Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

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INDEX TO QUANTA SERVICES, INC.’S CONSOLIDATED FINANCIAL STATEMENTS


	Page
Report of Management		86

Report of Independent Registered Public Accounting Firm		88

Consolidated Balance Sheets		90

Consolidated Statements of Operations		91

Consolidated Statements of Comprehensive Income		92

Consolidated Statements of Cash Flows		93

Consolidated Statements of Equity		94

Notes to Consolidated Financial Statements		95

Index to Financial Statements

REPORT OF MANAGEMENT

Management’s Report on Financial Information and Procedures

The accompanying financial statements of Quanta Services, Inc. and its subsidiaries were prepared by management. These financial statements were prepared in accordance with accounting principles generally accepted in the United States, applying certain estimates and judgments as required.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2016 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurances and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

The effectiveness of Quanta Services, Inc.’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears herein.

Index to Financial Statements

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 excluded the five acquisitions we completed in 2016. Such exclusion was in accordance with SEC guidance that an assessment of recently acquired businesses may be omitted in management’s report on internal control over financial reporting, provided the acquisition took place within twelve months of management’s evaluation. These acquisitions comprised approximately 1.3% and 0.9% of our consolidated assets and revenues as of and for the year ended December 31, 2016.

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Quanta Services, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, cash flows and equity, present fairly, in all material respects, the financial position of Quanta Services, Inc. and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded its 2016 acquisitions from its assessment of internal control over financial reporting as of December 31, 2016 because these acquisitions were made by the Company through purchase business combinations during 2016. We have also excluded the Company’s 2016 acquisitions from our audit of internal control over financial reporting. The 2016 acquisitions of the Company and its related subsidiaries are wholly owned subsidiaries of the

Index to Financial Statements

Company and have total assets and revenues which represent approximately 1.3% and 0.9%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 1, 2017

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	December 31,
	2016			2015
	(In thousands, except share information)
ASSETS
Current Assets:
Cash and cash equivalents	$	112,183		$	128,771
Accounts receivable, net of allowances of $2,752 and $5,226		1,500,115			1,621,133
Costs and estimated earnings in excess of billings on uncompleted contracts		473,308			317,745
Inventories		88,548			75,285
Prepaid expenses and other current assets		114,591			134,585

Total current assets		2,288,745			2,277,519
Property and equipment, net of accumulated depreciation of $862,825 and $755,272		1,174,094			1,101,959
Other assets, net		101,028			76,333
Other intangible assets, net of accumulated amortization of $297,313 and $264,674		187,023			205,074
Goodwill		1,603,169			1,552,658

Total assets	$	5,354,059		$	5,213,543

LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term debt and short-term debt	$	7,563		$	7,067
Accounts payable and accrued expenses		922,819			782,134
Billings in excess of costs and estimated earnings on uncompleted contracts		274,846			399,230
Current liabilities of discontinued operations		—			15,313

Total current liabilities		1,205,228			1,203,744
Long-term debt and notes payable, net of current maturities		353,562			475,364
Deferred income taxes		192,834			186,491
Insurance and other non-current liabilities		259,733			260,129

Total liabilities		2,011,357			2,125,728
Commitments and Contingencies
Equity:
Common stock, $.00001 par value, 600,000,000 shares authorized, 144,710,773 and 227,898,509 shares issued, and 144,710,773 and 152,907,166 shares outstanding		1			2
Exchangeable Shares, no par value, 6,515,453 and 6,876,042 shares issued and outstanding		—			—
Series F Preferred Stock, $.00001 par value, 1 share authorized, issued and outstanding		—			—
Series G Preferred Stock, $.00001 par value, 1 share authorized, issued and outstanding		—			—
Additional paid-in capital		1,749,306			3,497,740
Retained earnings		1,876,081			1,677,698
Accumulated other comprehensive loss		(271,673	)		(294,689	)
Treasury stock, 0 and 74,991,343 common shares		(14,288	)		(1,795,257	)

Total stockholders’ equity		3,339,427			3,085,494
Non-controlling interests		3,275			2,321

Total equity		3,342,702			3,087,815

Total liabilities and equity	$	5,354,059		$	5,213,543

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

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2016			2015			2014
	(In thousands, except per share information)
Revenues	$	7,651,319		$	7,572,436		$	7,747,229
Cost of services (including depreciation)		6,637,519			6,648,771			6,578,435

Gross profit		1,013,800			923,665			1,168,794
Selling, general and administrative expenses		653,338			592,863			705,477
Amortization of intangible assets		31,685			34,848			34,257
Asset impairment charges		7,964			58,451			—

Operating income		320,813			237,503			429,060
Interest expense		(14,887	)		(8,024	)		(4,765	)
Interest income		2,423			1,493			3,736
Equity in losses of unconsolidated affiliates		(979	)		(466	)		(332	)
Other income (expense), net		316			(1,831	)		(1,100	)

Income from continuing operations before income taxes		307,686			228,675			426,599
Provision for income taxes		107,246			97,472			139,007

Net income from continuing operations		200,440			131,203			287,592
Net income (loss) from discontinued operations		(342	)		190,621			27,490

Net income		200,098			321,824			315,082
Less: Net income attributable to non-controlling interests		1,715			10,917			18,368

Net income attributable to common stock	$	198,383		$	310,907		$	296,714

Amounts attributable to common stock:
Net income from continuing operations	$	198,725		$	120,286		$	269,224
Net income (loss) from discontinued operations		(342	)		190,621			27,490

Net income attributable to common stock	$	198,383		$	310,907		$	296,714

Earnings per share attributable to common stock — basic and diluted:
Continuing operations	$	1.26		$	0.62		$	1.22
Discontinued operations		—			0.97			0.13

Net income attributable to common stock	$	1.26		$	1.59		$	1.35

Shares used in computing earnings per share:
Weighted average basic shares outstanding		157,287			195,113			219,668

Weighted average diluted shares outstanding		157,288			195,120			219,690

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

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year Ended December 31,
	2016			2015			2014
	(In thousands)
Net income	$	200,098		$	321,824		$	315,082
Other comprehensive income (loss), net of tax provision:
Foreign currency translation adjustment, net of tax of $0, $0 and $0		23,137			(171,458	)		(84,505	)
Other, net of tax of $46, $(28) and $486		(121	)		59			(1,549	)

Other comprehensive income (loss)		23,016			(171,399	)		(86,054	)

Comprehensive income		223,114			150,425			229,028
Less: Comprehensive income attributable to non-controlling interests		1,715			10,917			18,368

Total comprehensive income attributable to Quanta stockholders	$	221,399		$	139,508		$	210,660

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

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2016			2015			2014
	(In thousands)
Cash Flows from Operating Activities of Continuing Operations:
Net income	$	200,098		$	321,824		$	315,082
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations —
(Income) loss from discontinued operations		342			(190,621	)		(27,490	)
Depreciation		170,240			162,845			141,106
Amortization of intangible assets		31,685			34,848			34,257
Asset impairment charges		7,964			58,451			—
Equity in losses of unconsolidated affiliates		979			466			332
Amortization of debt issuance costs		1,356			1,251			1,094
Gain on sale of property and equipment		(734	)		(2,773	)		(1,803	)
Foreign currency loss		880			2,490			1,244
Provision for (recovery of) doubtful accounts		(543	)		224			1,411
Provision for contract receivable		—			—			102,460
Non-cash portion of arbitration expense		—			—			10,518
Deferred income tax provision (benefit)		(15,695	)		(19,403	)		22,906
Non-cash stock-based compensation		42,843			36,939			37,449
Tax impact of stock-based equity awards		(671	)		(669	)		(1,563	)
Changes in operating assets and liabilities, net of non-cash transactions		(57,568	)		212,311			(389,261	)

Net cash provided by operating activities of continuing operations		381,176			618,183			247,742

Cash Flows from Investing Activities of Continuing Operations:
Proceeds from sale of property and equipment		21,975			26,178			14,448
Additions of property and equipment		(212,555	)		(209,968	)		(247,216	)
Cash paid for acquisitions, net of cash acquired		(68,788	)		(112,914	)		(262,218	)
Investments in and return of equity from unconsolidated affiliates		(10,309	)		(6,074	)		(3,127	)
Cash received from (paid for) other investments, net		4,752			(4,338	)		6,214
Cash withdrawn from (deposited to) restricted cash		(1,119	)		214			3,565
Cash paid for intangible assets		—			(211	)		(252	)

Net cash used in investing activities of continuing operations		(266,044	)		(307,113	)		(488,586	)

Cash Flows from Financing Activities of Continuing Operations:
Borrowings under credit facility		2,744,453			3,349,385			938,047
Payments under credit facility		(2,860,673	)		(2,935,752	)		(866,224	)
Borrowings of other long-term debt		—			—			394
Payments on other long-term debt		(6,959	)		(2,683	)		(30,448	)
Borrowings of short-term debt		2,754			4,872			5,056
Payments on short-term debt		(4,711	)		(5,170	)		—
Debt issuance and amendment costs		—			(3,795	)		—
Contributions from non-controlling interests		—			2,313			—
Distributions to non-controlling interests		(761	)		(21,228	)		(14,432	)
Tax impact of stock-based equity awards		671			669			1,563
Exercise of stock options		401			372			1,179
Repurchase of common stock, including accelerated stock repurchases		—			(1,606,361	)		(93,482	)

Net cash used in financing activities of continuing operations		(124,825	)		(1,217,378	)		(58,347	)

Discontinued operations:
Net cash provided by (used in) operating activities		(1,035	)		22,342			63,082
Net cash provided by provided by (used in) investing activities		(6,080	)		825,376			(54,280	)

Net cash provided by (used in) discontinued operations		(7,115	)		847,718			8,802

Effect of foreign exchange rate changes on cash and cash equivalents		220			(3,154	)		(7,873	)
Net decrease in cash and cash equivalents		(16,588	)		(61,744	)		(298,262	)
Cash and cash equivalents, beginning of year		128,771			190,515			488,777

Cash and cash equivalents, end of year	$	112,183		$	128,771		$	190,515

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

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY


	Common Stock						Exchangeable Shares					Series F Preferred Stock				Series G Preferred Stock				Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity			Non-controlling Interests			Total Equity
	Shares			Amount			Shares			Amount		Shares		Amount		Shares		Amount
	(In thousands, except share information)
Balance, December 31, 2013		212,942,767		$	2			3,500,000		$	—		1	$	—		—	$	—	$	3,416,585		$	1,070,077	$	(37,236	)	$	(215,240	)	$	4,234,188		$	7,131		$	4,241,319
Other comprehensive loss		—			—			—			—		—		—		—		—		—			—		(86,054	)		—			(86,054	)		—			(86,054	)
Acquisitions		686,382			—			3,825,971			—		—		—		1		—		134,538			—		—			—			134,538			—			134,538
Restricted stock and restricted stock unit activity		95,475			—			—			—		—		—		—		—		39,030			—		—			(12,340	)		26,690			—			26,690
Stock options exercised		91,444			—			—			—		—		—		—		—		1,179			—		—			—			1,179			—			1,179
Income tax impact of long-term incentive plans		—			—			—			—		—		—		—		—		700			—		—			—			700			—			700
Common stock repurchases		(2,996,278	)		—			—			—		—		—		—		—		—			—		—			(93,482	)		(93,482	)		—			(93,482	)
Vests in deferred compensation plan		—			—			—			—		—		—		—		—		874			—		—			(874	)		—			—			—
Distributions to non-controlling interests		—			—			—			—		—		—		—		—		—			—		—			—			—			(14,432	)		(14,432	)
Net income		—			—			—			—		—		—		—		—		—			296,714		—			—			296,714			18,368			315,082

Balance, December 31, 2014		210,819,790			2			7,325,971			—		1		—		1		—		3,592,906			1,366,791		(123,290	)		(321,936	)		4,514,473			11,067			4,525,540
Other comprehensive loss		—			—			—			—		—		—		—		—		—			—		(171,399	)		—			(171,399	)		—			(171,399	)
Acquisitions		461,037			—			—			—		—		—		—		—		10,127			—		—			—			10,127			(748	)		9,379
Restricted stock and restricted stock unit activity		395,427			—			—			—		—		—		—		—		37,309			—		—			(10,368	)		26,941			—			26,941
Stock options exercised		32,390			—			—			—		—		—		—		—		431			—		—			—			431			—			431
Exchange of exchangeable shares		449,929			—			(449,929	)		—		—		—		—		—		—			—		—			—			—			—			—
Income tax impact of long-term incentive plans		—			—			—			—		—		—		—		—		375			—		—			—			375			—			375
Common stock repurchases		(59,251,407	)		—			—			—		—		—		—		—		—			—		—			(1,456,361	)		(1,456,361	)		—			(1,456,361	)
Accelerated stock repurchases not yet settled		—			—			—			—		—		—		—		—		(150,000	)		—		—			—			(150,000	)		—			(150,000	)
Vests in deferred compensation plan		—			—			—			—		—		—		—		—		6,592			—		—			(6,592	)		—			—			—
Contributions from non-controlling interests		—			—			—			—		—		—		—		—		—			—		—			—			—			2,313			2,313
Distributions to non-controlling interests		—			—			—			—		—		—		—		—		—			—		—			—			—			(21,228	)		(21,228	)
Net income		—			—			—			—		—		—		—		—		—			310,907		—			—			310,907			10,917			321,824

Balance, December 31, 2015		152,907,166			2			6,876,042			—		1		—		1		—		3,497,740			1,677,698		(294,689	)		(1,795,257	)		3,085,494			2,321			3,087,815
Other comprehensive income		—			—			—			—		—		—		—		—		—			—		23,016			—			23,016			—			23,016
Acquisitions		70,840			—			—			—		—		—		—		—		1,508			—		—			—			1,508			—			1,508
Restricted stock and restricted stock unit activity		760,395			—			—			—		—		—		—		—		42,843			—		—			(8,338	)		34,505			—			34,505
Stock options exercised		25,423			—			—			—		—		—		—		—		425			—		—			—			425			—			425
Exchange of exchangeable shares		360,589			—			(360,589	)		—		—		—		—		—		—			—		—			—			—			—			—
Income tax impact of long-term incentive plans		—			—			—			—		—		—		—		—		(3,904	)		—		—			—			(3,904	)		—			(3,904	)
Settlement of accelerated stock repurchases		(9,413,640	)		—			—			—		—		—		—		—		150,000			—		—			(150,000	)		—			—			—
Vests in deferred compensation plan		—			—			—			—		—		—		—		—		6,822			—		—			(6,822	)		—			—			—
Retirement of treasury stock		—			(1	)		—			—		—		—		—		—		(1,946,128	)		—		—			1,946,129			—			—			—
Distributions to non-controlling interests		—			—			—			—		—		—		—		—		—			—		—			—			—			(761	)		(761	)
Net income		—			—			—			—		—		—		—		—		—			198,383		—			—			198,383			1,715			200,098

Balance, December 31, 2016		144,710,773		$	1			6,515,453		$	—		1	$	—		1	$	—	$	1,749,306		$	1,876,081	$	(271,673	)	$	(14,288	)	$	3,339,427		$	3,275		$	3,342,702

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

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	BUSINESS AND ORGANIZATION:

Quanta Services, Inc. (Quanta) is a leading provider of specialty contracting services, offering infrastructure solutions primarily to the electric power and oil and gas industries in the United States, Canada and Australia and select other international markets. Quanta reports its results under two reportable segments: (1) Electric Power Infrastructure Services and (2) Oil and Gas Infrastructure Services.

Electric Power Infrastructure Services Segment

The Electric Power Infrastructure Services segment provides comprehensive network solutions to customers in the electric power industry. Services performed by the Electric Power Infrastructure Services segment generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities along with other engineering and technical services. This segment also provides emergency restoration services, including the repair of infrastructure damaged by 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 technologies, and the installation of “smart grid” technologies on electric power networks. In addition, this segment designs, installs and maintains renewable energy generation facilities, consisting of solar, wind and certain types of natural gas generation facilities, and related switchyards and transmission infrastructure. To a lesser extent, this segment provides services such as the construction of electric power generation facilities, the design, installation, maintenance and repair of commercial and industrial wiring, the installation of traffic networks and cable and control systems for light rail lines and ancillary telecommunication infrastructure services.

Oil and Gas Infrastructure Services Segment

The Oil and Gas Infrastructure Services segment provides comprehensive network solutions to customers involved in the development and transportation of natural gas, oil and other pipeline products. Services performed by the Oil and Gas Infrastructure Services segment generally include the design, installation, repair and maintenance of pipeline transmission and distribution systems, gathering systems, production systems, storage systems and compressor and pump stations, as well as related trenching, directional boring and mechanized welding services. In addition, this segment’s services include pipeline protection, integrity testing, rehabilitation and replacement, and fabrication of pipeline support systems and related structures and facilities. We also serve the offshore and inland water energy markets, primarily providing services to oil and gas exploration platforms, including mechanical installation (or “hook-ups”), electrical and instrumentation, pre-commissioning and commissioning, coatings, fabrication and marine asset repair. To a lesser extent, this segment designs, installs and maintains fueling systems, as well as water and sewer infrastructure.

Acquisitions

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Disposition — Fiber Optic Licensing Operations

On April 29, 2015, Quanta entered into a stock purchase agreement with Crown Castle International Corp. (Crown Castle) pursuant to which Quanta agreed to sell its fiber optic licensing operations. The purchase agreement contained customary representations and warranties, covenants and indemnities. On August 4, 2015, Quanta completed the sale for a purchase price of approximately $1 billion in cash, resulting in after-tax net proceeds of approximately $848 million. In the third quarter of 2015, Quanta recognized a net of tax gain of approximately $171 million. Quanta has presented the results of operations, financial position, cash flows and disclosures of the fiber optic licensing operations as discontinued operations for all periods in the accompanying consolidated financial statements. These results were included in Quanta’s Fiber Optic Licensing and Other segment prior to the second quarter of 2015.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The 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 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 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.

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Use of Estimates and Assumptions

The preparation of financial statements in conformity with US 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 the allowance for doubtful accounts, valuation of inventory, useful lives of assets, fair value assumptions in analyzing goodwill, other intangibles and long-lived asset impairments, equity and other investments, loan receivables, purchase price allocations, liabilities for self-insured and other claims and guarantees, multiemployer pension plan withdrawal liabilities, revenue recognition for construction contracts inclusive of contractual change orders and claims, share-based compensation, operating results of reportable segments, as well as the provision for income taxes and the calculation of uncertain tax positions.

Cash and Cash Equivalents

Quanta had cash and cash equivalents of $112.2 million and $128.8 million as of December 31, 2016 and 2015. 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 December 31, 2016 and 2015, cash equivalents were $8.8 million and $1.4 million and consisted primarily of money market investments and money market mutual funds and are discussed further in Fair Value Measurements below. As of December 31, 2016 and 2015, cash and cash equivalents held in domestic bank accounts were approximately $19.5 million and $16.1 million, and cash and cash equivalents held in foreign bank accounts were approximately $92.7 million and $112.7 million. As of December 31, 2016 and 2015, cash and cash equivalents held by Quanta’s investments in joint ventures, which are either consolidated or proportionately consolidated, were approximately $11.5 million and $24.9 million, of which $10.0 million and $11.9 million related to domestic joint ventures. Cash and cash equivalents held by the joint ventures are available to support the operations of the related joint ventures, and Quanta does not have access to that cash for its other operations. Under the terms of the partnership agreements, Quanta generally has no right to the joint ventures’ cash other than participating in distributions and in the event of dissolution.

Current and Long-Term Accounts and Notes Receivable and Allowance for Doubtful Accounts

Quanta provides an allowance for doubtful accounts when collection of an account or note receivable is considered doubtful, and receivables are written off against the allowance when deemed uncollectible. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates regarding, among other factors, the customer’s access to capital, the customer’s willingness or ability to pay, general economic and market conditions, the ongoing relationship with the customer and uncertainties related to the resolution of disputed matters. Quanta considers accounts receivable delinquent after 30 days but does not generally include delinquent accounts in its analysis of the allowance for doubtful accounts unless the accounts receivable have been outstanding for at least 90 days. In addition to balances that have been outstanding for 90 days or more, Quanta also includes accounts receivable balances that relate to customers in bankruptcy or with other known difficulties in its analysis of the allowance for doubtful accounts. Material changes in Quanta’s customers’ business or cash flows, which may be impacted by negative economic and market conditions, could affect

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Quanta’s ability to collect amounts due from them. As of December 31, 2016 and 2015, Quanta had allowances for doubtful accounts on current receivables of approximately $2.8 million and $5.2 million. Long-term accounts receivable are included within other assets.

Should customers experience financial difficulties or file for bankruptcy, or should anticipated recoveries relating to receivables in existing bankruptcies or other workout situations fail to materialize, Quanta could experience reduced cash flows and losses in excess of current allowances provided.

The balances billed but not paid by customers pursuant to retainage provisions in certain contracts are generally due upon completion of the contracts and acceptance by the customer. Based on Quanta’s experience with similar contracts in recent years, the majority of the retainage balances at each balance sheet date are expected to be collected within the next twelve months. Current retainage balances as of December 31, 2016 and 2015 were approximately $231.0 million and $250.1 million and were included in accounts receivable. Retainage balances with settlement dates beyond the next twelve months were included in other assets, net, and as of December 31, 2016 and 2015 were $5.2 million and $4.5 million.

Within accounts receivable, Quanta recognizes unbilled receivables in circumstances such as when revenues have been earned and recorded but the amount cannot be billed under the terms of the contract until a later date; costs have been incurred but are yet to be billed under cost-reimbursement type contracts; 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 accrued for work performed under fixed-price contracts as these amounts are recorded as costs and estimated earnings in excess of billings on uncompleted contracts. At December 31, 2016 and 2015, the balances of unbilled receivables included in accounts receivable were approximately $206.8 million and $233.6 million.

Inventories

Inventories consist primarily of parts and supplies held for use in the ordinary course of business, which are valued by Quanta at the lower of cost or market as determined by using either the first-in, first-out (FIFO) method or the average costing method. Inventories also include certain job specific materials not yet installed which are valued using the specific identification method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed using the straight-line method, net of estimated salvage values, over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Depreciation expense related to property and equipment was approximately $170.2 million, $162.8 million and $141.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Accrued capital expenditures were $12.7 million and $5.8 million as of December 31, 2016 and 2015. The impact of these items has been excluded from Quanta’s capital expenditures on its consolidated statements of cash flows due to their non-cash nature.

Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated over the adjusted remaining useful lives of the assets. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in selling, general and administrative expenses.

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Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable. Quanta also recorded asset impairments primarily related to certain international renewable energy services operations of $8.0 million in 2016 and $6.6 million in 2015. The 2016 impairment was primarily due to a pending disposition of certain international renewable energy services operations, and the 2015 impairment was based on the estimated future undiscounted cash flows for the asset group as compared to their carrying value.

When an evaluation is required, the estimated future undiscounted cash flows associated with the asset group are compared to the asset group’s carrying amount to determine if an impairment of such asset group is necessary. The effect of any impairment involves expensing the difference between the fair value of such asset group and its carrying value in the period incurred.

Other Assets, Net

Other assets, net consists primarily of long-term receivables, debt issuance costs, equity and other investments, refundable security deposits for leased properties and insurance claims in excess of deductibles that are due from Quanta’s insurers.

Debt Issuance Costs

Capitalized debt issuance costs related to Quanta’s credit facility and any other debt outstanding at a given balance sheet date are included in other assets, net and are amortized into interest expense on a straight-line basis over the terms of the respective agreements giving rise to the debt issuance costs, which Quanta believes approximates the effective interest rate method. During 2015, Quanta incurred $3.8 million of debt issuance costs related to the amendment and restatement of its credit agreement and recorded a nominal charge to interest expense for the write-off of a portion of the debt issuance costs related to the prior facility. As of December 31, 2016 and 2015, capitalized debt issuance costs were $11.4 million, with accumulated amortization of $6.0 million and $4.8 million. For the years ended December 31, 2016, 2015 and 2014, amortization expense related to capitalized debt issuance costs was $1.4 million, $1.3 million and $1.1 million, respectively.

Goodwill and Other Intangibles

Quanta has recorded goodwill in connection with its historical acquisitions of companies. Upon acquisition, these companies were either combined into one of Quanta’s existing operating units or managed on a stand-alone basis as an individual operating unit. Goodwill recorded in connection with these acquisitions is subject to an annual assessment for impairment, which Quanta performs at the operating unit level for each operating unit that carries a balance of goodwill. Each of Quanta’s operating units is organized into one of two internal divisions: the Electric Power Infrastructure Services Division and the Oil and Gas Infrastructure Services 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 each 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 impairments.

Quanta has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step fair value-based impairment test described below. 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

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quantitative impairment test is required. Otherwise, no further testing is required. Quanta can choose to perform the qualitative assessment on none, some or all of its reporting units. Quanta can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators including deterioration in macroeconomic conditions, declining financial performance, or a sustained decrease in share price, among other things, may trigger the need for annual or interim impairment testing of goodwill associated with one or all of the reporting units.

Quanta’s goodwill impairment assessment is performed at year-end, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. For instance, a decrease in Quanta’s market capitalization below book value, a significant change in business climate or loss of a significant customer, as well as the qualitative indicators referenced above, may trigger the need for interim impairment testing of goodwill for one or all of its reporting units. The first step of the two-step fair value-based test involves comparing the fair value of each of Quanta’s reporting units with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the reporting unit’s goodwill to the implied fair value of its goodwill. If the implied fair value of goodwill is less than the carrying amount, an impairment loss would be recorded as a reduction to goodwill with a corresponding charge to operating expense.

Quanta determines the fair value of its reporting units using a weighted combination of the discounted cash flow, market multiple and market capitalization valuation approaches, with heavier weighting on the discounted cash flow method, as in management’s opinion, this method currently results in the most accurate calculation of a reporting unit’s fair value. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, among others, revenue growth rates, operating margins, discount rates, weighted average costs of capital and future market conditions. Quanta believes the estimates and assumptions used in its impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated.

Under the discounted cash flow method, Quanta determines fair value based on the estimated future cash flows of each reporting unit, discounted to present value using risk-adjusted industry discount rates, which reflect the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections are derived from budgeted amounts and operating forecasts (typically a one-year model) plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur, along with a terminal value derived from the reporting unit’s earnings before interest, taxes, depreciation and amortization (EBITDA). The EBITDA multiples for each reporting unit are based on trailing twelve-month comparable industry data.

Under the market multiple and market capitalization approaches, Quanta determines the estimated fair value of each of its reporting units by applying transaction multiples to each reporting unit’s projected EBITDA and then averaging that estimate with similar historical calculations using either a one, two or three year average. For the market capitalization approach, Quanta adds a reasonable control premium, which is estimated as the premium that would be received in a sale of the reporting unit in an orderly transaction between market participants.

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The projected cash flows and estimated levels of EBITDA by reporting unit were used to determine fair value under the three approaches discussed herein. The following table presents the significant estimates used by management in determining the fair values of Quanta’s reporting units at December 31, 2016, 2015 and 2014:


	2016	2015	2014
Years of cash flows before terminal value	5	5	5
Discount rates	12.5% to 14.5%	12.0% to 16.0%	12.0% to 14.0%
EBITDA multiples	5.5 to 7.0	5.0 to 6.5	5.0 to 6.0
Weighting of three approaches:
Discounted cash flows	70%	70%	70%
Market multiple	15%	15%	15%
Market capitalization	15%	15%	15%

For recently acquired reporting units, a step one impairment test may indicate an implied fair value that is substantially similar to the reporting unit’s carrying value. Such similarities in value are generally an indication that management’s estimates of future cash flows associated with the recently acquired reporting unit remain relatively consistent with the assumptions that were used to derive its initial fair value.

During the fourth quarter of 2016, a two-step fair-value based goodwill impairment analysis was performed for each of Quanta’s reporting units, and no reporting units were evaluated solely on a qualitative basis. Step one of the analysis indicated that the implied fair value of each of Quanta’s reporting units, other than recently acquired reporting units and the reporting units that recorded goodwill impairment charges in 2015, was substantially in excess of its carrying value.

As discussed generally above, when evaluating the 2016 step one impairment test results, management considered many factors in determining whether or not an impairment of goodwill for any reporting unit was reasonably likely to occur in future periods, including future market conditions and the economic environment in which Quanta’s reporting units were operating. Additionally, management considered the sensitivity of its fair value estimates to changes in certain valuation assumptions. After taking into account a 10% decrease in the fair value of each of Quanta’s reporting units, two reporting units within Quanta’s Oil and Gas Infrastructure Division had fair values below their respective carrying values. Quanta recorded asset impairment charges for these reporting units in 2015. The fair values determined in 2016 for these reporting units were consistent with the fair values determined in 2015, accordingly the fair values approximate the current carrying values. Circumstances such as market declines, unfavorable economic conditions, the loss of a major customer or other factors could increase the risk of impairment of goodwill in future periods.

If an operating unit experiences prolonged periods of declining revenues, operating margins or both, it may be at risk of failing step one of the goodwill impairment test. Certain operating units have experienced declines over the short-term due to challenging macroeconomic conditions in certain geographic areas and low oil and natural gas prices, which have negatively impacted customer spending and resulted in project cancellations and delays. Additionally, customer capital spending has been constrained as a result of an increasingly complex regulatory and permitting environment. Certain operating units within Quanta’s Oil and Gas Infrastructure Services Division that primarily operate within the midstream and smaller-scale transmission market have continued to be negatively impacted by these factors. Goodwill and intangible assets associated with the operating units within Quanta’s Oil and Gas Infrastructure Services Division that have been significantly impacted by the factors mentioned above were approximately $68.0 million and $11.9 million at December 31, 2016. Quanta monitors these conditions and others to determine if it is necessary to perform step one of the fair-value based impairment test for one or more operating units prior to the annual impairment assessment. No interim impairment charges were recorded during 2016. Although Quanta is not aware of circumstances that

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would lead to a goodwill impairment at a reporting unit currently, circumstances such as a continued market decline, the loss of a major customer or other factors could impact the valuation of goodwill in the future.

The goodwill analysis performed for each reporting unit was based on estimates and comparisons obtained from the electric power and oil and gas industries. Quanta assigned a higher weighting to the discounted cash flow approach in all periods to reflect increased expectations of market value being determined from a “held and used” model. As stated previously, cash flows are derived from budgeted amounts and operating forecasts that have been evaluated by management. In connection with the 2016 assessment, reporting unit growth rates during the cash flow projection period varied from negative 2% to positive 24%.

Quanta’s intangible assets include customer relationships, backlog, trade names, non-compete agreements, patented rights and developed technology, all subject to amortization. The 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 excess earnings method. The excess earnings analysis consists of discounting 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 importance or lack thereof of existing customer relationships to Quanta’s business plan, income taxes and required rates of return. Quanta values backlog for acquired businesses as of the acquisition date based upon the contractual nature of the backlog within each service line, using the income approach to discount back to present value the cash flows attributable to the backlog. The value of trade names is estimated using the relief-from-royalty method of the income approach. This approach is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty in order to exploit the related benefits of this intangible asset.

Quanta amortizes intangible assets based upon the estimated consumption of the economic benefits of each intangible asset, or on a straight-line basis if the pattern of economic benefits consumption cannot otherwise be reliably estimated. Intangible assets subject to amortization are reviewed for impairment and are 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 interim impairment testing of intangible assets. An impairment loss would be recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

During the fourth quarter of 2015, management concluded that goodwill was impaired at two reporting units in Quanta’s Oil and Gas Infrastructure Services Division. Accordingly, Quanta recorded a $39.8 million non-cash charge for the impairment of goodwill and an impairment charge of $12.1 million related to customer relationships, trade names and non-compete agreement intangible assets. These asset impairments primarily resulted from lower levels of expected activity in the U.S. Gulf of Mexico and, to a lesser extent, due to the extended low commodity price environment with respect to certain directional drilling operations in Australia.

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 determines whether such 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

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consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities of a VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE, in either case that could potentially be significant to 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 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. Quanta’s share of net income or losses from unconsolidated equity investments is included in equity in earnings (losses) of unconsolidated affiliates in the consolidated statements of operations when applicable. Equity investments are reviewed for impairment by assessing whether any decline in the fair value of the investment below the carrying value 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 an earnings capacity are evaluated in determining whether a loss in value should be recognized. Any impairment losses related to investments would be recognized in other expense. Equity method investments are carried at original cost and are included in other assets, net in the consolidated balance sheet and are adjusted for Quanta’s proportionate share of the investees’ income, losses and distributions.

Revenue Recognition

Through its Electric Power Infrastructure Services and Oil and Gas Infrastructure Services segments, Quanta designs, installs and maintains networks for customers in the electric power and oil and gas industries. These services may be provided pursuant to master service agreements, repair and maintenance contracts and fixed price and non-fixed price installation contracts. Pricing under these contracts may be competitive unit price, cost-plus/hourly (or time and materials basis) or fixed price (or lump sum basis), and the final terms and prices of these contracts are frequently negotiated with the customer. Under unit-based contracts, the utilization of an output-based measurement is appropriate for revenue recognition. Under these contracts, Quanta recognizes revenue as units are completed based on pricing established between Quanta and the customer for each unit of delivery, which best reflects the pattern in which the obligation to the customer is fulfilled. Under cost-plus/hourly and time and materials type contracts, Quanta recognizes revenue on an input basis, as labor hours are incurred and services are performed.

Revenues from fixed price contracts are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract. These contracts provide for a fixed amount of revenues for the entire project. Such contracts provide that the customer accept completion of progress to date and compensate Quanta for services rendered, which may be measured in terms of units installed, hours expended, costs incurred to date compared to total estimated contract costs or some other measure of progress. Contract costs include all direct materials, labor and subcontract costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Much of the material associated with Quanta’s work is owner-furnished and is therefore not included in contract revenues and costs. The cost estimation process is based on professional knowledge and experience of Quanta’s engineers, project managers and financial professionals. Changes in job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those contracts and therefore, Quanta’s profit recognition.

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Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors including unforeseen circumstances not included in Quanta’s cost estimates or covered by its contracts for which it cannot obtain adequate compensation, including concealed or unknown environmental conditions; changes in the cost of equipment, commodities, materials or labor; unanticipated costs or claims due to customer-caused delays, customer failure to provide required materials or equipment, errors in engineering, specifications or designs, project modifications, or contract termination and Quanta’s inability to obtain reimbursement for such costs or recover on such claims; weather conditions; and quality issues requiring rework or replacement. These factors, along with other risks inherent in performing fixed price contracts may cause actual revenues and gross profits for a project to differ from previous estimates and could result in reduced profitability or losses on projects. Changes in these factors may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined. These factors are routinely evaluated on a project by project basis throughout the project term, and the impact of corresponding revisions in management’s estimates of contract value, contract cost and contract profit are recorded as necessary in the period in which the revisions are determined. Provisions for losses on uncompleted contracts are made in the period in which such losses are determined to be probable and the amount can be reasonably estimated.

During 2016 and 2015, Quanta experienced performance issues on a power plant project in Alaska that resulted in an increase of the estimated total costs necessary to complete the project. During the construction and commissioning phases, the project experienced third party engineering deficiencies that changed Quanta’s planned scope of work and performance failures by other contractors operating onsite. These issues resulted in higher than expected production costs associated with quality deficiencies and a related impact on production sequencing. Additionally, late in the second quarter of 2016, Quanta experienced a claimed force majeure event that further disrupted project timing and provided the customer and its insurance providers with a notice of the event in order to seek schedule relief and cost recovery. During the years ended December 31, 2016 and 2015, Quanta recognized project losses of $54.8 million and $44.9 million. Quanta is in the process of developing potential claims for damages that may have resulted from the third party engineering and other contractor performance issues; however, no revenues or cost recovery has been reflected in Quanta’s estimate of total project losses at December 31, 2016. This project had a contract value of $202 million at December 31, 2016 and was substantially completed during the fourth quarter of 2016. As this project continues through the close out phase, it is possible that additional performance issues or other unforeseen circumstances could occur and result in the recognition of additional losses on this project; however, such amounts cannot currently be estimated.

Overall, Quanta’s operating results for the year ended December 31, 2016 were impacted by less than 5% as a result of aggregate changes in contract estimates related to projects that were in progress at December 31, 2015. Included in the operating results for the year ended December 31, 2016 were losses from the project described above, offset by the aggregate positive impact of numerous individually immaterial changes in project profitability generally due to better than expected performance for projects that were ongoing at December 31, 2015. Quanta’s operating results for the year ended December 31, 2015 and 2014 were impacted by numerous individually immaterial changes in contract estimates related to projects that were in progress at December 31, 2014 and 2013; however, the aggregate impact was less than 5%.

The current asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed for fixed price contracts. The current liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized for fixed price contracts.

Quanta may incur costs subject to change orders, whether approved or unapproved by the customer, and/or claims related to certain contracts. Quanta determines the probability that such costs will be recovered based

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upon evidence such as past practices with the customer, specific discussions or preliminary negotiations with the customer or verbal approvals. Quanta treats items as costs of contract performance in the period incurred if it is not probable that the costs will be recovered or will recognize revenue if it is probable that the contract price will be adjusted and can be reliably estimated.

As of December 31, 2016 and 2015, Quanta had recognized revenues of approximately $137.8 million and $137.2 million related to change orders and/or claims that had been included as contract price adjustments on certain contracts which were in the process of being negotiated in the normal course of business.

These aggregate contract price adjustments represent management’s best estimate of additional contract revenues which have been earned and which management believes are probable of collection. The amounts ultimately realized by Quanta upon final acceptance by its customers could be higher or lower than such estimated amounts; however, such amounts cannot currently be estimated.

Income Taxes

Quanta follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax bases of assets, and liabilities and are measured using the enacted tax rates and laws that 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. 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 in those instances where Quanta considers it more likely than not that additional taxes may be due in excess of amounts reflected on income tax returns filed. When recording reserves for expected tax consequences of uncertain positions, 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 December 31, 2016, the total amount of unrecognized tax benefits relating to uncertain tax positions was $35.2 million, a decrease from December 31, 2015 of $19.3 million. This decrease in unrecognized tax benefits resulted primarily from a $23.4 million decrease due to expiration of certain federal and state statute of limitations, partially offset by a $4.2 million increase due to tax positions to be taken for 2016. Although the IRS completed its examination related to tax years 2010, 2011 and 2012 during 2016, certain subsidiaries remain under examination by various U.S. state, Canadian and other 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 $12.3 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 are 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 its future consolidated balance sheets and statements of operations and comprehensive income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period, and diluted earnings per share is computed using the weighted average number of common shares 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.

Self-Insurance

Quanta is insured for employer’s liability, workers’ compensation, auto liability and general liability claims. Under these programs, the deductible for employer’s liability is $1.0 million per occurrence, the deductible for workers’ compensation is $5.0 million per occurrence, and the deductibles for auto liability and general liability are $10.0 million per occurrence. Quanta is generally self-insured for all claims that do not exceed the amount of the applicable deductible. 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 $0.4 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

Some of Quanta’s operating units are parties to various 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 their union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. Quanta’s multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions 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 the projects Quanta has ongoing at that time and the need for union resources in connection with those projects. Therefore, Quanta is unable to accurately predict the union employee payroll and the amount of the resulting multiemployer pension plan contribution obligation for future periods.

Stock-Based Compensation

Quanta recognizes compensation expense for restricted stock, restricted stock units (RSUs) and performance units to be settled in common stock based on the fair value of the awards at the date of grant, net of estimated forfeitures. The fair value of restricted stock awards, RSUs and performance units to be settled in common stock is determined based on the number of shares, RSUs or performance units granted and the closing price of Quanta’s common stock on the date of grant. An estimate of future forfeitures is required in determining the period expense. Quanta uses historical data to estimate the forfeiture rate; however, these estimates are subject to change and may impact the value that will ultimately be recognized as compensation expense. The resulting compensation expense from time-based RSU and performance unit awards is recognized on a straight-line basis

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over the requisite service period, which is generally the vesting period, while compensation expense from performance-based RSU awards is recognized using the graded vesting method over the requisite service period. The cash flows resulting from the tax deductions in excess of the compensation expense recognized for restricted stock, RSUs and performance units to be settled in common stock and stock options (excess tax benefit) 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 on the settlement date of one share of Quanta common stock, as specified in the applicable award agreement. For additional information on Quanta’s restricted stock, RSUs, and performance unit awards, see Note 12.

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 in which the foreign operating unit is located. Generally, the currency in which the operating unit transacts the majority of its activities, including billings, financing, payroll and other expenditures, would be considered the functional currency. The treatment of foreign currency translation gains or losses is dependent upon management’s determination of the functional currency of each operating unit. In preparing the 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. The translation of the balance sheet results in translation gains or losses, which are included as a separate component of equity under the caption “Accumulated other comprehensive income (loss).” Gains and losses arising from transactions which are not denominated in the operating units’ functional currencies are included within other income (expense) in the statements of operations.

Derivatives

From time to time, Quanta enters into forward currency contracts that qualify as derivatives in order to hedge the risks associated with fluctuations in foreign currency exchange rates related to certain forecasted foreign currency denominated transactions. Quanta does not enter into derivative transactions for speculative purposes; however, for accounting purposes, certain transactions may not meet the criteria for cash flow hedge accounting. For a hedge to qualify for cash flow hedge accounting treatment, a hedge must be documented at the inception of the contract, with the objective and strategy stated, along with an explicit description of the methodology used to assess hedge effectiveness. The dates (or periods) for the expected forecasted events and the nature of the exposure involved (including quantitative measures of the size of the exposure) must also be documented. At the inception of the hedge and on an ongoing basis, the hedge must be deemed to be “highly effective” at minimizing the risk of the identified exposure. Effectiveness measures relate the gains or losses of the derivative to changes in the cash flows associated with the hedged item, and the forecasted transaction must be probable of occurring.

For forward contracts that qualify as cash flow hedges, Quanta accounts for the change in fair value of the forward contracts directly in equity as part of accumulated other comprehensive income (loss). Any ineffective portion of cash flow hedges is recognized in earnings in the period in which ineffectiveness occurs. For instance, if a forward contract is discontinued as a cash flow hedge because it is probable that the original forecasted transaction will not occur by the end of the originally specified time period, the related amounts in accumulated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

other comprehensive income (loss) would be reclassified to other income (expense) in the consolidated statement of operations in the period such determination is made. When a forecasted transaction occurs, the portion of the accumulated gain or loss applicable to the forecasted transaction is reclassified from equity to earnings. Changes in fair value related to transactions that do not meet the criteria for cash flow hedge accounting are recorded in the consolidated statements of operations and are included in other income (expense).

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. Further details are presented in Note 15.

Fair Value Measurements

The carrying values of cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of variable rate debt also approximates fair value. 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). All of Quanta’s cash equivalents were categorized as Level 1 assets at December 31, 2016 and 2015, as all values were based on unadjusted quoted prices for identical assets in an active market that Quanta has the ability to access.

In connection with Quanta’s acquisitions, identifiable intangible assets acquired typically include goodwill, backlog, customer relationships, trade names, covenants not-to-compete, patented rights and developed technology. Quanta utilizes the fair value premise as the primary basis for its valuation procedures, which is a market-based approach to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Quanta periodically engages the services of an independent valuation firm when a new business is acquired to assist management with this valuation process, including assistance with the selection of appropriate valuation methodologies and the development of market-based valuation assumptions. Based on these considerations, management utilizes various valuation methods, including an income approach, a market approach and a cost approach, to determine the fair value of intangible assets acquired based on the appropriateness of each method in relation to the type of asset being valued. The assumptions used in these valuation methods are analyzed and compared, where possible, to available market data, such as industry-based weighted average costs of capital and discount rates, trade name royalty rates, public company valuation multiples and recent market acquisition multiples. In accordance with its annual impairment test during the quarter ended December 31, 2016, the carrying amounts of such assets, including goodwill, were compared to their fair values. The level of inputs used for these fair value measurements is the lowest level (Level 3). Quanta uses the assistance of third party specialists to develop valuation assumptions. Quanta believes that these valuation methods appropriately represent the methods that would be used by other market participants in determining fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Quanta also uses fair value measurements in connection with the valuation of its investments in private company equity interests and financing instruments. These valuations require significant management judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. Typically, the initial costs of these investments are considered to represent fair market value, as such amounts are negotiated between willing market participants. On a quarterly basis, Quanta performs an evaluation of its investments to determine if an other-than-temporary decline in the value of each investment has occurred and whether the recorded amount of each investment will be realizable. If an other-than-temporary decline in the value of an investment occurs, a fair value analysis would be performed to determine the degree to which the investment was impaired and a corresponding charge to earnings would be recorded during the period. These types of fair market value assessments are similar to other nonrecurring fair value measures used by Quanta, which include the use of significant judgment 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.

3.	NEW ACCOUNTING PRONOUNCEMENTS:

Adoption of New Accounting Pronouncements

In February 2015, the FASB issued an update which amends consolidation guidance, including amending the guidance related to determining whether an entity is a variable interest entity (VIE). The guidance may be applied using a modified retrospective approach whereby the entity records a cumulative effect of adoption at the beginning of the fiscal year of initial application. A reporting entity may also apply the amendments on a full retrospective basis. Quanta adopted this guidance effective January 1, 2016, and the adoption of the update did not have a significant impact on Quanta’s consolidated financial statements or related disclosures.

In April 2015, the FASB issued an update that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts and premiums. The update is required to be adopted retroactively for all periods presented. In August 2015, the FASB issued another update that states that the Securities Exchange Commission (SEC) staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Quanta adopted this guidance effective January 1, 2016, and the adoption of the update did not have a significant impact on Quanta’s consolidated financial statements or related disclosures.

In April 2015, the FASB issued an update that provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. An entity can elect to adopt the amendments either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. Quanta adopted this guidance effective January 1, 2016, and the adoption of the update did not have a significant impact on Quanta’s consolidated financial statements or related disclosures.

In September 2015, the FASB issued an update that requires an acquiring company to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which such

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

adjustments are determined. An acquiring company must record any effect on earnings from changes in depreciation or amortization or other income effects, calculated as if the accounting had been completed at the acquisition date. The acquiring company must also present separately on the face of the income statement or disclose in the notes the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. The update is required to be adopted prospectively to adjustments that occur after the effective date with earlier application permitted for financial statements that have not yet been issued. Quanta adopted this guidance effective January 1, 2016, and the adoption of the update did not have a significant impact on Quanta’s consolidated financial statements or related disclosures.

In August 2014, the FASB issued guidance to address the diversity in practice in determining when there is substantial doubt about an entity’s ability to continue as a going concern and when and how an entity must disclose certain relevant conditions and events. This update requires an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued (or available to be issued). If such conditions or events exist, an entity should disclose that there is substantial doubt about the entity’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued (or available to be issued), along with the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans that are intended to mitigate those conditions or events. This guidance will impact the disclosure and presentation of any substantial doubt by Quanta about its ability to continue as a going concern, if such substantial doubt were to exist. Quanta adopted this guidance on December 31, 2016, and the adoption of the update did not have a significant impact on its consolidated financial statements or related disclosures but would have an impact if such a substantial doubt were to exist in the future.

In January 2017, the FASB issued an update that amended SEC guidance within the Accounting Standards Codification that related to disclosing the impact that recently issued accounting standards will have on a registrant’s financial statements when such standards are adopted in future periods. Quanta has followed the guidance in this amendment within this note to the consolidated financial statements.

Accounting Standards Not Yet Adopted

In May 2014, the FASB issued an update that supersedes most current revenue recognition guidance, as well as some cost recognition guidance. The update requires that the recognition of revenue related to the transfer of goods or services to customers reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires new qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments, information about contract balances and performance obligations, and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB affirmed its proposal to defer the effective date until fiscal years beginning on or after December 15, 2017. The guidance can be applied on a full retrospective or modified retrospective basis whereby the entity records a cumulative effect of initially applying this update at the date of initial application.

Quanta is currently evaluating the potential impact of this update on its consolidated financial statements, as well as the impact of its selected transition method as Quanta continues through the implementation process. In addition, Quanta continues to monitor activity related to the new standard as well as working with various non-authoritative groups regarding industry clarifications and interpretations, which may impact Quanta’s considerations and conclusions. Significant areas of ongoing consideration include the impact of termination for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

convenience provisions on the duration of contracts and accounting for mobilization-related costs and uninstalled materials. While Quanta is still evaluating the requirements of this update, it currently does not expect the update to materially affect its results of operations, financial position or cash flows. This preliminary conclusion is based on Quanta’s belief that it will generally continue to recognize revenues from long-term service contracts over time as services are performed and the underlying obligation to the customer is fulfilled. Quanta has identified and is in the process of implementing changes to its processes and internal controls to meet the reporting and disclosure requirements of this update and will adopt this update effective January 1, 2018.

In July 2015, the FASB issued an update that requires inventory to be measured at the lower of either cost or net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference will be recognized as a loss in earnings in the period in which it occurs. The update is required to be adopted prospectively and is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The adoption of the update is not anticipated to have a significant impact on Quanta’s consolidated financial statements or related disclosures.

In January 2016, the FASB issued an update that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments to provide users of financial statements with more decision-useful information. The new standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for financial statements of fiscal years or interim periods that have not been previously issued. Quanta is evaluating the impact of the new standard on its consolidated financial statements and will adopt the new standard by January 1, 2018.

In February 2016, the FASB issued an update that requires companies to recognize on the balance sheet the contractual right to use assets and liabilities corresponding to the rights and obligations created by lease contracts. The new standard is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted for financial statements of fiscal years or interim periods that have not been previously issued. While Quanta continues to evaluate the effect of the standard on its consolidated financial statements, it is anticipated that the adoption of the standard will materially impact its statement of financial position.

In March 2016, the FASB issued an update that will amend the accounting for share-based payments in several key areas, including the treatment and cash flow presentation of tax effects related to the settlement of share-based payments and the accounting for forfeitures of share-based awards. The new guidance will require companies with share-based payments to record all tax effects related thereto at settlement (or expiration) through income tax expense on the statement of operations rather than through additional paid-in capital within equity. This update will also require excess tax benefits to be classified as an operating activity on the statement of cash flows rather than reclassified as a financing activity and will require cash paid by an employer when withholding shares for taxes to be presented as a financing activity. The update also allows companies to either account for forfeitures of share-based payments as they occur or to estimate forfeitures. This guidance is required to be applied prospectively except for the requirement to classify cash paid when withholding shares for the employee portion of taxes as a financing activity, which requires retrospective application. The update is effective for interim and annual reporting periods beginning after December 15, 2016. Quanta will continue to estimate forfeitures of share-based payments. It is anticipated that Quanta will experience increased volatility of income tax expense upon adoption of this update.

In June 2016, the FASB issued an update that will change the way companies measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update will require companies to use an “expected loss” model for instruments measured at amortized cost and to record allowances for available-for-sale (AFS) debt securities rather than reduce the carrying amounts. The update will

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also require disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. Companies will apply this standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted for annual reporting periods beginning after December 15, 2018. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance by January 1, 2020.

In August 2016, the FASB issued an update intended to standardize the classification of certain transactions on the statement of cash flows. These transactions include contingent consideration payments made after a business combination, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investments. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted, and requires application using a retrospective transition method. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance by January 1, 2018.

In October 2016, the FASB issued an update that will require a reporting entity to recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new guidance will not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The modified retrospective method will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance by January 1, 2018.

In October 2016, the FASB issued an update that will amend the consolidation guidance related to how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the VIE held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of a VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. The new standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. Since Quanta has already adopted a related update, it will be required to apply the amendments in this update retrospectively to all relevant prior periods beginning with the fiscal year in which the amendments in the prior update were initially applied. Quanta will adopt this guidance on January 1, 2017, and the adoption of the update is not anticipated to have a significant impact on its consolidated financial statements or related disclosures.

In November 2016, the FASB issued an update intended to standardize the classification of restricted cash and cash equivalents transactions on the statement of cash flows. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The retrospective transition method will be required for this new guidance. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance by January 1, 2018.

In January 2017, the FASB issued an update intended to clarify the definition of a business to assist entities with evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or

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businesses. The new definition requires that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or group is not a business. The update will require that to be considered a business, a set of assets and activities must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Additionally, the update will remove the evaluation of whether a market participant could replace missing elements in order to consider the set of assets and activities a business, will provide more stringent criteria for sets without outputs and will narrow the definition of output. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted for certain transactions. The prospective transition method will be required for this new guidance. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance by January 1, 2018.

Also in January 2017, the FASB issued an update intended to simplify the subsequent measurement of goodwill by eliminating the second step in the current two-step goodwill impairment test. The update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if applicable. Additionally, the update will eliminate the requirement that a reporting unit with a zero or negative carrying amount perform a qualitative assessment and the second step of the two-step goodwill impairment test and will instead require disclosure of the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. This update is effective for public entities for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The prospective transition method will be required for this new guidance. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance by January 1, 2020.

4.	DISCONTINUED OPERATIONS:

On August 4, 2015, Quanta completed the sale of its fiber optic licensing operations to Crown Castle for an aggregate purchase price of approximately $1 billion in cash, resulting in estimated after-tax net proceeds of approximately $848 million. In the third quarter of 2015, Quanta recognized a pre-tax gain of approximately $272 million and a corresponding tax expense of approximately $101 million, which resulted in a gain on the sale, net of tax, of approximately $171 million. Quanta remains liable for all taxes and insured claims associated with the fiber optic licensing operations arising on or before or outstanding as of August 4, 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Quanta has presented the results of operations, financial position, cash flows and disclosures related to its fiber optic licensing operations as discontinued operations in the accompanying consolidated financial statements. The results were included in Quanta’s Fiber Optic Licensing and Other segment prior to the second quarter of 2015. The following represents a reconciliation of the major classes of line items constituting income from discontinued operations primarily related to Quanta’s fiber optic licensing operations to the consolidated statements of operations (in thousands):


	Year Ended December 31,
	2016			2015		2014
Major classes of line items constituting pretax income from discontinued operations:
Revenues	$	—		$	59,998	$	104,021
Expenses:
Cost of services (including depreciation)		—			24,748		39,295

Selling, general and administrative expenses		(980	)		12,047		16,561
Amortization of intangible assets		—			963		1,650

Other income (expense) items that are not major		—			10		3

Net income before taxes of discontinued operations related to fiber optic licensing operations related to major classes of income before taxes		980			22,250		46,518
Pretax gain on the disposal of the fiber optic licensing operations		—			271,833		—

Total pretax gain on fiber optic licensing operations		980			294,083		46,518
Provision for income taxes related to fiber optic licensing operations		667			103,462		18,401

Net income from discontinued operations related to fiber optic licensing operations		313			190,621		28,117
Net loss from discontinued operations related to telecommunication operations		(655	)		—		(627	)

Net income (loss) from discontinued operations as presented in the consolidated statements of operations	$	(342	)	$	190,621	$	27,490

There were no assets or liabilities associated with fiber optic licensing operations at December 31, 2016 and no assets or non-current liabilities at December 31, 2015. The following represents a reconciliation of the carrying amounts of major classes of assets and liabilities of discontinued operations to the consolidated balance sheet at December 31, 2015 (in thousands):


	December 31, 2015
Carrying amounts of major classes of current liabilities of discontinued operations related to fiber optic licensing operations:
Current liabilities:
Accounts payable and accrued expenses	$	15,313

Total current liabilities of discontinued operations as presented in the consolidated balance sheets	$	15,313

Additionally, on December 3, 2012, Quanta sold substantially all of its domestic telecommunications infrastructure services operations and related subsidiaries. During the years ended December 31, 2016 and 2014, legal fees of $1.0 million were recorded related to an ongoing legal matter associated with these discontinued

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operations. See Legal Proceedings — Lorenzo Benton v. Telecom Network Specialists, Inc., et al. in Note 15 for additional information. The aggregate net of tax impact of these legal fees was $0.7 million and $0.6 million during the years ended December 31, 2016 and 2014.

5.	ACQUISITIONS:

2016 Acquisitions

During 2016, Quanta completed five acquisitions. The results of four of the acquired companies are generally included in Quanta’s Electric Power Infrastructure Services segment. These companies included an electrical infrastructure services company located in Australia, a utility contracting company located in Canada, a full service medium- and high-voltage powerline contracting company located in the United States and a telecommunications company located in Canada. Quanta also acquired a pipeline service contractor located in the United States, the results of which are generally included in Quanta’s Oil and Gas Infrastructure Services segment. The aggregate consideration for these acquisitions consisted of approximately $75.9 million paid or payable in cash, subject to certain adjustments, 70,840 shares of Quanta common stock valued at approximately $1.5 million as of the settlement date of the applicable acquisition, and contingent consideration payments of up to $39.5 million, which will be paid if certain financial targets are achieved. Based on the estimated fair value of this contingent consideration, Quanta recorded an $18.7 million liability. As these transactions were effective during 2016, the results have been included in Quanta’s consolidated financial statements beginning on the respective dates of acquisition. These acquisitions should enable Quanta to further enhance its service offerings in the United States, Australia and Canada.

Quanta is in the process of finalizing its assessments of the fair values of the acquired assets and assumed liabilities related to businesses acquired during 2016, and further adjustments to the purchase price allocations may occur. Quanta expects to complete the purchase accounting process as soon as practicable but no later than one year from the respective acquisition dates with possible updates primarily related to certain tax estimates. The aggregate purchase consideration of these businesses was preliminarily allocated to acquired assets and assumed liabilities, which resulted in a preliminary allocation of approximately $39.4 million of net tangible assets, $45.2 million of goodwill and $11.5 million of other intangible assets.

2015 Acquisitions

During 2015, Quanta acquired 11 companies. The results of eight of the acquired companies are generally included in Quanta’s Electric Power Infrastructure Services segment. These companies include a foundation services company located in the United States, an electrical contracting company located in the United States, an electrical engineering company located in Australia, a powerline construction company located in the United States, an engineering company located in Canada, an engineering, procurement and construction services company based in the United States, an underground construction contracting company located in Canada, and a supplier and material procurement specialist for the power and utility industry in Canada. The results of the remaining three acquired companies are generally included in Quanta’s Oil and Gas Infrastructure Services segment. These companies include a company that services above-ground storage tanks in the United States, an underground utility distribution contractor that provides services to gas and electric utilities in Canada, and a company that specializes in the engineering, procurement, construction, and commissioning of compression and surface facilities for the high pressure gas industry in Australia. The aggregate consideration for these acquisitions consisted of approximately $110.6 million paid or payable in cash, subject to net working capital adjustments, 461,037 shares of Quanta common stock valued at approximately $10.1 million as of the settlement dates of the applicable acquisitions, and $1.0 million in contingent consideration. As these transactions were effective during 2015, the results have been included in Quanta’s consolidated financial statements beginning on the respective dates of acquisition. These acquisitions should enable Quanta to further enhance its electric power and oil and gas infrastructure service offerings in the United States, Canada and Australia.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2014 Acquisitions

During 2014, Quanta completed nine acquisitions, which enabled Quanta to further enhance its electric power and oil and gas infrastructure service offerings in the United States and Canada and expand its capabilities in Australia to include electric power infrastructure service offerings. These acquisitions included four electric power infrastructure services companies located in Canada; two oil and gas infrastructure services businesses located in Canada; an electric power infrastructure services company located in Australia; a U.S. based general engineering and construction company specializing in hydrant fueling, waterfront and utility construction for the U.S. Department of Defense that is generally included in Quanta’s Oil and Gas Infrastructure Services segment; and a geotechnical and geological engineering services company based in the United States that is generally included in Quanta’s Electric Power Infrastructure Services segment. The aggregate consideration paid for these acquisitions consisted of approximately $279.5 million in cash, 686,382 shares of Quanta common stock and 3,825,971 exchangeable shares of Canadian subsidiaries of Quanta that are exchangeable on a one-for-one basis for Quanta common stock. In addition, Quanta issued one share of Series G preferred stock associated with 899,858 of the exchangeable shares. The aggregate value of the securities issued related to 2014 acquisitions on the respective closing or settlement dates of the acquisitions, totaled approximately $134.5 million. As these transactions were effective during 2014, the results of each acquired company have been included in Quanta’s consolidated financial statements beginning on the respective dates of acquisition. For additional information on the exchangeable shares and preferred stock, see Exchangeable Shares and Series F and Series G Preferred Stock in Note 11.

2016, 2015 and 2014 Acquisitions

The following table summarizes the aggregate consideration paid or payable as of December 31, 2016 for the 2016 and 2015 acquisitions and presents the allocation of these amounts to the net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price allocation adjustments. This allocation requires a significant use of estimates and is based on information that was available to management at the time these consolidated financial statements were prepared (in thousands).


	2016			2015
Consideration:
Value of Quanta common stock issued	$	1,508		$	10,127
Cash paid or payable		75,941			110,578
Contingent consideration		18,683			1,001

Fair value of total consideration transferred or estimated to be transferred	$	96,132		$	121,706

Current assets	$	24,233		$	35,188
Property and equipment		44,863			44,140
Other assets		2,553			4
Identifiable intangible assets		11,467			24,987
Current liabilities		(12,477	)		(24,568	)
Deferred tax liabilities, net		(14,367	)		(5,056	)
Other long-term liabilities		(5,326	)		(5,606	)
Non-controlling interests		—			747

Total identifiable net assets		50,946			69,836
Goodwill		45,186			51,870

	$	96,132		$	121,706

The fair value of current assets acquired in 2016 included accounts receivable with a fair value of $14.4 million. The fair value of current assets acquired in 2015 included accounts receivable with a fair value of $20.6 million.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Goodwill represents the excess of the purchase price over the net amount of the fair values assigned to assets acquired and liabilities assumed. The 2016, 2015 and 2014 acquisitions strategically expanded Quanta’s Canadian, Australian and domestic electric power and oil and gas service offerings, which Quanta believes contributes to the recognition of the goodwill. In connection with the 2016 acquisitions, goodwill of $24.2 million was recorded for the businesses acquired that were included within Quanta’s Electric Power Infrastructure Services Division and $21.0 million was recorded for the business acquired that was included within Quanta’s Oil and Gas Infrastructure Services Division on the dates of acquisition, inclusive of purchase price allocation adjustments. In connection with the 2015 acquisitions, goodwill of $31.5 million was recorded for the acquired businesses that were included within Quanta’s Electric Power Infrastructure Services Division and $20.4 million was recorded for acquired businesses that were included within Quanta’s Oil and Gas Infrastructure Services Division on the dates of acquisition, inclusive of purchase price allocation adjustments. In connection with the 2014 acquisitions, goodwill of $72.3 million was recorded for acquired businesses that were included within Quanta’s Electric Power Infrastructure Services Division and $94.1 million was recorded for the acquired business that was included within Quanta’s Oil and Gas Infrastructure Services Division on the dates of acquisition, inclusive of purchase price allocation adjustments. Goodwill of approximately $2.0 million related to the 2016 acquisitions is expected to be deductible for income tax purposes, and goodwill of approximately $34.0 million related to the 2015 acquisitions is expected to be deductible for income tax purposes.

The following table summarizes the estimated fair values of identifiable intangible assets for the 2016 acquisitions as of the acquisition dates and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).


	Estimated Fair Value at Acquisition Date		Weighted Average Amortization Period at Acquisition Date
Customer relationships	$	5,645		3.8
Backlog		2,085		2.1
Trade names		3,255		15.0
Non-compete agreements		482		5.0

Total intangible assets subject to amortization acquired in 2016 acquisitions	$	11,467		6.7

The unaudited supplemental pro forma results of operations have been provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts):


	Year Ended December 31,
	2016		2015		2014
Revenues	$	7,677,293	$	7,770,744	$	8,476,584
Gross profit	$	1,017,506	$	956,925	$	1,248,827
Selling, general and administrative expenses	$	656,109	$	612,979	$	745,321
Amortization of intangible assets	$	32,204	$	39,947	$	47,777
Net income from continuing operations	$	200,675	$	136,608	$	303,772
Net income from continuing operations attributable to common stock	$	198,960	$	125,691	$	285,404
Earnings per share from continuing operations attributable to common stock — basic and diluted	$	1.26	$	0.64	$	1.28

The pro forma combined results of operations for the years ended December 31, 2016 and 2015 have been prepared by adjusting the historical results of Quanta to include the historical results of the 2016 acquisitions as if

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

they occurred January 1, 2015. The pro forma combined results of operations for the year ended December 31, 2015 have also been prepared by adjusting the historical results of Quanta to include the historical results of the 2015 acquisitions as if they occurred January 1, 2014. The pro forma combined results of operations for the year ended December 31, 2014 have been prepared by adjusting the historical results of Quanta to include the historical results of the 2015 acquisitions as if they occurred January 1, 2014 and the historical results of the 2014 acquisitions as if it occurred January 1, 2013. These pro forma combined historical results were also adjusted for the following: a reduction of interest expense as a result of the repayment of outstanding indebtedness of the acquired businesses, a reduction of interest income as a result of the cash consideration paid net of cash received, an increase in amortization expense due to the incremental intangible assets recorded related to the 2016, 2015 and 2014 acquisitions, an increase or decrease in depreciation expense within cost of services related to the net impact of adjusting acquired property and equipment to the acquisition date fair value and conforming depreciable lives with Quanta’s accounting policies, an increase in the number of outstanding shares of Quanta common stock and exchangeable shares and certain reclassifications to conform the acquired companies’ presentation to Quanta’s accounting policies. The pro forma results of operations do not include any adjustments to eliminate the impact of acquisition related costs or any cost savings or other synergies that resulted or may result from the 2016, 2015 and 2014 acquisitions. As noted above, the pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.

Revenues of approximately $68.5 million and a loss before taxes of approximately $5.6 million, which included $0.3 million of acquisition costs, were included in Quanta’s consolidated results of operations for the year ended December 31, 2016 related to the five acquisitions in 2016 following their respective dates of acquisition. Revenues of approximately $104.6 million and income before income taxes of approximately $0.3 million, which included $3.6 million of acquisition costs, were included in Quanta’s consolidated results of operations for the year ended December 31, 2015 related to the 11 acquisitions in 2015 following their respective dates of acquisition. Additionally, revenues of approximately $314.1 million and income before income taxes of approximately $3.4 million, which included $11.6 million of acquisition costs, were included in Quanta’s consolidated results of operations for the year ended December 31, 2014 related to the nine acquisitions in 2014 following their respective dates of acquisition.

6.	GOODWILL AND OTHER INTANGIBLE ASSETS:

A summary of changes in Quanta’s goodwill is as follows (in thousands):


	Electric Power Infrastructure Services Division			Oil and Gas Infrastructure Services Division			Total
Goodwill balance at December 31, 2014	$	1,223,224		$	373,471		$	1,596,695
Goodwill acquired during 2015		31,224			20,636			51,860
Purchase price allocation adjustments		750			(8,867	)		(8,117	)
Goodwill impaired during 2015		—			(39,826	)		(39,826	)
Foreign currency translation adjustments		(28,953	)		(19,001	)		(47,954	)

Balance at December 31, 2015:
Goodwill		1,226,245			366,306			1,592,551
Accumulated impairment		—			(39,893	)		(39,893	)

Goodwill, net		1,226,245			326,413			1,552,658
Goodwill acquired during 2016		24,168			21,018			45,186
Purchase price allocation adjustments		229			(214	)		15
Foreign currency translation adjustments		3,337			1,973			5,310

Balance at December 31, 2016:
Goodwill		1,253,979			388,923			1,642,902
Accumulated impairment		—			(39,733	)		(39,733	)

Goodwill, net	$	1,253,979		$	349,190		$	1,603,169

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The purchase price allocation adjustments recorded in the year ended December 31, 2016 primarily represent changes in deferred tax liability estimates and would have had no impact on the consolidated financial statements in prior periods had these adjustments been booked at the respective acquisition dates. The purchase price allocation adjustments recorded in the year ended December 31, 2015 resulted primarily from net working capital adjustments and changes in tax estimates. The goodwill impairment in the year ended December 31, 2015 primarily resulted from lower levels of expected activity in the U.S. Gulf of Mexico and, to a lesser extent, due to the extended low commodity price environment with respect to certain directional drilling operations in Australia. The two reporting units impacted are in Quanta’s Oil and Gas Infrastructure Services Division.

Also, as described in Note 2, Quanta’s operating units are organized into one of Quanta’s two internal divisions and, accordingly, the goodwill associated with the operating units has been aggregated on a divisional basis in the table above. These divisions are closely aligned with Quanta’s reportable segments and operating units are assigned to a division based on the predominant type of work performed. From time to time, operating units may be reorganized between divisions as business environments evolve.

Quanta’s intangible assets subject to amortization and the remaining weighted average amortization periods related to such assets were as follows (in thousands except for weighted average amortization periods, which are in years):


	As of December 31, 2016							As of December 31, 2015							As of December 31, 2016
	Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Remaining Weighted Average Amortization Period in Years
Customer relationships	$	244,329	$	(110,640	)	$	133,689	$	236,731	$	(90,840	)	$	145,891		8.7
Backlog		133,592		(132,441	)		1,151		130,818		(126,954	)		3,864		1.3
Trade names		54,723		(12,855	)		41,868		51,192		(9,525	)		41,667		17.7
Non-compete agreements		29,212		(25,546	)		3,666		28,560		(23,507	)		5,053		3.1
Patented rights and developed technology		22,480		(15,831	)		6,649		22,447		(13,848	)		8,599		4.2

Total intangible assets subject to amortization	$	484,336	$	(297,313	)	$	187,023	$	469,748	$	(264,674	)	$	205,074		10.4

Amortization expense for intangible assets was $31.7 million, $34.8 million and $34.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. Additionally, during the year ended December 31, 2015, Quanta recorded an impairment charge of $12.1 million related to customer relationships, trade names and non-compete agreement intangible assets. These intangible asset impairments primarily resulted from lower levels of expected activity in the U.S. Gulf of Mexico and, to a lesser extent, due to the extended low commodity price environment with respect to certain directional drilling operations in Australia. The two reporting units impacted are in Quanta’s Oil and Gas Infrastructure Services Division. The impairment charge is reflected in the December 31, 2016 and 2015 accumulated amortization balances above.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated future aggregate amortization expense of intangible assets subject to amortization as of December 31, 2016 is set forth below (in thousands):


For the Fiscal Year Ending December 31,
2017	$	25,574
2018		24,265
2019		22,227
2020		20,948
2021		18,620
Thereafter		75,389

Total	$	187,023

7.	PER SHARE INFORMATION:


	Year Ended December 31,
	2016			2015		2014
Amounts attributable to common stock:
Net income from continuing operations	$	198,725		$	120,286	$	269,224
Net income (loss) from discontinued operations		(342	)		190,621		27,490

Net income attributable to common stock	$	198,383		$	310,907	$	296,714

Weighted average shares:
Weighted average shares outstanding for basic earnings per share		157,287			195,113		219,668
Effect of dilutive stock options		1			7		22

Weighted average shares outstanding for diluted earnings per share		157,288			195,120		219,690

For purposes of calculating diluted earnings per share, there were no adjustments required to derive Quanta’s net income attributable to common stock. Outstanding exchangeable shares that were issued pursuant to certain of Quanta’s historical acquisitions (as further discussed in Note 11), which are exchangeable on a one-for-one basis with shares of Quanta common stock, have been included in weighted average shares outstanding for basic and diluted earnings per share for the years ended December 31, 2016, 2015 and 2014 for the portion of the respective periods that they were outstanding. Weighted average shares outstanding for basic and diluted earnings per share for the year ended December 31, 2016 were reduced by the additional shares received on April 12, 2016 in settlement of an accelerated share repurchase arrangement (as further described in Note 11).

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.	DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in Quanta’s current and long-term allowance for doubtful accounts consisted of the following (in thousands):


	December 31,
	2016			2015
Balance at beginning of year	$	5,226		$	6,174
Charged to bad debt expense (recoveries of bad debt expense)		(543	)		224
Deductions for uncollectible receivables written off, net of recoveries		(1,931	)		(1,172	)

Balance at end of year	$	2,752		$	5,226

Contracts in progress were as follows (in thousands):


	December 31,
	2016			2015
Costs incurred on contracts in progress	$	6,687,484		$	5,725,078
Estimated earnings, net of estimated losses		766,560			756,974

		7,454,044			6,482,052
Less — Billings to date		(7,255,582	)		(6,563,537	)

	$	198,462		$	(81,485	)

Costs and estimated earnings in excess of billings on uncompleted contracts	$	473,308		$	317,745
Less — Billings in excess of costs and estimated earnings on uncompleted contracts		(274,846	)		(399,230	)

	$	198,462		$	(81,485	)

Property and equipment consisted of the following (in thousands):


	Estimated Useful Lives in Years		December 31,
	2016		2015
Land		N/A	$	45,919		$	41,428
Buildings and leasehold improvements		5-30		137,515			116,697
Operating equipment and vehicles		5-25		1,634,850			1,517,630
Office equipment, furniture and fixtures and information technology systems		3-10		145,174			137,670
Construction work in progress		N/A		73,461			43,806

				2,036,919			1,857,231
Less — Accumulated depreciation and amortization				(862,825	)		(755,272	)

Property and equipment, net			$	1,174,094		$	1,101,959

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounts payable and accrued expenses consisted of the following (in thousands):


	December 31,
	2016		2015
Accounts payable, trade	$	529,608	$	452,295
Accrued compensation and related expenses		194,056		159,045
Accrued insurance, current portion		60,880		61,327
Deferred revenues, current portion		15,512		8,010
Income and franchise taxes payable		40,765		3,923
Other accrued expenses		81,998		97,534

	$	922,819	$	782,134

9.	DEBT OBLIGATIONS:

Quanta’s long-term debt obligations consisted of the following (in thousands):


	December 31,
	2016		2015
Borrowings under credit facility	$	351,341	$	466,850
Other long-term debt, interest rates ranging from 3.4% to 4.3%		3,305		5,401
Capital leases, interest rates ranging from 2.5% to 6.2%		3,744		5,351

Total long-term debt obligations		358,390		477,602
Less — Current maturities of long-term debt		4,828		2,238

Total long-term debt obligations, net of current maturities	$	353,562	$	475,364

Quanta’s current maturities of long-term debt and short-term debt consisted of the following (in thousands):


	December 31,
	2016		2015
Short-term debt	$	2,735	$	4,829
Current maturities of long-term debt		4,828		2,238

Current maturities of long-term debt and short-term debt	$	7,563	$	7,067

Credit Facility

On December 18, 2015, Quanta entered into an amended and restated credit agreement with various lenders that provides for a $1.81 billion senior secured revolving credit facility maturing on December 18, 2020. The entire amount available under the facility may be used by Quanta for revolving loans and letters of credit in U.S. dollars and certain alternative currencies. Up to $600.0 million of the facility may be used by certain subsidiaries of Quanta for revolving loans and letters of credit in certain alternative currencies. Up to $100.0 million of the facility may be used for swing line loans in U.S. dollars, up to $50.0 million of the facility may be used for swing line loans in Canadian dollars and up to $30.0 million of the facility may be used for swing line loans in Australian dollars. In addition, subject to the conditions specified in the credit agreement, Quanta has the option to increase the revolving commitments by up to $400.0 million from time to time upon receipt of additional commitments from new or existing lenders. Borrowings under the credit agreement are to be used to refinance existing indebtedness and for working capital, capital expenditures and other general corporate purposes.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2016, Quanta had approximately $305.6 million of outstanding letters of credit and bank guarantees, $210.8 million of which were denominated in U.S. dollars and $94.8 million of which were denominated in currencies other than the U.S. dollar, primarily in Australian or Canadian dollars. Quanta also had $351.3 million of outstanding revolving loans under the credit facility, $210.0 million of which were denominated in U.S. dollars and $141.3 million of which were denominated in Canadian dollars. The remaining $1.15 billion was available for revolving loans or new letters of credit or bank guarantees. Information on borrowings under Quanta’s credit facility and the applicable interest rates during the years ended December 31, 2016, 2015 and 2014 is as follows (dollars in thousands):


	Year Ended December 31,
	2016			2015			2014
Maximum amount outstanding during the period	$	518,607		$	606,753		$	130,856
Average daily amount outstanding under the credit facility	$	458,908		$	258,815		$	29,814
Weighted-average interest rate		2.1	%		1.8	%		2.7	%

Under the current credit agreement, amounts borrowed in U.S. dollars bear interest, at Quanta’s option, at a rate equal to either (i) the Eurocurrency Rate (as defined in the credit agreement) plus 1.125% to 2.125%, as determined based on Quanta’s Consolidated Leverage Ratio (as described below), or (ii) the Base Rate (as described below) plus 0.125% to 1.125%, as determined based on Quanta’s Consolidated Leverage Ratio. Amounts borrowed as revolving loans under the credit agreement in any currency other than U.S. dollars bear interest at a rate equal to the Eurocurrency Rate plus 1.125% to 2.125%, as determined based on Quanta’s Consolidated Leverage Ratio. Standby letters of credit issued under the credit agreement are subject to a letter of credit fee of 1.125% to 2.125%, based on Quanta’s Consolidated Leverage Ratio, and Performance Letters of Credit (as defined in the credit agreement) issued under the credit agreement in support of certain contractual obligations are subject to a letter of credit fee of 0.675% to 1.275%, based on Quanta’s Consolidated Leverage Ratio. Quanta is also subject to a commitment fee of 0.20% to 0.40%, based on its Consolidated Leverage Ratio, on any unused availability under the credit agreement.

The Consolidated Leverage Ratio is the ratio of Quanta’s Consolidated Funded Indebtedness to Consolidated EBITDA (as those terms are defined in the credit agreement). For purposes of calculating Quanta’s Consolidated Leverage Ratio, Consolidated Funded Indebtedness is reduced by available cash and Cash Equivalents (as defined in the credit agreement) in excess of $25.0 million. The Base Rate equals the highest of (i) the Federal Funds Rate (as defined in the credit agreement) plus 0.5%, (ii) the prime rate publicly announced by Bank of America, N.A. and (iii) the Eurocurrency Rate plus 1.00%.

Subject to certain exceptions, the credit agreement is secured by substantially all the assets of Quanta and Quanta’s wholly owned U.S. subsidiaries and by a pledge of all of the capital stock of Quanta’s wholly owned U.S. subsidiaries and 65% of the capital stock of direct foreign subsidiaries of Quanta’s wholly owned U.S. subsidiaries. Quanta’s wholly owned U.S. subsidiaries also guarantee the repayment of all amounts due under the credit agreement. Subject to certain conditions, all collateral will automatically be released from the liens at any time Quanta maintains an Investment Grade Rating (defined in the credit agreement as two of the following three conditions being met: (i) a corporate credit rating that is BBB- or higher by Standard & Poor’s Rating Services, (ii) a corporate family rating that is Baa3 or higher by Moody’s Investors Services, Inc. or (iii) a corporate credit rating that is BBB- or higher by Fitch Ratings, Inc.).

The credit agreement contains certain covenants, including a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (as defined in the credit agreement). The credit agreement also limits certain acquisitions, mergers and consolidations, indebtedness, asset sales and prepayments of indebtedness and, subject to certain exceptions, prohibits liens on Quanta’s assets. The credit agreement allows

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cash payments for dividends and stock repurchases subject to compliance with the following requirements (after giving effect to the dividend or stock repurchase): (i) no default or event of default under the credit agreement; (ii) continued compliance with the financial covenants in the credit agreement; and (iii) at least $100.0 million of availability under the credit agreement and/or cash and cash equivalents on hand. As of December 31, 2016, Quanta was in compliance with all of the covenants in the credit agreement.

The credit agreement provides for customary events of default and contains cross-default provisions with Quanta’s underwriting, continuing indemnity and security agreement with its sureties and all of Quanta’s other debt instruments exceeding $100.0 million in borrowings or availability. If an Event of Default (as defined in the credit agreement) occurs and is continuing, on the terms and subject to the conditions set forth in the credit agreement, the lenders may declare all amounts outstanding and accrued and unpaid interest immediately due and payable, require that Quanta provide cash collateral for all outstanding letter of credit obligations, terminate the commitments under the credit agreement, and foreclose on the collateral.

Prior to the amendment and restatement of Quanta’s credit agreement on December 18, 2015 and after April 1, 2014, amounts borrowed bore interest at the same rates as above, and Quanta was subject to the same commitment fees as above. Prior to April 1, 2014, amounts borrowed in U.S. dollars bore interest, at Quanta’s option, at a rate equal to either (i) the Eurocurrency Rate plus 1.25%, or (ii) the Base Rate plus 0.25%, and amounts borrowed as revolving loans in any currency other than U.S. dollars bore interest at a rate equal to the Eurocurrency Rate plus 1.25%. Prior to April 1, 2014, standby letters of credit issued under the credit agreement were also subject to a letter of credit fee of 1.25%, Performance Letters of Credit issued in support of certain contractual obligations were subject to a letter of credit fee of 0.75%, and Quanta was also subject to a commitment fee of 0.20% on any unused availability under the credit agreement.

10.	INCOME TAXES:

The components of income (loss) from continuing operations before income taxes were as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Income (loss) from continuing operations before income taxes:
Domestic	$	349,959		$	244,955		$	263,357
Foreign		(42,273	)		(16,280	)		163,242

Total	$	307,686		$	228,675		$	426,599

The components of the provision for income taxes for continuing operations were as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	106,316		$	85,830		$	67,430
State		11,549			9,783			8,693
Foreign		5,076			21,262			39,978

Total current tax provision		122,941			116,875			116,101

Deferred:
Federal		(264	)		(5,247	)		11,507
State		(923	)		917			2,232
Foreign		(14,508	)		(15,073	)		9,167

Total deferred tax provision (benefit)		(15,695	)		(19,403	)		22,906

Total provision for income taxes from continuing operations	$	107,246		$	97,472		$	139,007

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The actual income tax provision differed from the income tax provision computed by applying the U.S. federal statutory corporate rate to income from continuing operations before provision for income taxes as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Provision at the statutory rate	$	107,690		$	80,036		$	149,697
Increases (decreases) resulting from —
State taxes		6,479			7,241			7,890
Foreign taxes		1,860			1,239			(13,059	)
Contingency reserves, net		(13,540	)		4,438			(650	)
Production activity deduction		(8,586	)		(6,871	)		(6,033	)
Employee per diems, meals and entertainment		8,764			8,727			9,817
Taxes on unincorporated joint ventures		(656	)		(3,838	)		(6,429	)
Asset impairments		1,909			7,047			—
Other		3,326			(547	)		(2,226	)

Total provision for income taxes from continuing operations	$	107,246		$	97,472		$	139,007

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):


	December 31,
	2016			2015
Deferred income tax liabilities:
Property and equipment	$	(214,902	)	$	(189,793	)
Goodwill		(83,097	)		(69,059	)
Other intangibles		(33,566	)		(36,565	)
Other book/tax accounting method differences		(41,241	)		(61,095	)

Total deferred income tax liabilities		(372,806	)		(356,512	)

Deferred income tax assets:
Accruals and reserves		21,681			25,070
Accrued insurance		79,630			75,591
Stock and incentive compensation and pension withdrawal liabilities		58,744			52,009
Net operating loss carryforwards		37,362			27,255
Other		7,546			10,894

Subtotal		204,963			190,819
Valuation allowance		(14,991	)		(16,141	)

Total deferred income tax assets		189,972			174,678

Total net deferred income tax liabilities	$	(182,834	)	$	(181,834	)

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The net deferred income tax assets and liabilities were comprised of the following (in thousands):


	December 31,
	2016			2015
Deferred income taxes:
Assets	$	10,000		$	4,657
Liabilities		(192,834	)		(186,491	)

Total net deferred income tax liabilities	$	(182,834	)	$	(181,834	)

The valuation allowance for deferred income tax assets at December 31, 2016, 2015 and 2014 was $15.0 million, $16.1 million and $13.0 million, respectively. These valuation allowances relate to foreign net operating loss carryforwards, state net operating loss carryforwards and foreign tax credit carryforwards. The net change in the total valuation allowance for each of the years ended December 31, 2016, 2015 and 2014 was a decrease of $1.1 million, an increase of $3.1 million and a decrease of $0.3 million, respectively. The valuation allowance was established primarily as a result of uncertainty in Quanta’s outlook as to future taxable income in particular tax jurisdictions. Quanta believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.

At December 31, 2016, Quanta had state and foreign net operating loss carryforwards, the tax effect of which was approximately $40.2 million. These carryforwards will expire as follows: 2017, $0.7 million; 2018, $0.4 million; 2019, $0.8 million; 2020, $0.5 million; 2021, $0.5 million and $37.3 million thereafter. A valuation allowance of $12.6 million has been recorded against certain foreign and state net operating loss carryforwards.

Through December 31, 2016, Quanta has not provided U.S. income taxes on approximately $298.8 million of unremitted foreign earnings. If Quanta was to repatriate cash that is indefinitely reinvested outside the U.S., it could be subject to additional U.S income and foreign withholding taxes. Because of the number and variability of assumptions required, it is not practicable to determine the amount of any additional U.S. tax liability that may result if Quanta decides to no longer indefinitely reinvest foreign earnings outside the U.S. If Quanta’s intentions or U.S. tax laws change in the future, there may be a significant negative impact on the provision for income taxes and cash flows as a result of recording an incremental tax liability in the period such change occurs.

A reconciliation of unrecognized tax benefit balances is as follows (in thousands):


	December 31,
	2016			2015			2014
Balance at beginning of year	$	54,541		$	50,668		$	48,306
Additions based on tax positions related to the current year		4,227			5,340			9,133
Additions for tax positions of prior years		2,048			292			2,438
Reductions for tax positions of prior years		(1,948	)		(132	)		—
Reductions for audit settlements		(180	)		(1,345	)		—
Reductions resulting from a lapse of the applicable statute of limitations periods		(23,448	)		(282	)		(9,209	)

Balance at end of year	$	35,240		$	54,541		$	50,668

For the year ended December 31, 2016, the $23.4 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2010 through 2012 tax years. For the year ended December 31, 2015, the $0.3 million reduction was primarily due to the expiration of certain federal and state

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

statute of limitations periods for the 2004 tax year. For the year ended December 31, 2014, the $9.2 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2010 tax year.

The balances of unrecognized tax benefits, the amount of related interest and penalties and what Quanta believes to be the range of reasonably possible changes in the next 12 months are as follows (in thousands):


	December 31,
	2016		2015		2014
Unrecognized tax benefits	$	35,240	$	54,541	$	50,668
Portion that, if recognized, would reduce tax expense and effective tax rate		33,128		48,312		42,952
Accrued interest on unrecognized tax benefits		5,539		8,750		6,304
Accrued penalties on unrecognized tax benefits		650		673		697
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months	$	0 to $12,332	$	0 to $27,485	$	0 to $10,221
Portion that, if recognized, would reduce tax expense and effective tax rate	$	0 to $10,983	$	0 to $24,009	$	0 to $8,484

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized interest income of $3.2 million, interest expense of $2.4 million and interest expense of $0.5 million in the provision for income taxes for the years ended December 31, 2016, 2015 and 2014, respectively.

Although the IRS completed its examination related to tax years 2010, 2011 and 2012 during 2016, certain subsidiaries remain under examination by various U.S. state, Canadian and other foreign tax authorities for multiple periods. Quanta’s Canadian subsidiaries remain open to examination by the Canada Revenue Agency for tax years 2010 through 2014 as these statute of limitations periods have not yet expired. Quanta does not consider any state in which it does business to be a major tax jurisdiction.

11.	EQUITY:

Exchangeable Shares and Series F and Series G Preferred Stock

In connection with certain Canadian acquisitions, the former owners of the acquired companies received exchangeable shares of certain Canadian subsidiaries of Quanta, which may be exchanged at the option of the holders for Quanta common stock on a one-for-one basis. The holders of exchangeable shares can make an exchange only once in any calendar quarter and must exchange a minimum of either 50,000 shares or, if less, the total number of remaining exchangeable shares registered in the name of the holder making the request. Additionally, in connection with two of such acquisitions, Quanta issued one share of Quanta Series F preferred stock and one share of Quanta Series G preferred stock (the Preferred Stock) to voting trusts on behalf of the respective holders of the exchangeable shares issued in such acquisitions. Each share of the Preferred Stock provides the holders of such exchangeable shares voting rights in Quanta common stock equivalent to the number of exchangeable shares outstanding at that time.

The holders of exchangeable shares associated with the Preferred Stock have rights equivalent to Quanta common stockholders with respect to voting, dividends and other economic rights. The holders of exchangeable shares not associated with the Preferred Stock have rights equivalent to Quanta common stockholders with respect to dividends and other economic rights but do not have voting rights.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2016, 2015 and 2014, 0.4 million, 0.4 million and no exchangeable shares were exchanged for Quanta common stock. As of December 31, 2016, both shares of the Preferred Stock remained outstanding and 6.5 million exchangeable shares remained outstanding, of which 3.9 million were associated with the Preferred Stock.

Treasury Stock

Retirement of Treasury Stock

Effective December 1, 2016, Quanta retired 84.8 million shares of treasury stock. These retired shares were restored to the status of authorized and unissued shares as permitted by Delaware law. The retired stock had a carrying value of approximately $1.95 billion. In accordance with Quanta’s policy, Quanta recorded the formal retirement of treasury stock by deducting the par value from common stock and the excess of cost over par value from additional paid-in capital.

Shares withheld for tax withholding obligations

Under the stock incentive plans described in Note 12, the tax withholding obligations of employees upon vesting of restricted stock and RSUs settled in common stock are typically satisfied by Quanta making such tax payments and withholding the number of vested shares having a value on the date of vesting equal to the tax withholding obligation. For the settlement of these employee tax liabilities, Quanta withheld 0.4 million shares of Quanta common stock during the year ended December 31, 2016, with a total market value of $8.3 million, 0.4 million shares of Quanta common stock during the year ended December 31, 2015 with a total market value of $10.4 million, and 0.4 million shares of Quanta common stock during the year ended December 31, 2014 with a total market value of $12.3 million. These shares and the related costs to acquire them were accounted for as adjustments to the balance of treasury stock.

Notional amounts recorded related to deferred compensation plans

Additionally, Quanta records an amount to treasury stock with an offsetting amount to additional paid in capital for RSUs that vest and are deferred under Quanta’s deferred compensation plans, which are further described in Note 13, but no shares were recorded as treasury stock shares since the Quanta common stock had not yet been issued. Distributions of Quanta common stock from the deferred compensation plans are recorded as a reversal of the original entry between treasury stock and additional paid-in capital. The net amounts recorded to treasury stock related to the deferred compensation plans during the years ended December 31, 2016, 2015 and 2014 were $6.8 million, $6.6 million and $0.9 million, respectively, for an aggregate $14.3 million included in treasury stock at December 31, 2016.

Stock repurchases

During the third quarter of 2015, Quanta’s board of directors approved a stock repurchase program authorizing Quanta to purchase, from time to time through February 28, 2017, up to $1.25 billion of its outstanding common stock (the 2015 Repurchase Program). Repurchases under the 2015 Repurchase Program can be made in open market or privately negotiated transactions, including pursuant to an accelerated share repurchase arrangement, an issuer repurchase plan or otherwise, at management’s discretion, based on market and business conditions, applicable contractual and legal requirements and other factors. The 2015 Repurchase Program does not obligate Quanta to acquire any specific amount of common stock and may be modified or terminated by Quanta’s board of directors at any time at its sole discretion and without notice. During 2015, Quanta repurchased 19.2 million shares of its common stock at a cost of $449.9 million in the open market under the 2015 Repurchase Program.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Also during the third quarter of 2015, Quanta entered into an accelerated share repurchase arrangement (the ASR) to repurchase $750.0 million of its common stock under the 2015 Repurchase Program. Under the terms of the ASR, Quanta paid $750.0 million to JPMorgan Chase Bank, National Association, London Branch (JPMorgan) and initially received 25.7 million shares of its common stock. The fair market value of these 25.7 million shares at the time of delivery was approximately $600.0 million, and the repurchased shares and the related cost to acquire them were accounted for as an adjustment to the balance of treasury stock during the quarter ended September 30, 2015, reducing the weighted-average number of basic and diluted common shares used to calculate Quanta’s earnings per share. The $150.0 million remaining under the ASR was recorded as an adjustment to additional paid-in capital (APIC) during the quarter ended September 30, 2015 and was reclassified from APIC to treasury stock as a result of the final settlement of the ASR on April 12, 2016. Upon final settlement and based on the final volume-weighted average share price during the term of the ASR, minus a discount and subject to other adjustments pursuant to the terms and conditions of the ASR, Quanta received 9.4 million additional shares of its common stock from JPMorgan. As of December 31, 2016, Quanta had repurchased 54.3 million shares of its common stock at a cost of $1.20 billion, and approximately $50.1 million remained available under the 2015 Repurchase Program.

During the fourth quarter of 2013, Quanta’s board of directors approved a stock repurchase program authorizing Quanta to purchase, from time to time through December 31, 2016, up to $500.0 million of its outstanding common stock. During the year ended December 31, 2015, Quanta repurchased 14.3 million shares of its common stock at a cost of $406.5 million in the open market and completed this program.

Other

Under Delaware corporate law, treasury stock is not counted for quorum purposes or entitled to vote.

Non-controlling Interests

Quanta holds investments in several joint ventures that provide infrastructure services under specific customer contracts. Quanta has determined that certain of these joint ventures are VIEs, with Quanta providing the majority of the infrastructure services to the joint venture, which management believes most significantly influences the economic performance of the joint venture. Management has concluded that Quanta is the primary beneficiary of each of the joint ventures determined to be VIEs and has accounted for each on a consolidated basis. The other parties’ equity interests in these joint ventures have been accounted for as non-controlling interests in the consolidated financial statements. Income attributable to the other joint venture members in the amounts of $1.7 million, $10.9 million and $18.4 million for the years ended December 31, 2016, 2015 and 2014, respectively, has been accounted for as a reduction of net income in deriving net income attributable to common stock. Equity in the consolidated assets and liabilities of these joint ventures that is attributable to the other joint venture members has been accounted for as non-controlling interests within total equity in the accompanying balance sheets.

The carrying value of the investments held by Quanta in all of its VIEs was approximately $3.3 million and $2.3 million at December 31, 2016 and 2015. The carrying value of investments held by the non-controlling interests in these variable interest entities at December 31, 2016 and 2015 was $3.3 million and $2.3 million. During the years ended December 31, 2016, 2015 and 2014, distributions to non-controlling interests were $0.8 million, $21.2 million and $14.4 million. There were also contributions received from a joint venture partner of $2.3 million during the year ended December 31, 2015. There were no other changes in equity as a result of transfers to/from the non-controlling interests during the years ended December 31, 2016, 2015 and 2014. See Note 15 for further disclosures related to Quanta’s joint venture arrangements.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.	EQUITY-BASED COMPENSATION:

Stock Incentive Plans

On May 19, 2011, Quanta’s stockholders approved the 2011 Omnibus Equity Incentive Plan (the 2011 Plan). The 2011 Plan provides for the award of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock, RSUs, stock bonus awards, performance compensation awards (including performance units and cash bonus awards) or any combination of the foregoing. The purpose of the 2011 Plan is to attract and retain key personnel and provide participants with additional performance incentives by increasing their proprietary interest in Quanta. Employees, directors, officers, consultants or advisors of Quanta or its affiliates are eligible to participate in the 2011 Plan, as are prospective employees, directors, officers, consultants or advisors of Quanta who have agreed to serve Quanta in those capacities. An aggregate of 11,750,000 shares of Quanta common stock may be issued pursuant to awards granted under the 2011 Plan.

Additionally, pursuant to the Quanta Services, Inc. 2007 Stock Incentive Plan (the 2007 Plan), which was adopted on May 24, 2007, Quanta may award restricted stock, incentive stock options and non-qualified stock options to eligible employees, directors, and certain consultants and advisors. An aggregate of 4,000,000 shares of common stock may be issued pursuant to awards granted under the 2007 Plan. Quanta also has a Restricted Stock Unit Plan (the RSU Plan), pursuant to which RSUs may be awarded to certain employees and consultants of Quanta’s Canadian operations.

The 2011 Plan, the 2007 Plan and the RSU Plan, together with certain plans assumed by Quanta in acquisitions, are referred to as the Plans.

The Plans are administered by the Compensation Committee of the Board of Directors of Quanta. The Compensation Committee has, subject to applicable regulation and the terms of the Plans, the authority to grant awards under the Plans, to construe and interpret the Plans and to make all other determinations and take any and all actions necessary or advisable for the administration of the Plans. The Board also delegated to the Equity Grant Committee, a committee of the Board consisting of one or more directors, the authority to grant limited awards to eligible persons who are not executive officers or non-employee directors.

Restricted Stock and RSUs to be Settled in Common Stock

During the years ended December 31, 2016, 2015 and 2014, Quanta granted 1.8 million, 1.3 million and 1.4 million shares of RSUs to be settled in common stock under the Plans with weighted average grant date fair values of $22.22, $27.64 and $35.08 per share, respectively. The grant date fair value for awards of restricted stock and RSUs to be settled in common stock is based on the market value of Quanta common stock on the date of grant. Restricted stock and RSU awards to be settled in common stock are subject to forfeiture, restrictions on transfer and certain other conditions until vesting, which generally occurs in equal installments over a two-year or three-year period following the date of grant. During the restriction period, holders of restricted stock are entitled to vote and receive dividends on such shares.

During the years ended December 31, 2016, 2015 and 2014, vesting activity consisted of 1.4 million, 1.3 million and 1.1 million shares of restricted stock and RSUs settled in common stock with an approximate fair value at the time of vesting of $28.9 million, $35.9 million and $37.5 million, respectively.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the activity for restricted stock and RSUs to be settled in common stock for the year ended December 31, 2016 is as follows (shares in thousands):


	Shares			Weighted Average Grant Date Fair Value (Per share)
Unvested at January 1, 2016		2,377		$	30.36
Granted		1,846		$	22.22
Vested		(1,369	)	$	29.58
Forfeited		(143	)	$	25.93

Unvested at December 31, 2016		2,711		$	25.45

During the years ended December 31, 2016, 2015 and 2014, Quanta recognized $39.6 million, $33.3 million and $35.0 million of non-cash stock compensation expense related to restricted stock and RSUs to be settled in common stock. As of December 31, 2016, there was approximately $29.8 million of total unrecognized compensation cost related to unvested RSUs to be settled in common stock granted to both employees and non-employees. This cost is expected to be recognized over a weighted average period of 1.52 years.

Performance Units to be Settled in Common Stock

Performance units awarded pursuant to the 2011 Plan provide for the issuance of shares of common stock upon vesting. These performance units cliff-vest at the end of a three-year performance period based on achievement of three-year company financial performance targets and strategic initiatives established by the Compensation Committee. The final amount of earned and vested performance units can range from 0% to 200% of the initial amount awarded based on the level of achievement of performance goals, as determined by Quanta’s Compensation Committee.

During the years ended December 31, 2016, 2015 and 2014, Quanta granted 0.3 million, 0.2 million and 0.1 million of performance units to be settled in common stock under the 2011 Plan with a weighted average grant date fair value of $22.86, $28.16 and $35.20 per share. The grant date fair value for awards of performance units to be settled in common stock is based on the market value of Quanta common stock on the date of grant applied to the total number of performance units that Quanta anticipates will become earned and vest. This fair value is expensed ratably over the vesting term and is adjusted for fair value changes so that the expense recognized for each award is equivalent to the fair value of the final number of earned and vested performance units. During the years ended December 31, 2016, 2015 and 2014, Quanta recognized $3.2 million, $3.6 million and $2.4 million in compensation expense associated with performance units to be settled in common stock. During the years ended December 31, 2016, 2015 and 2014, no performance units vested, and no shares of common stock were issued in connection with performance units.

RSUs to be Settled in Cash

Certain RSUs granted by Quanta under the Plans are settled solely in cash. These cash-settled RSUs are intended to provide plan participants with cash performance incentives that are substantially equivalent to the risks and rewards of equity ownership in Quanta, typically vest in equal installments over a two-year or three-year period following the date of grant, and are subject to forfeiture under certain conditions, primarily termination of service. Additionally, subject to certain restrictions, Quanta’s non-employee directors may elect to cash settle a portion of their RSU awards, which generally vest upon conclusion of the director service year. For

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

all RSUs settled in cash, the holders receive for each vested RSU an amount in cash equal to the fair market value on the settlement date of one share of Quanta common stock, as specified in the applicable award agreement.

Compensation expense related to RSUs to be settled in cash was $7.0 million, $4.0 million and $3.9 million for the years ended December 31, 2016, 2015 and 2014. Such expense is recorded in selling, general and administrative expenses. RSUs that are anticipated to be settled in cash are not included in the calculation of earnings per share, and the estimated earned value of such RSUs is classified as a liability. Quanta paid $4.6 million, $4.2 million and $3.1 million to settle liabilities related to cash-settled RSUs in the years ended December 31, 2016, 2015 and 2014, respectively. Accrued liabilities for the estimated earned value of outstanding RSUs to be settled in cash were $5.1 million and $2.7 million at December 31, 2016 and 2015.

13.	EMPLOYEE BENEFIT PLANS:

Unions’ Multiemployer Pension Plans

Quanta contributes to a number of multiemployer defined benefit pension plans under the terms of collective bargaining agreements with various unions that represent certain of Quanta’s employees. Quanta’s multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on its union employee payrolls. Quanta may also have additional liabilities imposed by law as a result of its participation in multiemployer defined benefit pension plans. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, imposes certain liabilities upon an employer who is a contributor to a multiemployer pension plan if the employer withdraws from the plan or the plan is terminated or experiences a mass withdrawal. In the fourth quarter of 2011, Quanta recorded a partial withdrawal liability related to the withdrawal by certain Quanta subsidiaries from the Central States, Southeast and Southwest Areas Pension Plan (Central States Plan) following an amendment to the applicable collective bargaining agreement which eliminated their obligations to contribute to the Central States Plan. During the first quarter of 2014, Quanta recorded an adjustment to cost of services to increase the recognized withdrawal liability. Additional information regarding this withdrawal, as well as the withdrawal from the Central States Plan of a company acquired by Quanta in the fourth quarter of 2013, is provided in Collective Bargaining Agreements in Note 15.

The Pension Protection Act of 2006 (PPA) also added special funding and operational rules generally applicable to plan years beginning after 2007 for multiemployer plans that are classified as “endangered,” “seriously endangered” or “critical” status based on multiple factors (including, for example, the plan’s funded percentage, cash flow position and whether it is projected to experience a minimum funding deficiency). Plans in these classifications must adopt measures to improve their funded status through a funding improvement or rehabilitation plan, as applicable, which may require additional contributions from employers (which may take the form of a surcharge on benefit contributions) and/or modifications to retiree benefits. Certain plans to which Quanta contributes or may contribute in the future are in “endangered,” “seriously endangered” or “critical” status. The amount of additional funds, if any, that Quanta may be obligated to contribute to these plans in the future cannot be estimated due to uncertainty of the future levels of work that require the specific use of union employees covered by these plans, as well as the future contribution levels and possible surcharges on contributions applicable to these plans.

The following table summarizes plan information relating to Quanta’s participation in multiemployer defined benefit pension plans, including company contributions for the last three years, the status under the PPA of the plans and whether the plans are subject to a funding improvement or rehabilitation plan or contribution surcharges. The most recent PPA zone status available in 2016 and 2015 relates to the plan’s fiscal year-end in

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2015 and 2014. Forms 5500 were not yet available for the plan years ending in 2016. The PPA zone status is based on information that Quanta received from the respective plans, as well as publicly available information on the U.S. Department of Labor website, and is certified by the plan’s actuary. Although multiple factors or tests may result in red zone or yellow zone status, plans in the red zone generally are less than 65 percent funded, plans in the yellow zone generally are less than 80 percent funded, and plans in the green zone generally are at least 80 percent funded. Under the PPA, red zone plans are classified as “critical” status, yellow zone plans are classified as “endangered” status and green zone plans are classified as neither “endangered” nor “critical” status. The “Subject to Financial Improvement/ Rehabilitation Plan” column indicates plans for which a financial improvement plan or a rehabilitation plan is either pending or has been implemented. The last column lists the expiration dates of Quanta’s collective-bargaining agreements to which the plans are subject. Total contributions to these plans correspond to the number of union employees employed at any given time and the plans in which they participate and varies depending upon the location and number of ongoing projects at a given time and the need for union resources in connection with such projects. Information has been presented separately for individually significant plans and in the aggregate for all other plans.


Fund	Employee Identification Number/ Pension Plan Number			PPA Zone Status			Subject to Financial Improve- ment/ Reha- bilitation Plan		Contributions (in thousands)							Surcharge Imposed	Expiration Date of Collective Bargaining Agreement
	2016		2015		2016			2015			2014
National Electrical Benefit Fund		53-0181657-001		Green		Green	No		$	22,912		$	21,200	$	20,758	No	Varies through March 2020
Pipeline Industry Pension Fund		73-6146433-001		Green		Green	No			6,954			6,087		6,280	No	June 2017
Central Pension Fund of the IUOE & Participating Employers		36-6052390-001		Green		Green	No			5,668			5,677		7,847	No	Varies through June 2017
Laborers Pension Trust Fund for Northern California		94-6277608-001		Yellow		Yellow	Yes			3,805			2,603		1,357	Yes	June 2019
Eighth District Electrical Pension Fund		84-6100393-001		Green		Green	No			3,089			2,544		2,192	No	Varies through November 2018
Alaska Electrical Pension Plan		92-6005171-001		Green		Green	No			2,701			639		68	No	Varies through March 2017
IBEW Local 456 Pension Plan		22-6238995-001		Green		Yellow	No			2,298			886		810	No	Varies through December 2017
Plumbers and Pipefitters National Pension Fund		52-6152779-001		Yellow		Yellow	Yes			1,666			850		197	No	June 2017
OE Pension Trust Fund		94-6090764-001		Red		Red	Yes			1,508			1,264		991	Yes	Varies through June 2020
Laborers National Pension Fund		75-1280827-001		Green		Green	No			1,358			7,671		4,227	No	Varies through June 2017
Operating Engineers Local 324 Pension Fund		38-1900637-001		Red		Red	Yes			1,291			1,231		1,086	Yes	Varies through April 2018
Alaska Laborers —Employers Retirement Fund		91-6028298-001		Yellow		Yellow	Yes			1,216			181		—	No	January 2017
Local 697 IBEW and Electrical Industry Pension Fund		51-6133048-001		Green		Yellow	No			1,207			1,066		200	Yes	May 2018

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Fund	Employee Identification Number/ Pension Plan Number		PPA Zone Status			Subject to Financial Improve- ment/ Reha- bilitation Plan		Contributions (in thousands)						Surcharge Imposed		Expiration Date of Collective Bargaining Agreement
	2016		2015		2016		2015		2014
Laborers District Council of W PA Pension Fund		25-6135576-001		Red	Red		Yes		876		21		—		Yes		June 2017
Midwest Operating Engineers Pension Trust Fund		36-6140097-001		Yellow	Yellow		Yes		793		3,294		497		Yes		Varies through June 2017
Alaska Teamster Employer Pension Plan		92-6003463-024		Red	Red		Yes		659		513		516		Yes		January 2017
Joint Pension Local Union 164 IBEW		22-6031199-001		Yellow	Yellow		Yes		33		513		1,816		No		May 2017
Michigan Upper Peninsula Intrl Brotherhood of Elec Workers Pension Plan		36-3020872-001		Green	Yellow		No		—		300		1,307		No		N/A
All other plans									27,201		20,475		21,055

Total								$	85,235	$	77,015	$	71,204

Quanta’s contributions to the following individually significant plans were five percent or more of the total contributions to these plans for the periods indicated based on the Forms 5500 for these plans for the years ended December 31, 2015 and 2014. Forms 5500 were not yet available for these plans for the year ended December 31, 2016.


Pension Fund		Plan Years in which Quanta Contributions Were Five Percent or More of Total Plan Contributions
Pipeline Industry Pension Fund		2015 and 2014
Eighth District Electrical Pension Fund		2015 and 2014
Laborers National Pension Fund		2015 and 2014
Michigan Upper Peninsula Intrl Brotherhood of Elec Workers Pension Plan		2015 and 2014
Local 697 IBEW and Electrical Industry Pension Fund		2015
Local Union No. 9 IBEW and Outside Contractors Pension Fund		2015
Alaska Plumbing and Pipefitting Industry Pension Fund		2015
Teamsters National Pipe Line Pension Plan		2015
Joint Pension Local Union 164 IBEW		2014

In addition to the contributions made to multiemployer defined benefit pension plans noted above, Quanta also contributed to multiemployer defined contribution or other benefit plans on behalf of certain union employees. Contributions to union multiemployer defined contribution or other benefit plans by Quanta were approximately $139.3 million, $147.1 million and $129.0 million for the years ended December 31, 2016, 2015 and 2014. Total contributions made to all of these multiemployer plans for the years ended December 31, 2016, 2015 and 2014 correspond to the number of union employees employed at any given time and the plans in which they participate and varies depending upon the location and number of ongoing projects at a given time and the need for union resources in connection with such projects.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Quanta 401(k) Plan

Quanta maintains a 401(k) plan pursuant to which employees who are not provided retirement benefits through a collective bargaining agreement may make contributions through a payroll deduction. Quanta makes matching cash contributions of 100% of each employee’s contribution up to 3% of that employee’s salary and 50% of each employee’s contribution between 3% and 6% of such employee’s salary, up to the maximum amount permitted by law. Contributions to the 401(k) plan by Quanta were approximately $21.9 million, $17.7 million and $13.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Deferred Compensation Plans

Quanta maintains nonqualified deferred compensation plans pursuant to which non-employee directors and certain key employees, independent contractors and consultants may defer receipt of some or all of their cash compensation and/or settlement of their equity-based awards, subject to certain limitations. The plan covering key employees provides for employer matching contributions for certain officers and employees whose benefits under the 401(k) plan are limited by federal tax law. Quanta may also make discretionary employer contributions to that plan. Matching contributions and discretionary employer contributions are subject to a vesting schedule, provided that vesting accelerates upon a change in control and the participant’s death or retirement. All matching and discretionary employer contributions, whether vested or not, are forfeited upon a participant’s termination of employment for cause or upon the participant engaging in competition with Quanta or any of its affiliates.

Quanta made contributions to the deferred compensation plans of approximately $1.0 million, $1.0 million and $0.3 million during the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, $19.1 million and $11.7 million were included in other long-term liabilities and $17.9 million and $11.3 million were included in other long-term assets related to obligations under these plans and related company-owned life insurance policies. Individuals participating in these plans receive distributions of their respective balances based on predetermined payout schedules or other events and are also able to direct investments made on their behalf among investment alternatives permitted from time to time under the plan.

14.	RELATED PARTY TRANSACTIONS:

Certain of Quanta’s operating units have entered into related party lease arrangements for operational facilities, typically with prior owners of certain acquired businesses. These lease agreements generally have terms of up to approximately five years and include renewal options. Related party lease expense for the years ended December 31, 2016, 2015 and 2014 was approximately $8.7 million, $10.6 million and $8.5 million, respectively.

15.	COMMITMENTS AND CONTINGENCIES:

Investments in Affiliates and Other Entities

As described in Note 11, Quanta holds investments in certain joint ventures with third parties for the purpose of providing infrastructure services under certain customer contracts. Losses incurred by these joint ventures are generally shared ratably based on the percentage ownership of the joint venture members. However, each member of the joint venture typically is jointly and severally liable for all of the obligations of the joint venture under the contract with the customer, and therefore can be liable for full performance of the contract with the customer. In circumstances where Quanta’s participation in a joint venture qualifies as a general partnership, the joint venture partners are jointly and severally liable for all of the obligations of the joint venture, including obligations owed to the customer or any other person or entity. Quanta is not aware of circumstances that would lead to future claims against it for material amounts in connection with these joint and several liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the joint venture arrangements entered into by Quanta, typically each joint venturer indemnifies the other party for any liabilities incurred in excess of the liabilities such other party is obligated to bear under the respective joint venture agreement. It is possible, however, that Quanta could be required to pay or perform obligations in excess of its share if the other joint venturer failed or refused to pay or perform its share of the obligations. Quanta is not aware of circumstances that would lead to future claims against it for material amounts that would not be indemnified.

During 2014, a limited partnership in which Quanta is a partner was selected for an engineering, procurement and construction (EPC) electric transmission project to construct approximately 500 kilometers of transmission line and two 500 kV substations. Quanta will provide turnkey EPC services for the entire project. As of December 31, 2016, Quanta had made aggregate contributions to this unconsolidated affiliate of $13.5 million and had received $2.9 million as a return of capital. Also as of December 31, 2016, Quanta had outstanding additional capital commitments associated with investments in an unconsolidated affiliate related to this project as follows (in thousands):


	Capital Commitments
Year Ending December 31:
2017 (1)	$	33,771
2018		—
2019		23,567

Total capital commitments associated with investments in an unconsolidated affiliate related to an EPC electrical transmission project	$	57,338

(1)	A return of capital from unconsolidated affiliates of approximately $42.1 million is anticipated in August 2017 and is not included in these amounts.

Additionally, as of December 31, 2016, Quanta had outstanding capital commitments associated with investments in unconsolidated affiliates related to planned oil and gas infrastructure projects of approximately $20.5 million, $0.3 million of which is expected to be paid in the first quarter of 2017. The remaining $20.2 million of these capital commitments is anticipated to be paid by May 31, 2022.

Leases

Quanta leases certain land, buildings and equipment under non-cancelable lease agreements, including related party leases as discussed in Note 14. The terms of these agreements vary from lease to lease, including some with renewal options and escalation clauses. The following schedule shows the future minimum lease payments under these leases as of December 31, 2016 (in thousands):


	Operating Leases
Year Ending December 31:
2017	$	99,677
2018		67,034
2019		44,216
2020		25,444
2021		13,761
Thereafter		16,331

Total minimum lease payments	$	266,463

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Rent expense related to operating leases was approximately $242.3 million, $208.5 million and $161.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Quanta has guaranteed the residual value on certain of its equipment operating leases. Quanta has agreed to pay any difference between this residual value and the fair market value of the underlying asset at the date of termination of the leases. At December 31, 2016, the maximum guaranteed residual value was approximately $556.5 million. Quanta believes that no significant payments will be made as a result of the difference between the fair market value of the leased equipment and the guaranteed residual value. However, there can be no assurance that significant payments will not be required in the future.

Committed Expenditures

Quanta has capital commitments for the expansion of its vehicle fleet in order to accommodate manufacturer lead times on certain types of vehicles. As of December 31, 2016, Quanta issued approximately $22.4 million of production orders with expected delivery dates in 2017. Although Quanta has committed to purchase these vehicles at the time of their delivery, Quanta anticipates that these orders will be assigned to third party leasing companies and made available to Quanta under certain of its master equipment lease agreements, thereby releasing Quanta from its capital commitments.

Legal Proceedings

Quanta is from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, Quanta records a reserve when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In addition, Quanta discloses matters for which management believes a material loss is at least reasonably possible. Except as otherwise stated below, none of these proceedings, separately or in the aggregate, are expected to have a material adverse effect on Quanta’s consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.

Lorenzo Benton v. Telecom Network Specialists, Inc., et al. In June 2006, plaintiff Lorenzo Benton filed a class action complaint in the Superior Court of California, County of Los Angeles, alleging various wage and hour violations against Telecom Network Specialists (TNS), a former subsidiary of Quanta. Quanta retained liability associated with this matter pursuant to the terms of Quanta’s sale of TNS in December 2012. Benton seeks to represent a class of workers that includes all persons who worked on certain TNS projects, including individuals that TNS retained through numerous staffing agencies. The plaintiff class in this matter is seeking damages for unpaid wages, penalties associated with the failure to provide meal and rest periods and overtime wages, interest and attorneys’ fees. In September 2015, the trial court certified the class as to workers from the various staffing companies at issue. In January 2017, the trial court granted a summary judgment motion filed by the plaintiff class and found that TNS was a joint employer of the class members and that it failed to provide adequate meal and rest breaks and failed to pay overtime wages. Quanta believes this decision is not in line with controlling law, is in the process of appealing and continues to contest liability in this matter.

Additionally, in November 2007, TNS filed cross complaints for indemnity and breach of contract against the staffing agencies, which employed many of the individuals in question. In December 2012, the trial court

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

heard cross-motions for summary judgment filed by TNS and the staffing agencies pertaining to TNS’s demand for indemnity. The court denied TNS’s motion and granted the motions filed by the staffing agencies. TNS appealed the court’s ruling, and in April 2015, the California Appellate Court reversed the trial court’s decision, vacated its award of attorneys’ fees, and instructed the trial court to reconsider its earlier ruling on TNS’s indemnity claims. In February 2017, the court denied a new motion for summary judgment filed by the staffing companies and stated that the staffing companies were liable to TNS for any damages owed to the class members that the staffing companies employed.

Based on review and analysis of the trial court’s rulings, Quanta does not believe, at this time, that it is probable this matter will result in a material loss. However, the final amount of liability, if any, payable in connection with this matter remains the subject of pending litigation and will ultimately depend on various factors, including the outcome of Quanta’s appeal of the trial court’s ruling and the solvency of the staffing agencies. Quanta believes the range of reasonably possible loss upon final resolution of this matter is up to $23 million.

SEC Notice. On March 10, 2014, the SEC notified Quanta of an inquiry into certain aspects of Quanta’s activities in certain foreign jurisdictions, including South Africa and the United Arab Emirates. The SEC also requested that Quanta take necessary steps to preserve and retain categories of relevant documents, including those pertaining to Quanta’s U.S. Foreign Corrupt Practices Act compliance program. The SEC did not allege any violations of law by Quanta or its employees. On October 27, 2016, the SEC notified Quanta that it had concluded its investigation and, based on the information received, did not intend to pursue further action in connection with this inquiry.

Sunrise Powerlink Arbitration. On April 21, 2010, PAR Electrical Contractors, Inc. (PAR), one of Quanta’s wholly owned subsidiaries, entered into a contract with SDG&E to construct a 117-mile electrical transmission line in Imperial and San Diego Counties, California, known as the Sunrise Powerlink project. In October 2013, Quanta initiated arbitration proceedings against SDG&E alleging breach of contract and seeking compensation for additional costs incurred on the project. SDG&E filed a counterclaim for breach of contract seeking damages for PAR’s alleged untimely performance. In December 2014, the parties reached an agreement to dismiss the arbitration. The settlement terms provided for a cash payment by SDG&E to PAR in the amount of $65 million, representing the final amount to compensate PAR for substantially all of the unpaid portion of PAR’s costs incurred on the project. In January 2015, payment was received and the arbitration was dismissed.

For additional information regarding other pending legal proceedings, see Collective Bargaining Agreements in this Note 15.

Concentrations of Credit Risk

Quanta is subject to concentrations of credit risk related primarily to its cash and cash equivalents and its net receivable position with customers, which includes amounts related to billed and unbilled accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts net of advanced billings with the same customer. Substantially all of Quanta’s cash and cash equivalents are managed by what it believes to be high credit quality financial institutions. In accordance with Quanta’s investment policies, these institutions are authorized to invest cash and cash equivalents in a diversified portfolio of what Quanta believes to be high quality investments, which consist primarily of interest-bearing demand deposits, money market investments, money market mutual funds and investment grade commercial paper with original maturities of three months or less. Although Quanta does not currently believe the principal amount of these investments is subject to any material risk of loss, changes in economic conditions could impact the interest income Quanta receives from these investments. In addition, Quanta grants credit under normal payment terms, generally without collateral, to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

its customers, which include electric power and oil and gas companies, governmental entities, general contractors, and builders, owners and managers of commercial and industrial properties located primarily in the United States, Canada and Australia. Consequently, Quanta is subject to potential credit risk related to changes in business and economic factors throughout the United States, Canada and Australia, which may be heightened as a result of uncertain economic and financial market conditions that have existed in recent years. However, Quanta generally has certain statutory lien rights with respect to services provided. Historically, some of Quanta’s customers have experienced significant financial difficulties, and others may experience financial difficulties in the future. These difficulties expose Quanta to increased risk related to collectability of billed and unbilled receivables and costs and estimated earnings in excess of billings on uncompleted contracts for services Quanta has performed.

At December 31, 2016 and 2015, one customer within Quanta’s Electric Power Infrastructure Services segment accounted for approximately 16% and 12% of Quanta’s consolidated net receivable position. At December 31, 2016 and 2015, the net receivable position for this customer was $277.3 million and $195.2 million, which included $175.9 million and $83.9 million of costs and estimated earnings in excess of billings on uncompleted contracts. These balances were associated with invoicing challenges and billing delays on two related electric transmission projects located in remote regions of northeastern Canada that resulted from extensive quality assurance documentation and administrative requirements. Quanta continues to work collaboratively with the customer to improve these processes. The net receivable position also includes change orders and claims that were in the process of being negotiated in the normal course of business. No other customers represented 10% or more of Quanta’s consolidated net receivable position as of December 31, 2016 or 2015. No customers represented 10% or more of Quanta’s revenues for the years ended December 31, 2016, 2015 and 2014.

Self-Insurance

As discussed in Note 2, Quanta is insured for employer’s liability, workers’ compensation, auto liability, general liability and group health claims. As of December 31, 2016 and 2015, the gross amount accrued for insurance claims totaled $218.2 million and $209.0 million, with $162.0 million and $153.5 million considered to be long-term and included in other non-current liabilities. Related insurance recoveries/receivables as of December 31, 2016 and 2015 were $8.7 million and $8.6 million, of which $0.4 million and $0.6 million were included in prepaid expenses and other current assets and $8.3 million and $8.0 million were included in other assets, net.

Letters of Credit

Certain of Quanta’s vendors require letters of credit to ensure reimbursement for amounts they are disbursing on its behalf, such as to beneficiaries under its self-funded insurance programs. In addition, from time to time, certain customers require Quanta to post letters of credit to ensure payment to its subcontractors and vendors and to guarantee performance under its contracts. Such letters of credit are generally issued by a bank or similar financial institution, typically pursuant to Quanta’s credit facility. Each letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder demonstrates that Quanta has failed to perform specified actions. If this were to occur, Quanta would be required to reimburse the issuer of the letter of credit. Depending on the circumstances of such a reimbursement, Quanta may also be required to record a charge to earnings for the reimbursement. Quanta does not believe that it is likely that any material claims will be made under a letter of credit in the foreseeable future.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2016, Quanta had $305.6 million in outstanding letters of credit and bank guarantees under its credit facility to secure its casualty insurance program and various contractual commitments. These are irrevocable stand-by letters of credit with maturities generally expiring at various times throughout 2017. Upon maturity, it is expected that the majority of the letters of credit related to the casualty insurance program will be renewed for subsequent one-year periods.

Performance Bonds and Parent Guarantees

In certain circumstances, Quanta is required to provide performance bonds in connection with its contractual commitments. Quanta has indemnified its sureties for any expenses paid out under these performance bonds. These performance bonds expire at various times ranging from mechanical completion of the related projects to a period extending beyond contract completion in certain circumstances, and as such a determination of maximum potential amounts outstanding requires the use of certain estimates and assumptions. Such amounts can also fluctuate from period to period based upon the mix and level of Quanta’s bonded operating activity. As of December 31, 2016, the total amount of the outstanding performance bonds was estimated to be approximately $3.4 billion. Quanta’s estimated maximum exposure as it relates to the value of the performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each of its commitments under the performance bonds generally extinguishes concurrently with the expiration of its related contractual obligation. The estimated cost to complete these bonded projects was approximately $1.2 billion as of December 31, 2016.

Additionally, from time to time, Quanta guarantees the obligations of its wholly owned subsidiaries, including obligations under certain contracts with customers, certain lease obligations and, in some states, obligations in connection with obtaining contractors’ licenses. Quanta is not aware of any material obligations for performance or payment asserted against it under any of these guarantees.

Employment Agreements

Quanta has various employment agreements with certain executives and other employees, which provide for compensation and certain other benefits and for severance payments under certain circumstances. Certain employment agreements also contain clauses that become effective upon a change in control of Quanta, and Quanta may be obligated to pay certain amounts to such employees upon the occurrence of any of the defined change in control events.

Collective Bargaining Agreements

Some of Quanta’s operating units are parties to various 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. From time to time, Quanta is a party to grievance actions based on claims arising out of the collective bargaining agreements. The agreements require the operating units to pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. Quanta’s multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions 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 the projects Quanta has ongoing at any time and the need for union resources in connection with those projects. Therefore, Quanta is unable to accurately predict its union employee payroll and the amount of the resulting multiemployer pension plan contribution obligation for future periods.

Index to Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The PPA also added special funding and operational rules generally applicable to plan years beginning after 2007 for multiemployer plans that are classified as “endangered,” “seriously endangered” or “critical” status based on multiple factors (including, for example, the plan’s funded percentage, cash flow position and whether it is projected to experience a minimum funding deficiency). Plans in these classifications must adopt measures to improve their funded status through a funding improvement or rehabilitation plan, as applicable, which may require additional contributions from employers (which may take the form of a surcharge on benefit contributions) and/or modifications to retiree benefits. Certain plans to which Quanta contributes or may contribute in the future are in “endangered,” “seriously endangered” or “critical” status. The amount of additional funds, if any, that Quanta may be obligated to contribute to these plans in the future cannot be estimated due to uncertainty of the future levels of work that require the specific use of union employees covered by these plans, as well as the future contribution levels and possible surcharges on contributions applicable to these plans.

Quanta may be subject to additional liabilities imposed by law as a result of its participation in multiemployer defined benefit pension plans. For example, the Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, imposes certain liabilities upon an employer who is a contributor to a multiemployer pension plan if the employer withdraws from the plan or the plan is terminated or experiences a mass withdrawal. These liabilities include an allocable share of the unfunded vested benefits in the plan for all plan participants, not merely the benefits payable to a contributing employer’s own retirees. As a result, participating employers may bear a higher proportion of liability for unfunded vested benefits if other participating employers cease to contribute or withdraw, with the reallocation of liability being more acute in cases when a withdrawn employer is insolvent or otherwise fails to pay its withdrawal liability. Other than as described below, Quanta is not aware of any material amounts of withdrawal liability that have been incurred as a result of a withdrawal by any of Quanta’s operating units from any multiemployer defined benefit pension plans.

2011 Central States Plan Withdrawal Liability. In the fourth quarter of 2011, certain Quanta subsidiaries withdrew from the Central States Plan. This withdrawal event was the result of an amendment to a collective bargaining agreement with the International Brotherhood of Teamsters (Teamsters) that eliminated certain employers’ obligations to contribute to the Central States Plan, which was then in critical status and significantly underfunded as to its vested benefit obligations. The amendment was negotiated by the Pipe Line Contractors Association (PLCA) on behalf of its members, which include certain Quanta subsidiaries. Because certain other Quanta subsidiaries continued participation in the Central States Plan into 2012, the Quanta subsidiaries’ withdrawals in 2011 effected only a partial withdrawal on behalf of Quanta for 2011. Quanta believed that the partial withdrawal was advantageous because it limited exposure to increased liability resulting from a future withdrawal event, at which point the Central States Plan could have been further underfunded. Quanta and other PLCA members now contribute to a different multiemployer pension plan on behalf of the affected Teamsters employees. While certain additional Quanta subsidiaries continued participation in the Central States Plan into 2012, Quanta believes that such subsidiaries withdrew from the Central States Plan in 2012, thereby effecting a complete withdrawal as of December 30, 2012 for all Quanta subsidiaries.

In connection with the partial withdrawal in 2011, Quanta recorded a withdrawal liability of approximately $32.6 million in the fourth quarter of 2011 based on estimates received from the Central States Plan. The Central States Plan subsequently asserted that the withdrawal of the PLCA members, and thus Quanta’s partial withdrawal, was not effective in 2011. The PLCA and Quanta believed at that time that a legally effective withdrawal had occurred during the fourth quarter of 2011, and this issue was litigated in the federal district court for the Northern District of Illinois, Eastern Division. In September 2013, the district court ruled in favor of the Central States Plan, and that decision was appealed by the PLCA. In July 2014, the Central States Plan provided Quanta with a Notice and Demand claiming partial withdrawal liability in the amount of $39.6 million and

Index to Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

requiring Quanta to make payments on this assessment while the dispute is ongoing. In September 2015, the United States Court of Appeals for the Seventh Circuit ruled in favor of the PLCA and reversed the district court’s previous ruling which had been in favor of the Central States Plan. Based on the outcome of the appeal, in January 2016, the Central States Plan issued a revised Notice and Demand claiming a partial withdrawal liability in the amount of $32.9 million.

Separately, in December 2013, the Central States Plan filed lawsuits against two of Quanta’s other subsidiaries in connection with their withdrawal in 2012. In the first lawsuit, the Central States Plan alleged that the subsidiary elected to participate in the Central States Plan pursuant to the collective bargaining agreement under which it participated. Quanta argued that no such election was made and that any payments made to the Central States Plan were made in error. In July 2014, the parties reached an agreement to settle the lawsuit, and the court dismissed the case with prejudice. In the second lawsuit, the Central States Plan alleged that contributions made by the Quanta subsidiary to a new industry fund created after Quanta withdrew from the Central States Plan should have been made to the Central States Plan. This arguably would have extended the withdrawal date for this subsidiary to at least the end of 2013. Quanta disputed these allegations on the basis that it properly paid contributions to the new industry fund based on the terms of the collective bargaining agreement under which it participated and asserted that it terminated its obligation to contribute to the Central States Plan by the end of 2012. The parties both moved for summary judgment, and in March 2015, the court entered judgment in favor of Quanta. The Central States Plan filed a notice of appeal in April 2015, and in December 2015, the Central States Plan agreed to dismiss the appeal with prejudice.

The ultimate liability associated with the complete withdrawal of Quanta’s subsidiaries from the Central States Plan will depend on various factors, including interpretations of the terms of the collective bargaining agreements under which the subsidiaries participated and whether exemptions from withdrawal liability applicable to construction industry employers will be available. In March 2014, the Central States Plan provided revised estimates indicating that the total withdrawal liability based on certain withdrawal scenarios from 2011 through 2014 could range between $40.1 million and $55.4 million, which Quanta believes to be the range of reasonably possible loss for this matter. Additionally, based on those estimates and allowing for the exclusion of amounts believed by management to have been improperly included in such estimate, Quanta recorded an adjustment to cost of services during the three months ended March 31, 2014 to increase the recognized withdrawal liability to an amount within the range communicated to Quanta by the Central States Plan. Given the unknown nature of some of the factors mentioned above, the final withdrawal liability cannot yet be determined with certainty. Accordingly, it is reasonably possible that the amount owed upon final resolution of these matters could be materially higher than the expense Quanta had recognized through December 31, 2016. Although Quanta disputes the total liability owed to the Central States Plan, it continues to make monthly payments according to the terms of the January 2016 Notice and Demand while the parties determine the final withdrawal liability. As of December 31, 2016, Quanta had made payments totaling $17.5 million toward the withdrawal liability assessment.

2013 Central States Plan Withdrawal Liability. On October 9, 2013, Quanta acquired a company that experienced a complete withdrawal from the Central States Plan prior to the date of acquisition. Prior to the acquisition, the Central States Plan issued a Notice and Demand to the acquired company claiming a withdrawal liability in the total amount of $6.9 million and requiring payments to be made on this assessment while the dispute is ongoing. In connection with the acquisition, Quanta recorded an initial liability of $4.8 million related to this withdrawal liability, and a portion of the purchase price for the acquired company was deposited into an escrow account to fund any withdrawal obligation in excess of the initial liability recorded. In January 2016, the Central States Plan issued a revised Notice and Demand claiming a withdrawal liability in the amount of $4.8 million. Although Quanta continues to dispute the total liability owed to the Central States Plan, it continues to make monthly payments according to the terms of this revised Notice and Demand while the parties determine

Index to Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the final withdrawal liability. As of December 31, 2016, payments totaling $3.5 million had been made toward the withdrawal liability assessment.

The final amount of withdrawal liability payable in connection with this matter remains the subject of a pending arbitration proceeding and will ultimately depend on various factors, including the outcome of the PLCA litigation described above. However, the acquired company’s withdrawal from the Central States Plan is not expected to have a material impact on Quanta’s financial condition, results of operations or cash flows.

Indemnities

Quanta generally indemnifies its customers for the services it provides under its contracts, as well as other specified liabilities, which may subject Quanta to indemnity claims and liabilities and related litigation. Additionally, in connection with certain acquisitions and dispositions, Quanta has indemnified various parties against specified liabilities that those parties might incur in the future. The indemnities under acquisition or disposition agreements are usually contingent upon the other party incurring liabilities that reach specified thresholds. As of December 31, 2016, except as otherwise set forth above in Legal Proceedings, Quanta does not believe any material liabilities for claims exist against it in connection with any of these indemnity obligations.

In the normal course of Quanta’s acquisition transactions, Quanta obtains rights to indemnification from the sellers or former owners of acquired companies for certain risks, liabilities and obligations arising from their prior operations, such as performance, operational, safety, workforce or tax issues, some of which Quanta may not have discovered during due diligence. However, the indemnities may not cover all of Quanta’s exposure for such pre-acquisition matters, and the indemnitors may be unwilling or unable to pay the amounts owed to Quanta. Accordingly, Quanta may incur expenses for which it is not reimbursed. Quanta is currently in the process of identifying certain pre-acquisition obligations associated with non-U.S. payroll taxes that may be due from a business acquired by Quanta in 2013. As of December 31, 2016, Quanta had recorded $11.4 million as its best estimate of the pre-acquisition tax obligations and a corresponding indemnification asset, as management expects to recover from the indemnity counterparties any amounts that Quanta may be required to pay in connection with any such obligations.

16.	SEGMENT INFORMATION:

Quanta presents its operations under two reportable segments: (1) Electric Power Infrastructure Services and (2) Oil and Gas Infrastructure Services. This structure is generally based on the broad end-user markets for Quanta’s services. See Note 1 for additional information regarding Quanta’s reportable segments.

Quanta’s segment results are derived from the types of services provided across its operating units in each of the end user markets described above. Quanta’s entrepreneurial business model allows each of its operating units to serve the same or similar customers and to provide a range of services across end user markets. Quanta’s operating units are organized into one of two internal divisions, namely, the Electric Power Infrastructure Services Division and the Oil and Gas Infrastructure Services Division. These internal divisions are closely aligned with the reportable segments described above based on their operating units’ predominant type of work.

Reportable segment information, including revenues and operating income by type of work, is gathered from each operating unit for the purpose of evaluating segment performance in support of Quanta’s market strategies. These classifications of Quanta’s operating unit revenues by type of work for segment reporting purposes can at times require judgment on the part of management. Quanta’s operating units may perform joint infrastructure service projects for customers in multiple industries, deliver multiple types of network services under a single customer contract or provide service across industries. For example, Quanta performs joint trenching projects to install distribution lines for electric power and natural gas customers.

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QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In addition, Quanta’s integrated operations and common administrative support at each of its operating units require that certain allocations of shared and indirect costs, such as facility costs and indirect operating expenses, including depreciation and general and administrative costs, be made to determine operating segment profitability. Corporate costs, such as payroll and benefits, employee travel expenses, facility costs, professional fees, acquisition costs and amortization related to intangible assets are not allocated.

Summarized financial information for Quanta’s reportable segments is presented in the following table (in thousands):


	Year Ended December 31,
	2016			2015			2014
Revenues:
Electric Power Infrastructure	$	4,850,495		$	4,937,289		$	5,302,671
Oil and Gas Infrastructure		2,800,824			2,635,147			2,444,558

Consolidated	$	7,651,319		$	7,572,436		$	7,747,229

Operating income (loss):
Electric Power Infrastructure	$	395,745		$	362,328		$	462,985
Oil and Gas Infrastructure		149,502			142,929			162,797
Corporate and non-allocated costs		(224,434	)		(267,754	)		(196,722	)

Consolidated	$	320,813		$	237,503		$	429,060

Depreciation:
Electric Power Infrastructure	$	91,269		$	89,150		$	76,214
Oil and Gas Infrastructure		67,374			65,315			57,414
Corporate and non-allocated costs		11,597			8,380			7,478

Consolidated	$	170,240		$	162,845		$	141,106

Separate measures of Quanta’s assets and cash flows by reportable segment, including capital expenditures, are not produced or utilized by management to evaluate segment performance. Quanta’s fixed assets, which are held at the operating unit level, include operating machinery, equipment and vehicles, as well as office equipment, buildings and leasehold improvements, and are used on an interchangeable basis across its reportable segments. As such, for reporting purposes, total depreciation expense is allocated each quarter among Quanta’s reportable segments based on the ratio of each reportable segment’s revenue contribution to consolidated revenues.

Foreign Operations

During 2016, 2015, and 2014, Quanta derived $1.59 billion, $1.54 billion and $1.89 billion, respectively, of its revenues from foreign operations. Of Quanta’s foreign revenues, approximately 75%, 85% and 82% was earned in Canada during the years ended December 31, 2016, 2015 and 2014, respectively. In addition, Quanta held property and equipment of $320.7 million and $317.6 million in foreign countries, primarily Canada, as of December 31, 2016 and 2015.

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17.	SUPPLEMENTAL CASH FLOW INFORMATION:

The net effect of changes in operating assets and liabilities, net of non-cash transactions, on cash flows from operating activities of continuing operations is as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Accounts and notes receivable	$	144,877		$	150,470		$	(239,159	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(152,702	)		(49,358	)		(73,443	)
Inventories		(9,905	)		(33,524	)		(4,025	)
Prepaid expenses and other current assets		25,133			5,899			(35,493	)
Accounts payable and accrued expenses and other non-current liabilities		73,452			(2,486	)		(60,829	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(124,680	)		153,017			28,596
Other, net		(13,743	)		(11,707	)		(4,908	)

Net change in operating assets and liabilities, net of non-cash transactions	$	(57,568	)	$	212,311		$	(389,261	)

Additional supplemental cash flow information is as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Cash (paid) received during the period for —
Interest paid related to continuing operations	$	(12,828	)	$	(7,087	)	$	(3,533	)
Income taxes paid related to continuing operations	$	(121,662	)	$	(130,921	)	$	(223,901	)
Income taxes paid related to discontinued operations	$	(7,260	)	$	(144,076	)	$	(5,286	)
Income tax refunds related to continuing operations	$	7,548		$	23,788		$	7,376

Index to Financial Statements

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

18.	QUARTERLY FINANCIAL DATA (UNAUDITED):

The table below sets forth the unaudited consolidated operating results by quarter for the years ended December 31, 2016 and 2015 (in thousands, except per share information).


	For the Three Months Ended
	March 31,		June 30,		September 30,		December 31,
2016:
Revenues	$	1,713,737	$	1,792,430	$	2,042,186	$	2,102,966
Gross profit		203,313		200,217		302,582		307,688
Net income		20,859		16,729		74,152		88,358
Net income attributable to common stock		20,496		16,562		73,742		87,583
Net income from continuing operations attributable to common stock		20,496		16,562		73,137		88,530
Earnings per share from continuing operations attributable to common stock — basic and diluted	$	0.13	$	0.11	$	0.47	$	0.57
2015:
Revenues	$	1,861,386	$	1,872,340	$	1,939,438	$	1,899,272
Gross profit		237,906		227,505		235,215		223,039
Net income (loss)		58,185		49,565		218,956		(4,882	)
Net income (loss) attributable to common stock		53,484		46,109		216,388		(5,074	)
Net income (loss) from continuing operations attributable to common stock		47,689		32,007		43,176		(2,586	)
Earnings (loss) per share from continuing operations attributable to common stock — basic and diluted	$	0.22	$	0.15	$	0.23	$	(0.02	)

During the fourth quarters of 2016 and 2015, Quanta recorded total asset impairment charges of $8.0 million ($7.1 million net of tax) and $58.5 million ($44.6 million net of tax). Quanta recorded asset impairments primarily related to certain international renewable energy services operations of $8.0 million in 2016 and $6.6 million in 2015. The 2016 impairment was primarily due to a pending disposition of certain international renewable energy services operations, and the 2015 impairment was based on the estimated future undiscounted cash flows for the asset group as compared to their carrying value. Also included in the asset impairment charges recorded in the fourth quarter of 2015 were a $39.8 million goodwill impairment and a $12.1 million impairment related to customer relationships, trade names and non-compete agreement intangible assets. These goodwill and intangible impairments primarily resulted from lower levels of expected activity in the U.S. Gulf of Mexico and, to a lesser extent, due to the extended low commodity price environment with respect to certain directional drilling operations in Australia.

Additionally, during the third quarter of 2015, net income and net income attributable to common stock included an approximate $171 million gain on the sale, net of tax, of Quanta’s fiber optic licensing operations.

The sum of the individual quarterly earnings per share amounts may not equal year-to-date earnings per share as each period’s computation is based on the weighted average number of shares outstanding during the period.

Index to Financial Statements

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