Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.21.1
Leases
 3 Months Ended
Mar. 31, 2021
Leases [Abstract]  
Leases LEASES:
Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. As of March 31, 2021, the majority of Quanta’s leases had remaining lease terms not exceeding 10 years. Certain leases include options to extend their terms in increments of up to five years and/or options to terminate. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):
Three Months Ended
  March 31,
Lease cost Classification 2021 2020
Finance lease cost:
Amortization of lease assets
Depreciation (1)
$ 244  $ 202 
Interest on lease liabilities Interest expense 27  17 
Operating lease cost Cost of services and Selling, general and administrative expenses 27,776  29,737 
Short-term and variable lease cost (2)
Cost of services and Selling, general and administrative expenses 157,899  170,365 
Total lease cost   $ 185,946  $ 200,321 
(1)     Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.
(2) Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant and primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.
Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. Quanta utilizes third party market valuations to
evaluate rental rates for these properties and facilities, and the lease agreements generally have remaining lease terms of up to 10 years, subject to renewal options. Related party lease expense was $4.8 million and $4.4 million for the three months ended March 31, 2021 and 2020.
The components of leases in the accompanying condensed consolidated balance sheet were as follows (in thousands):
Lease type Classification March 31, 2021 December 31, 2020
Assets:
Operating lease right-of-use assets Operating lease right-of-use assets $ 252,206  $ 256,845 
Finance lease assets Property and equipment, net of accumulated depreciation 2,715  2,370 
Total lease assets   $ 254,921  $ 259,215 
Liabilities:
Current:
Operating Current portion of operating lease liabilities $ 83,799  $ 85,134 
Finance Current maturities of long-term debt and short-term debt 988  846 
Non-current:
Operating Operating lease liabilities, net of current portion 176,008  178,822 
Finance Long-term debt, net of current maturities 1,627  1,382 
Total lease liabilities   $ 262,422  $ 266,184 
Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. When rental purchase options are exercised and a substantive benefit is deemed to be transferred to a third-party lessor, the transaction is deemed to be a financing transaction for accounting purposes. This results in the recognition of an asset equal to the purchase price being recorded in “Property, plant and equipment, net of accumulated depreciation,” and the recognition of a corresponding liability in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of March 31, 2021 and December 31, 2020, the assets recorded, net of accumulated depreciation, totaled $45.2 million and $45.7 million.
Future minimum lease payments for operating and finance leases were as follows (in thousands):
  As of March 31, 2021
  Operating Leases Finance Leases Total
Remainder of 2021 $ 71,358  $ 836  $ 72,194 
2022 73,550  847  74,397 
2023 52,368  626  52,994 
2024 32,349  394  32,743 
2025 21,287  62  21,349 
Thereafter 32,342  —  32,342 
Total future minimum operating and finance lease payments $ 283,254  $ 2,765  $ 286,019 
Less imputed interest (23,447) (150) (23,597)
Total lease liabilities $ 259,807  $ 2,615  $ 262,422 
Future minimum lease payments for short-term leases, which are not recorded in the condensed consolidated balance sheets due to Quanta’s accounting policy election, were $20.3 million as of March 31, 2021. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future rental amounts.
The weighted average remaining lease terms and discount rates were as follows:
  As of March 31, 2021
Weighted average remaining lease term (in years):
Operating leases 4.22
Finance leases 3.09
Weighted average discount rate:
Operating leases 4.1  %
Finance leases 4.1  %
Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between this residual value and the fair market value of the underlying asset at the date of lease termination. As of March 31, 2021, the maximum guaranteed residual value of this equipment was $860.9 million. While Quanta believes that no significant payments will be made as a result of these residual value guarantees, there can be no assurance that significant payments will not be required in the future.
As of March 31, 2021, Quanta had additional operating lease obligations of $1.6 million for leases that had not yet commenced and that are expected to commence in 2021 or 2022 and have lease terms of one to seven years.
Leases LEASES:
Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. As of March 31, 2021, the majority of Quanta’s leases had remaining lease terms not exceeding 10 years. Certain leases include options to extend their terms in increments of up to five years and/or options to terminate. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):
Three Months Ended
  March 31,
Lease cost Classification 2021 2020
Finance lease cost:
Amortization of lease assets
Depreciation (1)
$ 244  $ 202 
Interest on lease liabilities Interest expense 27  17 
Operating lease cost Cost of services and Selling, general and administrative expenses 27,776  29,737 
Short-term and variable lease cost (2)
Cost of services and Selling, general and administrative expenses 157,899  170,365 
Total lease cost   $ 185,946  $ 200,321 
(1)     Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.
(2) Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant and primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.
Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. Quanta utilizes third party market valuations to
evaluate rental rates for these properties and facilities, and the lease agreements generally have remaining lease terms of up to 10 years, subject to renewal options. Related party lease expense was $4.8 million and $4.4 million for the three months ended March 31, 2021 and 2020.
The components of leases in the accompanying condensed consolidated balance sheet were as follows (in thousands):
Lease type Classification March 31, 2021 December 31, 2020
Assets:
Operating lease right-of-use assets Operating lease right-of-use assets $ 252,206  $ 256,845 
Finance lease assets Property and equipment, net of accumulated depreciation 2,715  2,370 
Total lease assets   $ 254,921  $ 259,215 
Liabilities:
Current:
Operating Current portion of operating lease liabilities $ 83,799  $ 85,134 
Finance Current maturities of long-term debt and short-term debt 988  846 
Non-current:
Operating Operating lease liabilities, net of current portion 176,008  178,822 
Finance Long-term debt, net of current maturities 1,627  1,382 
Total lease liabilities   $ 262,422  $ 266,184 
Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. When rental purchase options are exercised and a substantive benefit is deemed to be transferred to a third-party lessor, the transaction is deemed to be a financing transaction for accounting purposes. This results in the recognition of an asset equal to the purchase price being recorded in “Property, plant and equipment, net of accumulated depreciation,” and the recognition of a corresponding liability in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of March 31, 2021 and December 31, 2020, the assets recorded, net of accumulated depreciation, totaled $45.2 million and $45.7 million.
Future minimum lease payments for operating and finance leases were as follows (in thousands):
  As of March 31, 2021
  Operating Leases Finance Leases Total
Remainder of 2021 $ 71,358  $ 836  $ 72,194 
2022 73,550  847  74,397 
2023 52,368  626  52,994 
2024 32,349  394  32,743 
2025 21,287  62  21,349 
Thereafter 32,342  —  32,342 
Total future minimum operating and finance lease payments $ 283,254  $ 2,765  $ 286,019 
Less imputed interest (23,447) (150) (23,597)
Total lease liabilities $ 259,807  $ 2,615  $ 262,422 
Future minimum lease payments for short-term leases, which are not recorded in the condensed consolidated balance sheets due to Quanta’s accounting policy election, were $20.3 million as of March 31, 2021. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future rental amounts.
The weighted average remaining lease terms and discount rates were as follows:
  As of March 31, 2021
Weighted average remaining lease term (in years):
Operating leases 4.22
Finance leases 3.09
Weighted average discount rate:
Operating leases 4.1  %
Finance leases 4.1  %
Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between this residual value and the fair market value of the underlying asset at the date of lease termination. As of March 31, 2021, the maximum guaranteed residual value of this equipment was $860.9 million. While Quanta believes that no significant payments will be made as a result of these residual value guarantees, there can be no assurance that significant payments will not be required in the future.
As of March 31, 2021, Quanta had additional operating lease obligations of $1.6 million for leases that had not yet commenced and that are expected to commence in 2021 or 2022 and have lease terms of one to seven years.