##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period ended June 30, 2008
 OR
 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.
  Delaware
    
    76-0697390(State or Other Jurisdiction 
of Incorporation or Organization)
    
    (IRS Employer
Identification No.)7135 Ardmore, Houston, Texas
(Address of Principal Executive Offices)
    
    77054
(Zip Code)
 (713) 996-4110
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 FORM 10-Q
 PART IItem
    
 Page1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2008 and
December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three and
Six Months Ended June 30, 2008 and 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    52. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    143. Quantitative and Qualitative Disclosures about Market Risk
    
    
    254. Controls and Procedures
    
    
    25PART II  Cautionary Note Regarding Forward-Looking Statements
    
    
    261. Legal Proceedings
    
    
    271A. Risk Factors
    
    
    272. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    333. Defaults Upon Senior Securities
    
    
    334. Submission of Matters to a Vote of Security Holders
    
    
    335. Other Information
    
    
    336. Exhibits
    
    
    33Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands except for share amounts)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,755
    
    
    $
    9,522Accounts receivable  trade, net
    
    
    49,329
    
    
    
    44,180Inventories
    
    
    52,856
    
    
    
    47,457Deferred income taxes
    
    
    4,169
    
    
    
    3,354Prepaids and other current assets
    
    
    5,134
    
    
    
    5,824Total current assets
    
    
    118,243
    
    
    
    110,337Property and equipment, net
    
    
    43,411
    
    
    
    40,073Goodwill, net
    
    
    112,732
    
    
    
    112,249Other intangible assets, net
    
    
    34,783
    
    
    
    35,065Other assets
    
    
    3,152
    
    
    
    2,838Total assets
    
    $
    312,321
    
    
    $
    300,562LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable  trade
    
    $
    24,888
    
    
    $
    20,974Accrued expenses and other
    
    
    20,267
    
    
    
    15,156Current maturities of long-term debt
    
    
    74
    
    
    
    74Total current liabilities
    
    
    45,229
    
    
    
    36,204Long-term debt, less current maturities
    
    
    39,006
    
    
    
    61,423Other long-term liabilities
    
    
    1,283
    
    
    
    1,101Deferred income taxes
    
    
    12,281
    
    
    
    11,186Commitments and contingenciesStockholders 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,
12,520,791 and 12,320,341 shares issued and
outstanding at June 30, 2008 and December 31, 2007,
respectively
    
    
    13
    
    
    
    12Warrants, 10,157 and 13,138 issued and outstanding at June 30,
2008 and December 31, 2007, respectively
    
    
    20
    
    
    
    26Additional paid-in capital
    
    
    167,777
    
    
    
    160,446Retained earnings
    
    
    44,057
    
    
    
    27,039Accumulated other comprehensive income
    
    
    2,655
    
    
    
    3,125Total stockholders equity
    
    
    214,522
    
    
    
    190,648Total liabilities and stockholders equity
    
    $
    312,321
    
    
    $
    300,562
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (in thousands except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Products
    
    $
    57,724
    
    
    $
    41,001
    
    
    $
    115,751
    
    
    $
    78,840Services
    
    
    9,966
    
    
    
    10,932
    
    
    
    21,109
    
    
    
    20,99367,690
    
    
    
    51,933
    
    
    
    136,860
    
    
    
    99,833Cost of revenues:Products
    
    
    35,271
    
    
    
    25,526
    
    
    
    70,375
    
    
    
    49,839Services
    
    
    5,339
    
    
    
    6,519
    
    
    
    12,234
    
    
    
    12,75540,610
    
    
    
    32,045
    
    
    
    82,609
    
    
    
    62,594Gross profit
    
    
    27,080
    
    
    
    19,888
    
    
    
    54,251
    
    
    
    37,239Operating expenses
    
    
    15,781
    
    
    
    11,953
    
    
    
    28,530
    
    
    
    20,441Income from operations
    
    
    11,299
    
    
    
    7,935
    
    
    
    25,721
    
    
    
    16,798Interest expense
    
    
    (601
    )
    
    
    (103
    )
    
    
    (1,493
    )
    
    
    (256
    )Interest income
    
    
    24
    
    
    
    259
    
    
    
    63
    
    
    
    281Other income, net
    
    
    367
    
    
    
    478
    
    
    
    507
    
    
    
    479Income from continuing operations before
provision for income taxes
    
    
    11,089
    
    
    
    8,569
    
    
    
    24,798
    
    
    
    17,302Provision for income taxes
    
    
    3,573
    
    
    
    3,256
    
    
    
    7,769
    
    
    
    6,490Income from continuing operations
    
    
    7,516
    
    
    
    5,313
    
    
    
    17,029
    
    
    
    10,812Loss from discontinued operations, net of tax
    
    
    (9
    )
    
    
    (1,075
    )
    
    
    (11
    )
    
    
    (1,075
    )Net income
    
    $
    7,507
    
    
    $
    4,238
    
    
    $
    17,018
    
    
    $
    9,737Basic earnings (loss) per common share:Continuing operations
    
    $
    .60
    
    
    $
    .45
    
    
    $
    1.37
    
    
    $
    .96Discontinued operations
    
    $
    
    
    
    $
    (.09
    )
    
    $
    
    
    
    $
    (.09
    )Net income per common share
    
    $
    .60
    
    
    $
    .36
    
    
    $
    1.37
    
    
    $
    .87Diluted earnings (loss) per common share:Continuing operations
    
    $
    .58
    
    
    $
    .44
    
    
    $
    1.32
    
    
    $
    .94Discontinued operations
    
    $
    
    
    
    $
    (.09
    )
    
    $
    
    
    
    $
    (.10
    )Net income per common share
    
    $
    .58
    
    
    $
    .35
    
    
    $
    1.32
    
    
    $
    .84Weighted average common shares outstanding:Basic
    
    
    12,477
    
    
    
    11,779
    
    
    
    12,404
    
    
    
    11,235Diluted
    
    
    13,063
    
    
    
    12,127
    
    
    
    12,926
    
    
    
    11,558
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (in thousands)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    17,018
    
    
    $
    9,737Adjustments to reconcile net income to net cash
provided by operating activities:Loss from discontinued operations, net of tax
    
    
    11
    
    
    
    1,075Bad debt expense
    
    
    68
    
    
    
    110Depreciation and amortization
    
    
    4,444
    
    
    
    2,096Amortization of deferred loan costs
    
    
    117
    
    
    
    126Loss on sale of assets
    
    
    
    
    
    
    9Write-off of property and equipment, net
    
    
    25
    
    
    
    Deferred taxes
    
    
    (228
    )
    
    
    (63
    )Employee stock-based compensation expense
    
    
    2,505
    
    
    
    1,989Excess tax benefits from stock-based compensation
    
    
    (1,688
    )
    
    
    (435
    )Equity in earnings of unconsolidated affiliate
    
    
    (381
    )
    
    
    (310
    )Changes in assets and liabilities, net of effect of
acquisitions and dispositions:Accounts receivable  trade
    
    
    (4,628
    )
    
    
    (5,159
    )Inventories
    
    
    (5,775
    )
    
    
    (9,110
    )Prepaids and other current assets
    
    
    1,090
    
    
    
    (70
    )Other assets
    
    
    (90
    )
    
    
    (31
    )Accounts payable  trade
    
    
    4,001
    
    
    
    2,445Accrued expenses and other
    
    
    6,866
    
    
    
    1,040Net cash provided by operating activities
    
    
    23,355
    
    
    
    3,449Cash flows from investing activities:Purchases of property and equipment
    
    
    (5,626
    )
    
    
    (2,247
    )Proceeds from sales of property and equipment
    
    
    
    
    
    
    25Cash paid for acquisitions, net of cash acquired
    
    
    (2,732
    )
    
    
    Equity investment in unconsolidated affiliate
    
    
    
    
    
    
    (160
    )Net cash used in investing activities
    
    
    (8,358
    )
    
    
    (2,382
    )Cash flows from financing activities:Net repayments under swing line credit facility
    
    
    (3,415
    )
    
    
    (85
    )Net repayments under revolving credit facility
    
    
    (19,000
    )
    
    
    Payments on long-term debt
    
    
    (93
    )
    
    
    Debt financing costs
    
    
    (78
    )
    
    
    Net proceeds from issuance of common stock
    
    
    
    
    
    
    22,157Proceeds from exercise of stock options
    
    
    3,084
    
    
    
    836Proceeds from exercise of warrants
    
    
    38
    
    
    
    4,018Excess tax benefits from stock-based compensation
    
    
    1,688
    
    
    
    435Net cash provided by (used in) financing activities
    
    
    (17,776
    )
    
    
    27,361Effect of exchange rate changes on cash and cash equivalents
    
    
    12
    
    
    
    14Net increase (decrease) in cash and cash equivalents
    
    
    (2,767
    )
    
    
    28,442Cash and cash equivalents, beginning of period
    
    
    9,522
    
    
    
    3,393Cash and cash equivalents, end of period
    
    $
    6,755
    
    
    $
    31,835
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 (in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    7,507
    
    
    $
    4,238
    
    
    $
    17,018
    
    
    $
    9,737Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    134
    
    
    
    1,148
    
    
    
    (470
    )
    
    
    1,252Comprehensive income
    
    $
    7,641
    
    
    $
    5,386
    
    
    $
    16,548
    
    
    $
    10,989
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. BASIS OF PRESENTATION
  Fair Value of Financial Instruments
  New Accounting Pronouncements
 Fair Value Measurements
 Business Combinations
 2. BUSINESS COMBINATIONS AND DISPOSITIONS
 Business Combinations
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Fair value of tangible and intangible assets,
net of cash acquired
    
    $
    2,801Goodwill recorded
    
    
    758Total liabilities assumed
    
    
    (827
    )Common stock issued
    
    
    Cash paid for acquisitions, net of cash acquired
    
    $
    2,732
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Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007(In thousands, except
    
    (In thousands, exceptper share amounts)
    
    per share amounts)Revenues
    
    $
    68,306
    
    
    $
    133,373Income from
continuing
operations
    
    $
    6,514
    
    
    $
    13,966Basic Earnings per
share from
continuing
operations
    
    $
    0.55
    
    
    $
    1.24Diluted Earnings
per share from
continuing
operations
    
    $
    0.54
    
    
    $
    1.21
 Dispositions
  3. INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    6,895
    
    
    $
    7,640Work in process
    
    
    15,868
    
    
    
    16,319Finished goods and component parts
    
    
    30,093
    
    
    
    23,498$
    52,856
    
    
    $
    47,457
 4. DEBT
  5. EARNINGS (LOSS) PER SHARE
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Three Months EndedJune 30,2008
    
    
    2007Numerator:Income from continuing operations
    
    $
    7,516
    
    
    $
    5,313Loss from discontinued operations
    
    
    (9
    )
    
    
    (1,075
    )Net income
    
    $
    7,507
    
    
    $
    4,238Denominator:Weighted average common shares outstanding 
basic
    
    
    12,477
    
    
    
    11,779Shares for dilutive stock options, restricted
stock and warrants
    
    
    586
    
    
    
    348Weighted average common shares outstanding 
diluted
    
    
    13,063
    
    
    
    12,127Basic earnings (loss) per common share:Continuing operations
    
    $
    .60
    
    
    $
    .45Discontinued operations
    
    
    
    
    
    
    (.09
    )Net income per common share
    
    $
    .60
    
    
    $
    .36Diluted earnings (loss) per common share:Continuing operations
    
    $
    .58
    
    
    $
    .44Discontinued operations
    
    
    
    
    
    
    (.09
    )Net income per common share
    
    $
    .58
    
    
    $
    .35
  Six Months EndedJune 30,2008
    
    
    2007Numerator:Income from continuing operations
    
    $
    17,029
    
    
    $
    10,812Loss from discontinued operations
    
    
    (11
    )
    
    
    (1,075
    )Net income
    
    $
    17,018
    
    
    $
    9,737Denominator:Weighted average common shares outstanding 
basic
    
    
    12,404
    
    
    
    11,235Shares for dilutive stock options, restricted
stock and warrants
    
    
    522
    
    
    
    323Weighted average common shares outstanding 
diluted
    
    
    12,926
    
    
    
    11,558Basic earnings (loss) per common share:Continuing operations
    
    $
    1.37
    
    
    $
    .96Discontinued operations
    
    
    
    
    
    
    (.09
    )Net income per common share
    
    $
    1.37
    
    
    $
    .87Diluted earnings (loss) per common share:Continuing operations
    
    $
    1.32
    
    
    $
    .94Discontinued operations
    
    
    
    
    
    
    (.10
    )Net income per common share
    
    $
    1.32
    
    
    $
    .84
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6. SEGMENT INFORMATION
    (dollars in thousands)PressureControl
    
    Corporate
    
    ConsolidatedThree months ended June 30:2008Revenues
    
    $
    67,690
    
    
    $
    
    
    
    $
    67,690Depreciation and amortization
    
    
    1,918
    
    
    
    341
    
    
    
    2,259Income (loss) from operations
    
    
    18,363
    
    
    
    (7,064
    )
    
    
    11,299Capital expenditures
    
    
    2,035
    
    
    
    213
    
    
    
    2,2482007Revenues
    
    $
    51,933
    
    
    $
    
    
    
    $
    51,933Depreciation and amortization
    
    
    744
    
    
    
    331
    
    
    
    1,075Income (loss) from operations
    
    
    13,210
    
    
    
    (5,275
    )
    
    
    7,935Capital expenditures
    
    
    1,253
    
    
    
    320
    
    
    
    1,573(dollars in thousands)PressureControl
    
    Corporate
    
    ConsolidatedSix months ended June 30:2008Revenues
    
    $
    136,860
    
    
    $
    
    
    
    $
    136,860Depreciation and amortization
    
    
    3,778
    
    
    
    666
    
    
    
    4,444Income (loss) from operations
    
    
    36,855
    
    
    
    (11,134
    )
    
    
    25,721Capital expenditures
    
    
    5,105
    
    
    
    521
    
    
    
    5,6262007Revenues
    
    $
    99,833
    
    
    $
    
    
    
    $
    99,833Depreciation and amortization
    
    
    1,447
    
    
    
    649
    
    
    
    2,096Income (loss) from operations
    
    
    24,770
    
    
    
    (7,972
    )
    
    
    16,798Capital expenditures
    
    
    1,859
    
    
    
    388
    
    
    
    2,247
 7. COMMITMENTS AND CONTINGENCIES
  th
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st
    8. STOCKHOLDERS EQUITY
   10




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Common Stock
  Warrants
  Additional Paid-In Capital
  9. STOCK-BASED COMPENSATION
  Stock Option Awards
  Six Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007Expected volatility
    
    
    50.00
    %
    
    
    40.00
    %Risk-free interest rate
    
    
    2.26
    %
    
    
    4.68
    %Expected term (in years)
    
    
    4.7
    
    
    
    5
  11




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Restricted Stock Awards
      10. INCOME TAXES
   12




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11. SUBSEQUENT EVENTS
 Strategic Alternatives Costs
  Joint Venture in Dubai
   New Chief Financial Officer
  13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 General
   Recent Developments
 Strategic Alternatives Costs
  Joint Venture in Dubai
   New Chief Financial Officer
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Purchase of India Assets
  Strategy
  
    
    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 2008, 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;
    
    creating an India-based manufacturing subsidiary during the second half 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 115 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
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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 continued 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.
    
    Pursue strategic acquisitions and alliances.  Our acquisition strategy will focus on
broadening our markets and existing product offerings. As noted above, in July 2008, we
entered into a joint venture arrangement, to be effective September 1, 2008 or such earlier
date as agreed to by the parties, with Aswan 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, 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
     How We Evaluate Our Operations
  
    
    revenue and facility output;
    
    material and labor expenses as a percentage of revenue;
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
    
    selling, general and administrative expenses as a percentage of revenue;
    
    EBITDA;
    
    Return on capital employed;
    
    financial and operational models; and
    
    other measures of performance.
 Revenue and Facility Output.
 Material and Labor Expenses as a Percentage of Revenue.
  Selling, General and Administrative Expenses as a Percentage of Revenue.
 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.
 Financial and Operational Models.
 17




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##### Table of Contents



Loss Management .
 Customer Satisfaction.
 Employee Productivity .
 Management System Compliance .
 How We Manage Our Operations
  
    
    safety and environmental management systems;
    
    quality management systems;
    
    statistical tracking systems; and
    
    inventory turnover rates.
 Safety and Environmental Management Systems.
   Quality Management Systems.
 18




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##### Table of Contents



Statistical Tracking Systems.
 Inventory Turnover Rates .
 Critical Accounting Policies and Estimates
   New Accounting Pronouncements
 Fair Value Measurements
 Business Combinations
 Outlook
  19




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##### Table of Contents



WTI
    
    Henry Hub
    
    United States
    
    Canada
    
    InternationalQuarter Ended:
    
    Oil
    
    Gas
    
    Rig Count
    
    Rig Count
    
    Rig CountJune 30, 2006
    
    $
    70.41
    
    
    $
    6.65
    
    
    
    1,632
    
    
    
    282
    
    
    
    913September 30, 2006
    
    $
    70.42
    
    
    $
    6.17
    
    
    
    1,719
    
    
    
    494
    
    
    
    941December 31, 2006
    
    $
    59.98
    
    
    $
    7.24
    
    
    
    1,719
    
    
    
    440
    
    
    
    952March 31, 2007
    
    $
    58.08
    
    
    $
    7.17
    
    
    
    1,733
    
    
    
    532
    
    
    
    982June 30, 2007
    
    $
    64.97
    
    
    $
    7.66
    
    
    
    1,757
    
    
    
    139
    
    
    
    1,002September 30, 2007
    
    $
    75.46
    
    
    $
    6.25
    
    
    
    1,788
    
    
    
    348
    
    
    
    1,020December 31, 2007
    
    $
    90.68
    
    
    $
    7.40
    
    
    
    1,790
    
    
    
    356
    
    
    
    1,017March 31, 2008
    
    $
    97.94
    
    
    $
    8.72
    
    
    
    1,770
    
    
    
    507
    
    
    
    1,046June 30, 2008
    
    $
    126.35
    
    
    $
    11.47
    
    
    
    1,868
    
    
    
    199
    
    
    
    1,084
 
 www.eia.doe.gov www.bakerhughes.com
   20




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##### Table of Contents



Results of Operations
 Three Months ended June 30, 2008 Compared with Three Months ended June 30, 2007
 Revenues.
 Cost of Revenues.
 Operating Expenses.
 Interest Expense.
 Income Taxes.
 Income from Continuing Operations.
 21




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##### Table of Contents



Discontinued Operations .
 Six Months ended June 30, 2008 Compared with Six Months ended June 30, 2007
 Revenues.
 Cost of Revenues.
 Operating Expenses.
 Interest Expense.
 22




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##### Table of Contents



Income Taxes.
 Income from Continuing Operations.
 Discontinued Operations .
 Liquidity and Capital Resources
  Net Cash Provided by Operating Activities.
 Net Cash Used In Investing Activities.
 Net Cash Provided by (Used in) Financing Activities.
 23




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##### Table of Contents



Principal Debt Instruments.
     24




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##### Table of Contents



Contractual Obligations.
 Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    YearsLong-term debt
    
    $
    39,080
    
    
    $
    74
    
    
    $
    6
    
    
    $
    39,000
    
    
    $
    Letters of credit
    
    
    540
    
    
    
    540
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    4,948
    
    
    
    2,110
    
    
    
    2,408
    
    
    
    424
    
    
    
    6Total contractual obligations
    
    $
    44,568
    
    
    $
    2,724
    
    
    $
    2,414
    
    
    $
    39,424
    
    
    $
    6
  Off-Balance Sheet Arrangements.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  25




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##### Table of Contents



Changes in Internal Controls Over Financial Reporting
  
 PART II
 
 Cautionary Note Regarding Forward-Looking Statements
    26




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##### Table of Contents



Item 1. Legal Proceedings
  
 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.
  
    
    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.
  
    
    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;
 27




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##### Table of Contents




    
    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; and
    
    governmental regulation.
  A decline in or substantial volatility of oil and gas prices could adversely affect the demand and
prices 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.
  We rely on a few key employees whose absence or loss could disrupt our operations or be adverse to
our business.
  28




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##### Table of Contents



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.
  Shortages of raw materials may restrict our operations.
  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.
  
    
    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.
   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.
  29




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##### Table of Contents



If we do not develop and commercialize new competitive products, our revenue may decline.
  
    
    design and commercially produce products that meet the needs of our customers;
    
    successfully market new products; and
    
    protect our proprietary designs from our competitors.
   The cyclical nature of or a prolonged downturn in our industry could affect the carrying value of
our goodwill.
  We may be faced with product liability claims.
  Liability to customers under warranties may materially and adversely affect our earnings.
  30




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##### Table of Contents



Uninsured or underinsured claims or litigation or an increase in our insurance premiums could
adversely impact our results.
  Our operations are subject to stringent environmental laws and regulations that may expose us to
significant costs and liabilities.
   We will be subject to political, economic and other uncertainties as we expand our international
operations.
  
    
    political, social and economic instability;
    
    currency fluctuations; and
    
    government regulation that is beyond our control.
  31




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##### Table of Contents



Risks Related to Our Common Stock
 The market price of our common stock may be volatile or may decline regardless of our operating
performance.
  
    
    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.
  Our ability to issue preferred stock could adversely affect the rights of holders of our common
stock.
  Certain provisions in our charter documents have anti-takeover effects.
  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.
  32




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  a.
    
    The following nominee was elected at that meeting as Class I director:
 Number of VotesName of Nominee
    
    For
    
    WithheldGus D. Halas
    
    
    10,449,603
    
    
    
    1,098,089
 b.
    
    The result of the vote to approve the amendment and restatement of the 2002 Stock
Incentive Plan to increase the number of shares of common stock authorized for issuance
from 2,000,000 to 3,000,000 was as follows:
 Number of VotesFor
    
    Against
    
    Abstain
    
    Non-Votes2,766,889
    
    
    7,769,675
    
    
    
    181,136
    
    
    
    829,992
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit Number
    
    Identification of Exhibit31.1*
    
    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 amended31.2*
    
    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 amended32.1**
    
    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. 33




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##### Table of Contents



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 6th day of August 2008.
 T-3 ENERGY SERVICES, INC.By:
    /s/ JAMES M. MITCHELLJames M. Mitchell (Chief FinancialOfficer and Senior Vice President) 34




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Identification of Exhibit31.1*
    
    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 amended31.2*
    
    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 amended32.1**
    
    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.