UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
------------------------
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 MARCH 31, 1998
OR
[ ] 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 No H
The number of shares outstanding of the issuer's common stock, as of May
14, 1998, was 30,292,780.
================================================================================
<PAGE>
COMFORT SYSTEMS USA, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
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
Note 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
Stockholder's
Equity................ 6
Condensed Consolidated
Statements of Cash
Flows................. 7
Notes to Consolidated
Financial
Statements............ 8
Item 2 -- Management's
Discussion and Analysis of
Financial Condition and
Results of Operations......... 13
Part II -- Other Information
Item 1 -- Legal Proceedings..... 18
Item 2 -- Recent Sales of
Unregistered Securities........ 18
Item 6 -- Exhibits and Reports
on Form 8-K.................... 18
Item 9 -- Changes and
Disagreements with Accountants
on Accounting and Financial
Disclosure......... 18
Signature....................... 19
i
<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 July 2, 1997, the Company completed the initial public offering (the
"IPO") of its common stock (the "Common Stock") and simultaneously acquired
twelve companies (collectively referred to as the "Founding Companies")
engaged principally in the commercial and industrial HVAC business. The closing
of the acquisitions of the Founding Companies and the IPO occurred on July 2,
1997. The acquisitions of the Founding Companies have been accounted for using
the purchase method of accounting.
Subsequent to July 2, 1997, and through March 31, 1998, the Company
acquired 38 additional HVAC and complementary businesses (collectively with the
Founding Companies referred to as the "Acquired Companies"). Of these
additional businesses acquired, 14 acquisitions were accounted for as
poolings-of-interests (the "Pooled Companies"). The remaining businesses
acquired were accounted for as purchases and are herein referred to as the
"Purchased Companies".
The following unaudited pro forma combined statements of operations assume
that the IPO and the acquisitions of the Founding Companies were consummated on
January 1, 1997. This pro forma presentation also gives effect to the
retroactive restatement to January 1, 1997, of 13 of the 14 Pooled Companies and
reflects the acquisitions of the Purchased Companies acquired subsequent to the
IPO through March 31, 1998, from the date of their respective acquisitions. This
presentation is not intended to be in accordance with the regulations
promulgated by the Securities and Exchange Commission.
The Acquired Companies were managed prior to their acquisitions as
independent private companies. Therefore, historical selling, general, and
administrative expenses for the periods presented in the consolidated statements
of operations reflect compensation and related benefits those owners received
from their respective businesses prior to acquisition. Historical selling,
general and administrative expenses also include the non-recurring, non-cash
compensation charge of $11.6 million recorded by Comfort Systems in the first
quarter of 1997 related to Common Stock issued to management of and consultants
to the Company (the "Compensation Charge") prior to the IPO. The pro forma
combined adjustments reflect (a) a decrease in selling, general and
administrative expenses to exclude the Compensation Charge for the first quarter
of 1997, (b) certain reductions in salaries and benefits to the former owners of
the Acquired Companies which they agreed would take effect as of the date of
acquisition (the "Compensation Differential"), (c) pro forma combined
compensation expense of $215,000 for the three months ended March 31, 1997, to
reflect the ongoing salaries received by corporate management of the Company as
though those salaries were being paid prior to the IPO, (d) amortization of
goodwill related to the Founding Companies, and (e) pro forma interest expense
on borrowings that would have been necessary to fund certain S Corporation
Distributions related to the Founding Companies, as if those distributions had
been made on January 1, 1997. In addition, an incremental tax provision has been
recorded as if all applicable Purchased and Founding Companies, and Pooled
Companies which were C Corporation, had been subject to federal and state income
taxes.
Historical and pro forma interim periods results are not necessarily
indicative of future results because, among other things, the Acquired Companies
were not under common control or management prior to their acquisition. The
Company's results of operations historically have 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 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
1
<PAGE>
COMFORT SYSTEMS USA, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
---------------------
1997 1998
--------- ----------
Revenues................................ $ 65,906 $ 117,838
Cost of services........................ 48,609 89,410
--------- ----------
Gross profit............................ 17,297 28,428
Selling, general and administrative
expenses................................ 12,760 20,695
Goodwill amortization................... 874 1,170
--------- ----------
Operating income........................ 3,663 6,563
Other income (expense), net............. (246) (531)
--------- ----------
Income before taxes..................... 3,417 6,032
Provision for income taxes.............. 1,420 2,654
--------- ----------
Pro forma combined net income........... $ 1,997 $ 3,378
========= ==========
Pro Forma Combined Net Income Per Share:
Basic.............................. $ .09 $ .12
========= ==========
Diluted............................ .09 .12
========= ==========
Shares Used in Computing Pro Forma
Combined Net Income Per Share:
Basic.............................. 22,760 27,887
========= ==========
Diluted............................ 22,760 28,318
========= ==========
This pro forma combined financial information may not be comparable to and
may not be indicative of the Company's future results of operations because
these Acquired Companies were not under common control or management prior to
their acquisition.
The accompanying note is an integral part of these pro forma combined statements
of operations.
2
<PAGE>
COMFORT SYSTEMS USA, INC. AND SUBSIDIARIES
NOTE TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The computation of the weighted average shares outstanding for pro forma
combined net income per share for the three months ended March 31, 1997 and
1998, is calculated as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
Shares issued in consideration for the
acquisitions of the Founding
Companies............................. 9,721 9,721
Shares sold pursuant to the IPO......... 6,100 6,100
Shares held by Notre Capital Ventures
II, L.L.C. ("Notre"), Comfort
Systems' management and consultants... 4,240 4,240
Shares issued in connection with the
acquisitions of the Pooled
Companies............................. 4,507 4,507
Shares issued in connection with the
underwriter's overallotment........... -- 915
Weighted average portion of shares
issued in connection with the
acquisition of the Purchased
Companies............................. -- 2,404
Less: Shares sold in the IPO that were
not used for the cash portion of the
acquisition of the Founding
Companies............................. 1,808 --
--------- ---------
Weighted average shares
outstanding -- Basic.................. 22,760 27,887
Weighted average portion of shares
related to stock options under the
treasury stock method................. -- 431
--------- ---------
Weighted average shares
outstanding -- Diluted................ 22,760 28,318
========= =========
3
<PAGE>
COMFORT SYSTEMS USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 14,533 $ 5,687
Accounts receivable, less allowance
of $1,034 and $1,352.............. 72,792 96,631
Other receivables.................. 884 1,845
Inventories........................ 6,214 7,012
Prepaid expenses and other......... 4,428 6,483
Costs and estimated earnings in
excess of billings................ 12,050 15,640
------------ -----------
Total current assets.......... 110,901 133,298
PROPERTY AND EQUIPMENT, net............. 12,046 14,585
GOODWILL, less accumulated amortization
of $1,851 and $3,021.................. 163,126 205,652
OTHER NONCURRENT ASSETS................. 1,707 8,241
------------ -----------
Total assets.................. $287,780 $ 361,776
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. $ 869 $ 150
Accounts payable................... 22,805 29,854
Accrued compensation and
benefits.......................... 5,622 8,842
Payable to
stockholders/affiliates........... 16 125
Billings in excess of costs and
estimated earnings................ 10,100 12,546
Income taxes payable............... 4,928 4,316
Other current liabilities.......... 9,286 12,636
------------ -----------
Total current liabilities..... 53,626 68,469
DEFERRED INCOME TAXES................... 960 561
LONG-TERM DEBT, NET OF CURRENT
MATURITIES............................ 20,326 50,785
OTHER LONG-TERM LIABILITIES............. 200 247
------------ -----------
Total liabilities............. 75,112 120,062
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock $.01 per 5,000,000
shares authorized, none issued
and outstanding.................. -- --
Common stock, $.01 par, 52,969,912
shares authorized, 26,575,669
and 28,796,085 shares issued and
outstanding, respectively......... 266 288
Additional paid-in capital......... 205,709 231,355
Retained earnings.................. 6,693 10,071
------------ -----------
Total stockholders' equity.... 212,668 241,714
------------ -----------
Total liabilities and
stockholders' equity....... $287,780 $ 361,776
============ ===========
Reflects a 121.1387-for-one stock split effective on March 19, 1997
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)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
REVENUES............................. $ 26,401 $ 117,838
COST OF SERVICES..................... 19,809 89,410
---------- ----------
Gross profit............... 6,592 28,428
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 19,486 20,695
GOODWILL AND OTHER AMORTIZATION...... -- 1,170
---------- ----------
Operating income
(expense).................... (12,894) 6,563
OTHER INCOME (EXPENSE):
Interest income................. 85 194
Interest expense................ (67) (777)
Other........................... (14) 52
---------- ----------
Other income (expense)..... 4 (531)
---------- ----------
INCOME BEFORE INCOME TAXES........... (12,890) 6,032
PROVISION (BENEFIT) FOR INCOME
TAXES................................ (749) 2,654
---------- ----------
NET INCOME (LOSS).................... $ (12,141) $ 3,378
========== ==========
NET INCOME (LOSS) PER SHARE:
Basic........................... $ (1.39) $ .12
========== ==========
Diluted......................... $ (1.39) $ .12
========== ==========
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER SHARE:
Basic........................... 8,747 27,887
========== ==========
Diluted......................... 8,747 28,318
========== ==========
Reflects a 121.1387-for-one stock split effective on March 19, 1997
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
COMFORT SYSTEMS USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL RETAINED
STOCKHOLDERS' PAID-IN EARNINGS TOTAL
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............ 4,628,545 $ 46 $ 96 $ 11,215 $ 11,357
Issuance of Common Stock:
Proceeds of the IPO........... 7,015,000 70 79,805 -- 79,875
Acquisition of Founding
Companies.................. 9,720,927 98 100,999 -- 101,097
Issuance of management
shares..................... 4,118,708 41 11,556 -- 11,597
Acquisition of Purchased
Companies.................. 1,092,489 11 13,253 -- 13,264
S Corporation distributions made by
certain Pooled Companies......... -- -- -- (1,692) (1,692)
Net loss........................... -- -- -- (2,830) (2,830)
------------- ------ ---------- --------- ----------
BALANCE AT DECEMBER 31, 1997............ 26,575,669 266 205,709 6,693 212,668
Issuance of Common Stock:
Acquisition of Purchased
Companies.................. 2,220,416 22 25,646 -- 25,668
Net Income......................... -- -- -- 3,378 3,378
------------- ------ ---------- --------- ----------
BALANCE AT MARCH 31, 1998............... 28,796,085 $ 288 $ 231,355 $ 10,071 $ 241,714
============= ====== ========== ========= ==========
</TABLE>
Reflects a 121.1387-for-one stock split effective on March 19, 1997
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (12,141) $ 3,378
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization
expense......................... 312 2,114
Bad debt expense................ -- 111
Compensation expense related to
issuance of management
shares......................... 11,556 --
Deferred tax expense
(benefit)...................... (1,276) (787)
Loss (gain) on sale of property
and equipment.................. -- (21)
Changes in operating assets and
liabilities, net of effects of
acquisitions of Founding and
Purchased Companies --
(Increase) decrease in --
Receivables, net...... 701 (1,564)
Inventories........... 183 (95)
Prepaid expenses and
other current
assets................ (2,486) (435)
Cost and estimated
earnings in excess of
billings.............. (1,619) (1,596)
Other noncurrent
assets................ 88 (352)
Increase (decrease) in --
Accounts payable and
accrued liabilities... 5,051 (4,264)
Billings in excess of
costs and estimated
earnings.............. 683 (377)
Other, net...................... -- (82)
---------- ----------
Net cash provided by (used
in) operating
activities.............. 1,052 (3,970)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment....................... (443) (1,531)
Proceeds from sales of property
and equipment.................. -- 90
Cash paid for Purchased
Companies, net of cash
acquired........................ -- (15,449)
---------- ----------
Net cash used in investing
activities................... (443) (16,890)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt...... (62) (20,469)
Borrowings of long-term debt.... 520 32,483
Proceeds from issuance of Common
Stock........................... 41 --
---------- ----------
Net cash provided by
financing activities......... 499 12,014
---------- ----------
NET INCREASE (DECREASE) IN CASH...... 1,108 (8,846)
CASH AND CASH EQUIVALENTS, beginning
of period............................ 6,141 14,533
---------- ----------
CASH AND CASH EQUIVALENTS, end of
period............................... $ 7,249 $ 5,687
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. BUSINESS AND ORGANIZATION:
The Company is a national provider of comprehensive HVAC installation as
well as maintenance, repair and replacement services. Founded in December 1996,
the Company is consolidating the fragmented commercial and industrial HVAC
markets, and performs most of its services within manufacturing plants, office
buildings, retail centers, apartment complexes, and health care, education and
government facilities. In addition to standard HVAC services, the Company also
provides specialized applications such as process cooling, control systems,
electronic monitoring and process piping. Certain locations also provide related
commercial and industrial electrical and plumbing services.
On July 2, 1997, Comfort Systems completed the IPO and simultaneously
acquired the 12 Founding Companies. Subsequent to the IPO and through March 31,
1998, the Company has acquired 38 HVAC and complementary businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
These interim statements should be read in conjunction with the historical
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
There were no significant changes in the accounting policies of the Company
during the periods presented. For a description of the significant accounting
policies of the Company, refer to Note 2 of Notes to Consolidated Financial
Statements of Comfort Systems included in the Company's Annual Report on Form
10-K.
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.
The results of operations for interim periods are not necessarily
indicative of the results for the fiscal year.
CASH FLOW INFORMATION
Cash paid for interest for the three months ended March 31, 1997 and 1998
was approximately $68,000 and $241,000, respectively. Cash paid for income taxes
for the three months ended March 31, 1997 and 1998 was approximately $115,000
and $6,847,000, respectively.
3. BUSINESS COMBINATIONS:
POOLINGS
During the second half of 1997, the Company acquired all of the outstanding
stock of the 14 Pooled Companies in exchange for 4,507,406 shares of Common
Stock. These acquisitions have been accounted for as poolings-of-interests as
described in Note 2 of Notes to Consolidated Financial Statements of Comfort
Systems included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. These companies provide HVAC and complementary services.
There were no acquisitions for the three months ended March 31, 1998 which
were accounted for as poolings-of-interests.
8
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PURCHASES
Simultaneous with the IPO, Comfort Systems acquired the twelve Founding
Companies for $45.3 million in cash and 9,720,927 shares of Common Stock. The
Founding Companies provide HVAC and complementary services.
Subsequent to the IPO and through December 31, 1997, Comfort Systems
acquired 13 of the Purchased Companies. These companies provide HVAC and
complementary services. The aggregate consideration paid in these transactions
was $14.5 million in cash, 1,092,489 shares of Common Stock valued at $13.3
million and $5.0 million in the form of convertible subordinated notes (the
"Notes"). These Notes are convertible at various dates in 1998 or 1999 and
thereafter into 225,473 or 220,449 shares of Common Stock, respectively.
For the three months ended March 31, 1998, Comfort Systems acquired 11 of
the Purchased Companies. These companies also provide HVAC and complementary
services. The aggregate paid in these transactions was $16.6 million in cash,
2,220,416 shares of Common Stock valued at $25.8 million, and $1.9 million in
Notes. Approximately $1.3 million of these Notes are convertible at various
dates in 2000, 2001 and 2002 into 77,800 shares of Common Stock, respectively.
The allocation of the respective purchase prices to the assets assumed and
liabilities acquired resulted in $43.7 million of goodwill related to the
companies acquired during the first three months of 1998.
The accompanying balance sheets includes allocations of the respective
purchase prices to the assets acquired and liabilities assumed based on
preliminary estimates of fair value and is subject to final adjustment.
The unaudited pro forma data presented below consists of the income
statement data presented in these consolidated financial statements plus income
statement data for the Founding Companies and Purchased Companies as if they had
been acquired on January 1, 1997 through the respective dates of acquisitions
(in thousands, except per share data):
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
(UNAUDITED)
Revenues................................ $ 105,267 $ 129,238
Net income.............................. 3,323 2,878
Net income per share.................... $ 0.13 $ 0.10
Pro forma adjustments included in the preceding tables regarding the
Acquired Companies primarily relate to (a) the Compensation Differential
relating to former owners of the Acquired Companies which they agreed would take
effect as of the acquisition date, (b) pro forma combined compensation expense
of $215,000 for the three months ended March 31, 1997, to reflect the ongoing
salaries received by corporate management as though those salaries were being
paid prior to the IPO, (c) amortization of goodwill related to the Purchased and
Founding Companies, (d) elimination of the non-recurring, non-cash Compensation
Charge of $11.6 million recorded by Comfort Systems in the first quarter of 1997
related to Common Stock issued to management of and consultants to the Company,
and (e) interest expense on borrowings of $22.8 million that would have been
necessary to fund certain S Corporation Distributions of the Acquired Companies
as if those distributions had occurred on January 1, 1997, (f) interest expense
on borrowings of $16.6 million related to the purchase price of the Purchased
Companies acquired during the first quarter of 1998 and, (g) interest expense
related to the subordinated convertible notes issued in connection with the
acquisition of certain Acquired Companies during the first quarter of 1998. In
addition, an incremental tax provision has been recorded as if all applicable
Purchased and Founding Companies, and Pooled Companies which were C
Corporations, had been subject to federal and state corporate income taxes for
the applicable periods presented.
9
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company and the Acquired Companies been combined at the
beginning of the periods presented.
ADDITIONAL ACQUISITIONS
Subsequent to March 31, 1998, and through May 12, 1998, the Company
completed 13 additional acquisitions (the "Additional Acquisitions") for
approximately $29.6 million in cash, 1,495,648 shares of Common Stock and
approximately $15.4 million in Notes. Annualized revenues from the businesses
acquired in the Additional Acquisitions were approximately $115 million. All of
these acquisitions will be accounted for as purchase transactions.
4. LONG-TERM DEBT OBLIGATIONS:
Long-term debt obligations consist of the following (in thousands):
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
Revolving credit facility............... $ 15,300 $43,800
Notes................................... 4,978 6,911
Other................................... 917 224
------------ ---------
Total long-term......................... 21,195 50,935
Less: current maturities................ 869 150
------------ ---------
$ 20,326 $50,785
============ =========
REVOLVING CREDIT AGREEMENT
In July 1997, the Company entered into a credit agreement with Bank One,
Texas, N.A. (the "Credit Facility"). The Credit Facility was amended and
restated in September 1997 primarily to provide for additional banks to lend to
the Company under the Credit Facility. The Credit Facility was further amended
in April 1998 to increase borrowing capacity and to provide for additional banks
to lend to the Company under the Credit Facility. The Credit Facility provides
the Company with an unsecured revolving line of credit of $175 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. 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 0.75 to 1.5 percentage points. The amount of percentage points added
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. 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 facility. The Credit Facility prohibits the
payment of dividends by the Company without lender's approval and requires the
Company to comply with certain financial covenants. The Credit Facility expires
on April 14, 2001, at which time all amounts outstanding under the facility are
due.
As of March 31, 1998, the Company had borrowed $43.8 million under the
Credit Facility at an average interest rate of approximately 6.7% per annum for
the first quarter of 1998. As of May 12, 1998, $75.6 million (unaudited) was
outstanding under this facility.
Notes in the amount of $6.9 million referred to above were issued to former
owners of certain Purchased Companies through March 31, 1998 as partial
consideration for the acquisition of their companies. Of these Notes, $6.3
million bear interest, payable quarterly, at a weighted average interest rate
10
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of 6.0% and are convertible into shares of the Company's Common Stock at a
weighted average price of $22.87 per share. The terms of these Notes require
$0.3 million of principal payments in 1999, $4.7 million of principal payments
in 2000, and $440,000 of principal payments in 2001, 2002 and 2003. The
remaining Note of $0.6 million is non-interest bearing and is due in five equal
installments of $120,000 beginning in 1999.
5. COMMITMENTS AND CONTINGENCIES:
CLAIMS AND LAWSUITS
The Company is from time to time party to litigation in the ordinary course
of business. There are currently no pending legal proceedings that, in
management's opinion, would have a material adverse effect on the Company's
operating results or financial condition. The Company maintains various
insurance coverages to minimize financial risk associated with certain claims.
The Company has provided accruals for probable losses and legal fees associated
with certain of these actions in the accompanying consolidated financial
statements.
6. STOCKHOLDER'S EQUITY:
COMMON STOCK AND PREFERRED STOCK
Comfort Systems effected a 121.1387-for-one stock split on March 19, 1997
for each share of Common Stock of the Company then outstanding. In addition, the
Company increased the number of authorized shares of Common Stock to 52,969,912
and authorized 5,000,000 shares of $.01 par value preferred stock. The effects
of the Common Stock split and the increase in the number of shares of authorized
Common Stock have been retroactively reflected on the balance sheet and in the
accompanying notes as applicable.
In connection with the organization and initial capitalization of Comfort
Systems, the Company issued 121,139 shares of Common Stock at $.01 per share to
Notre. In January 1997, the Company issued 2,848,773 additional shares to Notre
for $.01 per share.
In January and February 1997, the Company issued a total of 1,269,935
shares of Common Stock to management of and consultants to the Company at a
price of $.01 per share. As a result, the Company recorded a non-recurring,
non-cash compensation charge of $11.6 million in the first quarter of 1997,
representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale.
RESTRICTED COMMON STOCK
In March 1997, Notre exchanged its 2,742,912 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Voting
Common Stock"). The holder of Restricted Voting Common Stock is entitled to
elect one member of the Company's Board of Directors and to 0.55 of one vote for
each share on all other matters on which they are entitled to vote. Holders of
Restricted Voting Common Stock are not entitled to vote on the election of any
other directors.
Each share of Restricted Voting Common Stock will automatically convert to
Common Stock on a share-for-share basis (i) in the event of a disposition of
such share of Restricted Voting Common Stock by the holder thereof (other than a
distribution which is a distribution by a holder to its partners or beneficial
owners, or a transfer to a related party of such holders (as defined in Sections
267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986, as amended)),
(ii) in the event any person acquires beneficial ownership of 15% or more of the
total number of outstanding shares of Common Stock of the Company, or (iii) in
the event any person offers to acquire 15% or more of the total number of
outstanding shares of Common Stock of the Company. After July 1,1998, the Board
of Directors may elect to convert any remaining shares of Restricted Voting
Common Stock into shares of Common Stock in the event 80% or more of the
originally
11
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
outstanding shares of Restricted Voting Common Stock have been previously
converted into shares of Common Stock.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 revises the methodology to be used in
computing earnings per share (EPS) such that the computations previously
required for primary and fully diluted EPS are to be replaced with "basic" and
"diluted" EPS. Basic EPS is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
EPS is computed in the same manner as fully diluted EPS, except that, among
other changes, the average share price for the period is used in all cases when
applying the treasury stock method to potentially dilutive outstanding options.
The Company has adopted SFAS No. 128 and restated EPS for all periods presented.
The following table summarizes weighted average shares outstanding for each
of the periods presented (in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
Shares issued in connection with the
acquisitions of Founding Companies.... -- 9,721
Shares sold pursuant to the IPO......... -- 6,100
Shares held by Notre, Comfort Systems'
management and consultants............ 4,240 4,240
Shares issued in connection with the
acquisitions of Pooled Companies...... 4,507 4,507
Shares issued in connection with the
underwriter's overallotment........... -- 915
Weighted average portion of shares
issued in connection with the
acquisitions of the Purchased
Companies............................. -- 2,404
--------- ---------
Weighted average shares
outstanding -- Basic.................. 8,747 27,887
Weighted average portion of shares
related to stock options under the
treasury stock method................. -- 431
--------- ---------
Weighted average shares
outstanding -- Diluted................ 8,747 28,318
========= =========
7. NEW PRONOUNCEMENTS:
In March 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP provides guidance with respect to accounting for the
various types of costs incurred for computer software developed or obtained for
the Company's use. The Company is required to and will adopt SOP 98-1 in the
first quarter of Fiscal 1999 and believes that adoption will not have a
significant effect on its consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of
Start-Up Activities." At adoption, SOP 98-5 requires the Company to write-off
any unamortized start-up costs as a cumulative change in accounting principle
and, going forward, expense all start-up activity costs as they are incurred.
The Company is required to and will adopt SOP 98-5 in the first quarter of
Fiscal 1999 and believes that adoption will not have a significant effect on its
consolidated financial statements.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
consolidated historical and pro forma combined financial statements of the
Company and related notes thereto included elsewhere in this Form 10-Q and the
Annual Report on Form 10-K for the year ended December 31, 1997 (the "Form
10-K"). This discussion contains forward-looking statements regarding the
business and industry of the Company within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on the
current plans and expectations of the Company and involve risks and uncertanties
that could cause actual future activities and results of operations to be
materially different from those set forth in the forward-looking statements.
Important factors that could cause actual results to differ include risks set
forth in "Factors Which May Affect Future Results", included in the Form 10-K.
The Company is a leading national provider of comprehensive HVAC
installation, as well as maintenance, repair and replacement services. Founded
in December 1996, the Company is consolidating the fragmented commercial and
industrial HVAC markets and performs most of its services within manufacturing
plants, office buildings, retail centers, apartment complexes, and healthcare,
education and government facilities. In addition to standard HVAC services, the
Company also provides specialized applications such as process cooling, control
systems, electronic monitoring and process piping. Certain locations also
perform related services such as electrical and plumbing.
On July 2, 1997, the Company completed its IPO and simultaneously acquired
the 12 Founding Companies. Subsequent to the IPO, and through December 31, 1997,
the Company acquired 27 additional HVAC and complementary businesses. Of these
additional acquisitions, 14 are the Pooled Companies and the remaining 13
acquisitions have been accounted for as purchases. The historical financial
statements of the Company have not been retroactively restated to give effect to
the operations of one of the Pooled Companies which is considered immaterial.
Subsequent to December 31, 1997 and through March 31, 1998, the Company acquired
11 additional HVAC businesses, all of which have been accounted for as
purchases.
Pro forma combined and historical results are not necessarily indicative of
future results of the Company because, among other things, the Acquired
Companies were not under common control or management prior to their
acquisition. The Company's results of operations historically have been subject
to seasonal fluctuations.
The timing and magnitude of acquisitions, assimilation costs and the
seasonal nature of the HVAC industry may materially affect operating results.
Accordingly, the operating results for any period are not necessarily indicative
of the results that may be achieved for any subsequent period.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following unaudited pro forma combined information is presented
supplementally to reflect the pro forma results of operations as if the
acquisition of the Founding Companies occurred on January 1, 1997, as reflected
in the Company's publicly disclosed earnings announcements. Therefore, the
accompanying unaudited pro forma combined statements of operations and the
related management's discussion and analysis of the Company for the three months
ended March 31, 1998 and 1997, respectively, include the combined operations of
the Pooled Companies and the Founding Companies from January 1, 1997, and the
Purchased Companies acquired through date of presentation from the dates of
their acquisitions. One of the Pooled Companies is considered immaterial and has
not been restated for all periods presented.
The Acquired Companies, were managed prior to their acquisitions as
independent private companies. Therefore, historical selling, general, and
administrative expenses for the periods presented in the consolidated financial
statements of the Company reflect compensation and related benefits the owners
of those businesses received prior to acquisition. Historical selling, general
and administrative expenses also include the Compensation Charge recorded by the
Company in the first quarter of 1997 related to Common Stock
13
<PAGE>
issued to management of and consultants to the Company prior to the IPO. The pro
forma combined results of operations reflect: (i) the Compensation Differential
of the Founding and Pooled Companies which the former owners of those companies
agreed would take effect as of the date of the acquisitions, (ii) pro forma
combined compensation expense of $215,000 for the three months ended March 31,
1997, to reflect the ongoing salaries received by corporate management as though
those salaries were being paid prior to the IPO, (iii) interest expense on
borrowings of $11.0 million that would have been necessary to fund various S
Corporation Distributions of the Founding Companies as if they had occurred on
January 1, 1997, (iv) amortization of goodwill related to the Founding
Companies, and (v) the elimination of the Compensation Charge referred to above.
In addition, an incremental tax provision has been recorded as if all applicable
Purchased and Founding Companies and the Pooled Companies that were C
Corporations, had been subject to federal and state income taxes.
PRO FORMA COMBINED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1997 1998
-------------------- ---------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues............................. $ 65,906 100.0% $ 117,838 100.0%
Cost of services..................... 48,609 73.8 89,410 75.9
--------- --------- ---------- ---------
Gross profit......................... 17,297 26.2 28,428 24.1
Selling, general and administrative
expenses........................... 12,760 19.4 20,695 17.6
Goodwill amortization................ 874 1.3 1,170 1.0
--------- --------- ---------- ---------
Operating income..................... 3,663 5.6 6,563 5.6
Other income (expense), net.......... (246) (0.4) (531) (0.5)
--------- --------- ---------- ---------
Income before taxes.................. 3,417 5.2 6,032 5.1
Provision for income taxes........... 1,420 2,654
--------- --------- ---------- ---------
Pro forma combined net income........ $ 1,997 3.0% $ 3,378 2.9%
========= ========= ========== =========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
PRO FORMA COMBINED REVENUES. Pro forma combined revenues increased $51.9
million, or 78.8%, to $117.8 million for the first quarter of 1998. Revenues
increased approximately 20% for the Founding Companies in the first quarter of
1998 primarily due to greater demand for specialized multi-unit installation
services in Texas and in the Northeast, strong general activity in the Houston
market and higher demand for industrial design and build operations in the
Company's Tennessee-based operations. Revenues from the Purchased Companies
acquired subsequent to the IPO through the end of the first quarter of 1998
contributed approximately 80% of the increase in revenues in the first quarter
of 1998.
PRO FORMA COMBINED GROSS PROFIT. Pro forma combined gross profit increased
$11.1 million, or 64.3%, to $28.4 million for the first quarter of 1998,
primarily due to increased revenues at the Founding Companies, the addition of
the Purchased Companies, and incremental increases at some Pooled Companies. As
a percentage of revenues, pro forma combined gross profit decreased from 26.2%
in the first quarter of 1997 to 24.1% in the first quarter of 1998 as a result
of two principal factors. Acquisitions during the first quarter of 1998 included
companies with significant amounts of project activity at gross margins somewhat
lower than the Company's historical average. In addition, the Company continued
to realize lower than normal gross margins on certain "design and build"
installation projects which were undertaken as a strategic enhancement to the
Company's portfolio of "design and build" projects.
PRO FORMA COMBINED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
("SG&A"). Pro forma combined SG&A, excluding goodwill amortization, increased
$7.9 million, or 62.2%, to $20.7 million for the first quarter of 1998. The
Company's establishment as a public company in 1997 resulted in $1.6 million of
corporate office and management expenses in the first quarter of 1998, as
compared to a pro forma charge of $0.2 million in the first quarter of 1997 to
reflect the ongoing salaries received by corporate management
14
<PAGE>
as though those salaries were being paid prior to the IPO. The remaining
increases in SG&A were due principally to the addition of the Purchased
Companies. As a percentage of revenues, SG&A decreased from 19.4% to 17.6% in
the first quarter of 1998 due to the Company's ability to increase revenues
without a commensurate increase in SG&A.
PRO FORMA COMBINED OTHER INCOME (EXPENSE), NET. Pro forma combined other
expense, net increased to $0.5 million primarily due to the increase in interest
expense related to the acquisition of the Purchased Companies in 1998.
HISTORICAL RESULTS OF OPERATIONS
The following historical consolidated financial information represents the
operations of the Company restated for the effects of the Pooled Companies for
all periods presented and the Founding Companies and Purchased Companies from
their respective date of acquisitions. The historical financial statements of
the Company have not been retroactively restated to give effect to one of the
Pooled Companies which is considered an immaterial pooling. The following
historical financial information for 1997 includes the non-recurring, non-cash
Compensation Charge of $11.6 million recorded by the Company in the first
quarter of 1997, as well as non-recurring acquisition-related costs, and
reflects normal recurring corporate costs of the Company subsequent to the IPO.
This Compensation Charge is not deductible for federal and state income taxes.
HISTORICAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
1997 1998
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................. $ 26,401 100.0% $ 117,838 100.0%
Cost of services..................... 19,809 75.0 89,410 75.9
---------- --------- ---------- ---------
Gross profit......................... 6,592 25.0 28,428 24.1
Selling, general and administrative
expenses........................... 19,486 73.8 20,695 17.6
Goodwill amortization................ -- -- 1,170 1.0
---------- --------- ---------- ---------
Operating income (loss).............. (12,894) (48.8) 6,563 5.6
Other income (expense), net.......... 4 -- (531) (0.5)
---------- --------- ---------- ---------
Income (loss) before taxes........... (12,890) (48.8) 6,032 5.1
Provision (benefit) for income
taxes.............................. (749) -- 2,654 --
---------- --------- ---------- ---------
Net income (loss).................... $ (12,141) (46.0)% $ 3,378 2.9%
========== ========= ========== =========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased $91.4 million, or 346.3%, from $26.4 million
for the three months ended March 31, 1997, to $117.8 million for the three
months ended March 31, 1998. The increase in revenues was primarily due to the
acquisition of the Founding Companies and Purchased Companies.
GROSS PROFIT. Gross profit increased $21.8 million, or 331.2%, from $6.6
million for the three months ended March 31, 1997 to $28.4 million for the three
months ended March 31, 1998. This increase was primarily due to the acquisitions
described above. As a percentage of revenues, gross profit decreased from 25.0%
for the three months ended March 31, 1997 to 24.1% for the three months ended
March 31, 1998, as a result of two principal factors. Acquisitions during the
first quarter of 1998 included companies with significant amounts of project
activity at gross margins somewhat lower than the Company's historical average.
In addition, the Company continued to realize lower than normal gross margins on
certain "design and build" installation projects which were undertaken as a
strategic enhancement to the Company's portfolio of "design and build"
projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A, excluding goodwill
amortization, for the three months ended March 31, 1997 includes the $3.0
million Compensation Differential which will be eliminated prospectively.
Additionally, the Company recorded the Compensation Charge of $11.6 million in
the first quarter of 1997. Excluding the Compensation Differential, the
Compensation Charge and goodwill amortization, SG&A increased $15.7 million, to
$20.7 million for the three months ended March 31, 1998.
15
<PAGE>
Most of this increase was related to the Founding Companies and Purchased
Companies acquired since the IPO along with corporate office and management
expenses associated with the Company's establishment as a public company.
OTHER INCOME (EXPENSE), NET Other expense, net increased to $0.5 million,
primarily due to the increase in interest expense related to the acquisition of
the Purchased Companies in 1998.
LIQUIDITY AND CAPITAL RESOURCES -- HISTORICAL
For the three months ended March 31, 1998, net cash used in operating
activities was $4.0 million due to a decrease in accounts payable of $4.3
million and an increase in accounts receivables of $1.6 million. Accounts
payable balances decreased from the date of acquisition at various locations as
certain companies took advantage of the consolidated cash management system to
receive cash discounts for early payments. Cash provided from operations for the
three months ended March 31, 1997 was $1.1 million, primarily as a result of an
increase in accounts payable.
Cash used in investing activities was $16.9 million for the three months
ended March 31, 1998, primarily in connection with the acquisition of the
Acquired Companies for $15.4 million, net of cash acquired. Cash flows used in
investing activities for the three months ended March 31, 1997 was $0.4 million,
primarily for additions to equipment.
Cash provided by financing activities for the three months ended March 31,
1998 was $12.0 million and was primarily attributable to the net borrowings of
long-term debt. Net cash provided in financing activities for the three months
ended March 31, 1997 was $0.5 and was primarily attributable to borrowings of
long-term debt.
At March 31, 1998, working capital was $64.8 million and total debt
outstanding was $50.9 million.
Subsequent to March 31, 1998, and through May 12, 1998, the Company
completed the acquisition of 13 companies for approximately $29.6 million in
cash, 1,495,648 shares of Common Stock and approximately $15.4 million in
convertible subordinated notes. These acquisitions were accounted for as
purchase transactions.
In July 1997, the Company entered into the Credit Facility with Bank One,
Texas, N.A. which was amended and restated in September 1997 primarily to
provide for additional banks to lend to the Company. The Credit Facility was
further amended in April 1998 to increase borrowing capacity and to provide for
additional banks to lend to the Company. The Credit Facility provides the
Company with an unsecured revolving line of credit of $175 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. Under the other interest rate option, borrowings bear interest based on
designated short-term Eurodollar rates (which generally approximate the London
Interbank Offer Rate or LIBOR) plus 0.75 to 1.5 percentage points. The amount of
percentage points added depends on the ratio of the Company's debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the
preceding twelve months. For purposes of this ratio, EBITDA may include the
preceding twelve months' results for any companies acquired during the last
year. In addition, commitment fees of 0.125% to 0.325% per annum, also depending
on the ratio of debt to EBITDA, are payable on the unused portion of the Credit
Facility. The Credit Facility prohibits the payment of dividends by the Company
without lender's approval and requires the Company to comply with certain
financial covenants. The Credit Facility expires on April 14, 2001, at which
time, all amounts outstanding under the facility are due. As of March 31 1998,
$43.8 million was outstanding under the Credit Facility. As of May 12, 1998,
$75.6 million was outstanding under the Credit Facility.
The Company intends to pursue additional acquisition opportunities, the
cash portion of which will be financed with borrowings under the Credit Facility
as well as cash flow from operations. The Company anticipates that 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. Should the
16
<PAGE>
Company accelerate or revise its acquisition program, the Company may need to
seek financing in addition to the Credit Facility through the public or private
sale of equity or debt securities. There can be no assurance that the Company
can secure such financing if and when needed, or that such financing will be
available on terms the Company deems acceptable.
YEAR 2000
The Company is currently implementing a Year 2000 program to ensure that
the Company's computer systems and applications will function properly beyond
1999. The Company expects its Year 2000 date conversion program will be
successfully completed on a timely basis. There can, however, be no assurance
that this will be the case. The Company does not expect to incur significant
expenditures to address this issue. The ability of third parties with whom the
Company transacts business to address adequately their Year 2000 issues is
outside of the Company's control. There can be no assurance that the failure of
the Company or such third parties to address adequately their respective Year
2000 issues will not have a material adverse effect on the Company's financial
condition or results of operations.
SEASONALITY AND CYCLICALITY
The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installation and replacement is generally lower during the winter
months due to reduced construction activity 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 calendar 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 calendar 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.
17
<PAGE>
COMFORT SYSTEMS USA, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
During the three month period ended March 31, 1998, as consideration to
various shareholders of acquired companies, the Company issued a total of
1,778,631 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, none of which was individually material. 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 and Plan of Merger dated
February 12, 1998, by and among
Registrant, F&G Mechanical Corporation, X
Salvatore Fichera and Salvatore P.
Giardina. (Incorporated by reference to
report on Form 8-K dated February 26,
1998.)
27.1 -- Financial Data Schedule. (Filed
herewith)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and Exchange
Commission on February 26, 1998. Under Item 2 of that report, the Company
described its acquisition of F&G Mechanical Corporation and Meadowlands Fire
Protection Corp., both mechanical contractors, engaged primarily in HVAC and
fire suppression services. On April 23, 1998, the Company filed an amendment to
that report on Form 8-K(A), which supplemented the previous filing with the
financial statements of the above-referenced acquired companies and certain pro
forma financial information.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
18
<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
Date: May 14, 1998
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q THREE MONTHS ENDED MARCH 31,1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,256
<SECURITIES> 3,431
<RECEIVABLES> 97,983
<ALLOWANCES> 1,352
<INVENTORY> 7,012
<CURRENT-ASSETS> 133,298
<PP&E> 39,683
<DEPRECIATION> 25,098
<TOTAL-ASSETS> 361,776
<CURRENT-LIABILITIES> 68,469
<BONDS> 0
0
0
<COMMON> 288
<OTHER-SE> 241,426
<TOTAL-LIABILITY-AND-EQUITY> 361,776
<SALES> 117,838
<TOTAL-REVENUES> 117,838
<CGS> 89,410
<TOTAL-COSTS> 20,584
<OTHER-EXPENSES> 1,170
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> 531
<INCOME-PRETAX> 6,032
<INCOME-TAX> 2,654
<INCOME-CONTINUING> 3,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,378
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
