UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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

For the Quarterly Period ended September 30, 2004

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

For the Transition Period from ___________ to ___________

Commission file number: 000-19580

T-3 ENERGY SERVICES, INC.

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

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

     At November 3, 2004, the registrant had 10,581,986 shares of common stock outstanding.

TABLE OF CONTENTS

FORM 10-Q

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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except for share amounts)

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

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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands except per share amounts)

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

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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

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

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T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. These financial statements include the accounts of T-3 Energy Services, Inc. and its subsidiaries (“T-3” or the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2004, are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes to reflect discontinued operations and to make them consistent with the current presentation format.

Stock-Based Compensation

     At September 30, 2004, the Company had a stock option plan, which is described more fully in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The Company accounts for that plan under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” to stock-based employee plans (dollars in thousands, except per share data):

     For the purpose of estimating the fair value disclosures above, the fair value of each stock option has been estimated on the grant date with a Black-Scholes option pricing model. The following assumptions for the three months ended September 30, 2004 and 2003 were computed on a weighted average basis: risk-free interest rate of 4.12% and 3.87%, respectively, expected volatility of 42.44% and 43.21%, respectively, expected life of 4 years for each period and no expected dividends. The following assumptions for the nine months ended

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September 30, 2004 and 2003 were computed on a weighted average basis: risk-free interest rate of 4.12% and 3.80%, respectively, expected volatility of 42.44% and 43.44%, respectively, expected life of 4 years for each period and no expected dividends. The effects of applying SFAS No. 123 may not be indicative of future amounts since additional future awards are anticipated and the estimation of values involves subjective assumptions that may vary materially as a result of actual events.

Write-down of Acquired Note Receivable

     Prior to the merger of the Company and Industrial Holdings, Inc. (“IHI”), IHI sold a subsidiary, Beaird Industries Inc. (“Beaird”), to an entity controlled by Don Carlin and Robert Cone, and IHI received a $3.5 million promissory note from the former subsidiary as the purchase price. Mr. Carlin is a former director, and Mr. Cone is a former executive officer and director of the Company. During the first quarter of 2003, the Company was informed by Beaird of its inability to make timely interest payments and that efforts to restructure its debt obligations had to date been unsuccessful. Accordingly, the Company wrote-down approximately 50% of the note, because management believed that the note’s net realizable value was approximately $1.7 million. In the fourth quarter of 2003, the Company learned that efforts to refinance Beaird had failed, and management determined that the note was uncollectible and wrote-off the remaining balance of the note. The first quarter of 2003 write-down amount appears in the Statement of Operations for the nine months ended September 30, 2003 under the caption “Write-down of acquired note receivable.”

2. DISCONTINUED OPERATIONS

     During the fourth quarter of 2003, the Company committed to a formal plan to sell certain non-core assets within its Products segment. The sale of these assets was consummated in February 2004. The Company received $7.4 million in cash at closing that was immediately used to pay down the term loan under its senior credit facility. 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 manufacture and distribute 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. At December 31, 2003, these assets constituted a business and thus were classified as discontinued operations. Accordingly, the Fastener Businesses’ results of operations for 2004 and 2003 have been reported as discontinued operations. See Note 2 to the Company’s consolidated financials statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for additional information.

     During the second quarter of 2004, the Company committed to a formal plan to sell substantially all of the remaining assets within its Products segment, except for certain assets related to the Company’s custom coatings business, along with certain assets within its Pressure Control segment. A portion of the remaining Products segment assets were sold during May and June 2004 and qualified as discontinued operations. The Company received $1.0 million and $0.4 million, respectively, in cash at the closings. 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, respectively. These assets constituted businesses and were classified as discontinued operations. 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 for 2004 and 2003 have been reported as discontinued operations in this Form 10-Q.

     T-3 assessed the realizability of the Company’s recorded goodwill and other intangibles at December 31, 2003. As a result, T-3 recorded a goodwill impairment charge during the fourth quarter of 2003 for the Products

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Segment 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 the Company’s Pressure Control segment. In addition to the goodwill impairment charge, the Company 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. Accordingly, these impairment charges have been reported as discontinued operations. T-3 reassessed the realizability of the Pressure Control segment’s recorded goodwill and other intangibles at June 30, 2004 in accordance with SFAS No. 142 and no further impairment was recorded.

     Net revenues from discontinued operations for the three months ended September 30, 2004 and 2003 were $0.3 million and $9.0 million, respectively. For the same periods, loss before benefit for income taxes was $0.2 million and $0.4 million, respectively. Net revenues from discontinued operations for the nine months ended September 30, 2004 and 2003 were $9.1 million and $28.5 million, respectively. For the same periods, loss before benefit for income taxes was $3.9 million and $0.7 million, respectively.

3. ASSETS HELD FOR SALE

     During the second quarter of 2004, the Company 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 2004 and 2003.

4. INVENTORIES

     Inventories consist of the following (dollars in thousands):

5. DEBT

     On September 30, 2004, the Company amended and restated its senior credit facility and subordinated term loan (as defined). The amended and restated senior credit facility provides for a $50 million revolving line of credit that the Company can increase by up to $25 million (not to exceed a total commitment of $75 million) and matures September 30, 2007. 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. The Company has capitalized $0.4 million of deferred loan costs in connection with the amended and restated senior credit facility. The Company will 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 the Company’s leverage ratio and ranges from prime plus 0.75% or LIBOR plus 1.75% to prime plus 2.00% or LIBOR plus 3.00%. The Company is 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 restrictions, that the Company 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. The senior credit facility is collateralized by substantially all of the Company’s assets.

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     The amended and restated subordinated term loan increased the Company’s $12 million subordinated term loan with an additional advance of $3 million, which did not fund until October 2004. The Company has 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 subordinated term loan provides, among other restrictions, that the Company 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, the Company is not permitted to make principal payments on the subordinated term loan while the senior credit facility is outstanding. The subordinated term loan is collateralized by a second lien on substantially all of the Company’s assets.

6. NEWLY ISSUED ACCOUNTING STANDARDS

     In January 2003, the Financial Accounting Standards Board (“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 FIN 46 are applicable immediately to all variable interest entities created 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 (“SPEs”) are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have an impact on the Company’s consolidated financial statements. As of September 30, 2004, the Company had no variable interest entities and there was no effect on its consolidated balance sheet, statement of operations, and cash flows.

7. EARNINGS (LOSS) PER SHARE

     Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is the same as basic but includes dilutive stock options and warrants using the treasury stock method.

     The following tables reconcile the numerators and denominators of the basic and diluted per common share computations for net income (loss) for the three and nine months ended September 30, 2004 and 2003, as follows (in thousands except per share data):

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     For the three months ended September 30, 2004, there were 581,345 options and 517,862 warrants that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three months ended September 30, 2003, there were 636,537 options and 517,862 warrants that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.

     For the nine months ended September 30, 2004, there were 481,345 options and 517,862 warrants that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the nine months ended September 30, 2003, there were 536,537 options and 517,862 warrants that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.

8. REPORTABLE SEGMENTS

     The Company’s determination of reportable segments considers the strategic operating units under which the Company sells various types of products and services to various customers.

     The accounting policies of the segments are the same as those of the Company. The Company evaluates performance based on income from operations excluding certain corporate costs not allocated to the segments. Inter-segment revenues are not material. Substantially all revenues are from domestic sources and all assets are held in the United States. As discussed in Note 2, the Company sold substantially all of the remaining assets of its Products segment, except for certain assets related to the Company’s custom coatings business, and accordingly, their results of operations for 2004 and 2003 have been reported as discontinued operations. In June 2004, the Company realigned its operating segments due to the sale of substantially all of the assets of its Products reporting segment. 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 reporting segment, the three historical reporting segments of Pressure Control, Products and Distribution now operate under two reporting segments: Pressure Control and Distribution. Accordingly, all historical

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segment results reflect the new operating structure. Segment information for the three and nine months ended September 30, 2004 and 2003 is as follows: