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 MARCH 31, 2002

[ ] 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)

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

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 May
14, 2002 was 37,845,302.

COMFORT SYSTEMS USA, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002

Part I - Financial Information
Item 1 - Financial Statements Page
COMFORT SYSTEMS USA, INC. ----

Consolidated Balance Sheets............................................ 1
Consolidated Statements of Operations.................................. 2
Consolidated Statements of Stockholders' Equity........................ 4
Consolidated Statements of Cash Flows.................................. 5
Condensed Notes to Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk............. 24

Part II - Other Information
Item 1 - Legal Proceedings...................................................... 25
Item 2 - Recent Sales of Unregistered Securities................................ 25
Item 6 - Exhibits and Reports on Form 8-K....................................... 25
Item 9 - Changes and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 25
Signature....................................................................... 26

COMFORT SYSTEMS USA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, MARCH 31,
2001 2002
------------ ------------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 4,040 $ 9,855
Accounts receivable, less allowance of $9,633 and $9,381 .................. 175,754 160,701
Other receivables ......................................................... 5,572 15,582
Inventories ............................................................... 14,697 13,997
Prepaid expenses and other ................................................ 13,176 12,490
Costs and estimated earnings in excess of billings ........................ 19,662 20,551
Assets related to discontinued operations ................................. 324,143 1,586
------------ ------------
Total current assets ............................................. 557,044 234,762
PROPERTY AND EQUIPMENT, net .................................................... 18,964 18,944
GOODWILL ....................................................................... 299,292 113,427
OTHER NONCURRENT ASSETS ........................................................ 1,325 14,238
------------ ------------
Total assets ..................................................... $ 876,625 $ 381,371
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ...................................... $ 73 $ 31,784
Current maturities of notes to affiliates and former owners ............... 3,324 1,153
Accounts payable .......................................................... 57,652 56,312
Accrued compensation and benefits ......................................... 23,701 17,689
Billings in excess of costs and estimated earnings ........................ 26,773 23,108
Income taxes payable ...................................................... 5,606 12,758
Other current liabilities ................................................. 23,496 25,514
Liabilities related to discontinued operations ............................ 139,405 333
------------ ------------
Total current liabilities ........................................ 280,030 168,651
LONG-TERM DEBT, NET OF CURRENT MATURITIES ...................................... 164,012 424
NOTES TO AFFILIATES AND FORMER OWNERS, NET OF CURRENT MATURITIES ............... 15,569 15,468
OTHER LONG-TERM LIABILITIES .................................................... 3,193 270
------------ ------------
Total liabilities ................................................ 462,804 184,813
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, 1,749,334 and 1,535,545 shares, respectively ..... (10,924) (9,516)
Additional paid-in capital ................................................ 340,186 339,595
Deferred compensation ..................................................... -- (826)
Retained earnings (deficit) ............................................... 84,166 (133,088)
------------ ------------
Total stockholders' equity ....................................... 413,821 196,558
------------ ------------
Total liabilities and stockholders' equity ....................... $ 876,625 $ 381,371
============ ============

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
MARCH 31,
------------------------------
2001 2002
------------ ------------

REVENUES ....................................................................... $ 204,330 $ 190,649
COST OF SERVICES ............................................................... 167,791 160,089
------------ ------------
Gross profit ..................................................... 36,539 30,560

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................................... 35,471 32,595
GOODWILL AMORTIZATION .......................................................... 2,072 --
RESTRUCTURING CHARGES .......................................................... 238 1,878
------------ ------------
Operating loss ................................................... (1,242) (3,913)

OTHER INCOME (EXPENSE):
Interest income ....................................................... 36 30
Interest expense ...................................................... (2,437) (1,899)
Other ................................................................. 85 310
------------ ------------
Other income (expense) ........................................... (2,316) (1,559)
------------ ------------

LOSS BEFORE INCOME TAXES ....................................................... (3,558) (5,472)
INCOME TAX BENEFIT ............................................................. (1,296) (1,519)
------------ ------------

LOSS FROM CONTINUING OPERATIONS ................................................ (2,262) (3,953)

DISCONTINUED OPERATIONS:
Operating income, net of applicable income tax benefit (expense) of
$(2,299) and $1,781 ...................................................... 3,362 207
Estimated loss on disposition, including income tax expense of $25,978 ..... -- (10,987)
------------ ------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ....... 1,100 (14,733)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME TAX
BENEFIT OF $26,317 ........................................................... -- (202,521)
------------ ------------

NET INCOME (LOSS) .............................................................. $ 1,100 $ (217,254)
============ ============

INCOME (LOSS) PER SHARE:
Basic -
Loss from continuing operations ........................................... $ (0.06) $ (0.11)
Discontinued operations -
Income from operations ................................................. 0.09 0.01
Estimated loss on disposition .......................................... -- (0.29)
Cumulative effect of change in accounting principle ....................... -- (5.40)
------------ ------------
Net income (loss) ......................................................... $ 0.03 $ (5.79)
============ ============

(CONTINUED ON FOLLOWING PAGE)

COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
------------------------------
2001 2002
------------ ------------

Diluted -
Loss from continuing operations ........................................... $ (0.06) $ (0.11)
Discontinued operations -
Income from operations ................................................. 0.09 0.01
Estimated loss on disposition .......................................... -- (0.29)
Cumulative effect of change in accounting principle ....................... -- (5.40)
------------ ------------
Net income (loss) ......................................................... $ 0.03 $ (5.79)
============ ============

SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE:
Basic ................................................................. 37,385 37,531
============ ============
Diluted ............................................................... 37,386 37,531
============ ============

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)

Common Stock Treasury Stock Additional Retained Total
------------------- ---------------------- Paid-In Deferred Earnings Stockholders'
Shares Amount Shares Amount Capital Compensation (Deficit) Equity
----------- ------ ----------- ---------- ---------- ------------- ---------- ------------

BALANCE AT DECEMBER 31, 2000 .. 39,258,913 $ 393 (2,002,629) $(13,119) $ 341,923 $ -- $ 71,042 $ 400,239
Issuance of Treasury Stock:
Issuance of Employee
Stock Purchase
Plan shares .............. -- -- 398,287 2,570 (1,737) -- -- 833
Shares received from
sale of businesses ....... -- -- (144,992) (375) -- -- -- (375)
Net income ................. -- -- -- -- -- -- 13,124 13,124
---------- ----- ----------- -------- --------- ------ --------- ---------
BALANCE AT DECEMBER 31, 2001 .. 39,258,913 393 (1,749,334) (10,924) 340,186 -- 84,166 413,821
Issuance of Treasury Stock:
Issuance of shares for
options exercised
(unaudited) .............. -- -- 53,562 332 (178) -- -- 154
Issuance of restricted
stock (unaudited)......... -- -- 200,000 1,239 (413) (826) -- --
Shares exchanged in
repayment of notes
receivable (unaudited)...... -- -- (39,773) (163) -- -- -- (163)
Net loss (unaudited) ........ -- -- -- -- -- -- (217,254) (217,254)
---------- ----- ----------- -------- -------- ------ ---------- ---------
BALANCE AT MARCH 31, 2002
(unaudited) ................... 39,258,913 $ 393 (1,535,545) $ (9,516) $ 339,595 $ (826) $ (133,088) $ 196,558
========== ===== =========== ======== ========= ====== ========== =========
</Table>

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
MARCH 31,
------------------------------
2001 2002
------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................................. $ 1,100 $ (217,254)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities -
Cumulative effect of change in accounting principle ....................... -- 202,521
Estimated loss on disposition of discontinued operations .................. -- 10,987
Restructuring charges ..................................................... 238 1,878
Depreciation and amortization expense ..................................... 5,969 2,188
Bad debt expense .......................................................... 1,217 2,488
Deferred tax expense (benefit) ............................................ 95 (467)
Gain on sale of property and equipment .................................... (75) (110)
Changes in operating assets and liabilities -
(Increase) decrease in -
Receivables, net ................................................. 14,496 22,480
Inventories ...................................................... 36 768
Prepaid expenses and other current assets ........................ (1,522) 774
Costs and estimated earnings in excess of billings ............... 117 (3,144)
Other noncurrent assets .......................................... (1,436) 486
Increase (decrease) in -
Accounts payable and accrued liabilities ......................... (16,036) (30,240)
Billings in excess of costs and estimated earnings ............... 2,634 (2,628)
Other, net ....................................................... 3 11
------------ ------------
Net cash provided by (used in) operating activities ................... 6,836 (9,262)
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ....................................... (1,589) (2,134)
Proceeds from sales of property and equipment ............................. 309 171
Proceeds from businesses sold, net of cash sold and transaction costs ..... 895 144,462
------------ ------------
Net cash provided by (used in) investing activities ................... (385) 142,499
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ................................................ (59,537) (195,205)
Borrowings of long-term debt .............................................. 58,309 61,044
Proceeds from issuance of common stock .................................... 566 --
Proceeds from exercise of options ......................................... -- 154
------------ ------------
Net cash used in financing activities ................................. (662) (134,007)
------------ ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 5,789 (770)
CASH AND CASH EQUIVALENTS, beginning of period - continuing operations and
discontinued operations ...................................................... 16,021 10,625
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 21,810 $ 9,855
============ ============

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

COMFORT SYSTEMS USA, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)

1. BUSINESS AND ORGANIZATION:

Comfort Systems USA, Inc., a Delaware corporation ("Comfort Systems" and
collectively with its subsidiaries, the "Company"), is a national provider of
comprehensive heating, ventilation and air conditioning ("HVAC") installation,
maintenance, repair and replacement services within the mechanical services
industry. The Company operates primarily in the commercial and industrial HVAC
markets, and performs most of its services within office buildings, retail
centers, apartment complexes, manufacturing plants, and healthcare, education
and government facilities. In addition to standard HVAC services, the Company
provides specialized applications such as building automation control systems,
fire protection, process cooling, electronic monitoring and process piping.
Certain locations also perform related services such as electrical and plumbing.
Approximately 56% of the Company's consolidated 2002 revenues were attributable
to installation services, with the remaining 44% attributable to maintenance,
repair and replacement services. The Company's consolidated 2002 revenues
related to the following service activities: HVAC - 72%, plumbing - 12%,
electrical - 2%, building automation control systems - 6%, fire protection - 1%
and other - 7%. These service activities are within the mechanical services
industry which is the single industry segment served by Comfort Systems.

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, 2001 (the "Form 10-K").

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" which is discussed in Note 4 and
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
which is discussed in Note 3 during the first quarter of 2002. There were no
other significant changes in the accounting policies of the Company during the
period. 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. The most significant estimates
used in the Company's financial statements include revenue and cost recognition
for construction contracts, allowance for doubtful accounts and self-insurance
accruals.

CASH FLOW INFORMATION

Cash paid for interest for the three months ended March 31, 2001 and 2002
was approximately $5.5 million and $2.5 million, respectively. Cash paid for
income taxes for the three months ended March 31, 2001 and 2002 was
approximately $0.7 million and $6.5 million, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 establishes
new accounting and reporting requirements for goodwill and other intangibles.
The Company adopted this new standard effective January 1, 2002. See Note 4 for
further discussion.

In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Company adopted SFAS No. 144 effective January 1,
2002. Under SFAS No. 144, the operating results of companies sold or held for
sale meeting certain criteria as well as any gain or loss on the sale of these
operations are presented as discontinued operations in the Company's statements
of operations. See Note 3 for a discussion of the Company's discontinued
operations. The operating results for companies which were sold or shut down
during 2001 are presented as continuing operations through the date of
disposition. The adoption of SFAS No. 144 did affect the presentation of
discontinued operations in the consolidated financial statements; however, it
did not have a material financial impact on the Company's results of operations,
financial position or cash flows.

SEGMENT DISCLOSURE

Comfort Systems' activities are within the mechanical services industry
which is the single industry segment served by the Company. Under SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information," each
operating subsidiary represents an operating segment and these segments have
been aggregated, as no individual operating unit is material and the operating
units meet a majority of the aggregation criteria.

RECLASSIFICATIONS

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

3. DISCONTINUED OPERATIONS:

On February 11, 2002, the Company entered into an agreement with Emcor
Group, Inc. ("Emcor") to sell 19 operations. This transaction closed on March 1,
2002. Under the terms of the agreement, the total purchase price was
approximately $186.25 million, including the assumption by Emcor of
approximately

$22.1 million of subordinated notes to former owners of certain of the divested
companies. Of the purchase price, $7.5 million was deposited into an escrow
account to secure contractual indemnification obligations and the settlement of
a post-closing balance sheet adjustment. The net cash proceeds of approximately
$155 million through March 31, 2002 were used to reduce the amount outstanding
on the Company's credit facility. An estimated tax liability of $16 million
related to this transaction was recorded at March 31, 2002 and will be paid
within the next twelve months.

Based on continuing discussions with Emcor, the Company recorded a
receivable as of March 31, 2002 of $9.5 million from Emcor comprised of $7.0
million in connection with a post-closing balance sheet adjustment, and $2.5
million for the expected release of a related escrow. These amounts have been
included in the loss on the sale of operations to Emcor reflected under
discontinued operations in the Company's statement of operations. The remaining
escrow funds of $5.0 million represent a contingent asset of the Company and due
to the uncertainty of the collection of these monies, the Company has not
recognized a receivable associated with these escrow amounts. If the Company
receives any funds related to these escrows, a corresponding gain will be
recorded as a component of discontinued operations in future reporting periods.

Under SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which took effect for the Company on January 1, 2002, the
operating results of the companies sold to Emcor as well as the loss on the sale
of these operations have been presented as discontinued operations in the
Company's statements of operations. The Company realized a loss of $10.6 million
including related tax expense related to the sale of these operations. As a
result of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets,"
the Company also recognized a goodwill impairment charge related to these
operations of $32.4 million, net of taxes, as of January 1, 2002. The reporting
of the Company's aggregate goodwill impairment charge in connection with
adopting SFAS No. 142 is discussed further in Note 4.

In March 2002, the Company also decided to divest of an additional
operating company. This unit's operating results in the first quarter of $(0.1)
million, net of taxes, have been reported in discontinued operations under
"Operating income, net of applicable income taxes" in the Company's statement of
operations. In addition, an estimate of the loss the Company will realize upon
divestiture of this operation of $0.6 million has been included in "Estimated
loss on disposition, including income tax expense" in the Company's statement of
operations.

Assets and liabilities related to discontinued operations were as follows
(in thousands):

DECEMBER 31, MARCH 31,
2001 2002
------------ ------------

Accounts receivable, net ....................................................... $ 140,042 $ 814
Other current assets ........................................................... 29,937 637
Property and equipment, net .................................................... 13,816 135
Goodwill, net .................................................................. 139,156 --
Other noncurrent assets ........................................................ 1,192 --
------------ ------------
Total assets .......................................................... $ 324,143 $ 1,586
============ ============

Current maturities of debt and notes ........................................... $ 312 $ --
Accounts payable ............................................................... 43,914 302
Other current liabilities ...................................................... 68,448 31
Long-term debt and notes ....................................................... 21,842 --
Other long-term liabilities .................................................... 4,889 --
------------ ------------
Total liabilities ..................................................... $ 139,405 $ 333
============ ============

Revenues and pre-tax income (loss) related to discontinued operations were
as follows (in thousands):

<Table>
<Caption>
THREE MONTHS TWO MONTHS
ENDED ENDED
MARCH 31, FEBRUARY 28,
2001 2002
------------ ------------

Revenues ........................... $ 163,798 $ 95,194
Pre-tax income (loss) .............. $ 5,661 $ (1,574)
</Table>

4. GOODWILL:

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 requires companies to assess goodwill
asset amounts for impairment each year, and more frequently if circumstances
suggest an impairment may have occurred. In addition to discontinuing the
regular charge, or amortization, of goodwill against income, the new standard
also introduces more rigorous criteria for determining how much goodwill should
be reflected as an asset in a company's financial position.

To perform the transitional impairment testing required by SFAS No. 142
under its new, more rigorous impairment criteria, the Company broke its
operations into "reporting units", as prescribed by the new standard, and tested
each of these reporting units for impairment by comparing the unit's fair value
to its carrying value. The fair value of each reporting unit was estimated using
a discounted cash flow model combined with market valuation approaches.
Significant estimates and assumptions were used in assessing the fair value of
reporting units. These estimates and assumptions involved future cash flows,
growth rates, discount rates, weighted average cost of capital and estimates of
market valuations for each of the reporting units.

As provided by SFAS No. 142, the transitional impairment loss identified by
applying the standard's new, more rigorous valuation methodology upon initial
adoption of the standard was reflected as a cumulative effect of a change in
accounting principle in the Company's statement of operations. The resulting
non-cash charge was $202.5 million, net of taxes. Impairment charges recognized
after the initial adoption, if any, generally are to be reported as a component
of operating income.

The changes in the carrying amount of goodwill for the three months ended
March 31, 2002 are as follows (in thousands):

<Table>

Goodwill balance as of January 1, 2002 (a).......... $ 438,448
Impairment adjustment............................... (228,838)
Goodwill related to sale of operations.............. (96,183)
-----------
Goodwill balance as of March 31, 2002............... $ 113,427
===========

(a) A portion of this goodwill balance is included in net assets related to
discontinued operations in the Company's consolidated balance sheet.

The unaudited results of operations presented below for the three months
ended March 31, 2001 and 2002 reflect the adoption of the non-amortization
provisions of SFAS No. 142 effective January 1, 2001 and exclude the impact of
the cumulative effect of change in accounting principle recorded in the first
quarter of 2002. Therefore, the component of the cumulative effect of change in
accounting principle related to the operations sold to Emcor is included in the
estimated loss on disposition for purposes of this table.

<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2001 2002
------------ ------------
(in thousands)

Loss from continuing operations ............................................... $ (2,262) $ (3,953)
Add: Goodwill amortization, net of tax ........................................ 1,906 --
------------ ------------
Adjusted loss from continuing operations ...................................... (356) (3,953)

Discontinued operations -
Operating income, net of tax .................................................. 3,362 207
Add: Goodwill amortization, including tax ...................................... 743 --
------------ ------------
Adjusted operating income, net of tax ......................................... 4,105 207

Estimated loss on disposition, including tax .................................. -- (43,359)
------------ ------------
Adjusted net income (loss) .................................................... $ 3,749 $ (47,105)
============ ============

Adjusted income (loss) per share:
Basic -
Loss from continuing operations ............................................ $ (0.01) $ (0.11)
Discontinued operations -
Income from operations .................................................. 0.11 0.01
Estimated loss on disposition ........................................... -- (1.16)
------------ ------------
Net income (loss) .......................................................... $ 0.10 $ (1.26)
============ ============

Diluted -
Loss from continuing operations ............................................ $ (0.01) $ (0.11)
Discontinued operations -
Income from operations .................................................. 0.11 0.01
Estimated loss on disposition ........................................... -- (1.16)
------------ ------------
Net income (loss) .......................................................... $ 0.10 $ (1.26)
============ ============
</Table>

5. RESTRUCTURING CHARGES:

During the first quarter of 2002, the Company recorded restructuring
charges of approximately $1.9 million primarily due to severance costs
associated with the reduction in corporate overhead in light of the Company's
smaller size following the Emcor transaction. In addition, the Company incurred
costs associated with decisions to merge or close three smaller divisions of
certain of the Company's operating locations. These restructuring charges are
primarily cash obligations but did include approximately $0.3 million of
non-cash writedowns associated with long-lived assets. Severance costs of $0.8
million are included in restructuring charges and relate to the termination of
33 employees all of whom were terminated as of March 31, 2002.

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 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 half of 2000, the Company recorded restructuring charges
of approximately $25.3 million primarily associated with restructuring efforts
at certain underperforming operations. Management performed an extensive review
of its operations during the second half of 2000 and as part of this review
management decided to cease operating at three locations, sell four operations
(including two smaller satellite operations), and merge two companies into other
operations. 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.

Aggregated financial information for 2001 related to the operations
addressed by the 2000 and 2001 restructuring charges is as follows (in
thousands):

<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31, 2001
------------------

Revenues.......................................... $ 2,821
Operating loss.................................... $ (1,372)
</Table>

The following table shows the remaining liabilities associated with the
cash portion of the restructuring charges as of March 31, 2002 (in thousands):

<Table>
<Caption>
BALANCE AT BALANCE AT
JANUARY 1, 2002 ADDITIONS PAYMENTS MARCH 31, 2002
--------------- ---------- ---------- --------------

Severance .................................. $ 210 $ 846 $ (348) $ 708
Lease termination costs and other .......... 1,148 704 (520) 1,332
---------- ---------- ---------- ----------
Total ...................................... $ 1,358 $ 1,550 $ (868) $ 2,040
========== ========== ========== ==========
</Table>

6. LONG-TERM DEBT OBLIGATIONS:

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

DECEMBER 31, MARCH 31,
2001 2002
------------- -------------
(UNAUDITED)

Revolving credit facility................................ $ 163,700 $ 31,700
Notes to affiliates and former owners.................... 18,893 16,621
Other.................................................... 385 508
------------- -------------
Total debt.......................................... 182,978 48,829
Less: current maturities............................ 3,397 32,937
------------- -------------
$ 179,581 $ 15,892
============= =============

REVOLVING CREDIT FACILITY

The Company's principal debt financing is a revolving credit facility (the
"Credit Facility" or the "Facility") provided by Bank One, Texas, N.A. ("Bank
One") and other banks (including Bank One, the "Bank Group"). In connection with
the Company's sale of operations to Emcor as discussed in Note 3, the Company
agreed in February 2002 to pay down debt under the Facility by at least $130
million, and to reduce the size of the Facility to the lesser of $100 million or
80% of accounts receivable, net of reserves ("Net Receivables"). 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.

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.

In the fourth quarter of 2001, the Company estimated and recorded an
allowance of $3.5 million against its receivables with the Kmart Corporation
based on Kmart's bankruptcy filing in January 2002. Including this reserve, the
Company's fourth quarter 2001 EBITDA did not meet the Facility's minimum EBITDA
covenant. The Bank Group agreed to exclude the Kmart reserve from covenant
calculations. In addition, the Company's first quarter 2002 EBITDA did not meet
the Facility's minimum EBITDA covenant. The Bank Group waived that covenant
violation. As a result, the Company has no unresolved covenant violations under
the Facility.

As a result of its substantial reduction in debt following the Emcor
transaction, the Company currently complies with the Facility's debt to EBITDA
and EBITDA to interest expense covenants by comfortable margins. The Bank Group
agreed to adjust the Facility's minimum EBITDA covenants to reflect the
Company's reduced size following the Emcor transaction. While the Bank Group
waived the Company's first quarter 2002 minimum EBITDA covenant violation, and
while the Company expects to be in compliance with the Facility's EBITDA
requirements for future periods, the minimum EBITDA covenant allows less room
for variance than the Facility's other financial covenants. If the Company
violates this or any other covenant in the future, it may have to negotiate new
borrowing terms under the Facility. While the Company believes that its improved
creditworthiness following the Emcor transaction would result in a successful
negotiation of new terms if necessary, there can be no assurance that it could
obtain terms acceptable to the Company. In view of these restrictions, the
Facility's January 2003 maturity, and the Company's improved creditworthiness,
the Company is continuing to evaluate its potential for more flexible borrowing
arrangements.

As of March 31, 2002, the Company had $31.7 million in borrowings and $1.7
million in letters of credit outstanding under the Credit Facility. The
Company's unused borrowing capacity under the Facility, as measured by the most
restrictive covenant in the Facility, was $35.4 million as of March 31, 2002.
The Facility's interest rate terms as summarized above currently result in an
all-in floating interest rate under the Facility of approximately 8.0%. As of
May 14, 2002, $31.5 million in borrowings and $1.7 million in letters of credit
were outstanding under the Facility, and $35.6 million in unused capacity was
available as measured by the Facility's most restrictive covenant.

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 $16.6 million

as of March 31,2002, and bear interest, payable quarterly, at a weighted average
interest rate of 9.73%. As of May 14, 2002, there had been no change in the
outstanding balance of these notes. Remaining maturities on this debt are $1.1
million in 2002 and $15.5 million in 2003. Substantially all of this debt's 2003
maturities fall in April 2003.

OTHER LONG-TERM OBLIGATION DISCLOSURES

As of March 31, 2002, the Company had total debt outstanding of $48.8
million. As of May 14, 2002, the Company had total debt outstanding of
approximately $48.6 million. Following disposition in the second quarter of
Emcor-transaction-related items including post-closing adjustments, transaction
costs and taxes, the Company expects total debt outstanding at the end of the
second quarter to be between $50 million and $60 million. Most of this expected
debt balance will be due in January 2003, with substantially the remainder due
in April 2003. While the Company expects to generate positive free cash flow and
reduce these debt balances over upcoming quarters, it is expected that a
significant portion of these expected debt balances will need to be refinanced
during the current year. The Company believes that its significantly improved
financial position following the Emcor transaction will enable it to refinance
this debt, but there can be no assurance that the Company will be able to secure
new financing when needed or on terms the Company deems acceptable.

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.

7. 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 estimated and 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 estimated and 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 that these
instruments will have a material effect on the Company's consolidated financial
statements.

8. STOCKHOLDERS' EQUITY:

TREASURY STOCK

The Company awarded 200,000 shares of restricted stock to its Chief
Executive Officer on March 22, 2002 under its 2000 Equity Incentive Plan. The
shares are subject to forfeiture if the Company does not meet certain
performance measures for the twelve month period ending March 31, 2003 or if the
executive leaves voluntarily or is terminated for cause. Such forfeiture
provisions lapse upon achievement of the performance measure and pro rata over a
four year period. Compensation under the plan will be charged to earnings over
the four year period. The initial value of the award was established based on
the market price on the date of grant. The employee is responsible for the
income tax liability related to the award. The unearned compensation is shown as
a reduction of stockholders' equity in the accompanying consolidated balance
sheet and is being amortized based upon the market value of the stock until the
performance measures are achieved, and is expected to be determined and
amortized ratably over the remainder of the restricted period.

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 outstanding shares of Restricted Voting Common Stock have been
previously converted into shares of Common Stock. As of March 31, 2002, there
are 1,196,112 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 6.3 million shares of Common
Stock at prices ranging from $2.14 to $21.44 per share were outstanding for the
three months ended March 31, 2002, but were not included in the computation of
diluted EPS because the options had an anti-dilutive effect since the Company
reported a net loss during the period. Options to purchase 7.3 million shares of
Common Stock at prices ranging from $2.43 to $21.44 per share were outstanding
for the three months ended March 31, 2001, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the 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 ended March 31, 2001 and 2002, and therefore, are not included in the
diluted EPS calculations.

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):

THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2002
---------- ---------

Common shares outstanding, end of period.............................. 37,381 37,723
Effect of using weighted average common shares outstanding............ 4 (192)
---------- ---------
Shares used in computing earnings per share - basic................... 37,385 37,531
Effect of shares issuable under stock option plans based on the
treasury stock method.............................................. 1 -
---------- ---------
Shares used in computing earnings per share - diluted................. 37,386 37,531
========== =========

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, 2001 (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 national provider of comprehensive heating, ventilation
and air conditioning ("HVAC") installation, maintenance, repair and replacement
services within the mechanical services industry. The Company operates primarily
in the commercial and industrial HVAC markets, and performs most of its services
within office buildings, retail centers, apartment complexes, manufacturing
plants, and healthcare, education and government facilities. In addition to
standard HVAC services, the Company provides specialized applications such as
building automation control systems, fire protection, process cooling,
electronic monitoring and process piping. Certain locations also perform related
services such as electrical and plumbing. Approximately 56% of the Company's
consolidated 2002 revenues were attributable to installation services, with the
remaining 44% attributable to maintenance, repair and replacement services. The
Company's consolidated 2002 revenues related to the following service
activities: HVAC - 72%, plumbing - 12%, electrical - 2%, building automation
control systems - 6%, fire protection - 1% and other - 7%. These service
activities are within the mechanical services industry which is the single
industry segment served by Comfort Systems.

In response to the Securities and Exchange Commission's Release No.
33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies," the Company identified its critical accounting policies based upon
the significance of the accounting policy to the Company's overall financial
statement presentation, as well as the complexity of the accounting policy and
its use of estimates and subjective assessments. The Company concluded that its
critical accounting policy is its revenue recognition policy. This accounting
policy, as well as others, are described in Note 2 to the Consolidated Financial
Statements included in the Form 10-K.

The Company enters into construction contracts with general contractors or
end-use customers based upon negotiated contracts and competitive bids. As part
of the negotiation and bidding processes, the Company estimates its contract
costs, which include all direct materials (net of estimated rebates), labor and
subcontract costs and indirect costs related to contract performance such as
indirect labor, supplies, tools, repairs and depreciation costs. Revenues from
construction contracts are recognized on the percentage-of-completion method in
accordance with the American Institute of Certified Public Accountants Statement
of Position 81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts." Under this method, the amount of total contract
revenue recognizable at any given time during a contract is determined by
multiplying total contract revenue by the percentage of contract costs incurred
at any given time to total estimated contract costs. Accordingly, contract
revenues recognized in the statements of operations can and usually do differ
from amounts that can be billed or invoiced to the customer at any given point
during the contract.

Changes in job performance, job conditions, estimated profitability and
final contract settlements may result in revisions to estimated costs and,
therefore, revenues. Such revisions are frequently based on estimates and
subjective assessments. The effects of these revisions are recognized in the
period in which the 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 a conclusion is
reached, regardless of what stage of completion the contract has reached.
Depending on the size of a particular project, variations from estimated project
costs could have a significant impact on the Company's operating results.

Revenues associated with maintenance, repair and monitoring services and
related contracts are recognized as services are performed.

Approximately 56% of the Company's consolidated 2002 revenues were
attributable to installation of systems in newly constructed buildings. As a
result, if general economic activity in the U.S. slows significantly from
current levels, and leads to a corresponding decrease in new nonresidential
building construction, the Company's operating results could suffer.

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Under this new standard, which is discussed in "Results of Operations" and "New
Accounting Pronouncements" below, new requirements for assessing whether
goodwill assets have been impaired involve market-based information. This
information, and its use in assessing goodwill, entails some degree of
subjective assessments. Additionally, amortization of goodwill has been
discontinued in 2002 operating results as a result of this standard.

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". Under this new standard,
the operating results of companies which were sold or held for sale as of March
31, 2002, have been reported as discontinued operations in the accompanying
consolidated statements of operations. However, the operating results for
companies which were sold or shut down during 2001 are presented as continuing
operations through the date of disposition.

RESULTS OF OPERATIONS (IN THOUSANDS):

THREE MONTHS ENDED MARCH 31,
----------------------------------------------
2001 2002
------------------- --------------------

Revenues........................................ $204,330 100.0% $ 190,649 100.0%
Cost of services................................ 167,791 82.1% 160,089 84.0%
-------- ---------
Gross profit.................................... 36,539 17.9% 30,560 16.0%
Selling, general and administrative expenses.... 35,471 17.4% 32,595 17.1%
Goodwill amortization........................... 2,072 1.0% -- --
Restructuring charges........................... 238 0.1% 1,878 1.0%
-------- ---------
Operating loss.................................. (1,242) (0.6)% (3,913) (2.1)%
Other expense, net.............................. (2,316) (1.1)% (1,559) (0.8)%
-------- ---------
Loss before income taxes ....................... (3,558) (1.7)% (5,472) (2.9)%
Income tax benefit.............................. (1,296) (1,519)
-------- ---------
Loss from continuing operations................. (2,262) (1.1)% (3,953) (2.1)%
Discontinued operations -
Operating results, net of tax............... 3,362 207
Estimated loss on disposition, net of tax... -- (10,987)
Cumulative effect of change in accounting
principle, net of tax......................... -- (202,521)
-------- ---------
Net income (loss)............................... $ 1,100 $(217,254)
======== =========

Revenues - Revenues decreased $13.7 million, or 6.7%, to $190.6 million
for the first quarter of 2002 compared to the same period in 2001. The 6.7%
decline in revenue for the quarter was comprised of a 5.3% decline in revenues
at ongoing operations and a 1.4% decline in revenues related to operations that
were sold or shut down during 2001.

The Company's decline in revenues at ongoing operations for the first
quarter of 2002 was primarily due to the lagged effect of the general economic
slowdown that began last year which slowed decisions to proceed on both new and
retrofit projects. The Company's decline in revenue is 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,
the Company may continue to experience only modest revenue growth or revenue
declines in upcoming periods. There can be no assurance, however, that this
strategy will 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 and lower operating
margins.

The Company's backlog at continuing operations as of March 31, 2002 was
$449 million, a 7% increase as compared to December 31, 2001 backlog of $419
million and a 4% increase over March 31, 2001 backlog of $431 million. The
Company believes this backlog information indicates generally improving
near-term business conditions.

Gross Profit - Gross profit decreased $6.0 million, or 16.4%, to $30.6
million for the first quarter of 2002 compared to the same period in 2001. As a
percentage of revenues, gross profit decreased from 17.9% for the three months
ended March 31, 2001 to 16.0% for the three months ended March 31, 2002.

The decline in gross profit was primarily due to project delays, primarily
driven by market conditions, at a number of the Company's operations. In
addition, the Company recorded increased reserves at one of its operating
locations in the West as a result of execution shortfalls on certain of its
projects that are nearing completion.

Selling, General and Administrative Expenses ("SG&A") - SG&A decreased $2.9
million, or 8.1%, to $32.6 million for the first quarter of 2002 compared to the
same period in 2001. As a percentage of revenues, SG&A decreased from 17.4% for
the three months ended March 31, 2001 to 17.1% for the three months ended March
31, 2002. The decrease in SG&A is primarily due to a concerted effort to reduce
SG&A throughout the Company.

SG&A as a percentage of revenues is higher than historical levels because
the financial statements do not allocate any corporate overhead to the
discontinued operations. As a result, SG&A for continuing operations reflects
substantially the full amount of corporate office overhead that was in place to
support the Company's operations prior to its sale of 19 units to Emcor as
discussed further below under "Discontinued Operations." In response to the
smaller size of the Company following the Emcor transaction, the Company reduced
corporate overhead at the end of the first quarter of 2002. The cost of this
workforce reduction is included in restructuring charges recorded in March 2002.
The Company will begin to realize lower corporate overhead costs during the
second quarter of 2002 as a result of these steps.

Goodwill Amortization - Effective January 1, 2002, the Company adopted SFAS
No. 142, "Goodwill and Other Intangible Assets." This pronouncement discontinued
goodwill amortization. See "Cumulative Effect of Change in Accounting Principle"
for further discussion.

Restructuring Charges - During the first quarter of 2002, the Company
recorded restructuring charges of approximately $1.9 million primarily due to
severance costs associated with the reduction in corporate overhead in light of
the Company's smaller size following the Emcor transaction. In addition, the
Company incurred costs associated with decisions to merge or close three smaller
divisions of certain of the Company's operating locations. These restructuring
charges are primarily cash obligations but did include approximately $0.3
million of non-cash writedowns associated with long-lived assets. Severance
costs of $0.8 million are included in restructuring charges and relate to the
termination of 33 employees all of whom were terminated as of March 31, 2002.

Other Expense, Net - Other expense, net, primarily includes interest
expense and decreased $0.8 million, or 32.7%, to $1.6 million for the first
quarter of 2002. A portion of the Company's actual interest expense in both
periods has been allocated to the discontinued operations caption based upon the
Company's net investment in these operations. Therefore, interest expense
relating to continuing operations does not reflect the pro forma reduction of
interest expense from applying the proceeds from the sale of these operations to
reduce debt in any earlier period. Interest expense allocated to the
discontinued operations for the three months ended March 31, 2001 and 2002 was
$3.8 million and $1.5 million, respectively. In addition, first quarter 2002
interest expense in continuing operations includes a non-cash writedown of $0.6
million, before taxes, of loan arrangement costs in connection with the
reduction in the Company's borrowing capacity following the Emcor transaction,
as discussed further below under "Liquidity and Capital Resources."

Income Tax Benefit - The Company's effective tax rates associated with its
loss from continuing operations for the three months ended March 31, 2001 and
2002 were 36.4% and 27.8%, respectively. As a result of the discontinuation of
goodwill amortization as a result of the adoption of SFAS No. 142

effective January 1, 2002, there is no longer a permanent difference related to
the non-deductible goodwill amortization in the 2002 effective tax rate.

Discontinued Operations - On February 11, 2002, the Company entered into an
agreement with Emcor Group, Inc. ("Emcor") to sell 19 operations. This
transaction closed on March 1, 2002. Under the terms of the agreement, the total
purchase price was approximately $186.25 million, including the assumption by
Emcor of approximately $22.1 million of subordinated notes to former owners of
certain of the divested companies. Of the purchase price, $7.5 million was
deposited into an escrow account to secure contractual indemnification
obligations and the settlement of a post-closing balance sheet adjustment. The
net cash proceeds of approximately $155 million through March 31, 2002 were used
to reduce the amount outstanding on the Company's credit facility. An estimated
tax liability of $16 million related to this transaction was recorded at March
31, 2002 and will be paid within the next twelve months.

Under SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which took effect for the Company on January 1, 2002, the
operating results of the companies sold to Emcor as well as the loss on the sale
of these operations have been presented as discontinued operations in the
Company's statements of operations. The Company realized a loss of $10.6 million
including related tax expense related to the sale of these operations. As a
result of the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets,"
the Company also recognized a goodwill impairment charge related to these
operations of $32.4 million, net of taxes, as of January 1, 2002. The reporting
of the Company's aggregate goodwill impairment charge in connection with
adopting SFAS No. 142 is discussed further below under "Cumulative Effect of
Change in Accounting Principle."

Cumulative Effect of Change in Accounting Principle - Effective January 1,
2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 142 requires companies to assess goodwill asset amounts for impairment
each year, and more frequently if circumstances suggest an impairment may have
occurred. In addition to discontinuing the regular charge, or amortization, of
goodwill against income, the new standard also introduces more rigorous criteria
for determining how much goodwill should be reflected as an asset in a company's
financial position.

its carrying value. The fair value of each reporting unit was estimated using
a discounted cash flow model combined with market valuation approaches.
Significant estimates and assumptions were used in assessing the fair value of
reporting units. These estimates and assumptions involved future cash flows,
growth rates, discount rates, weighted average cost of capital and estimates of
market valuations for each of the reporting units.

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 three months ended March 31, 2002, the Company had negative free
cash flow of $11.2 million, a decrease of $16.8 million as compared to positive
free cash flow of $5.6 million in the first three months of 2001. This decline
primarily resulted from a decline in the Company's operating results in the
first quarter as well as transition effects relating to the Company's sale of 19
operating units to Emcor.

Cash used in financing activities for the three months ended March 31, 2002
was $134.0 million and was primarily attributable to net payments of long-term
debt of $134.2 million primarily from proceeds associated with the sale
transaction with Emcor. Net cash used in financing activities for the three
months ended March 31, 2001 was $0.7 million and was primarily attributable to
net payments of long-term debt primarily used for working capital and capital
expenditures.

Revolving Credit Facility - The Company's principal debt financing is a
revolving credit facility (the "Credit Facility" or the "Facility") provided by
Bank One, Texas, N.A. ("Bank One") and other banks (including Bank One, the
"Bank Group"). In connection with the Company's sale of operations to Emcor as
discussed in "Results of Operations" above and in Note 3 to the Consolidated
Financial Statements included elsewhere in this Form 10-Q, the Company agreed in
February 2002 to pay down debt under the Facility by at least $130 million, and
to reduce the size of the Facility to the lesser of $100 million or 80% of
accounts receivable, net of reserves ("Net Receivables"). 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.

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 $16.6
million as of March 31,2002, and bear interest, payable quarterly, at a weighted
average interest rate of 9.73%. As of May 14, 2002, there had been no change in
the outstanding balance of these notes. Remaining maturities on this debt are
$1.1 million in 2002 and $15.5 million in 2003. Substantially all of this debt's
2003 maturities fall in April 2003.

Other Commitments - As is common in the Company's industry, the Company has
entered into certain off-balance sheet arrangements in the ordinary course of
business that result in risks not directly reflected in the Company's balance
sheets. The Company's most significant off-balance sheet transactions include
liabilities associated with noncancelable operating leases. The Company also has
other off-balance sheet obligations involving letters of credit and surety
guarantees.

The Company enters into noncancelable operating leases for many of its
facility, vehicle and equipment needs. These leases allow the Company 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, the
Company has no further obligation to the lessor. The Company may decide to
cancel or terminate a lease before the end of its term. Typically the Company is
liable to the lessor for the remaining lease payments under the term of the
lease.

Some customers require the Company to post letters of credit to guarantee
performance under the Company's contracts and to ensure payment to the Company's
subcontractors and vendors under those contracts. Certain of the Company's
vendors also require letters of credit to ensure reimbursement for amounts they
are disbursing on behalf of the Company, such as to beneficiaries under the
Company's self-funded insurance programs. Such letters of credit are generally
issued by a bank or similar financial institution. The letter of credit commits
the issuer to pay specified amounts to the holder of the letter of credit if the
holder demonstrates that the Company has failed to perform specified actions. If
this were to occur, the Company would be required to reimburse the issuer of the
letter of credit. Depending on the circumstances of such a reimbursement, the
Company may also have to record a charge to earnings for the reimbursement. To
date the Company has not had a claim made against a letter of credit that
resulted in payments by the issuer of the letter of credit or by the Company.
The Company believes that it is unlikely that it will have to fund claims under
a letter of credit in the foreseeable future.

Many customers, particularly in connection with new construction, require
the Company to post performance and payment bonds issued by a financial
institution known as a surety. These bonds provide a guarantee to the customer
that the Company will perform under the terms of a contract and that the Company
will pay subcontractors and vendors. If the Company fails to perform under a
contract or to pay subcontractors and vendors, the customer may demand that the
surety make payments or provide services under the bond. The Company must
reimburse the surety for any expenses or outlays it incurs. To date, the Company
has not had any significant reimbursements to its surety for bond-related costs.
The Company believes that it is unlikely that it will have to fund claims under
its surety arrangements in the foreseeable future.

The Company's future contractual obligations include (in thousands):

TWELVE MONTHS ENDED MARCH 31,
------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
------- ------- ------ ------ ------ ---------- -------

Debt obligations.............. $32,937 $15,553 $ 77 $ 53 $ 53 $ 156 $48,829
Operating lease obligations... $10,169 $ 8,418 $6,148 $4,535 $3,515 $15,716 $48,501

The Company's current letter of credit commitments expire as follows (in
thousands):

TWELVE MONTHS ENDED MARCH 31,
------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
------- ------- ------ ------ ------ ---------- -------

Letters of credit............. $ 1,384 $ 284 $ -- $ -- $ -- $ -- $ 1,668

Outlook - As of March 31, 2002, the Company had total debt outstanding of
$48.8 million. As of May 14, 2002, the Company had total debt outstanding of
approximately $48.6 million. Following disposition in the second quarter of
Emcor-transaction-related items including post-closing adjustments, transaction
costs and taxes, the Company expects total debt outstanding at the end of the
second quarter to be between $50 million and $60 million. Most of this expected
debt balance will be due in January 2003, with substantially the remainder due
in April 2003. While the Company expects to generate positive free cash flow and
reduce these debt balances over upcoming quarters, it is expected that a
significant portion

of these expected debt balances will need to be refinanced during the current
year. The Company believes that its significantly improved financial position
following the Emcor transaction will enable it to refinance this debt, but there
can be no assurance that the Company will be able to secure new financing when
needed or on terms the Company deems acceptable.

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 (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, 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.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 establishes new
accounting and reporting requirements for goodwill and other intangibles. The
Company adopted this new standard effective January 1, 2002. See Note 4 for
further discussion.

In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Company adopted SFAS No. 144 effective January 1,
2002. Under SFAS No. 144, the operating results of companies sold or held for
sale meeting certain criteria as well as any gain or loss on the sale of these
operations are presented as discontinued operations in the Company's statements
of operations. See Note 3 of the Consolidated Financial Statements for a
discussion of the Company's discontinued operations. The operating results for
companies which were sold or shut down during 2001 are presented as continuing
operations through the date of disposition. The adoption of SFAS No. 144 did
affect the presentation of discontinued operations in the consolidated financial
statements; however, it did not have a material financial impact on the
Company's results of operations, financial position or cash flows.

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.

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 estimated and
provided accruals for probable losses and 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 March 31, 2002, the Company did not
issue any unregistered shares of its common stock.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Employment Agreement between Gary E. Hess and the Company dated
April 1, 2002. (Filed herewith).

10.2 Form of Restricted Stock Award Agreement between William F. Murdy and
the Company dated March 22, 2002. (Filed herewith).

(b) Reports on Form 8-K

(i) The Company filed a report on Form 8-K with the Securities and
Exchange Commission on February 15, 2002. Under Item 5 of that report, the
Company disclosed that it had entered into a Purchase Agreement with EMCOR-CSI
Holding Co. ("EMCOR Holding"), a Delaware corporation and wholly-owned
subsidiary of EMCOR Group, Inc., pursuant to which the Company agreed to sell to
EMCOR Holding all of the outstanding capital stock of and ownership interests in
19 of the Company's subsidiary operations.

(ii) The Company filed a report on Form 8-K with the Securities and
Exchange Commission on March 18, 2002. Under Item 5 of that report, the Company
disclosed that it had completed the sale of all of the outstanding capital stock
of and ownership interests in 19 of the Company's subsidiary operations to EMCOR
Holding, a Delaware corporation and wholly-owned subsidiary of Emcor Group, Inc.
("Emcor"). The filing includes the Pro Forma Consolidated Balance Sheet as of
December 31, 2001 and Pro Forma Consolidated Statements of Operations for the
years ended December 31, 1999, 2000 and 2001.

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

None.

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: May 15, 2002

EXHIBIT INDEX

10.1 Employment Agreement between Gary E. Hess and the Company dated
April 1, 2002. (Filed herewith).

10.2 Form of Restricted Stock Award Agreement between William F. Murdy and
the Company dated March 22, 2002. (Filed herewith).