Archrock (AROC) 10-Q 2009 Q3 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 September 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(Do not check if a smaller reporting company) Smaller reporting companyo

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 October 30, 2009: 62,517,739 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 6. Exhibits		50
SIGNATURES		51
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)

	September 30,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	86,194		$	123,906
Restricted cash		4,961			7,563
Accounts receivable, net of allowance of $16,722 and $13,738, respectively		436,054			551,362
Inventory, net		574,768			495,809
Costs and estimated earnings in excess of billings on uncompleted contracts		187,011			219,487
Current deferred income taxes		27,162			36,816
Other current assets		116,615			121,009
Current assets associated with discontinued operations		13,419			139,178
Total current assets		1,446,184			1,695,130
Property, plant and equipment, net		3,436,559			3,436,222
Goodwill, net		195,518			308,024
Intangible and other assets, net		288,220			294,252
Long-term assets held for sale		19,298			—
Investments in non-consolidated affiliates		1,217			83,933
Long-term assets associated with discontinued operations		1,309			275,066
Total assets	$	5,388,305		$	6,092,627
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	102		$	101
Accounts payable, trade		150,421			216,707
Accrued liabilities		326,106			312,270
Deferred revenue		239,232			192,556
Billings on uncompleted contracts in excess of costs and estimated earnings		144,020			157,955
Current liabilities associated with discontinued operations		31,284			37,632
Total current liabilities		891,165			917,221
Long-term debt		2,385,646			2,512,328
Other long-term liabilities		137,824			182,679
Deferred income taxes		174,060			197,525
Long-term liabilities associated with discontinued operations		15,750			54,797
Total liabilities		3,604,445			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; 68,149,868 and 67,202,109 shares issued, respectively		681			672
Additional paid-in capital		3,430,214			3,354,922
Accumulated other comprehensive loss		(34,399	)		(94,767	)
Accumulated deficit		(1,588,074	)		(1,016,082	)
Treasury stock — 5,622,196 and 5,535,671 common shares, at cost, respectively		(201,978	)		(200,959	)
Total Exterran stockholders’ equity		1,606,444			2,043,786
Noncontrolling interest		177,416			184,291
Total equity		1,783,860			2,228,077
Total liabilities and equity	$	5,388,305		$	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 September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Revenues:
North America contract operations	$	167,567		$	197,926		$	540,415		$	591,609
International contract operations		96,420			99,680			282,547			278,388
Aftermarket services		75,526			94,044			229,561			266,622
Fabrication		340,193			364,608			1,008,363			1,095,601
		679,706			756,258			2,060,886			2,232,220
Costs and Expenses:
Cost of sales (excluding depreciation and amortization expense):
North America contract operations		74,556			84,440			232,681			259,031
International contract operations		37,850			40,504			108,552			106,753
Aftermarket services		59,360			75,193			180,892			212,454
Fabrication		278,036			292,978			840,311			912,005
Selling, general and administrative		81,600			89,564			253,091			262,643
Merger and integration expenses		—			3,728			—			9,619
Depreciation and amortization		87,781			83,029			255,757			245,339
Fleet impairment		—			1,000			86,684			2,450
Restructuring charges		2,616			—			17,996			—
Goodwill impairment		—			—			150,778			—
Interest expense		33,371			33,401			89,268			96,737
Equity in (income) loss of non-consolidated affiliates		1,011			(6,657	)		92,695			(19,712	)
Other (income) expense, net		(12,768	)		7,835			(25,563	)		(7,823	)
		643,413			705,015			2,283,142			2,079,496
Income (loss) before income taxes		36,293			51,243			(222,256	)		152,724
Provision for income taxes		13,691			27,252			1,477			70,400
Income (loss) from continuing operations		22,602			23,991			(223,733	)		82,324
Income (loss) from discontinued operations, net of tax		(3,834	)		16,070			(345,351	)		34,654
Net income (loss)		18,768			40,061			(569,084	)		116,978
Less: Net income attributable to the noncontrolling interest		(576	)		(3,028	)		(2,908	)		(8,914	)
Net income (loss) attributable to Exterran stockholders	$	18,192		$	37,033		$	(571,992	)	$	108,064
Basic income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran stockholders	$	0.36		$	0.32		$	(3.70	)	$	1.13
Income (loss) from discontinued operations attributable to Exterran stockholders		(0.06	)		0.25			(5.63	)		0.53
Net income (loss) attributable to Exterran stockholders	$	0.30		$	0.57		$	(9.33	)	$	1.66
Diluted income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran stockholders	$	0.35		$	0.32		$	(3.70	)	$	1.12
Income (loss) from discontinued operations attributable to Exterran stockholders		(0.05	)		0.25			(5.63	)		0.52
Net income (loss) attributable to Exterran stockholders	$	0.30		$	0.57		$	(9.33	)	$	1.64
Weighted average common and equivalent shares outstanding:
Basic		61,579			64,940			61,315			65,070
Diluted		77,509			65,423			61,315			66,722

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 September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Net income (loss)	$	18,768		$	40,061		$	(569,084	)	$	116,978
Other comprehensive income, net of tax:
Change in fair value of derivative financial instruments		(5,723	)		(2,853	)		7,447			1,397
Foreign currency translation adjustment		17,485			4,008			54,025			(8,541	)
Comprehensive income (loss)		30,530			41,216			(507,612	)		109,834
Less: Comprehensive income attributable to the noncontrolling interest		53			2,938			4,012			9,326
Comprehensive income (loss) attributable to Exterran	$	30,477		$	38,278		$	(511,624	)	$	100,508

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						Retained Earnings
	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										(50,902	)								(50,902	)
Option exercises		1		7,701															7,702
Shares issued in employee stock purchase plan		1		4,038															4,039
Stock-based compensation expense, net of forfeitures		3		9,303												(1,126	)		8,180
Income tax benefit from stock compensation expense				6,324															6,324
Cash distribution to noncontrolling unitholders of the Partnership																(10,632	)		(10,632	)
Noncontrolling interest of joint venture																(1,679	)		(1,679	)
Other																1,381			1,381
Comprehensive income:
Net income													108,064			8,914			116,978
Derivatives change in fair value, net of tax							985									412			1,397
Foreign currency translation adjustment							(8,541	)											(8,541	)
Total comprehensive income																			109,834
Balance at September 30, 2008	$	671	$	3,344,687		$	5,448		$	(150,900	)	$	39,331		$	188,574		$	3,427,811
Balance at December 31, 2008	$	672	$	3,354,922		$	(94,767	)	$	(200,959	)	$	(1,016,082	)	$	184,291		$	2,228,077
Treasury stock purchased										(1,019	)								(1,019	)
Shares issued in employee stock purchase plan		2		3,178															3,180
Stock-based compensation expense, net of forfeitures		7		18,043												708			18,758
Income tax expense from stock compensation expense				(2,674	)														(2,674	)
Cash distribution to noncontrolling unitholders of the Partnership																(11,589	)		(11,589	)
Issuance of convertible senior notes and purchased call options and warrants sold				56,745															56,745
Other																(6	)		(6	)
Comprehensive income (loss):
Net income (loss)													(571,992	)		2,908			(569,084	)
Derivatives change in fair value, net of tax							6,343									1,104			7,447
Foreign currency translation adjustment							54,025												54,025
Total comprehensive loss																			(507,612	)
Balance at September 30, 2009	$	681	$	3,430,214		$	(34,399	)	$	(201,978	)	$	(1,588,074	)	$	177,416		$	1,783,860

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)

	Nine Months Ended
	September 30,
	2009			2008
Net income (loss)	$	(569,084	)	$	116,978
Adjustments:
Depreciation and amortization		255,757			245,340
Fleet impairment		86,684			2,450
Facility impairment		5,600			—
Goodwill impairment		150,778			—
Deferred financing cost amortization		2,855			2,587
(Income) loss from discontinued operations, net of tax		345,351			(34,654	)
Amortization of debt discount		4,559			—
Bad debt expense		4,594			2,593
Gain on sale of property, plant and equipment		(7,931	)		(3,192	)
Gain on sale of business		(3,193	)		—
Equity in (income) loss of non-consolidated affiliates, net of dividends received		92,695			(16,954	)
Interest rate swaps		1,387			2,572
Gain on remeasurement of intercompany balances		(5,087	)		(3,423	)
Stock-based compensation expense		18,670			12,023
Deferred income taxes		(28,194	)		10,119
Changes in assets and liabilities, net of acquisition:
Accounts receivable and notes		121,879			(78,688	)
Inventory		(43,324	)		(84,623	)
Costs and estimated earnings versus billings on uncompleted contracts		16,179			66,232
Prepaid and other current assets		8,902			(7,156	)
Accounts payable and other liabilities		(131,724	)		(28,874	)
Deferred revenue		(3,706	)		89,748
Other		39			15,049
Net cash provided by continuing operating activities		323,686			308,127
Net cash provided by discontinued operations		829			33,515
Net cash provided by operating activities		324,515			341,642
Cash flows from investing activities:
Capital expenditures		(303,560	)		(342,555	)
Proceeds from sale of property, plant and equipment		17,510			44,669
Cash paid in acquisition		—			(133,349	)
Proceeds from sale of business		5,642			—
Cash invested in non-consolidated affiliates		(1,578	)		—
Decrease in restricted cash		2,602			1,500
Net cash used in continuing investing activities		(279,384	)		(429,735	)
Net cash used in discontinued operations		(829	)		(31,700	)
Net cash used in investing activities		(280,213	)		(461,435	)

7

	Nine Months Ended
	September 30,
	2009			2008
Cash flows from financing activities:
Borrowings on revolving credit facilities		319,000			738,000
Repayments on revolving credit facilities		(548,091	)		(594,000	)
Repayments on term loan		(10,000	)		—
Repayments on asset-backed securitization facility		(135,000	)		—
Borrowings on Partnership credit facility		18,750			74,250
Repayments on Partnership credit facility		(33,000	)		—
Borrowings on Partnership term loan		—			117,500
Repayments on Partnership term loan		—			(9,000	)
Proceeds (repayments) of other debt, net		(37	)		(901	)
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		(10,600	)		(583	)
Proceeds from warrants sold		53,138			—
Payments for call options		(89,408	)		—
Proceeds from stock options exercised		—			7,702
Proceeds from stock issued pursuant to our employee stock purchase plan		3,180			4,039
Purchases of treasury stock		(1,019	)		(50,902	)
Stock-based compensation excess tax benefit		89			6,284
Distributions to non-controlling partners in the Partnership		(11,589	)		(10,632	)
Net cash provided by (used in) continuing financing activities		(89,587	)		89,757
Net cash provided by discontinued operations		—			—
Net cash provided by (used in) financing activities		(89,587	)		89,757
Effect of exchange rate changes on cash and equivalents		7,573			(1,318	)
Net decrease in cash and cash equivalents		(37,712	)		(31,354	)
Cash and cash equivalents at beginning of period		123,906			144,801
Cash and cash equivalents at end of period	$	86,194		$	113,447

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 the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”), which requires that minority interests be recharacterized as noncontrolling interests, requires them to be reported as a component of equity, 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 that the interest sold, as well as any interest retained, 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 ASC 810.

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 September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Income (loss) from continuing operations	$	22,026		$	20,963	$	(226,641	)	$	73,410
Income (loss) from discontinued operations, net of tax		(3,834	)		16,070		(345,351	)		34,654
Net income (loss) attributable to Exterran stockholders	$	18,192		$	37,033	$	(571,992	)	$	108,064

9

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				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Weighted average common shares outstanding-used in basic income per common share		61,579		64,940		61,315		65,070
Net dilutive potential common stock issuable:
On exercise of options and vesting of restricted stock and restricted stock units		571		458		**		599
On settlement of employee stock purchase plan shares		25		25		**		15
On conversion of 4.25% convertible senior notes due 2014		15,334		—		**		—
On conversion of 4.75% convertible senior notes due 2014		**		**		**		1,038
Weighted average common shares and dilutive potential common shares—used in diluted income per common share		77,509		65,423		61,315		66,722

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

Net income attributable to Exterran stockholders for the diluted earnings per share calculation for the three months ended September 30, 2009 is adjusted to add back interest expense and amortization of financing costs totaling $5.0 million, net of tax, relating to our 4.25% convertible senior notes due 2014. Net income attributable to Exterran stockholders for the diluted earnings per share calculation for the nine months ended September 30, 2008 is adjusted to add back interest expense and amortization of financing costs totaling $1.2 million, 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				Nine Months Ended
	September 30,				September 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		654		582		998		566
On exercise of options and vesting of restricted stock and restricted stock units		—		—		500		—
On settlement of employee stock purchase plan shares		—		—		35		—
On exercise of warrants		2,808		—		1,203		—
On conversion of 4.25% convertible senior notes due 2014		—		—		6,572		—
On conversion of 4.75% convertible senior notes due 2014		3,115		3,115		3,115		2,077
On conversion of convertible senior notes due 2008		—		—		—		399
Net dilutive potential common shares issuable		6,577		3,697		12,423		3,042

Financial Instruments

Our financial instruments include cash, receivables, payables, interest rate swaps, foreign currency hedges and debt. At September 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 September 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 September 30, 2009 and December 31, 2008. A summary of the fair value and carrying value of our debt as of

10

September 30, 2009 and December 31, 2008 is shown in the table below (in thousands):

	As of September 30, 2009				As of December 31, 2008
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Fixed rate debt	$	405,748	$	418,098	$	144,088	$	88,018
Floating rate debt		1,980,000		1,818,628		2,368,341		2,116,588
Total debt	$	2,385,748	$	2,236,726	$	2,512,429	$	2,204,606

GAAP 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.

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 November 5, 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 the end of the second quarter of 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 third quarter of 2009 because we could not conclude that recovery under this insurance policy was probable as of September 30, 2009. Therefore, a gain will be recorded if we recover under our policy.

As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments totaling $380.0 million, primarily related to receivables, inventory, fixed assets and goodwill, in the nine months ended September 30, 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 recording the loss on expropriation.

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The expropriation of our business in Venezuela meets the criteria established for recognition as discontinued operations under ASC 205, “Presentation.” 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						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Revenues	$	976		$	39,704		$	68,322		$	116,042
Expenses and selling, general and administrative		2,830			32,682			60,913			92,874
Loss attributable to expropriation		2,135			—			380,026			—
Other (income) loss, net		(162	)		(2,146	)		(4,655	)		(8,497	)
Provision for (benefit from) income taxes		7			(6,902	)		(22,611	)		(2,989	)
Income (loss) from discontinued operations, net of tax	$	(3,834	)	$	16,070		$	(345,351	)	$	34,654

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

	September 30,		December 31,
	2009		2008
Cash	$	7,430	$	2,485
Accounts receivable		219		73,994
Inventory		421		31,290
Other current assets		5,349		31,409
Total current assets associated with discontinued operations		13,419		139,178
Property, plant and equipment, net		851		237,644
Goodwill, net		—		32,602
Intangibles and other long-term assets		458		4,820
Total assets associated with discontinued operations	$	14,728	$	414,244
Accounts payable	$	12,773	$	7,467
Accrued liabilities		18,511		25,115
Deferred revenues		—		5,050
Total current liabilities associated with discontinued operations		31,284		37,632
Deferred income taxes		—		28,273
Other long-term liabilities		15,750		26,524
Total liabilities associated with discontinued operations	$	47,034	$	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

12

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):

	September 30,		December 31,
	2009		2008
Parts and supplies	$	299,758	$	290,858
Work in progress		230,611		187,579
Finished goods		44,399		17,372
Inventory, net of reserves	$	574,768	$	495,809

As of September 30, 2009 and December 31, 2008, we had inventory reserves of $19.4 million and $16.3 million, respectively.

5. PROPERTY, PLANT AND EQUIPMENT

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

	September 30,			December 31,
	2009			2008
Compression equipment, facilities and other fleet assets	$	4,310,311		$	4,314,566
Land and buildings		176,460			175,204
Transportation and shop equipment		205,710			182,402
Other		123,612			108,170
		4,816,093			4,780,342
Accumulated depreciation		(1,379,534	)		(1,344,120	)
Property, plant and equipment, net	$	3,436,559		$	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.

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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 the end of the second quarter of 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 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. If for any reason the fair value of our 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 nine months ended September 30, 2009 (in thousands):

			Purchase
			Adjustments/
	December 31,		Acquisitions/			Impact of Foreign		Goodwill			September 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	)		3,645		—			62,485
Fabrication		104,747		19,122			9,164		—			133,033
Total	$	308,024	$	17,594		$	20,678	$	(150,778	)	$	195,518

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 September 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 September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Revenues	$	681		$	55,481	$	8,160		$	160,547
Operating income (loss)		(103,722	)		28,118		(397,955	)		82,990
Net income (loss)		(107,910	)		10,869		(337,450	)		40,813

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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 September 30, 2009, our investment in the SIMCO/Harwat Consortium was $1.2 million.

Due to lack of payments from their only customer, PDVSA, 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 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):

	September 30,			December 31,
	2009			2008
Revolving credit facility due August 2012	$	40,500		$	269,591
Term loan		790,000			800,000
2007 asset-backed securitization facility notes due July 2012		765,000			900,000
Partnership’s revolving credit facility due October 2011		267,000			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 $93.3 million as of September 30, 2009)		261,699			—
Other, interest at various rates, collateralized by equipment and other assets		299			338
		2,385,748			2,512,429
Less current maturities		(102	)		(101	)
Long-term debt	$	2,385,646		$	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 exceeded their principal amount as of September 30, 2009 by $9.0 million. We may not redeem the notes prior to the maturity date of the notes.

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ASC 470-20, “Debt — Debt with Conversion and Other Options” (“ASC 470-20”), 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 ASC 470-20, 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 months ended September 30, 2009, we recognized $3.8 million of interest expense related to the contractual interest coupon and $3.7 million of amortization of the debt discount, respectively. During the nine months ended September 30, 2009, we recognized $4.6 million of interest expense related to the contractual interest coupon and $4.6 million of amortization of the debt discount, respectively. The effective interest rate on the debt component of these notes was 11.67% for the three and nine months ended September 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.

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 September 30, 2009.

Long-term Debt Maturity Schedule

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

	September 30, 2009
2009	$	10,102	(1)
2010		40,115	(1)
2011		444,548
2012		1,165,533
2013		320,000
Thereafter		498,750	(2)
Total debt	$	2,479,048

(1)	$10 million and $30 million of the maturities due in 2009 and 2010, respectively, is 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 $93.3 million as of September 30, 2009 related to the 4.25% Notes.

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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 September 30, 2009, we were a party to 23 interest rate swaps in which we pay fixed payments and receive floating payments on a notional value of $1,470.0 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 $1,399.7 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 September 30, 2009. We have designated these interest rate swaps as cash flow hedging instruments 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 $50,000 and $0.5 million of interest expense in the three and nine months ended September 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 nine months ended September 30, 2008, respectively, due to the ineffectiveness related to these swaps. We estimate that approximately $48.9 million of deferred pre-tax losses, included in our accumulated other comprehensive loss at September 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 or that qualify for hedge accounting treatment are accounted for as cash flow hedges. Changes in the fair value of foreign currency cash flow hedges that meet the hedging requirements 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 $0.1 million of deferred losses, included in our accumulated other comprehensive income (loss) at September 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 September 30, 2009, the remaining notional amount of our foreign currency hedge that did not meet the requirements for hedge accounting was approximately 1.9 million Kuwaiti Dinars. At September 30, 2009, the remaining notional amount of our foreign currency hedge that did meet the requirements for hedge accounting was approximately 1.2 million Euros.

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

	September 30, 2009
		Fair Value
	Balance Sheet Location	Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangibles and other assets	$	225
Interest rate hedges	Accrued liabilities		(48,884	)
Interest rate hedges	Other long-term liabilities		(42,487	)
Foreign currency hedge	Other current liabilities		(106	)
			(91,252	)
Derivatives not designated as hedging instruments:
Foreign currency hedge	Accrued liabilities		(62	)
Total derivatives		$	(91,314	)

Three Months Ended September 30, 2009

Nine Months Ended September 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:

Interest rate hedges

$

(5,200

)

Interest expense

$

(7,058

)

$

5,089

Interest expense

$

(32,642

)

Foreign currency hedge

—

Fabrication revenue

(105

)

1,254

Fabrication revenue

(329

)

Total

$

(5,200

)

$

(7,163

)

$

6,343

$

(32,971

)

	Three Months Ended September 30, 2009			Nine Months Ended September 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:
Foreign currency hedge	Other income (expense), net	$	155	Other income (expense), net	$	(137	)

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

ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), 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.

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• 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.

The following table summarizes the valuation of our interest rate swaps and foreign currency derivatives under ASC 820 pricing levels as of September 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)	$	(91,146	)	$	—	$	(91,146	)	$	—
Foreign currency derivatives asset (liability)		(168	)		—		(168	)		—

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.

11. FLEET IMPAIRMENT

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.

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. During the three months ended September 30, 2008, we recorded a $1.0 million impairment related to the loss sustained on offshore units that were on platforms which capsized during Hurricane Ike. These fleet impairments are recorded in Fleet impairment expense in the consolidated statements of operations.

12. RESTRUCTURING CHARGES

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. The consolidation of those compression fabrication activities was completed in September 2009. In August 2009, we announced our plan to consolidate certain fabrication operations in Houston including the closure of two facilities in Texas. However, due to a subsequent improvement in bookings for certain of our production and processing equipment products, we have recently decided to close only one of the fabrication facilities in Texas. In addition, our management also implemented cost reductions programs during the first nine months of 2009 primarily related to workforce reductions across all of our segments.

We currently estimate that we will incur charges in 2009 with respect to these restructuring charges discussed above of approximately $20 million to $22 million, of which $2.6 million and $18.0 million, respectively, was expensed in the three and nine months ended September 30, 2009. These charges are reflected as Restructuring charges in our consolidated statements of operations. Approximately $12 million to $14 million of the charges are severance, retention and employee benefit costs, approximately $5.6 million is a facility impairment charge and the remaining amount is for other facility closure and moving costs. Of the total estimated charges, approximately $14 million to $16 million 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 nine months ended September 30, 2009 (in thousands):

	Restructuring
	Charges Accrual
Beginning balance at December 31, 2008	$	—
Additions for costs expensed		17,996
Non-cash facility impairment		(5,600	)
Reductions for payments		(12,099	)
Ending balance at September 30, 2009	$	297

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. In April, 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 nine months ended September 30, 2009 was $5.87, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	Nine Months
	Ended
	September 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.

The following table presents stock option activity for the nine months ended September 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		987			16.29
Cancelled		(91	)		34.84
Options outstanding, September 30, 2009		2,923		$	33.18		5.1	$	8,855
Options exercisable, September 30, 2009		1,709		$	37.51		4.4	$	2,351

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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 nine months ended September 30, 2009. The total intrinsic value of stock options exercised during the nine months ended September 30, 2008 was $6.6 million. As of September 30, 2009, $6.8 million of unrecognized compensation cost related to unvested stock options is expected to be recognized over the weighted-average period of 2.2 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 nine months ended September 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		992			16.21
Vested		(256	)		60.79
Cancelled		(40	)		33.90
Non-vested restricted stock and restricted stock units, September 30, 2009		1,231		$	28.18

As of September 30, 2009, $20.3 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 2.1 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 September 30, 2009, 367,398 shares remained available for purchase under the ESPP. Our 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.

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. (together with its subsidiaries, the “Partnership”), on the date of exercise over the exercise price. At September 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.

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Partnership Long-Term Incentive Plan

The Partnership has a long-term incentive plan that was adopted by Exterran GP LLC, the general partner of the Partnership’s 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 September 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 nine months ended September 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, September 30, 2009		580,715		$	23.73		0.3	$	—
Unit options exercisable, September 30, 2009		580,715		$	23.73		0.3	$	—

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 nine months ended September 30, 2009, the Partnership granted 84,166 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 nine months ended September 30, 2009:

				Weighted
				Average
				Grant-Date
	Phantom			Fair Value
	Units			per Unit
Phantom units outstanding, December 31, 2008		48,152		$	30.98
Granted		84,166			11.85
Vested		(34,576	)		24.02
Cancelled		(6,945	)		16.30
Phantom units outstanding, September 30, 2009		90,797		$	17.01

As of September 30, 2009, $1.0 million of unrecognized compensation cost related to unvested phantom units is expected to be recognized over the weighted-average period of 2.1 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		September 30, 2009
Performance guarantees through letters of credit (1)		2009-2013	$	273,658
Standby letters of credit		2009-2011		21,524
Commercial letters of credit		2010		2,973
Bid bonds and performance bonds (1)		2009-2016		106,309
Maximum potential undiscounted payments			$	404,464

(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 September 30, 2009 based on the earnings of B.T.I. over the year ended March 31, 2009.

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

See Note 2 and Note 7 for a discussion of gain contingencies related to our claims for assets and investments that were expropriated in Venezuela.

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 believe 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, we believe 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 DEVELOPMENTS

In September 2006, the FASB issued guidance under ASC 820, 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. ASC 820 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, in February 2008, the FASB 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. Our adoption of the undeferred provisions of ASC 820 on January 1, 2008 did not have a material impact on our consolidated financial statements. Our adoption of the deferred provisions of ASC 820 on January 1, 2009 did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued guidance under ASC 805, “Business Combinations” (“ASC 805”), which 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. ASC 805 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 ASC 805, the provisions of ASC 805 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 ASC 805. Our adoption of the provisions of ASC 805 on January 1, 2009 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 guidance under ASC 810, 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. ASC 810 is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Our adoption of the provisions of ASC 810 on January 1, 2009 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 guidance under ASC 815, “Derivatives and Hedging” (“ASC 815”), which requires enhanced disclosures for derivative instruments, including those used in hedging activities. The new guidance in ASC 815 is effective for fiscal years beginning on or after November 15, 2008. Our adoption of the new provisions of ASC 815 on January 1, 2009 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 guidance under ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”), 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. The intent of the new guidance is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset, in accordance with GAAP. The new guidance under ASC 350 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. The new guidance under ASC 350 was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Our adoption of the new provisions of ASC 350 on January 1, 2009 did not have a material impact on our consolidated financial statements.

In May 2008, the FASB issued guidance under ASC 470-20, 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. ASC 470-20 is effective for financial statements issued for fiscal years beginning after December 15, 2008; early 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. Our adoption of the provisions of ASC 470-20 on January 1, 2009 did not have a material impact on our financial statements. However, on issuance of our 4.25% Notes in June 2009, we applied the provisions of ASC 470-20.

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As a result, we recorded a debt discount and a portion of the proceeds from our 4.25% Notes issued in June 2009 was allocated to equity. The amortization of the debt discount will be recorded as an increase in interest expense over the life of the notes. Accordingly, due to the application of ASC 470-20 we will record interest expense in excess of the 4.25% interest that we will pay.

In April 2009, the FASB issued guidance under ASC 825 “Financial Instruments”, section 10-65-1 (“ASC-825-65-10”), which requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. Prior to issuing ASC 825-10-65-1, fair values for financial instruments were only disclosed once a year. ASC 825-10-65-1is effective for interim reporting periods ending after June 15, 2009. ASC 825-10-65-1 does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, requires comparative disclosures only for periods ending after initial adoption. Our adoption of the provisions of ASC 825-10-65-1 on June 30, 2009 did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued guidance under ASC 855, “Subsequent Events” (“ASC 855”), which 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. ASC 855 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. Our adoption of provisions of ASC 855 on June 30, 2009 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 guidance under ASC 105, “Generally Accepted Accounting Principles” (“ASC 105”), which 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. The new guidance under ASC 105 is effective for interim and annual periods ending after September 15, 2009 Our adoption of the provisions of ASC 105 on September 30, 2009 did not have a material impact on our consolidated financial statements.

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.

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.

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

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
Three Months Ended	Operations		Operations		Services		Fabrication		Total
September 30, 2009:
Revenue from external customers	$	167,567	$	96,420	$	75,526	$	340,193	$	679,706
Gross margin(1)		93,011		58,570		16,166		62,157		229,904
September 30, 2008:
Revenue from external customers	$	197,926	$	99,680	$	94,044	$	364,608	$	756,258
Gross margin(1)		113,486		59,176		18,851		71,630		263,143

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
Nine Months Ended	Operations		Operations		Services		Fabrication		Total
September 30, 2009:
Revenue from external customers	$	540,415	$	282,547	$	229,561	$	1,008,363	$	2,060,886
Gross margin(1)		307,734		173,995		48,669		168,052		698,450
September 30, 2008:
Revenue from external customers	$	591,609	$	278,388	$	266,622	$	1,095,601	$	2,232,220
Gross margin(1)		332,578		171,635		54,168		183,596		741,977

(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						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net income (loss)	$	18,768		$	40,061		$	(569,084	)	$	116,978
Selling, general and administrative		81,600			89,564			253,091			262,643
Merger and integration expenses		—			3,728			—			9,619
Depreciation and amortization		87,781			83,029			255,757			245,339
Fleet impairment		—			1,000			86,684			2,450
Restructuring charges		2,616			—			17,996			—
Goodwill impairment		—			—			150,778			—
Interest expense		33,371			33,401			89,268			96,737
Equity in (income) loss of non-consolidated affiliates		1,011			(6,657	)		92,695			(19,712	)
Other (income) expense, net		(12,768	)		7,835			(25,563	)		(7,823	)
Provision for income taxes		13,691			27,252			1,477			70,400
(Income) loss from discontinued operations, net of tax		3,834			(16,070	)		345,351			(34,654	)
Gross margin	$	229,904		$	263,143		$	698,450		$	741,977

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18. SUBSEQUENT EVENTS

In October 2009, we and the Partnership announced a transaction, which is expected to close in November 2009, pursuant to which the Partnership will acquire from us contract operations customer service agreements with 18 customers and a fleet of approximately 900 compressor units used to provide compression services under those agreements, comprising approximately 273,000 horsepower, or approximately 6% (by available horsepower) of the Partnership’s and our combined U.S. contract operations business (the “November 2009 Contract Operations Acquisition”). The total value of the transaction is approximately $143.0 million, excluding transaction costs. In connection with this acquisition, the Partnership intends to assume $57.2 million of debt from us and issue to our wholly-owned subsidiaries approximately 4.7 million common units and approximately 97,000 general partner units.

Also, in connection with the closing of the November 2009 Contract Operations Acquisition, we expect to amend and restate the existing Omnibus Agreement with the Partnership. The agreement, among other things, will increase the amount the Partnership must reimburse us for selling, general and administrative (“SG&A”) expenses we incur on its behalf from $6.0 million per quarter to $7.6 million per quarter (after taking into account such costs that the Partnership incurs and pays directly) and extend the duration of the cap on the Partnership’s reimbursement of SG&A expenses and the cap on the Partnership’s reimbursement of cost of sales we allocate to the Partnership, based on such costs we incur on its behalf, for an additional year such that the caps will then terminate on December 31, 2010.

In connection with the transaction described above, the Partnership entered into a new $150 million asset-backed securitization facility (the “2009 ABS Facility”). The 2009 ABS Facility notes are revolving in nature and are payable in July 2013. Interest and fees payable to the noteholders will accrue on these notes at a variable rate consisting of an applicable margin of 3.5% plus, at the Partnership’s option, either LIBOR or a base rate. Repayment of the 2009 ABS Facility notes has been secured by a pledge of all of the assets of EXLP ABS 2009 LLC and its subsidiaries, consisting primarily of compression services contracts and a fleet of natural gas compressor units. As of November 5, 2009, none of the 2009 ABS Facility notes has been issued. Concurrent with the closing of the 2009 ABS Facility, our availability under our $1.0 billion asset-backed securitization facility was reduced by $200.0 million to $800.0 million.

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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;

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

• 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 September 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 September 30, 2009, the Partnership had a fleet of approximately 2,519 compressor units comprising approximately 1,038,607 horsepower, or 25% (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 demand for future pricing of oil and natural gas products as well as 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 July 31, 2009 decreased by approximately 3.8% over the twelve months ended July 31, 2008. Total natural gas consumption in the U.S. is projected by the Energy Information Administration (“EIA”) to decline by 2.0% in 2009 and by 0.2% in 2010, but is expected to increase by an average of 0.7% per year until 2030. Total natural gas consumption worldwide is projected to increase by an average of 2.4% per year until 2030, according to the EIA.

In 2008, the U.S. accounted for an estimated annual production of approximately 20 trillion cubic feet of natural gas, or 19% of the worldwide total, compared to an estimated annual production of approximately 90 trillion cubic feet in the rest of the world. The EIA estimates that the U.S.’s natural gas production level will be approximately 23 trillion cubic feet in 2030, or 15% of the worldwide total, compared to an estimated annual production of approximately 130 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 have been reductions in global economic activity which have had a significant adverse impact on oil-and-gas-related commodity prices. Recently, there have been indications that global economic activity is beginning to rebound and oil prices have increased and natural gas prices have stabilized. However, we continue to believe the decrease in activity levels in the energy industry in the U.S. as compared to 2008 will continue to negatively impact the level of capital spending by our customers and, therefore, our business activity for the near term.

Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand and pricing for natural gas 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, or renewal at a reduced rate, 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 oil and natural gas infrastructure development projects in international markets.

In North America, we believe that the current economic environment and the available supply of idle and underutilized compression equipment owned by our customers and competitors will continue to negatively impact our ability to improve our North America contact operations horsepower utilization and revenues in the near term. Our total operating horsepower decreased by approximately 17% from December 31, 2008 to September 30, 2009, and we expect further horsepower declines during the remainder of 2009 and into 2010. In international markets, although we expect a decline in demand for additional contract operations jobs, we expect the start-up of projects in our backlog will result in an increase in revenues in our international contract operations business in 2010 compared to 2009. Additionally, we believe there will continue to be demand for our Total Solutions projects in international markets, although the demand has softened from prior year levels.

As industry capital spending has continued to decline in 2009, our fabrication business segment has experienced a reduction in demand. This decline in demand for our fabrication products has led to a reduction in our fabrication backlog.

Given the global recession and its impact on 2009 activity levels, the matching of our costs and capacity to business levels continues to 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 consolidate our compression fabrication operations, and in May 2009 we announced that we would be reducing operating and general and administrative costs, including headcount reductions, in all facets of our business. Additionally, in August 2009, we announced a plan to further consolidate certain of our fabrication operations.

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 market and industry conditions on our business, our level of capital investment in our contract operations fleet assets has declined and, based on current market conditions, we expect that net cash provided by operating activities will be in excess of our requirements to finance our 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. In October 2009, we and the Partnership announced a transaction, expected to close in November 2009, pursuant to which the Partnership will acquire from us additional contract operations customer service agreements with 18 customers and a fleet of approximately 900 compressor units used to provide compression services under those agreements.

Financial Highlights

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

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• Revenue for the three months ended September 30, 2009 was $679.7 million compared to $756.3 million for the prior year period. Revenue for the nine months ended September 30, 2009 was $2,060.9 million compared to $2,232.2 million for the prior year period. The decrease in revenue for the three and nine months ended September 30, 2009 primarily related to reduced revenue in our North America contract operations and fabrication business segments caused by a deterioration in market conditions.

• Net income attributable to Exterran for the three months ended September 30, 2009 was $18.2 million, compared to $37.0 million for the three months ended September 30, 2008. Net loss attributable to Exterran for the nine months ended September 30, 2009 was $572.0 million, compared to net income attributable to Exterran of $108.1 million for the nine months ended September 30, 2008. Our net income (loss) in the three and nine months ended September 30, 2009 was impacted by a deterioration in market conditions as well as the charges listed below.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Goodwill impairment	$	—	$	—	$	150,778	$	—
Fleet impairment		—		1,000		86,684		2,450
Restructuring charges		2,616		—		17,996		—
Merger and integration expenses		—		3,728		—		9,619
Investments in non-consolidated affiliates impairment (in Equity in (income) loss of non-consolidated affiliates)		1,011		—		98,134		—
Cost overruns on two jobs (in Fabrication cost of sales)		—		—		—		31,835
Loss attributable to expropriation (in Income (loss) from discontinued operations, net of tax)		2,135		—		380,026		—
Total	$	5,762	$	4,728	$	733,618	$	43,904

Operating Highlights

As discussed in Note 2 to the Financial Statements of this report, 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 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 September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Total Available Horsepower (at period end):
North America		4,339			4,540			4,339			4,540
International		1,220			1,151			1,220			1,151
Total		5,559			5,691			5,559			5,691
Total Operating Horsepower (at period end):
North America		2,983			3,452			2,983			3,452
International		1,015			1,046			1,015			1,046
Total		3,998			4,498			3,998			4,498
Total Operating Horsepower (average):
North America		3,052			3,456			3,216			3,515
International		1,025			1,049			1,036			1,032
Total		4,077			4,505			4,252			4,547
Horsepower Utilization (at period end):
North America		69	%		76	%		69	%		76	%
International		83	%		91	%		83	%		91	%
Total		72	%		79	%		72	%		79	%

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	September 30, 2009		December 31, 2008		September 30, 2008
Compressor and Accessory Fabrication Backlog	$	211.0	$	395.5	$	359.4
Production and Processing Equipment Fabrication Backlog		570.8		732.7		731.9
Fabrication Backlog	$	781.8	$	1,128.2	$	1,091.3

FINANCIAL RESULTS OF OPERATIONS

As discussed in Note 2 to the Financial Statements of this report, 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 SEPTEMBER 30, 2009 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2008

Summary of Business Segment Results

North America Contract Operations
(dollars in thousands)

	Three months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	167,567		$	197,926			(15	)%
Cost of sales (excluding depreciation and amortization expense)		74,556			84,440			(12	)%
Gross margin	$	93,011		$	113,486			(18	)%
Gross margin percentage		56	%		57	%		(1	)%

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 12% decrease in average operating horsepower in the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Our average operating horsepower decreased due to a deterioration in the economic climate and natural gas energy conditions in North America. The decrease in gross margin percentage during the three months ended September 30, 2009 was primarily due to pricing pressure caused by the deterioration in the economic climate in North America. 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.

International Contract Operations
(dollars in thousands)

	Three months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	96,420		$	99,680			(3	)%
Cost of sales (excluding depreciation and amortization expense)		37,850			40,504			(7	)%
Gross margin	$	58,570		$	59,176			(1	)%
Gross margin percentage		61	%		59	%		2	%

The decrease in revenues during the three months ended September 30, 2009 compared to the three months ended September 30, 2008 was primarily due to a $3.3 million reduction in revenues in Argentina resulting from contracts that expired and were not renewed. The increase in gross margin percentage primarily relates to a $1.7 million reduction in costs during the three months ended September 30, 2009 associated with a project in the Cawthorne Channel in Nigeria that was terminated during 2009.

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Aftermarket Services
(dollars in thousands)

	Three months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	75,526		$	94,044			(20	)%
Cost of sales (excluding depreciation and amortization expense)		59,360			75,193			(21	)%
Gross margin	$	16,166		$	18,851			(14	)%
Gross margin percentage		21	%		20	%		1	%

The decrease in revenue, cost of sales and gross margin was due to reduced sales in North America caused by a decline in market conditions. The decrease in sales in North America was partially offset by a $1.7 million increase in revenues for aftermarket services provided internationally for the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

Fabrication
(dollars in thousands)

	Three months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	340,193		$	364,608			(7	)%
Cost of sales (excluding depreciation and amortization expense)		278,036			292,978			(5	)%
Gross margin	$	62,157		$	71,630			(13	)%
Gross margin percentage		18	%		20	%		(2	)%

The decrease in revenue in the three months ended September 30, 2009 compared to the three months ended September 30, 2008 was primarily due to a $66.7 million reduction in revenues in the Eastern Hemisphere caused by the completion of projects during 2008 and a reduction in new bookings caused by weaker market conditions in 2009. The decrease in revenues in the Eastern Hemisphere was partially offset by an increase in compressor and accessory fabrication revenues of $43.7 million in Latin America in the three months ended September 30, 2009. The decline in gross margin percentage was primarily due to the deterioration in market conditions impacting our fabrication business and under-absorption of overhead costs resulting from the decrease in activity. The gross margin percentage for the three months ended September 30, 2009 also benefited from a $6.8 million recovery of costs that were previously expensed as a result of an insurance settlement.

Costs and Expenses
(dollars in thousands)

	Three months ended
	September 30,						Increase
	2009			2008			(Decrease)
Selling, general and administrative	$	81,600		$	89,564			(9	)%
Merger and integration expenses		—			3,728			n/a
Depreciation and amortization		87,781			83,029			6	%
Fleet impairment		—			1,000			n/a
Restructuring charges		2,616			—			n/a
Interest expense		33,371			33,401			0	%
Equity in (income) loss of non-consolidated affiliates		1,011			(6,657	)		(115	)%
Other (income) expense, net		(12,768	)		7,835			(263	)%

The decrease in selling, general and administrative (“SG&A”) expense was primarily due to our efforts to reduce costs in response to lower business activity levels during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. As a percentage of revenue, SG&A expense for each of the three months ended September 30, 2009 and 2008 was 12%.

Merger and integration expenses related to the merger between Hanover and Universal were $3.7 million during the three months ended September 30, 2008. These expenses were primarily comprised of change of control payments and severance costs.

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The increase in depreciation and amortization expense during the three months ended September 30, 2009 compared to the three months ended September 30, 2008 was primarily the result of property, plant and equipment additions.

During the three months ended September 30, 2008, we recorded a $1.0 million impairment related to the loss sustained on offshore units that were on platforms which capsized during Hurricane Ike.

Restructuring charges were $2.6 million for the three months ended September 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 decision to close and consolidate certain of our fabrication facilities. See Note 12 to the Financial Statements for further discussion of the restructuring charges.

The reduction in equity in income of non-consolidated affiliates was the result of the expropriation of our Venezuelan joint venture’s assets and operations during the six months ended June 30, 2009. The loss on non-consolidated affiliates during the three months ended September 30, 2009 relates to wind down costs incurred after the expropriation. 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 our investments in non-consolidated affiliates.

The change in other (income) expense, net was primarily due to a foreign currency translation gain of $12.2 million for the three months ended September 30, 2009 compared to a foreign currency loss of $10.2 million for the three months ended September 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. The increase in the foreign currency translation gain for the three months ended September 30, 2009 was primarily caused by changes in the translation rates between the U.S. dollar and the Euro, Brazilian Real and Argentine Peso.

Income Taxes
(dollars in thousands)

	Three months ended
	September 30,						Increase
	2009			2008			(Decrease)
Provision for income taxes	$	13,691		$	27,252			(50	)%
Effective tax rate		37.7	%		53.2	%		(15.5	)%

The decrease in our provision for income taxes was primarily due to lower income before income taxes for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Our provision for income taxes for the three months ended September 30, 2008 was increased by $2.7 million for the tax effect of enacted state tax law changes and $1.4 million for U.S. residual tax related to foreign dividends paid, or deemed paid, from certain of our international subsidiaries.

Discontinued Operations
(dollars in thousands)

	Three months ended
	September 30,					Increase
	2009			2008		(Decrease)
Income (loss) from discontinued operations, net of tax	$	(3,834	)	$	16,070		(124	)%

The loss from discontinued operations, net of tax for the three months ended September 30, 2009 relates primarily to expenses incurred after the expropriation of our assets and operations in the second quarter of 2009. The $16.1 million of income from discontinued operations, net of tax for the three months ended September 30, 2008 relates to operations before substantially all of our assets and operations in Venezuela were expropriated in June 2009.

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THE NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2008

Summary of Business Segment Results

North America Contract Operations
(dollars in thousands)

	Nine months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	540,415		$	591,609			(9	)%
Cost of sales (excluding depreciation and amortization expense)		232,681			259,031			(10	)%
Gross margin	$	307,734		$	332,578			(7	)%
Gross margin percentage		57	%		56	%		1	%

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 9% decrease in average operating horsepower in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Our average operating horsepower decreased due to a deterioration in the economic climate and natural gas energy conditions in North America. Revenue for the nine months ended September 30, 2009 benefited from the inclusion of $20.2 million in revenues compared to $5.9 million in revenue for the nine months ended September 30, 2008 from EMIT, which we acquired in July 2008.

International Contract Operations
(dollars in thousands)

	Nine months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	282,547		$	278,388			1	%
Cost of sales (excluding depreciation and amortization expense)		108,552			106,753			2	%
Gross margin	$	173,995		$	171,635			1	%
Gross margin percentage		62	%		62	%		0	%

The increase in revenues in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily caused by an increase in revenue in the Middle East and Brazil of approximately $8.6 million and $5.5 million, respectively, due to the start up of new contracts in these regions. This was partially offset by an $8.0 million decrease in revenues in Mexico as a result of the expiration of a large contract. Gross margin improved due to the start-up of new contracts in the Eastern Hemisphere and a $3.7 million reduction in costs during the nine months ended September 30, 2009 associated with a project in the Cawthorne Channel in Nigeria that was terminated during 2009.

Aftermarket Services
(dollars in thousands)

	Nine months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	229,561		$	266,622			(14	)%
Cost of sales (excluding depreciation and amortization expense)		180,892			212,454			(15	)%
Gross margin	$	48,669		$	54,168			(10	)%
Gross margin percentage		21	%		20	%		1	%

The decrease in revenue, cost of sales and gross margin was due to lower activity levels in North America caused by a decline in market conditions.

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Fabrication
(dollars in thousands)

	Nine months ended
	September 30,						Increase
	2009			2008			(Decrease)
Revenue	$	1,008,363		$	1,095,601			(8	)%
Cost of sales (excluding depreciation and amortization expense)		840,311			912,005			(8	)%
Gross margin	$	168,052		$	183,596			(8	)%
Gross margin percentage		17	%		17	%		0	%

The decrease in revenue in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily due to a $137.5 million reduction in revenues in the Eastern Hemisphere caused by the completion of various projects and a reduction in new bookings caused by weaker market conditions in 2009. The decrease in revenues in the Eastern Hemisphere was partially offset by an increase in compressor and accessory fabrication product line sales of $48.6 million in Latin America during the nine months ended September 30, 2009. The gross margin percentage in the nine months ended September 30, 2009 was negatively impacted by the deterioration in market conditions impacting our fabrication business and under-absorption of overhead costs resulting from the decrease in activity. The gross margin percentage for the nine months ended September 30, 2009 benefited from a $6.8 million recovery of costs that were previously expensed as a result of an insurance settlement. The gross margin percentage for the nine months ended September 30, 2008 was negatively impacted by $31.8 million in cost overruns recorded on two Eastern Hemisphere projects.

Costs and Expenses
(dollars in thousands)

	Nine months ended
	September 30,						Increase
	2009			2008			(Decrease)
Selling, general and administrative	$	253,091		$	262,643			(4	)%
Merger and integration expenses		—			9,619			n/a
Depreciation and amortization		255,757			245,339			4	%
Fleet impairment		86,684			2,450			3,438	%
Restructuring charges		17,996			—			n/a
Goodwill impairment		150,778			—			n/a
Interest expense		89,268			96,737			(8	)%
Equity in (income) loss of non-consolidated affiliates		92,695			(19,712	)		(570	)%
Other (income) expense, net		(25,563	)		(7,823	)		227	%

The decrease in SG&A expense was primarily due to our efforts to reduce costs in response to lower business activity levels during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. As a percentage of revenue, SG&A expense for each of the nine month periods ended September 30, 2009 and 2008 was 12%.

Merger and integration expenses related to the merger between Hanover and Universal were $9.6 million during the nine months ended September 30, 2008. These expenses were primarily comprised of professional fees, amortization of retention bonus awards, change of control payments and severance for employees.

The increase in depreciation and amortization expense during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily the result of property, plant and equipment additions. The nine months ended September 30, 2009 also included $1.8 million in amortization expense compared to $0.7 million in amortization expense for the nine months ended September 30, 2008 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

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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. During the three months ended September 30, 2008, we recorded a $1.0 million impairment related to the loss sustained on offshore units that were on platforms which capsized during Hurricane Ike.

Restructuring charges were $18.0 million for the nine months ended September 30, 2009. These expenses were due to our efforts 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 and consolidate certain of our fabrication facilities. 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 nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, was primarily due to a decrease in our weighted average effective interest rate, including the impact of interest rate swaps, to 4.6% for the nine months ended September 30, 2009 from 5.4% for the nine months ended September 30, 2008. This decrease was partially offset by a higher average debt balance during the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008.

The loss recorded in equity in (income) loss of non-consolidated affiliates was the result of the expropriation of our Venezuelan joint venture’s assets and operations during the six months ended June 30, 2009. 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 our investments in non-consolidated affiliates.

The change in other (income) expense, net, was primarily due to a foreign currency translation gain of $13.1 million for the nine months ended September 30, 2009 compared to a loss of $1.8 million for the nine months ended September 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. The increase in the foreign currency translation gain for the nine months ended September 30, 2009 was primarily caused by changes in the translation rates between the U.S. dollar and the Brazilian Real and Argentine Peso. The change in other (income) expense, net was also impacted by a $7.9 million increase in gains on asset sales in the nine months ended September 30, 2009.

Income Taxes
(dollars in thousands)

	Nine months ended
	September 30,						Increase
	2009			2008			(Decrease)
Provision for income taxes	$	1,477		$	70,400			(98	)%
Effective tax rate		(0.7	)%		46.1	%		(46.8	)%

The decrease in our provision for income taxes was primarily due to lower income before income taxes, excluding $98.1 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 nine months ended September 30, 2009. The provision was further decreased for the nine months ended September 30, 2009 for an $8.4 million deferred tax benefit related to the impairment of our investments in non-consolidated affiliates. Our provision for income taxes for the nine months ended September 30, 2008 was increased by $2.7 million for the tax effect of enacted state tax law changes and $1.7 million for U.S. residual tax related to foreign dividends paid, or deemed paid, from certain of our international subsidiaries.

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Discontinued Operations
(dollars in thousands)

	Nine months ended
	September 30,					Increase
	2009			2008		(Decrease)
Income (loss) from discontinued operations, net of tax	$	(345,351	)	$	34,654		(1,097	)%

As discussed in Note 2 to the Financial Statements, on June 2, 2009, the Venezuelan State-owned oil company, Petroleos de Venezuela S.A. (“PDVSA”) commenced taking possession of our assets and operations in a number of our locations in Venezuela. As of the end of the second quarter of 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 $380.0 million, primarily related to receivables, inventory, fixed assets and goodwill during the nine months ended September 30, 2009. These asset impairments were partially offset by a $22.6 million benefit primarily from the reversal of deferred income taxes related to our Venezuelan operations in the nine months ended September 30, 2009 compared to a benefit for income taxes of $3.0 million in the nine months ended September 30, 2008.

Noncontrolling Interest

As of September 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 $86.2 million at September 30, 2009, compared to $123.9 million at December 31, 2008. Working capital decreased to $555.0 million at September 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):

	Nine Months Ended
	September 30,
	2009			2008
Net cash provided by (used in) continuing operations:
Operating activities	$	323,686		$	308,127
Investing activities		(279,384	)		(429,735	)
Financing activities		(89,587	)		89,757
Discontinued Operations		—			1,815
Effect of exchange rate changes on cash and cash equivalents		7,573			(1,318	)
Net change in cash and cash equivalents	$	(37,712	)	$	(31,354	)

Operating Activities:The increase in cash provided by operating activities for the nine months ended September 30, 2009 was primarily due to an increase in cash provided by collections of accounts receivable, partially offset by an increase in cash used for accounts payable and other liabilities and a reduction in sales and gross margin contributed by our North America contract operations and fabrication business segments as compared to the nine months ended September 30, 2008.

Investing Activities:The decrease in cash used in investing activities was primarily attributable to approximately $133 million cash paid for acquisitions in the nine months ended September 30, 2008 and reduced capital expenditures during the nine months ended September 30, 2009.

Financing Activities:The increase in cash used in financing activities during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily attributable to higher net debt repayments and 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”) in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase was partially offset by reduced repurchases of our common stock during the nine months ended September 30, 2009.

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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 $375 million to $400 million in net capital expenditures during 2009, including (1) contract operations equipment additions and (2) approximately $95 million to $105 million on equipment maintenance capital related to our contract operations business. Net capital expenditures are net of fleet sales.

Long-Term Debt. 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 September 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 $400 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 September 30, 2009, all amounts outstanding were LIBOR loans and the applicable margin was 0.825%. The weighted average interest rate at September 30, 2009 on the outstanding balance, excluding the effect of interest rate swaps, was 1.1%.

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 September 30, 2009, we had $40.5 million in outstanding borrowings and $279.2 million in letters of credit outstanding under our revolving credit facility. Additional borrowings of up to approximately $530.3 million were available under that facility as of September 30, 2009.

In August 2007, Exterran ABS entered into a $1.0 billion asset-backed securitization facility (the “2007 ABS Facility”). As of September 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 September 30, 2009 on borrowings under the 2007 ABS Facility, excluding the effect of interest rate swaps, was 1.1%.

Repayment of the 2007 ABS Facility notes has been secured by a pledge of all of the assets of Exterran ABS, consisting primarily of compression services contracts and a fleet of natural gas compressors. Under the 2007 ABS Facility, we had $3.4 million of restricted cash as of September 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.

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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 September 30, 2009, there was $267.0 million in outstanding borrowings under the revolving credit facility and $48.0 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 September 30, 2009 all amounts outstanding were LIBOR loans and the applicable margin was 1.75%. The weighted average interest rate on the outstanding balance of the Partnership’s revolving credit facility, at September 30, 2009, excluding the effect of interest rate swaps, was 2.2%.

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 cash 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 September 30, 2009, all amounts outstanding were LIBOR loans and the applicable margin was 2.25%. The weighted average interest rate on the outstanding balance of the Partnership’s term loan at September 30, 2009, excluding the effect of interest rate swaps, was 2.5%.

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 September 30, 2009, the Partnership maintained a 4.3 to 1.0 EBITDA to Total Interest Expense

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ratio and a 4.7 to 1.0 Total Debt to EBITDA ratio. If the Partnership continues to experience a significant deterioration in the demand for its services due to the current economic environment in the U.S., and is unable to consummate further acquisitions (including the announced acquisition discussed in Note 18 to the Financial Statements) from us, amend its senior secured credit facility or restructure its debt, it estimates that it could be in violation of the maximum Total Debt to EBITDA covenant ratio contained in its senior secured credit facility as early as the end of 2009. As of September 30, 2009, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

In connection with the transaction described in Note 18 to the Financial Statements, the Partnership entered into a new $150 million asset-backed securitization facility (the “2009 ABS Facility”). The 2009 ABS Facility notes are revolving in nature and are payable in July 2013. Interest and fees payable to the noteholders will accrue on these notes at a variable rate consisting of an applicable margin of 3.5% plus, at the Partnership’s option, either LIBOR or a base rate. Repayment of the 2009 ABS Facility notes has been secured by a pledge of all of the assets of EXLP ABS 2009 LLC and its subsidiaries, consisting primarily of compression services contracts and a fleet of natural gas compressor units. As of November 5, 2009, none of the 2009 ABS Facility notes has been issued. Concurrent with the closing of the 2009 ABS Facility, our availability under the 2007 ABS Facility was reduced by $200.0 million to $800.0 million.

As of September 30, 2009, we had approximately $2.4 billion in outstanding debt obligations, consisting of $765.0 million outstanding under the 2007 ABS Facility, $790.0 million outstanding under our term loan, $40.5 million outstanding under our revolving credit facility, $143.8 million outstanding under our 4.75% convertible notes, $261.7 million outstanding under our 4.25% convertible notes, $267.0 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 facilities 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 September 30, 2009, we maintained a 7.1 to 1.0 EBITDA to Total Interest Expense ratio, a 3.2 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.5 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 September 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 September 30, 2009, we would have had a 6.6 to 1.0 EBITDA to Total Interest Expense ratio, a 3.4 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.7 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.

The interest rate we pay under our Credit Agreement can be affected by changes in our credit rating. As of September 30, 2009, our credit ratings as assigned by Moody’s and Standard & Poor’s were:

		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 facilities or we may obtain additional debt or equity financing.

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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 nine months ended September 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 October 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 July 1, 2009 through September 30, 2009. The record date for this distribution is November 9, 2009 and payment is expected to occur on November 13, 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 measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

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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 September 30, 2009, after taking into consideration interest rate swaps, we had approximately $510.0 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 $5.1 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 September 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.

The price of our common stock may experience volatility.

The price of our common stock may be volatile. Some of the factors that could affect the price of our common stock are quarterly increases or decreases in revenue or earnings, changes in revenue or earnings estimates by the investment community, and speculation in the press or investment community about our financial condition or results of operations. General market conditions and North America or international economic factors and political events unrelated to our performance may also affect our stock price. In addition, the price of our common stock may be impacted by changes in the value of our investment in the Partnership. For these reasons, investors should not rely on recent trends in the price of our common stock to predict the future price of our common stock or our financial results.

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;

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• foreign currency exchange rate risks;

• 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 facilities 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 September 30, 2009, we maintained a 7.1 to 1.0 EBITDA to Total Interest Expense ratio, a 3.2 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.5 to 1.0 Senior Secured Debt to EBITDA ratio. As of September 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 September 30, 2009, we would have had a 6.6 to 1.0 EBITDA to Total Interest Expense ratio, a 3.4 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.7 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 September 30, 2009, the Partnership maintained a 4.3 to 1.0 EBITDA to Total Interest Expense ratio and a 4.7 to 1.0 Total Debt to EBITDA ratio. As of September 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

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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 due to the current economic environment in the U.S., and is unable to consummate further acquisitions (including the announced acquisition discussed in Note 18 to the Financial Statements) from us, amend its senior secured credit facility or restructure its debt, it estimates that it could be in violation of the maximum Total Debt to EBITDA covenant ratio contained in its senior secured credit facility as early as the end 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 is considering the Clean Energy Jobs and American Power Act, similar but somewhat more stringent legislation that was introduced in late 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 three other recent regulatory developments, along with recent statements by the Administrator of the EPA, 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. That rule was finalized in late September 2009 and, at least for now, does not apply to oil and gas systems. 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. Third, the EPA in late September 2009 proposed a rule that would provide for the tailored application of the agency’s major air permitting programs to facilities — generally large industrial facilities of the type covered by the inventory rule described above — that annually emit over 25,000 tons of greenhouse gases. Although it is not possible at this time to

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predict how Congressional or state legislation that may be enacted or how these or other proposed 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 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
2.2	Contribution, Conveyance and Assumption Agreement, dated October 2, 2009, by and among Exterran Holdings, Inc., Exterran Energy Corp., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., 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 October 5, 2009
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
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

* 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: November 5, 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
2.2	Contribution, Conveyance and Assumption Agreement, dated October 2, 2009, by and among Exterran Holdings, Inc., Exterran Energy Corp., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., 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 October 5, 2009
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
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

* Filed herewith.

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