<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 SEPTEMBER 30, 1999
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.)
777 POST OAK BOULEVARD
SUITE 500
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 10, 1999, was 37,813,537.
================================================================================
<PAGE>
COMFORT SYSTEMS USA, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PAGE
----
Part I -- Financial Information
Item 1 -- Financial Statements
COMFORT SYSTEMS USA, INC.
Introduction to Financial Statements............ 1
Consolidated Balance Sheets................ 2
Consolidated Statements of Operations............ 3
Consolidated Statements of Stockholders' Equity.. 4
Consolidated Statements of Cash Flows............ 5
Notes to Consolidated Financial Statements....... 6
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 12
Part II -- Other Information
Item 1 -- Legal Proceedings................................. 17
Item 2 -- Recent Sales of Unregistered Securities........... 17
Item 6 -- Exhibits and Reports on Form 8-K.................. 17
Item 9 -- Changes and Disagreements with Accountants
on Accounting and Financial Disclosure............ 17
Signature................................................... 18
<PAGE>
COMFORT SYSTEMS USA, INC.
PART I, ITEM 1 -- FINANCIAL INFORMATION
GENERAL INFORMATION
INTRODUCTION TO FINANCIAL STATEMENTS
Comfort Systems USA, Inc., a Delaware corporation ("Comfort Systems" and
collectively with its subsidiaries, the "Company") is a leading national
provider of comprehensive heating, ventilation and air conditioning ("HVAC")
installation, 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 the initial public offering (the
"IPO") of its common stock (the "Common Stock") and simultaneously acquired
12 companies (collectively referred to as the "Founding Companies") engaged in
providing HVAC services. The Founding Companies had 18 operating locations in 10
states. Subsequent to the IPO, and through September 30, 1999, the Company
acquired 104 additional HVAC and complementary businesses (collectively with the
Founding Companies, the "Acquired Companies"). Of these additional businesses
acquired, 17 were accounted for as poolings-of-interests (the "Pooled
Companies"). The remaining businesses acquired were accounted for as purchases
(the "Purchased Companies"). The companies acquired subsequent to the IPO
added 105 operating locations in 21 additional states. These acquisitions
included 25 "tuck-in" operations that have been or are currently being
integrated with existing Company operations.
Historical interim period results are not necessarily indicative of future
results because, among other things, these Acquired Companies were not under
common control or management prior to their acquisition by the Company. The
Company's results of operations historically have been subject to seasonal
fluctuations. These interim statements should be read in conjunction with the
historical Consolidated Financial Statements and related notes of Comfort
Systems included in the Annual Report on Form 10-K as filed with the Securities
and Exchange Commission for the year ended December 31, 1998.
1
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 6,985 $ 7,602
Accounts receivable............. 241,332 301,924
Less -- Allowance.......... 4,758 5,562
------------ -------------
Accounts receivable,
net............... 236,574 296,362
Other receivables............... 2,733 5,892
Inventories..................... 14,768 18,953
Prepaid expenses and other...... 14,264 20,013
Costs and estimated earnings in
excess of billings............. 37,228 56,372
------------ -------------
Total current
assets............ 312,552 405,194
PROPERTY AND EQUIPMENT, net.......... 34,413 40,224
GOODWILL, less accumulated
amortization of $8,983 and
$17,595............................ 430,526 471,052
OTHER NONCURRENT ASSETS.............. 11,802 11,788
------------ -------------
Total assets.......... $789,293 $ 928,258
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt........................... $ 1,568 $ 4,785
Current maturities of notes to
affiliates and former owners... 7,509 21,299
Accounts payable................ 74,161 88,837
Accrued compensation and
benefits....................... 25,869 31,290
Billings in excess of costs and
estimated earnings............. 43,968 46,986
Income taxes payable............ 1,299 6,034
Other current liabilities....... 24,788 26,897
------------ -------------
Total current
liabilities....... 179,162 226,128
DEFERRED INCOME TAXES................ 1,124 1,761
LONG-TERM DEBT, NET OF CURRENT
MATURITIES......................... 171,039 220,075
NOTES TO AFFILIATES AND FORMER
OWNERS, NET OF
CURRENT MATURITIES................. 56,330 55,915
OTHER LONG-TERM LIABILITIES.......... 1,706 1,695
------------ -------------
Total liabilities..... 409,361 505,574
COMMITMENTS AND CONTINGENCIES........ -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par,
5,000,000 shares authorized,
none
issued and outstanding........ -- --
Common stock, $.01 par,
102,969,912 shares authorized,
38,141,180
and 39,251,677 shares issued
and outstanding,
respectively................... 381 393
Additional paid-in capital...... 333,978 342,641
Retained earnings............... 45,573 79,650
------------ -------------
Total stockholders'
equity............ 379,932 422,684
------------ -------------
Total liabilities and
stockholders'
equity............ $789,293 $ 928,258
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
1998 1999 1998 1999
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
REVENUES............................. $ 232,381 $ 374,815 $ 559,339 $ 1,008,234
COST OF SERVICES..................... 175,308 298,480 423,223 792,482
---------- ---------- ---------- ------------
Gross profit............... 57,073 76,335 136,116 215,752
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 34,405 45,793 87,609 133,984
GOODWILL AND OTHER AMORTIZATION...... 1,854 2,983 4,642 8,650
---------- ---------- ---------- ------------
Operating income........... 20,814 27,559 43,865 73,118
OTHER INCOME (EXPENSE):
Interest income................. 233 209 625 598
Interest expense................ (1,941) (5,265) (4,356) (14,078)
Other........................... 137 89 156 192
---------- ---------- ---------- ------------
Other income (expense)..... (1,571) (4,967) (3,575) (13,288)
---------- ---------- ---------- ------------
INCOME BEFORE INCOME TAXES........... 19,243 22,592 40,290 59,830
PROVISION FOR INCOME TAXES........... 8,444 9,724 17,687 25,753
---------- ---------- ---------- ------------
NET INCOME........................... $ 10,799 $ 12,868 $ 22,603 $ 34,077
========== ========== ========== ============
NET INCOME PER SHARE:
Basic........................... $ 0.32 $ 0.33 $ 0.71 $ 0.88
========== ========== ========== ============
Diluted......................... $ 0.31 $ 0.33 $ 0.70 $ 0.86
========== ========== ========== ============
SHARES USED IN COMPUTING NET INCOME
PER SHARE:
Basic........................... 33,964 39,060 31,689 38,705
========== ========== ========== ============
Diluted......................... 34,454 39,531 32,179 40,335
========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------ ------ ---------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997......... 28,013,436 $ 280 $ 205,829 $ 11,526 $217,635
Issuance of Common Stock:
Proceeds of the Second Public
Offering...................... 861,479 9 15,892 -- 15,901
Acquisition of Purchased
Companies..................... 9,212,573 92 111,456 -- 111,548
Issuance of Employee Stock
Purchase Plan shares.......... 29,362 -- 482 -- 482
Issuance of shares for options
exercised..................... 24,330 -- 319 -- 319
S Corporation distributions made
by certain Pooled Companies..... -- -- -- (966) (966)
Net income........................ -- -- -- 35,013 35,013
------------ ------ ---------- -------- --------------
BALANCE AT DECEMBER 31, 1998......... 38,141,180 381 333,978 45,573 379,932
Issuance of Common Stock:
Acquisition of Purchased
Companies (unaudited)......... 951,297 10 6,407 -- 6,417
Issuance of Employee Stock
Purchase Plan shares
(unaudited)................... 142,276 2 2,036 -- 2,038
Issuance of shares for options
exercised (unaudited)......... 16,924 -- 220 -- 220
Net income (unaudited)............. -- -- -- 34,077 34,077
------------ ------ ---------- -------- --------------
BALANCE AT SEPTEMBER 30, 1999
(unaudited)........................ 39,251,677 $ 393 $ 342,641 $ 79,650 $422,684
============ ====== ========== ======== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 22,603 $ 34,077
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation and amortization
expense........................ 9,219 16,955
Bad debt expense................ 384 656
Deferred tax benefit............ (118) (639)
Gain on sale of property and
equipment...................... (158) (280)
Changes in operating assets and
liabilities, net of effects of
acquisitions of Purchased
Companies --
(Increase) decrease in --
Receivables, net...... (39,302) (46,153)
Inventories........... (1,420) (3,032)
Prepaid expenses and
other current
assets............ (6,744) (41)
Costs and estimated
earnings in excess
of billings....... (4,241) (17,294)
Other noncurrent
assets............ 499 1,076
Increase (decrease) in --
Accounts payable and
accrued
liabilities....... (3,642) 16,875
Billings in excess of
costs and
estimated
earnings.......... 4,299 1,074
Other, net............ (1,262) (1,001)
---------- ------------
Net cash provided by (used
in) operating
activities.............. (19,883) 2,273
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment...................... (7,069) (11,360)
Proceeds from sales of property
and equipment.................. 699 1,020
Cash paid for Purchased
Companies, net of cash
acquired....................... (62,683) (27,448)
Other........................... -- (500)
---------- ------------
Net cash used in investing
activities.............. (69,053) (38,288)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt...... (63,185) (154,486)
Borrowings of long-term debt.... 127,928 188,860
S Corporation distributions paid
by certain Pooled Companies.... (821) --
Proceeds from issuance of common
stock.......................... 16,604 2,258
---------- ------------
Net cash provided by
financing activities.... 80,526 36,632
---------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (8,410) 617
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 18,097 6,985
---------- ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 9,687 $ 7,602
========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BUSINESS AND ORGANIZATION:
Comfort Systems USA, Inc., a Delaware corporation ("Comfort Systems" and
collectively with its subsidiaries, the "Company"), is a leading national
provider of comprehensive heating, ventilation and air conditioning ("HVAC")
installation, 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, Comfort Systems completed the initial public offering (the
"IPO") of its common stock (the "Common Stock") and simultaneously acquired
12 companies (collectively referred to as the "Founding Companies") engaged in
providing HVAC services. The Founding Companies had 18 operating locations in 10
states. Subsequent to the IPO, and through September 30, 1999, the Company
acquired 104 additional HVAC and complementary businesses (collectively with the
Founding Companies, the "Acquired Companies"). Of these additional businesses
acquired, 17 were accounted for as poolings-of-interests (the "Pooled
Companies"). The remaining businesses acquired were accounted for as purchases
(the "Purchased Companies"). The companies acquired subsequent to the IPO
added 105 operating locations in 21 additional states. These acquisitions
included 25 "tuck-in" operations that have been or are currently being
integrated with existing Company operations.
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 of Comfort Systems included
in the Annual Report on Form 10-K as filed with the Securities and Exchange
Commission for the year ended December 31, 1998.
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 for the year ended December 31, 1998.
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 nine months ended September 30, 1998 and
1999 was approximately $3.7 million and $12.0 million, respectively. Cash paid
for income taxes for the nine months ended September 30, 1998 and 1999 was
approximately $21.2 million and $23.0 million, respectively.
6
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 -- (CONTINUED)
3. BUSINESS COMBINATIONS:
POOLINGS
During 1998, the Company acquired all of the outstanding stock of three of
the Pooled Companies in exchange for 1,437,767 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 Annual Report on Form 10-K as filed with the Securities and Exchange
Commission for the year ended December 31, 1998. These companies provide HVAC
and related services.
There were no acquisitions for the nine months ended September 30, 1999
which were accounted for as poolings-of-interests.
PURCHASES
During 1998, the Company acquired 52 of the Purchased Companies. These
companies provide HVAC and related services. The aggregate consideration paid in
these transactions was $161.2 million in cash, 9,212,573 shares of Common Stock
with a market value at the date of acquisition totaling $111.5 million, $57.4
million in the form of convertible subordinated notes and $3.1 million in the
form of subordinated notes (collectively the "Notes"). Subsequent to the
issuance of certain of the convertible subordinated notes, the Company entered
into agreements with certain of the convertible noteholders to modify the terms
of $49.3 million of these notes in order to eliminate the provisions relating to
convertibility into the Company's Common Stock. The remaining convertible
subordinated notes are convertible at various dates in 1999 and 2000 into 28,965
and 53,655 shares of Common Stock, respectively. Prior to 1998, convertible
subordinated notes were issued to certain Purchased Companies and are
convertible at various dates in 1999 into 121,413 shares of Common Stock.
For the nine months ended September 30, 1999, Comfort Systems acquired 22
additional companies, which were accounted for as purchase transactions. These
companies provide HVAC and related services. The aggregate consideration paid in
these transactions was approximately $33.6 million in cash, 1,027,248 shares of
Common Stock with a market value at the date of acquisition totaling $7.5
million, approximately $2.2 million in the form of convertible subordinated
notes and $18.9 million in the form of subordinated notes. Subsequent to the
issuance of certain of the convertible subordinated notes, the Company entered
into agreements with certain of the convertible noteholders to modify the terms
of $0.7 million of these notes in order to eliminate the provisions relating to
convertibility into the Company's Common Stock. The remaining convertible
subordinated notes are convertible at various dates in 2000 into 62,276 shares
of Common Stock. The allocation of the respective purchase prices to the assets
acquired and liabilities assumed resulted in $51.8 million of goodwill related
to the companies acquired during the first nine months of 1999.
The accompanying balance sheets include allocations of the respective
purchase prices to the assets acquired and liabilities assumed based on
preliminary estimates of fair value and are subject to final adjustment.
7
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 -- (CONTINUED)
The unaudited pro forma data presented below consist of the income
statement data presented in these consolidated financial statements plus income
statement data for the Purchased Companies as if the acquisitions were effective
on January 1, 1998 through the respective dates of acquisitions (in thousands,
except per share data):
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
---------- ------------
Revenues............................. $ 986,035 $ 1,049,570
Net income........................... $ 31,332 $ 34,366
Net income per share -- diluted...... $ 0.80 $ 0.86
Shares used in computing net income
per share -- diluted................. 38,953 40,797
Pro forma adjustments included in the preceding table regarding the
Acquired Companies primarily relate to (a) certain reductions in salaries and
benefits to the former owners (the "Compensation Differential") of the Pooled
Companies and Purchased Companies which the former owners agreed would take
effect as of the acquisition date, (b) elimination of merger costs in connection
with the acquisition of the Pooled Companies, (c) amortization of goodwill
related to the Purchased Companies, (d) interest expense on borrowings of $11.8
million that would have been necessary to fund certain S Corporation
distributions if they had occurred at the beginning of each period presented,
(e) interest expense on borrowings of $116.4 million related to the purchase
price of the Purchased Companies acquired during 1998 and the first nine months
of 1999 and (f) interest expense related to $57.1 million of subordinated notes
issued in connection with the acquisition of certain Acquired Companies. In
addition, an incremental tax provision has been recorded as if all applicable
Purchased Companies and Pooled Companies which were C Corporations had been
subject to federal and state income taxes.
The pro forma results presented above are not necessarily indicative of
actual results which might have occurred had the operations and management teams
of the Company, the Purchased Companies and Pooled Companies been combined at
the beginning of the periods presented.
4. LONG-TERM DEBT OBLIGATIONS:
Long-term debt obligations consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED)
Revolving credit facility............ $ 170,700 $219,900
Notes to affiliates and former
owners............................. 63,839 77,214
Other................................ 1,907 4,960
------------- --------------
Total debt........................... 236,446 302,074
Less: current maturities............. 9,077 26,084
------------- --------------
$ 227,369 $275,990
============= ==============
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. At that time, the Credit Facility
provided the Company with an unsecured revolving line of credit of $75 million.
The Credit Facility was further amended in April 1998 and again in December 1998
in order to increase borrowing capacity and to provide
8
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 -- (CONTINUED)
for additional banks to lend to the Company under the Credit Facility. The
Credit Facility currently provides the Company with a revolving line of credit
up to $300 million secured by accounts receivable, inventory and the shares of
capital stock of the Company's subsidiaries. The Company currently 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 0.5% or the bank's prime rate. An additional margin of zero to 1.25%
is then added to the higher of these two rates. Under the other interest rate
option, borrowings bear interest based on designated short-term Eurodollar rates
(which generally approximate LIBOR) plus 1.0% to 2.5%. The additional margin for
both options depends on the ratio of the Company's debt to EBITDA. Commitment
fees of 0.25% to 0.5% 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 the lenders' approval and
requires the Company to comply with certain financial covenants. The amended
Credit Facility expires on November 1, 2001, at which time all amounts
outstanding under the Credit Facility are due.
As of September 30, 1999, the Company had borrowed $219.9 million under the
Credit Facility at an average interest rate of approximately 7.0% per annum for
the first nine months of 1999. As of November 10, 1999, $229.1 million was
outstanding under this facility.
NOTES TO AFFILIATES AND FORMER OWNERS
The Notes in the amount of $77.2 million, net of $9.4 million of
repayments, referred to above were issued to former owners of certain Purchased
Companies as partial consideration of the acquisition purchase price. Of these
Notes, $76.7 million bear interest, payable quarterly, at a weighted average
interest rate of 5.84% and $6.3 million are convertible by the holders into
shares of the Company's Common Stock at a weighted average price of $23.78 per
share. The remaining Notes in the amount of $0.5 million are non-interest
bearing with the remaining principal payments due in four equal annual
installments beginning in 2000. The terms of the convertible subordinated notes
require $0.2 million of principal payments in 1999, $3.2 million of principal
payments in 2000, $0.6 million of principal payments in 2001, $1.9 million of
principal payments in 2002 and $0.4 million of principal payments in 2003. The
terms of the nonconvertible interest-bearing subordinated notes require $2.3
million of principal payments in 1999, $20.1 million of principal payments in
2000, $29.2 million of principal payments in 2001 and $18.8 million of principal
payments in 2002.
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 in order 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. A wholly-owned insurance company subsidiary reinsures a
portion of the risk associated with surety bonds issued by a third party
insurance company. Because no claims have been made against these financial
instruments in the past, management does not expect these instruments will have
a material effect on the Company's consolidated financial statements.
9
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 -- (CONTINUED)
6. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
During 1998, the Company increased the number of authorized shares of
Common Stock to 102,969,912. On June 16, 1998, the Company completed a second
public offering (the "Second Public Offering") of 400,000 shares of its Common
Stock. The net proceeds from this offering of $7.6 million, after deducting
underwriting commissions, were used to repay debt. On July 21, 1998, the
underwriters exercised their overallotment option in connection with the Second
Public Offering completed in June 1998. An additional 461,479 shares of Common
Stock were sold and the net proceeds of $8.8 million, after deducting
underwriting commissions, were used to repay debt.
RESTRICTED COMMON STOCK
In March 1997, Notre Capital Ventures II, L.L.C. ("Notre") exchanged
2,742,912 shares of Common Stock for an equal number of shares of restricted
voting common stock ("Restricted Voting Common Stock"). The holders of
Restricted Voting Common Stock are entitled to elect one member of the Company's
Board of Directors and 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 outstanding shares of Restricted Voting Common Stock have been
previously converted into shares of Common Stock. As of September 30, 1999,
736,335 shares of Restricted Voting Common Stock had been converted to shares of
Common Stock.
EARNINGS PER SHARE
Basic earnings per share ("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 considering the dilutive effect of stock options and
convertible subordinated notes. Options to purchase 2.3 million shares of
Common Stock at prices ranging from $15.375 to $21.438 per share and options to
purchase 2.0 million shares of Common Stock at prices ranging from $15.875 to
$21.438 per share were outstanding for the three months and nine months ended
September 30, 1999, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the respective average market price of the Common Stock. Diluted EPS is
also computed by adjusting both net earnings and shares outstanding as if the
conversion of the convertible subordinated notes occurred on the first day of
the year. The after tax interest expense related to the assumed conversion of
the convertible subordinated notes during the three months and nine months ended
September 30, 1999 was $52,000 and $757,000, respectively. The effect of the
assumed conversion of the convertible subordinated notes during the first nine
months of 1998 was antidilutive.
10
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 -- (CONTINUED)
The following table summarizes weighted average shares outstanding for each
of the periods presented (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1999 1998 1999
--------- --------- --------- ---------
Shares issued in connection with the
acquisitions of the Founding
Companies.......................... 9,721 9,721 9,721 9,721
<S> <C> <C> <C> <C>
Shares sold pursuant to the IPO...... 6,100 6,100 6,100 6,100
Shares held by Notre, management and
consultants........................ 4,240 4,240 4,240 4,240
Shares issued in connection with the
acquisitions of the Pooled
Companies.......................... 5,946 5,946 5,946 5,946
Weighted average shares issued in
connection with the underwriter's
overallotment...................... 1,276 1,376 1,037 1,376
Weighted average shares issued in
connection with the acquisitions of
the Purchased Companies............ 6,245 11,098 4,482 10,794
Weighted average shares sold in the
Second Public Offering............. 400 400 152 400
Weighted average portion of shares
issued in connection
with the Employee Stock Purchase
Plan............................... 20 142 6 98
Weighted average portion of shares
issued in connection
with the exercise of stock
options............................ 16 37 5 30
--------- --------- --------- ---------
Weighted average shares
outstanding -- Basic............... 33,964 39,060 31,689 38,705
Weighted average portion of shares
related to stock
options under the treasury stock
method............................. 490 202 490 228
Weighted average shares related to
the issuance of
convertible notes.................. -- 269 -- 1,402
--------- --------- --------- ---------
Weighted average shares
outstanding -- Diluted............. 34,454 39,531 32,179 40,335
========= ========= ========= =========
</TABLE>
7. SUBSEQUENT EVENTS:
On October 5, 1999, the Company announced that its Board of Directors had
approved a share repurchase program authorizing the Company to buy up to 4
million shares of its Common Stock. As of November 10, 1999, the Company has
purchased approximately 1.5 million shares at a cost of approximately $10.5
million.
11
<PAGE>
COMFORT SYSTEMS USA, INC.
ITEM 2. 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, 1998 (the "Form
10-K"). This discussion contains forward-looking statements regarding the
business and industry of Comfort Systems 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
uncertainties 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, 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 the IPO and simultaneously acquired
the 12 Founding Companies, which are engaged in providing HVAC services.
Subsequent to the IPO, and through September 30, 1999, the Company acquired 104
additional HVAC and complementary businesses. Of these additional businesses, 17
were accounted for as poolings-of-interests and the remaining businesses were
accounted for as purchases. The consolidated historical financial statements of
the Company have been retroactively restated to give effect to the operations of
the Pooled Companies.
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 results of the
Company have historically 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. These historical statements of
operations should be read in conjunction with the historical Consolidated
Financial Statements and related notes of Comfort Systems, filed herewith, and
the additional information and the respective financial statements and related
notes of Comfort Systems included in the Annual Report on Form 10-K as filed
with the Securities and Exchange Commission for the year ended December 31,
1998.
12
<PAGE>
RESULTS OF OPERATIONS -- HISTORICAL (IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------ --------------------------------------------
1998 1999 1998 1999
-------------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 232,381 100.0% $ 374,815 100.0% $ 559,339 100.0% $ 1,008,234 100.0%
Cost of services..................... 175,308 75.4 298,480 79.6 423,223 75.7 792,482 78.6
--------- --------- --------- --------- --------- --------- ----------- ---------
Gross profit......................... 57,073 24.6 76,335 20.4 136,116 24.3 215,752 21.4
Selling, general and administrative
expenses........................... 34,405 14.8 45,793 12.2 87,609 15.7 133,984 13.3
Goodwill amortization................ 1,854 0.8 2,983 0.8 4,642 0.8 8,650 0.9
--------- --------- --------- --------- --------- --------- ----------- ---------
Operating income..................... 20,814 9.0 27,559 7.4 43,865 7.8 73,118 7.3
Other income (expense)............... (1,571) (0.7) (4,967) (1.3) (3,575) (0.6) (13,288) (1.3)
--------- --------- --------- --------- --------- --------- ----------- ---------
Income before taxes.................. 19,243 8.3 22,592 6.0 40,290 7.2 59,830 5.9
Provision for income taxes........... 8,444 -- 9,724 -- 17,687 -- 25,753 --
--------- --------- --------- --------- --------- --------- ----------- ---------
Net income........................... $ 10,799 4.6% $ 12,868 3.4% $ 22,603 4.0% $ 34,077 3.4%
========= ========= ========= ========= ========= ========= =========== =========
</TABLE>
REVENUES -- Revenues increased $142.4 million, or 61.3%, to $374.8 million
for the third quarter of 1999 and increased $448.9 million, or 80.3%, to $1.0
billion for the first nine months of 1999, compared to the same periods in 1998.
The increase in revenues was primarily due to the acquisition of Purchased
Companies; however, the Company has experienced a decline in internal revenue
growth from previous periods. The Company believes that this is primarily
attributable to a slowing in the growth of the construction industry due to
shortages in both labor and specialty building materials, which in turn impacted
HVAC installations.
GROSS PROFIT -- Gross profit increased $19.3 million, or 33.7%, to $76.3
million for the third quarter of 1999 and increased $79.6 million, or 58.5%, to
$215.8 million for the first nine months of 1999, compared to the same periods
in 1998. This increase was primarily due to the acquisitions described above. As
a percentage of revenues, gross profit decreased from 24.6% for the three months
ended September 30, 1998 to 20.4% for the three months ended September 30, 1999
and from 24.3% for the first nine months of 1998 to 21.4% for the first nine
months of 1999. This decrease primarily resulted from the reclassification of
certain costs from selling, general and administrative expenses to cost of
services. These costs relate to activities that directly support project or
service work. This reclassification better aligns the presentation of cost of
services and selling, general and administrative expenses across all of our
acquired operations. Excluding the effect of this reclassification for the three
months and nine months ended September 30, 1999 of approximately $7.3 million
and $21.0 million, respectively, gross profit as a percentage of revenues
decreased from 24.6% for the third quarter of 1998 to 22.3% for the third
quarter of 1999 and decreased from 24.3% for the first nine months of 1998 to
23.5% for the first nine months of 1999. This decrease in gross profit as a
percentage of revenues resulted from lower internal revenue growth as a result
of construction industry capacity issues as discussed above. In addition, there
has been a shift in the mix of installation projects to higher labor-intensive
projects with lower gross profit percentages, pricing competition in certain
markets and execution shortfalls and inefficiencies as the Company sought
stronger revenue growth levels. Hurricane Floyd also affected results as a
number of the Company's eastern seaboard locations saw temporary halts in
activity in connection with the storm.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") -- SG&A increased
$11.4 million, or 33.1%, to $45.8 million for the third quarter of 1999 and
increased $46.4 million, or 52.9%, to $134.0 million for the first nine months
of 1999, compared to the same periods in 1998. Most of this increase was related
to Purchased Companies acquired subsequent to third quarter 1998 along with an
increase in corporate personnel and corporate office expenses commensurate with
the increase in the number of Acquired Companies. As a percentage of revenues,
selling, general and administrative expenses decreased from 14.8% for the three
months ended September 30, 1998 to 12.2% for the three months ended September
30, 1999 and from 15.7% for the first nine months of 1998 to 13.3% for the first
nine months of 1999. This decrease is primarily attributable to the
reclassification of costs as described above. Excluding
13
<PAGE>
the effect of this reclassification for the three months and nine months ended
September 30, 1999 of approximately $7.3 million and $21.0 million,
respectively, SG&A expenses as a percentage of revenues decreased from 14.8% for
the third quarter of 1998 to 14.2% for the third quarter of 1999 and decreased
from 15.7% for the first nine months of 1998 to 15.4% for the first nine months
of 1999. This decrease in SG&A as a percentage of revenues resulted from
increased volume without a commensurate increase in overhead even though the
Company experienced higher medical costs as a result of initiating a national
health insurance program. SG&A for the third quarter of 1998 and the first nine
months of 1998 includes $0.7 million and $1.8 million, respectively, of salaries
and benefits paid to the former owners of the Pooled Companies which the former
owners contractually agreed would not continue following their acquisition by
Comfort Systems.
OPERATING INCOME -- Operating income increased $6.7 million, or 32.4%, to
$27.6 million for the third quarter of 1999 and increased $29.3 million, or
66.7%, to $73.1 million for the first nine months of 1999, compared to the same
periods in 1998. This increase was primarily due to the addition of Purchased
Companies. As a percentage of revenues, operating income decreased from 9.0% for
the three months ended September 30, 1998 to 7.4% for the three months ended
September 30, 1999, and decreased from 7.8% for the nine months ended September
30, 1998 to 7.3% for the nine months ended September 30, 1999. The decrease in
operating income as a percentage of revenues resulted from issues discussed
above.
OTHER INCOME (EXPENSE) -- Other expense, net, increased to $5.0 million and
$13.3 million for the three months and nine months ended September 30, 1999
primarily due to the increase in interest expense related to the acquisition of
Purchased Companies subsequent to the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES -- HISTORICAL
For the nine months ended September 30, 1999, net cash provided by
operating activities was $2.3 million which reflects a typical increase in
working capital investment in the second and third calendar quarters as a result
of higher activity levels on a seasonal basis. This is an increase of $22.2
million over the comparable period of the prior year when cash used in operating
activities was $19.9 million primarily as a result of a decrease in accounts
payable and accrued liabilities and an increase in accounts receivable.
Cash used in investing activities was $38.3 million for the nine months
ended September 30, 1999, primarily in connection with the acquisition of
Purchased Companies for $27.4 million, net of cash acquired. Cash used in
investing activities for the nine months ended September 30, 1998 was $69.1
million, primarily for the acquisition of Purchased Companies.
Cash provided by financing activities for the nine months ended September
30, 1999 was $36.6 million and was primarily attributable to net borrowings of
long-term debt of $34.4 million, which were primarily used to fund acquisitions.
Net cash provided by financing activities for the nine months ended September
30, 1998 was $80.5 million and was primarily attributable to net borrowings of
long-term debt related to the acquisition of Purchased Companies.
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. At that time, the Credit Facility
provided the Company with an unsecured revolving line of credit of $75 million.
The Credit Facility was further amended in April 1998 and again in December 1998
in order to increase borrowing capacity and to provide for additional banks to
lend to the Company under the Credit Facility. The Credit Facility currently
provides the Company with a revolving line of credit up to $300 million secured
by accounts receivable, inventory and the shares of capital stock of the
Company's subsidiaries. The Company currently 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 0.5% or
the bank's prime rate. An additional margin of zero to 1.25% is then added to
the higher of these two rates. Under the other interest rate option, borrowings
bear interest based on designated short-term Eurodollar rates (which generally
approximate LIBOR) plus 1.0% to 2.5%. The additional margin for both options
depends on the ratio of the Company's debt to EBITDA. Commitment fees of 0.25%
to 0.5% per annum, also depending on the ratio of debt to
14
<PAGE>
EBITDA, are payable on the unused portion of the facility. The Credit Facility
prohibits the payment of dividends by the Company without the lenders' approval
and requires the Company to comply with certain financial covenants. The amended
Credit Facility expires on November 1, 2001, at which time all amounts
outstanding under the Credit Facility are due.
As of September 30, 1999, the Company had borrowed $219.9 million under the
Credit Facility at an average interest rate of approximately 7.0% per annum for
the first nine months of 1999. As of November 10, 1999, $229.1 million was
outstanding under this facility.
On October 5, 1999, the Company announced that its Board of Directors had
approved a share repurchase program authorizing the Company to buy up to 4
million shares of its Common Stock. As of November 10, 1999, the Company has
purchased approximately 1.5 million shares at a cost of approximately $10.5
million.
The Company anticipates that available borrowings under its Credit Facility
and cash flow from operations will provide cash in excess of the Company's
normal working capital and capital expenditure needs, debt service requirements
and additional acquisition opportunities. Should the Company accelerate or
revise its acquisition program, the Company may need to seek additional
financing through the public or private sale of equity or debt securities or
increase its Credit Facility. There can be no assurance that the Company will
secure such financing if and when it is needed, or that such financing will be
available on terms that the Company deems acceptable.
YEAR 2000
Computers, software, and other equipment utilizing embedded technology that
use only two digits to identify a year in a date field may be unable to
accurately process certain date-based information at or after the year 2000.
This is commonly referred to as the "Year 2000 issue." The Company has
implemented a Year 2000 program and is using both internal and external
resources to assess and replace or reprogram computers, software and other
equipment as needed. Key areas of the Company's operations that are being
addressed include external customers, external suppliers and internal computers,
software and potential back-up and contingency plans.
Year 2000 considerations may have an effect on some of the Company's
customers and suppliers, and thus indirectly on the Company. If the Company's
vendors or suppliers of the Company's necessary dispatching, power,
telecommunications, transportation and financial services fail to provide the
Company with equipment and service, the Company will be unable to provide
services to its customers. If any of these uncertainties were to occur, the
Company's business, financial condition and results of operations could be
materially adversely affected. The Company is completing its assessment of the
potential effect on the Company with respect to customers and suppliers with
Year 2000 issues and does not currently expect a material effect on the
Company's financial condition or results of operations at this time.
The Company's initial assessment identified Year 2000 issues within the
Company's operating systems. The total cost of anticipated Year 2000
enhancements is approximately $800,000 and is being funded from operating cash
flows. The majority of such costs is for the acquisition of hardware and
software and will be capitalized. The remaining costs will be expensed as
incurred and are not expected to have a material effect on the results of
operations. The Company expects, but cannot be certain, that it will be
substantially complete with Year 2000 enhancements for internal operating
systems by November 1999.
The ability of third parties with which the Company transacts business to
adequately address 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
adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's financial condition or results of operations.
Accordingly, as part of the Year 2000 program, contingency plans are being
assessed and developed to respond to any failures as they may occur. At this
time, the Company does not expect that any failure of the Company or third
parties to achieve Year 2000 compliance will adversely affect the Company.
15
<PAGE>
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.
16
<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 September 30, 1999, the Company did not
issue any unregistered shares of its Common Stock in connection with
acquisitions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 -- Financial Data Schedule. (Filed herewith)
(b) Reports on Form 8-K
None.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
17
<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
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND
DIRECTOR
Dated: November 12, 1999
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,602
<SECURITIES> 0
<RECEIVABLES> 301,924
<ALLOWANCES> 5,562
<INVENTORY> 18,953
<CURRENT-ASSETS> 405,194
<PP&E> 95,084
<DEPRECIATION> (54,860)
<TOTAL-ASSETS> 928,258
<CURRENT-LIABILITIES> 226,128
<BONDS> 275,990
0
0
<COMMON> 393
<OTHER-SE> 422,291
<TOTAL-LIABILITY-AND-EQUITY> 928,258
<SALES> 1,008,234
<TOTAL-REVENUES> 1,008,234
<CGS> 792,482
<TOTAL-COSTS> 792,482
<OTHER-EXPENSES> 141,978
<LOSS-PROVISION> 656
<INTEREST-EXPENSE> 14,078
<INCOME-PRETAX> 59,830
<INCOME-TAX> 25,753
<INCOME-CONTINUING> 34,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,077
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.86
</TABLE>
