QUANTA SERVICES INC, 10-Q, 1999-08-16

QUANTA SERVICES INC
10-Q, 1999-08-16
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-Q

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

(Mark One)

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

For the Quarterly Period Ended June 30, 1999

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

For the transition period from to .

Commission File No. 001-13831

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

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

Delaware 74-2851603
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1360 Post Oak Blvd.
Suite 2100
Houston, Texas 77056
(Address of principal executive offices)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

28,476,973 shares of Common Stock were outstanding as of August 12, 1999. As
of the same date, 3,331,451 shares of Limited Vote Common Stock were
outstanding.

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<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX

<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANTA SERVICES, INC. AND SUBSIDIARIES SUPPLEMENTAL COMBINED FINANCIAL
INFORMATION
Supplemental Combined Financial Information........................... 1
Supplemental Combined Statements of Operations for the six months
ended June 30, 1998 and 1999......................................... 2
QUANTA SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets........................................... 4
Consolidated Statements of Operations................................. 5
Consolidated Statements of Cash Flows................................. 6
Notes to Condensed Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders............. 17
Item 6. Exhibits and Reports on Form 8-K................................ 18
Signature............................................................... 19
</TABLE>
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

PART I, ITEM 1--FINANCIAL INFORMATION

SUPPLEMENTAL COMBINED FINANCIAL INFORMATION

OVERVIEW AND BASIS OF PRESENTATION

Quanta Services, Inc., a Delaware corporation ("Quanta" or the "Company"),
was founded in August 1997 to create a leading provider of specialty
contracting and maintenance services primarily related to electric, utility,
telecommunications and cable television infrastructure in North America. In
February 1998, Quanta completed its initial public offering (the "Offering"),
concurrent with which Quanta acquired, in separate transactions, four entities
(the "Founding Companies"). Quanta acquired twelve additional businesses in
1998 and sixteen additional businesses through June 30, 1999. Of these
additional acquired businesses, 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". Quanta intends to continue to acquire, through
merger or purchase, similar companies to expand its national and regional
operations.

The financial statements of Quanta for periods prior to February 18, 1998
(the effective closing date of the acquisitions of the Founding Companies) are
the financial statements of PAR Electrical Contractors, Inc. ("PAR" or the
"Accounting Acquiror") as restated for the acquisitions of the Pooled
Companies. The operations of the other Founding Companies and Quanta, acquired
by the Accounting Acquiror, have been included in the Company's historical
financial statements beginning February 19, 1998, and the Purchased Companies
from their respective dates of acquisition.

The unaudited supplemental pro forma combined statement of operations for
the six months ended June 30, 1998 assumes that the Offering and related
transactions were closed on January 1, 1998 and presents certain data for the
Company as adjusted for: 1) the acquisition of the Founding Companies; 2)
certain reductions in salaries, bonuses and benefits to former owners of the
Founding Companies; 3) amortization of goodwill resulting from the acquisition
of the Founding Companies; 4) a reduction in interest expense, net of interest
expense on borrowings to fund S corporation distributions by certain of the
Founding Companies; and 5) adjustments to the federal and state income tax
provision for the Founding Companies based on pro forma operating results.

The unaudited supplemental pro forma combined statement of operations for
the six months ended June 30, 1998 is presented herein as the Company believes
certain investors find the information useful. This statement should be read
in conjunction with the Company's unaudited consolidated financial statements
and notes thereto included in this Form 10-Q. The pro forma financial data
does not purport to represent what the Company's combined results of
operations would actually have been if such transactions had in fact occurred
on those dates and are not necessarily representative of the Company's results
of operations for any future period. Since Quanta, the Founding Companies and
the Pooled Companies were not under common control or management for a portion
of the period presented, historical pro forma combined results may not be
comparable to, or indicative of, future performance.

Operating results for the interim periods are not necessarily indicative of
the results for full years. The results of the Company have historically been
subject to significant seasonal fluctuations. It is suggested that these
unaudited pro forma supplemental combined financial statements be read in
conjunction with the historical and pro forma combined financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K
which was filed with the Securities and Exchange Commission on March 31, 1999
and additionally the Company's restated financial statements on Form 8-K which
was filed with the Securities and Exchange Commission on June 17, 1999, giving
effect to a pooling-of-interests transaction which occurred in February 1999.

1
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

SUPPLEMENTAL COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)

<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1999
----------- --------
(Pro Forma)
<S> <C> <C>
Revenues................................................. $111,811 $321,600
Cost of services (including depreciation).................. 91,418 255,120
-------- --------
Gross profit........................................... 20,393 66,480
Selling, general & administrative expenses............... 10,222 29,877
Merger expenses--pooling................................. 231 6,574 (a)
Goodwill amortization.................................... 967 3,725
-------- --------
Income from operations................................. 8,973 26,304
-------- --------
Other income (expense):
Interest expense....................................... (1,080) (5,661)
Other, net............................................. 235 678
-------- --------
Income before income tax provision....................... 8,128 21,321
Provision for income taxes(b)............................ 3,477 13,091
-------- --------
Net income............................................... $ 4,651 $ 8,230
======== ========
Basic earnings per share................................. $ 0.26 $ 0.29
======== ========
Diluted earnings per share............................... $ 0.26 $ 0.29
======== ========
Diluted earnings per share before merger expenses(c)..... $ 0.27 $ 0.51
======== ========
Shares used in computing earnings per share(1)--
Basic.................................................. 18,045 28,020
======== ========
Diluted(d)............................................. 18,153 32,290
======== ========
</TABLE>
- --------
(a) As a result of the termination of an Employee Stock Ownership Plan
associated with a company acquired in a pooling transaction, in June 1999
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.
(b) Reflects the non-deductibility of the merger expenses. In addition, for
the six months ended June 30, 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.
(c) Excludes the effect of all non-recurring, merger expenses. Additionally,
for the six months ended June 30, 1999, it excludes the non-cash, non-
recurring deferred tax charge of $677,000 described in (b) above.
(d) Includes the dilution attributable to the assumed conversion of the
Convertible Subordinated Notes in 1999 and the dilution attributable to
outstanding options to purchase common stock, using the treasury stock
method.

The accompanying notes are an integral part of these supplemental combined
financial statements.

2
<PAGE>

(1) Shares Used in Computing Earnings Per Share

The pro forma basic earnings per share calculation for the six months ended
June 30, 1998 include the pro forma effect of the shares issued to the
Founding Companies, the Pooled Companies, the Limited Vote Common Stock and
the Offering as though they were outstanding the entire period. Pro forma
diluted earnings per share include the shares described previously and the
dilution of 108,313 shares attributable to outstanding options to purchase
common stock, using the treasury stock method.

Basic earnings per share for the six months ended June 30, 1999 are based on
the weighted average shares of common stock and Limited Vote Common Stock
outstanding. Diluted earnings per share is based on the weighted average
shares of common stock and Limited Vote Common Stock outstanding and the
dilution of 680,810 shares attributable to outstanding options to purchase
common stock, using the treasury stock method. In addition, it includes the
dilution attributable to the assumed conversion of the Convertible
Subordinated Notes. Included in net income used in computing diluted earnings
per share is approximately $1.1 million in reduced interest expense, net of
tax, attributable to the assumed conversion of the Convertible Subordinated
Notes.

3
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)

<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash................................................ $ 3,246 $ 4,192
Accounts receivable, net of allowance of $1,616 and
$2,879............................................. 76,040 156,749
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 22,620 44,424
Inventories......................................... 2,534 8,863
Prepaid expenses and other current assets........... 4,352 7,973
-------- --------
Total current assets.............................. 108,792 222,201
PROPERTY AND EQUIPMENT, net........................... 74,212 126,316
OTHER ASSETS, net..................................... 5,190 7,204
GOODWILL, net......................................... 150,887 385,879
-------- --------
Total assets...................................... $339,081 $741,600
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt................ $ 4,357 $ 5,565
Accounts payable and accrued expenses............... 40,298 94,456
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 7,031 11,213
-------- --------
Total current liabilities......................... 51,686 111,234
LONG-TERM DEBT, net of current maturities............. 60,281 180,095
CONVERTIBLE SUBORDINATED NOTES........................ 49,350 49,350
DEFERRED INCOME TAXES AND OTHER NON-CURRENT
LIABILITIES.......................................... 6,261 9,365
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.00001 par value, 10,000,000
shares authorized, none issued .................... -- --
Common Stock, $.00001 par value, 36,654,667 and
100,000,000 shares authorized, 18,557,949 and
27,688,330 shares issued and outstanding........... -- --
Limited Vote Common Stock, $.00001 par value,
3,345,333 shares authorized, 3,345,333 and
3,341,451 shares issued and outstanding............ -- --
Unearned ESOP shares................................ (1,831) --
Additional paid-in capital.......................... 145,194 355,186
Retained earnings................................... 28,140 36,370
-------- --------
Total stockholders' equity........................ 171,503 391,556
-------- --------
Total liabilities and stockholders' equity........ $339,081 $741,600
======== ========
</TABLE>

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

4
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1998 1999 1998 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................... $ 65,045 $ 193,821 $ 97,275 $321,600
Cost of services (including
depreciation)................. 52,249 150,249 79,245 255,120
--------- --------- -------- --------
Gross profit................. 12,796 43,572 18,030 66,480
Selling, general &
administrative expenses....... 5,744 17,895 9,266 29,877
Merger expenses--pooling....... 231 6,437 (a) 231 6,574 (a)
Goodwill amortization.......... 553 2,227 749 3,725
--------- --------- -------- --------
Income from operations....... 6,268 17,013 7,784 26,304
Other income (expense):........
Interest expense............. (701) (3,437) (1,117) (5,661)
Other, net................... 116 358 189 678
--------- --------- -------- --------
Income before income tax
provision..................... 5,683 13,934 6,856 21,321
Provision for income taxes(b).. 2,544 9,127 2,900 13,091
--------- --------- -------- --------
Net income..................... $ 3,139 $ 4,807 $ 3,956 $ 8,230
========= ========= ======== ========
Basic earnings per share....... $ 0.17 $ 0.16 $ 0.27 $ 0.29
========= ========= ======== ========
Diluted earnings per share..... $ 0.17 $ 0.16 $ 0.27 $ 0.29
========= ========= ======== ========
Diluted earnings per share
before merger expenses(c)..... $ 0.18 $ 0.34 $ 0.28 $ 0.51
========= ========= ======== ========
Shares used in computing
earnings per share--
Basic........................ 18,655 30,075 14,610 28,020
========= ========= ======== ========
Diluted(d)................... 18,817 34,474 14,717 32,290
========= ========= ======== ========
</TABLE>
- --------
(a) As a result of the termination of an Employee Stock Ownership Plan
associated with a company acquired in a pooling transaction, in June 1999
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.
(b) Reflects the non-deductibility of the merger expenses. In addition, for
the six months ended June 30, 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.
(c) Excludes the effect of all non-recurring, merger expenses. Additionally,
for the six months ended June 30, 1999, it excludes the non-cash, non-
recurring deferred tax charge of $677,000 described in (b) above.
(d) Includes the dilution attributable to the assumed conversion of the
Convertible Subordinated Notes in 1999 and the dilution attributable to
outstanding options to purchase common stock, using the treasury stock
method.

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

5
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 3,139 $ 4,807 $ 3,956 $ 8,230
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation and amortization... 2,229 7,414 3,389 12,764
Gain on sale of property and
equipment...................... (8) (119) (57) (153)
Non-cash compensation charge for
issuance of Common Stock
(ESOP)......................... -- 5,319 -- 5,319
Deferred income taxes........... 87 (476) 192 214
Changes in operating assets and
liabilities, net of non-cash
transactions--
(Increase) decrease in--
Accounts receivable........... (396) (20,095) (4,126) (32,093)
Inventories................... 478 (944) (128) (1,766)
Costs and estimated earnings
in excess of billings on
uncompleted contacts......... (4,514) (1,156) (5,643) (12,031)
Prepaid expenses and other
current assets............... 35 60 41 (616)
Increase (decrease) in--
Accounts payable and accrued
expenses..................... 656 18,486 5,575 26,391
Billings in excess of costs
and estimated earnings on
uncompleted contracts........ 1,771 (4,510) 185 (2,034)
Other, net.................... (438) 870 (411) 1,024
--------- --------- --------- ---------
Net cash provided by operating
activities..................... 3,039 9,656 2,973 5,249
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of property
and equipment................... 153 194 969 481
Additions of property and
equipment....................... (4,342) (16,303) (7,293) (24,883)
Cash paid for acquisitions, net
of cash acquired................ (22,716) (77,461) (34,773) (175,045)
--------- --------- --------- ---------
Net cash used in investing
activities..................... (26,905) (93,570) (41,097) (199,447)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt..... 929 933 3,711 3,361
Payments on long-term debt....... (9,249) (7,153) (27,406) (22,810)
Issuances of common stock, net of
offering costs.................. -- -- 45,109 101,119
Net borrowings under bank lines
of credit....................... 28,895 89,360 26,369 113,765
Distributions to accounting
acquiror........................ -- -- (8,370) --
Exercise of stock options........ -- 1,368 -- 1,368
Debt issuance costs.............. -- (1,659) -- (1,659)
--------- --------- --------- ---------
Net cash provided by financing
activities..................... 20,575 82,849 39,413 195,144
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH.... (3,291) (1,065) 1,289 946
CASH, beginning of period.......... 5,069 5,257 489 3,246
--------- --------- --------- ---------
CASH, end of period................ $ 1,778 $ 4,192 $ 1,778 $ 4,192
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for--
Interest......................... $ 623 $ 1,517 $ 1,003 $ 3,457
Income taxes..................... 536 4,874 799 10,312
</TABLE>

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

6
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BUSINESS AND ORGANIZATION:

In February 1998, Quanta completed its initial public offering (the
"Offering"), concurrent with which Quanta acquired, in separate transactions,
four entities (the "Founding Companies"). Quanta acquired twelve additional
businesses in 1998 and sixteen additional businesses through June 30, 1999. Of
these additional acquired businesses, 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" (together with the Founding Companies and the
Pooled Companies, the "Acquired Businesses"). Quanta intends to continue to
acquire, through merger or purchase, similar companies to expand its national
and regional operations.

The financial statements of Quanta for periods prior to February 18, 1998
(the effective closing date of the acquisitions of the Founding Companies),
are the financial statements of PAR Electrical Contractors, Inc. ("PAR" or the
"Accounting Acquiror") as restated for the acquisitions of the Pooled
Companies. The operations of the other Founding Companies and Quanta, acquired
by the Accounting Acquiror, have been included in the Company's historical
financial statements beginning February 19, 1998, and the Purchased Companies
beginning on their respective dates of acquisition. References herein to the
"Company" include Quanta and its subsidiaries.

Interim Condensed Consolidated Financial Information

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

It is suggested that these condensed consolidated financial statements be
read in conjunction with the audited financial statements and notes thereto of
Quanta Services, Inc. and subsidiaries included in the Company's Annual Report
on Form 10-K, which was filed with the SEC on March 31, 1999 and additionally
the Company's restated financial statements on Form 8-K which was filed with
the SEC on June 17, 1999, giving effect to a pooling-of-interests transaction
which occurred in February 1999.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
by management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at 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.

7
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)

2. PER SHARE INFORMATION

Basic earnings per share calculations are based on the weighted average
shares of common stock and Limited Vote Common Stock outstanding. Diluted
earnings per share calculations are based on the weighted average shares of
common stock and Limited Vote Common Stock outstanding and the dilution of
161,531 and 108,313 shares for three and six months ended June 30, 1998,
respectively, and 810,446 and 680,810 shares for the three and six months
ended June 30, 1999, respectively, attributable to outstanding options to
purchase common stock, using the treasury stock method. In addition, for the
three and six months ended June 30, 1999, diluted earnings per share includes
the dilution attributable to the assumed conversion of the Convertible
Subordinated Notes. Included in the net income used in computing diluted
earnings per share for the three and six months ended June 30, 1999 are
approximately $542,000 and $1.1 million, respectively, in reduced interest
expense, net of tax, attributable to the assumed conversion of the Convertible
Subordinated Notes.

3. BUSINESS COMBINATIONS:

Poolings

During 1998 and the quarter ended March 31, 1999, the Company acquired all
of the outstanding stock of two companies in exchange for 1,162,572 shares of
common stock. These companies provide specialty contracting services to the
cable television and telecommunications industries. These acquisitions have
been accounted for as poolings-of-interests and the results of their
operations are included for all periods presented herein.

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 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 will be distributed to the 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 percent of the value of the
Company's common stock to be distributed. 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.

Purchases

In the first six months of 1999, the Company completed fifteen acquisitions
accounted for as purchases. The aggregate consideration paid in these
transactions consisted of $186.2 million in cash and notes and 4.4 million
shares of common stock. The accompanying consolidated balance sheet as of June
30, 1999 includes preliminary allocations of the respective purchase prices
and is subject to final adjustment. Set forth below are unaudited pro forma
combined revenue and income data reflecting the pro forma effect of these
acquisitions on the Company's consolidated results of operations for the year
ended December 31, 1998 and the six months ended June 30, 1999. The unaudited
data presented below consists of statements of operations data as presented in
these condensed consolidated financial statements plus (i) statements of
operations data of the Founding Companies for the periods prior to February
19, 1998, (ii) the effects of the Pooled Companies and (iii) all

8
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)

Purchased Companies as if the acquisitions were effective on the first day of
the period being reported. The unaudited pro forma revenue and net income data
are in thousands.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1998 1999
------------ ----------------
<S> <C> <C>
Revenues......................................... $723,228 $374,324
Net income....................................... $ 45,279 $ 13,951
Basic earnings per share......................... $ 1.46 $ 0.45
Diluted earnings per share....................... $ 1.37 $ 0.43
Diluted earnings per share before merger
expenses........................................ $ 1.37 $ 0.61
</TABLE>

Pro forma adjustments included in the amounts above primarily relate to: (a)
contractually agreed reductions in salaries and benefits for former owners,
and certain key employees; (b) adjustment to 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 Founding Companies and Purchased
Companies, offset by an assumed increase in interest expense incurred in
connection with financing the acquisitions; (d) the incremental interest
expense and amortization of deferred financing costs incurred as a result of
the issuance of the Convertible Subordinated Notes (as defined in Note 7), net
of the repayment of outstanding indebtedness of the Company; (e) the reduction
in interest expense related to the repayment of debt from proceeds of the
secondary offering of common stock completed in January 1999, as if the
offering had been completed at the beginning of all periods presented; and (f)
adjustment to the federal and state income tax provisions based on the
combined operations. The diluted earnings per share before merger expenses
excludes the effect of all non-recurring merger expenses. Additionally, for
the six months ended June 30, 1999, it excludes the non-cash, non-recurring
deferred tax charge of $677,000 recorded 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. The pro forma financial
data does not purport to represent what the Company's combined results of
operations would actually have been if such transactions had in fact occurred
on those dates and are not necessarily representative of the Company's results
of operations for any future period.

4. INCOME TAXES:

Certain of the acquisitions were S corporations for income tax purposes and,
accordingly, any income tax liabilities for the periods prior to the
acquisitions are the responsibility of the respective stockholders. Effective
with the acquisitions, the S corporations converted to C corporations.
Accordingly, an estimated deferred tax liability has been recorded to provide
for the estimated future income tax liability as a result of the difference
between the book and tax bases of the net assets of these former S
corporations. For purposes of these consolidated financial statements, federal
and state income taxes have been provided for the post-acquisition periods. In
addition, during the first quarter of 1999, a non-cash, non-recurring tax
charge of $677,000 was recorded 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.

5. COMMITMENTS AND CONTINGENCIES:

On June 30, 1999, the Company announced that it entered into a Letter of
Intent with UtiliCorp United Inc. ("UtiliCorp") for a strategic partnership,
with UtiliCorp investing up to $400 million in the Company. Under the proposed
transaction, Quanta will initially receive proceeds of $150 million in
exchange for preferred stock which is convertible into Quanta's common stock
at any time at the option of the holder. The remaining investment of up to
$250 million by UtiliCorp could take the form of a direct equity investment in
the Company and/or the purchase of a portion of the Company's outstanding
securities from existing shareholders. The Company currently expects the
investment to close in the third quarter of 1999.

9
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)

6. NEW PRONOUNCEMENTS:

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which becomes effective for financial
statements beginning January 1, 2000. SFAS No. 133 requires a company 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. The Company is evaluating SFAS No. 133 and
the impact on existing accounting policies and financial reporting
disclosures. However, the Company has not to date engaged in activities or
entered into arrangements normally associated with derivative instruments. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133--An Amendment of FASB Statement No. 133". SFAS No. 137
delayed the effective date of the requirements of SFAS No. 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000.

7. DEBT:

Credit Facility

In June 1999, the Company expanded its bank group from nine to 14 banks and
amended its $175.0 million revolving credit facility (the "Credit Facility")
to $350.0 million. The Credit Facility is secured by a pledge of all of the
capital stock of the Company's material operating 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 ("LIBOR" which was 5.25
percent at June 30, 1999) plus 1.00 percent to 2.00 percent, 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 7.75 percent at June
30, 1999) plus up to 0.25 percent, as determined by the ratio of the Company's
total funded debt to EBITDA. Commitment fees of 0.25 percent to 0.50 percent
(based on certain financial ratios) are due on any unused borrowing capacity
under the Credit Facility. The Credit Facility matures June 2004. The
Company's existing and future subsidiaries will guarantee the repayment of all
amounts due under the Credit Facility and the Credit 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, 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 June
30, 1999, $170.4 million was borrowed under the Credit Facility, and the
Company had $4.1 million of letters of credit outstanding, resulting in a
borrowing availability of $175.5 million under the Credit Facility.

Strategic Investment

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 one of its affiliates made an
investment of $49.4 million in Quanta. The investment is in the form of
Convertible Subordinated Notes bearing interest at 6 7/8 percent and
convertible into Quanta common stock at a price of $13.75 per share.
Additionally, Quanta and Enron Capital entered into a strategic alliance under
which Enron Capital and Quanta will exchange information regarding the design,
construction and maintenance of electric power transmission and distribution
systems and fiber optic communications systems. The Convertible Subordinated
Notes require quarterly interest payments and equal semi-annual principal
payments beginning in 2006 until the notes are paid in full in 2010. The
Company has the option to redeem the notes at a premium beginning in 2002.

10
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)

8. SEGMENT INFORMATION:

The Company operates in one reportable segment as a specialty contractor.
The Company provides contracting and maintenance services including services
for electric, utility, telecommunications and cable television infrastructure,
transportation control and lighting systems and commercial and industrial
services. 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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Electric utility infrastructure..................... $ 53,370 $164,438
Telecommunications infrastructure................... 22,616 106,743
Transportation control and lighting systems......... 7,790 21,246
Commercial and industrial........................... 10,475 20,294
Cable television infrastracture..................... 3,024 8,879
------------ -------------
$ 97,275 $ 321,600
============ =============
</TABLE>

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

9. SUBSEQUENT EVENTS:

Business Combinations

Subsequent to June 30, 1999 and through August 12, 1999, the Company has
acquired six additional companies for an aggregate consideration of $39.8
million in cash and notes and 775,084 shares of common stock. The cash portion
of such consideration was provided by borrowings under the Company's Credit
Facility.

11
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Introduction

The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q. Except for the historical financial information
contained herein, the matters discussed in this Quarterly Report on Form 10-Q
may be considered "forward-looking" statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include
declarations regarding the intent, belief or current expectations of the
Company and its management, statements regarding the future results of
acquired companies, the Company's gross margins and the Company's expectations
regarding Year 2000 issues. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve a number of risks and uncertainties. Actual results could differ
materially from those indicated by such forward-looking statements. Among the
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are the risk factors
identified in the Company's Annual Report on Form 10-K, which was filed with
the Securities and Exchange Commission on March 31, 1999, and which is
available at the SEC's Web site at www.sec.gov.

Quanta derives its revenues from one reportable segment by providing
specialty contracting and maintenance services related to electric, utility,
telecommunications and cable television infrastructure, installing
transportation control and lighting systems, and providing specialty
contracting services to the commercial and industrial markets. Costs of
services consist primarily of salaries and benefits to employees,
depreciation, insurance, fuel and other vehicle expenses, equipment rentals,
subcontracted services, materials, parts and supplies. Quanta's gross margin,
which is gross profit expressed as a percentage of revenues, is typically
higher on projects where labor, rather than materials, constitutes a greater
portion of the cost of services. Labor costs can be predicted with relatively
less accuracy than materials costs. Therefore, to compensate for the potential
variability of labor costs, we seek to maintain higher margins on our labor-
intensive projects. Certain of our subsidiaries were previously subject to
deductibles ranging from $100,000 to $1,000,000 for workers' compensation
insurance. Fluctuations in insurance accruals related to this deductible 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.

12
<PAGE>

Results of Operations

The unaudited consolidated statements of operations for the three and six
months ended June 30, 1998 and 1999 reflect the operations of PAR and the
Pooled Companies. The operations of the Founding Companies have been included
in the Company's consolidated financial statements beginning February 19, 1998
and the operations of the Purchased Companies have been included from their
respective acquisition dates.

<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1998 1999 1998 1999
-------------- --------------- -------------- ---------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $65,045 100.0% $193,821 100.0% $97,275 100.0% $321,600 100.0%
Cost of services........ 52,249 80.3 150,249 77.5 79,245 81.5 255,120 79.3
------- ----- -------- ----- ------- ----- -------- -----
Gross profit............ 12,796 19.7 43,572 22.5 18,030 18.5 66,480 20.7
Selling, general and
administrative
expenses............... 5,744 8.8 17,895 9.2 9,266 9.5 29,877 9.3
Merger expenses-pooling. 231 0.4 6,437 3.3 231 0.2 6,574 2.0
Goodwill amortization... 553 0.9 2,227 1.2 749 0.8 3,725 1.2
------- ----- -------- ----- ------- ----- -------- -----
Income from operations.. 6,268 9.6 17,013 8.8 7,784 8.0 26,304 8.2
Interest expense........ (701) 1.1 (3,437) 1.8 (1,117) 1.1 (5,661) 1.8
Other income, net....... 116 0.2 358 0.2 189 0.2 678 0.2
------- ----- -------- ----- ------- ----- -------- -----
Income before income tax
provision.............. 5,683 8.7 13,934 7.2 6,856 7.1 21,321 6.6
Provision for income
taxes.................. 2,544 3.9 9,127 4.7 2,900 3.0 13,091 4.1
------- ----- -------- ----- ------- ----- -------- -----
Net income.............. $ 3,139 4.8% $ 4,807 2.5% $ 3,956 4.1% $ 8,230 2.5%
======= ===== ======== ===== ======= ===== ======== =====
</TABLE>

Consolidated Results For The Three and Six Months Ended June 30, 1998,
Compared To The Three and Six Months Ended June 30, 1999

Revenues. Revenues increased $128.8 million and $224.3 million, or 198.0%
and 230.6%, to $193.8 million and $321.6 million for the three and six months
ended June 30, 1999. This increase in revenues was primarily attributable to
the contribution of $118.6 million and $180.0 million in revenues for the
three and six months ended June 30, 1999 due to the acquisition of Purchased
Companies subsequent to June 30, 1998 and increased demand for the Company's
services in 1999.

Gross profit. Gross profit increased $30.8 million and $48.5 million, or
240.5% and 268.7%, to $43.6 million and $66.5 million for the three and six
months ended June 30, 1999. As a percentage of revenues, gross profit
increased from 19.7% for the three months ended June 30, 1998 to 22.5% for the
three months ended June 30, 1999. Gross margins increased from 18.5% for the
six months ended June 30, 1998 to 20.7% for the six months ended June 30,
1999. The increase in both periods was due to a higher mix of higher margin
telecommunications contracts in 1999 compared to 1998 due to the acquisition
of certain of the Purchased Companies subsequent to June 30, 1998.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $12.2 million and $20.6 million, or 211.5%
and 222.4%, to $17.9 million and $29.9 million for the three and six months
ended June 30, 1999, due to the acquisition of certain of the Purchased
Companies subsequent to June 30, 1998, increases in selling and administrative
salaries required to support the higher level of revenues generated from an
increased volume of projects and the increased costs related to the Company's
corporate infrastructure.

Merger expenses-pooling. Merger expenses increased $6.2 million and $6.3
million, or 2,686.6% and 2,745.9%, to $6.4 million and $6.6 million for the
three and six months ended June 30, 1999, due to the recording of $1.1 million
of excise tax charges and $5.3 million of non-cash compensation charges
related to the allocation of shares of common stock to participants of an ESOP
associated with one of the Pooled Companies.

13
<PAGE>

Interest Expense. Interest expense increased $2.7 million and $4.5 million,
or 390.3% and 406.8%, to $3.4 million and $5.7 million for the three and six
months ended June 30, 1999. This increase in interest expense is attributable
to higher levels of debt resulting from cash paid and debt assumed with the
acquisition of certain of the Purchased Companies subsequent to June 30, 1998.
In addition, the Company borrowed funds under the Credit Facility for
equipment purchases and other operating activities in connection with the
addition of certain of the Purchased Companies subsequent to June 30, 1998.
Also, the issuance of the Convertible Subordinated Notes increased interest
expense, while lower overall effective borrowing rates in 1999 versus 1998
partially offset this increase.

Liquidity and Capital Resources

In February 1999, the Company completed a follow-on public offering of
common stock, which included the issuance of 4,600,000 shares of common stock
(including 600,000 shares pursuant to the underwriters' over-allotment option)
at a price of $23.25 per share (before deducting underwriting discounts and
commissions). The Company realized proceeds from this transaction, net of the
discounts and after deducting the expenses of the offering, of approximately
$101.1 million. Of this amount, the Company used $57.8 million to repay
outstanding indebtedness under the Credit Facility and the remainder to
acquire additional businesses.

As of June 30, 1999, Quanta had cash of $4.2 million, working capital of
$111.0 million and long-term debt of $180.1 million, net of current
maturities, including borrowings of $170.4 million under the Credit Facility.
The Company also had $4.1 million of letters of credit outstanding under the
Credit Facility. In addition, the Company had $49.4 million of Convertible
Subordinated Notes.

During the six months ended June 30, 1999, operating activities provided net
cash flow of $5.2 million. Changes in working capital accounts are driven
predominantly by the acquisitions throughout the year and as such are not
comparable to prior periods. We used net cash in investing activities of
$199.4 million, including $175.0 million used for the purchase of businesses,
net of cash acquired. Financing activities provided a net cash flow of $195.1
million, resulting primarily from $113.8 million from net borrowings under our
Credit Facility, and $101.1 million of net proceeds from the follow-on
offering partially offset by $22.8 million in repayments of debt assumed in
connection with acquisitions.

In June 1999, the Company expanded its bank group from nine to 14 banks and
amended its $175.0 million revolving credit facility (the "Credit Facility")
to $350.0 million. The Credit Facility is secured by a pledge of all of the
capital stock of the Company's material operating 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 ("LIBOR") plus 1.00
percent to 2.00 percent, 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 plus up to 0.25 percent, as determined by the ratio of the
Company's total funded debt to EBITDA. Commitment fees of 0.25 percent to 0.50
percent (based on certain financial ratios) are due on any unused borrowing
capacity under the Credit Facility. The Company's existing and future
subsidiaries will guarantee the repayment of all amounts due under the Credit
Facility, and the Credit 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,
certain financial ratios and indebtedness covenants and a requirement to
obtain the consent of the lenders for acquisitions exceeding a certain level
of cash consideration. As of August 12, 1999 the Company had approximately
$219.2 million in outstanding borrowings under the Credit Facility and $4.1
million of letters of credit outstanding, resulting in a borrowing
availability of $126.7 million under the revolving Credit Facility.

On October 5, 1998, we issued and sold $49.4 million of Convertible
Subordinated Notes bearing interest at 6 7/8% to Enron Capital and one of its
affiliates. We used the proceeds of the Convertible Subordinated Notes to
reduce outstanding borrowings under the Credit Facility. The Convertible
Subordinated Notes include

14
<PAGE>

restrictive covenants substantially similar to those included in the Credit
Facility. The Convertible Subordinated Notes are convertible into common stock
at any time at the option of the holder at a conversion price of $13.75 per
share, subject to adjustment. The Convertible Subordinated Notes are
nonredeemable for four years and are redeemable thereafter at our option at a
redemption price which is initially $103.50 per $100.00 principal amount, with
such premium declining ratably over the succeeding four years. The Convertible
Subordinated Notes are mandatorily redeemable in nine semi-annual installments
beginning in June 2006. Upon a change in control, the Convertible Subordinated
Notes are mandatorily redeemable at a redemption price which is initially
$107.00 per $100.00 principal amount, with such premium declining ratably over
eight years following the date of issuance.

Through August 12, 1999 the Company has acquired 34 companies in addition to
the Founding Companies for an aggregate consideration of 10.4 million shares
of Common Stock and $310.5 million in cash and notes. The cash portion of such
consideration was provided by borrowings under the Company's Credit Facility
and proceeds from the Offering and our second public offering of common stock.
The timing, size or success of any acquisition effort and the associated
potential capital commitments cannot be predicted.

The Company expects to continue its aggressive acquisition program. The
Company intends to continue to use a combination of cash, notes and common
stock to finance the principal part of the consideration payable in
acquisitions. If the common stock does not maintain a sufficient value, or
potential acquisition candidates are unwilling to accept common stock as part
of the consideration for the sale of their businesses, the Company 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
Company's Credit Facility, the Company may seek additional financing through
the public or private sale of equity or debt securities. There can be no
assurance that the Company could secure such financing if and when it is
needed or on terms the Company deems acceptable. If the Company is unable to
secure acceptable financing, its acquisition program could be negatively
affected. The Company anticipates that its cash flow from operations and the
Credit Facility will provide sufficient cash to enable the Company to meet its
working capital needs, debt service requirements and planned capital
expenditures for property and equipment for at least the next 12 months.

Seasonality; Fluctuations of Quarterly Results

The Company's results of operations can be subject to seasonal variations.
Generally, during the winter months, demand for new projects and maintenance
services may be lower due to reduced construction activity during such months,
while demand for electrical service and repairs may be higher due to damage
caused by inclement weather. Additionally, the industry can be highly
cyclical. As a result, the Company's volume of business may be adversely
affected by declines in new projects in various geographic regions in the U.S.
Typically, the Company experiences lower gross margins and operating margins
during the winter months. Quarterly results may also be materially affected by
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. Accordingly, the
Company's 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.

15
<PAGE>

Year 2000

Impact of Year 2000. Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four-
digit entries to distinguish 21st century dates from 20th century dates. As a
result, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists concerning the potential effects associated with such compliance, but
systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.

State of Readiness. We have assessed our Year 2000 issues and have developed
a plan to address both the information technology ("IT") and non-IT systems
issues. We have not developed any of the systems we use in our business;
consequently, our Year 2000 issues relate to systems that different vendors
have developed and sold to us. We assess Year 2000 issues relating to the
operating and other systems of all businesses we may acquire. Since our
acquisition program is ongoing, our assessment of potential Year 2000 issues
is not complete for our most recent acquisitions. Year 2000 readiness is
reviewed regularly and action plans are revised accordingly.

We have circulated a formal questionnaire to all of our significant
suppliers, customers and service providers to determine the extent to which
Quanta is vulnerable to those third parties' failure to remediate the Year
2000 problem. We have received assurances of Year 2000 compliance from many of
our suppliers, customers and service providers, including the providers of
most of our computer systems and the providers of financial services to us. In
addition, we have hired a consultant to assist us in evaluating the responses
we receive from our suppliers, customers and service providers. Because of the
nature of our business and the number of vendors available to us, we believe
that our operations will not be significantly disrupted even if third parties
with whom we have relationships are not Year 2000 compliant.

Costs to Address the Year 2000 Issue. We have not identified any material
systems which are not Year 2000 compliant, although seven of our Acquired
Businesses had systems which were not Year 2000 compliant. Three of these
systems required only minor software upgrades to current versions which have
been completed. Two of the companies have installed new applications which are
Year 2000 compliant. For the remaining two companies, we plan to have
replacements for these systems operational by December 31, 1999. We expect to
incur estimated costs of $350,000, of which approximately $210,000 has been
incurred to date, as part of our previously planned systems integration
program which will be funded from cash flows from operations. To date, costs
incurred to address Year 2000 compliance have been internal in nature and have
been charged to income as incurred. We have not delayed any IT projects due to
our Year 2000 compliance program.

Risks to the Company and Contingency Plan. In the worst case scenario, if
the replacements and modifications are not completed, our operating
subsidiaries may experience temporary problems with certain computer systems
that contain date critical functions. We believe that any temporary
disruptions from the failures of our own systems would not be material to our
overall business or results of operations. However, should our customers
experience a sustained period of unanticipated disruption because of Year 2000
problems, our customers may delay the award of new contracts or payment for
work already completed, and our business, results of operations and financial
condition may be materially and adversely affected. As a contingency plan,
immediately prior to January 1, 2000, we intend to maintain an adequate supply
of fuel and spare parts so that we can continue to operate normally until such
time as any temporary Year 2000 problems related to our operations are
remedied. The Company will continue throughout 1999 to consider the likelihood
of a material business interruption due to the Year 2000 issue.

While we have made a careful assessment of both our own internal operating
systems and the Year 2000 compliance of our suppliers, customer and service
providers, because of the complexity of the problem, we cannot be certain that
all of our own systems and those of third parties with whom we operate will be
made Year 2000 complaint in a timely manner or that any such failure to be
Year 2000 complaint will not materially and adversely affect our business,
results of operations or financial condition.

16
<PAGE>

QUANTA SERVICES, INC. AND SUBSIDIARIES

PART II--OTHER INFORMATION

Item 2. Changes in Securities.

Set forth below is certain information concerning all sales of securities by
the Company during the three month period ended June 30, 1999 that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act").

Between April 1, 1999 and June 30, 1999, the Company issued 1,872,418 shares
of common stock as part of the consideration for certain acquisitions. These
shares of common stock were issued without registration under the Securities
Act in reliance on the exemption provided by Section 4(2) of the Securities
Act.

Item 4. Submission of Matters to a Vote of Security Holders.

The Company held its annual meeting of stockholders in Houston, Texas on May
19, 1999. The following sets forth matters submitted to a vote of the
stockholders at the annual meeting:

(a) Nine members were elected to the Board of Directors, each to serve
until the next annual meeting of the Company and until their respective
successors have been elected and qualified. The following eight
individuals were elected to the Board of Directors by the holders of
common stock of the Company: John R. Colson, Gary A. Tucci, John R.
Wilson, Timothy A. Soule, John A. Martell, James R. Ball, Rodney R.
Proto and Michael T. Willis. The holders of Limited Vote Common Stock
of the Company elected Vincent D. Foster to the Board of Directors.

Every director elected by the holders of common stock was elected by a
vote of 19,804,972 shares, being more than a plurality of the outstanding
shares of common stock cast for or against, with 91,048 shares voting
against and 32,500 broker non-votes. Mr. Foster was elected by a vote of
2,165,978 shares of the Limited Vote Common Stock, being more than a
plurality of the outstanding shares of Limited Vote Common Stock cast for
or against, with 334,022 shares abstaining.

(b) The stockholders approved the Amended and Restated Certificate of
Incorporation with a vote of 19,511,142 shares of common stock and
2,680,510 shares of Limited Vote Common Stock, being more than a
majority of the outstanding shares of common stock and the Limited Vote
Common Stock voting together and more than a majority of the
outstanding shares of common stock voting as a separate class, with
377,402 shares of common stock voting against and 39,976 shares of
common stock abstaining. The Amended and Restated Certificate of
Incorporation increased the number of authorized shares of common stock
from 36,654,667 to 100,000,000.

(c) The stockholders approved the Quanta Services, Inc. 1999 Employee Stock
Purchase Plan by a vote of 18,463,538 shares of common stock and
2,680,510 shares of Limited Vote Common Stock, being more than a
majority of the outstanding shares of common stock and Limited Vote
Common Stock voting together, with 44,163 shares of common stock voting
against and 25,647 shares of common stock abstaining.

(d) The stockholders ratified the appointment of Arthur Andersen LLP to
audit the financial statements of the Company and its subsidiaries for
the year ending December 31, 1999, by a vote of 19,570,999 shares of
common stock and 2,680,510 shares of Limited Vote Common Stock, being
more than a majority of the outstanding shares of common stock and
Limited Vote Common Stock voting together, with 357,026 shares of
common stock voting against and 495 shares of common stock abstaining.

17
<PAGE>

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

27.1--Financial data schedule

(b) Reports on Form 8-K:

On June 17, 1999, the Company filed a Current Report on Form 8-K.

18
<PAGE>

SIGNATURE

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

QUANTA SERVICES, INC.

Dated: August 16, 1999
By: /s/ Derrick A. Jensen
-----------------------------------
Derrick A. Jensen
Vice President, Controller and
Chief Accounting Officer

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,192
<SECURITIES> 0
<RECEIVABLES> 159,628
<ALLOWANCES> 2,879
<INVENTORY> 8,863
<CURRENT-ASSETS> 222,201
<PP&E> 231,620
<DEPRECIATION> 105,304
<TOTAL-ASSETS> 741,600
<CURRENT-LIABILITIES> 111,234
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 391,556
<TOTAL-LIABILITY-AND-EQUITY> 741,600
<SALES> 321,600
<TOTAL-REVENUES> 321,600
<CGS> 255,120
<TOTAL-COSTS> 295,296
<OTHER-EXPENSES> 678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,661
<INCOME-PRETAX> 21,321
<INCOME-TAX> 13,091
<INCOME-CONTINUING> 8,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,230
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29

</TABLE>