Hanover Compressor Company (Form: 8-K)

Third quarter 2006 revenue increased to $423.8 million, a 15% increase over third quarter 2005 revenue of $369.8 million. Net income for the third quarter 2006 was $12.3 million, or $0.12 earnings per share, compared with a net loss of $14.9 million, or $0.16 loss per share, in the third quarter 2005.

EBITDA⁽¹⁾ from continuing operations for the third quarter 2006 was $96.9 million, a 25% increase over third quarter 2005 EBITDA of $77.7 million. The company deferred recognition of approximately $5.4 million of revenue from projects in Nigeria that were off-line due to unrest in the area during the third quarter of 2006.

Hanover’s fabrication backlog was $688.8 million on September 30, 2006, compared to approximately $373.1 million at December 31, 2005 and $394.8 million at September 30, 2005.

“We continue to see significant growth opportunities for Hanover and remain optimistic about the future,” said John Jackson, President and Chief Executive Officer. “In spite of the issues in Nigeria, we are pleased with our improvement in profitability.”

U.S. rental revenue and gross profit increased during the three months ended September 30, 2006, compared to the three months ended September 30, 2005, due primarily to an improvement in market conditions that has led to an improvement in pricing and an increase in contracted horsepower. Gross margin for the three months ended September 30, 2006 benefited from price increases, but was offset by higher repair and maintenance expenses and the impact of recording increased incentive compensation expenses of approximately $1.1 million including the impact of the adoption of SFAS 123R.

During the third quarter of 2006, international rental revenue increased, compared to the third quarter of 2005, primarily due to increased rental activity in Venezuela, Mexico, Argentina and Brazil. Gross profit and gross margin decreased primarily due to higher repair and maintenance costs in Venezuela, Argentina and Mexico and costs in Nigeria. Additionally, the Company deferred recognition of approximately $5.4 million of revenues related to projects in Nigeria that were off-line due to the unrest in the area during the third quarter of 2006. This impacted gross margins by approximately 3%.

Parts, service and used equipment revenue for the three months ended September 30, 2006 decreased compared to the three months ended September 30, 2005 primarily due to a decrease in used rental equipment sales. Gross profit and gross margin for the three months ended September 30, 2006 were lower than the three months ended September 30, 2005 primarily due to reduced margins on used rental equipment and installation sales.

Parts, service and used equipment revenue includes two business components: (1) parts and service and (2) used rental equipment and installation sales. For the three months ended September 30, 2006, parts and service revenue was $43.7 million with a gross margin of 24%, compared to $40.7 million and 25%, respectively, for the three months ended September 30, 2005. Used rental equipment and installation sales revenue for the three months ended September 30, 2006 was $4.2 million with a gross margin of (6)%, compared to $33.3 million with a 24% gross margin for the three months ended September 30, 2005. Our used rental equipment and installation sales revenue and gross margins vary significantly from period to period and are dependent on the exercise of purchase options on rental equipment by customers and installation sales associated with the start-up of new projects by customers.

For the third quarter 2006, compressor and accessory fabrication revenue, gross profit and gross margin increased, compared to the third quarter of 2005, due primarily to improved market conditions that led to higher sales levels and better pricing. As of September 30, 2006, the Company had compressor and accessory fabrication backlog of $192.3 million, compared to approximately $95.6 million at September 30, 2005.

For the third quarter of 2006, production and processing equipment fabrication revenue, gross profit and gross margin increased over third quarter of 2005 due to improved market conditions leading to an increase in awarded sales, improved pricing and an increase in operating efficiencies. Margins for the 2005 third quarter were also impacted by poor performance on certain jobs. The backlog for production and processing equipment fabrication was approximately $496.4 million at September 30, 2006 compared to $299.2 million at September 30, 2005, including Belleli’s backlog of $454.0 million and $203.1 million at September 30, 2006 and 2005, respectively.

Hanover had capital expenditures of approximately $54 million in the third quarter of 2006, compared to approximately $49 million in the third quarter of 2005. At September 30, 2006, the Company had approximately $1.44 billion in debt and compression equipment lease obligations, compared to $1.49 billion at September 30, 2005.

Total compression horsepower at September 30, 2006 was approximately 3,337,000, consisting of approximately 2,444,000 horsepower in the United States and approximately 893,000 horsepower internationally.

Hanover Compressor Company (NYSE: HC) will host a conference call at 11:00 a.m. Eastern Time, Thursday, October 26, 2006, to discuss its financial results for the third quarter of 2006 and other matters. To access the call, United States and Canadian participants should dial (888) 935-4577. International participants should dial (718) 354-1388 at least 10 minutes before the scheduled start time. Please reference Hanover conference call number 8940579.

A replay will be available from 2:00 p.m. Eastern Time on Thursday, October 26, until midnight on Thursday, November 2, 2006. To listen to the replay, please dial 888-203-1112 in the U.S. and Canada, or 719-457-0820 internationally and enter access code 8940579. Additionally, the conference call will be broadcast live over the Internet. To access the webcast, log on to the company’s Web site (www.hanover-co.com) and click on the webcast link located on the company’s home page.

About Hanover Compressor Company
Hanover Compressor Company (NYSE:HC) is a global market leader in full service natural gas compression and a leading provider of service, fabrication and equipment for oil and natural gas production, processing and transportation applications. Hanover sells and rents this equipment and provides complete operation and maintenance services, including run-time guarantees for both customer-owned equipment and its fleet of rental equipment. Founded in 1990 and a public company since 1997, Hanover’s customers include both major and independent oil and gas producers and distributors as well as national oil and gas companies. More information can be found on the Internet (www.hanover-co.com).

Forward-looking Statements
Certain matters discussed in this presentation are “forward-looking statements” intended to qualify for the safe harbors established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because of the context of the statement or because the statement includes words such as “believes,” “anticipates,” “expects,” “estimates,” or words of similar import. Similarly, statements that describe Hanover’s future plans, objectives or goals or future revenues or other financial measures are also forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those anticipated as of the date the statements were made. These risks and uncertainties include, but are not limited to: 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, 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; governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; 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 capital markets, refinancing existing or incurring additional indebtedness to fund our business, and executing our exit and sale strategy with respect to assets classified on our balance sheet as assets held for sale; risks associated with any significant failure or malfunction of our enterprise resource planning system and our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with our substantial debt. A discussion of these and other factors is included in the Company’s periodic reports filed with the Securities and Exchange Commission.

Investor Relations Inquiries:
Stephen York
Vice President, Investor Relations and Technology
Tel: (832) 554-4856
E-mail: syork@hanover-co.com

HANOVER COMPRESSOR COMPANY
CONSOLIDATED FINANCIAL DATA AND EBITDA RECONCILIATION
(in thousands, except per share amounts)
(unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Revenues and other income:
U.S. rentals	$	98,030		$	87,703		$	282,746		$	262,548
International rentals		63,792			58,208			193,818			167,644
Parts, service and used equipment		47,951			74,027			152,959			157,995
Compressor and accessory fabrication		90,141			51,798			214,960			125,414
Production and processing equipment fabrication		115,890			90,312			298,162			284,180
Equity in income of non-consolidated affiliates		6,313			6,027			17,391			15,759
Gain on sale of business and other income		1,667			1,771			42,216			2,714

		423,784			369,846			1,202,252			1,016,254
Expenses:
U.S. rentals		39,557			35,503			114,377			102,563
International rentals		25,528			19,284			70,551			53,930
Parts, service and used equipment		37,894			55,865			124,017			117,140
Compressor and accessory fabrication		74,371			44,418			179,546			110,622
Production and processing equipment fabrication		97,675			83,146			255,841			254,700
Selling, general and administrative		50,913			45,442			148,751			131,509
Foreign currency translation		905			1,083			(2,828	)		6,309
Debt extinguishment costs		—			7,318			5,902			7,318
Other		—			133			1,204			526

		326,843			292,192			897,361			784,617

EBITDA from continuing operations ⁽¹⁾		96,941			77,654			304,891			231,637
Depreciation and amortization		45,307			47,535			130,352			138,457
Interest expense		28,802			34,612			89,729			105,214

		74,109			82,147			220,081			243,671

Income (loss) from continuing operations before income taxes and minority interest		22,832			(4,493	)		84,810			(12,034	)
Provision for income taxes		11,216			10,279			29,209			20,922

Income (loss) from continuing operations before minority interest		11,616			(14,772	)		55,601			(32,956	)
Minority interest, net of taxes		93			—			—			—

Income (loss) from continuing operations		11,709			(14,772	)		55,601			(32,956	)
Income (loss) from discontinued operations, net of tax		570			(166	)		431			(862	)
Cumulative effect of accounting change, net of tax		—			—			370			—

Net income (loss)	$	12,279		$	(14,938	)	$	56,402		$	(33,818	)

Basic income (loss) per common share:
Income (loss) from continuing operations	$	0.12		$	(0.16	)	$	0.55		$	(0.37	)
Income (loss) from discontinued operations, net of tax		—			—			0.01			(0.01	)
Cumulative effect of accounting change, net of tax		—			—			—			—

Net income (loss)	$	0.12		$	(0.16	)	$	0.56		$	(0.38	)

Dilutive income (loss) per common share:
Income (loss) from continuing operations⁽²⁾	$	0.11		$	(0.16	)	$	0.54		$	(0.37	)
Income (loss) from discontinued operations, net of tax		0.01			—			0.01			(0.01	)
Cumulative effect of accounting change, net of tax		—			—			—			—

Net income (loss)	$	0.12		$	(0.16	)	$	0.55		$	(0.38	)

Weighted average common and common equivalent shares outstanding:
Basic		101,377			93,888			101,053			88,488

Diluted		103,399			93,888			108,962			88,488

Gross profit percentage:
U.S. rentals		60	%		60	%		60	%		61	%
International rentals		60	%		67	%		64	%		68	%
Parts, service and used equipment		21	%		25	%		19	%		26	%
Compressor and accessory fabrication		17	%		14	%		16	%		12	%
Production and processing equipment fabrication		16	%		8	%		14	%		10	%

(1)

EBITDA from continuing operations consists of consolidated income (loss) from continuing operations before interest expense, minority interest, provision for (benefit from) income taxes, and depreciation and amortization. We believe that EBITDA is a commonly used measure of financial performance for valuing companies in our industry. The Company uses EBITDA as a performance measure and has therefore reconciled EBITDA to net income. EBITDA should not be considered as an alternative to measures prescribed by generally accepted accounting principles and may not be comparably calculated from one company to another.

(2)

Net income for the diluted earnings per share calculation for the nine-month period ended September 30, 2006 is adjusted to add back interest expense and amortization of financing costs, net of tax, relating to the Company’s convertible senior notes due 2014 totaling $3.6 million. For all other periods presented, these convertible notes were anti-dilutive.


Delaware	1-13071	76-0625124
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

12001 North Houston Rosslyn, Houston, Texas		77086
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


	Hanover Compressor Company

October 26, 2006	By:	Lee E. Beckelman

		Name: Lee E. Beckelman
		Title: Senior Vice President and Chief Financial Officer


Exhibit No.		Description

99.1		Press release dated October 26, 2006, announcing the Company's results of operations for the quarter ended September 30, 2006.


Date of Report (Date of Earliest Event Reported):		October 26, 2006


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


	Three months ended
	September 30,
	2006			2005			Increase (Decrease)
Revenue	$	98,030		$	87,703			12	%
Operating expense		39,557			35,503			11	%

Gross profit	$	58,473		$	52,200			12	%
Gross margin		60	%		60	%		0	%


*Date*	*U.S.*			*International*			*Total*
September 30, 2006		85	%		96	%		88	%

December 31, 2005		82	%		98	%		86	%

September 30, 2005		80	%		98	%		85	%