Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

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


			Page
Report of Management			66
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)			67
Consolidated Balance Sheets			70
Consolidated Statements of Operations			71
Consolidated Statements of Comprehensive Income			72
Consolidated Statements of Cash Flows			73
Consolidated Statements of Equity			74
Notes to Consolidated Financial Statements			75

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, 2021 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, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears herein.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 excluded the ten businesses we acquired in 2021. 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 5.1% and 3.8% of our consolidated assets and revenues as of and for the year ended December 31, 2021 and included the acquisition of Blattner, which comprised approximately 4.0% and 3.4% of our consolidated assets and revenues as of and for the year ended December 31, 2021.

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Quanta Services, Inc. and its subsidiaries (the “Company”) as of December 31, 2021, and 2020 and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded ten acquired businesses from its assessment of internal control over financial reporting as of December 31, 2021 because they were acquired by the Company in purchase business combinations during 2021. We have also excluded these ten acquired businesses from our audit of internal control over financial reporting. These acquired businesses, each of which is wholly-owned, comprised, in the aggregate, total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting of approximately 5.1% and 3.8% of consolidated total assets and consolidated total revenues, respectively, as of and for the year ended December 31, 2021. The most significant of these entities, representing 4.0% of consolidated total assets and 3.4% of consolidated total revenues was Blattner.

Definition and Limitations of Internal Control over Financial Reporting

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition - Determination of Total Estimated Contract Costs for Contracts Recognized Over Time

As described in Note 4 to the consolidated financial statements, the Company recognizes certain revenue over time as it performs its obligations because there is a continuous transfer of control of the deliverable to the customer. Under unit-price contracts with more than an insignificant amount of partially completed units and fixed price contracts, the Company recognizes revenue as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. During the year ended December 31, 2021, approximately 45.9% of the Company’s revenues recognized were associated with this revenue recognition method. Contract costs include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen or changed circumstances not included in management’s cost estimates or covered by its contracts. The estimating process is based on the professional knowledge and experience of management’s project estimators, project managers and finance professionals.

The principal considerations for our determination that performing procedures relating to revenue recognition for contracts recognized over time is a critical audit matter are (i) the significant judgment by management when determining the total estimated contract costs and (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s estimate of the total costs of the contracts recognized over time.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process and the determination of total estimated contract costs for contracts recognized over time. These procedures also included, among others, for a sample of contracts, (i) testing management’s process for determining the total estimated contract costs which included evaluating the contracts and other documents that support those estimates, and testing of underlying contract costs; (ii) evaluating management’s ability to reasonably estimate total contract costs by performing a comparison of the total estimated contract costs as compared with prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the total estimated contract costs; and (iii) evaluating management’s methodologies and the consistency of management’s methodologies over the life of the contract.

Acquisition of Blattner Holding Company – Valuation of the Customer Relationship Intangible Asset

As described in Notes 2 and 6 to the consolidated financial statements, the Company completed the acquisition of Blattner Holding Company and its operating subsidiaries (collectively, “Blattner”) on October 13, 2021. The acquisition resulted in $1,425 million of identifiable intangible assets being recorded, of which $1,045 million related to customer relationships. The fair value of customer relationships is estimated as of the date a business is acquired based on the value-in-use concept utilizing the income approach, specifically the multi-period excess earnings method. This method discounts to present value the projected cash flows attributable to the customer relationships, with consideration given to customer contract renewals and estimated customer attrition rates. The significant estimates used by management in determining the fair value of the customer relationship intangible asset include future revenues, the discount rate and the customer attrition rate.

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationship intangible asset acquired in the acquisition of Blattner is a critical audit matter are (i) the significant judgment by management when developing the fair value of the customer relationship intangible asset; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions related to future revenues, the discount rate, and the customer attrition rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired customer relationship intangible asset and controls over the development of significant assumptions related to future revenues, the discount rate, and the customer attrition rate. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value of the customer relationship intangible asset; (iii) evaluating the appropriateness of the multi-period excess earnings method and the reasonableness of significant assumptions related to future revenues, the discount rate, and the customer attrition rate for the customer relationship intangible asset; and (iv) testing the completeness and accuracy of underlying data used in the multi-period excess earnings method. Evaluating the reasonableness of future revenues involved considering the past performance of the acquired business, as well as economic forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s multi-period excess earnings method and the reasonableness of the discount rate and customer attrition rate significant assumptions.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 25, 2022

We have served as the Company’s auditor since 2002.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)


	December 31,
	2021		2020
ASSETS
Current Assets:
Cash and cash equivalents	$	229,097	$	184,620
Accounts receivable, net of allowances of $49,749 and $16,546	3,400,318		2,716,083
Contract assets	803,453		453,832
Inventories	84,659		50,472
Prepaid expenses and other current assets	215,050		183,382
Total current assets	4,732,577		3,588,389
Property and equipment, net of accumulated depreciation of $1,503,498 and $1,372,132	1,919,697		1,560,656
Operating lease right-of-use assets	240,605		256,845
Other assets, net	632,244		435,713
Other intangible assets, net of accumulated amortization of $682,498 and $517,574	1,801,180		435,655
Goodwill	3,528,886		2,121,014
Total assets	$	12,855,189	$	8,398,272
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term debt and short-term debt	$	29,166	$	14,764
Current portion of operating lease liabilities	78,251		85,134
Accounts payable and accrued expenses	2,254,671		1,509,794
Contract liabilities	802,872		528,864
Total current liabilities	3,164,960		2,138,556
Long-term debt, net of current maturities	3,724,474		1,174,294
Operating lease liabilities, net of current portion	170,427		178,822
Deferred income taxes	191,098		166,407
Insurance and other non-current liabilities	487,309		391,221
Total liabilities	7,738,268		4,049,300
Commitments and Contingencies
Equity:
Common stock, $0.00001 par value, 600,000,000 shares authorized, 168,546,513 and 162,710,792 shares issued, and 142,633,934 and 138,300,191 shares outstanding	2		2
Additional paid-in capital	2,615,410		2,170,026
Retained earnings	3,714,843		3,264,967
Accumulated other comprehensive loss	(237,689)		(232,997)
Treasury stock, 25,912,579 and 24,410,601 common shares	(980,265)		(857,817)
Total stockholders’ equity	5,112,301		4,344,181
Non-controlling interests	4,620		4,791
Total equity	5,116,921		4,348,972
Total liabilities and equity	$	12,855,189	$	8,398,272

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)


	Year Ended December 31,
	2021		2020		2019
Revenues	$	12,980,213	$	11,202,672	$	12,112,153
Cost of services (including depreciation)	11,026,954		9,541,825		10,511,901
Gross profit	1,953,259		1,660,847		1,600,252
Equity in earnings of integral unconsolidated affiliates	44,061		11,303		—
Selling, general and administrative expenses	(1,155,956)		(975,074)		(955,991)
Amortization of intangible assets	(165,366)		(76,704)		(62,091)
Asset impairment charges	(5,743)		(8,282)		(13,892)
Change in fair value of contingent consideration liabilities	(6,734)		(719)		(13,404)
Operating income	663,521		611,371		554,874
Interest and other financing expenses	(68,899)		(45,013)		(66,890)
Interest income	3,194		2,449		927
Other income, net	25,085		2,539		83,376
Income before income taxes	622,901		571,346		572,287
Provision for income taxes	130,918		119,387		165,472
Net income	491,983		451,959		406,815
Less: Net income attributable to non-controlling interests	6,027		6,363		4,771
Net income attributable to common stock	$	485,956	$	445,596	$	402,044

Earnings per share attributable to common stock:
Basic	$	3.45	$	3.15	$	2.76
Diluted	$	3.34	$	3.07	$	2.73

Shares used in computing earnings per share:
Weighted average basic shares outstanding	140,824		141,380		145,710
Weighted average diluted shares outstanding	145,373		145,247		147,534

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Year Ended December 31,
	2021		2020		2019
Net income	$	491,983	$	451,959	$	406,815
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustment, net of tax of $0, $0 and $0	(5,877)		11,439		43,535
Other, net of tax of $(381), $865 and $(200)	1,185		(2,618)		695
Other comprehensive income (loss), net of taxes	(4,692)		8,821		44,230
Comprehensive income	487,291		460,780		451,045
Less: Comprehensive income attributable to non-controlling interests	6,027		6,363		4,771
Total comprehensive income attributable to common stock	$	481,264	$	454,417	$	446,274

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year Ended December 31,
	2021		2020		2019
Cash Flows from Operating Activities:
Net income	$	491,983	$	451,959	$	406,815
Adjustments to reconcile net income to net cash provided by operating activities —
Depreciation	255,529		225,256		218,107
Amortization of intangible assets	165,366		76,704		62,091
Asset impairment charges	5,743		8,282		13,892
Impairment of cost method investment	—		9,311		—
Change in fair value of contingent consideration liabilities	6,734		719		13,404
Equity in earnings of unconsolidated affiliates, net of distributions	(28,682)		(1,309)		(76,801)
Amortization of deferred financing costs	8,405		5,126		1,870
Gain on sale of property and equipment	(9,116)		(3,056)		(5,797)
Provision for credit losses	34,890		3,656		11,249


Deferred income tax expense (benefit)	26,071		(60,016)		(7,919)
Non-cash stock-based compensation	88,259		91,641		52,013
Foreign currency and other	(5,110)		(5,159)		(5,568)
Payments for contingent consideration liabilities	—		(14,506)		—
Changes in operating assets and liabilities, net of non-cash transactions	(457,682)		327,369		(156,805)
Net cash provided by operating activities	582,390		1,115,977		526,551
Cash Flows from Investing Activities:
Capital expenditures	(385,852)		(260,052)		(261,762)
Proceeds from sale of property and equipment	49,186		35,390		31,142
Proceeds from insurance settlements related to property and equipment	535		542		1,964
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired	(2,451,703)		(292,573)		(387,966)
Proceeds from disposition of businesses	—		18,785		—
Investments in unconsolidated affiliates and other	(139,021)		(14,856)		(47,056)
Cash received from investments	29,109		13,963		46,590
Cash paid for intangible assets	(867)		(522)		(508)
Net cash used in investing activities	(2,898,613)		(499,323)		(617,596)
Cash Flows from Financing Activities:
Borrowings under credit facility	5,316,002		2,983,529		6,175,558
Payments under credit facility	(4,265,478)		(4,187,645)		(5,903,069)
Proceeds from notes offerings	1,487,450		990,130		—

Payments on other long-term debt	(3,635)		(2,970)		(2,203)
Net borrowings (repayments) of short-term debt	11,391		(4,846)		(28,292)
Deferred financing costs	(12,568)		(11,089)		(2,309)
Payments for contingent consideration liabilities	(263)		(61,483)		—
Distributions to non-controlling interests, net of contributions received	(6,357)		(5,404)		(2,526)
Payments related to tax withholding for share-based compensation	(64,956)		(25,447)		(16,144)
Payments of dividends	(34,022)		(28,891)		(23,236)
Repurchase of common stock	(66,687)		(247,249)		(20,092)
Net cash provided by (used in) financing activities	2,360,877		(601,365)		177,687
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	425		1,774		(153)
Net increase in cash, cash equivalents and restricted cash	45,079		17,063		86,489
Cash, cash equivalents and restricted cash, beginning of year	186,808		169,745		83,256
Cash, cash equivalents and restricted cash, end of year	$	231,887	$	186,808	$	169,745

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share information)


														Accumulated
				Exchangeable			Series G			Additional				Other				Total
	Common Stock			Shares			Preferred Stock			Paid-In		Retained		Comprehensive		Treasury		Stockholders’		Non-controlling		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Stock		Equity		Interests		Equity
Balance at December 31, 2018	141,103,900	$	2	486,112	$	—	1	$	—	$	1,967,354	$	2,477,291	$	(286,048)	$	(554,440)	$	3,604,159	$	1,294	$	3,605,453
Other comprehensive income	—	—		—	—		—	—		—		—		44,230		—		44,230		—		44,230
Acquisitions	60,860	—		—	—		—	—		1,791		—		—		—		1,791		—		1,791
Stock-based compensation activity	1,085,165	—		—	—		—	—		55,465		—		—		(20,379)		35,086		—		35,086
Exchange of exchangeable shares	449,929	—		(449,929)	—		—	—		—		—		—		—		—		—		—
Retirement of preferred stock	—	—		—	—		(1)	—		—		—		—		—		—		—		—
Common stock repurchases	(375,536)	—		—	—		—	—		—		—		—		(11,954)		(11,954)		—		(11,954)
Dividends declared ($0.17 per share)	—	—		—	—		—	—		—		(25,064)		—		—		(25,064)		—		(25,064)
Distributions to non-controlling interests	—	—		—	—		—	—		—		—		—		—		—		(2,526)		(2,526)
Net income	—	—		—	—		—	—		—		402,044		—		—		402,044		4,771		406,815
Balance at December 31, 2019	142,324,318	2		36,183	—		—	—		2,024,610		2,854,271		(241,818)		(586,773)		4,050,292		3,539		4,053,831
Credit loss cumulative effect adjustment	—	—		—	—		—	—		—		(3,841)		—		—		(3,841)		—		(3,841)
Other comprehensive income	—	—		—	—		—	—		—		—		8,821		—		8,821		—		8,821
Acquisitions	1,338,746	—		—	—		—	—		57,289		—		—		—		57,289		—		57,289
Stock-based compensation activity	1,280,489	—		—	—		—	—		88,127		—		—		(21,095)		67,032		—		67,032
Exchange of exchangeable shares	36,183	—		(36,183)	—		—	—		—		—		—		—		—		—		—
Common stock repurchases	(6,679,545)	—		—	—		—	—		—		—		—		(249,949)		(249,949)		—		(249,949)
Dividends declared ($0.21 per share)	—	—		—	—		—	—		—		(30,543)		—		—		(30,543)		—		(30,543)
Distributions to non-controlling interests	—	—		—	—		—	—		—		—		—		—		—		(5,404)		(5,404)
Other	—	—		—	—		—	—		—		(516)		—		—		(516)		293		(223)
Net income	—	—		—	—		—	—		—		445,596		—		—		445,596		6,363		451,959
Balance at December 31, 2020	138,300,191	2		—	—		—	—		2,170,026		3,264,967		(232,997)		(857,817)		4,344,181		4,791		4,348,972
Other comprehensive loss	—	—		—	—		—	—		—		—		(4,692)		—		(4,692)		—		(4,692)
Acquisitions	3,514,048	—		—	—		—	—		362,344		—		—		—		362,344		—		362,344
Stock-based compensation activity	1,540,259	—		—	—		—	—		83,040		—		—		(58,460)		24,580		—		24,580
Common stock repurchases	(720,564)	—		—	—		—	—		—		—		—		(63,988)		(63,988)		—		(63,988)
Dividends declared ($0.25 per share)	—	—		—	—		—	—		—		(36,080)		—		—		(36,080)		—		(36,080)
Distributions to non-controlling interests	—	—		—	—		—	—		—		—		—		—		—		(6,357)		(6,357)
Other	—	—		—	—		—	—		—		—		—		—		—		159		159
Net income	—	—		—	—		—	—		—		485,956		—		—		485,956		6,027		491,983
Balance at December 31, 2021	142,633,934	$	2	—	$	—	—	$	—	$	2,615,410	$	3,714,843	$	(237,689)	$	(980,265)	$	5,112,301	$	4,620	$	5,116,921

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

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**1.**BUSINESS AND ORGANIZATION:

Quanta Services, Inc., (together with its subsidiaries, Quanta), is a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric and gas utility, renewable energy, communications, pipeline and energy industries in the United States, Canada, Australia and select other international markets. Beginning with the three months ended December 31, 2021, Quanta reports its results under three reportable segments: (1) Electric Power Infrastructure Solutions, (2) Renewable Energy Infrastructure Solutions and (3) Underground Utility and Infrastructure Solutions. The Renewable Energy Infrastructure Solutions segment was added primarily due to the acquisition of Blattner Holding Company and its operating subsidiaries (collectively, Blattner) as described below. In conjunction with this change, certain prior period amounts have been recast to conform to this new segment reporting structure.

On October 13, 2021, Quanta completed the acquisition of Blattner. Blattner is a large and leading utility-scale renewable energy infrastructure solutions provider that is located and primarily operates in North America. For additional information regarding this acquisition, see Note 6. Blattner provides comprehensive solutions to customers in the renewable energy industry, which generally include front-end engineering, procurement, project management and construction services for wind, solar and energy storage projects. Blattner’s results of operations have been included in Quanta’s consolidated financial statements since the acquisition date.

Electric Power Infrastructure Solutions Segment

The Electric Power Infrastructure Solutions segment provides comprehensive network solutions to customers in the electric power and other industries. Services include design, procurement, new construction, upgrade and repair and maintenance for electric power transmission and distribution infrastructure, both overhead and underground, and substation facilities, along with other engineering and technical services. This includes solutions that support the implementation of upgrades by utilities to modernize and harden the electric power grid in order to ensure its safety and enhance reliability. In addition, this segment provides emergency restoration services, including the repair of infrastructure damaged by fire and inclement weather; the energized installation, maintenance and upgrade of electric power infrastructure utilizing bare hand and hot stick methods and Quanta’s robotic arm techniques; and the installation of “smart grid” technologies on electric power networks. This segment also provides comprehensive design and construction solutions to wireline and wireless communications companies, cable multi-system operators and other customers within the communications industry, including services in connection with 5G wireless deployment; and the design, installation, maintenance and repair services related to commercial and industrial wiring. Additionally, this segment provides aviation services primarily for the utility industry, including the transportation of line workers, the setting of poles and towers and the stringing of wires. The majority of the financial results of Quanta’s postsecondary educational institution, which specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, as well as training for the gas distribution and communications industries, are also included in the segment.

Renewable Energy Infrastructure Solutions Segment

The Renewable Energy Infrastructure Solutions segment provides comprehensive infrastructure solutions to customers involved in the renewable energy industry. Services include engineering, procurement, new construction and repair and maintenance for renewable generation facilities, such as utility-scale wind, solar, and hydropower generation facilities and battery storage facilities, as well as engineering and construction services for substations and switchyards, transmission and other electrical infrastructure needed to interconnect and transmit renewable energy generation and battery storage facilities.

Underground Utility and Infrastructure Solutions Segment

The Underground Utility and Infrastructure Solutions segment provides comprehensive infrastructure solutions for customers involved in the development, transportation, distribution, storage and processing of natural gas, oil and other products. Services include design, engineering, procurement, new construction, upgrade and repair and maintenance for natural gas systems for gas utility customers, as well as pipeline protection, integrity testing, rehabilitation and replacement services. Quanta also provides catalyst replacement services, high-pressure and critical-path turnaround services, instrumentation and electrical services, piping, fabrication and storage tank services for the midstream and downstream industrial energy markets. This segment also provides engineering and construction services for pipeline systems, storage systems and compressor and pump stations and the fabrication of pipeline support systems and related structures and facilities, as well as trenching, directional boring and mechanized welding services related to the services described above and in connection with our electric power infrastructure services. This segment also provides engineering, construction and maintenance services for energy transition and carbon-reduction related projects, such as alternative fuel facilities, carbon capture systems and hydrogen facilities.

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**2.**BASIS OF PRESENTATION AND CERTAIN 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 companies. 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% in the affiliated entity, are accounted for using the equity method. Unless the context requires otherwise, references to Quanta include Quanta Services, Inc. and its consolidated subsidiaries.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses recognized during the periods presented. Quanta reviews all significant estimates affecting its consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on Quanta’s beliefs and assumptions derived from information available at the time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. Estimates are primarily used in Quanta’s assessment of revenue recognition for construction contracts, including contractual change orders and claims; allowance for credit losses; valuation of inventory; useful lives of assets; fair value assumptions in analyzing goodwill, other intangibles and long-lived asset impairments; equity and other investments; purchase price allocations; acquisition-related contingent consideration liabilities; multiemployer pension plan withdrawal liabilities; contingent liabilities associated with, among other things, legal proceedings and claims, parent guarantees and indemnity obligations; estimated insurance claim recoveries; stock-based compensation; operating results of reportable segments; provision for income taxes; and uncertain tax positions.

Revenue Recognition

See Note 4 for Quanta’s accounting policy related to revenue recognition and related balance sheet accounts.

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 net realizable value. Cost is 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 is recognized on a straight-line basis over the estimated useful lives of the assets.

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.

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable. 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 is necessary. The effect of any impairment involves expensing the difference between the fair value of the asset group and its carrying amount in the period incurred.

Goodwill

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certain of its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of Quanta’s existing operating companies or managed on a stand-alone basis as an individual operating company. Quanta has organized its individual operating companies into segments for goodwill disclosure purposes. 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 companies represent its reporting units for the purpose of assessing goodwill impairment.

Goodwill is not amortized but is tested for impairment annually in the fourth quarter of the fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. The assessment can be performed by first completing a qualitative assessment on none, some, or all of Quanta’s reporting units. Quanta can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to a quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions; declining financial performance; deterioration in the operational environment; an expectation of selling or disposing of a portion of a reporting unit; a significant change in market, management, business strategy or business climate; a loss of a significant customer; increased competition; a sustained decrease in share price; or a decrease in Quanta’s market capitalization below book value.

If Quanta believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of such reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to “Asset impairment charges” in the consolidated statements of operations. The income tax effect associated with an impairment of tax-deductible goodwill is also considered in the measurement of the goodwill impairment. A goodwill impairment for any reporting unit is limited to the total amount of goodwill allocated to such reporting unit.

Quanta generally determines the fair value of its reporting units using a weighted combination of the income approach (discounted cash flow method) and market multiple valuation techniques (market guideline transaction method and market guideline public company method), with greater weight placed on the discounted cash flow method because management believes this method results in the most appropriate calculation of fair value and reflects an expectation of market value as determined by a “held and used” model.

Under the discounted cash flow method, Quanta determines fair value based on the estimated future cash flows for each reporting unit, discounted to present value using a risk-adjusted industry weighted average cost of capital, which reflects the overall level of inherent risk for each reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections are derived from budgeted amounts (typically a one-year model) and subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. A terminal value is derived from a multiple of the reporting unit’s earnings before interest, taxes, depreciation and amortization (EBITDA). The EBITDA multiples for each reporting unit are based on observed purchase transactions for similar businesses adjusted for size, volatility and risk.

Under the market guideline transaction and market guideline public company methods, Quanta determines the estimated fair value for each of its reporting units by applying transaction multiples and public company multiples, respectively, to each reporting unit’s projected and historical EBITDA average. The transaction multiples are based on observed purchase transactions for similar businesses adjusted for size, volatility and risk. The public company multiples are based on peer group multiples adjusted for size, volatility and risk. For the market guideline public company method, Quanta adds a reasonable control premium, which is estimated as the premium that would be appropriate to convert the reporting unit value to a controlling interest basis.

Other Intangible Assets

Quanta’s intangible assets include customer relationships; backlog; trade names; non-compete agreements; patented rights, developed technology, and process certifications; and curriculum, all of which are subject to amortization, as well as an engineering license, which is not subject to amortization. The fair value of customer relationships is estimated as of the date a business is acquired based on the value-in-use concept utilizing the income approach, specifically the multi-period excess earnings method. This method discounts to present value the projected cash flows attributable to the customer relationships, with consideration given to customer contract renewals and estimated customer attrition rates.

Quanta values backlog for acquired businesses as of the acquisition date based upon the contractual nature of the backlog within each service line, discounted to present value. The values of trade names and curriculum are estimated using the relief-from-royalty method of the income approach, which is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty for use of the trade name or curriculum. The value of a non-compete agreement is estimated based on the difference between the present value of the prospective cash flows with the agreement in place and the present value of the

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prospective cash flows without the agreement in place. The value of the engineering license is based on cash paid to acquire the asset.

Quanta amortizes the intangible assets that are subject to amortization based upon the estimated consumption of their economic benefits, or on a straight-line basis if the pattern of economic benefit cannot otherwise be reliably estimated. Intangible assets are reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For instance, a significant change in business climate or a loss of a significant customer, among other things, may trigger the need for impairment testing of intangible assets. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

Leases

Lease liabilities are recognized as the present value of the future minimum lease payments over the lease term as of the commencement date. Lease assets are recognized as the present value of future minimum lease payments over the lease term as of the commencement date, plus any initial direct costs incurred and lease payments made, less any lease incentives received.

Quanta determines if an arrangement contains a lease at inception. If an arrangement is considered a lease, Quanta determines at the commencement date whether the lease is an operating or finance lease. Finance leases are leases that meet any of the following criteria: the lease transfers ownership of the underlying asset at the end of the lease term; the lessee is reasonably certain to exercise an option to purchase the underlying asset; the lease term is for the major part of the remaining economic life of the underlying asset (except when the commencement date falls at or near the end of such economic life); the present value of the sum of the lease payments and any additional residual value guarantee by the lessee equals or exceeds substantially all of the fair value of the underlying asset; or the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease that does not meet any of these criteria is considered an operating lease. After the commencement date, lease cost for an operating lease is recognized over the remaining lease term on a straight-line basis, while lease cost for a finance lease is based on the depreciation of the lease asset and interest on the lease liability.

The terms of Quanta’s lease arrangements vary, and certain leases include one or more of the following: renewal option(s), a cancellation option, a residual value guarantee, a purchase option or an escalation clause. An option to extend or terminate a lease is accounted for when assessing a lease term when it is reasonably certain that Quanta will exercise such option. Quanta has made a policy election to classify leases with an initial lease term of 12 months or less as short-term leases, and these leases are not recorded in the accompanying consolidated balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised. Lease cost related to short-term leases is recognized on a straight-line basis over the lease term.

Determinations with respect to lease term (including any extension thereof), discount rate, variable lease cost and future minimum lease payments require the use of judgment based on the facts and circumstances related to each lease. Quanta considers various factors, including economic incentives and penalties and business need, to determine the likelihood that a renewal option will be exercised. Unless a renewal option is reasonably certain to be exercised, which is typically at Quanta’s sole discretion, the initial non-cancelable lease term is used. Quanta generally uses its incremental borrowing rates to determine the present value of future minimum lease payments.

Investments in Affiliates and Other

In the normal course of business, Quanta enters into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by Quanta in business entities, including general or limited partnerships, contractual joint ventures, or other forms of equity or profit participation. These investments may also include Quanta’s participation in different financing structures, such as the extension of loans to project-specific entities, the acquisition of convertible notes issued by project specific entities, or other strategic financing arrangements. Quanta also enters into strategic partnerships with customers and infrastructure investors to provide fully integrated infrastructure solutions on certain projects, including planning and feasibility analyses, engineering, design, procurement, construction and project operation and maintenance. These projects include public-private partnerships and concessions, along with private infrastructure projects such as build, own, operate (and in some cases transfer) and build-to-suit arrangements.

Quanta determines whether investments involve a variable interest entity (VIE) based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if Quanta is the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb significant losses of, or the right to receive significant benefits from, the VIE. When Quanta is deemed to be the primary beneficiary, the VIE is consolidated and the other party’s equity interest in the VIE is accounted for as a non-controlling interest. In cases where Quanta determines that it has an undivided interest in the assets, liabilities, revenues and profits of an

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unincorporated VIE (e.g., a general partnership interest), such amounts are consolidated on a basis proportional to Quanta’s ownership interest in the unincorporated entity.

Investments in entities of which Quanta is not the primary beneficiary, but over which Quanta has the ability to exercise significant influence, are accounted for using the equity method of accounting. Equity method investments are carried at original cost adjusted for Quanta’s proportionate share of the investees’ income, losses and distributions. Quanta’s share of net income or losses of these investments is included within operating income in the accompanying consolidated statements of operations when the investee is operationally integral to the operations of Quanta and is reported as “Equity in earnings (losses) of integral unconsolidated affiliates.” Quanta’s share of net income or losses of unconsolidated equity method investments that are not operationally integral to the operations of Quanta are included in “Other income, net” below operating income in the accompanying consolidated statements of operations.

Equity method investments are reviewed for impairment by assessing whether there has been a decline in the fair value of the investment below the carrying amount and whether any such decline is other-than-temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain its earnings capacity are evaluated in determining whether a loss in value should be recognized. Any impairment losses are included in “Other income, net” in the accompanying consolidated statement of operations.

Investments in entities of which Quanta is not the primary beneficiary, and over which Quanta does not have the ability to exercise significant influence are accounted for using the cost method of accounting. Additionally, certain investments provide for significant influence over the investee, but also include preferential liquidation rights, which precludes accounting for the investments under the equity method. These cost method investments are required to be measured at fair value, with changes in fair value recognized in net income, unless the investments do not have readily determinable fair values, in which case the investments are measured at cost minus impairment (if any), plus or minus observable price changes in orderly transactions for an identical or similar investment in the same company. Earnings on investments accounted for using the cost method of accounting are recognized as dividends are declared. These earnings and any impairments of cost method investments are reported in “Other income, net” in the accompanying consolidated statements of operations.

Income Taxes

Quanta follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded based on future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the underlying assets or liabilities are recovered or settled.

Quanta regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain, including in connection with changes in tax laws. The estimation of required valuation allowances includes estimates of future taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Quanta considers projected future taxable income and tax planning strategies in making this assessment. If actual future taxable income differs from these estimates, Quanta may not realize deferred tax assets to the extent estimated.

Quanta records reserves for income taxes related to certain tax positions when management considers it more likely than not that additional taxes may be due in excess of amounts reflected on income tax returns filed. When recording these reserves, Quanta assumes that taxing authorities have full knowledge of the position and all relevant facts. Quanta continually reviews exposure to additional tax obligations, and as further information is known or events occur, changes in tax reserves may be recorded. Quanta adjusts its tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from our established accrual, when the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. 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.

U.S. federal and state and foreign income tax laws and regulations are voluminous and often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in future consolidated balance sheets, statements of operations and statements of comprehensive income.

Earnings Per Share

Basic and diluted earnings per share attributable to common stock are computed using the weighted average number of shares of common stock outstanding during the applicable period. Additionally, unvested stock-based awards that contain non-forfeitable rights to dividends or dividend equivalents (participating securities) have been included in the calculation of basic and diluted earnings per share attributable to common stock for the portion of the periods that the awards were outstanding. Diluted earnings per share attributable to common stock is computed using the weighted average number of shares of common

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stock outstanding during the period adjusted for all potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalents would be antidilutive.

Insurance

Quanta is insured for, among other things, employer’s liability, workers’ compensation, auto liability, aviation and general liability claims. Quanta manages and maintains a portion of its casualty risk indirectly through its wholly-owned captive insurance company, which reimburses claims up to the amount of the applicable deductible amount of its third-party insurance programs. In connection with Quanta’s casualty insurance programs, Quanta is required to issue letters of credit to secure its obligations. Deductibles for the employer’s liability and workers’ compensation programs are $5.0 million per occurrence, and deductibles for the auto liability and general liability programs are $15.0 million per occurrence. Quanta also maintains employee health care benefit plans for most employees not subject to collective bargaining agreements, of which the primary plan is subject to a deductible of $0.8 million per claimant per year.

Losses under all of these insurance programs are accrued based upon Quanta’s estimate of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with assistance from third-party actuaries. These insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the extent of damage, the determination of Quanta’s liability in proportion to other parties and the number of incidents not reported. The accruals are based upon known facts and historical trends, and management believes such accruals are adequate.

Collective Bargaining Agreements and Multiemployer Pension Plans

Certain of Quanta’s operating companies are parties to collective bargaining agreements with unions that represent certain of their employees. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to those in the expiring agreements. The agreements require the operating companies to pay specified wages, provide certain benefits to union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts pursuant to specified rates. Quanta’s multiemployer pension plan contribution rates generally are made to the plans on a “pay-as-you-go” basis based on its union employee payrolls. The location and number of union employees that Quanta employs at any given time and the plans in which they may participate vary depending on Quanta’s need for union resources in connection with its ongoing projects. Therefore, Quanta is unable to accurately predict its union employee payroll and the resulting multiemployer pension plan contribution obligations for future periods.

Stock-Based Compensation

Quanta recognizes compensation expense for restricted stock units (RSUs) and performance stock units (PSUs) to be settled in common stock based on the fair value of the awards, net of estimated forfeitures. The fair value of RSU awards is determined based on the number of units granted and the closing price of Quanta’s common stock on the date of grant. The grant date fair value of the PSUs is determined as follows: (i) for the portion of the awards based on company performance metrics, by multiplying the number of units granted by the closing price of Quanta’s common stock on the date of grant and (ii) for the portion of the awards based on relative total shareholder return compared to a defined peer group, by utilizing a Monte Carlo simulation valuation methodology. An estimate of future forfeitures, based on historical data, is also utilized to determine compensation expense for the period, and these forfeiture estimates are subject to change and may impact the value that will ultimately be recognized as compensation expense. The resulting compensation expense for PSU and time-based RSU awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period, and the resulting compensation expense for performance-based RSU awards is recognized using the graded vesting method over the requisite service period. The compensation expense related to outstanding PSUs can also vary from period to period based on changes in forecasted achievement of established performance goals and the total number of shares of common stock that Quanta anticipates will be issued upon vesting of such PSUs. Payments made by Quanta to satisfy employee tax withholding obligations associated with awards settled in common stock are classified as financing cash flows.

Compensation expense associated with liability-based awards, such as RSUs that are expected to or may settle in cash, is recognized based on a remeasurement of the fair value of the award at the end of each reporting period. Upon settlement, the holders receive for each RSU an amount in cash equal to the fair market value of one share of Quanta common stock on the settlement date, as specified in the applicable award agreement. For additional information on Quanta’s RSU and PSU awards, see Note 14.

Functional Currency and Translation of Financial Statements

The U.S. dollar is the functional currency for the majority of Quanta’s operations, which are primarily located within the United States. The functional currency for Quanta’s foreign operations, which are primarily located in Canada and Australia, is typically the currency of the country where the foreign operating company is located and transacts the majority of its activities, including billings, financing, payroll and other expenditures. When preparing its consolidated financial statements, Quanta translates the financial statements of its foreign operating companies from their functional currency into U.S. dollars.

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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 that are included as a separate component of equity under “Accumulated other comprehensive income (loss).” Gains and losses arising from transactions not denominated in functional currencies are included within “Other income, net” in the accompanying consolidated statements of operations.

Comprehensive Income

Components of comprehensive income include all changes in equity during a period, except those resulting from changes in Quanta’s capital-related accounts. Quanta records other comprehensive income (loss) for foreign currency translation adjustments related to its foreign operations and for other revenues, expenses, gains and losses that are included in comprehensive income but excluded from net income.

Litigation Costs and Reserves

Quanta records reserves when the likelihood of incurring a loss is probable and the amount of loss can be reasonably estimated. Costs incurred for litigation are expensed as incurred. See Note 16 for additional information related to legal proceedings and other contingencies.

**3.**NEW ACCOUNTING PRONOUNCEMENTS:

Adoption of New Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued an update that, among other things, amends the guidance related to accounting for tax law changes when an entity has a year-to-date loss in an interim period and provides guidance on how to evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. This update is effective for interim and annual periods beginning after December 15, 2020, with certain amendments applied prospectively and other amendments applied on a modified retrospective basis. Quanta adopted this update effective January 1, 2021, and it has not had a material impact on Quanta’s consolidated financial statements during 2021.

In January 2020, FASB issued an update that clarified the applicable guidance for measurement of the fair value of equity and cost method investments when there is a change in the level of ownership or degree of influence. Quanta adopted this update effective January 1, 2021 and will prospectively apply this update.

New Accounting Pronouncement Not Yet Adopted

In October 2021, FASB issued an update that requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with FASB ASC 606 (Revenue from Contracts with Customers). At the acquisition date, an acquirer should account for the related contract revenue in accordance with FASB ASC 606 as if it had originated the contracts. This update is effective for interim and annual periods beginning after December 15, 2022, with amendments generally applied prospectively. Quanta will adopt this update by January 1, 2023. This update is not expected to have a material impact at the time of adoption, but it could impact the valuation of contract assets and contract liabilities related to business combinations that occur subsequent to adoption.

4. REVENUE RECOGNITION AND RELATED BALANCE SHEET ACCOUNTS:

Contracts

Quanta’s services include the design, new construction, upgrade and repair and maintenance of infrastructure primarily in the utility, renewable energy, communications and pipeline and energy industries. These services may be provided pursuant to master service agreements (MSAs), repair and maintenance contracts and fixed price and non-fixed price construction contracts. These contracts are classified into three categories based on the methods by which transaction prices are determined and revenue is recognized: unit-price contracts, cost-plus contracts and fixed price contracts. Transaction prices for unit-price contracts are determined on a per unit basis, transaction prices for cost-plus contracts are determined by applying a profit margin to costs incurred on the contracts and transaction prices for fixed price contracts are determined on a lump-sum basis. All of Quanta’s revenues are recognized from contracts with its customers. In addition to the considerations described below, revenue is not recognized unless collectability under the contract is considered probable, the contract has commercial substance and the contract has been approved. Additionally, the contract must contain payment terms, as well as the rights and commitments of both parties.

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Performance Obligations

A performance obligation is a promise in a contract with a customer to transfer a distinct good or service. Most of Quanta’s contracts are considered to have a single performance obligation whereby Quanta is required to integrate complex activities and equipment into a deliverable for a customer. For contracts with multiple performance obligations, Quanta allocates a portion of the total transaction price to each performance obligation using its best estimate of the standalone selling price of the distinct good or service associated with each performance obligation. Standalone selling price is estimated using the expected costs plus a margin.

At December 31, 2021 and 2020, the aggregate transaction price allocated to unsatisfied or partially satisfied performance obligations was approximately $5.90 billion and $3.99 billion, with 81.8% and 71.2% expected to be recognized in the subsequent twelve months. These amounts represent management’s estimates of the consolidated revenues that are expected to be realized from the remaining portion of firm orders under fixed price contracts not yet completed or for which work had not yet begun as of such dates. For purposes of calculating remaining performance obligations, Quanta includes all estimated revenues attributable to consolidated joint ventures and variable interest entities, revenues from funded and unfunded portions of government contracts to the extent they are reasonably expected to be realized and revenues from change orders and claims to the extent management believes additional contract revenues will be earned and are deemed probable of collection. Excluded from remaining performance obligations are potential orders under MSAs and non-fixed price contracts expected to be completed within one year.

Recognition of Revenue Upon Satisfaction of Performance Obligations

A transaction price is determined for each contract, and that amount is allocated to each performance obligation within the contract and recognized as revenue when, or as, the performance obligation is satisfied. Quanta recognizes certain revenue over time as it performs its obligations because there is a continuous transfer of control of the deliverable to the customer. Under unit-price contracts with an insignificant amount of partially completed units, Quanta recognizes revenue as units are completed based on contractual pricing amounts. Under unit-price contracts with more than an insignificant amount of partially completed units and fixed price contracts, Quanta recognizes revenues as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. Under cost-plus contracts, Quanta recognizes revenue on an input basis, as labor hours are incurred, materials are utilized and services are performed.

Under contracts where Quanta has a right to consideration in an amount that directly corresponds to the value of completed performance, Quanta recognizes revenue in such amount and does not include such performance as a remaining performance obligation. Also, contract consideration is not adjusted for a significant financing component if payment is expected to be collected less than one year from when the services are performed.

Contract costs include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. The majority of the materials associated with Quanta’s work are owner-furnished, and therefore not included in contract revenues and costs. Additionally, Quanta may incur incremental costs to obtain certain contracts, such as selling and marketing costs, bid and proposal costs, sales commissions, and legal fees or initial set-up or mobilization costs, certain of which can be capitalized. Such costs were not material during the years ended December 31, 2021, 2020 and 2019.

Contract Estimates

Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen or changed circumstances not included in Quanta’s cost estimates or covered by its contracts. The estimating process is based on the professional knowledge and experience of Quanta’s project estimators, project managers and finance professionals. Some of the factors that can result in positive changes in estimates on projects include successful execution through project risks, reduction of estimated project costs or increases of estimated revenues. Some of the factors that can result in negative changes in estimates include concealed or unknown site conditions; changes to or disputes with customers regarding the scope of services; changes in estimates related to the length of time to complete a performance obligation; changes or delays with respect to permitting and regulatory requirements; changes in the cost of equipment, commodities, materials or skilled labor; unanticipated costs or claims due to delays or failure to perform by customers or third parties; customer failure to provide required materials or equipment; errors in engineering, specifications or designs; project modifications; adverse weather conditions, natural disasters, and other emergencies (including the ongoing COVID-19 pandemic); and performance and quality issues causing delay (including payment of liquidated damages) or requiring rework or replacement. These factors, along with other risks inherent in performing services under fixed price contracts, are routinely evaluated by management. Any changes in estimates could result in changes to profitability or losses associated with the related performance obligations. For example, estimated costs for a performance obligation may increase from an original estimate, and contractual provisions may not allow for adequate compensation or reimbursement for such additional costs. Changes in

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estimated revenues, costs and profit are recorded in the period they are determined to be probable and can be reasonably estimated. Contract losses are recognized in full when they are determined to be probable and can be reasonably estimated.

Changes in cost estimates on certain contracts may result in the issuance of change orders, which can be approved or unapproved by the customer, or the assertion of contract claims. Quanta determines the probability that costs associated with change orders and claims will be recovered based on, among other things, contractual entitlement, past practices with the customer, specific discussions or preliminary negotiations with the customer and verbal approvals by the customer. Quanta recognizes amounts associated with change orders and claims as revenue if it is probable that the contract price will be adjusted and the amount of any such adjustment can be reliably estimated. Most of Quanta’s change orders are for services that are not distinct from an existing contract and are accounted for as part of an existing contract on a cumulative catch-up basis. Quanta accounts for a change order as a separate contract if the additional goods or services are distinct from and increase the scope of the contract, and the price of the contract increases by an amount commensurate to Quanta’s standalone selling price for the additional goods or services.

As of December 31, 2021 and 2020, Quanta had recognized revenues of $367.8 million and $141.2 million related to change orders and claims included as contract price adjustments that were in the process of being negotiated in the normal course of business. The largest component of the revenues recognized is associated with change orders and claims arising from delays, administrative requirements and labor issues on two transmission projects in Canada that negatively impacted productivity, which were primarily attributable to the COIVD-19 pandemic. The productivity and delays were significantly impacted due to governmental requirements and worksite restrictions associated with COVID-19. Additionally, during the third quarter of 2021, both of the projects were negatively impacted by unrelated wildfires, and one was also impacted by acceleration of the project timeline, all of which resulted in change orders. Quanta believes that the contracts for these projects entitle it to recover certain amounts associated with these delays. The aggregate amounts related to change orders and claims, which are included in “Contract assets” in the accompanying consolidated balance sheets, represent management’s estimates of additional contract revenues that have been earned and are probable of collection. However, Quanta’s estimates could change, and the amount ultimately realized could be significantly higher or lower than the estimated amount.

Variable consideration amounts, including performance incentives, early pay discounts and penalties, may also cause changes in contract estimates. The amount of variable consideration is estimated based on the most likely amount that is deemed probable of realization. Contract consideration is adjusted for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty related to the variable consideration is resolved.

Changes in estimated revenues, costs and profit are recognized on a cumulative catch-up basis and recorded in the period they are determined to be probable and can be reasonably estimated. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations that were satisfied or partially satisfied in prior periods or the reversal of previously recognized revenue if the currently estimated revenue is less than the previous estimate. The impact of a change in contract estimate is measured as the difference between the revenue or gross profit recognized in the prior period as compared to the revenue or gross profit which would have been recognized had the revised estimate been used as the basis of recognition in the prior period. Changes in estimates can also result in contract losses, which are recognized in full when they are determined to be probable and can be reasonably estimated.

Changes in Estimates

Revenues were positively impacted by $130.2 million, $27.0 million and $60.2 million during the years ended December 31, 2021, 2020 and 2019 as a result of changes in estimates associated with performance obligations on fixed price contracts partially satisfied prior to December 31, 2020, 2019 and 2018.

Operating results for the year ended December 31, 2021, were favorably impacted by $111.5 million or 5.7% of gross profit as a result of aggregate changes in contract estimates related to projects that were in progress as of year ended December 31, 2020. The overall favorable impact resulted from net positive changes in estimates across a large number of projects, primarily as a result of favorable performance and successful mitigation of risks and contingencies as the projects progressed to completion.

Operating results for the years ended December 31, 2020 and 2019 were impacted by less than 5% as a result of aggregate changes in contract estimates related to projects that were in progress as of the corresponding prior year end. However, certain individual projects were materially impacted by changes to estimated contract revenues and/or project costs during these periods.

During the year ended December 31, 2020, revenues and gross profit were favorably impacted by $20.8 million as a result of successful execution through project risks and close-out activities on a large transmission project in the United States. Revenues and gross profit were also favorably impacted as a result of successful execution through project risks and close-out

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activities on certain larger pipeline projects in the United States. The favorable impact related to these larger pipeline projects was offset by increased costs on two larger pipeline projects in Canada that experienced severe weather conditions during the year ended December 31, 2020, both of which were substantially complete as of December 31, 2020. With respect to all of these large pipeline projects, the aggregate net negative impact on gross profit related to work performed in prior periods was $10.0 million during the year ended December 31, 2020.

Additionally, during the year ended December 31, 2020, Quanta was in the process of exiting its Latin American operations. These operations have been adversely impacted by the COVID-19 pandemic due to shelter-in-place restrictions and other work disruptions, and as a result Quanta accelerated various contract terminations and other activities in order to expedite cessation of operations in the region. The decision to accelerate these exit activities materially changed certain contract estimates as of December 31, 2019 due to significant reductions in the volume of work to be performed, as well as lower productivity than expected. The majority of the impacts of these developments were not recoverable from the customers. These factors, as well as political and regulatory uncertainties and other customer challenges, resulted in changes in estimates on several projects and negatively impacted gross profit related to work performed in prior periods by $35.5 million in aggregate during year ended December 31, 2020. As of December 31, 2020, substantially all of the projects in Latin America that were active at the beginning of 2020 had been completed.

During the year ended December 31, 2019, Quanta successfully completed an electric transmission project in Canada ahead of schedule during the three months ended March 31, 2019, which resulted in a reduction in estimated project costs and positively impacted gross profit related to work performed in prior periods by $30.1 million. Quanta also successfully executed through project risks on a larger pipeline transmission project, which resulted in a reduction of estimated project costs and positively impacted gross profit in 2019 related to work performed in prior periods by $22.9 million. Quanta also settled claims related to a larger natural gas transmission project that experienced losses in 2018, which increased revenues and gross profit in 2019 related to work performed in prior periods by $16.2 million. Additionally, Quanta experienced rework and start-up delays on a processing facility construction project, which resulted in additional estimated project costs and liquidated damages payable to the customer and negatively impacted gross profit related to work performed in prior periods by $29.4 million. As of December 31, 2021, this project was complete. Quanta also experienced unfavorable weather and labor-related impacts, as well as a project scope reduction, on an electric transmission project in southern California, which resulted in an increase in estimated project costs and a reduction in expected project earnings. These changes negatively impacted gross profit related to work performed in prior periods by $21.1 million. As of December 31, 2021, this project was approximately 99% complete. Additionally, the changes in contract estimates include the negative impact of the correction of $9.6 million of prior period errors related to the determination of total estimated project costs and the resulting revenue recognized on a large telecommunications project in Peru that was terminated during 2019.

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Revenues by Category

The following tables present Quanta’s revenue disaggregated by geographic location, as determined by the job location, and by contract type (in thousands):


	Year Ended December 31,
	2021				2020				2019
By primary geographic location:
United States	$	11,068,493	85.3	%	$	9,618,951	85.8	%	$	10,190,684	84.0	%
Canada	1,557,117		12.0	%	1,252,365		11.2	%	1,436,720		11.9	%
Australia	221,038		1.7	%	200,664		1.8	%	187,915		1.6	%
Others	133,565		1.0	%	130,692		1.2	%	296,834		2.5	%
Total revenues	$	12,980,213	100.0	%	$	11,202,672	100.0	%	$	12,112,153	100.0	%


	Year Ended December 31,
	2021				2020				2019
By contract type:
Unit-price contracts	$	5,029,100	38.7	%	$	4,172,363	37.2	%	$	4,193,295	34.6	%
Cost-plus contracts	3,102,075		23.9	%	2,649,770		23.7	%	3,304,161		27.3	%
Fixed price contracts	4,849,038		37.4	%	4,380,539		39.1	%	4,614,697		38.1	%
Total revenues	$	12,980,213	100.0	%	$	11,202,672	100.0	%	$	12,112,153	100.0	%

As described above, under unit-price contracts with more than an insignificant amount of partially completed units and fixed price contracts, revenue is recognized as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. Approximately 45.9%, 47.9% and 50.0% of Quanta’s revenues recognized during the years ended December 31, 2021, 2020 and 2019 were associated with this revenue recognition method.

Contract Assets and Liabilities

With respect to Quanta’s contracts, interim payments are typically received as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. As a result, under fixed price contracts, the timing of revenue recognition and contract billings results in contract assets and contract liabilities. Contract assets represent revenues recognized in excess of amounts billed for fixed price contracts and are current assets that are transferred to accounts receivable when billed or the billing rights become unconditional. Contract assets are not considered a significant financing component as they are intended to protect the customer in the event Quanta does not perform on its obligations under the contract.

Conversely, contract liabilities represent billings in excess of revenues recognized for fixed price contracts. These arise under certain contracts that allow for upfront payments from the customer or contain contractual billing milestones, which result in billings that exceed the amount of revenues recognized for certain periods. Contract liabilities are current liabilities and are not considered to have a significant financing component, as they are used to meet working capital requirements that are generally higher in the early stages of a contract and are intended to protect Quanta from the other party failing to meet its obligations under the contract. Contract assets and liabilities are recorded on a performance obligation basis at the end of each reporting period.

Contract assets and liabilities consisted of the following (in thousands):


	December 31, 2021		December 31, 2020		December 31, 2019
Contract assets	$	803,453	$	453,832	$	601,268
Contract liabilities	$	802,872	$	528,864	$	606,146

As referenced previously, contract assets and liabilities fluctuate period to period based on various factors, including, among others, changes in the number and size of projects in progress at period end; variability in billing and payment terms, such as up-front or advance billings, interim or milestone billings, deferred billings; and unapproved change orders and contract claims recognized in revenues. The increase in contract assets from December 31, 2020 to December 31, 2021 was primarily due to increased working capital requirements related to progress on two large transmission projects in Canada and the timing

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of billings, as well as the recognition of certain change orders and claims for such projects. Both of the projects were negatively impacted by delays and labor issues related to the COVID-19 pandemic and unrelated wildfires, and one project was also impacted by acceleration of the project timeline, all of which resulted in change orders and an increase in contract assets. The decrease in contract assets from December 31, 2019 to December 31, 2020 was partially due to a decline in revenues related to contracts for which revenues are recognized over time. Additionally, Quanta’s exit from and the close out of projects in Latin America also contributed to the reduction. The increase in contract liabilities from December 31, 2020 to December 31, 2021 was primarily due to the acquisition of Blattner, which had $227.0 million of contract liabilities as of the date of acquisition.

During the years ended December 31, 2021, 2020 and 2019, Quanta recognized revenue of approximately $433.3 million, $491.5 million and $370.0 million related to contract liabilities outstanding at December 31, 2020, 2019 and 2018.

Accounts Receivable and Allowance for Credit Losses

Quanta adopted the new accounting standard for measuring credit losses effective January 1, 2020 utilizing the transition method that allows recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Quanta’s financial results for reporting periods beginning on or after January 1, 2020 are presented under the new standard, while financial results for prior periods continue to be reported in accordance with the prior standard and Quanta’s historical accounting policy. The net cumulative effect due to the adoption of the new standard was a $3.8 million reduction to retained earnings as of January 1, 2020, which represented a $5.1 million increase to allowance for credit losses, net of $1.3 million in deferred income taxes. The adjustment was based on an estimate of expected lifetime credit losses for financial instruments, primarily accounts receivable and contract assets. Although the adoption of the new standard did not have a material impact on Quanta’s consolidated financial statements at the date of adoption, expected credit losses could change as a result of changes in credit loss experience, changes to specific risk characteristics of Quanta’s portfolio of financial assets or changes to management’s expectations of future economic conditions that affect the collectability of Quanta’s financial assets.

The assessment of the allowance for credit losses involves certain judgments and estimates. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Expected credit losses are estimated by evaluating trends in historical write-off experience and applying historical loss ratios to pools of financial assets with similar risk characteristics. Quanta has determined that it has one pool for the purpose of calculating its historical credit loss experience.

Quanta’s historical loss ratio and its determination of risk pool, which are used to calculate expected credit losses, may be adjusted for changes in customer credit concentrations within its portfolio of financial assets, its customers’ ability to pay, and other considerations, such as economic and market changes, changes to regulatory or technological environments affecting customers and the consistency between current and forecasted economic conditions and historical economic conditions used to derive historical loss ratios. At the end of each quarter, management reassesses these and other relevant factors, including any potential effects from the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic.

Additional allowance for credit losses is established for financial asset balances with specific customers where collectability has been determined to be improbable based on customer specific facts and circumstances. Quanta considers accounts receivable delinquent after 30 days but does not generally consider such amounts delinquent in its credit loss analysis unless the accounts receivable are at least 90 days past due. In addition to monitoring delinquent accounts, management monitors the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions and evaluating material changes to a customer’s business, cash flows and financial condition. Should anticipated recoveries relating to receivables fail to materialize, including anticipated recoveries relating to bankruptcies or other workout situations, Quanta could experience reduced cash flows and losses in excess of current allowances provided.

Activity in Quanta’s allowance for credit losses consisted of the following (in thousands):


	Year Ended December 31,
	2021		2020		2019
Balance at beginning of year	$	16,546	$	9,398	$	5,839
Cumulative effect of adoption of new credit loss standard	—		5,067		—
Provision for credit losses	34,890		3,656		11,249
Direct write-offs charged against the allowance	(1,687)		(1,575)		(7,690)
Balance at end of year	$	49,749	$	16,546	$	9,398

Provision for credit losses is included in “Selling, general and administrative expenses” in the consolidated statements of operations.

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The majority of the increase in provision for credit losses during 2021 was related to Limetree Bay Refining, LLC (Limetree Refining), a customer within Quanta’s Underground Utility and Infrastructure Solutions segment, that filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended (the Bankruptcy Code), in July 2021 after experiencing operational and financial difficulties and shutting down operations at its refinery. As of December 31, 2021, Quanta had $31.3 million of receivables for services performed and other costs related to Limetree Refining and $0.4 million of receivables outstanding from an affiliate, which have been fully reserved. During the three months ended June 30, 2021, Quanta recorded a provision for credit loss of $23.6 million with respect to these receivables based on the estimated amount of expected loss at that time. During the three months ended December 31, 2021, as a result of developments in the bankruptcy proceeding, including the sale of Limetree Refinery in January 2021 for substantially less than its secured debts, and negotiations regarding payment of the amounts owed by Limetree Terminals, Quanta recorded an additional provision for credit losses of $8.1 million with respect to these receivables based on the current estimated amount of expected loss, which assumes that Quanta will not collect any of the receivables outstanding at December 31, 2021. See Concentrations of Credit Risk in Note 16 for further discussion of the credit quality of certain other outstanding receivables due from customers that have experienced financial difficulties.

Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on Quanta’s experience in recent years, the majority of these retainage balances are expected to be collected within one year. Retainage balances with expected settlement dates within one year of December 31, 2021 and 2020 were $406.7 million and $306.3 million, which are included in “Accounts receivable.” Retainage balances as of December 31, 2021 and 2020 with expected settlement dates beyond one year were $93.9 million and $88.2 million and are included in “Other assets, net.”

Quanta recognizes unbilled receivables for non-fixed price contracts within “Accounts receivable” in certain circumstances, such as when revenues have been earned and recorded but the amount cannot be billed under the terms of the contract until a later date or when amounts arise from routine lags in billing (for example, work completed during one month but not billed until the next month). These balances do not include revenues recognized for work performed under fixed-price contracts, as these amounts are recorded as “Contract assets.” At December 31, 2021, 2020 and 2019, unbilled receivables included in “Accounts receivable” were $679.0 million, $472.3 million and $524.3 million. The increase in unbilled receivables from December 31, 2020 to December 31, 2021 was primarily due to the ramp up of work and certain delays in billing related to certain large customers. Quanta also recognizes unearned revenues for non-fixed price contracts when cash is received prior to recognizing revenues for the related performance obligation. Unearned revenues, which are included in “Accounts payable and accrued expenses,” were $51.8 million, $53.6 million and $33.2 million at December 31, 2021, 2020 and 2019.

5. SEGMENT INFORMATION:

Beginning with the three months ended December 31, 2021, Quanta reports results under three reportable segments: (1) Electric Power Infrastructure Solutions, (2) Renewable Energy Infrastructure Solutions and (3) Underground Utility and Infrastructure Solutions. The Renewable Energy Infrastructure Solutions segment was added primarily due to the acquisition of Blattner. In conjunction with this change, certain prior period amounts have been recast to conform to this new segment reporting structure. 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 companies in each of its end user markets. Quanta’s entrepreneurial business model allows multiple operating companies to serve the same or similar customers and to provide a range of services across end user markets. Quanta’s operating companies are organized into one of three reportable segments. Reportable segment information, including revenues and operating income by type of work, is gathered from each operating company for the purpose of evaluating segment performance in support of Quanta’s market strategies. Classification of operating company revenues by type of work for segment reporting purposes can require judgment on the part of management. Quanta’s operating companies may perform joint projects for customers in multiple industries, deliver multiple types of services under a single customer contract or provide service offerings to various industries. For example, Quanta performs joint trenching projects to install distribution lines for electric power and natural gas customers.

In addition, integrated operations and common administrative support for Quanta’s operating companies require that certain allocations be made to determine segment profitability, including allocations of corporate shared and indirect operating costs as well as general and administrative costs. Certain corporate costs are not allocated, including facility costs, acquisition and integration costs, non-cash stock-based compensation, amortization related to intangible assets, asset impairment related to goodwill and intangible assets and change in fair value of contingent consideration liabilities.

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


	Year Ended December 31,
	2021		2020		2019
Revenues:
Electric Power Infrastructure Solutions (1)	$	7,624,240	$	6,468,192	$	6,346,837
Renewable Energy Infrastructure Solutions	1,825,259		1,305,151		775,000
Underground Utility and Infrastructure Solutions	3,530,714		3,429,329		4,990,316
Consolidated revenues	$	12,980,213	$	11,202,672	$	12,112,153
Operating income (loss):
Electric Power Infrastructure Solutions (2)(3)	$	865,409	$	648,405	$	554,824
Renewable Energy Infrastructure Solutions	181,908		177,920		36,353
Underground Utility and Infrastructure Solutions	150,147		170,074		332,011
Corporate and non-allocated costs	(533,943)		(385,028)		(368,314)
Consolidated operating income	$	663,521	$	611,371	$	554,874
Depreciation:
Electric Power Infrastructure Solutions	$	141,093	$	112,663	$	101,299
Renewable Energy Infrastructure Solutions	14,020		9,185		6,996
Underground Utility and Infrastructure Solutions	83,720		85,981		90,953
Corporate and non-allocated costs	16,696		17,427		18,859
Consolidated depreciation	$	255,529	$	225,256	$	218,107

(1) Includes $63.2 million related to Latin American operations for the year ended December 31, 2019, which included the reversal of $48.8 million of revenues in the year ended December 31, 2019 in connection with the terminated telecommunications project in Peru, a portion of which related to prior periods.

(2) Includes $74.0 million and $85.7 million of operating losses related to Latin American operations for the years ended December 31, 2020 and 2019. Included in the Latin American operating loss for the year ended December 31, 2019 was a $79.2 million charge associated with the termination of the large telecommunications project in Peru, which included the $48.8 million decrease in revenues described above and a $30.4 million increase in cost of services. See Legal Proceedings — Peru Project Dispute in Note 16 for additional information on this matter. As of December 31, 2020, Quanta had substantially completed the exit of its operations in Latin America.

(3) Includes equity in earnings of integral unconsolidated affiliates of $44.1 million and $11.3 million for the years ended December 31, 2021 and 2020. These affiliates are considered to be operationally integral to the operations of Quanta and primarily consists of equity in earnings related to Quanta’s equity interest in LUMA.

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 company level, include operating machinery, equipment and vehicles, office equipment, buildings and leasehold improvements, and certain fixed assets 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 2021, 2020, and 2019, Quanta derived $1.91 billion, $1.58 billion and $1.92 billion of its revenues from foreign operations. Of Quanta’s foreign revenues, 81%, 79% and 75% were earned in Canada during the years ended December 31, 2021, 2020 and 2019. In addition, Quanta held property and equipment of $338.1 million and $336.4 million in foreign countries, primarily Canada, as of December 31, 2021 and 2020.

6. ACQUISITIONS:

The results of operations of the acquired businesses have been included in Quanta’s consolidated financial statements since the respective acquisition dates. On October 13, 2021, Quanta completed the acquisition of Blattner, a large and leading utility-scale renewable energy infrastructure solutions provider that is located in and primarily operates in North America. Consideration for this acquisition was $2.37 billion paid or payable in cash (subject to certain adjustments) and 3,326,955

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shares of Quanta common stock, which had a fair value of $345.4 million as of the date of the acquisition. The final amount of consideration for the acquisition remains subject to certain post-closing adjustments, including with respect to net working capital (inclusive of cash) and certain assumed liabilities. Additionally, the former owners of Blattner are eligible to receive potential payment of up to $300.0 million of contingent consideration, payable to the extent the acquired business achieves certain financial performance targets over a three-year period beginning in January 2022. Based on the estimated fair value of the contingent consideration, Quanta recorded a $125.6 million liability as of the date of the acquisition. Contingent consideration is earned based on performance during each year of the three-year performance period, and amounts earned are payable in cash after the end of the applicable performance year. Quanta may defer payment of earned contingent consideration amounts, at its sole discretion, until after the end of the entire three-year performance period; however, any deferred amounts will accrue interest at five percent per annum until paid. Blattner’s results are included in the Renewable Energy Infrastructure Solutions segment.

During the year ended December 31, 2021, Quanta also acquired the following businesses: three businesses located in the United States that provide electric power construction and related services; a communications services business located in the United States that performs data center connection services; a business located in the United States that designs, develops and holds a certification for the manufacture of personal protective breathing equipment and related monitoring devices primarily used in the refining and petrochemical industries, including in connection with catalyst services; a business that provides turnaround and catalyst change-out services to the refining and petrochemical industries primarily in the United States and Canada; a business located in Canada that provides front-end land services for infrastructure development projects in Canada and the United States; a business located in the United States that primarily provides horizontal directional drilling services; and a communications services business located in the United States. The aggregate consideration for these acquisitions was $328.8 million paid or payable in cash (subject to certain adjustments) and 187,093 shares of Quanta common stock, which had a fair value of $16.9 million as of the applicable acquisition dates. The results of the manufacturing business and the turnaround and catalyst change-out business are generally included in the Underground Utility and Infrastructure Solutions segment and the results of the remaining businesses are generally included in the Electric Power Infrastructure Solutions segment.

During the year ended December 31, 2020, Quanta acquired a contractor located in the United States that provides electric power distribution, transmission and substation maintenance and construction, directional boring and emergency restoration services; a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services; a business located in the United States that provides aviation services primarily for the utility industry; an electric power infrastructure business located in the United States that primarily provides underground conduit services; a business located in the United States that specializes in the deployment of short- and long-haul fiber optic cable and utilities; an industrial services business located in Canada that performs catalyst handling services, including changeover and shutdown maintenance, for customers in the refining and chemical industries; and a business located in the United States that provides heavy, civil, industrial and energy related services and specializes in the construction and maintenance of pipelines and metering stations. The aggregate consideration for these acquisitions was $359.6 million paid or payable in cash (subject to certain adjustments) and 1,334,469 shares of Quanta common stock, which had a fair value of $57.1 million as of the respective acquisition dates. Additionally, one of the acquisitions includes the potential payment of up to $6.9 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a five-year post-acquisition period. Based on the estimated fair value of the contingent consideration, Quanta recorded a $2.3 million liability as of the acquisition date. The results of the industrial services business and the business specializing in construction and maintenance of pipelines and metering stations are generally included in the Underground Utility and Infrastructure Solutions segment and the results of the remaining businesses are generally included in the Electric Power Infrastructure Solutions segment.

On August 30, 2019, Quanta acquired The Hallen Construction Co., Inc. (Hallen), an underground utility and infrastructure solutions business located in the United States that specializes in gas distribution and transmission services, and to a lesser extent, underground electric distribution and transmission services. During the year ended December 31, 2019, Quanta also acquired two specialty utility foundation and pole-setting contractors serving the southeast United States; an electric power specialty contracting business located in the United States that provides aerial power line and construction support services; a business located in the United States that provides technical training materials to electric utility workers; an electric power company specializing in project management and, to a lesser extent, water and wastewater projects located in the United States; and an electrical infrastructure solutions business located in Canada. The aggregate consideration for these acquisitions was $395.3 million paid or payable in cash, subject to certain adjustments, and 60,860 shares of Quanta common stock, which had a fair value of $1.8 million as of the respective acquisition date. A portion of the cash consideration in connection with the Hallen acquisition was placed in an escrow account, which, subject to certain conditions, could be utilized to reimburse Quanta for obligations associated with certain contingent liabilities assumed by Quanta in the transaction. See Legal Proceedings — Hallen Acquisition Assumed Liability in Note 16 for additional information related to these liabilities. The results of Hallen are generally included in the Underground Utility and Infrastructure Solutions segment and the results of the other acquired businesses are generally included in the Electric Power Infrastructure Solutions segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes the aggregate consideration paid or payable as of December 31, 2021 for the acquisitions completed in 2021 and 2020 and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities.

Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired during 2021, and further adjustments to the purchase price allocations may occur. As of December 31, 2021, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to tax estimates, certain intangible assets and the finalization of closing working capital adjustments. The following table summarizes the fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed for acquisitions completed in the years shown (in thousands).


	2021
	Blattner		All Others		2020
Consideration:
Cash paid or payable	$	2,372,528	$	328,846	$	359,624
Value of Quanta common stock issued	345,422		16,922		57,119
Contingent consideration	125,632		—		2,250
Fair value of total consideration transferred or estimated to be transferred	$	2,843,582	$	345,768	$	418,993

Cash and cash equivalents	$	171,950	$	9,910	$	29,221
Accounts receivable	411,835		63,032		74,492
Contract assets	13,622		8,322		8,919
Other current assets	57,803		6,334		23,877
Property and equipment	179,530		71,735		143,277
Other assets	191		229		14
Identifiable intangible assets	1,425,000		105,128		96,826
Current maturities of long-term debt and short-term debt	(2,304)		—		(3,307)
Accounts payable and accrued liabilities	(478,521)		(28,662)		(31,804)
Contract liabilities	(227,040)		(384)		(3,750)
Deferred tax liabilities, net	—		(2,063)		(3,178)
Other long-term liabilities	(7,764)		—		—

Total identifiable net assets	1,544,302		233,581		334,587
Goodwill	1,299,280		112,187		84,406
Fair value of net assets acquired	$	2,843,582	$	345,768	$	418,993

Goodwill represents the amount by which the purchase price for an acquired business exceeds the net fair value of the assets acquired and liabilities assumed. The acquisitions completed in 2021, 2020 and 2019 strategically expanded Quanta’s domestic renewable energy infrastructure solutions, domestic and international electric power infrastructure solutions and communications service offerings, and domestic and international underground utility and infrastructure solutions, which Quanta believes contributes to the recognition of the goodwill. Approximately $1.4 billion, $72.6 million, and $82.1 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in 2021, 2020 and 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in 2021 and 2020 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).


	2021
	Blattner			All Other			2020
	Estimated Fair Value		Weighted Average Amortization Period in Years	Estimated Fair Value		Weighted Average Amortization Period in Years	Estimated Fair Value		Weighted Average Amortization Period in Years
Customer relationships	$	1,045,000	7.0	$	77,293	6.7	$	81,154	6.1
Backlog	130,000		0.7	6,436		1.2	4,022		1.4
Trade names	250,000		15.0	5,698		14.9	7,654		14.4
Non-compete agreements	—		N/A	6,673		5.0	3,996		5.0
Patented rights, developed technology, and process certifications	—		N/A	9,028		3.5	—		N/A
Total intangible assets subject to amortization	$	1,425,000	7.8	$	105,128	6.5	$	96,826	6.5

The significant estimates used by management in determining the fair values of customer relationship intangible assets include future revenues, discount rates and customer attrition rates. The following table includes the discount rates and customer attrition rates used to determine the fair value of customer relationship intangible assets for businesses acquired during the years ended December 31, 2021, 2020 and 2019 as of the respective acquisition dates:


	2021		2020
	Range	Weighted Average	Range	Weighted Average
Discount rates	18% to 26%	18%	19% to 25%	20%
Customer attrition rates	8% to 30%	10%	10% to 43%	13%

As described above, certain business acquisitions have contingent consideration liabilities associated with the transactions. Aggregate fair values of these outstanding contingent consideration liabilities and their classification in the accompanying consolidated balance sheets were as follows (in thousands):


	December 31, 2021		December 31, 2020
Accounts payable and accrued expenses	$	2,591	$	3,466
Insurance and other non-current liabilities	140,482		7,503
Total contingent consideration liabilities	$	143,073	$	10,969

The increase in contingent consideration liabilities from December 31, 2020 to December 31, 2021 was primarily due to the acquisition of Blattner. The majority of Quanta’s outstanding contingent consideration liabilities are subject to a maximum payment amount, which totaled $313.7 million as of December 31, 2021.

Quanta’s aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on performance in post-acquisition periods and accretion in present value. These changes are reflected in “Change in fair value of contingent consideration liabilities” in the accompanying consolidated statements of operations. Quanta settled certain contingent consideration liabilities with $76.0 million of cash payments and the issuance of 4,277 shares of Quanta common stock during the year ended December 31, 2020.

The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in 2021, 2020 and 2019, 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

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forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts).


	Year Ended December 31,
	2021		2020		2019
Revenues	$	15,503,994	$	14,082,275	$	12,844,508
Gross profit	$	2,511,503	$	2,226,703	$	1,761,317
Selling, general and administrative expenses	$	(1,353,780)	$	(1,208,909)	$	(1,027,254)
Amortization of intangible assets	$	(311,208)	$	(404,014)	$	(95,185)
Net income	$	624,506	$	421,105	$	434,593
Net income attributable to common stock	$	618,479	$	414,742	$	429,822

Earnings per share attributable to common stock:
Basic	$	4.31	$	2.85	$	2.92
Diluted	$	4.18	$	2.77	$	2.89

The pro forma combined results of operations were prepared by adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2021 as if they occurred January 1, 2020, the historical results of the acquisitions completed in 2020 as if they occurred January 1, 2019 and the historical results of the acquisitions completed in 2019 as if they occurred January 1, 2018. These pro forma combined historical results were adjusted for the following: a reduction of interest and other financing expenses as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest and other financing expenses as a result of the cash consideration paid; an increase in amortization expense due to the intangible assets recorded; elimination of inter-company sales; changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies; an increase in the number of outstanding shares of Quanta common stock; reclassifications to conform the acquired businesses’ presentation to Quanta’s accounting policies; and elimination of certain transaction costs incurred by one of the acquired businesses and directly related to the acquisition of the business by Quanta. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs incurred by Quanta or any cost savings or other synergies that resulted or may result from the 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 $499.6 million and a loss before income taxes of $71.6 million, which included $80.3 million of amortization expense and $41.5 million of acquisition-related costs, related to acquisitions completed in 2021 are included in Quanta’s consolidated results of operations for the year ended December 31, 2021. Revenues of $133.5 million and a loss before income taxes of $1.3 million, which included $17.5 million of acquisition-related costs and $6.4 million of amortization expense, related to acquisitions completed in 2020 are included in Quanta’s consolidated results of operations for the year ended December 31, 2020. Revenues of $223.3 million and income before income taxes of $7.5 million, which included $22.1 million of acquisition-related costs and $14.6 million of amortization expense, related to the acquisitions completed in 2019 are included in Quanta’s consolidated results of operations for the year ended December 31, 2019.

7. GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill

Goodwill, net of accumulated impairment losses, represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses and is stated at cost. Quanta has recorded goodwill in connection with certain of its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of Quanta’s existing operating companies or managed on a stand-alone basis as an individual operating company.

As described in Note 5 above, beginning with the three months ended December 31, 2021, Quanta reports results under three reportable segments: (1) Electric Power Infrastructure Solutions, (2) Renewable Energy Infrastructure Solutions and (3) Underground Utility and Infrastructure Solutions. The Renewable Energy Infrastructure Solutions segment was added due to the acquisition of Blattner in the fourth quarter of 2021. In conjunction with this change, Quanta has reorganized its reporting of goodwill to align with the reportable segments. Goodwill was allocated to reporting units of operating companies based on estimated relative fair value of reporting units within each operating company. From time to time, the goodwill of a reporting unit may be reorganized into a different reportable segment if warranted due to fundamental changes in its predominant

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business.

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


	Electric Power Infrastructure Solutions Segment		Renewable Energy Infrastructure Solutions Segment		Underground Utility and Infrastructure Solutions Segment		Total









Balance at December 31, 2019:
Goodwill	$	1,365,163	$	—	$	753,938	$	2,119,101
Accumulated impairment	—		—		(96,426)		(96,426)
	1,365,163		—		657,512		2,022,675

Goodwill related to acquisitions completed in 2020	79,889		—		6,308		86,197
Purchase price allocation adjustments	1,730		—		19		1,749
Foreign currency translation adjustments	2,992		—		7,401		10,393

Balance at December 31, 2020:
Goodwill	1,449,774		—		768,868		2,218,642
Accumulated impairment	—		—		(97,628)		(97,628)
	1,449,774		—		671,240		2,121,014

Goodwill related to acquisitions completed in 2021	100,121		1,299,280		12,066		1,411,467
Operating company reorganizations	(161,912)		161,912		—		—
Purchase price allocation adjustments	(1,791)		—		—		(1,791)

Foreign currency translation adjustments	1,226		—		(3,030)		(1,804)

Balance at December 31, 2021:
Goodwill	1,387,418		1,461,192		777,136		3,625,746
Accumulated impairment	—		—		(96,860)		(96,860)
	$	1,387,418	$	1,461,192	$	680,276	$	3,528,886

As of December 31, 2021 and 2020, the inherent assumptions and estimates used in developing future cash flows include projected revenues and margins, weighted average costs of capital, and transaction multiples. As of December 31, 2019, the inherent assumptions and estimates used in developing future cash flows and market valuations include projected revenues and margins, weighted average cost of capital and market multiples. The following table presents the significant estimates used by management in determining the fair values of Quanta’s reporting units for which a quantitative assessment was performed at December 31, 2021, 2020 and 2019:


	2021	2020	2019
Years of cash flows before terminal value	5 years	5 years	5 years
Weighted average cost of capital	12.0%	12.5% to 13.5%	12.5%
Transaction multiple(s) applied to EBITDA	7.0	6.0 to 9.0	6
Guideline public company multiple(s) applied to EBITDA	N/A	N/A	6.5
Five-year revenue compounded annual growth rate(s)	9% to 26%	-8% to 26%	-9%
Weighting of three methods:
Discounted cash flows	100%	100%	70%
Market multiple	0%	0%	15%
Market capitalization	0%	0%	15%

Quanta determined the fair value of its reporting units as of December 31, 2021 and 2020 using only the income approach. Quanta determined that the use of market multiple valuations applied to 2020 and 2021 financial results would not yield valuations reflective of fair market value due to the continued uncertainties and challenges in the energy market and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

overall economy caused by the COVID-19 pandemic. The range of compounded annual growth rates in 2021 and 2020 reflects Quanta’s expectation of a recovery over the five-year period used in the goodwill model.

In connection with the annual goodwill assessment performed during the fourth quarter of 2021, Quanta assessed qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis and identified certain reporting units for which a quantitative goodwill impairment assessment was deemed appropriate based on financial performance indicators. The subsequent quantitative analysis indicated that the fair value of each reporting unit was in excess of its carrying amount. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarter of 2021. In connection with the 2020 and 2019 annual goodwill assessments, Quanta assessed qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis and also identified certain reporting units for which quantitative goodwill impairment assessments were deemed appropriate based on financial performance indicators. The subsequent quantitative analyses indicated that the fair values of the reporting units were in excess of their carrying amounts. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarters of 2020 or 2019.

Although no goodwill impairment charges were recorded during the year ended December 31, 2021, the determination of a reporting unit’s fair value requires judgment and the use of significant estimates and assumptions. Quanta believes the estimates and assumptions used in its impairment assessments are reasonable and based on available market information obtained from relevant industry sources; however, variations in any of the assumptions could result in materially different calculations of fair value and impairment determinations. With respect to reporting units within Quanta’s Underground Utility and Infrastructure Solutions segment, the potential impact of uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic is unknown and depends on numerous factors, and therefore the negative impact on these reporting units could continue or increase in future periods. In particular, due to volatility in commodity prices and commodity production volumes over the past few years, the effect of which has been exacerbated by the COVID-19 pandemic, two Canadian pipeline-related businesses with aggregate goodwill and intangible asset balances totaling $76.7 million and $12.8 million as of December 31, 2021 have an increased risk of goodwill impairment in the near and medium term. Management considered the sensitivity of its fair value estimates to changes in certain valuation assumptions for these reporting units. After taking into account a 10% decrease in fair value, these reporting units would have fair values below their carrying amounts. Quanta will continue to monitor the impact of the goodwill associated with these reporting units, and should they suffer additional declines in actual or forecasted financial results, the risk of goodwill impairment would increase.

Other Intangible Assets

As a result of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic, Quanta assessed certain potential negative impacts related to its intangible assets, particularly intangible assets associated with reporting units within the Underground Utility and Infrastructure Solutions segment. Quanta concluded that such impact is not likely to result in intangible asset impairments, and therefore no intangible asset impairments were recognized during the year ended December 31, 2021. However, the full potential impact of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic is unknown and depends on numerous factors, and therefore the negative impact on certain of Quanta’s reporting units and related intangible assets could increase in future periods. Quanta will continue to monitor the impact of these events and should any of the reporting units suffer additional declines in actual or forecasted financial results, the risk of intangible asset impairment would increase.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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


	As of December 31, 2021							As of December 31, 2020
	Remaining Weighted Average Amortization Period in Years	Intangible Assets		Accumulated Amortization		Intangible Assets, Net		Intangible Assets		Accumulated Amortization		Intangible Assets, Net
Customer relationships	6.4	$	1,738,813	$	(379,417)	$	1,359,396	$	616,875	$	(277,647)	$	339,228
Backlog	0.4	286,120		(192,140)		93,980		149,769		(145,476)		4,293
Trade names	14.5	357,103		(41,642)		315,461		101,533		(32,471)		69,062
Non-compete agreements	3.7	54,022		(41,409)		12,613		47,333		(36,973)		10,360
Patented rights, developed technology, and process certifications	3.0	31,520		(23,458)		8,062		22,486		(21,894)		592
Curriculum	6.4	13,100		(4,432)		8,668		12,233		(3,113)		9,120
Total intangible assets subject to amortization	7.4	2,480,678		(682,498)		1,798,180		950,229		(517,574)		432,655
Engineering license		3,000		—		3,000		3,000		—		3,000
Total intangible assets		$	2,483,678	$	(682,498)	$	1,801,180	$	953,229	$	(517,574)	$	435,655

Amortization expense for intangible assets was $165.4 million, $76.7 million and $62.1 million for the years ended December 31, 2021, 2020 and 2019.

The estimated future aggregate amortization expense of intangible assets subject to amortization as of December 31, 2021 is set forth below (in thousands):


Year Ending December 31:
2022	$	347,276
2023	246,919
2024	233,073
2025	218,532
2026	211,648
Thereafter	540,732
Total	$	1,798,180

8. INVESTMENTS IN AFFILIATES AND OTHER ENTITIES:

As described in Note 2, in the normal course of business, Quanta enters into various types of investment arrangements, each having unique terms and conditions.

The carrying values for Quanta’s unconsolidated equity method investments were $101.2 million and $44.9 million at December 31, 2021 and 2020 and are included in “Other assets, net” in the accompanying consolidated balance sheets. As of December 31, 2021, Quanta had receivables of $49.0 million and payables of $56.3 million from its integral unconsolidated affiliates.

In October 2021, Quanta acquired a 44% interest in an entity that provides right-of-way solutions, including site preparation and clearing, materials delivery and installation and management of permitting requirements and traffic control for approximately $22.0 million, subject to certain adjustments. This investment is accounted for as an integral affiliate using the equity method of accounting.

Included within the equity method investments described above is the carrying value of Quanta’s 50% equity interest in LUMA Energy, LLC (LUMA), which was $30.6 million and $10.9 million at December 31, 2021 and 2020. During the year ended December 31, 2021, Quanta received $17.5 million of cash related to its share of earnings from LUMA. During the three months ended June 30, 2020, the LUMA joint venture was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico. In

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

June 2021, LUMA completed the steps necessary to transition operation and maintenance of the system from the owner to LUMA and entered into an interim services agreement. Once the owner emerges from its Title III debt restructuring process, the 15-year operation and maintenance period is scheduled to begin. During the interim services period, LUMA receives a fixed annual management fee, payable in monthly installments, and is reimbursed for costs and expenses. During the 15-year operation and maintenance period, LUMA will continue to be reimbursed for costs and expenses and receive a fixed annual management fee, but will also have the opportunity to receive additional annual performance-based incentive fees. LUMA has not assumed and will not assume ownership of the electric transmission and distribution system assets and is not responsible for operation of the power generation assets. Quanta’s ownership interest and participation in LUMA is accounted for as an equity method investment due to Quanta’s and its joint venture partner’s equal ownership of LUMA. LUMA is operationally integral to the operations of Quanta, and therefore Quanta’s share of LUMA’s net income or losses is reported within operating income in “Equity in earnings (losses) of integral unconsolidated affiliates.”

During the year ended December 31, 2020, Quanta recognized impairment losses of $8.7 million related to two non-integral equity method investments, which were primarily due to the decline in commodity prices and production volumes during 2020. These impairment losses are included in “Other income, net” in the accompanying consolidated statement of operations for the year ended December 31, 2020.

Quanta had a minority ownership interest in a limited partnership that was selected during 2014 to build, own and operate a new 500-kilometer electric transmission line and two 500 kV substations in Alberta, Canada and accounted for this interest as an equity-method investment. The limited partnership contracted with a Quanta subsidiary to perform the engineering, procurement and construction (EPC) services for the project, and the Quanta subsidiary recognized revenue and related cost of services as performance progressed on the project. However, due to Quanta’s ownership interest, a proportional amount of the EPC profit was deferred until the electric transmission line and related substations were constructed and ownership of the assets was deemed to be transferred to the third-party customer, which occurred in the three months ended March 31, 2019. The deferral of earnings and recognition of such earnings deferral were recorded as components of equity in earnings (losses) of non-integral unconsolidated affiliates, which is included in “Other income, net” in the accompanying consolidated statements of operations. During the three months ended March 31, 2019, deferred earnings of $60.3 million were recognized, the majority of which was attributable to profit earned and deferred in the years ended December 31, 2018 and 2017. During the three months ended December 31, 2019, Quanta sold its minority ownership interest in the limited partnership and recognized a gain of $13.0 million related to the sale. The gain was recorded in equity in earnings (losses) of unconsolidated affiliates, which is included in “Other income, net” in the accompanying consolidated statements of operations.

The carrying values for investments accounted for using the cost method of accounting were $130.2 million and $39.5 million at December 31, 2021 and 2020, and these amounts are included in “Other assets, net” in the accompanying consolidated balance sheets. During the three months ended March 31, 2021, Quanta acquired a minority interest in a broadband technology provider for $90.0 million. This investment includes preferential liquidation rights and is accounted for using the cost method of accounting. There have been no changes in the carrying value of the investment through December 31, 2021. However, in October 2021, the broadband technology provider entered into an agreement and plan of merger with a special purpose acquisition company. Pursuant to the terms of this transaction, which is expected to be consummated during the first half of 2022, the broadband technology provider will become a publicly traded company, and Quanta’s current preferred equity interest would become an approximate five percent common equity interest, without preferential liquidation rights, in the publicly traded company. Quanta would then begin to remeasure this investment at fair value, and the investment balance will be marked to the market price of its stock investment, with changes in value recorded within “Other income, net” on its consolidated statements of operations. Additionally, any shares of common equity held by Quanta in the publicly traded company are expected to be subject to a lock-up period that restricts the transfer of such shares for 180 days after closing of the transaction.

During the year ended December 31, 2021, Quanta also purchased, through its wholly-owned captive insurance company, certain real property, including associated buildings and facilities, that is being developed for its future corporate headquarters. A portion of this property is currently leased to third-party lessees and is expected to continue to be leased to third-party lessees in the future. As a result, an investment in real estate of $23.5 million was recognized at cost for the third-party leased portion of the property during the three months ended March 31, 2021, and the carrying amount of $23.3 million is included in “Other assets, net” in the accompanying consolidated balance sheet at December 31, 2021.

During the three months ended June 30, 2020, Quanta recognized a $9.3 million impairment to an investment in a water and gas infrastructure contractor in Australia, which also represents the cumulative amount of impairment on investments accounted for using the cost method of accounting. Quanta did not exercise its option to acquire the remaining interest in this business at an agreed price based on a multiple of the company’s earnings during a designated performance period. This impairment loss is included in “Other income, net” in the accompanying consolidated statement of operations for the year ended December 31, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As a result of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic, including the significant decline in commodity prices during 2020 and the continued volatility in commodity prices and production volumes, Quanta assessed the expected negative impacts related to certain of its investments, particularly investments dependent on the energy market. This assessment contributed in part to management’s decision to record the impairments related to certain non-integral equity method investments and the water and gas pipeline infrastructure contractor in Australia described above. Additionally, the potential impact of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic remains unknown and may change based on numerous factors, which could further negatively impact these and other of Quanta’s investments. Quanta will continue to monitor the potential impacts of these events, and should any investments suffer additional declines in actual or forecasted financial results, additional impairments may be required. See Notes 13 and 16 for additional information related to equity and cost method investments. See Note 15 for information related to Quanta’s investments associated with its deferred compensation plan.

9. PER SHARE INFORMATION:

The amounts used to compute basic and diluted earnings per share attributable to common stock consisted of the following (in thousands):


	Year Ended December 31,
	2021		2020		2019
Amounts attributable to common stock:
Net income attributable to common stock	$	485,956	$	445,596	$	402,044
Weighted average shares:
Weighted average shares outstanding for basic earnings per share attributable to common stock	140,824		141,380		145,710
Effect of dilutive unvested non-participating stock-based awards	4,549		3,867		1,824
Weighted average shares outstanding for diluted earnings per share attributable to common stock	145,373		145,247		147,534

Basic and diluted earnings per share attributable to common stock are computed using the weighted average number of shares of common stock outstanding during the applicable period. Additionally, unvested stock-based awards that contain non-forfeitable rights to dividends or dividend equivalents (participating securities) have been included in the calculation of basic and diluted earnings per share attributable to common stock for the portion of the periods that the awards were outstanding. Weighted average shares outstanding for basic and diluted earnings per share attributable to common stock included 0.6 million, 1.6 million and 2.8 million weighted average participating securities for the years ended December 31, 2021, 2020 and 2019.

For purposes of calculating diluted earnings per share attributable to common stock, there were no adjustments required to derive Quanta’s net income attributable to common stock. Diluted earnings per share attributable to common stock is computed using the weighted average number of shares of common stock outstanding during the period adjusted for all potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalents would be antidilutive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. DEBT OBLIGATIONS:

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


	December 31,
	2021		2020
0.950% Senior Notes due October 2024	$	500,000	$	—
2.900% Senior Notes due October 2030	1,000,000		1,000,000
2.350% Senior Notes due January 2032	500,000		—
3.050% Senior Notes due October 2041	500,000		—
Borrowings under senior credit facility	1,199,841		148,508
Other long-term debt	64,800		46,981
Finance leases	2,546		2,228
Unamortized discount and debt issuance costs related to senior notes and term loan	(29,295)		(12,892)
Total long-term debt obligations	3,737,892		1,184,825
Less — Current maturities of long-term debt	13,418		10,531
Total long-term debt obligations, net of current maturities	$	3,724,474	$	1,174,294

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


	December 31,
	2021		2020
Short-term debt	$	15,748	$	4,233
Current maturities of long-term debt	13,418		10,531
Current maturities of long-term debt and short-term debt	$	29,166	$	14,764

As of December 31, 2021, principal payments required to be made during the next five years are set forth in the table below. The payments required under finance leases are provided in Note 11.


2022	$	12,267
2023	$	30,489
2024	$	528,235
2025	$	45,178
2026	$	1,130,559

Senior Notes

On September 23, 2021, Quanta issued $1.50 billion aggregate principal amount of senior notes consisting of: $500.0 million aggregate principal amount of 0.950% senior notes due October 2024 (the 2024 notes); $500.0 million aggregate principal amount of 2.350% senior notes due January 2032 (the 2032 notes); and $500.0 million aggregate principal amount of 3.050% senior notes due October 2041 (the 2041 notes). The cumulative proceeds received from the public offering of the 2024 notes, the 2032 notes and the 2041 notes were $1.48 billion, net of the original issue discount, underwriting discounts and deferred financing costs, which were used, along with drawings under Quanta’s senior credit facility, as amended, to acquire Blattner. Additionally, on September 22, 2020, Quanta issued $1.00 billion aggregate principal amount of 2.900% senior notes due October 2030 (the 2030 notes, and together with the 2024 notes, the 2032 notes and the 2041 notes, collectively, the Senior Notes) and received proceeds of $986.7 million from the offering, net of the original issue discount, underwriting discounts and deferred financing costs, and used such proceeds, together with cash on hand, to voluntarily prepay the $1.21 billion of term loans then-outstanding under Quanta’s credit agreement for its senior credit facility.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Interest on the Senior Notes is payable semi-annually in arrears as set forth below (dollars in thousands).


Title of the Notes	Interest Amount		Payment Dates	Commencement Date
0.950% Senior Notes due October 2024	$	2,375	April 1 and October 1	April 1, 2022
2.900% Senior Notes due October 2030	$	14,500	April 1 and October 1	April 1, 2021
2.350% Senior Notes due January 2032	$	5,875	January 15 and July 15	July 15, 2022
3.050% Senior Notes due October 2041	$	7,625	April 1 and October 1	April 1, 2022

In each case as further specified by the terms of the Senior Notes and the indenture and supplemental indentures governing the Senior Notes (collectively, the indenture), Quanta may redeem all or a portion of (i) the 2024 notes at any time prior to October 1, 2022 at a price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest, and at any time on or after October 1, 2022 at a price equal to 100% of the principal amount plus accrued and unpaid interest; (ii) the 2030 notes at any time prior to July 1, 2030 at a price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest, and at any time on or after July 1, 2030 at a price equal to 100% of the principal amount plus accrued and unpaid interest; (iii) the 2032 notes at any time prior to October 15, 2031 at a price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest, and at any time on or after October 15, 2031 at a price equal to 100% of the principal amount plus accrued and unpaid interest; and (iv) the 2041 notes at any time prior to April 1, 2041 at a price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest, and at any time on or after April 1, 2041 at a price equal to 100% of the principal amount plus accrued and unpaid interest.

Upon the occurrence of a Change of Control Triggering Event (as defined in the indenture), unless Quanta has exercised its right to redeem the applicable series of Senior Notes in full by giving irrevocable notice to the trustee, each holder of such Senior Notes will have the right to require Quanta to purchase all or a portion of such holder’s Senior Notes of such series at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.

The indenture contains covenants that, among other things, limit Quanta’s ability to incur liens securing certain indebtedness, to engage in certain sale and leaseback transactions with respect to certain properties and to sell all or substantially all of Quanta’s assets or merge or consolidate with or into other companies. The indenture also contains customary events of default.

Senior Credit Facility

The credit agreement for Quanta’s senior credit facility (the credit agreement) provides for a $750.0 million term loan facility, which was utilized for the purpose of financing Quanta’s acquisition of Blattner, and aggregate revolving commitments of $2.64 billion, with a maturity date of October 8, 2026. Subject to the conditions specified in the credit agreement, Quanta has the option to increase the capacity of the credit facility, in the form of an increase in the revolving commitments, term loans or a combination thereof, from time to time, upon receipt of additional commitments from new or existing lenders by up to an additional (i) $400.0 million plus (ii) additional amounts so long as the Incremental Leverage Ratio Requirement (as defined in the credit agreement) is satisfied at the time of such increase. The Incremental Leverage Ratio Requirement requires, among other things, after giving pro forma effect to such increase and the use of proceeds therefrom, compliance with the credit agreement’s financial covenants as of the most recent fiscal quarter end for which financial statements were required to be delivered.

The credit agreement contains certain covenants, including, as of the end of any fiscal quarter of Quanta, (i) a maximum Consolidated Leverage Ratio of 3.5 to 1.0 (except that in connection with certain permitted acquisitions in excess of $200.0 million, such ratio is 4.0 to 1.0 for the fiscal quarter in which the acquisition is completed and the four subsequent fiscal quarters) and (ii) a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0. As of December 31, 2021, Quanta was in compliance with all of the financial covenants under the credit agreement. The Consolidated Leverage Ratio is the ratio of Quanta’s total funded debt to Consolidated EBITDA (as defined in the credit agreement). For purposes of calculating the Consolidated Leverage Ratio, total funded debt is reduced by available cash and Cash Equivalents (as defined in the credit agreement) in excess of $25.0 million. Consolidated Interest Coverage Ratio is the ratio of (i) Consolidated EBIT (as defined in the credit agreement) for the four fiscal quarters most recently ended to (ii) Consolidated Interest Expense (as defined in the credit agreement) for such period (excluding all interest expense attributable to capitalized loan costs and the amount of fees paid in connection with the issuance of letters of credit on behalf of Quanta during such period).

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 cash payments for dividends and stock repurchases subject to compliance with the following requirements (including 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 senior

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

credit facility and/or cash and cash equivalents on hand.

The credit agreement provides for customary events of default and contains cross-default provisions with other debt instruments exceeding $300.0 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 and terminate the commitments under the credit agreement.

In September 2020, pursuant to an amendment of the credit agreement, a pledge of capital stock of certain Quanta subsidiaries and liens on the collateral that secured the obligations under the credit agreement were released, and all of Quanta’s subsidiaries that were guarantors of the obligations under the credit agreement were released from their guarantees of such obligations. In addition, the amendment removed the collateral reinstatement provision that would have applied in the event Quanta’s corporate credit rating were to fall below an investment grade rating.

Borrowings under the senior credit facility and the applicable interest rates were as follows (dollars in thousands):


	Year Ended December 31,
	2021			2020			2019
Maximum amount outstanding under the senior credit facility during the period	$	1,463,667		$	2,023,326		$	2,051,714
Average daily amount outstanding under the senior credit facility	$	591,114		$	1,091,091		$	1,553,499
Weighted-average interest rate of the senior credit facility	1.9		%	2.1		%	3.8		%

Term Loans. On October 13, 2021, Quanta borrowed the full amount of the $750.0 million term loan facility and used such amount, together with the net proceeds from the September 2021 offering of the 2024 notes, the 2032 notes and the 2041 notes and approximately $50.9 million of revolving loans borrowed under the senior credit facility, to pay the cash consideration for the acquisition of Blattner, as further described in Note 4.

Quanta is required to make quarterly principal payments on the first business day of each January, April, July and October, beginning in January 2023, on outstanding borrowings under the term loan facility in an amount equal to $4.7 million per quarter in 2023 and 2024, $9.4 million per quarter in 2025 and $18.8 million per quarter in 2026. The aggregate remaining principal amount outstanding for the new term loan facility must be paid on the maturity date of the senior credit facility. Quanta may voluntarily prepay the term loan borrowings from time to time, in whole or in part, without premium or penalty. Amounts borrowed under the term loan facility bear interest, at Quanta’s option, at a rate equal to either (a) the LIBOR Rate (as defined in the credit agreement) plus 1.000% to 1.625%, or (b) the Base Rate (as defined below) plus 0.000% to 0.625%, each as determined based on either Quanta’s Consolidated Leverage Ratio (as described above) or Quanta’s Debt Rating (as defined in the credit agreement), whichever is more favorable to Quanta. The Base Rate equals the highest of (i) the Federal Funds Rate (as defined in the credit agreement) plus 0.5%, (ii) Bank of America N.A.’s prime rate and (iii) the LIBOR Rate plus 1.00%.

Additionally, to address the transition in financial markets away from the London Interbank Offered Rate (LIBOR), the credit agreement includes customary LIBOR benchmark replacement provisions. The benchmark replacement for U.S. dollar-denominated loans may be a rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York or an alternate benchmark, subject to the terms and conditions set forth in the credit agreement. In certain circumstances, loans in U.S. dollars would default to the Base Rate, which under such circumstances would equal the highest of (i) the Federal Funds Rate (as defined in the credit agreement) plus 0.5% and (ii) the prime rate publicly announced by Bank of America, N.A.

Revolving Loans. As of December 31, 2021, Quanta had $449.8 million of outstanding revolving loans under the senior credit facility. Of the total outstanding borrowings, $102.4 million were denominated in U.S. dollars, $312.6 million were denominated in Canadian dollars and $34.8 million were denominated in Australian dollars. As of December 31, 2021, Quanta also had $318.2 million of letters of credit issued under the senior credit facility, of which $241.7 million were denominated in U.S. dollars and $76.5 million were denominated in currencies other than the U.S. dollar, primarily Canadian dollars. As of December 31, 2021, subject to the applicable sublimits and other terms and conditions, the remaining $1.87 billion of available commitments under the senior credit facility was available for loans or issuing new letters of credit in U.S. dollars and certain alternative currencies.

Beginning October 8, 2021, amounts borrowed in U.S. dollars under the revolving credit facility bear interest, at Quanta’s option, at a rate equal to either (a) the LIBOR Rate plus 1.125% to 1.750%, or (b) the Base Rate plus 0.125% to 0.750%, each as determined based on either Quanta’s Consolidated Leverage Ratio or its Debt Rating, whichever is more favorable to Quanta. Revolving loans borrowed in any currency other than U.S. dollars bear interest at a rate equal to the Alternative Currency Daily Rate or the Alternative Currency Term Rate (each as defined in the credit agreement), as applicable, plus 1.125% to 1.750%, as determined based on either Quanta’s Consolidated Leverage Ratio or Quanta’s Debt Rating, whichever is

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

more favorable to Quanta. Additionally, standby or commercial letters of credit issued under the credit agreement are subject to a letter of credit fee of 1.125% to 1.750%; 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 1.125%; and Quanta is subject to a commitment fee of 0.100% to 0.275% on any unused availability under the revolving credit facility, in each case as determined based on either the Quanta’s Consolidated Leverage Ratio or its Debt Rating, whichever is more favorable to Quanta. Additionally, as described above, the credit agreement includes customary LIBOR benchmark replacement provisions.

Prior to October 8, 2021, revolving loans borrowed in U.S. dollars bore 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 2.000%, as determined based on Quanta’s Consolidated Leverage Ratio, or (ii) the prior base rate (as described below) plus 0.125% to 1.000%, as determined based on Quanta’s Consolidated Leverage Ratio. Revolving loans borrowed in any currency other than U.S. dollars bore interest at a rate equal to the Eurocurrency Rate plus 1.125% to 2.000%, as determined based on Quanta’s Consolidated Leverage Ratio. Additionally, standby or commercial letters of credit issued under the credit agreement were subject to a letter of credit fee of 1.125% to 2.000%, 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 were subject to a letter of credit fee of 0.675% to 1.150%, based on Quanta’s Consolidated Leverage Ratio. The prior calculation for base rate equaled 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%. Quanta was also subject to a commitment fee of 0.275% to 0.425% from September 22, 2020 through October 7, 2021, based on its Consolidated Leverage Ratio, on any unused availability under the senior credit facility. Prior to the amendment on September 22, 2020, Quanta was subject to a commitment fee of 0.200% to 0.400%.

Deferred Financing Costs. Capitalized deferred financing costs related to Quanta’s senior credit facility (other than deferred financing costs related to the term loan, which are recorded along with deferred financing costs related to the Senior Notes in a contra account to long-term debt) are included in “Other assets, net” in the accompanying consolidated balance sheets and are amortized to “Interest and other financing expenses” on a straight-line basis over the terms of the respective agreements giving rise to the costs, which Quanta believes approximates the effective interest rate method. As of December 31, 2021 and 2020, capitalized deferred financing costs, net of accumulated amortization, related to Quanta’s revolving loans under its senior credit facility were $10.1 million and $9.7 million.

Bridge Facility Commitment

On September 1, 2021, in connection with the signing of the merger agreement for the acquisition of Blattner, Quanta entered into a commitment letter, pursuant to which certain lenders committed to provide a 364-day senior unsecured bridge facility in an aggregate principal amount of up to $2.18 billion to finance the cash consideration estimated to be due at closing of the acquisition of Blattner and to pay fees and expenses incurred in connection therewith. On September 23, 2021, in accordance with the terms of the commitment letter, the aggregate commitments under the commitment letter were reduced to $696.1 million concurrently with Quanta’s issuance of the 2024 notes, the 2032 notes and the 2041 notes. Additionally, concurrent with the amendment to Quanta’s senior credit facility in October 2021, the remaining aggregate commitments under the commitment letter were reduced to zero and the commitment was terminated.

During the three months ended September 30, 2021, Quanta paid $4.4 million of fees to the lenders related to the bridge facility commitment, all of which was amortized to “Interest and other financing expenses” during the year ended December 31, 2021.

11. LEASES:

Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. As of December 31, 2021, the majority of Quanta’s leases had remaining lease terms less than 9.5 years. Certain leases include options to extend

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

their terms in increments of up to five years and/or options to terminate. The components of lease costs in the accompanying consolidated statements of operations are as follows (in thousands):


		Year Ended December 31,
Lease cost	Classification	2021		2020		2019
Finance lease cost:
Amortization of lease assets	Depreciation (1)	$	1,097	$	1,234	$	1,393
Interest on lease liabilities	Interest and other financing expenses	90		107		64
Operating lease cost	Cost of services and Selling, general and administrative expenses	104,668		116,672		121,767
Short-term and variable lease cost (2)	Cost of services and Selling, general and administrative expenses	716,722		656,649		837,244
Total lease cost		$	822,577	$	774,662	$	960,468

(1) Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying consolidated statements of operations.

(2) Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant.

Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. Quanta utilizes third party market valuations to evaluate rental rates for these properties and facilities, and the lease agreements generally have remaining lease terms of up to ten years, subject to renewal options. Related party lease expense was $13.9 million, $14.3 million and $16.7 million for the years ended December 31, 2021, 2020 and 2019.

The components of leases in the accompanying consolidated balance sheets were as follows (in thousands):


		December 31,
Lease type	Classification	2021		2020
Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	240,605	$	256,845
Finance lease assets	Property and equipment, net of accumulated depreciation	2,415		2,370
Total lease assets		$	243,020	$	259,215
Liabilities:
Current:
Operating	Current portion of operating lease liabilities	$	78,251	$	85,134
Finance	Current maturities of long-term debt and short-term debt	1,156		846

Non-current:
Operating	Operating lease liabilities, net of current portion	170,427		178,822
Finance	Long-term debt, net of current maturities	1,390		1,382
Total lease liabilities		$	251,224	$	266,184

Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. When rental purchase options are exercised and a substantive benefit is deemed to be transferred to a third-party lessor, the transaction is deemed to be a financing transaction for accounting purposes. This results in the recognition of an asset equal to the purchase price being recorded in “Property, plant and equipment, net of accumulated depreciation,” and the recognition of a corresponding liability in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of December 31, 2021 and 2020, the assets recorded, net of accumulated depreciation, totaled $53.9 million and $45.7 million.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Future minimum lease payments for operating and finance leases were as follows (in thousands):


	As of December 31, 2021
	Operating Leases		Finance Leases		Total
2022	$	85,427	$	1,185	$	86,612
2023	63,890		907		64,797
2024	44,113		423		44,536
2025	30,638		137		30,775
2026	20,602		—		20,602
Thereafter	23,866		—		23,866
Total future minimum operating and finance lease payments	268,536		2,652		271,188
Less imputed interest	(19,858)		(106)		(19,964)
Total lease liabilities	$	248,678	$	2,546	$	251,224

Future minimum lease payments for short-term leases, which are not recorded in the consolidated balance sheets due to Quanta’s accounting policy election, were $14.0 million as of December 31, 2021. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future rental amounts.

The weighted average remaining lease terms and discount rates were as follows:


	As of December 31,
	2021		2020
Weighted average remaining lease term (in years):
Operating leases	4.25		4.28
Finance leases	2.57		3.06
Weighted average discount rate:
Operating leases	3.7	%	4.2	%
Finance leases	3.3	%	4.1	%

Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between this residual value and the fair market value of the underlying asset at the date of lease termination. As of December 31, 2021, the maximum guaranteed residual value of this equipment was $891.8 million. While Quanta believes that no significant payments will be made as a result of these residual value guarantees, there can be no assurance that significant payments will not be required in the future.

12. INCOME TAXES:

U.S. federal and state and foreign income tax laws and regulations are voluminous and often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in its future consolidated balance sheets, statements of operations and statements of comprehensive income.

The components of income before income taxes were as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
Income before income taxes:
Domestic	$	534,302	$	632,791	$	550,676
Foreign	88,599		(61,445)		21,611
Total	$	622,901	$	571,346	$	572,287

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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


	Year Ended December 31,
	2021		2020		2019
Current:
Federal	$	65,273	$	134,538	$	121,214
State	32,930		45,610		35,329
Foreign	6,644		(745)		16,848
Total current tax provision	104,847		179,403		173,391

Deferred:
Federal	27,762		(46,251)		7,379
State	(2,418)		(3,850)		(1,776)
Foreign	727		(9,915)		(13,522)
Total deferred tax provision (benefit)	26,071		(60,016)		(7,919)
Total provision for income taxes	$	130,918	$	119,387	$	165,472

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


	Year Ended December 31,
	2021		2020		2019
Provision at the statutory rate	$	130,809	$	119,983	$	120,180
Increases (decreases) resulting from —
State taxes	27,204		31,791		23,399
Valuation allowance on deferred tax assets	6,107		(31,138)		35,761
Employee per diems, meals and entertainment	3,569		10,680		13,817
Contingency reserves, net	844		(2,125)		(3,173)
Company-owned life insurance	(6,969)		—		—
Taxes on joint ventures	(8,825)		(3,466)		(930)
Foreign taxes	(9,359)		(7,268)		(21,565)
Stock-based compensation	(21,271)		(3,109)		(1,863)
Other	8,809		4,039		(154)
Total provision for income taxes	$	130,918	$	119,387	$	165,472

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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,
	2021		2020
Deferred income tax liabilities:
Property and equipment	$	(278,303)	$	(236,256)
Goodwill	(93,632)		(85,467)
Leased assets	(76,728)		(77,344)
Customer holdbacks	(32,661)		(30,457)
Other intangible assets	—		(4,438)
Total deferred income tax liabilities	(481,324)		(433,962)

Deferred income tax assets:
Net operating loss carryforwards	78,947		82,817
Lease liabilities	76,608		76,826
Accruals and reserves	65,852		70,335
Stock and incentive compensation	50,772		36,590
Tax credits	39,826		42,202
Other intangible assets	19,110		—
Deferred tax benefits on unrecognized tax positions	10,090		10,108
Other	7,535		9,617
Subtotal	348,740		328,495
Valuation allowance	(41,308)		(43,255)
Total deferred income tax assets	307,432		285,240
Total net deferred income tax liabilities	$	(173,892)	$	(148,722)

The net deferred income tax assets and liabilities comprised the following in the accompanying consolidated balance sheets (in thousands):


	December 31,
	2021		2020
Deferred income taxes:
Assets	$	17,206	$	17,685
Liabilities	(191,098)		(166,407)
Total net deferred income tax liabilities	$	(173,892)	$	(148,722)

The valuation allowances for deferred income tax assets at December 31, 2021, 2020 and 2019 were $41.3 million, $43.3 million and $104.2 million. These valuation allowances relate to state and foreign net operating loss carryforwards and foreign tax credits. The net changes in the total valuation allowance for each of the years ended December 31, 2021, 2020 and 2019 were a decrease of $1.9 million, a decrease of $60.9 million and an increase of $36.6 million. The change in valuation allowance during the year ended December 31, 2021 resulted in a $6.1 million increase in tax expense due to approximately $8.5 million of new valuation allowances primarily recorded on foreign net operating losses, which was partially offset by a $2.4 million valuation allowance release recorded due to the completion of certain internal restructuring efforts that increased management’s visibility into future utilization of certain state net operation losses. The total valuation allowance was reduced by $1.9 million from December 31, 2020 to December 31, 2021 as a result of a reduction of $8.0 million due to the expiration of certain net operating losses, for which a valuation allowance had previously been recorded, as well as currency translation adjustments on previously recorded valuation allowances, offset by an increase to the valuation allowance as a result of the $6.1 million of new valuation allowances as noted above. The change in valuation allowance during the year ended December 31, 2020 resulted in a $31.1 million reduction in tax expense, primarily due to a release of $45.1 million of valuation allowance on foreign tax credits due to the completion of an internal financial reorganization, which was partially offset by the establishment of $14.0 million of new valuation allowances on deferred tax assets generated during the year ended December 31, 2020. The

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

total change in valuation allowance for the year ended December 31, 2020 was a $60.9 million reduction, primarily due to the removal of approximately $29.4 million of foreign net operating losses that were no longer eligible to be carried forward as well as the $31.1 million reduction noted above. The valuation allowances were established primarily as a result of uncertainty in Quanta’s outlook as to the amount and character of 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, 2021, Quanta had state and foreign net operating loss carryforwards, the tax effect of which was $80.0 million. These carryforwards will expire as follows: 2022, $0.2 million; 2023, $0.7 million; 2024, $0.1 million; 2025, $6.2 million; 2026, $0.4 million; and $72.4 million thereafter. A valuation allowance of $40.0 million has been recorded against certain foreign and state net operating loss carryforwards.

Quanta generally does not provide for taxes related to undistributed earnings of its foreign subsidiaries because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. Quanta could also be subject to additional foreign withholding taxes if it were to repatriate cash that is indefinitely reinvested outside the United States, but it does not expect such amount to be material.

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


	December 31,
	2021		2020		2019
Balance at beginning of year	$	33,219	$	40,878	$	41,110
Additions based on tax positions related to the current year	6,881		4,398		7,708
Additions for tax positions of prior years	2,339		—		1,200
Reductions for tax positions of prior years	—		(2,410)		—
Reductions for audit settlements	—		(930)		(3,205)
Reductions resulting from a lapse of the applicable statute of limitations periods	(4,702)		(8,717)		(5,935)
Balance at end of year	$	37,737	$	33,219	$	40,878

As of December 31, 2021, the total amount of unrecognized tax benefits relating to uncertain tax positions was $37.7 million, an increase of $4.5 million from December 31, 2020. This aggregate increase resulted primarily from reserves for uncertain tax positions taken in 2021. For the year ended December 31, 2020, the $12.1 million of aggregate reductions were primarily due to the favorable settlement of U.S. and Canadian tax audits and the expiration of U.S. federal and state statutes of limitations. For the year ended December 31, 2019, the $9.1 million of aggregate reductions were primarily due to the favorable settlement of certain non-U.S. income tax obligations of an acquired business and the expiration of U.S. state income tax statutes of limitations.

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,
	2021		2020		2019
Unrecognized tax benefits	$	37,737	$	33,219	$	40,878
Portion that, if recognized, would reduce tax expense and effective tax rate	34,967		30,868		40,695
Accrued interest on unrecognized tax benefits	4,369		5,204		6,240
Accrued penalties on unrecognized tax benefits	1,587		14		14
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months	$0 to $8,098		$0 to $11,859		$0 to $6,268
Portion that, if recognized, would reduce tax expense and effective tax rate	$0 to $7,277		$0 to $10,217		$0 to $5,693

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized interest income of $0.8 million, interest income of $0.7 million and interest expense of $0.8 million in the provision for income taxes for the years ended December 31, 2021, 2020 and 2019.

Quanta’s consolidated federal income tax return for tax year 2019 is currently under examination by the Internal Revenue Service (IRS), and Quanta’s consolidated federal income tax returns for tax years 2017, 2018, and 2020 remain open to

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

examination by the IRS, as these statute of limitations periods have not yet expired. Additionally, various state and foreign tax returns filed by Quanta and certain subsidiaries for multiple periods remain under examination by various U.S. state and foreign tax authorities. Quanta does not consider any state in which it does business to be a major tax jurisdiction.

13. EQUITY:

Treasury Stock

General

Treasury stock is recorded at cost. Under Delaware law, treasury stock is not counted for quorum purposes or entitled to vote.

Shares withheld for tax withholding obligations

The tax withholding obligations of employees with respect to RSUs and PSUs that are settled in common stock are typically satisfied by Quanta making tax payments and withholding the number of common shares having a value equal to the tax withholding obligation that is due on the date of vesting or settlement (as applicable). With respect to these liabilities, Quanta withheld 0.8 million shares of Quanta common stock during the year ended December 31, 2021, which had a market value of $65.3 million, 0.6 million shares of Quanta common stock during the year ended December 31, 2020, which had a market value of $25.5 million, and 0.5 million shares of Quanta common stock during the year ended December 31, 2019, which had a market value of $17.4 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

For RSUs and PSUs that vest but the settlement of which is deferred under a deferred compensation plan, Quanta records a notional amount to “Treasury stock” and an offsetting amount to “Additional paid-in capital.” At vesting, only shares withheld for tax liabilities other than income taxes are added to outstanding treasury shares, as the shares of Quanta common stock associated with deferred stock-based awards are not issued until settlement of the award. Upon settlement of the deferred stock-based awards and issuance of the associated Quanta common stock, the original accounting entry is reversed. The net amounts recorded to treasury stock related to the deferred compensation plans were a reduction to treasury stock of $6.8 million, a reduction to treasury stock of $4.4 million and an increase to treasury stock of $3.0 million during the years ended December 31, 2021, 2020 and 2019.

Stock repurchases

During the third quarter of 2018, Quanta’s Board of Directors approved a stock repurchase program that authorized Quanta to purchase up to $500.0 million of its outstanding common stock, which was completed in 2021. In August 2020, Quanta’s Board of Directors approved a stock repurchase program that authorized Quanta to repurchase, from time to time through June 30, 2023, up to an additional $500.0 million in shares of its outstanding common stock, and as of December 31, 2021, $472.8 million remained available under this repurchase program. Quanta repurchased the following shares of common stock in the open market under the stock repurchase programs based on the trade date (in thousands):


Year ended:	Shares	Amount
December 31, 2021	721	$	63,988
December 31, 2020	6,680	$	249,949
December 31, 2019	376	$	11,954

Repurchases may be implemented through open market repurchases or privately negotiated transactions, at management’s discretion, based on market and business conditions, applicable contractual and legal requirements, including restrictions under Quanta’s senior credit facility, and other factors. Quanta is not obligated to acquire any specific amount of common stock, and the repurchase program may be modified or terminated by Quanta’s Board of Directors at any time at its sole discretion and without notice.

Quanta’s policy is to record a stock repurchase as of the trade date; however, the payment of cash related to the repurchase is made on the settlement date of the trade. During the years ended December 31, 2021, 2020 and 2019, cash payments related to stock repurchases were $66.7 million, $247.2 million and $20.1 million.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Non-controlling Interests

Quanta holds interests in various entities through both joint venture entities that provide infrastructure-related services under specific customer contracts, either directly or through subcontracting relationships, and other equity investments in partially owned entities that own and operate certain infrastructure assets, including investments entered into through the partnership structure Quanta formed with certain infrastructure investors. Quanta has determined that certain of these joint ventures where Quanta provides the majority of the infrastructure services, which management believes most significantly influences the economic performance of such joint ventures, are VIEs. Management has concluded that Quanta is the primary beneficiary of these joint ventures 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 Quanta’s consolidated balance sheets. Net income attributable to the other participants in the amounts of $6.0 million, $6.4 million and $4.8 million for the years ended December 31, 2021, 2020 and 2019 have been accounted for as a reduction of net income in deriving “Net income attributable to common stock” in Quanta’s consolidated statements of operations.

The carrying amount of the investments in VIEs held by Quanta was $12.9 million and $13.2 million at December 31, 2021 and 2020. The carrying amounts of investments held by the non-controlling interests in these VIEs were $4.6 million and $4.8 million at December 31, 2021 and 2020 and are included in “Non-controlling interests” in the consolidated balance sheets. During the years ended December 31, 2021, 2020 and 2019, net distributions to non-controlling interests were $6.4 million, $5.4 million and $2.5 million. There were no other material changes in equity as a result of transfers to/from the non-controlling interests during the years ended December 31, 2021, 2020 or 2019. See Note 16 for further disclosures related to Quanta’s joint venture arrangements.

Dividends

Quanta declared and paid the following cash dividends and cash dividend equivalents during 2021, 2020 and 2019 (in thousands, except per share amounts):


Declaration	Record	Payment	Dividend		Dividends
Date	Date	Date	Per Share		Declared
December 1, 2021	January 4, 2022	January 14, 2022	$	0.07	$	10,363
August 27, 2021	October 1, 2021	October 15, 2021	$	0.06	$	8,638
May 27, 2021	July 1, 2021	July 15, 2021	$	0.06	$	8,650
March 25, 2021	April 6, 2021	April 15, 2021	$	0.06	$	8,429
December 11, 2020	January 4, 2021	January 15, 2021	$	0.06	$	8,933
August 26, 2020	October 1, 2020	October 15, 2020	$	0.05	$	7,244
May 28, 2020	July 1, 2020	July 15, 2020	$	0.05	$	7,182
March 26, 2020	April 6, 2020	April 15, 2020	$	0.05	$	7,184
December 11, 2019	January 2, 2020	January 16, 2020	$	0.05	$	7,371
August 28, 2019	October 1, 2019	October 15, 2019	$	0.04	$	5,564
May 24, 2019	July 1, 2019	July 15, 2019	$	0.04	$	6,233
March 21, 2019	April 5, 2019	April 19, 2019	$	0.04	$	5,896
December 6, 2018	January 2, 2019	January 16, 2019	$	0.04	$	5,838

A significant majority of the dividends declared were paid on the corresponding payment dates. Holders of RSUs awarded under the Quanta Services, Inc. 2011 Omnibus Equity Incentive Plan (the 2011 Plan) generally received cash dividend equivalent payments equal to the cash dividend payable on account of the underlying Quanta common stock. Holders of RSUs awarded under the Quanta Services, Inc. 2019 Omnibus Equity Incentive Plan (the 2019 Plan) and holders of unearned and unvested PSUs awarded under the 2011 Plan and the 2019 Plan receive cash dividend equivalent payments only to the extent such RSUs and PSUs become earned and/or vest. Additionally, cash dividend equivalent payments related to certain stock-based awards that have been deferred pursuant to the terms of a deferred compensation plan maintained by Quanta are recorded as liabilities in such plans until the deferred awards are settled.

The declaration, payment and amount of future cash dividends will be at the discretion of Quanta’s Board of Directors after taking into account various factors, including Quanta’s financial condition, results of operations and cash flows from operations; current and anticipated capital requirements and expansion plans; the current and potential impact of market, industry, economic and political conditions; income tax laws then in effect; and the requirements of Delaware law. In addition, as discussed in Note 10*,* Quanta’s credit agreement restricts the payment of cash dividends unless certain conditions are met.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14. STOCK-BASED COMPENSATION:

Stock Incentive Plans

The 2019 Plan was approved by Quanta’s stockholders in May 2019 and provides for the award of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards, RSUs, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Current and prospective employees, directors, officers, advisors or consultants of Quanta or its affiliates are eligible to participate in the 2019 Plan. Subject to certain adjustments, the maximum number of shares available for issuance under the 2019 Plan is 7,466,592 shares, plus any shares underlying share-settling awards previously awarded pursuant to the 2011 Plan that are ultimately forfeited, canceled, expired or settled in cash subsequent to stockholder approval of the 2019 Plan. All awards subsequent to stockholder approval of the 2019 Plan have been and will be made pursuant to the 2019 Plan and applicable award agreements. Awards made under the 2011 Plan prior to approval of the 2019 Plan remain subject to the terms of the 2011 Plan and applicable award agreements.

RSUs to be Settled in Common Stock

A summary of the activity for RSUs to be settled in common stock for the years ended December 31, 2021, 2020 and 2019 is as follows (shares in thousands):


	2021		2020		2019
	Shares	Weighted Average Grant Date Fair Value (Per share)	Shares	Weighted Average Grant Date Fair Value (Per share)	Shares	Weighted Average Grant Date Fair Value (Per share)
Unvested at January 1	3,869	$37.57	3,265	$35.34	2,634	$33.50
Granted	1,642	$94.83	2,029	$39.91	2,142	$35.62
Vested	(1,476)	$37.03	(1,269)	$35.69	(1,349)	$32.22
Forfeited	(155)	$48.52	(156)	$36.67	(162)	$35.20
Unvested at December 31	3,880	$61.64	3,869	$37.57	3,265	$35.34

The grant date fair value for RSUs to be settled in common stock is based on the market value of Quanta common stock on the date of grant. 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 three equal annual installments following the date of grant or over a period of five to ten years following the date of grant. Holders of RSUs to be settled in common stock awarded under the 2011 Plan generally are entitled to receive a cash dividend equivalent payment equal to any cash dividend payable on account of the underlying Quanta common stock on the payment date of any such dividend. Holders of RSUs to be settled in common stock awarded under the 2019 Plan are entitled to cash dividend equivalent payments in an amount equal to any cash dividend payable on account of the underlying Quanta common stock; however, payment of such amounts is not made until the RSUs vest, such that the dividend equivalent payments are subject to forfeiture. The approximate fair values of RSUs settled in common stock during the years ended December 31, 2021, 2020 and 2019 were $125.7 million, $51.6 million and $48.7 million, respectively.

During the years ended December 31, 2021, 2020 and 2019, Quanta recognized $67.3 million, $55.7 million and $45.5 million of non-cash stock compensation expense related to RSUs to be settled in common stock. Such expense is recorded in “Selling, general and administrative expenses.” As of December 31, 2021, there was $139.5 million of total unrecognized compensation expense 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 4.54 years.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

PSUs to be Settled in Common Stock

A summary of the activity for PSUs to be settled in common stock for the years ended December 31, 2021, 2020 and 2019 is as follows (shares in thousands):


	2021		2020		2019
	Shares	Weighted Average Grant Date Fair Value (Per share)	Shares	Weighted Average Grant Date Fair Value (Per share) (1)	Shares	Weighted Average Grant Date Fair Value (Per share)
Unvested at January 1	1,047	$37.65	848	$40.04	775	$34.72
Granted	174	$90.44	437	$34.60	358	$40.15
Vested	(268)	$38.28	(238)	$41.87	(236)	$22.73
Forfeited	(22)	$41.86	—	N/A	(49)	$40.07
Unvested at December 31	931	$47.27	1,047	$37.65	848	$40.04

(1) Certain weighted average grant date fair value per share amounts related to the year ended December 31, 2020 have been recast to conform to the correction of the valuation of PSUs described below.

PSUs provide for the issuance of shares of common stock upon vesting, which occurs at the end of a three-year performance period based on achievement of certain company performance metrics established by the Compensation Committee of Quanta’s Board of Directors, including financial and operational goals and Quanta’s total shareholder return as compared to a predetermined group of peer companies. The final number of shares of common stock issuable upon vesting of PSUs can range from 0% to 200% of the number of PSUs initially granted, depending on the level of achievement, as determined by the Compensation Committee of Quanta’s Board of Directors. Holders of PSUs are entitled to cash dividend equivalent payments in an amount equal to any cash dividend payable on account of the underlying Quanta common stock; however, payment of such amounts is not made until the PSUs vest, such that the dividend equivalent payments are subject to forfeiture.

The grant date fair values of the PSUs were determined as follows: (i) for the portion of the awards based on company financial and operational performance metrics, by utilizing the closing price of Quanta’s common stock on the date of grant and (ii) for the portion of the awards based on total shareholder return, by utilizing a Monte Carlo simulation valuation methodology. The Monte Carlo simulation valuation methodology applied the following key inputs:


	2021		2020		2019
Valuation date price based on March 25, 2021, March 26, 2020 and March 8, 2019 closing stock prices of Quanta common stock	$83.48		$31.49		$35.19
Expected volatility	36	%	34	%	25	%
Risk-free interest rate	0.26	%	0.35	%	2.43	%
Term in years	2.77		2.76		2.81

Quanta recognizes expense, net of estimated forfeitures, for PSUs based on the forecasted achievement of the company financial and operational performance metrics and forecasted performance with respect to relative total shareholder return, multiplied by the completed portion of the three-year period and the fair value of the total number of shares of common stock that Quanta anticipates will be issued based on such achievement. During the years ended December 31, 2021, 2020 and 2019, Quanta recognized $21.0 million, $35.9 million and $6.5 million in compensation expense associated with PSUs. Such expense is recorded in “Selling, general and administrative expenses.” Included in compensation expense associated with PSUs during the year ended December 31, 2020 was a charge of $14.0 million to correct the valuation of certain PSUs during the years 2017 to 2019, $7.2 million of which related to 2019. Quanta assessed the materiality of the prior period error and determined that the error was immaterial to both the current and prior period financial statements. As of December 31, 2021, there was $17.5 million of total unrecognized compensation expense related to unvested PSUs to be settled in common stock granted to both employees and non-employees based on currently estimated levels of attainment of established performance goals. The compensation expense related to outstanding PSUs can vary from period to period based on changes in forecasted achievement of established performance goals and the total number of shares of common stock that Quanta anticipates will be issued upon vesting of such PSUs. Compensation cost related to PSUs outstanding at December 31, 2021 is expected to be recognized over a weighted average period of 1.66 years.

During the year ended December 31, 2021, 2020 and 2019, 0.5 million, 0.5 million and 0.4 million shares of common stock were earned and either issued or deferred for future issuance in connection with PSUs. The approximate fair values of

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

PSUs settled in common stock during the years ended December 31, 2021, 2020 and 2019 were $45.2 million, $18.3 million and $13.1 million, respectively.

RSUs to be Settled in Cash

Certain RSUs granted by Quanta 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 stock ownership in Quanta, typically vest in three equal annual installments 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 settle a portion of their RSU awards in cash. For RSUs settled in cash, the holders receive for each vested RSU an amount in cash equal to the fair market value of one share of Quanta common stock on the settlement date, as specified in the applicable award agreement.

Compensation expense related to RSUs to be settled in cash was $17.4 million, $9.4 million and $5.9 million for the years ended December 31, 2021, 2020 and 2019. 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 weighted average shares outstanding for earnings per share, and the estimated earned value of such RSUs is classified as a liability. Quanta paid $13.2 million, $4.3 million and $5.4 million to settle liabilities related to cash-settled RSUs in the years ended December 31, 2021, 2020 and 2019. Accrued liabilities for the estimated earned value of outstanding RSUs to be settled in cash were $11.1 million and $8.7 million at December 31, 2021 and 2020.

15. 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. Approximately 35% of Quanta’s employees at December 31, 2021 were covered by collective bargaining agreements. Quanta’s multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on a monthly or 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 or is deemed to have withdrawn from the plan or the plan is terminated or experiences a mass withdrawal.

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 in the United States 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 a projected minimum funding deficiency exists). Plans in these classifications must adopt remedial 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 cannot be reasonably estimated due to uncertainty regarding the amount of future work involving covered union employees, future contribution levels and possible surcharges on plan contributions.

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 of the plans under the PPA and whether the plans are subject to a funding improvement or rehabilitation plan or contribution surcharges. The most recent PPA zone status available in 2021 and 2020 relates to the plans’ fiscal year-ends in 2020 and 2019. Forms 5500 were not yet available for the plan years ending in 2021. 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 vary depending upon the location and number of

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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, based on PPA funding status classification, and in the aggregate for all other plans.


	Employee Identification Number/ Pension Plan Number		PPA Zone Status			Subject to Financial Improve- ment/ Reha- bilitation Plan	Contributions (in thousands)						Sur-charge Imposed	Expiration Date of Collective Bargaining Agreement
Fund		2021		2020		2021	2020		2019
National Electrical Benefit Fund	53-0181657		Green		Green	No	$	38,195	$	40,902	$	44,414	No	Varies through May 2026
Excavators Union Local 731 Pension Fund	13-1809825		Green		Green	No	16,202		14,310		6,697		No	April 2022
Central Pension Fund of the IUOE & Participating Employers	36-6052390		Green		Green	No	11,237		8,467		11,638		No	Varies through May 2024
Pipeline Industry Pension Fund	73-6146433		Green		Green	No	5,081		3,654		9,376		No	Varies through June 2023
Laborers Pension Trust Fund for Northern California	94-6277608		Green		Green	No	4,479		2,328		2,823		No	Varies through May 2024
Operating Engineers’ Local 324 Pension Fund	38-1900637		Red		Red	Yes	2,789		2,629		4,315		No	Varies through June 2023
IBEW Local 1249 Pension Plan	15-6035161		Green		Green	No	2,667		530		771		No	Varies through May 2025
Local 697 IBEW and Electrical Industry Pension Fund	51-6133048		Green		Green	No	2,229		1,840		3,717		No	May 2025
Pension Trust Fund for Operating Engineers	94-6090764		Yellow		Yellow	Yes	1,755		1,177		956		No	June 2023
Eighth District Electrical Pension Fund	84-6100393		Green		Green	No	1,599		4,272		5,939		No	Varies through August 2024
Laborers District Council of W PA Pension Fund	25-6135576		Yellow		Yellow	Yes	1,375		77		1,194		No	Varies through May 2024
Teamsters National Pipe Line Pension Plan	46-1102851		Green		Green	No	1,276		1,380		3,039		No	Varies through June 2023
Operating Engineers Pension Trust	95-6032478		Yellow		Yellow	Yes	1,143		172		119		No	Varies through June 2023
Laborers National Pension Fund	75-1280827		Red		Red	Yes	1,049		638		1,910		No	Varies through May 2024
Plumbers and Pipefitters National Pension Fund	52-6152779		Yellow		Yellow	Yes	932		1,453		1,162		No	Varies through March 2023
Michigan Laborers’ Pension Plan	38-6233976		Yellow		Yellow	Yes	737		512		1,491		No	Varies through May 2024
Employer-Teamsters Local Nos 175 & 505 Pension Trust Fund	55-6021850		Red		Red	Yes	151		48		530		No	June 2023
All other plans - U.S.							37,306		30,829		27,655
All other plans - Canada (1)							2,794		6,760		6,451
Total contributions							$	132,996	$	121,978	$	134,197

(1) Multiemployer defined benefit pension plans in Canada are not subject to the reporting requirements under the PPA. Accordingly, certain information was not publicly available.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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, 2020 and 2019. Forms 5500 were not yet available for these plans for the year ended December 31, 2021.


Pension Fund						Plan Years in which Quanta Contributions Were Five Percent or More of Total Plan Contributions
Excavators Union Local 731 Pension Fund						2020
National Electrical Benefit Fund						2020 and 2019
Pipeline Industry Pension Fund						2020 and 2019
Local 697 IBEW and Electrical Industry Pension Fund						2020 and 2019
Eighth District Electrical Pension Fund						2020 and 2019
Teamsters National Pipe Line Pension Plan						2020 and 2019
IBEW Local 456 Pension Plan (1)						2020 and 2019
Local Union No. 9 IBEW and Outside Contractors Pension Fund (1)						2020 and 2019
West Virginia Laborers Pension Trust Fund (1)						2019

(1) This plan is included in the “All other plans - U.S.” category in the prior table.

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 $213.4 million, $188.6 million and $201.3 million for the years ended December 31, 2021, 2020 and 2019. Total contributions made to all of these multiemployer plans correspond to the number of union employees employed at any given time and the plans in which they participate and vary depending upon the location and number of ongoing projects at a given time and the need for union resources in connection with such projects.

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 $50.7 million, $45.9 million and $41.4 million for the years ended December 31, 2021, 2020 and 2019.

Deferred Compensation Plans

Quanta maintains non-qualified deferred compensation plans pursuant to which non-employee directors and certain key employees may defer receipt of some or all of their cash compensation and/or settlement of certain stock-based awards, subject to certain limitations. These plans are unfunded and unsecured compensation arrangements. Individuals participating in these plans may allocate deferred cash amounts among a group of notional accounts that mirror the gains and losses of various investment alternatives. Generally, participants receive distributions of deferred balances based on predetermined payout schedules or other events.

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 such plan. Matching contributions vest immediately, and discretionary employer contributions may be subject to a vesting schedule determined at the time of the contribution, provided that vesting accelerates upon a change in control or 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 matching contributions to the eligible participants’ accounts under the deferred compensation plans of $1.4 million, $1.3 million and $1.1 million during the years ended December 31, 2021, 2020 and 2019 and did not make discretionary contributions during those years. At December 31, 2021 and 2020, the deferred compensation liability under these plans, including amounts contributed by Quanta, was $74.2 million and $58.2 million, the majority of which was included in “Insurance and other non-current liabilities” in the accompanying consolidated balance sheets. To provide for future obligations related to these deferred compensation plans, Quanta has invested in COLI policies covering certain participants in the deferred compensation plans, the underlying investments of which are intended to be aligned with the investment alternatives elected by

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plan participants. The COLI policies are recorded at their cash surrender value, which is considered their fair market value, and at December 31, 2021 and 2020, the fair market values were $73.8 million and $56.5 million and were included in “Other assets, net” in the accompanying consolidated balance sheets.

During the years ended December 31, 2021, 2020 and 2019, the fair market value of the COLI policies increased $8.6 million, $6.9 million and $7.9 million. These changes in fair market value of the COLI policies are recorded in “Other income, net” and were largely offset by corresponding changes in the fair market value of the liabilities associated with our deferred compensation plan, which are recorded in “Selling, general and administrative expenses.” During the years ended December 31, 2021, 2020 and 2019, the deferred compensation liability increased $10.4 million, $7.5 million and $9.3 million.

16. COMMITMENTS AND CONTINGENCIES:

Investments in Affiliates and Other Entities

As described in Notes 2, 8 and 13, Quanta holds investments in various entities, including joint venture entities that provide infrastructure-related services under specific customer contracts and partially owned entities that own, operate and/or maintain certain infrastructure assets.

If losses are incurred by entities in which Quanta holds an interest, they are generally shared ratably based on the percentage ownership of the participants in the structures. However, in Quanta’s joint venture structures that provide infrastructure-related services, each participant is typically jointly and severally liable for all of the obligations of the joint venture entity pursuant to the contract with the customer, and therefore Quanta can be liable for full performance of the contract with the customer. Additionally, in circumstances where Quanta’s participation in a joint venture qualifies as a general partnership, Quanta can be liable for all 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 liabilities. Additionally, typically each joint venture participant agrees to indemnify the other participant for any liabilities incurred in excess of what the other participant is obligated to bear under the respective joint venture agreement or in accordance with the scope of work subcontracted to each participant. It is possible, however, that Quanta could be required to pay or perform obligations in excess of its share if another participant is unable or refuses 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. However, to the extent any such claims arise, they could be material and could adversely affect Quanta’s consolidated business, financial condition, results of operations and cash flows.

Committed Expenditures

Quanta has capital commitments for the expansion of its equipment fleet in order to accommodate manufacturer lead times on certain types of vehicles. As of December 31, 2021, Quanta had $96.0 million of production orders with expected delivery dates in 2022, $71.3 million of which is anticipated to occur in the first half of 2022. Although Quanta has committed to purchase these vehicles at the time of their delivery, Quanta anticipates that the majority of these orders will be assigned to third-party leasing companies and made available under certain 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, property damage, breach of contract, negligence or gross negligence, environmental liabilities, wage and hour and other employment-related damages, punitive damages, consequential 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. Quanta evaluates which potential liabilities are probable and the related range of reasonably estimated losses and records a reserve that reflects its best estimate or the lower end of the range, if there is no better estimate. In addition, Quanta discloses matters for which management believes a material loss is at least reasonably possible.

The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. 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 and taking into account, among other things, negotiations with claimants, discovery, settlements and payments, judicial rulings, arbitration and mediation decisions, advice of internal and external legal counsel, and other information and events pertaining to a particular matter. Costs incurred for litigation are expensed as incurred. Except as otherwise stated below, none of these proceedings are expected to have a material

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adverse effect on Quanta’s consolidated financial position, results of operations or cash flows. However, management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.

Peru Project Dispute

In 2015, Redes Andinas de Comunicaciones S.R.L. (Redes), a majority-owned subsidiary of Quanta, entered into two separate contracts with an agency of the Peruvian Ministry of Transportation and Communications (MTC), currently Programa Nacional de Telecomunicaciones (PRONATEL), as successor to Fondo de Inversion en Telecomunicaciones (FITEL), pursuant to which Redes would design, construct and operate certain telecommunication networks in rural regions of Peru. The aggregate consideration provided for in the contracts was approximately $248 million, consisting of approximately $151 million to be paid during the construction period and approximately $97 million to be paid during a 10-year post-construction operation and maintenance period. At the beginning of the project, FITEL made advance payments totaling approximately $87 million to Redes, which were secured by two on-demand advance payment bonds posted by Redes to guarantee proper use of the payments in the execution of the project. Redes also provided two on-demand performance bonds in the aggregate amount of $25 million to secure performance of its obligations under the contracts.

During the construction phase, the project experienced numerous challenges and delays, primarily related to issues which Quanta believes were outside of the control of and not attributable to Redes, including, among others, weather-related issues, local opposition to the project, permitting delays, the inability to acquire clear title to certain required parcels of land and other delays which Quanta believes were attributable to FITEL/PRONATEL. In response to various of these challenges and delays, Redes requested and received multiple extensions to certain contractual deadlines and relief from related liquidated damages. However, in April 2019, PRONATEL provided notice to Redes claiming that Redes was in default under the contracts due to the delays and that PRONATEL would terminate the contracts if the alleged defaults were not cured. Redes responded by claiming that it was not in default, as the delays were due to events not attributable to Redes, and therefore PRONATEL was not entitled to terminate the contracts. PRONATEL subsequently terminated the contracts for alleged cause prior to completion of Redes’ scope of work, exercised the on-demand performance bonds and advance payment bonds against Redes, and indicated its intention to claim damages, including a verbal allegation of approximately $45 million of liquidated damages under the contracts. In August 2020, Redes received a formal claim from PRONATEL for liquidated damages in the amount of approximately $40 million, which represents the U.S. dollar equivalent of the amount asserted based on the December 31, 2021 exchange rate.

In May 2019, Redes filed for arbitration before the Court of International Arbitration of the International Chamber of Commerce (ICC) against PRONATEL and the MTC. In the arbitration, Redes claims that PRONATEL: breached and wrongfully terminated the contracts; wrongfully executed the advance payment bonds and the performance bonds; and is not entitled to the alleged amount of liquidated damages. In addition, Redes is seeking compensation for all damages arising from PRONATEL’s actions, including but not limited to (i) repayment of the amounts collected by PRONATEL under the advance payment bonds and the performance bonds; (ii) payment of amounts owed for work completed by Redes under the contracts; (iii) lost income in connection with Redes’ future operation and maintenance of the networks; and (iv) other related costs and damages to Redes as a result of the breach and improper termination of the contracts (including construction costs caused by the delays and costs related to the transfer of the networks). The amount claimed by Redes in this arbitration is approximately $190 million. In May 2021, PRONATEL and the MTC filed their counter memorial and counterclaims in the ICC arbitration, requesting: (i) that Redes’ claims for breach of contract be rejected; (ii) a declaration that the execution of the advance payment bonds and the performance bonds was valid, and that the funds may be applied towards any debt owed by Redes; (iii) a declaration that the liquidated damages asserted by PRONATEL apply; (iv) that Redes’ claim for payment of amounts owed for work completed as a result of contractual reconciliation of balances be rejected and that any reconciliation of balances approved by the arbitration panel exclude the funds from the performance bonds; (v) that Redes’ claims for damages be rejected; (vi) a declaration that the contract terminations by PRONATEL were valid; and (vii) that Redes reimburse all funds it received from PRONATEL. In addition, PRONATEL alleges that Redes did not satisfy the contractual requirements for the transfer of the networks, which Redes disputes. In July 2021, Redes filed its statement of defense in reply to the counter memorial and counterclaims of PRONATEL and the MTC, in which it disputes all claims made by PRONATEL and the MTC and maintains the positions on its claims against PRONATEL and the MTC in the arbitration. In August 2021, PRONATEL and the MTC filed a rejoinder statement with their position on the merits and damages, which did not present any new claims, and in October 2021, Redes filed a rejoinder with respect to the counterclaims of PRONATEL and the MTC. The arbitration hearing on the merits occurred in the fourth quarter of 2021 and a decision is expected during the third or fourth quarter of 2022.

As of the date of the contract terminations, Redes had incurred costs of approximately $157 million related to the design and construction of the project and had received approximately $100 million of payments (inclusive of the approximately $87 million advance payments). Furthermore, upon completion of the transfer of the networks (as completed at the time of the contract terminations) to PRONATEL, which was required upon termination of the contracts and was completed in 2020, PRONATEL and the MTC are able to possess the networks, for which PRONATEL has paid approximately $100 million while also collecting approximately $112 million of bond proceeds. Quanta believes that PRONATEL’s actions represent an abuse of

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power and unfair and inequitable treatment and that PRONATEL and the MTC have been unjustly enriched. Specifically, under the terms of the contracts, the advance payment bonds were to be exercised only if it is determined that Redes did not use the advance payments for their intended purpose, in which case Redes would be obligated to return the portion of the advance payments not properly used. In connection with PRONATEL exercising the bonds, Redes was not afforded the opportunity to provide evidence of its proper use of the advance payments for project expenditures. Redes has incurred substantially more than the advance payment amounts in the execution of the project, and Quanta believes Redes has used the advance payment amounts for their intended purpose.

Quanta believes Redes is entitled to all amounts described in its claims above. However, as a result of the contract terminations and the inherent uncertainty involved in arbitration proceedings and recovery of amounts owed, there can be no assurance that Redes will prevail on those claims or in defense of liquidated damages claims or any other claims asserted by PRONATEL. As a result, during the three months ended June 30, 2019, Quanta recorded a charge to earnings of $79.2 million, which included a reduction of previously recognized earnings on the project, a reserve against a portion of the project costs incurred through the project termination date, an accrual for a portion of the alleged liquidated damages, and the estimated costs to complete the project turnover and close out the project. The reduction of previously recognized earnings on the project included $14.5 million related to the correction of prior period errors associated with the determination of total estimated project costs and the resulting revenue recognized. Quanta assessed the materiality of the prior period errors and determined that the errors were immaterial individually and in the aggregate to its previously issued financial statements.

As of December 31, 2021, after taking into account the above charge, Quanta had a contract receivable of approximately $120 million related to the project, which includes the approximately $87 million PRONATEL collected through exercise of the advance payment bonds. The contract receivable from PRONATEL is included in “Other assets, net” in the accompanying consolidated balance sheet as of December 31, 2021.

Quanta also reserves the right to seek full compensation for the loss of its investment under applicable legal regimes, including investment treaties and customary international law, as well as to seek resolution through direct discussions with PRONATEL or the MTC. In connection with these rights, in May 2020 Quanta’s Dutch subsidiary delivered to the Peruvian government an official notice of dispute arising from the termination of the contracts and related acts by PRONATEL (which are attributable to Peru) under the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Peru (Investment Treaty). The Investment Treaty protects Quanta’s subsidiary’s indirect ownership stake in Redes and the project, and provides for rights and remedies distinct from the ICC arbitration. In December 2020, Quanta’s Dutch subsidiary filed a request for the institution of an arbitration proceeding against Peru with the International Centre for Settlement of Investment Disputes (ICSID) related to Peru’s breach of the Investment Treaty, which was registered by ICSID in January 2021. In the ICSID arbitration, Quanta’s Dutch subsidiary claims, without limitation, that Peru: (i) treated the subsidiary’s investment in Redes and the project unfairly and inequitably; and (ii) effectively expropriated the subsidiary’s investment in Redes and the project. In addition, Quanta’s Dutch subsidiary is seeking full compensation for all damages arising from Peru’s actions, including but not limited to (i) the fair market value of the investment and/or lost profits; (ii) attorneys’ fees and arbitration costs; (iii) other related costs and damages and (iv) pre- and post-award interest.

If Quanta is not successful in the pending arbitration proceedings, including the ICC arbitration proceeding held in the fourth quarter of 2021, this matter could result in an additional significant loss that could have a material adverse effect on Quanta’s consolidated results of operations and cash flows. However, based on the information currently available and the status of the pending arbitration proceedings, Quanta is not able to determine a range of reasonably possible additional loss, if any, with respect to this matter.

Maurepas Project Dispute

During the third quarter of 2017, Maurepas Pipeline, LLC (Maurepas) notified QPS Engineering, LLC (QPS), a subsidiary of Quanta, of its claim for liquidated damages allegedly arising from delay in mechanical completion of a project in Louisiana. Quanta disputes the claim and believes that QPS is not responsible for liquidated damages under the contract terms, and in June 2019 QPS filed suit against SemGroup Corporation (now Energy Transfer LP), the parent company of Maurepas, under the parent guarantee issued to secure payment from Maurepas on the project. QPS is seeking to recover $22 million that it believes has been wrongfully withheld, which represents the maximum liability for liquidated damages pursuant to the contract terms. In July and August 2018, QPS also received notice from Maurepas claiming certain warranty defects on the project. In July 2019, Maurepas filed suit against QPS and Quanta, pursuant to a parent guarantee, for damages related to the alleged warranty defects and for a declaratory judgment related to the liquidated damages claim, subsequently claiming approximately $59 million in damages related to a portion of the alleged warranty defects. The lawsuits relating to these claims have been consolidated and are pending in the Tulsa County District Court in Oklahoma. Quanta is continuing to evaluate the claimed warranty defects and, if they exist, the appropriate remedy. At this time, Quanta disputes the extent of the alleged defects or has not been able to substantiate them.

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As of December 31, 2021, Quanta had recorded an accrual with respect to this matter based on its current estimated amount of probable loss. Based on the information currently available, including documentation received in the discovery process, Quanta estimates the range of additional reasonably possible loss in connection with this matter is between no additional loss and the amount claimed by Maurepas with respect to the alleged warranty defects and liquidated damages, less the accrued amount. Upon final resolution of this matter, any liquidated damages or warranty defect damages in excess of Quanta’s current loss accrual would be recorded as additional costs on the project.

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 represents 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 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. During 2019 and 2020, the parties filed additional summary judgment and other motions and a bench trial on liability and damages was held. Liability and damages have been determined by the trial court, with the amount of liability for TNS, including interest through the date of the trial court’s orders, determined to be approximately $9.5 million. Quanta believes the court’s decisions on liability and damages are not supported by controlling law and continues to contest its liability and the damage calculation asserted by the plaintiff class in this matter. The amount determined by the trial court includes damages and interest, but does not include attorneys’ fees or costs. In July 2021, the plaintiff class filed a motion for approval of approximately $37.0 million in attorneys’ fees and costs. In December 2021, the trial court issued a ruling that reduced the amount of attorneys’ fees and costs available to plaintiffs. Specifically, while not stating the recoverable amount, the court reduced the hourly rate, limited the time period for which fees are recoverable, and lowered the fee enhancement multiplier available. In January 2022, the plaintiffs submitted a supplemental filing in response to the trial court’s ruling requesting approval of approximately $17.6 million of attorneys’ fees and costs. In February 2022, the plaintiffs separately appealed the trial court’s December 2021 ruling with respect to the reduction of their claimed attorneys’ fees and costs. Quanta is planning to submit a supplemental response disputing the amount of the plaintiffs’ revised calculation of recoverable attorneys’ fees and costs in advance of the next trial court hearing on this matter, which is scheduled for April 2022. Quanta also expects to appeal certain aspects of the trial court’s December 2021 ruling.

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 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; however, the California Appellate Court reversed the trial court’s decision in part and instructed the trial court to reconsider its ruling. In February 2017, the court denied a new motion for summary judgment filed by the staffing companies and has since stated that the staffing companies would be liable to TNS for any damages owed to the class members that the staffing companies employed. However, Quanta currently believes that, due to solvency issues, any contribution from the staffing companies may not be substantial.

The final amount of liability and attorneys’ fees, 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 rulings on liability and damages, a final determination with respect to the amount of any attorneys’ fees or additional costs or damages owed by Quanta, and the solvency of the staffing agencies. Based on review and analysis of the trial court’s rulings on liability, Quanta does not believe, at this time, that it is probable this matter will result in a material loss. However, if Quanta is unsuccessful in this litigation and the staffing agencies are unable to fund damages owed to class members, Quanta believes the range of reasonably possible loss to Quanta upon final resolution of this matter could be up to approximately $9.5 million, plus the final amount of any attorneys’ fees, interest and expenses awarded to the plaintiff class.

Hallen Acquisition Assumed Liability

In August 2019, in connection with the acquisition of The Hallen Construction Co., Inc. (Hallen), Quanta assumed certain contingent liabilities associated with a March 2014 natural gas-fed explosion and fire in the Manhattan borough of New York City, New York. The incident resulted in, among other things, loss of life, personal injury and the destruction of two buildings and other property damage. After investigation, the National Transportation Safety Board determined that the probable cause of the incident was the failure of certain natural gas infrastructure installed by Consolidated Edison, Inc. (Con Ed) and the failure of certain sewer infrastructure maintained by the City of New York. Pursuant to a contract with Con Ed, Hallen had performed certain work related to such natural gas infrastructure and agreed to indemnify Con Ed for certain claims, liabilities and costs associated with its work. Numerous lawsuits are pending in New York state courts related to the incident, which generally name

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Con Ed, the City of New York and Hallen as defendants. These lawsuits are at various preliminary stages and generally seek unspecified damages and, in some cases, punitive damages, for wrongful death, personal injury, property damage and business interruption.

As of December 31, 2021, Quanta had not recorded an accrual related to this matter. Hallen’s liabilities associated with this matter are expected to be covered under applicable insurance policies or contractual remedies negotiated by Quanta with the former owners of Hallen. If a loss becomes probable and estimable with respect to this matter, Quanta expects to accrue its estimated liability and a receivable in the same amount. However, the ultimate amount of liability in connection with this matter remains subject to uncertainties associated with pending litigation, including, among other things, the apportionment of liability among the defendants and other responsible parties and the likelihood and amount of potential damages claims. As a result, this matter could result in a loss that is in excess of, or not covered by, such insurance or contractual remedies, which could have a material adverse effect on Quanta’s consolidated financial condition, results of operations and cash flows.

Silverado Wildfire Matter

In January 2022, two of Quanta’s subsidiaries received a tender of defense and demand for preservation of evidence from Southern California Edison Company (SCE) related to two lawsuits filed in April 2021 and November 2021 against SCE and T-Mobile USA, Inc. (T-Mobile) in the Superior Court of California, County of Orange. The lawsuits assert property damage and related claims on behalf of certain individuals and subrogation claims on behalf of insurers relating to damages caused by a wildfire that began in October 2020 in Orange County, California (the Silverado Fire) and that is purported to have damaged approximately 13,000 acres. The lawsuits allege the Silverado Fire originated from utility poles in the area, generally claiming that each defendant failed to adequately maintain, inspect, repair or replace its overhead facilities, equipment and utility poles and remove vegetation in the vicinity; that the utility poles were overloaded with equipment from shared usage; and that SCE failed to de-energize its facilities during red flag warnings for a Santa Ana wind event. The lawsuits allege the Silverado Fire started when SCE and T-Mobile equipment contacted each other and note the Orange County Fire Department is investigating whether a T-Mobile lashing wire contacted an SCE overhead primary conductor in high winds. In October 2021, T-Mobile filed a cross-complaint against SCE alleging the ignition site of the Silverado Fire encompassed two utility poles replaced by SCE or a third party engaged by SCE, and that certain equipment, including T-Mobile’s lashing wire, was not sufficiently re-secured after the utility pole replacements. One of Quanta’s subsidiaries performed planning and other services related to the two utility poles, and another Quanta subsidiary replaced the utility poles and reattached the electrical and telecommunication equipment to the new utility poles in March 2019, approximately 19 months before the Silverado Fire. Pursuant to the general terms of a master services agreement and a master consulting services agreement between the Quanta subsidiaries and SCE, the subsidiaries agreed to defend and indemnify SCE against certain claims arising with respect to performance or nonperformance under the agreements. The SCE tender letters seek contractual indemnification and defense from Quanta’s subsidiaries for the claims asserted against SCE in the lawsuits and the T-Mobile cross-complaint.

Quanta’s subsidiaries intend to vigorously defend against the lawsuits, the T-Mobile cross-complaint and any other claims asserted in connection with the Silverado Fire. Quanta will continue to review additional information in connection with this matter as litigation and resolution efforts progress, and any such information may potentially allow Quanta to determine an estimate of potential loss, if any. As of December 31, 2021, Quanta had not recorded an accrual with respect to this matter, and Quanta is currently unable to reasonably estimate a range of reasonably possible loss, if any, because there are a number of unknown facts and legal considerations that may impact the amount of any potential liability. Quanta also believes that to the extent its subsidiaries are determined to be liable for any damages resulting from this matter, its insurance would be applied to any such liabilities over its deductible amount and its insurance coverage would be adequate to cover such potential liabilities. However, the ultimate amount of any potential liability and insurance coverage in connection with this matter remains subject to uncertainties associated with pending and potential future litigation.

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 contract assets 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 cash and cash equivalent investments, which consist primarily of interest-bearing demand deposits, money market investments and money market mutual funds. Although Quanta does not currently believe the principal amount of these cash and cash equivalents is subject to any material risk of loss, changes in economic conditions could impact the interest income Quanta receives from these investments.

Quanta grants credit under normal payment terms, generally without collateral, to its customers, which primarily include utilities, renewable energy developers, communications providers, industrial companies and energy delivery companies located primarily in the United States, Canada and Australia. No customer represented 10% or more of Quanta’s consolidated revenues

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for the years ended December 31, 2021, 2020 or 2019. One customer represented 11% of Quanta’s consolidated net receivable position at December 31, 2021. Another customer, when combined with the net receivable position of a joint venture in which such customer owns a 50% interest, also represented 11% of Quanta’s consolidated net receivable position at December 31, 2021. The projects for these customers were primarily in Quanta’s Electric Power Infrastructure Solutions and Renewable Energy segments. No customer represented 10% or more of Quanta’s consolidated net receivable position at December 31, 2020. While Quanta generally has certain statutory lien rights with respect to services provided, Quanta is subject to potential credit risk related to business, economic and financial market conditions that affect these customers and locations, which has been heightened as a result of the unfavorable and uncertain economic and financial market conditions resulting from the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic. Some of Quanta’s customers have experienced significant financial difficulties (including bankruptcy), and customers may experience financial difficulties in the future. These difficulties expose Quanta to increased risk related to collectability of billed and unbilled receivables and contract assets for services Quanta has performed.

For example, a customer within Quanta’s Underground Utility and Infrastructure Solutions segment encountered financial difficulties during 2020 that resulted in nonpayment of $27.5 million of receivables, plus accrued interest. As a result of the nonpayment, Quanta decided to foreclose the liens on the pipeline asset in order to recover the outstanding amount. During the three months ended September 30, 2021, Quanta entered into a settlement with the customer resulting in the sale of the pipeline asset to a third party and pursuant to which Quanta received $10.0 million of the amount owed and the right to receive payment of the remainder of the receivables in quarterly installments from the third party based on the cash flows generated by the pipeline and certain related assets. As a result, the remaining receivable balance of $17.5 million at September 30, 2021 was reclassified to long-term receivables as of such date. Quanta also retained a security interest in the pipeline asset to secure payment of the remaining amount owed and believes that the value of the pipeline asset is in excess of such amount. However, the ultimate outcome with respect to the amount owed remains uncertain and is based on a number of assumptions that are potentially subject to change, including the future financial performance of the third party and the cash flows generated by the pipeline asset, as well as the future value of the pipeline asset. As a result, the amount ultimately collected could be materially less than the amount owed. As of December 31, 2021, the remaining receivable balance was $17.5 million.

Additionally, in July 2021 Limetree Refining, a customer within Quanta’s Underground Utility and Infrastructure Solutions segment, filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code, after experiencing operational and financial difficulties and shutting down operations at its refinery. During 2021, Quanta recorded provisions for credit losses in the aggregate amount of $31.7 million with respect to this customer, and its affiliate, reflecting the full amount of receivables outstanding. See Note 4 for further information related to this customer.

Insurance

As discussed in Note 2, Quanta carries various insurance policies. As of December 31, 2021 and 2020, the gross amount accrued for employer’s liability, workers’ compensation, auto liability, general liability and group health claims totaled $318.2 million and $319.5 million, with $238.0 million and $238.0 million considered to be long term and included in “Insurance and other non-current liabilities.” Related insurance recoveries/receivables as of December 31, 2021 and 2020 were $28.6 million and $35.6 million, of which $0.4 million and $0.4 million are included in “Prepaid expenses and other current assets” and $28.2 million and $35.2 million are included in “Other assets, net.”

Quanta renews its insurance policies on an annual basis, and therefore deductibles and levels of insurance coverage may change in future periods. In addition, insurers may cancel Quanta’s coverage or determine to exclude certain items from coverage, including wildfires, or Quanta may elect not to obtain certain types or incremental levels of insurance based on the potential benefits considered relative to the cost of such insurance, or coverage may not be available at reasonable and competitive rates. In any such event, Quanta’s overall risk exposure would increase, which could negatively affect its results of operations, financial condition and cash flows. For example, due to the increased occurrence and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage availability and increased the cost of insurance coverage for such events in recent years. As a result, Quanta’s level of insurance coverage for wildfire events has decreased in recent years, and the current level of coverage may not be sufficient to cover potential losses in connection with these events. Additionally, Quanta’s third-party insurers could decide to further reduce, exclude or increase the cost of coverage for wildfires or other events in connection with insurance renewals in the future.

Letters of Credit

Certain of Quanta’s vendors require letters of credit to ensure reimbursement for amounts they are disbursing on Quanta’s behalf, such as to beneficiaries under its insurance programs. In addition, from time to time, certain customers require Quanta to post letters of credit to ensure payment of subcontractors and vendors and guarantee performance under contracts. Such letters of credit are generally issued by a bank or similar financial institution, typically pursuant to Quanta’s senior credit facility. Each letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder claims 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

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credit. Depending on the circumstances of such a reimbursement, Quanta may also be required to record a charge to earnings for the reimbursement.

As of December 31, 2021, Quanta had $318.2 million in outstanding letters of credit under its senior credit facility securing its casualty insurance program and various contractual commitments. These are irrevocable stand-by letters of credit with maturities generally expiring at various times throughout 2022. Quanta expects to renew the majority of the letters of credit related to the casualty insurance program for subsequent one-year periods upon their maturity. Quanta is not aware of any claims currently asserted or threatened under any of these letters of credit that are material, individually or in the aggregate. However, to the extent payment is required for any such claims, the amount paid could be material and could adversely affect Quanta’s consolidated business, financial condition, results of operations and cash flows.

Bonds and Parent Guarantees

Many customers, particularly in connection with new construction, require Quanta to post performance and payment bonds. These bonds provide a guarantee that Quanta will perform under the terms of a contract and pay its subcontractors and vendors. In certain circumstances, the customer may demand that the surety make payments or provide services under the bond, and Quanta must reimburse the surety for any expenses or outlays it incurs. Quanta may also be required to post letters of credit in favor of the sureties, which would reduce the borrowing availability under its senior credit facility. Quanta has not been required to make any material reimbursements to its sureties for bond-related costs except related to the exercise of approximately $112 million advance payment and performance bonds in 2019 related to the terminated telecommunications project in Peru, as set forth in Legal Proceedings - Peru Project Dispute above. However, to the extent further reimbursements are required, the amounts could be material and could adversely affect Quanta’s consolidated business, financial condition, results of operations and cash flows. As of December 31, 2021, Quanta is not aware of any outstanding material obligations for payments related to bond obligations.

Performance bonds expire at various times ranging from mechanical completion of a project to a period extending beyond contract completion in certain circumstances, and therefore a determination of maximum potential amounts outstanding requires 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, 2021, the total amount of the outstanding performance bonds was estimated to be approximately $3.9 billion. Quanta’s estimated maximum exposure related to the value of the performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each commitment under a performance bond 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, 2021.

Additionally, from time to time, Quanta guarantees certain obligations and liabilities of its subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, joint venture arrangements and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims. Quanta is not aware of any claims under any guarantees that are material, except as set forth in Legal Proceedings – Maurepas Project Dispute above. To the extent a subsidiary incurs a material obligation or liability and Quanta has guaranteed the performance or payment of such obligation or liability, the recovery by a customer or other counterparty or a third party will not be limited to the assets of the subsidiary. As a result, responsibility under the guarantee could exceed the amount recoverable from the subsidiary alone and could materially and adversely affect Quanta’s consolidated business, financial condition, results of operations and cash flows.

Employment Agreements

Quanta has various employment agreements with certain executives and other employees, which provide for compensation, other benefits and, under certain circumstances, severance payments and post-termination stock-based compensation benefits. Certain employment agreements also contain clauses that require the potential payment of specified amounts to such employees upon the occurrence of a defined change in control event.

Collective Bargaining Agreements and Multiemployer Pension Plans

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made to the plans on a “pay-as-you-go” basis based on its union employee payrolls. The location and number of union employees that Quanta employs at any given time and the plans in which they may participate vary depending on Quanta’s need for union resources in connection with its ongoing projects. Therefore, Quanta is unable to accurately predict its union employee payroll and the resulting multiemployer pension plan contribution obligations for future periods.

Quanta may also be subject to liabilities as a result of its participation in, or withdrawal from, multiemployer defined benefit pension plans. Quanta may be required to make additional contributions to its multiemployer pension plans if they become underfunded, and these additional contributions will be determined based on Quanta’s union employee payrolls. Certain plans to which Quanta contributes or may contribute in the future may adopt measures to improve their funded status through a funding improvement or rehabilitation plan, as applicable, which may require additional contributions from employers (e.g., a surcharge on benefit contributions) and/or modifications to retiree benefits. The amount, if any, that Quanta may be obligated to contribute to these plans cannot be reasonably estimated due to uncertainty regarding the amount of future work involving covered union employees, future contribution levels and possible surcharges on plan contributions. Quanta may also be subject to additional liabilities imposed by law if it or another participating employer withdraws from a multiemployer defined benefit pension plan, a plan is terminated or a plan experiences a mass withdrawal. These liabilities may include an allocable share of the unfunded vested benefits in the plan for all plan participants, not only 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. Quanta is not aware of any material withdrawal liabilities that have been incurred or asserted and that remain outstanding as a result of a withdrawal by Quanta from a multiemployer defined benefit pension plan. However, Quanta’s future contribution obligations and potential withdrawal liability exposure could vary based on the investment and actuarial performance of the multiemployer pension plans to which it contributes and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and related issues. Quanta has been subject to significant withdrawal liabilities in the past, including in connection with its withdrawal from the Central States, Southeast and Southwest Areas Pension Plan. To the extent Quanta is subject to material withdrawal liabilities in the future, such liability could adversely affect its business, financial condition, results of operations and cash flows.

Other Employee Benefit Plans

Quanta maintains certain other employee benefit plans. Additional information regarding these plans is included in Note 15.

Contingent Consideration Liabilities

The terms of certain of Quanta’s business acquisitions have included the potential payment of contingent consideration. Additional information regarding the liabilities associated with these potential obligations is included in Note 6.

Indemnities

Quanta generally indemnifies its customers for the services it provides under its contracts and 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. Except as set forth in Legal Proceedings – Silverado Wildfire Matter above, Quanta is not aware of any indemnity claims in connection with its indemnity obligations that are material. To the extent indemnification is required with respect to any matter, the amount could adversely affect Quanta’s consolidated business, financial condition, results of operations and cash flows.

In the normal course of Quanta’s acquisition transactions, Quanta obtains rights to indemnification from the sellers or former owners of acquired businesses for certain risks, liabilities and obligations arising from their operations prior to the date of acquisition, such as financial, performance, operational, safety, workforce, environmental, litigation, compliance 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, or the indemnitors may be unwilling or unable to pay amounts owed to Quanta. Accordingly, Quanta may incur expenses for which it is not reimbursed, and such amounts could be material and could have a material adverse effect on Quanta’s business or consolidated financial condition, results of operations and cash flows. For example, Quanta has obtained certain indemnification rights from the former owners of Hallen with respect to contingent liabilities that were assumed in connection with the acquisition, as set forth in Legal Proceedings — Hallen Acquisition Assumed Liability above.

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Residual Value Guarantees

Deferral of Employer Payroll Taxes

During 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which provided for various tax relief and tax incentive measures. These measures did not have a material impact on Quanta’s results of operations. However, pursuant to the CARES Act, Quanta deferred the payment of $108.9 million of employer payroll taxes during the year ended December 31, 2020, 50% of which were paid in the year ended December 31, 2021 and the remainder of which is due by December 31, 2022.

Availability of Equipment and Project Materials

Quanta’s customers depend on the availability of certain materials for construction, upgrade and repair and maintenance of their infrastructure and are typically responsible for supplying most or all of the materials required for the services Quanta performs on their projects, including, among other things, steel, copper, aluminum and components for renewable energy projects (e.g., solar panels, wind turbine blades). A number of factors that Quanta and its customers may not be able to predict or control could result in increased costs for, or delays in delivery or lack of availability of, these materials, including, among other things, the continued impact of the ongoing COVID-19 pandemic on the global supply chain, global trade relationships (e.g., tariffs, sourcing restrictions) and other general market and political conditions (e.g., inflation). To the extent these or other dynamics delay Quanta’s customers’ projects or impact their decision-making with respect to timing of future projects, Quanta’s business and demand for its services could be negatively impacted. Additionally, pursuant to certain contracts, including contracts for our comprehensive engineering, procurement and construction services, Quanta is required to procure all or part of the materials needed for a project. A number of factors that Quanta may not be able to predict or control, including those described above with respect to its customers, could negatively impact its ability to procure the materials it has agreed to procure for a project, and in such circumstances, it may be responsible for delays and additional costs associated with projects.

Quanta also depends on the availability of certain equipment, including specialty vehicles, to perform services. A number of factors that Quanta may not be able to predict or control could result in increased costs for, or delays in delivery of, this equipment, including the continued impact of the ongoing COVID-19 pandemic on the global supply chain, as well as global trade relationships, geopolitical events, and other general market and political conditions (e.g., inflation). For example, based on, among other things, the significant worldwide shortage of semiconductors, vehicle manufacturers are experiencing production delays with respect to new vehicles for our fleet (both on-road and specialty vehicles) and vehicle parts (e.g., tires), and certain of Quanta’s vehicle delivery orders scheduled for delivery in 2022 have been delayed and cancelled. While Quanta believes it has taken steps to secure delivery of a sufficient amount of vehicles in the near term and does not anticipate any significant disruptions with respect to its fleet, to the extent the production issues become worse than expected or become longer-term in nature, Quanta’s operations could be negatively impacted.

17. FAIR VALUE MEASUREMENTS

For disclosure purposes, qualifying assets and liabilities are categorized into three broad levels based on the priority of the inputs used to determine their fair values. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Certain assumptions and other information as they relate to these qualifying assets and liabilities are described below.

Goodwill and Other Intangible Assets

As discussed in Note 7, Quanta has recorded goodwill and identifiable intangible assets in connection with certain of its historical business acquisitions. Quanta utilizes the fair value premise as the primary basis for its impairment valuation procedures. The Goodwill and Other Intangible Assets sections within Notes 2 and 7 provide information regarding valuation methods, including the income approach, market approach and cost approach, and assumptions used to determine the fair value of these assets based on the appropriateness of each method in relation to the type of asset being valued. Quanta believes that the valuation methods it employs appropriately represent the methods that would be used by other market participants in determining fair value, and periodically engages the services of an independent valuation firm when a new business is acquired to assist management with the valuation process, including assistance with the selection of appropriate valuation methodologies and the development of market-based valuation assumptions. The level of inputs used for these fair value measurements is the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

lowest level (Level 3).

Investments

Equity investments with readily determinable fair values are measured at fair value, with changes in fair value recognized in net income. In cases where those readily determinable values are quoted market prices, the level of input used for fair value measurements is the highest level (Level 1). Equity investments without readily determinable fair values are measured on a nonrecurring basis. These types of fair market value assessments are similar to other nonrecurring fair value measures used by Quanta, which include the use of significant judgments and available relevant market data. Such market data may include observations of the valuation of comparable companies, risk-adjusted discount rates and an evaluation of the expected performance of the underlying portfolio asset, including historical and projected levels of profitability or cash flows. In addition, a variety of additional factors may be reviewed by management, including, but not limited to, contemporaneous financing and sales transactions with third parties, changes in market outlook and the third-party financing environment. The level of inputs used for these fair value measurements is the lowest level (Level 3).

Quanta has investments accounted for using the equity and cost methods of accounting as discussed in Note 8. Quanta utilizes the fair value premise as the basis for its impairment valuation and recognizes impairment if there are sufficient indicators that the fair value of the investment is less than its carrying value.

Quanta also has COLI policies related to its deferred compensation plan as further described in Note 15. These policies are carried at their cash surrender value, which is considered their fair value. The level of input used for these fair value measurements is Level 2.

Financial Instruments

The carrying amounts of cash equivalents, accounts receivable, contract assets, accounts payable, accrued expenses and contract liabilities approximate fair value due to the short-term nature of these instruments. All of Quanta’s cash equivalents were categorized as Level 1 assets at December 31, 2021 and 2020, as all values were based on unadjusted quoted prices for identical assets in an active market that Quanta has the ability to access.

Contingent Consideration Liabilities

Financial instruments required to be measured at fair value on a recurring basis consist primarily of Quanta’s liabilities related to contingent consideration associated with certain acquisitions, payable in the event certain performance objectives are achieved by the acquired businesses during designated post-acquisition periods. The liabilities recorded represent the estimated fair values of future amounts payable to the former owners of the acquired businesses and are estimated by management based on entity-specific assumptions that are evaluated on an ongoing basis.

The fair values of these liabilities described in Note 6 were primarily determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate and an expected volatility factor for each acquisition. The expected volatility factor was 50.0% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present values of the estimated payments are discounted based on a risk-free rate and/or Quanta’s cost of debt and ranged from 0.04% to 3.9% and had a weighted average of 1.9% based on the fair value at the dates of the respective acquisitions. The fair value determinations incorporate significant inputs not observable in the market. Accordingly, the level of inputs used for these fair value measurements is the lowest level (Level 3). Significant changes in any of these assumptions could result in a significantly higher or lower potential liability.

Long-Term Debt

The carrying amount of variable rate debt, which includes borrowings under Quanta’s senior credit facility, approximates fair value. Quanta’s fixed rate debt primarily includes its Senior Notes. The fair value of Quanta’s Senior Notes, which are described further in Note 10, was $2.49 billion at December 31, 2021, compared to a carrying value of $2.47 billion net of unamortized bond discount, underwriting discounts and deferred financing costs of $27.0 million. The fair value of the senior notes is based on the quoted market prices for the same issue and are categorized as Level 1 liabilities. See Note 10 for additional information regarding Quanta’s senior credit facility and the Senior Notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18. DETAIL OF CERTAIN ACCOUNTS:

Cash and Cash Equivalents

Amounts related to Quanta’s cash and cash equivalents based on geographic location of the bank accounts were as follows (in thousands):


	December 31,
	2021		2020
Cash and cash equivalents held in domestic bank accounts	$	205,781	$	156,122
Cash and cash equivalents held in foreign bank accounts	23,316		28,498
Total cash and cash equivalents	$	229,097	$	184,620

Cash consisting of interest-bearing demand deposits is carried at cost, which approximates fair value. Quanta considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which are carried at fair value. At December 31, 2021 and 2020, cash equivalents were $140.0 million and $98.0 million and consisted primarily of money market investments and money market mutual funds and are discussed further in Note 17.

Cash and cash equivalents held by joint ventures, which are either consolidated or proportionately consolidated, are available to support joint venture operations, but Quanta cannot utilize those assets to support its other operations. Quanta generally has no right to cash and cash equivalents held by a joint venture other than participating in distributions, to the extent made, and in the event of dissolution. Cash and cash equivalents held by Quanta’s wholly-owned captive insurance company are generally not available for use in support of its other operations. Amounts related to cash and cash equivalents held by joint ventures and the captive insurance company, which are included in Quanta’s total cash and cash equivalents balances, were as follows (in thousands):


	December 31,
	2021		2020
Cash and cash equivalents held by domestic joint ventures	$	21,828	$	7,714
Cash and cash equivalents held by foreign joint ventures	3,461		3,973
Total cash and cash equivalents held by joint ventures	25,289		11,687
Cash and cash equivalents held by captive insurance company	133,302		85,014
Cash and cash equivalents not held by joint ventures or captive insurance company	70,506		87,919
Total cash and cash equivalents	$	229,097	$	184,620

Property and Equipment

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


	Estimated Useful	December 31,
	Lives in Years	2021		2020
Land	N/A	$	86,013	$	69,389
Buildings and leasehold improvements	5-30	318,499		249,106
Operating machinery, equipment and vehicles	1-25	2,603,149		2,297,120
Office equipment, furniture and fixtures and information technology systems	3-10	259,776		244,113
Construction work in progress	N/A	91,502		20,900
Finance lease assets and rental purchase options (see Note 11)	5-20	64,256		52,160
Property and equipment, gross		3,423,195		2,932,788
Less — Accumulated depreciation and amortization		(1,503,498)		(1,372,132)
Property and equipment, net of accumulated depreciation		$	1,919,697	$	1,560,656

Depreciation expense related to property and equipment is recognized on a straight-line basis over the estimated useful lives of the assets and was $255.5 million, $225.3 million and $218.1 million for the years ended December 31, 2021, 2020 and 2019. Additionally, Quanta recorded asset impairment charges of $5.7 million during the year ended December 31, 2021 related to certain equipment that was not utilized in Quanta’s core operations, some of which was sold in October 2021 and the remainder of which was classified as assets held for sale as of December 31, 2021. Quanta also recorded asset impairment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

charges of $8.3 million during the year ended December 31, 2020 related to the exit of its Latin American operations and due to the planned sale of certain equipment and asset impairment charges of $13.9 million during the year ended December 31, 2019 related to the winding down and exit of certain oil-influenced operations and assets, the replacement of an internally-developed software application and the planned sale and exit of certain foreign operations and assets.

Accounts Payable and Accrued Expenses

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


	December 31,
	2021		2020
Accounts payable, trade	$	1,251,118	$	798,023
Accrued compensation and related expenses	547,161		378,002
Other accrued expenses	456,392		333,769
Accounts payable and accrued expenses	$	2,254,671	$	1,509,794

19. SUPPLEMENTAL CASH FLOW INFORMATION:

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


	Year Ended December 31,
	2021		2020		2019
Accounts and notes receivable	$	(248,452)	$	71,058	$	(214,580)
Contract assets	(331,946)		153,832		(12,317)
Inventories	1,418		9,860		52,168
Prepaid expenses and other current assets	(6,503)		83,518		(60,475)
Accounts payable and accrued expenses and other non-current liabilities	95,829		115,569		39,419
Contract liabilities	47,163		(84,370)		174,230
Other, net (1)	(15,191)		(22,098)		(135,250)
Net change in operating assets and liabilities, net of non-cash transactions	$	(457,682)	$	327,369	$	(156,805)

(1) The amount for the year ended December 31, 2019 includes the payment of $87 million of on-demand advance payment bonds and $25 million of on-demand performance bonds exercised in connection with the terminated telecommunications project in Peru. See Legal Proceedings — Peru Project Dispute in Note 16 for additional information on this matter.

Reconciliations of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of such amounts shown in the statements of cash flows are as follows (in thousands):


	December 31,
	2021		2020		2019		2018
Cash and cash equivalents	$	229,097	$	184,620	$	164,798	$	78,687
Restricted cash included in “Prepaid expenses and other current assets”	1,836		1,275		4,026		3,286
Restricted cash included in “Other assets, net”	954		913		921		1,283
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	231,887	$	186,808	$	169,745	$	83,256

Restricted cash includes any cash that is legally restricted as to withdrawal or usage.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Supplemental cash flow information related to leases and rental purchase options is as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(104,434)	$	(115,597)	$	(119,357)
Operating cash flows from finance leases	$	(90)	$	(108)	$	(64)
Financing cash flows from finance leases	$	(1,001)	$	(1,198)	$	(1,835)
Lease assets obtained in exchange for lease liabilities:
Operating leases	$	73,713	$	69,721	$	96,550
Finance leases	$	1,044	$	1,384	$	691
Rental purchase option assets obtained in exchange for rental purchase option liabilities	$	11,713	$	35,734	$	12,229

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


	Year Ended December 31,
	2021		2020		2019
Cash (paid) received during the period for -
Interest paid	$	(52,737)	$	(32,142)	$	(64,805)
Income taxes paid	$	(125,328)	$	(231,186)	$	(116,467)
Income tax refunds	$	13,257	$	18,119	$	7,474

Accrued capital expenditures were $27.4 million and $11.3 million as of December 31, 2021 and 2020. The impact of these items has been excluded from Quanta’s capital expenditures in the accompanying consolidated statements of cash flows due to their non-cash nature.

During the year ended December 31, 2020, Quanta contributed certain assets that had a fair value of $6.1 million as partial consideration for the purchase of an investment and recorded a note receivable of $4.7 million as partial consideration for the sale of another investment.

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