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<SEC-DOCUMENT>0000950129-02-001681.txt : 20020415
<SEC-HEADER>0000950129-02-001681.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950129-02-001681
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020401
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: QUANTA SERVICES INC
CENTRAL INDEX KEY: 0001050915
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731]
IRS NUMBER: 742851603
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13831
FILM NUMBER: 02598099
BUSINESS ADDRESS:
STREET 1: 1360 POST OAK BLVD
STREET 2: SUITE 2100
CITY: HOUSTON
STATE: TX
ZIP: 77056
BUSINESS PHONE: 7133506000
MAIL ADDRESS:
STREET 1: 1360 POST OAK BLVD SUITE 2100
CITY: HOUSTON
STATE: TX
ZIP: 77056
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>h94363e10-k.txt
<DESCRIPTION>QUANTA SERVICES INC - FISCAL YEAR END 12/31/2001
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
<Table>
<C> <S>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13831
</Table>
QUANTA SERVICES, INC.
(Exact name of registrant as specified in its charter)
<Table>
<S> <C>
DELAWARE 74-2851603
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</Table>
1360 POST OAK BOULEVARD, SUITE 2100
HOUSTON, TEXAS 77056
(Address of principal executive offices, including ZIP Code)
(713) 629-7600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
<S> <C>
Common Stock, $.00001 par value New York Stock Exchange
(including rights attached thereto)
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 20, 2002, the aggregate market value of the Common Stock and
Limited Vote Common Stock of the Registrant held by non-affiliates of the
Registrant, based on the last sale price of the Common Stock on such date, was
approximately $1.1 billion and $14 million, respectively (for purposes of
calculating these amounts, only directors, officers and beneficial owners of 5%
or more of the outstanding capital stock of the Registrant have been deemed
affiliates).
As of March 20, 2002, the number of shares of the Common Stock of the
Registrant outstanding was 67,982,756. As of the same date, 1,112,905 shares of
Limited Vote Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form
10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
QUANTA SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
INDEX
<Table>
<Caption>
PAGE
NUMBER
------
<S> <C> <C>
PART I...................................................... 1
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 12
ITEM 3. Legal Proceedings........................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders......... 13
PART II..................................................... 14
ITEM 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 14
ITEM 6. Selected Financial Data..................................... 16
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 27
ITEM 8. Financial Statements and Supplementary Data................. 29
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 58
PART III.................................................... 58
ITEM 10. Directors and Executive Officers of the Registrant.......... 58
ITEM 11. Executive Compensation...................................... 58
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 58
ITEM 13. Certain Relationships and Related Transactions.............. 58
PART IV..................................................... 58
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 58
</Table>
i
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Quanta is a leading provider of specialized contracting services, offering
end-to-end network solutions to the electric power, gas, telecommunications and
cable television industries. Our comprehensive services include designing,
installing, repairing and maintaining network infrastructure. Deregulation,
continued outsourcing by our customers and the convergence of the electric
power, gas, telecommunications and cable television industries have resulted in
demand for our services. We have made strategic acquisitions to expand our
geographic presence, generate operating synergies with existing businesses and
develop new capabilities to meet our customers' evolving needs. Quanta was
organized in the state of Delaware in 1997.
We currently have offices nationwide, providing us the presence and
capability to quickly, reliably and effectively complete projects nationwide. We
work for many of the leading companies in the industries we serve.
Representative customers include:
- Adelphia Communications
- AOL Time Warner
- AT&T
- Carolina Power & Light
- CenturyTel
- Charter Communications
- Entergy
- Excel Communications
- Georgia Power
- Nevada Power
- Pacific Bell
- Puget Sound Energy
- Qwest
- Reliant Energy
- Sprint PCS
- Velocita
- Verizon
Our reputation for responsiveness, performance, geographic reach and a
comprehensive service offering has also enabled us to develop strong strategic
alliances with numerous customers.
INDUSTRY OVERVIEW
Based on our review of industry sources, we estimate that network
infrastructure spending by electric power, gas, telecommunications and cable
television providers was more than $45 billion in 2001 and will continue to
grow. We believe the following trends are impacting demand for our services:
Increasing Need to Upgrade Electric Power Transmission and Distribution
Networks. We believe that the aging of many electric power networks and the
increase in competition in the electric power industry will continue to spur
increased investment in electric power transmission and distribution networks.
As competition gives consumers and businesses more choice as to their provider
of electric power, we believe that concerns about power quality and reliability
will result in increased investment in transmission and distribution
infrastructure. Additionally, as deregulation accelerates the selling of
electricity across regional networks, capacity and reliability will become even
more important.
Increased Outsourcing. Competitive pressures on electric power, gas,
telecommunications and cable television providers caused by deregulation and an
increased focus on core competencies have caused an increased focus on
outsourcing of network services. For instance, although investor owned utilities
have increased the services they provide and the amount of power generated,
total employment at these companies has declined dramatically in the last decade
due, in part, to increased outsourcing. Outsourcing network services reduces
costs, provides flexibility in budgets and improves service and performance for
many of our customers.
Deregulation. Electric power companies have responded to deregulation of
the utility markets by seeking new lines of business and innovative methods to
reduce their costs. Deregulation of the telecommunications markets has spurred
investment by cable television companies, local exchange carriers and long
distance companies as they seek to protect and expand their customer bases. The
movement from a regulated
1
<PAGE>
business environment to an environment exposed to market forces has led our
customers to increase outsourcing of non-core activities, particularly network
development.
Increased Demand for Comprehensive End-to-End Solutions. We believe that
electric power, gas, telecommunications and cable television companies will seek
service providers who can rapidly and effectively design, install and maintain
their networks and continue to meet their needs as they enter new geographic and
product markets. The strategic and financial value to these companies of
geographically expanded and technologically improved networks has caused them to
place a premium on the provision of quick and reliable network solutions within
increasingly challenging scale, time and complexity constraints. Accordingly,
they are partnering with proven full-service network providers with broad
geographic reach, financial capability and technical expertise.
STRATEGY
The key elements of our growth strategy are:
Focus on Internal Growth and Integration. We believe we can improve our
internal revenue growth by providing our customers comprehensive end-to-end
solutions for their infrastructure needs. Our operating units cooperate to
spread their best practices and innovative technology and also share equipment
and human resources. Accordingly, each operating unit is well-positioned to
deepen its relationship with current customers and develop relationships with
new customers. By introducing the capabilities of our other operating units, we
offer our customers solutions to their network needs in all service areas in
which we serve.
Expand Portfolio of Services to Meet Customers' Evolving Needs. We offer
an expanding portfolio of services that allows us to develop, build and maintain
networks on both a regional and national scale and adapt to our customers'
changing and growing needs. We intend to expand further our geographic and
technological capabilities through both internal development and innovation and
through selective acquisitions.
Focus on Expanding Operating Efficiencies. We intend to:
- continue to focus on growth in our more profitable services;
- combine overlapping operations of certain of the businesses we acquire;
- use our assets more efficiently;
- increase our purchasing power to gain volume discounts in areas such as
vehicles and equipment, materials, marketing, bonding, employee benefits
and insurance;
- share pricing, bidding, licensing and other business practices among our
operating units; and
- develop and expand the use of management information systems to
facilitate financial control and asset allocation.
Pursue Strategic Acquisitions. We plan to continue to selectively pursue
acquisitions of profitable companies with strong management teams and good
reputations to broaden our customer base, expand our geographic area of
operation and grow our portfolio of services. Disciplined acquisitions allow us
to cost-effectively meet our strategic needs. Between our initial public
offering in February 1998 and December 31, 2001, we have acquired 86 companies.
We expect that there will continue to be attractive acquisition candidates due
to the highly fragmented nature of the industry, the inability of many companies
to expand and modernize due to capital constraints, and the desire of owners of
acquisition candidates for liquidity. We believe that our financial strength and
experienced management will be attractive to acquisition candidates.
SERVICES
We design, install and maintain networks for the electric power, gas,
telecommunications and cable television industries as well as commercial,
industrial and governmental entities. Increasingly, we find cross-
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over among the various service areas in which we work and many of our customers
utilize more than one service area. The following provides an overview of the
types of services we provide:
Electric Power and Gas Network Services. We provide a variety of
end-to-end services to the electric power and gas industries, which generated
approximately 40% of our pro forma combined revenues for the year ended December
31, 2001. These services include:
- installation, repair and maintenance of electric transmission lines
ranging in capacity from 69,000 volts to 760,000 volts;
- installation, repair and maintenance of electric power distribution
networks;
- design and construction of IPP transmission and substation facilities;
- design and construction of substation projects;
- installation and maintenance of natural gas transmission and distribution
systems;
- provision of cathodic protection design and installation services;
- installation of fiber optic lines for voice, video and data transmission
on existing electric power infrastructure;
- installation and maintenance of joint trench natural gas distribution
systems;
- trenching and horizontal boring for underground installations;
- cable and fault locating; and
- storm damage restoration work.
Telecommunications Network Services. We provide a variety of end-to-end
services to the telecommunications industry, which generated approximately 30%
of our pro forma combined revenues for the year ended December 31, 2001. Our
telecommunications network services include:
- fiber optic, copper and coaxial cable installation and maintenance for
video, data and voice transmission;
- design, construction and maintenance of DSL networks;
- engineering and erection of cellular, digital, PCS(R), microwave and
other wireless communications towers;
- design and installation of switching systems for incumbent local exchange
carriers, newly competitive local exchange carriers, regional Bell
operating companies and long distance providers;
- trenching and plowing applications;
- horizontal directional boring;
- rock saw, rock wheel and rock trench capabilities;
- vacuum excavation services;
- splicing and testing of fiber optic and copper networks; and
- cable locating.
Cable Television Network Services. We provide a variety of end-to-end
services to the cable television industry, which generated approximately 14% of
our pro forma combined revenues for the year ended December 31, 2001. Our cable
television network services include:
- fiber optic and coaxial cable installation and maintenance for voice,
video and data transmission;
- system design and installation;
3
<PAGE>
- upgrading power and telecommunications infrastructure for cable
installations;
- system splicing, balance, testing and sweep certification; and
- residential installation and customer connects, both analog and digital,
for cable television, telephone and Internet services.
Ancillary Services. We provide a variety of comprehensive ancillary
services to commercial, industrial and governmental entities, which generated
approximately 16% of our pro forma combined revenues for the year ended December
31, 2001. These services include:
- installation of intelligent traffic networks such as traffic signals,
controllers, connecting signals, variable message signs, closed circuit
television and other monitoring devices for governments;
- installation of cable and control systems for light rail lines, airports
and highways;
- design, installation, maintenance and repair of electrical components,
fiber optic cabling and building control and automation systems; and
- provision of specialty rock trenching, directional boring and road
milling for industrial and commercial customers.
For additional discussion concerning the revenues derived from these services,
see Notes to Consolidated Financial Statements.
CUSTOMERS, STRATEGIC ALLIANCES AND PREFERRED PROVIDER RELATIONSHIPS
Our customers include electric power, gas, telecommunications and cable
television companies, as well as commercial, industrial and governmental
entities. Our 10 largest customers accounted for 26% of our pro forma combined
revenues in 2001.
Although we are developing a centralized marketing theme, management at
each of our operating units is responsible for developing and maintaining
successful long-term relationships with customers. Our management is
incentivized to cross-sell additional services of other operating units to their
customers. In addition, our business development group promotes and markets our
services for prospective large national accounts and projects that require
services from multiple business units. Many of our customers and prospective
customers have qualification procedures for approved bidders or vendors based
upon the satisfaction of particular performance and safety standards set by the
customer. These customers typically maintain a list of vendors meeting such
standards and award contracts for individual jobs only to such vendors. We
strive to maintain our status as a preferred or qualified vendor to such
customers.
We believe that our strategic relationships with large providers of
electric power and telecommunications services will offer opportunities for
future growth. Many of these strategic relationships take the form of a
strategic alliance or long-term maintenance agreement. Strategic alliances are
typically agreements for periods of approximately two to four years that may
include an option to add a one to two year extension at the end of a contract.
Many of the strategic alliance agreements we have secured are "evergreen"
contracts with exclusivity clauses providing that Quanta will be awarded all
contracts, or a right of first refusal, for a certain type of work or in a
certain geographic region. None of these contracts, however, guarantees a
specific dollar amount of work to be performed by Quanta. Strategic alliance
agreements typically indicate an intention to
4
<PAGE>
work together and many provide us with preferential bidding procedures. Certain
of our strategic alliances and long-term maintenance relationships are listed in
the following table:
<Table>
<Caption>
START OF RELATIONSHIP
RELATIONSHIP WITH OPERATING UNIT
- ------------ ---------------------
<S> <C>
Ericsson.................................................... 2001
Puget Sound Energy.......................................... 2000
Georgia Power Company....................................... 1999
American Electric Power Communications...................... 1998
Avista...................................................... 1996
Entergy..................................................... 1995
Century Telephone........................................... 1993
Imperial Irrigation District................................ 1990
Nevada Power Company........................................ 1989
MidAmerican Energy Corp..................................... 1988
Western Resources........................................... 1979
Kansas City Power & Light................................... 1978
Reliant Energy.............................................. 1971
Aquila...................................................... 1954
Intermountain R.E.A......................................... 1953
</Table>
ACQUISITIONS
During 2001, we acquired nine network service or related businesses which,
when combined with our existing operations, resulted in pro forma combined
revenues for the year ended December 31, 2001 of $2.1 billion. We acquired these
nine businesses for a combined consideration of $119.9 million in cash and 2.4
million shares of our common stock.
We have developed a set of financial, geographic and management criteria
for the evaluation of acquisition candidates. These criteria evaluate a variety
of factors, including:
- historical and projected financial performance;
- experience and reputation of the candidate's management and operations;
- whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates;
- whether the acquisition will augment or increase Quanta's market share or
services offered or help protect our existing customer base;
- potential synergies gained by combining the acquisition candidate with
our existing operations; and
- liabilities, contingent or otherwise, of the candidate.
EMPLOYEES
As of December 31, 2001, Quanta had 2,081 salaried employees, including
executive officers, project managers or engineers, job superintendents, staff
and clerical personnel and approximately 11,406 hourly employees, the number of
which fluctuates depending upon the number and size of the projects undertaken
by us at any particular time. We do not anticipate any overall reductions in
staff as a result of the consolidation of the businesses we acquire, although
there may be some job realignments and new assignments in an effort to eliminate
overlapping and redundant positions.
Approximately 33% of our employees at December 31, 2001, were covered by
collective bargaining agreements, primarily with the International Brotherhood
of Electrical Workers (IBEW). Under our
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agreements with our unions, we agree to pay specified wages to our union
employees, observe certain workplace rules and make employee benefit payments to
multi-employer pension plans and employee benefit trusts rather than
administering the funds on behalf of these employees. These collective
bargaining agreements have varying terms and expiration dates. The majority of
the collective bargaining agreements contain provisions that prohibit work
stoppages or strikes, even during specified negotiation periods relating to
agreement renewal, and provide for binding arbitration dispute resolution in the
event of prolonged disagreement.
Each of our operating units provides a variety of health, welfare and
benefit plans for their employees who are not covered by collective bargaining
agreements. Quanta has a 401(k) plan pursuant to which eligible employees who
are not provided retirement benefits through a collective bargaining agreement
may make contributions through a payroll deduction. Quanta makes matching cash
contributions of 100% of each employee's contribution up to 3% of that
employee's salary and 50% of each employee's contribution between 3% and 6% of
such employee's salary. Quanta also has an employee stock purchase plan which
provides that eligible employees may contribute up to 10% of their cash
compensation, up to $25,000 annually, toward the semi-annual purchase of our
common stock at a discounted price. Over 1,950 of our employees participated in
the employee stock purchase plan during the year ended December 31, 2001.
Our industry is experiencing a shortage of skilled workers in certain
fields. In response to the shortage, Quanta seeks to take advantage of various
IBEW and National Electrical Contractors Association (NECA) referral programs
and hire graduates from the joint IBEW/NECA apprenticeship program which trains
qualified electrical workers.
We believe our relationships with our employees and union representatives
are good.
TRAINING, QUALITY ASSURANCE AND SAFETY
Performance of Quanta's services requires the use of equipment and exposure
to conditions that can be dangerous. Although we are committed to a policy of
operating safely and prudently, we have been and will continue to be subject to
claims by employees, customers and third parties for property damage and
personal injuries resulting from performance of our services. We perform on-site
services using employees who have completed our applicable safety and training
programs. Our policies require that employees complete the prescribed training
and service program of the operating unit for which they work in addition to
those required, if applicable, by NECA and the IBEW prior to performing more
sophisticated and technical jobs. For example, all journeymen linemen are
required by the IBEW and NECA to complete a minimum of 7,000 hours of on-the-job
training, approximately 200 hours of classroom education and extensive testing
and certification. Each operating unit requires additional training, depending
upon the sophistication and technical requirements of each particular job. We
have established company-wide training and educational programs, as well as
comprehensive safety policies and regulations, by sharing "best practices"
throughout our operations.
REGULATION
Our operations are subject to various federal, state and local laws and
regulations including:
- licensing requirements applicable to electricians and engineers;
- building and electrical codes;
- permitting and inspection requirements applicable to construction
projects;
- regulations relating to worker safety and environmental protection; and
- special bidding and procurement requirements on government projects.
We believe that we have all the licenses required to conduct our operations
and that we are in substantial compliance with applicable regulatory
requirements. Our failure to comply with applicable regulations could result in
substantial fines or revocation of our operating licenses. Many state and local
regulations governing
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electrical construction require permits and licenses to be held by individuals
who have passed an examination or met other requirements.
COMPETITION
The markets in which we operate are highly competitive, requiring
substantial resources and skilled and experienced personnel. We compete with
other independent contractors in most of the geographic markets in which we
operate, and several of our competitors are large domestic companies that may
have greater financial, technical and marketing resources than we do. In
addition, there are relatively few barriers to entry into the industries in
which we operate and, as a result, any organization that has adequate financial
resources and access to technical expertise may become a competitor. A
significant portion of our revenues is currently derived from unit price or
fixed price agreements, and price is often an important factor in the award of
such agreements. Accordingly, we could be underbid by our competitors in an
effort by them to procure such business. We believe that as demand for our
services increases, customers will increasingly consider other factors in
choosing a service provider, including technical expertise and experience,
financial and operational resources, nationwide presence, industry reputation
and dependability, which we expect to benefit contractors such as us. There can
be no assurance, however, that Quanta's competitors will not develop the
expertise, experience and resources to provide services that are superior in
both price and quality to Quanta's services, or that we will be able to maintain
or enhance our competitive position. We may also face competition from the
in-house service organizations of our existing or prospective customers,
including electric power, gas, telecommunications and cable television
companies, that employ personnel who perform some of the same types of services
as those provided by us. Although a significant portion of these services is
currently outsourced, there can be no assurance that our existing or prospective
customers will continue to outsource services in the future.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
The primary risks in our operations are bodily injury and property damage.
As of August 1, 2000, we entered into agreements to insure Quanta for workers'
compensation, employer's liability, auto liability and general liability,
subject to a deductible of $500,000 per accident or occurrence. Losses up to the
deductible amounts are accrued based upon Quanta's estimates of the ultimate
liability for 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.
Contracts in the electric power, gas, telecommunications and cable
television industries may require performance bonds or other means of financial
assurance to secure contractual performance. If we were unable to obtain surety
bonds or letters of credit in sufficient amounts or at acceptable rates, we
might be precluded from entering into additional contracts with certain of our
customers.
PROXY SOLICITATION
On February 8, 2002, Aquila announced its intention to conduct a proxy
solicitation to replace members of our board of directors with a slate of its
own nominees. We intend to oppose the Aquila proxy contest vigorously. The proxy
contest has resulted in, and will continue to result in, the incurrence of
substantial fees and expenses and the diversion of management's time and
efforts.
As explained more fully elsewhere in this report, in the event that Aquila
prevails in its proxy contest, an event of default could occur under certain of
our debt instruments. In addition, we may not be able to retain certain of our
key personnel and may also have difficulty attracting new employees until the
proxy contest is resolved.
RISK FACTORS
Our business is subject to a variety of risks, including the risks
described below. The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties not known to us or
that we currently deem immaterial may also impair our business operations. If
any of the
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following risks actually occur, our business, financial condition and results of
operations could be materially and adversely affected.
The Industries We Serve Are Subject to Rapid Technological and Structural
Changes That Could Reduce the Demand for the Services We Provide. The electric
power, gas, telecommunications and cable television industries are undergoing
rapid change as a result of technological advances and deregulation that could
in certain cases reduce the demand for our services or otherwise adversely
affect our business. New or developing technologies could displace the wireline
systems used for voice, video and data transmissions, and improvements in
existing technology may allow telecommunications and cable television companies
to significantly improve their networks without physically upgrading them. In
addition, consolidation, competition or capital constraints in the electric
power, gas, telecommunications or cable television industries may result in the
loss of one or more customers.
We May Be Unsuccessful at Generating Internal Growth. Our ability to
generate internal growth will be affected by, among other factors, our ability
to:
- expand the range of services we offer to customers to address their
evolving network needs;
- attract new customers;
- increase the number of projects performed for existing customers;
- hire and retain employees;
- open additional facilities; and
- reduce operating and overhead expenses.
In addition, our customers may reduce the number or size of projects available
to us due to their inability to obtain capital or pay for services provided.
Many of the factors affecting our ability to generate internal growth may be
beyond our control, and we cannot be certain that our strategies will be
successful or that we will be able to generate cash flow sufficient to fund our
operations and to support internal growth. Our inability to achieve internal
growth could materially and adversely affect our business, financial condition
and results of operations.
A Continued Economic Downturn May Lead to Less Demand for Our Services. If
the general level of economic activity continues to slow, our customers may
delay or cancel new projects. A number of other factors, including financing
conditions for and potential bankruptcies in the industries we serve, could
adversely affect our customers and their ability or willingness to fund capital
expenditures in the future or pay for past services.
We May Be Unsuccessful at Integrating Companies That We Acquire. We cannot
be sure that we can successfully integrate our acquired companies with our
existing operations without substantial costs, delays or other operational or
financial problems. If we do not implement proper overall business controls, our
decentralized operating strategy could result in inconsistent operating and
financial practices at the companies we acquire, and our overall profitability
could be adversely affected. Integrating our acquired companies involves a
number of special risks which could materially and adversely affect our
business, financial condition and results of operations, including:
- failure of acquired companies to achieve the results we expect;
- diversion of our management's attention from operational matters;
- difficulties integrating the operations and personnel of acquired
companies;
- inability to retain key personnel of the acquired companies;
- risks associated with unanticipated events or liabilities;
- the potential disruption of our business; and
- the difficulty of maintaining uniform standards, controls, procedures and
policies.
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If one of our acquired companies suffers customer dissatisfaction or performance
problems, the reputation of our entire company could be materially and adversely
affected.
We May Not Have Access In The Future to Sufficient Funding to Finance
Desired Growth. If we cannot secure additional financing from time to time in
the future on acceptable terms, we may be unable to support our growth strategy.
We cannot readily predict the timing, size and success of our acquisition
efforts and therefore the capital we will need for these efforts. Using cash for
acquisitions limits our financial flexibility and makes us more likely to seek
additional capital through future debt or equity financings. Our existing debt
agreements contain significant restrictions on our operational and financial
flexibility, including our ability to obtain additional debt, and if we seek
more debt we may have to agree to additional covenants that limit our
operational and financial flexibility. When we seek additional debt or equity
financings, we cannot be certain that additional debt or equity will be
available to us at all or on terms acceptable to us. Our $350.0 million credit
facility contains a requirement to obtain the consent of the lenders for
acquisitions exceeding a certain level of cash consideration. In addition, an
event of default could occur under our credit facility and senior secured notes
in the event that Aquila prevails in its recently announced proxy contest for
control of our board of directors. No such event of default exists under our
convertible subordinated notes. We cannot be certain that the affected lenders
and note holders would waive such an event of default or that we or Aquila would
be able to refinance any defaulted indebtedness.
Our Operating Results May Vary Significantly From Quarter-to-Quarter.
During the winter months, demand for our services may be lower due to inclement
weather. Additionally, our quarterly results may also be materially affected by:
- the timing and volume of work under new agreements;
- regional or general economic conditions;
- the budgetary spending patterns of customers;
- payment risk associated with the financial condition of customers;
- variations in the margins of projects performed during any particular
quarter;
- the termination of existing agreements;
- costs we incur to support growth internally or through acquisitions or
otherwise;
- losses experienced in our operations not otherwise covered by insurance;
- a change in the mix of our customers, contracts and business;
- increases in construction and design costs;
- the timing of acquisitions; and
- the timing and magnitude of acquisition assimilation costs.
Accordingly, our operating results in any particular quarter may not be
indicative of the results that you can expect for any other quarter or for the
entire year.
Our Dependence Upon Fixed Price Contracts Could Adversely Affect Our
Business. We currently generate, and expect to continue to generate, a portion
of our revenues under fixed price contracts. We must estimate the costs of
completing a particular project to bid for such fixed price contracts. The cost
of labor and materials, however, may vary from the costs we originally
estimated. These variations, along with other risks inherent in performing fixed
price contracts, may cause actual revenue and gross profits for a project to
differ from those we originally estimated and could result in reduced
profitability and losses on projects. Depending upon the size of a particular
project, variations from the estimated contract costs can have a significant
impact on our operating results for any fiscal quarter or year.
9
<PAGE>
Many of Our Contracts May Be Canceled On Short Notice and We May Be
Unsuccessful In Replacing Our Contracts as They Are Completed or Expire. We
could experience a material adverse effect on our revenue, net income and
liquidity if any of the following occur:
- our customers cancel a significant number of contracts;
- we fail to win a significant number of our existing contracts upon
re-bid; or
- we complete the required work under a significant number of non-recurring
projects and cannot replace them with similar projects.
Many of our customers may cancel our contracts with them on short notice,
typically 30-90 days, even if we are not in default under the contract. Certain
of our customers assign work to us on a project-by-project basis under master
service agreements. Under these agreements, our customers often have no
obligation to assign work to us. Our operations could be materially and
adversely affected if the anticipated volume of work is not assigned to us. Many
of our contracts, including our master service contracts, are opened to public
bid at the expiration of their terms. We cannot assure you that we will be the
successful bidder on our existing contracts that come up for bid.
Our Business Growth Could Outpace the Capability of Our Corporate
Management Infrastructure. We cannot be certain that our systems, procedures
and controls will be adequate to support our operations as they expand. Future
growth also could impose significant additional responsibilities on members of
our senior management, including the need to recruit and integrate new senior
level managers and executives. We cannot be certain that we can recruit and
retain such additional managers and executives. To the extent that we are unable
to manage our growth effectively, or are unable to attract and retain additional
qualified management, our financial condition and results of operations could be
materially and adversely affected.
The Departure of Key Personnel Could Disrupt Our Business. We depend on
the continued efforts of our executive officers and on senior management of the
businesses we acquire. Although we have entered into an employment agreement
with each of our executive officers and certain other key employees, we cannot
be certain that any individual will continue in such capacity for any particular
period of time. In the opinion of management, the risk of loss of key personnel
has been heightened by Aquila's recent announcement of its intention to conduct
a proxy solicitation to replace members of our board of directors with a slate
of its nominees. We cannot be certain that our key personnel would remain in our
employment if Aquila prevails in its proxy contest for control of our board of
directors. The loss of key personnel, or the inability to hire and retain
qualified employees, could adversely affect our business, financial condition
and results of operations. We do not carry key-person life insurance on any of
our employees.
Our Business Is Labor Intensive and We May Be Unable to Attract and Retain
Qualified Employees. Our ability to increase our productivity and profitability
will be limited by our ability to employ, train and retain skilled personnel
necessary to meet our requirements. We, like many of our competitors, are
currently experiencing shortages of qualified personnel. We cannot be certain
that we will be able to maintain an adequate skilled labor force necessary to
operate efficiently and to support our growth strategy or that our labor
expenses will not increase as a result of a shortage in the supply of skilled
personnel. Labor shortages or increased labor costs could have a material
adverse effect on our ability to implement our growth strategy and our
operations.
Our Unionized Workforce Could Adversely Affect Our Operations and
Acquisition Strategy. As of December 31, 2001, approximately 33% of our
employees were covered by collective bargaining agreements. Although the
majority of these agreements prohibit strikes and work stoppages, we cannot be
certain that strikes or work stoppages will not occur in the future. Strikes or
work stoppages would adversely impact our relationship with our customers and
could materially and adversely affect our business, financial condition and
results of operations. In addition, our selective acquisition strategy could be
adversely affected because of our union status for a variety of reasons. For
instance, our union agreements may be incompatible with the union agreements of
a business we want to acquire and some businesses may not want to become
affiliated with a union based company.
10
<PAGE>
Our Industry Is Highly Competitive. Our industry is served by numerous
small, owner-operated private companies, a few public companies and several
large regional companies. In addition, relatively few barriers prevent entry
into our industry. As a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
Competition in the industry depends on a number of factors, including price.
Certain of our competitors may have lower overhead cost structures and may,
therefore, be able to provide their services at lower rates than we are able to
provide. In addition, some of our competitors may have greater resources than we
do. We cannot be certain that our competitors will not develop the expertise,
experience and resources to provide services that are superior in both price and
quality to our services. Similarly, we cannot be certain that we will be able to
maintain or enhance our competitive position within our industry or maintain a
customer base at current levels. Further, our relationships with major utility
companies could be jeopardized in the event that Aquila prevails in its proxy
contest for control of our board of directors. We may also face competition from
the in-house service organizations of our existing or prospective customers.
Electric power, gas, telecommunications and cable television service providers
usually employ personnel who perform some of the same types of services we do.
We cannot be certain that our existing or prospective customers will continue to
outsource services in the future.
Our Results of Operations Could Be Adversely Affected as a Result of
Goodwill Impairments. When we acquire a business, we record an asset called
"goodwill" equal to the excess amount we pay for the business, including
liabilities assumed, over the fair value of the tangible assets of the business
we acquire. Through December 31, 2001, pursuant to generally accepted accounting
principles, we amortized this goodwill over its estimated useful life of 40
years following the acquisition, which directly impacted our earnings. As stated
in Note 2 of Notes to Consolidated Financial Statements under New Accounting
Pronouncements, the Financial Accounting Standards Board (FASB) issued Statement
No. 142 which provides that goodwill and other intangible assets that have
indefinite useful lives will not be amortized, but instead must be tested at
least annually for impairment, and intangible assets that have finite useful
lives should continue to be amortized over their useful lives. Statement No. 142
also provides specific guidance for testing goodwill and other nonamortized
intangible assets for impairment. The Statement requires management to make
certain estimates and assumptions in order to allocate goodwill to reporting
units and to determine the fair value of reporting unit net assets and
liabilities, including, among other things, an assessment of market conditions,
projected cash flows, investment rates, cost of capital and growth rates, which
could significantly impact the reported value of goodwill and other intangible
assets. Statement No. 142 requires, in lieu of amortization, an initial
impairment review of goodwill in 2002 and annual impairment tests thereafter.
Based on a preliminary review of the new standard, we believe that we will
record a non-cash goodwill impairment charge upon adoption and that the amount
of such charge will be material in relation to our unamortized goodwill balance.
Such charge, however, will not impact cash flow or operating income but will be
reflected as a cumulative effect of a change in accounting principle.
We Could Have Potential Exposure to Environmental Liabilities. Our
operations are subject to various environmental laws and regulations, including
those dealing with the handling and disposal of waste products, PCBs, fuel
storage and air quality. As a result of past and future operations at our
facilities, we may be required to incur environmental remediation costs and
other cleanup expenses. In addition, we cannot be certain that we will be able
to identify or be indemnified for all potential environmental liabilities
relating to any acquired business, property or assets.
Certain Provisions of Our Corporate Governing Documents Could Make an
Acquisition of Our Company More Difficult. The following provisions of our
certificate of incorporation and bylaws, as currently in effect, as well as our
stockholder rights plan and Delaware law, could discourage potential proposals
to acquire Quanta, delay or prevent a change in control of Quanta or limit the
price that investors may be willing to pay in the future for shares of our
common stock:
- our certificate of incorporation permits our board of directors to issue
"blank check" preferred stock and to adopt amendments to our bylaws;
- our bylaws contain restrictions regarding the right of stockholders to
nominate directors and to submit proposals to be considered at
stockholder meetings;
11
<PAGE>
- our certificate of incorporation and bylaws restrict the right of
stockholders to call a special meeting of stockholders and to act by
written consent;
- we are subject to provisions of Delaware law which prohibit us from
engaging in any of a broad range of business transactions with an
"interested stockholder" for a period of three years following the date
such stockholder became classified as an interested stockholder; and
- on March 8, 2000 we adopted, and on November 15, 2001, February 12, 2002
and March 13, 2002 we amended, a stockholder rights plan that could cause
substantial dilution to a person or group that attempts to acquire us on
terms not approved by our board of directors or permitted by the
stockholder rights plan.
Aquila owns approximately 34% of the voting power of Quanta. In the event we do
not prevail in the rights plan arbitration that is described in Item 3. Legal
Proceedings, Aquila may be able to acquire a majority of the voting power of
Quanta, which would enable it to elect a majority of the board of directors and
prevent a change in control of Quanta. Aquila may not desire to sell its
interest in Quanta. These circumstances could discourage potential proposals to
acquire Quanta, delay or prevent a change in control of Quanta or limit the
price that investors may be willing to pay in the future for shares of our
common stock.
ITEM 2. PROPERTIES
FACILITIES
We lease our corporate headquarters in Houston, Texas and maintain offices
nationwide. This space is used for offices, equipment yards, warehousing,
storage and vehicle shops. We own 28 of the facilities we occupy and lease the
rest. We believe that our facilities are sufficient for our current needs.
EQUIPMENT
We operate a fleet of owned and leased trucks and trailers, support
vehicles and specialty construction equipment, such as backhoes, excavators,
trenchers, generators, boring machines, cranes, wire pullers and tensioners. As
of December 31, 2001, the total size of the rolling-stock fleet was
approximately 20,400 units. Most of this fleet is serviced by our own mechanics
who work at various maintenance sites and facilities. We believe that these
vehicles generally are well-maintained and adequate for our present operations.
We believe that we will be able to continue to lease or purchase this equipment
at lower prices due to our larger size and the volume of our leasing and
purchasing activity.
ITEM 3. LEGAL PROCEEDINGS
On November 28, 2001, Aquila filed an arbitration demand against us with
the Kansas City, Missouri office of the American Arbitration Association. In its
demand, Aquila alleged that the amendment to our stockholder rights plan adopted
by our board of directors on November 15, 2001, and subsequently ratified and
reauthorized by a committee of our board of directors, violated the terms of our
1999 securities purchase agreement with Aquila. In its demand, Aquila seeks (i)
damages which may occur if the price of our shares rises during the period in
which the rights plan amendment is in effect, (ii) a declaratory judgment that
the rights plan amendment is void, and (iii) an order requiring us to take all
necessary steps to amend our rights plan to allow Aquila to acquire up to 49% of
our shares on a fully-diluted basis without any economic penalty. The
arbitration proceeding is in the discovery stage and no prediction can be made
as to the probable outcome of the proceeding at this time.
On November 28, 2001, Aquila also filed a complaint in the Delaware Court
of Chancery challenging the adoption of our rights plan amendment. The complaint
names as defendants Quanta and directors James R. Ball, John R. Colson, Vincent
D. Foster, Louis C. Golm, Jerry J. Langdon, Garry A. Tucci and John R. Wilson.
The Delaware complaint alleges that Aquila's nominees to our board of directors
did not receive proper notice of the meetings of the board on November 15, 2001
and November 18, 2001 at which the rights plan amendment was adopted. The
complaint seeks, among other things, an order declaring that all actions taken
at the November 15 and November 18 meetings are void and enjoining our directors
from implementing
12
<PAGE>
or enforcing any action taken at the November 15 and November 18 meetings.
Aquila sought expedited treatment of its Delaware complaint, but the Chancery
Court denied Aquila's motion to expedite the proceedings and instructed Aquila
to file an amended complaint. To date, Aquila had not filed an amended
complaint. The action remains pending and no prediction can be made at this time
as to the outcome of this litigation.
On December 21, 2001, a purported stockholder of Quanta filed a putative
class action and derivative complaint against directors Vincent D. Foster, Jerry
J. Langdon, Louis C. Golm, James R. Ball, John R. Colson, John R. Wilson and
Gary A. Tucci. The complaint also names Quanta as a nominal defendant. The
complaint alleges that the named directors breached their fiduciary duties by
taking certain actions, including adoption of the rights plan amendment, in
response to the announcement by Aquila that it intended to acquire control of
Quanta through open market purchases of our shares. The complaint seeks an order
rescinding any actions taken by the named directors in response to the
announcement by Aquila and requiring the directors to take steps necessary to
maximize the value of Quanta. The complaint further seeks damages from the named
directors on behalf of a class of stockholders and purportedly on behalf of
Quanta for the alleged harm inflicted by the actions of the named directors. On
January 22, 2002, Quanta and the named directors filed a motion to dismiss the
stockholder complaint. It is anticipated that briefing on the motion to dismiss
will begin shortly. Although the ultimate outcome and liability, if any, cannot
be determined, management, after consultation and review with counsel, believes
that the facts do not support the plaintiff's claims and that the company and
the named directors have meritorious defenses.
On March 21, 2002, Aquila filed a complaint in the Delaware Court of
Chancery naming Quanta and each member of the Special Committee of our board of
directors, consisting of all directors other than those designated by Aquila, as
defendants. The Aquila complaint alleges that the Special Committee breached its
fiduciary duty in connection with the March 13, 2002 adoption of our Stock
Employee Compensation Trust (SECT) and the new employment agreements entered
into with certain of our employees and that under Delaware statutory law the
shares of our common stock sold to the SECT are not entitled to vote. The Aquila
complaint seeks, among other things, an order that disallows any shares of
common stock held by the SECT from being voted at our next annual meeting of
stockholders, rescinds the adoption of the SECT, and voids and rescinds the new
employment agreements. On March 25, 2002, the Court denied Aquila's request for
an expedited trial on the merits and set a May 7, 2002 hearing date for Aquila's
motion to preliminarily enjoin shares held in the SECT from voting at the
upcoming annual meeting of stockholders. The action remains pending and no
prediction can be made at this time as to the outcome of this litigation.
In addition, we are from time to time a party to other litigation or
administrative proceedings that arise in the ordinary course of business. We do
not believe that any of these other proceedings, separately or in the aggregate
would, in the opinion of management, be expected to have a material adverse
effect on our results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the stockholders during the
fourth quarter of the year ended December 31, 2001.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
We initially offered our common stock to the public on February 12, 1998,
at a price of $6.00 per share. All price data in the following table have been
adjusted to give effect to a 3-for-2 stock split, paid as a stock dividend on
April 7, 2000. Our common stock is listed on the New York Stock Exchange (NYSE)
under the symbol "PWR." The following table sets forth the high and low sales
prices of our common stock per quarter, as reported by the NYSE, for the two
most recent fiscal years.
<Table>
<Caption>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 2000
1st Quarter............................................... $46.83 $18.00
2nd Quarter............................................... 63.13 34.08
3rd Quarter............................................... 59.88 26.25
4th Quarter............................................... 38.94 22.75
YEAR ENDED DECEMBER 31, 2001
1st Quarter............................................... $36.50 $18.75
2nd Quarter............................................... 37.50 20.13
3rd Quarter............................................... 25.27 9.95
4th Quarter............................................... 18.69 13.90
</Table>
On March 20, 2002, there were 311 holders of record of our common stock, 31
holders of record of our Limited Vote Common Stock and one holder of record of
our Series A Convertible Preferred Stock. There is no established trading market
for the Limited Vote Common Stock or Series A Convertible Preferred Stock.
However, the Limited Vote Common Stock converts into common stock immediately
upon sale.
DIVIDENDS AND PREFERRED STOCK CONVERSION
Our Series A Convertible Preferred Stock accrues a dividend at a rate of
0.5% per annum on a stated amount per share currently equal to $53.99 per share.
Dividends of $930,000 were accrued on the Series A Convertible Preferred Stock
during each of the years ended 2000 and 2001. Dividends on the Series A
Convertible Preferred Stock accumulate until paid and must be paid in full prior
to the issuance of any common stock dividend. At our annual meeting on May 24,
2000 our stockholders approved a transaction that allowed Aquila to exchange
7,924,805 shares of common stock for 1,584,961 additional shares of Series A
Convertible Preferred Stock, at a rate of five shares of common stock for one
share of Series A Convertible Preferred Stock. The transaction did not adversely
affect our other holders of common stock or Limited Vote Common Stock. The
additional shares of Series A Convertible Preferred Stock issued to Aquila in
the exchange did not give Aquila any greater voting power than it previously had
as a holder of the common stock to be exchanged, and did not give Aquila any
additional veto power. In addition, the Series A Convertible Preferred Stock has
no liquidation preference, and its certificate of designation was amended so
that the aggregate dividend payable to Aquila on the Series A Convertible
Preferred Stock was, as a result of the change in the stated amount per share,
unaffected by the transaction.
We currently intend to retain our future earnings, if any, to finance the
growth, development and expansion of our business. Accordingly, we do not
currently intend to declare or pay any cash dividends on our common stock in the
immediate future. The declaration, payment and amount of future cash dividends,
if any, will be at the discretion of our board of directors after taking into
account various factors. These factors include our financial condition, results
of operations, cash flows from operations, current and anticipated capital
requirements and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the terms of our revolving credit
facility and convertible subordinated notes include prohibitions on the payment
of cash dividends without the consent of the respective lenders.
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<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Between October 1, 2001 and December 31, 2001, we completed one acquisition
in which some of the consideration was unregistered securities of the Company.
The aggregate consideration paid in this transaction was $7.3 million in cash
and 304,576 shares of common stock. This acquisition was not affiliated with any
other acquisition prior to such transaction.
All securities listed on the following table were shares of Quanta common
stock. We relied on Section 4(2) of the Securities Act of 1933 as the basis for
exemption from registration. For all issuances, the purchasers were "accredited
investors" as defined in Rule 501 promulgated pursuant to the Securities Act of
1933. All issuances were to the owners of businesses acquired in privately
negotiated transactions or such owners' assignees, and not pursuant to public
solicitation.
<Table>
<Caption>
DATE OF NUMBER OF
ISSUANCE SHARES RECIPIENTS OF QUANTA STOCK CONSIDERATION RECEIVED FOR QUANTA STOCK
- -------- --------- -------------------------- ---------------------------------------
<S> <C> <C> <C>
10/11/01............. 304,576 Four owners of Bradford Acquisition of Bradford Brothers, Inc.
Brothers, Inc.
</Table>
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
For financial statement presentation purposes, in connection with the
combination of the founding companies concurrent with our initial public
offering, PAR Electrical Contractors, Inc. was identified as the "accounting
acquiror." Between our initial public offering in February 1998 and December 31,
2001, we acquired 86 specialty contracting businesses. Of these, 84 were
accounted for using the purchase method of accounting and two were accounted for
using the pooling-of-interests method of accounting. Through the date of our
initial public offering, Quanta's consolidated historical financial statements
represent the financial position and results of operations of PAR as restated to
include the financial position and results of operations of companies acquired
in pooling transactions. The remaining businesses we acquired are reflected in
the financial statements beginning on their respective dates of acquisition. All
per share amounts have been adjusted to give effect to a 3-for-2 stock split,
paid as a stock dividend on April 7, 2000.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1998 1999 2000 2001
------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues............................... $80,010 $319,259 $925,654 $1,793,301 $2,014,877
Cost of services (including
depreciation)....................... 62,599 257,270 711,353 1,379,204 1,601,039
------- -------- -------- ---------- ----------
Gross profit...................... 17,411 61,989 214,301 414,097 413,838
Selling, general and administrative
expenses............................ 12,354 27,160 80,132 143,564 194,575
Merger and special charges............. -- 231 6,574(a) 28,566(a) --
Goodwill amortization.................. 56 2,513 10,902 19,805 25,998
------- -------- -------- ---------- ----------
Income from operations............ 5,001 32,085 116,693 222,162 193,265
Interest expense....................... (1,290) (4,855) (15,184) (25,708) (36,072)
Other income (expense), net............ (131) 641 1,429 2,597 (227)
------- -------- -------- ---------- ----------
Income before income tax provision..... 3,580 27,871 102,938 199,051 156,966
Provision for income taxes............. 1,786 11,683 48,999(b) 93,328(b) 71,200
------- -------- -------- ---------- ----------
Net income........................ 1,794 16,188 53,939 105,723 85,766
Dividends on preferred stock........... -- -- 260 930 930
------- -------- -------- ---------- ----------
Net income attributable to common
stock.......................... $ 1,794 $ 16,188 $ 53,679 $ 104,793 $ 84,836
======= ======== ======== ========== ==========
Basic earnings per share............... $ 0.29 $ 0.60 $ 1.08 $ 1.50 $ 1.11
======= ======== ======== ========== ==========
Diluted earnings per share............. $ 0.29 $ 0.59 $ 1.00 $ 1.42 $ 1.10
======= ======== ======== ========== ==========
</Table>
- ---------------
(a) In December 2000, Quanta agreed to conclude its obligations under its
management services agreement with Aquila in exchange for a one-time
payment to Aquila of approximately $28.6 million. In June 1999, as a result
of the termination of an Employee Stock Ownership Plan associated with a
company acquired in a pooling transaction, Quanta incurred a non-cash
compensation charge of $5.3 million and an excise tax charge of $1.1
million. Quanta also incurred $137,000 in merger charges associated with a
pooling transaction in the first quarter of 1999.
(b) For the year ended December 31, 2000, the provision reflects the result of
no tax benefit being recognized for a portion of the merger and special
charges. For the year ended December 31, 1999, it includes a non-cash
deferred tax charge of $677,000 as a result of a change in the tax status
of a company acquired in a pooling transaction from an S corporation to a C
corporation.
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<PAGE>
<Table>
<Caption>
DECEMBER 31,
---------------------------------------------------------
1997 1998 1999 2000 2001
------- -------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 2,381 $ 57,106 $ 164,140 $ 353,729 $ 335,590
Total assets....................... 37,561 339,081 1,159,636 1,871,897 2,042,901
Long-term debt, net of current
maturities...................... 7,638 60,281 150,308 318,602 327,774
Convertible subordinated notes..... -- 49,350 49,350 172,500 172,500
Total stockholders' equity......... 11,402 171,503 756,925 1,068,956 1,206,751
</Table>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Item 6.
Selected Financial Data and our Consolidated Financial Statements and related
notes thereto included in Item 8.
INTRODUCTION
We derive our revenues from one reportable segment by providing specialized
contracting services and offering comprehensive network solutions. Our customers
include electric power, gas, telecommunications and cable television companies,
as well as commercial, industrial and governmental entities. Assuming all
companies we acquired prior to December 31, 2001 had been acquired on January 1,
2001, we had pro forma combined revenues for the year ended December 31, 2001 of
$2.1 billion, of which 40% was attributable to electric power and gas companies,
30% was attributable to telecommunications customers, 14% was attributable to
cable television operators and 16% was attributable to ancillary services, such
as installing intelligent traffic networks, cable and control systems for light
rail lines, airports and highways, and providing specialty rock trenching,
directional boring and road milling for industrial and commercial customers. We
acquired nine companies in 2001, three of which have continued as separate
operating and reporting subsidiaries, or "platform" companies, while the
remaining six acquired companies were "tuck-in" acquisitions whose operating and
accounting activities were absorbed into other operating subsidiaries.
We enter into contracts principally on the basis of competitive unit price
or fixed price bids, the final terms and prices of which we frequently negotiate
with the customer. Although the terms of our contracts vary considerably, most
are made on either a unit price or fixed price basis in which we agree to do the
work for a price per unit of work performed (unit price) or for a fixed amount
for the entire project (fixed price). We also perform services on a cost-plus or
time and materials basis. We complete most installation projects within one
year, while we frequently provide maintenance and repair work under open-ended,
unit price master service agreements which are renewable annually. We generally
recognize revenue when services are performed except when work is being
performed under fixed price contracts. We typically record revenues from fixed
price contracts on a percentage-of-completion basis, using the cost-to-cost
method based on the percentage of total costs incurred to date in proportion to
total estimated costs to complete the contract. Some of our customers require us
to post performance and payment bonds upon execution of the contract, depending
upon the nature of the work to be performed. Our fixed price contracts often
include payment provisions pursuant to which the customer withholds a 5% to 10%
retainage from each progress payment and remits the retainage to us upon
completion and approval of the work.
Cost of services consists primarily of salaries, wages and benefits to
employees, depreciation, fuel and other vehicle expenses, equipment rentals,
subcontracted services, insurance, facilities expenses, materials and parts and
supplies. Our gross margin, which is gross profit expressed as a percentage of
revenues, is typically higher on projects where labor, rather than materials,
constitutes a greater portion of the cost of services. We can predict materials
costs more accurately than labor costs. Therefore, to compensate for the
potential variability of labor costs, we seek to maintain higher margins on
labor-intensive projects. Certain of our subsidiaries were previously subject to
deductibles ranging from $100,000 to $1,000,000 for workers' compensation
insurance and, as of August 1, 2000, we have a deductible of $500,000 per
occurrence related to
17
<PAGE>
workers' compensation, employer's liability, automobile and general liability
claims. In addition, effective January 1, 2002, we consolidated the various
non-union employee related health care benefits plans that existed at certain of
our subsidiaries into one corporate plan which is subject to a deductible of
$250,000 per claimant per year. Fluctuations in insurance accruals related to
these deductibles could have an impact on operating margins in the period in
which such adjustments are made. Due in part to the events of September 11,
2001, the insurance market for large risks, including specialty service
contractors, continues to experience increasing premiums. This increased pricing
pressure may cause us to increase our deductibles to defray certain of these
costs. We continue to build long-term relationships with our insurance carriers
to minimize such market swings.
Selling, general and administrative expenses consist primarily of
compensation and related benefits to management, administrative salaries and
benefits, marketing, office rent and utilities, communications, professional
fees and bad debt expense. Selling, general and administrative expenses can be
impacted by our customers inability to pay for services performed.
Through December 31, 2001, we have recorded goodwill of $1.1 billion, which
primarily equals the excess amount we have paid for businesses over the fair
value of the tangible and intangible assets of such businesses acquired using
the purchase method of accounting. Through December 31, 2001, we amortized this
goodwill over its estimated useful life of 40 years as a non-cash charge to
operating income. We are unable to deduct the majority of amortized goodwill
from our income for tax purposes.
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
Our results of operations can be subject to seasonal variations. During the
winter months, demand for new projects and new maintenance service arrangements
may be lower due to reduced construction activity. However, demand for repair
and maintenance services attributable to damage caused by inclement weather
during the winter months may partially offset the loss of revenues from lower
demand for new projects and new maintenance service arrangements. Additionally,
our industry can be highly cyclical. As a result, our volume of business may be
adversely affected by declines in new projects in various geographic regions in
the U.S. Typically, we experience lower gross and operating margins during the
winter months. The timing of acquisitions, variations in the margins of projects
performed during any particular quarter, the timing and magnitude of acquisition
assimilation costs, regional economic conditions and our customer's access to
capital may also materially affect quarterly results. Accordingly, our operating
results in any particular quarter may not be indicative of the results that can
be expected for any other quarter or for the entire year.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, we had cash and cash equivalents of $6.3 million,
working capital of $335.6 million and long-term debt of $500.3 million, net of
current maturities. Our long-term debt balance at that date included borrowings
of $109.3 million under our credit facility, $210.0 million of senior secured
notes, $172.5 million of convertible subordinated notes and $8.5 million of
other debt.
During the year ended December 31, 2001, operating activities provided net
cash to us of $210.0 million. Operating cash flow before changes in working
capital and other operating accounts totaled $196.6 million. Net changes in
working capital and other operating accounts generated $13.4 million, net in
2001, primarily as a result of management focus on working capital and a general
business slowdown. Cash flow from operations is primarily influenced by demand
for our services, operating margins and the type of services we provide.
Acquisitions created significant changes in our working capital accounts
throughout the year and such accounts are not comparable to prior periods. We
used net cash in investing activities of $221.8 million, including $119.5
million used for the purchase of businesses, net of cash acquired and $85.0
million used for additions of property and equipment. Financing activities
provided net cash of $0.8 million, resulting primarily from $16.5 million in net
borrowings under our credit facility and $8.7 million from the issuance of stock
under the employee stock purchase plan, partially offset by $15.0 million in net
repayments of long-term debt and $15.3 million used for the purchase of treasury
stock.
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<PAGE>
We currently have a $350.0 million credit facility with 14 participating
banks. The credit facility is secured by a pledge of all of the capital stock of
our operating subsidiaries and the majority of our assets. We use the credit
facility to provide funds to be used for working capital, to finance
acquisitions and for other general corporate purposes. Amounts borrowed under
the credit facility bear interest at a rate equal to either (a) LIBOR plus 1.00%
to 2.00%, as determined by the ratio of our total funded debt to EBITDA (as
defined in the credit facility) or (b) the bank's prime rate plus up to 0.25%,
as determined by the ratio of our total funded debt to EBITDA. We pay commitment
fees of 0.25% to 0.50% (based on the ratio of our total funded debt to EBITDA)
on any unused borrowing capacity under the credit facility. Our subsidiaries
guarantee repayment of all amounts due under the credit facility, and the credit
facility restricts pledges of material assets. We agreed to usual and customary
covenants for a credit facility of this nature, including a prohibition on the
payment of dividends on common stock, certain financial ratios and indebtedness
covenants and a requirement to obtain the consent of the lenders for
acquisitions exceeding a certain level of cash consideration. As of March 20,
2002, we had borrowing availability of $199.6 million under the credit facility.
The weighted-average borrowing rate on the credit facility for the year ended
December 31, 2001 was 5.55%.
As of December 31, 2001, we had $210.0 million of senior secured notes
which have maturities ranging from four to nine years with a weighted average
interest rate of 8.41% and, pursuant to an intercreditor agreement, rank equally
in right of repayment with indebtedness under our credit facility. The senior
secured notes have financial covenants similar to those under the credit
facility.
As of December 31, 2001, we had $172.5 million in convertible subordinated
notes that bear interest at 4.0% per year and are convertible into shares of our
common stock at a price of $54.53 per share, subject to adjustment as a result
of certain events. The convertible subordinated notes require semi-annual
interest payments until the notes mature on July 1, 2007. We have the option to
redeem some or all of the convertible subordinated notes beginning July 3, 2003
at specified redemption prices, together with accrued and unpaid interest. If
certain fundamental changes occur, as described in the indenture under which we
issued the convertible subordinated notes, holders of the convertible
subordinated notes may require us to purchase all or part of their notes at a
purchase price equal to 100% of the principal amount, plus accrued and unpaid
interest.
We have specifically provided for the possibility of a non-cash goodwill
impairment charge in our credit facility resulting from the adoption of SFAS No.
142 and, accordingly, expect no impact on our credit facility as a result of
this charge. We are currently seeking to avoid any potential covenant violations
through a similar amendment with holders of our senior secured notes and expect
the completion of an amendment prior to the occurrence of any covenant
violation. A goodwill impairment charge will not violate any covenants in our
convertible subordinated notes.
Other Commitments. As is common in our industry, we have entered into
certain off-balance sheet arrangements in the ordinary course of business that
result in risks not directly reflected in our balance sheets. Our significant
off-balance sheet transactions include liabilities associated with
non-cancelable operating leases, letter of credit obligations and surety
guarantees. We have not engaged in any off-balance sheet financing arrangements
through special purpose entities.
We enter into non-cancelable operating leases for many of our facility,
vehicle and equipment needs. These leases allow us to conserve cash by paying a
monthly lease rental fee for use of facilities, vehicles and equipment rather
than purchasing them. At the end of the lease, we have no further obligation to
the lessor. We may decide to cancel or terminate a lease before the end of its
term. Typically we are liable to the lessor for the remaining lease payments
under the term of the lease.
Some customers require us to post letters of credit to guarantee
performance under our contracts and to ensure payment to our subcontractors and
vendors under those contracts. Certain of our vendors also require letters of
credit to ensure reimbursement for amounts they are disbursing on behalf of us,
such as to beneficiaries under our 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 we have failed to perform
specified actions. If this were to occur, we would be required to reimburse the
issuer of the letter of credit. Depending on the circumstances of such a
reimbursement, we may also have to record a charge to earnings for the
reimbursement. To date we
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<PAGE>
have not had a claim made against a letter of credit that resulted in payments
by the issuer of the letter of credit or by us and do not believe that it is
likely that any claims will be made under a letter of credit in the foreseeable
future.
Many customers, particularly in connection with new construction, require
us to post performance and payment bonds issued by a financial institution known
as a surety. These bonds provide a guarantee to the customer that we will
perform under the terms of a contract and that we will pay subcontractors and
vendors. If we fail 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. We must reimburse the surety for any expenses or
outlays it incurs. To date, we have not had any significant reimbursements to
our surety for bond-related costs. We believe that it is unlikely that we will
have to fund claims under our surety arrangements in the foreseeable future.
The Company's future contractual obligations, including interest under
capital leases, are as follows (in thousands):
<Table>
<Caption>
LESS THAN
TOTAL ONE YEAR 2003 2004 2005 2006 THEREAFTER
-------- --------- ------- -------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt obligations
including capital leases...... $508,381 $ 8,067 $ 4,798 $111,202 $103,882 $5,326 $275,106
Operating lease obligations..... $ 65,380 $30,772 $14,122 $ 8,281 $ 6,680 $2,915 $ 2,610
</Table>
The Company also had $46.4 million in letters of credit outstanding under
our credit facility primarily to secure obligations under our casualty insurance
program at year-end. While not actual borrowings, letters of credit do reflect
potential liabilities under our credit facility and therefore are treated as a
use of borrowing capacity under our credit facility. These are irrevocable
stand-by letters of credit with maturities expiring at various times throughout
2002. Upon maturity, it is expected that the majority of these letters of credit
will be renewed for subsequent one year periods. Borrowing availability under
our credit facility was $194.3 million as of December 31, 2001.
Stock Repurchase Plan. Our board of directors has authorized a Stock
Repurchase Plan under which up to $75.0 million of our common stock may be
repurchased. Under the Stock Repurchase Plan, we may conduct purchases through
open market transactions in accordance with applicable securities laws. During
2001, we purchased 986,000 shares of common stock for approximately $15.3
million. The amount of shares purchased and the timing of any future purchases
will be based on a number of factors, including the market price of the stock,
market conditions and as our management deems appropriate.
Stock Employee Compensation Trust. On March 13, 2002, our board of
directors approved the creation of a SECT to fund certain of our future employee
benefit obligations using our common stock. The SECT was established by selling
8.0 million shares of our common stock, including the 986,000 shares we
purchased during 2001 pursuant to our Stock Repurchase Plan, to the SECT in
exchange for a promissory note plus an amount equal to the aggregate par value
of the shares.
The SECT is a trust that holds shares of our common stock to be used to
fund our obligations during the term of the trust in respect of certain benefit
plans. The SECT will release the shares over 15 years, the life of the trust, as
the note is paid down through contributions by us to satisfy certain benefit
requirements of our benefit plans. In addition, we believe that the SECT will
reduce our cash obligations to fund these programs and provide us with a
pre-determined method to increase our equity base over time, which we believe
will have a positive impact on our credit ratios. We will recognize compensation
expense for certain shares released based on the fair value of such shares as
they are released from the SECT. Unallocated shares held by the SECT will not be
included in calculating our earnings per share. In all matters submitted to our
stockholders for a vote or any tender offers made to our stockholders, the
unallocated shares in the SECT will be voted or tendered based on the direction
of the participants in our broad-based Employee Stock Purchase Plan.
Litigation. On November 28, 2001, Aquila filed an arbitration demand
against us with the Kansas City, Missouri office of the American Arbitration
Association. In its demand, Aquila alleged that the amendment to our stockholder
rights plan adopted by our board of directors on November 15, 2001, and
subsequently ratified
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<PAGE>
and reauthorized by a committee of our board of directors, violated the terms of
our 1999 securities purchase agreement with Aquila. In its demand, Aquila seeks
(i) damages which may occur if the price of our shares rises during the period
in which the rights plan amendment is in effect, (ii) a declaratory judgment
that the rights plan amendment is void, and (iii) an order requiring us to take
all necessary steps to amend our rights plan to allow Aquila to acquire up to
49% of our shares on a fully-diluted basis without any economic penalty. The
arbitration proceeding is in the discovery stage and no prediction can be made
as to the probable outcome of the proceeding at this time or as to the amount,
if any, in damages we may be found to owe. In addition, defense fees will be
incurred associated with this case and other litigation with Aquila and no
prediction can be made as to the range of these fees.
In addition, we are from time to time a party to other litigation or
administrative proceedings that arise in the ordinary course of business. We do
not believe that any of these other proceedings, separately or in the aggregate
would, in the opinion of management, be expected to have a material adverse
effect on our results of operations or financial position.
Proxy Solicitation. On February 8, 2002, Aquila announced its intention to
conduct a proxy solicitation to replace members of our board of directors with a
slate of its own nominees. We intend to oppose the Aquila proxy contest. The
proxy contest has resulted in, and will continue to result in, the incurrence of
substantial fees and no prediction can be made as to the total amount of these
fees.
Change of Control. We entered into new employment agreements with certain
employees, as of March 13, 2002, which become effective upon a change of control
(as defined in the new employment agreements) of Quanta. The new employment
agreements supplemented existing employment agreements already in effect. The
new employment agreements provide that, following a change of control, if we
terminate the employee's employment without cause (as defined in the new
employment agreements), the employee terminates employment for good reason (as
defined in the new employment agreements), or the employee's employment
terminates due to death or disability, we will pay certain amounts to the
employee, which may vary with the level of the employee's responsibility and the
terms of the employee's prior employment arrangements. In addition, in the case
of certain senior executives, these payments would also be due if the employee
terminates his or her employment within the 30-day window period commencing six
months after the change in control.
In addition, an event of default could occur under our credit facility and
senior secured notes in the event that Aquila prevails in its recently announced
proxy contest for control of our board of directors. No such event of default
provision exists under our convertible subordinated notes. We cannot be certain
that the affected lenders and note holders would waive such an event of default
or that we or Aquila would be able to refinance any defaulted indebtedness.
Acquisitions. During 2001, we acquired nine companies for an aggregate
consideration of 2.4 million shares of common stock and $119.9 million in cash.
The cash portion of such consideration was provided by proceeds from borrowings
under the credit facility.
We anticipate that our cash flow from operations and our credit facility
will provide sufficient cash to enable us to meet our working capital needs,
debt service requirements and planned capital expenditures for property and
equipment for at least the next 12 months. However, if companies we wish to
acquire are unwilling to accept our common stock as part of the consideration
for the sale of their businesses, we could be required to utilize more cash to
complete acquisitions. If sufficient funds were not available from operating
cash flow or through borrowings under the credit facility, we may be required to
seek additional financing through the public or private sale of equity or debt
securities. There can be no assurance that we could secure such financing if and
when we need it or on terms we would deem acceptable.
Concentration of Credit Risk. The Company grants credit, generally without
collateral, to its customers, which include electric power and gas companies,
telecommunications and cable television system operators, governmental entities,
general contractors, builders and owners and managers of commercial and
industrial properties located primarily in the United States. Consequently, the
Company is subject to potential credit risk related to changes in business and
economic factors throughout the United States. However, the Company generally is
entitled to payment for work performed and has certain lien rights on that work
and concentrations
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<PAGE>
of credit risk are limited due to the diversity of the Company's customer base.
Further, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk. No
customer accounted for more than 10% of accounts receivable or revenues as of or
during the years ended December 31, 1999, 2000 or 2001.
Related Party Transactions. In the normal course of business, we from time
to time enter into transactions with related parties. These transactions
typically take the form of network service work for Aquila or facility leases
with prior owners. See additional discussion in Note 12 of Notes to Consolidated
Financial Statements.
INFLATION
Due to relatively low levels of inflation experienced during the years
ended December 31, 1999, 2000 and 2001, inflation did not have a significant
effect on our results.
SIGNIFICANT BALANCE SHEET CHANGES
Total assets increased approximately $171.0 million in 2001 compared to
2000. This increase is primarily due to the following:
- Goodwill, net increased $131.0 million resulting from acquisitions in
2001.
- Property and equipment, net increased $44.5 million due to expenditures
for equipment necessary to perform contracts and equipment obtained
through the acquisition of nine companies during 2001.
- Other assets, net increased $18.7 million due primarily to notes
receivable from one of our customers. We have agreed to long-term payment
terms while this customer is pursuing alternative financing. The
receivables are partially secured and bear interest at 9% per year. At
December 31, 2001, the total amount due under this arrangement was $27.6
million, with $23.4 million classified as non-current.
- Prepaid expenses and other current assets increased $12.2 million,
primarily as a result of $9.7 million of current deferred tax assets
associated with various expenses that are not currently deductible.
- The above increases were partially offset by decreased accounts
receivable and costs and estimated earnings in excess of billings on
uncompleted contracts of $29.4 million that resulted from a provision of
$20.2 million to allow for uncollectible receivables associated with the
continued decline in the financial strength of certain customers in the
telecommunications industry, continued emphasis on working capital
management and lower levels of revenue during the fourth quarter of 2001.
In 2001, total liabilities increased approximately $33.2 million and
stockholders' equity increased approximately $137.8 million. These increases
were primarily due to the following:
- Stockholders' equity increased $137.8 million during 2001. This was
primarily the result of the issuance of approximately $49.5 million in
shares of common stock for the acquisition of purchased companies, the
issuance of approximately $14.7 million in shares of common stock
pursuant to the employee stock purchase plan and stock option exercises,
and net income of $84.8 million. These increases were partially offset by
$15.3 million of purchases of common stock under the Stock Repurchase
Plan.
- Deferred income taxes and other non-current liabilities increased $29.0
million due to an increase of $21.8 million in deferred income tax
liabilities resulting primarily from timing differences associated with
property, equipment and goodwill and an increase of $8.7 million in
self-insurance accruals related to claims that are not expected to be
settled during 2002.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected statements of operations data and
such data as a percentage of revenues for the years indicated (dollars in
thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 2000 2001
---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $925,654 100.0% $1,793,301 100.0% $2,014,877 100.0%
Cost of services (including
depreciation)....................... 711,353 76.8 1,379,204 76.9 1,601,039 79.5
-------- ----- ---------- ----- ---------- -----
Gross profit........................ 214,301 23.2 414,097 23.1 413,838 20.5
Selling, general and administrative
expenses............................ 80,132 8.7 143,564 8.0 194,575 9.6
Merger and special charges............ 6,574 0.7 28,566 1.6 -- 0.0
Goodwill amortization................. 10,902 1.2 19,805 1.1 25,998 1.3
-------- ----- ---------- ----- ---------- -----
Income from operations.............. 116,693 12.6 222,162 12.4 193,265 9.6
Interest expense...................... (15,184) (1.6) (25,708) (1.4) (36,072) (1.8)
Other income (expense), net........... 1,429 0.1 2,597 0.1 (227) 0.0
-------- ----- ---------- ----- ---------- -----
Income before income tax provision.... 102,938 11.1 199,051 11.1 156,966 7.8
Provision for income taxes............ 48,999 5.3 93,328 5.2 71,200 3.5
-------- ----- ---------- ----- ---------- -----
Net income.......................... $ 53,939 5.8% $ 105,723 5.9% $ 85,766 4.3%
======== ===== ========== ===== ========== =====
</Table>
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
Revenues. Revenues increased $221.6 million, or 12.4%, to $2.01 billion
for the year ended December 31, 2001. This increase was attributable to strong
growth in electric power and gas revenues as a result of increased outsourcing
and deregulation, a full year of contributed revenues in 2001 for those
companies acquired in 2000 and revenues of $42.3 million from platform companies
acquired in 2001 which continued to exist as separate reporting subsidiaries.
The increase was partially offset by decreased revenues from telecommunications
customers due in part to the continued inability of certain of the customers to
raise new capital and the overall downturn in the national economy.
Gross profit. Gross profit decreased $0.3 million to $413.8 million for
the year ended December 31, 2001. Gross margin decreased from 23.1% for the year
ended December 31, 2000 to 20.5% for the year ended December 31, 2001. The
decrease in gross margin resulted from lower margins on work performed for
telecommunications customers due to increased pricing pressures, lower asset
utilization and the economic factors noted above, partially offset by higher
margins received on work performed for the electric power and gas customers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $51.0 million, or 35.5%, to $194.6 million for
the year ended December 31, 2001. Selling, general and administrative expenses
for the year ended December 31, 2001 include $20.5 million in charges consisting
of: a charge of $16.2 million to provide allowances for accounts receivable risk
associated with the continued decline in the financial strength of certain
customers in the telecommunications industry, $3.2 million in charges associated
with the realignment of field personnel and discontinuance of negotiations
regarding the acquisition of certain telecommunications contractors and $1.1
million in costs associated with negotiations with Aquila. In addition, $4.2
million of the increase was attributable to the platform companies we acquired
subsequent to December 31, 2000. Selling, general and administrative expenses
also included a full period of costs in 2001 associated with those companies
acquired during 2000. The remainder of the increase was attributable to tuck-in
acquisitions and the continued establishment of infrastructure to facilitate our
growth and to integrate our acquired businesses. As a percentage of revenues,
selling, general and administrative expenses increased due to the items noted
above.
Merger and special charges. In December 2000, we agreed to conclude our
obligations under the management services agreement with Aquila in exchange for
a one-time payment to Aquila of approximately $28.6 million.
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<PAGE>
Interest expense. Interest expense increased $10.4 million, or 40.3%, to
$36.1 million for the year ended December 31, 2001, due to higher average levels
of debt experienced during 2001.
Provision for income taxes. The provision for income taxes was $71.2
million for the year ended December 31, 2001, with an effective tax rate of
45.4% compared to $93.3 million for the year ended December 31, 2000 and an
effective tax rate of 46.9%. In 2000, the provision reflected a portion of the
merger and special charges for which no tax benefit had been provided.
Net income. Net income decreased $20.0 million, or 18.9%, to $85.8 million
for the year ended December 31, 2001, compared to $105.7 million for the year
ended December 31, 2000.
Diluted earnings per share before charges. For the year ended December 31,
2001, we incurred $20.5 million in charges, consisting of $16.2 million to
provide allowances for certain accounts receivable, $3.2 million in charges
associated with the realignment of field personnel and certain acquisition costs
and $1.1 million in costs associated with negotiations with Aquila. Diluted
earnings per share for the year ended December 31, 2001, excluding these charges
and the tax related impacts of these charges, was $1.27.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Revenues. Revenues increased $867.6 million, or 93.7%, to $1.8 billion for
the year ended December 31, 2000. This increase was attributable to strong
growth in key business areas as a result of greater demand for bandwidth,
increased outsourcing, deregulation and industry convergence, a full year of
contributed revenues in 2000 for those companies acquired in 1999, revenues of
$226.5 million from platform companies acquired in 2000 which continued to exist
as separate reporting subsidiaries, as well as contributed revenues from tuck-in
acquisitions whose operations were absorbed into other operating subsidiaries.
Gross profit. Gross profit increased $199.8 million, or 93.2%, to $414.1
million for the year ended December 31, 2000 as a result of higher revenues.
Gross margin decreased slightly from 23.2% for the year ended December 31, 1999
to 23.1% for the year ended December 31, 2000. This decrease in gross margin
resulted from lower margins on work performed for gas transmission and inside
electrical customers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $63.4 million, or 79.2%, to $143.6 million for
the year ended December 31, 2000. This increase was attributable to a full year
of costs in 2000 associated with companies acquired in 1999, $15.3 million of
additional selling, general and administrative expenses attributable to the
platform companies we acquired in 2000 and the continued establishment of
infrastructure to facilitate our growth and integrate our acquired businesses.
As a percentage of revenues, selling, general and administrative expenses
decreased due to better absorption associated with a higher level of revenues.
Merger and special charges. Merger and special charges increased $22.0
million, or 334.5%, to $28.6 million for the year ended December 31, 2000. In
December 2000, we agreed to conclude our obligations under the management
services agreement with Aquila in exchange for a one-time payment to Aquila of
approximately $28.6 million. Merger and special charges for the year ended
December 31, 1999 included $5.3 million of non-cash compensation charges, which
were related to the allocation of shares of common stock to participants in an
employee stock ownership plan associated with one of the companies we acquired
in a pooling transaction, and $1.1 million of related excise tax charges.
Interest expense. Interest expense increased $10.5 million, or 69.3%, to
$25.7 million for the year ended December 31, 2000, due to higher levels of debt
resulting from the acquisitions of the companies we purchased in 2000. We also
borrowed funds under our credit facility for equipment purchases and other
operating activities to support higher levels of revenue. In addition, interest
expense increased due to higher interest rates under our credit facility during
2000 and from our issuance of the senior secured notes in March 2000. These
increases were partially offset by lower interest rates on the convertible
subordinated notes issued in July 2000.
Provision for income taxes. The provision for income taxes was $93.3
million for the year ended December 31, 2000, with an effective tax rate of
46.9% compared to $49.0 million for the year ended
24
<PAGE>
December 31, 1999 and an effective tax rate of 47.6%. In 2000, the provision
reflected a portion of the merger and special charges for which no tax benefit
had been provided. In 1999, the provision reflected the non-deductibility of the
merger and special charges and a non-cash non-recurring tax charge of $677,000
as a result of a change in the tax status of a company acquired in a
pooling-of-interest transaction from an S corporation to a C corporation.
Net income. Net income increased $51.8 million, or 96.0%, to $105.7
million for the year ended December 31, 2000, compared to $53.9 million for the
year ended December 31, 1999.
Diluted earnings per share before charges. In December 2000, the Company
agreed to conclude its obligations under its management services agreement with
Aquila in exchange for a one-time payment to Aquila of approximately $28.6
million. Diluted earnings per share for the year ended December 31, 2000
excluding this charge and the related tax impact was $1.72.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires that all business combinations initiated after June 30, 2001,
be accounted for using the purchase method. The FASB also issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill be
assessed at least annually for impairment by applying a fair-value based test.
Goodwill will no longer be subject to amortization over its estimated useful
life. In addition, acquired intangible assets are required to be recognized and
amortized over their useful lives if the benefit of the asset is based on
contractual or legal rights. While most provisions of SFAS No. 142 are effective
for the Company beginning January 1, 2002, goodwill and intangible assets
acquired after June 30, 2001, are subject immediately to the non-amortization
and amortization provisions of the statement, respectively. At December 31,
2001, our net goodwill was $1.037 billion and annual amortization of such
goodwill was approximately $26 million.
Based on a preliminary review of the new standard, we believe that we will
record a non-cash goodwill impairment charge upon adoption and that the amount
of such charge will be material in relation to our unamortized goodwill balance.
Such charge, however, will not impact cash flow or operating income but will be
reflected as a cumulative effect of a change in accounting principle.
We have specifically provided for the possibility of a non-cash goodwill
impairment charge in our credit facility resulting from the adoption of SFAS No.
142, and accordingly, expect no impact on our credit facility as a result of
this charge. We are currently seeking to avoid any potential covenant violations
through a similar amendment with holders of our senior secured notes and expect
the completion of an amendment prior to the occurrence of any covenant
violation. A goodwill impairment charge will not violate any covenants in our
convertible subordinated notes.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes 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
Opinion 30. SFAS No. 144 addresses the financial accounting and reporting for
the impairment or disposal of long-lived assets and establishes criteria for
determining when a long-lived asset is held for sale. We are required to and
will adopt SFAS No. 144 on January 1, 2002, and believe that the adoption will
not have a material effect on our consolidated financial position or results of
operations.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosures of contingent assets and liabilities
known to exist at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. The
Company evaluates its estimates on an ongoing basis, based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. There can be no assurance that actual results will not
differ from those
25
<PAGE>
estimates. We believe the following accounting policies, which are also
described in Note 2 of Notes to Consolidated Financial Statements, affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements:
Accounts Receivable and Provision for Doubtful Accounts. As discussed
in Note 2 of Notes to Consolidated Financial Statements, we provide an
allowance for doubtful accounts when collection of an account receivable is
considered doubtful. Inherent in the assessment of the allowance for
doubtful accounts are certain judgements and estimates including, among
others, our customer's access to capital, our customer's willingness to
pay, general economic conditions and the ongoing relationship with the
customer.
Goodwill. As stated in Note 2 of Notes to Consolidated Financial
Statements under New Accounting Pronouncements, FASB Statement No. 142
provides that goodwill and other intangible assets that have indefinite
useful lives will not be amortized, but instead must be tested at least
annually for impairment, and intangible assets that have finite useful
lives should continue to be amortized over their useful lives. Statement
No. 142 also provides specific guidance for testing goodwill and other
nonamortized intangible assets for impairment. The Statement requires
management to make certain estimates and assumptions in order to allocate
goodwill to reporting units and to determine the fair value of reporting
unit net assets and liabilities, including, among other things, an
assessment of market conditions, projected cash flows, investment rates,
cost of capital and growth rates, which could significantly impact the
reported value of goodwill and other intangible assets, as compared to our
accounting policy for the assessment of goodwill impairment in 2001, which
was based on an undiscounted cash flow model.
Revenue Recognition. We typically record revenues from fixed price
contracts on a percentage-of-completion basis, using the cost-to-cost
method based on the percentage of total costs incurred to date in
proportion to total estimated costs to complete the contract. Changes in
job performance, job conditions and final contract settlements, among
others, are the factors that influence the assessment of the total
estimated costs to complete these contracts.
Self-Insurance. We are insured for workers' compensation, employer's
liability, auto liability and general liability claims, subject to a
deductible of $500,000 per accident or occurrence. In addition, effective
January 1, 2002, we consolidated the various non-union employee related
health care benefits plans that existed at certain of its subsidiaries into
one corporate plan which is subject to a deductible of $250,000 per
claimant per year. Losses up to the deductible amounts are accrued based
upon our estimates of the ultimate liability for claims incurred and an
estimate of claims incurred but not reported. However, insurance
liabilities are difficult to assess and estimate due to unknown factors,
including the severity of an injury, the determination of our liability in
proportion to other parties, the number of incidents not reported and the
effectiveness of our safety program. The accruals are based upon known
facts and historical trends and management believes such accruals to be
adequate.
OUTLOOK
The following statements are based on current expectations. These
statements are forward looking, and actual results may differ materially.
We expect continued growth and demand for our services from our utility and
gas customers throughout 2002. We expect continued weakness in demand for our
services from our telecommunications customers and relatively level demand for
our services from our cable television and ancillary customers. The economic
conditions prevalent in 2001 impacted our ability to grow at historical levels
and a continued economic downturn may lead to less demand for our services.
We intend to continue to emphasize internal growth, although we also plan
to continue to selectively pursue acquisitions of profitable companies with
strong management teams and good reputations to broaden our customer base,
expand our geographic area of operation and grow our portfolio of services. We
regularly evaluate potential acquisition opportunities, but we are not currently
engaged in any negotiations to make any material acquisitions.
26
<PAGE>
FORWARD LOOKING STATEMENTS
Except for the historical financial information contained in this report,
statements made or incorporated by reference in this report may be considered
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-
looking statements include, without limitation, declarations regarding our
intent, belief or current expectations, statements regarding the future results
of acquired companies and our gross margins and any other statement that may
project, indicate or imply future results, performance or achievements. Such
statements may contain the words "expect," "intend," "plan," "anticipate,"
"estimate," "believe," "will be," "will continue," "will likely result" and
similar expressions. Statements in this report that contain forward-looking
statements include, but are not limited to, discussions regarding future market
conditions and the effect of such conditions on our future results of operations
(see "Business -- Industry Overview," "-- Strategy" and "-- Customers, Strategic
Alliances and Preferred Provider Relationships") and future uses of and
requirements for financial resources including, but not limited to, expenditures
related to future acquisitions (see "-- Liquidity and Capital Resources"). Any
such forward-looking statements are not guarantees of future performance and are
subject to a variety of risks and uncertainties. Such risks and uncertainties
include, among others, general economic and business conditions, the pace and
nature of technological change, our ability to integrate companies we acquire,
our ability to generate internal growth, competition, regulatory initiatives and
compliance with governmental regulations, customer preferences and ability to
raise capital, the outcome of our proxy contest with Aquila and various other
matters, many of which are beyond our control. Actual results could differ
materially from those indicated by such forward-looking statements. Among the
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are those discussed in
"Business -- Risk Factors" in this report. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking statements. We
expressly disclaim any obligation or undertaking to release publicly any updates
or revisions to any forward-looking statement to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any forward-looking statement is based.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily related to potential adverse
changes in interest rates and, to a certain extent, commodity prices, as
discussed below. Management does not generally use derivative financial
instruments for trading or to speculate on changes in interest rates or
commodity prices. As of December 31, 2001, however, we had one derivative
contract outstanding which related to anticipated exposure in the price of gas.
We are exposed to credit risk in the event of non-performance by the derivative
counterparty. However, we monitor our derivative position by regularly
evaluating our position and the credit worthiness of the counterparty, which we
consider credit worthy at December 31, 2001. Management is actively involved in
monitoring exposure to market risk and continues to develop and utilize
appropriate risk management techniques. We are not exposed to any other
significant market risks, foreign currency exchange risk or interest rate risk
from the use of derivative financial instruments.
The sensitivity analyses below, which hypothetically illustrates our
potential market risk exposure, estimates the effects of hypothetical sudden and
sustained changes in the applicable market conditions on 2001 earnings. The
sensitivity analyses presented do not consider any additional actions we may
take to mitigate our exposure to such changes. The hypothetical changes and
assumptions may be different from what actually occurs in the future.
Interest Rates. As of December 31, 2001, we had no derivative financial
instruments to manage interest rate risk. As such, we are exposed to earnings
and fair value risk due to changes in interest rates with respect to our
long-term obligations. As of December 31, 2001, approximately 21.5% of our
long-term obligations were floating rate obligations. As of December 31, 2001,
the fair value of our variable rate debt of $109.3 million approximated book
value, and the fair value of our fixed-rate debt of $399.0 million was
approximately $357.1 million based upon discounted future cash flows using
incremental borrowing rates and current market prices. The detrimental effect on
our pretax earnings of a hypothetical 50 basis point increase in both variable
and fixed interest rates would be approximately $0.5 million and $2.0 million,
respectively.
27
<PAGE>
Commodity Price Exposure. In October 2001, we entered into a forward
purchase contract with settlements through 2006, in order to secure pricing on
anticipated gas requirements related to a project in process at December 31,
2001. The objective is to mitigate the variability in the price of gas by fixing
the price we will have to pay to our counterparty. As of December 31, 2001, the
fair value of this derivative was $0.4 million and recorded as a liability on
the consolidated balance sheet. As of March 29, 2001, we entered into a
sub-services agreement with our customer whereby the customer assumed all
liabilities associated with this contract. We had no derivative instruments
outstanding as of or during the year ended December 31, 2000.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
<S> <C>
Quanta Services, Inc. and Subsidiaries
Report of Independent Public Accountants.................. 30
Consolidated Balance Sheets............................... 31
Consolidated Statements of Operations..................... 32
Consolidated Statements of Cash Flows..................... 33
Consolidated Statements of Stockholders' Equity........... 34
Notes to Consolidated Financial Statements................ 35
</Table>
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quanta Services, Inc.:
We have audited the accompanying consolidated balance sheets of Quanta Services,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 2001,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quanta Services,
Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 14, 2002 (except for the matters
discussed in Note 16, as to which
the date is March 25, 2002)
30
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
DECEMBER 31,
-----------------------
2000 2001
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 17,306 $ 6,287
Accounts receivable, net of allowances of $15,612 and
$35,856, respectively.................................. 466,869 451,870
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 71,842 57,433
Inventories............................................... 19,874 25,053
Prepaid expenses and other current assets................. 24,319 36,477
---------- ----------
Total current assets.............................. 600,210 577,120
PROPERTY AND EQUIPMENT, net................................. 341,029 385,480
OTHER ASSETS, net........................................... 24,627 43,319
GOODWILL, net............................................... 906,031 1,036,982
---------- ----------
Total assets...................................... $1,871,897 $2,042,901
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 8,772 $ 8,063
Accounts payable and accrued expenses..................... 209,728 202,327
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 27,981 31,140
---------- ----------
Total current liabilities......................... 246,481 241,530
LONG-TERM DEBT, net of current maturities................... 318,602 327,774
CONVERTIBLE SUBORDINATED NOTES.............................. 172,500 172,500
DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES..... 65,358 94,346
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.00001 par value, 10,000,000 shares
authorized:
Series A Convertible Preferred Stock, 3,444,961 shares
issued and outstanding................................ -- --
Common stock, $.00001 par value, 300,000,000 shares
authorized, 56,400,546 and 60,629,965 shares issued and
56,400,546 and 59,643,965 shares outstanding,
respectively........................................... -- --
Limited Vote Common Stock, $.00001 par value, 3,345,333
shares authorized, 1,765,912 and 1,116,238 shares
issued and outstanding, respectively................... -- --
Additional paid-in capital................................ 882,344 952,380
Deferred compensation..................................... -- (1,770)
Retained earnings......................................... 186,612 271,448
Treasury Stock, at cost, -- and 986,000 common shares,
respectively........................................... -- (15,307)
---------- ----------
Total stockholders' equity........................ 1,068,956 1,206,751
---------- ----------
Total liabilities and stockholders' equity........ $1,871,897 $2,042,901
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 2000 2001
-------- ---------- ----------
<S> <C> <C> <C>
REVENUES.................................................. $925,654 $1,793,301 $2,014,877
COST OF SERVICES (including depreciation)................. 711,353 1,379,204 1,601,039
-------- ---------- ----------
Gross profit............................................ 214,301 414,097 413,838
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 80,132 143,564 194,575
MERGER AND SPECIAL CHARGES................................ 6,574 28,566 --
GOODWILL AMORTIZATION..................................... 10,902 19,805 25,998
-------- ---------- ----------
Income from operations.................................. 116,693 222,162 193,265
OTHER INCOME (EXPENSE):
Interest expense........................................ (15,184) (25,708) (36,072)
Other, net.............................................. 1,429 2,597 (227)
-------- ---------- ----------
INCOME BEFORE INCOME TAX PROVISION........................ 102,938 199,051 156,966
PROVISION FOR INCOME TAXES................................ 48,999 93,328 71,200
-------- ---------- ----------
NET INCOME................................................ 53,939 105,723 85,766
DIVIDENDS ON PREFERRED STOCK.............................. 260 930 930
-------- ---------- ----------
NET INCOME ATTRIBUTABLE TO COMMON STOCK................... $ 53,679 $ 104,793 $ 84,836
======== ========== ==========
BASIC EARNINGS PER SHARE.................................. $ 1.08 $ 1.50 $ 1.11
======== ========== ==========
DILUTED EARNINGS PER SHARE................................ $ 1.00 $ 1.42 $ 1.10
======== ========== ==========
SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic................................................... 49,776 70,452 77,256
======== ========== ==========
Diluted................................................. 56,146 76,583 78,238
======== ========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to common stock................. $ 53,679 $ 104,793 $ 84,836
Adjustments to reconcile net income attributable to
common stock to net cash provided by operating
activities --
Depreciation and amortization........................ 35,163 57,294 79,374
(Gain) loss on sale of property and equipment........ (252) (107) 1,191
Non-cash merger related compensation charge for
issuance of common stock to ESOP................... 5,319 -- --
Allowance for doubtful accounts...................... 4,331 9,665 20,244
Deferred income tax provision........................ 5,620 13,344 10,006
Preferred stock dividend............................. 260 930 930
Changes in operating assets and liabilities, net of
non-cash transactions --
(Increase) decrease in --
Accounts receivable................................ (78,372) (138,303) 11,378
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ (11,172) (9,878) 15,799
Inventories........................................ (1,740) (6,275) (3,636)
Prepaid expenses and other current assets.......... (1,959) 2,297 (1,045)
Increase (decrease) in --
Accounts payable and accrued expenses.............. 29,358 14,846 (4,026)
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ 3,645 (8,373) 3,184
Other, net......................................... 2,446 5,189 (8,209)
--------- --------- ---------
Net cash provided by operating activities....... 46,326 45,422 210,026
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment............ 1,533 1,672 3,397
Additions of property and equipment..................... (61,124) (89,610) (84,982)
Cash paid for acquisitions, net of cash acquired........ (308,671) (273,812) (119,496)
Notes receivable........................................ -- (2,658) (20,740)
Net proceeds from sale of business...................... -- 2,410 --
--------- --------- ---------
Net cash used in investing activities........... (368,262) (361,998) (221,821)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under bank lines of credit.... 82,946 (46,066) 16,450
Proceeds from other long-term debt...................... 4,868 212,019 2,983
Payments on other long-term debt........................ (43,317) (35,916) (18,016)
Proceeds from convertible subordinated notes............ -- 172,500 --
Debt issuance costs..................................... (1,659) (7,958) --
Issuances of stock, net of offering costs............... 284,280 18,072 8,721
Purchase of treasury stock.............................. -- -- (15,307)
Exercise of stock options............................... 2,347 10,456 5,945
--------- --------- ---------
Net cash provided by financing activities....... 329,465 323,107 776
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 7,529 6,531 (11,019)
CASH AND CASH EQUIVALENTS, beginning of year.............. 3,246 10,775 17,306
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................... $ 10,775 $ 17,306 $ 6,287
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest............................................. $ 13,230 $ 14,632 $ 36,556
Income taxes, net of refunds......................... 33,644 77,479 41,857
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
LIMITED VOTE
PREFERRED STOCK COMMON STOCK COMMON STOCK UNEARNED ADDITIONAL
------------------ ------------------- ------------------- ESOP PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES CAPITAL
--------- ------ ---------- ------ ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998......... -- $ -- 18,557,949 $ -- 3,345,333 $ -- $(1,831) $145,194
Issuance of Series A Convertible
Preferred Stock................ 1,860,000 -- -- -- -- -- -- 182,119
Sales of common stock under
preemptive rights agreement.... -- -- 38,485 -- -- -- -- 1,042
Stock options exercised.......... -- -- 204,888 -- -- -- -- 2,347
Income tax benefit from stock
options exercised.............. -- -- -- -- -- -- -- 1,446
Conversion of Limited Vote Common
Stock to common stock.......... -- -- 847,986 -- (847,986) -- -- --
Termination of ESOP.............. -- -- -- -- -- -- 1,831 5,319
Follow-on offering, net of
offering costs................. -- -- 4,600,000 -- -- -- -- 101,119
Acquisition of Purchased
Companies...................... -- -- 9,774,214 -- -- -- -- 236,520
Three-for-two common stock
split.......................... -- -- 17,011,761 -- 1,248,673 -- -- --
Net income attributable to common
stock.......................... -- -- -- -- -- -- -- --
--------- ----- ---------- ----- ---------- ----- ------- --------
Balance, December 31, 1999......... 1,860,000 -- 51,035,283 -- 3,746,020 -- -- 675,106
Conversion of common stock to
Series A Convertible Preferred
Stock.......................... 1,584,961 -- (7,924,805) -- -- -- -- --
Conversion of 6 7/8% convertible
subordinated notes to common
stock.......................... -- -- 5,383,636 -- -- -- -- 47,653
Sales of common stock under
preemptive rights agreement.... -- -- 519,182 -- -- -- -- 14,528
Issuances of stock under Employee
Stock Purchase Program......... -- -- 222,364 -- -- -- -- 3,544
Stock options exercised.......... -- -- 804,484 -- -- -- -- 10,456
Income tax benefit from stock
options exercised.............. -- -- -- -- -- -- -- 8,460
Conversion of Limited Vote Common
Stock to common stock.......... -- -- 1,980,108 -- (1,980,108) -- -- --
Acquisition of Purchased
Companies...................... -- -- 4,380,294 -- -- -- -- 122,597
Net income attributable to common
stock.......................... -- -- -- -- -- -- -- --
--------- ----- ---------- ----- ---------- ----- ------- --------
Balance, December 31, 2000......... 3,444,961 -- 56,400,546 -- 1,765,912 -- -- 882,344
Issuances of stock under Employee
Stock Purchase Program......... -- -- 462,179 -- -- -- -- 8,721
Stock options exercised.......... -- -- 395,158 -- -- -- -- 5,945
Income tax benefit from stock
options exercised.............. -- -- -- -- -- -- -- 2,456
Conversion of Limited Vote Common
Stock to common stock.......... -- -- 649,674 -- (649,674) -- -- --
Acquisition of Purchased
Companies...................... -- -- 2,649,707 -- -- -- -- 49,486
Purchase of common stock......... -- -- (986,000) -- -- -- -- --
Issuance of restricted stock..... -- -- 72,701 -- -- -- -- 2,000
Amortization of deferred
compensation................... -- -- -- -- -- -- -- --
Other............................ -- -- -- -- -- -- -- 1,428
Net income attributable to common
stock.......................... -- -- -- -- -- -- -- --
--------- ----- ---------- ----- ---------- ----- ------- --------
Balance, December 31, 2001......... 3,444,961 $ -- 59,643,965 $ -- 1,116,238 $ -- $ -- $952,380
========= ===== ========== ===== ========== ===== ======= ========
<Caption>
TOTAL
DEFERRED RETAINED TREASURY STOCKHOLDERS'
COMPENSATION EARNINGS STOCK EQUITY
------------ -------- -------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998......... $ -- $ 28,140 $ -- $ 171,503
Issuance of Series A Convertible
Preferred Stock................ -- -- -- 182,119
Sales of common stock under
preemptive rights agreement.... -- -- -- 1,042
Stock options exercised.......... -- -- -- 2,347
Income tax benefit from stock
options exercised.............. -- -- -- 1,446
Conversion of Limited Vote Common
Stock to common stock.......... -- -- -- --
Termination of ESOP.............. -- -- -- 7,150
Follow-on offering, net of
offering costs................. -- -- -- 101,119
Acquisition of Purchased
Companies...................... -- -- -- 236,520
Three-for-two common stock
split.......................... -- -- -- --
Net income attributable to common
stock.......................... -- 53,679 -- 53,679
------- -------- -------- ----------
Balance, December 31, 1999......... -- 81,819 -- 756,925
Conversion of common stock to
Series A Convertible Preferred
Stock.......................... -- -- -- --
Conversion of 6 7/8% convertible
subordinated notes to common
stock.......................... -- -- -- 47,653
Sales of common stock under
preemptive rights agreement.... -- -- -- 14,528
Issuances of stock under Employee
Stock Purchase Program......... -- -- -- 3,544
Stock options exercised.......... -- -- -- 10,456
Income tax benefit from stock
options exercised.............. -- -- -- 8,460
Conversion of Limited Vote Common
Stock to common stock.......... -- -- -- --
Acquisition of Purchased
Companies...................... -- -- -- 122,597
Net income attributable to common
stock.......................... -- 104,793 -- 104,793
------- -------- -------- ----------
Balance, December 31, 2000......... -- 186,612 -- 1,068,956
Issuances of stock under Employee
Stock Purchase Program......... -- -- -- 8,721
Stock options exercised.......... -- -- -- 5,945
Income tax benefit from stock
options exercised.............. -- -- -- 2,456
Conversion of Limited Vote Common
Stock to common stock.......... -- -- -- --
Acquisition of Purchased
Companies...................... -- -- -- 49,486
Purchase of common stock......... -- -- (15,307) (15,307)
Issuance of restricted stock..... (2,000) -- -- --
Amortization of deferred
compensation................... 230 -- -- 230
Other............................ -- -- -- 1,428
Net income attributable to common
stock.......................... -- 84,836 -- 84,836
------- -------- -------- ----------
Balance, December 31, 2001......... $(1,770) $271,448 $(15,307) $1,206,751
======= ======== ======== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Quanta Services, Inc. (Quanta) is a leading provider of specialized
contracting services, offering end-to-end network solutions to the electric
power, gas, telecommunications and cable television industries. Our
comprehensive services include designing, installing, repairing and maintaining
network infrastructure. Reference herein to the "Company" includes Quanta and
its subsidiaries.
Since its inception and through 2001, Quanta has acquired 86 businesses. Of
these businesses acquired, two were accounted for as poolings-of-interests and
the remaining acquired businesses were accounted for as purchases and have been
included in the Company's historical financial statements beginning on their
respective dates of acquisition. The Company intends to continue to acquire,
through merger or purchase, similar companies to expand its national and
regional operations.
In the course of its operations, the Company is subject to certain risk
factors, including but not limited to risks related to: rapid technological and
structural changes in the industries the Company serves, internal growth and
operating strategies, economic downturn, the collectibility of receivables,
acquisition integration and financing, significant fluctuations in quarterly
results, contracts, management of growth, dependence on key personnel,
availability of qualified employees, unionized workforce, competition,
recoverability of goodwill, potential exposure to environmental liabilities and
anti-takeover measures.
All share amounts and per share amounts in these notes to consolidated
financial statements have been adjusted to give effect to a 3-for-2 stock split,
paid as a stock dividend on April 7, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Quanta and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made in prior years' financial
statements to conform to classifications used in the current year.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions by management in determining the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities known to exist as
of 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. Reference is made to the "Accounts Receivable and Provision for
Doubtful Accounts," "Property and Equipment," "Goodwill," "Revenue Recognition"
and "Self-Insurance" sections of this footnote and Note 13 for discussion of
certain estimates reflected in the Company's financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
35
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Cash Flow Information
The Company had non-cash investing and financing activities of
approximately $1.7 million during the year ended December 31, 2000 related to
the conversion of certain convertible subordinated notes. Aquila, Inc. (Aquila)
converted the convertible subordinated notes into approximately 5.4 million
shares of the Company's common stock on June 13, 2000.
In addition, pursuant to its acquisition program, the Company acquired
assets through purchase acquisitions with an estimated fair value, net of cash
acquired, of approximately $236.0 million and liabilities of approximately
$160.2 million resulting in the recording of approximately $484.9 million in
goodwill in 1999. The Company acquired assets through purchase acquisitions with
an estimated fair value, net of cash acquired, of approximately $215.8 million
and liabilities of approximately $119.5 million resulting in the recording of
approximately $301.0 million in goodwill in 2000. The Company acquired assets
through purchase acquisitions with an estimated fair value, net of cash
acquired, of approximately $20.9 million and liabilities of approximately $13.1
million resulting in the recording of approximately $156.9 million in goodwill
in 2001.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts when collection is
considered doubtful.
The balances billed but not paid by customers pursuant to retainage
provisions in certain contracts will be due upon completion of the contracts and
acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the majority of the retention balance at each balance
sheet date will be collected within the subsequent fiscal year. Current
retainage balances as of December 31, 2000 and 2001 were approximately $50.7
million and $50.2 million, respectively, and are included in accounts
receivable. Due to contractual provisions, the retainage balances not to be
collected within the next fiscal year are $0 and $5.9 million, as of December
31, 2000 and 2001, respectively, and are included in Other Assets, net.
Due to contractual provisions, certain balances, though the earnings
process is complete, are not billable to customers until defined milestones are
reached. These balances are considered to be unbilled receivables and are
included in accounts receivable at year-end. At December 31, 2000 and 2001,
these balances were approximately $29.0 million and $50.3 million, respectively.
Concentration of Credit Risk
The Company grants credit, generally without collateral, to its customers,
which include electric power and gas companies, telecommunications and cable
television system operators, governmental entities, general contractors,
builders and owners and managers of commercial and industrial properties located
primarily in the United States. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors
throughout the United States. However, the Company generally is entitled to
payment for work performed and has certain lien rights on that work and
concentrations of credit risk are limited due to the diversity of the Company's
customer base. Further, management believes that its contract acceptance,
billing and collection policies are adequate to minimize the potential credit
risk. No customer accounted for more than 10% of accounts receivable or revenues
as of or during the years ended December 31, 1999, 2000 or 2001.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued by the Company at the lower of cost or market
using the first-in, first-out (FIFO) method.
36
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method, net of estimated salvage values, over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized over the lesser of the life of the lease or the estimated useful life
of the asset. Depreciation and amortization expense related to property and
equipment was approximately $24.3 million, $37.5 million and $53.4 million for
the years ended December 31, 1999, 2000 and 2001, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
realizable. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such asset is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
asset and its carrying value. To date, the Company has not recorded any such
impairments.
Debt Issuance Costs
Debt issuance costs related to the Company's credit facility, the
convertible subordinated notes and the senior secured notes are included in
Other Assets, net and are amortized to interest expense over the scheduled
maturity periods of the related debt. As of December 31, 2000 and 2001,
accumulated amortization was approximately $2.4 million and $4.2 million,
respectively.
Goodwill
Goodwill represents the excess of the aggregate purchase price paid by the
Company in the acquisition of businesses accounted for as purchases over the
fair value of the net assets acquired. Through December 31, 2001, goodwill was
amortized on a straight-line basis over 40 years. As of December 31, 2000 and
2001, accumulated amortization was approximately $33.2 million and $59.1
million, respectively. Under Statement of Financial Accounting Standards (SFAS)
No. 121, management periodically evaluated whether events or circumstances had
occurred that indicated that the remaining estimated useful life of goodwill may
have warranted revision or that the remaining balance may not have been
recoverable. If an evaluation was required, the estimated future undiscounted
cash flows associated with the asset were compared to the asset's carrying
amount to determine if such an impairment existed. In accordance with SFAS No.
142, "Goodwill and Other Intangible Assets," goodwill resulting from business
combinations completed after June 30, 2001 has not been amortized but instead
will be tested at least annually for impairment. See discussion under "New
Accounting Pronouncements" below for the treatment of goodwill as of January 1,
2002.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a fixed price contract. Revenues from fixed price
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred-to-date to total estimated costs for each contract.
Such contracts generally provide that the customer accept completion of progress
to date and compensate the Company for services rendered, measured typically in
terms of units installed, hours expended or some other measure of progress.
Contract costs typically include all direct material, labor and subcontract
costs and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and depreciation costs. Provisions for the total
estimated losses on uncompleted contracts are made in the
37
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and their effects are recognized in the period in
which the revisions are determined.
The current asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for new installations and
construction and servicing of existing infrastructure. An accrual for warranty
costs is recorded based upon management's estimate of future costs.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred assets and liabilities are recorded for future tax consequences of
temporary differences between the financial reporting and tax bases of assets
and liabilities, and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.
Certain of the Companies acquired were S corporations for income tax
purposes and, accordingly, any income tax liabilities for the periods prior to
the acquisitions are the responsibility of the respective stockholders.
Effective with the acquisitions, the S corporations converted to C corporations.
Accordingly, at the date of acquisition an estimated deferred tax liability has
been recorded to provide for the estimated future income tax liability resulting
from the difference between the book and tax bases of the net assets of these
former S corporations. For purposes of these consolidated financial statements,
federal and state income taxes have been provided for the post-acquisition
periods.
Collective Bargaining Agreements
Certain of the subsidiaries are party to various collective bargaining
agreements with certain of their employees. The agreements require such
subsidiaries to pay specified wages and provide certain benefits to their union
employees. These agreements expire at various times.
Self-Insurance
The Company is insured for workers' compensation, employer's liability,
auto liability and general liability claims, subject to a deductible of $500,000
per accident or occurrence. In addition, effective January 1, 2002, the Company
consolidated the various non-union employee related health care benefits plans
that existed at certain of its subsidiaries into one corporate plan which is
subject to a deductible of $250,000 per claimant per year. Losses up to the
deductible amounts are accrued based upon the Company's estimates of the
ultimate liability for 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.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable, the credit facility and notes payable to various financial
institutions approximate fair value. The fair value of the senior secured notes
is estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. At December 31, 2001, the fair value of
38
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's senior secured notes of $210.0 million was approximately $223.5
million. The fair value of the convertible subordinated notes is estimated based
on quoted secondary market prices for these notes as of year-end. At December
31, 2001, the fair value of the Company's convertible subordinated notes of
$172.5 million was approximately $117.1 million.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (the FASB) issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that all business
combinations initiated after June 30, 2001, be accounted for using the purchase
method. The FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill be assessed at least annually for
impairment by applying a fair-value based test. Goodwill will no longer be
subject to amortization over its estimated useful life. In addition, acquired
intangible assets are required to be recognized and amortized over their useful
lives if the benefit of the asset is based on contractual or legal rights. While
most provisions of SFAS No. 142 are effective for the Company beginning January
1, 2002, goodwill and intangible assets acquired after June 30, 2001, are
subject immediately to the non-amortization and amortization provisions of the
statement, respectively. At December 31, 2001, the Company's net goodwill was
$1.037 billion, and annual amortization of such goodwill was approximately $26
million.
Based on preliminary review of the new standard, the Company believes that
it will record a non-cash goodwill impairment charge upon adoption and that the
amount of such charge will be material in relation to the Company's unamortized
goodwill balance. Such charge, however, will not impact cash flow or operating
income but will be reflected as a cumulative effect of a change in accounting
principle.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes 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
Opinion 30. SFAS No. 144 addresses the financial accounting and reporting for
the impairment or disposal of long-lived assets and establishes criteria for
determining when a long-lived asset is held for sale. The Company is required to
and will adopt SFAS No. 144 on January 1, 2002, and believes that the adoption
will not have a material effect on its consolidated financial position or
results of operations.
39
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER SHARE INFORMATION:
Earnings per share amounts are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. The weighted average number of shares used to compute basic and diluted
earnings per share for 1999, 2000 and 2001 is illustrated below (in thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
1999 2000 2001
------- -------- -------
<S> <C> <C> <C>
NET INCOME:
Net income attributable to common stock.............. $53,679 $104,793 $84,836
Dividends on Preferred Stock......................... 260 930 930
------- -------- -------
Net income for basic earnings per share.............. 53,939 105,723 85,766
------- -------- -------
Effect of convertible subordinated notes under the
"if converted" method -- interest expense addback,
net of taxes.................................... 2,198 3,003 --
------- -------- -------
Net income for diluted earnings per share............ $56,137 $108,726 $85,766
======= ======== =======
WEIGHTED AVERAGE SHARES:
Weighted average shares outstanding for basic
earnings per share, including Convertible
Preferred Stock................................... 49,776 70,452 77,256
Effect of dilutive stock options..................... 986 2,300 982
Effect of convertible subordinated notes under the
"if converted" method -- weighted convertible
shares issuable................................. 5,384 3,831 --
------- -------- -------
Weighted average shares outstanding for diluted
earnings per share................................ 56,146 76,583 78,238
======= ======== =======
</Table>
Pursuant to EITF Topic D-95, "Effect of Participating Convertible
Securities on the Computation of Basic Earnings Per Share," the impact of the
Series A Convertible Preferred Stock has been included in the computation of
basic earnings per share and prior period amounts have been restated
accordingly. For the years ended December 31, 1999, 2000 and 2001, stock options
for approximately 0.9 million, 0.3 million and 3.9 million shares, respectively,
were excluded from the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
Company's common stock. For the year ended December 31, 2001, the effect of
assuming conversion of the convertible subordinated notes would be antidilutive
and they were therefore excluded from the calculation of diluted earnings per
share.
4. BUSINESS COMBINATIONS:
During 2000 and 2001, the Company completed 34 acquisitions accounted for
as purchases. The aggregate consideration paid in these transactions consisted
of $407.2 million in cash and 7.1 million shares of common stock. The
accompanying balance sheet as of December 31, 2001 includes preliminary
allocations of the respective purchase prices of certain of these acquisitions
and is subject to final adjustment. The following summarized unaudited pro forma
financial information adjusts the historical financial information by
40
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assuming the acquisition of the companies acquired during 1999 and 2000 occurred
on January 1, 1999 (in thousands, except per share information):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------
1999 2000
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $1,531,068 $2,037,817
Net income attributable to common stock..................... $ 91,755 $ 116,777
Basic earnings per share.................................... $ 1.29 $ 1.60
Diluted earnings per share.................................. $ 1.28 $ 1.55
</Table>
The following summarized unaudited pro forma financial information adjusts
the historical financial information by assuming the acquisition of the
companies acquired during 2000 and 2001 occurred on January 1, 2000 (in
thousands, except per share information):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------
2000 2001
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $2,143,723 $2,057,279
Net income attributable to common stock..................... $ 126,605 $ 87,266
Basic earnings per share.................................... $ 1.68 $ 1.13
Diluted earnings per share.................................. $ 1.62 $ 1.11
</Table>
Pro forma adjustments included in the amounts above primarily relate to:
(a) contractually agreed reductions in salaries and benefits for former owners,
and certain key employees; (b) adjustments to amortization expense due to the
purchase price allocations; (c) an assumed increase in interest expense in
connection with financing the acquisitions; and (d) the adjustment to the
federal and state income tax provisions based on the combined operations. The
pro forma financial data does not purport to represent what the Company's
combined financial position or results of operations would actually have been if
such transactions had in fact occurred on the dates indicated and are not
necessarily representative of the Company's financial position or results of
operations for any future period.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<Table>
<Caption>
ESTIMATED
USEFUL DECEMBER 31,
LIVES IN --------------------
YEARS 2000 2001
--------- -------- ---------
<S> <C> <C> <C>
Land................................................. -- $ 2,906 $ 2,866
Buildings and leasehold improvements................. 5-30 8,835 13,370
Operating equipment and vehicles..................... 5-25 398,248 483,385
Office equipment, furniture and fixtures............. 3-7 12,818 18,303
-------- ---------
422,807 517,924
Less -- Accumulated depreciation and amortization.... (81,778) (132,444)
-------- ---------
Property and equipment, net.......................... $341,029 $ 385,480
======== =========
</Table>
41
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-----------------
2000 2001
------- -------
<S> <C> <C>
Balance at beginning of year................................ $ 5,947 $15,612
Acquired balances......................................... 5,019 3,088
Charged to expense........................................ 7,179 20,259
Deductions for uncollectible receivables written off, net
of recoveries.......................................... (2,533) (3,103)
------- -------
Balance at end of year...................................... $15,612 $35,856
======= =======
</Table>
Accounts payable and accrued expenses consists of the following (in
thousands):
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
<S> <C> <C>
Accounts payable, trade..................................... $106,327 $ 79,775
Accrued compensation and other related expenses............. 45,433 44,581
Accrued insurance........................................... 19,247 24,650
Accrued interest and fees................................... 10,813 8,273
Federal and state taxes payable............................. -- 8,025
Other accrued expenses...................................... 27,908 37,023
-------- --------
$209,728 $202,327
======== ========
</Table>
Contracts in progress are as follows (in thousands):
<Table>
<Caption>
DECEMBER 31,
-------------------------
2000 2001
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress.................... $ 875,873 $ 886,497
Estimated earnings, net of estimated losses................ 207,685 186,041
----------- -----------
1,083,558 1,072,538
Less -- Billings to date................................... (1,039,697) (1,046,245)
----------- -----------
$ 43,861 $ 26,293
=========== ===========
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... $ 71,842 $ 57,433
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts................................. (27,981) (31,140)
----------- -----------
$ 43,861 $ 26,293
=========== ===========
</Table>
42
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM OBLIGATIONS:
The Company's long-term debt obligations consist of the following (in
thousands):
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
<S> <C> <C>
Credit facility............................................. $ 92,880 $109,330
Senior secured notes........................................ 210,000 210,000
Convertible subordinated notes.............................. 172,500 172,500
Notes payable to various financial institutions, interest
ranging from 0.9% to 16.72%, secured by certain equipment,
receivables and other assets.............................. 22,123 15,425
Capital lease obligations................................... 2,371 1,082
-------- --------
499,874 508,337
Less -- Current maturities.................................. (8,772) (8,063)
-------- --------
Total long-term debt obligations....................... $491,102 $500,274
======== ========
</Table>
Credit Facility
The Company currently has a $350.0 million credit facility with 14
participating banks. The credit facility is secured by a pledge of all of the
capital stock of the Company's subsidiaries and the majority of the Company's
assets and is to provide funds to be used for working capital, to finance
acquisitions and for other general corporate purposes. Amounts borrowed under
the credit facility bear interest at a rate equal to either (a) the London
Interbank Offered Rate (the 30 day LIBOR rate was 2.44% at December 31, 2001)
plus 1.00% to 2.00%, as determined by the ratio of the Company's total funded
debt to EBITDA (as defined in the credit facility) or (b) the bank's prime rate
(which was 4.75% at December 31, 2001) plus up to 0.25%, as determined by the
ratio of the Company's total funded debt to EBITDA. Commitment fees of 0.25% to
0.50% (based on the ratio of the Company's total funded debt to EBITDA) are due
on any unused borrowing capacity under the credit facility. The credit facility
matures June 14, 2004. The Company's subsidiaries guarantee the repayment of all
amounts due under the facility and the facility restricts pledges on all
material assets. The credit facility contains usual and customary covenants for
a credit facility of this nature including the prohibition of the payment of
dividends on common stock, certain financial ratios and indebtedness covenants
and the consent of the lenders for acquisitions exceeding a certain level of
cash consideration. As of December 31, 2001, $109.3 million was borrowed under
the credit facility, and the Company had $46.4 million of letters of credit
outstanding, resulting in a borrowing availability of $194.3 million under the
credit facility. The weighted-average borrowing rate on the credit facility for
the year ended December 31, 2001 was 5.55%.
Senior Secured Notes
In March 2000, the Company closed a private placement of $150.0 million
principal amount of senior secured notes primarily with insurance companies. In
September 2000, the Company issued an additional $60.0 million principal amount
of senior secured notes. The resulting $210.0 million of senior secured notes
have maturities ranging from four to nine years with a weighted average interest
rate of 8.41% and, pursuant to an intercreditor agreement, rank equally in right
of repayment with indebtedness under the Company's credit facility. The senior
secured notes have financial covenants similar to the credit facility.
Convertible Subordinated Notes
On July 19, 2000, the Company issued $150.0 million principal amount of
convertible subordinated notes and, on August 7, 2000, the Company issued an
additional $22.5 million principal amount of convertible subordinated notes due
to the exercise of the underwriters' over-allotment option. The convertible
subordi-
43
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nated notes bear interest at 4.0% per year and are convertible into shares of
the Company's common stock at a price of $54.53 per share. The convertible
subordinated notes require semi-annual interest payments beginning December 31,
2000, until the notes mature on July 1, 2007. The Company has the option to
redeem the notes beginning July 3, 2003.
The maturities of long-term debt obligations (excluding capital leases) as
of December 31, 2001, are as follows (in thousands):
<Table>
<Caption>
<S> <C>
Year Ending December 31 --
2002........................................................ $ 7,311
2003........................................................ 4,475
2004........................................................ 111,155
2005........................................................ 103,882
2006........................................................ 5,326
Thereafter.................................................. 275,106
--------
$507,255
========
</Table>
An event of default could occur under the credit facility and senior
secured notes in the event that Aquila prevails in its recently announced proxy
contest for control of the Company's board of directors. No such event of
default provision exists under the Company's convertible subordinated notes. The
Company cannot be certain that the affected lenders and note holders would waive
such an event of default or that the Company or Aquila would be able to
refinance any defaulted indebtedness.
The Company has specifically provided for the possibility of a non-cash
goodwill impairment charge in its credit facility resulting from the adoption of
SFAS No. 142, and accordingly, expects no impact on the credit facility as a
result of this charge. The Company is currently seeking to avoid any potential
covenant violations through a similar amendment with holders of the Company's
senior secured notes and expects the completion of an amendment prior to the
occurrence of any covenant violation. A goodwill impairment charge will not
violate any covenants in the Company's convertible subordinated notes.
The Company leases certain buildings and equipment under non-cancelable
lease agreements including related party leases as discussed in Note 12. The
following schedule shows the future minimum lease payments under these leases as
of December 31, 2001 (in thousands):
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year Ending December 31 --
2002........................................................ $ 756 $30,772
2003........................................................ 323 14,122
2004........................................................ 47 8,281
2005........................................................ -- 6,680
2006........................................................ -- 2,915
Thereafter.................................................. -- 2,610
------ -------
Total minimum lease payments...................... 1,126 $65,380
====== =======
Less -- Amounts representing interest..................... (44)
------
Present value of minimum lease payments................... 1,082
Less -- Current portion................................... (752)
------
Total long-term obligations............................... $ 330
======
</Table>
44
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense related to operating leases was approximately $11.7 million,
$16.2 million and $24.1 million for the years ended December 31, 1999, 2000 and
2001, respectively. Assets under capital leases are included as part of property
and equipment.
8. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
<S> <C> <C> <C>
Federal --
Current............................................... $36,044 $66,558 $52,507
Deferred.............................................. 5,071 10,350 8,900
State --
Current............................................... 7,335 13,426 8,687
Deferred.............................................. 549 2,994 1,106
------- ------- -------
$48,999 $93,328 $71,200
======= ======= =======
</Table>
Actual income tax provision differs from the income tax provision computed
by applying the U.S. federal statutory corporate rate to the income before
provision for income taxes as follows (in thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
<S> <C> <C> <C>
Provision at the statutory rate......................... $36,028 $69,668 $54,938
Increases (decreases) resulting from --
State income taxes, net of federal benefit............ 5,124 10,453 7,001
Non-deductible goodwill............................... 3,381 5,472 6,762
Non-deductible expenses............................... 1,582 2,217 3,614
Tax credits........................................... (94) (195) (1,115)
Compensation, excise tax and deferred tax charges
related to poolings................................ 2,978 -- --
Expenses with no tax benefit related to merger and
special charges.................................... -- 5,713 --
------- ------- -------
$48,999 $93,328 $71,200
======= ======= =======
</Table>
45
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
<S> <C> <C>
Deferred income tax liabilities --
Property and equipment.................................... $(50,808) $(69,782)
Book/tax accounting method difference..................... (1,974) (2,049)
Goodwill and other........................................ (4,150) (12,383)
-------- --------
Total deferred income tax liabilities.................. (56,932) (84,214)
-------- --------
Deferred income tax assets --
Allowance for doubtful accounts and other reserves........ 5,860 11,998
NOLs and accruals not currently deductible................ 10,166 18,692
Inventory and other....................................... 225 733
-------- --------
Total deferred income tax assets....................... 16,251 31,423
-------- --------
Total net deferred income tax liabilities.............. $(40,681) $(52,791)
======== ========
</Table>
Net current deferred tax assets are included in prepaid expenses and other
current assets.
At December 31, 2001, the Company has U.S. federal, state and local tax
loss carryforwards, the tax effect of which is approximately $4.4 million. These
carryforwards will expire as follows: 2005, $0.2 million; 2006, $0.6 million and
$3.6 million thereafter.
The Company's net deferred tax assets include amounts for these net
operating losses. Inability to achieve forecasted taxable income might affect
the ultimate realization of the net deferred tax assets; however, as of December
31, 2001, no valuation allowance has been recorded associated with these
deferred tax assets.
9. STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock
In September 1999, the Company entered into a securities purchase agreement
with Aquila pursuant to which the Company issued 1,860,000 shares of Series A
Convertible Preferred Stock, $.00001 par value per share, for an initial
investment of $186.0 million, before transaction costs. In September 2000,
Aquila converted 7,924,805 shares of common stock into an additional 1,584,961
shares of Series A Convertible Preferred Stock at a rate of one share of Series
A Convertible Preferred Stock for five shares of common stock. The holders of
the Series A Convertible Preferred Stock are entitled to receive dividends in
cash at a rate of 0.5% per annum on an amount equal to $53.99 per share, plus
all unpaid dividends accrued. In addition to the preferred dividend, the holders
are entitled to participate in any cash or non-cash dividends or distributions
declared and paid on the shares of common stock, as if each share of Series A
Convertible Preferred Stock had been converted into common stock at the
applicable conversion price immediately prior to the record date for payment of
such dividends or distributions. However, holders of Series A Convertible
Preferred Stock will not participate in non-cash dividends or distributions if
such dividends or distributions cause an adjustment in the price at which Series
A Convertible Preferred Stock converts into common stock. At any time after the
sixth anniversary of the issuance of the Series A Convertible Preferred Stock,
if the closing price per share of the Company's common stock is greater than
$20.00, then the Company may terminate the preferred dividend. At any time after
the sixth anniversary of the issuance of the Series A Convertible Preferred
Stock, if the closing price per share of the Company's common stock is equal to
or less
46
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
than $20.00, then the preferred dividend may, at the option of Aquila, be
adjusted to the then "market coupon rate," which shall equal the Company's
after-tax cost of obtaining financing, excluding common stock, to replace
Aquila's investment in the Company.
Aquila is entitled to that number of votes equal to the number of shares of
common stock into which the outstanding shares of Series A Convertible Preferred
Stock are then convertible. Subject to certain limitations, Aquila is entitled
to elect three of the total number of directors of the Company. All or any
portion of the outstanding shares of Series A Convertible Preferred Stock may,
at the option of Aquila, be converted at any time into fully paid and
nonassessable shares of common stock. The conversion price currently is $20.00,
yielding 17,224,805 shares of common stock upon conversion of all outstanding
shares of Series A Convertible Preferred Stock. The conversion price may be
adjusted under certain circumstances.
Convertible Subordinated Notes
On June 13, 2000, Aquila converted the Company's $49.4 million of 6 7/8%
convertible subordinated notes into 5.4 million shares of the Company's common
stock.
Public Offerings
On January 27, 1999, Quanta completed a follow-on public offering, which
involved the issuance of 6.9 million shares of its common stock at a price of
$15.50 per share, resulting in net proceeds to the Company of $101.1 million
after deducting underwriting discounts and commissions and expenses related to
the offering.
Stockholder Rights Plan
On March 8, 2000, the board of directors of the Company adopted a
Stockholder Rights Plan. On November 15, 2001, the board of directors amended
the Stockholder Rights Plan and on November 18, 2001 and December 1, 2001 the
board of directors ratified such amendments to the Stockholder Rights Plan.
Under the Stockholder Rights Plan, a dividend of one Preferred Stock Purchase
Right (the Rights) was declared on each outstanding share of the Company's
common stock and Series A Convertible Preferred Stock (on an as-converted basis)
for holders of record as of the close of business on March 27, 2000. The Rights
also attach to all common stock and Series A Convertible Preferred Stock issued
after March 27, 2000. No separate certificates evidencing the Rights will be
issued unless and until they become exercisable. Each Right has an initial
exercise price of $153.33. The Rights will be exercisable if a person or group
(other than Aquila) becomes the beneficial owner of, or tenders for, 15% or more
of the Company's common shares. The Rights also will be exercisable if Aquila,
together with any affiliates or associates, becomes the beneficial owner of, or
tenders for more than 39.0% of the outstanding shares of the Company's common
stock on an as-converted basis, or if there is a change of control of Aquila.
Upon a "Flip-In Event" as defined in the Stockholder Rights Plan, the Rights
issued pursuant to the Stockholder Rights Plan would be exercisable for Series B
Junior Participating Preferred Stock of the Company at a discount. In addition,
the Rights held by an "Acquiring Person" as defined in the Stockholder Rights
Plan will become exercisable upon a Flip-In Event for Series C Junior
Convertible Preferred Stock. The Rights will expire in ten years.
On February 12, 2002, the board of directors further amended the
Stockholder Rights Plan to provide that only outstanding shares of the Company's
common stock and Series A Convertible Preferred Stock are to be counted in
calculating the number of shares that Aquila could acquire while remaining an
exempt person under the Stockholder Rights Plan. As amended, the Stockholder
Rights Plan permits Aquila to beneficially own up to 39.0% of the outstanding
shares of the Company's common stock (assuming conversion of all outstanding
shares of the Company's Series A Convertible Preferred Stock) or such greater
percentage as it may own as of the earlier of notice to Aquila of, or public
announcement of, the February 2002 amendment.
See Note 16 for further discussion of the Stockholder Rights Plan.
47
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Limited Vote Common Stock
The shares of Limited Vote Common Stock have rights similar to shares of
common stock, except that such shares are entitled to elect one member of the
board of directors and are entitled to one-tenth of one vote for each share held
on all other matters. Each share of Limited Vote Common Stock will convert into
common stock upon disposition by the holder of such shares in accordance with
the transfer restrictions applicable to such shares. In 2000 and 2001,
respectively, 1,980,108 and 649,674 shares of Limited Vote Common Stock were
converted to common stock.
Treasury Stock
The board of directors of the Company has authorized a Stock Repurchase
Plan under which up to $75.0 million of the Company's common stock may be
repurchased. Under the Stock Repurchase Plan, the Company may conduct purchases
through open market transactions in accordance with applicable securities laws.
During 2001, the Company purchased 986,000 shares of common stock for
approximately $15.3 million. The amount of shares purchased and the timing of
any purchases will be based on a number of factors, including the number of
shares needed for replenishment of employee benefit plans, the market price of
the stock, market conditions and as the Company's management deems appropriate.
Issuance of Restricted Stock
Under the 2001 Stock Incentive Plan discussed in Note 10 below, 72,701
shares of the Company's common stock were issued in 2001 at a price of $27.51
per share, which reflected the fair market value of the common stock at the date
of issuance. The shares of common stock issued pursuant to the 2001 Stock
Incentive Plan are subject to restrictions on transfer and certain other
conditions. During the restriction period, the plan participants are entitled to
vote and receive dividends on such shares.
Upon issuance of the 72,701 shares of the Company's common stock pursuant
to the 2001 Stock Incentive Plan, an unamortized compensation expense equivalent
to the market value of the shares on the date of grant was charged to
stockholders' equity and will be amortized over the six year restriction period.
The compensation expense taken with respect to the restricted shares during the
year ended December 31, 2001 was $230,000.
10. LONG-TERM INCENTIVE PLANS:
Stock Incentive Plan
In December 1997, the board of directors adopted, and the stockholders of
the Company approved, the 1997 Stock Option Plan. In May 2000, the 1997 Stock
Option Plan was amended to expand the definition of "stock" to include the
Company's Series A Convertible Preferred Stock, common stock and Limited Vote
Common Stock. In May 2001, the 1997 Stock Option Plan was amended and renamed
the 2001 Stock Incentive Plan. The purpose of the 2001 Stock Incentive Plan is
to provide directors, key employees, officers and certain advisors with
additional incentives by increasing their proprietary interest in the Company.
The aggregate amount of common stock of the Company with respect to which
options may be granted may not exceed 15% of the outstanding shares of common
stock.
The 2001 Stock Incentive Plan provides for the grant of incentive stock
options (ISOs) as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the Code), nonqualified stock options and restricted stock
(collectively, the Awards). The amount of ISOs that may be granted under the
2001 Stock Incentive Plan is limited to 3,571,275 shares. The 2001 Stock
Incentive Plan is administered by the Compensation Committee of the board of
directors. The Compensation Committee has, subject to the terms of the 2001
Stock Incentive Plan, the sole authority to grant Awards under the 2001 Stock
Incentive Plan, to construe and interpret the 2001 Stock Incentive Plan and to
make all other determinations and take any and
48
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
all actions necessary or advisable for the administration of the 2001 Stock
Incentive Plan; provided, however, that the Company's Chief Executive Officer
has the authority to grant nonqualified stock options to individuals who are not
officers, provided that such grants do not exceed in any calendar quarter
options to purchase 100,000 shares to all optionees and 20,000 to any
individual.
All of the Company's employees (including officers), non-employee directors
and certain consultants and advisors are eligible to receive Awards under the
2001 Stock Incentive Plan, but only employees of the Company are eligible to
receive ISOs. Options will be exercisable during the period specified in each
option agreement and will generally become exercisable in installments pursuant
to a vesting schedule designated by the Compensation Committee. Unless
specifically provided otherwise in the option agreement, options become
immediately vested and exercisable in the event of a "change in control" (as
defined in the 2001 Stock Incentive Plan) of the Company. No option will remain
exercisable later than ten years after the date of grant (or five years in the
case of ISOs granted to employees owning more than 10% of the voting capital
stock).
The 2001 Stock Incentive Plan also provides for automatic option grants to
directors who are not otherwise employed by the Company or its subsidiaries.
Upon commencement of service, a non-employee director will receive a
non-qualified option to purchase 15,000 shares of common stock, and each
continuing or re-elected non-employee director annually will receive an option
to purchase 7,500 shares of common stock. Options granted to non-employee
directors are fully exercisable following the expiration of six months from the
date of grant.
The exercise price for ISOs granted under the 2001 Stock Incentive Plan may
be no less than the fair market value of a share of the common stock on the date
of grant (or 110% in the case of ISOs granted to employees owning more than 10%
of the voting capital stock). No ISOs have been granted as of December 31, 2001.
The fair market value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for 1999, 2000 and 2001, respectively: (i) risk-free interest rates
ranging from 4.30% to 6.82%, 5.18% to 6.62% and 4.64% to 4.84%, (ii) expected
life of 6.0, 6.0 and 7.9 years, (iii) average volatility of 54.0%, 57.7%, and
66.9%, and (iv) dividend yield of 0%. The following table summarizes activity
under the 2001 Stock Incentive Plan for the years ended December 31, 1999, 2000
and 2001 (shares in thousands):
49
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR
SHARES PRICE VALUE
------ -------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1998............................ 2,366 $ 8.07
Granted................................................... 4,500 23.90 $10.95
Exercised................................................. (307) 8.41
Forfeited and canceled.................................... (113) 14.09
-----
Outstanding at December 31, 1999............................ 6,446 15.66
Granted................................................... 2,574 30.70 $18.57
Exercised................................................. (804) 13.00
Forfeited and canceled.................................... (367) 18.19
-----
Outstanding at December 31, 2000............................ 7,849 20.97
Granted................................................... 2,084 26.34 $18.81
Exercised................................................. (395) 15.05
Forfeited and canceled.................................... (565) 23.71
-----
Outstanding at December 31, 2001............................ 8,973 22.29
=====
Options exercisable at --
December 31, 1999......................................... 335
December 31, 2000......................................... 1,297
December 31, 2001......................................... 3,023
</Table>
Options exercisable at December 31, 2000 and 2001, as shown above, are
based on term vesting periods as outlined in each option agreement. Based on
Aquila's voting interest in the Company, options to purchase additional shares
of common stock of the Company may also be currently exercisable pursuant to the
change of control provisions of certain option agreements.
The following table summarizes information for outstanding options at
December 31, 2001 (shares in thousands):
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -------------------------
WEIGHTED WEIGHTED NUMBER OF WEIGHTED
NUMBER OF AVERAGE AVERAGE OPTIONS AVERAGE
OPTIONS CONTRACTUAL EXERCISE EXERCISABLE AS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE OF 12/31/01 PRICE
- ------------------------ ----------- ------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.0000-$ 6.1500............ 491 6.1 $ 6.00 302 $ 6.00
$ 6.1501-$12.3000............ 702 6.5 9.15 437 9.11
$12.3001-$18.4500............ 2,022 7.2 17.27 833 17.38
$18.4501-$24.6000............ 3,037 7.7 22.09 991 21.96
$24.6001-$30.7500............ 1,752 8.7 27.49 152 26.74
$30.7501-$36.9000............ 296 8.7 34.24 117 34.38
$36.9001-$43.0500............ 199 8.5 38.75 50 38.75
$43.0501-$49.2000............ 353 8.2 44.77 111 44.61
$49.2001-$55.3500............ 54 8.5 53.11 13 53.11
$55.3501-$61.5000............ 67 8.2 57.70 17 57.70
----- -----
8,973 3,023
===== =====
</Table>
50
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Purchase Plan
An Employee Stock Purchase Plan (the ESPP) was adopted by the board of
directors of the Company and was approved by the stockholders of the Company in
May 1999. The purpose of the ESPP is to provide an incentive for employees of
the Company and any Participating Company (as defined in the ESPP) to acquire or
increase a proprietary interest in the Company through the purchase of shares of
the Company's common stock. At the date hereof, all of the existing subsidiaries
of the Company have been designated as Participating Companies. The ESPP is
intended to qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the Code). The provisions of the
ESPP are construed in a manner consistent with the requirements of that section
of the Code. The ESPP is administered by a committee appointed from time to time
by the board of directors. The ESPP is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974, as amended. During 2000 and
2001, respectively, the Company issued a total of 222,364 and 462,179 shares
pursuant to the ESPP. Compensation cost is computed for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 2000 and 2001: dividend yield of 0%; an
expected life of 0.5 years; expected volatility of 69.4% and 66.9% and risk-free
interest rate of 6.2% and 4.7%, respectively. The weighted-average fair value of
those purchase rights granted in 2000 and 2001 was $25.40 and $2.51,
respectively.
The Company accounts for its stock-based compensation under APB No. 25
"Accounting for Stock Issued to Employees." Under this accounting method, no
compensation expense is recognized in the consolidated statements of operations
if no intrinsic value of the option exists at the date of grant. In October
1995, the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation."
SFAS No. 123 encourages companies to account for stock based compensation awards
based on the fair value of the awards at the date they are granted. The
resulting compensation cost would be shown as an expense in the consolidated
statements of operations. Companies can choose not to apply the new accounting
method and continue to apply current accounting requirements; however,
disclosure is required as to what net income and earnings per share would have
been had the new accounting method been followed. Had compensation costs for the
2001 Stock Incentive Plan and the Employee Stock Purchase Plan been determined
consistent with SFAS No. 123, the Company's net income attributable to common
stock and earnings per share would have been reduced to the following as
adjusted amounts (in thousands, except per share information):
<Table>
<Caption>
1999 2000 2001
------- -------- -------
<S> <C> <C> <C>
Net income attributable to common stock
As reported.......................................... $53,679 $104,793 $84,836
As Adjusted -- Basic................................. $48,359 $ 89,413 $64,522
As Adjusted -- Diluted............................... $50,817 $ 93,346 $64,522
Earnings per share
As Reported -- Basic................................. $ 1.08 $ 1.50 $ 1.11
As Adjusted -- Basic................................. $ 0.97 $ 1.27 $ 0.84
As Reported -- Diluted............................... $ 1.00 $ 1.42 $ 1.10
As Adjusted -- Diluted............................... $ 0.91 $ 1.22 $ 0.82
</Table>
The effects of applying SFAS No. 123 in the as adjusted disclosure may not
be indicative of future amounts as additional awards in future years are
anticipated.
Employee Stock Ownership Plan
The Company issued shares of common stock to an Employee Stock Ownership
Plan (the ESOP) in connection with the acquisition of one of the companies
acquired in a pooling transaction. The ESOP was
51
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terminated on July 31, 1998. In June 1999, after the receipt of a favorable
determination letter from the Internal Revenue Service, a portion of the
unallocated shares of the Company's common stock held by the ESOP were sold to
repay debt owed by the ESOP to the Company and the remaining portion of the
unallocated shares were distributed to the plan participants. The cost of the
unallocated ESOP shares was reflected as a reduction in the Company's
stockholders' equity. As a result of the above, the Company incurred an excise
tax of approximately $1.1 million equal to 10% of the value of the Company's
common stock distributed to the plan participants. In addition, the Company
eliminated the remaining balance reflected as Unearned ESOP Shares on the
Company's balance sheet and recognized a non-cash, non-recurring compensation
charge of approximately $5.3 million equal to the value of the unallocated
shares held by the ESOP.
11. EMPLOYEE BENEFIT PLANS:
Union's Multi-Employer Pension Plans
In connection with its collective bargaining agreements with various
unions, the Company participates with other companies in the unions'
multi-employer pension plans. These plans cover all of the Company's employees
who are members of such unions. The Employee Retirement Income Security Act of
1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980,
imposes certain liabilities upon employers who are contributors to a
multi-employer plan in the event of the employer's withdrawal from, or upon
termination of such plan. The Company has no plans to withdraw from these plans.
The plans do not maintain information on the net assets and actuarial present
value of the plans' unfunded vested benefits allocable to the Company, and the
amounts, if any, for which the Company may be contingently liable are not
ascertainable at this time.
401(k) Plan
Effective February 1, 1999, the Company adopted a 401(k) plan pursuant to
which employees who are not provided retirement benefits through a collective
bargaining agreement may make contributions through a payroll deduction. The
Company will make a matching cash contribution of 100% of each employee's
contribution up to 3% of that employee's salary and 50% of each employee's
contribution between 3% and 6% of such employee's salary. Prior to joining the
Company's 401(k) plan, certain subsidiaries of the Company provided various
defined contribution plans to their employees. Contributions to all non-union
defined contribution plans by the Company were approximately $5.0 million, $5.9
million and $7.3 million for the years ended December 31, 1999, 2000 and 2001,
respectively.
12. RELATED PARTY TRANSACTIONS:
As previously discussed, Aquila has made investments in the Company. The
Company has had transactions in the normal course of business with Aquila. In
addition, in September 1999, the Company entered into a strategic alliance
agreement with Aquila. Under the terms of the strategic alliance agreement,
Aquila will use the Company, subject to the Company's ability to perform the
required services, as a preferred contractor in outsourced transmission and
distribution infrastructure installation and maintenance and natural gas
distribution installation and maintenance in all areas serviced by Aquila,
provided that the Company provides such services at a competitive cost. The
strategic alliance agreement has a term of six years. Subsequent to the
investment by Aquila, revenues from Aquila in 2000 and 2001 were approximately
$14.4 million and $17.2 million, respectively, and balances due the Company at
year-end were approximately $1.8 million and $2.4 million, respectively. In
addition, the Company performed work for an affiliate of Aquila with revenues in
2000 and 2001 of $4.3 million and $19.3 million, respectively, and balances due
the Company at year-end were approximately $4.1 million and $3.4 million,
respectively.
52
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into a management services agreement in September 1999
with Aquila for advice and services including financing activities; corporate
strategic planning; research on the restructuring of the electric power
industry; the development, evaluation and marketing of the Company's products,
services and capabilities; identification of and evaluation of potential U.S.
acquisition candidates and other merger and acquisition advisory services; and
other services that the Company may reasonably request. The management services
agreement required the Company to make quarterly payments to Aquila of
$2,325,000 through September 30, 2005. In December 2000, the Company agreed to
conclude its obligations under the management services agreement with Aquila in
exchange for a one-time payment to Aquila of approximately $28.6 million, which
has been reflected as a special charge during the year ended December 31, 2000.
Certain of the Company's subsidiaries have entered into related party lease
arrangements for operational facilities. These lease agreements generally have a
term of five years. Related party lease expense for the years ended December 31,
1999, 2000 and 2001, respectively, was approximately $1.2 million, $2.1 million
and $2.8 million.
13. COMMITMENTS AND CONTINGENCIES:
Litigation
On November 28, 2001, Aquila filed an arbitration demand against the
Company with the Kansas City, Missouri office of the American Arbitration
Association. In its demand, Aquila alleged that the amendment to the Company's
Stockholder Rights Plan adopted by its board of directors on November 15, 2001,
and subsequently ratified and reauthorized by a committee of the Company's board
of directors, violated the terms of the Company's 1999 securities purchase
agreement with Aquila. In its demand, Aquila seeks (i) damages which may occur
if the price of the Company's shares rises during the period in which the
Stockholder Rights Plan amendment is in effect, (ii) a declaratory judgment that
the Stockholder Rights Plan amendment is void, and (iii) an order requiring the
Company to take all necessary steps to amend its Stockholder Rights Plan to
allow Aquila to acquire up to 49% of the Company's shares on a fully-diluted
basis without any economic penalty. The arbitration proceeding is in the
discovery stage and no prediction can be made as to the probable outcome of the
proceeding at this time.
On November 28, 2001, Aquila also filed a complaint in the Delaware Court
of Chancery challenging the adoption of the Company's Stockholder Rights Plan
amendment. The complaint names as defendants Quanta and directors James R. Ball,
John R. Colson, Vincent D. Foster, Louis C. Golm, Jerry J. Langdon, Gary A.
Tucci and John R. Wilson. The Delaware complaint alleges that Aquila's nominees
to the Company's board of directors did not receive proper notice of the
meetings of the Company's board on November 15, 2001 and November 18, 2001 at
which the Stockholder's Rights Plan amendment was adopted. The complaint seeks,
among other things, an order declaring that all actions taken at the November 15
and November 18 meetings are void and enjoining the Company's directors from
implementing or enforcing any action taken at the November 15 and November 18
meetings. Aquila sought expedited treatment of its Delaware complaint, but the
Chancery Court denied Aquila's motion to expedite the proceedings and instructed
Aquila to file an amended complaint. To date, Aquila had not filed an amended
complaint. The action remains pending and no prediction can be made at this time
as to the outcome of this litigation.
On December 21, 2001, a purported stockholder of Quanta filed a putative
class action and derivative complaint against directors Vincent D. Foster, Jerry
J. Langdon, Louis C. Golm, James R. Ball, John R. Colson, John R. Wilson and
Gary A. Tucci. The complaint also names Quanta as a nominal defendant. The
complaint alleges that the named directors breached their fiduciary duties by
taking certain actions, including the Stockholder Rights Plan amendment, in
response to the announcement by Aquila that it intended to acquire control of
Quanta through open market purchases of the Company's shares. The complaint
seeks an order rescinding any actions taken by the named directors in response
to the announcement by Aquila and requiring the directors to take steps
necessary to maximize the value of Quanta. The complaint further seeks
53
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
damages from the named directors on behalf of a class of stockholders and
purportedly on behalf of Quanta for the alleged harm inflicted by the actions of
the named directors. On January 22, 2002, Quanta and the named directors filed a
motion to dismiss the stockholder complaint. It is anticipated that briefing on
the motion to dismiss will begin shortly. Although the ultimate outcome and
liability, if any, cannot be determined, management, after consultation and
review with counsel, believes that the facts do not support the plaintiff's
claims and that the Company and the named directors have meritorious defenses.
In addition, certain subsidiaries of the Company are involved in disputes
or legal actions arising in the ordinary course of business. Management does not
believe the outcome of such legal actions will have a material adverse effect on
the Company's financial position or results of operations.
Self-Insurance
The Company is insured for workers' compensation, employer's liability,
auto liability and general liability claims, subject to a deductible of $500,000
per accident or occurrence. In addition, effective January 1, 2002, the Company
consolidated the various non-union employee related health care benefits plans
that existed at certain of its subsidiaries into one corporate plan which is
subject to a deductible of $250,000 per claimant per year. Losses up to the
deductible amounts are accrued based upon the Company's estimates of the
ultimate liability for 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. At December 31, 2000 and 2001,
the amounts accrued for self-insured claims were $11.9 million and $28.3
million, respectively, with $6.0 million and $14.7 million, respectively,
considered to be long-term and included in Other Non-Current Liabilities.
Derivatives
SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, was effective
for the Company on January 1, 2001. These statements establish accounting and
reporting standards requiring that all derivative instruments be recorded as
either assets or liabilities measured at fair value. These statements also
require that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. In October 2001, the
Company entered into a forward purchase contract (the Contract) with settlements
through 2006, in order to secure pricing on anticipated gas requirements related
to a project in process at year-end. The objective is to mitigate the
variability in the price of gas by fixing the price the Company will have to pay
with the Contract counterparty. As of and for the year ended December 31, 2001,
the Company has recorded the fair value of the Contract as a liability of $0.4
million with a corresponding offset to direct costs in the statement of
operations.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contractual commitments.
54
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
The table below sets forth the unaudited consolidated operating results by
quarter for the years ended December 31, 2000 and 2001 (in thousands, except per
share information).
<Table>
<Caption>
FOR THE THREE MONTHS ENDED,
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
2000:
Revenues............................. $333,737 $423,526 $487,845 $548,193
Gross profit......................... 72,681 98,636 119,383 123,397
Net income attributable to common
stock............................. 19,312 30,863 40,458 14,160
Basic earnings per share............. $ 0.30 $ 0.45 $ 0.55 $ 0.19
Diluted earnings per share........... $ 0.28 $ 0.42 $ 0.53 $ 0.20
2001:
Revenues............................. $519,018 $503,342 $504,472 $488,045
Gross profit......................... 108,952 110,754 110,223 83,909
Net income attributable to common
stock............................. 29,071 16,451 26,089 13,225
Basic earnings per share............. $ 0.38 $ 0.21 $ 0.34 $ 0.17
Diluted earnings per share........... $ 0.38 $ 0.21 $ 0.34 $ 0.17
</Table>
The sum of the individual quarterly earnings per share amounts may not
agree with year-to-date earnings per share as each period's computation is based
on the weighted average number of shares outstanding during the period.
15. SEGMENT INFORMATION:
The Company operates in one reportable segment as a specialty contractor.
The Company provides comprehensive network solutions to the electric power, gas,
telecommunications and cable television industries, including designing,
installing, repairing and maintaining network infrastructure. Each of these
services is provided by various Company subsidiaries and discrete financial
information is not provided to management at the service level. The following
table presents information regarding revenues derived from the industries noted
above. Certain reclassifications have been made to the prior periods in order to
conform to the current period presentation.
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 2000 2001
-------- ---------- ----------
<S> <C> <C> <C>
Electric power network services........................... $315,132 $ 502,124 $ 791,847
Telecommunications network services....................... 348,878 760,360 600,433
Cable television network services......................... 90,558 286,928 284,098
Ancillary services........................................ 171,086 243,889 338,499
-------- ---------- ----------
$925,654 $1,793,301 $2,014,877
======== ========== ==========
</Table>
The Company does not have significant operations or long-lived assets in
countries outside of the United States.
55
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENTS:
Solicitation by Aquila
On February 8, 2002, Aquila announced it intends to conduct a proxy
solicitation to replace members of the Company's board of directors with a slate
of its nominees. The Company has announced that it intends to oppose the Aquila
proxy contest.
Stockholder Rights Plan Amendments
On March 13, 2002, the board of directors further amended the Stockholder
Rights Plan to render the Rights inapplicable to an offer for all outstanding
shares of the Company's common stock in a manner that treats all stockholders
equally if upon completion of the offer, the offeror owns shares of the
Company's voting stock representing 75% or more of the then outstanding voting
stock. The Stockholder Rights Plan as so amended would also require the bidder
to commit irrevocably to purchase all shares not tendered at the same price paid
to the tendering stockholders.
Exploration of Strategic Options
On March 13, 2002, the Company's board of directors authorized its
financial advisor, Goldman, Sachs & Co., to explore a range of strategic
options, including potential acquisitions, stock repurchases, recapitalizations
and other extraordinary transactions, provided that such transactions do not
enable Aquila to achieve a control position without offering appropriate value
and protections for the Company's other stockholders.
Adoption of Stock Employee Compensation Trust
On March 13, 2002, the Company's board of directors approved the creation
of a Stock Employee Compensation Trust (SECT), to fund certain of the Company's
future employee benefit obligations using the Company's common stock. The SECT
was established by selling 8.0 million shares of the Company's common stock,
including the 986,000 shares the Company purchased in 2001 pursuant to the
Company's Stock Repurchase Plan, to the SECT in exchange for a promissory note
plus an amount in cash equal to the aggregate par value of the shares.
The SECT is a trust that holds shares of the Company's common stock to be
used to fund the Company's obligations during the term of the trust in respect
to certain benefit plans. The SECT will release the shares over 15 years, the
life of the trust, as the note is paid down through contributions by the
Company, to satisfy certain benefit requirements of the Company's benefit plans.
The Company will recognize compensation expense for certain shares released
based on the fair value of such shares as they are released from the SECT.
Unallocated shares held by the SECT will not be included in calculating the
Company's earnings per share. In all matters submitted to our stockholders for a
vote or any tender offers made to our stockholders, the unallocated shares in
the SECT will be voted or tendered based on the direction of the participants in
our broad-based Employee Stock Purchase Plan.
Adoption of Change of Control Employment Agreements
The Company entered into new employment agreements with certain employees,
as of March 13, 2002, which become effective upon a change of control (as
defined in the new employment agreements) of the Company. The new employment
agreements supplemented existing employment agreements already in effect. The
new employment agreements provide that, following a change of control, if the
Company terminates the employee's employment other than for cause (as defined in
the new employment agreements), the employee terminates employment for good
reason (as defined in the new employment agreements), or the employee's
employment terminates due to death or disability, the Company will pay certain
amounts to the employee, which may vary with the level of the employee's
responsibility and the terms of the employee's prior
56
<PAGE>
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employment arrangements. In addition, in the case of certain senior executives,
these payments would also be due if the employee terminates his or her
employment within the 30-day window period commencing six months after the
change in control.
Litigation
On March 21, 2002, Aquila filed a complaint in the Delaware Court of
Chancery naming Quanta and each member of the special committee of the Company's
board of directors, consisting of all directors other than those designated by
Aquila, as defendants. The Aquila complaint alleges that the special committee
breached its fiduciary duty in connection with the March 13, 2002 adoption of
the Company's SECT and the new employment agreements entered into with certain
of the Company's employees and that under Delaware statutory law the shares sold
to the SECT are not entitled to vote. The Aquila complaint seeks, among other
things, an order that disallows any shares held by the SECT from being voted at
the Company's next annual meeting of stockholders, rescinds the adoption of the
SECT, and voids and rescinds the new employment agreements. On March 25, 2002,
the Court denied Aquila's request for an expedited trial on the merits and set a
May 7, 2002 hearing date for Aquila's motion to preliminarily enjoin shares held
in the SECT from voting at the upcoming Quanta annual meeting of stockholders.
The action remains pending and no prediction can be made at this time as to the
outcome of this litigation.
57
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are filed as
part of this Report:
(1) Financial Statements. Reference is made to the Index to
Consolidated Financial Statements on page 29 of this Report.
(2) All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes to
the financial statements.
(3) Exhibits
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1 -- Underwriting Agreement dated July 19, 2000 by and among
Morgan Stanley & Co. Incorporated, Banc of America
Securities LLC, Bear Stearns & Co. Inc., Raymond James &
Associates, Inc. SunTrust Equitable Securities Corporation,
Wachovia Securities, Inc. and Quanta Services, Inc.
(previously filed as Exhibit 1.1 to the Company's Form 8-K
(No. 0001-13831) filed July 26, 2000 and incorporated herein
by reference)
3.1 -- Amended and Restated Certificate of Incorporation
(previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (No. 333-42957) and
incorporated herein by reference)
3.2 -- Amended and Restated Bylaws (previously filed as Exhibit 3.2
to the Company's 2000 Form 10-K (No. 001-13831) filed April
2, 2001 and incorporated herein by reference)
3.3 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation (previously filed as Exhibit
3.3 to the Company's Registration Statement on Form S-3 (No.
333-81419) filed June 23, 1999 and incorporated herein by
reference)
</Table>
58
<PAGE>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
3.4 -- Certificate of Designation for the Series A Preferred Stock
(previously filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-3 (No. 333-90961) filed
November 15, 1999 and incorporated herein by reference)
3.5 -- Certificate of Designation for the Series B Preferred Stock
(Previously filed as Exhibit 3.5 to the Company's 1999 Form
10-K (No. 001-13831) filed March 30, 2000 and incorporated
herein by reference)
3.6 -- Certificate of Correction to Certificate of Designation for
the Series A Preferred Stock (previously filed as Exhibit
3.6 to the Company's 1999 Form 10-K (No. 001-13831) filed
March 30, 2000 and incorporated herein by reference)
3.7 -- Certificate of Amendment of the Certificate of Designation,
Rights and Limitations of the Series A Convertible Preferred
Stock (filed herewith)
3.8 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation (filed herewith)
3.9 -- Certificate of Designation of Series C Junior Convertible
Preferred Stock (filed herewith)
3.10 -- Certificate of Increase of Series B Junior Participating
Preferred Stock (filed herewith)
4.1 -- Form of Common Stock Certificate (previously filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-1 (No. 333-42957) and incorporated herein by reference)
4.2 -- Rights Agreement dated as of March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust Company,
as Rights Agent, which includes as Exhibit B thereto the
Form of Right Certificate (previously filed as Exhibit 4.1
to the Company's Form 8-K (No. 001-13831) filed March 20,
2000 and incorporated herein by reference)
4.3 -- Subordinated Indenture dated July 25, 2000 by and between
Quanta Services, Inc. and Chase Bank of Texas, National
Association, as Trustee (previously filed as Exhibit 4.1 to
the Company's Form 8-K (No. 001-13831) filed July 26, 2000
and incorporated herein by reference)
4.4 -- First Supplemental Indenture dated July 25, 2000 by and
between Quanta Services, Inc. and Chase Bank of Texas,
National Association, as Trustee (previously filed as
Exhibit 4.2 to the Company's Form 8-K (No. 0001-13831) filed
July 26, 2000 and incorporated herein by reference)
4.5 -- Third Amended and Restated Secured Credit Agreement dated as
of June 14, 1999 among Quanta Services, Inc. as Borrower and
NationsBank, N.A. d/b/a Bank of America, N.A., as
Administrative Agent, and the other financial institutions
party thereto, as Lenders (previously filed as Exhibit 10.5
to the Company's Registration Statement on Form S-3 (No.
333-81419) and incorporated herein by reference)
4.6 -- First Amendment to Third Amended and Restated Secured Credit
Agreement (previously filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-3 (No. 333-90961)
and incorporated herein by reference)
4.7 -- Second Amendment to Third Amended and Restated Credit
Agreement (previously filed as Exhibit 10.20 to the
Company's 1999 Form 10-K (No. 001-13831) filed March 30,
2000 and incorporated herein by reference)
4.8 -- Third Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (previously filed as Exhibit 4.3 to
the Company's Form 8-K(No. 0001-13831) filed July 26, 2000
and incorporated herein by reference)
4.9 -- Fourth Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.10 -- Fifth Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.11 -- Sixth Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.12 -- Seventh Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
</Table>
59
<PAGE>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
4.13 -- Amendment No. 1 (dated December 1, 2001) to Rights Agreement
dated March 8, 2000 between Quanta Services, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
(previously filed as Exhibit 4.8 to the Company's Form 8-K
(001-13831) filed December 3, 2001 and incorporated herein
by reference)
10.1* -- Form of Employment Agreement (previously filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1
(No. 333-42957) and incorporated herein by reference)
10.2 -- Securities Purchase Agreement between Quanta Services, Inc.
and UtiliCorp United Inc. (now known as Aquila, Inc.) dated
as of September 21, 1999 (previously filed as Exhibit 10.12
to the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.3 -- Investor's Rights Agreement by and between Quanta Services,
Inc. and UtiliCorp United Inc. (now known as Aquila, Inc.)
dated September 21, 1999 (previously filed as Exhibit 10.13
to the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.4 -- Letter Agreement by and between Quanta Services, Inc. and
UtiliCorp United Inc. (now known as Aquila, Inc.) dated
September 21, 1999 (previously filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-3 (No. 333-90961)
and incorporated herein by reference)
10.5 -- Strategic Alliance Agreement by and between Quanta Services,
Inc. and UtiliCorp United Inc. (now known as Aquila, Inc.)
dated as of September 21, 1999 (previously filed as Exhibit
10.16 to the Company's Registration Statement on Form S-3
(No. 333-90961) and incorporated herein by reference)
10.6 -- Form of Stockholders Voting Agreement (previously filed as
Exhibit 10.17 to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.7 -- Letter Agreement by and among ECT Merchant Investments
Corp., Joint Energy Development Investments II Limited
Partnership, Quanta Services, Inc. and UtiliCorp United Inc.
(now known as Aquila, Inc.) dated September 21, 1999
(previously filed as Exhibit 10.19 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
10.8 -- First Amendment to Securities Purchase Agreement and
Registration Rights Agreement (previously filed as Exhibit
10.20 to the Company's Registration Statement on Form S-3
(No. 333-90961) and incorporated herein by reference)
10.9 -- Note Purchase Agreement dated as of March 1, 2000 between
Quanta Services, Inc. and the Purchasers named therein
(previously filed as Exhibit 10.16 to the Company's 1999
Form 10-K (No. 001-13831) filed March 30, 2000 and
incorporated herein by reference)
10.10 -- Intercreditor Agreement dated March 23, 2000 related to the
March 1, 2000 Note Purchase Agreement (previously filed as
Exhibit 10.17 to the Company's 1999 Form 10-K (No.
001-13831) filed March 30, 2000 and incorporated herein by
reference)
10.11 -- Form of Lockup Agreement (previously filed as Exhibit 10.19
to the Company's 1999 Form 10-K (No. 001-13831) filed March
30, 2000 and incorporated herein by reference)
10.12 -- Letter Agreement dated December 28, 2000 between Quanta
Services, Inc. and UtiliCorp United Inc. (now known as
Aquila, Inc.) (previously filed as Exhibit 10.21 to the
Company's 2000 Form 10-K (No. 001-13831) filed April 2, 2001
and incorporated herein by reference)
10.13* -- 2001 Stock Incentive Plan (amending and restating the 1997
Stock Option Plan) (previously filed as Exhibit 10.22 to the
Company's Form 10-Q for the quarterly period ended June 30,
2001 (No. 001-13831) filed August 14, 2001 and incorporated
herein by reference)
10.14* -- Employment Agreement of Peter T. Dameris (previously filed
as Exhibit 10.23 to the Company's Form 10-Q for the
quarterly period ended June 30, 2001 (No. 001-13831) filed
August 14, 2001 and incorporated herein by reference).
</Table>
60
<PAGE>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.15 -- Amendment No. 1 to Quanta Services, Inc. 2001 Stock
Incentive Plan (filed herewith)
21.1 -- Subsidiaries (filed herewith)
23.1 -- Consent of Arthur Andersen LLP (filed herewith)
99.1 -- Letter to SEC pursuant to Temporary Note 3T (filed herewith)
</Table>
- ---------------
* Management contracts or compensatory plans or arrangements
(b) Reports on Form 8-K:
(1) Quanta filed a Form 8-K on November 16, 2001 in which it reported
the adoption of certain amendments to its stockholder rights agreement.
(2) Quanta filed a Form 8-K on November 19, 2001 in which it reported
the ratification of certain amendments to its stockholder rights agreement.
(3) Quanta filed a Form 8-K on November 30, 2001 in which it responded
to certain statements made by Aquila, Inc.
(4) Quanta filed a Form 8-K on December 3, 2001 in which it reported
the ratification of certain amendments to its stockholder rights agreement.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Quanta Services, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on April 1, 2002.
QUANTA SERVICES, INC.
By /s/ JOHN R. COLSON
------------------------------------
John R. Colson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated on
March 28, 2002.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ JOHN R. COLSON Chief Executive Officer, Director (Principal
------------------------------------------------ Executive Officer)
John R. Colson
/s/ JAMES H. HADDOX Chief Financial Officer (Principal Financial
------------------------------------------------ Officer)
James H. Haddox
/s/ DERRICK A. JENSEN Vice President, Controller and Chief Accounting
------------------------------------------------ Officer
Derrick A. Jensen
Director
------------------------------------------------
James R. Ball
Director
------------------------------------------------
Terrence P. Dunn
/s/ VINCENT D. FOSTER Director
------------------------------------------------
Vincent D. Foster
/s/ LOUIS C. GOLM Director
------------------------------------------------
Louis C. Golm
Director
------------------------------------------------
Robert K. Green
/s/ JERRY J. LANGDON Director
------------------------------------------------
Jerry J. Langdon
</Table>
62
<PAGE>
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ GARY A. TUCCI Director
------------------------------------------------
Gary A. Tucci
/s/ JOHN R. WILSON Director
------------------------------------------------
John R. Wilson
</Table>
63
<PAGE>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1 -- Underwriting Agreement dated July 19, 2000 by and among
Morgan Stanley & Co. Incorporated, Banc of America
Securities LLC, Bear Stearns & Co. Inc., Raymond James &
Associates, Inc. SunTrust Equitable Securities Corporation,
Wachovia Securities, Inc. and Quanta Services, Inc.
(previously filed as Exhibit 1.1 to the Company's Form 8-K
(No. 0001-13831) filed July 26, 2000 and incorporated herein
by reference)
3.1 -- Amended and Restated Certificate of Incorporation
(previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (No. 333-42957) and
incorporated herein by reference)
3.2 -- Amended and Restated Bylaws (previously filed as Exhibit 3.2
to the Company's 2000 Form 10-K (No. 001-13831) filed April
2, 2001 and incorporated herein by reference)
3.3 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation (previously filed as Exhibit
3.3 to the Company's Registration Statement on Form S-3 (No.
333-81419) filed June 23, 1999 and incorporated herein by
reference)
3.4 -- Certificate of Designation for the Series A Preferred Stock
(previously filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-3 (No. 333-90961) filed
November 15, 1999 and incorporated herein by reference)
3.5 -- Certificate of Designation for the Series B Preferred Stock
(Previously filed as Exhibit 3.5 to the Company's 1999 Form
10-K (No. 001-13831) filed March 30, 2000 and incorporated
herein by reference)
3.6 -- Certificate of Correction to Certificate of Designation for
the Series A Preferred Stock (previously filed as Exhibit
3.6 to the Company's 1999 Form 10-K (No. 001-13831) filed
March 30, 2000 and incorporated herein by reference)
3.7 -- Certificate of Amendment of the Certificate of Designation,
Rights and Limitations of the Series A Convertible Preferred
Stock (filed herewith)
3.8 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation (filed herewith)
3.9 -- Certificate of Designation of Series C Junior Convertible
Preferred Stock (filed herewith)
3.10 -- Certificate of Increase of Series B Junior Participating
Preferred Stock (filed herewith)
4.1 -- Form of Common Stock Certificate (previously filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-1 (No. 333-42957) and incorporated herein by reference)
4.2 -- Rights Agreement dated as of March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust Company,
as Rights Agent, which includes as Exhibit B thereto the
Form of Right Certificate (previously filed as Exhibit 4.1
to the Company's Form 8-K (No. 001-13831) filed March 20,
2000 and incorporated herein by reference)
4.3 -- Subordinated Indenture dated July 25, 2000 by and between
Quanta Services, Inc. and Chase Bank of Texas, National
Association, as Trustee (previously filed as Exhibit 4.1 to
the Company's Form 8-K (No. 001-13831) filed July 26, 2000
and incorporated herein by reference)
4.4 -- First Supplemental Indenture dated July 25, 2000 by and
between Quanta Services, Inc. and Chase Bank of Texas,
National Association, as Trustee (previously filed as
Exhibit 4.2 to the Company's Form 8-K (No. 0001-13831) filed
July 26, 2000 and incorporated herein by reference)
4.5 -- Third Amended and Restated Secured Credit Agreement dated as
of June 14, 1999 among Quanta Services, Inc. as Borrower and
NationsBank, N.A. d/b/a Bank of America, N.A., as
Administrative Agent, and the other financial institutions
party thereto, as Lenders (previously filed as Exhibit 10.5
to the Company's Registration Statement on Form S-3 (No.
333-81419) and incorporated herein by reference)
4.6 -- First Amendment to Third Amended and Restated Secured Credit
Agreement (previously filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-3 (No. 333-90961)
and incorporated herein by reference)
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
4.7 -- Second Amendment to Third Amended and Restated Credit
Agreement (previously filed as Exhibit 10.20 to the
Company's 1999 Form 10-K (No. 001-13831) filed March 30,
2000 and incorporated herein by reference)
4.8 -- Third Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (previously filed as Exhibit 4.3 to
the Company's Form 8-K (No. 0001-13831) filed July 26, 2000
and incorporated herein by reference)
4.9 -- Fourth Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.10 -- Fifth Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.11 -- Sixth Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.12 -- Seventh Amendment and Consent to Third Amended and Restated
Secured Credit Agreement (filed herewith)
4.13 -- Amendment No. 1 (dated December 1, 2001) to Rights Agreement
dated March 8, 2000 between Quanta Services, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
(previously filed as Exhibit 4.8 to the Company's Form 8-K
(001-13831) filed December 3, 2001 and incorporated herein
by reference)
10.1* -- Form of Employment Agreement (previously filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1
(No. 333-42957) and incorporated herein by reference)
10.2 -- Securities Purchase Agreement between Quanta Services, Inc.
and UtiliCorp United Inc. (now known as Aquila, Inc.) dated
as of September 21, 1999 (previously filed as Exhibit 10.12
to the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.3 -- Investor's Rights Agreement by and between Quanta Services,
Inc. and UtiliCorp United Inc. (now known as Aquila, Inc.)
dated September 21, 1999 (previously filed as Exhibit 10.13
to the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.4 -- Letter Agreement by and between Quanta Services, Inc. and
UtiliCorp United Inc. (now known as Aquila, Inc.) dated
September 21, 1999 (previously filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-3 (No. 333-90961)
and incorporated herein by reference)
10.5 -- Strategic Alliance Agreement by and between Quanta Services,
Inc. and UtiliCorp United Inc. (now known as Aquila, Inc.)
dated as of September 21, 1999 (previously filed as Exhibit
10.16 to the Company's Registration Statement on Form S-3
(No. 333-90961) and incorporated herein by reference)
10.6 -- Form of Stockholders Voting Agreement (previously filed as
Exhibit 10.17 to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.7 -- Letter Agreement by and among ECT Merchant Investments
Corp., Joint Energy Development Investments II Limited
Partnership, Quanta Services, Inc. and UtiliCorp United Inc.
(now known as Aquila, Inc.) dated September 21, 1999
(previously filed as Exhibit 10.19 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
10.8 -- First Amendment to Securities Purchase Agreement and
Registration Rights Agreement (previously filed as Exhibit
10.20 to the Company's Registration Statement on Form S-3
(No. 333-90961) and incorporated herein by reference)
10.9 -- Note Purchase Agreement dated as of March 1, 2000 between
Quanta Services, Inc. and the Purchasers named therein
(previously filed as Exhibit 10.16 to the Company's 1999
Form 10-K (No. 001-13831) filed March 30, 2000 and
incorporated herein by reference)
10.10 -- Intercreditor Agreement dated March 23, 2000 related to the
March 1, 2000 Note Purchase Agreement (previously filed as
Exhibit 10.17 to the Company's 1999 Form 10-K (No.
001-13831) filed March 30, 2000 and incorporated herein by
reference)
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.11 -- Form of Lockup Agreement (previously filed as Exhibit 10.19
to the Company's 1999 Form 10-K (No. 001-13831) filed March
30, 2000 and incorporated herein by reference)
10.12 -- Letter Agreement dated December 28, 2000 between Quanta
Services, Inc. and UtiliCorp United Inc. (now known as
Aquila, Inc.) (previously filed as Exhibit 10.21 to the
Company's 2000 Form 10-K (No. 001-13831) filed April 2, 2001
and incorporated herein by reference)
10.13* -- 2001 Stock Incentive Plan (amending and restating the 1997
Stock Option Plan) (previously filed as Exhibit 10.22 to the
Company's Form 10-Q for the quarterly period ended June 30,
2001 (No. 001-13831) filed August 14, 2001 and incorporated
herein by reference)
10.14* -- Employment Agreement of Peter T. Dameris (previously filed
as Exhibit 10.23 to the Company's Form 10-Q for the
quarterly period ended June 30, 2001 (No. 001-13831) filed
August 14, 2001 and incorporated herein by reference).
10.15 -- Amendment No. 1 to Quanta Services, Inc. 2001 Stock
Incentive Plan (filed herewith)
21.1 -- Subsidiaries (filed herewith)
23.1 -- Consent of Arthur Andersen LLP (filed herewith)
99.1 -- Letter to SEC pursuant to Temporary Note 3T (filed herewith)
</Table>
- ---------------
* Management contracts or compensatory plans or arrangements
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.7
<SEQUENCE>3
<FILENAME>h94363ex3-7.txt
<DESCRIPTION>CERT.OF AMEND.TO CERTIFICATE OF DESIGNATION
<TEXT>
<PAGE>
EXHIBIT 3.7
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF DESIGNATION, RIGHTS AND
LIMITATIONS OF THE SERIES A CONVERTIBLE PREFERRED STOCK OF QUANTA SERVICES, INC.
The undersigned Delaware corporation, for the purpose of filing an
amendment to the Certificate of Designation, Rights and Limitations for its
Series A Convertible Preferred Stock, hereby certifies:
ARTICLE I
The name of the corporation is Quanta Services, Inc.
ARTICLE II
The Certificate of Designation, Rights, and Limitations of the Series A
Convertible Preferred Stock is hereby amended as follows:
1) Section I is amended in its entirety to read as follows:
1. Designation. Three Million Four Hundred Forty Four Thousand Nine
Hundred Sixty One (3,444,961) shares of the authorized and unissued
preferred stock of the Corporation, $0.00001 par value per share,
are hereby designated "Series A Convertible Preferred Stock" (the
Series A Preferred Stock").
2) Section 2(a) is amended in its entirety to read as follows:
(a) Preferred. Subject to Sections 2(c) and (d) below, the holders
of Series A Preferred Stock shall be entitled to receive dividends
in cash at the rate of 0.5% per annum on an amount equal to $53.99,
plus all unpaid dividends accrued, on each outstanding share of
Series A Preferred Stock (as adjusted pursuant to Section 5 hereof
with respect to such share), when and as declared by the Board of
Directors out of the funds legally available for that purpose (the
"Preferred Dividend"). FOR THE PURPOSES OF SECTION 4 HEREOF, THE
PURCHASE PRICE OF EACH SHARE OF SERIES A PREFERRED STOCK SHALL BE
DEEMED TO BE $100.00 (THE "PURCHASE PRICE"). The Preferred Dividend
on each share of Series A Preferred Stock shall be cumulative from
the date of issuance of such share, whether or not earned, whether
or not funds of the Corporation are legally available for the
payment of dividends and whether or not declared by the Board of
Directors, but such dividend shall be payable only when, as, and if
declared by the Board of Directors. So long as any shares of Series
A Preferred Stock shall be outstanding, (i) no dividend, whether in
cash, stock or property, shall be paid or declared, nor shall any
other distribution be made, on any shares of the common stock of the
Corporation, par value $0.00001 per share (the "Common Stock"), or
any other class or series of capital stock of the Corporation, (ii)
nor shall any class or series of capital stock
<PAGE>
of the Corporation be redeemed, purchased or otherwise acquired for
value by the Corporation (except for acquisitions of Common Stock by
the Corporation pursuant to (A) agreements which permit the
Corporation to repurchase such shares upon termination of services
to the Corporation entered into on or before the date on which the
shares of Series A Preferred Stock were first issued (the "Original
Issue Date") or (B) in satisfaction of an indemnification obligation
to the Corporation upon a breach by the holder of Common Stock of a
representation, warranty or covenant in any agreement for the
acquisition by the Corporation of a business (as defined in Rule
11-01(d) of Regulation S-X adopted by the Securities and Exchange
Commission) pursuant to the Corporation's acquisition program (an
"Acquisition")), in each case, until all dividends set forth in this
Section 2(a) on the Series A Preferred Stock shall have been paid or
declared and set apart.
3) Section 2(d) is amended in its entirety to read as follows:
(d) Adjustment of Preferred Dividend. At the option of UtiliCorp
United Inc., a Delaware corporation, or one or more of its
"affiliates" (as defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended) or all such persons together (collectively,
"UtiliCorp"), at any time after the sixth anniversary of the
Original Issue Date, if on the date of exercise by UtiliCorp the
Closing Price (as defined in Section 4(b)(i) below) of the
Corporation's Common Stock is $30.00 or less (subject to adjustment
for any stock split, combination, and the like), then the Preferred
Dividend will be adjusted to the then "market coupon rate" (as
defined below). The "market coupon rate" shall be the Corporation's
after-tax cost of obtaining financing, excluding common stock, to
replace UtiliCorp's INITIAL $186,000,000 investment in the
Corporation, as determined by mutual agreement of the parties;
provided, however, that if the parties are unable to agree upon the
market coupon rate, within 10 days after the date of the sixth
anniversary of the Original Issue Date, then the parties shall
mutually agree upon a nationally recognized investment banking firm
skilled in the business aspects of the subject to determine the
market coupon rate, such determination shall be made by the
investment banking firm within 30 days of being selected. If the
parties are unable to agree upon a nationally recognized investment
banking firm within 30 days after the date of the sixth anniversary
of the Original Issue Date, then the determination shall be made by
a panel of three nationally recognized investment banking firms
skilled in the business aspects of the subject. Each of the
Corporation and the holder of a majority of the shares of Series A
Preferred Stock shall select one such firm within five days after
the expiration of the above- mentioned 30-day period (the "Initial
Selection Period"), and the third such firm shall be selected by the
two investment banking firms within five days after the expiration
of the Initial Selection Period. Within 15 days after the selection
of the third investment banking firm, the initial two firms shall
subject to the third firm their proposals of the market coupon rate
and, within five days after receipt thereof, the third firm shall
adopt in its entirety one of the proposals and shall not
<PAGE>
adopt a compromise between the proposals of the initial two firms.
The market coupon rate determined in accordance with the above
procedure shall, retroactive to the date immediately following the
sixth anniversary of the Original Issue Date and thereafter, be the
Preferred Dividend.
ARTICLE III
The amendment of the Certificate of Designation, Rights, and Limitations
of the Series A Convertible Preferred Stock of Quanta Services, Inc. as set
forth herein has been duly adopted in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
EXECUTED, effective as of the 15th day of June, 2000.
QUANTA SERVICES, INC.
By: /s/ BRAD EASTMAN
--------------------------------
Brad Eastman
Vice President, Secretary and
General Counsel
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.8
<SEQUENCE>4
<FILENAME>h94363ex3-8.txt
<DESCRIPTION>CERT.OF AMEND.TO CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>
EXHIBIT 3.8
CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF QUANTA SERVICES, INC.
Pursuant to Section 242 of the Delaware General Corporation Law, the
undersigned Vice President, Secretary and General Counsel of Quanta Services,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation") hereby certifies as follows:
1. The name of the Corporation is Quanta Services, Inc.
2. The first paragraph of Article FOURTH of the Amended and Restated
Certificate of Incorporation of the Corporation is amended to read
in its entirety as follows:
"FOURTH. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is Three Hundred Thirteen
Million, Three Hundred Forty Five Thousand, Three Hundred Thirty
Three (313,345,333), Three Hundred Million (300,000,000) of which
will be shares of Common Stock, having a par value of $0.00001 per
share (hereinafter called ("Common Stock"), Three Million, Three
Hundred Forty Five Thousand, Three Hundred Thirty Three (3,345,333)
of which will be shares of Limited Vote Common Stock, having a par
value of $0.00001 per share (hereinafter called "Limited Vote Common
Stock") and Ten Million (10,000,000) of which will be shares of
Preferred Stock having a par value of $0.00001 per share
(hereinafter called "Preferred Stock").
3. This amendment has been duly adopted in accordance with Section 242
of the Delaware General Corporation Law.
Signed this 20th day of October, 2000.
/s/ BRAD EASTMAN
-----------------------------
Brad Eastman
Vice President, Secretary and
General Counsel
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.9
<SEQUENCE>5
<FILENAME>h94363ex3-9.txt
<DESCRIPTION>CERTIFICATE OF DESIGNATION
<TEXT>
<PAGE>
Exhibit 3.9
CERTIFICATE OF DESIGNATION
OF
SERIES C JUNIOR CONVERTIBLE PREFERRED STOCK
OF
QUANTA SERVICES, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
QUANTA SERVICES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of
Directors in accordance with the provisions of the Restated Certificate of
Incorporation of the said Corporation, a committee of the Board of Directors of
the Corporation, pursuant to the authority conferred upon the committee by the
said Board of Directors, adopted the following resolution creating a series of
1,000,000 shares of Preferred Stock designated as "Series C Junior Convertible
Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of the
Restated Certificate of Incorporation and the authority conferred upon this
committee of the Board of Directors by the Board of Directors, a series of
Preferred Stock, par value $0.00001 per share, of the Corporation be and hereby
is created, and that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
SERIES C JUNIOR CONVERTIBLE PREFERRED STOCK
1. Designation and Amount. There shall be a series of
Preferred Stock that shall be designated as "Series C Junior Convertible
Preferred Stock," and the number of shares constituting such series shall be
1,000,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series C Junior Convertible Preferred Stock to less than the
number of shares then issued and outstanding plus the number of shares issuable
upon exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
2. Dividends. The holders of shares of Series C Junior
Convertible Preferred Stock shall not be entitled to receive any dividends.
<PAGE>
3. Voting Rights. The holders of shares of Series C Junior
Convertible Preferred Stock shall not be entitled to vote, except as otherwise
required by applicable law. In each such matter where applicable law affords the
holders of Series C Junior Convertible Preferred Stock the right to vote, each
share of Series C Junior Convertible Preferred Stock shall entitle the holder
thereof to one vote.
4. Reacquired Shares. Any shares of Series C Junior
Convertible Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired promptly after the acquisition
thereof. All such shares shall upon their retirement become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to any conditions and restrictions on issuance set forth
herein.
5. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, voluntary or otherwise, no distribution shall be made to the
holders of shares of stock ranking junior upon liquidation, dissolution or
winding up to the Series C Junior Convertible Preferred Stock unless, prior
thereto, the holders of shares of Series C Junior Convertible Preferred Stock
shall have received an amount per share (the "Series C Liquidation Preference")
equal to $10.00.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series C Liquidation
Preference and the liquidation preferences of all other classes and series of
stock of the Corporation, if any, that rank on a parity with the Series C Junior
Convertible Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series C
Junior Convertible Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.
(c) Neither the merger or consolidation of the Corporation
into or with another entity nor the merger or consolidation of any other entity
into or with the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 5.
6. No Redemption. Shares of Series C Junior Convertible
Preferred Stock shall not be subject to redemption by the Corporation.
7. Conversion.
(a) Each whole share of Series C Junior Convertible Preferred
Stock is convertible, at any time from and after the thirtieth day following the
conclusion of the next annual meeting of stockholders of the Corporation
following the initial issuance of any shares of Series C Junior Convertible
Preferred Stock (provided, however, such date shall be extended to the first
anniversary of such thirtieth day if prior thereto any person has become an
"Acquiring Person" (as defined in the Rights Agreement, dated as of March 8,
2000, between the Corporation and American Stock Transfer & Trust Company, as
rights agent, as such may be amended from time to time)), at the option of the
holder thereof, into one thousand (as such may
<PAGE>
be adjusted from time to time pursuant to Section 7(b) hereof, the "Conversion
Ratio") shares of Common Stock, par value $0.00001 per share, of the Corporation
(the "Common Stock").
(b) If the Corporation shall at any time or from time to time
(i) declare and pay any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Conversion Ratio in effect immediately prior to such event shall be adjusted
by multiplying such Conversion Ratio by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. Any adjustments made pursuant to
this Section 7(b) shall become effective on the date of the respective dividend,
subdivision or combination. Such adjustments shall be made successively.
(c) Before any holder of Series C Junior Convertible Preferred
Stock shall be entitled to convert the same into Common Stock, such holder shall
surrender the certificate or certificates for such Series C Junior Convertible
Preferred Stock to the Corporation at the Corporation's principal office, or at
the office of any transfer agent appointed by the Corporation, which certificate
or certificates, if the Corporation shall so request, shall be duly endorsed to
the Corporation or in blank, and shall give written notice to the Corporation
that the holder elects to convert such shares of Series C Junior Convertible
Preferred Stock into Common Stock and shall state in such notice the name or
names in which he wishes the certificate or certificates for Common Stock to be
issued.
(d) The Corporation will, as soon as practicable after such
surrender of certificates for Series C Junior Convertible Preferred Stock
accompanied by the written notice above prescribed, issue and deliver or cause
to be issued and delivered, to the holder or to his nominee or nominees,
certificates for the number of shares of Common Stock to which the holder shall
be entitled. Subject to the following provisions of this Section, such
conversion shall be deemed to have been made as of the date of such surrender of
the Series C Junior Convertible Preferred Stock to be converted, and the person
or persons entitled to receive the Common Stock issuable upon conversion of such
Series C Junior Convertible Preferred Stock shall be treated for all purposes as
the record holder or holders of such Common Stock on such date.
(e) As soon as practicable after the surrender of a
certificate representing shares of Series C Junior Convertible Preferred Stock
that is converted in part, the Corporation shall issue or cause to be issued for
the holder a new certificate representing shares of Series C Junior Convertible
Preferred Stock equal in number to the unconverted portion of the shares of
Series C Junior Convertible Preferred Stock represented by the certificate so
surrendered.
(f) The Corporation shall reserve and keep available, out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series C Junior Convertible Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series C Junior Convertible Preferred Stock from
time to time outstanding.
<PAGE>
(g) The Corporation will pay any and all issue and other taxes
(other than taxes based on income) that may be payable in respect of any
issuance or delivery of shares of Common Stock on conversion of the Series C
Junior Convertible Preferred Stock pursuant hereto. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involving the issuance and delivery of Common Stock in a name other
than that in which the Series C Junior Convertible Preferred Stock so converted
was registered, and no such issuance or delivery shall be made unless and until
the person requesting such issuance has paid to the Corporation the amount of
any such tax, or has established, to the satisfaction of the Corporation, that
such tax has been paid.
8. Consolidation, Merger. In case the Corporation shall enter
into any consolidation or merger transaction in which the outstanding shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series C Junior
Convertible Preferred Stock shall at the same time be converted into the right
to receive an amount per share equal to $10.00, and, in connection with any such
transaction where appraisal rights are available to the holders of the Series C
Junior Convertible Preferred Stock under Section 262 of the General Corporation
Law of the State of Delaware, each such share shall be deemed to have a fair
value of $10.00 per share for purposes thereof.
9. Ranking. The Series C Junior Convertible Preferred Stock
shall rank on a parity with the Series B Junior Participating Preferred Stock,
par value $0.00001 per share, of the Corporation as to the distribution of
assets upon liquidation, dissolution or winding up. The Series C Junior
Convertible Preferred Stock shall rank junior to all other series of Preferred
Stock as to the distribution of assets upon liquidation, dissolution or winding
up, unless the terms of any such series shall provide otherwise, and shall rank
senior to the Common Stock as to such matters.
10. Amendment. At any time that any shares of Series C Junior
Convertible Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series C Junior Convertible Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds of the outstanding
shares of Series C Junior Convertible Preferred Stock, voting separately as a
class.
11. Fractional Shares. Series C Junior Convertible Preferred
Stock may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights, if
any, participate in distributions and to have the benefit of all other rights of
holders of Series C Junior Convertible Preferred Stock.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this 1st day of December, 2001.
QUANTA SERVICES, INC.
By: /s/ Dana A. Gordon
----------------------------------
Name: Dana A. Gordon
Title: Vice President - General Counsel
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.10
<SEQUENCE>6
<FILENAME>h94363ex3-10.txt
<DESCRIPTION>CERTIFICATE OF INCREASE
<TEXT>
<PAGE>
Exhibit 3.10
CERTIFICATE OF INCREASE
OF
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
QUANTA SERVICES, INC.
(Pursuant to Section 151 of the General Corporation Law
of the State of Delaware)
-------------------------------------
Quanta Services, Inc. (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151(g) thereof, DOES HEREBY CERTIFY:
That pursuant to the authority set forth in the Restated
Certificate of Incorporation of the Company, a committee of the Board of
Directors of the Company, pursuant to the authority conferred upon the committee
by the Board of Directors of the Company, has adopted the following resolution
increasing the number of authorized shares of Series B Junior Participating
Preferred Stock of the Company:
RESOLVED: That the number of shares of the series of
Preferred Stock of the Company designated as Series B Junior
Participating Preferred Stock be, and hereby is, increased
from 700,000 shares to 1,000,000 shares; and that the
appropriate officers of the Company be and hereby are
authorized and directed in the name and on behalf of the
Company to execute and file a Certificate of Increase with the
Secretary of State of the State of Delaware increasing the
number of shares constituting the Series B Junior
Participating Preferred Stock from 700,000 to 1,000,000 and to
take any and all other actions deemed necessary or appropriate
to effectuate this resolution.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of Increase
to be executed by its duly authorized officer on this 1st day of December, 2001.
QUANTA SERVICES, INC.
By: /s/ Dana A. Gordon
-----------------------------------------
Name: Dana A. Gordon
Office: Vice President - General Counsel
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.9
<SEQUENCE>7
<FILENAME>h94363ex4-9.txt
<DESCRIPTION>4TH AMEND.& CONSENT TO SECURED CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 4.9
FOURTH AMENDMENT
TO THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED SECURED CREDIT
AGREEMENT (this "AMENDMENT") is entered into as of October 27, 2000, among
QUANTA SERVICES, INC., a Delaware corporation ("BORROWER"), the Lenders, as
defined below, and BANK OF AMERICA, N.A., f/k/a NationsBank, N.A., as
administrative agent for the Lenders (in such capacity, the "AGENT").
Capitalized terms used but not defined in this Amendment have the meaning given
such terms in the Credit Agreement (defined below).
RECITALS
A. The Borrower is party to that certain Third Amended and Restated
Secured Credit Agreement dated as of June 14, 1999 (as amended by the First
Amendment dated as of September 21, 1999, the Second Amendment dated as of March
21, 2000, the Third Amendment and Consent dated as of June 15, 2000, and as may
be amended, restated or supplemented from time to time, the "CREDIT AGREEMENT"),
among the Borrower, Agent, and the lenders from time to time parties thereto
(each a "LENDER" collectively, "LENDERS").
B. The Borrower has requested that the "LC Commitment Amount" as
defined in Section 1.1 of the Credit Agreement be increased from $15,000,000 to
$50,000,000.
C. The Borrower and the Lenders have agreed to amend the Credit
Agreement to amend and restate the definition of "LC Commitment Amount" to
accommodate such increase, subject to the terms and conditions set out in this
Amendment.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the undersigned agree as follows:
1. Amendment. The definition of "LC Commitment Amount" contained in
Section 1.1 of the Credit Agreement is amended and restated in its entirety as
follows (with the underlined portions showing new or revised language):
"L/C COMMITMENT AMOUNT" means $50,000,000, as such amount may be
reduced from time to time pursuant to the terms of this Agreement.
2. Conditions. This Amendment shall not be effective until each of the
following have been delivered to the Agent or the following conditions have been
otherwise satisfied in the Agent's sole discretion:
(a) this Amendment signed by the Borrower, the Guarantors, and the
Majority Lenders;
(b) the Borrower has delivered to the Agent for the benefit of the
Lenders a certificate from the Borrower that no Default or Potential
Default exists under the Credit Agreement; and
(c) such other documents as the Agent may reasonably request.
<PAGE>
3. Fees and Expenses. The Borrower agrees to pay the reasonable fees
and expenses of counsel to Agent for services rendered in connection with the
preparation, negotiation and execution of this Amendment.
4. Representations and Warranties. The Borrower and Guarantors
represent and warrant to the Lenders that they possess all requisite power and
authority to execute, deliver and comply with the terms of this Amendment, which
has been duly authorized and approved by all requisite corporate action on the
part of the Borrower and Guarantors, for which no consent of any Person is
required, and which will not violate their respective organizational documents,
and agree to furnish the Lenders with evidence of such authorization and
approval upon request. The Borrower and Guarantors further represent and warrant
to the Lenders that (a) the representations and warranties in each Credit
Document to which they are a party are true and correct in all material respects
on and as of the date of this Amendment as though made on the date of this
Amendment (except to the extent that (i) such representations and warranties
speak to a specific date or (ii) the facts on which such representations and
warranties are based have been changed by transactions contemplated by the
Credit Agreement), (b) it is in full compliance with all covenants and
agreements contained in each Credit Document to which it is a party, and (c) no
Default or Event of Default has occurred and is continuing.
5. Scope of Amendment; Reaffirmation; Release. Except as affected by
this Amendment, the Credit Documents are unchanged and continue in full force
and effect. However, in the event of any inconsistency between the terms of the
Credit Agreement as hereby amended and any other Credit Document, the terms of
the Credit Agreement shall control and such other document shall be deemed to be
amended hereby to conform to the terms of the Credit Agreement. All references
to the Credit Agreement shall refer to the Credit Agreement as amended by this
Amendment. The Borrower and Guarantors hereby reaffirm their respective
obligations under, and agree that, all Credit Documents to which they are a
party remain in full force and effect and continue to evidence their respective
legal, valid and binding obligations enforceable in accordance with their terms
(as the same are affected by this Amendment). The Borrower and Guarantors hereby
release the Lenders from any liability for actions or failures to act in
connection with the Credit Documents prior to the date hereof. This Amendment
shall be binding upon and inure to the benefit of each of the undersigned and
their respective successors and permitted assigns.
6. Miscellaneous.
(a) No Waiver of Defaults. This Amendment does not constitute a
waiver of, or a consent to, any present or future violation of or
default under, any provision of the Credit Documents, or a waiver of
the Lenders' right to insist upon future compliance with each term,
covenant, condition and provision of the Credit Documents, and the
Credit Documents shall continue to be binding upon, and inure to the
benefit of, the Borrower, Guarantors, and the Lenders and their
respective successors and assigns.
(b) Form. Each agreement, document, instrument or other writing to
be furnished Agent under any provision of this instrument must be in
form and substance satisfactory to Agent and its counsel.
(c) Multiple Counterparts. This Amendment may be executed in any
number of counterparts with the same effect as if all signatories
have signed the same document. All counterparts must be construed
together to constitute one and the same instrument.
2
<PAGE>
(d) Governing Law. This Amendment and the other Credit Documents
must be construed-and their performance enforced-under Texas law.
7. Entirety. THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE BORROWER, GUARANTORS AND THE LENDERS AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[SIGNATURES AND GUARANTORS' CONSENT AND AGREEMENT APPEAR ON FOLLOWING PAGES.]
3
<PAGE>
The Amendment is executed as of the date set out in the preamble to
this Amendment.
QUANTA SERVICES, INC.
By: /s/ James H. Haddox
-------------------------------------------
James H. Haddox
Chief Financial Officer
BANK OF AMERICA, N.A., as Administrative Agent
By: /s/ David A. Johanson
-------------------------------------------
David A. Johanson, Vice President
BANK OF AMERICA, N.A., as a Lender
By: /s/ Craig S. Wall
-------------------------------------------
Craig S. Wall
Senior Vice President
BANK ONE, TEXAS, NATIONAL ASSOCIATION, as
a Documentation Agent and as a Lender
By: /s/ Greg Smothers
-------------------------------------------
Greg Smothers
Vice President
FLEET NATIONAL BANK (F/K/A BANK BOSTON, N.A.),
as a Documentation Agent and as a Lender
By: /s/ Michael M. Parker
-------------------------------------------
Michael M. Parker
Managing Director
CREDIT LYONNAIS NEW YORK BRANCH, as a
Managing Agent and as a Lender
By: /s/ Attila Koc
-------------------------------------------
Attila Koc
Senior Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Managing Agent
and as a Lender
By: /s/ F C H Ashby
-------------------------------------------
F C H Ashby
Senior Manager Loan Operations
NATIONAL CITY BANK, as a Lender
By: /s/ Michael J. Durbin
-------------------------------------------
Michael J. Durbin
Vice President
LASALLE BANK NATIONAL ASSOCIATION, as a
Lender
By: /s/ Richard J. Kress
-------------------------------------------
Richard J. Kress
Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Mark B. Felkler
-------------------------------------------
Mark B. Felkler
Senior Vice President
COMERICA BANK, as a Lender
By: /s/ Mark B. Grover
-------------------------------------------
Mark B. Grover
Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD., as a
Lender
By: /s/ J. Fort
-------------------------------------------
J. Fort
Vice President
<PAGE>
CHASE BANK OF TEXAS, N.A., as a Lender
By: /s/ James. R. Dolphin
-------------------------------------------
James R. Dolphin
Senior Vice President
GUARANTY FEDERAL BANK, F.S.B., as a Lender
By: /s/ Kevin J. Hanigan
-------------------------------------------
Kevin J. Hanigan
Senior Vice President
SUNTRUST BANK, ATLANTA, as a Lender
By: /s/ Frank A. Coe
-------------------------------------------
Frank A. Coe
Vice President
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
BANKERS TRUST COMPANY, as a Lender
By: /s/ Diane F. Rolfe
-------------------------------------------
Diane F. Rolfe
Vice President
<PAGE>
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to the Lenders to execute, and in consideration of the
Lenders' execution of this Amendment, each of the undersigned hereby consents to
this Amendment and agrees that the same shall in no way release, diminish,
impair, reduce or otherwise adversely affect the obligations and liabilities of
the undersigned under their respective Guaranties described in the Credit
Agreement executed by the undersigned, or any agreements, documents or
instruments executed by any of the undersigned, all of which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and their
respective successors and assigns, and shall inure to the benefit of the
Lenders, and their respective successors and assigns.
Advanced Communication Technologies, Inc.
Arby Construction, Inc.
Austin Trencher, Inc.
CCLC, Inc.
Computapole, Inc.
Conti Communications, Inc.
Croce Electric Company, Inc.
Crown Fiber Communications, Inc.
Dillard Smith Construction Company
Driftwood Electrical Contractors, Inc.
Edwards Pipeline Company, Inc.
Environmental Professional Associates, Limited
Fiber Technology, Inc.
Five Points Construction Company
GEM Engineering Co., Inc.
Golden State Utility Co.
H.L. Chapman Pipeline Construction, Inc.
Haines Construction Company
Harker & Harker, Inc.
Intermountain Electric, Inc.
IRBY Construction Company
Line Equipment Sales Co.
Logical Link, Inc.
Manuel Bros., Inc.
Mears Group, Inc.
Mears Pipeline Services, Inc.
Metro Underground Services, Inc.
NetCom Management Group, Inc.
Network Communications Services, Inc.
North Pacific Construction Co., Inc.
North Sky Communications, Inc.
Northern Line Layers, Inc.
Pac West Construction, Inc.
PAR Electrical Contractors, Inc.
P.D.G. Electric Company
Potelco, Inc.
QSI, Inc.
Quanta XVII Acquisition Inc.
Quanta XLI Acquisition, Inc.
Quanta XLII Acquisition, Inc.
Quanta XLIII Acquisition, Inc.
Quanta XLV Acquisition, Inc.
Quanta XLVI Acquisition, Inc.
Quanta XLVII Acquisition, Inc.
Quanta XLVIII Acquisition, Inc.
Quanta L Acquisition, Inc.
Quanta LI Acquisition, Inc.
<PAGE>
Quanta LII Acquisition, Inc.
Quanta LIII Acquisition, Inc.
Quanta LIV Acquisition, Inc.
Quanta LV Acquisition, Inc.
Quanta LVI Acquisition, Inc.
Quanta LVII Acquisition, Inc.
Quanta LVIII Acquisition, Inc.
Quanta LIX Acquisition, Inc.
Quanta LX Acquisition, Inc.
Quanta LXI Acquisition, Inc.
Quanta LXII Acquisition, Inc.
Quanta LXIII Acquisition, Inc.
Quanta LXIV Acquisition, Inc.
Quanta LXV Acquisition, Inc.
Quanta LXVI Acquisition, Inc.
Quanta LXVII Acquisition, Inc.
Quanta LXVIII Acquisition, Inc.
Quanta LXIX Acquisition, Inc.
Quanta LXX Acquisition, Inc.
Quanta LXXI Acquisition, Inc.
Quanta LXXII Acquisition, Inc.
Quanta LXXIII Acquisition, Inc.
Quanta LXXIV Acquisition, Inc.
Quanta Delaware, Inc.
Quanta Utility Installation Co., Inc,
R. A. Waffensmith & Co., Inc.
Ranger Directional, Inc.
S.K.S. Pipeliners, Inc.
Seaward Corporation
Southeast Pipeline Construction, Inc.
Spalj Construction Company
Specialty Drilling Technology, Inc.
Sullivan Welding, Inc.
Sumter Builders, Inc.
SynerTec Inc.
Telecom Network Specialists, Inc.
The Ryan Company, Inc.
Tom Allen Construction Company
TRANS TECH Electric, Inc.
Trawick Construction Co.
TTM, Inc.
TVS Systems, Inc.
Underground Construction Co., Inc.
Utilco, Inc.
Utilities Construction Co., Inc.
VCI Telecom, Inc.
W.C. Communications, Inc.
W.H.O.M. Corporation
Wade D. Taylor, Inc.
World Fiber, Inc.
By: /s/ Brad Eastman
-------------------------------------------------
Brad Eastman, President or Vice President of
each Guarantor
<PAGE>
Coast To Coast, LLC
By: Environmental Professional Associates,
Limited, Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
By: Quanta Services, Inc., Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
Lake Norman Pipeline, LLC
By: Edwards Pipeline Company, Inc., Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
Mears/CPG, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
Mears Engineering, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
Mears/HDD, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
Mears Services, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
Quanta Services Management Partnership, L.P.
By: QSI, Inc., Its General Partner
By: /s/ Brad Eastman
---------------------------------
Brad Eastman, Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.10
<SEQUENCE>8
<FILENAME>h94363ex4-10.txt
<DESCRIPTION>5TH AMEND.& CONSENT TO SECURED CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 4.10
FIFTH AMENDMENT
TO THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED SECURED CREDIT
AGREEMENT (this "AMENDMENT") is entered into as of November 9, 2000, among
QUANTA SERVICES, INC., a Delaware corporation ("BORROWER"), the Lenders, as
defined below, and BANK OF AMERICA, N.A., f/k/a NationsBank, N.A., as
administrative agent for the Lenders (in such capacity, the "AGENT").
Capitalized terms used but not defined in this Amendment have the meaning given
such terms in the Credit Agreement (defined below).
RECITALS
A. The Borrower is party to that certain Third Amended and Restated
Secured Credit Agreement dated as of June 14, 1999 (as amended by the First
Amendment dated as of September 21, 1999, the Second Amendment dated as of March
21, 2000, the Third Amendment and Consent dated as of June 15, 2000, the Fourth
Amendment dated as of October 27, 2000, and as may be amended, restated or
supplemented from time to time, the "CREDIT AGREEMENT"), among the Borrower,
Agent, and the lenders from time to time parties thereto (each a "LENDER"
collectively, "LENDERS").
B. The Borrower has requested that SECTION 6.15(G) of the Credit
Agreement be amended to increase the Borrower's ability to make Investments in
Persons other than the Borrower from $2,500,000 to $10,000,000.
C. The Borrower has also requested that SECTION 6.15 of the Credit
Agreement be amended to permit the Borrower to repurchase up to $75,000,000 of
its common stock through a series of open-market transactions or in privately
negotiated, off-market transactions or through one or more hedge, swap,
exchange, forward, future, collar or cap arrangements, fixed price agreements or
other similar arrangements or agreements.
D. The Borrower has also requested that SECTION 6.15 of the Credit
Agreement be amended to permit the Borrower to make Investments up to
$60,000,000 related to "landfill gas to energy projects" and other cogeneration
projects.
E. The Borrower, Agent and the Lenders have agreed to amend the Credit
Agreement to accommodate the foregoing requests, subject to the terms and
conditions set out in this Amendment.
NOW THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agree as follows:
1. Amendments. SECTION 6.15 of the Credit Agreement is hereby
amended as follows:
a. Other Investments. SECTION 6.15(G) of the Credit
Agreement is hereby amended and restated in its
entirety to read as follows (with the underlined
portions showing new or revised language):
<PAGE>
"(g) Investments in Persons other than
Borrower or its Subsidiaries, provided that
all such Investments shall not exceed
$10,000,000 at any one time."
b. Stock Repurchase; LFGTE Investments. SECTION 6.15 of
the Credit Agreement is hereby amended to delete the "and" at
the end of clause (i); to delete the period at the end of
clause (j); to add a semicolon and at the end of clause (j);
and to add a clause (k) and a clause (l) to read as follows:
"(k) Investments in the Borrower in the form of
repurchasing up to an aggregate amount of
$75,000,000 of the Borrower's common stock
through a series of open-market transactions
or in privately negotiated, off-market
transactions or through one or more hedge,
swap, exchange, forward, future, collar or
cap arrangements, fixed price agreements or
other similar arrangements or agreements;
and
(l) Investments in "landfill gas to energy"
projects and other cogeneration projects,
including without limitation, Investments in
Network Electric Company, in any case not to
exceed $60,000,000 at any time."
2. Conditions. This Amendment shall not be effective until (a) it has
been duly executed and delivered by Borrower, each Guarantor, and at least the
Majority Lenders, (b) Borrower has delivered to Agent for the benefit of Lenders
(i) a certificate from the Borrower that (x) no Default or Potential Default
exists under the Credit Agreement, and (y) attached thereto is a true, correct
and complete copy of resolutions adopted by the Borrower's Board of Directors
authorizing this Amendment, and (ii) such other documents, if any, as the Agent
may reasonably request, and (c) the Borrower has delivered to Agent for the
benefit of each Lender that executes and delivers this Amendment on or before
November 9, 2000, an amendment fee equal to 0.03% of such Lender's Commitment.
3. Legal Fees and Expenses. The Borrower agrees to pay the reasonable
fees and expenses of counsel to Agent for services rendered in connection with
the preparation, negotiation and execution of this Amendment.
4. Representations and Warranties. The Borrower and the Guarantors
represent and warrant to the Lenders that they possess all requisite power and
authority to execute, deliver and comply with the terms of this Amendment, which
has been duly authorized and approved by all requisite corporate action on the
part of the Borrower and the Guarantors, for which no consent of any Person is
required, and which will not violate their respective organizational documents,
and agree to furnish the Agent with evidence of such authorization and approval
upon request. The Borrower and the Guarantors further represent and warrant to
the Agent and the Lenders that (a) the representations and warranties in each
Credit Document to which they are a party are true and correct in all material
respects on and as of the date of this Amendment as though made on the date of
this Amendment (except to the extent that (i) such representations and
warranties speak to a specific date or (ii) the facts on which such
representations and warranties are based have been changed by transactions
contemplated by the Credit Agreement), (b) it is in full compliance with all
covenants and agreements contained in each Credit Document to which it is a
party, and (c) no Default or Event of Default has occurred and is continuing.
2
<PAGE>
5. Scope of Amendment and Consent; Reaffirmation; Release. Except as
affected by this Amendment, the Credit Documents are unchanged and continue in
full force and effect. However, in the event of any inconsistency between the
terms of the Credit Agreement as hereby amended and any other Credit Document,
the terms of the Credit Agreement shall control and such other document shall be
deemed to be amended hereby to conform to the terms of the Credit Agreement. All
references to the Credit Agreement shall refer to the Credit Agreement as
amended by this Amendment. The Borrower and the Guarantors hereby reaffirm their
respective obligations under, and agree that, all Credit Documents to which they
are a party remain in full force and effect and continue to evidence their
respective legal, valid and binding obligations enforceable in accordance with
their terms (as the same are affected by this Amendment). The Borrower and the
Guarantors hereby release the Agent and the Lenders from any liability for
actions or failures to act in connection with the Credit Documents prior to the
date hereof. This Amendment shall be binding upon and inure to the benefit of
each of the undersigned and their respective successors and permitted assigns.
6. Miscellaneous.
(a) No Waiver of Defaults. This Amendment does not constitute
a waiver of, or a consent to, any present or future violation of or
default under, any provision of the Credit Documents, or a waiver of
the Lenders' right to insist upon future compliance with each term,
covenant, condition and provision of the Credit Documents, and the
Credit Documents shall continue to be binding upon, and inure to the
benefit of, the Borrower, the Guarantors, the Agent, and the Lenders
and their respective successors and assigns.
(b) Form. Each agreement, document, instrument or other writing to
be furnished to the Agent under any provision of this instrument must
be in form and substance satisfactory to the Agent and its counsel.
(c) Multiple Counterparts. This Amendment may be executed in any
number of counterparts with the same effect as if all signatories have
signed the same document. All counterparts must be construed together
to constitute one and the same instrument.
(d) Governing Law. This Amendment and the other Credit Documents
must be construed-and their performance enforced-under Texas law.
(e) Entirety. THE CREDIT DOCUMENTS, AS AMENDED HEREBY,
REPRESENT THE FINAL AGREEMENT BETWEEN THE BORROWER, GUARANTORS, THE
AGENT AND THE LENDERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[SIGNATURES AND GUARANTORS' CONSENT AND AGREEMENT APPEAR ON FOLLOWING PAGES.]
3
<PAGE>
EXECUTED as of the date first written above.
QUANTA SERVICES, INC.
By: /s/ Nick Grindstaff
-------------------------------------------
Nick Grindstaff
Treasurer
BANK OF AMERICA, N.A., as Administrative Agent
By: /s/ David A. Johanson
-------------------------------------------
David A. Johanson, Vice President
BANK OF AMERICA, N.A., as a Lender
By: /s/ Craig S. Wall
-------------------------------------------
Craig S. Wall
Senior Vice President
BANK ONE, TEXAS, NATIONAL ASSOCIATION, as
a Documentation Agent and as a Lender
By: /s/ Greg Smother
-------------------------------------------
Greg Smothers, Vice President
FLEET NATIONAL BANK (F/K/A BANK BOSTON, N.A.),
as a Documentation Agent and as a Lender
By: /s/ Michael M. Parker
-------------------------------------------
Michael M. Parker
Managing Director
CREDIT LYONNAIS NEW YORK BRANCH, as a
Managing Agent and as a Lender
By: /s/ Attila Koc
-------------------------------------------
Attila Koc
Senior Vice President
4
<PAGE>
THE BANK OF NOVA SCOTIA, as a Managing Agent
and as a Lender
By: /s/ A. S. Nosworthy
-------------------------------------------
A. S. Nosworthy
Senior team Leader Loan Operations
NATIONAL CITY BANK, as a Lender
By: /s/ Michael J. Durbin
-------------------------------------------
Michael J. Durbin
Vice President
LASALLE BANK NATIONAL ASSOCIATION, as a
Lender
By: /s/ Richard J. Kress
-------------------------------------------
Richard J. Kress
Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Mark B. Felkler
-------------------------------------------
Mark B. Felker, Senior Vice President
COMERICA BANK, as a Lender
By: /s/ Mark B. Grover
-------------------------------------------
Mark B. Grover, Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD., as a
Lender
By: /s/ John Mearns
-------------------------------------------
John Mearns
Vice President and Manager
5
<PAGE>
By: /s/ Jay Fort
-------------------------------------------
Jay Fort
Vice President
CHASE BANK OF TEXAS, N.A., as a Lender
By: /s/ James R. Dolphin
-------------------------------------------
James R. Dolphin
Senior Vice President
GUARANTY FEDERAL BANK, F.S.B., as a Lender
By:
-------------------------------------------
Richard Menchaca, Vice President
SUNTRUST BANK, ATLANTA, as a Lender
By: /s/ Frank A. Coe
-------------------------------------------
Frank A. Coe, Vice President
BANKERS TRUST COMPANY, as a Lender
By: /s/ Paddy Dowling
-------------------------------------------
Paddy Dowling, Vice President
6
<PAGE>
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to the Lenders to execute, and in consideration of the
Lenders' execution of this Amendment, each of the undersigned hereby consents to
this Amendment and agrees that the same shall in no way release, diminish,
impair, reduce or otherwise adversely affect the obligations and liabilities of
the undersigned under their respective Guaranties described in the Credit
Agreement executed by the undersigned, or any agreements, documents or
instruments executed by any of the undersigned, all of which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and their
respective successors and assigns, and shall inure to the benefit of the
Lenders, and their respective successors and assigns.
Advanced Communication Technologies, Inc.
Arby Construction, Inc.
Austin Trencher, Inc.
CCLC, Inc.
Computapole, Inc.
Conti Communications, Inc.
Croce Electric Company, Inc.
Crown Fiber Communications, Inc.
Dillard Smith Construction Company
Driftwood Electrical Contractors, Inc.
Edwards Pipeline Company, Inc.
Environmental Professional Associates, Limited
Fiber Technology, Inc.
Five Points Construction Company
GEM Engineering Co., Inc.
Golden State Utility Co.
H.L. Chapman Pipeline Construction, Inc.
Haines Construction Company
Harker & Harker, Inc.
Intermountain Electric, Inc.
IRBY Construction Company
Line Equipment Sales Co.
Logical Link, Inc.
Manuel Bros., Inc.
Mears Group, Inc.
Mears Pipeline Services, Inc.
Metro Underground Services, Inc.
NetCom Management Group, Inc.
Network Communications Services, Inc.
North Pacific Construction Co., Inc.
North Sky Communications, Inc.
Northern Line Layers, Inc.
Pac West Construction, Inc.
PAR Electrical Contractors, Inc.
P.D.G. Electric Company
Potelco, Inc.
QSI, Inc.
Quanta XVII Acquisition Inc.
Quanta XLI Acquisition, Inc.
Quanta XLII Acquisition, Inc.
Quanta XLIII Acquisition, Inc.
Quanta XLV Acquisition, Inc.
Quanta XLVI Acquisition, Inc.
Quanta XLVII Acquisition, Inc.
Quanta XLVIII Acquisition, Inc.
7
<PAGE>
Quanta L Acquisition, Inc.
Quanta LI Acquisition, Inc.
Quanta LII Acquisition, Inc.
Quanta LIII Acquisition, Inc.
Quanta LIV Acquisition, Inc.
Quanta LV Acquisition, Inc.
Quanta LVI Acquisition, Inc.
Quanta LVII Acquisition, Inc.
Quanta LVIII Acquisition, Inc.
Quanta LIX Acquisition, Inc.
Quanta LX Acquisition, Inc.
Quanta LXI Acquisition, Inc.
Quanta LXII Acquisition, Inc.
Quanta LXIII Acquisition, Inc.
Quanta LXIV Acquisition, Inc.
Quanta LXV Acquisition, Inc.
Quanta LXVI Acquisition, Inc.
Quanta LXVII Acquisition, Inc.
Quanta LXVIII Acquisition, Inc.
Quanta LXIX Acquisition, Inc.
Quanta LXX Acquisition, Inc.
Quanta LXXI Acquisition, Inc.
Quanta LXXII Acquisition, Inc.
Quanta LXXIII Acquisition, Inc.
Quanta LXXIV Acquisition, Inc.
Quanta Delaware, Inc.
Quanta Utility Installation Co., Inc,
R. A. Waffensmith & Co., Inc.
Ranger Directional, Inc.
S.K.S. Pipeliners, Inc.
Seaward Corporation
Southeast Pipeline Construction, Inc.
Spalj Construction Company
Specialty Drilling Technology, Inc.
Sullivan Welding, Inc.
Sumter Builders, Inc.
SynerTec Inc.
Telecom Network Specialists, Inc.
The Ryan Company, Inc.
Tom Allen Construction Company
TRANS TECH Electric, Inc.
Trawick Construction Co.
TTM, Inc.
TVS Systems, Inc.
Underground Construction Co., Inc.
Utilco, Inc.
Utilities Construction Co., Inc.
VCI Telecom, Inc.
W.C. Communications, Inc.
W.H.O.M. Corporation
Wade D. Taylor, Inc.
World Fiber, Inc.
By: /s/ Brad Eastman
-------------------------------------------------
Brad Eastman, President or Vice President of each
Guarantor Coast To Coast, LLC
8
<PAGE>
By: Environmental Professional Associates,
Limited, Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
By: Quanta Services, Inc., Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
Lake Norman Pipeline, LLC
By: Edwards Pipeline Company, Inc., Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
Mears/CPG, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
Mears Engineering, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
Mears/HDD, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
Mears Services, LLC
By: Mears Group, Inc., Its Member
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
Quanta Services Management Partnership, L.P.
By: QSI, Inc., Its General Partner
By: /s/ Brad Eastman
------------------------------------
Brad Eastman, Vice President
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.11
<SEQUENCE>9
<FILENAME>h94363ex4-11.txt
<DESCRIPTION>6TH AMEND.& CONSENT TO SECURED CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 4.11
SIXTH AMENDMENT
TO THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED SECURED CREDIT
AGREEMENT (this "AMENDMENT") is entered into as of October 17, 2001, among
QUANTA SERVICES, INC., a Delaware corporation ("BORROWER"), the Lenders, as
defined below, and BANK OF AMERICA, N.A., f/k/a NationsBank, N.A., as
administrative agent for the Lenders (in such capacity, the "AGENT").
Capitalized terms used but not defined in this Amendment have the meaning given
such terms in the Credit Agreement (defined below).
RECITALS
A. The Borrower is party to that certain Third Amended and Restated
Secured Credit Agreement dated as of June 14, 1999 (as amended by the First
Amendment dated as of September 21, 1999, the Second Amendment dated as of March
21, 2000, the Third Amendment and Consent dated as of June 15, 2000, the Fourth
Amendment dated as of October 27, 2000, the Fifth Amendment dated as of November
9, 2000, and as may be amended, restated or supplemented from time to time, the
"CREDIT AGREEMENT"), among the Borrower, Agent, and the lenders from time to
time parties thereto (each a "LENDER" collectively, "LENDERS").
B. In September, 1999 and in connection with the issuance by the
Borrower of the Preferred Stock to Utilicorp, the Borrower entered into a
management services agreement under which Utilicorp agreed to provide certain
advice regarding (i) corporate and strategic planning, (ii) the development,
evaluation, and marketing of the Borrower's products and services, (iii)
identifying potential acquisition candidates and additional business
opportunities, and (iv) other similar or related services in exchange for the
payment by the Borrower of the Management Fee (the "MANAGEMENT SERVICES
AGREEMENT").
C. In December, 2000, the Borrower terminated the Management Services
Agreement in exchange for a one-time payment by the Borrower to Utilicorp of
approximately $28,600,000 (the "MANAGEMENT FEE TERMINATION PAYMENT").
D. The Borrower has requested that the Minimum Interest Coverage Ratio
be amended to exclude the Management Fee Termination Payment from the
calculation of such ratio.
E. The Borrower has also requested that the LC Commitment Amount be
increased from $50,000,000 to $100,000,000.
F. The Borrower has also requested that the limitation on Borrower's
Investments in other Persons be increased from $10,000,000 to $60,000,000.
G. The Borrower, Agent and the Lenders have agreed to amend the Credit
Agreement to accommodate the foregoing requests and to make other related
modifications, in each case subject to the terms and conditions set out in this
Amendment.
NOW THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agree as follows:
<PAGE>
1. Amendments to Section 1.1 (Definitions). SECTION 1.1 of the Credit
Agreement is hereby amended by (a) amending and restating in their entirety the
defined terms "FUNDED DEBT", "LC COMMITMENT AMOUNT", and "MINIMUM INTEREST
COVERAGE RATIO", and (b) adding the defined term "MANAGEMENT FEE TERMINATION
PAYMENT" in its appropriate alphabetical order, in each case as follows (with
the new or modified language underlined):
""FUNDED DEBT" means, as of any date of determination, the
sum, without duplication, of the following for the Borrower and its
Subsidiaries: (i) Indebtedness for borrowed money, all obligations
evidenced by bonds, debentures, notes or similar instruments, and
purchase money obligations which in accordance with GAAP would be shown
on the consolidated balance sheet of the Borrower as a liability, (ii)
all LC Obligations, and all reimbursement obligations relative to the
face amount of all other letters of credit issued for the account of
the Borrower or any of its Subsidiaries, and (iii) all Capitalized
Lease Obligations.
"LC COMMITMENT AMOUNT" means $100,000,000 as such amount may
be reduced from time to time pursuant to the terms of this Agreement.
"MANAGEMENT FEE TERMINATION PAYMENT" means the one-time
payment by Borrower in December, 2000 of approximately $28,600,000 to
Utilicorp in connection with the termination of the management services
agreement between Borrower and Utilicorp under which the Borrower paid
the Management Fee.
"MINIMUM INTEREST COVERAGE RATIO" means, for any period, the
ratio of (a) EBIT plus the amount of the Management Fee expensed during
such period to (b) the sum of Consolidated Interest Expense, plus the
amount of any dividend or distribution in respect of the Preferred
Stock paid or scheduled to be paid during such period, plus the amount
of the Management Fee paid during such period (other than the
Management Fee Termination Payment)."
2. Amendment to Section 6.15 (Loans, Advances and Investments). SECTION
6.15(G) of the Credit Agreement is hereby amended and restated in its entirety
as follows (with the new or modified language underlined):
"(g) Investments in Persons other than Borrower or its
Subsidiaries, provided that all such Investments shall not
exceed $60,000,000 at any one time;"
3. Conditions. This Amendment shall not be effective until (a) it has
been duly executed and delivered by Borrower, each Guarantor, and at least the
Majority Lenders, and (b) Borrower has delivered to Agent for the benefit of
Lenders (i) a certificate from the Borrower that no Default or Event of Default
exists under the Credit Agreement, and (ii) such other documents, if any, as the
Agent may reasonably request.
4. Fees and Expenses. The Borrower agrees to pay (a) to Agent for the
benefit of each Lender that executes and delivers this Amendment on or before
October 12, 2001, an amendment fee equal to .10% of such Lender's Commitment,
and (b) the reasonable fees and expenses of counsel to Agent for services
rendered in connection with the preparation, negotiation and execution of this
Amendment.
2
<PAGE>
5. Representations and Warranties. The Borrower and the Guarantors
represent and warrant to the Lenders that they possess all requisite power and
authority to execute, deliver and comply with the terms of this Amendment, which
has been duly authorized and approved by all requisite corporate action on the
part of the Borrower and the Guarantors, for which no consent of any Person is
required, and which will not violate their respective organizational documents,
and agree to furnish the Agent with evidence of such authorization and approval
upon request. The Borrower and the Guarantors further represent and warrant to
the Agent and the Lenders that (a) the representations and warranties in each
Credit Document to which they are a party are true and correct in all material
respects on and as of the date of this Amendment as though made on the date of
this Amendment (except to the extent that (i) such representations and
warranties speak to a specific date or (ii) the facts on which such
representations and warranties are based have been changed by transactions
contemplated by the Credit Agreement), (b) it is in full compliance with all
covenants and agreements contained in each Credit Document to which it is a
party, and (c) no Default or Event of Default has occurred and is continuing.
6. Scope of Amendment and Consent; Reaffirmation; Release. Except as
affected by this Amendment, the Credit Documents are unchanged and continue in
full force and effect. However, in the event of any inconsistency between the
terms of the Credit Agreement as hereby amended and any other Credit Document,
the terms of the Credit Agreement shall control and such other document shall be
deemed to be amended hereby to conform to the terms of the Credit Agreement. All
references to the Credit Agreement shall refer to the Credit Agreement as
amended by this Amendment. The Borrower and the Guarantors hereby reaffirm their
respective obligations under, and agree that, all Credit Documents to which they
are a party remain in full force and effect and continue to evidence their
respective legal, valid and binding obligations enforceable in accordance with
their terms (as the same are affected by this Amendment). The Borrower and the
Guarantors hereby release the Agent and the Lenders from any liability for
actions or failures to act in connection with the Credit Documents prior to the
date hereof. This Amendment shall be binding upon and inure to the benefit of
each of the undersigned and their respective successors and permitted assigns.
7. Miscellaneous.
(a) No Waiver of Defaults. This Amendment does not constitute a
waiver of, or a consent to, any present or future violation of or
default under, any provision of the Credit Documents, or a waiver of
the Lenders' right to insist upon future compliance with each term,
covenant, condition and provision of the Credit Documents, and the
Credit Documents shall continue to be binding upon, and inure to the
benefit of, the Borrower, the Guarantors, the Agent, and the Lenders
and their respective successors and assigns.
(b) Form. Each agreement, document, instrument or other writing to
be furnished to the Agent under any provision of this instrument must
be in form and substance satisfactory to the Agent and its counsel.
(c) Multiple Counterparts. This Amendment may be executed in any
number of counterparts with the same effect as if all signatories have
signed the same document. All counterparts must be construed together
to constitute one and the same instrument.
(d) Governing Law. This Amendment and the other Credit Documents
must be construed-and their performance enforced-under Texas law.
3
<PAGE>
(e) Entirety. THE CREDIT DOCUMENTS, AS AMENDED HEREBY, REPRESENT THE
FINAL AGREEMENT BETWEEN THE BORROWER, GUARANTORS, THE AGENT AND THE
LENDERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[SIGNATURES AND GUARANTORS' CONSENT AND AGREEMENT APPEAR ON FOLLOWING PAGES.]
4
<PAGE>
EXECUTED as of the date first written above.
QUANTA SERVICES, INC.
By: /s/ Nick Grindstaff
---------------------------------------
Nick Grindstaff
Treasurer
BANK OF AMERICA, N.A., as Administrative
Agent
By: /s/ Suzanne M. Paul
---------------------------------------
Suzanne M. Paul, Vice President
BANK OF AMERICA, N.A., as a Lender
By: /s/ Gary L. Mingle
---------------------------------------
Gary L. Mingle
Senior Vice President
BANK ONE, NA, as a Documentation Agent and
as a Lender
By: /s/ Kathy Turner
---------------------------------------
Kathy Turner
Director
FLEET NATIONAL BANK (F/K/A BANK BOSTON,
N.A.), as a Documentation Agent and as a
Lender
By:
---------------------------------------
Name:
------------------------
Title:
------------------------
CREDIT LYONNAIS NEW YORK BRANCH, as a
Managing Agent and as a Lender
By: /s/ Attila Koc
---------------------------------------
Attila Koc
Senior Vice President
5
<PAGE>
THE BANK OF NOVA SCOTIA, as a Managing
Agent and as a Lender
By: /s/ M. D. Smith
---------------------------------------
M. D. Smith
Agent
NATIONAL CITY BANK, as a Lender
By: /s/ Michael J. Durbin
---------------------------------------
Michael J. Durbin
Vice President
LASALLE BANK NATIONAL ASSOCIATION, as a
Lender
By: /s/ Richard J. Kress
---------------------------------------
Richard J. Kress
First Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Mark B. Felkler
---------------------------------------
Mark B. Felkler
Senior Vice President
COMERICA BANK, as a Lender
By: /s/ Gerald R. Finney, Jr.
---------------------------------------
Gerald R. Finney, Jr.
Vice President
THE BANK OF TOKYO-MITSUBISHI, THE BANK OF TOKYO-MITSUBISHI, LTD., as a
LTD., as a Lender Lender
By: /s/ J. Fort By: /s/ J. Mearns
---------------------------------- ------------------------------
J. Fort J. Mearns
Vice President Vice President and Manager
6
<PAGE>
THE CHASE MANHATTAN BANK, as a Lender
By: /s/ James R. Dolphin
---------------------------------------
James R. Dolphin
Senior Vice President
GUARANTY FEDERAL BANK, F.S.B., as a Lender
By: /s/ Scott L. Brewer
---------------------------------------
Scott L. Brewer
Vice President
SUNTRUST BANK, ATLANTA, as a Lender
By: /s/ Frank A. Coe
---------------------------------------
Frank A. Coe
Vice President
BANKERS TRUST COMPANY, as a Lender
By: /s/ Patrick Dowling
---------------------------------------
Patrick Dowling
Vice President
7
<PAGE>
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to the Lenders to execute, and in consideration of the
Lenders' execution of this Amendment, each of the undersigned hereby consents to
this Amendment and agrees that the same shall in no way release, diminish,
impair, reduce or otherwise adversely affect the obligations and liabilities of
the undersigned under their respective Guaranties described in the Credit
Agreement executed by the undersigned, or any agreements, documents or
instruments executed by any of the undersigned, all of which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and their
respective successors and assigns, and shall inure to the benefit of the
Lenders, and their respective successors and assigns.
ADVANCED TECHNOLOGIES AND INSTALLATION, INC.
ARBY CONSTRUCTION, INC.
AUSTIN TRENCHER, INC.
CCLC, INC.
COMMUNICATION MANPOWER, INC.
COMPUTAPOLE, INC.
CONTI COMMUNICATIONS, INC.
CROCE ELECTRIC COMPANY, INC.
CROWN FIBER COMMUNICATIONS, INC.
DIGCO UTILITY CONSTRUCTION, INC.
DILLARD SMITH CONSTRUCTION COMPANY
DRIFTWOOD ELECTRICAL CONTRACTORS, INC.
EDWARDS PIPELINE COMPANY, INC.
ENVIRONMENTAL PROFESSIONAL ASSOCIATES, LIMITED
FIBER TECHNOLOGY, INC.
FIVE POINTS CONSTRUCTION COMPANY
GEM ENGINEERING CO., INC.
GOLDEN STATE UTILITY CO.
H.L. CHAPMAN PIPELINE CONSTRUCTION, INC.
HAINES CONSTRUCTION COMPANY
HARKER & HARKER, INC.
INTERMOUNTAIN ELECTRIC, INC.
IRBY CONSTRUCTION COMPANY
LINE EQUIPMENT SALES CO., INC.
LOGICAL LINK, INC.
MANUEL BROS., INC.
MEARS GROUP, INC.
MEARS PIPELINE SERVICES, INC.
MEJIA PERSONNEL SERVICES, INC.
METRO UNDERGROUND SERVICES, INC.
NETCOM MANAGEMENT GROUP, INC.
NETWORK COMMUNICATIONS SERVICES, INC.
NETWORK ELECTRIC COMPANY
NORTH HOUSTON POLE LINE CORP.
NORTH PACIFIC CONSTRUCTION CO., INC.
NORTH SKY COMMUNICATIONS, INC.
NORTHERN LINE LAYERS, INC.
PAC WEST CONSTRUCTION, INC.
PAR ELECTRICAL CONTRACTORS, INC.
PARKSIDE SITE & UTILITY COMPANY CORPORATION
PARKSIDE UTILITY CONSTRUCTION CORP.
P.D.G. ELECTRIC COMPANY
8
<PAGE>
POTELCO, INC.
PROFESSIONAL TELECONCEPTS, INC. (IL)
PROFESSIONAL TELECONCEPTS, INC. (NY)
QSI, INC.
QUANTA XLVI ACQUISITION, INC.
QUANTA XLVIII ACQUISITION, INC.
QUANTA LI ACQUISITION, INC.
QUANTA LIV ACQUISITION, INC.
QUANTA LV ACQUISITION, INC.
QUANTA LVI ACQUISITION, INC.
QUANTA LVII ACQUISITION, INC.
QUANTA LVIII ACQUISITION, INC.
QUANTA LIX ACQUISITION, INC.
QUANTA LX ACQUISITION, INC.
QUANTA LXI ACQUISITION, INC.
QUANTA LXII ACQUISITION, INC.
QUANTA LXIII ACQUISITION, INC.
QUANTA LXIV ACQUISITION, INC.
QUANTA LXV ACQUISITION, INC.
QUANTA LXVI ACQUISITION, INC.
QUANTA LXVII ACQUISITION, INC.
QUANTA LXVIII ACQUISITION, INC.
QUANTA LXIX ACQUISITION, INC.
QUANTA LXX ACQUISITION, INC.
QUANTA LXXI ACQUISITION, INC.
QUANTA LXXII ACQUISITION, INC.
QUANTA LXXIII ACQUISITION, INC.
QUANTA UTILITY INSTALLATION CO., INC,
R. A. WAFFENSMITH & CO., INC.
RANGER DIRECTIONAL, INC.
RIGGIN & DIGGIN LINE CONSTRUCTION, INC.
SEAWARD CORPORATION
SERVICE CORPORATION OF THE SOUTHWEST
SOUTHEAST PIPELINE CONSTRUCTION, INC.
SOUTHWEST TRENCHING COMPANY, INC.
SPALJ CONSTRUCTION COMPANY
SPECIALTY DRILLING TECHNOLOGY, INC.
SULLIVAN WELDING, INC.
SUMTER UTILITIES, INC.
TELECOM NETWORK SPECIALISTS, INC.
THE RYAN COMPANY, INC.
TOM ALLEN CONSTRUCTION COMPANY
TRAWICK CONSTRUCTION COMPANY, INC.
TTGP, INC.
TTLP, INC.
TTM, INC.
TXLP, INC.
TVS SYSTEMS, INC.
UNDERGROUND CONSTRUCTION CO., INC.
UTILCO, INC.
VCI TELECOM, INC.
W.C. COMMUNICATIONS, INC.
W.H.O.M. CORPORATION
9
<PAGE>
By: /s/ Dana Gordon
--------------------------------------
Dana Gordon, President or Vice
President of each Guarantor
QUANTA DELAWARE, INC.
By: /S/ Linda Bubacz
--------------------------------------
Linda Bubacz, President
BROWN ENGINEERING, LLC
By: Haines Construction Company, Its
Member
By: /s/ Dana Gordon
-----------------------------
Dana Gordon, Vice President
COAST TO COAST, LLC
By: Environmental Professional Associates,
Limited, a California corporation,
Its Member
By: /s/ Dana Gordon
-----------------------------
Dana Gordon, Vice President
DOT 05, LLC
By: Seaward Corporation, Its Member
By: /s/ Dana Gordon
-----------------------------
Dana Gordon, Vice President
LAKE NORMAN PIPELINE, LLC
By: Edwards Pipeline Company, Inc., Its
Member
By: /s/ Dana Gordon
-----------------------------
Dana Gordon, Vice President
MEARS/CPG, LLC
MEARS ENGINEERING, LLC
MEARS/HDD, LLC
MEARS SERVICES, LLC
By: Mears Group, Inc., The Sole Member of
each of the foregoing limited
liability companies
By: /s/ Dana Gordon
-----------------------------
Dana Gordon, Vice President
10
<PAGE>
S.K.S. PIPELINERS, LLC
By: Arby Construction, Inc., Its Member
By: /s/ Dana Gordon
----------------------------------
Dana Gordon, Vice President
TJADER, L.L.C.
By: Spalj Construction Company, Its Member
By: /s/ Dana Gordon
----------------------------------
Dana Gordon, Vice President
TNS-VA, LLC
By: Professional Teleconcepts, Inc., Its Member
By: /s/ Dana Gordon
----------------------------------
Dana Gordon, Vice President
AIRLAN TELECOM SERVICES, L.P.
By: Mejia Personnel Services, Inc., Its General
Partner
By: /s/ Dana Gordon
----------------------------------
Dana Gordon, Vice President
QUANTA SERVICES MANAGEMENT PARTNERSHIP, L.P.
By: QSI, Inc., Its General Partner
By: /s/ Dana Gordon
----------------------------------
Dana Gordon, Vice President
TRANS TECH ELECTRIC, L.P.
By: TTGP, Inc., Its General Partner
By: /s/ Dana Gordon
----------------------------------
Dana Gordon, Vice President
11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12
<SEQUENCE>10
<FILENAME>h94363ex4-12.txt
<DESCRIPTION>7TH AMEND.& CONSENT TO SECURED CREDIT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 4.12
SEVENTH AMENDMENT
TO THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED SECURED CREDIT
AGREEMENT (this "AMENDMENT") is entered into as of February 12, 2002, among
QUANTA SERVICES, INC., a Delaware corporation ("BORROWER"), the Lenders, as
defined below, and BANK OF AMERICA, N.A., f/k/a NationsBank, N.A., as
administrative agent for the Lenders (in such capacity, the "AGENT").
Capitalized terms used but not defined in this Amendment have the meaning given
such terms in the Credit Agreement (defined below).
RECITALS
A. The Borrower is party to that certain Third Amended and Restated
Secured Credit Agreement dated as of June 14, 1999 (as amended by the First
Amendment dated as of September 21, 1999, the Second Amendment dated as of March
21, 2000, the Third Amendment and Consent dated as of June 15, 2000, the Fourth
Amendment dated as of October 27, 2000, the Fifth Amendment dated as of November
9, 2000, the Sixth Amendment dated as of October 17, 2001, and as may be further
amended, restated or supplemented from time to time, the "CREDIT AGREEMENT"),
among the Borrower, Agent, and the lenders from time to time parties thereto
(each a "LENDER" collectively, "LENDERS").
B. The Borrower has requested that certain provisions of the Credit
Agreement be amended to take into account certain adjustments to the
determination of Consolidated Net Worth in accordance with Statement of
Financial Accounting Standards No. 142 (Goodwill and Other Intangible Assets)
issued in June, 2001.
C. The Borrower has also requested that (i) SECTION 6.6(e) of the
Credit Agreement be amended to increase the reporting threshold thereunder for
certain events from $1,000,000 to $5,000,000, (ii) SECTION 6.14(e) of the Credit
Agreement be amended to permit a Subordinated Debt Investment, and (iii) SECTION
6.15(k) of the Credit Agreement be amended to allow the Borrower the use of
funds thereunder to redeem Subordinated Debt Investments.
D. The Borrower, Agent and the Lenders have agreed to amend the Credit
Agreement to accommodate the foregoing requests and to make other related
modifications, in each case subject to the terms and conditions set out in this
Amendment.
NOW THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agree as follows:
1. Amendment to Section 1.1 (Definitions). SECTION 1.1 of the Credit
Agreement is hereby amended (a) to amend and restate the defined terms "EBIT"
and "EBITDA" (with the new or modified language underlined), and (b) to add the
following defined term of "SFAS 142" in its appropriate alphabetical order:
""EBIT" means, for any period, on a trailing four fiscal
quarter basis, the sum of Consolidated Net Income plus each of
the following to the extent actually deducted in determining
Consolidated Net Income, (a) Consolidated Interest Expense,
(b) provisions for taxes based on income or revenues, and (c)
provisions made in
<PAGE>
accordance with SFAS 142, all calculated on a consolidated
basis for the Borrower and its Subsidiaries and as determined
in accordance with GAAP.
"EBITDA" means, for any period, on a trailing four fiscal
quarter basis (using the historical financial results of any
business acquired in an Acquisition through the Effective
Date, to the extent applicable, all on a pro forma basis,
consistent with SEC regulations), the sum of (i) Consolidated
Net Income plus each of the following to the extent actually
deducted in determining Consolidated Net Income, (a)
Consolidated Interest Expense, (b) provisions for taxes based
on income or revenues, and (c) provisions made in accordance
with SFAS 142, plus (ii) the amount of all depreciation and
amortization expense deducted in determining Consolidated Net
Income, and adjusted for (iii) Non-Cash Charges, all
calculated on a consolidated basis for the Borrower and its
Subsidiaries and as determined in accordance with GAAP. Upon
the consummation of any Acquisition after the Effective Date,
EBITDA may be calculated, subject to the immediately following
sentence, using a calculation which (y) includes the
historical financial results of the acquired business on a pro
forma trailing four fiscal quarter basis (consistent with SEC
regulations), and (z) assumes that the consummation of such
Acquisition (and the incurrence, refinancing, or assumption of
any Indebtedness in connection with such Acquisition) occurred
on the first day of the trailing four fiscal quarter period.
The foregoing adjustment to EBITDA to take into account an
Acquisition may only be made if the balance sheet and
statements of income, retained earnings, and cash flows of the
acquired Person (or the Person from whom the assets,
securities or other equity interests were acquired), are in
compliance with SEC regulations and requirements regarding the
preparation and presentation of historical financial
information and pro forma financial information.
"SFAS 142" means the Statement of Financial Accounting
Standards No. 142 (Goodwill and Other Intangible Assets), as
issued by the Financial Accounting Standards Board in June,
2001, and applicable to all fiscal years beginning after
December 15, 2001."
2. Amendments to Section 6.6 (Financial Reports and Other Information).
SECTION 6.6(e) of the Credit Agreement is hereby amended and restated in its
entirety as follows (with the new or modified language underlined):
"(e) The Borrower will promptly and in any event, within ten
(10) days after an officer of the Borrower has knowledge
thereof, give written notice to the Agent of: (i) any pending
or threatened litigation or proceeding against the Borrower or
any of its Subsidiaries asserting any uninsured claim or
claims against any of same in excess of $5,000,000 in the
aggregate; (ii) the occurrence of any Default or Event of
Default; (iii) any circumstance that has had a Material
Adverse Effect; and (iv) any event which would result in a
breach of SECTIONS 6.20, 6.21, 6.22, 6.23, OR 6.24."
3. Amendments to Section 6.11 (Restrictions on Fundamental Changes).
SECTION 6.11(a) of the Credit Agreement is hereby amended and restated in its
entirety as follows (with the new or modified language underlined):
2
<PAGE>
"(a) the Borrower or any of its Subsidiaries may merge into or
consolidate with, make an Acquisition or otherwise purchase or
acquire all or substantially all of the assets or stock of any
other Person, if in respect of such merger, consolidation,
purchase or Acquisition, (i) the Borrower is the surviving
entity to any such merger or consolidation to which the
Borrower is a party, or, if the Borrower is not a party to
such transaction, a Subsidiary is the surviving entity to any
such merger or consolidation (or the other Person will thereby
become a Subsidiary), (ii) the nature of the business of such
acquired Person is a Permitted Business; (iii) no Default or
Event of Default shall have occurred and be continuing or
would otherwise be existing as a result of such merger,
consolidation, purchase or Acquisition, (iv) such merger,
consolidation, purchase or Acquisition is non-hostile in
nature; and (v) either (y) the aggregate amount of (without
duplication) (1) the cash purchase price paid, (2) the
Borrowings under this Agreement in respect of such
consolidation, purchase or Acquisition, and (3) the
Indebtedness of such acquired Person assumed or otherwise
refinanced by the Borrower or any of its Subsidiaries, does
not exceed, for any single Acquisition (after deducting the
amount of cash and Cash Equivalents held by such acquired
Person), an amount equal to 7.5% of Consolidated Net Worth as
of the end of the immediately preceding fiscal quarter
(without taking into account adjustments to the determination
of Consolidated Net Worth made in accordance with SFAS 142 in
accordance with GAAP), or (z) (1) prior to the consummation of
such merger, consolidation, purchase or Acquisition, the
Borrower shall have delivered to the Agent (which the Agent
shall promptly provide to each Lender) a report signed by an
executive officer of the Borrower which shall contain
calculations demonstrating the Borrower's compliance with
SECTIONS 6.20, 6.21, 6.22, and 6.23 (which calculation may use
historical financial results of the acquired business provided
the calculation (A) is made on a trailing four fiscal quarter
pro forma basis (consistent with SEC regulations), (B) assumes
that the consummation of such merger, consolidation, purchase
or Acquisition (and the incurrence, refinancing, or assumption
of any Indebtedness in connection with such Acquisition)
occurred on the first day of the trailing four-quarter fiscal
period, and (C) is based on a balance sheet and statements of
income, retained earnings, and cash flows of the acquired
Person (or the Person from whom the assets, securities or
other equity interests were acquired), which are in compliance
with SEC regulations and requirements regarding the
preparation and presentation of historical financial
information and pro forma financial information, and (2) the
Majority Lenders have given their prior written consent to
such merger, consolidation, purchase or Acquisition."
4. Amendments to Section 6.14 (Indebtedness). SECTIONS 6.14 (e) and (f)
of the Credit Agreement are hereby amended and restated in their entirety as
follows (with the new or modified language underlined):
"(e) Indebtedness incurred in connection with Subordinated
Debt Investments, including any convertible Subordinated Debt
Investment not to exceed $250,000,000 (which amount includes
the Indebtedness under the Convertible Subordinated Notes), in
the aggregate, on terms subordinated in right of payment and
collection to, and with a maturity date beyond the Maturity
Date of, the Obligations and otherwise on terms acceptable to
the Agent;
3
<PAGE>
(f) other Indebtedness not included within subsections (a)
through (e) above, provided that such Indebtedness shall not
exceed, at any one time outstanding, an amount equal to 8.5%
of Consolidated Net Worth as of the end of the immediately
preceding fiscal quarter (without taking into account
adjustments to the determination of Consolidated Net Worth in
accordance with SFAS 142 in accordance with GAAP);"
5. Amendments to Section 6.15 (Loans, Advances and Investments).
SECTION 6.15(k) of the Credit Agreement is hereby amended and restated in its
entirety as follows (with the new or modified language underlined):
"(k) Investments up to an aggregate amount of $75,000,000 in
the Borrower in the form of (i) repurchasing of the Borrower's
common stock through a series of open-market transactions or
in privately negotiated, off-market transactions or through
one or more hedge, swap, exchange, forward, future, collar or
cap arrangements, fixed price agreements or other similar
arrangements or agreements, and (ii) refunding, repurchase,
discharge, defeasance or retirement any Subordinated Debt
Investment; and"
6. Amendments to Section 6.19 (Capital Expenditures). SECTION 6.19 of
the Credit Agreement is hereby amended and restated in its entirety as follows
(with the new or modified language underlined):
"Section 6.19 Capital Expenditures. Neither the Borrower nor
any of its Subsidiaries shall make or commit to make Capital
Expenditures during any period of four consecutive fiscal
quarters in excess of 15% of Consolidated Net Worth, with
Consolidated Net Worth being determined as of the last day of
the last fiscal quarter of such period (without taking into
account adjustments to the determination of Consolidated Net
Worth made in accordance with SFAS 142 in accordance with
GAAP)."
7. Amendments to Section 6.20 (Minimum Consolidated Net Worth). SECTION
6.20 of the Credit Agreement is hereby amended and restated in its entirety as
follows (with the new or modified language underlined):
"Section 6.20 Minimum Consolidated Net Worth. The Borrower
will maintain a minimum Consolidated Net Worth of not less
than an amount equal to the sum of (i) $296,000,000, plus (ii)
for each fiscal quarter ended prior to (but not on) such date
of determination, commencing with the fiscal quarter ended
June 30, 1999, (w) an amount equal to 50% of Consolidated Net
Income for such fiscal quarter, if positive, plus (x) an
amount equal to 100% of the amount of any equity issuance by
the Borrower, including equity issued in a secondary offering
or equity issued to acquire another entity in an Acquisition,
plus (y) an amount equal to 100% of the stockholders equity of
any entity acquired in an Acquisition for which the Borrower
uses the pooling of interest method of accounting to the
extent permitted by, and in accordance with Statement of
Financial Accounting Standards No. 141 (Business
Combinations), as adopted by the Financial Accounting
Standards Board in June, 2001,and GAAP, minus (z) any
distributions to shareholders of any Subchapter S corporation
acquired in an Acquisition as a result of operations of the
corporation acquired prior to the closing of the Acquisition
or the terms of the Acquisition,
4
<PAGE>
provided that, the foregoing calculation shall take into
account, and be subject to, adjustments to the determination
of Consolidated Net Worth made in accordance with SFAS 142 in
accordance with GAAP."
8. Amendments to Section 10.17 (Change in Accounting Principles or Tax
Laws). SECTION 10.17 of the Credit Agreement is hereby amended and restated in
its entirety as follows (with the new or modified language underlined):
"10.17 Change in Accounting Principles or Tax Laws. If (i) any
change in accounting principles from those used in the
preparation of the financial statements of the Borrower
referred to in SECTION 5.9 is hereafter occasioned by the
promulgation of rules, regulations, pronouncements and
opinions by or required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accounts
(or successors thereto or agencies with similar functions) and
such change materially affects the calculation of any
component of any financial covenant, standard or term found in
this Agreement, or (ii) there is a material change in federal
or foreign tax laws which materially affects the Borrower's
ability to comply with the financial covenants, standards or
terms found in this Agreement, the Borrower, the Agent and the
Lenders agree to enter into negotiations in order to amend
such provisions so as to equitably reflect such changes with
the desired result that the criteria for evaluating the
Borrower's and its Subsidiaries' consolidated financial
condition shall be the same after such changes as if such
changes had not been made. Unless and until such provisions
have been so amended, the provisions of this Agreement shall
govern, provided that, for purposes of this SECTION 10.17, the
Borrower shall have 90 days from the date of any such change
to amend the appropriate provisions of this Agreement to
reflect such change in accordance with the immediately
preceding sentence."
9. Conditions. This Amendment shall not be effective until (a) it has
been duly executed and delivered by Borrower, each Guarantor, and at least the
Majority Lenders, and (b) Borrower has delivered to Agent for the benefit of
Lenders (i) a certificate from the Borrower that no Default or Event of Default
exists under the Credit Agreement, and (ii) such other documents, if any, as the
Agent may reasonably request.
10. Fees and Expenses. The Borrower agrees to pay (a) to Agent for the
benefit of each Lender that executes and delivers this Amendment on or before
February 12, 2002, an amendment fee equal to .05% of such Lender's Commitment,
and (b) the reasonable fees and expenses of counsel to Agent for services
rendered in connection with the preparation, negotiation and execution of this
Amendment.
11. Representations and Warranties. The Borrower and the Guarantors
represent and warrant to the Lenders that they possess all requisite power and
authority to execute, deliver and comply with the terms of this Amendment, which
has been duly authorized and approved by all requisite corporate action on the
part of the Borrower and the Guarantors, for which no consent of any Person is
required, and which will not violate their respective organizational documents,
and agree to furnish the Agent with evidence of such authorization and approval
upon request. The Borrower and the Guarantors further represent and warrant to
the Agent and the Lenders that (a) the representations and warranties in each
Credit Document to which they are a party are true and correct in all material
respects on and as of the date of this Amendment as though made on the date of
this Amendment (except to the extent that (i) such representations and
warranties speak to a specific date or (ii) the facts on which such
representations and warranties are based have been
5
<PAGE>
changed by transactions contemplated by the Credit Agreement), (b) it is in full
compliance with all covenants and agreements contained in each Credit Document
to which it is a party, and (c) no Default or Event of Default has occurred and
is continuing.
12. Scope of Amendment and Consent; Reaffirmation; Release. Except as
affected by this Amendment, the Credit Documents are unchanged and continue in
full force and effect. However, in the event of any inconsistency between the
terms of the Credit Agreement as hereby amended and any other Credit Document,
the terms of the Credit Agreement shall control and such other document shall be
deemed to be amended hereby to conform to the terms of the Credit Agreement. All
references to the Credit Agreement shall refer to the Credit Agreement as
amended by this Amendment. The Borrower and the Guarantors hereby reaffirm their
respective obligations under, and agree that, all Credit Documents to which they
are a party remain in full force and effect and continue to evidence their
respective legal, valid and binding obligations enforceable in accordance with
their terms (as the same are affected by this Amendment). The Borrower and the
Guarantors hereby release the Agent and the Lenders from any liability for
actions or failures to act in connection with the Credit Documents prior to the
date hereof. This Amendment shall be binding upon and inure to the benefit of
each of the undersigned and their respective successors and permitted assigns.
13. Miscellaneous.
(a) No Waiver of Defaults. This Amendment does not constitute
a waiver of, or a consent to, any present or future violation of or
default under, any provision of the Credit Documents, or a waiver of
the Lenders' right to insist upon future compliance with each term,
covenant, condition and provision of the Credit Documents, and the
Credit Documents shall continue to be binding upon, and inure to the
benefit of, the Borrower, the Guarantors, the Agent, and the Lenders
and their respective successors and assigns.
(b) Form. Each agreement, document, instrument or other
writing to be furnished to the Agent under any provision of this
instrument must be in form and substance satisfactory to the Agent and
its counsel.
(c) Multiple Counterparts. This Amendment may be executed in
any number of counterparts with the same effect as if all signatories
have signed the same document. All counterparts must be construed
together to constitute one and the same instrument.
(d) Governing Law. This Amendment and the other Credit
Documents must be construed-and their performance enforced-under Texas
law.
(e) Entirety. THE CREDIT DOCUMENTS, AS AMENDED HEREBY,
REPRESENT THE FINAL AGREEMENT BETWEEN THE BORROWER, GUARANTORS, THE
AGENT AND THE LENDERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[SIGNATURES AND GUARANTORS' CONSENT AND AGREEMENT APPEAR ON FOLLOWING PAGES.]
6
<PAGE>
EXECUTED as of the date first written above.
QUANTA SERVICES, INC.
By: /s/ Nick Grindstaff
-----------------------------------------
Nick Grindstaff
Treasurer
BANK OF AMERICA, N.A., as Administrative Agent
By: /s/ Suzanne M. Paul
------------------------------------------
Suzanne M. Paul, Vice President
BANK OF AMERICA, N.A., as a Lender
By: /s/ Albert L. Welch
-------------------------------------------
Albert L. Welch
Senior Vice President
BANK ONE, NA, as a Documentation Agent and
as a Lender
By: /s/ John A. Horst
------------------------------------------
John A. Horst
Director
FLEET NATIONAL BANK (F/K/A BANK BOSTON, N.A.),
as a Documentation Agent and as a Lender
By:
-------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
CREDIT LYONNAIS NEW YORK BRANCH, as a Managing
Agent and as a Lender
By: /s/ Attila Koc
------------------------------------------
Attila Koc
Senior Vice President
7
<PAGE>
THE BANK OF NOVA SCOTIA, as a Managing Agent
and as a Lender
By: /s/ M.D. Smith
------------------------------------------
M.D. Smith
Agent
NATIONAL CITY BANK, as a Lender
By: /s/ Michael Aurbon
------------------------------------------
Michael Aurbon
Vice President
LASALLE BANK NATIONAL ASSOCIATION, as a Lender
By: /s/ Richard J. Kress
------------------------------------------
Richard J. Kress
First Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Laura B. Smith
------------------------------------------
Laura B. Smith
Vice President
COMERICA BANK, as a Lender
By: /s/ Gerald R. Finney, Jr.
------------------------------------------
Gerald R. Finney, Jr.
Vice President
THE BANK OF TOKYO-MITSUBISHI, THE BANK OF TOKYO-MITSUBISHI, LTD., as a
LTD., as a Lender Lender
By: /s/ J. Fort By: /s/ John Mearns
------------------------ ------------------------------------------
J. Fort J. Mearns
Vice President VP and Manager
8
<PAGE>
THE CHASE MANHATTAN BANK, as a Lender
By: /s/ James R. Dolphin
------------------------------------------
James R. Dolphin
Senior Vice President
GUARANTY FEDERAL BANK, F.S.B., as a Lender
By:
-------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SUNTRUST BANK, ATLANTA, as a Lender
By:
-------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BANKERS TRUST COMPANY, as a Lender
By: /s/ Scottye Lindsey
------------------------------------------
Scottye Lindsey
Vice President
9
<PAGE>
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to the Lenders to execute, and in consideration of the
Lenders' execution of this Amendment, each of the undersigned hereby consents to
this Amendment and agrees that the same shall in no way release, diminish,
impair, reduce or otherwise adversely affect the obligations and liabilities of
the undersigned under their respective Guaranties described in the Credit
Agreement executed by the undersigned, or any agreements, documents or
instruments executed by any of the undersigned, all of which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and their
respective successors and assigns, and shall inure to the benefit of the
Lenders, and their respective successors and assigns.
ADVANCED TECHNOLOGIES AND INSTALLATION, INC.
ALLTECK LINE CONTRACTORS (USA), INC.
ALLTECK LINE CONTRACTORS, INC.
ARBY CONSTRUCTION, INC.
AUSTIN TRENCHER, INC.
BRADFORD BORTHERS, INC.
CCLC, INC.
COMMUNICATION MANPOWER, INC.
COMPUTAPOLE, INC.
CONTI COMMUNICATIONS, INC.
CROCE ELECTRIC COMPANY, INC.
CROWN FIBER COMMUNICATIONS, INC.
DILLARD SMITH CONSTRUCTION COMPANY
DRIFTWOOD ELECTRICAL CONTRACTORS, INC.
EDWARDS PIPELINE COMPANY, INC.
ENVIRONMENTAL PROFESSIONAL ASSOCIATES, LIMITED
FIVE POINTS CONSTRUCTION COMPANY
GEM ENGINEERING CO., INC.
GOLDEN STATE UTILITY CO.
H.L. CHAPMAN PIPELINE CONSTRUCTION, INC.
HAINES CONSTRUCTION COMPANY
INTERMOUNTAIN ELECTRIC, INC.
IRBY CONSTRUCTION COMPANY
LINE EQUIPMENT SALES CO., INC.
LOGICAL LINK, INC.
MANUEL BROS., INC.
MEARS GROUP, INC.
MEJIA PERSONNEL SERVICES, INC.
METRO UNDERGROUND SERVICES, INC.
NETWORK COMMUNICATIONS SERVICES, INC.
NETWORK ELECTRIC COMPANY
NORTH PACIFIC CONSTRUCTION CO., INC.
NORTH SKY COMMUNICATIONS, INC.
NORTHERN LINE LAYERS, INC.
OKAY CONSTRUCTION COMPANY, INC.
PAC WEST CONSTRUCTION, INC.
PAR ELECTRICAL CONTRACTORS, INC.
PARKSIDE SITE & UTILITY COMPANY CORPORATION
PARKSIDE UTILITY CONSTRUCTION CORP.
P.D.G. ELECTRIC COMPANY
POTELCO, INC.
PROFESSIONAL TELECONCEPTS, INC. (IL)
10
<PAGE>
PROFESSIONAL TELECONCEPTS, INC. (NY)
PWR FINANCIAL COMPANY QPC, INC.
QSI, INC.
QUANTA HOLDINGS, INC.
QUANTA LI ACQUISITION, INC.
QUANTA LIV ACQUISITION, INC.
QUANTA LV ACQUISITION, INC.
QUANTA LVII ACQUISITION, INC.
QUANTA LVIII ACQUISITION, INC.
QUANTA LIX ACQUISITION, INC.
QUANTA LX ACQUISITION, INC.
QUANTA LXI ACQUISITION, INC.
QUANTA LXII ACQUISITION, INC.
QUANTA LXIII ACQUISITION, INC.
QUANTA LXIV ACQUISITION, INC.
QUANTA LXV ACQUISITION, INC.
QUANTA LXVI ACQUISITION, INC.
QUANTA LXVII ACQUISITION, INC.
QUANTA LXVIII ACQUISITION, INC.
QUANTA LXIX ACQUISITION, INC.
QUANTA LXX ACQUISITION, INC.
QUANTA LXXI ACQUISITION, INC.
QUANTA LXXII ACQUISITION, INC.
QUANTA LXXIII ACQUISITION, INC.
QUANTA UTILITY INSTALLATION CO., INC,
R. A. WAFFENSMITH & CO., INC.
RANGER DIRECTIONAL, INC.
SEAWARD CORPORATION
SOUTHEAST PIPELINE CONSTRUCTION, INC.
SOUTHWEST TRENCHING COMPANY, INC.
SOUTHWESTERN COMMUNICATIONS, INC.
SPALJ CONSTRUCTION COMPANY
SPECIALTY DRILLING TECHNOLOGY, INC.
SUMTER UTILITIES, INC.
THE RYAN COMPANY, INC.
TOM ALLEN CONSTRUCTION COMPANY
TRANS TECH ACQUISITION, INC.
TRAWICK CONSTRUCTION COMPANY, INC.
TTGP, INC.
TTLP, INC.
TTM, INC.
TXLP, INC.
UNDERGROUND CONSTRUCTION CO., INC.
UTILCO, INC.
VCI TELCOM, INC.
W.C. COMMUNICATIONS, INC.
W.H.O.M. CORPORATION
By: /s/ Dana Gordon
-------------------------------------------
Dana Gordon, President or Vice President of
each Guarantor
11
<PAGE>
QDE LLC
QUANTA DELAWARE, INC.
QUANTA ASSET MANAGEMENT LLC
By: /s/ Linda Bubacz
-------------------------------------------
Linda Bubacz, President
BROWN ENGINEERING, LLC
By: Haines Construction Company, Its Member
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
COAST TO COAST, LLC
By: Environmental Professional Associates,
Limited, a Californiacorporation,
Its Member
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
DOT 05, LLC
By: Spalj Construction Company, Its Member
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
LAKE NORMAN PIPELINE, LLC
By: Edwards Pipeline Company, Inc., Its Member
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
MEARS/CPG, LLC
MEARS ENGINEERING, LLC
MEARS/HDD, LLC
MEARS SERVICES, LLC
By: Mears Group, Inc., The Sole Member of each
of the foregoing limited liability
companies
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
12
<PAGE>
S.K.S. PIPELINERS, LLC
By: Arby Construction, Inc., Its Member
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
13
<PAGE>
TJADER, L.L.C.
By: Spalj Construction Company, Its Member
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
TNS-VA, LLC
By: Professional Teleconcepts, Inc., Its Member
By: /s/ Dana Gordon
--------------------------------------
Dana Gordon, Vice President
AIRLAN TELECOM SERVICES, L.P.
NORTH HOUSTON POLE LINE, L.P.
LINDSEY ELECTRIC, L.P.
DIGCO UTILITY CONSTRUCTION, L.P.
By: Mejia Personnel Services, Inc., Its General
Partner
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
QUANTA SERVICES MANAGEMENT PARTNERSHIP, L.P.
QUANTA ASSOCIATES, L.P.
By: QSI, Inc., Its General Partner
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
TRANS TECH ELECTRIC, L.P.
By: TTGP, Inc., Its General Partner
By: /s/ Dana Gordon
---------------------------------------
Dana Gordon, Vice President
PWR NETWORK, LLC
By: PWR Financial Company, Its Sole Member
By: /s/ Dana Gordon
---------------------------------------
Dana A. Gordon, Vice President
14
<PAGE>
Q RESOURCES, LLC
By: Quanta Holdings, Inc.
By: /s/ Dana Gordon
----------------------------------------
Dana A. Gordon, Vice President
QUANTA RECEIVABLES, L.P.
By: PWR Network, LLC, Its General Partner
By: PWR Financial Company, Its Sole Member
By: /s/ Dana Gordon
------------------------------------
Dana A. Gordon, Vice President
15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>11
<FILENAME>h94363ex10-15.txt
<DESCRIPTION>AMENDMENT NO.1 TO 2001 STOCK INCENTIVE PLAN
<TEXT>
<PAGE>
EXHIBIT 10.15
AMENDMENT NO. 1
TO
QUANTA SERVICES, INC.
2001 STOCK INCENTIVE PLAN
This Amendment No. 1 to the Quanta Services, Inc. 2001 Stock Incentive
Plan (the "Plan") is adopted by Quanta Services, Inc. (the "Company"), effective
as of November 9, 2001.
WITNESSETH
WHEREAS, the Board of Directors (the "Board") of the Company amended
and restated the Quanta Services, Inc. Amended and Restated 1997 Stock Option
Plan in the form of the Plan, effective as of May 23, 2001; and
WHEREAS, pursuant to Section 16 of the Plan, the Board desires to amend
the Plan further to clarify that employees of the Company or an affiliate of the
Company who are not subject to Section 3401 of the Internal Revenue Code of
1986, as amended are eligible to receive awards under the Plan;
NOW THEREFORE, the Board hereby amends Section 3(o) of the Plan by
restatement in its entirety to read as follows:
(o) "Employee" means any person, including an Officer or Director, who
is employed by the Company or an Affiliate. The provision of compensation by the
Company or an Affiliate to a Director solely with respect to such individual
rendering services in the capacity of a Director, however, shall not be
sufficient to constitute "employment" by the Company or that Affiliate.
This Amendment No. 1 to the Plan was adopted by the Company effective
as of the day and year first above written.
QUANTA SERVICES, NC.
By: /s/ Dana A. Gordon
------------------------------
Dana A. Gordon, Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>12
<FILENAME>h94363ex21-1.txt
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<PAGE>
EXHIBIT 21.1
<Table>
<Caption>
SUBSIDIARY STATE OF INCORPORATION
- -------------------------------------------------- ----------------------
<S> <C>
Advanced Technologies and Installation Corporation Washington
Airlan Telecom Services, L.P. Texas
Allteck Line Contractors (USA), Inc. Washington
Allteck Line Contractors, Inc. British Columbia
Arby Construction, Inc. Delaware
Austin Trencher, Inc. Delaware
Bradford Brothers, Inc. North Carolina
Brown Engineering, LLC Delaware
CCLC, Inc. Delaware
Coast to Coast, LLC California
Communication Manpower, Inc. Florida
Computapole, Inc. Delaware
Conti Communications, Inc. Delaware
Croce Electric Company, Inc. Delaware
Crown Fiber Communications, Inc. Virginia
Choice Optics Communications
DeltaComm
Fiber Technology
Marlboro Cablevision
World Fiber
Digco Utility Construction, L.P. Texas
Dillard Smith Construction Company Delaware
Dot 05, LLC Delaware
Driftwood Electrical Contractors, Inc. Delaware
Maddux Communications
Edwards Pipeline Company, Inc. Delaware
Environmental Professional Associates, Limited California
Provco
Five Points Construction Co. Texas
GEM Engineering Co., Inc. Delaware
Golden State Utility Co. Delaware
H.L. Chapman Pipeline Construction, Inc. Delaware
DB Utilities
Haines Construction Company Delaware
Brown Engineering & Testing
Intermountain Electric, Inc. Colorado
Grand Electric
Irby Construction Company Mississippi
Lake Norman Pipeline, LLC North Carolina
Lindsey Electric, L.P. Texas
Line Equipment Sales Co., Inc. South Carolina
Logical Link, Inc. Delaware
Manuel Bros., Inc. Delaware
Renaissance Construction
Western Directional
Mears Engineering, LLC Michigan
</Table>
1
<PAGE>
<Table>
<Caption>
SUBSIDIARY STATE OF INCORPORATION
- -------------------------------------------------- ----------------------
<S> <C>
Mears Group, Inc. Delaware
Mears Services, LLC Michigan
Mears/CPG, LLC Michigan
Mears/HDD, LLC Michigan
Mejia Personnel Services, Inc. Texas
Metro Underground Services, Inc. Illinois
Network Communication Services, Inc. Delaware
Network Electric Company Delaware
North Houston Pole Line, L.P. Texas
North Houston Pole Line Corp.
North Pacific Construction Co., Inc. Delaware
North Sky Communications, Inc. Delaware
Northern Line Layers, Inc. Delaware
NetCom Management
Okay Construction Company, LLC Delaware
P.D.G. Electric Co. Florida
Pac West Construction, Inc. Delaware
PAR Electrical Contractors, Inc. Missouri
Harker & Harker
Par Infrared Consultants
Riggin & Diggin Line Construction
Union Power Construction Company
Parkside Site and Utility Company Corporation Delaware
Parkside Utility Construction Corp. Delaware
Potelco, Inc. Washington
Kingston Constructors
Kingston Constructors DBA Talking Signs
Services
Kuenzi Construction
NorAm Telecommunications
Professional Teleconcepts, Inc. Illinois
Professional Teleconcepts, Inc. New York
PWR Financial Company Delaware
PWR Network, LLC Delaware
Q Resources, LLC Delaware
QDE LLC Delaware
QPC, Inc. Delaware
QSI, Inc. Delaware
Quanta Asset Management LLC Delaware
Quanta Associates, L.P. Texas
Quanta Delaware, Inc. Delaware
Quanta Holdings, Inc. Delaware
Quanta LI Acquisition, Inc. Delaware
Quanta LIV Acquisition, Inc. Delaware
Quanta LIX Acquisition, Inc. Delaware
Quanta LVII Acquisition, Inc. Delaware
Quanta LVIII Acquisition, Inc. Delaware
Quanta LX Acquisition, Inc. Delaware
Quanta LXI Acquisition, Inc. Delaware
Quanta LXII Acquisition, Inc. Delaware
</Table>
2
<PAGE>
<Table>
<Caption>
SUBSIDIARY STATE OF INCORPORATION
- -------------------------------------------------- ----------------------
<S> <C>
Quanta LXIII Acquisition, Inc. Delaware
Quanta LXIV Acquisition, Inc. Delaware
Quanta LXIX Acquisition, Inc. Delaware
Quanta LXV Acquisition, Inc. Delaware
Quanta LXVI Acquisition, Inc. Delaware
Quanta LXVII Acquisition, Inc. Delaware
Quanta LXVIII Acquisition, Inc. Delaware
Quanta LXX Acquisition, Inc. Delaware
Quanta LXXI Acquisition, Inc. Delaware
Quanta LXXII Acquisition, Inc. Delaware
Quanta LXXIII Acquisition, Inc. Delaware
Quanta XXXI Acquisition, Inc. Delaware
Quanta Receivables, L.P. Delaware
Quanta Services Management Partnership, L.P. Texas
Quanta Services of Canada Ltd. British Columbia
Quanta Utility Installation Co., Inc. Delaware
R.A. Waffensmith & Co., Inc. Delaware
Ranger Directional, Inc. Delaware
S.K.S. Pipeliners, LLC Delaware
Seaward Corporation Maine
Interstate Equipment Corporation
Southeast Pipeline Construction, Inc. Delaware
Southwestern Communications, Inc. Delaware
Spalj Construction Company Delaware
Dot 05 Optical Communications
Span-Con of Deerwood
Tjader & Highstrom
Wilson Roadbores
Specialty Drilling Technology, Inc.
Sumter Utilities, Inc. Delaware
The Ryan Company, Inc. Massachusetts
Eastern Communications
Tjader, L.L.C. Delaware
TNS-VA, LLC Delaware
Tom Allen Construction Company Delaware
Trans Tech Acquisition, Inc. Texas
Trans Tech Electric, L.P. Texas
Trawick Construction Co. Florida
TTGP, Inc. Delaware
TTLP, Inc. Delaware
TTM, Inc. North Carolina
TXLP, Inc. Delaware
Underground Construction Co., Inc. Delaware
Utilco, Inc. Georgia
VCI Telcom, Inc. Delaware
W. C. Communications, Inc. Delaware
W.H.O.M. Corporation California
</Table>
3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>13
<FILENAME>h94363ex23-1.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated February 14, 2002, except for the
matters discussed in Note 16, as to which the date is March 25, 2002, included
in this Form 10-K, into Quanta Services, Inc.'s previously filed Registration
Statements on Form S-8 (File Nos. 333-47069, 333-56849 and 333-86375) and Form
S-3 (File Nos. 333-81419, 333-90961 and 333-39744).
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>14
<FILENAME>h94363ex99-1.txt
<DESCRIPTION>LETTER TO SEC PURSUANT TO TEMPORARY NOTE 3T
<TEXT>
<PAGE>
Exhibit 99.1
March 29, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0408
Ladies and Gentlemen:
This letter is written pursuant to Temporary Note 3T to Article 3 of
Regulation S-X.
Arthur Andersen LLP (Andersen) has represented to Quanta Services, Inc.
management that the audit for the fiscal year ended December 31, 2001 was
subject to Andersen's quality control system for the U.S. accounting and
auditing practice to provide reasonable assurance that the engagement was
conducted in compliance with professional standards and that there was
appropriate continuity of Andersen personnel working on the audit and
availability of national office consultation. Availability of personnel at
foreign affiliates of Andersen is not relevant to this audit.
Very truly yours,
/s/ James H. Haddox
James H. Haddox
Chief Financial Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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