- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------------

FORM 10-Q
---------------------

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

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

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NO. 001-13831

QUANTA SERVICES, INC.
(Exact name of registrant as specified in its charter)

---------------------

<Table>

DELAWARE 74-2851603
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</Table>

1360 POST OAK BLVD.
SUITE 2100
HOUSTON, TEXAS 77056
(Address of principal executive offices)

Registrant's telephone number, including area code:
(713) 629-7600

---------------------

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 [ ]

58,698,244 shares of Common Stock were outstanding as of August 10, 2001. As of
the same date, 1,627,498 shares of Limited Vote Common Stock were outstanding.

- --------------------------------------------------------------------------------
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2

QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX

<Table>
<Caption>
PAGE
----

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
QUANTA SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets............................... 1
Consolidated Statements of Operations..................... 2
Consolidated Statements of Cash Flows..................... 3
Notes to Condensed Consolidated Financial Statements...... 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 9
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk......................................... 12

PART II. OTHER INFORMATION
ITEM 2. Changes in Securities............................... 13
ITEM 4. Submission of Matters to a Vote of Security
Holders............................................. 13
ITEM 6. Exhibits and Reports on Form 8-K.................... 14
Signature................................................... 15
</Table>

i
3

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

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

ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 17,306 $ 2,772
Accounts receivable, net of allowance of $15,612 and
$33,536................................................ 466,869 485,913
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 71,842 77,437
Inventories............................................... 19,874 25,361
Prepaid expenses and other current assets................. 26,516 36,077
---------- ----------
Total current assets.............................. 602,407 627,560
PROPERTY AND EQUIPMENT, net................................. 341,029 375,081
OTHER ASSETS, net........................................... 24,627 20,917
GOODWILL, net............................................... 906,031 1,002,024
---------- ----------
Total assets...................................... $1,874,094 $2,025,582
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 8,772 $ 7,825
Accounts payable and accrued expenses..................... 215,684 243,935
Billings in excess of costs and estimated earnings on
uncompleted
contracts.............................................. 27,981 34,131
---------- ----------
Total current liabilities......................... 252,437 285,891
LONG-TERM DEBT, net of current maturities................... 318,602 340,788
CONVERTIBLE SUBORDINATED NOTES.............................. 172,500 172,500
DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES..... 61,599 71,859
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 58,423,226 shares issued and
outstanding, respectively.............................. -- --
Limited Vote Common Stock, $.00001 par value, 3,345,333
shares authorized, 1,765,912 and 1,640,137 shares
issued and outstanding, respectively................... -- --
Additional paid-in capital................................ 882,344 922,410
Retained earnings......................................... 186,612 232,134
---------- ----------
Total stockholders' equity........................ 1,068,956 1,154,544
---------- ----------
Total liabilities and stockholders' equity........ $1,874,094 $2,025,582
========== ==========
</Table>

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

1
4

QUANTA SERVICES, INC. AND SUBSIDIARIES

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

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

REVENUES......................................... $423,526 $503,342 $757,263 $1,022,360
COST OF SERVICES (including depreciation)........ 324,890 392,588 585,946 802,654
-------- -------- -------- ----------
Gross profit................................... 98,636 110,754 171,317 219,706
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 33,515 60,495 63,466 102,528
GOODWILL AMORTIZATION............................ 4,611 6,553 8,827 12,857
-------- -------- -------- ----------
Income from operations......................... 60,510 43,706 99,024 104,321
OTHER INCOME (EXPENSE):
Interest expense............................... (6,410) (9,138) (10,943) (18,366)
Other, net..................................... 838 (581) 1,387 (559)
-------- -------- -------- ----------
INCOME BEFORE INCOME TAX PROVISION............... 54,938 33,987 89,468 85,396
PROVISION FOR INCOME TAXES....................... 23,843 17,304 38,829 39,410
-------- -------- -------- ----------
NET INCOME....................................... 31,095 16,683 50,639 45,986
DIVIDENDS ON PREFERRED STOCK..................... 232 232 464 464
-------- -------- -------- ----------
NET INCOME ATTRIBUTABLE TO COMMON STOCK.......... $ 30,863 $ 16,451 $ 50,175 $ 45,522
======== ======== ======== ==========
BASIC EARNINGS PER SHARE......................... $ 0.45 $ 0.21 $ 0.75 $ 0.59
======== ======== ======== ==========
DILUTED EARNINGS PER SHARE....................... $ 0.42 $ 0.21 $ 0.70 $ 0.59
======== ======== ======== ==========
SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic....................................... 68,160 77,073 66,710 76,643
======== ======== ======== ==========
Diluted..................................... 75,496 78,649 73,985 78,182
======== ======== ======== ==========
</Table>

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

2
5

QUANTA SERVICES, INC. AND SUBSIDIARIES

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

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

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to common stock............... $30,863 $16,451 $ 50,175 $ 45,522
Adjustments to reconcile net income attributable to
common stock to net cash provided by operating
activities --
Depreciation and amortization....................... 12,998 19,496 25,405 38,158
Loss on sale of property and equipment.............. 276 655 57 755
Deferred income tax provision (benefit)............. 2,173 (4,801) 2,346 (3,901)
Preferred stock dividend............................ 232 232 464 464
Changes in operating assets and liabilities, net of
non-cash transactions --
(Increase) decrease in --
Accounts receivable, net......................... (40,764) (19,544) (66,991) (13,087)
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. 4,878 1,011 (608) (5,400)
Inventories...................................... (1,523) (2,370) (3,244) (4,012)
Prepaid expenses and other current assets........ 870 999 193 3,613
Increase (decrease) in --
Accounts payable and accrued expenses............ 6,048 16,525 11,564 24,663
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. 2,054 3,339 (167) 6,058
Other, net....................................... 63 (1,236) 63 (1,462)
------- ------- --------- ---------
Net cash provided by operating activities...... 18,168 30,757 19,257 91,371
------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.......... 359 827 885 1,911
Additions of property and equipment................... (21,380) (25,755) (43,322) (54,357)
Cash paid for acquisitions, net of cash acquired...... (46,684) (5,582) (85,659) (82,452)
Notes receivable...................................... -- -- -- 2,658
Net proceeds from sale of business.................... -- -- 2,410 --
------- ------- --------- ---------
Net cash used in investing activities.......... (67,705) (30,510) (125,686) (132,240)
------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under bank lines of
credit.............................................. 50,138 (2,170) (53,186) 27,120
Proceeds from other long-term debt.................... 1,540 101 151,682 1,570
Payments on other long-term debt...................... (12,422) (6,566) (17,075) (11,905)
Debt issuance costs................................... -- -- (2,104) --
Issuances of stock, net of offering costs............. 5,140 -- 9,373 4,098
Exercise of stock options............................. 5,304 4,598 9,337 5,452
------- ------- --------- ---------
Net cash provided by (used in) financing
activities................................... 49,700 (4,037) 98,027 26,335
------- ------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 163 (3,790) (8,402) (14,534)
CASH AND CASH EQUIVALENTS, beginning of period.......... 2,210 6,562 10,775 17,306
------- ------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................ $ 2,373 $ 2,772 $ 2,373 $ 2,772
======= ======= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for --
Interest............................................ $ 3,263 $ 2,889 $ 7,246 $ 17,374
Income taxes........................................ 26,403 5,661 37,255 6,175
</Table>

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

3
6

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BUSINESS AND ORGANIZATION:

Quanta Services, Inc. is a leading provider of specialized contracting
services, offering end-to-end network solutions to the telecommunications,
electric power 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. 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.

Since its inception and through 2000, Quanta acquired 77 businesses. The
Company has acquired six additional businesses through June 30, 2001 for an
aggregate consideration of approximately 1.0 million shares of common stock and
$78.1 million in cash. 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: rapid technological and structural
changes in the industries the Company serves, risks related to internal growth
and operating strategies, risks associated with an economic downturn, the
collectibility of receivables, risks related to acquisition financing and
integration, significant fluctuations in quarterly results, risks associated
with 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.

The board of directors of the Company has authorized a Stock Repurchase
Plan under which up to $75 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.
Through August 10, 2001, the Company has repurchased 35,200 shares of common
stock under the Stock Repurchase Plan. 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. As a result of these factors, the actual number of shares to be
repurchased cannot be determined at this time.

Interim Condensed Consolidated Financial Information

These unaudited condensed consolidated financial statements have been
prepared pursuant to the rules of the SEC. Certain information and footnote
disclosures, normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States,
have been condensed or omitted pursuant to those rules and regulations. The
Company believes that the disclosures made are adequate to make the information
presented not misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim consolidated financial statements have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year. The results of the Company have historically been
subject to significant seasonal fluctuations.

It is suggested that these condensed consolidated financial statements be
read in conjunction with the audited financial statements and notes thereto of
Quanta Services, Inc. and subsidiaries included in the Company's Annual Report
on Form 10-K, which was filed with the SEC on April 2, 2001.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect (i) the reported amounts
4
7
QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of assets and liabilities, (ii) the disclosure of contingent assets and
liabilities known to exist as of the date the financial statements are published
and (iii) the reported amount of net revenues and expenses recognized during the
periods presented. The Company reviews all significant estimates affecting its
consolidated financial statements on a recurring basis and records the effect of
any necessary adjustments prior to their publication.
Adjustments made with respect to the use of estimates often relate to improved
information not previously available. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements. The accompanying consolidated balance sheets include preliminary
allocations of the respective purchase price paid for the companies acquired
during the latest 12 months using the "purchase" method of accounting and,
accordingly, are subject to final adjustment.

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. 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.

2. 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 the three and six months ended June 30, 2000 and 2001 is
illustrated below (in thousands):

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

NET INCOME:
Net income attributable to common stock...... $30,863 $16,451 $50,175 $45,522
Dividends on Preferred Stock................. 232 232 464 464
------- ------- ------- -------
Net income for basic earnings per share...... 31,095 16,683 50,639 45,986
------- ------- ------- -------
Effect of convertible subordinated notes
under the "if converted" method --interest
expense addback, net of taxes............. 445 -- 991 --
------- ------- ------- -------
Net income for diluted earnings per share.... $31,540 $16,683 $51,630 $45,986
======= ======= ======= =======
WEIGHTED AVERAGE SHARES:
Weighted average shares outstanding for basic
earnings per share, including convertible
Preferred Stock........................... 68,160 77,073 66,710 76,643
Effect of dilutive stock options............. 3,017 1,576 2,424 1,539
Effect of convertible subordinated notes
under the "if converted"
method -- weighted convertible shares
issuable.................................. 4,319 -- 4,851 --
------- ------- ------- -------
Weighted average shares outstanding for
diluted earnings per share................ 75,496 78,649 73,985 78,182
======= ======= ======= =======
</Table>

5
8
QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 three months ended June 30, 2000, there were no stock
options excluded from the computation of diluted earnings per share and for the
six months ended June 30, 2000, there were approximately 0.1 million stock
options excluded from the computation because the options' exercise prices were
greater than the average market price of the Company's common stock. For the
three and six months ended June 30, 2001, stock options of approximately 1.1
million 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 three and six months ended June 30, 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.

3. INCOME TAXES:

Certain of the businesses the Company has 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, an estimated deferred tax liability has been recorded to provide
for the estimated future income tax liability as a result of 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.

4. 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, will be
subject immediately to the non-amortization and amortization provisions of the
statement, respectively. The Company is currently analyzing the provisions of
SFAS No. 142 and has not yet made a determination of the impact the adoption
will have on the consolidated financial statements.

5. DEBT:

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 4.81% at June 30, 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 6.75% at June 30, 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 certain financial ratios) 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

6
9
QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
June 30, 2001, $120.0 million was borrowed under the credit facility, and the
Company had $31.5 million of letters of credit outstanding, resulting in a
borrowing availability of $198.5 million under the credit facility.

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 five to ten 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. Proceeds
from this private placement were used to reduce outstanding borrowings under 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. Net proceeds from
the offering were used to repay outstanding indebtedness under the credit
facility. The convertible subordinated 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.

6. SERIES A CONVERTIBLE PREFERRED STOCK:

In September 1999, the Company entered into a securities purchase agreement
with UtiliCorp 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,
UtiliCorp 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 original 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 original 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 than $20.00, then the preferred dividend may, at the option of
UtiliCorp, 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 UtiliCorp's investment in the Company.

7
10
QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

UtiliCorp 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, UtiliCorp
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 UtiliCorp, be converted at any time into fully paid and
non-assessable 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.

7. SEGMENT INFORMATION:

The Company operates in one reportable segment as a specialty contractor.
The Company provides comprehensive network solutions to the telecommunications,
electric power 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 period in order to conform to the
current period.

<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 2001
-------- ----------
(IN THOUSANDS)

Telecommunications network services......................... $326,495 $ 343,513
Cable television network services........................... 124,011 133,929
Electric power network services............................. 208,273 379,296
Ancillary services.......................................... 98,484 165,622
-------- ----------
$757,263 $1,022,360
======== ==========
</Table>

The Company does not have significant operations or long-lived assets in
countries outside of the United States.

8. RELATED PARTY TRANSACTIONS:

In September 1999, the Company entered into a strategic alliance agreement
with UtiliCorp. Under the terms of the strategic alliance agreement, UtiliCorp
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 UtiliCorp, provided that
the Company provides such services at a competitive cost. The strategic alliance
agreement has a term of six years.

The Company entered into a management services agreement in September 1999
with UtiliCorp 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 UtiliCorp of
$2,325,000 through September 30, 2005. In December 2000, the Company agreed to
conclude its obligations under the management services agreement with UtiliCorp
in exchange for a one-time payment to UtiliCorp of approximately $28.6 million.

Management believes transactions with related parties were under terms no
less favorable to the Company than those arranged with other parties.

8
11

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

INTRODUCTION

The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and related notes thereto included elsewhere
in this Quarterly Report on Form 10-Q. Except for the historical financial
information contained herein, the matters discussed in this Quarterly Report on
Form 10-Q 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. Such statements include declarations regarding our intent,
belief or current expectations, statements regarding the future results of
acquired companies and our gross margins. Any such forward-looking statements
are not guarantees of future performance and involve a number of risks and
uncertainties. 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 the risk factors identified in our Annual Report on Form 10-K,
which was filed with the SEC on April 2, 2001, which is available at the SEC's
Web site at www.sec.gov.

We derive our revenues from one reportable segment by providing specialized
contracting services and offering comprehensive network solutions. Our customers
include telecommunications, electric power and cable television companies, as
well as commercial, industrial and governmental entities.

We enter into contracts principally on the basis of competitive 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
fixed price or unit price basis in which we agree to do the work for a fixed
amount for the entire project (fixed price) or for units of work performed (unit
price). We also perform services on a cost-plus or time and materials basis. We
are generally able to achieve higher margins on fixed price and unit price
contracts than on cost-plus contracts as a result of our experience in bidding
and performance. Our exposure to loss on fixed price contracts has historically
been limited by the high volume and relatively short duration of the fixed price
contracts we undertake. However, as we perform larger projects, our reported
margins may be significantly affected by actual results on these projects.

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 material
costs more accurately than labor costs. Therefore, to compensate for the
potential variability of labor costs, we seek to maintain higher margins on our
labor-intensive projects. Certain of our subsidiaries were previously subject to
deductibles ranging from $100,000 to $1,000,000 for workers' compensation
insurance. Currently, we have a deductible of $500,000 per occurrence related to
workers' compensation, automobile and general liability claims. Fluctuations in
insurance accruals related to these deductibles could have an impact on gross
margins in the period in which such adjustments are made. Selling, general and
administrative expenses consist primarily of compensation and related benefits
to management, administrative salaries and benefits, marketing, office rent and
utilities, communications and professional fees.

9
12

RESULTS OF OPERATIONS

The following table sets forth selected unaudited statements of operations
data and such data as a percentage of revenues for the periods indicated:

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- -------------------------------------
2000 2001 2000 2001
---------------- ---------------- ---------------- ------------------
(DOLLARS IN THOUSANDS)

Revenues.................................. $423,526 100.0% $503,342 100.0% $757,263 100.0% $1,022,360 100.0%
Cost of services (including
depreciation)........................... 324,890 76.7 392,588 78.0 585,946 77.4 802,654 78.5
-------- ----- -------- ----- -------- ----- ---------- -----
Gross profit...................... 98,636 23.3 110,754 22.0 171,317 22.6 219,706 21.5
Selling, general and administrative
expenses................................ 33,515 7.9 60,495 12.0 63,466 8.4 102,528 10.0
Goodwill amortization..................... 4,611 1.1 6,553 1.3 8,827 1.2 12,857 1.3
-------- ----- -------- ----- -------- ----- ---------- -----
Income from operations............ 60,510 14.3 43,706 8.7 99,024 13.0 104,321 10.2
Interest expense.......................... (6,410) (1.5) (9,138) (1.8) (10,943) (1.4) (18,366) (1.8)
Other income, net......................... 838 0.2 (581) (0.1) 1,387 0.2 (559) --
-------- ----- -------- ----- -------- ----- ---------- -----
Income before income tax provision........ 54,938 13.0 33,987 6.8 89,468 11.8 85,396 8.4
Provision for income taxes................ 23,843 5.7 17,304 3.5 38,829 5.1 39,410 3.9
-------- ----- -------- ----- -------- ----- ---------- -----
Net income........................ $ 31,095 7.3% $ 16,683 3.3% $ 50,639 6.7% $ 45,986 4.5%
======== ===== ======== ===== ======== ===== ========== =====
</Table>

THREE AND SIX MONTHS ENDED JUNE 30, 2001, COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 2000.

Revenues. Revenues increased $79.8 million and $265.1 million, or 18.8%
and 35.0%, to $503.3 million and $1.02 billion for the three and six months
ended June 30, 2001. This increase was primarily attributable to revenues of
$100.4 million and $208.5 million for the three and six months ended June 30,
2001, from platform companies acquired subsequent to June 30, 2000, which
continued to exist as separate reporting subsidiaries, as well as a full period
of contributed revenues for the three and six months ended June 30, 2001, for
those companies acquired through June 30, 2000. In addition, we have experienced
strong growth in utility and gas revenues as a result of increased outsourcing
and deregulation, partially offset by decreased revenues from telecommunications
and cable television customers.

Gross profit. Gross profit increased $12.1 million and $48.4 million, or
12.3% and 28.2%, to $110.8 million and $219.7 million for the three and six
months ended June 30, 2001. As a percentage of revenues, gross margin decreased
from 23.3% for the three months ended June 30, 2000, to 22.0% for the three
months ended June 30, 2001. The decrease in gross margins resulted from lower
margins on work performed for telecommunications customers, partially offset by
higher margins received on work performed for utility customers. Gross margin
decreased from 22.6% for the six months ended June 30, 2000, to 21.5% for the
six months ended June 30, 2001. The decrease in gross margins resulted from
lower margins due to poor weather conditions experienced during the first
quarter of 2001 and the factors noted above for the three months ended June 30,
2001.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $27.0 million and $39.1 million, or 80.5% and
61.5%, to $60.5 million and $102.5 million for the three and six months ended
June 30, 2001. For the three months ended June 30, 2001, the Company recorded
$19.4 million in charges including: 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;
and $3.2 million in charges associated with the realignment of field personnel
and discontinuance of negotiations regarding the acquisition of certain
telecommunications contractors. In addition, $5.6 million and $11.3 million of
this increase for the three and six months ended June 30, 2000, respectively,
was attributable to the platform companies we acquired subsequent to June 30,
2000. Selling, general and administrative expenses also included a full period
of costs in 2001 associated with those companies acquired during the first six
months of 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 primarily due to the
charges noted above.

10
13

Interest expense. Interest expense increased $2.7 million and $7.4
million, or 42.6% and 67.8%, to $9.1 million and $18.4 million for the three and
six months ended June 30, 2001, primarily due to higher levels of debt resulting
from the acquisitions of the companies we purchased subsequent to June 30, 2000.

Provision for income taxes. The provision for income taxes was $17.3
million and $39.4 million for the three and six months ended, June 30, 2001,
with effective tax rates of 50.9% and 46.1%, respectively, compared to $23.8
million and $38.8 million for the three and six months ended June 30, 2000, and
an effective tax rate of 43.4%. The increase in the effective rate is primarily
due to less absorption of the non-deductible portion of goodwill amortization.

Net Income. Net income decreased $14.4 million and $4.7 million, or 46.3%
and 9.2%, to $16.7 million and $46.0 million for the three and six months ended
June 30, 2001, compared to $31.1 million and $50.6 million for the three and six
months ended June 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2001, we had cash and cash equivalents of $2.8 million,
working capital of $341.7 million and long-term debt of $513.3 million, net of
current maturities. Our long-term debt balance at that date included borrowings
of $120.0 million under our credit facility, $210.0 million of senior secured
notes, $172.5 million of convertible subordinated notes and $10.8 million of
other debt. In addition, we had $31.5 million of letters of credit outstanding
under the credit facility.

During the six months ended June 30, 2001, operating activities provided
net cash flow of $91.4 million. Changes in working capital accounts are affected
by the acquisitions throughout the period and as such are not comparable to
prior periods. We used net cash in investing activities of $132.2 million,
including $82.5 million used for the purchase of businesses and contingent
consideration issued for an acquisition closed prior to December 31, 2000, net
of cash acquired. Financing activities provided a net cash flow of $26.3
million, resulting primarily from $27.1 million of borrowings from our credit
facility.

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 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 August 10, 2001, we had
approximately $112.0 million in outstanding borrowings under the credit facility
and $31.5 million of letters of credit outstanding, resulting in a borrowing
availability of $206.5 million under the credit facility.

Our board of directors has authorized a Stock Repurchase Plan under which
up to $75 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. Through August 10, 2001, we have
repurchased 35,200 shares of common stock under the Stock Repurchase Plan. 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
our management deems appropriate. As a result of these factors, the actual
number of shares to be repurchased cannot be determined at this time.

Between January 1, 2001, and June 30, 2001, we acquired six companies for
an aggregate consideration of 1.0 million shares of common stock and $78.1
million in cash. The cash portion of such consideration was

11
14

provided by borrowings under our credit facility. The timing, size or success of
any acquisition effort and the associated potential capital commitments cannot
be predicted.

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.

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 United States. 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 and regional economic conditions 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.

NEW ACCOUNTING PRONOUNCEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

No material changes have occurred to the information previously provided in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

12
15

PART II -- OTHER INFORMATION

QUANTA SERVICES, INC. AND SUBSIDIARIES

ITEM 2. CHANGES IN SECURITIES.

Between March 31, 2001, and June 30, 2001, the Company completed one
acquisition in which some of the consideration was unregistered securities of
the Company. The aggregate consideration paid in this transaction was $2.1
million in cash and 27,636 million 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 common stock.
The Company relied on Section 4(2) of the Securities Act of 1933, as amended, 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, as amended. All issuances were to the owners of
businesses acquired in privately negotiated transactions, not pursuant to public
solicitation.

<Table>
<Caption>
NUMBER OF
DATE SHARES PURCHASERS CONSIDERATION
- ---- --------- ---------- -------------

6/15/01.............. 27,636 Two owners of PowerLink Corporation Acquisition of PowerLink Corporation
</Table>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company held its annual meeting of stockholders in Houston, Texas on
May 24, 2001. The following sets forth matters submitted to a vote of
stockholders at the annual meeting:

(a) Ten members were elected to the Board of Directors, each to serve
until the next annual meeting of the Company and until their respective
successors have been elected and qualified. The following six individuals
were elected to the Board of Directors by the holders of the common stock
and the Series A Convertible Preferred Stock of the Company, voting
together:

<Table>
<Caption>
NOMINEE FOR WITHHELD
- ------- ---------- --------

James R. Ball.......................................... 62,091,987 238,289
John R. Colson......................................... 62,003,628 326,648
Louis C. Golm.......................................... 62,085,632 244,644
Jerry J. Langdon....................................... 62,078,307 251,969
Gary A. Tucci.......................................... 61,921,621 408,655
John R. Wilson......................................... 61,897,308 432,968
</Table>

The following three individuals were elected to the Board of Directors
by the holders of the Series A Convertible Preferred Stock of the Company:
Terrence P. Dunn, Robert K. Green and James G. Miller. Each of these
individuals were elected by a vote of 3,444,961 shares of the Series A
Convertible Preferred Stock, being more than a plurality of the outstanding
shares of Series A Convertible Preferred Stock cast for or against, with no
shares voted against or abstaining.

The holders of Limited Vote Common Stock of the Company elected
Vincent D. Foster to the Board of Directors. Mr. Foster was elected by a
vote of 937,759 shares of the Limited Vote Common Stock, being more than a
plurality of the outstanding shares of Limited Vote Common Stock cast for
or against, with 10,499 shares voted against or abstaining.

(b) The stockholders ratified the appointment of Arthur Andersen LLP
to audit the financial statements of the Company and its subsidiaries for
the year ending December 31, 2001 by a vote of 62,176,189 shares of common
stock, Series A Convertible Preferred Stock and Limited Vote Common Stock,
voting together, being more than a majority of the outstanding shares of
common stock, Series A Convertible Preferred Stock and Limited Vote Common
Stock, voting together, with 225,486 shares of common stock voting against
and 23,424 shares of common stock abstaining.

13
16

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.22 -- 2001 Stock Incentive Plan (amending and restating the
1997 Stock Option Plan)
10.23 -- Employment Agreement of Peter T. Dameris
</Table>

(b) Reports on Form 8-K.

None.

14
17

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Quanta Services, Inc., has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

QUANTA SERVICES, INC.

By: /s/ DERRICK A. JENSEN
----------------------------------
Derrick A. Jensen
Vice President, Controller and
Chief Accounting Officer

Dated: August 14, 2001