Comfort Systems USA (FIX) 10-K risk factor changes: FY2019 vs FY2018

[removed: Our] [added: Our] business is subject to a variety of risks and uncertainties, including, but not limited to, the risks and uncertainties described below.

You should carefully consider the risks described below, together with all [removed: the] [added: other] information included in this [removed: report.][added: report, including information contained in the “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” sections.]

Our business, financial [removed: condition and] [added: condition,] results of operations [added: or cash flows] could be adversely affected by the occurrence of any of these events, which could cause actual results to differ materially from expected and historical results, and the trading price of our common stock could [removed: decline.][added: decline.]

[removed: Economic] [added: Economic] downturns in the markets in which we operate may materially and adversely affect our business because our business is dependent on levels of construction [removed: activity.][added: activity.]

We experience the results of economic trends well after an economic cycle begins, and therefore [removed: will continue] [added: have generally continued] to experience the results of an economic recession well after conditions in the general economy have improved.

The lasting effects of a recession can also increase economic instability with our vendors, subcontractors, developers, and general contractors, which can [removed: cause us greater] [added: increase our] liability exposure and [removed: can] result in us not being paid [added: in full or at all] on some projects, [removed: as well as] [added: thus] decreasing our revenue and profit.

Further, to the extent some of our vendors, subcontractors, developers, or general contractors seek bankruptcy protection, [removed: the] [added: such] 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.

Additionally, [added: because 6.2% of our revenue for the year ended December 31, 2019 was attributable to projects in the government sector,] a reduction in federal, state, or local government spending in our industries and markets could result in decreased revenue and profit for us.

[removed: Because] [added: Because] we bear the risk of cost overruns in most of our contracts, we may experience reduced profits or, in some cases, losses under these contracts if costs increase above our [removed: estimates.][added: estimates.]

Our contract prices are established largely [removed: upon] [added: based on] estimates and assumptions of our projected costs, including assumptions about: future economic conditions; prices, including [removed: commodities] [added: commodity] prices; availability of labor, including the costs of providing labor, equipment, and materials; and other factors outside our control.

If our estimates or assumptions prove to be inaccurate, [removed: if] circumstances change in a way that renders our assumptions and estimates inaccurate or we fail to successfully execute the work, cost overruns may [removed: occur] [added: 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 suppliers or subcontractors may fail to perform as expected or site conditions may be different [added: than we expected.]

[removed: Our] [added: Our] backlog is subject to unexpected adjustments and cancellations, which means that amounts included in our backlog may not result in actual revenue or translate into [removed: profits.][added: profits.]

[removed: Intense] [added: Intense] competition in our industry could reduce our market share and our [removed: profit.][added: profit.]

We also expect increased competition from [removed: in‑house] [added: in-house] service providers, because some of our customers have employees who perform service work similar to the services we provide.

[removed: If] [added: If] we are unable to attract and retain qualified managers and employees, we will be unable to operate efficiently, which could reduce our [removed: profitability.][added: profitability.]

Our business is labor intensive, and many of our operations experience a high rate of [removed: employment] [added: employee] turnover.

At times of low unemployment rates in the United States, it [removed: will be] [added: is typically] more difficult for us to find qualified personnel at low cost in some geographic areas where we operate.

Further, our [removed: relationship] [added: relationships] with some customers could suffer if we are unable to retain the employees with whom those customers primarily work and have established relationships.

To the extent that we are unable to manage our growth effectively, or are unable to attract and retain additional qualified management, we may not be able to expand our operations or [added: successfully] execute our business plan.

[removed: Our] [added: Our] recent and future acquisitions may not be [removed: successful.][added: successful.]

We cannot [removed: assure] [added: guarantee] that we will be able to [removed: locate] [added: identify] acquisitions or that we will be able to consummate transactions on terms and conditions acceptable to us, or that acquired businesses will be profitable.

To the extent we [removed: succeed in making] [added: make] acquisitions, a number of risks will result, including:

| | [removed: · |] [added: ●] | the assumption of material liabilities (including for [removed: environmental‑related] [added: environmental-related] costs); |

| | [removed: · |] [added: ●] | failure of due diligence to uncover situations that could result in legal exposure or to quantify the true liability exposure from known risks; |

| | [removed: · |] [added: ●] | the diversion of management’s attention from the management of daily operations to the integration of operations; |

| | [removed: · |] [added: ●] | difficulties in the assimilation and retention of employees, in the assimilation of different cultures and practices, in the assimilation of broad and geographically dispersed personnel and operations, and the retention of employees generally; |

| | [removed: · |] [added: ●] | the risk of additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls; and |

| | [removed: · |] [added: ●] | we may not be able to realize the cost savings or other financial benefits we anticipated prior to the acquisition. |

[removed: Information] [added: Information] technology system failures, network disruptions or [removed: cyber security] [added: cybersecurity] breaches could adversely affect our [removed: business.][added: business.]

We use [added: and rely significantly on] sophisticated information technology systems, networks, and infrastructure in conducting [removed: some of] our [removed: day‑to‑day operations and] [added: day to day operations,] providing services to certain [removed: customers.][added: customers and protecting sensitive Company information.]

Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt our operations by causing transaction errors, processing inefficiencies, the loss of customers, other business disruptions or the loss of employee [added: or other third-party] personal information.

These events could impact our customers, employees and reputation and lead to financial losses from remediation actions, loss of business or [added: access to our business data,] potential liability or an increase in [removed: expense,] [added: expenses,] all of which may have a material adverse effect on our business.

[removed: Third] [added: Third] parties contribute significantly to our completion of many [removed: projects.][added: projects.]

We hire [removed: third‑party] [added: third-party] subcontractors to perform work and depend on [removed: third‑party] [added: third-party] suppliers to provide equipment and materials necessary to complete our projects.

If we are unable to retain qualified subcontractors or suppliers, or if our subcontractors or suppliers do not perform as anticipated for any reason, our [removed: execution] [added: execution, reputation] and profitability could be harmed.

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

[removed: Actual] [added: Actual] and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial [removed: condition.][added: condition.]

[removed: When appropriate, we establish provisions against possible] exposures, and we adjust these provisions from time to time according to ongoing exposure.

[removed: Our] [added: Our] use of the percentage-of-completion method of accounting could result in a reduction or reversal of previously recorded revenue or [removed: profits.][added: profits.]

The risks and uncertainties described below are not the only ones facing us.

Additional risks and uncertainties not known to us or which we have not determined to be material may also impair our business operations.

Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work.

Our backlog as of December 31, 2019 was $1.60 billion.

The predictive value of backlog information is limited to indications of general revenue direction over the near term, and we cannot guarantee that the revenue projected from our backlog will be realized or, if realized, will be profitable.

Such changes may adversely affect the revenues and profit we ultimately realize on these projects.

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In addition, we also rely on third-party software and information technology for certain of our critical accounting, project management and financial information systems.

We also collect and retain information about our customers, stockholders, vendors and employees, with the expectation by such third parties being that we will adequately protect such information.

We have in the past experienced system interruptions and delays and expect that such interruptions and delays may occur in the future, given the increasing diversity and sophistication of cybersecurity threats.

In addition, our systems, networks and infrastructure could be damaged or interrupted by natural disasters, power loss, telecommunications failures, intentional or inadvertent user misuse or error, failures of information technology solutions, computer viruses, malicious code, ransomware attacks and acts of terrorism.

We may also be subject to physical or electronic security breaches, including breaches by computer hackers or cyber-terrorists or unauthorized access to or disclosure of our or our customers’ data.

Similar risks could affect our customers and vendors, indirectly affecting us.

While we have security, internal control and technology measures in place to protect our systems and networks, these measures could fail as a result of a cyber-attack, other third-party action, employee error, malfeasance or other security failure.

In the ordinary course of business, we have been targeted by malicious cyber-attacks.

In April 2019, for example, our information technology infrastructure was impacted by a ransomware attack virus, which caused a substantial majority of our operating locations to experience loss of access to certain data and outages affecting systems including accounting, payroll, billing, job report and management and other software environments.

These disruptions created challenges in key back office functions that required workarounds and alternative procedures.

Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

As a result, we may be required to expend significant resources to protect against the threat of system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches.

Any of these events could damage our reputation and, while we do not believe that the April 2019 incident had such effects, have a material adverse effect on our business, results of operations, financial condition and cash flows.

In addition, current and future laws and regulations governing data privacy and the unauthorized disclosure of confidential information may pose complex compliance challenges and result in additional costs.

A failure to comply with such laws and regulations could result in penalties or fines, legal liabilities or reputational harm.

The continuing and evolving threat of cyber-attacks has also resulted in increased regulatory focus on risk management and prevention.

New cyber-related regulations or other requirements could require significant additional resources and cause us to incur significant costs, which could have an adverse effect on our results of operations and cash flows.

We regularly evaluate the need to upgrade or replace our systems and network infrastructure to protect our information technology environment, to stay current on vendor supported products and to improve the efficiency and scope of our systems and information technology capabilities.

The implementation of new systems and information technology could adversely impact our operations by requiring substantial capital expenditures, diverting management’s attention, or causing delays or difficulties in transitioning to new systems.

In addition, our systems implementations may not result in productivity improvements at the levels anticipated.

Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on our business.

When appropriate, we establish provisions against possible

We insure various general liability, workers’ compensation, property and auto risks as well as other risks through a variety of direct insurance policies and a captive insurance company that are reinsured for risks above certain deductibles and retentions.

In addition, in July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop compelling banks to submit rates for calculation of LIBOR after 2021.

At this time, it is not clear if LIBOR will continue to exist, and if

not, what alternative benchmark rate will replace LIBOR.

Under the Eurodollar Rate Loan Option under the Facility (defined below), the interest rate is determined based on the one‑ to six‑month Eurodollar Rate, which rate corresponds very closely to rates described in various general business media sources as LIBOR.

Any new benchmark rate will likely not exactly replicate LIBOR, which could impact the determination of interest rates under the Eurodollar Rate Loan Option.

than we expected.

The revenue projected from our backlog may not be realized, or, if realized, may not result in profits.

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In addition, these systems, networks, and infrastructure may be vulnerable to deliberate cyber‑attacks that interfere with their functionality or the confidentiality of our information or our customers’ data.

new bonds in the future; thus, our ability to access or increase bonding capacity is at the sole discretion of our surety providers.

(4) foreclosure on any collateral securing the obligations under the agreement.

If we are not

For example, in 2019, the Affordable Care Act individual mandate will no longer be in effect, but how such a change will affect the market and health care costs remains uncertain.

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this annual report on Form [removed: 10‑K.][added: 10-K.]

Also see [removed: “Forward‑Looking] [added: “Forward-Looking] Statements” discussion.

[removed: Introduction] [added: Introduction] and [removed: Overview][added: Overview]

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

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

[removed: Nature] [added: Nature] and Economics of Our [removed: Business][added: Business]

Approximately [removed: 84.0%] [added: 85.1%] of our revenue is earned on a project basis for installation [removed: of mechanical systems] [added: services] in newly constructed facilities or for replacement of systems in existing facilities.

[removed: Customers] [added: In our mechanical business segment, customers] hire us to ensure [removed: such] [added: HVAC] systems deliver specified or generally expected heating, cooling, conditioning and circulation of air in a facility.

[removed: Our] [added: In both our mechanical and electrical business segments, our] responsibilities usually require conforming the systems to [removed: pre‑established] [added: pre-established] engineering drawings and equipment and performance specifications, which we frequently [removed: participate in establishing.]

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

We also perform some project work on a [removed: cost‑plus] [added: 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 margin, and such projects are sometimes subject to a guaranteed maximum cost.

These margins are frequently less than [removed: fixed‑price] [added: fixed-price] contract margins because there is less risk of unrecoverable cost overruns in [removed: cost‑plus] [added: cost-plus] or time and materials work.

As of December 31, [removed: 2018,] [added: 2019,] we had [removed: 5,208] [added: 5,495] projects in process.

Our average project takes six to nine months to complete, with an average contract price of approximately [removed: $597,000.][added: $822,000.]

We have what we [removed: believe is] [added: consider to be] a [removed: well‑diversified] [added: well-diversified] distribution of revenue across [removed: end‑use] [added: end-use] sectors that we believe reduces our exposure to negative developments in any given sector.

Because of the integral nature of [removed: HVAC and related controls systems] [added: our services] to most buildings, we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems, except with respect to some government buildings.

Taken together, projects with contract prices of $1 million or more totaled [removed: $2.51] [added: $3.84] billion of aggregate contract value as of December 31, [removed: 2018,] [added: 2019,] or approximately [removed: 80%,] [added: 85%,] out of a total contract value for all projects in progress of [removed: $3.11] [added: $4.52] billion.

A stratification of projects in progress as of December 31, [removed: 2018,] [added: 2019,] by contract price, is as follows:

| [added: ​] | | [added: ​] | | [removed: Aggregate] [added: Aggregate] | | |

| [added: ​] | [added: ​] | [added: ​] | [added: ​] | [removed: Contract] [added: Contract] | | |

| [added: ​] | [added: ​] | [removed: No. of] [added: No. of] | [added: ​] | [removed: Price Value] [added: Price Value] | | |

| [removed: Contract] [added: Contract] Price of [removed: Project] [added: Project] | [added: ​] | [removed: Projects] [added: Projects] | [added: ​] | [removed: (millions)] [added: (millions)] | | |

| $5 million - $10 million | | [removed: 77] [added: 95] | [added: ​] | | [removed: 533.3] [added: 691.0] | [added: ​] |

| $10 million - $15 million | | [removed: 23] [added: 38] | [added: ​] | | [removed: 279.0] [added: 472.5] | [added: ​] |

| Greater than $15 million | | [removed: 23] [added: 48] | [added: ​] | | [removed: 592.2] [added: 1,413.0] | [added: ​] |

In addition to project work, approximately [removed: 16.0%] [added: 14.9%] of our revenue represents maintenance and repair service on already installed [removed: HVAC] [added: HVAC, electrical,] and controls systems.

These agreements typically are for one or more years and frequently contain [removed: thirty‑] [added: thirty-] to [removed: sixty‑day] [added: sixty-day] cancellation notice periods.

These customers typically have multiple [removed: sites,] [added: sites] and contract with us to perform maintenance and repair service.

[removed: Profile] [added: Profile] and Management of Our [removed: Operations][added: Operations]

We manage our [removed: 36] [added: 35] operating units based on a variety of factors.

Financial measures we emphasize include [removed: profitability,] [added: profitability] and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost, billings and receivables.

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

Attracting and retaining effective operating unit managers is an important factor in our business, particularly in view of the relative uniqueness of each market and operation, the importance of relationships with customers and other market [removed: participants] [added: participants,] such as architects and consulting engineers, and the high degree of competition and low barriers to entry in most of our markets.

Accordingly, we devote considerable attention to operating unit management quality, stability, and contingency planning, including related considerations of [removed: compensation,] [added: compensation] and [removed: non‑competition] [added: non-competition] protection where applicable.

[removed: Economic] [added: Economic] and Industry [removed: Factors][added: Factors]

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

As a result, we monitor the views of major construction sector forecasters along with macroeconomic factors they believe drive the sector, including trends in gross domestic product, interest rates, business investment, employment, [removed: demographics,] [added: demographics] and the fiscal condition of federal, state and local governments.

With larger amounts of capital, time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly [removed: concerns about economic and financial conditions and trends.]

[removed: Operating] [added: Operating] Environment and Management [removed: Emphasis][added: Emphasis]

During the [removed: four-year] [added: five-year] period from 2015 to [removed: 2018,] [added: 2019,] there was an increase in overall activity [removed: levels] [added: levels,] and we currently expect that activity will continue at [removed: these improved] [added: strong] levels [removed: during 2019.][added: in 2020.]

We operate our business in two business segments: mechanical and electrical.

In our electrical business segment, our principal business activity is electrical construction and engineering in the commercial and industrial field.

We also perform electrical logistics services, electrical service work, and electrical construction and engineering services.

participate in establishing.

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| Under $1 million | | 4,734 | ​ | $ | 674.3 | ​ |

| $1 million - $5 million | | 580 | ​ | | 1,266.5 | ​ |

| Total | | 5,495 | ​ | $ | 4,517.3 | ​ |

concerns about economic and financial conditions and trends.

We believe that activity levels will permit us to continue to earn solid profits while preserving and developing our workforce.

These accounting

We do not currently have any capitalized obtainment or fulfillment costs on our Balance Sheet and did not incur any impairment loss on such costs in the current year.

This requires us to make certain judgments and estimates involving, among others, the creditworthiness of our customers, prior collection history with our

_Accounting for Leases_

We lease certain facilities, vehicles and equipment under noncancelable operating leases.

The most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations.

Leases with an initial term of 12 months or less are not recorded on the Balance Sheet.

We account for lease components separately from the non-lease components.

We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities.

Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The lease terms generally range from three to ten years.

Some leases include one or more options to renew, with renewal terms that can extend the lease term.

We include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion.

A majority of the Company’s real property leases are with individuals or entities with whom we have no other business relationship.

However, in certain instances the Company enters into real property leases with current or former employees.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

On rare occasions, we rent or sublease certain real estate assets that we no longer use to third parties.

We perform a goodwill impairment review for each of our operating units, as we have determined that each of our operating units are reporting units.

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2019 Compared to 2018

In the second quarter of 2019, we completed the acquisition of Walker TX Holding Company, LLC and each of its wholly owned subsidiaries (collectively “Walker”), which reports as a separate operating location.

In the third quarter of 2019, we sold the majority of the assets and ongoing business of our California operation.

_Revenue_—Revenue increased $432.4 million, or 19.8% to $2.62 billion in 2019 compared to 2018.

The following table presents our operating segment revenue (in thousands, except percentages):

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| ​ | | 2019 | | | | | ​ | 2018 | | | | |

| Revenue: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | ​ | ​ |

| | | | | | | |

| Under $1 million | | 4,586 | | $ | 602.1 | |

| $1 million - $5 million | | 499 | | | 1,102.1 | |

| Total | | 5,208 | | $ | 3,108.7 | |

As a result of our continued strong emphasis on cash flow, at December 31, 2018 we had modest indebtedness under our revolving credit facility, with positive uncommitted cash balances, as discussed further in “Liquidity and

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.

Capitalized costs associated with unsuccessful contract bids are written off in the period that we are informed that we will not be awarded the contract.

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

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In the third quarter of 2018, we completed one acquisition of a company that reports as a separate operating location in Indiana (the “Indiana acquisition”).

Acquisitions are included in our results of operations from the respective acquisition date.

An operating location is included in the same‑store comparison on the first day it has comparable prior year operating data, except for immaterial acquisitions that were absorbed and integrated, or “tucked-in,” with existing operations.

Revenue—Revenue increased $395.0 million, or 22.1% to $2.18 billion in 2018 compared to 2017.

The same‑store revenue increase was broad-based, including an increase in activity at our North Carolina operation ($123.6 million), one of our Virginia operations ($25.4 million) and our Wisconsin operation ($23.0 million).

Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work.

Project work generally lasts less than one year.

Accordingly, backlog represents only a portion of our revenue for any given future period, and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months.

As a result, we believe the predictive value of backlog information is limited to indications of general revenue direction over the near term and should not be interpreted as indicative of ongoing revenue performance over several quarters.

Gross Profit—Gross profit increased $80.0 million, or 21.8%, to $446.3 million in 2018 as compared to 2017.

As a percentage of revenue, gross profit remained relatively consistent at 20.4% in 2018 as compared to 20.5% in 2017 due to the improvement in project execution at our North Carolina operation, offset by job underperformance at our California operation ($3.7 million).

This increase is primarily due to the increase in revenue and increased compensation costs related to higher earnings compared to the prior year.

Additionally, we had an increase in bad debt expense in 2018 of $3.4 million due to three recent bankruptcy filings of retail customers ($1.2 million) and due to bad debt charges at our California operating location.

As a percentage of revenue, SG&A decreased from 14.9% in 2017 to 13.6% in 2018.

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| SG&A | | $ | 296,986 | | $ | 266,586 | |

| Same-store SG&A, excluding amortization expense | | $ | 271,819 | | $ | 254,827 | |

Income

The income from changes in the fair value of contingent earn-out obligations for 2017 resulted from reducing our obligation related to the BCH acquisition primarily due to results being below the initial estimate as a result of the impact of Hurricane Irma and less project activity than previously estimated.

Other Income—Other income increased $3.1 million, or 294.8% in 2018 as compared to 2017.

Additionally, in the fourth quarter of 2017, we entered into a separate settlement agreement with BP related to two claims from another one of our subsidiaries and recorded a $1.0 million gain in the fourth quarter of 2017 in “Other Income”.

Our effective tax rate changes based upon our relative profitability, or lack thereof, in states with varying tax rates and rules.

In addition, discrete items, such as tax law changes, judgments and legal structures can impact our effective tax rate.

These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, tax reserves for uncertain tax positions, accounting for losses associated with underperforming operations and noncontrolling interests.

Refer to Note 9 in the Consolidated Financial Statements for a reconciliation of the federal statutory rate to the effective tax rate reflected in our financial statements.

We generally expect our tax rate in 2019 to be higher than 2018 due to the nonrecurring benefit from the decrease in unrecognized tax benefits from the filing of a federal income tax automatic accounting method change application.

We had 35 operating locations as of December 31, 2016.

During 2017, we completed one acquisition in the second quarter of 2017, known as “BCH”, that reports as a separate operating location in the Tampa, Florida area.

Other than the addition of BCH, we did not make any changes to operating locations.

As of December 31, 2017, we had 36 operating locations.

We have exposure to changes in interest rates under our revolving credit [removed: facility.][added: facility and term loan.]

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: 2018:][added: 2019:]

| [added: ​] | | [removed: Twelve] [added: Twelve] Months Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| [added: ​] | | [removed: 2019] [added: 2020] | | | [removed: 2020] [added: 2021] | | | [removed: 2021] [added: 2022] | | | [removed: 2022] [added: 2023] | | | [removed: 2023] [added: 2024] | | | [removed: Thereafter] [added: Thereafter] | | | [removed: Total] [added: Total] | | |

| Variable Rate Debt | [added: ​] | $ | [removed: 100] [added: 7,500] | [added: ​] | $ | [removed: 5] [added: 7,500] | [added: ​] | $ | [removed: —] [added: 15,000] | [added: ​] | $ | [removed: —] [added: 15,000] | [added: ​] | $ | [removed: 50,000] [added: 22,500] | [added: ​] | $ | [removed: —] [added: 110,500] | [added: ​] | $ | [removed: 50,105] [added: 178,000] | [added: ​] |

The weighted average interest rate applicable to the borrowings under the [removed: Facility] [added: revolving credit facility] was approximately [removed: 3.7%] [added: 3.2%] as of December 31, [removed: 2018.][added: 2019.]

These assets are recognized at fair value when they are deemed to be [removed: other‑than‑temporarily] [added: other-than-temporarily] impaired.

The valuation of the Company’s contingent [removed: earn‑out] [added: earn-out] payments is determined using a probability weighted discounted cash flow method.

This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payment, length of [removed: earn‑out] [added: earn-out] periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows and a discount rate.

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

| Fixed Rate Debt | ​ | $ | 13,317 | ​ | $ | 10,166 | ​ | $ | 12,500 | ​ | $ | 12,500 | ​ | $ | — | ​ | $ | — | ​ | $ | 48,483 | ​ |

| Average Interest Rate | ​ | | 3.6% | ​ | | 3.7% | ​ | | 4.0% | ​ | | 4.0% | ​ | | — | ​ | | — | ​ | | 3.8% | ​ |

The weighted average interest rate applicable to the term loan was approximately 3.3% as of December 31, 2019.

We have a modest level of indebtedness under our debt facility and our indebtedness could increase in the future.

| | | | | | | | | | | | | | | | | | | | | | | |

| Fixed Rate Debt | | $ | 3,179 | | $ | 13,817 | | $ | 9,817 | | $ | — | | $ | — | | $ | — | | $ | 26,813 | |

| Average Interest Rate | | | 3.1% | | | 3.1% | | | 3.1% | | | — | | | — | | | — | | | 3.1% | |

The interest rate applicable to other variable rate debt was approximately 4.8% as of December 31, 2018.

[removed: We provide comprehensive] [added: Our] mechanical [removed: contracting services, which] [added: segment] principally includes heating, ventilation and air conditioning (“HVAC”), plumbing, piping and controls, as well as [removed: off‑site] [added: off-site] construction, [removed: electrical,] monitoring and fire protection.

We [added: build,] install, maintain, repair and replace [removed: products] [added: mechanical, electrical] and [added: plumbing (“MEP”)] systems throughout our [removed: 36] [added: 35] operating units with [removed: 128] [added: 134] locations in [removed: 114] [added: 115] cities throughout the United States.

We operate primarily in the commercial, industrial and institutional [removed: HVAC] [added: MEP] markets and perform most of our services in industrial, healthcare, education, office, technology, retail and government facilities.

[removed: Approximately 99%] [added: Substantially all] of our consolidated [removed: 2018] [added: 2019] revenue was derived from commercial, industrial and institutional customers and [removed: multi‑family] [added: multi-family] residential projects.

Approximately [removed: 38.0%] [added: 45.9%] of our revenue was attributable to installation services in newly constructed facilities and [removed: 62.0%] [added: 54.1%] was attributable to renovation, expansion, maintenance, repair and replacement services in existing buildings.

| [added: ​] | | [removed: Percentage of] [added: Percentage of] | |

| [removed: Service Activity] [added: Service Activity] | [added: ​] | [removed: Revenue] [added: Revenue] | |

[removed: Industry Overview][added: Industry Overview]

We believe that [removed: the] commercial, industrial, and institutional mechanical [added: and electrical] contracting [removed: generates] [added: generate] annual revenue in the United States of approximately $100 billion.

Mechanical [added: and electrical] systems are necessary to virtually all commercial, industrial and institutional buildings.

[removed: In many instances, replacing] [added: Replacing] an aging building’s existing systems with modern, [removed: energy‑efficient] [added: energy-efficient] systems significantly reduces a building’s [added: energy consumption, carbon footprint, and] operating costs while improving air quality and overall system effectiveness.

Older commercial, industrial and institutional facilities [removed: often] [added: frequently] have poor air quality [removed: as well as inadequate air conditioning,] and [added: provide less comfortable environments, and] older HVAC systems result in significantly higher energy [removed: costs] [added: consumption] than do modern systems.

Many factors affect mechanical [added: and electrical] services industry growth, including but, not limited to, (i) population growth, which increases the need for commercial, industrial and institutional space, (ii) an aging installed base of buildings and equipment, (iii) increasing sophistication, complexity and efficiency of mechanical [added: and electrical] systems, and (iv) growing emphasis on environmental and energy efficiency.

| | [removed: · |] [added: ●] | construction of and installation in new buildings, which provided approximately [removed: 38.0%] [added: 45.9%] of our revenue in [removed: 2018,] [added: 2019,] and |

| | [removed: · |] [added: ●] | renovation, expansion, maintenance, repair and replacement in existing buildings, which provided the remaining [removed: 62.0%] [added: 54.1%] of our [removed: 2018] [added: 2019] revenue. |

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

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

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

[added: Companies that specialize in “design and] build” projects use a consultative approach with customers and tend to develop [removed: long‑term] [added: long-term] relationships with building owners and developers, general contractors, architects, consulting engineers and property managers.

“Plan and spec” installation refers to projects in which a [removed: third‑party] [added: third-party] architect or consulting engineer designs the [removed: HVAC] [added: MEP] systems and the installation project is “put out for bid.” We believe that “plan and spec” projects usually take longer to complete [added: and frequently results in less efficient outcomes] than “design and build” projects because the system design and installation process are not integrated, thus resulting in more frequent adjustments to project specifications, work requirements and schedules.

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

The growth and aging of the installed base of [removed: HVAC] [added: MEP] and related systems, [added: changing requirements due to increasing technology deployment,] and the demand for more efficient [removed: and sophisticated] systems and [added: more capable] building automation controls have fueled growth in these services.

[removed: State‑of‑the‑art] [added: State-of-the-art] control and monitoring systems feature electronic sensors and [removed: microprocessors.][added: microprocessors that are crucial to energy efficient operations.]

[removed: Strategy][added: Strategy]

We focus on strengthening [added: core] operating [removed: competencies] [added: competencies, leading in sustainability, efficiency] and [added: technological improvement, and] on increasing profit margins.

The key objectives of our strategy are to improve profitability and generate growth in our operations, to [added: enable sustainable and efficient building environments, to] improve the productivity of our workforce, and to acquire complementary businesses.

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

The [removed: six] [added: seven] core competencies are: (i) safety, (ii) customer service, (iii) design and build expertise, (iv) effective pre-construction processes, (v) job and cost tracking, [removed: and] (vi) [removed: service excellence.][added: leadership in energy efficient and sustainable design, and (vii) best-in-class servicing of existing building systems.]

[removed: Achieve] [added: _Achieve] Operating [removed: Efficiencies—We] [added: Efficiencies_—We] think we can achieve operating efficiencies and cost savings through purchasing economies, adopting operational “best practices,” and focusing on job management to deliver services in a [removed: cost‑effective] [added: cost-effective] and efficient manner.

We [removed: emphasize] [added: are continually] improving the “job loop” at our locations—qualifying, estimating, pricing and executing projects effectively and efficiently.

We also use our combined spend to gain purchasing advantages on products and services such as [removed: HVAC] [added: MEP] components, raw materials, services, vehicles, bonding, insurance and employee benefits.

[removed: Attract,] [added: _Attract,] Retain and Invest in our [removed: Employees—We] [added: Employees_—We] seek to attract and retain quality employees by providing them an enhanced career path [removed: from working for a larger company] that offers a [removed: more] stable [removed: income and] [added: income,] attractive benefits [removed: packages.][added: packages and excellent advancement opportunities.]

[removed: Focus] [added: _Focus] on Commercial, Industrial and Institutional [removed: Markets—We] [added: Markets_—We] focus on the commercial, industrial and institutional building markets, including construction, maintenance, repair and replacement services.

We believe that these complex markets are attractive because of their growth opportunities, large and diverse customer base, attractive margins and potential for [removed: long‑term] [added: long-term] relationships with building owners.

[removed: Approximately 99%] [added: Substantially all] of our consolidated [removed: 2018] [added: 2019] revenue was derived from commercial, industrial and institutional customers and large [removed: multi‑family] [added: multi-family] residential projects.

[removed: Leveraging] [added: _Leverage] Resources and [removed: Capabilities—We] [added: Capabilities_—We] believe significant operating efficiencies can be achieved by leveraging resources among our operating locations.

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

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

[added: We also have] significant geographical diversification across all regions of the United States, again reducing our exposure to negative developments in any given region.

Our distribution of revenue in [removed: 2018] [added: 2019] by [removed: end‑use] [added: end-use] sector was as follows:

We provide mechanical and electrical contracting services.

Our electrical segment includes installation and servicing of electrical systems.

Our consolidated 2019 revenue was derived from the following service industries:

| ​ | ​ | ​ | ​ |

| Mechanical Services | | 86.1 | % |

| Electrical Services | ​ | 13.9 | % |

As electrical systems age they require service and replacement, and changing building configurations and technological power load requirements lead to the need to reconfigure and improve electrical systems in buildings on a regular basis.

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

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

Costs and other project terms are normally negotiated

Our investments in design and building information modeling enable us to collaborate with our customers to achieve reliable and energy efficient construction outcomes and to eliminate unnecessary waste.

We believe that the work that we perform to optimize and upgrade systems and to enable wise controls helps Comfort Systems USA to optimize energy use and fundamentally reduce our nation’s carbon footprint.

We opportunistically allocate our engineering, field and

Our ability to share resources frequently allows us to pursue work that would otherwise not be available to us and allows us to provide a more diversified and steady deployment of our labor.

| ​ | ​ | ​ | ​ |

| Industrial | | 33.9 | % |

| Education | | 15.8 | % |

| Healthcare | | 13.7 | % |

| Government | | 6.2 | % |

| Other | | 3.6 | % |

| ​ | ​ | ​ | ​ | ​ | ​ | ​ |

| Under $1 million | | 4,734 | ​ | $ | 674.3 | ​ |

| $1 million - $5 million | | 580 | ​ | | 1,266.5 | ​ |

| Total | | 5,495 | ​ | $ | 4,517.3 | ​ |

_Develop and Adopt Leading Technologies_—We are improving productivity by increasing use of innovative techniques in prefabrication, project design and planning, as well as in coordination and production methods.

We have invested in the refinement and adoption of prefabrication practices.

We work to identify, develop and implement new materials, products and methods that can achieve greater productivity and more efficient and sustainable outcomes.

Above all, we have concluded that as technology develops in our industry the fundamental prerequisite for leadership in adopting such opportunities is the quality, accuracy and buildability of our designs.

Accordingly, we have invested in the experts, training, and internal and external knowledge transfer to ensure that we are properly scaling, achieving true buildability and fundamentally and continuously improving our design capabilities to meet our customers’ evolving requirements.

Our goal is to use our scale and strategic investments to maintain a leading position in design and modeling excellence, and we believe that will enable us to optimize productivity and quality today, and especially will position us to wisely capitalize from ongoing or future technological developments.

_Excel at Modular and Off-Site Construction_—We believe that modular and off-site construction – the ability to build superior quality plants and systems away from the construction site – will become increasingly important in complex construction projects.

Accordingly, through our acquisitions, we have invested in that capability, and after acquisition we have further invested in improving and growing that service offering.

This has led to meaningful growth in our ability to provide this expertise.

Through recent and ongoing development and acquisitions, we plan to continue to improve on our unmatched capability in mechanical off-site or modular construction.

With our recent acquisition of

Starr Electric Company, Incorporated in North Carolina, we significantly improved our electrical off-site construction capabilities and offerings and will continue to invest in the improvement of these offerings.

Although complex modular construction is a small percentage of our current revenue, we believe that it is ripe for investment and growth and that it helps us to sell work and improve outcomes across our businesses.

Our average project takes six to nine months to complete, with an average contract price of approximately $822,000.

technicians and communicate with and invoice customers.

Optimal maintenance is crucial to energy efficient operations.

Our consolidated 2018 revenue was derived from the following service activities, substantially all of which are in the mechanical services industry, the single industry segment we serve:

| | | | |

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

| HVAC and Plumbing | | 90.5 | % |

| Building Automation Control Systems | | 4.4 | % |

| Other | | 5.1 | % |

Companies that specialize in “design and

We also have

| Industrial | | 27.3 | % |

| Education | | 18.0 | % |

| Healthcare | | 14.7 | % |

| Government | | 6.6 | % |

| Other | | 3.7 | % |

| | | | | | | |

| Under $1 million | | 4,586 | | $ | 602.1 | |

| $1 million - $5 million | | 499 | | | 1,102.1 | |

| Total | | 5,208 | | $ | 3,108.7 | |

We provide “design and build” and

The HVAC industry is subject to seasonal variations.

conditioning during the warmer months.

Additionally, we have implemented a “best practices” safety program throughout our operations, which provides employees with incentives to improve safety performance and decrease workplace accidents.

Our website also includes our code of ethics, titled “Corporate Compliance Policy: Standards and Procedures Regarding Business Practices,” together with other governance materials including our corporate governance standards and our Board committee charters.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: Form 10-K][added: Form 10-K]

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

| [removed: For] [added: For] the [removed: Fiscal Year Ended December] [added: fiscal year ended December] 31, [removed: 2018] [added: 2019] | |

[removed: Commission] [added: Commission] file [removed: number: 1‑13011][added: number: 1-13011]

[removed: Comfort] [added: Comfort] Systems USA, [removed: Inc.][added: Inc.]

| [removed: Delaware] [added: Delaware] (State or Other Jurisdiction of Incorporation or Organization) | [removed: 76‑0526487] [added: 76-0526487] (I.R.S. Employer Identification No.) |

[removed: 675] [added: 675] Bering [removed: Drive][added: Drive]

[removed: Suite 400][added: Suite 400]

[removed: Houston, Texas 77057][added: Houston, Texas 77057]

[removed: (713) 830‑9600][added: (713) 830-9600]

| [removed: Title] [added: Title] of Each [removed: Class] [added: Class] | [added: Trading Symbol(s)] | [removed: Name] [added: Name] of Each Exchange on which [removed: Registered |] [added: Registered] |

| Common Stock, $.01 par value | [added: FIX] | New York Stock Exchange | [removed: |]

Securities registered pursuant to Section 12(g) of the Act: [removed: None][added: None]

Indicate by check mark if the registrant is a [removed: well‑known] [added: well-known] seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [removed: ☒] [added: ⌧] No [removed: ☐][added: ◻]

Yes [removed: ☐] [added: ◻] No [removed: ☒][added: ⌧]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation [removed: S‑T] [added: S-T] (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

| Large accelerated filer [removed: ☒] [added: ⌧] | Accelerated filer [removed: ☐] [added: ◻] | [removed: Non‑accelerated] [added: Non-accelerated] filer [removed: ☐] [added: ◻] | Smaller reporting company ☐ | Emerging growth company ☐ |

Indicate by check mark whether the registrant is a shell company (as defined in Rule [removed: 12b‑2] [added: 12b-2] of the Act).

The aggregate market value of the voting stock held by [removed: non‑affiliates] [added: non-affiliates] of the registrant at June [removed: 29, 2018] [added: 28, 2019] was approximately [removed: $1.67] [added: $1.83] billion, based on the [removed: $45.80] [added: $50.99] last sale price of the registrant’s common stock on the New York Stock Exchange on June [removed: 29, 2018.][added: 28, 2019.]

As of February [removed: 15, 2019, 36,869,712] [added: 21, 2020, 36,613,587] shares of the registrant’s common stock were outstanding (excluding treasury shares of [removed: 4,253,653).][added: 4,509,778).]

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

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: 2018.][added: 2019.]

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| [Item 1A.](#ITEM1ARiskFactors_249924) | [Risk Factors](#ITEM1ARiskFactors_249924) | [removed: 9] [added: 10] |

| [Item 1B.](#ITEM1BUnresolvedStaffComments_139610) | [Unresolved Staff Comments](#ITEM1BUnresolvedStaffComments_139610) | [removed: 19] [added: 21] |

| [Item 2.](#ITEM2Properties_592424) | [Properties](#ITEM2Properties_592424) | [removed: 19] [added: 22] |

| [Item 3.](#ITEM3LegalProceedings_395131) | [Legal Proceedings](#ITEM3LegalProceedings_395131) | [removed: 20] [added: 22] |

| [Item 4.](#ITEM4MineSafetyDisclosures_231930) | [Mine Safety Disclosures](#ITEM4MineSafetyDisclosures_231930) | [removed: 20] [added: 22] |

| [Item 4A.](#ITEM4AExecutiveOfficersoftheRegistrant_3) | [Executive Officers of the Registrant](#ITEM4AExecutiveOfficersoftheRegistrant_3) | [removed: 20] [added: 22] |

| [Item 5.](#ITEM5MarketforRegistrantsCommonEquityRel) | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#ITEM5MarketforRegistrantsCommonEquityRel) | [removed: 21] [added: 23] |

| [Item 6.](#ITEM6SelectedFinancialData_853719) | [Selected Financial Data](#ITEM6SelectedFinancialData_853719) | [removed: 24] [added: 26] |

| [Item 7.](#ITEM7ManagementsDiscussionandAnalysisofF) | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ITEM7ManagementsDiscussionandAnalysisofF) | [removed: 24] [added: 26] |

| [Item 7A.](#ITEM7AQuantitativeandQualitativeDisclosu) | [Quantitative and Qualitative Disclosures about Market Risk](#ITEM7AQuantitativeandQualitativeDisclosu) | [removed: 40] [added: 41] |

| [Item 8.](#ITEM8FinancialStatementsandSupplementary) | [Financial Statements and Supplementary Data](#ITEM8FinancialStatementsandSupplementary) | [removed: 41] [added: 42] |

| [Item 9.](#ITEM9ChangesinandDisagreementswithAccoun) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ITEM9ChangesinandDisagreementswithAccoun) | [removed: 75] [added: 82] |

| [Item 9A.](#ITEM9AControlsandProcedures_403685) | [Controls and Procedures](#ITEM9AControlsandProcedures_403685) | [removed: 75] [added: 82] |

| | ​ |

| | ​ |

| (Mark One) | ​ |

| OR | |

| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

| For the transition period from to | |

| ​ | ​ |

| ​ ​ ​ | ​ | ​ |

Yes ⌧ No ◻

Yes ⌧ No ◻

| ​ | ​ | ​ | ​ | ​ |

Yes ☐ No ⌧

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

| ​ | ​ | ​ |

​

10-K 1 fix-20181231x10k.htm 10-K

| | |

| | | | |

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K.

| | | | | |

| | | |

As of December 31, [removed: 2018,] [added: 2019,] we owned [removed: ten] [added: 15] properties.

[added: To maximize available capital, we generally intend] to [added: continue to] lease our properties, but may consider further purchases of property where we believe ownership would be more economical.

To maximize available capital, we generally intend to continue

[removed: Brian Lane,] [added: _Brian Lane,_] age [removed: 61,] [added: 62,] has served as our Chief Executive Officer and President since December 2011 and as a director since November 2010.

[removed: William George,] [added: _William George,_] age [removed: 54,] [added: 55,] 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 [removed: publicly‑traded] [added: publicly-traded] healthcare transportation company.

[removed: Julie] [added: _Julie] S.

[removed: Shaeff,] [added: Shaeff,_] age [removed: 53,] [added: 54,] 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 [removed: Controller from September 1999 to February 2002.]

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

[removed: Laura] [added: _Laura] F.

[removed: Howell,] [added: Howell,_] age [removed: 31,] [added: 32,] has served as Vice President and General Counsel for the Company since January 2019.

From September 2012 to October 2013, Ms. Howell was an associate in the corporate department of the [added: Silicon Valley office of Fenwick & West, LLP.]

[removed: Terry] [added: _Terry] A.

[removed: Young,] [added: Young,_] age [removed: 56,] [added: 57,] has served as Senior Vice President of Service for the Company since January 2019.

[removed: PART II][added: PART II]

Controller from September 1999 to February 2002.

Silicon Valley office of Fenwick & West, LLP.

| [added: ​] | | [added: ​] | [added: ​] | | [added: ​] | [added: ​] | | [added: ​] | [removed: Cash] [added: Cash] | [added: ​] |

| [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | | [added: ​] | [removed: Dividends] [added: Dividends] | [added: ​] |

| [added: ​] | [added: ​] | [added: ​] | [removed: High] [added: High] | [added: ​] | [added: ​] | [removed: Low] [added: Low] | | [added: ​] | [removed: Declared] [added: Declared] | |

| Fourth Quarter, 2018 | [added: ​] | $ | 59.20 | [added: ​] | $ | 41.30 | [added: ​] | $ | 0.090 | [added: ​] |

| Third Quarter, 2018 | [added: ​] | $ | 58.35 | [added: ​] | $ | 46.25 | [added: ​] | $ | 0.085 | [added: ​] |

| Second Quarter, 2018 | [added: ​] | $ | 48.60 | [added: ​] | $ | 40.15 | [added: ​] | $ | 0.080 | [added: ​] |

| First Quarter, 2018 | [added: ​] | $ | 44.45 | [added: ​] | $ | 39.85 | [added: ​] | $ | 0.075 | [added: ​] |

As of February [removed: 15, 2019,] [added: 21, 2020,] there were approximately [removed: 342] [added: 329] stockholders of record of our Common Stock, and the last reported sale price on that date was [removed: $50.66] [added: $48.85] per share.

In addition, our [removed: revolving] credit agreement may limit the amount of dividends we can pay at any time that our [removed: Net] [added: Total] Leverage Ratio exceeds [removed: 1.0.][added: 2.00 to 1.00.]

[removed: ][added: ]

[removed: Recent] [added: Recent] Sales of Unregistered [removed: Securities][added: Securities]

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

Since the inception of the repurchase program, the Board has approved [removed: 8.8] [added: 9.5] million shares to be repurchased.

As of December 31, [removed: 2018,] [added: 2019,] we have repurchased a cumulative total of [removed: 8.2] [added: 8.6] million shares at an average price of [removed: $16.24] [added: $17.70] per share under the repurchase program.

[added: During the twelve] months ended December 31, [removed: 2018,] [added: 2019,] we repurchased [removed: 0.6] [added: 0.4] million shares for approximately [removed: $28.5] [added: $19.6] million at an average price of [removed: $48.13] [added: $45.58] per share.

During the year ended December 31, [removed: 2018,] [added: 2019,] we purchased our common shares in the following amounts at the following average prices:

| [added: ​] | | [added: ​] | | [added: ​] | [added: ​] | | [removed: Total] [added: Total] Number of [removed: Shares] [added: Shares] | | [removed: Maximum] [added: Maximum] Number [removed: of] [added: of] | |

| [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [removed: Purchased] [added: Purchased] as Part [removed: of] [added: of] | [added: ​] | [removed: Shares] [added: Shares] that May Yet [removed: Be] [added: Be] | |

| [added: ​] | [added: ​] | [removed: Total] [added: Total] Number [removed: of] [added: of] | [added: ​] | [removed: Average Price] [added: Average Price] | | [added: ​] | [removed: Publicly] [added: Publicly] Announced [removed: Plans] [added: Plans] | [added: ​] | [removed: Purchased] [added: Purchased] Under the [removed: Plans] [added: Plans] | |

| [removed: Period] [added: Period] | [added: ​] | [removed: Shares Purchased] [added: Shares Purchased] | [added: ​] | [removed: Paid] [added: Paid] Per [removed: Share] [added: Share] | | [added: ​] | [removed: or] [added: or] Programs [removed: (1)] [added: (1)] | [added: ​] | [removed: or Programs] [added: or Programs] | |

| | (1) | [removed: |] Purchased as part of a program announced on March 29, 2007 under which, since the inception of this program, [removed: 8.8] [added: 9.5] million shares have been approved for repurchase. |

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

| Fourth Quarter, 2019 | ​ | $ | 53.29 | ​ | $ | 41.32 | ​ | $ | 0.100 | ​ |

| Third Quarter, 2019 | ​ | $ | 53.66 | ​ | $ | 36.27 | ​ | $ | 0.100 | ​ |

| Second Quarter, 2019 | ​ | $ | 58.21 | ​ | $ | 46.85 | ​ | $ | 0.100 | ​ |

| First Quarter, 2019 | ​ | $ | 55.41 | ​ | $ | 42.82 | ​ | $ | 0.095 | ​ |

On November 19, 2019, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.8 million shares.

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

| January 1 - January 31 | | 24,000 | ​ | $ | 43.28 | | 8,222,427 | | 560,982 | ​ |

| February 1 - February 28 | | — | ​ | $ | — | | 8,222,427 | | 560,982 | ​ |

| March 1 - March 31 | | 43,394 | ​ | $ | 52.58 | | 8,265,821 | | 517,588 | ​ |

| April 1 - April 30 | | — | ​ | $ | — | | 8,265,821 | | 517,588 | ​ |

| May 1 - May 31 | | 59,267 | ​ | $ | 49.21 | | 8,325,088 | | 458,321 | ​ |

| June 1 - June 30 | | 34,201 | ​ | $ | 48.54 | | 8,359,289 | | 424,120 | ​ |

| July 1 - July 31 | | 29,000 | ​ | $ | 43.16 | | 8,388,289 | | 395,120 | ​ |

| August 1 - August 31 | | 141,957 | ​ | $ | 39.97 | | 8,530,246 | | 253,163 | ​ |

| September 1 - September 30 | | 12,923 | ​ | $ | 38.19 | | 8,543,169 | | 240,240 | ​ |

| October 1 - October 31 | | — | ​ | $ | — | | 8,543,169 | | 240,240 | ​ |

| November 1 - November 30 | | 23,250 | ​ | $ | 50.98 | | 8,566,419 | | 981,750 | ​ |

| December 1 - December 31 | | 60,948 | ​ | $ | 50.01 | | 8,627,367 | | 920,802 | ​ |

| ​ | | 428,940 | ​ | $ | 45.58 | | 8,627,367 | | 920,802 | ​ |

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

| | | | | | | | | | | |

| Fourth Quarter, 2017 | | $ | 44.65 | | $ | 35.70 | | $ | 0.075 | |

| Third Quarter, 2017 | | $ | 37.15 | | $ | 32.55 | | $ | 0.075 | |

| Second Quarter, 2017 | | $ | 37.10 | | $ | 34.30 | | $ | 0.075 | |

| First Quarter, 2017 | | $ | 38.65 | | $ | 32.30 | | $ | 0.070 | |

During the twelve

| January 1 - January 31 | | — | | $ | — | | 7,605,588 | | 506,905 | |

| February 1 - February 28 | | 26,150 | | $ | 40.64 | | 7,631,738 | | 480,755 | |

| March 1 - March 31 | | 124,331 | | $ | 41.12 | | 7,756,069 | | 356,424 | |

| April 1 - April 30 | | 7,485 | | $ | 40.38 | | 7,763,554 | | 348,939 | |

| May 1 - May 31 | | 6,841 | | $ | 44.68 | | 7,770,395 | | 342,098 | |

| June 1 - June 30 | | 1,000 | | $ | 46.31 | | 7,771,395 | | 341,098 | |

| July 1 - July 31 | | 500 | | $ | 46.00 | | 7,771,895 | | 340,598 | |

| August 1 - August 31 | | 25,429 | | $ | 55.60 | | 7,797,324 | | 986,085 | |

| September 1 - September 30 | | 59,293 | | $ | 55.78 | | 7,856,617 | | 926,792 | |

| October 1 - October 31 | | 117,616 | | $ | 53.01 | | 7,974,233 | | 809,176 | |

| November 1 - November 30 | | 72,194 | | $ | 53.14 | | 8,046,427 | | 736,982 | |

| December 1 - December 31 | | 152,000 | | $ | 45.32 | | 8,198,427 | | 584,982 | |

| | | 592,839 | | $ | 48.13 | | 8,198,427 | | 584,982 | |

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

| [added: ​] | | [removed: Year] [added: Year] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | [added: ​] |

| [added: ​] | | [removed: 2018] [added: 2019] | | | [removed: 2017] [added: 2018] | | | [removed: 2016] [added: 2017] | | | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | | [added: ​] |

| [added: ​] | | [removed: (in] [added: (in] thousands, except per share [removed: amounts)] [added: amounts)] | | | | | | | | | | | | | | [added: ​] |

| [removed: STATEMENT] [added: STATEMENT] OF OPERATIONS [removed: DATA:] [added: DATA:] | | [added: ​] | | | [added: ​] | | | [added: ​] | | | [added: ​] | | | [added: ​] | | [added: ​] |

| Revenue | [added: ​] | $ | [removed: 2,182,879] [added: 2,615,277] | [added: ​] | $ | [removed: 1,787,922] [added: 2,182,879] | [added: ​] | $ | [removed: 1,634,340] [added: 1,787,922] | [added: ​] | $ | [removed: 1,580,519] [added: 1,634,340] | [added: ​] | $ | [removed: 1,410,795] [added: 1,580,519] | [added: ​] |

| Operating income (1) | [added: ​] | $ | [removed: 150,238] [added: 163,639] | [added: ​] | $ | [removed: 99,260] [added: 150,238] | [added: ​] | $ | [removed: 101,569] [added: 99,260] | [added: ​] | $ | [removed: 90,044] [added: 101,569] | [added: ​] | $ | [removed: 42,222] [added: 90,044] | [added: ​] |

| Income from continuing operations | [added: ​] | $ | [removed: 112,903] [added: 114,324] | [added: ​] | $ | [removed: 55,272] [added: 112,903] | [added: ​] | $ | [removed: 64,896] [added: 55,272] | [added: ​] | $ | [removed: 57,440] [added: 64,896] | [added: ​] | $ | [removed: 28,614] [added: 57,440] | [added: ​] |

| Net income including noncontrolling interests | [added: ​] | $ | [removed: 112,903] [added: 114,324] | [added: ​] | $ | [removed: 55,272] [added: 112,903] | [added: ​] | $ | [removed: 64,896] [added: 55,272] | [added: ​] | $ | [removed: 57,440] [added: 64,896] | [added: ​] | $ | [removed: 28,599] [added: 57,440] | [added: ​] |

| Net income attributable to Comfort Systems USA, Inc. | [added: ​] | $ | [removed: 112,903] [added: 114,324] | [added: ​] | $ | [removed: 55,272] [added: 112,903] | [added: ​] | $ | [removed: 64,896] [added: 55,272] | [added: ​] | $ | [removed: 49,364] [added: 64,896] | [added: ​] | $ | [removed: 23,063] [added: 49,364] | [added: ​] |

| Income per share attributable to Comfort Systems USA, Inc.: | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| Basic— | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| Income from continuing operations | [added: ​] | $ | [removed: 3.03] [added: 3.10] | [added: ​] | $ | [removed: 1.48] [added: 3.03] | [added: ​] | $ | [removed: 1.74] [added: 1.48] | [added: ​] | $ | [removed: 1.32] [added: 1.74] | [added: ​] | $ | [removed: 0.61] [added: 1.32] | [added: ​] |

| Diluted— | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| Income from continuing operations | [added: ​] | $ | [removed: 3.00] [added: 3.08] | [added: ​] | $ | [removed: 1.47] [added: 3.00] | [added: ​] | $ | [removed: 1.72] [added: 1.47] | [added: ​] | $ | [removed: 1.30] [added: 1.72] | [added: ​] | $ | [removed: 0.61] [added: 1.30] | [added: ​] |

| Cash dividends per share | [added: ​] | $ | [removed: 0.330] [added: 0.395] | [added: ​] | $ | [removed: 0.295] [added: 0.330] | [added: ​] | $ | [removed: 0.275] [added: 0.295] | [added: ​] | $ | [removed: 0.250] [added: 0.275] | [added: ​] | $ | [removed: 0.225] [added: 0.250] | [added: ​] |

| [removed: BALANCE] [added: BALANCE] SHEET [removed: DATA:] [added: DATA:] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| Working capital | [added: ​] | $ | [removed: 142,642] [added: 182,187] | [added: ​] | $ | [removed: 115,629] [added: 142,642] | [added: ​] | $ | [removed: 98,276] [added: 115,629] | [added: ​] | $ | [removed: 118,882] [added: 98,276] | [added: ​] | $ | [removed: 111,433] [added: 118,882] | [added: ​] |

| Total assets [added: (2)] | [added: ​] | $ | [removed: 1,062,564] [added: 1,505,012] | [added: ​] | $ | [removed: 881,120] [added: 1,062,564] | [added: ​] | $ | [removed: 708,903] [added: 881,120] | [added: ​] | $ | [removed: 691,594] [added: 708,903] | [added: ​] | $ | [removed: 655,942] [added: 691,594] | [added: ​] |

| Total [removed: debt] [added: debt, net] | [added: ​] | $ | [removed: 76,918] [added: 226,135] | [added: ​] | $ | [removed: 60,539] [added: 76,918] | [added: ​] | $ | [removed: 2,811] [added: 60,539] | [added: ​] | $ | [removed: 11,507] [added: 2,811] | [added: ​] | $ | [removed: 40,346] [added: 11,507] | [added: ​] |

| Total stockholders’ equity | [added: ​] | $ | [removed: 498,047] [added: 585,304] | [added: ​] | $ | [removed: 417,945] [added: 498,047] | [added: ​] | $ | [removed: 376,633] [added: 417,945] | [added: ​] | $ | [removed: 365,005] [added: 376,633] | [added: ​] | $ | [removed: 321,393] [added: 365,005] | [added: ​] |

| Total Comfort Systems USA, Inc. stockholders’ equity | [added: ​] | $ | [removed: 498,047] [added: 585,304] | [added: ​] | $ | [removed: 417,945] [added: 498,047] | [added: ​] | $ | [removed: 376,633] [added: 417,945] | [added: ​] | $ | [removed: 346,721] [added: 376,633] | [added: ​] | $ | [removed: 306,281] [added: 346,721] | [added: ​] |

| | (1) | [removed: |] Included in operating income is a goodwill impairment charge of $1.1 million for [removed: 2017 and $0.7 million for 2014.] [added: 2017.] There were no goodwill impairment charges for [added: 2019,] 2018, 2016 or 2015. |

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

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

| | (2) | The impact of adoption of the new lease accounting standard is reflected in total assets in 2019. |

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

| | | | | | | | | | | | | | | | | |

| Income (loss) from discontinued operations, net of tax | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (15) | |

| Income (loss) from discontinued operations | | | — | | | — | | | — | | | — | | | — | |

| | | $ | 3.03 | | $ | 1.48 | | $ | 1.74 | | $ | 1.32 | | $ | 0.61 | |

| | | $ | 3.00 | | $ | 1.47 | | $ | 1.72 | | $ | 1.30 | | $ | 0.61 | |

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

[removed: INDEX] [added: INDEX] TO FINANCIAL [removed: STATEMENTS][added: STATEMENTS]

| [added: ​] | | [removed: Page] [added: Page] |

| [Comfort Systems USA, Inc.](#COMFORTSYSTEMSUSAINC_496109) | [added: ​] | [added: ​] |

| [Management’s Report on Internal Control over Financial Reporting](#ManagementsReportonInternalControloverFi) | [added: ​] | [removed: 42] [added: 43] |

| [Report of Independent Registered Public Accounting Firm](#ReportofIndependentRegisteredPublicAccou) | [added: ​] | [removed: 43] [added: 44] |

| [Report of Independent Registered Public Accounting Firm](#RegisteredPublicAccountingFirm_299282) | [added: ​] | [removed: 44] [added: 47] |

| [Consolidated Balance Sheets](#CONSOLIDATEDBALANCESHEETS_522126) | [added: ​] | [removed: 45] [added: 48] |

| [Consolidated Statements of Operations](#CONSOLIDATEDSTATEMENTSOFOPERATIONS_39514) | [added: ​] | [removed: 46] [added: 49] |

| [Consolidated Statements of Stockholders’ Equity](#STATEMENTSOFSTOCKHOLDERSEQUITY_511143) | [added: ​] | [removed: 47] [added: 50] |

| [Consolidated Statements of Cash Flows](#STATEMENTSOFCASHFLOWS_915327) | [added: ​] | [removed: 48] [added: 51] |

| [Notes to Consolidated Financial Statements](#NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS_6) | [added: ​] | [removed: 49] [added: 52] |

[removed: Management’s] [added: Management’s] Report on Internal Control over Financial [removed: Reporting][added: Reporting]

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules [removed: 13a‑15(f)] [added: 13a-15(f)] and [removed: 15d‑15(f).][added: 15d-15(f).]

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: 2018] [added: 2019] 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: 2018.][added: 2019.]

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: 2018.][added: 2019.]

[removed: Report] [added: Report] of Independent Registered Public Accounting [removed: Firm][added: Firm]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of Comfort Systems USA, Inc. (the Company) as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] 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) (PCAOB), the Company's internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: Internal] [added: _Internal] Control-Integrated [removed: Framework] [added: Framework_] issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February [removed: 21, 2019] [added: 26, 2020] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited Comfort Systems USA, Inc.’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: Internal] [added: _Internal] Control—Integrated [removed: Framework] [added: Framework_] issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 [removed: framework),] [added: framework)] (the COSO criteria).

In our opinion, Comfort Systems USA, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes and our report dated February [removed: 21, 2019] [added: 26, 2020] expressed an unqualified opinion thereon.

[removed: Definition] [added: Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting]

[removed: COMFORT] [added: COMFORT] SYSTEMS USA, [removed: INC.][added: INC.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

[removed: (In] [added: (In] Thousands, Except Share [removed: Amounts)][added: Amounts)]

| [added: ​] | [added: ​] | [removed: December 31,] [added: December 31,] | | | | | [added: ​] |

| [added: ​] | | [removed: 2018] [added: 2018] | | | [removed: 2017] [added: 2017] | | |

| [removed: ASSETS] [added: ASSETS] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| CURRENT ASSETS: | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |