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Mail Stop 0510
March 25, 2005
via U.S. mail and facsimile
Mr. J. Gordon Beittenmiller
Executive Vice President and CFO
Comfort Systems USA, Inc.
777 Post Oak Blvd., Suite 500
Houston, TX 77056
RE: Form 10-K for the fiscal year ended December 31, 2004
Form 8-K filed March 3, 2005
File No. 1-13011
Dear Mr. Beittenmiller:
We have reviewed these filings and have the following
comments.
If you disagree with a comment, we will consider your explanation
as
to why our comment is inapplicable or a revision is unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Comments applicable to your overall filing
1. Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. These revisions should be
included in your future filings.
Item 7 - Management`s Discussion and Analysis
2004 Compared to 2003, page 23
2. Please discuss in greater detail the business reasons for the
changes between periods in revenues, gross profit, and selling,
general and administrative expenses. In doing so, please disclose
the amount of each significant change in line items between
periods
and the business reasons for it. In circumstances where there is
more than one business reason for the change, attempt to quantify
the
incremental impact of each individual business reason discussed on
the overall change in the line item. Please show us what your
revised MD&A for 2004 as compared to 2003 will look like. See
Item
303(a)(3) of Regulation S-K and Financial Reporting Codification
501.04.
Liquidity and Capital Resources, page 31
3. Please disclose the interest rates and fees that apply to your
credit facility.
4. Please retitle what you currently call EBITDA, since you are
including other non-cash charges in this measure. See Question 14
of
our FAQ Regarding the Use of Non-GAAP Financial Measures dated
June
13, 2003. In addition, please present a reconciliation of what
you
currently call EBITDA to the most directly comparable financial
measure calculated and presented in accordance with GAAP. See
Item
10(e)(i)(B) of Regulation S-K.
5. Please revise your table of contractual cash obligations to
include the estimated interest payments on your debt. Because the
table is aimed at increasing transparency of cash flow, we believe
these payments should be included in the table. Please also
disclose
any assumptions you made to derive these amounts. Please also
revise
your table so that the sum of your contractual obligations for
each
period and in total appears at the bottom of the table.
Item 8 - Financial Statements
Note 2 - Summary of Significant Accounting Policies, page 48
6. Please disclose the types of expenses that you include in the
cost
of services line item and the types of expenses that you include
in
the selling, general and administrative expenses line item.
Please
also disclose whether you include inbound freight charges,
purchasing
and receiving costs, inspection costs, warehousing costs, internal
transfer costs, and the other costs of your distribution network
in
the cost of services line item. With the exception of warehousing
costs, if you currently exclude a portion of these costs from cost
of
services, please disclose:
* in a footnote the line items that these excluded costs are
included
in and the amounts included in each line item for each period
presented, and
* in MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of services and others like
you
exclude a portion of them from gross margin, including them
instead
in a line item, such as selling, general and administrative
expenses.
Inventories, page 48
7. Please disclose your major classes of inventory, such as raw
materials, work in process and finished goods, as well as the
corresponding amounts in each class. See Rule 5-02(6)(a) of
Regulation S-X.
Property and Equipment, page 48
8. You disclose that gains and losses resulting from the
retirement
or disposition of property and equipment are recognized in other
income (expense). If the property and equipment that is retired
or
disposed of is not a component of an entity, the resulting gains
and
losses should be included in operating income. See paragraph 45
of
SFAS 144. Please revise accordingly.
Goodwill, page 49
9. You disclose that goodwill represents the excess of the
aggregate
purchase price over the fair value of the net tangible assets
acquired. Please clarify that the determination of goodwill not
only
takes into consideration the value of net tangible assets
acquired,
but also intangible assets acquired that are separate from
goodwill.
Revenue Recognition, page 49
10. You disclose that as you perform under your percentage of
completion projects, such costs are measured as incurred, compared
to
total estimated costs to complete the project, and a corresponding
proportion of contract revenue is recognized. Please disclose
when
you include actual costs incurred in your revenue recognition
computations. Are products and materials included in the
computation
when they arrive on site? Do you wait until they are actually
installed? Do you wait until they are both installed and a key
milestone has been met?
Self-Insurance Liabilities, page 50
11. Please disclose the extent of your self-insurance in each area
that you are self-insured. Please also disclose whether or not
you
have excess loss insurance and, if so, the amounts at which this
insurance coverage begins in each area.
Note 11 - Commitments and Contingencies, page 69
12. Please disclose how you account for (a) step rent provisions
and
escalation clauses and (b) capital improvement funding and other
lease concessions, which may be present in your leases. Paragraph
5.n. of SFAS 13, as amended by SFAS 29, discusses how lease
payments
that depend on an existing index or rate, such as the consumer
price
index or the prime interest rate, should also be included in your
minimum lease payments. If, as we assume, they are taken into
account in computing your minimum lease payments and the minimum
lease payments are recognized on a straight-line basis over the
minimum lease term, the note should so state. If our assumption
is
incorrect, please tell us how your accounting complies with SFAS
13
and FTB 88-1.
Note 12 - Stockholders` Equity, page 70
Earnings Per Share, page 72
13. Please tell us why you included the effect of shares issuable
related to warrants in your calculation of diluted shares for
2003,
given that you had a loss from continuing operations during the
year.
See paragraph 16 of SFAS 128.
FORM 8-K FILED MARCH 3, 2005
14. Your presentation of a complete set of non-GAAP income
statements
gives too much prominence to these non-GAAP amounts. Please
remove
the non-GAAP income statements from your Form 8-K and instead
discuss
the business reasons for changes between periods by disclosing the
impact that each of these items had on the overall change in the
GAAP
line item. Naturally, you may include individual non-GAAP
measures
in a more limited manner as long as you reconcile them to the most
comparable GAAP measures and discuss how you use them. See Item
10(e)(i) of Regulation S-K.
* * * *
Please respond to these comments within 10 business days, or
tell us when you will provide us with a response. Please provide
us
with a supplemental response letter that keys your responses to
our
comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Jeffrey Gordon, Staff Accountant, at (202) 824-5685
or, in his absence, to the undersigned at (202) 942-1774.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. J. Gordon Beittenmiller
March 25, 2005
Page 1 of 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE