UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2019~~2020.



or
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .



Commission file 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)

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

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

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

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



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of ~~October 29, 2019,~~August 4, 2020, the number of outstanding shares of Common Stock of the registrant was ~~142,293,582. As of the same date 36,183 exchangeable shares of a Canadian subsidiary of the Registrant were outstanding.~~138,020,980.

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 (Loss)	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Equity	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	75
ITEM 4.	Controls and Procedures	7576

	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	7778
ITEM 1A.	Risk Factors	7778
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7779
ITEM 3.	Defaults Upon Senior Securities	7880
ITEM 4.	Mine Safety Disclosures	7880
ITEM 5.	Other Information	7880
ITEM 6.	Exhibits	7981
Signature		8082

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)


	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	80,044		$	78,687		$	530,670		$	164,798
Accounts receivable, net of allowances of $7,683 and $5,839	3,188,328			2,354,737
Accounts receivable, net of allowances of $14,948 and $9,398							2,370,286			2,747,911
Contract assets	652,915			576,891			489,803			601,268
Inventories	67,039			107,732			48,274			55,719
Prepaid expenses and other current assets	313,601			208,057			205,722			261,290
Total current assets	4,301,927			3,326,104			3,644,755			3,830,986
Property and equipment, net of accumulated depreciation of $1,203,887 and $1,092,440	1,390,209			1,276,032
Property and equipment, net of accumulated depreciation of $1,298,054 and $1,250,197							1,379,687			1,386,654
Operating lease right-of-use assets	289,267			—			275,816			284,369
Other assets, net	449,218			293,592			386,068			393,264
Other intangible assets, net of accumulated amortization of $414,153 and $372,081	431,563			280,180
Other intangible assets, net of accumulated amortization of $469,006 and $437,886							380,309			413,734
Goodwill	2,002,909			1,899,879			2,022,995			2,022,675
Total assets	$	8,865,093		$	7,075,787		$	8,089,630		$	8,331,682
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term debt and short-term debt	$	75,751		$	65,646		$	71,837		$	74,869
Current portion of operating lease liabilities	93,506			—			90,358			92,475
Accounts payable and accrued expenses	1,648,079			1,314,520			1,317,976			1,489,559
Contract liabilities	540,187			425,961			613,188			606,146
Total current liabilities	2,357,523			1,806,127			2,093,359			2,263,049
Long-term debt, net of current maturities	1,810,480			1,040,532			1,315,556			1,292,195
Operating lease liabilities, net of current portion	197,896			—			192,300			196,521
Deferred income taxes	279,858			219,115			220,689			214,779
Insurance and other non-current liabilities	310,129			404,560			349,724			311,307
Total liabilities	4,955,886			3,470,334			4,171,628			4,277,851
Commitments and Contingencies
Equity:
Common stock, $.00001 par value, 600,000,000 shares authorized, 159,347,049 and 157,333,046 shares issued, and 142,273,922 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	—			—
Common stock, $.00001 par value, 600,000,000 shares authorized, 161,368,227 and 159,415,540 shares issued, and 137,711,812 and 142,324,318 shares outstanding							2			2
Exchangeable shares, no par value, 0 and 36,183 shares issued and outstanding							—			—
Additional paid-in capital	2,014,838			1,967,354			2,063,100			2,024,610
Retained earnings	2,743,498			2,477,291			2,948,180			2,854,271
Accumulated other comprehensive loss	(264,113		)	(286,048		)	(290,049		)	(241,818		)
Treasury stock, 17,073,127 and 16,229,146 common shares	(586,819		)	(554,440		)
Treasury stock, 23,656,415 and 17,091,222 common shares							(806,804		)	(586,773		)
Total stockholders’ equity	3,907,406			3,604,159			3,914,429			4,050,292
Non-controlling interests	1,801			1,294			3,573			3,539
Total equity	3,909,207			3,605,453			3,918,002			4,053,831
Total liabilities and equity	$	8,865,093		$	7,075,787		$	8,089,630		$	8,331,682

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						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenues	$	3,352,895		$	2,985,281		$	8,999,353		$	8,059,205		$	2,506,231		$	2,839,199		$	5,270,326		$	5,646,458
Cost of services (including depreciation)	2,879,450			2,559,451			7,842,422			6,998,956			2,150,967			2,519,694			4,582,866			4,962,972
Gross profit	473,445			425,830			1,156,931			1,060,249			355,264			319,505			687,460			683,486
Equity in earnings of integral unconsolidated affiliates													1,045			—			1,045			—
Selling, general and administrative expenses	245,010			224,040			700,862			645,566			(227,852		)	(223,944		)	(458,645		)	(455,852		)
Amortization of intangible assets	15,264			10,623			40,544			31,535			(17,779		)	(12,610		)	(35,687		)	(25,280		)
Change in fair value of contingent consideration liabilities	3,777			(1,394		)	8,064			(7,673		)	2,238			(4,371		)	(520		)	(4,287		)
Operating income	209,394			192,561			407,461			390,821			112,916			78,580			193,653			198,067
Interest expense	(18,369		)	(9,219		)	(48,066		)	(25,175		)	(8,654		)	(15,821		)	(22,660		)	(29,697		)
Interest income	186			322			762			1,128			275			267			1,034			576
Other income (expense), net	717			(15,498		)	66,197			(37,899		)	3,247			6,521			(6,580		)	65,480
Income before income taxes	191,928			168,166			426,354			328,875			107,784			69,547			165,447			234,426
Provision for income taxes	54,906			43,267			139,838			90,659			32,989			41,088			49,149			84,932
Net income	137,022			124,899			286,516			238,216			74,795			28,459			116,298			149,494
Less: Net income attributable to non-controlling interests	954			348			2,616			1,686			849			1,115			3,666			1,662
Net income attributable to common stock	$	136,068		$	124,551		$	283,900		$	236,530		$	73,946		$	27,344		$	112,632		$	147,832

Earnings per share attributable to common stock:
Basic	$	0.93		$	0.82		$	1.95		$	1.54		$	0.53		$	0.19		$	0.79		$	1.02
Diluted	$	0.92		$	0.81		$	1.93		$	1.52		$	0.52		$	0.19		$	0.78		$	1.01

Shares used in computing earnings per share:
Weighted average basic shares outstanding	145,913			152,562			145,654			154,087			139,856			145,935			142,154			145,525
Weighted average diluted shares outstanding	147,438			153,687			147,074			155,198			143,521			147,241			145,213			146,865

Cash dividends declared per common share	$	0.04		$	—		$	0.12		$	—		$	0.05		$	0.04		$	0.10		$	0.08

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	Three Months Ended					Nine Months Ended						Three Months Ended					Six Months Ended
	September 30,					September 30,						June 30,					June 30,
	2019			2018		2019			2018			2020		2019			2020			2019
Net income	$	137,022		$	124,899	$	286,516		$	238,216		$	74,795	$	28,459		$	116,298		$	149,494
Other comprehensive income (loss), net of tax provision:
Foreign currency translation adjustment, net of tax of $0, $0, $0 and $0	(12,778		)	10,838		21,976			(34,299		)
Other, net of tax of $17, $0, $28 and $0	(6		)	—		(41		)	—
Foreign currency translation adjustment, net of tax of $0, $0, 0 and $0												34,737		15,891			(48,231		)	34,754
Other, net of tax of $0, $5, $0 and $11												—		(19		)	—			(35		)
Other comprehensive income (loss)	(12,784		)	10,838		21,935			(34,299		)	34,737		15,872			(48,231		)	34,719
Comprehensive income	124,238			135,737		308,451			203,917			109,532		44,331			68,067			184,213
Less: Comprehensive income attributable to non-controlling interests	954			348		2,616			1,686			849		1,115			3,666			1,662
Total comprehensive income attributable to common stock	$	123,284		$	135,389	$	305,835		$	202,231		$	108,683	$	43,216		$	64,401		$	182,551

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						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Cash Flows from Operating Activities:
Net income	$	137,022		$	124,899		$	286,516		$	238,216		$	74,795		$	28,459		$	116,298		$	149,494
Adjustments to reconcile net income to net cash provided by (used in) operating activities—
Depreciation	55,562			51,543			161,589			150,296			54,526			53,811			108,936			106,027
Amortization of intangible assets	15,264			10,623			40,544			31,535			17,779			12,610			35,687			25,280
Impairment of cost method investment													9,311			—			9,311			—
Change in fair value of contingent consideration liabilities	3,777			(1,394		)	8,064			(7,673		)	(2,238		)	4,371			520			4,287
Equity in (earnings) losses of unconsolidated affiliates	(1,931		)	17,835			(64,078		)	42,976			4,784			(1,757		)	7,467			(62,147		)
Amortization of debt issuance costs	466			287			1,282			863			588			408			1,177			816
(Gain) loss on sale of property and equipment	(992		)	(340		)	(3,462		)	1,605
Foreign currency (gain) loss	1,383			(168		)	2,603			(237		)
Provision for doubtful accounts	773			2,151			4,012			3,135
Gain on sale of property and equipment													(1,158		)	(2,411		)	(1,972		)	(2,470		)
Provision for credit losses													1,071			416			1,344			3,239
Deferred income tax provision (benefit)	4,167			(7,391		)	48,298			6,114			(5,993		)	19,573			(1,783		)	44,131
Non-cash stock-based compensation	13,584			11,631			41,080			39,803			21,980			14,484			36,892			27,496
Bargain purchase gain	—			—			(3,138		)	—
Foreign currency and other gain													(3,084		)	(3,135		)	(3,437		)	(1,918		)
Payments for contingent consideration liabilities													(590		)	—			(590		)	—
Changes in operating assets and liabilities, net of non-cash transactions	(137,908		)	(170,572		)	(623,557		)	(285,016		)	325,708			(235,493		)	415,178			(485,649		)
Net cash provided by (used in) operating activities	91,167			39,104			(100,247		)	221,617			497,479			(108,664		)	725,028			(191,414		)
Cash Flows from Investing Activities:
Capital expenditures	(66,244		)	(74,144		)	(207,645		)	(222,735		)	(48,148		)	(72,775		)	(116,257		)	(141,401		)
Proceeds from sale of property and equipment	4,854			5,642			24,247			18,635			7,826			8,550			12,616			19,393
Proceeds from insurance settlements related to property and equipment	490			145			501			510			—			3			198			11
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired	(329,832		)	(48,683		)	(385,165		)	(94,917		)	(1,643		)	(3,780		)	(24,437		)	(55,333		)
Proceeds from disposition of businesses													8,387			—			10,861			—
Investments in unconsolidated affiliates and other entities	(1,065		)	(19,391		)	(38,995		)	(20,960		)	(3,068		)	(127		)	(8,760		)	(37,930		)
Cash received from investments in unconsolidated affiliates and other entities	—			—			—			784			32			—			32			—
Cash paid for intangible assets	—			—			(67		)	(3,000		)	—			(42		)	—			(67		)
Net cash used in investing activities	(391,797		)	(136,431		)	(607,124		)	(321,683		)	(36,614		)	(68,171		)	(125,747		)	(215,327		)
Cash Flows from Financing Activities:
Borrowings under credit facility	2,118,501			855,831			4,834,014			2,893,224			500,727			1,068,439			1,975,179			2,715,513
Payments under credit facility	(1,789,924		)	(743,162		)	(4,038,762		)	(2,605,092		)	(782,987		)	(901,396		)	(1,954,046		)	(2,248,838		)
Payments on other long-term debt	(1,356		)	(336		)	(1,839		)	(1,067		)
Payments of other long-term debt													(537		)	(222		)	(983		)	(483		)
Net repayments of short-term debt, net of borrowings	(11,171		)	7,124			(27,087		)	20,066			(1,620		)	7,304			(4,419		)	(15,916		)
Debt issuance and amendment costs	(2,036		)	—			(2,036		)	—
Payments for contingent consideration liabilities													(9,410		)	—			(10,399		)	—
Distributions to non-controlling interests	(489		)	(1,275		)	(2,109		)	(2,942		)	(1,962		)	(1,092		)	(3,925		)	(1,620		)
Payments related to tax withholding for stock-based compensation	(611		)	(464		)	(15,955		)	(14,668		)	(7,687		)	(1,666		)	(23,573		)	(15,344		)
Payments of dividends	(5,803		)	—			(17,385		)	—
Payment of dividends													(7,160		)	(5,830		)	(14,544		)	(11,582		)
Repurchase of common stock	—			(26,755		)	(20,092		)	(216,661		)	—			(159		)	(200,000		)	(20,092		)
Net cash provided by financing activities	307,111			90,963			708,749			72,860
Net cash provided by (used in) financing activities													(310,636		)	165,378			(236,710		)	401,638

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(87		)	(199		)	(123		)	1,605			986			82			537			(36		)
Net increase (decrease) in cash, cash equivalents and restricted cash	6,394			(6,563		)	1,255			(25,601		)	151,215			(11,375		)	363,108			(5,139		)
Cash, cash equivalents and restricted cash, beginning of period	78,117			124,737			83,256			143,775			381,638			89,492			169,745			83,256
Cash, cash equivalents and restricted cash, end of period	$	84,511		$	118,174		$	84,511		$	118,174		$	532,853		$	78,117		$	532,853		$	78,117

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																												Accumulated
					Exchangeable				Series G				Additional					Other						Total													Exchangeable				Additional					Other						Total
	Common Stock				Shares				Preferred Stock				Paid-In		Retained			Comprehensive			Treasury			Stockholders’			Non-controlling			Total			Common Stock				Shares				Paid-In		Retained			Comprehensive			Treasury			Stockholders'			Non-controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Earnings			Income (Loss)			Stock			Equity			Interests			Equity			Shares		Amount		Shares		Amount		Capital		Earnings			Income (Loss)			Stock			Equity			Interests			Equity
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
Balance, December 31, 2019																																	142,324,318		$	2	36,183		$	—	$	2,024,610	$	2,854,271		$	(241,818	)	$	(586,773	)	$	4,050,292		$	3,539		$	4,053,831
Credit loss cumulative effect adjustment																																	—		—		—		—		—		(3,841		)	—			—			(3,841		)	—			(3,841		)
Other comprehensive loss																																	—		—		—		—		—		—			(82,968		)	—			(82,968		)	—			(82,968		)
Acquisitions																																	121,089								4,329								—			4,329			—			4,329
Stock-based compensation activity	903,082		—		—		—		—		—		17,151		—			—			(19,052		)	(1,901		)	—			(1,901		)	1,124,530		—		—		—		11,444		—			—			(19,750		)	(8,306		)	—			(8,306		)
Exchange of exchangeable shares	449,929		—		(449,929	)	—		—		—		—		—			—			—			—			—			—			36,183		—		(36,183	)	—		—		—			—			—			—			—			—
Retirement of preferred stock	—		—		—		—		(1	)	—		—		—			—			—			—			—			—
Common stock repurchases	(375,536	)	—		—		—		—		—		—		—			—			(11,953		)	(11,953		)	—			(11,953		)	(5,960,134	)	—		—		—		—		—			—			(200,000		)	(200,000		)	—			(200,000		)
Dividends declared	—		—		—		—		—		—		—		(5,896		)	—			—			(5,896		)	—			(5,896		)	—		—		—		—		—		(7,184		)	—			—			(7,184		)	—			(7,184		)
Distributions to non-controlling interests	—		—		—		—		—		—		—		—			—			—			—			(528		)	(528		)	—		—		—		—		—		—			—			—			—			(1,963		)	(1,963		)
Other																																	—		—		—		—		—		(516		)	—			—			(516		)	293			(223		)
Net income	—		—		—		—		—		—		—		120,488			—			—			120,488			547			121,035			—		—		—		—		—		38,686			—			—			38,686			2,817			41,503
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
Balance, March 31, 2020																																	137,645,986		2		—		—		2,040,383		2,881,416			(324,786		)	(806,523		)	3,790,492			4,686			3,795,178
Other comprehensive income	—		—		—		—		—		—		—		—			15,872			—			15,872			—			15,872			—		—		—		—		—		—			34,737			—			34,737			—			34,737
Stock-based compensation activity	85,590		—		—		—		—		—		14,957		—			—			(761		)	14,196			—			14,196			65,826		—		—		—		22,717		—			—			(281		)	22,436			—			22,436
Dividends declared	—		—		—		—		—		—		—		(6,233		)	—			—			(6,233		)	—			(6,233		)	—		—		—		—		—		(7,182		)	—			—			(7,182		)	—			(7,182		)
Distributions to non-controlling interests	—		—		—		—		—		—		—		—			—			—			—			(1,092		)	(1,092		)	—		—		—		—		—		—			—			—			—			(1,962		)	(1,962		)
Net income	—		—		—		—		—		—		—		27,344			—			—			27,344			1,115			28,459			—		—		—		—		—		73,946			—			—			73,946			849			74,795
Balance, June 30, 2019	142,166,965		2		36,183		—		—		—		1,999,462		2,612,994			(251,329		)	(586,206		)	3,774,923			1,336			3,776,259
Other comprehensive loss	—		—		—		—		—		—		—		—			(12,784		)	—			(12,784		)	—			(12,784		)
Acquisitions	60,860		—		—		—		—		—		1,791		—			—			—			1,791			—			1,791
Stock-based compensation activity	46,097		—		—		—		—		—		13,585		—			—			(613		)	12,972			—			12,972
Dividends declared	—		—		—		—		—		—		—		(5,564		)	—			—			(5,564		)	—			(5,564		)
Distributions to non-controlling interests	—		—		—		—		—		—		—		—			—			—			—			(489		)	(489		)
Net income	—		—		—		—		—		—		—		136,068			—			—			136,068			954			137,022
Balance, September 30, 2019	142,273,922		$	2	36,183		$	—	—		$	—	$	2,014,838	$	2,743,498		$	(264,113	)	$	(586,819	)	$	3,907,406		$	1,801		$	3,909,207
Balance, June 30, 2020																																	137,711,812		$	2	—		$	—	$	2,063,100	$	2,948,180		$	(290,049	)	$	(806,804	)	$	3,914,429		$	3,573		$	3,918,002

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																																Accumulated
					Exchangeable			Series G			Additional					Other						Total													Exchangeable				Series G				Additional					Other						Total
	Common Stock				Shares			Preferred Stock			Paid-In		Retained			Comprehensive			Treasury			Stockholders’			Non-controlling			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			Shares		Amount		Shares		Amount		Shares		Amount		Capital		Earnings			Income (Loss)			Stock			Equity			Interests			Equity
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
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	847,455		—		—	—		—	—		17,992		—			—			(16,690		)	1,302			—			1,302			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	(4,969,261	)	—		—	—		—	—		—		—			—			(173,913		)	(173,913		)	—			(173,913		)	(375,536	)	—		—		—		—		—		—		—						(11,953		)	(11,953		)	—			(11,953		)
Dividends declared																															—		—		—		—		—		—		—		(5,896		)	—			—			(5,896		)	—			(5,896		)
Distributions to non-controlling interests	—		—		—	—		—	—		—		—			—			—			—			(980		)	(980		)	—		—		—		—		—		—		—		—			—			—			—			(528		)	(528		)
Buyout of a non-controlling interest	—		—		—	—		—	—		—		—			—			—			—			(462		)	(462		)
Net income	—		—		—	—		—	—		—		37,614			—			—			37,614			997			38,611			—		—		—		—		—		—		—		120,488			—			—			120,488			547			121,035
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
Other comprehensive loss	—		—		—	—		—	—		—		—			(20,123		)	—			(20,123		)	—			(20,123		)
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
Other comprehensive income																															—		—		—		—		—		—		—		—			15,872			—			15,872			—			15,872
Stock-based compensation activity	82,468		—		—	—		—	—		13,929		—			—			(870		)	13,059			—			13,059			85,590		—		—		—		—		—		14,957		—			—			(761		)	14,196			—			14,196
Common stock repurchases	(594,671	)	—		—	—		—	—		—		—			—			(19,993		)	(19,993		)	—			(19,993		)
Dividends declared																															—		—		—		—		—		—		—		(6,233		)	—			—			(6,233		)	—			(6,233		)
Distributions to non-controlling interests	—		—		—	—		—	—		—		—			—			—			—			(687		)	(687		)	—		—		—		—		—		—		—		—			—			—			—			(1,092		)	(1,092		)
Buyout of a non-controlling interest	—		—		—	—		—	—		—		—			—			—			—			(462		)	(462		)
Net income	—		—		—	—		—	—		—		74,365			—			—			74,365			341			74,706			—		—		—		—		—		—		—		27,344			—			—			27,344			1,115			28,459
Balance, June 30, 2018	149,088,134		2		486,112	—		1	—		1,934,826		2,301,281			(248,532		)	(296,917		)	3,690,660			2,805			3,693,465
Other comprehensive income	—		—		—	—		—	—		—		—			10,838			—			10,838			—			10,838
Acquisitions	299,851		—		—	—		—	—		9,333		—			—			—			9,333			—			9,333
Stock-based compensation activity	33,124		—		—	—		—	—		11,642		—			—			(455		)	11,187			—			11,187
Common stock repurchases	(700,628	)	—		—	—		—	—		—		—			—			(23,751		)	(23,751		)	—			(23,751		)
Distributions to non-controlling interests	—		—		—	—		—	—		—		—			—			—			—			(1,275		)	(1,275		)
Buyout of a non-controlling interest	—		—		—	—		—	—		—		—			—			—			—			(462		)	(462		)
Net income	—		—		—	—		—	—		—		124,551			—			—			124,551			348			124,899
Balance, September 30, 2018	148,720,481		$	2	486,112	$	—	1	$	—	$	1,955,801	$	2,425,832		$	(237,694	)	$	(321,123	)	$	3,822,818		$	1,416		$	3,824,234
Balance, June 30, 2019																															142,166,965		$	2	36,183		$	—	—		$	—	$	1,999,462	$	2,612,994		$	(251,329	)	$	(586,206	)	$	3,774,923		$	1,336		$	3,776,259

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, delivering comprehensive infrastructure solutions for the electric power, energy and communications industries in the United States, Canada, Australia ~~Latin America~~ and select other international markets. Quanta reports its results under 2 reportable segments: (1) Electric Power Infrastructure Services and (2) Pipeline and 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,~~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,~~techniques; and the installation of “smart grid” technologies on electric power networks. In addition, this segment provides services that support the development of renewable energy generation, including solar, wind, hydro power and ~~certain types of~~backup natural gas generation facilities, ~~and~~as well as related switchyards and transmission infrastructure. Services related to, among other things, micro-grids and battery storage are also performed in this segment. This segment also provides comprehensive communications infrastructure services to wireline and wireless telecommunications companies, cable multi-system operators and other customers within the communications industry (including services in connection with 5G wireless deployment); services in connection with the construction of electric power generation facilities; and the design, installation, maintenance and repair of commercial and industrial wiring. This segment also includes a majority of the financial results of Quanta’s postsecondary educational institution, which specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, ~~and includes curriculum~~as well as training for the gas distribution and communications industries.

Pipeline and Industrial Infrastructure Services Segment

The Pipeline and Industrial Infrastructure Services segment provides comprehensive infrastructure solutions, including design, installation, upgrade, repair and maintenance services, to customers involved in the development, transportation, distribution, storage and processing of natural gas, oil and other products. Services ~~performed by the Pipeline and Industrial Infrastructure Services segment generally~~ include the ~~design, installation,~~upgrade, repair, maintenance and ~~maintenance~~construction of ~~pipeline transmission and distribution~~natural gas systems ~~gathering systems, production systems, storage systems and compressor and pump stations,~~for gas utility customers, 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 for ~~natural gas utilities and midstream companies.~~the pipeline industry. Quanta also provides catalyst replacement services, 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 the midstream and downstream industrial energy markets. This segment also provides engineering and construction services for pipeline systems, storage systems and compressor and pump stations, as well as related trenching, directional boring and mechanized welding services. To a lesser extent, this segment serves the offshore ~~and inland water~~ energy ~~markets~~market and designs, installs and maintains fueling systems and water and sewer infrastructure.

Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, 2020, Quanta acquired an industrial services business located in Canada that performs catalyst handling services, including changeover and shutdown maintenance, to customers in the refining and chemical industries and an electric power infrastructure business located in the United States that primarily provides underground conduit services. Beginning on the respective acquisition dates, the results of the acquired businesses have been included in Quanta’s consolidated financial statements, with the results of the industrial services business generally included in the Pipeline and Industrial Infrastructure Services segment and the results of the electric power infrastructure business generally included in the Electric Power Infrastructure Services segment.

During the year ended December 31, 2019, Quanta acquired The Hallen Construction Co., Inc. (Hallen), a pipeline and industrial services business located in the United States that specializes in gas distribution and transmission services, and to a lesser extent, underground electric distribution and transmission ~~services;~~services. During the year ended December 31, 2019, Quanta also acquired two specialty utility foundation and pole-setting contractors serving the southeast United States; an electric power specialty contracting business located in the United States that provides aerial power line and construction support services; a business located in the United States that provides technical training materials to electric utility workers; an electric power company specializing in project management and, to a lesser extent, water and wastewater projects located in the United States; and an electrical infrastructure services business located in Canada. Beginning on the respective acquisition dates, the results of the

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

acquired businesses have been included in Quanta’s consolidated financial statements, with the results of Hallen generally included in the Pipeline and Industrial Infrastructure Services segment and the results of the other acquired businesses generally included in the Electric Power Infrastructure Services segment.

~~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~~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 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, ~~2018~~2019 ~~(2018~~(2019 Annual Report), which was filed with the SEC on February 28, ~~2019.~~2020.

Use of Estimates and Assumptions

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

Revenue Recognition

Contracts

Quanta designs, installs, upgrades, repairs and maintains infrastructure for customers in the electric power, 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-price contracts, cost-plus contracts and fixed price contracts. Transaction prices for unit-price contracts are determined on a per unit basis, transaction prices for cost-plus contracts are determined by applying a profit margin to costs incurred on the contracts and transaction prices for fixed price contracts are determined on a lump-sum basis. All of Quanta’s revenues are recognized from contracts with its customers. In addition to the considerations described below, revenue is not recognized unless collectability under the contract is considered probable, the contract has

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

commercial substance and the contract has been approved. Additionally, the contract must contain payment terms, as well as the rights and commitments of both parties.

Performance Obligations

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

At ~~September~~June 30, 2020 and December 31, 2019, the aggregate transaction price allocated to unsatisfied or partially satisfied performance obligations was approximately ~~$4.40~~$5.18 billion and $5.30 billion, of which ~~65.5% was~~61.0% and 59.5% were expected to be recognized in the subsequent twelve months. ~~This amount represents~~These amounts represent management’s estimate of the consolidated revenues that are expected to be realized from the remaining portion of firm orders under fixed price contracts not yet completed or for which work ~~has~~had not yet begun. For purposes of calculating remaining performance obligations, Quanta includes all estimated revenues attributable to consolidated joint ventures and variable interest entities, revenues from funded and unfunded portions of government contracts to the extent they are reasonably expected to be realized and revenues from change orders and claims to the extent management believes additional contract revenues will be earned and are deemed probable of collection. Excluded from remaining performance obligations are potential orders under MSAs and non-fixed price contracts expected to be completed within one year. Subsequent to June 30, 2020, the project sponsors of an approximately 600-mile natural gas pipeline under construction in the eastern United States announced that they are no longer moving forward with the project. A Quanta subsidiary has been contracted, as part of a joint venture, to construct a portion of this project. Although the joint venture has not received a notice of termination, based on the announcement, Quanta has concluded that the revenues related to the remaining performance obligation associated with the project are no longer probable. As a result, this project has been excluded from remaining performance obligations as of June 30, 2020.

Recognition of Revenue Upon Satisfaction of Performance Obligations

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

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

Contract costs include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. The majority of the materials associated with Quanta’s work are owner-furnished, and therefore not included in contract revenues and costs. Additionally, Quanta may incur incremental costs to obtain certain contracts, such as selling and marketing costs, bid and proposal costs, sales commissions, and legal fees or initial set-up or mobilization costs, certain of which can be capitalized. Such costs were not material during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

Contract Estimates

Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen or changed circumstances not included in Quanta’s cost estimates or covered by its contracts. The estimating process is based on the professional knowledge and experience of Quanta’s ~~engineers,~~project estimators, project managers and ~~financial~~finance professionals. Some of the factors that may lead to changes in estimates include concealed or unknown ~~environmental~~site 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; adverse weather ~~conditions;~~conditions, natural disasters, and other emergencies (including the ongoing pandemic as a result of the novel coronavirus disease (COVID-19) that began in 2019); 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 to profitability or losses associated with the related performance obligations. For example, estimated costs for a performance obligation may increase from an original estimate and contractual provisions may not allow for adequate compensation or reimbursement for such additional costs. Changes in estimated revenues, costs and profit are recorded in the period they are determined to be probable and can be reasonably estimated. Contract losses are recognized in full when ~~losses~~they are

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

determined to be probable and can be reasonably estimated.

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

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, Quanta had recognized revenues of ~~$150.4~~$147.8 million and ~~$121.8~~$170.0 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 are included in “Contract assets” in the accompanying condensed consolidated balance sheets, represent management’s estimates of additional contract revenues that have been earned and are probable of collection. However, Quanta’s estimates could ~~be incorrect,~~change, and the amount ultimately realized could be significantly higher or lower than the estimated amount.

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

Changes in contract estimates are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations that were satisfied or partially satisfied in prior periods or the reversal of previously recognized revenue if the current estimate differs from the previous estimate. The impact of a change in contract estimate is measured as the difference between the revenue or gross profit recognized in the prior period as compared to the revenue or gross profit which would have been recognized had the revised estimate been used as the basis of recognition in the prior period.

~~Quanta’s operating~~Operating results for the three and six months ended ~~September~~June 30, ~~2019~~2020 were ~~favorably~~ impacted by ~~$29.2 million, or 6.2%~~less than 5% of gross profit as a result of aggregate changes in contract estimates related to projects that were in progress at ~~June 30, 2019. Quanta’s operating~~the beginning of such periods. Operating results for the ~~nine~~six months ended ~~September~~June 30, ~~2019 were impacted by less than 5% as~~2020 included a ~~result of aggregate changes~~negative change in contract ~~estimates~~estimate of $14.1 million related to ~~projects that were in progress at December 31, 2018.~~

~~Certain projects were materially impacted by changes to estimated contract revenues and/or project costs during the three~~delays associated with subcontractor performance and ~~nine months ended September 30, 2019. Quanta successfully executed through project risks~~severe weather impacts on a larger pipeline transmission project ~~which resulted~~ in a reduction of estimated project costs and positively impacted gross profit related to work performed in prior periods by $22.2 million and $21.6 million during the three and nine months ended September 30, 2019. Quanta experienced unfavorable weather and labor-related impacts, as well as a project scope reduction, on an electric transmission project in southern California,Canada, which resulted in an increase in estimated project costs and a reduction in expected project earnings. These changes negatively impacted gross profit related to work performed in prior periods by $11.0 million and $20.4 million during the three and nine months ended September 30, 2019. As of September 30, 2019, this project had a contract value of ~~approximately $400~~$106 million and was approximately ~~66% complete.~~97% complete as of June 30, 2020. This negative impact was more than offset by other positive changes in estimates on other projects.

Quanta successfully completed an electric transmission project in Canada ahead of schedule during the three months ended March 31, 2019, which resulted in a reduction in estimated project costs and positively impacted gross profit related to work performed in prior periods by $30.1 million during the nine months ended September 30, 2019. Quanta experienced rework and start-up delays on a processing facility construction project, which resulted in additional estimated project costs and liquidated damages payable to the customer and negatively impacted gross profit related to work performed in prior periods by $24.3 million during the nine months ended September 30, 2019. As of September 30, 2019, this project had a contract value of approximately $141 million and was approximately 98% complete.

~~Quanta’s operating~~Operating results for the three months ended ~~September~~June 30, ~~2018~~2019 were ~~favorably~~negatively impacted by ~~$30.7~~$20.4 million, or ~~7.2%~~6.4% of gross profit, as a result of aggregate changes in contract estimates related to projects that were in progress at ~~June 30, 2018. Quanta’s operating results for the nine months ended September 30, 2018 were impacted by less than 5% as a result of aggregate~~March 31, 2019. These changes in contract estimates include the correction of $14.5 million of prior period errors related to ~~projects~~the determination of total estimated project costs and the resulting revenue recognized on a large telecommunications project in Peru that was terminated during 2019. See Legal Proceedings in Note 11 for additional information regarding this project. The prior period errors were determined to be immaterial individually and in ~~progress at December 31, 2017.~~the aggregate to the prior period financial statements. Gross profit during the three months ended June 30, 2019 related to work performed in prior periods was also negatively impacted by $13.9 million of additional costs associated with continued rework and start-up delays on a processing facility project in Texas, which has subsequently been substantially completed. These unfavorable changes were partially offset by an aggregate positive change in contract estimates on other ongoing projects.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~Certain projects~~Operating results for the six months ended June 30, 2019 were ~~materially~~ impacted by less than 5% of gross profit as a result of aggregate changes in contract estimates related to projects that were in progress at December 31, 2018. The aggregate change included a negative impact of $9.6 million related to the correction of prior period errors described above and a $22.3 million increase in estimated ~~contract revenues and/or~~costs associated with the processing facility construction project ~~costs~~in Texas described above. Partially offsetting these changes was a $28.2 million positive impact on gross profit during the ~~three and nine~~six months ended ~~September~~June 30, 2018. Quanta successfully executed through project procurement, winter schedule challenges and productivity risks on the electric transmission project in Canada discussed above, which resulted in reductions to the estimated project costs and positively impacted gross profit related to2019 associated with work performed in prior periods ~~by $47.1 million and $47.2 million~~related to an electrical transmission project in Canada that was completed ahead of schedule during the three ~~and nine~~ months ended ~~September 30, 2018. Quanta experienced engineering and production delays on the processing facility construction project discussed above,~~March 31, 2019, which resulted in ~~additional estimated project~~lower costs and liquidated damages payable to the customer and negatively impacted gross profit related to work performed in prior periods by $18.8 million and $20.6 million during the three and nine months ended September 30, 2018. Quanta also experienced a partial collapse of an underground borehole for a natural gas pipeline project, which resulted in additional estimated project costs and negatively impacted gross profit related to work performed in prior periods by $10.8 million and $7.6 million during the three and nine months ended September 30, 2018. See ~~Insurance~~ in Note 11 for additional information related to an estimated insurance recovery associated with this project. Additionally, a natural gas pipeline construction project experienced weather delays and project performance issues, which resulted in additional estimated project costs and negatively impacted gross profit related to work performed in prior periods by $6.2 million and $16.4 million during the three and nine months ended September 30, 2018.than previously estimated.

Revenues by Category

The following tables present Quanta’s revenue disaggregated by geographic location, as determined by the job location, and contract type ~~for the three and nine months ended September 30, 2019 and 2018~~ (in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2019				2018				2019				2018				2020				2019				2020				2019
By primary geographic location:
United States	$	2,872,923	85.7	%	$	2,317,643	77.7	%	$	7,635,462	84.9	%	$	6,223,507	77.2	%	$	2,207,876	88.1	%	$	2,561,924	90.3	%	$	4,475,962	85.0	%	$	4,762,539	84.3	%
Canada	342,016		10.2	%	522,618		17.5	%	1,029,667		11.4	%	1,376,149		17.1	%	212,820		8.5	%	202,221		7.1	%	597,045		11.3	%	687,651		12.2	%
Australia	56,323		1.7	%	75,055		2.5	%	134,533		1.5	%	308,392		3.8	%	56,077		2.2	%	36,886		1.3	%	107,127		2.0	%	78,210		1.4	%
Latin America and Other	81,633		2.4	%	69,965		2.3	%	199,691		2.2	%	151,157		1.9	%	29,458		1.2	%	38,168		1.3	%	90,192		1.7	%	118,058		2.1	%
Total revenues	$	3,352,895	100.0	%	$	2,985,281	100.0	%	$	8,999,353	100.0	%	$	8,059,205	100.0	%	$	2,506,231	100.0	%	$	2,839,199	100.0	%	$	5,270,326	100.0	%	$	5,646,458	100.0	%


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2019				2018				2019				2018				2020				2019				2020				2019
By contract type:
Unit-price contracts	$	1,241,851	37.1	%	$	1,082,858	36.3	%	$	3,157,545	35.1	%	$	2,714,441	33.7	%	$	918,416	36.6	%	$	1,020,650	35.9	%	$	1,893,067	36.0	%	$	1,915,694	33.9	%
Cost-plus contracts	872,735		26.0	%	$	662,757	22.2	%	$	2,934,225	32.6	%	$	1,847,018	22.9	%	567,928		22.7	%	1,103,135		38.9	%	1,256,012		23.8	%	2,061,490		36.5	%
Fixed price contracts	1,238,309		36.9	%	1,239,666		41.5	%	2,907,583		32.3	%	3,497,746		43.4	%	1,019,887		40.7	%	715,414		25.2	%	2,121,247		40.2	%	1,669,274		29.6	%
Total revenues	$	3,352,895	100.0	%	$	2,985,281	100.0	%	$	8,999,353	100.0	%	$	8,059,205	100.0	%	$	2,506,231	100.0	%	$	2,839,199	100.0	%	$	5,270,326	100.0	%	$	5,646,458	100.0	%

As described above, under unit-price contracts with more than an insignificant amount of partially completed units and fixed price contracts, revenue is recognized as performance obligations are satisfied over time, with the percentage completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. Approximately ~~51.3%~~48.4% and ~~58.6%~~49.1% of Quanta’s revenues recognized during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were associated with this revenue recognition method, and ~~50.8%~~48.2% and ~~56.0%~~50.5% of Quanta’s revenues recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were associated with this revenue recognition method.

Contract Assets and Liabilities

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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

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 are intended to protect Quanta from the other party failing to meet its obligations under the contract. Contract assets and liabilities are recorded on a performance obligation basis at the end of each reporting period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Contract assets	$	652,915	$	576,891	$	489,803	$	601,268
Contract liabilities	$	540,187	$	425,961	$	613,188	$	606,146

As referenced previously, contract assets and liabilities fluctuate period to period based on various factors, including, among others, changes in the number and size of projects in progress at period end and variability in billing and payment terms, such as up-front or advance billings, interim or milestone billings, or deferred billings. The ~~increase~~decrease in contract assets from December 31, ~~2018~~2019 to ~~September~~June 30, 2019 was partially due to billing process changes for certain customers that impacted Quanta’s ability to timely invoice and collect for services performed. Additionally, a contract asset impairment of $29.4 million was recognized during the nine months ended September 30, 2019 in connection with a charge to earnings on a large telecommunications project in Peru that was terminated during the period. The increase in contract liabilities from December 31, 2018 to September 30, 20192020 was primarily due to ~~the~~a decline in revenues and improved timing of contractual and ~~number of~~milestone billings under contracts ~~that include advance billing terms.~~for certain larger projects.

Revenues were positively impacted by ~~$28.4~~$40.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 as a result of changes in estimates associated with performance obligations on fixed price contracts partially satisfied prior to December 31, ~~2018.~~2019. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, Quanta recognized revenue of approximately ~~$359~~$338.3 million related to contract liabilities outstanding at December 31, ~~2018.~~2019.

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

As described in Note 3, Quanta ~~provides an~~adopted the new accounting standard for measuring credit losses effective January 1, 2020 utilizing the transition method that allows recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Quanta’s financial results for reporting periods beginning on or after January 1, 2020 are presented under the new standard, while financial results for prior periods continue to be reported in accordance with the prior standard and Quanta’s historical accounting policy. The net cumulative effect due to the adoption of the new standard was a $3.8 million reduction to retained earnings as of January 1, 2020, which represented a $5.1 million increase to allowance for ~~doubtful~~credit losses, net of $1.2 million in deferred income taxes. The adjustment was based on an estimate of expected lifetime credit losses for financial instruments, primarily accounts ~~when collection~~receivable and contract assets. Although the adoption of ~~an account~~the new standard did not have a material impact on Quanta’s condensed consolidated financial statements at the date of adoption, expected credit losses could change as a result of changes in credit loss experience, changes to specific risk characteristics of Quanta’s portfolio of financial assets or ~~note receivable is considered doubtful, and receivables are written off against~~changes to management’s expectations of future economic conditions that affect the ~~allowance when deemed uncollectible.~~ collectability of Quanta’s financial assets. At the end of each quarter, management reassesses these factors, including any potential effects from the ongoing COVID-19 pandemic.

The assessment of the allowance for ~~doubtful accounts~~credit losses involves certain judgments and estimates. Management estimates ~~regarding, among other factors,~~ the ~~customer’s access~~allowance balance using relevant available information from internal and external sources relating to ~~capital,~~past events, current conditions and reasonable and supportable forecasts. Expected credit losses are estimated by evaluating trends in historical write-off experience and applying historical loss ratios to pools of financial assets with similar risk characteristics. Quanta has determined that it has 1 pool for the ~~customer’s willingness or~~purpose of calculating its historical credit loss experience.

Quanta’s historical loss ratio and its determination of risk pools may be adjusted for changes in customer credit concentrations within its portfolio of financial assets, its customers’ ability to pay, ~~general economic~~ and ~~market conditions, the ongoing relationship with the customer and uncertainties related~~other considerations such as changes to the ~~resolution~~market, regulatory or technological environments affecting its customers and the consistency of ~~disputed matters.~~the current and forecasted economic conditions relative to the historical period used to derive historical loss ratios.

Additional allowance for credit losses is established for financial asset balances with specific customers where collectability has been determined to be improbable based on customer specific facts and circumstances. Quanta considers accounts receivable delinquent after 30 days but does not generally ~~include~~consider such amounts delinquent ~~accounts~~ in its credit loss analysis ~~of the allowance for doubtful accounts~~ unless the accounts receivable have been outstanding for at least 90 days. ~~Quanta includes~~In addition to monitoring delinquent accounts, ~~receivable balances that relate to~~management monitors the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, ~~in bankruptcy or with other known difficulties in its analysis of the allowance for doubtful accounts. Material~~assessing economic and market conditions and evaluating material changes to a customer’s business, cash flows orand financial ~~condition, which may be impacted by negative economic and market conditions, could affect Quanta’s ability to collect amounts due.~~condition. 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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Activity in Quanta’s allowance for credit losses consisted of ~~September 30, 2019~~ ~~and~~ ~~December 31, 2018, Quanta had allowances for doubtful accounts on current receivables of $7.7 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.~~following (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Balance at beginning of period	$	14,446		$	8,476		$	9,398		$	5,839
Adoption of new credit loss standard	—			—			5,067			—
Charges to bad debt expense	1,071			416			1,344			3,239
Direct write-offs charged against the allowance	(569		)	(351		)	(861		)	(537		)
Balance at end of period	$	14,948		$	8,541		$	14,948		$	8,541

Long-term accounts receivable are included within “Other assets, net” in the accompanying condensed consolidated balance sheets. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, long-term accounts receivable were ~~$55.6~~$12.3 million and ~~$25.9~~$12.6 million. Included in the September 30, 2019 balance was $43.0 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.

Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on Quanta’s experience in recent years, the majority of these retainage balances are expected to be collected within approximately twelve months. ~~Current retainage~~Retainage balances with expected settlement dates within the next twelve months as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$486.5~~$316.7 million and ~~$337.1~~$299.6 million, ~~and~~which are included in “Accounts receivable.” Retainage balances with expected settlement dates beyond the next twelve months are included in “Other assets, net,” and as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$39.9~~$50.6 million and ~~$99.6~~$54.2 million.

Quanta recognizes unbilled receivables for non-fixed price contracts within “Accounts receivable” in certain circumstances, such as when revenues have been earned and recorded but the amount cannot be billed under the terms of the contract until a later

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

date or amounts arise from routine lags in billing (for example, work completed one month but not billed until the next month). These balances do not include revenues recognized for work performed under fixed-price contracts, as these amounts are recorded as “Contract assets.” At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~,2019, unbilled receivables included in “Accounts receivable” were ~~$732.7~~$523.0 million and ~~$434.9~~$524.3 million. Quanta also recognizes unearned revenues for non-fixed price contracts when cash is received prior to recognizing revenues for the related performance obligation. Unearned revenues, which are included in “Accounts payable and accrued expenses,” were ~~$39.6~~$28.6 million and ~~$40.1~~$33.2 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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):


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Cash and cash equivalents held in domestic bank accounts	$	55,581	$	62,495	$	480,179	$	130,771
Cash and cash equivalents held in foreign bank accounts	24,463		16,192		50,491		34,027
Total cash and cash equivalents	$	80,044	$	78,687	$	530,670	$	164,798

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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, cash equivalents were ~~$37.7~~$459.4 million and ~~$37.2~~$37.8 million and consisted primarily of money market investments and money market mutual funds and are discussed further in Fair Value Measurements below.

Cash and cash equivalents held by joint ventures, which are either consolidated or proportionately consolidated, are available to support joint venture operations, but Quanta cannot utilize those assets to support its other operations. Quanta generally has no right to cash and cash equivalents held by a joint venture other than participating in distributions and in the event of dissolution. 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):

September 30, 2019 December 31, 2018
Cash and cash equivalents held by domestic joint ventures $ 7,855
$ 8,544
Cash and cash equivalents held by foreign joint ventures 142
441
Total cash and cash equivalents held by joint ventures 7,997
8,985
Cash and cash equivalents not held by joint ventures 72,047
69,702
Total cash and cash equivalents $ 80,044
$ 78,687
QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)



	June 30, 2020		December 31, 2019
Cash and cash equivalents held by domestic joint ventures	$	9,281	$	6,518
Cash and cash equivalents held by foreign joint ventures	7		16
Total cash and cash equivalents held by joint ventures	9,288		6,534
Cash and cash equivalents not held by joint ventures	521,382		158,264
Total cash and cash equivalents	$	530,670	$	164,798

Goodwill

Goodwill, net of accumulated impairment losses, represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses and is stated at cost. ~~Goodwill is not amortized but is tested for impairment annually, 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 a stand-alone basis as an individual operating unit. Quanta’s operating units are organized into 2 divisions: 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~~Goodwill is not amortized but is tested for impairment ~~is performed for each reporting unit that carries a balance of goodwill~~annually in the fourth quarter of the fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. The assessment can be performed by first completing a qualitative assessment on none, some or all of Quanta’s reporting units. Quanta can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to a quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions,

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, an interim impairment test of a reporting unit may be triggered by a significant change in market, management, business ~~climate,~~strategy or business climate; a loss of a significant ~~customer,~~customer; increased ~~competition,~~competition; a sustained decrease in share ~~price,~~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.~~value.

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

Quanta 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 greater weight placed on the discounted cash flow method because management believes this method results in the most appropriate calculation of fair value and reflects an expectation of market value as determined by a “held and used” model.

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

Under the market guideline transaction and market guideline public company methods, Quanta determines the estimated fair value for each of its reporting units by applying transaction multiples and public company multiples, respectively, to each reporting unit’s projected 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 risk. The public company multiples are based on peer group multiples adjusted for size, volatility and risk. For

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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,~~2019, Quanta assessed qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis and identified ~~certain~~1 reporting ~~units~~unit for which a quantitative goodwill impairment assessment was deemed appropriate based on ~~either changes in market conditions or specific~~financial performance indicators. The subsequent quantitative ~~analyses~~analysis indicated that the fair value of ~~each of~~ the ~~selected~~ reporting ~~units~~unit was in excess of its carrying amount. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarter of ~~2018.~~2019.

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~~unit 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~~in the fourth quarter of 2019, 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 $48.7 million and $9.1 million at September 30, 2019.unit’s fair value exceeded its carrying amount.

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~~unit referenced above, ~~have~~for which a quantitative goodwill impairment assessment was performed in the fourth quarter of 2019, experienced declines over the ~~short term~~short-term primarily due to ~~challenging macroeconomic conditions in certain geographic areas and low oil and natural gas prices,~~losses attributable to a project 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

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~~conditions and others~~are not expected 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.~~recur.

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 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, Quanta’s 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.

As a result of the currently challenged energy market, including the recent significant decline in commodity prices and volatility in commodity production volumes, the effect of which has been exacerbated by the COVID-19 pandemic, Quanta assessed the expected negative impacts related to its reporting units, particularly reporting units within its Pipeline and Industrial Infrastructure Services Division. Quanta concluded that such impacts are not likely to result in a goodwill impairment for any reporting unit at this time. As a result, 0 goodwill impairment was recognized during the three and six months ended June 30, 2020. However, the potential impact of the energy market challenges and the COVID-19 pandemic is uncertain and depends on numerous factors, and therefore the negative impact on certain of Quanta’s reporting units could increase in future periods. Quanta will continue to monitor the impact of these events and should any of its reporting units suffer additional declines in actual or forecasted financial results, the risk of goodwill impairment would increase.

Other Intangible Assets

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

The ~~following table presents the~~ significant estimates used by management in determining the fair values of customer ~~relationships associated with acquisitions~~relationship intangible assets include future revenues, discount rates and customer attrition rates. The following table presents the range and weighted average based on acquisition date fair value for discount and attrition rates used in the ~~nine~~valuation of customer relationship intangible assets during the six months ended ~~September~~June 30, ~~2019~~2020 and year ended December 31, ~~2018:~~2019:

2020

2019

2018

Range

Weighted Average

Range

Weighted Average

Discount rates

19% to 24%

20% to 27%

20% to 23%

22%

19% to 24%

24%

Customer attrition rates

5% to 37%

20% to 33%

23% to 41%

29%

5% to 37%

Quanta values backlog for acquired businesses as of the acquisition date based upon the contractual nature of the backlog within each service line, discounted to present value. The values of trade names and curriculum are estimated using the relief-from-royalty method of the income approach, which is based on the assumption that in lieu of ownership, a company would be

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willing to pay a royalty for use of the trade name or curriculum. The value of a non-compete agreement is estimated based on the difference between the present value of the prospective cash flows with the agreement in place and the present value of the prospective cash flows without the agreement in place. The value of the engineering license is based on cash paid to acquire the asset.

Quanta amortizes the intangible assets that are subject to amortization based upon the estimated consumption of their economic benefits, or on a straight-line basis if the pattern of economic benefit cannot otherwise be reliably estimated. Intangible assets are reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For instance, a significant change in business climate or a loss of a significant customer, among other things, may trigger the need for 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~~As a result of the currently challenged energy market, including the recent significant decline in commodity prices and volatility in commodity production volumes, the effect of which has been exacerbated by the COVID-19 pandemic, Quanta assessed the expected negative impacts related to its intangible assets, particularly intangible assets associated with reporting units within the Pipeline and Industrial Infrastructure Services Division. Quanta concluded that such impacts are not likely to result in intangible asset impairments ~~are included within “Asset~~at this time. As a result, 0 intangible asset impairment ~~charges”~~was recognized during the three and six months ended June 30, 2020. However, the potential impact of the energy market challenges and of the COVID-19 pandemic is uncertain and depends on numerous factors, and therefore the negative impact on certain of Quanta’s reporting units and related intangible assets could increase in future periods. Quanta will continue to monitor the ~~condensed consolidated statements~~impact of ~~operations, when applicable.~~these events and should any of the reporting units suffer additional declines in actual or forecasted financial results, the risk of intangible asset impairment would increase.

Leases

As described further in Note 3, effective January 1, 2019, Quanta adopted the new lease accounting standard utilizing the transition method that allows entities to 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 beginning on or 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. 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, 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 at the commencement date whether the lease is an operating or finance ~~lease at the commencement of the~~ lease. ~~In accordance with the new standard, finance~~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

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

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

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

Investments in Affiliates and Other 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,

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including planning and feasibility analyses, engineering, design, procurement, construction and project operation and maintenance. These projects include public-private partnerships and concessions, along with private infrastructure projects such as build, own, operate (and in some cases transfer) and build-to-suit arrangements.

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

Investments in entities of which Quanta is not the primary beneficiary, but over which Quanta has the ability to exercise significant influence, are accounted for using the equity method of accounting. Equity method investments are carried at original cost adjusted for Quanta’s proportionate share of the investees’ income, losses and distributions and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets. Quanta’s share of net income or losses ~~from~~of unconsolidated equity method investments is included within operating income in the accompanying condensed consolidated statements of operations when the investee is operationally integral to the operations of Quanta and is reported as ~~equity~~“Equity in earnings (losses) of integral unconsolidated ~~affiliates, which is~~affiliates.” Quanta’s share of net income or losses of unconsolidated equity method investments that are not operationally integral to the operations of Quanta are included in “Other income (expense), net” below operating income in the accompanying condensed consolidated statements of operations. Equity method investments are reviewed for impairment by assessing whether there has been a decline in the fair value of the investment below the carrying amount and ~~the~~whether any such decline is other-than-temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain its earnings capacity are evaluated in determining whether a loss in value should be recognized. ~~Any~~During the three and six months ended June 30, 2020, Quanta recognized impairment losses of $5.5 million and $8.7 million related to ~~investments would be recognized in~~certain non-integral equity ~~in earnings (losses) of unconsolidated affiliates. Equity~~ method investments ~~are carried at original cost adjusted for Quanta’s proportionate share of~~primarily due to the ~~investees’ income,~~recent declines in commodity prices and production volumes. These impairment losses ~~and distributions and~~ are included in “Other ~~assets,~~income (expense), net” in the accompanying condensed consolidated ~~balance sheets.~~statements of operations for the three and six months ended June 30, 2020.

Investments in entities of which Quanta is not the primary beneficiary, and over which Quanta does not have the ability to exercise significant influence, are accounted for using the cost method of accounting. These investments are required to be measured

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at fair value, with changes in fair value recognized in net income, unless the investments do not have readily determinable fair values, in which case the investments are measured at cost minus impairment, if any, plus or minus observable price changes in orderly transactions for an identical or similar investment in the same company. Earnings on investments accounted for using the cost method of accounting are recognized as dividends are received. These earnings and any impairments of cost method investments are reported in “Other income (expense), net” in the accompanying condensed consolidated statements of operations.

During the three months ended June 30, 2020, a joint venture in which Quanta owns a 50% interest, LUMA Energy, LLC (LUMA), was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico. The 15-year operation and maintenance period is expected to begin following an approximately one-year transition period, during which LUMA will complete numerous steps necessary to transition operation and maintenance from the current operator to LUMA. Pursuant to the agreement, during the transition period LUMA receives a transition fee and is reimbursed for costs and expenses. During the operation and maintenance period, LUMA will continue to be reimbursed for costs and expenses and will receive a fixed annual management fee, with the opportunity to receive additional annual performance-based incentive fees. LUMA will not assume ownership of any electric transmission and distribution system assets and will not be responsible for operation of the power generation assets. Quanta’s ownership interest and participation in LUMA is accounted for as an equity method investment due to Quanta’s equal ownership and management of LUMA with its joint venture partner. LUMA is operationally integral to the operations of Quanta, and therefore Quanta’s share of LUMA’s net income or losses is reported within operating income in “Equity in earnings (losses) of integral unconsolidated affiliates.” As of June 30, 2020, Quanta’s investment balance related to LUMA was $0.6 million.

As part of Quanta’s investment strategy, Quanta formed a partnership in 2017 with select 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. Wholly owned~~and 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 ~~September~~June 30, ~~2019, Quanta had contributed $13.7 million~~2020, Quanta’s investment balance related to this partnership ~~in connection with certain investments.~~was $23.9 million. In October 2019, due to certain ~~circumstances,~~management changes at the registered

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investment adviser, the partnership entered into a 180-day period during which the investors and Quanta ~~will evaluate~~evaluated the ~~partnership. During this period, the~~ partnership, ~~may make additional investments with the consent of the investors,~~ and at the end of ~~the~~such period ~~the investors or Quanta may elect to end~~in April 2020, the investment period for any future investments ~~or dissolve the partnership.~~ended.

Quanta ~~has~~held a minority ownership interest in a limited partnership that was selected during 2014 to build, own and operate a new 500 kilometer electric transmission line and 2 500 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 recognized revenue and related cost of services as performance progressed on the project. However, due to Quanta’s ownership interest, a proportional amount of the EPC profit was deferred until the electric transmission line and related substations were constructed and ownership of the assets ~~were~~was deemed to be transferred to the ~~third party~~third-party customer, which occurred in the three months ended March 31, 2019. The deferral of earnings and recognition of such earnings deferral were recorded as components of equity in earnings (losses) of non-integral unconsolidated affiliates, which is included in “Other income (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. During the three months ended ~~June 30,~~December 31, 2019, Quanta ~~entered into a definitive agreement to sell~~sold its minority ownership interest in the limited ~~partnership. The sale is expected~~partnership and recognized a gain of $13.0 million related to ~~close in~~ the ~~fourth quarter of 2019 or early 2020, subject to receipt of regulatory approvals and satisfaction of customary closing conditions.~~sale.

~~During 2018,~~ Quanta ~~acquired~~owns a 30% ~~equity~~ interest in a water and gas pipeline infrastructure contractor located in Australia, ~~for $22.2 million. This investment~~which includes ~~an option to acquire the remaining equity of the company through 2020 and provides for~~ certain additional earnings and distribution participation rights and preferential liquidation rights. This investment is accounted for using the cost method of accounting and had an investment balance of $11.4 million as of June 30, 2020. Through October 2020, Quanta has the option to acquire the remaining 70% interest of the company at an agreed price based on a multiple of the company’s earnings during a designated ~~25-month post-investment~~performance 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 the company’s equity. Earningsthat ended April 30, 2020. Based on this option price, Quanta determined that its investment ~~are recognized as dividends are received~~was impaired and ~~are reported~~recorded an impairment charge of $9.3 million during the three months ended June 30, 2020. Such impairment is included in “Other income (expense), net” in the accompanying condensed consolidated statements of operations.

As a result of the currently challenged energy market, including the recent significant decline in commodity prices and volatility in commodity production volumes, the effect of which has been exacerbated by the COVID-19 pandemic, Quanta ~~received~~assessed the expected negative impacts related to certain of its investments, particularly investments dependent on the energy market. This assessment contributed in part to management’s decision to record the impairments related to certain non-integral equity method investments and ~~recognized $3.9 million~~the water and gas pipeline infrastructure contractor in cash dividends from this investment during 2018. During 2018, Quanta also acquired a 49% equity interest in an electric power infrastructure services company, together with certain related customer relationshipAustralia described above. Additionally, the potential impact of the energy market challenges and the COVID-19 pandemic remains uncertain and may change based on numerous factors, which could further negatively impact these and other ~~intangible assets, for $12.3 million.~~of Quanta’s investments. Quanta will continue to monitor the potential impacts of these events, and should any investments suffer additional declines in actual or forecasted financial results, additional impairments may be required. See Notes 9 and 11 for additional information related to 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 when management considers it more likely than not that additional taxes may be due in excess of amounts reflected on income tax returns filed. When recording these reserves, Quanta assumes that taxing authorities have full knowledge of the position and all relevant facts. Quanta continually reviews exposure to additional tax obligations, and as further information is known or events occur, changes in tax reserves may be recorded. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and included in the provision for income taxes.

As of June 30, 2020, the total amount of unrecognized tax benefits relating to uncertain tax positions was $41.4 million, an increase of $0.5 million from December 31, 2019. This increase resulted primarily from a $2.2 million increase in reserves for uncertain tax positions expected to be taken in 2020, partially offset by a favorable settlement of $1.7 million related to certain

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As of September 30, 2019, the total amount of unrecognized tax benefits relating to uncertain tax positions was $39.1 million, a $2.0 million decrease from December 31, 2018. This decrease resulted primarily from a favorable settlement of $7.5 million related to certain non-U.S. income tax obligations of an acquired business and the expiration of U.S. state income tax statutes, partially offset by a $5.5 million increase in reserves for uncertain tax positions expected to be taken in 2019.audits. 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 ~~$3.0~~$6.8 million as a result of settlement of these examinations or as a result of the expiration of certain statute of limitations periods.

U.S. federal and state and foreign income tax laws and regulations are voluminous and often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in future consolidated balance sheets, statements of operations and statements of comprehensive income. For example, the Tax Cuts and Jobs Act of 2017 significantly revised the U.S. corporate tax regime 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.

Earnings Per Share

Basic and diluted earnings per share attributable to common stock are computed using the weighted average number of shares of common stock outstanding during the applicable period. Exchangeable shares that were issued pursuant to certain of Quanta’s historical acquisitions (as further discussed in Note 9), which ~~are~~were exchangeable on a 1-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. 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 ~~its third-party~~these insurance programs, as of June 30, 2020, the deductible for employer’s liability ~~is $1.0~~was $5.0 million per ~~occurrence,~~occurrence; the deductible for workers’ compensation iswas $5.0 million per ~~occurrence,~~occurrence; and the deductibles for auto liability and general liability ~~are $10.0~~were $15.0 million per occurrence. Quanta manages and maintains a portion of its casualty risk through its wholly-owned captive insurance company, ~~including~~which insures all claims up to the ~~deductibles under~~amount of the applicable deductible of its third-party insurance programs. In connection with Quanta’s casualty insurance programs, Quanta is required to issue letters of credit to secure its obligations. Quanta also has employee health care benefit plans for most employees not subject to collective bargaining agreements, of which the primary plan is subject to a deductible of ~~$0.5~~$0.8 million per claimant per year.

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

Collective Bargaining Agreements

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

Stock-Based Compensation

Quanta recognizes compensation expense for restricted stock units (RSUs) and performance stock units (PSUs) to be settled in common stock based on the fair value of the awards, net of estimated forfeitures. The fair value of ~~these~~RSU awards is ~~generally~~determined based on the number of units granted and the closing price of Quanta’s common stock on the date of grant. The grant date fair value of the PSUs is determined as follows: (i) for the portion of the awards based on company performance metrics, by multiplying the number of units granted by the closing price of Quanta’s common stock on the date of grant and (ii) for the portion of the

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

Compensation expense associated with liability-based awards, such as RSUs that are expected to or may settle in cash, is recognized based on a remeasurement of the fair value of the award at the end of each reporting period. Upon settlement, the holders receive for each RSU an amount in cash equal to the fair market value of 1 share of Quanta common stock on the settlement date, as specified in the applicable award agreement. For additional information on Quanta’s RSU and PSU awards, see Note 10.

Functional Currency and Translation of Financial Statements

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

Comprehensive Income

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

Litigation Costs and Reserves

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

Fair Value Measurements

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

Contingent Consideration ~~Liabilities.~~Liabilities. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, financial instruments required to be measured at fair value on a recurring basis consisted primarily of Quanta’s liabilities related to contingent consideration associated with certain acquisitions, payable in the ~~payment of which is contingent upon the achievement of~~event certain performance objectives are achieved by the acquired businesses during designated post-acquisition ~~periods and, if earned, would be payable to the former owners of the acquired businesses.~~periods. The liabilities recorded represent the estimated fair values of future amounts payable to the former owners of the acquired businesses and are estimated by management based on entity-specific assumptions that are evaluated on an ongoing basis. ~~Quanta expects a significant portion of these liabilities to be settled by late 2020 or early 2021.~~

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Aggregate fair values of these outstanding and unearned contingent consideration liabilities and their classification in the accompanying condensed consolidated balance sheets were as follows (in thousands):


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Accounts payable and accrued expenses	$	70,982	$	—	$	68,466	$	77,618
Insurance and other non-current liabilities	8,438		70,756		7,304		6,542
Total contingent consideration liabilities	$	79,420	$	70,756	$	75,770	$	84,160

The fair values of these liabilities 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 ~~22.2%~~20.4% to 30.0% and had a weighted average of 22.6% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present values of the estimated payments are discounted based on a risk-free rate and/or Quanta’s cost of debt ~~ranging~~and ranged from ~~2.1%~~0.2% to 3.9%. and had a weighted average of 2.1% based on fair value at acquisition. 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.

The majority of Quanta’s contingent consideration liabilities are subject to a maximum outstanding payment amount, which ~~aggregated~~totaled $148.5 million for liabilities with measurement periods that end subsequent to ~~$153.0 million as of September~~June 30, ~~2019.~~2020. One contingent consideration liability is not subject to a maximum ~~payout~~payment amount, and ~~that~~such liability had a fair value of $1.0 million as of ~~September~~June 30, ~~2019.~~2020.

Quanta’s aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on ~~forecasted~~ performance in post-acquisition periods and accretion in present value. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, Quanta recognized a net ~~increases~~decrease of $2.2 million and a net increase $0.5 million in the fair value of its aggregate contingent consideration ~~liabilities of $3.8 million and $8.1 million.~~liabilities. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, Quanta recognized net ~~decreases in the fair value~~increases of ~~its aggregate contingent consideration liabilities of $1.4~~$4.4 million and ~~$7.7~~$4.3 million. These changes are reflected in “Change in fair value of contingent consideration liabilities” in the accompanying condensed consolidated statements of operations. Additionally, Quanta settled certain contingent consideration liabilities with $10.0 million of cash payments during the three months ended June 30, 2020 and $11.0 million of cash payments and the issuance of 4,277 shares of Quanta common stock during the six months ended June 30, 2020.

Goodwill and Other Intangible Assets. As discussed in the Goodwill and Other Intangible Assets sections within this Note 2, ~~above,~~ Quanta has recorded goodwill and identifiable intangible assets in connection with certain of its historical business acquisitions. Quanta utilizes the fair value premise as the primary basis for its impairment valuation procedures. The Goodwill and Other Intangible Assets sections provide information regarding valuation methods, including the income approach, market approach and cost approach, and assumptions used to determine the fair value of these assets based on the appropriateness of each method in relation to the type of asset being valued. Quanta believes that these valuation methods appropriately represent the methods that would be used by other market participants in determining fair value, and periodically engages the services of an independent valuation firm when a new business is acquired to assist management with the valuation process, including assistance with the selection of appropriate valuation methodologies and the development of market-based valuation assumptions. The level of inputs used for these fair value measurements is the lowest level (Level 3).

Investments 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 their long-term nature. 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 recoverable. If an other-than-temporary decline in the value of an investment occurs, a fair value analysis is performed to determine the degree to which the investment is impaired and a corresponding charge to earnings is 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 judgments and available relevant market data. Such market data may include observations of the valuation of comparable companies, risk-adjusted discount rates and an evaluation of the expected performance of the underlying portfolio asset, including historical and projected levels of profitability or cash flows. In addition, a variety of additional factors may be reviewed by management, including, but not limited to, contemporaneous financing and sales transactions with third parties, changes in market outlook and the third-party financing environment. The level of inputs used for these fair value measurements is the lowest level (Level 3).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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. All of Quanta’s cash equivalents were categorized as Level 1 assets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, as all values were based on unadjusted quoted prices for identical assets in an

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

active market that Quanta has the ability to access. The carrying amount of variable rate debt also approximates fair value.

3. NEW ACCOUNTING PRONOUNCEMENTS:

Adoption of New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued an update that requires the recognition of operating lease right-of-use assets and corresponding lease liabilities on an entity’s balance sheet. Effective January 1, 2019, Quanta adopted the new lease accounting standard utilizing the transition method that allows entities to 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 beginning on or 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. 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, 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 statements of operations, comprehensive income, cash flows or equity. Additionally, the adoption of this standard did not have a material impact on Quanta’s debt covenant compliance under its senior secured credit facility.

Quanta 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. The new lease standard 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. Quanta implemented new internal controls related to the preparation of financial information necessary for adoption of the new standard.

In August 2017, the FASB issued an update that amends and simplifies existing guidance for presenting the economic effects of risk management activities in an entity’s 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 September 30, 2019, Quanta had no outstanding hedging relationships or other activities covered by the update.

~~Accounting Standards Not Yet Adopted~~

In June 2016, the FASB issued an update for measuring credit losses on most financial assets and certain other instruments that are not measured at fair value through net income. The update ~~amends~~amended the impairment model to utilize an expected credit loss methodology in place of the incurred loss methodology for financial instruments, including ~~trade receivables,~~accounts receivable and contract assets, and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which ~~may result~~often results in earlier recognition of losses. The update ~~will~~ also ~~require~~requires 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~~

Quanta adopted the new accounting standard for measuring credit losses effective January 1, 2020 utilizing the transition method that allows recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Quanta’s financial results for reporting periods beginning on or after January 1, 2020 are presented under the new standard, while financial results for prior periods continue to be reported in accordance with the prior standard and Quanta’s historical accounting policy. The net cumulative effect due to the adoption of the new standard was a $3.8 million reduction to retained earnings as of January 1, 2020, which represented a $5.1 million increase to allowance for credit losses, net of $1.2 million in deferred income taxes. The adjustment was based on an estimate of expected lifetime credit losses for financial instruments, primarily accounts receivable and contract assets. Although the ~~beginning~~adoption of the ~~first reporting period in which the guidance is effective. The~~ new standard ~~is effective for interim and annual reporting periods beginning after December 15, 2019. Quanta is evaluating the potential~~did not have a material impact ~~of this guidance~~ on ~~its~~Quanta’s condensed consolidated financial statements at the date of adoption, expected credit losses could change as a result of changes to credit loss experience, specific risk characteristics of Quanta’s portfolio of financial assets or management’s expectations of future economic conditions that affect the collectability of Quanta’s financial assets. Management continues to periodically assess these factors, including any potential effects from the COVID-19 pandemic, and ~~will adopt the guidance effective January 1, 2020.~~incorporate any changes in its estimate of credit losses.

In August 2018, the FASB issued an update that amends the disclosure requirements related to fair value measurements. Pursuant to this update, certain disclosure requirements will be removed, such as the valuation processes for Level 3 fair value measurements, and other disclosure requirements will be modified or added, including a new requirement to disclose the range and weighted average (or a more reasonable and rational method to reflect the distribution) of significant unobservable inputs used to develop Level 3 fair value measurements. Quanta adopted this guidance effective January 1, 2020, and it did not have a material impact on its condensed consolidated financial statements or disclosures.

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued an update that, among other things, amends the guidance related to accounting for tax law changes when an entity has a year-to-date loss in an interim period and provides guidance on how to evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. This update is effective for interim and annual periods beginning after December 15, ~~2019,~~2020, and certain amendments should be applied prospectively, while other amendments should be applied ~~retrospectively.~~on a modified retrospective basis. Quanta is evaluating the potential impact of this guidance on its consolidated financial statements and will adopt the guidance effective January 1, ~~2020.~~2021.

In January 2020, the FASB issued an update that clarified the interactions between accounting guidance to account for certain equity securities relating to increasing or decreasing ownership or degree of influence and forward contracts and purchased options. This update is effective for interim and annual periods beginning after December 15, 2020, and it will be applied prospectively. Quanta is evaluating the potential impact of this guidance on its consolidated financial statements and will adopt the guidance effective January 1, 2021.


4.	ACQUISITIONS:

During the six months ended June 30, 2020, Quanta acquired an industrial services business located in Canada that performs catalyst handling services, such as changeover and shutdown maintenance, for customers in the refining and chemical industries and an electric power infrastructure business located in the United States that primarily provides underground conduit services. The aggregate consideration for these acquisitions was $19.4 million paid or payable in cash, subject to certain adjustments, and 116,812 shares of Quanta common stock, which had a fair value of $4.2 million as of the respective acquisition dates. Beginning

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


4.	~~ACQUISITIONS:~~

on the respective acquisition dates, the results of the acquired businesses have been included in Quanta’s consolidated financial statements, with the results of the industrial services business generally included in the Pipeline and Industrial Infrastructure Services segment and the results of the electric power infrastructure business generally included in the Electric Power Infrastructure Services segment.

~~During the nine months ended September~~On August 30, 2019, Quanta acquired Hallen, a pipeline and industrial services business located in the United States that specializes in gas distribution and transmission services, and to a lesser extent, underground electric distribution and transmission ~~services;~~services. During the year ended December 31, 2019, Quanta also acquired two specialty utility foundation and pole-setting contractors serving the southeast United States; an electric power specialty contracting business located in the United States that provides aerial power line and construction support services; a business located in the United States that provides technical training materials to electric utility workers; an electric power company specializing in project management and, to a lesser extent, water and wastewater projects located in the United States; and an electrical infrastructure services business located in Canada. The aggregate consideration for these acquisitions was ~~$395.0~~$395.3 million paid or payable in cash, subject to certain adjustments, and 60,860 shares of Quanta common stock, which had a fair value of ~~approximately~~ $1.8 million as of the respective acquisition date. A portion of the cash consideration in connection with the Hallen acquisition was placed in an escrow account, which, subject to certain conditions, could be utilized to reimburse Quanta for obligations associated with certain contingent liabilities assumed by Quanta in the transaction. See Legal Proceedings — Hallen Acquisition Assumed Liability in Note 11 for additional information related to these liabilities. Beginning on the respective acquisition dates, the results of the acquired businesses have been included in Quanta’s consolidated financial statements, with the results of Hallen generally included in the Pipeline and Industrial Infrastructure Services segment and the results of the other acquired businesses generally included in the Electric Power Infrastructure Services segment.

During the year ended December 31, 2018, Quanta acquired an electrical infrastructure services business specializing in substation construction and relay services, a postsecondary educational institution that provides training and programs for workers in the industries Quanta serves, and two communications infrastructure services businesses, all of which are located in the United States. The aggregate consideration for these acquisitions was $108.3 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 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- 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. Beginning on the respective acquisition dates, the results of the acquired businesses have been included in Quanta’s consolidated financial statements, generally within the Electric Power Infrastructure Services segment.

Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired subsequent to September 30, 2018, and further adjustments to the purchase price allocations may occur. As of September 30, 2019, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to the valuation of certain intangible assets and pre-acquisition contingent liabilities, as further described in ~~Legal Proceedings — Hallen Acquisition Assumed Liability~~ in Note 11, and tax-related estimates. The aggregate consideration paid for businesses acquired between September 30, 2018 and September 30, 2019 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $111.8 million to net tangible assets, $190.8 million to identifiable intangible assets and $97.3 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 ~~September~~June 30, ~~2019~~2020 for the acquisitions completed in ~~2019~~2020 and ~~2018~~2019 and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired subsequent to June 30, 2019, and further adjustments to the purchase price allocations may occur. As of June 30, 2020, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to pre-acquisition contingent liabilities, as further described in Legal Proceedings — Hallen Acquisition Assumed Liability in Note 11, and tax estimates. Consideration amounts are also subject to the finalization of closing working capital adjustments. The aggregate consideration paid or payable for businesses acquired between June 30, 2019 and June 30, 2020 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $76.7 million to net tangible assets, $190.0 million to identifiable intangible assets and $102.7 million to goodwill (in thousands).


	2019			2018			2020			2019
Consideration:
Cash paid or payable	$	395,019		$	108,307		$	19,377		$	395,258
Value of Quanta common stock issued	1,791			22,882			4,158			1,791
Contingent consideration	—			16,471			2,250			—
Fair value of total consideration transferred or estimated to be transferred	$	396,810		$	147,660		$	25,785		$	397,049

Accounts receivable	$	107,362		$	18,405		$	4,888		$	112,142
Contract assets	9,445			1,905			—			11,869
Other current assets	13,548			8,484			1,691			14,290
Property and equipment	60,133			23,674			6,233			60,133
Other assets	149			576			—			149
Identifiable intangible assets	190,785			52,364			4,561			192,786
Contract liabilities	(1,782		)	(175		)	—			(11,856		)
Other current liabilities	(64,687		)	(11,205		)	(1,174		)	(73,698		)
Deferred tax liabilities, net	(7,002		)	(4,208		)	(483		)	(12,455		)
Other long-term liabilities	(5,345		)	—			—			(5,345		)
Total identifiable net assets	302,606			89,820			15,716			288,015
Goodwill	97,343			57,840			10,069			112,173
Fair value of net assets acquired	399,949			147,660			25,785			400,188
Bargain purchase gain	(3,139		)	—			—			(3,139		)
Fair value of total consideration transferred or estimated to be transferred	$	396,810		$	147,660		$	25,785		$	397,049

The acquisition of Hallen included the assumption of the assets and liabilities of a defined benefit pension plan. As of the acquisition date, the funded status of the acquired defined benefit pension plan was a net liability of $5.3 million, included in “Other long-term liabilities” above. The amount consisted of a projected benefit obligation of $26.5 million, net of pension plan assets of $21.2 million. Subsequent to September 30, 2019, the accrued benefits under the defined benefit plan will be frozen and accounted for as a curtailment. Settlement of the accrued benefit obligation is expected to be complete upon liquidation of the plan in early 2020.

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, and a bargain purchase gain results when the amount of the net fair value of the assets acquired and liabilities assumed exceeds the purchase price for an acquired business. The acquisition of the electrical infrastructure services business in Canada that occurred during the ~~three months~~year ended ~~June 30,~~December 31, 2019 included the recognition of a bargain purchase gain of $3.1 million, which was recorded in “Other income (expense), net” in the accompanying condensed consolidated statements of operations.

The acquisitions completed in ~~2019~~2020 and ~~2018~~2019 strategically expanded Quanta’s domestic and international pipeline and industrial and domestic and international electric power ~~and communications~~ service offerings, which Quanta believes contributes to the recognition of ~~the~~ goodwill. Approximately ~~$77.8~~$3.8 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in ~~2019,~~2020, and ~~$21.6~~$82.1 million is expected to be deductible for income tax purposes related to acquisitions completed in ~~2018.~~2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in ~~2019~~2020 as of the acquisition dates and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).


	Estimated Fair Value		Weighted Average Amortization Period in Years	Estimated Fair Value		Weighted Average Amortization Period in Years
Customer relationships	$	168,263	7.9	$	3,180	4.4
Backlog	5,276		0.5	205		1.0
Trade names	11,752		15.0	349		15.0
Non-compete agreements	3,712		4.3	827		5.0
Curriculum	1,782		10.0
Total intangible assets subject to amortization related to the 2019 acquisitions	$	190,785	8.0
Total intangible assets subject to amortization related to acquisitions completed in 2020				$	4,561	5.2

The following unaudited supplemental pro forma results of operations for Quanta, which incorporates the acquisitions completed in ~~2019~~2020 and ~~2018,~~2019, have been provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts):.


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Revenues	$	3,446,437	$	3,149,694	$	9,391,582	$	8,560,960	$	2,506,231	$	2,996,243	$	5,273,181	$	5,964,481
Gross profit	495,994		463,109		1,246,605		1,175,470		355,264		351,820		688,666		748,918
Selling, general and administrative expenses	250,187		235,637		725,801		682,342		227,852		235,433		458,954		479,288
Amortization of intangible assets	18,918		18,329		55,503		59,463		17,779		18,798		35,845		37,858
Net income	145,602		135,311		316,941		267,108		74,795		36,875		116,799		166,291
Net income attributable to common stock	144,648		134,963		314,325		265,422		73,946		35,760		113,133		164,629

Earnings per share:
Basic	$	0.99	$	0.88	$	2.16	$	1.72	$	0.53	$	0.24	$	0.80	$	1.13
Diluted	$	0.98	$	0.88	$	2.14	$	1.71	$	0.52	$	0.24	$	0.78	$	1.12

The pro forma combined results of operations for the six months ended June 30, 2020 and the three and six months ended June 30, 2019 were prepared by adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2020 as if they occurred January 1, 2019. The pro forma amounts for the three months ended June 30, 2020 are the same as the historical results since there were no acquisitions in the three months ended June 30, 2020. The pro forma combined results of operations for the three and ~~nine~~six months ended ~~September~~June 30, 2019 ~~and 2018~~ were prepared by also adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2019 as if they occurred January 1, 2018. The pro forma combined results of operations for the three and nine months ended September 30, 2018 were prepared by also adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2018 as if they occurred January 1, 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; 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 combined 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 ~~$56.7~~$5.9 million and ~~a loss~~income before income taxes of approximately ~~$10.1~~$0.9 million, which included ~~$17.0 million of~~0 acquisition-related costs, are included in Quanta’s consolidated results of operations for the three months ended ~~September~~June 30, ~~2019~~2020 related to the acquisitions completed in ~~2019.~~2020. Revenues of approximately ~~$78.4~~$7.8 million and a nominal amount of loss before income taxes, ~~of approximately $6.0 million,~~ which included ~~$19.4~~$0.8 million of acquisition-related costs, are included in Quanta’s consolidated results of operations for the six months ended June 30, 2020 related to the acquisitions completed in 2020. Revenues of approximately $14.3 million and income before income taxes of approximately $5.1 million, which included 0 acquisition-related costs, are included in Quanta’s

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

consolidated results of operations for the ~~nine~~three months ended ~~September~~June 30, 2019 related to the acquisitions completed in 2019. Revenues of approximately ~~$12.9~~$21.7 million and ~~a loss~~income before income taxes of approximately ~~$5.1~~$4.1 million, which included ~~$5.0~~$2.4 million of acquisition-related costs, are included in Quanta’s consolidated results of operations for the ~~three~~six months ended ~~September~~June 30, ~~2018~~2019 related to the acquisitions completed in ~~2018. Revenues~~2019.

In July 2020, Quanta acquired a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services. Beginning on the acquisition date, the results of ~~approximately $32.2 million and a loss before income taxes of approximately $11.7 million, which included $11.0 million of acquisition-related costs, are~~the acquired business will generally be included in ~~Quanta’s consolidated results of operations for~~ the ~~nine months ended September 30, 2018 related to the acquisitions completed in 2018.~~

Electrical Power Infrastructure Services segment.

5. GOODWILL AND OTHER INTANGIBLE ASSETS:

As described in Note 2, Quanta’s operating units are organized into one of Quanta’s 2 internal divisions, and accordingly the goodwill associated with the operating units has been aggregated on a divisional basis in the table 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.

A summary of changes in ~~Quanta’s~~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 related to acquisitions completed in 2018	56,337			—			56,337
Purchase price allocation adjustments	51			—			51
Foreign currency translation adjustments	(15,837		)	(9,272		)	(25,109		)
										Electric Power Infrastructure Services Division			Pipeline and Industrial Infrastructure Services Division			Total
Balance at December 31, 2018:
Goodwill	1,313,078			683,284			1,996,362			$	1,313,078		$	683,284		$	1,996,362
Accumulated impairment	—			(96,483		)	(96,483		)	—			(96,483		)	(96,483		)
	1,313,078			586,801			1,899,879			1,313,078			586,801			1,899,879

Goodwill related to acquisitions completed in 2019	32,143			65,200			97,343			43,183			67,200			110,383
Purchase price allocation adjustments	1,503			—			1,503			1,503			—			1,503
Foreign currency translation adjustments	3,207			977			4,184			7,399			3,511			10,910

Balance at September 30, 2019:
Balance at December 31, 2019:
Goodwill	1,349,931			748,927			2,098,858			1,365,163			753,938			2,119,101
Accumulated impairment	—			(95,949		)	(95,949		)	—			(96,426		)	(96,426		)
	$	1,349,931		$	652,978		$	2,002,909		1,365,163			657,512			2,022,675

Goodwill related to acquisitions completed in 2020										3,768			6,301			10,069
Purchase price allocation adjustments										1,771			19			1,790
Foreign currency translation adjustments										(7,532		)	(4,007		)	(11,539		)

Balance at June 30, 2020:
Goodwill										1,363,170			756,046			2,119,216
Accumulated impairment										—			(96,221		)	(96,221		)
										$	1,363,170		$	659,825		$	2,022,995

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


	As of							As of							As of	As of								As of
	September 30, 2019							December 31, 2018							September 30, 2019	June 30, 2020								December 31, 2019
	Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Remaining Weighted Average Amortization Period in Years	Remaining Weighted Average Amortization Period in Years	Intangible Assets		Accumulated Amortization			Intangible Assets, Net		Intangible Assets		Accumulated Amortization			Intangible Assets, Net
Customer relationships	$	531,813	$	(197,646	)	$	334,167	$	359,967	$	(165,715	)	$	194,252	6.7	6.0	$	531,823	$	(240,578	)	$	291,245	$	532,808	$	(213,915	)	$	318,893
Backlog	140,984		(137,454		)	3,530		135,578		(134,592		)	986		0.3	2.3	143,615		(141,212		)	2,403		144,704		(141,580		)	3,124
Trade names	93,021		(25,379		)	67,642		81,058		(21,559		)	59,499		14.9	14.3	93,007		(29,087		)	63,920		93,396		(26,145		)	67,251
Non-compete agreements	43,157		(31,754		)	11,403		40,728		(30,168		)	10,560		3.4	3.0	43,718		(34,446		)	9,272		43,281		(32,868		)	10,413
Patented rights and developed technology	22,511		(20,297		)	2,214		22,482		(19,175		)	3,307		2.3	2.3	22,440		(21,173		)	1,267		22,719		(20,682		)	2,037
Curriculum	11,230		(1,623		)	9,607		9,448		(872		)	8,576		8.6	7.9	11,712		(2,510		)	9,202		11,712		(2,696		)	9,016
Total intangible assets subject to amortization	842,716		(414,153		)	428,563		649,261		(372,081		)	277,180		7.8	7.3	846,315		(469,006		)	377,309		848,620		(437,886		)	410,734
Engineering license	3,000		—			3,000		3,000		—			3,000				3,000		—			3,000		3,000		—			3,000
Total intangible assets	$	845,716	$	(414,153	)	$	431,563	$	652,261	$	(372,081	)	$	280,180			$	849,315	$	(469,006	)	$	380,309	$	851,620	$	(437,886	)	$	413,734

Amortization expense for intangible assets was ~~$15.3~~$17.8 million and ~~$10.6~~$12.6 million for the three months ended ~~September~~June 30, 2020 and 2019 and ~~2018 and $40.5~~$35.7 million and ~~$31.5~~$25.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

The estimated future aggregate amortization expense of intangible assets subject to amortization as of ~~September~~June 30, ~~2019~~2020 is set forth below (in thousands):


Year Ending December 31:
Remainder of 2019	$	21,654
2020	68,933
Remainder of 2020			$	35,354
2021	66,327		68,450
2022	62,555		63,434
2023	54,316		54,714
2024			41,758
Thereafter	154,778		113,599
Total	$	428,563	$	377,309

6. PER SHARE INFORMATION:

The amounts used to compute basic and diluted earnings per share attributable to common stock ~~for the three and nine months ended September 30, 2019 and 2018~~ consisted of the following (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Amounts attributable to common stock:
Net income attributable to common stock	$	136,068	$	124,551	$	283,900	$	236,530	$	73,946	$	27,344	$	112,632	$	147,832

Weighted average shares:
Weighted average shares outstanding for basic earnings per share attributable to common stock	145,913		152,562		145,654		154,087		139,856		145,935		142,154		145,525
Effect of dilutive unvested non-participating stock-based awards	1,525		1,125		1,420		1,111		3,665		1,306		3,059		1,340
Weighted average shares outstanding for diluted earnings per share attributable to common stock	147,438		153,687		147,074		155,198		143,521		147,241		145,213		146,865

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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 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 included 1.5 million and 1.9 million weighted average participating securities for ~~each of~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 included 2.8~~2020 and 3.0 million and 2.9 million weighted average participating ~~securities. Weighted average shares outstanding~~securities for ~~basic and diluted earnings per share attributable to common stock for each of~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 included 2.6 million and 2.5 million weighted average participating securities.~~2019.

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

7. DEBT OBLIGATIONS:

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


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Borrowings under senior secured credit facility	$	1,865,930	$	1,070,299	$	1,361,841	$	1,346,290
Other long-term debt	11,190		1,523		22,391		13,275
Finance leases	1,489		934		1,400		957
Total long-term debt obligations	1,878,609		1,072,756		1,385,632		1,360,522
Less — Current maturities of long-term debt	68,129		32,224		70,076		68,327
Total long-term debt obligations, net of current maturities	$	1,810,480	$	1,040,532	$	1,315,556	$	1,292,195

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


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Short-term debt	$	7,622	$	33,422	$	1,761	$	6,542
Current maturities of long-term debt	68,129		32,224		70,076		68,327
Current maturities of long-term debt and short-term debt	$	75,751	$	65,646	$	71,837	$	74,869

Senior Secured Credit Facility

Quanta has a credit agreement with various lenders that ~~as amended on September 6, 2019 and subsequent to the execution of an incremental revolving credit increase agreement on September 12, 2019,~~ provides for (i) a $2.14 billion revolving credit facility and (ii) a term loan facility with term loans in the aggregate initial principal amount of $1.29 billion. 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 credit facility, incremental term loans or a combination thereof, from time to time, upon receipt of additional commitments from new or existing lenders by up to an additional (i) $400.0 million plus (ii) an additional ~~amount that is unlimited~~amounts so long as the Incremental Leverage Ratio Requirement (as defined in the credit agreement) is satisfied at the time of such increase. The Incremental Leverage Ratio Requirement requires, among other things, after giving pro forma effect to such increase and the use of proceeds therefrom, compliance with the credit agreement’s financial covenants as of the most recent fiscal quarter end for which financial statements were required to be delivered and that Quanta’s Consolidated Leverage Ratio (as defined below) does not exceed 2.5 to 1.0, subject to the conditions specified in the credit agreement.

Borrowings under the credit agreement are to be used to refinance existing indebtedness and for working capital, capital expenditures, acquisitions 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 principal payments on the term loan facility as described below.

With respect to the revolving credit facility, subject to compliance with the financial covenants described below, 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, including in certain alternative currencies, up to $100.0 million may be used for

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

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.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Quanta borrowed $600.0 million under the term loan facility in October 2018 and $687.5 million under the term loan facility in September 2019 and used ~~all~~the majority of such proceeds to repay outstanding revolving loans under the credit agreement. As of ~~September~~June 30, ~~2019,~~2020, Quanta had ~~$1.87~~$1.36 billion of borrowings outstanding under the credit agreement, which included ~~$1.26~~$1.21 billion borrowed under the term ~~loans~~loan facility and ~~$608.4~~$152.6 million of outstanding revolving loans. Of the total outstanding borrowings, ~~$1.65~~$1.21 billion were denominated in U.S. dollars, ~~$169.9~~$111.9 million were denominated in Canadian dollars and ~~$42.2~~$40.7 million were denominated in Australian dollars. Quanta also had ~~$346.5~~$374.7 million of letters of credit issued under the revolving credit facility, of which ~~$235.5~~$254.8 million were denominated in U.S. dollars and ~~$111.0~~$119.9 million were denominated in currencies other than the U.S. dollar, primarily Canadian and Australian ~~dollars. The~~dollars as of such date. As of June 30, 2020, the remaining ~~$1.18~~$1.61 billion of available commitments under the revolving credit facility was available for additional revolving loans or ~~issuing new~~ letters of ~~credit.~~credit in U.S. dollars and certain alternative currencies.

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Maximum amount outstanding under the credit facility during the period	$	1,987,215		$	1,003,581		$	1,987,215		$	1,053,598		$	1,742,995		$	1,637,602		$	2,023,326		$	1,637,602
Average daily amount outstanding under the credit facility	$	1,721,843		$	899,323		$	1,505,376		$	836,448		$	1,481,378		$	1,524,763		$	1,465,994		$	1,395,349
Weighted-average interest rate	3.86		%	3.70		%	3.88		%	3.57		%	1.65		%	3.88		%	2.37		%	3.90		%

Revolving loans borrowed in U.S. dollars bear interest, at Quanta’s option, at a rate equal to either (i) the Eurocurrency Rate (as defined in the credit agreement) plus 1.125% to 2.000%, 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. Revolving loans borrowed 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’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. 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%.

Term loans bear interest at rates generally consistent with the revolving loans borrowed in U.S. dollars, except that the additional amount over the Eurocurrency Rate is 1.125% to 1.875%, as determined based on Quanta’s Consolidated Leverage Ratio. Quanta made quarterly principal payments of $7.5 million on the term loan through September 2019 and is currently required to make quarterly principal payments of $16.1 million on the term loans on the last business day of each March, June, September and ~~December beginning in December 2019.~~December. The aggregate outstanding principal amount of all outstanding term loans must be paid on the maturity date; however, Quanta may voluntarily prepay that amount from time to time, in whole or in 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 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 ~~September~~June 30, ~~2019,~~2020, Quanta was in compliance with all of the financial covenants under the credit agreement.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

Subject to certain exceptions, (i) all borrowings under the credit agreement are 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 and (ii) Quanta’s wholly owned U.S. subsidiaries guarantee the repayment of all amounts due under the credit agreement. Subject to certain

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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

The credit agreement provides for customary events of default and generally contains cross-default provisions with Quanta’s underwriting, continuing indemnity and security agreement with its sureties and certain other debt instruments exceeding $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.

8. LEASES:

~~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 beginning on or 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~~primarily leases ~~primarily include leases of~~ land, buildings, vehicles, construction equipment and office equipment. As of ~~September~~June 30, ~~2019,~~2020, the majority of Quanta’s leases had remaining lease terms ~~of up to~~not exceeding ten years. Certain leases include options to extend their terms in increments of up to five years and/or options to terminate. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):


							Three Months Ended				Six Months Ended
		Three Months Ended		Nine Months Ended			June 30,				June 30,
Lease cost	Classification	September 30, 2019		September 30, 2019		Classification	2020		2019		2020		2019
Finance lease cost:
Amortization of lease assets	Depreciation ⁽¹⁾	$	320	$	976	Depreciation ⁽¹⁾	$	260	$	283	$	462	$	656
Interest on lease liabilities	Interest expense	15		54		Interest expense	17		18		34		39
Operating lease cost	Cost of services and Selling, general and administrative expenses	30,543		91,278		Cost of services and Selling, general and administrative expenses	29,975		30,377		59,712		60,735
Short-term lease cost ⁽²⁾	Cost of services and Selling, general and administrative expenses	209,717		608,028
Variable lease cost ⁽³⁾	Cost of services and Selling, general and administrative expenses	2,290		11,878
Short-term and variable lease cost ⁽²⁾						Cost of services and Selling, general and administrative expenses	147,953		194,630		318,318		394,928
Total lease cost		$	242,885	$	712,214		$	178,205	$	225,308	$	378,526	$	456,358


⁽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 is insignificant and primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.

Quanta has entered into lease arrangements for real property and facilities with certain related parties, typically an employee of Quanta who is the former owner of a business acquired by Quanta that continues to utilize the leased premises. Quanta utilizes third party market valuations to evaluate rental rates for these properties and facilities, and the lease agreements generally have remaining lease terms of up to five years, subject to renewal options. Related party lease expense was $4.3 million and $4.0 million for the three months ended June 30, 2020 and 2019 and $8.7 million and $8.1 million for the six months ended June 30, 2020 and 2019.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

For the three and nine months ended September 30, 2018, rent expense related to operating leases was $77.4 million and $229.2 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 for the three and nine months ended September 30, 2019 in the table above.

Additionally, Quanta has entered into lease arrangements for real property and facilities with related parties, typically employees or former 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 five years and may include renewal options. Related party lease expense was $4.2 million and $3.4 million for the three months ended September 30, 2019 and 2018 and $12.3 million and $10.0 million for the nine months ended September 30, 2019 and 2018.

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


Lease type	Classification	September 30, 2019		Classification	June 30, 2020		December 31, 2019
Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	289,267	Operating lease right-of-use assets	$	275,816	$	284,369
Finance lease assets	Property and equipment, net of accumulated depreciation	1,079		Property and equipment, net of accumulated depreciation	1,593		1,043
Total lease assets		$	290,346		$	277,409	$	285,412
Liabilities:
Current:
Operating	Current portion of operating lease liabilities	$	93,506	Current portion of operating lease liabilities	$	90,358	$	92,475
Finance	Current maturities of long-term debt and short-term debt	893		Current maturities of long-term debt and short-term debt	489		440

Non-current:
Operating	Operating lease liabilities, net of current portion	197,896		Operating lease liabilities, net of current portion	192,300		196,521
Finance	Long-term debt, net of current maturities	596		Long-term debt, net of current maturities	911		517
Total lease liabilities		$	292,891		$	284,058	$	289,953

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~~When rental purchase options are exercised ~~through a third-party lessor~~ and ~~for which~~ a substantive benefit is deemed to be transferred to a third-party lessor, the ~~lessor, such benefit~~transaction is deemed to be a financing transaction for accounting purposes. This results in the recognition of an asset equal to the purchase price being recorded in “Property, plant and equipment, net of accumulated depreciation,” ~~with~~and the recognition of a corresponding ~~increase~~liability in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of ~~September~~June 30, 2020 and December 31, 2019, the ~~benefit~~assets recorded, ~~was $9.8~~net of accumulated depreciation, totaled $21.1 million and $11.8 million.

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


	As of September 30, 2019									As of June 30, 2020
	Operating Leases			Finance Leases			Total			Operating Leases			Finance Leases			Total
Remainder of 2019	$	28,398		$	388		$	28,786
2020	96,874			627			97,501
Remainder of 2020										$	53,636		$	330		$	53,966
2021	70,524			342			70,866			86,556			469			87,025
2022	46,867			119			46,986			61,429			343			61,772
2023	30,503			50			30,553			41,816			247			42,063
2024										25,036			122			25,158
Thereafter	46,953			26			46,979			41,034			—			41,034
Total future minimum lease payments	$	320,119		$	1,552		$	321,671
Total future minimum operating and finance lease payments										$	309,507		$	1,511		$	311,018
Less imputed interest	(28,717		)	(63		)	(28,780		)	(26,849		)	(111		)	(26,960		)
Total lease liabilities	$	291,402		$	1,489		$	292,891		$	282,658		$	1,400		$	284,058

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Future minimum lease payments for ~~operating~~short-term leases, ~~under~~which are not recorded in the ~~prior standard and~~consolidated balance sheets due to Quanta’s ~~historical~~ accounting policy election, were $21.9 million 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

of June 30, 2020. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future rental amounts.

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



	As of ~~September~~June 30, ~~2019~~2020
Weighted average remaining lease term (in years):
Operating leases	~~4.36~~4.31
Finance leases	~~2.33~~3.14
Weighted average discount rate:
Operating leases	~~4.3~~4.2	%
Finance leases	4.2	%

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 lease termination. At ~~September~~June 30, ~~2019,~~2020, the maximum guaranteed residual value of this equipment was ~~$754.1~~$808.8 million. While Quanta believes that no significant payments will be made as a result of these residual value guarantees, there can be no assurance that significant payments will not be required in the future.

As of ~~September~~June 30, ~~2019,~~2020, Quanta had additional operating lease obligations that had not yet commenced of ~~$9.0~~$8.0 million. These operating leases will commence in ~~2019 and~~ 2020 with lease terms of one to ~~seven~~ten years.

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~~could be exchanged at the option of the holders for Quanta common stock on a 1-for-one basis. Additionally, in connection with 2 of such acquisitions, Quanta issued 1 share of Quanta Series F preferred stock and 1 share of Quanta Series G preferred stock to voting trusts on behalf of the respective holders of the exchangeable shares issued in such acquisitions, which provided such holders with voting rights in Quanta common stock equivalent to the number of exchangeable shares outstanding. The share of Quanta Series F preferred stock was redeemed and retired effective October 6, 2017. All holders of exchangeable shares ~~have~~had rights equivalent to Quanta common stockholders with respect to dividends and other economic rights.

During the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, a nominal amount and 0.4 million exchangeable shares were exchanged for Quanta common stock, and as of ~~September~~June 30, ~~2019, 36,183~~2020, 0 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 remained outstanding. Accordingly, that share was redeemed, deemed retired and canceled and may not be reissued.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Treasury Stock

~~General~~

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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

Shares withheld for tax withholding ~~obligations~~

obligations. The tax withholding obligations of employees upon vesting of RSUs and PSUs settled in common stock are typically satisfied by Quanta making 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 liabilities, Quanta withheld a nominal amount and 0.1 million of Quanta common stock during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, which had a ~~total~~ market value of ~~$0.6 million and~~ $0.5 million and $0.8 million, and withheld 0.6 million and 0.5 million ~~and 0.4 million shares~~ of Quanta common stock during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~,2019, which had a ~~total~~ market value of ~~$16.7~~$23.7 million and ~~$14.7~~$16.1 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~~

plans. For RSUs and PSUs that vest but the settlement of which is deferred under a deferred compensation plan, Quanta records a notional amount to “Treasury stock” and an offsetting amount to “Additional paid-in capital” (APIC). At vesting, only shares withheld for tax liabilities other than income taxes are added to outstanding treasury shares, as the shares of Quanta common stock associated with deferred ~~equity~~stock-based awards are not issued until settlement of the award. Upon settlement of the deferred ~~equity~~stock-based awards and issuance of the associated Quanta common stock, the original accounting entry is reversed. The net amounts recorded to treasury stock related to the deferred compensation plans were $0.1 million and a nominal ~~amounts~~amount during the three months ended ~~September~~June 30, 2020 and 2019 and ~~2018~~$3.6 million and $3.7 million ~~and $3.3 million~~ during the ~~nine~~six months ended ~~September 30, 2019 and 2018.~~

~~Stock repurchases~~

~~During the second quarter of 2017, Quanta’s Board of Directors approved a stock repurchase program that 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).~~ and 2019.

Stock repurchases. During the third quarter of 2018, Quanta’s Board of Directors approved ~~an additional~~a 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).

Quanta repurchased the following shares of common stock in the open market under the stock repurchase programs (in thousands):


Quarter ended:	Shares	Amount		Shares	Amount
June 30, 2020				—	$	—
March 31, 2020				5,960	$	200,000
December 31, 2019				—	$	—
September 30, 2019	—	$	—	—	$	—
June 30, 2019	—	$	—	—	$	—
March 31, 2019	376	$	11,953	376	$	11,954
December 31, 2018	7,652	$	233,633
September 30, 2018	701	$	23,751
June 30, 2018	595	$	19,993
March 31, 2018	4,969	$	173,913

Quanta’s policy is to record a stock repurchase as of the trade date; however, the payment of cash related to the repurchase is made on the settlement date of the trade. During the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, cash payments related to stock repurchases were NaN and ~~$26.8~~$0.2 million, and during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, cash payments related to stock repurchases were ~~$20.1~~$200.0 million and ~~$216.7~~$20.1 million.

As of ~~September~~June 30, ~~2019, $286.8~~2020, $86.8 million remained ~~authorized~~ under the 2018 Repurchase Program. Repurchases under the 2018 Repurchase Program may be implemented through open market repurchases or privately negotiated transactions, at management’s discretion, based on market and business conditions, applicable contractual and legal requirements, including restrictions under Quanta’s senior secured credit facility, and other factors. Quanta is not obligated to acquire any specific amount of common stock, and the 2018 Repurchase Program may be modified or terminated by Quanta’s Board of Directors at any time at its sole discretion and without notice.

Non-controlling Interests

Quanta holds interests in various entities through both joint venture entities that provide ~~infrastructure~~infrastructure-related services under specific customer contracts, either directly or through subcontracting relationships, and other equity investments in partially owned entities that own and operate certain infrastructure assets, including investments ~~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

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

accounted for as “Non-controlling interests” in Quanta’s condensed consolidated balance sheets. Net income attributable to the other participants in the amounts of ~~$1.0~~$0.8 million and ~~$0.3~~$1.1 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and ~~$2.6~~$3.7 million and $1.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 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 in VIEs held by Quanta was ~~$10.2~~$12.0 million and ~~$9.6~~$12.0 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~.2019. The carrying amount of investments held by the non-controlling interests in these VIEs at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$1.8~~$3.6 million and ~~$1.3~~$3.5 million. During the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~,2019, net distributions to non-controlling interests were ~~$0.5~~$2.0 million and ~~$1.3~~$1.1 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, net distributions to non-controlling interests were ~~$2.1~~$3.9 million and ~~$2.9~~$1.6 million. During the three and nine months ended September 30, 2018, notes receivable of $0.5 million and $1.4 million were discharged by a joint venture partner, which were accounted for as a “Buyout of a non-controlling interest” in the accompanying condensed consolidated statements of equity. There were no other material changes in equity as a result of transfers to/from the non-controlling interests during the three and six months ended ~~September~~June 30, ~~2019~~2020 or ~~2018~~.2019. See Note 11 for further disclosures related to Quanta’s joint venture arrangements.

Dividends

Quanta declared ~~and paid~~ the following cash dividends and cash dividend equivalents during ~~2018~~2019 and the first ~~nine~~six months of ~~2019~~2020 (in thousands, except per share amounts):


Declaration	Record	Payment	Dividend		Dividends		Record	Payment	Dividend		Dividends
Date	Date	Date	Per Share		Declared		Date	Date	Per Share		Declared
May 28, 2020							July 1, 2020	July 15, 2020	$	0.05	$	7,182
March 26, 2020							April 6, 2020	April 15, 2020	$	0.05	$	7,184
December 11, 2019							January 2, 2020	January 16, 2020	$	0.05	$	7,371
August 28, 2019	October 1, 2019	October 15, 2019	0.04		$	5,564	October 1, 2019	October 15, 2019	$	0.04	$	5,564
May 24, 2019	July 1, 2019	July 15, 2019	$	0.04	$	6,233	July 1, 2019	July 15, 2019	$	0.04	$	6,233
March 21, 2019	April 5, 2019	April 19, 2019	$	0.04	$	5,896	April 5, 2019	April 19, 2019	$	0.04	$	5,896
December 6, 2018	January 2, 2019	January 16, 2019	$	0.04	$	5,838

A significant majority of the dividends declared were paid on the corresponding payment dates. Holders of RSUs awarded under the Quanta Services, Inc. 2011 Omnibus Equity Incentive Plan (the 2011 Plan) generally received cash dividend equivalent payments equal to the cash dividend payable on account of the ~~payment dates.~~underlying Quanta common stock. Holders of exchangeable shares of certain Canadian subsidiaries of Quanta ~~were paid~~received a cash dividend ~~of $0.04~~ per exchangeable share onequal to the ~~payment dates.~~cash dividend per share paid to Quanta common stockholders. Holders of RSUs awarded under the Quanta Services, Inc. 2019 Omnibus Equity Incentive Plan (the 2019 Plan) and holders of unearned and unvested PSUs awarded under the 2011 Plan and the 2019 Plan receive cash dividend equivalent payments only to the extent such RSUs and PSUs become earned and/or vest. Additionally, cash dividend ~~equivalents~~equivalent payments related to certain ~~equity~~stock-based awards that have been deferred pursuant to the terms of a deferred compensation plan maintained by Quanta are recorded as liabilities in such plans until the deferred awards are settled.

The declaration, payment and amount of future cash dividends will be at the discretion of Quanta’s Board of Directors after taking into account various factors, including Quanta’s financial condition, results of operations, cash flows from ~~operations,~~operations; current and anticipated capital requirements and expansion ~~plans,~~plans; the current and potential impact of the COVID-19 pandemic and other market, industry, economic and political conditions; income tax laws then in ~~effect~~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.

10. ~~EQUITY-BASED~~STOCK-BASED COMPENSATION:

Stock Incentive Plans

~~On May 23,~~The 2019 Plan was approved by Quanta’s stockholders ~~approved the~~in May 2019 ~~Plan. The 2019 Plan~~and provides for the award of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards, RSUs, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Current and prospective employees, directors, officers, advisors or consultants of Quanta or its affiliates are eligible to participate in the 2019 Plan. Subject to certain adjustments, ~~7,466,592~~the maximum number of shares ~~of Quanta common stock are available for issuance in connection with awards under the 2019 Plan, which includes shares of Quanta common stock that remained~~ available for issuance under the ~~2011~~2019 Plan ~~as of the date stockholders approved the 2019 Plan. In addition,~~is 7,466,592 shares, plus any shares underlying share-settling awards previously awarded pursuant to the 2011 Plan that are ultimately forfeited, canceled, expired or settled in cash ~~after May 23, 2019 will be added~~subsequent to ~~the maximum number~~stockholder approval of ~~shares available for issuance under~~ the 2019 Plan. All awards subsequent to stockholder approval of the 2019 Plan have been and will

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

be made pursuant to the 2019 Plan and applicable award ~~agreements, and no further awards have been or will be made under the 2011 Plan after such date.~~agreements. Awards made under the 2011 Plan prior to approval of the 2019 Plan remain subject to the terms of the 2011 Plan and ~~the~~ applicable award agreements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

RSUs to be Settled in Common Stock

During the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta granted ~~0.5~~a nominal amount and 0.1 million ~~and 0.2 million~~shares of RSUs to be settled in common stock, ~~under the 2011 Plan and the 2019 Plan~~ with weighted average grant date fair values of ~~$34.07~~$35.90 and ~~$33.73.~~$36.50. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta granted ~~2.1~~1.9 million and ~~1.5~~1.6 million shares of RSUs to be settled in common stock, ~~under the 2011 Plan and the 2019 Plan~~ with weighted average grant date fair values of ~~$35.45~~$39.03 and ~~$34.43.The~~$35.86. The grant date fair value for RSUs to be settled in common stock is based on the market value of Quanta common stock on the date of grant. RSU awards to be settled in common stock are subject to forfeiture, restrictions on transfer and certain other conditions until vesting, which generally occurs in three equal annual installments following the date of grant. Holders of RSUs to be settled in common stock awarded under the 2011 Plan generally are entitled to receive a cash dividend equivalent payment equal to any cash dividend payable on account of the underlying Quanta common stock on the payment date of any such dividend. Holders of RSUs to be settled in common stock awarded under the 2019 Plan are also entitled to cash dividend ~~equivalents~~equivalent payments in an amount equal to any cash dividend payable on account of the underlying Quanta common stock; however, payment of such amounts is not made until the RSUs vest, such that the dividend equivalent payments are subject to forfeiture.

During each of the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~,2019, vesting activity consisted of approximately 0.1 million of RSUs settled in common stock with an approximate fair value at the time of vesting of $2.2 million and ~~$1.5~~$3.1 million. During each of the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, vesting activity consisted of ~~1.3 million and 1.4~~approximately 1.2 million RSUs settled in common stock with an approximate fair value at the time of vesting of ~~$46.8~~$45.9 million and ~~$47.7~~$44.6 million.

During the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta recognized ~~$12.3~~$14.2 million and ~~$10.4~~$12.6 million of non-cash ~~stock~~stock-based compensation expense related to RSUs to be settled in common stock. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta recognized ~~$36.2~~$26.2 million and ~~$32.4~~$23.9 million of non-cash ~~stock~~stock-based compensation expense related to RSUs to be settled in common stock. Such expense is recorded in ~~selling,~~“Selling, general and administrative expenses.” As of ~~September~~June 30, ~~2019~~2020, there was $~~72.1~~101.9 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 ~~2.66~~2.57 years.

PSUs to be Settled in Common Stock

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

During the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta granted 0 and a nominal amount ~~and 0~~of PSUs to be settled in common stock. During ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta granted 0.4 million and 0.3 million of PSUs to be settled in common stock ~~under the 2011 Plan and the 2019 Plan~~ with a weighted average grant date fair value of ~~$15.49~~$34.56 and ~~$12.24~~$40.15 per unit. The grant date fair ~~values~~value of the PSUs was determined as follows: (i) for the portion of the awards based on company financial and operational performance metrics, by multiplying the number of ~~PSUs~~units granted inby the ~~nine months ended September 30, 2019~~closing price of Quanta’s common stock on the date of grant and ~~2018, which included market-based metrics, were determined using~~(ii) for the portion of the awards based on total shareholder return, by utilizing a Monte Carlo simulation valuation methodology. The Monte Carlo simulation valuation methodology ~~using~~applied the following key inputs:


	2019		2018		2020		2019
Valuation date price based on March 8, 2019 and February 28, 2018 closing stock prices of Quanta common stock	$35.19		$34.44
Valuation date price based on March 26, 2020 and March 8, 2019 closing stock prices of Quanta common stock					$31.49		$35.19
Expected volatility	25	%	34	%	34	%	25	%
Risk-free interest rate	2.43	%	2.39	%	0.35	%	2.43	%
Term in years	2.81		2.84		2.76		2.81

Quanta recognizes expense, net of estimated forfeitures, ~~related to~~for PSUs ~~with market-based metrics~~ based on the ~~probability of~~forecasted achievement of the ~~underlying~~company financial and operational performance metrics and forecasted performance with respect to relative total shareholder return, multiplied by the completed portion of the three-year period and the fair value of the total number of shares of common stock that Quanta anticipates will be issued based on such achievement. During the three months ended June 30, 2020 and 2019, Quanta recognized $7.8 million and $1.9 million in compensation expense associated with PSUs. During the six months ended June 30, 2020 and 2019, Quanta recognized $10.7 million and $3.6 million in compensation expense associated with PSUs. Such expense

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

value of the total number of shares of common stock that Quanta anticipates will be issued based on such achievement. Quanta recognizes expense, net of estimated forfeitures, related to PSUs without market-based metrics based on the completed portion of the three-year period 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 September 30, 2019 and 2018, Quanta recognized $1.3 million and $1.2 million in compensation expense associated with PSUs. During the nine months ended September 30, 2019 and 2018, Quanta recognized $4.9 million and $7.4 million in compensation expense associated with PSUs. Such expense is recorded in “Selling, general and administrative expenses.” During ~~each of~~ the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 0 PSUs vested, and 0 shares of common stock were issued in connection with PSUs. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, 0.2 million PSUs vested, and ~~0.4~~0.5 million shares of common stock were earned and either issued or deferred for future issuance in connection with PSUs. During the ~~nine~~six months ended ~~September~~June 30, ~~2018, 0.1~~2019, 0.2 million PSUs vested, and ~~0.1~~0.4 million shares of common stock were earned and either issued or deferred for future issuance in connection with PSUs.

RSUs to be Settled in Cash

Certain RSUs granted by Quanta are settled solely in cash. These cash-settled RSUs are intended to provide plan participants with cash performance incentives that are substantially equivalent to the risks and rewards of ~~equity~~stock ownership in Quanta, typically vest in three equal annual installments following the date of grant, and are subject to forfeiture under certain conditions, primarily termination of service. Additionally, subject to certain restrictions, Quanta’s non-employee directors may elect to settle a portion of their RSU awards in cash. For RSUs settled in cash, the holders receive for each vested RSU an amount in cash equal to the fair market value of 1 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 ~~$0.8~~$1.6 million and ~~$1.2~~$1.1 million for the three months ended ~~September~~June 30, 2020 and 2019 and ~~2018 and $4.5~~$2.7 million and ~~$4.0~~$3.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. Such expense is recorded in “Selling, general and administrative expenses.” RSUs that are anticipated to be settled in cash are not included in the calculation of weighted average shares outstanding for earnings per share, and the estimated earned value of such RSUs is classified as a liability. Quanta paid ~~$0.4~~$0.2 million and ~~$0.1~~$2.1 million to settle liabilities related to cash-settled RSUs in the three months ended ~~September~~June 30, 2020 and 2019 and ~~2018 and $5.4~~$3.5 million and ~~$6.1~~$5.0 million to settle liabilities related to cash-settled RSUs in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. Accrued liabilities for the estimated earned value of outstanding RSUs to be settled in cash were ~~$2.6~~$2.4 million and ~~$3.4~~$4.3 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019.

11. COMMITMENTS AND CONTINGENCIES:

Investments in Affiliates and Other Entities

As described in ~~Note~~Notes 2 and 9, Quanta holds investments in various entities, including joint venture entities that provide ~~infrastructure~~infrastructure-related services under specific customer contracts and partially owned entities that own, ~~and~~ operate and/or maintain certain infrastructure ~~assets constructed by Quanta.~~assets. 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~~infrastructure-related services, each participant is typically jointly and severally liable for all of the obligations of the joint venture entity pursuant to the contract with the customer, 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 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, typically each joint venture participant agrees to indemnify the other participant for any liabilities incurred in excess of what the other participant is obligated to bear under the respective joint venture agreement or in accordance with the scope of work subcontracted to each participant. It is possible, however, that Quanta could be required to pay or perform obligations in excess of its share if another participant is unable or refuses to pay or perform its share of the obligations. Quanta is not aware of circumstances that would lead to future claims against it for material amounts that would not be indemnified. However, to the extent any such claims arise, they could be material and could adversely affect Quanta’s consolidated business, financial condition, results of operations or cash flows.

As described in Note 2, Quanta ~~has also~~ formed a partnership in 2017 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~~and wholly owned subsidiaries of ~~September 30, 2019,~~ Quanta ~~had contributed $13.7 million~~serve as the general partner of this partnership and as a separately operated registered investment adviser that manages the invested capital. Quanta’s investment balance related to this partnership ~~in connection with certain investments.~~was $23.9 million as of June 30, 2020. In October 2019, due to certain ~~circumstances,~~management changes at the registered investment adviser, the partnership entered into a 180-day period during which the investors and Quanta ~~will evaluate~~evaluated the ~~partnership. During this period, the~~ partnership, ~~may make additional investments with the consent of the investors,~~ and at the end of ~~the~~such period ~~the investors or Quanta may elect to end~~in April 2020, the investment period for any future investments or dissolve the partnership. Quanta will continue to collect management fees during this period, and this event is not expected to materially affect Quanta’s consolidated business, financial position, results of operations or cash flows.

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

Additionally, as of September 30, 2019, Quanta had outstanding capital commitments associated with investments in unconsolidated affiliates related to planned oil and gas infrastructure projects of $6.7 million, of which $6.3 million is expected to be paid in 2019. The remaining $0.4 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 electric transmission project in Canada to construct approximately 500 kilometers of transmission line and 2 500 kV substations. As of September 30, 2019, Quanta had 0 outstanding additional capital commitments associated with this project. During the three months ended September 30, 2019, Quanta entered into a definitive agreement to sell its investment in this limited partnership. The sale is expected to close in the fourth quarter of 2019 or early 2020, subject to receipt of regulatory approvals and satisfaction of customary closing conditions.ended.

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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the estimated fair value of Quanta’s contingent consideration liabilities totaled ~~$79.4~~$75.8 million and ~~$70.8~~$84.2 million.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Committed Expenditures

Quanta has capital commitments for the expansion of its ~~vehicle~~equipment fleet in order to accommodate manufacturer lead times on certain types of vehicles. As of ~~September~~June 30, ~~2019~~2020, Quanta had $~~5.4~~34.1 million ~~and $2.3 million~~ of production orders with expected delivery dates in ~~2019 and~~ 2020. Although Quanta has committed to purchase these vehicles at the time of their delivery, Quanta anticipates that the majority of these orders will be assigned to third party leasing companies and made available under certain master equipment lease agreements, thereby releasing Quanta from its capital commitments.

Legal Proceedings

Quanta is from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour and other 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.

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

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

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damages, including a verbal allegation of approximately $45 million of liquidated damages under the contracts, although it has not formally submitted the amount of its claim to Redes. ~~Additionally, upon termination of the contracts, Redes is required to transfer the networks (as completed to such date) to PRONATEL.~~

In May 2019, Redes filed for arbitration before the Court of International Arbitration of the International Chamber of Commerce against PRONATEL and the MTC. In the arbitration, Redes claims that PRONATEL: (i) wrongfully terminated the contracts; (ii) wrongfully executed the advance payment bonds and the performance bonds; and (iii) is not entitled to the alleged amount of liquidated damages. In addition, Redes is seeking compensation for all damages arising from PRONATEL’s actions, including but not limited to (i) repayment of the amounts collected by PRONATEL under the advance payment bonds and the performance bonds; (ii) payment of amounts owed for work completed by Redes under the contracts; (iii) lost income in connection with Redes’ future operation and maintenance of the networks; and (iv) other related costs and damages to Redes as a result of the improper termination of the contracts.

As of the date of the contract terminations, Redes had ~~incurred costs~~recognized revenues of approximately $157 million inrelated to the design and construction of the project and had received approximately $100 million of payments (inclusive of the approximately $87 million advance payments). Furthermore, upon completion of the ~~physical~~ transfer of the networks (as completed at the time of the contract terminations) to PRONATEL, which ~~commenced~~is required upon termination of the contracts and is expected to be completed in ~~October 2019,~~the

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third quarter of 2020, PRONATEL and the MTC will possess the networks, for which PRONATEL has paid approximately $100 million while collecting approximately $112 million of bond proceeds. Quanta believes that ~~PRONATEL's~~PRONATEL’s actions represent an abuse of power and unfair and inequitable treatment and that PRONATEL and the MTC have been unjustly enriched. Specifically, under the terms of the contracts, the advance payment bonds were to be exercised only if it is determined that Redes did not use the advance payments for their intended purpose, in which case Redes would be obligated to return the portion of the advance payments not properly used. In connection with PRONATEL exercising the bonds, Redes was not afforded the opportunity to provide evidence of its proper use of the advance payments for project ~~expenditures prior to PRONATEL exercising the bonds in their full amount. As stated above,~~expenditures. Redes has incurred substantially more than the advance payment amounts in the execution of the project, and Quanta believes Redes has used the advance payment amounts for their intended purpose.

Quanta also reserves the right to seek full compensation for the loss of its investment under other applicable legal regimes, including investment treaties and customary international law, as well as to seek resolution through direct discussions with PRONATEL or the MTC.

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

As of ~~September~~June 30, ~~2019,~~2020, after taking into account the above charge, Quanta had a ~~net~~contract receivable ~~position~~of approximately $120 million related to the project, ~~of approximately $120 million,~~ which includes the approximately $87 million PRONATEL collected through exercise of the advance payment bonds. The ~~net~~contract receivable from PRONATEL is included in “Other assets, net” in the accompanying consolidated balance sheet as of ~~September~~June 30, ~~2019.~~2020.

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

Maurepas Project Dispute. During the third quarter of 2017, Maurepas Pipeline, LLC (Maurepas) notified QPS Engineering, LLC (QPS), a subsidiary of Quanta, of its claim for liquidated damages allegedly arising from delay in mechanical completion of a project in Louisiana. Quanta disputes the claim and believes that QPS is not responsible for liquidated damages under the contract terms, and in June 2019 QPS filed suit against SemGroup Corporation, (now Energy Transfer LP), the parent company of Maurepas, under the parent guarantee issued to secure payment from Maurepas on the project. QPS is seeking to recover ~~$22.0~~$22 million that it believes has been wrongfully withheld, which represents the maximum liability for liquidated damages pursuant to the contract terms. In July and August 2018, QPS also received notice from Maurepas claiming certain warranty defects on the project. In July 2019, Maurepas filed suit against QPS and Quanta, pursuant to a parent guarantee, for damages related to the warranty defects and for a declaratory judgment related to the liquidated damages claim, subsequently claiming approximately $59 million in damages related to a portion of the alleged warranty defects. Quanta is continuing to evaluate the claimed warranty defects and, if they exist, the appropriate remedy. At this time, Quanta disputes the extent of the alleged defects or has not been able to substantiate them.

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As of ~~September~~June 30, ~~2019,~~2020, Quanta had recorded an accrual with respect to this matter based on the current estimated amount of probable loss. However, based on the information currently available, Quanta cannot estimate the range of additional reasonably possible loss in connection with this matter. If, upon final resolution of this matter, Quanta is unsuccessful, any liquidated damages or warranty defect damages in excess of Quanta’s current loss accrual would be recorded as additional costs on the project.

Lorenzo Benton v. Telecom Network Specialists, Inc., et al. In June 2006, plaintiff Lorenzo Benton filed a class action complaint in the Superior Court of California, County of Los Angeles, alleging various wage and hour violations against Telecom Network Specialists (TNS), a former subsidiary of Quanta. Quanta retained liability associated with this matter pursuant to the terms of Quanta’s sale of TNS in December 2012. Benton represents a class of workers that includes all persons who worked on certain TNS projects, including individuals that TNS retained through numerous staffing agencies. The plaintiff class in this matter

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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~~During 2019 and 2020, the ~~court granted, in part, the plaintiff class’s final motion for~~parties filed additional summary judgment and other motions and a bench trial on liability and damages ~~awarding~~was held. As of July 2020, liability and damages for significantly all claims had been determined by the ~~class~~trial court, with the amount of liability for TNS determined to be approximately ~~$7.5 million for its meal/rest break~~$8.8 million. This amount includes damages and ~~overtime claims and denied~~interest though the ~~motion as~~date of the trial court’s orders, but does not include attorneys’ fees or costs, which are yet to ~~penalties.~~be determined. Quanta believes the court’s decisions on liability and damages are not supported by controlling law and continues to contest its liability and the damage calculation asserted by the plaintiff class in this matter. In July 2019, TNS prevailed, in part, on its own motion for summary judgment on the remaining wage statement and penalty claims, with the court dismissing the claims for penalties based on alleged meal and rest break violations.

Additionally, in November 2007, TNS filed cross complaints for indemnity and breach of contract against the staffing agencies, which employed many of the individuals in question. In December 2012, the trial court heard cross-motions for summary judgment filed by TNS and the staffing agencies pertaining to TNS’s demand for indemnity. The court denied TNS’s motion and granted the motions filed by the staffing agencies; however, the California Appellate Court reversed the trial court’s decision in part and instructed the trial court to reconsider its ruling. In February 2017, the court denied a new motion for summary judgment filed by the staffing companies and has since stated that the staffing companies would be liable to TNS for any damages owed to the class members that the staffing companies employed.

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 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 ~~$9.1~~$8.8 million, plus additional interest and attorneys’ fees and expenses of the plaintiff class.

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

Hallen’s ~~potential~~ liabilities associated with this matter are expected to be covered under applicable insurance policies or contractual remedies negotiated by Quanta with the former owners of Hallen. As of ~~September~~June 30, ~~2019,~~2020, Quanta had not recorded an accrual for any probable and estimable loss related to this matter. However, the ultimate amount of liability in connection with this matter remains subject to uncertainties associated with pending litigation, including, among other things, the apportionment of liability among the defendants and other responsible parties and the likelihood and amount of potential damages claims. As a result, this matter could result in a loss that is in excess of, or not covered by, such insurance or contractual remedies, which could have a material adverse effect on Quanta’s consolidated results of operations and cash flows.

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

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to be high credit quality financial institutions. In accordance with Quanta’s investment policies, these institutions are authorized to invest cash and cash equivalents in a diversified portfolio of what Quanta believes to be high quality cash and cash equivalent investments, which consist primarily of interest-bearing demand deposits, money market investments and money market mutual funds. Although Quanta does not currently believe the principal amount of these cash and cash equivalents is subject to any material risk of loss, changes in economic conditions could impact the interest income Quanta receives from these investments. In addition, Quanta grants credit under normal payment terms, generally without collateral, to its customers, which include electric power and 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,Australia. While Quanta generally has certain statutory lien rights with respect to services ~~provided.~~provided, Quanta is subject to potential credit risk related to business, economic and financial market

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conditions that affect these customers and locations, which has been heightened as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and the significant decline in commodity prices and volatility in commodity production volumes. Some of Quanta’s customers have experienced significant financial difficulties (including bankruptcy), and customers may experience financial difficulties in the future. These difficulties expose Quanta to increased risk related to collectability of billed and unbilled receivables and contract assets for services Quanta has performed.

OnFor example, on January 29, 2019, PG&E, one of Quanta’s largest customers, 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~~ $165 million of billed and unbilled ~~receivables, $54 million of which remained unpaid as of September 30, 2019. Subsequent to~~receivables. During the bankruptcy ~~filing,~~case, the bankruptcy court approved the assumption by PG&E of certain contracts with subsidiaries of Quanta, pursuant to which ~~authorized~~ PG&E paid $128 million of Quanta’s pre-petition receivables as of June 30, 2020. PG&E subsequently assumed its remaining contracts with Quanta’s subsidiaries as part of its Chapter 11 plan of reorganization, which was confirmed by the bankruptcy court in June 2020. Quanta also sold $36 million of its pre-petition receivables to ~~pay approximately $122~~a third party during the three months ended December 31, 2019 in exchange for cash consideration of $34 million, subject to certain claim disallowance provisions, the occurrence of which could result in Quanta’s obligation to repurchase some or all of the pre-petition receivables sold. Quanta expects the remaining $1 million of pre-petition receivables ~~$111 million of which has been received as of September 30, 2019. Quanta believes it will~~to be sold or ultimately ~~collect~~collected under the approximately $43 million of pre-petition receivables that were not assumed by PG&E, which amount has been classified as non-current within “Other assets, net” in the accompanying condensed consolidated balance sheet as of September 30, 2019. However, the ultimate outcometerms of the ~~bankruptcy proceeding is uncertain,~~plan of reorganization.

At June 30, 2020 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.

~~PG&E, a~~December 31, 2019, 0 customer ~~within Quanta’s Electric Power Infrastructure Services segment,~~ represented ~~10.5% of Quanta’s consolidated revenues for the nine months ended September 30, 2019 and represented 11.6%~~10% or more of Quanta’s consolidated net receivable ~~position at September 30, 2019.~~position. NaN customer represented 10% or more of Quanta’s consolidated revenues for the three and six months ended ~~September~~June 30, ~~2019 or~~2020. PG&E, a customer within Quanta’s Electric Power Infrastructure Services segment, represented 13.3% and 11.5% of Quanta’s consolidated revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, and 0 customer represented 10% or more of Quanta’s consolidated net receivable position at December 31, 2018.~~2019.

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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the gross amount accrued for insurance claims totaled ~~$280.2~~$298.4 million and ~~$272.9~~$287.6 million, with ~~$210.1~~$220.1 million and ~~$210.1~~$212.9 million considered to be long-term and included in “Insurance and other non-current liabilities.” Related insurance recoveries/receivables as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$34.8~~$31.6 million and ~~$56.5~~$35.1 million, of which ~~$0.4~~$0.3 million and $0.3 million are included in “Prepaid expenses and other current assets” and ~~$34.4~~$31.3 million and ~~$56.2~~$34.8 million are included in “Other assets, net.”

~~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 worked with its customer to mitigate the impact of the incident and to substantially complete the project. As required by the contract, the customer procured certain insurance coverage for the project, with Quanta subsidiaries as additional insureds. Quanta is working collaboratively with the customer to pursue insurance claims with the customer’s insurance carriers. The insurers have preliminarily acknowledged coverage for the incident; however, the amount of coverage is subject to further negotiation and, to the extent necessary, litigation. To the extent Quanta is not successful in recovering the full amount of the insurance claims it is pursuing, Quanta plans to pursue contractual relief from the customer.

As of September 30, 2019, Quanta had recorded a receivable of $81.5 million in accordance with GAAP related to accounting for insurance claims and potential recoveries. The amount represents a portion of the total insurance claims being pursued by Quanta, which amounted to approximately $144 million as of such date. To the extent Quanta is unsuccessful in realizing insurance or contractual recoveries, additional charges to operating results, which could be material, would be required.

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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 credit facility. Each letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder claims that Quanta has failed to perform specified actions. If this were to occur, Quanta would be required to reimburse the issuer of the letter of credit. Depending on the circumstances of such a reimbursement, Quanta may also be required to record a charge to earnings for the reimbursement.

As of ~~September~~June 30, ~~2019~~2020, Quanta had $~~346.5~~374.7 million in outstanding letters of credit under its senior secured 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 ~~2019~~2020 and ~~2020.~~2021. Quanta expects to renew the majority of the letters of credit related to the casualty insurance program for subsequent one-year periods upon maturity. Quanta is not aware of any claims currently asserted or threatened under any of these letters of credit that are material, individually or in the aggregate. However, to the extent payment is required for any such claims, the amount paid could be material and could adversely affect Quanta’s consolidated business, financial condition, results of operations or cash flows.

Performance Bonds and Parent Guarantees

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.~~bonds. These bonds provide a guarantee ~~to the customer~~ that Quanta will perform under the terms of a contract and pay its subcontractors and vendors. If Quanta fails to perform, the customer may demand that the surety make payments or provide services under the ~~bond.~~bond, and Quanta must reimburse the surety for any expenses 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 its assets as collateral for its obligations to the sureties. Subject to certain conditions and consistent with terms of the credit agreement for Quanta’s senior secured credit facility, these security interests will be automatically released if Quanta maintains a credit rating that meets two of the following three

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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 its senior secured credit facility. Quanta has not been required to make any material reimbursements to its sureties for bond-related costs except related to the exercise of certain advance payment and performance bonds in connection with athe terminated telecommunications project located in Peru, as set forth in Legal Proceedings above. However, to the extent further reimbursements are required, the amounts could be material and could adversely affect Quanta’s consolidated business, financial condition, results of operations or cash flows.

Performance bonds expire at various times ranging from mechanical completion of a project 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 ~~September~~June 30, ~~2019~~2020, the total amount of the outstanding performance bonds was estimated to be approximately $~~2.7~~3.0 billion. Quanta’s estimated maximum exposure as it relates to the value of the performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each commitment under a performance bond generally extinguishes concurrently with the expiration of its related contractual obligation. The estimated cost to complete these bonded projects was approximately ~~$796 million~~$1.1 billion as of ~~September~~June 30, ~~2019~~2020.

Additionally, from time to time, Quanta guarantees certain obligations and liabilities of its subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, joint venture arrangements and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims. Quanta is not aware of any ~~obligations or liabilities currently asserted~~claims under any of these guarantees that are material, ~~individually or~~except as set forth in ~~the aggregate. However, to~~Legal Proceedings – Maurepas Project Dispute above. To the extent a subsidiary incurs a material obligation or liability and Quanta has guaranteed the performance or payment of such 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,

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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~~stock-based compensation benefits. Certain employment agreements also contain clauses that require the potential payment of ~~certain~~specified amounts to such employees upon the occurrence of a defined change in control event.

Collective Bargaining Agreements

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

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, the plan’s cash flow position and whether the plan 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 (e.g., 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 regarding the amount

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of future ~~levels of~~ work ~~that require~~involving covered union employees, ~~covered by these plans, as well as the~~ future contribution levels and possible surcharges on ~~contributions applicable to these plans.~~plan contributions.

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 or is deemed to have withdrawn 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 withdrawal liabilities that have been incurred or asserted and that remain outstanding as a result of a withdrawal by Quanta from a multiemployer defined benefit pension plan. However, Quanta’s future contribution obligations and potential withdrawal liability exposure could vary based on the investment and actuarial performance of the multiemployer pension plans to which it contributes and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and related issues. Quanta has been subject to significant withdrawal liabilities in the past, including in connection with its withdrawal from the Central States, Southeast and Southwest Areas Pension Plan. To the extent ~~any~~Quanta is subject to material withdrawal liabilities in the future, such ~~liabilities arise, they could be material and~~liability could adversely affect ~~Quanta’s consolidated~~its business, financial condition, results of operations or cash flows.

Indemnities

Quanta generally indemnifies its customers for the services it provides under its contracts and other specified liabilities, which may subject Quanta to indemnity claims and liabilities and related litigation. Additionally, in connection with certain acquisitions and dispositions, Quanta has indemnified various parties against specified liabilities that those parties might incur in the future. The indemnities under acquisition or disposition agreements are usually contingent upon the other party incurring liabilities that reach specified thresholds. Quanta is not aware of any indemnity claims ~~currently asserted~~ in connection with its indemnity obligations that are material. However, to the extent indemnification is required, the amount could adversely affect Quanta’s consolidated business, financial condition, results of operations or cash flows.

In the normal course of Quanta’s acquisition transactions, Quanta obtains rights to indemnification from the sellers or former owners of acquired businesses for certain risks, liabilities and obligations arising from their prior operations, such as performance,

~~QUANTA SERVICES, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

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, or the indemnitors may be unwilling or unable to pay amounts owed to Quanta. Accordingly, Quanta may incur expenses for which it is not reimbursed, and such amounts could be material and could have a material adverse effect on Quanta’s business or consolidated ~~business,~~ financial condition, results of operations and cash flows. Quanta is currently in the process of ~~negotiating~~pursuing indemnity for certain pre-acquisition obligations associated with non-U.S. payroll taxes ~~that may be due from~~of a business acquired by Quanta in 2013. As of ~~September~~June 30, ~~2019, Quanta had recorded $7.4 million as its estimate of~~2020, the ~~pre-acquisition tax obligations and a corresponding~~ indemnification asset ~~as management expects~~amounted to ~~recoverfrom the indemnity counterparties any amounts that Quanta may be required to pay in connection with any such obligations.~~$1.9 million. Additionally, Quanta has obtained certain indemnification rights from the former owners of Hallen with respect to contingent liabilities that were assumed in connection with the acquisition, as set forth in Legal Proceedings — Hallen Acquisition Assumed Liability above.

12. SEGMENT INFORMATION:

Quanta presents its operations under 2 reportable segments: (1) Electric Power Infrastructure Services and (2) Pipeline and 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 its end user markets. Quanta’s entrepreneurial business model allows multiple 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 2 internal divisions: the Electric Power Infrastructure Services Division and the Pipeline and Industrial Infrastructure Services Division. These internal divisions are closely aligned with the reportable segments, and operating units are assigned to divisions based on the predominant type of work performed.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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 (e.g., facility costs), indirect operating expenses (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						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenues:
Electric Power Infrastructure Services	$	1,876,097		$	1,617,736		$	5,274,456		$	4,756,416		$	1,792,918		$	1,734,336		$	3,559,945		$	3,398,359
Pipeline and Industrial Infrastructure Services	1,476,798			1,367,545			3,724,897			3,302,789			713,313			1,104,863			1,710,381			2,248,099
Consolidated revenues	$	3,352,895		$	2,985,281		$	8,999,353		$	8,059,205		$	2,506,231		$	2,839,199		$	5,270,326		$	5,646,458
Operating income (loss):
Electric Power Infrastructure Services	$	175,692		$	179,181		$	430,244		$	466,087		$	183,896		$	92,935		$	312,654		$	254,552
Pipeline and Industrial Infrastructure Services	132,424			96,067			243,066			149,953			21,250			69,943			52,527			110,642
Corporate and non-allocated costs	(98,722		)	(82,687		)	(265,849		)	(225,219		)	(92,230		)	(84,298		)	(171,528		)	(167,127		)
Consolidated operating income	$	209,394		$	192,561		$	407,461		$	390,821		$	112,916		$	78,580		$	193,653		$	198,067
Depreciation:
Electric Power Infrastructure Services	$	27,240		$	24,273		$	79,205		$	71,801		$	28,987		$	26,714		$	57,700		$	51,965
Pipeline and Industrial Infrastructure Services	22,877			22,711			68,166			65,886			21,432			22,734			42,967			45,289
Corporate and non-allocated costs	5,445			4,559			14,218			12,609			4,107			4,363			8,269			8,773
Consolidated depreciation	$	55,562		$	51,543		$	161,589		$	150,296		$	54,526		$	53,811		$	108,936		$	106,027

Quanta has concluded to pursue an orderly exit of its operations in Latin America. Electric Power Infrastructure Services revenues included $2.4 million and a negative $20.8 million related to Latin American operations for the three months ended June 30, 2020 and 2019 and $7.1 million and $7.0 million related to Latin American operations for the six months ended June 30, 2020 and 2019. Latin American revenues for the three and six months ended June 30, 2019 reflect the reversal of $48.8 million of revenues in connection with the terminated telecommunications project in Peru, a portion of which related to prior periods. Electric Power Infrastructure Services operating income included $15.2 million and $79.3 million of operating losses related to Latin American operations for the three months ended June 30, 2020 and 2019 and $31.5 million and $79.9 million of operating losses related to Latin American operations for the six months ended June 30, 2020 and 2019.

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, 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 ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019, Quanta derived ~~$480.0~~$298.4 million and ~~$667.6~~$277.3 million of its revenues from foreign operations. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, Quanta derived ~~$1.36 billion~~$794.4 million and ~~$1.84 billion~~$883.9 million of its revenues from foreign operations. Of Quanta’s foreign revenues, 71% and ~~78%~~73% were earned in Canada during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and 75% and ~~75%~~78% were earned in Canada during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. In addition, Quanta held property and equipment of $~~310.0~~297.4 million and $~~304.0~~314.1 million in foreign countries, primarily Canada, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019.

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Accounts and notes receivable	$	(479,573	)	$	(169,041	)	$	(695,364	)	$	(345,842	)	$	237,790		$	(56,322	)	$	360,120		$	(215,791	)
Contract assets	34,016			(125,878		)	(67,882		)	(188,996		)	83,677			(107,165		)	100,049			(101,898		)
Inventories	1,511			(8,436		)	43,598			(13,841		)	2,500			13,091			(1,868		)	42,087
Prepaid expenses and other current assets	(8,048		)	12,991			(110,622		)	(45,002		)	(33,600		)	(73,235		)	50,478			(102,574		)
Accounts payable and accrued expenses and other non-current liabilities	250,608			170,469			228,473			294,259			22,649			44,543			(87,745		)	(22,135		)
Contract liabilities	68,535			(48,386		)	112,545			22,676			19,283			67,390			6,397			44,010
Other, net ⁽¹⁾	(4,957		)	(2,291		)	(134,305		)	(8,270		)	(6,591		)	(123,795		)	(12,253		)	(129,348		)
Net change in operating assets and liabilities, net of non-cash transactions	$	(137,908	)	$	(170,572	)	$	(623,557	)	$	(285,016	)	$	325,708		$	(235,493	)	$	415,178		$	(485,649	)

⁽¹⁾The ~~amount~~amounts for the ~~nine~~three and six months ended ~~September~~June 30, 2019 ~~includes~~include the payment of $87 million of on-demand advance payment bonds and $25 million of on-demand performance bonds exercised in connection with the ~~termination of a large~~terminated telecommunications project in Peru. See Legal Proceedings —– Peru Project Dispute in Note 11 for additional information on this matter.

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 is as follows (in thousands):


	September 30,				June 30,
	2019		2018		2020		2019
Cash and cash equivalents	$	80,044	$	113,524	$	530,670	$	73,356
Restricted cash included in “Prepaid expenses and other current assets”	3,441		3,275		1,266		3,733
Restricted cash included in “Other assets, net”	1,026		1,375		917		1,028
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	84,511	$	118,174	$	532,853	$	78,117


	June 30,				March 31,
	2019		2018		2020		2019
Cash and cash equivalents	$	73,356	$	120,357	$	377,205	$	85,423
Restricted cash included in “Prepaid expenses and other current assets”	3,733		2,926		3,514		3,038
Restricted cash included in “Other assets, net”	1,028		1,454		919		1,031
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	78,117	$	124,737	$	381,638	$	89,492

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



	December 31,
	2019		2018
Cash and cash equivalents	$	164,798	$	78,687
Restricted cash included in “Prepaid expenses and other current assets”	4,026		3,286
Restricted cash included in “Other assets, net”	921		1,283
Total cash, cash equivalents, and restricted cash reported in the statements of cash flows	$	169,745	$	83,256

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


							Three Months Ended						Six Months Ended
	Three Months Ended			Nine Months Ended			June 30,						June 30,
	September 30, 2019			September 30, 2019			2020			2019			2020			2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(29,908	)	$	(89,175	)	$	(29,755	)	$	(29,820	)	$	(59,237	)	$	(59,267	)
Operating cash flows from finance leases	$	(15	)	$	(53	)	$	(17	)	$	(17	)	$	(34	)	$	(38	)
Financing cash flows from finance leases	$	(411	)	$	(1,523	)	$	(222	)	$	(482	)	$	(423	)	$	(1,112	)
Lease assets obtained in exchange for lease liabilities:
Operating leases	$	32,701		$	76,107		$	10,658		$	27,467		$	40,351		$	43,406
Finance leases	$	10		$	631		$	17		$	220		$	883		$	621

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Cash (paid) received during the period for —
Interest paid	$	(16,312	)	$	(9,279	)	$	(45,469	)	$	(24,011	)	$	(8,989	)	$	(15,725	)	$	(22,261	)	$	(29,157	)
Income taxes paid	$	(40,745	)	$	(38,445	)	$	(109,271	)	$	(91,000	)	$	(9,392	)	$	(60,333	)	$	(63,613	)	$	(68,526	)
Income tax refunds	$	4,730		$	1,207		$	6,058		$	3,570		$	2,119		$	50		$	4,458		$	1,328

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2020, in connection with the disposition of a small business, Quanta ~~entered into~~recorded a ~~non-cash transaction whereby Quanta accepted title to a marine industrial property appraised at $6.4 million~~note receivable in exchange for ~~a construction barge.~~the transfer of $8.5 million of inventory.


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, ~~2018 (2018~~2019 (2019 Annual Report), which was filed with the Securities and Exchange Commission (SEC) on February 28, ~~2019~~2020 and is available on the SEC’s website at www.sec.gov and on our website ~~which is~~at 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 ~~2018~~2019 Annual Report.

~~Introduction~~Overview

We are a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric ~~power,~~and gas utility, energy and communications industries in the United States, Canada, Australia ~~Latin America~~ and select other international markets. The performance of our business generally depends on our ability to obtain contracts with customers and to effectively deliver the services provided under those contracts. 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; substation facilities; ~~pipeline transmission and distribution systems and facilities;~~gas utility systems; refinery, petrochemical and industrial facilities; pipeline transmission systems and facilities; and telecommunications and cable multi-system operator networks.

Our customers include many of the leading companies in the industries we ~~serve. We have developed strong strategic alliances with numerous customers~~serve, and ~~strive~~we endeavor to develop and maintain ~~our status as a~~strategic alliances and preferred service provider tostatus with 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) Pipeline and Industrial Infrastructure Services. This structure is generally focused on broad end-user markets for our services. ~~Our consolidated revenues~~Included within the Electric Power Infrastructure Services segment are the results related to our telecommunications infrastructure services.

Current Quarter Financial Results

Key financial results for the ~~nine~~three months ended ~~September~~June 30, ~~2019~~ ~~were $9.00~~2020 included:

Consolidated revenues decreased 11.7% to $2.51 billion, of which ~~58.6%~~71.5% was attributable to the Electric Power Infrastructure Services segment and ~~41.4%~~28.5% was attributable to the Pipeline and Industrial Infrastructure Services ~~segment.~~segment, as compared to consolidated revenues of $2.84 billion for the three months ended June 30, 2019;

~~The~~ Operating income increased 43.7%, or $34.3 million, to $112.9 million as compared to $78.6 million for the three months ended June 30, 2019;

Net income attributable to common stock increased 170.4%, or $46.6 million, to $73.9 million as compared to $27.3 million for the three months ended June 30, 2019;

Diluted earnings per share increased 177.7%, or $0.33, to $0.52 as compared to $0.19 for the three months ended June 30, 2019;

Net cash provided by operating activities increased by $606.1 million to $497.5 million, as compared to net cash used in operating activities of $108.7 million for the three months ended June 30, 2019;

Remaining performance obligations decreased 2.2%, or $117.9 million, to $5.18 billion as of June 30, 2020 as compared to $5.30 billion as of December 31, 2019; and


•	Total backlog (a non-GAAP measure) decreased 7.2%, or $1.08 billion, to $13.93 billion as of June 30, 2020, as compared to $15.00 billion as of December 31, 2019. For a reconciliation of backlog to remaining performance obligations, its most comparable GAAP measure, see Remaining Performance Obligations and Backlog below.

Key Segment Highlights and Significant Operational Trends and Events

During the three months ended June 30, 2020, we were impacted by the following significant operational trends and events as compared to the three months ended June 30, 2019:

Electric Power Infrastructure Services ~~segment provides comprehensive network solutions~~Segment

Revenues increased by 3.4% to ~~customers~~$1.79 billion, as compared to $1.73 billion.

Operating income increased by 97.9% to $183.9 million, as compared to $92.9 million.

Revenues increased primarily due to a $46 million increase associated with growth in our North American communications operations; increased customer spending on distribution services projects, which are services we generally consider to be included within base business operations; and approximately $20 million of incremental revenues from acquired businesses.

Revenues associated with grid modernization and fire hardening programs 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 provides services that support the development of renewable energy generation, including solar, wind and certain types of natural gas generation facilities, andwestern United States decreased; however, we expect revenues related ~~switchyards and transmission infrastructure. This segment also provides comprehensive communications infrastructure~~to these services to ~~wireline and wireless telecommunications companies, cable multi-system operators and other customers within~~increase in the ~~communications industry (including~~second half of 2020 but remain lower than our revenues associated with such services in ~~connection~~the second half of 2019.

Operating income increased due to improved performance across the segment and increased Canadian revenues contributed to improved equipment utilization and fixed cost absorption as compared to the three months ended June 30, 2019, which had lower Canadian revenue levels and higher unabsorbed costs as crews and equipment were transitioned from a completed larger transmission project.

Operating income increased as well due to a reduction in losses associated with 5G wireless deployment); services in connection with the construction of electric power generation facilities; and the design, installation, maintenance and repair of commercial and industrial wiring. This segment also includes our postsecondary educational institution, which specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, and includes curriculum for the gas distribution and communications industries.Latin American operations.

~~The~~ Pipeline and Industrial Infrastructure Services Segment

Revenues decreased by 35.4% to $713.3 million, as compared to $1.10 billion.

Operating income decreased by 69.6% to $21.3 million, as compared to $69.9 million.

•

Revenues decreased partially due to the impact of the COVID-19 pandemic, which resulted in decreased capital spending by our customers on industrial services due to the significant decline in demand for refined petroleum products, restrictions on our ability to perform services in certain downstream industrial locations and the suspension of gas utility services in certain metropolitan markets during a portion of the quarter.

Revenues associated with larger pipeline projects also decreased, as the timing of such projects is highly variable due to, among other things, potential permitting, delays, worksite access limitations related to environmental regulations and seasonal weather patterns.

Partially offsetting the decrease in revenues was approximately $55 million of incremental revenues from acquired businesses.

Operating income decreased primarily due to the decrease in revenues. Operating income for the three months ended June 30, 2019 was also negatively impacted by the recognition of a $13.9 million loss associated with continued rework and start-up delays on a processing facility project in Texas.

See COVID-19 Pandemic – Response and Impact, Results of Operations and Liquidity below for additional information and discussion related to consolidated and segment ~~provides comprehensive infrastructure solutions~~results.

Recent LUMA Joint Venture Award

During the three months ended June 30, 2020, a joint venture in which we own a 50% interest, LUMA Energy, LLC (LUMA), was selected for a 15-year operation and maintenance agreement to ~~customers involved~~operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico. The 15-year operation and maintenance period is expected to begin following an approximately one-year transition period, during which LUMA will complete numerous steps necessary to transition operation and maintenance from the current operator to LUMA. Pursuant to the agreement, during the transition period LUMA receives a transition fee and is reimbursed for costs and expenses. During the operation and maintenance period, LUMA will continue to be reimbursed for costs and expenses and will receive a fixed annual management fee, with the opportunity to receive additional annual performance-based incentive fees. LUMA will not assume ownership of any electric transmission and distribution system assets and will not be responsible for operation of the power generation assets.

Recent Acquisitions

We continue to selectively evaluate acquisitions as part of our overall business strategy and acquired two businesses in the ~~development, transportation, distribution, storage~~six months ended June 30, 2020, including an industrial services business located in Canada that performs catalyst handling services, such as changeover and ~~processing~~shutdown maintenance, for customers in the refining and chemical industries and an electric power infrastructure business located in the United States that primarily provides underground conduit services. During the three and six months ended June 30, 2020, revenues were positively impacted by approximately $75 million and $190 million from acquired businesses. Additionally, in July 2020, we acquired a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services. Beginning on the acquisition date, the results of ~~natural gas, oil~~the acquired business will generally be included in our Electrical Power Infrastructure Services segment.

Our ownership interest and participation in LUMA is accounted for as an equity method investment due to our equal ownership and management of LUMA with our joint venture partner. LUMA is operationally integral to the operations of Quanta, and therefore Quanta’s share of LUMA’s net income or losses is reported within operating income. We anticipate our ownership interest in LUMA will positively contribute to operating income and cash flow from operating activities and be accretive to diluted earnings per share attributable to common stock during 2020.

COVID-19 Pandemic – Response and Impact

During 2020, the COVID-19 pandemic has significantly impacted global economies, resulting in workforce and travel restrictions, supply chain and production disruptions and reduced demand and spending across many sectors. These factors had an adverse impact on portions of our operations, financial performance, customers and suppliers during March 2020 and the three months ended June 30, 2020. However, we continue to operate substantially all of our activities as a provider of essential services in our industries. Additionally, we are continuing to collaborate with customers to minimize potential service disruptions and anticipate how the COVID-19 pandemic may continue to impact our operations, as the locations where we, our customers, our suppliers or our third-party business partners operate continue to experience challenges as a result of the pandemic. We have also taken proactive measures to protect the health and safety of our employees, such as the adoption of specialized training initiatives and the utilization of additional protective equipment for our employees operating in the field and additional sanitation measures for our offices, vehicles and equipment. We have also canceled non-essential business travel, applied work-from-home policies where appropriate and developed other ~~products. Services performed~~human resource guidance to help employees.

During the three and six months ended June 30, 2020, our results have been adversely impacted by the COVID-19 pandemic as a result of disruptions in our operations created by shelter-in-place restrictions in certain service areas, particularly major metropolitan markets that have been meaningfully impacted by the pandemic such as New York City, Detroit and Seattle. The COVID-19 pandemic has also compounded broader challenges in the energy market, resulting in a decline in commodity prices and volatility with respect to commodity production volumes that are affecting portions of our Pipeline and Industrial Infrastructure Services segment. As expected, this dynamic had a materially negative impact on segment ~~generally include~~results for the ~~design, installation, repair~~three and six months ended June 30, 2020. In particular, demand for our industrial services operations has declined as customers are reducing and deferring regularly scheduled maintenance due to lack of demand for refined products. Additionally, smaller pipeline ~~transmission~~ and ~~distribution systems, gathering systems, production systems, storage systems~~industrial capital projects are expected to be negatively impacted for a prolonged period due to the low commodity price environment and ~~compressor~~resulting reductions in customer capital budgets. We are also experiencing some permitting and ~~pump stations,~~regulatory delays for projects due to the COVID-19 pandemic and the COVID-19 pandemic has negatively impacted our Latin American operations due to shelter-in-place restrictions and other work disruptions. While the significant adverse impacts resulting from shelter-in-place restrictions in major metropolitan markets are subsiding, we expect continued operational challenges through the balance of the year as we operate during and adjust to an unprecedented health and economic environment. Furthermore, while we are not currently experiencing significant supply chain disruptions or workforce availability concerns, we are continuing to monitor these areas for potential issues.

Additionally, we are focused on maintaining a strong balance sheet to help us navigate the challenges presented by the COVID-19 pandemic. As of June 30, 2020, we had $530.7 million of cash and cash equivalents and $1.61 billion of availability under our senior secured credit facility. We generated $497.5 million and $725.0 million of cash flow from operating activities in the three and six months ended June 30, 2020 and $526.6 million in cash flow from operations in the year ended December 31, 2019. We are managing our costs through, among other things, reductions in discretionary spending, reductions in workforce at operations experiencing challenges, hiring and compensation increase deferrals, and deferrals of non-essential capital expenditures. Capital expenditures for 2020 are expected to be $250 million, which is approximately 17% less than our original estimate at the beginning of 2020. We will continue to maintain capital discipline and monitor rapidly changing market dynamics and adjust our costs and financing strategies accordingly.

As a result of the currently challenged energy market and recent oil price volatility, as well as the exacerbating effect of the COVID-19 pandemic, we assessed the expected negative impacts related ~~trenching, directional boring~~to goodwill, intangible assets, long-lived assets, and ~~mechanized welding~~investments as of June 30, 2020, and concluded that other than $14.8 million and $18.0 million of impairments recognized during the three and six months ended June 30, 2020 related to certain non-integral equity method investments and a cost method investment, as described in Results of Operations below, the impacts are not likely to result in any other impairments of such assets at this time. However, the potential impacts are uncertain and may change based on numerous factors. We will continue to monitor the impacts and should a reporting unit or investment suffer additional significant declines in actual or forecasted financial results, the risk of impairment would increase.

On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act provides for various tax relief and tax incentive measures, which are not expected to have a material impact on our results of operations. During the three months ended June 30, 2020, under the CARES Act and related state actions, we deferred the payment of $58.0 million of federal and state income taxes to July 2020 and deferred the payment of $30.7 million of payroll taxes, 50% of which are due by December 31, 2021 and the remainder of which are due by December 31, 2022. Although

there is currently no legislation that would permit further deferrals of income taxes, the CARES Act permits deferral of payroll taxes through December 31, 2020, and we currently intend to continue to defer such payments,

The broader and longer-term implications of the COVID-19 pandemic on our results of operations and overall financial performance and position remain highly uncertain, and therefore we cannot predict the full impact that the pandemic, or any resulting market disruption and volatility, will have on our business, cash flows, liquidity, financial condition and results of operations at this time. The ultimate impact will depend on future developments, including, among others, the ongoing spread of COVID-19, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the duration and severity of the pandemic, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume and continue. For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A. Risk Factors of Part II of this Quarterly Report.

Business Environment

Despite the current challenging economic conditions, we believe there are long-term growth opportunities across our industries, and we continue to have a positive long-term outlook. Although not without risks and challenges, including those discussed in Overview and in Uncertainty of Forward-Looking Statements and Information and included in Item 1A. Risk Factors, 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 our industries.

Electric Power Infrastructure Services Segment. Utilities are investing significant capital in their electric power delivery systems, particularly transmission, substation and distribution infrastructure, through multi-year, multi-billion dollar grid modernization and reliability programs, which have provided, and are expected to continue to provide, demand for our services. Utilities are accommodating a changing fuel generation mix that is moving toward more sustainable sources such as natural gas and renewables and replacing aging infrastructure to support long-term economic growth. In ~~addition,~~order to reliably and efficiently deliver power, and in response to federal reliability standards, utilities are also integrating smart grid technologies into distribution systems in order to improve grid management and create efficiencies, and in preparation for emerging technologies such as electric vehicles. A number of utilities are also implementing system upgrades or hardening programs in response to recurring severe weather events, such as hurricanes and wildfires. In particular, current system resiliency initiatives in California and other regions in the western U.S. are designed to prevent and manage the impact of wildfires. However, while these resiliency initiatives provide opportunities for our services, they also increase our potential exposure to significant liabilities attributable to those events.

While the COVID-19 pandemic has resulted in an overall decline in electricity usage in the near term, primarily related to commercial and industrial users, 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. As demand for power increases, we also expect an increase in new power generation facilities powered by certain traditional energy sources (e.g., natural gas) and renewable energy sources (e.g., solar and wind). To the extent this ~~segment’s~~dynamic continues, we expect continued demand for new or expanded transmission and substation infrastructure to transport power and interconnect new generation facilities and the modification and reengineering of existing infrastructure as existing coal and nuclear generation facilities are retired or shut down.

With respect to our communications service offerings, consumer and commercial demand 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, communications providers in North America are 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. As a result of these industry trends, we believe there will be meaningful demand for our services in that market. While we continue to perform certain electric power and communications services in Latin America, we have completed a strategic review of those operations, and due to circumstances experienced in connection with the terminated telecommunications project in Peru during 2019 and political volatility in other areas of the region, concluded to pursue an orderly exit of our Latin American operations. While we have incurred costs and expect to incur additional costs in the near-term related to exiting these operations, our estimates for which have increased as a result of the COVID-19 pandemic, we anticipate this decision will result in improved profitability of our overall services offerings.

Pipeline and Industrial Infrastructure Services Segment. For several years we have focused on increasing our pipeline and industrial services offerings related to specialty services and industries that we believe are driven by regulated utility spending, regulation, replacement and rehabilitation of aging infrastructure and safety and environmental initiatives, which we believe provide a greater level of business sustainability and predictability. These services include gas utility services, pipeline ~~protection,~~ integrity ~~testing,~~services and downstream industrial services, which we have expanded through organic growth, geographic expansion initiatives and select acquisitions. This strategy is also intended to mitigate the seasonality and cyclicality of our larger pipeline project activities, which we are not strategically investing in but continue to pursue to the extent they fit our margin and risk profiles and support the needs of our customers.

As discussed in COVID-19 Pandemic - Response and Impact, though we have experienced short-term disruptions due to the impact of the COVID-19 pandemic in certain metropolitan markets, in recent years demand has increased for our gas utility distribution services as a result of lower natural gas prices, increasing regulatory requirements and customer desire to upgrade and replace aging infrastructure. In particular, natural gas utilities have implemented multi-decade modernization programs to replace aging cast iron and bare steel gas system infrastructure with modern materials for safety, reliability and environmental purposes.

We believe there are also growth opportunities for our pipeline integrity, rehabilitation and replacement ~~and~~services, as regulatory measures have increased the ~~fabrication~~frequency or stringency of pipeline ~~support systems~~integrity testing requirements. Regulatory requirements continue to encourage our customers to test, inspect, repair, perform maintenance and replace pipeline infrastructure to ensure the safe, reliable and environmentally friendly delivery of energy. Further, permitting challenges associated with construction of new pipelines can make existing pipeline infrastructure more valuable, increasing the desire of owners to extend the useful life of existing pipeline assets through integrity initiatives. Due to these dynamics, we expect demand to continue to grow for our pipeline integrity services.

We provide critical path solutions and related ~~structures~~specialty services to refinery and chemical processing facilities, primarily along the Gulf Coast of the United States and in other select markets in North America. Trends and estimates for ~~natural gas utilities~~process facility utilization rates and ~~midstream companies. We also provide~~overall refining capacity show North America as the largest downstream maintenance market in the world over the next several years, and we believe processing facilities located along the U.S. Gulf Coast region should have certain long-term strategic advantages due to their proximity to affordable hydrocarbon resources. While the COVID-19 pandemic has resulted in an overall decline in global demand for refined products, we believe there are significant long-term opportunities for our services, including our high-pressure and critical-path turnaround services, as well as our capabilities with respect to ~~the downstream~~instrumentation, high-voltage and ~~midstream energy markets and instrumentation and~~other electrical services, piping, fabrication and storage, ~~tank~~and other industrial services. ToHowever, these processing facilities can be negatively impacted for short-term periods due to severe weather events, such as hurricanes, tropical storms and floods. Additionally, due to the COVID-19 pandemic and challenging overall energy market conditions, we have recently experienced a decrease in demand for certain of these services. While demand for our critical path catalyst solutions has remained solid, in the second quarter of 2020 customers began restricting onsite activity for our other services and have deferred maintenance and certain turnaround projects to later 2020 or possibly 2021.

With respect large pipeline project opportunities, a number of such projects from the North American shale formations and Canadian oil sands to power plants, refineries, liquefied natural gas (LNG) export facilities and other demand centers are in various stages of development. While we believe many of our customers remain committed to these projects given the cost and time required to move from conception to construction, the overall larger pipeline market is cyclical and there is risk the projects will not move forward or be delayed or canceled. For example, in July 2020, the project sponsors of an approximately 600-mile natural gas pipeline under construction in the eastern United States that one of our subsidiaries has been contracted to construct a portion of announced that they are no longer moving forward with the project. Furthermore, our revenues related to larger pipeline projects have declined over the last few years.

Due to its abundant supply and current low price, we also believe natural gas will remain a fuel of choice for both primary power generation and backup power generation for renewable-driven power plants in North America. The favorable characteristics of natural gas also position the United States as a leading competitor in the global LNG export market, which has the potential to continue to grow over the coming years as approved and proposed LNG export facilities are developed. In certain areas, the existing pipeline system infrastructure is insufficient to support these expected future developments, which could provide additional opportunities for our services.

Although portions of our pipeline and industrial infrastructure 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 price volatility, such as the current low commodity price environment, which can impact demand for our services. For example, certain of our end markets where the price of oil is influential, such as Australia, the Canadian Oil Sands and certain oil-driven U.S. shale formations, have been materially impacted by the current challenging energy market conditions.

Regulatory Challenges and Opportunities. The regulatory environment creates both challenges and opportunities for our business, and in recent years electric power and pipeline infrastructure services margins have been impacted by regulatory and permitting delays, particularly with respect to larger electric transmission and larger pipeline projects. Regulatory and environmental permitting processes continue to create uncertainty for projects and negatively impact customer spending, and delays have recently increased as the COVID-19 pandemic has impacted regulatory agency operations. Furthermore, the recent ruling by the federal district court for the district of Montana vacating the U.S. Army Corps of Engineers Clean Water Act Section 404 Nationwide Permit 12 may result in increased costs and project interruptions or delays if we or our customers are forced to seek individual permits from the U.S. Army Corps of Engineers.

However, we believe that there are also several existing, pending or proposed legislative or regulatory actions that may alleviate certain regulatory and permitting issues and positively impact long-term demand, particularly in connection with electric power infrastructure and renewable energy spending. For example, regulatory changes affecting siting and right-of-way processes

could potentially accelerate construction for transmission projects, and state and federal reliability standards are creating 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 some of these projects remains subject to the continued availability of tax incentive programs.

Labor Resource Availability. In addition to the health and safety measures we are taking to ensure labor resource availability during the COVID-19 pandemic, we continue to address the longer-term need for additional labor resources in our markets. Our customers continue to seek additional specialized labor resources to address an aging utility workforce and longer-term labor availability issues, increasing pressure to reduce costs and improve reliability, and increasing duration and complexity of their capital programs. We believe these trends will continue, possibly to the point where demand for labor resources will outpace supply. Furthermore, the cyclical nature of the natural gas and oil industry can create shortages of qualified labor in those markets during periods of high demand. Our ability to capitalize on available opportunities is limited by our ability to employ, train and retain the necessary skilled personnel, and we are taking proactive steps to develop our workforce, including through strategic relationships with universities, the military and unions and the expansion and development of our training facility and postsecondary educational institution. Although we believe these initiatives will help address workforce needs, meeting our customers’ demand for labor resources could remain challenging.

Acquisitions and Investments. We believe potential acquisition and investment opportunities exist in our industries and adjacent industries, primarily due to the highly fragmented and evolving nature of those industries and inability of many companies to expand and modernize due to capital or liquidity constraints. We continue to evaluate opportunities that are expected to, among other things, broaden our customer base, expand our geographic area of operations, and grow and diversify our portfolio of services.

Significant Factors Impacting Results

Our revenues, margins and other results of operations can be influenced by a variety of factors in any given period, including those described 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 2019 Annual Report, and those factors have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future. Additional information with respect to certain of those factors is provided below.

Seasonality. Typically, our revenues are lowest in the first quarter of the year because cold, snowy or wet conditions can create challenging working environments that are more costly for our customers or cause delays on projects. In addition, infrastructure projects often do not begin in a meaningful way until our customers finalize their capital budgets, which typically occurs during the first quarter. 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 productivity. Third quarter revenues are typically the highest of the year, as a greater number of projects are underway and operating conditions, including weather, are normally more accommodating. Generally, revenues during the fourth quarter are lower than the third quarter but higher than the second quarter, as many projects are completed and customers often seek to spend their capital budgets before year end. However, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenues and increasing costs. These seasonal impacts are typical for our U.S. operations, but seasonality for our international operations may differ. For example, revenues in Canada are 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 warmer months. As referenced above in COVID-19 Pandemic – Response and Impact, we expect portions of our operations will continue to experience challenges due to the COVID-19 pandemic.

Weather, natural disasters and emergencies. The results of our business in a given period can be impacted by adverse weather conditions, severe weather events, natural disasters or other emergencies, which include, among other things, heavy or prolonged snowfall or rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme temperatures, wildfires, pandemics (including the ongoing COVID-19 pandemic) and earthquakes. These conditions and events can negatively impact our financial results due to, among other things, the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities. See COVID-19 Pandemic – Response and Impact above for further discussion regarding the current and expected impact of the COVID-19 pandemic. However, in some cases, severe weather events can increase our emergency restoration services, which typically yield higher margins due in part to higher equipment utilization and absorption of fixed costs.

Cyclicality and demand for services. Our volume of business may be adversely affected by declines in demand for our services or delays in new and ongoing projects due to cyclicality, which may vary by geographic region. Project schedules also fluctuate, particularly in connection with larger, more complex or longer-term projects, which can affect the amount of work performed in a given period. For example, the timing of obtaining permits and other approvals on a larger project 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 the project when it moves forward. Examples of other items that may cause demand for our services to fluctuate materially from quarter to quarter include: the financial condition of our customers and their access to capital; economic and political conditions on a regional, national or global scale, including interest rates, governmental regulations affecting the

sourcing of certain materials and equipment, and other changes in U.S. and global trade relationships; our customers’ capital spending, including on larger pipeline and electrical infrastructure projects; commodity and material prices; and project deferrals and cancellations. As described above in COVID 19 Pandemic – Response and Impact, we have experienced reductions in demand for certain of our services as a result of disruptions due to shelter-in-place and worksite access restrictions and delays in regulatory agency operations due to the COVID-19 pandemic, as well as the decline in commodity prices and decreased commodity production levels.

Revenue mix. The mix of revenues based on the types of services we provide in a given period will impact margins, as certain industries and services provide higher-margin opportunities. For example, 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 varies by project but can be higher than maintenance work due to higher risk. We have historically derived approximately 30% to 35% of our annual revenues from maintenance work, but a higher portion of maintenance work in any given period may affect our gross margins for that period. Additionally, the areas in which we operate during a given period can impact margins. Some areas offer the opportunity for higher margins due to their more difficult geographic characteristics, such as urban settings or mountainous and other difficult terrain. However, margins may also be negatively impacted by unexpected difficulties that can arise due to those same characteristics, as well as unexpected site conditions.

Size, scope and complexity of projects. Larger or more complex 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. Furthermore, smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may more aggressively pursue available work. A greater percentage of smaller scale or less complex work also could negatively impact margins due to the inefficiency of transitioning between a larger number of smaller projects versus continuous production on fewer larger projects. Also, at times 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 projects when they move forward.

Project variability and performance. Margins for a single project may fluctuate period to period due to changes in the volume or type of work performed, the pricing structure under the project contract or job productivity. Additionally, our productivity and performance on a project can vary period to period based on a number of factors, including unexpected project difficulties or site conditions; project location, including locations with challenging operating conditions; whether the work is on an open or encumbered right of way; inclement weather or severe weather events; environmental restrictions or regulatory delays; protests, other political activity or legal challenges related to a project; and the performance of third parties.

Subcontract work and provision of materials. Work that is subcontracted to other service providers generally yields lower margins, and therefore an increase in subcontract work in a given period can decrease margins. In recent years, we have subcontracted approximately 15% to 20% of our work to other service providers. Our customers are usually responsible for supplying the materials for their projects; however, under some contracts we 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 markup on materials is generally lower than our markup on labor costs. Furthermore, fluctuations in the price or availability of materials we or our customers procure, including as a result of changes in U.S. or global trade relationships, governmental regulations affecting the sourcing of certain materials and equipment or other economic or political conditions, may impact our margins or cause delays. In a given period, an increase in the percentage of work with higher materials procurement requirements may decrease our overall margins.

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 Canadian and Australian dollars, can materially impact margins and comparisons of our results of operations between periods.

Results of Operations

The results of acquired businesses have been included in the following results of operations beginning on their respective acquisition dates.

Consolidated Results

Three months ended June 30, 2020 compared to the three months ended June 30, 2019

The following table sets forth selected statements of operations data, such data as a percentage of revenues for the periods indicated, as well as the dollar and percentage change from the prior period (dollars in thousands):



	Three Months Ended June 30,										Change
	2020					2019					$			%
Revenues	$	2,506,231		100.0	%	$	2,839,199		100.0	%	$	(332,968	)	(11.7	)%
Cost of services (including depreciation)	2,150,967			85.8		2,519,694			88.7		(368,727		)	(14.6	)%
Gross profit	355,264			14.2		319,505			11.3		35,759			11.2	%
Equity in earnings of integral unconsolidated affiliates	1,045			—		—			—		1,045			*
Selling, general and administrative expenses	(227,852		)	(9.1	)	(223,944		)	(7.9	)	(3,908		)	1.7	%
Amortization of intangible assets	(17,779		)	(0.7	)	(12,610		)	(0.4	)	(5,169		)	41.0	%
Change in fair value of contingent consideration liabilities	2,238			0.1		(4,371		)	(0.2	)	6,609			*
Operating income	112,916			4.5		78,580			2.8		34,336			43.7	%
Interest expense	(8,654		)	(0.3	)	(15,821		)	(0.6	)	7,167			(45.3	)%
Interest income	275			—		267			—		8			3.0	%
Other income (expense), net	3,248			0.1		6,521			0.2		(3,273		)	(50.2	)%
Income before income taxes	107,785			4.3		69,547			2.4		38,238			55.0	%
Provision for income taxes	32,989			1.3		41,088			1.4		(8,099		)	(19.7	)%
Net income	74,796			3.0		28,459			1.0		46,337			162.8	%
Less: Net income attributable to non-controlling interests	849			—		1,115			—		(266		)	(23.9	)%
Net income attributable to common stock	$	73,947		3.0	%	$	27,344		1.0	%	$	46,603		170.4	%

* The percentage change is not meaningful.

Revenues. Contributing to the decrease were lower revenues of $391.6 million from pipeline and industrial infrastructure services, partially offset by incremental revenues of $58.6 million from electric power infrastructure services. See Segment Results below for additional information and discussion related to segment revenues.

Gross profit. The increase in gross profit was due to increased earnings from electric power infrastructure services based on improved performance across the segment, partially offset by decreased earnings from pipeline and industrial services primarily attributable to the decrease in revenues. Contributing to the increase in electric power infrastructure services gross profit was an improvement related to our Latin American operations, which during the three months ended June 30, 2019 included the $79.2 million charge associated with the terminated telecommunications project in Peru, as compared to $12.2 million of project losses in the three months ended June 30, 2020 primarily related to accelerated project terminations and operational impacts of the COVID-19 pandemic. See Segment Results below for additional information and discussion related to segment operating income (loss).

Equity in earnings of integral unconsolidated affiliates. The amount for the three months ended June 30, 2020 primarily relates to the commencement of transition services under the agreement recently awarded to LUMA for the operation and maintenance of the electric transmission and distribution system in Puerto Rico.

Selling, general and administrative expenses. The increase was primarily attributable to a $6.4 million increase in the fair market value of deferred compensation liabilities during the three months ended June 30, 2020, as compared to a $1.6 million increase in the fair market value of deferred compensation liabilities during the three months ended June 30, 2019. The fair market value changes in deferred compensation liabilities were partially offset by changes in the fair value of assets associated with the deferred compensation plan, which are included in other income (expense), net. Also contributing to the increase in selling, general and administrative expense was a $5.2 million increase in expenses associated with acquired businesses and a $8.3 million increase in compensation expense primarily due to an increase in non-cash stock-based compensation expense. Partially offsetting these

increases was a $7.9 million decrease in travel expenses, primarily related to reductions in travel as a result of the COVID-19 pandemic, and a $4.6 million decrease in legal and professional fees. Selling, general and administrative expenses as a percentage of revenues increased to 9.1% for the three months ended June 30, 2020 from 7.9% for the three months ended June 30, 2019, primarily due to the decrease in revenues described above.

Amortization of intangible assets. The increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense associated with previously acquired intangible assets, as certain of those assets became fully amortized.

Change in fair value of contingent consideration liabilities. The overall change was primarily due to changes in performance in post-acquisition periods by certain acquired businesses and the effect of present value accretion on fair value calculations. Further changes in fair value are expected to be recorded periodically until the contingent consideration liabilities are settled, with a significant portion of such obligations expected to be settled in late 2020 or early 2021. See Contractual Obligations – Contingent Consideration Liabilities for more information.

Interest expense. Interest expense decreased primarily due to the impact of a lower weighted average interest rate, and to a lesser extent ~~this segment serves~~due to decreased borrowing activity.

Other income (expense), net. The net other income for the ~~offshore~~three months ended June 30, 2020 primarily relates to an $8.9 million legal settlement received and ~~inland water energy markets~~a $6.5 million increase in the fair market value of assets associated with our deferred compensation plan, as compared to a $1.5 million increase in the fair market value of assets associated with our deferred compensation plan during the three months ended June 30, 2019. This incremental increase in the fair market value offsets the increase in selling, general, and ~~designs, installs and maintains fueling systems and~~administrative expenses discussed above. Partially offsetting these items was a $9.3 million impairment associated with an investment in a water and ~~sewer infrastructure.~~gas pipeline infrastructure contractor located in Australia, which is accounted for under the cost method of accounting, and $5.5 million of impairments associated with two non-integral equity investments that have been negatively impacted by the decline in demand for refined petroleum products.

~~For internal management purposes, we~~Provision for income taxes. The effective tax rates for the three months ended June 30, 2020 and June 30, 2019 were 30.6% and 59.1%. The decrease in the effective tax rate was primarily due to the $79.2 million charge recognized in the three months ended June 30, 2019 associated with a terminated telecommunications project in Peru, for which no income tax benefit was recognized. We do not expect any significant benefits to the income tax provision as a result of the CARES Act.

Other comprehensive income (loss). Other comprehensive income (loss) results from translation of the balance sheets of our foreign operating units, which are ~~also organized into two internal divisions:~~primarily located in Canada and Australia and have functional currencies other than the ~~Electric Power Infrastructure Services Division~~U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The gain in the three months ended June 30, 2020 was impacted by the weakening of the U.S. dollar against both the Canadian and Australian dollars as of June 30, 2020 when compared to March 31, 2020. The gain in the three months ended June 30, 2019 was primarily impacted by the weakening of the U.S. dollar against the Canadian dollar as of June 30, 2019 when compared to March 31, 2019.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019



	Six Months Ended June 30,										Change
	2020					2019					$			%
Revenues	$	5,270,326		100.0	%	$	5,646,458		100.0	%	$	(376,132	)	(6.7	)%
Cost of services (including depreciation)	4,582,866			87.0		4,962,972			87.9		(380,106		)	(7.7	)%
Gross profit	687,460			13.0		683,486			12.1		3,974			0.6	%
Equity in earnings of integral unconsolidated affiliates	1,045			—					—		1,045			*
Selling, general and administrative expenses	(458,645		)	(8.7	)	(455,852		)	(8.1	)	(2,793		)	0.6	%
Amortization of intangible assets	(35,687		)	(0.6	)	(25,280		)	(0.4	)	(10,407		)	41.2	%
Change in fair value of contingent consideration liabilities	(520		)	—		(4,287		)	(0.1	)	3,767			(87.9	)%
Operating income	193,653			3.7		198,067			3.5		(4,414		)	(2.2	)%
Interest expense	(22,660		)	(0.4	)	(29,697		)	(0.5	)	7,037			(23.7	)%
Interest income	1,034			—		576			—		458			79.5	%
Other income (expense), net	(6,580		)	(0.2	)	65,480			1.2		(72,060		)	*
Income before income taxes	165,447			3.1		234,426			4.2		(68,979		)	(29.4	)%
Provision for income taxes	49,149			0.9		84,932			1.6		(35,783		)	(42.1	)%
Net income	116,298			2.2		149,494			2.6		(33,196		)	(22.2	)%
Less: Net income attributable to non-controlling interests	3,666			0.1		1,662			—		2,004			120.6	%
Net income attributable to common stock	$	112,632		2.1	%	$	147,832		2.6	%	$	(35,200	)	(23.8	)%

* The percentage change is not meaningful.

Revenues. Contributing to the decrease were lower revenues of $537.7 million from pipeline and industrial infrastructure services, partially offset by increased revenues of $161.6 million from electric power infrastructure services. See Segment Results below for additional information and discussion related to segment revenues.

Gross profit. The increase in gross profit was primarily due to increased earnings from electric power infrastructure services, partially offset by lower earnings from pipeline and industrial services primarily due to the decrease in revenues. Contributing to the increase in electric power infrastructure services gross profit was an improvement related to our Latin American operations, which during the six months ended June 30, 2019 included the $79.2 million charge associated with the terminated telecommunications project in Peru, as compared to $24.9 million of project losses in the six months ended June 30, 2020 primarily related to accelerated project terminations and operational impacts of the COVID-19 pandemic. See Segment Results below for additional information and discussion related to segment operating income (loss).

Selling, general and administrative expenses. This increase was primarily due to a $13.2 million increase in expenses associated with acquired businesses and a $11.5 million increase in compensation expenses, largely associated with higher non-cash stock-based compensation expense. Partially offsetting these increases was a $1.4 million decrease in the fair market value of deferred compensation liabilities during the six months ended June 30, 2020, as compared to a $5.4 million increase in the fair market value of deferred compensation liabilities during the six months ended June 30, 2019. The fair market value changes in deferred compensation liabilities were offset by changes in the fair value of assets associated with the deferred compensation plan which are included in other income (expense), net below. Also partially offsetting the increases were a $6.7 million decrease in travel expenses, primarily related to reductions in travel as a result of the COVID-19 pandemic, and a $4.8 million decrease in legal and other contracted services. Selling, general and administrative expenses as a percentage of revenues increased to 8.7% for the six months ended June 30, 2020 from 8.1% for the six months ended June 30, 2019, primarily due to the decrease in revenues described above.

Amortization of intangible assets. The increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense associated with previously acquired intangible assets as certain of these assets became fully amortized.

Change in fair value of contingent consideration liabilities. The overall change was primarily due to changes in performance in post-acquisition periods by certain acquired businesses and the ~~Pipeline~~effect of present value accretion on fair value calculations. Further changes in fair value are expected to be recorded periodically until the contingent consideration liabilities are settled, with a significant portion of such obligations expected to be settled in late 2020 or early 2021. See Contractual Obligations - Contingent Consideration Liabilities for more information.

Interest expense. Interest expense decreased due to a lower weighted average interest rate, partially offset by higher borrowing activity.

Other income (expense), net. The net other expense for the six months ended June 30, 2020 was primarily related to a $9.3 million impairment associated with an investment in a water and ~~Industrial Infrastructure Services Division. These internal divisions are closely aligned~~gas pipeline infrastructure contractor located in Australia and $8.7 million of impairments associated with two non-integral equity investments that have been negatively impacted by the decline in demand for refined petroleum products, partially offset by an $8.9 million legal settlement received. The net other income for the six months ended June 30, 2019 was primarily due to the deferral and subsequent recognition of earnings on a large electric transmission project in Canada that was substantially completed and placed into commercial operation during the three months ended March 31, 2019. As a result of the project completion, we recognized $60.3 million of earnings that were deferred in prior periods.

Provision for income taxes. The effective tax rates for the six months ended June 30, 2020 and June 30, 2019 were 29.7% and 36.2%. The higher effective tax rate for the six months ended June 30, 2019 was primarily due to the $79.2 million charge in the period associated with the ~~reportable segments, and~~terminated telecommunications project in Peru, for which no income tax benefit was recognized.

Other comprehensive income (loss). Other comprehensive income (loss) results from translation of the balance sheets of our foreign operating units, which are ~~assigned~~primarily located in Canada and Australia and have functional currencies other than the U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The loss in the six months ended June 30, 2020 was impacted by the strengthening of the U.S. dollar against both the Canadian and Australian dollars as of June 30, 2020 when compared to ~~a division based on~~December 31, 2019. The gain in the ~~predominant type~~six months ended June 30, 2019 was impacted of ~~work performed.~~the weakening of the U.S. dollar against the Canadian dollar as of June 30, 2019 when compared to December 31, 2018.

Segment Results

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 our market strategies.~~performance. Classification of our operating unit revenues by type of work for segment reporting purposes can at times require judgment on the part of management. Our 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 operating units require that certain allocations be made to determine segment profitability, including allocations of shared and indirect costs (e.g., facility costs), indirect operating expenses (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.~~assets, asset impairment related to goodwill and intangible assets and change in fair value of contingent consideration liabilities.

~~We operate primarily~~Three months ended June 30, 2020 compared to the three months ended June 30, 2019

The following table sets forth segment revenues, segment operating income (loss) and operating margins for the periods indicated, as well as the dollar and percentage change from the prior period. Operating margins are calculated by dividing operating income by revenues. Management utilizes operating margins as a measure of profitability, which can be helpful for monitoring how effectively we are performing under our contracts. Management also believes operating margins are a useful metric for investors to utilize in evaluating our performance. The following table shows dollars in thousands.



	Three Months Ended June 30,										Change
	2020					2019					$			%
Revenues:
Electric Power Infrastructure Services excluding Latin America	$	1,790,469		71.4	%	$	1,755,160		61.8	%	$	35,309		2.0	%
Latin America	2,449			0.1		(20,824		)	(0.7	)	23,273			*
Electric Power Infrastructure Services	1,792,918			71.5		1,734,336			61.1		58,582			3.4	%
Pipeline and Industrial Infrastructure Services	713,313			28.5		1,104,863			38.9		(391,550		)	(35.4	)%
Consolidated revenues	$	2,506,231		100.0	%	$	2,839,199		100.0	%	$	(332,968	)	(11.7	)%
Operating income (loss):
Electric Power Infrastructure Services excluding Latin America	$	198,044		11.1	%	$	172,266		9.8	%	$	25,778		15.0	%
Latin America	(15,194		)	*		(79,331		)	*		64,137			*
Equity in earnings of integral unconsolidated affiliates	1,046			N/A		—			N/A		1,046			*
Electric Power Infrastructure Services	183,896			10.3	%	92,935			5.4	%	$	90,961		97.9	%
Pipeline and Industrial Infrastructure Services	21,250			3.0	%	69,943			6.3	%	(48,693		)	(69.6	)%
Corporate and non-allocated costs	(92,230		)	N/A		(84,298		)	N/A		(7,932		)	9.4	%
Consolidated operating income	$	112,916		4.5	%	$	78,580		2.8	%	$	34,336		43.7	%

* The percentage or percentage change is not meaningful.

Electric Power Infrastructure Services Segment Results

Revenues for the three months ended June 30, 2020 included a $46 million increase in revenues attributable to our North American communications operations, increased customer spending on distribution services, a $20 million incremental increase in revenues attributable to acquired businesses and an $11 million increase in emergency restoration services. These increases were partially offset by lower revenues associated with grid modernization and accelerated fire hardening programs in the western United ~~States; however, we derived $480.0 million and $667.6 million of our revenues from foreign operations~~States. Additionally, during the three months ended ~~September~~June 30, 2019, we recognized a $79.2 million charge associated with the terminated telecommunications project in Peru, which included a $48.8 million reversal of revenues and ~~2018~~a $30.4 million increase in cost of services. The charge included a reduction of previously recognized earnings on the project, a reserve against a portion of the project costs incurred through the project termination date, a reserve against a portion of alleged liquidated damages and ~~$1.36 billion~~recognition of estimated costs to complete the project turnover and ~~$1.84 billion~~close out the project. See Legal Proceedings in Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report for additional information involving the termination of the telecommunications project in Peru.

As a result of the contract termination and other factors, we have concluded to pursue an orderly exit of our operations in Latin America, and therefore have separately provided our Latin American operating results above. We believe that providing visibility into these results is beneficial to understanding the performance of our ongoing operations. The operating loss attributable to our Latin American operations in the three months ended June 30, 2020 was primarily associated with early termination and project close out costs, cost adjustments on certain remaining projects and disruptions caused by the COVID-19 pandemic. For the full year of 2020, our Latin American operations are expected to generate revenues of $20 million to $30 million and an operating loss of $40 million to $45 million.

Operating income and operating income as a percentage of revenues were positively impacted by improved performance across the segment, including increased Canadian revenues contributing to improved equipment utilization and fixed cost absorption. The three months ended June 30, 2019 was impacted by pronounced seasonal effects in Canada, which in addition to normal revenue seasonality, included higher levels of unabsorbed costs as the crews and equipment completing a large transmission project transitioned to new projects. These positive factors were partially offset by a reduction in fire hardening services in the western United States during the second quarter of 2020 as compared to the three months ended June 30, 2019. We expect revenues

from fire hardening services in the western United States to increase in the second half of 2020 as compared to the first half of 2020 but remain lower than revenues recognized from such services during the second half of 2019. The equity in earnings of integral unconsolidated affiliates primarily relates to the commencement of transition services under the agreement recently awarded to LUMA for the operation and maintenance of the electric transmission and distribution system in Puerto Rico.

Pipeline and Industrial Infrastructure Services Segment Results

The decrease in revenues was primarily due to disruptions resulting from shelter-in-place and worksite access restrictions related to the COVID-19 pandemic and the compounding impact on the challenged energy market, including decreased capital spending by our customers on industrial services due to the significant decline in demand for refined petroleum products. Revenues associated with larger pipeline projects also decreased as compared to the three months ended June 30, 2019, as the timing of such projects is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. The decrease was partially offset by approximately $55 million in incremental revenues from ~~foreign operations~~acquired businesses. As a result of the variability in timing for larger pipeline transmission projects, we expect larger pipeline transmission revenues for 2020 to be between $350 million and $400 million as compared to $1.2 billion during 2019.

The decreases in operating income and operating income as a percentage of revenues were primarily due to the ~~nine~~decrease in revenues as discussed above. The lower revenues associated with industrial services negatively impacted margins and the ability to cover fixed and overhead costs. The reduction in larger pipeline transmission projects, which generally yield higher margins, also contributed to the decrease. The three months ended ~~September~~June 30, 2019 included a $13.9 million loss associated with continued rework and ~~2018. Of our foreign revenues, 71%~~start-up delays on a processing facility project in Texas, which was approximately 99% complete at June 30, 2020.

Corporate and ~~78%~~Non-allocated Costs

The increase in corporate and non-allocated costs was partially due to a $5.2 million increase in intangible asset amortization, a $7.7 million increase in non-cash stock-based compensation expense and a $4.7 million incremental increase in the fair value of deferred compensation liabilities. Partially offsetting these increases were ~~earned~~a $2.2 million decrease in ~~Canada~~the fair value of contingent consideration liabilities in the three months ended June 30, 2020, as compared to a $4.4 million increase in the fair value of contingent consideration liabilities recognized during the three months ended ~~September~~June 30, 2019. Also partially offsetting the increases were decreases in certain costs related to cost containment measures associated with the current operating environment.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

The following table sets forth segment revenues, segment operating income (loss) and ~~2018~~operating margins for the periods indicated, as well as the dollar and ~~75%~~percentage change from the prior period (dollars in thousands):



	Six Months Ended June 30,										Change
	2020					2019					$			%
Revenues:
Electric Power Infrastructure Services excluding Latin America	$	3,552,815		67.4	%	$	3,391,348		60.1	%	$	161,467		4.8	%
Latin America	7,130			0.1		7,011			0.1		119			1.7	%
Electric Power Infrastructure Services	$	3,559,945		67.5		$	3,398,359		60.2		$	161,586		4.8	%
Pipeline and Industrial Infrastructure Services	1,710,381			32.5		2,248,099			39.8		(537,718		)	(23.9	)%
Consolidated revenues	$	5,270,326		100.0	%	$	5,646,458		100.0	%	$	(376,132	)	(6.7	)%
Operating income (loss):
Electric Power Infrastructure Services excluding Latin America	$	343,117		9.7	%	$	334,495		9.9	%	$	8,622		2.6	%
Latin America	(31,509		)	*		(79,943		)	*		48,434			*
Equity in earnings of integral unconsolidated affiliates	1,046			N/A		—			N/A		1,046			*
Electric Power Infrastructure Services	$	312,654		8.8	%	$	254,552		7.5	%	$	58,102		22.8	%
Pipeline and Industrial Infrastructure Services	52,527			3.1	%	110,642			4.9	%	(58,115		)	(52.5	)%
Corporate and non-allocated costs	(171,528		)	N/A		(167,127		)	N/A		(4,401		)	2.6	%
Consolidated operating income	$	193,653		3.7	%	$	198,067		3.5	%	$	(4,414	)	(2.2	)%

* The percentage change is not meaningful.

Electric Power Infrastructure Services Segment Results

The increase in revenues was primarily due to increased customer spending on distribution services. Segment revenues also increased due to a $76 million increase in revenues in our North American communication operations and ~~75%~~approximately $35 million of incremental revenues attributable to acquired businesses. These increases were ~~earned~~partially offset by lower revenues on a larger transmission project in Canada that was substantially completed during the ~~nine~~three months ended ~~September 30,~~March 31, 2019, lower revenues associated with grid modernization and ~~2018. In addition, we held property~~accelerated fire hardening programs in the western United States; and ~~equipment of $310.0~~a $21 million ~~and $304.0 million~~decrease in ~~foreign countries, primarily Canada, as of September 30, 2019 and December 31, 2018. See Note 2 of~~emergency restoration services revenues.

As discussed above, during 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~~

~~During the nine~~six months ended ~~September~~June 30, 2019, we ~~acquired~~recognized a $79.2 million charge associated with the terminated telecommunications project in Peru, which included a $48.8 million reversal of revenues and a $30.4 million increase in cost of services. The ~~Hallen Construction Co., Inc. (Hallen), a pipeline and industrial services business located~~operating loss associated with our Latin American operations in the six months ended June 30, 2020 was primarily associated with early termination and project close out costs, cost adjustments on certain remaining projects and disruptions caused by the COVID-19 pandemic.

Operating income and operating income as a percentage of revenues were positively impacted during the six months ended June 30, 2020 by increased Canadian revenues contributing to improved equipment utilization and fixed cost absorption. The six months ended June 30, 2019 was negatively impacted by pronounced seasonal effects in Canada, which in addition to normal revenue seasonality, had elevated levels of unabsorbed costs as the crews and equipment completing a large transmission project transitioned to new projects. Partially offsetting these increases between periods were the successful execution of the larger transmission project in Canada described above; decreased revenues from emergency restorations services, which typically yield higher margins due in part to higher equipment utilization and absorption of fixed costs; and a reduction in fire hardening services in the western United States ~~that specializes in gas distribution and transmission~~during the first six months of 2020. We expect revenues from fire hardening services and to a lesser extent, underground electric distribution and transmission services; two specialty utility foundation and pole-setting contractors serving the southeast United States; an electric power specialty contracting business located in the western United States ~~that provides aerial power line and construction support services; a business located~~to increase in the ~~United States that provides technical training materials~~second half of 2020 as compared to ~~electric utility workers;~~the first half of 2020 but remain lower than revenues recognized from such services during the second half of 2019. The equity in earnings of integral unconsolidated affiliates primarily relates to the commencement of transition services under the operation and ~~an electrical infrastructure services business located in Canada. The aggregate consideration for these acquisitions was $395.0 million paid or payable in cash, subject~~maintenance agreement recently awarded to certain adjustments, and 60,860 shares of Quanta common stock, which had a fair value of approximately $1.8 million as of the respective acquisition date. A portion of the cash consideration in connection with the Hallen acquisition was placed in an escrow account, which, subject to certain conditions, could be utilized to reimburse us for obligations associated with certain contingent liabilities assumed by us in the transaction. See ~~Insurance and Indemnity Matters~~ below for additional information related to these liabilities. Beginning on the respective acquisition dates, the results of the acquired businesses have been included in Quanta’s consolidated financial statements, with the results of Hallen generally included in the LUMA discussed above.

Pipeline and Industrial Infrastructure Services ~~segment~~Segment Results

The decrease in revenues was primarily due to a decrease in services related to pipeline transmission projects and industrial services, which resulted from decreased capital spending by our customers primarily attributable to the challenging overall energy market conditions, disruptions due to shelter-in-place and worksite access restrictions related to the COVID-19 pandemic and the ~~other~~timing of construction for larger pipeline projects, which is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. This decrease was partially offset by approximately $155 million in revenues from acquired ~~businesses~~businesses.

The decreases in operating income and operating income as a percentage of revenues were primarily due to the reduction in larger pipeline transmission projects, which generally yield higher margins. Also contributing to this decrease were adverse impacts related to the COVID-19 pandemic, including lower revenues associated with industrial services, which negatively impacted margins and the ability to cover fixed and overhead costs. The six months ended June 30, 2020 were also negatively impacted by adverse weather across our Canadian pipeline operations, including a $14.1 million loss associated with production issues and severe weather conditions on a larger gas transmission project in Canada, which was approximately 97% complete at June 30, 2020. The six months ended June 30, 2019 included a $21.5 million loss associated with continued rework and start-up delays on a processing facility project in Texas, which was approximately 99% complete at June 30, 2020. Additionally, segment results were adversely impacted by the COVID-19 pandemic and the challenged energy market as discussed further above in COVID-19 – Response and Impact.

Corporate and Non-allocated Costs

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 training and programs for workers in the industries we serve, and two communications infrastructure services businesses, all of which are located in the United States. The aggregate consideration for these acquisitions was $108.3 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~~deferred compensation liabilities in the six months ended June 30, 2020, as compared to a $5.2 million asincrease in the fair value of deferred compensation liabilities in the ~~respective acquisition dates. Additionally,~~six months ended June 30, 2019, and a $0.5 million increase in 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~~fair value of contingent consideration ~~payable if~~liabilities in the ~~acquired businesses achieve certain performance objectives over five- and three-year post-acquisition periods. Based on~~six months ended June 30, 2020, as compared to a $4.3 million increase in the ~~estimated~~ fair value of ~~the~~ contingent consideration ~~we recorded $16.5 million of~~ liabilities ~~as of~~recognized during the ~~respective acquisition dates. Beginning on~~six months ended June 30, 2019. Also partially offsetting the ~~respective acquisition dates, the results of the acquired businesses have been included in our consolidated financial statements, generally within the Electric Power Infrastructure Services segment.~~

~~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. The investment has been recorded at cost and will be adjusted for impairment, if any, plus or minus observable changes in the value of the company’s equity. Earnings on this investment are recognized as dividends, and we received and recognized $3.9 million of cash dividends from this investment during 2018. During 2018, we also 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.

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 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 investincreases were decreases in certain specified 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 September 30, 2019, we had contributed $13.7 millioncosts related to this partnership in connection with certain investments. In October 2019, due to certain circumstances, the partnership entered into a 180-day period during which the investors and Quanta will evaluate the partnership. During this period, the partnership may make additional investmentscost containment measures associated with the ~~consent of the investors, and, at the end of the period, the investors or Quanta may elect to end the investment period for any future investments or dissolve the partnership.~~

During the three months ended September 30, 2019, we entered into a definitive agreement to sell our interest in a limited partnership that was selected during 2014 to build, own and operate a new 500 kilometer electric transmission line and two 500 kV substations in Alberta, Canada. The sale is expected to close in the fourth quarter of 2019 or early 2020, subject to receipt of regulatory approvals and satisfaction of customary closing conditions.current operating environment.

~~Remaining Performance Obligations and Backlog~~Results of Operations

~~A performance obligation is a promise~~The results of acquired businesses have been included in ~~a contract with a customer~~the following results of operations beginning on their respective acquisition dates.

Consolidated Results

Three months ended June 30, 2020 compared to ~~transfer a distinct good or service. As of September~~the three months ended June 30, 2019 our remaining performance obligations were $4.40 billion, 65.5% 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 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 GAAP, it is a common measurement used in our industry. We 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 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’ 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 September 30, 2019 and December 31, 2018, MSAs accounted for 55% and 53% of our estimated 12-month backlog and 61% and 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 accelerations; project cancellations or delays due to various factors, including but not limited to commercial issues, regulatory requirements and adverse 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 along with estimates~~sets forth selected statements of ~~amounts expected to be realized within 12 months (in~~operations data, such data as a percentage of revenues for the periods indicated, as well as the dollar and percentage change from the prior period (dollars in thousands):

September 30, 2019 December 31, 2018
12 Month Total 12 Month Total
Electric Power Infrastructure Services
Remaining performance obligations $ 2,124,632
$ 2,929,400
$ 2,093,461
$ 3,045,553
Estimated orders under MSAs and short-term, non-fixed price contracts 2,854,533
5,709,337
2,467,654
5,499,887
Backlog 4,979,165
8,638,737
4,561,115
8,545,440

Pipeline and Industrial Infrastructure Services
Remaining performance obligations 761,943
1,475,037
1,003,543
1,635,918
Estimated orders under MSAs and short-term, non-fixed price contracts 1,817,815
3,168,291
1,411,329
2,161,275
Backlog 2,579,758
4,643,328
2,414,872
3,797,193

Total
Remaining performance obligations 2,886,575
4,404,437
3,097,004
4,681,471
Estimated orders under MSAs and short-term, non-fixed price contracts 4,672,348
8,877,628
3,878,983
7,661,162
Backlog $ 7,558,923
$ 13,282,065
$ 6,975,987
$ 12,342,633



	Three Months Ended June 30,										Change
	2020					2019					$			%
Revenues	$	2,506,231		100.0	%	$	2,839,199		100.0	%	$	(332,968	)	(11.7	)%
Cost of services (including depreciation)	2,150,967			85.8		2,519,694			88.7		(368,727		)	(14.6	)%
Gross profit	355,264			14.2		319,505			11.3		35,759			11.2	%
Equity in earnings of integral unconsolidated affiliates	1,045			—		—			—		1,045			*
Selling, general and administrative expenses	(227,852		)	(9.1	)	(223,944		)	(7.9	)	(3,908		)	1.7	%
Amortization of intangible assets	(17,779		)	(0.7	)	(12,610		)	(0.4	)	(5,169		)	41.0	%
Change in fair value of contingent consideration liabilities	2,238			0.1		(4,371		)	(0.2	)	6,609			*
Operating income	112,916			4.5		78,580			2.8		34,336			43.7	%
Interest expense	(8,654		)	(0.3	)	(15,821		)	(0.6	)	7,167			(45.3	)%
Interest income	275			—		267			—		8			3.0	%
Other income (expense), net	3,248			0.1		6,521			0.2		(3,273		)	(50.2	)%
Income before income taxes	107,785			4.3		69,547			2.4		38,238			55.0	%
Provision for income taxes	32,989			1.3		41,088			1.4		(8,099		)	(19.7	)%
Net income	74,796			3.0		28,459			1.0		46,337			162.8	%
Less: Net income attributable to non-controlling interests	849			—		1,115			—		(266		)	(23.9	)%
Net income attributable to common stock	$	73,947		3.0	%	$	27,344		1.0	%	$	46,603		170.4	%

* The percentage change is not meaningful.

~~Seasonality; Fluctuations~~Gross profit. The increase in gross profit was due to increased earnings from electric power infrastructure services based on improved performance across the segment, partially offset by decreased earnings from pipeline and industrial services primarily attributable to the decrease in revenues. Contributing to the increase in electric power infrastructure services gross profit was an improvement related to our Latin American operations, which during the three months ended June 30, 2019 included the $79.2 million charge associated with the terminated telecommunications project in Peru, as compared to $12.2 million 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~~losses in the ~~first quarter~~three months ended June 30, 2020 primarily related to accelerated project terminations and operational impacts of the ~~year because cold, snowy or wet conditions can create challenging working conditions that are more costly~~COVID-19 pandemic. See Segment Results below for ~~our customers or cause delays on projects. In addition, many~~additional information and discussion related to segment operating income (loss).

Equity in earnings of ~~our customers develop their annual capital budgets~~integral unconsolidated affiliates. The amount for the three months ended June 30, 2020 primarily relates to the commencement of transition services under the agreement recently awarded to LUMA for the operation and maintenance of the electric transmission and distribution system in Puerto Rico.

Selling, general and administrative expenses. The increase was primarily attributable to a $6.4 million increase in the fair market value of deferred compensation liabilities during the ~~first quarter and do not begin infrastructure projects in~~three months ended June 30, 2020, as compared to a ~~meaningful way until those budgets are finalized. Second quarter revenues are typically higher than those~~$1.6 million increase 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~~fair market value of ~~the year, as a greater number of projects are underway, and weather is normally more accommodating. Generally, revenues~~deferred compensation liabilities 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, as well as the timing of project awards, unanticipatedthree months ended June 30, 2019. The fair market value changes in ~~project schedules as a result of delays or accelerations and project cancellations and project terminations.~~

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 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 affecteddeferred compensation liabilities were partially offset 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 for ongoing projects; economic and political conditions on a regional, national or global 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; reimbursements associated with letters of credit or performance or payment bonds; the timing of and costs associated with acquisitions; changes in the fair value of ~~acquisition-related contingent consideration liabilities; project payment disputes; project cancellations; dispositions; equity~~assets associated with the deferred compensation plan, which are included in ~~earnings (losses) of unconsolidated affiliates; impairments of goodwill, intangible assets, long-lived assets or investments; effective tax rates;~~other income (expense), net. Also contributing to the increase in selling, general and ~~interest rates. Accordingly, our operating results~~administrative expense was a $5.2 million increase in ~~any particular period may not be indicative~~expenses associated with acquired businesses and a $8.3 million increase in compensation expense primarily due to an increase in non-cash stock-based compensation expense. Partially offsetting these

increases was a $7.9 million decrease in travel expenses, primarily related to reductions in travel as a result of the ~~results that can be expected for any other period. Please read~~ ~~Outlook~~COVID-19 pandemic, and ~~Understanding Margins~~ ~~for additional discussion of trends~~ a $4.6 million decrease in legal and ~~challenges that may affect our financial condition, results of operations~~professional fees. Selling, general and ~~cash flows.~~

~~Understanding Margins~~

~~Our gross margin is gross profit expressed~~administrative expenses as a percentage of revenues increased to 9.1% for the three months ended June 30, 2020 from 7.9% for the three months ended June 30, 2019, primarily due to the decrease in revenues described above.

Interest expense. Interest expense decreased primarily due to the impact of a lower weighted average interest rate, and to a lesser extent due to decreased borrowing activity.

Other income (expense), net. The net other income for the three months ended June 30, 2020 primarily relates to an $8.9 million legal settlement received and a $6.5 million increase in the fair market value of assets associated with our deferred compensation plan, as compared to a $1.5 million increase in the fair market value of assets associated with our deferred compensation plan during the three months ended June 30, 2019. This incremental increase in the fair market value offsets the increase in selling, general, and administrative expenses discussed above. Partially offsetting these items was a $9.3 million impairment associated with an investment in a water and gas pipeline infrastructure contractor located in Australia, which is accounted for under the cost method of accounting, and $5.5 million of impairments associated with two non-integral equity investments that have been negatively impacted by the decline in demand for refined petroleum products.

Provision for income taxes. The effective tax rates for the three months ended June 30, 2020 and June 30, 2019 were 30.6% and 59.1%. The decrease in the effective tax rate was primarily due to the $79.2 million charge recognized in the three months ended June 30, 2019 associated with a terminated telecommunications project in Peru, for which no income tax benefit was recognized. We do not expect any significant benefits to the income tax provision as a result of the CARES Act.

Other comprehensive income (loss). Other comprehensive income (loss) results from translation of the balance sheets of our foreign operating ~~margin is operating income expressed~~units, which are primarily located in Canada and Australia and have functional currencies other than the U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The gain in the three months ended June 30, 2020 was impacted by the weakening of the U.S. dollar against both the Canadian and Australian dollars as of June 30, 2020 when compared to March 31, 2020. The gain in the three months ended June 30, 2019 was primarily impacted by the weakening of the U.S. dollar against the Canadian dollar as of June 30, 2019 when compared to March 31, 2019.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

The following table sets forth selected statements of operations data, such data as a percentage of ~~revenues. Cost~~revenues for the periods indicated, as well as the dollar and percentage change from the prior period (dollars in thousands):



	Six Months Ended June 30,										Change
	2020					2019					$			%
Revenues	$	5,270,326		100.0	%	$	5,646,458		100.0	%	$	(376,132	)	(6.7	)%
Cost of services (including depreciation)	4,582,866			87.0		4,962,972			87.9		(380,106		)	(7.7	)%
Gross profit	687,460			13.0		683,486			12.1		3,974			0.6	%
Equity in earnings of integral unconsolidated affiliates	1,045			—					—		1,045			*
Selling, general and administrative expenses	(458,645		)	(8.7	)	(455,852		)	(8.1	)	(2,793		)	0.6	%
Amortization of intangible assets	(35,687		)	(0.6	)	(25,280		)	(0.4	)	(10,407		)	41.2	%
Change in fair value of contingent consideration liabilities	(520		)	—		(4,287		)	(0.1	)	3,767			(87.9	)%
Operating income	193,653			3.7		198,067			3.5		(4,414		)	(2.2	)%
Interest expense	(22,660		)	(0.4	)	(29,697		)	(0.5	)	7,037			(23.7	)%
Interest income	1,034			—		576			—		458			79.5	%
Other income (expense), net	(6,580		)	(0.2	)	65,480			1.2		(72,060		)	*
Income before income taxes	165,447			3.1		234,426			4.2		(68,979		)	(29.4	)%
Provision for income taxes	49,149			0.9		84,932			1.6		(35,783		)	(42.1	)%
Net income	116,298			2.2		149,494			2.6		(33,196		)	(22.2	)%
Less: Net income attributable to non-controlling interests	3,666			0.1		1,662			—		2,004			120.6	%
Net income attributable to common stock	$	112,632		2.1	%	$	147,832		2.6	%	$	(35,200	)	(23.8	)%

* The percentage change is not meaningful.

Revenues. Contributing to the decrease were lower revenues of $537.7 million from pipeline and industrial infrastructure services, ~~which is subtracted~~partially offset by increased revenues of $161.6 million from ~~revenues~~electric power infrastructure services. See Segment Results below for additional information and discussion related to ~~obtain~~segment revenues.

Gross profit. The increase in gross profit ~~consists~~was primarily due to increased earnings from electric power infrastructure services, partially offset by lower earnings from pipeline and industrial services primarily due to the decrease in revenues. Contributing to the increase in electric power infrastructure services gross profit was an improvement related to our Latin American operations, which during the six months ended June 30, 2019 included the $79.2 million charge associated with the terminated telecommunications project in Peru, as compared to $24.9 million of ~~salaries, wages~~project losses in the six months ended June 30, 2020 primarily related to accelerated project terminations and ~~benefits~~operational impacts of the COVID-19 pandemic. See Segment Results below for additional information and discussion related to ~~employees; depreciation; fuel~~segment operating income (loss).

Selling, general and administrative expenses. This increase was primarily due to a $13.2 million increase in expenses associated with acquired businesses and a $11.5 million increase in compensation expenses, largely associated with higher non-cash stock-based compensation expense. Partially offsetting these increases was a $1.4 million decrease in the fair market value of deferred compensation liabilities during the six months ended June 30, 2020, as compared to a $5.4 million increase in the fair market value of deferred compensation liabilities during the six months ended June 30, 2019. The fair market value changes in deferred compensation liabilities were offset by changes in the fair value of assets associated with the deferred compensation plan which are included in other income (expense), net below. Also partially offsetting the increases were a $6.7 million decrease in travel expenses, primarily related to reductions in travel as a result of the COVID-19 pandemic, and a $4.8 million decrease in legal and other ~~equipment expenses; equipment rental expense; and costs related to subcontracted services, insurance, facilities, materials, parts and supplies.~~contracted services. Selling, general and administrative expenses as a percentage of revenues increased to 8.7% for the six months ended June 30, 2020 from 8.1% for the six months ended June 30, 2019, primarily due to the decrease in revenues described above.

Amortization of intangible assets. The increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense associated with previously acquired intangible assets as certain of these assets became fully amortized.

Change in fair value of contingent consideration liabilities. The overall change was primarily due to changes in performance in post-acquisition periods by certain acquired businesses and the effect of present value accretion on fair value calculations. Further changes in fair value are expected to be recorded periodically until the contingent consideration liabilities are settled, with a significant portion of such obligations expected to be settled in late 2020 or early 2021. See Contractual Obligations - Contingent Consideration Liabilities for more information.

Interest expense. Interest expense decreased due to a lower weighted average interest rate, partially offset by higher borrowing activity.

Other income (expense), net. The net other expense for the six months ended June 30, 2020 was primarily related to a $9.3 million impairment associated with an investment in a water and gas pipeline infrastructure contractor located in Australia and $8.7 million of impairments associated with two non-integral equity investments that have been negatively impacted by the decline in demand for refined petroleum products, partially offset by an $8.9 million legal settlement received. The net other income for the six months ended June 30, 2019 was primarily due to the deferral and subsequent recognition of earnings on a large electric transmission project in Canada that was substantially completed and placed into commercial operation during the three months ended March 31, 2019. As a result of the project completion, we recognized $60.3 million of earnings that were deferred in prior periods.

Provision for income taxes. The effective tax rates for the six months ended June 30, 2020 and June 30, 2019 were 29.7% and 36.2%. The higher effective tax rate for the six months ended June 30, 2019 was primarily due to the $79.2 million charge in the period associated with the terminated telecommunications project in Peru, for which no income tax benefit was recognized.

Other comprehensive income (loss). Other comprehensive income (loss) results from translation of the balance sheets of our foreign operating units, which are primarily located in Canada and Australia and have functional currencies other than the U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The loss in the six months ended June 30, 2020 was impacted by the strengthening of the U.S. dollar against both the Canadian and Australian dollars as of June 30, 2020 when compared to December 31, 2019. The gain in the six months ended June 30, 2019 was impacted of the weakening of the U.S. dollar against the Canadian dollar as of June 30, 2019 when compared to December 31, 2018.

Segment Results

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. Classification of our operating unit revenues by type of work for segment reporting purposes can at times require judgment on the part of management. Our 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 operating units require that certain allocations be made to determine segment profitability, including allocations of shared and indirect costs (e.g., facility costs), indirect operating expenses (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, amortization related to intangible assets, asset impairment related to goodwill and intangible assets and change in fair value of contingent consideration ~~liabilities are then subtracted from gross profit~~liabilities.

Three months ended June 30, 2020 compared to ~~obtain~~the three months ended June 30, 2019

The following table sets forth segment revenues, segment operating ~~income. Various factors, only some of which are within our control, can impact our~~income (loss) and operating 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~~for the 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 due to severe weather during colder months,periods indicated, as well as the dollar and percentage change from the prior period. Operating margins are calculated by dividing operating income by revenues. Management utilizes operating margins as a measure of profitability, which can be helpful for monitoring how effectively we are performing under our contracts. Management also believes operating margins are a useful metric for investors to utilize in evaluating our performance. The following table shows dollars in thousands.



	Three Months Ended June 30,										Change
	2020					2019					$			%
Revenues:
Electric Power Infrastructure Services excluding Latin America	$	1,790,469		71.4	%	$	1,755,160		61.8	%	$	35,309		2.0	%
Latin America	2,449			0.1		(20,824		)	(0.7	)	23,273			*
Electric Power Infrastructure Services	1,792,918			71.5		1,734,336			61.1		58,582			3.4	%
Pipeline and Industrial Infrastructure Services	713,313			28.5		1,104,863			38.9		(391,550		)	(35.4	)%
Consolidated revenues	$	2,506,231		100.0	%	$	2,839,199		100.0	%	$	(332,968	)	(11.7	)%
Operating income (loss):
Electric Power Infrastructure Services excluding Latin America	$	198,044		11.1	%	$	172,266		9.8	%	$	25,778		15.0	%
Latin America	(15,194		)	*		(79,331		)	*		64,137			*
Equity in earnings of integral unconsolidated affiliates	1,046			N/A		—			N/A		1,046			*
Electric Power Infrastructure Services	183,896			10.3	%	92,935			5.4	%	$	90,961		97.9	%
Pipeline and Industrial Infrastructure Services	21,250			3.0	%	69,943			6.3	%	(48,693		)	(69.6	)%
Corporate and non-allocated costs	(92,230		)	N/A		(84,298		)	N/A		(7,932		)	9.4	%
Consolidated operating income	$	112,916		4.5	%	$	78,580		2.8	%	$	34,336		43.7	%

* The percentage or percentage change is not meaningful.

Electric Power Infrastructure Services Segment Results

Revenues for the three months ended June 30, 2020 included a $46 million increase in revenues attributable to our North American communications operations, increased ~~demand~~customer spending on distribution services, a $20 million incremental increase in ~~Canada~~revenues attributable to acquired businesses and ~~certain other northern climates~~an $11 million increase in emergency restoration services. These increases were partially offset by lower revenues associated with grid modernization and accelerated fire hardening programs in the western United States. Additionally, during the ~~winter~~three months ~~due to~~ended June 30, 2019, we recognized a $79.2 million charge associated with the ~~adverse operating conditions during the spring seasonal thaw. Additionally,~~terminated telecommunications project ~~schedules, including when projects begin and are completed, may impact margins. The mix~~in Peru, which included a $48.8 million reversal of business conducted in the areas we serve also affects 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, 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, which can 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 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~~$30.4 million increase in ~~subcontract work in~~cost of services. The charge included a ~~given period may contribute to~~reduction of previously recognized earnings on the project, a ~~decrease in margins. In recent years, we have subcontracted approximately 15% to 20% of our work to other service providers.~~

~~Materials versus labor.~~ Typically, our customers are responsible for supplying the materials for 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 markup on materials is generally lower than our markup on labor costs. Furthermore, fluctuations in the price of materials we are required to procure, including as a result of 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 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, at times we may choose to maintainreserve against 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.

~~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 unexpected~~costs incurred through the project ~~difficulties or site conditions;~~termination date, a reserve against a portion of alleged liquidated damages and recognition of estimated costs to complete the project ~~location, including locations with challenging operating conditions; whether~~turnover and close out the work is on an open or encumbered right of way; inclement weather or severe weather events; environmental restrictions or regulatory delays; protests, other political activity 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 orproject. See Legal Proceedings in ~~the aggregate have a direct impact on the gross margin of a specific project.~~

~~Depreciation.~~ We include depreciation in cost of services, which is common practice in our industry; however, some companies within our industry do not. This can make comparability of our margins to those of other companies difficult and should 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.

~~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 Canadian and Australian dollars, can materially impact margins and comparisons of our results of operations between periods.

~~Change in fair value of contingent consideration liabilities.~~ We have experienced and anticipate fluctuations in operating income margins as a result of changes in the fair value of contingent consideration liabilities associated with 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 211 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report for ~~more~~additional information ~~about~~involving the ~~valuation methodologies~~termination of the telecommunications project in Peru.

As a result of the contract termination and ~~assumptions related~~other factors, we have concluded to pursue an orderly exit of our operations in Latin America, and therefore have separately provided our Latin American operating results above. We believe that providing visibility into these results is beneficial to understanding the performance of our ongoing operations. The operating loss attributable to our Latin American operations in the three months ended June 30, 2020 was primarily associated with early termination and project close out costs, cost adjustments on certain remaining projects and disruptions caused by the COVID-19 pandemic. For the full year of 2020, our Latin American operations are expected to generate revenues of $20 million to $30 million and an operating loss of $40 million to $45 million.

Operating income and operating income as a percentage of revenues were positively impacted by improved performance across the segment, including increased Canadian revenues contributing to improved equipment utilization and fixed cost absorption. The three months ended June 30, 2019 was impacted by pronounced seasonal effects in Canada, which in addition to normal revenue seasonality, included higher levels of unabsorbed costs as the crews and equipment completing a large transmission project transitioned to new projects. These positive factors were partially offset by a reduction in fire hardening services in the western United States during the second quarter of 2020 as compared 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 communication costs, facility costs (e.g., 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.

three months ended June 30, 2019. We expect revenues

Pipeline and Industrial Infrastructure Services Segment Results

The decrease in revenues was primarily due to disruptions resulting from shelter-in-place and worksite access restrictions related to the COVID-19 pandemic and the compounding impact on the challenged energy market, including decreased capital spending by our customers on industrial services due to the significant decline in demand for refined petroleum products. Revenues associated with larger pipeline projects also decreased as compared to the three months ended June 30, 2019, as the timing of such projects is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. The decrease was partially offset by approximately $55 million in incremental revenues from acquired businesses. As a result of the variability in timing for larger pipeline transmission projects, we expect larger pipeline transmission revenues for 2020 to be between $350 million and $400 million as compared to $1.2 billion during 2019.

The decreases in operating income and operating income as a percentage of revenues were primarily due to the decrease in revenues as discussed above. The lower revenues associated with industrial services negatively impacted margins and the ability to cover fixed and overhead costs. The reduction in larger pipeline transmission projects, which generally yield higher margins, also contributed to the decrease. The three months ended June 30, 2019 included a $13.9 million loss associated with continued rework and start-up delays on a processing facility project in Texas, which was approximately 99% complete at June 30, 2020.

Corporate and Non-allocated Costs

The increase in corporate and non-allocated costs was partially due to a $5.2 million increase in intangible asset amortization, a $7.7 million increase in non-cash stock-based compensation expense and a $4.7 million incremental increase in the fair value of deferred compensation liabilities. Partially offsetting these increases were a $2.2 million decrease in the fair value of contingent consideration liabilities in the three months ended June 30, 2020, as compared to a $4.4 million increase in the fair value of contingent consideration liabilities recognized during the three months ended June 30, 2019. Also partially offsetting the increases were decreases in certain costs related to cost containment measures associated with the current operating environment.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019



	Six Months Ended June 30,										Change
	2020					2019					$			%
Revenues:
Electric Power Infrastructure Services excluding Latin America	$	3,552,815		67.4	%	$	3,391,348		60.1	%	$	161,467		4.8	%
Latin America	7,130			0.1		7,011			0.1		119			1.7	%
Electric Power Infrastructure Services	$	3,559,945		67.5		$	3,398,359		60.2		$	161,586		4.8	%
Pipeline and Industrial Infrastructure Services	1,710,381			32.5		2,248,099			39.8		(537,718		)	(23.9	)%
Consolidated revenues	$	5,270,326		100.0	%	$	5,646,458		100.0	%	$	(376,132	)	(6.7	)%
Operating income (loss):
Electric Power Infrastructure Services excluding Latin America	$	343,117		9.7	%	$	334,495		9.9	%	$	8,622		2.6	%
Latin America	(31,509		)	*		(79,943		)	*		48,434			*
Equity in earnings of integral unconsolidated affiliates	1,046			N/A		—			N/A		1,046			*
Electric Power Infrastructure Services	$	312,654		8.8	%	$	254,552		7.5	%	$	58,102		22.8	%
Pipeline and Industrial Infrastructure Services	52,527			3.1	%	110,642			4.9	%	(58,115		)	(52.5	)%
Corporate and non-allocated costs	(171,528		)	N/A		(167,127		)	N/A		(4,401		)	2.6	%
Consolidated operating income	$	193,653		3.7	%	$	198,067		3.5	%	$	(4,414	)	(2.2	)%

* The percentage change is not meaningful.

Electric Power Infrastructure Services Segment Results

The increase in revenues was primarily due to increased customer spending on distribution services. Segment revenues also increased due to a $76 million increase in revenues in our North American communication operations and approximately $35 million of incremental revenues attributable to acquired businesses. These increases were partially offset by lower revenues on a larger transmission project in Canada that was substantially completed during the three months ended March 31, 2019, lower revenues associated with grid modernization and accelerated fire hardening programs in the western United States; and a $21 million decrease in emergency restoration services revenues.

As discussed above, during the six months ended June 30, 2019, we recognized a $79.2 million charge associated with the terminated telecommunications project in Peru, which included a $48.8 million reversal of revenues and a $30.4 million increase in cost of services. The operating loss associated with our Latin American operations in the six months ended June 30, 2020 was primarily associated with early termination and project close out costs, cost adjustments on certain remaining projects and disruptions caused by the COVID-19 pandemic.

Pipeline and Industrial Infrastructure Services Segment Results

The decrease in revenues was primarily due to a decrease in services related to pipeline transmission projects and industrial services, which resulted from decreased capital spending by our customers primarily attributable to the challenging overall energy market conditions, disruptions due to shelter-in-place and worksite access restrictions related to the COVID-19 pandemic and the timing of construction for larger pipeline projects, which is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. This decrease was partially offset by approximately $155 million in revenues from acquired businesses.

Corporate and Non-allocated Costs

The increase in corporate and non-allocated costs was partially due to a $10.4 million increase in intangible asset amortization, a $9.6 million increase in non-cash stock-based compensation and a $3.9 million increase in professional fees. Partially offsetting these increases were a $1.6 million decline in the fair value of deferred compensation liabilities in the six months ended June 30, 2020, as compared to a $5.2 million increase in the fair value of deferred compensation liabilities in the six months ended June 30, 2019, and a $0.5 million increase in the fair value of contingent consideration liabilities in the six months ended June 30, 2020, as compared to a $4.3 million increase in the fair value of contingent consideration liabilities recognized during the six months ended June 30, 2019. Also partially offsetting the increases were decreases in certain costs related to cost containment measures associated with the current operating environment.

Results of Operations

The results of acquired businesses have been included in the following results of operations beginning on their respective acquisition dates.

Consolidated Results

Three months ended June 30, 2020 compared to the three months ended June 30, 2019

The following table sets forth selected statements of operations ~~and other~~ data, such data as a percentage of revenues for the periods indicated, as well as the dollar and percentage change from the prior period (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Revenues $ 3,352,895
100.0 % $ 2,985,281
100.0 % $ 8,999,353
100.0 % $ 8,059,205
100.0 %
Cost of services (including depreciation) 2,879,450
85.9
2,559,451
85.7
7,842,422
87.1
6,998,956
86.8
Gross profit 473,445
14.1
425,830
14.3
1,156,931
12.9
1,060,249
13.2
Selling, general and administrative expenses 245,010
7.3
224,040
7.5
700,862
7.8
645,566
8.0
Amortization of intangible assets 15,264
0.5
10,623
0.3
40,544
0.5
31,535
0.5
Change in fair value of contingent consideration liabilities 3,777
0.1
(1,394 ) —
8,064
0.1
(7,673 ) (0.1 )
Operating income 209,394
6.2
192,561
6.5
407,461
4.5
390,821
4.8
Interest expense (18,369 ) (0.5 ) (9,219 ) (0.4 ) (48,066 ) (0.5 ) (25,175 ) (0.2 )
Interest income 186
—
322
—
762
—
1,128
—
Other income (expense), net 717
—
(15,498 ) (0.5 ) 66,197
0.7
(37,899 ) (0.5 )
Income before income taxes 191,928
5.7
168,166
5.6
426,354
4.7
328,875
4.1
Provision for income taxes 54,906
1.6
43,267
1.4
139,838
1.5
90,659
1.1
Net income 137,022
4.1
124,899
4.2
286,516
3.2
238,216
3.0
Less: Net income attributable to non-controlling interests 954
—
348
—
2,616
—
1,686
0.1
Net income attributable to common stock $ 136,068
4.1 % $ 124,551
4.2 % $ 283,900
3.2 % $ 236,530
2.9 %

~~Three months ended September 30, 2019 compared to the three months ended September 30, 2018~~



	Three Months Ended June 30,										Change
	2020					2019					$			%
Revenues	$	2,506,231		100.0	%	$	2,839,199		100.0	%	$	(332,968	)	(11.7	)%
Cost of services (including depreciation)	2,150,967			85.8		2,519,694			88.7		(368,727		)	(14.6	)%
Gross profit	355,264			14.2		319,505			11.3		35,759			11.2	%
Equity in earnings of integral unconsolidated affiliates	1,045			—		—			—		1,045			*
Selling, general and administrative expenses	(227,852		)	(9.1	)	(223,944		)	(7.9	)	(3,908		)	1.7	%
Amortization of intangible assets	(17,779		)	(0.7	)	(12,610		)	(0.4	)	(5,169		)	41.0	%
Change in fair value of contingent consideration liabilities	2,238			0.1		(4,371		)	(0.2	)	6,609			*
Operating income	112,916			4.5		78,580			2.8		34,336			43.7	%
Interest expense	(8,654		)	(0.3	)	(15,821		)	(0.6	)	7,167			(45.3	)%
Interest income	275			—		267			—		8			3.0	%
Other income (expense), net	3,248			0.1		6,521			0.2		(3,273		)	(50.2	)%
Income before income taxes	107,785			4.3		69,547			2.4		38,238			55.0	%
Provision for income taxes	32,989			1.3		41,088			1.4		(8,099		)	(19.7	)%
Net income	74,796			3.0		28,459			1.0		46,337			162.8	%
Less: Net income attributable to non-controlling interests	849			—		1,115			—		(266		)	(23.9	)%
Net income attributable to common stock	$	73,947		3.0	%	$	27,344		1.0	%	$	46,603		170.4	%

* The percentage change is not meaningful.

Revenues. ~~Revenues increased $367.6 million, or 12.3%, to $3.35 billion for the three months ended September 30, 2019.~~ Contributing to the ~~increase~~decrease were ~~incremental~~lower revenues of ~~$258.4 million from electric power infrastructure services and $109.3~~$391.6 million from pipeline and industrial infrastructure services, partially offset by incremental revenues of $58.6 million from electric power infrastructure services. See Segment Results below for additional information and discussion related to segment revenues.

Gross profit. ~~Gross~~The increase in gross profit was due to increased ~~$47.6 million, or 11.2%,~~earnings from electric power infrastructure services based on improved performance across the segment, partially offset by decreased earnings from pipeline and industrial services primarily attributable to ~~$473.4 million for~~the decrease in revenues. Contributing to the increase in electric power infrastructure services gross profit was an improvement related to our Latin American operations, which during the three months ended ~~September~~June 30, ~~2019. Gross profit~~2019 included the $79.2 million charge associated with the terminated telecommunications project in Peru, as ~~a percentage~~compared to $12.2 million of ~~revenues was 14.1% and 14.3% for~~project losses in the three months ended ~~September~~June 30, ~~2019~~2020 primarily related to accelerated project terminations and ~~2018. Gross profit and gross profit as a percentage~~operational impacts of ~~revenues were positively impacted by~~ the overall increase in revenues described above and margin improvement in pipeline and industrial infrastructure services, partially offset by a decline in margin in electric power infrastructure services.COVID-19 pandemic. See Segment Results below for additional information and discussion related to segment operating income (loss).

Selling, general and administrative expenses. ~~Selling, general and administrative expenses increased $21.0 million, or 9.4%, to $245.0 million for the three months ended September 30, 2019. This~~The increase was primarily attributable to a ~~$13.0~~$6.4 million increase in the fair market value of deferred compensation liabilities during the three months ended June 30, 2020, as compared to a $1.6 million increase in the fair market value of deferred compensation liabilities during the three months ended June 30, 2019. The fair market value changes in deferred compensation liabilities were partially offset by changes in the fair value of assets associated with the deferred compensation plan, which are included in other income (expense), net. Also contributing to the increase in selling, general and administrative expense was a $5.2 million increase in expenses associated with acquired businesses ~~including incremental acquisition and integration costs of $9.9 million,~~ and a ~~$3.2~~$8.3 million increase in compensation ~~expenses, largely associated with higher salaries~~expense primarily due to ~~increased personnel to support business growth and annual~~an increase in non-cash stock-based compensation ~~increases. Also contributing to the increase~~expense. Partially offsetting these

increases was a ~~$2.7~~$7.9 million ~~increase~~decrease in travel expenses, primarily related to reductions in travel as a result of the COVID-19 pandemic, and a $4.6 million decrease in legal and ~~other~~ professional ~~fees and a $1.7 million increase related to information systems and rent expense to support business growth.~~fees. Selling, general and administrative expenses as a percentage of revenues ~~decreased slightly~~increased to ~~7.3%~~9.1% for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~7.5%~~7.9% for the three months ended ~~September~~June 30, ~~2018.~~2019, primarily due to the decrease in revenues described above.

Amortization of intangible assets. ~~Amortization of intangible assets increased $4.6 million to $15.3 million for the three months ended September 30, 2019. This~~The increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense ~~from~~associated with previously acquired intangible assets, as certain of ~~these~~those assets became fully amortized.

Change in fair value of contingent consideration liabilities. ~~A $3.8 million increase in the fair value of contingent consideration liabilities~~The overall change was recognized during the three months ended September 30, 2019, which resulted in a corresponding decrease in operating income, as compared to a $1.4 million decrease in the fair value of contingent consideration liabilities

~~recognized during the three months ended September 30, 2018, which resulted in a corresponding increase in operating income. These changes were~~ primarily due to changes in ~~forecasted~~ performance in post-acquisition periods ~~for~~by certain acquired businesses and the effect of present value accretion on fair value calculations. ~~It is anticipated that~~Further changes in fair value ~~will~~are expected to be recorded periodically until the contingent consideration liabilities are ~~settled.~~settled, with a significant portion of such obligations expected to be settled in late 2020 or early 2021. See Contractual Obligations —– Contingent Consideration Liabilities for more information.

Interest expense. Interest expense ~~increased $9.2 million to $18.4 million for the three months ended September 30, 2019 as compared~~decreased primarily due to the ~~three months ended September 30, 2018 due to increased borrowing activity and~~impact of a ~~higher~~lower weighted average interest ~~rate.~~rate, and to a lesser extent due to decreased borrowing activity.

Other income (expense), net. ~~Other income (expense), net consisted of~~The net other income ~~of $0.7 million~~ for the three months ended ~~September~~June 30, ~~2019,~~2020 primarily relates to an $8.9 million legal settlement received and a $6.5 million increase in the fair market value of assets associated with our deferred compensation plan, as compared to ~~net other expense of $15.5~~a $1.5 million ~~for the three months ended September 30, 2018. The net expense recognized~~increase in the ~~three months ended September 30, 2018 was primarily related to the deferral~~fair market value of ~~earnings on a large electric transmission project in Canada that was substantially completed and placed into commercial operation~~assets associated with our deferred compensation plan during the three months ended ~~March 31,~~June 30, 2019. This incremental increase in the fair market value offsets the increase in selling, general, and administrative expenses discussed above. Partially offsetting these items was a $9.3 million impairment associated with an investment in a water and gas pipeline infrastructure contractor located in Australia, which is accounted for under the cost method of accounting, and $5.5 million of impairments associated with two non-integral equity investments that have been negatively impacted by the decline in demand for refined petroleum products.

Provision for income taxes. The ~~provision for income taxes was $54.9 million~~effective tax rates for the three months ended ~~September~~June 30, 2020 and June 30, 2019 ~~with an effective tax rate of 28.6%~~were 30.6% and 59.1%. The ~~provision for income taxes was $43.3 million for the three months ended September 30, 2018, with an effective tax rate of 25.7%. The increase~~decrease in the effective tax rate was primarily due to the ~~mix~~$79.2 million charge recognized in the three months ended June 30, 2019 associated with a terminated telecommunications project in Peru, for which no income tax benefit was recognized. We do not expect any significant benefits to the income tax provision as a result of ~~domestic and foreign earnings.~~the CARES Act.

Other comprehensive income (loss). Other comprehensive income (loss)~~, net~~ results from translation of ~~taxes was a loss~~the balance sheets of ~~$12.8 million~~our foreign operating units, which are primarily located in Canada and Australia and have functional currencies other than the U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The gain in the three months ended ~~September~~June 30, ~~2019 compared to a gain of $10.8 million in~~2020 was impacted by the ~~three months ended September 30, 2018. The loss in the three months ended September 30, 2019 was due to the strengthening~~weakening of the U.S. dollar against ~~foreign currencies associated with our international operations, primarily~~both the Canadian and Australian dollars as of ~~September~~June 30, ~~2019~~2020 when compared to ~~June 30, 2019.~~March 31, 2020. The gain in the three months ended ~~September~~June 30, ~~2018~~2019 was ~~due to~~primarily impacted by the ~~strengthening~~weakening of ~~certain foreign currencies associated with our international operations, primarily the Canadian and Australian dollars, against~~ the U.S. dollar against the Canadian dollar as of ~~September~~June 30, ~~2018~~2019 when compared to March 31, 2019.

Six months ended June 30, ~~2018.~~

~~Nine months ended September 30, 2019~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019



	Six Months Ended June 30,										Change
	2020					2019					$			%
Revenues	$	5,270,326		100.0	%	$	5,646,458		100.0	%	$	(376,132	)	(6.7	)%
Cost of services (including depreciation)	4,582,866			87.0		4,962,972			87.9		(380,106		)	(7.7	)%
Gross profit	687,460			13.0		683,486			12.1		3,974			0.6	%
Equity in earnings of integral unconsolidated affiliates	1,045			—					—		1,045			*
Selling, general and administrative expenses	(458,645		)	(8.7	)	(455,852		)	(8.1	)	(2,793		)	0.6	%
Amortization of intangible assets	(35,687		)	(0.6	)	(25,280		)	(0.4	)	(10,407		)	41.2	%
Change in fair value of contingent consideration liabilities	(520		)	—		(4,287		)	(0.1	)	3,767			(87.9	)%
Operating income	193,653			3.7		198,067			3.5		(4,414		)	(2.2	)%
Interest expense	(22,660		)	(0.4	)	(29,697		)	(0.5	)	7,037			(23.7	)%
Interest income	1,034			—		576			—		458			79.5	%
Other income (expense), net	(6,580		)	(0.2	)	65,480			1.2		(72,060		)	*
Income before income taxes	165,447			3.1		234,426			4.2		(68,979		)	(29.4	)%
Provision for income taxes	49,149			0.9		84,932			1.6		(35,783		)	(42.1	)%
Net income	116,298			2.2		149,494			2.6		(33,196		)	(22.2	)%
Less: Net income attributable to non-controlling interests	3,666			0.1		1,662			—		2,004			120.6	%
Net income attributable to common stock	$	112,632		2.1	%	$	147,832		2.6	%	$	(35,200	)	(23.8	)%

* The percentage change is not meaningful.

Revenues. ~~Revenues increased $940.1 million, or 11.7%, to $9.00 billion for the nine months ended September 30, 2019.~~ Contributing to the ~~increase~~decrease were ~~incremental~~lower revenues of ~~$518.0 million from electric power infrastructure services and $422.1~~$537.7 million from pipeline and industrial infrastructure ~~services. Electric~~services, partially offset by increased revenues of $161.6 million from electric power infrastructure services revenues for the nine months ended September 30, 2019 were impacted by a $48.8 million reversal of revenues associated with the termination of a large telecommunications project in Peru and the uncertainty regarding recovery of amounts incurred and potential claims that may be owed in connection with the project. See ~~Legal Proceedings — Peru Project Dispute~~ ~~in Note 11 of the Notes to Consolidated Financial Statements in Item 1.~~ ~~Financial Statements~~ ~~for additional information and disclosure related to this matter.~~services. See Segment Results below for additional information and discussion related to segment revenues.

Gross profit. Gross profit increased $96.7 million, or 9.1%, to $1.16 billion for the nine months ended September 30, 2019. Gross profit as a percentage of revenues was 12.9% for the nine months ended September 30, 2019 as compared to 13.2% for the nine months ended September 30, 2018. The increase in gross profit was primarily due to ~~the overall increase in revenues described above and margin improvement in pipeline and industrial~~increased earnings from electric power infrastructure services, partially offset by ~~a decline~~lower earnings from pipeline and industrial services primarily due to the decrease in ~~margin~~revenues. Contributing to the increase in electric power infrastructure ~~services. Impacting both~~services gross profit ~~and gross profit as a percentage of revenues for~~was an improvement related to our Latin American operations, which during the ~~nine~~six months ended ~~September~~June 30, 2019 ~~was a~~included the $79.2 million charge associated with the ~~termination of the~~terminated telecommunications project in Peru, ~~referenced above, which included~~as compared to $24.9 million of project losses in the $48.8 million reversal of revenues and a $30.4 million increase to cost of services. The project termination charge negatively impacted gross profit as a percentage of revenues by 76 basis points during the ninesix months ended ~~September~~June 30, ~~2019.~~2020 primarily related to accelerated project terminations and operational impacts of the COVID-19 pandemic. SeeSegment Results below for additional information and discussion related to segment operating income (loss).

Selling, general and administrative expenses. ~~Selling, general and administrative expenses increased $55.3 million, or 8.6%, to $700.9 million for the nine months ended September 30, 2019.~~ This increase was primarily ~~attributable~~due to a ~~$18.9~~$13.2 million increase in expenses associated with acquired businesses and a $11.5 million increase in compensation expenses, largely associated with higher ~~salaries due to increased personnel to support business growth and annual~~non-cash stock-based compensation increases; a $9.9 million increase in expenses associated with acquired businesses, including incremental acquisition and integration costs of $4.3 million; and a $9.5 million increase in legal and other professional fees. Also contributing to the increase were a $6.8 million increase in information systems and rent expense to support business growth and a $3.3 million increase in deferred compensation expense, which was primarily associated with market value changes.expense. Partially offsetting these increases was a ~~$3.3~~$1.4 million decrease in ~~asset impairment charges for~~ the ~~nine~~fair market value of deferred compensation liabilities during the six months ended ~~September~~June 30, 2020, as compared to a $5.4 million increase in the fair market value of deferred compensation liabilities during the six months ended June 30, 2019. The fair market value changes in deferred compensation liabilities were offset by changes in the fair value of assets associated with the deferred compensation plan which are included in other income (expense), net below. Also partially offsetting the increases were a $6.7 million decrease in travel expenses, primarily related to reductions in travel as a result of the COVID-19 pandemic, and a $4.8 million decrease in legal and other contracted services. Selling, general and administrative expenses as a percentage of revenues ~~decreased~~increased to ~~7.8%~~8.7% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~8.0%~~8.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to the ~~increase~~decrease in revenues described above.

Amortization of intangible assets. ~~Amortization of intangible assets increased $9.0 million to $40.5 million for the nine months ended September 30, 2019. This~~The increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense ~~from~~associated with previously acquired intangible assets as certain of these assets became fully amortized.

Change in fair value of contingent consideration liabilities. ~~An $8.1 million increase in the fair value of contingent consideration liabilities~~The overall change was recognized during the nine months ended September 30, 2019, which resulted in a corresponding decrease in operating income, as compared to $7.7 million decrease in the fair value of contingent consideration liabilities recognized during the nine months ended September 30, 2018, which resulted in a corresponding increase in operating income. These changes were primarily due to changes in ~~forecasted~~ performance in post-acquisition periods ~~for~~by certain acquired businesses and the effect of present value accretion on fair value calculations. ~~It is anticipated that~~Further changes in fair value ~~will~~are expected to be recorded periodically until the contingent consideration liabilities are ~~settled.~~settled, with a significant portion of such obligations expected to be settled in late 2020 or early 2021. See Contractual Obligations —- Contingent Consideration Liabilities for more information.

Interest expense. Interest expense ~~increased $22.9 million to $48.1 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018~~decreased due to ~~increased borrowing activity and~~ a ~~higher~~lower weighted average interest ~~rate.~~rate, partially offset by higher borrowing activity.

Other income (expense), net. ~~Other income (expense), net consisted of net other income of $66.2 million for the nine months ended September 30, 2019, as compared to~~The net other expense ~~of $37.9 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2018. This change~~2020 was primarily related to ~~our~~a $9.3 million impairment associated with an investment in a water and gas pipeline infrastructure contractor located in Australia and $8.7 million of impairments associated with two non-integral equity ~~investment~~investments that have been negatively impacted by the decline in demand for refined petroleum products, partially offset by an $8.9 million legal settlement received. The net other income for the six months ended June 30, 2019 was primarily due to the deferral and subsequent recognition of earnings on a large electric transmission project in Canada that was substantially completed and placed into commercial operation during the three months ended March 31, 2019. As a result of the project completion, we recognized $60.3 million of earnings that were ~~previously~~ deferred ~~as a component of “Other income (expense), net”~~ in prior periods. The net expense recognized in the nine months ended September 30, 2018 was primarily related to the deferral of earnings on the same project. In addition, during the nine months ended September 30, 2019, a $3.1 million bargain purchase gain was recognized, which related to the acquisition of an electrical infrastructure services business, and other expense of $4.0 million was recognized related to a reduction of an indemnification asset, which resulted from the favorable settlement of a pre-acquisition foreign tax-related obligation.

Provision for income taxes. The ~~provision for income taxes was $139.8 million~~effective tax rates for the ~~nine~~six months ended ~~September~~June 30, 2020 and June 30, 2019 ~~with an~~were 29.7% and 36.2%. The higher effective tax rate ~~of 32.8%. The provision for income taxes was $90.7 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2018, with an effective tax rate of 27.6%. The increase in the effective tax rate~~2019 was primarily due to the $79.2 million charge in the period associated with the ~~termination of the large~~terminated telecommunications project in Peru, for which no income tax benefit was ~~recognized, and the mix of domestic and foreign earnings.~~recognized.

Other comprehensive income (loss). Other comprehensive income (loss)~~, net~~ results from translation of ~~taxes was a gain~~the balance sheets of ~~$21.9 million~~our foreign operating units, which are primarily located in Canada and Australia and have functional currencies other than the U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The loss in the ~~nine~~six months ended ~~September~~June 30, ~~2019 compared to a loss of $34.3 million in the nine months ended September 30, 2018. The gain in the nine months ended September 30, 2019~~2020 was ~~due to~~impacted by the strengthening of ~~certain foreign currencies associated with our international operations, primarily~~the U.S. dollar against both the Canadian and Australian dollars ~~against~~as of June 30, 2020 when compared to December 31, 2019. The gain in the six months ended June 30, 2019 was impacted of the weakening of the U.S. dollar against the Canadian dollar as of ~~September~~June 30, 2019 when compared to December 31, 2018, and the loss in the nine months ended September 30, 2018 was due to a strengthening of the U.S. dollar against foreign currencies associated with our international operations, primarily the Canadian and Australian dollars, as of September 30, 2018 when compared to December 31, 2017.2018.

Segment Results

Three months ended June 30, 2020 compared to the three months ended June 30, 2019

The following table sets forth segment revenues, ~~and~~ segment operating income (loss) and operating margins for the periods indicated, ~~(dollars~~as well as the dollar and percentage change from the prior period. Operating margins are calculated by dividing operating income by revenues. Management utilizes operating margins as a measure of profitability, which can be helpful for monitoring how effectively we are performing under our contracts. Management also believes operating margins are a useful metric for investors to utilize in ~~thousands):~~evaluating our performance. The following table shows dollars in thousands.


	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended June 30,										Change
	2019					2018					2019					2018					2020					2019					$			%
Revenues:
Electric Power Infrastructure Services excluding Latin America																					$	1,790,469		71.4	%	$	1,755,160		61.8	%	$	35,309		2.0	%
Latin America																					2,449			0.1		(20,824		)	(0.7	)	23,273			*
Electric Power Infrastructure Services	$	1,876,097		56.0	%	$	1,617,736		54.2	%	$	5,274,456		58.6	%	$	4,756,416		59.0	%	1,792,918			71.5		1,734,336			61.1		58,582			3.4	%
Pipeline and Industrial Infrastructure Services	1,476,798			44.0		1,367,545			45.8		3,724,897			41.4		3,302,789			41.0		713,313			28.5		1,104,863			38.9		(391,550		)	(35.4	)%
Consolidated revenues from external customers	$	3,352,895		100.0	%	$	2,985,281		100.0	%	$	8,999,353		100.0	%	$	8,059,205		100.0	%
Consolidated revenues																					$	2,506,231		100.0	%	$	2,839,199		100.0	%	$	(332,968	)	(11.7	)%
Operating income (loss):
Electric Power Infrastructure Services excluding Latin America																					$	198,044		11.1	%	$	172,266		9.8	%	$	25,778		15.0	%
Latin America																					(15,194		)	*		(79,331		)	*		64,137			*
Equity in earnings of integral unconsolidated affiliates																					1,046			N/A		—			N/A		1,046			*
Electric Power Infrastructure Services	$	175,692		9.4	%	$	179,181		11.1	%	$	430,244		8.2	%	$	466,087		9.8	%	183,896			10.3	%	92,935			5.4	%	$	90,961		97.9	%
Pipeline and Industrial Infrastructure Services	132,424			9.0	%	96,067			7.0	%	243,066			6.5	%	149,953			4.5	%	21,250			3.0	%	69,943			6.3	%	(48,693		)	(69.6	)%
Corporate and non-allocated costs	(98,722		)	—		(82,687		)	—		(265,849		)	—		(225,219		)	—		(92,230		)	N/A		(84,298		)	N/A		(7,932		)	9.4	%
Consolidated operating income	$	209,394		6.2	%	$	192,561		6.5	%	$	407,461		4.5	%	$	390,821		4.8	%	$	112,916		4.5	%	$	78,580		2.8	%	$	34,336		43.7	%

~~Three months ended September 30, 2019 compared to the three months ended September 30, 2018~~* The percentage or percentage change is not meaningful.

Electric Power Infrastructure Services Segment Results

Revenues ~~increased $258.4 million, or 16.0%, to $1.88 billion~~ for the three months ended ~~September~~June 30, 2020 included a $46 million increase in revenues attributable to our North American communications operations, increased customer spending on distribution services, a $20 million incremental increase in revenues attributable to acquired businesses and an $11 million increase in emergency restoration services. These increases were partially offset by lower revenues associated with grid modernization and accelerated fire hardening programs in the western United States. Additionally, during the three months ended June 30, 2019, we recognized a $79.2 million charge associated with the terminated telecommunications project in Peru, which included a $48.8 million reversal of revenues and a $30.4 million increase in cost of services. The charge included a reduction of previously recognized earnings on the project, a reserve against a portion of the project costs incurred through the project termination date, a reserve against a portion of alleged liquidated damages and recognition of estimated costs to complete the project turnover and close out the project. See Legal Proceedings in Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report for additional information involving the termination of the telecommunications project in Peru.

Pipeline and Industrial Infrastructure Services Segment Results

The decrease in revenues was primarily due to disruptions resulting from shelter-in-place and worksite access restrictions related to the COVID-19 pandemic and the compounding impact on the challenged energy market, including decreased capital spending by our customers on industrial services due to the significant decline in demand for refined petroleum products. Revenues associated with larger pipeline projects also decreased as compared to the three months ended June 30, 2019, as the timing of such projects is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. The decrease was partially offset by approximately $55 million in incremental revenues from acquired businesses. As a result of the variability in timing for larger pipeline transmission projects, we expect larger pipeline transmission revenues for 2020 to be between $350 million and $400 million as compared to $1.2 billion during 2019.

Corporate and Non-allocated Costs

The increase in corporate and non-allocated costs was partially due to a $5.2 million increase in intangible asset amortization, a $7.7 million increase in non-cash stock-based compensation expense and a $4.7 million incremental increase in the fair value of deferred compensation liabilities. Partially offsetting these increases were a $2.2 million decrease in the fair value of contingent consideration liabilities in the three months ended June 30, 2020, as compared to a $4.4 million increase in the fair value of contingent consideration liabilities recognized during the three months ended June 30, 2019. Also partially offsetting the increases were decreases in certain costs related to cost containment measures associated with the current operating environment.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019



	Six Months Ended June 30,										Change
	2020					2019					$			%
Revenues:
Electric Power Infrastructure Services excluding Latin America	$	3,552,815		67.4	%	$	3,391,348		60.1	%	$	161,467		4.8	%
Latin America	7,130			0.1		7,011			0.1		119			1.7	%
Electric Power Infrastructure Services	$	3,559,945		67.5		$	3,398,359		60.2		$	161,586		4.8	%
Pipeline and Industrial Infrastructure Services	1,710,381			32.5		2,248,099			39.8		(537,718		)	(23.9	)%
Consolidated revenues	$	5,270,326		100.0	%	$	5,646,458		100.0	%	$	(376,132	)	(6.7	)%
Operating income (loss):
Electric Power Infrastructure Services excluding Latin America	$	343,117		9.7	%	$	334,495		9.9	%	$	8,622		2.6	%
Latin America	(31,509		)	*		(79,943		)	*		48,434			*
Equity in earnings of integral unconsolidated affiliates	1,046			N/A		—			N/A		1,046			*
Electric Power Infrastructure Services	$	312,654		8.8	%	$	254,552		7.5	%	$	58,102		22.8	%
Pipeline and Industrial Infrastructure Services	52,527			3.1	%	110,642			4.9	%	(58,115		)	(52.5	)%
Corporate and non-allocated costs	(171,528		)	N/A		(167,127		)	N/A		(4,401		)	2.6	%
Consolidated operating income	$	193,653		3.7	%	$	198,067		3.5	%	$	(4,414	)	(2.2	)%

* The percentage change is not meaningful.

Electric Power Infrastructure Services Segment Results

The increase in revenues was primarily due to increased customer spending on ~~smaller transmission and~~ distribution ~~services, including~~services. Segment revenues also increased ~~revenues in the western United States associated with grid modernization and accelerated fire hardening programs; approximately $50 million in revenues from acquired businesses; and~~due to a ~~$16~~$76 million increase in ~~emergency restoration services~~ revenues ~~primarily~~in our North American communication operations and approximately $35 million of incremental revenues attributable to ~~the significant impact of Hurricane Dorian on the eastern coast of the United States.~~acquired businesses. These increases were partially offset by lower revenues on a larger transmission project in Canada that was substantially completed during the three months ended March 31, 2019, lower revenues associated with grid modernization and ~~less favorable foreign currency exchange rates,~~accelerated fire hardening programs in the western United States; and a $21 million decrease in emergency restoration services revenues.

As discussed above, during the six months ended June 30, 2019, we recognized a $79.2 million charge associated with the terminated telecommunications project in Peru, which ~~negatively impacted~~included a $48.8 million reversal of revenues and a $30.4 million increase in cost of services. The operating loss associated with our Latin American operations in the six months ended June 30, 2020 was primarily associated with early termination and project close out costs, cost adjustments on certain remaining projects and disruptions caused by ~~approximately $7 million and were primarily attributable to~~ the ~~relationship between the U.S. dollar and the Canadian and Australian dollars.~~COVID-19 pandemic.

Operating income ~~decreased $3.5 million, or 1.9%, to $175.7 million for the three months ended September 30, 2019. Operating~~and operating income as a percentage of revenues ~~decreased to 9.4% for~~were positively impacted during the ~~three~~six months ended ~~September~~June 30, 2020 by increased Canadian revenues contributing to improved equipment utilization and fixed cost absorption. The six months ended June 30, 2019 ~~from 11.1% for~~was negatively impacted by pronounced seasonal effects in Canada, which in addition to normal revenue seasonality, had elevated levels of unabsorbed costs as the ~~three months ended September 30, 2018. These decreases~~crews and equipment completing a large transmission project transitioned to new projects. Partially offsetting these increases between periods were ~~primarily due to operating income for~~ the ~~three months ended September 30, 2018 including favorable progress on~~successful execution of the larger transmission project in Canada that successfully executed through project procurement, winter schedule and productivity risks, resulting in a decrease in cost contingencies. Additionally, operating income for the three months ended September 30, 2019 was negatively impacted by severe weather and other delays on certain larger transmission projects in Canada that resulted in elevated levels of unabsorbed costs. Partially offsetting these decreases were increaseddescribed above; decreased revenues from ~~smaller transmission~~emergency restorations services, which typically yield higher margins due in part to higher equipment utilization and ~~distribution services~~absorption of fixed costs; and ~~emergency restoration services described above, including increased customer spending on continuing~~a reduction in fire hardening ~~programs.~~services in the western United States during the first six months of 2020. We expect revenues from fire hardening services in the western United States to increase in the second half of 2020 as compared to the first half of 2020 but remain lower than revenues recognized from such services during the second half of 2019. The equity in earnings of integral unconsolidated affiliates primarily relates to the commencement of transition services under the operation and maintenance agreement recently awarded to LUMA discussed above.

Pipeline and Industrial Infrastructure Services Segment Results

~~Revenues increased $109.3 million, or 8.0%, to $1.48 billion for the three months ended September 30, 2019. This change~~The decrease in revenues was primarily due to ~~an increase~~a decrease in ~~revenues from smaller~~services related to pipeline transmission projects and ~~gas distribution~~industrial services, which resulted from ~~increased~~decreased capital spending by our customers primarily attributable to the challenging overall energy market conditions, disruptions due to shelter-in-place and ~~approximately $40 million in revenues from acquired businesses. Partially offsetting these increases was a decrease in larger pipeline transmission revenues. The~~worksite access restrictions related to the COVID-19 pandemic and the timing of construction for ~~these types of~~ larger pipeline projects, which is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. ~~Due to these factors, the majority of our larger pipeline transmission project work for 2018~~This decrease was ~~performed in the second half of the year, while the majority of such work for 2019 was performed in the first half of the year. Also,~~ partially ~~offsetting these increases were less favorable foreign currency exchange rates during the three months ended September 30, 2019, which negatively impacted revenues~~offset by approximately $3$155 million ~~and were primarily attributable to the relationship between the U.S. dollar and the Canadian and Australian dollars.~~in revenues from acquired businesses.

~~Operating~~The decreases in operating income ~~increased $36.4 million, or 37.8%, to $132.4 million for the three months ended September 30, 2019. Operating~~and operating income as a percentage of revenues ~~increased to 9.0% for the three months ended September 30, 2019 from 7.0% for the three months ended September 30, 2018. These increases~~ were primarily due to ~~improved margins on both gas distribution services and~~the reduction in larger pipeline transmission ~~projects. Additionally,~~projects, which generally yield higher margins. Also contributing to this decrease were adverse impacts related to the ~~three~~COVID-19 pandemic, including lower revenues associated with industrial services, which negatively impacted margins and the ability to cover fixed and overhead costs. The six months ended ~~September~~June 30, ~~2018~~2020 were also negatively impacted by ~~$28.9~~adverse weather across our Canadian pipeline operations, including a $14.1 million ~~of project losses~~ loss associated with ~~engineering~~production issues and ~~production~~severe weather conditions on a larger gas transmission project in Canada, which was approximately 97% complete at June 30, 2020. The six months ended June 30, 2019 included a $21.5 million loss associated with continued rework and start-up delays on a processing facility project in

Texas, which was approximately 99% complete at June 30, 2020. Additionally, segment results were adversely impacted by the COVID-19 pandemic and ~~a partial collapse of an underground borehole for a natural gas pipeline project~~the challenged energy market as discussed further above in ~~the northeast United States. These projects had a minimal negative impact on operating income for the three months ended September 30, 2019.~~COVID-19 – Response and Impact.

Corporate and Non-allocated Costs

~~Certain selling, general~~The increase in corporate and ~~administrative expenses,~~non-allocated costs was partially due to a $10.4 million increase in intangible asset amortization, ~~of intangible assets~~a $9.6 million increase in non-cash stock-based compensation and ~~change~~a $3.9 million increase in professional fees. Partially offsetting these increases were a $1.6 million decline in the fair value of ~~contingent consideration~~deferred compensation liabilities ~~are not allocated to segments. Corporate and non-allocated costs for~~in the ~~three~~six months ended ~~September~~June 30, ~~2019 increased $16.0 million to $98.7 million~~2020, as compared to ~~the three months ended September 30, 2018. The increase was primarily due to~~ a ~~$9.9~~$5.2 million increase in ~~acquisition-related costs~~the fair value of deferred compensation liabilities in the six months ended June 30, 2019, and a ~~$3.8~~$0.5 million increase in the fair value of contingent consideration liabilities in the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020, as compared to a ~~$1.4~~$4.3 million ~~decrease in the fair value of certain contingent consideration liabilities recognized in the three months ended September 30, 2018. Also contributing to the~~ increase ~~was a $4.6 million increase in intangible amortization expense. Partially offsetting these increases was a $4.2 million net decrease in incentive and stock-based compensation.~~

~~Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018~~

~~Electric Power Infrastructure Services Segment Results~~

Revenues for this segment increased $518.0 million, or 10.9%, to $5.27 billion for the nine months ended September 30, 2019. This change in revenues was primarily due to increased customer spending on smaller transmission and distribution services, including increased revenues in the western United States associated with grid modernization and accelerated fire hardening programs, and approximately $120 million in revenues from acquired businesses. These increases were partially offset by lower revenues on the larger transmission project in Canada that was substantially completed during the three months ended March 31, 2019; an $8 million decrease in emergency restoration services revenues; and less favorable foreign currency exchange rates, which negatively impacted revenues by approximately $29 million and were primarily attributable to the relationship between the U.S. dollar and the Canadian and Australian dollars. Additionally, as discussed above, segment revenues for the nine months ended September 30, 2019 were negatively impacted by a $48.8 million reversal of revenues related to the large telecommunications project in Peru that was recorded in the three months ended June 30, 2019.

Operating income decreased $35.8 million, or 7.7%, to $430.2 million for the nine months ended September 30, 2019. Operating income as a percentage of segment revenues decreased to 8.2% for the nine months ended September 30, 2019 from 9.8% for the nine months ended September 30, 2018. These decreases were primarily due to the $79.2 million charge associated with the termination of the large telecommunications project in Peru, higher operating income for the nine months ended September 30, 2018 related to the successful execution of the larger transmission project in Canada described above, as well as lower operating income for the nine months ended September 30, 2019 due to an increase in unabsorbed costs in Canada related to severe weather and other delays on certain larger transmission projects. The charge associated with the termination of the telecommunications project in Peru negatively impacted operating income as a percentage of revenues by 146 basis points and included a reduction of previously recognized earnings on the project, a reserve against a portion of alleged liquidated damages and recognition of estimated costs to complete the project turnover and close out the project. The nine months ended September 30, 2019 was positively impacted by the increase in revenues from smaller transmission and distribution services described above, including increased customer spending on continuing fire hardening programs.

~~Pipeline and Industrial Infrastructure Services Segment Results~~

Revenues for this segment increased $422.1 million, or 12.8%, to $3.72 billion for the nine months ended September 30, 2019. This change was primarily due to an increase in revenues from pipeline transmission, gas distribution and industrial services, which resulted from increased capital spending by our customers and included an increase in revenues from larger pipeline transmission projects. The timing of construction for larger projects is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns. Due to these factors, the majority of our larger pipeline transmission project work for 2018 was performed in the second half of the year, while the majority of such work for 2019 was performed in the first half of the year. The increase in revenues also included approximately $40 million from acquired businesses. Partially offsetting the increases were less favorable foreign currency exchange rates during the nine months ended September 30, 2019, which negatively impacted revenues by approximately $25 million and were primarily attributable to the relationship between the U.S. dollar and the Canadian and Australian dollars.

Operating income increased $93.1 million, or 62.1%, to $243.1 million for the nine months ended September 30, 2019. Operating income as a percentage of segment revenues increased to 6.5% for the nine months ended September 30, 2019 from 4.5% for the nine months ended September 30, 2018. These increases were primarily due to improved margins across our transmission, distribution and industrial services operations resulting from improved execution and utilization, as well as an increase in revenues from larger pipeline transmission projects, which typically yield higher margins. Also contributing to these increases were a $3.3 million reduction in asset impairment charges, a $1.3 million reduction in severance and restructuring costs and the

impact of severe weather on various ongoing projects that resulted in lower productivity during the nine months ended September 30, 2018. The nine months ended September 30, 2018 were also negatively impacted by $22.7 million of project losses associated with production issues and severe weather conditions on a large gas transmission project and a partial collapse of an underground borehole for a natural gas pipeline project in the northeast United States. Additionally, the nine months ended September 30, 2019 and 2018 were negatively impacted by $23.3 million and $20.6 million of project losses associated with engineering and production delays on a processing facility project, which was substantially complete as of September 30, 2019.

~~Corporate and Non-allocated Costs~~

Certain selling, general and administrative expenses, amortization of intangible assets and change in fair value of contingent consideration liabilities are not allocated to segments. Corporate and non-allocated costs for the nine months ended September 30, 2019 increased $40.6 million to $265.8 million compared to the nine months ended September 30, 2018. This increase was partially due to a $8.1 million increase in the fair value of contingent consideration liabilities in the nine months ended September 30, 2019, as compared to a $7.7 million decrease in the fair value of contingent consideration liabilities recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Also ~~contributing~~partially offsetting the increases were decreases in certain costs related to cost containment measures associated with the current operating environment.

Remaining Performance Obligations and Backlog

A performance obligation is a promise in a contract with a customer to transfer a distinct good or service. 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, which includes estimated revenues attributable to consolidated joint ventures and variable interest entities (VIEs), revenues from funded and unfunded portions of government contracts to the ~~increase were~~extent they are reasonably expected to be realized, and revenues from change orders and claims to the extent management believes they will be earned and are probable of collection.

We have also historically disclosed our backlog, a ~~$9.0 million increase~~measure commonly used in ~~intangible amortization,~~our industry but not recognized under generally accepted accounting principles in the United States (GAAP). We believe this measure enables management to more effectively forecast our future capital needs and results and better identify future operating trends that may not otherwise be apparent. We believe this measure is also useful for investors in forecasting our future results and comparing us to our competitors. Our remaining performance obligations are a ~~$4.3 million increase~~component of backlog, which also includes estimated orders under 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.

As of June 30, 2020 and December 31, 2019, MSAs accounted for 54% and 53% of our estimated 12-month backlog and 64% and 61% of total backlog. Generally, our customers are not contractually committed to specific volumes of services under our MSAs, and most of our contracts can be terminated on short notice even if we are not in ~~acquisition-related costs,~~default. We determine the estimated backlog for these MSAs using recurring historical trends, factoring in seasonal demand and projected customer needs based upon ongoing communications. In addition, many of our MSAs are subject to renewal, and these potential renewals are considered in determining estimated backlog. As a ~~$4.0 million increase~~result, estimates for remaining performance obligations and backlog are subject to change based on, among other things, project accelerations; project cancellations or delays, including but not limited to those caused by commercial issues, regulatory requirements, natural disasters, emergencies (including the ongoing COVID-19 pandemic) and adverse weather conditions; and final acceptance of change orders by customers. These factors can cause revenues to be realized in ~~salaries~~periods and ~~benefits,~~at levels that are different than originally projected.

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



	June 30, 2020				December 31, 2019
	12 Month		Total		12 Month		Total
Electric Power Infrastructure Services
Remaining performance obligations	$	2,490,774	$	3,812,768	$	2,483,109	$	3,957,710
Estimated orders under MSAs and short-term, non-fixed price contracts	2,847,235		5,871,440		2,873,446		5,864,527
Backlog	5,338,009		9,684,208		5,356,555		9,822,237

Pipeline and Industrial Infrastructure Services
Remaining performance obligations	670,290		1,371,816		670,707		1,344,741
Estimated orders under MSAs and short-term, non-fixed price contracts	1,652,152		2,872,127		1,919,791		3,837,923
Backlog	2,322,442		4,243,943		2,590,498		5,182,664

Total
Remaining performance obligations	3,161,064		5,184,584		3,153,816		5,302,451
Estimated orders under MSAs and short-term, non-fixed price contracts	4,499,387		8,743,567		4,793,237		9,702,450
Backlog	$	7,660,451	$	13,928,151	$	7,947,053	$	15,004,901

Subsequent to June 30, 2020, the project sponsors of an approximately 600-mile natural gas pipeline under construction in the eastern United States announced that they are no longer moving forward with the project. One of our subsidiaries has been contracted, as part of a ~~$3.5 million increase in professional fees,~~joint venture, to construct a portion of this project. Although the joint venture has not received a notice of termination, based on the announcement, we have concluded that the revenues related to the remaining performance obligation and ~~a $3.3 million increase in deferred compensation expense primarily~~backlog associated with ~~market value changes. Partially offsetting these increases was~~the project are no longer probable. As a ~~$7.0 million net decrease in incentive~~result, this project has been excluded from remaining performance obligations and ~~stock-based compensation.~~backlog as of June 30, 2020.

Liquidity and Capital Resources

~~Cash Requirements~~

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

September 30, 2019 December 31, 2018
Cash and cash equivalents held in domestic bank accounts $ 55,581
$ 62,495
Cash and cash equivalents held in foreign bank accounts 24,463
16,192
Total cash and cash equivalents $ 80,044
$ 78,687

Cash and cash equivalents held by joint ventures, which are either consolidated or proportionately consolidated, are available to support joint venture operations, but we cannot utilize those assets to support our other operations. We generally have no right to cash and cash equivalents held by a joint venture 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):

At September 30, 2019, we were in compliance with the covenants under the credit agreement for our senior secured credit facility. We anticipate that our cash and cash equivalents on hand, existing borrowing capacity under our senior secured credit facility, our ability to access capital markets and future cash flows from operations will provide sufficient funds to enable us to meet our debt repayment obligations, fund future operating needs and planned capital expenditures during 2019, facilitate our ability to pay any future dividends we declare and grow through acquisitions or otherwise in the foreseeable future.

We also evaluate opportunities for strategic acquisitions, stock repurchases under our authorized stock repurchase programs and opportunities to invest in strategic partnerships with customers and infrastructure 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 financial markets and 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 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,~~

The extent of the impact of the COVID-19 pandemic on our future operational and financial performance will depend on future developments, all of which are uncertain and cannot be predicted. However, based on our current business forecast for 2020, including revenue and earnings prospects and other cost management actions taken in response to market conditions, we ~~do not~~ anticipate that ~~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 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 credit facility; however, our access to invested cash and cash equivalents or availabilityon hand, existing borrowing capacity under our senior secured credit facility, ~~could be impacted in~~other available financing alternatives, and future cash flows from operations will provide sufficient funds to enable us to meet our debt repayment obligations, fund ongoing operating needs, facilitate our ability to pay any future dividends we declare, fund acquisitions or strategic investments that facilitate the ~~future by adverse~~long-term growth and sustainability of our business, and fund essential capital expenditures during 2020. In addition, we may seek to access the capital markets from time to time to raise additional capital, increase liquidity as necessary, refinance or extend the term of our existing indebtedness and otherwise fund our capital needs. Our ability to access the capital markets depends on a number of factors, including our financial performance and financial position, our credit rating, industry conditions, ~~in financial markets.~~general economic conditions, our backlog, capital expenditure commitments, market conditions and market perceptions of us and our industry.

~~We generally do not provide for taxes~~For additional information regarding the current impact and potential risks related to ~~undistributed earnings~~the COVID-19 pandemic, see COVID-19 Pandemic – Response and Impact above and Item 1A. Risk Factors 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.Part II of this Quarterly Report.

~~Sources~~Cash Requirements

Our available commitments and ~~Uses of Cash~~

~~As of September 30, 2019, we had~~ cash and cash equivalents at June 30, 2020 were as follows (in thousands):



	June 30, 2020
Total capacity available for revolving loans and letters of credit	$	2,135,000
Less:
Borrowings of revolving loans under our senior secured credit facility	152,622
Letters of credit outstanding under our senior secured credit facility	374,700
Available commitments under senior secured credit facility for issuing revolving loans or new letters of credit	1,607,678
Plus:
Cash and cash equivalents	530,670
Total available commitments under senior secured credit facility and cash and cash equivalents	$	2,138,348

We also had borrowings of ~~$80.0 million and working capital of $1.94 billion. We had $1.87 billion of~~term loans ~~outstanding~~ under our senior secured credit facility of $1.21 billion as of June 30, 2020, and we are required to make quarterly principal payments of $16.1 million with respect to these loans.

Our industry is capital intensive, and we expect substantial capital expenditures and commitments under equipment lease and rental arrangements to be needed into the foreseeable future in order to meet anticipated demand for our services. We expect capital expenditures for the year ended December 31, 2020 to be approximately $250 million, which ~~included $1.26 billion outstanding under term loans and $608.4~~is $50 million less than our original estimate at the beginning of outstanding revolving loans. Of the total outstanding borrowings, $1.65 billion were denominated in U.S. dollars, $169.9 million were denominated in Canadian dollars and $42.2 million were denominated in Australian dollars.2020. We also ~~had $346.5 million~~continue to evaluate opportunities for stock repurchases.

Refer to Contractual Obligations below for a summary of ~~letters~~our future contractual obligations as of ~~credit outstanding under our senior secured credit facility, $235.5 million~~June 30, 2020 and Off-Balance Sheet Transactions and Contingencies below for a description of ~~which were denominated~~certain contingent obligations. Although some of these contingent obligations could require the use of cash in ~~U.S. dollars~~future periods, they are excluded from the Contractual Obligations table because we are unable to accurately predict the timing and ~~$111.0 million~~amount of ~~which were denominated in currencies other than the U.S. dollar, primarily Australian or Canadian dollars. As~~any such obligations as of ~~September~~June 30, ~~2019, our senior secured credit facility had $1.18 billion available for revolving loans or new letters~~2020.

Sources and Uses of ~~credit.~~Cash

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Net cash provided by (used in) operating activities	$	91,167		$	39,104		$	(100,247	)	$	221,617		$	497,479		$	(108,664	)	$	725,028		$	(191,414	)
Net cash used in investing activities	$	(391,797	)	$	(136,431	)	$	(607,124	)	$	(321,683	)	$	(36,614	)	$	(68,171	)	$	(125,747	)	$	(215,327	)
Net cash provided by financing activities	$	307,111		$	90,963		$	708,749		$	72,860
Net cash provided by (used in) financing activities													$	(310,636	)	$	165,378		$	(236,710	)	$	401,638

Operating Activities

Cash flow from ~~operations~~operating activities is primarily influenced by demand for our services and operating margins but ~~can~~is also be influenced by working capital needs associated with the various types of services that we provide. ~~In particular,~~Our working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily labor, equipment and subcontractors, are required to be paid before the associated receivables 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.~~winter. These seasonal trends can be offset by changes in project timing due to delays or accelerations and other economic factors that may affect customer spending.

Net cash provided by operating activities during the three months ended ~~September~~June 30, ~~2019~~2020 was favorably impacted by ~~increased earnings and a smaller increase~~the decline in ~~operating assets and liabilities~~revenues during the three months ended June 30, 2020 as compared to the three months ended ~~September~~March 31, 2020, which decreased working capital requirements at quarter end. As discussed below, improved billings and collections, as well as the timing and amounts of retention balances, also contributed to the net cash provided by operating activities in the three months ended June 30, ~~2018.~~2020. Additionally, as permitted under the CARES Act and related state actions, during the three months ended June 30, 2020, we deferred the payment of $58.0 million of federal and state income taxes, which were subsequently paid in July 2020, and payment of $30.7 million of payroll taxes, 50% of which are due by December 31, 2021 and the remainder of which are due by December 31, 2022. Although there is currently no legislation that would permit further deferrals of income taxes, the CARES Act permits deferral of payroll taxes through December 31, 2020, and we currently intend to continue such deferrals. Net cash ~~used in~~provided by operating activities during the ~~nine~~six months ended ~~September~~June 30, 2020 also included the receipt of $82.0 million of insurance proceeds associated with the settlement of two pipeline project claims in the fourth quarter of 2019. Net cash provided by operating activities during the three and six months ended June 30, 2019 included the payment of $112 million as a result of the exercise of on-demand advance payment and performance bonds in connection with the termination of the large telecommunications project in Peru, which is described in further detail in Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. Net cash used in operating activities ~~was~~for the three and six months ended June 30, 2019 were also impacted by ~~increased~~higher working capital requirements, including mobilization and tooling costs, to support business growth and due to extended billing and collection cycles for certain utility customers. ~~Additionally,~~These items were partially offset by the collection of $109 million of pre-petition receivables related to the PG&E bankruptcy proceedings during the ~~nine~~three months ended ~~September~~June 30, ~~2018, a significant advance billing position on a larger electric transmission project in Canada favorably impacted net cash flow from operating activities.~~2019.

Days sales outstanding (DSO) ~~at September 30, 2019 was 91~~represents the average number of days ~~as compared~~it takes revenues to ~~78 days at September 30, 2018. The~~be converted into cash, which management believes is an important metric for assessing liquidity. A decrease in DSO has a favorable impact on cash flow from operating activities, while an increase in DSO ~~is primarily due to an increase in retainage balances included in current receivables,~~has a significant portion of which was related to a balance for the large electric transmission project in Canada that has been received subsequent to September 30, 2019, and elevated receivables associated with billing arrangement modifications for two customers. Collections for these customers

~~have improved subsequent to September 30, 2019, and we expect our DSO to decline and be more in line with historical levels in future periods.~~negative impact on cash flow from operating activities. 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. DSO at June 30, 2020 was 82 days, as compared to 91 days at June 30, 2019. The decrease in DSO was partially due to collection of a large retainage balance outstanding at June 30, 2019 associated with a larger electric transmission project, as well as billing process changes for certain customers that negatively impacted DSO throughout 2019.

Investing Activities

Net cash used in investing activities in the three months ended ~~September~~June 30, ~~2019~~2020 included ~~$329.8~~$48.1 million of capital expenditures and $1.6 million used for ~~acquisitions and $66.2 million of capital expenditures.~~acquisitions. These items were partially offset by ~~$4.9~~$7.8 million of proceeds from the sale of property and equipment and $8.4 million of proceeds from the disposition of businesses. Net cash used in investing activities in the three months ended June 30, 2019 included $72.8 million of capital expenditures and $3.8 million used for acquisitions. These items were partially offset by $8.6 million of proceeds from the sale of property and equipment. Net cash used in investing activities in the ~~three~~six months ended ~~September~~June 30, ~~2018~~2020 included ~~$74.1~~$116.3 million of capital expenditures, ~~$48.7~~$24.4 million used for acquisitions and $19.4 million of cash paid for investments in unconsolidated affiliates and other entities, which primarily related to our acquisition of a 30% interest in a water and gas pipeline infrastructure contractor located in Australia. These items were partially offset by $5.6 million of proceeds from the sale of property and equipment. Net cash used in investing activities in the nine months ended September 30, 2019 included $385.2 million used for acquisitions, $207.6 million of capital expenditures and $39.0 $8.8

million of cash paid for investments in unconsolidated affiliates and other entities. These items were partially offset by ~~$24.2~~$12.6 million of proceeds from the sale of property and ~~equipment.~~equipment and $10.9 million of proceeds from the disposition of businesses. Net cash used in investing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 included ~~$222.7~~$141.4 million used for capital expenditures, ~~$94.9~~$55.3 million used for acquisitions; and ~~$21.0~~$37.9 million of cash paid for investments in unconsolidated affiliates and other ~~entities, which primarily related to our acquisition of a 30% equity interest in a water and gas pipeline infrastructure contractor located in Australia.~~entities. These items were partially offset by ~~$18.6~~$19.4 million of proceeds from the sale of property and equipment.

Our industry is capital intensive, and we expect substantial capital expenditures and commitments under equipment lease and rental arrangements to be needed into the foreseeable future. We also have various contractual obligations related to investments in unconsolidated affiliates and other capital commitments 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 amount of the cash needed for these initiatives.

Financing Activities

Net cash used in financing activities in the three months ended June 30, 2020 included $282.3 million of net repayments under our senior secured credit facility, $9.4 million of payments to settle certain contingent consideration liabilities, $7.7 million of payments to satisfy tax withholding obligations associated with stock-based compensation and $7.2 million of cash dividends and dividend equivalents. Net cash provided by financing activities in the three months ended ~~September~~June 30, 2019 included ~~$328.6~~$167.0 million of net borrowings under our senior secured credit facility and $7.3 million of net short-term borrowings, partially offset by $5.8 million of cash payments of dividends and cash dividend equivalents. Net cash used in financing activities in the six months ended June 30, 2020 included $200.0 million of cash payments for common stock repurchases, $23.6 million of cash payments to satisfy tax withholding obligations associated with stock-based compensation, $14.5 million of cash payments of dividends and cash dividend equivalents and $10.4 million of payments to settle certain contingent consideration liabilities, partially offset by $21.1 million of net borrowings under our senior secured credit facility. Net cash provided by financing activities in the six months ended June 30, 2019 included $466.7 million of net borrowings under our senior secured credit facility, partially offset by $11.2 million of net short-term repayments and $5.8 million of cash payments of dividends and cash dividend equivalents. Net cash provided by financing activities in the three months ended September 30, 2018 included $112.7 million of net borrowings under our senior secured credit facility and $7.1 million of net short-term borrowings, partially offset by $26.8 million of cash payments for common stock repurchases. Net cash provided by financing activities in the nine months ended September 30, 2019 included $795.3 million of net borrowings under our senior secured credit facility, partially offset by $27.1 million of net short-term repayments, $20.1 million of cash payments for common stock repurchases, $17.4 million of cash payments of dividends and cash dividend equivalents and $16.0 million of cash payments to satisfy tax withholding obligations associated with stock-based compensation. Net cash provided by financing activities in the nine months ended September 30, 2018 included $288.1 million of net borrowings under our senior secured credit facility and $20.1$15.9 million of net short-term ~~debt borrowings; partially offset by $216.7 million of cash payments for common stock repurchases and $14.7~~repayments, $15.3 million of payments to satisfy tax withholding obligations associated with stock-based ~~compensation.~~compensation, and $11.6 million of cash payments of dividends and cash dividend equivalents.

Contingent Consideration Liabilities

Certain of our acquisitions include the potential payment of contingent consideration, payable in the event certain performance objectives are achieved by the acquired businesses during designated post-acquisition periods. The majority of these contingent consideration liabilities are subject to a maximum outstanding payment amount, which totaled ~~$153.0~~$148.5 million ~~as of September~~for liabilities with measurement periods that end subsequent to June 30, 2019. Included within this maximum amount is approximately $18.0 million related to certain acquisitions completed in 2018, payable based on performance 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 based on performance over a three-year post-acquisition period. The aggregate fair value of all of our contingent consideration liabilities was $79.4 million as of September 30, 2019, of which $71.0 million is included in “Accounts payable and accrued expenses” and $8.4 million is included in “Insurance and other non-current liabilities.”2020. The significant majority of these liabilities would be paid at least 70% to 85% in cash. Cash payments ~~for these liabilities~~ up to the amount recognized for these liabilities at the respective acquisition dates, including measurement-period adjustments, will be classified as financing activities in our consolidated statements of cash flows. Any cash payments in excess of ~~the amount of contingent consideration liabilities recognized at the respective acquisition dates~~such amounts will be classified as operating activities in our consolidated statements of cash flows.

The aggregate fair value of all of our contingent consideration liabilities was $75.8 million as of June 30, 2020, of which $68.5 million is included in “Accounts payable and accrued expenses” and $7.3 million is included in “Insurance and other non-current liabilities.” We made a $10.0 million interim cash payment to partially settle certain contingent consideration liabilities during the three months ended June 30, 2020 and $11.0 million of cash payments and the issuance of 4,277 shares of Quanta common stock during the six months ended June 30, 2020. The majority of cash payments have been classified as financing activities in our condensed consolidated statements of cash flows for the three and six months ended June 30, 2020.

Stock Repurchases

We repurchased the following shares of common stock in the open market under our stock repurchase programs (in thousands):


Quarter ended:	Shares	Amount		Shares	Amount
June 30, 2020				—	$	—
March 31, 2020				5,960	$	200,000
December 31, 2019				—	$	—
September 30, 2019	—	$	—	—	$	—
June 30, 2019	—	$	—	—	$	—
March 31, 2019	376	$	11,953	376	$	11,953
December 31, 2018	7,652	$	233,633
September 30, 2018	701	$	23,751
June 30, 2018	595	$	19,993
March 31, 2018	4,969	$	173,913

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 ~~September~~June 30, 2020 and 2019, cash payments related to stock

repurchases were none and ~~2018,~~$0.2 million, and during the six months ended June 30, 2020 and 2019, cash payments related to stock repurchases were ~~none and $26.8~~$200.0 million and ~~during the nine months ended September 30, 2019 and 2018, cash payments related to stock repurchases were~~ $20.1 ~~million and $216.7~~ million.

As of ~~September~~June 30, ~~2019, $286.8~~2020, $86.8 million remained authorized under our ~~existing~~stock repurchase program approved during the third quarter of 2018, which ~~authorizes~~permits us to repurchase outstanding common stock from time to time through June 30, ~~2021 (the 2018 Repurchase Program).~~ 2021. In August 2020, our board of directors authorized us to repurchase, from time to time through June 30, 2023, up to an additional $500 million in shares of our outstanding common stock under a new stock repurchase program, for an aggregate stock repurchase authorization of $586.8 million.

Repurchases under ~~the 2018 Repurchase Program~~our repurchase programs may be implemented through open market or privately negotiated transactions, at ~~management's~~management’s discretion, based on market and business conditions, applicable contractual and legal requirements, including restrictions under our senior secured credit facility, and other factors. We are not obligated to acquire any specific amount of common stock and the ~~2018 Repurchase Program~~repurchase programs may be modified or terminated by our Board of Directors at any time at its sole discretion and without notice. For additional detail about our stock repurchases, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements.

Dividends

We declared ~~and paid~~ the following cash dividends and cash dividend equivalents during ~~2018~~2019 and the first ~~nine~~six months of ~~2019~~2020 (in thousands, except per share amounts):


Declaration	Record	Payment	Dividend		Dividends		Record	Payment	Dividend		Dividends
Date	Date	Date	Per Share		Declared		Date	Date	Per Share		Declared
May 28, 2020							July 1, 2020	July 15, 2020	$	0.05	$	7,182
March 26, 2020							April 6, 2020	April 15, 2020	$	0.05	$	7,184
December 11, 2019							January 2, 2020	January 16, 2020	$	0.05	$	7,371
August 28, 2019	October 1, 2019	October 15, 2019	$	0.04	$	5,564	October 1, 2019	October 15, 2019	$	0.04	$	5,564
May 24, 2019	July 1, 2019	July 15, 2019	$	0.04	$	6,233	July 1, 2019	July 15, 2019	$	0.04	$	6,233
March 21, 2019	April 5, 2019	April 19, 2019	$	0.04	$	5,896	April 5, 2019	April 19, 2019	$	0.04	$	5,896
December 6, 2018	January 2, 2019	January 16, 2019	$	0.04	$	5,838

A significant majority of dividends declared were paid on the corresponding payment dates. Holders of restricted stock units (RSUs) awarded under the Quanta Services, Inc. 2011 Omnibus Equity Incentive Plan (the 2011 Plan) generally received cash dividend equivalent payments equal to the cash dividend payable on account of the underlying Quanta common stock. Holders of exchangeable shares of certain Canadian subsidiaries of Quanta ~~were paid~~received a cash dividend ~~of $0.04~~ per exchangeable share onequal to the ~~payment dates.~~cash dividend per share paid to Quanta common stockholders. Holders of RSUs awarded under the Quanta Services, Inc. 2019 Omnibus Equity Incentive Plan (the 2019 Plan) and holders of unearned and unvested performance stock units (PSUs) awarded under the 2011 Plan and the 2019 Plan receive cash dividend equivalent payments only to the extent such RSUs and PSUs become earned and/or vest. Additionally, cash dividend ~~equivalents~~equivalent payments related to certain ~~equity~~stock-based awards that have been deferred pursuant to the terms of a deferred compensation plan maintained by us are recorded as liabilities in such plans until the deferred awards are settled.

The declaration, payment and amount of future cash dividends ~~if any,~~ will be at the discretion of ~~our~~Quanta’s Board of Directors after taking into account various factors, including ~~our~~Quanta’s financial condition, results of operations, cash flows from ~~operations,~~operations; current and anticipated capital requirements and expansion ~~plans,~~plans; the current and potential impact of the COVID-19 pandemic and other market, industry, economic and political conditions; income tax laws then in ~~effect~~effect; and the requirements of Delaware law. In addition, as discussed in below~~Debt Instruments — Senior Secured Credit Facility~~, ~~below, our~~Quanta’s credit agreement restricts the payment of cash dividends unless certain conditions are met.

Debt Instruments

Senior Secured Credit Facility

We have a credit agreement with various lenders that ~~as amended on September 6, 2019 and subsequent to the execution of an incremental revolving credit increase agreement on September 12, 2019,~~ provides for (i) a $2.14 billion revolving credit facility and (ii) a term loan facility with term loans in the aggregate initial principal amount of $1.29 billion. 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 credit facility, incremental term loans or a combination thereof, from time to time, upon receipt of additional commitments from new or existing lenders by up to an additional (i) $400.0 million plus (ii) an additional ~~amount that is unlimited~~amounts so long as the Incremental Leverage Ratio Requirement (as defined in the credit agreement) is satisfied at the time of such increase. The Incremental Leverage Ratio Requirement requires, among other things, after giving pro forma effect to such increase and the use of proceeds therefrom, compliance with the credit agreement’s financial covenants as of the most recent fiscal quarter end for which financial statements

were required to be delivered and that our Consolidated Leverage Ratio (as defined below) does not exceed 2.5 to 1.0, subject to the conditions specified in the credit agreement.

Borrowings under the credit agreement are to be used to refinance existing indebtedness and for working capital, capital expenditures, acquisitions and other general corporate purposes. The maturity date for both the revolving credit facility and the term loan facility is October 31, ~~2022, and~~2022; however, we may voluntarily prepay the term loans from time to time in whole or in part, without premium or penalty. We are required to make quarterly principal payments of $16.1 million on the term loan ~~facility as described below.~~

~~With respect to~~facility. During the ~~revolving~~three months ended June 30, 2020 and 2019, our weighted average interest rates associated with our senior secured credit facility were 1.65% and 3.88%, and during the ~~entire amount available may be used by us for revolving loans~~six months ended June 30, 2020 and ~~letters of~~2019, our weighted average interest rates associated with our senior secured credit ~~in U.S. dollars~~facility were 2.37% and certain alternative currencies. Up to $600.0 million may be used by certain of our subsidiaries for revolving loans and letters of credit, including 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.3.90%.

We borrowed $600.0 million under the term loan facility in October 2018 and borrowed an additional $687.5 million under the term loan facility in September 2019 and used ~~all~~the majority of such proceeds to repay outstanding revolving loans under the credit agreement. As of ~~September~~June 30, ~~2019,~~2020, we had ~~$1.87~~$1.36 billion of borrowings outstanding under the credit agreement, which included ~~$1.26~~$1.21 billion borrowed under the term loan facility and ~~$608.4~~$152.6 million of outstanding revolving loans. ~~Of the total outstanding borrowings, $1.65 billion were denominated in U.S. dollars, $169.9 million were denominated in Canadian dollars and $42.2 million were denominated in Australian dollars.~~ We also had ~~$346.5~~$374.7 million of letters of credit issued under our revolving credit facility as of ~~which $235.5 million were denominated in U.S. dollars and $111.0 million were denominated in currencies other than~~such date. As of June 30, 2020, the ~~U.S. dollar, primarily Canadian and Australian dollars. The~~ remaining ~~$1.18~~$1.61 billion of available commitments under the revolving credit facility was available for additional revolving loans or ~~issuing new~~ letters of ~~credit.~~

~~Revolving loans borrowed~~credit in U.S. dollars ~~bear interest, at our option, at~~and certain alternative currencies.

The credit agreement contains certain covenants, including (i) 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~~maximum Consolidated Leverage Ratio ~~(as described below), or~~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 June 30, 2020, we were in compliance with all of the Base Rate (as described below) plus 0.125% to 1.000%, as determined based on our Consolidated Leverage Ratio. Revolving loans borrowed 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 issuedfinancial covenants 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.

Term loans bear interest at rates generally consistent with the revolving loans borrowed in U.S. dollars, except that the additional amount over the Eurocurrency Rate is 1.125% to 1.875%, as determined based on our Consolidated Leverage Ratio. We are also required to make quarterly principal payments of $16.1 million on the term loans on the last business day of each March, June, September and December beginning in December 2019. The aggregate outstanding principal amount of all outstanding term loans must be paid on the maturity date; however, we may voluntarily prepay that amount from time to time, in whole or in 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 facility.~~

agreement. 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 during such period).

The credit agreement provides for customary events of default and generally contains ~~certain covenants, including (i) a maximum Consolidated Leverage Ratio of 3.0 to 1.0 (except that~~cross-default provisions with other debt instruments exceeding $150.0 million 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 September 30, 2019, we were in compliance with all of the covenants under the credit agreement.

~~Subject~~borrowings or availability. Additionally, subject to certain exceptions, (i) all borrowings ~~under the credit agreement~~ are secured by substantially all ~~of our assets and~~ the assets of ~~our wholly owned~~Quanta and its wholly-owned U.S. subsidiaries and by a pledge of all of the capital stock of ~~our wholly owned~~Quanta’s wholly-owned U.S. subsidiaries and 65% of the capital stock of direct foreign subsidiaries of ~~our wholly owned~~Quanta’s wholly-owned U.S. subsidiaries and (ii) ~~our wholly owned~~Quanta’s wholly-owned U.S. subsidiaries guarantee the repayment of all amounts due under the credit agreement. Subject to certain conditions, all collateral will automatically be released from the liens securing the obligations under the credit agreement 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 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 (including after giving effect to the dividend or stock repurchase): (i) no default or event of default under the credit agreement; (ii) continued compliance with the financial covenants in the credit agreement; and (iii) at least $100.0 million of availability under the revolving credit facility and/or cash and cash equivalents on hand.

~~The~~To address the transition in financial markets away from the London Interest Bank Offered Rate (LIBOR) by the end of 2021, our senior secured credit facility agreement includes provisions related to the replacement of LIBOR with a LIBOR Successor Rate (as defined in the credit agreement ~~provides~~ for ~~customary events~~such facility). If no LIBOR Successor Rate has been determined at the time certain circumstances are present, the lenders’ obligation to make or maintain loans based on a Eurocurrency rate could be suspended, and loans in U.S. dollars would default to the Base Rate (as described in Senior Secured Credit Facility within Note 7 of ~~default~~the Notes to Consolidated Financial Statements in Item 1. Financial Statements) rather than a rate using the Eurocurrency Rate. Changing to an alternative interest rate or to the Base Rate may lead to additional volatility in interest rates and ~~contains cross-default~~could cause our debt service obligations to increase significantly.

Contractual Obligations and Contingencies

The following table summarizes our future contractual obligations as of June 30, 2020, excluding certain amounts discussed below (in thousands):



	Total		Remainder of 2020		2021		2022		2023		2024		Thereafter
Long-term debt - principal ⁽¹⁾	$	1,384,232	$	34,385	$	69,570	$	1,269,160	$	3,881	$	3,881	$	3,355
Long-term debt - cash interest ⁽²⁾	2,918		831		747		577		428		279		56
Short-term debt ⁽³⁾	1,761		1,761		—		—		—		—		—
Operating lease obligations ⁽⁴⁾	309,507		53,636		86,556		61,429		41,816		25,036		41,034
Operating lease obligations that have not yet commenced ⁽⁵⁾	9,114		688		1,700		1,705		1,237		914		2,870
Finance lease obligations ⁽⁶⁾	1,511		330		469		343		247		122		—
Short-term lease obligations⁽⁷⁾	21,948		18,874		3,074		—		—		—		—
Deferral of tax payments ⁽⁸⁾	88,729		58,039		15,345		15,345		—		—		—
Equipment purchase commitments ⁽⁹⁾	34,103		34,103		—		—		—		—		—
Capital commitment related to investments in unconsolidated affiliates ⁽¹⁰⁾	166		166		—		—		—		—		—
Total contractual obligations	$	1,853,989	$	202,813	$	177,461	$	1,348,559	$	47,609	$	30,232	$	47,315

(1)

We had $1.36 billion of outstanding borrowings under our senior secured credit facility, which included $1.21 billion borrowed under the term loan facility and $152.6 million of outstanding revolving loans, both of which bear interest at variable market rates. Assuming the principal amount outstanding at June 30, 2020 remained outstanding and the interest rate in effect at June 30, 2020 remained the same, the annual cash interest expense would be approximately $20.9 million, payable until October 31, 2022, the maturity date of the facility. Additionally, in connection with the term loan facility, we are required to make quarterly principal payments of $16.1 million and pay the remaining balance on the maturity date for the facility.


(2)	Amount represents cash interest expense on the liabilities associated with financing transactions from the exercise of our equipment rental purchase options and on fixed-rate, long-term debt, which does not include borrowings under our senior secured credit facility.


(3)	Amount represents short-term borrowings recorded on our June 30, 2020 condensed consolidated balance sheet.


(4)	Amounts represent undiscounted operating lease obligations at June 30, 2020. The operating lease obligations recorded on our June 30, 2020 condensed consolidated balance sheet represent the present value of these amounts.


(5)	Amounts represent undiscounted operating leases obligations that have not commenced as of June 30, 2020. The operating leases obligations will be recorded on our consolidated balance sheet beginning on the commencement date of each lease.


(6)	Amounts represent undiscounted finance lease obligations at June 30, 2020. The finance lease obligations recorded on our June 30, 2020 condensed consolidated balance sheet represent the present value of these amounts.


(7)	Amounts represent short-term lease obligations that are not recorded on our June 30, 2020 condensed consolidated balance 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 future rental amounts.

(8)

Amounts represent deferral of $58.0 million of federal and state income tax payments, which were paid in July 2020, and deferral of $30.7 million of payroll tax payments, 50% of which are due by December 31, 2021 and the remainder of which are due by December 31, 2022. Although there is currently no legislation that would permit further deferrals of income taxes, the CARES Act permits deferral of payroll taxes through December 31, 2020, and we currently intend to continue such deferrals.


(9)	Amount represents capital committed for the expansion of our vehicle fleet. 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 made available to us under certain of our master equipment lease agreements.


(10)	Amount represents outstanding capital commitments associated with investments in unconsolidated affiliates.

As discussed below and in Notes 2 and 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements, we have various contingencies and commitments that may require the use of cash in future periods. The Contractual Obligations table excludes the contingencies described below, as we are unable to accurately predict the timing and amount of any of the following contingent obligations.

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. 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 energy companies, governmental entities, general contractors, and builders, owners and managers of commercial and industrial properties located primarily in the United States, Canada and Australia. While we generally have certain statutory lien rights with respect to services provided, we are subject to potential credit risk related to business, economic and financial market conditions that affect these customers and locations, which has been heightened as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and the significant decline in commodity prices and volatility in commodity production volumes.Some of our customers have experienced significant financial difficulties (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.

For example, on January 29, 2019, PG&E Corporation and its primary operating subsidiary, Pacific Gas and Electric Company (collectively PG&E), one of our largest customers, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended. As of the bankruptcy filing date, we had $165 million of billed and unbilled receivables. During the bankruptcy case, the bankruptcy court approved the assumption by PG&E of certain contracts with our subsidiaries, pursuant to which PG&E had paid $128 million of our pre-petition receivables as of June 30, 2020. PG&E subsequently assumed its remaining contracts with our subsidiaries as part of its Chapter 11 plan of reorganization, which was confirmed by the bankruptcy court in June 2020. We also sold $36 million of our pre-petition receivables to a third party in 2019 in exchange for cash consideration of $34 million, subject to certain claim disallowance provisions, the occurrence of which could result in our obligation to repurchase some or all of the pre-petition receivables sold. We expect the remaining $1 million of pre-petition receivables to be sold or ultimately collected under the terms of the plan of reorganization.

At June 30, 2020 and December 31, 2019, no customer represented 10% or more of our consolidated net receivable position. No customer represented 10% or more of our consolidated revenues for the three and six months ended June 30, 2020. PG&E, a customer within our Electric Power Infrastructure Services segment, represented 13.3% and 11.5% of our consolidated revenues for the three and six months ended June 30, 2019.

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, negligence or gross negligence and/or property damages, wage and hour claims and other employment-related damages, punitive and consequential 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 Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements for additional information regarding litigation, claims and other legal proceedings.

Multiemployer Pension Plans

Certain of our operating units are parties to collective bargaining agreements with unions that represent certain of their employees, which require the operating units to pay specified wages, provide certain benefits to union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. Our multiemployer pension plan contribution rates generally 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 our need for union resources in connection with our ongoing projects. Therefore, we are unable to accurately predict our union employee payroll and 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. Special funding and operational rules are generally applicable to certain of these multiemployer plans that are classified as “endangered,” “seriously endangered” or “critical” status based on multiple factors. The amount, if any, that we may be obligated to contribute to these plans cannot be reasonably estimated and is not included in the above table due to uncertainty regarding the amount of future work involving covered union employees, future contribution levels and possible surcharges on plan contributions.

Furthermore, we may be subject to additional liabilities imposed by law as a result of our participation in multiemployer defined benefit pension plans, including in connection with a withdrawal or deemed withdrawal from a plan or a plan being terminated or experiencing 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 currently aware of any material withdrawal liabilities that have been incurred or asserted and that remain outstanding. However, our future contribution obligations and potential withdrawal liability exposure could vary based on the investment and actuarial performance of the multiemployer pension plans to which we contribute and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and related issues. We have been subject to significant withdrawal liabilities in the past, including in connection with our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan. To the extent we are subject to material withdrawal liabilities in the future, such liability could adversely affect our business, financial condition, results of operations or cash flows.

Performance Bonds and Parent Guarantees

Many customers, particularly in connection with new construction, require us to post performance and payment bonds. These bonds provide a guarantee that we will perform under the terms of a contract and pay our subcontractors and vendors. If we fail to perform, the customer may demand that the surety make payments or provide services under the bond, and we must reimburse the surety for any expenses or outlays it incurs. Under our underwriting, continuing indemnity and security agreement with our sureties, ~~and~~we have granted security interests in certain of our assets as collateral for our obligations to the sureties. We may be required to post letters of credit or other ~~debt instruments exceeding $150.0 million~~collateral in ~~borrowings~~favor of the sureties or ~~availability. If an Event of Default (as defined~~our customers in the future, which would reduce the borrowing availability under our senior secured credit ~~agreement) occurs~~facility. We have not been required to make any material reimbursements to our sureties for bond-related costs except in connection with the exercise of approximately $112.0 million of advance payment and ~~is continuing, on the terms and subject~~performance bonds related to the ~~conditions~~terminated telecommunications project in Peru, which is described further in Legal Proceedings – Peru Project Dispute in Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. To the extent further reimbursements are required, the amounts could be material and could adversely affect our consolidated business, financial condition, results of operations or cash flows. As of June 30, 2020, we are not aware of any outstanding material obligations for payments related to bond obligations.

Performance bonds expire at various times ranging from mechanical completion of a project to a period extending beyond contract completion in certain circumstances, and 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 our bonded operating activity. As of June 30, 2020, the total amount of the outstanding performance bonds was estimated to be approximately $3.0 billion. Our estimated maximum exposure as it relates to the value of the performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each commitment under a performance bond generally extinguishes concurrently with the expiration of our related contractual obligation. The estimated cost to complete these bonded projects was approximately $1.1 billion as of June 30, 2020.

Additionally, from time to time, we guarantee certain obligations and liabilities of our subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, joint venture arrangements and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third-party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims. We are not aware of any claims under any of these guarantees that are material, except as set forth in Legal Proceedings - Maurepas Project Dispute within Note 11 of the ~~credit agreement,~~Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. To the ~~lenders~~extent a subsidiary incurs a material obligation or liability and we have 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 a guarantee could adversely affect our consolidated business, financial condition, results of operations and cash flows.

Insurance

Insurance Coverage. Losses under our 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, 2020 and December 31, 2019, the gross amount accrued for insurance claims totaled $298.4 million and $287.6 million, with $220.1 million and $212.9 million considered to be long-term and included in “Insurance and other non-current liabilities.” Related insurance recoveries/receivables as of June 30, 2020 and December 31, 2019 were $31.6 million and $35.1 million, of which $0.3 million and $0.3 million are included in “Prepaid expenses and other current assets” and $31.3 million and $34.8 million are included in “Other assets, net.”

We renew our insurance policies on an annual basis, and therefore deductibles and levels of insurance coverage may ~~declare all~~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 based on the potential benefits considered relative to the cost of such insurance, or coverage may not be available at reasonable and competitive rates. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows. For example, due to the increased occurrence and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage availability and increased the cost of insurance coverage for such events in recent years. As a result, our level of insurance coverage for wildfire events decreased, including in connection with our annual insurance renewals in the spring of 2020 and 2019, and our levels of coverage may not be sufficient to cover potential losses. Our third-party insurers could also decide to further reduce or exclude coverage for wildfires or other events in the future.

Hallen Acquisition Assumed Liability. As discussed in further detail in Legal Proceedings within Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements, we assumed certain contingent liabilities in connection with the acquisition of Hallen. Hallen’s liabilities associated with this matter are expected to be covered under applicable insurance policies or contractual remedies negotiated by us with the former owners of Hallen. As of June 30, 2020, we had not recorded an accrual for any probable and estimable loss related to this matter. However, the ultimate amount of liability in connection with this matter remains subject to uncertainties associated with pending litigation, including, among other things, the apportionment of liability among the defendants and other responsible parties and the likelihood and amount of potential damages claims. As a result, this matter could result in a loss that is in excess of, or not covered by, such insurance or contractual remedies, which could have a material adverse effect on our consolidated results of operations and cash flows.

Contingent Consideration Liabilities

The liabilities recorded represent the estimated fair values of future amounts payable to the former owners of the acquired businesses and are estimated by management based on entity-specific assumptions that are evaluated on an ongoing basis. 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.

Aggregate fair values of these outstanding and ~~accrued~~unearned contingent consideration liabilities and ~~unpaid interest immediately~~their classification in the Consolidated Balance Sheets in Item 1. Financial Statements were as follows (in thousands):



	June 30, 2020		December 31, 2019
Accounts payable and accrued expenses	$	68,466	$	77,618
Insurance and other non-current liabilities	7,304		6,542
Total contingent consideration liabilities	$	75,770	$	84,160

The fair values of these liabilities were primarily determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate and an expected volatility factor for each acquisition. The expected volatility factor ranged from 20.4% to 30.0% and had a weighted average of 22.6% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present values of the estimated payments are discounted based on a risk-free rate and/or our cost of debt, ranging from 0.2% to 3.9% and had a weighted average of 2.1%. 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 outstanding payment amount, which aggregated to $148.5 million for those liabilities whose measurement periods end subsequent to June 30, 2020. One contingent consideration liability is not subject to a maximum payment amount, and such liability had a fair value of $1.0 million as of June 30, 2020.

Our aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on performance in post-acquisition periods and ~~payable, require~~accretion in present value. During the three and six months ended June 30, 2020, we recognized a net decrease of $2.2 million and a net increase of $0.5 million in the fair value of our aggregate contingent consideration liabilities. During the three and six months ended June 30, 2019 we recognized net increases of $4.4 million and $4.3 million in the fair value of our aggregate contingent consideration liabilities. These changes are reflected in “Change in fair value of contingent consideration liabilities” in our consolidated statements of operations. We made a $10.0 million interim cash payment to partially settle certain contingent consideration liabilities during the three months ended June 30, 2020 and $11.0 million of cash payments and the issuance of 4,277 shares of Quanta common stock during the six months ended June 30, 2020. The majority of the cash payments have been classified as a financing activity, with the remainder classified as an operating activity, in our condensed consolidated statements of cash flows for the three and six months ended June 30, 2020.

Undistributed Earnings of Foreign Subsidiaries and Unrecognized Tax Benefits

Quanta and certain subsidiaries remain under examination by various U.S. state, Canadian and other foreign tax authorities for ~~all outstanding letter~~multiple periods. We believe it is reasonably possible that within the next 12 months unrecognized tax benefits may decrease by up to $6.8 million as a result of settlement of these examinations or the expiration of certain statute of limitations periods.

Letters of Credit Fees and Commitment Fees

The Contractual Obligations table excludes letters of credit ~~obligations, terminate~~and commitment fees under our senior secured credit facility because the ~~commitments~~amount of outstanding letters of credit, availability and applicable fees are all variable. Assuming that the amount of letters of credit outstanding and the fees as of June 30, 2020 remained the same, the annual cash expense for our letters of credit would be approximately $4.6 million. For additional information regarding our letters of credit and the associated fees and our borrowings under ~~the~~our senior secured credit ~~agreement,~~facility, see Liquidity and ~~foreclose on the collateral.~~Capital Resources — Debt Instruments above.

~~Off-Balance Sheet Transactions~~Multiemployer Pension Plans

~~As is common in~~Certain of our ~~industry, we have entered into~~operating units are parties to collective bargaining agreements with unions that represent certain ~~off-balance sheet arrangements in~~of their employees, which require the ~~ordinary course of business that result in risks not directly reflected in our balance sheets.~~operating units to pay specified wages, provide certain benefits to union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. 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 and payment bonds, committed expenditures for the purchase equipment and certain multiemployer pension plan ~~liabilities. See~~ ~~Contractual Obligations~~ ~~below~~contribution rates generally are made to the plans on a “pay-as-you-go” basis based on our union employee payrolls. The location and ~~Note 11~~number of union employees that we employ at any given time and the ~~Notes~~plans in which they may participate vary depending on our need for union resources in connection with our ongoing projects. Therefore, we are unable to ~~Consolidated Financial Statements in Item 1.~~ ~~Financial Statements~~ accurately predict our union employee payroll and the resulting multiemployer pension plan contribution obligations for ~~a description of these arrangements.~~

future periods.

~~Contractual Obligations~~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. Special funding and operational rules are generally applicable to certain of these multiemployer plans that are classified as “endangered,” “seriously endangered” or “critical” status based on multiple factors. The amount, if any, that we may be obligated to contribute to these plans cannot be reasonably estimated and is not included in the above table due to uncertainty regarding the amount of future work involving covered union employees, future contribution levels and possible surcharges on plan contributions.

~~The following table summarizes~~Furthermore, we may be subject to additional liabilities imposed by law as a result of our participation in multiemployer defined benefit pension plans, including in connection with a withdrawal or deemed withdrawal from a plan or a plan being terminated or experiencing 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 currently aware of any material withdrawal liabilities that have been incurred or asserted and that remain outstanding. However, our future ~~contractual~~contribution obligations asand potential withdrawal liability exposure could vary based on the investment and actuarial performance of ~~September 30, 2019, excluding amounts discussed below related to unrecognized tax benefits,~~the multiemployer pension ~~plan~~plans to which we contribute and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and related issues. We have been subject to significant withdrawal liabilities in the past, including in connection with our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan. To the extent we are subject to material withdrawal liabilities in the future, such liability could adversely affect our business, financial condition, results of operations or cash flows.

Performance Bonds and Parent Guarantees

Many customers, particularly in connection with new construction, require us to post performance and payment bonds. These bonds provide a guarantee that we will perform under the terms of a contract and pay our subcontractors and vendors. If we fail to perform, the customer may demand that the surety make payments or provide services under the bond, and we must reimburse the surety for any expenses or outlays it incurs. Under our underwriting, continuing indemnity and security agreement with our sureties, we have granted security interests in certain of our assets as collateral for our obligations ~~interest associated with~~to the sureties. We may be required to post letters of credit ~~commitment fees~~or other collateral in favor of the sureties or our customers in the future, which would reduce the borrowing availability under our senior secured credit ~~facility, commitments~~facility. We have not been required to make any material reimbursements to our sureties for bond-related costs except in connection with the exercise of approximately $112.0 million of advance payment and performance bonds related to the terminated telecommunications project in Peru, which is described further in Legal Proceedings – Peru Project Dispute in Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. To the extent further reimbursements are required, the amounts could be material and could adversely affect our consolidated business, financial condition, results of operations or cash flows. As of June 30, 2020, we are not aware of any outstanding material obligations for payments related to bond obligations.

Performance bonds expire at various times ranging from mechanical completion of a project to a period extending beyond contract completion in certain circumstances, and 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 our bonded operating activity. As of June 30, 2020, the total amount of the outstanding performance bonds was estimated to be approximately $3.0 billion. Our estimated maximum exposure as it relates to the value of the performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each commitment under a performance bond generally extinguishes concurrently with the expiration of our related contractual obligation. The estimated cost to complete these bonded projects was approximately $1.1 billion as of June 30, 2020.

Additionally, from time to time, we guarantee certain obligations and liabilities of our subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, joint venture arrangements and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third-party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims. We are not aware of any claims under any of these guarantees that are material, except as set forth in Legal Proceedings - Maurepas Project Dispute within Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. To the extent a subsidiary incurs a material obligation or liability and we have 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 a guarantee could adversely affect our consolidated business, financial condition, results of operations and cash flows.

Insurance

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 based on the potential benefits considered relative to the cost of such insurance, or coverage may not be available at reasonable and competitive rates. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows. For example, due to the increased occurrence and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage availability and increased the cost of insurance coverage for such events in recent years. As a result, our level of insurance coverage for wildfire events decreased, including in connection with our annual insurance renewals in the spring of 2020 and 2019, and our levels of coverage may not be sufficient to cover potential losses. Our third-party insurers could also decide to further reduce or exclude coverage for wildfires or other events in the future.

Contingent Consideration Liabilities

Aggregate fair values of these outstanding and unearned contingent consideration liabilities and their classification in the Consolidated Balance Sheets in Item 1. Financial Statements were as follows (in thousands):

Total Remainder of 2019 2020 2021 2022 2023 Thereafter
Long-term debt - principal ⁽¹⁾
$ 1,877,120
$ 17,899
$ 65,766
$ 65,766
$ 1,722,474
$ 1,390
$ 3,825
Long-term debt - cash interest ⁽²⁾
434
114
320
—
—
—
—
Short-term debt ⁽³⁾
7,622
7,622
—
—
—
—
—
Operating lease obligations ⁽⁴⁾
320,119
28,398
96,874
70,524
46,867
30,503
46,953
Operating leases obligations that have not yet commenced ⁽⁵⁾
10,319
111
1,564
1,826
1,701
1,492
3,625
Finance lease obligations ⁽⁶⁾
1,552
388
627
342
119
50
26
Short-term lease obligations⁽⁷⁾
21,880
9,905
11,975
—
—
—
—
Equipment purchase commitments ⁽⁸⁾
7,654
5,370
2,284
—
—
—
—
Capital commitment related to investments in unconsolidated affiliates ⁽⁹⁾
6,314
6,314
—
—
—
—
—
Total contractual obligations $ 2,253,014
$ 76,121
$ 179,410
$ 138,458
$ 1,771,161
$ 33,435
$ 54,429



	June 30, 2020		December 31, 2019
Accounts payable and accrued expenses	$	68,466	$	77,618
Insurance and other non-current liabilities	7,304		6,542
Total contingent consideration liabilities	$	75,770	$	84,160

~~(1)~~

We had $1.87 billion of outstanding borrowings under our senior secured credit facility, which included $1.26 billion borrowed under the term loan facility and $608.4 million of outstanding revolving loans, both of which bear interest at variable market rates. Assuming the principal amount outstanding at September 30, 2019 remained outstanding and the interest rate in effect at September 30, 2019 remained the same, the annual cash interest expense would be approximately $68.1 million, payable until October 31, 2022, the maturity date of the facility. Additionally, in connection with the term loan facility, we are required to make quarterly principal payments of $16.1 million and pay the remaining balance on the maturity date for the facility.


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


~~(3)~~	~~Amount was recorded on our September 30, 2019 condensed consolidated balance sheet.~~


~~(4)~~	Amounts represent undiscounted operating lease obligations at September 30, 2019. The operating lease obligations recorded on our September 30, 2019 condensed consolidated balance sheet represent the present value of these amounts.


~~(5)~~	Amounts represent undiscounted operating leases obligations that have not commenced as of September 30, 2019. The operating leases obligations will be recorded on our consolidated balance sheet beginning on the commencement date of each lease.


~~(6)~~	Amounts represent undiscounted finance lease obligations at September 30, 2019. The finance lease obligations recorded on our September 30, 2019 condensed consolidated balance sheet represent the present value of these amounts.


~~(7)~~	Amounts represent short-term lease obligations that are not recorded on our September 30, 2019 condensed consolidated balance 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 future rental amounts.

~~(8)~~

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 made available to us under certain of our master equipment lease agreements, which will release us from our capital commitment.

~~(9)~~

Amount represents outstanding capital commitments associated with investments in unconsolidated affiliates. As of September 30, 2019, we had outstanding capital commitments associated with investments in unconsolidated affiliates related to planned oil and gas infrastructure projects of $6.7 million, of which $6.3 million is expected to be paid in 2019. The remaining $0.4 million of these capital commitments is anticipated to be paid by May 31, 2022; however, we have excluded these capital commitments from the Contractual Obligations table because we are unable to determine the timing of the payment. Included in this amount is $6.2 million related to a partnership we formed with select investors during the year ended December 31, 2017, which is described further in ~~Recent Acquisitions, Investments and Divestitures~~ above. As of September 30, 2019, we had contributed $13.7 million to this partnership in connection with certain investments. We are not obligated to invest amounts through this partnership and are unable to determine the timing of any such investments.

The fair values of these liabilities were primarily determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate and an expected volatility factor for each acquisition. The expected volatility factor ranged from 20.4% to 30.0% and had a weighted average of 22.6% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present values of the estimated payments are discounted based on a risk-free rate and/or our cost of debt, ranging from 0.2% to 3.9% and had a weighted average of 2.1%. 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.

Our aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on performance in post-acquisition periods and accretion in present value. During the three and six months ended June 30, 2020, we recognized a net decrease of $2.2 million and a net increase of $0.5 million in the fair value of our aggregate contingent consideration liabilities. During the three and six months ended June 30, 2019 we recognized net increases of $4.4 million and $4.3 million in the fair value of our aggregate contingent consideration liabilities. These changes are reflected in “Change in fair value of contingent consideration liabilities” in our consolidated statements of operations. We made a $10.0 million interim cash payment to partially settle certain contingent consideration liabilities during the three months ended June 30, 2020 and $11.0 million of cash payments and the issuance of 4,277 shares of Quanta common stock during the six months ended June 30, 2020. The majority of the cash payments have been classified as a financing activity, with the remainder classified as an operating activity, in our condensed consolidated statements of cash flows for the three and six months ended June 30, 2020.

Undistributed Earnings of Foreign Subsidiaries and Unrecognized Tax Benefits

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 ~~$3.0~~$6.8 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~~

Letters of Credit Fees and ~~amounts of any obligations related to unrecognized tax benefits, the~~Commitment Fees

The Contractual Obligations table excludes ~~unrecognized tax benefits.~~letters of credit and commitment fees under our senior secured credit facility because the amount of outstanding letters of credit, availability and applicable fees are all variable. Assuming that the amount of letters of credit outstanding and the fees as of June 30, 2020 remained the same, the annual cash expense for our letters of credit would be approximately $4.6 million. For additional information regarding our letters of credit and the associated fees and our borrowings under our senior secured credit facility, see Liquidity and Capital Resources — Debt Instruments above.

Multiemployer Pension Plans

~~The Contractual Obligations table excludes obligations under the multiemployer pension plans in which our union employees participate.~~ Certain of our operating units are parties to collective bargaining agreements with unions that represent certain of their ~~employees. The agreements~~employees, which require the operating units to pay specified wages, provide certain benefits to union employees and contribute certain amounts to multiemployer pension plans and employee benefit trusts. Our multiemployer pension plan contribution rates generally 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 our need for union resources in connection with our ongoing projects. Therefore, we are unable to accurately predict our union employee payroll and 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~~Special funding and operational rules are generally applicable to ~~plan years beginning after 2007 for~~certain of these multiemployer plans that are classified as “endangered,” “seriously endangered” or “critical” status based on multiple factors (including, for example, the plan’s funded percentage, the plan’s cash flow position and whether the plan 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 (e.g., 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.factors. 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~~is not included in the above table due to uncertainty regarding the amount of future ~~levels of~~ work ~~that require~~involving covered union employees, ~~covered by these plans, as well as the~~ future contribution levels and possible surcharges on ~~contributions applicable to these plans.~~plan contributions.

WeFurthermore, 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~~plans, including in connection with a ~~contributor to~~withdrawal or deemed withdrawal from a ~~multiemployer plan if the employer withdraws from the~~ plan or ~~the~~a plan isbeing terminated or ~~experiences~~experiencing 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 currently aware of any material withdrawal liabilities that have been incurred or asserted and that remain ~~outstanding~~outstanding. However, our future contribution obligations and potential withdrawal liability exposure could vary based on the investment and actuarial performance of the multiemployer pension plans to which we contribute and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoing COVID-19 pandemic and related issues. We have been subject to significant withdrawal liabilities in the past, including in connection with our withdrawal from ~~a multiemployer defined benefit pension plan.~~

~~Letters~~the Central States, Southeast and Southwest Areas Pension Plan. To the extent we are subject to material withdrawal liabilities in the future, such liability could adversely affect our business, financial condition, results of ~~Credit Fees and Commitment Fees~~

The Contractual Obligations table excludes interest associated with letters of credit and commitment fees under our senior secured credit facility because the amount of outstanding letters of credit, availability and applicable interest rates and fees are all variable. Assuming that the amount of letters of credit outstanding and the interest rate as of September 30, 2019 remained the same, the annualoperations or cash interest expense for our letters of credit would be approximately $4.9 million. For additional information regarding our letters of credit and the associated interest rates and fees and our borrowings under our senior secured credit facility, see ~~Liquidity and Capital Resources~~ — ~~Debt Instruments~~ ~~above.~~flows.

Performance Bonds and Parent Guarantees

The Contractual Obligations table does not include any commitments associated with our performance bonds or parent guarantees. As of September 30, 2019, we are not aware of any material obligations for payments related to these obligations.

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.~~bonds. These bonds provide a guarantee ~~to the customer~~ that we will perform under the terms of a contract and pay our subcontractors and vendors. If we fail to perform, the customer may demand that the surety make payments or provide services under the ~~bond. We~~bond, and 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 as collateral for our obligations to the sureties. 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 credit facility. We have not been required to make any material reimbursements to our sureties for bond-related costs except ~~as set forth in~~ ~~Legal Proceedings~~ ~~in Note 11 of the Notes to Consolidated Financial Statements in Item 1.~~ ~~Financial Statements~~ in connection with the exercise of approximately $112.0 million of advance payment and performance bonds related to the terminated telecommunications project in ~~Peru. However,~~Peru, which is described further in Legal Proceedings – Peru Project Dispute in Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. To the extent further reimbursements are required, the amounts could be material and could adversely affect our consolidated business, financial condition, results of operations or cash flows. As of June 30, 2020, we are not aware of any outstanding material obligations for payments related to bond obligations.

Performance bonds expire at various times ranging from mechanical completion of a project to a period extending beyond contract completion in certain circumstances, and 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 our bonded operating activity. As of ~~September~~June 30, ~~2019,~~2020, the total amount of the outstanding performance bonds was estimated to be approximately ~~$2.7~~$3.0 billion. Our estimated maximum exposure as it relates to the value of the performance bonds outstanding is lowered on each bonded project as the cost to complete is reduced, and each commitment under a performance bond generally extinguishes concurrently with the expiration of our related contractual obligation. The estimated cost to complete these bonded projects was approximately ~~$796 million~~$1.1 billion as of ~~September~~June 30, ~~2019.~~2020.

Additionally, from time to time, we guarantee certain obligations and liabilities of our subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, joint venture arrangements and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, ~~third party~~third-party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims. We are not aware of any ~~obligations or liabilities currently asserted~~claims under any of these guarantees that are material, ~~individually or~~except as set forth in Legal Proceedings - Maurepas Project Dispute within Note 11 of the ~~aggregate. However,~~Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements. To the extent a subsidiary incurs a material obligation or liability and we have 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~~a guarantee could ~~exceed the amount recoverable from the subsidiary alone and could materially and~~ adversely affect our consolidated business, financial condition, results of operations and cash flows.

Insurance

We are insured for employer’s liability, workers’ compensation, auto liability and general liability claims. Under these third-party insurance 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, including claims up to deductiblesInsurance Coverage. Losses under 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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the gross amount accrued for insurance claims totaled ~~$280.2~~$298.4 million and ~~$272.9~~$287.6 million, with ~~$210.1~~$220.1 million and ~~$210.1~~$212.9 million considered to be long-term and included in “Insurance and other non-current liabilities.” Related insurance recoveries/receivables as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$34.8~~$31.6 million and ~~$56.5~~$35.1 million, of which ~~$0.4~~$0.3 million and $0.3 million are included in “Prepaid expenses and other current assets” and ~~$34.4~~$31.3 million and ~~$56.2~~$34.8 million are 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 based on the potential benefits considered relative to the cost of such ~~insurance.~~insurance, or coverage may not be available at reasonable and competitive rates. 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~~For example, due to the increased occurrence and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage availability and increased the cost of insurance coverage for such events in recent years. As a result, our level of insurance coverage for wildfire events decreased, including in connection with our annual insurance renewals in the spring of 2020 and 2019, and our levels of coverage may not be sufficient to cover potential losses. Our third-party insurers could also decide to further reduce or exclude coverage for wildfires or other events in the future.

this matter. However, the ultimate amount of liability in connection with this matter remains subject to uncertainties associated with pending litigation, including, among other things, the apportionment of liability among the defendants and other responsible parties and the likelihood and amount of potential damages claims. As a result, this matter could result in a loss that is in excess of, or not covered by, such insurance or contractual remedies, which could have a material adverse effect on our consolidated results of operations and cash flows.

Contingent Consideration Liabilities

The Contractual Obligations table excludes acquisition-related contingent consideration associated with certain acquisitions, the payment of which is contingent upon the achievement of certain performance objectives 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 of the acquired businesses and are estimated by management based on entity-specific assumptions that are evaluated on an ongoing basis. Because acquisition-related contingent consideration liabilities are contingent upon future events, we include these liabilities in the ~~Contractual Obligations~~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.

Aggregate fair values of these outstanding and unearned contingent consideration liabilities and their classification in the ~~Condensed~~ Consolidated Balance Sheets in Item 1. Financial Statements were as follows (in thousands):


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Accounts payable and accrued expenses	$	70,982	$	—	$	68,466	$	77,618
Insurance and other non-current liabilities	8,438		70,756		7,304		6,542
Total contingent consideration liabilities	$	79,420	$	70,756	$	75,770	$	84,160

The fair values of these liabilities 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~~factor ranged from ~~22.2%~~20.4% to 30.0% and had a weighted average of 22.6% based on historical asset volatility of selected guideline public companies. Depending on contingent consideration payment terms, the present values of the estimated payments are discounted based on a risk-free rate and/or our cost of debt, ranging from ~~2.1%~~0.2% to 3.9% and had a weighted average of 2.1%. 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 outstanding payment amount, which aggregated to ~~$153.0~~$148.5 million ~~as of September~~for those liabilities whose measurement periods end subsequent to June 30, ~~2019.~~2020. One contingent consideration liability is not subject to a maximum ~~payout~~payment amount, and ~~that~~such liability had a fair value of $1.0 million as of ~~September~~June 30, ~~2019.~~2020.

Our aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on ~~forecasted~~ performance in post-acquisition periods and accretion in present value. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized a net ~~increases~~decrease of $2.2 million and a net increase of $0.5 million in the fair value of our aggregate contingent consideration ~~liabilities of $3.8 million and $8.1 million.~~liabilities. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019 we recognized net ~~decreases~~increases of $4.4 million and $4.3 million in the fair value of our aggregate contingent consideration ~~liabilities of $1.4 million and $7.7 million.~~liabilities. These changes are reflected in “Change in fair value of contingent consideration liabilities” in our consolidated statements of operations. We made a $10.0 million interim cash payment to partially settle certain contingent consideration liabilities during the three months ended June 30, 2020 and $11.0 million of cash payments and the issuance of 4,277 shares of Quanta common stock during the six months ended June 30, 2020. The majority of the cash payments have been classified as a financing activity, with the remainder classified as an operating activity, in our condensed consolidated statements of ~~operations.~~cash flows for the three and six months ended June 30, 2020.

~~Concentrations~~Undistributed Earnings of ~~Credit Risk~~Foreign Subsidiaries and Unrecognized Tax Benefits

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 ~~concentrations of credit risk related primarily~~additional foreign withholding taxes if we were to ~~our~~repatriate 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~~that is indefinitely reinvested outside 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. AlthoughUnited States, but we do not ~~currently~~expect such amounts to be material.

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 ~~principal amount of these cash and cash equivalents is subject~~next 12 months unrecognized tax benefits may decrease by up 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 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$6.8 million as a result of ~~uncertain economic and financial market conditions that have existed in recent years. However, we generally have certain statutory lien rights with respect to services provided. Some~~settlement of ~~our customers have experienced significant financial difficulties (including bankruptcy), and customers may experience financial difficulties in~~these examinations or 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.~~

On January 29, 2019, PG&E Corporation and its primary operating subsidiary, Pacific Gas and Electric Company (collectively PG&E), one of our largest customers, 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 $165 million of billed and unbilled receivables, $54 million of which remained unpaid as of September 30, 2019. Subsequent to the bankruptcy filing, the bankruptcy court approved the assumption by PG&Eexpiration of certain ~~contracts with subsidiaries~~statute of ~~Quanta, which authorized PG&E to pay approximately $122 million~~limitations periods.

Letters of ~~pre-petition receivables, $111 million~~Credit Fees and Commitment Fees

The Contractual Obligations table excludes letters of which has been received as of September 30, 2019. We also believe we will ultimately collect the approximately $43 million of pre-petition receivables that were not assumed by PG&E, which amount has been classified as non-current within “Other assets, net” incredit and commitment fees under our condensed consolidated balance sheet as of September 30, 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 thansenior secured credit facility because the amount of outstanding letters of credit, availability and applicable fees are all variable. Assuming that the ~~remaining receivables. Additionally,~~amount of letters of credit outstanding and the fees as of June 30, 2020 remained the same, the annual cash expense for our letters of credit would be approximately $4.6 million. For additional information regarding our letters of credit and the associated fees and our borrowings under our senior secured credit facility, see Liquidity and Capital Resources — Debt Instruments above.

Off-Balance Sheet Transactions

As is common in our industry, 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~~have entered into certain off-balance sheet arrangements in the ordinary course of ~~business.~~

~~PG&E, which is within~~business that result in risks not directly reflected in our ~~Electric Power Infrastructure Services segment, represented 10.5%~~balance sheets. Our significant off-balance sheet transactions include certain obligations relating to our investments and joint venture arrangements; short-term, non-cancelable leases; letters of ~~our consolidated revenues~~credit obligations; surety guarantees related to performance bonds; committed expenditures for the ~~nine months ended September 30, 2019~~purchase of equipment; and represented 11.6% of our consolidated net receivable position at September 30, 2019. No customer represented 10% or more of our consolidated revenues for the three months ended September 30, 2019 or for the three and nine months ended September 30, 2018, and no customer represented 10% or more of our consolidated net receivable position at December 31, 2018.

~~Insurance and Indemnity Matters~~

certain multiemployer pension plan liabilities. See ~~Project Insurance Claim.~~Contractual Obligations ~~In June 2018, while performing a horizontal directional drill~~above and installing an underground gas pipeline, one of our subsidiaries experienced a partial collapse of a borehole. Subsequent to the incident, we have worked with our customer to mitigate the impact of the incident and to substantially complete the project. As required by the contract, the customer procured certain insurance coverage for the project, with our subsidiaries as additional insureds. We are working collaboratively with the customer to pursue insurance claims with the customer’s insurance carriers. The insurers have preliminarily acknowledged coverage for the incident; however, the amount of coverage is subject to further negotiation and, to the extent necessary, litigation. To the extent we are not successful in recovering the full amount of the insurance claims we are pursuing, we plan to pursue contractual relief from the customer.

As of September 30, 2019, we had recorded a receivable of $81.5 million in accordance with GAAP related to accounting for insurance claims and potential recoveries. The amount represents a portion of the total insurance claims being pursued by us, which amounted to approximately $144 million as of such date. To the extent we are unsuccessful in realizing insurance or contractual recoveries, additional charges to operating results, which could be material, would be required.

~~Hallen Acquisition Assumed Liability. As discussed in further detail in Note 11 of the Notes to Consolidated Financial Statements in Item 1.~~ ~~Financial Statements~~ of Part I, we assumed certain contingent liabilities in connection with the acquisition of Hallen. Hallen’s potential liabilities associated with this matter are expected to be covered under applicable insurance policies or contractual remedies negotiated by us with the former owners of Hallen. As of September 30, 2019, we had not recorded an accrual for any probable and estimable loss related to this matter. However, the ultimate amount of liability in connection with this matter remains subject to uncertainties associated with pending litigation, including, among other things, the apportionment of liability among the defendants and the likelihood and amount of potential damages claims. As a result, this matter could result in a loss that is in excess of, or not covered by, such insurance or contractual remedies, which could have a material adverse effect on our consolidated results of operations and cash flows.

~~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 Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statementsfor a description of ~~Part I for additional information regarding litigation, claims and other legal proceedings.~~these arrangements.

~~Related Party Transactions~~

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

Critical Accounting Estimates and Policies Update

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect ~~among other things,~~ the reported amounts of assets ~~liabilities, revenues,~~ and ~~expenses, as well as~~liabilities, disclosures of contingent assets and liabilities known to exist as of the date the condensed consolidated financial statements are ~~published. Our~~published and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our condensed consolidated financial statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our 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. There can be no assurance that actual results will not differ from those estimates. Management has reviewed its development and selection of critical accounting estimates with the audit committee of our Board of Directors. Our accounting policies are primarily described in Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements and should be read in conjunction with our critical accounting estimates detailed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our ~~2018~~2019 Annual Report. Significant changes to our critical accounting policies as a result of adopting new guidance related to ~~leases~~credit losses effective January 1, ~~2019~~2020 are referenced below:

~~Leases~~

Revenue Recognition - See ~~Leases~~Current and Long-Term Accounts Receivable, Notes Receivable and Allowance for Credit Losses 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 accounting standard related to ~~leases.~~current expected credit losses.

~~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 services in both our Electric Power Infrastructure Services and Pipeline and Industrial Infrastructure Services segments, and we believe both segments are generally in a 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. 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, 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.

~~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, the electric power industry is required 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 traditional energy sources (e.g., natural gas) and renewable energy sources (e.g., solar and wind), would necessitate new or expanded transmission infrastructure to transport power to demand centers. Furthermore, we anticipate that the amount of electricity generated by natural gas-powered facilities will continue to increase as compared to coal-powered facilities, based on access to low cost natural gas resources from unconventional shale formations in the United States and Canada and the more favorable environmental characteristics of natural gas. To the extent this dynamic continues, transmission and substation infrastructure will be needed to interconnect these new 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 western U.S. 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 somewhat by regulatory and permitting delays, particularly for larger transmission projects, and unfavorable economic and market conditions in Canada. We anticipate many of these issues to subside over the long term, and we expect this segment’s backlog to remain strong during 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 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 military and unions; the expansion and development of our training facility, which provides classroom and on-the-job training programs; and the development of our postsecondary educational institution, which specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, and 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 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. In North America, communications providers are also 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 small cells to provide 5G services. As a result of these near- and longer-term industry trends, we believe there will be meaningful demand for our services. While we also continue to perform certain communications services in Latin America and believe the drivers mentioned above are generally present, we are currently evaluating whether additional opportunities in that market align with our long-term strategy, both in terms of expected profitability and risk profile.

~~Pipeline and Industrial Infrastructure Services Segment~~

We continue to see growth opportunities in our Pipeline and 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 associated facilities, and horizontal directional drilling. We have experienced an increase in demand for our natural gas distribution services as a result of improved economic conditions, lower natural gas prices, regulatory requirements and customer desire to upgrade and replace aging infrastructure, which is also being driven by regulatory requirements. 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, are expected to have favorable near-term industry drivers and longer-term opportunities. Additionally, a number of larger pipeline projects from the North American shale formations and Canadian oil sands to power plants, refineries, liquefied natural gas (LNG) export facilities 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.

Furthermore, due to its abundant supply and current low price, we believe demand for North American natural gas will continue to increase in the future and that natural gas will 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 affordable natural gas in the United States, Canada and Australia has resulted in efforts to develop 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.

Despite these positive trends, regulatory and environmental permitting challenges and political and legal challenges have caused the delay of some larger pipeline projects during the past several years. These dynamics have negatively impacted our segment margins in certain recent periods, 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.

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 occurred in 2014 and 2015. 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 or remain at lower levels over the long term, our outlook may change and demand for our services could be materially impacted.

Overall, we remain optimistic about this segment’s operations. 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, in order to potentially mitigate 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.

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

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

Expectations regarding our business or financial ~~outlook, growth,~~outlook;

Expectations regarding opportunities, trends ~~or opportunities~~and economic and regulatory conditions in particular ~~markets;~~markets or industries;

Expectations regarding the COVID-19 pandemic, including the potential impact of the COVID-19 pandemic and of governmental responses to the pandemic on our business, operations, supply chain, personnel, financial condition, results of operations, cash flows and liquidity;

Expectations regarding our plans and strategies, including plans, effects and other matters relating to the COVID-19 pandemic and our exit, through potential sale or otherwise, from our Latin American operations;

The business plans or financial condition of our customers, including with respect to or as a result of the COVID-19 pandemic;

The potential impact of commodity prices and commodity production volumes on our business, financial condition, results of operations and cash flows and demand for our services;

The potential benefits from, and future performance of, acquired businesses and our investments, including LUMA;

Beliefs and assumptions about the collectability of receivables;

The expected value of contracts or intended contracts with ~~customers;~~

~~The~~customers, as well as the scope, services, term or results of any ~~projects~~ awarded or expected ~~to be awarded to us;~~

projects;

The development of and opportunities with respect to future projects, including renewable energy projects and larger electric transmission and pipeline ~~projects, 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;~~projects;

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

The impact of existing or potential legislation or regulation;

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

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

The expected realization of remaining performance obligations or backlog;

The ~~potential benefits from investments or acquisitions;~~

~~The~~ expected outcome of pending or threatened legal proceedings;

~~Beliefs~~ and ~~assumptions about the collectability of receivables;~~

~~The business plans or financial condition of our customers;~~

~~Our plans and strategies;~~

Possible recovery of pending or contemplated insurance claims, change orders and claims asserted against customers or third ~~parties; and~~parties.

~~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 are beyond our control, and reflect management’s beliefs and assumptions based on information available at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements and that any or all of our forward-looking statements may turn out to be inaccurate or incorrect. Those statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties, including the following:

Market, ~~conditions;~~

~~The effects of~~ industry, economic, financial or political conditions outside our control, including weakness in the capital markets or ~~any actual or~~the ongoing and potential ~~shutdown, sequester, default or similar event or occurrence involving~~impact to financial markets and worldwide economic activity resulting from the ~~U.S. federal government;~~COVID-19 pandemic and related governmental actions;

Quarterly variations in our operating and financial results, liquidity, financial condition, cash flows, capital requirements, and reinvestment ~~opportunities;~~opportunities, including the ongoing and potential impact to our business, operations and supply chains resulting from the COVID-19 pandemic and related governmental actions;

The severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of business and governmental responses to the pandemic (e.g., shelter-in-place and other mobility restrictions, business closures) on our operations, personnel and supply chains, and on commercial activity and demand across our and our customers’ businesses;

Our inability to predict the extent to which the COVID-19 pandemic and related impacts will adversely impact our business, financial performance, results of operations, financial position, the prices of our securities and the achievement of our strategic objectives, including with respect to governmental restrictions on our ability to operate, workforce and key personnel availability, regulatory and permitting delays, and future demand for energy and the resulting impact on demand for our services;

Trends and growth opportunities in relevant ~~markets;~~markets, including our ability to obtain future project awards;

The time and costs required to exit our Latin American operations and our ability to effect related transactions on acceptable terms, as well as the business and political climate in Latin America;

Delays, deferrals, reductions in scope or cancellations of anticipated, pending or existing projects ~~including~~ as a result of, among other things, the COVID-19 pandemic, weather, regulatory or permitting issues (including the recent court ruling vacating the U.S. Army Corps of Engineers’ Nationwide Permit 12), environmental processes, project performance issues, claimed force majeure events, protests or other political activity, legal challenges, reductions or eliminations in governmental funding or customer capital constraints;

The effect of commodity prices and commodity production volumes on our operations and growth opportunities and on our customers’ capital programs and demand for our services, including as a result of the recent significant decrease in commodity prices;

The successful negotiation, execution, performance and completion of anticipated, pending and existing ~~contracts, 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;~~

~~Adverse weather conditions or 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;~~operate, including, among others, wildfires and explosions;

Unexpected costs, liabilities, fines or penalties that may arise from legal proceedings, indemnity obligations, reimbursement obligations associated with letters of credit or bonds, multiemployer pension plans (e.g., underfunding of liabilities, termination or withdrawal liability) or other claims or actions asserted against us, including amounts that are not covered by, or are in excess of, our third-party insurance;

Potential unavailability or cancellation of third-party insurance coverage, as well as the exclusion of coverage for certain losses, potential increases in premiums for coverage deemed beneficial to us, or the unavailability of coverage deemed beneficial to us at reasonable and competitive rates;

Damage to our brands or reputation arising as a result of cyber-security breaches, environmental and occupational health and safety matters, corporate scandal, failure to successfully perform a high-profile project, involvement in a catastrophic event (e.g., fire, explosion) or other negative incidents;

Our dependence on suppliers, subcontractors, equipment manufacturers and other third-party contractors and the impact of the COVID-19 pandemic on these service providers;

Estimates and assumptions related to our financial results, remaining performance obligations and backlog;

Our ability to attract and the potential shortage of skilled employees and our ability to retain key personnel and qualified employees and the impact of the COVID-19 pandemic on the availability and performance of our workforce and key personnel;

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

Adverse weather conditions, natural disasters and other emergencies, including wildfires, pandemics (including the ongoing COVID-19 pandemic), hurricanes, tropical storms, floods, earthquakes and other geological- and weather-related hazards;

Our ability to generate internal growth;

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

~~The 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;~~share

The future development of natural resources;

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

Fluctuations of prices of certain materials used in our ~~business,~~and our customers’ businesses, including as a result of the imposition of tariffs, orgovernmental regulations affecting the sourcing of certain materials and equipment and other changes in U.S. trade relationships with other countries;

Unexpected costs or liabilities that may arise from pending or threatened legal proceedings, indemnity obligations, reimbursement obligations associated with letters of credit or bonds or other claims or actions asserted against us, including liabilities, costs, fines or penalties for which we are not covered by, or are in excess of, our third-party insurance;

~~Liabilities associated with multiemployer pension plans, including underfunding of liabilities and termination or withdrawal liabilities;~~

~~The outcome of pending or threatened legal proceedings;~~

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 or third-party contractors to pay for services, ~~including~~which could be attributable to, among other things, the COVID-19 pandemic or the recent decrease in commodity prices and which could include the failure to collect our outstanding receivables, ~~or the~~ failure to recover amounts billed to customers in ~~bankruptcy;~~

~~The~~bankruptcy, or failure to recover on ~~payment claims against project owners~~change orders 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;~~

contract claims;

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

~~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, and compliance with unfamiliar foreign legal systems and cultural practices, the U.S. Foreign Corrupt Practices Act and other applicable anti-bribery and anti-corruption laws, and complex U.S. and foreign tax regulations and international treaties;

Our ability to successfully identify, complete, integrate and realize synergies from ~~acquisitions;~~acquisitions, including the ability to retain key personnel from acquired businesses;

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;

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;

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, including our ability to access capital markets on favorable ~~terms;~~terms, as well as fluctuations in the price and trading volume of our common stock, debt covenant compliance, interest rate fluctuations and other factors affecting our financing and investing activities;

Our ability to obtain performance bonds and other project security;

Our ability to meet the regulatory requirements applicable to us and our subsidiaries, including the Sarbanes-Oxley Act of ~~2002;~~2002 and the U.S. Investment Advisers Act of 1940;

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

Risks related to the implementation of new information technology systems;

New or changed tax laws, treaties or regulations;

Our ability to realize deferred tax assets;

Legislative or 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 II of this Quarterly Report, Item 1A. Risk Factors of Part I of our ~~2018~~2019 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 ~~2018~~2019 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. 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, we grant credit under normal payment terms, generally without collateral, and therefore are subject to potential credit risk related to our customers’ inability to pay for services provided. For example, in January 2019 one of our largest 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.~~conditions, including in connection with the ongoing COVID-19 pandemic and the significant

decline in commodity prices and volatility in commodity production volumes. 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, and we perform ongoing credit risk assessments of our customers and financial institutions and in some cases obtain collateral or other security from our customers.

Interest Rate Risk. As of ~~September~~June 30, ~~2019,~~2020, 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 ~~September~~June 30, ~~2019,~~2020, the fair value of our variable rate debt of ~~$1.87~~$1.36 billion approximated book value. Our weighted average interest rate on our variable rate debt for the three months ended ~~September~~June 30, ~~2019~~2020 was ~~3.86%~~1.65%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately ~~$9.3~~$6.8 million based on our ~~September~~June 30, ~~2019~~2020 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,~~Australia, 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 ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, revenues from our foreign operations accounted for ~~14.3%~~11.9% and ~~15.2%~~15.1% of our consolidated revenues. Fluctuations in foreign exchange rates during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 caused ~~a decrease~~decreases of approximately ~~$10~~$13 million and ~~$54~~$22 million in foreign revenues compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

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 ~~September~~June 30, ~~2019.~~2020.

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 ~~$24.5~~$50.5 million as of ~~September~~June 30, ~~2019,~~2020, an assumed 5% adverse change to foreign exchange rates would result in a fair value decline of ~~$0.8~~$2.2 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 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 ~~September~~June 30, ~~2019~~2020, our disclosure controls and procedures were effective to provide reasonable assurance of achieving their objectives.

Evaluation of Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended ~~September~~June 30, ~~2019~~2020 that has materially affected, or is 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 Note 11 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report, which is incorporated by reference in this Item 1, for additional information regarding litigation, claims and other legal proceedings.

Item 1A. Risk Factors.

Our business is subject to a variety of risks and uncertainties that are difficult to predict and many of which are outside of our control. For a detailed discussion of the risks that affect our business, refer to Item 1A. Risk Factors of Part I of our 2019 Annual Report. As of the date of this filing, there have been no material changes ~~from~~to the risk factors previously ~~disclosed in Item 1A.~~ ~~Risk Factors~~ ~~of Part I of our 2018 Annual Report. Our business is subject to a variety of risks and uncertainties, and when considering an investment~~described in our ~~company, you should carefully consider all~~2019 Annual Report, except as set forth below and except that the potential effects of the ~~risk factors~~COVID-19 pandemic may also have the effect of heightening many of the other risks described ~~herein and~~ in our ~~2018~~2019 Annual ~~Report.~~ Report

The matters specifically identified are not the only risks and uncertainties facing our company, and additional risks and uncertainties not known to us or not specifically identified may also impair our business. If any of these risks and uncertainties occur, our business, financial condition, results of operations and cash flows could be negatively impacted, which could negatively impact the value of an investment in our company.

The effectsof the COVID-19 pandemic and related economic repercussions have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will negatively impact our future results of operations and overall financial performance remains uncertain.

The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. We have experienced some resulting disruptions to our business operations, and we expect the COVID-19 pandemic could continue to have a material adverse impact on our business and financial performance. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and severity of the pandemic and the resulting governmental and other measures implemented to address the pandemic, which are uncertain and cannot be predicted.

We have been negatively impacted by the COVID-19 pandemic as a result of the shelter-in-place restrictions in some of our service areas creating disruptions to portions of our operations, particularly in major metropolitan markets that have been meaningfully impacted by the pandemic. We have also experienced permitting and regulatory delays attributable to the COVID-19 pandemic. Restrictions on operations related to industrial facilities have also resulted in suspensions and delays related to our high-pressure and critical-path turnaround services to the downstream and midstream energy markets. In addition to these current dynamics, the COVID-19 pandemic may create or exacerbate risks related to our operations and regulatory and compliance matters, including as a result of:

evolving governmental guidance or requirements, including travel and movement restrictions, that continue to impact our ability to perform services or complete projects in accordance with required delivery schedules, which could result in additional costs or penalties (e.g., liquidated damages);

additional delays with respect to permitting and regulatory matters;

additional project deferrals, delays, and cancellations and changes in customer spending patterns and strategic plans as a result of, among other things, prolonged decreases in energy demand, lack of available financing for our customers’ businesses or termination of, or force majeure events arising under existing customer agreements;

governmental guidance or requirements, including work-from-home policies, or potential illness that negatively impact the availability or productivity of our key personnel or a significant number of employees or cause other disruptions to our business, corporate governance or financial reporting processes;

increased payment risk associated with customers experiencing financial difficulties (including bankruptcy) and an increase in disputes with customers relating to billing and payment under contracts and change orders;

potential liabilities and reputational harm related to occupational health and safety matters associated with COVID-19;

our inability to execute our business strategy, including with respect to certain capital investments such as acquisitions, investments and service offering expansions;

limitations on the ability of our suppliers, vendors and subcontractors to perform;

asset impairment charges related to property and equipment, goodwill, other intangible assets, other long-lived assets and investments;

additional costs associated with restructuring, severance and related matters, potential mandated increases in pay for critical infrastructure workers or other increased employment-related costs (e.g., workers’ compensation insurance claims); and

an increase in cyber-attacks and attempted intrusions into our information technology systems as a result of, among other things, increased reliance on such systems.

Additionally, oil demand has significantly deteriorated as a result of the COVID-19 pandemic and corresponding preventative measures taken around the world to mitigate the spread of the COVID-19. At the same time, prior increases in production of oil by certain producers created a significant surplus in the supply of oil. The impact of these events has resulted in downward pressure on commodity prices, which has negatively impacted, and may continue to negatively impact, certain services within our Pipeline and Industrial Infrastructure Services segment. Lower commodity prices and production volumes, or perceived risk thereof, can also result in decreased or delayed spending by our customers, including with respect to larger pipeline and industrial projects. A decline in commodity prices, production or the development of resource plays can also negatively impact certain portions of our Electric Power Infrastructure Services segment.

Furthermore, given the uncertain duration of the COVID-19 pandemic, we may face potential challenges related to financing our business in the future. These challenges could arise due to fluctuations in economic, political and market conditions that limit our ability to increase the current commitments under our senior secured credit facility, which is dependent on additional commitments from our lenders, or otherwise secure adequate financing on acceptable terms. Additionally, due to extreme market volatility, there is a risk that we may not be able to access capital markets to obtain financing.

As a result of these factors, the extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. At this point, we cannot reasonably estimate the duration and severity of the COVID-19 pandemic, or its ultimate impact on our business, financial condition, results of operations or cash flows.


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

Unregistered Sales of Equity Securities

None.

~~On August 5, 2019,~~However, subsequent to June 30, 2020, we completed an acquisition in which a portion of the consideration ~~for the acquisition~~ consisted of the unregistered issuance of shares of our common stock. The aggregate consideration paid at closing in this acquisition included ~~60,860~~296,271 shares of our common ~~stock valued at approximately $1.8 million as of the acquisition date.~~stock. For additional information about this acquisition, ~~including additional consideration,~~ see Note 4 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report. 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 owners of the business acquired in a privately negotiated transaction not involving any public offering or solicitation.

Issuer Purchases of Equity Securities During the ~~Third~~Second Quarter of ~~2019~~2020

The following table contains information about our purchases of equity securities during the three months ended ~~September~~June 30, ~~2019.~~2020.


Period	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⁾		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⁾
July 1 - 31, 2019
April 1 - 30, 2020
Open Market Stock Repurchases ⁽¹⁾	—	$	—	—	$	286,756,122	—	$	—	—	$	86,756,136
Tax Withholdings ⁽²⁾	6,672	$	37.84	—			—	$	—	—
August 1 - 31, 2019
May 1 - 31, 2020
Open Market Stock Repurchases ⁽¹⁾	—	$	—	—	$	286,756,122	—	$	—	—	$	86,756,136
Tax Withholdings ⁽²⁾	11,035	$	32.68	—			10,752	$	34.06	—
September 1 - 30, 2019
June 1 - 30, 2020
Open Market Stock Repurchases ⁽¹⁾	—	$	—	—	$	286,756,122	—	$	—	—	$	86,756,136
Tax Withholdings ⁽²⁾							2,532	$	38.26	—
Total	17,707			—	$	286,756,122	13,284			—	$	86,756,136

(1)

Includes shares repurchased as of the trade date of such repurchases. On September 4, 2018, we issued a press release announcing that our Board of Directors approved a stock repurchase program that authorizes us to purchase, from time to time through June 30, 2021, up to $500.0 million of our outstanding common stock. Additionally, on August 6, 2020, we issued a press release announcing that our Board of Directors approved a stock repurchase program that authorizes us to purchase, from time to time through June 30, 2023, up to an additional $500.0 million of our outstanding common stock. Repurchases under ~~this program~~these programs 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~~These programs do not obligate us to acquire any specific amount of common stock and may be modified or terminated by our Board of Directors at any time at its sole discretion and without notice.


(2)	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.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

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		Bylaws of Quanta Services, Inc., as amended and restated December 6, 2018 (previously filed as Exhibit 3.1 to the Company’s Form 8-K filed December 11, 2018 and incorporated herein by reference)
10.1	^*	~~Consulting Agreement dated August 12, 2019,~~Director Compensation Summary, revised as of May 27, 2020 and effective as of ~~August 1, 2019, by and between Jesse E. Morris and Quanta Services, Inc.~~
~~10.2~~	^*	~~Amendment No. 1 to Amended and Restated Indemnity Agreement dated August 12, 2019, effective as of August 1, 2019, by and between Quanta Services, Inc. and Jesse E. Morris~~
~~10.3~~		Incremental Term Loan Amendment and Fifth Amendment to Fourth Amended and Restated Credit Agreement and Omnibus Amendment to Loan Documents, dated as of September 6, 2019, among Quanta Services, Inc. and certain subsidiaries of Quanta Services, Inc., as Borrowers, certain subsidiaries of Quanta Services, Inc. identified therein as Guarantors, the lenders party thereto, Bank of America, N.A., as Administrative Agent, and the L/C Issuers party theretoMay 28, 2020 (previously filed as Exhibit ~~10.6~~10.1 to the ~~Company's~~Company’s Form 8-K filed ~~September 9, 2019~~June 2, 2020 and incorporated herein by reference)
~~10.4~~	*	Incremental Revolving Credit Increase Agreement and Lender Joinder Agreement, dated as of September 12, 2019, among Quanta Services, Inc. and certain subsidiaries of Quanta Services, Inc., as Borrowers, certain subsidiaries of Quanta Services, Inc. identified therein as Guarantors, BNP Paribas, the Swing Line Lenders and L/C Issuers party thereto and Bank of America, N.A., as Administrative Agent
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	*	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Equity and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and with detailed tags
104	*	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL (included as Exhibit 101)



^	~~Management contracts or compensatory plans or arrangements~~
*	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: ~~November 1, 2019~~August 7, 2020

8082



	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



	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