COMFORT SYSTEMS USA INC Fair Value Disclosure
4. Fair Value Measurements
Interest Rate Risk Management and Derivative Instruments
At times, we use derivative instruments to manage exposure to market risk, including interest rate risk. We currently do not have any derivatives that are accounted for as hedges under Accounting Standard Codification (“ASC”) 815.
Fair Value Measurement
We classify and disclose assets and liabilities carried at fair value in one of the following three categories:
| ● | Level 1—quoted prices in active markets for identical assets and liabilities; |
| ● | Level 2—observable market-based inputs or unobservable inputs that are corroborated by market data; and |
| ● | Level 3—significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements are included, for assets and liabilities measured on a recurring basis as of December 31, 2025 and 2024 (in thousands):
Fair Value Measurements at December 31, 2025 | ||||||||||||
| Level 1 | | Level 2 | | Level 3 | | Total | |||||
Cash and cash equivalents | $ | 981,898 | $ | — | $ | — | $ | 981,898 | ||||
U.S. Treasury bills | $ | — | $ | 34,357 | $ | — | $ | 34,357 | ||||
Contingent earn-out obligations | $ | — | $ | — | $ | 34,842 | $ | 34,842 | ||||
Fair Value Measurements at December 31, 2024 | ||||||||||||
| Level 1 | | Level 2 | | Level 3 | | Total | |||||
Cash and cash equivalents | $ | 549,939 | $ | — | $ | — | $ | 549,939 | ||||
Contingent earn-out obligations | $ | — | $ | — | $ | 140,156 | $ | 140,156 | ||||
Cash and cash equivalents are held at a variety of well-known institutions and consist primarily of (i) deposit accounts, (ii) U.S. Treasury bills, and (iii) highly-rated money market funds. Cash equivalents described in (ii) and (iii) above have original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity. We believe the carrying value of our debt associated with our revolving credit facility approximates its fair value due to the variable rate on such debt. We believe the carrying values of our notes to former owners approximate their fair values due to the relatively short remaining terms on these notes.
We own U.S. Treasury bills with maturities greater than ninety days but less than one year, which we classify as held-to-maturity in accordance with ASC 320 “Investments – Debt Securities,” given that the Company has the ability and intent to hold the investments until maturity. These investments are included within “Prepaid Expenses and Other” in the Consolidated Balance Sheet. Due to the short-term maturity, the amortized cost of our U.S. Treasury bills approximates their fair value.
We value contingent earn-out obligations using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows and operating income, probabilities of achieving such future cash flows and operating income and a weighted average cost of capital. Significant changes in any of these assumptions could result in
a significantly higher or lower potential liability. The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings.
The table below presents a reconciliation of the fair value of our contingent earn-out obligations that use significant unobservable inputs (Level 3) (in thousands):
| Year Ended | Year Ended | |||||
| December 31, 2025 | December 31, 2024 | |||||
Balance at beginning of year | | $ | 140,156 | | $ | 44,222 |
|
Issuances |
| 4,059 |
| 51,784 | |||
Settlements | (142,846) | (43,996) | |||||
| 33,473 |
| 88,146 | ||||
Balance at end of year | $ | 34,842 | $ | 140,156 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 22, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Feb 23, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.