- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
<Table>
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
</Table>
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
incorporation or organization) Identification No.)
</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 [ ]
68,217,150 shares of Common Stock were outstanding as of May 8, 2002. As of
the same date, 1,089,350 shares of Limited Vote Common Stock were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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....................... 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 22
PART II. OTHER INFORMATION
Item 2. Changes in Securities.............................. 23
Item 6. Exhibits and Reports on Form 8-K................... 23
Signature................................................... 25
</Table>
i
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2002
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,287 $ 6,309
Accounts receivable, net of allowance of $35,856 and
$35,061, respectively.................................. 451,870 414,321
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 57,433 63,975
Inventories............................................... 25,053 30,097
Prepaid expenses and other current assets................. 36,477 34,396
---------- ----------
Total current assets.............................. 577,120 549,098
PROPERTY AND EQUIPMENT, net................................. 385,480 387,524
OTHER ASSETS, net........................................... 43,319 45,062
GOODWILL, net............................................... 1,036,982 1,037,646
---------- ----------
Total assets...................................... $2,042,901 $2,019,330
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 8,063 $ 7,252
Accounts payable and accrued expenses..................... 202,327 202,062
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 31,140 23,174
---------- ----------
Total current liabilities......................... 241,530 232,488
LONG-TERM DEBT, net of current maturities................... 327,774 290,130
CONVERTIBLE SUBORDINATED NOTES.............................. 172,500 172,500
DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES..... 94,346 101,681
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, 60,629,965 and 68,954,417 shares issued and
59,643,965 and 68,954,417 outstanding, respectively.... -- --
Limited Vote Common Stock, $.00001 par value, 3,345,333
shares authorized, 1,116,238 and 1,110,350 shares
issued and outstanding, respectively................... -- --
Additional paid-in capital................................ 952,380 1,074,571
Stock Employee Compensation Trust......................... -- (131,815)
Deferred compensation..................................... (1,770) (1,707)
Retained earnings......................................... 271,448 281,482
Treasury Stock, at cost, 986,000 and -- common shares,
respectively........................................... (15,307) --
---------- ----------
Total stockholders' equity........................ 1,206,751 1,222,531
---------- ----------
Total liabilities and stockholders' equity........ $2,042,901 $2,019,330
========== ==========
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2002
-------- --------
REVENUES.................................................... $519,018 $449,220
COST OF SERVICES (including depreciation)................... 410,066 373,533
-------- --------
Gross profit.............................................. 108,952 75,687
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 42,033 50,720
GOODWILL AMORTIZATION....................................... 6,304 --
-------- --------
Income from operations.................................... 60,615 24,967
OTHER INCOME (EXPENSE):
Interest expense.......................................... (9,228) (7,854)
Other, net................................................ 22 435
-------- --------
INCOME BEFORE INCOME TAX PROVISION.......................... 51,409 17,548
PROVISION FOR INCOME TAXES.................................. 22,106 7,282
-------- --------
NET INCOME.................................................. 29,303 10,266
DIVIDENDS ON PREFERRED STOCK................................ 232 232
-------- --------
NET INCOME ATTRIBUTABLE TO COMMON STOCK..................... $ 29,071 $ 10,034
======== ========
BASIC EARNINGS PER SHARE.................................... $ 0.38 $ 0.13
======== ========
DILUTED EARNINGS PER SHARE.................................. $ 0.38 $ 0.13
======== ========
SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic.................................................. 76,128 78,264
======== ========
Diluted................................................ 80,802 78,739
======== ========
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2002
--------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to common stock................... $ 29,071 $10,034
Adjustments to reconcile net income attributable to common
stock to net cash provided by operating activities --
Depreciation and amortization.......................... 18,662 14,575
Loss on sale of property and equipment................. 100 252
Allowance for doubtful accounts........................ 2,966 (795)
Deferred income tax provision.......................... 900 4,598
Preferred stock dividend............................... 232 232
Changes in operating assets and liabilities, net of
non-cash transactions --
(Increase) decrease in --
Accounts receivable.................................. 3,491 55,406
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... (6,411) (7,396)
Inventories.......................................... (1,642) (5,044)
Prepaid expenses and other current assets............ 2,614 1,375
Increase (decrease) in --
Accounts payable and accrued expenses................ 8,138 3,892
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 2,719 (7,974)
Other, net........................................... (226) (648)
--------- -------
Net cash provided by operating activities......... 60,614 68,507
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 1,084 556
Additions of property and equipment....................... (28,602) (16,748)
Cash paid for acquisitions, net of cash acquired.......... (76,870) (965)
Notes receivable.......................................... 2,658 (16,796)
--------- -------
Net cash used in investing activities............. (101,730) (33,953)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under bank lines of credit...... 29,290 (36,220)
Proceeds from other long-term debt........................ 1,469 629
Payments on other long-term debt.......................... (5,339) (2,864)
Issuances of stock, net of offering costs................. 4,098 3,658
Exercise of stock options................................. 854 265
--------- -------
Net cash provided by (used in) financing
activities....................................... 30,372 (34,532)
--------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (10,744) 22
CASH AND CASH EQUIVALENTS, beginning of period.............. 17,306 6,287
--------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 6,562 $ 6,309
========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for --
Interest............................................... $ 14,485 $10,310
Income taxes........................................... 514 622
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. 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 2001, Quanta acquired 86 businesses. The
Company has acquired one additional business through March 31, 2002 for an
aggregate consideration of 39,879 shares of common stock and approximately $1.2
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 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.
On February 8, 2002, Aquila, Inc. (Aquila) announced its intention to
conduct a proxy solicitation to replace members of the Company's board of
directors with a slate of its nominees. The Company is opposing the Aquila proxy
contest.
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 protection for the Company's other stockholders.
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 1, 2002.
Use of Estimates and Assumptions
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
4
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the financial statements are published and 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.
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 months ended March 31, 2001 and 2002 is
illustrated below (in thousands):
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2002
-------- --------
NET INCOME:
Net income attributable to common stock................... $29,071 $10,034
Dividends on Preferred Stock.............................. 232 232
------- -------
Net income for basic earnings per share................... 29,303 10,266
------- -------
Effect of convertible subordinated notes under the "if
converted" method -- interest expense addback, net of
taxes.................................................. 1,180 --
------- -------
Net income for diluted earnings per share................. $30,483 $10,266
======= =======
WEIGHTED AVERAGE SHARES:
Weighted average shares outstanding for basic earnings per
share, including Convertible Preferred Stock........... 76,128 78,264
Effect of dilutive stock options.......................... 1,511 475
Effect of convertible subordinated notes under the "if
converted" method -- weighted convertible shares
issuable............................................... 3,163 --
------- -------
Weighted average shares outstanding for diluted earnings
per share.............................................. 80,802 78,739
======= =======
</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. For the three months ended March 31, 2001 and 2002
stock options of approximately 1.1 million and 7.5 million, 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 three months ended March 31, 2002, 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.
5
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 August 2001, the Financial Accounting Standards Board (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 adopted SFAS No. 144 on January 1, 2002,
with no material effect on its consolidated financial position or results of
operations.
5. GOODWILL:
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," which establishes new accounting and reporting
requirements for goodwill and other intangible assets. Under SFAS No. 142, all
goodwill amortization ceased effective January 1, 2002.
Based on a preliminary review of the new standard, the Company believes
that it will record a non-cash goodwill impairment charge upon adoption,
predominantly related to its telecommunications companies, and that the amount
of such charge will represent a significant portion of 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.
The unaudited results of operations presented below for the three months
ended March 31, 2002 and adjusted results of operations for the three months
ended March 31, 2001 reflect the operations of the Company had the
non-amortization provisions of SFAS No. 142 been adopted effective January 1,
2001 (in thousands):
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2002
-------- --------
Net income attributable to common stock..................... $29,071 $10,034
Add: Goodwill amortization, net of tax...................... 5,348 --
------- -------
Adjusted net income attributable to common stock............ $34,419 $10,034
======= =======
Basic earnings per share:
Reported net income....................................... $ 0.38 $ 0.13
Goodwill amortization, net of tax......................... 0.08 --
------- -------
Adjusted net income....................................... $ 0.46 $ 0.13
======= =======
Diluted earnings per share:
Reported net income attributable to common stock.......... $ 0.38 $ 0.13
Goodwill amortization, net of tax......................... 0.06 --
------- -------
Adjusted net income attributable to common stock.......... $ 0.44 $ 0.13
======= =======
</Table>
6
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT:
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. However, if Aquila prevails in its proxy
contest, the Company cannot be certain that an amendment will be obtained prior
to any covenant violation. In the event that the Company is unsuccessful in
obtaining an amendment, a default could occur resulting in payment by the
Company to the note holders of the principal amount plus an additional amount,
which, as of March 31, 2002 would have been approximately $30 million. A
goodwill impairment charge will not violate any covenants in the Company's
convertible subordinated notes.
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 2.31% at March 31, 2002) 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 March 31, 2002) 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 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 March 31,
2002, $73.1 million was borrowed under the credit facility, and the Company had
$52.8 million of letters of credit outstanding, resulting in a borrowing
availability of $224.1 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 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
During the third quarter of 2000, the Company issued $172.5 million
principal amount of convertible subordinated notes. 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
7
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
7. 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 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
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.
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
8
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
Restricted Stock
Under the 2001 Stock Incentive Plan, 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
first quarter of 2002 was $63,000.
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. See Note 10 for additional
discussion of the SECT.
9
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. On March 13, 2002, the 986,000 shares of common
stock were sold to the SECT, and are no longer considered treasury stock. The
Company has not purchased any additional shares of its common stock under the
Stock Repurchase Plan during the first quarter of 2002. 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.
8. 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.
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2002
-------- --------
(IN THOUSANDS)
Electric power network services............................. $188,404 $236,290
Telecommunications network services......................... 185,289 72,774
Cable television network services........................... 73,182 55,703
Ancillary services.......................................... 72,143 84,453
-------- --------
$519,018 $449,220
======== ========
</Table>
The Company does not have significant operations or long-lived assets in
countries outside of the United States.
9. RELATED PARTY TRANSACTIONS:
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.
10. 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
10
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's 1999 securities purchase agreement with Aquila. In its demand,
Aquila seeks, among other things, (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 49.9% of the Company's shares on a fully-diluted basis without any
economic penalty. A hearing before the arbitration panel commenced on May 14,
2002. At the arbitration hearing, Aquila amended its demand to include a claim
for the costs Aquila is incurring in connection with the proxy contest currently
being conducted by Aquila. No prediction can be made as to the probable outcome
of the arbitration 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 has 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 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 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. A
hearing was held on May 7, 2002 on Aquila's motion to enjoin preliminarily the
shares held by the SECT from voting at the upcoming Quanta annual meeting of
stockholders. On May 10, 2002, the Court denied Aquila's motion. The Court found
that Aquila had not proved that irreparable harm would result if an injunction
was not issued or that the balance of hardships favored the issuance of an
injunction although the Court did find
11
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that Aquila demonstrated a reasonable probability of success in its claims
against the voting provisions of the SECT. The remaining actions in Aquila's
complaint are pending and no prediction can be made at this time as to the
outcome of this litigation.
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 that 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, 2001 and March
31, 2002, the amounts accrued for self-insured claims were $28.3 million and
$35.2 million, respectively, with $14.7 million and $18.1 million, respectively,
considered to be long-term and included in Other Non-Current Liabilities.
Derivatives
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 -- an Amendment of SFAS Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to
FASB Statement No. 133," 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
December 31, 2001. The objective was to mitigate the variability in the price of
gas by securing the price the Company will have to pay with the Contract
counterparty. On March 29, 2002, the Company entered into a sub-services
agreement with its customer (the Counterparty Contract) whereby the customer
assumed all obligations associated with the Contract. If the customer is unable
to fulfill its obligations under the Counterparty Contract, the Company will be
responsible for settling the obligations of the Contract. As of March 31, 2002,
the fair value of the Contract and the Counterparty Contract was a receivable of
$0.9 million and a payable of $0.9 million, respectively.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contractual commitments.
Contingent Consideration
The Company is subject to an earn-out agreement with the former owner of an
operating unit that was acquired in 2000. Under the terms of this agreement, and
depending upon the ultimate profitability of certain contracts obtained by the
operating unit, the Company may be required to pay additional consideration to
such former owner with a combination of common stock and cash. At March 31,
2002, the amount of additional consideration based on performance to date was
approximately $17.4 million. In the future, this amount could be significantly
higher or lower based on the terms of the agreement.
12
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 1, 2002, 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 electric power, gas, telecommunications and cable television companies,
as well as commercial, industrial and governmental entities.
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 our
labor-intensive projects. We have a deductible of $500,000 per occurrence
related to 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 that 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.
13
Through March 31, 2002, we have recorded goodwill of approximately $1.1
billion, which primarily equals the excess amount we 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. See discussion under "New Accounting
Pronouncements" below for the treatment of goodwill as of January 1, 2002.
SIGNIFICANT BALANCE SHEET CHANGES
Total assets decreased approximately $23.6 million as of March 31, 2002
compared to December 31, 2001. This decrease is primarily due to the following:
- Accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts decreased $31.0 million due to
collections on accounts that were outstanding at December 31, 2001, and
as a result of lower levels of revenue during the first quarter of 2002.
- Inventories increased $5.0 million due primarily to $4.6 million paid for
deposits for turbines to be used in future projects.
- Property and equipment, net increased $2.0 million due to expenditures
for equipment necessary to perform contracts and equipment obtained
through the acquisition of one company during the first quarter of 2002,
offset by depreciation expense recorded during the period.
- Other assets, net increased $1.7 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
March 31, 2002, the total amount due under this arrangement was $45.6
million, with $24.4 million classified as non-current.
As of March 31, 2002, total liabilities decreased approximately $39.4
million and stockholders' equity increased approximately $15.8 million. These
fluctuations were primarily due to the following:
- Long-term debt, net of current maturities decreased $37.6 million due
primarily to payments made on our line of credit.
- Stockholders' equity increased $15.8 million during the first quarter of
2002. This was primarily the result of net income attributable to
stockholders of $10.0 million, the issuance of approximately $3.7 million
in shares of common stock pursuant to the employee stock purchase plan
and $0.9 million related to the income tax benefit from disqualifying
dispositions of shares of common stock under the employee stock purchase
plan.
14
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 MARCH 31,
-------------------------------------
2001 2002
---------------- ----------------
(DOLLARS IN THOUSANDS)
Revenues.................................... $519,018 100.0% $449,220 100.0%
Cost of services (including depreciation)... 410,066 79.0 373,533 83.2
-------- ----- -------- -----
Gross profit........................... 108,952 21.0 75,687 16.8
Selling, general and administrative
expenses.................................. 42,033 8.1 50,720 11.3
Goodwill amortization....................... 6,304 1.2 -- 0.0
-------- ----- -------- -----
Income from operations................. 60,615 11.7 24,967 5.5
Interest expense............................ (9,228) (1.8) (7,854) (1.7)
Other income, net........................... 22 0.0 435 0.1
-------- ----- -------- -----
Income before income tax provision.......... 51,409 9.9 17,548 3.9
Provision for income taxes.................. 22,106 4.3 7,282 1.6
-------- ----- -------- -----
Net income............................. $ 29,303 5.6% $ 10,266 2.3%
======== ===== ======== =====
</Table>
THREE MONTHS ENDED MARCH 31, 2002, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2001
Revenues. Revenues decreased $69.8 million or, 13.4%, to $449.2 million
for the three months ended March 31, 2002. The decrease was primarily
attributable to lower revenues from telecommunications customers due in part to
the continued decrease in capital spending by our customers, the inability of
certain of these customers to raise new capital and the overall downturn in the
national economy, which have negatively impacted the contracting for
telecommunications services. This decrease was partially offset by increased
revenues from electric power and gas customers as a result of increased
outsourcing and deregulation and a full period of contributed revenues for the
three months ended March 31, 2002 for those companies acquired during 2001.
Gross profit. Gross profit decreased $33.3 million, or 30.5%, to $75.7
million for the three months ended March 31, 2002. As a percentage of revenues,
gross margin decreased from 21.0% for the three months ended March 31, 2001, to
16.8% for the three months ended March 31, 2002. This decrease in gross margin
resulted from significantly lower margins on work performed for
telecommunications customers due to increased pricing pressures, lower asset
utilization, higher than normal transition costs on one outsourcing contract and
the economic factors noted above, partially offset by a high margin electric
power plant completed during the quarter and higher margins received on work
performed for electric power and gas customers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $8.7 million, or 20.7%, to $50.7 million for
the three months ended March 31, 2002. Selling, general and administrative
expenses for the three months ended March 31, 2002 included $4.6 million in
costs associated with the proxy contest and negotiations with Aquila. Selling,
general and administrative expenses also increased due to the inclusion of a
full three months of costs in 2002 associated with companies acquired during
2001, increased salaries for management and office personnel and higher
advertising and travel costs associated with increased marketing efforts.
Interest expense. Interest expense decreased $1.4 million, or 14.9%, to
$7.9 million for the three months ended March 31, 2002, due to lower average
levels of debt outstanding under the credit facility during the first three
months of 2002.
Provision for income taxes. The provision for income taxes was $7.3
million for the three months ended, March 31, 2002, with an effective tax rate
of 41.5% compared to $22.1 million for the three months ended
15
March 31, 2001, and an effective tax rate of 43.0%. The lower tax rate in 2002
reflects the elimination of goodwill amortization expense according to the
current accounting standard, the majority of which had been non-deductible in
2001.
Net Income. Net income decreased $19.0 million or 65.0% to $10.3 million
for the three months ended March 31, 2002, compared to $29.3 million for the
three months ended March 31, 2001.
Diluted earnings per share before charges. During the three months ended
March 31, 2002, we incurred $4.6 million in costs associated with the proxy
contest and negotiations with Aquila. Diluted earnings per share for the three
months ended March 31, 2002, excluding these charges and the tax related impact
of these charges, was $0.17.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, we had cash and cash equivalents of $6.3 million,
working capital of $316.6 million and long-term debt of $462.6 million, net of
current maturities. Our long-term debt balance at that date included borrowings
of $73.1 million under our credit facility, $210.0 million of senior secured
notes, $172.5 million of convertible subordinated notes and $7.0 million of
other debt. In addition, we had $52.8 million of letters of credit outstanding
under the credit facility.
During the three months ended March 31, 2002, operating activities provided
net cash flow of $68.5 million. We used net cash in investing activities of
$34.0 million, including $16.7 million used for capital expenditures and $16.8
million in additional notes receivable issued during the quarter. Financing
activities used a net cash flow of $34.5 million, resulting primarily from $36.2
million of repayments of our credit facility and $2.9 million of net repayments
of other long-term debt, partially offset by $3.7 million from the issuance of
stock under the employee stock purchase plan.
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 May 8, 2002, we had
approximately $90.7 million in outstanding borrowings under the credit facility
and $62.3 million of letters of credit outstanding, resulting in a borrowing
availability of $197.0 million under the credit facility.
As of March 31, 2002, 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 March 31, 2002, 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 principle amount, plus accrued and unpaid
interest.
16
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. In addition, if Aquila
prevails in the proxy contest, we are unable to determine the impact on our
availability of capital.
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, "Goodwill and Other Intangible Assets," 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, absent Aquila prevailing in its proxy contest,
expect the completion of an amendment prior to the occurrence of any covenant
violation. In the event that we are unsuccessful in obtaining an amendment, a
default could occur resulting in payment by Quanta to the note holders of the
principal amount plus an additional amount, which, as of March 31, 2002, would
have been approximately $30 million. 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 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.
17
The Company's future contractual obligations, including interest under
capital leases, are as follows (in thousands):
<Table>
<Caption>
TOTAL 2002 2003 2004 2005 2006 THEREAFTER
-------- ------- ------- -------- -------- ------ ----------
Long-term debt obligations
including capital leases....... $469,926 $ 7,256 $ 4,085 $ 74,768 $103,853 $5,326 $274,638
Operating lease obligations...... $ 62,341 $24,514 $15,695 $ 8,912 $ 7,417 $3,072 $ 2,731
</Table>
The Company also had $52.8 million in letters of credit outstanding under
our credit facility primarily to secure obligations under our casualty insurance
program at March 31, 2002. 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 out credit facility was $224.1 million as of March 31, 2002.
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. On March 13, 2002, the 986,000 shares of common stock were sold to the
Stock Employee Compensation Trust (SECT), and are no longer considered treasury
stock. Quanta has not purchased any additional shares of its common stock under
the Stock Repurchase Plan during the first quarter of 2002. The amount of shares
purchased and the timing of any future purchase 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 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, among other things, (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 49.9% of our shares on a fully-diluted
basis without any economic penalty. A hearing before the arbitration panel
commenced on May 14, 2002. At the arbitration hearing, Aquila amended its demand
to include a claim for the costs Aquila is incurring in connection with the
proxy contest currently being conducted by Aquila. No prediction can be made as
to the probable outcome of the arbitration proceeding at this time or as to the
amount, if any, in damages we may be found to owe. In
18
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.
On November 28, 2001, Aquila also filed a complaint in the Delaware Court
of Chancery challenging the adoption of our 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 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 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 our 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 has 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 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 the SECT and
the new employment agreements entered into with certain of our 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 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. A hearing was held on May 7, 2002 on Aquila's
motion to enjoin preliminarily the shares held by the SECT from voting at the
upcoming Quanta annual meeting of stockholders. On May 10, 2002, the Court
denied Aquila's motion. The Court found that Aquila had not proved that
irreparable harm would result if an injunction was not issued or that the
balance of hardships favored the issuance of an injunction although the Court
did find that Aquila demonstrated a reasonable probability of success in its
claims against the voting provisions of the SECT. The remaining actions in
Aquila's complaint are 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.
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 nominees. We are opposing the Aquila proxy
19
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 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, 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 of control or, in the case of two senior executives,
during the five-day period immediately before the date of the change of 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 the first quarter of 2002, we acquired one company
for an aggregate consideration of 39,879 shares of common stock and
approximately $1.2 million in cash. The cash portion of such consideration was
provided by proceeds from borrowings under the credit facility.
Concentration of Credit Risk. Quanta 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,
Quanta is subject to potential credit risk related to changes in business and
economic factors throughout the United States. However, Quanta 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 our
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 revenues for the three months
ended March 31, 2001 or 2002. One customer represented 10.4% of total
receivables owed Quanta as of March 31, 2002.
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 9 of Notes to Condensed
Consolidated Financial Statements.
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.
20
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board (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 adopted SFAS No. 144 on January 1, 2002, with no
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 estimates. We believe the following accounting policies affect
our more significant judgments and estimates used in the preparation of our
consolidated financial statements:
Accounts Receivable and Provision for Doubtful Accounts. 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 judgments 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 4 of Notes to Condensed Consolidated
Financial Statements, 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 as 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 our 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
21
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.
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, 2001.
22
PART II -- OTHER INFORMATION
QUANTA SERVICES, INC. AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES.
(c) Unregistered Sales of Securities.
Between January 1, 2002, and March 31, 2002, the Company completed one
acquisition in which some of the consideration was unregistered securities of
the Company. The consideration paid in this transaction was $1.2 million in cash
and 39,879 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. 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
- ---- --------- ---------- -------------
01/07/02 39,879 Five owners of Okay Acquisition of Okay
Construction Company, Inc. Construction Company, Inc.
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.11 -- Amendment No. 2 to the Rights Agreement, dated as of
February 13, 2002, by and between Quanta Services, Inc. and
American Stock Transfer & Trust Company, as rights agent
(previously filed as Exhibit 3.9 to the Company's Form 8-K
(No. 001-13831) filed February 15, 2002 and incorporated
herein by reference)
3.12 -- Amendment No. 3 to the Rights Agreement, dated as of March
13, 2002, by and between Quanta Services, Inc. and American
Stock Transfer & Trust Company, as rights agent (previously
filed as Exhibit 4.10 to the Company's Form 8-K (No.
001-13831) filed March 21, 2002 and incorporated herein by
reference)
10.16 -- Stock Employee Compensation Trust Agreement, dated as of
March 13, 2002, between Quanta Services, Inc. and Wachovia
Bank, N.A., as trustee (previously filed as Exhibit 10.1 to
the Company's Form 8-K (No. 001-13831) filed March 21, 2002
and incorporated herein by reference)
10.17 -- Common Stock Purchase Agreement, dated as of March 13, 2002,
between Quanta Services, Inc. and Wachovia Bank, N.A., as
trustee (previously filed as Exhibit 10.2 to the Company's
Form 8-K (No. 001-13831) filed March 21, 2002 and
incorporated herein by reference)
10.18 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and John R. Colson (previously filed
as Exhibit 10.3 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.19 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Peter T. Dameris (previously filed
as Exhibit 10.4 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.20 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Dana A. Gordon (previously filed
as Exhibit 10.5 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.21 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Nicholas M. Grindstaff (previously
filed as Exhibit 10.6 to the Company's Form 8-K (No.
001-13831) filed March 21, 2002 and incorporated herein by
reference)
</Table>
23
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.22 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Frederick M. Haag (previously
filed as Exhibit 10.7 to the Company's Form 8-K (No.
001-13831) filed March 21, 2002 and incorporated herein by
reference)
10.23 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and James H. Haddox (previously filed
as Exhibit 10.8 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.24 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Derrick A. Jensen (previously
filed as Exhibit 10.9 to the Company's Form 8-K (No.
001-13831) filed March 21, 2002 and incorporated herein by
reference)
10.25 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Elliott C. Robbins (previously
filed as Exhibit 10.10 to the Company's Form 8-K (No.
001-13831) filed March 21, 2002 and incorporated herein by
reference)
10.26 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Gary W. Smith (previously filed as
Exhibit 10.11 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.27 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Luke T. Spalj (previously filed as
Exhibit 10.12 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.28 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and Gary A. Tucci (previously filed as
Exhibit 10.13 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
10.29 -- Employment Agreement, dated March 13, 2002, by and between
Quanta Services, Inc. and John R. Wilson (previously filed
as Exhibit 10.14 to the Company's Form 8-K (No. 001-13831)
filed March 21, 2002 and incorporated herein by reference)
</Table>
(b) Reports on Form 8-K.
(1) Quanta filed a Form 8-K on February 15, 2002 in which it reported
the adoption of certain amendments to its stockholder rights agreement.
(2) Quanta filed a Form 8-K on March 21, 2002 in which it reported the
adoption of certain amendments to its stockholder rights agreement, the
creation of a Stock Employee Compensation Trust and the execution of
Employment Agreements with certain specified employees.
24
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: May 15, 2002
25