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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
MARK ONE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13831
QUANTA SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2851603
(State or other jurisdiction of (IRS Employer identification no.)
incorporation or organization)
1360 POST OAK BOULEVARD, SUITE 2100
HOUSTON, TEXAS 77056
(Address of principal executive offices, including ZIP Code)
(713) 629-7600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $.00001 par value New York Stock Exchange
(including rights attached thereto)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 2001, the aggregate market value of the Common Stock of the
Registrant held by non-affiliates of the Registrant, based on the last sale
price of the Common Stock on such date, was approximately $649.9 million (for
purposes of calculating these amounts, only directors, officers and beneficial
owners of 5% or more of the outstanding capital stock of the Registrant have
been deemed affiliates).
As of March 15, 2001, the number of shares of the Common Stock of the
Registrant outstanding was 57,706,042.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders to be held on May 24, 2001, are incorporated by
reference into Part III of this Form 10-K.
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QUANTA SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
INDEX
PAGE
NUMBER
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PART I...................................................... 1
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II..................................................... 12
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 12
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III.................................................... 46
Item 10. Directors and Executive Officers of the Registrant.......... 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV..................................................... 46
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 46
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PART I
ITEM 1. BUSINESS
All share amounts and per share amounts in this report have been adjusted
to give effect to a 3-for-2 stock split, paid as a stock dividend on April 7,
2000.
GENERAL
Quanta is a leading provider of specialized contracting services, offering
end-to-end network solutions to the telecommunications, electric power and cable
television industries. Our comprehensive services include designing, installing,
repairing and maintaining network infrastructure. The Internet and the resulting
explosive growth in demand for increased bandwidth, coupled with deregulation,
increased outsourcing by our customers and the convergence of the
telecommunications, electric power and cable television industries have resulted
in significant growth in demand for our services. This growth in demand is
evidenced by our strong internal revenue growth. Operating units we owned at
December 31, 2000 had aggregate revenues on a combined pro forma basis of $2.0
billion in 2000 compared to $1.5 billion in 1999, representing pro forma
internal revenue growth of 33%. To leverage the growth in demand for our
services, we have made strategic acquisitions to expand our geographic presence,
generate operating synergies with existing businesses and develop new
capabilities to meet our customers' evolving needs. Quanta was organized in the
state of Delaware in 1997.
We currently have offices in 40 states providing us the presence and
capability to quickly, reliably and effectively complete turnkey projects
nationwide. We work for many of the leading companies in the industries we
serve.
Representative customers include:
- Adelphia Communications
- AOL Time Warner
- AT&T
- Carolina Power & Light
- CenturyTel
- Charter Communications
- Enron
- Entergy
- Georgia Power
- Nevada Power
- Pacific Bell
- Puget Sound Energy
- Qwest
- Sprint PCS
- UtiliCorp United
- Velocita
- Verizon
- Williams Communications
Our reputation for speed, performance, geographic reach and comprehensive
service offering has also enabled us to develop profitable strategic alliances
with customers such as Enron and UtiliCorp.
INDUSTRY OVERVIEW
Based on our review of industry sources, we estimate that network
infrastructure spending by telecommunications, electric power and cable
television providers was more than $45 billion in 2000 and will continue to
grow. We believe the following trends are fueling growth in our business:
Industry Convergence. Deregulation and demand for increased bandwidth has
encouraged local and long distance telecommunications, electric power and cable
television providers to leverage their rights-of-way and other existing assets
to deliver comprehensive, value-added services to their customer base. For
instance, according to the Edison Electric Institute, over half of the investor
owned electric utilities have a telecommunications related subsidiary as part of
their corporate structure. As business lines between traditional
telecommunications, electric power and cable television markets continue to
blur, our target customers are increasingly seeking single-source providers who
have expertise in fiber optic, coaxial, copper and energized power networks.
Increasing Need to Upgrade Electric Power Transmission and Distribution
Networks. We believe that the aging of many electric power networks and the
increase in competition in the electric power industry will continue to spur
increased investment in electric power transmission and distribution networks.
As competition gives consumers and businesses more choice as to their provider
of electric power, we believe that concerns about power quality and reliability
will result in increased investment in transmission and distribution
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infrastructure. Additionally, as deregulation accelerates the selling of
electricity across regional networks, capacity and reliability will become even
more important.
Increased Outsourcing. Competitive pressures on telecommunications,
electric power and cable television providers caused by deregulation and an
increased focus on core competencies have caused an acceleration of outsourcing
of network services. For instance, although investor owned utilities have
increased the services they provide and the amount of power generated, total
employment at these companies has declined dramatically in the last decade due,
in part, to increased outsourcing. Outsourcing network services reduces costs,
provides flexibility in budgets and improves service and performance for many of
our customers.
Increased Demand for Comprehensive End-to-End Solutions. We believe that
telecommunications, electric power and cable television companies will seek
service providers who can rapidly and effectively design, install and maintain
their networks and continue to meet their needs as they enter new geographic and
product markets. The strategic and financial value to these companies of
geographically expanded and technologically improved networks has caused them to
place a premium on the provision of quick and reliable turnkey network solutions
within increasingly challenging scale, time and complexity constraints.
Accordingly, they are partnering with fewer proven full-service network
providers with broad geographic reach, financial capability and technical
expertise.
Deregulation. Deregulation of the telecommunications markets has spurred
significant additional investment by cable television companies, local exchange
carriers and long distance companies as they seek to protect and expand their
customer bases. Electric power companies have responded to deregulation of the
utility markets by seeking new lines of business and innovative methods to
reduce their costs. The movement from a regulated business environment to an
environment exposed to market forces has led our customers to increase
outsourcing of non-core activities, particularly network development, and has
facilitated the convergence of the telecommunications, electric power and cable
television industries.
Increased Demand for Bandwidth. To meet the increasing demand for
bandwidth required for video, voice and data transmission, existing
telecommunications and cable television providers must expand and upgrade their
networks. Cable and DSL residential broadband subscriptions are projected to
grow at a compound annual growth rate of 63% between 2000 and 2004. In addition,
many new entrants into the local and long distance telephone, Internet and cable
television markets have an immediate need to install and expand their networks
to be competitive.
STRATEGY
The key elements of our growth strategy are:
Focus on Internal Growth and Integration. We believe we can continue our
strong internal revenue growth by providing our customers comprehensive
end-to-end solutions for their infrastructure needs. Our operating units
cooperate to spread their best practices and innovative technology and they
share equipment and human resources. Accordingly, each operating unit is
well-positioned to deepen its relationship with current customers and develop
relationships with new customers. By cross-selling the capabilities of our
operating units, we offer our customers cost-effective, turnkey solutions to
their network needs.
Expand Portfolio of Services to Meet Customers' Evolving Needs. We offer
an expanding portfolio of services that allows us to develop, build and maintain
networks on both a regional and a national scale and adapt to our customers'
changing and growing needs. We intend to expand our geographic and technological
capabilities through both internal development and innovation and through
selective acquisitions.
Focus on Expanding Operating Efficiencies. In 2000, we maintained strong
gross margins and, excluding merger and special charges, experienced increases
in our operating income and net income margins. We intend to:
- continue to focus on growth in our more profitable services;
- combine overlapping operations of certain of the businesses we acquire;
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- use our assets more efficiently;
- increase our purchasing power to gain volume discounts in areas such as
vehicles and equipment, materials, marketing, bonding, employee benefits
and insurance;
- share pricing, bidding, licensing and other business practices among our
operating units; and
- develop and expand the use of management information systems to
facilitate financial control and asset allocation.
Pursue Strategic Acquisitions. We plan to continue to pursue acquisitions
of profitable companies with strong management teams and good reputations to
broaden our customer base, expand our geographic area of operation and grow our
portfolio of services. Disciplined acquisitions allow us to cost-effectively
meet our strategic needs. Between our initial public offering in February 1998
and December 31, 2000, we successfully integrated 77 acquisitions. We expect
that there will continue to be a large number of attractive acquisition
candidates due to the highly fragmented nature of the industry, the inability of
many companies to expand and modernize due to capital constraints, and the
desire of owners of acquisition candidates for liquidity. We believe that our
financial strength and experienced management will be attractive to acquisition
candidates.
SERVICES
We design, install and maintain networks for the telecommunications,
electric power and cable television industries as well as commercial, industrial
and governmental entities.
Telecommunications Network Services. We provide a variety of end-to-end
services to the telecommunications industry, which generated 43% of our pro
forma combined revenues for the year ended December 31, 2000. Our
telecommunications network services include:
- fiber optic, copper and coaxial cable installation and maintenance for
video, data and voice transmission;
- design, construction and maintenance of DSL networks;
- engineering and erection of cellular, digital, PCS(R), microwave and
other wireless communications towers;
- design and installation of switching systems for incumbent local exchange
carriers, newly competitive local exchange carriers, regional Bell
operating companies and long distance providers;
- trenching and plowing applications;
- horizontal directional boring;
- rock saw, rock wheel and rock trench capabilities;
- vacuum excavation services;
- splicing and testing of fiber optic and copper networks; and
- cable locating.
Electric Power Network Services. We provide a variety of end-to-end
services to the electric power industry, which generated 29% of our pro forma
combined revenues for the year ended December 31, 2000. These services include:
- installation, repair and maintenance of electric transmission lines
ranging in capacity from 69,000 volts to 760,000 volts;
- installation, repair and maintenance of electric power distribution
networks;
- design and construction of IPP transmission and substation facilities;
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- design and construction of substation projects;
- installation of fiber optic lines for voice, video and data transmission
on existing electric power infrastructure;
- installation and maintenance of joint trench natural gas distribution
systems;
- trenching and horizontal boring for underground installations;
- cable and fault locating; and
- storm damage restoration work.
Cable Television Network Services. We provide a variety of end-to-end
services to the cable television industry, which generated 15% of our pro forma
combined revenues for the year ended December 31, 2000. Our cable television
network services include:
- fiber optic and coaxial cable installation and maintenance for voice,
video and data transmission;
- system design and installation;
- upgrading power and telecommunications infrastructure for cable
installations;
- system splicing, balance, testing and sweep certification; and
- residential installation and customer connects, both analog and digital,
for cable television, telephone and Internet services.
Ancillary Services. We provide a variety of comprehensive ancillary
services to commercial, industrial and governmental entities, which generated
13% of our pro forma combined revenues for the year ended December 31, 2000.
These services include:
- installation of intelligent traffic networks such as traffic signals,
controllers, connecting signals, variable message signs, closed circuit
television and other monitoring devices for governments;
- installation of cable and control systems for light rail lines, airports
and highways;
- design, installation, maintenance and repair of electrical components,
fiber optic cabling and building control and automation systems;
- provision of specialty rock trenching, directional boring and road
milling for industrial and commercial customers;
- installation and maintenance of natural gas transmission and distribution
systems; and
- provision of cathodic protection design and installation services.
For additional discussion concerning the revenues derived from these services,
see Notes to Consolidated Financial Statements.
CUSTOMERS, STRATEGIC ALLIANCES AND PREFERRED PROVIDER RELATIONSHIPS
Our customers include telecommunications, electric power and cable
television companies, as well as commercial, industrial and governmental
entities. Telecommunications companies, in the aggregate, represent our largest
customer base. Our 10 largest customers accounted for 28% of our pro forma
revenues in 2000.
Management at each of our operating units is responsible for developing and
maintaining successful long-term relationships with customers. Our management is
incentivized to cross-sell additional services of other operating units to their
customers. In addition, our corporate marketing staff promotes and markets our
services for prospective large national accounts and projects that require
services from multiple business units. Many of our customers and prospective
customers have qualification procedures for approved bidders or vendors based
upon the satisfaction of particular performance and safety standards set by the
customer. These
4
customers typically maintain a list of vendors meeting such standards and award
contracts for individual jobs only to such vendors. We strive to maintain our
status as a preferred or qualified vendor to such customers.
We believe that our strategic relationships with large providers of
telecommunications services and electric power providers will offer
opportunities for future growth. In September 1999, UtiliCorp invested $186.0
million in Quanta and agreed to use Quanta as a preferred contractor in
outsourced transmission and distribution infrastructure construction and
maintenance and natural gas distribution construction and maintenance in all
areas serviced by Quanta. In October 1998, in connection with a $49.4 million
investment in Quanta, we entered into a strategic alliance agreement with an
affiliate of Enron regarding the design, construction and maintenance of
electric power transmission and distribution systems and fiber optic
communications systems.
We also maintain strategic alliance agreements and preferred provider
relationships with several leading companies in the telecommunications and
electric power industries. Strategic alliances are typically agreements for
periods of approximately two to four years that may include an option to add a
one to two year extension at the end of a contract. Many of the strategic
alliance agreements we have secured are "evergreen" contracts with exclusivity
clauses providing that Quanta will be awarded all contracts, or a right of first
refusal, for a certain type of work or in a certain geographic region. None of
these contracts, however, guarantees a specific dollar amount of work to be
performed by Quanta. Preferred provider agreements typically indicate an
intention to work together and many provide us with preferential bidding
procedures. Certain of our strategic alliances and preferred provider
relationships are listed in the following table:
START OF RELATIONSHIP
RELATIONSHIP WITH OPERATING UNIT
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Everest Connections......................................... 2000
UtiliCorp................................................... 1999
Georgia Power Company....................................... 1999
Enron....................................................... 1998
American Electric Power Communications...................... 1998
Avista...................................................... 1996
Entergy..................................................... 1995
Century Telephone........................................... 1993
Imperial Irrigation District................................ 1990
Nevada Power Company........................................ 1989
MidAmerican Energy Corp. ................................... 1988
Western Resources........................................... 1979
Kansas City Power & Light................................... 1978
Intermountain R.E.A. ....................................... 1953
ACQUISITIONS
During 2000, we acquired 25 network service or related businesses which,
when combined with our existing operations, resulted in pro forma combined
revenues for the year ended December 31, 2000 of $2.0 billion. We acquired these
25 businesses for a combined consideration of $282.4 million in cash and 4.4
million shares of our common stock.
We have developed a set of financial, geographic and management criteria
for the evaluation of acquisition candidates. These criteria evaluate a variety
of factors, including:
- historical and projected financial performance;
- experience and reputation of the candidate's management and operations;
- composition and size of the candidate's customer base;
- whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates;
5
- whether the acquisition will augment or increase Quanta's market share or
services offered or help protect our existing customer base;
- potential synergies gained by combining the acquisition candidate with
our existing operations; and
- liabilities, contingent or otherwise, of the candidate.
EMPLOYEES
As of December 31, 2000, Quanta had 1,684 salaried employees, including
executive officers, project managers or engineers, job superintendents, staff
and clerical personnel and approximately 11,576 hourly employees, the number of
which fluctuates depending upon the number and size of the projects undertaken
by us at any particular time. We do not anticipate any overall reductions in
staff as a result of the consolidation of the businesses we acquire, although
there may be some job realignments and new assignments in an effort to eliminate
overlapping and redundant positions.
Approximately 29% of our employees at December 31, 2000, were covered by
collective bargaining agreements, primarily with the International Brotherhood
of Electrical Workers, or IBEW. Under our agreements with our unions, we agree
to pay specified wages to our union employees, observe certain workplace rules
and make employee benefit payments to multi-employer pension plans and employee
benefit trusts rather than administering the funds on behalf of these employees.
These collective bargaining agreements have varying terms and expiration dates.
The majority of the collective bargaining agreements contain provisions that
prohibit work stoppages or strikes, even during specified negotiation periods
relating to agreement renewal, and provide for binding arbitration dispute
resolution in the event of prolonged disagreement.
Each of our operating units provides a variety of health, welfare and
benefit plans for their employees who are not covered by collective bargaining
agreements. Quanta has adopted a 401(k) plan pursuant to which eligible
employees who are not provided retirement benefits through a collective
bargaining agreement may make contributions through a payroll deduction. Quanta
makes matching contributions of 100% of each employee's contribution up to 3% of
that employee's salary and 50% of each employee's contribution between 3% and 6%
of such employee's salary. Quanta also has an employee stock purchase plan which
provides that eligible employees may contribute up to 10% of their cash
compensation, up to $25,000 annually, toward the semi-annual purchase of our
common stock at a discounted price. Over 2,200 of our employees participated in
the employee stock purchase plan during the year ended December 31, 2000.
Our industry, like many industries, is experiencing a shortage of skilled
workers. In response to the shortage, Quanta seeks to take advantage of various
IBEW and National Electrical Contractors Association, or NECA, referral programs
and hire graduates of the joint IBEW/NECA apprenticeship program for training
qualified electrical workers.
We believe our relationships with our employees and union representatives
are good.
TRAINING, QUALITY ASSURANCE AND SAFETY
Performance of Quanta's services requires the use of equipment and exposure
to conditions that can be dangerous. Although we are committed to a policy of
operating safely and prudently, we have been and will continue to be subject to
claims by employees, customers and third parties for property damage and
personal injuries resulting from performance of our services. We perform on-site
services using employees who have completed our applicable safety and training
programs. Our policies require that employees complete the prescribed training
and service program of the operating unit for which they work in addition to
those required, if applicable, by NECA and the IBEW prior to performing more
sophisticated and technical jobs. For example, all journeymen linemen are
required by the IBEW and NECA to complete a minimum of 7,000 hours of on-the-job
training, approximately 200 hours of classroom education and extensive testing
and certification. Each operating unit requires additional training, depending
upon the sophistication and technical requirements of each particular job. We
are in the process of establishing company-wide training and
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educational programs, as well as comprehensive safety policies and regulations,
by sharing "best practices" throughout our operations.
REGULATION
Our operations are subject to various federal, state and local laws and
regulations including:
- licensing requirements applicable to electricians and engineers;
- building and electrical codes;
- permitting and inspection requirements applicable to construction
projects;
- regulations relating to worker safety and environmental protection; and
- special bidding and procurement requirements on government projects.
We believe that we have all the licenses required to conduct our operations
and that we are in substantial compliance with applicable regulatory
requirements. Our failure to comply with applicable regulations could result in
substantial fines or revocation of our operating licenses. Many state and local
regulations governing electrical construction require permits and licenses to be
held by individuals who have passed an examination or met other requirements.
COMPETITION
The markets in which we operate are highly competitive, requiring
substantial resources and skilled and experienced personnel. We compete with
other independent contractors in most of the geographic markets in which we
operate, and several of our competitors are large domestic companies that have
greater financial, technical and marketing resources than we do. In addition,
there are relatively few barriers to entry into the industries in which we
operate and, as a result, any organization that has adequate financial resources
and access to technical expertise may become a competitor. A significant portion
of our revenues is currently derived from fixed price agreements, and price is
often an important factor in the award of such agreements. Accordingly, we could
be underbid by our competitors in an effort by them to procure such business. We
believe that as demand for our services increases, customers will increasingly
consider other factors in choosing a service provider, including technical
expertise and experience, financial and operational resources, nationwide
presence, industry reputation and dependability, which we expect to benefit
contractors such as us. There can be no assurance, however, that Quanta's
competitors will not develop the expertise, experience and resources to provide
services that are superior in both price and quality to Quanta's services, or
that we will be able to maintain or enhance our competitive position. We may
also face competition from the in-house service organizations of our existing or
prospective customers, including telecommunications, electric power and cable
television companies, that employ personnel who perform some of the same types
of services as those provided by us. Although a significant portion of these
services is currently outsourced, there can be no assurance that our existing or
prospective customers will continue to outsource services in the future.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
The primary risks in our operations are bodily injury and property damage.
As of August 1, 2000, we entered into agreements to insure Quanta for workers'
compensation, employer's liability, auto liability and general liability,
subject to a deductible of $500,000 per accident or occurrence. Losses up to the
deductible amounts are accrued based upon Quanta's estimates of the ultimate
liability for claims incurred and an estimate of claims incurred but not
reported. The accruals are based upon known facts and historical trends and
management believes such accruals to be adequate.
Contracts in the telecommunications, electric power and cable television
industries may require performance bonds or other means of financial assurance
to secure contractual performance. If we were unable to obtain surety bonds or
letters of credit in sufficient amounts or at acceptable rates, we might be
precluded from entering into additional contracts with certain of our customers.
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RISK FACTORS
Our business is subject to a variety of risks, including the risks
described below. The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties not known to us or
that we currently deem immaterial may also impair our business operations. If
any of the following risks actually occur, our business, financial condition and
results of operations could be materially and adversely affected.
The Industries We Serve Are Subject to Rapid Technological and Structural
Changes That Could Reduce the Demand for the Services We Provide. The
telecommunications, electric power and cable television industries are
undergoing rapid change as a result of technological advances and deregulation
that could in certain cases reduce the demand for our services or otherwise
adversely affect our business. New or developing technologies could displace the
wireline systems used for voice, video and data transmissions, and improvements
in existing technology may allow telecommunications and cable television
companies to significantly improve their networks without physically upgrading
them. In addition, consolidation in the telecommunications, electric power and
cable television industries may result in the loss of one or more customers.
We May Be Unsuccessful at Generating Internal Growth. Our ability to
generate internal growth will be affected by, among other factors, our ability
to:
- expand the range of services we offer to customers to address their
evolving network needs;
- attract new customers;
- increase the number of projects performed for existing customers;
- hire and retain employees;
- open additional facilities; and
- reduce operating and overhead expenses.
In addition, our customers may reduce the number or size of projects available
to us due to their inability to obtain capital. Many of the factors affecting
our ability to generate internal growth may be beyond our control, and we cannot
be certain that our strategies will be successful or that we will be able to
generate cash flow sufficient to fund our operations and to support internal
growth. Our inability to achieve internal growth could materially and adversely
affect our business, financial condition and results of operations.
An Economic Downturn May Lead to Less Demand for Our Services. If the
general level of economic activity slows, our customers may delay or cancel new
projects. A number of other factors, including financing conditions for the
industries we serve, could adversely affect our customers and their ability or
willingness to fund capital expenditures in the future.
We May Be Unsuccessful at Integrating Companies That We Acquire. We cannot
be sure that we can successfully integrate our acquired companies with our
existing operations without substantial costs, delays or other operational or
financial problems. If we do not implement proper overall business controls, our
decentralized operating strategy could result in inconsistent operating and
financial practices at the companies we acquire, and our overall profitability
could be adversely affected. Integrating our acquired companies involves a
number of special risks which could materially and adversely affect our
business, financial condition and results of operations, including:
- failure of acquired companies to achieve the results we expect;
- diversion of our management's attention from operational matters;
- difficulties integrating the operations and personnel of acquired
companies;
- inability to retain key personnel of the acquired companies;
- risks associated with unanticipated events or liabilities;
8
- the potential disruption of our business; and
- the difficulty of maintaining uniform standards, controls, procedures and
policies.
If one of our acquired companies suffers customer dissatisfaction or performance
problems, the reputation of our entire company could be materially and adversely
affected.
We May Not Have Access In The Future to Sufficient Funding to Finance
Desired Growth. If we cannot secure additional financing from time to time in
the future on acceptable terms, we may be unable to support our growth strategy.
We cannot readily predict the timing, size and success of our acquisition
efforts and therefore the capital we will need for these efforts. Using cash for
acquisitions limits our financial flexibility and makes us more likely to seek
additional capital through future debt or equity financings. Our existing debt
agreements contain significant restrictions on our operational and financial
flexibility, including our ability to obtain additional debt, and if we seek
more debt we may have to agree to additional covenants that limit our
operational and financial flexibility. When we seek additional debt or equity
financings, we cannot be certain that additional debt or equity will be
available to us at all or on terms acceptable to us. Our $350.0 million credit
facility contains a requirement to obtain the consent of the lenders for
acquisitions exceeding a certain level of cash consideration.
Our Operating Results May Vary Significantly From
Quarter-to-Quarter. During the winter months, demand for our services may be
lower due to inclement weather. Additionally, our quarterly results may also be
materially affected by:
- the timing and volume of work under new agreements;
- regional or general economic conditions;
- the budgetary spending patterns of customers;
- variations in the margins of projects performed during any particular
quarter;
- the termination of existing agreements;
- costs we incur to support growth internally or through acquisitions or
otherwise;
- losses experienced in our operations not otherwise covered by insurance;
- a change in the mix of our customers, contracts and business;
- increases in construction and design costs;
- the timing of acquisitions; and
- the timing and magnitude of acquisition assimilation costs.
Accordingly, our operating results in any particular quarter may not be
indicative of the results that you can expect for any other quarter or for the
entire year.
Our Dependence Upon Fixed Price Contracts Could Adversely Affect Our
Business. We currently generate, and expect to continue to generate, a
significant portion of our revenues under fixed price contracts. We must
estimate the costs of completing a particular project to bid for such fixed
price contracts. The cost of labor and materials, however, may vary from the
costs we originally estimated. These variations, along with other risks inherent
in performing fixed price contracts, may cause actual revenue and gross profits
for a project to differ from those we originally estimated and could result in
reduced profitability and losses on projects. Depending upon the size of a
particular project, variations from the estimated contract costs can have a
significant impact on our operating results for any fiscal quarter or year.
9
Many of Our Contracts May Be Canceled On Short Notice and We May Be
Unsuccessful In Replacing Our Contracts as They Are Completed or Expire. We
could experience a material adverse effect on our revenue, net income and
liquidity if any of the following occur:
- our customers cancel a significant number of contracts;
- we fail to win a significant number of our existing contracts upon
re-bid; or
- we complete the required work under a significant number of non-recurring
projects and cannot replace them with similar projects.
Many of our customers may cancel our contracts with them on short notice,
typically 30-90 days, even if we are not in default under the contract. Certain
of our customers assign work to us on a project-by-project basis under master
service agreements. Under these agreements, our customers often have no
obligation to assign work to us. Our operations could be materially and
adversely affected if the anticipated volume of work is not assigned to us. Many
of our contracts, including our master service contracts, are opened to public
bid at the expiration of their terms. We cannot assure you that we will be the
successful bidder on our existing contracts that come up for bid.
Our Business Growth Could Outpace the Capability of Our Corporate
Management Infrastructure. We cannot be certain that our systems, procedures
and controls will be adequate to support our operations as they expand. Future
growth also will impose significant additional responsibilities on members of
our senior management, including the need to recruit and integrate new senior
level managers and executives. We cannot be certain that we can recruit and
retain such additional managers and executives. To the extent that we are unable
to manage our growth effectively, or are unable to attract and retain additional
qualified management, our financial condition and results of operations could be
materially and adversely affected.
The Departure of Key Personnel Could Disrupt Our Business. We depend on
the continued efforts of our executive officers and on senior management of the
businesses we acquire. Although we intend to enter into an employment agreement
with each of our executive officers and certain other key employees, we cannot
be certain that any individual will continue in such capacity for any particular
period of time. The loss of key personnel, or the inability to hire and retain
qualified employees, could adversely affect our business, financial condition
and results of operations. We do not carry key-person life insurance on any of
our employees.
Our Business Is Labor Intensive and We May Be Unable to Attract and Retain
Qualified Employees. Our ability to increase our productivity and profitability
will be limited by our ability to employ, train and retain skilled personnel
necessary to meet our requirements. We, like many of our competitors, are
currently experiencing shortages of qualified personnel. We cannot be certain
that we will be able to maintain an adequate skilled labor force necessary to
operate efficiently and to support our growth strategy or that our labor
expenses will not increase as a result of a shortage in the supply of skilled
personnel. Labor shortages or increased labor costs could have a material
adverse effect on our ability to implement our growth strategy and our
operations.
Our Unionized Workforce Could Adversely Affect Our Operations and
Acquisition Strategy. As of December 31, 2000, approximately 29% of our
employees were covered by collective bargaining agreements. Although the
majority of these agreements prohibit strikes and work stoppages, we cannot be
certain that strikes or work stoppages will not occur in the future. Strikes or
work stoppages would adversely impact our relationship with our customers and
could materially and adversely affect our business, financial condition and
results of operations. In addition, our selective acquisition strategy could be
adversely affected because of our union status for a variety of reasons. For
instance, our union agreements may be incompatible with the union agreements of
a business we want to acquire and some businesses may not want to become
affiliated with a union based company.
Our Industry Is Highly Competitive. Our industry is served by numerous
small, owner-operated private companies, a few public companies and several
large regional companies. In addition, relatively few barriers prevent entry
into our industry. As a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
Competition in the industry depends on a number
10
of factors, including price. Certain of our competitors may have lower overhead
cost structures and may, therefore, be able to provide their services at lower
rates than we are able to provide. In addition, some of our competitors are
larger and have greater resources than we do. We cannot be certain that our
competitors will not develop the expertise, experience and resources to provide
services that are superior in both price and quality to our services. Similarly,
we cannot be certain that we will be able to maintain or enhance our competitive
position within our industry. We may also face competition from the in-house
service organizations of our existing or prospective customers.
Telecommunications, electric power and cable television service providers
usually employ personnel who perform some of the same types of services we do.
We cannot be certain that our existing or prospective customers will continue to
outsource services in the future.
Our Results of Operations Could Be Adversely Affected as a Result of
Goodwill Amortization. When we acquire a business, we record an asset called
"goodwill" equal to the excess amount we pay for the business, including
liabilities assumed, over the fair value of the tangible assets of the business
we acquire. Pursuant to generally accepted accounting principles, we amortize
this goodwill over its estimated useful life of 40 years following the
acquisition, which directly impacts our earnings in those years. Furthermore, we
continually evaluate whether events or circumstances have occurred that indicate
that the remaining useful life of goodwill may warrant revision or that the
remaining balance may not be recoverable. Should we be required to accelerate
the amortization of goodwill or write it off completely because of impairments
or changes in generally accepted accounting principles, our results from
operations may be materially adversely affected.
We Could Have Potential Exposure to Environmental Liabilities. Our
operations are subject to various environmental laws and regulations, including
those dealing with the handling and disposal of waste products, PCBs, fuel
storage and air quality. As a result of past and future operations at our
facilities, we may be required to incur environmental remediation costs and
other cleanup expenses. In addition, we cannot be certain that we will be able
to identify or be indemnified for all potential environmental liabilities
relating to any acquired business, property or assets.
Certain Provisions of Our Corporate Governing Documents Could Make an
Acquisition of Our Company More Difficult. The following provisions of our
certificate of incorporation and bylaws, as currently in effect, as well as our
stockholder rights plan and Delaware law, could discourage potential proposals
to acquire Quanta, delay or prevent a change in control of Quanta or limit the
price that investors may be willing to pay in the future for shares of our
common stock:
- our certificate of incorporation permits our board of directors to issue
"blank check" preferred stock and to adopt amendments to our bylaws;
- our bylaws contain restrictions regarding the right of stockholders to
nominate directors and to submit proposals to be considered at
stockholder meetings;
- our certificate of incorporation and bylaws restrict the right of
stockholders to call a special meeting of stockholders and to act by
written consent;
- we are subject to provisions of Delaware law which prohibit us from
engaging in any of a broad range of business transactions with an
"interested stockholder" for a period of three years following the date
such stockholder became classified as an interested stockholder; and
- on March 8, 2000, we adopted a stockholder rights plan that could cause
substantial dilution to a person or group that attempts to acquire us on
terms not approved by our board of directors.
ITEM 2. PROPERTIES
FACILITIES
We lease our corporate headquarters in Houston, Texas. As of December 31,
2000, we maintained offices in 40 states. This space is used for offices,
equipment yards, warehousing, storage and vehicle shops. We own 30 of the
facilities we occupy and lease the rest. We believe that our facilities are
sufficient for our current needs.
11
EQUIPMENT
We operate a fleet of owned and leased trucks and trailers, support
vehicles and specialty construction equipment, such as backhoes, excavators,
trenchers, generators, boring machines, cranes, wire pullers and tensioners. As
of December 31, 2000, the total size of the rolling-stock fleet was
approximately 17,200 units. Most of this fleet is serviced by our own mechanics
who work at various maintenance sites and facilities. We believe that these
vehicles generally are well-maintained and adequate for our present operations.
We believe that we will be able to continue to lease or purchase this equipment
at lower prices due to our larger size and the volume of our leasing and
purchasing activity.
ITEM 3. LEGAL PROCEEDINGS
We are from time to time a party to litigation or administrative
proceedings that arise in the ordinary course of our business. We do not have
pending any litigation that, separately or in the aggregate, would in the
opinion of management be expected to have a material adverse effect on our
results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the stockholders during the
fourth quarter of the year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
We initially offered our common stock to the public on February 12, 1998,
at a price of $6.00 per share. All price data in the following table have been
adjusted to give effect to a 3-for-2 stock split, paid as a stock dividend on
April 7, 2000. Our common stock is listed on the New York Stock Exchange, or
NYSE, under the symbol "PWR." The following table sets forth the high and low
sales prices of our common stock per quarter, as reported by the NYSE, for the
two most recent fiscal years.
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1999
1st Quarter............................................... $19.83 $14.42
2nd Quarter............................................... 29.59 15.75
3rd Quarter............................................... 28.17 13.42
4th Quarter............................................... 23.13 15.67
YEAR ENDED DECEMBER 31, 2000
1st Quarter............................................... $43.33 $18.58
2nd Quarter............................................... 62.06 35.92
3rd Quarter............................................... 58.50 28.38
4th Quarter............................................... 38.13 22.75
On March 15, 2001, there were 344 holders of record of our common stock, 31
holders of record of our Limited Vote Common Stock and one holder of record of
our Series A Convertible Preferred Stock. There is no established trading market
for the Limited Vote Common Stock or Series A Convertible Preferred Stock.
DIVIDENDS AND PREFERRED CONVERSION
Our Series A Convertible Preferred Stock accrues a dividend at a rate of
0.5% per annum on a stated amount per share currently equal to $53.99 per share.
Dividends of $930,000 were accrued on the Series A Convertible Preferred Stock
during 2000. Dividends on the Series A Convertible Preferred Stock accumulate
until paid. At our annual meeting on May 24, 2000 our stockholders approved a
transaction that allowed UtiliCorp to exchange 7,924,805 shares of common stock
for 1,584,961 additional shares of Series A
12
Convertible Preferred Stock, at a rate of five shares of common stock for one
share of Series A Convertible Preferred Stock. The transaction did not adversely
affect our other holders of common stock or Limited Vote Common Stock. The
additional shares of Series A Convertible Preferred Stock issued to UtiliCorp in
the exchange did not give UtiliCorp any greater voting power than it previously
had as a holder of the common stock to be exchanged, and did not give UtiliCorp
any additional veto power. In addition, the Series A Convertible Preferred Stock
has no liquidation preference, and its certificate of designation was amended so
that the aggregate dividend payable to UtiliCorp on the Series A Convertible
Preferred Stock was, as a result of the change in the stated amount per share,
unaffected by the transaction.
We currently intend to retain our future earnings, if any, to finance the
growth, development and expansion of our business. Accordingly, we do not
currently intend to declare or pay any cash dividends on our common stock in the
immediate future. The declaration, payment and amount of future cash dividends,
if any, will be at the discretion of our board of directors after taking into
account various factors. These factors include our financial condition, results
of operations, cash flows from operations, current and anticipated capital
requirements and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the terms of our revolving credit
facility and convertible subordinated notes include prohibitions on the payment
of cash dividends without the consent of the respective lenders.
RECENT SALES OF UNREGISTERED SECURITIES
Between October 1, 2000 and December 31, 2000, we completed five
acquisitions in which some of the consideration was unregistered securities
issued by Quanta. The aggregate consideration paid in these transactions was
$61.9 million in cash and 1.1 million shares of our common stock. We consider
the acquisitions of (i) Network Electric Company and Network Equipment, L.L.C.
and (ii) Parkside Utility Construction Corp., Parkside Site & Utility Company
Corporation and Utility Systems, Inc., each to be one acquisition as these
companies were each part of related businesses. None of the other acquisitions
were affiliated with each other prior to their acquisition by Quanta.
All securities listed on the following table were shares of Quanta common
stock. We relied on Section 4(2) of the Securities Act of 1933 as the basis for
exemption from registration. For all issuances, the purchasers were "accredited
investors" as defined in Rule 501 promulgated pursuant to the Securities Act of
1933. All issuances were to the owners of businesses acquired in privately
negotiated transactions or such owners' assignees, and not pursuant to public
solicitation.
DATE OF NUMBER OF
ISSUANCE SHARES RECIPIENTS OF QUANTA STOCK CONSIDERATION RECEIVED FOR QUANTA STOCK
- -------- ---------------- -------------------------- ---------------------------------------
10/2/00 98,084 Two owners of Riggin & Acquisition of Riggin & Diggin Line
Diggin Line Construction, Construction, Inc.
Inc.
11/15/00 55,694 Two assignees of the Acquisition of JT Communications, Inc.
owners of JT
Communications, Inc.
11/22/00 163,376 Two owners of Professional Acquisition of Professional
Teleconcepts Group Teleconcepts Group
12/7/00 341,501 Three owners and two of Acquisition of Network Electric Company
their assignees of Network and Network Equipment, L.L.C.
Electric Company
12/15/00 456,078 One owner of Parkside Site Acquisition of Parkside Site & Utility
& Utility Company Company Corporation, Parkside Utility
Corporation and two owners Construction Corp. and Utility Systems,
of Parkside Utility Inc.
Construction Corp.
13
ITEM 6. SELECTED FINANCIAL DATA
For financial statement presentation purposes, in connection with the
combination of the founding companies concurrent with our initial public
offering, PAR Electrical Contractors, Inc. was identified as the "accounting
acquiror." Between our initial public offering in February 1998 and December 31,
2000, we acquired 77 specialty contracting businesses. Of these, 75 were
accounted for using the purchase method of accounting and two were accounted for
using the pooling-of-interests method of accounting. Quanta's consolidated
historical financial statements represent the financial position and results of
operations of PAR as restated to include the financial position and results of
operations of companies acquired in pooling transactions. The remaining
businesses we acquired are reflected in the financial statements beginning on
their respective dates of acquisition. All per share amounts have been adjusted
to give effect to a 3-for-2 stock split, paid as a stock dividend on April 7,
2000.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues............................... $78,230 $80,010 $319,259 $925,654 $1,793,301
Cost of services (including
depreciation)....................... 62,772 62,599 257,270 711,353 1,379,204
------- ------- -------- -------- ----------
Gross profit................... 15,458 17,411 61,989 214,301 414,097
Selling, general and administrative
expenses............................ 10,445 12,354 27,160 80,132 143,564
Merger and special charges............. -- -- 231 6,574(a) 28,566(a)
Goodwill amortization.................. 55 56 2,513 10,902 19,805
------- ------- -------- -------- ----------
Income from operations......... 4,958 5,001 32,085 116,693 222,162
Interest expense....................... (1,116) (1,290) (4,855) (15,184) (25,708)
Other income (expense), net............ (11) (131) 641 1,429 2,597
------- ------- -------- -------- ----------
Income before income tax provision..... 3,831 3,580 27,871 102,938 199,051
Provision for income taxes............. 1,389 1,786 11,683 48,999(b) 93,328(b)
------- ------- -------- -------- ----------
Net income..................... 2,442 1,794 16,188 53,939 105,723
Dividends on preferred stock........... -- -- -- 260 930
------- ------- -------- -------- ----------
Net income attributable to
common stock................. $ 2,442 $ 1,794 $ 16,188 $ 53,679 $ 104,793
======= ======= ======== ======== ==========
Basic earnings per share............... $ 0.39 $ 0.29 $ 0.60 $ 1.14 $ 1.78
======= ======= ======== ======== ==========
Diluted earnings per share............. $ 0.39 $ 0.29 $ 0.59 $ 1.00 $ 1.42
======= ======= ======== ======== ==========
Diluted earnings per share before
merger and special charges(c)....... $ 0.39 $ 0.29 $ 0.60 $ 1.13 $ 1.72
======= ======= ======== ======== ==========
- ---------------
(a) In December 2000, Quanta agreed to conclude its obligations under its
management services agreement with UtiliCorp in exchange for a one-time
payment to UtiliCorp of approximately $28.6 million. The management
services agreement required Quanta to make quarterly payments to UtiliCorp
of $2,325,000 through September 30, 2005. In June 1999, as a result of the
termination of an Employee Stock Ownership Plan associated with a company
acquired in a pooling transaction, Quanta incurred a non-cash,
non-recurring compensation charge of $5.3 million and a non-recurring
excise tax charge of $1.1 million. Quanta also incurred $137,000 in merger
charges associated with a pooling transaction in the first quarter of 1999.
(b) For the year ended December 31, 2000, the provision reflects a portion of
the merger and special charges for which no tax benefit has been provided.
For the year ended December 31, 1999, it includes a non-cash, non-recurring
deferred tax charge of $677,000 as a result of a change in the tax status
of a company acquired in a pooling transaction from an S corporation to a C
corporation during the first quarter of 1999.
(c) Excludes the effect of all merger and special charges. Additionally, for
the year ended December 31, 1999, it excludes the non-cash, non-recurring
deferred tax charge of $677,000 described in Note (b) above.
14
DECEMBER 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital....................... $ 2,797 $ 2,381 $ 57,106 $ 164,140 $ 349,970
Total assets.......................... 31,607 37,561 339,081 1,159,636 1,874,094
Long-term debt, net of current
maturities......................... 6,665 7,638 60,281 150,308 318,602
Convertible subordinated notes........ -- -- 49,350 49,350 172,500
Total stockholders' equity............ 9,385 11,402 171,503 756,925 1,068,956
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Item 6.
Selected Financial Data and our Consolidated Financial Statements and related
notes thereto included in Item 8. All share amounts and per share amounts in
this discussion have been adjusted to give effect to a 3-for-2 stock split, paid
as a stock dividend on April 7, 2000.
INTRODUCTION
We derive our revenues from one reportable segment by providing specialized
contracting services and offering comprehensive network solutions. Our customers
include telecommunications, electric power and cable television companies, as
well as commercial, industrial and governmental entities. Including all
companies we acquired prior to December 31, 2000, we had pro forma combined
revenues for the year ended December 31, 2000 of $2.0 billion, of which 43% was
attributable to telecommunications customers, 29% was attributable to electric
power companies, 15% was attributable to cable television operators and 13% was
attributable to ancillary services, such as installing intelligent traffic
networks, cable and control systems for light rail lines, airports and highways,
and providing specialty rock trenching, directional boring and road milling for
industrial and commercial customers. We acquired 25 companies in 2000, 13 of
which have continued as separate operating and reporting subsidiaries, or
"platform" companies, while the remaining 12 acquired companies were "tuck-in"
acquisitions whose operating and accounting activities were absorbed into other
operating subsidiaries.
We enter into contracts principally on the basis of competitive bids, the
final terms and prices of which we frequently negotiate with the customer.
Although the terms of our contracts vary considerably, most are made on either a
fixed price or unit price basis in which we agree to do the work for a fixed
amount for the entire project (fixed price) or for units of work performed (unit
price). We also perform services on a cost-plus or time and materials basis. We
are generally able to achieve higher margins on fixed price and unit price
contracts than on cost-plus contracts as a result of our experience in bidding
and performance. Our exposure to loss on fixed price contracts has historically
been limited by the high volume and relatively short duration of the fixed price
contracts we undertake. However, as we perform larger projects, our reported
margins may be significantly affected by actual results on these projects.
We complete most installation projects within one year, while we frequently
provide maintenance and repair work under open-ended, unit price master service
agreements which are renewable annually. We generally recognize revenue when
services are performed except when work is being performed under fixed price
contracts. We typically record revenues from fixed price contracts on a
percentage-of-completion basis, using the cost-to-cost method based on the
percentage of total costs incurred to date in proportion to total estimated
costs to complete the contract. Some of our customers require us to post
performance and payment bonds upon execution of the contract, depending upon the
nature of the work to be performed. Our fixed price contracts often include
payment provisions pursuant to which the customer withholds a 5% to 10%
retainage from each progress payment and remits the retainage to us upon
completion and approval of the work.
Cost of services consists primarily of salaries, wages and benefits to
employees, depreciation, fuel and other vehicle expenses, equipment rentals,
subcontracted services, insurance, facilities expenses, materials and parts and
supplies. Our gross margin, which is gross profit expressed as a percentage of
revenues, is typically
15
higher on projects where labor, rather than materials, constitutes a greater
portion of the cost of services. We can predict materials costs more accurately
than labor costs. Therefore, to compensate for the potential variability of
labor costs, we seek to maintain higher margins on labor-intensive projects.
Certain of our subsidiaries were previously subject to deductibles ranging from
$100,000 to $1,000,000 for workers' compensation insurance and, as of August 1,
2000, we have a deductible of $500,000 per occurrence related to workers'
compensation, automobile and general liability claims. Fluctuations in insurance
accruals related to these deductibles could have an impact on gross margins in
the period in which such adjustments are made. Selling, general and
administrative expenses consist primarily of compensation and related benefits
to management, administrative salaries and benefits, marketing, office rent and
utilities, communications and professional fees.
Through December 31, 2000, we have recognized goodwill of $939.2 million,
which primarily equals the excess amount we have paid for businesses over the
fair value of the tangible and intangible assets of such businesses acquired
using the purchase method of accounting. We amortize this goodwill over its
estimated useful life of 40 years as a non-cash charge to operating income. We
are unable to deduct the majority of amortized goodwill from our income for tax
purposes.
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
Our results of operations can be subject to seasonal variations. During the
winter months, demand for new projects and new maintenance service arrangements
may be lower due to reduced construction activity. However, demand for repair
and maintenance services attributable to damage caused by inclement weather
during the winter months may partially offset the loss of revenues from lower
demand for new projects and new maintenance service arrangements. Additionally,
our industry can be highly cyclical. As a result, our volume of business may be
adversely affected by declines in new projects in various geographic regions in
the U.S. Typically, we experience lower gross and operating margins during the
winter months. The timing of acquisitions, variations in the margins of projects
performed during any particular quarter, the timing and magnitude of acquisition
assimilation costs and regional economic conditions may also materially affect
quarterly results. Accordingly, our operating results in any particular quarter
may not be indicative of the results that can be expected for any other quarter
or for the entire year.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, we had cash and cash equivalents of $17.3 million,
working capital of $350.0 million and long-term debt of $491.1 million, net of
current maturities. Our long-term debt balance at that date included borrowings
of $92.9 million under our credit facility, $210.0 million of senior secured
notes, $172.5 million of convertible subordinated notes and $15.7 million of
other debt. In addition, we had $14.8 million of letters of credit outstanding
under the credit facility.
During the year ended December 31, 2000, operating activities provided net
cash to us of $45.4 million, net of a non-recurring special charge of $28.6
million. Acquisitions created significant changes in our working capital
accounts throughout the year and such accounts are not comparable to prior
periods. We used net cash in investing activities of $362.0 million, including
$273.8 million used for the purchase of businesses, net of cash acquired.
Financing activities provided net cash of $323.1 million, resulting primarily
from $210.0 million from the private placement of senior secured notes and the
issuance of $172.5 million of convertible subordinated notes, partially offset
by $46.1 million in net repayments under our credit facility and $35.9 million
in repayments of other long-term debt.
We currently have a $350.0 million credit facility with 14 participating
banks. The credit facility is secured by a pledge of all of the capital stock of
our operating subsidiaries and the majority of our assets. We use the credit
facility to provide funds to be used for working capital, to finance
acquisitions and for other general corporate purposes. Amounts borrowed under
the credit facility bear interest at a rate equal to either (a) LIBOR plus 1.00%
to 2.00%, as determined by the ratio of our total funded debt to EBITDA (as
defined in the credit facility) or (b) the bank's prime rate plus up to 0.25%,
as determined by the ratio of our total funded debt to EBITDA. We pay commitment
fees of 0.25% to 0.50% (based on the ratio of our total funded
16
debt to EBITDA) on any unused borrowing capacity under the credit facility. Our
subsidiaries guarantee repayment of all amounts due under the credit facility,
and the credit facility restricts pledges of material assets. We agreed to usual
and customary covenants for a credit facility of this nature, including a
prohibition on the payment of dividends on common stock, certain financial
ratios and indebtedness covenants and a requirement to obtain the consent of the
lenders for acquisitions exceeding a certain level of cash consideration. As of
March 29, 2001, we had a borrowing availability of $188.8 million under the
credit facility. The weighted-average borrowing rate on the credit facility for
the year ended December 31, 2000 was 7.72%.
In March 2000, we closed a private placement of $150.0 million principal
amount of senior secured notes primarily with insurance companies. In September
2000, we issued an additional $60.0 million principal amount of senior secured
notes. The resulting $210.0 million of senior secured notes have maturities
ranging from five to ten years with a weighted average interest rate of 8.41%
and, pursuant to an intercreditor agreement, rank equally in right of repayment
with indebtedness under our credit facility. The senior secured notes have
financial covenants similar to those under the credit facility. We used the
proceeds from this private placement to reduce our outstanding borrowings under
the credit facility.
In April 2000, UtiliCorp purchased the $49.4 million of 6 7/8% convertible
subordinated notes from Enron Capital and an affiliate. UtiliCorp converted
these notes into approximately 5.4 million shares of Quanta's common stock on
June 13, 2000.
On July 19, 2000, we issued $150.0 million principal amount of convertible
subordinated notes and, on August 7, 2000, we issued an additional $22.5 million
principal amount of convertible subordinated notes due to the exercise of the
underwriters' over-allotment option. We used the net proceeds from the offering
to repay outstanding indebtedness under the credit facility. The convertible
subordinated notes bear interest at 4.0% per year and are convertible into
shares of 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 beginning December 31, 2000 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 a "fundamental change" occurs, as
described in the indenture under which we issued the convertible subordinated
notes, holders of the convertible subordinated notes may require us to purchase
all or part of their notes at a purchase price equal to 100% of the principal
amount, plus accrued and unpaid interest.
We entered into a management services agreement in September 1999 with
UtiliCorp for advice and services including financing activities; corporate
strategic planning; research on the restructuring of the electric power
industry; the development, evaluation and marketing of our products, services
and capabilities; identification of and evaluation of potential U.S. acquisition
candidates and other merger and acquisition advisory services; and other
services that we may reasonably request. The management services agreement
required Quanta to make quarterly payments to UtiliCorp of $2,325,000 through
September 30, 2005. In December 2000, we agreed to conclude our obligations
under the management services agreement with UtiliCorp in exchange for a
one-time payment to UtiliCorp of approximately $28.6 million.
During 2000, we acquired 25 companies for an aggregate consideration of 4.4
million shares of common stock and $282.4 million in cash. The cash portion of
such consideration was provided by proceeds from the sale of senior secured
notes and borrowings under the credit facility.
We anticipate that our cash flow from operations and our credit facility
will provide sufficient cash to enable us to meet our working capital needs,
debt service requirements and planned capital expenditures for property and
equipment for at least the next 12 months. However, if companies we wish to
acquire are unwilling to accept our common stock as part of the consideration
for the sale of their businesses, we could be required to utilize more cash to
complete acquisitions. If sufficient funds were not available from operating
cash flow or through borrowings under the credit facility, we may be required to
seek additional financing through the public or private sale of equity or debt
securities. There can be no assurance that we could secure such financing if and
when we need it or on terms we would deem acceptable.
17
INFLATION
Due to relatively low levels of inflation experienced during the years
ended December 31, 1998, 1999 and 2000, inflation did not have a significant
effect on our results.
RESULTS OF OPERATIONS
For financial statement presentation purposes, in connection with the
combination of the founding companies concurrent with our initial public
offering, PAR has been identified as the accounting acquiror. As such, our
financial statements for periods prior to February 18, 1998 are the financial
statements of PAR as restated for the acquisition of the two businesses we
acquired in pooling transactions. The results of operations of the other
businesses we acquired have been included from their respective acquisition
dates.
The following table sets forth selected statements of operations data and
such data as a percentage of revenues for the years indicated (dollars in
thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1999 2000
---------------- ---------------- ------------------
Revenues..................... $319,259 100.0% $925,654 100.0% $1,793,301 100.0%
Cost of services (including
depreciation).............. 257,270 80.6 711,353 76.8 1,379,204 76.9%
-------- ----- -------- ----- ---------- -----
Gross profit............... 61,989 19.4 214,301 23.2 414,097 23.1
Selling, general and
administrative expenses.... 27,160 8.5 80,132 8.7 143,564 8.0
Merger and special charges... 231 0.1 6,574 0.7 28,566 1.6
Goodwill amortization........ 2,513 0.8 10,902 1.2 19,805 1.1
-------- ----- -------- ----- ---------- -----
Income from operations..... 32,085 10.0 116,693 12.6 222,162 12.4
Interest expense............. (4,855) (1.5) (15,184) (1.6) (25,708) (1.4)
Other income (expense),
net........................ 641 0.2 1,429 0.1 2,597 0.1
-------- ----- -------- ----- ---------- -----
Income before income tax
provision.................. 27,871 8.7 102,938 11.1 199,051 11.1
Provision for income taxes... 11,683 3.6 48,999 5.3 93,328 5.2
-------- ----- -------- ----- ---------- -----
Net income................. $ 16,188 5.1% $ 53,939 5.8% $ 105,723 5.9%
======== ===== ======== ===== ========== =====
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Revenues. Revenues increased $867.6 million, or 93.7%, to $1.8 billion for
the year ended December 31, 2000. This increase was attributable to strong
growth in key business areas as a result of greater demand for bandwidth,
increased outsourcing, deregulation and industry convergence, a full year of
contributed revenues in 2000 for those companies acquired in 1999, revenues of
$226.5 million from platform companies acquired in 2000 which continued to exist
as separate reporting subsidiaries, as well as contributed revenues from tuck-in
acquisitions whose operations were absorbed into other operating subsidiaries.
Because the businesses we acquired in 1999 and 2000 had aggregate revenues
larger than our revenues at the beginning of the 1999 period, we believe that
pro forma revenue growth is a more meaningful measure of our business
performance. Operating units we owned as of December 31, 2000 experienced
aggregate internal revenue growth on a pro forma combined basis of 33.1% in
2000.
Gross profit. Gross profit increased $199.8 million, or 93.2%, to $414.1
million for the year ended December 31, 2000. Gross margin decreased slightly
from 23.2% for the year ended December 31, 1999 to 23.1% for the year ended
December 31, 2000. This decrease in gross margin resulted from lower margins on
work performed for gas transmission and inside electrical customers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $63.4 million, or 79.2%, to $143.6 million for
the year ended December 31, 2000. This increase was attributable to a full year
of costs in 2000 associated with companies acquired in 1999, $15.3 million of
18
additional selling, general and administrative expenses attributable to the
platform companies we acquired in 2000 and the continued establishment of
infrastructure to facilitate our growth and integrate our acquired businesses.
As a percentage of revenues, selling, general and administrative expenses
decreased due to better absorption associated with a higher level of revenues.
Merger and special charges. Merger and special charges increased $22.0
million, or 334.5%, to $28.6 million for the year ended December 31, 2000. In
December 2000, we agreed to conclude our obligations under the management
services agreement with UtiliCorp in exchange for a one-time payment to
UtiliCorp of approximately $28.6 million. Merger and special charges for the
year ended December 31, 1999 included $5.3 million of non-cash compensation
charges, which were related to the allocation of shares of common stock to
participants in an employee stock ownership plan associated with one of the
companies we acquired in a pooling transaction, and $1.1 million of related
excise tax charges.
Interest expense. Interest expense increased $10.5 million, or 69.3%, to
$25.7 million for the year ended December 31, 2000, due to higher levels of debt
resulting from the acquisitions of the companies we purchased in 2000. We also
borrowed funds under our credit facility for equipment purchases and other
operating activities to support higher levels of revenue. In addition, interest
expense increased due to higher interest rates under our credit facility during
2000 and from our issuance of the senior secured notes in March 2000. These
increases were partially offset by lower interest rates on the convertible
subordinated notes issued in July 2000.
Provision for income taxes. The provision for income taxes was $93.3
million for the year ended December 31, 2000, with an effective tax rate of
46.9% compared to $49.0 million for the year ended December 31, 1999 and an
effective tax rate of 47.6%. In 2000, the provision reflected a portion of the
merger and special charges for which no tax benefit had been provided. In 1999,
the provision reflected the non-deductibility of the merger and special charges
and a non-cash non-recurring tax charge of $677,000 as a result of a change in
the tax status of a company acquired in a pooling-of-interest transaction from
an S corporation to a C corporation.
Net income. Net income increased $51.8 million, or 96.0%, to $105.7
million for the year ended December 31, 2000, compared to $53.9 million for the
year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues increased $606.4 million, or 189.9%, to $925.7 million
for the year ended December 31, 1999. This increase was primarily attributable
to revenues of $403.5 million from platform companies acquired in 1999 which
continued to exist as separate reporting subsidiaries, as well as a full year of
contributed revenues in 1999 for those companies acquired in 1998. We
experienced strong growth in key business areas as a result of greater demand
for bandwidth, increased outsourcing, deregulation and industry convergence.
Because the businesses we acquired in 1998 and 1999 had aggregate revenues that
were much larger than our revenues at the beginning of the 1998 period, we
believe that pro forma revenue growth is a more meaningful measure of our
business performance. Operating units we owned as of December 31, 1999
experienced aggregate internal revenue growth on a pro forma combined basis of
21.7% in 1999.
Gross profit. Gross profit increased $152.3 million, or 245.7%, to $214.3
million for the year ended December 31, 1999. Gross margin increased from 19.4%
for the year ended December 31, 1998 to 23.2% for the year ended December 31,
1999. This increase in our gross margin resulted from a shift in our revenue mix
to higher margin cable television and telecommunications services. We also
experienced improved margins in our electric power network services as a result
of better asset utilization and more favorable pricing.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $53.0 million, or 195.0%, to $80.1 million for
the year ended December 31, 1999. Of this increase, $25.8 million was
attributable to the platform companies we acquired in 1999 and $5.4 million was
attributable to the implementation in 1999 of a company-wide incentive program
that paid bonuses to management at the operating units that exceeded their
performance targets and to corporate management. Selling, general and
administrative expenses also included a full year of costs in 1999 associated
with those
19
companies acquired in 1998. The remainder of the increase was attributable to
tuck-in acquisitions and the continued establishment of infrastructure to
facilitate our growth and to integrate our acquired businesses. As a percentage
of revenues, selling, general and administrative expenses remained relatively
constant.
Merger and special charges. Merger related charges for the year ended
December 31, 1999 included $5.3 million of non-cash compensation charges related
to the allocation of shares of common stock to participants of an Employee Stock
Ownership Plan associated with one of the companies acquired in a pooling
transaction, and $1.1 million of related excise tax charges. We did not
recognize significant merger related charges in 1998.
Interest expense. Interest expense increased $10.3 million, or 212.7%, to
$15.2 million for the year ended December 31, 1999, due to higher levels of debt
resulting from the acquisitions of the companies we purchased in 1999. In
addition, we borrowed funds under our credit facility for equipment purchases
and other operating activities in connection with the addition of certain of the
companies purchased in 1999. The issuance of our 6 7/8% convertible subordinated
notes in September 1998 also increased interest expense.
Provision for income taxes. The provision for income taxes was $49.0
million for the year ended December 31, 1999 with an effective tax rate of 47.6%
compared to $11.7 million for the year ended December 31, 1998 and an effective
tax rate of 41.9%. In 1999, the provision reflects the non-deductibility of the
merger and special charges and a non-cash non-recurring tax charge of $677,000
as a result of a change in the tax status of a company acquired in a
pooling-of-interest transaction from an S corporation to a C corporation.
Net income. Net income increased $37.8 million, or 233.2%, to $53.9
million for the year ended December 31, 1999 compared to $16.2 million for the
year ended December 31, 1998.
NEW ACCOUNTING PRONOUNCEMENTS.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This standard requires entities to
recognize all derivative instruments (including certain derivative instruments
embedded in other contracts) as assets or liabilities in its balance sheet and
measure them at fair value. The statement requires that changes in the
derivatives' fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133, as amended, is effective for
Quanta beginning January 1, 2001. We adopted these standards effective January
1, 2001 and there was no financial statement impact as we were not a party to
any derivative instruments at that date.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenue in financial statements, as amended, with an effective date for
Quanta of January 1, 2000. The adoption of SAB No. 101 did not have a material
impact on the financial position or results of operations of Quanta as we
recognize revenue from construction contracts in accordance with the American
Institute of Certified Public Accountants Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts".
FORWARD LOOKING STATEMENTS
Except for the historical financial information contained in this report,
statements made or incorporated by reference in this report may be considered
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-
looking statements include, without limitation, declarations regarding our
intent, belief or current expectations, statements regarding the future results
of acquired companies and our gross margins and any other statement that may
project, indicate or imply future results, performance or achievements. Such
statements may contain the words "expect," "intend," "plan," "anticipate,"
"estimate," "believe," "will be," "will continue," "will likely result" and
similar expressions. Statements in this report that contain forward-looking
20
statements include, but are not limited to, discussions regarding future market
conditions and the effect of such conditions on our future results of operations
(see "Business -- Industry Overview," "-- Strategy" and "-- Customers, Strategic
Alliances and Preferred Provider Relationships") and future uses of and
requirements for financial resources including, but not limited to, expenditures
related to future acquisitions (see "-- Liquidity and Capital Resources"). Any
such forward-looking statements are not guarantees of future performance and are
subject to a variety of risks and uncertainties. Such risks and uncertainties
include, among others, general economic and business conditions, the pace and
nature of technological change, our ability to integrate companies we acquire,
our ability to generate internal growth, competition, regulatory initiatives and
compliance with governmental regulations, customer preferences and various other
matters, many of which are beyond our control. The risks included here are not
exhaustive. Actual results could differ materially from those indicated by such
forward-looking statements. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are those discussed in "Business -- Risk Factors" in this report.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement to reflect any change in our expectations with regard thereto or any
change in events, conditions or circumstances on which any forward-looking
statement is based.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily related to potential adverse
changes in interest rates as discussed below. Management is actively involved in
monitoring exposure to market risk and continues to develop and utilize
appropriate risk management techniques. We are not exposed to any other
significant market risks, including commodity price risk, foreign currency
exchange risk or interest rate risk from the use of derivative financial
instruments. Management does not use derivative financial instruments for
trading or to speculate on changes in interest rates or commodity prices.
The sensitivity analyses below, which hypothetically illustrates our
potential market risk exposure, estimates the effects of hypothetical sudden and
sustained changes in the applicable market conditions on 2000 earnings. The
sensitivity analyses presented do not consider any additional actions we may
take to mitigate our exposure to such changes. The hypothetical changes and
assumptions may be different from what actually occurs in the future.
Interest Rates. As of December 31, 2000, we had no derivative financial
instruments to manage interest rate risk. As such, we are exposed to earnings
and fair value risk due to changes in interest rates with respect to our
long-term obligations. As of December 31, 2000, approximately 18.6% of our
long-term obligations were floating rate obligations. As of December 31, 2000,
the fair value of our variable rate debt of $92.9 million approximated book
value, and the fair value of our fixed-rate debt of $407.0 million was
approximately $418.0 million based upon discounted future cash flows using
incremental borrowing rates and current market prices. The detrimental effect on
our pretax earnings of a hypothetical 50 basis point increase in both variable
and fixed interest rates would be approximately $0.3 million and $2.2 million,
respectively.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Quanta Services, Inc. and Subsidiaries
Report of Independent Public Accountants.................. 23
Consolidated Balance Sheets............................... 24
Consolidated Statements of Operations..................... 25
Consolidated Statements of Cash Flows..................... 26
Consolidated Statements of Stockholders' Equity........... 27
Notes to Consolidated Financial Statements................ 28
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quanta Services, Inc.:
We have audited the accompanying consolidated balance sheets of Quanta Services,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 2000,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quanta Services,
Inc. and subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 22, 2001
23
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 31,
-----------------------
1999 2000
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,775 $ 17,306
Accounts receivable, net of allowance of $5,947 and
$15,612................................................ 253,881 466,869
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 45,963 71,842
Inventories............................................... 8,741 19,874
Prepaid expenses and other current assets................. 15,703 26,516
---------- ----------
Total current assets.............................. 335,063 602,407
PROPERTY AND EQUIPMENT, net................................. 191,854 341,029
OTHER ASSETS, net........................................... 7,962 24,627
GOODWILL, net............................................... 624,757 906,031
---------- ----------
Total assets...................................... $1,159,636 $1,874,094
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 6,664 $ 8,772
Accounts payable and accrued expenses..................... 141,025 215,684
Billings in excess of costs and estimated earnings on
uncompleted contracts........................ 23,234 27,981
---------- ----------
Total current liabilities......................... 170,923 252,437
LONG-TERM DEBT, net of current maturities................... 150,308 318,602
CONVERTIBLE SUBORDINATED NOTES.............................. 49,350 172,500
DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES..... 32,130 61,599
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.00001 par value, 10,000,000 shares
authorized:
Series A Convertible Preferred Stock, 1,860,000 and
3,444,961 shares issued and outstanding,
respectively.......................................... -- --
Common stock, $.00001 par value, 100,000,000 shares and
300,000,000 shares authorized, respectively, 51,035,283
and 56,400,546 shares issued and outstanding,
respectively........................................... -- --
Limited Vote Common Stock, $.00001 par value, 3,345,333
shares authorized, 3,746,020 and 1,765,912 shares
issued and outstanding, respectively................... -- --
Additional paid-in capital................................ 675,106 882,344
Retained earnings......................................... 81,819 186,612
---------- ----------
Total stockholders' equity........................ 756,925 1,068,956
---------- ----------
Total liabilities and stockholders' equity........ $1,159,636 $1,874,094
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
24
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1999 2000
-------- -------- ----------
REVENUES.................................................... $319,259 $925,654 $1,793,301
COST OF SERVICES (including depreciation)................... 257,270 711,353 1,379,204
-------- -------- ----------
Gross profit.............................................. 61,989 214,301 414,097
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 27,160 80,132 143,564
MERGER AND SPECIAL CHARGES.................................. 231 6,574(a) 28,566(a)
GOODWILL AMORTIZATION....................................... 2,513 10,902 19,805
-------- -------- ----------
Income from operations.................................... 32,085 116,693 222,162
OTHER INCOME (EXPENSE):
Interest expense.......................................... (4,855) (15,184) (25,708)
Other, net................................................ 641 1,429 2,597
-------- -------- ----------
INCOME BEFORE INCOME TAX PROVISION.......................... 27,871 102,938 199,051
PROVISION FOR INCOME TAXES.................................. 11,683 48,999(b) 93,328(b)
-------- -------- ----------
NET INCOME.................................................. 16,188 53,939 105,723
DIVIDENDS ON PREFERRED STOCK................................ -- 260 930
-------- -------- ----------
NET INCOME ATTRIBUTABLE TO COMMON STOCK..................... $ 16,188 $ 53,679 $ 104,793
======== ======== ==========
BASIC EARNINGS PER SHARE(c)................................. $ 0.60 $ 1.14 $ 1.78
======== ======== ==========
DILUTED EARNINGS PER SHARE(c)............................... $ 0.59 $ 1.00 $ 1.42
======== ======== ==========
DILUTED EARNINGS PER SHARE BEFORE MERGER AND
SPECIAL CHARGES(c)(d)..................................... $ 0.60 $ 1.13 $ 1.72
======== ======== ==========
SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic(c).................................................. 26,785 47,177 58,900
======== ======== ==========
Diluted(c)................................................ 28,315 56,146 76,583
======== ======== ==========
- ---------------
Note (a) In December 2000, the Company agreed to conclude its obligations under
its management services agreement with UtiliCorp United Inc.
(UtiliCorp) in exchange for a one-time payment to UtiliCorp of
approximately $28.6 million. The management services agreement required
the Company to make quarterly payments to UtiliCorp of $2,325,000
through September 30, 2005. In June 1999, as a result of the
termination of an Employee Stock Ownership Plan associated with a
company acquired in a pooling transaction, the Company incurred a
non-cash, non-recurring compensation charge of $5.3 million and a
non-recurring excise tax charge of $1.1 million. The Company also
incurred $137,000 in merger charges associated with a pooling
transaction in the first quarter of 1999.
Note (b) For the year ended December 31, 2000, the provision reflects a portion
of the merger and special charges for which no tax benefit has been
provided. For the year ended December 31, 1999, it includes a non-cash,
non-recurring deferred tax charge of $677,000 as a result of a change
in the tax status from an S corporation to a C corporation of a company
acquired in a pooling transaction during the first quarter of 1999.
Note (c) Share and earnings per share information have been adjusted to give
effect to a 3-for-2 stock split, paid as a stock dividend on April 7,
2000.
Note (d) Excludes the effect of all merger and special charges. Additionally,
for the year ended December 31, 1999, it excludes the non-cash,
non-recurring deferred tax charge of $677,000 described in Note (b)
above.
The accompanying notes are an integral part of these consolidated financial
statements.
25
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1999 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to common stock................... $ 16,188 $ 53,679 $ 104,793
Adjustments to reconcile net income attributable to common
stock to net cash provided by operating activities --
Depreciation and amortization........................... 10,666 35,163 57,294
Gain on sale of property and equipment.................. (91) (252) (107)
Non-cash merger related compensation charge for issuance
of common stock to ESOP............................... -- 5,319 --
Deferred income tax provision (benefit)................. (370) 5,620 13,344
Preferred stock dividend................................ -- 260 930
Changes in operating assets and liabilities, net of
non-cash transactions --
(Increase) decrease in --
Accounts receivable, net.............................. (9,649) (74,041) (128,638)
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. (2,286) (11,172) (9,878)
Inventories........................................... (904) (1,740) (6,275)
Prepaid expenses and other current assets............. (2,784) (1,959) 2,297
Increase (decrease) in --
Accounts payable and accrued expenses................. (4,672) 29,358 20,802
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. 2,185 3,645 (8,373)
Other, net............................................ (93) 2,446 (767)
--------- --------- ---------
Net cash provided by operating activities.......... 8,190 46,326 45,422
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 1,394 1,533 1,672
Additions of property and equipment and other assets...... (22,667) (61,124) (89,610)
Cash paid for acquisitions, net of cash acquired.......... (89,176) (308,671) (273,812)
Notes receivable.......................................... -- -- (2,658)
Proceeds from sale of investments......................... 1,342 -- --
Net proceeds from sale of business........................ -- -- 2,410
--------- --------- ---------
Net cash used in investing activities.............. (109,107) (368,262) (361,998)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under bank lines of credit...... 52,522 82,946 (46,066)
Proceeds from other long-term debt........................ 3,722 4,868 212,019
Payments on other long-term debt.......................... (36,111) (43,317) (35,916)
Proceeds from convertible subordinated notes.............. 49,350 -- 172,500
Debt issuance costs....................................... (3,066) (1,659) (7,958)
Issuances of stock, net of offering costs................. 44,914 284,280 18,072
Distributions to previous owners of accounting acquiror... (8,370) -- --
Exercise of stock options................................. 713 2,347 10,456
--------- --------- ---------
Net cash provided by financing activities.......... 103,674 329,465 323,107
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,757 7,529 6,531
CASH AND CASH EQUIVALENTS, beginning of year................ 489 3,246 10,775
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 3,246 $ 10,775 $ 17,306
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest................................................ $ 4,690 $ 13,230 $ 14,632
Income taxes, net of refunds............................ 10,800 33,644 77,479
The accompanying notes are an integral part of these consolidated financial
statements.
26
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
LIMITED VOTE
PREFERRED STOCK COMMON STOCK COMMON STOCK UNEARNED ADDITIONAL
------------------ ------------------- ------------------- ESOP PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES CAPITAL EARNINGS
--------- ------ ---------- ------ ---------- ------ -------- ---------- --------
Balance, December 31, 1997.... -- $-- 4,162,572 $-- -- $-- $(1,831) $ 1,281 $ 11,952
Issuances of stock.......... -- -- -- -- 3,345,333 -- -- -- --
Stock options exercised..... -- -- 60,000 -- -- -- -- 1,125 --
Initial public offering, net
of offering costs......... -- -- 5,750,000 -- -- -- -- 44,914 --
Acquisition of Founding
Companies................. -- -- 4,527,000 -- -- -- -- 53,890 --
Acquisition of Purchased
Companies................. -- -- 4,058,377 -- -- -- -- 43,984 --
Net income.................. -- -- -- -- -- -- -- -- 16,188
--------- --- ---------- --- ---------- --- ------- -------- --------
Balance, December 31, 1998.... -- -- 18,557,949 -- 3,345,333 -- (1,831) 145,194 28,140
Issuance of Series A
Convertible Preferred
Stock..................... 1,860,000 -- -- -- -- -- -- 182,119 --
Sales of common stock under
preemptive rights
agreement................. -- -- 38,485 -- -- -- -- 1,042 --
Stock options exercised..... -- -- 204,888 -- -- -- -- 2,347 --
Income tax benefit from
stock options exercised... -- -- -- -- -- -- -- 1,446 --
Conversion of Limited Vote
Common Stock to common
stock..................... -- -- 847,986 -- (847,986) -- -- -- --
Termination of ESOP......... -- -- -- -- -- -- 1,831 5,319 --
Follow-on offering, net of
offering costs............ -- -- 4,600,000 -- -- -- -- 101,119 --
Acquisition of Purchased
Companies................. -- -- 9,774,214 -- -- -- -- 236,520 --
Three-for-two common stock
split..................... -- -- 17,011,761 -- 1,248,673 -- -- -- --
Net income attributable to
common stock.............. -- -- -- -- -- -- -- -- 53,679
--------- --- ---------- --- ---------- --- ------- -------- --------
Balance, December 31, 1999.... 1,860,000 -- 51,035,283 -- 3,746,020 -- -- 675,106 81,819
Conversion of common stock
to Series A Convertible
Preferred Stock........... 1,584,961 -- (7,924,805) -- -- -- -- -- --
Conversion of 6 7/8%
convertible subordinated
notes to common stock..... -- -- 5,383,636 -- -- -- -- 47,653 --
Sales of common stock under
preemptive rights
agreement................. -- -- 519,182 -- -- -- -- 14,528 --
Issuances of stock under
Employee Stock Purchase
Program................... -- -- 222,364 -- -- -- -- 3,544 --
Stock options exercised..... -- -- 804,484 -- -- -- -- 10,456 --
Income tax benefit from
stock options exercised... -- -- -- -- -- -- -- 8,460 --
Conversion of Limited Vote
Common Stock to common
stock..................... -- -- 1,980,108 -- (1,980,108) -- -- -- --
Acquisition of Purchased
Companies................. -- -- 4,380,294 -- -- -- -- 122,597 --
Net income attributable to
common stock.............. -- -- -- -- -- -- -- -- 104,793
--------- --- ---------- --- ---------- --- ------- -------- --------
Balance, December 31, 2000.... 3,444,961 $-- 56,400,546 $-- 1,765,912 $-- $ -- $882,344 $186,612
========= === ========== === ========== === ======= ======== ========
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance, December 31, 1997.... $ 11,402
Issuances of stock.......... --
Stock options exercised..... 1,125
Initial public offering, net
of offering costs......... 44,914
Acquisition of Founding
Companies................. 53,890
Acquisition of Purchased
Companies................. 43,984
Net income.................. 16,188
----------
Balance, December 31, 1998.... 171,503
Issuance of Series A
Convertible Preferred
Stock..................... 182,119
Sales of common stock under
preemptive rights
agreement................. 1,042
Stock options exercised..... 2,347
Income tax benefit from
stock options exercised... 1,446
Conversion of Limited Vote
Common Stock to common
stock..................... --
Termination of ESOP......... 7,150
Follow-on offering, net of
offering costs............ 101,119
Acquisition of Purchased
Companies................. 236,520
Three-for-two common stock
split..................... --
Net income attributable to
common stock.............. 53,679
----------
Balance, December 31, 1999.... 756,925
Conversion of common stock
to Series A Convertible
Preferred Stock........... --
Conversion of 6 7/8%
convertible subordinated
notes to common stock..... 47,653
Sales of common stock under
preemptive rights
agreement................. 14,528
Issuances of stock under
Employee Stock Purchase
Program................... 3,544
Stock options exercised..... 10,456
Income tax benefit from
stock options exercised... 8,460
Conversion of Limited Vote
Common Stock to common
stock..................... --
Acquisition of Purchased
Companies................. 122,597
Net income attributable to
common stock.............. 104,793
----------
Balance, December 31, 2000.... $1,068,956
==========
The accompanying notes are an integral part of these consolidated financial
statements.
27
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Quanta Services, Inc. is a leading provider of specialized contracting
services, offering end-to-end network solutions to the telecommunications,
electric power and cable television industries. Our comprehensive services
include designing, installing, repairing and maintaining network infrastructure.
Reference herein to the "Company" includes Quanta and its subsidiaries.
Since its inception and through 2000, Quanta has acquired 77 businesses. Of
these businesses acquired, two were accounted for as poolings-of-interests and
are referred to herein as the "Pooled Companies." The remaining acquired
businesses were accounted for as purchases and are referred to herein as the
"Purchased Companies" and have been included in the Company's historical
financial statements beginning on their respective dates of acquisition. The
Company intends to continue to acquire, through merger or purchase, similar
companies to expand its national and regional operations.
In the course of its operations, the Company is subject to certain risk
factors, including but not limited to: rapid technological and structural
changes in the Company's industries, risks related to internal growth and
operating strategies, risks related to acquisition financing and integration,
significant fluctuations in quarterly results, risks associated with contracts,
management of growth, dependence on key personnel, availability of qualified
employees, unionized workforce, competition, recoverability of goodwill,
potential exposure to environmental liabilities and anti-takeover measures.
All share amounts and per share amounts in these notes to consolidated
financial statements have been adjusted to give effect to a 3-for-2 stock split,
paid as a stock dividend on April 7, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Company, include the accounts
of Quanta and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information
The Company had non-cash investing and financing activities related to
capital leases of approximately $1,218,000, $170,000 and $0 during the years
ended December 31, 1998, 1999 and 2000, respectively.
The Company also had non-cash investing and financing activities of
approximately $1,697,000 during the year ended December 31, 2000 related to the
conversion of the convertible subordinated notes that were issued to Enron
Capital & Trade Resources Corp., a subsidiary of Enron Corp., and an affiliate
in October 1998. In April 2000, UtiliCorp United, Inc. (UtiliCorp) purchased the
convertible subordinated notes from Enron Capital & Trade Resources Corp. and an
affiliate. UtiliCorp converted the convertible subordinated notes into
approximately 5.4 million shares of the Company's common stock on June 13, 2000.
In addition, pursuant to its acquisition program, the Company acquired
assets through purchase acquisitions with an estimated fair value, net of cash
acquired, of approximately $116.0 million and liabilities of approximately $71.6
million resulting in the recording of approximately $127.7 million in goodwill
in 1998. The Company acquired assets through purchase acquisitions with an
estimated fair value, net of cash acquired, of approximately $236.0 million and
liabilities of approximately $160.2 million resulting in the
28
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recording of approximately $484.9 million in goodwill in 1999. The Company
acquired assets through purchase acquisitions with an estimated fair value, net
of cash acquired, of approximately $215.8 million and liabilities of
approximately $119.5 million resulting in the recording of approximately $301.0
million in goodwill in 2000.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts when collection is
considered doubtful.
Concentration of Credit Risk
The Company grants credit, generally without collateral, to its customers,
which include telecommunications and cable television system operators, electric
power companies, governmental entities, general contractors, builders and owners
and managers of commercial and industrial properties located primarily in the
United States. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors throughout the United
States. However, the Company generally is entitled to payment for work performed
and has certain lien rights on that work and concentrations of credit risk are
limited due to the diversity of the Company's customer base. Further, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk. No customer accounted for more
than 10% of revenues during the years ended December 31, 1998, 1999 or 2000.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued by the Company at the lower of cost or market
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method, net of estimated salvage values, over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized over the lesser of the life of the lease or the estimated useful life
of the asset. Depreciation and amortization expense related to property and
equipment was approximately $8,153,000, $24,261,000 and $37,489,000 for the
years ended December 31, 1998, 1999 and 2000, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
realizable. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such asset is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
asset and its carrying value.
Debt Issuance Costs
Debt issuance costs related to the Company's credit facility, the
convertible subordinated notes and the senior secured notes are included in
other assets and are amortized to interest expense over the scheduled maturity
periods of the related debt. As of December 31, 1999 and 2000, accumulated
amortization was approximately $857,000 and $2,397,000, respectively.
29
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
Goodwill represents the excess of the aggregate purchase price paid by the
Company in the acquisition of businesses accounted for as purchases over the
fair market value of the net assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. Management periodically evaluates whether
events or circumstances have occurred that indicate that the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance may
not be recoverable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset will be compared to the
asset's carrying amount to determine if such an impairment exists.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a fixed price contract. Revenues from fixed price
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred-to-date to total estimated costs for each contract.
Such contracts generally provide that the customer accept completion of progress
to date and compensate the Company for services rendered, measured typically in
terms of units installed, hours expended or some other measure of progress.
Contract costs typically include all direct material, labor and subcontract
costs and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and depreciation costs. Provisions for the total
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and their effects are recognized in the period in which the revisions
are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in certain contracts will be due upon completion of the contracts and
acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balance at each balance sheet date will
be collected within the subsequent fiscal year. Retainage balances as of
December 31, 1999 and 2000 were approximately $30,453,000 and $50,742,000,
respectively, and are included in accounts receivable.
The current asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for new installations and
construction and servicing of existing infrastructure. An accrual for warranty
costs is recorded based upon management's estimate of future costs.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under this method, deferred assets and
liabilities are recorded for future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
Certain of the Purchased Companies 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. In
addition, one of the Pooled Companies was an S corporation prior to its merger
with the Company and, therefore, income taxes have not been provided for in the
historical financial statements. Effective with the acquisitions, the S
corporations converted to C corporations. Accordingly, at the date of
30
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition an estimated deferred tax liability has been recorded to provide for
the estimated future income tax liability resulting from the difference between
the book and tax bases of the net assets of these former S corporations. For
purposes of these consolidated financial statements, federal and state income
taxes have been provided for the post-acquisition periods.
Collective Bargaining Agreements
Certain of the subsidiaries are party to various collective bargaining
agreements with certain of its employees. The agreements require the Company to
pay specified wages and provide certain benefits to its union employees. These
agreements expire at various times.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions by management in determining the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities known to exist as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Reference is made to the "Revenue Recognition" section of this
footnote and Note 13 for discussion of certain estimates reflected in the
Company's financial statements.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable, the credit facility, the convertible subordinated notes and
notes payable to various financial institutions approximate fair value. The fair
value of the senior secured notes is estimated based on interest rates for the
same or similar debt offered to the Company having the same or similar remaining
maturities and collateral requirements. At December 31, 2000, the fair value of
the Company's senior secured notes of $210.0 million was approximately $221.0
million.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires entities to recognize all derivative instruments (including certain
derivative instruments embedded in other contracts) as assets or liabilities in
its balance sheet and measure them at fair value. The statement requires that
changes in the derivatives' fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133, as amended, is
effective for the Company beginning January 1, 2001. The Company adopted these
standards effective January 1, 2001 and there was no financial statement impact
as the Company was not a party to any derivative instruments at that date.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenue in financial statements, as amended, with an effective date for the
Company of January 1, 2000. The adoption of SAB No. 101 did not have a material
impact on the financial position or results of operations of the Company as we
recognize revenue from construction contracts in accordance with the American
Institute of Certified Public Accountants Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts."
31
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER SHARE INFORMATION:
Earnings per share amounts are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. The weighted average number of shares used to compute basic and diluted
earnings per share for 1998, 1999 and 2000 is illustrated below (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------
1998 1999 2000
------- ------- --------
NET INCOME:
Net income for basic earnings per share -- income
attributable to common stockholders............... $16,188 $53,679 $104,793
Effect of convertible subordinated notes under the
"if converted" method -- interest expense addback,
net of taxes...................................... 506 2,198 3,003
Dividends on Preferred Stock......................... -- 260 930
------- ------- --------
Net income for diluted earnings per share............ $16,694 $56,137 $108,726
======= ======= ========
WEIGHTED AVERAGE SHARES:
Weighted average shares outstanding for basic
earnings per share................................ 26,785 47,177 58,900
Effect of dilutive stock options..................... 232 986 2,300
Effect of convertible subordinated notes under the
"if converted" method -- weighted convertible
shares issuable................................... 1,298 5,384 3,831
Effect of conversion of Preferred Stock into common
stock -- weighted convertible shares issuable..... -- 2,599 11,552
------- ------- --------
Weighted average shares outstanding for diluted
earnings per share................................ 28,315 56,146 76,583
======= ======= ========
For the years ended December 31, 1998, 1999 and 2000, stock options of 0.2
million, 0.9 million and 0.3 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.
4. BUSINESS COMBINATIONS:
Purchases
During 1999 and 2000, the Company completed 64 acquisitions accounted for
as purchases. The aggregate consideration paid in these transactions consisted
of $611.2 million in cash and 19.1 million shares of common stock. The
accompanying balance sheet as of December 31, 2000 includes preliminary
allocations of the respective purchase prices and is subject to final
adjustment. The following summarized unaudited pro forma financial information
adjusts the historical financial information by assuming the acquisition of the
Purchased Companies occurred on January 1, 1999 (in thousands, except per share
information):
YEAR ENDED DECEMBER 31,
-----------------------
1999 2000
---------- ----------
(UNAUDITED)
Revenues.................................................... $1,531,068 $2,037,817
Net income attributable to common stock..................... $ 91,755 $ 116,777
Basic earnings per share.................................... $ 1.67 $ 2.07
Diluted earnings per share.................................. $ 1.28 $ 1.55
Diluted earnings per share before merger and special
charges................................................... $ 1.37 $ 1.84
32
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma adjustments included in the amounts above primarily relate to:
(a) contractually agreed reductions in salaries and benefits for former owners,
and certain key employees; (b) adjustments to depreciation and amortization
expense due to the purchase price allocations; (c) the assumed reductions in
interest expense due to unassumed debt and the refinancing of the outstanding
indebtedness in conjunction with the acquisition of the Purchased Companies,
offset by an assumed increase in interest expense incurred in connection with
financing the acquisitions; and (d) the adjustment to the federal and state
income tax provisions based on the combined operations. Diluted earnings per
share before merger and special charges excludes the effect of all non-recurring
merger and special charges and the non-cash non-recurring deferred tax charge.
The pro forma financial data does not purport to represent what the Company's
combined financial position or results of operations would actually have been if
such transactions had in fact occurred on January 1, 1999 and are not
necessarily representative of the Company's financial position or results of
operations for any future period.
Poolings
During the second quarter of 1998, the Company completed the acquisition of
all the common stock of NorAm Telecommunications, Inc. (NorAm), in a business
combination accounted for as a pooling-of-interests transaction. NorAm,
headquartered in Oregon, provides outside and inside network and technical
support for the telecommunications industry. The Company issued 1,427,917 shares
of common stock in exchange for all the common stock of NorAm. As reported in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
the financial statements of the Company have been previously restated to reflect
the impact of the NorAm pooling.
In the first quarter of 1999, the Company completed the acquisition of all
the common stock of Fiber Technology, Inc. (Fiber Tech) in a business
combination accounted for as a pooling-of-interests transaction. Fiber Tech,
headquartered in Houston, Texas, provides specialty contracting services to the
cable television and telecommunications industries. The Company issued 315,940
shares of common stock in exchange for all the common stock of Fiber Tech. The
effect of this transaction was to increase the previously reported revenues for
the year ended 1998 by $10.1 million, net income by $1.0 million, basic earnings
per share by $0.03 and diluted earnings per share by $0.03.
There were no transactions between the Company and the Pooled Companies
during the periods prior to the business combination.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
ESTIMATED
USEFUL DECEMBER 31,
LIVES IN -------------------
YEARS 1999 2000
--------- -------- --------
Land.................................................. -- $ 2,218 $ 2,906
Buildings and leasehold improvements.................. 5-30 6,093 8,835
Operating equipment and vehicles...................... 5-25 222,543 398,248
Office equipment, furniture and fixtures.............. 3-7 7,260 12,818
-------- --------
238,114 422,807
Less -- Accumulated depreciation and amortization..... (46,260) (81,778)
-------- --------
Property and equipment, net......................... $191,854 $341,029
======== ========
33
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
DECEMBER 31,
----------------
1999 2000
------ -------
Balance at beginning of year............................... $1,616 $ 5,947
Beginning balance of Purchased Companies................. 2,824 5,019
Charged to expense....................................... 1,749 7,179
Deductions for uncollectible receivables written off, net
of recoveries......................................... (242) (2,533)
------ -------
Balance at end of year..................................... $5,947 $15,612
====== =======
Accounts payable and accrued expenses consists of the following (in
thousands):
DECEMBER 31,
-------------------
1999 2000
-------- --------
Accounts payable, trade................................. $ 72,187 $106,327
Accrued compensation and other related expenses......... 27,370 42,584
Federal and state taxes payable......................... 16,465 --
Other accrued expenses.................................. 25,003 66,773
-------- --------
$141,025 $215,684
======== ========
Contracts in progress are as follows (in thousands):
DECEMBER 31,
-----------------------
1999 2000
--------- -----------
Costs incurred on contracts in progress............. $ 492,150 $ 875,873
Estimated earnings, net of estimated losses......... 120,969 207,685
--------- -----------
613,119 1,083,558
Less -- Billings to date............................ (590,390) (1,039,697)
--------- -----------
$ 22,729 $ 43,861
========= ===========
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... $ 45,963 $ 71,842
Less -- Billings in excess of costs and estimated
earnings on uncompleted contracts................. (23,234) (27,981)
--------- -----------
$ 22,729 $ 43,861
========= ===========
34
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM OBLIGATIONS:
The Company's long-term debt obligations consists of the following (in
thousands):
DECEMBER 31,
-------------------
1999 2000
-------- --------
Credit facility............................................. $138,630 $ 92,880
Senior secured notes........................................ -- 210,000
Convertible subordinated notes.............................. 49,350 172,500
Notes payable to various financial institutions, interest
ranging from 0.9% to 16.72%, secured by certain equipment,
receivables and other assets.............................. 14,461 22,123
Capital lease obligations................................... 3,881 2,371
-------- --------
206,322 499,874
Less -- Current maturities.................................. (6,664) (8,772)
-------- --------
Total long-term debt obligations.................. $199,658 $491,102
======== ========
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 6.64% at December 31, 2000)
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 9.5% at December 31, 2000) 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
December 31, 2000, $92.9 million was borrowed under the credit facility, and the
Company had $14.8 million of letters of credit outstanding, resulting in a
borrowing availability of $242.3 million under the credit facility. The
weighted-average borrowing rate on the credit facility for the year ended
December 31, 2000 was 7.72%.
Senior Secured Notes
In March 2000, the Company closed a private placement of $150.0 million
principal amount of senior secured notes primarily with insurance companies. In
September 2000, the Company issued an additional $60.0 million principal amount
of senior secured notes. The resulting $210.0 million of senior secured notes
have maturities ranging from five to ten years with a weighted average interest
rate of 8.41% and, pursuant to an intercreditor agreement, rank equally in right
of repayment with indebtedness under the Company's credit facility. The senior
secured notes have financial covenants similar to the credit facility. Proceeds
from the private placement were used to reduce outstanding borrowings under the
credit facility.
Convertible Subordinated Notes
In October 1998, the Company entered into a strategic investment agreement
with Enron Capital & Trade Resources Corp. (Enron Capital), a subsidiary of
Enron Corp., pursuant to which Enron Capital and an affiliate made an investment
of $49.4 million in the Company. The investment was in the form of convertible
35
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subordinated notes bearing interest at 6 7/8%. In April 2000, UtiliCorp
purchased the convertible subordinated notes from Enron Capital and an
affiliate. UtiliCorp converted these notes into approximately 5.4 million shares
of the Company's common stock on June 13, 2000.
On July 19, 2000, the Company issued $150.0 million principal amount of
convertible subordinated notes and, on August 7, 2000, the Company issued an
additional $22.5 million principal amount of convertible subordinated notes due
to the exercise of the underwriters' over-allotment option. Net proceeds from
the offering were used to repay outstanding indebtedness under the credit
facility. The convertible subordinated notes bear interest at 4.0% per year and
are convertible into shares of the Company's common stock at a price of $54.53
per share. The convertible subordinated notes require semi-annual interest
payments beginning December 31, 2000, until the notes mature on July 1, 2007.
The Company has the option to redeem the notes beginning July 3, 2003.
The maturities of long-term debt obligations (excluding capital leases) as
of December 31, 2000, are as follows (in thousands):
Year Ending December 31 --
2001...................................................... $ 7,487
2002...................................................... 6,062
2003...................................................... 3,695
2004...................................................... 94,855
2005...................................................... 103,910
Thereafter................................................ 281,494
--------
$497,503
========
The Company leases certain buildings and equipment under non-cancelable
lease agreements. The following schedule shows the future minimum lease payments
under these leases as of December 31, 2000 (in thousands):
CAPITAL OPERATING
LEASES LEASES
------- ---------
Year Ending December 31 --
2001...................................................... $ 1,386 $23,470
2002...................................................... 818 14,070
2003...................................................... 291 6,838
2004...................................................... 21 4,293
2005...................................................... -- 2,762
Thereafter................................................ -- 1,104
------- -------
Total minimum lease payments...................... 2,516 $52,537
=======
Less -- Amounts representing interest................ (145)
-------
Present value of minimum lease payments........... 2,371
Less -- Current portion.............................. (1,285)
-------
Total long-term obligations.......................... $ 1,086
=======
Rent expense related to operating leases was approximately $1,816,000,
$11,706,000 and $16,156,000 for the years ended December 31, 1998, 1999 and
2000, respectively. Assets under capital leases are included as part of property
and equipment.
36
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's subsidiaries have entered into related party lease
arrangements for operational facilities. These lease agreements generally have a
term of 5 years. Related party lease expense for the years ended December 31,
1998, 1999 and 2000, respectively, was approximately $315,000, $1,215,000 and
$2,056,000. Future commitments with respect to these leases are included above.
8. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999 2000
------- ------- -------
Federal --
Current............................................... $10,214 $36,044 $66,558
Deferred.............................................. (262) 5,071 10,350
State --
Current............................................... 1,839 7,335 13,426
Deferred.............................................. (108) 549 2,994
------- ------- -------
$11,683 $48,999 $93,328
======= ======= =======
Actual income tax provision differs from the income tax provision computed
by applying the U.S. federal statutory corporate rate to the income before
provision for income taxes as follows (in thousands):
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999 2000
------- ------- -------
Provision at the statutory rate......................... $ 9,400 $36,028 $69,668
Increases resulting from --
State income taxes, net of federal benefit............ 1,125 5,124 10,453
Non-deductible goodwill............................... 899 3,381 5,472
Nondeductible expenses................................ 259 1,488 2,022
Compensation, excise tax and deferred tax charges
related to poolings................................ -- 2,978 --
Expenses with no tax benefit related to merger and
special charges.................................... -- -- 5,713
------- ------- -------
$11,683 $48,999 $93,328
======= ======= =======
37
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
DECEMBER 31,
-------------------
1999 2000
-------- --------
Deferred income tax liabilities --
Property and equipment.................................... $(28,945) $(50,808)
Book/tax accounting method difference..................... (1,818) (1,974)
Goodwill and other........................................ (348) (4,150)
-------- --------
Total deferred income tax liabilities............. (31,111) (56,932)
-------- --------
Deferred income tax assets --
Allowance for doubtful accounts and other reserves........ 4,105 5,860
Other accruals not currently deductible................... 6,748 10,166
Inventory................................................. 279 225
-------- --------
Total deferred income tax assets.................. 11,132 16,251
-------- --------
Total net deferred income tax liabilities......... $(19,979) $(40,681)
======== ========
Net current deferred tax assets are included in prepaid expenses and other
current assets.
9. STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock
In September 1999, the Company entered into a securities purchase agreement
with UtiliCorp pursuant to which the Company issued 1,860,000 shares of Series A
Convertible Preferred Stock, $.00001 par value per share, for an initial
investment of $186.0 million, before transaction costs. In September 2000,
UtiliCorp converted 7,924,805 shares of common stock into an additional
1,584,961 shares of Series A Convertible Preferred Stock at a rate of one share
of Series A Convertible Preferred Stock for five shares of common stock. The
holders of the Series A Convertible Preferred Stock are entitled to receive
dividends in cash at a rate of 0.5% per annum on an amount equal to $53.99 per
share, plus all unpaid dividends accrued. In addition to the preferred dividend,
the holders are entitled to participate in any cash or non-cash dividends or
distributions declared and paid on the shares of common stock, as if each share
of Series A Convertible Preferred Stock had been converted into common stock at
the applicable conversion price immediately prior to the record date for payment
of such dividends or distributions. However, holders of Series A Convertible
Preferred Stock will not participate in non-cash dividends or distributions if
such dividends or distributions cause an adjustment in the price at which Series
A Convertible Preferred Stock converts into common stock. At any time after the
sixth anniversary of the 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
UtiliCorp, be adjusted to the then "market coupon rate," which shall equal the
Company's after-tax cost of obtaining financing, excluding common stock, to
replace UtiliCorp's investment in the Company.
UtiliCorp is entitled to that number of votes equal to the number of shares
of common stock into which the outstanding shares of Series A Convertible
Preferred Stock are then convertible. Subject to certain limitations, UtiliCorp
is entitled to elect three of the total number of directors of the Company. All
or any portion of the outstanding shares of Series A Convertible Preferred Stock
may, at the option of UtiliCorp, be converted at any time into fully paid and
nonassessable shares of common stock. The conversion price
38
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Also in certain
circumstances, UtiliCorp had the right to purchase additional securities from
the Company to maintain the percentage ownership of the Company represented by
the Series A Convertible Preferred Stock. During the years ended December 31,
1999 and 2000, UtiliCorp purchased 57,727 and 519,182 shares of common stock,
respectively, pursuant to these rights. In October 2000, UtiliCorp's right to
purchase additional securities from the Company to maintain a percentage
ownership of the Company represented by the Series A Convertible Preferred Stock
terminated.
Convertible Subordinated Notes
In April 2000, UtiliCorp purchased the $49.4 million of 6 7/8% convertible
subordinated notes from Enron Capital and an affiliate. UtiliCorp converted
these notes into approximately 5.4 million shares of the Company's common stock
on June 13, 2000.
Public Offerings
In 1998, Quanta completed its IPO, which involved the issuance of 8.6
million shares of its common stock, resulting in net proceeds to the Company of
$44.9 million.
On January 27, 1999, Quanta completed a follow-on public offering, which
involved the issuance of 6.9 million shares of its common stock at a price of
$15.50 per share, resulting in net proceeds to the Company of $101.1 million
after deducting underwriting discounts and commissions and expenses related to
the offering.
Stockholder Rights Plan
On March 8, 2000, the board of directors of the Company adopted a
Stockholder Rights Plan. Under the 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 a converted
basis) for holders of record as of the close of business on March 27, 2000. The
Rights will 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 UtiliCorp) becomes the beneficial owner of, or tenders for,
15% or more of the Company's common shares. The Rights also will be exercisable
if UtiliCorp, together with any affiliates or associates, becomes the beneficial
owner of, or tenders for more than 49.9% of the Company's common shares, or if
there is a change of control of UtiliCorp. In the event that the Rights become
exercisable, each Right will entitle its holder to purchase, at the Right's
exercise price, a number of common shares having a market value at that time of
twice the Right's exercise price. Rights held by the triggering person will
become void and will not be exercisable to purchase shares at the reduced
purchase price. The Rights will expire in ten years.
Limited Vote Common Stock
The shares of Limited Vote Common Stock have rights similar to shares of
common stock, except that such shares are entitled to elect one member of the
board of directors and are entitled to one-tenth of one vote for each share held
on all other matters. Each share of Limited Vote Common Stock will convert into
common stock upon disposition by the holder of such shares in accordance with
the transfer restrictions applicable to such shares. In 1999 and 2000,
respectively, 1,271,979 and 1,980,108 shares of Limited Vote Common Stock were
converted to common stock.
39
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM INCENTIVE PLANS:
Stock Option Plan
In December 1997, the board of directors adopted, and the stockholders of
the Company approved, the 1997 Stock Option Plan. The purpose of the 1997 Stock
Option Plan is to provide directors, key employees, officers and certain
advisors with additional incentives by increasing their proprietary interest in
the Company. The aggregate amount of common stock of the Company with respect to
which options may be granted may not exceed 15% of the outstanding shares of
common stock.
The 1997 Stock Option Plan provides for the grant of incentive stock
options (ISOs) as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the Code) and nonqualified stock options (collectively, the Awards).
The amount of ISOs that may be granted under the 1997 Stock Option Plan is
limited to 3,571,275 shares. The 1997 Stock Option Plan is administered by the
Compensation Committee of the board of directors. The Compensation Committee
has, subject to the terms of the 1997 Stock Option Plan, the sole authority to
grant Awards under the 1997 Stock Option Plan, to construe and interpret the
1997 Stock Option Plan and to make all other determinations and take any and all
actions necessary or advisable for the administration of the 1997 Stock Option
Plan.
All of the Company's employees (including officers), non-employee
directors, and certain consultants and advisors are eligible to receive Awards
under the 1997 Stock Option Plan, but only employees of the Company are eligible
to receive ISOs. Options will be exercisable during the period specified in each
option agreement and will generally become exercisable in installments pursuant
to a vesting schedule designated by the Compensation Committee. At the
discretion of the Compensation Committee, option agreements may provide that
options will become immediately exercisable in the event of a "change in
control" (as defined in the 1997 Stock Option Plan) of the Company. No ISO will
remain exercisable later than ten years after the date of grant (or five years
in the case of ISOs granted to employees owning more than 10% of the voting
capital stock).
The 1997 Stock Option Plan also provides for automatic option grants to
directors who are not otherwise employed by the Company or its subsidiaries.
Upon commencement of service, a non-employee director will receive a
non-qualified option to purchase 15,000 shares of common stock, and each
continuing or re-elected non-employee director annually will receive an option
to purchase 7,500 shares of common stock. Options granted to non-employee
directors are fully exercisable following the expiration of six months from the
date of grant.
The exercise price for ISOs granted under the 1997 Stock Option Plan may be
no less than the fair market value of a share of the common stock on the date of
grant (or 110% in the case of ISOs granted to employees owning more than 10% of
the voting capital stock). No ISOs have been granted as of December 31, 2000.
40
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for 1999
and 2000, respectively: (i) risk-free interest rates ranging from 4.30% to 6.82%
and 5.18% to 6.62%, (ii) expected life of 6 years, (iii) average volatility of
54.0% and 57.7%, and (iv) dividend yield of 0%. The following table summarizes
activity under the 1997 Stock Option Plan for the years ended December 31, 1999
and 2000 (shares in thousands):
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR
SHARES PRICE VALUE
------ -------- --------
Outstanding at December 31, 1998................ 2,366 $ 8.07
Granted....................................... 4,500 23.90 $10.95
Exercised..................................... (307) 8.41
Forfeited and canceled........................ (113) 14.09
-----
Outstanding at December 31, 1999................ 6,446 15.66
Granted....................................... 2,574 30.70 $18.57
Exercised..................................... (804) 13.00
Forfeited and canceled........................ (367) 18.19
-----
Outstanding at December 31, 2000................ 7,849 20.97
=====
Options exercisable at --
December 31, 1999............................. 335
December 31, 2000............................. 1,297
The following table summarizes information for outstanding options at
December 31, 2000 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- ------------------------ ----------- ------------- -------- ----------- --------
$6.00-$8.88 964 7.35 $ 6.99 293 $ 7.07
$9.25-$11.13 467 7.51 9.96 124 9.91
$14.00-$20.88 2,597 8.37 17.74 452 17.61
$21.04-$31.33 2,937 8.85 23.36 390 22.92
$31.81-$47.69 742 9.57 40.97 38 43.94
$49.31-$61.50 142 9.47 55.86 -- --
----- -----
$6.00-$61.50 7,849 1,297
===== =====
Employee Stock Purchase Plan
An Employee Stock Purchase Plan (the Plan) was adopted by the board of
directors of the Company and was approved by the stockholders of the Company in
May 1999. The purpose of the Plan is to provide an incentive for employees of
the Company and any Participating Company (as defined in the Plan) to acquire or
increase a proprietary interest in the Company through the purchase of shares of
the Company's common stock. At the date hereof, all of the existing subsidiaries
of the Company have been designated as Participating Companies. The Plan is
intended to qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the Code). The provisions of the
Plan are construed in a manner consistent with the requirements of that section
of the Code. The Plan is administered by a committee appointed from time to time
by the board of directors. The Plan is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974, as amended. As of December
31, 1999, there were no
41
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares purchased under the Plan. During 2000 the Company issued a total of
222,364 shares pursuant to the Plan. Compensation cost is computed for the fair
value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions for 2000: dividend yield of
0%; an expected life of 0.5 year; expected volatility of 69.4% and risk-free
interest rate of 6.2%. The weighted-average fair value of those purchase rights
granted in 2000 was $25.40.
The Company accounts for its stock-based compensation under APB No. 25
"Accounting for Stock Issued to Employees." Under this accounting method, no
compensation expense is recognized in the consolidated statements of operations
if no intrinsic value of the option exists at the date of grant. In October
1995, the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation."
SFAS No. 123 encourages companies to account for stock based compensation awards
based on the fair value of the awards at the date they are granted. The
resulting compensation cost would be shown as an expense in the consolidated
statements of operations. Companies can choose not to apply the new accounting
method and continue to apply current accounting requirements; however,
disclosure is required as to what net income and earnings per share would have
been had the new accounting method been followed. Had compensation costs for the
1997 Stock Option Plan and the Employee Stock Purchase Plan been determined
consistent with SFAS No. 123, the Company's net income attributable to common
stock and earnings per share would have been reduced to the following as
adjusted amounts (in thousands, except per share information):
1998 1999 2000
------- ------- --------
Net income attributable to As reported $16,188 $53,679 $104,793
common stock............
As Adjusted - Basic $15,298 $48,359 $ 89,413
As Adjusted - Diluted $15,804 $50,817 $ 93,346
Earnings per share........ As Reported - Basic $ 0.60 $ 1.14 $ 1.78
As Adjusted - Basic $ 0.57 $ 1.03 $ 1.52
As Reported - Diluted $ 0.59 $ 1.00 $ 1.42
As Adjusted - Diluted $ 0.56 $ 0.91 $ 1.22
The effects of applying SFAS No. 123 in the as adjusted disclosure may not
be indicative of future amounts as additional awards in future years are
anticipated.
Employee Stock Ownership Plan
The Company issued shares of common stock to an Employee Stock Ownership
Plan (the ESOP) in connection with the acquisition of one of the Pooled
Companies. The ESOP was terminated on July 31, 1998. In June 1999, after the
receipt of a favorable determination letter from the Internal Revenue Service, a
portion of the unallocated shares of the Company's common stock held by the ESOP
were sold to repay debt owed by the ESOP to the Company and the remaining
portion of the unallocated shares were distributed to the plan participants. The
cost of the unallocated ESOP shares was reflected as a reduction in the
Company's stockholders' equity. As a result of the above, the Company incurred
an excise tax of approximately $1.1 million equal to 10% of the value of the
Company's common stock distributed to the plan participants. In addition, the
Company eliminated the remaining balance reflected as Unearned ESOP Shares on
the Company's balance sheet and recognized a non-cash, non-recurring
compensation charge of approximately $5.3 million equal to the value of the
unallocated shares held by the ESOP.
42
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE BENEFIT PLANS:
In connection with its collective bargaining agreements with various
unions, the Company participates with other companies in the unions'
multi-employer pension plans. These plans cover all of the Company's employees
who are members of such unions. The Employee Retirement Income Security Act of
1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980,
imposes certain liabilities upon employers who are contributors to a
multi-employer plan in the event of the employer's withdrawal from, or upon
termination of such plan. The Company has no plans to withdraw from these plans.
The plans do not maintain information on net assets and actuarial present value
of the plans' unfunded vested benefits allocable to the Company, and amounts, if
any, for which the Company may be contingently liable is not ascertainable at
this time.
401(k) Plan
Effective February 1, 1999, the Company adopted a 401(k) plan pursuant to
which employees who are not provided retirement benefits through a collective
bargaining agreement may make contributions through a payroll deduction. The
Company will make a matching contribution of 100% of each employee's
contribution up to 3% of that employee's salary and 50% of each employee's
contribution between 3% and 6% of such employee's salary. Prior to joining the
Company's 401(k) plan, certain subsidiaries of the Company provided various
defined contribution plans to their employees. Contributions to all non-union
defined contribution plans by the Company were approximately $1,434,000,
$5,044,000 and $5,949,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
12. RELATED PARTY TRANSACTIONS:
As previously discussed, Enron Capital and Utilicorp have made investments
in the Company. The Company has had transactions in the normal course of
business with subsidiaries of Enron and UtiliCorp. In addition, in September
1999, the Company entered into a strategic alliance agreement with UtiliCorp.
Under the terms of the strategic alliance agreement, UtiliCorp will use the
Company, subject to the Company's ability to perform the required services, as a
preferred contractor in outsourced transmission and distribution infrastructure
installation and maintenance and natural gas distribution installation and
maintenance in all areas serviced by UtiliCorp, provided that the Company
provides such services at a competitive cost. The strategic alliance agreement
has a term of six years. Subsequent to the investment by Enron Capital, revenues
from Enron in 1999 and 2000, were approximately $40.1 million and $20.3 million,
respectively, and balances due the Company at year-end were approximately $20.3
million and $2.0 million, respectively. Subsequent to the investment by
Utilicorp, revenues from UtiliCorp in 1999 and 2000 were approximately $7.4
million and $14.4 million, respectively, and balances due the Company at
year-end were approximately $1.3 million and $1.8 million, respectively.
The Company entered into a management services agreement in September 1999
with UtiliCorp for advice and services including financing activities; corporate
strategic planning; research on the restructuring of the electric power
industry; the development, evaluation and marketing of our products, services
and capabilities; identification of and evaluation of potential U.S. acquisition
candidates and other merger and acquisition advisory services; and other
services that the Company may reasonably request. The management services
agreement required the Company to make quarterly payments to UtiliCorp of
$2,325,000 through September 30, 2005. In December 2000, the Company agreed to
conclude its obligations under the management services agreement with UtiliCorp
in exchange for a one-time payment to UtiliCorp of approximately $28.6 million,
which has been reflected as a special charge during the year ended December 31,
2000.
Management believes transactions with these related parties were under
terms no less favorable to the Company than those arranged with other parties.
43
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES:
Litigation
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.
Insurance
As of August 1, 2000, the Company entered into agreements to insure the
Company for workers' compensation, employer's liability, auto liability and
general liability, subject to a deductible of $500,000 per accident or
occurrence. Losses up to the deductible amounts are accrued based upon 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.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contractual commitments.
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
The table below sets forth the unaudited consolidated operating results by
quarter for the years ended December 31, 1999 and 2000. All quarters presented
have been restated for the effect of the 3-for-2 stock split discussed in Note 1
(in thousands, except per share information).
FOR THE THREE MONTHS ENDED,
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
1999:
Revenues............................... $127,779 $193,821 $271,788 $332,266
Gross profit........................... 22,908 43,572 66,099 81,722
Net income attributable to common
stock............................... 3,423 4,807 19,138 26,311
Basic earnings per share............... $ 0.09 $ 0.11 $ 0.38 $ 0.48
Diluted earnings per share............. $ 0.09 $ 0.10 $ 0.34 $ 0.39
Diluted earnings per share before
merger and special charges.......... $ 0.11 $ 0.23 $ 0.34 $ 0.39
2000:
Revenues............................... $333,737 $423,526 $487,845 $548,193
Gross profit........................... 72,681 98,636 119,383 123,397
Net income attributable to common
stock............................... 19,312 30,863 40,458 14,160
Basic earnings per share............... $ 0.34 $ 0.52 $ 0.64 $ 0.25
Diluted earnings per share............. $ 0.28 $ 0.42 $ 0.53 $ 0.20
Diluted earnings per share before
merger and special charges.......... $ 0.28 $ 0.42 $ 0.53 $ 0.49
The sum of the individual quarterly earnings per share amounts may not
agree with year-to-date earnings per share as each period's computation is based
on the weighted average number of shares outstanding during the period.
44
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENT INFORMATION:
The Company operates in one reportable segment as a specialty contractor.
The Company provides comprehensive network solutions to the telecommunications,
electric power and cable television industries, including designing, installing,
repairing and maintaining network infrastructure. Each of these services is
provided by various of the Company's subsidiaries and discrete financial
information is not provided to management at the service level. The following
table presents information regarding revenues derived from the services noted
above.
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1999 2000
-------- -------- ----------
(IN THOUSANDS)
Telecommunications network services................. $100,184 $318,461 $ 796,586
Cable television network services................... 10,050 91,391 219,514
Electric power network services..................... 159,243 316,794 483,432
Ancillary services.................................. 49,782 199,008 293,769
-------- -------- ----------
$319,259 $925,654 $1,793,301
======== ======== ==========
The Company does not have significant operations or long-lived assets in
countries outside of the United States.
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13. is incorporated by reference to the
information set forth in Quanta's Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are
filed as part of this Report:
(1) Financial Statements. Reference is made to the Index to
Consolidated Financial Statements on page 22 of this Report.
(2) All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or the
notes to the financial statements.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1 -- Underwriting Agreement dated July 19, 2000 by and among
Morgan Stanley & Co. Incorporated, Banc of America
Securities LLC, Bear Stearns & Co. Inc., Raymond James &
Associates, Inc. SunTrust Equitable Securities
Corporation, Wachovia Securities, Inc. and Quanta
Services, Inc. (previously filed as Exhibit 1.1 to the
Company's Form 8-K (No. 0001-13831) filed July 26, 2000
and incorporated herein by reference)
3.1 -- Amended and Restated Certificate of Incorporation
(previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (No. 333-42957) and
incorporated herein by reference)
3.2 -- Amended and Restated Bylaws (filed herewith)
3.3 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation (previously filed as Exhibit
3.3 to the Company's Registration Statement on Form S-3
(No. 333-81419) and incorporated herein by reference)
46
EXHIBIT NO. DESCRIPTION
----------- -----------
3.4 -- Certificate of Designation for the Series A Preferred
Stock (previously filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
3.5 -- Certificate of Designation for the Series B Preferred
Stock (Previously filed as Exhibit 3.5 to the Company's
1999 Form 10-K (No. 001-13831) filed March 30, 2000 and
incorporated herein by reference.)
3.6 -- Certificate of Correction to Certificate of Designation
for the Series A Preferred Stock (previously filed as
Exhibit 3.6 to the Company's 1999 Form 10-K (No.
001-13831) filed March 30, 2000 and incorporated herein
by reference)
4.1 -- Form of Common Stock Certificate (previously filed as
Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (No. 333-42957) and incorporated herein by
reference)
4.2 -- Rights Agreement dated as of March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust
Company, as Rights Agent, which includes as Exhibit B
thereto the Form of Right Certificate (previously filed
as Exhibit 4.1 to the Company's Form 8-K (No. 001-13831)
filed March 20, 2000 and incorporated herein by
reference)
4.3 -- Subordinated Indenture dated July 25, 2000 by and between
Quanta Services, Inc. and Chase Bank of Texas, National
Association, as Trustee (previously filed as Exhibit 4.1
to the Company's Form 8-K (No. 001-13831) filed July 26,
2000 and incorporated herein by reference)
4.4 -- First Supplemental Indenture dated July 25, 2000 by and
between Quanta Services, Inc. and Chase Bank of Texas,
National Association, as Trustee (previously filed as
Exhibit 4.2 to the Company's Form 8-K (No. 0001-13831)
filed July 26, 2000 and incorporated herein by reference)
4.5 -- Third Amendment and Consent to Third Amended and Restated
Secured Credit Agreement dated June 15, 2000 by and among
Quanta Services, Inc., the Lenders (as defined therein)
party thereto and Bank of America, N.A. f/k/a
Nationsbank, N.A., as administrative agent for the
Lenders (previously filed as Exhibit 4.3 to the Company's
Form 8-K (No. 0001-13831) filed July 26, 2000 and
incorporated herein by reference)
10.1* -- Form of Employment Agreement (previously filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1
(No. 333-42957) and incorporated herein by reference)
10.2* -- Amended and Restated 1997 Stock Option Plan (previously
filed as Exhibit 10.2 to the Company's Form 10-Q (No.
001-13831) filed November 14, 2000 and incorporated
herein by reference)
10.3 -- Third Amended and Restated Secured Credit Agreement dated
as of June 14, 1999 among Quanta Services, Inc. as
Borrower and NationsBank, N.A. d/b/a Bank of America,
N.A., as Administrative Agent, and the other financial
institutions party thereto, as Lenders (previously filed
as Exhibit 10.5 to the Company's Registration Statement
on Form S-3 (No. 333-81419) and incorporated herein by
reference)
10.4 -- Securities Purchase Agreement among Quanta Services, Inc.
and Enron Capital & Trade Resources Corp. ("Enron
Capital") and Joint Energy Development Investments II
Limited Partnership ("JEDI") dated as of September 29,
1998 (previously filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-4 (No. 333-47083) and
incorporated herein by reference)
47
EXHIBIT NO. DESCRIPTION
----------- -----------
10.5 -- Registration Rights Agreement dated as of September 29,
1998 by and among Quanta Services, Inc., JEDI and Enron
Capital (previously filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-4 (No.
333-47083) and incorporated herein by reference)
10.6 -- Form of Convertible Promissory Note issued to Enron
Capital and JEDI (previously filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (No.
333-47083) and incorporated herein by reference)
10.7 -- Securities Purchase Agreement between Quanta Services,
Inc. and UtiliCorp United Inc. dated as of September 21,
1999 (previously filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
10.8 -- Investor's Rights Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. dated September
21, 1999 (previously filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.9 -- Management Services Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. (previously
filed as Exhibit 10.14 to the Company's Registration
Statement on Form S-3 (No. 333-90961) and incorporated
herein by reference)
10.10 -- Letter Agreement by and between Quanta Services, Inc. and
UtiliCorp United Inc. dated September 21, 1999
(previously filed as Exhibit 10.15 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
10.11 -- Strategic Alliance Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. dated as of
September 21, 1999 (previously filed as Exhibit 10.16 to
the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.12 -- Form of Stockholders Voting Agreement (previously filed
as Exhibit 10.17 to the Company's Registration Statement
on Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.13 -- First Amendment to Third Amended and Restated Secured
Credit Agreement (previously filed as Exhibit 10.18 to
the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.14 -- Letter Agreement by and among ECT Merchant Investments
Corp., Joint Energy Development Investments II Limited
Partnership, Quanta Services, Inc. and UtiliCorp United
Inc. dated September 21, 1999 (previously filed as
Exhibit 10.19 to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.15 -- First Amendment to Securities Purchase Agreement and
Registration Rights Agreement (previously filed as
Exhibit 10.20 to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.16 -- Note Purchase Agreement dated as of March 1, 2000 between
Quanta Services, Inc. and the Purchasers named therein
(previously filed as Exhibit 10.16 to the Company's 1999
Form 10-K (No. 001-13831) filed March 30, 2000 and
incorporated herein by reference)
48
EXHIBIT NO. DESCRIPTION
----------- -----------
10.17 -- Intercreditor Agreement dated March 23, 2000 related to
the March 1, 2000 Note Purchase Agreement (previously
filed as Exhibit 10.17 to the Company's 1999 Form 10-K
(No. 001-13831) filed March 30, 2000 and incorporated
herein by reference)
10.18 -- Rights Agreement dated March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust
Company, as Rights Agent (previously filed as Exhibit 4.1
to the Company's Registration Statement on Form 8-A (No.
001-13831) filed March 21, 2000 and incorporated herein
by reference)
10.19 -- Form of Lockup Agreement (previously filed as Exhibit
10.19 to the Company's 1999 Form 10-K (No. 001-13831)
filed March 30, 2000 and incorporated herein by
reference)
10.20 -- Second Amendment to Third Amended and Restated Credit
Agreement (previously filed as Exhibit 10.20 to the
Company's 1999 Form 10-K (No. 001-13831) filed March 30,
2000 and incorporated herein by reference)
10.21 -- Letter Agreement dated December 28, 2000 between Quanta
Services, Inc. and UtiliCorp United Inc. (filed herewith)
21.1 -- Subsidiaries (filed herewith)
23.1 -- Consent of Arthur Andersen LLP (filed herewith)
- ---------------
* Management contracts or compensatory plans or arrangements
(b) Reports on Form 8-K:
None.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Quanta Services, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on March 30, 2001.
QUANTA SERVICES, INC.
By /s/ JOHN R. COLSON
-----------------------------------
John R. Colson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated on
March 30, 2001.
SIGNATURE TITLE
--------- -----
/s/ JOHN R. COLSON Chief Executive Officer, Director
- ----------------------------------------------------- (Principal Executive Officer)
John R. Colson
/s/ JAMES H. HADDOX Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
James H. Haddox
/s/ DERRICK A. JENSEN Vice President, Controller and
- ----------------------------------------------------- Chief Accounting Officer
Derrick A. Jensen
/s/ VINCENT D. FOSTER Director
- -----------------------------------------------------
Vincent D. Foster
/s/ JOHN R. WILSON Director
- -----------------------------------------------------
John R. Wilson
/s/ JOHN A. MARTELL Director
- -----------------------------------------------------
John A. Martell
Director
- -----------------------------------------------------
Robert K. Green
/s/ JAMES G. MILLER Director
- -----------------------------------------------------
James G. Miller
/s/ GARY A. TUCCI Director
- -----------------------------------------------------
Gary A. Tucci
/s/ JAMES R. BALL Director
- -----------------------------------------------------
James R. Ball
Director
- -----------------------------------------------------
Michael T. Willis
50
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1 -- Underwriting Agreement dated July 19, 2000 by and among
Morgan Stanley & Co. Incorporated, Banc of America
Securities LLC, Bear Stearns & Co. Inc., Raymond James &
Associates, Inc. SunTrust Equitable Securities
Corporation, Wachovia Securities, Inc. and Quanta
Services, Inc. (previously filed as Exhibit 1.1 to the
Company's Form 8-K (No. 0001-13831) filed July 26, 2000
and incorporated herein by reference)
3.1 -- Amended and Restated Certificate of Incorporation
(previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (No. 333-42957) and
incorporated herein by reference)
3.2 -- Amended and Restated Bylaws (filed herewith)
3.3 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation (previously filed as Exhibit
3.3 to the Company's Registration Statement on Form S-3
(No. 333-81419) and incorporated herein by reference)
3.4 -- Certificate of Designation for the Series A Preferred
Stock (previously filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
3.5 -- Certificate of Designation for the Series B Preferred
Stock (Previously filed as Exhibit 3.5 to the Company's
1999 Form 10-K (No. 001-13831) filed March 30, 2000 and
incorporated herein by reference.)
3.6 -- Certificate of Correction to Certificate of Designation
for the Series A Preferred Stock (previously filed as
Exhibit 3.6 to the Company's 1999 Form 10-K (No.
001-13831) filed March 30, 2000 and incorporated herein
by reference)
4.1 -- Form of Common Stock Certificate (previously filed as
Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (No. 333-42957) and incorporated herein by
reference)
4.2 -- Rights Agreement dated as of March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust
Company, as Rights Agent, which includes as Exhibit B
thereto the Form of Right Certificate (previously filed
as Exhibit 4.1 to the Company's Form 8-K (No. 001-13831)
filed March 20, 2000 and incorporated herein by
reference)
4.3 -- Subordinated Indenture dated July 25, 2000 by and between
Quanta Services, Inc. and Chase Bank of Texas, National
Association, as Trustee (previously filed as Exhibit 4.1
to the Company's Form 8-K (No. 001-13831) filed July 26,
2000 and incorporated herein by reference)
4.4 -- First Supplemental Indenture dated July 25, 2000 by and
between Quanta Services, Inc. and Chase Bank of Texas,
National Association, as Trustee (previously filed as
Exhibit 4.2 to the Company's Form 8-K (No. 0001-13831)
filed July 26, 2000 and incorporated herein by reference)
4.5 -- Third Amendment and Consent to Third Amended and Restated
Secured Credit Agreement dated June 15, 2000 by and among
Quanta Services, Inc., the Lenders (as defined therein)
party thereto and Bank of America, N.A. f/k/a
Nationsbank, N.A., as administrative agent for the
Lenders (previously filed as Exhibit 4.3 to the Company's
Form 8-K (No. 0001-13831) filed July 26, 2000 and
incorporated herein by reference)
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1* -- Form of Employment Agreement (previously filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1
(No. 333-42957) and incorporated herein by reference)
10.2* -- Amended and Restated 1997 Stock Option Plan (previously
filed as Exhibit 10.2 to the Company's Form 10-Q (No.
001-13831) filed November 14, 2000 and incorporated
herein by reference)
10.3 -- Third Amended and Restated Secured Credit Agreement dated
as of June 14, 1999 among Quanta Services, Inc. as
Borrower and NationsBank, N.A. d/b/a Bank of America,
N.A., as Administrative Agent, and the other financial
institutions party thereto, as Lenders (previously filed
as Exhibit 10.5 to the Company's Registration Statement
on Form S-3 (No. 333-81419) and incorporated herein by
reference)
10.4 -- Securities Purchase Agreement among Quanta Services, Inc.
and Enron Capital & Trade Resources Corp. ("Enron
Capital") and Joint Energy Development Investments II
Limited Partnership ("JEDI") dated as of September 29,
1998 (previously filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-4 (No. 333-47083) and
incorporated herein by reference)
10.5 -- Registration Rights Agreement dated as of September 29,
1998 by and among Quanta Services, Inc., JEDI and Enron
Capital (previously filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-4 (No.
333-47083) and incorporated herein by reference)
10.6 -- Form of Convertible Promissory Note issued to Enron
Capital and JEDI (previously filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (No.
333-47083) and incorporated herein by reference)
10.7 -- Securities Purchase Agreement between Quanta Services,
Inc. and UtiliCorp United Inc. dated as of September 21,
1999 (previously filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
10.8 -- Investor's Rights Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. dated September
21, 1999 (previously filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.9 -- Management Services Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. (previously
filed as Exhibit 10.14 to the Company's Registration
Statement on Form S-3 (No. 333-90961) and incorporated
herein by reference)
10.10 -- Letter Agreement by and between Quanta Services, Inc. and
UtiliCorp United Inc. dated September 21, 1999
(previously filed as Exhibit 10.15 to the Company's
Registration Statement on Form S-3 (No. 333-90961) and
incorporated herein by reference)
10.11 -- Strategic Alliance Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. dated as of
September 21, 1999 (previously filed as Exhibit 10.16 to
the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.12 -- Form of Stockholders Voting Agreement (previously filed
as Exhibit 10.17 to the Company's Registration Statement
on Form S-3 (No. 333-90961) and incorporated herein by
reference)
EXHIBIT NO. DESCRIPTION
----------- -----------
10.13 -- First Amendment to Third Amended and Restated Secured
Credit Agreement (previously filed as Exhibit 10.18 to
the Company's Registration Statement on Form S-3 (No.
333-90961) and incorporated herein by reference)
10.14 -- Letter Agreement by and among ECT Merchant Investments
Corp., Joint Energy Development Investments II Limited
Partnership, Quanta Services, Inc. and UtiliCorp United
Inc. dated September 21, 1999 (previously filed as
Exhibit 10.19 to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.15 -- First Amendment to Securities Purchase Agreement and
Registration Rights Agreement (previously filed as
Exhibit 10.20 to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by
reference)
10.16 -- Note Purchase Agreement dated as of March 1, 2000 between
Quanta Services, Inc. and the Purchasers named therein
(previously filed as Exhibit 10.16 to the Company's 1999
Form 10-K (No. 001-13831) filed March 30, 2000 and
incorporated herein by reference)
10.17 -- Intercreditor Agreement dated March 23, 2000 related to
the March 1, 2000 Note Purchase Agreement (previously
filed as Exhibit 10.17 to the Company's 1999 Form 10-K
(No. 001-13831) filed March 30, 2000 and incorporated
herein by reference)
10.18 -- Rights Agreement dated March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust
Company, as Rights Agent (previously filed as Exhibit 4.1
to the Company's Registration Statement on Form 8-A (No.
001-13831) filed March 21, 2000 and incorporated herein
by reference)
10.19 -- Form of Lockup Agreement (previously filed as Exhibit
10.19 to the Company's 1999 Form 10-K (No. 001-13831)
filed March 30, 2000 and incorporated herein by
reference)
10.20 -- Second Amendment to Third Amended and Restated Credit
Agreement (previously filed as Exhibit 10.20 to the
Company's 1999 Form 10-K (No. 001-13831) filed March 30,
2000 and incorporated herein by reference)
10.21 -- Letter Agreement dated December 28, 2000 between Quanta
Services, Inc. and UtiliCorp United Inc. (filed herewith)
21.1 -- Subsidiaries (filed herewith)
23.1 -- Consent of Arthur Andersen LLP (filed herewith)
- ---------------
* Management contracts or compensatory plans or arrangements