Comfort Systems USA (FIX) 10-K risk factor changes: FY2015 vs FY2014

The industries and markets we operate in have always been and will continue to be vulnerable to [removed: these general] macroeconomic downturns because they are cyclical in nature.

The lasting effects of [removed: the recent] [added: a] recession [removed: have increased] [added: can also increase] economic instability with our vendors, subcontractors, developers, and general contractors, which [removed: has caused] [added: can cause] us greater liability exposure and [removed: has resulted] [added: can result] in us not being paid on some projects, as well as decreasing our revenue and profit.

Further, to the extent [removed: more] [added: some] of our vendors, subcontractors, developers, or general contractors seek bankruptcy protection, the bankruptcy will likely force us to incur additional costs in attorneys' fees, as well as other professional consultants, and will result in decreased revenue and profit.

[removed: A continuing] [added: Additionally, a] reduction in federal, state, or local government spending in our industries and markets could result in decreased revenue and [removed: profit.][added: profit for us.]

[removed: If our estimates or assumptions prove to be inaccurate, if circumstances change in] a way that renders our assumptions and estimates inaccurate or we fail to successfully execute the work, cost overruns may occur and we could experience reduced profits or a loss for affected projects.

For instance, unanticipated technical problems may arise, we could have difficulty obtaining permits or approvals, local laws, labor costs or labor conditions could change, bad weather could delay construction, raw materials prices could increase, our [removed: suppliers'] [added: suppliers] or [removed: subcontractors'] [added: subcontractors] may fail to perform as expected or site conditions may be different than we expected.

The markets we serve are highly [added: fragmented and] competitive.

[removed: We can give no assurances that any future] [added: Future] acquisitions [removed: will not] [added: could] dilute earnings or disrupt the payment of a stockholder dividend.

[removed: Earnings] [added: _Earnings] for future periods may be impacted by [removed: additional] [added: impairment] charges for goodwill and intangible assets._

We [added: have determined in the past and] may [added: again] determine [removed: at a] [added: in the] future [removed: date] that [removed: an additional] [added: a] significant impairment has occurred in the value of our unamortized intangible assets or fixed assets, which could require us to write off [removed: an additional] [added: a] portion of our assets and could adversely affect our financial condition or our reported results of operations.

These actions and proceedings may involve claims for, among other things, compensation for alleged personal injury, workers' compensation, employment [removed: discrimination, breach of contract or property damage.]

[removed: Consequently, during times] when less overall bonding capacity is available in the market, surety terms have become more expensive and more restrictive.

We believe that our practice of placing significant decision making powers with local management is important to our successful growth and allows us to be responsive to opportunities and to our [added: customers' needs.]

[removed: Also,] our prior casualty loss history might adversely affect our ability to procure insurance within commercially reasonable ranges.

On the other hand, overutilization of our workforce could negatively impact safety, employee satisfactions and [removed: project execution, leading to a potential decline in future project awards.]

_Misconduct by our employees, subcontractors or partners or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our [removed: revenues] [added: revenue] and profits, and subject us to criminal and civil enforcement actions._

Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, damage our relationships with customers, reduce our [removed: revenues] [added: revenue] and profits and subject us to criminal and civil enforcement actions.

Our [removed: 92] [added: 89] locations are located in [removed: 29] [added: 27] states, which exposes us to a variety of different state and local laws and regulations, particularly those pertaining to contractor licensing requirements.

Changes in any of these laws, or [removed: our or] any of our subsidiaries' material failure to comply with them, can adversely impact our operations by, among other things, increasing costs, distracting management's time and attention from other items, and harming our reputation.

[removed: Failing to maintain the appropriate cost structure for a particular] economic cycle may result in our incurring costs that affect our profitability.

[removed: Additionally,] employees, contractors and the public could suffer substantial physical injury from acts of terrorism for which we could be liable.

[added: An] adverse outcome of such a review of examination could adversely affect our operating results and financial condition.

When there is a reduction in demand, it often leads to greater price competition as well as decreased revenue and profit.

If our estimates or assumptions prove to be inaccurate, if circumstances change in

discrimination, breach of contract or property damage.

We typically warrant the services we provide, guaranteeing the work performed against defects in workmanship and the material we supply.

Historically, warranty claims have not been material as our customers evaluate much of the work we perform for defects shortly after work is completed.

However, if warranty claims occur, we could be required to repair or replace warrantied items at our cost.

In addition, our customers may elect to repair or replace the warrantied item by using the services of another provider and require us to pay for the cost of the repair or replacement.

Costs incurred as a result of warranty claims could adversely affect our operating results and financial condition.

Consequently, during times

Also,

project execution, leading to a potential decline in future project awards.

Failing to maintain the appropriate cost structure for a particular

_We are susceptible to adverse weather conditions, which may harm our business and financial results._

Our business may be adversely affected by severe weather in areas where we have significant operations.

Repercussions of severe weather conditions may include:

curtailment of services;

suspension of operations;

inability to meet performance schedules in accordance with contracts and potential liability for liquidated damages;

injuries or fatalities;

weather related damage to our facilities;

disruption of information systems;

inability to receive machinery, equipment and materials at jobsites; and

loss of productivity.

_Force majeure events, including natural disasters and terrorists' actions, could negatively impact our business, which may affect our financial condition, results of operations or cash flows._

Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters, as well as terrorist actions, could negatively impact us.

We typically negotiate contract language where we are allowed certain relief from force majeure events in private client contracts and review and attempt to mitigate force majeure events in both public and private client contracts.

We remain obligated to perform our services after most extraordinary events subject to relief that may be available pursuant to a force majeure clause.

If we are not able to react quickly to force majeure events, our operations may be affected significantly, which would have a negative impact on our financial position, results of operations, cash flows and liquidity.

Additionally,

_We are required to assess and report on our internal controls each year.

Findings of inadequate internal controls could reduce investor confidence in the reliability of our financial information._

As directed by the Sarbanes-Oxley Act, the SEC adopted rules generally requiring public companies, including us, to include in their annual reports on Form 10-K a report of management that contains an assessment by management of the effectiveness of our internal control over financial reporting.

In addition, the independent registered public accounting firm auditing our financial statements must report on the effectiveness of our internal control over financial reporting.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and records of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

We may discover in the future that we have deficiencies in the design and operation of our internal controls.

If any of the deficiencies in our internal control, either by itself or in combination with other deficiencies, becomes a "material weakness", such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis, we may be unable to conclude that we have effective internal control over financial reporting.

In such event, investors could lose confidence in the reliability of our financial statements,

which may significantly harm our business and cause our stock price to decline.

In addition, the failure to maintain effective internal controls could also result in unauthorized transactions.

We cannot predict the severity or lasting effects of the recent recession, particularly in some local or regional markets that have not yet entered a period of sustained recovery.

We believe that the current uncertainty about economic conditions caused by the recent recession means that many of our customers are likely to continue to postpone spending while credit markets remain disinclined to fund commercial and industrial developments.

The recent recession caused a drop off in the demand for projects within our markets and industries in some regions and continues to cause a similar drop off in other regions.

The drop off in demand has led to and will likely continue to lead to greater price competition as well as decreased revenue and profit.

The percentage of our profits and revenue attributable to projects performed directly or indirectly for federal, state, and local government entities increased during and as a result of the economic downturn, in part because the private-sector decreased its investment in construction and building projects, but has decreased during 2014.

_Goodwill impairment charges negatively impacted our earnings in 2011 and in previous years.

The recent recession, along with other factors, caused the fair value of some of our assets to be lower than their carrying value, resulting in an impairment to goodwill.

customers' needs.

On July 22, 2014, we executed an amendment to the credit agreement, which terms include, among other things a revised maximum Total Leverage Ratio.

An

We are a national provider of comprehensive [removed: HVAC] [added: mechanical] installation, [added: renovation,] maintenance, repair and replacement services within the mechanical services industry.

Approximately 82% of our revenue is earned on a project basis for installation of [removed: HVAC] [added: mechanical] systems in newly constructed facilities or for replacement of [removed: HVAC] systems in existing facilities.

While the criteria on which customers select the winning bid vary widely and include factors such as quality, technical expertise, on-time performance, post-project support and service, and company history and financial strength, we believe that price is the most influential factor for most customers in choosing [removed: an HVAC] [added: a mechanical] installation and service provider.

Project contracts in our industry also frequently allow for a small portion of progress billings or contract price to be withheld by the customer until after we have [added: completed the work, typically for six months.]

We also perform some project work on a cost-plus or a time and materials basis, under which we are paid our costs incurred plus an [removed: agreed upon] [added: agreed-upon] profit [removed: margin, although such projects are sometimes subject to a guaranteed maximum cost.]

As of December 31, [removed: 2014,] [added: 2015,] we had [removed: 4,074] [added: 3,843] projects in process.

Our average project takes six to nine months to complete, with an average contract price of approximately [removed: $488,000.][added: $512,000.]

We also perform larger [removed: HVAC] projects.

As of December 31, [removed: 2014,] [added: 2015,] we had [removed: 16] [added: 12] projects in process with a contract price greater than $15 million, [removed: 14] [added: 21] projects between $10 million and $15 million, 64 projects between $5 million and $10 million, and [removed: 297] [added: 286] projects between $1 million and $5 million.

Taken together, projects with contract prices of $1 million or more totaled [removed: $1,607.5] [added: $1,565.0] million of aggregate contract value as of December 31, [removed: 2014,] [added: 2015,] or approximately [removed: 81%,] [added: 80%,] out of a total contract value for all projects in progress of [removed: $1,988.3] [added: $1,966.4] million.

In addition to project work, approximately 18% of our revenue [removed: represent] [added: represents] maintenance and repair service on already installed HVAC and controls systems.

We will also typically use proprietary information systems to maintain information on the [removed: customers'] [added: customer's] sites and equipment, including performance and service records, and related cost data.

These systems track the status of ongoing service and installation work, [added: and may also monitor system performance data.]

We manage our [removed: 37] [added: 35] operating units based on a variety of factors.

We also monitor selling, general, administrative and indirect project support expense, backlog, workforce size and mix, growth in revenue and profits, variation of actual project cost from original estimate, and overall financial performance in [removed: comparison to budget and updated forecasts.]

Operational factors we emphasize include project selection, estimating, pricing, management and execution practices, labor utilization, safety, training, and the make-up of both existing backlog as well as new business being [removed: pursued] [added: pursued,] in terms of project size, technical application and facility type, end-use customers and industries, and location of the work.

As [removed: an HVAC] [added: a mechanical] and building controls services provider, we operate in the broader nonresidential construction services industry and are affected by trends in this sector.

Nonresidential building construction and renovation activity, as reported by the federal government, declined over the four year period from 2009 to 2012, and 2013 and 2014 activity levels [removed: have been] [added: were] relatively stable at the low levels of the preceding years.

As a result of our continued strong emphasis on cash flow, [added: at December 31, 2015] we [removed: currently have] [added: had] modest indebtedness under our revolving credit facility and [removed: we have] substantial uncommitted cash balances, as discussed further in "Liquidity and Capital Resources" below.

We have generated positive free cash flow in each of the last [removed: sixteen] [added: seventeen] calendar years and will continue our emphasis in this area.

[removed: Our primary] emphasis for [removed: 2015] [added: 2016] will be on execution and cost control, but we are [removed: beginning to seek] [added: seeking] growth based on our belief that industry conditions are beginning to improve, and we believe that activity levels will permit us to earn [removed: reasonable] [added: improved] profits while preserving [added: and developing] our [removed: core] workforce.

We [removed: have increased our] [added: continue to] focus on project qualification, estimating, pricing and management; and [removed: overall] we are investing in service growth and improved performance.

Approximately 82% of our revenue was earned on a project basis and recognized through the percentage of completion method of [removed: accounting.][added: accounting during 2015.]

Under this [removed: method] [added: method,] contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs.

[added: Purchased equipment on our projects is] substantially produced to job specifications and is a value added element to our work.

The amount of revenue associated with unapproved change orders and claims [removed: is currently immaterial.][added: was immaterial for the year ended December 31, 2015.]

[removed: Therefore,] if actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the period that such experience becomes known.

If other reporting units have had increases in fair value, such increases may not be [added: recorded.]

We [removed: currently] perform our annual impairment testing as of October 1 and any impairment charges resulting from this process are reported in the fourth quarter.

[removed: If,] after completing such assessment, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then there is no need to perform any further testing.

If actual results are not consistent with our current estimates and assumptions, or the current economic [removed: downturn worsens or the projected recovery is significantly delayed beyond our projections,] [added: outlook worsens,] goodwill impairment charges may be recorded in future periods.

| | | [removed: 2014] [added: 2015] | | | | | | [removed: 2013] [added: 2014] | | | | | | [removed: 2012] [added: 2013] | | | | | |

| Revenue | | $ | [removed: 1,410,795] [added: 1,580,519] | | | 100.0 | % | $ | [removed: 1,357,272] [added: 1,410,795] | | | 100.0 | % | $ | [removed: 1,331,185] [added: 1,357,272] | | | 100.0 | % |

| Cost of services | | | [removed: 1,161,024] [added: 1,262,390] | | | [removed: 82.3] [added: 79.9] | % | | [removed: 1,117,389] [added: 1,161,024] | | | 82.3 | % | | [removed: 1,123,564] [added: 1,117,389] | | | [removed: 84.4] [added: 82.3] | % |

| Gross profit | | | [removed: 249,771] [added: 318,129] | | | [removed: 17.7] [added: 20.1] | % | | [removed: 239,883] [added: 249,771] | | | 17.7 | % | | [removed: 207,621] [added: 239,883] | | | [removed: 15.6] [added: 17.7] | % |

| Selling, general and administrative expenses | | | [removed: 207,652] [added: 228,965] | | | [removed: 14.7] [added: 14.5] | % | | [removed: 194,214] [added: 207,652] | | | [removed: 14.3] [added: 14.7] | % | | [removed: 185,809] [added: 194,214] | | | [removed: 14.0] [added: 14.3] | % |

| Goodwill impairment | | | [removed: 727] [added: —] | | | [removed: 0.1] [added: —] | [removed: %] | | [removed: —] [added: 727] | | | [removed: —] [added: 0.1] | [added: %] | | — | | | — | |

| Gain on sale of assets | | | [removed: (830] [added: (880] | ) | | (0.1 | )% | | [removed: (589] [added: (830] | ) | | [removed: —] [added: (0.1] | [added: )%] | | [removed: (491] [added: (589] | ) | | — | |

| Operating income | | | [removed: 42,222] [added: 90,044] | | | [removed: 3.0] [added: 5.7] | % | | [removed: 46,258] [added: 42,222] | | | [removed: 3.4] [added: 3.0] | % | | [removed: 22,303] [added: 46,258] | | | [removed: 1.7] [added: 3.4] | % |

| Interest income | | | [removed: 18] [added: 72] | | | — | | | [removed: 23] [added: 18] | | | — | | | [removed: 24] [added: 23] | | | — | |

_

margin, although such projects are sometimes subject to a guaranteed maximum cost.

comparison to budget and updated forecasts.

Our primary

Therefore,

Each of our operating units represents an operating segment, and our operating segments are our reporting units.

If,

_2015 Compared to 2014_

During 2015, we completed two acquisitions in the first quarter, one in the third quarter and one in the fourth quarter.

These acquisitions were not material and were "tucked-in" with existing operations.

In addition, we merged two operating locations during the first quarter and closed one operating location during the third quarter.

The same-store comparison from 2015 to 2014, as described below, excludes four months of results for our Northern Texas operation, which was acquired in May 2014.

_Revenue_—Revenue increased $169.7 million, or 12.0% to $1,580.5 million in 2015 compared to 2014.

The increase included a 10.6% increase in revenue related to same-store activity and a 1.4% increase related to the acquisition of our Northern Texas operation.

The same-store revenue increase is primarily due to our Environmental Air Systems, LLC ("EAS") operation ($61.3 million), our Arizona operation ($17.7 million), our large operation headquartered in Virginia ($12.2 million) and one of our Maryland operations ($12.1 million).

These operations, as well as many of our other operating

locations, experienced increased project work compared to the prior year in multiple markets, but primarily the industrials sector due to improved market conditions.

The year-over-year backlog decrease was primarily due to our EAS operation ($22.2 million), which had unusually large jobs booked in the fourth quarter of 2014, and due to completion of project work during the year at our California operation ($19.7 million) and our Arkansas operation ($17.9 million).

This was partially offset by increased project bookings at our Michigan operation ($16.8 million).

_Gross Profit_—Gross profit increased $68.4 million, or 27.4%, to $318.1 million in 2015 as compared to 2014.

The increase included a $3.4 million, or 1.3%, increase related to the acquisition of our Northern Texas operation and a $65.0 million, or 26.1%, increase on a same-store basis.

The same-store increase in gross profit was due to overall increased margins at a majority of operating locations.

Specifically, increases were due to job underperformance at our Southern California operation in 2014 ($9.0 million), improved project execution at our large operation headquartered in Virginia ($7.0 million), and improved market conditions, which resulted in an increase in volumes at our EAS operation ($5.8 million).

In addition, in the fourth quarter of 2015, we came to an agreement with customers on multiple jobs and received approved change orders, which resulted in additional revenue with minimal additional costs.

The resulting impact to the current year was an increase to gross profit of approximately $3.4 million.

This increase is primarily due to increased compensation accruals based on operating results ($13.3 million) and expanded service activities at certain locations ($4.8 million).

Amortization expense remained relatively flat.

As a percentage of revenue, SG&A decreased from 14.7% in 2014 to 14.5% in 2015, primarily due to the higher revenue base caused by the increase in market activity in 2015.

| | | 2015 | | | 2014 | | |

| SG&A | | $ | 228,965 | | $ | 207,652 | |

| Less: SG&A from companies acquired | | | (1,843 | ) | | — | |

| Same-store SG&A, excluding amortization expense | | $ | 220,225 | | $ | 200,827 | |

_Goodwill Impairment_—No goodwill impairment was recorded in 2015.

We recorded a goodwill impairment charge of $0.7 million during the second quarter of 2014.

Based on updated measurements of estimated future cash flows for our contingent obligations, we decreased our obligations related to prior year acquisitions resulting in the current year gain of $0.2 million.

The $0.3 million loss from changes in the fair value of contingent earn-out obligations in the prior year was due to updated measurements of estimated future cash flows for our contingent obligation related to the EAS acquisition.

The effective rate for 2015 is slightly higher than the federal statutory rate of 35.0% primarily due to an increase in state income taxes (3.9%) which was partially offset by a decrease from the impact of the noncontrolling interest of EAS which for tax purposes is treated as a partnership (3.2%).

We generally expect our tax rate in 2016 to be higher than 2015 due to our

purchase of the noncontrolling interest in EAS on January 1, 2016 since the noncontrolling interest was treated as a partnership for tax purposes.

Due to our acquisition of the remaining 40% noncontrolling interest in EAS on January 1, 2016, we do not expect to continue to have income attributable to noncontrolling interests in 2016.

In addition to standard HVAC services, we provide specialized applications such as building automation control systems, fire protection, process cooling, electronic monitoring and process piping.

Certain locations also perform related activities such as electrical service and plumbing.

completed the work, typically for six months.

and may also monitor system performance data.

During these periods of decline, we responded to market challenges by pursuing work in sectors less affected by the downturn, such as government, educational, and healthcare facilities, and by establishing marketing initiatives that take advantage of our size and range of expertise.

We also responded to declining gross profits by emphasizing discipline in project selection, and by emphasizing efficiency in execution while also reducing our selling, general, and administrative expenses.

We believe our efforts in these areas partially offset the decline in our profitability over that period.

Purchased equipment on our projects is

recorded.

($12.9 million) which both performed a significant amount of project work for the institutional sector during 2014.

_Discontinued Operations_—During the fourth quarter of 2012, we substantially completed the shutdown of our operation located in Delaware.

_2013 Compared to 2012_

During the first quarter of 2013, we consolidated one company into other operations.

_Revenue_—Revenue increased $26.1 million, or 2.0% to $1,357.3 million in 2013 compared to 2012.

The increase is primarily due to our Arizona operation ($23.5 million) and our EAS operation ($47.3 million) which performed a significant amount of project work during 2013.

This increase was partially offset by lower revenue in our large operation headquartered in Virginia ($53.1 million), which had a fast-paced, large data center project in the first half of 2012 which did not reoccur in 2013 due to its completion in the prior year.

The year-over-year backlog decrease was primarily due to our Arizona operation ($22.7 million) which performed a significant amount of project work during the current year.

_Gross Profit_—Gross profit increased $32.3 million, or 15.5%, to $239.9 million in 2013 as compared to 2012.

The increase in gross profit was due to improved profitability at a majority of our operations in 2013 but primarily at our EAS operation (approximately $5.7 million), improved market conditions which resulted in an increase in volumes at our Arizona operation (approximately $5.6 million) and job underperformance at one of our Maryland operations in 2012 (approximately $5.7 million).

Also, gross profit increased approximately $2.5 million due to a prior period accounting adjustment.

These corrections are reflected on a pretax basis in revenue and cost of sales, which include $3.3 million and $0.8 million, respectively.

These accounting adjustments are described in Note 2 to the Consolidated Financial Statements included elsewhere in this annual report on Form 10-K.

In addition, the gross profit percentage increased due to improved profitability at our

large operation headquartered in Virginia despite lower revenues, and included a claim settled during the first quarter of 2013 with the general contractor on a large data center project that had been accelerated by the owner on which we recognized approximately $1.6 million of additional gross profit during the current year.

This increase is primarily due to increased salary expense ($4.6 million) as a result of an increased portion of our work in maintenance, repair and replacement services that has higher SG&A costs, and increased bonuses payable ($3.6 million) as a result of improved operating results.

These increases were partially offset by a decrease in bad debt expense ($2.4 million) as a result of a receivable settlement for a gain of $0.8 million, and higher than normal bad debt expense in the prior year due to specific collectability concerns at our operations in Maryland and Tennessee which do not represent trends we expect to continue in the future.

As a percentage of revenue, SG&A increased from 14.0% in 2012 to 14.3% in 2013, primarily due to the factors discussed above.

| | | 2013 | | | 2012 | | |

| SG&A | | $ | 194,214 | | $ | 185,809 | |

| SG&A, excluding amortization expense | | $ | 187,222 | | $ | 178,348 | |

The primary reason for the increase is a reduction of estimated future cash flows during 2013 related to the 2010 acquisition of ColonialWebb and the 2011 acquisition of EAS.

At the time that we valued our contingent obligations for these acquisitions we did not anticipate the duration of weak market conditions and as a result the initial value of the earnout payments was higher than what we currently expect to incur.

Based on updated measurements in 2013, this change in estimate resulted in a $1.6 million writedown of the fair value of the liability.

In 2012, we incurred a smaller writedown of $0.6 million related to ColonialWebb based on updated measurements at that time.

The decrease in the effective tax rate from 2012 to 2013 is primarily due to less impact on the rate from valuation allowance, contingency reserves, non-deductible expenses and from noncontrolling interests switching from an increase to a decrease in the effective rate.

The after tax loss of $0.1 million for the year ended December 31, 2013 and the after tax income of $0.1 million for the year ended December 31, 2012 have been recorded in discontinued operations under "Operating income (loss), net of tax expense (benefit)."

In addition, we recorded after tax income of $0.3 million in 2012 associated with the reduction of estimated liabilities associated with the sale and shutdown of previous discontinued operations.

This amount is reflected in 2012 discontinued operations under "Operating income (loss), net of tax expense (benefit)" in addition to those mentioned above.

Our backlog has recently begun to increase.

The $7.9 million increase is primarily due to higher net income in 2013 of $16.7 million and by an increase in accounts payable and accrued liabilities of $22.3 million which relates to the timing of vendor payments and increased bonus accruals based on improved operating results.

The following table presents principal amounts (stated in thousands) and related average interest rates by year of maturity for our debt obligations and their indicated fair market value at December 31, [removed: 2014:][added: 2015:]

| | | [removed: 2015 | | |] 2016 | | | 2017 | | | 2018 | | | 2019 | | | [added: 2020 | | |] Thereafter | | | Total | | |

| Fixed Rate Debt | | $ | [removed: —] [added: 500] | | $ | 500 | | $ | [removed: 500] [added: —] | | $ | — | | $ | — | | $ | — | | $ | 1,000 | |

| Average Interest Rate | | | [removed: —] [added: 2.5] | [added: %] | | 2.5 | % | | [removed: 2.5] [added: —] | [removed: %] | | — | | | — | | | — | | | 2.5 | % |

| Variable Rate Debt | | $ | — | | $ | — | | $ | — | | $ | [removed: —] [added: 10,000] | | $ | [removed: 38,500] [added: —] | | $ | — | | $ | [removed: 38,500] [added: 10,000] | |

The weighted average interest rate applicable to [added: the] borrowings under the Facility was approximately [removed: 1.4%] [added: 1.7%] as of December 31, [removed: 2014.][added: 2015.]

We did not recognize any [removed: other] impairments, in the current [removed: quarter,] [added: year,] on those assets required to be measured at fair value on a nonrecurring basis.

During the quarter ended June 30, 2014, we recorded a goodwill impairment charge of $0.7 million based on Level 3 measurements.

We [removed: have 37] [added: install, maintain, repair and replace products and systems throughout our 35] operating units in [removed: 83] [added: 81] cities and [removed: 92] [added: 89] locations throughout the United States.

Approximately 99% of our consolidated [removed: 2014] [added: 2015] revenue was derived from commercial, industrial and institutional customers and large multi-family residential projects.

Approximately 44% of our revenue was attributable to installation services in newly constructed facilities and 56% was attributable to [added: renovation, expansion,] maintenance, repair and replacement [removed: services.][added: services in existing buildings.]

[added: Our consolidated 2015 revenue was derived from the] following service activities, [added: substantially] all of which are in the mechanical services industry, the single industry segment we serve:

| HVAC | | | [removed: 74] [added: 77] | % |

| Plumbing | | | [removed: 16] [added: 14] | % |

| Building Automation Control Systems | | | [removed: 6] [added: 5] | % |

We believe that the commercial, industrial, and institutional [removed: HVAC industry has historically generated] [added: mechanical contracting generates] annual revenue in [removed: excess] [added: the United States] of [removed: $40] [added: approximately $100] billion.

[removed: HVAC] [added: Mechanical] systems are necessary to virtually all commercial, industrial and institutional [removed: buildings as well as homes.][added: buildings.]

In many instances, replacing an aging [removed: system] [added: building's existing systems] with [removed: a] modern, energy-efficient [removed: HVAC system] [added: systems] significantly reduces a building's operating costs [removed: and improves] [added: while improving] air quality and [removed: HVAC] [added: overall] system effectiveness.

Many factors positively affect [removed: HVAC] [added: mechanical services] industry growth, particularly (i) population growth, which [removed: has increased] [added: increases] the need for commercial, industrial and institutional space, (ii) an aging installed base of buildings and [removed: HVAC environmental and energy efficiency] equipment, (iii) increasing sophistication, complexity and efficiency of [removed: HVAC] [added: mechanical] systems, [added: and] (iv) growing emphasis on environmental and energy [removed: efficiency, and (v) reduction or elimination of the refrigerants commonly used in older HVAC systems.][added: efficiency.]

[removed: The HVAC] [added: Our] industry can be broadly divided into two [removed: functions:][added: categories:]

[added: construction of and] installation in [removed: newly constructed facilities,] [added: new buildings,] which provided approximately 44% of our revenue in [removed: 2014,] [added: 2015,] and

[added: renovation, expansion,] maintenance, repair and replacement in existing [removed: facilities,] [added: buildings,] which provided the remaining 56% of our [removed: 2014] [added: 2015] revenue.

[removed: _Installation Services_—Installation] [added: _Construction, Installation, Expansion and Renovation Services_—Construction, installation, expansion and renovation] services consist of "design and build" and "plan and spec" projects.

In "design and build" projects, the commercial HVAC company is responsible for designing, engineering and installing a cost-effective, energy-efficient system customized to the specific needs of [added: the building owner.]

Costs and other project terms are normally negotiated between the building owner or its representative and the [removed: HVAC] [added: contracting] company.

Furthermore, in "plan and spec" projects, the [removed: HVAC] [added: contracting] company is not responsible for project design and other parties must also approve any changes, thereby increasing overall project time and cost.

_Maintenance, Repair and Replacement Services_—These services include maintaining, repairing, replacing, reconfiguring and monitoring previously installed [removed: HVAC] systems and building automation controls.

The growth and aging of the installed base of HVAC [removed: systems] and [added: related systems, and] the demand for more efficient and sophisticated systems and building automation controls have fueled growth in [removed: this service line.][added: these services.]

The increasing complexity of these [removed: HVAC] systems is leading many commercial, industrial and institutional building owners and property managers to increase attention to maintenance and to outsource maintenance and repair, often through service agreements with [removed: HVAC] service providers.

Increasingly, [removed: HVAC] [added: mechanical] systems in commercial, industrial and institutional buildings are being remotely monitored [removed: through computer-based communications systems] to improve energy efficiency and expedite problem diagnosis and correction, thereby allowing us to provide maintenance and repair services at a lower cost.

The key objectives of our strategy are to generate growth in our [removed: construction and service] operations, improve [added: the] productivity [removed: through innovation] [added: of our workforce] and to acquire complementing businesses.

_Achieve Excellence in Core Competencies_—We have identified six core competencies that we believe are critical to attracting and retaining customers, increasing operating income and cash flow and [removed: creating additional employment opportunities.][added: maximizing the productivity of our increasingly valuable skilled labor force.]

The six core competencies are: (i) customer cultivation and rapport, (ii) design and build expertise, (iii) estimating, (iv) job and cost tracking, (v) safety, and (vi) service [removed: capability.][added: excellence.]

[added: We have increased our] already substantial investments in training, including programs for project managers, field superintendents, service managers, sales managers, estimators, and [removed: more recently,] leadership and development of key managers and leaders.

_Focus on Commercial, Industrial and Institutional Markets_—We primarily focus on the commercial, industrial and institutional markets, [removed: with particular emphasis on "design and build" installation services, and on] [added: including construction,] maintenance, repair and replacement services.

We opportunistically allocate our engineering, field and supervisory labor from one operation to another to more fully use our [removed: employee base, meet our customers' needs and share expertise.]

_Maintain a Diverse Customer, Geographic and Project Base_—We have a [removed: well-diversified] distribution of revenue across end-use sectors that we believe reduces our exposure to negative developments in any given sector.

Our distribution of revenue in [removed: 2014] [added: 2015] by end-use sector was as follows:

| Education | | | [removed: 17] [added: 15] | % |

| Healthcare | | | [removed: 12] [added: 11] | % |

| Office Buildings | | | [removed: 12] [added: 13] | % |

| Government | | | [removed: 11] [added: 10] | % |

| [removed: Retail/Restaurants] [added: Retail and Restaurants] | | | 7 | % |

| Multi-Family | | | [removed: 7] [added: 5] | % |

| Distribution | | | [removed: 1] [added: 2] | % |

| [removed: Religious/Not] [added: Religious and Not] for profit | | | 1 | % |

Approximately 82% of our revenue is earned on a project basis for installation of [removed: HVAC] systems in newly constructed [removed: facilities] or [removed: for replacement of HVAC systems in] existing facilities.

As of December 31, [removed: 2014,] [added: 2015,] we had [removed: 4,074] [added: 3,843] projects in process with an aggregate contract value of approximately [removed: $1,988.3] [added: $1,966.4] million.

_

We provide comprehensive mechanical contracting services, which principally includes heating, ventilation and air conditioning ("HVAC"), plumbing, piping and controls, as well as off-site construction, electrical, monitoring and fire protection.

Approximately 99% of our consolidated 2015 revenue was derived from commercial, industrial and institutional customers and multi-family residential projects.

These systems require specialized training to install, maintain and repair.

employee base, meet our customers' needs and share expertise.

| Industrial and Manufacturing | | | 21 | % |

| Technology | | | 7 | % |

| Under $1 million | | | 3,460 | | $ | 401.4 | |

| $1 million - $5 million | | | 286 | | | 638.7 | |

| Total | | | 3,843 | | $ | 1,966.4 | |

Our average project takes six to nine months to complete, with an average contract price of approximately $512,000.

commercial, industrial and institutional customers.

with our customers by providing superior, high-quality service in a professional manner.

For example, our operations are subject to the requirements of the Occupational Safety and Health Act, or OSHA, and comparable state laws directed towards protection of employees.

refrigerants and also regulate the containment and recycling of these refrigerants.

Some replacement refrigerants, already in use, and classified as hydrofluorocarbons (HFCs) are not ozone-depleting substances.

HFCs are considered by USEPA to have high global warming potential.

USEPA may at some point require the phase-out of HFCs and expand existing technician certification requirements to cover the handling of HFCs.

We provide comprehensive heating, ventilation and air conditioning ("HVAC") installation, maintenance, repair and replacement services within the mechanical services industry.

In addition to standard HVAC services, we provide specialized applications such as building automation control systems, fire protection, process cooling, electronic monitoring and process piping.

Certain locations also perform related activities such as electrical service and plumbing.

Our consolidated 2014 revenue was derived from the

These factors cause many facility owners to consider replacing older systems before the end of their functioning lives.

We believe these factors should increase demand for the reconfiguration or replacement of existing HVAC systems and may also mitigate, to some extent, the effect on the HVAC industry of the cyclicality inherent in the traditional construction industry.

the building owner.

These systems require specialized training to install, maintain and repair, and the typical building engineer employed directly by a building owner or manager has not received this training.

Over the past few years we have increased our

We believe these programs can lead to significantly increased efficiency and growth.

We also believe larger regional and national commercial, industrial and institutional entities can benefit from consolidating their HVAC needs through our national service business and we operate a national call center to dispatch technicians to regional and national sites requiring service and small projects.

| Manufacturing | | | 24 | % |

the construction services sector.

| Under $1 million | | | 3,683 | | $ | 380.8 | |

| $1 million - $5 million | | | 297 | | | 683.4 | |

| Total | | | 4,074 | | $ | 1,988.3 | |

equipment, materials and installation based on plans and engineering specifications provided by a customer, general contractor or consulting engineer.

We also install process cooling systems and building automation controls and monitoring systems.

Process cooling systems are used primarily in industrial facilities to provide heating and/or cooling to precise temperature and climate standards for products being manufactured and for the manufacturing equipment.

Building automation control systems are used in HVAC and process cooling systems to maintain pre-established temperature or climate standards for commercial or industrial facilities.

Building automation control systems are capable not only of controlling a facility's entire HVAC system, often on a room-by-room basis, but can also be programmed to integrate energy management, and monitoring for purposes of security, fire, card key access, lighting and other building systems.

This monitoring can be performed on-site or remotely through a computer-based communications system.

The monitoring system communicates an exception when a system is operating outside pre-established parameters.

Diagnosis of potential problems and remedial adjustments can often be performed remotely from system monitoring terminals.

Delivery times are typically short

The negative effects of unrecovered commodity cost inflation in our project results have been modest, and are reviewed further in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" later in this report.

Some of these competitors and

Executive Officers

We have five executive officers.

_Brian Lane,_ age 57, has served as our Chief Executive Officer and President since December 2011 and as a director since 2010.

Mr. Lane served as our President and Chief Operating Officer from March 2010 until December 2011.

Mr. Lane joined the Company in October 2003 and served as Vice President and then Senior Vice President for Region One of the Company until he was named Executive Vice President and Chief Operating Officer in January 2009.

Prior to joining the Company, Mr. Lane spent fifteen years at Halliburton, a global provider of products and services to energy, industrial, and government customers, including employment by Brown and Root, an engineering and construction company.

During his tenure, he held various positions in business development, strategy, and project activities, including the position of Regional Director of Europe and Africa.

Additionally,

he held the position of Vice President at Kvaerner, an international engineering and construction company.

_William George,_ age 50, has served as our Executive Vice President and Chief Financial Officer since May 2005, was our Senior Vice President, General Counsel and Secretary from May 1998 to May 2005, and was our Vice President, General Counsel and Secretary from March 1997 to April 1998.

From October 1995 to February 1997, Mr. George was Vice President and General Counsel of American Medical Response, Inc., a publicly-traded healthcare transportation company.

From September 1992 to September 1995, Mr. George practiced corporate and antitrust law at Ropes & Gray, a Boston, Massachusetts law firm.

_Julie S.

Financial Statements and Supplementary [removed: Data](#fa17801_item_8._financial_statements_and_supplementary_data)][added: Data](#fa12901_item_8._financial_statements_and_supplementary_data)]

| [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [removed: | |]

| For the Fiscal Year Ended December 31, [removed: 2014] [added: 2015] | | |

Yes [removed: o No] ý [added: No o]

| Large accelerated filer [removed: o] [added: ý] | | Accelerated filer [removed: ý] [added: o] | | Non-accelerated filer o (Do not check if a smaller reporting company) | | Smaller reporting company o |

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, [removed: 2014] [added: 2015] was approximately [removed: $596.4] [added: $843.5] million, based on the [removed: $15.80] [added: $22.95] last sale price of the registrant's common stock on the New York Stock Exchange on June 30, [removed: 2014.][added: 2015.]

As of February [removed: 20, 2015, 37,269,779] [added: 17, 2016, 37,324,555] shares of the registrant's common stock were outstanding (excluding treasury shares of [removed: 3,853,586).][added: 3,798,810).]

The information required by Part III (other than the required information regarding executive officers) is incorporated by reference from the registrant's definitive proxy statement, which will be filed with the Commission not later than 120 days following December 31, [removed: 2014.][added: 2015.]

| [removed: [](#dc17801_item_1._business)] [added: [](#da12901_item_1._business)] [Item [removed: 1.](#dc17801_item_1._business)] [added: 1.](#da12901_item_1._business)] | | [removed: [](#dc17801_item_1._business) [Business](#dc17801_item_1._business)] [added: [](#da12901_item_1._business) [Business](#da12901_item_1._business)] | | | [removed: [2](#dc17801_item_1._business)] [added: [2](#da12901_item_1._business)] | |

| [removed: [](#de17801_item_1a._risk_factors)] [added: [](#da12901_item_1a._risk_factors)] [Item [removed: 1A.](#de17801_item_1a._risk_factors)] [added: 1A.](#da12901_item_1a._risk_factors)] | | [removed: [](#de17801_item_1a._risk_factors)] [added: [](#da12901_item_1a._risk_factors)] [Risk [removed: Factors](#de17801_item_1a._risk_factors)] [added: Factors](#da12901_item_1a._risk_factors)] | | | [removed: [11](#de17801_item_1a._risk_factors)] [added: [10](#da12901_item_1a._risk_factors)] | |

| [removed: [](#dg17801_item_1b._unresolved_staff_comments)] [added: [](#de12901_item_1b._unresolved_staff_comments)] [Item [removed: 1B.](#dg17801_item_1b._unresolved_staff_comments)] [added: 1B.](#de12901_item_1b._unresolved_staff_comments)] | | [removed: [](#dg17801_item_1b._unresolved_staff_comments)] [added: [](#de12901_item_1b._unresolved_staff_comments)] [Unresolved Staff [removed: Comments](#dg17801_item_1b._unresolved_staff_comments)] [added: Comments](#de12901_item_1b._unresolved_staff_comments)] | | | [removed: [21](#dg17801_item_1b._unresolved_staff_comments)] [added: [21](#de12901_item_1b._unresolved_staff_comments)] | |

| [removed: [](#dg17801_item_2._properties)] [added: [](#de12901_item_2._properties)] [Item [removed: 2.](#dg17801_item_2._properties)] [added: 2.](#de12901_item_2._properties)] | | [removed: [](#dg17801_item_2._properties) [Properties](#dg17801_item_2._properties)] [added: [](#de12901_item_2._properties) [Properties](#de12901_item_2._properties)] | | | [removed: [21](#dg17801_item_2._properties)] [added: [21](#de12901_item_2._properties)] | |

| [removed: [](#dg17801_item_3._legal_proceedings)] [added: [](#de12901_item_3._legal_proceedings)] [Item [removed: 3.](#dg17801_item_3._legal_proceedings)] [added: 3.](#de12901_item_3._legal_proceedings)] | | [removed: [](#dg17801_item_3._legal_proceedings)] [added: [](#de12901_item_3._legal_proceedings)] [Legal [removed: Proceedings](#dg17801_item_3._legal_proceedings)] [added: Proceedings](#de12901_item_3._legal_proceedings)] | | | [removed: [21](#dg17801_item_3._legal_proceedings)] [added: [21](#de12901_item_3._legal_proceedings)] | |

| [removed: [](#dg17801_item_4._mine_safety_disclosures)] [added: [](#de12901_item_4._mine_safety_disclosures)] [Item [removed: 4.](#dg17801_item_4._mine_safety_disclosures)] [added: 4.](#de12901_item_4._mine_safety_disclosures)] | | [removed: [](#dg17801_item_4._mine_safety_disclosures)] [added: [](#de12901_item_4._mine_safety_disclosures)] [Mine Safety [removed: Disclosures](#dg17801_item_4._mine_safety_disclosures)] [added: Disclosures](#de12901_item_4._mine_safety_disclosures)] | | | [removed: [21](#dg17801_item_4._mine_safety_disclosures)] [added: [21](#de12901_item_4._mine_safety_disclosures)] | |

| [removed: [](#di17801_item_5._market_for_registrant___ite04666)] [added: [](#de12901_item_5._market_for_registrant___ite04666)] [Item [removed: 5.](#di17801_item_5._market_for_registrant___ite04666)] [added: 5.](#de12901_item_5._market_for_registrant___ite04666)] | | [removed: [](#di17801_item_5._market_for_registrant___ite04666)] [added: [](#de12901_item_5._market_for_registrant___ite04666)] [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#di17801_item_5._market_for_registrant___ite04666)] [added: Securities](#de12901_item_5._market_for_registrant___ite04666)] | | | [removed: [22](#di17801_item_5._market_for_registrant___ite04666)] [added: [22](#de12901_item_5._market_for_registrant___ite04666)] | |

| [removed: [](#dk17801_item_6._selected_financial_data)] [added: [](#dg12901_item_6._selected_financial_data)] [Item [removed: 6.](#dk17801_item_6._selected_financial_data)] [added: 6.](#dg12901_item_6._selected_financial_data)] | | [removed: [](#dk17801_item_6._selected_financial_data)] [added: [](#dg12901_item_6._selected_financial_data)] [Selected Financial [removed: Data](#dk17801_item_6._selected_financial_data)] [added: Data](#dg12901_item_6._selected_financial_data)] | | | [removed: [25](#dk17801_item_6._selected_financial_data)] [added: [25](#dg12901_item_6._selected_financial_data)] | |

| [removed: [](#dk17801_item_7._management_s_discussio__ite03668)] [added: [](#dg12901_item_7._management_s_discussio__ite03668)] [Item [removed: 7.](#dk17801_item_7._management_s_discussio__ite03668)] [added: 7.](#dg12901_item_7._management_s_discussio__ite03668)] | | [removed: [](#dk17801_item_7._management_s_discussio__ite03668)] [added: [](#dg12901_item_7._management_s_discussio__ite03668)] [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#dk17801_item_7._management_s_discussio__ite03668)] [added: Operations](#dg12901_item_7._management_s_discussio__ite03668)] | | | [removed: [26](#dk17801_item_7._management_s_discussio__ite03668)] [added: [25](#dg12901_item_7._management_s_discussio__ite03668)] | |

| [removed: [](#do17801_item_7a._quantitative_and_qual__ite02669)] [added: [](#dk12901_item_7a._quantitative_and_qual__ite02669)] [Item [removed: 7A.](#do17801_item_7a._quantitative_and_qual__ite02669)] [added: 7A.](#dk12901_item_7a._quantitative_and_qual__ite02669)] | | [removed: [](#do17801_item_7a._quantitative_and_qual__ite02669)] [added: [](#dk12901_item_7a._quantitative_and_qual__ite02669)] [Quantitative and Qualitative Disclosures about Market [removed: Risk](#do17801_item_7a._quantitative_and_qual__ite02669)] [added: Risk](#dk12901_item_7a._quantitative_and_qual__ite02669)] | | | [removed: [45](#do17801_item_7a._quantitative_and_qual__ite02669)] [added: [45](#dk12901_item_7a._quantitative_and_qual__ite02669)] | |

| [removed: [](#fa17801_item_8._financial_statements_and_supplementary_data)] [added: [](#fa12901_item_8._financial_statements_and_supplementary_data)] [Item [removed: 8.](#fa17801_item_8._financial_statements_and_supplementary_data)] [added: 8.](#fa12901_item_8._financial_statements_and_supplementary_data)] | | [removed: [](#fa17801_item_8._financial_statements_and_supplementary_data)] [added: [](#fa12901_item_8._financial_statements_and_supplementary_data)] [Financial Statements and Supplementary [removed: Data](#fa17801_item_8._financial_statements_and_supplementary_data)] [added: Data](#fa12901_item_8._financial_statements_and_supplementary_data)] | | | [removed: [46](#fa17801_item_8._financial_statements_and_supplementary_data)] [added: [46](#fa12901_item_8._financial_statements_and_supplementary_data)] | |

| [removed: [](#fu17801_item_9._changes_in_and_disagre__ite03576)] [added: [](#fu12901_item_9._changes_in_and_disagre__ite03576)] [Item [removed: 9.](#fu17801_item_9._changes_in_and_disagre__ite03576)] [added: 9.](#fu12901_item_9._changes_in_and_disagre__ite03576)] | | [removed: [](#fu17801_item_9._changes_in_and_disagre__ite03576)] [added: [](#fu12901_item_9._changes_in_and_disagre__ite03576)] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#fu17801_item_9._changes_in_and_disagre__ite03576)] [added: Disclosure](#fu12901_item_9._changes_in_and_disagre__ite03576)] | | | [removed: [86](#fu17801_item_9._changes_in_and_disagre__ite03576)] [added: [85](#fu12901_item_9._changes_in_and_disagre__ite03576)] | |

| [removed: [](#fu17801_item_9a._controls_and_procedures)] [added: [](#fu12901_item_9a._controls_and_procedures)] [Item [removed: 9A.](#fu17801_item_9a._controls_and_procedures)] [added: 9A.](#fu12901_item_9a._controls_and_procedures)] | | [removed: [](#fu17801_item_9a._controls_and_procedures)] [added: [](#fu12901_item_9a._controls_and_procedures)] [Controls and [removed: Procedures](#fu17801_item_9a._controls_and_procedures)] [added: Procedures](#fu12901_item_9a._controls_and_procedures)] | | | [removed: [86](#fu17801_item_9a._controls_and_procedures)] [added: [85](#fu12901_item_9a._controls_and_procedures)] | |

| [removed: [](#fu17801_item_9b._other_information)] [added: [](#fu12901_item_9b._other_information)] [Item [removed: 9B.](#fu17801_item_9b._other_information)] [added: 9B.](#fu12901_item_9b._other_information)] | | [removed: [](#fu17801_item_9b._other_information)] [added: [](#fu12901_item_9b._other_information)] [Other [removed: Information](#fu17801_item_9b._other_information)] [added: Information](#fu12901_item_9b._other_information)] | | | [removed: [86](#fu17801_item_9b._other_information)] [added: [85](#fu12901_item_9b._other_information)] | |

| [removed: [](#fu17801_part_iii)] [added: [](#fu12901_part_iii)] [Part [removed: III](#fu17801_part_iii)] [added: III](#fu12901_part_iii)] | | | | | | |

| [removed: [](#fu17801_item_10._directors,_executive___ite02336)] [added: [](#fu12901_item_10._directors,_executive___ite02336)] [Item [removed: 10.](#fu17801_item_10._directors,_executive___ite02336)] [added: 10.](#fu12901_item_10._directors,_executive___ite02336)] | | [removed: [](#fu17801_item_10._directors,_executive___ite02336)] [added: [](#fu12901_item_10._directors,_executive___ite02336)] [Directors, Executive Officers and Corporate [removed: Governance](#fu17801_item_10._directors,_executive___ite02336)] [added: Governance](#fu12901_item_10._directors,_executive___ite02336)] | | | [removed: [86](#fu17801_item_10._directors,_executive___ite02336)] [added: [85](#fu12901_item_10._directors,_executive___ite02336)] | |

| [removed: [](#Items1234)] [added: [](#h1)] [Item [removed: 11.](#Items1234)] [added: 11.](#h1)] | | [removed: [](#Items1234)] [added: [](#h1)] [Executive [removed: Compensation](#Items1234)] [added: Compensation](#h1)] | | | [removed: [87](#Items1234)] [added: [85](#h1)] | |

| [removed: [](#Items1234)] [added: [](#h1)] [Item [removed: 12.](#Items1234)] [added: 12.](#h1)] | | [removed: [](#Items1234)] [added: [](#h1)] [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#Items1234)] [added: Matters](#h1)] | | | [removed: [87](#Items1234)] [added: [85](#h1)] | |

| [removed: [](#Items1234)] [added: [](#h1)] [Item [removed: 13.](#Items1234)] [added: 13.](#h1)] | | [removed: [](#Items1234)] [added: [](#h1)] [Certain Relationships and Related Transactions, and Director [removed: Independence](#Items1234)] [added: Independence](#h1)] | | | [removed: [87](#Items1234)] [added: [85](#h1)] | |

| [removed: [](#Items1234)] [added: [](#h1)] [Item [removed: 14.](#Items1234)] [added: 14.](#h1)] | | [removed: [](#Items1234)] [added: [](#h1)] [Principal Accounting Fees and [removed: Services](#Items1234)] [added: Services](#h1)] | | | [removed: [87](#Items1234)] [added: [85](#h1)] | |

| [removed: [](#fu17801_item_15._exhibits_and_financial_statement_schedules)] [added: [](#fu12901_item_15._exhibits_and_financial_statement_schedules)] [Item [removed: 15.](#fu17801_item_15._exhibits_and_financial_statement_schedules)] [added: 15.](#fu12901_item_15._exhibits_and_financial_statement_schedules)] | | [removed: [](#fu17801_item_15._exhibits_and_financial_statement_schedules)] [added: [](#fu12901_item_15._exhibits_and_financial_statement_schedules)] [Exhibits and Financial Statement [removed: Schedules](#fu17801_item_15._exhibits_and_financial_statement_schedules)] [added: Schedules](#fu12901_item_15._exhibits_and_financial_statement_schedules)] | | | [removed: [87](#fu17801_item_15._exhibits_and_financial_statement_schedules)] [added: [86](#fu12901_item_15._exhibits_and_financial_statement_schedules)] | |

_FORWARD-LOOKING [removed: STATEMENTS_][added: STATEMENTS]

10-K 1 a2227387z10-k.htm 10-K

| [](#da12901_part_i) [Part I](#da12901_part_i) | | | | | | |

| [](#de12901_item_4a._executive_officers_of_the_registrant) [Item 4A.](#de12901_item_4a._executive_officers_of_the_registrant) | | [](#de12901_item_4a._executive_officers_of_the_registrant) [Executive Officers of the Registrant](#de12901_item_4a._executive_officers_of_the_registrant) | | | [21](#de12901_item_4a._executive_officers_of_the_registrant) | |

| [](#de12901_part_ii) [Part II](#de12901_part_ii) | | | | | | |

| [](#fu12901_part_iv) [Part IV](#fu12901_part_iv) | | | | | | |

_

10-K 1 a2223211z10-k.htm 10-K

| [](#dc17801_part_i) [Part I](#dc17801_part_i) | | | | | | |

| [](#di17801_part_ii) [Part II](#di17801_part_ii) | | | | | | |

| [](#fu17801_part_iv) [Part IV](#fu17801_part_iv) | | | | | | |

Other than these five [added: owned] properties, we lease the real property and buildings from which we operate.

Our facilities are located in [removed: 29] [added: 27] states and [removed: Puerto Rico and] consist of offices, shops and fabrication, maintenance and warehouse facilities.

As of December 31, 2015, we owned five properties.

We own five properties, three of which we acquired through acquisition and two that we formerly leased.

PART II

_

Executive officers are appointed by our Board of Directors and hold office until their successors are elected and duly qualified.

The following persons serve as executive officers of the Company.

_Brian Lane,_ age 58, has served as our Chief Executive Officer and President since December 2011 and as a director since November 2010.

Mr. Lane served as our President and Chief Operating Officer from March 2010 until December 2011.

Mr. Lane joined the Company in October 2003 and served as Vice President and then Senior Vice President for Region One of the Company until he was named Executive Vice President and Chief Operating Officer in January 2009.

Prior to joining the Company, Mr. Lane spent fifteen years at Halliburton, the global service and equipment company devoted to energy, industrial, and government customers.

During his tenure at Halliburton, he held various positions in business development, strategy, and project initiatives.

He departed as the Regional Director of Europe and Africa.

Mr. Lane's additional experience included serving as a Regional Director of Capstone Turbine Corporation, a distributed power manufacturer.

He also was a Vice President of Kvaerner, an international engineering and construction company where he focused on the chemical industry.

_William George,_ age 51, has served as our Executive Vice President and Chief Financial Officer since May 2005, was our Senior Vice President, General Counsel and Secretary from May 1998 to

May 2005, and was our Vice President, General Counsel and Secretary from March 1997 to April 1998.

From October 1995 to February 1997, Mr. George was Vice President and General Counsel of American Medical Response, Inc., a publicly-traded healthcare transportation company.

From September 1992 to September 1995, Mr. George practiced corporate and antitrust law at Ropes & Gray, a Boston, Massachusetts law firm.

_Julie S.

Shaeff,_ age 50, has served as our Senior Vice President and Chief Accounting Officer since May 2005, was our Vice President and Corporate Controller from March 2002 to May 2005, and was our Assistant Corporate Controller from September 1999 to February 2002.

From 1996 to August 1999, Ms. Shaeff was Financial Accounting Manager—Corporate Controllers Group for Browning-Ferris Industries, Inc., a publicly-traded waste services company.

From 1987 to 1995, she held various positions with Arthur Andersen LLP.

Ms. Shaeff is a Certified Public Accountant.

_Trent T.

McKenna_, age 43, has served as our Senior Vice President, General Counsel and Secretary since August 2013, was our Vice President, General Counsel and Secretary from May 2005 to August 2013, and was our Associate General Counsel from August 2004 to May 2005.

From February 1999 to August 2004, Mr. McKenna was a practicing attorney in the area of complex commercial litigation in the Houston, Texas office of Akin Gump Strauss Hauer & Feld LLP, an international law firm.

_James Mylett,_ age 52, has served as our Senior Vice President of Service since October 2013.

Prior to joining the Company, Mr. Mylett spent fourteen years at Johnson Controls, which manufactures, installs, and services automatic temperature regulation systems for buildings.

During his time at Johnson Controls, Mr. Mylett held various positions, including that of Vice President and General Manager—North America Service Operations from August 2011 to October 2013.

From October 2010 to August 2011, he served as Vice President and General Manager—West Region, and from December 2005 to September 2010, he served as Vice President of Service and Solutions—South Region.

Previously, Mr. Mylett worked for Carrier Corporation, where he established and developed the Company's national accounts service business.

PART II

As of February [removed: 20, 2015] [added: 17, 2016] there were approximately [removed: 294] [added: 273] stockholders of record of our Common Stock, and the last reported sale price on that date was [removed: $16.66] [added: $26.20] per share.

[removed: In] addition, our revolving credit agreement [removed: limits] [added: may limit] the amount of dividends we can pay at any time that our Net Leverage Ratio exceeds 1.0.

[removed: ][added: ]

$100 invested on [removed: 12/31/09] [added: 12/31/10] in stock or index, including reinvestment of dividends.

Copyright© [removed: 2015] [added: 2016] Russell Investment Group.

[removed: Since the inception of the program in 2007 and as] [added: As] of December 31, [removed: 2014,] [added: 2015,] we have repurchased a cumulative total of [removed: 6.6] [added: 6.9] million shares at an average price of [removed: $11.30] [added: $11.99] per [removed: share.][added: share under the repurchase program.]

During the year ended December 31, [removed: 2014,] [added: 2015,] we purchased our common shares in the following amounts at the following weighted-average prices:

| Period | | Total Number of Shares Purchased | | | [removed: Weighted- Average] [added: Average] Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | |

| [removed: November] [added: January] 1 - [removed: November 30] [added: January 31] | | | [removed: 5,185] [added: —] | | $ | [removed: 14.26] [added: —] | | | 6,566,368 | | | 994,815 | |

| [removed: December] [added: February] 1 - [removed: December 31] [added: February 28] | | | — | | $ | — | | | 6,566,368 | | | 994,815 | |

| [added: March 1 - March 31] | | | [removed: 549,154] [added: —] | | $ | [removed: 14.52] [added: —] | | | 6,566,368 | | | 994,815 | |

| Fourth Quarter, 2015 | | $ | 33.71 | | $ | 27.47 | | $ | 0.065 | |

| Third Quarter, 2015 | | $ | 30.12 | | $ | 22.98 | | $ | 0.065 | |

| Second Quarter, 2015 | | $ | 23.90 | | $ | 20.11 | | $ | 0.060 | |

| First Quarter, 2015 | | $ | 21.18 | | $ | 15.87 | | $ | 0.060 | |

In

Copyright© 2016 S&P, a division of McGraw Hill Financial.

All rights reserved.

During the twelve months ended December 31, 2015, we repurchased 0.3 million shares for approximately $8.3 million at an average price of $26.36 per share.

| April 1 - April 30 | | | 43,750 | | $ | 20.61 | | | 6,610,118 | | | 951,065 | |

| May 1 - May 31 | | | 29,283 | | $ | 21.28 | | | 6,639,401 | | | 921,782 | |

| June 1 - June 30 | | | — | | $ | — | | | 6,639,401 | | | 921,782 | |

| July 1 - July 31 | | | — | | $ | — | | | 6,639,401 | | | 921,782 | |

| August 1 - August 31 | | | 40,439 | | $ | 27.74 | | | 6,679,840 | | | 881,343 | |

| September 1 - September 30 | | | 82,361 | | $ | 27.71 | | | 6,762,201 | | | 798,982 | |

| October 1 - October 31 | | | 37,002 | | $ | 26.51 | | | 6,799,203 | | | 761,980 | |

| November 1 - November 30 | | | 4,058 | | $ | 31.38 | | | 6,803,261 | | | 757,922 | |

| December 1 - December 31 | | | 79,060 | | $ | 28.99 | | | 6,882,321 | | | 678,862 | |

| | | | 315,953 | | $ | 26.36 | | | 6,882,321 | | | 678,862 | |

| Fourth Quarter, 2013 | | $ | 20.58 | | $ | 16.16 | | $ | 0.055 | |

| Third Quarter, 2013 | | $ | 16.98 | | $ | 15.10 | | $ | 0.055 | |

| Second Quarter, 2013 | | $ | 15.33 | | $ | 11.70 | | $ | 0.050 | |

| First Quarter, 2013 | | $ | 14.19 | | $ | 11.90 | | $ | 0.050 | |

Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

On October 24, 2014, the Board approved an extension to the program by increasing the shares authorized for repurchase by 1.0 million shares.

| January 1 - January 31 | | | — | | $ | — | | | 6,017,214 | | | 583,323 | |

| February 1 - February 28 | | | — | | $ | — | | | 6,017,214 | | | 583,323 | |

| March 1 - March 31 | | | 25,000 | | $ | 16.64 | | | 6,042,214 | | | 558,323 | |

| April 1 - April 30 | | | 6,037 | | $ | 14.86 | | | 6,048,251 | | | 552,286 | |

| May 1 - May 31 | | | — | | $ | — | | | 6,048,251 | | | 552,286 | |

| June 1 - June 30 | | | — | | $ | — | | | 6,048,251 | | | 552,286 | |

| July 1 - July 31 | | | — | | $ | — | | | 6,048,251 | | | 552,286 | |

| August 1 - August 31 | | | 191,222 | | $ | 14.69 | | | 6,239,473 | | | 361,064 | |

| September 1 - September 30 | | | 204,428 | | $ | 14.52 | | | 6,443,901 | | | 156,636 | |

| October 1 - October 31 | | | 117,282 | | $ | 13.79 | | | 6,561,183 | | | 1,000,000 | |

| | | [added: 2015 | | |] 2014 | | | 2013 | | | 2012 | | | 2011 | | | [removed: 2010 | | |]

| Revenue | | $ | [removed: 1,410,795] [added: 1,580,519] | | $ | [removed: 1,357,272] [added: 1,410,795] | | $ | [removed: 1,331,185] [added: 1,357,272] | | $ | [removed: 1,216,654] [added: 1,331,185] | | $ | [removed: 1,063,520] [added: 1,216,654] | |

| Operating income (loss)(a) | | $ | [added: 90,044 | | $ |] 42,222 | | $ | 46,258 | | $ | 22,303 | | $ | (42,641 | ) | [removed: $ | 31,442 | |]

| Income (loss) from continuing operations | | $ | [added: 57,440 | | $ |] 28,614 | | $ | 28,632 | | $ | 11,494 | | $ | (32,474 | ) | [removed: $ | 20,564 | |]

| Operating income (loss), net of tax | | $ | [added: — | | $ |] (15 | ) | $ | (76 | ) | $ | 355 | | $ | (4,018 | ) | [removed: $ | (6,547 | ) |]

| Net income (loss) including noncontrolling interests | | $ | [added: 57,440 | | $ |] 28,599 | | $ | 28,556 | | $ | 11,849 | | $ | (36,492 | ) | [removed: $ | 14,740 | |]

| Net income (loss) attributable to Comfort Systems USA, Inc. | | $ | [added: 49,364 | | $ |] 23,063 | | $ | 27,269 | | $ | 13,463 | | $ | (36,830 | ) | [removed: $ | 14,740 | |]

| Income (loss) from continuing operations | | $ | [added: 1.32 | | $ |] 0.61 | | $ | 0.73 | | $ | 0.35 | | $ | (0.88 | ) | [removed: $ | 0.54 | |]

| Income (loss) from operations | | | — | | | — | | | [removed: 0.01] [added: —] | | | [removed: (0.11] [added: 0.01] | [removed: )] | | [removed: (0.17] [added: (0.11] | ) |

| Net income (loss) | | $ | [added: 1.32 | | $ |] 0.61 | | $ | 0.73 | | $ | 0.36 | | $ | (0.99 | ) | [removed: $ | 0.39 | |]

| Cash dividends per share | | $ | [removed: 0.225] [added: 0.250] | | $ | [removed: 0.210] [added: 0.225] | | $ | [removed: 0.200] [added: 0.210] | | $ | 0.200 | | $ | 0.200 | |

| Total debt | | $ | [removed: 40,346] [added: 11,507] | | $ | [removed: 2,000] [added: 40,346] | | $ | [removed: 7,400] [added: 2,000] | | $ | [removed: 15,381] [added: 7,400] | | $ | [removed: 29,936] [added: 15,381] | |

| Total stockholders' equity | | $ | [removed: 321,393] [added: 365,005] | | $ | [removed: 314,022] [added: 321,393] | | $ | [removed: 287,306] [added: 314,022] | | $ | [removed: 283,106] [added: 287,306] | | $ | [removed: 312,784] [added: 283,106] | |

| Total Comfort Systems USA, Inc. stockholders' equity | | $ | [removed: 306,281] [added: 346,721] | | $ | [removed: 295,834] [added: 306,281] | | $ | [removed: 270,405] [added: 295,834] | | $ | [removed: 264,591] [added: 270,405] | | $ | [removed: 312,784] [added: 264,591] | |

There were no goodwill impairment charges for [removed: 2013, 2012] [added: 2015, 2013] or [removed: 2010.][added: 2012.]

_

| Income (loss) from continuing operations | | $ | 1.30 | | $ | 0.61 | | $ | 0.73 | | $ | 0.35 | | $ | (0.88 | ) |

| Income (loss) from operations | | | — | | | — | | | — | | | 0.01 | | | (0.11 | ) |

| Net income (loss) | | $ | 1.30 | | $ | 0.61 | | $ | 0.73 | | $ | 0.36 | | $ | (0.99 | ) |

| Working capital | | $ | 118,882 | | $ | 111,433 | | $ | 109,618 | | $ | 84,349 | | $ | 90,800 | |

| Total assets | | $ | 691,594 | | $ | 655,942 | | $ | 592,789 | | $ | 573,461 | | $ | 589,947 | |

| Gain (loss) on disposition, net of tax | | | — | | | — | | | — | | | — | | $ | 723 | |

| Gain (loss) on disposition | | | — | | | — | | | — | | | — | | | 0.02 | |

| Working capital | | $ | 130,555 | | $ | 127,559 | | $ | 103,966 | | $ | 109,766 | | $ | 134,738 | |

| Total assets | | $ | 665,750 | | $ | 601,822 | | $ | 580,754 | | $ | 593,980 | | $ | 640,020 | |

| [removed: [](#fc17801_management_s_report_on_interna__man02650)] [added: [](#fc12901_management_s_report_on_interna__man02650)] [Management's Report on Internal Control over Financial [removed: Reporting](#fc17801_management_s_report_on_interna__man02650)] [added: Reporting](#fc12901_management_s_report_on_interna__man02650)] | | | [removed: [47](#fc17801_management_s_report_on_interna__man02650)] [added: [47](#fc12901_management_s_report_on_interna__man02650)] | |

| [removed: [](#Report1)] [added: [](#f1)] [Report of Independent Registered Public Accounting [removed: Firm](#Report1)] [added: Firm](#f1)] | | | [removed: [48](#Report1)] [added: [48](#f1)] | |

| [removed: [](#Report2)] [added: [](#f2)] [Report of Independent Registered Public Accounting [removed: Firm](#Report2)] [added: Firm](#f2)] | | | [removed: [49](#Report2)] [added: [49](#f2)] | |

| [removed: [](#fe17801_comfort_systems_usa,_inc._cons__com03397)] [added: [](#fe12901_comfort_systems_usa,_inc._cons__com03397)] [Consolidated Balance [removed: Sheets](#fe17801_comfort_systems_usa,_inc._cons__com03397)] [added: Sheets](#fe12901_comfort_systems_usa,_inc._cons__com03397)] | | | [removed: [50](#fe17801_comfort_systems_usa,_inc._cons__com03397)] [added: [50](#fe12901_comfort_systems_usa,_inc._cons__com03397)] | |

| [removed: [](#fg17801_comfort_systems_usa,_inc._cons__com03873)] [added: [](#fg12901_comfort_systems_usa,_inc._cons__com03873)] [Consolidated Statements of [removed: Operations](#fg17801_comfort_systems_usa,_inc._cons__com03873)] [added: Operations](#fg12901_comfort_systems_usa,_inc._cons__com03873)] | | | [removed: [51](#fg17801_comfort_systems_usa,_inc._cons__com03873)] [added: [51](#fg12901_comfort_systems_usa,_inc._cons__com03873)] | |

| [removed: [](#fi17801_comfort_systems_usa,_inc._cons__com04303)] [added: [](#fi12901_comfort_systems_usa,_inc._cons__com04303)] [Consolidated Statements of Stockholders' [removed: Equity](#fi17801_comfort_systems_usa,_inc._cons__com04303)] [added: Equity](#fi12901_comfort_systems_usa,_inc._cons__com04303)] | | | [removed: [52](#fi17801_comfort_systems_usa,_inc._cons__com04303)] [added: [52](#fi12901_comfort_systems_usa,_inc._cons__com04303)] | |

| [removed: [](#fk17801_comfort_systems_usa,_inc._cons__com03000)] [added: [](#fk12901_comfort_systems_usa,_inc._cons__com03000)] [Consolidated Statements of Cash [removed: Flows](#fk17801_comfort_systems_usa,_inc._cons__com03000)] [added: Flows](#fk12901_comfort_systems_usa,_inc._cons__com03000)] | | | [removed: [53](#fk17801_comfort_systems_usa,_inc._cons__com03000)] [added: [53](#fk12901_comfort_systems_usa,_inc._cons__com03000)] | |

| [removed: [](#fm17801_comfort_systems_usa,_inc._note__com02990)] [added: [](#fm12901_comfort_systems_usa,_inc._note__com02991)] [Notes to Consolidated Financial [removed: Statements](#fm17801_comfort_systems_usa,_inc._note__com02990)] [added: Statements](#fm12901_comfort_systems_usa,_inc._note__com02991)] | | | [removed: [54](#fm17801_comfort_systems_usa,_inc._note__com02990)] [added: [54](#fm12901_comfort_systems_usa,_inc._note__com02991)] | |

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, [removed: 2014] [added: 2015] based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 framework).

Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, [removed: 2014.][added: 2015.]

Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein, has issued an attestation report auditing the effectiveness of our internal control over financial reporting as of December 31, [removed: 2014.][added: 2015.]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

We have audited the accompanying consolidated balance sheets of Comfort Systems USA, Inc. as of December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2014.][added: 2015.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Comfort Systems USA, Inc. at December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2014,] [added: 2015,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Comfort Systems USA, Inc.'s internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on criteria established in _Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)_ and our report dated February [removed: 26, 2015] [added: 23, 2016] expressed an unqualified opinion thereon.

[removed: |] Houston, Texas [removed: February 26, 2015 | | |]

We have audited Comfort Systems USA, Inc.'s internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on criteria established in _Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)_ (the COSO criteria).

In our opinion, Comfort Systems USA, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Comfort Systems USA, Inc. as of December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2014] [added: 2015] of Comfort Systems USA, Inc. and our report dated February [removed: 26, 2015] [added: 23, 2016] expressed an unqualified opinion thereon.

| | | [added: 2015 | | |] 2014 | | | 2013 | | |

| Cash and cash equivalents | | $ | [removed: 32,064] [added: 56,464] | | $ | [removed: 52,054] [added: 32,064] | |

| Accounts receivable, less allowance for doubtful accounts of [removed: $4,379] [added: $5,158] and [removed: $4,460,] [added: $4,379,] respectively | | | [removed: 303,575] [added: 302,052] | | | [removed: 267,470] [added: 303,575] | |

| Other receivables | | | [removed: 15,520] [added: 20,642] | | | [removed: 16,373] [added: 15,520] | |

| Inventories | | | [removed: 8,646] [added: 7,941] | | | [removed: 8,430] [added: 8,646] | |

| Prepaid expenses and other | | | [removed: 25,591] [added: 5,836] | | | [removed: 24,209] [added: 6,168] | |

| Costs and estimated earnings in excess of billings | | | [removed: 27,620] [added: 31,338] | | | [removed: 28,122] [added: 27,620] | |

| Assets related to discontinued operations | | | [removed: 176] [added: —] | | | [removed: 339] [added: 176] | |

| PROPERTY AND EQUIPMENT, NET | | | [removed: 55,759] [added: 60,813] | | | [removed: 46,861] [added: 55,759] | |

| [removed: GOODWILL] [added: Balance at beginning of year] | | [added: $] | 140,341 | | [added: $] | 114,588 | |

| IDENTIFIABLE INTANGIBLE ASSETS, NET | | | [removed: 45,666] [added: 41,079] | | | [removed: 37,383] [added: 45,666] | |

| OTHER NONCURRENT ASSETS | | | [removed: 10,792] [added: 21,555] | | | [removed: 5,993] [added: 20,407] | |

| Current maturities of long-term debt | | $ | [removed: —] [added: 500] | | $ | [removed: 2,000] [added: —] | |

| Current maturities of long-term capital lease obligations | | | [removed: 317] [added: 251] | | | [removed: —] [added: 317] | |

| Accounts payable | | | [removed: 106,211] [added: 106,684] | | | [removed: 100,825] [added: 106,211] | |

| Accrued compensation and benefits | | | [removed: 44,683] [added: 54,079] | | | [removed: 44,093] [added: 44,683] | |

| Billings in excess of costs and estimated earnings | | | [removed: 77,446] [added: 85,397] | | | [removed: 64,588] [added: 77,446] | |

| Accrued self-insurance expense | | | [removed: 28,903] [added: 29,803] | | | [removed: 29,398] [added: 28,903] | |

| Other current liabilities | | | [removed: 24,814] [added: 28,677] | | | [removed: 28,168] [added: 24,513] | |

| Liabilities related to discontinued operations | | | [removed: 263] [added: —] | | | [removed: 366] [added: 263] | |

| Total current liabilities | | | [removed: 282,637] [added: 305,391] | | | [removed: 269,438] [added: 282,336] | |

February 23, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Houston, Texas

February 23, 2016

| | | 2015 | | | 2014 | | |

| Total current assets | | | 424,273 | | | 393,769 | |

| GOODWILL | | | 143,874 | | | 140,341 | |

| Total assets | | $ | 691,594 | | $ | 655,942 | |

| Total liabilities | | | 326,589 | | | 334,549 | |

| Total liabilities and stockholders' equity | | $ | 691,594 | | $ | 655,942 | |

| Income from continuing operations | | $ | 1.30 | | $ | 0.61 | | $ | 0.73 | |

| Net income | | $ | 1.30 | | $ | 0.61 | | $ | 0.73 | |

| Net income | | | — | | | — | | | — | | | — | | | — | | | 49,364 | | | 8,076 | | | 57,440 | |

| Issuance of restricted stock & performance stock | | | — | | | — | | | 200,015 | | | 2,292 | | | (626 | ) | | — | | | — | | | 1,666 | |

| Dividends | | | — | | | — | | | — | | | — | | | — | | | (9,358 | ) | | — | | | (9,358 | ) |

| Distribution to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,904 | ) | | (4,904 | ) |

| Share repurchase | | | — | | | — | | | (315,953 | ) | | (8,330 | ) | | — | | | — | | | — | | | (8,330 | ) |

| BALANCE AT DECEMBER 31, 2015 | | | 41,123,365 | | $ | 411 | | | (3,696,781 | ) | $ | (46,845 | ) | $ | 323,765 | | $ | 69,390 | | $ | 18,284 | | $ | 365,005 | |

| Payments for contingent consideration arrangements | | | (345 | ) | | — | | | — | |

We install, maintain, repair and replace products and systems throughout the United States.

Our consolidated 2015 revenue was derived from the following service activities, all of which are in the mechanical services industry, the single industry segment we serve:

| Service Activity | | $ in thousands | | | % | | |

| HVAC | | $ | 1,216,999 | | | 77 | % |

| Plumbing | | | 221,273 | | | 14 | % |

| Building Automation Control Systems | | | 79,026 | | | 5 | % |

| Other | | | 63,221 | | | 4 | % |

| Total | | $ | 1,580,519 | | | 100 | % |

The effects of the reclassifications were not material to the consolidated financial statements.

In 2015, two operating locations came to an agreement with customers on multiple jobs and received approved change orders, which resulted in the recognition of additional revenue with minimal additional costs resulting in a project gain of $3.4 million, on a pre-tax basis.

We currently plan to use the modified retrospective basis on the adoption date.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issue Costs." Under ASU 2015-03, an entity presents debt issue costs related to a note in the balance sheet as a direct deduction from the related debt liability rather than as an asset.

Entities would apply the new guidance retrospectively to all prior periods.

In August 2015, the FASB issued ASU No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements." The amendment clarifies ASU 2015-03 and provides that an entity may defer and present debt issuance costs for a line-of-credit or other revolving credit facility arrangement as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the arrangement.

As such, we will continue to include debt issuance costs for our revolving credit facility arrangements in other noncurrent assets.

In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory", which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value.

Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation.

Inventory measured using last-in, first-out (LIFO) and the retail inventory method (RIM) are not impacted by the new guidance.

Entities should apply the new guidance prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.

It is effective for fiscal years

December 31, 2015

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| Total current assets | | | 413,192 | | | 396,997 | |

| Total assets | | $ | 665,750 | | $ | 601,822 | |

| Total liabilities | | | 344,357 | | | 287,800 | |

| Total liabilities and stockholders' equity | | $ | 665,750 | | $ | 601,822 | |

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |

| BALANCE AT DECEMBER 31, 2011 | | | 41,123,365 | | $ | 411 | | | (3,714,506 | ) | $ | (39,437 | ) | $ | 323,608 | | $ | (19,991 | ) | $ | 18,515 | | $ | 283,106 | |

| Net income (loss) | | | — | | | — | | | — | | | — | | | — | | | 13,463 | | | (1,614 | ) | | 11,849 | |

| Issuance of restricted stock | | | — | | | — | | | 70,000 | | | 742 | | | (742 | ) | | — | | | — | | | — | |

| Dividends | | | — | | | — | | | — | | | — | | | (7,471 | ) | | — | | | — | | | (7,471 | ) |

| Share repurchase | | | — | | | — | | | (286,036 | ) | | (2,860 | ) | | — | | | — | | | — | | | (2,860 | ) |

We operate primarily in the commercial, industrial and institutional HVAC markets and perform most of our services within office buildings, retail centers, apartment complexes, manufacturing plants and healthcare, education and government facilities.

In addition to standard HVAC services, we provide specialized applications such as building automation control systems, fire protection, process cooling, electronic monitoring and process piping.

Certain locations also perform related activities such as electrical service and plumbing.

The following activities account for our consolidated 2014 revenue: HVAC 74%, plumbing 16%, building automation control systems 6% and other 4%.

These activities are within the mechanical services industry which is the single industry segment we serve.

_Reclassifications_

These reclassifications are either of a normal and recurring nature or are due to discontinued operations accounting related to the shutdown of our Delaware operation in 2012.

Neither have resulted in any changes to previously reported net income for any periods.

_Accounting Adjustment Related to 2013_

As reported in the prior year, the accompanying financial statements for the year ended December 31, 2013 includes the correction of prior period accounting errors which resulted in additional net after-tax income in the period of approximately $1.3 million.

We determined that the errors primarily impacted years prior to 2010.

These corrections are reflected on a pretax basis in revenue, cost of sales and selling, general, and administrative expenses, which include $3.3 million, $0.8 million and $0.3 million, respectively.

We have considered the guidance found in ASC 250-10 and ASC 270-10 (SEC Staff Accounting Bulletin No. 99, Materiality, Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), in evaluating whether a restatement of prior financial statements is required as a result of the misstatement to such financial statements.

ASC 250 requires that corrections of errors be recorded by restatement of prior periods if the error is material.

We quantitatively and qualitatively assessed the materiality of the errors

COMFORT SYSTEMS USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and concluded that the errors were not material to our earnings for the year ended December 31, 2013, and any of our previously issued financial statements.

In April 2014, the FASB issued ASU No. 2014-08, _"Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity."_ ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.

Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued.

and early adoption is not permitted.

current liability in our balance sheet under the caption "Billings in excess of costs and estimated earnings."

| | | $ | (49,826 | ) | $ | (36,466 | ) |

3.

_Description of Transaction_

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended December 31, [removed: 2014] [added: 2015] that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

The Company will file with the Commission a definitive proxy statement including the other information to be disclosed under this item in the 120 days following December 31, [removed: 2014] [added: 2015] and such information is hereby incorporated by reference.

[removed: The Company will file with the Commission a definitive proxy statement including the information to be disclosed] under the items in the 120 days following December 31, [removed: 2014] [added: 2015] and such information is hereby incorporated by reference.

The Company will file with the Commission a definitive proxy statement including the information to be disclosed

Consolidated Financial Statements (Included Under Item 8): The Index to the Consolidated Financial Statements is included on page [removed: 37] [added: 38] of this annual report on Form 10-K and is incorporated herein by reference.

[added: |] Date: February [removed: 26, 2015][added: 23, 2016 | | | | |]

| Signature | | Title | | Date | [removed: | |]

| /s/ BRIAN E. LANE Brian E. Lane | | President, Chief Executive Officer, and Director (Principal Executive Officer) | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ WILLIAM GEORGE William George | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ JULIE S. SHAEFF Julie S. Shaeff | | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ FRANKLIN MYERS Franklin Myers | | Chairman of the Board | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ DARCY G. ANDERSON Darcy G. Anderson | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ HERMAN E. BULLS Herman E. Bulls | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ ALFRED J. GIARDINELLI, JR. Alfred J. Giardinelli, Jr. | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ ALAN P. KRUSI Alan P. Krusi | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ JAMES H. SCHULTZ James H. Schultz | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ CONSTANCE E. SKIDMORE Constance E. Skidmore | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| /s/ VANCE W. TANG Vance W. Tang | | Director | | [removed: |] February [removed: 26, 2015 |] [added: 23, 2016] |

| | *10.33 | | Form of Option Award under the Comfort Systems USA, Inc. 2012 Equity Incentive Plan | | | [added: 10.33] | | [removed: Filed Herewith] [added: 2014 Form 10-K] |

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| Signature | | Title | | Date |

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| | *10.36 | | Form of 2015 Restricted Stock Unit Agreement | | | 10.1 | | April 1, 2015 Form 8-K |

| | *10.37 | | Form of 2015 Dollar-denominated Performance Vesting Restricted Stock Unit Agreement | | | 10.2 | | April 1, 2015 Form 8-K |

| | *10.38 | | Summary of 2015 Incentive Compensation Plan | | | 10.1 | | First Quarter 2015 Form 10-Q |

| | *10.39 | | Form of Amended Change in Control Agreement | | | 10.1 | | Third Quarter 2015 Form 10-Q |

| | 10.40 | | Amendment No. 4 to Second Amended and Restated Credit Agreement and Amendment to Other Loan Documents | | | | | Filed Herewith |

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| | | | | | Incorporated by Reference to the Exhibit Indicated Below and to the Filing with the Commission Indicated Below | | | |

| Exhibit Number | | | Description of Exhibits | | Exhibit Number | | | Filing or File Number |

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