##### 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 September 30, 2007
 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
(State or Other Jurisdiction 
of Incorporation or Organization)
    
    76-0697390
(IRS Employer
Identification No.)7135 Ardmore, Houston, Texas
(Address of Principal Executive Offices)
    
    77054
(Zip Code)
 (713) 996-4110
 þ o
  o o þ
 o þ




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TABLE OF CONTENTS
 FORM 10-Q
 PART I
 Item
    
    
    
    Page1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006
    
    4Notes to Condensed Consolidated Financial Statements
    
    52.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    153.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    264.
    
    Controls and Procedures
    
    27PART II1.
    
    Legal Proceedings
    
    281A.
    
    Risk Factors
    
    282.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    353.
    
    Defaults Upon Senior Securities
    
    354.
    
    Submission of Matters to a Vote of Security Holders
    
    355.
    
    Other Information
    
    356.
    
    Exhibits
    
    35Restricted Stock Award AgreementForm of Restricted Stock Award AgreementCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share amounts)
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,967
    
    
    $
    3,393Accounts receivable  trade, net
    
    
    29,813
    
    
    
    25,634Inventories
    
    
    39,289
    
    
    
    27,227Notes receivable, current portion
    
    
    48
    
    
    
    14Deferred income taxes
    
    
    3,231
    
    
    
    2,208Prepaids and other current assets
    
    
    3,660
    
    
    
    5,557Total current assets
    
    
    112,008
    
    
    
    64,033Property and equipment, net
    
    
    26,343
    
    
    
    24,639Notes receivable, less current portion
    
    
    291
    
    
    
    325Goodwill, net
    
    
    71,759
    
    
    
    70,569Other intangible assets, net
    
    
    2,306
    
    
    
    2,510Equity investment in unconsolidated affiliate
    
    
    945
    
    
    
    Other assets
    
    
    806
    
    
    
    567Total assets
    
    $
    214,458
    
    
    $
    162,643LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable  trade
    
    $
    15,797
    
    
    $
    14,453Accrued expenses and other
    
    
    14,789
    
    
    
    14,457Current maturities of long-term debt
    
    
    
    
    
    
    85Total current liabilities
    
    
    30,586
    
    
    
    28,995Other long-term liabilities
    
    
    1,070
    
    
    
    34Deferred income taxes
    
    
    3,986
    
    
    
    3,454Commitments and contingenciesStockholders equity:Preferred stock, $.001 par value, 25,000,000 and 5,000,000
shares authorized at September 30, 2007 and December 31, 2006,
respectively, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 50,000,000 and 20,000,000
shares authorized at September 30, 2007 and December 31, 2006,
respectively, 12,201,359 and 10,762,016 shares issued and
outstanding at September 30, 2007 and December 31, 2006,
respectively
    
    
    12
    
    
    
    11Warrants, 13,919 and 327,862 issued and outstanding at
September 30, 2007 and December 31, 2006,
respectively
    
    
    27
    
    
    
    644Additional paid-in capital
    
    
    157,111
    
    
    
    126,054Retained earnings
    
    
    18,655
    
    
    
    2,672Accumulated other comprehensive income
    
    
    3,011
    
    
    
    779Total stockholders equity
    
    
    178,816
    
    
    
    130,160Total liabilities and stockholders equity
    
    $
    214,458
    
    
    $
    162,643
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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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Products
    
    $
    42,903
    
    
    $
    33,439
    
    
    $
    121,743
    
    
    $
    86,903Services
    
    
    10,327
    
    
    
    10,744
    
    
    
    31,320
    
    
    
    31,02853,230
    
    
    
    44,183
    
    
    
    153,063
    
    
    
    117,931Cost of revenues:Products
    
    
    27,493
    
    
    
    20,826
    
    
    
    77,332
    
    
    
    55,349Services
    
    
    6,370
    
    
    
    6,529
    
    
    
    19,125
    
    
    
    18,51533,863
    
    
    
    27,355
    
    
    
    96,457
    
    
    
    73,864Gross profit
    
    
    19,367
    
    
    
    16,828
    
    
    
    56,606
    
    
    
    44,067Operating expenses
    
    
    8,789
    
    
    
    8,723
    
    
    
    29,230
    
    
    
    23,056Income from operations
    
    
    10,578
    
    
    
    8,105
    
    
    
    27,376
    
    
    
    21,011Interest expense
    
    
    98
    
    
    
    234
    
    
    
    354
    
    
    
    744Interest income
    
    
    (424
    )
    
    
    (6
    )
    
    
    (705
    )
    
    
    (18
    )Equity in earnings of unconsolidated affiliate
    
    
    (175
    )
    
    
    
    
    
    
    (485
    )
    
    
    Other income, net
    
    
    (126
    )
    
    
    (205
    )
    
    
    (295
    )
    
    
    (681
    )Income from continuing operations before
provision for income taxes
    
    
    11,205
    
    
    
    8,082
    
    
    
    28,507
    
    
    
    20,966Provision for income taxes
    
    
    3,984
    
    
    
    2,978
    
    
    
    10,474
    
    
    
    7,613Income from continuing operations
    
    
    7,221
    
    
    
    5,104
    
    
    
    18,033
    
    
    
    13,353Loss from discontinued operations, net of tax
    
    
    (92
    )
    
    
    (20
    )
    
    
    (1,167
    )
    
    
    (150
    )Net income
    
    $
    7,129
    
    
    $
    5,084
    
    
    $
    16,866
    
    
    $
    13,203Basic earnings (loss) per common share:Continuing operations
    
    $
    .59
    
    
    $
    .48
    
    
    $
    1.56
    
    
    $
    1.26Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (.10
    )
    
    $
    (.01
    )Net income per common share
    
    $
    .59
    
    
    $
    .48
    
    
    $
    1.46
    
    
    $
    1.25Diluted earnings (loss) per common share:Continuing operations
    
    $
    .58
    
    
    $
    .46
    
    
    $
    1.52
    
    
    $
    1.23Discontinued operations
    
    $
    (.01
    )
    
    $
    
    
    
    $
    (.10
    )
    
    $
    (.01
    )Net income per common share
    
    $
    .57
    
    
    $
    .46
    
    
    $
    1.42
    
    
    $
    1.22Weighted average common shares outstanding:Basic
    
    
    12,170
    
    
    
    10,625
    
    
    
    11,550
    
    
    
    10,601Diluted
    
    
    12,523
    
    
    
    11,003
    
    
    
    11,879
    
    
    
    10,881
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    16,866
    
    
    $
    13,203Adjustments to reconcile net income to net cash
provided by operating activities:Loss from discontinued operations, net of tax
    
    
    1,167
    
    
    
    150Bad debt expense
    
    
    171
    
    
    
    78Depreciation and amortization
    
    
    3,181
    
    
    
    2,550Amortization of deferred loan costs
    
    
    189
    
    
    
    186Loss on sale of assets
    
    
    12
    
    
    
    41Deferred taxes
    
    
    (266
    )
    
    
    628Equity in earnings of unconsolidated affiliate
    
    
    (485
    )
    
    
    Employee stock-based compensation expense
    
    
    2,463
    
    
    
    1,308Amortization of stock compensation
    
    
    
    
    
    
    1Excess tax benefits from stock-based compensation
    
    
    (653
    )
    
    
    (217
    )Changes in assets and liabilities, net of effect of
acquisitions and dispositions:Accounts receivable  trade
    
    
    (3,985
    )
    
    
    (6,621
    )Inventories
    
    
    (11,496
    )
    
    
    (9,216
    )Prepaids and other current assets
    
    
    2,034
    
    
    
    4,812Other assets
    
    
    (796
    )
    
    
    (26
    )Accounts payable  trade
    
    
    1,128
    
    
    
    2,652Accrued expenses and other
    
    
    (776
    )
    
    
    3,185Net cash provided by operating activities
    
    
    8,754
    
    
    
    12,714Cash flows from investing activities:Purchases of property and equipment
    
    
    (4,305
    )
    
    
    (7,436
    )Proceeds from sales of property and equipment
    
    
    40
    
    
    
    164Cash paid for acquisitions, net of cash acquired
    
    
    
    
    
    
    (2,248
    )Equity investment in unconsolidated affiliate
    
    
    (460
    )
    
    
    Collections on notes receivable
    
    
    
    
    
    
    38Net cash used in investing activities
    
    
    (4,725
    )
    
    
    (9,482
    )Cash flows from financing activities:Net repayments under revolving credit facility
    
    
    (85
    )
    
    
    (2,547
    )Payments on long-term debt
    
    
    
    
    
    
    (36
    )Net proceeds from issuance of common stock
    
    
    22,742
    
    
    
    Proceeds from exercise of warrants
    
    
    4,018
    
    
    
    Proceeds from exercise of stock options
    
    
    1,152
    
    
    
    443Excess tax benefits from stock-based compensation
    
    
    653
    
    
    
    217Net cash provided by (used in) financing activities
    
    
    28,480
    
    
    
    (1,923
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    65
    
    
    
    (58
    )Cash flows of discontinued operations:Operating cash flows
    
    
    
    
    
    
    (171
    )Investing cash flows
    
    
    
    
    
    
    Financing cash flows
    
    
    
    
    
    
    Net cash used in discontinued operations
    
    
    
    
    
    
    (171
    )Net increase in cash and cash equivalents
    
    
    32,574
    
    
    
    1,080Cash and cash equivalents, beginning of period
    
    
    3,393
    
    
    
    1,162Cash and cash equivalents, end of period
    
    $
    35,967
    
    
    $
    2,242
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    7,129
    
    
    $
    5,084
    
    
    $
    16,866
    
    
    $
    13,203Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    980
    
    
    
    (22
    )
    
    
    2,232
    
    
    
    395Comprehensive income
    
    $
    8,109
    
    
    $
    5,062
    
    
    $
    19,098
    
    
    $
    13,598
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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1.
    
    BASIS OF PRESENTATION
  Equity Method Investments
  Income Taxes
  New Accounting Pronouncements
 Fair Value Measurements
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2.
    
    BUSINESS COMBINATIONS AND DISPOSITIONS
 Business Combinations
    Fair value of tangible and intangible assets,
net of cash acquired
    
    $
    1,327Goodwill recorded
    
    
    1,309Total liabilities assumed
    
    
    (388
    )Common stock issued
    
    
    Cash paid for acquisitions, net of cash acquired
    
    $
    2,248
 Dispositions
   3.
    
    EQUITY INVESTMENT IN UNCONSOLIDATED AFFILIATE
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4.
    
    INVENTORIES
  September 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    6,678
    
    
    $
    4,547Work in process
    
    
    15,908
    
    
    
    11,826Finished goods and component parts
    
    
    16,703
    
    
    
    10,854$
    39,289
    
    
    $
    27,227
 5.
    
    DEBT
   6.
    
    EARNINGS (LOSS) PER SHARE
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Three Months EndedSeptember 30,2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    7,221
    
    
    $
    5,104Loss from discontinued operations
    
    
    (92
    )
    
    
    (20
    )Net income
    
    $
    7,129
    
    
    $
    5,084Denominator:Weighted average common shares outstanding  basic
    
    
    12,170
    
    
    
    10,625Shares for dilutive stock options, restricted stock and warrants
    
    
    353
    
    
    
    378Weighted average common shares outstanding  diluted
    
    
    12,523
    
    
    
    11,003Basic earnings (loss) per common share:Continuing operations
    
    $
    .59
    
    
    $
    .48Discontinued operations
    
    
    
    
    
    
    Net income per common share
    
    $
    .59
    
    
    $
    .48Diluted earnings (loss) per common share:Continuing operations
    
    $
    .58
    
    
    $
    .46Discontinued operations
    
    
    (.01
    )
    
    
    Net income per common share
    
    $
    .57
    
    
    $
    .46
  Nine Months EndedSeptember 30,2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    18,033
    
    
    $
    13,353Loss from discontinued operations
    
    
    (1,167
    )
    
    
    (150
    )Net income
    
    $
    16,866
    
    
    $
    13,203Denominator:Weighted average common shares outstanding  basic
    
    
    11,550
    
    
    
    10,601Shares for dilutive stock options, restricted stock and warrants
    
    
    329
    
    
    
    280Weighted average common shares outstanding  diluted
    
    
    11,879
    
    
    
    10,881Basic earnings (loss) per common share:Continuing operations
    
    $
    1.56
    
    
    $
    1.26Discontinued operations
    
    
    (.10
    )
    
    
    (.01
    )Net income per common share
    
    $
    1.46
    
    
    $
    1.25Diluted earnings (loss) per common share:Continuing operations
    
    $
    1.52
    
    
    $
    1.23Discontinued operations
    
    
    (.10
    )
    
    
    (.01
    )Net income per common share
    
    $
    1.42
    
    
    $
    1.22
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7. SEGMENT INFORMATION
    (dollars in thousands)PressureControl
    
    Corporate
    
    ConsolidatedThree months ended September 30:2007Revenues
    
    $
    53,230
    
    
    $
    
    
    
    $
    53,230Depreciation and amortization
    
    
    766
    
    
    
    319
    
    
    
    1,085Income (loss) from operations
    
    
    14,122
    
    
    
    (3,544
    )
    
    
    10,578Capital expenditures
    
    
    1,862
    
    
    
    196
    
    
    
    2,0582006Revenues
    
    $
    44,183
    
    
    $
    
    
    
    $
    44,183Depreciation and amortization
    
    
    610
    
    
    
    286
    
    
    
    896Income (loss) from operations
    
    
    11,369
    
    
    
    (3,264
    )
    
    
    8,105Capital expenditures
    
    
    1,982
    
    
    
    225
    
    
    
    2,207
 (dollars in thousands)PressureControl
    
    Corporate
    
    ConsolidatedNine months ended September 30:2007Revenues
    
    $
    153,063
    
    
    $
    
    
    
    $
    153,063Depreciation and amortization
    
    
    2,213
    
    
    
    968
    
    
    
    3,181Income (loss) from operations
    
    
    38,892
    
    
    
    (11,516
    )
    
    
    27,376Capital expenditures
    
    
    3,721
    
    
    
    584
    
    
    
    4,3052006Revenues
    
    $
    117,931
    
    
    $
    
    
    
    $
    117,931Depreciation and amortization
    
    
    1,790
    
    
    
    760
    
    
    
    2,550Income (loss) from operations
    
    
    29,576
    
    
    
    (8,565
    )
    
    
    21,011Capital expenditures
    
    
    6,547
    
    
    
    889
    
    
    
    7,436
 8. INCOME TAXES
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9. COMMITMENTS AND CONTINGENCIES
 th
 st
  10




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10. STOCKHOLDERS EQUITY
   Common Stock
  11




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Warrants
  Additional Paid-In Capital
  Cumulative Effect of a Change in Accounting Principle
  11. STOCK-BASED COMPENSATION
  Stock Option Awards
  Nine Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006Expected volatility
    
    
    40.00
    %
    
    
    52.79
    %Risk-free interest rate
    
    
    4.64
    %
    
    
    4.42
    %Expected term (in years)
    
    
    5
    
    
    
    4
  12




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rd rd
 Restricted Stock Awards
    12. SUBSEQUENT EVENTS
    13




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14




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 General
   Recent Developments
      15




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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. We invested
approximately $7.6 million during the first nine months of 2007 and during 2006 on this
expansion effort, which includes increasing our BOP manufacturing capacity from ten to 25
units per month by upgrading and expanding our machining capabilities at our existing
facilities, along with our expansion into Conway, Arkansas during 2007 and Buffalo and
Tyler, Texas, Casper, Wyoming and Indianapolis, Indiana by opening four facilities during
2006. We expect to invest up to $7.8 million over the remainder of 2007 and the first half
of 2008 to expand capacity by:
 
    
    expanding our BOP repair capacity from 7 stacks per month to 11 stacks per month;
    
    opening additional facilities for our wellhead product line;
    
    opening additional facilities for our pipeline product line; and
    
    expanding our elastomer producing capacity in North America.
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
    
    Continue new product development. Since April 2003, we have introduced 86 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. To support our expansion, we have increased our engineering
department staff to 27 employees and contract personnel as of September 30, 2007. A
significant portion of this increase in engineering staff is related to our increased focus
on our wellhead product line.
    
    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 and the Rocky Mountain and Appalachian regions. For
example, during 2006, we continued our expansion into the Rocky Mountain region by
acquiring KC Machine LLC, located in Rock Springs, Wyoming, and opening a facility in
Casper, Wyoming. In addition, we expanded into the East Texas Region by opening two
facilities, the Midwest region by opening a facility in Indianapolis, Indiana and, during
2007, 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. For example,
in October of 2007 we acquired Energy Equipment Corporation and
HP&T Products, Inc., both located in Houston, Texas, which will
allow us to continue our commitment to developing engineered products
for both surface and subsea applications. Also, in the first quarter of
2007 we entered into an agreement with Gefro Oilfield Services ASA to market our products
and services and serve as an authorized repair center from their base in Stavanger, Norway.
In 2006, we acquired KC Machine LLC, located in Rock Springs, Wyoming, to continue our
expansion of our pressure and flow control, wellhead and pipeline products and services to
customers located in the Rocky Mountain region. 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; and
    
    financial and operational models.
 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.
 Financial and Operational Models
  Loss Management
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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
  19




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Statistical Tracking Systems
  Inventory Turnover Rates
  Critical Accounting Policies and Estimates
    New Accounting Pronouncements
 Fair Value Measurements
 20




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Outlook
  WTI
    
    Henry Hub
    
    United States
    
    Canada
    
    InternationalQuarter Ended:
    
    Oil
    
    Gas
    
    Rig Count
    
    Rig Count
    
    Rig CountSeptember 30, 2005
    
    $
    63.19
    
    
    $
    9.64
    
    
    
    1,428
    
    
    
    497
    
    
    
    911December 31, 2005
    
    $
    60.00
    
    
    $
    12.80
    
    
    
    1,478
    
    
    
    572
    
    
    
    929March 31, 2006
    
    $
    63.27
    
    
    $
    7.91
    
    
    
    1,519
    
    
    
    665
    
    
    
    896June 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
    
    
    
    1,020
 
 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).    21




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Results of Operations
 Three Months ended September 30, 2007 Compared with Three Months ended September 30, 2006
 Revenues.
 Cost of Revenues.
 Operating Expenses.
 Income Taxes.
 Income from Continuing Operations.
 Discontinued Operations
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Nine Months ended September 30, 2007 Compared with Nine Months ended September 30, 2006
 Revenues.
 Cost of Revenues.
 Operating Expenses.
 Income Taxes.
 Income from Continuing Operations.
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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.
 Principal Debt Instruments.
  24




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rd
 25




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Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Letters of credit
    
    
    179
    
    
    
    117
    
    
    
    62
    
    
    
    
    
    
    
    Operating leases
    
    
    5,593
    
    
    
    2,122
    
    
    
    2,707
    
    
    
    755
    
    
    
    9Total contractual obligations
    
    $
    5,772
    
    
    $
    2,239
    
    
    $
    2,769
    
    
    $
    755
    
    
    $
    9
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    26




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls Over Financial Reporting
  27




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   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
    
    managing 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;
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
    
    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; 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.
   We rely on a few key employees whose absence or loss could disrupt our operations or be adverse to
our business.
  29




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##### Table of Contents



Our inability to deliver our backlog on time could affect our future sales and profitability and
our relationships with our customers.
  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;
    
    our ability to properly establish and maintain effective internal controls over an
acquired company; and
    
    risk of entering markets in which we have limited prior experience.
  30




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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.
  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.
  31




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Liability to customers under warranties may materially and adversely affect our earnings.
  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;
 32




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##### Table of Contents




    
    currency fluctuations; and
    
    government regulation that is beyond our control.
  If we are unable to complete our assessment of the adequacy of our internal control over financial
reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose
confidence in the reliability of our financial statements, which could result in a decrease in the
value of our common stock.
  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.
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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.
  34




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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
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit Number
    
    Identification of Exhibit10.1
    
    Restricted Stock Award Agreement between T-3 Energy Services, Inc.
and Gus D. Halas10.2
    
    Form of Restricted Stock Award Agreement under the Companys 2002
Stock Incentive Plan, as amended and restated effective July 20, 200231.1
    
    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)
 35




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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 5th day of November 2007.
 T-3 ENERGY SERVICES, INC.By:
    /s/ MICHAEL T. MINOMichael T. Mino (Chief FinancialOfficer and Vice President) 36




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Identification of Exhibit10.1*
    
    Restricted Stock Award Agreement between T-3 Energy Services, Inc.
and Gus D. Halas10.2*
    
    Form of Restricted Stock Award Agreement under the Companys 2002
Stock Incentive Plan, as amended and restated effective July 20,
200231.1*
    
    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.