Archrock (AROC) 10-Q 2009 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2009

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. 001-33666

EXTERRAN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	74-3204509 (I.R.S. Employer Identification No.)
16666 Northchase Drive
Houston, Texas (Address of principal executive offices)	77060 (Zip Code)

(281) 836-7000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Number of shares of the common stock of the registrant outstanding as of July 31, 2009: 62,484,545 shares.

TABLE OF CONTENTS

	Page
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statements of Comprehensive Income (Loss)		5
Condensed Consolidated Statements of Equity		6
Condensed Consolidated Statements of Cash Flows		7
Notes to Unaudited Condensed Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk		45
Item 4. Controls and Procedures		45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		46
Item 4. Submission of Matters to a Vote of Security Holders		49
Item 5. Other Information		49
Item 6. Exhibits		51
SIGNATURES		53
EX-10.12
EX-10.13
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
(unaudited)

	June 30,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	101,166		$	123,906
Restricted cash		7,964			7,563
Accounts receivable, net of allowance of $17,277 and $13,738, respectively		551,897			551,362
Inventory, net		580,395			495,809
Costs and estimated earnings in excess of billings on uncompleted contracts		117,618			219,487
Current deferred income taxes		28,988			36,816
Other current assets		141,612			121,009
Current assets associated with discontinued operations		18,524			139,178
Total current assets		1,548,164			1,695,130
Property, plant and equipment, net		3,444,643			3,436,222
Goodwill, net		194,292			308,024
Intangible and other assets, net		295,385			294,252
Investments in non-consolidated affiliates		1,217			83,933
Long-term assets associated with discontinued operations		1,504			275,066
Total assets	$	5,485,205		$	6,092,627
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	102		$	101
Accounts payable, trade		165,381			216,707
Accrued liabilities		294,481			312,270
Deferred revenue		240,807			192,556
Billings on uncompleted contracts in excess of costs and estimated earnings		147,888			157,955
Current liabilities associated with discontinued operations		34,637			37,632
Total current liabilities		883,296			917,221
Long-term debt		2,509,675			2,512,328
Other long-term liabilities		129,536			182,679
Deferred income taxes		195,445			197,525
Long-term liabilities associated with discontinued operations		15,663			54,797
Total liabilities		3,733,615			3,864,550
Commitments and contingencies (Note 15)
Equity:
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized; zero issued		—			—
Common stock, $0.01 par value per share, 250,000,000 shares authorized; 68,098,777 and 67,202,109 shares issued, respectively		681			672
Additional paid-in capital		3,424,009			3,354,922
Accumulated other comprehensive loss		(46,684	)		(94,767	)
Accumulated deficit		(1,606,266	)		(1,016,082	)
Treasury stock – 5,612,706 and 5,535,671 common shares, at cost, respectively		(201,484	)		(200,959	)
Total Exterran stockholders’ equity		1,570,256			2,043,786
Noncontrolling interest		181,334			184,291
Total equity		1,751,590			2,228,077
Total liabilities and equity	$	5,485,205		$	6,092,627

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

3

EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Revenues:
North America contract operations	$	178,455		$	194,607		$	372,848		$	393,683
International contract operations		95,448			91,768			186,127			178,708
Aftermarket services		78,504			92,957			154,035			172,578
Fabrication		325,561			394,044			668,170			730,993
		677,968			773,376			1,381,180			1,475,962
Costs and Expenses:
Cost of sales (excluding depreciation and amortization expense):
North America contract operations		74,420			86,303			158,125			174,591
International contract operations		37,897			36,467			70,702			66,249
Aftermarket services		61,778			73,695			121,532			137,261
Fabrication		275,561			355,284			562,275			619,027
Selling, general and administrative		86,380			89,582			171,491			173,079
Merger and integration expenses		—			1,458			—			5,891
Depreciation and amortization		85,903			81,671			167,976			162,310
Fleet impairment		86,684			—			86,684			1,450
Restructuring charges		8,076			—			15,380			—
Goodwill impairment		150,778			—			150,778			—
Interest expense		29,163			30,125			55,897			63,336
Equity in (income) loss of non-consolidated affiliates		567			(6,962	)		91,684			(13,055	)
Other (income) expense, net		(9,433	)		(5,705	)		(12,795	)		(15,658	)
		887,774			741,918			1,639,729			1,374,481
Income (loss) before income taxes		(209,806	)		31,458			(258,549	)		101,481
Provision for (benefit from) income taxes		(23,177	)		15,314			(12,214	)		43,148
Income (loss) from continuing operations		(186,629	)		16,144			(246,335	)		58,333
Income (loss) from discontinued operations, net of tax		(343,323	)		8,759			(341,517	)		18,584
Net income (loss)		(529,952	)		24,903			(587,852	)		76,917
Less: Net income attributable to the noncontrolling interest		(818	)		(3,243	)		(2,332	)		(5,886	)
Net income (loss) attributable to Exterran stockholders	$	(530,770	)	$	21,660		$	(590,184	)	$	71,031
Basic income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran stockholders	$	(3.06	)	$	0.20		$	(4.06	)	$	0.81
Income (loss) from discontinued operations attributable to Exterran stockholders		(5.60	)		0.13			(5.57	)		0.28
Net income (loss) attributable to Exterran stockholders	$	(8.66	)	$	0.33		$	(9.63	)	$	1.09
Diluted income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran stockholders	$	(3.06	)	$	0.20		$	(4.06	)	$	0.78
Income (loss) from discontinued operations attributable to Exterran stockholders		(5.60	)		0.13			(5.57	)		0.29
Net income (loss) attributable to Exterran stockholders	$	(8.66	)	$	0.33		$	(9.63	)	$	1.07
Weighted average common and equivalent shares outstanding:
Basic		61,277			65,217			61,270			65,125
Diluted		61,277			65,904			61,270			67,362

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

4

EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Net income (loss)	$	(529,952	)	$	24,903		$	(587,852	)	$	76,917
Other comprehensive income, net of tax:
Change in fair value of derivative financial instruments		15,525			31,774			13,170			4,250
Foreign currency translation adjustment		42,240			(6,276	)		36,540			(12,549	)
Comprehensive income (loss)		(472,187	)		50,401			(538,142	)		68,618
Less: Comprehensive income attributable to the noncontrolling interest		1,815			421			3,959			6,388
Comprehensive income (loss) attributable to Exterran	$	(474,002	)	$	49,980		$	(542,101	)	$	62,230

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

5

EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(unaudited)

	Exterran Holdings, Inc. Stockholders
						Accumulated
			Additional			Other
	Common		Paid-in			Comprehensive			Treasury			Accumulated			Noncontrolling
	Stock		Capital			Income (Loss)			Stock			Deficit			Interest			Total
Balance at December 31, 2007	$	666	$	3,317,321		$	13,004		$	(99,998	)	$	(68,733	)	$	191,304		$	3,353,564
Treasury stock purchased										(974	)								(974	)
Option exercises		2		6,455															6,457
Shares issued in employee stock purchase plan		1		2,911															2,912
Stock-based compensation expense, net of forfeitures		3		6,244												289			6,536
Income tax benefit from stock compensation expense				596															596
Cash distribution to noncontrolling unitholders of the Partnership																(7,088	)		(7,088	)
Noncontrolling interest of joint venture																(1,639	)		(1,639	)
Comprehensive income:
Net income													71,031			5,886			76,917
Derivatives change in fair value, net of tax							3,748									502			4,250
Foreign currency translation adjustment							(12,549	)											(12,549	)
Total comprehensive income																			68,618
Balance at June 30, 2008	$	672	$	3,333,527		$	4,203		$	(100,972	)	$	2,298		$	189,254		$	3,428,982
Balance at December 31, 2008	$	672	$	3,354,922		$	(94,767	)	$	(200,959	)	$	(1,016,082	)	$	184,291		$	2,228,077
Treasury stock purchased										(525	)								(525	)
Shares issued in employee stock purchase plan		1		2,406															2,407
Stock-based compensation expense, net of forfeitures		8		12,509												603			13,120
Income tax expense from stock compensation expense				(2,573	)														(2,573	)
Cash distribution to noncontrolling unitholders of the Partnership																(7,720	)		(7,720	)
Issuance of convertible senior notes and purchased call options and warrants sold				56,745															56,745
Other																201			201
Comprehensive income (loss):
Net income (loss)													(590,184	)		2,332			(587,852	)
Derivatives change in fair value, net of tax							11,543									1,627			13,170
Foreign currency translation adjustment							36,540												36,540
Total comprehensive loss																			(538,142	)
Balance at June 30, 2009	$	681	$	3,424,009		$	(46,684	)	$	(201,484	)	$	(1,606,266	)	$	181,334		$	1,751,590

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

6

EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

	Six Months Ended
	June 30,
	2009			2008
Net income (loss)	$	(587,852	)	$	76,917
Adjustments:
Depreciation and amortization		167,976			162,310
Fleet impairment		86,684			1,450
Facility impairment		5,600			—
Goodwill impairment		150,778			—
Deferred financing cost amortization		1,690			1,720
(Income) loss from discontinued operations, net of tax		341,517			(18,584	)
Amortization of debt discount		828			—
Bad debt expense		4,498			1,616
Gain on sale of property, plant and equipment		(7,671	)		(1,530	)
Gain on sale of business		(3,000	)		—
Equity in (income) loss of non-consolidated affiliates, net of dividends received		91,684			(13,055	)
Interest rate swaps		1,010			372
(Gain) loss on remeasurement of intercompany balances		3,167			(8,964	)
Stock-based compensation expense		13,699			9,079
Deferred income taxes		(19,160	)		11,733
Changes in assets and liabilities, net of acquisition:
Accounts receivable and notes		4,451			(14,834	)
Inventory		(51,827	)		(24,129	)
Costs and estimated earnings versus billings on uncompleted contracts		89,794			72,441
Prepaid and other current assets		(15,103	)		(18,463	)
Accounts payable and other liabilities		(114,749	)		(55,526	)
Deferred revenue		(11,755	)		58,915
Other		(11,432	)		7,493
Net cash provided by continuing operating activities		140,827			248,961
Net cash provided by discontinued operations		829			25,872
Net cash provided by operating activities		141,656			274,833
Cash flows from investing activities:
Capital expenditures		(228,577	)		(230,366	)
Proceeds from sale of property, plant and equipment		13,450			26,251
Cash paid in acquisition		—			(24,925	)
Proceeds from sale of business		5,642			—
Cash invested in non-consolidated affiliates		(567	)		—
Increase in restricted cash		(401	)		(5,933	)
Net cash used in continuing investing activities		(210,453	)		(234,973	)
Net cash used in discontinued operations		(829	)		(23,240	)
Net cash used in investing activities		(211,282	)		(258,213	)

7

	Six Months Ended
	June 30,
	2009			2008
Cash flows from financing activities:
Borrowings on revolving credit facilities		219,000			339,000
Repayments on revolving credit facilities		(333,591	)		(207,000	)
Repayments on asset-backed securitization facility		(135,000	)		—
Borrowings on Partnership credit facility		6,500			—
Repayments on Partnership credit facility		(17,500	)		—
Proceeds (repayments) of other debt, net		(35	)		(848	)
Repayments of convertible senior notes due 2008		—			(192,000	)
Proceeds from issuance of convertible senior notes due 2014		355,000			—
Payments for debt issue costs		(9,929	)		(538	)
Proceeds from warrants sold		53,138			—
Payments for call options		(89,408	)		—
Proceeds from stock options exercised		—			4,738
Proceeds from stock issued pursuant to our employee stock purchase plan		1,708			2,465
Purchases of treasury stock		(525	)		(975	)
Stock-based compensation excess tax benefit		30			556
Distributions to non-controlling partners in the Partnership		(7,720	)		(7,088	)
Net cash provided by (used in) continuing financing activities		41,668			(61,690	)
Net cash provided by discontinued operations		—			—
Net cash provided by (used in) financing activities		41,668			(61,690	)
Effect of exchange rate changes on cash and equivalents		5,218			3,253
Net decrease in cash and cash equivalents		(22,740	)		(41,817	)
Cash and cash equivalents at beginning of period		123,906			144,801
Cash and cash equivalents at end of period	$	101,166		$	102,984

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

8

EXTERRAN HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements of Exterran Holdings, Inc. (“Exterran,” “we,” “us” or “our”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) are not required in these interim financial statements and have been condensed or omitted. It is the opinion of management that the information furnished includes all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly our financial position, results of operations and cash flows for the periods indicated.

Effective January 1, 2009, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 changes the accounting and reporting for minority interests such that minority interests will be recharacterized as noncontrolling interests and will be required to be reported as a component of equity, and requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions and, upon a loss of control, requires the interest sold, as well as any interest retained, to be recorded at fair value, with any gain or loss recognized in earnings. The consolidated financial statements included in this Quarterly Report on Form 10-Q have been retrospectively adjusted to reflect the changes required by SFAS No. 160.

On August 20, 2007, Hanover Compressor Company (“Hanover”) and Universal Compression Holdings, Inc. (“Universal”) completed their business combination pursuant to a merger. As a result of the merger, each of Universal and Hanover became our wholly-owned subsidiary, and Universal merged with and into us.

Earnings (Loss) Attributable to Exterran Stockholders Per Common Share

Basic income (loss) attributable to Exterran stockholders per common share is computed by dividing income (loss) attributable to Exterran common stockholders by the weighted average number of shares outstanding for the period. Diluted income (loss) attributable to Exterran stockholders per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options and warrants to purchase common stock, restricted stock, restricted stock units, stock issued pursuant to our employee stock purchase plan and convertible senior notes, unless their effect would be anti-dilutive.

The table below summarizes income (loss) attributable to Exterran stockholders (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009			2008
Income (loss) from continuing operations	$	(187,447	)	$	12,901	$	(248,667	)	$	52,447
Income (loss) from discontinued operations, net of tax		(343,323	)		8,759		(341,517	)		18,584
Net income (loss) attributable to Exterran stockholders	$	(530,770	)	$	21,660	$	(590,184	)	$	71,031

The table below indicates the potential shares of common stock that were included in computing the dilutive potential shares of common stock used in diluted income (loss) attributable to Exterran stockholders per common share (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Weighted average common shares outstanding-used in basic income per common share		61,277		65,217		61,270		65,125
Net dilutive potential common stock issuable:
On exercise of options and vesting of restricted stock and restricted stock units		**		679		**		671
On settlement of employee stock purchase plan shares		**		8		**		9
On conversion of 4.75% convertible senior notes due 2014		**		**		**		1,557
Weighted average common shares and dilutive potential common shares—used in diluted income per common share		61,277		65,904		61,270		67,362

** Excluded from diluted income (loss) per common share as the effect would have been anti-dilutive.

9

Net income attributable to Exterran stockholders for the diluted earnings per share calculation for the three and six months ended June 30, 2008 is adjusted to add back interest expense and amortization of financing costs totaling zero and $1.2 million, respectively, net of tax, relating to our 4.75% convertible senior notes due 2014.

The table below indicates the potential shares of common stock issuable that were excluded from net dilutive potential shares of common stock issuable as their effect would have been anti-dilutive (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Net dilutive potential common stock issuable:
On exercise of options where exercise price is greater than average market value for the period		510		179		1,170		179
On exercise of options and vesting of restricted stock and restricted stock units		497		—		465		—
On settlement of employee stock purchase plan shares		35		—		41		—
On exercise of warrants		802		—		401		—
On conversion of 4.25% convertible senior notes due 2014		4,381		—		2,191		—
On conversion of 4.75% convertible senior notes due 2014		3,115		3,115		3,115		1,557
On conversion of convertible senior notes due 2008		—		—		—		601
Net dilutive potential common shares issuable		9,340		3,294		7,383		2,337

Financial Instruments

Our financial instruments include cash, receivables, payables, interest rate swaps, foreign currency hedges and debt. At June 30, 2009 and December 31, 2008, the estimated fair value of such financial instruments, except for debt, approximated their carrying value as reflected in our consolidated balance sheets. As a result of the current credit environment, we believe that the fair value of our floating rate debt does not approximate its carrying value as of June 30, 2009 and December 31, 2008 because the applicable margin on our floating rate debt was below the market rates as of these dates. The fair value of our fixed rate debt has been estimated primarily based on quoted market prices. The fair value of our floating rate debt has been estimated based on similar debt transactions that occurred near June 30, 2009 and December 31, 2008. A summary of the fair value and carrying value of our debt as of June 30, 2009 and December 31, 2008 is shown in the table below:

	As of June 30, 2009				As of December 31, 2008
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
			(In thousands)
Fixed rate debt	$	402,027	$	368,630	$	144,088	$	88,018
Floating rate debt		2,107,750		1,921,372		2,368,341		2,116,588
Total debt	$	2,509,777	$	2,290,002	$	2,512,429	$	2,204,606

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133 — an amendment of FASB Statement No. 133,” SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of FASB Statement No. 133,” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

10

Reclassifications

Certain amounts in the prior financial statements have been reclassified to conform to the 2009 financial statement classification. These reclassifications have no impact on our consolidated results of operations, cash flows or financial position.

Subsequent Events

We reviewed for subsequent events as of the issuance of these financial statements on August 6, 2009.

2. DISCONTINUED OPERATIONS

In May 2009, the Venezuelan government enacted a law that reserves to the State of Venezuela certain assets and services related to hydrocarbon primary activities, which included substantially all of our assets and services in Venezuela. The law provides that the reserved activities are to be performed by the State, by the State-owned oil company, Petroleos de Venezuela S.A. (“PDVSA”), or its affiliates or through mixed companies under the control of PDVSA or its affiliates. The law authorizes PDVSA or its affiliates to take possession of the assets and take over control of those operations related to the reserved activities as a step prior to the commencement of an expropriation process, and permits the national executive of Venezuela to decree the total or partial expropriation of shares or assets of companies performing those services.

On June 2, 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela. As of June 30, 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela.

While the law provides that companies whose assets are expropriated in this manner may be compensated in cash or securities, we are unable to predict what, if any, compensation Venezuela will ultimately offer in exchange for any such expropriated assets and, accordingly, we are unable to predict what, if any, compensation we ultimately will receive. We reserve and will continue to reserve the right to seek full compensation for any and all expropriated assets and investments under all applicable legal regimes, including investment treaties and customary international law. In this connection, on June 16, 2009, we delivered to the Venezuelan government and PDVSA an official notice of dispute relating to the seized assets and investments under the Agreement between Spain and Venezuela for the Reciprocal Promotion and Protection of Investments and under Venezuelan law. We maintain insurance for the risk of expropriation of our investments in Venezuela, subject to a policy limit of $50 million. We have not recorded a receivable related to this insurance policy in the second quarter of 2009 because we could not conclude that recovery under this insurance policy was probable as of June 30, 2009.

As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments totaling $377.9 million, primarily related to receivables, inventory, fixed assets and goodwill, in the second quarter of 2009. These asset impairments are reflected as loss from discontinued operations, net of tax in our consolidated statements of operations. We believe the fair value of our seized Venezuelan operations substantially exceeds the historical cost-based carrying value of the assets, including the goodwill allocable to those operations; however GAAP requires that our claim be accounted for as a gain contingency with no benefit being recorded until resolved. Accordingly, we did not include any compensation we may receive for our seized assets and operations in making the determination as to the incurrence and magnitude of the loss on expropriation.

The expropriation of our business in Venezuela meets the criteria established for recognition as discontinued operations under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Therefore, our Venezuela contract operations and aftermarket services businesses are now reflected as discontinued operations in our consolidated statements of operations.

The table below summarizes the operating results of the discontinued operations (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Revenues	$	32,665		$	38,835		$	67,346		$	76,338
Expenses and selling, general and administrative		27,015			31,213			58,062			60,192
Loss attributable to expropriation		377,891			—			377,891			—
Other (income) loss, net		(173	)		(2,907	)		(4,472	)		(6,351	)
Provision for (benefit from) income taxes		(28,745	)		1,770			(22,618	)		3,913
Income (loss) from discontinued operations, net of tax	$	(343,323	)	$	8,759		$	(341,517	)	$	18,584

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The table below summarizes the balance sheet data for discontinued operations (in thousands):

	June 30,		December 31,
	2009		2008
Cash	$	788	$	2,485
Accounts receivable		275		73,994
Inventory		243		31,290
Other current assets		17,218		31,409
Total current assets associated with discontinued operations		18,524		139,178
Property, plant and equipment, net		897		237,644
Goodwill, net		—		32,602
Intangibles and other long-term assets		607		4,820
Total assets associated with discontinued operations	$	20,028	$	414,244
Accounts payable	$	13,382	$	7,467
Accrued liabilities		21,255		25,115
Deferred revenues		—		5,050
Total current liabilities associated with discontinued operations		34,637		37,632
Deferred income taxes		354		28,273
Other long-term liabilities		15,309		26,524
Total liabilities associated with discontinued operations	$	50,300	$	92,429

3. BUSINESS ACQUISITIONS

In January 2008, we acquired GLR Solutions Ltd. (“GLR”), a Canadian provider of water treatment products for the upstream petroleum and other industries, for approximately $25 million plus certain working capital adjustments and contingent payments based on the performance of GLR. In April 2009, we paid approximately $3.6 million Canadian based on GLR’s performance for the year ended December 31, 2008 and we may be required to pay up to an additional $18.4 million Canadian based on GLR’s performance in 2009 and 2010. Under the purchase method of accounting, the total purchase price was allocated to GLR’s net tangible and intangible assets based on their estimated fair value at the purchase date. This allocation resulted in goodwill and intangible assets of $14.7 million and $15.3 million, respectively. The intangible assets for customer relationships and patents are being amortized through 2027 based on the present value of expected income to be realized from these assets. The intangible assets for non-compete agreements and backlog are being amortized over five years and one year, respectively. The goodwill and intangible assets from this acquisition are not deductible for Canadian income tax purposes.

In July 2008, we acquired EMIT Water Discharge Technology, LLC (“EMIT”), a leading provider of contract water management and processing services to the coalbed methane industry, for approximately $108.6 million. Under the purchase method of accounting, the total purchase price was allocated to EMIT’s net tangible and intangible assets based on their estimated fair value at the purchase date. This allocation resulted in goodwill and intangible assets of $45.8 million and $41.7 million, respectively. Goodwill associated with this acquisition was written off in the fourth quarter of 2008 in connection with the goodwill impairment of our North America contract operations business. The intangible assets for contracts and customer relationships are being amortized through 2017 and 2019, respectively, based on the present value of expected income to be realized from these assets. The intangible assets for non-compete agreements and technology will be amortized through 2013 and 2027, respectively. The goodwill and intangible assets from this acquisition are deductible for U.S. federal income tax purposes.

4. INVENTORY

Inventory, net of reserves, consisted of the following amounts (in thousands):

	June 30,		December 31,
	2009		2008
Parts and supplies	$	311,611	$	290,858
Work in progress		238,285		187,579
Finished goods		30,499		17,372
Inventory, net of reserves	$	580,395	$	495,809

As of June 30, 2009 and December 31, 2008, we had inventory reserves of $19.9 million and $17.3 million, respectively.

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5. PROPERTY, PLANT AND EQUIPMENT

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

	June 30,			December 31,
	2009			2008
Compression equipment, facilities and other fleet assets	$	4,370,148		$	4,314,566
Land and buildings		171,662			175,204
Transportation and shop equipment		198,076			182,402
Other		121,706			108,170
		4,861,592			4,780,342
Accumulated depreciation		(1,416,949	)		(1,344,120	)
Property, plant and equipment, net	$	3,444,643		$	3,436,222

6. GOODWILL

Goodwill acquired in connection with business combinations represents the excess of consideration over the fair value of tangible and identifiable intangible net assets acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed, as well as in determining the allocation of goodwill to the appropriate reporting units.

We perform our goodwill impairment test in the fourth quarter of every year, or whenever events indicate impairment may have occurred, to determine if the estimated recoverable value of each of our reporting units exceeds the net carrying value of the reporting unit, including the applicable goodwill.

The first step in performing a goodwill impairment test is to compare the estimated fair value of each reporting unit with its recorded net book value (including the goodwill) of the respective reporting unit. If the estimated fair value of the reporting unit is higher than the recorded net book value, no impairment is deemed to exist and no further testing is required. If, however, the estimated fair value of the reporting unit is below the recorded net book value, then a second step must be performed to determine the goodwill impairment required, if any. In this second step, the estimated fair value from the first step is used as the purchase price in a hypothetical acquisition of the reporting unit. Purchase business combination accounting rules are followed to determine a hypothetical purchase price allocation to the reporting unit’s assets and liabilities. The residual amount of goodwill that results from this hypothetical purchase price allocation is compared to the recorded amount of goodwill for the reporting unit, and the recorded amount is written down to the hypothetical amount, if lower.

Because quoted market prices for our reporting units are not available, management must apply judgment in determining the estimated fair value of these reporting units for purposes of performing the annual goodwill impairment test. Management uses all available information to make these fair value determinations, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the assets.

We determine the fair value of our reporting units using a combination of the expected present value of future cash flows and a market approach. Each approach is weighted 50% in determining our calculated fair value. The present value of future cash flows is estimated using our most recent forecast and the weighted average cost of capital. The market approach uses a market multiple on the reporting units’ earnings before interest, tax, depreciation and amortization.

As discussed in Note 2, on June 2, 2009, PDVSA commenced taking possession of our assets and operations in Venezuela. As of June 30, 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. We determined that this event could indicate an impairment of our international contract operations and aftermarket services reporting units’ goodwill and therefore performed a goodwill impairment test for these reporting units in the second quarter of 2009.

Our international contract operations reporting unit failed step one of the goodwill impairment test and we recorded an estimated impairment of goodwill in our international contract operations reporting unit of $150.8 million in the second quarter of 2009. The $32.6 million of goodwill related to our Venezuela contract operations and aftermarket services businesses was also written off in the second quarter of 2009 as part of our loss from discontinued operations. The decrease in value of our international contract operations reporting unit was primarily caused by the loss of our operations in Venezuela. The goodwill impairment charge is estimated as we are in the process of finalizing valuations including identifiable intangible assets, debt and property, plant and equipment. The amount of the goodwill impairment charge will be finalized by the end of the third quarter of 2009. If for any reason the fair value of our

13

goodwill or that of our reporting units that have associated goodwill declines below the carrying value in the future, we may incur additional goodwill impairment charges.

The table below presents the change in the net carrying amount of goodwill for the six months ended June 30, 2009 (in thousands):

	December 31,		Purchase Adjustments/ Acquisitions/			Impact of Foreign		Goodwill			June 30,
	2008		Dispositions			Currency Translation		Impairment			2009
North America contract operations	$	—	$	—		$	—	$	—		$	—
International contract operations		142,909		—			7,869		(150,778	)		—
Aftermarket services		60,368		(1,528	)		3,458		—			62,298
Fabrication		104,747		19,108			8,139		—			131,994
Total	$	308,024	$	17,580		$	19,466	$	(150,778	)	$	194,292

7. INVESTMENTS IN NON-CONSOLIDATED AFFILIATES

Investments in affiliates that are not controlled by Exterran but where we have the ability to exercise significant influence over the operations are accounted for using the equity method. Our share of net income or losses of these affiliates is reflected in the consolidated statements of operations as equity in (income) loss of non-consolidated affiliates. Our primary equity method investments are comprised of entities that own, operate, service and maintain compression and other related facilities, as well as water injection plants.

Our ownership interest and location of each equity method investee at June 30, 2009 is as follows:

	Ownership
	Interest	Location	Type of Business
PIGAP II	30.0%	Venezuela	Gas Compression Plant
El Furrial	33.3%	Venezuela	Gas Compression Plant
SIMCO/Harwat Consortium	35.5%	Venezuela	Water Injection Plant

Summarized combined earnings information for these entities consisted of the following amounts (on a 100% basis, in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009			2008
Revenues	$	655		$	53,984	$	7,479		$	105,066
Operating income (loss)		(6,066	)		28,017		(249,233	)		54,872
Net income (loss)		(3,580	)		21,478		(229,540	)		29,944

Due to unresolved disputes with its only customer, PDVSA, SIMCO sent a notice to PDVSA in the fourth quarter of 2008 stating that SIMCO may not be able to continue to fund its operations if some of its outstanding disputes are not resolved and paid in the near future. On February 25, 2009, the Venezuelan National Guard occupied SIMCO’s facilities and during March transitioned the operation of SIMCO, including the hiring of SIMCO’s employees, to PDVSA. We are unable to predict what, if any, compensation will ultimately be offered in exchange for any such assets assumed and, accordingly, we are unable to predict what, if any, compensation we ultimately will receive.

During the first quarter of 2009, we determined that the expected proceeds from our investment in the SIMCO/Harwat Consortium would be less than the book value of our investment and, as a result, that the fair value of our investment had declined and the loss in value was not temporary. Therefore, we recorded an impairment charge in the first quarter of 2009 of $6.5 million, which is reflected as a charge in equity in (income) loss of non-consolidated affiliates in our consolidated statements of operations. At June 30, 2009, our investment in the SIMCO/Harwat Consortium was $1.2 million.

Due to lack of payments from their only customer, PIGAP II and El Furrial each sent a notice of default to PDVSA in April 2009. PIGAP II’s and El Furrial’s debt was in technical default triggered by past due payments from their sole customer under their related services contracts. As a result of PDVSA’s nonpayment, in March 2009 these joint ventures recorded impairments on their assets. Accordingly, we reviewed our expected cash flows related to these two joint ventures and determined in March 2009 that the fair value of our investment in PIGAP II and El Furrial had declined and that we had a loss in our investment that was not temporary. Therefore, we recorded an impairment charge of $90.1 million ($81.7 million net of tax) to write-off our investments in PIGAP II and El Furrial. These impairment charges are reflected as a charge in equity in (income) loss of non-consolidated affiliates in our

14

consolidated statements of operations. In May 2009, PDVSA assumed control over the assets of PIGAP II and El Furrial and transitioned the operations of PIGAP II and El Furrial, including the hiring of their employees, to PDVSA. Our non-consolidated affiliates are expected to seek full compensation for any and all expropriated assets and investments under all applicable legal regimes, including investment treaties and customary international law, which could result in us recording a gain on our investment in future periods. However, we are unable to predict what, if any, compensation we ultimately will receive.

Because we have written off the majority of our investment in non-consolidated affiliates, we currently do not expect to have significant, if any, equity earnings in non-consolidated affiliates in the future from these investments.

8. DEBT

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

	June 30,			December 31,
	2009			2008
Revolving credit facility due August 2012	$	155,000		$	269,591
Term loan		800,000			800,000
2007 asset-backed securitization facility notes due July 2012		765,000			900,000
Partnership’s revolving credit facility due October 2011		270,250			281,250
Partnership’s term loan facility due October 2011		117,500			117,500
4.75% convertible senior notes due January 2014		143,750			143,750
4.25% convertible senior notes due June 2014 (presented net of the unamortized discount of $97.1 million as of June 30, 2009)		257,968			—
Other, interest at various rates, collateralized by equipment and other assets		309			338
		2,509,777			2,512,429
Less current maturities		(102	)		(101	)
Long-term debt	$	2,509,675		$	2,512,328

In June 2009, we issued under our shelf registration statement $355.0 million aggregate principal amount of 4.25% convertible senior notes due June 2014 (the “4.25% Notes”), including $30.0 million principal amount issued pursuant to the underwriter’s overallotment option. The 4.25% Notes are convertible into shares of our common stock at an initial conversion rate of 43.1951 shares of our common stock per $1,000 principal amount of the convertible notes, equivalent to an initial conversion price of approximately $23.15 per share of common stock. The conversion rate will be subject to adjustment following certain dilutive events and certain corporate transactions. The 4.25% Notes’ intrinsic value did not exceed their principal amount as of June 30, 2009. We may not redeem the notes prior to the maturity date of the notes.

FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”), requires that the liability and equity components of certain convertible debt instruments that may be settled in cash upon conversion be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. Our 4.25% Notes are being accounted for under FSB APB 14-1, and $97.9 million was recorded as a debt discount and reflected in equity related to the convertible feature of these notes. The unamortized discount on the 4.25% Notes will be amortized using the effective interest method through June 30, 2014. During the three and six months ended June 30, 2009, we recognized $0.8 million and $0.8 million in interest expense related to the contractual interest coupon and amortization of the debt discount, respectively. The effective interest rate on the debt component of these notes was 11.67% for the three and six months ended June 30, 2009.

The 4.25% Notes are our senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the 4.25% Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and liabilities incurred by our subsidiaries. The 4.25% Notes are not guaranteed by any of our subsidiaries.

15

In connection with the offering of the 4.25% Notes, we purchased call options on our stock at approximately $23.15 per share of common stock and sold warrants on our stock at approximately $32.67 per share of common stock. These transactions economically adjust the effective conversion price to $32.67 for $325.0 million of the 4.25% Notes and therefore are expected to reduce the potential dilution to our common stock upon any such conversion.

We used $36.3 million of the net proceeds from this debt offering and the full $53.1 million of the proceeds from the warrants sold to pay the cost of the purchased call options, and the remaining net proceeds from this debt offering to repay approximately $173.8 million of indebtedness under our revolving credit facility and approximately $135.0 million of indebtedness outstanding under our asset-backed securitization facility.

Our debt agreements contain various covenants with which we must comply, including, but not limited to, limitations on incurrence of indebtedness, investments, liens on assets, transactions with affiliates, mergers, consolidations, sales of assets and other provisions customary in similar types of agreements. We must also maintain, on a consolidated basis, required leverage and interest coverage ratios. We were in compliance with our debt covenants as of June 30, 2009.

Long-term Debt Maturity Schedule

Contractual maturities of long-term debt (excluding interest to be accrued thereon) at June 30, 2009 are as follows (in thousands):

	June 30,
	2009
2009	$	20,102	(1)
2010		40,125	(1)
2011		447,799
2012		1,280,034
2013		320,000
Thereafter		498,750	(2)
Total debt	$	2,606,810

(1)	$20 million of the maturities due in each of 2009 and 2010 are classified as long-term because we have the intent and ability to refinance these maturities with available credit.
(2)	This amount excludes the unamortized discount of $97.1 million as of June 30, 2009 related to the 4.25% Notes.

9. ACCOUNTING FOR DERIVATIVES

We are exposed to market risks primarily associated with changes in interest rates and foreign currency exchange rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We also use derivative financial instruments to minimize the risks caused by currency fluctuations in certain foreign currencies. We do not use derivative financial instruments for trading or other speculative purposes.

Interest Rate Risk

At June 30, 2009, we were a party to 22 interest rate swaps in which we pay fixed payments and receive floating payments on a notional value of $1,445.0 million. We entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. Our interest rate swaps expire over varying dates, with interest rate swaps having a notional amount of $1,357.9 million expiring through January 2013 and the remaining interest rate swaps expiring through October 2019. The weighted average effective fixed interest rate payable on our interest rate swaps was 4.2% as of June 30, 2009. We have designated these interest rate swaps as cash flow hedging instruments pursuant to the criteria of SFAS No. 133, so that any change in their fair values is recognized as a component of comprehensive income (loss) and is included in accumulated other comprehensive income (loss) to the extent the hedge is effective. The swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate, and therefore we currently do not expect a significant amount of ineffectiveness on these hedges. We perform quarterly calculations to determine whether the swap agreements are still effective and to calculate any ineffectiveness. We recorded approximately $0.3 million and $0.5 million of interest expense for the three and six months ended June 30, 2009, respectively, due to the ineffectiveness related to these swaps. We recorded approximately $0.8 million and $1.6 million of interest expense for the three and six months ended June 30, 2008, respectively, due to the ineffectiveness related to these swaps. We estimate that approximately $45.3 million of deferred pre-tax losses, included in our accumulated other

16

comprehensive loss at June 30, 2009, will be reclassified into earnings as interest expense at then-current values during the next twelve months as the underlying hedged transactions occur. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

Foreign Currency Exchange Risk

We operate in numerous countries throughout the world, and a fluctuation in the value of the currencies of these countries relative to the U.S. dollar could reduce our profits from international operations and the value of the net assets of our international operations when reported in U.S. dollars in our financial statements. From time to time we may enter into foreign currency hedges to reduce our foreign exchange risk associated with cash flows we will receive in a currency other than the functional currency of the local Exterran affiliate that entered into the contract. The impact of foreign currency exchange on our condensed consolidated statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

Foreign currency hedges that meet the hedging requirements of SFAS No. 133 or that qualify for hedge accounting treatment are accounted for as cash flow hedges under the provisions of SFAS No. 133. Changes in the fair value of foreign currency hedges that meet the hedging requirements of SFAS No. 133 or that qualify for hedge accounting treatment are recognized as a component of comprehensive income (loss) and are included in accumulated other comprehensive income (loss) to the extent the hedge is effective. The amounts recognized as a component of other comprehensive income (loss) will be reclassified into earnings (loss) in the periods in which the underlying foreign currency exchange exposure is realized. We estimate that approximately $53,000 of deferred gains, included in our accumulated other comprehensive loss at June 30, 2009, will be reclassified into earnings at then-current values during the next twelve months as the underlying hedged transactions occur. For hedges that do not qualify for hedge accounting treatment, gains and losses on the foreign currency hedge are included in other (income) expense, net in our condensed consolidated statements of operations. At June 30, 2009, the remaining notional amount of our foreign currency hedge that did not meet the requirements for hedge accounting was approximately 5.6 million Kuwaiti Dinars. At June 30, 2009, the remaining notional amount of our foreign currency hedge that did meet the requirements for hedge accounting was approximately 6.0 million Euros.

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

	June 30, 2009
		Fair Value
	Balance Sheet Location	Asset (Liability)
Derivatives designated as hedging instruments under SFAS No. 133:
Interest rate hedges	Accrued liabilities	$	(45,302	)
Interest rate hedges	Other long-term liabilities		(37,272	)
Foreign currency hedge	Other current assets		53
			(82,521	)
Derivatives not designated as hedging instruments under SFAS No. 133:
Foreign currency hedge	Accrued liabilities		(490	)
Total derivatives		$	(83,011	)

17

Three Months Ended June 30, 2009

Six Months Ended June 30, 2009

Gain (Loss)

Reclassified

Gain (Loss)

Location of Gain

from

Location of Gain

Reclassified from

(Loss) Reclassified

Accumulated

Gain (Loss)

(Loss) Reclassified

Accumulated

Gain (Loss)

from Accumulated

Other

Recognized in

from Accumulated

Other

Recognized in Other

Other

Comprehensive

Other

Other

Comprehensive

Comprehensive

Comprehensive

Income (Loss)

Comprehensive

Comprehensive

Income (Loss)

Income (Loss) on

Income (Loss) into

into Income

Income (Loss)

Income (Loss) into

into Income

Derivatives

Income (Loss)

(Loss)

on Derivatives

Income (Loss)

(Loss)

Derivatives designated as cash flow hedges under SFAS No. 133:

Interest rate hedges

$

13,823

Interest expense

$

(13,189

)

$

10,289

Interest expense

$

(25,584

)

Foreign currency hedge

706

Fabrication revenue

29

1,254

Fabrication revenue

(224

)

Total

$

14,529

$

(13,160

)

$

11,543

$

(25,808

)

	Three Months Ended June 30, 2009			Six Months Ended June 30, 2009
		Amount of Gain			Amount of Gain
		(Loss)			(Loss)
	Location of Gain (Loss)	Recognized in		Location of Gain (Loss)	Recognized in
	Recognized in Income (Loss)	Income (Loss)		Recognized in Income (Loss)	Income (Loss)
	on Derivative	on Derivative		on Derivative	on Derivative
Derivatives not designated as hedging instruments under SFAS No. 133:
Foreign currency hedge	Other income (expense), net	$	89	Other income (expense), net	$	(292	)

The counterparties to our derivative agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. We have no specific collateral posted for our derivative instruments. The counterparties to our interest rate swaps are also lenders under our credit facility and/or our ABS facility and, in that capacity, share proportionally in the collateral pledged under the related facility.

10. FAIR VALUE MEASUREMENTS

SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.

• Level 1— Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

• Level 2— Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered market makers.

• Level 3— Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information.

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The following table summarizes the valuation of our derivatives, impaired fleet units and international contract operations goodwill under SFAS No. 157 pricing levels as of June 30, 2009 (in thousands):

				Quoted
				Market		Significant
				Prices in		Other			Significant
				Active		Observable			Unobservable
				Markets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Interest rate swaps asset (liability)	$	(82,574	)	$	—	$	(82,574	)	$	—
Foreign currency derivatives asset (liability)		(437	)		—		(437	)		—
Impaired fleet units		7,020			—		—			7,020
International contract operations goodwill		—			—		—			—

The fair values of our international contract operations goodwill and impaired fleet units are included in the table above because we recorded impairment charges related to these assets in the second quarter of 2009. For a discussion of the goodwill impairment charge and fleet impairment charge, see Notes 6 and 11, respectively.

Our interest rate swaps and foreign currency derivatives are recorded at fair value utilizing a combination of the market and income approach to fair value. We used discounted cash flows and market based methods to compare similar derivative instruments. Our estimate of the fair value of the impaired fleet units was based on the estimated component value of the equipment that we plan to use. Our estimate of the fair value of the international contract operations goodwill was based on a combination of the expected present value of future cash flows and a market approach.

11. FLEET IMPAIRMENT

As a result of a decline in market conditions in North America and operating horsepower during the second quarter of 2009, we reviewed the idle compression assets used in our contract operations segments for units that are not of the type, configuration, make or model that are cost efficient to maintain and operate. As a result of that review, we decided that 1,156 units representing 251,500 horsepower would be retired from the fleet.

We performed a cash flow analysis of the expected proceeds from the disposition of these units to determine the fair value of the fleet assets we will no longer utilize in our operations. The net book value of these assets exceeded the fair value by $86.7 million, and the difference was recorded as a long-lived asset impairment in the second quarter of 2009. The impairment is recorded in Fleet impairment expense in the consolidated statements of operations.

During the first quarter of 2008, management identified certain fleet units that will not be used in our contract operations business in the future and recorded a $1.5 million impairment in the first quarter of 2008.

12. RESTRUCTURING CHARGES

In an effort to ensure that our costs are in line with our business activity levels as a result of the reduced level of demand for our products and services, our management approved a plan in March 2009 to close certain facilities to consolidate our compression fabrication activities in our fabrication segment. These actions were the result of significant fabrication capacity stemming from the 2007 merger that created Exterran and the lack of consolidation of this capacity since that time, as well as the anticipated continuation of current weaker global economic and energy industry conditions. We expect to complete the consolidation of those compression fabrication activities in September 2009. In addition, our management also implemented cost reductions programs during the first and second quarters of 2009 primarily related to workforce reductions across all of our segments.

We currently estimate that we will incur total charges in 2009 with respect to these restructuring charges discussed above of approximately $19 million to $21 million, of which $8.1 million and $15.4 million, respectively, was expensed in the three and six months ended June 30, 2009. These charges are reflected as Restructuring charges in our consolidated statements of operations. Approximately $11 million to $12 million of the total charges are related to severance, retention and employee benefit costs, approximately $5.6 million is related to a facility impairment charge and the remaining amount is related to other facility closure and moving costs. We expect that approximately $13 million to $15 million of the total charges will result in cash expenditures.

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The following table summarizes the changes to our accrued liability balance related to restructuring charges for the six months ended June 30, 2009 (in thousands):

	Restructuring
	Charges Accrual
Beginning balance at December 31, 2008	$	—
Additions for costs expensed		15,380
Non-cash facility impairment		(5,600	)
Reductions for payments		(7,518	)
Ending balance at June 30, 2009	$	2,262

13. STOCK-BASED COMPENSATION

Stock Incentive Plan

On August 20, 2007, we adopted the Exterran Holdings, Inc. 2007 Stock Incentive Plan (as amended and restated, the “2007 Plan”), which previously had been approved by the stockholders of Hanover and Universal and provides for the granting of stock-based awards in the form of options, restricted stock, restricted stock units, stock appreciation rights and performance awards to our employees and directors. On April 30, 2009, our stockholders approved an amendment to the 2007 Plan which increased the aggregate number of shares of common stock that may be issued under the 2007 Plan to 6,750,000 from 4,750,000. Each option and stock appreciation right granted counts as one share against the aggregate share limit, and each share of restricted stock and restricted stock unit granted counts as two shares against the aggregate share limit. Awards granted under the 2007 Plan that are subsequently cancelled, terminated or forfeited are available for future grant.

Stock Options

Under the 2007 Plan, stock options are granted at fair market value at the date of grant, are exercisable in accordance with the vesting schedule established by the compensation committee of our board of directors in its sole discretion and expire no later than seven years after the date of grant. Options generally vest 33 1/3% on each of the first three anniversaries of the grant date.

The weighted average fair value at date of grant for options granted during the six months ended June 30, 2009 was $5.86, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	Six Months
	Ended
	June 30,
	2009
Expected life in years		4.5
Risk-free interest rate		1.84	%
Volatility		40.51	%
Dividend yield		0.00	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of our stock over the most recent period commensurate with the expected life of the stock options and other factors. We have not historically paid a dividend and do not expect to pay a dividend during the expected life of the stock options.

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The following table presents stock option activity for the six months ended June 30, 2009 (in thousands, except per share data and remaining life in years):

						Weighted
				Weighted		Average		Aggregate
	Stock			Average		Remaining		Intrinsic
	Options			Exercise Price		Life		Value
Options outstanding, December 31, 2008		2,027		$	41.50
Granted		980			16.28
Cancelled		(35	)		36.25
Options outstanding, June 30, 2009		2,972		$	33.23		5.3	$	—
Options exercisable, June 30, 2009		1,729		$	36.93		4.5	$	—

Intrinsic value is the difference between the market value of our stock and the exercise price of each option multiplied by the number of options outstanding for those options where the market value exceeds their exercise price. No stock options were exercised during the six months ended June 30, 2009. The total intrinsic value of stock options exercised during the six months ended June 30, 2008 was $6.3 million. As of June 30, 2009, $7.9 million of unrecognized compensation cost related to unvested stock options is expected to be recognized over the weighted-average period of 2.4 years.

Restricted Stock and Restricted Stock Units

For grants of restricted stock and restricted stock units, we recognize compensation expense over the vesting period equal to the fair value of our common stock at the date of grant. Common stock subject to restricted stock grants generally vests 33 1/3% on each of the first three anniversaries of the grant date.

The following table presents restricted stock and restricted stock unit activity for the six months ended June 30, 2009 (in thousands, except per share data):

				Weighted
				Average
				Grant-Date
				Fair Value
	Shares			Per Share
Non-vested restricted stock and restricted stock units, December 31, 2008		535		$	66.46
Granted		986			16.19
Vested		(245	)		60.50
Cancelled		(25	)		35.25
Non-vested restricted stock and restricted stock units, June 30, 2009		1,251		$	28.60

As of June 30, 2009, $23.7 million of unrecognized compensation cost related to unvested restricted stock and restricted stock units is expected to be recognized over the weighted-average period of 2.4 years.

Employee Stock Purchase Plan

On August 20, 2007, we adopted the Exterran Holdings, Inc. Employee Stock Purchase Plan (“ESPP”), which is intended to provide employees with an opportunity to participate in our long-term performance and success through the purchase of shares of common stock at a price that may be less than fair market value. The ESPP is designed to comply with Section 423 of the Internal Revenue Code of 1986, as amended. Each quarter, an eligible employee may elect to withhold a portion of his or her salary up to the lesser of $25,000 per year or 10% of his or her eligible pay to purchase shares of our common stock at a price equal to 85% to 100% of the fair market value of the stock as of the first trading day of the quarter, the last trading day of the quarter or the lower of the first trading day of the quarter and the last trading day of the quarter, as the compensation committee of our board of directors may determine. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been purchased, unless it is extended. A total of 650,000 shares of our common stock have been authorized and reserved for issuance under the ESPP. At June 30, 2009, 409,335 shares remained available for purchase under the ESPP. Under SFAS No. 123(R), “Share-Based Payments” (“SFAS No. 123(R)”), the ESPP plan is compensatory and, as a result, we record an expense on our consolidated statements of operations related to the ESPP. Effective July 1, 2009, the purchase discount under the ESPP was reduced from 15% to 5% of the fair market value of our common stock on the first trading day of the quarter or the last trading day of the quarter, whichever is lower.

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Unit Appreciation Rights

Unit appreciation rights (“UARs”) entitle the holder to receive a payment from us in cash equal to the excess of the fair market value of a common unit of Exterran Partners, L.P. (along with its subsidiaries, the “Partnership”), on the date of exercise over the exercise price. At June 30, 2009, we had approximately 0.3 million UARs outstanding. These UARs vested on January 1, 2009 and expire on December 31, 2009.

Because the holders of the UARs will receive any payment from us in cash, these awards have been recorded as a liability, and we are required to remeasure the fair value of these awards at each reporting date under the guidance of SFAS No. 123(R).

Partnership Long-Term Incentive Plan

The Partnership has a long-term incentive plan that was adopted by Exterran GP LLC, the general partner of its general partner, in October 2006 for employees, directors and consultants of the Partnership, us or our respective affiliates. The long-term incentive plan currently permits the grant of awards covering an aggregate of 1,035,378 common units, common unit options, restricted units and phantom units. The long-term incentive plan is administered by the board of directors of Exterran GP LLC or a committee thereof (the “Plan Administrator”).

Unit options will have an exercise price that is not less than the fair market value of a common unit on the date of grant and will become exercisable over a period determined by the Plan Administrator. Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the phantom unit or, at the discretion of the Plan Administrator, cash equal to the fair value of a common unit.

Partnership Unit Options

As of June 30, 2009, the Partnership had 580,715 outstanding unit options. The unit options vested and became exercisable on January 1, 2009, and expire on December 31, 2009.

The following table presents unit option activity for the six months ended June 30, 2009 (remaining life in years):

				Weighted		Weighted
				Average		Average		Aggregate
	Unit			Exercise		Remaining		Intrinsic
	Options			Price		Life		Value
Unit options outstanding, December 31, 2008		591,429		$	23.77
Cancelled		(10,714	)		25.94
Unit options outstanding, June 30, 2009		580,715		$	23.73		0.5	$	—
Unit options exercisable, June 30, 2009		580,715		$	23.73		0.5	$	—

Intrinsic value is the difference between the market value of the Partnership’s units and the exercise price of each unit option multiplied by the number of unit options outstanding for those unit options where the market value exceeds their exercise price.

Partnership Phantom Units

During the six months ended June 30, 2009, the Partnership granted 80,624 phantom units to officers and directors of Exterran GP LLC and certain of our employees, which settle 33 1/3% on each of the first three anniversaries of the grant date.

The following table presents phantom unit activity for the six months ended June 30, 2009:

				Weighted
				Average
				Grant-Date
	Phantom			Fair Value
	Units			per Unit
Phantom units outstanding, December 31, 2008		48,152		$	30.98
Granted		80,624			11.65
Vested		(37,216	)		24.60
Cancelled		(1,665	)		27.02
Phantom units outstanding, June 30, 2009		89,895		$	16.44

As of June 30, 2009, $1.1 million of unrecognized compensation cost related to unvested phantom units is expected to be recognized over the weighted-average period of 2.4 years.

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14. RETIREMENT BENEFIT PLAN

Our 401(k) retirement plan provides for optional employee contributions up to the Internal Revenue Service limitation and discretionary employer matching contributions. Effective July 1, 2009, we terminated the 401(k) company match.

15. COMMITMENTS AND CONTINGENCIES

We have issued the following guarantees that are not recorded on our accompanying balance sheet (dollars in thousands):

			Maximum Potential
			Undiscounted
			Payments as of
	Term		June 30, 2009
Performance guarantees through letters of credit (1)		2009-2013	$	304,716
Standby letters of credit		2009-2011		21,197
Commercial letters of credit		2009		1,374
Bid bonds and performance bonds (1)		2009-2014		107,999
Maximum potential undiscounted payments			$	435,286

(1) We have issued guarantees to third parties to ensure performance of our obligations, some of which may be fulfilled by third parties.

As part of our acquisition of Production Operators Corporation in 2001, we may be required to make contingent payments of up to $46 million to Schlumberger dependent on the realization by us of certain U.S. federal tax benefits through the year 2016. To date, we have not realized any such benefits that would require a payment to Schlumberger and do not anticipate realizing any such benefits that would require a payment before the year 2013.

In January 2007, Universal acquired B.T.I. Holdings Pte Ltd (“B.T.I.”) and its wholly-owned subsidiary B.T. Engineering Pte Ltd, a Singapore based fabricator of oil and natural gas, petrochemical, marine and offshore equipment, including pressure vessels, floating, production, storage and offloading process modules, terminal buoys, turrets, natural gas compression units and related equipment. We paid $1.9 million based on the earnings of B.T.I. for the year ended March 31, 2008 and we may be required to pay up to $18.1 million based on earnings of B.T.I. over the year ended March 31, 2009. We have accrued $17.0 million as of June 30, 2009 based on our estimate of the earnings of B.T.I. over the year ended March 31, 2009 and we expect to finalize the amount owed in the third quarter of 2009.

See Note 3 for a discussion of the contingent purchase price related to our acquisition of GLR.

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. As is customary in our industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business. Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we feel is appropriate. In addition, we have a minimal amount of insurance on our offshore assets. We believe that our insurance coverage is customary for the industry and adequate for our business; however, losses and liabilities not covered by insurance would increase our costs.

Additionally, we are substantially self-insured for worker’s compensation and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

In the ordinary course of business, we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Because of the inherent uncertainty of litigation, however, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows for the period in which the resolution occurs.

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16. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, which provides a single definition of fair value, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, in February 2008, the FASB issued a FASB Staff Position that deferred the effective date to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities, except those that are recognized or disclosed in the financial statements at fair value on at least an annual basis. We adopted the required undeferred provisions of SFAS No. 157 on January 1, 2008, and the adoption of the undeferred provisions of SFAS No. 157 did not have a material impact on our consolidated financial statements. We adopted the deferred provisions of SFAS No. 157 on January 1, 2009, and the adoption of the deferred provisions of SFAS No. 157 did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) replaces SFAS No. 141 and requires that all assets, liabilities, contingent consideration, contingencies and in-process research and development costs of an acquired business be recorded at fair value at the acquisition date; that acquisition costs generally be expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. SFAS No. 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with an exception for the accounting for valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions. After the adoption of SFAS No. 141(R), the provisions of SFAS No. 141(R) will also apply to adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R). We adopted the provisions of SFAS No. 141(R) on January 1, 2009 and the adoption of SFAS No. 141(R) did not have a material impact on our consolidated financial statements, although we are unable to predict its impact on future potential acquisitions.

In December 2007, the FASB issued SFAS No. 160 which changes the accounting and reporting for minority interests such that minority interests will be recharacterized as noncontrolling interests and will be required to be reported as a component of equity, and requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions and, upon a loss of control, requires the interest sold, as well as any interest retained, to be recorded at fair value, with any gain or loss recognized in earnings. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. We adopted the provisions of SFAS No. 160 on January 1, 2009, and the adoption of SFAS No. 160 resulted in the reclassification of noncontrolling interests into equity on our consolidated balance sheets and other presentation changes to separately disclose the controlling and noncontrolling interests in various line items in our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). This new standard requires enhanced disclosures for derivative instruments, including those used in hedging activities. SFAS No. 161 is effective for fiscal years beginning on or after November 15, 2008. We adopted the provisions of SFAS No. 161 on January 1, 2009, and the adoption of SFAS No. 161 did not have a material impact on our consolidated financial statements; however, we have expanded our disclosures regarding derivatives.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), in accordance with GAAP. FSP FAS 142-3 requires an entity to disclose information for a recognized intangible asset that enables users of the financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We adopted the provisions of FSP FAS 142-3 on January 1, 2009, and the adoption of FSP FAS 142-3 did not have a material impact on our consolidated financial statements.

In May 2008, the FASB issued FSP APB 14-1 which requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), unless the embedded conversion option is required to be separately accounted for as a derivative, be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008; early

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adoption is not permitted. Retrospective application to all periods presented is required except for instruments that were not outstanding during any of the periods that will be presented in the annual financial statements for the period of adoption but were outstanding during an earlier period. We adopted the provisions of FSP APB 14-1 on January 1, 2009, and the adoption of FSP APB 14-1 resulted in a portion of the proceeds from our convertible senior notes issued in June 2009 being allocated to equity and will result in an increase in interest expense related to these notes over the life of the debt.

In April 2009, the FASB issued FSP FAS 107-1 and APB Opinion No. 28-1 (“FSP FAS 107-1 and APB No. 28-1”), “Interim Disclosures about Fair Value of Financial Instruments”, which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, and requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB No. 28-1 also amend APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. Prior to issuing FSP FAS 107-1 and APB No. 28-1, fair values for financial instruments were only disclosed once a year. FSP FAS 107-1 and APB No. 28-1 are effective for interim reporting periods ending after June 15, 2009. FSP FAS 107-1 and APB No. 28-1 do not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, require comparative disclosures only for periods ending after initial adoption. We adopted the provisions of FSP FAS 107-1 and APB No. 28-1 on June 30, 2009, and the adoption of FSP FAS 107-1 and APB No. 28-1 did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, and is effective for interim and annual periods ending after June 15, 2009. We adopted the provisions of SFAS No. 165 on June 30, 2009, and the adoption of SFAS No. 165 did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 amends FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51,” to require an entity to perform an analysis to determine whether the entity’s variable interest gives it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the entity that has both the power to direct the activities of the variable interest entity and the obligation to absorb losses or the right to receive benefits from the variable interest entity. Additionally, SFAS No. 167 amends Interpretation 46(R) to require reassessments of whether an entity is the primary beneficiary of a variable interest entity. SFAS No. 167 is effective for interim and annual periods ending after November 15, 2009. We do not expect the adoption of SFAS No. 167 will have a material impact on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws are also sources of authoritative GAAP for SEC registrants. All guidance contained in the codification carries an equal level of authority. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. We do not expect the adoption of SFAS No. 168 will have a material impact on our consolidated financial statements; however, we will disclose codification citations to GAAP in place of corresponding references to legacy accounting pronouncements.

17. REPORTABLE SEGMENTS

We manage our business segments primarily based upon the type of product or service provided. We have four principal industry segments: North America Contract Operations, International Contract Operations, Aftermarket Services and Fabrication. The North America and International Contract Operations segments primarily provide natural gas compression services, production and processing equipment services and maintenance services to meet specific customer requirements on Exterran-owned assets. The Aftermarket Services segment provides a full range of services to support the surface production, compression and processing needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets. The Fabrication segment involves (i) design, engineering, installation, fabrication and sale of natural gas compression units and accessories and equipment used in the production, treating and processing of crude oil and natural gas and (ii) engineering, procurement and construction services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the construction of tank farms and the construction of evaporators and brine heaters for desalination plants.

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We evaluate the performance of our segments based on gross margin for each segment. Revenues include only sales to external customers. We do not include intersegment sales when we evaluate the performance of our segments. Our chief executive officer does not review asset information by segment.

The following tables present sales and other financial information by industry segment for the three and six months ended June 30, 2009 and 2008 (in thousands):

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
Three Months Ended	Operations		Operations		Services		Fabrication		Total
June 30, 2009:
Revenue from external customers	$	178,455	$	95,448	$	78,504	$	325,561	$	677,968
Gross margin(1)		104,035		57,551		16,726		50,000		228,312
June 30, 2008:
Revenue from external customers	$	194,607	$	91,768	$	92,957	$	394,044	$	773,376
Gross margin(1)		108,304		55,301		19,262		38,760		221,627

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
Six Months Ended	Operations		Operations		Services		Fabrication		Total
June 30, 2009:
Revenue from external customers	$	372,848	$	186,127	$	154,035	$	668,170	$	1,381,180
Gross margin(1)		214,723		115,425		32,503		105,895		468,546
June 30, 2008:
Revenue from external customers	$	393,683	$	178,708	$	172,578	$	730,993	$	1,475,962
Gross margin(1)		219,092		112,459		35,317		111,966		478,834

(1) Gross margin, a non-GAAP financial measure, is reconciled to net income (loss) below.

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by our management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

The following table reconciles net income (loss) to gross margin (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Net income (loss)	$	(529,952	)	$	24,903		$	(587,852	)	$	76,917
Selling, general and administrative		86,380			89,582			171,491			173,079
Merger and integration expenses		—			1,458			—			5,891
Depreciation and amortization		85,903			81,671			167,976			162,310
Fleet impairment		86,684			—			86,684			1,450
Restructuring charges		8,076			—			15,380			—
Goodwill impairment		150,778			—			150,778			—
Interest expense		29,163			30,125			55,897			63,336
Equity in (income) loss of non-consolidated affiliates		567			(6,962	)		91,684			(13,055	)
Other (income) expense, net		(9,433	)		(5,705	)		(12,795	)		(15,658	)
Provision for (benefit from) income taxes		(23,177	)		15,314			(12,214	)		43,148
(Income) loss from discontinued operations, net of tax		343,323			(8,759	)		341,517			(18,584	)
Gross margin	$	228,312		$	221,627		$	468,546		$	478,834

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18. SUBSEQUENT EVENT

In July 2009, the Partnership entered into an interest rate swap agreement that it designated as a cash flow hedge to hedge the risk of variability in interest rate payments related to its LIBOR-based variable rate debt. The interest rate swap agreement has a notional amount of $50.0 million and converted floating rate debt to fixed rate debt at 2.0%.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can identify many of these statements by looking for words such as “believes,” “expects,” “intends,” “projects,” “anticipates,” “estimates” or similar words or the negative thereof.

Such forward-looking statements in this report include, without limitation, statements regarding:

• our business growth strategy and projected costs;

• our future financial position;

• the sufficiency of available cash flows to fund continuing operations;

• the expected amount of our capital expenditures;

• anticipated cost savings, future revenue, gross margin and other financial or operational measures related to our business and our primary business segments;

• the future value of our equipment and non-consolidated affiliates; and

• plans and objectives of our management for our future operations.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. These forward-looking statements are also affected by the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2008, and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”), which are available through our website atwww.exterran.com and through the SEC’s website atwww.sec.gov.Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:

• conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for natural gas and the impact on the price of natural gas, which could cause a decline in the demand for our compression and oil and natural gas production and processing equipment and services;

• our reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

• the success of our subsidiaries, including Exterran Partners, L.P. (along with its subsidiaries, the “Partnership”);

• 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 and restrictions on currency repatriation;

• the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters;

• the risk that counterparties will not perform their obligations under our financial instruments;

• the financial condition of our customers;

• our ability to timely and cost-effectively obtain components necessary to conduct our business;

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• employment workforce factors, including our ability to hire, train and retain key employees;

• our ability to implement certain business and financial objectives, such as:

• international expansion;

• sales of additional U.S. contract operations contracts and equipment to the Partnership;

• timely and cost-effective execution of projects;

• integrating acquired businesses;

• generating sufficient cash; and

• accessing the capital markets at an acceptable cost;

• liability related to the use of our products and services;

• changes in governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; and

• our level of indebtedness and ability to fund our business.

All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

GENERAL

Exterran Holdings, Inc., together with its subsidiaries (“Exterran,” “we,” “us,” or “our”), is a global market leader in the full service natural gas compression business and a premier provider of operations, maintenance, service and equipment for oil and natural gas production, processing and transportation applications. Our global customer base consists of companies engaged in all aspects of the oil and natural gas industry, including large integrated oil and natural gas companies, national oil and natural gas companies, independent producers and natural gas processors, gatherers and pipelines. We operate in three primary business lines: contract operations, fabrication and aftermarket services. In our contract operations business line, we own a fleet of natural gas compression equipment and crude oil and natural gas production and processing equipment that we utilize to provide operations services to our customers. In our fabrication business line, we fabricate and sell equipment that is similar to the equipment that we own and utilize to provide contract operations to our customers. We also utilize our expertise and fabrication facilities to build equipment utilized in our contract operations services. Our fabrication business line also provides engineering, procurement and construction services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the construction of tank farms and the construction of evaporators and brine heaters for desalination plants. In our Total Solutions projects, which we offer to our customers on a contract operations or on a turn-key sale basis, we can provide the engineering design, project management, procurement and construction services necessary to incorporate our products into complete production, processing and compression facilities. In our aftermarket services business line, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression, production, gas treating and oilfield power generation equipment.

Hanover and Universal Merger

On August 20, 2007, Hanover Compressor Company (“Hanover”) and Universal Compression Holdings, Inc. (“Universal”) completed their business combination pursuant to a merger. As a result of the merger, each of Universal and Hanover became our wholly-owned subsidiary, and Universal merged with and into us.

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Exterran Partners, L.P.

We are the indirect majority owner of the Partnership, a master limited partnership that provides natural gas contract operations services to customers throughout the U.S. As of June 30, 2009, public unitholders held a 43% ownership interest in the Partnership and we owned the remaining equity interest, including the general partner interest and all incentive distribution rights. The general partner of the Partnership is our subsidiary and we consolidate the financial position and results of operations of the Partnership. It is our intention for the Partnership to be the primary vehicle for the growth of our U.S. contract operations business and for us to continue to contribute U.S. contract operations customer contracts and equipment to the Partnership over time in exchange for cash, the Partnership’s assumption of our debt and/or additional interests in the Partnership. As of June 30, 2009, the Partnership had a fleet of approximately 2,494 compressor units comprising approximately 1,033,840 horsepower, or 24% (by available horsepower) of our and the Partnership’s combined total U.S. horsepower.

OVERVIEW

Industry Conditions and Trends

Our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration, development and production of oil and natural gas reserves. Spending by oil and natural gas exploration and production companies is dependent upon these companies’ forecasts regarding the expected future supply and future pricing and demand for oil and natural gas products and their estimates of risk-adjusted costs to find, develop and produce reserves. Although we believe our contract operations business is typically less impacted by commodity prices than certain other energy service products and services, changes in oil and natural gas exploration and production spending will normally result in increased or decreased demand for our products and services.

Natural Gas Consumption.Natural gas consumption in the U.S. for the twelve months ended April 30, 2009 decreased by approximately 2.4% over the twelve months ended April 30, 2008. Total natural gas consumption is projected by the Energy Information Administration (“EIA”) to decline by 1.8% in 2009 and remain relatively unchanged in 2010, but is expected to increase by an average of 0.7% per year until 2030. Natural gas consumption in areas outside the U.S. is projected to increase by an average of 2.6% per year until 2030, according to the EIA.

In 2007, the U.S. accounted for an estimated annual production of approximately 19 trillion cubic feet of natural gas, or 19% of the worldwide total, compared to an estimated annual production of approximately 81 trillion cubic feet in the rest of the world. The EIA estimates that the U.S.’s natural gas production level will be approximately 20 trillion cubic feet in 2030, or 12% of the worldwide total, compared to an estimated annual production of approximately 139 trillion cubic feet in the rest of the world.

Natural Gas Compression Services Industry.We believe the market for our products in the U.S. will continue to have growth opportunities over time due to the following factors, among others:

• aging producing natural gas fields will require more compression to continue producing the same volume of natural gas; and

• increased production from unconventional sources, which include tight sands, shales and coal beds, generally requires more compression than production from conventional sources to produce the same volume of natural gas.

While the international natural gas contract compression services market is currently smaller than the U.S. market, we believe there are growth opportunities in international demand for our products due to the following factors:

• implementation of international environmental and conservation laws preventing the practice of flaring natural gas and recognition of natural gas as a clean air fuel;

• a desire by a number of oil exporting nations to replace oil with natural gas as a fuel source in local markets to allow greater export of oil;

• increasing development of pipeline infrastructure, particularly in Latin America and Asia, necessary to transport natural gas to local markets; and

• growing demand for electrical power generation, for which the fuel of choice tends to be natural gas.

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Our Performance Trends and Outlook

Beginning in the second half of 2008, there were severe disruptions in the credit and capital markets and reductions in global economic activity which have had a significant adverse impact on oil-and-gas-related commodity prices. Currently, we believe the decline in commodity prices and the uncertain credit and capital market conditions resulting from the global financial crisis will continue to negatively impact the level of capital spending by our customers in 2009 compared with 2008 levels.

Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand for compression and oil and natural gas production and processing and our customers’ decisions regarding whether to utilize our products and services rather than purchase equipment or engage our competitors. In particular, many of our North America contract operations agreements with customers have short initial terms; we cannot be certain that these contracts will be renewed after the end of the initial contractual term, and any such nonrenewal could adversely impact our results of operations. However, we believe that, barring a significant and extended worldwide recession, industry activity outside of North America should be less affected given the longer-term nature of natural gas infrastructure development projects in international markets.

Given the current economic environment in North America and the anticipated impact of lower natural gas prices and capital spending by customers, we expect a further reduction in demand and profitability in our business. In addition, we believe that the available supply of idle and underutilized compression equipment owned by our customers and competitors will continue to negatively impact our ability to maintain or improve our North American contract operations horsepower utilization and revenues in the near term. Our total operating horsepower decreased by approximately 8% from December 31, 2008 to June 30, 2009, and we expect further horsepower declines during the remainder of 2009. In international markets, although we expect a decline in demand for our contract operations services in Latin America, we believe there will continue to be demand for our Total Solutions projects in Latin America and the Eastern Hemisphere, although the demand has softened from prior year levels. However, in June 2009, the Venezuelan State-owned oil company, Petroleos de Venezuela S.A. (“PDVSA”), assumed control over substantially all of our assets and operations in Venezuela under a law enacted by the Venezuelan government in May 2009. The expropriation of our contract operations and aftermarket services businesses in Venezuela will cause our operating income to decrease. See Note 2 to the Condensed Consolidated Financial Statements included in Part I, Item 1 (“Financial Statements”) of this report for further discussion of these recent events in Venezuela.

As industry capital spending has continued to decline in 2009, our fabrication business segment has experienced a reduction in demand, including requests by our customers to delay delivery on existing backlog and reduced new booking activity. This decline in demand for our fabrication products has led to a reduction in our fabrication backlog.

Given the global recession and its uncertain impact on 2009 activity levels, the matching of our costs and capacity to business levels will be challenging. We have taken steps to match our operating costs to current operating levels and will continue to monitor our expected business levels. For example, in March 2009 we announced that we had approved a plan to close our compression fabrication facility in Calgary, Alberta and to discontinue our compression fabrication activities in Broken Arrow, Oklahoma, and on May 7, 2009 we announced that we would be reducing operating and general and administrative costs, including headcount reductions, in all facets of our business.

Our level of capital spending depends on the demand for our products and services and the equipment we require to render services to our customers. Although we are not able at this time to predict the final impact of the current financial market and industry conditions on our business in 2009, based on current market conditions, we expect that net cash provided by operating activities will be sufficient to finance our operating expenditures, capital expenditures and scheduled interest and debt repayments through December 31, 2009.

We intend for the Partnership to be the primary vehicle for the growth of our U.S. contract operations business. To this end, we intend to continue to contribute over time additional U.S. contract operations customer contracts and equipment to the Partnership in exchange for cash, the Partnership’s assumption of our debt and/or additional interests in the Partnership. Such transactions would depend on, among other things, market and economic conditions, our ability to reach agreement with the Partnership regarding the terms of any purchase and the availability to the Partnership of debt and equity capital.

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Financial Highlights

Financial highlights for the three and six months ended June 30, 2009, as compared to the prior year period, which are discussed in greater detail below in “Financial Results of Operations,” were as follows:

• Revenue for the three months ended June 30, 2009 was $678.0 million compared to $773.4 million for the prior year period. Revenue for the six months ended June 30, 2009 was $1,381.2 million compared to $1,476.0 million for the prior year period.

• Net loss attributable to Exterran for the three months ended June 30, 2009 was $530.8 million, compared to net income attributable to Exterran of $21.7 million for the three months ended June 30, 2008. Net loss attributable to Exterran for the six months ended June 30, 2009 was $590.2 million, compared to net income attributable to Exterran of $71.0 million for the six months ended June 30, 2008.

The following table summarizes our charges for the three and six months ended June 30, 2009, as compared to the prior year period (dollars in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
Goodwill impairment	$	150,778	$	—	$	150,778	$	—
Fleet impairment		86,684		—		86,684		1,450
Restructuring charges		8,076		—		15,380		—
Merger and integration expenses		—		1,458		—		5,891
Investments in non-consolidated affiliates impairment (in Equity in (income) loss of non-consolidated affiliates)		567		—		97,123		—
Cost overruns on two jobs (in Fabrication cost of sales)		—		31,835		—		31,835
Loss attributable to expropriation (in Income (loss) from discontinued operations, net of tax)		377,891		—		377,891		—
Total	$	623,996	$	33,293	$	727,856	$	39,176

Operating Highlights

The results from continuing operations for all periods presented exclude the results of our Venezuela international contract operations andaftermarket services businesses. Those results are now reflected in discontinued operations for all periods presented.

The following tables summarize our total available horsepower, total operating horsepower, horsepower utilization percentages and fabrication backlog (horsepower in thousands and dollars in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Total Available Horsepower (at period end):
North America		4,340			4,504			4,340			4,504
International		1,214			1,129			1,214			1,129
Total		5,554			5,633			5,554			5,633
Total Operating Horsepower (at period end):
North America		3,125			3,472			3,125			3,472
International		1,037			1,053			1,037			1,053
Total		4,162			4,525			4,162			4,525
Total Operating Horsepower (average):
North America		3,207			3,497			3,297			3,542
International		1,037			1,044			1,042			1,026
Total		4,244			4,541			4,339			4,568
Horsepower Utilization (at period end):
North America		72	%		77	%		72	%		77	%
International		85	%		93	%		85	%		93	%
Total		75	%		80	%		75	%		80	%

	June 30, 2009		December 31, 2008		June 30, 2008
Compressor and Accessory Fabrication Backlog	$	291.6	$	395.5	$	327.3
Production and Processing Equipment Fabrication Backlog		652.8		732.7		821.1
Fabrication Backlog	$	944.4	$	1,128.2	$	1,148.4

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FINANCIAL RESULTS OF OPERATIONS

The results from continuing operations for all periods presented exclude the results of our Venezuela international contract operations and aftermarket services businesses. Those results are now reflected in discontinued operations for all periods presented.

THE THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2008

Summary of Business Segment Results

North America Contract Operations
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	178,455		$	194,607			(8	)%
Cost of sales (excluding depreciation and amortization expense)		74,420			86,303			(14	)%
Gross margin	$	104,035		$	108,304			(4	)%
Gross margin percentage		58	%		56	%		2	%

The decrease in revenue, cost of sales and gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense) was primarily due to an 8% decrease in average operating horsepower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Our average operating horsepower decreased due to a deterioration in the economic climate in North America. Revenue for the three months ended June 30, 2009 benefited from the inclusion of $6.3 million in revenues from EMIT Water Discharge Technology, LLC (“EMIT”), which we acquired in July 2008. Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated, and presented in accordance with GAAP in “Selected Financial Data — Non-GAAP Financial Measure” of this report. Despite a $16.2 million decrease in revenue, gross margin decreased by only $4.3 million for the three months ended June 30, 2009 primarily due to an improved focus on managing operating costs.

International Contract Operations
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	95,448		$	91,768			4	%
Cost of sales (excluding depreciation and amortization expense)		37,897			36,467			4	%
Gross margin	$	57,551		$	55,301			4	%
Gross margin percentage		60	%		60	%		0	%

The increase in revenues during the three months ended June 30, 2009 was primarily due to a $4.1 million increase in revenues in Brazil, partially offset by contracts that ended in the first quarter of 2009. The increase in revenues in Brazil is the result of a project that commenced in early 2009 and accounted for $4.8 million of the increase in revenues during the second quarter of 2009.

Aftermarket Services
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	78,504		$	92,957			(16	)%
Cost of sales (excluding depreciation and amortization expense)		61,778			73,695			(16	)%
Gross margin	$	16,726		$	19,262			(13	)%
Gross margin percentage		21	%		21	%		0	%

The decrease in revenue, cost of sales and gross margin was primarily due to reduced sales in North America caused by a decline in market conditions. North America aftermarket services accounted for approximately 89% of the decrease in revenues for the three months ended June 30, 2009 compared to the three months ended June 30, 2008.

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Fabrication
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	325,561		$	394,044			(17	)%
Cost of sales (excluding depreciation and amortization expense)		275,561			355,284			(22	)%
Gross margin	$	50,000		$	38,760			29	%
Gross margin percentage		15	%		10	%		5	%

The decrease in revenue in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 was primarily due to a $42.4 million reduction in revenues in our production and processing equipment fabrication product line which was primarily caused by the completion of three large Total Solutions projects during 2008 and a reduction in new bookings caused by weaker market conditions. The increase in gross margin percentage (defined as gross margin divided by revenue) was primarily due to $31.8 million in cost overruns recorded on two Eastern Hemisphere projects in the second quarter of 2008.

Costs and Expenses
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2009			2008			(Decrease)
Selling, general and administrative	$	86,380		$	89,582			(4	)%
Merger and integration expenses		—			1,458			n/a
Depreciation and amortization		85,903			81,671			5	%
Fleet impairment		86,684			—			n/a
Restructuring charges		8,076			—			n/a
Goodwill impairment		150,778			—			n/a
Interest expense		29,163			30,125			(3	)%
Equity in (income) loss of non-consolidated affiliates		567			(6,962	)		(108	)%
Other (income) expense, net		(9,433	)		(5,705	)		65	%

The decrease in selling, general and administrative (“SG&A”) expense was primarily due to a decrease in business activity and an improved focus on reducing costs during the three months ended June 30, 2009 compared to the three months ended June 30, 2008, partially offset by a $3.5 million increase in bad debt expense. The increase in bad debt expense during the three months ended June 30, 2009 compared to the three months ended June 30, 2008 was primarily the result of an increase in our aged receivables caused by the current economic conditions. As a percentage of revenue, SG&A expense for the three months ended June 30, 2009 and 2008 was 13% and 12%, respectively.

Merger and integration expenses related to the merger between Hanover and Universal were $1.5 million during the three months ended June 30, 2008. These expenses were primarily related to retention bonuses, severance and other costs associated with integrating Hanover’s and Universal’s operations following the merger.

The increase in depreciation and amortization expense during the three months ended June 30, 2009 compared to the three months ended June 30, 2008 was primarily the result of property, plant and equipment additions. The three months ended June 30, 2009 also included $1.3 million in amortization expense attributable to the intangible assets associated with the July 2008 EMIT acquisition.

As a result of a decline in market conditions and operating horsepower in North America, during the second quarter of 2009, we reviewed the idle compression assets used in our contract operations segments for units that are not of the type, configuration, make or model that are cost efficient to maintain and operate. As a result of that review, we decided that 1,156 units representing 251,500 horsepower would be retired from the fleet. We performed a cash flow analysis of the expected proceeds from the disposition of these units to determine the fair value of the fleet assets we will no longer utilize in our operations. The net book value of these assets exceeded the fair value by $86.7 million, and the difference was recorded as a long-lived asset impairment in the second quarter of 2009. The impairment is recorded in Fleet impairment expense in the consolidated statements of operations.

Restructuring charges were $8.1 million for the three months ended June 30, 2009. These expenses were related to our efforts to adjust our costs to our forecasted business activity levels and included severance expenses associated with our workforce reductions impacting all of our operations, retention and employee benefit costs and other facility closure and moving costs resulting from our

34

decision to close our compression fabrication facility in Calgary, Alberta, and discontinue compression fabrication activities in Broken Arrow, Oklahoma. See Note 12 to the Financial Statements for further discussion of the restructuring charges.

We recorded a goodwill impairment charge of $150.8 million in the second quarter of 2009 related to our international contract operations segment. See Note 6 to the Financial Statements for further discussion of this charge.

The decrease in interest expense during the three months ended June 30, 2009 compared to the three months ended June 30, 2008, was primarily due to a decrease in our weighted average effective interest rate, including the impact of interest rate swaps, to 4.4% for the three months ended June 30, 2009 from 5.1% for the three months ended June 30, 2008. This decrease was partially offset by a higher average debt balance during the three months ended June 30, 2009, compared to the three months ended June 30, 2008.

The reduction in equity in income of non-consolidated affiliates was the result of our first quarter 2009 impairment of the majority of our investments in non-consolidated affiliates, all of which were located in Venezuela. We currently do not expect to have significant, if any, equity earnings in non-consolidated affiliates in the future from these investments. Our non-consolidated affiliates are expected to seek full compensation for any and all expropriated assets and investments under all applicable legal regimes, including investment treaties and customary international law, which could result in us recording a gain on our investment in future periods. However, we are unable to predict what, if any, compensation we ultimately will receive. See Note 7 to the Financial Statements for further discussion of the impairment of our investments in non-consolidated affiliates in the first quarter of 2009.

The change in other (income) expense, net was primarily due to a $7.9 million increase in gains on asset sales in the three months ended June 30, 2009. The change in other (income) expense, net was also impacted by a foreign currency translation loss of $1.3 million for the three months ended June 30, 2009 compared to a loss of $0.1 million for the three months ended June 30, 2008. Our foreign currency translation gains and losses are primarily related to the remeasurement of our international subsidiaries’ net assets exposed to changes in foreign currency rates and a $0.1 million gain on a foreign currency hedge in the three months ended June 30, 2009. The increase in the foreign currency translation loss for the three months ended June 30, 2009 was primarily caused by the U.S. dollar weakening against the Euro during the current period.

Income Taxes
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2009			2008			(Decrease)
Provision for (benefit from) income taxes	$	(23,177	)	$	15,314			(251	)%
Effective tax rate		11.0	%		48.7	%		(37.7	)%

The decrease in our provision for income taxes was primarily due to lower income before income taxes, excluding a $150.8 million non-deductible goodwill impairment charge for the three months ended June 30, 2009.

Discontinued Operations
(dollars in thousands)

	Three months ended
	June 30,					Increase
	2009			2008		(Decrease)
Income (loss) from discontinued operations, net of tax	$	(343,323	)	$	8,759		(4,020	)%

As discussed in Note 2 to the Financial Statements, on June 2, 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela. As of June 30, 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments totaling $377.9 million, primarily related to receivables, inventory, fixed assets and goodwill, in the second quarter of 2009. These asset impairments were partially offset by a tax benefit of $28.7 million in the three months ended June 30, 2009 compared to a provision for income taxes of $1.8 million in the three months ended June 30, 2008.

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THE SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2008

Summary of Business Segment Results

North America Contract Operations
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	372,848		$	393,683			(5	)%
Cost of sales (excluding depreciation and amortization expense)		158,125			174,591			(9	)%
Gross margin	$	214,723		$	219,092			(2	)%
Gross margin percentage		58	%		56	%		2	%

The decrease in revenue, cost of sales and gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense) was primarily due to a 7% decrease in average operating horsepower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. Our average operating horsepower decreased due to a deterioration in the economic climate in North America. Revenue for the six months ended June 30, 2009 benefited from the inclusion of $13.2 million in revenues of EMIT, which we acquired in July 2008. Gross margin percentage increased during the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to a continuing focus on managing operating costs.

International Contract Operations
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	186,127		$	178,708			4	%
Cost of sales (excluding depreciation and amortization expense)		70,702			66,249			7	%
Gross margin	$	115,425		$	112,459			3	%
Gross margin percentage		62	%		63	%		(1	)%

The increase in revenues in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily caused by an increase in revenue in the Middle East and Brazil of approximately $8.7 million and $3.9 million, respectively, due to the start up of new contracts in these regions. This was partially offset by a decrease in revenues in Mexico of $6.2 million as a result of the expiration of a large contract.

Aftermarket Services
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	154,035		$	172,578			(11	)%
Cost of sales (excluding depreciation and amortization expense)		121,532			137,261			(11	)%
Gross margin	$	32,503		$	35,317			(8	)%
Gross margin percentage		21	%		20	%		1	%

The decrease in revenue, cost of sales and gross margin was primarily due to reduced sales in North America caused by a decline in market conditions. North America aftermarket services accounted for approximately 83% of the decrease in revenues for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

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Fabrication
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2009			2008			(Decrease)
Revenue	$	668,170		$	730,993			(9	)%
Cost of sales (excluding depreciation and amortization expense).		562,275			619,027			(9	)%
Gross margin	$	105,895		$	111,966			(5	)%
Gross margin percentage		16	%		15	%		1	%

The decrease in revenue in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily due to a $48.0 million reduction in revenues in our compressor and accessory fabrication product line which was primarily caused by the completion of three large Total Solutions projects and a deterioration in market conditions impacting our fabrication business. The increase in gross margin percentage was due to $31.8 million in cost overruns recorded on two Eastern Hemisphere projects in the second quarter of 2008.

Costs and Expenses
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2009			2008			(Decrease)
Selling, general and administrative	$	171,491		$	173,079			(1	)%
Merger and integration expenses		—			5,891			n/a
Depreciation and amortization		167,976			162,310			3	%
Fleet impairment		86,684			1,450			5,878	%
Restructuring charges		15,380			—			n/a
Goodwill impairment		150,778			—			n/a
Interest expense		55,897			63,336			(12	)%
Equity in (income) loss of non-consolidated affiliates		91,684			(13,055	)		(802)	%
Other (income) expense, net		(12,795	)		(15,658	)		(18	)%

The decrease in SG&A expense was primarily due to a decrease in business activity and an improved focus on reducing costs during the six months ended June 30, 2009 compared to the six months ended June 30, 2008, partially offset by a $2.9 million increase in bad debt expense. The increase in bad debt expense during the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily the result of an increase in our aged receivables caused by the current economic conditions. As a percentage of revenue, SG&A expense for each of the six month periods ended June 30, 2009 and 2008 was 12%.

Merger and integration expenses related to the merger between Hanover and Universal were $5.9 million during the six months ended June 30, 2008. These expenses were primarily related to retention bonuses, severance and other costs associated with integrating Hanover’s and Universal’s operations following the merger.

The increase in depreciation and amortization expense during the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily the result of property, plant and equipment additions. The six months ended June 30, 2009 also included $1.9 million in amortization expense attributable to the intangible assets associated with the July 2008 EMIT acquisition.

As a result of a decline in market conditions and operating horsepower in North America, during the second quarter of 2009, we reviewed the idle compression assets used in our contract operations segments for units that are not of the type, configuration, make or model that are cost efficient to maintain and operate. As a result of that review, we decided that 1,156 units representing 251,500 horsepower would be retired from the fleet. We performed a cash flow analysis of the expected proceeds from the disposition of these units to determine the fair value of the fleet assets we will no longer utilize in our operations. The net book value of these assets exceeded the fair value by $86.7 million, and the difference was recorded as a long-lived asset impairment in the second quarter of 2009. The impairment is recorded in Fleet impairment expense in the consolidated statements of operations. During the first quarter of 2008, management identified certain fleet units that will not be used in our contract operations business in the future and recorded a $1.5 million impairment in the first quarter of 2008.

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Restructuring charges were $15.4 million for the six months ended June 30, 2009. These expenses were to adjust our costs to our forecasted business activity levels and included a facility impairment, severance, retention and employee benefit costs and other facility closure and moving costs resulting from our decision to close our compression fabrication facility in Calgary, Alberta, and discontinue compression fabrication activities in Broken Arrow, Oklahoma. See Note 12 to the Financial Statements for further discussion of the restructuring charges.

We recorded a goodwill impairment charge of $150.8 million in the second quarter of 2009 related to our international contract operations segment. See Note 6 to the Financial Statements for further discussion of this charge.

The decrease in interest expense during the six months ended June 30, 2009 compared to the six months ended June 30, 2008, was primarily due to a decrease in our weighted average effective interest rate, including the impact of interest rate swaps, to 4.3% for the six months ended June 30, 2009 from 5.4% for the six months ended June 30, 2008. This decrease was partially offset by a higher average debt balance during the six months ended June 30, 2009, compared to the six months ended June 30, 2008.

The loss recorded in equity in (income) loss of non-consolidated affiliates was the result of our first quarter 2009 impairment of the majority of our investments in non-consolidated affiliates, all of which were located in Venezuela. We currently do not expect to have significant, if any, equity earnings in non-consolidated affiliates in the future from these investments. Our non-consolidated affiliates are expected to seek full compensation for any and all expropriated assets and investments under all applicable legal regimes, including investments treaties and customary international law, which could result in us recording a gain on our investment in future periods. However, we are unable to predict what, if any, compensation we ultimately will receive. See Note 7 to the Financial Statements for further discussion of the impairment of our investments in non-consolidated affiliates in the first quarter of 2009.

The change in other (income) expense, net, was primarily due to a foreign currency translation loss of $1.0 million for the six months ended June 30, 2009 compared to a gain of $8.4 million for the six months ended June 30, 2008. Our foreign currency translation gains and losses are primarily related to the remeasurement of our international subsidiaries’ net assets exposed to changes in foreign currency rates and a $0.3 million loss on a foreign currency hedge in the six months ended June 30, 2009. The increase in the foreign currency translation loss for the six months ended June 30, 2009 was primarily caused by the movement of various currencies against the Euro during the current period. The change in other (income) expense, net was also impacted by a $8.7 million increase in gains on asset sales in the six months ended June 30, 2009.

Income Taxes
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2009			2008			(Decrease)
Provision for (benefit from) income taxes	$	(12,214	)	$	43,148			(128	)%
Effective tax rate		4.7	%		42.5	%		(37.8	)%

The decrease in our provision for income taxes was primarily due to lower income before income taxes, excluding $97.1 million of impairment charges reflected in equity in income (loss) of non-consolidated affiliates and a $150.8 million non-deductible goodwill impairment charge for the six months ended June 30, 2009. The provision was further decreased for the six months ended June 30, 2009 for an $8.4 million deferred tax benefit related to the impairment of our investments in non-consolidated affiliates.

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Discontinued Operations
(dollars in thousands)

	Six months ended
	June 30,					Increase
	2009			2008		(Decrease)
Income (loss) from discontinued operations, net of tax	$	(341,517	)	$	18,584		(1,938	)%

As discussed in Note 2 to the Financial Statements, on June 2, 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela. As of June 30, 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments totaling $377.9 million, primarily related to receivables, inventory, fixed assets and goodwill, in the second quarter of 2009. These asset impairments were partially offset by a benefit from income taxes of $22.6 million in the six months ended June 30, 2009 compared to a provision for income taxes of $3.9 million in the six months ended June 30, 2008.

Noncontrolling Interest

As of June 30, 2009, noncontrolling interest is primarily comprised of the portion of the Partnership’s capital and earnings that is applicable to the limited partner interest in the Partnership not owned by us.

LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted cash balance was $101.2 million at June 30, 2009, compared to $123.9 million at December 31, 2008. Working capital decreased to $664.9 million at June 30, 2009 from $777.9 million at December 31, 2008.

Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the table below (in thousands):

	Six Months Ended
	June 30,
	2009			2008
Net cash provided by (used in) continuing operations:
Operating activities	$	140,827		$	248,961
Investing activities		(210,453	)		(234,973	)
Financing activities		41,668			(61,690	)
Discontinued Operations		—			2,632
Effect of exchange rate changes on cash and cash equivalents		5,218			3,253
Net change in cash and cash equivalents	$	(22,740	)	$	(41,817	)

Operating Activities:The decrease in cash provided by operating activities for the six months ended June 30, 2009 was primarily due to an increase in cash used for inventory and accounts payable and a decrease in cash provided from deferred revenue as compared to the six months ended June 30, 2008.

Investing Activities:The decrease in cash used in investing activities during the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily attributable to approximately $25 million cash paid for an acquisition in the first quarter of 2008, partially offset by reduced proceeds from the sale of property, plant and equipment.

Financing Activities:The increase in cash provided by financing activities during the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily attributable to higher net borrowings in the six months ended June 30, 2009 compared to the six months ended June 30, 2008, partially offset by the net cost of the call options purchased and the warrants sold in connection with the offering of the 4.25% convertible senior notes due June 2014 (the “4.25% Notes”).

Capital Expenditures.We generally invest funds necessary to fabricate fleet additions when our idle equipment cannot be reconfigured to economically fulfill a project’s requirements and the new equipment expenditure is expected to generate economic returns over its expected useful life that exceed our return on capital targets. We currently plan to spend approximately $400 million to $425 million in net capital expenditures during 2009, including (1) contract operations equipment additions and (2) approximately $110 million to $120 million on equipment maintenance capital related to our contract operations business. Net capital expenditures

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are net of fleet sales.

Credit and Financial Industry Environment.The continuing credit crisis and related turmoil in the global financial system may have an impact on our business and our financial condition. For example, in September 2008, Lehman Brothers, one of the lenders under our $1.65 billion senior secured credit facility, filed for bankruptcy protection. As a result, our ability to borrow under this facility has been reduced by $5.3 million as of June 30, 2009, resulting in $380.7 million in remaining unfunded commitments that, as of June 30, 2009, were available under our revolving credit facility. Our ability to borrow under this facility could be further reduced in the future by up to $6.3 million as of June 30, 2009, which represents Lehman Brothers’ pro rata portion of outstanding borrowings and letters of credit under our revolving credit facility at June 30, 2009. If any other lender under our revolving credit facility or the Partnership’s revolving credit facility is not able to perform its obligations under those facilities, our borrowing capacity could be further reduced. Inability to borrow additional amounts under those facilities could limit our ability to fund our future growth and operations.

The global financial crisis could also have an impact on our derivative agreements if our counterparties are unable to perform their obligations under those agreements. At June 30, 2009, the combined liability related to our outstanding derivative agreements was $83.0 million.

Although we cannot predict the impact that the credit market crisis will have on the lenders in our credit facilities, we currently do not believe that it will have a material adverse effect on our financial position, results of operations or cash flows. We continue to closely monitor these situations and our legal rights under our contractual relationships with these and other lender or counterparty entities.

Long-Term Debt and Debt Refinancing. On August 20, 2007, we entered into a senior secured credit agreement (the “Credit Agreement”) with various financial institutions. The Credit Agreement consists of (a) a five-year revolving credit facility in the aggregate amount of $850 million, which includes a variable allocation for a Canadian tranche and the ability to issue letters of credit under the facility and (b) a six-year term loan senior secured credit facility, in the aggregate amount of $800 million with principal payments due on multiple dates through June 2013 (collectively, the “Credit Facility”). Subject to certain conditions as of June 30, 2009, at our request and with the approval of the lenders, the aggregate commitments under the Credit Facility may be increased by an additional $300 million less certain adjustments.

Borrowings under the Credit Agreement bear interest, if they are in U.S. dollars, at a base rate or LIBOR at our option plus an applicable margin, as defined in the agreement. The applicable margin varies depending on our debt ratings. At June 30, 2009, all amounts outstanding were LIBOR loans and the applicable margin was 0.825%. The weighted average interest rate at June 30, 2009 on the outstanding balance, excluding the effect of interest rate swaps, was 1.3%.

The Credit Agreement contains various covenants with which we must comply, including, but not limited to, limitations on incurrence of indebtedness, investments, liens on assets, transactions with affiliates, mergers, consolidations, sales of assets and other provisions customary in similar types of agreements. We must also maintain, on a consolidated basis, required leverage and interest coverage ratios. Additionally, the Credit Agreement contains customary conditions, representations and warranties, events of default and indemnification provisions. Our indebtedness under the Credit Facility is collateralized by liens on substantially all of our personal property in the U.S. The assets of the Partnership and our wholly-owned subsidiary, Exterran ABS 2007 LLC (along with its subsidiary, “Exterran ABS”), are not collateral under the Credit Agreement. Exterran Canada, Limited Partnership’s indebtedness under the Credit Facility is collateralized by liens on substantially all of its personal property in Canada. We have executed a U.S. Pledge Agreement pursuant to which we and our Significant Subsidiaries (as defined in the Credit Agreement) are required to pledge our equity and the equity of certain subsidiaries. The Partnership and Exterran ABS are not pledged under this agreement and do not guarantee debt under the Credit Facility.

As of June 30, 2009, we had $155.0 million in outstanding borrowings and $309.1 million in letters of credit outstanding under our revolving credit facility. Additional borrowings of up to approximately $380.7 million were available under that facility as of June 30, 2009, after taking into account Lehman Brothers’ inability to fund future amounts (see — Credit and Financial Industry Environment). Our ability to borrow under this facility could be further reduced in the future by up to $6.3 million as of June 30, 2009, which represents Lehman Brothers’ pro rata portion of outstanding borrowings and letters of credit under our revolving credit facility at June 30, 2009.

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In August 2007, Exterran ABS entered into a $1.0 billion asset-backed securitization facility (the “2007 ABS Facility”). As of June 30, 2009, we had $765.0 million in outstanding borrowings under the 2007 ABS Facility. Interest and fees payable to the noteholders accrue on these notes at a variable rate consisting of one month LIBOR plus an applicable margin. For outstanding amounts up to $800 million, the applicable margin is 0.825%. For amounts outstanding over $800 million, the applicable margin is 1.35%. The weighted average interest rate at June 30, 2009 on borrowings under the 2007 ABS Facility, excluding the effect of interest rate swaps, was 1.2%.

Repayment of the 2007 ABS Facility notes has been secured by a pledge of all of the assets of Exterran ABS, consisting primarily of a fleet of natural gas compressors and the related contracts to provide compression services to our customers. Under the 2007 ABS Facility, we had $8.0 million of restricted cash as of June 30, 2009.

In June 2009, we issued under our shelf registration statement $355.0 million aggregate principal amount of 4.25% Notes, including $30.0 million issued under the underwriter’s overallotment option. The 4.25% Notes are convertible into shares of our common stock at an initial conversion rate of 43.1951 shares of our common stock per $1,000 principal amount of the convertible notes, equivalent to an initial conversion price of approximately $23.15 per share of common stock. The conversion rate will be subject to adjustment following certain dilutive events and certain corporate transactions. We may not redeem the notes prior to the maturity date of the notes.

The 4.25% Notes are our senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the 4.25% Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and liabilities incurred by our subsidiaries. The 4.25% Notes are not guaranteed by any of our subsidiaries.

In connection with the offering of the 4.25% Notes, we purchased call options on our stock at approximately $23.15 per share of common stock and sold warrants on our stock at approximately $32.67 per share of common stock. These transactions economically adjust the effective conversion price to $32.67 for $325.0 million of the 4.25% Notes and therefore are expected to reduce the potential dilution to our common stock upon any such conversion.

We used $36.3 million of the net proceeds from this debt offering and the full $53.1 million of the proceeds from the warrants sold to pay the cost of the purchased call options, and the remaining net proceeds from this debt offering to repay approximately $173.8 million of indebtedness under our revolving credit facility and approximately $135.0 million of indebtedness outstanding under the 2007 ABS Facility.

The Partnership, as guarantor, and EXLP Operating LLC, a wholly-owned subsidiary of the Partnership (together with the Partnership, the “Partnership Borrowers”), are parties to a five-year, $315 million senior secured credit agreement that matures in October 2011 (the “Partnership Credit Agreement”). As of June 30, 2009, there was $270.3 million in outstanding borrowings under the revolving credit facility and $44.8 million was available for additional borrowings.

The Partnership’s revolving credit facility bears interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin, as defined in the agreement. At June 30, 2009 all amounts outstanding were LIBOR loans and the applicable margin was 1.5%. The weighted average interest rate on the outstanding balance of the Partnership’s revolving credit facility, at June 30, 2009, excluding the effect of interest rate swaps, was 2.3%.

In May 2008, the Partnership Borrowers entered into an amendment to the Partnership Credit Agreement that increased the aggregate commitments under that facility to provide for a $117.5 million term loan facility. The $117.5 million term loan was funded during July 2008 and $58.3 million was drawn on the Partnership’s revolving credit facility, which together were used to repay the debt assumed by the Partnership concurrent with the closing of the acquisition by the Partnership from us of certain contract operations customer service agreements and compressor units used to provide compression services under those agreements and to pay other costs incurred. The $117.5 million term loan is non-amortizing but must be repaid with the net proceeds from any equity offerings of the Partnership until paid in full.

The term loan bears interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin. Borrowings under the term loan are subject to the same credit agreement and covenants as the Partnership’s revolving credit facility, except for an additional covenant requiring mandatory prepayment of the term loan from net cash proceeds of any future equity offerings of the Partnership, on a dollar-for-dollar basis. At June 30, 2009, all amounts outstanding were LIBOR loans and the applicable margin was 2.0%. The

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weighted average interest rate on the outstanding balance of the Partnership’s term loan at June 30, 2009, excluding the effect of interest rate swaps, was 2.3%.

Borrowings under the Partnership Credit Agreement are secured by substantially all of the personal property assets of the Partnership Borrowers and mature in October 2011. In addition, all of the membership interests of the Partnership’s restricted subsidiaries have been pledged to secure the obligations under the Partnership Credit Agreement. Subject to certain conditions, at the Partnership’s request, and with the approval of the lenders, the aggregate commitments under the Partnership’s senior secured credit facility may be increased by an additional $17.5 million. This amount will be increased on a dollar-for-dollar basis with each payment under the term loan facility.

The Partnership Credit Agreement contains various covenants with which the Partnership must comply, including restrictions on the use of proceeds from borrowings and limitations on its ability to: incur additional debt or sell assets, make certain investments and acquisitions, grant liens and pay dividends and distributions. The Partnership must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Partnership Credit Agreement) to Total Interest Expense (as defined in the Partnership Credit Agreement) of not less than 2.5 to 1.0, and a ratio of Total Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 5.0 to 1.0. As of June 30, 2009, the Partnership maintained a 4.5 to 1.0 EBITDA to Total Interest Expense ratio and a 4.4 to 1.0 Total Debt to EBITDA ratio. As of June 30, 2009, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

As of June 30, 2009, we had approximately $2.5 billion in outstanding debt obligations, consisting of $765.0 million outstanding under the 2007 ABS Facility, $800.0 million outstanding under our term loan, $155.0 million outstanding under our revolving credit facility, $143.8 million outstanding under our 4.75% convertible notes, $258.0 million outstanding under our 4.25% convertible notes, $270.3 million outstanding under the Partnership’s revolving credit facility and $117.5 million outstanding under the Partnership’s term loan.

Our bank credit facilities, asset-backed securitization facility and the agreements governing certain of our other indebtedness include various covenants with which we must comply, including, but not limited to, limitations on incurrence of indebtedness, investments, liens on assets, transactions with affiliates, mergers, consolidations, sales of assets and other provisions customary in similar types of agreements. For example, we must maintain various consolidated financial ratios including a ratio of EBITDA (as defined in the Credit Agreement) to Total Interest Expense (as defined in the Credit Agreement) of not less than 2.25 to 1.0, a ratio of consolidated Total Debt (as defined in the Credit Agreement) to EBITDA of not greater than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined in the Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. As of June 30, 2009, we maintained a 7.3 to 1.0 EBITDA to Total Interest Expense ratio, a 3.1 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.6 to 1.0 Senior Secured Debt to EBITDA ratio. A default under one or more of our debt agreements would in some situations trigger cross-default provisions under certain agreements relating to our debt obligations. As of June 30, 2009, we were in compliance with all financial covenants under our credit agreements. If our operations in Venezuela had been excluded from our calculation of EBITDA as of June 30, 2009, we would have had a 6.6 to 1.0 EBITDA to Total Interest Expense ratio, a 3.5 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.9 to 1.0 Senior Secured Debt to EBITDA ratio.

We have entered into interest rate swap agreements related to a portion of our variable rate debt. See Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk” for further discussion of our interest rate swap agreements.

		Standard
	Moody’s	& Poor’s
Outlook	Stable	Stable
Corporate Family Rating	Ba2	BB
Exterran Senior Secured Credit Facility	Ba2	BB+
4.75% convertible senior notes due January 2014	—	BB
4.25% convertible senior notes due June 2014	—	BB

Historically, we have financed capital expenditures with a combination of net cash provided by operating and financing activities. As a result of the economic slowdown and the declines in both our stock price and the availability of equity and debt capital in the public markets, our ability to access the capital markets may be restricted at a time when we would like, or need, to do so, which could have an impact on our ability to grow. Additionally, PDVSA has assumed control over substantially all of our assets and operations in Venezuela, as discussed further in Note 2 to the Financial Statements. However, based on current market conditions, we expect that net cash provided by operating activities will be sufficient to finance our operating expenditures, capital expenditures and scheduled interest and debt repayments through December 31, 2009, but to the extent it is not, we may borrow additional funds under our credit

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facilities or we may obtain additional debt or equity financing.

Stock Repurchase Program.On August 20, 2007, our board of directors authorized the repurchase of up to $200 million of our common stock through August 19, 2009. In December 2008, our board of directors increased the share repurchase program, from $200 million to $300 million, and extended the expiration date of the authorization, from August 19, 2009 to December 15, 2010. Since the program was initiated, we have repurchased 5,416,221 shares of our common stock at an aggregate cost of approximately $199.9 million. We did not repurchase any shares under this program during the six months ended June 30, 2009.

Dividends.We have not paid any cash dividends on our common stock since our formation, and we do not anticipate paying such dividends in the foreseeable future. Our board of directors anticipates that all cash flows generated from operations in the foreseeable future will be retained and used to repay our debt, repurchase our stock or develop and expand our business. Any future determinations to pay cash dividends on our common stock will be at the discretion of our board of directors and will depend on our results of operations and financial condition, credit and loan agreements in effect at that time and other factors deemed relevant by our board of directors.

Partnership Distributions to Unitholders.The Partnership’s partnership agreement requires it to distribute all of its “available cash” quarterly. Under the partnership agreement, available cash is defined generally to mean, for each fiscal quarter, (1) cash on hand at the Partnership at the end of the quarter in excess of the amount of reserves its general partner determines is necessary or appropriate to provide for the conduct of its business, to comply with applicable law, any of its debt instruments or other agreements or to provide for future distributions to its unitholders for any one or more of the upcoming four quarters, plus, (2) if the Partnership’s general partner so determines, all or a portion of the Partnership’s cash on hand on the date of determination of available cash for the quarter.

Under the terms of the partnership agreement, there is no guarantee that unitholders will receive quarterly distributions from the Partnership. The Partnership’s distribution policy, which may be changed at any time, is subject to certain restrictions, including (1) restrictions contained in the Partnership’s revolving credit facility, (2) the Partnership’s general partner’s establishment of reserves to fund future operations or cash distributions to the Partnership’s unitholders, (3) restrictions contained in the Delaware Revised Uniform Limited Partnership Act and (4) the Partnership’s lack of sufficient cash to pay distributions.

Through our ownership of common and subordinated units and all of the equity interests in the general partner of the Partnership, we expect to receive cash distributions from the Partnership. Our rights to receive distributions of cash from the Partnership as holder of subordinated units are subordinated to the rights of the common unitholders to receive such distributions.

On July 30, 2009, the board of directors of Exterran GP LLC approved a cash distribution of $0.4625 per limited partner unit, or approximately $9.3 million, including distributions to the Partnership’s general partner on its incentive distribution rights. The distribution covers the period from April 1, 2009 through June 30, 2009. The record date for this distribution is August 10, 2009 and payment is expected to occur on August 14, 2009.

NON-GAAP FINANCIAL MEASURE

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by our management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. We believe gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with SG&A activities, the impact of our financing methods and income taxes. Depreciation expense may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

Gross margin has certain material limitations associated with its use as compared to net income (loss). These limitations are primarily due to the exclusion of interest expense, depreciation and amortization expense and SG&A expense. Each of these excluded expenses is material to our consolidated results of operations. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. Additionally, because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue, and SG&A expenses are necessary costs to support our operations and required corporate activities. To compensate for these limitations, management uses this non-GAAP

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measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

For a reconciliation of gross margin to net income (loss), see Note 17 to the Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

We have no material off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks primarily associated with changes in interest rates and foreign currency exchange rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We also use derivative financial instruments to minimize the risks caused by currency fluctuations in certain foreign currencies. We do not use derivative financial instruments for trading or other speculative purposes.

As of June 30, 2009, after taking into consideration interest rate swaps, we had approximately $662.8 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1.0% increase in interest rates would result in an annual increase in our interest expense of approximately $6.6 million.

For further information regarding our use of interest rate swap agreements to manage our exposure to interest rate fluctuations on a portion of our debt obligations and derivative instruments to minimize foreign currency exchange risk, see Note 9 to the Financial Statements.

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2009. Based on the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows; however, because of the inherent uncertainty of litigation, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows for the period in which the resolution occurs.

Item 1A. Risk Factors

There have been no material changes or updates in our risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, except as follows:

The tax treatment of publicly traded partnerships or our investment in the Partnership could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including the Partnership, or our investment in the Partnership may be modified by administrative, legislative or judicial interpretation at any time. For example, judicial interpretations of the U.S. federal income tax laws may have a direct or indirect impact on the Partnership’s status as a partnership and, in some instances, a court’s conclusions may heighten the risk of a challenge regarding the Partnership’s status as a partnership. Moreover, members of Congress have considered substantive changes to the existing U.S. federal income tax laws that would have affected publicly traded partnerships. Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be applied retroactively. Although the legislation considered would not have appeared to affect the Partnership’s tax treatment as a partnership, we are unable to predict whether any of these changes, or other proposals, will be reconsidered or will ultimately be enacted. Any such changes or differing judicial interpretations of existing laws could negatively impact the value of our investment in the Partnership.

There are many risks associated with conducting operations in international markets.

We operate in many geographic markets outside the U.S., which entails difficulties associated with staffing and managing our international operations and complying with legal and regulatory requirements. Changes in local economic or political conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows. For example, as discussed in Note 2 to the Financial Statements, PDVSA has recently assumed control over substantially all of our assets and operations in Venezuela. The risks inherent in our international business activities include the following:

• difficulties in managing international operations, including our ability to timely and cost effectively execute projects;

• unexpected changes in regulatory requirements;

• training and retaining qualified personnel in international markets;

• inconsistent product regulation or sudden policy changes by foreign agencies or governments;

• the burden of complying with multiple and potentially conflicting laws;

• tariffs and other trade barriers;

• governmental actions that result in the deprivation of contract rights, including possible law changes, and other difficulties in enforcing contractual obligations;

• governmental actions that result in restricting the movement of property;

• foreign currency exchange rate risks;

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• difficulty in collecting international accounts receivable;

• potentially longer receipt of payment cycles;

• changes in political and economic conditions in the countries in which we operate, including general political unrest, the nationalization of energy related assets, civil uprisings, riots, kidnappings and terrorist acts;

• the potential risks relating to the retention of sales representatives, consultants and other agents in certain high-risk countries;

• potentially adverse tax consequences or tax law changes;

• currency controls or restrictions on repatriation of earnings or expropriation of property without fair compensation;

• the risk that our international customers may have reduced access to credit because of higher interest rates, reduced bank lending or a deterioration in our customers’ or their lenders’ financial condition;

• the geographic, time zone, language and cultural differences among personnel in different areas of the world; and

• difficulties in establishing new international offices and risks inherent in establishing new relationships in foreign countries.

In addition, we plan to expand our business into international markets where we have not previously conducted business. The risks inherent in establishing new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect our ability to be successful in these ventures or avoid losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Covenants in our debt agreements may impair our ability to operate our business.

Our bank credit facilities, asset-backed securitization facility and the agreements governing certain of our other indebtedness include various covenants with which we must comply, including, but not limited to, limitations on incurrence of indebtedness, investments, liens on assets, transactions with affiliates, mergers, consolidations, sales of assets and other provisions customary in similar types of agreements. For example, we must maintain various consolidated financial ratios including a ratio of EBITDA (as defined in the Credit Agreement) to Total Interest Expense (as defined in the Credit Agreement) of not less than 2.25 to 1.0, a ratio of consolidated Total Debt (as defined in the Credit Agreement) to EBITDA of not greater than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined in the Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. As of June 30, 2009, we maintained a 7.3 to 1.0 EBITDA to Total Interest Expense ratio, a 3.1 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.6 to 1.0 Senior Secured Debt to EBITDA ratio. As of June 30, 2009, we were in compliance with all financial covenants under our credit agreements. A default under one or more of our debt agreements would in some situations trigger cross-default provisions under certain agreements relating to our debt obligations. If our operations in Venezuela had been excluded from our calculation of EBITDA as of June 30, 2009, we would have had a 6.6 to 1.0 EBITDA to Total Interest Expense ratio, a 3.5 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.9 to 1.0 Senior Secured Debt to EBITDA ratio.

The Partnership’s credit facility also includes covenants limiting its ability to make distributions, incur indebtedness, grant liens, merge, make loans, acquisitions, investments or dispositions and engage in transactions with affiliates. The Partnership must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Partnership Credit Agreement) to Total Interest Expense (as defined in the Partnership Credit Agreement) of not less than 2.5 to 1.0, and a ratio of Total Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 5.0 to 1.0. As of June 30, 2009, the Partnership maintained a 4.5 to 1.0 EBITDA to Total Interest Expense ratio and a 4.4 to 1.0 Total Debt to EBITDA ratio. As of June 30, 2009, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

If we continue to experience a significant deterioration in the demand for our services, we may not be able to comply with certain of the covenants associated with our indebtedness. The breach of any of our covenants could result in a default under one or more of our debt agreements, which could cause our indebtedness under those agreements to become due and payable. In addition, a default under one or more of our debt agreements, including a default by the Partnership under the Partnership Credit Agreement, would in some situations trigger cross-default provisions under certain agreements relating to our debt obligations, which would accelerate our obligation to repay our indebtedness under those agreements. If the Partnership continues to experience a significant deterioration in the demand for its services, it may not be able to comply with certain of the covenants associated with its indebtedness before the end

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of 2009. If the repayment obligations on any of our indebtedness were to be so accelerated, we may not be able to repay the debt or refinance the debt on acceptable terms, and our financial position would be materially adversely affected.

New proposed regulations under the Clean Air Act, if implemented, could result in increased compliance costs.

In March 2009, the Environmental Protection Agency (“EPA”) formally proposed new regulations under the Clean Air Act (“CAA”) to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. The rule, if and when finalized by the EPA, may require us to undertake significant expenditures, including expenditures for installing pollution control equipment such as oxidation catalysts or non-selective catalytic reduction equipment, imposing more stringent maintenance practices, and implementing additional monitoring practices on a significant percentage of our natural gas compressor engine fleet. At this point, we cannot predict the final regulatory requirements or the cost to comply with such requirements. The comment period on the proposed regulation ended on June 3, 2009. Under the proposal, compliance will be required by three years from the effective date of the final rule. This proposed rule and any other new regulations requiring the installation of more sophisticated emission control equipment could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Climate change legislation and regulatory initiatives could result in increased compliance costs.

Scientific studies suggest that emissions of certain gases, commonly referred to as “greenhouse gases,” such as carbon dioxide and methane, may be contributing to climatic changes in the Earth’s atmosphere. In response to such studies, President Obama has expressed support for, and it is anticipated that the U.S. Congress will continue actively to consider, legislation to restrict or regulate emissions of greenhouse gases. The American Clean Energy and Security Act of 2009, narrowly approved by the U.S. House of Representatives on June 26, 2009, could if enacted by the full Congress require greenhouse gas emissions reductions by covered sources of as much as 17% from 2005 levels by 2020 and by as much as 83% by 2050. The debate over federal climate legislation has moved on to the Senate, which has now commenced committee hearings and consideration of related legislation, with the Senate’s leadership targeting this legislation for further action toward the end of September 2009. In addition, more than one-third of the states, either individually or through multi-state regional initiatives, have begun to address greenhouse gas emissions, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs. Although most of the state-level initiatives have to date been focused on large sources of greenhouse gas emissions, such as electric power plants, it is possible that small sources such as gas-fired compressors could be subject to greenhouse gas-related regulation. Depending on the particular program, we could be required to control emissions or to purchase and surrender allowances for greenhouse gas emissions resulting from our operations.

Also, as a result of the U.S. Supreme Court’s decision on April 2, 2007 inMassachusetts, et al. v. EPA, the EPA may regulate greenhouse gas emissions from mobile sources such as new motor vehicles, even if Congress does not adopt new legislation specifically addressing emissions of greenhouse gases. The Court’s holding inMassachusettsthat greenhouse gases including carbon dioxide fall under the CAA’s definition of “air pollutant” may also result in future regulation of carbon dioxide and other greenhouse gas emissions from stationary sources. In July 2008, the EPA released an “Advance Notice of Proposed Rulemaking” regarding possible future regulation of greenhouse gas emissions under the CAA, in response to the Supreme Court’s decision inMassachusetts. In the notice, the EPA evaluated the potential regulation of greenhouse gases under several different provisions of the CAA, but did not propose any specific, new regulatory requirements for greenhouse gases. The notice and two recent developments suggest that the EPA is beginning to pursue a path toward the regulation of greenhouse gas emissions under its existing CAA authority. First, in April 2009, the EPA proposed a new rule requiring approximately 13,000 facilities comprising a substantial percentage of annual U.S. greenhouse gas emissions to inventory and report their greenhouse gas emissions to the EPA beginning in 2011. Second, also in April 2009, the EPA responded to theMassachusettscase by issuing a proposed “endangerment finding” under section 202(a)(1) of the CAA concluding that greenhouse gas emissions from new motor vehicles are reasonably anticipated to endanger public health and welfare. If finalized, this finding may trigger a variety of regulatory consequences including obligations on the EPA to impose limits on greenhouse gas emissions from new motor vehicles. Further, the endangerment finding could be used by the EPA as a basis to impose limits on greenhouse gas emissions from certain categories of stationary sources. Both proposals are subject to a period of public comment, may or may not be adopted in the form proposed, and may be subject to judicial challenges upon adoption. Although it is not possible at this time to predict how Congressional or state legislation that may be enacted or new EPA or other regulations that may be adopted to address greenhouse gas emissions would impact our business, any such new federal, state or local regulation of carbon dioxide or other greenhouse gas emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Item 4. Submission of Matters to a Vote of Security Holders

At our Annual Meeting of Stockholders held on April 30, 2009, we presented the following matters to the stockholders for action and the votes cast are indicated below:

	For		Withheld
1. Election of the following directors:
Janet F. Clark		52,252,269		1,141,619
Ernie L. Danner		53,078,587		315,301
Uriel E. Dutton		53,170,910		222,978
Gordon T. Hall		53,204,186		189,702
J.W.G. “Will” Honeybourne		53,185,339		208,549
John E. Jackson		53,203,979		189,909
William C. Pate		53,187,699		206,189
Stephen M. Pazuk		53,175,387		218,501
Christopher E. Seaver		53,204,681		189,207
Stephen A. Snider		52,834,056		559,832

	For		Against		Abstaining
2. Ratification of the appointment of Deloitte & Touche LLP as Exterran Holdings, Inc.’s independent registered public accounting firm for fiscal 2009:		53,321,005		62,406		10,477
	For		Against		Abstaining
3. Approval of Amendment No. 1 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan:		39,423,043		8,024,843		304,237

Item 5. Other Information

As we previously disclosed in our Current Report on Form 8-K, filed with the SEC on February 26, 2009, the compensation committee of our board of directors determined that Stephen A. Snider, our former chief executive officer, would participate in our short-term incentive program (the “Incentive Program”) for 2009, although the amount of his award under the Incentive Program would be prorated for the period from January 1, 2009 through the date of his retirement on June 30, 2009. Mr. Snider had the option to elect to be paid his award either upon his retirement or in March 2010 concurrently with the payment of awards to our other Named Executive Officers. As Mr. Snider elected to be paid his award upon his retirement, on August 3, 2009, the compensation committee approved an award under the Incentive Program to Mr. Snider in the amount of $120,000.

Following Mr. Snider’s retirement on June 30, 2009, Ernie L. Danner became our president and chief executive officer. Mr. Danner had previously served as our president and chief operating officer. As such, his target bonus opportunity under the Incentive Program for 2009 was set by the compensation committee at 80% of his base salary for 2009. On August 3, 2009, in recognition of Mr. Danner’s new role as our chief executive officer, the compensation committee set Mr. Danner’s target bonus opportunity at 100% of his base salary. Mr. Danner’s target bonus opportunity for 2009 will thus be set at (i) 80% for the period from January 1, 2009 through June 30, 2009, during which he served as our president and chief operating officer, and (ii) at 100% for the period from July 1, 2009, when he assumed his new duties as our chief executive officer, through December 31, 2009.

In 2005, our predecessor Hanover entered into a change of control agreement with Norman A. Mckay, currently our Senior Vice President and a named executive officer. In general, the change of control agreement provides that Mr. Mckay is entitled to certain benefits, including two times the sum of his base salary and target bonus amount for the year in which he is terminated, if a Qualified Termination of Employment were to occur within 12 months following a Change of Control (as both terms are defined in the agreement). The business combination of Hanover and Universal constituted a Change of Control under Mr. Mckay’s change of control agreement, and we and Mr. Mckay have agreed that “Good Reason” then existed for a Qualified Termination of Employment by Mr. Mckay. Following the combination of Universal and Hanover, we and Mr. Mckay extended the term of his change of control agreement through August 20, 2009.

Effective August 5, 2009, we entered into an Amendment and Discharge of Change of Control Agreement (the “Amendment”) with Mr. Mckay, pursuant to which we will pay Mr. Mckay approximately $1.2 million, and Mr. Mckay will waive his rights under the change of control agreement.

This summary of the Amendment is qualified in its entirety by the full text of the Amendment, which is incorporated herein and filed as Exhibit 10.12.

On August 3, 2009, the compension committee approved a new change of control agreement with Mr. Mckay, pursuant to which we have an obligation to make payments to Mr. Mckay upon a termination event following a change of control of Exterran. A termination event under the agreement includes, among other things, termination of Mr. Mckay’s employment by us other than for Cause (as that term is defined in the agreement) or a termination by the executive for Good Reason (as that term is defined in the agreement).

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Under the change of control agreement, if a termination event occurs within 18 months following a change of control, we have an obligation to pay to Mr. Mckay an amount equal to (i)(A) his earned but unpaid Base Salary (as that term is defined in the agreement) through the Date of Termination (as that term is defined in the agreement) plus (B) his prorated Target Bonus (as that term is defined in the agreement) for the current year plus (C) any earned but unpaid Actual Bonus (as that term is defined in the agreement) for the prior year plus (ii) any portion of his vacation pay accrued, but not used, for the Termination Year (as that term is defined in the agreement) as of the Date of Termination plus (iii) two times the sum of his Base Salary and Target Bonus amount for the Termination Year plus (iv) two times the total of the employer matching contributions that would have been credited to his account under our 401(k) Plan and any other deferred compensation plan had he made the required amount of elective deferrals or contributions under the 401(k) Plan and any other deferred compensation plan during the 12-month period immediately preceding the month of his Date of Termination plus (v) amounts, if any, previously deferred by Mr. Mckay or earned but not paid, if any, under any of our incentive and non-qualified deferred compensation plans or programs as of the Date of Termination. The agreement also provides for continuing medical coverage and full acceleration of any outstanding stock options, stock-based awards and cash-based incentive awards upon a termination event within 18 months of a change of control. Payments under the agreement are contingent on Mr. Mckay’s entering into a waiver and release of all claims and being subject to customary non-compete and non-solicitation covenants.

This summary of Mr. Mckay’s change of control agreement is qualified in its entirety by the full text of the agreement, which is incorporated herein and filed as Exhibit 10.13.

Effective August 4, 2009, we also entered into an indemnification agreement with Mr. Mckay. We have entered into similar agreements with all of our directors and many of our other executive officers. A summary of the indemnification agreement is incorporated herein by reference to our Current Report on Form 8-K filed August 23, 2007.

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Item 6. Exhibits

Exhibit	Description
2.1	Contribution, Conveyance and Assumption Agreement, dated June 25, 2008, by and among Exterran Holdings, Inc., Hanover Compressor Company, Hanover Compression General Holdings, LLC, Exterran Energy Solutions, L.P., Exterran ABS 2007 LLC, Exterran ABS Leasing 2007 LLC, EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed June 26, 2008
3.1	Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 20, 2007
3.2	Second Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008
4.1	Eighth Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and U.S. Bank National Association, as Trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 10.15 of the Registrant’s Current Report on Form 8-K filed August 23, 2007
4.2	Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed June 16, 2009
4.3	Supplemental Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed June 16, 2009
10.1	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.2	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.3	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.4	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.5	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.6	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.7	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.8	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.9†	Form of Consulting Agreement by and between Exterran Holdings, Inc. and Stephen A. Snider, incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.10†	Amendment No. 1 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement, filed March 31, 2009
10.11†	Amendment No. 2 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.12†*	Amendment and Discharge of Change of Control Agreement by and between Exterran Holdings, Inc. and Norman A. Mckay
10.13†*	Change of Control Agreement with Norman A. Mckay

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Exhibit	Description
31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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

†	Management contract or compensatory plan or arrangement.
*	Filed herewith.

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SIGNATURES

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

	EXTERRAN HOLDINGS, INC.
Date: August 6, 2009	By:	/s/ J. MICHAEL ANDERSON
		J. Michael Anderson
		Senior Vice President, Chief Financial Officer and Chief of Staff (Principal Financial Officer)
	By:	/s/ KENNETH R. BICKETT
		Kenneth R. Bickett
		Vice President — Finance and Accounting (Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit	Description
2.1	Contribution, Conveyance and Assumption Agreement, dated June 25, 2008, by and among Exterran Holdings, Inc., Hanover Compressor Company, Hanover Compression General Holdings, LLC, Exterran Energy Solutions, L.P., Exterran ABS 2007 LLC, Exterran ABS Leasing 2007 LLC, EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed June 26, 2008
3.1	Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 20, 2007
3.2	Second Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008
4.1	Eighth Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and U.S. Bank National Association, as Trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 10.15 of the Registrant’s Current Report on Form 8-K filed August 23, 2007
4.2	Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed June 16, 2009
4.3	Supplemental Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed June 16, 2009
10.1	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.2	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.3	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.4	Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.5	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.6	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.7	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.8	Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed June 10, 2009
10.9†	Form of Consulting Agreement by and between Exterran Holdings, Inc. and Stephen A. Snider, incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.10†	Amendment No. 1 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement, filed March 31, 2009
10.11†	Amendment No. 2 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.12†*	Amendment and Discharge of Change of Control Agreement by and between Exterran Holdings, Inc. and Norman A. Mckay
10.13†*	Change of Control Agreement with Norman A. Mckay

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Exhibit	Description
31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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

†	Management contract or compensatory plan or arrangement.
*	Filed herewith.

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