COMFORT SYSTEMS USA INC, 10-Q, 1997-11-14

COMFORT SYSTEMS USA INC
10-Q, 1997-11-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

[ ] 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: 1-13011

COMFORT SYSTEMS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 76-0526487
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

THREE RIVERWAY
SUITE 200
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 830-9600

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 [X] No [ ]

The number of shares outstanding of the issuer's common stock, as of
November 13, 1997, was 23,925,978.

================================================================================
<PAGE>
COMFORT SYSTEMS USA, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997

PAGE
----
Part I -- Financial Information
Item 1 -- Financial Statements
COMFORT SYSTEMS USA, INC. PRO
FORMA COMBINED
Introduction to Pro Forma
Combined Statements of
Operations............... 1
Pro Forma Combined
Statements of
Operations............... 2
Notes to Pro Forma
Combined Statements of
Operations............... 3
COMFORT SYSTEMS USA, INC. AND
SUBSIDIARIES
Condensed Consolidated
Balance Sheets........... 4
Condensed Consolidated
Statements of
Operations............... 5
Condensed Consolidated
Statements of Cash
Flows.................... 6
Notes to Condensed
Consolidated Financial
Statements............... 7
Item 2 -- Management's Discussion
and Analysis of Financial
Condition and Results of
Operations........................ 11
Part II -- Other Information
Item 1 -- Legal Proceedings... 15
Item 2 -- Recent Sales of
Unregistered Securities....... 15
Item 6 -- Exhibits and Reports
on Form 8-K................... 15
Signature..................... 16

<PAGE>
COMFORT SYSTEMS USA, INC.
PART I, ITEM 1 -- FINANCIAL INFORMATION
GENERAL INFORMATION

INTRODUCTION TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS

Comfort Systems USA, Inc. ("Comfort Systems" and collectively with its
subsidiaries, the "Company") was founded in December 1996 to become a leading
national provider of heating, ventilation and air conditioning ("HVAC")
services, focusing primarily on the commercial and industrial markets.

On June 27, 1997, Comfort Systems completed the initial public offering
(the "Offering") of its common stock (the "Common Stock") and simultaneously
acquired in separate concurrent transactions twelve companies (collectively
referred to as the "Founding Companies") engaged in providing HVAC services.
The closing of the acquisitions of the Founding Companies and the Offering
occurred on July 2, 1997. For financial statement purposes, Comfort Systems has
been identified as the accounting acquirer. The acquisitions of the Founding
Companies have been accounted for using the purchase method of accounting.

Subsequent to June 30, 1997, and through September 30, 1997, the Company
acquired ten additional HVAC businesses (collectively with the Founding
Companies referred to as the "Acquisitions" or "Acquired Businesses"). Of
these additional businesses acquired, seven acquisitions were accounted for as
pooling-of-interests and are referred to herein as the "Pooled Companies." The
remaining businesses acquired were accounted for as purchases (the "Purchased
Companies"). The historical financial statements of the Company have been
retroactively restated to give effect to the operations of six of the seven
Pooled Companies (the "Restated Companies"). The one remaining Pooled Company
is not significant to prior historical periods and is included in the
consolidated results of the Company beginning on the date of acquisition.

The accompanying pro forma combined statements of operations of the Company
for the nine months ended September 30, 1997 and 1996, respectively, include the
combined operations of the Pooled Companies and the Founding Companies from
January 1, 1996, and the Purchased Companies from the date of their acquisition.

The Founding Companies, Pooled Companies and Purchased Companies have been
managed prior to their acquisitions as independent private companies. Therefore,
selling, general, and administrative expenses for the periods presented reflect
compensation and related benefits those owners received from their respective
businesses prior to acquisition and exclude the non-recurring non-cash
compensation charge of $11.6 million recorded by Comfort Systems in the first
quarter of 1997. Additional pro forma adjustments have been presented for the
purpose of reflecting net income as if the merger of the Founding Companies and
the acquisition of the Pooled Companies had occurred January 1, 1996. The pro
forma adjustments reflect (a) certain reductions in salaries and benefits to the
former owners of the Acquired Businesses which they agreed would take effect as
of the Acquisitions ("compensation differential") (b) pro forma compensation
expense of $430,000 for the six months ended June 30, 1997, to reflect the
ongoing salaries received by corporate management and the acquisition team as
though these salaries had been paid prior to the Offering in 1997, and (c)
interest expense on borrowings that would have been necessary to fund the S
Corporation Distributions if they had occurred at the beginning of each period
presented and (d) the reduction of the acquisition related costs incurred in the
acquisition of the Pooled Companies. In addition, an incremental tax provision
has been recorded as if all applicable entities had been subject to federal and
state income taxes.

Historical and pro forma interim periods results are not necessarily
indicative of future results because the Acquisitions were not under common
control or management. The results of the Company have historically been subject
to seasonal fluctuations. These pro forma combined statements of operations
should be read in conjunction with the additional information and the respective
financial statements and related notes of Comfort Systems and the Founding
Companies included in the Company's Registration Statement on Form S-1 (File No.
333-24021) (the "Registration Statement"), as amended, filed with the
Securities and Exchange Commission in connection with the Offering.

1
<PAGE>
COMFORT SYSTEMS USA, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1997
---------- ----------
REVENUES................................ $ 163,182 $ 187,306
COST OF SERVICES........................ 118,939 135,044
---------- ----------
Gross profit.................. 44,243 52,262
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 31,725 34,760
GOODWILL AND OTHER AMORTIZATION......... 2,622 2,631
ACQUISITION RELATED EXPENSES............ -- 170
---------- ----------
Operating Income.............. 9,896 14,701
OTHER INCOME (EXPENSE):
Interest income.................... 275 694
Interest expense................... (737) (1,057)
Other.............................. 136 81
---------- ----------
Other income (expense)........ (326) (282)
---------- ----------
INCOME BEFORE INCOME TAXES.............. 9,570 14,419
PROVISION FOR INCOME TAXES.............. 736 2,621
---------- ----------
NET INCOME.............................. $ 8,834 $ 11,798
========== ==========

PRO FORMA ADJUSTMENTS:
Income before income taxes......... $ 9,570 $ 14,419
Pro forma compensation
differential...................... 6,269 3,571
Pro forma interest expense on S
Corporation borrowings............ (579) (386)
Acquisition related expenses....... -- 170
Less: Pro forma provision for
income taxes...................... 6,867 7,593
---------- ----------
PRO FORMA NET INCOME.................... $ 8,393 $ 10,181
========== ==========
PRO FORMA NET INCOME PER SHARE.......... $ .41 $ .48
========== ==========
SHARES USED IN COMPUTING PRO FORMA NET
INCOME PER SHARE...................... 20,324 21,423
========== ==========

The accompanying notes are an integral part of these pro forma combined
statements of operations.

2
<PAGE>
COMFORT SYSTEMS USA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS

The computation of the pro forma net income per share for the nine months
ended September 30, 1996 and 1997, is based on 20,323,538 and 21,422,751
respectively, shares of Common Stock outstanding, which is calculated as follows
(in thousands):

NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Shares issued in consideration for
the Acquisitions of the Founding
Companies.......................... 9,721 9,721
Shares sold pursuant to the
Offering............................. 6,100 6,100
Shares held by Notre Capital Ventures
II, L.L.C............................ 2,970 2,970
Shares sold to management and
consultants.......................... 1,270 1,270
Shares issued in connection with the
Acquisitions of the Pooled
Companies.......................... 2,071 2,071
Shares issued in connection with the
underwriter's overallotment........ -- 272
Weighted average portion of shares
issued in connection with the
acquisition of the Purchased
Companies.......................... -- 4
Weighted average portion of shares
related to stock options under the
treasury stock method.............. -- 218
--------- ---------
Subtotal........................ 22,132 22,626
Less: Shares sold in the Offering
that were not used for the cash
portion of the Acquisitions........ 1,808 1,203
--------- ---------
Weighted average shares
outstanding.......................... 20,324 21,423
========= =========

3
<PAGE>
COMFORT SYSTEMS USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,187 $ 37,117
Accounts receivable............. 9,497 46,602
Less -- Allowance.......... 85 509
------------ -------------
Accounts receivable,
net.................. 9,412 46,093
Other receivables............... 239 1,261
Inventories..................... 923 5,559
Prepaid expenses and other...... 1,177 1,964
Costs and estimated earnings in
excess of billings.............. 1,231 7,907
------------ -------------
Total current
assets............... 14,169 99,901
PROPERTY AND EQUIPMENT, net.......... 2,181 8,601
GOODWILL, net........................ -- 140,781
OTHER NONCURRENT ASSETS.............. 42 1,322
------------ -------------
Total assets.......... $ 16,392 $ 250,605
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................ $ 1,537 $ 3,088
Accounts payable................ 3,769 14,896
Accrued compensation and
benefits........................ 535 3,475
Other accrued expenses.......... 843 4,432
Payables to
stockholder/affiliate........... -- 45
Billings in excess of costs and
estimated earnings.............. 544 4,538
Income taxes payable............ 224 3,371
Other........................... -- 594
------------ -------------
Total current
liabilities.......... 7,452 34,439
DEFERRED INCOME TAXES................ 348 26
LONG-TERM DEBT, NET OF CURRENT
MATURITIES......................... 1,126 20,615
PAYABLE TO STOCKHOLDER/AFFILIATE..... 220 184
OTHER LONG-TERM LIABILITIES.......... 76 76
------------ -------------
Total liabilities..... 9,222 55,340
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par,
5,000,000 shares authorized,
none issued and outstanding.... -- --
Common stock, $.01 par,
52,969,912 shares authorized,
2,192,366 and 23,176,674 shares
issued and outstanding,
respectively................... 22 232
Additional paid-in capital...... 23 195,012
Retained earnings............... 7,125 21
------------ -------------
Total stockholders'
equity............... 7,170 195,265
------------ -------------
Total liabilities and
stockholders'
equity............ $ 16,392 $ 250,605
============ =============

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

4
<PAGE>
COMFORT SYSTEMS USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1996 1997 1996 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES............................. $ 14,306 $ 69,640 $ 38,978 $ 100,406
COST OF SERVICES..................... 10,940 49,669 29,435 72,649
--------- --------- --------- ----------
Gross profit............... 3,366 19,971 9,543 27,757
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,327 11,987 6,689 28,886
GOODWILL AND OTHER AMORTIZATION...... -- 883 -- 883
ACQUISITION RELATED EXPENSES......... -- 170 -- 170
--------- --------- --------- ----------
Operating Income (Loss).... 1,039 6,931 2,854 (2,182)
OTHER INCOME (EXPENSE):
Interest income................. 15 494 33 527
Interest expense................ (46) (511) (148) (654)
Other........................... -- 9 5 (11)
--------- --------- --------- ----------
Other income (expense)..... (31) (8) (110) (138)
--------- --------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 1,008 6,923 2,744 (2,320)
PROVISION FOR INCOME TAXES........... 377 3,055 1,195 4,004
--------- --------- --------- ----------
NET INCOME (LOSS).................... $ 631 $ 3,868 $ 1,549 $ (6,324)
========= ========= ========= ==========
NET INCOME (LOSS) PER SHARE.......... $ .10 $ .16 $ .25 $ (0.51)
========= ========= ========= ==========
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER SHARE................... 6,190 23,611 6,190 12,356
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.

5
<PAGE>
COMFORT SYSTEMS USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1997
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 1,549 $ (6,324)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities --
Depreciation and amortization...... 440 1,928
Compensation expense related to
issuance of management shares..... -- 11,556
Deferred tax expense (benefit)..... 115 (339)
Loss (gain) on sale of property and
equipment......................... (5) 4
Current taxes on acquired S
corporations...................... 695 610
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable,
net...................... (1,877) (7,747)
Cost and estimated
earnings in excess of
billings on uncompleted
contracts................ 68 (2,258)
Inventories.............. 182 354
Prepaid expenses and
other current assets..... (451) 2,467
Other noncurrent
assets................... 12 (587)
Increase (decrease) in --
Accounts payable and
accrued liabilities...... 730 568
Billings in excess of
costs and estimated
earnings on uncompleted
contracts................ (298) 795
Other, net......................... 3 142
--------- ----------
Net cash provided by operating
activities................... 1,163 1,169
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment......................... (1,120) (1,621)
Proceeds from sales of property and
equipment......................... 24 167
Cash consideration paid for
Founding Companies net of cash
acquired.......................... -- (42,295)
Cash paid for business
acquisitions, net of cash
acquired.......................... -- (755)
--------- ----------
Net cash used in investing
activities................... (1,096) (44,504)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of treasury
stock............................. 65 --
Payments on purchases of treasury
stock............................. (18) --
Payments of long-term debt......... (2,064) (18,543)
Borrowings of long-term debt....... 2,403 18,957
S Corporation dividends paid by
certain Pooled Companies.......... (119) (1,024)
Proceeds from issuance of common
stock, net of offering costs...... -- 79,875
--------- ----------
Net cash provided by financing
activities................... 267 79,265
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 334 35,930
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 1,199 1,187
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 1,533 $ 37,117
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest...................... $ 101 $ 765
Income taxes.................. $ 7 $ 40

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

<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)

1. BASIS OF PRESENTATION:

Comfort Systems was formed in December 1996 to become a national provider
of HVAC services, focusing primarily on the commercial and industrial markets.
On June 27, 1997, Comfort Systems sold 6,100,000 shares of Common Stock to the
public at $13.00 per share. The net proceeds to the Company from the Offering
(after deduction underwriting commissions and Offering expenses) were $69.7
million. At the same time, Comfort Systems acquired the Founding Companies using
cash from the Offering of $45.3 million and 9,720,927 shares of Common Stock.
The closing of the acquisitions of the Founding Companies and the Offering
occurred on July 2, 1997.

Subsequent to the initial public offering and through September 30, 1997,
Comfort Systems has acquired ten additional companies engaged in providing HVAC
services. These acquisitions include seven Pooled Companies and three Purchased
Companies.

For financial statement purposes, Comfort Systems has been identified as
the accounting acquirer. Accordingly, the historical financial statements
represent those of Comfort Systems prior to the Acquisitions and the Offering.
The acquisitions of the Founding Companies and the Purchased Companies were
accounted for using the purchase method of accounting. The allocations of the
purchase prices to the assets acquired and liabilities assumed of these
companies have been recorded based on preliminary estimates of fair value and
may be changed as additional information becomes available. The historical
financial statements of the Company have been retroactively restated to reflect
the operations of Restated Companies. One of the Pooled Companies is not
significant to the presentation of historical periods and is included in the
consolidated results of the Company beginning on the date of acquisition.

The regulations for unaudited interim financial statements such as those in
this report allow certain information and footnotes required by generally
accepted accounting principles for year end financial statements to be excluded.

The Company believes all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and recurring
nature.

These interim statements should be read in conjunction with the pro forma
and historical financial statements and related notes included in the
Registration Statement.

The results of operations for interim periods are not necessarily
indicative of the results for the fiscal year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

There were no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to Note
2 of Notes to Financial Statements of Comfort Systems and each of the Founding
Companies included in the Company's Registration Statement.

7
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. BUSINESS COMBINATIONS:

POOLINGS

Since the Offering and prior to September 30, 1997, Comfort Systems
acquired the seven Pooled Companies under the pooling-of-interests method in
exchange for 2,071,227 shares of Common Stock. The results of operations of six
of the Pooled Companies, the Restated Companies are included in all periods
herein, while the results of operations of the other Pooled Company is included
from the effective acquisition date. The combined revenue and income before
income taxes of the six Restated Companies for the period prior to their
acquisition by the Company was as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................ $ 38,978 $ 46,626 $ 14,306 $ 15,770
Income before taxes..................... 2,744 3,734 1,008 1,369
</TABLE>
PURCHASES

Since the IPO and prior to September 30, 1997, the Company completed three
acquisitions accounted for as purchases. The aggregate consideration paid in
these transactions consisted of $1.0 million in cash and 129,673 shares of
Common Stock. The accompanying balance sheet as of September 30, 1997 includes
preliminary allocations of the respective purchase prices and is subject to
final adjustment. The preliminary allocations resulted in $2.1 million of
goodwill that is being amortized over 40 years. The pro forma effect of these
acquisitions on the Company's results of operations for the year ended December
31, 1996 and the nine months ended September 30, 1997 is not material.

ADDITIONAL ACQUISITIONS

Subsequent to September 30, 1997 and through October 17, 1997 the Company
completed seven additional acquisitions (the "Additional Acquisitions") for
approximately $6.7 million in cash, 315,386 shares of Common Stock and $3.1
million in subordinated convertible notes. Revenues from the businesses acquired
in the Additional Acquisitions have approximately $34 million of combined
annualized revenues. All of these acquisitions will be accounted for as purchase
transactions and the other acquisition will be accounted for as a
pooling-of-interests transaction.

4. LONG TERM OBLIGATIONS:

As of September 22, 1997, the Company entered into an amended and restated
credit agreement with Bank One, Texas, N.A. (the "Credit Facility"). The
Credit Facility provides the Company with an unsecured revolving line of credit
of $75 million. The Company has a choice of two interest rate options when
borrowing under the Credit Facility. Under one option, the interest rate is
determined based on the higher of the Federal Funds Rate plus one-half
percentage point or the bank's prime rate. An additional margin of zero to
one-quarter percentage point is then added to the higher of these two rates. The
additional margin depends on the ratio of the Company's debt to earnings before
interest, taxes, depreciation and amortization for the preceding twelve months
("EBITDA"). For purposes of this ratio, EBITDA may include the preceding
twelve months' results for any companies acquired during the last year. Under
the other interest rate option, borrowings bear interest based on designated
short-term Eurodollar rates (which generally approximate the London Interbank
Offered Rates or LIBOR, as published in major financial media) plus one to two
percentage points, again depending on the ratio of debt to EBITDA. In addition,
commitment fees of 0.125% to 0.375% per annum, also depending on the ratio of
debt to EBITDA, are payable on the unused portion of the line of credit. The
Credit Facility prohibits the payment of dividends by the Company and requires
the Company to comply with certain financial covenants. The Credit Facility
expires on July 2, 2000, at which time all amounts outstanding under the
facility are due.

8
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of September 30, 1997, the Company had borrowed $18.9 million under the
Credit Facility at an interest rate of approximately 6.7%. As of November 12,
1997, $16.3 million was outstanding under this facility.

Subsequent to September 30, 1997 and through October 17, 1997, the Company
issued $3.1 million in convertible subordinated notes (the "Notes") to former
owners of certain of the Additional Acquisitions as partial consideration of the
acquisition purchase price. The Notes bear interest, payable quarterly, at a
weighted average interest rate of 6.0 percent and are convertible by the holder
into shares of the Company's Common Stock at a weighted average price of $21.96
per share. The Notes are redeemable for cash or the Company's Common Stock at
any time after one year of issuance. The terms of the Notes require $0.3 million
of principal payments in 1999 and $2.8 million of principal payments in 2000.

5. EARNINGS PER SHARE:

For historical periods through September 30, 1997, Comfort Systems'
historical results of operations compared to its Common Stock result in earnings
per share amounts that are not meaningful.

The computation of net income per share for the three months and nine
months ended September 30, 1996 and 1997 is based on 6,189,935, and 23,610,512
and 6,189,935 and 12,355,863, respectively, shares of Common Stock outstanding,
which is calculated as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C>
Shares issued in consideration for
Acquisitions of Founding Companies.... -- 9,721 -- 3,431
Shares sold pursuant to the Offering.... -- 6,100 -- 2,120
Shares held by Notre Capital Ventures
II, L.L.C............................. 2,849 2,970 2,849 2,970
Shares sold to management and
consultants........................... 1,270 1,270 1,270 1,270
Shares issued in connection with the
Acquisitions of Pooled Companies...... 2,071 2,071 2,071 2,071
Shares issued in connection with the
underwriter's Overallotment........... -- 814 -- 272
Weighted average portion of shares
issued in connection with the
acquisition of the Purchased
Companies............................. -- 13 -- 4
Weighted average portion of shares
related to stock options under the
treasury stock method................. -- 652 -- 218
--------- --------- --------- ---------
Weighted average shares outstanding..... 6,190 23,611 6,190 12,356
========= ========= ========= =========
</TABLE>
Fully diluted net income per share is not materially different from primary
earnings per share for all periods presented.

6. INCOME TAXES:

Prior to the Acquisitions, certain Acquired Companies' stockholders were
taxed under the provisions of Subchapter S of the Internal Revenue Code. Under
these provisions, the stockholders paid income taxes on their proportionate
share of their companies' earnings. Because the stockholders were taxed
directly, their Acquired Companies paid no federal income tax and only certain
state income taxes. Beginning with the Acquisitions, these Acquired Companies
will pay federal corporate and state corporate income taxes.

9
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company intends to file a consolidated federal income tax return that
includes the operations of the Founding Companies for periods subsequent to the
acquisition date. The Acquired Companies will each file a "short period"
federal income tax return through their respective acquisition dates.

7. COMMITMENTS AND CONTINGENCIES:

The Company is involved in various legal proceedings that have arisen in
the ordinary course of business. The Company does not believe that any of these
proceedings will have a material adverse effect on the financial position or
results of operations of the Company.

8. NEW PRONOUNCEMENTS:

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share,"
which revises the calculations used in determining earning per share ("EPS").
The Company will adopt SFAS No. 128 effective December 15, 1997, and will
restate EPS for all periods presented. The Company anticipates that the amounts
reported for basic EPS for the unaudited nine months ended September 30,1996 and
1997 will be $.25 and $(.52), respectively, and that basic EPS for the unaudited
pro forma nine months ended September 30, 1996 and 1997 will be $.41 and $.48,
respectively. The Company anticipates that the amounts reported for diluted EPS
for the unaudited nine months ended September 30, 1996 and 1997 will be $.25 and
$(.51), respectively, and that diluted EPS for the unaudited pro forma nine
months ended September 30, 1996 and 1997 will be $.41 and $.48, respectively.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting of comprehensive income in a company's financial statements.
Comprehensive income includes all changes in a company's equity during the
period that result from transactions and other economic events other than
transactions with its stockholders. For the Company, SFAS No. 130 will be
effective for the year beginning January 1, 1998. The Company has not completed
its analysis of the impact of this new pronouncement. However, based on a
preliminary review, the Company believes the implementation of SFAS No. 130 will
not have a significant effect on its current financial reporting.

<PAGE>
COMFORT SYSTEMS USA, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

INTRODUCTION

The following discussion should be read in conjunction with the pro forma
combined statements of operations of the Company and related notes as well as
the financial statements of Comfort Systems and related notes thereto, both of
which are included in Item 1 of this report and the financial statements of
Comfort Systems and the Founding Companies and related notes, both of which are
included in the Company's Registration Statement.

This discussion contains statements regarding future financial performance
and results. The realization of outcomes consistent with these forward-looking
statements is subject to numerous risks and uncertainties to the Company
including, but not limited to, the availability of attractive acquisition
opportunities, the successful integration and profitable management of acquired
businesses, improvement of operating efficiencies, the availability of working
capital and financing for future acquisitions, the Company's ability to grow
internally through expansion of services and customer bases and reduction of
overhead, seasonality and other risk factors discussed in the Registration
Statement.

Comfort Systems USA, Inc. was founded in December 1996 to become a leading
national provider of heating, ventilation and air condition ("HVAC") services,
focusing primarily on the commercial and industrial markets.

On June 27, 1997, Comfort Systems completed the initial public offering of
its common stock and simultaneously acquired in separate concurrent transactions
twelve companies (collectively referred to as the "Founding Companies")
engaged in providing HVAC services. The closing of the acquisitions of the
Founding Companies and the offering occurred on July 2, 1997. Subsequent to June
30, 1997, and through September 30, 1997, the Company acquired ten additional
HVAC businesses (collectively with the Founding Companies referred to as the
"Acquisitions" or "Acquired Business"). Of these additional acquired
businesses, seven acquisitions were accounted for as poolings-of-interests and
are referred herein as the "Pooled Companies." The remaining businesses
acquired were accounted for as purchases referred to herein as the "Purchased
Companies." The historical financial statements of the Company have been
retroactively restated to give effect to the operations of six of the seven
Pooled Companies (the "Restated Companies"). The one remaining Pooled Company
is not significant to prior historical periods and is included in the
consolidated results of the Company beginning on the date of acquisition.

The Founding Companies, Pooled Companies and Purchased Companies have been
managed prior to their acquisitions as independent private companies. Therefore,
selling, general, and administrative expenses for the periods presented reflect
compensation and related benefits those owners received from their respective
businesses prior to acquisition and exclude the non-recurring non-cash
compensation charge of $11.6 million recorded by Comfort Systems in the first
quarter of 1997. Additional pro forma adjustments have been presented for the
purpose of reflecting net income as if the merger of the Founding Companies and
the acquisition of the Pooled Companies had occurred January 1, 1996. The pro
forma adjustments reflect (a) certain reductions in salaries and benefits to the
former owners of the Acquired Companies which they agreed would take effect as
of the Acquisitions ("compensation differential") (b) pro forma compensation
expense of $430,000 for the six months ended June 30, 1997, to reflect the
ongoing salaries received by corporate management and the acquisition team as
though these salaries had been paid prior to the Offering in 1997, and (c)
interest expense on borrowings that would have been necessary to fund the S
Corporation Distributions if they had occurred at the beginning of each period
presented and (d) the reduction of the acquisition related costs incurred in the
acquisition of the Pooled Companies. In

11
<PAGE>
addition, an incremental tax provision has been recorded as if all applicable
entities had been subject to federal and state income taxes.

The timing and magnitude of acquisitions, assimilation costs, and the
seasonal nature of the HVAC industry may also materially affect quarterly
results. Accordingly, the operating results for any three-month or nine-month
period are not necessarily indicative of the results that may be achieved for
any subsequent three-month period or for a full year.

RESULTS OF OPERATIONS -- PRO FORMA COMBINED (UNAUDITED)
<TABLE>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------------------ ------------------------------------------
1996 1997 1996 1997
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $59,772 100.0% $ 69,640 100.0% $ 163,182 100.0% $ 187,306 100.0%
Cost of Services..................... 43,585 72.9 49,669 71.3 118,939 72.9 135,044 72.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross Profit......................... 16,187 27.1 19,971 28.7 44,243 27.1 52,262 27.9
Selling, general and administrative
expenses........................... 8,625 14.4 11,402 16.4 25,456 15.6 31,189 16.7
Goodwill amortization................ 874 1.5 883 1.3 2,622 1.6 2,631 1.4
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... 6,688 11.2 7,686 11.0 16,165 9.9 18,442 9.8
Other income (expense) (314) (0.5) (8) -- (905) (0.5) (668) 0.4
--------- --------- --------- --------- --------- --------- --------- ---------
Income before taxes.................. 6,374 10.7 7,678 11.0 15,260 9.4 17,744 9.4
Provision for income taxes........... 2,983 -- 3,440 -- 6,867 -- 7,593 --
--------- --------- --------- --------- --------- --------- --------- ---------
Pro forma net income................. $ 3,391 5.7% $ 4,238 6.1% $ 8,393 5.1% $ 10,181 5.4%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
REVENUES -- Pro forma combined revenues increased 17% and 15% to $69.6
million and $187.3 million for the three months and nine months ended September
30, 1997. Approximately two-thirds of the quarter and nine-month increase came
from the existing Founding Companies. These increases are primarily attributable
to significant design/build projects at a medical center and semiconductor
fabrication facility, respectively, in our Phoenix operations, broad growth in
commercial and industrial design/build activity in our Tennessee operations, and
increasing demand in Texas and the Northeast for the Company's specialized
multi-unit installation services. Revenue for the Restated Companies increased
by approximately one-fourth for the three and nine month periods ended September
30, 1997 compared to the same period of the prior year with the majority of this
change related to the Company's increased demand for commercial design/build
capabilities in the Memphis market, and increased demand for the Company's
service capabilities in the Cincinnati market.

GROSS PROFIT -- Pro forma combined gross profit increased 23% and 18% for
the three and nine-month periods ended September 30, 1997 primarily due to
increased revenue volume. Pro forma combined gross profit as a percentage of
sales increased primarily due to growing demand for the Company's services, in
the Grand Rapids and Memphis markets, and in multi unit installation markets in
Texas and the Northeast, and the Company's related ability in each of these
markets to be more selective in accepting new projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) -- Pro forma combined
SG&A expenses, excluding goodwill amortization, increased $2.8 million and $5.7
million for the three months and nine months ended September 30, 1997 compared
to the same periods of the prior year. The establishment of the corporate
management group and acquisition team accounted for $0.8 million and $1.2
million of the increase for the three and nine month periods respectively. The
remaining increases in SG&A were due principally to additions of personnel and
infrastructure to support growth in their revenues.

12
<PAGE>
RESULTS OF OPERATIONS -- HISTORICAL (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------------------ -------------------------------------------
1996 1997 1996 1997
-------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 14,306 100.0% $ 69,640 100.0% $ 38,978 100.0% $ 100,406 100.0%
Cost of Services..................... 10,940 76.5 49,669 71.3 29,435 75.5 72,649 72.4
--------- --------- --------- --------- --------- --------- ---------- ---------
Gross Profit.................... 3,366 23.5 19,971 28.7 9,543 24.5 27,757 27.6
Selling, general and administrative
expenses........................... 2,327 16.3 11,987 17.2 6,689 17.2 28,886 28.8
Goodwill amortization................ -- -- 883 1.3 -- -- 883 0.9
Acquisition related expense.......... -- -- 170 0.2 -- -- 170 0.1
--------- --------- --------- --------- --------- --------- ---------- ---------
Operating income (loss).............. 1,039 7.2 6,931 10.0 2,854 7.3 (2,182) (2.2)
Other income (expense)............... (31) (0.2) (8) -- (110) 0.3 (138) (0.1)
--------- --------- --------- --------- --------- --------- ---------- ---------
Income (loss) before taxes........... 1,008 7.0 6,923 10.0 2,744 7.0 (2,320) (2.3)
Provision for income taxes........... 377 -- 3,055 -- 1,195 -- 4,004 --
--------- --------- --------- --------- --------- --------- ---------- ---------
Net income (loss).................... $ 631 4.4% $ 3,868 5.6% $ 1,549 4.0% $ (6,324) (6.3)%
========= ========= ========= ========= ========= ========= ========== =========
</TABLE>
REVENUE -- Revenues increased from $14.3 million and $39.0 million for the
three and nine months ended September 30, 1996 to $69.6 million and $100.4
million for the three and nine months ended September 30, 1997 primarily due to
the acquisition of the Founding Companies.

GROSS PROFIT -- Gross profit increased from $3.4 million and $9.5 million
for the three and nine months ended September 30, 1996 to $20.0 million and
$27.8 million for the three and nine months ended September 30, 1997 primarily
due to the acquisition of the Founding Companies. Gross profit as a percent of
revenues increased from 23.5% for the three months ended September 30, 1996 to
28.7% for the three months ended September 30, 1997, primarily related to the
acquisition of the Founding Companies.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) -- SG&A increased from
$2.3 million or 16.3% of revenues for the three months ended September 30, 1996
to $12.0 million or 17.2% of revenues. The $9.7 million increase in SG&A is
primarily related to the acquisition of the Founding Companies, and to a
somewhat lesser extent, the addition of the management and acquisition teams at
corporate. SG&A increased from $6.7 million or 17.2% of revenues for the nine
months ended September 30, 1996 to $28.9 million or 28.8% of revenues. The $22.2
million increase in SG&A is primarily related to the acquisition of the Founding
Companies, the $11.6 million of non-recurring non-cash compensation expense
recorded in the first quarter of 1997 and $0.9 million related to the addition
of the management and acquisition teams at corporate.

LIQUIDITY AND CAPITAL RESOURCES -- COMBINED

During the nine months ended September 30, 1997, net cash provided by
operating activities was $1.2 million, capital expenditures were $1.6 million
and net borrowings of debt amounted to $0.4 million. Additionally, payments for
S Corporation Distributions to former owners of the Pooled Companies were $1.0
million.

On June 27, 1997, Comfort Systems sold 6,100,000 shares of Common Stock to
the public at $13.00 per share (the Offering). The net proceeds to Comfort
Systems from the Offering (after deducting underwriting commissions and offering
expenses) were $69.7 million. Of this amount, $45.3 million was used to pay the
cash portion of the purchase prices of the Founding Companies.

In connection with the Offering, the Company had granted its underwriters
an option to sell an additional 915,000 shares at $13.00 per share. On July 9,
the underwriters exercised this option. Net proceeds to the Company from this
sale of shares were $11.1 million after deducting underwriting commissions.

13
<PAGE>
As of September 22, 1997, the Company entered into an amended and restated
credit agreement with Bank One, Texas, N.A. (the "Credit Facility"). The
Credit Facility provides the Company with an unsecured revolving line of credit
of $75 million. The Company has a choice of two interest rate options when
borrowing under the Credit Facility. Under one option the interest rate is
determined based on the higher of the Federal Funds Rate plus one-half
percentage point or the bank's prime rate. An additional margin of zero to
one-quarter percentage point is then added to the higher of these two rates. The
additional margin depends on the ratio of the Company's debt to earnings before
interest, taxes, depreciation and amortization for the preceding twelve months
("EBITDA"). For purposes of this ratio, EBITDA may include the preceding
twelve months' results for any companies acquired during the last year. Under
the other interest rate option, borrowings bear interest based on designated
short-term Eurodollar rates (which generally approximate the London Interbank
Offered Rates or LIBOR, as published in major financial media) plus one to two
percentage points, again depending on the ratio of debt to EBITDA. In addition,
commitment fees of 0.125% to 0.375% per annum, also depending on the ratio of
debt to EBITDA, are payable on the unused portion of the line of credit. The
Credit Facility prohibits the payment of dividends by the Company and requires
the Company to comply with certain financial covenants. The Credit Facility
expires on July 2, 2000, at which time all amounts outstanding under the
facility are due. As of September 30, 1997, $18.9 million was outstanding under
the Credit Facility at an average interest rate of approximately 6.7%. As of
November 12, 1997, $16.3 million remains outstanding on the Credit Facility.

The Company intends to pursue acquisition opportunities. The Company
expects to fund future acquisitions through the issuance of additional common
stock, working capital, cash flow from operations and borrowings, including use
of amounts available under the Credit Facility. The Company anticipates that its
cash flow from operations will provide cash in excess of the Company's normal
working capital needs, debt service requirements and planned capital
expenditures for equipment.

SEASONALITY AND CYCLICALITY

The HVAC industry is subject to seasonable variations. Specifically, the
demand for new installations and for replacement is generally lower during the
winter months due to reduced construction activities during inclement weather
and less use of air conditioning during the colder months. Demand for HVAC
services is generally higher in the second and third quarters due to increased
construction activity and increased use of air conditioning during the warmer
months. Accordingly, the Company expects its revenues and operating results
generally will be lower in the first and fourth quarters.

Historically, the construction industry has been highly cyclical. As a
result, the Company's volume of business may be adversely affected by declines
in new installation projects in various geographic regions of the United States.

14
<PAGE>
COMFORT SYSTEMS USA, INC.
PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

During the three month period ended September 30, 1997, as consideration to
various shareholders of acquired companies, the Company issued a total of
2,057,823 shares of Common Stock which were not registered under the Securities
Act of 1933, as amended (the "Securities Act") in a series of acquisition
transactions in the amounts and on the following dates indicated: August
29 -- 928,962 shares; September 4 -- 184,956 shares; September 10 -- 179,745
shares; September 25 -- 405,314 shares; and September 30 -- an aggregate of
358,846 shares. These shares were issued without registration under the
Securities Act in reliance on the exemption provided by Section 4(2) of the
Securities Act.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Agreement Regarding Sale of Stock between Fred M. Ferreira and the
Registrant dated October 31, 1997. (Filed herewith.)

10.2 Agreement Regarding Sale of Stock between Steve S. Harter and the
Registrant dated October 31, 1997. (Filed herewith.)

10.3 Agreement Regarding Sale of Stock between J. Gordon Beittenmiller
and the Registrant dated October 31, 1997. (Filed herewith.)

10.4 Agreement Regarding Sale of Stock between Thomas J. Beaty and the
Registrant dated October 31, 1997. (Filed herewith.)

10.5 Agreement Regarding Sale of Stock between Brian S. Atlas and the
Registrant dated October 31, 1997. (Filed herewith.)

10.6 Agreement Regarding Sale of Stock between John C. Phillips and the
Registrant dated October 31, 1997. (Filed herewith.)

10.7 Agreement Regarding Sale of Stock between Alfred J. Giardenelli, Jr.
and the Registrant dated October 31, 1997. (Filed herewith.)

10.8 Agreement Regarding Sale of Stock between Robert J. Powers and the
Registrant dated October 31, 1997. (Filed herewith.)

10.9 Agreement Regarding Sale of Stock between Samuel M. Lawrence and the
Registrant dated October 31, 1997. (Filed herewith.)

10.10 Agreement Regarding Sale of Stock between Michael Nothum, Jr. and
the Registrant dated October 31, 1997. (Filed herewith.)

10.11 Agreement Regarding Sale of Stock between Bob R. Cook and the
Registrant dated October 31, 1997. (Filed herewith.)

10.12 Agreement Regarding Sale of Stock between Charles W. Klapperich and
the Registrant dated October 31, 1997. (Filed herewith.)

10.13 Agreement Regarding Sale of Stock between Reagan S. Busbee and the
Registrant dated October 31, 1997. (Filed herewith.)

10.14 Agreement Regarding Sales of Stock between William George and the
Registrant dated October 31, 1997. (Filed herewith.)

27.1 Financial Data Schedule. (Filed herewith)

(b) Reports on Form 8-K
None

15
<PAGE>
SIGNATURE

Pursuant to the requirements 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.

COMFORT SYSTEMS USA, INC.

By: /s/ J. GORDON BEITTENMILLER
J. Gordon Beittenmiller
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

Dated: November 14, 1997

EXHIBIT 10.1
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by FRED M.
FERREIRA (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Stockholder is a substantial holder of the Company's stock,
and believes that the restrictions herein will have a beneficial effect on the
shares eligible for future sale, and will be of significant benefit to him as a
stockholder; and

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

2. The Stockholder agrees that he will hold, and will not offer, sell,
assign, pledge, hypothecate, transfer or otherwise dispose of, or
reduce his risk with respect to, the number of Shares set forth on
Exhibit A, in each case prior to the date set forth on Exhibit A.

3. The Stockholder acknowledges and agrees that the Company will
maintain a stop transfer order with its transfer agent with respect
to the Shares that are subject to this agreement until the release
dates as set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Fred Ferreira
FRED M. FERREIRA
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/S/J. GORDON BEITTENMILLER
Chief Financial Officer
<PAGE>

EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: FRED M. FERREIRA
Total Number or Shares Owned: 479,435
Shares to be Restricted until July 2, 1999: 95,887
Shares to be Restricted until July 2, 2000: 95,887
Shares to be Restricted until July 2, 2001: 95,887

EXHIBIT 10.2
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by STEVE S.
HARTER (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/ Steve S. Harter
STEVE S. HARTER
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: STEVE S. HARTER
Total Number or Shares Owned: 1,484,956
Shares to be Restricted until July 2, 1999: 296,991
Shares to be Restricted until July 2, 2000: 296,991
Shares to be Restricted until July 2, 2001: 296,991

EXHIBIT 10.3
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by J. GORDON
BEITTENMILLER (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/J. Gordon Beittenmiller
J. GORDON BEITTENMILLER
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: J. GORDON BEITTENMILLER
Total Number or Shares Owned: 116,000
Shares to be Restricted until July 2, 1999: 23,200
Shares to be Restricted until July 2, 2000: 23,200
Shares to be Restricted until July 2, 2001: 23,200

EXHIBIT 10.4
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by THOMAS J.
BEATY (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/ Thomas J. Beaty
THOMAS J. BEATY
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: THOMAS J. BEATY
Total Number or Shares Owned: 564,537
Shares to be Restricted until July 2, 1999: 84,680
Shares to be Restricted until July 2, 2000: 84,680
Shares to be Restricted until July 2, 2001: 112,908

EXHIBIT 10.5
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by BRIAN S.
ATLAS (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Brian S. Atlas
BRIAN S. ATLAS
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/ Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: BRIAN S. ATLAS
Total Number or Shares Owned: 617,000
Shares to be Restricted until July 2, 1999: 92,550
Shares to be Restricted until July 2, 2000: 92,550
Shares to be Restricted until July 2, 2001: 123,400

EXHIBIT 10.6
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st
day of October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the
"Company") by JOHN C. PHILLIPS, TRUSTEE OF JOHN C. PHILLIPS TRUST (the
"Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/John C. Phillips
JOHN C. PHILLIPS,
TRUSTEE OF JOHN C. PHILLIPS TRUST
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/ Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: JOHN C. PHILLIPS,
TRUSTEE OF JOHN C. PHILLIPS TRUST
Total Number or Shares Owned: 403,305
Shares to be Restricted until July 2, 1999: 60,496
Shares to be Restricted until July 2, 2000: 60,496
Shares to be Restricted until July 2, 2001: 80,660

EXHIBIT 10.7
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st
day of October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the
"Company") by ALFRED J. GIARDENELLI, JR. (the "Stockholder"), a
stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Alfred J. Giardenelli, Jr.
ALFRED J. GIARDENELLI, JR.
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/ Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: ALFRED J. GIARDENELLI, JR.
Total Number or Shares Owned: 304,216
Shares to be Restricted until July 2, 1999: 45,632
Shares to be Restricted until July 2, 2000: 45,632
Shares to be Restricted until July 2, 2001: 60,844

EXHIBIT 10.8
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by ROBERT J.
POWERS (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Robert J. Powers
ROBERT J. POWERS
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/ Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: ROBERT J. POWERS
Total Number or Shares Owned: 1,461,496
Shares to be Restricted until July 2, 1999: 219,224
Shares to be Restricted until July 2, 2000: 219,224
Shares to be Restricted until July 2, 2001: 292,300

EXHIBIT 10.9
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by SAMUEL M.
LAWRENCE III (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Samuel M. Lawrence III
SAMUEL M. LAWRENCE III
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.
/s/ Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: SAMUEL M. LAWRENCE III
Total Number or Shares Owned: 317,307
Shares to be Restricted until July 2, 1999: 47,596
Shares to be Restricted until July 2, 2000: 47,596
Shares to be Restricted until July 2, 2001: 63,461

EXHIBIT 10.10
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by MICHAEL
NOTHUM, JR. (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Michael Nothum, Jr.
MICHAEL NOTHUM, JR.
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/ Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: MICHAEL NOTHUM, JR.
Total Number or Shares Owned: 760,287
Shares to be Restricted until July 2, 1999: 114,043
Shares to be Restricted until July 2, 2000: 114,043
Shares to be Restricted until July 2, 2001: 152,057

EXHIBIT 10.11
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by BOB R.
COOK (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Bob R. Cook
BOB R. COOK
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: BOB R. COOK
Total Number or Shares Owned: 717,408
Shares to be Restricted until July 2, 1999: 107,611
Shares to be Restricted until July 2, 2000: 107,611
Shares to be Restricted until July 2, 2001: 143,482

EXHIBIT 10.12
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by CHARLES
W. KLAPPERICH (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Charles W. Klapperich
CHARLES W. KLAPPERICH
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: CHARLES W. KLAPPERICH
Total Number or Shares Owned: 255,401
Shares to be Restricted until July 2, 1999: 51,080
Shares to be Restricted until July 2, 2000: 51,080
Shares to be Restricted until July 2, 2001: 51,080

EXHIBIT 10.13
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by REAGAN S.
BUSBEE (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/Reagan S. Busbee
REAGAN S. BUSBEE
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: REAGAN S. BUSBEE
Total Number or Shares Owned: 116,000
Shares to be Restricted until July 2, 1999: 17,400
Shares to be Restricted until July 2, 2000: 17,400
Shares to be Restricted until July 2, 2001: 23,200

EXHIBIT 10.14
AGREEMENT REGARDING SALE OF STOCK

THIS AGREEMENT REGARDING SALE OF STOCK is entered into as of the 31st day of
October, 1997 in favor of COMFORT SYSTEMS USA, INC. (the "Company") by WILLIAM
GEORGE (the "Stockholder"), a stockholder of the Company.

WHEREAS, the Company is willing to accept and agree to such
restrictions;

NOW THEREFORE, the undersigned Stockholder hereby agrees as follows:

1. The Stockholder is the owner of the number of shares of common stock
of the Company (the "Shares") set forth on Exhibit A.

IN WITNESS WHEREOF, the Stockholder has executed this Agreement as of the date
above first written.

/s/William George
WILLIAM GEORGE
Acknowledged and Agreed:

COMFORT SYSTEMS USA, INC.

/s/Fred Ferreira
Chief Executive Officer
<PAGE>
EXHIBIT A
AGREEMENT REGARDING SALE OF STOCK

Name of Stockholder: WILLIAM GEORGE
Total Number or Shares Owned: 67,500
Shares to be Restricted until July 2, 1999: 10,125
Shares to be Restricted until July 2, 2000: 10,125
Shares to be Restricted until July 2, 2001: 13,500

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 37,117
<SECURITIES> 0
<RECEIVABLES> 46,602
<ALLOWANCES> 509
<INVENTORY> 5,559
<CURRENT-ASSETS> 99,901
<PP&E> 21,022
<DEPRECIATION> 12,421
<TOTAL-ASSETS> 250,605
<CURRENT-LIABILITIES> 34,439
<BONDS> 0
0
0
<COMMON> 232
<OTHER-SE> 195,033
<TOTAL-LIABILITY-AND-EQUITY> 250,605
<SALES> 100,406
<TOTAL-REVENUES> 100,406
<CGS> 72,649
<TOTAL-COSTS> 102,588
<OTHER-EXPENSES> 665
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<INCOME-PRETAX> (2,320)
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<NET-INCOME> (6,324)
<EPS-PRIMARY> (0.51)
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