COMFORT SYSTEMS USA, INC.
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No ý

The number of shares outstanding of the issuer's common stock as of ~~October 31, 2011~~April 27, 2012 was ~~37,455,699~~37,383,008 (excluding treasury shares of ~~3,667,666)~~3,740,357).

COMFORT SYSTEMS USA, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2011~~MARCH 31, 2012



Part I—Financial Information

Item 1—Financial Statements

Consolidated Balance Sheets		1

Consolidated Statements of Operations		2

Consolidated Statements of Stockholders' Equity		3

Consolidated Statements of Cash Flows		4

Condensed Notes to Consolidated Financial Statements		5

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations		1715
	Item 3—Quantitative and Qualitative Disclosures about Market Risk		3229
	Item 4—Controls and Procedures		3330
Part II—Other Information
31
Item 1—Legal Proceedings		3431
Item 1A—Risk Factors		31
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		3431
	Item 6—Exhibits		3532
	Signatures		3634

COMFORT SYSTEMS USA, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

			September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011

			(Unaudited)						(Unaudited)
ASSETS	ASSETS
CURRENT ASSETS:	CURRENT ASSETS:
Cash and cash equivalents									$	27,873		$	51,237
Accounts receivable, less allowance for doubtful accounts of $5,762 and $5,341, respectively										265,941			267,060
Other receivables										6,261			6,527
Inventories										10,699			10,631
Prepaid expenses and other										29,179			24,664
Costs and estimated earnings in excess of billings										33,572			27,163
	Cash and cash equivalents		$	43,692		$	86,346
	Accounts receivable, less allowance for doubtful accounts of $4,766 and $5,096, respectively			259,769			233,893
	Other receivables			9,598			6,682
	Income tax receivable			11,478			9,544
	Inventories			9,742			9,365
	Prepaid expenses and other			24,602			30,470
	Costs and estimated earnings in excess of billings			29,121			26,648

		Total current assets		388,002			402,948
Total current assets										373,525			387,282
PROPERTY AND EQUIPMENT, NET	PROPERTY AND EQUIPMENT, NET			40,475			43,620			40,807			42,013
GOODWILL	GOODWILL			93,640			147,818			107,093			107,093
IDENTIFIABLE INTANGIBLE ASSETS, NET	IDENTIFIABLE INTANGIBLE ASSETS, NET			36,099			39,616			46,284			48,349
OTHER NONCURRENT ASSETS	OTHER NONCURRENT ASSETS			7,430			6,018			8,349			6,329

		Total assets	$	565,646		$	640,020
Total assets									$	576,058		$	591,066

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:	CURRENT LIABILITIES:
Current maturities of long-term debt									$	300		$	300
Current maturities of notes to former owners										332			332
Accounts payable										105,801			114,255
Accrued compensation and benefits										36,025			36,474
Billings in excess of costs and estimated earnings										70,109			71,730
Accrued self-insurance expense										28,277			27,408
Other current liabilities										25,397			27,472
	Current maturities of long-term debt		$	300		$	300
	Current maturities of notes to former owners			510			967
	Accounts payable			101,421			101,134
	Accrued compensation and benefits			36,805			42,577
	Billings in excess of costs and estimated earnings			62,218			63,422
	Accrued self-insurance expense			30,799			28,994
	Other current liabilities			23,699			30,816

		Total current liabilities		255,752			268,210
Total current liabilities										266,241			277,971
LONG-TERM DEBT, NET OF CURRENT MATURITIES	LONG-TERM DEBT, NET OF CURRENT MATURITIES			2,400			2,700			2,400			2,400
NOTES TO FORMER OWNERS, NET OF CURRENT MATURITIES	NOTES TO FORMER OWNERS, NET OF CURRENT MATURITIES			24,969			25,969			12,249			12,349
DEFERRED INCOME TAX LIABILITIES	DEFERRED INCOME TAX LIABILITIES			11,599			18,871			5,131			4,541
OTHER LONG-TERM LIABILITIES	OTHER LONG-TERM LIABILITIES			6,278			11,486			10,838			10,699

		Total liabilities		300,998			327,236
Total liabilities										296,859			307,960
COMMITMENTS AND CONTINGENCIES	COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and outstanding										—			—
Common stock, $.01 par, 102,969,912 shares authorized, 41,123,365 and 41,123,365 shares issued, respectively										411			411
Treasury stock, at cost, 3,705,506 and 3,714,506 shares, respectively										(39,341	)		(39,437	)
Additional paid-in capital										322,273			323,608
Retained earnings (deficit)										(21,020	)		(19,991	)
	Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and outstanding			—			—
Comfort Systems USA, Inc. stockholders' equity										262,323			264,591
Noncontrolling interests										16,876			18,515
	Common stock, $.01 par, 102,969,912 shares authorized, 41,123,365 and 41,123,365 shares issued, respectively			411			411
Total stockholders' equity										279,199			283,106
	Treasury stock, at cost, 3,626,473 and 3,221,775 shares, respectively			(38,642	)		(34,714	)
Total liabilities and stockholders' equity									$	576,058		$	591,066
	Additional paid-in capital			324,617			326,467
	Retained earnings (deficit)			(21,738	)		20,620

		Total stockholders' equity		264,648			312,784

		Total liabilities and stockholders' equity	$	565,646		$	640,020

The accompanying notes are an integral part of these consolidated financial statements.

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,

2011 2010 2011 2010
REVENUE
$ 328,113 $ 307,648 $ 922,320 $ 793,711
COST OF SERVICES
279,005 257,339 791,493 661,929

Gross profit
49,108 50,309 130,827 131,782
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
41,493 41,885 126,043 114,905
GOODWILL IMPAIRMENT
55,134 — 55,134 4,446
GAIN ON SALE OF ASSETS
(58 ) (29 ) (162 ) (502 )

Operating income (loss)
(47,461 ) 8,453 (50,188 ) 12,933
OTHER INCOME (EXPENSE):

Interest income
16 39 65 183

Interest expense
(478 ) (832 ) (1,431 ) (1,406 )

Changes in the fair value of contingent earn-out obligations
5,077 650 5,566 650

Other
(16 ) 19 (68 ) 25

Other income (expense)
4,599 (124 ) 4,132 (548 )

INCOME (LOSS) BEFORE INCOME TAXES
(42,862 ) 8,329 (46,056 ) 12,385
INCOME TAX EXPENSE (BENEFIT)
(6,293 ) 2,919 (7,479 ) 4,164

INCOME (LOSS) FROM CONTINUING OPERATIONS
(36,569 ) 5,410 (38,577 ) 8,221
GAIN (LOSS) ON DISPOSITION OF DISCONTINUED OPERATION, NET OF INCOME TAX EXPENSE OF $—, $195, $— AND $166
— (39 ) — 723

NET INCOME (LOSS)
$ (36,569 ) $ 5,371 $ (38,577 ) $ 8,944

INCOME (LOSS) PER SHARE:

Basic—

Income (loss) from continuing operations
$ (0.98 ) $ 0.14 $ (1.03 ) $ 0.22

Gain on disposition of discontinued operation
— — — 0.02

Net income (loss)
$ (0.98 ) $ 0.14 $ (1.03 ) $ 0.24

Diluted—

Income (loss) from continuing operations
$ (0.98 ) $ 0.14 $ (1.03 ) $ 0.22

Gain on disposition of discontinued operation
— — — 0.02

Net income (loss)
$ (0.98 ) $ 0.14 $ (1.03 ) $ 0.24

SHARES USED IN COMPUTING INCOME PER SHARE:

Basic
37,325 37,560 37,496 37,564

Diluted
37,325 37,794 37,496 37,821

DIVIDENDS PER SHARE
$ 0.050 $ 0.050 $ 0.150 $ 0.150

	Three Months Ended March 31,

	2012			2011
REVENUE	$	329,410		$	282,059
COST OF SERVICES		286,666			247,850

Gross profit		42,744			34,209
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		46,363			42,622
GAIN ON SALE OF ASSETS		(216	)		(85	)

Operating loss		(3,403	)		(8,328	)
OTHER INCOME (EXPENSE):
Interest income		4			26
Interest expense		(397	)		(487	)
Changes in the fair value of contingent earn-out obligations		(30	)		(95	)
Other		52			15

Other income (expense)		(371	)		(541	)

LOSS BEFORE INCOME TAXES		(3,774	)		(8,869	)
INCOME TAX BENEFIT		(1,106	)		(3,699	)

NET LOSS INCLUDING NONCONTROLLING INTERESTS		(2,668	)		(5,170	)
Less: Net loss attributable to noncontrolling interests		(1,639	)		—

NET LOSS ATTRIBUTABLE TO COMFORT SYSTEMS USA, INC.	$	(1,029	)	$	(5,170	)

LOSS PER SHARE ATTRIBUTBALE TO COMFORT SYSTEMS USA, INC.:
Basic	$	(0.03	)	$	(0.14	)

Diluted	$	(0.03	)	$	(0.14	)

SHARES USED IN COMPUTING LOSS PER SHARE:
Basic		37,056			37,537

Diluted		37,056			37,537

DIVIDENDS PER SHARE	$	0.050		$	0.050

The accompanying notes are an integral part of these consolidated financial statements.

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In Thousands, Except Share Amounts)

STOCKHOLDERS' EQUITY

Common Stock Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss)

Comprehensive
Income (Loss) Additional
Paid-In
Capital Retained
Earnings
(Deficit) Total
Stockholders'
Equity

Shares Amount Shares Amount
BALANCE AT DECEMBER 31, 2009
41,123,365 $ 411 (3,129,460 ) $ (33,810 ) $ 326,103 $ (181 ) $ 13,461 $ 305,984

Comprehensive income:

Net income
$ 14,740 — — — — — — 14,740 14,740

Realized gain on marketable securities reclassified into earnings, net of tax
181 — — — — — 181 — 181

Comprehensive income
$ 14,921

Issuance of Stock:

Issuance of shares for options exercised including tax benefit
— — 183,686 1,982 (875 ) — — 1,107

Issuance of restricted stock
— — 235,122 2,864 (2,614 ) — — 250

Shares received in lieu of tax withholding payment on vested restricted stock
— — (50,575 ) (616 ) — — — (616 )

Tax benefit from vesting of restricted stock
— — — — 106 — — 106

Forfeiture of unvested restricted stock
— — (5,610 ) (60 ) 60 — — —

Stock-based compensation expense
— — — — 3,687 — — 3,687

Dividends
— — — — — — (7,581 ) (7,581 )

Share repurchase
— — (454,938 ) (5,074 ) — — — (5,074 )

BALANCE AT DECEMBER 31, 2010
41,123,365 411 (3,221,775 ) (34,714 ) 326,467 — 20,620 312,784

Comprehensive income (loss):

Net loss (unaudited)
$ (38,577 ) — — — — — — (38,577 ) (38,577 )

Issuance of Stock:

Issuance of shares for options exercised including tax benefit (unaudited)
— — 51,950 559 (188 ) — — 371

Issuance of restricted stock (unaudited)
— — 230,702 2,488 (2,488 ) — — —

Shares received in lieu of tax withholding payment on vested restricted stock (unaudited)
— — (49,911 ) (654 ) — — — (654 )

Tax benefit from vesting of restricted stock (unaudited)
— — — — 54 �� — 54

Stock-based compensation expense (unaudited)
— — — — 2,672 — — 2,672

Dividends (unaudited)
— — — — (1,900 ) — (3,781 ) (5,681 )

Share repurchase (unaudited)
— — (637,439 ) (6,321 ) — — — (6,321 )

BALANCE AT SEPTEMBER 30, 2011 (unaudited)
41,123,365 $ 411 (3,626,473 ) $ (38,642 ) $ 324,617 $ — $ (21,738 ) $ 264,648

	Common Stock				Treasury Stock

	Common Stock				Treasury Stock						Additional Paid-In Capital			Retained Earnings (Deficit)			Non- Controlling Interests			Total Stockholders' Equity
	Shares		Amount		Shares			Amount			Additional Paid-In Capital			Retained Earnings (Deficit)			Non- Controlling Interests			Total Stockholders' Equity
BALANCE AT DECEMBER 31, 2010		41,123,365	$	411		(3,221,775	)	$	(34,714	)	$	326,467		$	20,620			—		$	312,784
Net income (loss)		—		—		—			—			—			(36,830	)		338			(36,492	)
Issuance of Stock:
Issuance of shares for options exercised including tax benefit		—		—		65,950			707			(258	)		—			—			449
Issuance of restricted stock		—		—		230,702			2,488			(2,488	)		—			—			—
Shares received in lieu of tax withholding payment on vested restricted stock		—		—		(50,793	)		(662	)		—			—			—			(662	)
Tax benefit from vesting of restricted stock		—		—		—			—			54			—			—			54
Stock-based compensation expense		—		—		—			—			3,604			—			—			3,604
Dividends		—		—		—			—			(3,771	)		(3,781	)		—			(7,552	)
Share repurchase		—		—		(738,590	)		(7,256	)		—			—			—			(7,256	)
Acquisition of EAS		—		—		—			—			—			—			17,377			17,377
Contribution from noncontrolling interest		—		—		—			—			—			—			800			800

BALANCE AT DECEMBER 31, 2011		41,123,365		411		(3,714,506	)		(39,437	)		323,608			(19,991	)		18,515			283,106
Net loss (unaudited)		—		—		—			—			—			(1,029	)		(1,639	)		(2,668	)
Issuance of Stock:
Issuance of shares for options exercised including tax benefit (unaudited)		—		—		9,000			96			(41	)		—			—			55
Issuance of restricted stock (unaudited)		—		—		—			—			—			—			—			—
Shares received in lieu of tax withholding payment on vested restricted stock (unaudited)		—		—		—			—			—			—			—			—
Tax benefit from vesting of restricted stock (unaudited)		—		—		—			—			—						—			—
Stock-based compensation expense (unaudited)		—		—		—			—			577			—			—			577
Dividends (unaudited)		—		—		—			—			(1,871	)		—			—			(1,871	)
Share repurchase (unaudited)		—		—		—			—			—			—			—			—

BALANCE AT MARCH 31, 2012 (unaudited)		41,123,365	$	411		(3,705,506	)	$	(39,341	)	$	322,273		$	(21,020	)	$	16,876		$	279,199

The accompanying notes are an integral part of these consolidated financial statements.

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Three Months
Ended
September 30, Nine Months
Ended
September 30,

2011 2010 2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)
$ (36,569 ) $ 5,371 $ (38,577 ) $ 8,944
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities—

Loss (gain) on disposition of discontinued operation
— 39 — (723 )

Write-off of debt financing costs
— 181 — 181

Amortization of identifiable intangible assets
1,722 1,877 5,080 4,023

Depreciation expense
2,974 2,925 9,148 7,859

Goodwill impairment
55,134 — 55,134 4,446

Bad debt expense
(202 ) 578 509 701

Deferred tax benefit
(4,939 ) (1,484 ) (6,255 ) (4,750 )

Amortization of debt financing costs
56 48 168 102

Gain on sale of assets
(58 ) (29 ) (162 ) (502 )

Changes in the fair value of contingent earn-out obligations
(5,077 ) (650 ) (5,566 ) (650 )

Stock-based compensation expense
340 517 2,672 2,591

Changes in operating assets and liabilities, net of effects of acquisitions—

(Increase) decrease in—

Receivables, net
(3,226 ) (19,814 ) (25,781 ) (21,483 )

Inventories
320 230 (199 ) 762

Prepaid expenses and other current assets
(4,172 ) (6,777 ) (1,969 ) (4,448 )

Costs and estimated earnings in excess of billings
(2,698 ) 5,875 (2,473 ) 4,254

Other noncurrent assets
3,049 (747 ) 726 (1,079 )

Increase (decrease) in—

Accounts payable and accrued liabilities
(5,622 ) 11,656 (13,468 ) (4,634 )

Billings in excess of costs and estimated earnings
660 3,385 (1,204 ) (2,988 )

Taxes paid related to pre-acquisition equity transactions of an acquired company
— (7,056 ) — (7,056 )

Other long-term liabilities
(214 ) 103 252 (21 )

Net cash provided by (used in) operating activities
1,478 (3,772 ) (21,965 ) (14,471 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment
(2,548 ) (2,021 ) (6,452 ) (4,103 )

Proceeds from sales of property and equipment
230 11 611 1,229

Proceeds from businesses sold
39 203 117 1,467

Sale of marketable securities
— 1,000 2,000 2,925

Cash paid for acquisitions, earn-outs and intangible assets, net of cash acquired
(288 ) (38,358 ) (2,609 ) (41,935 )

Net cash used in investing activities
(2,567 ) (39,165 ) (6,333 ) (40,417 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings on revolving line of credit
— — — —

Payments on other long-term debt
(300 ) (16,382 ) (1,589 ) (17,299 )

Debt financing costs
(550 ) (911 ) (550 ) (911 )

Payments of dividends to shareholders
(1,864 ) (1,881 ) (5,667 ) (5,652 )

Share repurchase program
(2,609 ) (851 ) (6,321 ) (4,504 )

Shares received in lieu of tax withholding
— (10 ) (654 ) (619 )

Excess tax benefit of stock-based compensation
2 15 206 447

Proceeds from exercise of options
1 16 219 237

Net cash used in financing activities
(5,320 ) (20,004 ) (14,356 ) (28,301 )

NET DECREASE IN CASH AND CASH EQUIVALENTS
(6,409 ) (62,941 ) (42,654 ) (83,189 )

CASH AND CASH EQUIVALENTS, beginning of period—continuing and discontinued operations
50,101 107,602 86,346 127,850

CASH AND CASH EQUIVALENTS, end of period—continuing and discontinued operations
$ 43,692 $ 44,661 $ 43,692 $ 44,661

	Three Months Ended March 31,

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss including noncontrolling interests	$	(2,668	)	$	(5,170	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities—
Amortization of identifiable intangible assets		2,080			1,658
Depreciation expense		3,057			3,161
Bad debt expense		741			839
Deferred tax expense (benefit)		(1,521	)		(2,110	)
Amortization of debt financing costs		57			56
Gain on sale of assets		(216	)		(85	)
Changes in the fair value of contingent earn-out obligations		30			95
Stock-based compensation expense		577			1,238
Changes in operating assets and liabilities, net of effects of acquisitions—
(Increase) decrease in—
Receivables, net		(905	)		(1,720	)
Inventories		(68	)		(197	)
Prepaid expenses and other current assets		(855	)		1,231
Costs and estimated earnings in excess of billings		(6,409	)		949
Other noncurrent assets		(2,077	)		(790	)
Increase (decrease) in—
Accounts payable and accrued liabilities		(10,349	)		(17,392	)
Billings in excess of costs and estimated earnings		(1,621	)		(956	)
Other long-term liabilities		331			127

Net cash used in operating activities		(19,816	)		(19,066	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,094	)		(2,360	)
Proceeds from sales of property and equipment		420			247
Proceeds from businesses sold		39			39
Sale of marketable securities		—			2,000
Cash paid for acquisitions, earn-outs and intangible assets, net of cash acquired		(15	)		(1,800	)

Net cash used in investing activities		(1,650	)		(1,874	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit		—			—
Payments on other long-term debt		(100	)		—
Payments of dividends to shareholders		(1,853	)		(1,880	)
Share repurchase program		—			—
Shares received in lieu of tax withholding		—			—
Excess tax benefit of stock-based compensation		19			(13	)
Proceeds from exercise of options		36			123

Net cash used in financing activities		(1,898	)		(1,770	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(23,364	)		(22,710	)

CASH AND CASH EQUIVALENTS, beginning of period		51,237			86,346

CASH AND CASH EQUIVALENTS, end of period	$	27,873		$	63,636

The accompanying notes are an integral part of these consolidated financial statements.

COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2011~~March 31, 2012

(Unaudited)

Comfort Systems USA, Inc., a Delaware corporation, provides comprehensive heating, ventilation and air conditioning ("HVAC") installation, maintenance, repair and replacement services within the mechanical services industry. We operate primarily in the commercial, industrial and institutional HVAC markets and perform most of our services within office buildings, retail centers, apartment complexes, manufacturing plants and healthcare, education and government facilities. In addition to standard HVAC services, we provide specialized applications such as building automation control systems, fire protection, process cooling, electronic monitoring and process piping. Certain locations also perform related activities such as electrical service and plumbing. Approximately ~~42%~~49% of our consolidated ~~2011~~2012 revenue is attributable to installation of systems in newly constructed facilities, with the remaining ~~58%~~51% attributable to maintenance, repair and replacement services. The following service activities account for our consolidated ~~2011~~2012 revenue: HVAC ~~74%~~73%, plumbing ~~16%~~18%, building automation control systems 4% and other 6%5%. These service activities are within the mechanical services industry which is the single industry segment we serve.

These interim statements should be read in conjunction with the historical Consolidated Financial Statements and related notes of Comfort Systems included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") for the year ended December 31, ~~2010~~2011 (the "Form 10-K").

The accompanying unaudited consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the SEC. Accordingly, these financial statements do not include all the footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Form 10-K. We believe all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, revenue and expenses and disclosures regarding contingent assets and liabilities. Actual results could differ from those estimates. The most significant estimates used in our financial statements affect revenue and cost recognition for construction contracts, the allowance for doubtful accounts, self-insurance accruals, deferred tax assets, warranty accruals, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing.

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

We are subject to income tax in the United States and Puerto Rico and we file a consolidated return for federal income tax purposes. Income taxes are provided for under the liability method, which takes into account differences between financial statement treatment and tax treatment of certain transactions.

Deferred income taxes are based on the difference between the financial reporting and tax basis of assets and liabilities. The deferred income tax provision represents the change during the reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets include tax loss and credit carry-forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We perform this evaluation each quarter. Estimations of required valuation allowances include estimates of future taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the activity underlying these assets becomes deductible. We consider projected future taxable income and tax planning strategies in making this assessment. If actual future taxable income is less than the estimates, we may not realize all or a portion of the recorded deferred tax assets.

Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions may be challenged and potentially disallowed. When facts and circumstances change, we adjust these reserves through our provision for income taxes.

To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense in our consolidated statements of operations.

For the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 our tax benefit ~~is $7,479~~was $1.1 million with an effective tax rate of ~~16.2%~~29.3% as compared to tax ~~expense~~benefit of ~~$4,164~~$3.7 million with an effective tax rate of ~~33.6%~~41.7% for the ~~nine~~three months ended ~~September 30, 2010.~~March 31, 2011. The effective tax rate in the current year was lower than the federal statutory rate primarily due to the impact of ~~a permanent difference related~~adjustments to ~~the portion of the goodwill impairment charge that is not deductible for~~ tax purposes and an increase in valuation allowances related to certain state net operating loss carryforwards. This was partially offset by permanent differences generated by acquisition related fair value adjustments.reserves. The effective tax rate in ~~2010~~2011 was ~~lower~~higher than the federal statutory rate due to ~~the release of certain valuation allowances during the second quarter of 2010.~~higher permanent differences not deductible for tax purposes relative to income. Tax reserves are analyzed and adjusted quarterly as events occur to warrant such changes. Adjustments to tax reserves are a component of the effective tax rate.

Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, notes to former owners and a revolving credit facility. We believe that the carrying values of these instruments on the accompanying balance sheets approximate their fair values.

Our activities are within the mechanical services industry which is the single industry segment we serve. Each operating subsidiary represents an operating segment and these segments have been aggregated, as the operating units meet all of the aggregation criteria.

Certain reclassifications have been made in prior period financial statements to conform to current period presentation. These reclassifications are of a normal and recurring nature and have not resulted in any changes to previously reported net income for any periods.

We classify and disclose assets and liabilities carried at fair value in one of the following three categories:

The following table summarizes the fair values and levels within the fair value hierarchy in which the fair value measurements fall for assets and liabilities measured on a recurring basis as of ~~September 30, 2011~~March 31, 2012 (in thousands):

Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. The original cost of these assets approximates fair value due to their short term maturity.

As of December 31, 2010, our marketable securities consisted of $2.0 million of auction rate securities, which are variable rate debt instruments, having long-term maturities (with final maturities up to June 2032). We ~~sold the entire $2.0 million of these auction rate securities (Level 2) during the first quarter of 2011 at face value.~~

~~The valuation of the Company's~~value contingent earn-out obligations ~~is determined~~ using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of 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. The contingent earn-out obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

The table below presents a reconciliation of the fair value of our contingent earn-out obligations that use significant unobservable inputs (Level 3). (in thousands):

We measure certain assets at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. ~~During the nine months ended September 30, 2011, we recorded a goodwill impairment charge of $55.1 million as discussed in Note 5 "Goodwill and Identifiable Intangible Assets, Net".~~ We did not recognize any ~~other~~ impairments on those assets required to be measured at fair value on a nonrecurring basis.

On November 2, 2011, we acquired a 60% majority interest in Environmental Air Systems, LLC ("EAS"). EAS is a regional mechanical contractor with principal offices in Greensboro and Raleigh,

~~On July 28, 2010, we entered into a stock purchase agreement to purchase all~~mechanical contracting projects, HVAC service and controls, and sophisticated prefabrication of mechanical systems, in North Carolina, South Carolina and throughout the issued and outstanding stock of ColonialWebb Contractors Company ("ColonialWebb"). ColonialWebb operates as a comprehensive, single-source construction, service, manufacturing and refrigeration service firm servicing the Mid-AtlanticAtlantic region. ~~ColonialWebb is headquartered in Richmond, Virginia with seven other locations.~~ The acquisition date fair value of consideration transferred was ~~$110.3~~$30.4 million, of which ~~$49.9~~$15.7 million was allocated to goodwill. See Note 5 "Goodwill and Identifiable Intangible Assets, ~~Net" for discussion~~Net." Our consolidated balance sheets include preliminary allocations of the ~~goodwill impairment~~purchase price to the assets acquired and liabilities assumed based on estimates of ~~ColonialWebb recorded during the third quarter~~fair value, pending completion of ~~2011.~~final valuation and purchase price adjustments.

We completed one acquisition in the first quarter of 2012 and one acquisition in the ~~third~~first quarter of 2011. ~~There were two acquisitions for the nine months ending September 30, 2010. These~~The 2012 and 2011 acquisitions were not material, individually or in the aggregate, and were "tucked-in" with existing operations. Our consolidated balance sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed based on estimates of fair value, pending completion of final valuation and purchase price adjustments. The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Additional contingent purchase price ("earn-out") has been or will be paid if certain acquisitions achieve predetermined profitability targets.

~~During~~The November 2011 EAS acquisition resulted in goodwill of approximately $15.7 million. We recorded a goodwill impairment charge of $55.1 million during the third quarter of 2011 and ~~prior to our annual~~an impairment ~~testing~~charge for $2.2 million in the fourth quarter of 2011. Based on ~~October 1,~~market activity declines and write-downs incurred on several jobs, we ~~concluded~~determined that ~~impairment indicators existed~~the operating environment, conditions and performance at four reporting units serving the Virginia, Maryland and North Carolina markets ~~including ColonialWebb, based upon year to date results and recent forecasts. Significant declines in year to date revenues and operating margins through~~could no longer support the ~~summer months when the demand for new installation and replacement services is generally higher caused us to revise our expectations in our financial models for these reporting units.~~

~~We performed a step one~~related goodwill ~~impairment test for these four reporting units and concluded that~~balance. When the carrying value ~~exceeded the~~of a given reporting unit exceeds its fair value, ~~for each of~~an impairment loss is recorded to the ~~units tested. Therefore, we commenced the required second step of the assessment for these four reporting units in which~~extent that the implied fair value of the goodwill ~~is compared to the book value~~ of the ~~goodwill. There~~reporting unit is less than its carrying value. The fair value was estimated using a ~~significant amount of~~discounted cash flow model combined with market valuation approaches.

work required to perform the second step of the impairment assessment and that work has not been completed as of the date of filing these financial statements. Our preliminary assessment is that the book value of each of the reporting units' goodwill exceeded the implied fair value. These reporting units had a total goodwill balance of $75.7 million. Our best estimate of the impairment is a $55.1 million non-cash goodwill impairment charge which we recorded during the third quarter of 2011. Any adjustments to this estimated goodwill impairment charge will be recognized in the fourth quarter of 2011.

There were no changes in our methodologies for valuing goodwill during the current year. The fair value of each reporting unit was estimated using a discounted cash flow model combined with market valuation approaches. We assigned a weighting of 50% to the discounted cash flow analysis, 50% to the public company approach and 0% to the transaction approach due to the lack of comparable market data. The material assumptions used for the income approach included a weighted average cost of capital of 13% and a long-term growth rate of 2-3%.

Under the income approach which is weighted 50%, a one percentage point increase in the discount rate and a one percentage point decrease in the long-term growth rate would have decreased the fair value of each of these reporting units ranging from $0.1 million to $1.8 million. Under the public company market approach which has a weighting of 50%, a 10% decrease in the market approach multiples would have decreased the fair value of each of these reporting units by $0.2 million to $2.5 million.

There are significant inherent uncertainties and management judgment involved in estimating the fair value of each reporting unit. While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, it is possible that a material change could occur. If actual results are not consistent with our current estimates and assumptions, or the current economic downturn worsens or the projected recovery is significantly delayed beyond our projections, goodwill impairment charges may be recorded in future periods.

During 2010, we recorded a goodwill impairment charge of $4.4 million during the second quarter and an impairment charge for $1.3 million in the fourth quarter. Based on market activity declines and write-downs incurred on several jobs, we determined that the operating environment, conditions and performance at our operating location based in Delaware could no longer support the related goodwill balance.

On September 23, 2011, we amended our $125.0 million senior credit facility (the "Facility") provided by a syndicate of banks. The Facility, which is available for borrowings and letters of credit, ~~now~~ expires in September 2016 and is secured by the capital stock of our current and future subsidiaries. As of ~~September 30, 2011,~~March 31, 2012, we had no outstanding borrowings, ~~$42.7~~$45.7 million in letters of credit outstanding, and ~~$82.3~~$79.3 million of credit available.

There are two interest rate options for borrowings under the Facility, the Base Rate Loan Option and the Eurodollar Rate Loan Option. These rates are floating rates determined by the broad financial markets, meaning they can and do move up and down from time to time. Additional margins are then added to these two rates.


	Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA			Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA
	Less than 0.75		0.75 to 1.25		1.25 to 2.00	2.00 to 2.50		2.50 or greater			Less than 0.75		0.75 to 1.25	1.25 to 2.00		2.00 to 2.50		2.50 or greater
Additional Per Annum Interest Margin Added Under:
Base Rate Loan Option	0.75	%		1.00	%	1.25	%		1.50	%		1.75	%	0.75	%		1.00	%	1.25	%	1.50	%	1.75	%
Eurodollar Rate Loan Option	1.75	%		2.00	%	2.25	%		2.50	%		2.75	%	1.75	%		2.00	%	2.25	%	2.50	%	2.75	%

We estimate that the interest rate applicable to the borrowings under the Facility would be approximately ~~2.3%~~2.5% as of ~~September 30, 2011.~~March 31, 2012.

We have used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the Facility for a fee. We have never had a claim made against a letter of credit that resulted in payments by a lender or by us and believe such claims are unlikely in the foreseeable future. The letter of credit fees range from 1.30% to 2.10% per annum, based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement.

Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. These fees range from 0.25% to 0.50% per annum, based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement.

The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end. Credit Facility Adjusted EBITDA is defined under the Facility for financial covenant purposes as net earnings for the four quarters ending as of any given quarterly covenant compliance measurement date, plus the corresponding amounts for (a) interest expense; (b) income taxes; (c) depreciation and amortization; (d) other non-cash charges and (e) pre-acquisition results of acquired companies.

~~The following is a reconciliation of Credit Facility Adjusted EBITDA to net income (in thousands):~~

Leverage Ratio—The Facility requires that the ratio of our Consolidated Total Indebtedness to our Credit Facility Adjusted EBITDA not exceed 3.00 through December 31, 2013, 2.75 through June 30, 2014 and 2.50 through maturity. The leverage ratio as of ~~September 30, 2011~~March 31, 2012 was ~~0.65.~~0.25.

Fixed Charge Coverage Ratio—The Facility requires that the ratio of Credit Facility Adjusted EBITDA, less non-financed capital expenditures, tax provision, dividends and amounts used to repurchase stock to the sum of interest expense and scheduled principal payments of indebtedness be at least 2.00; provided that the calculation of the fixed charge coverage ratio excludes stock repurchases and the payment of dividends at any time that the Company's Net Leverage Ratio does not exceed ~~2.0~~2.00 through December 31, 2013, ~~1.5~~1.50 through June 30, 2014 and ~~1.0~~1.00 through maturity. Capital expenditures, tax provision, dividends and stock repurchase payments are defined under the Facility for purposes of this covenant to be amounts for the four quarters ending as of any given quarterly covenant compliance measurement date. The fixed charge coverage ratio as of ~~September 30, 2011~~March 31, 2012 was ~~12.95.~~20.57.

Other Restrictions—The Facility permits acquisitions of up to $15.0 million per transaction, provided that the aggregate purchase price of such an acquisition and of acquisitions in the preceding 12 month period does not exceed $30.0 million. However, these limitations only apply when the Company's Net Leverage Ratio is equal to or greater than ~~2.0.~~2.00.

While the Facility's financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility's leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders.

We are in compliance with all of our financial covenants as of ~~September 30, 2011.~~March 31, 2012.

We issued subordinated notes to the former owners of acquired companies as part of the consideration used to acquire these companies. These notes had an outstanding balance of ~~$25.5~~$12.6 million as of ~~September 30, 2011,~~March 31, 2012, of which ~~$0.5~~$0.3 million is current, and bear interest, payable annually, at a weighted average interest rate of ~~3.3%~~3.24%.

In conjunction with our acquisition of ColonialWebb in 2010, we acquired long-term debt related to an industrial revenue bond associated with its office building and warehouse. The outstanding balance as of ~~September 30, 2011~~March 31, 2012 was $2.7 million, of which $0.3 million is current. The weighted average interest rate on this variable rate debt as of ~~September 30, 2011~~March 31, 2012 was approximately ~~0.5%~~0.25%.

We are subject to certain legal and regulatory claims, including lawsuits arising in the normal course of business. We maintain various insurance coverages to minimize financial risk associated with these claims. We have estimated and provided accruals for probable losses and related legal fees associated with certain litigation in the accompanying consolidated financial statements. ~~While we cannot predict the outcome of these proceedings,~~Although management currently believes that resolving claims against us, individually or in ~~management's opinion and based on reports of counsel, any liability arising from these matters individually and in the~~ aggregate, will not have a material ~~effect~~adverse impact on our operating results or financial condition, ~~after giving effect~~these matters are subject to ~~provisions already recorded.~~inherent uncertainties and management's view of these matters may change in the future.

In ~~addition to~~December 2011, we received a letter from Ferguson Enterprises, Inc. ("Ferguson"), a distributor of plumbing supplies and pipe, in which Ferguson stated that it had unintentionally supplied us with gaskets that were mislabeled by a former supplier as being non-asbestos. Ferguson currently states that we bought approximately 29,000 gaskets that might have been mislabeled. Ferguson further disclosed that four Ferguson customers had found asbestos in gaskets above the ~~matters described above, we had accrued $7.1 million~~1% level at which they can be classified as non-asbestos. No reasonable estimate of ~~June 30, 2011 for potential~~liability, if any, is possible at this time.

7. Commitments and asserted backcharges from several customers of our large multi-family operation based in Texas. During the third quarter of 2011, the Company reached an agreement related to certain backcharges, and this resulted in a $4.8 million payment and a $0.2 million recovery in the third quarter of 2011. The additions and reductions to the accrual are included in "Cost of Services."Contingencies (Continued)

~~The following summarizes the backcharge activity during the nine months ended September 30, 2011 (in thousands):~~

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and do not expect such losses to be incurred in the foreseeable future.

Surety market conditions remain challenging as a result of significant losses incurred by many sureties in recent periods, both in the construction industry as well as in certain larger corporate bankruptcies. As a result, less bonding capacity is available in the market and terms have become more restrictive. Further, under standard terms in the surety market, sureties issue bonds on a project-by-project basis, and can decline to issue bonds at any time. Historically, approximately 25% to 35% of our business has required bonds. While we have strong surety relationships to support our bonding needs, current market conditions as well as changes in the sureties' assessment of our operating and financial risk could cause the sureties to decline to issue bonds for our work. If that were

to occur, the alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics, including a significant amount of cash on our balance sheet, would enable us to ultimately respond effectively to an interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.

We are substantially self-insured for workers' compensation, employer's liability, auto liability, general liability and employee group health claims, in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages. Loss estimates associated with the larger and longer-developing risks, such as workers' compensation, auto liability and general liability, are reviewed by a third-party actuary quarterly.

Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during the ~~year.~~period. Diluted EPS is computed considering the dilutive effect of stock options and contingently issuable restricted stock.

The effect of 0.1 million and ~~0.2~~0.4 million of common stock equivalents have been excluded from the calculation of diluted EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and March 31, 2011, respectively, due to our net loss position in these periods. Assuming dilution, there were approximately 0.8 million and 0.7 million anti-dilutive stock options excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2011, respectively. There were approximately 0.7 million and 0.5 million of anti-dilutive stock options that were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2010, respectively.

respectively, due to our net loss position in these periods. Assuming dilution, there were approximately 0.7 million and 0.2 million anti-dilutive stock options excluded from the calculation of diluted EPS for the three months ended March 31, 2012 and March 31, 2011, respectively.

The following table reconciles the number of shares outstanding with the number of shares used in computing basic and diluted earnings per share for each of the periods presented (in thousands):

On March 29, 2007, our Board of Directors (the "Board") approved a stock repurchase program to acquire up to ~~one~~1.0 million shares of our outstanding common stock. As of ~~September 30, 2011,~~March 31, 2012, the Board has approved extensions of the program to acquire up to ~~5.6~~6.6 million shares.

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. We ~~repurchased 0.6 million~~did not repurchase any shares during the ~~nine~~three months ended ~~September 30, 2011 at an average price of $9.92 per share.~~March 31, 2012. Since the inception of the program in 2007 and as of ~~September 30, 2011,~~March 31, 2012, we have repurchased a cumulative total of ~~5.5~~5.6 million shares at an average price of ~~$11.00~~$10.97 per share.

In October 2011, the Company entered into an agreement to settle a legal matter. This settlement will result in the Company recognizing a gain of approximately $1.0 million in the fourth quarter of 2011. The cash settlement was received in October 2011.

On November 2, 2011, we acquired a 60% majority interest in Environmental Air Systems ("EAS"), headquartered in Greensboro, North Carolina. EAS had 2010 revenue of approximately $67.8 million and pre-tax income of approximately $1.9 million. The purchase price was approximately $30.0 million in cash. Further, the agreement includes a working capital adjustment based upon the balance sheet as of the acquisition date, as well as contingent consideration based upon future earnings.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical Consolidated Financial Statements and related notes thereto included elsewhere in this Form 10-Q and the Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, ~~2010~~2011 (the "Form 10-K"). This discussion contains "forward-looking statements" regarding our business and industry within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause our actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in "Item 1A. Company Risk Factors" included in our Form 10-K. The terms "Comfort Systems," "we," "us," or "the Company," refer to Comfort Systems USA, Inc. or Comfort Systems USA, Inc. and its consolidated subsidiaries, as appropriate in the context.

We are a national provider of comprehensive HVAC installation, maintenance, repair and replacement services within the mechanical services industry. We operate primarily in the commercial, industrial and institutional HVAC markets and perform most of our services within office buildings, retail centers, apartment complexes, manufacturing plants, and healthcare, education and government facilities. In addition to standard HVAC services, we provide specialized applications such as building automation control systems, fire protection, process cooling, electronic monitoring and process piping. Certain locations also perform related activities such as electrical service and plumbing.

Approximately ~~82%~~86% of our revenue is earned on a project basis for installation of HVAC systems in newly constructed facilities or for replacement of HVAC systems in existing facilities. Customers hire us to ensure such systems deliver specified or generally expected heating, cooling, conditioning and circulation of air in a facility. This entails installing core system equipment such as packaged heating and air conditioning units, or in the case of larger facilities, separate core components such as chillers, boilers, air handlers, and cooling towers. We also typically install connecting and distribution elements such as piping and ducting. Our responsibilities usually require conforming the systems to pre-established engineering drawings and equipment and performance specifications, which we frequently participate in establishing. Our project management responsibilities include staging equipment and materials to project sites, deploying labor to perform the work, and coordinating with other service providers on the project, including any subcontractors we might use to deliver our portion of the work.

When competing for project business, we usually estimate the costs we will incur on a project, and then propose a bid to the customer that includes a contract price and other performance and payment terms. Our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer, the risk that project costs or duration will vary from estimate, the schedule on which we will be paid, the opportunities for other work that we might forego by committing capacity to this project, and other costs that we incur more broadly to support our operations but which are not specific to the project. Typically customers will seek bids from competitors for a given project. While the criteria on which customers select the winning bid vary widely and include factors such as quality, technical expertise, on-time performance, post-project support and service, and company history and financial strength, we believe that price is the most influential factor for most customers in choosing an HVAC installation and service provider.

After a customer accepts our bid, we generally enter into a contract with the customer that specifies what we will deliver on the project, what our related responsibilities are, and how much and when we will be paid. Our overall price for the project is typically set at a fixed amount in the contract, although changes in project specifications or work conditions that result in unexpected additional work are usually subject to additional payment from the customer via what are commonly known as change orders. Project contracts typically provide for periodic billings to the customer as we meet progress milestones or incur cost on the project. Project contracts in our industry also frequently allow for a small portion of progress billings or contract price to be withheld by the customer until after we have completed the work, typically for six months. Amounts withheld under this practice are known as retention or retainage.

Labor and overhead costs account for the majority of our cost of service. Accordingly, labor management and utilization have the most impact on our project performance. Given the fixed price nature of much of our project work, if our initial estimate of project costs is wrong or we incur cost overruns that cannot be recovered in change orders, we can experience reduced profits or even significant losses on fixed price project work. We also perform some project work on a cost-plus or a time and materials basis, under which we are paid our costs incurred plus an agreed-upon profit margin. These margins are typically less than fixed-price contract margins because there is less risk of unrecoverable cost overruns in cost-plus or time and materials work.

Our average project takes six to nine months to complete, with an average contract price of approximately ~~$350,000.~~$444,000. We also perform larger HVAC projects. Generally, projects closer in size to $1 million will be completed in one year or less. It is unusual for us to work on a project that exceeds two years in length. Our projects generally require working capital funding of equipment and labor costs. Customer payments on periodic billings generally do not recover these costs until late in the job. Our average project duration together with typical retention terms as discussed above generally allow us to complete the realization of revenue and earnings in cash within one year. We have what we believe is a well-diversified distribution of revenue across end-use sectors that we believe reduces our exposure to negative developments in any given sector. Because of the integral nature of HVAC and related controls systems 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. The service work that we do, which is discussed further below, usually does not give rise to lien rights.

A stratification of projects in progress as of ~~September 30, 2011,~~March 31, 2012, by contract price, is as follows:

In addition to project work, approximately ~~18%~~14% of our revenue represents maintenance and repair service on already-installed HVAC and controls systems. This kind of work usually takes from a few hours to a few days to perform. Prices to the customer are usually based on the equipment and materials used in the service as well as technician labor time. We usually bill the customer for service work when it is complete, typically with payment terms of up to thirty days. We also provide

maintenance and repair service under ongoing contracts. Under these contracts, we are paid regular

monthly or quarterly amounts and provide specified service based on customer requirements. These agreements typically cover periods ranging from one to three years with thirty- to sixty-day cancellation notice periods.

A relatively small portion of our revenue comes from national and regional account customers. These customers typically have multiple sites, and contract with us to perform maintenance and repair service. These contracts may also provide for us to perform new or replacement systems installation. We operate a national call center to dispatch technicians to sites requiring service. We perform the majority of this work with our own employees, with the balance being subcontracted to third parties that meet our performance qualifications. We will also typically use proprietary information systems to maintain information on the customer's sites and equipment, including performance and service records, and related cost data. These systems track the status of ongoing service and installation work, and may also monitor system performance data. Under these contractual relationships, we usually provide consolidated billing and credit payment terms to the customer.

We manage our 37 operating units based on a variety of factors. Financial measures we emphasize include profitability, and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost, billings and receivables. We also monitor selling, general, administrative and indirect project support expense, backlog, workforce size and mix, growth in revenue and profits, variation of actual project cost from original estimate, and overall financial performance in comparison to budget and updated forecasts. Operational factors we emphasize include project selection, estimating, pricing, management and execution practices, labor utilization, safety, training, and the make-up of both existing backlog as well as new business being pursued, in terms of project size, technical application and facility type, end-use customers and industries, and location of the work.

Most of our operations compete on a local or regional basis. 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 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 compensation, and non-competition protection where applicable.

As an HVAC and building controls services provider, we operate in the broader nonresidential construction services industry and are affected by trends in this sector. While we do not have operations in all major cities of the United States, we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction 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, demographics, and the general fiscal condition of federal, state and local governments.

Spending decisions for building construction, renovation and system replacement are generally made on a project basis, usually with some degree of discretion as to when and if projects proceed. With larger amounts of capital, time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly concerns about economic and financial conditions and trends. We have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work.

Nonresidential building construction and renovation activity, as reported by the federal government, declined over the three year period of 2001 to 2003, expanded moderately during 2004 and 2005, and was strong over the three year period from 2006 to 2008. We experienced significant industry activity declines inover the three year period from 2009 ~~and 2010,~~to 2011, which have continued in ~~2011.~~2012. During the periods of decline, we responded to market challenges by pursuing work in sectors less affected by the downturn, such as government, educational, and healthcare facilities, and by establishing marketing initiatives that take advantage of our size and range of expertise. We also responded to declining gross profits over those years by reducing our selling, general, and administrative expenses, and our indirect project and service overhead costs. We believe our efforts in these areas partially offset the decline in our profitability over that period.

As a result of our continued strong emphasis on cash flow, ~~our debt outstanding under our revolving credit facility is zero,~~we currently have modest indebtedness and ~~we have a~~ significant ~~level of~~ uncommitted cash balances, as discussed further in "Liquidity and Capital Resources" below. We have a credit facility in place with considerably less restrictive terms than those of our previous facilities; this facility does not expire until September 2016. We have strong surety relationships to support our bonding needs, and we believe our relationships with the surety markets are positive in light of our strong current results and financial position. We have generated positive free cash flow in each of the last ~~twelve~~thirteen calendar years and will continue our emphasis in this area. We believe that the relative size and strength of our balance sheet and surety support as compared to most companies in our industry represent competitive advantages for us.

As discussed at greater length in "Results of Operations" below, we have seen declining activity levels in our industry since late 2008 and we expect price competition to continue to be strong, as local and regional competitors respond cautiously to changing conditions. We will continue our efforts to find the more active sectors in our markets, and to increase our regional and national account business. Our primary emphasis for ~~2011~~2012 will be on execution and cost control, and on maintaining activity levels that will permit us to earn reasonable profits while preserving our core workforce. We have increased our focus on project qualification, estimating, pricing and management, and on service performance.

Historically, the construction industry has been highly cyclical. As a result, our volume of business may be adversely affected by declines in new installation and replacement projects in various geographic regions of the United States during periods of economic weakness.

The HVAC industry is subject to seasonal variations. Specifically, the demand for new installation and replacement is generally lower during the winter months (the first quarter of the year) due to reduced construction activity during inclement weather and less use of air conditioning during the colder months. Demand for HVAC services is generally higher in the second and third calendar quarters due to increased construction activity and increased use of air conditioning during the warmer months. Accordingly, we expect our revenue and operating results generally will be lower in the first and fourth calendar quarters.

Our critical accounting policies are based upon the significance of the accounting policy to our overall financial statement presentation, as well as the complexity of the accounting policy and our use of estimates and subjective assessments. Our most critical accounting policy is revenue recognition. As discussed elsewhere in this quarterly report on Form 10-Q, our business has two service functions: (i) installation, which we account for under the percentage of completion method, and (ii) maintenance, repair and replacement, which we account for as the services are performed, or in the

case of replacement, under the percentage of completion method. In addition, we identified other

critical accounting policies related to our allowance for doubtful accounts receivable, the recording of our self-insurance liabilities, valuation of deferred tax assets, accounting for acquisitions and the recoverability of goodwill and identifiable intangible assets. These accounting policies, as well as others, are described as follows and in Note 2 to the Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q.

Approximately ~~82%~~86% of our revenue was earned on a project basis and recognized through the percentage of completion method of accounting. Under this method contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs. More specifically, as part of the negotiation and bidding process in which we engage in connection with obtaining installation contracts, we estimate our contract costs, which include all direct materials (exclusive of rebates), labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in our results of operations under the caption "Cost of Services." Then, as we perform under those contracts, we measure costs incurred, compare them to total estimated costs to complete the contract, and recognize a corresponding proportion of contract revenue. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed, but is generally subjected to approval as to milestones or other evidence of completion. Non-labor project costs consist of purchased equipment, prefabricated materials and other materials. Purchased equipment on our projects is substantially produced to job specifications and is a value added element to our work. The costs are considered to be incurred when title is transferred to us, which typically is upon delivery to the worksite. Prefabricated materials, such as ductwork and piping, are generally performed at our shops and recognized as contract costs when fabricated for the unique specifications of the job. Other materials cost are not significant and are generally recorded when delivered to the worksite. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments.

We generally do not incur significant costs prior to receiving a contract, and therefore, these costs are expensed as incurred. In limited circumstances, when significant pre-contract costs are incurred, they are deferred if the costs can be directly associated with a specific contract and if their recoverability from the contract is probable. Upon receiving the contract, these costs are included in contract costs. Deferred costs associated with unsuccessful contract bids are written off in the period that we are informed that we will not be awarded the contract.

Project contracts typically provide for a schedule of billings or invoices to the customer based on reaching agreed-upon milestones or as we incur costs. The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually do differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings to the customer under the contract are reflected as a current asset in our balance sheet under the caption "Costs and estimated earnings in excess of billings." Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in our balance sheet under the caption "Billings in excess of costs and estimated earnings."

The percentage of completion method of accounting is also affected by changes in job performance, job conditions, and final contract settlements. These factors may result in revisions to estimated costs and, therefore, revenue. Such revisions are frequently based on further estimates and

subjective assessments. The effects of these revisions are recognized in the period in which revisions are

determined. When such revisions lead to a conclusion that a loss will be recognized on a contract, the full amount of the estimated ultimate loss is recognized in the period such conclusion is reached, regardless of the percentage of completion of the contract.

Revisions to project costs and conditions can give rise to change orders under which the customer agrees to pay additional contract price. Revisions can also result in claims we might make against the customer to recover project variances that have not been satisfactorily addressed through change orders with the customer. Except in certain circumstances, we do not recognize revenue or margin based on change orders or claims until they have been agreed upon with the customer. The amount of revenue associated with unapproved change orders and claims is currently immaterial. Variations from estimated project costs could have a significant impact on our operating results, depending on project size, and the recoverability of the variation via additional customer payments.

We are required to estimate the collectability of accounts receivable and provide an allowance for doubtful accounts for receivable amounts we believe we will not ultimately collect. This requires us to make certain judgments and estimates involving, among others, the creditworthiness of our customers, prior collection history with our customers, ongoing relationships with our customers, the aging of past due balances, our lien rights, if any, in the property where we performed the work, and the availability, if any, of payment bonds applicable to the contract. These estimates are evaluated and adjusted as needed when additional information is received.

We are substantially self-insured for workers' compensation, employer's liability, auto liability, general liability and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages. Loss estimates associated with the larger and longer-developing risks—workers' compensation, auto liability and general liability—are reviewed by a third party actuary quarterly. We believe these accruals are adequate. However, insurance liabilities are difficult to estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, timely reporting of occurrences, ongoing treatment or loss mitigation, general trends in litigation recovery outcomes and the effectiveness of safety and risk management programs. Therefore, if actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the period that such experience becomes known.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We perform this evaluation quarterly. Estimations of required valuation allowances include estimates of future taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the activity underlying these assets becomes deductible. We consider projected future taxable income and tax planning strategies in making this assessment. If actual future taxable income is less than the estimates, we may not realize all or a portion of the recorded deferred tax assets.

We generally recognize assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, based on fair value estimates as of the date of acquisition.

Contingent Consideration—In certain acquisitions, we agree to pay additional amounts to sellers contingent upon achievement by the acquired businesses of certain predetermined profitability targets. ~~For acquisitions completed beginning in 2009, we~~We have recognized liabilities for these contingent obligations based on their estimated fair value at the date of acquisition with any differences between the acquisition-date fair value and the ultimate settlement of the obligations being recognized in income from operations. ~~For acquisitions completed before 2009, these obligations are recognized as incurred and accounted for as an adjustment to the initial purchase price of the acquired assets.~~

Contingent Assets and Liabilities—Assets and liabilities arising from contingencies are recognized at their acquisition date fair value when their respective fair values can be determined. If the fair values of such contingencies cannot be determined, they are recognized at the acquisition date if the contingencies are probable and an amount can be reasonably estimated. Acquisition date fair value estimates are revised as necessary if, and when, additional information regarding these contingencies becomes available to further define and quantify assets acquired and liabilities assumed.

Goodwill is the excess of purchase ~~cost~~price over the fair value of the net assets of acquired businesses. ~~We do not amortize goodwill.~~ We assess goodwill for impairment each year, and more frequently if circumstances suggest an impairment may have occurred.

When the carrying value of a given ~~business~~reporting unit exceeds its fair value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the ~~business~~reporting unit is less than its carrying value. If other ~~business~~reporting units have had increases in fair value, such increases may not be recorded. Accordingly, such increases may not be netted against impairments at other ~~business~~reporting units. The requirements for assessing whether goodwill has been impaired involve market-based information. This information, and its use in assessing goodwill, entails some degree of subjective assessment.

We currently perform our annual impairment testing as of October 1 and any impairment charges resulting from this process are reported in the fourth quarter. We segregate our operations into reporting units based on the degree of operating and financial independence of each unit and our related management of them. We perform our annual goodwill impairment testing at the reporting unit level. ~~These~~

In the evaluation of goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of one of our reporting units ~~are tested for impairment by comparing each unit's~~is greater than its carrying value. If, after completing such assessment, we determine it is more likely than not that the fair value toof a reporting unit is greater than its carrying ~~value.~~amount, then there is no need to perform any further testing. If we conclude otherwise, then we perform the first step of a two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit.

We estimate the fair value of the reporting unit based on two market approaches and an income approach, which utilizes discounted future cash flows. Assumptions critical to the fair value estimates under the discounted cash flow model include discount rates, cash flow projections, projected long-term growth rates and the determination of terminal values. The market approaches utilized market multiples of invested capital from comparable publicly traded companies ("public company approach") and comparable transactions ("transaction approach"). The market multiples from invested capital include ~~revenue,~~revenues, book equity plus debt and earnings before interest, taxes, depreciation and amortization ("EBITDA"). ~~These assumptions are evaluated and updated on an annual basis.~~

We amortize identifiable intangible assets with finite lives over their useful lives. Changes in strategy and/or market condition may result in adjustments to recorded intangible asset balances or their useful lives.

We had 3938 operating locations as of December 31, ~~2010.~~2011. During the first quarter of ~~2011,~~2012, we consolidated ~~two companies~~one company into other operations. As of ~~September 30, 2011,~~March 31, 2012, we had 37 operating locations. Acquisitions are included in our results of operations from the respective acquisition date. The same-store comparison from ~~2011~~2012 to ~~2010,~~2011, as described below, excludes the results of ~~ColonialWebb,~~EAS, in which ~~was~~we acquired a 60% interest in ~~July 2010,~~November 2011, for the ~~nine~~three months ended ~~September 30, 2011 and for the two months ended September 30, 2010.~~March 31, 2012.

Revenue—Revenue increased ~~$20.5~~$47.4 million, or ~~6.7%~~16.8%, to ~~$328.1~~$329.4 million for the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010.~~2011. The increase included a ~~5.1%~~9.0% increase in revenue related to ~~the~~ same-store activity as well as a ~~1.6%~~7.8% increase from the acquisition of ~~ColonialWebb.~~EAS. The same-store revenue increase is primarily from the manufacturing sector (approximately ~~$9.8~~$23.6 million)~~. We have seen increased activity, primarily in our Maryland operations.~~ and results from a large, short duration data center project at ColonialWebb. During the ~~third~~first quarter of ~~2011, ColonialWebb~~2012, EAS contributed revenue of approximately ~~$43.6~~$22.1 million.

Revenue increased $128.6 million, or 16.2%, to $922.3 million for the first nine months of 2011 compared to the same period in 2010. The increase included a 5.2% increase in revenue related to the same-store activity as well as a 11.0% increase from the acquisition of ColonialWebb. The same-store revenue increase is primarily from the manufacturing sector (approximately $15.8 million) and the office buildings sector (approximately $13.5 million). We have seen increased activity, primarily in our Maryland operations. During the first nine months of 2011, ColonialWebb contributed revenue of approximately $126.3 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. Service agreement revenue and service work and short duration projects which are generally billed as performed do not flow through backlog. 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.

Backlog as of ~~September 30, 2011~~March 31, 2012 was ~~$636.1~~$622.0 million, a ~~2.4% increase~~1.8% decrease from ~~June 30,~~December 31, 2011 backlog of ~~$621.2~~$633.2 million, and ~~remained flat with September 30, 2010~~a 0.4% increase from March 31, 2011 backlog of ~~$635.8~~$619.5 million. ~~On a same-store basis,~~Sequential backlog decreased ~~3.5% from September 30, 2010. The sequential increase in backlog~~ primarily ~~relates~~related to ColonialWebb. The year-over-year increase due to the EAS acquisition was 6.5%. This increase was offset by a same-store backlog decrease ~~was~~of 6.1% primarily ~~related~~due to our ~~Delaware and Virginia~~Maryland operations.

Following the three-year period of industry activity declines from 2001-2003 noted previously, we saw modest year-over-year revenue increases at our ongoing operations beginning in mid-2003 and continuing throughout 2008. We experienced significant industry activity declines in 2009 ~~and 2010,~~through 2011, which have continued in ~~2011.~~2012. Based on our backlog and forecasts from industry construction analysts, we expect that activity levels in our industry are likely to remain flat over the next twelve months, particularly in the area of new construction.

We continue to experience a noticeable amount of price competition in our markets, which restrains our ability to profitably increase revenue.

Gross Profit—Gross profit ~~decreased $1.2~~increased $8.5 million, or ~~2.4%~~24.9%, to ~~$49.1~~$42.7 million for the ~~third~~first quarter of ~~2011~~2012 as compared to the same period in ~~2010.~~2011. The ~~decrease~~increase included ~~a $2.6~~an $8.7 million, or ~~5.8%~~25.5%, ~~decrease~~increase in gross profit on a same-store basis offset by a ~~$7.6~~$0.2 million, or ~~15.1%~~0.6%, ~~increase~~decrease related to the acquisition of ~~ColonialWebb.~~EAS. The $0.2 million loss at the gross profit level for EAS resulted from underperformance on certain jobs offset by adjustments for contractual reimbursement for gross margin fade on projects in process at closing. As a percentage of revenue, gross profit ~~decreased~~increased from ~~16.4%~~12.1% in ~~2010~~2011 to ~~15.0%~~13.0% in ~~2011.~~2012. The quarter over quarter ~~decrease~~increase in gross profit percentage ~~resulted from job write-downs combined with lower profitability at our Maryland operations (approximately $2.7 million).~~

Gross profit decreased $1.0 million, or 0.7%, to $130.8 million for the first nine months of 2011 as compared to the same period in 2010. The decrease included a $15.4 million, or 12.2%, decrease in gross profit on a same-store basis offset by a $20.6 million, or 15.7%, increase related to the acquisition of ColonialWebb. As a percentage of revenue, gross profit decreased from 16.6% in 2010 to 14.2% in 2011. The year-over-year decrease in gross profit percentage resultedis primarily ~~from a difficult pricing environment. The largest decline was at our Maryland operation (approximately $11.3 million) which was impacted by job write-downs combined with lower profitability~~ due to ~~a difficult pricing environment. We also had~~ job ~~write-downs~~underperformance at our Southern Alabama ~~operation~~operations in the prior year (approximately ~~$4.0~~$2.5 million)~~, which~~.

During the current quarter, we recognized a job write-down on a project that has been ~~consolidated into a neighboring operation~~accelerated by the owner. The additional costs associated with this acceleration exceeded $3 million. The costs associated with the acceleration have been reflected in the ~~Florida Panhandle.~~estimated costs of the project but no additional contract price has been considered although we are pursuing a claim.

Selling, General and Administrative Expenses ("SG&A")—SG&A ~~decreased $0.4~~increased $3.7 million, or ~~0.9%~~8.8%, to ~~$41.5~~$46.4 million for the ~~third~~first quarter of ~~2011~~2012 as compared to ~~2010.~~2011. On a same-store basis, excluding amortization expense, SG&A ~~decreased $1.6~~increased $2.1 million, or ~~4.6%~~5.2%. The ~~decrease~~increase is primarily due to ~~overhead reductions and lower~~higher compensation accruals. Amortization expense ~~remained flat at $1.6 million.~~increased $0.4 million due to the EAS acquisition in late 2011. As a percentage of revenue, SG&A decreased from ~~13.6%~~15.1% in ~~2010~~2011 to ~~12.6%~~14.1% in ~~2011.~~2012.

SG&A increased $11.1 million, or 9.7%, to $126.0 million for the first nine months of 2011 as compared to 2010. On a same-store basis, excluding amortization expense, SG&A decreased $5.3 million, or 5.0%. The decrease is primarily due to overhead reductions and lower compensation accruals. Amortization expense increased $1.3 million, or 39.0%, primarily related to the ColonialWebb acquisition in 2010. As a percentage of revenue, SG&A decreased from 14.5% in 2010 to 13.7% in 2011.

We have included SG&A on a same-store basis, excluding amortization, because we believe it is an effective measure of comparative results of operations prior to factoring in charges incurred for recent acquisitions. However, SG&A, excluding amortization, is not considered under generally accepted accounting principles to be a primary measure of an entity's financial results, and accordingly, should not be considered an alternative to SG&A as shown in our consolidated statements of operations.

~~Goodwill Impairment~~—We performed a step one goodwill impairment test for four of our reporting units and concluded that the carrying value exceeded the fair value for each of the units tested. Therefore, we commenced the required second step of the assessment for these four reporting units in which the implied fair value of the goodwill is compared to the book value of the goodwill. There is a significant amount of work required to perform the second step of the impairment assessment and that work has not been completed as of the date of filing these financial statements. Our preliminary assessment is that the book value of each of the reporting units' goodwill exceeded the implied fair value. These reporting units had a total goodwill balance of $75.7 million. Our best estimate of the impairment is a $55.1 million non-cash goodwill impairment charge which we recorded during the third quarter of 2011. Any adjustments to this estimated goodwill impairment charge will be recognized in the fourth quarter of 2011.

~~Changes in the fair value of contingent earn-out obligations~~—Changes in the fair value of contingent earn-out obligations was $5.1 million for the third quarter as compared to $0.6 million in the prior year. The increase relates to updated fair value measurements based on estimated future cash flows.

Changes in the fair value of contingent earn-out obligations was $5.6 million for the first nine months of 2011 as compared to $0.7 million in the same period of the prior year. The increase relates to updated fair value measurements based on estimated future cash flows.

Income Tax Expense—For the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 our tax benefit is ~~$7,479~~$1.1 million with an effective tax rate of ~~16.2%~~29.3% as compared to tax ~~expense~~benefit of ~~$4,164~~$3.7 million with an effective tax rate of ~~33.6%~~41.7% for the ~~nine~~three months ended ~~September 30, 2010.~~March 31, 2011. The effective tax rate in the current year was lower than the federal statutory rate primarily due to the impact of ~~a permanent difference related~~adjustments to ~~the portion of the goodwill impairment charge that is not deductible for~~ tax purposes and an increase in valuation allowances related to certain state net operating loss carryforwards. This was partially offset by permanent differences generated by acquisition related fair value adjustments.reserves. The effective tax rate in ~~2010~~2011 was ~~lower~~higher than the federal statutory rate due to ~~the release of certain valuation allowances during the second quarter of 2010.~~higher permanent differences not deductible for tax purposes relative to income. Tax reserves are analyzed and adjusted

quarterly as events occur to warrant such changes. Adjustments to tax reserves are a component of the effective tax rate. We currently estimate our annual effective tax rate for ~~2011~~2012 will be between ~~15%~~38% and ~~25%~~48%.

We expect that weakness in the underlying environment for nonresidential construction activity will continue to adversely impact activity levels in our industry induring 2012. Our backlog, while still at solid levels by historical standards, declined substantially through early ~~2011~~2010 and has ~~stabilized recently, although at lower levels.~~been relatively stable since early 2011. Our primary emphasis for the remainder of ~~2011 and for~~ 2012 will be on execution, including a focus on cost controls and efficient project and service performance at the unit level. Based on our backlog, and despite weak economic conditions for our industry, we ~~continue to expect to be profitable in 2011 and we~~ currently expect modest levels of profitability ~~to continue throughout~~in 2012.

Our business does not require significant amounts of investment in long-term fixed assets. The substantial majority of the capital used in our business is working capital that funds our costs of labor and installed equipment deployed in project work until our customer pays us. Customary terms in our

industry allow customers to withhold a small portion of the contract price until after we have completed the work, typically for six months. Amounts withheld under this practice are known as retention or retainage. Our average project duration together with typical retention terms generally allow us to complete the realization of revenue and earnings in cash within one year.

Cash Used in Operating Activities—Cash ~~provided by operating activities during the third quarter of 2011 was $1.5 million compared with $3.8 million of cash~~ used ~~for operating activities during 2010. The increase~~ in ~~cash provided by operations primarily relates to a $1.2 million cash inflow from working capital.~~

~~Cash used for~~ operating activities during the first ~~nine months~~quarter of ~~2011~~2012 was ~~$22.0~~$19.8 million compared with ~~$14.5~~$19.1 million during ~~2010.~~2011. The ~~$7.5~~$0.7 million ~~incremental use of~~increase in cash isused in operations primarily ~~due~~relates to ~~a $7.4 million investment~~cash outflow from working capital offset by higher profitability in ~~working capital.~~2012 compared to 2011.

Cash Used in Investing Activities—During the ~~third~~first quarter of ~~2011,~~2012, cash used for investing activities was ~~$2.6~~$1.7 million compared with ~~$39.2 million during 2010. The most significant item affecting the comparison of our investing cash flows for these quarters primarily related to the acquisition of ColonialWebb in 2010.~~

~~During~~ the first ~~nine months~~quarter of 2011 at $1.9 million. The $0.2 million decrease in cash used primarily relates to cash paid for ~~investing activities was $6.3 million compared with $40.4 million during 2010. The additional cash used for investing activities~~acquisitions, offset by the sale of marketable securities in ~~2010 was primarily related to the acquisition of ColonialWebb.~~2011.

Cash Used in Financing Activities—Cash used for financing activities was ~~$5.3~~$1.9 million for the ~~third~~first quarter of ~~2011~~2012 compared to ~~$20.0~~$1.8 million during ~~2010.~~2011. The most significant item affecting the

comparison of our financing cash flows for these quarters ~~primarily related to payments on other long-term debt.~~

Cash used for financing activities was $14.4 million for the first nine months of 2011 compared to $28.3 million during 2010. The most significant item affecting the comparison of our financing cash flows for these periods primarily related to payments on other long-term debt.

Free Cash Flow—We define free cash flow as cash provided by operating activities, less customary capital expenditures, plus the proceeds from asset ~~sales and taxes paid related to pre-acquisition equity.~~sales. We believe free cash flow, by encompassing both profit margins and the use of working capital over our approximately one year working capital cycle, is an effective measure of operating effectiveness and efficiency. We have included free cash flow information here for this reason, and because we are often asked about it by third parties evaluating us. However, free cash flow is not considered under generally accepted accounting principles to be a primary measure of an entity's financial results, and accordingly free cash flow should not be considered an alternative to operating income, net income, or amounts shown in our consolidated statements of cash flows as determined under generally accepted accounting principles. Free cash flow may be defined differently by other companies.

As of December 31, 2010, our marketable securities consisted of $2.0 million of auction rate securities, which are variable rate debt instruments, having long-term maturities (with final maturities up to June 2032). We sold the entire $2.0 million of these auction rate securities at face value during the first quarter of 2011.

InOn March 29, 2007, our Board of Directors (the "Board") approved a stock repurchase program to acquire up to ~~one~~1.0 million shares of our outstanding common stock. As of ~~September 30, 2011,~~March 31, 2012, the Board has approved extensions of the program to acquire up to ~~5.6~~6.6 million shares.


	Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA			Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA
	Less than 0.75		0.75 to 1.25		1.25 to 2.00	2.00 to 2.50		2.50 or greater			Less than 0.75		0.75 to 1.25	1.25 to 2.00		2.00 to 2.50		2.50 or greater
Additional Per Annum Interest Margin Added Under:
Base Rate Loan Option	0.75	%		1.00	%	1.25	%		1.50	%		1.75	%	0.75	%		1.00	%	1.25	%	1.50	%	1.75	%
Eurodollar Rate Loan Option	1.75	%		2.00	%	2.25	%		2.50	%		2.75	%	1.75	%		2.00	%	2.25	%	2.50	%	2.75	%

We estimate that the interest rate applicable to the borrowings under the Facility would be approximately ~~2.3%~~2.5% as of ~~September 30, 2011.~~March 31, 2012.

~~(d) other non-cash charges and (e) pre-acquisition results of acquired companies. The following is a reconciliation of Credit Facility Adjusted EBITDA to net income (in thousands):~~

Leverage Ratio—The Facility requires that the ratio of our Consolidated Total Indebtedness to our Credit Facility Adjusted EBITDA not exceed ~~3.0~~3.00 through December 31, 2013, 2.75 through June 30, 2014 and 2.50 through maturity. The leverage ratio as of ~~September 30, 2011~~March 31, 2012 was ~~0.65.~~0.25.

We are in compliance with all of our financial covenants as of ~~September 30, 2011.~~March 31, 2012.

We issued subordinated notes to the former owners of acquired companies as part of the consideration used to acquire these companies. These notes had an outstanding balance of ~~$25.5~~$12.6 million as of March 31, 2012, of which ~~$0.5~~$0.3 million is current, ~~as of September 30, 2011. These notes~~and bear interest, payable annually, at a weighted average interest rate of ~~3.3%~~3.24%.

In conjunction with our acquisition of ColonialWebb in 2010, we acquired long-term debt related to an industrial revenue bond associated with its office building and warehouse. The outstanding

balance as of ~~September 30, 2011~~March 31, 2012 was $2.7 million, of which $0.3 million is current. The weighted average interest rate on this variable rate debt as of ~~September 30, 2011~~March 31, 2012 was approximately ~~0.5%~~0.25%.

We have generated positive net free cash flow for the last ~~twelve~~thirteen calendar years, much of which occurred during challenging economic and industry conditions. We also expect to have significant borrowing capacity under our credit facility and we ~~continue to maintain a significant level of uncommitted cash balances.~~currently have modest indebtedness. We believe these factors will provide us with sufficient liquidity to fund our operations for the foreseeable future.

As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our most significant off-balance sheet transactions include liabilities associated with noncancelable operating leases. We also have other off-balance sheet obligations involving letters of credit and surety guarantees.

We enter into noncancelable operating leases for many of our facility, vehicle and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for use of facilities, vehicles and equipment rather than purchasing them. At the end of the lease, we have no further obligation to the lessor. If we decide to cancel or terminate a lease before the end of its term, we would typically owe the lessor the remaining lease payments under the term of the lease.

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. The letters of credit we provide are actually issued by our lenders through the Facility as described above. A letter of credit commits the lenders to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the lenders. Depending on the circumstances of such a reimbursement, we may also have to record a charge to earnings for the reimbursement. Absent a claim, there is no payment or reserving of funds by us in connection with a letter of credit. However, because a claim on a letter of credit would require immediate reimbursement by us to our lenders, letters of credit are treated as a use of the Facility's capacity just the same as actual borrowings. Claims against letters of credit are rare in our industry. To date we have not had a claim made against a letter of credit that resulted in payments by a lender or by us. We believe that it is unlikely that we will have to fund claims under a letter of credit in the foreseeable future.

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the sureties for any expenses or outlays they incur. To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and we do not expect such losses to be incurred in the foreseeable future.

Surety market conditions are currently challenging as a result of significant losses incurred by many sureties in recent periods, both in the construction industry as well as in certain larger corporate bankruptcies. As a result, less bonding capacity is available in the market and terms have become more restrictive. Further, under standard terms in the surety market, sureties issue bonds on a project-by-project basis, and can decline to issue bonds at any time. Historically, approximately 25% to 35% of our business has required bonds. While we have strong surety relationships to support our

bonding needs, current market conditions as well as changes in our sureties' assessment of our operating and financial risk could cause our sureties to decline to issue bonds for our work. If that

were to occur, our alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics, including a significant amount of cash on our balance sheet, would enable us to ultimately respond effectively to an interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.

The following recaps the future maturities of our contractual obligations as of ~~September 30, 2011~~March 31, 2012 (in thousands):

Absent any significant commitments of capital for items such as capital expenditures, acquisitions, dividends and share repurchases, it is reasonable to expect us to continue to maintain excess cash on our balance sheet. Therefore, we assumed that we would continue our current status of not utilizing any borrowings under our revolving credit facility.

As of ~~September 30, 2011,~~March 31, 2012, we have ~~$42.7~~$45.7 million in letter of credit commitments, of which ~~$40.0~~$40.4 million will expire in ~~2011~~2012 and ~~$8.7~~$5.3 million will expire in ~~2012.~~2013. The substantial majority of these letters of credit are posted with insurers who disburse funds on our behalf in connection with our workers' compensation, auto liability and general liability insurance program. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ever encounter financial duress. Posting of letters of credit for this purpose is a common practice for entities that manage their self-insurance programs through third-party insurers as we do. While most of these letter of credit commitments expire in ~~2011,~~2012, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.

Other than the operating lease obligations noted above, we have no significant purchase or operating commitments outside of commitments to deliver equipment and provide labor in the ordinary course of performing project work.

We are exposed to market risk primarily related to potential adverse changes in interest rates as discussed below. We are actively involved in monitoring exposure to market risk and continue to develop and utilize appropriate risk management techniques. We are not exposed to any other significant financial market risks including commodity price risk, foreign currency exchange risk or interest rate risks from the use of derivative financial instruments. We do not use derivative financial instruments.

We have limited exposure to changes in interest rates under our revolving credit facility, the notes to former owners and the industrial revenue bond. We have a debt facility under which we may borrow

funds in the future. We do not currently foresee any borrowing needs. Our debt with fixed interest rates consists of notes to former owners of acquired companies.

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 ~~September 30, 2011:~~March 31, 2012:


	Twelve Months Ended September 30,						Twelve Months Ended March 31,
	2012		2013		2014	2015		2016		Thereafter		Fair Value		2013		2014		2015	2016		2017		Thereafter		Fair Value
Fixed Rate Debt	$	510		$	12,569	$	12,400		$	—		$	—	$	—		$	25,479		$	332		$	300		$	11,949	$	—		$	—	$	—	$	12,581
Average Interest Rate	3.5	%		3.3	%	3.2	%		—		—		—	3.3	%		3.0	%	3.0	%		3.3	%		—		—	—		3.24	%
Variable Rate Debt	$	300		$	300	$	300		$	300		$	300	$	1,200		$	2,700		$	300		$	300		$	300	$	300		$	300	$	1,200	$	2,700

The weighted average interest rate on the variable rate debt as of ~~September 30, 2011~~March 31, 2012 was approximately ~~0.5%~~0.25%.

We measure certain assets at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. We did not recognize any impairments on those assets required to be measured at fair value on a nonrecurring basis.

The valuation of ~~the Company's~~our contingent 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 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.

Our executive management is responsible for ensuring the effectiveness of the design and operation of our disclosure controls and procedures. We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective as of the end of the period covered by this report.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended ~~September 30, 2011~~March 31, 2012 that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

We are subject to certain claims and lawsuits arising in the normal course of business. We maintain various insurance coverages to minimize financial risk associated with these claims. We have estimated and provided accruals for probable losses and related legal fees associated with certain of our litigation in our consolidated financial statements. ~~While we cannot predict the outcome of these proceedings,~~Although management currently believes that resolving claims against us, individually or in ~~our opinion and based on reports of counsel, any liability arising from these matters individually and in the~~ aggregate, will not have a material ~~effect~~adverse impact on our operating results or financial condition, ~~after giving effect~~these matters are subject to ~~provisions already recorded.~~inherent uncertainties and management's view of these matters may change in the future.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, "Item 1A. Company Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

During the quarter ended ~~September 30, 2011,~~March 31, 2012, we purchased our common shares in the following amounts at the following average prices:

Under our restricted share plan, employees may elect to have us withhold common shares to satisfy minimum statutory federal, state and local tax withholding obligations arising on the vesting of restricted stock awards and exercise of options. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the common shares by us on the date of withholding.

During the three months ended ~~September 30, 2011,~~March 31, 2012, we withheld common shares to satisfy these tax withholding obligations as follows:


	~~10.1~~3.1		~~Amendment No. 1 to Second~~ Amended and Restated ~~Credit~~Bylaws of Comfort Systems USA, Inc. (incorporated by reference to Exhibit 3.1 to the Company's current report on Form 8-K filed on March 26, 2012).
	*10.1		Summary of 2012 Incentive Compensation Plan.
	*10.2		Form of 2012 Restricted Stock Unit Agreement ~~Second Amended and Restated Security~~(incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on March 30, 2012).
	*10.3		Form of 2012 Dollar-denominated Performance Vesting Restricted Stock Unit Agreement ~~and Second Amended and Restated Pledge Agreement.~~(incorporated by reference to Exhibit 10.2 to the Company's current report on Form 8-K filed on March 30, 2012).
	31.1		~~Rule 13a-14(a)~~ Certification of ~~William F. Murdy~~Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		~~Rule 13a-14(a)~~ Certification of ~~William George~~Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		~~Section 1350~~ Certification of ~~William F. Murdy~~Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		~~Section 1350~~ Certification of ~~William George~~Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	**101.INS		XBRL Instance Document
	**101.SCH		XBRL Taxonomy Extension Schema Document
	**101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
	**101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
	**101.LAB		XBRL Taxonomy Extension Label Linkbase Document
	**101.PRE		XBRL Taxonomy Extension Presentation Linkbase

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~September 30, 2011~~March 31, 2012
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o


Balance at beginning of year	Balance at beginning of year	$	7,466		$	2,488
	Issuances		—
	Settlements		—
	Adjustments to fair value		(5,566	)
Issuances						—
Settlements						—
Adjustments to fair value						30

Balance at end of period	Balance at end of period	$	1,900		$	2,518

			September 30, 2011					December 31, 2010						March 31, 2012					December 31, 2011

		Estimated Useful Lives in Years	Gross Book Value		Accumulated Amortization			Gross Book Value		Accumulated Amortization			Estimated Useful Lives in Years	Gross Book Value		Accumulated Amortization			Gross Book Value		Accumulated Amortization
Customer relationships	Customer relationships	2 - 15	$	27,451	$	(8,695	)	$	25,948	$	(5,378	)	2 - 15	$	36,366	$	(11,320	)	$	36,351	$	(9,880	)
Backlog	Backlog	1 - 2		4,790		(4,639	)		4,740		(4,253	)	1 - 2		5,890		(5,195	)		5,890		(4,999	)
Noncompete agreements	Noncompete agreements	2 - 7		3,500		(2,190	)		3,490		(1,710	)	2 - 7		2,890		(2,048	)		2,890		(1,932	)
Tradenames	Tradenames	2 - 25		19,570		(3,688	)		19,570		(2,791	)	2 - 25		23,370		(3,669	)		23,370		(3,341	)

Total														$	68,516	$	(22,232	)	$	68,501	$	(20,152	)
	Total		$	55,311	$	(19,212	)	$	53,748	$	(14,132	)

		September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011

Revolving credit facility	Revolving credit facility	$	—		$	—		$	—		$	—
Other debt	Other debt		2,700			3,000			2,700			2,700
Notes to former owners	Notes to former owners		25,479			26,936			12,581			12,681

Total debt									15,281			15,381
Less—current portion									(632	)		(632	)
	Total debt		28,179			29,936
Total long-term portion of debt								$	14,649		$	14,749
	Less—current portion		(810	)		(1,267	)

	Total long-term portion of debt	$	27,369		$	28,669


DELAWARE (State or other jurisdiction of Incorporation or Organization)		76-0526487 (I.R.S. Employer Identification No.)
675 Bering Drive Suite 400 Houston, Texas 77057 (Address of Principal Executive Offices) (Zip Code)

				Three Months Ended September 30,						Nine Months Ended September 30,

				2011			2010			2011			2010
REVENUE				$	328,113		$	307,648		$	922,320		$	793,711
COST OF SERVICES					279,005			257,339			791,493			661,929

			Gross profit		49,108			50,309			130,827			131,782
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES					41,493			41,885			126,043			114,905
GOODWILL IMPAIRMENT					55,134			—			55,134			4,446
GAIN ON SALE OF ASSETS					(58	)		(29	)		(162	)		(502	)

			Operating income (loss)		(47,461	)		8,453			(50,188	)		12,933
OTHER INCOME (EXPENSE):
	Interest income				16			39			65			183
	Interest expense				(478	)		(832	)		(1,431	)		(1,406	)
	Changes in the fair value of contingent earn-out obligations				5,077			650			5,566			650
	Other				(16	)		19			(68	)		25

			Other income (expense)		4,599			(124	)		4,132			(548	)

INCOME (LOSS) BEFORE INCOME TAXES					(42,862	)		8,329			(46,056	)		12,385
INCOME TAX EXPENSE (BENEFIT)					(6,293	)		2,919			(7,479	)		4,164

INCOME (LOSS) FROM CONTINUING OPERATIONS					(36,569	)		5,410			(38,577	)		8,221
GAIN (LOSS) ON DISPOSITION OF DISCONTINUED OPERATION, NET OF INCOME TAX EXPENSE OF $—, $195, $— AND $166					—			(39	)		—			723

NET INCOME (LOSS)				$	(36,569	)	$	5,371		$	(38,577	)	$	8,944

INCOME (LOSS) PER SHARE:
	Basic—
		Income (loss) from continuing operations		$	(0.98	)	$	0.14		$	(1.03	)	$	0.22
		Gain on disposition of discontinued operation			—			—			—			0.02

		Net income (loss)		$	(0.98	)	$	0.14		$	(1.03	)	$	0.24

	Diluted—
		Income (loss) from continuing operations		$	(0.98	)	$	0.14		$	(1.03	)	$	0.22
		Gain on disposition of discontinued operation			—			—			—			0.02

		Net income (loss)		$	(0.98	)	$	0.14		$	(1.03	)	$	0.24

SHARES USED IN COMPUTING INCOME PER SHARE:
	Basic				37,325			37,560			37,496			37,564

	Diluted				37,325			37,794			37,496			37,821

DIVIDENDS PER SHARE				$	0.050		$	0.050		$	0.150		$	0.150

							STOCKHOLDERS' EQUITY

							Common Stock				Treasury Stock									Accumulated Other Comprehensive Income (Loss)
				Comprehensive Income (Loss)			Common Stock				Treasury Stock						Additional Paid-In Capital						Retained Earnings (Deficit)			Total Stockholders' Equity
				Comprehensive Income (Loss)			Shares		Amount		Shares			Amount			Additional Paid-In Capital						Retained Earnings (Deficit)			Total Stockholders' Equity
BALANCE AT DECEMBER 31, 2009								41,123,365	$	411		(3,129,460	)	$	(33,810	)	$	326,103		$	(181	)	$	13,461		$	305,984
	Comprehensive income:
			Net income	$	14,740			—		—		—			—			—			—			14,740			14,740
			Realized gain on marketable securities reclassified into earnings, net of tax		181			—		—		—			—			—			181			—			181

			Comprehensive income	$	14,921

	Issuance of Stock:
		Issuance of shares for options exercised including tax benefit						—		—		183,686			1,982			(875	)		—			—			1,107
		Issuance of restricted stock						—		—		235,122			2,864			(2,614	)		—			—			250
	Shares received in lieu of tax withholding payment on vested restricted stock							—		—		(50,575	)		(616	)		—			—			—			(616	)
	Tax benefit from vesting of restricted stock							—		—		—			—			106			—			—			106
	Forfeiture of unvested restricted stock							—		—		(5,610	)		(60	)		60			—			—			—
	Stock-based compensation expense							—		—		—			—			3,687			—			—			3,687
	Dividends							—		—		—			—			—			—			(7,581	)		(7,581	)
	Share repurchase							—		—		(454,938	)		(5,074	)		—			—			—			(5,074	)

BALANCE AT DECEMBER 31, 2010								41,123,365		411		(3,221,775	)		(34,714	)		326,467			—			20,620			312,784
	Comprehensive income (loss):
			Net loss (unaudited)	$	(38,577	)		—		—		—			—			—			—			(38,577	)		(38,577	)

	Issuance of Stock:
		Issuance of shares for options exercised including tax benefit (unaudited)						—		—		51,950			559			(188	)		—			—			371
		Issuance of restricted stock (unaudited)						—		—		230,702			2,488			(2,488	)		—			—			—
	Shares received in lieu of tax withholding payment on vested restricted stock (unaudited)							—		—		(49,911	)		(654	)		—			—			—			(654	)
	Tax benefit from vesting of restricted stock (unaudited)							—		—		—			—			54			��			—			54
	Stock-based compensation expense (unaudited)							—		—		—			—			2,672			—			—			2,672
	Dividends (unaudited)							—		—		—			—			(1,900	)		—			(3,781	)		(5,681	)
	Share repurchase (unaudited)							—		—		(637,439	)		(6,321	)		—			—			—			(6,321	)

BALANCE AT SEPTEMBER 30, 2011 (unaudited)								41,123,365	$	411		(3,626,473	)	$	(38,642	)	$	324,617		$	—		$	(21,738	)	$	264,648

			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using

	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	43,692	$	43,692	$	—	$	—	$	27,873	$27,873	$	—	$—
Contingent earn-out obligations	$	1,900	$	—	$	—	$	1,900	$	2,518	$—	$	—	$2,518

	September 30, 2011			December 31, 2010			March 31, 2012		December 31, 2011

Balance at beginning of year	$	147,818		$	100,194
Balance at beginning of period							$	107,093	$	147,818
Additions		956			53,358			—		16,629
Impairment adjustment		(55,134	)		(5,734	)		—		(57,354	)

Balance at end of period	$	93,640		$	147,818		$	107,093	$	107,093


Net loss	$	(32,781	)
Interest expense, net		1,649
Income taxes—continuing operations		(5,283	)
Depreciation and amortization expense		19,788
Stock compensation expense		3,768
Goodwill impairment		56,422
Pre-acquisition results of acquired companies, as defined in the credit agreement		—

Credit Facility Adjusted EBITDA	$	43,563


Balance at December 31, 2010		$	6,489
	Additions		600
	Cash payments, net of recovery		(4,593	)
	Non-cash reduction		(2,496	)

Balance at September 30, 2011		$	—

	Three Months Ended March 31,

	2012		2011
Common shares outstanding, end of period(a)		36,965		37,543
Effect of using weighted average common shares outstanding		91		(6	)

Shares used in computing earnings per share—basic		37,056		37,537
Effect of shares issuable under stock option plans based on the treasury stock method		—		—
Effect of contingently issuable restricted stock		—		—

Shares used in computing earnings per share—diluted		37,056		37,537

Contract Price of Project		Aggregate Contract Price Value (millions)			Aggregate Contract Price Value (millions)

Under $1 million	4,979	$	1,294	3,915	$	330.1
$1 million - $5 million	172		311	264		600.2
$5 million - $10 million	39		102	67		453.7
$10 million - $15 million	16		39	16		191.4
Greater than $15 million	5		81	13		321.4

Total	5,211	$	1,827	4,275	$	1,896.8

Period		Average Price Paid Per Share

July 1 - July 30	—	$	—	5,224,539	375,998
August 1 - August 31	159,488	$	9.51	5,384,027	216,510
September 1 - September 30	120,459	$	9.07	5,504,486	96,051

	279,947	$	9.32	5,504,486	96,051


	COMFORT SYSTEMS USA, INC.
~~November 7, 2011~~May 2, 2012	By:	/s/ ~~WILLIAM F. MURDY~~BRIAN E. LANE ~~William F. Murdy~~Brian E. Lane ~~Chairman of the Board and~~President, Chief Executive Officer and Director
~~November 7, 2011~~May 2, 2012	By:	/s/ WILLIAM GEORGE William George Executive Vice President and Chief Financial Officer
~~November 7, 2011~~May 2, 2012	By:	/s/ JULIE S. SHAEFF Julie S. Shaeff Senior Vice President and Chief Accounting Officer

Period		Average Price Paid Per Share

January 1 - January 31	—	$	—	5,605,637	994,900
February 1 - February 29	—	$	—	5,605,637	994,900
March 1 - March 31	—	$	—	5,605,637	994,900

	—	$	—	5,605,637	994,900

Period	Number of Shares Purchased		Average Price Paid Per Share

~~July~~January 1 - ~~July~~January 31	$	—	$	—
~~August~~February 1 - ~~August 31~~February 29		—		—
~~September~~March 1 - ~~September 30~~March 31		—		—

	$	—	$	—