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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 11-K
----------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _______________
COMMISSION FILE NUMBER 1-13011
A. Full title of the Plan and address of the Plan, if different from that of
the issuer named below:
COMFORT SYSTEMS USA, INC. 401 (k) PLAN
777 POST OAK BLVD., SUITE 500
HOUSTON, TX 77056
B. Name of issuer of the securities held pursuant to the Plan and the address
of its principal executive office:
COMFORT SYSTEMS USA, INC.
777 POST OAK BLVD., SUITE 500
HOUSTON, TX 77056
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COMFORT SYSTEMS USA, INC. 401(k) PLAN
INDEX TO FORM 11-K
FOR THE YEAR ENDED DECEMBER 31, 2002
Page
Report of Independent Auditors............................................................. 2
Report of Independent Public Accountants................................................... 3
Audited Financial Statements
Statements of Net Assets Available for Benefits............................................ 4
Statement of Changes in Net Assets Available for Benefits.................................. 5
Notes to Financial Statements.............................................................. 6
Supplemental Schedules
Schedule G, Part III - Schedule of Nonexempt Transactions.................................. 11
Schedule H, Line 4(i) - Schedule of Assets (Held At End of Year)........................... 12
Signatures ................................................................................ 13
Exhibit Index.............................................................................. 14
1
REPORT OF INDEPENDENT AUDITORS
Plan Administrator
Comfort Systems USA, Inc. 401(k) Plan
We have audited the accompanying statement of net assets available for benefits
of the Comfort Systems USA, Inc. 401 (k) Plan as of December 31, 2002, and the
related statement of changes in net assets available for benefits for the year
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Plan as of
December 31, 2001, were audited by other auditors who have ceased operations and
whose report dated May 16, 2002, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan at
December 31, 2002, and the changes in its net assets available for benefits for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of nonexempt
transactions for the year ended December 31, 2002, and schedule of assets (held
at end of year) as of December 31, 2002 are presented for purposes of additional
analysis and are not a required part of the financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in our audit of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Houston, Texas
June 18, 2003
2
The following report is a copy of a report previously issued by Arthur Andersen
LLP and has not been reissued by Arthur Andersen LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
Comfort Systems USA, Inc. 401(k) Plan
We have audited the accompanying statements of net assets available for plan
benefits of the Comfort Systems USA, Inc. 401(k) Plan (the "Plan") as of
December 31, 2001 and 2000, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 2001. These
financial statements and supplemental schedules referred to below are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and supplemental schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 2001 and 2000, and the changes in net assets available for plan
benefits for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule H, Line 4i -
schedule of assets (held at end of year) as of December 31, 2001, and
supplemental Schedule G, Part III - schedule of nonexempt transactions for the
year ended December 31, 2001, are presented for the purpose of additional
analysis and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
May 16, 2002
3
COMFORT SYSTEMS USA, INC. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
2002 2001
------------------------------------
ASSETS
Receivables:
Employer contributions $ 232,098 $ 1,277,115
Participant contributions 650,082 684,583
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Total receivables 882,180 1,961,698
Investments 64,800,963 74,277,870
------------------------------------
Total assets 65,683,143 76,239,568
LIABILITIES
Corrective distributions - 285,156
------------------------------------
Net assets available for benefits $ 65,683,143 $ 75,954,412
====================================
See accompanying notes.
4
COMFORT SYSTEMS USA, INC. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2002
Additions:
Employer contributions $ 2,856,646
Participant contributions 9,328,293
Participant rollovers 328,313
Investment income 1,034,431
-----------------------
Total additions 13,547,683
Deductions:
Benefits paid to participants 13,277,969
Administrative expenses 186,633
Net depreciation in fair value of investments 11,924,154
-----------------------
Total deductions 25,388,756
Other changes in net assets:
Transfers from other qualified plans 1,569,804
-----------------------
Net decrease (10,271,269)
Net assets available for benefits:
Beginning of year 75,954,412
-----------------------
End of year $ 65,683,143
=======================
See accompanying notes.
5
COMFORT SYSTEMS USA, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. DESCRIPTION OF PLAN
The following description of the Comfort Systems USA, Inc. 401(k) Plan (the
"Plan") is provided for general information only. Participants should refer to
the Summary Plan Description for a more complete description of the Plan's
provisions, a copy of which is available from Comfort Systems USA, Inc. (the
"Company").
GENERAL
The Plan is a defined contribution plan established on October 1, 1998 and is
subject to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
On February 11, 2002, the Company entered into an agreement with EMCOR Group,
Inc. ("EMCOR"), to sell 19 operations. This transaction closed on March 1, 2002.
Of the 19 operating units sold, 16 units were participating in the Plan. The
affected participants' participation in the Plan ceased on March 1, 2002.
Participants were eligible to participate in EMCOR's plan immediately. Upon
termination, the affected participants had the option to either (a) enroll their
account balances into Individual Retirement Accounts, (b) elect a lump-sum cash
distribution, (c) leave their account balances in the Plan if the amount was
greater than $5,000, or (d) roll their account balances into EMCOR's plan.
Participants with outstanding loan balances could elect to make a plan-to-plan
transfer of their entire account balances, including the loan balances, from the
Plan to EMCOR's plan.
Effective September 1, 2002, the Company merged the River City Mechanical 401(k)
Profit Sharing Plan and Trust into the Plan. Net assets of approximately
$756,000 were transferred into the Plan on September 3, 2002, as a result of
this merger.
Effective September 1, 2002, the Company merged the H&H Plumbing & Heating, Inc.
Employee Benefit Plan into the Plan. Net assets of approximately $671,000 were
transferred into the Plan on September 4, 2002, as a result of this merger.
Effective October 1, 2001, the Company merged the MDC Service Corporation 401(k)
Retirement Plan into the Plan. Net assets of approximately $141,000 were
transferred into the Plan on November 18, 2002, as a result of this merger.
6
COMFORT SYSTEMS USA, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
ELIGIBILITY
Employees of the Company and its adopting subsidiaries are eligible to
participate in the Plan on the first day of each quarter coincident with or
following their date of hire. Participants become eligible to receive the
Company's discretionary matching contribution after the completion of one year
of service, as defined by the Plan.
CONTRIBUTIONS
Participants may contribute up to 15% of their eligible compensation on a
pre-tax basis, as defined by the Plan. Participants may also contribute amounts
representing rollover distributions from other qualified plans.
Each adopting subsidiary may make a discretionary matching contribution to the
Plan in an amount equal to a percentage determined by the adopting subsidiary.
Additional discretionary contributions may be made at the option of each
adopting subsidiary. No discretionary contributions were made for the year ended
December 31, 2002. Certain participants whose services are covered by the
federal, state or municipal prevailing wage law or the Davis Bacon Act, as
amended, receive Company prevailing wage law, profit-sharing contributions.
Participants direct the investment allocation of all contributions.
PARTICIPANT LOANS
Participants may borrow from their accounts a minimum of $1,000 up to a maximum
equal to the lesser of $50,000 or 50% of their vested account balance less the
participant's highest outstanding loan balance during the preceding 12 months.
The loan term may not exceed five years, except for loans used for the purchase
of a principal residence, which may be repaid up to 10 years. The interest rate
is fixed at the time of borrowing and shall be a reasonable rate of interest as
determined by the plan administrator. Principal and interest are paid ratably
through payroll deductions.
VESTING
Participants are immediately vested in their contributions and the prevailing
wage law profit-sharing contributions made on behalf of eligible participants
plus actual earnings thereon. Participants are 100% vested in employer
contributions plus earnings upon attainment of age 59 1/2, death, or disability.
Participants whose service terminates prior to age 59 1/2 for reasons other than
retirement, death, or disability are eligible to receive accumulated employer
contributions, if any, and interest thereon based on years of continuous
service. A participant is 20% vested in employer contributions after one year
and an additional 20% for each year thereafter. Forfeitures of nonvested
contributions may be used to reduce future employer contributions or to pay
administrative expenses of the Plan.
7
COMFORT SYSTEMS USA, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
ADMINISTRATIVE EXPENSES
Certain administrative expenses of the Plan are paid by the Company.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to terminate the Plan subject to the provisions of ERISA. Upon
plan termination, each participant would become 100% vested in their account
balances.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements of the Plan have been prepared using the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States. Benefit payments to participants are recorded
upon distribution.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes and schedules. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Plan provides for various investments in common stock, pooled separate
accounts, and a group annuity contract. Investment securities, in general, are
exposed to various risks, such as interest rate, credit, and overall market
volatility risks. Due to the level of risk associated with certain investment
securities, it is reasonably possible that changes in the value of investment
securities will occur in the near term and that such changes could materially
affect the amounts reported in the statements of net assets available for
benefits and participant account balances.
INVESTMENT VALUATION
Effective October 1, 1998, the Plan entered into a group annuity contract with
Connecticut General Life Insurance Company ("CGLIC") (a CIGNA company). The
contract includes the CIGNA Guaranteed Income Fund, which is invested in CGLIC's
general portfolio and is recorded at contract value, which approximates fair
value. The Guaranteed Income Fund does not have a maturity date or penalties for
early withdrawals. Participant directed transfers among investment options and
distributions will normally be made immediately; however, CIGNA may exercise
their contractual right to defer a transfer or distribution from the Guaranteed
Income Fund. It has seldom been necessary for CIGNA to invoke this deferral
provision. The rate of credited interest for any period of time will be
determined by CGLIC and is guaranteed for six-month periods (January 1 through
June 30 and July 1 through December 31). The average yield was approximately
8
COMFORT SYSTEMS USA, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
4.10% and 4.93% for the years ended December 31, 2002 and 2001, respectively.
The crediting interest rate (i.e., the rate at which interest was accrued to the
contract balance) was 3.85% and 5.00% as of December 31, 2002 and 2001,
respectively.
The contract also includes pooled separate accounts which are stated at fair
value. CGLIC determines the fair value of the pooled separate accounts based on
the quoted market values of the underlying assets in the separate accounts.
Company common stock is stated at fair value based on quotations obtained from
national securities exchanges. Participant loans are stated at cost, which
approximates fair value.
3. INVESTMENTS
CIGNA Bank & Trust Company, FSB (formerly, CG Trust Company) is the Plan's
trustee. Individual investments that represent 5% or more of the Plan's net
assets are as follows:
DECEMBER 31,
2002 2001
------------------------------------
CIGNA Guaranteed Income Fund $ 22,384,933 $ 20,064,362
CGLIC pooled separate accounts:
Balanced I Fund 4,934,811 5,724,548
Charter Growth & Income/Multi-Manager Fund 2,459,433 4,030,613
S&P 500 Index Fund 3,193,496 4,026,526
Large Cap Value/John A. Levin & Co. Fund 3,414,576 4,391,739
Large Cap Growth/Putnam 6,252,439 8,022,294
Small Cap Growth/Times Square Fund 3,758,697 5,641,339
Fidelity Advisor Equity Growth Account 2,874,976 4,398,023
INVESCO Dynamics Account 3,110,613 4,699,452
Janus Adviser Worldwide Account 3,549,973 5,787,118
During 2002, the Plan's investments (including investments bought, sold, and
held during the plan year) depreciated as follows:
YEAR ENDED
DECEMBER 31,
2002
-------------------
Common stock $ 157,817
Pooled separate accounts 11,766,337
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$ 11,924,154
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9
COMFORT SYSTEMS USA, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAX STATUS
The Plan has not requested a determination letter from the Internal Revenue
Service (the "IRS") stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code. However, the plan administrator believes that the
Plan is qualified and, therefore, the related trust is exempt from taxation.
5. SUBSEQUENT EVENTS
Effective January 1, 2003, the Company merged the Quality Air, Heating &
Cooling, Inc. 401(k) Plan and Trust into the Plan. Net assets of approximately
$8,090,000 were transferred into the Plan on January 7, 2003, as a result of
this merger.
Effective January 1, 2003, the Company merged the MJ Mechanical 401(k) Plan into
the Plan. Net assets of approximately $4,585,000 were transferred into the Plan
on January 28, 2003, as a result of this merger.
Effective May 1, 2003, the Company temporarily suspended the Company match for
all highly compensated employees, as defined by the IRS.
10
COMFORT SYSTEMS USA, INC. 401 (k) PLAN
SCHEDULE G, PART III - SCHEDULE OF NONEXEMPT TRANSACTIONS
EIN: 76-0526487 PN: 001
Year ended December 31, 2002
RELATIONSHIP TO PLAN, CURRENT NET GAIN
IDENTITY OF EMPLOYER, OR OTHER COST OF VALUE (REPAID
PARTY INVOLVED PARTY-IN-INTEREST DESCRIPTION OF TRANSACTIONS ASSET OF ASSET INTEREST)*
-----------------------------------------------------------------------------------------------------------------------------------
Comfort Systems USA, Inc. Employer/Plan Sponsor Loan to the employer in the form
of late remittance of participant
deferrals for various pay periods
from August 1, 2000 to December
31, 2001. $ 12,301 $15,321 $3,020
Comfort Systems USA, Inc. Employer/Plan Sponsor Loan to the employer in the form of
late remittance of participant
deferrals for various pay periods
from April 30, 2002 to September
30, 2002. 38,204 41,416 3,212
*The interest was repaid to the Plan during 2002.
11
COMFORT SYSTEMS USA, INC. 401(k) PLAN
SCHEDULE H, LINE 4(i) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
EIN: 76-0526487 PN: 001
December 31, 2002
IDENTITY OF ISSUE,
BORROWER, LESSOR, OR
SIMILAR PARTY DESCRIPTION OF INVESTMENT CURRENT VALUE
------------------------------------------------------------------------------------------------------------------
*Comfort Systems USA, Inc. 569,492 shares of common stock $ 1,907,798
*CGLIC(1) CIGNA Guaranteed Income Fund (general account) 22,384,933
*CGLIC(1) S&P 500 Index Fund (pooled separate account) 3,193,496
*CGLIC(1) Fidelity Advisor Equity Growth Account (pooled separate account) 2,874,976
*CGLIC(1) INVESCO Dynamics Account (pooled separate account) 3,110,613
*CGLIC(1) Balanced I Fund (pooled separate account) 4,934,811
*CGLIC(1) Large Cap Growth/Putnam (pooled separate account) 6,252,439
*CGLIC(1) Charter Growth & Income/Multi-Manager Fund (pooled separate account) 2,459,433
*CGLIC(1) Large Cap Value/John A. Levin & Co. Fund (pooled separate account) 3,414,576
*CGLIC(1) Small Cap Growth/Times Square Fund (pooled separate account) 3,758,697
*CGLIC(1) Janus Adviser Worldwide Account (pooled separate account) 3,549,973
*CGLIC(1) Lifetime 20 Fund (pooled separate account) 657,584
*CGLIC(1) Lifetime 30 Fund (pooled separate account) 949,242
*CGLIC(1) Lifetime 40 Fund (pooled separate account) 940,495
*CGLIC(1) Lifetime 50 Fund (pooled separate account) 712,144
*CGLIC(1) Lifetime 60 Fund (pooled separate account) 127,669
*CGLIC(1) International Blend/Bank of Ireland Fund (pooled separate account) 120,397
*CGLIC(1) Large Cap Growth/Dresdner RCM Fund (pooled separate account) 669,068
*CGLIC(1) Mid Cap Value/Wellington Management Fund (pooled separate account) 362,639
*CGLIC(1) Small Cap Value/TCW Fund (pooled separate account) 206,214
*CGLIC(1) Global Value/Morgan Stanley Fund (pooled separate account) 143,384
*Participant loans Varying maturity dates and interest rates ranging from 5.75% to 13.00% 2,070,382
-----------
$64,800,963
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(1) Connecticut General Life Insurance Company (an indirect, wholly owned
subsidiary of CIGNA)
*Party-in-interest
12
SIGNATURES
The Plan. Pursuant to the requirements of the Securities and Exchange Act of
1934, the 401(k) Investment Committee has duly caused this annual report to be
signed on its behalf by the undersigned hereunder duly authorized.
COMFORT SYSTEMS USA, INC. 401(k) PLAN
By: /s/ J. GORDON BEITTENMILLER
----------------------------------
J. Gordon Beittenmiller
Executive Vice President and
Chief Financial Officer of
Comfort Systems USA, Inc.
401(k) Investment Committee Member
Date: June 27, 2003
13
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
23.1 -- Consent of Independent Auditors.
23.2 -- Information Regarding Consent of Arthur Andersen LLP.
99.1 -- Certification of William F. Murdy pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 -- Certification of J. Gordon Beittenmiller pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
14