8-KOther Events

COMFORT SYSTEMS USA INC 8-K Report (Mar 18, 2002)

Filed March 18, 2002For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) filed an 8-K on March 18, 2002, detailing the significant divestiture of 19 subsidiary operations to Emcor Group, Inc. (Emcor). This transaction, which closed on March 1, 2002, involved operations that generated approximately $650 million in 2001 revenues, including the company's largest unit, Shambaugh and Son. The sale yielded approximately $156.25 million in cash, with a portion placed in escrow and Emcor assuming $22.5 million in debt. The company anticipates using a substantial portion of the net proceeds to reduce debt and expects to record significant charges in the first quarter of 2002 related to this sale and accounting changes. The filing also provides pro forma financial statements reflecting the impact of the divestiture. The company is adopting new accounting standards, SFAS No. 144 and SFAS No. 142, which will lead to the reporting of discontinued operations and a substantial non-cash goodwill impairment charge, respectively. These changes, along with expected restructuring charges, will significantly impact the company's financial statements for the first quarter of 2002. Comfort Systems is also in the process of seeking more flexible borrowing arrangements as it adjusts to its smaller scale post-transaction.

Key Highlights

  • 1Comfort Systems USA, Inc. sold 19 subsidiary operations, representing approximately $650 million in 2001 revenue, to Emcor Group, Inc. for $156.25 million in cash plus debt assumption.
  • 2The divested operations included the company's largest unit, Shambaugh and Son, which had 2001 revenues of $247 million.
  • 3Approximately $160 million of the net proceeds are expected to be used for debt reduction after accounting for taxes, transaction costs, and escrows.
  • 4The company anticipates recording a loss on the sale of approximately $27 million in the first quarter of 2002, reported as discontinued operations under SFAS No. 144.
  • 5A significant non-cash goodwill impairment charge of $240 million to $260 million is expected in Q1 2002 due to the adoption of SFAS No. 142.
  • 6Restructuring charges of at least $1 million are anticipated in Q1 2002 as the company adjusts to its reduced size.
  • 7The company is initiating a process to secure more flexible debt arrangements following the transaction and a reduction in its revolving credit facility size.

Frequently Asked Questions

This 8-K filing primarily announces the completion of a significant divestiture, where Comfort Systems USA, Inc. sold 19 of its subsidiary operations to Emcor Group, Inc. It also provides pro forma financial information reflecting this transaction and discusses the impact of new accounting standards.

Comfort Systems received approximately $156.25 million in cash. The company expects to use approximately $160 million of the net proceeds (after taxes, transaction costs, and escrows) to reduce its outstanding debt.

In the first quarter of 2002, Comfort Systems expects to report an estimated loss on the sale of the divested operations of approximately $27 million. Additionally, due to the adoption of SFAS No. 142, the company anticipates a substantial non-cash goodwill impairment charge of $240 million to $260 million and restructuring charges of at least $1 million.

The company agreed to pay down its revolving credit facility by at least $130 million and reduce its size. As a result of using proceeds from the sale, borrowings were significantly reduced, and the company is now seeking more flexible borrowing arrangements.