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 JUNE 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 August
10, 1999, was 38,901,871.
================================================================================
<PAGE>
COMFORT SYSTEMS USA, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 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.......................................... 16
Item 2 -- Recent Sales of Unregistered Securities.................... 16
Item 4 -- Submission of Matters to a Vote of Security Holders........ 16
Item 6 -- Exhibits and Reports on Form 8-K........................... 16
Item 9 -- Changes and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 16
Signature............................................................ 17
<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 June 30, 1999, the Company acquired
98 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 100 operating
locations in 20 additional states. These acquisitions included 21 "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)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 6,985 $ 4,406
Accounts receivable............. 241,332 285,090
Less -- Allowance.......... 4,758 5,420
------------ ------------
Accounts receivable,
net............... 236,574 279,670
Other receivables............... 2,733 5,045
Inventories..................... 14,768 17,821
Prepaid expenses and other...... 14,264 11,842
Costs and estimated earnings in
excess of billings............. 37,228 45,146
------------ ------------
Total current
assets............ 312,552 363,930
PROPERTY AND EQUIPMENT, net.......... 34,413 38,747
GOODWILL, less accumulated
amortization of $8,983 and
$14,650............................ 430,526 453,862
OTHER NONCURRENT ASSETS.............. 11,802 11,794
------------ ------------
Total assets.......... $789,293 $868,333
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt........................... $ 1,568 $ 796
Current maturities of notes to
affiliates and former owners... 7,509 10,106
Accounts payable................ 74,161 89,101
Accrued compensation and
benefits....................... 25,869 24,692
Billings in excess of costs and
estimated earnings............. 43,968 45,235
Income taxes payable............ 1,299 3,266
Other current liabilities....... 24,788 27,127
------------ ------------
Total current
liabilities....... 179,162 200,323
DEFERRED INCOME TAXES................ 1,124 1,387
LONG-TERM DEBT, NET OF CURRENT
MATURITIES......................... 171,039 199,631
NOTES TO AFFILIATES AND FORMER
OWNERS, NET OF CURRENT
MATURITIES......................... 56,330 57,671
OTHER LONG-TERM LIABILITIES.......... 1,706 1,691
------------ ------------
Total liabilities..... 409,361 460,703
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 38,877,747
shares issued and outstanding,
respectively................... 381 389
Additional paid-in capital...... 333,978 340,459
Retained earnings............... 45,573 66,782
------------ ------------
Total stockholders'
equity............ 379,932 407,630
------------ ------------
Total liabilities and
stockholders'
equity............ $789,293 $868,333
============ ============
</TABLE>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES............................. $ 194,350 $ 341,493 $ 326,958 $ 633,419
COST OF SERVICES..................... 146,646 265,254 247,915 494,002
---------- ---------- ---------- ----------
Gross profit............... 47,704 76,239 79,043 139,417
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 30,189 43,333 53,319 88,191
GOODWILL AND OTHER AMORTIZATION...... 1,598 2,883 2,768 5,667
---------- ---------- ---------- ----------
Operating income........... 15,917 30,023 22,956 45,559
OTHER INCOME (EXPENSE):
Interest income................. 188 225 394 392
Interest expense................ (1,611) (4,628) (2,416) (8,816)
Other........................... 389 61 112 103
---------- ---------- ---------- ----------
Other income (expense)..... (1,034) (4,342) (1,910) (8,321)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 14,883 25,681 21,046 37,238
PROVISION FOR INCOME TAXES........... 6,465 11,036 9,243 16,029
---------- ---------- ---------- ----------
NET INCOME........................... $ 8,418 $ 14,645 $ 11,803 $ 21,209
========== ========== ========== ==========
NET INCOME PER SHARE:
Basic........................... $ 0.27 $ 0.38 $ 0.39 $ 0.55
========== ========== ========== ==========
Diluted......................... $ 0.26 $ 0.37 $ 0.38 $ 0.54
========== ========== ========== ==========
SHARES USED IN COMPUTING NET INCOME
PER SHARE:
Basic........................... 31,696 38,734 30,534 38,524
========== ========== ========== ==========
Diluted......................... 32,127 40,644 30,965 40,725
========== ========== ========== ==========
</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)......... 673,241 7 5,569 -- 5,576
Issuance of Employee Stock
Purchase Plan shares
(unaudited)................... 55,590 1 849 -- 850
Issuance of shares for options
exercised (unaudited)......... 7,736 -- 63 -- 63
Net income (unaudited)............. -- -- -- 21,209 21,209
------------ ------ ---------- --------- ------------
BALANCE AT JUNE 30, 1999
(unaudited)........................ 38,877,747 $ 389 $ 340,459 $ 66,782 $407,630
============ ====== ========== ========= ============
</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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income........................... $ 11,803 $ 21,209
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities --
Depreciation and amortization
expense........................ 5,556 11,033
Bad debt expense................ 327 315
Deferred tax benefit............ (439) (542)
Gain on sale of property and
equipment...................... (81) (190)
Changes in operating assets and
liabilities, net of effects of
acquisitions of Purchased
Companies --
(Increase) decrease in --
Receivables, net...... (21,515) (32,480)
Inventories........... (991) (2,219)
Prepaid expenses and
other current
assets............. 3,976 2,508
Costs and estimated
earnings in excess
of billings........ (4,774) (6,375)
Other noncurrent
assets............. (623) 1,376
Increase (decrease) in --
Accounts payable and
accrued
liabilities........ (10,177) 10,647
Billings in excess of
costs and estimated
earnings........... 2,334 (573)
Other, net............ 393 (188)
---------- ----------
Net cash provided by (used
in) operating
activities.............. (14,211) 4,521
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment...................... (4,156) (7,692)
Proceeds from sales of property
and equipment.................. 310 862
Cash paid for Purchased
Companies, net of cash
acquired....................... (44,746) (17,202)
Other........................... -- (500)
---------- ----------
Net cash used in investing
activities.............. (48,592) (24,532)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt...... (53,421) (100,063)
Borrowings of long-term debt.... 98,532 116,582
S Corporation distributions paid
by certain Pooled Companies.... (161) --
Proceeds from issuance of common
stock.......................... 7,612 913
Other........................... 144 --
---------- ----------
Net cash provided by
financing activities.... 52,706 17,432
---------- ----------
NET DECREASE IN CASH................. (10,097) (2,579)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 18,097 6,985
---------- ----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 8,000 $ 4,406
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1999, the Company acquired
98 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 100 operating
locations in 20 additional states. These acquisitions included 21 "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 six months ended June 30, 1998 and 1999 was
approximately $2.0 million and $7.3 million, respectively. Cash paid for income
taxes for the six months ended June 30, 1998 and 1999 was approximately $11.4
million and $14.8 million, respectively.
6
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 six months ended June 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 $19.5 million of these notes in order to eliminate the provisions relating to
convertibility into the Company's Common Stock. The remaining convertible notes
are convertible at various dates in 1999, 2000, 2001, and 2002 into 333,157,
987,551, 1,284,098 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 and 2000 into 121,413 shares of
Common Stock.
For the three months ended March 31, 1999, Comfort Systems acquired 10
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 $9.9 million in cash, 381,689 shares of
Common Stock with a market value at the date of acquisition totaling $5.6
million, approximately $2.2 million in the form of convertible subordinated
notes and $3.3 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 notes
are convertible at various dates in 2000, 2001 and 2002 into 62,276 shares of
Common Stock. The allocation of the respective purchase prices to the assets
assumed and liabilities acquired resulted in $17.9 million of goodwill related
to the companies acquired during the first quarter of 1999.
For the three months ended June 30, 1999, Comfort Systems acquired six
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 $8.9 million in cash, 291,552 shares of
Common Stock with a market value at the date of acquisition totaling $2.5
million and approximately $5.8 million in the form of subordinated notes. The
allocation of the respective purchase prices to the assets assumed and
liabilities acquired resulted in $13.2 million of goodwill related to the
companies acquired during the second quarter 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 -- (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):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Revenues............................. $ 623,717 $ 652,767
Net income........................... $ 18,609 $ 20,642
Net income per share -- diluted...... $ 0.48 $ 0.50
Shares used in computing net income
per share -- diluted................. 38,730 41,063
</TABLE>
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) amortization of goodwill related to the
Purchased Companies and (c) 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. 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):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- ----------
<S> <C> <C>
(UNAUDITED)
Revolving credit facility............ $ 170,700 $ 199,100
Notes to affiliates and former
owners............................. 63,839 67,777
Other................................ 1,907 1,327
------------- ----------
Total debt........................... 236,446 268,204
Less: current maturities............. 9,077 10,902
------------- ----------
$ 227,369 $ 257,302
============= ==========
</TABLE>
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 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
8
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 June 30, 1999, the Company had borrowed $199.1 million under the
Credit Facility at an average interest rate of approximately 6.9% per annum for
the first six months of 1999. As of August 10, 1999, $203.0 million was
outstanding under this facility.
NOTES TO AFFILIATES AND FORMER OWNERS
The Notes in the amount of $67.8 million, net of $8.9 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, $67.2 million bear interest, payable quarterly, at a weighted average
interest rate of 5.13% and $36.1 million are convertible by the holder into
shares of the Company's Common Stock at a weighted average price of $24.33 per
share. The remaining Notes in the amount of $0.6 million are non-interest
bearing, and require $0.1 million of principal payments in 1999 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, $30.4
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 $2.7 million of
principal payments in 1999, $10.1 million of principal payments in 2000, $9.4
million of principal payments in 2001 and $8.9 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.
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.
9
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 June 30, 1999, 722,030
shares of Restricted Voting Common Stock had been converted to 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 a similar 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.
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 six months ended June 30, 1999 was $274,000 and $703,000, respectively. The
effect of the assumed conversion of the convertible subordinated notes during
the first six months of 1998 was antidilutive.
10
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes weighted average shares outstanding for each
of the periods presented (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares issued in connection with the
acquisitions of the Founding
Companies.......................... 9,721 9,721 9,721 9,721
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...................... 915 1,376 915 1,376
Weighted average shares issued in
connection with the acquisitions of
the Purchased Companies............ 4,722 10,840 3,586 10,640
Weighted average shares sold in the
Second Public Offering............. 52 400 26 400
Weighted average portion of shares
issued in connection with the
Employee Stock Purchase Plan....... -- 85 -- 76
Weighted average portion of shares
issued in connection with the
exercise of stock options.......... -- 26 -- 25
--------- --------- --------- ---------
Weighted average shares
outstanding -- Basic............... 31,696 38,734 30,534 38,524
Weighted average portion of shares
related to stock options under the
treasury stock method.............. 431 286 431 223
Weighted average shares related to
the issuance of convertible
notes.............................. -- 1,624 -- 1,978
--------- --------- --------- ---------
Weighted average shares
outstanding -- Diluted............. 32,127 40,644 30,965 40,725
========= ========= ========= =========
</TABLE>
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 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, 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 June 30, 1999, the Company acquired 98
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------ ------------------------------------------
1998 1999 1998 1999
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 194,350 100.0% $ 341,493 100.0% $ 326,958 100.0% $ 633,419 100.0%
Cost of services..................... 146,646 75.5 265,254 77.7 247,915 75.8 494,002 78.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 47,704 24.5 76,239 22.3 79,043 24.2 139,417 22.0
Selling, general and administrative
expenses............................ 30,189 15.5 43,333 12.7 53,319 16.3 88,191 13.9
Goodwill amortization................ 1,598 0.8 2,883 0.8 2,768 0.8 5,667 0.9
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... 15,917 8.2 30,023 8.8 22,956 7.0 45,559 7.2
Other income (expense)............... (1,034) (0.5) (4,342) (1.3) (1,910) (0.6) (8,321) (1.3)
--------- --------- --------- --------- --------- --------- --------- ---------
Income before taxes.................. 14,883 7.7 25,681 7.5 21,046 6.4 37,238 5.9
Provision for income taxes........... 6,465 -- 11,036 -- 9,243 -- 16,029 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 8,418 4.3% $ 14,645 4.3% $ 11,803 3.6% $ 21,209 3.3%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
REVENUES -- Revenues increased $147.1 million, or 75.7%, to $341.5 million
for the second quarter of 1999 and increased $306.5 million, or 93.7%, to $633.4
million for the first six months of 1999, compared to the same periods in 1998.
The increase in revenues was primarily due to the acquisition of Purchased
Companies.
GROSS PROFIT -- Gross profit increased $28.5 million, or 59.8%, to $76.2
million for the second quarter of 1999 and increased $60.4 million, or 76.4%, to
$139.4 million for the first six 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 24.5% for the three months
ended June 30, 1998 to 22.3% for the three months ended June 30, 1999 and from
24.2% for the first six months of 1998 to 22.0% for the first six 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 six months ended June 30, 1999 of approximately $7.9 million and $13.7
million, respectively, gross profit as a percentage of revenues increased from
24.5% to 24.7% for the second quarter of 1999 and was unchanged from the first
six months of 1998 at 24.2% for the first six months of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") -- SG&A increased
$13.1 million, or 43.5%, to $43.3 million for the second quarter of 1999 and
increased $34.9 million, or 65.4%, to $88.2 million for the first six months of
1999, compared to the same periods in 1998. Most of this increase was related to
Purchased Companies acquired subsequent to second 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 15.5% for the three
months ended June 30, 1998 to 12.7% for the three months ended June 30, 1999 and
from 16.3% for the first six months of 1998 to 13.9% for the first six months of
1999. This decrease is primarily attributable to the reclassification of costs
as described above. Excluding the effect of this reclassification for the three
months and six months ended June 30, 1999 of approximately $7.9 million and
$13.7 million, respectively, SG&A expenses as a percentage of revenues decreased
from 15.5% to 15.0% for the second quarter of 1999 and decreased from 16.3% to
16.1% for the first six months of 1999. This decrease in SG&A as a percentage of
revenues resulted from increased volume without a commensurate increase in
overhead. SG&A for the second quarter of 1998 and the first six months of 1998
includes $1.1 million 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 $14.1 million, or 88.6%, to
$30.0 million for the second quarter of 1999 and increased $22.6 million, or
98.5%, to $45.6 million for the first six months of
13
<PAGE>
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 increased from 8.2% for the three months ended June 30, 1998 to 8.8% for
the three months ended June 30, 1999, and increased from 7.0% for the six months
ended June 30, 1998 to 7.2% for the six months ended June 30, 1999. The increase
in operating income as a percentage of revenues resulted from strong performance
on projects in the industrial and process markets in the Midwest and San Diego,
an improvement in pricing on multi-unit installation projects and synergies
achieved between our western Michigan companies.
OTHER INCOME (EXPENSE) -- Other expense, net, increased to $4.3 million and
$8.3 million for the three months and six months ended June 30, 1999 primarily
due to the increase in interest expense related to the acquisition of Purchased
Companies subsequent to the second quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES -- HISTORICAL
For the six months ended June 30, 1999, net cash provided by operating
activities was $4.5 million primarily due to an increase in accounts payable and
accrued liabilities of $10.6 million. Cash used in operating activities for the
six months ended June 30, 1998 was $14.2 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 $24.5 million for the six months
ended June 30, 1999, primarily in connection with the acquisition of Purchased
Companies for $17.2 million, net of cash acquired. Cash used in investing
activities for the six months ended June 30, 1998 was $48.6 million, primarily
for the acquisition of Purchased Companies.
Cash provided by financing activities for the six months ended June 30,
1999 was $17.4 million and was primarily attributable to net borrowings of
long-term debt of $16.5 million, which were primarily used to fund acquisitions.
Net cash provided by financing activities for the six months ended June 30, 1998
was $52.7 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 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 June 30, 1999, the Company had borrowed $199.1 million under the
Credit Facility at an average interest rate of approximately 6.9% per annum for
the first six months of 1999. As of August 10, 1999, $203.0 million was
outstanding under this facility.
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
14
<PAGE>
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 studying 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.
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.
15
<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 June 30, 1999, the Company issued
122,539 unregistered shares of its Common Stock in connection with the
acquisition of two Purchased Companies. These shares were issued under the
Securities Act in reliance on the exemption provided by Section 4(2), no public
offering being involved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders in Houston, Texas on
May 20, 1999. The following sets forth matters submitted to a vote of the
stockholders:
(a) The following individuals were elected to the Board of Directors as
stated in the Company's Proxy Statement dated April 27, 1999, for
terms expiring at the 2002 annual stockholders' meeting or until their
successors have been elected and qualified -- Class II Directors:
Thomas J. Beaty, J. Gordon Beittenmiller, Larry Martin, Michael
Nothum, Jr. and John C. Phillips.
Every director was elected by more than a majority of the outstanding
shares of Common Stock of the Company. Mr. Beaty had 24,680,160 shares
voted in favor, with 65,407 shares withheld, Mr. Martin had 24,565,938
shares voted in favor, with 179,638 shares withheld, and each of the
remaining directors had 24,680,253 shares voted in favor, with 65,323
shares withheld.
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.
16
<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: August 13, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,406
<SECURITIES> 0
<RECEIVABLES> 285,090
<ALLOWANCES> 5,420
<INVENTORY> 17,821
<CURRENT-ASSETS> 363,930
<PP&E> 89,379
<DEPRECIATION> (50,632)
<TOTAL-ASSETS> 868,333
<CURRENT-LIABILITIES> 200,323
<BONDS> 257,302
0
0
<COMMON> 389
<OTHER-SE> 407,241
<TOTAL-LIABILITY-AND-EQUITY> 868,333
<SALES> 633,419
<TOTAL-REVENUES> 633,419
<CGS> 494,002
<TOTAL-COSTS> 494,002
<OTHER-EXPENSES> 93,543
<LOSS-PROVISION> 315
<INTEREST-EXPENSE> 8,816
<INCOME-PRETAX> 37,238
<INCOME-TAX> 16,029
<INCOME-CONTINUING> 21,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,209
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.54
</TABLE>
