UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from __________ to __________

Commission file number: 000-19580

T-3 ENERGY SERVICES, INC.

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

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class
Common Stock, par value $.001 per share
Class B Warrant
Class C Warrant
Class D Warrant

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes o  No þ

     The aggregate market value of common stock held by non-affiliates was $9,008,681 at June 30, 2004. As of March 30, 2005, there were 10,581,986 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     The registrant’s proxy statement, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, with respect to the 2005 annual meeting of stockholders, is incorporated by reference into Part III of this report on Form 10-K.

TABLE OF CONTENTS

FORM 10-K

     Unless otherwise indicated, all references to “we,” “us,” “our,” “our company” or “T-3” include T-3 Energy Services, Inc. and all of its subsidiaries.

PART I

Item 1. Business

General

     We manufacture, remanufacture and distribute oilfield products and services to the upstream and downstream oil and gas industry primarily in the Gulf Coast region. In addition, we expanded into the Canadian market through the acquisition of the Oilco Group of Canada (“Oilco”) during the fourth quarter of 2004. Our customers include companies engaged in exploration, production, completion, transportation and processing of oil and gas, and drilling and well servicing contractors. We have historically operated in three segments; however, during the second quarter of 2004, the Company sold substantially all of the remaining assets of its Products segment, other than certain assets used in the Company’s custom coatings business. Accordingly, the Products segment’s results of operations for 2004, 2003 and 2002 have been reported as discontinued operations. Due to the sale of substantially all of the assets of the Products segment and since the Company’s custom coatings business is insignificant to the consolidated results of the Company and also has similar economic characteristics, customers and products to the Pressure Control segment, the Company realigned its operating segments during June 2004. The three historical reporting segments of Pressure Control, Products and Distribution now operate under two reporting segments: Pressure Control and Distribution. All historical segment results reflect the new operating structure.

     We were formerly a Texas corporation named Industrial Holdings, Inc. (“IHI”). On December 17, 2001, T-3 Energy Services, Inc., a private Delaware corporation incorporated in October 1999 (“former T-3”), merged into IHI, with IHI surviving the merger. Immediately following the merger, the combined company was reincorporated in Delaware under the name “T-3 Energy Services, Inc.” and implemented a one-for-ten reverse stock split of its common stock.

     The merger was treated for accounting purposes as a purchase of IHI by former T-3 (a reverse acquisition) in a purchase business transaction. The purchase method of accounting requires that we carry forward former T-3’s net assets at their historical book values and reflect IHI’s net assets at their estimated fair market values, with the fair market value of the purchase consideration in excess of the fair market value of IHI’s identifiable net assets treated as goodwill.

     The Company’s principal executive offices are located at 13111 Northwest Freeway, Suite 500, Houston, Texas 77040, and its telephone number is (713) 996-4110.

Recent Developments

     In mid-year 2003, we hired a new management team that undertook an in-depth evaluation of our businesses and products with the purpose of maximizing stockholder value and positioning T-3 for future growth. In the fourth quarter of 2003, management completed its evaluation and developed a new strategy and operating plan.

     As part of the strategy, we committed to a formal plan to sell certain non-core assets within our Products segment. Accordingly, these assets were reported as discontinued operations and we recorded a loss of $11.3 million, net of tax, at December 31, 2003 based upon a pending sales contract. The sale of these assets was consummated in February 2004 for an aggregate purchase price of approximately $7.4 million, subject to post-closing adjustments. In connection with the disposition, we reevaluated our expectations for the earnings, growth and contribution of the Products segment for 2004 and concluded that the segment would still generate revenues and earnings and contribute positively to T-3’s consolidated results of operations and cash flows but at a much reduced level. This determination was based on the continued softness in the Gulf of Mexico upstream and downstream oil and gas industry as well as lower revenues generated from larger fabricated equipment and component revenues. In addition, we expected lower revenues from the electrical motor and generator repair and storage business. As a

1

result, we recorded an impairment charge of $16.2 million on goodwill attributable to our Products segment at December 31, 2003.

     During the second quarter of 2004, we again reevaluated our expectations for the earnings, growth and contribution of the Products segment. As part of this reevaluation, the decision was made to sell substantially all of the remaining assets within our Products segment, except for certain assets related to the Company’s custom coatings business, along with certain assets within our Pressure Control segment. Accordingly, these assets were reported as discontinued operations and we recorded a goodwill impairment charge of $0.3 million, a $0.2 million charge to other intangible assets and a $2.4 million charge to tangible assets during the second quarter. A portion of these remaining Products segment assets were sold during May and June 2004 for $1.0 million and $0.4 million, respectively. The remaining assets of the Products segment and certain assets of the Pressure Control segment were sold during the third quarter of 2004 for $0.6 million and $0.5 million, respectively.

     On September 30, 2004, we entered into loan agreements to refinance our senior and subordinated credit facilities with our existing lenders. The proceeds from these credit facilities will be used to refinance debt, to finance acquisitions and for general corporate and working capital purposes.

     During the fourth quarter of 2004, we completed the purchase of Oilco for approximately $10.4 million. Oilco manufactures accumulators, remanufactures blowout preventors, performs field services on both accumulators and blowout preventors and manufactures rubber goods used in the well control industry.

Business Strategy

     Our business strategy is to maximize stockholder value by building a diversified oilfield services company founded on products and services that enhance our customers’ operations. We have adopted the strategies described below:

	•	integrate our existing operations through appropriate financial controls and personnel, management information systems and facilities consolidations;
	•	focus on excellence in engineering and designing of our own brand of products for our customers;
	•	enter niche markets for products and services that allow us an opportunity to perform more effectively and efficiently than major energy services companies;
	•	acquire products and services that complement each other and our existing products and services in the manufacturing, aftermarket and service arenas;
	•	expand higher margin aftermarket services by promoting rapid response to customer needs;
	•	expand into international markets through agency agreements or acquisitions;
	•	complete strategic add-on Pressure Control acquisitions both domestically and internationally;
	•	continue to maintain our focus on the Gulf of Mexico and high pressure gas markets;
	•	emphasize inter-company coordination through bundled products and services, combined sales efforts and inter-company purchases;
	•	take advantage of our volume purchasing power; and
	•	internally grow the Distribution segment.

     Currently, we have 19 locations throughout the Gulf Coast region and in other select oil and gas regions in Texas, Louisiana and Canada.

2

Operations

     Products and Services

     Pressure Control. Through our Pressure Control segment, we manufacture, remanufacture and repair high pressure, severe service products including valves, chokes, actuators, blow out preventors, manifolds and wellhead equipment; manufacture accumulators and rubber goods; and apply custom coatings to customers’ products used primarily in the oil and gas industry. Pressure Control products and services are sold primarily in the Gulf Coast region and Canada to major and independent oil and gas companies engaged in exploration, production, completion and transportation of oil and gas, and to drilling and well servicing contractors. Valves, chokes, actuators and other pressure control products are used to start, stop and monitor the flow of liquids and gases and to protect equipment and personnel from excessive or sudden changes in pressure. Drilling machinery, including drawworks, mud pumps, rotary tables, blowout preventors and pipe handling equipment, are major mechanical and pressure control components of drilling and well servicing rigs. These components are essential to the pumping of fluids, the hoisting, supporting and rotating of the drill string and the controlling of sudden changes in well pressure that may cause the well to ignite. Accumulators are used to operate the blowout preventors on the drilling and well servicing rigs. Custom coating value added services are used by some of our customers, often in conjunction with the other products and services we provide.

     Distribution. Our Distribution segment is engaged in the specialty distribution of pipes, valves, stud bolts, gaskets and other ancillary products primarily to the upstream and downstream oil and gas industry, offshore fabrication companies and shipyards. Our distribution activities are carried out through our network of 6 primary distribution centers along the Louisiana and Texas Gulf Coast. The products stocked at each location vary depending upon local customer needs.

     For further information on segment reporting, see Note 13 to our consolidated financial statements.

     Customers and Markets

     The Pressure Control segment sells its products and services to companies engaged in the exploration, production and pipeline transportation of oil and gas; companies in the petrochemical, chemical and petroleum refining industries; and onshore and offshore contract drilling and well servicing companies.

     The Distribution segment’s customers are primarily companies in the upstream and downstream oil and gas industry, offshore fabrication companies and shipyards.

     No single customer within any of our segments accounted for greater than 10% of total revenues within such segment during 2004.

     Marketing

     We market our products primarily through a direct sales force of 62 persons. We believe that our proximity to customers is a key to maintaining and increasing revenues. A majority of our sales are on a purchase order basis at fixed prices on normal 30-day trade terms. Large orders may be filled on a contract basis, depending on the circumstances. International sales are typically made with agent or representative arrangements, and significant sales are secured by letters of credit.

     Suppliers and Raw Materials

     In each of our segments, new and used inventory and related equipment and parts are acquired from suppliers, including individual brokers, other remanufacturing companies and original equipment manufacturers. No single supplier of products is significant to the operations of our segments, and we have not experienced and do not expect a shortage of products that we sell.

3

Insurance

     We currently carry a variety of insurance for our operations. We are partially self-insured for certain claims in amounts we believe to be customary and reasonable.

     Although we believe we currently maintain insurance coverage adequate for the risks involved, there is a risk our insurance may not be sufficient to cover any particular loss or that our insurance may not cover all losses. For example, while we maintain product liability insurance, this type of insurance is limited in coverage, and it is possible an adverse claim could arise in excess of our coverage. Finally, insurance rates have in the past been subject to wide fluctuation. Changes in coverage, insurance markets and our industry may result in increases in our cost and higher deductibles and retentions.

Competition

     In each of our segments, many of the markets in which we compete are highly fragmented, and our competitors in these niche markets range from relatively small, privately held businesses to large integrated companies. Competition is based on several competitive factors, including reputation, manufacturing capabilities, availability of plant capacity, price, performance and dependability. Although we do not typically maintain supply or service contracts with our customers, a significant portion of our sales represents repeat business from our customers. We compete with a large number of companies, none of which are dominant in our markets, many of which possess greater financial resources or offer certain products and services we do not offer.

Backlog

     Our backlog is shown in the table below:

     The above backlog information consisted of written orders or commitments believed to be firm contracts for products and services. These contracts are occasionally varied or modified by mutual consent and in some instances may be cancelable by the customer on short notice without substantial penalty. As a result, our backlog as of any particular date may not be indicative of our actual operating results for any future period. Management believes that substantially all of the orders and commitments included in backlog at December 31, 2004 will be completed within the next 12 months.

Environmental Regulations

     We are subject to various laws and regulations relating to the storage, handling, emission and discharge of materials into the environment, including the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”), the Clean Water Act, the Clean Air Act and the Resource Conservation and Recovery Act. Each of these statutes allows the imposition of substantial civil and criminal penalties, as well as permit revocation, for violations of the requirements. In addition, environmental laws could impose liability for costs associated with investigating and remediating contamination at our facilities or at third-party facilities at which we have arranged for the disposal or treatment of hazardous materials and/or wastes.

     Our environmental remediation and compliance costs have not been material during any of the periods presented. We have been identified as a potentially responsible party (PRP) with respect to one site designated for cleanup under CERCLA and similar state laws. Our involvement at this site is believed to have been minimal. Because it is early in the process, no determination of our actual liability can be made at this time. As such, we have

4

not currently accrued for any future remediation costs related to this site. Based upon our involvement with this site, we do not expect that our share of remediation costs will have a material impact on our financial position, results of operations or cash flows.

     In July 2001, we discovered preliminary information concerning deep soil contamination at one of our leased facilities. This preliminary information is limited, and the contamination source has not yet been identified. We have informed the landlord of the existence of the contamination and have requested that they remediate the property as required by the lease. We expect that the landlord will comply with its obligations under the lease to investigate the environmental condition and take any action required under applicable laws. We do not believe that we have contributed to or are responsible for remediation of the site.

     We believe that we are in compliance in all material respects with applicable environmental laws and are in full compliance with all obligations to investigate or remediate contamination that could reasonably be expected to result in material liability. However, it is possible that unanticipated factual developments could cause us to make environmental expenditures that are significantly different from those we currently expect. In addition, environmental laws continue to be amended and revised and may impose stricter obligations in the future. We cannot predict the effect such future requirements, if enacted, would have on us, although we believe that such regulations would be enacted over time and would affect the industry as a whole.

Employees

     As of December 31, 2004, we had a total of 511 employees, 163 of whom were salaried and 348 of whom were paid on an hourly basis. The entire work force is employed within the United States and Canada. We consider our relations with our employees to be good. None of our employees are covered by a collective bargaining agreement.

Available Information

     Access to our filings of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the United States Securities and Exchange Commission (SEC) may be obtained through the Investor Relations section of our website (http://www.t3energyservices.com). Our website provides a hyperlink to a third party SEC filings website where these reports may be viewed and printed at no cost as soon as reasonably practicable after we have electronically filed such material with the SEC. The contents of our website are not, and shall not be deemed to be, incorporated into this report.

Forward-Looking Information

     Certain information in this Annual Report on Form 10-K, including the information we incorporate by reference, 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. You can identify our forward-looking statements by the words “expects,” “projects,” “believes,” “anticipates,” “intends,” “plans,” “budgets,” “predicts,” “estimates” and similar expressions.

     We have based the forward-looking statements relating to our operations on our current expectations, and estimates and projections about us and about the industry in which we operate in general. We caution you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Form 10-K after the date of this Form 10-K.

5

Risk Factors

     Because we depend on the oil and gas industry, a decline in oil and gas prices or a decrease in industry activity may negatively impact our profits.

     We are, and will continue to be, dependent upon the oil and gas industry and the level of oil and gas exploration and production. The level of exploration and production depends upon the prevailing view of future product prices. Many factors affect the supply and demand for oil and gas and therefore influence product prices, including:

	•	the level of production from known reserves;
	•	weather conditions;
	•	the actions of the Organization of Petroleum Exporting Countries;
	•	political instability in the Middle East and elsewhere;
	•	the level of oil and gas inventories;
	•	the cost of producing oil and gas;
	•	the level of drilling activity;
	•	worldwide economic activity; and
	•	governmental regulation.

     If there is a significant reduction in the demand for drilling services, cash flows of drilling contractors or production companies or drilling or well servicing rig utilization rates, then demand for our products will decline.

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.

     The oilfield service industry in which we operate is highly competitive. Many of our competitors have greater financial and other resources than we do. Each of our operating units is subject to competition from a number of similarly sized or larger businesses. Factors that affect competition include price, quality and customer service. Strong competition may result in a loss of market share and a decrease in revenue and profit margins. Our success will be affected by our ability to lower our cost structure. Our forward-looking statements assume we will be successful in reducing our cost structure and adapting to the changing environment.

Availability of a skilled workforce could affect our projected results.

     The workforce and labor supply in the oilfield service industry is aging and diminishing such that there is an increasing shortage of available skilled labor. Our forward-looking statements assume we will be able to maintain a skilled workforce.

Our long-term growth depends upon technological innovation and commercialization.

     Our ability to deliver our growth strategy depends in part on the commercialization of new technology. A central aspect of our growth strategy is to innovate our products and services, and to obtain technologically advanced products through internal research and development and/or acquisitions. The key to our success will be our ability to commercialize the technology that we have acquired and demonstrate the enhanced value our technology brings to our customers’ operations. Our forward-looking statements have assumed successful commercialization of, and growth from, these new products and services.

6

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

     We had goodwill impairments related to continuing and discontinued operations in 2003 and 2004 totaling $26.4 million and $0.3 million, respectively. As of December 31, 2004, we had approximately $73.2 million of goodwill after taking into account the impairment charges. Our estimates of the value of our goodwill could be reduced in the future as a result of various factors, some of which are beyond our control. Any reduction in the value of our businesses may result in further impairment charges and therefore adversely affect our results.

A rise in insurance premiums could adversely impact our results and affect our ability to adequately insure for certain contingent liabilities.

     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, subject to deductibles, at levels we believe are sufficient to cover existing and future claims. The terrorist attacks that occurred in the U.S. in 2001, as well as other factors, have generally increased the cost of insurance for companies, including ours. Significant increases in the cost of insurance and more restrictive coverage may adversely impact our results of operations. In addition, we may not be able to maintain adequate insurance coverage at rates we believe are reasonable.

Uninsured or underinsured claims or litigation could adversely impact our results.

     In the ordinary course of business, we become the subject of various claims and litigation. We maintain insurance to cover many of our potential losses, and we are subject to various self-retentions and deductibles with respect to our insurance. Although we are subject to various ongoing litigation, we do not believe any of the litigation we are currently subject to will result in any material uninsured or underinsured losses. However, 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.

Our operations are subject to regulation by governmental authorities that may limit our ability to operate our business.

     Our business is affected by governmental regulations relating to our industry segments in general, as well as environmental and safety regulations that have specific application to our business. While we are not aware of any proposed or pending legislation, future legislation may have an adverse effect on our business, financial condition, results of operations or prospects.

     We are subject to various environmental laws, including those governing air emissions, water discharges and the storage, handling, disposal and remediation of petroleum and hazardous substances. We have in the past and will likely in the future incur expenditures to ensure compliance with environmental laws. Due to the possibility of unanticipated factual or regulatory developments, the amount and timing of future environmental expenditures could vary substantially from those currently anticipated. Moreover, certain of our facilities have been in operation for many years and, over that time, we and other predecessor operators have generated and disposed of wastes that are or may be considered hazardous. Accordingly, although we have undertaken considerable efforts to comply with applicable laws, it is possible that environmental requirements or facts not currently known to us will require unanticipated efforts and expenditures that cannot be currently quantified.

7

Two of our directors may have conflicts of interest because they are also officers or employees of First Reserve Corporation. The resolution of these conflicts of interest may not be in our or our stockholders’ best interests.

     Two of our directors, Joseph R. Edwards and Ben A. Guill, are also officers or employees of First Reserve Corporation, which controls the general partner of First Reserve Fund VIII, L.P., our majority stockholder. This may create conflicts of interest because these directors have responsibilities to First Reserve Fund VIII and its owners. Their duties as officers or employees of First Reserve Corporation may conflict with their duties as directors of our company regarding business dealings between First Reserve Corporation and us and other matters. The resolution of these conflicts may not always be in our or our stockholders’ best interests.

We will renounce any interest in specified business opportunities, and First Reserve Fund VIII and its director designees on our board of directors generally have no obligation to offer us those opportunities.

     First Reserve Fund VIII has investments in other oilfield service companies that compete with us, and First Reserve Corporation and its affiliates, other than T-3, may invest in other such companies in the future. We refer to First Reserve Corporation, its other affiliates and its portfolio companies as the First Reserve group. Our certificate of incorporation provides that, so long as First Reserve Corporation and its affiliates continue to own at least 20% of our common stock, we renounce any interest in specified business opportunities. Our certificate of incorporation also provides that if an opportunity in the oilfield services industry is presented to a person who is a member of the First Reserve group, including any individual who also serves as First Reserve Fund VIII’s director designee of our company:

	•	no member of the First Reserve group or any of those individuals will have any obligation to communicate or offer the opportunity to us; and
	•	such entity or individual may pursue the opportunity as that entity or individual sees fit,

unless:

	•	it was presented to a member of the First Reserve group in that person’s capacity as a director or officer of T-3; or
	•	the opportunity was identified solely through the disclosure of information by or on behalf of T-3.

These provisions of our certificate of incorporation may be amended only by an affirmative vote of holders of at least 80% of our outstanding common stock. As a result of these charter provisions, our future competitive position and growth potential could be adversely affected.

8

Item 2. Properties

     We operate 19 facilities, 17 of which are located in the Gulf Coast region and 2 of which are located in Canada, which range in size from 3,000 square feet to approximately 146,000 square feet of manufacturing, distribution and related space, or an aggregate of approximately 383,000 square feet, including corporate headquarters. Of this total, 258,000 square feet of manufacturing and related space is located in leased premises under leases expiring at various dates through 2011. We believe our facilities are suitable for their present and intended purposes and are adequate for our current level of operations.

     We maintain our principal executive offices at 13111 Northwest Freeway, Suite 500, Houston, Texas 77040. This property consists of conventional office space and is, in our opinion, adequate to meet our needs for the foreseeable future.

     The following chart lists our facilities by segment:

Item 3. Legal Proceedings

     We are involved in various claims and litigation 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 as Aspect Energy LLC v. United Wellhead Services, Inc. The lawsuit alleges that certain equipment purchased from and installed by United Wellhead Services, Inc., a wholly owned subsidiary of the Company, was defective in assembly and installation. The plaintiffs have alleged certain damages in excess of $5 million related to repairs and activities associated with the product failure and have also claimed unspecified damages with respect to certain expenses, loss of production and damage to the reservoir. We have tendered the defense of this claim under our comprehensive general liability insurance policy and our umbrella policy. We do not believe that the outcome of such legal actions involving the Company will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

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

     No matters were submitted to a vote of our security holders in the fourth quarter of 2004.

9

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common stock trades on The Nasdaq National Market under the symbol “TTES.” The following table sets forth the high and low closing sales prices of our common stock:

     On March 21, 2005, there were approximately 139 record holders of our common stock, not including the number of persons or entities who hold stock in nominee or street name through various brokerage firms and banks.

Dividend Policy

     We have never paid dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain 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 the board of directors may deem relevant. Additionally, certain of our debt agreements restrict the payment of dividends.

Item 6. Selected Financial Data

     This item is presented in three tables for the historical reporting requirements of T-3. T-3 began operations in the first half of 2000 by acquiring and merging two predecessor companies with different fiscal year ends. Selected historical data for T-3, Cor-Val, Inc. and Preferred Industries, Inc. are presented separately below.

     The following selected consolidated financial data for each of the five years in the period ended December 31, 2004 has been derived from our audited consolidated financial statements. The following information should be read in conjunction with our consolidated financial statements and the related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.

10

T-3

11

Selected Historical Financial Data of Cor-Val, Inc.

     The following selected unaudited historical financial data for the eleven months ended February 29, 2000 has been derived from the audited consolidated financial statements for the eleven months ended February 29, 2000. Cor-Val has been identified as a predecessor to T-3 for financial reporting purposes.

Cor-Val, Inc.

Selected Historical Financial Data of Preferred Industries, Inc.

     The following selected unaudited historical financial for the four months ended April 30, 2000 has been derived from the audited financial statements of Preferred Industries for the four months ended April 30, 2000. Preferred Industries has been identified as a predecessor to T-3 for financial reporting purposes.

Preferred Industries, Inc.

12

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

     The following discussion of our historical results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

     During the year 2000, we acquired five operating companies in transactions accounted for using the purchase method of accounting. On February 29, 2000, we acquired Cor-Val for approximately $21.4 million in cash, plus liabilities assumed and the issuance of 54,508 shares of our common stock. On April 30, 2000, we acquired Preferred Industries for approximately $18.8 million in cash, plus liabilities assumed and the issuance of 18,169 shares of our common stock. On April 30, 2000, we acquired O&M Equipment, Inc. for approximately $1.4 million in cash, plus liabilities assumed and a maximum earnout of $1.0 million based on the performance of O&M through 2002 ($0.3 million was earned in 2002, $0.6 million was earned in 2001, and $0.1 million was earned in 2000). Additionally, we acquired Control Products of Louisiana, Inc. and Coastal Electric Motors, Inc. in September 2000 and December 2000, respectively, for total consideration of approximately $10.3 million in cash, plus liabilities assumed. The results of operations of these companies have been included in our operating results from the dates of acquisition.

     On May 7, 2001, simultaneous with the signing of the merger agreement with IHI, we acquired A&B Bolt, Inc., a subsidiary of IHI, for $15.3 million in cash including expenses in a transaction accounted for using the purchase method of accounting. The results of operations of A&B Bolt have been included in our operating results from the date of acquisition.

     On December 17, 2001, T-3 Energy Services, Inc., a private Delaware corporation (“former T-3”), merged into IHI, a Texas corporation, with IHI surviving the merger. In connection with the merger, the combined company was reincorporated in Delaware under the name “T-3 Energy Services, Inc.” and implemented a one-for-ten reverse stock split of its common stock.

     The merger was treated for accounting purposes as a purchase of IHI by former T-3 (a reverse acquisition) in a purchase business transaction. The purchase method of accounting requires that we carry forward former T-3’s net assets at their historical book values and reflect IHI’s net assets at their estimated fair market values, with the fair market value of the purchase consideration in excess of the fair market value of IHI’s identifiable net assets treated as goodwill. The historical financial data presented in this Annual Report on Form 10-K includes the historical financial condition and operating results of T-3 prior to its merger with IHI. For the year 2001, the historical financial data also includes the two weeks of operations of the combined company from December 17, 2001 to December 31, 2001.

     As part of the merger with IHI, we acquired a non-energy subsidiary. Because the subsidiary’s operations were outside our strategic focus, at the time of the merger, we identified this operation as one to be sold. The sale was completed in July 2002.

     On December 18, 2001, our shares of common stock began trading on The Nasdaq National Market under the new symbol “TTES.” Immediately after the merger, First Reserve Fund VIII, L.P. (“First Reserve”) owned approximately 77% of our common shares, and collectively all of the former T-3 stockholders (including First Reserve) owned approximately 79% of our common shares, with the remaining 21% of our common shares being held by the stockholders of IHI immediately prior to the merger.

     Before the closing and as part of the merger, (1) IHI divested of substantially all of its non-energy-related subsidiaries, (2) SJMB, L.P. converted $3.6 million of its IHI debt into shares of IHI common stock, (3) First Reserve converted $25.3 million of its former T-3 debt into shares of former T-3 common stock, and (4) First Reserve purchased an additional $46.8 million in shares of former T-3 common stock. In addition, the combined company completed a refinancing of its senior debt simultaneously with the closing of the merger. Under the terms of the merger, all but two of IHI’s then existing directors and all of its officers resigned their positions with the

13

combined company, and the management of former T-3 and six of former T-3’s director designees assumed the management and director duties for the combined company.

     In mid-year 2003, we hired a new management team that undertook an in-depth evaluation of our businesses and products with the purpose of maximizing stockholder value and positioning T-3 for future growth.

     During the fourth quarter of 2003, we committed to a formal plan to sell certain non-core assets within our Products segment. The sale of these assets was consummated in February 2004. The assets sold comprised substantially all of the assets of LSS – Lone Star – Houston Inc., Bolt Manufacturing Co., Inc. (d/b/a Walker Bolt Manufacturing Company) and WHIR Acquisition, Inc. (d/b/a Ameritech Manufacturing), (collectively, “the Fastener Businesses”). The Fastener Businesses primarily manufactured and distributed a broad line of standard and metric fasteners, in addition to manufacturing specialty fasteners and parts in small quantities for the commercial and aerospace industries as well as the military.

     Pursuant to the asset sale agreement, the buyer purchased all of the assets of the Fastener Businesses for a purchase price of $7.4 million, subject to a working capital adjustment after closing. We received $7.4 million in cash on February 23, 2004, which was immediately used to pay down our Wells Fargo term loan. In addition, we received two promissory notes in the amount of $0.2 million and $0.1 million, respectively. We did not record these two notes as their ultimate collection is contingent upon the occurrence of certain specified events which management believes are not probable of occurring.

     At December 31, 2003, the assets held for sale constituted a business and thus were classified as discontinued operations. Goodwill was allocated based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. For the year ended December 31, 2003, we recorded a loss of $11.3 million, net of tax, based upon a pending sales contract. Included in this loss was a goodwill impairment charge of $10.2 million and a long-lived asset impairment of $2.3 million.

     In the fourth quarter of 2003, our management completed its evaluation of each of our business segment’s product lines and service revenues for expected future performance and developed a new strategy and operating plan. Management based its expectations for T-3’s future performance on then current market conditions and on each of the business segment’s potential to maximize the value of the overall business by either expansion or growth of product lines and services, internally and through acquisitions, and in both the domestic and international markets.

     We reevaluated our expectations for the earnings, growth and contribution of the Products segment for 2004 and concluded that the segment would continue to contribute positively to T-3’s consolidated results of operations and cash flows but at a much reduced level. This determination took into account the continued softness in the Gulf of Mexico upstream and downstream oil and gas industry as well as lower revenues generated from larger fabricated equipment and component sales. In addition, we expected lower revenues from the electrical motor and generator repair and storage business. As a result, we recorded an impairment charge of $16.2 million, of which $1.0 million is attributable to the Company’s custom coatings business, during the fourth quarter of 2003 on goodwill attributable to our Products segment.

     During the second quarter of 2004, we again reevaluated our expectations for the earnings, growth and contribution of the Products segment. As part of this reevaluation, we decided to sell substantially all of the remaining assets within our Products segment, except for certain assets related to the Company’s custom coatings business, along with certain assets within our Pressure Control segment. A portion of the remaining Products segment assets were sold during May and June 2004 for $1.0 million and $0.4 million, respectively. The assets sold comprised substantially all of the assets of one of the two operating divisions of Moores Pump & Services, Inc., known as “Moores Machine Shop” and TPS Total Power Systems, Inc. (“TPS”). Moores Machine Shop primarily is engaged in the manufacture and production of downhole and completion products and equipment. TPS distributes new electric motors; provides complete rewinding, repair and rebuilding for used AC/DC electric motors and generators; and repairs and manufactures used flood pumps and waste disposal pumps for governmental entities in Louisiana and Texas. The remaining assets of Moores Pump & Services, Inc. (“Moores Pump”) and Control Products of Louisiana, Inc. (“CPL”) were sold during the third quarter of 2004 for $0.6 million and $0.5 million,

14

respectively. Moores Pump is a pump distribution and remanufacturing business. CPL primarily repairs and manufactures control valves and related equipment. Accordingly, the results of operations of Moores Machine Shop, TPS, Moores Pump and CPL have been reported as discontinued operations.

     At June 30, 2004, Pressure Control goodwill was allocated based on the relative fair values of the portion of the reporting unit being disposed and the portion of the reporting unit remaining. This resulted in a goodwill impairment charge of $0.3 million during the second quarter of 2004, related to the assets being sold within our Pressure Control segment. In addition to the goodwill impairment charge, we recorded a $0.2 million charge to other intangible assets and a $2.4 million charge to tangible assets related to the Products and Pressure Control dispositions during the second quarter of 2004.

     During the second quarter of 2004, we also sold certain assets of the spray weld division of O&M Equipment, L.P. for cash of $0.3 million. These assets did not constitute a business; however, they did qualify as assets held for sale. Accordingly, they are presented as such on the December 31, 2003 consolidated balance sheet. The disposition of these assets resulted in a loss on sale of $50,000, which included a $150,000 write-down of other intangible assets. The results of operations are classified in income from continuing operations for the periods presented.

     On September 30, 2004, we entered into loan agreements to refinance our senior and subordinated credit facilities with our existing lenders. The proceeds from these credit facilities will be used to refinance debt, to finance acquisitions and for general corporate and working capital purposes.

     During October of 2004, we completed the purchase of Oilco for approximately $10.4 million. Oilco manufactures accumulators, remanufactures blowout preventors, performs field services on both accumulators and blowout preventors and manufactures rubber goods used in the oilwell control industry.

Historical Trends and Outlook

     The following table sets forth certain statistics that are reflective of recent historical market conditions:

     Demand for our products and services is cyclical and dependent upon activity in the oil and gas industry and the profitability, cash flow and willingness of oil and gas companies and drilling contractors to spend capital on the exploration, development and production of oil and gas reserves in the Gulf of Mexico and the United States Gulf Coast regions, where our products and services are primarily sold, and to a lesser degree, Canada. The level of exploration and production, especially in the Gulf of Mexico, is highly sensitive to current and projected oil and natural gas prices, which have historically been characterized by significant volatility. Over the last several years, the United States drilling rig count has fluctuated due to world economic and political trends that influence the supply and demand for energy, the price of oil and natural gas and the level of exploration and drilling. The United States drilling rig count increased steadily throughout 2003 and 2004. However, the average Gulf of Mexico rig count remained at relatively low levels throughout 2003 before a further decline during 2004, and the Canadian rig count increased throughout 2003 but remained relatively flat during 2004.

15

     Our revenue growth will continue to be heavily dependent upon the timing and strength of the recovery in the Gulf of Mexico market and our gains in market share outside the Gulf of Mexico. The extent and timing of any recovery in the Gulf of Mexico market and gains in market share outside the Gulf of Mexico are not predictable. As illustrated in the table above, the market price of oil and gas alone is not an indicator of a recovery in these markets. Many external factors, including world economic and political conditions, quotas established by OPEC (Organization of Petroleum Exporting Countries) and weather conditions, will influence the recovery and strength of the industry. Based on our assessment of external factors and our current levels of inquiry and quotation, we believe that activity levels will increase during 2005.

Results of Operations

     The following table sets forth certain operating statement data for each of our segments for each of the years presented (in thousands). Reclassifications have been made for discontinued operations to previously reported amounts to make them consistent with current presentation format:

Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

     Revenues. On a consolidated basis, revenues decreased $0.3 million, or 0.3%, in 2004 compared to 2003. Although United States drilling activity increased from year to year and oil and natural gas prices increased, revenues declined primarily as a result of the continued softness in the Gulf of Mexico rig count and increased pricing pressure in our Pressure Control segment. This decrease was offset by increased revenues from certain Pressure Control products and services resulting from an improved United States onshore rig count, the purchase of Oilco, and increased pipe and valve distribution sales.

16

     Revenues for the Pressure Control segment decreased $4.0 million, or 6%, in 2004 compared to 2003. The decrease was primarily attributable to the continued softness in the Gulf of Mexico drilling rig count and continued pricing pressure for substantially all of our products and services. This decrease was partially offset by increased revenues resulting from an improved United States onshore rig count and the purchase of Oilco during the fourth quarter of 2004.

     Revenues for the Distribution segment increased $3.7 million, or 10%, in 2004 compared to 2003 due to increased pipe and valve distribution sales.

     Cost of Revenues. On a consolidated basis, cost of revenues increased $0.2 million, or 0.3%, in 2004 compared to 2003. Gross profit as a percentage of revenues was 30% in 2004, the same as in 2003.

     Cost of revenues for the Pressure Control segment decreased $3.5 million, or 7%, in 2004 compared to 2003. The decrease is primarily a result of the decrease in revenues described above. Gross profit as a percentage of revenues was 33% in 2004 compared to 32% in 2003. Gross profit margin was higher during 2004 due to cost reduction strategies, including lower self-insured medical costs and slightly improved margins from some of our products and services resulting from an improved United States onshore rig count. This was partially offset by continued pricing pressure.

     Cost of revenues for the Distribution segment increased $3.7 million, or 13%, in 2004 compared to 2003, primarily due to the increase in revenues in 2004. Gross profit as a percentage of revenues was 24% in 2004 compared to 27% in 2003. Gross profit margin was lower in 2004 due to continued pricing pressure and the volume and mix of pipe and valve sales.

     Operating Expenses. On a consolidated basis, operating expenses decreased $2.3 million, or 9%, in 2004 compared to 2003. As a percentage of revenues, operating expenses were 22% in 2004 compared to 24% in 2003. Operating expenses decreased primarily due to cost reduction strategies, including lower self-insured medical costs and personnel reductions, and a goodwill impairment charge during 2003. This decrease was partially offset by expenses associated with the improvement of the Pressure Control segment’s engineering and technical sales support division, the purchase of Oilco during 2004, and the expansion of the Distribution segment.

     Operating expenses for the Pressure Control segment decreased $0.8 million, or 7%, in 2004 compared to 2003. As a percentage of revenues, operating expenses decreased from 16% in 2003 to 15% in 2004. The decrease was primarily the result of lower self-insured medical costs during 2004 and a goodwill impairment of $1.0 million during 2003. This decrease in 2004 was partially offset by the write-off of $0.2 million relating to other intangible assets associated with the disposition of certain spray welding assets, additional expenses associated with the improvement of our engineering and technical sales support division, and the purchase of Oilco during 2004.

     Operating expenses for the Distribution segment decreased $0.5 million, or 6%, in 2004 compared to 2003. As a percentage of revenues, operating expenses decreased from 22% in 2003 to 19% in 2004. This decrease is primarily due to cost reduction strategies, including lower self-insured medical costs, offset partially by costs associated with the expansion of the Distribution segment.

     Operating expenses for the Corporate operations decreased $1.0 million, or 16%, in 2004 compared to 2003. This was primarily attributable to cost reduction strategies and personnel reductions, offset partially by increased external reporting costs and consulting fees.

     Interest Expense. On a consolidated basis, interest expense decreased to $2.5 million in 2004 from $3.1 million in 2003, primarily as a result of lower debt levels and interest rates during 2004.

     Interest Income. Interest income was primarily generated from seller notes receivable that arose in conjunction with the sale by IHI of several business units prior to the merger with T-3.

     Write-off of Acquired Note Receivable. In 2003, we wrote-off a $3.5 million note receivable that was acquired in conjunction with the disposal by IHI of Beaird Industries, Inc. prior to the completion of IHI’s merger with T-3. During 2003, we were informed by the payor of the note of its inability to make payments and that its ongoing

17

refinancing efforts to date had been unsuccessful.

     Other (Income) Expense, net. Other (Income) Expense, net consists primarily of losses on sales of fixed assets during 2004. The decrease of $0.2 million from 2003 is primarily due to a $0.3 million charge recorded during 2003 related to a casualty loss at one of our operating facilities in August 2003.

     Income Taxes. Income tax expense for 2004 was $2.1 million as compared to $1.5 million in 2003. In 2004, the effective tax rate was 33% and was increased by the effect of non-deductible expenses, offset by a decrease in the valuation allowance on deferred tax assets, and state income taxes, net of the federal benefit provided. The effective tax rate was 361% in 2003 primarily due to the write-off of non-deductible goodwill and the effect of non-deductible expenses.

     Income (loss) from continuing operations. On a consolidated basis, income from continuing operations was $4.3 million in 2004 compared with a loss from continuing operations of $1.1 million in 2003 as a result of the foregoing factors.

     Discontinued operations. During the fourth quarter of 2003, we committed to a formal plan to sell certain non-core assets within our Products segment. The sale of these assets was consummated in February 2004. Goodwill was allocated based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. For the year ended December 31, 2003, we recorded a loss of $11.3 million, net of tax, based upon a pending sales contract. Included in this loss was a goodwill impairment charge of $10.2 million and a long-lived asset impairment of $2.3 million. Also during the fourth quarter of 2003, we reevaluated our expectations for the earnings, growth and contribution of the remaining assets within our Products segment. This resulted in an additional goodwill impairment charge of $15.2 million in 2003. We committed to formal plans to sell these remaining assets within our Products segment, along with certain assets within our Pressure Control segment, during the second quarter of 2004 and recorded a loss of $2.9 million. Included in this loss was a goodwill impairment charge of $0.3 million, a $0.2 million charge to other intangible assets and a $2.4 million charge to tangible assets. All of the above asset sales constitute businesses and thus their results of operations have been reported in discontinued operations for the periods presented.

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

     Revenues. On a consolidated basis, revenues increased $8.2 million, or 8%, in 2003 compared to 2002. This increase was attributable to an improved United States onshore rig count, increased market penetration for our pressure control products and services, and increased revenues in the Distribution segment resulting from several large customer projects.

     Revenues for the Pressure Control segment increased $6.3 million, or 10%, in 2003 compared to 2002. The increase in revenues was primarily attributable to the increased United States onshore rig count and a slight increase in market share for our pressure control products and services.

     Revenues for the Distribution segment increased $1.9 million, or 5%, in 2003 compared to 2002 due to several large customer projects. These large customer projects offset a slight decline in the volume of orders that typically comprise the revenue base due to the continued softness in activity in the Gulf of Mexico and continued pricing pressure for our products and services. Additionally, adverse weather in the Gulf of Mexico in late September 2002 contributed to lower revenues in 2002.

     Cost of Revenues. On a consolidated basis, cost of revenues increased $8.7 million, or 13%, in 2003 compared to 2002. Gross profit as a percentage of revenues was 30% in 2003 compared to 33% in 2002. Gross profit margin was lower on a consolidated basis in 2003 compared to 2002 because of continued pricing pressure for our products and services and increased insurance and self-insured medical costs.

     Cost of revenues for the Pressure Control segment increased $6.9 million, or 16%, in 2003 compared to 2002. The increase is primarily a result of the increase in revenues described above. Gross profit as a percentage of revenues was 32% in 2003 compared to 36% in 2002. The decrease in gross profit margin was due to pricing

18

pressure for our products and services, increased insurance and self-insured medical costs, a shift in product mix to lower margin items and the temporarily higher than normal manufacturing costs of one of our new manufactured pressure control products.

     Cost of revenues for the Distribution segment increased $1.8 million, or 7%, in 2003 compared to 2002, primarily due to the increase in revenues in 2003. Gross profit as a percentage of revenues was 27% in 2003 compared to 28% in 2002. Gross profit margin decreased primarily because of pricing pressure for our products, startup costs associated with the sale and distribution of a new valve automation product line and initial costs associated with new distribution facilities located in Houston and Beaumont, Texas.

     Operating Expenses. On a consolidated basis, operating expenses increased $2.1 million, or 9%, in 2003 compared to 2002. As a percentage of revenues, operating expenses were 24% in 2003 compared to 23% in 2002. The increase was primarily attributable to the increased revenues, a goodwill impairment charge, and costs associated with relocation and compensation expenses for new management and the recognition of severance payments to former management.

     Operating expenses for the Pressure Control segment increased $1.1 million, or 11%, in 2003 compared to 2002 primarily due to a goodwill impairment charge of $1.0 million related to the Company’s custom coatings business.

     Operating expenses for the Distribution segment increased $0.3 million, or 3%, in 2003 compared to 2002. As a percentage of revenues, operating expenses remained at 22% in both 2003 and 2002.

     Operating expenses for Corporate operations increased $0.7 million, or 13%, in 2003 compared to 2002. This was primarily attributable to an increase in costs associated with relocation and compensation expenses for new management, the recognition of severance payments to former management, the integration of the former IHI operating units into T-3, and professional fees.

     Interest Expense. On a consolidated basis, interest expense remained at $3.1 million in both 2003 and 2002.

     Interest Income. Interest income was generated from seller notes receivable that arose in conjunction with the sale by IHI of several business units prior to the merger with T-3. Interest income decreased in 2003 due to the write-off of the note receivable from Beaird Industries, Inc.

     Write-off of Acquired Note Receivable. In 2003, we wrote-off a $3.5 million note receivable that was acquired in conjunction with the disposal by IHI of Beaird Industries, Inc. prior to the completion of IHI’s merger with T-3. During 2003, we were informed by the payor of the note of its inability to make payments and that its ongoing refinancing efforts to date had been unsuccessful. Prior to 2003, we had received interest payments in accordance with the specified terms of the note.

     Other (Income) Expense, net. Other (Income) Expense, net consists primarily of a $0.3 million charge related to a casualty loss at one of our operating facilities in August 2003.

     Income Taxes. Income tax expense for 2003 was $1.5 million as compared to $2.9 million in 2002. Income tax expense in 2003 is attributable to the write-off of non-deductible goodwill and other non-deductible expenses. In 2002, the effective tax rate was 40%, which was caused by the effect of non-deductible expenses and state income taxes, net of the Federal benefit provided.

     Income (loss) from continuing operations. On a consolidated basis, loss from continuing operations was $1.1 million in 2003 compared with income from continuing operations of $4.4 million in 2002 as a result of the foregoing factors.

     Discontinued operations. During the fourth quarter of 2003, we committed to a formal plan to sell certain non-core assets within our Products segment. The sale of these assets was consummated in February 2004. Goodwill was allocated based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. For the year ended December 31, 2003, we recorded a loss of $11.3 million, net of tax, based upon a pending sales contract. Included in this loss was a goodwill impairment charge of $10.2 million

19

and a long-lived asset impairment of $2.3 million. Also during the fourth quarter of 2003, we reevaluated our expectations for the earnings, growth and contribution of the remaining assets within our Products segment. This resulted in an additional goodwill impairment charge of $15.2 million. We committed to formal plans to sell these remaining assets within our Products segment, along with certain assets within our Pressure Control segment, during the second quarter of 2004. All of the above asset sales constitute businesses and thus their results of operations have been reported in discontinued operations for the periods presented.

Liquidity and Capital Resources

     At December 31, 2004, we had working capital of $27.2 million, current maturities of long-term debt of $0.1 million, long-term debt of $18.8 million and stockholders’ equity of $104.3 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 debt arrangements and issuances of equity securities. We have historically financed acquisitions through bank borrowings, sales of equity (primarily to affiliates of First Reserve Corporation) and internally generated funds.

     Net Cash Provided by Operating Activities. For 2004, net cash provided by operating activities was $7.6 million compared to $7.0 million in 2003 and $5.9 million in 2002. The increase of $0.6 million for 2004 was primarily attributable to decreased payments on accounts payable and increased collections of accounts receivable, partially offset by increases in certain inventories to take advantage of favorable pricing and expansion of the Distribution segment. Cash provided by operations increased in 2003 as compared to 2002 primarily attributable to payment of certain accrued expenses during 2002, partially offset by increased payments on accounts payable during 2003.

     Net Cash Used in Investing Activities. Principal uses of cash are for capital expenditures and acquisitions. For 2004, 2003 and 2002, we made capital expenditures of approximately $2.5 million, $1.0 million and $4.8 million, respectively. Cash consideration paid for acquisitions was $10.4 million in 2004 (see Note 2 to our consolidated financial statements). There were no acquisitions in 2003 and 2002.

     Net Cash Used in Financing Activities. Sources of cash from financing activities include borrowings under our credit facilities and sales of equity securities. Financing activities used $6.4 million, $5.8 million and $9.3 million of net cash in 2004, 2003 and 2002, respectively. We had proceeds from issuance of long-term debt of $3.0 million in 2004 and no such proceeds in 2003 or 2002. We made principal payments on long-term debt of $12.3 million, $3.5 million, and $5.6 million in 2004, 2003 and 2002, respectively.

     Proceeds from sales of our common stock were $10.0 million in March 2002, arising from the sale of 1.0 million shares of common stock at $10 per share to our largest stockholder, First Reserve.

     Principal Debt Instruments. As of December 31, 2004, we had an aggregate of $18.9 million borrowed under our senior credit facility and other bank financings. As of December 31, 2004, as a result of the lesser of the leverage ratio covenant and the senior leverage ratio covenant, as defined in the credit agreement for our senior credit facility, our availability under our revolving credit facility was limited to $32.0 million.

     On September 30, 2004, we amended and restated our senior credit facility and subordinated term loan. The amended and restated senior credit facility provides for a $50 million revolving line of credit, maturing September 30, 2007, that we can increase by up to $25 million (not to exceed a total commitment of $75 million). The senior credit facility consists of a revolving credit facility that includes a swing line subfacility up to $5 million and a letter of credit subfacility up to $5 million. We have capitalized $0.6 million of deferred loan costs in connection with the amended and restated senior credit facility. We intend to use the proceeds from any advances made pursuant to the senior credit facility to refinance indebtedness, for working capital purposes, capital expenditures, and to fund acquisitions. The applicable interest rate of the senior credit facility is governed by our leverage ratio and ranges from prime plus 0.75% or LIBOR plus 1.75% to prime plus 2.00% or LIBOR plus 3.00%. At December 31, 2004, the senior credit facility bore interest at 6.00%, with interest payable quarterly. 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 provides, among other covenants and

20

restrictions, that we comply with certain financial covenants, including a limitation on capital expenditures, a minimum fixed charge coverage ratio, a minimum consolidated net worth, maximum leverage and senior leverage ratios. As of December 31, 2004, we were in compliance with the covenants under the senior credit facility. The senior credit facility is collateralized by substantially all of our assets. The senior credit facility’s weighted average interest rate, including amortization of loan costs, for the year ended December 31, 2004 was 32.42%, due primarily to the amount of the deferred loan costs amortization. The weighted average interest rate, excluding amortization of deferred loan costs, was 9.80%.

     The amended and restated subordinated term loan increased our $12 million subordinated term loan with an additional advance of $3 million. We have capitalized $0.3 million of deferred loan costs in connection with the amended and restated subordinated term loan. The subordinated term loan bears interest at a fixed rate of 10% per annum and matures on September 30, 2008. The effective interest rate, including amortization of loan costs, is 10.72%. The effective interest rate, excluding amortization of deferred loan costs, is 9.79%. The subordinated term loan provides, among other restrictions, that we comply with certain financial covenants, including a limitation on capital expenditures, a minimum fixed charge coverage ratio, a minimum consolidated net worth, maximum leverage and senior leverage ratios. Also, we are not permitted to make principal payments on the subordinated term loan while the senior credit facility is outstanding. As of December 31, 2004, we were in compliance with the covenants under the subordinated term loan. The subordinated term loan is collateralized by a second lien on substantially all of our assets.

     Prior to the amended and restated senior credit facility, on December 17, 2001, we entered into a senior credit facility with Wells Fargo, N.A. and General Electric Capital Corporation maturing December 17, 2004. Concurrently, we entered into a $12.0 million subordinated term loan with Wells Fargo Energy Capital, Inc. maturing December 17, 2005. The senior credit facility included a revolving credit facility of the lesser of a defined borrowing base (based upon 85% of eligible accounts receivable and 50% of eligible inventory) or $25.0 million, a term loan of $16.5 million and an optional facility for up to an additional $30.0 million in the form of a revolving credit commitment for future acquisitions based upon specific criteria. The senior credit facility’s term loan was payable in equal quarterly installments of $0.8 million. The applicable interest rate of the senior credit facility was governed by our trailing-twelve-month funded debt-to-EBITDA ratio and ranged from prime plus 1.25% or LIBOR plus 2.25% to prime plus 2.00% or LIBOR plus 3.00%.

     The subordinated term loan bore interest at a fixed rate of 9.50% with interest payable quarterly. The principal balance was due in full on December 17, 2005.

     We believe that cash generated from operations and amounts available under our amended and restated senior credit facility and from other sources of debt will be sufficient to fund existing operations, working capital needs, capital expenditure requirements and financing obligations. We also believe any significant increase in capital expenditures caused by any need to increase manufacturing capacity can be funded from operations or through debt financing.

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

     A summary of our outstanding contractual obligations and other commercial commitments at December 31, 2004 is as follows (in thousands):

21

Related Parties

     We have transactions in the normal course of business with certain related parties. Except as noted below, management believes these transactions were made at the prevailing market rates or terms.

     On March 27, 2002, we sold 1.0 million shares of our common stock at $10 per share to our largest stockholder, First Reserve. The $10 per share price was at a premium to our then recent trading history. Our common stock closed at $9.30 per share on March 19, 2002.

     Prior to the merger of T-3 and IHI, IHI sold one of its subsidiaries to an entity controlled by Don Carlin and Robert Cone, and IHI received a $3.5 million note receivable from the former subsidiary as part of its purchase price. Mr. Carlin is a former director, and Mr. Cone is a former executive officer and director of the Company. As more fully described in Note 4 to our consolidated financial statements, we determined in 2003 that this note receivable was uncollectible and wrote off $3.5 million as other expense.

     During the second and third quarters of 2004, we sold the assets of Moores Machine Shop and Moores Pump for $1.0 million and $0.6 million, respectively, to former employees of the Company. The terms of the transactions were negotiated on an arms-length basis. These dispositions are discussed further in Note 2 to our consolidated financial statements.

     During the fourth quarter of 2004, we completed the purchase of Oilco for approximately $10.4 million. The former owner of Oilco is now an employee of the Company. The terms of the transaction were negotiated on an arms-length basis. This purchase is discussed further in Note 2 to our consolidated financial statements.

     We lease certain buildings under noncancelable operating leases from related parties. Lease commitments under these leases are approximately $0.2 million for 2005. Rent expense to related parties was $0.2 million, $0.2 million and $0.8 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Inflation

     Although we believe that inflation has not had any material effect on operating results, our business may be affected by inflation in the future.

Seasonality

     Weather and natural phenomena can temporarily affect the sale and performance of our products and services. We believe that our business is not subject to any significant seasonal factors, and do not anticipate significant seasonality in the future.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of operation is based upon our consolidated financial statements. We prepare these financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates; however, actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1 to the consolidated financial statements included elsewhere within this Annual Report on Form 10-K. The accounting policies we believe are the most critical to our reporting of our financial condition and results of operations and require management’s most difficult, subjective or complex judgments and estimates are described below.

22

     Accounts Receivable

     Accounts receivable are stated at the historical carrying amount, net of write-offs and the allowance for doubtful accounts. Our receivables are exposed to concentrations of credit risk since a majority of our business is conducted with companies in the oil and gas, petrochemical, chemical and petroleum refining industries in the Gulf Coast region and Canada. We continually monitor collections and evaluate the financial strength of our customers but do not require collateral to support our domestic customer receivables. We may require collateral to support our international customer receivables, if any. We provide an allowance for doubtful accounts for potential collection issues in addition to reserves for specific accounts receivable where collection is no longer probable. We cannot assure you that we will continue to experience the same credit loss rates we have in the past or that our losses will not exceed the amount reserved.

     Inventory

     We regularly review inventory quantities on hand and record a provision for excess and slow moving inventory to write down the recorded cost of inventory to its fair market value. This analysis is based primarily on the length of time the item has remained in inventory and management’s consideration of current and expected market conditions. However, a significant decrease in demand and a further weakening of market conditions could result in further writedowns in inventory carrying values and charges to earnings.

     Long-Lived Assets

     Long-lived assets to be held and used by us are reviewed to determine whether any events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Long-lived assets include property, plant and equipment and definite-lived intangibles. For long-lived assets to be held and used, we base our evaluation on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate the carrying amount of the asset may not be recoverable, we determine whether an impairment has occurred through the use of an undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist. The undiscounted cash flow analysis consists of estimating the future cash flows that are directly associated with and expected to arise from the use and eventual disposition of the asset over its remaining useful life. These cash flows are inherently subjective and require significant estimates based upon historical experience and future expectations such as budgets and internal projections. If the undiscounted cash flows do not exceed the carrying value of the long-lived asset, an impairment has occurred, and we recognize a loss for the difference between the carrying amount and the estimated fair value of the asset. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, is based on an estimate of discounted cash flows. For the years ended December 31, 2004, 2003 and 2002, no significant impairment has occurred for assets of continuing operations.

     Goodwill and Other Intangible Assets

     Goodwill represents the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses and represents a significant portion of our assets. Identifiable intangible assets acquired in business combinations are recorded based upon fair market value at the date of acquisition.

     Effective January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” This standard changes the accounting for goodwill and certain other intangible assets from an amortization method to an impairment only approach. The standard also requires a reassessment of the useful lives of identifiable intangible assets other than goodwill and at least an annual test for impairment of goodwill and intangibles with indefinite lives.

     During 2002, we completed the transitional goodwill and indefinite life intangibles impairment tests as well as the annual impairment tests required by SFAS No. 142. During 2002, our calculations indicated the fair value of each reporting unit exceeded its carrying amount and, accordingly, goodwill and indefinite life intangibles were not impaired. Our annual tests of impairment of goodwill and indefinite life intangibles are performed as of December

23

31. The fair values of our reporting units were determined based on the reporting units’ projected discounted cash flow and publicly traded company multiples and acquisition multiples of comparable businesses.

     In mid-year 2003, we hired a new management team that undertook an in-depth evaluation of our businesses and products with the purpose of maximizing stockholder value and positioning T-3 for future growth.

     In the fourth quarter of 2003, our management completed its evaluation of each of our business segment’s product lines and service revenues for expected future performance and developed a new strategy and operating plan. Management based its expectations for T-3’s future performance on then current market conditions and on each of the business segment’s potential to maximize the value of the overall business by either expansion or growth of product lines and services, internally and through acquisitions, and in both the domestic and international markets.

     During the fourth quarter of 2003, we committed to a formal plan to sell certain non-core assets within our Products segment. At December 31, 2003, the assets held for sale constituted a business and thus were classified as discontinued operations. Goodwill was allocated based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. For the year ended December 31, 2003, we recorded a goodwill impairment charge of $10.2 million related to these assets being disposed of.

     In connection with the disposition of these certain non-core assets, we reevaluated our expectations for the earnings, growth and contribution of the Products segment for 2004 and concluded that the segment would continue to contribute positively to T-3’s consolidated results of operations and cash flows but at a much reduced level. This determination took into account continued softness in the Gulf of Mexico upstream and downstream oil and gas industry as well as lower revenues generated from larger fabricated equipment and component sales. In addition, we expected lower revenues from the electrical motor and generator repair and storage business.

     Accordingly, at December 31, 2003, we assessed the realizability of the Company’s recorded goodwill and other intangibles in accordance with SFAS No. 142. Our analysis indicated that goodwill was impaired for the remaining businesses within the Products segment as their carrying value was greater than fair value. We then performed a discounted cash flow analysis and used other market methods to estimate the fair value of the assets and liabilities other than goodwill and intangibles. This assessment indicated that goodwill of $16.2 million, of which $1.0 million is attributable to the Company’s custom coatings business, was impaired.

     During the second quarter of 2004, we again reevaluated our expectations for the earnings, growth and contribution of the Products segment. As part of this reevaluation, we decided to sell substantially all of the remaining assets within our Products segment, except for certain assets related to the Company’s custom coatings business, along with certain assets within our Pressure Control segment. Thus, at June 30, 2004, Pressure Control goodwill was allocated based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. This resulted in a goodwill impairment charge of $0.3 million in discontinued operations during the second quarter of 2004, related to the assets being sold within our Pressure Control segment. Due to the sale of substantially all of the assets of our Products segment and since our custom coatings business is insignificant to the consolidated results of our Company and also has similar economic characteristics, customers and products to our Pressure Control segment, we realigned our operating segments during June 2004. The three historical reporting segments of Pressure Control, Products and Distribution now operate under two reporting segments: Pressure Control and Distribution. Accordingly, all historical segment results reflect the new operating structure.

     At December 31, 2004, we completed the annual impairment test required by SFAS No. 142. Our calculations indicated the fair value of each reporting unit exceeded its carrying amount and, accordingly, goodwill and indefinite life intangibles were not impaired. The fair values of our reporting units were determined based on the reporting units’ projected discounted cash flow and publicly traded company multiples and acquisition multiples of comparable businesses. Certain estimates and judgments are required in our fair value calculations. We have determined no impairment exists; however, if for any reason the fair value of our goodwill or indefinite life intangible assets declines below the carrying value in the future, we may incur charges for the impairment. We will

24

continue to test on a consistent measurement date unless events occur or circumstances change between annual impairment tests that would more likely than not reduce fair value of a reporting unit below its carrying value.

     Self Insurance

     We are self-insured up to certain levels for our group medical coverage. The amounts in excess of the self-insured levels are fully insured, up to a limit. Liabilities associated with these risks are estimated by considering historical claims experience. Although we believe adequate reserves have been provided for expected liabilities arising from our self-insured obligations, projections of future losses are inherently uncertain, and it is possible that our estimates of these liabilities will change over the near term as circumstances develop.

     Income Taxes

     We provide for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” This standard takes into account the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. Our effective tax rates for 2004, 2003 and 2002 were 33%, 361% and 40%, respectively. We operate in a number of domestic tax jurisdictions and certain foreign tax jurisdictions under various legal forms. As a result, we are subject to domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.

     We record a valuation allowance to reduce the carrying value of our deferred tax assets when it is more likely than not that some or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends upon the ability to generate sufficient taxable income of the appropriate character in the future. This requires us to use estimates and make assumptions regarding significant future events such as the taxability of entities operating in the various taxing jurisdictions. In evaluating our ability to recover our deferred tax assets, we consider all reasonably available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions, including the amount of future state, federal and international pretax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment. When the likelihood of the realization of existing deferred tax assets changes, adjustments to the valuation allowance are charged, in the period in which the determination is made, either to income or goodwill, depending upon when that portion of the valuation allowance was originally created. In addition, we have identified various domestic and international tax planning strategies we would implement, if necessary, to enable the realization of our deferred tax assets.

     As of December 31, 2004, our net deferred tax assets were $6.0 million excluding a related valuation allowance of $6.1 million. As of December 31, 2003, our net deferred tax assets were $6.3 million excluding a related valuation allowance of $6.5 million. In 2004, we recorded a net reduction of $0.4 million to our valuation allowance. This reduction is the result of a $0.5 million decrease in the valuation allowance to recognize a Federal deferred tax asset to the extent of Federal net deferred tax liabilities, partially offset by an increase in net operating loss carryforwards.

New Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks and rewards of ownership among their owners and other parties involved. The provisions of Interpretation No. 46 are applicable immediately to all variable interest entities created

25

after January 31, 2003 and require certain disclosures for all variable interest entities. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the Interpretation and to defer the effective date of implementation for certain entities created before January 31, 2003. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the Interpretation in financial statements for periods ending after March 14, 2004. The adoption of FIN 46 and FIN 46R did not have an effect on our consolidated financial statements for the years ended December 31, 2004, 2003 and 2002.

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB 43, Chapter 4”. SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This statement requires that abnormal amounts be recognized as current period charges in all circumstances. In addition, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. We do not believe the implementation of SFAS 151 will have a material impact on our financial statements.

     In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” Generally, the approach to accounting for share-based payments in SFAS 123(R); is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. SFAS 123(R) is effective at the beginning of the first interim or annual period beginning after June 15, 2005. We are currently evaluating the impact this will have, but do not expect it to have a material impact on our financial condition, results of operations and cash flows.

     In December 2004, the FASB issued FASB Staff Position No. 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (“FSP 109-1”) and FASB Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”). FSP 109-1 clarifies the guidance in SFAS No. 109 and provides that the new deduction for qualified domestic production activities under the American Jobs Creation Act of 2004 (the “Act”) should be accounted for as a special deduction under SFAS 109, not as a tax-rate reduction, because the deduction is contingent on performing activities identified in the Act. FSP 109-2 addresses the effect of the Act’s one-time deduction for qualifying repatriations of foreign earnings. FSP 109-2 allows additional time for companies to determine whether any foreign earnings will be repatriated under the Act’s one-time deduction for repatriated earnings and how the Act affects whether undistributed earnings continue to qualify for SFAS 109’s exception from recognizing deferred tax liabilities. FSP 109-1 and FSP 109-2 were both effective upon issuance. We are currently evaluating the impact the adoption of FSP 109-1 and FSP 109-2 will have on our financial position, results of operations or cash flows.

Item 7A. 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 revolving credit facility and certain of our term debt. As of December 31, 2004, our revolving credit facility had a principal balance of $3.8 million and our variable long-term debt had a principal balance of $15.0 million, with interest rates that float with prime or LIBOR. A 1.0% increase in interest rates could result in a $0.04 million annual increase in interest expense on the existing principal balances.

     We are also exposed to some market risk due to the foreign currency exchange rates related to our Canadian operations. We conduct our Canadian business in the 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 consolidated balance sheet. Less than 1% of our net assets are impacted by changes in foreign currency in relation to the U.S. dollar. We recorded a $0.4 million adjustment to our equity

26

account for the year ended December 31, 2004 to reflect the net impact of the change in foreign currency exchange rate.

Item 8. Financial Statements and Supplementary Data

     The financial statements and supplementary data required hereunder are included in this report as set forth in the “Index to Consolidated Financial Statements” on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     As of the end of the period covered by this report, our management carried out an evaluation, with the participation of our principal executive officer (the “CEO”) and our principal financial officer (the “Corporate Controller”), of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934. Based on those evaluations, the CEO and Corporate Controller 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 Securities Exchange Act of 1934 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 the CEO and Corporate Controller, as appropriate to allow timely decisions regarding required disclosure.

Item 9B. Other Information

None

27

PART III

Item 10. Directors and Executive Officers of the Registrant

     Information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement for the 2005 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 11. Executive Compensation

     Information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement for the 2005 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement for the 2005 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions

     Information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement for the 2005 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 14. Principal Accounting Fees and Services

     Information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement for the 2005 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

28

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	The following documents are filed as part of this report:

	1.	Financial Statements
		See index to consolidated financial statements set forth on page F-1.
	2.	Financial Statement Schedules
		None
	3.	Exhibits
		See the Exhibit Index appearing on page EX-1.

29

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 30^th day of March, 2005.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 30^th day of March, 2005.

30

T-3 ENERGY SERVICES, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
     T-3 Energy Services, Inc.:

     We have audited the accompanying consolidated balance sheets of T-3 Energy Services, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of T-3 Energy Services, Inc. and Subsidiaries, at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

Houston, Texas
March 28, 2005

F-2

T-3 ENERGY SERVICES, INC., AND SUBSIDIARIES

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

F-3

T-3 ENERGY SERVICES, INC., AND SUBSIDIARIES

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

F-4

T-3 ENERGY SERVICES, INC., AND SUBSIDIARIES

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

F-5

T-3 ENERGY SERVICES, INC., AND SUBSIDIARIES

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

F-6

T-3 ENERGY SERVICES, INC., AND SUBSIDIARIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of T-3 Energy Services, Inc., and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated.

Cash and Cash Equivalents

     The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2004 and 2003, there were no cash equivalents. At December 31, 2003, the Company had approximately $102,000 in restricted cash arising from insurance proceeds held in escrow pending landlord approval of repairs to a leased facility. This restricted cash was released during 2004.

Fair Value of Financial Instruments

     The carrying amounts of cash and cash equivalents, accounts receivable, prepaids and other current assets, accounts payable and accrued expenses and other approximate their respective fair values because of the short maturities of those instruments.

     Long term notes receivable, including its current portion, are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. The carrying amounts of these notes receivable closely approximate their fair values.

     The fair value of long-term debt, including current maturities, is estimated based upon quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same maturities. The carrying amounts of these long-term debt instruments closely approximate their fair values.

     Other long-term liabilities consist primarily of deferred payments for which cost approximates fair value.

Accounts Receivable

     Accounts receivable are stated at the historical carrying amount, net of write-offs and the allowance for doubtful accounts. The Company’s receivables are exposed to concentrations of credit risk since its business is primarily conducted with companies in the oil and gas, petrochemical, chemical and petroleum refining industries in the Gulf Coast region and Canada. The Company continually monitors collections and evaluates the financial strength of its customers but does not require collateral to support its domestic customer receivables. The Company may require collateral to support its international customer receivables. The Company provides an allowance for doubtful accounts for potential collection issues in addition to reserves for specific accounts receivable where collection is no longer probable, as presented in the table below (dollars in thousands):