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, 2005

 

 

OR

 

 

 

o

 

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

 

 

 

 




Comfort Systems USA, Inc. 401(k) Plan
Financial Statements

 

December 31, 2005 and 2004

 

 

Contents

 

Page

 

 

 

Report of Independent Registered Public Accounting Firm

 

2

 

 

 

Statements of Net Assets Available for Benefits

 

3

 

 

 

Statement of Changes in Net Assets Available for Benefits

 

4

 

 

 

Notes to Financial Statements

 

5-10

 

 

 

Supplemental Schedules

 

 

 

 

 

Schedule H, Line 4(a) — Schedule of Delinquent Participant Contributions

 

11

 

 

 

Schedule H, Line 4(i) — Schedule of Assets (Held At End of Year)

 

12

 

 

 

Signatures

 

13

 

 

 

Exhibits

 

14-15

 




 

Report of Independent Registered Public Accounting Firm

To the Participants and Plan Administrator of
   Comfort Systems USA, Inc. 401(k) Plan
Houston, Texas

We have audited the accompanying statements of net assets available for benefits of Comfort Systems USA, Inc. 401(k) Plan (the “Plan”) as of December 31, 2005 and 2004, and the related statement of changes in net assets available for benefits for the year ended December 31, 2005. 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 benefits of the Plan as of December 31, 2005 and 2004, and the changes in its net assets available for benefits for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of delinquent participant contributions for the year ended December 31, 2005, and assets (held at end of year) as of December 31, 2005, are presented for the purposes 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. These supplemental schedules are the responsibility of the Plan’s management. 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.

/s/ UHY MANN FRANKFORT STEIN & LIPP CPAs, LLP

Houston, Texas
June 15, 2006

2




 

Comfort Systems USA, Inc. 401(k) Plan
Statements of Net Assets Available for Benefits

 

 

 

December 31,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Investments, at fair value

 

$

120,036,582

 

$

111,926,979

 

Receivables:

 

 

 

 

 

Employer contributions

 

263,045

 

246,715

 

Participant contributions

 

852,828

 

817,622

 

Total receivables

 

1,115,873

 

1,064,337

 

 

 

 

 

 

 

Net assets available for benefits

 

$

121,152,455

 

$

112,991,316

 

 

See accompanying notes to the financial statements.

3




 

Comfort Systems USA, Inc. 401(k) Plan
Statement of Changes in Net Assets Available for Benefits

Year Ended December 31, 2005

 

 

 

 

 

Additions To Net Assets:

 

 

 

Investment Income

 

 

 

Net appreciation in fair value of investments

 

$

6,401,688

 

Interest and dividend income

 

1,007,279

 

Total Investment Income

 

7,408,967

 

 

 

 

 

Contributions

 

 

 

Employer

 

3,044,066

 

Participant

 

10,718,348

 

Participant rollovers

 

994,742

 

Total Contributions

 

14,757,156

 

 

 

 

 

Total Additions To Net Assets

 

22,166,123

 

 

 

 

 

Deductions From Net Assets:

 

 

 

Benefits paid to participants

 

13,766,307

 

Corrective distributions

 

182,554

 

Administrative expenses

 

56,123

 

 

 

 

 

Total Deductions From Net Assets

 

14,004,984

 

 

 

 

 

Net Increase

 

8,161,139

 

 

 

 

 

Net Assets Available For Benefits:

 

 

 

Beginning of Year

 

112,991,316

 

End of Year

 

$

121,152,455

 

 

See accompanying notes to the financial statements.

4




Comfort Systems USA, Inc. 401(k) Plan
Notes to Financial Statements

December 31, 2005 and 2004

1. Description of Plan

General

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”).

The Plan is a defined contribution plan, established effective October 1, 1998, as amended and restated effective January 1, 2003, and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Eligibility

Employees of the Company are eligible to participate in the Plan on the first day of each quarter coincident with or following their date of hire. Effective April 1, 2006, employees of the Company will be eligible to participate in the Plan on the first day of each month coincident with or following the 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 elect to defer a percentage of their compensation during the plan year which is defined in the Plan and subject to the limits imposed by the Internal Revenue Code (the “IRC”). Participants may also contribute amounts representing rollover distributions from other qualified plans.

The Company may make a discretionary matching contribution to the Plan in an amount equal to a percentage determined by the Company. Effective May 1, 2003, the Company temporarily suspended the Company match for all highly compensated employees, as defined by the Internal Revenue Service (“IRS”), until January 1, 2004 when these contributions were reinstated. Additional discretionary contributions may be made at the option of the Company. No additional discretionary contributions were made for the years ended December 31, 2005 and 2004. 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.

5




 

Participant Accounts

Each participant’s account is credited with the participant’s contribution, the Company discretionary matching contribution, if any, and allocations of (a) the Company’s additional discretionary contribution and (b) Plan earnings, and charged with an
allocation of administrative expenses. Allocations are based on the participant earnings or account balances, as defined by the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

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 Company discretionary contributions plus earnings upon attainment of age 59½, death, or disability. Participants whose service terminates prior to age 59½ for reasons other than retirement, death, or disability are eligible to receive vested Company discretionary contributions, if any, and interest thereon based on years of continuous service. A participant is 20% vested in Company discretionary contributions after one year and an additional 20% for each year thereafter.

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 loans are secured by the balance in the participant’s account. The loan term may not exceed five years, except for loans used for the purchase of a principal residence, which may be repaid in up to ten 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. Participant loans were $3,543,140 and $3,172,960 at December 31, 2005 and 2004, respectively.

Payment of Benefits

On termination of service due to death, disability, or retirement, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account, or annual installments over a ten-year period. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution.

Forfeitures

Forfeitures occur when a participant terminates employment before becoming 100% vested with respect to their Company discretionary contributions. Forfeitures shall be

6




 

used to reduce future Company discretionary contributions or to pay administrative expenses of the Plan. At December 31, 2005 and 2004, forfeited nonvested accounts totaled $69,826 and $161,868, respectively. During 2005 and 2004, Company discretionary contributions were reduced by $257,313 and $1,495 from forfeited nonvested accounts, respectively. During 2005 and 2004, administrative expenses of $22,676 and $101,078 were paid from forfeited nonvested accounts, respectively.

During January 2005, the Company funded approximately $209,000 of the employer contribution receivable at December 31, 2004 from forfeited nonvested accounts.

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, participants would become 100% vested in their account balances.

2. Summary of Accounting Policies

Basis of Accounting

The accompanying financial statements of the Plan are prepared on an accrual method of accounting in accordance with U.S. generally accepted accounting principles.

Benefits

Benefit payments to participants are recorded upon distribution.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Investment Valuation and Income Recognition

Effective October 1, 1998, the Plan entered into a group annuity contract with Connecticut General Life Insurance Company (“CGLIC”), a CIGNA Corporation company (“CIGNA”). Effective April 1, 2004, Prudential Retirement Insurance and Annuity Company (“PRIAC”), a company of Prudential Financial Inc. (“Prudential”),

7




 

assumed all obligations and liabilities under the CGLIC group annuity contract. This assumption is the result of Prudential’s acquisition of CIGNA’s retirement operations. The contract includes the Prudential (formerly CIGNA) Guaranteed Income Fund, which is invested in Prudential’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, Prudential may exercise its contractual right to defer a transfer or distribution from the Guaranteed Income Fund.

It has seldom been necessary for Prudential to invoke this deferral provision. The rate of credited interest for any period of time will be determined by PRIAC and is guaranteed for six-month periods (January 1 through June 30 and July 1 through December 31). The average yield for PRIAC was approximately 3.03% and 2.93% for the years ended December 31, 2005 and 2004, respectively. The crediting interest rate (i.e., the rate at which interest was accrued to the contract balance) for PRIAC  was 3.1% as of December 31, 2005 and 2004.

The contract also includes investments in pooled separate accounts, which were stated at fair value as determined by PRIAC at December 31, 2005 and 2004, based on the quoted market values of the underlying assets in the separate accounts. 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.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

8




 

3. Investments

As of December 31, 2005 and 2004, the Plan’s trustee was Prudential Bank & Trust, FSB. Individual investments that represent 5% or more of the Plan’s net assets are as follows:

 

 

December 31,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Prudential Guaranteed Income Fund

 

$

27,802,626

 

$

27,306,483

 

PRIAC pooled separate accounts:

 

 

 

 

 

Balanced I/Wellington Management Fund

 

6,577,318

 

6,745,153

 

Dryden S&P 500 Index Fund

 

6,557,842

 

6,472,204

 

Large Cap Value/LSV Asset Mgmt

 

7,045,106

 

 

Large Cap Growth/Goldman Sachs

 

16,520,215

 

12,814,509

 

Small Cap Growth/Times Square Fund

 

6,235,148

 

5,967,313

 

Oppenheimer Global Fund (Class A)

 

9,672,623

 

7,646,988

 

Large Cap Value/John A. Levin & Co Fund

 

 

5,931,996

 

 

 

 

 

 

 

Total investments exceeding 5%

 

80,410,878

 

72,884,646

 

Other

 

39,625,704

 

39,042,333

 

 

 

 

 

 

 

TOTAL INVESTMENTS

 

$

120,036,582

 

$

111,926,979

 

 

During 2005, the Plan’s investments (including investments bought, sold, and held during the plan year) appreciated as follows:

 

 

Year Ended

 

 

 

 

 

2005

 

 

 

 

 

 

 

 

 

Common Stock

 

$

743,905

 

 

 

Pooled separate accounts

 

5,657,783

 

 

 

 

 

6,401,688

 

 

 

 

9




 

Comfort Systems USA, Inc. 401(k) Plan
Notes to Financial Statements

4. Income Tax Status

The Plan obtained its determination letter on April 1, 2005, in which the Internal Revenue Service stated that the Plan, as designed, is qualified under Section 401(a) of the IRC. The plan administrator believes that the Plan is currently designed and operating in compliance with the requirements of the IRC.

5. 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.

6. Party-in-Interest Transactions

The Plan invests in various PRIAC pooled separate accounts, a company of Prudential. These investments are considered party-in-interest transactions because Prudential Bank & Trust, FSB, a company of Prudential, serves as trustee of the Plan. The Plan management has approved these investment options.

The Plan also invests in the Company’s common stock. Transactions in Company stock are considered party-in-interest transactions because the Company is the Plan sponsor.

10




 

Comfort Systems USA, Inc. 401(k) Plan
Schedule H, Line 4(a) — Schedule of Delinquent Participant
Contributions

EIN: 76-0526487    PN: 001
Year ended December 31, 2005

 

 

Total that constitutes nonexempt prohibited transactions

 

Participant contributions transferred

 

Contributions

 

Contributions
corrected 

 

Contributions
pending correction

 

Total fully
corrected under
VFCP and PTE

 

late to plan

 

not corrected

 

outside VFCP

 

in VFCP

 

2002-51

 

 

 

 

 

 

 

 

 

 

 

$

1,794

 

$

 

$

1,794

 

$

 

$

1,794

 

 

See accompanying Report of Independent Registered Public Accounting Firm.

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, 2005

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

Party in
Interest

 

Identity of issue, borrower,
lessor, or similar party

 

Description of Investment including
maturity date, rate of interest, collateral,
par or maturity value

 

Cost

 

Current
Value

 

 

 

 

 

 

 

 

 

 

 

*

 

Prudential Retirement Ins

 

Guaranteed Income

 

N/A

 

$

27,802,626

 

*

 

Prudential Retirement Ins

 

Lifetime20 Fund

 

N/A

 

2,106,401

 

*

 

Prudential Retirement Ins

 

Lifetime30 Fund

 

N/A

 

4,001,434

 

*

 

Prudential Retirement Ins

 

Lifetime40 Fund

 

N/A

 

3,846,725

 

*

 

Prudential Retirement Ins

 

Lifetime50 Fund

 

N/A

 

1,527,549

 

*

 

Prudential Retirement Ins

 

Lifetime60 Fund

 

N/A

 

447,903

 

*

 

Prudential Retirement Ins

 

Dryden S&P 500 Index Fund

 

N/A

 

6,557,842

 

*

 

Prudential Retirement Ins

 

Large Cap Growth/Goldman Sachs

 

N/A

 

16,520,215

 

*

 

Prudential Retirement Ins

 

Small Cap Growth/Times Square Fund

 

N/A

 

6,235,148

 

*

 

Prudential Ret. Brokerage Svcs

 

Comfort Systems USA Stock — 447,931 shares

 

N/A

 

4,120,963

 

*

 

Prudential Retirement Ins

 

Large Cap Value/LSV Asset Mgmt

 

N/A

 

7,045,106

 

*

 

Prudential Retirement Ins

 

Mid Cap Value/Wellington Mgmt

 

N/A

 

4,130,265

 

*

 

Prudential Retirement Ins

 

International Blend/The Boston Co

 

N/A

 

1,428,364

 

*

 

Prudential Retirement Ins

 

Balanced I/Wellington Management Fund

 

N/A

 

6,577,318

 

*

 

Prudential Retirement Ins

 

Waddell & Reed Accum-CL A SH

 

N/A

 

4,020,481

 

*

 

Prudential Retirement Ins

 

Oppenheimer Global Fund — (Class A)

 

N/A

 

9,672,623

 

*

 

Prudential Retirement Ins

 

Mid Cap Growth/Goldman Sachs Fund

 

N/A

 

5,598,089

 

*

 

Prudential Retirement Ins

 

St St Global Adv RUS 3000 INDX

 

N/A

 

388,994

 

*

 

Prudential Retirement Ins

 

Wells Fargo Adv Small Cap Z

 

N/A

 

4,465,396

 

 

 

Outstanding Participant Loans

 

4.75% - 11.50%, various maturity dates

 

N/A

 

3,543,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

120,036,582

 

 

N/A - Not applicable as permitted by Department of Labor for participant-directed individual account plans.

See accompanying Report of Independent Registered Public Accounting Firm.

12




 

SIGNATURES

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/WILLIAM GEORGE

 

 

 

 

William George

 

 

 

 

Executive Vice President and

 

 

 

 

Chief Financial Officer of

 

 

 

 

Comfort Systems USA, Inc.

 

 

 

 

401(k) Investment Committee Member

 

 

 

 

 

 

Date: June 28, 2006

13




 

INDEX TO EXHIBITS

The following is included as an exhibit to the report:

NUMBER

 

DESCRIPTION

 

 

 

 

 

 

 

 

23.1

 

Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP

 

 

 

 

14



 

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-44356) pertaining to the Comfort Systems USA, Inc. 401 (k) Plan of our report dated June 15, 2006, related to the financial statements and supplemental schedules of the Comfort Systems USA, Inc. 401 (k) Plan, included in this Annual Report on Form 11-K for the years ended December 31, 2005 and 2004.

/s/ UHY Mann Frankfort Stein & Lipp CPAs, LLP

Houston, Texas
June 15, 2006