UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~Form 10-Q~~

Form 10-Q



(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019.


		~~For the quarterly period ended June 30, 2018.~~
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .

Commission file no. 001-13831

Quanta Services, Inc.

(Exact name of registrant as specified in its charter)



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

2800 Post Oak Boulevard, Suite 2600

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 629-7600

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	x	Accelerated filer	o
Non-accelerated filer o	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	PWR	New York Stock Exchange

As of ~~August 3, 2018,~~May 1, 2019, the number of outstanding shares of Common Stock of the registrant was ~~148,807,552.~~142,081,507. As of the same date ~~449,929~~36,183 exchangeable shares of a Canadian subsidiary of the ~~registrant associated with one share of Series G Preferred Stock of the registrant~~Registrant were ~~outstanding and an additional 36,183 exchangeable shares of another Canadian subsidiary of the registrant were~~ outstanding.

QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX



		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Equity	6
	~~ITEM 2.~~Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3943
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	65
ITEM 4.	Controls and Procedures	66

	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	6768
ITEM 1A.	Risk Factors	6768
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
~~ITEM 3.~~	~~Defaults Upon Senior Securities~~	68
ITEM 4.3.	~~Mine Safety Disclosures~~	68
~~ITEM 5.~~	~~Other Information~~	68
~~ITEM 6.~~	~~Exhibits~~Defaults Upon Senior Securities	69
~~Signature~~ITEM 4.	Mine Safety Disclosures	69
ITEM 5.	Other Information	69
ITEM 6.	Exhibits	70
Signature		71

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	120,357		$	138,285		$	85,423		$	78,687
Accounts receivable, net of allowances of $4,757 and $4,465	2,108,317			1,985,077
Accounts receivable, net of allowances of $8,476 and $5,839							2,580,665			2,354,737
Contract assets	551,505			497,292			573,248			576,891
Inventories	85,859			80,890			81,117			107,732
Prepaid expenses and other current assets	208,798			168,363			234,091			208,057
Total current assets	3,074,836			2,869,907			3,554,544			3,326,104
Property and equipment, net of accumulated depreciation of $1,042,815 and $981,275	1,325,128			1,288,602
Property and equipment, net of accumulated depreciation of $1,137,165 and $1,092,440							1,317,014			1,276,032
Operating lease right-of-use assets							285,768			—
Other assets, net	230,934			189,866			292,092			293,592
Other intangible assets, net of accumulated amortization of $352,520 and $335,507	261,820			263,179
Other intangible assets, net of accumulated amortization of $386,403 and $372,081							276,070			280,180
Goodwill	1,897,664			1,868,600			1,927,028			1,899,879
Total assets	$	6,790,382		$	6,480,154		$	7,652,516		$	7,075,787
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term debt and short-term debt	$	15,499		$	1,220		$	44,345		$	65,646
Current portion of operating lease liabilities							92,293			—
Accounts payable and accrued expenses	1,178,983			1,057,460			1,238,727			1,314,520
Contract liabilities	496,083			433,387			403,372			425,961
Total current liabilities	1,690,565			1,492,067			1,778,737			1,806,127
Long-term debt and notes payable, net of current maturities	840,742			670,721
Long-term debt, net of current maturities							1,344,999			1,040,532
Operating lease liabilities, net of current portion							193,475			—
Deferred income taxes	196,521			179,381			253,164			219,115
Insurance and other non-current liabilities	369,089			342,356			357,084			404,560
Total liabilities	3,096,917			2,684,525			3,927,459			3,470,334
Commitments and Contingencies
Equity:
Common stock, $.00001 par value, 600,000,000 shares authorized, 156,934,020 and 155,219,154 shares issued, and 149,088,134 and 153,342,326 shares outstanding	2			2
Exchangeable shares, no par value, 486,112 shares issued and outstanding	—			—
Series G Preferred Stock, $.00001 par value, 1 share authorized, issued and outstanding	—			—
Common stock, $.00001 par value, 600,000,000 shares authorized, 159,113,674 and 157,333,046 shares issued, and 142,081,375 and 141,103,900 shares outstanding							2			2
Exchangeable shares, no par value, 36,183 and 486,112 shares issued and outstanding							—			—
Series G Preferred Stock, $.00001 par value, 0 and 1 share authorized, issued and outstanding							—			—
Additional paid-in capital	1,934,826			1,889,356			1,984,505			1,967,354
Retained earnings	2,301,281			2,191,059			2,591,883			2,477,291
Accumulated other comprehensive loss	(248,532		)	(203,395		)	(267,201		)	(286,048		)
Treasury stock, 7,845,886 and 1,876,828 common shares	(296,917		)	(85,451		)
Treasury stock, 17,032,299 and 16,229,146 common shares							(585,445		)	(554,440		)
Total stockholders’ equity	3,690,660			3,791,571			3,723,744			3,604,159
Non-controlling interests	2,805			4,058			1,313			1,294
Total equity	3,693,465			3,795,629			3,725,057			3,605,453
Total liabilities and equity	$	6,790,382		$	6,480,154		$	7,652,516		$	7,075,787

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Revenues	$	2,656,348		$	2,200,374		$	5,073,924		$	4,378,544		$	2,807,259		$	2,417,576
Cost of services (including depreciation)	2,322,977			1,898,209			4,439,505			3,810,191			2,443,278			2,116,528
Gross profit	333,371			302,165			634,419			568,353			363,981			301,048
Selling, general and administrative expenses	206,104			185,880			421,526			370,432			231,908			215,422
Amortization of intangible assets	10,507			6,494			20,912			13,056			12,670			10,405
Change in fair value of contingent consideration liabilities	(6,279		)	—			(6,279		)	—			(84		)	—
Operating income	123,039			109,791			198,260			184,865			119,487			75,221
Interest expense	(9,178		)	(4,271		)	(15,956		)	(8,236		)	(13,876		)	(6,778		)
Interest income	660			164			806			451			309			146
Other income (expense), net	(10,426		)	(1,079		)	(22,401		)	(1,443		)	58,959			(11,975		)
Income before income taxes	104,095			104,605			160,709			175,637			164,879			56,614
Provision for income taxes	29,389			40,245			47,392			62,837			43,844			18,003
Net income	74,706			64,360			113,317			112,800			121,035			38,611
Less: Net income attributable to non-controlling interests	341			523			1,338			696			547			997
Net income attributable to common stock	$	74,365		$	63,837		$	111,979		$	112,104		$	120,488		$	37,614

Earnings per share attributable to common stock:
Basic	$	0.49		$	0.41		$	0.72		$	0.72		$	0.83		$	0.24
Diluted	$	0.48		$	0.41		$	0.72		$	0.72		$	0.82		$	0.24

Shares used in computing earnings per share:
Weighted average basic shares outstanding	153,325			155,090			154,906			154,859			145,110			156,546
Weighted average diluted shares outstanding	154,595			156,165			156,112			155,745			146,458			157,556

Cash dividends declared per common share													$	0.04		$	—

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended					Six Months Ended					Three Months Ended
	June 30,					June 30,					March 31,
	2018			2017		2018			2017		2019			2018
Net income	$	74,706		$	64,360	$	113,317		$	112,800	$	121,035		$	38,611
Other comprehensive income (loss), net of tax provision:
Foreign currency translation adjustment, net of tax of $0, $0, $0 and $0	(20,123		)	26,685		(45,137		)	40,506
Foreign currency translation adjustment, net of tax of $0 and $0											18,863			(25,014		)
Other, net of tax of $6 and $0											(16		)	—
Other comprehensive income (loss)	(20,123		)	26,685		(45,137		)	40,506		18,847			(25,014		)
Comprehensive income	54,583			91,045		68,180			153,306		139,882			13,597
Less: Comprehensive income attributable to non-controlling interests	341			523		1,338			696		547			997
Total comprehensive income attributable to Quanta stockholders	$	54,242		$	90,522	$	66,842		$	152,610
Total comprehensive income attributable to common stock											$	139,335		$	12,600

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Cash Flows from Operating Activities:
Net income	$	74,706		$	64,360		$	113,317		$	112,800		$	121,035		$	38,611
Adjustments to reconcile net income to net cash provided by (used in) operating activities—
Depreciation	50,034			44,650			98,753			87,343			52,216			48,719
Amortization of intangible assets	10,507			6,494			20,912			13,056			12,670			10,405
Change in fair value of contingent consideration liabilities	(6,279		)	—			(6,279		)	—			(84		)	—
Equity in losses of unconsolidated affiliates	11,798			2,148			25,141			2,751
Equity in (earnings) losses of unconsolidated affiliates													(60,390		)	13,343
Amortization of debt issuance costs	288			338			576			678			408			288
(Gain) loss on sale of property and equipment	982			(2,007		)	1,945			(166		)	(59		)	963
Foreign currency (gain) loss	582			641			(69		)	862			1,217			(651		)
Provision for doubtful accounts	139			61			984			926			2,823			845
Deferred income tax (benefit) provision	(2,872		)	3,666			13,505			3,630
Deferred income tax provision													24,558			16,377
Non-cash stock-based compensation	13,485			11,557			28,172			23,423			13,012			14,687
Changes in operating assets and liabilities, net of non-cash transactions	3,150			(127,074		)	(114,444		)	(244,174		)	(250,156		)	(117,594		)
Net cash provided by operating activities	156,520			4,834			182,513			1,129
Net cash provided by (used in) operating activities													(82,750		)	25,993
Cash Flows from Investing Activities:
Capital expenditures	(81,784		)	(58,257		)	(148,591		)	(105,281		)	(68,626		)	(66,807		)
Proceeds from sale of property and equipment	7,224			7,543			12,993			12,344			10,843			5,769
Proceeds from insurance settlements related to property and equipment	365			—			365			597			8			—
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired	(15,506		)	(6,108		)	(46,234		)	(7,635		)	(51,553		)	(30,728		)
(Investments in) and return of equity from unconsolidated affiliates	(731		)	(9,229		)	(1,569		)	(12,954		)
Cash received from (paid for) other investments, net	78			615			784			(1,086		)
Investments in unconsolidated affiliates and other entities													(37,803		)	(838		)
Cash received from investments in unconsolidated affiliates and other entities													—			706
Cash paid for intangible assets	(3,000		)	—			(3,000		)	—			(25		)	—
Net cash used in investing activities	(93,354		)	(65,436		)	(185,252		)	(114,015		)	(147,156		)	(91,898		)
Cash Flows from Financing Activities:
Borrowings under credit facility	1,062,445			550,883			2,037,393			1,248,094			1,647,074			974,948
Payments under credit facility	(1,101,561		)	(491,943		)	(1,861,930		)	(1,123,384		)	(1,347,442		)	(760,369		)
Payments on other long-term debt	(385		)	(1,354		)	(731		)	(2,883		)	(261		)	(346		)
Borrowings of short-term debt	12,942			—			12,942			—
Payments on short-term debt	—			—			—			(2,783		)
Net repayments of short-term debt, net of borrowings													(23,220		)	—
Distributions to non-controlling interests	(687		)	(383		)	(1,667		)	(1,363		)	(528		)	(980		)
Payments related to tax withholding for share-based compensation	(1,583		)	(1,613		)	(14,204		)	(17,805		)	(13,678		)	(12,621		)
Exercise of stock options	—			—			—			25
Payments of dividends													(5,752		)	—
Repurchase of common stock	(15,993		)	—			(189,906		)	—			(19,933		)	(173,913		)
Net cash provided by (used in) financing activities	(44,822		)	55,590			(18,103		)	99,901
Net cash provided by financing activities													236,260			26,719

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	1,113			88			1,804			1,183			(118		)	691
Net increase (decrease) in cash, cash equivalents and restricted cash	19,457			(4,924		)	(19,038		)	(11,802		)	6,236			(38,495		)
Cash, cash equivalents and restricted cash, beginning of period	105,280			107,532			143,775			114,410			83,256			143,775
Cash, cash equivalents and restricted cash, end of period	$	124,737		$	102,608		$	124,737		$	102,608		$	89,492		$	105,280

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)



																		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			Income (Loss)			Stock			Equity			Interests			Equity
Quarterly activity:
Balance, 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	—		—		—		—		—		—		—		—			18,847			—			18,847			—			18,847
Stock-based compensation activity	903,082		—		—		—		—		—		17,151		—			—			(19,052		)	(1,901		)	—			(1,901		)
Exchange of exchangeable shares	449,929		—		(449,929	)	—		—		—		—		—			—			—			—			—			—
Retirement of preferred stock	—		—		—		—		(1	)	—		—		—			—			—			—			—			—
Common stock repurchases	(375,536	)	—		—		—		—		—		—		—			—			(11,953		)	(11,953		)	—			(11,953		)
Dividends declared	—		—		—		—		—		—		—		(5,896		)	—			—			(5,896		)	—			(5,896		)
Distributions to non-controlling interests	—		—		—		—		—		—		—		—			—			—			—			(528		)	(528		)
Net income	—		—		—		—		—		—		—		120,488			—			—			120,488			547			121,035
Balance, March 31, 2019	142,081,375		$	2	36,183		$	—	—		$	—	$	1,984,505	$	2,591,883		$	(267,201	)	$	(585,445	)	$	3,723,744		$	1,313		$	3,725,057

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)



																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			Income (Loss)			Stock			Equity			Interests			Equity
Quarterly activity:
Balance, December 31, 2017	153,342,326		$	2	486,112	$	—	1	$	—	$	1,889,356	$	2,191,059		$	(203,395	)	$	(85,451	)	$	3,791,571		$	4,058		$	3,795,629
Cumulative effect of accounting change	—		—		—	—		—	—		—		(1,757		)	—			—			(1,757		)	—			(1,757		)
Other comprehensive loss	—		—		—	—		—	—		—		—			(25,014		)	—			(25,014		)	—			(25,014		)
Acquisitions	379,817		—		—	—		—	—		13,549		—			—			—			13,549			—			13,549
Stock-based compensation activity	847,455		—		—	—		—	—		17,992		—			—			(16,690		)	1,302			—			1,302
Common stock repurchases	(4,969,261	)	—		—	—		—	—		—		—			—			(173,913		)	(173,913		)	—			(173,913		)
Distributions to non-controlling interests	—		—		—	—		—	—		—		—			—			—						(980		)	(980		)
Buyout of a non-controlling interest	—		—		—	—		—	—		—		—			—			—			—			(462		)	(462		)
Net income	—		—		—	—		—	—		—		37,614			—			—			37,614			997			38,611
Balance, March 31, 2018	149,600,337		$	2	486,112	$	—	1	$	—	$	1,920,897	$	2,226,916		$	(228,409	)	$	(276,054	)	$	3,643,352		$	3,613		$	3,646,965

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	BUSINESS AND ORGANIZATION:

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

Electric Power Infrastructure Services Segment

The Electric Power Infrastructure Services segment provides comprehensive network solutions to customers in the electric power industry. Services performed by the Electric Power Infrastructure Services segment generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities along with other engineering and technical services. This segment also provides emergency restoration services, including the repair of infrastructure damaged by inclement weather, the energized installation, maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and Quanta’s proprietary robotic arm technologies, and the installation of “smart grid” technologies on electric power networks. In addition, this segment ~~designs, installs and maintains~~provides services that support the development of renewable energy generation, ~~facilities, consisting of~~including solar, wind and certain types of natural gas generation facilities, and related switchyards and transmission infrastructure. ~~To a lesser extent, the~~This segment also provides comprehensive communications infrastructure services to wireline ~~fiber~~ and wireless ~~carrier~~telecommunications companies, cable multi-system operators and other customers within the communications industry; services in connection with the construction of electric power generation facilities; and the design, installation, maintenance and repair of commercial and industrial ~~wiring; and the installation of traffic networks and cable and control systems for light rail lines.~~wiring. This segment also includes Quanta’s postsecondary educational institution, ~~that provides~~which specializes in pre-apprenticeship training, apprenticeship training and ~~programs~~specialized utility task training for ~~experienced linemen.~~electric workers, and has been recently expanded to include curriculum for the gas distribution and communications industries.

~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services Segment

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

Acquisitions

In January 2019, Quanta acquired an electric power specialty contracting business that provides aerial power line and construction support services and is located in the United States. The results of the acquired business have generally been included in Quanta’s Electric Power Infrastructure Services segment and consolidated financial statements beginning on the acquisition date.

During the year ended December 31, 2018, Quanta acquired an electrical infrastructure services business specializing in substation construction and relay services, ~~and~~ a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen ~~both~~and two communications infrastructure services businesses, all of which are located in the United States. The results of the acquired businesses have generally been included in Quanta’s Electric Power Infrastructure Services segment and ~~consolidated financial statements beginning on the acquisition dates.~~

On July 20, 2017, Quanta acquired Stronghold, Ltd. and Stronghold Specialty, Ltd. (collectively Stronghold), a specialized services business located in the United States that provides high-pressure and critical-path solutions to the downstream and midstream energy markets. The results of the acquired business are generally included in Quanta’s Oil and Gas Infrastructure Services segment and have been included in Quanta’s consolidated financial statements beginning on the acquisition date.

During the year ended December 31, 2017, Quanta also acquired a communications infrastructure services contractor and an electrical and communications contractor, both of which are located in the United States. The results of these acquired businesses are generally included in Quanta’s Electric Power Infrastructure Services segment and have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The condensed consolidated financial statements of Quanta include the accounts of Quanta Services, Inc. and its wholly owned subsidiaries, which are also referred to as its operating units. The condensed consolidated financial statements also include the accounts of certain of Quanta’s investments in joint ventures, which are either consolidated or proportionately consolidated, as discussed in the following summary of significant accounting policies. Investments in affiliated entities in which Quanta does not have a controlling financial interest, but over which Quanta has significant influence, usually because Quanta holds a voting interest of between 20% and 50%, are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to Quanta include Quanta Services, Inc. and its consolidated subsidiaries.

Interim Condensed Consolidated Financial Information

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with ~~U.S. Generally Accepted Accounting Principles (US GAAP)~~generally accepted accounting principles in the United States (GAAP), have been condensed or omitted pursuant to those rules and regulations. Quanta believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations, comprehensive income and cash flows with respect to the interim condensed consolidated financial statements have been included. The results of operations and comprehensive income for the interim periods are not necessarily indicative of the results for the entire fiscal year. The results of Quanta have historically been subject to significant seasonal fluctuations.

Quanta recommends that these unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto of Quanta and its consolidated subsidiaries included in Quanta’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (2018 Annual Report), which was filed with the SEC on February 28, ~~2018.~~2019.

Reclassifications

Quanta reclassified certain ~~prior period~~ amounts related to ~~restricted~~ cash paid for investments in unconsolidated affiliates and ~~proceeds~~other entities and cash received from ~~the settlement of insurance claims related to property~~investments in unconsolidated affiliates and ~~equipment~~other entities in the accompanying ~~condensed consolidated~~ statements of cash flows to conform to the current period presentation under recently adopted accounting updates. See Note 3 for further details regarding these updates. Certain reclassifications have also been made to Quanta’s condensed consolidated statements of operations for 2017 to conform to classifications for 2018. Additionally, the amounts previously reported as “Costs and estimated earnings in excess of billings on uncompleted contracts” and “Billings in excess of costs and estimated earnings on uncompleted contracts” on Quanta’s condensed consolidated balance sheets have been included in the newly titled “Contract assets” and “Contract liabilities” in accordance with the newly adopted revenue recognition guidance discussed below and in Note 3.presentation.

Use of Estimates and Assumptions

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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~Cash and Cash Equivalents~~

~~Quanta had cash and cash equivalents of $120.4 million and $138.3 million as of~~ ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~. 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 ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017, cash equivalents were $55.1 million and~~ ~~$7.1 million, and consisted primarily of money market investments and money market mutual funds and are discussed further in~~ ~~Fair Value Measurements~~ ~~below. As of~~ ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017, cash and cash equivalents held in domestic bank accounts were $79.6 million and $83.1 million, and cash and cash equivalents held in foreign bank accounts were~~ ~~$40.8 million~~ ~~and~~ ~~$55.2 million. As of~~ ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~, cash and cash equivalents held by joint ventures, which are either consolidated or proportionately consolidated, were $11.6 million and $16.7 million, of which $11.2 million and $10.0 million related to domestic joint ventures. Cash and cash equivalents held by the joint ventures are available to support joint venture operations, but Quanta cannot utilize those assets to support its other operations. Quanta generally has no right to the joint ventures’ cash and cash equivalents other than participating in distributions and in the event of dissolution.

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

Quanta provides an allowance for doubtful accounts when collection of an account or note receivable is considered doubtful, and receivables are written off against the allowance when deemed uncollectible. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates regarding, among other factors, the customer’s access to capital, the customer’s willingness or ability to pay, general economic and market conditions, the ongoing relationship with the customer and uncertainties related to the resolution of disputed matters. Quanta considers accounts receivable delinquent after 30 days but does not generally include delinquent accounts in its analysis of the allowance for doubtful accounts unless the accounts receivable have been outstanding for at least 90 days. Quanta also includes accounts receivable balances that relate to customers in bankruptcy or with other known difficulties in its analysis of the allowance for doubtful accounts. Material changes in customers’ business or cash flows, which may be impacted by negative economic and market conditions, could affect Quanta’s ability to collect amounts due. As of ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017, Quanta had allowances for doubtful accounts on current receivables of~~ ~~$4.8 million~~ ~~and $4.5 million. Long-term accounts receivable are included within “Other assets, net” in the accompanying condensed consolidated balance sheets.~~

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

Some contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contracts and acceptance by the customer. Based on Quanta’s experience with similar contracts in recent years, the majority of the retainage balances at each balance sheet date are expected to be collected within the next twelve months. Current retainage balances as of ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~ ~~were~~ ~~$254.8 million~~ ~~and~~ ~~$300.5 million~~ ~~and were included in “Accounts receivable.” Retainage balances with settlement dates beyond the next twelve months were included in “Other assets, net,” and as of~~ ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~ ~~were~~ ~~$90.7 million~~ ~~and~~ ~~$41.9 million~~.

Quanta recognizes unbilled receivables 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, costs have been incurred but are yet to be billed under cost-reimbursement type contracts, or amounts arise from routine lags in billing (for example, work completed one month but not billed until the next month). These balances do not include revenue recognized for work performed under fixed-price contracts, as these amounts are recorded as “Contract assets.” At ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017, the balances of unbilled receivables included in “Accounts receivable” were $433.5 million and~~ ~~$303.9 million~~.

~~Goodwill~~

Quanta has recorded goodwill in connection with its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of Quanta’s existing operating units or managed on a stand-alone basis as an individual operating unit. An annual assessment for impairment is performed for each operating unit that carries a balance of goodwill. Quanta’s operating units are organized into one of two internal divisions: the Electric Power Infrastructure Services Division and the Oil and Gas Infrastructure Services Division. As most of the companies acquired by Quanta provide multiple types of services for multiple types of customers, these divisional designations are based on the predominant type of work performed by an operating unit at the point in time the divisional designation is made. Goodwill is required to be measured for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available. Quanta has determined that its individual operating units represent its reporting units for the purpose of

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~assessing goodwill impairments.~~

An annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value. The income tax effect associated with an impairment of tax deductible goodwill is also considered in the measurement of the goodwill impairment.

Quanta has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative fair value-based impairment test described below. If Quanta believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Quanta can choose to perform the qualitative assessment on none, some or all of its reporting units. Quanta can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators including deterioration in macroeconomic conditions, declining financial performance, or a sustained decrease in share price, among other things, may trigger the need for annual or interim impairment testing of goodwill associated with one or all of the reporting units.

Quanta’s annual goodwill impairment assessment is performed in the fourth quarter of its fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. For instance, a decrease in Quanta’s market capitalization below book value, a significant change in business climate or loss of a significant customer, as well as the qualitative indicators referenced above, may trigger the need for interim impairment testing of goodwill for a reporting unit. The quantitative impairment test involves comparing the fair value of each of Quanta’s reporting units with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to “Asset impairment charges” in the consolidated statements of operations. Any goodwill impairment is limited to the total amount of goodwill allocated to that reporting unit.

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

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

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

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

During the fourth quarter of 2017, a quantitative fair-value based goodwill impairment analysis indicated that the fair value of each of Quanta’s reporting units, with the exception of two reporting units in its Oil and Gas Infrastructure Services Division, was in excess of its carrying amount. Quanta recorded a $57.0 million non-cash charge in the fourth quarter of 2017 for the impairment of goodwill associated with a reporting unit that provides material handling services, which achieved lower operating

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

margins than anticipated during 2017 and is expected to continue to face a highly competitive environment in its select markets, and a reporting unit that provides marine and offshore services, which has experienced prolonged periods of reduced revenues and operating margins and is expected to continue to experience lower levels of activity in the U.S. Gulf of Mexico and other offshore markets. Assuming a 10% decrease in the fair value of each of Quanta’s reporting units, one additional reporting unit within Quanta’s Oil and Gas Infrastructure Services Division would have had a fair value below its carrying amount. Circumstances such as market declines, unfavorable economic conditions, loss of a major customer or other factors could increase the risk of impairment of goodwill for this reporting unit in future periods.

If an operating unit experiences prolonged periods of declining revenues, operating margins or both, it may be at risk of failing the quantitative goodwill impairment test. Certain operating units have experienced declines over the short-term due to challenging macroeconomic conditions in certain geographic areas and low oil and natural gas prices, which have negatively impacted customer spending and resulted in project cancellations and delays. Additionally, customer capital spending has been constrained as a result of an increasingly complex regulatory and permitting environment. Certain operating units within Quanta’s Oil and Gas Infrastructure Services Division that primarily operate within the midstream and smaller-scale transmission market, including the reporting units referenced above, have continued to be negatively impacted by these factors. Goodwill and intangible assets associated with these operating units were $48.9 million and $13.1 million at June 30, 2018. Quanta monitors these conditions and others to determine if it is necessary to perform the quantitative fair-value based impairment test for one or more operating units prior to the annual impairment assessment. No interim impairment charges were recorded during the six months ended June 30, 2018. Although Quanta is not aware of circumstances that would lead to additional goodwill impairments at this time, circumstances such as a continued market decline, the loss of a major customer or other factors could impact the valuation of goodwill in the future.

~~Other Intangible Assets~~

Quanta’s intangible assets include customer relationships, backlog, trade names, non-compete agreements, patented rights and developed technology and curriculum, all of which are subject to amortization. The value of customer relationships is estimated as of the date a business is acquired based on the value-in-use concept utilizing the income approach, specifically the multi-period excess earnings method. This analysis 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 following table presents the significant estimates used by management in determining the fair values of customer relationships associated with acquisitions in the six months ended June 30, 2018 and year ended December 31, 2017:

2018 2017
Discount rates 25% 17% to 25%
Customer attrition rates 20% 15% to 78%

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. This approach 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 and curriculum. The value of a non-compete agreement is estimated based on the difference between the present value of the prospective cash flows with it in place and the present value of the prospective cash flows without it in place.

Quanta amortizes intangible assets 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 subject to amortization 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 interim 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. Intangible asset impairments are included within “Asset impairment charges” in the consolidated statements of operations, when applicable.

During the fourth quarter of 2017, Quanta recorded an impairment charge of $1.1 million related to a customer relationship intangible asset, which primarily resulted from a strategic decision to restructure a business within a reporting unit in the Oil and Gas Infrastructure Services Division.

~~Investments in Affiliates and Other Entities~~

~~In the normal course of business, Quanta enters into various types of investment arrangements, each having unique terms~~

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

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 services 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. As part of this strategy, Quanta formed a partnership with select investors that provides up to $1.0 billion of capital, including approximately $80.0 million from Quanta, available to invest in certain of these infrastructure projects through August 2024. Wholly owned subsidiaries of Quanta serve as the general partner of this partnership and as a separately operated registered investment adviser that manages the invested capital.

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

Investments in entities of which Quanta is not the primary beneficiary, but over which Quanta has the ability to exercise significant influence, are accounted for using the equity method of accounting. Quanta’s share of net income or losses from unconsolidated equity investments is reported as equity in earnings (losses) of unconsolidated affiliates, which is included in “Other income (expense)” in the accompanying condensed consolidated statements of operations. Equity investments are reviewed for impairment by assessing whether any decline in the fair value of the investment below the carrying amount is other than temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain an earnings capacity are evaluated in determining whether a loss in value should be recognized. Any impairment losses related to investments would be recognized in equity in earnings (losses) of unconsolidated affiliates. Equity method investments are carried at original cost adjusted for Quanta’s proportionate share of the investees’ income, losses and distributions and are included in “Other assets, net” in Quanta’s accompanying condensed consolidated balance sheets.

Quanta has a minority ownership interest in a limited partnership that was selected during 2014 to build, own and operate a new electric transmission line and two substations in Alberta, Canada. The limited partnership contracted with a Quanta subsidiary to perform the engineering, procurement and construction (EPC) services for the project, and the Quanta subsidiary recognizes revenue and related cost of services as performance progresses on the project. However, due to Quanta’s ownership interest, a proportional amount of the EPC profit is deferred until the electric transmission line and related substations are constructed and ownership of the assets is deemed to be transferred to the third party customer. The profit deferral has been recorded as a decrease to the equity method investment and as a component of equity in earnings (losses) of unconsolidated affiliates, which is included in “Other income (expense)” in the accompanying condensed consolidated statements of operations. Because the profit deferral is greater than the amount invested, the net amount has been included in “Insurance and other non-current liabilities” in the accompanying condensed consolidated balance sheets. See Notes 8 and 10 for additional disclosures related to investments.

Revenue Recognition

As discussed in Note 3, effective January 1, 2018, Quanta adopted new revenue recognition guidance using the modified retrospective transition method, applying the guidance to contracts with customers that were not substantially complete as of such date. Quanta’s financial results for reporting periods after January 1, 2018 are presented under the new guidance, while financial results for prior periods will continue to be reported in accordance with the prior guidance and Quanta’s historical accounting policy. The net cumulative adjustment due to adoption of the new guidance was a $1.8 million reduction to retained earnings as of January 1, 2018, which primarily related to certain contracts that are now accounted for as a single performance obligation but were previously accounted for separately for revenue recognition purposes. Quanta does not anticipate significant changes to the pattern of revenue recognition for contracts with customers and does not believe that the guidance surrounding the identification of contracts and performance obligations or the measurement of variable consideration will have a material impact on revenue recognition under its customary contractual arrangements.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Contracts

Quanta designs, installs, upgrades, repairs and maintains infrastructure for customers in the electric power, ~~oil and gas~~energy and communications industries. These services may be provided pursuant to master service agreements (MSAs), repair and maintenance contracts and fixed price and non-fixed price installation contracts. These contracts are classified into three categories based on how transaction prices are determined and revenue is recognized: unit-based contracts, cost-plus contracts and fixed price contracts. Transaction prices for unit-based contracts are determined on a per unit basis, transaction prices for cost-plus contracts are

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

determined by applying a profit margin to costs incurred on the contracts and transaction prices for fixed price contracts are determined on a lump-sum basis. All of Quanta’s revenues are recognized from contracts with its customers. In addition to the considerations described below, revenue is not recognized unless collectability under the contract is considered probable, the contract has commercial substance and the contract has been approved. Additionally, the contract must contain payment terms, as well as the rights and commitments of both parties.

Performance Obligations

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

At ~~June 30, 2018,~~March 31, 2019, the aggregate transaction price allocated to unsatisfied or partially satisfied performance obligations was estimated to be approximately ~~$5.58~~$4.71 billion, of which ~~79.8%~~70.3% was expected to be recognized in the subsequent twelve months. This amount represents management’s estimate of the consolidated revenues that are expected to be realized from the remaining portion of firm orders under fixed price contracts not yet completed or for which work has not yet begun. For purposes of calculating remaining performance obligations, Quanta includes all estimated revenues attributable to consolidated joint ventures and ~~VIEs,~~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 ~~were~~are potential orders under MSAs and non-fixed price contracts expected to be completed within one year.

Recognition of Revenue Upon Satisfaction of Performance Obligations

A transaction price is determined for each contract, and that amount is allocated to each performance obligation within the contract and recognized as revenue when, or as, the performance obligation is satisfied. Quanta generally recognizes revenue over time as it performs its obligations because there is a continuous transfer of control of the deliverable to the customer. ~~Quanta believes that the following methods provide a faithful depiction of when performance obligations under its contracts with customers are satisfied.~~ Under unit-based contracts with an insignificant amount of partially completed units, Quanta recognizes revenue as units are completed based on contractual pricing amounts. Under unit-based 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 under the newly adopted revenue recognition guidance.~~capitalized. Such costs were not material during the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018.

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 engineers, project managers and financial professionals. Some of the factors that may lead to changes in estimates include concealed or unknown environmental conditions; changes in the cost of equipment, commodities, materials or labor; unanticipated costs or claims due to delays caused by customers or third parties; customer failure to provide required materials or equipment; errors in engineering, specifications or designs;

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

project modifications or contract termination; weather conditions; changes in estimates related to the length of time to complete a performance obligation; and performance and quality issues 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 into profitability or losses associated with the related performance obligations. For example, estimated costs for a performance obligation may increase from the original estimate and contractual provisions may not allow for adequate

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

compensation or reimbursement for such additional costs. Changes in estimated revenues, costs and profit are recorded in the period they are determined to be probable and can be reasonably estimated. Contract losses are recognized in full when losses 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 and/or claims, which may be approved or unapproved by the customer. Quanta determines the probability that such costs will be recovered based on, among other things, contractual entitlement, past practices with the customer, specific discussions or preliminary negotiations with the customer or verbal approvals by the customer. Quanta recognizes amounts associated with change orders and claims ~~as costs of contract performance in the period incurred if it is not probable that the amounts will be recovered or~~ 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Quanta had recognized revenues of ~~$110.6~~$122.8 million and ~~$144.0~~$121.8 million related to change orders and claims included as contract price adjustments and that were in the process of being negotiated in the normal course of business. These aggregate amounts, which were included in “Contract assets” in the accompanying condensed consolidated balance sheets, represent management’s estimates of additional contract revenues that ~~had been~~were earned and ~~were~~ probable of collection. ~~The~~However, Quanta’s estimates could be incorrect and the amount ultimately realized ~~by Quanta cannot currently be determined but~~ 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.

~~During~~Changes in contract estimates are recognized on a cumulative catch-up basis in the ~~three and six months ended June 30, 2018, revenues were favorably impacted by $15.8 million and $47.4 million as a result of~~period in which the revisions to the estimates are made. Such changes in estimates ~~associated with~~can result in the recognition of revenue in a current period for performance obligations ~~on fixed price contracts~~that were satisfied or partially satisfied in prior ~~to March 31, 2018 and December 31, 2017. Quanta’s operating results for the three months ended June 30, 2018 were favorably impacted by $0.8 million, or 0.2% of gross profit, as a result of~~periods. Such changes in estimates ~~associated with performance obligations on fixed price contracts partially satisfied prior to March 31, 2018. Quanta’s operating results for~~may also result in the ~~six months ended June 30, 2018 were favorably impacted by $14.2 million,~~reversal of previously recognized revenue if the current estimate differs from the previous estimate. The impact of a change in estimate is measured as the difference between the revenue or ~~2.2% of~~ gross profit recognized in the prior period as ~~a result~~compared to the revenue or gross profit which would have been recognized had the revised estimate been used as the basis of ~~changes~~recognition in ~~estimates associated with performance obligations on fixed price contracts partially satisfied~~the prior to December 31, 2017. The three and six months ended June 30, 2018 included positive changes of $16.6 million and $26.3 million related to an electric transmission project in Canada, on which Quanta successfully executed through project procurement, winter schedule and productivity risks during the first half of the project, resulting in a decrease of the cost contingency amounts associated with the project. These positive changes were partially offset by negative changes in estimates on other ongoing projects.period.

Quanta’s operating results for the three months ended ~~June 30, 2017~~March 31, 2019 and 2018 were ~~favorably~~ impacted by ~~$28.8 million, or 9.5% of gross profit,~~less than 5% as a result of aggregate changes in contract estimates ~~associated with performance obligations on fixed price contracts partially satisfied prior~~related to ~~March~~projects that were in progress at December 31, ~~2017. The impact for~~2018 and 2017, respectively. However, certain projects were materially impacted by changes to total estimated contract revenues and/or costs during the three months ended ~~June 30, 2017 included $24.6~~March 31, 2019 and 2018. During the three months ended March 31, 2019, Quanta completed construction of an electrical transmission project in Canada ahead of schedule, resulting in lower costs than previously estimated. This change positively impacted gross profit related to work performed in prior periods by $25.5 million ~~of positive changes~~during the three months ended March 31, 2019, which was partially offset by an aggregate negative change in estimates on ~~two natural gas pipeline projects that were nearing completion, which primarily~~other ongoing projects. During the three months ended March 31, 2018, Quanta successfully executed through project procurement, winter schedule challenges and productivity risks on the electrical transmission project in Canada referenced above, resulting in reductions to the estimated total costs necessary to complete the project. These changes positively impacted gross profit related to work performed in prior periods by $16.8 million during the ~~favorable mitigation of project risks and the release of related cost contingencies. Quanta’s operating results for the six~~three months ended ~~June 30, 2017 were favorably impacted~~March 31, 2018. This positive change was partially offset by ~~$31.0 million, or 5.5% of gross profit, as a result of changes~~an aggregate negative change in estimates ~~associated with performance obligations~~ on ~~fixed price contracts partially satisfied prior to December 31, 2016.~~other ongoing projects.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Revenues by Category

The following tables present Quanta’s revenue disaggregated by geographic location and contract type for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 (in thousands):


	Three Months Ended		Six Months Ended		Three Months Ended March 31,
	June 30, 2018		June 30, 2018		2019				2018
By primary geographic location:
United States	$	2,193,437	$	3,905,864	$	2,200,615	78.4	%	$	1,712,427	70.8	%
Canada	315,173		853,531		485,430		17.3	%	538,358		22.3	%
Australia	113,880		233,337		41,324		1.5	%	119,457		4.9	%
Latin America and Other	33,858		81,192		79,890		2.8	%	47,334		2.0	%
Total revenues	$	2,656,348	$	5,073,924	$	2,807,259	100.0	%	$	2,417,576	100.0	%



	Three Months Ended March 31,
	2019				2018
By contract type:
Unit-price contracts	$	895,044	31.9	%	$	613,438	25.3	%
Fixed price contracts	953,860		34.0	%	1,225,089		50.7	%
Cost-plus contracts	958,355		34.1	%	579,049		24.0	%
Total revenues	$	2,807,259	100.0	%	$	2,417,576	100.0	%

Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018
By contract type:
Unit-price contracts $ 1,018,145
$ 1,631,583
Fixed price contracts 1,032,991
2,258,080
Cost-plus contracts 605,212
1,184,261
Total revenues $ 2,656,348
$ 5,073,924
As described above, under unit-based 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 49.0% and 54.2% of Quanta’s revenues recognized during the three months ended March 31, 2019 and 2018 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 the intent is 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 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 protect Quanta from the other party failing to meet its obligations under the contract. Contract assets and liabilities are recorded on a performance obligation basis at the end of each reporting period.

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



	March 31, 2019		December 31, 2018
Contract assets	$	573,248	$	576,891
Contract liabilities	$	403,372	$	425,961

June 30, 2018 December 31, 2017
Contract assets $ 551,505
$ 497,292
Contract liabilities $ 496,083
$ 433,387

The increase in contract assets was primarily due to an increase in revenues for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. The increase in contract liabilities was primarily due to an advanced billing position related to the electric transmission project in Canada mentioned above.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, Quanta recognized revenue of approximately ~~$79~~$262 million and ~~$343~~$264 million related to contract liabilities outstanding at December 31, 2018 and 2017. Additionally, during the three months ended March 31, 2019 and 2018, revenues were favorably impacted by $17 million and $26 million as a result of changes in

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

estimates associated with performance obligations on fixed price contracts partially satisfied prior to December 31, 2018 and 2017. Impairment losses recognized on contract assets were not material for the three months ended March 31, 2019 and 2018.

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

Quanta provides an allowance for doubtful accounts when collection of an account or note receivable is considered doubtful, and receivables are written off against the allowance when deemed uncollectible. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates regarding, among other factors, the customer’s access to capital, the customer’s willingness or ability to pay, general economic and market conditions, the ongoing relationship with the customer and uncertainties related to the resolution of disputed matters. Quanta considers accounts receivable delinquent after 30 days but does not generally include delinquent accounts in its analysis of the allowance for doubtful accounts unless the accounts receivable have been outstanding for at least 90 days. Quanta also includes accounts receivable balances that relate to customers in bankruptcy or with other known difficulties in its analysis of the allowance for doubtful accounts. Material changes to a customer’s business, cash flows or financial condition, which may be impacted by negative economic and market conditions, could affect Quanta’s ability to collect amounts due. Should anticipated recoveries relating to receivables fail to materialize (including anticipated recoveries relating to existing bankruptcies or other workout situations), Quanta could experience reduced cash flows and losses in excess of current allowances provided. As of March 31, 2019 and December 31, 2018, Quanta had allowances for doubtful accounts on current receivables of $8.5 million and $5.8 million. See Note 11 for additional information related to the bankruptcy matter involving PG&E Corporation and its primary operating subsidiary, Pacific Gas and Electric Company (collectively PG&E), a significant customer of Quanta, which was filed on January 29, 2019.

Long-term accounts receivable are included within “Other assets, net” in the accompanying condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, long-term accounts receivable were $69.0 million and $25.9 million. Included in the March 31, 2019 balance was $41.2 million of pre-petition receivables due from PG&E, which were reclassified from current accounts receivable during the three months ended March 31, 2019, as further described in Note 11.

Some contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contracts and acceptance by the customer. Based on Quanta’s experience with similar contracts in recent years, the majority of the retainage balances at each balance sheet date are expected to be collected within the next twelve months. Current retainage balances as of March 31, 2019 and December 31, 2018 were $467.5 million and $337.1 million and were included in “Accounts receivable.” Retainage balances with settlement dates beyond the next twelve months were included in “Other assets, net,” and as of March 31, 2019 and December 31, 2018 were $8.6 million and $99.6 million.

Quanta recognizes unbilled receivables for non-fixed price contracts within “Accounts receivable” in certain circumstances, such as when revenues have been earned and recorded but the amount cannot be billed under the terms of the contract until a later date ~~costs have been incurred but are yet to be billed~~ or if amounts arise from routine lags in ~~billing.~~billing (for example, work completed one month but not billed until the next month). These balances do not include revenues recognized for work performed under fixed-price contracts, as these amounts are recorded as “Contract assets.” At March 31, 2019 and December 31, 2018, the balances of unbilled receivables included in “Accounts receivable” were $481.3 million and $434.9 million. Quanta also recognizes unearned revenues for non-fixed

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

price contracts when cash is received prior to recognizing revenues for the related performance obligation. Unearned revenues, which are included in “A~~ccounts~~ “Accounts payable and accrued expenses,” were~~$11.4~~ $28.8 million and ~~$16.0~~$40.1 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

~~Impairment~~Cash and Cash Equivalents

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



	March 31, 2019		December 31, 2018
Cash and cash equivalents held in domestic bank accounts	$	57,706	$	62,495
Cash and cash equivalents held in foreign bank accounts	27,717		16,192
Total cash and cash equivalents	$	85,423	$	78,687

Cash consisting of interest-bearing demand deposits is carried at cost, which approximates fair value. Quanta considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which are carried at fair value. At March 31, 2019 and December 31, 2018, cash equivalents were $37.6 million and $37.2 million and consisted primarily of money market investments and money market mutual funds and are discussed further in Fair Value Measurements below.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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 the joint ventures’ cash and cash equivalents other than participating in distributions and in the event of dissolution. Amounts related to cash and cash equivalents held by joint ventures, which are included in Quanta’s total cash and cash equivalents balances, were as follows (in thousands):



	March 31, 2019		December 31, 2018
Cash and cash equivalents held by domestic joint ventures	$	12,337	$	8,544
Cash and cash equivalents held by foreign joint ventures	11		441
Total cash and cash equivalents held by joint ventures	12,348		8,985
Cash and cash equivalents not held by joint ventures	73,075		69,702
Total cash and cash equivalents	$	85,423	$	78,687

Goodwill

Goodwill, net of accumulated impairment losses, ~~recognized~~which represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses, is stated at cost. Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Quanta has recorded goodwill in connection with its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of Quanta’s existing operating units or managed on ~~contract assets were not material~~a stand-alone basis as an individual operating unit. Quanta’s operating units are organized into one of two internal divisions. The two internal divisions are: the Electric Power Infrastructure Services Division and the Pipeline and Industrial Infrastructure Services Division. As most of the companies acquired by Quanta provide multiple types of services for multiple types of customers, these divisional designations are based on the predominant type of work performed by an operating unit at the point in time the divisional designation is made. Goodwill is required to be measured for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available. Quanta has determined that its individual operating units represent its reporting units for the purpose of assessing goodwill impairment. An annual assessment for impairment is performed for each reporting unit that carries a balance of goodwill.

Quanta’s goodwill impairment assessment is performed during the fourth quarter of its fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. An assessment can be performed by first completing a qualitative assessment on none, some or all of its reporting units. Quanta can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, a significant change in 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 may trigger the need for interim impairment testing of goodwill associated with one or more of Quanta’s reporting units.

If Quanta believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of each of Quanta’s reporting units with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to “Asset impairment charges” in the condensed 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. Any goodwill impairment is limited to the total amount of goodwill allocated to that reporting unit.

Quanta determines the fair value of its reporting units using a weighted combination of the income approach (discounted cash flow method) and market multiples valuation techniques (market guideline transaction method and market guideline public company method), with heavier weighting 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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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. All cash flow projections by reporting unit are evaluated by management. 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 EBITDA and then averaging that estimate with similar historical calculations using either a one, two or three year average. The transaction multiples are based on observed purchase transactions for similar businesses adjusted for size, volatility and ~~six~~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.

For Quanta’s annual goodwill impairment assessment performed during the fourth quarter of 2018, Quanta concluded to first assess qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis. As a result of the qualitative assessment, Quanta identified certain reporting units for which a quantitative goodwill impairment assessment was determined appropriate based on either changes in market conditions or specific performance indicators. Ultimately, the quantitative analyses indicated that the fair value of each of the selected reporting units was in excess of its carrying amount. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarter of 2018.

Although, no goodwill impairment charges were recorded during the year ended December 31, 2018, 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. Accordingly, management considered the sensitivity of its fair value estimates to changes in certain valuation assumptions. After taking into account a 10% decrease in the fair value of the reporting units for which a quantitative impairment test was performed, two reporting units within Quanta’s Pipeline and Industrial Infrastructure Services Division would have fair values below their carrying amounts. One of the reporting units is a material handling services business, and the other reporting unit operates within the midstream and smaller-scale pipeline market. Goodwill and intangible assets associated with these two reporting units were $48.5 million and $10.7 million at March 31, 2019.

If an operating unit experiences prolonged periods of declining revenues, operating margins or both, it may be at risk of failing the quantitative goodwill impairment test. The reporting units referenced above have experienced declines over the short-term due to challenging macroeconomic conditions in certain geographic areas and low oil and natural gas prices, which have negatively impacted customer spending and resulted in project cancellations and delays. Additionally, customer capital spending has been constrained as a result of an increasingly complex regulatory and permitting environment. Quanta monitors these conditions and others to determine if it is necessary to perform the quantitative fair value impairment test for one or more operating units prior to the annual impairment assessment.

Due to the cyclical nature of Quanta’s business, and the other factors described above, the profitability of its individual reporting units may suffer from decreases in customer demand and other factors. These factors may have a disproportionate impact on the individual reporting units as compared to Quanta as a whole and might adversely affect the fair value of individual reporting units. If material adverse conditions occur that impact Quanta’s reporting units, its future estimates of fair value may not support the carrying amount of one or more of its reporting units, and the related goodwill would need to be written down to an amount considered recoverable.

Other Intangible Assets

Quanta’s intangible assets include customer relationships, backlog, trade names, non-compete agreements, patented rights and developed technology and curriculum, all of which are subject to amortization, as well as an engineering license, which is not subject to amortization. The 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 analysis 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 SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table presents the significant estimates used by management in determining the fair values of customer relationships associated with acquisitions in the three months ended ~~June 30, 2018.~~March 31, 2019 and year ended December 31, 2018:

~~Practical Expedients and Exemptions~~



	2019	2018
Discount rates	21%	20% to 27%
Customer attrition rates	27%	20% to 33%

Quanta ~~utilizes certain practical expedients~~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 ~~exemptions associated~~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 and curriculum. The value of a non-compete agreement is estimated based on the difference between the present value of the prospective cash flows with the agreement in place and the present value of the prospective cash flows without the agreement in place. The value of the engineering license is based on cash paid to acquire the asset.

Quanta amortizes the intangible assets that are subject to amortization based upon the estimated consumption of their economic benefits, or on a straight-line basis if the pattern of economic benefit cannot otherwise be reliably estimated. Intangible assets are reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For instance, a significant change in business climate or a loss of a significant customer, among other things, may trigger the need for interim 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. Intangible asset impairments are included within “Asset impairment charges” in the condensed consolidated statements of operations, when applicable.

Leases

As described further in Note 3, effective January 1, 2019, Quanta adopted the new ~~revenue recognition guidance. For example, Quanta elected~~lease accounting standard utilizing the ~~modified retrospective~~ transition method ~~which allowed~~that allows entities to apply the ~~guidance~~new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if applicable. Quanta’s financial results for reporting periods after January 1, 2019 are presented under the new standard, while financial results for prior periods continue to be ~~applied only to contracts that were not considered substantially complete~~reported in accordance with the prior standard and Quanta’s historical accounting policy. The adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of $301.1 million as of January 1, ~~2018. Additionally,~~2019. 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. Although the adoption of the new standard had a material impact on Quanta’s consolidated balance sheet, there was not a material impact on its consolidated statements of operations, comprehensive income, cash flows or equity.

Quanta determines if an arrangement contains a lease at inception. If an arrangement is considered a lease, Quanta determines whether the lease is an operating or finance lease at the commencement of the lease. In accordance with the new standard, 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 from lease to lease, and certain leases include one or more of the following: renewal options, cancellation options, residual value guarantees, purchase options and escalation clauses. Options to extend or terminate leases are included within the lease terms when it is reasonably certain that Quanta will exercise such options. Quanta has made a policy election to classify leases with an initial lease term of 12 months or less as short-term leases, and these leases are not recorded in the accompanying condensed consolidated balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised. Lease cost related to short-term leases is recognized on a straight-line basis over the lease term.

Determinations with respect to lease term (including any extension thereof), discount rate, variable lease cost and future minimum lease payments require the use of judgment based on the facts and circumstances related to each lease. Quanta considers

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

various factors, including economic incentives, intent, past history and business need, to determine if a renewal option is reasonably certain of exercise. Unless a renewal option is reasonably certain to be exercised, which is 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 Entities

In the normal course of business, Quanta enters into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by Quanta in business entities, including general or limited partnerships, contractual joint ventures, or other forms of equity or profit participation. These investments may also include Quanta’s participation in different financing structures, such as the extension of loans to project-specific entities, the acquisition of convertible notes issued by project specific entities, or other strategic financing arrangements. Quanta also enters into strategic partnerships with customers and infrastructure investors to provide fully integrated infrastructure services 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. As part of this strategy, Quanta formed a partnership with select investors that provides up to $1.0 billion of capital, including approximately $80.0 million from Quanta, available to invest in certain of these infrastructure projects through August 2024. Wholly owned subsidiaries of Quanta serve as the general partner of this partnership and as a separately operated registered investment adviser that manages the invested capital. As of March 31, 2019, Quanta had contributed $15.1 million to this partnership in connection with certain investments and the payment of management fees.

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

Investments in entities of which Quanta is not the primary beneficiary, but over which Quanta has the ability to exercise significant influence, are accounted for using the equity method of accounting. Quanta’s share of net income or losses from unconsolidated equity investments is reported as equity in earnings (losses) of unconsolidated affiliates, which is included in “Other income (expense), net” in the accompanying condensed consolidated statements of operations. Equity investments are reviewed for impairment by assessing whether any decline in the fair value of the investment below the carrying amount is other than temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain an earnings capacity are evaluated in determining whether a loss in value should be recognized. Any impairment losses related to investments would be recognized in equity in earnings (losses) of unconsolidated affiliates. Equity method investments are carried at original cost adjusted for Quanta’s proportionate share of the investees’ income, losses and distributions and are included in “Other assets, net” in Quanta’s accompanying condensed consolidated balance sheets.

Quanta has a ~~right~~minority ownership interest in a limited partnership that was selected during 2014 to ~~consideration from~~build, own and operate a new 500 kilometer electric transmission line and two 500 kV substations in Alberta, Canada and has 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 recognizes revenue and related cost of services as performance progresses 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 were 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 unconsolidated affiliates, which is included in “Other income (expense), net” in the accompanying condensed 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.

Investments in entities 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. These 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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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 ~~amount that corresponds directly with~~identical or a similar investment of the same company.

During 2018, Quanta acquired a 30% equity interest in a water and gas pipeline infrastructure contractor located in Australia for $22.2 million. This investment includes an option to acquire the remaining equity of the company through 2020 and provides for certain additional earnings and distribution participation rights during a designated 25-month post-investment period, as well as preferential liquidation rights. Quanta’s equity interest has been recorded at cost and will be adjusted for impairment, if any, plus or minus observable changes in the value of ~~Quanta’s performance completed to date, Quanta recognizes revenue~~the company’s equity. Earnings on this investment are recognized as dividends are received and are reported in “Other income (expense), net” in the ~~amount~~accompanying condensed consolidated statements of operations. Quanta received and recognized $3.9 million in cash dividends from this investment during 2018. Additionally, during the year ended December 31, 2018, Quanta acquired a 49% equity interest in an electric power infrastructure services company, together with certain related customer relationship and other intangible assets, for $12.3 million in total. See Notes 9 and 11 for additional information related to which it has a right to invoice and does not disclose such performance as a remaining performance obligation. Also, contract consideration is not adjusted for the effects of a significant financing component if payment is expected to be collected less than one year from when the services are performed.investments.

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 in those instances where Quanta considers it more likely than not that additional taxes may be due in excess of amounts reflected on income tax returns filed. When recording these reserves, Quanta assumes that taxing authorities have full knowledge of the position and all relevant facts. Quanta continually reviews exposure to additional tax obligations, and as further information is known or events occur, changes in tax reserves may be recorded. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and included in the provision for income taxes.

As of ~~June 30, 2018~~,March 31, 2019, the total amount of unrecognized tax benefits relating to uncertain tax positions was ~~$35.4~~$38.8 million,, a $2.3 million decrease from December 31, ~~2017~~ ~~of $0.8 million.~~2018. This decrease resulted primarily from ~~$2.9 million~~the favorable settlement of ~~payments related to uncertain tax positions for tax years 2012, 2013~~a pre-acquisition obligation associated with certain non-U.S. income taxes and ~~2014, partially offset by a $2.1 million increase in reserves for uncertain tax positions to be taken for 2018. Although~~ the ~~Internal Revenue Service (IRS) completed its examination~~expiration of ~~Quanta’s consolidated~~U.S. state income tax ~~return for tax years 2010, 2011 and 2012 during the year ended December 31, 2016,~~statutes. Quanta and certain subsidiaries remain under examination by various U.S. state and Canadian and other foreign tax authorities for multiple periods. Quanta believes it is reasonably possible that within the next 12 months unrecognized tax benefits may decrease by up to ~~$13.7~~$5.9 million as a result of settlement of these examinations or as a result of the expiration of certain statute of limitations periods.

U.S. federal and state and foreign income tax laws and regulations are voluminous and ~~are~~ often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in its future consolidated balance sheets, consolidated statements of operations and consolidated statements of comprehensive income. For example, the Tax Cuts and Jobs Act of 2017 (the Tax Act) significantly revised the U.S. corporate tax regime ~~and~~which, among other things, resulted in a reduction of Quanta’s current and estimated future effective tax rate and a remeasurement of its deferred tax assets and liabilities.

The Tax Act, among other things, lowered the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries, limited and eliminated certain tax deductions and created new taxes on certain foreign-sourced earnings. Consequently, for the year ended December 31, 2017, Quanta recorded one-time net tax benefits of $70.1 million, including $85.3 million of tax benefits associated with the re-measurement of U.S. federal deferred tax assets and liabilities based on expected future rates (generally 21%), partially offset by an estimated $15.2 million transition tax on post-1986 earnings and profits of certain foreign subsidiaries. For the year ended December 31, 2017, an additional one-time tax benefit of $26.7 million was recorded in connection with entity restructuring and

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

recapitalization transactions completed by Quanta, which was partially offset by an $8.5 million decrease in the production activity-related tax benefit that resulted from acceleration of certain deductions into 2017.

While Quanta has substantially completed its provisional analysis of the effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time benefits and calculation of income tax expense related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of Quanta’s calculations, changes in interpretations and assumptions made, additional regulatory guidance, and actions and related accounting policy decisions resulting from the Tax Act. For example, the Tax Act imposes a tax on global intangible low-taxed income (GILTI), and it is unclear if GILTI should be included in the period in which it is incurred or whether deferred tax assets and liabilities should be recognized for basis differences expected to reverse as GILTI in future years. Quanta continues to analyze the impacts of the GILTI provision; however, due to the complexity of the new rules, Quanta’s analysis is not yet complete. Accordingly, Quanta has not yet made an accounting policy election related to GILTI. Quanta will complete its analysis of the Tax Act over the one-year measurement period ending December 22, 2018, and any adjustments during the measurement period will be included within “Net income” as an adjustment to “Provision for income taxes” on Quanta’s consolidated statement of operations in the reporting period when such adjustments are determined.

Earnings Per Share

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

were outstanding. Weighted average shares outstanding for basic and diluted earnings per share attributable to common stock for ~~each of~~ the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 included 2.6 million weighted average participating securities. Weighted average shares outstanding for basic and diluted earnings per share attributable to common stock for the three and six months ended June 30, 2017 included 2.32.8 million and ~~2.5~~2.7 million weighted average participating securities. Diluted earnings per share attributable to common stock is computed using the weighted average number of shares of common stock outstanding during the period adjusted for all potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalents would be antidilutive.

Insurance

Quanta is insured for employer’s liability, workers’ compensation, auto liability and general liability claims. Under these programs, the deductible for employer’s liability is $1.0 million per occurrence, the deductible for workers’ compensation is $5.0 million per occurrence, and the deductibles for auto liability and general liability are $10.0 million per occurrence. Quanta manages and maintains a portion of its casualty risk through its wholly-owned captive insurance company, which insures all claims up to the amount of the applicable deductible of its third-party insurance programs. Quanta also has employee health care benefit plans for most employees not subject to collective bargaining agreements, of which the primary plan is subject to a deductible of $0.5 million per claimant per year.

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

Collective Bargaining Agreements

Some of Quanta’s operating units are parties to various collective bargaining agreements with unions that represent certain of their employees. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to those in the expiring agreements. The agreements require the operating units to pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. Quanta’s multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on its union employee payrolls. The location and number of union employees that Quanta employs at any given time and the plans in which they may participate vary depending on the projects Quanta has ongoing at that time and the need for union resources in connection with

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

those projects. Therefore, Quanta is unable to accurately predict the union employee payroll and the amount of the resulting multiemployer pension plan contribution obligations for future periods.

Stock-Based Compensation

Quanta recognizes compensation expense for restricted stock, restricted stock units (RSUs) and performance units to be settled in common stock based on the fair value of the awards, net of estimated forfeitures. The fair value of these awards is generally determined based on the number of shares or units granted and the closing price of Quanta’s common stock on the date of ~~grant, with the exception of~~grant. For those performance units with market-based metrics, the fair value ~~of which~~ is determined using a Monte Carlo simulation valuation methodology. An estimate of future forfeitures, based on historical data, is utilized to determine the period expense. Such estimates are subject to change and may impact the value that will ultimately be recognized as compensation expense. The resulting compensation expense for performance unit 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 performance units can also vary from period to period based on changes in the total number of shares of common stock that Quanta anticipates will be issued upon vesting of such performance units. 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 on the settlement date of one share of Quanta common stock, as specified in the applicable award agreement. For additional information on Quanta’s restricted stock, RSU and performance unit awards, see Note 9.10.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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, Australia and Latin America, is typically the currency of the country where the foreign operating unit is located and transacts the majority of its activities, including billings, financing, payroll and other expenditures. ~~The treatment of foreign currency translation gains or losses is dependent upon management’s determination of the functional currency, and when~~When preparing its consolidated financial statements, Quanta translates the financial statements of its foreign operating units from their functional currency into U.S. dollars. Statements of operations, comprehensive income and cash flows are translated at average monthly rates, while balance sheets are translated at month-end exchange rates. The translation of the balance sheet results in translation gains or losses, which are included as a separate component of equity under “Accumulated other comprehensive income (loss).” Gains and losses arising from transactions not denominated in functional currencies are included within “Other income (expense)”, net” in the accompanying condensed consolidated statements of operations.

Comprehensive Income

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

Litigation Costs and Reserves

Quanta records reserves when the likelihood of incurring a loss is probable and the amount of loss can be reasonably estimated. Costs incurred for litigation are expensed as incurred. ~~Further details are presented in~~See Note ~~10.~~11 for additional information related to legal proceeding and other contingencies.

Fair Value Measurements

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

Contingent Consideration Liabilities. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, financial instruments required to be measured at fair value on a recurring basis consisted primarily of Quanta’s liabilities related to contingent consideration associated

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

with certain acquisitions, the payment of which is contingent upon the ~~future~~achievement of certain performance ofobjectives by the acquired businesses during post-acquisition periods and, if earned, would be payable to the former owners of the acquired businesses. The liabilities recorded represent the estimated fair values of future amounts payable to the former owners ~~and~~of the ~~fair values~~acquired businesses and are estimated by management based on entity-specific assumptions that are evaluated on an ongoing basis. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the aggregate fair value of these outstanding and unearned contingent consideration liabilities totaled ~~$73.0~~$70.7 million and ~~$65.7~~$70.8 million, all of which was included in “Insurance and other non-current liabilities” in the accompanying condensed consolidated balance sheets.

Quanta expects a significant portion of these liabilities to be settled by late 2020 or early 2021. The fair ~~value~~values of contingent consideration liabilities as of ~~June 30, 2018~~March 31, 2019 was 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 factors ranged from ~~23.0%~~22.2% to 30.0% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present ~~value~~values of the estimated payments are discounted based on a risk-free rate and/or Quanta’s cost of debt, ranging from 2.1% to ~~3.4%~~3.9%.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. ~~Quanta expects a significant portion of these liabilities to be settled by late 2020 or early 2021.~~

The majority of Quanta’s contingent consideration liabilities are subject to a maximum payment amount, ~~and the aggregate maximum payout amount for these liabilities was $154.4~~which aggregated to $157.3 million as of ~~June 30, 2018.~~March 31, 2019. One contingent consideration liability is not subject to a maximum payout amount, and ~~the~~that liability had a fair value of ~~that liability was~~ $1.0 million as of ~~June 30, 2018.~~March 31, 2019.

Quanta’s aggregate contingent consideration liabilities can change due to additional business acquisitions, payments to settle outstanding liabilities, changes in the fair value of amounts owed based on actual or forecasted performance, and foreign currency translation gains or losses. During the three months ended June 30, 2018, there were no acquisitions, and during the six months ended June 30, 2018, one acquisition increased Quanta’s contingent consideration liabilities by $13.7 million. There was no increase to Quanta’s contingent consideration liabilities due to acquisitions during the three and six months ended June 30, 2017. During the three and six months ended June 30, 2018 and 2017,March 31, 2019, Quanta ~~made no payments related to contingent consideration liabilities. During the three and six months ended June 30, 2018, there was~~recognized a ~~$6.3 million~~net decrease in the fair value of contingent consideration liabilities ~~primarily due to changes~~of $0.1 million, which was reflected in ~~forecasted performance for two acquired companies. The~~“Change in fair value of contingent consideration

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

liabilities” in the accompanying condensed consolidated statements of operations. There was no change in fair value of contingent consideration liabilities ~~has been reflected~~ in ~~operating income on Quanta’s consolidated statements of operations.~~the three months ended March 31, 2018.

Goodwill and Other Intangible Assets. ~~In connection with Quanta’s acquisitions,~~ As discussed in the Goodwill and Other Intangible Assets sections within this Note 2 above, Quanta has recorded goodwill and identifiable intangible assets ~~acquired typically include goodwill, backlog, customer relationships, trade names, covenants not-to-compete, patented rights and developed technology and curriculum.~~in connection with certain of its historical business acquisitions. Quanta utilizes the fair value premise as the primary basis for its impairment valuation ~~procedures, which is a market-based~~procedures. The Goodwill and Other Intangible Assets sections provide information regarding valuation methods, including the income approach, market approach and cost approach, and assumptions used to determine fair values of these assets based on the ~~price~~appropriateness of each method in relation to the type of asset being valued. Quanta believes that these valuation methods appropriately represent the methods that would be ~~received upon the sale of an asset or paid to transfer a liability~~used by other market participants in ~~an orderly transaction between market participants. Quanta~~determining fair value, and periodically engages the services of an independent valuation firm when a new business is acquired to assist management with this valuation process, including assistance with the selection of appropriate valuation methodologies and the development of market-based valuation assumptions. Based on these considerations, management utilizes various valuation methods, including an income approach, a market approach and a cost approach, to determine the fair value of intangible assets acquired based on the appropriateness of each method in relation to the type of asset being valued. The assumptions used in these valuation methods are analyzed and compared, where possible, to available market data, such as industry-based weighted average costs of capital and discount rates, trade name royalty rates, public company valuation multiples and recent market acquisition multiples. In accordance with its annual impairment test during the quarter ended ~~December 31, 2017, the carrying amounts of such assets, including goodwill, were compared to their fair values.~~ The level of inputs used for these fair value measurements is the lowest level (Level 3). Quanta uses the assistance of third party specialists to develop valuation assumptions. Quanta believes that these valuation methods appropriately represent the methods that would be used by other market participants in determining fair value.

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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

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).

Other. The carrying amounts of cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying amount of variable rate debt also approximates fair value. All of Quanta’s cash equivalents were categorized as Level 1 assets at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, as all values were based on unadjusted quoted prices for identical assets in an active market that Quanta has the ability to access.

Additionally, during the three months ended June 30, 2018, Quanta recorded a $3.3 million charge associated with the planned exchange of a construction barge for an industrial property, and during the three months ended March 31, 2017, Quanta recorded a $1.9 million charge associated with the planned disposition of the same construction barge, which was not consummated.

3. NEW ACCOUNTING PRONOUNCEMENTS:

Adoption of New Accounting Pronouncements

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued an update that superseded most revenue recognition guidance, as well as certain cost recognition guidance. The update, together with other clarifying updates, requires that the recognition of revenue related to the transfer of goods or services to customers reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update also requires additional qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments, and information about contract balances and performance obligations.

Quanta adopted the new revenue recognition guidance using the modified retrospective transition method effective January 1, 2018, applying the guidance to contracts that were not substantially complete as of such date. Quanta’s financial results for reporting periods after January 1, 2018 have been and will be presented under the new guidance, while financial results for prior periods will continue to be reported in accordance with the prior guidance and Quanta’s historical accounting policy. The net cumulative adjustment resulting from adoption was a $1.8 million reduction to retained earnings as of January 1, 2018, which primarily related to certain contracts that are now accounted for as a single performance obligation but were previously accounted for separately for revenue recognition purposes.

Quanta has not experienced significant changes to the pattern of revenue recognition for its contracts, the identification of contracts and performance obligations or the measurement of variable consideration. For the three and six months ended June 30, 2018, the impact related to the adoption of the new revenue recognition guidance on revenues, contract assets and contract liabilities was immaterial. Quanta has also expanded its discussion in Note 2 above to address the quantitative and qualitative disclosure requirements of the new revenue recognition standard.

In January 2016, the FASB issued an update that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments to provide users of financial statements with more decision-useful information. This update requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Quanta adopted the new standard effective January 1, 2018. Quanta’s equity investments that are within the scope of this update do not have readily determinable fair values. Accordingly, Quanta continues to measure these investments at cost less any impairments and also considers changes resulting from any observable price changes as described above. The new standard is not expected to have a material impact on Quanta’s consolidated financial statements in the near-term based on the equity investments held at the time of adoption.

In August 2016, the FASB issued an update intended to standardize the classification of certain transactions on the statements of cash flows. These transactions include contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investments. The new standard requires application using a retrospective transition method. Quanta adopted this guidance effective January 1, 2018, and the changes did not have a material impact on its consolidated financial statements.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

In October 2016, the FASB issued an update that requires a reporting entity to recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction should be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. Quanta adopted this guidance effective January 1, 2018 utilizing the modified retrospective method, and the changes did not have a material impact on its consolidated financial statements.

In November 2016, the FASB issued an update intended to standardize the classification of restricted cash and cash equivalents transactions on the statement of cash flows. The new guidance requires net cash withdrawn from (deposited to) restricted cash to be removed from investing activities. Additionally, restricted cash balances for each period are included with “Cash and cash equivalents” in order to obtain beginning and ending balances for condensed consolidated statement of cash flow purposes, and any activity between “Cash and cash equivalents” and restricted cash is no longer reported on Quanta’s consolidated statements of cash flows. Quanta adopted this guidance effective January 1, 2018 utilizing the retrospective transition method, and the changes did not have a material impact on its consolidated financial statements. See Note 12 for reconciliations of “Cash and cash equivalents” and restricted cash.

In January 2017, the FASB issued an update intended to clarify whether transactions should be accounted for as acquisitions or disposals of assets or businesses. When substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or group is not a business. The update requires, among other things, that to be considered a business, a set of assets and activities must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Additionally, the update removes the evaluation of whether a market participant could replace missing elements in order to consider the set of assets and activities a business, provides more stringent criteria for sets without outputs and narrows the definition of output. Quanta adopted this guidance effective January 1, 2018 utilizing the prospective transition method, and the changes did not materially impact its consolidated financial statements.

In May 2017, the FASB issued an update providing guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. A modification should be accounted for unless the following characteristics of the award are unchanged: the fair value, the vesting conditions and the classification as an equity instrument or a liability instrument. Quanta adopted this guidance effective January 1, 2018 using the prospective transition method, and the changes did not materially impact its consolidated financial statements.

~~Accounting Standards Not Yet Adopted~~

~~In February 2016, the FASB~~ issued an update that requires the recognition of operating lease right-of-use assets and ~~the~~ corresponding lease liabilities on ~~the~~an entity’s balance sheet. ~~The~~Effective January 1, 2019, Quanta adopted the new lease accounting standard ~~is effective for interim and annual periods beginning after December 15, 2018. In July 2018,~~utilizing the ~~FASB issued an update that provides entities a choice between the previously required modified retrospective transition method and another~~ transition method that allows entities to ~~initially~~ apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of ~~adoption. While Quanta continues~~adoption, if applicable. Quanta’s financial results for reporting periods after January 1, 2019 are presented under the new standard, while financial results for prior periods continue to ~~evaluate~~be reported in accordance with the ~~effect~~prior standard and Quanta’s historical accounting policy. The adoption of ~~this~~the new standard ~~on its consolidated financial statements, it is anticipated that adoption will result~~resulted in ~~a significant amount~~the recording of operating lease right-of-use assets and ~~corresponding~~operating lease liabilities ~~being recorded~~of $301.1 million as of January 1, 2019. Although the adoption of the new standard had a material impact on Quanta’s consolidated balance sheet, there was not a material impact on its consolidated ~~balance sheets. Quanta has established a cross-functional team to implement~~statements of operations, comprehensive income, cash flows or equity. Additionally, the adoption of this standard and is in the process of evaluating arrangements that will be subject to the standard, is implementing software to meet the reporting and disclosure requirements of the standard and is assessing the impact of the standard on its processes and internal controls. The standard isdid not ~~expected to~~ have a material impact on Quanta’s debt covenant compliance ~~with the financial covenants~~ under its senior secured ~~revolving current~~ credit facility.

Quanta ~~will adopt this~~elected certain practical expedients that, among other things, permit the identification and classification of leases in accordance with the previous guidance. Additionally, certain of Quanta’s real estate and equipment arrangements contain both lease and non-lease components (e.g., maintenance services). Quanta elected the practical expedient that allows an entity to not separate lease components from their associated non-lease components for such arrangements and accounted for both lease and non-lease components under the new standard. Quanta also made an accounting policy election allowed under the new standard whereby leases with terms of twelve months or less are not recorded on the balance sheet unless they contain a purchase option that is reasonably certain to be exercised.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Quanta also implemented new internal controls related to the preparation of financial information necessary for adoption of the new standard. The new lease standard also requires new disclosures that are designed to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases, which are included in Notes 2, 8 and 13.

In August 2017, the FASB issued an update that amends and simplifies existing guidance for presenting the economic effects of risk management activities in the financial statements. The update is effective for interim and annual periods beginning after December 15, 2018. The amended presentation and disclosure guidance is required only prospectively, but certain amendments, if applicable, could require a cumulative-effect adjustment. Quanta adopted the new standard effective January 1, 2019; however, as of March 31, 2019, ~~and will apply the transition method that allows the recognition of a cumulative-effect adjustment to retained earnings on such date.~~Quanta had no hedging relationships outstanding.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued an update that will change the way companies measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update will require companies to use an “expected loss” model for instruments measured at amortized cost and to record allowances for available-for-sale debt securities rather than reduce the carrying amounts. The update will also require disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. Companies will apply this standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The new standard is effective for interim and annual

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

reporting periods beginning after December 15, 2019. Quanta is currently evaluating the potential impact of this authoritative guidance on its consolidated financial statements and will adopt this guidance effective January 1, 2020.

In August ~~2017,~~2018, the FASB issued an update ~~which~~that amends certain disclosure requirements related to fair value measurements. Certain disclosure requirements will be removed, such as the valuation processes for Level 3 fair value measurements, and ~~simplifies existing guidance for presenting~~other disclosure requirements will be modified or added, including a new requirement to disclose the ~~economic effects~~range and weighted average (or a more reasonable and rational method to reflect the distribution) of ~~risk management activities in the financial statements. The~~significant unobservable inputs used to develop Level 3 fair value measurements. This update is effective for interim and annual periods beginning after December 15, ~~2018. The amended presentation~~2019. Certain amendments, including the disclosure of the range and ~~disclosure guidance is required only~~weighted average of significant observable inputs used to develop Level 3 fair value measurements, should be applied prospectively, ~~but certain~~while other amendments ~~if applicable, could require a cumulative-effect adjustment.~~should be applied retrospectively. Quanta is evaluating the impact of this new standard on its consolidated financial statements and will adopt the new standard effective January 1, ~~2019; however, as of June 30, 2018, Quanta had no hedging relationships outstanding.~~2020.


4.	ACQUISITIONS:

In January ~~2018,~~2019, Quanta acquired an ~~electrical infrastructure services~~electric power specialty contracting business ~~specializing in substation~~that provides aerial power line and construction ~~and relay~~support services and ~~a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen, both of which are~~is located in the United States. The ~~aggregate~~ consideration for ~~these acquisitions~~this acquisition was ~~$51.3~~$50.9 million ~~paid or payable~~ in cash, subject to certain adjustments, and 379,817 shares of Quanta common stock, which had a fair value of approximately $13.5 million as of the respective acquisition dates. Included in the cash consideration was $12.1 million paid in the second quarter of 2018 for the purchase of certain properties and training facilities related to the postsecondary educational institution. Additionally, the acquisition of the postsecondary educational institution includes the potential payment of up to $15.0 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 this contingent consideration, Quanta recorded a $13.7 million liability as of the acquisition date.cash. The results of the acquired ~~businesses~~business have generally been included in Quanta’s Electric Power Infrastructure Services segment and consolidated financial statements beginning on the acquisition ~~dates.~~

On July 20, 2017, Quanta acquired Stronghold, a specialized services business located in the United States that provides high-pressure and critical-path solutions to the downstream and midstream energy markets. The aggregate consideration included $351.0 million in cash, subject to certain adjustments, and 2,693,680 shares of Quanta common stock, which had a fair value of $81.3 million at the acquisition date. Additionally, the acquisition includes the potential payment of up to $100.0 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a three-year post-acquisition period. Based on the estimated fair value of this contingent consideration, Quanta recorded a $51.1 million liability as of the acquisition date. The results of the acquired business have generally been included in Quanta’s Oil and Gas Infrastructure Services segment and consolidated financial statements since the acquisition date.

During the year ended December 31, ~~2017,~~2018, Quanta ~~also~~ acquired an electrical infrastructure services business specializing in substation construction and relay services, a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen and two communications infrastructure services ~~business and an electrical and communications business, both~~businesses, all of which are located in the United States. The aggregate consideration for these acquisitions ~~consisted of $12.0~~was $106.8 million paid or payable in cash, subject to certain adjustments, and ~~288,666~~679,668 shares of Quanta common stock, which had a fair value of ~~$8.3~~approximately $22.9 million as of the respective acquisition dates. Additionally, the acquisitions of the postsecondary educational institution and one of the communications infrastructure services businesses include the potential payment of up to $18.0 million of contingent consideration, payable if the acquired businesses achieve certain performance objectives over five-year and three-year post-acquisition periods. Based on the estimated fair value of the contingent consideration, Quanta recorded $16.5 million of liabilities as of the respective acquisition dates. The results of the acquired businesses have generally been included in Quanta’s Electric Power Infrastructure Services segment and have been included in Quanta’s consolidated financial statements ~~since~~beginning on the respective acquisition dates.

Quanta is in the process of finalizing its assessments of the fair values of the acquired assets and assumed liabilities related to businesses acquired subsequent to ~~June 30, 2017,~~March 31, 2018, and further adjustments to the purchase price allocations may occur. As of ~~June 30, 2018,~~March 31, 2019, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to certain tax estimates. The aggregate purchase consideration of the businesses acquired subsequent to ~~June 30, 2017~~March 31, 2018 through ~~June 30, 2018~~March 31, 2019 was allocated to acquired assets and assumed liabilities, which resulted in ~~allocations~~an allocation of ~~$107.7~~$43.6 million to net tangible assets, ~~$116.6~~$39.9 million to identifiable intangible assets and ~~$344.2~~$34.3 million to goodwill.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table summarizes the aggregate consideration paid or payable as of ~~June 30, 2018~~March 31, 2019 for the ~~2018~~2019 acquisitions and ~~2017~~2018 acquisitions 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 isare 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. ~~Third-party~~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 ~~when appropriate~~ (in thousands).



	2019			2018
Consideration:
Cash paid or payable	$	50,907		$	106,804
Value of Quanta common stock issued	—			22,882
Contingent consideration	—			16,471
Fair value of total consideration transferred or estimated to be transferred	$	50,907		$	146,157

Accounts receivable	$	7,912		$	18,405
Contract assets	—			1,905
Other current assets	6,142			8,484
Property and equipment	19,371			23,674
Other assets	5			576
Identifiable intangible assets	7,337			52,364
Contract liabilities	—			(175		)
Other current liabilities	(5,899		)	(11,205		)
Deferred tax liabilities, net	(5,870		)	(4,208		)
Total identifiable net assets	28,998			89,820
Goodwill	21,909			56,337
	$	50,907		$	146,157

2018 2017
All Acquisitions Stronghold Other Acquisitions
Consideration:
Cash paid or payable $ 51,345
$ 351,014
$ 11,955
Value of Quanta common stock issued 13,549
81,337
8,267
Contingent consideration 13,705
51,084
—
Fair value of total consideration transferred or estimated to be transferred $ 78,599
$ 483,435
$ 20,222

Accounts receivable $ 4,436
$ 77,478
$ 7,157
Contract assets —
11,913
193
Other current assets 5,722
20,914
170
Property and equipment 17,516
51,258
1,480
Other assets 325
1,513
12
Identifiable intangible assets 19,836
95,700
8,091
Contract liabilities —
(13,489 ) (93 )
Other current liabilities (8,238 ) (58,346 ) (2,705 )
Deferred tax liabilities, net (4,179 ) —
—
Other long-term liabilities —
(48 ) —
Total identifiable net assets 35,418
186,893
14,305
Goodwill 43,181
296,542
5,917
$ 78,599
$ 483,435
$ 20,222

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 ~~2018~~2019 and ~~2017~~2018 acquisitions strategically expanded Quanta’s domestic electric power ~~oil and gas~~ and communications service offerings, which Quanta believes contributes to the recognition of the goodwill. ~~In connection with the 2018 acquisitions, as of the acquisition dates,~~No goodwill of $43.2 million was recorded for the acquired businesses that were included within Quanta’s Electric Power Infrastructure Services Division. In connection with the 2017 acquisitions, as of the acquisition dates and inclusive of purchase price adjustments, goodwill of $5.9 million was recorded for the acquired businesses that were included within Quanta’s Electric Power Infrastructure Services Division, and goodwill of $296.5 million was recorded for Stronghold, which is included within Quanta’s Oil and Gas Infrastructure Services Division. Goodwill of $9.8 million related to the 2018 acquisitions is expected to be deductible for income tax purposes ~~and goodwill of $302.5 million~~ related to the ~~2017 acquisitions~~2019 acquisition, and $20.1 million is expected to be deductible for income tax ~~purposes.~~purposes related to the 2018 acquisitions.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

The following table summarizes the estimated fair values of identifiable intangible assets for the ~~2018 acquisitions~~2019 acquisition as of the acquisition ~~dates~~date and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).



	Estimated Fair Value		Weighted Average Amortization Period in Years
Customer relationships	$	3,996	5.0
Backlog	1,058		1.0
Trade names	908		15.0
Non-compete agreements	1,375		3.0
Total intangible assets subject to amortization related to the 2019 acquisition	$	7,337	5.3

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Estimated Fair Value Weighted Average Amortization Period in Years
Customer relationships $ 3,328
5.0
Backlog 1,055
1.0
Trade names 6,257
15.0
Non-compete agreements 196
5.0
Curriculum 9,000
10.0
Total intangible assets subject to amortization acquired in 2018 acquisitions $ 19,836
10.2

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



	Three Months Ended
	March 31,
	2019		2018
Revenues	$	2,811,139	$	2,454,974
Gross profit	$	364,779	$	313,628
Selling, general and administrative expenses	$	232,361	$	220,234
Amortization of intangible assets	$	12,868	$	12,982
Net income	$	121,021	$	41,715
Net income attributable to common stock	$	120,474	$	40,718

Earnings per share:
Basic	$	0.83	$	0.26
Diluted	$	0.82	$	0.26

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenues $ 2,656,348
$ 2,323,996
$ 5,077,992
$ 4,627,463
Gross profit $ 333,371
$ 334,454
$ 636,226
$ 633,461
Selling, general and administrative expenses $ 206,104
$ 208,437
$ 422,537
$ 415,863
Amortization of intangible assets $ 10,507
$ 10,740
$ 21,168
$ 21,665
Net income $ 74,706
$ 66,371
$ 113,610
$ 116,797
Net income attributable to common stock $ 74,365
$ 65,848
$ 112,272
$ 116,101

Earnings per share attributable to common stock:

Basic $ 0.49
$ 0.42
$ 0.72
$ 0.73
Diluted $ 0.48
$ 0.41
$ 0.72
$ 0.73

The pro forma combined results of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ were prepared by adjusting the historical results of Quanta to include the historical results of the 2019 acquisition as if it occurred January 1, 2018 and the historical results of the 2018 acquisitions as if they occurred January 1, ~~2017 and the historical results of the 2017 acquisitions as if they occurred January 1, 2016.~~2017. These pro forma combined historical results were adjusted for the following: a reduction of interest expense as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest expense as a result of the cash consideration ~~paid net of cash received;~~paid; an increase in amortization expense due to the incremental intangible assets recorded; 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; and reclassifications to conform the acquired businesses’ presentation to Quanta’s accounting policies. The pro forma results of operations do not include any adjustments to eliminate the impact of acquisition-related costs or any cost savings or other synergies that resulted or may result from the acquisitions. As noted above, the pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.

Revenues of approximately ~~$11.2~~$7.4 million and a loss before income taxes of approximately ~~$1.3~~$1.0 million, which included ~~$0.4~~$2.4 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the three months ended ~~June 30, 2018~~March 31, 2019 related to the ~~2018 acquisitions.~~2019 acquisition. Revenues of approximately ~~$19.3~~$8.1 million and a loss before income taxes of approximately ~~$6.6~~$5.3 million, which included ~~$6.0~~$5.6 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the ~~six~~three months ended ~~June 30,~~March 31, 2018 related to the 2018 acquisitions.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

5. GOODWILL AND OTHER INTANGIBLE ASSETS:

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

Electric Power Infrastructure Services
Division

Oil and Gas Infrastructure Services
Division
Total
Balance at December 31, 2017:
Goodwill $ 1,272,527
$ 693,905
$ 1,966,432
Accumulated impairment —
(97,832 ) (97,832 )
1,272,527
596,073
1,868,600

Goodwill recorded related to 2018 acquisitions 43,181
—
43,181
Purchase price allocation adjustments 51
—
51
Foreign currency translation adjustments (8,772 ) (5,396 ) (14,168 )

Balance at June 30, 2018:
Goodwill 1,306,987
687,789
1,994,776
Accumulated impairment —
(97,112 ) (97,112 )
$ 1,306,987
$ 590,677
$ 1,897,664

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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



	Electric Power Infrastructure Services Division			Pipeline and Industrial Infrastructure Services Division			Total
Balance at December 31, 2017:
Goodwill	$	1,272,527		$	693,905		$	1,966,432
Accumulated impairment	—			(97,832		)	(97,832		)
	1,272,527			596,073			1,868,600

Goodwill recorded related to 2018 acquisitions	56,337			—			56,337
Purchase price allocation adjustments	51			—			51
Foreign currency translation adjustments	(15,837		)	(9,272		)	(25,109		)

Balance at December 31, 2018:
Goodwill	1,313,078			683,284			1,996,362
Accumulated impairment	—			(96,483		)	(96,483		)
	1,313,078			586,801			1,899,879

Goodwill recorded related to 2019 acquisition	21,909			—			21,909
Foreign currency translation adjustments	3,470			1,770			5,240

Balance at March 31, 2019:
Goodwill	1,338,457			685,137			2,023,594
Accumulated impairment	—			(96,566		)	(96,566		)
	$	1,338,457		$	588,571		$	1,927,028

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



	As of							As of							As of
	March 31, 2019							December 31, 2018							March 31, 2019
	Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Remaining Weighted Average Amortization Period in Years
Customer relationships	$	358,177	$	(172,528	)	$	185,649	$	359,967	$	(165,715	)	$	194,252	5.9
Backlog	136,780		(135,348		)	1,432		135,578		(134,592		)	986		0.7
Trade names	82,254		(22,916		)	59,338		81,058		(21,559		)	59,499		15.2
Non-compete agreements	40,797		(29,905		)	10,892		40,728		(30,168		)	10,560		3.3
Patented rights and developed technology	32,017		(24,597		)	7,420		22,482		(19,175		)	3,307		2.6
Curriculum	9,448		(1,109		)	8,339		9,448		(872		)	8,576		8.8
Total intangible assets subject to amortization	659,473		(386,403		)	273,070		649,261		(372,081		)	277,180		7.8
Engineering license	3,000		—			3,000		3,000		—			3,000
Total intangible assets	$	662,473	$	(386,403	)	$	276,070	$	652,261	$	(372,081	)	$	280,180

As of As of As of
June 30, 2018 December 31, 2017 June 30, 2018

Intangible
Assets

Accumulated
Amortization

Intangible
Assets, Net

Intangible
Assets

Accumulated
Amortization

Intangible
Assets, Net
Remaining Weighted Average Amortization Period in Years
Customer relationships $ 326,181
$ (150,677 ) $ 175,504
$ 327,334
$ (137,333 ) $ 190,001
6.8
Backlog 135,772
(134,885 ) 887
136,266
(135,847 ) 419
0.7
Trade names 80,279
(19,289 ) 60,990
74,797
(17,057 ) 57,740
15.8
Non-compete agreements 37,601
(28,843 ) 8,758
37,760
(27,659 ) 10,101
3.6
Patented rights and developed technology 22,507
(18,427 ) 4,080
22,529
(17,611 ) 4,918
2.9
Curriculum 9,000
(399 ) 8,601
—
—
—
9.6
Total intangible assets subject to amortization 611,340
(352,520 ) 258,820
598,686
(335,507 ) 263,179
8.8
Engineering license 3,000
—
3,000
—
—
—

Total intangible assets $ 614,340
$ (352,520 ) $ 261,820
$ 598,686
$ (335,507 ) $ 263,179

Amortization expense for intangible assets was ~~$10.5~~$12.7 million and ~~$6.5~~$10.4 million for the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017 and $20.9 million and $13.1 million for the six months ended June 30, 2018 and 2017.~~2018.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The estimated future aggregate amortization expense of intangible assets subject to amortization as of ~~June 30, 2018~~March 31, 2019 is set forth below (in thousands):



Year Ending December 31:
Remainder of 2019	$	36,849
2020	46,651
2021	44,131
2022	40,359
2023	32,242
Thereafter	72,838
Total	$	273,070

For the Fiscal Year Ending December 31,
Remainder of 2018 $ 20,880
2019 38,683
2020 37,265
2021 34,932
2022 31,403
Thereafter 95,657
Total $ 258,820

6. PER SHARE INFORMATION:

The amounts used to compute basic and diluted earnings per share attributable to common stock for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017 is illustrated below~~consisted of the following (in thousands):



	Three Months Ended
	March 31,
	2019		2018
Amounts attributable to common stock:
Net income attributable to common stock	$	120,488	$	37,614

Weighted average shares:
Weighted average shares outstanding for basic earnings per share attributable to common stock	145,110		156,546
Effect of dilutive unvested non-participating stock-based awards	1,348		1,010
Weighted average shares outstanding for diluted earnings per share attributable to common stock	146,458		157,556

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Amounts attributable to common stock:
Net income attributable to common stock $ 74,365
$ 63,837
$ 111,979
$ 112,104

Weighted average shares:
Weighted average shares outstanding for basic earnings per share attributable to common stock 153,325
155,090
154,906
154,859
Effect of dilutive unvested non-participating stock-based awards 1,270
1,075
1,206
886
Weighted average shares outstanding for diluted earnings per share attributable to common stock 154,595
156,165
156,112
155,745

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. Exchangeable shares that were issued pursuant to certain of Quanta’s historical acquisitions (as further discussed in Note 8)9), which are exchangeable on a one-for-one basis with shares of Quanta common stock, have been included in the calculation of weighted average shares outstanding for basic and diluted earnings per share attributable to common stock for the portion of the periods that they were outstanding. 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 for each of the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 included 2.6 million weighted average participating securities. Weighted average shares outstanding for basic and diluted earnings per share attributable to common stock for the three and six months ended June 30, 2017 included 2.32.8 million and ~~2.5~~2.7 million weighted average participating securities.

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.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

7. DEBT OBLIGATIONS:

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



	March 31, 2019		December 31, 2018
Borrowings under senior secured credit facility	$	1,372,050	$	1,070,299
Other long-term debt	4,284		1,523
Finance leases	1,746		934
Total long-term debt obligations	1,378,080		1,072,756
Less — Current maturities of long-term debt	33,081		32,224
Total long-term debt obligations, net of current maturities	$	1,344,999	$	1,040,532

June 30, 2018 December 31, 2017
Borrowings under credit facility $ 840,198
$ 668,427
Other long-term debt, interest rate of 2.4% 1,657
1,810
Capital leases, interest rates ranging from 2.5% to 3.8% 1,464
1,704
Total long-term debt obligations 843,319
671,941
Less — Current maturities of long-term debt 2,577
1,220
Total long-term debt obligations, net of current maturities $ 840,742
$ 670,721

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



	March 31, 2019		December 31, 2018
Short-term debt	$	11,264	$	33,422
Current maturities of long-term debt	33,081		32,224
Current maturities of long-term debt and short-term debt	$	44,345	$	65,646

June 30, 2018 December 31, 2017
Short-term debt $ 12,922
$ —
Current maturities of long-term debt 2,577
1,220
Current maturities of long-term debt and short-term debt $ 15,499
$ 1,220

Senior Secured ~~Revolving~~ Credit Facility

~~On December 18, 2015,~~ Quanta ~~entered into an amended and restated~~has a credit agreement with various lenders that, as amended on October 10, 2018, provides for (i) a ~~$1.81~~$1.99 billion ~~senior secured~~ revolving credit ~~facility. On October 31, 2017, Quanta~~facility and ~~the lenders entered into an amendment to the credit~~(ii) a term loan facility which, among other things, extended the maturity date from December 18, 2020 to October 31, 2022 and adjusted the interest rates applicable to certain borrowings. The entire amount available under the credit facility may be used by Quanta for revolving loans and letterswith total term loan commitments of ~~credit in U.S. dollars and certain alternative currencies. Up to~~ $600.0 million of the credit facility may be used by certain subsidiaries of Quanta for revolving loans and letters of credit in certain alternative currencies. Up to $100.0 million of the credit facility may be used for swing line loans in U.S. dollars, up to $50.0 million of the credit facility may be used for swing line loans in Canadian dollars and up to $30.0 million of the credit facility may be used for swing line loans in Australian dollars.million. In addition, 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~~credit facility, incremental term loans or a combination thereof, by up to an additional $400.0 million, from time to time, upon receipt of additional commitments from new or existing lenders. Borrowings under the credit agreement are to be used to refinance existing indebtedness and for working capital, capital expenditures and other general corporate purposes. The maturity date for both the revolving credit facility and the term loan facility is October 31, 2022, and Quanta is required to make quarterly payments on the term loan facility as described below.

With respect to the revolving credit facility, the entire amount available may be used by Quanta for revolving loans and letters of credit in U.S. dollars and certain alternative currencies. Up to $600.0 million may be used by certain subsidiaries of Quanta for revolving loans and letters of credit in certain alternative currencies, up to $100.0 million may be used for swing line loans in U.S. dollars, up to $50.0 million may be used for swing line loans in Canadian dollars and up to $50.0 million may be used for swing line loans in Australian dollars.

On October 10, 2018, Quanta borrowed the full amount of the term loan facility and used all of such proceeds to repay outstanding revolving loans. As of ~~June 30, 2018,~~March 31, 2019, Quanta had ~~$439.9~~$1.37 billion of borrowings outstanding under the credit agreement, which included $585.0 million borrowed under the term loan facility and $787.1 million of outstanding revolving loans. Of the total outstanding borrowings, $1.21 billion were denominated in U.S. dollars, $123.6 million were denominated in Canadian dollars and $36.2 million were denominated in Australian dollars. Quanta also had $385.0 million of letters of credit and bank guarantees issued under ~~its~~the revolving credit facility, ~~$240.7 million~~ of which $240.6 million were denominated in U.S. dollars and ~~$199.2~~$144.4 million ~~of which~~ were denominated in currencies other than the U.S. dollar, primarily ~~in Australian or~~ Canadian ~~dollars. Quanta also had $840.2 million of outstanding revolving loans under its credit facility, $770.6 million of which were denominated in U.S. dollars~~ and ~~$69.6 million of which were denominated in~~ Australian dollars. The remaining ~~$529.9~~$812.9 million of available commitments under the credit facility was available for ~~revolving~~ loans or issuing new letters of credit orand bank guarantees. Borrowings under the credit facility and the applicable interest rates during the three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows (dollars in thousands):



	Three Months Ended
	March 31,
	2019			2018
Maximum amount outstanding under the credit facility during the period	$	1,453,150		$	936,012
Average daily amount outstanding under the credit facility	$	1,264,498		$	684,947
Weighted-average interest rate	3.92		%	3.34		%

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Maximum amount outstanding under the credit facility during the period $ 1,053,598
$ 601,062
$ 1,053,598
$ 601,062
Average daily amount outstanding under the credit facility $ 922,719
$ 518,779
$ 804,490
$ 464,432
Weighted-average interest rate 3.62 % 2.49 % 3.50 % 2.54 %

~~Beginning on November 20, 2017, amounts~~Revolving loans borrowed in U.S. dollars bear interest, at Quanta’s option, at a rate equal to either (i) the Eurocurrency Rate ~~(as~~

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(as defined in the credit agreement) plus 1.125% to 2.000%, as determined based on Quanta’s Consolidated Leverage Ratio (as described below), or (ii) the Base Rate (as described below) plus 0.125% to 1.000%, as determined based on Quanta’s Consolidated Leverage Ratio. ~~Amounts~~Revolving loans borrowed ~~as revolving loans under the credit agreement~~ in any currency other than U.S. dollars bear interest at a rate equal to the Eurocurrency Rate plus 1.125% to 2.000%, as determined based on

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Quanta’s Consolidated Leverage Ratio. Additionally, standby or commercial letters of credit issued under the credit agreement are 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 are subject to a letter of credit fee of 0.675% to 1.150%, based on Quanta’s Consolidated Leverage Ratio.

~~From December 18, 2015 through November 19, 2017, amounts~~Term loans bear interest at rates generally consistent with the revolving loans borrowed in U.S. dollars, ~~bore interest, at Quanta’s option, at a rate equal to either (i)~~except that the additional amount over the Eurocurrency Rate ~~plus~~is 1.125% to ~~2.125%, as determined based on Quanta’s Consolidated Leverage Ratio, or (ii) the Base Rate plus 0.125% to 1.125%, as determined~~1.875% based on Quanta’s Consolidated Leverage Ratio. ~~Amounts borrowed as revolving~~Quanta is also required to make quarterly principal payments of $7.5 million on the last business day of each March, June, September and December, which began in December 2018. The aggregate outstanding principal amount of all outstanding term loans ~~under~~must be paid on the ~~credit agreement~~maturity date; however, we may voluntarily prepay that amount from time to time, in ~~any currency other than U.S. dollars bore interest at a rate equal to the Eurocurrency Rate plus 1.125% to 2.125%, as determined based on Quanta’s Consolidated Leverage Ratio. Standby~~whole or commercial letters of credit issued under the credit agreement were subject to a letter of credit fee of 1.125% to 2.125%, based on Quanta’s Consolidated Leverage Ratio, and Performance Letters of Credit issued under the credit agreement in ~~support of certain contractual obligations were subject to a letter of credit fee of 0.675% to 1.275%, based on Quanta’s Consolidated Leverage Ratio.~~part, without premium or penalty.

Quanta is also subject to a commitment fee of 0.20% to 0.40%, based on its Consolidated Leverage Ratio, on any unused availability under the revolving credit ~~agreement.~~facility.

Consolidated Leverage Ratio is the ratio of Quanta’s Consolidated Funded Indebtedness to Consolidated EBITDA (as those terms are defined in the credit agreement). For purposes of calculating Quanta’s Consolidated Leverage Ratio, Consolidated Funded Indebtedness is reduced by available cash and cash equivalents (as defined in the credit agreement) in excess of $25.0 million. The Base Rate equals the highest of (i) the Federal Funds Rate (as defined in the credit agreement) plus 0.5%, (ii) the prime rate publicly announced by Bank of America, N.A. and (iii) the Eurocurrency Rate plus 1.00%. 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 contains certain covenants, including (i) a maximum Consolidated Leverage Ratio of 3.0 to 1.0 (except that in connection with certain permitted acquisitions in excess of $200.0 million, such ratio is 3.5 to 1.0 for the fiscal quarter in which the acquisition is completed and the two subsequent fiscal quarters) and (ii) a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0. As of March 31, 2019, Quanta was in compliance with all of the covenants under the credit agreement.

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

The credit agreement contains certain covenants, including (i) a maximum Consolidated Leverage Ratio of 3.0 to 1.0 (provided that in connection with certain permitted acquisitions in excess of $200.0 million, such ratio is 3.5 to 1.0 for the fiscal quarter in which the acquisition is completed and the two subsequent fiscal quarters) and (ii) a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0. As of June 30, 2018, Quanta was in compliance with all of the covenants in the credit agreement.

~~The credit agreement~~ also limits certain acquisitions, mergers and consolidations, indebtedness, asset sales and prepayments of indebtedness and, subject to certain exceptions, prohibits liens on Quanta’s assets. The credit agreement allows cash payments for dividends and stock repurchases subject to compliance with the following requirements (after giving effect to the dividend or stock repurchase): (i) no default or event of default under the credit agreement; (ii) continued compliance with the financial covenants in the credit agreement; and (iii) at least $100.0 million of availability under the revolving credit ~~agreement~~facility and/or cash and cash equivalents on hand.

The credit agreement provides for customary events of default and contains cross-default provisions with Quanta’s underwriting, continuing indemnity and security agreement with its sureties and ~~all of Quanta’s~~certain other debt instruments exceeding ~~$100.0~~$150.0 million in borrowings or availability. If an Event of Default (as defined in the credit agreement) occurs and is continuing, on the terms and subject to the conditions set forth in the credit agreement, the lenders may declare all amounts outstanding and accrued and unpaid interest immediately due and payable, require that Quanta provide cash collateral for all outstanding letter of credit obligations, terminate the commitments under the credit agreement, and foreclose on the collateral.

~~Other Facilities~~

Quanta has also entered into bilateral credit agreements with various lenders that provide for up to $48.0 million in aggregate availability in both U.S. dollars and certain alternative currencies, primarily Australian dollars. Quanta may utilize these facilities for, among other things, the issuance of letters of credit or bank guarantees and overdraft protection and had $2.7 million of letters of credit and bank guarantees outstanding under these facilities at June 30, 2018.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

8. LEASES:

As discussed in Note 3, effective January 1, 2019, Quanta adopted the new lease accounting standard utilizing the transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if applicable. Quanta’s financial results for reporting periods after January 1, 2019 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.

Quanta’s leases primarily include leases of land, buildings, vehicles, construction equipment and office equipment. As of March 31, 2019, Quanta’s leases had remaining lease terms of up to nine years. Certain leases include options to extend their terms in increments of up to seven years and/or options to terminate. The components of lease costs in the accompanying condensed consolidated statement of operations were as follows (in thousands):



		Three Months Ended
		March 31, 2019
Lease cost	Classification
Finance lease cost:
Amortization of lease assets	Depreciation ⁽¹⁾	$	373
Interest on lease liabilities	Interest expense	21
Operating lease cost	Costs of services and Selling, general and administrative expenses	30,358
Short-term lease cost ⁽²⁾	Costs of services and Selling, general and administrative expenses	195,165
Variable lease cost ⁽³⁾	Costs of services and Selling, general and administrative expenses	5,133
Total lease cost		$	231,050


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


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


⁽³⁾	Variable lease cost primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.

For the three months ended March 31, 2018, rent expense related to operating leases was $76.0 million; however, this amount did not include rent expense related to certain equipment under month-to-month rental periods, which is included in short-term lease cost in the table above.

Additionally, Quanta has entered into lease arrangements for real property and facilities with related parties, typically employees of Quanta who are the former owners of acquired businesses that utilize the leased premises. These lease agreements generally have lease terms of up to 5 years and may include renewal options. Related party lease expense for the three months ended March 31, 2019 and 2018 was $4.1 million and $3.2 million.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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



		March 31, 2019
Lease type	Classification
Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	285,768
Finance lease assets	Property and equipment, net of accumulated depreciation	2,313
Total lease assets		$	288,081
Liabilities:
Current:
Operating	Current portion of operating lease liabilities	$	92,293
Finance	Current maturities of long-term debt and short-term debt	1,168

Non-current:
Operating	Operating lease liabilities, net of current portion	193,475
Finance	Long-term debt, net of current maturities	578
Total lease liabilities		$	287,514

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. For rental purchase options exercised through a third-party lessor and for which a substantive benefit is deemed to be transferred to the lessor, such benefit is recorded in “Property, plant and equipment, net of accumulated depreciation,” with a corresponding increase in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of March 31, 2019, the benefit recorded was $2.8 million.

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



	As of March 31, 2019
	Operating Leases			Finance Leases			Total
Remainder of 2019	$	79,484		$	1,130		$	80,614
2020	82,627			291			82,918
2021	56,831			267			57,098
2022	35,537			97			35,634
2023	22,310			33			22,343
Thereafter	37,152			2			37,154
Total future minimum lease payments	$	313,941		$	1,820		$	315,761
Less imputed interest	(28,173		)	(74		)	(28,247		)
Total lease liabilities	$	285,768		$	1,746		$	287,514

Future minimum lease payments for operating leases under the prior standard were as follows (in thousands):



	As of December 31, 2018
	Operating Leases
2019	$	124,530
2020	81,189
2021	55,827
2022	34,337
2023	21,450
Thereafter	37,217
Total minimum lease payments	$	354,550

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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



	As of March 31, 2019
Weighted average remaining lease term (in years):
Operating leases	4.35
Finance leases	1.77
Weighted average discount rate:
Operating leases	4.3	%
Finance leases	4.1	%

Quanta has also guaranteed the residual value on 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 termination of such leases. At March 31, 2019, the maximum guaranteed residual value was $697.3 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.

From time to time, Quanta has additional obligations related to operating and/or finance leases that have not commenced. These arrangements were not deemed material as of March 31, 2019.

9. EQUITY:

Exchangeable Shares and Preferred Stock

In connection with certain prior acquisitions of Canadian businesses, the former owners of the acquired businesses received exchangeable shares of certain Canadian subsidiaries of Quanta, which may be exchanged at the option of the holders for Quanta common stock on a one-for-one basis. The holders of exchangeable shares can make an exchange only once in any calendar quarter and must exchange a minimum of either 50,000 shares or, if less, the total number of remaining exchangeable shares registered in the name of the holder making the request. Additionally, in connection with two of such acquisitions, Quanta issued one share of Quanta Series F preferred stock and one share of Quanta Series G preferred stock to voting trusts on behalf of the respective holders of the exchangeable shares issued in such ~~acquisitions.~~acquisitions, which provided such holders with voting rights in Quanta common stock equivalent to the number of exchangeable shares outstanding. The ~~one~~ share of Quanta Series F preferred stock was ~~subsequently~~ redeemed and retired effective October 6, 2017. All holders of exchangeable shares have rights equivalent to Quanta common stockholders with respect to dividends and other economic rights. ~~Additionally,~~

During the three months ended March 31, 2019, 0.4 million exchangeable shares were exchanged for Quanta common stock, and as of March 31, 2019, 36,183 exchangeable shares remained outstanding. After completion of the exchange during the three months ended March 31, 2019, no exchangeable shares associated with the share of Quanta Series G preferred stock ~~provides the holder of the associated exchangeable shares voting rights in Quanta common stock equivalent to the number of exchangeable shares~~remained outstanding.

~~During the three months ended June 30, 2018~~ Accordingly, that share was redeemed, deemed retired and ~~2017, no exchangeable shares were exchanged for Quanta common stock. During the six months ended June 30, 2018~~canceled and ~~2017, 0.0 million and 2.5 million exchangeable shares were exchanged for Quanta common stock. As of~~ ~~June 30, 2018, the Quanta Series G preferred stock remained outstanding and 0.5 million exchangeable shares remained outstanding, of which 0.4 million were associated with the Quanta Series G preferred stock.~~may not be reissued.

Treasury Stock

General

Treasury stock is recorded at cost. Under Delaware corporate 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 upon vesting of restricted stock, RSUs and performance units settled in common stock are typically satisfied by Quanta making ~~such~~ tax payments and withholding the number of vested shares having a value on the date of vesting equal to the tax withholding obligation. For the settlement of these ~~employee tax~~ liabilities, Quanta withheld 0.4 ~~million and 0.5~~ million shares of Quanta common stock during each the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, ~~with~~which had a total market value of $~~14.2~~15.3 million and ~~$17.8~~$13.4 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 performance units that vest but the settlement of which is deferred under Quanta’s deferred compensation plans, Quanta records a notional amount to ~~treasury stock~~“Treasury stock” and an offsetting amount to ~~APIC.~~ “Additional paid-in capital” (APIC).

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

However, nothe only shares ~~are~~ added to outstanding treasury stock at vesting are shares withheld for tax liabilities other than income taxes, as the shares of Quanta common stock associated with deferred equity awards are not issued. Upon settlement of the deferred equity awards and issuance of the associated Quanta common stock, the original accounting entry is reversed. The ~~net~~ amounts recorded to treasury stock ~~and APIC~~ related to the deferred compensation plans during the three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ were ~~$0.0~~$3.8 million and ~~$0.2 million, and the net amounts recorded to treasury stock and APIC related to the deferred compensation plans during the six months ended June 30, 2018 and 2017 were~~ $3.3 ~~million and $3.4~~ million.

Stock repurchases

During the second quarter of 2017, Quanta’s ~~board~~Board of ~~directors~~Directors approved a stock repurchase program that ~~authorizes~~authorized Quanta to purchase, from time to time through June 30, 2020, up to $300.0 million of its outstanding common stock (the 2017 Repurchase Program). ~~Repurchases under~~During the ~~2017~~third quarter of 2018, Quanta’s Board of Directors approved an additional stock repurchase program that authorizes Quanta to purchase, from time to time through June 30, 2021, up to $500.0 million of its outstanding common stock (the 2018 Repurchase ~~Program~~Program). Repurchases can be made in open market and privately negotiated transactions. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, Quanta repurchased ~~0.6~~0.4 million and ~~5.6~~5.0 million shares of its common stock in the open market at a cost of ~~$20.0~~$12.0 million and ~~$193.9 million under the 2017 Repurchase Program, $16.0 million and $189.9 million of which was paid in cash as of June 30, 2018.~~$173.9 million. During ~~2017,~~2018, Quanta repurchased ~~1.4~~13.9 million shares of its common stock in the open market at a cost of ~~$50.0~~$451.3 million. 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. As a result of this policy, during the quarters ended March 31, 2019 and 2018, cash payments related to stock repurchases were $19.9 million and $173.9 million. As of March 31, 2019, $286.8 million remained under the ~~2017~~2018 Repurchase Program.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Non-controlling Interests

Quanta holds interests in various entities through both joint venture entities that provide infrastructure 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 that may be entered into through the partnership structure Quanta has 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 condensed consolidated balance sheets. Net income attributable to the other participants in the amounts of ~~$0.3~~$0.5 million and ~~$0.5~~$1.0 million for the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~ ~~and $1.3 million and $0.7 million for the six months ended June 30,~~ 2018 ~~and 2017~~ has been accounted for as a reduction of net income in deriving “Net income attributable to common stock” in Quanta’s condensed consolidated statements of operations.

The carrying amount of the investments held by Quanta in all of its VIEs was ~~$10.2 million and $7.8~~$9.6 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018. The carrying amount of investments held by the non-controlling interests in these VIEs at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was ~~$2.8 million and $4.1~~$1.3 million. During the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, net distributions to non-controlling interests were ~~$0.7~~$0.5 million and ~~$0.4 million. During the six months ended June 30, 2018 and 2017, net distributions to non-controlling interests were $1.7 million and $1.4~~$1.0 million. There were also ~~discharges of~~ notes receivable ~~from~~discharged by a joint venture partner of $0.5 million, ~~and $0.9 million~~which were accounted for as a “Buyout of a non-controlling interest” in the accompanying condensed consolidated statements of equity during the three ~~and six~~ months ended ~~June 30,~~March 31, 2018. There were no other changes in equity as a result of transfers to/from the non-controlling interests during the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 or ~~2017~~2018. See Note 1011 for further disclosures related to Quanta’s joint venture arrangements.

Dividends

On December 6, 2018, Quanta’s Board of Directors declared a cash dividend of $0.04 per share of its common stock, or $5.8 million, which was paid on January 16, 2019 to stockholders of record as of January 2, 2019. On March 21, 2019, Quanta’s Board of Directors declared a cash dividend of $0.04 per share of its common stock, or $5.9 million, which was paid on April 19, 2019 to stockholders of record as of April 5, 2019.

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, cash flows from operations, current and anticipated capital requirements and expansion plans, income tax laws then in effect and the requirements of Delaware law. In addition, as discussed in Note 7, Quanta’s credit agreement restricts the payment of cash dividends unless certain conditions are met.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

10. EQUITY-BASED COMPENSATION:

Stock Incentive Plans

On May 19, 2011, Quanta’s stockholders approved the 2011 Omnibus Equity Incentive Plan (the 2011 Plan). The 2011 Plan provides for the award of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock, RSUs, stock bonus awards, performance compensation awards (including performance units and cash bonus awards) or any combination of the foregoing. The purpose of the 2011 Plan is to attract and retain key personnel and provide participants with additional performance incentives by increasing their proprietary interest in Quanta. Employees, directors, officers, consultants or advisors of Quanta or its affiliates are eligible to participate in the 2011 Plan, as are prospective employees, directors, officers, consultants or advisors of Quanta who have agreed to serve Quanta in those capacities. ~~On May 24, 2018, Quanta’s stockholders approved an amendment to the 2011 Plan that, among other things, increased the number of shares of Quanta common stock that may be issued thereunder.~~ An aggregate of 13,300,000 shares of Quanta common stock may be issued pursuant to awards granted under the 2011 Plan. Quanta also has a Restricted Stock Unit Plan (the RSU Plan), pursuant to which RSUs may be awarded to certain employees and consultants of Quanta’s Canadian operations. The 2011 Plan and the RSU Plan are referred to as the Plans.

RSUs to be Settled in Common Stock

During the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ Quanta granted ~~a nominal amount~~1.5 million and ~~0.1~~1.3 million of RSUs to be settled in common stock under the 2011 Plan with weighted average grant date fair values of ~~$36.38~~$35.85 and $33.32. During the six months ended June 30, 2018 and 2017, Quanta granted 1.3 million and 1.2 million of RSUs to be settled in common stock under the 2011 Plan with weighted average grant date fair values of $34.52 and $37.76.$34.46. 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 ~~over a two-year, three-year or five-year period~~ following the date of grant. Holders of RSUs to be settled in common stock are entitled to receive a cash dividend equivalent payment equal to any cash dividend payable on account of common shares.

During each of the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, vesting activity consisted of ~~0.1~~1.2 million of RSUs settled in common stock with an approximate fair value at the time of vesting of ~~$3.8 million. During the six months ended June 30, 2018 and 2017, vesting activity consisted of 1.3~~$41.5 million and ~~1.4 million of RSUs settled in common stock with an approximate fair value at the time of vesting of $46.2 million and $54.3~~$42.4 million.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

During the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ Quanta recognized ~~$10.8~~$11.3 million and ~~$10.1 million of non-cash stock compensation expense related to RSUs to be settled in common stock. During the six months ended June 30, 2018 and 2017, Quanta recognized $22.0 million and $21.3~~$11.2 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 ~~June 30, 2018~~March 31, 2019, there was $~~56.2~~77.2 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 ~~2.03~~2.50 years.

Performance Units to be Settled in Common Stock

Performance units awarded pursuant to the 2011 Plan provide for the issuance of shares of common stock upon vesting. These performance units cliff-vest at the end of a three-year performance period based on achievement of certain performance metrics established by Quanta’s compensation committee, including company performance goals and, with respect to certain awards, 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 performance units can range from 0% to 200% of the number of performance units initially granted, depending on the level of achievement, as determined by Quanta’s compensation committee.

During each of the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, Quanta did not grant any performance units to be settled in common stock under the 2011 Plan. During each of the six months ended~~ ~~June 30, 2018~~ ~~and 2017,~~ Quanta granted 0.3 million performance units to be settled in common stock under the 2011 Plan with a weighted average grant date fair value of ~~$12.24~~$15.49 and ~~$17.63~~$12.24 per unit. The grant date fair values for awards of performance units ~~with market-based metrics, which were~~ granted in the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~which included market-based metrics, were determined using a Monte Carlo simulation valuation methodology using the following key inputs:



	2019		2018
Valuation date stock price based on the March 8, 2019 and February 28, 2018	$35.19		$34.44
Expected volatility	25	%	34	%
Risk-free interest rate	2.43	%	2.39	%
Term in years	2.81		2.84

2018 2017
Valuation date stock price based on the February 28, 2018 and March 22, 2017 closing stock prices $34.44 $36.31
Expected volatility 34 % 36 %
Risk-free interest rate 2.39 % 1.46 %
Term in years 2.84
2.78

Quanta recognizes expense related to performance units with market-based metrics based on the probability of achievement of the underlying performance metrics, multiplied by the portion of the three-year period that has expired and the fair value of the total number of shares of common stock that Quanta anticipates will be issued based on such achievement. Quanta recognizes expense related to performance units without market-based metrics based on the portion of the three-year period that has expired multiplied by the fair value of the total number of shares of common stock that Quanta anticipates will be issued. During the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ Quanta recognized ~~$2.7~~$1.7 million and ~~$1.4 million in compensation expense associated with performance units. During the six months ended June 30, 2018 and 2017, Quanta recognized $6.2 million and $2.1~~$3.5 million in compensation expense associated with performance units. Such expense is recorded in ~~selling,~~“Selling, general and administrative expenses.” During ~~each of~~ the three months ended ~~June 30, 2018 and 2017, no~~March 31, 2019, 0.2 million performance units vested, and no0.4 million shares of common stock were earned and either

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

issued or deferred for future issuance in connection with performance units. During ~~each of~~ the ~~six~~three months ended ~~June 30,~~March 31, 2018, ~~and 2017,~~ 0.1 million performance units vested, and 0.1 million shares of common stock were earned and either issued or deferred for future issuance in connection with performance units.

RSUs to be Settled in Cash

Certain RSUs granted by Quanta under the ~~Plans~~2011 Plan are settled solely in cash. These cash-settled RSUs are intended to provide plan participants with cash performance incentives that are substantially equivalent to the risks and rewards of equity ownership in Quanta, typically vest in three equal annual installments ~~over a two-year or three-year period~~ following the date of grant, and are subject to forfeiture under certain conditions, primarily termination of service. Additionally, subject to certain restrictions, Quanta’s non-employee directors may elect to ~~cash~~ settle a portion of their RSU awards ~~which generally vest upon conclusion of the director service year.~~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 ~~$1.5~~$2.6 million and ~~$1.2~~$1.3 million for the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017 and $2.8 million and $3.9 million for the six months ended June 30, 2018 and 2017.~~2018. Such expense is recorded in ~~selling,~~“Selling, general and administrative expenses.” RSUs that are anticipated to be settled in cash are not included in the calculation of earnings per share, and the estimated earned value of such RSUs is classified as a liability. Quanta paid ~~$3.8~~$2.9 million and ~~$3.8~~$2.2 million to settle liabilities related to cash-settled RSUs in the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017 and $6.0 million and $6.1 million to settle~~2018. Accrued liabilities ~~related to cash-settled RSUs in the six months ended June 30, 2018 and 2017. Accrued liabilities~~

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

for the estimated earned value of outstanding RSUs to be settled in cash were $~~1.4~~2.8 million and ~~$4.6~~$3.4 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018.

~~10.~~11. COMMITMENTS AND CONTINGENCIES:

Investments in Affiliates and Other Entities

As described in Note 8,9, Quanta holds investments in various entities, including joint venture entities that provide infrastructure services under specific customer contracts and partially owned entities that own and operate certain infrastructure assets constructed by Quanta. Losses incurred by these entities are generally shared ratably based on the percentage ownership of the participants in these structures. However, in Quanta’s joint venture structures that provide infrastructure 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, as a general partner or through a parent guarantee and, therefore, can be liable for full performance of the contract with the customer. In circumstances where Quanta’s participation in a joint venture qualifies as a general partnership, the joint venture partners are jointly and severally liable for all of the obligations of the joint venture, including obligations owed to the customer or any other person or entity. Quanta is not aware of circumstances that would lead to future claims against it for material amounts in connection with these joint and several liabilities.

Additionally, in the joint venture structures entered into by Quanta, typically each party indemnifies the other party for any liabilities incurred in excess of the liabilities such other party is obligated to bear under the respective joint venture agreement or in accordance with the scope of work subcontracted to each party. It is possible, however, that Quanta could be required to pay or perform obligations in excess of its share if the other party 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.

As described in Note 2, Quanta has also formed a partnership with select infrastructure investors that provides up to $1.0 billion of capital, including approximately $80.0 million from Quanta, available to invest in certain specified infrastructure projects through August 2024. As of March 31, 2019, Quanta had contributed $15.1 million to this partnership in connection with certain investments and the payment of management fees.

Additionally, as of March 31, 2019, Quanta had outstanding capital commitments associated with investments in unconsolidated affiliates related to planned oil and gas infrastructure projects of $2.3 million, of which $1.6 million is expected to be paid in 2019. The remaining $0.7 million of these capital commitments is anticipated to be paid by May 31, 2022.

During 2014, a limited partnership in which Quanta is a partner was selected for an engineering, procurement and construction (EPC) electric transmission project in Canada to construct approximately 500 kilometers of transmission line and two 500 kV substations. A subsidiary of Quanta, engaged by the limited partnership, is contracted to provide turnkey EPC services for the entire project. As of ~~June 30, 2018,~~March 31, 2019, Quanta made aggregate contributions to this unconsolidated affiliate of ~~$63.9~~$88.7 million, received ~~$61.6~~$60.6 million as a return of capital and had no outstanding additional capital commitments associated with this ~~project of $24.1 million, which are anticipated to be paid in 2019.~~

Additionally, as of June 30, 2018, Quanta had outstanding capital commitments associated with investments in unconsolidated affiliates related to planned oil and gas infrastructure projects of $15.7 million, of which $14.8 million is expected to be paid in 2018. The remaining $0.9 million of these capital commitments is anticipated to be paid by May 31, 2022. As described in Note 2, Quanta has also formed a partnership with select infrastructure investors that provides up to $1.0 billion of capital, including approximately $80.0 million from Quanta, available to invest in certain specified infrastructure projects through August 2024.

~~Leases~~

Quanta leases certain land, buildings and equipment under non-cancelable lease agreements, including related party leases. The terms of these agreements vary from lease to lease, and certain leases include renewal options and escalation clauses. The following schedule shows the future minimum lease payments under these leases as of ~~June 30, 2018~~ ~~(in thousands):~~project.

Operating Leases
Year Ending December 31 —
Remainder of 2018 $ 66,869
2019 94,590
2020 64,320
2021 40,995
2022 24,548
Thereafter 46,024
Total minimum lease payments $ 337,346

~~Rent expense related to operating leases was~~ ~~$75.8 million~~ ~~and~~ ~~$67.8 million~~ ~~for the three months ended June 30, 2018 and~~ ~~2017~~ ~~and $151.8 million and $132.8 million for the six months ended June 30, 2018 and 2017.~~

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Quanta has guaranteed the residual value on 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 termination of such leases. At ~~June 30, 2018, the maximum guaranteed residual value was~~ ~~$651.5 million~~. Quanta believes that no significant payments will be made as a result of the difference between the fair market value of the leased equipment and the guaranteed residual value; however, there can be no assurance that significant payments will not be required in the future.

Contingent Consideration Liabilities

As discussed in further detail in Note 2, Quanta is obligated to pay contingent consideration amounts to the former owners of certain acquired businesses in the event that such acquired businesses achieve specified performance objectives. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the estimated fair value of Quanta’s contingent consideration liabilities totaled ~~$73.0~~$70.7 million and ~~$65.7~~$70.8 million.

Committed Expenditures

Quanta has capital commitments for the expansion of its vehicle fleet in order to accommodate manufacturer lead times on certain types of vehicles. As of ~~June 30, 2018~~March 31, 2019, Quanta had $~~48.2~~44.0 million of production orders ~~were issued with expected delivery dates in 2018, and $1.1 million of production orders were issued~~ with expected delivery dates in 2019. 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 ~~to Quanta~~ under certain ~~of its~~ master equipment lease agreements, thereby releasing Quanta from its capital commitments.

Legal Proceedings

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

Maurepas Project Dispute. During the third quarter of 2017, Maurepas Pipeline, LLC (Maurepas) notified QPS Engineering, LLC (QPS), a subsidiary of Quanta, of Maurepas’ assertion of a 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. The matter remains subject to contractual dispute resolution measures; however, either party may choose to institute a formal legal proceeding upon completion of such measures. If, upon final resolution of this matter, Quanta is unsuccessful, any such liquidated damages would be recorded ~~by QPS~~ as additional costs on the ~~project,~~project. As of March 31, 2019, Quanta had recorded an accrual with respect to this matter based on the current estimated amount of probable loss and ~~Quanta~~ believes that the range of any additional reasonably possible loss ~~could~~would be ~~up to~~the difference between the accrued amount and $22.0 million, which is the maximum liability for liquidated damages pursuant to the contract terms. In July and August 2018, Quanta also received notice from Maurepas claiming certain warranty defects on the project. Quanta is ~~currently~~ evaluating the claimed ~~defects. Based~~defects, and based on ~~the~~ information currently available, no estimate of reasonably possible loss related to ~~these claims~~the warranty claim can be determined.

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. In February ~~2018, a hearing was held on a~~2019, the court granted, in part, the plaintiff class’s final motion for summary judgment on damages ~~filed by~~awarding the ~~plaintiff~~ class ~~seeking~~ approximately ~~$11.1~~$7.5 million for its ~~claims; however, a final determination regarding~~meal/rest break and overtime claims, and denied the ~~amount of damages was not made.~~motion as to penalties. Quanta believes the court’s ~~decision~~decisions on liability isand 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.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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.

The final amount of liability, if any, payable in connection with this matter remains the subject of pending litigation and will ultimately depend on various factors, including the outcome of Quanta’s appeal of the trial court’s ~~ruling~~rulings on liability and damages, the final determination with respect to any additional 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 ~~$11.1~~$11.0 million, plus attorneys’ fees and expenses of the plaintiff class.

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 and investment grade commercial paper with original maturities of three months or less.~~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. In addition, Quanta grants credit under normal payment terms, generally without collateral, to its customers, which include electric power and ~~oil and gas~~energy companies, governmental entities, general contractors, and builders, owners and managers of commercial and industrial properties located primarily in the United States, Canada, Australia and Latin America. Consequently, Quanta is subject to potential credit risk related to changes in business and economic factors throughout these locations, which may be heightened as a result of uncertain economic and financial market conditions that have existed in recent years. However, Quanta generally has certain statutory lien rights with respect to services provided. Some of Quanta’s customers have experienced significant financial difficulties ~~in the past,~~(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.

On January 29, 2019, one of Quanta’s largest customers, PG&E, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended. Quanta is monitoring the bankruptcy proceeding and evaluating the treatment of, and potential claims related to, its pre-petition receivables. As of the bankruptcy filing date, Quanta had approximately $157 million of billed and unbilled receivables, which remained unpaid as of March 31, 2019. Subsequent to March 31, 2019, the bankruptcy court approved the assumption by PG&E of two substantial contracts with a subsidiary of Quanta, which authorizes PG&E to pay approximately $116 million of pre-petition receivables due under those contracts. As a result of the contract assumptions, Quanta expects to receive payment of the $116 million in the near term. Quanta also believes it will ultimately collect the remaining approximately $41 million of pre-petition receivables, and that amount has been classified as non-current within “Other assets, net” in the accompanying condensed consolidated balance sheet as of March 31, 2019. However, the ultimate outcome of the bankruptcy proceeding is uncertain, and Quanta’s belief regarding collection of the remaining receivables is based on a number of assumptions that are potentially subject to change as the proceeding progresses. Should any of those assumptions change, the amount collected could be materially less than the amount of the remaining receivables. Additionally, Quanta is continuing to perform services for PG&E while the bankruptcy case is ongoing and believes that amounts billed for post-petition services will continue to be collected in the ordinary course of business.

At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, no ~~customers~~customer represented 10% or more of Quanta’s consolidated net receivable position. No ~~customers~~customer represented 10% or more of Quanta’s consolidated revenues for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019 and ~~one customer within Quanta’s Oil and Gas Infrastructure Services segment accounted for approximately 10% of Quanta’s consolidated revenues for the three and six months ended June 30, 2017.~~March 31, 2018.

Insurance

As discussed in Note 2, Quanta is insured for employer’s liability, workers’ compensation, auto liability, general liability and group health claims. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the gross amount accrued for insurance claims totaled ~~$243.2~~$268.7 million and ~~$254.7~~$272.9 million, with ~~$185.0~~$200.8 million and ~~$200.0~~$210.1 million considered to be long-term and included in “Insurance and other non-current liabilities.” Related insurance recoveries/receivables as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were ~~$36.9~~$35.8 million and ~~$50.4~~$56.5 million, of which $0.4 million and ~~$0.4~~$0.3 million were included in “Prepaid expenses and other current assets” and ~~$36.5~~$35.4 million and ~~$50.0~~$56.2 million were included in “Other assets, net.”

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Project Insurance Claim. In June 2018, while performing a horizontal directional drill and installing an underground gas pipeline, one of Quanta’s subsidiaries experienced a partial collapse of a borehole. Subsequent to the incident, Quanta has been working with its customer to mitigate the impact of the incident and to complete the project; however, Quanta has encountered additional challenges due to the collapsed borehole. As required by the contract, the customer procured certain insurance coverage for the project, with the Quanta subsidiary as an additional insured. Quanta believes the incident is covered under such insurance and is working collaboratively with the customer to pursue insurance claims with the customer’s insurance carriers. To the extent such claims are not successful, Quanta would expect to pursue contractual relief from the customer.

As of March 31, 2019, Quanta had recorded an insurance receivable of $45.8 million in accordance with GAAP related to accounting for insurance claims and potential recoveries. The amount represents a portion of the insurance claims being pursued as of such date. Quanta expects the insurance claims and the amount of the insurance receivable to increase in future periods as mitigation activities continue. The mitigation plan remains subject to inherent risks associated with underground pipeline installation, which could cause the costs to mitigate the incident to increase materially. The project is ongoing and the final amount of the insurance claims is not currently known. However, Quanta’s claims associated with the project, including both insurance claims and potential contractual claims, will be substantially in excess of the currently recognized receivable. To the extent Quanta is unsuccessful in realizing insurance or contractual recoveries, additional charges to operating results, which could be material, would be required.

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 secured ~~revolving~~ 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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

letter of credit. Depending on the circumstances of such a reimbursement, Quanta may also be required to record a charge to earnings for the reimbursement. Quanta does not believe ~~that~~ it is likely that any material claims will be made under a letter of credit in the foreseeable future.

As of ~~June 30, 2018~~March 31, 2019, Quanta had $~~439.9~~385.0 million in outstanding letters of credit and bank guarantees under its senior secured ~~revolving~~ 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 ~~2018~~2019 and ~~2019.~~2020. Quanta expects to renew the majority of the letters of credit related to the casualty insurance program for subsequent one-year periods upon maturity.

Performance Bonds and Parent Guarantees

~~In certain circumstances, Quanta is required to provide performance bonds~~Many customers, particularly in connection with new construction, require Quanta to post performance and payment bonds issued by a financial institution known as a surety. These bonds provide a guarantee to the customer that Quanta will perform under the terms of a contract and pay its ~~contractual commitments.~~subcontractors and vendors. If Quanta ~~has indemnified its sureties~~fails to perform, the customer may demand that the surety make payments or provide services under the bond. Quanta must reimburse the surety for any expenses ~~paid out~~or outlays it incurs. Under Quanta’s underwriting, continuing indemnity and security agreement with its sureties and with the consent of the lenders that are party to Quanta’s credit agreement, Quanta has granted security interests in certain of our assets as collateral for its obligations to the sureties. Subject to certain conditions and consistent with terms of Quanta’s credit agreement, these security interests will be automatically released if Quanta maintains a credit rating that meets two of the following three conditions: (i) a corporate credit rating that is BBB- or higher by Standard & Poor’s Rating Services, (ii) a corporate family rating that is Baa3 or higher by Moody’s Investors Services, Inc. or (iii) a corporate credit rating that is BBB- or higher by Fitch Ratings, Inc. Quanta may be required to post letters of credit or other collateral in favor of the sureties or Quanta’s customers in the future, which would reduce the borrowing availability under ~~these performance bonds.~~ its senior secured credit facility. Through March 31, 2019, Quanta had not been required to make any reimbursements to our sureties for bond-related costs. To the extent a reimbursement is required, the amount could be material. See Note 14 for additional information regarding an exercise of on-demand bonds by a customer subsequent to March 31, 2019.

These performance bonds expire at various times ranging from mechanical completion of the related projects to a period extending beyond contract completion in certain circumstances, and as such a determination of maximum potential amounts outstanding requires the use of certain estimates and assumptions. Such amounts can also fluctuate from period to period based upon the mix and level of Quanta’s bonded operating activity. As of ~~June 30, 2018~~March 31, 2019, the total amount of the outstanding performance bonds was estimated to be approximately $~~3.2~~2.5 billion. Quanta’s estimated maximum exposure as it relates to the value of the

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each of its commitments under the performance bonds generally extinguishes concurrently with the expiration of its related contractual obligation. The estimated cost to complete these bonded projects was approximately ~~$864~~$839 million as of ~~June 30, 2018~~March 31, 2019.

Additionally, from time to time, Quanta guarantees ~~the~~certain obligations and liabilities of its ~~wholly owned~~ subsidiaries ~~including obligations~~that may arise in connection with, ~~certain~~among other things, contracts with customers, equipment lease obligations, joint venture arrangements and ~~in some states,~~ contractors’ licenses. These guarantees may cover all of the subsidiary’s unperformed, un-discharged and un-released 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 amounts, or indemnity claims. Quanta is not aware of any ~~material~~ obligations ~~for performance~~ or ~~payment~~liabilities currently asserted ~~against it~~ under any of these ~~guarantees.~~guarantees that are material, individually or in the aggregate. However, to the extent a subsidiary incurs a material obligation or liability and Quanta has guaranteed the performance or payment of such 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 equity-related benefits. Certain employment agreements also contain clauses that become effective upon a change in control of Quanta, and Quanta may be obligated to pay certain amounts to such employees upon the occurrence of any of the defined change in control events.

Collective Bargaining Agreements

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

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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

a multiemployer defined benefit pension plan.

Indemnities

Quanta generally indemnifies its customers for the services it provides under its contracts, as well as other specified liabilities, which may subject Quanta to indemnity claims and liabilities and related litigation. Additionally, in connection with certain acquisitions and dispositions, Quanta has indemnified various parties against specified liabilities that those parties might incur in the future. The indemnities under acquisition or disposition agreements are usually contingent upon the other party incurring liabilities that reach specified thresholds. As of ~~June 30, 2018,~~March 31, 2019, except as otherwise set forth above in Legal Proceedings, Quanta does not believe any material liabilities for claims exist against it in connection with any of these indemnity obligations.

In the normal course of Quanta’s acquisition transactions, Quanta obtains rights to indemnification from the sellers or former owners of acquired businesses for certain risks, liabilities and obligations arising from their prior operations, such as performance, operational, safety, workforce or tax issues, some of which Quanta may not have discovered during due diligence. However, the indemnities may not cover all of Quanta’s exposure for such pre-acquisition matters, and the indemnitors may be unwilling or unable to pay the amounts owed to Quanta. Accordingly, Quanta may incur expenses for which it is not reimbursed. Quanta is currently in the process of negotiating certain pre-acquisition obligations associated with non-U.S. payroll taxes that may be due from a business acquired by Quanta in 2013. As of ~~June 30, 2018,~~March 31, 2019, Quanta had recorded ~~$11.4~~$7.4 million as its estimate of the pre-acquisition tax obligations and a corresponding indemnification asset, as management expects to recoverfrom the indemnity counterparties any amounts that Quanta may be required to pay in connection with any such obligations.

~~11.~~12. SEGMENT INFORMATION:

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

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

Reportable segment information, including revenues and operating income by type of work, is gathered from each operating unit for the purpose of evaluating segment performance in support of Quanta’s market strategies. These classifications of Quanta’s operating unit revenues by type of work for segment reporting purposes can at times require judgment on the part of management. Quanta’s operating units may perform joint 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, Quanta’s integrated operations and common administrative support for its operating units require that certain allocations be made to determine segment profitability, including allocations of shared and indirect costs ~~such as~~(e.g., facility ~~costs,~~costs), indirect operating expenses ~~including depreciation,~~(e.g., depreciation), and general and administrative costs. Certain corporate costs are not allocated and include payroll and benefits, employee travel expenses, facility costs, professional fees, acquisition costs and amortization related to intangible assets.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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



	Three Months Ended
	March 31,
	2019			2018
Revenues:
Electric Power Infrastructure Services	$	1,664,023		$	1,568,507
Pipeline and Industrial Infrastructure Services	1,143,236			849,069
Consolidated revenues	$	2,807,259		$	2,417,576
Operating income (loss):
Electric Power Infrastructure Services	$	161,617		$	140,895
Pipeline and Industrial Infrastructure Services	40,699			10,057
Corporate and non-allocated costs	(82,829		)	(75,731		)
Consolidated operating income	$	119,487		$	75,221
Depreciation:
Electric Power Infrastructure Services	$	25,251		$	24,270
Pipeline and Industrial Infrastructure Services	22,555			20,695
Corporate and non-allocated costs	4,410			3,754
Consolidated depreciation	$	52,216		$	48,719

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenues:

Electric Power Infrastructure Services $ 1,570,173
$ 1,300,729
$ 3,138,680
$ 2,520,231
Oil and Gas Infrastructure Services 1,086,175
899,645
1,935,244
1,858,313
Consolidated $ 2,656,348
$ 2,200,374
$ 5,073,924
$ 4,378,544
Operating income (loss):

Electric Power Infrastructure Services $ 146,011
$ 113,043
$ 286,906
$ 212,715
Oil and Gas Infrastructure Services 43,829
67,751
53,886
106,568
Corporate and non-allocated costs (66,801 ) (71,003 ) (142,532 ) (134,418 )
Consolidated $ 123,039
$ 109,791
$ 198,260
$ 184,865
Depreciation:

Electric Power Infrastructure Services $ 23,258
$ 22,150
$ 47,528
$ 44,236
Oil and Gas Infrastructure Services 22,480
18,134
43,175
35,498
Corporate and non-allocated costs 4,296
4,366
8,050
7,609
Consolidated $ 50,034
$ 44,650
$ 98,753
$ 87,343

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

Foreign Operations

During the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, Quanta derived $~~463.0~~606.6 million and $~~524.5~~705.1 million ~~of its revenues from foreign operations. During the six months ended June 30, 2018 and 2017, Quanta derived $1.17 billion and $1.18 billion~~ of its revenues from foreign operations. Of Quanta’s foreign revenues, ~~68%~~80% and ~~80%~~76% were earned in Canada during the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~ ~~and 73% and 82% were earned in Canada during the six months ended June 30,~~ 2018 ~~and 2017.~~. In addition, Quanta held property and equipment of $~~311.2~~310.0 million and $~~330.4~~304.0 million in foreign countries, primarily Canada, as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~12.~~13. 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):



	Three Months Ended
	March 31,
	2019			2018
Accounts and notes receivable	$	(159,469	)	$	(131,712	)
Contract assets	5,267			(6,184		)
Inventories	28,996			(13,682		)
Prepaid expenses and other current assets	(29,339		)	(18,742		)
Accounts payable and accrued expenses and other non-current liabilities	(66,678		)	(27,211		)
Contract liabilities	(23,380		)	77,274
Other, net	(5,553		)	2,663
Net change in operating assets and liabilities, net of non-cash transactions	$	(250,156	)	$	(117,594	)

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Accounts and notes receivable $ (45,089 ) $ (31,605 ) $ (176,801 ) $ (126,443 )
Contract assets (56,934 ) (67,270 ) (63,118 ) (147,980 )
Inventories 8,277
(3,529 ) (5,405 ) (4,798 )
Prepaid expenses and other current assets (39,251 ) (29,355 ) (57,993 ) (33,637 )
Accounts payable and accrued expenses and other non-current liabilities 151,001
(55,723 ) 123,790
13,044
Contract liabilities (6,212 ) 48,020
71,062
36,206
Other, net (8,642 ) 12,388
(5,979 ) 19,434
Net change in operating assets and liabilities, net of non-cash transactions $ 3,150
$ (127,074 ) $ (114,444 ) $ (244,174 )

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


	June 30,				March 31,
	2018		2017		2019		2018
Cash and cash equivalents	$	120,357	$	99,565	$	85,423	$	101,736
Restricted cash included in “Prepaid expenses and other current assets”	2,926		2,627		3,038		3,160
Restricted cash included in “Other assets, net”	1,454		416		1,031		384
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	124,737	$	102,608	$	89,492	$	105,280



	December 31,
	2018		2017
Cash and cash equivalents	$	78,687	$	138,285
Restricted cash included in “Prepaid expenses and other current assets”	3,286		5,106
Restricted cash included in “Other assets, net”	1,283		384
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	83,256	$	143,775

March 31,
2018 2017
Cash and cash equivalents $ 101,736
$ 106,514
Restricted cash included in “Prepaid expenses and other current assets” 3,160
591
Restricted cash included in “Other assets, net” 384
427
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows $ 105,280
$ 107,532

December 31,
2017 2016
Cash and cash equivalents 138,285
$ 112,183
Restricted cash included in “Prepaid expenses and other current assets” 5,106
1,709
Restricted cash included in “Other assets, net” 384
518
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows $ 143,775
$ 114,410

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

Supplemental cash flow information related to leases was as follows (in thousands):



	Three Months Ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(29,447	)
Operating cash flows from finance leases	$	(21	)
Financing cash flows from finance leases	$	(630	)
Lease assets obtained in exchange for lease liabilities:
Operating leases	$	15,939
Finance leases	$	401

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



	Three Months Ended
	March 31,
	2019			2018
Cash (paid) received during the period for —
Interest paid	$	(13,432	)	$	(5,960	)
Income taxes paid	$	(8,193	)	$	(17,957	)
Income tax refunds	$	1,278		$	1,018

14. SUBSEQUENT EVENT:

A subsidiary of Quanta is a party to two concession agreements for the construction and operation of telecommunication networks in rural regions of Peru. Aggregate consideration for the projects is approximately $260 million, of which $182 million has been allocated to the construction portion of the projects. During the construction phase, the projects have experienced challenges primarily related to items outside of the Quanta subsidiary’s control, including significant weather events, local opposition in certain areas to the projects, permitting delays, and the inability to acquire clear title to certain required parcels of land. The Quanta subsidiary had been working collaboratively with Peru’s FITEL (Fondo de Inversion en Telecomunicaciones / Telecommunications Investment Fund) throughout the construction phase of the projects in addressing the challenges and received extensions to contractual deadlines. Subsequent to March 31, 2019, PRONATEL (FITEL’s successor - Programa Nacional de Telecomunicaciones/National Program for Telecommunications) issued to Quanta’s subsidiary a notice of contract termination for

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~Additional supplemental~~cause based on the schedule delays and on April 30, 2019 presented a call to exercise on-demand bonds against Quanta in the amount of $25 million. Additionally, the concession agreements provide for liquidated damages in the event of default. Quanta believes it has contractual relief for much of the schedule delays and disputes the termination for cause and the exercise of the on-demand bonds.

As of March 31, 2019, the construction phase of the projects was approximately 85% complete and is expected to be completed in either the fourth quarter of 2019 or the first quarter of 2020. As of March 31, 2019, Quanta’s net receivable position on the projects was $54.9 million. Although Quanta expects to seek resolution of the disputes with PRONATEL through arbitration, there can be no assurance Quanta will prevail. If Quanta is not successful, this matter could result in a significant loss that could have a material adverse effect on Quanta’s consolidated results of operations and cash ~~flow~~flows. Based on information currently available, Quanta is not able to estimate the range of reasonably possible or probable loss, if any, and accordingly has not accrued for any such loss as ~~follows (in thousands):~~of March 31, 2019.

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Cash (paid) received during the period for —
Interest paid $ (8,772 ) $ (4,044 ) $ (14,732 ) $ (7,506 )
Income taxes paid $ (34,598 ) $ (93,279 ) $ (52,555 ) $ (101,496 )
Income tax refunds $ 1,345
$ 463
$ 2,363
$ 2,669

During the three months ended June 30, 2017, Quanta entered into a non-cash transaction whereby Quanta accepted title to a construction barge in satisfaction and discharge of a $7.1 million note receivable.

~~13. SUBSEQUENT EVENT:~~

Subsequent to June 30, 2018, Quanta acquired a 30% equity interest in a water and gas pipeline infrastructure contractor located in Australia for a subscription price of $22.2 million in cash, with an option to acquire the remaining outstanding equity of the company through 2020. A portion of the subscription price was offset by a $3.7 million deposit previously paid by Quanta to the company. Quanta’s interest in the company is represented by preference shares, which grant Quanta certain additional earnings and distribution participation rights during a designated 25-month period and preferential liquidation rights.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (Quarterly Report) and with our Annual Report on Form 10-K for the year ended December 31, ~~2017 (2017~~2018 (2018 Annual Report), which was filed with the Securities and Exchange Commission (SEC) on February 28, ~~2018~~2019 and is available on the SEC’s website at www.sec.gov and on our website, which is www.quantaservices.com. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in Uncertainty of Forward-Looking Statements and Information below, Item 1A. Risk Factors of Part II of this Quarterly Report and Item 1A. Risk Factors of Part I of our ~~2017~~2018 Annual Report.

Introduction

We are a leading provider of specialty contracting services, ~~offering~~delivering comprehensive infrastructure solutions ~~primarily to~~for the electric power, ~~oil and gas~~energy and communications industries in the United States, Canada, Australia, Latin America and select other international markets. The services we provide include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries we serve, such as electric power transmission and distribution ~~networks,~~networks; substation ~~facilities, renewable energy facilities, and~~facilities; pipeline transmission and distribution systems and ~~facilities.~~facilities; refinery, petrochemical and industrial facilities; and telecommunications and cable multi-system operator networks.

~~Services Provided~~Our customers include many of the leading companies in the industries we serve. We have developed strong strategic alliances with numerous customers and ~~Operating Segments~~strive to develop and maintain our status as a preferred service provider to our customers. Our services are typically provided pursuant to master service agreements, repair and maintenance contracts and fixed price and non-fixed price installation contracts.

We report our results under two reportable segments: (1) Electric Power Infrastructure Services and (2) ~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services. This structure is generally focused on broad end-user markets for our services. Our consolidated revenues for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 were ~~$5.07~~$2.81 billion, of which ~~61.9%~~59.3% was attributable to the Electric Power Infrastructure Services segment and ~~38.1%~~40.7% was attributable to the ~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services segment.

The Electric Power Infrastructure Services segment provides comprehensive network solutions to customers in the electric power industry. Services performed by the Electric Power Infrastructure Services segment generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities along with other engineering and technical services. This segment also provides emergency restoration services, including the repair of infrastructure damaged by inclement weather, the energized installation, maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and our proprietary robotic arm technologies, and the installation of “smart grid” technologies on electric power networks. In addition, this segment ~~designs, installs and maintains~~provides services that support the development of renewable energy generation, ~~facilities, consisting of~~including solar, wind and certain types of natural gas generation facilities, and related switchyards and transmission infrastructure. ~~To a lesser extent, the~~This segment also provides comprehensive communications infrastructure services to wireline ~~fiber~~ and wireless ~~carrier~~telecommunications companies, cable multi-system operators and other customers within the communications industry; services in connection with the construction of electric power generation facilities; and the design, installation, maintenance and repair of commercial and industrial ~~wiring; and the installation of traffic networks and cable and control systems for light rail lines.~~wiring. This segment also includes our postsecondary educational institution, ~~that provides~~which specializes in pre-apprenticeship training, apprenticeship training and ~~programs~~specialized utility task training for ~~experienced linemen.~~electric workers, and has been recently expanded to include curriculum for the gas distribution and communications industries.

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

For internal management purposes, we are also organized into two internal ~~divisions, namely,~~divisions: the Electric Power Infrastructure Services Division and the ~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services Division. These internal divisions are closely aligned with the reportable segments and are based on the predominant type of work provided by the operating units within each division.

operating units 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, we perform joint trenching projects to install distribution lines for electric power and natural gas customers. Our integrated operations and common administrative support for our operating units requires that certain allocations be made to determine segment profitability, including allocations of shared and indirect costs ~~such as~~(e.g., facility ~~costs,~~costs), indirect operating expenses ~~including depreciation,~~(e.g., depreciation), and general and administrative costs. Certain corporate costs are not allocated, including payroll and benefits, employee travel expenses, facility costs, professional fees, acquisition costs, non-cash stock-based compensation and amortization related to intangible assets.

~~Customer Relationships and Contracts~~

~~Our customers include many of the leading companies~~We operate primarily in the ~~industries~~United States; however, we ~~serve. We have developed strong strategic alliances with numerous customers~~derived $606.6 million and strive to develop and maintain our status as a preferred service provider to our customers. Our services may be provided pursuant to master service agreements, repair and maintenance contracts and fixed price and non-fixed price installation contracts. These contracts are classified into three categories based on how transaction prices are determined and revenue is recognized: unit-based contracts, cost-plus contracts and fixed price contracts. Transaction prices for unit-based 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$705.1 million of our revenues ~~are recognized~~ from ~~contracts with customers.~~foreign operations during the three months ended March 31, 2019 and 2018. Of our foreign revenues, 80% and 76% were earned in Canada during the three months ended March 31, 2019 and 2018. In addition, we held property and equipment of $310.0 million and $304.0 million in foreign countries, primarily Canada, as of March 31, 2019 and December 31, 2018. See Note 2 of the Notes to Consolidated Financial Statements in Item 1. Financial Statements for a further disaggregation of revenues by geographic location.

Recent Acquisitions, Investments and Divestitures

Acquisitions

In January 2019, we acquired an electric power specialty contracting business that provides aerial power line and construction support services and is located in the ~~considerations described below, revenue is not recognized unless collectability under~~United States. The consideration for this acquisition was $50.9 million in cash. The results of the ~~contract is considered probable,~~acquired business have generally been included in Quanta’s Electric Power Infrastructure Services segment and consolidated financial statements beginning on the ~~contract has commercial substance~~acquisition date.

During the year ended December 31, 2018, we acquired an electrical infrastructure services business specializing in substation construction and relay services, a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen and two communications infrastructure services businesses, all of which are located in the ~~contract has been approved.~~United States. The aggregate consideration for these acquisitions was $106.8 million paid or payable in cash, subject to certain adjustments, and 679,668 shares of Quanta common stock, which had a fair value of approximately $22.9 million as of the respective acquisition dates. Additionally, the ~~contract must contain~~acquisitions of the postsecondary educational institution and one of the communications infrastructure services businesses include the potential payment ~~terms,~~of up to $18.0 million of contingent consideration, payable if the acquired businesses achieve certain performance objectives over five-year and three-year post-acquisition periods. Based on the estimated fair value of this contingent consideration, we recorded $16.5 million of liabilities as of the respective acquisition dates. The results of the acquired businesses have generally been included in our Electric Power Infrastructure Services segment and have been included in our consolidated financial statements beginning on the respective acquisition dates.

Investments

During 2018, we acquired a 30% equity interest in a water and gas pipeline infrastructure contractor located in Australia for $22.2 million. This investment includes an option to acquire the remaining equity of the company through 2020 and provides for certain additional earnings and distribution participation rights during a designated 25-month post-investment period, as well as preferential liquidation rights. This investment has been recorded at cost and will be adjusted for impairment, if any, plus or minus observable changes in the ~~rights and commitments of both parties.~~

A performance obligation is a promise in a contract with a customer to transfer a distinct good or service. Most of our contracts are considered to have a single performance obligation whereby we are required to integrate complex activities and equipment into a deliverable for the customer. For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimatevalue of the ~~standalone selling price of each distinct good or service in the contract. The standalone selling price is estimated using the expected costs plus a margin approach for each performance obligation.~~

~~A transaction price is determined for each contract,~~company’s equity. Earnings on this investment are recognized as dividends, and ~~that amount is allocated to each performance obligation within the contract~~we received and recognized ~~as revenue when, or as,~~$3.9 million of cash dividends from this investment during 2018. Additionally, during the ~~performance obligation is satisfied. We generally recognize revenue over time as~~year ended December 31, 2018, we ~~perform our obligations because there is~~acquired a ~~continuous transfer of control of the deliverable to the customer. We believe that the following methods provide a faithful depiction of when performance obligations under our contracts~~49% equity interest in an electric power infrastructure services company, together with customers are satisfied. Under unit-based contracts with an insignificant amount of partially completed units, we recognize revenue as units are completed based on contractual pricing amounts. Under unit-based contracts with more than an insignificant amount of partially completed unitscertain related customer relationship and fixed price contracts, we recognize revenues as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costsother intangible assets, for ~~such performance obligation. Under cost-plus contracts, we recognize revenue on an input basis, as labor hours are incurred, materials are utilized and services are performed.~~$12.3 million.

We also enter into strategic partnerships and investment arrangements with customers and infrastructure investors to provide fully integrated infrastructure services on certain projects, including planning and feasibility ~~analysis,~~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. As part of this strategy, we formed a partnership with select investors that provides up to $1.0 billion of capital, including approximately $80.0 million from us, available to invest in certain of these infrastructure projects through August 2024. Wholly owned subsidiaries of Quanta serve as the general partner of this partnership and as a separately operated registered investment adviser that manages the invested capital. As of March 31, 2019, we had contributed $15.1 million to this partnership in connection with certain investments and the payment of management fees.

~~Recent Investments, Acquisitions and Divestitures~~

~~Acquisitions~~

In January 2018, we acquired an electrical infrastructure services business specializing in substation construction and relay services and a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen, both of which are located in the United States. The aggregate consideration for these acquisitions was $51.3 million paid or payable in cash, subject to certain adjustments, and 379,817 shares of Quanta common stock, which had a fair value of approximately $13.5 million as of the respective acquisition dates. Included in the cash consideration was $12.1 million paid in the second quarter of 2018 for the purchase of certain properties and training facilities related to the postsecondary educational institution. Additionally, the acquisition of the postsecondary educational institution includes the potential payment of up to $15.0 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 this contingent consideration, we recorded a $13.7 million liability as of

the acquisition date. The results of the acquired businesses have generally been included in our Electric Power Infrastructure Services segment and consolidated financial statements beginning on the acquisition dates.

On July 20, 2017, we acquired Stronghold, a specialized services business located in the United States that provides high-pressure and critical-path solutions to the downstream and midstream energy markets. The aggregate consideration included $351.0 million in cash, subject to certain adjustments, and 2,693,680 shares of Quanta common stock, which had a fair value of $81.3 million at the acquisition date. Additionally, the acquisition includes the potential payment of up to $100.0 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a three-year post-acquisition period. Based on the estimated fair value of this contingent consideration, we recorded a $51.1 million liability as of the acquisition date. The results of the acquired business have generally been included in our Oil and Gas Infrastructure Services segment and consolidated financial statements since the acquisition date.

During the year ended December 31, 2017, we also acquired a communications infrastructure services business and an electrical and communications business, both of which are located in the United States. The aggregate consideration for these acquisitions consisted of $12.0 million paid or payable in cash, subject to certain adjustments, and 288,666 shares of Quanta common stock, which had a fair value of $8.3 million as of the acquisition dates. The results of the acquired businesses have generally been included in our Electric Power Infrastructure Services segment and consolidated financial statements since the acquisition dates.

~~Investment~~

Subsequent to June 30, 2018, we acquired a 30% equity interest in a water and gas pipeline infrastructure contractor located in Australia for a subscription price of $22.2 million in cash, with an option to acquire the remaining equity of the company through 2020. A portion of the subscription price was offset by a $3.7 million deposit previously paid by us to the company. Our interest in the company is represented by preference shares, which grant us certain additional earnings and distribution participation rights during a designated 25-month period and preferential liquidation rights.

Remaining Performance Obligations and Backlog

~~As discussed in Note 3 of the Notes to Consolidated Financial Statements in Item 1.~~ ~~Financial Information~~, effective January 1, 2018, we adopted the new revenue recognition guidance issued by the FASB. Pursuant to the new guidance, we are required to disclose, as of the end of each interim and annual period, the aggregate amount of remaining performance obligations under our contracts with customers. A performance obligation is a promise in a contract with a customer to transfer a distinct good or service. As of ~~June 30, 2018,~~March 31, 2019, our remaining performance obligations were ~~$5.58~~$4.71 billion, ~~79.8%~~70.3% of which was expected to be recognized in the subsequent twelve months. Our remaining performance obligations represent management’s estimate of 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 has not yet begun. For purposes of calculating remaining performance obligations, we include all estimated revenues attributable to consolidated joint ventures and ~~VIEs,~~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.

We have also historically disclosed our backlog, and while backlog is not a term recognized under US GAAP, it is a common measurement used in our industry. We also believe this non-GAAP measure enables us to more effectively forecast our future results and better identify future operating trends that may not otherwise be apparent. Our remaining performance obligations, as described above, are a component of our backlog calculation, which also includes estimated orders under ~~MSAs,~~master service agreements (MSAs), including estimated renewals, and non-fixed price contracts expected to be completed within one year. Our methodology for determining backlog may not be comparable to the methodologies used by other companies.

Generally, our customers are not contractually committed to specific volumes of services under our MSAs, and most of our contracts may be terminated, typically upon 30 to 90 ~~days~~days’ notice, even if we are not in default under the contract. We determine the estimated amount of backlog for work under MSAs by using recurring historical trends for current MSAs, factoring in seasonal demand and projected customer needs based upon ongoing communications with the customer. In addition, many of our MSAs are subject to renewal, and these potential renewals are considered in determining the estimated amount of backlog. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, MSAs accounted for ~~39%~~44% and ~~44%~~53% of our estimated 12-month backlog and ~~48%~~58% and ~~52%~~60% of total backlog. There can be no assurance as to our customers’ actual requirements or that our estimates are accurate.

Revenue estimates included in our remaining performance obligations and backlog can be subject to change as a result of, among other things, project acceleration; cancellations or delays due to various factors, including but not limited to commercial issues, regulatory requirements and adverse ~~weather;~~weather conditions; and final acceptance of change orders by our customers. These factors can also cause revenue amounts to be realized in periods and at levels different than originally projected.

The following table reconciles total remaining performance obligations to our backlog (a non-GAAP measure) by reportable segment ~~as of June 30, 2018,~~ along with estimates of amounts expected to be realized within 12 months ~~of June 30, 2018~~ (in thousands):


	June 30, 2018				March 31, 2019				December 31, 2018
	12 Month		Total		12 Month		Total		12 Month		Total
Electric Power Infrastructure Services
Remaining performance obligations	$	2,434,216	$	3,335,413	$	2,109,814	$	2,876,513	$	2,093,461	$	3,045,553
Estimated orders under MSAs and short-term, non-fixed price contracts	1,823,629		3,799,060		2,384,718		5,485,972		2,467,654		5,499,887
Backlog	4,257,845		7,134,473		4,494,532		8,362,485		4,561,115		8,545,440

Oil and Gas Infrastructure Services
Pipeline and Industrial Infrastructure Services
Remaining performance obligations	2,017,559		2,240,235		1,200,725		1,831,751		1,003,543		1,635,918
Estimated orders under MSAs and short-term, non-fixed price contracts	1,162,125		2,117,695		1,213,764		2,417,011		1,411,329		2,161,275
Backlog	3,179,684		4,357,930		2,414,489		4,248,762		2,414,872		3,797,193

Total
Remaining performance obligations	4,451,775		5,575,648		3,310,539		4,708,264		3,097,004		4,681,471
Estimated orders under MSAs and short-term, non-fixed price contracts	2,985,754		5,916,755		3,598,482		7,902,983		3,878,983		7,661,162
Backlog	$	7,437,529	$	11,492,403	$	6,909,021	$	12,611,247	$	6,975,987	$	12,342,633

The following table presents our total backlog (a non-GAAP measure) by reportable segment as of June 30, 2018 and December 31, 2017, along with an estimate of the backlog amounts expected to be realized within 12 months of each balance sheet date (in thousands):

Backlog as of Backlog as of
June 30, 2018 December 31, 2017
12 Month Total 12 Month Total
Electric Power Infrastructure Services $ 4,257,845
$ 7,134,473
$ 4,032,379
$ 7,359,237
Oil and Gas Infrastructure Services 3,179,684
4,357,930
2,413,817
3,818,470
Total backlog $ 7,437,529
$ 11,492,403
$ 6,446,196
$ 11,177,707

Seasonality; Fluctuations of Results; Economic Conditions

Our revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, receipt of required regulatory approvals, permits and rights of way, project timing and schedules, and holidays. Typically, our revenues are lowest in the first quarter of the year because cold, snowy or wet conditions can cause delays on projects. In addition, many of our customers develop their annual capital budgets during the first quarter, and therefore do not begin infrastructure projects in a meaningful way until their capital budgets are finalized. Second quarter revenues are typically higher than those in the first quarter, as some projects begin, but continued cold and wet weather can often impact second quarter productivity. Third quarter revenues are typically the highest of the year, as a greater number of projects are underway, and weather is normally more accommodating. Generally, revenues during the fourth quarter of the year are lower than the third quarter but higher than the second quarter. Many projects are completed in the fourth quarter, and revenues are often impacted positively by customers seeking to spend their capital budgets before the end of the year. However, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenues and increasing costs. Productivity and operating activity in any quarter may be positively or negatively affected by atypical weather patterns in the areas we serve, such as severe weather, excessive rainfall or unusual winter weather. The timing of project awards and unanticipated changes in project schedules as a result of delays or accelerations can also create variations in the level of operating activity from quarter to quarter.

These seasonal impacts are typical for our U.S. operations, but as our foreign operations grow, this pattern may have a lesser impact on our quarterly revenues. For example, revenues in Canada are ~~often~~typically higher in the first quarter because projects are often accelerated in order to complete work while the ground is frozen and prior to the break up, or seasonal thaw, as productivity is adversely affected by wet ground conditions during the warmer spring and summer months. Also, although revenues from Australia and other international operations have not been significant relative to our overall revenues to date, their seasonal patterns may differ from those in North America and may impact our seasonality more in the future.

Additionally, our industry can be highly cyclical. Our volume of business may be adversely affected by declines or delays in new projects due to cyclicality, which may vary by geographic region. Project schedules, particularly in connection with larger, longer-term projects, can also create fluctuations in the amount of work performed in a given period. For example, in connection with larger and more complicated projects, the timing of obtaining permits and other approvals may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward. Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: the financial condition of our customers and their access to capital; margins of ~~projects performed during any particular period;~~ongoing projects; economic ~~political~~ and ~~market~~political conditions on a regional, national or global ~~scale;~~scale, including changes in U.S. trade relationships with other countries; our customers’ capital spending, including on larger pipeline and electrical infrastructure projects; oil, natural gas and natural gas liquids prices; liabilities and costs that are not covered by or that are in excess of, third party insurance coverage; the timing of and costs associated with acquisitions; changes in the fair value of acquisition-related contingent consideration liabilities; dispositions; equity in earnings (losses) of unconsolidated affiliates; impairments of goodwill, intangible assets, long-lived assets or investments; effective tax rates; and interest rates. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. Please read Outlook and Understanding Margins for additional discussion of trends and challenges that may affect our financial condition, results of operations and cash flows.

Understanding Margins

Our gross margin is gross profit expressed as a percentage of revenues, and our operating margin is operating income expressed as a percentage of revenues. Cost of services, which is subtracted from revenues to obtain gross profit, consists primarily of salaries, wages and benefits to employees; depreciation; fuel and other equipment expenses; equipment rental expense; and costs related to subcontracted services, insurance, facilities, materials, parts and supplies. Selling, general and administrative expenses, amortization of intangible assets and change in fair value of contingent consideration liabilities are then subtracted from gross profit to obtain operating income. Various factors, only some of which are within our control, can impact our margins on a quarterly or annual basis.

Seasonal and geographical. Seasonal weather patterns can have a significant impact on margins. Generally, business is slower in the ~~winter~~colder months versus the warmer months of the year, resulting in lower productivity and consequently reducing our ability to cover fixed costs. This can be offset somewhat by increased demand for electrical service and repair work resulting from infrastructure damaged by severe ~~weather.~~weather during the colder months, and increased demand in certain northern climates during the winter months due to the adverse operating conditions during the spring seasonal thaw. Additionally, project schedules, including when projects begin and are completed, may impact margins. The mix of business conducted in the areas we serve will also affect margins, as some areas offer the opportunity for higher margins due to their geographic characteristics. For example, margins may

be negatively impacted by unexpected difficulties that can arise in challenging operating conditions such as urban settings or mountainous and other difficult terrain. Site conditions, including unforeseen underground conditions, can also impact margins.

Weather. Adverse or favorable weather conditions can impact gross margins in a given period. For example, snowfall, rainfall or other severe weather may negatively impact our revenues and margins due to reduced productivity, as projects may be terminated, deferred or delayed until weather conditions improve or an affected area recovers from a severe weather event. Conversely, in periods when weather remains dry and temperatures are accommodating, more work can be done, sometimes at a lower cost. In some cases, severe weather, such as hurricanes, ~~and~~ ice storms and wildfires, can provide us with emergency restoration service work, which typically yields higher margins due in part to better equipment utilization rates and absorption of fixed costs.

Revenue mix. The mix of revenues derived from the industries we serve and the types of services we provide within an industry will impact margins, as certain industries and services provide higher-margin opportunities. Additionally, changes in our customers’ spending patterns can cause an imbalance in supply and demand and, therefore, affect margins and the mix of revenues.

Service and maintenance versus installation. Installation work is often performed on a fixed price basis, while maintenance work is often performed under pre-established or negotiated prices or cost-plus pricing arrangements. Margins for installation work may vary from project to project, and may be higher than maintenance work, as work obtained on a fixed price basis has higher risk than other types of pricing arrangements. We ~~typically derive~~have historically derived approximately 30% of our annual revenues from maintenance work, but a higher portion of installation work in any given period may affect our gross margins for that period.

Subcontract work. Work that is subcontracted to other service providers generally yields lower margins. An increase in subcontract work in a given period may contribute to a decrease in margins. ~~We typically subcontract~~In recent years, we have subcontracted approximately ~~20%~~15% to ~~25%~~20% of our work to other service providers.

Materials versus labor. Typically, our customers are responsible for supplying ~~their own~~the materials onfor their projects; however, for some of our contracts we may agree to procure all or part of the required materials. Margins may be lower on projects where we furnish a significant amount of materials, including projects where we provide engineering, procurement and construction (EPC)

services, as our ~~mark-up~~markup on materials is generally lower than our ~~mark-up~~markup on labor costs. Furthermore, fluctuations in the price of materials we are required to procure, including as a result of ~~national and global~~changes in U.S. trade relationships with other countries or other economic or political conditions, may impact our margins. In a given period, an increase in the percentage of work with higher materials procurement requirements may decrease our overall margins.

Size, scope and complexity of projects. We may experience a decrease or fluctuations in margins when larger, more complex electric transmission and pipeline projects experience significant ~~delays.~~delays or other difficulties impacting performance. Larger projects with higher voltage capacities, larger diameter throughput capacities, increased engineering, design or construction complexities, more difficult terrain requirements or longer distance requirements typically yield opportunities for higher margins as we assume a greater degree of performance risk and there is greater utilization of our resources for longer construction timeframes. Conversely, smaller or less complex electric transmission and pipeline projects typically provide lower margin opportunities, as there are a greater number of competitors capable of performing in this market, and competitors at times may more aggressively pursue available volumes of work to absorb fixed costs. A greater percentage of smaller scale or less complex electric transmission and pipeline work also could negatively impact margins due to the inefficiency of transitioning between a greater number of smaller projects versus continuous production on fewer larger projects. Our margins may be further impacted by delays in the timing of larger projects, extended bidding procedures for more complex EPC projects or temporary decreases in capital spending by our customers. Also, during these periods we may choose to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on larger, more complicated electric transmission or pipeline projects when they move forward.

Depreciation. We include depreciation in cost of services, which is common practice in our industry. However, this can make comparability of our margins to those of other companies difficult and must be taken into consideration when comparing us to other companies.

Insurance. As discussed in Contractual Obligations -— Insurance, we are insured for employer’s liability, workers’ compensation, auto liability and general liability claims. We also have employee health care benefit plans for most employees not subject to collective bargaining agreements. Margins could be impacted by fluctuations in insurance accruals as additional claims arise and as circumstances and conditions of existing claims change.

Project Variability and Performance. Margins for a single project may fluctuate quarter to quarter due to changes in the volume or type of work performed, the pricing structure under the project contract or job productivity. Productivity can be influenced

by many factors, including ~~where the work is performed (e.g.,~~unexpected project difficulties or site conditions; project locations, including locations with challenging operating ~~conditions where unexpected difficulties can arise);~~conditions; whether the work is on an open or encumbered right of way; inclement ~~weather;~~weather or severe weather events; environmental restrictions or regulatory delays; protests, or other political activity ~~on a project;~~or legal challenges related to a project; and the performance of third parties. These types of factors are not practicable to quantify through accounting data but may individually or in the aggregate have a direct impact on the gross margin of a specific project.

Foreign currency risk. Our financial performance is reported on a U.S. dollar-denominated basis but is partially subject to fluctuations in foreign currency exchange rates. Fluctuations in exchange rates relative to the U.S. dollar, primarily the Canadian and Australian dollars, could cause material fluctuations in comparisons of our results of operations between periods.

Change in fair value of contingent consideration liabilities. We anticipate fluctuations in operating income margins as a result of changes in the fair value of contingent consideration liabilities associated with ~~acquisitions.~~prior acquisitions, which occur as we obtain additional information on the likelihood that the acquired businesses will achieve their post-acquisition performance objectives. See Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements for more information about the valuation methodologies and assumptions related to the determination of the fair value of these liabilities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of compensation and related benefits, marketing and ~~communications~~communication costs, office rent and utilities, professional fees, bad debt expense, acquisition costs, gains and losses on the sale of property and equipment, letter of credit fees and maintenance, training and conversion costs related to information technology systems.

Results of Operations

As previously discussed, the results of acquired businesses have been included in the following results of operations beginning on their respective acquisition dates. The following table sets forth selected statements of operations data and such data as a percentage of revenues for the three ~~and six~~ month periods indicated (dollars in thousands):

Consolidated Results



	Three Months Ended March 31,
	2019					2018
Revenues	$	2,807,259		100.0	%	$	2,417,576		100.0	%
Cost of services (including depreciation)	2,443,278			87.0		2,116,528			87.5
Gross profit	363,981			13.0		301,048			12.5
Selling, general and administrative expenses	231,908			8.3		215,422			8.9
Amortization of intangible assets	12,670			0.4		10,405			0.5
Change in fair value of contingent consideration liabilities	(84		)	—		—			—
Operating income	119,487			4.3		75,221			3.1
Interest expense	(13,876		)	(0.5	)	(6,778		)	(0.3	)
Interest income	309			—		146			—
Other income (expense), net	58,959			2.1		(11,975		)	(0.5	)
Income before income taxes	164,879			5.9		56,614			2.3
Provision for income taxes	43,844			1.6		18,003			0.7
Net income	121,035			4.3		38,611			1.6
Less: Net income attributable to non-controlling interests	547			—		997			—
Net income attributable to common stock	$	120,488		4.3	%	$	37,614		1.6	%

Three Months Ended June 30, Six Months Ended June 30, 2018
2018 2017 2018 2017
Revenues $ 2,656,348
100.0 % $ 2,200,374
100.0 % $ 5,073,924
100.0 % $ 4,378,544
100.0 %
Cost of services (including depreciation) 2,322,977
87.5
1,898,209
86.3
4,439,505
87.5
3,810,191
87.0
Gross profit 333,371
12.5
302,165
13.7
634,419
12.5
568,353
13.0
Selling, general and administrative expenses 206,104
7.8
185,880
8.4
421,526
8.3
370,432
8.5
Amortization of intangible assets 10,507
0.3
6,494
0.3
20,912
0.4
13,056
0.3
Change in fair value of contingent consideration liabilities (6,279 ) (0.2 ) —
—
(6,279 ) (0.1 ) —
—
Operating income 123,039
4.6
109,791
5.0
198,260
3.9
184,865
4.2
Interest expense (9,178 ) (0.3 ) (4,271 ) (0.2 ) (15,956 ) (0.3 ) (8,236 ) (0.2 )
Interest income 660
—
164
—
806
—
451
—
Other income (expense), net (10,426 ) (0.4 ) (1,079 ) —
(22,401 ) (0.4 ) (1,443 ) —
Income before income taxes 104,095
3.9
104,605
4.8
160,709
3.2
175,637
4.0
Provision for income taxes 29,389
1.1
40,245
1.9
47,392
1.0
62,837
1.4
Net income 74,706
2.8
64,360
2.9
113,317
2.2
112,800
2.6
Less: Net income attributable to non-controlling interests 341
—
523
—
1,338
—
696
—
Net income attributable to common stock $ 74,365
2.8 % $ 63,837
2.9 % $ 111,979
2.2 % $ 112,104
2.6 %

Three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017~~March 31, 2018

Revenues. Revenues increased ~~$456.0~~$389.7 million, or ~~20.7%~~16.1%, to ~~$2.66~~$2.81 billion for the three months ended ~~June 30, 2018.~~March 31, 2019. Contributing to the increase were incremental revenues of ~~$269.4~~$294.2 million from pipeline and industrial infrastructure services and $95.5 million from electric power infrastructure ~~services~~services. See Segment Results below for additional information and $186.5 million from oil and gas infrastructure services. The increase in revenues from electric power infrastructure services was primarily the result of increased customer spending associated with both transmission projects and distribution services. The increase in oil and gas services revenues was primarily the result of $195 million in revenues generated by the acquired business of Stronghold, which was partially offset by decreased capital spending by our customers on large diameter pipeline transmission projects. The timing of construction for these large diameter pipeline transmission projects is highly variable due to delays associated with obtaining permits, as well as worksite access limitationsdiscussion related to ~~environmental regulations and seasonal weather patterns.~~segment revenues.

Gross profit. Gross profit increased ~~$31.2~~$62.9 million, or ~~10.3%~~20.9%, to ~~$333.4~~$364.0 million for the three months ended ~~June 30, 2018.~~March 31, 2019. Gross profit as a percentage of revenues ~~decreased~~increased to ~~12.5%~~13.0% for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~13.7%~~12.5% for the three

months ended ~~June 30, 2017.~~March 31, 2018. The increase in gross profit and gross profit as a percentage of revenues was primarily due to the overall increase in revenues described above. ~~The decrease in gross profit as a percentage of revenues was primarily associated with oil~~See Segment Results below for additional information and gas infrastructure services and resulted from a lower level of large diameter pipeline transmission work, which typically yields higher margins. In addition, the lower proportion of large diameter pipeline transmission work negatively impacted resource utilization.discussion related to segment operating income (loss).

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~$20.2~~$16.5 million, or ~~10.9%~~7.7%, to ~~$206.1~~$231.9 million for the three months ended ~~June 30, 2018.~~March 31, 2019. This increase was primarily attributable to $17.0 million of incremental selling, general and administrative expenses associated with acquired businesses, including acquisition and integration costs of $2.1 million. Also contributing to the increase were $6.1$8.5 million in higher compensation expenses, largely associated with higher salaries due to increased personnel to support business growth and annual and incentive compensation increases, ~~as well as increased stock-based~~$4.0 million related to an increase in deferred compensation expense ~~related to improved forecasted achievement of multi-year performance metrics; $3.3 million of charges~~primarily associated with the planned exchange of a construction barge for an industrial property; and $1.3 million in severance and restructuring costs associated with the closure of certain operations within the Oil and Gas Infrastructure Services segment. These increases were partially offset by a decrease of $5.6 million in legal costsmarket value changes, and a ~~decrease~~$2.0 million increase in ~~charitable contributions primarily related to a $2.4 million contribution made~~provision for ~~the formation of a non-profit line training school in the quarter ended June 30, 2017.~~doubtful accounts. Selling, general and administrative expenses as a percentage of revenues decreased to ~~7.8%~~8.3% for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~8.4%~~8.9% for the three months ended ~~June 30, 2017,~~March 31, 2018, primarily due to the increased revenues described above.

Amortization of intangible assets. Amortization of intangible assets increased ~~$4.0~~$2.3 million to ~~$10.5~~$12.7 million for the three months ended ~~June 30, 2018.~~March 31, 2019. This increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense from previously acquired intangible assets as certain of these assets became fully amortized.

Change in fair value of contingent consideration liabilities. A ~~$6.3~~$0.1 million decrease in the fair value of contingent consideration liabilities was recognized during the three months ended ~~June 30, 2018,~~March 31, 2019, which resulted in a corresponding increase in operating income, as compared to no change during the three months ended ~~June 30, 2017.~~March 31, 2018. The decrease ~~in fair value in the three months ended June 30, 2018~~ was primarily due to changes in forecasted performance for ~~two~~certain acquired ~~companies.~~businesses. It is anticipated that changes in fair value will be recorded periodically until the contingent consideration liabilities are settled. See Contractual Obligations -— Contingent Consideration Liabilities for more information.

Interest expense. Interest expense increased ~~$4.9~~$7.1 million to ~~$9.2~~$13.9 million for the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017~~March 31, 2018 due to increased borrowing activity ~~primarily related to the acquisition of Stronghold~~ and ~~common stock repurchases, as well as~~ a higher weighted average interest rate.

Other income (expense), net. Other income (expense), net ~~was a~~consisted of net ~~expense~~income of ~~$10.4~~$59.0 million for the three months ended ~~June 30, 2018,~~March 31, 2019, as compared to a net expense of ~~$1.1~~$12.0 million for the three months ended ~~June 30, 2017. The increase in expense~~March 31, 2018. This change was primarily ~~due~~related to ~~an increase~~our equity investment in ~~construction activity on~~ a large electric transmission project in Canada ~~for an entity in which we have an equity investment. Due to such equity investment,~~that was substantially completed and placed into commercial operation during the three months ended March 31, 2019. As a ~~portion~~result of the ~~construction~~project completion, we recognized $60.3 million of earnings ~~are~~that were previously deferred ~~by recognition~~as a component of “Other income (expense), net” in prior periods. The net expense recognized in the three months ended March 31, 2018 was primarily related to the deferral of earnings on the same project. In addition, partially offsetting the other income during the three months ended March 31, 2019 was other expense of $4.0 million related to a reduction of an indemnification asset, which resulted from the favorable settlement of a decrease to the recorded value of the equity investment and a charge to equity in losses of unconsolidated affiliates, which is included in other income (expense), net. Additional profit deferrals are anticipated through the first half of 2019 as the project progresses from approximately 60% complete as of June 30, 2018 to completion.pre-acquisition foreign tax-related obligation.

Provision for income ~~taxes.~~taxes. The provision for income taxes was ~~$29.4~~$43.8 million for the three months ended ~~June 30,~~March 31, 2019, with an effective tax rate of 26.6%. The provision for income taxes was $18.0 million for the three months ended March 31, 2018, with an effective tax rate of ~~28.2%~~31.8%. The ~~provision for income taxes was $40.2 million for~~decrease in the ~~three months ended June 30, 2017, with an~~ effective tax rate was primarily due to the mix of ~~38.5%. The effective rate~~earnings, as well as a $4.5 million decrease in reserves for ~~the three months ended June 30, 2018 was lower since it reflects impacts~~uncertain tax positions resulting from the ~~enactment~~favorable settlement of a pre-acquisition obligation associated with certain non-U.S. income taxes and the ~~Tax Act on December 22, 2017, which among other things, lowered the~~expiration of U.S. ~~federal corporate~~state income tax ~~rate from 35% to 21% effective January 1, 2018; partially offset by an increase in losses in foreign jurisdictions for which tax benefits are not expected to be realized. As a result~~statutes of the Tax Act, our effective tax rate for 2018 is expected to be approximately 29%. For additional information on the status of our provisional analysis of the Tax Act, refer to Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1. ~~Financial Information.~~limitations.

Other comprehensive ~~income.~~income (loss). Other comprehensive income (loss), net of taxes was a ~~loss~~gain of ~~$20.1~~$18.8 million in the three months ended ~~June 30, 2018~~March 31, 2019 compared to a ~~gain~~loss of ~~$26.7~~$25.0 million in the three months ended ~~June 30, 2017.~~March 31, 2018. The gain in the three months ended March 31, 2019 was due to the strengthening of foreign currencies associated with our international operations, primarily the Canadian and Australian dollars, against the U.S. dollar as of March 31, 2019 when compared to December 31, 2018. The loss in the three months ended ~~June 30,~~March 31, 2018 was due to the strengthening of the U.S. dollar against foreign currencies associated with ~~the positive net asset position of~~ our international operations, primarily the Canadian and Australian dollars, as of ~~June 30, 2018 when compared to~~ March 31, 2018, and the gain in the three months ended June 30, 2017 was due to a strengthening of the foreign currencies associated with the positive net asset position of our international operations, primarily the Canadian and Australian dollars, against the U.S. dollar as of June 30, 2017 when compared to March 31, 2017.

~~Six months ended June 30, 2018 compared to the six months ended June 30, 2017~~

~~Revenues.~~ Revenues increased $695.4 million, or 15.9%, to $5.07 billion for the six months ended June 30, 2018. Contributing to the increase were incremental revenues of $618.4 million from electric power infrastructure services and $76.9 million from oil and gas infrastructure services. The increase in revenues from electric power infrastructure services was primarily the result of increased customer spending associated with electric transmission projects and $37.4 million in additional emergency restoration services revenues primarily from winter storms in the United States and Canada. Also contributing to the increase in revenues from electric power infrastructure services was approximately $35 million in revenues from acquired businesses. The increase in oil and gas infrastructure services revenues was primarily the result of approximately $350 million in revenues generated by the acquired business of Stronghold, which was largely offset by decreased capital spending by our customers on large diameter pipeline transmission projects. The timing of construction for these large diameter pipeline transmission projects is highly variable due to delays associated with obtaining permits, as well as worksite access limitations related to environmental regulations and seasonal weather patterns.

~~Gross profit.~~ Gross profit increased $66.1 million, or 11.6%, to $634.4 million for the six months ended June 30, 2018. Gross profit as a percentage of revenues decreased to 12.5% for the six months ended June 30, 2018 from 13.0% for the six months ended June 30, 2017. The increase in gross profit was primarily due to the overall increase in revenues described above. The decrease in gross profit as a percentage of revenues was primarily associated with oil and gas infrastructure services and resulted from a lower level of large diameter pipeline transmission work, which typically yields higher margins. In addition, the lower proportion of large diameter pipeline transmission work negatively impacted resource utilization.

~~Selling, general and administrative expenses.~~ Selling, general and administrative expenses increased $51.1 million, or 13.8%, to $421.5 million for the six months ended June 30, 2018. This increase was primarily attributable to $42.2 million of incremental selling, general and administrative expenses associated with acquired businesses, including acquisition and integration costs of $9.3 million. Also contributing to the increase were $12.6 million in higher compensation expenses, largely associated with higher salaries due to increased personnel to support business growth and annual compensation increases, as well as increased stock-based compensation expense related to improved forecasted achievement of multi-year performance metrics; $1.4 million in incremental charges associated with the planned disposition of a construction barge; and $1.3 million in severance and restructuring costs associated with the closure of certain operations within the Oil and Gas Infrastructure Services segment. These increases were partially offset by a decrease of $8.7 million in legal costs in the six months ended June 30, 2018, $4.2 million of which was associated with a matter involving our prior disposition of certain communications operations, which was resolved in last year’s first quarter, and a decrease in charitable contributions primarily related to a $2.4 million contribution made for the formation of a non-profit line training school in the quarter ended June 30, 2017. Selling, general and administrative expenses as a percentage of revenues decreased to 8.3% for the six months ended June 30, 2018 from 8.5% for the six months ended June 30, 2017, primarily due to the increase in revenues described above.

~~Amortization of intangible assets.~~ Amortization of intangible assets increased $7.9 million to $20.9 million for the six months ended June 30, 2018. This increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense from previously acquired intangible assets as certain of these assets became fully amortized.

~~Change in fair value of contingent consideration liabilities.~~ A $6.3 million decrease in the fair value of contingent consideration liabilities was recognized during the six months ended June 30, 2018, which resulted in a corresponding increase in operating income, as compared to no change during the six months ended June 30, 2017. The decrease in fair value in the six months ended June 30, 2018 was primarily due to changes in forecasted performance for two acquired companies. It is anticipated that changes in fair value will be recorded periodically until the contingent consideration liabilities are settled. See ~~Contractual Obligations - Contingent Consideration Liabilities~~ ~~for more information.~~

~~Interest expense.~~ Interest expense increased $7.7 million to $16.0 million for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 due to increased borrowing activity, primarily related to the acquisition of Stronghold and common stock repurchases, as well as a higher weighted average interest rate.

~~Other income (expense), net.~~ Other income (expense), net was a net expense of $22.4 million for the six months ended June 30, 2018, as compared to a net expense of $1.4 million for the six months ended June 30, 2017. The increase in expense was primarily due to an increase in construction activity on a large electric transmission project in Canada for an entity in which we have an equity investment. Due to such equity investment, a portion of the construction earnings are deferred by recognition of a decrease to the recorded value of the equity investment and a charge to equity in losses of unconsolidated affiliates, which is included in other income (expense), net. Additional profit deferrals are anticipated through the first half of 2019 as the construction project progresses from approximately 60% complete as of June 30, 2018 to completion.

~~Provision for income taxes.~~ The provision for income taxes was $47.4 million for the six months ended June 30, 2018, with an effective tax rate of 29.5%. The provision for income taxes was $62.8 million for the six months ended June 30, 2017, with an effective tax rate of 35.8%. The lower effective tax rate for the six months ended June 30, 2018 was primarily due to impacts from the enactment of the Tax Act on December 22, 2017, which among other things, lowered the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018; partially offset by an increase in losses in foreign jurisdictions for which tax benefits are not expected to be realized. In addition, the six months ended June 30, 2017 reflects higher tax benefits associated with the vesting of stock-based compensation awards primarily based on a higher weighted average vesting date stock price. As a result of the Tax Act, our effective tax rate for 2018 is expected to be approximately 29%. For additional information on the status of our provisional analysis of the Tax Act, refer to Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1. ~~Financial Information.~~

~~Other comprehensive income.~~ Other comprehensive income (loss), net of taxes was a loss of $45.1 million in the six months ended June 30, 2018 compared to a gain of $40.5 million in the six months ended June 30, 2017. The loss in the six months ended June 30, 2018 was due to the strengthening of the U.S. dollar against foreign currencies associated with the positive net asset position of our international operations, primarily the Canadian and Australian dollars, as of June 30, 2018 when compared to December 31, 2017, and the gain in the six months ended June 30, 2017 was due to a strengthening of foreign currencies associated with the positive net asset position of our international operations, primarily the Canadian and Australian dollars, against the U.S. dollar as of June 30, 2017 when compared to December 31, 2016.2017.

Segment Results

The following table sets forth segment revenues and segment operating income (loss) for the periods indicated (dollars in thousands):


	Three Months Ended June 30,										Six Months Ended June 30, 2018										Three Months Ended March 31,
	2018					2017					2018					2017					2019					2018
Revenues:
Electric Power Infrastructure Services	$	1,570,173		59.1	%	$	1,300,729		59.1	%	$	3,138,680		61.9	%	$	2,520,231		57.6	%	$	1,664,023		59.3	%	$	1,568,507		64.9	%
Oil and Gas Infrastructure Services	1,086,175			40.9		899,645			40.9		1,935,244			38.1		1,858,313			42.4
Pipeline and Industrial Infrastructure Services																					1,143,236			40.7		849,069			35.1
Consolidated revenues from external customers	$	2,656,348		100.0	%	$	2,200,374		100.0	%	$	5,073,924		100.0	%	$	4,378,544		100.0	%	$	2,807,259		100.0	%	$	2,417,576		100.0	%
Operating income (loss):
Electric Power Infrastructure Services	$	146,011		9.3	%	$	113,043		8.7	%	$	286,906		9.1	%	$	212,715		8.4	%	$	161,617		9.7	%	$	140,895		9.0	%
Oil and Gas Infrastructure Services	43,829			4.0		67,751			7.5		53,886			2.8	%	106,568			5.7
Pipeline and Industrial Infrastructure Services																					40,699			3.6	%	10,057			1.2	%
Corporate and non-allocated costs	(66,801		)	N/A		(71,003		)	N/A		(142,532		)	N/A		(134,418		)	N/A		(82,829		)	—		(75,731		)	—
Consolidated operating income	$	123,039		4.6	%	$	109,791		5.0	%	$	198,260		3.9	%	$	184,865		4.2	%	$	119,487		4.3	%	$	75,221		3.1	%

Three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017~~March 31, 2018

Electric Power Infrastructure Services Segment Results

Revenues increased ~~$269.4~~$95.5 million, or ~~20.7%~~6.1%, to ~~$1.57~~$1.66 billion for the three months ended ~~June 30, 2018.~~March 31, 2019. This ~~increase~~change in revenues was primarily ~~the result of~~due to increased customer spending ~~associated with both~~on transmission ~~projects~~ and distribution services, including ~~continued favorable progress~~increased revenue in the western United States associated with grid modernization and accelerated fire hardening programs. The increase was partially offset by lower revenues on a ~~large~~larger transmission project in ~~Canada.~~Canada that was substantially completed during the three months ended March 31, 2019. Also contributing to the increase were ~~$20.9 million of increased communications infrastructure services revenues;~~ approximately ~~$20~~$35 million in revenues from acquired ~~businesses; $13.6~~businesses and a $25 million increase in communications infrastructure services revenues. The increase was partially offset by $17 million of ~~incremental~~lower revenues from emergency restoration services, ~~revenues primarily from~~which was largely the result of the significant impact of winter storms induring the ~~United States~~first quarter of 2018, and ~~Canada; and~~less favorable foreign currency exchange rates during the three months ended ~~June 30, 2018,~~March 31, 2019, which ~~favorably~~negatively impacted revenues by approximately ~~$10~~$14 million and were primarily attributable to the relationship between the U.S. dollar and the Canadian and Australian dollars.

Operating income increased ~~$33.0~~$20.7 million, or ~~29.2%~~14.7%, to ~~$146.0~~$161.6 million for the three months ended ~~June 30, 2018.~~March 31, 2019. Operating income as a percentage of revenues increased to ~~9.3%~~9.7% for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~8.7%~~9.0% for the three months ended ~~June 30, 2017.~~March 31, 2018. These increases were ~~primarily~~ due to the increase in segment revenues described above, including the ~~incremental~~higher spending on continuing fire hardening programs, and improved execution across the segment. These increases were partially offset by reduced operating income associated with lower distribution services margins, as well as the lower revenues from emergency restoration services ~~revenues,~~described above, which typically yield higher margins due in part to higher equipment utilization and absorption of fixed costs. Additionally, operating results for the three months ended June 30, 2018 were favorably impacted by a large transmission project in Canada that continues to successfully execute through project schedule

Pipeline and ~~productivity risks, which has resulted in a decrease of the project cost contingencies.~~

~~Oil and Gas~~Industrial Infrastructure Services Segment Results

Revenues increased ~~$186.5~~$294.2 million, or ~~20.7%~~34.6%, to ~~$1.09~~$1.14 billion for the three months ended ~~June 30, 2018.~~March 31, 2019. This ~~increase~~change was primarily ~~the result of approximately $195 million~~due to an increase in revenues ~~generated by the acquired business of Stronghold~~from pipeline transmission, gas distribution and anindustrial services resulting from increased ~~number of smaller transmission and distribution projects. These increases were partially offset by decreased~~ capital spending by our customers, which included an increase in the number of and activity on ~~large diameter~~larger pipeline transmission projects. The timing of construction for these ~~large diameter pipeline transmission~~types of larger projects is highly variable due to potential permitting delays, ~~associated with obtaining permits, as well as~~ worksite access limitations related to environmental regulations and seasonal weather patterns. ~~For example, a higher percentage~~Due to these factors, the majority of our larger pipeline transmission project work for 2018 was performed in ~~2017 was~~the second half of the year, while the majority of our larger pipeline transmission project work for 2019 is expected to be performed in the first half of the ~~year, whereas we expect~~year. Partially offsetting the ~~majority of such work for 2018 to be performed~~increases in ~~the second half of the year. Foreign~~revenues were less favorable foreign currency exchange rates ~~did not have a material impact on~~during the three months ended March 31, 2019, which negatively impacted revenues by approximately $17 million and were primarily attributable to the relationship between ~~periods.~~the U.S. dollar and the Canadian and Australian dollars.

Operating income ~~decreased $23.9~~increased $30.6 million, or ~~35.3%~~304.7%, to ~~$43.8~~$40.7 million for the three months ended ~~June 30, 2018.~~March 31, 2019. Operating income as a percentage of revenues ~~decreased~~increased to ~~4.0%~~3.6% for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~7.5%~~1.2% for the three months ended ~~June 30, 2017.~~March 31, 2018. These ~~decreases~~increases were primarily due to ~~the lower~~higher revenues and increased level of ~~large diameter~~larger pipeline transmission project work, which typically yields higher margins. ~~In addition, the decrease in the level of large diameter pipeline transmission work negatively impacted resource utilization. Additionally, operating income and margin~~The three months ended March 31, 2018 were also negatively impacted by ~~harsh~~severe weather ~~conditions experienced~~ on various projects resulting in lower productivity as well as lower resource utilization as a ~~midstream~~result of lower revenues, including a lower proportion of larger pipeline transmission project in the northeastern United States, which has been completed. Also contributing to the decreases were $3.3 million of charges associated with the planned exchange of a construction barge for an industrial property and $1.3 million in severance and restructuring costs associated with the closure of certain operations within this segment. These decreases were partially offset by earnings of Stronghold, which was acquired in July 2017.work.

Corporate and Non-allocated Costs

Certain selling, general and administrative expenses and amortization of intangible assets are not allocated to segments. Corporate and non-allocated costs for the quarter ended ~~June 30, 2018 decreased $4.2~~March 31, 2019 increased $7.1 million to ~~$66.8~~$82.8 million compared to the quarter ended ~~June 30, 2017.~~March 31, 2018. The ~~decrease~~increase was primarily due to a $6.3 million decrease in fair value of contingent consideration liabilities during the three months ended June 30, 2018; a $3.8 million decrease in professional fees primarily related to lower information technology costs; a $2.8 million decrease in acquisition and integration costs, and a decrease in charitable contributions primarily related to a $2.4 million contribution made for the formation of a non-profit line training school in the quarter ended June 30, 2017. These decreases were partially offset by $6.0 million in higher compensation related costs, ~~largely~~including a $4.0 million increase in deferred compensation expense primarily associated with market value changes and a $2.3 million increase in salaries, benefits and contract labor due to increased personnel to support business growth and annual compensation increases, ~~as well as increased~~which were partially offset by a $1.7 million decrease in non-cash stock-based compensation ~~expense related to improved forecasted achievement of multi-year performance metrics, and $4.0 million in higher intangible amortization, primarily due to the Stronghold acquisition.~~

~~Six months ended June 30, 2018 compared to the six months ended June 30, 2017~~

~~Electric Power Infrastructure Services Segment Results~~

Revenues for this segment increased $618.4 million, or 24.5%, to $3.14 billion for the six months ended June 30, 2018. This increase was primarily the result of increased customer spending associated with electric transmission projects and distribution related services, including progress on a large transmission project in Canada. Additionally, emergency restoration services revenues increased $37.4 million primarily from winter storms in the United States and Canada.costs. Also contributing to the ~~increases~~increase were ~~approximately $35~~a $2.4 million in revenues from acquired businesses; favorable foreign currency exchange rates during the six months ended June 30, 2018, which favorably impacted revenues by approximately $28 million and were primarily attributable to the relationship between the U.S. dollar and the Canadian and Australian dollars; and $21.2 million of increased communications infrastructure services revenues.

Operating income increased $74.2 million, or 34.9%, to $286.9 million for the six months ended June 30, 2018. Operating income as a percentage of segment revenues increased to 9.1% for the six months ended June 30, 2018 from 8.4% for the six months ended June 30, 2017. These increases were primarily due to the increase in ~~revenues described above, including the incremental emergency restoration services revenues, which typically yield higher margins due~~provision for doubtful accounts and a $2.3 million increase in part to higher equipment utilization and absorption of fixed costs. Additionally, operating results for the six months ended June 30, 2018 were favorably impacted by the electric transmission project in Canada that successfully executed through project procurement, winter schedule and productivity risks resulting in a decrease of the project cost contingencies.

~~Oil and Gas Infrastructure Services Segment Results~~

Revenues for this segment increased $76.9 million, or 4.1%, to $1.94 billion for the six months ended June 30, 2018. This increase was primarily due to approximately $350 million in revenues generated by the acquired business of Stronghold and favorable foreign currency exchange rates during the six months ended June 30, 2018, which favorably impacted our international operations by approximately $14 million and were primarily attributable to the relationship between the U.S. dollar and the Canadian and Australian dollars. Largely offsetting these increases was reduced capital spending by our customers on large diameter pipeline projects. The timing of construction for these large diameter pipeline transmission projects is highly variable due to delays associated with obtaining permits, as well as worksite access limitations related to environmental regulations and seasonal weather patterns. For example, a higher percentage of our larger pipeline project work in 2017 was performed in the first half of the year, whereas we expect the majority of such work for 2018 to be performed in the second half of the year.

Operating income decreased $52.7 million, or 49.4%, to $53.9 million for the six months ended June 30, 2018. Operating income as a percentage of segment revenues decreased to 2.8% for the six months ended June 30, 2018 from 5.7% for the six months ended June 30, 2017. These decreases were primarily due to lower overall revenues from large diameter pipeline transmission work, which typically yields higher margins. In addition, the lower proportion of large diameter pipeline transmission work negatively impacted resource utilization. Also, contributing to the decreases were $1.4 million of incremental charges associated with the planned disposition of a construction barge, $1.3 million in severance and restructuring costs associated with the closure of certain operations within this segment and the impact of severe weather on various ongoing projects resulting in lower productivity during the six months ended June 30, 2018. These decreases were partially offset by earnings of Stronghold, which was acquired in July 2017. The six months ended June 30, 2017 were favorably impacted by a termination fee associated with a project cancellation and negatively impacted by lower margins on two distribution MSAs due to unexpected delays in the release of work after crews were mobilized.

~~Corporate and Non-allocated Costs~~

Certain selling, general and administrative expenses and amortization of intangible assets are not allocated to segments. Corporate and non-allocated costs for the six months ended June 30, 2018 increased $8.1 million to $142.5 million compared to the six months ended June 30, 2017. This increase was primarily due to $11.3 million of higher compensation expenses, largely associated with increased personnel to support business growth and annual compensation increases, as well as increased stock-based compensation expense related to improved forecasted achievement of multi-year performance metrics; $7.9 million in higher intangible amortization ~~primarily due to the Stronghold acquisition; and $4.4 million in higher acquisition-related costs.~~expense. These increases were partially offset by a ~~$7.0~~$4.7 million decrease in professional fees primarily related to lower information technology costs, a $6.3 million decrease in fair value of contingent consideration liabilities during the six months ended June 30, 2018, a $4.2 million decrease in legal costs associated with a matter involving our prior disposition of certain communications operations, which was resolved in last year’s first quarter,acquisition and ~~a decrease in charitable contributions primarily related to a $2.4 million contribution made for the formation of a non-profit line training school in the quarter ended June 30, 2017.~~integration costs.

Liquidity and Capital Resources

Cash Requirements

~~Our~~

Amounts related to our cash and cash equivalents ~~totaled $120.4 million and $138.3 million~~based on geographic location of the bank accounts were as ~~of June 30, 2018 and December 31, 2017. As of June 30, 2018 and December 31, 2017, cash~~follows (in thousands):



	March 31, 2019		December 31, 2018
Cash and cash equivalents held in domestic bank accounts	$	57,706	$	62,495
Cash and cash equivalents held in foreign bank accounts	27,717		16,192
Total cash and cash equivalents	$	85,423	$	78,687

Cash and cash equivalents held in domestic bank accounts were $79.6 million and $83.1 million, and cash and cash equivalents held in foreign bank accounts were $40.8 million and $55.2 million. As of June 30, 2018 and December 31, 2017, cash and cash equivalents held by ~~our~~ joint ventures, which are either consolidated or proportionately consolidated, ~~were $11.6 million and $16.7 million, of which $11.2 million and $10.0 million related to domestic joint ventures. Cash and cash equivalents held by the joint ventures~~ are available to support joint venture operations, but we cannot utilize those assets to support our other operations. We generally have no right to the joint ventures’ cash and cash equivalents other than participating in distributions and in the event of dissolution. Amounts related to cash and cash equivalents held by joint ventures, which are included in our total cash and cash equivalents balances, were as follows (in thousands):



	March 31, 2019		December 31, 2018
Cash and cash equivalents held by domestic joint ventures	$	12,337	$	8,544
Cash and cash equivalents held by foreign joint ventures	11		441
Total cash and cash equivalents held by joint ventures	12,348		8,985
Cash and cash equivalents not held by joint ventures	73,075		69,702
Total cash and cash equivalents	$	85,423	$	78,687

At ~~June 30, 2018,~~March 31, 2019, we were in compliance with the covenants under the credit agreement for our senior secured ~~revolving~~ credit ~~facility and the covenants under our other bilateral credit agreements discussed below in~~ ~~Debt Instruments~~.facility. We anticipate that our cash and cash equivalents on hand, existing borrowing capacity under ~~such~~our senior secured credit facility, and ~~our~~ future cash flows from operations will provide sufficient funds to enable us to meet our debt repayment obligations, fund future operating needs and ~~our~~ planned capital expenditures during ~~2018, as well as~~2019, and facilitate our ability to pay any future dividends we declare and grow through acquisitions or otherwise in the foreseeable future.

Our industry is capital intensive, and we expect the need for substantial capital expenditures to continue into the foreseeable future to meet the anticipated demand for our ~~services.~~services, all of which may require cash. Total capital expenditures are expected to be approximately ~~$290 million to $310~~$275 million for ~~2018,~~2019, of which we have spent ~~$148.6~~$68.6 million through ~~June 30, 2018.~~March 31, 2019.

We also evaluate opportunities for strategic acquisitions, ~~from time to time that may require cash, as well as~~stock repurchases under our authorized stock repurchase programs and opportunities to ~~make investments~~invest in strategic partnerships with customers and infrastructure ~~investors where we anticipate performing services such as project management, engineering, procurement or construction services.~~investors. These investment opportunities exist in the markets and industries we serve and may require the use of cash to purchase debt or equity investments.

Management monitors ~~the~~ financial markets and ~~general~~ national and global economic conditions for factors that may affect our liquidity and capital resources. We consider our investment policies related to cash and cash equivalents ~~investment policies~~ to be conservative in that we maintain a diverse portfolio of what we believe to be high-quality cash and cash equivalent investments with short-term maturities. Accordingly, we do not anticipate that any weakness in the capital markets will have a material impact on the principal amounts of our cash and cash equivalents or our ability to rely upon our senior secured ~~revolving~~ credit facility for funds. To date, we have not experienced a loss of or lack of access to our cash or cash equivalents or funds under our senior secured ~~revolving~~ credit facility; however, our access to invested cash and cash equivalents or availability under our senior secured ~~revolving~~ credit facility could be impacted in the future by adverse conditions in ~~the~~ financial markets.

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

Sources and Uses of Cash

As of ~~June 30, 2018,~~March 31, 2019, we had cash and cash equivalents of ~~$120.4~~$85.4 million and working capital of ~~$1.38~~$1.78 billion. We had ~~$840.2~~$1.37 billion of loans outstanding under our senior secured credit facility, which included $585.0 million outstanding under the term loan facility and $787.1 million of outstanding revolving ~~loans~~loans. Of the total outstanding borrowings, $1.21 billion were denominated in U.S. dollars, $123.6 million were denominated in Canadian dollars and $36.2 million were denominated in Australian dollars. We also had $385.0 million of letters of credit and bank guarantees outstanding under our senior secured ~~revolving~~ credit facility, ~~$770.6~~$240.6 million of which were denominated in U.S. dollars and $69.6 million of which were denominated in Australian dollars. We also had $439.9 million of outstanding letters of credit and bank guarantees under our senior secured revolving credit facility, $240.7 million of which were denominated

~~in U.S. dollars and $199.2~~$144.4 million of which were denominated in currencies other than the U.S. dollar, primarily in Australian or Canadian dollars. As of ~~June 30, 2018,~~March 31, 2019, our ~~$1.81 billion~~ senior secured ~~revolving~~ credit facility had ~~$529.9~~$812.9 million available for ~~revolving~~ loans or issuing new letters of credit or bank guarantees.

In summary, our cash flows for each period were as follows (in thousands):



	Three Months Ended
	March 31,
	2019			2018
Net cash provided by (used in) operating activities	$	(82,750	)	$	25,993
Net cash used in investing activities	$	(147,156	)	$	(91,898	)
Net cash provided by financing activities	$	236,260		$	26,719

Operating Activities

Cash flow from operations is primarily influenced by demand for our services and operating margins but can also be influenced by working capital needs associated with the various types of services that we provide. In particular, working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily ~~associated with~~ labor, equipment and subcontractors, are required to be paid before the associated receivables ~~resulting from the work performed~~ are billed and collected. Accordingly, changes within working capital in accounts receivable, contract assets and contract liabilities are normally related and are typically affected on a collective basis by changes in revenue due to the timing and volume of work performed and variability in the timing of customer billings and payments. Additionally, working capital needs are generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of our operating regions. Conversely, working capital assets are typically converted to cash during the winter months. These seasonal trends can be offset by changes in ~~the~~project timing ~~of projects~~ due to delays or accelerations and other economic factors that may affect customer spending.

~~Operating~~Net cash used in operating activities ~~provided net cash of $156.5 million~~ during the three months ended ~~June 30, 2018~~March 31, 2019 was unfavorably impacted by an increase in working capital to support fire hardening programs, as ~~compared~~well as a delay in collection of receivables related to ~~$4.8 million provided during~~changes in certain customers’ billing processes and the PG&E bankruptcy matter described in Concentrations of Credit Risks below, which were partially offset by an increase in earnings from operations. During the three months ended ~~June 30, 2017. This increase~~March 31, 2018, a large advance billed position on a larger electric transmission project in Canada favorably impacted net cash ~~flows~~flow from operating activities was primarily due to the timing of cash payments on accounts payable and accrued liabilities, in part due to lower working capital requirements related to lower levels of ongoing large diameter oil and gas pipeline projects and lower income tax payments, partially offset by higher working capital requirements related to ongoing electric power infrastructure projects in the three months ended June 30, 2018.activities.

Operating activities provided net cash of $182.5 million during the six months ended June 30, 2018 as compared to $1.1 million provided during the six months ended June 30, 2017. This increase in cash flows from operating activities was primarily due to the timing of cash payments on accounts payable and accrued liabilities, in part due to lower working capital requirements related to lower levels of ongoing large diameter oil and gas pipeline projects and lower income tax payments, partially offset by higher working capital requirements related to ongoing electric power infrastructure projects in the six months ended June 30, 2018.

Days sales outstanding (DSO) as of ~~June 30, 2018~~March 31, 2019 was 7488 days, as compared to 8077 days at ~~June 30, 2017. This decrease~~March 31, 2018. The increase was primarily attributable to the ~~timing of cash collections associated with a~~payment schedule for the larger electric transmission project ~~that experienced~~in Canada referenced above. DSO at March 31, 2018 benefitted from a large advance billed position on the contract, whereas at March 31, 2019, the project was substantially complete and an associated large retainage balance was reclassified from non-current to current. To a lesser extent, DSO at March 31, 2019 was higher due to billing ~~delays~~process changes for certain customers, including a delay in ~~prior periods and a larger electric transmission project that currently has favorable advance billing terms.~~collection of receivables related to the PG&E bankruptcy matter described in Concentrations of Credit Risk below. DSO is calculated by using the sum of current accounts receivable, net of allowance (which includes retainage and unbilled balances), plus contract assets less contract liabilities, divided by average revenues per day during the quarter.

Investing Activities

~~During the three months ended June 30, 2018, we~~Net cash used ~~net cash for~~in investing activities of $93.4 million as compared to $65.4 million used during the three months ended June 30, 2017. Investing activities in the second quarter of 2018 included $81.8 million of capital expenditures and $15.5 million primarily related to the acquisition of certain properties and training facilities associated with a business acquired in the first quarter of ~~2018.~~2019 included $68.6 million of capital expenditures, $51.6 million used for acquisitions and $37.8 million of cash paid for investments in unconsolidated affiliates and other entities. These items were partially offset by ~~$7.2~~$10.8 million of proceeds from the sale of property and equipment. ~~Investing~~Net cash used in investing activities in the ~~second~~first quarter of ~~2017~~2018 included ~~$58.3 million of capital expenditures; $9.2~~$66.8 million used for ~~investments in unconsolidated affiliates, net of certain returns to these investments;~~capital expenditures and ~~$6.1~~$30.7 million used for acquisitions. These items were partially offset by $7.5 million of proceeds from the sale of property and equipment. During the six months ended June 30, 2018, investing activities used net cash of $185.3 million as compared to $114.0 million used in the six months ended June 30, 2017. Investing activities in the six months ended June 30, 2018 included $148.6 million of capital expenditures and $46.2 million used for acquisitions. These items were partially offset by $13.0 million of proceeds from the sale of property and equipment. Investing activities in the six months ended June 30, 2017 included $105.3 million of capital expenditures; $13.0 million used for investments in unconsolidated affiliates, net of certain returns related to these investments; and $7.6 million used for acquisitions. These items were partially offset by $12.3$5.8 million of proceeds from the sale of property and equipment.

Our industry is capital intensive, and we expect the need for substantial capital expenditures to continue into the foreseeable future to meet the anticipated demand for our services. We also have various contractual obligations related to investments in unconsolidated affiliates and other capital commitments ~~which~~that are detailed in Contractual Obligations below. In addition, we expect to continue to pursue strategic acquisitions and investments, although we cannot predict the timing or magnitude of the potential cash outlays for these initiatives.

Additionally, certain of our acquisitions included the potential payment of contingent consideration, payable in the event certain performance objectives are achieved by the acquired businesses. The majority of these contingent consideration liabilities are subject to a maximum payment amount, ~~and the aggregate maximum amount of these liabilities was $154.4~~which totaled $157.3 million as of ~~June 30, 2018.~~March 31, 2019. Included within this maximum amount ~~was contingent consideration of up to $15.0~~is approximately $18.0 million related to ~~a January~~certain 2018 ~~acquisition,~~acquisitions, payable ~~at the end of two-year and five-year post-acquisition periods~~ if the acquired ~~business achieves~~businesses achieve certain performance objectives over five-year and three-year post-acquisition periods, and approximately $100.0 million related to the 2017 acquisition of Stronghold, Ltd. and Stronghold Specialty, Ltd., payable at the end of a three-year post-acquisition period if the acquired business achieves certain performance objectives. ~~Each~~The significant majority of these liabilities would be paid at least 70% to 85% in cash. The aggregate fair value of all of our contingent consideration liabilities ~~including those that are not subject to a maximum payment amount,~~ was ~~$73.0~~$70.7 million as of ~~June 30, 2018.~~

Financing Activities

~~During the three months ended June 30, 2018, net cash used in financing activities was $44.8 million as compared to net~~Net cash provided ~~of $55.6 million during the three months ended June 30, 2017. Financing~~by financing activities in the three months ended ~~June 30, 2018~~March 31, 2019 included $39.1 million of net repayments under our senior secured revolving credit facility and $16.0 million of cash payments for common stock repurchases, partially offset by $12.9 million of short-term borrowings. Financing activities in the three months ended June 30, 2017 included $58.9$299.6 million of net borrowings under our senior secured ~~revolving~~ credit ~~facility.~~

~~During the six months ended June 30, 2018,~~facility, partially offset by $23.2 million of net ~~cash used in financing activities was $18.1 million as compared to net cash provided~~repayments of ~~$99.9 million in the six months ended June 30, 2017. Financing activities in the six months ended June 30, 2018 included $189.9~~short-term borrowings, $19.9 million of cash payments for common stock repurchases and ~~$14.2~~$13.7 million of payments to satisfy tax withholding obligations associated with share-based ~~compensation, largely offset~~compensation. Net cash provided by ~~$175.5~~financing activities in the three months ended March 31, 2018 included $214.6 million of net borrowings under our ~~credit facility. Financing activities in the six months ended June 30, 2017 included $124.7 million of net borrowings under our~~senior secured credit facility, partially offset ~~$17.8~~by $173.9 million of cash payments for common stock repurchases and $12.6 million of payments to satisfy tax withholding obligations associated with share-based compensation.

Stock Repurchases

During the second quarter of 2017, our board of directors approved a stock repurchase program that authorizes us to purchase, from time to time through June 30, 2020, up to $300.0 million of our outstanding common stock. Repurchases under this program can be made in open market and privately negotiated transactions. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, we repurchased ~~0.6~~0.4 million and ~~5.6~~5.0 million shares of our common stock in the open market at a cost of ~~$20.0~~$12.0 million and ~~$193.9 million, of which $16.0 million and $189.9 million was paid in cash as of June 30, 2018.~~$173.9 million. During ~~2017,~~2018, we repurchased ~~1.4~~13.9 million shares of our common stock in the open market at a cost of ~~$50.0~~$451.3 million. ~~Accordingly, $56.1~~Our policy is to record a stock repurchase as of the trade date; however, the payment of cash related to a repurchase is made on the settlement date of the trade. During the three months ended March 31, 2019 and 2018, cash payments related to stock repurchases were $19.9 million and $173.9 million. As of March 31, 2019, $286.8 million remained ~~authorized for~~under our current repurchase ~~under~~program. For additional detail about our stock repurchases, refer to Note 9 of the ~~program as~~Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements.

Dividends

On December 6, 2018, we declared a cash dividend of ~~June 30, 2018. Additionally, we repurchased additional shares~~$0.04 per share of our common stock, or $5.8 million, which was paid on January 16, 2019 to stockholders of record as of January 2, 2019. Additionally, on March 21, 2019, we declared an additional cash dividend of $0.04 per share of our common stock, or $5.9 million, which was paid on April 19, 2019 to stockholders of record as of April 5, 2019.

Holders of restricted stock units on the record dates received a cash dividend equivalent payment on the payment dates, and holders of unearned and unvested performance units are entitled to cash dividend equivalent payments to the extent such performance units become earned and vest. Cash dividend equivalents related to certain vested and unvested equity 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 ~~open market~~deferred awards are distributed. Additionally, holders of exchangeable shares of certain of our Canadian subsidiaries on the record date were paid a cash dividend of $0.04 per exchangeable share as of the payment date. At December 31, 2018 and March 31, 2019, we accrued $5.8 million and $5.9 million for cash dividends and cash dividend equivalents, and subsequently paid the substantial majority of these amount on the applicable payment dates.

The declaration, payment and amount of future cash dividends, if any, will be at ~~a cost~~the discretion of ~~$10.0 million~~our Board of Directors after taking into account various factors, including our financial condition, results of operations, cash flows from operations, current and anticipated capital requirements and expansion plans, the income tax laws then in ~~July~~effect and the requirements of ~~2018, which resulted~~Delaware law. In addition, as discussed in ~~$46.1 million remaining authorized for repurchase under~~Debt Instruments - Senior Secured Credit Facility below, our credit agreement restricts the ~~program.~~payment of cash dividends unless certain conditions are met.

Debt Instruments

Senior Secured ~~Revolving~~ Credit Facility

~~On December 18, 2015, we entered into an amended and restated~~We have a credit agreement with various lenders that, as amended on October 10, 2018, provides for (i) a ~~$1.81~~$1.99 billion ~~senior secured~~ revolving credit ~~facility. On October 31, 2017, we~~facility and ~~the lenders entered into an amendment to the credit~~(ii) a term loan facility which, among other things, extended the maturity date from December 18, 2020 to October 31, 2022 and adjusted the interest rates applicable to certain borrowings. The entire amount available under the credit facility may be used by us for revolving loans and letterswith total term loan commitments of ~~credit in U.S. dollars and certain alternative currencies. Up to~~ $600.0 million of the credit facility may be used by certain of our subsidiaries for revolving loans and letters of credit in certain alternative currencies. Up to $100.0 million of the credit facility may be used for swing line loans in U.S. dollars, up to $50.0 million of the credit facility may be used for swing line loans in Canadian dollars and up to $30.0 million of the credit facility may be used for swing line loans in Australian dollars.million. In addition, subject to the conditions specified in the credit agreement, we have the option to increase the capacity of the credit facility, in the form of an increase in the revolving ~~commitments~~credit facility, incremental term loans or a combination thereof, by up to an additional $400.0 million, from time to time, upon receipt of additional commitments from new or existing lenders. Borrowings under the credit agreement are to be used to refinance existing indebtedness and for working capital, capital expenditures and other general corporate purposes. The maturity date for both the revolving credit facility and the term loan facility is October 31, 2022, and we are required to make quarterly principal payments on the term loan facility as described below.

With respect to the revolving credit facility, the entire amount available may be used by us for revolving loans and letters of credit in U.S. dollars and certain alternative currencies. Up to $600.0 million may be used by certain of our subsidiaries for revolving loans and letters of credit in certain alternative currencies, up to $100.0 million may be used for swing line loans in U.S. dollars, up to $50.0 million may be used for swing line loans in Canadian dollars and up to $50.0 million may be used for swing line loans in Australian dollars.

On October 10, 2018, we borrowed the full amount of the term loan facility and used all of such proceeds to repay outstanding revolving loans. As of ~~June 30, 2018,~~March 31, 2019, we had ~~$840.2~~$1.37 billion of outstanding borrowings under the credit agreement, which included $585.0 million borrowed under the term loan facility and $787.1 million of outstanding revolving ~~loans under~~loans. Of the ~~credit facility, $770.6 million of which~~total outstanding borrowings, $1.21 billion were denominated in U.S. dollars, $123.6 million were denominated in Canadian dollars and ~~$69.6~~$36.2 million ~~of which~~ were denominated in Australian dollars. We also had ~~$439.9~~$385.0 million of ~~outstanding~~ letters of credit and bank guarantees issued under our revolving credit facility, ~~$240.7 million~~ of which $240.6 million were denominated in U.S.

dollars and ~~$199.2~~$144.4 million ~~of which~~ were denominated in currencies other than the U.S. dollar, primarily inCanadian and Australian ~~or Canadian~~ dollars. The remaining ~~$529.9~~$812.9 million of available commitments under the credit facility was available for ~~revolving~~ loans or issuing new letters of credit orand bank guarantees.

~~Beginning on November 20, 2017, amounts~~Revolving loans borrowed in U.S. dollars bear interest, at our 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 our Consolidated Leverage Ratio (as described below), or (ii) the Base Rate (as described below) plus 0.125% to 1.000%, as determined based on our Consolidated Leverage Ratio. ~~Amounts~~Revolving loans borrowed ~~as revolving loans under the credit agreement~~ in any currency other than U.S. dollars bear interest at a rate equal to the Eurocurrency Rate plus 1.125% to 2.000%, as determined based on our Consolidated Leverage Ratio. Additionally, standby or commercial letters of credit issued under the credit agreement are subject to a letter of credit fee of 1.125% to 2.000%, based on our Consolidated Leverage Ratio, and Performance Letters of Credit (as defined in the credit agreement) issued under the credit agreement in support of certain contractual obligations are subject to a letter of credit fee of 0.675% to 1.150%, based on our Consolidated Leverage Ratio.

~~From December 18, 2015 through November 19, 2017, amounts~~Term loans bear interest at rates generally consistent with the revolving loans borrowed in U.S. dollars, ~~bore interest, at our option, at a rate equal to either (i)~~except that the additional amount over the Eurocurrency Rate ~~plus~~is 1.125% ~~to 2.125%~~to1.875%, ~~as determined based on our Consolidated Leverage Ratio), or (ii) the Base Rate plus 0.125% to 1.125%, as determined~~ based on our Consolidated Leverage Ratio. ~~Amounts borrowed as revolving~~We are also required to make quarterly principal payments of $7.5 million on the last business day of each March, June, September and December, which began in December 2018. The aggregate outstanding principal amount of all outstanding term loans ~~under~~must be paid on the ~~credit agreement~~maturity date; however, we may voluntarily prepay that amount from time to time, in ~~any currency other than U.S. dollars bore interest at a rate equal to the Eurocurrency Rate plus 1.125% to 2.125%, as determined based on our Consolidated Leverage Ratio. Standby~~whole or commercial letters of credit issued under the credit agreement were subject to a letter of credit fee of 1.125% to 2.125%, based on our Consolidated Leverage Ratio, and Performance Letters of Credit issued under the credit agreement in ~~support of certain contractual obligations were subject to a letter of credit fee of 0.675% to 1.275%, based on our Consolidated Leverage Ratio.~~part, without premium or penalty.

We are also subject to a commitment fee of 0.20% to 0.40%, based on our Consolidated Leverage Ratio, on any unused availability under the revolving credit ~~agreement.~~facility.

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

The credit agreement contains certain covenants, including (i) a maximum Consolidated Leverage Ratio of 3.0 to 1.0 (except that in connection with certain permitted acquisitions in excess of $200.0 million, such ratio is 3.5 to 1.0 for the fiscal quarter in which the acquisition is completed and the two subsequent fiscal quarters) and (ii) a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0. As of March 31, 2019, we were in compliance with all of the covenants under the credit agreement.

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

The credit agreement contains certain covenants, including (i) a maximum Consolidated Leverage Ratio of 3.0 to 1.0 (provided that in connection with certain permitted acquisitions in excess of $200.0 million, such ratio is 3.5 to 1.0 for the fiscal quarter in which the acquisition is completed and the two subsequent fiscal quarters) and (ii) a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0. As of June 30, 2018, we were in compliance with all of the covenants under the credit agreement.

~~The credit agreement~~ also limits certain acquisitions, mergers and consolidations, indebtedness, asset sales and prepayments of indebtedness and, subject to certain exceptions, prohibits liens on our assets. The credit agreement allows cash payments for dividends and stock repurchases subject to compliance with the following requirements (after giving effect to the dividend or stock repurchase): (i) no default or event of default under the credit agreement; (ii) continued compliance with the financial covenants in the credit agreement; and (iii) at least $100.0 million of availability under the revolving credit ~~agreement~~facility and/or cash and cash equivalents on hand.

The credit agreement provides for customary events of default and contains cross-default provisions with our underwriting, continuing indemnity and security agreement with our sureties and ~~all of our~~certain other debt instruments exceeding ~~$100.0~~$150.0 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 we provide cash collateral for all outstanding letter of credit obligations, terminate the commitments under the credit agreement, and foreclose on the collateral.

~~Other Facilities~~

We have also entered into bilateral credit agreements with various lenders that provide for up to $48.0 million in aggregate availability in both U.S. dollars and certain alternative currencies, primarily Australian dollars. We may utilize these facilities for, among other things, the issuance of letters of credit or bank guarantees and overdraft protection and had $2.7 million of letters of credit and bank guarantees outstanding under these facilities at June 30, 2018.

Off-Balance Sheet Transactions

As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our significant off-balance sheet transactions include certain obligations relating to our investments and joint venture arrangements, liabilities associated with non-cancelable operating leases, letters of credit obligations, surety guarantees related to performance bonds, ~~commitments~~committed expenditures to purchase equipment and certain multiemployer pension plan liabilities.

~~Investments in Affiliates~~ See Contractual Obligations below and ~~Other Entities~~

Certain joint venture structures involve risks not directly reflected in our balance sheets. For example, in our joint venture structures that provide infrastructure services, each participant is typically jointly and severally liable for allNote 11 of the ~~obligations of the joint venture entity pursuant~~Notes to the contract with the customer, as a general partner or through a parent guarantee and, therefore, can be liable for full performance of the contract with the customer. In circumstances where our participationConsolidated Financial Statements in a joint venture qualifies as a general partnership, the joint venture partners are jointly and severally liable for all of the obligations of the joint venture, including obligations owed to the customer or any other person or entity. We are not aware of circumstances that would lead to future claims against us for material amounts in connection with these joint and several liabilities.

Additionally, in the joint venture structures entered into by us, typically each party indemnifies the other party for any liabilities incurred in excess of the liabilities such other party is obligated to bear under the respective joint venture agreement or in accordance with the scope of work subcontracted to each party. It is possible, however, that we could be required to pay or perform obligations in excess of our share if the other party is unable or refuses to pay or perform its share of the obligations. We are not aware of circumstances that would lead to future claims against us for material amounts that would not be indemnified.

~~Leases~~

We enter into non-cancelable operating leases for many of our facility, vehicle and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for use of the facilities, vehicles and equipment rather than purchasing them. We may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease.

We have guaranteed the residual value on certain of our 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 termination of such leases. At ~~June 30, 2018, the maximum guaranteed residual value was~~ ~~$651.5 million~~. We believe that no significant payments will be made as a result of the difference between the fair market value of the leased equipment and the guaranteed residual value; however, there can be no assurance that significant payments will not be required in the future.

~~Letters of Credit~~

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

~~As of~~ ~~June 30, 2018, we had~~ ~~$439.9 million~~ in outstanding letters of credit and bank guarantees under our senior secured revolving credit facility securing our casualty insurance program and various contractual commitments. These are irrevocable stand-by letters of credit with maturities generally expiring at various times throughout 2018 and 2019. We expect to renew the majority of the letters of credit related to the casualty insurance program for subsequent one-year periods upon maturity.

~~Performance Bonds and Parent Guarantees~~

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. These bonds provide a guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If we fail to perform, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. Under our underwriting, continuing indemnity and security agreement with our sureties and with the consent of the lenders that are party to our credit agreement, we have granted security interests in certain of our assets to collateralize our obligations to the sureties. Subject to certain conditions and consistent with terms of our credit agreement, these security interests will be automatically released if we maintain a credit rating that meets two of the following three conditions: (i) a corporate credit rating that is BBB- or higher by Standard & Poor’s Rating Services, (ii) a corporate family rating that is Baa3 or higher by Moody’s Investors Services, Inc. or (iii) a corporate credit rating that is BBB- or higher by Fitch Ratings, Inc. We may be required to post letters of credit or other collateral in favor of the sureties or our customers in the future, which would reduce the borrowing availability under our senior secured revolving credit facility. To date, we have not been required to make any reimbursements to our sureties for bond-related costs. While we believe that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future, to the extent a reimbursement is required, the amount could be material.

~~As of~~ ~~June 30, 2018, the total amount of outstanding performance bonds was estimated to be approximately~~ ~~$3.2 billion~~. Our estimated maximum exposure as it relates to the value of performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each of our commitments under the performance bonds generally extinguishes concurrently with the expiration of our related contractual obligation. The estimated cost to complete these bonded projects was approximately $864 million as of ~~June 30, 2018~~.

Additionally, from time to time, we guarantee the obligations of our wholly owned subsidiaries, including obligations in connection with certain contracts with customers, lease obligations, joint venture arrangements and, in some states, contractors’ licenses. We are not aware of any material obligations for performance or payment asserted against us under any of these guarantees.

~~Equipment Purchase Commitments~~

~~See~~ ~~Contractual Obligations - Equipment Purchase Obligations~~ ~~below~~ Item 1. Financial Statements for a description of these ~~obligations.~~arrangements.

~~Multiemployer Pension Plans~~

~~See~~ ~~Contractual Obligations - Multiemployer Pension Plans~~ ~~below for a description of these obligations.~~

Contractual Obligations

The following table summarizes our future contractual obligations as of ~~June 30, 2018~~March 31, 2019, excluding amounts discussed below related to ~~certain capital commitments related to investments in unconsolidated affiliates,~~ unrecognized tax benefits, multiemployer pension plan obligations, interest associated with letters of credit and bank guarantees, commitment fees under our senior secured ~~revolving~~ credit facility, commitments associated with our insurance liabilities and acquisition-related contingent consideration liabilities (in thousands):

Total Remainder of 2018 2019 2020 2021 2022 Thereafter
Long-term debt - principal ⁽¹⁾
$ 841,855
$ 76
$ 1,581
$ —
$ —
$ 840,198
$ —
Long-term debt - cash interest ⁽²⁾
26
20
6
—
—
—
—
Short-term debt ⁽³⁾
12,922
12,922
—
—
—
—
—
Operating lease obligations 337,346
66,869
94,590
64,320
40,995
24,548
46,024
Capital lease obligations ⁽⁴⁾
1,464
500
740
116
108
—
—
Equipment purchase commitments 49,327
48,249
1,078
—
—
—
—
Capital commitment related to investments in unconsolidated affiliates 38,955
14,837
24,118
—
—
—
—
Total $ 1,281,895
$ 143,473
$ 122,113
$ 64,436
$ 41,103
$ 864,746
$ 46,024



	Total		Remainder of 2019		2020		2021		2022		2023		Thereafter

Long-term debt - principal ⁽¹⁾	$	1,376,334	$	24,314	$	30,395	$	30,395	$	1,289,946	$	395	$	889
Long-term debt - cash interest ⁽²⁾	120		91		29		—		—		—		—
Short-term debt ⁽³⁾	11,264		11,264		—		—		—		—		—
Operating lease obligations ⁽⁴⁾	313,941		79,484		82,627		56,831		35,537		22,310		37,152
Finance lease obligations ⁽⁵⁾	1,820		1,130		291		267		97		33		2
Short-term lease obligations⁽⁶⁾	18,576		17,938		638		—		—		—		—
Equipment purchase commitments ⁽⁷⁾	44,039		44,039		—		—		—		—		—
Capital commitment related to investments in unconsolidated affiliates ⁽⁸⁾	1,647		1,647		—		—		—		—		—
Total contractual obligations	$	1,767,741	$	179,907	$	113,980	$	87,493	$	1,325,580	$	22,738	$	38,043

(1)

~~Amounts were recorded in our June 30, 2018 condensed consolidated balance sheet~~

We had $1.37 billion of outstanding borrowings under the credit agreement, which included $585.0 million borrowed under the term loan facility and ~~included $840.2~~$787.1 million of outstanding revolving loans, ~~under our senior secured revolving credit facility,~~both of which bear interest at variable market rates. Assuming the principal amount outstanding at ~~June 30, 2018~~March 31, 2019 remained outstanding and the interest rate in effect at ~~June 30, 2018~~March 31, 2019 remained the same, the annual cash interest expense with respect to our senior secured ~~revolving~~ credit facility would be approximately ~~$33.2~~$53.5 million, payable until October 31, 2022, the maturity date of the facility. Additionally, in connection with the term loan, we are required to make quarterly principal payments of $7.5 million on the last business day of each March, June, September and December and pay the remaining balance on the maturity date for the ~~remainder of the term of such credit facility, which matures in October 2022.~~facility.


(2)	~~Amounts relate to~~Amount represents cash interest expense on our fixed-rate long-term debt, which excludes our senior secured ~~revolving~~ credit facility.


(3)	~~Amounts were~~Amount was recorded inon our ~~June 30, 2018~~March 31, 2019 condensed consolidated balance sheet.

(4) Amounts represent undiscounted operating lease obligations at March 31, 2019. The operating lease obligations recorded on our March 31, 2019 condensed consolidated balance sheet represent the present value of these amounts.


(5)	Amounts represent undiscounted finance lease obligations at March 31, 2019. The finance lease obligations recorded on our March 31, 2019 condensed consolidated balance sheet represent the present value of these amounts.

~~(4)~~(6)

~~Principal amounts of capital~~Amounts represent short-term lease obligations ~~were~~that are not recorded inon our ~~June 30, 2018~~March 31, 2019 condensed consolidated balance ~~sheet.~~sheet due to our accounting policy election. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because we are unable to accurately predict these future rental amounts.

~~Equipment Purchase Commitments~~

~~We have committed capital for the expansion of our vehicle fleet in order to accommodate manufacturer lead times on certain types of vehicles. As of~~ ~~June 30, 2018~~, ~~$48.2 million~~ of production orders were issued with expected delivery dates in 2018, and $1.1 million of production orders were issued with expected delivery dates in 2019. Although we have committed to the purchase of these vehicles at the time of their delivery, we intend that these orders will be assigned to third party leasing companies and made available to us under certain of our master equipment lease agreements, which will release us from our capital commitment.

~~Capital Commitments Related to Investments in Unconsolidated Affiliates~~

During the year ended December 31, 2017, we formed a partnership with select investors that provides up to $1.0 billion of capital, including approximately $80.0 million from us, available to invest in certain specified types of infrastructure projects through August 2024. Because we are not obligated to invest this amount and are unable to determine the timing of any such investments, we have excluded this capital commitment from the Contractual Obligations table.

Additionally, as of June 30, 2018, we had outstanding capital commitments associated with investments in unconsolidated affiliates related to planned oil and gas infrastructure projects of $15.7 million, $14.8 million of which is expected to be paid in 2018. The remaining $0.9 million of these capital commitments is anticipated to be paid by May 31, 2022. Because we are unable to determine the timing of this remaining capital commitment, we have excluded this capital commitment from the Contractual Obligations table.

(7)

Amount represents capital committed for the expansion of our vehicle fleet in order to accommodate manufacturer lead times on certain types of vehicles. Although we have committed to the purchase of these vehicles at the time of their delivery, we expect that these orders will be assigned to third party leasing companies and be made available to us under certain of our master equipment lease agreements, which will release us from our capital commitment.

(8)

Amount represents outstanding capital commitments associated with investments in unconsolidated affiliates. An additional capital commitment of $0.7 million is anticipated to be paid by May 31, 2022; however, we have excluded this capital commitment from the Contractual Obligations table because we are unable to determine the timing of this payment. Additionally, during the year ended December 31, 2017, we formed a partnership with select investors that provides up to $1.0 billion of capital, including approximately $80.0 million from us, available to invest in certain specified types of infrastructure projects through August 2024. As of March 31, 2019, Quanta had contributed $15.1 million to this partnership in connection with certain investments and the payment of management fees. Because we are not obligated to invest this amount and are unable to determine the timing of any such investments, we have excluded this capital commitment from the Contractual Obligations table.

Unrecognized Tax Benefits

~~Although the IRS completed its examination related to tax years 2010, 2011 and 2012 during the year ended December 31, 2016,~~ Quanta and certain subsidiaries remain under examination by various U.S. state, Canadian and other foreign tax authorities for multiple periods. We believe it is reasonably possible that within the next 12 months unrecognized tax benefits may decrease by up to ~~$13.7~~$5.9 million as a result of settlement of these examinations or the expiration of certain statute of limitations periods.

Because we are unable to accurately predict the timing and amounts of any obligations related to unrecognized tax benefits, we have excluded unrecognized tax benefits from the Contractual Obligations table.

Multiemployer Pension Plans

The previously presented table of estimated contractual obligations does not reflect the obligations under the multiemployer pension plans in which our union employees participate. Some of our operating units are parties to various collective bargaining agreements with unions that represent certain of their employees. The agreements require the operating units to pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. Our multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on our union employee payrolls. The location and number of union employees that we employ at any given time and the plans in which they may participate vary depending on the projects we have ongoing at any time and the need for union resources in connection with those projects. Therefore, we are unable to accurately predict our union employee payroll and the amount of the resulting multiemployer pension plan contribution obligations for future periods.

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

We may be subject to additional liabilities imposed by law as a result of our 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 plan if the employer withdraws from the plan or the plan is terminated or experiences a mass withdrawal. These liabilities include an allocable share of the unfunded vested benefits in the plan for all plan participants, not merely the benefits payable to a contributing employer’s own retirees. As a result, participating employers may bear a higher proportion of liability for unfunded vested benefits if other participating employers cease to contribute or withdraw, with the reallocation of liability being more acute in cases when a withdrawn employer is insolvent or otherwise fails to pay its withdrawal liability. We are not aware of any material amounts of withdrawal liability that have been incurred or asserted and that remain outstanding as a result of our withdrawal from a multiemployer defined benefit pension plan.

Letters of Credit and Bank Guarantee Fees and Commitment Fees

We have excluded from the Contractual Obligations table interest associated with letters of credit and bank guarantees and commitment fees under our senior secured ~~revolving~~ credit facility ~~and other bilateral credit agreements~~ because the outstanding letters of credit and bank guarantees, availability and applicable interest rates and fees are variable. Assuming that the amount of letters of credit and bank guarantees outstanding and the interest rate as of March 31, 2019 remained the same, the annual cash interest expense for our letters of credit and bank guarantees would be approximately $4.6 million. For additional information regarding our letters of credit and bank guarantees and the interest rates and fees associated with these items and our borrowings under our senior secured ~~revolving~~ credit facility, see Liquidity and Capital Resources - — Debt Instruments above.

Insurance

We are insured for employer’s liability, workers’ compensation, auto liability and general liability claims. Under these programs, the deductible for employer’s liability is $1.0 million per occurrence, the deductible for workers’ compensation is $5.0 million per occurrence, and the deductibles for auto liability and general liability are $10.0 million per occurrence. We manage and maintain a portion of our casualty risk through our wholly-owned captive insurance company, which insures all claims up to the amount of the applicable deductible of our third-party insurance programs. In connection with our casualty insurance programs, we are required to issue letters of credit to secure our obligations. We also have 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 $0.5 million per claimant per year.

Losses under all of these insurance programs are accrued based upon our 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 our 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. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the gross amount accrued for insurance claims totaled ~~$243.2~~$268.7 million and ~~$254.7~~$272.9 million, with ~~$185.0~~$200.8 million and ~~$200.0~~$210.1 million considered to be long-term and included in “Insurance and other non-current liabilities.” Related insurance recoveries/receivables as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were ~~$36.9~~$35.8 million and ~~$50.4~~$56.5 million, of which $0.4 million and ~~$0.4~~$0.3 million were included in “Prepaid expenses and other current assets” and ~~$36.5~~$35.4 million and ~~$50.0~~$56.2 million were included in “Other assets, net.”

We renew our insurance policies on an annual basis, and therefore deductibles and levels of insurance coverage may change in future periods. In addition, insurers may cancel our coverage or determine to exclude certain items from coverage, or we may elect not to obtain certain types or incremental levels of insurance ~~if we believe that~~based on the potential benefits considered relative to the cost ~~to obtain~~of such ~~coverage exceeds any additional benefits.~~insurance. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows. The Contractual Obligations table excludes commitments associated with our insurance liabilities, as we are unable to determine the timing of payments related to these obligations.

Contingent Consideration Liabilities

We have excluded from the Contractual Obligations table acquisition-related contingent consideration liabilities, which represent the estimated fair value of future amounts payable to the former owners of certain acquired businesses, because the amounts have not been earned and we are unable to determine the portion of the liabilities that will be settled in cash and the exact timing of any such payments as of ~~June 30, 2018.~~March 31, 2019. Payment of such consideration is contingent ~~on the future~~upon achievement of certain performance objectives ~~of such~~by the acquired businesses, and the fair value of such consideration is estimated by management based on entity-specific assumptions that are evaluated on an ongoing basis. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the aggregate fair value of these outstanding and unearned contingent consideration liabilities totaled ~~$73.0~~$70.7 million and ~~$65.7~~$70.8 million, all of which was included in “Insurance and other non-current liabilities” on our condensed consolidated balance sheets. Because acquisition-related contingent consideration liabilities are contingent upon future events, we include these liabilities in the Contractual Obligations table when the contingencies are resolved. We expect a significant portion of these liabilities to be settled by late 2020 or early 2021.

The fair values of the contingent consideration liabilities as of ~~June 30, 2018~~March 31, 2019 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 factors ranged from ~~23.0%~~22.2% to 30.0% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present ~~value~~values of the estimated payments are discounted based on a risk-free rate and/or ~~Quanta’s~~our cost of debt, ranging from 2.1% to ~~3.4%~~3.9%.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), as further described in Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. Significant changes in any of these assumptions could result in a significantly higher or lower potential liability.

The majority of our contingent consideration liabilities are subject to a maximum payment amount, ~~and the aggregate maximum amount of these liabilities was $154.4~~which totaled $157.3 million as of ~~June 30, 2018.~~March 31, 2019. One contingent consideration liability is not subject to a maximum payout amount, and ~~the~~that liability had a fair value of ~~that liability was~~ $1.0 million as of ~~June 30, 2018.~~March 31, 2019.

Our aggregate contingent consideration liabilities can change due to additional business acquisitions, payments to settle outstanding liabilities, changes in the fair value of amounts owed based on actual or forecasted performance, and foreign currency translation gains or losses. During the three months ended June 30, 2018, there were no acquisitions, and during the six months ended June 30, 2018, one acquisition increased our contingent consideration liabilities by $13.7 million. There was no increase to our contingent consideration liabilities due to acquisitions during the three and six months ended June 30, 2017. During each of the three and six months ended June 30, 2018 and 2017,March 31, 2019, we ~~made no payments related to contingent consideration liabilities. During the three and six months ended June 30, 2018, there was a $6.3 million decrease~~recognized net decreases in the fair value of contingent consideration liabilities ~~primarily due to~~of $0.1 million, which were reflected in “Change in fair value of contingent consideration liabilities” on our consolidated statements of operations. There were no changes ~~in forecasted performance for two acquired companies. The change~~ in fair value of contingent consideration liabilities ~~has been reflected~~ in ~~operating income on our consolidated statements of operations.~~the three months ended March 31, 2018.

Concentrations of Credit Risk

We are subject to concentrations of credit risk related primarily to our cash and cash equivalents and our 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 our cash and cash equivalents are managed by what we believe to be high credit quality financial institutions. In accordance with our investment policies, these institutions are authorized to invest cash and cash equivalents in a diversified portfolio of what we believe 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 and investment grade commercial paper with original maturities of three months or less.~~funds. Although we do 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 we receive from these investments. In addition, we grant credit under

normal payment terms, generally

without collateral, to our customers, which include electric power and ~~oil and gas~~energy companies, governmental entities, general contractors, and builders, owners and managers of commercial and industrial properties located primarily in the United States, Canada, Australia and Latin America. Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout these locations, which may be heightened as a result of uncertain economic and financial market ~~conditions that have existed in recent years.~~conditions. However, we generally have certain statutory lien rights with respect to services provided. Some of our customers have experienced significant financial difficulties ~~in the past,~~(including bankruptcy), and customers may experience financial difficulties in the future. These difficulties expose us to increased risk related to collectability of billed and unbilled receivables and contract assets for services we have performed.

PG&E Bankruptcy. On January 29, 2019, one of our largest customers, PG&E, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended. We are monitoring the bankruptcy proceeding and evaluating the treatment of, and potential claims related to, our pre-petition receivables. As of the bankruptcy filing date, we had approximately $157 million of billed and unbilled receivables, which remained unpaid as of March 31, 2019. Subsequent to March 31, 2019, the bankruptcy court approved the assumption by PG&E of two substantial contracts with a subsidiary of Quanta, which authorizes PG&E to pay approximately $116 million of pre-petition receivables due under those contracts. As a result of the contract assumptions, we expect to receive payment of the $116 million in the near term. We also believe we will ultimately collect the remaining approximately $41 million of pre-petition receivables, and that amount has been classified as non-current within “Other assets, net” in our condensed consolidated balance sheet as of March 31, 2019. However, the ultimate outcome of the bankruptcy proceeding is uncertain, and our belief regarding collection of the remaining receivables is based on a number of assumptions that are potentially subject to change as the proceeding progresses. Should any of those assumptions change, the amount collected could be materially less than the amount of the remaining receivables. Additionally, we are continuing to perform services for PG&E while the bankruptcy case is ongoing and believe that amounts billed for post-petition services will continue to be collected in the ordinary course of business.

At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, no ~~customers~~customer represented 10% or more of our consolidated net receivable position. No ~~customers~~customer represented 10% or more of our consolidated revenues for the three ~~and six~~ months ended March 31, 2019 and March 31, 2018.

Project Insurance Claim

In June ~~30,~~ 2018, while performing a horizontal directional drill and installing an underground gas pipeline, one ~~customer within our Oil and Gas Infrastructure Services segment accounted for approximately 10%~~ of our ~~consolidated revenues~~subsidiaries experienced a partial collapse of a borehole. Subsequent to the incident, we have been working with our customer to mitigate the impact of the incident and to complete the project; however, we have encountered additional challenges due to the collapsed borehole. As required by the contract, the customer procured certain insurance coverage for the ~~three~~project, with our subsidiary as an additional insured. We believe the incident is covered under such insurance and ~~six months ended June 30, 2017.~~are working collaboratively with the customer to pursue insurance claims with the customer’s insurance carriers. To the extent such claims are not successful, we would expect to pursue contractual relief from the customer.

As of March 31, 2019, we recorded an insurance receivable of $45.8 million in accordance with GAAP related to accounting for insurance claims and potential recoveries. The amount represents a portion of the insurance claims being pursued as of such date. We expect the insurance claims and the amount of the insurance receivable to increase in future periods as mitigation activities continue. The mitigation plan remains subject to inherent risks associated with underground pipeline installation, which could cause the costs to mitigate the incident to increase materially. The project is ongoing and the final amount of the insurance claims is not currently known. However, Quanta’s claims associated with the project, including both insurance claims and potential contractual claims, will be substantially in excess of the currently recognized receivable. To the extent we are unsuccessful in realizing insurance or contractual recoveries, additional charges to operating results, which could be material, would be required.

Legal Proceedings

We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record a reserve when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which management believes a material loss is at least reasonably possible. See ~~Legal Proceedings, Collective Bargaining Agreements~~ Notes 11 and ~~Indemnities~~ ~~in Note 10~~ 14 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I ~~of the Quarterly Report~~ for additional information regarding litigation, claims and other legal proceedings.

Related Party Transactions

In the normal course of business, we enter into transactions from time to time with related parties. Our significant related party transactions typically ~~take the form of~~involve real property and facility leases with prior owners of certain acquired ~~businesses.~~companies.

Critical Accounting Policies Update

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date the consolidated financial statements are published and the reported amounts of revenues and expenses recognized during the periods presented. Our critical accounting estimates are detailed in Item 7. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2018 Annual ~~Report on Form 10-K for the year ended December 31, 2017.~~Report. Significant changes to our critical accounting policies as a result of adopting new ~~revenue recognition~~ guidance related to leases effective January 1, ~~2018~~2019 are referenced below:

~~Revenue Recognition~~Leases

See ~~Revenue Recognition~~Leases in Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report for information on the new ~~revenue recognition guidance and~~accounting standard related ~~disclosures.~~to leases.

Outlook

We believe there are growth opportunities across the industries we serve and continue to have a positive long-term outlook. Overall, favorable end-market drivers have spurred demand for infrastructure services in both our Electric Power Infrastructure Services and ~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services segments, and we believe both segments are generally in a ~~renewed~~ multi-year up-cycle. Additionally, the traditional electric utility model has evolved since our inception, with many long-standing customers shifting their focus from fossil fuel-based electric power generation to an advanced integrated utility model primarily concentrated on electric transmission and distribution investment and increasing their focus on gas distribution and ownership of pipeline infrastructure. We have strategically adapted our business over time to respond to these changes, which allows us to collaborate with our customers and create unique solutions that benefit end users. We are focused on long-term profitable growth and continuing to distinguish ourselves through safe execution and best-in-class field leadership. ~~Though~~Although not without risks and challenges, including those discussed below and in Uncertainty of Forward-Looking Statements and Information and referenced in Item 1A. Risk Factors of Part II of this Quarterly Report, ~~and~~ ~~Uncertainty of Forward-Looking Statements and Information~~ ~~below,~~ we believe, with our full-service operations, broad geographic reach, financial position and technical expertise, we are well-positioned to capitalize on opportunities and trends in the industries we ~~serve with our full-service operations, broad geographic reach, financial position and technical expertise.~~

serve.

Electric Power Infrastructure Services Segment

We expect demand for electricity in North America to grow over the long term and believe that certain segments of the North American electric power grid are not adequate to efficiently serve the power needs of the future. These factors have affected and will continue to affect reliability, requiring utilities to upgrade, modernize and expand their existing transmission and distribution systems. Furthermore, current federal legislation also requires the power industry to meet federal reliability standards for its transmission and distribution systems. In response to these dynamics, over the past several years, many utilities across North America have begun to implement plans to upgrade their transmission and distribution systems in order to improve reliability and reduce congestion.

As demand for power increases, we expect the need for new power generation facilities to also increase. The development of such facilities, expected to be powered by certain ~~types of~~ traditional energy sources and renewable energy sources such as solar and wind, would necessitate new or expanded transmission infrastructure to transport power to demand centers. Furthermore, we anticipate that the access to low cost natural gas resources from unconventional shale formations in the United States and Canada will continue to increase the amount of electricity generated by natural ~~gas powered~~gas-powered plants. To the extent this dynamic continues, transmission and substation infrastructure will be needed to interconnect new natural gas-fired generation facilities. We also anticipate that modification and reengineering of existing transmission and substation infrastructure will be required as existing coal and nuclear generation facilities are retired or shut down.

With respect to distribution systems, a number of utilities are implementing system upgrades or hardening programs in response to severe weather events that have occurred over the past several years, such as hurricanes, which is increasing distribution investment in some regions of the United States. Similarly, California and other regions in the west are implementing system resiliency initiatives to prevent and manage the impact of wildfires on their transmission and distribution infrastructure. We also anticipate that utilities will continue to integrate smart grid technologies into their distribution systems over time to improve grid management and create efficiencies. Further, to the extent adoption of electrical vehicle technology increases, we believe upgrades to distribution and other electrical infrastructure will be required to accommodate increased load demand.

We believe that several existing, pending or proposed legislative or regulatory actions may also positively impact long-term demand for the services we provide, particularly in connection with electric power infrastructure and renewable energy spending. For example, legislative or regulatory action that alleviates some of the siting and right-of-way challenges that impact transmission projects would potentially accelerate future construction, and federal reliability standards for transmission and distribution systems could create incentives for system investment and maintenance. We also consider renewable energy, including solar and wind generation facilities, to be an ongoing opportunity for our engineering, project management and installation services; however, the economic feasibility of these projects may depend on the availability of tax incentive programs and there is no assurance that existing incentive programs will be extended or that new incentive programs will be implemented.

Despite these positive trends, the regulatory and environmental permitting processes remain a hurdle for some proposed transmission and renewable energy projects, and these factors continue to create uncertainty as to timing of projects and customer spending. In the near term, margins for our electric power infrastructure services operations have been impacted by regulatory and permitting delays and unfavorable economic and market conditions, particularly for larger transmission projects. We anticipate many of these issues to be resolved over the long term, ~~as a number of these projects are currently underway,~~ and we expect this segment’s backlog to remain strong during ~~2018.~~the remainder of 2019.

Our customers are also seeking additional specialized labor resources to address an aging utility workforce and labor availability issues, increasing pressure to reduce costs and improve reliability, and increasing duration and complexity of customer capital programs. We believe these trends will continue, possibly to the point where customer demand for labor resources will outpace the supply of industry resources. Our ability to take advantage of ~~this opportunity~~available opportunities is limited by our ability to employ, train and retain the necessary skilled personnel. We are taking proactive steps to develop our workforce, including through strategic relationships with universities, the ~~establishment~~military and unions; the expansion and development of our training facility, ~~our~~which provides classroom and on-the-job training programs; and the acquisition and development of aour postsecondary educational institution, ~~that provides~~which specializes in pre-apprenticeship training, apprenticeship training and ~~programs~~specialized utility task training for ~~experienced linemen,~~electric workers, and ~~other strategic relationships.~~includes curriculum for the gas distribution and communications industries. Although we believe these initiatives will help address workforce needs, meeting our customers’ demand for labor resources could remain challenging.

With respect to our communications service offerings, consumer and commercial demand in North America and Latin America for communication and data-intensive, high-bandwidth wireline and wireless services and applications is driving significant investment in infrastructure and the deployment of new technologies. In particular, we believe there is increasing demand to upgrade or build fiber optic networks that are closer or connected to the end ~~user, and in~~user. In North America, ~~there~~communications providers are ~~plans~~in the early stages of developing new fifth generation wireless services (5G), which are intended to facilitate bandwidth-intensive services at high speeds for consumers and a wide range of commercial applications. These 5G networks require significant fiber network development and the deployment of new ~~wireless networks and improvements~~small cells to ~~existing wireless networks.~~provide 5G services. As a result of these near- and longer-term industry trends, we believe there will be meaningful demand for our services.

~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services Segment

We continue to see growth opportunities in our ~~Oil~~Pipeline and ~~Gas~~Industrial Infrastructure Services segment, primarily with respect to services related to natural gas distribution, pipeline integrity, downstream industrial services, the installation and maintenance of larger pipeline systems and ~~related~~associated facilities and ~~services related to pipeline integrity,~~horizontal directional drilling. We have experienced an increase in demand for our natural gas distribution ~~horizontal directional drilling~~services as a result of improved economic conditions, lower natural gas prices and a significant need to upgrade and replace aging infrastructure. We believe there are also growth opportunities for our pipeline integrity, rehabilitation and replacement services. Regulatory measures have increased and could continue to increase the frequency or stringency of pipeline integrity testing requirements, which we expect to result in increased capital expenditures by our customers.

We believe, looking at trends and estimates for process facility utilization rates and overall refining capacity, North America will be the largest downstream maintenance market in the world over the next several years. Furthermore, we believe processing facilities located along the U.S. Gulf Coast region should have certain strategic advantages due to their access and proximity to affordable hydrocarbon resources. While our high-pressure and critical-path turnaround services can be negatively impacted in any given year or period by severe weather events along the U.S. Gulf Coast region, these services, as well as our capabilities with respect to instrumentation, high-voltage and other electrical services, piping, fabrication and storage, and other industrial ~~services. A~~services, have favorable near-term industry drivers and are expected to have longer-term opportunities. Additionally, a number of larger pipeline projects from the North American shale formations and Canadian oil sands to power plants, refineries and other demand centers are in various stages of development. While there is risk the projects will not move forward or could be delayed, we believe many of our customers remain committed to them given the cost and time required to move from conception to construction. ~~We expect to continue to execute on a significant number of larger pipeline projects during 2018.~~

~~Due~~Furthermore, due to its abundant supply and current low price, we believe ~~the~~ demand for North American natural gas will continue to increase in the future and that natural gas will ~~be the~~remain a fuel of choice for both primary power generation and backup power generation for renewable-driven power plants. In certain areas of North America, the existing pipeline system infrastructure

is insufficient to support this expected future development. Furthermore, the abundance of ~~low price~~affordable natural gas in the United States, Canada and Australia has also resulted in efforts to develop liquefied natural gas (LNG) export facilities to serve higher-price international markets, which could provide pipeline and related facilities development opportunities for us. Although fluctuating commodity prices, regulatory issues and changing economic conditions may impact the number of projects that ultimately move forward, we believe our comprehensive service offerings and broad geographic presence enable us to competitively pursue opportunities that become available.

We also believe there are growth opportunities for some of our other pipeline services over the long term, including pipeline integrity, rehabilitation and replacement services. Regulatory measures have increased, and could continue to increase, the frequency or stringency of pipeline integrity testing requirements, which we expect to result in increased capital expenditures by our customers. We have also experienced an increase in demand for our natural gas distribution services as a result of improved economic conditions, lower natural gas prices and a significant need to upgrade and replace aging infrastructure.

Despite these positive trends, ~~a challenging~~ regulatory and environmental permitting ~~environment has~~challenges and political and legal challenges have caused the delay of some larger pipeline projects during the past several years. These dynamics negatively impacted our segment margins in recent years, in part as a result of our inability to adequately cover certain fixed costs. Margins for larger pipeline projects are also subject to significant performance risk, which can arise from, among other things, adverse weather conditions, challenging geography, customer decisions and crew productivity. Specific opportunities for larger pipeline projects are also sometimes difficult to predict because of the seasonality of bidding and construction cycles.

~~Additionally,~~Although much of this segment’s services are influenced by hydrocarbon production volume rather than shorter-term changes in commodity prices, the broader oil and gas industry is highly cyclical and subject to volatility as a result of fluctuations in natural gas, natural gas liquids and oil prices. Certain of our end markets remain challenged as the broader energy market has not fully recovered from the significant decline in oil prices that began in mid-2014. Exploration and production companies and midstream companies significantly reduced capital spending in response to the price decline, and demand in certain areas where the price of oil is influential, such as Australia, the Canadian Oil Sands, certain oil-driven U.S. shale formations and the Gulf of Mexico, has been adversely impacted by low oil prices. If oil and natural gas prices decline ~~further~~ or remain at lower levels over the long term, our outlook may change and demand for our services could be materially impacted.

We have also expanded our industrial services offerings, including high-pressure and critical-path turnaround services to the downstream and midstream energy markets, and enhanced our capabilities with respect to instrumentation and electrical services, piping, fabrication and storage tank services. While these services were negatively impacted in 2017 by historic adverse weather events in the U.S. Gulf Coast region, we believe, looking at trends and estimates for process facility utilization rates and overall refining capacity, North America will be the largest downstream maintenance market in the world over the next several years. Furthermore, we believe processing facilities located along the U.S. Gulf Coast region should have certain strategic advantages due to their access and proximity to affordable hydrocarbon resources.

Overall, we remain optimistic about this segment’s operations. ~~From~~Over the past several years we have taken steps to diversify and expand our operations in this segment, with services such as pipeline integrity, natural gas distribution, and downstream industrial services, to better withstand various end-market cyclicality. Additionally, from a near- and medium-term perspective, we continue to believe that larger pipeline project opportunities can provide significant profitability, although these projects are often subject to more cyclicality and execution risk than our other service offerings. ~~We have also taken steps to diversify and expand our operations in this segment through other services, such as pipeline integrity, natural gas distribution, and downstream industrial services.~~

Strategic Acquisitions and Investments

We continue to evaluate potential strategic acquisitions and investments to broaden our customer base, expand our geographic area of operations, grow our portfolio of services and increase opportunities across our operations. We believe that attractive growth opportunities exist primarily due to the highly fragmented and evolving nature of the industries in which we operate and adjacent industries, along with the inability of many companies to expand and modernize due to capital or liquidity constraints. We will pursue opportunities designed to enhance our core business and leadership position in the industries we serve and provide

innovative solutions to our customers. We also believe our unique operating model and entrepreneurial mindset will continue to be attractive to acquisition candidates.

Uncertainty of Forward-Looking Statements and Information

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

Projected revenues, net income, earnings per share, margins, weighted average shares outstanding, capital expenditures, tax rates and other projections of operating or financial results;

Expectations regarding our business or financial outlook, growth, trends or opportunities in particular markets;

The expected value of contracts or intended contracts with customers;

~~Future capital allocation initiatives;~~

The scope, services, term ~~and~~or results of any projects awarded or expected to be awarded ~~for services~~ to ~~be provided by~~ us;

The development of larger electric transmission and ~~oil and natural gas~~ pipeline projects, ~~and~~as well as the level of oil, natural gas and natural gas liquids prices and their impact on our business or demand for our services;

Future capital allocation initiatives, including the amount, timing and strategies with respect to any future stock repurchases, and expectations regarding the declaration, amount and timing of any future cash dividends;

The impact of existing or potential legislation or ~~regulation, including the Tax Act;~~regulation;

Potential opportunities that may be indicated by bidding activity or similar discussions with customers;

The future demand for and availability of labor resources in the industries we serve;

The expected realization of remaining performance obligations or backlog;

The potential benefits from investments or ~~acquisitions, including Stronghold;~~acquisitions;

The expected outcome of pending or threatened litigation;

Beliefs and assumptions about the collectability of receivables;

The business plans or financial condition of our customers;

Our plans and strategies;

Possible recovery onof pending or contemplated insurance claims or change orders or ~~other~~ claims against customers or third parties; and

The current economic and regulatory conditions and trends in the industries we serve.

These forward-looking statements are not guarantees of future performance, involve or rely on a number of risks, uncertainties, and assumptions that are difficult to predict or beyond our control, and reflect management’s beliefs and assumptions based on information available at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements and that any or all of our forward-looking statements may turn out to be inaccurate or incorrect. Those statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties, including the following:

Market conditions;

The effects of industry, economic, financial or political conditions outside our control, including weakness in the capital ~~markets;~~

markets or any actual or potential shutdown, sequester, default or similar event or occurrence involving the U.S. federal government;

Quarterly variations in our operating ~~results;~~and financial results, liquidity, financial condition, capital requirements, and reinvestment opportunities;

Trends and growth opportunities in relevant markets;

Delays, reductions in scope or cancellations of anticipated, pending or existing projects, including as a result of weather, regulatory or permitting issues, environmental processes, project performance issues, claimed force majeure events, protests or other political activity, legal challenges or ~~our customers’~~customer capital constraints;

The successful negotiation, execution, performance and completion of anticipated, pending and existing contracts, including the ability to obtain future project awards;

Our dependence on suppliers, subcontractors, equipment manufacturers and other third-party contractors;

Estimates relating to revenue recognition and costs associated with contracts;

Our ability to attract and the potential shortage of skilled employees and our ability to retain key personnel and qualified employees;

Our dependence on fixed price contracts and the potential to incur losses with respect to these contracts;

~~Estimates relating to our use of percentage-of-completion accounting;~~

Adverse weather conditions or ~~events;~~significant weather events, including hurricanes, tropical storms and floods;

Risks associated with operational hazards that arise due to the nature of the services we provide and the conditions in which we operate;

Our ability to generate internal growth;

Competition in our business, including our ability to effectively compete for new projects and market share;

The effect of natural gas, natural gas liquids and oil prices on our operations and growth opportunities and on our customers’ capital programs and demand for our services;

The future development of natural resources;

The failure of existing or potential legislative actions and initiatives to result in demand for our services;

Fluctuations of prices of certain materials used in our business, including ~~any increase in prices~~ as a result of the imposition of tariffs ~~on such materials;~~or changes in U.S. trade relationships with other countries;

Unexpected costs or liabilities that may arise from pending or threatened litigation, indemnity obligations or other claims or actions asserted against us, including liabilities, ~~and~~ costs, fines or penalties for which we are not covered by, or are in excess of our third-party ~~insurance and liabilities associated with multiemployer pension plans;~~insurance;

The outcome of pending or threatened litigation;

Risks relating to the potential unavailability or cancellation of third-party insurance, the exclusion of coverage for certain losses, and potential increases in premiums for coverage deemed beneficial to us;

Damage to our brand or reputation arising as a result of cyber-security or data privacy breaches, environmental and occupational health and safety matters, or other negative corporate incidents;

Cancellation provisions within our contracts and the risk that contracts expire and are not renewed or are replaced on less favorable terms;

Loss of customers with whom we have long-standing or significant relationships;

The potential that participation in joint ventures or similar structures exposes us to liability and/or harm to our reputation for acts or omissions by our partners;

Our inability or failure to comply with the terms of our contracts, which may result in additional costs, unexcused delays, warranty claims, failure to meet performance guarantees, damages or contract terminations;

The inability or refusal of our customers to pay for services, including failure to collect our outstanding receivables;

The failure to recover on payment claims against project owners or third-party contractors or to obtain adequate compensation for customer-requested change orders;

The failure of our customers to comply with regulatory requirements applicable to their projects, which may result in project delays and cancellations;

Budgetary or other constraints that may reduce or eliminate tax incentives or government funding for projects, which may result in project delays or cancellations;

Estimates and assumptions in determining our financial results, remaining performance obligations and backlog;

Our ability to successfully complete our remaining performance obligations or realize our backlog;

Risks associated with operating in international markets, including instability of foreign governments, currency exchange fluctuations, ~~tax~~ and ~~investment strategies, as well as~~ compliance with unfamiliar foreign legal systems and cultural practices, the U.S. Foreign

Corrupt Practices Act and other applicable anti-bribery and anti-corruption ~~laws;~~laws , and complex U.S. and foreign tax regulations and international treaties;

Our ability to successfully identify, complete, integrate and realize synergies from ~~acquisitions, including Stronghold;~~acquisitions;

The potential adverse impact resulting from uncertainty surrounding acquisitions and investments, including the ability to retain key personnel from acquired businesses, the potential increase in risks already existing in our operations and poor performance or decline in value of our ~~investments in infrastructure assets;~~investments;

The adverse impact of impairments of goodwill, other intangible assets, receivables, long-lived assets or investments;

Our growth outpacing our decentralized management and infrastructure;

Requirements relating to governmental regulation and changes thereto;

Inability to enforce our intellectual property rights or the obsolescence of such rights;

Risks related to the implementation of new information technology solutions;

The impact of our unionized workforce on our operations, including labor stoppages or interruptions due to strikes or lockouts;

~~Potential liabilities and other adverse effects arising from occupational health and safety matters;~~

The cost of borrowing, availability of cash and credit, fluctuations in the price and volume of our common stock, debt covenant compliance, interest rate fluctuations and other factors affecting our financing and investing activities;

The ability to access sufficient funding to finance desired growth and operations;

Our ability to obtain performance bonds;

~~Potential exposure to environmental liabilities;~~

Our ability to meet the regulatory requirements applicable to us and our subsidiaries, including the Sarbanes-Oxley Act of 2002;

Rapid technological and other structural changes that could reduce the demand for our services;

New or changed tax laws, treaties or regulations;

~~Increased healthcare costs arising from healthcare reform legislation~~Legislative or ~~other legislative action;~~

~~Regulatory~~regulatory changes that result in increased costs, including with respect of labor and healthcare costs;

Significant fluctuations in foreign currency exchange rates; and

~~The other risks and uncertainties described elsewhere herein and in Item 1A.~~ ~~Risk Factors~~ ~~of Part I of our 2017 Annual Report and as may be detailed from time to time in our other public filings with the SEC.~~


•	The other risks and uncertainties described elsewhere herein and in Item 1A. Risk Factors of Part I of our 2018 Annual Report and as may be detailed from time to time in our other public filings with the SEC.

All of our forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements or that are otherwise included in this report. In addition, we do not undertake and expressly disclaim any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or otherwise.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

The information in this section should be read in connection with the information on financial market risk related to changes in interest rates and currency exchange rates in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of Part II of our ~~2017~~2018 Annual Report. Our primary exposure to market risk relates to unfavorable changes in concentration of credit risk, interest rates and currency exchange rates.

Credit Risk. We are subject to concentrations of credit risk related to our cash and cash equivalents and 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 our cash and cash equivalents are managed by what we believe to be high credit quality financial institutions. In accordance with our investment policies, these institutions are authorized to invest cash and

cash equivalents in a diversified portfolio of what we believe to be high-quality investments, which primarily include interest-bearing demand deposits, money market investments and money market mutual ~~funds with original maturities of three months or less.~~funds. Although we do not currently believe the principal amounts of these cash and cash equivalents are subject to any material risk of loss, changes in economic conditions could impact the interest income we receive from these investments.

In addition, as we grant credit under normal payment terms, generally without collateral, weand therefore are subject to potential credit risk related to our customers’ ~~ability~~inability to pay for services provided. ~~This~~For example, in January 2019 one of our customers, PG&E, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Concentration of Credit Risk for additional information regarding our pre-petition receivables and this bankruptcy matter. Furthermore, the risk of nonpayment may be heightened as a result of depressed economic and financial market conditions. ~~However, we~~We believe the concentration of credit risk related to billed and unbilled receivables and contract assets is limited because of the diversity of our ~~customers. We~~customers, and we perform ongoing credit risk assessments of our customers and financial institutions and in some cases we obtain collateral or other security from our customers.

Interest Rate Risk. As of ~~June 30, 2018,~~March 31, 2019, we had no derivative financial instruments to manage interest rate risk. As such, we were exposed to earnings and fair value risk due to changes in interest rates with respect to our long-term obligations. As of ~~June 30, 2018,~~March 31, 2019, the fair value of our variable rate debt of ~~$840.2 million~~$1.37 billion approximated book value. Our weighted average interest rate on our variable rate debt for the three months ended ~~June 30, 2018~~March 31, 2019 was ~~3.62%~~3.92%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately ~~$4.2~~$6.9 million based on our ~~June 30, 2018~~March 31, 2019 balance of variable rate debt.

Foreign Currency Risk. The U.S. dollar is the functional currency for the majority of our operations, which are primarily located within the United States. The functional currency for our foreign operations, which are primarily located in Canada, Australia and Latin America, is typically the currency of the country in which the foreign operating unit is located. Accordingly, our financial performance is subject to fluctuation due to changes in foreign currency exchange rates relative to the U.S. dollar. During the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, revenues from our foreign operations accounted for ~~17.4% and 23.0%~~21.6% of our consolidated revenues. Fluctuations in foreign exchange rates during the three months ended ~~June 30, 2018~~March 31, 2019 caused ~~an increase~~a decrease of approximately ~~$13~~$31 million in foreign revenues compared to the three months ended June 30, 2017. Fluctuations in foreign exchange rates during the six months ended June 30, 2018 caused an increase of approximately $42 million in foreign revenues compared to the six months ended June 30, 2017.March 31, 2018.

We are also subject to foreign currency risk with respect to sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of our operating units. To minimize the risk from changes in foreign currency exchange rates, we may enter into foreign currency derivative contracts to hedge our foreign currency risk on a cash flow basis. There were no outstanding foreign currency derivative contracts at ~~June 30, 2018.~~March 31, 2019.

We also have foreign exchange risk related to cash and cash equivalents in foreign banks. Based on the balance of cash and cash equivalents in foreign banks of ~~$40.8~~$27.7 million as of ~~June 30, 2018,~~March 31, 2019, an assumed 5% adverse change to foreign exchange rates would result in a fair value decline of ~~$1.9~~$1.0 million. Fluctuations in fair value are recorded in “Accumulated other comprehensive income (loss),”, a separate component of stockholders’ equity.


Item 4.	Controls and Procedures.

Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of Quanta’s Chief Executive Officer and Chief Financial Officer that are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act). This ~~Item 4. section~~item includes information concerning the controls and controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Evaluation of Disclosure Controls and Procedures

Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

Based on this evaluation, these officers have concluded that, as of ~~June 30, 2018~~March 31, 2019, our disclosure controls and procedures were effective to provide reasonable assurance of achieving their objectives.

Evaluation of Internal Control over Financial Reporting

~~During~~Effective January 1, 2019, we adopted Accounting Standards Codification Topic 842, Leases. In connection with the ~~three months ended June 30, 2018,~~adoption of this standard, we implemented ~~a major upgrade~~certain revisions to internal controls related to our financial consolidation and reporting system and made changes to related internal controls. Certain control activities previously performed manually or through reliance on independent systems were replaced by system controls withinlease processes during the ~~new integrated financial consolidation and reporting system or have been modified as a result of enhanced functionality of the new system.~~quarter ended March 31, 2019. There have been no other changes in our internal control over financial reporting during the quarter ended ~~June 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Design and Operation of Control Systems

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures 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 breakdowns can occur because of simple errors or mistakes. Controls can 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.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record a reserve when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which management believes a material loss is at least reasonably possible. See ~~Legal Proceedings, Collective Bargaining Agreements~~ Notes 11 and ~~Indemnities~~ ~~in Note 10~~ 14 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report, which are incorporated by reference ~~into~~in this Item 1. ~~Legal Proceedings~~ ~~of Part II of this Quarterly Report,~~1, for additional information regarding litigation, claims and other legal proceedings.

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes from the risk factors previously disclosed in Item 1A. Risk Factors of Part I of our ~~2017~~2018 Annual Report. ~~An investment in our common stock or other equity securities involves various risks. When~~Our business is subject to a variety of risks and uncertainties, and when considering an investment in our company, you should carefully consider all of the risk factors described herein and in our ~~2017~~2018 Annual Report. The matters specifically identified are not the only risks and uncertainties ~~we face,~~facing our company, and ~~there may be~~ additional ~~matters that are~~risks and uncertainties not known to us or ~~that we currently consider immaterial. All~~not specifically identified may also impair our business. If any of these risks and uncertainties ~~could adversely affect~~occur, our business, financial condition, ~~or future~~ results of operations and ~~thus~~cash flows could be negatively impacted, which could negatively impact the value of an investment in our company.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

~~None.~~During the three months ended March 31, 2019, we issued 449,929 shares of our common stock to the former owner of an acquired business in exchange, on a one-for-one basis, for exchangeable shares in a Canadian subsidiary of Quanta that were held by the former owner. The former owner originally received the exchangeable shares as partial consideration for the sale of the acquired business. The shares of common stock issued in this transaction were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as the shares were issued to the owner of a business acquired in a privately negotiated transaction not involving any public offering or solicitation.

In connection with the aforementioned acquisition, the former owner also received one share of Quanta Series G Preferred Stock, which provided the former owner voting rights in Quanta common stock equivalent to the number of outstanding exchangeable shares held by the former owner. Upon completion of the exchange described above, no exchangeable shares associated with the preferred share remained outstanding. Accordingly, the share of Quanta Series G preferred stock was redeemed, deemed retired and canceled and may not be reissued.

Issuer Purchases of Equity Securities During the ~~Second~~First Quarter of ~~2018~~2019

The following table contains information about our purchases of equity securities during the three months ended ~~June 30, 2018.~~March 31, 2019.


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs⁽²⁾		Total Number of Shares Purchased ⁽¹⁾⁽²⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs⁽¹⁾
April 1-30, 2018
January 1-31, 2019
Open Market Stock Repurchases(1)	—	$	—	—	$	76,086,713	268,200	$	29.83	268,200	$	290,709,011
Tax Withholdings ⁽¹⁾	3,053	$	30.88	—
May 1-31, 2018
Tax Withholdings ⁽²⁾							25,175	$	30.10	—
February 1-28, 2019
Open Market Stock Repurchases⁽²⁾⁽¹⁾	—	$	—	—	$	76,086,713	—	$	—	—	$	290,709,011
Tax Withholdings ⁽¹⁾⁽²⁾	19,798	$	36.63	—			379,501	$	35.97	—
June 1-30, 2018
March 1-31, 2019
Open Market Stock Repurchases⁽²⁾⁽¹⁾	594,671	$	33.62	594,671	$	56,093,238	107,336	$	36.83	107,336	$	286,756,122
Tax Withholdings ⁽²⁾							22,941	$	37.15	—
Total	617,522			594,671	$	56,093,238	803,153			375,536	$	286,756,122


(1)	Includes shares purchased from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock unit and performance unit awards or the settlement of previously vested but deferred restricted stock unit awards.

~~(2)~~

Includes shares repurchased as of the trade date of ~~the~~such repurchases. On ~~May 25, 2017,~~September 4, 2018, we issued a press release announcing that our ~~board~~Board of ~~directors~~Directors approved a stock repurchase program that authorizes us to purchase, from time to time through June 30, ~~2020,~~2021, up to ~~$300.0~~$500.0 million of our outstanding common ~~stock.~~stock (the 2018 Repurchase Program). Repurchases under this program can be made in open market and privately negotiated transactions, at our discretion, based on market and business conditions, applicable contractual and legal requirements and other factors. This program does not obligate us to acquire any specific amount of common stock and may be modified or terminated by our ~~board~~Board of ~~directors~~Directors at any time at its sole discretion and without notice. As

(2)

Includes shares purchased from employees to satisfy tax withholding obligations in connection with the vesting of ~~June 30, 2018, we had repurchased 6.9 million shares~~restricted stock unit and performance unit awards or the settlement of ~~our common~~previously vested but deferred restricted stock ~~under this program at a cost of $243.9 million. Accordingly, $56.1 million remained authorized for repurchase under the program as of June 30, 2018.~~unit awards.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

~~None.~~Not applicable.

Item 5. Other Information.

None.


Item 6.	Exhibits.



Exhibit No.		Description
3.1		Restated Certificate of Incorporation of Quanta Services, Inc. (previously filed as Exhibit 3.1 to the Company’s Form 8-K filed March 26, 2019 and incorporated herein by reference)
3.2		Certificate of Retirement and Elimination of Series F Preferred Stock of Quanta Services, Inc. (previously filed as Exhibit 3.2 to the Company’s Form 8-K filed March 26, 2019 and incorporated herein by reference)
3.3		Certificate of Elimination of Series G Preferred Stock of Quanta Services, Inc. (previously filed as Exhibit 3.3 to the Company’s Form 8-K filed ~~May 25, 2011~~March 26, 2019 and incorporated herein by reference)
~~3.2~~3.4		~~Certificate~~Bylaws of ~~Designation of Series G Preferred Stock~~Quanta Services, Inc., as amended and restated December 6, 2018 (previously filed as Exhibit 3.1 to the Company’s Form 8-K filed ~~January 17, 2014~~December 11, 2018 and incorporated herein by reference)
~~3.3~~10.1		~~Bylaws of~~ Quanta Services, Inc.~~, as amended~~ Term Sheet for 2019 Annual Incentive Plan – Corporate Employees, Quanta Services, Inc. Term Sheet for 2019 Senior Leadership Long-Term Incentive Plan and ~~restated March 27, 2014~~Quanta Services, Inc. Term Sheet for 2019 Discretionary Plan – All Employees (previously filed as Exhibit ~~3.1~~10.1 to the Company’s Form 8-K filed March ~~31, 2014~~14, 2019 and incorporated herein by reference)
~~10.1~~	*	Second Amendment to Intercreditor Agreement dated August 4, 2015 by and between Federal Insurance Company; American Home Assurance Company, National Union Fire Insurance Company of Pittsburgh, PA and The Insurance Company of the State of Pennsylvania; Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company and Safeco Insurance Company of America, and Bank of America, N.A., as Lender Agent on behalf of the other Lender Parties (under the Company’s Credit Agreement, as amended), and agreed to by Quanta Services, Inc. and the subsidiaries and affiliates of Quanta Services, Inc. identified therein
10.2	*	Seventh Amendment to Underwriting, Continuing Indemnity and Security Agreement dated as of August 4, 2015, among Federal Insurance Company; American Home Assurance Company, National Union Fire Insurance Company of Pittsburgh, PA and The Insurance Company of the State of Pennsylvania; Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company and Safeco Insurance Company of America; Quanta Services, Inc., the other Indemnitors identified therein; and the Stallone Companies
~~10.3~~		Amendment No. 34 to the Quanta Services, Inc. 2011 Omnibus Equity Incentive Plan (previously filed as Exhibit ~~10.4~~10.6 to the ~~Company's~~Company’s Form 8-K ~~(No. 001-13831)~~ filed ~~May 30, 2018~~March 14, 2019 and incorporated herein by reference)
31.1	*	Certification by Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	*	Certification by Chief Financial Officer pursuant to Rule 13a -14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	*	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS	*	XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	*	XBRL Taxonomy Extension Schema Document
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase Document



*	Filed or furnished herewith

SIGNATURE

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

QUANTA SERVICES, INC.



	By:	/s/ JERRY K. LEMON
		Jerry K. Lemon Chief Accounting Officer
		(Principal Accounting Officer)

Dated: ~~August 7, 2018~~May 6, 2019

7071



	June 30, 2018		December 31, 2017
Contract assets	$	551,505	$	497,292
Contract liabilities	$	496,083	$	433,387



	2018			2017
	All Acquisitions			Stronghold			Other Acquisitions
Consideration:
Cash paid or payable	$	51,345		$	351,014		$	11,955
Value of Quanta common stock issued	13,549			81,337			8,267
Contingent consideration	13,705			51,084			—
Fair value of total consideration transferred or estimated to be transferred	$	78,599		$	483,435		$	20,222

Accounts receivable	$	4,436		$	77,478		$	7,157
Contract assets	—			11,913			193
Other current assets	5,722			20,914			170
Property and equipment	17,516			51,258			1,480
Other assets	325			1,513			12
Identifiable intangible assets	19,836			95,700			8,091
Contract liabilities	—			(13,489		)	(93		)
Other current liabilities	(8,238		)	(58,346		)	(2,705		)
Deferred tax liabilities, net	(4,179		)	—			—
Other long-term liabilities	—			(48		)	—
Total identifiable net assets	35,418			186,893			14,305
Goodwill	43,181			296,542			5,917
	$	78,599		$	483,435		$	20,222



	Electric Power Infrastructure Services Division			Oil and Gas Infrastructure Services Division			Total
Balance at December 31, 2017:
Goodwill	$	1,272,527		$	693,905		$	1,966,432
Accumulated impairment	—			(97,832		)	(97,832		)
	1,272,527			596,073			1,868,600

Goodwill recorded related to 2018 acquisitions	43,181			—			43,181
Purchase price allocation adjustments	51			—			51
Foreign currency translation adjustments	(8,772		)	(5,396		)	(14,168		)

Balance at June 30, 2018:
Goodwill	1,306,987			687,789			1,994,776
Accumulated impairment	—			(97,112		)	(97,112		)
	$	1,306,987		$	590,677		$	1,897,664



For the Fiscal Year Ending December 31,
Remainder of 2018	$	20,880
2019	38,683
2020	37,265
2021	34,932
2022	31,403
Thereafter	95,657
Total	$	258,820



	Operating Leases
Year Ending December 31 —
Remainder of 2018	$	66,869
2019	94,590
2020	64,320
2021	40,995
2022	24,548
Thereafter	46,024
Total minimum lease payments	$	337,346



	December 31,
	2017		2016
Cash and cash equivalents	138,285		$	112,183
Restricted cash included in “Prepaid expenses and other current assets”	5,106		1,709
Restricted cash included in “Other assets, net”	384		518
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	143,775	$	114,410



	Backlog as of				Backlog as of
	June 30, 2018				December 31, 2017
	12 Month		Total		12 Month		Total
Electric Power Infrastructure Services	$	4,257,845	$	7,134,473	$	4,032,379	$	7,359,237
Oil and Gas Infrastructure Services	3,179,684		4,357,930		2,413,817		3,818,470
Total backlog	$	7,437,529	$	11,492,403	$	6,446,196	$	11,177,707