelman, Brian
A. Matusek, Gary M. Wilson, Steven W. Muck, Norman A. Mckay,
Stephen P. York and Peter G. Schreck and Ms. Anita H.
Colglazier, incorporated by reference to Exhibit 10.2 to
Hanovers Quarterly Report on Form 10-Q For the quarter
ended June 30, 2005.14.1
    
    P.R.I.D.E. in Performance  Hanovers Guide to Ethical
Business Conduct (the Code of Ethics), incorporated by
reference to Exhibit 14.1 to Hanovers Annual Report on Form
10-K for the year ended December 31, 2003.




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##### Table of Contents



ExhibitNumber
    
    Description14.2
    
    Amendment to the Code of Ethics, incorporated by reference
to Exhibit 14.1 to Hanovers Current Report on Form 8-K, as
filed with the SEC on January 20, 2005.31.1
    
    Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.*31.2
    
    Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.*32.1
    
    Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*99.1
    
    Letter from GKH partners regarding wind-up of GKH
Investments, L.P. and GKH Private Limited, dated October 15,
2001, incorporated by reference to Exhibit 99.1 to Hanovers
Current Report on Form 8-K filed with the SEC on October 18,
2001.99.2
    
    Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
President and General Counsel of Hanover, dated November 12,
2002, incorporated by reference to Exhibit 99.1 to Hanovers
Current Report on Form 8-K filed with the SEC on November
15, 2002.99.3
    
    Letter from GKH Partners, L.P. to Mark S. Berg, Senior Vice
President and General Counsel of Hanover, dated March 11,
2004, incorporated by reference to Exhibit 99.1 to Hanovers
Current Report on Form 8-K filed with the SEC on March 12,
2004.
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement