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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)  
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021.
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 Number:001-13831
pwr-20210331_g1.jpg
Quanta Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware74-2851603
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2800 Post Oak Boulevard, Suite 2600
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713629-7600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valuePWRNew York Stock Exchange
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     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer  
Non-accelerated filer
Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No 
As of May 4, 2021, the number of outstanding shares of Common Stock of the registrant was 139,346,092.



QUANTA SERVICES, INC. AND SUBSIDIARIES
INDEX
Page

1


Cautionary Statement About Forward-Looking Statements and Information
This Quarterly Report on Form 10-Q (Quarterly Report) of Quanta Services, Inc. (together with its subsidiaries, Quanta, we, us or our) includes forward-looking statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended to qualify for the “safe harbor” from liability established by 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,” “plan,” “intend” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:
Projected revenues, net income, earnings per share, margins, cash flows, liquidity, weighted average shares outstanding, capital expenditures, tax rates and other projections of operating or financial results;
Expectations regarding our business or financial outlook;
Expectations regarding opportunities, technological developments, competitive positioning, future economic and regulatory conditions and other trends in particular markets or industries;
Expectations regarding the pandemic associated with the novel coronavirus disease that began in 2019 (COVID-19), including the continued and potential impact of the COVID-19 pandemic and of governmental responses to the pandemic on our business, operations, supply chain, personnel, financial condition, results of operations, cash flows and liquidity;
Expectations regarding our plans and strategies;
The business plans or financial condition of our customers, including with respect to the COVID-19 pandemic and transition to a carbon-neutral economy;
The potential impact of commodity prices and production volumes on our business, financial condition, results of operations and cash flows and demand for our services;
The potential benefits from, and future financial and operational performance of, acquired businesses and our investments, including our investment in LUMA Energy, LLC (LUMA);
Beliefs and assumptions about the collectability of receivables;
The expected value of contracts or intended contracts with customers, as well as the scope, services, term or results of any awarded or expected projects;
The development of and opportunities with respect to future projects, including renewable energy projects and larger electric transmission and pipeline projects;
Future capital allocation initiatives, including the amount, timing and strategies with respect to any future stock repurchases, and expectations regarding the declaration, amount and timing of any future cash dividends;
The impact of existing or potential legislation or regulation;
Potential opportunities that may be indicated by bidding activity or similar discussions with customers;
The future demand for and availability of labor resources in the industries we serve;
The expected realization of remaining performance obligations or backlog;
The expected outcome of pending or threatened legal proceedings; and
Possible recovery of pending or contemplated insurance claims, change orders and claims asserted against customers or third parties.
These forward-looking statements are not guarantees of future performance, involve or rely on a number of risks, uncertainties, and assumptions that are difficult to predict or are beyond our control, and reflect management’s beliefs and assumptions based on information available at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements and that any or all of our forward-looking statements may turn out to be inaccurate or incorrect. Those statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties, including the following:
Market, industry, economic, financial or political conditions outside our control, including economic, energy, infrastructure and environmental policies and plans that are adopted or proposed by the U.S. federal and state governments and weakness in the capital markets or the ongoing and potential impact to financial markets and worldwide economic activity resulting from the COVID-19 pandemic and related governmental actions;
Quarterly variations in our operating and financial results, liquidity, financial condition, cash flows, capital requirements, and reinvestment opportunities, including the ongoing and potential impact to our business, operations and supply chains resulting from the COVID-19 pandemic and related governmental actions;
The severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of business and governmental responses to the pandemic on our operations, personnel and supply chains, and on
2


commercial activity and demand across our and our customers’ businesses, as well as our inability to predict the extent to which the COVID-19 pandemic will adversely impact our business, financial performance, results of operations, financial position, liquidity, cash flows, the price of our securities and the achievement of our strategic objectives;
Trends and growth opportunities in relevant markets, including our ability to obtain future project awards;
The time and costs required to exit our Latin American operations, as well as the business and political climate in Latin America;
Delays, deferrals, reductions in scope or cancellations of anticipated, pending or existing projects as a result of, among other things, the COVID-19 pandemic, weather, regulatory or permitting issues, environmental processes, project performance issues, claimed force majeure events, protests or other political activity, legal challenges, reductions or eliminations in governmental funding or customer capital constraints;
The effect of commodity prices and commodity production volumes on our operations and growth opportunities and on our customers’ capital programs and demand for our services, including as a result of the recent significant decrease in commodity prices;
The successful negotiation, execution, performance and completion of anticipated, pending and existing contracts;
Risks associated with operational hazards that arise due to the nature of the services we provide and the conditions in which we operate, including, among others, wildfires and explosions;
Unexpected costs, liabilities, fines or penalties that may arise from legal proceedings, indemnity obligations, reimbursement obligations associated with letters of credit or bonds, multiemployer pension plans (e.g., underfunding of liabilities, termination or withdrawal liability) or other claims or actions asserted against us, including amounts that are not covered by, or are in excess of, our third-party insurance;
Potential unavailability or cancellation of third-party insurance coverage, as well as the exclusion of coverage for certain losses, potential increases in premiums for coverage deemed beneficial to us, or the unavailability of coverage deemed beneficial to us at reasonable and competitive rates;
Damage to our brands or reputation arising as a result of cyber-security breaches, environmental and occupational health and safety matters, corporate scandal, failure to successfully perform a high-profile project, involvement in a catastrophic event (e.g., fire, explosion) or other negative incidents;
Disruptions in, or failure to adequately protect, our information technology systems;
Our dependence on suppliers, subcontractors, equipment manufacturers and other third parties and the impact of the COVID-19 pandemic on these service providers;
Estimates and assumptions related to our financial results, remaining performance obligations and backlog;
Our ability to attract and the potential shortage of skilled employees and our ability to retain key personnel and qualified employees;
Our dependence on fixed price contracts and the potential to incur losses with respect to these contracts, including as a result of inaccurate estimates of project costs or inability to meet project schedule requirements or achieve guaranteed performance or quality standards for a project;
Adverse weather conditions, natural disasters and other emergencies, including wildfires, pandemics (including the ongoing COVID-19 pandemic), hurricanes, tropical storms, floods, earthquakes and other geological- and weather-related hazards;
Our ability to generate internal growth;
Competition in our business, including our ability to effectively compete for new projects and market share;
The future development of natural resources;
The failure of existing or potential legislative actions and initiatives to result in increased demand for our services;
Fluctuations of prices of certain materials used in our and our customers’ businesses, including as a result of the imposition of tariffs, governmental regulations affecting the sourcing of certain materials and equipment and other changes in U.S. trade relationships with other countries;
3


Cancellation provisions within our contracts and the risk that contracts expire and are not renewed or are replaced on less favorable terms;
Loss of customers with whom we have long-standing or significant relationships;
The potential that participation in joint ventures or similar structures exposes us to liability and/or harm to our reputation for acts or omissions by our partners;
Our inability or failure to comply with the terms of our contracts, which may result in additional costs, unexcused delays, warranty claims, failure to meet performance guarantees, damages or contract terminations;
The inability or refusal of our customers or third-party contractors to pay for services, which could be attributable to, among other things, the COVID-19 pandemic or the recent decrease in commodity prices and which could include the failure to collect our outstanding receivables, failure to recover amounts billed to customers in bankruptcy, or failure to recover on change orders or contract claims;
Budgetary or other constraints that may reduce or eliminate tax incentives or government funding for projects, which may result in project delays or cancellations;
Our ability to successfully complete our remaining performance obligations or realize our backlog;
Technological advancements and market developments that could reduce the demand for our services;
Risks associated with operating in international markets, including instability of foreign governments, currency exchange fluctuations, and compliance with unfamiliar foreign legal systems and cultural practices, the U.S. Foreign Corrupt Practices Act and other applicable anti-bribery and anti-corruption laws, and complex U.S. and foreign tax regulations and international treaties;
Our ability to successfully identify, complete, integrate and realize synergies from acquisitions, including the ability to retain key personnel from acquired businesses;
The potential adverse impact resulting from uncertainty surrounding acquisitions and investments, including the potential increase in risks already existing in our operations and poor performance or decline in value of our investments;
The adverse impact of impairments of goodwill, other intangible assets, receivables, long-lived assets or investments;
Difficulties arising from our decentralized management structure;
The impact of our unionized workforce on our operations, including labor stoppages or interruptions due to strikes or lockouts;
The ability to access sufficient funding to finance desired growth and operations, including our ability to access capital markets on favorable terms, as well as fluctuations in the price and trading volume of our common stock, debt covenant compliance, interest rate fluctuations and other factors affecting our financing and investing activities;
Our ability to obtain bonds, letters of credit and other project security;
Risks related to the implementation of new information technology systems;
New or changed tax laws, treaties or regulations;
Our ability to realize deferred tax assets;
Significant fluctuations in foreign currency exchange rates; and
The other risks and uncertainties described elsewhere herein and in Item 1A. Risk Factors of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Annual Report) and as may be detailed from time to time in our other public filings with the U.S. Securities and Exchange Commission (SEC).
All of our 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 or that are otherwise included in this report. Although forward-looking statements reflect our good faith beliefs at the time made, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. In addition, we do not undertake and expressly
4


disclaim any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or otherwise.
5


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
(Unaudited)
March 31,
2021
December 31, 2020
ASSETS
Current Assets:  
Cash and cash equivalents$200,218 $184,620 
Accounts receivable, net of allowances of $16,449 and $16,546
2,666,983 2,716,083 
Contract assets518,256 453,832 
Inventories51,009 50,472 
Prepaid expenses and other current assets169,105 183,382 
Total current assets3,605,571 3,588,389 
Property and equipment, net of accumulated depreciation of $1,417,734 and $1,372,132
1,583,451 1,560,656 
Operating lease right-of-use assets252,206 256,845 
Other assets, net576,975 435,713 
Other intangible assets, net of accumulated amortization of $539,986 and $517,574
415,122 435,655 
Goodwill2,124,089 2,121,014 
Total assets$8,557,414 $8,398,272 
LIABILITIES AND EQUITY
Current Liabilities:  
Current maturities of long-term debt and short-term debt$10,709 $14,764 
Current portion of operating lease liabilities83,799 85,134 
Accounts payable and accrued expenses1,506,025 1,509,794 
Contract liabilities499,527 528,864 
Total current liabilities2,100,060 2,138,556 
Long-term debt, net of current maturities1,347,560 1,174,294 
Operating lease liabilities, net of current portion176,008 178,822 
Deferred income taxes170,059 166,407 
Insurance and other non-current liabilities383,564 391,221 
Total liabilities4,177,251 4,049,300 
Commitments and Contingencies
Equity:  
Common stock, $0.00001 par value, 600,000,000 shares authorized, 164,810,123 and 162,710,792 shares issued, and 139,446,849 and 138,300,191 shares outstanding
2 2 
Additional paid-in capital2,183,728 2,170,026 
Retained earnings3,346,299 3,264,967 
Accumulated other comprehensive loss(224,458)(232,997)
Treasury stock, 25,363,274 and 24,410,601 common shares
(930,628)(857,817)
Total stockholders’ equity4,374,943 4,344,181 
Non-controlling interests5,220 4,791 
Total equity4,380,163 4,348,972 
Total liabilities and equity$8,557,414 $8,398,272 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


QUANTA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)

Three Months Ended
March 31,
 20212020
Revenues$2,703,581 $2,764,095 
Cost of services (including depreciation)2,330,691 2,431,899 
Gross profit372,890 332,196 
Equity in earnings of integral unconsolidated affiliates5,183  
Selling, general and administrative expenses(243,352)(230,793)
Amortization of intangible assets(21,355)(17,908)
Change in fair value of contingent consideration liabilities363 (2,758)
Operating income113,729 80,737 
Interest expense(12,475)(14,006)
Interest income117 759 
Other income (expense), net3,672 (9,827)
Income before income taxes105,043 57,663 
Provision for income taxes13,724 16,160 
Net income91,319 41,503 
Less: Net income attributable to non-controlling interests1,558 2,817 
Net income attributable to common stock$89,761 $38,686 
Earnings per share attributable to common stock:
Basic$0.64 $0.27 
Diluted$0.62 $0.26 
Shares used in computing earnings per share:
Weighted average basic shares outstanding140,121 144,454 
Weighted average diluted shares outstanding144,447 146,787 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7



QUANTA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Net income$91,319 $41,503 
Other comprehensive income (loss), net of tax provision:
Foreign currency translation adjustment, net of tax of $0 and $0
8,532 (82,968)
Other, net of tax of $2 and $0
7  
Other comprehensive income (loss)8,539 (82,968)
Comprehensive income (loss)99,858 (41,465)
 Less: Comprehensive income attributable to non-controlling interests1,558 2,817 
Total comprehensive income (loss) attributable to common stock$98,300 $(44,282)

The accompanying notes are an integral part of these condensed consolidated financial statements.
8


QUANTA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
 20212020
Cash Flows from Operating Activities:  
Net income$91,319 $41,503 
Adjustments to reconcile net income to net cash provided by operating activities— 
Depreciation62,107 54,410 
Amortization of intangible assets21,355 17,908 
Change in fair value of contingent consideration liabilities(363)2,758 
Equity in (earnings) losses of unconsolidated affiliates(5,868)2,683 
Amortization of debt discount and issuance costs846 589 
Gain on sale of property and equipment(4,982)(814)
Provision for credit losses43 273 
Deferred income tax provision 2,494 4,210 
Non-cash stock-based compensation18,687 14,912 
Foreign currency gain(576)(353)
Changes in operating assets and liabilities, net of non-cash transactions(59,449)89,470 
Net cash provided by operating activities125,613 227,549 
Cash Flows from Investing Activities:  
Capital expenditures(83,486)(68,109)
Proceeds from sale of property and equipment7,223 4,790 
Proceeds from insurance settlements related to property and equipment7 198 
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired(32,778)(22,794)
Proceeds from disposition of businesses 2,474 
Investments in unconsolidated affiliates and other(113,982)(5,692)
Cash received from investments in unconsolidated affiliates and other entities210  
Net cash used in investing activities(222,806)(89,133)
Cash Flows from Financing Activities:  
Borrowings under credit facility828,496 1,474,452 
Payments under credit facility(656,818)(1,171,059)
Payments of other long-term debt(857)(446)
Net repayments of short-term debt, net of borrowings(4,247)(2,799)
Payments for contingent consideration liabilities(263)(989)
Distributions to non-controlling interests(1,129)(1,963)
Payments related to tax withholding for stock-based compensation (23,921)(15,886)
Payment of dividends(8,798)(7,384)
Repurchase of common stock(19,474)(200,000)
Net cash provided by financing activities112,989 73,926 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash11 (449)
Net increase in cash, cash equivalents and restricted cash15,807 211,893 
Cash, cash equivalents and restricted cash, beginning of period186,808 169,745 
Cash, cash equivalents and restricted cash, end of period$202,615 $381,638 

The accompanying notes are an integral part of these condensed consolidated financial statements.
9


QUANTA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
(Unaudited)

Accumulated
AdditionalOtherTotal
Common StockPaid-InRetainedComprehensiveTreasuryStockholders'Non-controllingTotal
SharesAmountCapitalEarningsIncome (Loss)StockEquityInterestsEquity
Balance, December 31, 2020138,300,191 $2 $2,170,026 $3,264,967 $(232,997)$(857,817)$4,344,181 $4,791 $4,348,972 
Other comprehensive income— — — — 8,539 — 8,539 — 8,539 
Stock-based compensation activity1,368,739 — 13,702 — — (55,101)(41,399)— (41,399)
Common stock repurchases(222,081)— — — — (17,710)(17,710)— (17,710)
Dividends declared ($0.06 per share)
— — — (8,429)— — (8,429)— (8,429)
Distributions to non-controlling interests— — — — — — — (1,129)(1,129)
Net income— — — 89,761 — — 89,761 1,558 91,319 
Balance, March 31, 2021139,446,849 $2 $2,183,728 $3,346,299 $(224,458)$(930,628)$4,374,943 $5,220 $4,380,163 

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

10


QUANTA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
(Unaudited)
Accumulated
ExchangeableAdditionalOtherTotal
Common StockSharesPaid-InRetainedComprehensiveTreasuryStockholders'Non-controllingTotal
SharesAmountSharesAmountCapitalEarningsIncome (Loss)StockEquityInterestsEquity
Balance, December 31, 2019142,324,318 $2 36,183 $ $2,024,610 $2,854,271 $(241,818)$(586,773)$4,050,292 $3,539 $4,053,831 
Credit loss cumulative effect adjustment— — — — — (3,841)— — (3,841)(3,841)
Other comprehensive loss— — — — — — (82,968)— (82,968)— (82,968)
Acquisitions121,089 — — — 4,329 — — — 4,329 4,329 
Stock-based compensation activity1,124,530 — — — 11,444 — — (19,750)(8,306)— (8,306)
Exchange of exchangeable shares36,183 — (36,183)— — — — — — — — 
Common stock repurchases(5,960,134)— — — — — (200,000)(200,000)— (200,000)
Dividends declared ($0.05 per share)
— — — — — (7,184)— — (7,184)— (7,184)
Distributions to non-controlling interests— — — — — — — — — (1,963)(1,963)
Other— — — — — (516)— — (516)293 (223)
Net income— — — — — 38,686 — — 38,686 2,817 41,503 
Balance, March 31, 2020137,645,986 $2  $ $2,040,383 $2,881,416 $(324,786)$(806,523)$3,790,492 $4,686 $3,795,178 

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











11



QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS AND ORGANIZATION:
Quanta Services, Inc. (together with its subsidiaries, Quanta) is a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric and gas utility, communications, pipeline and energy industries in the United States, Canada, Australia and select other international markets. Quanta reports its results under two reportable segments: (1) Electric Power Infrastructure Solutions and (2) Underground Utility and Infrastructure Solutions.
Electric Power Infrastructure Solutions Segment
The Electric Power Infrastructure Solutions segment provides comprehensive network solutions to customers in the electric power and other industries. Services performed by the Electric Power Infrastructure Solutions segment generally include the design, new construction, upgrade and repair and maintenance of electric power transmission and distribution infrastructure and substation facilities, along with other engineering and technical services. This includes solutions for utilities to implement system upgrades to modernize and harden the electric power grid in order to ensure its safety and enhance reliability. This segment also provides emergency restoration services, including the repair of infrastructure damaged by fire and inclement weather; the energized installation, maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and Quanta’s proprietary robotic arm techniques; and the installation of “smart grid” technologies on electric power networks. In addition, this segment provides the engineering and construction services for the switchyards and transmission infrastructure needed to interconnect renewable energy generation, including solar, wind, hydro power and backup natural gas generation facilities. Engineering and construction services related to, among other things, electric vehicle charging infrastructure, micro-grids and battery storage are also performed in this segment. This segment also provides comprehensive design and construction solutions to wireline and wireless communications companies, cable multi-system operators and other customers within the communications industry (including services in connection with 5G wireless deployment); and the design, installation, maintenance and repair of commercial and industrial wiring. This segment also provides aviation services in support of the above services and includes the majority of the financial results of Quanta’s postsecondary educational institution, which specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, as well as training for the gas distribution and communications industries.
Underground Utility and Infrastructure Solutions Segment
The Underground Utility and Infrastructure Solutions segment provides comprehensive infrastructure solutions, including design, engineering, new construction, upgrade and repair and maintenance services, to customers involved in the transportation, distribution, storage and processing of natural gas, oil and other products. Services include the upgrade, new construction and repair and maintenance of natural gas systems for gas utility customers, as well as pipeline protection, integrity testing, rehabilitation and replacement. Quanta also provides catalyst replacement services, high-pressure and critical-path turnaround services, instrumentation and electrical services, piping, fabrication and storage tank services to the midstream and downstream industrial energy markets. This segment also provides engineering and construction services for pipeline systems, storage systems and compressor and pump stations and the fabrication of pipeline support systems and related structures and facilities, as well as trenching, directional boring and mechanized welding services related to the above services and in connection with electric power infrastructure solutions. To a lesser extent, this segment includes construction services for the offshore energy market and designs, installs and maintains fueling systems and water and sewer infrastructure.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The condensed consolidated financial statements of Quanta include the accounts of Quanta Services, Inc. and its wholly-owned subsidiaries, which are also referred to as its operating units. The condensed consolidated financial statements also include the accounts of certain of Quanta’s investments in joint ventures, which are either consolidated or proportionately consolidated, as discussed in the following summary of significant accounting policies. Investments in affiliated entities in which Quanta does not have a controlling financial interest, but over which Quanta has significant influence, usually because Quanta holds a voting interest of between 20% and 50%, are accounted for using the equity method. All significant
12

QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to Quanta include Quanta Services, Inc. and its consolidated subsidiaries.
Interim Condensed Consolidated Financial Information
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP), 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 state the financial position, results of operations, comprehensive income and cash flows with respect to the interim condensed consolidated financial statements have been included. The results of operations and comprehensive income 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.
Quanta recommends that these unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto of Quanta and its consolidated subsidiaries included in Quanta’s 2020 Annual Report.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP 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 amounts of 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 revenue recognition for construction contracts, including contractual change orders and claims; allowance for credit losses; valuation of inventory; useful lives of assets; fair value assumptions in analyzing goodwill, other intangibles and long-lived asset impairments; equity and other investments; purchase price allocations; acquisition-related contingent consideration liabilities; multiemployer pension plan withdrawal liabilities; contingent liabilities associated with, among other things, legal proceedings and claims, parent guarantees and indemnity obligations; estimated insurance claim recoveries; stock-based compensation; operating results of reportable segments; provision for income taxes; and uncertain tax positions.
Revenue Recognition
Contracts
Quanta’s services include the design, new construction, upgrade and repair and maintenance of infrastructure in the electric power, communications and energy industries. These services may be provided pursuant to master service agreements (MSAs), repair and maintenance contracts and fixed price and non-fixed price construction contracts. These contracts are classified into three categories based on how transaction prices are determined and revenue is recognized: unit-price contracts, cost-plus contracts and fixed price contracts. Transaction prices for unit-price contracts are determined on a per unit basis, transaction prices for cost-plus contracts are determined by applying a profit margin to costs incurred on the contracts and transaction prices for fixed price contracts are determined on a lump-sum basis. All of Quanta’s revenues are recognized from contracts with its customers. In addition to the considerations described below, revenue is not recognized unless collectability under the contract is considered probable, the contract has commercial substance and the contract has been approved. Additionally, the contract must contain payment terms, as well as the rights and commitments of both parties.
Performance Obligations
A performance obligation is a promise in a contract with a customer to transfer a distinct good or service. Most of Quanta’s contracts are considered to have a single performance obligation whereby Quanta is required to integrate complex activities and equipment into a deliverable for a customer. For contracts with multiple performance obligations, Quanta allocates a portion of the total transaction price to each performance obligation using its best estimate of the standalone selling price of the distinct good or service associated with each performance obligation. Standalone selling price is estimated using the expected costs plus a margin.
At March 31, 2021 and December 31, 2020, the aggregate transaction price allocated to unsatisfied or partially satisfied
13

QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
performance obligations was approximately $4.13 billion and $3.99 billion, of which 76.7% and 71.2% were expected to be recognized in the subsequent twelve months. These amounts represent management’s estimate of the consolidated revenues that are expected to be realized from the remaining portion of firm orders under fixed price contracts not yet completed or for which work had not yet begun. For purposes of calculating remaining performance obligations, Quanta includes all estimated revenues attributable to consolidated joint ventures and variable interest entities, revenues from funded and unfunded portions of government contracts to the extent they are reasonably expected to be realized and revenues from change orders and claims to the extent management believes additional contract revenues will be earned and are deemed probable of collection. Excluded from remaining performance obligations are potential orders under MSAs and non-fixed price contracts expected to be completed within one year.
Recognition of Revenue Upon Satisfaction of Performance Obligations
A transaction price is determined for each contract, and that amount is allocated to each performance obligation within the contract and recognized as revenue when, or as, the performance obligation is satisfied. Quanta generally recognizes revenue over time as it performs its obligations because there is a continuous transfer of control of the deliverable to the customer. Under unit-price contracts with an insignificant amount of partially completed units, Quanta recognizes revenue as units are completed based on contractual pricing amounts. Under unit-price contracts with more than an insignificant amount of partially completed units and fixed price contracts, Quanta recognizes revenues as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. Under cost-plus contracts, Quanta recognizes revenue on an input basis, as labor hours are incurred, materials are utilized and services are performed.
Under contracts where Quanta has a right to consideration in an amount that directly corresponds to the value of completed performance, Quanta recognizes revenue in such amount and does not include such performance as a remaining performance obligation. Also, contract consideration is not adjusted for a significant financing component if payment is expected to be collected less than one year from when the services are performed.
Contract costs include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. The majority of the materials associated with Quanta’s work are owner-furnished, and therefore not included in contract revenues and costs. Additionally, Quanta may incur incremental costs to obtain certain contracts, such as selling and marketing costs, bid and proposal costs, sales commissions, and legal fees or initial set-up or mobilization costs, certain of which can be capitalized. Such costs were not material during the three months ended March 31, 2021 and 2020.
Contract Estimates
Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen or changed circumstances not included in Quanta’s cost estimates or covered by its contracts. The estimating process is based on the professional knowledge and experience of Quanta’s project estimators, project managers and finance professionals. Some of the factors that can lead to positive changes in estimates on projects include successful execution through project risks, reduction of estimated project costs or increases of estimated revenues. Some of the factors that may lead to negative changes in estimates include concealed or unknown site conditions; changes to or disputes with customers regarding the scope of services; changes in estimates related to the length of time to complete a performance obligation; changes or delays with respect to permitting and regulatory requirements; changes in the cost of equipment, commodities, materials or labor; unanticipated costs or claims due to delays or failure to perform by customers or third parties; customer failure to provide required materials or equipment; errors in engineering, specifications or designs; project modifications; adverse weather conditions, natural disasters, and other emergencies (including the ongoing pandemic as a result of the novel coronavirus disease (COVID-19) that began in 2019); and performance and quality issues causing delay (including payment of liquidated damages) or requiring rework or replacement. These factors, along with other risks inherent in performing services under fixed price contracts, are routinely evaluated by management. Any changes in estimates could result in changes to profitability or losses associated with the related performance obligations. For example, estimated costs for a performance obligation may increase from an original estimate, and contractual provisions may not allow for adequate compensation or reimbursement for such additional costs. Changes in estimated revenues, costs and profit are recorded in the period they are determined to be probable and can be reasonably estimated. Contract losses are recognized in full when they are determined to be probable and can be reasonably estimated.
Changes in cost estimates on certain contracts may result in the issuance of change orders, which can be approved or unapproved by the customer, or the assertion of contract claims. Quanta determines the probability that costs associated with change orders and claims will be recovered based on, among other things, contractual entitlement, past practices with the
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customer, specific discussions or preliminary negotiations with the customer and verbal approvals by the customer. Quanta recognizes amounts associated with change orders and claims as revenue if it is probable that the contract price will be adjusted and the amount of any such adjustment can be reliably estimated. Most of Quanta’s change orders are for services that are not distinct from an existing contract and are accounted for as part of an existing contract on a cumulative catch-up basis. Quanta accounts for a change order as a separate contract if the additional goods or services are distinct from and increase the scope of the contract, and the price of the contract increases by an amount commensurate to Quanta’s standalone selling price for the additional goods or services.
As of March 31, 2021 and December 31, 2020, Quanta had recognized revenues of $158.6 million and $141.2 million related to change orders and claims included as contract price adjustments and that were in the process of being negotiated in the normal course of business. The largest component of recognized change orders and claims is associated with delays to an electric transmission project in Canada, the most significant of which occurred in the first quarter of 2021 due to governmental requirements related to the COVID-19 pandemic. These requirements to on-site protocols caused challenging scheduling and site conditions, which resulted in these delays and negatively impacted productivity. Quanta believes that the contract for this project entitles it to recover certain amounts associated with the delays on the project. The aggregate amounts related to change orders and claims, which are included in “Contract assets” in the accompanying condensed consolidated balance sheets, represent management’s estimates of additional contract revenues that have been earned and are probable of collection. However, Quanta’s estimates could change, and the amount ultimately realized could be significantly higher or lower than the estimated amount.
Variable consideration amounts, including performance incentives, early pay discounts and penalties, may also cause changes in contract estimates. The amount of variable consideration is estimated based on the most likely amount that is deemed probable of realization. Contract consideration is adjusted for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty related to the variable consideration is resolved.
Changes in contract estimates are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations that were satisfied or partially satisfied in prior periods or the reversal of previously recognized revenue if the current estimate differs from the previous estimate. The impact of a change in contract estimate is measured as the difference between the revenue or gross profit recognized in the prior period as compared to the revenue or gross profit which would have been recognized had the revised estimate been used as the basis of recognition in the prior period.
Operating results for the three months ended March 31, 2021 were favorably impacted by 11.5% of gross profit as a result of aggregate changes in contract estimates related to projects that were in progress at December 31, 2020. The overall favorable impact resulted from net positive changes in estimates across a large number of projects, primarily as a result of favorable performance and successful mitigation of risks and contingencies as the projects progressed to completion. Partially offsetting the net favorable impact to gross profit for the three months ended March 31, 2021 was a negative change in estimate of $14.8 million associated with a communications project in the United States that arose from challenges with subcontractor performance and site conditions. This project had a total contract value of $91.8 million and was approximately 56% complete as of March 31, 2021.
Operating results for the three months ended March 31, 2020 were favorably impacted by 7.3% of gross profit, as a result of aggregate changes in contract estimates related to projects that were in progress at December 31, 2019. The overall favorable impact resulted from net positive changes in estimates across a large number of projects, primarily as a result of favorable performance and successful mitigation of risks and contingencies as the projects progressed to completion. Partially offsetting the net favorable impact to gross profit for the three months ended March 31, 2020 was a negative change in estimate of $11.6 million related to project delays associated with subcontractor performance and severe weather impacts on a larger pipeline transmission project in Canada that had a contract value of $114 million and was approximately 98% complete as of March 31, 2021.
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Revenues by Category
The following tables present Quanta’s revenue disaggregated by geographic location, as determined by the job location, and contract type (in thousands):
Three Months Ended March 31,
20212020
By primary geographic location:
United States$2,206,116 81.6 %$2,268,086 82.1 %
Canada413,846 15.3 %384,225 13.9 %
Australia55,107 2.0 %51,050 1.8 %
Others28,512 1.1 %60,734 2.2 %
Total revenues$2,703,581 100.0 %$2,764,095 100.0 %

Three Months Ended March 31,
20212020
By contract type:
Unit-price contracts$976,562 36.1 %$974,651 35.3 %
Cost-plus contracts662,772 24.5 %688,084 24.9 %
Fixed price contracts1,064,247 39.4 %1,101,360 39.8 %
Total revenues$2,703,581 100.0 %$2,764,095 100.0 %
As described above, under unit-price contracts with more than an insignificant amount of partially completed units and fixed price contracts, revenue is recognized as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. Approximately 44.4% and 48.1% of Quanta’s revenues recognized during the three months ended March 31, 2021 and 2020 were associated with this revenue recognition method.
Contract Assets and Liabilities
With respect to Quanta’s contracts, interim payments are typically received as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. As a result, under fixed price contracts, the timing of revenue recognition and contract billings results in contract assets and contract liabilities. Contract assets represent revenues recognized in excess of amounts billed for fixed price contracts and are current assets that are transferred to accounts receivable when billed or the billing rights become unconditional. Contract assets are not considered a significant financing component as they are intended to protect the customer in the event Quanta does not perform on its obligations under the contract.
Conversely, contract liabilities represent billings in excess of revenues recognized for fixed price contracts. These arise under certain contracts that allow for upfront payments from the customer or contain contractual billing milestones, which result in billings that exceed the amount of revenues recognized for certain periods. Contract liabilities are current liabilities and are not considered to have a significant financing component, as they are used to meet working capital requirements that are generally higher in the early stages of a contract and are intended to protect Quanta from the other party failing to meet its obligations under the contract. Contract assets and liabilities are recorded on a performance obligation basis at the end of each reporting period.
Contract assets and liabilities consisted of the following (in thousands):
March 31, 2021December 31, 2020
Contract assets$518,256 $453,832 
Contract liabilities$499,527 $528,864 
As described above, contract assets and liabilities fluctuate period to period based on various factors, including, among others, changes in the number and size of projects in progress at period end and variability in billing and payment terms, such as up-front or advance billings, interim or milestone billings, or deferred billings. The increase in contract assets from December
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31, 2020 to March 31, 2021 was primarily due to increased working capital requirements related to the ramp up of two larger electric transmission projects in Canada and the timing of the billings.
Revenues were positively impacted by $54.3 million during the three months ended March 31, 2021 as a result of changes in estimates associated with performance obligations on fixed price contracts partially satisfied prior to December 31, 2020. During the three months ended March 31, 2021, Quanta recognized revenue of approximately $245.7 million related to contract liabilities outstanding at December 31, 2020.
Current and Long-Term Accounts Receivable and Allowance for Credit Losses
The assessment of allowance for credit losses involves certain judgments and estimates. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Expected credit losses are estimated by evaluating trends in historical write-off experience and applying historical loss ratios to pools of financial assets with similar risk characteristics. Quanta has determined that it has one pool for the purpose of calculating its historical credit loss experience.
Quanta’s historical loss ratio and its determination of risk pools, which are used to calculate expected credit losses, may be adjusted for changes in customer credit concentrations within its portfolio of financial assets, customers’ ability to pay, and other considerations, such as economic and market changes, changes to the regulatory or technological environments affecting customers and the consistency between current and forecasted economic conditions and historical economic conditions used to derive historical loss ratios. At the end of each quarter, management reassesses these factors, including any potential effects from the currently challenged energy market and the ongoing COVID-19 pandemic.
Additional allowance for credit losses is established for financial asset balances with specific customers where collectability has been determined to be improbable based on customer specific facts and circumstances. Quanta considers accounts receivable delinquent after 30 days but does not generally consider such amounts delinquent in its credit loss analysis unless the accounts receivable have been outstanding for at least 90 days. In addition to monitoring delinquent accounts, management monitors the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions and evaluating material changes to a customer’s business, cash flows and financial condition. Should anticipated recoveries relating to receivables fail to materialize, including anticipated recoveries relating to bankruptcies or other workout situations, Quanta could experience reduced cash flows and losses in excess of current allowances provided.
Activity in Quanta’s allowance for credit losses consisted of the following (in thousands):
 Three Months Ended
March 31,
 20212020
Balance at beginning of period$16,546 $9,398 
Cumulative effect of adoption of new credit loss standard 5,067 
Provision for credit losses43 273 
Direct write-offs charged against the allowance(140)(292)
Balance at end of period$16,449 $14,446 
Long-term accounts receivable are included within “Other assets, net” in the accompanying condensed consolidated balance sheets. As of March 31, 2021 and December 31, 2020, long-term accounts receivable were $13.5 million and $13.4 million.
Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on Quanta’s experience in recent years, the majority of these retainage balances are expected to be collected within approximately twelve months. Retainage balances with expected settlement dates within the next twelve months as of March 31, 2021 and December 31, 2020 were $275.9 million and $306.3 million, which are included in “Accounts receivable.” Retainage balances with expected settlement dates beyond the next twelve months are included in “Other assets, net,” and as of March 31, 2021 and December 31, 2020 were $112.3 million and $88.2 million.
Quanta recognizes unbilled receivables for non-fixed price contracts within “Accounts receivable” in certain circumstances, such as when revenues have been earned and recorded but the amount cannot be billed under the terms of the
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contract until a later date or amounts arise from routine lags in billing (for example, work completed one month but not billed until the next month). These balances do not include revenues recognized for work performed under fixed-price contracts, as these amounts are recorded as “Contract assets.” At March 31, 2021 and December 31, 2020, unbilled receivables included in “Accounts receivable” were $561.3 million and $472.3 million. Quanta also recognizes unearned revenues for non-fixed price contracts when cash is received prior to recognizing revenues for the related performance obligation. Unearned revenues, which are included in “Accounts payable and accrued expenses,” were $41.2 million and $53.6 million at March 31, 2021 and December 31, 2020.
Cash and Cash Equivalents
Amounts related to Quanta’s cash and cash equivalents based on geographic location of the bank accounts were as follows (in thousands):
 March 31, 2021December 31, 2020
Cash and cash equivalents held in domestic bank accounts$170,128 $156,122 
Cash and cash equivalents held in foreign bank accounts30,090 28,498 
Total cash and cash equivalents$200,218 $184,620 
Cash consisting of interest-bearing demand deposits is carried at cost, which approximates fair value. Quanta considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which are carried at fair value. At March 31, 2021 and December 31, 2020, cash equivalents were $125.8 million and $98.0 million and consisted primarily of money market investments and money market mutual funds and are discussed further in the Fair Value Measurements section within this Note 2.
Cash and cash equivalents held by joint ventures, which are either consolidated or proportionately consolidated, are available to support joint venture operations, but Quanta cannot utilize those assets to support its other operations. Quanta generally has no right to cash and cash equivalents held by a joint venture other than participating in distributions and in the event of dissolution. Cash and cash equivalents held by Quanta’s wholly-owned captive insurance company are generally not available for use in support of its other operations. Amounts related to cash and cash equivalents held by joint ventures and the captive insurance company, which are included in Quanta’s total cash and cash equivalents balances, were as follows (in thousands):
 March 31, 2021December 31, 2020
Cash and cash equivalents held by domestic joint ventures$4,091 $7,714 
Cash and cash equivalents held by foreign joint ventures3,780 3,973 
Total cash and cash equivalents held by joint ventures7,871 11,687 
Cash and cash equivalents held by captive insurance company131,839 85,014 
Cash and cash equivalents not held by joint ventures or captive insurance company60,508 87,919 
Total cash and cash equivalents$200,218 $184,620 
Goodwill
Goodwill, net of accumulated impairment losses, represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses and is stated at cost. Quanta has recorded goodwill in connection with its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of Quanta’s existing operating units or managed on a stand-alone basis as an individual operating unit. Quanta’s operating units are organized into two divisions: the Electric Power Infrastructure Solutions Division and the Underground Utility and Infrastructure Solutions Division. As most of the companies acquired by Quanta provide multiple types of services for multiple types of customers, these divisional designations are based on the predominant type of work performed by an operating unit at the point in time the divisional designation is made. Goodwill is required to be measured for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available. Quanta has determined that its individual operating units represent its reporting units for the purpose of assessing goodwill impairment.
Goodwill is not amortized but is tested for impairment annually in the fourth quarter of the fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. The assessment can be performed by first
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completing a qualitative assessment on none, some or all of Quanta’s reporting units. Quanta can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to a quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, an interim impairment test of a reporting unit may be triggered by a significant change in market, management, business strategy or business climate; a loss of a significant customer; increased competition; a sustained decrease in share price; or a decrease in Quanta’s market capitalization below book value.
If Quanta believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of each of Quanta’s reporting units with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to “Asset impairment charges” in the consolidated statements of operations. The income tax effect associated with an impairment of tax-deductible goodwill is also considered in the measurement of the goodwill impairment. A goodwill impairment for any reporting unit is limited to the total amount of goodwill allocated to such reporting unit.
Quanta generally determines the fair value of its reporting units using a weighted combination of the income approach (discounted cash flow method) and market multiple valuation techniques (market guideline transaction method and market guideline public company method), with greater weight placed on the discounted cash flow method because management believes this method results in the most appropriate calculation of fair value and reflects an expectation of market value as determined by a “held and used” model. However, Quanta determined the fair value of its reporting units as of December 31, 2020 using only the income approach due to the impact of the challenged energy market and the exacerbating effect of the COVID-19 pandemic during 2020, which has continued into 2021. Quanta determined that the use of market multiple valuations applied to 2020 and 2021 financial results would not yield valuations reflective of fair market value.
Under the discounted cash flow method, Quanta determines fair value based on the estimated future cash flows for each reporting unit, discounted to present value using a risk-adjusted industry weighted average cost of capital, which reflects the overall level of inherent risk for each reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections are derived from budgeted amounts (typically a one-year model) and subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. A terminal value is derived from a multiple of the reporting unit’s earnings before interest, taxes, depreciation and amortization (EBITDA). The EBITDA multiples for each reporting unit are based on observed purchase transactions for similar businesses adjusted for size, volatility and risk.
Under the market guideline transaction and market guideline public company methods, Quanta determines the estimated fair value for each of its reporting units by applying transaction multiples and public company multiples, respectively, to each reporting unit’s projected and historical EBITDA average. The transaction multiples are based on observed purchase transactions for similar businesses adjusted for size, volatility and risk. The public company multiples are based on peer group multiples adjusted for size, volatility and risk. For the market guideline public company method, Quanta adds a reasonable control premium, which is estimated as the premium that would be appropriate to convert the reporting unit value to a controlling interest basis.
In connection with the annual goodwill assessment performed during the fourth quarter of 2020, Quanta assessed qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis and identified certain reporting units for which a quantitative goodwill impairment assessment was deemed appropriate based on financial performance indicators. The subsequent quantitative analysis indicated that the fair value of each reporting unit was in excess of its carrying amount. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarter of 2020. Quanta also did not identify any triggering events in the first quarter of 2021, and therefore did not recognize any goodwill impairments for the three months ended March 31, 2021.
In connection with its annual goodwill assessment in 2020, Quanta also considered the sensitivity of its fair value estimates to changes in certain valuation assumptions, including with respect to reporting units within Quanta’s Underground Utility and Infrastructure Solutions Division that have recently been negatively impacted by energy market challenges. The potential future impact of these challenges is uncertain and depends on numerous factors and could continue or increase in future periods. In particular, two Canadian pipeline-related businesses and a United States material handling services business were identified in the annual goodwill assessment to have an increased risk of goodwill impairment in the near and medium term due to the significant decline in commodity prices and volatility in commodity production volumes, the effect of which
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was exacerbated by the COVID-19 pandemic. After taking into account a 10% decrease in fair value, these reporting units would have had fair values below their carrying amounts as of December 31, 2020. The aggregate goodwill and intangible asset balances for these three businesses totaled $100.9 million and $18.5 million as of March 31, 2021. In addition, a specialized industrial services business located in the United States experienced lower demand for certain services during the year ended December 31, 2020, which has continued in 2021, as customers reduced and deferred regularly scheduled maintenance due to lack of demand for refined products as a result of the COVID-19 pandemic, particularly certain transportation related fuels. After taking into account a 10% decrease in fair value, the reporting unit would have had a fair value in excess of its carrying amount as of December 31, 2020; however, uncertainty as to the timing and extent of recovery of demand for refined products poses an increased risk of goodwill impairment to this reporting unit. The goodwill and intangible asset balances for this business were $303.1 million and $49.9 million as of March 31, 2021.
The determination of a reporting unit’s fair value requires judgment and the use of significant estimates and assumptions. While Quanta believes the estimates and assumptions used in its impairment assessments are reasonable and based on available market information obtained from relevant industry sources, variations in any of the assumptions could result in materially different calculations of fair value and impairment determinations. Quanta will continue to monitor the goodwill associated with its reporting units, and should any of its reporting units suffer additional declines in actual or forecasted financial results, the risk of goodwill impairment would increase.
Other Intangible Assets
Quanta’s intangible assets include customer relationships, backlog, trade names, non-compete agreements, patented rights and developed technology and curriculum, all of which are subject to amortization, as well as an engineering license, which is not subject to amortization. The fair value of customer relationships is estimated as of the date a business is acquired based on the value-in-use concept utilizing the income approach, specifically the multi-period excess earnings method. This method discounts to present value the projected cash flows attributable to the customer relationships, with consideration given to customer contract renewals and estimated customer attrition rates. The significant estimates used by management in determining the fair values of customer relationship intangible assets include future revenues, discount rates and customer attrition rates. The following table presents the rates during the three months ended March 31, 2021 and the ranges of rates and weighted average rates for the year ended December 31, 2020 based on acquisition date fair values for discount and attrition rates used in the valuation of customer relationship intangible assets:
 20212020
RateRangeWeighted Average
Discount rates
22%
19% to 25%
20%
Customer attrition rates
25%
10% to 43%
13%
Quanta values backlog for acquired businesses as of the acquisition date based upon the contractual nature of the backlog within each service line, discounted to present value. The values of trade names and curriculum are estimated using the relief-from-royalty method of the income approach, which is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty for use of the trade name or curriculum. The value of a non-compete agreement is estimated based on the difference between the present value of the prospective cash flows with the agreement in place and the present value of the prospective cash flows without the agreement in place. The value of the engineering license is based on cash paid to acquire the asset.
Quanta amortizes the intangible assets that are subject to amortization based upon the estimated consumption of their economic benefits, or on a straight-line basis if the pattern of economic benefit cannot otherwise be reliably estimated. Intangible assets are reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For instance, a significant change in business climate or a loss of a significant customer, among other things, may trigger the need for impairment testing of intangible assets. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.
As a result of the broader challenges in the energy market, the effect of which continues to be exacerbated by the COVID-19 pandemic, Quanta assessed the expected negative impact related to its intangible assets, particularly intangible assets associated with reporting units within the Underground Utility and Infrastructure Solutions Division. Quanta concluded that such impact is not likely to result in intangible asset impairments, and therefore no intangible asset impairments were recognized during the three months ended March 31, 2021. However, the potential impact of the energy market challenges and of the COVID-19 pandemic is uncertain and depends on numerous factors, and therefore the negative impact on certain of
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Quanta’s reporting units and related intangible assets could increase in future periods. Quanta will continue to monitor the impact of these events and should any of the reporting units suffer additional declines in actual or forecasted financial results, the risk of intangible asset impairment would increase.
Leases
Lease liabilities are recognized as the present value of the future minimum lease payments over the lease term as of the commencement date. Lease assets are recognized as the present value of future minimum lease payments over the lease term as of the commencement date, plus any initial direct costs incurred and lease payments made, less any lease incentives received.
Quanta determines if an arrangement contains a lease at inception. If an arrangement is considered a lease, Quanta determines at the commencement date whether the lease is an operating or finance lease. Finance leases are leases that meet any of the following criteria: the lease transfers ownership of the underlying asset at the end of the lease term; the lessee is reasonably certain to exercise an option to purchase the underlying asset; the lease term is for the major part of the remaining economic life of the underlying asset (except when the commencement date falls at or near the end of such economic life); the present value of the sum of the lease payments and any additional residual value guarantee by the lessee equals or exceeds substantially all of the fair value of the underlying asset; or the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease that does not meet any of these criteria is considered an operating lease. After the commencement date, lease cost for an operating lease is recognized over the remaining lease term on a straight-line basis, while lease cost for a finance lease is based on the depreciation of the lease asset and interest on the lease liability.
The terms of Quanta’s lease arrangements vary, and certain leases include one or more of the following: renewal option(s), a cancellation option, a residual value guarantee, a purchase option or an escalation clause. An option to extend or terminate a lease is accounted for when assessing a lease term when it is reasonably certain that Quanta will exercise such option. Quanta has made a policy election to classify leases with an initial lease term of 12 months or less as short-term leases, and these leases are not recorded in the accompanying condensed consolidated balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised. Lease cost related to short-term leases is recognized on a straight-line basis over the lease term.
Determinations with respect to lease term (including any extension thereof), discount rate, variable lease cost and future minimum lease payments require the use of judgment based on the facts and circumstances related to each lease. Quanta considers various factors, including economic incentives and penalties and business need, to determine the likelihood that a renewal option will be exercised. Unless a renewal option is reasonably certain to be exercised, which is typically at Quanta’s sole discretion, the initial non-cancelable lease term is used. Quanta generally uses its incremental borrowing rates to determine the present value of future minimum lease payments.
Certain real estate and equipment arrangements contain both lease and non-lease components (e.g., maintenance services). Quanta does not separate lease components from their associated non-lease components for such arrangements and accounts for both lease and non-lease components under the lease accounting guidance.
Investments in Affiliates and Other Entities
In the normal course of business, Quanta enters into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by Quanta in business entities, including general or limited partnerships, contractual joint ventures, or other forms of equity or profit participation. These investments may also include Quanta’s participation in different financing structures, such as the extension of loans to project-specific entities, the acquisition of convertible notes issued by project specific entities, or other strategic financing arrangements. Quanta also enters into strategic partnerships with customers and infrastructure investors to provide fully integrated infrastructure solutions on certain projects, including planning and feasibility analyses, engineering, design, procurement, construction and project operation and maintenance. These projects include public-private partnerships and concessions, along with private infrastructure projects such as build, own, operate (and in some cases transfer) and build-to-suit arrangements.
Quanta determines whether investments involve a variable interest entity (VIE) based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if Quanta is the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb significant losses of, or the right to receive significant benefits from, the VIE. When Quanta is deemed to be the primary beneficiary, the VIE is consolidated and the other party’s equity interest in the VIE is accounted for as a non-controlling interest. In cases where Quanta determines that it has an undivided interest in the assets, liabilities, revenues and profits of an
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unincorporated VIE (e.g., a general partnership interest), such amounts are consolidated on a basis proportional to Quanta’s ownership interest in the unincorporated entity.
Investments in entities of which Quanta is not the primary beneficiary, but over which Quanta has the ability to exercise significant influence, are accounted for using the equity method of accounting. Equity method investments are carried at original cost adjusted for Quanta’s proportionate share of the investees’ income, losses and distributions. The carrying value for these investments was $51.1 million at March 31, 2021 and is included in “Other assets, net” in the accompanying condensed consolidated balance sheets. Quanta’s share of net income or losses of unconsolidated equity method investments is included within operating income in the accompanying condensed consolidated statements of operations when the investee is operationally integral to the operations of Quanta and is reported as “Equity in earnings (losses) of integral unconsolidated affiliates.” Quanta’s share of net income or losses of unconsolidated equity method investments that are not operationally integral to the operations of Quanta are included in “Other income (expense), net” below operating income in the accompanying condensed consolidated statements of operations. As of March 31, 2021, Quanta had receivables of $7.9 million and payables of $3.1 million from its unconsolidated affiliates.
Equity method investments are reviewed for impairment by assessing whether there has been a decline in the fair value of the investment below the carrying amount and whether any such decline is other-than-temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain its earnings capacity are evaluated in determining whether a loss in value should be recognized. During the three months ended March 31, 2020, Quanta recognized impairment losses of $3.1 million related to a non-integral equity method investment primarily due to the decline in commodity prices and production volume during 2020. These impairment losses are included in “Other income (expense), net” in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020.
Investments in entities of which Quanta is not the primary beneficiary, and over which Quanta does not have the ability to exercise significant influence are accounted for using the cost method of accounting. Additionally, certain investments provide for significant influence over the investee, but also include preferential liquidation rights, which preclude accounting for the investments under the equity method. These cost method investments are required to be measured at fair value, with changes in fair value recognized in net income, unless the investments do not have readily determinable fair values, in which case the investments are measured at cost minus impairment, if any, plus or minus observable price changes in orderly transactions for an identical or similar investment in the same company. Earnings on investments accounted for using the cost method of accounting are recognized as dividends are declared. These earnings and any impairments of cost method investments are reported in “Other income (expense), net” in the accompanying condensed consolidated statements of operations.
The carrying value for these investments accounted for using the cost method of accounting was $129.3 million at March 31, 2021, and this amount is included in “Other assets, net” in the accompanying condensed consolidated balance sheet. The carrying value included $9.3 million of cumulative impairments that were recorded in 2020 to an investment in a water and gas infrastructure contractor. Quanta had, but did not exercise, an option to acquire the remaining interest in this business at an agreed price based on a multiple of the company’s earnings during a designated performance period. During the three months ended March 31, 2021, Quanta acquired a minority interest in a broadband technology provider for $90.0 million. This investment includes preferential liquidation rights and is accounted for using the cost method of accounting. During the three months ended March 31, 2021, Quanta also purchased, through its wholly-owned captive insurance company, certain real property, including associated buildings and facilities, and such property is expected to be developed for its future corporate headquarters. A portion of this property is currently leased to third-party lessees and is expected to continue to be leased to third-party lessees in the future. As a result, an investment in real estate of $23.7 million was recognized at cost for the portion of the property currently leased to third party lessees and is included in “Other assets, net” in the accompanying condensed consolidated balance sheet.
See Note 11 for additional information related to investments.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Puerto Rico Joint Venture
During the three months ended June 30, 2020, a joint venture in which Quanta owns a 50% interest, LUMA Energy, LLC (LUMA), was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico. The 15-year operation and maintenance period is scheduled to begin following a transition period that is expected to end in mid-2021. During the transition period, LUMA will complete numerous steps necessary to transition operation and maintenance from the current operator and receives a fixed transition services fee, payable in monthly installments, and is reimbursed for costs and expenses. During the operation and maintenance period, LUMA will continue to be reimbursed for costs and expenses and will receive a fixed annual management fee, with the opportunity to receive additional annual performance-based incentive fees. LUMA will not assume ownership of any electric transmission and distribution system assets and will not be responsible for operation of the power generation assets. Quanta’s ownership interest and participation in LUMA is accounted for as an equity method investment due to Quanta’s equal ownership and management of LUMA with its joint venture partner. LUMA is operationally integral to the operations of Quanta, and therefore Quanta’s share of LUMA’s net income or losses is reported within operating income in “Equity in earnings (losses) of integral unconsolidated affiliates.” Included within the equity method investment described above is Quanta’s investment balance related to LUMA of $16.2 million.
Accounts payable and accrued expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
 March 31, 2021December 31, 2020
Accounts payable, trade$842,110 $798,023 
Accrued compensation and related expenses353,391 378,002 
Other accrued expenses310,524 333,769 
Accounts payable and accrued expenses$1,506,025 $1,509,794 
Income Taxes
Quanta follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded based on future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the underlying assets or liabilities are recovered or settled.
Quanta regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain, including in connection with changes in tax laws. The estimation of required valuation allowances includes estimates of future taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Quanta considers projected future taxable income and tax planning strategies in making this assessment. If actual future taxable income differs from these estimates, Quanta may not realize deferred tax assets to the extent estimated.
Quanta records reserves for income taxes related to certain tax positions when management considers it more likely than not that additional taxes may be due in excess of amounts reflected on income tax returns filed. When recording these reserves, Quanta assumes that taxing authorities have full knowledge of the position and all relevant facts. Quanta continually reviews exposure to additional tax obligations, and as further information is known or events occur, changes in tax reserves may be recorded. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and included in the provision for income taxes.
As of March 31, 2021, the total amount of unrecognized tax benefits relating to uncertain tax positions was $35.9 million, an increase of $2.7 million from December 31, 2020. Quanta and certain subsidiaries remain under examination by various U.S. state and foreign tax authorities for multiple periods. Quanta believes it is reasonably possible that within the next 12 months unrecognized tax benefits may decrease by up to $13.6 million as a result of settlement of these examinations or as a result of the expiration of certain statute of limitations periods.
U.S. federal and state and foreign income tax laws and regulations are voluminous and often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in future consolidated balance sheets, statements of operations and statements of comprehensive income.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Earnings Per Share
Basic and diluted earnings per share attributable to common stock are computed using the weighted average number of shares of common stock outstanding during the applicable period. Unvested stock-based awards that contain non-forfeitable rights to dividends or dividend equivalents (participating securities) have been included in the calculation of basic and diluted earnings per share attributable to common stock for the portion of the periods that the awards were outstanding. Diluted earnings per share attributable to common stock is computed using the weighted average number of shares of common stock outstanding during the period adjusted for all potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalents would be antidilutive.
Insurance
Quanta is insured for, among other things, employer’s liability, workers’ compensation, auto liability, aviation and general liability claims. Deductibles for the employer’s liability and workers' compensation programs are $5.0 million per occurrence, and deductibles for the auto liability and general liability programs are $15.0 million per occurrence. Quanta manages and maintains a portion of its casualty risk through its wholly-owned captive insurance company, which insures all claims up to the amount of the applicable deductible of its third-party insurance programs. In connection with Quanta’s casualty insurance programs, Quanta is required to issue letters of credit to secure its obligations. Quanta also has employee health care benefit plans for most employees not subject to collective bargaining agreements, of which the primary plan is subject to a deductible of $0.8 million per claimant per year.
Losses under all of these insurance programs are accrued based upon Quanta’s estimate of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with assistance from third-party actuaries. These insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the extent of damage, the determination of Quanta’s liability in proportion to other parties and the number of incidents not reported. The accruals are based upon known facts and historical trends, and management believes such accruals are adequate.
Collective Bargaining Agreements and Multiemployer Pension Plans
Certain of Quanta’s operating units are parties to collective bargaining agreements with unions that represent certain of their employees. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to those in the expiring agreements. The agreements require the operating units to pay specified wages, provide certain benefits to union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts pursuant to specified rates. Quanta’s multiemployer pension plan contribution rates generally are made to the plans on a “pay-as-you-go” basis based on its union employee payrolls. The location and number of union employees that Quanta employs at any given time and the plans in which they may participate vary depending on Quanta’s need for union resources in connection with its ongoing projects. Therefore, Quanta is unable to accurately predict its union employee payroll and the resulting multiemployer pension plan contribution obligations for future periods.
Stock-Based Compensation
Quanta recognizes compensation expense for restricted stock units (RSUs) and performance stock units (PSUs) to be settled in common stock based on the fair value of the awards, net of estimated forfeitures. The fair value of RSU awards is determined based on the number of units granted and the closing price of Quanta’s common stock on the date of grant. The grant date fair value of the PSUs is determined as follows: (i) for the portion of the awards based on company performance metrics, by utilizing the closing price of Quanta’s common stock on the date of grant and (ii) for the portion of the awards based on relative total shareholder return, by utilizing a Monte Carlo simulation valuation methodology. An estimate of future forfeitures, based on historical data, is also utilized to determine compensation expense for the period, and these forfeiture estimates are subject to change and may impact the value that will ultimately be recognized as compensation expense. The resulting compensation expense for PSU and time-based RSU awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period, and the resulting compensation expense for performance-based RSU awards is recognized using the graded vesting method over the requisite service period. The compensation expense related to outstanding PSUs can also vary from period to period based on changes in forecasted achievement of established performance goals and the total number of shares of common stock that Quanta anticipates will be issued upon vesting of such PSUs. Payments made by Quanta to satisfy employee tax withholding obligations associated with awards settled in common stock are classified as financing cash flows.
Compensation expense associated with liability-based awards, such as RSUs that are expected to or may settle in cash, is recognized based on a remeasurement of the fair value of the award at the end of each reporting period. Upon settlement, the holders receive for each RSU an amount in cash equal to the fair market value of one share of Quanta common stock on the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
settlement date, as specified in the applicable award agreement. For additional information on Quanta’s RSU and PSU awards, see Note 10.
Functional Currency and Translation of Financial Statements
The U.S. dollar is the functional currency for the majority of Quanta’s operations, which are primarily located within the United States. The functional currency for Quanta’s foreign operations, which are primarily located in Canada and Australia, is typically the currency of the country where the foreign operating unit is located and transacts the majority of its activities, including billings, financing, payroll and other expenditures. When preparing its consolidated financial statements, Quanta translates the financial statements of its foreign operating units from their functional currency into U.S. dollars. Statements of operations, comprehensive income and cash flows are translated at average monthly rates, while balance sheets are translated at month-end exchange rates or historical rates for certain equity accounts. The translation of the balance sheet results in translation gains or losses, which are included as a separate component of equity under “Accumulated other comprehensive income (loss).” Gains and losses arising from transactions not denominated in functional currencies are included within “Other income (expense), net” in the accompanying condensed consolidated statements of operations.
Comprehensive Income
Components of comprehensive income include all changes in equity during a period except those resulting from changes in Quanta’s capital-related accounts. Quanta records other comprehensive income (loss) for foreign currency translation adjustments related to its foreign operations and for other revenues, expenses, gains and losses that are included in comprehensive income but excluded from net income.
Litigation Costs and Reserves
Quanta records reserves when the likelihood of incurring a loss is probable and the amount of loss can be reasonably estimated. Costs incurred for litigation are expensed as incurred. See Note 11 for additional information related to legal proceedings and other contingencies.
Fair Value Measurements
For disclosure purposes, qualifying assets and liabilities are categorized into three broad levels based on the priority of the inputs used to determine their fair values. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Certain assumptions and other information as they relate to these qualifying assets and liabilities are described below.
Goodwill and Other Intangible Assets
As discussed in the Goodwill and Other Intangible Assets sections within this Note 2, Quanta has recorded goodwill and identifiable intangible assets in connection with certain of its historical business acquisitions. Quanta utilizes the fair value premise as the primary basis for its impairment valuation procedures. The Goodwill and Other Intangible Assets sections provide information regarding valuation methods, including the income approach, market approach and cost approach, and assumptions used to determine the fair value of these assets based on the appropriateness of each method in relation to the type of asset being valued. Quanta believes that these valuation methods appropriately represent the methods that would be used by other market participants in determining fair value, and periodically engages the services of an independent valuation firm when a new business is acquired to assist management with the valuation process, including assistance with the selection of appropriate valuation methodologies and the development of market-based valuation assumptions. The level of inputs used for these fair value measurements is the lowest level (Level 3).
Investments
Equity investments with readily determinable fair values are measured at fair value, with changes in fair value recognized in net income. In cases where those readily determinable values are quoted market prices, the level of input used for these fair value measurements is the highest level (Level 1). Equity investments without readily determinable fair values are measured on a nonrecurring basis. These types of fair market value assessments are similar to other nonrecurring fair value measures used by Quanta, which include the use of significant judgments and available relevant market data. Such market data may include observations of the valuation of comparable companies, risk-adjusted discount rates and an evaluation of the expected performance of the underlying portfolio asset, including historical and projected levels of profitability or cash flows. In addition, a variety of additional factors may be reviewed by management, including, but not limited to, contemporaneous financing and sales transactions with third parties, changes in market outlook and the third-party financing environment. The level of inputs used for these fair value measurements is the lowest level (Level 3).
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
As discussed in the Investments in Affiliates and Other Entities section within this Note 2, Quanta has investments accounted for using the equity and cost methods of accounting. Quanta utilizes the fair value premise as the basis for its impairment valuation and recognizes impairment if there are sufficient indicators that the fair value of the investment is less than its carrying value.
Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, contract assets, accounts payable and accrued expenses and contract liabilities approximate fair value due to the short-term nature of these instruments. All of Quanta’s cash equivalents were categorized as Level 1 assets at March 31, 2021 and December 31, 2020, as all values were based on unadjusted quoted prices for identical assets in an active market that Quanta has the ability to access.
Long-term Debt
The carrying amount of variable rate debt, which includes borrowings under Quanta’s senior credit facility, approximates fair value. The fair value of Quanta’s 2.900% Senior Notes due October 1, 2030 was $1.01 billion at March 31, 2021. The fair value of the senior notes is based on the quoted market prices for the same issue and are categorized as Level 1 liabilities. See Note 7 for additional information regarding Quanta’s senior credit facility and the senior notes.

3. NEW ACCOUNTING PRONOUNCEMENTS:
Adoption of New Accounting Pronouncements
In December 2019, the FASB issued an update that, among other things, amends the guidance related to accounting for tax law changes when an entity has a year-to-date loss in an interim period and provides guidance on how to evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. This update is effective for interim and annual periods beginning after December 15, 2020, and certain amendments should be applied prospectively, while other amendments should be applied on a modified retrospective basis. Quanta adopted the guidance effective January 1, 2021, and it did not have a material impact on Quanta’s condensed consolidated financial statements at the date of adoption.
In January 2020, the FASB issued an update that clarified the applicable guidance for measurement of the fair value of equity and cost method investments when there is a change in the level of ownership or degree of influence. Quanta adopted this standard effective January 1, 2021 and will prospectively apply this update.

4. ACQUISITIONS:
During the three months ended March 31, 2021, Quanta acquired a business located in the United States that primarily provides horizontal directional drilling services. The consideration for this acquisition was $3.5 million paid in cash. During the year ended December 31, 2020, Quanta acquired a contractor located in the United States that provides electric power distribution, transmission and substation maintenance and construction, directional boring and emergency restoration services; a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services; a business located in the United States that provides aviation services primarily for the utility industry; an electric power infrastructure business located in the United States that primarily provides underground conduit services; a business located in the United States that specializes in the deployment of short- and long-haul fiber optic cable and utilities; an industrial services business located in Canada that performs catalyst handling services, including changeover and shutdown maintenance, for customers in the refining and chemical industries; and a business located in the United States that provides heavy, civil, industrial and energy related services and specializes in the construction and maintenance of pipelines and metering stations. The aggregate consideration for these acquisitions was $349.3 million paid or payable in cash (subject to certain adjustments) and 1,334,469 shares of Quanta common stock, which had a fair value of $57.1 million as of the respective acquisition dates. Additionally, one of the acquisitions includes the potential payment of up to $6.9 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a five-year post-acquisition period. Based on the estimated fair value of the contingent consideration, Quanta recorded $2.3 million of liabilities as of the acquisition date.
The results of the acquired businesses have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates, with the results of the industrial services business and the business that specializes in the construction and maintenance of pipelines and metering stations generally included in the Underground Utility and
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QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Infrastructure Solutions segment and the results of the remaining businesses generally included in the Electric Power Infrastructure Solutions segment.
The following table summarizes the aggregate consideration paid or payable as of March 31, 2021 for the acquisitions completed in 2021 and 2020 and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these condensed consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities.
Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired subsequent to March 31, 2020, and further adjustments to the purchase price allocations may occur. As of March 31, 2021, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to tax estimates and inventory. Consideration amounts are also subject to the finalization of closing working capital adjustments and the completion of conditions precedent in order to close on agreements for the purchase of real property related to a business acquired in 2020. The aggregate consideration paid or payable for businesses acquired between March 31, 2020 and March 31, 2021 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $217.5 million to net tangible assets, $92.7 million to identifiable intangible assets and $75.8 million to goodwill. The following table summarizes the fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed (in thousands).
20212020
Consideration:
Cash paid or payable$3,500 $349,310 
Value of Quanta common stock issued 57,119 
Contingent consideration 2,250 
Fair value of total consideration transferred or estimated to be transferred$3,500 $408,679 
Accounts receivable$ $74,492 
Contract assets 8,919 
Other current assets 51,807 
Property and equipment1,327 133,511 
Other assets 14 
Identifiable intangible assets393 96,827 
Contract liabilities (3,750)
Other current liabilities