- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period ended September 30, 2008


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 Number: 000-19580

T-3 ENERGY SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		76-0697390
(State or Other Jurisdiction		(IRS Employer
of Incorporation or Organization)		Identification No.)

7135 Ardmore, Houston, Texas		77054
(Address of Principal Executive Offices)		(Zip Code)

(Registrant’s telephone number, including area code): (713) 996-4110

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. Yes þ No o

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 filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

At October 31, 2008, the registrant had 12,530,791 shares of common stock outstanding.

TABLE OF CONTENTS

FORM 10-Q


	Page
PART I
Item

1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007		1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007		2

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007		3

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2008 and 2007		4

Notes to Condensed Consolidated Financial Statements		5

2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

3. Quantitative and Qualitative Disclosures about Market Risk		26

4. Controls and Procedures		27

PART II

— Cautionary Note Regarding Forward-Looking Statements		28

1. Legal Proceedings		28

1A. Risk Factors		29

2. Unregistered Sales of Equity Securities and Use of Proceeds		36

3. Defaults Upon Senior Securities		36

4. Submission of Matters to a Vote of Security Holders		36

5. Other Information		36

6. Exhibits		36
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except for share amounts)


	September 30,		December 31,
	2008		2007
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,620	$	9,522
Accounts receivable – trade, net		43,182		44,180
Inventories		59,819		47,457
Deferred income taxes		4,754		3,354
Prepaids and other current assets		6,162		5,824

Total current assets		115,537		110,337

Property and equipment, net		43,982		40,073
Goodwill, net		112,531		112,249
Other intangible assets, net		34,124		35,065
Other assets		2,972		2,838


Total assets	$	309,146	$	300,562


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable – trade	$	24,296	$	20,974
Accrued expenses and other		18,880		15,156
Current maturities of long-term debt		5		74

Total current liabilities		43,181		36,204

Long-term debt, less current maturities		31,834		61,423
Other long-term liabilities		1,614		1,101
Deferred income taxes		12,408		11,186

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.001 par value, 25,000,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $.001 par value, 50,000,000 shares authorized, 12,530,791 and 12,320,341 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		13		12
Warrants, 10,157 and 13,138 issued and outstanding at September 30, 2008 and December 31, 2007, respectively		20		26
Additional paid-in capital		169,317		160,446
Retained earnings		48,754		27,039
Accumulated other comprehensive income		2,005		3,125

Total stockholders’ equity		220,109		190,648


Total liabilities and stockholders’ equity	$	309,146	$	300,562

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

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues:
Products	$	59,635		$	42,903		$	175,386		$	121,743
Services		10,203			10,327			31,312			31,320

		69,838			53,230			206,698			153,063

Cost of revenues:
Products		37,440			27,493			107,815			77,332
Services		6,100			6,370			18,334			19,125

		43,540			33,863			126,149			96,457

Gross profit		26,298			19,367			80,549			56,606

Selling, general and administrative expenses		15,696			8,789			44,226			29,230


Income from operations		10,602			10,578			36,323			27,376

Interest expense		(453	)		(98	)		(1,946	)		(354	)

Interest income		80			424			143			705

Other income (expense), net		(164	)		301			343			780


Income from continuing operations before provision for income taxes		10,065			11,205			34,863			28,507

Provision for income taxes		5,359			3,984			13,128			10,474


Income from continuing operations		4,706			7,221			21,735			18,033

Loss from discontinued operations, net of tax		(9	)		(92	)		(20	)		(1,167	)


Net income	$	4,697		$	7,129		$	21,715		$	16,866


Basic earnings (loss) per common share:
Continuing operations	$	.38		$	.59		$	1.75		$	1.56

Discontinued operations	$	—		$	—		$	—		$	(.10	)

Net income per common share	$	.38		$	.59		$	1.75		$	1.46


Diluted earnings (loss) per common share:
Continuing operations	$	.37		$	.58		$	1.69		$	1.52

Discontinued operations	$	—		$	(.01	)	$	—		$	(.10	)

Net income per common share	$	.37		$	.57		$	1.69		$	1.42


Weighted average common shares outstanding:
Basic		12,504			12,170			12,437			11,550

Diluted		12,872			12,523			12,885			11,879

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

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended
	September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	21,715		$	16,866
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations, net of tax		20			1,167
Bad debt expense		340			171
Depreciation and amortization		6,444			3,181
Amortization of deferred loan costs		174			189
Loss (gain) on sale of assets		(33	)		12
Write-off of property and equipment, net		25			—
Deferred taxes		(718	)		(266	)
Employee stock-based compensation expense		4,025			2,463
Excess tax benefits from stock-based compensation		(1,688	)		(653	)
Equity in earnings of unconsolidated affiliate		(175	)		(485	)
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable – trade		1,249			(3,985	)
Inventories		(12,630	)		(11,496	)
Prepaids and other current assets		(539	)		2,034
Other assets		(219	)		(472	)
Accounts payable – trade		3,452			1,128
Accrued expenses and other		5,868			(515	)

Net cash provided by operating activities		27,310			9,339

Cash flows from investing activities:
Purchases of property and equipment		(7,488	)		(4,305	)
Proceeds from sales of property and equipment		92			40
Cash paid for acquisitions, net of cash acquired		(2,732	)		—
Equity investment in unconsolidated affiliate		—			(460	)

Net cash used in investing activities		(10,128	)		(4,725	)

Cash flows from financing activities:
Net borrowings (repayments) under swing line credit facility		4,414			(85	)
Net repayments under revolving credit facility		(34,000	)		—
Payments on long-term debt		(93	)		—
Debt financing costs		(78	)		—
Net proceeds from issuance of common stock		—			22,157
Proceeds from exercise of stock options		3,084			1,152
Proceeds from exercise of warrants		38			4,018
Excess tax benefits from stock-based compensation		1,688			653

Net cash provided by (used in) financing activities		(24,947	)		27,895

Effect of exchange rate changes on cash and cash equivalents		(137	)		65


Net increase (decrease) in cash and cash equivalents		(7,902	)		32,574
Cash and cash equivalents, beginning of period		9,522			3,393

Cash and cash equivalents, end of period	$	1,620		$	35,967

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

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008			2007		2008			2007
Net income	$	4,697		$	7,129	$	21,715		$	16,866

Other comprehensive income (loss):
Foreign currency translation adjustment		(650	)		980		(1,120	)		2,232


Comprehensive income	$	4,047		$	8,109	$	20,595		$	19,098

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

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. These financial statements include the accounts of T-3 Energy Services, Inc. and its subsidiaries (collectively, “T-3” or the “Company”). The Company’s 50% investment in its Mexico joint venture is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2008, are not necessarily indicative of the results that may be expected for the year ended December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Certain reclassifications have been made to conform prior year financial information to the current period presentation. Also, to conform the September 30, 2007 statement of cash flows to the December 31, 2007 presentation in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the Company has reclassified $0.6 million from cash provided by financing activities to cash provided by operating activities.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and long-term debt. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate their respective fair values because of the short maturities of those instruments. The Company’s long-term debt consists of its revolving credit facility. The carrying value of the revolving credit facility approximates fair value because of its variable short-term interest rates.

Goodwill and Other Long-Lived Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets , the Company tests for the impairment of goodwill on at least an annual basis. Our annual test of impairment of goodwill is performed as of December 31.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , the Company tests for the impairment of other long-lived assets upon the occurrence of a triggering event.

While the Company does not presently believe that its goodwill has been impaired, the annual assessment has not yet been completed. Additionally, the Company has not noted any triggering events that would lead to an assessment of impairment for its other long-lived assets. Further declines in the Company’s stock price or an extended period of sustained economic declines could result in an impairment of its goodwill and/or other long-lived assets.

New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. Management adopted the provisions

of SFAS No. 157 on January 1, 2008. The adoption of SFAS No. 157 did not have any impact on the Company’s consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 141R, Business Combinations (“SFAS No. 141R”), which changes the requirements for an acquirer’s recognition and measurement of the assets acquired and the liabilities assumed in a business combination. SFAS No. 141R is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption. Management is currently evaluating the impact that SFAS No. 141R will have on its consolidated financial position, results of operations and cash flows.

2. BUSINESS COMBINATIONS AND DISPOSITIONS

Business Combinations

On May 29, 2008, the Company exercised its option to purchase certain fixed assets and inventory of HP&T Products, Inc. in India at their estimated fair value of $0.4 million. The final fair market valuation of the assets purchased will be determined during the fourth quarter of 2008. The purchase of these assets was funded from the Company’s working capital and the use of its senior credit facility.

On January 24, 2008, the Company completed the purchase of Pinnacle Wellhead, Inc., or Pinnacle, for approximately $2.4 million. Pinnacle is located in Oklahoma City, Oklahoma and has been in business for over twenty years as a service provider that assembles, tests, installs and performs repairs on wellhead production products, primarily in Oklahoma. The Company plans to expand the Pinnacle facility into a full service repair facility similar to its other locations. The acquisition was funded from the Company’s working capital and the use of its senior credit facility.

On October 30, 2007, the Company completed the purchases of all of the outstanding stock of Energy Equipment Corporation, or EEC, and HP&T Products, Inc., or HP&T, for approximately $72.3 million and $25.9 million, respectively. A portion of the EEC purchase price in the amount of $3.4 million is being held in escrow for a period of one year following the closing of the acquisition to satisfy certain indemnifications claims that may arise. An additional portion of the EEC purchase price in the amount of $10.3 million has been set aside by Energy Equipment Group, Inc., the former stockholders of EEC, in a separate account in their name for a period of 18 months from the closing of the acquisition to satisfy certain contractual indemnification claims, if any. EEC manufactures valves, chokes, control panels, and their associated parts for sub-sea applications, extreme temperature, and highly corrosive environments. HP&T designs gate valves, manifolds, chokes and other products. The acquisitions of EEC and HP&T demonstrate the Company’s commitment to developing engineered products for both surface and subsea applications. These acquisitions evolve from the Company’s growth strategy focused on improving its geographic presence and enhancing its product mix through complementary patented product additions. The acquisitions were funded from the Company’s working capital and the use of its senior credit facility.

The acquisitions of Pinnacle, EEC and HP&T discussed above were accounted for using the purchase method of accounting. Results of operations for the above acquisitions are included in the accompanying condensed consolidated financial statements since the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon their estimated fair market values at the dates of acquisition. The excess of the purchase price over the net assets acquired was recorded as goodwill. The balances included in the condensed consolidated balance sheets at December 31, 2007 and September 30, 2008 related to the EEC and HP&T acquisitions and, at September 30, 2008, related to the Pinnacle acquisition are based on preliminary information and are subject to change when final asset valuations are obtained and the potential for liabilities has been evaluated. No material changes to the EEC and HP&T preliminary allocations were made during 2008 and the Company does not anticipate any material changes to the allocations going forward. The Company did allocate $1.5 million of the Pinnacle purchase price to other intangible assets during the second quarter of 2008. The Pinnacle acquisition is not material to the Company’s condensed consolidated financial statements, and therefore a preliminary purchase price allocation and pro forma information is not presented.

The following schedule summarizes investing activities related to the Company’s Pinnacle acquisition and

the purchase of the HP&T India assets which is presented in the condensed consolidated statements of cash flows for the nine months ended September 30, 2008 (dollars in thousands):


Fair value of tangible and intangible assets, net of cash acquired	$	2,801
Goodwill recorded		758
Total liabilities assumed		(827	)
Common stock issued		—

Cash paid for acquisitions, net of cash acquired	$	2,732

The following presents the consolidated financial information for the Company on a pro forma basis assuming the acquisition of EEC had occurred as of January 1, 2007. The historical financial information has been adjusted to give effect to pro forma items that are directly attributable to the EEC acquisition and expected to have a continuing impact on the consolidated results. These items include adjustments to record the incremental amortization and depreciation expense related to the increase in fair value of the acquired assets and
interest expense related to the borrowing under the Company’s senior credit facility.


	Three Months Ended		Nine Months Ended
	September 30, 2007		September 30, 2007
	(In thousands, except		(In thousands, except
	per share amounts)		per share amounts)
Revenues	$	70,431	$	203,804
Income from continuing operations	$	8,801	$	22,767
Basic Earnings per share from continuing operations	$	0.72	$	1.97
Diluted Earnings per share from continuing operations	$	0.70	$	1.92

Dispositions

During 2004 and 2005, the Company sold substantially all of the assets of its products and distribution segments, respectively. The assets of the products and distribution segments sold constituted businesses and thus their results of operations were reported as discontinued operations. The Company’s loss before income taxes from discontinued operations for the three and nine months ended September 30, 2008 was not significant. The Company’s loss before income taxes from discontinued operations for the three and nine months ended September 30, 2007 was $0.1 million and $1.8 million, respectively, and primarily resulted from a jury verdict during the three months ended June 30, 2007 against one of the Company’s discontinued businesses. See Note 7 for further discussion.

3. INVENTORIES

Inventories consist of the following (dollars in thousands):


	September 30,		December 31,
	2008		2007
Raw materials	$	7,642	$	7,640
Work in process		16,723		16,319
Finished goods and component parts		35,454		23,498

	$	59,819	$	47,457

DEBT

The Company’s senior credit facility provides for a $180 million revolving line of credit, maturing October 26, 2012 that can be increased by up to $70 million (not to exceed a total commitment of $250 million) with the approval of the senior lenders. The senior credit facility consists of a U.S. revolving credit facility that includes a swing line subfacility and a letter of credit subfacility up to $25 million and $50 million, respectively. The Company’s senior credit facility also provides for a separate Canadian revolving credit facility, which includes a swing line subfacility of up to U.S. $5 million and a letter of credit subfacility of up to U.S. $5 million. The revolving credit facility matures on the same date as the senior credit facility, and is subject to the same

covenants and restrictions. As of September 30, 2008, the Company had $31.8 million borrowed under its senior credit facility and there were no outstanding borrowings under the Canadian revolving credit facility. See Note 7 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for additional information related to the Company’s debt.

5. EARNINGS (LOSS) PER SHARE

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is the same as basic but includes dilutive stock options, restricted stock and warrants using the treasury stock method. The following tables reconcile the numerators and denominators of the basic and diluted per common share computations for net income for the three and nine months ended September 30, 2008 and 2007, as follows (in thousands except per share data):


	Three Months Ended
	September 30,
	2008			2007
Numerator:
Income from continuing operations	$	4,706		$	7,221
Loss from discontinued operations		(9	)		(92	)

Net income	$	4,697		$	7,129


Denominator:
Weighted average common shares outstanding — basic		12,504			12,170
Shares for dilutive stock options, restricted stock and warrants		368			353

Weighted average common shares outstanding — diluted		12,872			12,523


Basic earnings (loss) per common share:
Continuing operations	$	.38		$	.59
Discontinued operations		—			—

Net income per common share	$	.38		$	.59


Diluted earnings (loss) per common share:
Continuing operations	$	.37		$	.58
Discontinued operations		—			(.01	)

Net income per common share	$	.37		$	.57

For the three months ended September 30, 2008 and 2007, there were 574,000 and 33,000 options, respectively, that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three months ended September 30, 2008, there were 10,000 shares of restricted stock that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.


	Nine Months Ended
	September 30,
	2008			2007
Numerator:
Income from continuing operations	$	21,735		$	18,033
Loss from discontinued operations		(20	)		(1,167	)

Net income	$	21,715		$	16,866


Denominator:
Weighted average common shares outstanding — basic		12,437			11,550
Shares for dilutive stock options, restricted stock and warrants		448			329

Weighted average common shares outstanding — diluted		12,885			11,879


Basic earnings (loss) per common share:
Continuing operations	$	1.75		$	1.56
Discontinued operations		—			(.10	)

Net income per common share	$	1.75		$	1.46


Diluted earnings (loss) per common share:
Continuing operations	$	1.69		$	1.52
Discontinued operations		—			(.10	)

Net income per common share	$	1.69		$	1.42

For the nine months ended September 30, 2008 and 2007, there were 178,000 and 39,850 options, respectively, that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the nine months ended September 30, 2008, there were 3,400 shares of restricted stock that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.

6. SEGMENT INFORMATION

The Company’s determination of reportable segments considers the strategic operating units under which the Company sells various types of products and services to various customers. Financial information for purchase transactions is included in the segment disclosures only for periods subsequent to the dates of acquisition.

Management evaluates the operating results of its pressure control reporting segment based upon its three product lines: pressure and flow control, wellhead and pipeline. The Company’s operating segments of pressure and flow control, wellhead and pipeline have been aggregated into one reporting segment, pressure control, as the operating segments have the following commonalities: economic characteristics, nature of the products and services, type or class of customer, and methods used to distribute their products and provide services. The pressure control segment manufactures, remanufactures and repairs high pressure, severe service products including valves, chokes, actuators, blowout preventers, manifolds and wellhead equipment; manufactures accumulators and rubber goods; and applies custom coating to customers’ products used primarily in the oil and gas industry.

The accounting policies of the segment are the same as those of the Company. The Company evaluates performance based on income from operations excluding certain corporate costs not allocated to the segment. Substantially all revenues are from domestic sources and Canada and all assets are held in the United States, India and Canada.


	(dollars in thousands)
	Pressure
	Control		Corporate			Consolidated
Three months ended September 30:
2008
Revenues	$	69,838	$	—		$	69,838
Depreciation and amortization		1,733		267			2,000
Income (loss) from operations		17,749		(7,147	)		10,602
Capital expenditures		1,553		309			1,862
2007
Revenues	$	53,230	$	—		$	53,230
Depreciation and amortization		766		319			1,085
Income (loss) from operations		14,122		(3,544	)		10,578
Capital expenditures		1,862		196			2,058


	(dollars in thousands)
	Pressure
	Control		Corporate			Consolidated
Nine months ended September 30:
2008
Revenues	$	206,698	$	—		$	206,698
Depreciation and amortization		5,511		933			6,444
Income (loss) from operations		54,604		(18,281	)		36,323
Capital expenditures		6,658		830			7,488
2007
Revenues	$	153,063	$	—		$	153,063
Depreciation and amortization		2,213		968			3,181
Income (loss) from operations		38,892		(11,516	)		27,376
Capital expenditures		3,721		584			4,305

7. COMMITMENTS AND CONTINGENCIES

The Company is, from time to time, involved in various legal actions arising in the ordinary course of business.

In December 2001, a lawsuit was filed against the Company in the 14 ^th Judicial District Court of Calcasieu Parish, Louisiana. The lawsuit alleges that certain equipment purchased from and installed by a wholly owned subsidiary of the Company was defective in assembly and installation. The plaintiffs have alleged certain damages in excess of $10 million related to repairs and activities associated with the product failure, loss of production and damage to the reservoir. The Company has tendered the defense of this claim under its comprehensive general liability insurance policy and its umbrella policy. Management does not believe that the outcome of such legal action involving the Company will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

In June 2003, a lawsuit was filed against the Company in the 61 ^st Judicial District of Harris County, Texas. The lawsuit alleged that certain equipment purchased from and installed by a wholly-owned subsidiary of the Company was defective. The plaintiffs initially alleged repair and replacement damages of $0.3 million. In 2005, the plaintiffs alleged production damages in the range of $3 to $5 million. During February 2008, the Company’s insurance carrier settled this lawsuit with the plaintiffs for $0.2 million.

In July 2003, a lawsuit was filed against the Company in the U.S. District Court, Eastern District of Louisiana. The lawsuit alleged that a wholly owned subsidiary of the Company, the assets and liabilities of which were sold in 2004, failed to deliver the proper bolts and/or sold defective bolts to the plaintiff’s contractor to be used in connection with a drilling and production platform in the Gulf of Mexico. The plaintiffs claimed that the bolts failed and they had to replace all bolts at a cost of approximately $3 million. The complaint named the plaintiff’s contractor and seven of its suppliers and subcontractors (including the Company’s subsidiary) as the defendants and alleged negligence on the part of all defendants. The lawsuit was called to trial during June 2007 and resulted in a jury finding of negligence against the Company and three other defendants. The jury awarded the plaintiffs damages in the amount of $2.9 million, of which the Company estimates its share to be $1.0 million. The Company accrued approximately $1.1 million, net of tax, for its share of the damages and

attorney fees, court costs and interest, as a loss from discontinued operations during the second quarter of 2007.

The Company’s environmental remediation and compliance costs have not been material during any of the periods presented. T-3 has been identified as a potentially responsible party with respect to the Lake Calumet Cluster site near Chicago, Illinois, which has been designated for cleanup under CERCLA and Illinois state law. The Company’s involvement at this site is believed to have been minimal. While no agency-approved final allocation of the Company’s liability has been made with respect to the Lake Calumet Cluster site, based upon the Company’s involvement with this site, management does not expect that its ultimate share of remediation costs will have a material impact on its financial position, results of operations or cash flows.

At September 30, 2008, the Company had no significant letters of credit outstanding.

8. STOCKHOLDERS’ EQUITY

On April 23, 2007, the Company closed an underwritten offering among the Company, First Reserve Fund VIII (at the time the Company’s largest stockholder) and Bear, Stearns & Co. Inc., Simmons & Company International, and Pritchard Capital Partners, LLC (the “Underwriters”), pursuant to which the Company sold 1,000,059 shares of its common stock for net proceeds of approximately $22.2 million, and First Reserve Fund VIII sold 4,879,316 shares of common stock pursuant to an effective shelf registration statement on Form S-3, as amended and supplemented by the prospectus supplement dated April 17, 2007. Of the shares sold by First Reserve Fund VIII, 313,943 had been acquired through First Reserve Fund VIII’s exercise of warrants to purchase the Company’s common stock for $12.80 per share. As a result, the Company received proceeds of approximately $4.0 million through the exercise by First Reserve Fund VIII of these warrants.

The sale of the Company’s common stock by First Reserve Fund VIII in November 2006 coupled with its sale of common stock in the offering described above constituted a “change of control” pursuant to the terms of the Company’s then existing employment agreement with Gus D. Halas, the Company’s Chairman, President and Chief Executive Officer. As a result, Mr. Halas was contractually entitled to a change of control payment from the Company of $1.6 million, which is two times the average of his salary and bonus over the past two years, and the immediate vesting of 66,667 unvested stock options with an exercise price of $12.31 and 75,000 unvested shares of restricted stock held by Mr. Halas. In the second quarter of 2007, the Company incurred a compensation charge of approximately $1.9 million, net of tax, or $0.16 per diluted share for the three months ended June 30, 2007, related to the payment to Mr. Halas of the $1.6 million change of control payment and the immediate vesting of previously unvested stock options and restricted stock held by him pursuant to the terms of his then existing employment agreement.

Common Stock

The Company issued 210,450 shares of common stock during the nine months ended September 30, 2008 primarily as a result of 188,789 stock options exercised by employees under the Company’s 2002 Stock Incentive Plan. The increase is also a result of 2,981 shares issued as a result of the exercise of warrants, the granting of 10,000 shares of restricted stock to James M. Mitchell, the Company’s Senior Vice President and Chief Financial Officer, and the granting of 8,680 shares of restricted stock to certain members of the Company’s Board of Directors.

Warrants

During the nine months ended September 30, 2008, a total of 2,981 warrants were exercised. At September 30, 2008, warrants to acquire 10,157 shares of common stock at $12.80 per share remain outstanding.

Additional Paid-In Capital

During the nine months ended September 30, 2008, additional paid-in capital increased as a result of the compensation cost recorded under SFAS 123R, stock options exercised by employees under the Company’s 2002 Stock Incentive Plan (as discussed above), and the excess tax benefits from the stock options exercised.

9. STOCK-BASED COMPENSATION

The T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended (the Plan), provides officers, employees and non-employee directors equity-based incentive awards, including stock options and restricted stock. The Plan will remain in effect for 10 years, unless terminated earlier. As of September 30, 2008, the Company had 1,368,959 shares reserved for issuance in connection with the Plan. Outstanding stock options as of September 30, 2008 were 1,367,375 shares.

Stock Option Awards

Stock options under the Company’s Plan generally expire 10 years from the grant date and vest over three to four years from the grant date. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options granted to employees on the date of grant. The estimated fair value of the options is amortized to expense on a straight-line basis over the vesting period. The Company has recorded an estimate for forfeitures of awards of stock options. This estimate will be adjusted as actual forfeitures differ from the estimate. The fair value of each stock option is estimated on the grant date using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected volatility is estimated based on historical volatility of the Company’s stock and expected volatilities of comparable companies. The expected term is based on historical employee exercises of options during 2007 and 2006 and external data from similar companies that grant awards with similar terms since prior to 2006 the Company did not have any historical employee exercises of options. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant. The Company does not expect to pay any dividends on its common stock. Assumptions used for stock options granted during 2008 and 2007 are as follows:


	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2008			2007
Expected volatility		50.00	%		40.00	%
Risk-free interest rate		2.28	%		4.64	%
Expected term (in years)		4.7			5

The Company granted 436,500 and 447,850 options during the nine months ended September 30, 2008 and 2007, respectively. The weighted average grant date fair value of options granted during the nine months ended September 30, 2008 and 2007 was $19.13 and $9.38, respectively. The Company recognized $3,390,000 and $1,633,000 of employee stock-based compensation expense related to stock options during the nine months ended September 30, 2008 and 2007, respectively. As further discussed above in Note 8, the stock-based compensation expense related to stock options for the nine months ended September 30, 2007 includes a charge of $317,000 related to the immediate vesting of 66,667 unvested stock options held by Gus D. Halas, the Company’s President, Chief Executive Officer and Chairman of the Board, pursuant to the terms of his then existing employment agreement.

Restricted Stock Awards

On July 1, 2008, the Company granted 10,000 shares of restricted stock to James M. Mitchell. The fair value of these restricted shares was determined based on the closing price of the Company’s stock on the grant date. These shares will vest annually in 1/3 ^rd increments beginning on July 1, 2009.

On January 2, 2008, the Company granted a total of 8,680 shares of restricted stock to certain members of its Board of Directors. The fair value of these restricted shares was determined based on the closing price of the Company’s stock on the grant date. These shares will vest on May 29, 2009.

On December 21, 2007, the Company granted a total of 2,438 shares of restricted stock to certain members of its Board of Directors. The fair value of these restricted shares was determined based on the closing price of the Company’s stock on the grant date. These shares vested on May 29, 2008.

On September 14, 2007, the Company and Gus D. Halas entered into an Employment Agreement that provided for a Restricted Stock Award Agreement (the “Stock Agreement”) that granted 10,000 shares of the

Company’s restricted common stock. Pursuant to the Stock Agreement, these shares vested on September 14, 2008. The fair value of these shares of restricted stock was determined based on the closing price of the Company’s stock on September 14, 2007. The Employment Agreement also provides for two additional restricted stock awards of 10,000 shares each to be granted on September 14, 2008 and September 14, 2009. The additional restricted stock awards shall vest on the first anniversary of their respective grant dates, provided that Mr. Halas remains employed with the Company through these vesting dates. The Company has not yet entered into a Restricted Stock Award Agreement with Mr. Halas to grant the 10,000 shares of restricted stock that were due to be granted on September 14, 2008 due to the limited availability of shares for issuance in connection with the Plan.

On April 27, 2006, the Company and Gus D. Halas entered into two Restricted Stock Award Agreements (the “Stock Agreements”). The Stock Agreements each granted Mr. Halas 50,000 shares of the Company’s restricted common stock, or a total of 100,000 shares, effective January 12, 2006. The first 50,000 shares were to vest on January 11, 2008, provided that Mr. Halas remained employed with the Company through this vesting date. The fair value of these restricted shares was determined based on the closing price of the Company’s stock on the grant date, April 27, 2006. Of the remaining 50,000 shares, 25,000 vested on January 12, 2007 since the Company’s common stock price increased at least 25% from the closing price of the common stock on January 12, 2006, and 25,000 were to vest on January 11, 2008 if the Company’s common stock price had increased at least 25% from the closing price of the common stock on January 12, 2007, and Mr. Halas remained employed with the Company through the applicable vesting date. The fair value of these restricted shares with market conditions was determined using a Monte Carlo simulation model. As described further in Note 12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the sale of the Company’s common stock by First Reserve Fund VIII, L.P. in November 2006 coupled with its sale of common stock in the offering in April 2007 constituted a “change of control” pursuant to the terms of the Company’s then existing employment agreement with Mr. Halas. This “change of control” resulted in the immediate vesting of the remaining 75,000 unvested shares of restricted stock during April 2007.

The Company recognized $635,000 and $830,000 of employee stock-based compensation expense related to restricted stock awards during the nine months ended September 30, 2008 and 2007, respectively.

10. INCOME TAXES

The Company’s effective tax rate was 53.2% for the three months September 30, 2008 compared to 35.6% for the three months ended September 30, 2007. The higher tax rate in 2008 is primarily attributable to the non-deductibility of approximately $2.6 million of costs incurred related to the pursuit of strategic alternatives for the Company, of which $0.4 million of these costs were recorded in the second quarter of 2008. The higher tax rate in the third quarter of 2008 is also due to the following: additional income tax expense of approximately $0.3 million related to adjustments recorded in connection with the filing of the 2007 consolidated federal income tax return during the third quarter of 2008; a $0.3 million increase in the Company’s liability for unrecognized tax benefits; and $0.3 million of certain compensation expenses being non-deductible under Section 162(m) during the third quarter of 2008.

The Company’s effective tax rate was 37.7% for the nine months ended September 30, 2008 compared to 36.7% for the nine months ended September 30, 2007. The higher tax rate in 2008 is primarily attributable to the non-deductibility of approximately $2.6 million of costs incurred related to the pursuit of strategic alternatives for the Company. The higher tax rate in 2008 is also due to the following: additional income tax expense of approximately $0.3 million related to adjustments recorded in connection with the filing of the 2007 consolidated federal income tax return during 2008; a $0.5 million increase in the Company’s liability for unrecognized tax benefits; and $0.3 million of certain compensation expenses being non-deductible under Section 162(m) during 2008. These increases were partially offset by the Company’s utilization, during 2008, of R&D tax credits and extraterritorial income exclusion tax deductions available for years prior to December 31, 2007. In March and June 2008, the Company filed amended tax returns for the years 2006, 2005 and 2004, which resulted in an income tax expense reduction of $1.1 million. In addition, the 2007 effective tax rate included the effect of certain compensation expenses being non-deductible under Section 162(m) of the Internal Revenue Code.

11. SUBSEQUENT EVENTS

On October 31, 2008, the Company and Keith A. Klopfenstein, the Company’s newly appointed Senior Vice President — Pressure Control Group, entered into an Employment Agreement (the “Agreement”). The Agreement has a one year term commencing on October 31, 2008. The Agreement provides for an annual base salary and an annual bonus based on the achievement of performance goals to be established annually by the Compensation Committee of the Company’s Board of Directors. The Agreement contains standard confidentiality covenants with respect to the Company’s trade secrets and non-competition and non-solicitation covenants until the later of the first anniversary of the date of termination or resignation or such time as Mr. Klopfenstein no longer receives any payments under the Agreement. If Mr. Klopfenstein is terminated for any reason other than due to death, disability or cause (as defined in the Agreement), the Company is required to pay Mr. Klopfenstein a single, lump sum payment in an amount equal to one times his annual base salary, and all stock options and restricted stock grants will be fully vested. Additionally, Mr. Klopfenstein’s contingent performance bonus under the Company’s annual cash bonus plan for the fiscal year in which the termination occurs shall be determined at the end of the fiscal year in accordance with the terms of the bonus plan and performance criteria for such contingent bonus award, and to the extent such bonus is earned bonus on the achievement of the performance criteria, the amount (days in the year lapsed as of Employee’s termination over 365) of such “earned” bonus shall be paid to Employee in a lump sum on the normal payment date for such annual bonuses under the plan, but not later than the March 15 ^th following the end of the fiscal year of termination of employment.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion and analysis of our historical results of operations and financial condition for the three and nine months ended September 30, 2008 and 2007 should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and our financial statements and related management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2007.

We operate under one reporting segment, pressure control. Our pressure control business has three product lines: pressure and flow control, wellhead and pipeline, which generated 71%, 16% and 13% of our total revenues, respectively, for the three months ended September 30, 2008, and 72%, 15% and 13% of our total revenues, respectively, for the nine months ended September 30, 2008. We offer “original equipment products,” which we define as products that we design or manufacture, and aftermarket parts and services for each product line. Aftermarket parts and services include all remanufactured products and parts, repair and field services. Original equipment products generated 81% and 80% and aftermarket parts and services generated 19% and 20% of our total revenues for the three and nine months ended September 30, 2008, respectively.

Recent Developments

On October 31, 2008, we entered into an employment agreement (the “Agreement”) with Keith A. Klopfenstein, the Company’s newly appointed Senior Vice President — Pressure Control Group. The Agreement has a one year term commencing on October 31, 2008. The Agreement provides for an annual base salary and an annual bonus based on the achievement of performance goals to be established annually by the Compensation Committee of our Board of Directors. The Agreement contains standard confidentiality covenants with respect to our trade secrets and non-competition and non-solicitation covenants until the later of the first anniversary of the date of termination or resignation or such time as Mr. Klopfenstein no longer receives any payments under the Agreement. If Mr. Klopfenstein is terminated for any reason other than due to death, disability or cause (as defined in the Agreement), we are required to pay Mr. Klopfenstein a single, lump sum payment in an amount equal to one times his annual base salary, and all stock options and restricted stock grants will be fully vested. Additionally, Mr. Klopfenstein’s contingent performance bonus under our annual cash bonus plan for the fiscal year in which the termination occurs shall be determined at the end of the fiscal year in accordance with the terms of the bonus plan and performance criteria for such contingent bonus award, and to the extent such bonus is earned bonus on the achievement of the performance criteria, the amount (days in the year lapsed as of Employee’s termination over 365) of such “earned” bonus shall be paid to Employee in a lump sum on the normal payment date for such annual bonuses under the plan, but not later than the March 15 ^th following the end of the fiscal year of termination of employment.

Strategy

Our strategy is to better position ourselves to capitalize on what we believe to be a long term trend towards increased domestic and international drilling activity in the oil and gas industry while maintaining sufficient flexibility and liquidity to operate and opportunistically improve during any temporary declines in activities. We believe this increased activity over the long-term will result in additional demand for our products and services. We intend to:

•

Expand our manufacturing capacity through facility expansions and improvements . We have expanded our manufacturing capacity to increase the volume and number of products we manufacture, with an emphasis on our pressure and flow control product line. This organic expansion effort has included increasing our BOP manufacturing capacity from ten to twenty-five units per month by upgrading and expanding our machining capabilities at our existing facilities and expansion into Grand Junction, Colorado and Conway, Arkansas during 2007. During the remainder of 2008 and the first half of 2009, we will continue to expand capacity by:

	•		completing the expansion of our BOP repair capacity from 7 stacks per month to 11 stacks per month;

	•		finalizing the creation of an India-based manufacturing subsidiary during the last quarter of 2008;

	•		opening additional facilities for our wellhead product line; and

	•		opening additional facilities for our pipeline product line.

	•		*Continue new product development* . Since April 2003, we have introduced 118 new products, and we will continue to focus on new product development across all of our product lines, with a continued focus on pressure and flow control products and more recently on wellhead products. In particular, during 2007 we added a subsea line of products to our traditional surface drilling products by introducing our T-3 Diamond Series Model 6012 Subsea Double Ram BOP fitted with subsea compact tandem booster bonnets and casing shear bonnets. In addition, during 2007 we received commitments for our new stainless steel dual block wellhead system incorporating our new Diamond Series production gate valve technology, our new under-balanced drilling deployment valve wellhead system, and a conventional wellhead system that also incorporates our new Diamond Series production gate valves.

	•		*Expand our geographic areas of operation* . We intend to expand our geographic areas of operation, with particular focus on field services for our wellhead and pipeline product lines. We are expanding our wellhead and pipeline repair and remanufacturing services by establishing facilities in areas we believe will have high drilling activity, such as the Barnett Shale in North Texas, the Cotton Valley trend in the East Texas Basin, the Fayetteville Shale in the Arkoma Basin, the Marcellus Shale in the Appalachian region and the Rocky Mountain region. For example, in January 2008 we expanded into the Oklahoma region by acquiring Pinnacle Wellhead, Inc., or Pinnacle. During 2007, we furthered our expansion into the Rocky Mountain region by opening a facility in Grand Junction, Colorado and we established a presence in the Arkoma Basin by opening a facility in Conway, Arkansas.

	•		*Improve efficiencies and cut costs when appropriate.* In the event that revenues do not materialize as we anticipate, we intend to cut costs and improve efficiencies in a manner that will allow us to maximize the long term cash flows and returns of the Company.

	•		*Pursue strategic acquisitions and alliances* . Our acquisition strategy will focus on broadening our markets and existing product offerings. In July 2008, we entered into a joint venture arrangement, which we anticipate to be operational in the fourth quarter of 2008, with Aswan International Engineering Company LLC in the Middle East to repair, manufacture, remanufacture and service equipment for customers in the UAE, Kuwait, Qatar, Bahrain, Oman, Yemen, Algeria, Egypt, Pakistan and Iraq. In January 2008, we acquired Pinnacle, located in Oklahoma City, Oklahoma to expand our wellhead products and services into a strategically identified market that already has existing operations, work force and customer relationships. In October 2007, we acquired Energy Equipment Corporation, or EEC, and HP&T Products, Inc., or HP&T, both of which are located in Houston, Texas, to enhance our ability to continue to develop and introduce innovative and industry-leading technologies within our pressure and flow control product line. We will continue to seek similar strategic acquisition and alliance opportunities in the future.

How We Generate Our Revenue

We design, manufacture, repair and service products used in the drilling and completion of new oil and gas wells, the workover of existing wells, and the production and transportation of oil and gas. Our products are used in onshore, offshore and subsea applications. Our customer base, which operates in active oil and gas basins throughout the world, consists of leading drilling contractors, exploration and production companies and pipeline companies.

We have three product lines: pressure and flow control, wellhead and pipeline. Within each of those product lines, we sell original equipment products and also provide aftermarket parts and services. Original equipment products are those we manufacture or have manufactured for us by others who use our product designs. Aftermarket products and services include all remanufactured products and parts and repair and field services.

Demand for our pressure and flow control and wellhead products and services is driven by exploration and development activity levels, which in turn are directly related to current and anticipated oil and gas prices. Demand for our pipeline products and services is driven by maintenance, repair and construction activities for pipeline, gathering and transmission systems.

We typically bid for original equipment product sales and repair work. Field service work is offered at a fixed rate plus expenses.

How We Evaluate Our Operations

Our management uses the following financial and operational measurements to analyze the performance of our business:

	•		revenue and facility output;

	•		material and labor expenses as a percentage of revenue;

	•		selling, general and administrative expenses as a percentage of revenue;

	•		operating income;

	•		EBITDA;

	•		return on capital employed;

	•		financial and operational models; and

	•		other measures of performance.

Revenue and Facility Output. We monitor our revenue and facility output and analyze trends to determine the relative performance of each of our facilities. Our analysis enables us to more efficiently operate our facilities and determine if we need to refine our processes and procedures at any one location to improve operational efficiency.

Material and Labor Expenses as a Percentage of Revenue. Material and labor expenses are composed primarily of cost of materials, labor costs and the indirect costs associated with our products and services. Our material costs primarily include the cost of inventory consumed in the manufacturing and remanufacturing of our products and in providing repair services. We attempt where possible to pass increases in our material costs on to our customers. However, due to the timing of our marketing and bidding cycles, there generally is a delay of several weeks or months from the time that we incur an actual price increase until the time that we can pass on that increase to our customers.

Our labor costs consist primarily of wages at our facilities. As a result of increased activity in the oil and gas industry, there have been recent shortages of qualified personnel. We may have to raise wage rates to attract workers to expand our current work force.

Selling, General and Administrative Expenses as a Percentage of Revenue. Our selling, general and administrative, or SG&A, expenses include administrative and marketing costs, the costs of employee compensation and related benefits, office and lease expenses, insurance costs and professional fees, as well as other costs and expenses not directly related to our operations. Our management continually evaluates the level

of our SG&A expenses in relation to our revenue because these expenses have a direct impact on our profitability.

Operating Income. We monitor operating income as a measure for budgeting and for evaluating actual results against our budgets.

EBITDA. We define EBITDA as income (loss) from continuing operations before interest expense, net of interest income, provision for income taxes and depreciation and amortization expense. Our management uses EBITDA:

	•		as a measure of operating performance that assists us in comparing our performance on a consistent basis because it removes the impact of our capital structure and asset base from our operating results;

	•		as a measure for budgeting and for evaluating actual results against our budgets;

	•		to assess compliance with financial ratios and covenants included in our senior credit facility;

	•		in communications with lenders concerning our financial performance; and

	•		to evaluate the viability of potential acquisitions and overall rates of return.

Return on Capital Employed. We define Return on Capital Employed as income from operations divided by capital employed (defined as total stockholders’ equity plus debt less cash). Our management uses this criterion to measure our ability to achieve the income results targeted by our Annual Business Plan while also managing our capital employed. Our Compensation Committee also uses this metric as a performance criteria in determining annual incentive bonus awards for our executive officers. This measure points to the efficiency of our earnings.

Financial and Operational Models. We couple our evaluation of financial data with performance data that tracks financial losses due to safety incidents, product warranty and quality control; customer satisfaction; employee productivity; and management system compliance. We collect the information in a proprietary statistical tracking program that automatically compiles and statistically analyzes real-time trends. This information helps us ensure that each of our facilities improves with respect to customer and market demands.

Loss Management . We incur operational losses from employee injuries, product warranty claims and quality control costs. We track both incident rates and costs. We also track quality control and warranty expenses through specialized software. All direct expenses incurred due to warranty, quality control and safety incidents are statistically analyzed as a percentage of sales.

Customer Satisfaction. We monitor our customers’ level of satisfaction regarding our delivery, product quality, and service through customer surveys and other data collection methods. We statistically compile all information collected from the customer satisfaction assessments to track annual performance. All customer complaints are processed through a corrective action program.

Employee Productivity . We provide each of our facilities with a benchmark under which its employees are evaluated through a collection of practical examinations, written examinations, presentations and in-house training videos. As the collected information is evaluated, we identify deficiencies and take corrective actions.

Management System Compliance . We currently use four management programs designed to consistently manage all aspects of our operations at each facility, while providing useful tools to limit operational liabilities and improve profitability. These programs incorporate various performance standards that are useful in the evaluation of operational performance in the pursuit of continual improvement. We evaluate compliance with the standards set forth in those programs several times a year through a combination of customer audits, third party audits and internal audits. We then evaluate each facility’s compliance with the standards, analyze all deficiencies identified and take corrective actions. We use corrective actions at each facility to implement preventative action at the remaining facilities.

How We Manage Our Operations

Our management team uses a variety of tools to monitor and manage our operations, including:

	•		safety and environmental management systems;

	•		quality management systems;

	•		statistical tracking systems; and

	•		inventory turnover rates.

Safety and Environmental Management Systems. Our Safety Management System, or SMS, monitors our training program as it relates to OSHA compliance. Through a collection of regulatory audits and internal audits, we can evaluate each facility’s compliance with regulatory requirements and take corrective actions necessary to ensure compliance.

We also use our SMS to ensure that we conduct employee training on a regular basis. We manage several employee qualification programs from our SMS to ensure that our employees perform their duties as safely as possible. We evaluate all employees individually with respect to their safety performance, and we incorporate these evaluations into all annual employee reviews.

Similar to the SMS, our Environmental Management System monitors compliance with environmental laws. We continually evaluate each of our facilities against collected data to identify possible deficiencies.

Quality Management Systems. We manage all manufacturing processes, employee certification programs, and inspection activities through our certified Quality Management System, or QMS. Our electronic QMS is based on several different industrial standards and is coupled with performance models to ensure continual monitoring and improvement. To date our QMS has been certified by the National Board of Boiler and Pressure Vessel Inspectors (“NBIC”), the American Petroleum Institute (“API”), and QMI Management Systems ISO 9001 Registrars. As such, we maintain a quality management system ISO 9001 — 2000 license, a NBIC VR license for repair of pressure relief valves, and several API licenses including API 6A, 6D, 16A, 16C, 16D, & 17D. Each facility has a quality management team that is charged with assuring that day-to-day operations are conducted consistently and within the protocols outlined with the corporate QMS. To ensure that all QMS elements are operating as designed and to provide an additional level of support at each facility, we have assigned a Quality Manager at each facility who monitors individual facility performance and helps manage critical operations.

Statistical Tracking Systems. We have developed a statistical tracking program that assists in the real time compilation of data from each facility and then automatically assesses the data through various data analysis tools. We provide facility managers and operational executives with summary reports, providing information about their performance and how it compares to industrial and internal benchmarks.

Inventory Turnover Rates . The cost of our material inventory represents a significant portion of our cost of revenue from our product lines. As a result, maintaining an optimum level of inventory at each of our facilities is an important factor in managing our operations. We continually monitor the inventory turnover rates for each of our product lines and adjust the frequency of inventory orders as appropriate to maintain the optimum level of inventory based on activity level for each product line.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our estimation process generally relates to potential bad debts, obsolete and slow moving inventory, and the valuation of goodwill and other long-lived assets. Our estimates are based on historical experience and on our future expectations that we believe to be reasonable under the circumstances. The combination of these factors results in the amounts shown as carrying values of assets and liabilities in the financial statements and accompanying notes. Actual results

could differ from our current estimates and those differences may be material.

While we do not presently believe that our goodwill has been impaired, we have not yet completed our annual assessment. Additionally, we have not noted any triggering events that would lead to an assessment of impairment for our other long-lived assets. Further declines in our stock price or an extended period of sustained economic declines could result in an impairment of our goodwill and/or other long-lived assets.

These estimates may change as events occur, as additional information is obtained and as our operating environment changes. There have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and Estimates from those as disclosed in our Annual Report on Form 10-K for the year ending December 31, 2007.

New Accounting Pronouncements

In December 2007, the FASB issued Statement No. 141R, Business Combinations (“SFAS No. 141R”), which changes the requirements for an acquirer’s recognition and measurement of the assets acquired and the liabilities assumed in a business combination. SFAS No. 141R is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption. We are currently evaluating the impact that SFAS No. 141R will have on our consolidated financial position, results of operations and cash flows.

Outlook

Changes in the current and expected future prices of oil and gas influence the level of energy industry spending. Changes in spending results in an increase or decrease in demand for our products and services. Therefore, our results are dependant on, among other things, the level of worldwide oil and gas drilling activity and our customers’ perceptions of what will happen to those levels in the future. This affects cash flows of and capital spending by other oilfield service companies and drilling contractors and pipeline maintenance activity. We believe that oil and gas market prices and the drilling rig count in the United States, Canada and international markets serve as key indicators of demand for the products we manufacture and sell and for our services. The following table sets forth oil and gas price information and rig count data as of the end of each fiscal quarter for the past two years:


	WTI		Henry Hub		United States		Canada		International
Quarter Ended:	Oil		Gas		Rig Count		Rig Count		Rig Count
September 30, 2006	$	70.42	$	6.17		1,719		494		941
December 31, 2006	$	59.98	$	7.24		1,719		440		952
March 31, 2007	$	58.08	$	7.17		1,733		532		982
June 30, 2007	$	64.97	$	7.66		1,757		139		1,002
September 30, 2007	$	75.46	$	6.25		1,788		348		1,020
December 31, 2007	$	90.68	$	7.40		1,790		356		1,017
March 31, 2008	$	97.94	$	8.72		1,770		507		1,046
June 30, 2008	$	126.35	$	11.47		1,868		199		1,084
September 30, 2008	$	118.05	$	9.00		1,987		439		1,096


Source: West Texas Intermediate Crude Average Spot Price for the Quarter indicated: Department of Energy, Energy Information Administration ( www.eia.doe.gov ); NYMEX Henry Hub Natural Gas Average Spot Price for the Quarter indicated: (www.oilnergy.com); Average rig count for the Quarter indicated: Baker Hughes, Inc. ( www.bakerhughes.com ).

We believe our outlook for the remainder of 2008 is favorable, as evidenced by our strong backlog for our pressure and flow control product line and our continued robust quoting activity. The outlook beyond 2008 is more difficult to ascertain. Although a number of factors influence exploration and production spending, the Company’s business is highly dependent on the general economic environment in the United States and other major world economies, which ultimately impacts energy consumption and the resulting demand for our products and services. This demand could also be affected by the availability of credit as many companies that spend in the industry or consume energy fund a portion of those expenditures with debt. A global economic slowdown or continuation of the current extreme tightness in credit markets could reduce energy demand and adversely impact business volumes across our operations and the future financial results of the Company. The Company is currently in the process of evaluating markets and budgets for 2009 and cannot provide guidance. At the moment, current commodity prices and higher than normal levels of inventories for oil and natural gas imply a negative impact on the level of activity and capital spending in our industry which would, in turn, imply a negative impact on pricing of and demand for our product and service lines. In the past, these declines have typically occurred in the United States before spreading into international markets. Please read “Item 1A. Risk Factors—Our business depends on spending by the oil and gas industry, and this spending and our business may be adversely affected by industry conditions that are beyond our control” and “—A decline in or substantial volatility of oil and gas prices could adversely affect the demand and prices for our products and services.”

Results of Operations

Three Months ended September 30, 2008 Compared with Three Months ended September 30, 2007

Revenues. Revenues increased $16.6 million, or 31.2%, in the three months ended September 30, 2008 compared to the three months ended September 30, 2007. Excluding the acquisitions of EEC and HP&T, which were completed in October 2007, and Pinnacle, which was completed in January 2008, revenues decreased approximately $1.0 million, or 1.9% from the three months ended September 30, 2007. Excluding EEC and HP&T, our pressure and flow control products revenue decreased approximately $2.7 million from the three months ended September 30, 2007, as a direct result of Hurricanes Gustav and Ike, which resulted in approximately $7.9 million in anticipated third quarter revenues to be delayed into the fourth quarter of 2008 and the first quarter of 2009, partially offset by $5.2 million of increased revenue from improved demand for our pressure and flow control products and services resulting from higher levels of construction of new drilling rigs and refurbishment of existing drilling rigs that require the type of equipment we manufacture. Our pipeline product line revenues increased approximately $2.5 million from the three months ended September 30, 2007, due to $3.1 million of increased revenue from an increase in the number of original equipment products we manufacture, partially offset by approximately $0.6 million in anticipated third quarter 2008 revenues being

delayed into the fourth quarter of 2008 or the first quarter of 2009 due to Hurricanes Gustav and Ike. Excluding Pinnacle, our wellhead product line revenues decreased approximately $0.8 million from the three months ended September 30, 2007, due to lower activity in 2008 with certain larger customers. We believe that our T-3 branded pressure and flow control and pipeline products have gained market acceptance, resulting in greater bookings and sales to customers that use our products in both their domestic and international operations. For example, backlog for our pressure and flow control and pipeline product lines has increased approximately 60.5% from $58.7 million at September 30, 2007 to $94.2 million at September 30, 2008. Also, as a percentage of revenues, our original equipment product revenues accounted for approximately 81% of total revenues during the three months ended September 30, 2008, as compared to 76% of total revenues during the same period in 2007.

Cost of Revenues. Cost of revenues increased $9.7 million, or 28.6%, in the three months ended September 30, 2008 compared to the three months ended September 30, 2007, as a result of the increase in revenues described above. Gross profit as a percentage of revenues was 37.7% in the three months ended September 30, 2008 compared to 36.4% in the three months ended September 30, 2007. Gross profit margin was higher in 2008 due to increased sales of higher margin products and services and operational efficiencies, partially offset by costs of approximately $1.4 million associated with lost absorption, downtime pay and minimal property damage due to the impact of Hurricanes Gustav and Ike. Gross profit margin was also lower in 2007 due to 2007 gross profit margins being affected by July 2006 pricing on a large choke order and cost overruns on four July 2006 quoted large bore blowout preventers at one of our pressure and flow control facilities where the manufacturing capacity expansion had not yet been completed.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $6.9 million, or 78.6%, in the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The acquisitions of EEC, HP&T and Pinnacle accounted for $1.6 million, or 23.7%, of this total selling, general and administrative expense increase. Selling, general and administrative expenses for the three months ended September 30, 2008 included $2.2 million of costs related to the pursuit of strategic alternatives. Selling, general and administrative expenses, excluding the strategic alternatives costs in 2008, as a percentage of revenues were 19.3% and 16.5% in the three months ended September 30, 2008 and 2007, respectively. The increase in selling, general and administrative expenses as a percentage of revenues, excluding the strategic alternatives costs, as compared to the three months ended September 30, 2007 is primarily due to increased other intangible assets amortization costs of $0.5 million incurred as a result of the October 2007 acquisitions of EEC and HP&T, as well as increased employee stock-based compensation expense of $1.0 million and increased health insurance and payroll costs associated with an increase in headcount.

Interest Expense. Interest expense for the three months ended September 30, 2008 was $0.5 million compared to $0.1 million in the three months ended September 30, 2007. The increase was attributable to higher debt levels during 2008, incurred in conjunction with our 2007 acquisitions of EEC and HP&T and our 2008 acquisition of Pinnacle.

Income Taxes. Income tax expense for the three months ended September 30, 2008 was $5.4 million as compared to $4.0 million in the three months ended September 30, 2007. Our effective tax rate was 53.2% in the three months ended September 30, 2008 compared to 35.6% in the three months ended September 30, 2007. The higher tax rate in 2008 is primarily attributable to the non-deductibility of approximately $2.6 million of costs incurred related to the pursuit of strategic alternatives, of which $0.4 million of these costs were recorded in the second quarter of 2008. The higher tax rate in the third quarter of 2008 is also due to the following: additional income tax expense of approximately $0.3 million related to adjustments recorded in connection with the filing of the 2007 consolidated federal income tax return during the third quarter of 2008; a $0.3 million increase in our liability for unrecognized tax benefits; and $0.3 million of certain compensation expenses being non-deductible under Section 162(m) during the third quarter of 2008.

Income from Continuing Operations. Income from continuing operations was $4.7 million in the three months ended September 30, 2008 compared with $7.2 million in the three months ended September 30, 2007 as a result of the foregoing factors.

Discontinued Operations . During 2004 and 2005, we sold substantially all of the assets of our products and distribution segments, respectively. These assets constituted businesses and thus their results of operations are reported as discontinued operations for all periods presented. Loss from discontinued operations, net of tax for the three months ended September 30, 2008, was not significant. Loss from discontinued operations, net of tax for the three months ended September 30, 2007 was $0.1 million.

Nine Months ended September 30, 2008 Compared with Nine Months ended September 30, 2007

Revenues. Revenues increased $53.6 million, or 35.0%, in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Excluding the acquisitions of EEC and HP&T, which were completed in October 2007, and Pinnacle, which was completed in January 2008, revenues increased approximately $4.3 million, or 2.8% from the nine months ended September 30, 2007. Excluding EEC and HP&T, our pressure and flow control products revenue decreased approximately $0.5 million from the nine months ended September 30, 2007. This revenue decrease in pressure and flow control products was due in part to the impact of Hurricanes Gustav and Ike, which resulted in approximately $7.9 million in anticipated third quarter 2008 revenues to be delayed into the fourth quarter of 2008 and the first quarter of 2009. In addition, our Canadian pressure and flow control products revenue decreased approximately $3.1 million, due to continued weakness in the region. These decreases were partially offset by $10.5 million of increased revenue from improved demand for our pressure and flow control products and services resulting from higher levels of construction of new drilling rigs and refurbishment of existing drilling rigs that require the type of equipment we manufacture. Our pipeline product line revenues increased approximately $5.3 million from the nine months ended September 30, 2007, due to $5.9 million of increased revenue as a result of an increase in the number of original equipment products we manufacture, partially offset by approximately $0.6 million in anticipated third quarter 2008 revenues being delayed into the fourth quarter of 2008 and the first quarter of 2009 due to Hurricanes Gustav and Ike. Excluding Pinnacle, our wellhead product line revenues decreased approximately $0.5 million from the nine months ended September 30, 2007, due to lower activity with certain larger customers in 2008. We believe that our T-3 branded pressure and flow control and pipeline products have gained market acceptance, resulting in greater bookings and sales to customers that use our products in both their domestic and international operations. For example, backlog for our pressure and flow control and pipeline product lines has increased approximately 60.5% from $58.7 million at September 30, 2007 to $94.2 million at September 30, 2008. Also, as a percentage of revenues, our original equipment product revenues accounted for approximately 80% of total revenues during the nine months ended September 30, 2008, as compared to 75% of total revenues during the same period in 2007.

Cost of Revenues. Cost of revenues increased $29.7 million, or 30.8%, in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, as a result of the increase in revenues described above. Gross profit as a percentage of revenues was 39.0% in the nine months ended September 30, 2008 compared to 37.0% in the nine months ended September 30, 2007. Gross profit margin was higher in 2008 due to increased sales of higher margin products and services and operational efficiencies, partially offset by costs of approximately $1.4 million associated with lost absorption, downtime pay and minimal property damage due to the impact of Hurricanes Gustav and Ike. Gross profit margin was also lower in 2007 due to 2007 gross profit margins being affected by July 2006 pricing on a large choke order and cost overruns on four July 2006 quoted large bore blowout preventers at one of our pressure and flow control facilities where the manufacturing capacity expansion had not yet been completed.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $15.0 million, or 51.3%, in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. The acquisitions of EEC, HP&T and Pinnacle accounted for $5.5 million, or 37.0%, of this total selling, general and administrative expense increase. Selling, general and administrative expenses for the nine months ended September 30, 2008 included $4.7 million of costs incurred related to the pursuit of strategic alternatives. Selling, general and administrative expenses for the nine months ended September 30, 2007 included a $2.5 million compensation charge related to the payment to Mr. Halas of the $1.6 million change of control payment and the immediate vesting of previously unvested stock options and restricted stock held by Mr. Halas pursuant to the terms of his then existing employment agreement. Selling, general and administrative expenses, excluding the strategic alternatives costs in 2008 and the compensation charge in 2007, as a percentage of

revenues were 19.1% and 17.5% in the nine months ended September 30, 2008 and 2007, respectively. The increase in selling, general and administrative expenses as a percentage of revenues, excluding the strategic alternatives costs in 2008 and the compensation charge in 2007, as compared to the nine months ended September 30, 2007, is primarily due to increased other intangible assets amortization costs of $2.0 million incurred as a result of the October 2007 acquisitions of EEC and HP&T, as well as increased employee stock-based compensation expense of $1.6 million and increased health insurance and payroll costs associated with an increase in headcount.

Interest Expense. Interest expense for the nine months ended September 30, 2008 was $1.9 million compared to $0.4 million in the nine months ended September 30, 2007. The increase was attributable to higher debt levels during 2008, incurred in conjunction with our 2007 acquisitions of EEC and HP&T and our 2008 acquisition of Pinnacle.

Income Taxes. Income tax expense for the nine months ended September 30, 2008 was $13.1 million as compared to $10.5 million in the nine months ended September 30, 2007. The increase was due to an increase in income before taxes. Our effective tax rate was 37.7% in the nine months ended September 30, 2008 compared to 36.7% in the nine months ended September 30, 2007. The higher tax rate in 2008 is primarily attributable to the non-deductibility of approximately $2.6 million of costs incurred related to the pursuit of strategic alternatives. The higher tax rate in 2008 is also due to the following: additional income tax expense of approximately $0.3 million related to adjustments recorded in connection with the filing of the 2007 consolidated federal income tax return during 2008; a $0.5 million increase in our liability for unrecognized tax benefits; and $0.3 million of certain compensation expenses being non-deductible under Section 162(m) during 2008. These increases were partially offset by our utilization, during 2008, of R&D tax credits and extraterritorial income exclusion tax deductions available for years prior to December 31, 2007. In March and June 2008, we filed amended tax returns for the years 2006, 2005 and 2004, which resulted in an income tax expense reduction of $1.1 million. In addition, the 2007 effective tax rate included the effect of certain compensation expenses being non-deductible under Section 162(m) of the Internal Revenue Code.

Income from Continuing Operations. Income from continuing operations was $21.7 million in the nine months ended September 30, 2008 compared with $18.0 million in the nine months ended September 30, 2007 as a result of the foregoing factors.

Discontinued Operations . During 2004 and 2005, we sold substantially all of the assets of our products and distribution segments, respectively. These assets constituted businesses and thus their results of operations are reported as discontinued operations for all periods presented. Loss from discontinued operations, net of tax for the nine months ended September 30, 2008, was not significant. Loss from discontinued operations, net of tax for the nine months ended September 30, 2007 was $1.2 million as a result of a jury verdict during the second quarter of 2007 against one of the Company’s discontinued businesses. See further discussion in Note 7 to our condensed consolidated financial statements.

Liquidity and Capital Resources

At September 30, 2008, we had working capital of $72.4 million, current maturities of long-term debt of $5,000, long-term debt (net of current maturities) of $31.8 million and stockholders’ equity of $220.1 million. Historically, our principal liquidity requirements and uses of cash have been for debt service, capital expenditures, working capital and acquisition financing, and our principal sources of liquidity and cash have been from cash flows from operations, borrowings under our senior credit facility and issuances of equity securities. We have historically financed acquisitions through bank borrowings, sales of equity, debt from sellers and cash flows from operations.

Net Cash Provided by Operating Activities. Net cash provided by operating activities was $27.3 million for the nine months ended September 30, 2008 compared to $9.3 million for the nine months ended September 30, 2007. The increase in net cash provided by operating activities was attributable to increased profit and improved accounts receivable collections, as well as increased customer prepayments for our products. This was partially offset by increased tax deposits due to higher taxable income during 2008.

Net Cash Used In Investing Activities. Principal uses of cash are for capital expenditures and acquisitions. For the nine months ended September 30, 2008 and 2007, we made capital expenditures of approximately $7.5 million and $4.3 million, respectively. Cash consideration paid for business acquisitions was $2.7 million in the nine months ended September 30, 2008 (see Note 2 to our condensed consolidated financial statements). There were no acquisitions in the nine months ended September 30, 2007.

Net Cash Provided by (Used in) Financing Activities. Sources of cash from financing activities primarily include proceeds from issuances of common stock, proceeds from the exercise of warrants and stock options, and borrowings under our senior credit facility. Principal uses of cash include payments on our senior credit facility. Financing activities used net cash of ($24.9) million for the nine months ended September 30, 2008 as compared to net cash of $27.9 million provided in the nine months ended September 30, 2007. We made net borrowings (repayments) under our swing line credit facility of $4.4 million and ($0.1) million during the nine months ended September 30, 2008 and 2007, respectively. We repaid $34.0 million on our revolving credit facility and $0.1 million on long-term debt during the nine months ended September 30, 2008. We received net proceeds of $22.2 million from the common stock issued and $4.0 million from the warrants exercised in connection with the April 2007 offering (see Note 12 of the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2007) during the nine months ended September 30, 2007. We had proceeds from the exercise of stock options of $3.1 million and $1.2 million during the nine months ended September 30, 2008 and 2007, respectively. We had excess tax benefits from stock-based compensation of $1.7 million and $0.7 million during the nine months ended September 30, 2008 and 2007, respectively.

Principal Debt Instruments. As of September 30, 2008, we had an aggregate of $31.8 million borrowed under our senior credit facility. As of September 30, 2008, availability under our senior credit facility was $147.3 million.

Our senior credit facility provides for a $180 million revolving line of credit, maturing October 26, 2012, that we can increase by up to $70 million (not to exceed a total commitment of $250 million) with the approval of the senior lenders. The senior credit facility consists of a U.S. revolving credit facility that includes a swing line subfacility and letter of credit subfacility of up to $25 million and $50 million, respectively. We expect to use the proceeds from any advances made pursuant to the senior credit facility for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. The applicable interest rate of the senior credit facility is governed by our leverage ratio and ranges from the Base Rate (as defined in the senior credit facility) to the Base Rate plus 1.25% or LIBOR plus 1.00% to LIBOR plus 2.25%. We have the option to choose between Base Rate and LIBOR when borrowing under the revolver portion of our senior credit facility, whereas any borrowings under the swing line portion of our senior credit facility are made using prime. At September 30, 2008, the swing line portion of our senior credit facility bore interest at 5%, with interest payable quarterly, and the revolver portion of our credit facility bore interest at 3.5%, with interest payable monthly. The effective interest rate of our senior credit facility, including amortization of deferred loan costs, was 6.4% during the first nine months of 2008. The effective interest rate, excluding amortization of deferred loan costs, was 5.8% during the first nine months of 2008. We are required to prepay the senior credit facility under certain circumstances with the net cash proceeds of certain asset sales, insurance proceeds and equity issuances subject to certain conditions. The senior credit facility also limits our ability to secure additional forms of debt, with the exception of secured debt (including capital leases) with a principal amount not exceeding 10% of our consolidated net worth at any time. The senior credit facility provides, among other covenants and restrictions, that we comply with the following financial covenants: a minimum interest coverage ratio of 3.0, a maximum leverage ratio of 3.0 and a limitation on capital expenditures through September 30, 2008 of $32.1 million. As of September 30, 2008, we were in compliance with the covenants under the senior credit facility, with an interest coverage ratio of 21.7, a leverage ratio of 0.63, and year-to-date 2008 capital expenditures of $7.6 million. The senior credit facility is collateralized by substantially all of our assets.

Our senior credit facility also provides for a separate Canadian revolving credit facility, which includes a swing line subfacility of up to U.S. $5.0 million and a letter of credit subfacility of up to U.S. $5.0 million. The revolving credit facility matures on the same date as the senior credit facility, and is subject to the same covenants and restrictions. The applicable interest rate is governed by our leverage ratio and also ranges from the

Base Rate to the Base Rate plus 1.25% or LIBOR plus 1.00% to LIBOR plus 2.25%. T-3 Oilco Energy Services Partnership, our Canadian subsidiary, may use the proceeds from any advances made pursuant to the revolving credit facility for general corporate and working capital purposes in the ordinary course of business or to fund Canadian acquisitions. The revolving credit facility is guaranteed by us and all of our material subsidiaries, and is collateralized by a first lien on substantially all of the assets of T-3 Oilco Energy Services Partnership. As of September 30, 2008, there was no outstanding balance on our Canadian revolving credit facility.

We believe that cash generated from operations and amounts available under our senior credit facility will be sufficient to fund existing operations, working capital needs, capital expenditure requirements, including the planned expansion of our manufacturing capacity, continued new product development and expansion of our geographic areas of operation, and financing obligations.

We intend to make strategic acquisitions but the timing, size or success of any strategic acquisition and the related potential capital commitments cannot be predicted. We expect to fund future acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of our senior credit facility or new debt issuances, but we may also issue additional equity either directly or in connection with an acquisition. There can be no assurance that acquisition funds may be available at terms acceptable to us.

Contractual Obligations. A summary of our outstanding contractual obligations and other commercial commitments at September 30, 2008 is as follows (in thousands):


	Payments Due by Period
			Less than 1						After 5
Contractual Obligations	Total		Year		2-3 Years		4-5 Years		Years
Long-term debt	$	31,839	$	5	$	5	$	31,829	$	—
Letters of credit		900		900		—		—		—
Operating leases		4,848		2,094		2,269		478		7

Total contractual obligations	$	37,587	$	2,999	$	2,274	$	32,307	$	7

As of September 30, 2008, our FIN 48 unrecognized tax benefits totaled $1.1 million. These unrecognized tax benefits have been excluded from the above table because we cannot reliably estimate the period of cash settlement with respective taxing authorities. In addition, we have excluded $0.5 million of post-closing purchase price adjustments related to the acquisition of HP&T from the above table. We expect these amounts will be paid during 2008.

Off-Balance Sheet Arrangements. We had no off-balance sheet arrangements as of September 30, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices.

We are exposed to some market risk due to the floating interest rate under our senior credit facility and our Canadian revolving credit facility. As of September 30, 2008, our senior credit facility, whose interest rate floats with the Base Rate (as defined in the senior credit facility) or LIBOR, had a principal balance of $31.8 million. A 1.0% increase in interest rates could result in a $318,000 increase in annual interest expense based on the September 30, 2008 outstanding principal balance. As of September 30, 2008, our Canadian revolving credit facility did not have an outstanding principal balance, and therefore, we did not have any exposure to rising interest rates.

We are also exposed to some market risk due to the foreign currency exchange rates related to our Canadian and Indian operations. We conduct our Canadian and Indian businesses in the respective local currency, and thus the effects of foreign currency fluctuations are largely mitigated because the local expenses of such foreign

operations are also denominated in the same currency. Assets and liabilities are translated using the exchange rate in effect at the balance sheet date, resulting in translation adjustments that are reflected as accumulated other comprehensive income in the stockholders’ equity section on our condensed consolidated balance sheet. Less than 2.0% of our net assets are impacted by changes in foreign currency in relation to the U.S. dollar. We recorded a ($1.1) million adjustment to our equity account for the nine months ended September 30, 2008 to reflect the net impact of the change in the foreign currency exchange rate.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, or SEC, and that any material information relating to us is recorded, processed, summarized and reported to our management including our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Exchange Act, our management carried out an evaluation, with the participation of our principal executive officer (our CEO) and our principal financial officer (our CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on those evaluations, our CEO and CFO have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II

Cautionary Note Regarding Forward-Looking Statements

Certain information contained or incorporated by reference in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

All statements, other than statements of historical fact included in this report, including, but not limited to, those under “— Our Results of Operation” and “— Liquidity and Capital Resources” are forward-looking statements. Statements included in this report that are not historical facts, but that address activities, events or developments that we expect or anticipate will or may occur in the future, including things such as references to future goals or intentions or other such references are forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “expects,” “projects,” “believes,” “anticipates,” “intends,” “plans,” “budgets,” “predicts,” “estimates” and similar expressions. These statements include statements related to plans for growth of our business, future capital expenditures and competitive strengths and goals. We make these statements based on our past experience, current expectations and projections about us and the industries in which we operate in general, and our perception of historical trends, current conditions and expected future developments as well as other considerations we believe are appropriate under the circumstances. Whether actual results and developments in the future will conform to our expectations is subject to numerous risks and uncertainties, many of which are beyond our control. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this report When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2007 and in Item 1A “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in this report. All forward-looking statements included in this report and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made, other than as required by law, and we undertake no obligation to publicly update or revise any forward-looking statements, other than as required by law, whether as a result of new information, future events or otherwise.

Item 1. Legal Proceedings

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any legal proceedings that are material to us. Please see Note 7 — “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in this report.

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. You should carefully consider the risk factors described below, together with the other information included in our Annual Report on Form 10-K for the year ended December 31, 2007, before you decide to invest in our securities. These risks are the material risks of which we are currently aware; however, they may not be the only risks that we may face. Additional risks and uncertainties not currently known to us or that we currently view as immaterial may also impair our business. If any of these risks develop into actual events, it could materially and adversely affect our business, financial condition, results of operations and cash flows, the trading price of your shares could decline and you may lose all or part of your investment.

Risks Related to Our Business

If we are unable to successfully manage our growth and implement our business plan, our results of operations will be adversely affected.

We have experienced significant revenue growth over the past 12 months. To maintain our advantage of delivering original equipment products and providing aftermarket services more rapidly than our competitors, we plan to further expand our operations by adding new facilities, upgrading existing facilities and increasing manufacturing and repair capacity. We believe our future success depends in part on our ability to manage this expansion. The following factors could present difficulties for us:

	•		inability to integrate operations between existing and new or expanded facilities;

	•		lack of a sufficient number of qualified technical and operating personnel;

	•		shortage of operating equipment and raw materials necessary to operate our expanded business; and

	•		inability to manage the increased costs associated with our expansion.

Our business depends on spending by the oil and gas industry, and this spending and our business may be adversely affected by industry conditions that are beyond our control.

We depend on our customers’ ability and willingness to make operating and capital expenditures to explore for, develop and produce oil and gas. Industry conditions are influenced by numerous factors over which we have no control, such as:

	•		the level of drilling activity;

	•		the level of oil and gas production;

	•		the demand for oil and gas related products;

	•		domestic and worldwide economic conditions;

	•		political instability in the Middle East and other oil producing regions;

	•		the actions of the Organization of Petroleum Exporting Countries;

	•		the price of foreign imports of oil and gas, including liquefied natural gas;

	•		natural disasters or weather conditions, such as hurricanes;

	•		technological advances affecting energy consumption;

	•		the level of oil and gas inventories;

	•		the cost of producing oil and gas;

	•		the price and availability of alternative fuels;

	•		merger and divestiture activity among oil and gas producers;

	•		the ability of our customers to obtain sufficient amounts of capital; and

	•		governmental regulation.

The volatility of the oil and gas industry and the consequent impact on drilling activity could reduce the level of drilling and workover activity by some of our customers. Any such reduction could cause a decline in the demand for our products and services.

A decline in or substantial volatility of oil and gas prices could adversely affect the demand and prices for our products and services.

The demand for our products and services is substantially influenced by current and anticipated oil and gas prices and the related level of drilling activity and general production spending in the areas in which we have operations. Volatility or weakness in oil and gas prices (or the perception that oil and gas prices will decrease) affects the spending patterns of our customers and may result in the drilling of fewer new wells or lower production spending for existing wells. This, in turn, could result in lower demand and prices for our products and services.

Historical prices for oil and gas have been volatile and are expected to continue to be volatile. For example, since 1999 through October 31, 2008, oil prices have ranged from as low as $11.37 per barrel to as high as $145.31 per barrel and natural gas prices have ranged from as low as $1.65 per million British thermal units, or MMBtu, to as high as $19.38 per MMBtu. This volatility has in the past and may in the future adversely affect our business. A prolonged low level of activity in the oil and gas industry will adversely affect the demand for our products and services.

Our inability to deliver our backlog on time could affect our future sales and profitability and our relationships with our customers.

At September 30, 2008, our backlog was approximately $94.2 million. The ability to meet customer delivery schedules for this backlog is dependent on a number of factors including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, project engineering expertise for certain large projects, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources. Our failure to deliver in accordance with customer expectations may result in damage to existing customer relationships and result in the loss of future business. Failure to deliver backlog in accordance with expectations could negatively impact our financial performance and thus cause adverse changes in the market price of our outstanding common stock. In addition, the cancellation by our customers of existing backlog orders, as a result of an economic downturn or otherwise, could adversely affect our business.

We rely on a few key employees whose absence or loss could disrupt our operations or be adverse to our business.

Many key responsibilities within our business have been assigned to a small number of employees. Our future success will depend in substantial part on the continued service of our key employees and our continued ability to attract, retain and motivate outstanding and highly skilled individuals in the competitive labor markets in which we compete. The loss of the services of one or more of our key employees could impede implementation and execution of our business strategy and result in the failure to reach our goals.

In order to attract, retain and motivate qualified personnel, we have granted, and in the future expect to continue to grant, performance-based awards under our 2002 Long-Term Incentive Plan (the Plan). As of September 30, 2008, there were 1,584 shares of our common stock available for issuance outstanding under the Plan. Unless we are successful in increasing the numbers of approved shares available for issuance under the

Plan, we may not be able to retain key employees or find suitable replacements on a timely basis or at all, and our business could be disrupted.

Although we have employment and non-competition agreements with our Chairman, President and Chief Executive Officer, and some of our other key employees, as a practical matter, those agreements will not assure the retention of our employees, and we may not be able to enforce all of the provisions in any employment or non-competition agreement. In addition, we do not maintain “key person” life insurance policies on any of our employees. As a result, we are not insured against any losses resulting from the death or disability of our key employees.

Our industry has recently experienced shortages in the availability of qualified personnel. Any difficulty we experience replacing or adding qualified personnel could adversely affect our business.

Our operations require the services of employees having technical training and experience in our business. As a result, our operations depend on the continuing availability of such personnel. Shortages of qualified personnel are occurring in our industry. If we should suffer any material loss of personnel to competitors, or be unable to employ additional or replacement personnel with the requisite level of training and experience, our operations could be adversely affected. A significant increase in the wages paid by other employers could result in a reduction in our workforce, increases in wage rates, or both.

Shortages of raw materials may restrict our operations.

The forgings, castings and outsourced coating services necessary for us to make our products are in high demand from our competitors and from participants in other industries. There can be no assurance that we will be able to continue to purchase these raw materials on a timely basis or at acceptable prices. Shortages could result in increased prices that we may be unable to pass on to customers. In addition, during periods of shortages, delivery times may be substantially longer. Any significant delay in our obtaining raw materials would have a corresponding delay in the manufacturing and delivery of our products. Any such delay might jeopardize our relationships with our customers and result in a loss of future business.

We intend to expand our business through strategic acquisitions. Our acquisition strategy exposes us to various risks, including those relating to difficulties in identifying suitable acquisition opportunities and integrating businesses and the potential for increased leverage or debt service requirements.

We have pursued and intend to continue to pursue strategic acquisitions of complementary assets and businesses, such as our recent acquisitions of Pinnacle, EEC and HP&T. Acquisitions involve numerous risks, including:

	•		unanticipated costs and exposure to unforeseen liabilities;

	•		difficulty in integrating the operations and assets of the acquired businesses;

	•		potential loss of key employees and customers of the acquired company;

	•		potential inability to properly establish and maintain effective internal controls over an acquired company; and

	•		risk of entering markets in which we have limited prior experience.

Our failure to achieve consolidation savings, to incorporate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties could have an adverse effect on our business.

In addition, we may incur indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions. Debt service requirements could represent a burden on our results of

operations and financial condition and the issuance of additional equity securities could be dilutive to our existing stockholders.

The oilfield service industry in which we operate is highly competitive, which may result in a loss of market share or a decrease in revenue or profit margins.

Our products and services are subject to competition from a number of similarly sized or larger businesses. Factors that affect competition include timely delivery of products and services, reputation, price, manufacturing capabilities, availability of plant capacity, performance and dependability. Any failure to adapt to a changing competitive environment may result in a loss of market share and a decrease in revenue and profit margins. If we cannot maintain our rapid response times, or if our competitors are able to reduce their response times, we may lose future business. In addition, many of our competitors have greater financial and other resources than we do, which may allow them to address these factors more effectively than we can or weather industry downturns more easily than we can.

If we do not develop and commercialize new competitive products, our revenue may decline.

To remain competitive in the market for pressure control products and services, we must continue to develop and commercialize new products. If we are not able to develop commercially competitive products in a timely manner in response to industry demands, our business and revenues will be adversely affected. Our future ability to develop new products depends on our ability to:

	•		design and commercially produce products that meet the needs of our customers;

	•		successfully market new products; and

	•		protect our proprietary designs from our competitors.

We may encounter resource constraints or technical or other difficulties that could delay introduction of new products and services. Our competitors may introduce new products before we do and achieve a competitive advantage.

Additionally, the time and expense invested in product development may not result in commercial products or provide revenues. Moreover, we may experience operating losses after new products are introduced and commercialized because of high start-up costs, unexpected manufacturing costs or problems, or lack of demand.

Some of our products require the use of elastomer products in their manufacture. Any negative developments in the availability or costs of these elastomer products could adversely affect our business, financial conditions and results of operations.

We are dependent upon third party sources, including competitors, for elastomer products used in the manufacture of some of our products, the availability of which cannot be assured. Any sustained interruption in the availability of these elastomer products could impair the manufacturing of our products and have a material adverse effect on our business, financial condition and results of operations. If there is a significant increase in the costs of such elastomer products and we are unable to pass the increased costs on to our customers in the form of higher prices, it could cause our cash flow and results of operations to decline.

The cyclical nature of or a prolonged downturn in our industry could affect the carrying value of our goodwill.

From 2003 through 2005, we incurred goodwill impairments related to continuing and discontinued operations totaling $29.5 million. There were no such goodwill impairments during 2006, 2007 or the first nine months of 2008. As of September 30, 2008, we had approximately $112.5 million of goodwill. Our estimates of the value of our goodwill could be reduced as a result of various factors such as changes in customer demand, market activity levels, interest rates or other factors which would impact future earnings and cash flow or market valuation levels.

We may be faced with product liability claims.

Most of our products are used in hazardous drilling and production applications where an accident or a failure of a product can cause personal injury, loss of life, damage to property, equipment or the environment or suspension of operations. Despite our quality assurance measures, defects may occur in our products. Any defects could give rise to liability for damages, including consequential damages, and could impair the market’s acceptance of our products. We generally attempt to contractually disclaim responsibility for consequential damages, but our disclaimers may not be effective. We carry product liability insurance as a part of our commercial general liability coverage of $1 million per occurrence with a $2 million general aggregate annual limit. Additional coverage may also be available under our umbrella policy. Our insurance may not adequately cover our costs arising from defects in our products or otherwise.

Liability to customers under warranties may materially and adversely affect our earnings.

We provide warranties as to the proper operation and conformance to specifications of the products we manufacture. Failure of our products to operate properly or to meet specifications may increase our costs by requiring additional engineering resources and services, replacement of parts and equipment or monetary reimbursement to a customer. We have in the past received warranty claims, and we expect to continue to receive them in the future. To the extent that we incur substantial warranty claims in any period, our reputation, our ability to obtain future business and our earnings could be adversely affected.

Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results.

We maintain insurance to cover potential claims and losses, including claims for personal injury or death resulting from the use of our products. We carry comprehensive insurance, including business interruption insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims. It is possible an unexpected judgment could be rendered against us in cases in which we could be uninsured or underinsured and beyond the amounts we currently have reserved or anticipate incurring. Significant increases in the cost of insurance and more restrictive coverage may have an adverse impact on our results of operations. In addition, we may not be able to maintain adequate insurance coverage at rates we believe are reasonable.

One of our competitive strengths is our established brand name and to the extent any joint venture that we participate in uses our brand name and delivers products or services that are not up to our standards of quality or service, this could diminish the value of our brand name and adversely affect our business.

We currently participate in international joint ventures that use our brand name in which our rights and ability to control the joint venture are limited. One of our competitive strengths is our established brand name and to the extent any such joint venture uses our brand name and delivers products and services that are not up to our standards of quality or service, our reputation and credibility could be damaged. Any such diminishment of the value of our brand name may lead to a loss in customer confidence, damage existing customer relationships, decrease market acceptance of our brand name, reduce demand for our goods and services, result in the loss of future business or impair our ability to expand in these markets, any of which could adversely affect our business, financial condition and results of operations.

Our operations are subject to stringent environmental laws and regulations that may expose us to significant costs and liabilities.

Our operations in the U.S. and abroad are subject to stringent federal, state, provincial and local environmental laws and regulations governing the discharge of materials into the environment and environmental protection. These laws and regulations require us to acquire permits to conduct regulated activities, to incur capital expenditures to limit or prevent releases of materials from our facilities, and to respond to liabilities for pollution resulting from our operations. Governmental authorities enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and

criminal penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or preventing some or all of our operations.

There is inherent risk of incurring significant environmental costs and liabilities in our business due to our handling of petroleum hydrocarbons and wastes, the release of air emissions or water discharges in connection with our operations, and historical industry operations and waste disposal practices conducted by us or our predecessors. Joint and several strict liability may be incurred in connection with discharges or releases of petroleum hydrocarbons and wastes on, under or from our properties and facilities, many of which have been used for industrial purposes for a number of years, oftentimes by third parties not under our control. Private parties who use our products and facilities where our petroleum hydrocarbons or wastes are taken for reclamation or disposal may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations and for personal injury or property damage. In addition, changes in environmental laws and regulations occur frequently, and any such changes that result in more stringent and costly requirements could have a material adverse effect on our business. For example, passage of climate change legislation that restricts emissions of certain gases, commonly referred to as greenhouse gases, in areas that we conduct business could adversely affect our operations and demand for our products. We may not be able to recover some or any of these costs from insurance.

We will be subject to political, economic and other uncertainties as we expand our international operations.

We intend to continue our expansion into international markets such as Mexico, Canada, the Middle East and India. Our international operations are subject to a number of risks inherent in any business operating in foreign countries including, but not limited to:

	•		political, social and economic instability;

	•		currency fluctuations; and

	•		government regulation that is beyond our control.

Our operations have not yet been affected to any significant extent by such conditions or events, but as our international operations expand, the exposure to these risks will increase. To the extent we make investments in foreign facilities or receive revenues in currencies other than U.S. dollars, the value of our assets and our income could be adversely affected by fluctuations in the value of local currencies.

Risks Related to Our Common Stock

The market price of our common stock may be volatile or may decline regardless of our operating performance.

The market price of our common stock has experienced, and may continue to experience, substantial volatility. During the twelve-month period ended September 30, 2008, the sale prices of our common stock on The NASDAQ Global Market has ranged from a low of $34.22 to a high of $84.80 per share. We expect our common stock to continue to be subject to fluctuations. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause fluctuation in the stock price may include, among other things:

	•		actual or anticipated variations in quarterly operating results;

	•		announcements of technological advances by us or our competitors;

	•		current events affecting the political and economic environment in the United States;

	•		conditions or trends in our industry, including demand for our products and services, technological advances and governmental regulations;

	•		litigation involving or affecting us;

	•		changes in financial estimates by us or by any securities analysts who might cover our stock; and

	•		additions or departures of our key personnel.

The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly. In particular, the market price of our common stock may be influenced by variations in oil and gas prices, because demand for our services is closely related to those prices.

Our ability to issue preferred stock could adversely affect the rights of holders of our common stock.

Our certificate of incorporation authorizes us to issue up to 25,000,000 shares of preferred stock in one or more series on terms that may be determined at the time of issuance by our board of directors. Accordingly, we may issue shares of any series of preferred stock that would rank senior to the common stock as to voting or dividend rights or rights upon our liquidation, dissolution or winding up.

Certain provisions in our charter documents have anti-takeover effects.

Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or preventing a change in control of us. Such provisions, including those regulating the nomination and election of directors and limiting who may call special stockholders’ meetings, together with the possible issuance of our preferred stock without stockholder approval, may make it more difficult for other persons, without the approval of our board of directors, to make a tender offer or otherwise acquire substantial amounts of our common stock or to launch other takeover attempts that a stockholder might consider to be in such stockholder’s best interest.

Because we have no plans to pay any dividends for the foreseeable future, investors must look solely to stock appreciation for a return on their investment in us.

We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to support our operations and growth. Any payment of cash dividends in the future will be dependent on the amount of funds legally available, our earnings, financial condition, capital requirements and other factors that our board of directors may deem relevant. Additionally, certain of our debt agreements restrict the payment of dividends. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None

Item 6. Exhibits


Exhibit Number		Identification of Exhibit
3.1	—	Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 31, 2001).

3.2	—	Certificate of Amendment to the Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2005).

3.3	—	Certificate of Amendment to the Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006).

3.4	—	Bylaws of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated December 31, 2001).

3.5	—	Certificate of Amendment to the Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007).

3.6	—	Amended and Restated Bylaws of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 11, 2007).

3.7	—	Amendment to Amended and Restated Bylaws of T-3 Energy Services, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 5, 2007)

4.1	—	Specimen Certificate of Common Stock, $.001 par value, of the Company (incorporated herein by reference to Exhibit 4.1 to the Company’s 2001 Annual Report on Form 10-K).

4.2	—	Form of warrant to purchase 327,862 shares of the Company’s Common Stock at $12.80 per share issued to former T-3 shareholders in connection with the merger of T-3 and Industrial Holdings, Inc. (incorporated herein by reference to Annex VII to the Definitive Proxy Statement on Schedule 14A of T-3 dated November 9, 2001).

10.1 ⁺	—	Employment Agreement by and between Gus D. Halas and T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 14, 2007).


Exhibit Number		Identification of Exhibit
10.2 ⁺	—	Employment Agreement of Michael T. Mino (incorporated herein by reference to Exhibit 10.2 to the Company’s 2001 Annual Report on Form 10-K).

10.3 ⁺	—	Fourth Employment Agreement dated June 1, 2006, between T-3 Management Services, L.P. and Keith A. Klopfenstein (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 5, 2006).

10.4 ⁺	—	T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended and restated effective July 30, 2002 (incorporated herein by reference to the Company’s Form S-8 filed November 18, 2002).

10.5 ⁺	—	T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended and restated effective January 1, 2005 (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 21, 2006).

10.6 ⁺	—	Non-Statutory Stock Option Agreement dated January 12, 2006, between T-3 Energy Services, Inc. and Gus D. Halas (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.7 ⁺	—	Non-Statutory Stock Option Agreement dated January 12, 2006, between T-3 Energy Services, Inc. and Michael T. Mino (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.8 ⁺	—	Non-Statutory Stock Option Agreement dated January 12, 2006, between T-3 Energy Services, Inc. and Keith A. Klopfenstein (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.9 ⁺	—	Form of Employee Non-Statutory Stock Option Agreement under the Company’s 2002 Stock Incentive Plan, as amended and restated effective July 30, 2002 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.10 ⁺	—	Form of Non-Employee Director Non-Statutory Stock Option Agreement under the Company’s 2002 Stock Incentive Plan, as amended and restated effective July 30, 2002 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.11 ⁺	—	Restricted Stock Award Agreement between T-3 Energy Services, Inc. and Gus D. Halas (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 3, 2006).

10.12 ⁺	—	Restricted Stock Award Agreement between T-3 Energy Services, Inc. and Gus D. Halas (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 3, 2006).

10.13	—	Company Purchase Agreement for KC Machine, LLC by and among Kelly Niswender, Carol Niswender and T-3 Rocky Mountain Holdings, Inc. dated as of January 12, 2006 (incorporated herein by reference to Exhibit 10.23 to the Company’s 2005 Annual Report on Form 10-K).

10.14	—	First Amended and Restated Credit Agreement dated as of September 30, 2004 among T-3 Energy Services, Inc. as Borrower, Wells Fargo Bank, National Association as Issuing Bank, as a Bank and as Lead Arranger and Agent for the Banks and the Banks (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2004).

10.15	—	First Amendment to First Amended and Restated Credit Agreement dated August 25, 2005, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank


Exhibit Number		Identification of Exhibit
		(incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 26, 2005).

10.16	—	Intercreditor Agreement dated August 25, 2005, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, Wells Fargo Bank, National Association, as Issuing Bank, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 26, 2005).

10.17	—	Second Amendment to First Amended and Restated Credit Agreement dated March 17, 2006, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2006).

10.18	—	Third Amendment to First Amended and Restated Credit Agreement dated March 31, 2006, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 3, 2006).

10.19	—	Amended and Restated Loan Agreement dated as of September 30, 2004 among T-3 Energy Services, Inc. as Borrower and Wells Fargo Energy Capital, Inc. as Lender and as Agent for the Lenders and the Lenders (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 5, 2004).

10.20	—	First Amended and Restated Subordination and Intercreditor Agreement dated as of September 30, 2004, among T-3 Energy Services, Inc., the Guarantors named therein, General Electric Capital Corporation, Comerica Bank, Wells Fargo Bank, National Association, as agent for the senior lenders, and Wells Fargo Energy Capital, Inc., as agent for the junior lenders (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated October 5, 2004).

10.21	—	Stock Purchase Agreement by and Among T-3 Energy Services, Inc., Energy Equipment Corporation, Energy Equipment Group, Inc. and the Stockholders of Energy Equipment Group, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated October 31, 2007).

10.22	—	Stock Purchase Agreement by and among T-3 Energy Services, Inc., HP&T Products, Inc., Federal International (2000) Ltd, George Anderson, Vijay Chatufale and Joe Gruba (incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated October 31, 2007).

10.23	—	Fourth Amendment to First Amended and Restated Credit Agreement dated July 13, 2007, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 17, 2007).

10.24+	—	Form of Restricted Stock Award Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007).

10.25+	—	Restricted Stock Award Agreement of Gus D. Halas (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007).

10.26	—	Second Amended and Restated Credit Agreement dated as of October 26, 2007, among T-3 Energy Services, Inc. as U.S. Borrower, T-


	Exhibit Number				Identification of Exhibit
					3 Energy Services (formerly known as T-3 Oilco Energy Services Partnership) as Canadian Borrower, Wells Fargo Bank, National Association as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, and as Lead Arranger, Comerica Bank as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 31, 2007).

	10.27+				Employment Agreement by and between James M. Mitchell and T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 2, 2008).

	10.28+				Restricted Stock Award Agreement of James M. Mitchell (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 2, 2008).

	31.1*				Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended

	31.2*				Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended

	32.1**				Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Executive Officer)

	32.2**				Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Financial Officer)


*		Filed herewith.

**		Furnished herewith.

+		Management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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, on the 5th day of November 2008.


		T-3 ENERGY SERVICES, INC.
	By:	/s/ JAMES M. MITCHELL
		James M. Mitchell (Chief Financial
		Officer and Senior Vice President)

INDEX TO EXHIBITS


Exhibit
Number		Identification of Exhibit
3.1	—	Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 31, 2001).

3.2	—	Certificate of Amendment to the Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2005).

3.3	—	Certificate of Amendment to the Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006).

3.4	—	Bylaws of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated December 31, 2001).

3.5	—	Certificate of Amendment to the Certificate of Incorporation of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007).

3.6	—	Amended and Restated Bylaws of T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 11, 2007).

3.7	—	Amendment to Amended and Restated Bylaws of T-3 Energy Services, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 5, 2007)

4.1	—	Specimen Certificate of Common Stock, $.001 par value, of the Company (incorporated herein by reference to Exhibit 4.1 to the Company’s 2001 Annual Report on Form 10-K).

4.2	—	Form of warrant to purchase 327,862 shares of the Company’s Common Stock at $12.80 per share issued to former T-3 shareholders in connection with the merger of T-3 and Industrial Holdings, Inc. (incorporated herein by reference to Annex VII to the Definitive Proxy Statement on Schedule 14A of T-3 dated November 9, 2001).

10.1 ⁺	—	Employment Agreement by and between Gus D. Halas and T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 14, 2007).

10.2 ⁺	—	Employment Agreement of Michael T. Mino (incorporated herein by reference to Exhibit 10.2 to the Company’s 2001 Annual Report on Form 10-K).

10.3 ⁺	—	Fourth Employment Agreement dated June 1, 2006, between T-3 Management Services, L.P. and Keith A. Klopfenstein (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 5, 2006).

10.4 ⁺	—	T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended and restated effective July 30, 2002 (incorporated herein by reference to the Company’s Form S-8 filed November 18, 2002).

10.5 ⁺	—	T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended and restated effective January 1, 2005 (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 21, 2006).

10.6 ⁺	—	Non-Statutory Stock Option Agreement dated January 12, 2006, between T-3 Energy Services, Inc. and Gus D. Halas (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 18, 2006).


Exhibit
Number		Identification of Exhibit
10.7 ⁺	—	Non-Statutory Stock Option Agreement dated January 12, 2006, between T-3 Energy Services, Inc. and Michael T. Mino (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.8 ⁺	—	Non-Statutory Stock Option Agreement dated January 12, 2006, between T-3 Energy Services, Inc. and Keith A. Klopfenstein (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.9 ⁺	—	Form of Employee Non-Statutory Stock Option Agreement under the Company’s 2002 Stock Incentive Plan, as amended and restated effective July 30, 2002 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.10 ⁺	—	Form of Non-Employee Director Non-Statutory Stock Option Agreement under the Company’s 2002 Stock Incentive Plan, as amended and restated effective July 30, 2002 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated January 18, 2006).

10.11 ⁺	—	Restricted Stock Award Agreement between T-3 Energy Services, Inc. and Gus D. Halas (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 3, 2006).

10.12 ⁺	—	Restricted Stock Award Agreement between T-3 Energy Services, Inc. and Gus D. Halas (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 3, 2006).

10.13	—	Company Purchase Agreement for KC Machine, LLC by and among Kelly Niswender, Carol Niswender and T-3 Rocky Mountain Holdings, Inc. dated as of January 12, 2006 (incorporated herein by reference to Exhibit 10.23 to the Company’s 2005 Annual Report on Form 10-K).

10.14	—	First Amended and Restated Credit Agreement dated as of September 30, 2004 among T-3 Energy Services, Inc. as Borrower, Wells Fargo Bank, National Association as Issuing Bank, as a Bank and as Lead Arranger and Agent for the Banks and the Banks (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2004).

10.15	—	First Amendment to First Amended and Restated Credit Agreement dated August 25, 2005, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 26, 2005).

10.16	—	Intercreditor Agreement dated August 25, 2005, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, Wells Fargo Bank, National Association, as Issuing Bank, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 26, 2005).

10.17	—	Second Amendment to First Amended and Restated Credit Agreement dated March 17, 2006, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2006).

10.18	—	Third Amendment to First Amended and Restated Credit Agreement dated March 31, 2006, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 3, 2006).

10.19	—	Amended and Restated Loan Agreement dated as of September 30, 2004 among T-3 Energy Services, Inc. as Borrower and Wells Fargo Energy


Exhibit
Number		Identification of Exhibit
		Capital, Inc. as Lender and as Agent for the Lenders and the Lenders (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 5, 2004).

10.20	—	First Amended and Restated Subordination and Intercreditor Agreement dated as of September 30, 2004, among T-3 Energy Services, Inc., the Guarantors named therein, General Electric Capital Corporation, Comerica Bank, Wells Fargo Bank, National Association, as agent for the senior lenders, and Wells Fargo Energy Capital, Inc., as agent for the junior lenders (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated October 5, 2004).

10.21	—	Stock Purchase Agreement by and Among T-3 Energy Services, Inc., Energy Equipment Corporation, Energy Equipment Group, Inc. and the Stockholders of Energy Equipment Group, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated October 31, 2007).

10.22	—	Stock Purchase Agreement by and among T-3 Energy Services, Inc., HP&T Products, Inc., Federal International (2000) Ltd, George Anderson, Vijay Chatufale and Joe Gruba (incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated October 31, 2007).

10.23	—	Fourth Amendment to First Amended and Restated Credit Agreement dated July 13, 2007, among T-3 Energy Services, Inc., T-3 Oilco Energy Services Partnership, the Banks signatory thereto, Wells Fargo Bank, National Association, as agent for the Banks, and Comerica Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 17, 2007).

10.24+	—	Form of Restricted Stock Award Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007).

10.25+	—	Restricted Stock Award Agreement of Gus D. Halas (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007).

10.26	—	Second Amended and Restated Credit Agreement dated as of October 26, 2007, among T-3 Energy Services, Inc. as U.S. Borrower, T-3 Energy Services (formerly known as T-3 Oilco Energy Services Partnership) as Canadian Borrower, Wells Fargo Bank, National Association as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, and as Lead Arranger, Comerica Bank as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 31, 2007).

10.27+		Employment Agreement by and between James M. Mitchell and T-3 Energy Services, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 2, 2008).

10.28+		Restricted Stock Award Agreement of James M. Mitchell (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 2, 2008).

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended

32.1**		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Executive Officer)

32.2**		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Financial Officer)