QUANTA SERVICES INC - 10-Q Quarterly Report

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

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

[ ] 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

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

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

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(713) 629-7600

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

68,466,639 shares of Common Stock were outstanding as of October 31, 2002.
As of the same date, 1,083,750 shares of Limited Vote Common Stock were
outstanding.

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QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX

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QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................................. $ 6,287 $ 15,365
Accounts receivable, net of allowances of $35,856 and $37,582, respectively ............ 451,870 391,871
Costs and estimated earnings in excess of billings on uncompleted contracts ............ 57,433 61,382
Inventories ............................................................................ 25,053 27,178
Current deferred taxes.................................................................. 22,063 42,016
Prepaid expenses and other current assets .............................................. 14,414 11,590
----------- -----------
Total current assets ........................................................... 577,120 549,402
PROPERTY AND EQUIPMENT, net .............................................................. 385,480 379,120
ACCOUNTS AND NOTES RECEIVABLE, net of allowances of $-- and $28,389, respectively ........ 29,541 52,579
OTHER ASSETS, net ........................................................................ 13,778 20,657
GOODWILL AND OTHER INTANGIBLES, net ...................................................... 1,036,982 395,662
----------- -----------
Total assets ................................................................... $ 2,042,901 $ 1,397,420
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................................... $ 8,063 $ 6,874
Accounts payable and accrued expenses .................................................. 202,327 192,401
Billings in excess of costs and estimated earnings on uncompleted contracts ............ 31,140 16,447
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Total current liabilities ...................................................... 241,530 215,722
LONG-TERM DEBT, net of current maturities ................................................ 327,774 345,548
CONVERTIBLE SUBORDINATED NOTES ........................................................... 172,500 172,500
DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES .................................. 94,346 76,718
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.00001 par value, 10,000,000 shares authorized:
Series A Convertible Preferred Stock, 3,444,961 shares issued and outstanding ....... -- --
Common Stock, $.00001 par value, 300,000,000 shares authorized, 60,629,965 and
61,633,294 shares issued and 59,643,965 and 60,706,923 outstanding, respectively .... -- --
Limited Vote Common Stock, $.00001 par value, 3,345,333 shares authorized,
1,116,238 and 1,083,750 shares issued and outstanding, respectively ................. -- --
Additional paid-in capital ............................................................. 952,380 950,127
Deferred compensation .................................................................. (1,770) (1,583)
Retained earnings (deficit) ............................................................ 271,448 (349,919)
Treasury Stock, at cost, 986,000 and 926,371 common
shares, respectively ................................................................ (15,307) (11,693)
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Total stockholders' equity ..................................................... 1,206,751 586,932
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Total liabilities and stockholders' equity ..................................... $ 2,042,901 $ 1,397,420
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The accompanying notes are an integral part of these
condensed consolidated financial statements.

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QUANTA SERVICES, INC. AND SUBSIDIARIES

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

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

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QUANTA SERVICES, INC. AND SUBSIDIARIES

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

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

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QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BUSINESS AND ORGANIZATION:

Quanta Services, Inc. (Quanta) is a leading provider of specialized
contracting services, offering end-to-end network solutions to the electric
power, gas, telecommunications and cable television industries. Our
comprehensive services include designing, installing, repairing and maintaining
network infrastructure. The consolidated financial statements of Quanta include
the accounts of Quanta and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Since its inception and through 2001, Quanta acquired 86 businesses. Quanta
has acquired two additional businesses through September 30, 2002 for an
aggregate consideration of 251,079 shares of common stock and approximately $8.0
million in cash, net of cash acquired.

In the course of its operations, Quanta is subject to certain risk factors,
including but not limited to risks related to: the financial condition of
Quanta's customers, rapid technological and structural changes in the industries
Quanta serves, internal growth and operating strategies, economic downturn, the
collectibility of receivables, acquisition integration and financing,
significant fluctuations in quarterly results, contracts, management of growth,
dependence on key personnel, availability of qualified employees, unionized
workforce, competition, recoverability of goodwill, potential exposure to
environmental liabilities and anti-takeover measures.

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 accounting principles generally
accepted in the United States, have been condensed or omitted pursuant to those
rules and regulations. Quanta 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 Quanta 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 Quanta's Annual Report on
Form 10-K, which was filed with the SEC on April 1, 2002.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions by management in determining the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities known to exist as
of the date the financial statements are published and the reported amount of
net revenues and expenses recognized during the periods presented. Quanta
reviews all significant estimates affecting its consolidated financial
statements on a recurring basis and records the effect of any necessary
adjustments prior to their publication. Judgments and estimates are based on
Quanta's beliefs and assumptions derived from information available at the time
such judgments and estimates are made. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements. Estimates are primarily used in Quanta's assessment of the allowance
for doubtful accounts, valuation of inventory, fair value assumptions in
analyzing goodwill and long-lived asset impairments, self-insured claims
liabilities and revenue recognition under percentage-of-completion accounting.
The accompanying consolidated balance sheets include preliminary allocations of
the respective purchase price paid for the companies acquired during the latest
12 months using the "purchase" method of accounting and, accordingly, are
subject to final adjustment.

As of September 30, 2002, Quanta has provided allowances for doubtful
accounts of approximately $66.0 million. Certain of Quanta's customers, several
of them large public telecommunications carriers, have filed for bankruptcy in
the nine months ended September 30, 2002 or have been experiencing financial
difficulties. Also, a number of Quanta's utility customers are experiencing

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financial difficulties in the current business climate. Should additional
customers file for bankruptcy or continue to experience difficulties, or should
anticipated recoveries relating to receivables in existing bankruptcies or other
workout situations fail to materialize, Quanta could experience reduced cash
flows and losses in excess of current allowances provided. In addition, material
changes in our customers revenues or cash flows could affect our ability to
collect amounts due from them.

In June 2002, one of our customers, Adelphia Communications Corporation
filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code, as
amended. We are uncertain as to whether such receivables will be collected
within one year and therefore have included this amount in non-current assets as
Accounts and Notes Receivable as of September 30, 2002. Also included in
Accounts and Notes Receivable are amounts due from another customer, relating to
the construction of independent power plants. As of September 30, 2002, the
total balance due from both of these customers was $78.4 million, net of an
allowance for doubtful accounts of $28.4 million.

2. PER SHARE INFORMATION:

Earnings (loss) per share amounts are based on the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period. The weighted average number of shares used to compute basic and diluted
earnings per share for the three and nine months ended September 30, 2001 and
2002 is illustrated below (in thousands):

Pursuant to EITF Topic D-95, "Effect of Participating Convertible Securities
on the Computation of Basic Earnings Per Share," the impact of the Series A
Convertible Preferred Stock has been included in the computation of basic
earnings per share. For the three and nine months ended September 30, 2001,
stock options of approximately 5.5 million and 2.4 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 Quanta's common
stock. For the three and nine months ended September 30, 2002, stock options of
approximately 9.3 million and 8.3 million, respectively, were excluded from the
computation of diluted earnings per share, as the effect would have been
antidilutive. For the three and nine months ended September 30, 2001 and
September 30, 2002, the effect of assuming conversion of the convertible
subordinated notes would be antidilutive and they were therefore excluded from
the calculation of diluted earnings per share.

3. INCOME TAXES:

Certain of the businesses Quanta has acquired were S corporations for income
tax purposes and, accordingly, any income tax liabilities for the periods prior
to the acquisitions are the responsibility of the respective stockholders.
Effective with the acquisitions, the S corporations converted to C corporations.
Accordingly, an estimated deferred tax liability has been recorded to provide
for the estimated future income tax liability as a result of the difference
between the book and tax bases of the net assets of these former S

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corporations. For purposes of these consolidated financial statements, federal
and state income taxes have been provided for the post-acquisition periods.

4. NEW ACCOUNTING PRONOUNCEMENTS:

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 (Opinion No. 30). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. SFAS No. 145 is
effective for Quanta beginning January 1, 2003. Upon the adoption of SFAS No.
145, if Quanta records any extraordinary items related to the extinguishment of
debt, Quanta will have to reclassify such items in its prior period statements
of operations to conform to the presentation required by SFAS No. 145. Under
SFAS No. 145, Quanta will report gains and losses on the extinguishment of
debt, if any, in pre-tax earnings rather than in extraordinary items.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities, such as
restructurings, involuntarily terminating employees and consolidating
facilities, initiated after December 31, 2002. Quanta has not determined the
impact, if any, that the adoption of this statement will have on its financial
position or results of operations.

5. GOODWILL AND OTHER INTANGIBLES:

Effective January 1, 2002, Quanta adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which establishes new accounting and reporting requirements
for goodwill and other intangible assets. Under SFAS No. 142, all goodwill
amortization ceased effective January 1, 2002.

Material amounts of recorded goodwill attributable to each of Quanta's
reporting units were tested for impairment by comparing the fair value of each
reporting unit with its carrying value. Fair value was determined using a
combination of the discounted cash flow, market multiple and market
capitalization valuation approaches. These impairment tests are required to be
performed at adoption of SFAS No. 142 and at least annually thereafter.
Significant estimates used in the methodologies include estimates of future cash
flows, future short-term and long-term growth rates, weighted average cost of
capital and estimates of market multiples for each of the reportable units. On
an ongoing basis (absent any impairment indicators), Quanta expects to perform
impairment tests annually during the fourth quarter after the annual budgeting
process.

Based on Quanta's transitional impairment test performed upon adoption of
SFAS No. 142, it recognized a $488.5 million charge, ($445.4 million, net of
tax) to reduce the carrying value of goodwill to the implied fair value of
Quanta's reporting units. This impairment is a result of adopting a fair value
approach, under SFAS No. 142, to testing impairment of goodwill as compared to
the previous method utilized, as permitted under accounting standards existing
at that time, in which evaluations of goodwill impairment were made by Quanta
using estimated future undiscounted cash flows to determine if goodwill would be
recoverable. Under SFAS No. 142, the impairment adjustment recognized at
adoption of the new rules was reflected as a cumulative effect of change in
accounting principle, net of tax, in the nine months ended September 30, 2002.

Quanta further recognized an interim non-cash goodwill impairment charge of
approximately $166.6 million during the nine months ended September 30, 2002.
Impairment adjustments recognized after adoption are required to be recognized
as operating expenses. The primary factor contributing to the interim impairment
charge was the overall deterioration of the business climate during 2002 in the
markets Quanta serves as evidenced by an increased number of bankruptcies in the
telecommunications industry, continued devaluation of several of Quanta's
customers' debt and equity securities and pricing pressures resulting from
challenges faced by major industry participants. Fair value was determined using
a combination of the discounted cash flow, market multiple and market
capitalization valuation approaches.

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A summary of changes in Quanta's goodwill for the nine months ended
September 30, 2002 is as follows (in thousands):

Balance, January 1, 2002........ $ 1,036,982
Acquisitions and adjustments.... 11,829
Transitional impairment......... (488,472)
Interim impairment.............. (166,580)
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Balance, September 30, 2002..... $ 393,759
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Quanta has also recorded an Other Intangible Asset of $2.1 million related
to customer relationships. The weighted average life of this intangible asset is
eight years and accumulated amortization as of September 30, 2002 was
approximately $0.2 million. Estimated annual amortization expense for future
periods is approximately $0.3 million.

The unaudited results of operations presented below for the three and nine
months ended September 30, 2002 and adjusted results of operations for the three
and nine months ended September 30, 2001, reflect the operations of Quanta had
the non-amortization provisions of SFAS No. 142 been adopted effective January
1, 2001 (in thousands):

6. DEBT:

Credit Facility

Quanta has a credit facility with 14 participating banks which matures on
June 14, 2004. On August 12, 2002, Quanta amended the credit facility so that
the commitment of the banks under the credit facility was reduced from $350.0
million to $275.0 million. The commitment will remain in effect at $275.0
million through March 31, 2003, then reduce to $250.0 million and remain in
effect at such amount through December 31, 2003. Effective January 1, 2004, the
credit facility will reduce to $225.0 million and remain in effect at such
amount through maturity of the credit facility on June 14, 2004. The credit
facility is secured by a pledge of all of the capital stock of Quanta's
subsidiaries and the majority of Quanta's assets and is to provide funds to be
used for working capital and for other general corporate purposes. Quanta's
subsidiaries guarantee the repayment of all amounts due under the facility and
the facility restricts pledges on all material assets. 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 1.82% at September 30, 2002)
plus 1.50% to 3.50%, as determined by the ratio of Quanta's total funded debt to
EBITDA (as defined in the credit facility) or (b) the bank's prime rate (which
was 4.75% at September 30, 2002) plus up to 2.00%, as determined by the ratio of
Quanta's

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total funded debt to EBITDA. Commitment fees of 0.375% to 0.50%, based on
Quanta's total funded debt to EBITDA, are due on any unused borrowing capacity
under the credit facility. The amended credit facility is less restrictive with
respect to certain financial ratios and indebtedness covenants, including
maximum funded debt to EBITDA, maximum senior debt to EBITDA and minimum
interest coverage ratios. However, the amendment is more restrictive with
respect to Quanta's capital expenditures and asset sales, prohibits any stock
repurchase programs, acquisitions or the payment of dividends, and requires a
mandatory reduction in the banks' commitment by a portion of the proceeds from
asset sales or upon the issuance of additional debt in excess of $15.0 million.
As of September 30, 2002, Quanta had approximately $130.9 million in outstanding
borrowings under the credit facility and $62.3 million of letters of credit
outstanding, resulting in a borrowing availability of $81.8 million under the
credit facility.

Senior Secured Notes

In 2000, Quanta closed a private placement of $210.0 million principal
amount of senior secured notes primarily with insurance companies with
maturities currently ranging from three to eight years. On August 12, 2002,
Quanta amended the senior secured notes. The senior secured notes, as amended,
have financial covenants and restrictions substantially identical to those of
the credit facility and a weighted average interest rate of 9.91%. The amendment
also requires a mandatory prepayment of a portion of the proceeds of any asset
sales or upon the issuance of additional debt in excess of $15.0 million. In
addition, the senior secured notes carry a make-whole provision customary for
this type of debt instrument on prepayment of principal, including any mandatory
prepayments. Pursuant to an intercreditor agreement, the senior secured notes
rank equally in right of repayment with indebtedness under Quanta's credit
facility.

In connection with the amendments of both the credit facility and the senior
secured notes completed in August 2002, Quanta incurred additional debt issuance
costs of approximately $3.4 million. These costs have been accounted for in
accordance with EITF 98-14 for the credit facility and EITF 96-19 for the senior
secured notes. Accordingly, a majority of these costs were capitalized and are
being amortized over the remaining term of the respective agreements, as
amended. As a result of the amendment decreasing the commitment amount of the
credit facility, in accordance with EITF 98-14, Quanta expensed a portion of the
previously unamortized debt issuance costs as interest expense in the third
quarter of 2002.

Quanta has specifically provided for non-cash goodwill impairment charges of
up to $800 million in its credit facility and senior secured notes resulting
from the adoption of SFAS No. 142. Goodwill impairment charges do not impact any
covenants in Quanta's convertible subordinated notes.

Convertible Subordinated Notes

During the third quarter of 2000, Quanta issued $172.5 million principal
amount of convertible subordinated notes. The convertible subordinated notes
bear interest at 4.0% per year and are convertible into shares of Quanta's
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. Quanta has the option to redeem the notes beginning July 3, 2003; however,
redemption is currently prohibited by Quanta's credit facility and senior
secured notes.

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7. STOCKHOLDERS' EQUITY:

Series A Convertible Preferred Stock

In September 1999, Quanta entered into a securities purchase agreement with
Aquila, Inc. (Aquila) pursuant to which Quanta issued 1,860,000 shares of Series
A Convertible Preferred Stock, $.00001 par value per share, for an initial
investment of $186.0 million, before transaction costs. In September 2000,
Aquila converted 7,924,805 shares of common stock into an additional 1,584,961
shares of Series A Convertible Preferred Stock at a rate of one share of Series
A Convertible Preferred Stock for five shares of common stock. According to
disclosure in Aquila's amended Schedule 13D filed on October 17, 2002, through a
privately negotiated transaction, Aquila sold to First Reserve Fund IX, L.P.
(First Reserve) 939,380 shares of Series A Convertible Preferred Stock on
October 15, 2002. 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 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 Quanta's common stock is greater than $20.00,
then Quanta 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 Quanta's common stock is equal to or less than
$20.00, then the preferred dividend may, at the option of the holders, be
adjusted to the then "market coupon rate," which shall equal Quanta's after-tax
cost of obtaining financing, excluding common stock, to replace the holders
investment in Quanta.

Holders are 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 on any matter voted on by the holders of
common stock. Subject to certain limitations, holders are entitled to elect up
to three of the total number of directors of Quanta. All or any portion of the
outstanding shares of Series A Convertible Preferred Stock may, at the option of
the holders, be converted at any time into fully paid and non-assessable shares
of common stock. The conversion price currently is $20.00, yielding 17,224,805
shares of common stock upon conversion of all outstanding shares of Series A
Convertible Preferred Stock. The conversion price may be adjusted under certain
circumstances.

Stockholder Rights Plan

On March 8, 2000, the board of directors adopted a Stockholder Rights Plan.
On November 15, 2001, the board of directors amended the Stockholder Rights Plan
and on November 18, 2001 and December 1, 2001, the board of directors ratified
such amendments to the Stockholder Rights Plan. The board of directors also
amended the Stockholder Rights Plan on February 12, March 13 and October 15,
2002. Under the Stockholder Rights Plan, as amended, a dividend of one preferred
share purchase right (a Right) was declared on each outstanding share of
Quanta's common stock (including Quanta's limited vote common stock) and Series
A Convertible Preferred Stock (on an as-converted basis) for holders of record
as of the close of business on March 27, 2000. The Rights also attach to all
common stock (including Quanta's limited vote common stock) and Series A
Convertible Preferred Stock that become outstanding between March 27, 2000 and
the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date (as such terms are defined in the Stockholder Rights Plan). No
separate certificates evidencing the Rights will be issued unless and until they
become exercisable. Each Right has an initial exercise price of $153.33. The
Rights will be exercisable if a person or group (other than Aquila or First
Reserve) becomes the beneficial owner of 15% or more of the voting power of
Quanta's common shares on an as-converted basis. The Rights also will be
exercisable if Aquila or First Reserve, together with any affiliates or
associates, becomes the beneficial owner of more than 37.71% or 37.00%,
respectively, of the voting power of Quanta's common stock on an as-converted
basis. Upon a "Flip-In Event" as defined in the Stockholder Rights Plan, the
Rights would be exercisable for common stock of Quanta at a discount. In
addition, the Rights held by an "Acquiring Person" as defined in the Stockholder
Rights Plan will be void upon a Flip-In Event. The Rights will expire on March
8, 2010.

The February 12, 2002 amendment provided that only outstanding shares of
Quanta's common stock and Series A Convertible Preferred Stock are to be counted
in calculating the number of shares that Aquila could acquire while remaining an
exempt person under the Stockholder Rights Plan. As amended to date, the
Stockholder Rights Plan permits Aquila to beneficially own up to 37.71% of the
outstanding voting power of Quanta's common stock (assuming conversion of all
outstanding shares of Quanta's Series A Convertible Preferred Stock).

The March 13, 2002 amendment rendered the Rights inapplicable to an offer
for all outstanding shares of Quanta's common stock in a manner that treats all
stockholders equally if upon completion of the offer, the offeror owns shares of
Quanta's voting stock representing 75% or more of the then outstanding voting
stock. The Stockholder Rights Plan as so amended would also require the

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bidder to commit irrevocably to purchase all shares not tendered at the same
price paid to the tendering stockholders.

As part of the settlement of the proxy contest with Aquila, Quanta agreed
with Aquila to amend and restate the Stockholder Rights Plan (or to adopt a new
rights plan) so that the Rights became exercisable if a person or group (other
than Aquila) became the beneficial owner of 15% of the voting power of Quanta's
capital stock, assuming conversion, or if Aquila's beneficial ownership level in
Quanta increased from 37.71%, assuming conversion. These changes were made in
the October 15, 2002 amendment.

The October 15, 2002 amendment also included some technical amendments to
the Stockholder Rights Plan, and provided that all of the shares of the Series B
and Series C Preferred Stock previously authorized but unisssued in connection
with the Stockholder Rights Plan would be eliminated and a new class, Series D
Junior Participating Preferred Stock, would be authorized as part of the
amendment to the Stockholders Rights Plan.

The term "assuming conversion" means assuming conversion of all outstanding
equity securities, whether or not then convertible, other than the Series E
Preferred Stock, and excluding the conversion of outstanding options, warrants
and other similar rights. When used in reference to First Reserve or any of its
transferees, however, "assuming conversion" means assuming conversion of all
outstanding equity securities, whether or not then convertible, including the
Series E Preferred Stock, and including the conversion of outstanding options,
warrants and other similar rights to acquire equity securities of Quanta.

Restricted Stock

Under the 2001 Stock Incentive Plan, 72,701 shares of Quanta's common stock
were issued in 2001 at a price of $27.51 per share, which reflected the fair
market value of the common stock at the date of issuance. The shares of common
stock issued pursuant to the 2001 Stock Incentive Plan are subject to
restrictions on transfer and certain other conditions. During the restriction
period, the plan participants are entitled to vote and receive dividends on such
shares. Upon issuance of the 72,701 shares of Quanta's common stock pursuant to
the 2001 Stock Incentive Plan, an unamortized compensation expense equivalent to
the market value of the shares on the date of grant was charged to stockholders'
equity and will be amortized over the six year restriction period. The
compensation expense taken with respect to the restricted shares during the
three and nine months ended September 30, 2002 was approximately $62,000 and
$187,500, respectively. On October 31, 2002, 63,614 unvested restricted shares
were forfeited and cancelled. The remaining deferred compensation expense of
$1.6 million will be reversed against additional paid-in capital during the
fourth quarter of 2002.

Treasury Stock

The board of directors of Quanta authorized a Stock Repurchase Plan under
which up to $75.0 million of Quanta's common stock could be repurchased. Under
the Stock Repurchase Plan, Quanta could conduct purchases through open market
transactions in accordance with applicable securities laws. During 2001, we
purchased 986,000 shares of common stock for approximately $15.3 million. On
March 13, 2002, the 986,000 shares of common stock were sold to Quanta's Stock
Employee Compensation Trust (SECT), and were no longer considered treasury
stock. These shares were subsequently retired on June 28, 2002, after we
terminated the SECT. During the second quarter of 2002, Quanta purchased 924,500
shares of its common stock for approximately $11.7 million under the Stock
Repurchase Plan. As of July 1, 2002, the independent committee of Quanta's board
of directors determined to cease the Stock Repurchase Plan. In addition, Quanta
acquired into treasury 1,871 shares of previously restricted stock for
settlement of a tax liability pursuant to a deferred compensation arrangement.
As a result of the credit facility and senior secured notes amendments, any
further stock repurchases are prohibited.

8. SEGMENT INFORMATION:

Quanta operates in one reportable segment as a specialty contractor. Quanta
provides comprehensive network solutions to the electric power, gas,
telecommunications and cable television industries, including designing,
installing, repairing and maintaining network infrastructure. Each of these
services is provided by various Quanta subsidiaries and discrete financial
information is not provided to management at the service level. The following
table presents information regarding revenues derived from the industries noted
above.

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

9. RELATED PARTY TRANSACTIONS:

In September 1999, Quanta entered into a strategic alliance agreement with
Aquila. Under the terms of the strategic alliance agreement, Aquila will use
Quanta, subject to Quanta's ability to perform the required services, as a
preferred contractor in outsourced transmission and distribution infrastructure
installation and maintenance and natural gas distribution, installation and
maintenance in all areas serviced by Aquila, provided that Quanta provides such
services at a competitive cost. The strategic alliance agreement has a term of
six years.

10. COMMITMENTS AND CONTINGENCIES:

Litigation

On December 21, 2001, a purported stockholder of Quanta filed a putative
class action and derivative complaint against directors Vincent D. Foster, Louis
C. Golm, James R. Ball, John R. Colson, John R. Wilson, Gary A. Tucci and former
director Jerry J. Langdon. The complaint also named Quanta as a nominal
defendant. The complaint alleged that the named directors breached their
fiduciary duties by taking certain actions, including the Stockholder Rights
Plan amendment, in response to the announcement by Aquila that it intended to
acquire control of Quanta through open market purchases of Quanta's shares. The
complaint sought an order rescinding any actions taken by the named directors in
response to the announcement by Aquila and requiring the directors to take steps
necessary to maximize the value of Quanta. The complaint further sought damages
from the named directors on behalf of a class of stockholders and purportedly on
behalf of Quanta for the alleged harm inflicted by the actions of the named
directors. On October 31, 2002, the case was dismissed at the request of the
plaintiffs.

In addition, certain subsidiaries of Quanta 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
Quanta's financial position or results of operations.

Self-Insurance

Quanta is insured for workers' compensation, employer's liability, auto
liability and general liability claims, subject to a deductible of $1,000,000
per occurrence. In addition, effective January 1, 2002, Quanta consolidated the
various non-union employee related health care benefits plans that existed at
certain of its subsidiaries into one corporate plan that is subject to a
deductible of $250,000 per claimant per year. Losses up to the deductible
amounts are accrued based upon 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. At December 31, 2001 and September 30,
2002, the amounts accrued for self-insured claims were $28.3 million and $47.6
million, respectively, with $14.7 million and $27.4 million, respectively,
considered to be long-term and included in Other Non-Current Liabilities.

Derivatives

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, was effective for Quanta on January 1, 2001. These
statements establish accounting and reporting standards requiring that all
derivative instruments be recorded as either assets or liabilities measured at
fair value. These statements also require that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met.

In October 2001, Quanta entered into a forward purchase contract (Contract
A) with settlements through 2006, in order to secure pricing on anticipated gas
requirements related to a project in process at December 31, 2001 that was
substantially complete at March 31, 2002. The objective was to mitigate the
variability in the price of natural gas by securing the price Quanta will have
to pay the Contract A counterparty. On March 29, 2002, Quanta entered into a
sub-services agreement with one of its customers (the Counterparty Contract)
whereby the customer assumed all obligations associated with Contract A. If the
customer is unable to fulfill its obligations under the Counterparty Contract,
Quanta will be responsible for settling the obligations of Contract A. As of
September 30, 2002, the fair value of Contract A and the Counterparty Contract
was a receivable of approximately $1.1 million and a payable of approximately
$1.1 million, respectively.

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In April 2002, Quanta entered into another forward purchase contract
(Contract B) with settlements through March 2003, in order to secure pricing on
anticipated gas requirements related to a project completed during the quarter
ended September 30, 2002. The objective was to mitigate the variability in the
price of natural gas by securing the price Quanta will have to pay the Contract
B counterparty. As of September 30, 2002, the fair value of Contract B was
approximately $284,000.

Performance Bonds

In certain circumstances, Quanta is required to provide performance bonds in
connection with its contractual commitments.

Contingent Payments

Quanta is subject to an agreement with the former owners of an operating
unit that was acquired in 2000. Under the terms of this agreement and depending
upon the ultimate profitability of certain contracts obtained by the operating
unit and the collection of the underlying receivables, Quanta may be required to
make additional payments to such former owners with a combination of common
stock and cash. At September 30, 2002, the amount of additional payments based
on performance to date could equal up to $16.8 million. This amount may be
adjusted significantly higher or lower over the term of the agreement.

11. SUBSEQUENT EVENTS:

On October 16, 2002, Quanta announced that First Reserve committed, subject
to certain conditions, to make an investment in Quanta through two transactions.
The first transaction occurred on October 15, 2002, with First Reserve
purchasing from Quanta approximately 8.7 million shares of newly issued Quanta
common stock at $3.00 per share, for a total investment of $26 million, and
purchasing from Aquila approximately 3.3 million shares of Quanta common stock
at $3.00 per share and approximately 0.9 million shares of Quanta Series A
Convertible Preferred Stock at $3.00 per share equivalent. The Series A
Convertible Preferred Stock acquired by First Reserve is convertible into
approximately 4.7 million shares of common stock. The combined value of this
first transaction was approximately $49.9 million. In exchange for consideration
from Quanta of approximately $2.2 million, Quanta also obtained from Aquila, as
part of this transaction, certain waivers of anti-dilution rights, preemptive
rights and limitations of the number of directors on Quanta's board of
directors.

First Reserve has also committed, subject to certain conditions, to invest
up to an additional $85 million in Quanta through the purchase of approximately
2.4 million shares of Quanta's Series E Preferred Stock in the second
transaction. The price per common share equivalent of the Series E Preferred
Stock will not be less than $3.00 nor more than $3.50, based upon the average
closing price of Quanta's common stock for a period prior to the closing of the
second transaction. Each share of Series E Preferred Stock will be convertible
into ten shares of Quanta's common stock, upon stockholder approval and
clearance under antitrust laws. In connection with First Reserve's investment,
Quanta granted First Reserve certain preemptive and registration rights. The
closing of the second transaction is conditioned on Quanta's successful
negotiation of certain amendments to its credit facility and senior secured
notes. Although Quanta expects to close the second transaction, there can be no
assurance that it will be able to obtain such amendments or complete the
transaction.

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

INTRODUCTION

The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and related notes thereto included elsewhere
in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K,
which was filed with the SEC on April 1, 2002, and is available at the SEC's Web
site at www.sec.gov.

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

We enter into contracts principally on the basis of competitive unit price
or fixed price bids, the final terms and prices of which we frequently negotiate
with the customer. Although the terms of our contracts vary considerably, most
are made on either a unit price or fixed price basis in which we agree to do the
work for a price per unit of work performed (unit price) or for a fixed amount
for the entire project (fixed price). We also perform services on a cost-plus or
time and materials basis. We complete most installation projects within one
year, while we frequently provide maintenance and repair work under open-ended,
unit price master service agreements which are renewable annually. We generally
recognize revenue when services are performed except when work is being
performed under fixed price contracts. We typically record revenues from fixed
price contracts on a percentage-of-completion basis, using the cost-to-cost
method based on the percentage of total costs incurred to date in proportion to
total estimated costs to complete the contract. Some of our customers require us
to post performance and payment bonds upon execution of the contract, depending
upon the nature of the work to be performed. Our fixed price contracts often
include payment provisions pursuant to which the customer withholds a 5% to 10%
retainage from each progress payment and remits the retainage to us upon
completion and approval of the work.

Cost of services consists primarily of salaries, wages and benefits to
employees, depreciation, fuel and other vehicle expenses, equipment rentals,
subcontracted services, insurance, facilities expenses, materials and parts and
supplies. Our gross margin, which is gross profit expressed as a percentage of
revenues, is typically higher on projects where labor, rather than materials,
constitutes a greater portion of the cost of services. We can predict materials
costs more accurately than labor costs. Therefore, to compensate for the
potential variability of labor costs, we seek to maintain higher margins on our
labor-intensive projects. We have a deductible of $1,000,000 per occurrence
related to workers' compensation, employer's liability, automobile and general
liability claims. In addition, effective January 1, 2002, we consolidated the
various non-union employee related health care benefits plans that existed at
certain of our subsidiaries into one corporate plan that is subject to a
deductible of $250,000 per claimant per year. Fluctuations in insurance accruals
related to these deductibles could have an impact on operating margins in the
period in which such adjustments are made.

Selling, general and administrative expenses consist primarily of
compensation and related benefits to management, administrative salaries and
benefits, marketing, office rent and utilities, communications, professional
fees and bad debt expense. Selling, general and administrative expenses can be
impacted by our customers' inability to pay for services performed.

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SIGNIFICANT BALANCE SHEET CHANGES

Total assets decreased approximately $645.5 million as of September 30, 2002
compared to December 31, 2001. This decrease is primarily due to the following:

o Accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts decreased $56.1 million primarily due
to lower levels of revenue during the first nine months of 2002,
collections on accounts that were outstanding at December 31, 2001 and
an increase of $1.7 million in the allowance for doubtful accounts
related primarily to certain customers that have declared bankruptcy
during 2002. In addition, approximately $32.9 million in balances have
been reclassified to non-current accounts and notes receivable due to
uncertainty related to their collectibility within the next
twelve months.

o Inventories increased $2.1 million primarily due to the purchase of a
turbine for $5.0 million to be used in future projects, net of valuation
allowances taken against inventory.

o Current deferred taxes increased $20.0 million primarily due to net
operating losses generated during 2002 and increases in the allowance
for doubtful accounts, which are not currently deductible.

o Property and equipment, net decreased $6.4 million due to depreciation
expense of $45.0 million recorded during the period and the sale of
equipment that was no longer being used by certain of our subsidiaries,
offset by increases as a result of capital expenditures of $39.8
million.

o Accounts and notes receivable, net increased $23.0 million primarily due
to the recording of an additional note receivable of $17.3 million from
one of our customers. We have agreed to long-term payment terms for this
customer. The notes receivable are partially secured and bear interest
at 9% per year. In addition, we reclassified approximately $32.9 million
from accounts receivable due to uncertainty related to their
collectibility within the next twelve months as discussed above. During
the nine months of 2002, we recorded allowances for these accounts and
notes receivable of approximately $28.4 million.

o Goodwill and other intangibles, net decreased $641.3 million due to
impairments of goodwill pursuant to Statement of Financial Accounting
Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets," which
requires goodwill to be tested for impairment by comparing the fair
value of each subsidiary with its carrying value.

As of September 30, 2002, total liabilities decreased approximately $25.7
million and stockholders' equity decreased approximately $619.8 million compared
to December 31, 2001. These fluctuations were primarily due to the following:

o Long-term debt, net of current maturities increased $17.8 million due
primarily to borrowings made against our credit facility for the
purchase of two companies during the first nine months of 2002.

o Deferred income taxes and other non-current liabilities decreased $17.6
million primarily as a result of the recording of a deferred tax asset
for the tax benefit related to the impairments of goodwill pursuant to
SFAS No. 142, partially offset by increases in deferred tax liabilities
due to increased differences between the book and tax value for certain
of our assets. This decrease was also partially offset by increases in
the long-term portion of self-insurance reserves.

o Stockholders' equity decreased $619.8 million during the first nine
months of 2002. This was primarily the result of a net loss attributable
to common stock of $621.4 million associated with the impairments of
goodwill recorded pursuant to SFAS No. 142 and the purchase of
approximately $11.7 million of treasury stock under Quanta's Stock
Repurchase Plan, partially offset by the issuance of approximately $6.9
million in shares of common stock pursuant to the employee stock
purchase plan and the acquisition of two companies which resulted in
increased additional paid in capital of $3.4 million.

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RESULTS OF OPERATIONS

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

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2001

Revenues. Revenues decreased $68.3 million and $208.9 million or, 13.5% and
13.7%, to $436.2 million and $1.3 billion for the three and nine months ended
September 30, 2002. The decrease was attributable to lower revenues, primarily
from telecommunications and cable customers, due in part to the continued
decrease in capital spending by our customers, the inability of certain of these
customers to raise new capital, bankruptcies of certain customers and the
overall downturn in the national economy, which have negatively impacted the
award of work to specialty contractors. This decrease was partially offset by a
full period of contributed revenues for the three and nine months ended
September 30, 2002 for those companies acquired during 2001.

Gross profit. Gross profit decreased $56.0 million and $151.8 million, or
50.8% and 46.0%, to $54.3 million and $178.1 million for the three and nine
months ended September 30, 2002. As a percentage of revenues, gross margin
decreased from 21.8% for the three months ended September 30, 2001, to 12.4% for
the three months ended September 30, 2002. This decrease in gross margin
resulted primarily from declining volumes due to economic factors noted above,
significantly lower margins on work performed due to increased pricing
pressures, lower asset utilization and valuation allowances taken against
inventory. Gross margin decreased from 21.6% for the nine months ended September
30, 2001, to 13.5% for the nine months ended September 30, 2002. The decrease in
gross margin for the nine months ended September 30, 2002, resulted from the
factors noted above and higher than normal transition costs in the first six
months of 2002 on one telecommunications outsourcing contract.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $23.5 million and $31.1 million, or 51.8% and
21.1%, to $68.7 million and $179.0 million for the three and nine months ended
September 30, 2002. During the three months ended September 30, 2002, we
recorded $25.7 million in bad debt expense as compared to $1.2 million in last
year's third quarter. Excluding the impact of bad debt expense, selling, general
and administrative expenses decreased approximately $1.1 million due to
decreases in overhead personnel and bonus reductions. During the nine months
ended September 30, 2002, we recorded $34.3 million in bad debt expense, and
$10.5 million in proxy costs. During the nine months ended September 30, 2001,
we recorded $17.8 million in bad debt expense. Excluding the impact of these
items, selling, general and administrative expenses for the nine months ended
September 30, 2002 increased approximately $4.1 million, primarily due to the
inclusion of a full nine months of costs associated with companies acquired
during 2001, higher professional fees due to increased collection efforts on
troubled accounts and higher advertising and travel costs associated with
increased marketing efforts, partially offset by reductions in personnel and
bonuses.

Goodwill impairment. During the nine months ended September 30, 2002, we
recognized an interim non-cash SFAS No. 142 goodwill impairment charge of $166.6
million. Any interim impairment adjustments recognized after adoption are
required to be recognized as operating expenses. The primary factor contributing
to the interim impairment charge was the overall deterioration of the business
climate during 2002 in the markets we serve.

15

Interest expense. Interest expense increased $0.8 million, or 8.4%, to $9.8
million for the three months ended September 30, 2002. This increase was due to
higher average interest rates as a result of amendments to the credit facility
and the senior secured notes in August 2002 and the write-off of a portion of
the previously unamortized loan costs as a result of the amendments, offset
partially by lower average levels of debt outstanding. Interest expense
decreased $1.7 million, or 6.3%, to $25.7 million for the nine months ended
September 30, 2002 due to lower average levels of debt outstanding and lower
average interest rates.

Provision (benefit) for income taxes. The benefit for income taxes was $17.6
million and $17.9 million for the three and nine months ended, September 30,
2002, with effective tax rates of 68.0% and 9.3%, respectively, compared to a
provision of $23.1 million and $62.5 million for the three and nine months ended
September 30, 2001, with effective tax rates of 46.7% and 46.4%, respectively.
Due to lower earnings during the three months ended September 30, 2002 and lower
current expectations for the remainder of 2002, the tax benefit for 2002 was
increased, and the cumulative year-to-date impact of this benefit was recognized
during the quarter. The tax rate in 2002 results primarily from the interim
goodwill impairment charge, the majority of which is not deductible for tax
purposes, thereby reducing the amount of tax benefit recorded.

Cumulative effect of change in accounting principle, net of tax. Based on
our transitional impairment test performed upon adoption of SFAS No. 142, we
recognized a charge, net of tax, of $445.4 million to reduce the carrying value
of the goodwill of our reporting units to its implied fair value for the nine
months ended September 30, 2002. Under SFAS No. 142, the impairment adjustment
recognized at adoption of the new rule was reflected as a cumulative effect of
change in accounting principle in the nine months ended September 30, 2002.

Net income (loss). Net income decreased $34.6 million and $693.0 million to
net losses of $8.3 million and $620.7 million for the three and nine months
ended September 30, 2002, compared to net income of $26.3 million and $72.3
million for the three and nine months ended September 30, 2001, primarily due to
impairments of goodwill recorded pursuant to SFAS No. 142 and decreased gross
profit as described above.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2002, we had cash and cash equivalents of $15.4 million,
working capital of $333.7 million and long-term debt of $518.0 million, net of
current maturities. Our long-term debt balance at that date included borrowings
of $130.9 million under our credit facility, $210.0 million of senior secured
notes, $172.5 million of convertible subordinated notes and $4.6 million of
other debt. In addition, we had $62.3 million of letters of credit outstanding
under the credit facility.

During the nine months ended September 30, 2002, operating activities
provided net cash flow of $62.0 million. We used net cash in investing
activities of $62.0 million, including $39.8 million used for capital
expenditures, $8.0 million used for the purchase of two businesses, net of cash
acquired, and $17.3 million in additional non-current notes receivable issued
during the nine months. Financing activities provided a net cash flow of $9.1
million, resulting primarily from $21.6 million of borrowings under our credit
facility, partially offset by $11.7 million from the purchase of common stock
under the Stock Repurchase Plan.

On August 12, 2002, we amended our credit facility so that the commitment of
the banks under the credit facility was reduced from $350.0 million to $275.0
million. The commitment will remain in effect at $275.0 million through March
31, 2003, then reduce to $250.0 million and remain in effect at such amount
through December 31, 2003. Effective January 1, 2004, the credit facility will
reduce to $225.0 million and remain in effect at such amount through maturity of
the credit facility on June 14, 2004. Amounts borrowed under the credit facility
bear interest at a rate equal to either (a) LIBOR plus 1.50% to 3.50%, 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 2.00%, as determined by
the ratio of our total funded debt to EBITDA. Commitment fees of 0.375% to
0.50%, based on our total funded debt to EBITDA, are due on any unused borrowing
capacity under the credit facility. The amended credit facility is less
restrictive with respect to certain financial ratios and indebtedness covenants,
including the maximum funded debt to EBITDA, maximum senior debt to EBITDA and
minimum interest coverage ratios. However, the amendment is more restrictive
with respect to our capital expenditures and asset sales, prohibits any stock
repurchase programs, acquisitions or the payment of dividends, and requires
mandatory reduction in the banks' commitment by a portion of the proceeds from
asset sales or upon the issuance of additional debt in excess of $15.0 million.
As of October 31, 2002, we had approximately $154.2 million in outstanding
borrowings under the credit facility and $70.4 million of letters of credit
outstanding, resulting in a borrowing availability of $50.4 million under the
credit facility. Our current borrowing rate is LIBOR plus 3.50%. As of October
31, we had approximately $76.8 million in cash on hand.

As of September 30, 2002, we had $210.0 million of senior secured notes
which have maturities ranging from three to eight years with a weighted average
interest rate of 9.91%. On August 12, 2002, we amended the senior secured notes,
and as amended, have

16

financial covenants and restrictions substantially identical to those under the
credit facility. The amendment also requires a mandatory prepayment of a portion
of the proceeds of any asset sales or upon the issuance of additional debt in
excess of $15.0 million. In addition, the senior secured notes carry a
make-whole provision customary for this type of debt instrument on prepayment of
principal, including, any mandatory prepayments. Pursuant to an intercreditor
agreement, the senior secured notes rank equally in right of repayment with
indebtedness under our credit facility.

In connection with the amendments of both the credit facility and the senior
secured notes in August 2002, we incurred additional debt issuance costs
estimated at approximately $3.4 million. We will account for these costs in
accordance with EITF 98-14 for the credit facility and EITF 96-19 for the senior
secured notes. Accordingly, a majority of these costs will be capitalized and
amortized over the remaining term of the respective agreements, as amended. As a
result of the amendment decreasing the commitment amount of the credit facility,
in accordance with EITF 98-14, we expensed a portion of the unamortized debt
issuance costs as interest expense in the third quarter of 2002.

As of September 30, 2002, we had $172.5 million in convertible subordinated
notes that bear interest at 4.0% per year and are convertible into shares of our
common stock at a price of $54.53 per share, subject to adjustment as a result
of certain events. The convertible subordinated notes require semi-annual
interest payments until the notes mature on July 1, 2007. We have the option to
redeem some or all of the convertible subordinated notes beginning July 3, 2003
at specified redemption prices, together with accrued and unpaid interest. If
certain fundamental changes occur, as described in the indenture under which we
issued the convertible subordinated notes, holders of the convertible
subordinated notes may require us to purchase all or part of their notes at a
purchase price equal to 100% of the principal amount, plus accrued and unpaid
interest. In the event of such circumstance, consent to repurchase the
convertible subordinated notes would be required under our credit facility and
senior secured notes.

We have specifically provided for non-cash goodwill impairment charges up to
$800 million in our credit facility and senior secured notes resulting from the
adoption of SFAS No. 142. Goodwill impairment charges do not violate any
covenants in our convertible subordinated notes.

On October 16, 2002, we announced that First Reserve Fund IX, L.P. (First
Reserve) committed, subject to certain conditions, to make an investment in us
through two transactions. The first transaction occurred on October 15, 2002,
with First Reserve purchasing from us approximately 8.7 million shares of our
newly issued common stock at $3.00 per share, for a total investment of $26
million, and purchasing from Aquila approximately 3.3 million shares of our
common stock at $3.00 per share and approximately 0.9 million shares of our
Series A Convertible Preferred Stock at $3.00 per share equivalent. The Series A
Convertible Preferred Stock acquired by First Reserve is convertible into
approximately 4.7 million shares of common stock. The combined value of this
first transaction was approximately $49.9 million. In exchange for consideration
from us of approximately $2.2 million, we also obtained from Aquila, as part of
this transaction, certain waivers of anti-dilution rights, preemptive rights and
limitations of the number of directors on our board of directors.

First Reserve has also committed, subject to certain conditions, to invest
up to an additional $85 million through the purchase of approximately 2.4
million shares of our Series E Preferred Stock from us in the second
transaction. The price per common share equivalent of the Series E Preferred
Stock will not be less than $3.00 nor more than $3.50, based upon the average
closing price of our common stock for a period prior to the closing of the
second transaction. Each share of Series E Preferred Stock will be convertible
into ten shares of our common stock, upon stockholder approval and clearance
under antitrust laws. The closing of the second transaction is conditioned on
our successful negotiation of certain amendments to our credit facility and
senior secured notes which would allow us greater flexibility to grow our
business. Although we expect to close the second transaction, there can be no
assurance that we will be able to obtain such amendments or complete the
transaction.

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, further deterioration in the
markets we serve or material changes in our customers revenues or cash flows,
coupled with the lowered capacity under our credit facility, may negatively
impact our ability to meet such needs.

Other Commitments. As is common in our industry, we have entered into
certain off-balance sheet arrangements in the ordinary course of business that
result in risks not directly reflected in our balance sheets. Our significant
off-balance sheet transactions include liabilities associated with
non-cancelable operating leases, letter of credit obligations and surety
guarantees. We have not engaged in any off-balance sheet financing arrangements
through special purpose entities.

17

We enter into non-cancelable operating leases for many of our facility,
vehicle and equipment needs. These leases allow us to conserve cash by paying a
monthly lease rental fee for use of facilities, vehicles and equipment rather
than purchasing them. At the end of the lease, we have no further obligation to
the lessor. We may decide to cancel or terminate a lease before the end of its
term, in which case we are typically liable to the lessor for the remaining
lease payments under the term of the lease.

Some customers require us to post letters of credit to guarantee performance
under our contracts and to ensure payment to our subcontractors and vendors
under those contracts. Certain of our vendors also require letters of credit to
ensure reimbursement for amounts they are disbursing on behalf of us, such as to
beneficiaries under our self-funded insurance programs. Such letters of credit
are generally issued by a bank or similar financial institution. The letters of
credit commit the issuer to pay specified amounts to the holder of the letter of
credit if the holder demonstrates that we have failed to perform specified
actions. If this were to occur, we would be required to reimburse the issuer of
the letter of credit. Depending on the circumstances of such a reimbursement, we
may also have to record a charge to earnings for the reimbursement. To date, we
have not had a claim made against a letter of credit that resulted in payments
by the issuer of the letter of credit or by us and do not believe that it is
likely that any claims will be made under a letter of credit in the foreseeable
future.

Many customers, particularly in connection with new construction, require us
to post performance and payment bonds issued by a financial institution known as
a surety. These bonds provide a guarantee to the customer that we will perform
under the terms of a contract and that we will pay subcontractors and vendors.
If we fail to perform under a contract or to pay subcontractors and vendors, the
customer may demand that the surety make payments or provide services under the
bond. We must reimburse the surety for any expenses or outlays it incurs. To
date, we have not had any significant reimbursements to our surety for
bond-related costs. We believe that it is unlikely that we will have to fund
significant claims under our surety arrangements in the foreseeable future.

Our future contractual obligations, including interest under capital leases,
are as follows (in thousands):

We also had $62.3 million in letters of credit outstanding under our credit
facility primarily to secure obligations under our casualty insurance program at
September 30, 2002. While not actual borrowings, letters of credit do reflect
potential liabilities under our credit facility and therefore are treated as a
use of borrowing capacity under our credit facility. These are irrevocable
stand-by letters of credit with maturities expiring at various times throughout
2002 and 2003. Upon maturity, it is expected that the majority of these letters
of credit will be renewed for subsequent one year periods. Borrowing
availability under our credit facility was $81.8 million as of September 30,
2002.

Stock Repurchase Plan. Our board of directors authorized a Stock Repurchase
Plan under which up to $75.0 million of our common stock could be repurchased.
Under the Stock Repurchase Plan, we could conduct purchases through open market
transactions in accordance with applicable securities laws. During 2001, we
purchased 986,000 shares of common stock for approximately $15.3 million. On
March 13, 2002, the 986,000 shares of common stock were sold to our Stock
Employee Compensation Trust (SECT), and were no longer considered treasury
stock. These shares were subsequently retired on June 28, 2002, after we
terminated the SECT. During 2002, Quanta has purchased 924,500 shares of its
common stock for approximately $11.7 million under the Stock Repurchase Plan. As
of July 1, 2002, the independent committee of our board of directors determined
to cease the Stock Repurchase Plan. As a result of the credit facility and
senior secured notes amendments, any further stock repurchases are prohibited.

Acquisitions. During the nine months ended September 30, 2002, we acquired
two companies for an aggregate consideration of 251,079 shares of common stock
and approximately $8.0 million in cash, net of cash acquired. The cash portion
of such consideration was provided by proceeds from borrowings under the credit
facility. In connection with the amendment of our credit facility and senior
secured notes, we are prohibited from making additional acquisitions.

Concentration of Credit Risk. We grant credit, generally without collateral,
to our customers, which include electric power and gas companies,
telecommunications and cable television system operators, governmental entities,
general contractors, builders and owners and managers of commercial and
industrial properties located primarily in the United States. Consequently, we
are subject to potential credit risk related to changes in business and economic
factors throughout the United States. We generally are entitled to payment for
work performed and have certain lien rights on our services provided. As
previously discussed herein, our customers in the telecommunications business
have experienced significant financial difficulties and, in several instances,
have filed for bankruptcy.

18

Also, our utility customers are experiencing business challenges in the current
business climate. These economic conditions expose us to increased risk related
to collectibility of receivables for services we have performed. No customer
accounted for more than 10% of accounts receivable or revenues for the three and
nine months ended September 30, 2001 or 2002.

In June 2002, one of our customers, Adelphia Communications Corporation,
filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code, as
amended. We are uncertain as to whether such receivables will be collected
within one year and therefore have included this amount in non-current assets as
accounts and notes receivable as of September 30, 2002. Also included in
accounts and notes receivable are amounts due from another customer, relating to
the construction of independent power plants. As of September 30, 2002, the
total balance due from both of these customers was $78.4 million, net of an
allowance for doubtful accounts of $28.4 million.

Related Party Transactions. In the normal course of business, we from time
to time enter into transactions with related parties. These transactions
typically take the form of network service work for Aquila or facility leases
with prior owners. See additional discussion in Note 9 of Notes to Condensed
Consolidated Financial Statements.

SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS

Our results of operations can be subject to seasonal variations. During the
winter months, demand for new projects and new maintenance service arrangements
may be lower due to reduced construction activity. However, demand for repair
and maintenance services attributable to damage caused by inclement weather
during the winter months may partially offset the loss of revenues from lower
demand for new projects and new maintenance service arrangements. Additionally,
our industry can be highly cyclical. As a result, our volume of business may be
adversely affected by declines in new projects in various geographic regions in
the U.S. Typically, we experience lower gross and operating margins during the
winter months. The financial condition of our customers and their access to
capital, variations in the margins of projects performed during any particular
quarter, the timing and magnitude of acquisition assimilation costs, regional
economic conditions and timing of acquisitions may also materially affect
quarterly results. Accordingly, our operating results in any particular quarter
may not be indicative of the results that can be expected for any other quarter
or for the entire year.

NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 (Opinion No. 30). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. SFAS No. 145 is
effective for us beginning January 1, 2003. Upon the adoption of SFAS No. 145,
if we record any extraordinary items related to the extinguishment of debt, we
will have to reclassify such items in our prior period statements of operations
to conform to the presentation required by SFAS No. 145. Under SFAS No. 145, we
will report gains and losses on the extinguishment of debt, if any, in pre-tax
earnings rather than in extraordinary items.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities, such as
restructurings, involuntarily terminating employees and consolidating facilities
initiated after December 31, 2002. Quanta has not determined the impact, if any,
that the adoption of this statement will have on its financial position or
results of operations.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosures of contingent assets and liabilities
known to exist at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. We
evaluate our estimates on an ongoing basis, based on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances. There can be no assurance that actual results will not differ
from those estimates. Management has reviewed its development and selection of
critical accounting estimates with the audit committee of our board of
directors. We believe the following accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

Current and Long-Term Accounts and Notes Receivable and Provision for
Doubtful Accounts. We provide an allowance for

19

doubtful accounts when collection of an account or note receivable is
considered doubtful. Inherent in the assessment of the allowance for
doubtful accounts are certain judgments and estimates including, among
others, our customer's access to capital, our customer's willingness or
ability to pay, general economic conditions and the ongoing relationship
with the customer. For example, certain of our customers, primarily large
public telecommunications carriers, have filed for bankruptcy in the nine
months ended September 30, 2002, or have been experiencing financial
difficulties, and as a result we increased our allowance for doubtful
accounts to reflect that certain customers may be unable to meet their
obligations to us in the future. Should additional customers file for
bankruptcy or experience difficulties, or should anticipated recoveries
relating to the receivables in existing bankruptcies and other workout
situations fail to materialize, we could experience reduced cash flows and
losses in excess of current reserves.

Goodwill. As stated in Note 5 of Notes to Condensed Consolidated
Financial Statements, SFAS No. 142 provides that goodwill and other
intangible assets that have indefinite useful lives will not be amortized,
but instead must be tested at least annually for impairment, and intangible
assets that have finite useful lives should continue to be amortized over
their useful lives. Statement No. 142 also provides specific guidance for
testing goodwill and other nonamortized intangible assets for impairment.
Goodwill of a reporting unit shall be tested for impairment between annual
tests if an event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount.
Examples of such events or circumstances may include a significant change in
business climate or a loss of key personnel, among others. The Statement
requires that management make certain estimates and assumptions in order to
allocate goodwill to reporting units and to determine the fair value of
reporting unit net assets and liabilities, including, among other things, an
assessment of market conditions, projected cash flows, cost of capital and
growth rates, which could significantly impact the reported value of
goodwill and other intangible assets, as compared to our accounting policy
for the assessment of goodwill impairment in 2001, which was based on an
undiscounted cash flow model. Estimating future cash flows requires
significant judgment and our projections may vary from cash flows eventually
realized.

Revenue Recognition. We typically record revenues from fixed price
contracts on a percentage-of-completion basis, using the cost-to-cost method
based on the percentage of total costs incurred to date in proportion to
total estimated costs to complete the contract. Changes in job performance,
job conditions and final contract settlements, among others, are factors
that influence the assessment of the total estimated costs to complete these
contracts.

Self-Insurance. We are insured for workers' compensation, employer's
liability, auto liability and general liability claims, subject to a
deductible of $1,000,000 per occurrence. In addition, effective January 1,
2002, we consolidated the various non-union employee related health care
benefits plans that existed at certain of our subsidiaries into one
corporate plan which is subject to a deductible of $250,000 per claimant per
year. Losses up to the deductible amounts are accrued based upon our
estimates of the ultimate liability for claims incurred and an estimate of
claims incurred but not reported. However, insurance liabilities are
difficult to assess and estimate due to unknown factors, including the
severity of an injury, the determination of our liability in proportion to
other parties, the number of incidents not reported and the effectiveness of
our safety program. The accruals are based upon known facts and historical
trends and management believes such accruals to be adequate.

OUTLOOK

The following statements are based on current expectations. These statements
are forward looking, and actual results may differ materially.

Like many companies that provide installation and maintenance services to
the electrical power, gas, telecommunications and cable television industries,
we are facing a number of challenges. Our operating environment has changed
dramatically. The telecommunications and utility markets have experienced
substantial change during 2002 as evidenced by an increased number of
bankruptcies in the telecommunications market, continued devaluation of several
of our utility clients' debt and equity securities and pricing pressures
resulting from challenges faced by major industry participants. These factors
have contributed to the delay and cancellation of projects and reduction of
capital spending that have impacted our operations and ability to grow at
historical levels.

We continue to focus on the elements of the business we can control,
including cost control, the margins we accept on projects, collecting
receivables, ensuring quality service and right sizing initiatives to match the
markets we serve. These initiatives include aligning our work force with our
current revenue base, evaluating opportunities to reduce the number of field
offices and evaluating our non-core assets for potential sale. Such initiatives
could result in future charges related to, among others, severance, facilities
shutdown and consolidation, property disposal and other exit costs as we execute
these initiatives.

We expect consistent demand for our services from our utility and gas
customers throughout 2002 with continued weakness in

20

demand for our services from our telecommunications and cable customers and
relatively level demand for our services from our ancillary customers.
Competitive pressures on our customers caused by deregulation have led our
customers to return to their core competencies and focus on cost reductions,
resulting in an increased focus on outsourcing services. We believe that we are
adequately positioned to provide these services because of our proven
full-service operating units with broad geographic reach, financial capability
and technical expertise.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report on Form 10-Q includes statements reflecting
assumptions, expectations, projections, intentions or beliefs about future
events that are intended as "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. You can identify these statements by
the fact that they do not relate strictly to historical or current facts. They
use words such as "anticipate," "estimate," "project," "forecast," "may,"
"will," "should," "could," "expect," "believe" and other words of similar
meaning. In particular, these include, but are not limited to, statements
relating to the following:

o Projected operating or financial results;

o Expectations regarding capital expenditures;

o The effects of competition in our markets;

o The duration and extent of the current economic downturn;

o Materially adverse changes in economic conditions in the markets served
by us or by our customers, and;

o Our ability to achieve cost savings.

o Any or all of Quanta's forward-looking statements may turn out to be
wrong. They can be affected by inaccurate assumptions and by known or
unknown risks and uncertainties, including the following:

o Beliefs or assumptions about the outlook for markets we serve;

o Quanta's ability to effectively compete for market share;

o The duration and extent of the current economic downturn;

o Beliefs and assumptions about the collectibility of receivables;

o Material adverse changes in economic conditions in the markets
served by us or by our customers;

o Rapid technological and structural changes that could reduce the
demand for the services we provide;

o Replacement of our contracts as they are completed or expire;

o Retention of key personnel and;

o The cost of borrowing, availability of credit and other factors
affecting Quanta's financing activities.

Many of these factors will be important in determining Quanta's actual
future results. Consequently, no forward-looking statement can be guaranteed.
Quanta's actual future results may vary materially from those expressed or
implied in any forward-looking statements.

All of Quanta's forward-looking statements, whether written or oral, are
expressly qualified by these cautionary statements and any other cautionary
statements that may accompany such forward-looking statements. In addition,
Quanta disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date of this report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk primarily related to potential adverse changes
in interest rates and, to a certain extent, commodity prices, as discussed
below. Management does not generally use derivative financial instruments for
trading or to speculate on changes in interest rates or commodity prices. As of
September 30, 2002, however, we had two derivative contracts outstanding which
related to anticipated exposure in the price of natural gas. We are exposed to
credit risk in the event of non-performance by the derivative counterparty.
However, we monitor our derivative positions by regularly evaluating our
positions and the credit worthiness of the counterparties, which we consider
credit worthy at September 30, 2002. Management is actively involved in
monitoring exposure to market risk and continues to develop and utilize
appropriate risk management techniques. We are not exposed to any other
significant market risks, foreign currency exchange risk or interest rate risk
from the use of derivative financial instruments.

The sensitivity analyses below, which illustrate our hypothetical potential
market risk exposure, estimate the effects of hypothetical sudden and sustained
changes in the applicable market conditions on 2002 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 September 30, 2002, 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 September 30, 2002, approximately 24.9% of our
long-term obligations were floating rate obligations. As of September 30, 2002,
the fair value of our variable rate debt of $130.9 million approximated book
value, and the fair value of our fixed-rate debt of $394.0 million was
approximately $306.1 million based upon discounted future cash flows using
incremental borrowing rates and current market prices. The detrimental effect on
our pretax earnings of a hypothetical 50 basis point increase in both variable
and fixed interest rates would be approximately $0.7 million and $2.0 million,
respectively.

Commodity Price Exposure. In October 2001, we entered into a forward
purchase contract (Contract A) with settlements through 2006, in order to secure
pricing on anticipated gas requirements related to a project in process at
December 31, 2001 that was substantially complete at March 31, 2002. Our
objective was to mitigate the variability in the price of natural gas by
securing the price we will have to pay the Contract A counterparty. On March 29,
2002, we entered into a sub-services agreement with one of our customers (the
Counterparty Contract) whereby the customer assumed all obligations associated
with Contract A. If the customer is unable to fulfill its obligations under the
Counterparty Contract, we will be responsible for settling the obligations of
Contract A. As of September 30, 2002, the fair value of Contract A and the
Counterparty Contract was a receivable of approximately $1.1 million and a
payable of approximately $1.1 million, respectively.

In April 2002, we entered into another forward purchase contract (Contract
B) with settlements through March 2003, in order to secure pricing on
anticipated gas requirements related to a project in process at September 30,
2002. Our objective was to mitigate the variability in the price of natural gas
by securing the price we will have to pay the Contract B counterparty. As of
September 30, 2002, the fair value of Contract B was approximately $284,000.

ITEM 4. CONTROLS AND PROCEDURES.

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chairman and Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of Quanta's disclosure controls
and procedures, as defined in Exchange Act Rule 15d-14(c). Based upon that
evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective. There have
been no significant changes in our internal controls or other factors that could
significantly affect internal controls subsequent to the date of our evaluation.

22

PART II -- OTHER INFORMATION

QUANTA SERVICES, INC. AND SUBSIDIARIES

ITEM 1. Legal Proceedings

On December 21, 2001, a purported stockholder of Quanta filed a putative
class action and derivative complaint against directors Vincent D. Foster, Louis
C. Golm, James R. Ball, John R. Colson, John R. Wilson, Gary A. Tucci and former
director Jerry J. Langdon. The complaint also named Quanta as a nominal
defendant. The complaint alleged that the named directors breached their
fiduciary duties by taking certain actions, including the Stockholder Rights
Plan amendment, in response to the announcement by Aquila that it intended to
acquire control of Quanta through open market purchases of our shares. The
complaint sought an order rescinding any actions taken by the named directors in
response to the announcement by Aquila and requiring the directors to take steps
necessary to maximize the value of Quanta. The complaint further sought damages
from the named directors on behalf of a class of stockholders and purportedly on
behalf of Quanta for the alleged harm inflicted by the actions of the named
directors. On October 31, 2002, the case was dismissed at the request of the
plaintiffs.

In addition, certain of our subsidiaries are involved in disputes or legal
actions arising in the ordinary course of business. We do not believe the
outcome of such legal actions will have a material adverse effect on our
financial position or results of operations.

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

(a) Exhibits.

(b) Reports on Form 8-K.

(1) Quanta filed a Form 8-K on August 14, 2002 in which it reported that
Quanta's Chief Executive Officer and Chief Financial Officer each submitted to
the Securities and Exchange Commission the statements under oath required by
Commission Order No. 4-460.

24

SIGNATURE

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

QUANTA SERVICES, INC.

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

Dated: November 14, 2002

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CERTIFICATIONS

I, John R. Colson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quanta Services, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 By: /s/ JOHN R. COLSON
----------------- ----------------------------------------
John R. Colson,
Chairman and Chief Executive Officer

26

I, James H. Haddox, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quanta Services, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 By: /s/ JAMES H. HADDOX
----------------- ---------------------------------
James H. Haddox,
Chief Financial Officer

27

INDEX TO EXHIBITS