Archrock (AROC) 10-Q 2011 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2011

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

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

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

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

Number of shares of the common stock of the registrant outstanding as of July 28, 2011: 63,936,692 shares.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)		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		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosures About Market Risk		45
Item 4. Controls and Procedures		45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		47
Item 1A. Risk Factors		47
Item 6. Exhibits		48
SIGNATURES		49
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(unaudited)

	June 30,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	35,097		$	44,616
Restricted cash		1,757			1,941
Accounts receivable, net of allowance of $11,997 and $13,108, respectively		414,375			429,047
Inventory, net		396,670			396,287
Costs and estimated earnings in excess of billings on uncompleted contracts		164,104			147,901
Current deferred income taxes		38,110			36,093
Other current assets		105,360			98,801
Current assets associated with discontinued operations		4,759			5,918
Total current assets		1,160,232			1,160,604
Property, plant and equipment, net		3,035,154			3,092,652
Goodwill, net		197,475			196,680
Intangible and other assets, net		265,333			282,428
Long-term assets associated with discontinued operations		8,794			9,172
Total assets	$	4,666,988		$	4,741,536
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable, trade	$	166,049		$	157,206
Accrued liabilities		279,164			330,551
Deferred revenue		115,364			124,282
Billings on uncompleted contracts in excess of costs and estimated earnings		97,722			130,610
Current liabilities associated with discontinued operations		15,408			15,554
Total current liabilities		673,707			758,203
Long-term debt		1,704,200			1,897,147
Other long-term liabilities		122,323			150,227
Deferred income taxes		174,486			120,424
Long-term liabilities associated with discontinued operations		14,184			13,111
Total liabilities		2,688,900			2,939,112
Commitments and contingencies (Note 11)
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; 69,932,197 and 69,071,027 shares issued, respectively		699			691
Additional paid-in capital		3,635,497			3,500,292
Accumulated other comprehensive income (loss)		8,446			(20,225	)
Accumulated deficit		(1,725,370	)		(1,667,314	)
Treasury stock — 5,995,363 and 5,841,087 common shares, at cost, respectively		(206,411	)		(203,996	)
Total Exterran stockholders’ equity		1,712,861			1,609,448
Noncontrolling interest		265,227			192,976
Total equity		1,978,088			1,802,424
Total liabilities and equity	$	4,666,988		$	4,741,536

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						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenues:
North America contract operations	$	150,755		$	152,048		$	301,809		$	304,675
International contract operations		110,944			131,087			216,625			240,827
Aftermarket services		94,142			83,363			175,840			153,686
Fabrication		301,731			277,324			581,777			520,942
		657,572			643,822			1,276,051			1,220,130
Costs and Expenses:
Cost of sales (excluding depreciation and amortization expense):
North America contract operations		75,509			74,811			156,018			146,186
International contract operations		49,766			42,873			90,732			83,728
Aftermarket services		86,533			70,290			159,071			126,902
Fabrication		269,352			246,398			508,643			443,271
Selling, general and administrative		92,192			94,166			183,473			178,217
Depreciation and amortization		92,676			106,188			183,154			197,963
Long-lived asset impairment		2,063			745			2,063			2,452
Interest expense		34,586			32,608			71,756			65,542
Equity in loss of non-consolidated affiliates		—			348			—			348
Other (income) expense, net		(2,951	)		(2,485	)		(3,365	)		(4,668	)
		699,726			665,942			1,351,545			1,239,941
Loss before income taxes		(42,154	)		(22,120	)		(75,494	)		(19,811	)
Provision for (benefit from) income taxes		(12,499	)		184			(17,513	)		(3,815	)
Loss from continuing operations		(29,655	)		(22,304	)		(57,981	)		(15,996	)
Income (loss) from discontinued operations, net of tax		(569	)		38,957			(2,707	)		49,382
Net income (loss)		(30,224	)		16,653			(60,688	)		33,386
Less: Net loss attributable to the noncontrolling interest		2,198			873			2,632			802
Net income (loss) attributable to Exterran stockholders	$	(28,026	)	$	17,526		$	(58,056	)	$	34,188
Basic income (loss) per common share:
Loss from continuing operations attributable to Exterran stockholders	$	(0.44	)	$	(0.35	)	$	(0.89	)	$	(0.25	)
Income (loss) from discontinued operations attributable to Exterran stockholders		(0.01	)		0.63			(0.04	)		0.80
Net income (loss) attributable to Exterran stockholders	$	(0.45	)	$	0.28		$	(0.93	)	$	0.55
Diluted income (loss) per common share:
Loss from continuing operations attributable to Exterran stockholders	$	(0.44	)	$	(0.35	)	$	(0.89	)	$	(0.25	)
Income (loss) from discontinued operations attributable to Exterran stockholders		(0.01	)		0.63			(0.04	)		0.80
Net income (loss) attributable to Exterran stockholders	$	(0.45	)	$	0.28		$	(0.93	)	$	0.55
Weighted average common and equivalent shares outstanding:
Basic		62,669			62,044			62,529			61,925
Diluted		62,669			62,044			62,529			61,925

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						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net income (loss)	$	(30,224	)	$	16,653		$	(60,688	)	$	33,386
Other comprehensive income (loss), net of tax:
Change in fair value of derivative financial instruments		(3,714	)		(2,108	)		(20	)		(2,975	)
Adjustments from sale of Partnership units		142			—			1,184			—
Amortization of payments to terminate interest rate swaps		4,873			—			9,722			—
Foreign currency translation adjustment		2,570			(10,509	)		16,186			(15,917	)
Total other comprehensive income (loss)		3,871			(12,617	)		27,072			(18,892	)
Comprehensive income (loss)		(26,353	)		4,036			(33,616	)		14,494
Less: Comprehensive loss attributable to the noncontrolling interest		3,778			501			4,231			489
Comprehensive income (loss) attributable to Exterran	$	(22,575	)	$	4,537		$	(29,385	)	$	14,983

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

5

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(unaudited)

	Exterran Holdings, Inc. Stockholders
						Accumulated
			Additional			Other
	Common		Paid-in			Comprehensive			Treasury			Accumulated			Noncontrolling
	Stock		Capital			Income (loss)			Stock			Deficit			Interest			Total
Balance at December 31, 2009	$	682	$	3,434,618		$	(27,879	)	$	(201,935	)	$	(1,565,489	)	$	176,862		$	1,816,859
Treasury stock purchased										(1,971	)								(1,971	)
Options exercised		1		655															656
Shares issued in employee stock purchase plan		1		1,223															1,224
Stock-based compensation expense, net of forfeitures		6		11,622												86			11,714
Income tax expense from stock-based compensation expense				(1,138	)														(1,138	)
Cash distribution to noncontrolling unitholders of the Partnership																(7,753	)		(7,753	)
Other																92			92
Comprehensive income (loss):
Net income (loss)													34,188			(802	)		33,386
Derivatives change in fair value, net of tax							(3,288	)								313			(2,975	)
Foreign currency translation adjustment							(15,917	)											(15,917	)
Balance at June 30, 2010	$	690	$	3,446,980		$	(47,084	)	$	(203,906	)	$	(1,531,301	)	$	168,798		$	1,834,177
Balance at December 31, 2010	$	691	$	3,500,292		$	(20,225	)	$	(203,996	)	$	(1,667,314	)	$	192,976		$	1,802,424
Treasury stock purchased										(2,415	)								(2,415	)
Options exercised				487															487
Shares issued in employee stock purchase plan				940															940
Stock-based compensation, net of forfeitures		8		10,318												133			10,459
Income tax expense from stock-based compensation expense				(221	)														(221	)
Net proceeds from sale of Partnership units, net of tax				123,681			1,184									92,190			217,055
Cash distribution to noncontrolling unitholders of the Partnership																(15,841	)		(15,841	)
Comprehensive income (loss):
Net loss													(58,056	)		(2,632	)		(60,688	)
Derivatives change in fair value, net of tax							1,579									(1,599	)		(20	)
Amortization of payments to terminate interest rate swaps, net of tax							9,722												9,722
Foreign currency translation adjustment							16,186												16,186
Balance at June 30, 2011	$	699	$	3,635,497		$	8,446		$	(206,411	)	$	(1,725,370	)	$	265,227		$	1,978,088

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

6

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	(60,688	)	$	33,386
Adjustments:
Depreciation and amortization		183,154			197,963
Long-lived asset impairment		2,063			2,452
Deferred financing cost amortization		4,393			2,537
(Income) loss from discontinued operations, net of tax		2,707			(49,382	)
Amortization of debt discount		8,902			7,947
Provision for doubtful accounts		74			3,169
Gain on sale of property, plant and equipment		(3,140	)		(2,566	)
Equity in loss of non-consolidated affiliates, net of dividends received		—			348
Interest rate swaps		—			557
Amortization of payments to terminate interest rate swaps		9,722			—
(Gain) loss on remeasurement of intercompany balances		(1,173	)		2,774
Stock-based compensation expense		10,326			11,714
Deferred income tax provision		(24,770	)		(21,421	)
Changes in assets and liabilities:
Accounts receivable and notes		(1,842	)		21,310
Inventory		(5,739	)		73,097
Costs and estimated earnings versus billings on uncompleted contracts		(46,037	)		(33,403	)
Prepaid and other current assets		(4,147	)		24,043
Accounts payable and other liabilities		(66,704	)		1,279
Deferred revenue		(12,207	)		(72,932	)
Other		(375	)		(7,209	)
Net cash provided by (used in) continuing operations		(5,481	)		195,663
Net cash provided by (used in) discontinued operations		662			(3,880	)
Net cash provided by (used in) operating activities		(4,819	)		191,783
Cash flows from investing activities:
Capital expenditures		(107,483	)		(109,399	)
Proceeds from sale of property, plant and equipment		32,545			18,404
Cash invested in non-consolidated affiliates		—			(348	)
Net proceeds from the sale of Partnership units		289,908			—
(Increase) decrease in restricted cash		184			(1,523	)
Net cash provided by (used in) continuing operations		215,154			(92,866	)
Net cash provided by discontinued operations		—			89,509
Net cash provided by (used in) investing activities		215,154			(3,357	)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt		1,003,409			385,221
Repayments of long-term debt		(1,205,258	)		(572,764	)
Payments for debt issue costs		(980	)		—
Proceeds from stock options exercised		487			656
Proceeds from stock issued pursuant to our employee stock purchase plan		940			1,224
Purchases of treasury stock		(2,415	)		(1,971	)
Stock-based compensation excess tax benefit		816			801
Distributions to noncontrolling partners in the Partnership		(15,841	)		(7,753	)
Net cash used in financing activities		(218,842	)		(194,586	)
Effect of exchange rate changes on cash and equivalents		(1,012	)		(3,736	)
Net decrease in cash and cash equivalents		(9,519	)		(9,896	)
Cash and cash equivalents at beginning of period		44,616			83,745
Cash and cash equivalents at end of period	$	35,097		$	73,849

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

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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. (“we” or “Exterran”) 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.

Revenue Recognition

Revenue from contract operations is recorded when earned, which generally occurs monthly at the time the monthly service is provided to customers in accordance with the contracts. Aftermarket services revenue is recorded as products are delivered and title is transferred or services are performed for the customer.

Fabrication revenue is recognized using the percentage-of-completion method when the applicable criteria are met. We estimate percentage-of-completion for compressor and accessory fabrication on a direct labor hour to total labor hour basis. Production and processing equipment fabrication percentage-of-completion is estimated using the direct labor hour to total labor hour and the cost to total cost basis. The duration of these projects is typically between three and 36 months. Fabrication revenue is recognized using the completed contract method when the applicable criteria of the percentage-of-completion method are not met. Fabrication revenue from a claim is recognized to the extent that costs related to the claim have been incurred, when collection is probable and can be reliably estimated.

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. Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and are included in the computation of earnings (loss) per share following the two-class method. Therefore, restricted share awards that contain the right to vote and receive dividends are included in the computation of basic and diluted earnings (loss) per share, unless their effect would be anti-dilutive.

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 to be 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						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Loss from continuing operations attributable to Exterran stockholders	$	(27,457	)	$	(21,431	)	$	(55,349	)	$	(15,194	)
Income (loss) from discontinued operations, net of tax		(569	)		38,957			(2,707	)		49,382
Net income (loss) attributable to Exterran stockholders	$	(28,026	)	$	17,526		$	(58,056	)	$	34,188

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There were no potential shares of common stock included in computing the dilutive potential shares of common stock used in diluted net income (loss) per common share for the three and six months ended June 30, 2011 and 2010. 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				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Net dilutive potential common shares issuable:
On exercise of options where exercise price is greater than average market value for the period		2,333		1,376		1,826		1,436
On exercise of options and vesting of restricted stock and restricted stock units		433		757		634		378
On settlement of employee stock purchase plan shares		14		11		12		14
On exercise of warrants		2,808		2,808		2,808		2,808
On conversion of 4.25% convertible senior notes due 2014		15,334		15,334		15,334		15,334
On conversion of 4.75% convertible senior notes due 2014		3,115		3,115		3,115		3,115
Net dilutive potential common shares issuable		24,037		23,401		23,729		23,085

Financial Instruments

Our financial instruments include cash, restricted cash, receivables, payables, interest rate swaps and foreign currency hedges. At June 30, 2011 and December 31, 2010, the estimated fair value of these financial instruments approximated their carrying value as reflected in our consolidated balance sheets. Our financial instruments also include debt. 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 the valuation dates. A summary of the fair value and carrying value of our debt as of June 30, 2011 and December 31, 2010 is shown in the table below (in thousands):

	As of June 30, 2011				As of December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Fixed rate debt	$	784,880	$	819,000	$	775,810	$	808,000
Floating rate debt		919,320		1,013,000		1,121,337		1,101,000
Total debt	$	1,704,200	$	1,832,000	$	1,897,147	$	1,909,000

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.

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 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.

In June  2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela and by 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

9

investment treaties and customary international law. In this connection, on June 16, 2009, our Spanish subsidiary 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. On March 23, 2010, our Spanish subsidiary filed a request for the institution of an arbitration proceeding against Venezuela with the International Centre for Settlement of Investment Disputes (“ICSID”) related to the seized assets and investments, which was registered by ICSID on April 12, 2010. The arbitration hearing on jurisdiction and the merits is presently scheduled to take place in July 2012.

We maintained insurance for the risk of expropriation of our investments in Venezuela, subject to a policy limit of $50 million. During the year ended December 31, 2009, we recorded a receivable of $50 million related to this insurance policy because we determined that recovery under this policy of a portion of our loss was probable. We collected the $50 million under our policy in January 2010. Under the terms of the insurance policy, certain compensation we may receive from the Venezuelan government or PDVSA for our expropriated assets, receivables and operations will be applied first to the reimbursement of out-of-pocket expenses incurred by us and the insurance company, second to the insurance company until the $50 million payment has been repaid and third to us.

As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments during the year ended December 31, 2009, totaling $329.7 million ($379.7 million excluding the insurance proceeds of $50 million). These charges primarily related to receivables, inventory, fixed assets and goodwill, and are reflected in Income (loss) from discontinued 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 from Venezuela in recording the loss on expropriation.

The expropriation of our business in Venezuela meets the criteria established for recognition as discontinued operations under accounting standards for presentation of financial statements. Therefore, our Venezuela contract operations and aftermarket services businesses are now reflected as discontinued operations in our consolidated statements of operations.

In January 2010, the Venezuelan government announced a devaluation of the Venezuelan bolivar. This devaluation resulted in a translation gain of approximately $12.2 million on the remeasurement of our net liability position in Venezuela and is reflected in other (income) loss, net in the table below for the six months ended June 30, 2010. The functional currency of our Venezuela subsidiary is the U.S. dollar and we had more liabilities than assets denominated in bolivars in Venezuela at the time of the devaluation. The exchange rate used to remeasure our net liabilities changed from 2.15 bolivars per U.S. dollar at December 31, 2009 to 4.3 bolivars per U.S. dollar in January 2010.

Our loss (recovery) attributable to expropriation for the three and six months ended June 30, 2010 includes a benefit of $40.9 million from payments received from PDVSA and its affiliates for the fixed assets for two projects. These payments relate to the recovery of the loss we recognized on the value of the equipment for these projects in the second quarter of 2009.

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenues	$	—		$	352		$	—		$	580
Expenses and selling, general and administrative		135			686			591			1,742
Loss (recovery) attributable to expropriation		148			(39,912	)		1,461			(40,212	)
Other (income) loss, net		(69	)		79			(150	)		(12,062	)
Provision for income taxes		355			542			805			1,730
Income (loss) from discontinued operations, net of tax	$	(569	)	$	38,957		$	(2,707	)	$	49,382

10

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

	June 30,		December 31,
	2011		2010
Cash	$	473	$	754
Accounts receivable		5		434
Inventory		1,017		1,077
Other current assets		3,264		3,653
Total current assets associated with discontinued operations		4,759		5,918
Property, plant and equipment, net		—		502
Other long-term assets		8,794		8,670
Total assets associated with discontinued operations	$	13,553	$	15,090
Accounts payable	$	676	$	801
Accrued liabilities		13,233		13,932
Deferred revenues		1,499		821
Total current liabilities associated with discontinued operations		15,408		15,554
Other long-term liabilities		14,184		13,111
Total liabilities associated with discontinued operations	$	29,592	$	28,665

3. INVENTORY

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

	June 30,		December 31,
	2011		2010
Parts and supplies	$	233,372	$	244,618
Work in progress		128,180		116,371
Finished goods		35,118		35,298
Inventory, net of reserves	$	396,670	$	396,287

As of June 30, 2011 and December 31, 2010, we had inventory reserves of $17.1 million and $18.3 million, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

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

	June 30,			December 31,
	2011			2010
Compression equipment, facilities and other fleet assets	$	4,233,145		$	4,302,483
Land and buildings		173,987			166,273
Transportation and shop equipment		242,526			225,073
Other		147,635			142,770
		4,797,293			4,836,599
Accumulated depreciation		(1,762,139	)		(1,743,947	)
Property, plant and equipment, net	$	3,035,154		$	3,092,652

5. 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 equity method investments are primarily comprised of entities that own, operate, service and maintain compression and other related facilities.

11

Our ownership interest and location of each equity method investee at June 30, 2011 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

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 and therefore, we recorded a full impairment of our investment in PIGAP II and El Furrial in the second quarter of 2009. 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 or when we may receive any such compensation.

Because the assets and operations of our investments in our remaining non-consolidated affiliates have been expropriated, we currently do not expect to have any meaningful equity earnings in non-consolidated affiliates in the future from these investments, excluding any compensation we may receive related to the expropriation.

6. LONG-TERM DEBT

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

	June 30,		December 31,
	2011		2010
Revolving credit facility due August 2012	$	34,000	$	50,395
Term loan		345,820		615,943
2007 asset-backed securitization facility notes due July 2012		—		6,000
Partnership’s revolving credit facility due November 2015		389,500		299,000
Partnership’s term loan facility due November 2015		150,000		150,000
4.25% convertible senior notes due June 2014 (presented net of the unamortized discount of $64.3 million and $73.2 million, respectively)		290,729		281,827
4.75% convertible senior notes due January 2014		143,750		143,750
7.25% senior notes due December 2018		350,000		350,000
Other, interest at various rates, collateralized by equipment and other assets		401		232
Long-term debt	$	1,704,200	$	1,897,147

In March 2011, we repaid the $6.0 million outstanding balance under our asset-backed securitization facility (the “2007 ABS Facility”) and terminated that facility. As a result of the termination of the 2007 ABS Facility, we expensed $1.4 million of unamortized deferred financing costs, which is reflected in interest expense in our condensed consolidated statements of operations for the six months ended June 30, 2011.

In June 2009, we issued under a shelf registration statement $355.0 million aggregate principal amount of 4.25% convertible senior notes due June 2014 (the “4.25% Notes”). The 4.25% Notes are convertible upon the occurrence of certain conditions 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 value of the shares the 4.25% Notes can be converted into did not exceed their principal amount as of June 30, 2011. We may not redeem the 4.25% Notes prior to their maturity date.

GAAP 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. Upon issuance of our 4.25% Notes, $97.9 million was recorded as a debt discount and reflected in equity related to the convertible feature of these notes. The discount on the 4.25% Notes will be amortized using the effective interest method through June 30, 2014. During the three months ended June 30, 2011 and 2010, we recognized $3.7 million and $3.8 million, respectively, of interest expense related to the contractual interest coupon. During each of the six months ended June 30, 2011 and 2010, we recognized $7.5 million of interest expense related to the contractual interest coupon. During the three months ended June 30, 2011 and 2010, we recognized $4.5 million and $4.0 million, respectively, of amortization of the debt discount. During the six months ended June 30, 2011 and 2010, we

12

recognized $8.9 million and $7.9 million, respectively, of amortization of the debt discount. The effective interest rate on the debt component of these notes was 11.67%.

As of June 30, 2011, our senior secured borrowings consisted of our term loan facility and our revolving credit facility. As of June 30, 2011, we had $34.0 million in outstanding borrowings under our revolving credit facility, $241.1 million in letters of credit outstanding under our revolving credit facility and $345.8 million in outstanding borrowings under our term loan facility. At June 30, 2011, we had undrawn capacity of $574.9 million under our revolving credit facility. Our senior secured credit agreement limits our Total Debt to EBITDA ratio to not greater than 5.0 to 1.0. Due to this limitation, $205.3 million of the $574.9 million of undrawn capacity under our revolving credit facility was available for additional borrowings as of June 30, 2011.

On November 3, 2010, the Partnership, as guarantor, and EXLP Operating LLC, a wholly-owned subsidiary of the Partnership, as borrower, entered into an amendment and restatement of their senior secured credit agreement (as so amended and restated, the “Partnership Credit Agreement”) to provide for a new five-year, $550 million senior secured credit facility consisting of a $400 million revolving credit facility and a $150 million term loan facility. In March 2011, the revolving borrowing capacity under this facility was increased by $150.0 million to $550.0 million.

As of June 30, 2011, the Partnership had $160.5 million of undrawn capacity under its revolving credit facility.

7. ACCOUNTING FOR DERIVATIVES

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

Interest Rate Risk

At June 30, 2011, we were a party to interest rate swaps pursuant to which we pay fixed payments and receive floating payments on a notional value of $815.0 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 $565.0 million expiring on or before August 2012 and the remaining interest rate swaps expiring through November 2015. As of June 30, 2011, the weighted average effective fixed interest rate on our interest rate swaps was 3.4%. 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 no ineffectiveness in the three and six months ended June 30, 2011. We recorded approximately $0.1 million and $0.2 million of interest expense for the three and six months ended June 30, 2010, respectively, due to the ineffectiveness related to these swaps. We estimate that approximately $23.4 million of deferred pre-tax losses attributable to existing interest rate swaps and included in our accumulated other comprehensive loss at June 30, 2011, 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 consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

In the fourth quarter of 2010, we paid $43.0 million to terminate interest rate swap agreements with a total notional value of $585.0 million and a weighted average effective fixed interest rate of 4.6%. These swaps qualified for hedge accounting and were previously included on our balance sheet as a liability and in accumulated other comprehensive income (loss). The liability was paid in connection with the termination, and the associated amount in accumulated other comprehensive income (loss) will be amortized into interest expense over the original term of the swaps. We estimate that $18.4 million of deferred pre-tax losses from these terminated interest rate swaps will be amortized into interest expense during the next twelve months.

13

Foreign Currency Exchange Risk

We operate in approximately 30 countries throughout the world, and a fluctuation in the value of the currencies of these countries relative to the U.S. dollar could impact 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 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 swaps or forward contracts that meet the hedging requirements or that qualify for hedge accounting treatment are accounted for as cash flow hedges and changes in the fair value are recognized as a component of 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 transaction is recognized and are included under the same category as the income or loss from the underlying assets, liabilities, or anticipated transactions in our consolidated statements of operations. For foreign currency swaps and forward contracts that do not qualify for hedge accounting treatment, changes in fair value and gains and losses on settlement are included under the same category as the income or loss from the underlying assets, liabilities or anticipated transactions in our consolidated statements of operations.

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

	June 30, 2011
		Fair Value
	Balance Sheet Location	Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangibles and other assets	$	1,963
Interest rate hedges	Accrued liabilities		(23,386	)
Interest rate hedges	Other long-term liabilities		(2,269	)
Total derivatives		$	(23,692	)

	December 31, 2010
		Fair Value
	Balance Sheet Location	Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangibles and other assets	$	5,769
Interest rate hedges	Accrued liabilities		(24,432	)
Interest rate hedges	Other long-term liabilities		(10,362	)
Foreign currency hedge	Accrued liabilities		(462	)
Total derivatives		$	(29,487	)

Three Months Ended June 30, 2011

Six Months Ended June 30, 2011

Gain (Loss)

Gain (Loss)

Location of Gain

Reclassified

Location of Gain

Reclassified

(Loss)

from

Gain (Loss)

(Loss)

from

Gain (Loss)

Reclassified from

Accumulated

Recognized in

Reclassified from

Accumulated

Recognized in

Accumulated

Other

Other

Accumulated

Other

Other

Other Comprehensive

Comprehensive

Comprehensive

Other Comprehensive

Comprehensive

Comprehensive

Income

Income (Loss)

Income (Loss)

Income

Income (Loss)

Income (Loss) on

(Loss) into Income

into Income

on

(Loss) into Income

into Income

Derivatives

(Loss)

(Loss)

Derivatives

(Loss)

(Loss)

Derivatives designated as cash flow hedges:

Interest rate hedges

$

(10,205

)

Interest expense

$

(11,364

)

$         (13,983)

Interest expense

$

(24,095

)

Foreign currency hedge

—

Fabrication revenue

—

—

Fabrication revenue

410

Total

$

(10,205

)

$

(11,364

)

$         (13,983)

$

(23,685

)

14

Three Months Ended June 30, 2010

Six Months Ended June 30, 2010

Gain (Loss)

Gain (Loss)

Location of Gain

Reclassified

Location of Gain

Reclassified

(Loss)

from

`

(Loss)

from

Gain (Loss)

Reclassified from

Accumulated

Gain (Loss)

Reclassified from

Accumulated

Recognized in

Accumulated

Other

Recognized in

Accumulated

Other

Other

Other Comprehensive

Comprehensive

Other

Other Comprehensive

Comprehensive

Comprehensive

Income

Income (Loss)

Comprehensive

Income

Income (Loss)

Income (Loss) on

(Loss) into Income

into Income

Income (Loss) on

(Loss) into Income

into Income

Derivatives

(Loss)

(Loss)

Derivatives

(Loss)

(Loss)

Derivatives designated as cash flow hedges:

Interest rate hedges

$

(13,883

)

Interest expense

$

(14,147

)

$         (29,062)

Interest expense

$

(28,459

)

Foreign currency hedge

(7,848

)

Fabrication revenue

(5,476

)

(7,848)

Fabrication revenue

(5,476

)

Total

$

(21,731

)

$

(19,623

)

$         (36,910)

$

(33,935

)

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 facilities and, in that capacity, share proportionally in the collateral pledged under the related facility.

8. FAIR VALUE MEASUREMENTS

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.

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

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

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

The following table summarizes the valuation of our interest rate swaps and impaired assets as of and for the six months ended June 30, 2011, with pricing levels as of the date of valuation (in thousands):

				Quoted
				Market
				Prices in		Significant			Significant
				Active		Other			Unobservable
				Markets		Observable			Inputs
	Total			(Level 1)		Inputs (Level 2)			(Level 3)
Interest rate swaps asset (liability)	$	(23,692	)	$	—	$	(23,692	)	$	—
Impaired long-lived assets		416			—		—			416

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The following table summarizes the valuation of our interest rate swaps, foreign currency derivatives and impaired assets as of and for the six months ended June 30, 2010, with pricing levels as of the date of valuation (in thousands):

				Quoted
				Market
				Prices in		Significant			Significant
				Active		Other			Unobservable
				Markets		Observable			Inputs
	Total			(Level 1)		Inputs (Level 2)			(Level 3)
Interest rate swaps asset (liability)	$	(84,765	)	$	—	$	(84,765	)	$	—
Foreign currency derivatives asset (liability)		(7,848	)		—		(7,848	)		—
Impaired long-lived assets		418			—		—			418

On a quarterly basis, our interest rate swaps and foreign currency derivatives are recorded at fair value utilizing a combination of the market approach and income approach to estimate fair value. Our estimate of the fair value of the impaired long-lived assets was based on the estimated component value of the equipment that we plan to use.

9. LONG-LIVED ASSET IMPAIRMENT

During the six months ended June 30, 2011 and 2010, 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. We performed a cash flow analysis of the expected proceeds from the salvage value of these units to determine the fair value of the assets. The net book value of these assets exceeded the fair value by $2.1 million and $2.5 million, respectively, for the six months ended June 30, 2011 and 2010 and was recorded as a long-lived asset impairment.

10. STOCK-BASED COMPENSATION

Stock Incentive Plan

In August 2007, we adopted the Exterran Holdings, Inc. 2007 Stock Incentive Plan (as amended and restated, the “2007 Plan”) that 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 May 2011, our stockholders approved an amendment to the 2007 Plan that increased the aggregate number of shares of common stock that may be issued under the 2007 Plan to 12,500,000 from 9,750,000. Each option and stock appreciation right granted counts as one share against the aggregate share limit, and each share of restricted stock and restricted stock unit granted counts as two shares against the aggregate share limit. Awards granted under the 2007 Plan that are subsequently cancelled, terminated or forfeited are available for future grant.

Stock Options

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

The weighted average fair value at date of grant for options granted during the six months ended June 30, 2011 was $8.36, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	Six Months
	Ended
	June 30, 2011
Expected life in years		4.5
Risk-free interest rate		1.92	%
Volatility		41.08	%
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 period commensurate with the expected life of the stock options and other factors. We have not historically paid a dividend and do not expect to pay a dividend during the expected life of the stock options.

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The following table presents stock option activity for the six months ended June 30, 2011 (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, 2010		3,124		$	31.20
Granted		375			22.84
Exercised		(33	)		16.16
Cancelled		(211	)		32.72
Options outstanding, June 30, 2011		3,255		$	30.29		4.4	$	3,087
Options exercisable, June 30, 2011		2,214		$	34.44		3.7	$	2,285

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. The total intrinsic value of stock options exercised during the six months ended June 30, 2011 was $0.2 million. As of June 30, 2011, $6.7 million of unrecognized compensation cost related to unvested stock options is expected to be recognized over the weighted-average period of 1.8 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. Our restricted stock and restricted stock unit grants generally vest 33 1/3% on each of the first three anniversaries of the grant date.

The following table presents restricted stock and restricted stock unit activity for the six months ended June 30, 2011 (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, 2010		1,421		$	23.20
Granted		871			22.79
Vested		(563	)		26.38
Cancelled		(70	)		21.78
Non-vested restricted stock and restricted stock units, June 30, 2011		1,659		$	21.97

As of June 30, 2011, $30.0 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 2.2 years.

Our compensation committee’s practice is to grant equity-based awards once a year, in late February or early March after fourth quarter earnings information for the prior year has been released for at least two full trading days. The schedule for making equity-based awards is typically established several months in advance, and is not set based on knowledge of material nonpublic information or in response to our stock price. This practice results in awards being granted on a regular, predictable annual cycle, after annual earnings information has been disseminated to the marketplace. Equity-based awards are occasionally granted at other times during the year, such as upon the hiring of a new employee or following the promotion of an employee. In some instances, the compensation committee may be aware, at the time grants are made, of matters or potential developments that are not ripe for public disclosure at that time but that may result in public announcement of material information at a later date. In March 2011, the compensation committee of our board of directors authorized annual long-term incentive awards of stock options, restricted stock, restricted stock units and performance shares to our executive officers, other employees and non-employee directors.

17

Employee Stock Purchase Plan

In August 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. In May 2011, our stockholders approved an amendment to the ESPP that increased the aggregate number of shares of common stock available for purchase under the ESPP to 1,000,000. At June 30, 2011, 569,593 shares remained available for purchase under the ESPP. Our ESPP is compensatory and, as a result, we record an expense on our consolidated statements of operations related to the ESPP. Since July 2009, the purchase discount under the ESPP has been 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.

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 Phantom Units

The following table presents phantom unit activity for the six months ended June 30, 2011:

				Weighted
				Average
				Grant-Date
	Phantom			Fair Value
	Units			per Unit
Phantom units outstanding, December 31, 2010		98,537		$	19.23
Granted		20,851			28.50
Vested		(43,764	)		18.90
Phantom units outstanding, June 30, 2011		75,624		$	21.98

As of June 30, 2011, $1.3 million of unrecognized compensation cost related to unvested phantom units is expected to be recognized over the weighted-average period of 1.8 years.

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11. COMMITMENTS AND CONTINGENCIES

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

			Maximum Potential
			Undiscounted
			Payments as of
	Term		June 30, 2011
Performance guarantees through letters of credit(1)		2011-2013	$	244,624
Standby letters of credit		2011-2014		16,423
Commercial letters of credit		2011-2012		4,284
Bid bonds and performance bonds(1)		2011-2018		162,520
Maximum potential undiscounted payments			$	427,851

(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 the seller, depending on our realization of certain U.S. federal tax benefits through the year 2015. To date, we have not realized any such benefits that would require a payment and we do not anticipate realizing any such benefits that would require a payment before the year 2013.

See Note 2 and Note 5 for a discussion of gain contingencies related to 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.

12. RECENT ACCOUNTING DEVELOPMENTS

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an update to existing guidance on revenue recognition for arrangements with multiple deliverables. This update addresses accounting for multiple-deliverable arrangements to enable vendors to account for deliverables separately. The guidance establishes a selling price hierarchy for determining the selling price of a deliverable. This update requires expanded disclosures for multiple deliverable revenue arrangements. The update is effective for us for revenue arrangements entered into or materially modified on or after January 1, 2011. Our adoption of this new guidance on January 1, 2011 did not have a material impact on our condensed consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-29,Disclosure of Supplementary Pro Forma Information for Business Combinations. This standard update clarifies that, when presenting comparative financial statements, public companies should disclose revenue and earnings of the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business

19

combination included in the reported pro forma revenue and earnings. The update is effective prospectively for business combinations entered into in fiscal years beginning on or after December 15, 2010. Our adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.

In May 2011, the FASB issued an update to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards. This update changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This update is effective for interim and annual periods beginning on or after December 15, 2011. We do not believe the adoption of this update will have a material impact on our consolidated financial statements.

In June 2011, the FASB issued an update on the presentation of other comprehensive income. Under this update, entities will be required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The current option to report other comprehensive income and its components in the statement of changes in equity has been eliminated. This update is effective for interim and annual periods beginning on or after December 15, 2011. We do not believe the adoption of this update will have a material impact on our consolidated financial statements.

13. 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 fabrication services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication 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.

The following table presents sales and other financial information by industry segment for the three and six months ended June 30, 2011 and 2010 (in thousands):

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
Three months ended	Operations		Operations		Services		Fabrication		Total
June 30, 2011:
Revenue from external customers	$	150,755	$	110,944	$	94,142	$	301,731	$	657,572
Gross margin(1)		75,246		61,178		7,609		32,379		176,412
June 30, 2010:
Revenue from external customers	$	152,048	$	131,087	$	83,363	$	277,324	$	643,822
Gross margin(1)		77,237		88,214		13,073		30,926		209,450

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
Six months ended	Operations		Operations		Services		Fabrication		Total
June 30, 2011:
Revenue from external customers	$	301,809	$	216,625	$	175,840	$	581,777	$	1,276,051
Gross margin(1)		145,791		125,893		16,769		73,134		361,587
June 30, 2010:
Revenue from external customers	$	304,675	$	240,827	$	153,686	$	520,942	$	1,220,130
Gross margin(1)		158,489		157,099		26,784		77,671		420,043

20

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

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

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net income (loss)	$	(30,224	)	$	16,653		$	(60,688	)	$	33,386
Selling, general and administrative		92,192			94,166			183,473			178,217
Depreciation and amortization		92,676			106,188			183,154			197,963
Long-lived asset impairment		2,063			745			2,063			2,452
Interest expense		34,586			32,608			71,756			65,542
Equity in loss of non-consolidated affiliates		—			348			—			348
Other (income) expense, net		(2,951	)		(2,485	)		(3,365	)		(4,668	)
Provision for (benefit from) income taxes		(12,499	)		184			(17,513	)		(3,815	)
(Income) loss from discontinued operations, net of tax		569			(38,957	)		2,707			(49,382	)
Gross margin	$	176,412		$	209,450		$	361,587		$	420,043

14. RETIREMENT BENEFIT PLAN

Our 401(k) retirement plan provides for optional employee contributions up to the Internal Revenue Service limit and discretionary employer matching contributions. We generally make discretionary matching contributions to each participant’s account at a rate of (i) 100% of each participant’s first 1% of contributions plus (ii) 50% of each participant’s contributions up to the next 5% of eligible compensation. We made no discretionary matching contributions from July 1, 2009 through June 30, 2010, but began making them again effective on July 1, 2010.

15. TRANSACTIONS RELATED TO THE PARTNERSHIP

In June 2011, we sold to the Partnership contract operations customer service agreements with 34 customers and a fleet of 407 compressor units used to provide compression services under those agreements, comprising approximately 289,000 horsepower, or 8% (by then available horsepower) of the combined U.S. contract operations business of the Partnership and us (the “June 2011 Contract Operations Acquisition”). In addition, the assets sold included 207 compressor units, comprising approximately 98,000 horsepower, that we previously leased to the Partnership, and a natural gas processing plant with a capacity of 8 million cubic feet per day used to provide processing services pursuant to a long-term services agreement. Total consideration for the transaction was approximately $223.0 million, excluding transaction costs. In connection with this acquisition, the Partnership assumed $159.4 million of our debt, paid us $62.2 million in cash and issued to Exterran General Partner, L.P. (“GP”), our wholly-owned subsidiary and the Partnership’s general partner, approximately 51,000 general partner units. In connection with this transaction, we entered into an amendment and restatement of our omnibus agreement with the Partnership that, among other things, extended the term of the caps on the Partnership’s obligation to reimburse us for selling, general and administrative costs and operating costs we allocate to the Partnership based on such costs we incur on the Partnership’s behalf for an additional year such that the caps will now terminate on December 31, 2012.

In May 2011, the Partnership sold, pursuant to a public underwritten offering, 5,134,175 common units representing limited partner interests in the Partnership, including 134,175 common units to cover over-allotments. The Partnership used the $127.7 million of net proceeds from this offering (i) to repay approximately $64.8 million of borrowings outstanding under its revolving credit facility and (ii) for general partnership purposes, including to fund a portion of the consideration for the June 2011 Contract Operations Acquisition. In connection with this sale and as permitted under the Partnership’s partnership agreement, the Partnership issued and sold to GP approximately 53,000 general partner units in consideration of the continuation of GP’s approximate 2.0% general partner interest in the Partnership.

In March 2011, we sold, pursuant to a public underwritten offering, 5,914,466 common units representing limited partner interests in the Partnership, including 664,466 common units to cover over-allotments. The $162.2 million of net proceeds received from the sale of the common units was used to repay borrowings under our revolving credit facility and term loan. The change in our ownership

21

interest of the Partnership from the sale of the common units resulted in adjustments to noncontrolling interest, accumulated other comprehensive income (loss), deferred income taxes and additional paid-in capital to reflect our new ownership percentage in the Partnership.

In August 2010, we sold to the Partnership contract operations customer service agreements with 43 customers and a fleet of approximately 580 compressor units used to provide compression services under those agreements, comprising approximately 255,000 horsepower, or approximately 6% (by then available horsepower) of the combined U.S. contract operations business of the Partnership and us (the “August 2010 Contract Operations Acquisition”). Total consideration for the transaction was approximately $214 million, excluding transaction costs. In connection with this acquisition, the Partnership issued to our wholly-owned subsidiaries approximately 8.2 million common units and approximately 167,000 general partner units.

Through our wholly-owned subsidiaries, we own all of the subordinated units of the Partnership. As of each of June 30, 2010 and June 30, 2011, the Partnership met the requirements under its partnership agreement for early conversion of 25% of these subordinated units into common units. Accordingly, in August 2010, 1,581,250 subordinated units converted into common units and we expect an additional 1,581,250 subordinated units to convert into common units in August 2011.

The table below presents the effects of changes from net income (loss) attributable to Exterran stockholders and changes in our equity interest of the Partnership on our equity attributable to Exterran’s stockholders (in thousands):

	Six Months Ended
	June 30,
	2011			2010
Net income (loss) attributable to Exterran stockholders	$	(58,056	)	$	34,188
Increase in Exterran stockholders’ additional paid in capital for sale of Partnership units		123,681			—
Change from net income (loss) attributable to Exterran stockholders and transfers to the noncontrolling interest	$	65,625		$	34,188

16. CONSOLIDATING FINANCIAL STATEMENTS

Exterran Energy Corp. (Subsidiary Issuer), our wholly-owned subsidiary, is the issuer of our convertible senior notes due 2014 (the “4.75% Notes”). Exterran Holdings, Inc. (Parent) has agreed to fully and unconditionally guarantee the obligations of Exterran Energy Corp. relating to our 4.75% Notes.

We are the issuer of our 7.25% senior notes due December 2018 (the “7.25% Notes”). Exterran Energy Solutions, L.P., EES Leasing LLC, Exterran Water Management Services, LLC, and EXH MLP LP LLC, all our wholly-owned subsidiaries (together the Guarantor Subsidiaries), have agreed to fully and unconditionally guarantee our obligations relating to the 7.25% Notes.

As a result of these guarantees, we are presenting the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for our share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.

22

Condensed Consolidating Balance Sheet
June 30, 2011

			Subsidiary		Guarantor		Other
	Parent		Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidation
	(in thousands)
ASSETS
Current assets	$	135	$	—	$	598,984	$	556,918	$	(564	)	$	1,155,473
Current assets associated with discontinued operations		—		—		—		4,759		—			4,759
Total current assets		135		—		598,984		561,677		(564	)		1,160,232
Property, plant and equipment, net		—		—		1,485,956		1,549,198		—			3,035,154
Goodwill		—		—		146,876		50,599		—			197,475
Investments in affiliates		2,117,199		2,077,439		1,764,805		—		(5,959,443	)		—
Intangible and other assets, net		14,306		39,760		156,125		93,930		(38,788	)		265,333
Intercompany receivables		891,502		1,014,774		149,027		701,090		(2,756,393	)		—
Long-term assets associated with discontinued operations		—		—		—		8,794		—			8,794
Total long-term assets		3,023,007		3,131,973		3,702,789		2,403,611		(8,754,624	)		3,506,756
Total assets	$	3,023,142	$	3,131,973	$	4,301,773	$	2,965,288	$	(8,755,188	)	$	4,666,988
LIABILITIES AND EQUITY
Current liabilities	$	19,897	$	3,147	$	334,493	$	312,926	$	(12,164	)	$	658,299
Current liabilities associated with discontinued operations		—		—		—		15,408		—			15,408
Total current liabilities		19,897		3,147		334,493		328,334		(12,164	)		673,707
Long-term debt		1,020,548		143,750		—		539,902		—			1,704,200
Intercompany payables		—		867,877		1,715,864		172,652		(2,756,393	)		—
Other long-term liabilities		4,609		—		173,977		145,411		(27,188	)		296,809
Long-term liabilities associated with discontinued operations		—		—		—		14,184		—			14,184
Total liabilities		1,045,054		1,014,774		2,224,334		1,200,483		(2,795,745	)		2,688,900
Total equity		1,978,088		2,117,199		2,077,439		1,764,805		(5,959,443	)		1,978,088
Total liabilities and equity	$	3,023,142	$	3,131,973	$	4,301,773	$	2,965,288	$	(8,755,188	)	$	4,666,988

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Condensed Consolidating Balance Sheet
December 31, 2010

			Subsidiary		Guarantor		Other
	Parent		Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidation
	(in thousands)
ASSETS
Current assets	$	160	$	—	$	565,089	$	589,429	$	8		$	1,154,686
Current assets associated with discontinued operations		—		—		—		5,918		—			5,918
Total current assets		160		—		565,089		595,347		8			1,160,604
Property, plant and equipment, net		—		—		1,704,570		1,388,082		—			3,092,652
Goodwill		—		—		146,876		49,804		—			196,680
Investments in affiliates		1,998,617		1,991,520		1,825,646		—		(5,815,783	)		—
Intangible and other assets, net		17,343		38,018		177,946		144,920		(95,799	)		282,428
Intercompany receivables		1,118,404		1,212,598		149,433		891,177		(3,371,612	)		—
Long-term assets associated with discontinued operations		—		—		—		9,172		—			9,172
Total long-term assets		3,134,364		3,242,136		4,004,471		2,483,155		(9,283,194	)		3,580,932
Total assets	$	3,134,524	$	3,242,136	$	4,569,560	$	3,078,502	$	(9,283,186	)	$	4,741,536
LIABILITIES AND EQUITY
Current liabilities	$	21,320	$	5,721	$	343,665	$	431,528	$	(59,585	)	$	742,649
Current liabilities associated with discontinued operations		—		—		—		15,554		—			15,554
Total current liabilities		21,320		5,721		343,665		447,082		(59,585	)		758,203
Long-term debt		1,298,165		143,750		—		455,232		—			1,897,147
Intercompany payables		—		1,094,048		2,098,626		178,937		(3,371,611	)		—
Other long-term liabilities		12,615		—		135,749		158,494		(36,207	)		270,651
Long-term liabilities associated with discontinued operations		—		—		—		13,111		—			13,111
Total liabilities		1,332,100		1,243,519		2,578,040		1,252,856		(3,467,403	)		2,939,112
Total equity		1,802,424		1,998,617		1,991,520		1,825,646		(5,815,783	)		1,802,424
Total liabilities and equity	$	3,134,524	$	3,242,136	$	4,569,560	$	3,078,502	$	(9,283,186	)	$	4,741,536

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Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2011

				Subsidiary			Guarantor			Other
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidation
	(in thousands)
Revenues	$	—		$	—		$	348,545		$	430,964		$	(121,937	)	$	657,572
Costs of sales (excluding depreciation and amortization expense)		—			—			275,569			327,528			(121,937	)		481,160
Selling, general and administrative		70			137			43,019			48,966			—			92,192
Depreciation and amortization		—			—			40,389			52,287			—			92,676
Long-lived asset impairment		—			—			1,743			320			—			2,063
Interest (income) expense		22,826			1,707			13			10,040			—			34,586
Other (income) expense:
Intercompany charges, net		(14,580	)		(1,707	)		16,287			—			—			—
Equity in loss of affiliates		22,612			22,470			2,041			—			(47,123	)		—
Other, net		10			—			(2,450	)		(511	)		—			(2,951	)
Income (loss) before income taxes		(30,938	)		(22,607	)		(28,066	)		(7,666	)		47,123			(42,154	)
Provision for (benefit from) income taxes		(2,912	)		5			(5,596	)		(3,996	)		—			(12,499	)
Loss from continuing operations		(28,026	)		(22,612	)		(22,470	)		(3,670	)		47,123			(29,655	)
Loss from discontinued operations, net of tax		—			—			—			(569	)		—			(569	)
Net loss		(28,026	)		(22,612	)		(22,470	)		(4,239	)		47,123			(30,224	)
Less: Net loss attributable to the noncontrolling interest		—			—			—			2,198			—			2,198
Net loss attributable to Exterran stockholders	$	(28,026	)	$	(22,612	)	$	(22,470	)	$	(2,041	)	$	47,123		$	(28,026	)

Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2010

				Subsidiary			Guarantor			Other
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidation
	(in thousands)
Revenues	$	—		$	—		$	270,388		$	442,563		$	(69,129	)	$	643,822
Costs of sales (excluding depreciation and amortization expense)		—			—			213,732			289,769			(69,129	)		434,372
Selling, general and administrative		64			76			34,091			59,935			—			94,166
Depreciation and amortization		—			—			33,407			72,781			—			106,188
Long-lived asset impairment		—			—			745			—			—			745
Interest (income) expense		17,468			1,707			(11,370	)		24,803			—			32,608
Other (income) expense:
Intercompany charges, net		(3,727	)		(1,114	)		4,841			—			—			—
Equity in (income) loss of affiliates		(26,508	)		(26,943	)		(28,808	)		348			82,259			348
Other, net		10			—			(166	)		(2,329	)		—			(2,485	)
Income (loss) before income taxes		12,693			26,274			23,916			(2,744	)		(82,259	)		(22,120	)
Provision for (benefit) from income taxes		(4,833	)		(234	)		(3,027	)		8,278			—			184
Income (loss) from continuing operations		17,526			26,508			26,943			(11,022	)		(82,259	)		(22,304	)
Income from discontinued operations, net of tax		—			—			—			38,957			—			38,957
Net income		17,526			26,508			26,943			27,935			(82,259	)		16,653
Less: Net loss attributable to the noncontrolling interest		—			—			—			873			—			873
Net income attributable to Exterran stockholders	$	17,526		$	26,508		$	26,943		$	28,808		$	(82,259	)	$	17,526

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Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2011

				Subsidiary			Guarantor			Other
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidation
	(in thousands)
Revenues	$	—		$	—		$	649,621		$	827,367		$	(200,937	)	$	1,276,051
Costs of sales (excluding depreciation and amortization expense)		—			—			510,153			605,248			(200,937	)		914,464
Selling, general and administrative		118			279			88,357			94,719			—			183,473
Depreciation and amortization		—			—			80,030			103,124			—			183,154
Long-lived asset impairment		—			—			1,743			320			—			2,063
Interest (income) expense		46,488			3,414			(542	)		22,396			—			71,756
Other (income) expense:
Intercompany charges, net		(29,355	)		(3,151	)		32,506			—			—			—
Equity in loss of affiliates		46,911			46,559			7,097			—			(100,567	)		—
Other, net		20			—			(5,428	)		2,043			—			(3,365	)
Loss before income taxes		(64,182	)		(47,101	)		(64,295	)		(483	)		100,567			(75,494	)
Provision for (benefit from) income taxes		(6,126	)		(190	)		(17,736	)		6,539			—			(17,513	)
Loss from continuing operations		(58,056	)		(46,911	)		(46,559	)		(7,022	)		100,567			(57,981	)
Loss from discontinued operations, net of tax		—			—			—			(2,707	)		—			(2,707	)
Net loss		(58,056	)		(46,911	)		(46,559	)		(9,729	)		100,567			(60,688	)
Less: Net loss attributable to the noncontrolling interest		—			—			—			2,632			—			2,632
Net loss attributable to Exterran stockholders	$	(58,056	)	$	(46,911	)	$	(46,559	)	$	(7,097	)	$	100,567		$	(58,056	)

Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2010

				Subsidiary			Guarantor			Other
	Parent			Issuer			Subsidiaries			Subsidiaries		Eliminations			Consolidation
	(in thousands)
Revenues	$	—		$	—		$	499,723		$	838,568	$	(118,161	)	$	1,220,130
Costs of sales (excluding depreciation and amortization expense)		—			—			389,472			528,776		(118,161	)		800,087
Selling, general and administrative		110			155			64,755			113,197		—			178,217
Depreciation and amortization		—			—			63,092			134,871		—			197,963
Long-lived asset impairment		—			—			2,221			231		—			2,452
Interest (income) expense		34,069			3,414			(16,866	)		44,925		—			65,542
Other (income) expense:
Intercompany charges, net		(7,165	)		(2,290	)		9,455			—		—			—
Equity in (income) loss of affiliates		(51,767	)		(52,598	)		(54,255	)		348		158,620			348
Other, net		20			—			(9,926	)		5,238		—			(4,668	)
Income (loss) before income taxes		24,733			51,319			51,775			10,982		(158,620	)		(19,811	)
Provision for (benefit from) income taxes		(9,455	)		(448	)		(823	)		6,911		—			(3,815	)
Income (loss) from continuing operations		34,188			51,767			52,598			4,071		(158,620	)		(15,996	)
Income from discontinued operations, net of tax		—			—			—			49,382		—			49,382
Net income		34,188			51,767			52,598			53,453		(158,620	)		33,386
Less: Net loss attributable to the noncontrolling interest		—			—			—			802		—			802
Net income attributable to Exterran stockholders	$	34,188		$	51,767		$	52,598		$	54,255	$	(158,620	)	$	34,188

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Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2011

				Subsidiary			Guarantor			Other
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidation
	(in thousands)
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	658,431		$	932		$	114,510		$	(779,354	)	$	—		$	(5,481	)
Net cash provided by discontinued operations		—			—			—			662			—			662
Net cash provided by (used in) operating activities		658,431			932			114,510			(778,692	)		—			(4,819	)
Cash flows from investing activities:
Capital expenditures		—			—			(56,592	)		(50,891	)		—			(107,483	)
Proceeds from sale of property, plant and equipment		—			—			6,105			26,440			—			32,545
Decrease in restricted cash		—			—			—			184			—			184
Net proceeds from the sale of Partnership units		—			—			92,189			197,719			—			289,908
Investment in consolidated subsidiaries		(211,359	)		(53,744	)		—			—			265,103			—
Net cash provided by (used in) investing activities		(211,359	)		(53,744	)		41,702			173,452			265,103			215,154
Cash flows from financing activities:
Proceeds from borrowings of long-term debt		528,740			—			—			474,669			—			1,003,409
Repayments of long-term debt		(815,258	)		—			—			(390,000	)		—			(1,205,258	)
Payments for debt issue costs		—			—			—			(980	)		—			(980	)
Proceeds from stock options exercised		487			—			—			—			—			487
Proceeds from stock issued pursuant to our employee stock purchase plan		940			—			—			—			—			940
Purchases of treasury stock		(2,415	)		—			—			—			—			(2,415	)
Stock-based compensation excess tax benefit		816			—			—			—			—			816
Distributions to noncontrolling partners in the Partnership		—			—			(15,841	)		—			—			(15,841	)
Capital contribution (distribution), net		—			211,359			53,744			—			(265,103	)		—
Borrowings (repayments) between subsidiaries, net		(160,407	)		(158,547	)		(192,675	)		511,629			—			—
Net cash provided by (used in) financing activities		(447,097	)		52,812			(154,772	)		595,318			(265,103	)		(218,842	)
Effect of exchange rate changes on cash and cash equivalents		—			—			—			(1,012	)		—			(1,012	)
Net increase (decrease) in cash and cash equivalents		(25	)		—			1,440			(10,934	)		—			(9,519	)
Cash and cash equivalents at beginning of year		160			—			1,949			42,507			—			44,616
Cash and cash equivalents at end of year	$	135		$	—		$	3,389		$	31,573		$	—		$	35,097

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Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2010

				Subsidiary			Guarantor			Other
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidation
	(in thousands)
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	154,182		$	(103	)	$	(89,738	)	$	131,322		$	—		$	195,663
Net cash used in discontinued operations		—			—			—			(3,880	)		—			(3,880	)
Net cash provided by (used in) operating activities		154,182			(103	)		(89,738	)		127,442			—			191,783
Cash flows from investing activities:
Capital expenditures		—			—			(28,734	)		(80,665	)		—			(109,399	)
Proceeds from sale of property, plant and equipment		—			—			9,257			9,147			—			18,404
Increase in restricted cash		—			—			—			(1,523	)		—			(1,523	)
Cash invested in non-consolidated affiliates		—			—			—			(348	)		—			(348	)
Investment in consolidated subsidiaries		(184,813	)		(154,710	)		—			—			339,523			—
Net cash used in continuing operations		(184,813	)		(154,710	)		(19,477	)		(73,389	)		339,523			(92,866	)
Net cash provided by discontinued operations		—			—			—			89,509			—			89,509
Net cash provided by (used in) investing activities		(184,813	)		(154,710	)		(19,477	)		16,120			339,523			(3,357	)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt		378,221			—			—			7,000			—			385,221
Repayments of long-term debt		(418,745	)		—			—			(154,019	)		—			(572,764	)
Proceeds from stock options exercised		656			—			—			—			—			656
Proceeds from stock issued pursuant to our employee stock purchase plan		1,224			—			—			—			—			1,224
Purchases of treasury stock		(1,971	)		—			—			—			—			(1,971	)
Stock-based compensation excess tax benefit		801			—			—			—			—			801
Distributions to noncontrolling partners in the Partnership		—			—			(7,753	)		—			—			(7,753	)
Capital contribution (distribution), net		—			184,813			154,710			—			(339,523	)		—
Borrowings (repayments) between subsidiaries, net		70,524			(30,000	)		(40,562	)		38			—			—
Net cash provided by (used in) financing activities		30,710			154,813			106,395			(146,981	)		(339,523	)		(194,586	)
Effect of exchange rate changes on cash and cash equivalents		—			—			—			(3,736	)		—			(3,736	)
Net increase (decrease) in cash and cash equivalents		79			—			(2,820	)		(7,155	)		—			(9,896	)
Cash and cash equivalents at beginning of year		49			—			4,932			78,764			—			83,745
Cash and cash equivalents at end of year	$	128		$	—		$	2,112		$	71,609		$	—		$	73,849

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17. SUBSEQUENT EVENT

In July 2011, we entered into a credit agreement providing for a new five-year, $1.1 billion senior secured revolving credit facility (the “ 2011 Credit Facility”), which matures in July 2016. The 2011 Credit Facility replaces our former senior secured credit facility, which consisted of an $850 million revolving credit facility due August 2012 and an $800 million term loan facility due June 2013. We incurred approximately $7.8 million in transaction costs related to the 2011 Credit Facility. These costs will be included in Intangible and other assets, net and amortized over the facility term. As a result of the termination of our former senior secured credit facility, we expect to expense approximately $1.6 million of deferred financing costs associated with our former senior secured credit facility in the third quarter of 2011.

Concurrently with the execution of the new credit agreement, we borrowed $387.3 million under the 2011 Credit Facility and used the proceeds to (i) repay the entire amount outstanding under our previously existing senior secured credit facility and terminate that facility and (ii) pay customary fees and other expenses relating to the 2011 Credit Facility. The 2011 Credit Facility bears interest at a base rate or LIBOR, at our option, plus an applicable margin. Depending on our Total Leverage Ratio (as defined in the 2011 Credit Facility), the applicable margin for revolving loans varies (i) in the case of LIBOR loans, from 1.50% to 2.50% and (ii) in the case of base rate loans, from 0.50% to 1.50%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Rate plus 0.5% and one-month LIBOR plus 1.0%.

Our Significant Domestic Subsidiaries (as defined in the credit agreement) guarantee the debt under the 2011 Credit Facility. Borrowings under the 2011 Credit Facility are secured by substantially all of the personal property assets and certain real property assets of us and our Significant Domestic Subsidiaries, including all of the equity interests of our U.S. subsidiaries (other than certain excluded subsidiaries) and 65% of the equity interests in certain of our first-tier foreign subsidiaries. The Partnership does not guarantee the debt under the 2011 Credit Facility, its assets are not collateral under the 2011 Credit Facility and the general partner units in the Partnership are not pledged under the 2011 Credit Facility. Subject to certain conditions, at our request, and with the approval of the lenders, the aggregate commitments under the 2011 Credit Facility may be increased by up to an additional $300 million.

The 2011 Credit Facility contains various covenants with which we or certain of our subsidiaries must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, enter into transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. We are also subject to financial covenants, including a ratio of Adjusted 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 Adjusted EBITDA of not greater than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined in the credit agreement) to Adjusted EBITDA of not greater than 4.0 to 1.0.

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

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our business growth strategy and projected costs; 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. You can identify many of these statements by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.

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, 2010, 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 natural gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas and the impact on the price of oil or natural gas, which could cause a decline in the demand for our natural gas 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, violence associated with drug cartels, legislative changes and the expropriation, confiscation or nationalization of property without fair compensation;

• 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;

• loss of the Partnership’s status as a partnership for federal income tax purposes;

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

• the financial condition of our customers;

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

• employment and 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 and winning profitable new business;

• sales of additional United States of America (“U.S.”) contract operations contracts and equipment to the Partnership;

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• timely and cost-effective execution of projects;

• enhancing our asset utilization, particularly with respect to our fleet of compressors;

• 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 (“we” or “Exterran”), 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 similar to the equipment that we own and utilize to provide contract operations to our customers. We also fabricate the equipment utilized in our contract operations services. In addition, our fabrication business line provides engineering, procurement and fabrication services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication of tank farms and the fabrication of evaporators and brine heaters for desalination plants. In our Total Solutions projects, which we offer to our customers on either a contract operations basis or a sale basis, we 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, processing, treating and other equipment.

Exterran Partners, L.P.

We have an equity interest in the Partnership, a master limited partnership that provides natural gas contract operations services to customers throughout the U.S. As of June 30, 2011, public unitholders held a 65% ownership interest in the Partnership and we owned the remaining equity interest, including the general partner interest and all incentive distribution rights. The general partner of the Partnership is our subsidiary and we consolidate the financial position and results of operations of the Partnership. It is our intention for the Partnership to be the primary vehicle for the growth of our U.S. contract operations business and for us to continue to contribute U.S. contract operations customer contracts and equipment to the Partnership over time in exchange for cash, the Partnership’s assumption of our debt and/or additional interests in the Partnership. As of June 30, 2011, the Partnership had a fleet of 4,525 compressor units comprising approximately 1,905,000 horsepower, or 53% (by then available horsepower) of our and the Partnership’s combined total U.S. horsepower.

In June 2011, we sold to the Partnership contract operations customer service agreements with 34 customers and a fleet of 407 compressor units used to provide compression services under those agreements, comprising approximately 289,000 horsepower, or

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8% (by then available horsepower) of the combined U.S. contract operations business of the Partnership and us (the “June 2011 Contract Operations Acquisition”). In addition, the assets sold included 207 compressor units, comprising approximately 98,000 horsepower, that we previously leased to the Partnership, and a natural gas processing plant with a capacity of 8 million cubic feet per day used to provide processing services pursuant to a long-term services agreement. Total consideration for the transaction was approximately $223.0 million, excluding transaction costs. In connection with this acquisition, the Partnership assumed $159.4 million of our debt, paid us $62.2 million in cash and issued to our wholly-owned subsidiary approximately 51,000 general partner units. In connection with this transaction, we entered into an amendment and restatement of our omnibus agreement with the Partnership that, among other things, extended the term of the caps on the Partnership’s obligation to reimburse us for selling, general and administrative costs and operating costs we allocate to the Partnership based on such costs we incur on the Partnership’s behalf for an additional year such that the caps will now terminate on December 31, 2012.

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, demand and 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 will typically be 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 changes in demand for our products and services.

Natural Gas Consumption and Production.Natural gas consumption in the U.S. for the twelve months ended April 30, 2011 increased by approximately 5% over the twelve months ended April 30, 2010, is expected to increase by 2.0% in 2011 and is expected to increase by an average of 0.3% per year thereafter until 2035, according to the Energy Information Administration (“EIA”). Natural gas consumption worldwide is projected to increase by 1.3% per year until 2035, according to the EIA.

Natural gas marketed production in the U.S. for the twelve months ended April 30, 2011 increased by approximately 6% over the twelve months ended April 30, 2010. In 2009, the U.S. accounted for an estimated annual production of approximately 22 trillion cubic feet of natural gas, or 19% of the worldwide total of approximately 113 trillion cubic feet. The EIA estimates that the U.S.’s natural gas production level will be approximately 23 trillion cubic feet in 2035, or 15% of the projected worldwide total of approximately 155 trillion cubic feet.

Our Performance Trends and Outlook

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, our customers’ decisions regarding whether to utilize our products and services rather than utilize products and services from our competitors and their decisions regarding whether to own and operate the equipment themselves. 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.

During the last twelve months, we have seen an increase in drilling activity and an increase in order activity and bookings in our fabrication business segment in the North America market. We believe these activity levels in North America will continue in 2011, particularly in shale plays and areas focused on the production of oil and natural gas liquids. We anticipate this activity will result in higher demand for our compression and production and processing equipment, which we believe should result in higher revenues for these products in 2011 compared to 2010. However, we believe this increase would be negatively impacted if there is a significant reduction in oil or natural gas prices. We also believe that (i) the continued uncertainty around natural gas prices and (ii) the current available supply of idle and underutilized compression equipment in the industry, as well as new investment of capital in equipment, combined with (iii) the modest horsepower growth we have experienced in North America could make it challenging for us to significantly improve our North America contract operations horsepower utilization and pricing.

In international markets, we believe there will continue to be demand for our contract operations and Total Solutions projects, and we expect to have opportunities to grow our international business through our contract operations, aftermarket services and fabrication business segments over the long term. However, as industry capital spending declined in 2010, our fabrication business segment experienced a reduction in demand. While we expect these conditions to improve, we have not yet seen significant increases in international bookings and revenue.

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Our level of capital spending depends on our forecast for the demand for our products and services and the equipment we require to provide services to our customers. As we believe there will be increased activity in certain North America natural gas plays, we anticipate investing more capital in our contract operations fleet in 2011 than we have in the recent past.

In July 2011, we entered into a new senior secured revolving credit facility. We expect our interest rate on borrowings under this new facility will be higher than the interest rate on borrowings under our old facility. For example, based on our debt balances on June 30, 2011, the interest rate applicable under the new facility would have been approximately 1.1% higher on that date than the interest rate under the old facility. Based on current market conditions, we expect that net cash provided by operating activities and availability under our credit facilities will be sufficient to finance our operating expenditures, capital expenditures and scheduled interest and debt repayments through December 31, 2011; however, to the extent it is not, we may seek additional debt or equity financing.

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 our receipt of 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 on reasonable terms.

Operating Highlights

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Total Available Horsepower (at period end):
North America		3,688			4,306			3,688			4,306
International		1,196			1,263			1,196			1,263
Total		4,884			5,569			4,884			5,569
Total Operating Horsepower (at period end):
North America		2,834			2,816			2,834			2,816
International		980			1,060			980			1,060
Total		3,814			3,876			3,814			3,876
Average Operating Horsepower:
North America		2,839			2,819			2,839			2,837
International		978			1,041			979			1,034
Total		3,817			3,860			3,818			3,871
Horsepower Utilization (at period end):
North America		77	%		65	%		77	%		65	%
International		82	%		84	%		82	%		84	%
Total		78	%		70	%		78	%		70	%

	June 30, 2011		December 31, 2010		June 30, 2010
Compressor and Accessory Fabrication Backlog	$	221.0	$	220.2	$	222.3
Production and Processing Equipment Fabrication Backlog		487.8		483.3		527.4
Fabrication Backlog	$	708.8	$	703.5	$	749.7

FINANCIAL RESULTS OF OPERATIONS

Summary of Results

Revenue.Revenue for the three months ended June 30, 2011 was $657.6 million compared to $643.8 million for the three months ended June 30, 2010. Revenue for the six months ended June 30, 2011 was $1,276.1 million compared to $1,220.1 million for the six months ended June 30, 2010. The increase in revenue was primarily due to higher fabrication sales in North America in the three and six months ended June 30, 2011.

Net income (loss) attributable to Exterran stockholders and EBITDA, as adjusted.We recorded a consolidated net loss attributable to Exterran stockholders of $28.0 million and consolidated net income attributable to Exterran stockholders of $17.5 million for the three months ended June 30, 2011 and 2010, respectively. We recorded a consolidated net loss attributable to Exterran stockholders of $58.1 million and consolidated net income attributable to Exterran stockholders of $34.2 million for the six months ended June 30,

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2011 and 2010, respectively. We recorded EBITDA, as adjusted, of $87.2 million and $117.8 million for the three months ended June 30, 2011 and 2010, respectively. We recorded EBITDA, as adjusted, of $181.5 million and $241.6 million for the six months ended June 30, 2011 and 2010, respectively. Net loss attributable to Exterran stockholders and EBITDA, as adjusted, for the three and six month periods ended June 30, 2011 were negatively impacted by reduced gross margin from operations caused by challenging market conditions. Net income attributable to Exterran stockholders and EBITDA, as adjusted, for the three and six month periods ended June 30, 2010 benefited from $19.2 million of revenue from the early termination of a project in Brazil. For a reconciliation of EBITDA, as adjusted, to net income (loss), its most directly comparable financial measure, calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), please read “-Non-GAAP Financial Measures.”

THE THREE MONTHS ENDED JUNE 30, 2011 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2010

Summary of Business Segment Results

North America Contract Operations
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	150,755		$	152,048			(1	)%
Cost of sales (excluding depreciation and amortization expense)		75,509			74,811			1	%
Gross margin	$	75,246		$	77,237			(3	)%
Gross margin percentage		50	%		51	%		(1	)%

The decrease in revenue was primarily due to a reduction of revenue in our contract water treatment business in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. Gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense), 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 Note 13 to the Financial Statements. The decrease in gross margin in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to a $1.6 million increase in our provision for obsolete inventory.

International Contract Operations
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	110,944		$	131,087			(15	)%
Cost of sales (excluding depreciation and amortization expense)		49,766			42,873			16	%
Gross margin	$	61,178		$	88,214			(31	)%
Gross margin percentage		55	%		67	%		(12	)%

The decrease in revenue, gross margin and gross margin percentage in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to $19.2 million of revenue from the early termination of a project in Brazil recorded in the second quarter of 2010. Gross margin and gross margin percentage in the three months ended June 30, 2011 were also impacted by higher operating costs in Argentina and Brazil caused primarily by inflation and increased compensation costs.

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Aftermarket Services
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	94,142		$	83,363			13	%
Cost of sales (excluding depreciation and amortization expense)		86,533			70,290			23	%
Gross margin	$	7,609		$	13,073			(42	)%
Gross margin percentage		8	%		16	%		(8	)%

The increase in revenue in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to increases in revenue of $5.4 million and $3.7 million in North America and Kazakhstan, respectively. The decrease in overall gross margin percentage in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to lower margins on international projects.

Fabrication
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	301,731		$	277,324			9	%
Cost of sales (excluding depreciation and amortization expense)		269,352			246,398			9	%
Gross margin	$	32,379		$	30,926			5	%
Gross margin percentage		11	%		11	%		0	%

The increase in revenue was primarily due to $76.1 million of higher revenues in North America, partially offset by a $56.7 million reduction of revenue in the Eastern Hemisphere. The increase in gross margin for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to increased revenue.

Costs and Expenses
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2011			2010			(Decrease)
Selling, general and administrative	$	92,192		$	94,166			(2	)%
Depreciation and amortization		92,676			106,188			(13	)%
Long-lived asset impairment		2,063			745			177	%
Interest expense		34,586			32,608			6	%
Equity in loss of non-consolidated affiliates		—			348			(100	)%
Other (income) expense, net		(2,951	)		(2,485	)		19	%

The decrease in selling, general and administrative (“SG&A”) expense during the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to a $5.3 million reduction in state and local taxes (primarily in North America and Brazil), partially offset by a $3.6 million increase in compensation and benefit costs. SG&A expense was 14% and 15% of revenue for the three month periods ended June 30, 2011 and 2010, respectively.

Depreciation and amortization decreased by $13.5 million due to the impact of the $136.0 million long-lived impairment recorded in the fourth quarter of 2010 and the accelerated depreciation of installation costs of $11.6 million on a project that was terminated early in the second quarter of 2010. During the fourth quarter of 2010, we completed an evaluation of our longer-term strategies and, as a result, determined to retire and sell approximately 1,800 idle compressor units, or approximately 600,000 horsepower, that were previously used to provide services in our North America and international contract operations businesses. The long-lived asset impairment decreased depreciation and amortization expense by approximately $4.8 million in the three months ended June 30, 2011. The decrease in depreciation and amortization for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was partially offset by increased depreciation and amortization on new international contract operations projects.

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Long-lived asset impairment in the three months ended June 30, 2011 and 2010 were $2.1 million and $0.7 million, respectively, and resulted from impairments that were recorded on idle compression units.

The increase in interest expense for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010 was primarily due to the refinancing of portions of our outstanding debt at higher interest rates, including our 7.25% senior notes due December 2018, which we issued in November 2010. The increase in interest expense was partially offset by a lower average debt balance during the three months ended June 30, 2011 compared to the three months ended June 30, 2010.

The change in other (income) expense, net, was primarily due to an increase in foreign currency gain to $2.1 million for the three months ended June 30, 2011 compared to a gain of $1.0 million for the three months ended June 30, 2010. Our foreign currency gains and losses are primarily related to the remeasurement of our international subsidiaries’ net assets exposed to changes in foreign currency rates. The foreign currency gain for the three months ended June 30, 2011 was primarily caused by changes in translation rates between the U.S. dollar and the Brazilian real. This increase was partially offset by a reduction in gains on asset sales which totaled $0.4 million for the three months ended June 30, 2011 compared to $1.3 million for the three months ended June 30, 2010.

Income Taxes
(dollars in thousands)

	Three months ended
	June 30,						Increase
	2011			2010			(Decrease)
Provision for (benefit from) income taxes	$	(12,499	)	$	184			(6,893	)%
Effective tax rate		29.7	%		(0.8	)%		30.5	%

The increase in our effective tax rate in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily due to decreased losses in low-tax or no tax jurisdictions.

Discontinued Operations
(dollars in thousands)

	Three months ended
	June 30,					Increase
	2011			2010		(Decrease)
Income (loss) from discontinued operations, net of tax	$	(569	)	$	38,957		(101	)%

Income (loss) from discontinued operations, net of tax for the three months ended June 30, 2010 includes a benefit of $40.9 million of payments received from PDVSA and its affiliates for the fixed assets of two projects. The income (loss) from discontinued operations, net of tax for the three months ended June 30, 2011 and 2010 related to our operations in Venezuela that were expropriated in June 2009 including the costs associated with our pending arbitration proceeding. As discussed in Note 2 to the Financial Statements, on June 2, 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela. As of June 30, 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela.

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THE SIX MONTHS ENDED JUNE 30, 2011 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2010

Summary of Business Segment Results

North America Contract Operations
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	301,809		$	304,675			(1	)%
Cost of sales (excluding depreciation and amortization expense)		156,018			146,186			7	%
Gross margin	$	145,791		$	158,489			(8	)%
Gross margin percentage		48	%		52	%		(4	)%

The decrease in revenue was primarily due to a reduction of revenue in our contract water treatment business of $2.6 million in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The decrease in gross margin and gross margin percentage in the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to an increase in our field operating expenses and a $1.8 million increase in our provision for obsolete inventory.

International Contract Operations
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	216,625		$	240,827			(10	)%
Cost of sales (excluding depreciation and amortization expense)		90,732			83,728			8	%
Gross margin	$	125,893		$	157,099			(20	)%
Gross margin percentage		58	%		65	%		(7	)%

The decrease in revenue, gross margin and gross margin percentage in the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to $19.2 million of revenue from the early termination of a project in Brazil recorded in the second quarter of 2010. Gross margin and gross margin percentage in the six months ended June 30, 2011 were also impacted by higher operating costs in Argentina and Brazil caused primarily by inflation and increased compensation costs.

Aftermarket Services
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	175,840		$	153,686			14	%
Cost of sales (excluding depreciation and amortization expense)		159,071			126,902			25	%
Gross margin	$	16,769		$	26,784			(37	)%
Gross margin percentage		10	%		17	%		(7	)%

The increase in revenue in the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to a $16.2 million increase in North America revenues. The decrease in overall gross margin percentage in the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to changes in market conditions that have led to a more competitive environment and lower margins on international projects.

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Fabrication
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2011			2010			(Decrease)
Revenue	$	581,777		$	520,942			12	%
Cost of sales (excluding depreciation and amortization expense)		508,643			443,271			15	%
Gross margin	$	73,134		$	77,671			(6	)%
Gross margin percentage		13	%		15	%		(2	)%

The increase in revenue was primarily due to $120.8 million of higher revenues in North America, partially offset by a $71.9 million reduction of revenue in the Eastern Hemisphere. The decrease in gross margin and gross margin percentage was primarily due to increased revenue in North America at lower margins.

Costs and Expenses
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2011			2010			(Decrease)
Selling, general and administrative	$	183,473		$	178,217			3	%
Depreciation and amortization		183,154			197,963			(7	)%
Long-lived asset impairment		2,063			2,452			(16	)%
Interest expense		71,756			65,542			9	%
Equity in loss of non-consolidated affiliates		—			348			(100	)%
Other (income) expense, net		(3,365	)		(4,668	)		(28	)%

The increase in selling, general and administrative (“SG&A”) expense during the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to an $11.8 million increase in compensation and benefit costs, partially offset by a $7.0 million reduction in state and local taxes (primarily in North America and Brazil). SG&A expense was 14% and 15% of revenue for the six month periods ended June 30, 2011 and 2010, respectively.

Depreciation and amortization decreased by $14.8 million due to the impact of the $136.0 million long-lived impairment recorded in the fourth quarter of 2010 and the accelerated depreciation of installation costs of $11.6 million on a project that was terminated early in the second quarter of 2010. During the fourth quarter of 2010, we completed an evaluation of our longer-term strategies and, as a result, determined to retire and sell approximately 1,800 idle compressor units, or approximately 600,000 horsepower, that were previously used to provide services in our North America and international contract operations businesses. The long-lived asset impairment decreased depreciation and amortization expense by approximately $9.7 million in the six months ended June 30, 2011. The decrease in depreciation and amortization for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was partially offset by increased depreciation and amortization on new international contract operations projects.

Long-lived asset impairments in the six months ended June 30, 2011 and 2010 were $2.1 million and $2.5 million, respectively, and resulted from impairments that were recorded on idle compression units.

The increase in interest expense for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 was primarily due to the refinancing of portions of our outstanding debt at higher interest rates, including our 7.25% senior notes due December 2018, which we issued in November 2010. In addition, we expensed $1.4 million of unamortized deferred financing costs due to the termination of the 2007 ABS Facility in the six months ended June 30, 2011. The increase in interest expense was partially offset by a lower average debt balance during the six months ended June 30, 2011 compared to the six months ended June 30, 2010.

The change in other (income) expense, net, was primarily due to a $4.9 million gain recorded in the three months ended March 31, 2010 on the sale of a loan and our interest in an entity related to a project in Nigeria that had previously been written off. Gains on asset sales increased to $3.1 million for the six months ended June 30, 2011 compared to $2.6 million for the six months ended June 30, 2010. The change in other (income) expense, net was also impacted by $1.2 million and $2.5 million, respectively, of importation penalties in Brazil for the six months ended June 30, 2011 and 2010.

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Income Taxes
(dollars in thousands)

	Six months ended
	June 30,						Increase
	2011			2010			(Decrease)
Provision for (benefit from) income taxes	$	(17,513	)	$	(3,815	)		359	%
Effective tax rate		23.2	%		19.3	%		3.9	%

The increase in our effective tax rate in the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to decreased losses in low-tax or no tax jurisdictions. Our provision and effective tax rate for the six months ended June 30, 2010 was impacted by a $3.9 million net tax benefit recorded on the sale of a loan and our interest in an entity related to a project in Nigeria.

Discontinued Operations
(dollars in thousands)

	Six months ended
	June 30,					Increase
	2011			2010		(Decrease)
Income (loss) from discontinued operations, net of tax	$	(2,707	)	$	49,382		(105	)%

Income (loss) from discontinued operations, net of tax, for the six months ended June 30, 2010 includes a benefit of $40.9 million of payments received from PDVSA and its affiliates for the fixed assets of two projects. The income (loss) from discontinued operations, net of tax for the six months ended June 30, 2011 and 2010 related to our operations in Venezuela that were expropriated in June 2009 including the costs associated with our pending arbitration proceeding. As discussed in Note 2 to the Financial Statements, on June 2, 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela. As of June 30, 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. In January 2010, the Venezuelan government announced a devaluation of the Venezuelan bolivar. This devaluation resulted in a translation gain of approximately $12.2 million on the remeasurement of our net liability position in Venezuela and is reflected in Income (loss) from discontinued operations, net of tax for the six months ended June 30, 2010. The functional currency of our Venezuela subsidiary is the U.S. dollar and we had more liabilities than assets denominated in bolivars in Venezuela at the time of the devaluation. The exchange rate used to remeasure our net liabilities changed from 2.15 bolivars per U.S. dollar at December 31, 2009 to 4.3 bolivars per U.S. dollar in January 2010.

Noncontrolling Interest

As of June 30, 2011, noncontrolling interest is primarily comprised of the portion of the Partnership’s earnings that is applicable to the limited partner interest in the Partnership owned by the public. As of June 30, 2011, public unitholders held a 65% ownership interest in the Partnership.

LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted cash balance was $35.1 million at June 30, 2011, compared to $44.6 million at December 31, 2010. Working capital increased to $486.5 million at June 30, 2011 from $402.4 million at December 31, 2010. The increase in working capital was primarily associated with costs incurred on large fabrication projects in excess of amounts billed during the period for those projects per the contract terms.

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

	Six Months Ended
	June 30,
	2011			2010
Net cash provided by (used in) continuing operations:
Operating activities	$	(5,481	)	$	195,663
Investing activities		215,154			(92,866	)
Financing activities		(218,842	)		(194,586	)
Effect of exchange rate changes on cash and cash equivalents		(1,012	)		(3,736	)
Discontinued operations		662			85,629
Net change in cash and cash equivalents	$	(9,519	)	$	(9,896	)

Operating Activities.The decrease in cash provided by operating activities for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to a reduction in gross margin from operations in the six months ended June 30, 2011 and an increase in cash used for working capital during the six months ended June 30, 2011 compared to the 2010 period.

Investing Activities.The increase in cash provided by investing activities for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily attributable to $289.9 million of net proceeds from the sale of Partnership units during the six months ended June 30, 2011.

Financing Activities.The increase in cash used in financing activities during the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily attributable to an increase in net repayments of long-term debt during the six months ended June 30, 2011.

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 targeted return on capital. We currently plan to spend approximately $225 million to $275 million in net capital expenditures during 2011, including (1) contract operations equipment additions and (2) approximately $85 million to $95 million on equipment maintenance capital related to our contract operations business. Net capital expenditures are net of fleet sales.

Long-Term Debt.As of June 30, 2011, we had approximately $1.7 billion in outstanding debt obligations, consisting of $345.8 million outstanding under our term loan facility, $34.0 million outstanding under our revolving credit facility, $143.8 million outstanding under our 4.75% convertible notes due 2014, $290.7 million outstanding under our 4.25% Notes due June 2014, $350.0 million outstanding under our 7.25% senior notes due 2018, $389.5 million outstanding under the Partnership’s revolving credit facility, and $150.0 million outstanding under the Partnership’s term loan facility.

In August 2007, we entered into a senior secured credit agreement (the “2007 Credit Facility”) consisting of (a) a five-year $850 million revolving credit facility and (b) an $800 million six-year term loan senior secured credit facility. As of June 30, 2011, we had undrawn capacity of $574.9 million under this revolving credit facility. The 2007 Credit Facility limited our Total Debt to EBITDA ratio (as defined in the 2007 credit agreement) to not greater than 5.0 to 1.0. Due to this limitation, $205.3 million of the $574.9 million of undrawn capacity under our revolving credit facility was available for additional borrowings as of June 30, 2011.

In July 2011, we entered into a new five-year, $1.1 billion senior secured revolving credit facility (the “2011 Credit Facility”), which matures in July 2016 and replaces the 2007 Credit Facility. We incurred approximately $7.8 million in transaction costs related to the 2011 Credit Facility. These costs will be included in Intangible and other assets, net and amortized over the facility term. As a result of the termination of our former senior secured credit facility, we expect to expense approximately $1.6 million of deferred financing costs associated with our former senior secured credit facility in the third quarter of 2011.

Borrowings under the 2011 Credit Facility bear interest at a base rate or LIBOR, at our option, plus an applicable margin. Depending on our Total Leverage Ratio (as defined in the 2011 credit agreement), the applicable margin for revolving loans varies (i) in the case of LIBOR loans, from 1.50% to 2.50% and (ii) in the case of base rate loans, from 0.50% to 1.50%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Rate plus 0.5% and one-month LIBOR plus 1.0%. At June 30, 2011, all amounts outstanding under the 2007 Credit Facility were LIBOR loans and the applicable margin was

40

0.65%. The applicable margin at June 30, 2011, as calculated under the 2011 Credit Facility, was 1.75%. The weighted average annual interest rate at June 30, 2011 on the outstanding balance, excluding the effect of interest rate swaps, was 0.9% under the 2007 Credit Facility, and would have been 2.0% under the 2011 Credit Facility.

Our Significant Domestic Subsidiaries (as defined in the 2011 credit agreement) guarantee the debt under the 2011 Credit Facility. Borrowings under the 2011 Credit Facility are secured by substantially all of the personal property assets and certain real property assets of us and our Significant Domestic Subsidiaries, including all of the equity interests of our U.S. subsidiaries (other than certain excluded subsidiaries) and 65% of the equity interests in certain of our first-tier foreign subsidiaries. The Partnership does not guarantee the debt under the 2011 Credit Facility, its assets are not collateral under the 2011 Credit Facility and the general partner units in the Partnership are not pledged under the 2011 Credit Facility. Subject to certain conditions, at our request, and with the approval of the lenders, the aggregate commitments under the 2011 Credit Facility may be increased by up to an additional $300 million.

Like the 2007 Credit Facility, the 2011 Credit Facility contains various covenants with which we or certain of our subsidiaries must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, enter into transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. We are also subject to financial covenants, including a ratio of EBITDA (defined in the 2011 credit agreement as Adjusted EBITDA) to Total Interest Expense (as defined in the 2011 credit agreement) of not less than 2.25 to 1.0, a ratio of consolidated Total Debt (as defined in the 2011 credit agreement) to EBITDA of not greater than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined in the 2011 credit agreement) to EBITDA of not greater than 4.0 to 1.0. As of June 30, 2011, we maintained a 3.6 to 1.0 EBITDA to Total Interest Expense ratio, a 4.2 to 1.0 consolidated Total Debt to EBITDA ratio and a 1.4 to 1.0 Senior Secured Debt to EBITDA ratio, each as calculated under the 2011 Credit Facility. If we fail to remain in compliance with our financial covenants we would be in default under our debt agreements. In addition, if we were to experience a material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under our debt agreements, this could lead to a default under our debt agreements. A default under one or more of our debt agreements, including a default by the Partnership under its credit facility, would trigger cross-default provisions under certain of our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. As of June 30, 2011, we were in compliance with all financial covenants under the 2007 Credit Facility, and would have been in compliance with all financial covenants under the 2011 Credit Facility had such covenants been in effect on such date.

We expect our interest rate on borrowings under the 2011 Credit Facility will be higher than the interest rate on borrowings under the 2007 Credit Facility. For example, based on our debt balances on June 30, 2011, the interest rate applicable under the 2011 Credit Facility would have been approximately 1.1% higher on that date than the interest rate under the 2007 Credit Facility.

In August 2007, Exterran ABS 2007 LLC entered into an asset-backed securitization facility. In March 2011, we repaid the $6.0 million outstanding balance under this facility and terminated it. As a result of this termination, we expensed $1.4 million of unamortized deferred financing costs, which is reflected in interest expense in our condensed consolidated statements of operations.

In November 2010, we issued $350 million aggregate principal amount of 7.25% senior notes due December 2018 (the “7.25% Notes”). The 7.25% Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and unless so registered, the securities may not be offered or sold in the U.S. except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We offered and issued the 7.25% Notes only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the U.S. pursuant to Regulation S.

The 7.25% Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries that guarantee indebtedness under the Credit Agreement and certain of our future subsidiaries. The Partnership and its subsidiaries have not guaranteed the 7.25% Notes. The 7.25% Notes and the guarantees are our and the guarantors’ general unsecured senior obligations, respectively, rank equally in right of payment with all of our and the guarantors’ other senior obligations, and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 7.25% Notes and guarantees are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of our non-guarantor subsidiaries.

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Prior to December 1, 2013, we may redeem all or a part of the 7.25% Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 7.25% Notes prior to December 1, 2013 with the net proceeds of a public or private equity offering at a redemption price of 107.250% of the principal amount of the 7.25% Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 7.25% Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 120 days of the date of the closing of such equity offering. On or after December 1, 2013, we may redeem all or a part of the 7.25% Notes at redemption prices (expressed as percentages of principal amount) equal to 105.438% for the twelve-month period beginning on December 1, 2013, 103.625% for the twelve-month period beginning on December 1, 2014, 101.813% for the twelve-month period beginning on December 1, 2015 and 100.000% for the twelve-month period beginning on December 1, 2016 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date on the 7.25% Notes.

In June 2009, we issued under our shelf registration statement $355.0 million aggregate principal amount of the 4.25% Notes. The 4.25% Notes are convertible upon the occurrence of certain conditions 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 4.25% Notes prior to their maturity date.

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.

On November 3, 2010, the Partnership, as guarantor, and EXLP Operating LLC, a wholly-owned subsidiary of the Partnership, as borrower, entered into an amendment and restatement of their senior secured credit agreement (as so amended and restated, the “Partnership Credit Agreement”) to provide for a new five-year, $550 million senior secured credit facility consisting of a $400 million revolving credit facility and a $150 million term loan facility. In March 2011, the revolving borrowing capacity under this facility was increased by $150.0 million to $550.0 million. Concurrent with the execution of the Partnership Credit Agreement in November 2010, the Partnership borrowed $304.0 million under its revolving credit facility and $150.0 million under its term loan facility and used the proceeds to (i) repay the entire $406.1 million outstanding under the Partnership’s previous senior secured credit facility, (ii) repay the entire $30.0 million outstanding under the Partnership’s asset-backed securitization facility and terminate that facility, (iii) pay $14.8 million to terminate the interest rate swap agreements to which the Partnership was a party and (iv) pay customary fees and other expenses relating to the Partnership Credit Agreement.

As of June 30, 2011, the Partnership had $160.5 million of undrawn capacity under its revolving credit facility. The Partnership Credit Agreement limits the Partnership’s Total Debt to EBITDA ratio (as defined in the Partnership Credit Agreement) to not greater than 4.75 to 1.0. The Partnership Credit Agreement allows for the Partnership’s Total Debt to EBITDA ratio to be increased from 4.75 to 1.0 to 5.25 to 1.0 during a quarter when an acquisition meeting certain thresholds is completed and for the following two quarters after such an acquisition closes. Therefore, because the June 2011 Contract Operations Acquisition closed in the second quarter of 2011, the maximum allowed ratio of Total Debt to EBITDA is 5.25 to 1.0 through December 31, 2011, reverting to 4.75 to 1.0 for the quarter ending March 31, 2012 and subsequent quarters.

The Partnership’s revolving credit facility bears interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin. Depending on the Partnership’s leverage ratio, the applicable margin for revolving loans varies (i) in the case of LIBOR loans, from 2.25% to 3.25% and (ii) in the case of base rate loans, from 1.25% to 2.25%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Effective Rate plus 0.5% or one-month LIBOR plus 1.0%. At June 30, 2011, all amounts outstanding under this facility were LIBOR loans and the applicable margin was 2.5%. The weighted average annual interest rate on the outstanding balance of this facility at June 30, 2011, excluding the effect of interest rate swaps, was 2.7%.

The Partnership’s term loan facility bears interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin. Depending on the Partnership’s leverage ratio, the applicable margin for term loans varies (i) in the case of LIBOR loans, from 2.5% to 3.5% and (ii) in the case of base rate loans, from 1.5% to 2.5%. At June 30, 2011, all amounts outstanding under the term loan

42

were LIBOR loans and the applicable margin was 2.75%. The average annual interest rate on the outstanding balance of the term loan at June 30, 2011, excluding the effect of interest rate swaps, was 3.0%.

Borrowings under the Partnership Credit Agreement are secured by substantially all of the U.S. personal property assets of the Partnership and its Significant Domestic Subsidiaries (as defined in the Partnership Credit Agreement), including all of the membership interests of the Partnership’s Domestic Subsidiaries (as defined in the Partnership Credit Agreement).

The Partnership Credit Agreement contains various covenants with which the Partnership must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on its ability to incur additional indebtedness, enter into transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. It also contains various covenants requiring mandatory prepayments of the term loans from the net cash proceeds of certain future asset transfers and debt issuances. 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 3.0 to 1.0 (which will decrease to 2.75 to 1.0 following the occurrence of certain events specified in the Partnership Credit Agreement) and a ratio of Total Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 4.75 to 1.0. As discussed above, because the June 2011 Contract Operations Acquisition closed during the second quarter of 2011, the Partnership’s Total Debt to EBITDA ratio was temporarily increased from 4.75 to 1.0 to 5.25 to 1.0 during the quarter ended June 30, 2011, and will continue at that level through December 31, 2011, reverting to 4.75 to 1.0 for the quarter ending March 31, 2012 and subsequent quarters. As of June 30, 2011, the Partnership maintained a 6.5 to 1.0 EBITDA to Total Interest Expense ratio and a 3.7 to 1.0 Total Debt to EBITDA ratio. A violation of the Partnership’s Total Debt to EBITDA covenant would be an event of default under the Partnership Credit Agreement, which would trigger cross-default provisions under certain of our debt agreements. As of June 30, 2011, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

We have entered into interest rate swap agreements related to a portion of our variable rate debt. In the fourth quarter of 2010, we paid $43.0 million to terminate interest rate swap agreements with a total notional value of $585.0 million and a weighted average rate of 4.6%. These swaps qualified for hedge accounting and were previously included on our balance sheet as a liability and in accumulated other comprehensive income (loss). The liability was paid in connection with the termination, and the associated amount in accumulated other comprehensive income (loss) will be amortized into interest expense over the original term of the swaps. Of the total amount included in accumulated other comprehensive income (loss), $9.7 million was amortized into interest expense during the first six months of 2011 and we expect $14.4 million to be amortized into interest expense during the remainder of 2011. See Note 7 to the Financial Statements for further discussion of our interest rate swap agreements. See Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk” for further discussion of our interest rate swap agreements.

Historically, we have financed capital expenditures with a combination of net cash provided by operating and financing activities. 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 adverse impact on our ability to maintain our fleet and to grow. If any of our lenders become unable to perform their obligations under our credit facilities, our borrowing capacity under these facilities could be reduced. Inability to borrow additional amounts under those facilities could limit our ability to fund our future growth and operations. 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, 2011; however, to the extent it is not, we may borrow additional funds under our credit facilities or we may seek additional debt or equity financing.

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, except for a portion of the cash flow generated from operations of the Partnership which will be used to pay distributions on its units. 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

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for future distributions to its unitholders for any one or more of the upcoming four quarters, plus, (2) if the Partnership’s general partner so determines, all or a portion of the Partnership’s cash on hand on the date of determination of available cash for the quarter.

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

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

On July 29, 2011, the board of directors of Exterran GP LLC approved a cash distribution of $0.4825 per limited partner unit, or approximately $19.1 million, including distributions to the Partnership’s general partner on its incentive distribution rights. The distribution covers the period from April 1, 2011 through June 30, 2011. The record date for this distribution is August 9, 2011, and payment is expected to occur on August 12, 2011

NON-GAAP FINANCIAL MEASURES

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 selling, general and administrative (“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 accounting principles generally accepted in the U.S. (“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, SG&A expense, impairments and restructuring charges. 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.

For a reconciliation of gross margin to net income (loss), see Note 13 to the Financial Statements.

We define EBITDA, as adjusted, as net income (loss) plus income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs and gain or loss on termination of interest rate swaps), depreciation and amortization expense, impairment charges, merger and integration expenses, restructuring charges and other charges. We believe EBITDA, as adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, impairment charges, merger and integration expenses, restructuring charges and other charges. Management uses EBITDA, as adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. Our EBITDA, as adjusted, may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

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EBITDA, as adjusted, is not a measure of financial performance under GAAP, and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from EBITDA, as adjusted, are significant and necessary components to the operations of our business, and, therefore, EBITDA, as adjusted, should only be used as a supplemental measure of our operating performance.

The following table reconciles our net income (loss) to EBITDA, as adjusted (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net income (loss)	$	(30,224	)	$	16,653		$	(60,688	)	$	33,386
(Income) loss from discontinued operations, net of tax		569			(38,957	)		2,707			(49,382	)
Depreciation and amortization		92,676			106,188			183,154			197,963
Long-lived asset impairment		2,063			745			2,063			2,452
Investment in non-consolidated affiliates impairment		—			348			—			348
Interest expense		34,586			32,608			71,756			65,542
Gain on sale of our investment in the subsidiary that owns the barge mounted processing plant and other related assets used on the Cawthorne Channel Project		—			—			—			(4,863	)
Provision for (benefit from) income taxes		(12,499	)		184			(17,513	)		(3,815	)
EBITDA, as adjusted	$	87,171		$	117,769		$	181,479		$	241,631

OFF-BALANCE SHEET ARRANGEMENTS

We have no material off-balance sheet arrangements.

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.

We have significant international operations. The net assets and liabilities of these operations are exposed to changes in currency exchange rates. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. We recorded a foreign currency loss in our condensed consolidated statements of operations of approximately $0.5 million in the first six months of 2011 compared to a loss of $0.6 million in the first six months of 2010. Our foreign currency gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency. Changes in exchange rates may create gains or losses in future periods to the extent we maintain net assets and liabilities not denominated in the functional currency.

As of June 30, 2011, after taking into consideration interest rate swaps, we had approximately $104.3 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1% increase in the effective interest rate on our outstanding debt subject to floating interest rates would result in an annual increase in our interest expense of approximately $1.0 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 7 to the Financial Statements.

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, 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), which are designed to

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provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on the evaluation, as of June 30, 2011, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the 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 were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are 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, 2010, except as follows:

New regulations, proposed regulations and proposed modifications to existing regulations under the Clean Air Act (“CAA”), if implemented, could result in increased compliance costs.

On August 20, 2010, the Environmental Protection Agency (“EPA”) published new regulations under the CAA to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. The rule will require us to undertake certain expenditures and activities, likely including purchasing and installing emissions control equipment, such as oxidation catalysts or non-selective catalytic reduction equipment, on a portion of our engines located at major sources of hazardous air pollutants and all our engines over a certain size regardless of location, following prescribed maintenance practices for engines (which are consistent with our existing practices), and implementing additional emissions testing and monitoring. On October 19, 2010, we submitted a legal challenge to the U.S. Court of Appeals for the D.C. Circuit and a Petition for Administrative Reconsideration to the EPA for some monitoring aspects of the rule. The legal challenge has been held in abeyance since December 3, 2010, pending the EPA’s consideration of the Petition for Administrative Reconsideration. On January 5, 2011, the EPA approved the request for reconsideration of the monitoring issues and that reconsideration process is ongoing. At this point, we cannot predict when, how or if an EPA or a court ruling would modify the final rule, and as a result we cannot currently accurately predict the cost to comply with the rule’s requirements. Compliance with the final rule is required by October 2013.

In addition, the Texas Commission on Environmental Quality (“TCEQ”) has finalized revisions to certain air permit programs that significantly increase the air permitting requirements for new and certain existing oil and gas production and gathering sites for 23 counties in the Barnett Shale production area. The final rule establishes new emissions standards for engines, which could impact the operation of specific categories of engines by requiring the use of alternative engines, compressor packages or the installation of aftermarket emissions control equipment. The rule became effective for the Barnett Shale production area in April 2011, and the lower emissions standards will become applicable between 2015 and 2030 depending on the type of engine and the permitting requirements. Our cost to comply with the revised air permit programs is not expected to be material at this time. Although the TCEQ had previously stated it would consider expanding application of the new air permit program statewide, the Texas Legislature adopted legislation prohibiting such an expansion in the near term. At this point, we cannot predict whether or when such a geographic expansion of those rules might occur or the cost to comply with any such requirements.

On July 28, 2011, the EPA proposed regulations focused on reducing the emissions of certain chemicals by the oil and natural gas industry, including volatile organic compounds, sulfur dioxide and certain air toxics. Based on a review of the EPA’s fact sheet describing the proposed regulations, it appears our business could be affected by certain portions of those proposed regulations. We will continue to review and evaluate this very recent proposal as more information is made available. At this point, we cannot reasonably predict the ultimate cost to comply with such requirements.

These new regulations and proposals, when finalized, and any other new regulations requiring the installation of more sophisticated pollution control equipment, could have a material adverse impact on our business, financial condition, results of operations and cash flows.

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Item 6. Exhibits

Exhibit No.	Description
2.1	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 on October 5, 2009
2.2	Contribution, Conveyance and Assumption Agreement, dated July 26, 2010, by and among Exterran Holdings, Inc., 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 to the Registrant’s Current Report on Form 8-K filed on July 28, 2010
2.3	Contribution, Conveyance and Assumption Agreement, dated May 23, 2011, 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 on May 24, 2011
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 on 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 on 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 on 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 on June 16, 2009
4.4	Indenture, dated as of November 23, 2010, by and among Exterran Holdings, Inc., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
4.5	Registration Rights Agreement, dated as of November 23, 2010, by and among Exterran Holdings, Inc., the Guarantors named therein and the Initial Purchasers named therein, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
10.1*	Third Amended and Restated Omnibus Agreement, dated June 10, 2011, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.2†	Amendment No. 4 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
10.3†	Amendment No. 2 to the Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Annex C to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
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
101.1**	Interactive data files pursuant to Rule 405 of Regulation S-T

†	Management contract or compensatory plan or arrangement.
*	Filed herewith.
**	Furnished, not filed.

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SIGNATURES

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

	EXTERRAN HOLDINGS, INC.
Date: August 4, 2011	By:	/s/ J. MICHAEL ANDERSON
		J. Michael Anderson
		Senior Vice President and Chief Financial Officer (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 No.	Description
2.1	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 on October 5, 2009
2.2	Contribution, Conveyance and Assumption Agreement, dated July 26, 2010, by and among Exterran Holdings, Inc., 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 to the Registrant’s Current Report on Form 8-K filed on July 28, 2010
2.3	Contribution, Conveyance and Assumption Agreement, dated May 23, 2011, 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 on May 24, 2011
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 on 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 on 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 on 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 on June 16, 2009
4.4	Indenture, dated as of November 23, 2010, by and among Exterran Holdings, Inc., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
4.5	Registration Rights Agreement, dated as of November 23, 2010, by and among Exterran Holdings, Inc., the Guarantors named therein and the Initial Purchasers named therein, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
10.1*	Third Amended and Restated Omnibus Agreement, dated June 10, 2011, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.2†	Amendment No. 4 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
10.3†	Amendment No. 2 to the Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Annex C to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
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
101.1**	Interactive data files pursuant to Rule 405 of Regulation S-T

†	Management contract or compensatory plan or arrangement.
*	Filed herewith.
**	Furnished, not filed.

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