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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-13011

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

<Table>

DELAWARE 76-0526487
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</Table>

777 POST OAK BOULEVARD
SUITE 500
HOUSTON, TEXAS 77056
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code:
(713) 830-9600

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 [X] No [ ]

The number of shares outstanding of the issuer's common stock, as of August
10, 2001, was 37,380,773.

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2

COMFORT SYSTEMS USA, INC.

INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001

<Table>
<Caption>
PAGE
----

PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
COMFORT SYSTEMS USA, INC.
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.......... 12
Item 3 -- Quantitative and Qualitative Disclosures about
Market Risk............................................ 16

PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings............................... 17
Item 2 -- Recent Sales of Unregistered Securities......... 17
Item 6 -- Exhibits and Reports on Form 8-K................ 17
Item 9 -- Changes and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 17
Signature................................................. 18
</Table>

i
3

COMFORT SYSTEMS USA, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
DECEMBER 31, JUNE 30,
2000 2001
------------ -----------
(UNAUDITED)

ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 16,021 $ 17,152
Accounts receivable, less allowance of $6,789 and
$8,549................................................. 334,152 325,839
Other receivables......................................... 5,879 4,978
Inventories............................................... 19,399 18,957
Prepaid expenses and other................................ 10,568 8,885
Costs and estimated earnings in excess of billings........ 44,078 46,618
Net assets held for sale.................................. 3,197 2,086
-------- --------
Total current assets.............................. 433,294 424,515
PROPERTY AND EQUIPMENT, net................................. 40,085 37,193
GOODWILL, less accumulated amortization of $32,904 and
$38,728................................................... 450,493 444,469
OTHER NONCURRENT ASSETS..................................... 2,538 3,018
-------- --------
Total assets...................................... $926,410 $909,195
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 216 $ 107
Current maturities of notes to affiliates and former
owners................................................. 8,850 6,067
Accounts payable.......................................... 114,613 110,253
Accrued compensation and benefits......................... 40,880 37,850
Billings in excess of costs and estimated earnings........ 68,574 79,775
Other current liabilities................................. 26,942 30,393
-------- --------
Total current liabilities......................... 260,075 264,445
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 224,111 200,344
NOTES TO AFFILIATES AND FORMER OWNERS, NET OF CURRENT
MATURITIES................................................ 41,424 38,067
DEFERRED INCOME TAXES....................................... -- 952
OTHER LONG-TERM LIABILITIES................................. 561 566
-------- --------
Total liabilities................................. 526,171 504,374
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 5,000,000 shares authorized,
none issued and outstanding............................ -- --
Common stock, $.01 par, 102,969,912 shares authorized,
39,258,913 shares issued............................... 393 393
Treasury stock, at cost, 2,002,629 and 1,878,140 shares,
respectively........................................... (13,119) (11,728)
Additional paid-in capital................................ 341,923 340,723
Retained earnings......................................... 71,042 75,433
-------- --------
Total stockholders' equity........................ 400,239 404,821
-------- --------
Total liabilities and stockholders' equity........ $926,410 $909,195
======== ========
</Table>

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

1
4

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------

REVENUES......................................... $404,970 $392,141 $767,536 $760,269
COST OF SERVICES................................. 334,332 323,070 626,031 627,301
-------- -------- -------- --------
Gross profit........................... 70,638 69,071 141,505 132,968
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 56,333 53,001 111,161 105,495
GOODWILL AMORTIZATION............................ 3,149 3,021 6,332 6,042
RESTRUCTURING CHARGES............................ 354 -- 354 238
-------- -------- -------- --------
Operating income....................... 10,802 13,049 23,658 21,193
OTHER INCOME (EXPENSE):
Interest income................................ 207 24 378 68
Interest expense............................... (6,681) (6,476) (12,778) (12,705)
Other.......................................... (12) 230 90 374
-------- -------- -------- --------
Other income (expense)................. (6,486) (6,222) (12,310) (12,263)
-------- -------- -------- --------
REDUCTIONS IN NON-OPERATING ASSETS AND
LIABILITIES, NET............................... (5,190) -- (5,190) --
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES................ (874) 6,827 6,158 8,930
INCOME TAX EXPENSE............................... 31 3,536 3,055 4,539
-------- -------- -------- --------
NET INCOME (LOSS)................................ $ (905) $ 3,291 $ 3,103 $ 4,391
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Basic.......................................... $ (0.02) $ 0.09 $ 0.08 $ 0.12
======== ======== ======== ========
Diluted........................................ $ (0.02) $ 0.09 $ 0.08 $ 0.12
======== ======== ======== ========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
SHARE:
Basic.......................................... 37,496 37,381 37,528 37,383
======== ======== ======== ========
Diluted........................................ 37,496 37,431 37,538 37,389
======== ======== ======== ========
</Table>

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

2
5

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
COMMON STOCK TREASURY STOCK ADDITIONAL TOTAL
------------------- --------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- ---------- -------- -------------

BALANCE AT DECEMBER 31, 1999...... 39,258,913 $393 (1,695,524) $(11,978) $342,655 $87,895 $418,965
Issuance of Common Stock:
Issuance of Employee Stock
Purchase Plan shares........ -- -- 329,212 2,254 (732) -- 1,522
Common Stock repurchases........ -- -- (175,513) (1,224) -- -- (1,224)
Shares exchanged in repayment of
notes receivable.............. -- -- (385,996) (1,975) -- -- (1,975)
Shares received from sale of
businesses.................... -- -- (74,808) (196) -- -- (196)
Net loss........................ -- -- -- -- -- (16,853) (16,853)
---------- ---- ---------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2000...... 39,258,913 393 (2,002,629) (13,119) 341,923 71,042 400,239
Issuance of Common Stock:
Issuance of Employee Stock
Purchase Plan shares
(unaudited)............... -- -- 269,481 1,766 (1,200) -- 566
Shares received from sale of
businesses (unaudited)........ -- -- (144,992) (375) -- -- (375)
Net income (unaudited).......... -- -- -- -- -- 4,391 4,391
---------- ---- ---------- -------- -------- -------- --------
BALANCE AT JUNE 30, 2001
(unaudited)..................... 39,258,913 $393 (1,878,140) $(11,728) $340,723 $75,433 $404,821
========== ==== ========== ======== ======== ======== ========
</Table>

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

3
6

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 2001
----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,103 $ 4,391
Adjustments to reconcile net income to net cash provided
by operating activities --
Restructuring charges.................................. 354 238
Depreciation and amortization expense.................. 12,191 11,942
Bad debt expense....................................... 1,875 2,783
Deferred tax expense................................... 203 2,449
Gain on sale of property and equipment................. (156) (129)
Reduction in non-operating assets and liabilities,
net................................................... 5,190 --
Changes in operating assets and liabilities --
(Increase) decrease in --
Receivables, net.................................. (40,570) 6,069
Inventories....................................... 194 112
Prepaid expenses and other current assets......... 4,649 1,075
Costs and estimated earnings in excess of
billings........................................ 1,898 (1,834)
Other noncurrent assets........................... 927 (1,069)
Increase (decrease) in --
Accounts payable and accrued liabilities.......... 10,559 (4,839)
Billings in excess of costs and estimated
earnings........................................ 17,605 11,229
Other, net........................................ (524) (411)
--------- ---------
Net cash provided by operating activities....... 17,498 32,006
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (9,430) (3,148)
Proceeds from sales of property and equipment............. 485 354
Proceeds from businesses sold............................. -- 954
--------- ---------
Net cash used in investing activities........... (8,945) (1,840)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................ (148,519) (130,310)
Borrowings of long-term debt.............................. 145,666 100,709
Proceeds from issuance of common stock.................... 762 566
Repurchases of common stock............................... (1,224) --
--------- ---------
Net cash used in financing activities........... (3,315) (29,035)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 5,238 1,131
CASH AND CASH EQUIVALENTS, beginning of period.............. 3,664 16,021
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 8,902 $ 17,152
========= =========
</Table>

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

4
7

COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)

1. BUSINESS AND ORGANIZATION:

Comfort Systems USA, Inc., a Delaware corporation ("Comfort Systems" and
collectively with its subsidiaries, the "Company"), is a leading national
provider of comprehensive heating, ventilation and air conditioning ("HVAC")
installation, maintenance, repair and replacement services. The Company operates
primarily in the commercial and industrial HVAC markets, and performs most of
its services within manufacturing plants, office buildings, retail centers,
apartment complexes, and healthcare, education and government facilities. In
addition to standard HVAC services, the Company provides specialized
applications such as process cooling, building automation control systems,
electronic monitoring and process piping. Certain locations also perform related
services such as electrical and plumbing.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

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 for the year ended December 31, 2000 (the "Form 10-K").

There were no significant changes in the accounting policies of the Company
during the periods presented. For a description of the significant accounting
policies of the Company, refer to Note 2 of Notes to Consolidated Financial
Statements of Comfort Systems included in 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.
Accordingly, these financial statements do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Form 10-K. The
Company believes 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 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,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash Flow Information

Cash paid for interest for the six months ended June 30, 2000 and 2001 was
approximately $11.9 million and $11.6 million, respectively. Cash paid for
income taxes for the six months ended June 30, 2000 and 2001 was approximately
$10.8 million and $2.1 million, respectively.

Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria
for recording intangible assets other than goodwill in connection with business
combinations. SFAS No. 142 requires companies to assess goodwill assets for
impairment each year, and more frequently if circumstances suggest an

5
8
COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impairment may have occurred. SFAS No. 142 also introduces a more stringent
framework for assessing goodwill impairment than the approach required under
existing rules. In addition, SFAS No. 142 discontinues the regular charge, or
amortization, of goodwill assets against income.

SFAS No. 141 is effective immediately. SFAS No. 142 is effective for the
Company beginning January 1, 2002 and early adoption is not allowed for calendar
year companies. Any impairment loss recognized in accordance with SFAS No. 142
will be shown as the cumulative effect of a change in accounting principle in
the Company's income statement. Under this treatment, the Company's income
statement would show after-tax results of operations both with and without the
cumulative effect of the change in accounting principle recognizing an
impairment.

The Company is currently reviewing these new accounting standards. Under
existing standards, the Company recognizes a non-cash charge of approximately $3
million per quarter in its income statement to amortize its goodwill assets over
40-year lives. This amortization will be discontinued beginning on January 1,
2002 under the new standards. In connection with this change, the Company also
expects it will report a lower effective tax rate, since the portion of goodwill
amortization that is nondeductible for tax purposes has been the principal item
resulting in the excess of the Company's effective tax rate in its income
statement over statutory tax rates.

The new requirements for assessing whether these goodwill assets have been
impaired involve market-based information that may change prior to the new
rules' effective date of January 1, 2002, and as noted above, early adoption is
not allowed for the Company. As a result, the Company cannot yet determine
whether it will have to recognize a goodwill impairment when the new rules
become effective. However, based on a preliminary review of the new standards,
and based on currently available information, the Company believes it is likely
that it will have to record a non-cash goodwill impairment charge, and that the
amount of that charge will be significant in relation to the Company's
unamortized goodwill balance, which is expected to be approximately $438 million
at December 31, 2001. If such a charge is necessary, the Company anticipates it
would be recorded in the first quarter of 2002 when the new standards become
effective. As noted above, if an impairment charge is recorded upon transition
to the new standards, it will be reflected as the cumulative effect of a change
in accounting principle.

The Company has specifically provided for the possibility of a non-cash
goodwill impairment charge in its lending agreements with its banks, and
accordingly expects no impact on its current bank credit facility if recognition
of such an impairment charge becomes necessary.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires entities to
recognize all derivative instruments (including certain derivative instruments
embedded in other contracts) as assets or liabilities in its balance sheet and
measure them at fair value. The statement requires that changes in the
derivatives' fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company adopted this standard effective
January 1, 2001 and there was no impact as the Company does not currently hold
or trade derivative instruments.

Reclassifications

Certain reclassifications have been made in prior period financial
statements to conform to current period presentation.

6
9
COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. RESTRUCTURING CHARGES:

During the first quarter of 2001, the Company recorded restructuring
charges of approximately $0.2 million, primarily related to contractual
severance obligations of two operating presidents in connection with the
Company's significant restructuring program undertaken in the second half of
2000. These restructuring charges are net of a gain of approximately $0.1
million related to management's decision to sell a small operation during the
first quarter of 2001.

During the second quarter of 2000, the Company recorded restructuring
charges of approximately $0.4 million, primarily in connection with severance
costs related to the departure of the Company's former chief executive officer.
During the remainder of fiscal 2000, the Company recorded restructuring charges
of approximately $24.9 million primarily associated with restructuring efforts
at certain underperforming operations and its decision to cease its e-commerce
activities at Outbound Services, a subsidiary of the Company. As announced by
the Company in the third quarter of 2000, management performed an extensive
review of its operations during the second half of 2000. As part of this review,
management decided to cease operating at three locations, sell five operations
(including two smaller satellite operations), and merge two companies into other
operations. These actions are substantially complete except that the Company is
seeking buyers for two operations it is holding for sale. The Company
anticipates that these operations will be sold during 2001. The restructuring
charges were primarily non-cash and included goodwill impairments of
approximately $11.5 million and the writedown of other long-lived assets of
approximately $8.5 million. The remaining restructuring items primarily include
severance and lease termination costs.

Severance costs recorded in 2000 and 2001 relate to the termination of 147
employees (all of these employees had been terminated as of June 30, 2001)
including certain corporate personnel and the management and employees of
certain underperforming locations, and to the departure of the Company's former
chief executive officer. The following table shows the remaining liabilities
associated with the cash portion of the restructuring charges as of June 30,
2001 (in thousands):

<Table>
<Caption>
BALANCE AT BALANCE AT
JANUARY 1, JUNE 30,
2001 ADDITIONS PAYMENTS 2001
---------- --------- -------- ----------

Severance.................................... $1,218 $350 $ (873) $ 695
Lease termination costs and other............ 2,312 -- (1,267) 1,045
------ ---- ------- ------
Total.............................. $3,530 $350 $(2,140) $1,740
====== ==== ======= ======
</Table>

Aggregated financial information related to the operations addressed by
restructuring is as follows (in thousands):

<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
-----------------
2000 2001
------- -------

Revenues.................................................... $31,033 $ 6,636
Operating loss.............................................. $(9,125) $(1,719)
</Table>

As of June 30, 2001, net assets held for sale are comprised of the following (in
thousands):

<Table>

Current assets (primarily accounts receivable).............. $ 4,053
Long-term assets............................................ 3
Current liabilities (primarily accounts payable and billings
in excess of costs and estimated earnings)................ (1,951)
Long-term liabilities....................................... (19)
-------
Total............................................. $ 2,086
=======
</Table>

7
10
COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The restructuring charges recorded in fiscal 2000 associated with the
operations that were held for sale at June 30, 2001 were $3.7 million and
primarily related to impairments of goodwill and other long-lived assets based
upon the estimated proceeds from the anticipated sale of these operations.

4. REDUCTIONS IN NON-OPERATING ASSETS AND LIABILITIES, NET:

During the quarter ended June 30, 2000, the Company recorded a non-cash
charge of approximately $5.2 million primarily related to the impairment of
certain non-operating assets, principally notes receivable from former owners of
businesses acquired by the Company. In addition, the Company recorded an
impairment of approximately $0.8 million to its minority investment in two
entities associated with the distribution and implementation of high-end
engineering and design software. The Company also recorded a gain of
approximately $0.6 million on the reduction of its subordinated note payable to
a former owner in connection with the settlement of claims with this former
owner.

5. LONG-TERM DEBT OBLIGATIONS:

Long-term debt obligations consist of the following (in thousands):

<Table>
<Caption>
DECEMBER 31, JUNE 30,
2000 2001
------------ -----------
(UNAUDITED)

Revolving credit facility................................... $223,700 $200,000
Notes to affiliates and former owners....................... 50,274 44,134
Other....................................................... 627 451
-------- --------
Total debt........................................ 274,601 244,585
Less: current maturities.......................... 9,066 6,174
-------- --------
$265,535 $238,411
======== ========
</Table>

Revolving Credit Facility

The Company amended its revolving credit facility (the "Credit Facility" or
the "Facility") provided by Bank One, Texas, N.A. ("Bank One") and other banks
(the "Bank Group") in March 2001. As amended, the Credit Facility provides the
Company with a revolving line of credit of up to the lesser of $270 million or
80% of net accounts receivable. The Facility decreases to the lesser of $250
million or 80% of net accounts receivable as of December 31, 2001, and to the
lesser of $240 million or 80% of net accounts receivable as of June 30, 2002.
Borrowings under the Facility are secured by accounts receivable, inventory,
fixed assets other than real estate, and the shares of capital stock of the
Company's subsidiaries. The Credit Facility expires on January 1, 2003, at which
time all amounts outstanding are due.

The Company has a choice of two interest rate options under the Facility.
Under one option, the interest rate is determined based on the higher of the
Federal Funds Rate plus 0.5% or Bank One's prime rate. An additional margin of
1% to 2% is then added to the higher of these two rates. Under the other
interest rate option, borrowings bear interest based on designated short-term
Eurodollar rates (which generally approximate London Interbank Offered Rates or
"LIBOR") plus 2.5% to 3.5%. The additional margin for both options depends on
the ratio of the Company's debt to earnings before interest, taxes, depreciation
and amortization ("EBITDA"), as defined. Commitment fees of 0.375% to 0.5% per
annum, also depending on the ratio of debt to EBITDA, are payable on the unused
portion of the Facility.

8
11
COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the maintenance of certain levels of shareholder equity and EBITDA, and for the
maintenance of certain ratios of the Company's EBITDA to interest expense and
debt to EBITDA.

Under the terms of the Credit Facility that were in effect as of June 30
and September 30, 2000, the Company was in violation of certain of the
Facility's financial balance and ratio requirements. The Bank Group waived these
violations. The Facility's current restrictions and financial balance and ratio
requirements generally reflect tighter restrictions, greater specificity and
smaller allowable variances on most financial balances and ratios than is
typical for such agreements due to the Company's weaker results in 2000. The
Facility's current requirements also call for higher levels of EBITDA and lower
ratios of debt to EBITDA in the second half of this year than the Company has
achieved in recent quarters. While management believes its restructuring efforts
and operating strategies along with general market conditions in the
commercial/industrial HVAC and building automation controls industry will enable
the Company to meet the Facility's requirements, there can be no assurance that
the Company will be successful in doing so. Management intends to seek more
flexible terms under its borrowing relationships as its results and credit
market conditions allow.

As of June 30, 2001, the Company had $200.0 million in borrowings
outstanding under the Credit Facility and had incurred interest expense at an
average rate of approximately 9.1% per annum for the first six months of 2001.
The Credit Facility's interest rate terms as summarized above are effective as
of March 22, 2001 and currently result in an all-in floating interest rate under
the Facility's LIBOR option of approximately 7.7%. As of June 30, 2001, the
Company also had $2.3 million in letters of credit outstanding under the
Facility, and unused borrowing capacity under the Facility of $63.5 million. As
of August 10, 2001, $205.0 million in borrowings and $2.3 million in letters of
credit were outstanding under the Facility, and $58.5 million in unused capacity
was available.

Notes to Affiliates and Former Owners

Subordinated notes were issued to former owners of certain purchased
companies as part of the consideration used to acquire their companies. These
notes had an outstanding balance of $44.1 million as of June 30, 2001. These
notes bear interest, payable quarterly, at a weighted average interest rate of
9.73%. In addition, $0.6 million of these notes are convertible by the holders
into shares of the Company's common stock ("Common Stock") at a weighted average
price of $24.25 per share.

As a result of the Company's covenant violations in 2000 under the Credit
Facility, the Bank Group required that originally scheduled principal payments
to subordinate debt holders be suspended. This requirement took effect in
October 2000. The holders of the Company's subordinate debt generally must wait
one year from any payment defaults to pursue collection remedies against the
Company. In March 2001, the Company entered into amended agreements with
subordinate debt holders representing $46.3 million in principal, including all
the principal originally scheduled to be paid through 2001. These amended
agreements allow for partial payments against certain originally scheduled
payment amounts, defer remaining principal balances to April 2003, and increase
the interest rate on this debt to 10% per annum, payable quarterly. Under these
amended agreements, $6.4 million of principal has been paid from April 1, 2001
to August 10, 2001. The amended agreements also cured all defaults that arose
from the suspension of principal payments to subordinate debt holders that began
in October 2000. As a result of these amended agreements, the Company's annual
maturities of subordinate debt are now $3.1 million for the remainder of 2001,
$3.6 million in 2002, and $37.4 million in 2003.

Other Long-Term Obligation Disclosures

The Company anticipates that available borrowings under its Credit Facility
and cash flow from operations will be sufficient to meet the Company's normal
working capital and capital expenditure needs. As noted above, the Company has
agreed to relatively tight restrictions under the Credit Facility. If the
Company
9
12
COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

violates any of these restrictions, it will be required to negotiate new terms
with its banks. There can be no assurance that in that event, the Company will
receive satisfactory new terms from its banks, or that if the Company needs
additional financing, that such financing can be secured when needed or on terms
the Company deems acceptable.

6. COMMITMENTS AND CONTINGENCIES:

Claims and Lawsuits

The Company is party to litigation in the ordinary course of business.
There are currently no pending legal proceedings that, in management's opinion,
would have a material adverse effect on the Company's operating results or
financial condition. The Company has provided accruals for probable losses and
related legal fees associated with certain of these actions in the accompanying
consolidated financial statements.

Self-Insurance

The Company retains the risk for worker's compensation, employer's
liability, auto liability, general liability and employee group health claims
resulting from uninsured deductibles per accident or occurrence. Losses up to
the deductible amounts are accrued based upon the Company's known claims
incurred and an estimate of claims incurred but not reported. The accruals are
based upon known facts and historical trends, and management believes such
accruals to be adequate. A wholly owned insurance company subsidiary reinsures a
portion of the risk associated with surety bonds issued by a third party
insurance company. Because no claims have been made against these financial
instruments in the past, management does not expect these instruments will have
a material effect on the Company's consolidated financial statements.

7. STOCKHOLDERS' EQUITY:

Treasury Stock

On October 5, 1999, the Company announced that its Board of Directors had
approved a share repurchase program authorizing the Company to buy up to 4.0
million shares of its Common Stock. During 1999, the Company purchased
approximately 1.8 million shares at a cost of approximately $12.9 million.
During 2000, the Company purchased approximately 0.2 million shares at a cost of
approximately $1.2 million. Under the current terms of the Credit Facility, the
Company is prohibited from purchasing additional shares of its Common Stock.

Restricted Common Stock

In March 1997, Notre Capital Ventures II, L.L.C. exchanged 2,742,912 shares
of Common Stock for an equal number of shares of restricted voting common stock
("Restricted Voting Common Stock"). The holders of Restricted Voting Common
Stock are entitled to elect one member of the Company's Board of Directors and
0.55 of one vote for each share on all other matters on which they are entitled
to vote. Holders of Restricted Voting Common Stock are not entitled to vote on
the election of any other directors.

Each share of Restricted Voting Common Stock will automatically convert to
Common Stock on a share-for-share basis (i) in the event of a disposition of
such share of Restricted Voting Common Stock by the holder thereof (other than a
distribution which is a distribution by a holder to its partners or beneficial
owners, or a transfer to a related party of such holders (as defined in Sections
267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986, as amended)),
(ii) in the event any person acquires beneficial ownership of 15% or more of the
total number of outstanding shares of Common Stock of the Company, or (iii) in
the event any person offers to acquire 15% or more of the total number of
outstanding shares of Common Stock of the Company. After July 1, 1998, the Board
of Directors may elect to convert any remaining shares of Restricted Voting
Common Stock into shares of Common Stock in the event 80% or more of the
originally

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COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding shares of Restricted Voting Common Stock have been previously
converted into shares of Common Stock. As of June 30, 2001, there are 1,316,512
shares of Restricted Voting Common Stock remaining.

Earnings Per Share

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.
Diluted EPS is computed considering the dilutive effect of stock options and
convertible subordinated notes. Options to purchase 4.2 million shares of Common
Stock at prices ranging from $3.63 to $21.438 per share and options to purchase
7.0 million shares of Common Stock at prices ranging from $2.875 to $21.438 per
share were outstanding for the three months and six months ended June 30, 2001,
respectively, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the respective average market
price of the Common Stock. Diluted EPS is also computed by adjusting both net
earnings and shares outstanding as if the conversion of the convertible
subordinated notes occurred on the first day of the year. The convertible
subordinated notes had an anti-dilutive effect during the three months and six
months ended June 30, 2000 and 2001, and therefore, are not included in the
diluted EPS calculation.

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):

<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 2001 2000 2001
------- ------- ------- -------

Common shares outstanding, end of period.................. 37,130 37,381 37,130 37,381
Effect of using weighted average common shares
outstanding............................................. 366 -- 398 2
------ ------ ------ ------
Shares used in computing earnings per share -- basic...... 37,496 37,381 37,528 37,383
Effect of shares issuable under stock option plans based
on the treasury stock method............................ -- 50 10 6
------ ------ ------ ------
Shares used in computing earnings per share -- diluted.... 37,496 37,431 37,538 37,389
====== ====== ====== ======
</Table>

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COMFORT SYSTEMS USA, INC.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with the historical
Consolidated Financial Statements of Comfort Systems USA, Inc. ("Comfort
Systems" and collectively with its subsidiaries, the "Company") 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, 2000 (the "Form 10-K"). This discussion contains forward-looking
statements regarding the business and industry of Comfort Systems within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on the current plans and expectations of the Company and
involve risks and uncertainties that could cause 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 "Factors Which May Affect Future Results,"
included in the Form 10-K.

The Company is a leading national provider of comprehensive heating,
ventilation and air conditioning ("HVAC") installation, maintenance, repair and
replacement services. The Company operates primarily in the commercial and
industrial HVAC markets, and performs most of its services within manufacturing
plants, office buildings, retail centers, apartment complexes, and healthcare,
education and government facilities. In addition to standard HVAC services, the
Company provides specialized applications such as process cooling, building
automation control systems, electronic monitoring and process piping. Certain
locations also perform related services such as electrical and plumbing.

RESULTS OF OPERATIONS

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------ ------------------------------------
2000 2001 2000 2001
---------------- ---------------- ---------------- ----------------

Revenues.................................... $404,970 100.0% $392,141 100.0% $767,536 100.0% $760,269 100.0%
Cost of services............................ 334,332 82.6% 323,070 82.4% 626,031 81.6% 627,301 82.5%
-------- -------- -------- --------
Gross profit................................ 70,638 17.4% 69,071 17.6% 141,505 18.4% 132,968 17.5%
Selling, general and administrative
expenses.................................. 56,333 13.9% 53,001 13.5% 111,161 14.5% 105,495 13.9%
Goodwill amortization....................... 3,149 0.8% 3,021 0.8% 6,332 0.8% 6,042 0.8%
Restructuring charges....................... 354 0.1% -- -- 354 -- 238 --
-------- -------- -------- --------
Operating income............................ 10,802 2.7% 13,049 3.3% 23,658 3.1% 21,193 2.8%
Other income (expense)...................... (6,486) (1.6)% (6,222) (1.6)% (12,310) (1.6)% (12,263) (1.6)%
Reductions in non-operating assets and
liabilities, net.......................... (5,190) (1.3)% -- -- (5,190) (0.7)% -- --
-------- -------- -------- --------
Income (loss) before income taxes........... (874) (0.2)% 6,827 1.7% 6,158 0.8% 8,930 1.2%
Income tax expense.......................... 31 3,536 3,055 4,539
-------- -------- -------- --------
Net income (loss)........................... $ (905) (0.2)% $ 3,291 0.8% $ 3,103 0.4% $ 4,391 0.6%
======== ======== ======== ========
</Table>

Revenues -- Revenues decreased $12.8 million, or 3.2%, to $392.1 million
for the second quarter of 2001 and decreased $7.3 million, or 0.9%, to $760.3
million for the first six months of 2001, compared to the same periods in 2000.
The 3.2% decline in revenue for the quarter was comprised of a 1.1% decrease in
revenues at ongoing operations, and a 2.1% decline in revenue related to
operations that were sold or shut down since the second quarter of last year.
The 0.9% decline in revenue for the first six months of 2001 was comprised of
approximately 1.7% internal growth which was offset by a 2.6% decline in revenue
related to operations that were sold or shut down since the second quarter of
last year.

The Company's internal revenue growth rates are lower than the growth rates
it experienced throughout 2000. This results in part from a general slowing in
economic growth in the U.S. economy. The Company's revenue growth rates are also
consistent with management's decreased emphasis on revenue growth in favor of
improvement in profit margins, operating efficiency, and cash flow. In view of
these factors, it is likely that the Company will continue to experience modest
revenue growth in upcoming periods. There can be no assurance,

12
15

however, that this strategy will continue to lead to improved profit margins in
the near term. In addition, if general economic activity in the U.S. slows
significantly from current levels, the Company may realize further decreases in
revenue growth and operating margins.

Gross Profit -- Gross profit decreased $1.6 million, or 2.2%, to $69.1
million for the second quarter of 2001 and decreased $8.5 million, or 6.0%, to
$133.0 million for the first six months of 2001, compared to the same periods in
2000. As a percentage of revenues, gross profit increased from 17.4% for the
three months ended June 30, 2000 to 17.6% for the three months ended June 30,
2001 and decreased from 18.4% for the first six months of 2000 to 17.5% for the
first six months of 2001.

The Company's improvement in quarter-over-quarter gross profit percentage
primarily resulted from divestiture, prior to the current quarter, of certain
operations that performed poorly in last year's second quarter. The positive
effect of this divestiture was offset to a lesser degree by additional reserves
in connection with execution shortfalls and the lack of technical and skilled
labor availability on certain sizable projects in the Central U.S. and
California which are nearing completion. The Company also experienced subpar
gross profit performance from certain operations that are undergoing operational
and management changes. Management believes that gross profit performance and
operating results will generally improve across these operations over the
balance of the year.

Selling, General and Administrative Expenses ("SG&A") -- SG&A decreased
$3.3 million, or 5.9%, to $53.0 million for the second quarter of 2001 and
decreased $5.7 million, or 5.1%, to $105.5 million for the first six months of
2001, compared to the same periods in 2000. As a percentage of revenues, SG&A
decreased from 13.9% for the three months ended June 30, 2000 to 13.5% for the
three months ended June 30, 2001 and decreased from 14.5% for the first six
months of 2000 to 13.9% for the first six months of 2001. The decrease in SG&A
is primarily related to operations that were sold or shut down.

Restructuring Charges -- During the first quarter of 2001, the Company
recorded restructuring charges of approximately $0.2 million, primarily related
to contractual severance obligations of two operating presidents in connection
with the Company's significant restructuring program undertaken in the second
half of 2000. These restructuring charges are net of a gain of approximately
$0.1 million related to management's decision to sell a small operation during
the first quarter of 2001. During the second quarter of 2000, the Company
recorded restructuring charges of approximately $0.4 million, primarily in
connection with severance costs related to the departure of the Company's former
chief executive officer.

Reductions in Non-Operating Assets and Liabilities, Net -- During the
quarter ended June 30, 2000, the Company recorded a non-cash charge of
approximately $5.2 million primarily related to the impairment of certain
non-operating assets, principally notes receivable from former owners of
businesses acquired by the Company. In addition, the Company recorded an
impairment of approximately $0.8 million to its minority investment in two
entities associated with the distribution and implementation of high-end
engineering and design software. The Company also recorded a gain of
approximately $0.6 million on the reduction of its subordinated note payable to
a former owner in connection with the settlement of claims with this former
owner.

Income Tax Expense -- The Company's effective tax rates for the six months
ended June 30, 2001 and 2000 were 50.8% and 49.6%, respectively. The Company's
provision for income taxes differs from the federal statutory rate primarily due
to state income taxes (net of federal income tax benefit) and the
non-deductibility of the amortization of goodwill attributable to certain
acquisitions.

NEW ACCOUNTING PRONOUNCEMENTS

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16

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow -- Cash provided by operating activities less customary capital
expenditures plus the proceeds from asset sales is generally called free cash
flow and, if positive, represents funds available to invest in significant
operating initiatives, to acquire other companies or to reduce a company's
outstanding debt or equity. If free cash flow is negative, additional debt or
equity is generally required to fund the outflow of cash.

For the six months ended June 30, 2001, the Company had free cash flow of
$29.2 million, an increase of $20.6 million as compared to free cash flow of
$8.6 million in the first six months of 2000. This improvement primarily
resulted from faster billing by the Company for its project work while modestly
improving the average days to collect receivables once billed, as well as a
decrease in net capital expenditures versus the prior year.

Cash used in financing activities for the six months ended June 30, 2001
was $29.0 million and was primarily attributable to net payments of long-term
debt of $29.6 million. Net cash used in financing activities for the six months
ended June 30, 2000 was $3.3 million and was primarily attributable to net
borrowings of long-term debt primarily used for working capital and capital
expenditures.

Revolving Credit Facility -- The Company amended its revolving credit
facility (the "Credit Facility" or the "Facility") provided by Bank One, Texas,
N.A. ("Bank One") and other banks (the "Bank Group") in March 2001. As amended,
the Credit Facility provides the Company with a revolving line of credit of up
to the lesser of $270 million or 80% of net accounts receivable. The Facility
decreases to the lesser of $250 million or
14
17

80% of net accounts receivable as of December 31, 2001, and to the lesser of
$240 million or 80% of net accounts receivable as of June 30, 2002. Borrowings
under the Facility are secured by accounts receivable, inventory, fixed assets
other than real estate, and the shares of capital stock of the Company's
subsidiaries. The Credit Facility expires on January 1, 2003, at which time all
amounts outstanding are due.

The Credit Facility prohibits payment of dividends and the repurchase of
shares by the Company, limits certain non-Bank Group debt, and restricts outlays
of cash by the Company relating to certain investments, capital expenditures,
vehicle leases, acquisitions and subordinate debt. The Credit Facility also
provides for the maintenance of certain levels of shareholder equity and EBITDA,
and for the maintenance of certain ratios of the Company's EBITDA to interest
expense and debt to EBITDA.

Notes to Affiliates and Former Owners -- Subordinated notes were issued to
former owners of certain purchased companies as part of the consideration used
to acquire their companies. These notes had an outstanding balance of $44.1
million as of June 30, 2001. These notes bear interest, payable quarterly, at a
weighted average interest rate of 9.73%. In addition, $0.6 million of these
notes are convertible by the holders into shares of the Company's common stock
("Common Stock") at a weighted average price of $24.25 per share.

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18

Outlook -- The Company anticipates that available borrowings under its
Credit Facility and cash flow from operations will be sufficient to meet the
Company's normal working capital and capital expenditure needs. As noted above,
the Company has agreed to relatively tight restrictions under the Credit
Facility. If the Company violates any of these restrictions, it will be required
to negotiate new terms with its banks. There can be no assurance that in that
event, the Company will receive satisfactory new terms from its banks, or that
if the Company needs additional financing, that such financing can be secured
when needed or on terms the Company deems acceptable.

Treasury Stock -- On October 5, 1999, the Company announced that its
Board of Directors had approved a share repurchase program authorizing the
Company to buy up to 4.0 million shares of its Common Stock. During 1999, the
Company purchased approximately 1.8 million shares at a cost of approximately
$12.9 million. During 2000, the Company purchased approximately 0.2 million
shares at a cost of approximately $1.2 million. Under the current terms of the
Credit Facility, the Company is prohibited from purchasing additional shares of
its Common Stock.

SEASONALITY AND CYCLICALITY

The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installation and replacement is generally lower during the winter
months 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, the Company expects its revenues and operating results
generally will be lower in the first and fourth calendar quarters.

Historically, the construction industry has been highly cyclical. As a
result, the Company's volume of business may be adversely affected by declines
in new installation projects in various geographic regions of the United States.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk primarily related to potential
adverse changes in interest rates. Management is actively involved in monitoring
exposure to market risk and continues to develop and utilize appropriate risk
management techniques.

16
19

COMFORT SYSTEMS USA, INC.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to certain claims and lawsuits arising in the normal
course of business and maintains various insurance coverages to minimize
financial risk associated with these claims. The Company has provided accruals
for probable losses and related legal fees associated with certain of these
actions in its consolidated financial statements. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

During the three month period ended June 30, 2001, the Company did not
issue any unregistered shares of its common stock.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

None.

(b) Reports on Form 8-K

None.

ITEM 9.CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

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20

SIGNATURE

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.

COMFORT SYSTEMS USA, INC.

By: /s/ J. GORDON BEITTENMILLER
----------------------------------
J. Gordon Beittenmiller
Executive Vice President,
Chief Financial Officer and
Director

Dated: August 13, 2001